iQSTEL Inc - Quarter Report: 2022 March (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 March 31, 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: 149,357,358 common shares as of May 16, 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	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

 

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

 

iQSTEL INC

Consolidated Balance Sheets

 (Unaudited)

		March 31,				December 31,
		2022				2021
ASSETS
Current Assets
Cash		$	4,227,044			$	3,334,813
Accounts receivable, net			2,604,334				2,540,515
Due from related parties			399,571				424,086
Prepaid and other current assets			141,122				267,110
Total Current Assets			7,372,071				6,566,524
Property and equipment, net			398,909				409,382
Intangible asset			99,592				99,592
Goodwill			1,537,742				1,537,742
Deferred tax assets			441,315				446,402
TOTAL ASSETS		$	9,849,629			$	9,059,642
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable			1,521,619				1,474,595
Due to related parties			26,613				26,613
Loans payable - net of discount of $0 and $7,406			99,488				315,450
Loans payable - related parties			236,581				239,308
Other current liabilities			265,314				307,049
Deposit for option			500,000				—
Total Current Liabilities			2,649,615				2,363,015
Loans payable, non-current			108,440				119,295
Employee benefits, non-current			154,652				156,434
TOTAL LIABILITIES			2,912,707				2,638,744
Stockholders' Equity (Deficit)
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 and 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 149,537,358 and 147,477,358 shares issued and outstanding, respectively			149,537				147,477
Additional paid in capital			26,882,061				25,842,982
Accumulated deficit			(19,091,891	)			(18,536,921	)
Accumulated other comprehensive loss			(36,854	)			(36,658	)
Equity (Deficit) attributed to stockholders of iQSTEL Inc.			7,902,884				7,416,911
Deficit attributable to noncontrolling interests			(965,962	)			(996,013	)
Total stockholders' Equity (Deficit)			6,936,922				6,420,898
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)		$	9,849,629			$	9,059,642

  

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

 

 

iQSTEL INC

Consolidated Statements of Operations

 (Unaudited)

		Three Months Ended March 31,
		2022				2021
Revenues		$	19,419,311			$	14,197,611
Cost of revenue			18,935,251				13,710,241
Gross profit			484,060				487,370
Operating expenses
General and administration			989,498				1,498,111
Total operating expenses			989,498				1,498,111
Operating loss			(505,438	)			(1,010,741	)
Other income (expense)
Other income			24,159				25,034
Other expenses			(28,564	)			(469	)
Interest expense			(14,888	)			(630,025	)
Change in fair value of derivative liabilities			—				277,575
Loss on settlement of debt			—				(539,863	)
Total other expense			(19,293	)			(867,748	)
Net loss before provision for income taxes			(524,731	)			(1,878,489	)
Income taxes			—				—
Net loss			(524,731	)			(1,878,489	)
Less: Net income attributable to noncontrolling interests			30,239				63,902
Net loss attributed to stockholders of iQSTEL Inc.		$	(554,970	)		$	(1,942,391	)
Comprehensive income (loss)
Net loss		$	(524,731	)		$	(1,878,489	)
Foreign currency adjustment			(384	)			107,656
Total comprehensive loss		$	(525,115	)		$	(1,770,833	)
Less: Comprehensive income attributable to noncontrolling interests			30,051				116,653
Net comprehensive loss attributed to stockholders of iQSTEL Inc.		$	(555,166	)		$	(1,887,486	)
Basic and diluted loss per common share		$	(0.00	)		$	(0.02	)
Weighted average number of common shares outstanding - Basic and diluted			147,539,580				118,489,436

    

 

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

 

 

iQSTEL INC

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

For the three ended March 31, 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	)			(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

 

 

 

 

 

			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) 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

  

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

  

 

iQSTEL INC

Consolidated Statements of Cash Flows

 (Unaudited) 

		Three Months Ended March 31,
		2022				2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(524,731	)		$	(1,878,489	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation			41,139				758,596
Depreciation and amortization			33,547				20,560
Amortization of debt discount			7,407				434,136
Change in fair value of derivative liabilities			—				(277,575	)
Loss on settlement of debt			—				539,863
Prepayment and default penalty			—				122,020
Changes in operating assets and liabilities:
Accounts receivable			(87,361	)			18,760
Prepaid and other current assets			24,677				(44,842	)
Due from related parties			23,316				—
Accounts payable			73,445				(624,349	)
Other current liabilities			(39,091	)			(110,872	)
Net cash used in operating activities			(447,652	)			(1,042,192	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiary, net of cash acquired			—				(60,000	)
Purchase of property and equipment			(24,918	)			(18,346	)
Net cash used in investing activities			(24,918	)			(78,346	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable			—				400,000
Repayments of loans payable			(232,018	)			(309,082	)
Repayment of loans payable - related parties			—				(10,587	)
Proceeds from common stock issued			1,100,000				3,586,250
Deposit for option			500,000				—
Repayment of convertible notes			—				(250,000	)
Net cash provided by financing activities			1,367,982				3,416,581
Effect of exchange rate changes on cash			(3,181	)			(16,722	)
Net change in cash			892,231				2,279,321
Cash, beginning of period			3,334,813				753,316
Cash, end of period		$	4,227,044			$	3,032,637
Supplemental cash flow information
Cash paid for interest		$	3,333			$	111,622
Cash paid for taxes		$	—			$	—
Non-cash transactions:
Common stock issued for conversion of debt		$	—			$	422,295
Resolution of derivative liabilities		$	—			$	708,611
Preferred stock issued for conversion of common stock		$	—			$	21

 

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

 

 

iQSTEL INC

Notes to the Unaudited Consolidated Financial Statements

March 31, 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.

 

The Company incorporated a 75% owned subsidiary, Global Money One Inc. under the laws of the state of Delaware, on November 16, 2020.

 

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 March 31, 2022 and the results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 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”) and Global Money One Inc (“Global Money One”). 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.

 

 

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 and Global Money One is the U.S. dollar, while the functional currency of SwissLink is the Swiss Franc (“CHF”).

 

The Company’s subsidiaries, whose functional currency is not the U.S. dollar, translate their records into 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 three months ended March 31, 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 three months ended March 31, 2022 and 2021.

 

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 three months ended March 31, 2022, 4 customers represented 86% of our revenues. During the three months ended March 31, 2021, 4 customers represented 86% 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.

 

NOTE 4 – PROPERTY AND EQUIPMENT

 

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

 

		March 31,				December 31,
		2022				2021
Telecommunication equipment		$	272,567			$	258,871
Telecommunication software			625,127				618,125
Other equipment			110,324				108,805
Total property and equipment			1,008,018				985,801
Accumulated depreciation and amortization			(609,109	)			(576,419	)
Total property and equipment		$	398,909			$	409,382

 

Depreciation and amortization expense for the three months ended March 31, 2022 and 2021 amounted to $33,547 and $20,560, respectively.

 

 

NOTE 5 –LOANS PAYABLE

 

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

 

		March 31,				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			99,488				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			108,440				109,690			Note was issued on April 1, 2020 and due on March 31, 2025			0.0%
Total			207,928				442,151
Less: Unamortized debt discount			—				(7,406	)
Total loans payable			207,928				434,745
Less: Current portion of loans payable			(99,488	)			(315,450	)
Long-term loans payable		$	108,440			$	119,295

 

 

During the three months ended March 31, 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 $309,082, respectively.

 

During the three months ended March 31, 2022 and 2021, the Company recorded interest expense of $7,481 and $162,459 and recognized amortization of discount, included in interest expense, of $7,407 and $63,666, respectively.

 

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

 

		March 31,				December 31,						Interest
		2022				2021				Term		rate
49% of Shareholder of SwissLink		$	19,701			$	19,929			Note is due on demand			0%
49% of Shareholder of SwissLink			216,880				219,379			Note is due on demand			5%
Total			236,581				239,308
Less: Current portion of loans payable			236,581				239,308
Long-term loans payable		$	—			$	—

 

 

 

NOTE 6 – OTHER CURRENT LIABILITIES

 

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

 

		March 31,				December 31,
		2022				2021
Accrued liabilities		$	49,034			$	61,153
Accrued interest			7,922				8,173
Salary payable - management			80,229				92,229
Employee benefits			95,478				105,221
Other current liabilities			32,651				40,273
		$	265,314			$	307,049

 

NOTE 7 – 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 March 31, 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 March 31, 2022 and December 31, 2021, 21,000 shares of Series B Preferred Stock were issued and outstanding.

 

 

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

 

Common Stock

 

During the three months ended March 31, 2022, the Company issued 2,060,000 shares of common stock, valued at fair market value on issuance as follows;

 

·

2,000,000 shares issued for cash of $1,000,000

·

60,000 shares for compensation valued at $41,139

 

As of March 31, 2022 and December 31, 2021, 149,537,358 and 147,477,358 shares of common stock were issued and outstanding, respectively.

 

Deposit for stock subscription

 

During the three months ended March 31, 2022, the Company received $500,000 for options to purchase common stock, however, the option agreement was not yet finalized. See Note 11.

 

NOTE 8 - RELATED PARTY TRANSACTIONS

 

Due from related parties

 

As of March 31, 2022 and December 31, 2021, the Company had due from related parties of $399,571 and $424,086. The loans are unsecured, non-interest bearing and due on demand.

 

Due to related parties

 

During the three months ended March 31, 2022 and 2021, the Company repaid $0 and $10,587 to certain members of Company management.

 

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

 

Employment agreements

 

During the three months ended March 31, 2022 and 2021, the Company recorded management fees of $135,000 and $135,000, bonus of $0 and $564,000 and paid $147,000 and $143,221, respectively. 

 

 

NOTE 9 – 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 three months ended March 31, 2022 and 2021, the Company incurred $20,150 and $6,900, respectively.

 

NOTE 10 - SEGMENTS

 

At March 31, 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 months ended March 31, 2022 and 2021:

 

Three months ended March 31, 2022

NOTE 11 - SEGMENT - Schedule of Operating Activities by Geographic Segment

		USA				Switzerland				Elimination				Total
Revenues		$	18,475,113				1,026,080			$	(81,882	)		$	19,419,311
Cost of revenue			18,193,952				823,181				(81,882	)			18,935,251
Gross profit			281,161				202,899				—				484,060
Operating expenses
General and administration			781,300				208,198				—				989,498
Operating (loss)			(500,139	)			(5,299	)			—				(505,438	)
Other (expense) income			(29,841	)			10,548				—				(19,293	)
Net (loss) income		$	(529,980	)		$	5,249			$	—			$	(524,731	)

 

Three months Ended March 31, 2021

		USA				Switzerland				Elimination				Total
Revenues		$	13,067,010			$	1,135,802			$	(5,201	)		$	14,197,611
Cost of revenue			12,706,060				1,009,382				(5,201	)			13,710,241
Gross profit			360,950				126,420				—				487,370
Operating expenses
General and administration			1,316,116				181,995				—				1,498,111
Operating income (loss)			(955,166	)			(55,575	)			—				(1,010,741	)
Other income (expense)			(887,871	)			20,123				—				(867,748	)
Net loss		$	(1,843,037	)		$	(35,452	)		$	—			$	(1,878,489	)

 

 

Asset Information

 

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

March 31, 2022		USA				Switzerland				Elimination				Total
Assets
Current assets		$	6,558,656			$	1,034,605			$	(221,190	)		$	7,372,071
Non-current assets		$	4,452,262			$	609,858			$	(2,584,562	)		$	2,477,558
Liabilities
Current liabilities		$	1,328,797			$	1,542,009			$	(221,191	)		$	2,649,615
Non-current liabilities		$	—			$	263,092			$	—			$	263,092

 

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 11 – SUBSEQUENT EVENTS

 

Subsequent to March 31, 2022 and through the date that these financials were made available, the Company had the following subsequent events:

 

On April 21, 2022, we entered into a Purchase Agreement for the purchase of 51% of the membership interests in Smartbiz Telecom LLC, a Florida Corporation which provides telecommunication services, dedicated to VoIP business for wholesale and retail markets. The purchase price for the acquisition shall be $1,800,000 and shall consist of $800,000 in cash and $1,000,000 in our common stock to Seller, which amounts to 2,378,059 shares of common stock.

 

On April 25, 2022 we entered into a Common Stock Purchase Option Agreement with Apollo Management Group, Inc. to subscribe for and purchase from iQSTEL Inc., four million eight hundred thousand (4,800,000) shares of Common Stock with an exercise price per share of two dollars ($2.00); and an initial exercise date September 30, 2022. The purchase price of this option is five hundred thousand dollars ($500,000).

 

On May 6, 2022, we entered into a Purchase Company 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 Telecom LLC, a Texas limited liability company. Whisl Telecom 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 shall be no later than May 13, 2022. The purchase price for the acquisition shall be $1,800,000 and shall consist of $1,250,000 in cash and $550,000 in our restricted common stock to Seller.

 

 

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

Forward-Looking Statements

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

Overview

iQSTEL Inc. (the “Company”) (OTC Pink: IQST) (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. These services are grouped within three business divisions: Telecom, Technology and Fintech.

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 (https://www.qglobalsms.com/), Smart Gas (http://iotsmartgas.com/) and ItsBChain (http://itsbchain.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 March 31, 2022 was $19,419,311, compared with $14,197,611 for the three months ended March 31, 2021. These numbers reflect an increase of 36.78% quarter over quarter on our consolidated revenues.

When looking at the numbers by subsidiary, we have the following breakout for the three months ended March 31, 2022 compared to the three months ended March 31, 2021:

 

Subsidiary		Revenue Three Months Ended March 31, 2022				Revenue Three Months Ended March 31, 2021
Etelix.com USA, LLC		$	5,914,300			$	3,560,386
SwissLink Carrier AG			1,026,080				1,135,802
QGlobal LLC			109,196				250,014
IoT Labs LLC			12,369,735				9,251,409
		$	19,419,311			$	14,197,611

 

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 March 31, 2022 increased to $18,935,251, compared with $13,710,241 for the three months ended March 31, 2021.

When looking at the numbers by subsidiary, we have the following breakout for the three months ended March 31, 2022 compared to the three months ended March 31, 2021:

Subsidiary		Cost of Revenue Three Months Ended March 31, 2022				Cost of Revenue Three Months Ended March 31, 2021
Etelix.com USA, LLC		$	5,804,495			$	3,435,200
SwissLink Carrier AG			823,181				1,009,382
QGlobal LLC			89,998				203,194
IoT Labs LLC			12,217,577				9,062,465
		$	18,935,251			$	13,710,241

 

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

Our gross margin, which is simply the difference between our revenues and our cost of sales, discussed above, was $484,060 for the three months ended March 31, 2022 compared to $487,370 for the three months ended March 31, 2021.

Operating Expenses

 

Operating expenses decreased to $989,498 for the three months ended March 31, 2022 from $1,498,111 for the three months ended March 31, 2021. The detail by major category is reflected in the table below.

 

		Three Months Ended March 31,
		2022				2021
Salaries, Wages and Benefits		$	325,628			$	284,530
Technology			45,160				60,025
Professional Fees			323,315				92,495
Legal & Regulatory			10,699				24,359
Travel & Events			7,561				1,268
Public Cost			9,556				14,406
Advertising			76,878				151,000
Bank Services and Fees			29,457				26,657
Depreciation and Amortization			33,547				20,560
Office, Facility and Other			86,558				64,215
Sub Total			948,359				739,515
Stock-based compensation			41,139				758,596
Total Operating Expense		$	989,498			$	1,498,111

                              

When looking at the numbers by subsidiary, we have the following breakout for the three months ended March 31, 2022 compared to the three months ended March 31, 2021:

 

		Three Months Ended March 31,
		2022				2021				Difference
iQSTEL			537,032				1,173,777				-636,745
Etelix			103,292				91,031				12,261
SwissLink			208,197				181,995				26,202
ItsBchain			254				252				2
QGlobal			28,137				27,976				161
IoT Labs			59,158				23,080				36,078
Global Money One			53,428				—				53,428
			989,498				1,498,111				-508,613

 

The most significant differences are: (1) the decrease in the Stock-based compensation of $717,457; (2) the increases in Salaries of $41,098 due to sales commissions and new personnel; and (3) the increase in Professional Fees of $230,820 that includes the Audit and Accounting and other consulting fees.

 

Operating Income

 

The Company showed negative Operating Income for the three months ended March 31, 2022 of $505,438 compared with a negative result of $1,010,741 for the three months ended March 31, 2022.

 

Even though the Company showed a negative Operating Income, the number shows a trend of significant improvement year over year,

 

 

Other Expenses/Other Income

 

We had other expenses of $19,293 for the three months ended March 31, 2022, as compared with other expenses of $867,748 for the same period ended 2021. The decrease in other expenses is largely due to the absence of derivative liabilities in 2022 and the decrease of interest expenses of $615,137 for the three months ended March 31, 2022 compared to the same period ended 2021.

 

Net Loss

 

We finished the three months ended March 31, 2022 with a net loss attributed to shareholders of iQSTEL Inc. of $554,970, as compared to a loss of $1,942,391 during the three months ended March 31, 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 March 31, 2022, we had total current assets of $7,372,071 and current liabilities of $2,649,615, resulting in a positive working capital of $4,722,456 and a current ratio of approximately 2.78 to 1. This compares with the working capital of $4,203,509 at December 31, 2021.

 

Our operating activities used $447,652 in the three months ended March 31, 2022 as compared with $1,042,192 used in operating activities in the three months ended March 31, 2021. Our cash flow from operations varies depending on our operating results and the timing of operating cash receipts and payments, specifically trade accounts receivable and trade accounts payable. Our negative operating cash flows in 2022 and 2021 is largely the result of our net loss for the periods.

 

Investing activities used $24,918 for the three months ended March 31, 2022 compared with $78,346 for the three months ended March 31, 2021. Uses of funds on investing activities in 2022 were the acquisition of property and equipment.

 

Financing activities provided $1,367,982 in the three months ended March 31, 2022 compared with $3,416,581 provided in the three months ended March 31, 2021. Our positive financing cash flow in 2022 was largely the result of the net proceeds from the subscription of new common stocks under our Regulation A offering $1,100,000.

 

Our current financial condition has improved significantly since 2018. 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. This offering is being conducted on a “best efforts” basis, which means that there is no guarantee that any minimum amount will be sold. We also plan to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.

 

Inflation

 

Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the three month period ended March 31, 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 three months ended March 31, 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 March 31, 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 March 31, 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 three month period ended March 31, 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.

 

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 three months ended March 31, 2022, the Company issued 2,000,000 shares of common stock, valued at fair market value on issuance as follows;

 

·

2,000,000 shares issued for cash of $1,000,000

·

60,000 shares for compensation valued at $41,139

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

N/A

 

Item 5. Other Information

 

None

 

 

Item 6. Exhibits

 

Exhibit Number	Description of Exhibit
31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101**	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 formatted in Extensible Business Reporting Language (XBRL).
	**Provided herewith

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on May 16, 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