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 September 30, 2023 ☐ 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: 171,529,630 common shares as of November 14, 2023 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 9 PART II – OTHER INFORMATION Item 1: Legal Proceedings 10 Item 1A: Risk Factors 10 Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 10 Item 3: Defaults Upon Senior Securities 10 Item 4: Mine Safety Disclosures 10 Item 5: Other Information 10 Item 6: Exhibits 10 2 Table of Contents 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 September 30, 2023 (unaudited) and December 31, 2022; F-2 Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022 (unaudited); F-3 Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (unaudited); and F-4 Consolidated Statements of Stockholder’s Equity as for the three and nine months ended September 30, 2023; and 2022. 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 September 30, 2023 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) September 30, December 31, 2023 2022 ASSETS Current Assets Cash $ 2,001,320 $ 1,329,389 Accounts receivable, net 7,635,615 4,209,125 Inventory 27,121 26,124 Due from related parties 427,194 326,324 Prepaid and other current assets 1,696,944 545,628 Total Current Assets 11,788,194 6,436,590 Property and equipment, net 463,036 401,021 Intangible asset 99,592 99,592 Goodwill 5,172,146 5,172,146 Deferred tax assets 444,504 440,135 Other asset 156,388 — TOTAL ASSETS $ 18,123,860 $ 12,549,484 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable 4,014,529 2,254,636 Accrued and other current liabilities 5,204,219 2,482,352 Due to related parties 26,613 26,613 Loans payable - net of discount of $7,500 and $0, respectively 252,779 94,342 Loans payable - related parties 238,291 235,949 Convertible note - net of discount of $20,856 and $0, respectively 177,666 — Derivative liabilities — 1,357,787 Total Current Liabilities 9,914,097 6,451,679 Loans payable, non-current 91,018 108,150 Employee benefits, non-current 155,909 154,238 TOTAL LIABILITIES 10,161,024 6,714,067 Stockholders' Equity 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, 31,080 and 21,000 shares issued and outstanding, respectively 31 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 170,231,395 and 161,595,511 shares issued and outstanding, respectively 170,232 161,595 Additional paid in capital 34,350,837 31,136,120 Accumulated deficit ( 25,960,018 ) ( 24,504,395 ) Accumulated other comprehensive loss ( 33,485 ) ( 33,557 ) Equity attributed to stockholders of iQSTEL Inc. 8,527,607 6,759,794 Deficit attributable to noncontrolling interests ( 564,771 ) ( 924,377 ) TOTAL STOCKHOLDERS' EQUITY 7,962,836 5,835,417 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,123,860 $ 12,549,484 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 Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Revenues $ 39,757,203 $ 21,936,634 $ 97,248,561 $ 65,055,661 Cost of revenue 38,728,682 20,621,674 94,218,838 62,410,367 Gross profit 1,028,521 1,314,960 3,029,723 2,645,294 Operating expenses General and administration 957,768 1,256,147 3,529,218 3,390,097 Total operating expenses 957,768 1,256,147 3,529,218 3,390,097 Operating income (loss) 70,753 58,813 ( 499,495 ) ( 744,803 ) Other income (expense) Other income 2,607 43,219 3,126 38,591 Other expenses ( 32,505 ) ( 71,027 ) ( 105,714 ) ( 54,247 ) Interest expense ( 34,219 ) ( 3,693 ) ( 54,322 ) ( 22,417 ) Change in fair value of derivative liabilities 39,273 — 381,848 — Total other income (expense) ( 24,844 ) ( 31,501 ) 224,938 ( 38,073 ) Net income (loss) before provision for income taxes 45,909 27,312 ( 274,557 ) ( 782,876 ) Income taxes — — — — Net income (loss) 45,909 27,312 ( 274,557 ) ( 782,876 ) Less: Net income attributable to noncontrolling interests 107,922 96,175 364,586 192,137 Net loss attributed to iQSTEL Inc. $ ( 62,013 ) $ ( 68,863 ) $ ( 639,143 ) $ ( 975,013 ) Dividend on Series B Preferred Stock ( 816,480 ) — ( 816,480 ) — Net loss attributed to stockholders of iQSTEL Inc. $ ( 878,493 ) $ ( 68,863 ) $ ( 1,455,623 ) $ ( 975,013 ) Comprehensive income (loss) Net income (loss) $ 45,909 $ 27,312 $ ( 274,557 ) $ ( 782,876 ) Foreign currency adjustment ( 4,428 ) ( 1,096 ) 142 ( 2,503 ) Total comprehensive income (loss) $ 41,481 $ 26,216 $ ( 274,415 ) $ ( 785,379 ) Less: Comprehensive income attributable to noncontrolling interests 105,753 95,638 364,656 190,911 Net comprehensive loss attributed to iQSTEL Inc. $ ( 64,272 ) $ ( 69,422 ) $ ( 639,071 ) $ ( 976,290 ) Basic and diluted loss per common share $ ( 0.01 ) $ ( 0.00 ) $ ( 0.01 ) $ ( 0.01 ) Weighted average number of common shares outstanding - Basic and diluted 168,185,122 151,750,426 165,640,341 150,057,315 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 and nine months ended September 30, 2023 and 2022 (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, 2022 10,000 $ 10 21,000 $ 21 161,595,511 $ 161,595 $ 31,136,120 $ ( 24,504,395 ) $ ( 33,557 ) $ 6,759,794 $ ( 924,377 ) $ 5,835,417 Common stock issued for warrant exercises — — — — 2,941,177 2,942 397,058 — — 400,000 — 400,000 Common stock issued for compensation — — — — 60,000 60 11,170 — — 11,230 — 11,230 Resolution of derivative liabilities upon exercise of warrant — — — — — — 240,258 — — 240,258 — 240,258 Foreign currency translation adjustments — — — — — — — — 804 804 773 1,577 Net income (loss) — — — — — — — ( 363,185 ) — ( 363,185 ) 204,363 ( 158,822 ) Balance - March 31, 2023 10,000 $ 10 21,000 $ 21 164,596,688 $ 164,597 $ 31,784,606 $ ( 24,867,580 ) $ ( 32,753 ) $ 7,048,901 $ ( 719,241 ) $ 6,329,660 Common stock issued for compensation — — — — 60,000 60 6,840 — — 6,900 — 6,900 Foreign currency translation adjustments — — — — — — — — 1,527 1,527 1,466 2,993 Net income (loss) — — — — — — — ( 213,945 ) — ( 213,945 ) 52,301 ( 161,644 ) Balance - June 30, 2023 10,000 $ 10 21,000 $ 21 164,656,688 $ 164,657 $ 31,791,446 $ ( 25,081,525 ) $ ( 31,226 ) $ 6,843,383 $ ( 665,474 ) $ 6,177,909 Series B Preferred stock issued as dividend — — 10,080 10 — — 816,470 ( 816,480 ) — — — — Common stock issued for compensation — — — — 60,000 60 12,755 — — 12,815 — 12,815 Common stock issued for warrant exercises — — — — 5,514,707 5,515 994,485 — — 1,000,000 — 1,000,000 Resolution of derivative liabilities upon exercise of warrant — — — — — — 735,681 — — 735,681 — 735,681 Dividend to non-controlling interest — — — — — — — — — — ( 5,050 ) ( 5,050 ) Foreign currency translation adjustments — — — — — — — — ( 2,259 ) ( 2,259 ) ( 2,169 ) ( 4,428 ) Net income (loss) — — — — — — — ( 62,013 ) — ( 62,013 ) 107,922 45,909 Balance - September 30, 2023 10,000 $ 10 31,080 $ 31 170,231,395 $ 170,232 $ 34,350,837 $ ( 25,960,018 ) $ ( 33,485 ) $ 8,527,607 $ ( 564,771 ) $ 7,962,836 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 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 Common stock issued for compensation — — — — 60,000 60 30,430 — — 30,490 — 30,490 Common stock issued and to be issued for acquisition of subsidiaries — — — — 1,461,653 1,462 1,548,538 — — 1,550,000 ( 33,056 ) 1,516,944 Common stock issued for asset acquisition — — — — 500,000 500 324,500 — — 325,000 — 325,000 Common stock payable — — — — — — 18,900 — — 18,900 — 18,900 Warrant granted — — — — — — 500,000 — — 500,000 — 500,000 Foreign currency translation adjustments — — — — — — — — ( 522 ) ( 522 ) ( 501 ) ( 1,023 ) Net income (loss) — — — — — — — ( 351,180 ) — ( 351,180 ) 65,723 ( 285,457 ) Balance - June 30, 2022 10,000 $ 10 21,000 $ 21 151,559,011 $ 151,559 $ 29,304,429 $ ( 19,443,071 ) $ ( 37,376 ) $ 9,975,572 $ ( 933,796 ) $ 9,041,776 Common stock issued for compensation — — — — 60,000 60 20,440 — — 20,500 — 20,500 Common stock issued for settlement of debt — — — — 161,367 161 80,513 — — 80,674 — 80,674 Common stock issued for asset acquisition — — — — 50,000 50 32,450 — — 32,500 — 32,500 Foreign currency translation adjustments — — — — — — — — ( 559 ) ( 559 ) ( 537 ) ( 1,096 ) Net income (loss) — — — — — — — ( 68,863 ) — ( 68,863 ) 96,175 27,312 Balance - September 30, 2022 10,000 $ 10 21,000 $ 21 151,830,378 $ 151,830 $ 29,437,832 $ ( 19,511,934 ) $ ( 37,935 ) $ 10,039,824 $ ( 838,158 ) $ 9,201,666 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) Nine Months Ended September 30, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 274,557 ) $ ( 782,876 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock based compensation 30,945 111,029 Bad debt expense 1,344 26,299 Depreciation and amortization 103,246 91,221 Amortization of debt discount 21,404 7,407 Change in fair value of derivative liabilities ( 381,848 ) — Changes in operating assets and liabilities: Accounts receivable ( 3,422,703 ) ( 832,263 ) Inventory ( 997 ) ( 26,124 ) Prepaid and other current assets ( 1,057,311 ) ( 31,714 ) Due from related parties 69,948 ( 5,143 ) Accounts payable 2,604,856 ( 97,373 ) Accrued and other current liabilities 1,870,972 50,636 Net cash used in operating activities ( 434,701 ) ( 1,488,901 ) CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of subsidiaries, net of cash acquired — ( 1,814,132 ) Purchase of property and equipment ( 164,715 ) ( 86,491 ) Advances of amounts due from related parties ( 189,767 ) ( 1,000 ) Collection of amounts due from related parties 13,899 400 Net cash used in investing activities ( 340,583 ) ( 1,901,223 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from loans payable 150,000 — Repayments of loans payable ( 9,006 ) ( 232,018 ) Proceeds from common stock issued — 1,100,000 Proceeds from exercise of warrants 1,150,000 — Proceeds from convertible notes 250,000 — Deposit for option — 500,000 Repayment of convertible notes ( 86,238 ) — Net cash provided by financing activities 1,454,756 1,367,982 Effect of exchange rate changes on cash ( 7,541 ) ( 17,690 ) Net change in cash 671,931 ( 2,039,832 ) Cash, beginning of period 1,329,389 3,334,813 Cash, end of period $ 2,001,320 $ 1,294,981 Supplemental cash flow information Cash paid for interest $ 25,941 $ 3,333 Cash paid for taxes $ — $ — Non-cash transactions: Series B Preferred stock issued as dividend $ 816,480 — Common stock issued for asset acquisition $ — $ 357,500 Common stock issued for acquisitions of subsidiaries $ — $ 1,550,000 Common stock issued for conversion of debt $ — $ 80,674 Resolution of derivative liabilities upon exercise of warrants $ 975,939 $ — 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 September 30, 2023 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 is a technology company with presence in 19 countries and 70 employees that is offering leading-edge services through its four business divisions. The Telecom Division, which represents the majority of current operations and which also represents the source for all of the Company’s revenues, 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.com USA, LLC, SwissLink Carrier AG, Smartbiz Telecom LLC, Whisl Telecom LLC, IoT Labs, LLC, and QGlobal SMS, LLC. The Company’s developing Fintech Business Line offers a complete Fintech ecosystem MasterCard Debit Card, US Bank Account (No SSN Needed), Mobile App/Wallet (Remittances, Mobile Top Up). The Company’s Fintech subsidiary, Global Money One Inc., 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. The Company’s developing BlockChain Platform Business Line offers our proprietary Mobile Number Portability Application (MNPA) to serve the in-country portability needs through its subsidiary, itsBchain, LLC. The Company’s developing Electric Vehicle (EV) Business Line 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. 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 consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of September 30, 2023 and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended September 30, 2023 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated 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, 2022 filed with the SEC on April 14, 2023. F- 5 Table of Contents 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”), Global Money One Inc. (“Global Money One”), Whisl Telecom LLC (“Whisl”) and Smartbiz Telecom LLC (“Smartbiz”). 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. Foreign Currency Translation and Re-measurement The Company translates its foreign operations to U.S. dollars in accordance with ASC 830, “ Foreign Currency Matters ”. The functional currency and reporting currency of Etelix, QGlobal, ItsBchain, IoT Labs, Whisl, Smartbiz and Global Money One is the U.S. dollar, while SwissLink’s functional currency is the Swiss Franc (“CHF”). SwissLink translates their records into U.S. dollars as follows: • Assets and liabilities at the rate of exchange in effect at the balance sheet date; • Equities at historical rate; and • 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. Cash and Cash Equivalents Cash and cash equivalents include cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value. The Company had no cash equivalents at September 30, 2023 and December 31, 2022. 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. Under the expected credit loss model, the Company reviews its allowance for doubtful accounts daily and past due balances over 60 days and a specified amount is 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 nine months ended September 30, 2023 and 2022, the Company recorded bad debt expense of $1,344 and $26,299, respectively. F- 6 Table of Contents 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. Dilutive potential common shares include outstanding warrants and Series B Preferred stock, and these were excluded from the computation of diluted net loss per share as the result was anti-dilutive for the nine months ended September 30, 2023 and 2022. 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 nine months ended September 30, 2023, 11 customers represented 87.8 % of our revenue compared to 10 customers represented 87 % of our revenues for the nine months ended September 30, 2022. Financial Instruments The Company follows ASC 820, “ Fair Value Measurements and Disclosures, ” which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below: Level 1 Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. Level 2 Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. Level 3 Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. The carrying values of our financial instruments, including, cash; accounts receivable; prepaid and other current assets; accounts payable; accrued liabilities and other current liabilities; and due from/to related parties approximate their fair values due to the short-term maturities of these financial instruments. Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated. It is not, however, practical to determine the fair value of amounts due to related parties due to their related party nature. F- 7 Table of Contents Derivative Financial Instruments The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. We evaluate all of our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company used a Black-Scholes valuation model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date. 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 exists, 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 client. Recent Accounting Pronouncements In June 2022, the FASB issued ASU 2022-03, ASC Subtopic “ Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. ” These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments in this update are effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial statements. In June 2016, the FASB issued ASU No. 2016-13, “ Financial Instruments Credit Losses —Measurement of Credit Losses on Financial Instruments .” ASU 2016-13 requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected, which includes the Company’s accounts receivable. This ASU is effective for the Company for reporting periods beginning after December 15, 2022. The Company adopted this accounting pronouncement on January 1, 2023 and it did not have any impact to its financial statements. The Company has reviewed all other recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on our 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. F- 8 Table of Contents 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 – PREPAID AND OTHER CURRENT ASSETS Prepaid and other current assets as of September 30, 2023 and December 31, 2022 consisted of the following: September 30, December 31, 2023 2022 Other receivable $ 176,121 $ 120,139 Prepaid expenses 871,930 26,600 Advance payment 21,000 21,000 Tax receivable 393 389 Deposit for acquisition of asset 357,500 357,500 Subscription receivable 250,000 — Security deposit 20,000 20,000 Total prepaid and other current assets $ 1,696,944 $ 545,628 NOTE 5 – PROPERTY AND EQUIPMENT Property and equipment as of September 30, 2023 and December 31, 2022 consisted of the following: September 30, December 31, 2023 2022 Telecommunication equipment $ 360,813 $ 317,958 Telecommunication software 762,887 640,566 Other equipment 99,346 99,126 Total property and equipment 1,223,046 1,057,650 Accumulated depreciation and amortization ( 760,010 ) ( 656,629 ) Total property and equipment $ 463,036 $ 401,021 Depreciation expense for the nine months ended September 30, 2023 and 2022 amounted to $ 103,246 and $ 91,221 , respectively. F- 9 Table of Contents NOTE 6 –LOANS PAYABLE Loans payable as of September 30, 2023 and December 31, 2022 consisted of the following: September 30, December 31, 2023 2022 Term Interest rate Martus $ 95,279 $ 94,342 Note was issued on October 23, 2018 and due on January 2, 2024 5.0 % Darlene Covid19 91,018 108,150 Note was issued on April 1, 2020 and due on March 31, 2025 0.0 % Promissory note payable 165,000 — Note was issued April 4, 2023 and due on April 4, 2024 24.0 % Total 351,297 202,492 Less: Unamortized debt discount ( 7,500 ) — Total loans payable 343,797 202,492 Less: Current portion of loans payable ( 252,779 ) ( 94,342 ) Long-term loans payable $ 91,018 $ 108,150 Loans payable - related parties as of September 30, 2023 and December 31, 2022 consisted of the following: September 30, December 31, 2023 2022 Term Interest rate 49% of Shareholder of SwissLink $ 19,844 $ 19,649 Note is due on demand 0 % 49% of Shareholder of SwissLink 218,447 216,300 Note is due on demand 5 % Total 238,291 235,949 Less: Current portion of loans payable 238,291 235,949 Long-term loans payable $ — $ — During the nine months ended September 30, 2023, the Company borrowed from a third party totaling $165,000, which includes original issue discount and financing costs of $ 15,000 . During the nine months ended September 30, 2023 and 2022, the Company recorded interest expense of $ 19,250 and $ 22,417 and recognized amortization of discount, included in interest expense, of $ 7,500 and $ 7,406 , respectively. F- 10 Table of Contents NOTE 7 – CONVERTIBLE NOTE During the nine months ended September 30, 2023, the Company borrowed from a third party totaling $ 284,760 , which includes original issue discount and financing costs of $ 34,760 . The note is due on June 1, 2024 and a one-time interest charge of 12 % shall be applied. Accrued, unpaid interest and outstanding principal shall be paid in 10 payments each in the amount of $ 31,893 beginning on July 16, 2023 . The note is convertible at the option of the holders at any time following an event of default, and the conversion price is 75% multiplied by the lowest trading price of Company’s common stock during the 10 trading days prior to the conversion date. During the nine months ended September 30, 2023, the Company recorded interest expense of $ 13,668 and recognized amortization of discount, included in interest expense, of $ 13,904 . NOTE 8 – WARRANTS On April 5, 2022, we entered into a Common Stock Purchase Option Agreement with Apollo Management Group, Inc (Holder) to subscribe for and purchase from the Company, 4,800,000 shares of Common Stock with an exercise price per share of $ 2.00 ; and an initial exercisable date on September 30, 2022 . The purchase price of this option was $ 500,000 . The Company determined that the warrants had a fixed monetary value with a variable number of shares at inception and categorized the warrants as a liability in the accompanying consolidated financial statements. The Holder and the Company agreed that the Holder had the right and the obligation to exercise, on a cashless basis, $1,000,000 of the Options not later than October 15, 2022. Thereafter, the Holder shall undertake to exercise not less than (i) $400,000 of the Options on a “cash basis” not later than the later of (y) November 14, 2022 or (z) the date on which there is an effective registration statement permitting the issuance of the Option Shares to or resale of the Option Shares by the Holder and (ii) an additional $ 400,000 of the Options on a “cash basis” not later than the latest of (x) thirty (30) days following the exercise of the Option under subsection (i), above, (y) December 14, 2022, or (z) the date on which there is an effective registration statement permitting the issuance of the Option Shares to or resale of the Option Shares by the Holder. From and after the occurrence of the three above-referenced exercises, each additional exercise of Options hereunder shall be in an amount not less than $ 200,000 and exercised only on a cash basis. The Holder’s obligation to exercise each specified portion of this option on the specific dates above is subject to the volume-weighted average price (“VWAP”, market value), being not less than $0.20 per share on the relevant option exercise date. Adjusted option shares at VWAP of $0.20 shall be 48,000,000 shares. A summary of activity regarding warrants issued as follows: Warrants Outstanding Shares Weighted Average Exercise Price Weighted Average Remaining Contractual life (in years) Outstanding, December 31, 2022 23,112,575 $ 0.17 0.75 Granted — — — Increase in number of warrants by VWAP 5,262,465 0.14 — Exercised ( 10,294,119 ) 0.14 0.70 Expired ( 18,080,921 ) — — Outstanding, September 30, 2023 — $ — — F- 11 Table of Contents NOTE 9 – DERIVATIVE LIABILITIES Fair Value Assumptions Used in Accounting for Derivative Liabilities ASC 815, “ Derivatives and Hedging ,” requires we assess the fair market value of derivative liabilities at the end of each reporting period and recognize any change in the fair market value as other income or expense. The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of September 30, 2023. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. For the nine months ended September 30, 2023 and year ended December 31, 2022, the estimated fair values of the liabilities measured on a recurring basis are as follows: Nine months ended Year ended September 30, December 31, 2023 2022 Expected term 0.00 - 0.75 years 0.75 - 1.49 years Expected average volatility 18 % - 187 % 83 % - 152 % Expected dividend yield — — Risk-free interest rate 4.67 % - 5.55 % 0.06 % - 4.73 % The following table summarizes the changes in the derivative liabilities during the nine months ended September 30, 2023: Fair Value Measurements Using Significant Observable Inputs (Level 3) Balance - December 31, 2022 $ 1,357,787 Settled on issuance of common stock ( 975,939 ) Change in fair value of the warrant ( 381,848 ) Balance - September 30, 2023 $ — The following table summarizes the change in fair value of derivative liabilities included in the income statement for the nine months ended September 30, 2023 and 2022, respectively. Nine months ended September 30, 2023 2022 Addition of new derivatives recognized as loss on derivatives $ — $ — Revaluation of derivative liabilities ( 381,848 ) — (Gain) on change in fair value of derivative liability $ ( 381,848 ) $ — F- 12 Table of Contents NOTE 10 – 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 September 30, 2023 and December 31, 2022, 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 restriction on sales into the market of no more than 5% previous month’s stock liquidity. In August 2023, the Company declared and issued 10,080 shares Series B stock to our management as dividends, valued at $816,480. As of September 30, 2023 and December 31, 2022, 31,080 and 21,000 shares of Series B Preferred Stock were issued and outstanding, respectively. 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 restriction on sales into the market of no more than 5% previous month’s stock liquidity. F- 13 Table of Contents 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 September 30, 2023 and December 31, 2022, no Series C Preferred Stock was issued or outstanding. Common Stock During the nine months ended September 30, 2023, the Company issued 8,635,884 shares of common stock, valued at fair market value on issuance as follows: • 180,000 shares for compensation to our directors valued at $ 30,945 ; and • 8,455,884 shares for exercise of warrants for $ 1,150,000 . As of September 30, 2023 and December 31, 2022, 170,231,395 and 161,595,511 shares of common stock were issued and outstanding, respectively. Subscription receivable On September 29, 2023, 1,838,235 warrants were exercised; however, the Company received cash of $ 250,000 and issued 1,838,235 shares in October 2023. As of September 30, 2023, the Company recorded subscription receivable of $ 250,000 in prepaid and other current assets. NOTE 11 - RELATED PARTY TRANSACTIONS Due from related parties As of September 30, 2023 and December 31, 2022, the Company had amounts due from related parties of $ 427,194 and $ 326,324 , respectively. The loans are unsecured, non-interest bearing and due on demand. Due to related parties As of September 30, 2023 and December 31, 2022, the Company had amounts due to related parties of $ 26,613 . The amounts are unsecured, non-interest bearing and due on demand. Employment agreements During the nine months ended September 30, 2023 and 2022, the Company recorded management salaries of $ 402,000 and $ 405,000 and stock-based compensation bonuses of $ 30,945 and $ 92,130 , respectively. As of September 30, 2023 and December 31, 2022, the Company recorded and accrued management salaries of $ 65,627 and $ 79,628 , respectively. NOTE 12 – 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 nine months ended September 30, 2023 and 2022, the Company incurred rent expense of $ 4,048 and $ 56,405 , respectively. F- 14 Table of Contents NOTE 13 - SEGMENTS At September 30, 2023 and December 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 and nine months ended September 30, 2023 and 2022: Three months ended September 30, 2023 NOTE 13 - SEGMENT - Schedule of Operating Activities by Geographic Segment USA Switzerland Elimination Total Revenues $ 39,390,527 1,498,054 $ ( 1,131,378 ) $ 39,757,203 Cost of revenue 38,593,585 1,266,475 ( 1,131,378 ) 38,728,682 Gross profit 796,942 231,579 — 1,028,521 Operating expenses General and administration 770,467 187,301 — 957,768 Operating income 26,475 44,278 — 70,753 Other expense ( 23,893 ) ( 951 ) — ( 24,844 ) Net income $ 2,582 $ 43,327 $ — $ 45,909 Three months ended September 30, 2022 USA Switzerland Elimination Total Revenues $ 22,364,201 1,291,688 $ ( 1,719,255 ) $ 21,936,634 Cost of revenue 21,226,541 1,114,388 ( 1,719,255 ) 20,621,674 Gross profit 1,137,660 177,300 — 1,314,960 Operating expenses General and administration 1,089,194 166,953 — 1,256,147 Operating income 48,466 10,347 — 58,813 Other expense ( 29,411 ) ( 2,090 ) — ( 31,501 ) Net income $ 19,055 $ 8,257 $ — $ 27,312 F- 15 Table of Contents Nine months ended September 30, 2023 USA Switzerland Elimination Total Revenues $ 97,198,336 4,179,569 $ ( 4,129,344 ) $ 97,248,561 Cost of revenue 94,779,408 3,568,774 ( 4,129,344 ) 94,218,838 Gross profit 2,418,928 610,795 — 3,029,723 Operating expenses General and administration 2,966,908 562,310 — 3,529,218 Operating income (loss) ( 547,980 ) 48,485 — ( 499,495 ) Other income (expense) 249,286 ( 24,348 ) — 224,938 Net income (loss) $ ( 298,694 ) $ 24,137 $ — $ ( 274,557 ) Nine months ended September 30, 2022 USA Switzerland Elimination Total Revenues $ 63,898,961 3,554,591 $ ( 2,397,891 ) $ 65,055,661 Cost of revenue 61,838,539 2,969,719 ( 2,397,891 ) 62,410,367 Gross profit 2,060,422 584,872 — 2,645,294 Operating expenses General and administration 2,792,287 597,810 — 3,390,097 Operating loss ( 731,865 ) ( 12,938 ) — ( 744,803 ) Other income (expense) ( 45,938 ) 7,865 — ( 38,073 ) Net loss $ ( 777,803 ) $ ( 5,073 ) $ — $ ( 782,876 ) Asset Information The following table shows asset information by geographic segment as of September 30, 2023 and December 31, 2022: September 30, 2023 USA Switzerland Elimination Total Assets Current assets $ 10,859,240 $ 1,693,166 $ ( 764,212 ) $ 11,788,194 Non-current assets $ 11,757,803 $ 762,425 $ ( 6,184,562 ) $ 6,335,666 Liabilities Current liabilities $ 8,338,475 $ 2,339,834 $ ( 764,212 ) $ 9,914,097 Non-current liabilities $ 140 $ 246,787 $ — $ 246,927 December 31, 2022 USA Switzerland Elimination Total Assets Current assets $ 6,496,354 $ 1,172,889 $ ( 1,232,653 ) $ 6,436,590 Non-current assets $ 11,646,662 $ 650,794 $ ( 6,184,562 ) $ 6,112,894 Liabilities Current liabilities $ 5,967,729 $ 1,716,603 $ ( 1,232,653 ) $ 6,451,679 Non-current liabilities $ — $ 262,388 $ — $ 262,388 NOTE 14 – SUBSEQUENT EVENTS . Management has evaluated subsequent events through the date these consolidated financial statements were available to be issued. Based on our evaluation no material events have occurred that require disclosure. F- 16 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 with presence in 19 countries and 70 employees that is offering leading-edge services through its 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, 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. Our Artificial Intelligence (AI)-Enhanced Metaverse Division (information and content) is currently developing a groundbreaking white-label solution designed specifically for corporations, businesses, and the telecommunications industry. Delivering a full suite of immersive content services, creating a comprehensive virtual experience that can be accessed through the Web or our proprietary mobile apps. The features include up to four simultaneous video screens for versatile content presentation, various virtual halls such as the main hall, home hall, auditorium, exhibition space, shopping center, and meeting rooms. Stands for mobile application downloads, clickable gates for immediate purchasing, and direct communication tools are seamlessly integrated to foster collaboration, engagement, and interactivity. It goes beyond traditional virtual spaces by utilizing cutting-edge AI technology. This ensures video conferencing and real-time communication with other users within the Metaverse, offering our customers a collective and fully immersive experience that caters to diverse needs such as content acquisition, entertainment, and shared virtual experiences. It is a future-ready platform that encourages creativity, connectivity, and collaboration like never before. 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 September 30, 2023 was $39,757,203, compared with $21,936,634 for the three months ended September 30, 2022. These numbers reflect an increase of 81.24% quarter over quarter on our consolidated revenues. Our total revenue reported for the nine months ended September 30, 2023 was $97,248,561, compared with $65,055,661 for the nine months ended September 30, 2022. These numbers reflect an increase of 49.49% year over year on our consolidated revenues. When looking at the numbers by subsidiary, we have the following breakout for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022: Revenue Nine Months Ended Subsidiary September 30, 2023 September 30, 2022 Etelix.com USA, LLC $ 25,635,273 $ 17,510,601 SwissLink Carrier AG 4,179,569 3,554,591 QGlobal LLC 780,934 317,594 IoT Labs LLC 53,279,140 39,733,761 Smartbiz Telecom 14,102,902 3,712,432 Whisl Telecom 3,400,087 2,624,573 Sub-total $ 101,377,905 $ 67,453,552 Inter-company sales (4,129,344 ) (2,397,891 ) $ 97,248,561 $ 65,055,661 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 the synergies among all our subsidiaries. Cost of Revenues Our total cost of revenues for the three months ended September 30, 2023 increased to $38,728,682, compared with $20,621,674 for the three months ended September 30, 2022. Our total cost of revenues for the nine months ended September 30, 2023 increased to $94,218,838, compared with $62,410,367 for the nine months ended September 30, 2022. When looking at the numbers by subsidiary, we have the following breakout for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022: Cost of Revenue Nine Months Ended Subsidiary September 30, 2023 September 30, 2022 Etelix.com USA, LLC $ 25,364,275 $ 16,818,292 SwissLink Carrier AG 3,568,774 2,969,719 QGlobal LLC 516,018 236,402 IoT Labs LLC 52,665,861 39,356,735 Smartbiz Telecom 13,435,881 3,330,051 Whisl Telecom 2,797,373 2,097,059 Sub-total $ 98,348,182 $ 64,808,258 Inter-company sales (4,129,344 ) (2,397,891 ) $ 94,218,838 $ 62,410,367 5 Table of Contents 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 Profit The gross profit for the three months ended September 30, 2023 decreased to $1,028,521 from $1,314,960 for the same period of year 2022. However, for the nine months ended September 30, 2023 the gross profit increased to $3,029,723 from $2,645,294 for the same period of year 2022. When looking at the numbers by subsidiary, we have the following breakout for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022: Gross Margin Nine Months Ended Subsidiary September 30, 2023 September 30, 2022 Etelix.com USA, LLC $ 270,998 $ 692,309 SwissLink Carrier AG 610,795 584,872 QGlobal LLC 264,916 81,192 IoT Labs LLC 613,279 377,026 Smartbiz Telecom 667,021 382,381 Whisl Telecom 602,714 527,514 $ 3,029,723 $ 2,645,294 Operating Expenses Operating expenses decreased to $957,768 for the three months ended September 30, 2023 from $1,256,147 for the three months ended September 30, 2022. But more importantly than comparing year 2023 with year 2022, we must highlight how the Operating Expenses have been decreasing every quarter during 2023, from $1,534,266 in the first quarter, to $1,037,184 in the second quarter and to $957,768 in this third quarter. Operating expenses increased to $3,529,218 for the nine months ended September 30, 2023 from $3,390,097 for the nine months ended September 30, 2022. The details by major category for the nine months ended September 30, 2023 and 2022 is reflected in the table below: Nine Months Ended September 30, 2023 2022 Salaries, Wages and Benefits $ 1,218,946 $ 1,239,271 Technology 273,786 188,950 Professional Fees 821,780 475,143 Legal and Regulatory 168,908 199,768 Bad Debt Expense 1,344 26,299 Travel and Events 119,845 55,281 Public Cost 28,526 24,122 Advertising 535,193 486,153 Insurances 10,543 7,328 Bank Services and Fees 44,136 27,109 Financial Expenses — 134,608 Depreciation and Amortization 103,246 91,221 Penalties and Settlements — 110,767 Office, Facility and Other 172,020 231,947 Sub Total 3,498,273 3,297,967 Stock-based compensation 30,945 92,130 Total Operating Expense $ 3,529,218 $ 3,390,097 6 Table of Contents The main reasons for the overall increase in operating expenses for the nine months ended September 30, 2023 compared to the same period of 2022 is due to the increase in the professional fees. When looking at the numbers by subsidiary, we have the following breakout for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022: Nine Months Ended September 30, 2023 2022 Difference iQSTEL $ 1,346,415 1,382,701 -36,286 Etelix 256,616 326,432 -69,816 SwissLink 562,310 597,810 -35,500 ItsBchain 28,945 12,653 16,292 QGlobal 184,698 133,532 51,166 IoT Labs 112,033 185,736 -73,703 Global Money One 47,759 109,627 -61,868 Smartbiz Telecom 526,079 246,268 279,811 Whisl Telecom 464,363 395,338 69,025 $ 3,529,218 3,390,097 139,121 Operating Income The Operating Income increased to $70,753 for the three months ended September 30, 2023 from $58,813 for the three months ended September 30, 2022. When comparing these values for the nine months ended September 30, 2023 with the same period in 2022, we also see an improvement going from a negative result of $744,803 in 2022, to a much smaller loss in 2023 of $499,495. Despite the operating loss incurred during the nine months ended September 30, 2023, the Company has shown a positive evolution during year 2023 from an Operating loss of $317,530 in the first quarter, to a loss of $252,718 in the second quarter, to a third quarter Operating Income of $70,753. Other Expenses/Other Income We had other income of $224,938 for the nine months ended September 30, 2023, as compared with other expenses of $38,073 for the same period ended 2022. The difference between the compared periods in due to a positive change in fair value of derivative liabilities of $381,848. Net Income/Loss We finished the three months ended September 30, 2023 with a net income of $45,909, as compared to $27,312 during the three months ended September 30, 2022, which represent an increase of 68%. We also finished the nine months ended September 30, 2023 with a smaller loss of $274,557, as compared to a loss of $782,876 during the nine months ended September 30, 2022. Liquidity and Capital Resources As of September 30, 2023, we had total current assets of $11,788,194 and current liabilities of $9,914,097, resulting in a positive working capital of $1,874,097. This compares with a negative working capital of $15,089 at December 31, 2022. Our operating activities used $434,701 in the nine months ended September 30, 2023 as compared with $1,488,901 used in operating activities in the nine months ended September 30, 2022. 7 Table of Contents Investing activities used $340,583 for the nine months ended September 30, 2023. Uses of funds in investing activities were primarily for the advances of amounts due from related parties of $189,767 and the purchase of property and equipment for $164,715. Financing activities provided $1,454,756 in the nine months ended September 30, 2023 compared with $1,367,982 provided in the nine months ended September 30, 2022. Our positive financing cash flow in 2023 was largely the result of the proceeds from the exercise of warrants of $1,150,000. Our current financial condition has improved significantly with a positive working capital of $1,874,097 and a cash position of $ 2,001,320 as of September 30, 2023. 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 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 nine-month period ended September 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 nine months ended September 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 September 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. 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. 8 Table of Contents 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 September 30, 2023. 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 nine-month period ended September 30, 2023, 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. 9 Table of Contents PART II – OTHER INFORMATION Item 1. Legal Proceedings We are not a party to any material pending legal proceedings. 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 14, 2023. 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 nine months ended September 30, 2023, the Company issued 8,635,884 shares of common stock, valued at fair market value on issuance as follows: • 180,000 shares for compensation to our directors valued at $30,945; and • 8,455,884 shares for exercise of warrants for $1,150,000. Item 3. Defaults upon Senior Securities None Item 4. Mine Safety Disclosures N/A Item 5. Other Information None 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 September 30, 2023 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 November 14, 2023 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