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 four business divisions: Telecom, Fintech, Electric vehicles and Metaverse. The company operates its business through its wholly-owned subsidiary Etelix.com USA, LLC (“Etelix”) (www.etelix.com) ; and its majority-owned subsidiaries SwissLink Carrier AG (www.swisslink-carrier.com), QGlobal SMS (https://www.qglobalsms.com/), Smart Gas (http://iotsmartgas.com/) and ItsBChain (http://itsbchain.com/), Whisl Telecom LLC (www.whisl.com), and Smartbiz Telecom LLC (www.smartbiztel.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, 2023 was $24,666,529, compared with $19,419,311 for the three months ended March 31, 2022. These numbers reflect an increase of 27.02% 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, 2023 compared to the three months ended March 31, 2022: Subsidiary Revenue Three Months Ended March 31, 2023 Revenue Three Months Ended March 31, 2022 Etelix.com USA, LLC $ 4,348,986 $ 5,914,300 SwissLink Carrier AG 1,275,285 1,026,080 QGlobal LLC 85,051 109,196 IoT Labs LLC 15,261,282 12,369,735 Whisl 304,686 — Smartbiz 3,391,240 — $ 24,666,529 $ 19,419,311 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. 4 Table of Contents Cost of Revenues Our total cost of revenues for the three months ended March 31, 2023 increased to $23,449,793, compared with $18,935,251 for the three months ended March 31, 2022. When looking at the numbers by subsidiary, we have the following breakout for the three months ended March 31, 2023 compared to the three months ended March 31, 2022: Subsidiary Cost of Revenue Three Months Ended March 31, 2023 Cost of Revenue Three Months Ended March 31, 2022 Etelix.com USA, LLC $ 3,764,473 $ 5,804,495 SwissLink Carrier AG 1,103,857 823,181 QGlobal LLC 51,549 89,998 IoT Labs LLC 14,878,901 12,217,577 Whisl 567,719 — Smartbiz 3,083,294 — $ 23,449,793 $ 18,935,251 Our cost of revenue 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 $1,216,736 for the three months ended March 31, 2023 compared to $484,060 for the three months ended March 31, 2022. This represents an increase of 151.36% in the gross margin quarter over quarter. But more importantly, the Gross Margin in terms of percentage of Revenue was 2.49% for the three months ended March 31, 2022 compared to 4.93% for the three months ended March 31, 2023, representing an increase of 98% quarter over quarter. Operating Expenses Operating expenses increased to $1,534,266 for the three months ended March 31, 2023 from $989,498 for the three months ended March 31, 2022. The detail by major category is reflected in the table below. Three M onths Ended March 31, 2023 2022 Salaries, Wages and Benefits $ 459,130 $ 325,628 Technology 124,215 45,160 Professional Fees 450,487 323,315 Legal and Regulatory 60,495 10,699 Travel and Events 24,361 7,561 Public Cost 10,445 9,556 Advertising 287,126 76,878 Bank Services and Fees 7,756 29,457 Depreciation and Amortization 34,060 33,547 Office, Facility and Other 62,978 86,558 Insurance 1,983 — Sub Total 1,523,039 948,359 Stock-based compensation 11,230 41,139 Total Operating Expense $ 1,534,266 $ 989,498 5 Table of Contents When looking at the numbers by subsidiary, we have the following breakout for the three months ended March 31, 2023 compared to the three months ended March 31, 2022: Three Months Ended March 31, 2023 2022 Difference iQSTEL $ 664,552 $ 537,032 $ 127,520 Etelix 105,286 103,292 1,994 SwissLink 183,309 208,197 -24,888 ItsBchain 11,789 254 11,535 QGlobal 63,875 28,137 35,738 IoT Labs 62,806 59,158 3,648 Global Money One 43,449 53,428 -9,979 Whisl 154,440 — 154,440 Smartbiz 244,760 — 244,760 $ 1,534,266 $ 989,498 $ 544,768 The most significant differences are: (1) the increase in Salaries, wages and benefits primarily due to an increment in the headcount related to Whisl and Smartbiz; (2) the increases in technology expenses related to the deployment and upgrade of the Switching platform; and (3) the increase in Advertising expenses. Operating Income The Company showed negative Operating Income for the three months ended March 31, 2023 of $317,530 compared with a negative result of $505,438 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. Our Telecom Division, which is the one generating revenue at the present time, has a positive Operating Income. The expenses of our Pre-revenue companies are set at the minimum required to finish the development of the product/services prior to market launch. Management implemented a process that intends to reduce future general and administrative expenses of iQSTEL to a maximum of $400,000 per quarter. Pre revenue companies Telecom Division ItsBchain Global Money One iQSTEL Consolidated Revenues $ 24,666,529 — — — 24,666,529 Cost of revenue 23,449,793 — — — 23,449,793 Gross profit 1,216,736 — — — 1,216,736 Operating expenses General and administration 814,477 11,789 43,449 664,552 1,534,266 Total operating expenses 814,477 11,789 43,449 664,552 1,534,266 Operating income/(loss) $ 402,260 (11,789 ) (43,449 ) (664,552 ) (317,530 ) 6 Table of Contents Other Expenses/Other Income We had other income of $158,708 for the three months ended March 31, 2023, as compared with other expenses of $19,293 for the same period ended 2022. The increase in other income is largely due to the positive change in fair value of derivative liabilities. Net Loss We finished the three months ended March 31, 2023 with a net loss attributable to shareholders of iQSTEL Inc. of $363,185, as compared to a loss of $554,970 during the three months ended March 31, 2022. 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, 2023, we had total current assets of $6,736,967 and current liabilities of $6,301,031, resulting in a positive working capital of $435,936 and a current ratio of approximately 1.07 to 1. This compares to a negative working capital of $15,089 at December 31, 2022. Our operating activities provided $197,163 in the three months ended March 31, 2023 as compared with $447,652 used in operating activities in the three months ended March 31, 2022. 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. Investing activities used $142,947 for the three months ended March 31, 2023 compared with $24,918 for the three months ended March 31, 2022. Uses of funds on investing activities in 2023 were primarily the acquisition of property and equipment and the issuance of a related party loan. Financing activities provided $390,994 in the three months ended March 31, 2023 compared with $1,367,982 provided in the three months ended March 31, 2022. Our positive financing cash flow in 2023 was largely the result of the net proceeds from the execution of the Option shares in the amount of $400,000. Our current financial condition has improved significantly. 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 Form S-1 for the sale of up to 10,000,000 shares of common stock. 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, 2023. 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, 2023; 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, 2023, 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.