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2024-01-01 2024-09-30 0001527702 IQST : 債務発行メンバーの変換 2024-01-01 2024-09-30 0001527702 IQST : 現金のための株式支払メンバー 2024-09-30 0001527702 us-gaap:優先株クラスAメンバー 2020-11-03 0001527702 us-gaap:シリーズA優先株メンバー 2020-11-03 2020-11-03 0001527702 us-gaap:シリーズB優先株式株主 2020-11-11 0001527702 us-gaap:シリーズB優先株式株主 2021-01-07 2021-01-07 0001527702 us-gaap:シリーズB優先株式株主 2020-11-11 2020-11-11 0001527702 us-gaap:シリーズC優先株式メンバー 2021-01-07 0001527702 us-gaap:シリーズC優先株式メンバー 2021-01-07 2021-01-07 0001527702 us-gaap:優先株式メンバー us-gaap:シリーズC優先株式メンバー 2021-01-07 2021-01-07 0001527702 IQST : 優先クラスD会員 2023-11-03 0001527702 us-gaap:シリーズD優先株会員 2021-01-07 2021-01-07 0001527702 us-gaap:優先株式メンバー us-gaap:シリーズD優先株会員 2023-11-03 2023-11-03 0001527702 IQST : ユーコンリバーホールディングス メンバー 2024-01-19 2024-01-19 0001527702 IQST : ユーコンリバーホールディングス メンバー 2024-01-19 0001527702 IQST : ユーコンリバーホールディングス メンバー 2024-01-19 2024-06-27 0001527702 IQST : ユーコンリバーホールディングス 第二修正メンバー 2024-06-27 0001527702 IQST : ユーコンリバーホールディングス 第二修正メンバー 2024-06-27 2024-06-27 0001527702 IQST : ユーコンリバーホールディングス バルーンアチーブメントメンバー 2024-06-28 0001527702 IQST : ユーコンリバーホールディングス メンバー 2024-01-01 2024-09-30 0001527702 IQST : ユーコンリバーホールディングス メンバー 2024-04-01 2024-04-01 0001527702 IQST : QXTELメンバー 2024-04-01 0001527702 IQST : ユーコンリバーホールディングスメンバー 2024-04-01 0001527702 IQST : プロフォーマ取得メンバー 2024-01-01 2024-09-30 0001527702 IQST : プロフォーマ取得メンバー 2023-01-01 2023-09-30 0001527702 IQST : アメリカメンバー 2024-07-01 2024-09-30 0001527702 IQST : スイスメンバー 2024-07-01 2024-09-30 0001527702 IQST : イギリスメンバー 2024-07-01 2024-09-30 0001527702 IQST : 除外メンバー 2024-07-01 2024-09-30 0001527702 IQST : アメリカのメンバー 2023-07-01 2023-09-30 0001527702 IQST : スイスのメンバー 2023-07-01 2023-09-30 0001527702 IQST : 除外メンバー 2023-07-01 2023-09-30 0001527702 IQST : アメリカのメンバー 2024-01-01 2024-09-30 0001527702 IQST : スイスのメンバー 2024-01-01 2024-09-30 0001527702 IQST : イギリスのメンバー 2024-01-01 2024-09-30 0001527702 IQST : 除外メンバー 2024-01-01 2024-09-30 0001527702 IQST : アメリカのメンバー 2023-01-01 2023-09-30 0001527702 IQST : スイスメンバー 2023-01-01 2023-09-30 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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

     
  ☒ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
     
    For the quarterly period ended September 30, 2024
     
  ☐ Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
     
    For the transition period from __________ to__________
     
    Commission File Number: 000-55984

 

iQSTEL Inc.

(Exact name of registrant as specified in its charter)

   
Nevada 45-2808620
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
 

300 Aragon Avenue, Suite 375

Coral Gables, FL 33134

(Address of principal executive offices)
 
(954) 951-8191
(Registrant’s telephone number)

 

_______________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

 

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

[X] Yes [ ] No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  [X] Yes [ ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

  ☐   Large accelerated filer ☐   Accelerated filer
  ☒   Non-accelerated Filer ☒ Smaller reporting company
    ☐   Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

[  ] Yes [X] No

 

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 186,176,651 common shares as of November 14, 2024

 

  

Table of Contents 

 

 

TABLE OF CONTENTS
    Page

 

PART I – FINANCIAL INFORMATION

 

Item 1: Financial Statements 3
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 4
Item 3: Quantitative and Qualitative Disclosures About Market Risk 10
Item 4: Controls and Procedures 10

 

PART II – OTHER INFORMATION

 

Item 1: Legal Proceedings  12
Item 1A: Risk Factors  12
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds  12
Item 3: Defaults Upon Senior Securities  12
Item 4: Mine Safety Disclosures  12
Item 5: Other Information  12
Item 6: Exhibits  12

 

 2 

Table of Contents 

 

Item 1. Financial Statements

 

Our unaudited consolidated financial statements included in this Form 10-Q are as follows:

 

F-1 Consolidated Balance Sheets as of September 30, 2024 (unaudited) and December 31, 2023;
F-2 Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and 2023 (unaudited);
F-3 Consolidated Statements of Stockholder’s Equity for the three and nine months ended September 30, 2024 and 2023 (unaudited);
F-4 Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 (unaudited); and
F-5 Notes to Consolidated Financial Statements (unaudited).

 

These interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended September 30, 2024 are not necessarily indicative of the results that can be expected for the full year.

 

 3 

Table of Contents 

 

iQSTEL INC

Consolidated Balance Sheets

(Unaudited) 

                 
   September 30,  December 31,
   2024  2023
ASSETS      
Current Assets          
Cash  $2,125,139   $1,362,668 
Accounts receivable, net   14,982,958    12,539,774 
Inventory   30,658    27,121 
Due from related parties   635,715    340,515 
Prepaid and other current assets   1,890,516    1,449,094 
Total Current Assets   19,664,986    15,719,172 
           
Property and equipment, net   578,734    522,997 
Intangible asset   99,592    99,592 
Goodwill   10,677,045    5,172,146 
Deferred tax assets   426,755    426,755 
Other asset   992,006    214,991 
TOTAL ASSETS  $32,439,118   $22,155,653 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current Liabilities          
Accounts payable  $8,756,934   $2,966,279 
Accrued and other current liabilities   6,296,717    9,993,585 
Due to related parties   26,613    26,613 
Loans payable - net of discount of $294,484 and $3,750, respectively   3,232,009    264,988 
Loans payable - related parties   926,069    259,447 
Convertible notes - net of discount of $490,022 and $39,012, respectively   3,549,946    330,032 
Contingent liability for acquisition of subsidiary   1,000,000    —   
Derivative liabilities   277,946    —   
Total Current Liabilities   24,066,234    13,840,944 
           
Loans payable, non-current   —      99,099 
Employee benefits, non-current   283,586    169,738 
TOTAL LIABILITIES   24,349,820    14,109,781 
           
Stockholders' Equity          
Preferred stock: 1,200,000 authorized; $0.001 par value          
Series A Preferred stock: 10,000 designated; $0.001 par value,
10,000 shares issued and outstanding		   10    10 
Series B Preferred stock: 200,000 designated; $0.001 par value,
31,080 shares issued and outstanding		   31    31 
Series C Preferred stock: 200,000 designated; $0.001 par value, No shares issued and outstanding   —      —   
Series D Preferred stock: 75,000 designated; $0.001 par value, No shares issued and outstanding   —      —   
Common stock: 300,000,000 authorized; $0.001 par value
186,176,651 and 172,129,630 shares issued and outstanding, respectively		   186,176    172,130 
Additional paid in capital   37,231,686    34,360,884 
Accumulated deficit   (29,825,840)   (26,084,133)
Accumulated other comprehensive loss   (25,340)   (25,340)
Equity attributed to stockholders of iQSTEL Inc.   7,566,723    8,423,582 
Equity (Deficit) attributable to noncontrolling interests   522,575    (377,710)
TOTAL STOCKHOLDERS' EQUITY   8,089,298    8,045,872 
           
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $32,439,118   $22,155,653 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 F-1 

Table of Contents 

 

iQSTEL INC

Consolidated Statements of Operations

(Unaudited) 

                                 
   Three Months Ended  Nine Months Ended
   September 30,  September 30,
   2024  2023  2024  2023
             
Revenues  $54,249,614   $39,757,203   $184,346,412   $97,248,561 
Cost of revenue   52,229,695    38,728,682    178,737,687    94,218,838 
Gross profit   2,019,919    1,028,521    5,608,725    3,029,723 
                     
Operating expenses                    
General and administration   2,076,472    957,768    6,144,677    3,529,218 
Total operating expenses   2,076,472    957,768    6,144,677    3,529,218 
                     
Operating income (loss)   (56,553)   70,753    (535,952)   (499,495)
                     
Other income (expense)                    
Other income   7,006    2,607    88,151    3,126 
Other expenses   (5,770)   (32,505)   (6,620)   (105,714)
Interest expense   (672,266)   (34,219)   (1,533,820)   (54,322)
Change in fair value of derivative liabilities   51,721    39,273    (1,063,789)   381,848 
Loss on settlement of debt   (27,537)   —      (130,197)   —   
Total other income (expense)   (646,846)   (24,844)   (2,646,275)   224,938 
                     
Net income (loss) before provision for income taxes   (703,399)   45,909    (3,182,227)   (274,557)
Income taxes   (69,605)   —      (134,880)   —   
Net income (loss)   (773,004)   45,909    (3,317,107)   (274,557)
Less: Net income attributable to noncontrolling interests   150,784    107,922    424,600    364,586 
Net loss attributed to iQSTEL Inc.  $(923,788)  $(62,013)  $(3,741,707)  $(639,143)
                     
Dividend on Series B Preferred Stock   —      (816,480)   —      (816,480)
Net loss attributed to stockholders of iQSTEL Inc.  $(923,788)  $(878,493)  $(3,741,707)  $(1,455,623)
                     
Comprehensive income (loss)                    
Net income (loss)  $(773,004)  $45,909   $(3,317,107)  $(274,557)
Foreign currency adjustment   —      (4,428)   —      142 
Total comprehensive income (loss)   (773,004)  $41,481   $(3,317,107)  $(274,415)
Less: Comprehensive income attributable to noncontrolling interests   150,784    105,753    424,600    364,656 
Net comprehensive loss attributed to iQSTEL Inc.  $(923,788)  $(64,272)  $(3,741,707)  $(639,071)
                     
Basic and diluted loss per common share  $(0.01)  $(0.01)  $(0.02)  $(0.01)
                     
Weighted average number of common shares outstanding - Basic and diluted   184,284,588    168,185,122    179,312,685    165,640,341 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements. 

 

 F-2 

Table of Contents 

 

iQSTEL INC

Consolidated Statements of Changes in Stockholders’ Equity

For the three and nine months ended September 30, 2024 and 2023

(Unaudited) 

                                                                                                 
   Series A Preferred Stock  Series B Preferred Stock  Common Stock                  
   Shares  Amount  Shares  Amount  Shares  Amount  Additional Paid in Capital  Accumulated Deficit  Accumulated Comprehensive Loss  Total  Non Controlling Interest  Total Stockholders' Equity
Balance - December 31, 2023   10,000   $10    31,080   $31    172,129,630   $172,130   $34,360,884   $(26,084,133)  $(25,340)  $8,423,582   $(377,710)  $8,045,872 
                                                             
Common stock issued for compensation   —      —      —      —      150,000    150    30,915    —      —      31,065    —      31,065 
Common stock issued for settlement of debt   —      —      —      —      1,770,000    1,770    277,890    —      —      279,660    —      279,660 
Common stock issued in conjunction with convertible notes   —      —      —      —      3,535,354    3,535    594,242    —      —      597,777    —      597,777 
Net income (loss)   —      —      —      —      —      —      —      (809,767)   —      (809,767)   229,551    (580,216)
Balance - March 31, 2024   10,000   $10    31,080   $31    177,584,984   $177,585   $35,263,931   $(26,893,900)  $(25,340)  $8,522,317   $(148,159)  $8,374,158  
                                                              
Common stock issued for compensation   —      —      —      —      150,000    150    46,450    —      —      46,600    —      46,600  
Common stock issued for warrant exercises   —      —      —      —      1,822,216    1,822    398,178    —      —      400,000    —      400,000  
Resolution of derivative liabilities upon exercise of warrant   —      —      —      —      —      —      239,323    —      —      239,323    —      239,323  
Acquisition of subsidiary   —      —      —      —      —      —      —      —      —      —      475,685    475,685  
Net income (loss)   —      —      —      —      —      —      —      (2,008,152)   —      (2,008,152)   44,265    (1,963,887)  
Balance - June 30, 2024   10,000   $10    31,080   $31    179,557,200   $179,557   $35,947,882   $(28,902,052)  $(25,340)  $7,200,088   $371,791   $7,571,879 
                                                             
Common stock issued for conversion of debt   —      —      —      —      3,064,394    3,064    334,019    —      —      337,083    —      337,083 
Common stock issued for compensation   —      —      —      —      150,000    150    31,670    —      —      31,820    —      31,820 
Common stock issued for warrant exercises   —      —      —      —      3,405,057    3,405    171,595    —      —      175,000    —      175,000 
Common stock payable   —      —      —      —      —      —      100,000    —      —      100,000    —      100,000 
Resolution of derivative liabilities upon exercise of warrant   —      —      —      —      —      —      646,520    —      —      646,520    —      646,520 
Net income (loss)   —      —      —      —      —      —      —      (923,788)   —      (923,788)   150,784    (773,004)
Balance - September 30, 2024   10,000   $10    31,080   $31    186,176,651   $186,176   $37,231,686   $(29,825,840)  $(25,340)  $7,566,723   $522,575   $8,089,298 

  

 

  

 

   Series A Preferred Stock  Series B Preferred Stock  Common Stock                  
   Shares  Amount  Shares  Amount  Shares  Amount  Additional Paid in Capital  Accumulated Deficit  Accumulated Comprehensive Loss  Total  Non Controlling Interest  Total Stockholders' Equity
Balance - December 31, 2022   10,000   $10    21,000   $21    161,595,511   $161,595   $31,136,120   $(24,504,395)  $(33,557)  $6,759,794   $(924,377)  $5,835,417
                                                            
Common stock issued for warrant exercises   —      —      —      —      2,941,177    2,942    397,058    —      —      400,000    —      400,000
Common stock issued for compensation   —      —      —      —      60,000    60    11,170    —      —      11,230    —      11,230
Resolution of derivative liabilities upon exercise of warrant   —      —      —      —      —      —      240,258    —      —      240,258    —      240,258
Foreign currency translation adjustments   —      —      —      —      —      —      —      —      804    804    773    1,577
Net income (loss)   —      —      —      —      —      —      —      (363,185)   —      (363,185)   204,363    (158,822)
Balance - March 31, 2023   10,000   $10    21,000   $21    164,596,688   $164,597   $31,784,606   $(24,867,580)  $(32,753)  $7,048,901   $(719,241)  $6,329,660
                                                            
Common stock issued for compensation   —      —      —      —      60,000    60    6,840    —      —      6,900    —      6,900
Foreign currency translation adjustments   —      —      —      —      —      —      —      —      1,527    1,527    1,466    2,993
Net income (loss)   —      —      —      —      —      —      —      (213,945)   —      (213,945)   52,301    (161,644)
Balance - June 30, 2023   10,000   $10    21,000   $21    164,656,688   $164,657   $31,791,446   $(25,081,525)  $(31,226)  $6,843,383   $(665,474)  $6,177,909
                                                            
Series B Preferred stock issued as dividend   —      —      10,080    10    —      —      816,470    (816,480)   —      —      —      —  
Common stock issued for compensation   —      —      —      —      60,000    60    12,755    —      —      12,815    —      12,815
Common stock issued for warrant exercises   —      —      —      —      5,514,707    5,515    994,485    —      —      1,000,000    —      1,000,000
Resolution of derivative liabilities upon exercise of warrant   —      —      —      —      —      —      735,681    —      —      735,681    —      735,681
Dividend to non-controlling interest   —      —      —      —      —      —      —      —      —      —      (5,050)   (5,050)
Foreign currency translation adjustments   —      —      —      —      —      —      —      —      (2,259)   (2,259)   (2,169)   (4,428)
Net income (loss)   —      —      —      —      —      —      —      (62,013)   —      (62,013)   107,922    45,909
Balance - September 30, 2023   10,000   $10    31,080   $31    170,231,395   $170,232   $34,350,837   $(25,960,018)  $(33,485)  $8,527,607   $(564,771)  $7,962,836

  

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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iQSTEL INC

Consolidated Statements of Cash Flows

(Unaudited)

                 
   Nine Months Ended
   September 30,
   2024  2023
       
 CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(3,317,107)  $(274,557)
Adjustments to reconcile net loss to net cash used in operating activities:          
Stock based compensation   109,485    30,945 
Bad debt expense   1,801    1,344 
Depreciation and amortization   104,061    103,246 
Amortization of debt discount   856,922    21,404 
Change in fair value of derivative liabilities   1,063,789    (381,848)
Loss on settlement of debt   130,197    —   
Changes in operating assets and liabilities:          
Accounts receivable   11,789,409    (3,422,703)
Inventory   (3,537)   (997)
Prepaid and other assets   (434,217)   (1,057,311)
Due from related parties   —      69,948 
Accounts payable   (8,331,945)   2,604,856 
Accrued and other current liabilities   (4,495,509)   1,870,972 
Net cash used in operating activities   (2,526,651)   (434,701)
           
 CASH FLOWS FROM INVESTING ACTIVITIES:          
Acquisitions of subsidiary   (2,730,121)   —   
Purchase of property and equipment   (134,016)   (164,715)
Purchase of intangible assets   —      (189,767)
Advances of loans receivable - related party   (119,832)   —   
Collection of amounts due from related parties   33,602    13,899 
Net cash used in investing activities   (2,950,367)   (340,583)
           
 CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from loans payable   2,011,100    150,000 
Repayments of loans payable   (669,121)   (9,006)
Proceeds from loans payable - related parties   1,000,000    —   
Repayment of loans payable - related parties   (333,378)   —   
Proceeds from exercise of warrants   575,000    1,150,000 
Proceeds from issuance of common stock payable   100,000    —   
Proceeds from convertible notes   3,997,500    250,000 
Proceeds from common stock purchase option   100,000    —   
Repayment of convertible notes   (541,612)   (86,238)
Net cash provided by financing activities   6,239,489    1,454,756 
           
 Effect of exchange rate changes on cash   —      (7,541)
           
 Net change in cash   762,471    671,931 
 Cash, beginning of period   1,362,668    1,329,389 
 Cash, end of period  $2,125,139   $2,001,320 
           
 Supplemental cash flow information          
Cash paid for interest  $480,431   $25,941 
Cash paid for taxes  $—     $—   
           
 Non-cash transactions:          
Series B Preferred stock issued as dividend  $—     $816,480 
Common stock issued in connection with convertible notes  $597,777   $—   
Common stock issued for conversion of debt  $337,083   $—   
Common stock issued for settlement of debt  $279,660   $—   
Cashless warrant exercised  $1,815   $—   
Resolution of derivative liabilities  $885,843   $975,939 
Note payable issued for acquisition of subsidiary  $2,000,000   $—   
Contingent liability for acquisition of subsidiary  $1,000,000   $—   

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

  

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iQSTEL INC

Notes to the Consolidated Financial Statements

September 30, 2024

 

NOTE 1 -ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Organization and Operations

 

iQSTEL Inc. (“iQSTEL”, “we”, “us”, or the “Company”) was incorporated under the laws of the State of Nevada on June 24, 2011 under the name of B-Maven Inc. The Company changed its name to PureSnax International, Inc. on September 18, 2015; and more recently it changed its name to iQSTEL Inc. on August 7, 2018.

 

The Company has been engaged in the business of telecommunication services as a wholesale carrier of voice, SMS and data for other telecom companies around the World with over 400 active interconnection agreements with mobile companies, fixed line companies and other wholesale carriers.

 

The Company is a technology company with presence in 20 countries and over 100 employees that is offering leading-edge services through its four business divisions.

 

The Telecom Division, which represents the majority of current operations and which also represents the source for all of the Company’s revenues, offers VoIP, SMS, proprietary Internet of Things (IoT) solutions (www.iotsmartgas.com and www.iotsmarttank.com), and international fiber-optic connectivity through its subsidiaries: Etelix.com USA, LLC, SwissLink Carrier AG, Smartbiz Telecom LLC, Whisl Telecom LLC, IoT Labs, LLC, QGlobal SMS, LLC, and QXTEL LIMITED.

 

Also under the Telecom Division, the Company’s developing BlockChain Platform Business Line offers our proprietary Mobile Number Portability Application (MNPA) to serve the in-country portability needs through its subsidiary, itsBchain, LLC.

 

The Company’s developing Fintech Business Line offers a complete Fintech ecosystem MasterCard Debit Card, US Bank Account (No SSN Needed), Mobile App/Wallet (Remittances, Mobile Top Up). The Company’s Fintech subsidiary, Global Money One Inc., is to provide immigrants access to reliable financial services that makes it easier to manage their money and stay connected with their families back home.

 

The Company’s developing Electric Vehicle (EV) Business Line offers electric motorcycles for work and recreational use in the USA, Spain, Portugal, Panama, Colombia, and Venezuela. EVOSS is also working on the development of an EV Mid Speed Car to serve the niche of the 2nd car in the family. 

 

The Company’s developing Artificial Intelligence (AI)-Enhanced Metaverse Division offers a 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.

 

NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for annual financial statements.

 

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In the opinion of the Company’s management, the accompanying unaudited interim consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of September 30, 2024 and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended September 30, 2024 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on April 1, 2024.

 

Reclassification

 

Certain accounts from prior periods have been reclassified to conform to the current period presentation.

 

Consolidation Policy

 

The consolidated financial statements of the Company include the accounts of the Company and its owned subsidiaries, Etelix.com USA, LLC (“Etelix”), SwissLink Carrier AG (“Swisslink”), ITSBCHAIN, LLC (“ItsBchain”), QGLOBAL SMS, LLC (“QGlobal”), IoT Labs, LLC (“IoT Labs”), Global Money One Inc (“Global Money One”), Whisl Telecom LLC (“Whisl”), Smartbiz Telecom LLC (“Smartbiz”) and QXTEL LIMITED (“QXTEL”). All significant intercompany balances and transactions have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of the consolidated financial statements in conformity with GAAP in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ from these good faith estimates and judgments.

 

Business Combinations

 

In accordance with ASC 805-10, “Business Combinations”, the Company accounts for all business combinations using the acquisition method of accounting. Under this method, assets and liabilities, including any remaining non-controlling interests, are recognized at fair value at the date of acquisition. The excess of the purchase price over the fair value of assets acquired, net of liabilities assumed, and non-controlling interests is recognized as goodwill. Certain adjustments to the assessed fair values of the assets, liabilities, or non-controlling interests made subsequent to the acquisition date, but within the measurement period, which is up to one year, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period are recorded in income. Any cost or equity method interest that the Company holds in the acquired company prior to the acquisition is re-measured to fair value at acquisition with a resulting gain or loss recognized in income for the difference between fair value and the existing book value. Results of operations of the acquired entity are included in the Company’s results from the date of the acquisition onward and include amortization expense arising from acquired tangible and intangible assets.

   

Foreign Currency Translation and Re-measurement

 

The Company translates its foreign operations to U.S. dollars in accordance with ASC 830, “Foreign Currency Matters”.

 

The functional currency and reporting currency of Etelix, QGlobal, ItsBchain, IoT Labs, Whisl, Smartbiz, Global Money One and QXTEL is the U.S. dollar, while SwissLink’s functional currency was the Swiss Franc (“CHF”). As of January 1, 2024, we changed the functional currency of SwissLink from their respective local currency to the US dollar. The change in functional currency is due to increased exposure to the US dollar as a result of a change in facts and circumstances in the primary economic environment in which this subsidiary operates. The effects of the change in functional currency were not significant to our consolidated financial statements.

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Cash and Cash Equivalents

 

Cash and cash equivalents include cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value. The Company had $2,125,139 and $1,362,668 in cash and cash equivalents at September 30, 2024 and December 31, 2023, respectively.

 

Accounts Receivable and Allowance for Uncollectible Accounts

 

Substantially all of the Company’s accounts receivable balance is related to trade receivables. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company estimates expected credit losses related to accounts receivable balances based on a review of available and relevant information including current economic conditions, projected economic conditions, historical loss experience, account aging, and other factors that could affect collectability. During the nine months ended September 30, 2024 and 2023, the Company recorded bad debt expense of $1,801 and $1,344, respectively.

 

Net Income (Loss) Per Share of Common Stock

 

The Company has adopted ASC 260, ”Earnings per Share” which requires presentation of basic earnings per share on the face of the statements of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic earnings per share computation. In the accompanying financial statements, basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock and potentially dilutive outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent share arrangements, stock options and warrants unless the result would be antidilutive. Dilutive potential common shares include outstanding Series B Preferred stock, and it was excluded from the computation of diluted net loss per share as the result was anti-dilutive for the nine months ended September 30, 2024 and 2023.

 

Concentrations of Credit Risk

 

The Company’s financial instruments that are exposed to concentrations of credit risk primarily consist of its cash and cash equivalents and related party payables. The Company places its cash and cash equivalents with financial institutions of high creditworthiness. At times, its cash and cash equivalents with a particular financial institution may exceed any applicable government insurance limits.

 

During the nine months ended September 30, 2024, 22 customers represented 87.7% of our revenue compared to 11 customers representing 87.8% of our revenue for the nine months ended September 30, 2023. For the nine months ended September 30, 2024 and 2023, 38.3% and 54.8% of the revenue comes from customers under prepayment conditions which means there is no credit or bad debt risk on that portion of the customers portfolio.

 

Financial Instruments

 

The Company follows ASC 820, “Fair Value Measurements and Disclosures,” which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

 

Level 1

 

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

 

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Level 2

 

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

 

Level 3

 

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

 

The carrying values of our financial instruments, including, cash; accounts receivable; deposit for acquisition, prepaid and other current assets; accounts payable; accrued liabilities and other current liabilities; and due from/to related parties approximate their fair values due to the short-term maturities of these financial instruments.

 

Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated. It is not, however, practical to determine the fair value of amounts due to related parties due to their related party nature.

 

Revenue Recognition

 

The Company recognizes revenue from telecommunication services in accordance with ASC 606, “Revenue from Contracts with Customers.”

 

The Company recognizes revenue related to monthly usage charges and other recurring charges during the period in which the telecommunication services are rendered, provided that persuasive evidence of a sales arrangement exists, and collection is reasonably assured. Management considers persuasive evidence of a sales arrangement to be a written interconnection agreement. The Company’s payment terms vary by client.

 

Recent Accounting Pronouncements

 

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" which allows disclosure of one or more measures of segment profit or loss used by the chief operating decision maker to allocate resources and assess performance. Additionally, the standard requires enhanced disclosures of significant segment expenses and other segment items, as well as incremental qualitative disclosures on both an annual and interim basis. This guidance is effective for annual reporting periods beginning after December 15, 2023, and interim reporting periods after December 15, 2024. Early adoption is permitted and retrospective application is required for all periods presented. The Company is currently evaluating the impact of adopting this guidance on its Consolidated Financial Statements and disclosures included within Notes to Consolidated Financial Statements.

 

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” which requires enhanced disclosures, including specific categories and disaggregation of information in the effective tax rate reconciliation, disaggregated information related to income taxes paid, income or loss from continuing operations before income tax expense or benefit, and income tax expense or benefit from continuing operations. This guidance is effective for annual reporting periods beginning after December 15, 2024. Early adoption is permitted and should be applied on a prospective basis; however, retrospective application is permitted. The Company is currently evaluating the impact of adopting this guidance on its Consolidated Financial Statements and disclosures included within Notes to Consolidated Financial Statements.

  

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NOTE 3 - GOING CONCERN

 

The Company's consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has suffered recurring losses from operations and does not have an established source of revenues sufficient to cover its operating costs. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

  

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish its business plan and eventually attain profitable operations.

 

During the next year, the Company's foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing in the industry and continuing its marketing efforts. The Company may experience a cash shortfall and be required to raise additional capital.

 

Historically, the Company has financed its operations through private placements, Regulation A offerings, related party loans, convertible notes, and unsecured debt. Management may raise additional capital through future public or private offerings of the Company's stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company's failure to do so could have a material and adverse effect upon its operations and its stockholders.

 

NOTE 4 – PREPAID AND OTHER CURRENT ASSETS

 

Prepaid and other current assets at September 30, 2024 and December 31, 2023 consisted of the following:

                 
   September 30,  December 31,
   2024  2023
Other receivable  $127,569   $312,116 
Prepaid expenses   1,203,450    738,050 
Advance payment   21,000    21,000 
Tax receivable   52,294    428 
Deposit for acquisition of asset   357,500    357,500 
Security deposit   128,703    20,000 
Prepaid expenses and other current assets  $1,890,516   $1,449,094 

 

 NOTE 5 – PROPERTY AND EQUIPMENT

 

Property and equipment at September 30, 2024 and December 31, 2023 consisted of the following:

                 
   September 30,  December 31,
   2024  2023
Telecommunication equipment  $709,417   $386,700 
Telecommunication software   676,403    836,840 
Other equipment   152,671    99,892 
Total property and equipment   1,538,491    1,323,432 
Accumulated depreciation and amortization   (959,757)   (800,435)
Property and equipment, net  $578,734   $522,997 

 

Depreciation expense for the nine months ended September 30, 2024 and 2023 amounted to $104,061 and $103,246, respectively.

  

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NOTE 6 –LOANS PAYABLE

 

Loans payable at September 30, 2024 and December 31, 2023 consisted of the following:

 

   September 30,  December 31,     Interest
   2024  2023  Term  rate
Martus  $103,738   $103,738   Note was issued on October 23, 2018 and due on January 2, 2025   5.0%
Darlene Covid19   80,019    99,099   Note was issued on April 1, 2020 and due on March 31, 2025   0.0%
Promissory note payable   —      165,000   Note was issued April 4, 2023 and due on April 4, 2024   24.0%
Promissory note payable   217,391    —     Note was issued June 11, 2024 and due on June 11, 2025   2.0%(2)
Promissory note payable - acquisition of QXTEL   1,500,000    —     Note was issued April 1, 2024 and due on June 30, 2025   4.89%
Promissory note payable   271,739    —     Note was issued July 16, 2024 and due on July 16, 2025   2.0%(2)
Promissory note payable   271,739    —     Note was issued July 31, 2024 and due on July 31, 2025   2.0%(2)
Promissory note payable   190,217    —     Note was issued September 23, 2024 and due on September 23, 2025   2.0%(2)
Future receipts loan   891,650    —     Loan was issued September 9, 2024 and due in August 2025   Effective rate 92.2%(1)
Total   3,526,493    367,837         
Less: Unamortized debt discount   (294,484)   (3,750)        
Total loans payable   3,232,009    364,087         
Less: Current portion of loans payable   (3,232,009)   (264,988)        
Long-term loans payable  $—     $99,099         

 

(1) The purchase price is $665,000, net of financing fee of $13,425, and the amount to be paid is $651,575. The monthly payment amount is $81,009.
(2) monthly interest rate.

 

During the nine months ended September 30, 2024 and 2023, the Company repaid the principal amount of $669,121 and $9,006, respectively.

 

During the nine months ended September 30, 2024, the Company settled 2 loans as follows:

 

•Principal amount and accrued interest of a note payable issued in April 2023 by issuing 1,770,000 shares of common stock. As a result, the Company recorded a loss on settlement of debt of $102,660.  
•Principal amount of future receipts loan issued in April 2024 by early settlement. As a result, the Company recorded a loss on settlement of debt of $27,537. 

 

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Loans payable - related parties at September 30, 2024 and December 31, 2023 consisted of the following:

 

   September 30,  December 31,     Interest
   2024  2023  Term  rate
49% of Shareholder of SwissLink  $21,606   $21,606   Note is due on demand   0%
49% of Shareholder of SwissLink   237,841    237,841   Note is due on demand   5%
Minority Shareholder of QXTEL   666,622    —     Note is due on October 1, 2025   4.89%
Total   926,069    259,447         
Less: Current portion of loans payable - related parties   926,069    259,447         
Long-term loans payable - related parties  $—     $—           

 

During the nine months ended September 30, 2024 and 2023, the Company recorded interest expense of $121,806 and $22,417, respectively, and recognized amortization of discount, included in interest expense, of $163,406 and $7,406, respectively.

  

NOTE 7 - CONVERTIBLE NOTES

 

Convertible notes at September 30, 2024 and December 31, 2023 consisted of the following:

                 
   September 30,  December 31,
   2024  2023
Issued in fiscal year 2023  $28,193   $369,044 
Issued in fiscal year 2024   4,011,775    —   
Total convertible notes payable   4,039,968    369,044 
Less: Unamortized debt discount   (490,022)   (39,012)
Total convertible notes   3,549,946    330,032 
           
Less: current portion of convertible notes   3,549,946    330,032 
Long-term convertible notes  $—     $—   

 

During the nine months ended September 30, 2024 and 2023, the Company recorded interest expense of $555,092 and $13,668, respectively, and recognized amortization of discount, included in interest expense, of $693,516 and $13,904, respectively.

  

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Issued in fiscal year 2023

 

During the year ended December 31, 2023, the Company borrowed $284,760 and $256,760 from a third party totaling $541,520, which includes original issue discount and financing costs of $66,520. The notes are due on June 1, 2024 and October 15, 2024, and a one-time interest charge of 12% shall be applied. Accrued, unpaid interest and outstanding principal shall be paid in 10 payments each in the amount of $31,893 and $28,757 beginning on July 16, 2023 and January 15, 2024, respectively. The notes are convertible at the option of the holders at any time following an event of default, and the conversion price is 75% multiplied by the lowest trading price of Company’s common stock during the 10 trading days prior to the conversion date.

 

Issued in fiscal year 2024

 

On January 24, 2024, we entered into a securities purchase agreement (the “SPA”) with M2B Funding Corp., a Florida corporation, for it to purchase up to the principal amount of $3,888,889 in secured convertible promissory notes (the “Notes”) for an aggregate purchase price of $3,500,000 (the “Purchase Price”), which Notes are convertible into shares (“Conversion Shares”) of our common stock with an initial conversion price of $0.11 per share. Each noteholder shall receive shares of common stock (“Kicker Shares”) in an amount equal to ten percent of the principal amount of any Note issued divided by $0.11. The Notes are secured by all of our assets under a Security Agreement signed with the SPA.

 

The initial tranche was executed in January 2024 for $2,222,222 in face value of Notes and 2,020,200 Kicker Shares, with an original issue discount of $222,222; second and third tranches were executed in March 2024 for $1,111,111 and $555,556, respectively, in face value of Notes and 1,010,101 and 505,051 Kicker Shares, with an original issue discount of $111,111 and $55,556, respectively. Each one year note bears interest at 18% per annum.

 

Additionally, during the nine months ended September 30, 2024, the Company borrowed amounts from a third party totaling $665,360, which includes original issue discount and financing costs of $105,360.

 

Principal  Issuance  Maturity  Interest  Payment
amount  date  date  rate  schedule
$146,900    March 7, 2024    January 15, 2025    12%  10 payments each in the amount of $16,453 beginning on April 15, 2024
$177,100    March 7, 2024    January 15, 2025    14%  5 payments, one payment of $100,947 and four payments of $25,237, beginning in September 2024
$179,400    July 10, 2024    April 30, 2025    14%  9 payments each in the amount of $22,724 beginning on August 30, 2024
$151,960    September 16, 2024    July 15, 2025    14%  5 payments, one payment of $86,617 and four payments of $21,654, beginning in March 2025

 

The notes are convertible at the option of the holders at any time following an event of default, and the conversion price is 75% multiplied by the lowest trading price of Company’s common stock during the 10 trading days prior to the conversion date.

 

Conversion

 

During the nine months ended September 30, 2024, the Company converted notes with principal amounts of $333,333 and conversion fee of $3,750 into 3,064,394 shares of common stock.

 

NOTE 8 – STOCKHOLDERS’ EQUITY

 

Common Stock

 

The Company’s authorized capital consists of 300,000,000 shares of common stock with a par value of $0.001 per share.

 

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During the nine months ended September 30, 2024, the Company issued 14,047,021 shares of common stock, valued at fair market value on issuance as follows:

 

•450,000 shares for compensation to our directors valued at $109,485;
•1,770,000 shares for settlement of debt valued at $279,660;
•3,535,354 shares in conjunction with convertible notes valued at $597,777;
•5,227,273 shares for exercise of warrants for $575,000; and
•3,064,394 shares for conversion of debt of $337,083.

 

As of September 30, 2024 and December 31, 2023, 186,176,651 and 172,129,630 shares of common stock were issued and outstanding, respectively.

 

Stock payable

 

During the nine months ended September 30, 2024, the Company received cash of $100,000 for 2,450,000 shares to be issued.

 

As of September 30, 2024 and December 31, 2023, the Company recorded stock payable of $171,061 and $71,061 under additional paid in capital for 2,586,452 and 136,452 shares to be issued, respectively.

 

Preferred Stock

 

The Company’s authorized capital consists of 1,200,000 shares of preferred stock with a par value of $0.001 per share.

 

Series A Preferred Stock

 

On November 3, 2020, pursuant to Article III of our Articles of Incorporation, our Board of Directors voted to designate a class of preferred stock entitled Series A Preferred Stock, consisting of up 10,000 shares, par value $0.001. Under the Certificate of Designation, holders of Series A Preferred Stock will participate on an equal basis per-share with holders of our common stock in any distribution upon winding up, dissolution, or liquidation. Holders of Series A Preferred Stock are entitled to vote together with the holders of our common stock on all matters submitted to stockholders at a rate of 51% of the total vote of stockholders.

 

The rights of the holders of Series A Preferred Stock are defined in the relevant Certificate of Designation filed with the Nevada Secretary of State on November 3, 2020

 

As of September 30, 2024 and December 31, 2023, 10,000 shares of Series A Preferred Stock were issued and outstanding.

 

Series B Preferred Stock

 

On November 11, 2020, pursuant to Article III of our Articles of Incorporation, our Board of Directors voted to designate a class of preferred stock entitled Series B Preferred Stock, consisting of up 200,000 shares, par value $0.001. Under the Certificate of Designation, holders of Series B Preferred Stock will receive a liquidation preference of $81 per share in any distribution upon winding up, dissolution, or liquidation of the Company before junior security holders, as provided in the designation. Holders of Series B Preferred Stock are entitled to receive as, when, and if declared by the Board of Directors, dividends in kind at an annual rate equal to twenty four percent (24%) of $81 per share for each of the then outstanding shares of Series B Preferred Stock, calculated on the basis of a 360-day year consisting of twelve 30-day months. Holders of Series B Preferred Stock do not have voting rights but may convert into common stock after twelve months from the issuance date, at a conversion rate of one thousand (1,000) shares of Common Stock for every one (1) share of Series B Preferred Stock. Upon conversion, the shares are subject to a one-year restriction on sales into the market of no more than 5% previous month’s stock liquidity.

 

As of September 30, 2024 and December 31, 2023, 31,080 shares of Series B Preferred Stock were issued and outstanding.

 

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Series C Preferred Stock

 

On January 7, 2021, pursuant to Article III of our Articles of Incorporation, our Board of Directors voted to designate a class of preferred stock entitled Series C Preferred Stock, consisting of up 200,000 shares, par value $0.001. Under the Certificate of Designation, holders of Series C Preferred Stock will rank junior to the Series B Preferred Stock, but on par with common stock and Series A Preferred Stock in any distribution upon winding up, dissolution, or liquidation of the company, as provided in the designation. The holders of shares of Series C Preferred Stock have no dividend rights except as may be declared by the Board in its sole and absolute discretion, out of funds legally available for that purpose. Holders of Series C Preferred Stock do not have voting rights but may convert into common stock after twenty four months from the issuance date, at a conversion rate of one thousand (1,000) shares of Common Stock for every one (1) share of Series C Preferred Stock. Upon conversion, the shares are subject to a one-year restriction on sales into the market of no more than 5% previous month’s stock liquidity.

 

The rights of the holders of Series C Preferred Stock are defined in the relevant Certificate of Designation filed with the Nevada Secretary of State on January 7, 2021.

 

As of September 30, 2024 and December 31, 2023, no Series C Preferred Stock was issued or outstanding.

 

Series D Preferred Stock

 

On November 3, 2023, pursuant to Article III of our Articles of Incorporation, our Board of Directors voted to designate a class of preferred stock entitled Series D Preferred 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. Holders of Series D Preferred Stock do not have voting rights but may convert into common stock at a conversion rate of one thousand (1,000) shares of Common Stock for every one (1) share of Series D Preferred Stock.

 

The rights of the holders of Series D Preferred Stock are defined in the relevant Certificate of Designation filed with the Nevada Secretary of State on November 3, 2023.

 

As of September 30, 2024 and December 31, 2023, no Series D Preferred Stock was issued or outstanding.

 

NOTE 9 - RELATED PARTY TRANSACTIONS

 

Due from related party

 

As of September 30, 2024 and December 31, 2023, the Company had amounts due from related parties of $635,715 and $340,515, respectively. The loans are unsecured, non-interest bearing and due on demand.

  

Due to related parties

 

As of September 30, 2024 and December 31, 2023, the Company had amounts due to related parties of $26,613. The amounts are unsecured, non-interest bearing and due on demand.

 

Employment agreements

 

During the nine months ended September 30, 2024 and 2023, the Company recorded management salaries of $634,500 and $402,000, respectively, and stock-based compensation bonuses of $109,485 and $30,945, respectively.

 

As of September 30, 2024 and December 31, 2023, the Company recorded and accrued management salaries of $316,448 and $100,128, respectively.

 

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NOTE 10 – COMMITMENTS AND CONTINGENCIES

 

Leases and Long-term Contracts

 

The Company has not entered into any long-term leases, contracts or commitments. The Company leases facilities which the term is 12 months. For the nine months ended September 30, 2024 and 2023, the Company incurred rent expense of $21,335 and $4,048, respectively.

 

NOTE 11 – ACQUISITION

 

On January 19, 2024, we entered into a Share Purchase Agreement (“Purchase Agreement”) with Yukon River Holdings, Ltd. (“Yukon River”), a corporation formed under the laws of the British Virgin Islands (“Seller”) concerning the contemplated sale by Seller and the purchase by us of 51% of the ordinary shares Seller holds in QXTEL LIMITED (“QXTEL”), a company incorporated in England and Wales.

 

The purchase price (the “Purchase Price”) payable to the Seller for the shares is $5,000,000. Upon the execution of the Purchase Agreement, we agreed to deposit $1,500,000 of the Purchase Price into the trust account of a law firm acting as escrow agent (the “Escrow Agent”) as a nonrefundable deposit to evidence our good faith intention to purchase the shares, which was credited against the Purchase Price.

 

At closing, in addition to the $1,500,000 with the Escrow Agent that formed part of the Purchase Price, we were required to pay $1,500,000 in cash and $2,000,000 to the Seller, either (A) in the form of a promissory note (the “Promissory Note”), or (B) by the delivery of iQSTEL shares to Seller. Seller could decide the form of payment between the Promissory Note or the shares of iQSTEL, and if a Promissory Note was chosen, we agreed to allow Seller the option to exchange the Promissory Note for shares of iQSTEL. On June 27, 2024, we entered into a second amendment to the Purchase Agreement (the “Amendment”) that required us to issue an amended and restated promissory note to the Seller. We had paid down $200,000 of the note, so the amended and restated promissory note was issued in the principal amount of US $1,800,000. The amended and restated promissory note also changed the payment structure, from installment payments of $200,000 for each of the months of May through November ($1,400,000) with a balloon payment of $600,000, to monthly installments of $75,000 plus interest during 2024, and $212,500 plus interest during the first 6 months of 2025.  We also revised the Earnout Payment due to the Seller. The Earnout Payment was redefined at $721,035 net income, to be achieved in Q2, Q3 and Q4 of 2024. The $1,000,000 payment that IQSTEL has to pay upon achievement of the Earnout Payment will be paid during the first half of 2025, in monthly installments.

  

During the nine months ended September 30, 2024, the Company repaid $500,000 on the Promissory Note.

 

The acquisition was closed on April 1, 2024. QXTEL has been included in our consolidated results of operations since the acquisition date.

 

The following table summarizes the fair value of the consideration paid by the Company:

 

   April 1,
Fair Value of Consideration:  2024
Cash  $3,000,000 
Promissory note   2,000,000 
Contingent liability   1,000,000 
Total Purchase Price  $6,000,000 

 

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The following table summarizes the preliminary identifiable assets acquired and liabilities assumed upon acquisition of QXTEL and the calculation of goodwill:

         
Total purchase price  $6,000,000 
      
Cash   769,879 
Accounts receivable   14,946,919 
Due from related party   208,550 
Other asset   214,564 
Equipment   30,963 
Total identifiable assets   16,170,875 
      
Accounts payable   (14,796,505)
Other current liabilities   (403,584)
Total liabilities assumed   (15,200,089)
Net assets   970,786 
      
Non-controlling interest - 49%   475,685 
Total net assets   495,101 
Goodwill  $5,504,899 

 

Unaudited combined proforma results of operations for the nine months ended September 30, 2024 and 2023 as though the Company acquired QXTEL on January 1, 2023, are set forth below:

                 
   Nine Months Ended
   September 30,
   2024  2023
Revenues  $212,029,873   $156,944,034 
Cost of revenues   205,899,685    150,745,335 
Gross profit   6,130,188    6,198,699 
           
Operating expenses   6,773,339    5,747,451 
Operating loss   (643,151)   451,248 
           
Other income (expense)   (2,646,275)   224,938 
Income tax   (134,880)   (203,975)
Net income (loss)  $(3,424,306)  $472,211 

  

NOTE 12 - SEGMENT

 

At September 30, 2024 and December 31, 2023, the Company operates in one industry segment, telecommunication services, and three geographic segments, USA, UK and Switzerland, where current assets and equipment are located.

 

Operating Activities

 

The following table shows operating activities information by geographic segment for the three and nine months ended September 30, 2024 and 2023:

 

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Three months ended September 30, 2024

                                         
   USA  Switzerland  UK  Elimination  Total
Revenues  $36,604,753   $1,048,201   $17,202,173   $(605,513)  $54,249,614 
Cost of revenue   35,614,356    822,312    16,165,751    (372,724)   52,229,695 
Gross profit   990,397    225,889    1,036,422    (232,789)   2,019,919 
                          
Operating expenses                         
General and administration   1,303,275    257,881    748,105    (232,789)   2,076,472 
                          
Operating income (loss)   (312,878)   (31,992)   288,317    —      (56,553)
                          
Other expense   (633,774)   (6,544)   (6,528)   —      (646,846)
                          
Income tax expense   —      (162)   (69,443)   —      (69,605)
                          
Net income (loss)  $(946,652)  $(38,698)  $212,346   $—     $(773,004)

 

Three months ended September 30, 2023

                                 
   USA  Switzerland  Elimination  Total
Revenues  $39,390,527   $1,498,054   $(1,131,378)  $39,757,203 
Cost of revenue   38,593,585    1,266,475    (1,131,378)   38,728,682 
Gross profit   796,942    231,579    —      1,028,521 
                     
Operating expenses                    
General and administration   770,467    187,301    —      957,768 
                     
Operating income   26,475    44,278    —      70,753 
                     
Other expense   (23,893)   (951)   —      (24,844)
                     
Net income  $2,582   $43,327   $—     $45,909 

 

Nine months ended September 30, 2024

                                         
   USA  Switzerland  UK  Elimination  Total
Revenues  $135,649,542   $3,157,073   $48,676,228   $(3,136,431)  $184,346,412 
Cost of revenue   132,502,666    2,542,555    46,596,108    (2,903,642)   178,737,687 
Gross profit   3,146,876    614,518    2,080,120    (232,789)   5,608,725 
                          
Operating expenses                         
General and administration   4,262,032    701,426    1,414,008    (232,789)   6,144,677 
                          
Operating income (loss)   (1,115,156)   (86,908)   666,112    —      (535,952)
                          
Other income (expense)   (2,666,763)   33,544    (13,056)   —      (2,646,275)
                          
Income tax expense   —      (162)   (134,718)   —      (134,880)
                          
Net income (loss)  $(3,781,919)  $(53,526)  $518,338   $—     $(3,317,107)

 

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Nine months ended September 30, 2023

                                 
   USA  Switzerland  Elimination  Total
Revenues  $97,198,336   $4,179,569   $(4,129,344)  $97,248,561 
Cost of revenue   94,779,408    3,568,774    (4,129,344)   94,218,838 
Gross profit   2,418,928    610,795    —      3,029,723 
                     
Operating expenses                    
General and administration   2,966,908    562,310    —      3,529,218 
                     
Operating income (loss)   (547,980)   48,485    —      (499,495)
                     
Other income (expense)   249,286    (24,348)   —      224,938 
                     
Net income (loss)  $(298,694)  $24,137   $—     $(274,557)

  

Asset Information

 

The following table shows asset information by geographic segment as of September 30, 2024 and December 31, 2023:

                                         
September 30, 2024  USA  Switzerland  UK  Elimination  Total
Assets                         
Current assets  $8,735,079   $850,772   $10,792,038   $(712,903)  $19,664,986 
Non-current assets  $23,373,710   $830,653   $754,331   $(12,184,562)  $12,774,132 
Liabilities                         
Current liabilities  $13,130,629   $1,705,110   $9,943,398   $(712,903)  $24,066,234 
Non-current liabilities  $139   $169,599   $113,848   $—     $283,586 

 

                                 
December 31, 2023  USA  Switzerland  Elimination  Total
Assets                    
Current assets  $14,537,969   $1,874,627   $(693,424)  $15,719,172 
Non-current assets  $11,810,606   $810,437   $(6,184,562)  $6,436,481 
Liabilities                    
Current liabilities  $11,978,244   $2,556,124   $(693,424)  $13,840,944 
Non-current liabilities  $139   $268,698   $—     $268,837 

 

NOTE 13 – WARRANTS

 

On February 12, 2024, we issued a Common Stock Purchase Option (the “Option”) to ADI Funding LLC (“ADI Funding”) for $100,000 that expires on December 31, 2024, for the right to acquire up to 10,000,000 shares of common stock. The exercise price per share of the common stock under the Option shall be (i) 70% of the VWAP of the common stock during the then 10 Trading Days immediately preceding, but not including the date of exercise if the VWAP is below $2.00 or (ii) seventy five percent (75%) of the VWAP of the common stock during the then 10 Trading Days immediately preceding, but not including the date of exercise if the VWAP is equal or above $2.00.

 

ADI Funding has the right and the obligation to exercise, on a “cash basis”, not less than (i) 2,000,000 of the shares of common stock underlying the option not later than the later of March 31, 2024 or the date on which there is an effective registration statement permitting the resale of the shares by ADI Funding. From and after the occurrence of the above-referenced exercise, each additional exercise of the Option shall be in an amount not less than 1,000,000 shares, which shall occur every thirty (30) days and shall be exercised only on a cash basis. ADI Funding’s obligation to exercise each specified portion of the Option is subject to the exercise price being not less than $0.11

 

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If the Company issues securities less than the exercise price of the option, ADI Funding has a right to also use that lesser price in the exercise of its Option. The Option also contains rights to any Company distributions and consideration in fundamental transactions.

 

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

 

The Company determined that the warrants had net cash settlement and categorized the warrants as a liability in the accompanying consolidated financial statements.

 

A summary of activity regarding warrants issued as follows:

                         
   Warrants Outstanding   
      Weighted Average  Weighted Average Remaining
   Shares  Exercise Price  Contractual life (in years)
          
Outstanding, December 31, 2023    —     $—      —  
Granted    10,000,000    0.88    0.88
Exercised    (5,227,273)   0.11    —  
Forfeited/canceled    —      —      —  
Outstanding, September 30, 2024    4,772,727   $0.11    0.25

 

The intrinsic value of the warrants as of September 30, 2024 is approximately $253,000. All of the outstanding warrants are exercisable as of September 30, 2024; however, each exercise is subject to a beneficial ownership limitation of 4.99% of the Company’s outstanding common stock, which, upon notice, may be increased to 9.99%.

 

Fair Value Assumptions Used in Accounting for Derivative Liabilities

 

ASC 815 requires we assess the fair market value of derivative liabilities at the end of each reporting period and recognize any change in the fair market value as other income or expense.

 

The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of September 30, 2024. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. 

 

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As of September 30, 2024, the estimated fair values of the liabilities measured on a recurring basis are as follows:

       
Expected term    0.25 - 0.65 years
Expected average volatility    78% - 118%
Expected dividend yield   —  
Risk-free interest rate    4.73% - 5.44%

 

The following table summarizes the changes in the derivative liabilities during the nine months ended September 30, 2024:

 

Fair Value Measurements Using Significant Observable Inputs (Level 3)
    
Balance - December 31, 2023   —   
      
Addition of new derivatives recognized as cash received   100,000 
Exercise on issuance of common stock   (885,843)
Change in fair value of the warrant   1,063,789 
Balance - September 30, 2024  $277,946 

 

NOTE 14 – SUBSEQUENT EVENTS

 

Subsequent to September 30, 2024, and through the date that these financials were made available, the Company had the following subsequent events:

 

On May 10, 2024, the Company entered into a Purchase Company Agreement with Omar Luna and Lynk Holding LLC (together, the “Seller”) concerning the sale by Seller and the purchase by us of 51% of the membership interests the Seller holds in Lynk Telecom, LLC, a Virginia limited liability company. The Company subsequently elected to halt the due diligence and there are no assurances that the proposed deal will close as planned.

   

On October 18, 2024, we entered into a Memorandum of Understanding (the “Agreement”) with M2B Funding Corp. to extend the maturity date on three promissory notes in exchange for stock consideration. Pursuant to the Agreement, the following promissory notes were extended by 12 months from their original date of maturity:

 

  • First Note: Originally due January 1, 2025, with an outstanding amount of $1,888,888.89, now extended to January 1, 2026.  
  • Second Note: Originally due March 12, 2025, with an outstanding amount of $1,111,111.11, now extended to March 12, 2026.  
  • Third Note: Originally due March 25, 2025, with an outstanding amount of $555,555.56, now extended to March 25, 2026.  

 

In consideration for this extension, we agreed to issue 646,467 restricted common shares to M2B Funding Corp.

 

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On November 1, 2024, we entered into a binding Memorandum of Understanding (the “Agreement”) with Mr. Ralf Koehler ("Ralf"), SwissLink Carrier Ltd., ("SwissLink") and Impact Trading & Consulting LLC ("Impact") for the purpose of outlining the understanding regarding the exchange of 49% ownership in SwissLink for our shares. Pursuant to the Agreement, the parties agreed that the execution of the final agreement will be subject to mutual consent and negotiations based on the terms already agreed below:

•The agreed valuation to purchase Ralf’s 49% ownership interest in SwissLink is set at $750,000 USD.  
•The term of this agreement will be for five (5) years plus six (6) months (“Termination Date”), commencing on the date of the execution of the final agreement ("Final Agreement").  
•Ownership will be transferred from Ralf to us in tranches, with each tranche comprising up to 10% of ownership per year.  
•The option to execute each tranche can be initiated by Ralf within each one-year period through the submission of a "trigger letter" by e-mail to us. If Ralf does not exercise his right to trigger the agreement during any year, we reserve the right to initiate the tranche execution at any point thereafter.  
•Share Calculation: The number of iQSTEL shares to be provided in exchange for each tranche will be determined based on the lowest closing price of iQSTEL shares over the 90 days preceding the delivery of the trigger letter.  
•Discount: Ralf will receive a 20% discount on the above calculated share price; provided however, that the above calculated share price, without the discount, shall count toward the purchase price in determining whether Ralf has received the full $750,000 USD valuation for his 49% ownership interest in SwissLink.  
•If, after the execution of all tranches, Ralf has not received the full $750,000 USD valuation, we or our legal successor will pay the difference in cash until the full valuation is realized based on the Weighted Volume Average Price (WVAP) of our shares for the last 15 trading days prior to the Termination Date for shares still in Ralf's possession, and/or the actual selling price for shares already sold by Ralf.   
     

In addition, under the Agreement, Impact agreed to render advisory services up to 60 hours per month to SwissLink and ETELIX, our wholly owned subsidiary, at 8,000 CHF per month (excluding VAT) for a maximum of two years.

Next, SwissLink acknowledges a debt of 200,000 CHF owed to Ralf, which will be repaid in monthly installments of 8,000 CHF until the debt is fully repaid.

Finally, Ralf will continue to grant SwissLink non-exclusive access to the VAMP platform, with the same cost and expense structure as outlined in the Share Purchase Agreement between iQSTEL and Ralf, dated April 1, 2019.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

This quarterly report contains forward-looking statements. Forward-looking statements are projections of events, revenues, income, future economic performance or management’s plans and objectives for our future operations. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” and the risks set out below, any of which may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks include, by way of example and not in limitation:

 

•the uncertainty of profitability based upon our history of losses;
•legislative or regulatory changes concerning telecommunications;
•risks related to failure to obtain adequate financing on a timely basis and on acceptable terms;
•risks related to our operations and uncertainties related to our business plan and business strategy;
•changes in economic conditions;
•uncertainty with respect to intellectual property rights, protecting those rights and claims of infringement of other’s intellectual property;
•competition; and
•cybersecurity concerns.

 

This list is not an exhaustive list of the factors that may affect any of our forward-looking statements. These and other factors should be considered carefully, including those contained in our Annual Report on Form 10-K under “Risk Factors” for the year ended December 31, 2023, and readers should not place undue reliance on our forward-looking statements. Forward looking statements are made based on management’s beliefs, estimates and opinions on the date the statements are made, and we undertake no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Overview


iQSTEL Inc. (www.iqstel.com) is a technology company with a presence in 20 countries 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 Miami, Venezuela, Argentina, UK, Switzerland, Turkey, and Dubai, we target diverse and high-growth markets. We maintain more than 400 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 11 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 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).

 

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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 its 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 (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 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 prospectus and should not be considered part of this or any other report filed with the SEC.

  

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Results of Operations

 

Revenues

 

Our total revenue reported for the three months ended September 30, 2024 was $54,249,614, compared with $39,757,203 for the three months ended September 30, 2023. These numbers reflect an increase of 36.45% quarter over quarter on our consolidated revenues. Our total revenue reported for the nine months ended September 30, 2024 was $184,346,412, compared with $97,248,561 for the nine months ended September 30, 2023. These numbers reflect an increase of 89.56% year over year on our consolidated revenues.

  

When looking at the numbers by subsidiary, we have the following breakout for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023:

 

   Revenue for the Three Months Ended September  Revenue for the Nine Months Ended September
Subsidiary  2024  2023  2024  2023
Etelix.com USA, LLC  $9,781,863   $10,344,008   $43,124,776   $25,635,273 
SwissLink Carrier AG   1,048,201    1,498,054    3,157,073    4,179,569 
QGlobal LLC   290,256    462,331    1,119,332    780,934 
IoT Labs LLC   21,738,854    20,802,592    70,525,343    53,279,140 
Smartbiz Telecom   4,145,464    6,915,218    17,321,777    14,102,902 
Whisl Telecom   648,316    866,406    3,558,314    3,400,087 
QXTEL Limited   17,202,173    —      48,676,228    —   
Inter-company sales   (605,513)   (1,131,406)   (3,136,431)   (4,129,344)
   $54,249,614   $39,757,203   $184,346,412   $97,248,561 

  

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, 2024 increased to $52,229,695, compared with $38,728,682 for the three months ended September 30, 2023. Our total cost of revenues for the nine months ended September 30, 2024 increased to $178,737,687, compared with $94,218,838 for the nine months ended September 30, 2023.

 

When looking at the numbers by subsidiary, we have the following breakout for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023:

 

   Cost of Revenue for the Three Months Ended September  Cost of Revenue for the Nine Months Ended September
Subsidiary  2024  2023  2024  2023
Etelix.com USA, LLC  $9,628,110   $10,224,778   $42,690,403   $25,364,275 
SwissLink Carrier AG   822,313    1,266,475    2,542,555    3,568,774 
QGlobal LLC   236,530    306,745    817,913    516,018 
IoT Labs LLC   21,352,526    20,575,212    69,379,146    52,665,861 
Smartbiz Telecom   3,894,823    6,697,793    16,622,745    13,435,881 
Whisl Telecom   502,365    789,056    2,992,459    2,797,373 
QXTEL Limited   16,165,752    —      46,596,108    —   
Inter-company sales   (372,724)   (1,131,377)   (2,903,642)   (4,129,344)
   $52,229,695   $38,728,682   $178,737,687   $94,218,838 

 

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.

 

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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, 2024 increased to $2,019,919 from $1,028,521 for the same period of year 2023. For the nine months ended September 30, 2024 the gross profit increased to $5,608,725 from $3,029,723 for the same period of year 2023.

 

It is important to remark on the evolution of the Gross Profit expressed as a percentage of Revenue. It went up to 3.72% for the three months ended September 2024 from 2.58% for the same period of 2023, but also from 2.75% for the three months ended June 30, 2024.

 

Operating Expenses

 

Operating expenses increased to $2,076,472 for the three months ended September 30, 2024 from $957,768 for the three months ended September 30, 2023.

 

Operating expenses increased to $6,144,677 for the nine months ended September 30, 2024 from $3,529,218 for the nine months ended September 30, 2023. The details by major category for the nine months ended September 30, 2024 and 2023 is reflected in the table below:

 

  

Nine Months Ended

September 30,

   2024  2023
Salaries, Wages and Benefits  $2,351,471   $1,218,946 
Technology   879,182    273,786 
Professional Fees   1,072,816    821,780 
Legal and Regulatory   180,221    168,908 
Bad Debt Expense   1,801    1,344 
Travel and Events   167,757    119,845 
Public Cost   93,646    28,526 
Advertising   659,784    535,193 
Insurances   41,576    10,543 
Bank Services and Fees   127,594    44,136 
Financial Costs   43,772    —   
Depreciation and Amortization   104,061    103,246 
Office, Facility and Other   311,511    172,020 
 Sub Total   6,035,192    3,498,273 
           
Stock-based compensation   109,485    30,945 
Total Operating Expense  $6,144,677   $3,529,218 

 

The main reasons for the overall increase in operating expenses for the nine months ended September 30, 2024 compared to the same period of 2023 is due to the increase in salaries, wages and benefits; technology; the professional fees; office, facilities and other.

 

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As it can be seen in the table below, where operating expenses are shown by subsidiary, 56% of the total increase in operating expenses is due to the inclusion of QXTEL, which was not part of the group of companies in year 2023.

 

When looking at the numbers by subsidiary, we have the following breakout for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023:

 

  

Nine Months Ended

September 30,

   2024  2023  Difference
iQSTEL  $2,024,621   $1,346,415   $678,206 
Etelix   297,124    256,616    40,508 
Swisslink   701,427    562,310    139,117 
ItsBchain   14,582    28,945    -14,363 
QGlobal   405,275    184,698    220,577 
IoT Labs   190,179    112,033    78,146 
Global Money One   550    47,759    -47,209 
Smartbiz Telecom   684,061    526,079    157,982 
Whisl Telecom   645,639    464,363    181,276 
QXTEL Limited   1,414,008    —      1,414,008 
Inter-company eliminations   (232,789)   —      -232,789 
   $6,144,677   $3,529,218   $2,615,459 

 

Operating Income

 

The Company had an operating loss of $56,553 for the three months ended September 30, 2024 compared with operating income of $70,753 for the three months ended September 30, 2023.

 

The Company had an operating loss of $535,952 for the nine months ended September 30, 2024 compared with an operating loss of $499,495 for the nine months ended September 30, 2023

 

Our Telecom Division, the division presently generating revenue, has positive operating income when presented separately from the rest of our Company. 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. When comparing the tables below, we can see a tremendous evolution of our telecom division comparing the revenues, gross profit and operating income for the three and nine months ended September 30, 2024 versus the same periods of year 2023. 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.

 

   Telecom Division  Pre-revenue companies  iQSTEL  Consolidated
   Three Months Ended September 30, 2024  Nine Months Ended September 30, 2024  Three Months Ended September 30, 2024  Nine Months Ended September 30, 2024  Three Months Ended September 30, 2024  Nine Months Ended September 30, 2024  Three Months Ended September 30, 2024  Nine Months Ended September 30, 2024
Revenues   54,249,614    184,346,412    —      —      —      —      54,249,614    184,346,412 
Cost of revenue   52,229,695    178,737,687    —      —      —      —      52,229,695    178,737,687 
Gross profit   2,019,919    5,608,725    —      —      —      —      2,019,919    5,608,725 
                                         
Operating expenses                                        
General and administration   1,471,644    4,104,924    348    15,132    604,480    2,024,621    2,076,472    6,144,677 
Total Operating Expenses   1,471,644    4,104,924    348    15,132    604,480    2,024,621    2,076,472    6,144,677 
                                         
Operating  income/(loss)   548,274    1,503,801    (348)   (15,132)   (604,480)   (2,024,621)   (56,553)   (535,952)

 

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   Telecom Division  Pre-revenue companies  iQSTEL  Consolidated
   Three Months Ended September 30, 2023  Nine Months Ended September 30, 2023  Three Months Ended September 30, 2023  Nine Months Ended September 30, 2023  Three Months Ended September 30, 2023  Nine Months Ended September 30, 2023  Three Months Ended September 30, 2023  Nine Months Ended September 30, 2023
Revenues   39,757,203    97,248,561    —      —      —      —      39,757,203    97,248,561 
Cost of revenue   38,728,682    94,218,838    —      —      —      —      38,728,682    94,218,838 
Gross profit   1,028,521    3,029,723    —      —      —      —      1,028,521    3,029,723 
                                         
Operating expenses                                        
General and administration   645,260    2,106,099    (6,114)   76,704    318,622    1,346,415    957,768    3,529,218 
Total Operating Expenses   645,260    2,106,099    (6,114)   76,704    318,622    1,346,415    957,768    3,529,218 
                                         
Operating  income/(loss)   383,261    923,625    6,114    (76,704)   (318,622)   (1,346,415)   70,753    (499,495)

 

Other Expenses/Other Income

 

We had other expenses of $2,646,275 for the nine months ended September 30, 2024, as compared with other income of $224,938 for the same period ended 2023. The difference between the compared periods is primarily in due to a change in fair value of derivative liabilities of $(1,063,789); and Interest Expense of $(1,533,820).

 

Net Income/Loss

 

The Company finished the three months ended September 30, 2024 with a net loss of $773,004, as compared to a net income $45,909 during the three months ended September 30, 2023. The Company finished the nine months ended September 30, 2024 with a loss of $3,317,107, as compared to a loss of $274,557 during the nine months ended September 30, 2023.

 

The net results of the periods reported are highly impacted by the expenses in the holding entity (iQSTEL), which has a high component of interest and other financial expenses related to the funds borrowed for the acquisition of QXTEL Limited.

  

Liquidity and Capital Resources

 

As of September 30, 2024, we had total current assets of $19,664,986 and current liabilities of $24,066,234, resulting in a negative working capital of $4,401,248. This compares with a positive working capital of $1,878,228 at December 31, 2023.

 

Our operating activities used $2,526,651 in the nine months ended September 30, 2024 as compared with $434,701 used in operating activities in the nine months ended September 30, 2023.

 

Investing activities used $2,950,367 for the nine months ended September 30, 2024 as compared with $340,583 used in investing activities in the nine months ended September 30, 2023. Use of funds in investing activities were primarily for the acquisition of subsidiary (QXTEL) for $2,730,121.

 

Financing activities provided $6,239,489 in the nine months ended September 30, 2024 compared with $1,454,756 provided in the nine months ended September 30, 2023. Our positive financing cash flow in 2024 was largely the result of the proceeds from convertible notes of $3,997,500, funds used in 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. 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.

 

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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, 2024.

 

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 Annual Report on Form 10-K for the year ended December 31, 2023 and in the footnotes to our financial statements included in this Quarterly Report on Form 10-Q for the nine months ended September 30, 2024. We consider our critical accounting policies to be those related to warrant accounting and complex debt instruments, 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, 2024, 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.

 

Item 4.  Controls and Procedures

 

Disclosure Controls and Procedures - Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report.

 

These controls are designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

 

Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were ineffective as of September 30, 2024. Our management identified the following material weaknesses in our internal control over financial reporting, which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.

 

We believe that our financial statements presented in this quarterly report on Form 10-Q fairly present, in all material respects, our financial position, results of operations, and cash flows for all periods presented herein.

 

Inherent Limitations - Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. In particular, many of our current processes rely upon manual reviews and processes to ensure that neither human error nor system weakness has resulted in erroneous reporting of financial data.

 

Changes in Internal Control over Financial Reporting - There were no changes in our internal control over financial reporting during the nine-month period ended September 30, 2024, which were identified in conjunction with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are not a party to any material pending legal proceedings. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

 

Item 1A: Risk Factors

 

In addition to the other information set forth in this Quarterly Report on Form 10-Q, carefully consider the risk factors described under the heading “Part I – Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Such risks described are not the only risks facing us. Additional risks and uncertainties not currently known to us, or that our management currently deems to be immaterial, also may adversely affect our business, financial condition, and/or operating results. There have been no material changes to those risk factors since their disclosure in our most recent Annual Report on Form 10-K.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933.

 

During the nine months ended September 30, 2024, the Company issued 14,047,021 shares of common stock, valued at fair market value on issuance as follows:

 

•450,000 shares for compensation to our directors valued at $109,485
•1,770,000 shares for settlement of debt valued at $279,660
•3,535,354 shares in conjunction with convertible notes valued at $597,777; and
•5,227,273 shares for exercise of warrants for $575,000
•3,064,394 shares for conversion of debt of $337,083

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

N/A

 

Item 5. Other Information

 

None

 

Item 6. Exhibits

 

   
Exhibit Number

Description of Exhibit

 

31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101** The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 formatted in Extensible Business Reporting Language (XBRL).
 

 

**Provided herewith

   

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Table of Contents 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on November 14, 2024 on its behalf by the undersigned thereunto duly authorized.

 

  IQSTEL INC.
     
  /s/Leandro Iglesias  
 

Leandro Iglesias

Principal Executive Officer

  
     
     
  /s/ Alvaro Quintana Cardona  
 

Alvaro Quintana Cardona

Principal Financial and Accounting Officer

 

 

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