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 March 31, 2022 ☐ 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: 149,357,358 common shares as of May 16, 2022 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 8 PART II – OTHER INFORMATION Item 1: Legal Proceedings 9 Item 1A: Risk Factors 9 Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 9 Item 3: Defaults Upon Senior Securities 9 Item 4: Mine Safety Disclosures 9 Item 5: Other Information 9 Item 6: Exhibits 10 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 March 31, 2022 (unaudited) and December 31, 2021; F-2 Consolidated Statements of Operations for the three and nine months ended March 31, 2022 and 2021 (unaudited); F-3 Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (unaudited); and F-4 Consolidated Statements of Stockholder’s Equity as of March 31, 2022 and 2021. 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 March 31, 2022 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) March 31, December 31, 2022 2021 ASSETS Current Assets Cash $ 4,227,044 $ 3,334,813 Accounts receivable, net 2,604,334 2,540,515 Due from related parties 399,571 424,086 Prepaid and other current assets 141,122 267,110 Total Current Assets 7,372,071 6,566,524 Property and equipment, net 398,909 409,382 Intangible asset 99,592 99,592 Goodwill 1,537,742 1,537,742 Deferred tax assets 441,315 446,402 TOTAL ASSETS $ 9,849,629 $ 9,059,642 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities Accounts payable 1,521,619 1,474,595 Due to related parties 26,613 26,613 Loans payable - net of discount of $ 0 and $ 7,406 99,488 315,450 Loans payable - related parties 236,581 239,308 Other current liabilities 265,314 307,049 Deposit for option 500,000 — Total Current Liabilities 2,649,615 2,363,015 Loans payable, non-current 108,440 119,295 Employee benefits, non-current 154,652 156,434 TOTAL LIABILITIES 2,912,707 2,638,744 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 21,000 shares issued and outstanding 21 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 149,537,358 and 147,477,358 shares issued and outstanding, respectively 149,537 147,477 Additional paid in capital 26,882,061 25,842,982 Accumulated deficit ( 19,091,891 ) ( 18,536,921 ) Accumulated other comprehensive loss ( 36,854 ) ( 36,658 ) Equity (Deficit) attributed to stockholders of iQSTEL Inc. 7,902,884 7,416,911 Deficit attributable to noncontrolling interests ( 965,962 ) ( 996,013 ) Total stockholders' Equity (Deficit) 6,936,922 6,420,898 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 9,849,629 $ 9,059,642 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 March 31, 2022 2021 Revenues $ 19,419,311 $ 14,197,611 Cost of revenue 18,935,251 13,710,241 Gross profit 484,060 487,370 Operating expenses General and administration 989,498 1,498,111 Total operating expenses 989,498 1,498,111 Operating loss ( 505,438 ) ( 1,010,741 ) Other income (expense) Other income 24,159 25,034 Other expenses ( 28,564 ) ( 469 ) Interest expense ( 14,888 ) ( 630,025 ) Change in fair value of derivative liabilities — 277,575 Loss on settlement of debt — ( 539,863 ) Total other expense ( 19,293 ) ( 867,748 ) Net loss before provision for income taxes ( 524,731 ) ( 1,878,489 ) Income taxes — — Net loss ( 524,731 ) ( 1,878,489 ) Less: Net income attributable to noncontrolling interests 30,239 63,902 Net loss attributed to stockholders of iQSTEL Inc. $ ( 554,970 ) $ ( 1,942,391 ) Comprehensive income (loss) Net loss $ ( 524,731 ) $ ( 1,878,489 ) Foreign currency adjustment ( 384 ) 107,656 Total comprehensive loss $ ( 525,115 ) $ ( 1,770,833 ) Less: Comprehensive income attributable to noncontrolling interests 30,051 116,653 Net comprehensive loss attributed to stockholders of iQSTEL Inc. $ ( 555,166 ) $ ( 1,887,486 ) Basic and diluted loss per common share $ ( 0.00 ) $ ( 0.02 ) Weighted average number of common shares outstanding - Basic and diluted 147,539,580 118,489,436 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’ Equity (Deficit) For the three ended March 31, 2022 and 2021 (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, 2021 10,000 $ 10 21,000 $ 21 147,477,358 $ 147,477 $ 25,842,982 $ ( 18,536,921 ) $ ( 36,658 ) $ 7,416,911 $ ( 996,013 ) $ 6,420,898 Common stock issued for cash — — — — 2,000,000 2,000 998,000 — — 1,000,000 — 1,000,000 Common stock issued for compensation — — — — 60,000 60 41,079 — — 41,139 — 41,139 Foreign currency translation adjustments — — — — — — — — ( 196 ) ( 196 ) ( 188 ) ( 384 ) Net income (loss) — — — — — — — ( 554,970 ) — ( 554,970 ) 30,239 ( 524,731 ) Balance - March 31, 2022 10,000 $ 10 21,000 $ 21 149,537,358 $ 149,537 $ 26,882,061 $ ( 19,091,891 ) $ ( 36,854 ) $ 7,902,884 $ ( 965,962 ) $ 6,936,922 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’ (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 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) Three Months Ended March 31, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 524,731 ) $ ( 1,878,489 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock based compensation 41,139 758,596 Depreciation and amortization 33,547 20,560 Amortization of debt discount 7,407 434,136 Change in fair value of derivative liabilities — ( 277,575 ) Loss on settlement of debt — 539,863 Prepayment and default penalty — 122,020 Changes in operating assets and liabilities: Accounts receivable ( 87,361 ) 18,760 Prepaid and other current assets 24,677 ( 44,842 ) Due from related parties 23,316 — Accounts payable 73,445 ( 624,349 ) Other current liabilities ( 39,091 ) ( 110,872 ) Net cash used in operating activities ( 447,652 ) ( 1,042,192 ) CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of subsidiary, net of cash acquired — ( 60,000 ) Purchase of property and equipment ( 24,918 ) ( 18,346 ) Net cash used in investing activities ( 24,918 ) ( 78,346 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from loans payable — 400,000 Repayments of loans payable ( 232,018 ) ( 309,082 ) Repayment of loans payable - related parties — ( 10,587 ) Proceeds from common stock issued 1,100,000 3,586,250 Deposit for option 500,000 — Repayment of convertible notes — ( 250,000 ) Net cash provided by financing activities 1,367,982 3,416,581 Effect of exchange rate changes on cash ( 3,181 ) ( 16,722 ) Net change in cash 892,231 2,279,321 Cash, beginning of period 3,334,813 753,316 Cash, end of period $ 4,227,044 $ 3,032,637 Supplemental cash flow information Cash paid for interest $ 3,333 $ 111,622 Cash paid for taxes $ — $ — Non-cash transactions: Common stock issued for conversion of debt $ — $ 422,295 Resolution of derivative liabilities $ — $ 708,611 Preferred stock issued for conversion of common stock $ — $ 21 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 March 31, 2022 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. 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 (“GAAP”) 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, 2022 and the results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2022 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, 2021 filed with the SEC on April 15, 2022. Consolidation Policy The consolidated financial statements of the Company include the accounts of the Company and its owned subsidiaries, Etelix.com USA, LLC (“Etelix”), SwissLink Carrier AG (“Swisslink”), ITSBCHAIN, LLC (“ItsBchain”), QGLOBAL SMS, LLC (“QGlobal”), IoT Labs, LLC (“IoT Labs”) and Global Money One Inc (“Global Money One”). 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 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. F- 5 Table of Contents Foreign Currency Translation and Re-measurement The Company translates its foreign operations to the U.S. dollar in accordance with ASC 830, “ Foreign Currency Matters ”. The functional currency and reporting currency of the Company, Etelix, QGlobal, Itsbchain, IoT Labs and Global Money One is the U.S. dollar, while the functional currency of SwissLink 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 (loss) 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 and 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, 2022 and 2021, 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 period. 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 three months ended March 31, 2022 and 2021. 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. 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, 2022, 4 customers represented 86 % of our revenues. During the three months ended March 31, 2021, 4 customers represented 86 % of our revenues. F- 6 Table of Contents 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 is reasonably assured. Management considers persuasive evidence of a sales arrangement to be a written interconnection agreement. The Company’s payment terms vary by clients. 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 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, 2022 and December 31, 2021 consisted of the following: March 31, December 31, 2022 2021 Telecommunication equipment $ 272,567 $ 258,871 Telecommunication software 625,127 618,125 Other equipment 110,324 108,805 Total property and equipment 1,008,018 985,801 Accumulated depreciation and amortization ( 609,109 ) ( 576,419 ) Total property and equipment $ 398,909 $ 409,382 Depreciation and amortization expense for the three months ended March 31, 2022 and 2021 amounted to $ 33,547 and $ 20,560 , respectively. F- 7 Table of Contents NOTE 5 –LOANS PAYABLE Loans payable at March 31, 2022 and December 31, 2021 consisted of the following: March 31, December 31, Interest 2022 2021 Term rate Bridge Loan $ — $ 222,222 Note was issued on November 1, 2020 and due on January 30, 2022 18.0 % Martus 99,488 100,634 Note was issued on October 23, 2018 and due on January 3, 2023 5.0 % Swisspeers AG — 9,605 Note was issued on April 8, 2019 and due on October 4, 2022 7.0 % Darlene Covid19 108,440 109,690 Note was issued on April 1, 2020 and due on March 31, 2025 0.0 % Total 207,928 442,151 Less: Unamortized debt discount — ( 7,406 ) Total loans payable 207,928 434,745 Less: Current portion of loans payable ( 99,488 ) ( 315,450 ) Long-term loans payable $ 108,440 $ 119,295 During the three months ended March 31, 2022 and 2021, the Company borrowed from third parties totaling $ 0 and $ 444,444 , which includes original issue discount and financing costs of $ 0 and $ 44,444 and repaid the principal amount of $ 232,018 and $ 309,082 , respectively. During the three months ended March 31, 2022 and 2021, the Company recorded interest expense of $ 7,481 and $ 162,459 and recognized amortization of discount, included in interest expense, of $ 7,407 and $ 63,666 , respectively. Loans payable to related parties at March 31, 2022 and December 31, 2021 consisted of the following: March 31, December 31, Interest 2022 2021 Term rate 49% of Shareholder of SwissLink $ 19,701 $ 19,929 Note is due on demand 0 % 49% of Shareholder of SwissLink 216,880 219,379 Note is due on demand 5 % Total 236,581 239,308 Less: Current portion of loans payable 236,581 239,308 Long-term loans payable $ — $ — F- 8 Table of Contents NOTE 6 – OTHER CURRENT LIABILITIES Other current liabilities at March 31, 2022 and December 31, 2021 consisted of the following: March 31, December 31, 2022 2021 Accrued liabilities $ 49,034 $ 61,153 Accrued interest 7,922 8,173 Salary payable - management 80,229 92,229 Employee benefits 95,478 105,221 Other current liabilities 32,651 40,273 $ 265,314 $ 307,049 NOTE 7 – STOCKHOLDERS’ EQUITY The Company’s authorized capital consists of 300,000,000 shares of common stock with a par value of $ 0.001 per share. 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 March 31, 2022 and December 31, 2021, 10,000 shares of Series A Preferred Stock were issued and outstanding. 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. As of March 31, 2022 and December 31, 2021, 21,000 shares of Series B Preferred Stock were issued and outstanding. F- 9 Table of Contents 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 lrestriction 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 March 31, 2022 and December 31, 2021, no Series C Preferred Stock was issued or outstanding. Common Stock During the three months ended March 31, 2022, the Company issued 2,060,000 shares of common stock, valued at fair market value on issuance as follows; · 2,000,000 shares issued for cash of $ 1,000,000 · 60,000 shares for compensation valued at $ 41,139 As of March 31, 2022 and December 31, 2021, 149,537,358 and 147,477,358 shares of common stock were issued and outstanding, respectively. Deposit for stock subscription During the three months ended March 31, 2022, the Company received $ 500,000 for options to purchase common stock, however, the option agreement was not yet finalized. See Note 11. NOTE 8 - RELATED PARTY TRANSACTIONS Due from related parties As of March 31, 2022 and December 31, 2021, the Company had due from related parties of $ 399,571 and $ 424,086 . The loans are unsecured, non-interest bearing and due on demand. Due to related parties During the three months ended March 31, 2022 and 2021, the Company repaid $ 0 and $ 10,587 to certain members of Company management. As of March 31, 2022 and December 31, 2021, the Company had amounts due to related parties of $ 26,613 . Employment agreements During the three months ended March 31, 2022 and 2021, the Company recorded management fees of $ 135,000 and $ 135,000 , bonus of $ 0 and $ 564,000 and paid $ 147,000 and $ 143,221 , respectively. F- 10 Table of Contents NOTE 9 – COMMITMENTS AND CONTINGENCIES Leases and Long-term Contracts The Company has not entered into any long-term leases, contracts or commitments. The Company leases facilities which the term is 12 months . For the three months ended March 31, 2022 and 2021, the Company incurred $ 20,150 and $ 6,900 , respectively. NOTE 10 - SEGMENTS At March 31, 2022, 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, 2022 and 2021: Three months ended March 31, 2022 NOTE 11 - SEGMENT - Schedule of Operating Activities by Geographic Segment USA Switzerland Elimination Total Revenues $ 18,475,113 1,026,080 $ ( 81,882 ) $ 19,419,311 Cost of revenue 18,193,952 823,181 ( 81,882 ) 18,935,251 Gross profit 281,161 202,899 — 484,060 Operating expenses General and administration 781,300 208,198 — 989,498 Operating (loss) ( 500,139 ) ( 5,299 ) — ( 505,438 ) Other (expense) income ( 29,841 ) 10,548 — ( 19,293 ) Net (loss) income $ ( 529,980 ) $ 5,249 $ — $ ( 524,731 ) 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 ) F- 11 Table of Contents Asset Information The following table shows asset information by geographic segment as of March 31, 2022 and December 31, 2021: March 31, 2022 USA Switzerland Elimination Total Assets Current assets $ 6,558,656 $ 1,034,605 $ ( 221,190 ) $ 7,372,071 Non-current assets $ 4,452,262 $ 609,858 $ ( 2,584,562 ) $ 2,477,558 Liabilities Current liabilities $ 1,328,797 $ 1,542,009 $ ( 221,191 ) $ 2,649,615 Non-current liabilities $ — $ 263,092 $ — $ 263,092 December 31, 2021 USA Switzerland Elimination Total Assets Current assets $ 5,783,859 $ 997,216 $ ( 214,551 ) $ 6,566,524 Non-current assets $ 4,468,491 $ 609,189 $ ( 2,584,562 ) $ 2,493,118 Liabilities Current liabilities $ 1,070,972 $ 1,506,594 $ ( 214,551 ) $ 2,363,015 Non-current liabilities $ — $ 275,729 $ — $ 275,729 NOTE 11 – SUBSEQUENT EVENTS Subsequent to March 31, 2022 and through the date that these financials were made available, the Company had the following subsequent events: On April 21, 2022, we entered into a Purchase Agreement for the purchase of 51 % of the membership interests in Smartbiz Telecom LLC, a Florida Corporation which provides telecommunication services, dedicated to VoIP business for wholesale and retail markets. The purchase price for the acquisition shall be $ 1,800,000 and shall consist of $ 800,000 in cash and $ 1,000,000 in our common stock to Seller, which amounts to 2,378,059 shares of common stock. On April 25, 2022 we entered into a Common Stock Purchase Option Agreement with Apollo Management Group, Inc. to subscribe for and purchase from iQSTEL Inc., four million eight hundred thousand ( 4,800,000 ) shares of Common Stock with an exercise price per share of two dollars ( $ 2.00 ); and an initial exercise date September 30, 2022. The purchase price of this option is five hundred thousand dollars ( $ 500,000 ). On May 6, 2022, we entered into a Purchase Company Agreement (Purchase Agreement) with US Acquisitions, LLC, a California limited liability company (Seller) concerning the contemplated sale by Seller and the purchase by us of 51 % of the membership interests Seller holds in Whisl Telecom LLC, a Texas limited liability company. Whisl Telecom provides local US termination for Voice through its FCC license of VoIP Service number 832742; and is in the process to obtain a C-Lec FCC License over next 12 months. The Company is one of the premier Intermediate Voice Providers in the USA. It has been a carrier since 2017 with billions of minutes traversing its network. The Company provides its customers with multiple levels of Redundancy, Diversity, and Disaster Recovery for their applications and ability to make changes to underlying carrier configuration in real time. The Company offers a single carrier solution for Voice Global services, and its customers benefit from hundreds of interconnection agreements that the Company has cultivated since its inception. Pursuant to the Purchase Agreement, the closing of the purchase of the 51 % membership interests shall be no later than May 13, 2022. The purchase price for the acquisition shall be $ 1,800,000 and shall consist of $ 1,250,000 in cash and $ 550,000 in our restricted common stock to Seller. F- 12 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 Pink: IQST) (www.iqstel.com) is a technology company offering a wide array of services to global telecommunications and technology industries with presence in 13 countries. The Company has an extensive portfolio of products and services for its clients such as: SMS, VoIP, 4G & 5G international infrastructure connectivity, Cloud-PBX, OmniChannel Marketing, IoT services, blockchain and payment solutions. These services are grouped within three business divisions: Telecom, Technology and Fintech. The company operates its business through its wholly-owned subsidiary Etelix.com USA, LLC (“Etelix”) (www.etelix.com); and its majority-owned subsidiaries SwissLink Carrier AG ( www.swisslink-carrier.com ), QGlobal SMA (https://www.qglobalsms.com/), Smart Gas (http://iotsmartgas.com/) and ItsBChain (http://itsbchain.com/). The information contained on our websites is not incorporated by reference into this Quarterly Report on Form 10-Q and should not be considered part of this or any other report filed with the SEC. Results of Operations Revenues Our total revenue reported for the three months ended March 31, 2022 was $19,419,311, compared with $14,197,611 for the three months ended March 31, 2021. These numbers reflect an increase of 36.78% quarter over quarter on our consolidated revenues. When looking at the numbers by subsidiary, we have the following breakout for the three months ended March 31, 2022 compared to the three months ended March 31, 2021: 4 Table of Contents Subsidiary Revenue Three Months Ended March 31, 2022 Revenue Three Months Ended March 31, 2021 Etelix.com USA, LLC $ 5,914,300 $ 3,560,386 SwissLink Carrier AG 1,026,080 1,135,802 QGlobal LLC 109,196 250,014 IoT Labs LLC 12,369,735 9,251,409 $ 19,419,311 $ 14,197,611 The continued growth of our revenue is the result of the development of our business strategy, which includes the strengthening of our commercial and operating activities and new acquisitions. Cost of Revenues Our total cost of revenues for the three months ended March 31, 2022 increased to $18,935,251, compared with $13,710,241 for the three months ended March 31, 2021. When looking at the numbers by subsidiary, we have the following breakout for the three months ended March 31, 2022 compared to the three months ended March 31, 2021: Subsidiary Cost of Revenue Three Months Ended March 31, 2022 Cost of Revenue Three Months Ended March 31, 2021 Etelix.com USA, LLC $ 5,804,495 $ 3,435,200 SwissLink Carrier AG 823,181 1,009,382 QGlobal LLC 89,998 203,194 IoT Labs LLC 12,217,577 9,062,465 $ 18,935,251 $ 13,710,241 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. Gross Margin Our gross margin, which is simply the difference between our revenues and our cost of sales, discussed above, was $484,060 for the three months ended March 31, 2022 compared to $487,370 for the three months ended March 31, 2021. 5 Table of Contents Operating Expenses Operating expenses decreased to $989,498 for the three months ended March 31, 2022 from $1,498,111 for the three months ended March 31, 2021. The detail by major category is reflected in the table below. Three Months Ended March 31, 2022 2021 Salaries, Wages and Benefits $ 325,628 $ 284,530 Technology 45,160 60,025 Professional Fees 323,315 92,495 Legal & Regulatory 10,699 24,359 Travel & Events 7,561 1,268 Public Cost 9,556 14,406 Advertising 76,878 151,000 Bank Services and Fees 29,457 26,657 Depreciation and Amortization 33,547 20,560 Office, Facility and Other 86,558 64,215 Sub Total 948,359 739,515 Stock-based compensation 41,139 758,596 Total Operating Expense $ 989,498 $ 1,498,111 When looking at the numbers by subsidiary, we have the following breakout for the three months ended March 31, 2022 compared to the three months ended March 31, 2021: Three Months Ended March 31, 2022 2021 Difference iQSTEL 537,032 1,173,777 -636,745 Etelix 103,292 91,031 12,261 SwissLink 208,197 181,995 26,202 ItsBchain 254 252 2 QGlobal 28,137 27,976 161 IoT Labs 59,158 23,080 36,078 Global Money One 53,428 — 53,428 989,498 1,498,111 -508,613 The most significant differences are: (1) the decrease in the Stock-based compensation of $717,457; (2) the increases in Salaries of $41,098 due to sales commissions and new personnel; and (3) the increase in Professional Fees of $230,820 that includes the Audit and Accounting and other consulting fees. Operating Income The Company showed negative Operating Income for the three months ended March 31, 2022 of $505,438 compared with a negative result of $1,010,741 for the three months ended March 31, 2022. Even though the Company showed a negative Operating Income, the number shows a trend of significant improvement year over year, 6 Table of Contents Other Expenses/Other Income We had other expenses of $19,293 for the three months ended March 31, 2022, as compared with other expenses of $867,748 for the same period ended 2021. The decrease in other expenses is largely due to the absence of derivative liabilities in 2022 and the decrease of interest expenses of $615,137 for the three months ended March 31, 2022 compared to the same period ended 2021. Net Loss We finished the three months ended March 31, 2022 with a net loss attributed to shareholders of iQSTEL Inc. of $554,970, as compared to a loss of $1,942,391 during the three months ended March 31, 2021. When comparing the results year over year, these numbers show a significant improvement, as the fundamentals of the Company are getting stronger quarter after quarter leading to our goal of generating positive net income. Liquidity and Capital Resources As of March 31, 2022, we had total current assets of $7,372,071 and current liabilities of $2,649,615, resulting in a positive working capital of $4,722,456 and a current ratio of approximately 2.78 to 1. This compares with the working capital of $4,203,509 at December 31, 2021. Our operating activities used $447,652 in the three months ended March 31, 2022 as compared with $1,042,192 used in operating activities in the three months ended March 31, 2021. 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 2022 and 2021 is largely the result of our net loss for the periods. Investing activities used $24,918 for the three months ended March 31, 2022 compared with $78,346 for the three months ended March 31, 2021. Uses of funds on investing activities in 2022 were the acquisition of property and equipment. Financing activities provided $1,367,982 in the three months ended March 31, 2022 compared with $3,416,581 provided in the three months ended March 31, 2021. Our positive financing cash flow in 2022 was largely the result of the net proceeds from the subscription of new common stocks under our Regulation A offering $1,100,000. Our current financial condition has improved significantly since 2018. However, we intend to fund operations through increased sales and debt and/or equity financing arrangements, to strengthen our liquidity and capital resources. 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. 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 three month period ended March 31, 2022. 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 three months ended March 31, 2022; however, we consider our critical accounting policies to be those related to allowance for doubtful accounts, valuation of long-lived assets, 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. 7 Table of Contents Off Balance Sheet Arrangements As of March 31, 2022, there were no off-balance sheet arrangements. Recent Accounting Pronouncements We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operation, financial position, or cash flow. 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. 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 March 31, 2022. 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 March 31, 2022, 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. 8 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, 2022. 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 three months ended March 31, 2022, the Company issued 2,000,000 shares of common stock, valued at fair market value on issuance as follows; · 2,000,000 shares issued for cash of $1,000,000 · 60,000 shares for compensation valued at $41,139 Item 3. Defaults upon Senior Securities None Item 4. Mine Safety Disclosures N/A Item 5. Other Information None 9 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 March 31, 2022 formatted in Extensible Business Reporting Language (XBRL). **Provided herewith 10 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 May 16, 2022 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 11