iQSTEL Inc(IQST) - 2024 Q4 - Annual Report

Part I: Business and Risk Factors Business Overview IQSTEL Inc. is a technology company operating through four main divisions: Telecommunications, Fintech, Electric Vehicles (EV), and an AI-Enhanced Metaverse. The Telecom division, comprising voice, SMS, and IoT services, is the sole source of revenue, generating 100% of the company's income for the reported periods. The other divisions, including a blockchain-based mobile number portability application, a fintech ecosystem, an EV motorcycle line, and a metaverse platform, are all in pre-revenue or development stages. The company has a global presence in 20 countries and pursues growth both organically and through strategic mergers and acquisitions Company Description and Business Divisions - IQSTEL operates through four business divisions: Telecommunications, Electric Vehicle (EV), Fintech, and an AI-Enhanced Metaverse. The company has a presence in 20 countries with over 100 employees[18] - The Telecommunications division currently generates 100% of the company's revenues, while the Fintech, EV, and Metaverse divisions are in a pre-revenue stage[20][31] - The company's developing business lines include a Fintech ecosystem (Global Money One), an EV line (EVOSS), and an AI-enhanced Metaverse platform (Reality Border) for corporations and telecom carriers[22][23][24] Operating Subsidiaries and Services Voice Services Performance (2023 vs. 2024) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Voice Revenue | $187.2 million | $67.7 million | +176.5% | | % of Total Revenue | 66.09% | 46.85% | N/A | | Minutes Carried | 5.2 billion | 4.2 billion | +23.81% | SMS Services Performance (2023 vs. 2024) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | % of Total Revenue | 33.91% | 53.15% | N/A | | Gross Margin | 1.93% | 0.62% | +211% | | SMS Carried | 13.9 billion | 11.3 billion | +32.94% | - The company's developing itsBchain subsidiary is testing a mobile number portability solution targeting a market estimated at over $86 million per year across 35 countries[54][57][59] - The developing EV division is awaiting European Union E-Mark certification for its new electric motorcycle before beginning manufacturing and sales[62] Regulations and Corporate History - The company's US telecom operations are regulated by the FCC, holding a Section 214 license through its subsidiary Etelix.com USA, LLC. It is also subject to Universal Service Fund contributions[64][66][68] - The company has grown significantly through acquisitions, including SwissLink (2019), QGlobal (2020), Whisl and Smartbiz (2022), and QXTEL (2024)[77][78][83][86] - In March 2025, the company signed non-binding MOUs to potentially sell its 75% interest in ItsBchain, LLC to Accredited Solutions, Inc. and to purchase a 51% equity interest in GlobeTopper, LLC[89][92] Risk Factors The company faces significant risks, highlighted by an auditor's going concern opinion due to a history of losses and dependence on external financing. Key risks include intense price competition in the telecom sector, high customer concentration, and potential network disruptions from cyber-attacks. Furthermore, the company has identified material weaknesses in its internal financial controls, and its two largest shareholders exercise majority voting control through Series A Preferred Stock, which could influence corporate matters - The auditor has issued a going concern opinion, citing a history of losses with an accumulated deficit of $32.7 million as of December 31, 2024, and dependence on obtaining financing to continue operations[99] - The company faces intense price competition in the telecommunications industry, and the growth of free Over-The-Top (OTT) services like WhatsApp could adversely affect its traditional service offerings[119][120] - There is a significant customer concentration risk, with the 27 largest customers accounting for 89% of total consolidated revenues in fiscal year 2024[125] - Management identified material weaknesses in internal controls, including inadequate segregation of duties and insufficient written accounting policies[162] - The two largest shareholders, Leandro Iglesias and Alvaro Quintana, hold Series A Preferred Stock that gives them 51% of the total shareholder vote, allowing them to exercise significant influence over all corporate matters[172] Cybersecurity The company acknowledges cybersecurity as a principal enterprise-wide risk, given its role in transmitting large amounts of data globally. It has implemented risk management procedures, including monitoring, anti-malware applications, and employee training, overseen by the Head of IT who reports to the CEO. As of year-end 2024, no cybersecurity incidents with a material impact on the business or financial statements have been identified - Cybersecurity is considered a principal enterprise-wide risk, with management dedicating resources to identify, assess, and mitigate threats[184] - The company has implemented cybersecurity risk management procedures, including monitoring, detection activities, and employee training, with oversight provided by the Head of IT[187][188] - As of December 31, 2024, the company has not identified any cybersecurity incident that would have a material impact on its business or consolidated financial statements[189] Part II: Market, Operations, and Financial Condition Market for Common Equity and Related Matters The company's common stock is quoted on the OTCQX under the symbol "IQST". A limited market exists, and the stock is subject to "penny stock" regulations. The company has never paid dividends and does not anticipate doing so in the foreseeable future. In 2024, the company issued over 30 million shares of unregistered common stock for purposes including compensation, debt settlement, and warrant exercises Quarterly Common Stock Price Range ($) | Quarter Ended | 2024 High | 2024 Low | 2023 High | 2023 Low | | :--- | :--- | :--- | :--- | :--- | | March 31 | 0.3950 | 0.3500 | 0.1549 | 0.1425 | | June 30 | 0.2828 | 0.2470 | 0.1340 | 0.1130 | | September 30 | 0.1790 | 0.1630 | 0.2250 | 0.2160 | | December 31 | 0.3094 | 0.2650 | 0.1550 | 0.1440 | - The company has never declared or paid cash dividends on its common stock and does not anticipate paying any in the foreseeable future[204] - During the year ended December 31, 2024, the Company issued 30,847,055 shares of common stock for various purposes, including compensation, debt settlement, conversions, and warrant exercises[206][207] Management's Discussion and Analysis (MD&A) In fiscal year 2024, consolidated revenues grew 96% to $283.2 million, driven by both organic growth (38%) and the acquisition of QXTEL (62%). Gross margin increased by 77% to $8.3 million. However, operating expenses rose 82.6% to $9.1 million, largely due to the QXTEL integration, leading to a consolidated net loss of $5.2 million, up from $0.2 million in 2023. The profitable Telecom division, with a net income of $1.7 million, was offset by losses from pre-revenue ventures and corporate overhead. The company reported negative working capital and stated it lacks sufficient cash for the next 12 months, raising substantial doubt about its ability to continue as a going concern Results of Operations Consolidated Results of Operations (2024 vs. 2023) | Metric | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Revenue | $283,220,442 | $144,502,351 | +96.0% | | Cost of Revenue | $274,948,693 | $139,830,338 | +96.6% | | Gross Margin | $8,271,749 | $4,672,013 | +77.1% | | Operating Expenses | $9,105,813 | $4,987,516 | +82.6% | | Net Loss | ($5,180,036) | ($219,436) | +2260.6% | - The 96% revenue increase was driven 38% by organic growth and 62% by the acquisition of QXTEL Inc[212] - The Telecom Division, which generates all revenue, remains profitable with a net income of $1.71 million in 2024, a 33% increase from 2023. The consolidated net loss is driven by pre-revenue divisions and corporate holding expenses, including financing costs for the QXTEL acquisition[222][223][224][225] Liquidity and Capital Resources - As of December 31, 2024, the company had a negative working capital of $806,150, with current assets of $63.0 million and current liabilities of $63.8 million[232] Summary of Cash Flows (2024 vs. 2023) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(2,930,306) | $(1,483,801) | | Net cash used in investing activities | $(3,162,971) | $(332,550) | | Net cash provided by financing activities | $7,240,966 | $1,833,965 | - Management states the company does not have sufficient cash to operate for the next twelve months and is dependent on obtaining additional financing, which raises substantial doubt about its ability to continue as a going concern[238] Financial Statements and Supplementary Data The audited consolidated financial statements for the years ended December 31, 2024, and 2023, are presented. The independent auditor's report includes a "Going Concern" uncertainty paragraph, citing recurring losses and negative working capital. Critical audit matters identified were Revenue Recognition and the Going Concern assessment. Key financial data shows a significant increase in assets and liabilities, primarily due to the QXTEL acquisition. The company's net loss widened considerably in 2024, and subsequent events include non-binding MOUs for the potential sale of itsBchain and acquisition of GlobeTopper - The independent auditor's report contains a paragraph expressing substantial doubt about the Company's ability to continue as a going concern due to recurring losses and negative working capital[247][255] - The auditor identified two Critical Audit Matters: Revenue Recognition, due to significant judgment in determining the timing of recognition, and Going Concern, due to the uncertainty of future financing[252][255] Consolidated Balance Sheet Highlights (As of Dec 31) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Total Assets | $79,007,738 | $22,155,653 | | Total Liabilities | $67,107,475 | $14,109,781 | | Total Stockholders' Equity | $11,900,263 | $8,045,872 | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Revenues | $283,220,442 | $144,502,351 | | Gross Profit | $8,271,749 | $4,672,013 | | Net Loss | ($5,180,036) | ($219,436) | | Basic and Diluted EPS | ($0.04) | ($0.01) | - Subsequent to year-end, the company signed non-binding MOUs to sell its 75% interest in ItsBchain, LLC for $1 million in cash and stock, and to purchase a 51% interest in GlobeTopper, LLC for $700,000 in cash and stock[404][407] Controls and Procedures Management concluded that as of December 31, 2024, the company's disclosure controls and procedures were ineffective. This was due to identified material weaknesses in internal control over financial reporting, specifically: inadequate segregation of duties and risk assessment, and insufficient written accounting policies. The company plans to remediate these weaknesses by hiring additional qualified personnel and adopting formal policies, contingent upon securing additional financing - Management concluded that the company's disclosure controls and procedures were ineffective as of December 31, 2024[415] - Material weaknesses in internal control were identified: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting[416] - Remediation efforts, which include hiring more staff and adopting new policies, are largely dependent on the company securing additional financing[417] Part III: Governance and Compensation Directors, Executive Officers and Corporate Governance The company is led by CEO Leandro Iglesias and COO/CFO Alvaro Quintana Cardona, both of whom serve on the five-member Board of Directors. The Board has established Audit, Compensation, and Nominating and Governance Committees, comprised of three independent directors. The company has adopted a Code of Business Conduct and Ethics, which is available on its website - The executive team is led by Leandro Iglesias (President, Chairman, CEO) and Alvaro Quintana Cardona (COO, CFO). Both are also directors[425] - The Board has established an Audit Committee, a Compensation Committee, and a Nominating and Governance Committee, each composed of three independent directors: Raul Perez, Italo Segnini, and Jose Antonio Barreto[450][451][453] - The company has adopted a Code of Business Conduct and Ethics applicable to all directors, officers, and employees[456] Executive Compensation Executive compensation is primarily composed of base salaries and potential bonuses tied to net income and stock awards, as determined by the board. In 2024, CEO Leandro Iglesias's salary was $432,000 and CFO Alvaro Quintana's was $324,000. New five-year employment agreements effective January 1, 2024, increased their monthly salaries and outlined performance-based bonuses. Director compensation includes a monthly cash fee and stock, with an additional bonus potential tied to net income Executive Compensation Summary (2024 vs. 2023) | Name and Position | Year | Salary ($) | Total ($) | | :--- | :--- | :--- | :--- | | Leandro Iglesias | 2024 | 432,000 | 432,000 | | President, CEO and Director | 2023 | 240,000 | 240,000 | | Alvaro Quintana | 2024 | 324,000 | 324,000 | | Treasury, Secretary and Director | 2023 | 144,000 | 144,000 | - Effective January 1, 2024, new five-year employment agreements were established for the CEO and CFO, increasing their base salaries and outlining annual bonuses based on salary, net income, and common stock awards[466][467][470] - Effective January 1, 2024, non-employee directors are compensated with a monthly fee of $2,500 and 10,000 shares of common stock, plus a potential annual bonus of up to 1% of net income[475][476] Security Ownership As of March 24, 2025, the company's executive officers and directors as a group beneficially owned approximately 1.85% of the outstanding common stock. However, through their ownership of 100% of the Series A Preferred Stock, CEO Leandro Iglesias (70%) and CFO Alvaro Quintana (30%) collectively control 51% of the total voting power of the company's stockholders, giving them significant influence over all corporate matters Beneficial Ownership of Directors and Executive Officers (as of March 24, 2025) | Name of Beneficial Owner | Common Stock Owned | % of Class (Common) | Series A Preferred Stock Owned | % of Class (Series A) | | :--- | :--- | :--- | :--- | :--- | | Leandro Iglesias | 2,095,363 | 0.99% | 7,000 | 70.00% | | Alvaro Quintana Cardona | 1,331,842 | 0.63% | 3,000 | 30.00% | | All Directors & Officers (5) | 3,907,205 | 1.85% | 10,000 | 100.00% | - Holders of Series A Preferred Stock are entitled to vote at a rate of 51% of the total vote of stockholders, effectively giving Leandro Iglesias and Alvaro Quintana Cardona majority voting control[172][374] Principal Accountant Fees and Services The company's audit fees increased from $175,000 in 2023 to $240,000 in 2024. Audit-related fees were minimal in both years, and no tax or other fees were billed by the principal auditor Accountant Fees (2023 vs. 2024) | Fee Category | 2024 | 2023 | | :--- | :--- | :--- | | Audit Services | $240,000 | $175,000 | | Audit Related Fees | $7,511 | $11,800 | | Tax Fees | $0 | $0 | | Other Fees | $0 | $0 | Part IV: Exhibits and Schedules Exhibits and Financial Statement Schedules This section lists the financial statements included in Item 8 and provides a comprehensive list of all exhibits filed with the Form 10-K. These exhibits include various agreements such as purchase agreements, debt instruments, employment contracts, and corporate governance documents, as well as required certifications - This section references the financial statements detailed in Item 8 and lists all exhibits filed with the annual report[492] - Filed exhibits include key corporate documents such as the Share Purchase Agreement for QXTEL, employment agreements for executive officers, various debt and equity financing agreements, and required SEC certifications[493]