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iQSTEL Inc - Quarter Report: 2022 June (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 June 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: 151,530,378 common shares as of August 15, 2022

 

  
Table of Contents 

 

 

 

 

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 8
Item 4: Controls and Procedures 8

 

PART II – OTHER INFORMATION

 

Item 1: Legal Proceedings 9
Item 1A: Risk Factors 9
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 9
Item 3: Defaults Upon Senior Securities 9
Item 4: Mine Safety Disclosures 9
Item 5: Other Information 9
Item 6: Exhibits 10

 

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PART I - FINANCIAL INFORMATION

 

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 June 30, 2022 (unaudited) and December 31, 2021;
F-2 Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021 (unaudited);
F-3 Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (unaudited); and
F-4 Consolidated Statements of Stockholder’s Equity as of June 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 June 30, 2022 are not necessarily indicative of the results that can be expected for the full year.

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iQSTEL INC

Consolidated Balance Sheets

 (Unaudited)

  

   June 30,  December 31,
   2022  2021
ASSETS      
Current Assets          
Cash  $1,645,937   $3,334,813 
Accounts receivable, net   4,303,010    2,540,515 
Due from related parties   375,955    424,086 
Prepaid and other current assets   493,539    267,110 
Total Current Assets   6,818,441    6,566,524 
           
Property and equipment, net   386,707    409,382 
Intangible asset   99,592    99,592 
Goodwill   5,172,146    1,537,742 
Deferred tax assets   426,664    446,402 
TOTAL ASSETS  $12,903,550   $9,059,642 
           
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)          
Current Liabilities          
Accounts payable   2,517,086    1,474,595 
Due to related parties   26,613    26,613 
Loans payable - net of discount of $0 and $7,406   96,185    315,450 
Loans payable - related parties   228,727    239,308 
Other current liabilities   658,131    307,049 
Stock payable   80,674       
Total Current Liabilities   3,607,416    2,363,015 
           
Loans payable, non-current   104,840    119,295 
Employee benefits, non-current   149,518    156,434 
TOTAL LIABILITIES   3,861,774    2,638,744 
           
Stockholders' Equity          
Preferred stock: 1,200,000 authorized; $0.001 par value          
Series A Preferred stock: 10,000 designated; $0.001 par value,
10,000 shares issued and outstanding, respectively
   10    10 
Series B Preferred stock: 200,000 designated; $0.001 par value,
21,000 shares issued and outstanding
   21    21 
Series C Preferred stock: 200,000 designated; $0.001 par value, No shares issued and outstanding            
Common stock: 300,000,000 authorized; $0.001 par value
151,559,011 and 147,477,358 shares issued and outstanding, respectively
   151,559    147,477 
Additional paid in capital   29,304,429    25,842,982 
Accumulated deficit   (19,443,071)   (18,536,921)
Accumulated other comprehensive loss   (37,376)   (36,658)
Equity attributed to stockholders of iQSTEL Inc.   9,975,572    7,416,911 
Deficit attributable to noncontrolling interests   (933,796)   (996,013)
Total Stockholders' Equity   9,041,776    6,420,898 
           
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $12,903,550   $9,059,642 

 

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

 

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iQSTEL INC

Consolidated Statements of Operations

 (Unaudited) 

                                 
   Three Months Ended  Six Months Ended
   June 30,  June 30,
   2022  2021  2022  2021
             
Revenues  $23,699,716   $16,128,367   $43,119,027   $30,325,978 
Cost of revenue   22,853,442    16,083,802    41,788,693    29,794,043 
Gross profit   846,274    44,565    1,330,334    531,935 
                     
Operating expenses                    
General and administration   1,144,452    1,209,167    2,133,950    2,707,278 
Total operating expenses   1,144,452    1,209,167    2,133,950    2,707,278 
                     
Operating loss   (298,178)   (1,164,602)   (803,616)   (2,175,343)
                     
Other income (expense)                    
Other income   6,432    4,145    (4,628)   29,179 
Other expenses   10,125    (427)   16,780    (896)
Interest expense   (3,836)   (12,062)   (18,724)   (642,087)
Change in fair value of derivative liabilities         39,505          317,080 
Gain (loss) on settlement of debt         11,069          (528,794)
Total other income (expense)   12,721    42,230    (6,572)   (825,518)
                     
Net loss before provision for income taxes   (285,457)   (1,122,372)   (810,188)   (3,000,861)
Income taxes                        
Net loss   (285,457)   (1,122,372)   (810,188)   (3,000,861)
Less: Net income (loss) attributable to noncontrolling interests   65,723    (134,996)   95,962    (71,094)
Net loss attributed to stockholders of iQSTEL Inc.  $(351,180)  $(987,376)  $(906,150)  $(2,929,767)
                     
Comprehensive income (loss)                    
Net loss  $(285,457)  $(1,122,372)  $(810,188)  $(3,000,861)
Foreign currency adjustment   (1,023)   (56,664)   (1,407)   50,992 
Total comprehensive loss   (286,480)  $(1,179,036)  $(811,595)  $(2,949,869)
Less: Comprehensive income (loss) attributable to noncontrolling interests   65,222    (162,761)   95,273    (46,108)
Net comprehensive loss attributed to stockholders of iQSTEL Inc.  $(351,702)  $(1,016,275)  $(906,868)  $(2,903,761)
                     
Basic and diluted loss per common share  $(0.00)  $(0.01)  $(0.01)  $(0.02)
                     
Weighted average number of common shares outstanding - Basic and diluted   150,835,665    139,078,656    149,196,728    128,840,922 

  

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

  

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iQSTEL INC

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

For the three and six months ended June 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’ Deficit
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)   (3840
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
Issuance of common stock purchase option                                       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

 

 

 

 

    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 Shareholders’ 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 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

 

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

   

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iQSTEL INC

Consolidated Statements of Cash Flows

 (Unaudited)  

                 
   Six Months Ended
   June 30,
   2022  2021
       
 CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(810,188)  $(3,000,861)
Adjustments to reconcile net loss to net cash used in operating activities:          
Stock based compensation   90,529    1,170,796 
Depreciation and amortization   62,371    42,421 
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   (910,284)   (784,128)
Prepaid and other current assets   (6,977)   (130,278)
Due from related party   47,832       
Accounts payable   49,794    (31,917)
Other current liabilities   34,224    (129,121)
Net cash used in operating activities   (1,435,292)   (2,093,398)
           
 CASH FLOWS FROM INVESTING ACTIVITIES:          
Acquisition of subsidiaries, net   (1,564,132)   (60,000)
Purchase of property and equipment   (47,223)   (68,844)
Payment of loan receivable - related party   (1,000)   (24,220)
Collection of amounts due from related parties   100    200 
Net cash used in investing activities   (1,612,255)   (152,864)
           
 CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from loans payable         400,000 
Repayments of loans payable   (232,018)   (321,609)
Repayment of loans payable - related parties         (60,787)
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    3,353,854 
           
 Effect of exchange rate changes on cash   (9,311)   (11,438)
           
 Net change in cash   (1,688,876)   1,096,154 
 Cash, beginning of period   3,334,813    753,316 
 Cash, end of period  $1,645,937   $1,849,470 
           
 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  $325,000   $   
Cmmon stock issued and to be issued for acquisition of suobsidiaries  $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  $     $2,056,530 
Preferred stock issued for conversion of common stock  $     $21 

 

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

 

 

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iQSTEL INC

Notes to the Unaudited Consolidated Financial Statements

June 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 financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of June 30, 2022 and the results of operations and cash flows for the periods presented. The results of operations for the six months ended June 30, 2022 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, 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 and Smartbiz Telecom LLC. All significant intercompany balances and transactions have been eliminated in consolidation.

 

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.

 

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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 six months ended June 30, 2022 and 2021, the Company did not record bad debt expense.

 

Net Income (Loss) Per Share of Common Stock

 

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 no potentially dilutive shares of common stock outstanding for the six months ended June 30, 2022 and 2021.

 

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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 six months ended June 30, 2022, 8 customers represented 87% of our revenues. During the six months ended June 30, 2021, 5 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.

 

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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 holds 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. The Company 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. The Company 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. The Company 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 1,461,653 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 2,850,330 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 
2,850,330 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 

 

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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 six months ended June 30, 2022 and 2021 as though the Company acquired Smartbiz and Whisl on January 1, 2020, are set forth below:

                 
   Six Months Ended
   June 30,
   2022  2021
Revenues  $47,228,496   $38,791,210 
Cost of revenues   46,061,883    37,528,152 
Gross profit   1,166,613    1,263,058 
           
Operating expenses   3,066,379    3,327,710 
Operating loss   (1,899,766)   (2,064,652)
           
Other expense   (6,572)   (825,518)
           
Net Loss  $(1,906,338)  $(2,890,170)

 

NOTE 5 – PROPERTY AND EQUIPMENT

 

Property and equipment at June 30, 2022 and December 31, 2021 consisted of the following:

 

   June 30,  December 31,
   2022  2021
Telecommunication equipment  $290,660   $258,871 
Telecommunication software   593,497    618,125 
Other equipment   98,085    108,805 
Total property and equipment   982,242    985,801 
Accumulated depreciation and amortization   (595,535)   (576,419)
Total property and equipment  $386,707   $409,382 

 

Depreciation and amortization expense for the six months ended June 30, 2022 and 2021 amounted to $62,371 and $42,421, respectively.

 

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NOTE 6 –LOANS PAYABLE

 

Loans payable at June 30, 2022 and December 31, 2021 consisted of the following:

 

   June 30,  December 31,    
   2022  2021  Term  Interest rate
Bridge Loan  $     $222,222   Note was issued on November 1, 2020 and due on January 30, 2022   18.0%
Martus   96,185    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 due on October 4, 2022   7.0%
Darlene Covid19   104,840    109,690   Note was issued on April 1, 2020 and due on March 31, 2025   0.0%
Total   201,025    442,151        
Less: Unamortized debt discount         (7,406)       
Total loans payable   201,025    434,745        
Less: Current portion of loans payable   (96,185)   (315,450)       
Long-term loans payable  $104,840   $119,295        

 

During the six months ended June 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 $321,609, respectively.

 

During the six months ended June 30, 2022 and 2021, the Company recorded interest expense of $18,724 and $172,701 and recognized amortization of discount, included in interest expense, of $7,407 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.

 

Loans payable to related parties at June 30, 2022 and December 31, 2021 consisted of the following:

 

   June 30,  December 31,    
   2022  2021  Term  Interest rate
49% of Shareholder of SwissLink  $19,047   $19,929   Note is due on demand   0%
49% of Shareholder of SwissLink   209,680    219,379   Note is due on demand   5%
Total   228,727    239,308        
Less: Current portion of loans payable   228,727    239,308        
Long-term loans payable  $     $          

 

 

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NOTE 7 – OTHER CURRENT LIABILITIES

 

Other current liabilities at June 30, 2022 and December 31, 2021 consisted of the following:

 

   June 30,  December 31,
   2022  2021
Accrued liabilities  $40,929   $61,153 
Payable for acquisition of subsidiaries   325,000       
Accrued interest         8,173 
Salary payable - management   80,730    92,229 
Salary payable   2,799       
Employee benefits   106,516    105,221 
Other current liabilities   102,157    40,273 
   $658,131   $307,049 

 

NOTE 8 – 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.

 

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 June 30, 2022 and December 31, 2021, 10,000 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 June 30, 2022 and December 31, 2021, 21,000 shares of Series B Preferred Stock were issued and outstanding.

 

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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 lrestriction 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 June 30, 2022 and December 31, 2021, no Series C Preferred Stock was issued or outstanding.

 

Common Stock

 

During the six months ended June 30, 2022, the Company issued 4,081,653 shares of common stock, valued at fair market value on issuance as follows;

 

·2,000,000 shares issued for cash of $1,000,000
·120,000 shares for compensation to our directors valued at $71,629 
·1,461,653 shares for acquisition of Whisl valued at $550,000
·500,000 shares for asset acquisition valued at $325,000

 

As of June 30, 2022 and December 31, 2021, 151,559,011 and 147,477,358 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, 4,800,000 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 six months ended June 30, 2022 and 2021, the Company advanced $1,000 and $24,220 to related parties and collected $100 and $200, respectively.

 

As of June 30, 2022 and December 31, 2021, the Company had due from related parties of $375,955 and $424,086. The loans are unsecured, non-interest bearing and due on demand.

 

Due to related parties

 

During the six months ended June 30, 2022 and 2021, the Company repaid $0 and $60,787 to certain members of Company management.

 

As of June 30, 2022 and December 31, 2021, the Company had amounts due to related parties of $26,613.

 

Employment agreements

 

During the six months ended June 30, 2022 and 2021, the Company recorded management fees of $270,000 and $270,000, bonus of $0 and $976,200 and paid $281,000 and $301,300, respectively. 

 

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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 six months ended June 30, 2022 and 2021, the Company incurred $38,645 and $24,223, respectively.

 

NOTE 11 - SEGMENTS

 

At June 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 six months ended June 30, 2022 and 2021:

 

Three months ended June 30, 2022

                                 
   USA  Switzerland  Elimination  Total
Revenues  $23,059,647    1,236,823   $(596,754)  $23,699,716 
Cost of revenue   22,418,046    1,032,150    (596,754)   22,853,442 
Gross profit   641,601    204,673          846,274 
                     
Operating expenses                    
General and administration   921,793    222,659          1,144,452 
                     
Operating loss   (280,192)   (17,986)         (298,178)
                     
Other income (expense)   13,314    (593)         12,721 
                     
Net loss  $(266,878)  $(18,579)  $     $(285,457)

 

Three months Ended June 30, 2021

                                 
   USA  Switzerland  Elimination  Total
Revenues  $14,990,382    1,149,183   $(11,198)  $16,128,367 
Cost of revenue   15,074,899    1,020,101    (11,198)   16,083,802 
Gross profit   (84,517)   129,082          44,565 
                     
Operating expenses                    
General and administration   1,022,625    186,542          1,209,167 
                     
Operating loss   (1,107,142)   (57,460)         (1,164,602)
                     
Other income (expense)   47,030    (4,800)         42,230 
                     
Net loss  $(1,060,112)  $(62,260)  $     $(1,122,372)

 

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Six months ended June 30, 2022

                                 
   USA  Switzerland  Elimination  Total
Revenues  $41,534,760    2,262,903   $(678,636)  $43,119,027 
Cost of revenue   40,611,998    1,855,331    (678,636)   41,788,693 
Gross profit   922,762    407,572          1,330,334 
                     
Operating expenses                    
General and administration   1,703,093    430,857          2,133,950 
                     
Operating loss   (780,331)   (23,285)         (803,616)
                     
Other income (expense)   (16,527)   9,955          (6,572)
                     
Net loss  $(796,858)  $(13,330)  $     $(810,188)

 

Six months Ended June 30, 2021

                                 
   USA  Switzerland  Elimination  Total
Revenues  $28,057,392    2,284,985   $(16,399)  $30,325,978 
Cost of revenue   27,780,959    2,029,483    (16,399)   29,794,043 
Gross profit   276,433    255,502          531,935 
                     
Operating expenses                    
General and administration   2,338,741    368,537          2,707,278 
                     
Operating loss   (2,062,308)   (113,035)         (2,175,343)
                     
Other income (expense)   (840,841)   15,323          (825,518)
                     
Net loss  $(2,903,149)  $(97,712)  $     $(3,000,861)

 

Asset Information

 

The following table shows asset information by geographic segment as of June 30, 2022 and December 31, 2021:

 

                                 
June 30, 2022  USA  Switzerland  Elimination  Total
Assets                    
Current assets  $6,117,363   $923,941   $(222,863)  $6,818,441 
Non-current assets  $11,673,710   $595,961   $(6,184,562)  $6,085,109 
Liabilities                    
Current liabilities  $2,384,494   $1,445,785   $(222,863)  $3,607,416 
Non-current liabilities  $     $254,358   $     $254,358 

 

                                 
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. Based on our evaluation no material events have occurred that require disclosure.

 

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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 June 30, 2022 was $23,699,716, compared with $16,128,367 for the three months ended June 30, 2021. These numbers reflect an increase of 46.94% quarter over quarter on our consolidated revenues. Our total revenue reported for the six months ended June 30, 2022 was $43,119,027, compared with $30,325,978 for the six months ended June 30, 2021; an increase of 42.19%.

When looking at the numbers by subsidiary, we have the following breakout for the six months ended June 30, 2022 compared to the six months ended June 30, 2021:

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Subsidiary 

Revenue

Six Months Ended

June 30, 2022

 

Revenue

Six Months Ended

June 30, 2021

Etelix.com USA, LLC  $11,957,291   $7,481,915 
SwissLink Carrier AG   2,262,903    2,284,985 
QGlobal LLC   155,635    502,431 
IoT Labs LLC   26,763,540    20,056,647 
Smartbiz Telecom   921,410    —   
Whisl Telecom   1,058,248    —   
   $43,119,027   $30,325,978 

 

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 June 30, 2022 increased to $22,853,442, compared with $16,083,802 for the three months ended June 30, 2021. Our total cost of revenues for the six months ended June 30, 2022 increased to $41,788,693, compared with $29,794,043 for the six months ended June 30, 2021.

When looking at the numbers by subsidiary, we have the following breakout for the six months ended June 30, 2022 compared to the six months ended June 30, 2021:

 

Subsidiary 

Cost of Revenue

Six Months Ended

June 30, 2022

 

Cost of Revenue

Six Months Ended

June 30, 2021

Etelix.com USA, LLC  $11,626,271   $7,338,609 
SwissLink Carrier AG   1,855,331    2,029,483 
QGlobal LLC   122,471    419,810 
IoT Labs LLC   26,521,536    20,006,141 
Smartbiz Telecom   831,419    —   
Whisl Telecom   831,665    —   
   $41,788,693   $29,794,043 

 

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.

 

Gross Margin

 

The Consolidated Gross Margin for the six months ended June 30, 2022 was 3.09%, which compared to 1.75% for the six months ended June 30, 2021 represents an increase in our consolidated Gross Margin of 76.57%.

When looking at the numbers by subsidiary, we have the following breakout for the six months ended June 30, 2022 compared to the six months ended June 30, 2021:

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Subsidiary 

Gross Margin

Six Months Ended

June 30, 2022

 

Gross Margin

Six Months Ended

June 30, 2021

Etelix.com USA, LLC  %2.77  %1.92 
SwissLink Carrier AG   18.01    11.18 
QGlobal LLC   21.31    16.44 
IoT Labs LLC   0.90    0.25 
Smartbiz Telecom   9.77    —   
Whisl Telecom   21.41    —   
   %3.09  %1.75 

 

 

Operating Expenses

 

Operating expenses decreased to $1,144,452 for the three months ended June 30, 2022 from $1,209,167 for the three months ended June 30, 2021. Operating expenses decreased to $2,133,950 for the six months ended June 30, 2022 from $2,707,278 for the six months ended June 30, 2021. The detail by major category for the six months ended June 30, 2022 and 2021 is reflected in the table below.

 

   Six Months Ended June 30,
  

2022

  2021
Salaries, Wages and Benefits  $828,764   $560,618 
Technology   101,036    216,428 
Professional Fees   349,842    232,216 
Legal & Regulatory   43,116    50,627 
Travel & Events   29,831    5,430 
Public Cost   16,832    24,331 
Advertising   373,600    487,825 
Bank Services and Fees   91,961    58,309 
Depreciation and Amortization   62,371    42,421 
Office, Facility and Other   164,967    142,977 
           
      Sub Total   2,062,320    1,821,182 
           
Stock-based compensation   71,630    886,096 
Total Operating Expense  $2,133,950   $2,707,278 

                            

The main reasons for the overall decrease in operating expenses for the six months ended June 30, 2022 compared to the same period of 2021 is due to the a significant reduction in Stock-based compensation.

 

When looking at the numbers by subsidiary, we have the following breakout for the six months ended June 30, 2022 compared to the six months ended June 30, 2021:

 

   Six Months Ended June 30,
   2022  2021  Difference
iQSTEL  $1,039,299   $1,993,964   $(954,665)
Etelix   193,587    162,674    30,913 
Swisslink   430,856    368,537    62,319 
ItsBchain   453    1,450    (997)
QGlobal   73,935    56,138    17,797 
IoT Labs   119,919    70,142    49,777 
Global Money One   84,777    54,373    30,404 
Smartbiz Telecom   55,873    —      55,873 
Whisl Telecom   135,251    —      135,251 
   $2,133,950   $2,707,278   $(573,328)

 

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Operating Income

 

The Company showed negative Operating Income for the three months ended June 30, 2022 of $298,178 compared with a negative result of $1,164,602 for the three months ended June 30, 2021.

 

The Company showed negative Operating Income for the six months ended June 30, 2022 of $803,616 compared with a negative result of $2,175,343 for the six months ended June 30, 2021.

 

The decrease of the numbers for the six month period above is primarily due to a reduction in the costs associated with the operation of the public entity (iQSTEL, Inc.) that decreased by $954,665 year over year.

 

Other Expenses/Other Income

 

We had other income of $12,721 for the three months ended June 30, 2022, as compared with other income of $42,230 for the same period ended 2021. We had other expenses of $6,572 for the six months ended June 30, 2022, as compared with other expenses of $825,518 for the same period ended 2021. The decrease in other expenses is mainly due to the reduction in interest expense.

 

Net Loss

 

We finished the three months ended June 30, 2022 with a loss of $285,457, as compared to a loss of $1,122,372 during the three months ended June 30, 2021. We finished the six months ended June 30, 2022 with a loss of $810,188, as compared to a loss of $3,000,861 during the six months ended June 30, 2021. When comparing the results year over year, these numbers show a significant improvement, as the fundamentals of the Company are getting stronger quarter after quarter leading to our goal of generating positive net income.

 

Liquidity and Capital Resources

 

As of June 30, 2022, we had total current assets of $6,818,441 and current liabilities of $3,607,416, resulting in a positive working capital of $3,211,025. 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 cash used in the acquisition of subsidiaries.

 

Our operating activities used $1,435,292 in the six months ended June 30, 2022 as compared with $2,093,398 used in operating activities in the six months ended June 30, 2021.

 

Investing activities used $1,612,255 for the six months ended June 30, 2021. Uses of funds in investing activities consisted primarily of the acquisition of subsidiaries for $1,564,132 and purchases of property and equipment for $47,223.

 

Financing activities provided $1,367,982 in the six months ended June 30, 2022 compared with $3,353,854 provided in the six months ended June 30, 2021. Our positive financing cash flow in 2022 was largely the result of the proceeds from the subscription of new common stocks under our Regulation A offering of $1,100,000.

 

Our current financial condition has improved significantly with a positive working capital and a cash position as of June 30, 2022 that represents 4.69 times the loss recognized during the three-month period then ended. 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 an Offering Statement under Regulation A for the sale of up to 80,000,000 common stocks of which are available 12,500,000. This offering has been 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 six-month period ended June 30, 2022.

 

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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 six months ended June 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 June 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.

 

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 June 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 six-month period ended June 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. 

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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 six months ended June 30, 2022, the Company issued 4,081,653 shares of common stock, valued at fair market value on issuance as follows;

 

·2,000,000 shares issued for cash of $1,000,000
·120,000 shares for compensation to our directors valued at $71,629 
·1,461,653 shares for acquisition of Whisl valued at $550,000
·500,000 shares for asset acquisition valued at $325,000

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

N/A

 

Item 5. Other Information

 

None

 

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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 June 30, 2022 formatted in Extensible Business Reporting Language (XBRL).
 

 

**Provided herewith

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on August 15, 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

 

 

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