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Item 1. Financial Statements

2026-08-18 compared with 2026-05-20 · 534 added, 268 removed, 664 unchanged (55% of the section changed)

Financial Statements

Our unaudited consolidated financial statements included in this Form 10-Q

are as follows:

Consolidated Balance Sheets as of March 31, 2026 (unaudited) and December 31, 2025;

Consolidated Statements of Operations for the three months ended March 31, 2026 and 2025 (unaudited);

Consolidated Statements of Cash Flows for the three months ended March 31, 2026 and 2025 (unaudited);

Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2026 and 2025 (unaudited);

Our unaudited consolidated financial statements included

in this Form 10-Q are as follows:

Consolidated Balance Sheets as of June 30, 2026 (unaudited) and December 31, 2025;

Consolidated Statements of Operations for the three and six months ended June 30, 2026 and 2025 (unaudited);

Consolidated Statements of Stockholder’s Equity for the three and six months ended June 30, 2026 and 2025 (unaudited).

Consolidated Statements of Cash Flows for the six months ended June 30, 2026 and 2025 (unaudited);

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.

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.

results for the interim period ended March 31, 2026 are not necessarily indicative of the results that can be expected for the full year.

Operating results for the interim period ended June 30, 2026 are not necessarily indicative of the results that can be expected for the

Consolidated Balance Sheets

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Property and equipment, net

Intangible asset, net

Intangible assets, net

Deferred tax assets

8 unchanged sentences

Contingent liability for acquisition of subsidiary

Stock payable for acquisition of subsidiary

Stock payable

Total Current Liabilities

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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

The accompanying notes are an integral part of

these unaudited consolidated financial statements.

The accompanying notes are an integral part

of these unaudited consolidated financial statements.

Consolidated Statements of Operations

Three Months Ended March 31,

Three Months Ended

Six Months Ended

$ 109,068,246

$ 206,988,082

$ 129,816,052

Cost of revenue

3 unchanged sentences

Operating loss

( 1,120,819 )

( 2,078,828 )

( 1,260,455 )

Other income (expense)

1 unchanged sentence

Interest expense

Loss on settlement of debt

Loss on settlement of salary payable

Total other expense

( 1,222,693 )

( 1,600,989 )

( 1,635,117 )

( 2,120,649 )

Net loss before provision for income taxes

3 unchanged sentences

( 3,381,104 )

Net (loss) / income attributable to noncontrolling interests

( 2,405,621 )

( 2,348,914 )

( 3,791,557 )

( 3,493,375 )

Net income attributable to noncontrolling interests

Net loss attributed to IQSTEL Inc.

1 unchanged sentence

$ ( 2,406,978 )

Undeclared dividends on Series D Preferred Stock

$ ( 3,981,451 )

$ ( 3,564,936 )

Dividend on Series D Preferred Stock

Undeclared dividend on Series D Preferred Stock

Net loss attributed to stockholders of IQSTEL Inc.

1 unchanged sentence

$ ( 2,406,978 )

$ ( 4,034,738 )

$ ( 3,564,936 )

Comprehensive loss

3 unchanged sentences

$ ( 3,493,375 )

Comprehensive (loss) income attributable to noncontrolling interests

Comprehensive income attributable to noncontrolling interests

Net comprehensive loss attributed to IQSTEL Inc.

1 unchanged sentence

$ ( 2,406,978 )

$ ( 3,981,451 )

$ ( 3,564,936 )

Basic and diluted loss per common share

Weighted average number of common shares outstanding - Basic and diluted

The accompanying notes are an integral part of

these unaudited consolidated financial statements.

The accompanying notes are an integral part

of these unaudited consolidated financial statements.

Consolidated Statements of Changes in Stockholders’

For the three months ended March 31, 2026 and

A Preferred Stock

B Preferred Stock

D Preferred Stock

For the Three and Six Months ended June 30, 2026

Series A Preferred Stock

Series B Preferred Stock

Series D Preferred Stock

Paid in Capital

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Stockholders' Equity

- December 31, 2025

Balance - December 31, 2025

$ ( 42,991,879 )

stock issued for conversion of series D preferred stock

stock issued for compensation

to non-controlling interest

Common stock issued for conversion of series D preferred stock

Common stock issued for compensation

Dividend to non-controlling interest

Net income (loss)

( 1,357,593 )

1 unchanged sentence

( 1,385,936 )

- March 31, 2026

Balance - March 31, 2026

$ ( 44,349,472 )

A Preferred Stock

B Preferred Stock

Paid in Capital

Comprehensive Loss

Controlling Interest

Stockholders' Equity

- December 31, 2024

Common stock issued for conversion of series D preferred stock

Series D Preferred stock issued for settlement of debt

Series D Preferred stock issued as dividend

Common stock issued for cash and receivable

Common stock issued for compensation

Common stock issued for service

Common stock issued for financing commitment

Common stock payable for financing commitment

( 2,623,858 )

stock issued for compensation

stock issued for conversion of debt

stock issued for common stock payable

to non-controlling interest

income (loss)

( 2,623,858 )

( 2,405,621 )

Balance - June 30, 2026

$ ( 47,010,050 )

- March 31, 2025

For the Three and Six Months ended June 30, 2025

Series A Preferred Stock

Series B Preferred Stock

Additional Paid in Capital

Accumulated Deficit

Accumulated Comprehensive Loss

Non-Controlling Interest

Total Stockholders' Equity

Balance - December 31, 2024

$ ( 32,703,410 )

The accompanying notes are an integral part of

these unaudited consolidated financial statements.

Common stock issued for compensation

Common stock issued for conversion of debt

Common stock issued for common stock payable

Dividend to non-controlling interest

Net income (loss)

( 1,157,958 )

( 1,144,461 )

Balance - March 31, 2025

$ ( 33,930,013 )

Series B Preferred stock issued for settlement of salary payable

Common stock issued for compensation

Common stock issued for conversion of debt

Common stock issued for settlement of debt

Reverse split adjustment

Dividend to non-controlling interest

Net income (loss)

( 2,406,978 )

( 2,348,914 )

Balance - June 30, 2025

$ ( 36,405,475 )

The accompanying notes are an integral part

of these unaudited consolidated financial statements.

Consolidated Statements of Cash Flows

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

6 unchanged sentences

Amortization of debt discount

Loss on settlement of debt

Loss on settlement of salary payable

Changes in operating assets and liabilities:

3 unchanged sentences

Accounts payable

( 1,151,840 )

Accrued and other current liabilities

1 unchanged sentence

( 30,462,934 )

Contract liabilities

Contract liability

Net cash used in operating activities

( 1,667,174 )

( 1,649,283 )

CASH FLOWS FROM INVESTING ACTIVITIES:

7 unchanged sentences

Repayments of note payable issued for acquisition of subsidiary

( 1,244,786 )

Repayment of loans payable - related parties

Proceeds from common stock issued

Proceeds from convertible notes

Repayment of convertible notes

( 1,064,269 )

Dividend paid to non-controlling interest

1 unchanged sentence

Net change in cash

( 1,425,310 )

Cash, beginning of period

4 unchanged sentences

Non-cash transactions:

Series B Preferred stock issued for settlement of salary payable

Series D Preferred stock issued as dividend

Series D Preferred stock issued for settlement of debt

Common stock issued for conversion of debt

Common stock issued for common stock payable

Common stock issued for conversion of Series D preferred stock

Note payable issued for acquisition of subsidiary

Non-cash dividend paid

The accompanying notes are an integral part of

these unaudited consolidated financial statements.

Common stock issued for commitment fee

Common stock payable for commitment fee

The accompanying notes are an integral part

of these unaudited consolidated financial statements.

Notes to the Unaudited Consolidated Financial

March 31, 2026

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

June 30, 2026

NOTE 1 - ORGANIZATION AND DESCRIPTION OF

Organization and Operations

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603 active interconnection agreements with mobile companies, fixed line companies and other wholesale carriers.

The Company is a technology company with a presence

in 20 countries and approximately 100 employees that is offering leading-edge services through its three business divisions.

The Telecom Division, which represents the majority

of current operations and which also represents 87% of all of the Company’s revenues for the three months ended March 31, 2026,

The Company is a technology company with a

presence in 20 countries and over 100 employees that is offering leading-edge services through its three business divisions.

The Telecom Division, which represents the

majority of current operations and which also represents 87% of all of the Company’s revenues for the six months ended June 30,

2026, offers VoIP, SMS, proprietary Internet of Things (IoT) solutions, and international fiber-optic connectivity through its subsidiaries:

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operations, the Company continues to strengthen its global presence and enhance the synergy in Fintech segments through its solution for

gift card programs, representing 13% of our revenues for the three months ended March 31, 2026.

Our developing Artificial Intelligence (AI) division,

Reality Border (www.realityborder.com), was initially developed as an AI-enhanced immersive digital experience platform intended to support

customer interaction and content presentation in virtual environments.

gift card programs, representing 13% of our revenues for the six months ended June 30, 2026.

Our developing Artificial Intelligence (AI)

division, Reality Border (www.realityborder.com), was initially developed as an AI-enhanced immersive digital experience platform intended

to support customer interaction and content presentation in virtual environments.

Building on that early development work, including conversational

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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 March 31, 2026 and the results of operations and cash flows

recurring accruals) to present the financial position of the Company as of June 30, 2026, and the results of operations and cash flows

for the periods presented.

The results of operations for the three months ended March 31, 2026 are not necessarily indicative of the operating

The results of operations for the six months ended June 30, 2026, are not necessarily indicative of the operating

results for the full fiscal year or any future period.

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December 31, 2025, filed with the SEC on April 6, 2026, and amended on April 23, 2026.

Reclassification

Certain amounts in the consolidated financial

statements of prior year periods have been reclassified to conform to the current period’s presentation.

Consolidation Policy

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The Company had no cash

equivalents at March 31, 2026 and December 31, 2025.

Accounts Receivable and Allowance for Uncollectible

equivalents at June 30, 2026, and December 31, 2025.

Accounts Receivable and Allowance for

Uncollectible Accounts

Substantially all of the Company’s accounts

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factors that could affect collectability.

No allowance for doubtful accounts was recorded as of March 31, 2026 and December 31, 2025.

During the three months ended March 31, 2026 and 2025, the Company recorded bad debt expense of $ 14,364 and $ 0 , respectively.

Allowance for Credit Losses Rollforward:

No allowance for doubtful accounts was recorded as of June 30, 2026, and December 31, 2025.

The following table shows the rollforward of

the allowance for credit losses for the six months ended June 30, 2026 and 2025:

Six months ended

Balance , at beginning of period

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Balance at end of period

Net Income (Loss) Per Share of Common Stock

During the three and six months ended June

30, 2026 and 2025, the Company recorded bad debt expense as follows:

Three Months Ended

Six Months Ended

Bad debt expense

Net Income (Loss) Per Share of Common

The Company has adopted Accounting Standards

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Dilutive potential common shares include outstanding Series B Preferred stock and Series D Preferred stock and they were

excluded from the computation of diluted net loss per share as the result was anti-dilutive for the three months ended March 31, 2026

excluded from the computation of diluted net loss per share as the result was anti-dilutive for the six months ended June 30, 2026, and

Concentrations of Credit Risk

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Corporation coverage in the United States, Switzerland’s deposit protection system (Esisuisse), and the Financial Services Compensation

Scheme applicable in the United Kingdom, 47.16% and 58.55% of cash and cash equivalents as of March 31, 2026 and December 31, 2025, respectively,

Scheme applicable in the United Kingdom, 58% and 59% of cash and cash equivalents as of June 30, 2026 and December 31, 2025, respectively,

were covered by applicable governmental insurance limits.

As of March 31, 2026, approximately 80% of total

As of June 30, 2026, approximately 80 % of total

accounts receivable was concentrated among the Company’s top 13 customers, compared with the same percentage concentrated among

20 customers as of December 31, 2025.

The largest customer represented 20.33% of total accounts receivable as of March 31, 2026, compared

The largest customer represented 18 % of total accounts receivable as of June 30, 2026, compared

with 15 % as of December 31, 2025.

In each such period, 12 of these customers were repeat customers and accounted for 58% and 75% of

total accounts receivable as of March 31, 2026 and December 31, 2025, respectively.

In each such period, 12 of these customers were repeat customers and accounted for 80 % and 73 % of total

accounts receivable as of June 30, 2026, and December 31, 2025, respectively.

This concentration may expose the Company to a moderate

to low level of credit risk, as most of these customers are bilateral counterparties that also maintain accounts payable with the Company.

During the three months ended March 31, 2026,

During the six months ended June 30, 2026,

we had 22 customers representing 87 % of our revenue compared to 25 customers representing 86 % of our revenue for the

three months ended March 31, 2025.

For the three months ended March 31, 2026 and 2025, 31% and 38% of revenue, respectively,

six months ended June 30, 2025.

For the six months ended June 30, 2026, and 2025, 28 % and 41 % of revenue, respectively,

comes from customers under prepayment conditions, which means there are no credit or bad debt risks on that portion of the customers’

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

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.

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provision of these services usually has set-up fees and are offered on a subscription or month-to-month basis.

Revenue is reported on a gross basis since the

Company acts as the principal in the transaction, meaning it has control over the goods or services before they are transferred to the

Revenue is reported on a gross basis since

the Company acts as the principal in the transaction, meaning it has control over the goods or services before they are transferred to

the customer.

This includes having the primary responsibility for fulfilling the contract and determining the price.

With respect to the specific

performance obligations of the Company in its contracts with its customers, our standard service agreement establishes the following:

With respect to the

specific performance obligations of the Company in its contracts with its customers, our standard service agreement establishes the following:

The Company agrees to furnish to Customer, and Customer agrees to purchase from the Company, International Long Distance telecommunication services and/or SMS services at the rates agreed to in writing by the Parties.

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The customer cannot "stockpile" the service — it's consumed instantly.

The service is indivisible and recurring, with no alternative

service is indivisible and recurring, with no alternative use.

The Company’s primary performance obligation

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Step 1 Identify the contract(s) with customer

A contract is defined as an approved mutual agreement

between the Company and a customer setting performance obligation, and criteria that must be met in accordance with the Company's customary

commercial business practices and entered into with the probable expectation that all estimated consideration will be realized in the

ordinary course of business.

A contract is defined as an approved mutual

agreement between the Company and a customer setting performance obligation, and criteria that must be met in accordance with the Company's

customary commercial business practices and entered into with the probable expectation that all estimated consideration will be realized

in the ordinary course of business.

Step 2 Identify the performance obligations

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Step 4 Allocate the transaction price to the performance obligations

The transaction price is allocated to each performance

obligation based on the standalone contractual selling price of the time measured service, net of any related discount.

Step 5 Recognize revenue when the entity satisfies a performance obligation

The transaction price is allocated to each

performance obligation based on the standalone contractual selling price of the time measured service, net of any related discount.

Step 5 Recognize revenue when the entity satisfies a performance

The Company recognizes revenues from contracts with customers when control of the usage of the services and digital prepaid products has been transferred to the customer, as recorded and measured by the Company's internal information systems.

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Recently Issued Accounting Pronouncements

In November 2024, the Financial Accounting Standards

Board (FASB) issued Accounting Standards Update (ASU) 2024-03, “ Final Standard on Income Statement:

Disaggregation of Income

Statement Expenses” , which requires disaggregated disclosure of income statement expenses for public business entities.

In November 2024, the Financial Accounting

Standards Board (FASB) issued Accounting Standards Update (ASU) 2024-03, “ Final Standard on Income Statement:

Disaggregation

of Income Statement Expenses” , which requires disaggregated disclosure of income statement expenses for public business entities.

ASU does not change the expense captions an entity presents on the face of the income statement;

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of this ASU and do not expect this ASU to have a material impact on our consolidated 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.

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

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of liabilities in the normal course of business.

The Company has suffered recurring losses from operations, has negative working

capital 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.

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.

The Company has suffered recurring losses from operations, has negative cash flows

from operating activities 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.

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.

cash requirements will relate primarily to the continued development and expansion of its operating segments, the maintenance of its standing

within the industry, and the ongoing execution of its commercial and marketing initiatives.

Although management expects to continue strengthening

its liquidity position, the Company may experience periods of cash shortfall and could be required to raise additional capital.

During the current year, the Company successfully

accessed external financing through the implementation and utilization of an Equity Line of Credit , which has provided incremental

funding to support operations and strategic initiatives.

Management intends to continue evaluating similar capital-raising alternatives

as needed to ensure adequate liquidity.

Historically, the Company has relied upon funds

4 unchanged sentences

NOTE 4 – PREPAID AND OTHER CURRENT

Prepaid and other current assets at March 31,

Prepaid and other current assets at June 30,

2026, and December 31, 2025, consisted of the following:

5 unchanged sentences

Security deposit

Subscription receivable

Prepaid Expenses

NOTE 5 – PROPERTY AND EQUIPMENT

Property and equipment at March 31, 2026 and

Property and equipment at June 30, 2026, and

December 31, 2025, consisted of the following:

7 unchanged sentences

Total property and equipment

Depreciation expense for the three months ended

March 31, 2026 and 2025 amounted to $ 52,333 and $ 6,682 , respectively.

During the three and six months ended June

30, 2026 and 2025, the Company recognized depreciation expenses as following:

Three Months Ended

Six Months Ended

Depreciation expenses

NOTE 6 – INTANGIBLE ASSETS

Intangible assets at March 31, 2026 and December

Intangible assets at June 30, 2026, and December

31, 2025, consisted of the following:

March 31, 2026

carrying amount

June 30, 2026

NOTE 6 - INTANGIBLE ASSETS - Intangible Assets (Details)

Gross carrying

New gas regulator intangible

2 unchanged sentences

( 1,082,813 )

$ ( 1,082,813 )

December 31, 2025

Gross carrying amount

Accumulated amortization

Net carrying amount

New gas regulator intangible

Not yet in service

Interconnection agreements

$ ( 842,188 )

Amortization expense for the three months ended

March 31, 2026 and 2025 amounted to $ 120,313 .

The following table outlines the estimated future

amortization expense at March 31, 2026:

gas regulator intangible

yet in service

Interconnection

The following table outlines the estimated

future amortization expense at June 30, 2026:

2026 (6 months remaining)

NOTE 7 – ACCRUED AND OTHER CURRENT LIABILITIES

Accrued and other current liabilities at March

During the three and six months ended June

30, 2026 and 2025, the Company recognized amortization expenses as following:

Three Months Ended

Six Months Ended

Amortization expenses

NOTE 7 – ACCRUED AND OTHER CURRENT

Accrued and other current liabilities at June

30, 2026, and December 31, 2025, consisted of the following

7 unchanged sentences

Dividend payable

Total accrued and other current liabilities

accrued and other current liabilities

NOTE 8 - LOANS PAYABLE

Loans payable at March 31, 2026 and December

Loans payable at June 30, 2026, and December

31, 2025, consisted of the following:

3 unchanged sentences

Promissory note payable

Note was issued July 16, 2025 and due on March 31, 2026

Note was issued July 16, 2025 and due on February 26, 2026

Promissory note payable

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$1,148.94 monthly payment for 48 months

Promissory note payable

Note was issued April 2, 2026 and due on November 13, 2026

Promissory note payable

Note was issued May 12, 2026 and due on December 23, 2026

Promissory note payable

Note was issued June 8, 2026 and due on January 19, 2027

Unamortized debt discount

4 unchanged sentences

Long-term loans payable

Loans payable - related parties at March 31,

Loans payable - related parties at June 30,

2026, and December 31, 2025, consisted of the following:

5 unchanged sentences

Long-term loans payable - related parties

During the three months ended March 31, 2026

and 2025, the Company borrowed from third parties totaling $ 797,368 and $ 543,478 , respectively, which includes original

issue discount and financing costs of $ 47,368 and $ 48,478 , respectively, and repaid the principal amount of $ 1,769

and $ 449,438 (consisting of $9,438 of payments on loans payable and $440,000 of payments on a note payable issued for the acquisition

of a subsidiary), respectively.

Additionally, during the three months ended March 31, 2026 and 2025, the Company repaid the principal

amount of notes payable to related parties totaling $30,698 and $190,864, respectively.

During the three months ended March 31, 2026

and 2025, the Company recorded interest expense of $ 259,512 and $ 99,675 and recognized amortization of discount, included

in interest expense, of $ 91,486 and $ 36,105 , respectively.

NOTE 9 – STOCKHOLDERS’ EQUITY

The Company’s authorized common stock consists

of 26,000,000 shares of common stock with a par value of $ 0.001 per share.

During the three months ended March 31, 2026,

During the six months ended June 30, 2026 and

2025, the Company borrowed from third parties totaling $ 1,915,789 and $ 3,215,000 , respectively, which includes original

issue discount and financing costs of $ 115,789 and $ 226,374 , respectively, and repaid the principal amount of $ 15,934 and $ 1,260,562 (consisting

of $15,776 of payments on loans payable and $1,244,786 of payments on a note payable issued for the acquisition of a subsidiary), respectively.

Additionally, during the six months ended June 30, 2026, and 2025, the Company repaid the principal amount of notes payable to related

parties totaling $ 60,848 and $ 389,514 , respectively.

During the six months ended June 30, 2026,

the Company settled five (5) promissory notes with an aggregate principal amount of $ 3,447,368 and accrued interest of $ 397,348 by issuing

247,140 shares of Series D Preferred Stock valued at $ 4,426,537 .

As a result, the Company recorded a loss on settlement of debt of $581,821.

During the three and six months ended June

30, 2026 and 2025, the Company recognized interest expenses and amortization debt discount as follows:

Three Months Ended

Six Months Ended

Interest expenses

Amortization of debt discount

NOTE 9 – STOCK PAYABLE

At June 30, 2026, and December 31, 2025, stock

payable recorded as liabilities are as follows;

Stock payable for acquisition in July 2025

Stock payable for commitment under equity purchase agreement

NOTE 10 – STOCKHOLDERS’

The Company’s authorized common stock

consists of 26,000,000 shares of common stock with a par value of $ 0.001 per share.

During the six months ended June 30, 2026,

the Company issued 5,384,655 shares of common stock, valued at fair market value on issuance as follows:

406,476 shares for conversion of Series D Preferred

1,875 shares for compensation to our directors valued

At March 31, 2026 and December 31, 2025, 5,076,368

and 4,668,017 shares of common stock were issued and outstanding, respectively.

· 3,983,053 shares

upon conversion of Series D Preferred Stock

· 895,000 shares

for cash proceeds of $ 168,860 and receivable of $ 653,076 under equity purchase agreement, which the Company received in July 2026.

· 3,750 shares

issued as compensation to our directors valued at $ 7,596

· 129,717 shares

for service from third parties valued at $ 535,290

shares issued in connection with a financing agreement, valued at $ 500,000

At June 30, 2026, and December 31, 2025, 10,052,672 and 4,668,017 shares

of common stock were issued and outstanding, respectively.

Dividend Declaration

In January 2026, QXTEL, a subsidiary of the

Company, paid cash dividend of $ 9,873 and non-cash dividend of $ 150,000 to QXTEL’s minority (non-controlling) shareholders for fiscal

In addition, QXTEL declared a dividend of $ 900,000 for fiscal year 2026 to its shareholders, of which $ 459,000 to IQSTEL was

eliminated on consolidation.

During the three and six months ended June 30, 2026, the Company paid $ 174,339 and $ 265,797 , respectively,

to QXTEL’s minority (non-controlling) shareholders, and as of June 30, 2026, $ 185,076 was recorded as dividend payable to minority

shareholders under accrued and other current liabilities.

Equity Purchase Agreement

On April 30, 2026, the Company entered into

(i) an Equity Purchase Agreement (the “Purchase Agreement”) and (ii) a Registration Rights Agreement (the “Registration

Rights Agreement”) with M2B Funding Corp.

(the “Investor”).

Pursuant to the Purchase Agreement, the Company

may, from time to time during the Commitment Period, require the Investor to purchase up to $ 50,000,000 of the Company’s common

stock, at a per-share price equal to 94 % of the lowest daily volume-weighted average price during the six Trading Days following delivery

of a Put Notice, subject to volume-based caps, a daily maximum of $ 500,000

The Commitment Period began on the date the

Registration Statement was declared effective by the SEC (the “Effective Date”) and ends on the earlier of:

(i) the date the

Investor has purchased the full $ 50,000,000 , (ii) the date that is sixty ( 60 ) months after the Effective Date, (iii) written termination

notice by the Company, or (iv) termination by the Investor as provided in the Purchase Agreement.

As consideration for the commitment, the Company

will issue Commitment Shares valued at $ 1,000,000 (half of which was issued on the Execution Date;

half on the 12-month anniversary or

earlier termination), subject to a 20 % daily volume leak-out restriction.

Preferred Stock

12 unchanged sentences

Stock are defined in the relevant Certificate of Designation filed with the Nevada Secretary of State on November 3, 2020

At March 31, 2026 and December 31, 2025, 10,000 shares

At June 30, 2026, and December 31, 2025, 10,000 shares

of Series A Preferred Stock were issued and outstanding.

6 unchanged sentences

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

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 .

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5% previous month’s stock liquidity.

As of March 31, 2026 and December 31, 2025, 59,276

shares of Series B Preferred Stock were issued and outstanding.

At June 30, 2026, and December 31, 2025, 59,276 shares

of Series B Preferred Stock were issued and outstanding.

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,

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 .

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Stock are defined in the relevant Certificate of Designation filed with the Nevada Secretary of State on January 7, 2021.

At March 31, 2026 and December 31, 2025, no Series

At June 30, 2026, and December 31, 2025, no Series

C Preferred Stock was issued or outstanding.

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Stock, consisting of up 75,000 shares, par value $ 0.001 .

Under the Certificate of Designation, in the event of any dissolution,

liquidation or winding up of the Corporation, the Holders of Series D Preferred Stock shall be entitled to participate in any

distribution out of the assets of the Corporation before the holders of the Common Stock, Series A Preferred Stock and Series C Preferred

Stock, but shall be considered on parity to the liquidation rights of the Series B Preferred Stockholders .

The holders of shares

of Series D 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.

Under the Certificate of Designation, in the event of any

dissolution, liquidation or winding up of the Corporation, the Holders of Series D Preferred Stock shall be entitled to participate

in any distribution out of the assets of the Corporation before the holders of the Common Stock, Series A Preferred Stock and Series C

Preferred Stock, but shall be considered on parity to the liquidation rights of the Series B Preferred Stockholders .

of shares of Series D 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 D Preferred Stock do not have voting rights but may

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Preferred Stock .

On July 7, 2025, the Company filed a First Amended

and Restated Certificate of Designation for the Series D Preferred Stock with the Secretary of State of Nevada to amend and restate the

terms of its Series D Preferred Stock, originally established on November 3, 2023.

On October 10, 2025, the Company filed a Second Amended

and Restated Certificate of Designation for the Series D Preferred Stock with the Secretary of State of Nevada to amend and restate the

terms of its Series D Preferred Stock, originally established on November 3, 2023, and first amended on July 7, 2025.

On February 3, 2026,

On July 7, 2025, the Company filed a First

Amended and Restated Certificate of Designation for the Series D Preferred Stock with the Secretary of State of Nevada to amend and restate

the terms of its Series D Preferred Stock, originally established on November 3, 2023.

On October 10, 2025, the Company filed a Second

Amended and Restated Certificate of Designation for the Series D Preferred Stock with the Secretary of State of Nevada to amend and restate

the terms of its Series D Preferred Stock, originally established on November 3, 2023, and first amended on July 7, 2025.

3, 2026, the Company filed a Third Amended and Restated Certificate of Designation, which includes the following key terms.

Dividend Rights:

12% cumulative dividend, payable

as, when, and if declared by the Board of Directors, calculated on a 360-day year, accruing from the date of issuance and ceasing the

day prior to conversion, with pro rata dividends for partial-year holdings.

12% cumulative dividend,

payable as, when, and if declared by the Board of Directors, calculated on a 360-day year, accruing from the date of issuance and ceasing

the day prior to conversion, with pro rata dividends for partial-year holdings.

Conversion Rights:

Following three months from

the issuance date, the Series D Preferred Stock is convertible into common stock at a rate of 12.5 shares of common stock per share (the

“Base Shares”), subject to adjustment for stock splits, dividends, or reorganizations.

Following three months

from the issuance date, the Series D Preferred Stock is convertible into common stock at a rate of 12.5 shares of common stock per share

(the “Base Shares”), subject to adjustment for stock splits, dividends, or reorganizations.

Additionally, a True-Up Adjustment

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Redemption Provisions:

Optional redemption by

the Company at 105% of the price paid by the holder, upon not more than three trading days’ notice.

Optional redemption

by the Company at 105% of the price paid by the holder, upon not more than three trading days’ notice.

Liquidation Preference:

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Voting Rights:

No voting rights, except as required

by law or for amendments to the Certificate of Designation or Articles of Incorporation that would alter the Series D Preferred Stock’s

No voting rights, except as

required by law or for amendments to the Certificate of Designation or Articles of Incorporation that would alter the Series D Preferred

Stock’s rights.

Leak-Out Restriction:

After three months, conversions

to common stock and sales are limited to 10% of the average daily trading volume of the Company’s common stock per holder.

During the three months ended March 31, 2026,

8,631 shares of Series D

Preferred Stock were converted into 406,476 shares

of common stock.

At March 31, 2026 and December 31, 2025, 9,389

and 18,020 shares Series D Preferred Stock were issued and outstanding, respectively.

After three months,

conversions to common stock and sales are limited to 10% of the average daily trading volume of the Company’s common stock per holder.

During the six months ended June 30, 2026,

the Company issued 248,763

shares of Series D Preferred Stock as follows,

1,623 shares as dividend of Series D Preferred Stock,

valued at $ 36,720

247,140 shares for settlement of debt, valued at $ 4,426,537

During the six months ended June 30, 2026, 249,918 shares

of Series D Preferred Stock were converted into 3,983,053 shares of common stock.

At June 30, 2026 and December 31, 2025, 16,865

shares and 18,020 shares Series D Preferred Stock were issued and outstanding, respectively.

NOTE 11 - RELATED PARTY TRANSACTIONS

Due from related parties

During the three months ended March 31, 2026

and 2025, the Company loaned $ 13,701 and $ 9,462 to a related party and collected $ 6,700 and $ 0 , respectively.

At March 31, 2026 and December 31, 2025, the

During the six months ended June 30, 2026 and

2025, the Company loaned $ 26,201 and $ 29,462 to a related party and collected $ 6,700 and $ 839 , respectively.

At June 30, 2026, and December 31, 2025, the

Company had amounts due from related parties of $ 509,020 and $ 639,519 , respectively.

The loans are unsecured, non-interest bearing

and due on demand.

The loans are unsecured, non-interest

bearing and due on demand.

Due to related parties

At March 31, 2026 and December 31, 2025, the

At June 30, 2026, and December 31, 2025, the

Company had amounts due to related parties of $ 65,829 .

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Employment agreements

During the three months ended March 31, 2026

and 2025, the Company recorded management salaries and bonus of $ 211,500 , and stock-based compensation bonuses of $ 4,920 and $ 32,815 ,

During the six months ended June 30, 2025,

the Company issued 6,571 shares of Series B Preferred Stock to settle salary payable for our CEO and CFO of $ 631,500 .

a result, the Company recorded a loss on settlement of salary payable of $ 216,981 .

During the six months ended June 30, 2026,

and 2025, the Company recorded management salaries of $ 423,000 and $ 549,000 , stock-based compensation bonuses of $ 7,596 and $ 55,198 ,

respectively.

At March 31, 2026 and December 31, 2025, the

At June 30, 2026, and December 31, 2025, the

Company recorded and accrued management salaries of $ 42,728 and $ 68,364 , respectively.

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leases, contracts or commitments.

The Company leases facilities, the term of which is 12 months .

For the three months ended March

31, 2026 and 2025, the Company incurred rent expense of $ 11,324 and $ 6,974 , respectively.

The Company leases facilities, the term of which is 12

The Company incurred rent expenses as follows:

Three Months Ended

Six Months Ended

Rent expenses

NOTE 13 - SEGMENTS

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The following tables show operating activities

information by geographic segment for the three months ended March 31, 2026 and 2025:

Three months ended March 31, 2026

NOTE 12 - SEGMENT - Operating Activities by Geographic Segment (Details)

information by geographic segment for the three and six months ended June 30, 2026, and 2025:

Three months ended June 30, 2026

NOTE 13 - SEGMENTS - Operating Activities by Geographic

Segment (Details)

$ ( 642,889 )

$ 109,068,246

Cost of revenue

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Office, facility and other

Stock-based management compensation

General and administration

Operating income (loss)

( 1,360,841 )

( 1,120,819 )

Other expense

( 1,222,693 )

Income tax expense

Net income (loss)

$ ( 2,351,278 )

$ ( 321,237 )

$ ( 2,405,621 )

Three months ended June 30, 2025

$ ( 11,924,503 )

Cost of revenue

( 11,713,765 )

Operating expenses

Salaries, wages and benefits

Professional fees

Legal and regulatory

Travel and events

Bank services and fees

Depreciation and amortization

Office, facility and other

Stock-based management compensation

General and administration

Operating income (loss)

Other income (expense)

( 1,529,016 )

( 1,600,989 )

Income tax expense

Net income (loss)

$ ( 2,381,420 )

$ ( 2,348,914 )

Six months ended June 30, 2026

$ 141,912,684

$ ( 1,335,697 )

$ 206,988,082

Cost of revenue

( 1,001,899 )

Operating expenses

Salaries, wages and benefits

Professional fees

Legal and regulatory

Travel and events

Bank services and fees

Depreciation and amortization

Office, facility and other

Bad debt expense

Stock-based compensation

Stock-based management compensation

General and administration

Impairment loss of goodwill

Operating income (loss)

( 2,218,597 )

( 2,078,828 )

Other expense

( 1,327,174 )

( 1,635,117 )

Income tax expense

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$ ( 3,791,557 )

Three months ended March 31, 2025

Six months ended June 30, 2025

$ ( 25,333,644 )

$ 129,816,052

Cost of revenue

4 unchanged sentences

Legal and regulatory

Travel & Events

Travel and events

Bank services and fees

1 unchanged sentence

Office, facility and other

Stock-based compensation

Bad debt expense

Stock-based management compensation

General and administration

Operating income (loss)

( 1,513,700 )

( 1,260,455 )

Other income (expense)

( 1,993,405 )

( 2,120,649 )

Income tax expense

2 unchanged sentences

$ ( 115,154 )

$ ( 3,493,375 )

The following tables show reportable operating

activities information by industrial segment for the three months ended March 31, 2026 and 2025.

The Company has two industrial segments

since the Company acquired GlobeTopper LLC in July 2025:

Three months ended March 31, 2026

activities information by industrial segment for the three and six months ended June 30, 2026 and 2025.

The Company has two industrial

segments since the Company acquired GlobeTopper LLC in July 2025:

Three months ended June 30, 2026

$ ( 642,889 )

$ 109,068,246

Cost of revenue

2 unchanged sentences

( 1,595,940 )

( 1,120,819 )

Other expense

( 1,005,270 )

( 1,222,693 )

Income tax expense

3 unchanged sentences

$ ( 2,405,621 )

Three months ended March 31, 2025

Three months ended June 30, 2025

$ ( 11,924,503 )

3 unchanged sentences

Operating income (loss)

( 1,102,904 )

Other income (expense)

( 1,471,596 )

( 1,600,989 )

Income tax expense

3 unchanged sentences

$ ( 2,348,914 )

Six months ended June 30, 2026

$ 182,378,487

$ ( 1,335,697 )

$ 206,988,082

Cost of revenue

( 1,001,899 )

Operating expenses

Operating income (loss)

( 2,603,299 )

( 2,078,828 )

Other expense

( 1,287,644 )

( 1,635,117 )

Income tax expense

Net income (loss)

$ ( 3,890,943 )

$ ( 388,464 )

$ ( 3,791,557 )

Six months ended June 30, 2025

$ 155,149,696

$ ( 25,333,644 )

$ 129,816,052

Cost of revenue

( 25,111,009 )

Operating expenses

Operating income (loss)

( 1,852,036 )

( 1,260,455 )

Other expense

( 1,941,465 )

( 2,120,649 )

Income tax expense

Net income (loss)

$ ( 3,793,501 )

$ ( 368,125 )

$ ( 3,493,375 )

Asset Information

The following table shows asset and liability

information by industrial segment at March 31, 2026 and December 31, 2025:

March 31, 2026

information by industrial segment at June 30, 2026 and December 31, 2025:

June 30, 2026

Current assets

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The following table shows asset and liability

information by geographic segment at March 31, 2026 and December 31, 2025:

March 31, 2026

information by geographic segment at June 30, 2026 and December 31, 2025:

June 30, 2026

Current assets

5 unchanged sentences

Non-current liabilities

( 12,952,465 )

December 31, 2025

6 unchanged sentences

Non-current liabilities

( 13,369,737 )

NOTE 14 – INCOME TAX

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each quarter and adjusted for discrete items recognized in the period.

For the three months ended March 31, 2026, the AETR reflects expected

For the six months ended June 30, 2026, the AETR reflects expected

taxable income of UK, and select US entities.

The forecast is consistent with year-to-date actual results through March 31, 2026, and

excludes any mark-to-market adjustments.

While the overall tax provision remains immaterial due to the Company’s partial valuation

allowance, the tax effect of the expected taxable entity income has been reflected in the AETR.

The Company's income tax provision reflects an

estimate of federal, state, and foreign income taxes based on enacted tax rates in the jurisdictions in which we operate.

The forecast is consistent with year-to-date actual results through June 30, 2026, and excludes

any mark-to-market adjustments.

While the overall tax provision remains immaterial due to the Company’s partial valuation allowance,

the tax effect of the expected taxable entity income has been reflected in the AETR.

The Company's income tax provision reflects

an estimate of federal, state, and foreign income taxes based on enacted tax rates in the jurisdictions in which we operate.

The provision

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and changes in tax law.

On July 4, 2025, the One Big Beautiful Bill Act

(“OBBBA”) was signed into law in the United States.

On July 4, 2025, the One Big Beautiful Bill

Act (“OBBBA”) was signed into law in the United States.

The OBBBA introduces various corporate and international tax law changes

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NOTE 15 – SUBSEQUENT EVENTS .

Subsequent to March 31, 2026 and through the

Subsequent to June 30, 2026, and through the

date that these financials were made available, the Company had the following subsequent events:

On April 30, 2026, the Company entered into (i) an

Equity Purchase Agreement (the “Purchase Agreement”) and (ii) a Registration Rights Agreement (the “Registration Rights

Agreement”) with M2B Funding Corp.

(the “Investor”).

Pursuant to the Purchase Agreement, the Company may,

from time to time during the Commitment Period, require the Investor to purchase up to $50,000,000 of the Company’s common stock,

par value $0.0001 per share (“Common Stock”), at a per-share price equal to 94% of the lowest daily volume-weighted average

price during the six Trading Days following delivery of a Put Notice, subject to volume-based caps, a daily maximum of $500,000, and an

Exchange Cap of 19.99% of shares outstanding on the Execution Date (unless stockholder approval is obtained).

The Investor is subject

to a Beneficial Ownership Limitation (initially 4.99%, increasable to 9.99%).

The Commitment Period begins on the date the Registration

Statement (as defined below) is declared effective by the SEC (the “Effective Date”) and ends on the earlier of:

the Investor has purchased the full $50,000,000, (ii) the date that is sixty (60) months after the Effective Date, (iii) written termination

notice by the Company (subject to the terms of the Purchase Agreement), or (iv) termination by the Investor as provided in the Purchase

As consideration for the commitment, the Company will issue Commitment

Shares valued at $1,000,000 (half on the Execution Date;

half on the 12-month anniversary or earlier termination), subject to a 20% daily

volume leak-out restriction.

The Registration Rights Agreement requires the Company

to file a resale S-1 registration statement covering all Registrable Securities within 90 days and to use best efforts to have it declared

effective within 180 days, with customary liquidated damages (0.25% per month, capped at 12% of the Maximum Commitment Amount) for delays.

The Investor has customary review and comment rights on the registration statement and related prospectuses.

The agreements contain customary representations,

warranties, covenants, conditions, and indemnification provisions.

The Purchase Agreement may be terminated by the Company upon 30 days’

notice (subject to a termination fee) or upon certain other events.

Proceeds will be used for general corporate purposes.

material relationship between the Company and the Investor other than as contemplated by the agreements.

On April 30, 2026, the Company issued the Initial Commitment Shares to the Investor pursuant to the Purchase Agreement.

The shares were

issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation

The Investor represented that it is an accredited investor.

On July 7, 2026, the Board of Directors of IQSTEL Inc.

“Company”) approved certain amendments (the “Amendments”) to the Employment Agreements of Leandro Jose Iglesias,

Chief Executive Officer, and Álvaro Quintana Cardona, Chief Financial Officer.

The Amendments include both cash and equity compensation

changes, as summarized below:

Cash Compensation Changes (Effective Immediately)

Base Salary Increase – Leandro Jose Iglesias:

Iglesias’ monthly base salary was increased from $31,000 to $37,800, effective immediately.

This increase incorporates the previously

approved monthly relocation allowance of $6,800 related to his relocation to Cyprus.

Two-Month Cash Performance Bonus – Leandro

Jose Iglesias:

The Board approved a two-month cash performance bonus for Mr.

Iglesias in recognition of relocation expenses incurred in

connection with his move to Cyprus.

The amount and payment terms are governed by the terms of his existing Employment Agreement.

Annual Bonus Payment Timing Flexibility:

The Employment

Agreements of both Mr.

Iglesias and Mr.

Quintana Cardona were amended to provide that any annual performance bonus may be paid at any

time beginning fifteen (15) days following the filing of the Company’s Annual Report on Form 10-K with the Securities and Exchange

Equity Compensation Changes (Subject to Shareholder

The Board also approved material amendments to the

equity compensation provisions of both Employment Agreements.

These changes are subject to and will only become effective upon receipt

of stockholder approval under Nasdaq Listing Rule 5635(c).

Replacement of Annual Equity Incentive:

annual equity incentive provisions (up to 1,000,000 shares of Common Stock for Mr.

Iglesias and up to 800,000 shares of Common Stock for

Quintana Cardona) were replaced with an annual equity performance incentive of up to 50,000 Series B Preferred Shares per year for

each executive.

FY-2025 Equity Grants:

Subject to stockholder approval,

the Board approved the following grants for Fiscal Year 2025:

Leandro Jose Iglesias:

20,000 Series B Preferred

Álvaro Quintana Cardona:

14,000 Series B Preferred

The Company intends to seek stockholder approval of

the equity-related amendments and grants through the filing of a Schedule 14C Information Statement.

No shares of Series B Preferred Stock

will be issued, and the equity amendments will not become effective, unless and until such stockholder approval is obtained.

On July 8, 2026, IQSTEL Inc.

(the “Company”)

entered into a Contribution Agreement (the “Contribution Agreement”) with certain of its subsidiaries as part of an internal

corporate realignment (the “Realignment”).

Pursuant to the Contribution Agreement, the Company

and certain subsidiaries contributed specified assets, equity interests, and operations into newly formed or existing subsidiaries.

Realignment is intended to streamline the Company’s corporate structure, improve operational efficiency, and better align its legal

entities with its business lines, including its fintech, AI, and digital services operations.

The Contribution Agreement contains customary representations,

warranties, covenants, and indemnification provisions.

The Realignment does not involve any change in the Company’s management,

Board of Directors, or overall business operations and is not expected to have a material impact on the Company’s consolidated financial

The foregoing description of the Contribution Agreement

is qualified in its entirety by reference to the full text of the Contribution Agreement, which are filed as an exhibit to this Quarterly

Report on Form 10-Q for the quarter ending June 30, 2026.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements