iQSTEL Inc 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 September 30, 2021 ☐ 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: 141,717,358 common shares as of November 15, 2021 1 Table of Contents TABLE OF CONTENTS Page PART I – FINANCIAL INFORMATION Item 1: Financial Statements 3 Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 4 Item 3: Quantitative and Qualitative Disclosures About Market Risk 8 Item 4: Controls and Procedures 9 PART II – OTHER INFORMATION Item 1: Legal Proceedings 10 Item 1A: Risk Factors 10 Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 10 Item 3: Defaults Upon Senior Securities 10 Item 4: Mine Safety Disclosures 10 Item 5: Other Information 10 Item 6: Exhibits 11 2 Table of Contents 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 September 30, 2021 (unaudited) and December 31, 2020; F-2 Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (unaudited); F-3 Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (unaudited); and F-4 Consolidated Statements of Stockholder’s Equity as of September 30, 2021; and 2020. 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 September 30, 2021 are not necessarily indicative of the results that can be expected for the full year. 3 Table of Contents iQSTEL INC Consolidated Balance Sheets (Unaudited) September 30, 2021 December 31, 2020 ASSETS Current Assets Cash and cash equivalents $ 1,190,804 $ 753,316 Accounts receivable, net 3,407,819 2,528,321 Due from related parties 421,586 221,790 Prepaid and other current assets 182,151 78,157 Total Current Assets 5,202,360 3,581,584 Property and equipment, net 352,724 350,530 Intangible asset 49,699 21,875 Goodwill 1,537,742 1,537,742 Deferred tax assets 435,902 460,036 TOTAL ASSETS $ 7,578,427 $ 5,951,767 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities Accounts payable 2,424,769 2,737,411 Due to related parties 26,613 94,616 Loans payable - net of discount of $ 0 and $ 19,221 102,911 1,332,612 Loans payable - related parties 1,093,902 2,054,379 Current portion of convertible notes - net of discount of $ 0 and $ 370,106 — 253,554 Other current liabilities 268,122 413,676 Derivative liabilities — 1,025,691 Total Current Liabilities 3,916,317 7,911,939 Convertible notes - net of discount of $ 0 and $ 2,184 — 2,816 Loans payable, non-current 126,024 270,836 Employee benefits, non-current 152,755 161,212 TOTAL LIABILITIES 4,195,096 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 141,717,358 and 118,133,432 shares issued and outstanding, respectively 141,717 118,133 Additional paid in capital 22,079,704 13,267,261 Accumulated deficit ( 17,827,869 ) ( 14,699,148 Accumulated other comprehensive loss ( 47,088 ) ( 74,831 ) Equity (Deficit) attributed to stockholders of iQSTEL Inc. 4,346,495 ( 1,388,575 ) Deficit attributable to noncontrolling interests ( 963,164 ) ( 1,006,461 ) Total stockholders' Equity (Deficit) 3,383,331 ( 2,395,036 ) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 7,578,427 $ 5,951,767 The accompanying notes are an integral part of these unaudited consolidated financial statements. F- 1 Table of Contents iQSTEL INC Consolidated Statements of Operations (Unaudited) Three Months Ended Nine Months Ended September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 Revenues $ 16,516,739 $ 13,291,698 $ 46,842,717 $ 29,439,196 Cost of revenue 15,675,687 13,158,685 45,469,730 28,735,016 Gross profit 841,052 133,013 1,372,987 704,180 Operating expenses General and administration 957,195 958,787 3,664,473 3,161,330 Total operating expenses 957,195 958,787 3,664,473 3,161,330 Operating loss ( 116,143 ) ( 825,774 ) ( 2,291,486 ) ( 2,457,150 ) Other income (expense) Other income 11,252 4,412 40,431 29,144 Other expenses 475 ( 61 ) ( 421 ) ( 8,118 ) Interest expense ( 6,802 ) ( 913,592 ) ( 648,889 ) ( 2,368,107 ) Change in fair value of derivative liabilities — 1,096,265 317,080 1,350,513 Loss on settlement of debt — ( 331,475 ) ( 528,794 ) ( 48,245 ) Total other income (expense) 4,925 ( 144,451 ) ( 820,593 ) ( 1,044,813 ) Net loss before provision for income taxes ( 111,218 ) ( 970,225 ) ( 3,112,079 ) ( 3,501,963 ) Income taxes — — — — Net loss ( 111,218 ) ( 970,225 ) ( 3,112,079 ) ( 3,501,963 ) Less: Net income (loss) attributable to noncontrolling interests 87,736 ( 26,224 ) 16,642 46,509 Net loss attributed to stockholders of iQSTEL Inc. $ ( 198,954 ) $ ( 944,001 ) $ ( 3,128,721 ) $ ( 3,548,472 ) Comprehensive income (loss) Net loss $ ( 111,218 ) $ ( 970,225 ) $ ( 3,112,079 ) $ ( 3,501,963 ) Foreign currency adjustment 3,406 ( 42,722 ) 54,398 ( 76,310 ) Total comprehensive loss ( 107,812 ) $ ( 1,012,947 ) $ ( 3,057,681 ) $ ( 3,578,273 ) Less: Comprehensive income (loss) attributable to noncontrolling interests 89,405 ( 47,158 ) 43,297 9,117 Net comprehensive loss attributed to stockholders of iQSTEL Inc. $ ( 197,217 ) $ ( 965,789 ) $ ( 3,100,978 ) $ ( 3,587,390 ) Basic and diluted loss per common share $ ( 0.00 ) $ ( 0.01 ) $ ( 0.02 ) $ ( 0.07 ) Weighted average number of common shares outstanding - Basic and diluted 141,697,141 73,045,296 133,173,421 53,705,271 The accompanying notes are an integral part of these unaudited consolidated financial statements. F- 2 Table of Contents iQSTEL INC Consolidated Statements of Changes in Stockholders’ (Deficit) Equity For the three and nine months ended September 30, 2021 and 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 Stockholders' 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 income (loss) — — — — — — — ( 1,942,391 ) — ( 1,942,391 ) 63,902 ( 1,878,489 ) Balance - March 31, 2021 10,000 $ 10 21,000 $ 21 138,826,964 $ 138,827 $ 18,772,223 $ ( 16,641,539 ) $ ( 19,926 ) $ 2,249,616 $ ( 889,808 ) $ 1,359,808 Common stock issued for compensation — — — — 600,000 600 411,600 — — 412,200 — 412,200 Common stock issued for settlement of debt — — — — 2,230,394 2,230 2,054,300 — — 2,056,530 — 2,056,530 Debt forgiveness — — — — — — 807,103 — — 807,103 — 807,103 Foreign currency translation adjustments — — — — — — — — ( 28,899 ) ( 28,899 ) ( 27,765 ) ( 56,664 ) Net loss — — — — — — — ( 987,376 ) — ( 987,376 ) ( 134,996 ) ( 1,122,372 ) Balance - June 30, 2021 10,000 $ 10 21,000 $ 21 141,657,358 $ 141,657 $ 22,045,226 $ ( 17,628,915 ) $ ( 48,825 ) $ 4,509,174 $ ( 1,052,569 ) $ 3,456,605 Common stock issued for compensation — — — — 60,000 60 34,478 — — 34,538 — 34,538 Foreign currency translation adjustments — — — — — — — — 1,737 1,737 1,669 3,406 Net income (loss) — — — — — — — ( 198,954 ) — ( 198,954 ) 87,736 ( 111,218 ) Balance - September 30, 2021 10,000 $ 10 21,000 $ 21 141,717,358 $ 141,717 $ 22,079,704 $ ( 17,827,869 ) $ ( 47,088 ) $ 4,346,495 $ ( 963,164 ) $ 3,383,331 Common Stock Shares Amount Additional Paid in Capital Accumulated Deficit Accumulated Comprehensive Loss Total Non Controlling Interest Total Stockholders' 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 to be 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 ) Common stock issued for cash 4,500,000 4,500 355,500 — — 360,000 — 360,000 Common stock issued for conversion of debt 16,613,263 16,614 410,918 — — 427,532 — 427,532 Common stock issued for exercised cashless warrant 997,889 998 ( 998 ) — — — — — Common stock issued for settlement of debt 200,000 200 67,140 — — 67,340 — 67,340 Resolution of derivative liabilities — — 1,094,240 — — 1,094,240 — 1,094,240 Acquisition of IOT Lab — — — — — — 94,366 94,366 Foreign currency translation adjustments — — — — ( 15,458 ) ( 15,458 ) ( 14,852 ) ( 30,310 ) Net income - - — — — 1,286,019 — 1,286,019 91,446 1,377,465 Balance - June 30, 2020 - - 68,295,300 $ 68,295 $ 8,686,103 $ ( 10,729,728 ) $ ( 17,311 ) $ ( 1,992,641 ) $ ( 752,872 ) $ ( 2,745,513 ) Common stock issued for cash 4,437,500 4,437 350,568 — — 355,005 — 355,005 Common stock issued for conversion of debt 1,991,864 1,992 63,939 — — 65,931 — 65,931 Common stock issued for settlement of debt 1,766,946 1,767 94,071 — — 95,838 — 95,838 Common stock issued for service 1,694,600 1,695 116,249 — — 117,944 — 117,944 Resolution of derivative liabilities — — 80,472 — — 80,472 — 80,472 Foreign currency translation adjustments — — — — ( 21,788 ) ( 21,788 ) ( 20,934 ) ( 42,722 ) Net loss - - — — — ( 944,001 ) — ( 944,001 ) ( 26,224 ) ( 970,225 ) Balance - September 30, 2020 - - 78,186,210 $ 78,186 $ 9,391,402 $ ( 11,673,729 ) $ ( 39,099 ) $ ( 2,243,240 ) $ ( 800,030 ) $ ( 3,043,270 ) The accompanying notes are an integral part of these unaudited consolidated financial statements. F- 3 Table of Contents iQSTEL INC Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 3,112,079 ) $ ( 3,501,963 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock based compensation 1,205,334 617,978 Bad debts — 92,875 Write-off of due from related party 7,648 43,375 Depreciation and amortization 66,924 49,318 Amortization of debt discount 435,956 1,497,268 Change in fair value of derivative liabilities ( 317,080 ) ( 1,350,513 ) Loss on settlement of debt 528,794 48,245 Prepayment and Default penalty 122,020 245,546 Changes in operating assets and liabilities: Accounts receivable ( 943,615 ) 434,752 Prepaid and other current assets ( 108,338 ) 26,762 Accounts payable ( 239,857 ) ( 221,583 ) Other current liabilities ( 131,752 ) 491,427 Net cash used in operating activities ( 2,486,045 ) ( 1,526,513 ) CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of subsidiary, net of cash acquired ( 60,000 ) 15,781 Purchase of property and equipment ( 74,799 ) ( 78,306 ) Purchase of intangible assets ( 27,824 ) — Payment of loan receivable - related party ( 215,674 ) ( 17,187 ) Collection of due from related parties 226 388 Net cash used in investing activities ( 378,071 ) ( 79,324 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from loans payable 400,000 933,280 Repayments of loans payable ( 331,150 ) ( 607,447 ) Proceeds from loans payable - related parties — 20,182 Repayment of loans payable - related parties ( 90,787 ) ( 20,197 ) Common stock issued 3,586,250 715,004 Proceeds from convertible notes — 1,420,000 Repayment of convertible notes ( 250,000 ) ( 492,190 ) Net cash provided by financing activities 3,314,313 1,968,632 Effect of exchange rate changes on cash ( 12,709 ) 14,036 Net change in cash and cash equivalents 437,488 376,831 Cash and cash equivalents, beginning of period 753,316 270,503 Cash and cash equivalents, end of period $ 1,190,804 $ 647,334 Supplemental cash flow information Cash paid for interest $ 117,198 $ 641,390 Cash paid for taxes $ — $ — Non-cash transactions: Derivative liabilities recognized as debt discount $ — $ 1,006,642 Common stock issued for conversion of debt $ 422,295 $ 767,431 Cashless warrant exercised $ — $ 3,233 Resolution of derivative liabilities $ 708,611 $ 3,742,060 Related party debt forgiveness $ 807,103 $ — Common stock issued for settlement of debt $ 2,056,530 $ 365,678 Amount owing for acquisition of IOT $ — $ 60,000 Common stock issued for forbearance of debt $ 49,925 $ 2,900 Replacement of convertible notes to note payable $ — $ 1,000,000 Preferred stock issued for conversion of common stock $ 21,000 $ — The accompanying notes are an integral part of these unaudited consolidated financial statements. F- 4 Table of Contents iQSTEL INC Notes to the Unaudited Consolidated Financial Statements September 30, 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. The Company incorporated a 75% owned subsidiary, Global Money One Inc. under the laws of the state of Delaware, on November 16, 2020. 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 September 30, 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 November 15, 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 September 30, 2021 and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended September 30, 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. F- 5 Table of Contents 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, IoT Labs, LLC and Global Money One Inc. 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. 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 functional currency and reporting currency of Etelix, QGlobal, ItsBchain, IoT Labs and Global Money One is the U.S. dollar, while SwissLink’s functional currency is the Swiss Franc (“CHF”). Swisslink translates their records into U.S. dollars 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 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, 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 nine months ended September 30, 2021 and 2020, the Company recorded bad debt expense of $0 and $92,875, respectively. 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 nine months ended September 30, 2021 and 2020. F- 6 Table of Contents 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 nine months ended September 30, 2021 and 2020, 6 customers represented 87 % of our revenues and 29 customers represented 87 % 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. 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. Reclassifications Certain amounts in the financial statements of prior year periods have been reclassified to conform to the current period’s presentation. F- 7 Table of Contents 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 September 30, 2021 and December 31, 2020 consisted of the following: September 30, December 31, 2021 2020 Telecommunication equipment $ 258,784 $ 259,000 Telecommunication software 564,919 530,514 Other equipment 79,268 47,206 Total property and equipment 902,971 836,720 Accumulated depreciation and amortization ( 550,247 ) ( 486,190 ) Total property and equipment $ 352,724 $ 350,530 Depreciation and amortization expense for the nine months ended September 30, 2021 and 2020 amounted to $ 66,924 and $ 49,318 , respectively. F- 8 Table of Contents NOTE 5 – LOANS PAYABLE Loans payable at September 30, 2021 and December 31, 2020 consisted of the following: September 30, December 31, 2021 2020 Term Interest rate Unique Funding Solutions_2 $ — $ 2,000 Note was issued on October 12, 2018 and due on January 17, 2019 28.6 % YES LENDER LLC 3 — 5,403 Note was issued on August 3, 2020 and due on January 12, 2021 26.0 % Advance Service Group LLC — 12,143 Note was issued on October 20, 2020, 2020 and due on February 19, 2021 29.0 % 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, 2021 12.0 % Apollo Management Group, Inc 4 — 73,684 Note was issued on April 2, 2020 and due on October 2, 2021 12.0 % Apollo Management Group, Inc 5 — 36,842 Note was issued on April 7, 2020 and due on October 7, 2021 12.0 % Apollo Management Group, Inc 6 — 84,211 Note was issued on April 15, 2020 and due on October 15, 2021 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 102,911 108,609 Note was issued on October 23, 2018 and due on January 3, 2022 5.0 % Swisspeers AG 18,913 49,187 Note was issued on April 8, 2019 and due on October 4, 2022 7.0 % Darlene Covid19 107,111 113,040 Note was issued on April 1, 2020 and due on March 31, 2025 0.0 % Total 228,935 1,622,669 Less: Unamortized debt discount — ( 19,221 ) Total loans payable 228,935 1,603,448 Less: Current portion of loans payable ( 102,911 ) ( 1,332,612 ) Long-term loans payable $ 126,024 $ 270,836 F- 9 Table of Contents Loans payable to related parties at September 30, 2021 and December 31, 2020 consisted of the following: September 30, December 31, 2021 2020 Alonso Van Der Biest $ — $ 80,200 Alvaro Quintana — 10,587 49% of Shareholder of SwissLink 879,682 1,737,512 49% of Shareholder of SwissLink 214,220 226,080 Total 1,093,902 2,054,379 Less: Current portion of loans payable 1,093,902 2,054,379 Long-term loans payable $ — $ — During the nine months ended September 30, 2021, the related party loan of $ 807,103 (Euro 735,00 0) was forgiven and the Company recorded it as additional paid in capital. During the nine months ended September 30, 2021 and 2020, the Company borrowed from third parties totaling $ 444,444 and $ 967,596 , which includes original issue discount and financing costs of $ 44,444 and $ 34,316 and repaid the principal amount of $ 331,150 and $ 607,447 , respectively. During the nine months ended September 30, 2021 and 2020, the Company recorded interest expense of $ 179,504 and $ 180,843 and recognized amortization of discount, included in interest expense, of $ 63,666 and $ 33,842 , respectively. During the nine months ended September 30, 2021, the Company settled loans payable of $ 1,516,667 by issuing 2,230,394 shares of common stock valued at $ 2,056,530 . As a result, the Company recorded loss on settlement of debt of $ 539,863 . NOTE 6 - CONVERTIBLE LOANS At September 30, 2021 and December 31, 2020, convertible loans consisted of the following: September 30, December 31, 2021 2020 Promissory notes – Issued in fiscal year 2019, with variable conversion features $ — $ 5,000 Promissory notes – Issued in fiscal year 2020, with variable conversion features — 623,660 Total convertible notes payable — 628,660 Less: Unamortized debt discount — ( 372,290 ) Total convertible notes — 256,370 Less: current portion of convertible notes — 253,554 Long-term convertible notes $ — $ 2,816 During the nine months ended September 30, 2021 and 2020, the Company recorded interest expense of $ 33,429 and $ 689,996 and recognized amortization of discount, included in interest expense, of $ 372,290 and $ 1,463,426 , respectively. F- 10 Table of Contents During the nine months ended September 30, 2021 and 2020, the Company repaid notes of $ 250,000 and $ 492,190 and accrued interest including prepayment penalty of $ 6,027 and $ 552,631 , respectively. During the nine months ended September 30, 2021, the Company recorded gain on settlement of debt of $ 11,069 . Conversion During the nine months ended September 30, 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. 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 September 30, 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. As of September 30, 2021 and December 31, 2020, the estimated fair values of the liabilities measured on a recurring basis are as follows: As of As of September 30, December 31, 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 nine months ended September 30, 2021: Fair Value Measurements Using Significant Observable Inputs (Level 3) Balance - December 31, 2020 $ 1,025,691 Settled on issuance of common stock ( 708,611 ) Change in fair value of the derivative ( 317,080 ) Balance - September 30, 2021 $ — F- 11 Table of Contents The following table summarizes the change in fair value of derivative liability included in the income statement for the nine months ended September 30, 2021 and 2020, respectively. Nine months Ended September 30, 2021 2020 Addition of new derivatives recognized as loss on derivatives $ — $ 1,040,636 Revaluation of derivative liabilities ( 317,080 ) ( 2,391,149 ) (Gain) loss on change in fair value of the derivative $ ( 317,080 ) $ ( 1,350,513 ) NOTE 8 – STOCKHOLDERS’ 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 nine months ended September 30, 2021, the Company issued 45,878,526 shares of common stock, valued at fair market value on issuance as follows; · 35,862,500 shares issued for cash of $ 3,586,250 · 2,230,394 shares, valued at $ 2,056,530 , issued for settlement of debt of $ 1,516,667 · 1,260,000 shares issued to our management for compensation valued at $ 1,010,738 · 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 nine months ended September 30, 2021, the Company terminated a placement agent and advisory services agreement with a FINRA member dated September 22, 2020, and cancelled 1,294,600 shares of common stock, which was issued for those services. The termination agreement allowed the FINRA member to retain 400,000 shares of the Company’s common stock in connection with the services. As of September 30, 2021 and December 31, 2020, 141,717,358 and 118,133,432 shares of common stock were issued and outstanding, respectively. 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 September 30, 2021 and December 31, 2020, 10,000 shares of Series A Preferred Stock were issued and outstanding, respectively. F- 12 Table of Contents 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 nine months ended September 30, 2021, 21,000,000 shares of common stock were converted into 21,000 shares of Series B Preferred Stock by our management. As of September 30, 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 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 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. As of September 30, 2021 and December 31, 2020, no Series C Preferred Stock was issued or outstanding. NOTE 9 - RELATED PARTY TRANSACTIONS Due from related parties During the nine months ended September 30, 2021 and 2020, the Company loaned $ 35,674 and $ 17,187 to a related party who is a shareholder and a former director, and collected $ 226 and $ 388 , respectively. During the nine months ended September 30, 2021, the Company loaned $ 180,000 to our CEO and wrote off amounts totaling $ 8,004 . During the nine months ended September 30, 2021, the Company wrote off due from related party of $ 7,648 . As of September 30, 2021 and December 31, 2020, the Company had due from related parties of $ 421,586 and $ 221,790 . The loans are unsecured, non-interest bearing and due on demand. F- 13 Table of Contents Due to related parties During the nine months ended September 30, 2021 and 2020, the Company borrowed $ 0 and $ 182 from CEO and CFO of the Company, and repaid $ 0 and $ 197 to the CEO and CFO, respectively. During the nine months ended September 30, 2020, the Company borrowed $ 20,000 from Francisco Bunt who owns 49 % of loT Labs and repaid $ 20,000 . As of September 30, 2021 and December 31, 2020, the Company had amounts due to related parties of $ 26,613 and $ 94,616 , respectively. During the nine months ended September 30, 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 On July 1, 2021, the Company appointed three independent directors. Effective on July 1, 2021 and thereafter, all directors shall be compensated monthly up to 4,000 shares of common stock and cash of $ 1,000 for their service as directors. During the nine months ended September 30, 2021 and 2020, the Company recorded management salaries of $ 414,000 and $ 378,000 and bonuses of $ 976,200 and $ 0 . Additionally, management received stock-based compensation of $ 34,538 and $ 0 during the nine months ended September 30, 2021 and 2020, respectively. NOTE 10 – COMMITMENTS AND CONTINGENCIES Leases and Long-term Contracts The Company has not entered into any long-term leases, contracts or commitments. 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. On February 11, 2021, the Company paid $ 12,600 and the service was terminated. On January 4, 2021, the Company terminated a placement agent and advisory services agreement with a FINRA member dated September 22, 2020, and cancelled 1,294,600 shares of common stock, which was issued for those services. The termination agreement allowed the FINRA member to retain 400,000 shares of the Company’s common stock in connection with the services. NOTE 11 - SEGMENT At September 30, 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 and nine months ended September 30, 2021 and 2020: F- 14 Table of Contents Three months ended September 30, 2021 NOTE 11 - SEGMENT - Schedule of Operating Activities by Geographic Segment USA Switzerland Elimination Total Revenues $ 15,347,282 1,189,230 $ ( 19,773 ) $ 16,516,739 Cost of revenue 14,706,065 989,395 ( 19,773 ) 15,675,687 Gross profit 641,217 199,835 — 841,052 Operating expenses General and administration 738,578 218,617 — 957,195 Operating loss ( 97,361 ) ( 18,782 ) — ( 116,143 ) Other income 1,525 3,400 — 4,925 Net loss $ ( 95,836 ) $ ( 15,382 ) $ — $ ( 111,218 ) Three months Ended September 30, 2020 USA Switzerland Elimination Total Revenues $ 11,763,153 $ 1,535,881 $ ( 7,336 ) $ 13,291,698 Cost of revenue 11,830,752 1,335,269 ( 7,336 ) 13,158,685 Gross profit ( 67,599 ) 200,612 — 133,013 Operating expenses General and administration 784,662 174,125 — 958,787 Operating income (loss) ( 852,261 ) 26,487 — ( 825,774 ) Other expense ( 131,391 ) ( 13,060 ) — ( 144,451 ) Net income (loss) $ ( 983,652 ) $ 13,427 $ — $ ( 970,225 ) Nine months ended September 30, 2021 USA Switzerland Elimination Total Revenues $ 43,404,674 3,474,215 $ ( 36,172 ) $ 46,842,717 Cost of revenue 42,487,024 3,018,878 ( 36,172 ) 45,469,730 Gross profit 917,650 455,337 — 1,372,987 Operating expenses General and administration 3,077,319 587,154 — 3,664,473 Operating loss ( 2,159,669 ) ( 131,817 ) — ( 2,291,486 ) Other income (expense) ( 839,316 ) 18,723 — ( 820,593 ) Net loss $ ( 2,998,985 ) $ ( 113,094 ) $ — $ ( 3,112,079 ) F- 15 Table of Contents Nine months ended September 30, 2020 USA Switzerland Elimination Total Revenues $ 25,531,523 $ 3,917,085 $ ( 9,412 ) $ 29,439,196 Cost of revenue 25,339,224 3,405,204 ( 9,412 ) 28,735,016 Gross profit 192,299 511,881 — 704,180 Operating expenses General and administration 2,658,721 502,609 — 3,161,330 Operating income (loss) ( 2,466,422 ) 9,272 — ( 2,457,150 ) Other expense ( 1,022,167 ) ( 22,646 ) — ( 1,044,813 ) Net loss $ ( 3,488,589 ) $ ( 13,374 ) $ — $ ( 3,501,963 ) Asset Information The following table shows asset information by geographic segment as of September 30, 2021 and December 31, 2020: September 30, 2021 USA Switzerland Elimination Total Assets Current assets $ 3,528,658 $ 1,898,777 $ ( 225,075 ) $ 5,202,360 Non-current assets $ 4,414,010 $ 546,619 $ ( 2,584,562 ) $ 2,376,067 Liabilities Current liabilities $ 1,746,712 $ 2,394,680 $ ( 225,075 ) $ 3,916,317 Non-current liabilities $ — $ 278,779 $ — $ 278,779 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 Subsequent to September 30, 2021 and through the date that these financials were made available, the Company had the following subsequent events: On October 1st, 2021, the Company executed the acquisition of the remaining 49% of QGlobal SMS from Jesus Vega. As for the execution of this Amendment, Jesus Vega will receive US $ 100,000.00 in iQSTEL shares, which could be sold after six months from its issuance date. IQSTEL has up to 90 days to issue the shares. This issuance is conditioned to the transfer of the business to iQSTEL. On August 25, 2021, the Board authorized the creation of an Audit Committee (the “Audit Committee”). Raul Perez (chair), Italo Segnini and Jose Antonio Barreto were appointed to serve on the Audit Committee. Each of Messrs Perez, Segnini and Barreto have been determined by the Board to be independent directors within the meaning of NASDAQ Rule 5605. Mr. Perez was identified and designated by the Board as an “audit committee financial expert,” as defined by the SEC in Item 407 of Regulation S-K. The Board has also adopted a charter for the Audit Committee. F- 16 Table of Contents 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 QX: 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 SMS, LLC (https://www.qglobalsms.com/); IoT Labs, LLC (http://www.iotlabs.mx/); Global Money One Inc. (https://www.globalmoneyone.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 September 30, 2021 was $16,516,739, compared with $13,291,698 for the three months ended September 30, 2020. These numbers reflect an increase of 24.26% quarter over quarter on our consolidated revenues. Our total revenue reported for the nine months ended September 30, 2021 was $46,842,717, compared with $29,439,196 for the nine months ended September 30, 2020. These numbers reflect an increase of 59.12% year over year on our consolidated revenues 4 Table of Contents When looking at the numbers by subsidiary, we have the following breakout for the nine months ended September 30, 2021: Subsidiary Revenue Nine Months Ended September 30, 2021 Revenue Nine Months Ended September 30, 2020 Etelix.com USA, LLC $ 11,235,820 $ 10,705,409 SwissLink Carrier AG 3,474,215 3,917,085 QGlobal LLC 585,151 277,577 IoT Labs LLC 31,547,531 14,539,125 $ 46,842,717 $ 29,439,196 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 September 30, 2021 increased to $15,675,687, compared with $13,158,685 for the three months ended September 30, 2020. Our total cost of revenues for the nine months ended September 30, 2021 increased to $45,469,730, compared with $28,735,016 for the nine months ended September 30, 2020. When looking at the numbers by subsidiary, we have the following breakout for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020: Subsidiary Cost of Revenue Nine Months Ended September 30, 2021 Cost of Revenue Nine Months Ended September 30, 2020 Etelix.com USA, LLC $ 10,819,472 $ 10,759,820 SwissLink Carrier AG 3,018,877 3,405,204 QGlobal LLC 486,296 190,407 IoT Labs LLC 31,145,085 14,379,585 $ 45,469,730 $ 28,735,016 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. Operating Expenses Operating expenses decreased to $957,195 for the three months ended September 30, 2021 from $958,787 for the three months ended September 30, 2020. Operating expenses increased to $3,664,473 for the nine months ended September 30, 2021 from $3,161,330 for the nine months ended September 30, 2020. The detail by major category for the nine months ended September 30, 2021 and 2020 is reflected in the table below. 5 Table of Contents Nine Months Ended September 30, 2021 2020 Salaries, Wages and Benefits $ 863,413 $ 845,258 Technology 198,143 34,016 Professional Fees 353,080 268,552 Legal & Regulatory 87,448 3,225 Bad debts — 92,875 Travel & Events 15,710 1,386 Public Cost 30,078 84,265 Advertising 705,175 926,279 Bank Services and Fees 85,885 75,463 Depreciation and Amortization 66,924 49,318 Office, Facility and Other 337,983 162,715 Sub Total 2,743,839 2,543,352 Stock-based compensation 920,634 617,978 Total Operating Expense $ 3,664,473 $ 3,161,330 The main reasons for the overall increase in operating expenses for the nine months ended September 30, 2021 compared to the same period of 2020 is due to the following: (1) Technology as a result of the development of the blockchain solutions, the IoT devices, and the fintech platform; (2) Legal & Regulatory expenses due to the IoT devices certification process; (3) Other expenses associated to new interconnection deployments; and (3) Stock-based compensation. When looking at the numbers by subsidiary, we have the following breakout for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020: Nine Months Ended September 30, 2021 2020 Difference iQSTEL $ 2,395,047 $ 2,242,336 $ 152,711 Etelix $ 266,894 $ 259,844 $ 7,050 SwissLink $ 587,154 $ 502,609 $ 84,545 ItsBchain $ 2,198 $ 52,684 $ (50,486) QGlobal $ 92,881 $ 52,608 $ 40,273 IoT Labs $ 187,773 $ 51,249 $ 136,524 Global Money One $ 132,526 — $ 132,526 $ 3,664,473 $ 3,161,330 503,143 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 Management Team and Board members compensation; (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 September 30, 2021 of $116,143 compared with a negative result of $825,774 for the three months ended September 30, 2020. 6 Table of Contents The Company showed negative Operating Income for the nine months ended September 30, 2021 of $2,291,486 compared with a negative result of $2,457,150 for the nine months ended September 30, 2020. Even when the company presents an operating loss, the numbers reflect a positive evolution process that places us close to the breakeven point in operations. Other Expenses/Other Income We had other income of $4,925 for the three months ended September 30, 2021, as compared with other expenses of $144,451 for the same period ended 2020. We had other expenses of $820,593 for the nine months ended September 30, 2021, as compared with other expenses of $1,044,813 for the same period ended 2020. The decrease in other expenses is a consequence of not having interest expenses and other expenses related to derivatives. Net Income We finished the three months ended September 30, 2021 with a net loss of $111,218, as compared to a loss of $970,225 during the three months ended September 30, 2020. We also finished the nine months ended September 30, 2021 with a loss of $3,112,079, as compared to a loss of $3,501,963 during the nine months ended September 30, 2020. The reasons for specific components are discussed above. Overall, these are the main concepts impacting the net result: (1) the Operating Expenses of the public entity of $2,395,047; (2) a loss in settlement of debt of $528,794; and (3) interest expenses of $648,889. It is important to remark the important reduction in interest expenses when comparing the amount corresponding to the nine months ended September 30, 2021 ($648,889) versus the amount corresponding to the same period of year 2020 ($2,368,107). Liquidity and Capital Resources As of September 30, 2021, we had total current assets of $5,202,360 and current liabilities of $3,916,317, resulting in a positive working capital of $1,286,043. This compares with the working capital deficit of $4,330,355 at December 31, 2020. This increase in working capital, as discussed in more detail below, is primarily the result of the increase of $437,488 in the cash position; the increase of $879,498 in account receivable from the sales of services; and a reduction of $3,995,622 in the liabilities (loans, convertible notes and derivatives). Our operating activities used $2,486,045 in the nine months ended September 30, 2021 as compared with $1,526,513 used in operating activities in the nine months ended September 30, 2020. Investing activities used $378,071 for the nine months ended September 30, 2021. Uses of funds on investing activities were for acquisition of subsidiary of $60,000; the purchase of property and equipment for value of $102,623 and Payment of loan receivable - related party of $215,674. Financing activities provided $3,314,313 in the nine months ended September 30, 2021 compared with $1,968,632 provided in the nine months ended September 30, 2020. Our positive financing cash flow in 2021 was largely the result of the proceed from the subscription of new common stocks under our Regulation A offering of $3,586,250. The working capital and the cash position of the company has improved significantly; but 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 20,200,000 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. 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. 7 Table of Contents 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 nine month period ended September 30, 2021. 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 nine months ended September 30, 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, 2021, there were no off-balance sheet arrangements. Recent Accounting Pronouncements 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. 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. 8 Table of Contents 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 September 30, 2021. 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 September 30, 2021, 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. 9 Table of Contents 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, 2021. 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 nine months ended September 30, 2021, the Company issued 45,878,526 shares of common stock, valued at fair market value on issuance as follows; · 35,862,500 shares issued for cash of $3,586,250 · 2,230,394 shares, valued at $2,056,530, issued for settlement of debt of $1,516,667 · 1,260,000 shares issued to our management for compensation valued at $1,010,738 · 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 These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock. Item 3. Defaults upon Senior Securities None Item 4. Mine Safety Disclosures N/A Item 5. Other Information None 10 Table of Contents 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 September 30, 2021 formatted in Extensible Business Reporting Language (XBRL). **Provided herewith 11 Table of Contents SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on November 15, 2021 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 12