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”) (OTCQB: 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. 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 (www.qglobalsms.com/), Smart Gas (www.iotsmartgas.com/) and ItsBChain (www.itsbchain.com/), Smartbiz Telecom (www.smartbiztel.com) and Whisl Telecom (www.whisl.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 June 30, 2022 was $23,699,716, compared with $16,128,367 for the three months ended June 30, 2021. These numbers reflect an increase of 46.94% quarter over quarter on our consolidated revenues. Our total revenue reported for the six months ended June 30, 2022 was $43,119,027, compared with $30,325,978 for the six months ended June 30, 2021; an increase of 42.19%. When looking at the numbers by subsidiary, we have the following breakout for the six months ended June 30, 2022 compared to the six months ended June 30, 2021: 4 Table of Contents Subsidiary Revenue Six Months Ended June 30, 2022 Revenue Six Months Ended June 30, 2021 Etelix.com USA, LLC $ 11,957,291 $ 7,481,915 SwissLink Carrier AG 2,262,903 2,284,985 QGlobal LLC 155,635 502,431 IoT Labs LLC 26,763,540 20,056,647 Smartbiz Telecom 921,410 — Whisl Telecom 1,058,248 — $ 43,119,027 $ 30,325,978 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 June 30, 2022 increased to $22,853,442, compared with $16,083,802 for the three months ended June 30, 2021. Our total cost of revenues for the six months ended June 30, 2022 increased to $41,788,693, compared with $29,794,043 for the six months ended June 30, 2021. When looking at the numbers by subsidiary, we have the following breakout for the six months ended June 30, 2022 compared to the six months ended June 30, 2021: Subsidiary Cost of Revenue Six Months Ended June 30, 2022 Cost of Revenue Six Months Ended June 30, 2021 Etelix.com USA, LLC $ 11,626,271 $ 7,338,609 SwissLink Carrier AG 1,855,331 2,029,483 QGlobal LLC 122,471 419,810 IoT Labs LLC 26,521,536 20,006,141 Smartbiz Telecom 831,419 — Whisl Telecom 831,665 — $ 41,788,693 $ 29,794,043 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 The Consolidated Gross Margin for the six months ended June 30, 2022 was 3.09%, which compared to 1.75% for the six months ended June 30, 2021 represents an increase in our consolidated Gross Margin of 76.57%. When looking at the numbers by subsidiary, we have the following breakout for the six months ended June 30, 2022 compared to the six months ended June 30, 2021: 5 Table of Contents Subsidiary Gross Margin Six Months Ended June 30, 2022 Gross Margin Six Months Ended June 30, 2021 Etelix.com USA, LLC % 2.77 % 1.92 SwissLink Carrier AG 18.01 11.18 QGlobal LLC 21.31 16.44 IoT Labs LLC 0.90 0.25 Smartbiz Telecom 9.77 — Whisl Telecom 21.41 — % 3.09 % 1.75 Operating Expenses Operating expenses decreased to $1,144,452 for the three months ended June 30, 2022 from $1,209,167 for the three months ended June 30, 2021. Operating expenses decreased to $2,133,950 for the six months ended June 30, 2022 from $2,707,278 for the six months ended June 30, 2021. The detail by major category for the six months ended June 30, 2022 and 2021 is reflected in the table below. Six Months Ended June 30, 2022 2021 Salaries, Wages and Benefits $ 828,764 $ 560,618 Technology 101,036 216,428 Professional Fees 349,842 232,216 Legal & Regulatory 43,116 50,627 Travel & Events 29,831 5,430 Public Cost 16,832 24,331 Advertising 373,600 487,825 Bank Services and Fees 91,961 58,309 Depreciation and Amortization 62,371 42,421 Office, Facility and Other 164,967 142,977 Sub Total 2,062,320 1,821,182 Stock-based compensation 71,630 886,096 Total Operating Expense $ 2,133,950 $ 2,707,278 The main reasons for the overall decrease in operating expenses for the six months ended June 30, 2022 compared to the same period of 2021 is due to the a significant reduction in Stock-based compensation. When looking at the numbers by subsidiary, we have the following breakout for the six months ended June 30, 2022 compared to the six months ended June 30, 2021: Six Months Ended June 30, 2022 2021 Difference iQSTEL $ 1,039,299 $ 1,993,964 $ (954,665 ) Etelix 193,587 162,674 30,913 Swisslink 430,856 368,537 62,319 ItsBchain 453 1,450 (997 ) QGlobal 73,935 56,138 17,797 IoT Labs 119,919 70,142 49,777 Global Money One 84,777 54,373 30,404 Smartbiz Telecom 55,873 — 55,873 Whisl Telecom 135,251 — 135,251 $ 2,133,950 $ 2,707,278 $ (573,328 ) 6 Table of Contents Operating Income The Company showed negative Operating Income for the three months ended June 30, 2022 of $298,178 compared with a negative result of $1,164,602 for the three months ended June 30, 2021. The Company showed negative Operating Income for the six months ended June 30, 2022 of $803,616 compared with a negative result of $2,175,343 for the six months ended June 30, 2021. The decrease of the numbers for the six month period above is primarily due to a reduction in the costs associated with the operation of the public entity (iQSTEL, Inc.) that decreased by $954,665 year over year. Other Expenses/Other Income We had other income of $12,721 for the three months ended June 30, 2022, as compared with other income of $42,230 for the same period ended 2021. We had other expenses of $6,572 for the six months ended June 30, 2022, as compared with other expenses of $825,518 for the same period ended 2021. The decrease in other expenses is mainly due to the reduction in interest expense. Net Loss We finished the three months ended June 30, 2022 with a loss of $285,457, as compared to a loss of $1,122,372 during the three months ended June 30, 2021. We finished the six months ended June 30, 2022 with a loss of $810,188, as compared to a loss of $3,000,861 during the six months ended June 30, 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 June 30, 2022, we had total current assets of $6,818,441 and current liabilities of $3,607,416, resulting in a positive working capital of $3,211,025. This compares with the working capital of $4,203,509 at December 31, 2021. This decrease in working capital, as discussed in more detail below, is primarily the result of the cash used in the acquisition of subsidiaries. Our operating activities used $1,435,292 in the six months ended June 30, 2022 as compared with $2,093,398 used in operating activities in the six months ended June 30, 2021. Investing activities used $1,612,255 for the six months ended June 30, 2021. Uses of funds in investing activities consisted primarily of the acquisition of subsidiaries for $1,564,132 and purchases of property and equipment for $47,223. Financing activities provided $1,367,982 in the six months ended June 30, 2022 compared with $3,353,854 provided in the six months ended June 30, 2021. Our positive financing cash flow in 2022 was largely the result of the proceeds from the subscription of new common stocks under our Regulation A offering of $1,100,000. Our current financial condition has improved significantly with a positive working capital and a cash position as of June 30, 2022 that represents 4.69 times the loss recognized during the three-month period then ended. 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 of which are available 12,500,000. This offering has been conducted on a “best efforts” basis, which means that there is no guarantee that any minimum amount will be sold from the available shares. 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 six-month period ended June 30, 2022. 7 Table of Contents 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 six months ended June 30, 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. Off Balance Sheet Arrangements As of June 30, 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.