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Item 7. Management’s Discussion and Analysis

2022-04-15 compared with 2021-04-15 · 109 added, 63 removed, 33 unchanged (84% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations for the Years Ended December 31, 2020 and 2019

Our net revenue for the year ended December 31, 2019 was $44,910,006 as compared with $18,031,548 for the year ended December 31, 2019.

These numbers reflect an increase of 149% year over year on our consolidated Revenues.

When looking at the numbers by subsidiary, we have the following breakout for the year ended December 31, 2020:

Management’s Discussion and Analysis of Financial Condition

and Results of Operations

Results of Operations for the Years

Ended December 31, 2021 and 2020

Our net revenue for the year ended December 31,

2021 was $64,702,018 as compared with $44,910,006 for the year ended December 31, 2020.

These numbers reflect an increase of 44% year

over year on our consolidated Revenues.

When looking at the numbers by subsidiary, we have

the following breakout for the years ended December 31, 2021 and 2020:

December 31, 2021

December 31, 2020

Etelix.com USA, LLC

SwissLink Carrier AG

The continued growth of our revenue is the result of the development of our business strategy, which includes the strengthening of our commercial and operating activities and new acquisitions.

If net revenues continue growing at a similar rates for the next twelve months, we believe that the company will reach a total consolidated revenue of approximately $60 million by December 31, 2021.

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.

If net revenues continue growing at a similar rate

for the next twelve months, we believe that the company will reach a total consolidated revenue of approximately $90 million by December

Cost of Revenue

Our total cost of sales for the year ended December 31, 2020 was $43,947,654 as compared with $17,250,623 for the year ended December 31, 2019.

When looking at the numbers by subsidiary, we have the following breakout for the year ended December 31, 2020:

Our total cost of sales for the year ended December

31, 2021 was $63,168,303 as compared with $43,947,654 for the year ended December 31, 2020.

When looking at the numbers by subsidiary, we have

the following breakout for the years ended December 31, 2021 and 2020:

Cost of revenue

December 31, 2021

Cost of revenue

December 31, 2020

Etelix.com USA, LLC

SwissLink Carrier AG

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

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.

Our gross margin, which is simply the difference between our revenues and our cost of sales, discussed above, increased from $780,925 in 2019 to $962,352 in 2020.

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

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

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.

Our gross margin, which is simply the difference

between our revenues and our cost of sales, discussed above, increased from $962,352 in 2020 to $1,533,715 in 2021.

We expect an increase in the gross margin for the next twelve months as

a result of having better termination costs.

Operating Expenses

Operating expenses for the year ended December 31, 2020 were $4,174,367, as compared with $1,449,624 for the year ended December 31, 2019.

Operating expenses for the year ended December 31, 2021 were $4,517,632,

as compared with $4,174,367 for the year ended December 31, 2020.

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

2 unchanged sentences

Professional Fees

Legal & Regulatory

Legal and Regulatory

Travel & Events

4 unchanged sentences

Stock-based compensation

Total Operating Expense

The main reasons for the overall increase in operating expenses for the year ended December 31, 2020 compared to the same period of 2019 is that in 2020 we are reflecting the costs corresponding to 5 operating subsidiaries (Etelix.com, SwissLink, ItsBchain, QGlobal and IoT Labs) plus the corporate costs corresponding to iQSTEL itself.

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

as shown in the table below.

Total Operating Expenses

Operating Expenses by subsidiary are as follow:

Years Ended December 31,

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

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

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

and (3) Stock-based compensation.

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

No allowance for doubtful accounts were established due to additional controls already implemented within the commercial area and collection team.

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

and a marketing program for the Reg A.

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

Global Money One

The most significant difference is generated by iQSTEL which is basically

due to the Stock-based compensation.

This item includes compensation to Management, Directors and other professional service providers.

No allowance for doubtful accounts were established

due to additional controls already implemented within the commercial area and collection team.

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 a marketing program

for the Regulation A offering.

All other items were stable from one year to the other, which allows us

to affirm that the cost structure of the company is under control.

Other Expenses

We had other expenses of $3,487,315 for the year ended December 31, 2020, as compared with other expenses of $4,774,039 for the year ended December 31, 2019.

Our other expenses in 2020 were mainly related to interest expense of $3,509,323, loss on the settlement of debt of $154,629 and other expenses of $117,562, offset mainly by a $255,614 change in fair value of derivative securities.

Our other expenses in 2019 were mainly related to interest expense of $2,653,996 and a $2,111,783 change in fair value of derivative securities.

We finished the year ended December 31, 2020 with a loss of $6,699,482 as compared to a loss of $5,442,738 during the year ended December 31, 2019.

We had other expenses of $880,085 for the year ended December 31, 2021,

as compared with other expenses of $3,487,315 for the year ended December 31, 2020.

The reduction in Other Expenses in 2021 compared to

2020 is due to the significant reduction in the interest expense of $3,509,323 for the year ended December 31, 2020 to $675,481 for the

year ended December 31, 2021.

We finished the year ended December 31, 2021 with a loss of $3,864,001

as compared to a loss of $6,699,482 during the year ended December 31, 2020.

This represents an improvement in our financial results year

over year, due to an increment in the Gross Revenue and a significant reduction of the Interest Expenses.

Liquidity and Capital Resources

As of December 31, 2020 we had total current assets of $3,581,584, compared with current liabilities of $7,911,939, resulting in a working capital deficiency of $4,330,355 and a current ratio of approximately 0.45 to 1.

As of December 31, 2021 we had total current assets of $6,566,524, compared

with current liabilities of $2,363,015, resulting in a positive working capital of $4,203,509 and a current ratio of approximately 2.78

This compares with the working capital deficiency of $4,330,355 and the current ratio of 0.45 to 1 at December 31, 2020.

Following is a table with summary data from the consolidated statement of cash flows for the year ended December 31, 2020 and 2019, as presented.

Following is a table with summary data from the consolidated statement

of cash flows for the year ended December 31, 2021 and 2020, as presented.

Net cash used in operating activities

Net cash provided by (used) in investing activities

$ (3,152,181 )

$ (2,116,174 )

Net cash used in investing activities

Net cash provided by financing activities

1 unchanged sentence

Net change in cash and cash equivalents

‬‬‬‬‬‬‬‬‬‬‬‬482,813‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬

265,933‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬

Our operating activities used $2,116,174 in the year ended December 31, 2020, as compared with $1,244,027 used in operating activities in the year ended December 31, 2019.

Our cash flow from operations varies depending on our operating results and the timing of operating cash receipts and payments, specifically trade accounts receivable and trade accounts payable.

Our operating activities used $3,152,181 in the year ended

December 31, 2021, as compared with $2,116,174 used in operating activities in the year ended December 31, 2020.

Our cash flow from operations

varies depending on our operating results and the timing of operating cash receipts and payments, specifically trade accounts receivable

and trade accounts payable.

Our negative operating cash flows in 2021 and 2020 is largely the result of our net loss for the years.

Investing activities used $91,211 for the year ended December 31, 2020, as compared with $152,069 provided by investing activities for the year ended December 31, 2019.

Our negative investing cash flow for 2020 is largely due to the acquisition of property and equipment of $90,192 and net payment of loans between related parties of $18,888.

Financing activities provided $2,662,756 for the year ended December 31, 2020, as compared with $1,357,526 provided for the year ended December 31, 2019.

Our positive financing cash flow in 2020 was largely the result of the net proceeds from loans of $1,239,620;

net proceeds from convertible notes of $1,420,000;

and proceed from the subscription of new common stock under our Regulation A offering $1,915,005;

offset by repayments on loans of $969,664 and repayments of convertible notes of $942,190.

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 80,000,000 common stocks.

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

We also plan to seek additional financing in a private equity offering to secure funding for operations.

There can be no assurance that we will be successful in raising additional funding.

Investing activities used $511,348 for the year ended December 31, 2021,

as compared with $91,211 used in investing activities for the year ended December 31, 2020.

Our negative investing cash flow for 2021

is largely due to the acquisition of property, equipment, and intangible assets of $230,900 and an increase of loans to related parties

Financing activities provided $6,250,980 for the year ended December 31,

2021, as compared with $2,662,756 provided for the year ended December 31, 2020.

Our positive financing cash flow in 2021 was largely

the result of the $6,336,250 net proceeds from the subscription of new common stock under our Regulation A offering.

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 80,000,000 common stocks.

This offering is being conducted

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

We also plan to seek

additional financing in a private equity offering to secure funding for operations.

There can be no assurance that we will be successful

in raising additional funding.

If we are not able to secure additional funding, the implementation of our business plan will be impaired.

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

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 twelve month period ended December 31, 2020.

Although our operations are influenced by general economic conditions,

we do not believe that inflation had a material effect on our results of operations during the twelve-month period ended December 31,

Critical Accounting Policies

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 Annual Report on Form 10-K for the year ended December 31, 2020;

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 Annual Report for a complete discussion of our significant accounting policies.

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 Annual Report on Form 10-K for the year ended December

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 Annual Report for a complete discussion of

our significant accounting policies.

Off Balance Sheet Arrangements

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

As of December 31, 2021, there were

no off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

We do not expect the adoption of these or other recently issued accounting pronouncements to have a significant impact on our results of operation, financial position or cash flow.

We do not expect the adoption of these

or other recently issued accounting pronouncements to have a significant impact on our results of operation, financial position or cash

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

What changed 10-K

Item 7. Management’s Discussion and Analysis