What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-14 compared with 2020-11-13 · 67 added, 49 removed, 50 unchanged (70% of the section changed)

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(the “Company”) (OTC Pink:

IQST) is a leading-edge 21st Century Enhanced Telecommunications Service Provider offering a wide range of cloud-based enhanced services to the Tier-1 and Tier-2 carriers, enterprise market, as well as the retail market.

iQSTEL offers international and domestic VoIP services, SMS exchange for A2P and P2P, Internet of Things (IoT) applications, 4G & 5G international infrastructure connectivity, as well as blockchain-based payment and phone number mobility platforms to international and domestic Tier-1 carrier for VoIP, SMS, and Data.

Our principal place of business is located at 300 Aragon Avenue, Suite 375 Coral Gables, FL 33134.

General information about us can be found at www.iqstel.com.

The information contained on or connected to our website is not incorporated by reference into this Quarterly Report on Form 10-Q and should not be considered part of this or any other report filed with the SEC.

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

Our total revenue reported for the three months ended September 30, 2020 was $13,291,698, compared with $4,172,547 for the three months ended September 30, 2019.

Our total revenue reported for the three months ended March 31, 2021 was $14,197,611, compared with $5,017,412 for the three months ended March 31, 2020.

These numbers reflect an increase of 182.97% quarter over quarter on our consolidated revenues.

Our total revenue reported for the nine months ended September 30, 2020 was $29,439,196, compared with $12,589,109 for the nine months ended September 30, 2019.

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

September 30,

When looking at the numbers by subsidiary, we have the following breakout for the three months ended March 31, 2021 compared to the three months ended March 31, 2020:

March 31, 2021

March 31, 2020

Etelix.com USA, LLC

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Cost of Revenues

Our total cost of revenues for the three months ended September 30, 2020 increased to $13,158,685, compared with $3,929,137 for the three months ended September 30, 2019.

Our total cost of revenues for the nine months ended September 30, 2020 increased to $28,735,016, compared with $12,001,850 for the nine months ended September 30, 2019.

Our total cost of revenues for the three months ended March 31, 2021 increased to $13,710,241, compared with $5,178,553 for the three months ended March 31, 2020.

When looking at the numbers by subsidiary, we have the following breakout for the three months ended March 31, 2021 compared to the three months ended March 31, 2020:

Cost of Revenue

March 31, 2021

March 31, 2020

Etelix.com USA, LLC

SwissLink Carrier AG

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

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We have reached a higher volume of sales and every additional unit sold (minutes and SMS) has its corresponding termination cost.

Our gross margin, which is simply the difference between our revenues and our cost of sales, discussed above, increased from a negative result of $161,141 for the three months ended March 31, 2020 to a positive result of $487,370 for the three months ended March 31,2021.

We expect an increase in the gross margin for the next twelve months as a result of having better termination costs.

Operating Expenses

Operating expenses increased to $958,787 for the three months ended September 30, 2020 from $492,782 for the three months ended September 30, 2019.

Operating expenses increased to $3,161,330 for the nine months ended September 30, 2020 from $1,024,842 for the nine months ended September 30, 2019.

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

Nine Months Ended September 30,

Operating expenses increased to $1,498,111 for the three months ended March 31, 2021 from $1,297,527 for the three months ended March 31, 2020.

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

Three Months Ended

Salaries, Wages and Benefits

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Legal & Regulatory

Write-off of due from related party

Travel & Events

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Total Operating Expense

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

while in 2019 operating expenses corresponded only to Etelix, a portion corresponding to SwissLink (this subsidiary is consolidated since August 15, 2019) and corporate costs of iQSTEL;

as shown in the table below.

Nine Months Ended September 30,

When looking at the numbers by subsidiary, we have the following breakout for the three months ended March 31, 2021 compared to the three months ended March 31, 2020:

Three Months Ended March 31,

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

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

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

and (3) Stock-based compensation.

(1) the Professional Fees, including the Audit and Accounting expenses related to the audit of year 2020, which covered iQSTEL and all its operating subsidiaries;

and (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.

Operating Income

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

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

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

The Company showed negative Operating Income for the three months ended March 31, 2021 of $1,010,741 compared with a negative result of $1,458,668 for the three months ended March 31, 2020.

Even though the Company increased its Operating Expenses in $200,584 comparing the three months ended March 31, 2021 to the same period of 2020;

the Operating Loss was reduced in $447,927 due to a Gross Margin increase of $648,511 when comparing the three months ended March 31, 2021 to the same period of 2020.

Other Expenses/Other Income

We had other expenses of $144,451 for the three months ended September 30, 2020, as compared with other expenses of $3,268,651 for the same period ended 2019.

We had other expenses of $1,044,813 for the nine months ended September 30, 2020, as compared with other expenses of $4,590,259 for the same period ended 2019.

The decrease in other expenses is a result of the positive change in fair value of derivative liabilities.

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

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

The reasons for specific components are discussed above.

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

(1) an increment in interest expenses of $582,478 year over year to total $2,368,107;

and (2) the Operating Expenses of the public entity of $2,242,336.

We had other expenses of $867,748 for the three months ended March 31, 2021, as compared with other expenses of $2,450,535 for the same period ended 2020.

The decrease in other expenses is a result of the change in fair value of derivative liabilities in $1,937,598 for the three months ended March 31, 2021 compared to the same period ended 2020, and the decrease of interest expenses in $171,349 for the three months ended March 31, 2021 compared to the same period ended 2020.

We finished the three months ended March 31, 2021 with a net comprehensive loss attributed to shareholders of iQSTEL Inc.

of $1,942,391, as compared to a loss of $3,890,490 during the three months ended March 31, 2020.

Liquidity and Capital Resources

As of September 30, 2020, we had total current assets of $2,968,653 and current liabilities of $7,940,889, resulting in a working capital deficit of $4,972,236‬.

As of March 31, 2021, we had total current assets of $5,834,649 and current liabilities of $6,408,601, resulting in a working capital deficit of $573,952‬.

This compares with the working capital deficit of $4,330,355‬ at December 31, 2020.

This decrease in working capital deficit, as discussed in more detail below, is primarily the result of the increase of $376,831 in the cash position and a reduction of $4,085,931 in the derivative liabilities.‬ ‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬

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

Investing activities used $79,324 for the nine months ended September 30, 2020.

Uses of funds on investing activities were the purchase of property and equipment for value of $78,306 and net payment of loans between related parties of $17,187.

Financing activities provided $1,968,632 in the nine months ended September 30, 2020 compared with $1,327,978 provided in the nine months ended September 30, 2019.

Our positive financing cash flow in 2020 was largely the result of the net proceeds from loans $325,833, net proceeds from convertible notes $927,810;

and proceed from the subscription of new common stocks under our Regulation A offering $715,004.

This decrease in working capital deficit, as discussed in more detail below, is primarily the result of the increase of $2,279,321 in the cash position and a reduction of $1,239,736 in the derivative liabilities and convertible notes.‬ ‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬

Our operating activities used $1,042,192 in the three months ended March 31, 2021 as compared with $541,884 used in operating activities in the three months ended March 31, 2020.

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 2021 and 2020 is largely the result of our net loss for the years.

Investing activities used $78,346 for the three months ended March 31, 2021.

Uses of funds on investing activities were the acquisition of subsidiary IoT Labs of $60,000 and the acquisition of property and equipment of $18,346.

Financing activities provided $3,416,581 in the three months ended March 31, 2021 compared with $586,874 provided in the three months ended March 31, 2020.

Our positive financing cash flow in 2021 was largely the result of the net proceeds from the subscription of new common stocks under our Regulation A offering $3,586,250.

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

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

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

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.

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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 nine month period ended September 30, 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 three month period ended March 31, 2021.

Critical Accounting Polices

In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis.

The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Our critical accounting policies are disclosed in Note 2 of our audited consolidated financial statements included in the Form 10-K filed with the Securities and Exchange Commission.

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, 2021;

however, we consider our critical accounting policies to be those related to allowance for doubtful accounts, valuation of assets, significant estimates in the valuation of convertible debt and income taxes.

Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances.

Actual results may differ from these estimates under different assumptions or conditions.

See the Consolidated Financial Statements in this Quarterly Report for a complete discussion of our significant accounting policies.

Off Balance Sheet Arrangements

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

As of March 31, 2021, there were no off-balance sheet arrangements.

Recent Accounting Pronouncements

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

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes.

This guidance will be effective for entities for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 on a prospective basis, with early adoption permitted.

We will adopt the new standard effective January 1, 2021 and do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt—Debt with “Conversion and Other Options” and ASC subtopic 815-40 “Hedging—Contracts in Entity’s Own Equity”.

The standard reduced the number of accounting models for convertible debt instruments and convertible preferred stock.

Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting;

and, (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital.

The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

The Company is currently assessing the impact of the adoption of this standard on its consolidated financial statements.

Quantitative and Qualitative Disclosures About Market Risk

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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