iQSTEL Inc 10-Q

Item 1. Financial Statements iQSTEL INC Consolidated Balance Sheets (Unaudited) March 31, December 31, 2021 2020 ASSETS Current Assets Cash and cash equivalents $ 3,032,637 $ 753,316 Accounts receivable, net 2,462,393 2,528,321 Due from related parties 221,790 221,790 Prepaid and other current assets 117,829 78,157 Total Current Assets 5,834,649 3,581,584 Property and equipment, net 335,755 350,530 Intangible asset 28,154 21,875 Goodwill 1,537,742 1,537,742 Deferred tax assets 432,077 460,036 TOTAL ASSETS $ 8,168,377 $ 5,951,767 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities Accounts payable 2,056,075 2,737,411 Due to related parties 34,616 94,616 Loans payable - net of discount of $0 and $19,221 3,063 1,332,612 Loans payable - related parties 1,924,454 2,054,379 Current portion of convertible notes - net of discount of $0 and $370,106 - 253,554 Other current liabilities 294,358 413,676 Stock payable 2,056,530 - Derivative liabilities 39,505 1,025,691 Total Current Liabilities 6,408,601 7,911,939 Convertible notes - net of discount of $1,820 and $2,184 3,180 2,816 Loans payable 245,374 270,836 Employee benefits, non-current 151,414 161,212 TOTAL LIABILITIES 6,808,569 8,346,803 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 0 shares issued and outstanding 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 138,826,964 and 118,133,432 shares issued and outstanding, respectively 138,827 118,133 Additional paid in capital 18,772,223 13,267,261 Accumulated deficit (16,641,539) (14,699,148) Accumulated other comprehensive loss (19,926) (74,831) Equity (Deficit) attributed to stockholders of iQSTEL Inc. 2,249,616 (1,388,575) Deficit attributable to noncontrolling interests (889,808) (1,006,461) Total stockholders' Equity (Deficit) 1,359,808 (2,395,036) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 8,168,377 $ 5,951,767 The accompanying notes are an integral part of these unaudited consolidated financial statements. 3 iQSTEL INC Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, 2021 2020 Revenues $ 14,197,611 $ 5,017,412 Cost of revenue 13,710,241 5,178,553 Gross profit 487,370 (161,141) Operating expenses General and administration 1,498,111 1,297,527 Total operating expenses 1,498,111 1,297,527 Operating loss (1,010,741) (1,458,668) Other income (expense) Other income 25,034 15,917 Other expenses (469) (5,055) Interest expense (630,025) (801,374) Change in fair value of derivative liabilities 277,575 (1,660,023) Loss on settlement of debt (539,863) - Total other expense (867,748) (2,450,535) Net loss before provision for income taxes (1,878,489) (3,909,203) Income taxes - - Net loss (1,878,489) (3,909,203) Less: Net income (loss) attributable to noncontrolling interests (63,902) 18,713 Net loss attributed to stockholders of iQSTEL Inc. $ (1,942,391) $ (3,890,490) Comprehensive income (loss) Net loss $ (1,878,489) $ (3,909,203) Foreign currency adjustment 107,656 (3,278) Total comprehensive loss $ (1,770,833) $ (3,912,481) Less: Comprehensive income (loss) attributable to noncontrolling interests (116,653) 20,319 Net comprehensive loss attributed to stockholders of iQSTEL Inc. $ (1,887,486) $ (3,892,162) Basic and diluted loss per common share $ (0.01) $ (0.13) Weighted average number of common shares outstanding - Basic and diluted 118,489,436 30,808,984 The accompanying notes are an integral part of these unaudited consolidated financial statements. 4 iQSTEL INC Consolidated Statements of Changes in Stockholders’ Equity (Deficit) For the years ended March 31, 2021 and December 31, 2020 (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 Shareholders’ (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 5 Common Stock Shares Amount Additional Paid in Capital Accumulated Deficit Accumulated Comprehensive Loss Total Non Controlling Interest Total Shareholders’ (Equity) Deficit Balance – December 31, 2019 18,008,591 $ 18,008 $ 3,240,528 $ (8,125,257) $ (181) $ (4,866,902) $ (903,513) $ (5,770,415) Common stock issued for settlement of debt 4,308,510 4,309 198,191 - - 202,500 - 202,500 Common stock issued for services 4,173,000 4,173 445,861 - - 450,034 - 450,034 Common stock issued for forbearance of debt 50,000 50 2,850 - - 2,900 - 2,900 Common stock issued for conversion of debt 17,208,350 17,208 256,760 - - 273,968 - 273,968 Common stock issued for exercised cashless warrant 2,235,697 2,235 (2,235) - - - - - Common stock issued for acquisition of Itsbchain LLC - - 50,000 - - 50,000 - 50,000 Resolution of derivative liabilities - 2,567,348 - - 2,567,348 - 2,567,348 Foreign currency translation adjustments - - - (1,672) (1,672) (1,606) (3,278) Net loss - - - (3,890,490) - (3,890,490) (18,713) (3,909,203) Balance – March 31, 2020 45,984,148 $ 45,983 $ 6,759,303 $ (12,015,747) $ (1,853) $ (5,212,314) $ (923,832) $ (6,136,146) The accompanying notes are an integral part of these unaudited consolidated financial statements. 6 iQSTEL INC Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,878,489) $ (3,909,203) Adjustments to reconcile net loss to net cash used in operating activities: Stock based compensation 758,596 500,034 Write-off of due from related party - 43,375 Depreciation and amortization 20,560 13,425 Amortization of debt discount 434,136 457,579 Change in fair value of derivative liabilities (277,575) 1,660,023 Loss on settlement of debt 539,863 - Prepayment and Default penalty 122,020 48,729 Changes in operating assets and liabilities: Accounts receivable 18,760 359,756 Prepaid and other current assets (44,842) (4,568) Accounts payable (624,349) (9,060) Other current liabilities (110,872) 298,026 Net cash used in operating activities (1,042,192) (541,884) CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of subsidiary (60,000) - Purchase of property and equipment (18,346) (45,280) Payment of loan receivable - related party - (13,399) Net cash used in investing activities (78,346) (58,679) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from loans payable 400,000 210,000 Repayments of loans payable (309,082) (98,646) Proceeds from loans payable - related parties - 182 Repayment of loans payable - related parties (10,587) (162) Proceeds from common stock issued 3,586,250 - Proceeds from convertible notes - 810,000 Repayment of convertible notes (250,000) (334,500) Net cash provided by financing activities 3,416,581 586,874 Effect of exchange rate changes on cash (16,722) 486 Net change in cash and cash equivalents 2,279,321 (13,203) Cash and cash equivalents, beginning of period 753,316 270,503 Cash and cash equivalents, end of period $ 3,032,637 $ 257,300 Supplemental cash flow information Cash paid for interest $ 111,622 $ 173,749 Cash paid for taxes $ - $ - Non-cash transactions: Common stock issued for conversion of debt $ 422,295 $ 273,968 Common stock issued for cashless warrant exercised $ - $ 2,235 Resolution of derivative liabilities $ 708,611 $ 2,567,348 Common stock issued for settlement of debt $ - $ 202,500 Common stock issued for acquisition of ItsBchain LLC $ - $ 50,000 Preferred stock issued for conversion of common stock $ 21 $ - The accompanying notes are an integral part of these unaudited consolidated financial statements. 7 iQSTEL INC Notes to the Unaudited Consolidated Financial Statements March 31, 2021 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. COVID-19 A novel strain of coronavirus (COVID-19) was first identified in December 2019, and subsequently declared a global pandemic by the World Health Organization on March 11, 2020. As a result of the outbreak, many companies have experienced disruptions in their operations and in markets served. The Company has instituted some and may take additional temporary precautionary measures intended to help ensure the well-being of its employees and minimize business disruption. The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that there were no material adverse impacts on the Company’s results of operations and financial position at March 31, 2021. The full extent of the future impacts of COVID-19 on the Company’s operations is uncertain. A prolonged outbreak could have a material adverse impact on financial results and business operations of the Company, including the timing and ability of the Company to collect accounts receivable and the ability of the Company to continue to provide high quality services to its clients. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of May 14, 2021, the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change, as new events occur and additional information is obtained. 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 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, 2021 and the results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2021 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, 2020 filed with the SEC on April 15, 2021. Consolidation Policy The consolidated financial statements of the Company include the accounts of the Company and its owned subsidiaries, Etelix.com USA, LLC, SwissLink Carrier AG, ITSBCHAIN, LLC, QGLOBAL SMS, LLC and IoT Labs, 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 in the United States of America 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. 8 iQSTEL INC Notes to the Unaudited Consolidated Financial Statements March 31, 2021 NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Foreign Currency Translation and Re-measurement The Company translates its foreign operations to U.S. dollar in accordance with ASC 830, “ Foreign Currency Matters ”. The Company’s, Etelix’s, QGlobal’s and IoT Labs’ functional currency and reporting currency is the U.S. dollar, SwissLink’s functional currency 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 in shareholders’ 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, 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, 2021 and 2020, 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 year. 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 years ended March 31, 2021 and 2020. 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 that it will likely incur in the near future. 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, 2021 and 2020, 4 customers represented 86% of our revenues and 12 customers represented 83% of our revenues, respectively. 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 was reasonably assured. Management considers persuasive evidence of a sales arrangement to be a written interconnection agreement. The Company’s payment terms vary by clients. 9 iQSTEL INC Notes to the Unaudited Consolidated Financial Statements March 31, 2021 NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Retirement Benefit Costs Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Company’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme. For defined benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognized in full in the period in which they occur. They are recognized outside the income statement and are presented in other comprehensive income. Past service cost is recognized immediately in the income statement in the period in which it occurs. The retirement benefit obligation recognized in the balance sheet represents the present value of the defined obligation as adjusted for unrecognized past service cost, and as reduced by the fair value of the scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the scheme. 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, has a working capital deficiency 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, 2021 and December 31, 2020 consisted of the following: March 31, December 31, 2021 2020 Telecommunication equipment $ 258,737 $ 259,000 Telecommunication software 534,234 530,514 Other equipment 46,614 47,206 Total property and equipment 839,585 836,720 Accumulated depreciation and amortization (503,830) (486,190) Total property and equipment $ 335,755 $ 350,530 Depreciation expense for the three months ended March 31, 2021 and 2020 amounted to $20,560 and $13,425, respectively. 10 iQSTEL INC Notes to the Unaudited Consolidated Financial Statements March 31, 2021 NOTE 5 –LOANS PAYABLE Loans payable at March 31, 2021 and December 31, 2020 consisted of the following: March 31, December 31, Interest 2021 2020 Term rate Unique Funding Solutions_2 $ 2,000 $ 2,000 Note was issued on October 12, 2018 and due on January 17, 2019 28.6% YES LENDER LLC 3 1,063 5,403 Note was issued on August 3, 2020 and due on January 12, 2021 26.0% Apollo Management Group, Inc - 63,158 Note was issued on March 18, 2020 and due on December 15, 2020 12.0% Apollo Management Group, Inc 2 - 68,421 Note was issued on March 25, 2020 and due on December 15, 2020 12.0% Apollo Management Group, Inc 3 - 66,316 Note was issued on April 1, 2020 and due on October 1, 2020 12.0% Apollo Management Group, Inc 4 - 73,684 Note was issued on April 2, 2020 and due on October 2, 2020 12.0% Apollo Management Group, Inc 5 - 36,842 Note was issued on April 7, 2020 and due on October 7, 2020 12.0% Apollo Management Group, Inc 6 - 84,211 Note was issued on April 15, 2020 and due on October 15, 2020 12.0% Apollo Management Group, Inc 7 - 55,000 Note was issued on April 20, 2020 and due on December 15, 2020 12.0% Apollo Management Group, Inc 14 - 32,432 Note was issued on December 4, 2020 and due on January 4, 2021 12.0% Labrys Fund - 280,000 Note was issued on June 26, 2020 and due on April 1, 2021 12.0% M2B Funding Corp - 300,000 Note was issued on September 1, 2020 and due on September 1, 2021 12.0% M2B Funding Corp 1 - 77,778 Note was issued on December 10, 2020 and due on January 9, 2021 22.0% M2B Funding Corp 2 - 27,778 Note was issued on December 18, 2020 and due on January 17, 2021 22.0% M2B Funding Corp 3 - 55,556 Note was issued on December 24, 2020 and due on January 23, 2021 22.0% M2B Funding Corp 4 - 111,111 Note was issued on December 30, 2020 and due on January 29, 2021 22.0% Martus 102,008 108,609 Note was issued on October 23, 2018 and due on January 3, 2022 5.0% Swisspeers AG 37,196 49,187 Note was issued on April 8, 2019 and due on October 4, 2022 7.0% Darlene Covi19 106,170 113,040 Note was issued on April 1, 2020 and due on September 30, 2027 0.0% Total 248,437 1,622,669 Less: Unamortized debt discount - (19,221) Total loans payable 248,437 1,603,448 Less: Current portion of loans payable (3,063) (1,332,612) Long-term loans payable $ 245,374 $ 270,836 11 iQSTEL INC Notes to the Unaudited Consolidated Financial Statements March 31, 2021 NOTE 5 –LOANS PAYABLE (CONTINUED) Loans payable to related parties at March 31, 2021 and December 31, 2020 consisted of the following: March 31, December 31, Interest 2021 2020 Term rate Alonso Van Der Biest $ 80,200 $ 80,200 Note was issued on June 12, 2015 and originally due on June 11, 2019. The note was extended to July 2021. 16.5% Alvaro Quintana - 10,587 Note was issue on September 30, 2016 and due on September 29, 2019 0% 49% of Shareholder of SwissLink 1,631,914 1,737,512 Note is due on demand 0% 49% of Shareholder of SwissLink 212,340 226,080 Note is due on demand 5% Total 1,924,454 2,054,379 Less: Current portion of loans payable 1,924,454 2,054,379 Long-term loans payable $ - $ - During the three months ended March 31, 2021 and 2020, the Company borrowed from third parties totaling $444,444 and $210,000, which includes original issue discount and financing costs of $44,444 and $0 and repaid the principal amount of $309,082 and $98,646, respectively. During the three months ended March 31, 2021 and 2020, the Company recorded interest expense of $162,459 and $48,294 and recognized amortization of discount, included in interest expense, of $63,666 and $0, respectively. During the three months ended March 31, 2021, the Company settled loans payable of $1,516,667 by 2,230,994 shares of common stock valued at $2,056,530. As a result, the Company recorded loss on settlement of debt of $539,863. As of March 31, 2021, the shares were not yet issued and recorded as stock payable. NOTE 6 - CONVERTIBLE LOANS At March 31, 2021 and December 31, 2020, convertible loans consisted of the following: March 31, December 31, 2021 2020 Promissory notes – Issued in fiscal year 2019, with variable conversion features $ 5,000 $ 5,000 Promissory notes – Issued in fiscal year 2020, with variable conversion features - 623,660 Total convertible notes payable 5,000 628,660 Less: Unamortized debt discount (1,820) (372,290) Total convertible notes 3,180 256,370 Less: current portion of convertible notes - 253,554 Long-term convertible notes $ 3,180 $ 2,816 During the three months ended March 31, 2021 and 2020, the Company recorded interest expense of $33,430 and $295,903 and recognized amortization of discount, included in interest expense, of $370,470 and $457,177, respectively. During the three months ended March 31, 2021 and 2020, the Company repaid notes of $250,000 and $334,500 and accrued interest including prepayment penalty of $6,027 and $151,542, respectively. Conversion During the three months ended March 31, 2021, the Company converted notes with principal amounts and accrued interest of $422,295 into 6,080,632 shares of common stock. The corresponding derivative liability at the date of conversion of $708,611 was settled through additional paid in capital. 12 iQSTEL INC Notes to the Unaudited Consolidated Financial Statements March 31, 2021 NOTE 6 - CONVERTIBLE LOANS (CONTINUED) Promissory Notes - Issued in fiscal year 2019 During the year ended December 31, 2019, the Company issued a total of $2,544,250 in notes with the following terms: · Terms ranging from 6 months to 3 years. · Annual interest rates ranging from of 8% to 12%. · Convertible at the option of the holders at issuance or 180 days from issuance. · Conversion prices are typically based on the discounted (39% or 0% discount) lowest trading prices of the Company’s shares during various periods prior to conversion. The convertible notes were also provided with a total of 661,216 common shares and warrant to purchase up to 92,000 shares of common stock at exercise price of $2.5 per share for 3 years. Certain notes allow the Company to redeem the notes at rates ranging from 110% to 150% depending on the redemption date provided that no redemption is allowed after the 180th day. Likewise, the notes include original issue discount and financing costs totaling $278,000 and the Company received cash of $2,266,250. Derivative liabilities The Company determined that the conversion option in the note met the definition of a liability in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity’s Own Stock . The Company will bifurcate the embedded conversion option in the note once the note becomes convertible and account for it as a derivative liability. The Company valued the conversion features of convertible notes and warrant using the Black Scholes valuation model. During the three months ended March 31, 2021, the fair value of the derivative liability for new notes was $0, as there were no notes that became convertible. NOTE 7 – DERIVATIVE LIABILITY The Company analyzed the conversion option for derivative accounting consideration under ASC 815, Derivatives and Hedging , and determined that the instrument should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. Fair Value Assumptions Used in Accounting for Derivative Liabilities ASC 815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in the fair market value as other income or expense item. The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of March 31, 2021. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. 13 iQSTEL INC Notes to the Unaudited Consolidated Financial Statements March 31, 2021 NOTE 7 – DERIVATIVE LIABILITY (CONTINUED) For the three months ended March 31, 2021 and the year ended December 31, 2020, the estimated fair values of the liabilities measured on a recurring basis are as follows: Three months ended Year ended March 31, December31, 2021 2020 Expected term 0.16 - 1.18 years 0.02 - 6.00 years Expected average volatility 145% - 241% 74% - 550% Expected dividend yield - - Risk-free interest rate 0.07% - 0.09% 0.05% - 2.56% The following table summarizes the changes in the derivative liabilities during the three months ended March 31, 2021: Fair Value Measurements Using Significant Observable Inputs (Level 3) Balance - December 31, 2020 $ 1,025,691 Addition of new derivatives recognized as debt discounts - Addition of new derivatives recognized as loss on derivatives - Settled on issuance of common stock (708,611) Change in fair value of the derivative liabilities (277,575) Balance - March 31, 2021 $ 39,505 The following table summarizes the change in fair value of derivative liability included in the income statement for the three months ended March 31, 2021 and 2020, respectively. Three months Ended March 31, 2021 2020 Addition of new derivatives recognized as loss on derivatives $ - $ - Revaluation of derivative liabilities (277,575) 1,660,023 Change in fair value of the derivative liabilities $ (277,575) $ 1,660,023 NOTE 8 – SHAREHOLDERS’ EQUITY The Company’s authorized capital consists of 1,200,000 shares of preferred stock and 300,000,000 shares of common stock with a par value of $0.001 per share. Common Stock During the three months ended March 31, 2021, the Company issued 42,988,132 shares of common stock, valued at fair market value on issuance as follows; · 35,862,500 shares issued for cash of $3,586,250 · 600,000 shares issued to our management for compensation valued at $564,000 · 6,080,632 shares issued for conversion of debt of $422,295 · 195,000 shares for services valued at $284,700 · 250,000 shares for forbearance of debt valued at $49,925 During the three months ended March 31, 2021, the Company cancelled 1,294,600 shares of common stock which was issued for service. As of March 31, 2021 and December 31, 2020, 138,826,964 and 118,133,432 shares of common stock were issued and outstanding, respectively. 14 iQSTEL INC Notes to the Unaudited Consolidated Financial Statements March 31, 2021 NOTE 8 – SHAREHOLDERS’ EQUITY (CONTINUED) 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 shareholders at a rate of 51% of the total vote of shareholders. 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, 2021 and December 31, 2020, 10,000 shares of Series A Preferred Stock were issued and outstanding, respectively. 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. During the three months ended March 31, 2021, 21,000,000 shares of common stock were converted into 21,000 shares of Series B Preferred Stock by our management. As of March 31, 2021 and December 31, 2020, 21,000 and 0 shares of Series B Preferred Stock were issued and outstanding, respectively. 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 B 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 leak-out restriction on sales into the market of no more than 5% previous month’s stock liquidity. The rights of the holders of Series C Preferred Stock are defined in the relevant Certificate of Designation filed with the Nevada Secretary of State on January 7, 2021. 15 iQSTEL INC Notes to the Unaudited Consolidated Financial Statements March 31, 2021 NOTE 9 - RELATED PARTY TRANSACTIONS Due from related parties During the three months ended March 31, 2021 and 2020, the Company loaned $0 and $13,399 to a related party, respectively. As of March 31, 2021 and December 31, 2020, the Company had due from related parties of $221,790. The loans are unsecured, non-interest bearing and due on demand. Due to related parties During the three months ended March 31, 2021 and 2020, the Company borrowed $0 and $182 from CEO and CFO of the Company, and repaid $10,587 and $162 to the CEO and CFO, respectively. As of March 31, 2021 and December 31, 2020, the Company had amounts due to related parties of $34,616 and $94,616, respectively. During the three months ended March 31, 2021, the Company paid $60,000 for the rest of consideration of acquisition of IoT Labs in 2020 The amounts are unsecured, non-interest bearing and due on demand. Employment agreements During the three months ended March 31, 2021 and 2020, the Company recorded management fees of $135,000 and $126,000, bonus of $564,000 and $0 and paid $143,212 and $28,600, respectively. NOTE 1 0 – COMMITMENTS AND CONTINGENCIES Leases and Long-term Contracts The Company has not entered into any long-term leases, contracts or commitments. Lease The Company leases facilities which the term is less than 12 months. For the years ended March 31, 2021 and December 31, 2020, the Company incurred $6,900 and $9,200, respectively. Advisory service On March 3, 2020, we appointed Oscar Brito as an advisor to our Board of Directors and agreed to pay him $5,000 per month for such services. Mr. Brito acted as an advisor to our Board of Directors until August 30, 2020. 16 iQSTEL INC Notes to the Unaudited Consolidated Financial Statements March 31, 2021 NOTE 1 1 - SEGMENT At March 31, 2021, 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, 2021 and 2020: 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) Three Months Ended March 31, 2020 USA Switzerland Elimination Total Revenues $ 3,820,533 $ 1,198,117 $ (1,238) $ 5,017,412 Cost of revenue 4,121,183 1,058,608 (1,238) 5,178,553 Gross profit (300,650) 139,509 - (161,141) Operating expenses General and administration 1,132,092 165,435 - 1,297,527 Operating income (loss) (1,432,742) (25,926) - (1,458,668) Other income (expense) (2,438,271) (12,264) - (2,450,535) Net loss $ (3,871,013) $ (38,190) $ - $ (3,909,203) 17 iQSTEL INC Notes to the Unaudited Consolidated Financial Statements March 31, 2021 NOTE 11 – SEGMENT (CONTINUED) Asset Information The following table shows asset information by geographic segment as of March 31, 2021 and December 31, 2020: March 31, 2021 USA Switzerland Elimination Total Assets Current assets $ 5,719,953 $ 1,048,730 $ (935,105) $ 5,833,578 Non-current assets $ 3,473,041 $ 530,202 $ (1,669,515) $ 2,333,728 Liabilities Current liabilities $ 4,416,181 $ 2,926,454 $ (935,105) $ 6,407,530 Non-current liabilities $ 3,180 $ 396,788 $ - $ 399,968 December 31, 2020 USA Switzerland Elimination Total Assets Current assets $ 3,245,725 $ 1,225,399 $ (889,540) $ 3,581,584 Non-current assets $ 3,478,147 $ 561,551 $ (1,669,515) $ 2,370,183 Liabilities Current liabilities $ 5,630,060 $ 3,171,419 $ (889,540) $ 7,911,939 Non-current liabilities $ 2,816 $ 432,048 $ - $ 434,864 NOTE 12 – SUBSEQUENT EVENT 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. 18