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 with presence in 13 countries and 56 employees that is offering leading-edge services through its four business divisions. Our Telecom Division, which represents the majority of current operations and which also represents the source for all of our revenues for the financial periods presented in this Prospectus, offers VoIP, SMS, proprietary Internet of Things (IoT) solutions (www.iotsmartgas.com and www.iotsmarttank.com), and international fiber-optic connectivity through its subsidiaries: Etelix (www.etelix.com), SwissLink Carrier (www.swisslink-carrier.com), Smartbiz Telecom (www.smartbiztel.com), Whisl Telecom (www.whisl.com), IoT Labs (www.iotlabs.mx), and QGlobal SMS (www.qglobalsms.com). Our developing Fintech Business Line (www.globalmoneyone.com) (www.maxmo.vip) offers a complete Fintech ecosystem MasterCard Debit Card, US Bank Account (No SSN Needed), Mobile App/Wallet (Remittances, Mobile Top Up). Our Fintech subsidiary, Global Money One, is to provide immigrants access to reliable financial services that makes it easier to manage their money and stay connected with their families back home. Our developing BlockChain Platform Business Line (www.itsbchain.com) offers our proprietary Mobile Number Portability Application (MNPA) to serve the in-country portability needs through its subsidiary, itsBchain. Our developing Electric Vehicle (EV) Business Line (www.evoss.net) offers electric motorcycles for work and recreational use in the USA, Spain, Portugal, Panama, Colombia, and Venezuela. EVOSS is also working on the development of an EV Mid Speed Car to serve the niche of the 2nd car in the family. 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. 4 Table of Contents Results of Operations Revenues Our total revenue reported for the three months ended June 30, 2023 was $32,824,829, compared with $23,699,716 for the three months ended June 30, 2022. These numbers reflect an increase of 38.50% quarter over quarter on our consolidated revenues. Our total revenue reported for the six months ended June 30, 2023 was $57,491,358, compared with $43,119,027 for the six months ended June 30, 2022; an increase of 33.33%. When looking at the numbers by subsidiary, we have the following breakout for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022: Revenue for the Three Months Ended June Revenue for the Six Months Ended June Subsidiary 2023 2022 2023 2022 Etelix.com USA, LLC $ 10,692,139 $ 6,042,991 $ 15,041,124 $ 11,957,291 SwissLink Carrier AG 1,273,004 1,236,823 2,548,289 2,262,903 QGlobal LLC 211,258 46,439 296,309 155,635 IoT Labs LLC 17,215,267 14,393,805 32,476,549 26,763,540 Smartbiz Telecom 2,935,867 921,410 6,327,107 921,410 Whisl Telecom 497,294 1,058,248 801,980 1,058,248 $ 32,824,829 $ 23,699,716 $ 57,491,358 $ 43,119,027 The increase in revenue is due to an increment in the commercial efforts and the result of commercial synergies amongst all companies. Third-party revenues recognized at Whisl decreased, as this company further focused its efforts to serve as the platform to develop new business for the other subsidiaries. Intercompany revenues recognized by Whisl that were eliminated during the three and six months ended June 30, 2023 were $814,762 and $1,731,700, respectively. 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 Revenue Our total cost of revenue for the three months ended June 30, 2023 increased to $32,040,363, compared with $22,853,442 for the three months ended June 30, 2022. Our total cost of revenue for the six months ended June 30, 2023 increased to $55,490,156, compared with $41,788,693 for the six months ended June 30, 2022. When looking at the numbers by subsidiary, we have the following breakout for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022: Cost of Revenue for the Three Months Ended June Cost of Revenue for the Six Months Ended June Subsidiary 2023 2022 2023 2022 Etelix.com USA, LLC $ 10,019,546 $ 5,821,776 $ 13,784,019 $ 11,626,271 SwissLink Carrier AG 1,055,418 1,032,150 2,159,275 1,855,331 QGlobal LLC 142,330 32,473 193,879 122,471 IoT Labs LLC 17,211,748 14,303,959 32,090,649 26,521,536 Smartbiz Telecom 3,125,835 831,419 6,209,129 831,419 Whisl Telecom 485,486 831,665 1,053,205 831,665 $ 32,040,363 $ 22,853,442 $ 55,490,156 $ 41,788,693 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. 5 Table of Contents Gross Margin The Consolidated Gross Margin for the six months ended June 30, 2023 was 3.48%, which compared to 3.09% for the six months ended June 30, 2022 represents an increase in our consolidated Gross Margin of 12.62%. Operating Expenses Operating expenses decreased to $1,037,184 for the three months ended June 30, 2023 from $1,144,452 for the three months ended June 30, 2022. Operating expenses increased to $2,571,450 for the six months ended June 30, 2023 from $2,133,950 for the six months ended June 30, 2022. The detail by major category for the six months ended June 30, 2023 and 2022 is reflected in the table below. Six Months Ended June 30, 2023 2022 Salaries, Wages and Benefits $ 881,830 $ 828,764 Technology 185,975 101,036 Professional Fees 586,726 349,842 Legal & Regulatory 110,179 43,116 Travel & Events 102,356 29,831 Public Cost 18,083 16,832 Advertising 405,537 373,600 Bank Services and Fees 25,709 91,961 Depreciation and Amortization 68,488 62,371 Office, Facility and Other 160,010 164,967 Insurances 8,427 — Sub Total 2,553,320 2,062,320 Stock-based compensation 18,130 71,630 Total Operating Expense $ 2,571,450 $ 2,133,950 When looking at the numbers by subsidiary, we have the following breakout for the six months ended June 30, 2023 compared to the six months ended June 30, 2022: Six Months Ended June 30, 2023 2022 Difference iQSTEL $ 1,027,793 $ 1,039,299 $ (11,506 ) Etelix 207,309 193,587 13,722 Swisslink 375,008 430,856 (55,848 ) ItsBchain 22,019 453 21,566 QGlobal 119,035 73,935 45,100 IoT Labs 115,013 119,919 (4,906 ) Global Money One 60,799 84,777 (23,978 ) Smartbiz Telecom 316,129 55,873 260,256 Whisl Telecom 328,345 135,251 193,094 $ 2,571,450 $ 2,133,950 $ 437,500 During the six months ended June 30, 2022 we were consolidating Whisl from May 6 to June 30 and Smartbiz from June 1 to June 30 as a result of the Q2 2022 acquisitions. Both subsidiaries were consolidated for the full six-month periods ended June 30, 2023, which explains the significant increase of expenses in those two subsidiaries and the overall increase in the expenses for the six months ended June 30, 2023 compared to the same period in 2022. 6 Table of Contents Operating Income The Company showed negative Operating Income for the three months ended June 30, 2023 of $252,718 compared with a negative result of $298,178 for the three months ended June 30, 2022. The Company showed negative Operating Income for the six months ended June 30, 2023 of $570,248 compared with a negative result of $803,616 for the six months ended June 30, 2022. The decrease of the numbers for the three and the six-month periods mentioned above shows a positive trend in the operating results, and Company management is forecasting positive operating income for the year ending December 31, 2023. Our Telecom Division, the division presently generating revenue, has 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. Telecom Division Pre-revenue companies iQSTEL Consolidated Three Months Ended June 30, 2023 Six Months Ended June 30, 2023 Three Months Ended June 30, 2023 Six Months Ended June 30, 2023 Three Months Ended June 30, 2023 Six Months Ended June 30, 2023 Three Months Ended June 30, 2023 Six Months Ended June 30, 2023 Revenues 32,824,829 57,491,358 — — — — 32,824,829 57,491,358 Cost of revenue 32,040,363 55,490,156 — — — — 32,040,363 55,490,156 Gross profit 784,466 2,001,202 — — — — 784,466 2,001,202 Operating expenses General and administration 646,362 1,460,839 27,580 82,818 363,241 1,027,793 1,037,183 2,571,450 Total Operating Expenses 646,362 1,460,839 27,580 82,818 363,241 1,027,793 1,037,183 2,571,450 Operating income/(loss) 138,104 540,363 (27,580 ) (82,818 ) (363,241 ) (1,027,793 ) (252,717 ) (570,248 ) Other Expenses/Other Income We had other income of $91,074 for the three months ended June 30, 2023, as compared with other income of $12,721 for the same period ended 2022. We had other income of $249,782 for the six months ended June 30, 2023, as compared with other expenses of $6,572 for the same period ended 2022. The increase in other income is mainly due to the positive change in the fair value of derivative liabilities. Net Loss We finished the three months ended June 30, 2023 with a loss of $161,644, as compared to a loss of $285,457 during the three months ended June 30, 2022. We finished the six months ended June 30, 2023 with a loss of $320,466, as compared to a loss of $810,188 during the six months ended June 30, 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. 7 Table of Contents Liquidity and Capital Resources As of June 30, 2023, we had total current assets of $7,097,716 and current liabilities of $6,912,490, resulting in a positive working capital of $185,226. This compares with the negative working capital of $15,089 at December 31, 2022. Our operating activities used $721,400 in the six months ended June 30, 2023 as compared with $1,435,292 used in operating activities in the six months ended June 30, 2022. Our negative operating cash flow for both periods is a result of our net loss and changes in operating assets and liabilities. Investing activities used $279,086 for the six months ended June 30, 2023 compared to $1,612,255 used during the same period of year 2022. For the six months ended June 30, 2023 the uses of funds in investing activities consisted primarily of the purchases of property and equipment for $132,249 and Payment of loan receivable - related parties for $149,537. Financing activities provided $790,994 in the six months ended June 30, 2023 compared with $1,367,982 provided in the six months ended June 30, 2022. Our positive financing cash flow in 2023 is mainly the result of proceeds from loans, warrant exercises, and proceeds from convertible notes. Our positive financing cash flow in 2022 is mainly the result of proceeds from the issuance of common stock and the payment of an option. Our cash balance as of June 30, 2023 was $1,126,770 compared to $1,329,389 at December 31, 2022. Our current financial condition has improved significantly with a positive working capital. However, we intend to fund operations through increased sales and debt and/or equity financing arrangements to strengthen our liquidity and capital resources. We also plan to seek additional financing in public and 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, 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 six months ended June 30, 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. Off Balance Sheet Arrangements As of June 30, 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. 8 Table of Contents 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.