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 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