iQSTEL Inc 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Results of Operations for the Years Ended December 31, 2023 and 2022 Net Revenue Our net revenue for the year ended December 31, 2023 was $144,502,351 as compared with $93,203,532 for the year ended December 31, 2022. These numbers reflect an increase of 55% year over year on our consolidated Revenues. When looking at the numbers by subsidiary, we have the following breakout for the years ended December 31, 2023 and 2022: Subsidiary Revenue Year Ended December 31, 2023 Revenue Year Ended December 31, 2022 Etelix.com USA, LLC $ 44,026,288 $ 22,301,110 SwissLink Carrier AG 5,250,141 4,705,031 QGlobal LLC 1,228,865 350,050 IoT Labs LLC 75,574,912 53,239,401 Whisl 1,855,816 4,318,762 Smartbiz 16,566,329 8,289,178 $ 144,502,351 $ 93,203,532 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 sales for the year ended December 31, 2023 was $139,830,338 as compared with $91,412,016 for the year ended December 31, 2022. When looking at the numbers by subsidiary, we have the following breakout for the years ended December 31, 2023 and 2022: Subsidiary Cost of revenue Year Ended December 31, 2023 Cost of revenue Year Ended December 31, 2022 Etelix.com USA, LLC $ 41,505,472 $ 23,360,923 SwissLink Carrier AG 4,359,141 3,949,751 QGlobal LLC 832,282 243,493 IoT Labs LLC 74,662,656 52,842,202 Whisl 2,033,529 2,760,807 Smartbiz 16,437,258 8,254,840 $ 139,830,338 $ 91,412,016 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 our vendors’ networks. 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. 23 Gross Margin Our gross margin, which is simply the difference between our revenues and our cost of sales, discussed above, increased from $1,791,516 in 2022 to $4,672,013 in 2023; represented an increase of 161% year over year. Gross margins were 3.23% and 1.92% of revenues, respectively. This is a clear sign the Company is improving it sales margin. Operating Expenses Operating expenses for the year ended December 31, 2023 were $4,987,516, as compared with $4,983,176 for the year ended December 31, 2022. The detail by major category is reflected in the table below. Years Ended December 31 2023 2022 Salaries, Wages and Benefits $ 1,560,366 $ 1,662,192 Technology 328,710 291,348 Professional Fees 1,283,351 901,082 Legal and Regulatory 256,537 511,598 Travel & Events 136,051 93,769 Public Cost 36,349 31,750 Bad Debt Expense 8,815 34,376 Depreciation and Amortization 128,737 120,117 Advertising 595,298 617,559 Bank Services and Fees 77,292 37,950 Office, Facility and Other 309,376 324,167 Sales Commissions 211,830 239,550 Insurance 11,914 10,118 Subtotal 4,944,626 4,875,576 Stock-based compensation 42,890 107,600 Total Operating Expenses $ 4,987,516 $ 4,983,176 Operating Expenses by subsidiary are as follows: Years Ended December 31, 2023 2022 Difference iQSTEL $ 1,692,056 $ 1,762,904 $ -70,848 Etelix 322,932 472,291 -149,359 SwissLink 723,712 767,069 -43,357 ItsBchain 41,955 22,693 19,262 QGlobal 253,160 202,933 50,227 Global Money One 55,710 157,382 -101,672 IoT Labs 172,709 264,091 -91,382 Whisl 614,617 821,979 -207,362 Smartbiz 1,110,665 511,834 598,831 $ 4,987,516 $ 4,983,176 $ 4,340 24 Other Income (Expenses) We had other income of $96,067 for the year ended December 31, 2023, as compared with other expenses of $2,674,101 for the year ended December 31, 2022. The positive change in Other Income (Expenses) in 2023 compared to 2022 is due to the positive Change in fair value of derivative liabilities of $381,848 for the year ended December 31, 2023 from a negative value of $2,650,369 for the year ended December 31, 2022. Net Loss We finished the year ended December 31, 2023 with a loss of $219,436 as compared to a loss of $5,865,761 during the year ended December 31, 2022. These two figures compared result in an important improvement in the Company’s performance during 2023 versus the previous year. This can be perfectly noted when looking at the evolution of the Operating Income and the Net Income by quarter in 2023. Liquidity and Capital Resources As of December 31, 2023 we had total current assets of $15,719,172, compared with current liabilities of $13,840,944, resulting in a positive working capital of $1,878,228 and a current ratio of approximately 1.14 to 1 which represent an important improvement compared to a ratio of 0.99 to 1 as of December 31, 2022. Following is a table with summary data from the consolidated statement of cash flows for the year ended December 31, 2023 and 2022, as presented. 2023 2022 Net cash used in operating activities $ (1,483,801 ) $ (1,765,060 ) Net cash used in investing activities (332,550 ) (2,001,506 ) Net cash provided by financing activities 1,833,965 1,767,982 Effect of exchange rate changes on cash 15,665 (6,840 ) Net change in cash and cash equivalents $ 33,279 $ (2,005,424) Our operating activities used $1,483,801 in the year ended December 31, 2023, as compared with $1,765,060 used in operating activities in the year ended December 31, 2022. Our cash flow from operations varies depending on our operating results and the timing of operating cash receipts and payments, specifically trade accounts receivable and trade accounts payable. 25 Investing activities used $332,550 for the year ended December 31, 2023, as compared with $2,001,506 used in investing activities for the year ended December 31, 2022. Our negative investing cash flow for 2023 is largely due to the purchase of property and equipment. Financing activities provided $1,833,965 for the year ended December 31, 2023, as compared to $1,767,982 provided for the year ended December 31, 2022. Our positive financing cash flow in 2023 was largely the result of the $1,400,000 from the exercise of warrants. Based upon our current financial condition, we do not have sufficient cash to operate our business at the current level for the next twelve months. We intend to fund operations through increased sales and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. The Company has received the qualification of an Offering Statement under Form S-1 for the sale of up to 15,000,000 common stocks. This offering is being conducted on a “best efforts” basis, which means that there is no guarantee that any minimum amount will be sold. We also plan to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all. Inflation Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the twelve-month period ended December 31, 2023. Critical Accounting Policies 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 Annual Report on Form 10-K for the year ended December 31, 2023; however, we consider our critical accounting policies to be those related to the allowance for doubtful accounts, valuation of assets, significant estimates in the valuation of financial instruments 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 Annual Report for a complete discussion of our significant accounting policies. Off Balance Sheet Arrangements As of December 31, 2023, there were no off-balance sheet arrangements. Recently Issued Accounting Pronouncements We do not expect the adoption of these or other recently issued accounting pronouncements to have a significant impact on our results of operation, financial position or cash flow.