iQSTEL Inc 10-Q

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.