iQSTEL Inc(IQST) - 2024 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements The unaudited consolidated financial statements for the nine months ended September 30, 2024, reflect significant revenue growth driven by the QXTEL acquisition, alongside increased liabilities, operating expenses, a wider net loss, and negative working capital, raising substantial doubt about going concern without additional financing Consolidated Balance Sheets As of September 30, 2024, total assets increased to $32.4 million from $22.2 million at year-end 2023, primarily due to a $5.5 million increase in goodwill from an acquisition and a $2.4 million rise in accounts receivable, while total liabilities grew to $24.3 million from $14.1 million, shifting working capital from a positive $1.88 million to a deficit of $4.40 million Consolidated Balance Sheet Highlights (Unaudited) | Account | Sep 30, 2024 | Dec 31, 2023 | Change | | :--- | :--- | :--- | :--- | | Total Current Assets | $19,664,986 | $15,719,172 | +$3,945,814 | | Goodwill | $10,677,045 | $5,172,146 | +$5,504,899 | | Total Assets | $32,439,118 | $22,155,653 | +$10,283,465 | | Total Current Liabilities | $24,066,234 | $13,840,944 | +$10,225,290 | | Total Liabilities | $24,349,820 | $14,109,781 | +$10,230,039 | | Total Stockholders' Equity | $8,089,298 | $8,045,872 | +$43,426 | Consolidated Statements of Operations For the nine months ended September 30, 2024, revenues increased by 89.6% year-over-year to $184.3 million, and despite a 95% increase in gross profit to $5.6 million, the company's net loss widened from $0.27 million to $3.32 million due to higher operating expenses, a significant rise in interest expense, and a loss from derivative liabilities Key Operational Results (Unaudited) | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Revenues | $184,346,412 | $97,248,561 | +89.6% | | Gross Profit | $5,608,725 | $3,029,723 | +85.1% | | Operating Loss | ($535,952) | ($499,495) | +7.3% | | Net Loss | ($3,317,107) | ($274,557) | +1108.2% | | Net Loss Attributed to iQSTEL Inc. | ($3,741,707) | ($639,143) | +485.4% | | Basic and Diluted Loss Per Share | ($0.02) | ($0.01) | -100% | Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, net cash used in operating activities increased to $2.5 million from $0.4 million in the prior-year period, with $3.0 million used in investing activities primarily for an acquisition, funded by $6.2 million in net cash from financing activities, resulting in an overall cash increase of $0.76 million Cash Flow Summary (Unaudited) | Activity | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($2,526,651) | ($434,701) | | Net Cash Used in Investing Activities | ($2,950,367) | ($340,583) | | Net Cash Provided by Financing Activities | $6,239,489 | $1,454,756 | | Net Change in Cash | $762,471 | $671,931 | Notes to the Consolidated Financial Statements Key notes detail the company's four-division structure with Telecom as the sole revenue source, the significant QXTEL acquisition, substantial financing activities, and management's going concern assessment due to recurring losses - The company operates through four business divisions: Telecom, Fintech, Electric Vehicle (EV), and AI-Enhanced Metaverse, with all revenues currently generated by the Telecom Division[25][27][28] - Due to recurring losses and insufficient revenue to cover operating costs, there is substantial doubt about the Company's ability to continue as a going concern, with continued operations dependent on raising additional capital[53][54] - On April 1, 2024, the company acquired 51% of QXTEL LIMITED for a total purchase price of $6.0 million, consisting of $3.0 million in cash, a $2.0 million promissory note, and a $1.0 million contingent liability, resulting in $5.5 million of goodwill[89][92][93] - Subsequent to the quarter's end, the company extended maturity dates on approximately $3.56 million of promissory notes and entered into an MOU to acquire the remaining 49% of its subsidiary SwissLink Carrier Ltd. for a valuation of $750,000[111][112][114] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the significant 89.56% year-over-year revenue growth for the first nine months of 2024, primarily attributed to the acquisition of QXTEL and organic growth, noting that while gross profit increased, operating expenses also rose substantially, leading to a wider net loss due to higher financing costs and a tightened liquidity position requiring additional financing Business Overview iQSTEL is a technology company with four business divisions: Telecommunications, Electric Vehicle (EV), Fintech, and AI-Enhanced Metaverse, where the Telecom division is the primary source of all current revenues and operations, while the other divisions are in developmental stages - The company has a global presence in 20 countries with over 100 employees[117] - The Telecom Division is the source for all of the company's revenues for the financial periods presented, offering services like VoIP, SMS, and IoT solutions through subsidiaries such as Etelix, SwissLink, and the newly acquired QXTEL[118] - The company is developing several pre-revenue business lines, including a Fintech platform (Global Money One), an EV motorcycle brand (EVOSS), and an AI-enhanced Metaverse solution (Reality Border)[121][122][123] Results of Operations For the nine months ended September 30, 2024, revenue grew 89.56% to $184.3 million, with QXTEL contributing $48.7 million, and despite an increase in gross profit to $5.6 million, operating expenses rose by $2.6 million to $6.1 million, leading to a net loss of $3.3 million driven by higher interest and derivative liability changes Revenue by Subsidiary (Nine Months Ended Sep 30) | Subsidiary | 2024 Revenue | 2023 Revenue | | :--- | :--- | :--- | | Etelix.com USA, LLC | $43,124,776 | $25,635,273 | | IoT Labs LLC | $70,525,343 | $53,279,140 | | QXTEL Limited | $48,676,228 | $0 | | Total (Consolidated) | $184,346,412 | $97,248,561 | - The Telecom Division, which generates all revenue, had a positive operating income of $1.5 million for the nine months ended Sep 30, 2024, offset by operating losses from pre-revenue companies and corporate expenses, resulting in a consolidated operating loss[139][140] - Other expenses for the nine months ended Sep 30, 2024, were $2.65 million, a significant shift from other income of $0.22 million in the prior year, primarily due to a $1.06 million loss on derivative liabilities and a $1.53 million interest expense[142] Liquidity and Capital Resources The company's liquidity has tightened, with working capital declining from a positive $1.9 million at the end of 2023 to a deficit of $4.4 million as of September 30, 2024, as operations used $2.5 million in cash and the QXTEL acquisition used an additional $2.7 million, funded by $6.2 million raised from financing, primarily through convertible notes, with management intending to seek additional debt or equity financing - The company had a negative working capital of $4,401,248 as of September 30, 2024, compared to a positive working capital of $1,878,228 at December 31, 2023[145] - Cash used in investing activities for the nine months ended Sep 30, 2024 was $2.95 million, primarily for the $2.73 million acquisition of QXTEL[146] - Financing activities provided $6.24 million in cash, largely from proceeds from convertible notes ($4.0 million) used to fund the QXTEL acquisition[147] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were ineffective as of September 30, 2024, based on the identification of material weaknesses in internal control over financial reporting - The identified material weaknesses are: (i) inadequate segregation of duties and effective risk assessment, and (ii) insufficient written policies and procedures for accounting and financial reporting under US GAAP and SEC guidelines[158] - No changes were made to the internal control over financial reporting during the nine-month period that have materially affected, or are reasonably likely to materially affect, the internal controls[161] PART II – OTHER INFORMATION Key Disclosures The company reports no material pending legal proceedings and no material changes to its previously disclosed risk factors, while during the first nine months of 2024, it issued over 14 million shares of common stock through unregistered sales for director compensation, debt settlement, convertible notes, and warrant exercises - The company is not a party to any material pending legal proceedings[163] - There have been no material changes to the risk factors disclosed in the company's most recent Annual Report on Form 10-K[164] - During the nine months ended September 30, 2024, the company issued 14,047,021 shares of common stock in unregistered transactions for purposes including compensation, debt settlement/conversion, and warrant exercises[165][166]