What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-13 compared with 2020-06-29 · 57 added, 38 removed, 54 unchanged (64% of the section changed)

18 unchanged sentences

Results of Operations

Our total revenue reported for the three months ended March 31, 2020 was $5,017,412, compared with $4,163,203 for the three months ended March 31, 2019.

Our total revenue reported for the three months ended June 30, 2020 was $11,130,086, compared with $4,253,359 for the three months ended June 30, 2019.

These numbers reflect an increase of 161.68% quarter over quarter on our consolidated revenues.

When looking at the numbers by subsidiary, Etelix’s revenue was $3,820,533, including ineptest-company sale of $1,238 and SwissLink contributed $1,198,117.

The continued growth of our revenue, during the last three years, is due to our focus on carrying traffic to higher revenue per minute destinations in Africa.

We have to remember that one of our main strategic lines of actions in the last years has been to strengthen the business relationship with our customers in Europe and leverage from there our growth in the African market, with half of the traffic terminated in Africa originating from Europe.

If net revenues continue growing at a similar rate for the next twelve months, we believe that the Company will reach a total revenue of approximately $23 million by December 31, 2020.

Our total revenue reported for the six months ended June 30, 2020 was $16,147,498, compared with $8,416,562 for the six months ended June 30, 2019.

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

Six Months Ended

June 30, 2020

Etelix.com USA, LLC

Swisslink Carrier AG

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, 2020 increased to $5,178,553, compared with $3,727,626 for the three months ended March 31, 2019.

Our total cost of revenues for the three months ended June 30, 2020 increased to $10,397,778, compared with $4,345,087 for the three months ended June 30, 2019.

Our total cost of revenues for the six months ended June 30, 2020 increased to $15,576,331, compared with $8,072,713 for the six months ended June 30, 2019.

Our cost of revenues consists of direct charges from vendors that the Company incurs to deliver services to its customers.

These costs primarily consist of usage charges for calls terminated in vendor’s network.

The increase results from a higher volume of minutes of African destinations, which rates are on average 9 times higher compared to the average rates of the rest of the World.

This behavior in the costs shows a logical correlation with the behavior of the revenue commented above.

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 reac-hed a higher volume of sales and every additional unit sold (minutes and SMS) has its corresponding termination cost.

Operating Expenses

Operating expenses increased to $1,297,527 for the three months ended March 31, 2020 from $190,507 for the three months ended March 31, 2019.

The detail by major category is reflected in the table below.

Three Months Ended March 31

Operating expenses increased to $905,016 for the three months ended June 30, 2020 from $341,553 for the three months ended June 30, 2019.

Operating expenses increased to $2,202,543 for the six months ended June 30, 2020 from $532,060 for the six months ended June 30, 2019.

The detail by major category for the six months ended June 30, 2020 and 2019 is reflected in the table below.

Six Months Ended June 30,

Salaries, Wages and Benefits

1 unchanged sentence

Legal & Regulatory

Write-off of due from related party

Depreciation and Amortization

Travel & Events

Bank Services and Fees

Depreciation and Amortization

Office, Facility and Other

1 unchanged sentence

Total Operating Expense

The main reasons for the overall increase in operating expenses in 2020 were:

The main reasons for the overall increase in operating expenses for the six months ended June 30, 2020 compared to the same period of 2019 is that in 2020 we are reflecting the costs corresponding to 5 operating subsidiaries (Etelix.com, Swisslink, ItsBchain, QGlobal and IoT Labs) plus the corporate costs corresponding to iQSTEL itself;

while in 2019 operating expenses corresponded only to one subsidiary and corporate costs of iQSTEL;

as shown in the table below.

Six Months Ended June 30,

The most significant difference is generated by iQSTEL which is due to the following:

(1) the Salaries, Wages and Benefits as a result of the new employment agreements with the Management Team members valid from May 2019, where the aggregated monthly salaries varied from $11,500 to $36,000, and the implementation starting on January 2020 of a compensation for Board Members of 3,000 monthly;

(2) the Legal & Regulatory comprised of legal and all public costs;

(3) Bank Services and Fees and Office, Facilities and Others now include those related to SwissLink.

In some of those items we are expecting to create synergies and reduce the overall costs.

The item Technology already reflects the savings resulting from the implementation of the new HostSBC switching platform.

Write-off of due from related party was $43,375.

Item Advertising corresponds to the third-party consultancy for the design and implementation of a Social Media communication strategy oriented to build and enhance our companies and brand image.

All other items were stable from one year to the other, which allows us to affirm that the cost structure of the Company is under control and supervision.

(2) Advertising corresponds to the third-party consultancy for the design and implementation of a Social Media communication strategy oriented to build and enhance our companies and brand image;

and (3) Stock-based compensation.

Operating Income

The Company showed negative Operating Income for the three months ended March 31, 2020 of $1,458,668 compared with a positive result of $245,070 for the three months ended March 31, 2019.

The decrease in operating income for the three month period ended March 31, 2020 is primarily due to the costs associated to the operation of the public entity (iQSTEL, Inc.) estimated in the amount of $976,847.

The Company showed negative Operating Income for the three months ended June 30, 2020 of $172,708 compared with a negative result of $433,281 for the three months ended June 30, 2019;

which is a positive variation quarter over quarter.

The Company showed negative Operating Income for the six months ended June 30, 2020 of $1,627,117 compared with a negative result of $188,211 for the six months ended June 30, 2019.

The increase of the numbers for the six month period above is primarily due to the costs associated with the operation of the public entity (iQSTEL, Inc.) estimated in the amount of $1,587,992.

When looking at the results of our operating subsidiaries, we notice a very good performance of each of them, particularly in the three months ended in June 30, 2020.

Three Months Ended

Six Months Ended

Total Revenue

Cost of revenue

Total Cost of Revenue

Operating Expenses

Total Operating Expenses

Operating Income (Loss)

Other Expenses/Other Income

We had other expenses of $2,450,535 for the three months ended March 31, 2020, as compared with other expenses of $1,270,648 for the same period ended 2019.

The increase in other expenses is a result of the change in fair value of derivative liabilities of $1,660,023 for the three months ended March 31, 2020 compared to $1,008,069 for the same period ended 2019, and the increase of interest expenses of $801,374 for the three months ended March 31, 2020 compared to $265,037 for the same period ended 2019.

We finished the three months ended March 31, 2020 with a net comprehensive loss attributed to shareholders of iQSTEL Inc.

of $3,890,490, as compared to a loss of $1,025,578 during the three months ended March 31, 2019.

We had other income of $1,550,173 for the three months ended June 30, 2020, as compared with other expenses of $50,960 for the same period ended 2019.

We had other expenses of $900,362 for the six months ended June 30, 2020, as compared with other expenses of $1,321,608 for the same period ended 2019.

The decrease in other expenses is a result of the positive change in fair value of derivative liabilities, and the gain on settlement of debts of $283,230.

We finished the three months ended June 30, 2020 with a net income of $1,377,465, as compared to a loss of $484,241 during the three months ended June 30, 2019.

We finished the six months ended June 30, 2020 with a loss of $2,531,738, as compared to a loss of $1,509,819 during the six months ended June 30, 2019.

The reasons for specific components are discussed above.

Overall, these are the main concepts impacting the net result:

(1) a loss in the change in fair value of derivative liabilities of $1,660,023 and (2) an increment in interest expenses of $536,337 quarter over quarter.

(1) an increment in interest expenses of $678,353 year over year to total $1,454,515;

and (2) the Operating Expenses of the public entity of $1,587,992.

Liquidity and Capital Resources

As of March 31, 2020, we had total current assets of $3,032,589 and current liabilities of $10,977,710, resulting in a working capital deficit of $7,945,121‬.

As of June 30, 2020, we had total current assets of $3,853,302 and current liabilities of $8,515,969, resulting in a working capital deficit of $4,662,667‬.

This compares with the working capital deficit of $7,707,148‬ at December 31, 2019.

This increase in working capital deficit, as discussed in more detail below, is primarily the result of the reduction in the accounts receivable and the increase in convertible notes offset by the reduction in the derivative liabilities.‬ ‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬

Our operating activities used $541,884 in the three months ended March 31, 2020 as compared with $321,149 used in operating activities in the three months ended March 31, 2019.

Investing activities used $58,679 for the three months ended March 31, 2020.

This decrease in working capital deficit, as discussed in more detail below, is primarily the result of the increase of $509,050 in the cash position and a reduction of $3,584,337 in the derivative liabilities.‬ ‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬

Our operating activities used $1,126,307 in the six months ended June 30, 2020 as compared with $667,737 used in operating activities in the six months ended June 30, 2019.

Investing activities provided $2,550 for the six months ended June 30, 2020.

Uses of funds on investing activities were the purchase of property and equipment for value of $58,832 and net payment of loans between related parties of $14,399.

Financing activities provided $586,874 in the three months ended March 31, 2020 compared with $387,663 provided in the three months ended March 31, 2019.

Our positive financing cash flow in 2020 was largely the result of the proceeds from loans, capital contributions and proceeds from convertible notes.

Main source of funds in the Investing activities was resulting from the acquisition of subsidiary IoT Labs of $75,781.

Financing activities provided $1,626,500 in the six months ended June 30, 2020 compared with $743,653 provided in the six months ended June 30, 2019.

Our positive financing cash flow in 2020 was largely the result of the net proceeds from loans $483,690, net proceeds from convertible notes $782,810;

and proceed from the subscription of new common stocks under our Regulation A offering $360,000.

Based upon our current financial condition, we do not have sufficient cash to operate our business at the current level for the next twelve months.

We intend to fund operations through increased sales and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements.

The Company has received the qualification of an Offering Statement under Regulation A for the sale of up to 24,000,000 common stocks.

The Company has received the qualification of an Offering Statement under Regulation A for the sale of up to 24,000,000 common shares.

This offering is being conducted on a “best efforts” basis, which means that there is no guarantee that any minimum amount will be sold.

3 unchanged sentences

There can be no assurance that such additional financing will be available to us on acceptable terms or at all.

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, 2020.

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, 2020.

Critical Accounting Polices

3 unchanged sentences

Off Balance Sheet Arrangements

As of March 31, 2020, there were no off-balance sheet arrangements.

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

Recent Accounting Pronouncements

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis