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. (www.IQSTEL.com) is a technology company with a presence in 20 countries (Argentina, Armenia, Austria, Canada, Colombia, Germany, Greece, Guatemala, India, Italy, Pakistan, Romania, Serbia, Spain, Switzerland, Turkey, UAE, UK, USA and Venezuela) and over 100 employees that offers leading-edge services through its four business divisions in the telecommunications, electric vehicle (EV), fintech, and AI-enhanced metaverse industries. Our presence is global, with offices in USA, Argentina, UK, Switzerland, Turkey, and Dubai, and we target diverse and high-growth markets. We maintain more than 603 high value network interconnections around the world, delivering international voice, SMS, and connectivity services that form the core of our business. The company’s strategy focuses on leveraging synergies between its 9 subsidiaries to drive innovation and capture emerging opportunities. 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 Voice over Internet Protocol (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), QGlobal SMS (www.qglobalsms.com), and QXTEL Limited (www.qxtel.com). Also under the Telecom Division, 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 our subsidiary, itsBchain. 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 Electric Vehicle (EV) Business Line offers electric motorcycles for work and recreational use in the USA, Spain, Portugal, Panama, Colombia. EVOSS is also working on the development of an EV Mid Speed Car to serve the niche of the 2nd car in the family. 4 Table of Contents Our developing Artificial Intelligence (AI)-Enhanced Metaverse Division (information and content) (www.realityborder.com) 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. Our developing metaverse leverages advanced AI to introduce Non-Player Characters (NPCs) that significantly enhance user engagement and functionality within virtual environments. These NPCs are not mere static elements; rather, they are powered by OpenAI's latest language models, enabling dynamic interaction with users. This AI-driven interaction allows NPCs to serve as sales and brand assistants, guiding users through immersive experiences that can extend to purchasing products from external websites. Furthermore, these intelligent agents can control access to gated spaces within the metaverse based on user interactions, showcasing a personalized approach to user experience. A key innovation in our AI implementation is the NPCs' ability to autonomously make decisions based on their understanding of user interactions. This is achieved through state-of-the-art natural language processing and understanding capabilities, which are supported in seven languages. Additionally, our NPCs utilize advanced text-to-speech and speech-to-text technologies to facilitate seamless communication with users across diverse linguistic backgrounds. The incorporation of "function call" features further enhances the NPCs' ability to perform complex tasks and interact meaningfully with the environment and the users. Our reference to our technology as "cutting-edge" is grounded in our commitment to continuous improvement and innovation. We consistently integrate the latest advancements in AI, particularly in the areas of chatbots, language understanding, and user interaction technologies. This ensures that our metaverse remains at the forefront of AI application in virtual spaces, offering an unparalleled user experience that goes beyond traditional virtual environments. We are currently in an advanced phase of development, with ongoing enhancements to AI functionalities and user interaction models. Our team is dedicated to exploring and implementing the latest AI technologies to ensure that our metaverse remains a leading example of innovation in virtual space technology. The information contained on our websites is not incorporated by reference into this quarterly report and should not be considered part of this or any other report filed with the SEC. Results of Operations Revenues Our total revenue reported for the three months ended March 31, 2025 was $57,632,816, compared with $51,414,878 for the three months ended March 31, 2024. These numbers reflect an increase of 12% quarter over quarter on our consolidated revenues. 5 Table of Contents When looking at the numbers by subsidiary, we have the following breakout for the three months ended March 31, 2025 compared to the three months ended March 31, 2024: Subsidiary Revenue Three Months Ended March 31, 2025 Revenue Three Months Ended March 31, 2024 Etelix.com USA, LLC $ 8,720,701 $ 18,853,217 SwissLink Carrier AG 1,349,162 1,035,919 QGlobal LLC 660,926 385,927 IoT Labs LLC 24,904,457 24,338,199 Smartbiz 3,478,939 6,672,879 Whisl 772,775 1,861,035 QXTEL 31,154,997 — Intercompany eliminations (13,409,141 ) (1,732,298 ) $ 57,632,816 $ 51,414,878 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 expanding the synergies among our subsidiaries. We expect that our revenue will continue to grow consistently over the coming quarters providing a projected total of $340 million for the year ending December 31, 2025. Cost of Revenues Our total cost of revenues for the three months ended March 31, 2025 increased to $55,697,858, compared with $50,035,852 for the three months ended March 31, 2024. When looking at the numbers by subsidiary, we have the following breakout for the three months ended March 31, 2025 compared to the three months ended March 31, 2024: Subsidiary Cost of Revenue Three Months Ended March 31, 2025 Cost of Revenue Three Months Ended March 31, 2024 Etelix.com USA, LLC $ 8,574,584 $ 18,722,890 SwissLink Carrier AG 1,080,854 836,324 QGlobal LLC 476,330 265,814 IoT Labs LLC 24,809,932 23,796,575 Smartbiz 3,246,341 6,481,828 Whisl 581,128 1,664,719 QXTEL 30,325,933 — Intercompany eliminations (13,397,244 ) (1,732,298 ) $ 55,697,858 $ 50,035,852 6 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 networks. The behavior in the costs shows a logical correlation with the behavior of the revenue commented on above. We have reached a higher volume of sales and every additional unit sold (minutes and SMS) has its corresponding termination cost. As can be noticed in the analysis of the Gross Margin in the section below, there is an important increase in the margins of Etelix, Whisl and Smartbiz. This increase in the gross margins of Etelix, Whisl and Smartbiz is related to the lower revenue reported by those subsidiaries. These three subsidiaries eliminated routes and destinations of low margins; while the inclusion of QXTEL compensates for the revenue of those low-margin routes in Etelix, Whisl and Smartbiz. This portfolio restructuring is the result of the synergies achieved through the commercial and operational integration of all subsidiaries. This can also be noticed in the high volume of intercompany business. We expect this to impact positively the revenues and the margins in the future. Gross Margin Our gross margin, which is simply the difference between our revenues and our cost of sales, discussed above, was $1,934,958 for the three months ended March 31, 2025 compared to $1,379,026 for the three months ended March 31, 2024. This represents an increase of 40% in the gross margin quarter over quarter. Subsidiary Gross Margin % Three Months Ended March 31, 2025 Gross Margin % Three Months Ended March 31, 2024 Etelix.com USA, LLC 1.68 % 0.69 % SwissLink Carrier AG 19.89 % 19.27 % QGlobal LLC 27.93 % 31.12 % IoT Labs LLC 0.38 % 2.23 % Smartbiz 6.69 % 2.86 % Whisl 24.80 % 10.55 % QXTEL 2.66 % — Consolidated Gross Margin % for the three months ended March 31, 2025 was 3.36% compared to 2.68% for the same period of 2024. This represents an increase of 25.37% quarter over quarter. As mentioned before, this increment in the gross margin is the result of the commercial and operational synergies implemented among all subsidiaries. 7 Table of Contents Operating Expenses Operating expenses increased to $2,539,184 for the three months ended March 31, 2025 from $1,562,478 for the three months ended March 31, 2024. The detail by major category is reflected in the table below. Three Months Ended March 31, 2025 2024 Salaries, Wages and Benefits $ 955,159 $ 375,426 Technology 425,593 221,463 Professional Fees 309,049 503,572 Legal and Regulatory 166,438 32,164 Travel and Events 89,051 35,736 Public Cost 66,559 71,930 Advertising 218,880 184,740 Bank Services and Fees 21,440 19,736 Depreciation and Amortization 126,995 35,161 Office, Facility and Other 126,302 49,962 Insurance 903 798 Bad debt expense — 725 Sub Total 2,506,369 1,531,413 Stock-based compensation 32,815 31,065 Total Operating Expenses $ 2,539,184 $ 1,562,478 When looking at the numbers by subsidiary, we have the following breakout for the three months ended March 31, 2025 compared to the three months ended March 31, 2024: Three Months Ended March 31, 2025 2024 Difference IQSTEL 749,131 657,410 91,721 Etelix 119,377 68,176 51,201 SwissLink 185,820 206,472 -20,652 ItsBchain 1,190 10,416 -9,226 QGlobal 112,299 109,012 3,287 IoT Labs 68,826 52,522 16,304 Global Money One 243 250 -7 Whisl 98,418 240,048 -141,630 Smartbiz 361,296 218,172 143,124 QXTEL 740,514 — 740,514 Intercompany 102,070 — 102,070 2,539,184 1,562,478 976,706 The most significant differences are: (1) the increase in technology expenses related to the deployment and upgrade of the Switching platform to allocate all subsidiaries; (2) the increases in other items such as salaries, wages and benefits, or depreciation and amortization, or office, facility and other are the result of the addition of QXTEL to our consolidated financial statements. We are continually identifying operational synergies among all of our subsidiaries to be more cost efficient. The investment we are currently making in the development of a unique voice and SMS switching platform that will allow us to reduce costs between fifty and sixty thousand dollars per quarter. 8 Table of Contents Operating Income The Company showed negative Operating Income for the three months ended March 31, 2025 of $604,226 compared with a negative result of $183,452 for the three months ended March 31, 2024. Our Telecom Division, which is the one generating revenue at the present time, generated positive Operating Income. The expenses of our Pre-revenue companies are set at the minimum required to finish the development of the product/services prior to market launch. Telecom Division Pre Revenue Subsidiaries IQSTEL Consolidated Revenues $ 57,632,816 — — $ 57,632,816 Cost of revenues 55,697,858 — — 55,697,858 Gross profit 1,934,958 — — 1,934,958 Operating expenses General and administration 1,668,305 1,433 869,446 2,539,184 Total operating expenses 1,668,305 1,433 869,646 2,539,184 Operating income/(loss) $ 266,653 (1,433 ) (869,646 ) $ (604,226 ) Other Expenses/Other Income We had total other expenses, net of $519,660 for the three months ended March 31, 2025, as compared with other expenses of $396,764 for the same period ended 2024. The other expenses in 2025 are largely due to $531,726 in Interest Expense associated with the financing for the acquisition of QXTEL, which allows us to drive the organic growth of the Company. Net Loss We finished the three months ended March 31, 2025 with a net loss of $1,144,461, as compared to a loss of $580,216 during the three months ended March 31, 2024. The net loss as of March 31, 2025 is highly impacted by increased operating expenses and interest expense incurred in the acquisition of QXTEL; however, the increase in the Company's value and the beneficial effects of this acquisition could be observed in the $829,064 of gross profit added to our operations for the three months ended March 31, 2025 which represents 43% of the total consolidated gross profit. Our Telecom Division, the division presently generating revenue, has a positive operating income when presented separately from the rest of our Company. As we have indicated on several occasions, our strategy is to strengthen our telecommunications division so that it can serve as a lever for the development of new lines of business, such as Fintech and Cybersecurity. Telecom Division Pre-revenue companies iQSTEL Consolidated Year Ended March 31, 2025 Year Ended March 31, 2025 Year Ended March 31, 2025 Year Ended March 31, 2025 Revenues $ 57,632,816 — — 57,632,816 Cost of revenue 55,697,858 — — 55,697,858 Gross profit $ 1,934,958 — — 1,934,958 Operating expenses General and administration 1,668,305 1,433 869,446 2,539,184 Total Operating Expenses $ 1,668,305 1,433 869,446 2,539,184 Operating income/(loss) $ 266,653 (1,433 ) (869,446 ) (604,226 ) Other income (expense) 1,210 — (520,870 ) (519,660 ) Net income (loss) before income taxes $ 267,863 (1,433 ) (1,390,316 ) (1,123,886 ) Income taxes (20,575 ) — — (20,575 ) Net income (loss) $ 247,288 (1,433 ) (1,390,316 ) (1,144,461 ) Depreciation and Amortization 126,995 — — 126,995 Interest expense 10,852 — 520,869 531,721 FX Gains/Losses 31,939 — (401 ) 31,538 Stock-based compensation — — 32,815 32,815 Other non-recurrent 150,984 — — 150,984 Taxes 25,548 — — 25,548 Adjusted EBITDA 593,606 (1,433 ) (837,033 ) (244,860 ) 9 Table of Contents In evaluating our financial performance, we utilize Adjusted EBITDA as a supplemental measure to provide insights into the profitability of our core operations. (Please see Adjusted EBITDA, which is reconciled to the Net Income in the table above.) Adjusted EBITDA excludes, in addition to non-operational expenses like interest expenses, taxes, depreciation and amortization; items that we believe are not indicative of our operating performance, such as: • FX Gains and Losses. • Stock-Based Compensation: As a non-cash expense, this adjustment eliminates variability caused by equity-based incentives. • Other non-recurrent expenses: Adjusted EBITDA removes one-time, irregular, or non-recurring expenses to reflect the company's sustainable earnings. We believe Adjusted EBITDA offers a clearer view of the cash-generating potential of our business, excluding non-recurring, non-cash, and non-operational impacts. Based on the analysis of our Adjusted EBITDA our Telecom Division is a high-performing division that generates strong operational profits. Consolidated figures show a slightly negative Adjusted EBITDA; while this isn’t ideal, in our opinion it implies the Company is close to breaking even and might achieve positive Adjusted EBITDA with small improvements in efficiency or revenue growth. We are in a transitional period, scaling operations and investing heavily in growth initiatives with the execution of our M&A plan. Management has also identified areas for cost-cutting and operational improvements and has acted in that direction. Liquidity and Capital Resources As of March 31, 2025, we had total current assets of $26,043,799 and current liabilities of $30,279,641, resulting in a negative working capital of $4,235,842. Our operating activities used $1,906,969 for the three months ended March 31, 2025 as compared with $536,888 used in operating activities in the three months ended March 31, 2024. Our cash flow from operations varies depending on our operating results and the timing of operating cash receipts and payments, specifically trade accounts receivable and trade accounts payable. Investing activities used $58,645 for the three months ended March 31, 2025 as compared with $1,622,892 for the three months ended March 31, 2024. Uses of funds in investing activities in 2025 consisted primarily of the purchase of property and equipment. Uses of funds on investing activities in 2024 were primarily the acquisition of QXTEL. Financing activities provided $540,303 in the three months ended March 31, 2025 compared with $3,522,683 provided in the three months ended March 31, 2024. Our positive financing cash flow in 2025 and 2024 was largely the result of the financing secured to complete the acquisition of QXTEL. We intend to fund operations through increased sales and debt and/or equity financing arrangements, to strengthen our liquidity and capital resources. 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. We have an outstanding Option with ADI Funding under a stock purchase agreement for $100,000 that expires on July 14, 2025, for the right to acquire up to 187,500 shares of common stock upon an effective registration statement. As of March 31, 2025, the Company did not receive payment of $100,000 and the Option was not in effect, but we anticipate completing the registration statement and receiving the $100,000 from ADI Funding at some point in the near future. If activated, the exercise price per share of the common stock under the Option shall be 70% of the VWAP of the common stock during the then 10 Trading Days immediately preceding but not including the date of exercise. The obligation to exercise each specified portion of the Option is subject to the exercise price, being not less than $8.80 per share on the relevant Option exercise date. Inflation Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the three-month period ended March 31, 2025. 10 Table of Contents Critical Accounting Polices A “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our accounting policies are discussed in detail in the footnotes to our financial statements included in this Quarterly Report on Form 10-Q for the three months ended March 31, 2025; 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 March 31, 2025, 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.