iQSTEL Inc(IQST) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1: Financial Statements This section presents IQSTEL Inc.'s unaudited consolidated financial statements for Q2 2025, covering balance sheets, operations, equity, and cash flows, with detailed notes Consolidated Balance Sheets Total assets and liabilities significantly decreased from December 2024 to June 2025, primarily due to reductions in accounts receivable and accrued liabilities, while stockholders' equity increased | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Total Assets | $51,408,498 | $79,007,738 | | Total Liabilities | $37,120,498 | $67,107,475 | | Total Stockholders' Equity | $14,288,000 | $11,900,263 | | Current Assets | $35,555,030 | $63,015,046 | | Current Liabilities | $36,843,884 | $63,821,196 | - Accounts receivable, net decreased from $57,158,967 at December 31, 2024, to $30,627,972 at June 30, 2025[12] - Accrued and other current liabilities significantly decreased from $55,624,784 at December 31, 2024, to $20,572,944 at June 30, 2025[12] Consolidated Statements of Operations The company reported a wider net loss for both the three and six months ended June 30, 2025, compared to 2024, driven by higher operating and other expenses despite slightly decreased revenues | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenues | $72,183,236 | $78,635,764 | $129,816,052 | $130,050,642 | | Gross profit | $1,871,487 | $2,163,624 | $3,806,445 | $3,542,650 | | Operating loss | $(656,229) | $(342,103) | $(1,260,455) | $(525,555) | | Net loss | $(2,348,914) | $(1,963,887) | $(3,493,375) | $(2,544,103) | | Basic and diluted loss per common share | $(0.82) | $(0.90) | $(1.28) | $(1.28) | - Revenues decreased by 8.21% for the three months and 0.18% for the six months ended June 30, 2025, compared to the same periods in 2024[145] - Operating loss widened significantly for both the three-month (from $(342,103) to $(656,229)) and six-month (from $(525,555) to $(1,260,455)) periods ended June 30, 2025, compared to 2024[15] Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased from December 2024 to June 2025, primarily due to common stock issuances for compensation, debt conversion, and settlement, partially offset by net losses | Metric | December 31, 2024 | June 30, 2025 | | :----------------------------------- | :---------------- | :------------ | | Total Stockholders' Equity | $11,900,263 | $14,288,000 | | Common Stock Shares Issued & Outstanding | 2,537,209 | 3,504,454 | | Additional Paid-in Capital | $39,943,924 | $45,961,191 | | Accumulated Deficit | $(32,703,410) | $(36,405,475) | - During the six months ended June 30, 2025, the company issued 967,245 shares of common stock for compensation ($55,198), conversion of debt ($3,227,904), and settlement of debt ($1,886,658)[87][88] - The company also issued 6,571 shares of Series B Preferred Stock to settle salary payable for its CEO and CFO, resulting in a loss on settlement of salary payable of $216,981[91][101] Consolidated Statements of Cash Flows Cash used in operating activities decreased significantly, investing outflows dropped sharply, and financing activities provided less cash, indicating a shift towards working capital management | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------------------------- | :--------------------------- | :--------------------------- | | Net cash used in operating activities | $(1,649,283) | $(3,151,688) | | Net cash used in investing activities | $(173,812) | $(2,720,197) | | Net cash provided by financing activities | $1,351,026 | $5,306,444 | | Net change in cash | $(472,069) | $(565,441) | | Cash, end of period | $2,038,288 | $797,227 | - Operating cash burn decreased due to favorable working capital changes, especially accounts receivable and accounts payable, despite a larger net loss[175] - Investing outflows dropped sharply, indicating a pause in the company's M&A campaign, with acquisitions of subsidiaries decreasing from $2,505,121 in 2024 to $50,000 in 2025[21][176] - Financing inflows dropped significantly, indicating reduced reliance on equity and convertible debt, with proceeds from convertible notes decreasing from $3,722,500 in 2024 to $987,500 in 2025[21][176] Notes to the Unaudited Consolidated Financial Statements These notes detail the company's business, accounting policies, financial health, and specific financial items, including diverse business divisions, a reverse stock split, credit risk, and going concern uncertainty NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS IQSTEL Inc. is a technology company operating in 20 countries with four main business divisions: Telecom, Fintech, Electric Vehicle (EV), and AI-Enhanced Metaverse, with Telecom being the primary revenue source - IQSTEL Inc. operates in 20 countries with approximately 100 employees, offering services through four business divisions: Telecom, Fintech, Electric Vehicle (EV), and AI-Enhanced Metaverse[25] - The Telecom Division is the majority of current operations and the sole source of revenue, providing VoIP, SMS, IoT solutions, and international fiber-optic connectivity[26] - Developing business lines include a Blockchain Platform (Mobile Number Portability Application), Fintech (MasterCard Debit Card, US Bank Account, Mobile App/Wallet for immigrants), Electric Vehicle (electric motorcycles and EV Mid Speed Car development), and AI-Enhanced Metaverse (white-label immersive content services with AI-powered NPCs)[27][28][29][30] NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This section outlines the company's accounting policies, including interim financial statement presentation, consolidation, a retroactive 1-for-80 reverse stock split, and ASC 606 revenue recognition for telecommunication services - The company's consolidated financial statements include its wholly-owned subsidiaries: Etelix.com USA, LLC, SwissLink Carrier AG, ITSBCHAIN, LLC, QGLOBAL SMS, LLC, IoT Labs, LLC, Global Money One Inc, Whisl Telecom LLC, Smartbiz Telecom LLC, and QXTEL LIMITED[34] - A 1-for-80 reverse stock split was effective on May 2, 2025, retroactively adjusting all share and per share information in the financial statements[35][36] - Revenue from telecommunication services (usage charges and other recurring charges) is recognized over time in accordance with ASC 606, as the customer receives and consumes benefits as the service is performed[51][53][56] - The company has significant concentrations of credit risk, with 25 customers representing 86.05% of revenue for the six months ended June 30, 2025, and approximately 80% of total accounts receivable concentrated in the top 30 customers[42][43] NOTE 3 - GOING CONCERN Recurring losses, negative working capital, and insufficient revenue raise substantial doubt about the company's ability to continue as a going concern, necessitating additional capital - The company has suffered recurring losses from operations, negative working capital, and lacks an established revenue source sufficient to cover operating costs, raising substantial doubt about its ability to continue as a going concern[59] - Future cash requirements relate to ongoing business development, maintaining industry standing, and marketing efforts, potentially leading to a cash shortfall[60] - The company plans to raise additional capital through future public or private offerings of stock or loans, but there is no assurance such financing will be available on acceptable terms[61] NOTE 4 – PREPAID AND OTHER CURRENT ASSETS Prepaid and other current assets decreased from December 2024 to June 2025, primarily due to a reduction in prepaid expenses | Category | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :---------------- | | Prepaid expenses | $1,453,912 | $2,020,288 | | Other receivable | $110,070 | $115,685 | | Tax receivable | $77,589 | $42,673 | | Total | $2,148,774 | $2,684,349 | NOTE 5 – PROPERTY AND EQUIPMENT Net property and equipment slightly increased from December 2024 to June 2025, driven by telecommunication software and other equipment, partially offset by depreciation | Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Telecommunication equipment | $709,417 | $709,417 | | Telecommunication software | $784,425 | $690,742 | | Other equipment | $157,441 | $155,935 | | Total property and equipment | $1,651,283 | $1,556,094 | | Accumulated depreciation | $(1,041,890) | $(994,292) | | Net property and equipment | $609,393 | $561,802 | - Depreciation expense for the six months ended June 30, 2025, was $47,598, a decrease from $68,939 in the same period of 2024[65] NOTE 6 – INTANGIBLE ASSETS Net intangible assets decreased from December 2024 to June 2025, primarily due to amortization of interconnection agreements | Category | June 30, 2025 (Net) | December 31, 2024 (Net) | | :-------------------------- | :------------------ | :-------------------- | | New gas regulator intangible | $99,592 | $99,592 | | Interconnection agreements | $7,098,436 | $7,339,062 | | Total Intangible Assets | $7,198,028 | $7,438,654 | - Amortization expense for the six months ended June 30, 2025, was $240,626, compared to $0 in the same period of 2024[66] Estimated Future Amortization Expense as of June 30, 2025 | Year | Amount | | :---------------------- | :----------- | | 2025 (6 months remaining) | $240,624 | | 2026 | $481,250 | | 2027 | $481,250 | | 2028 | $481,250 | | 2029 | $481,250 | | Thereafter | $4,932,812 | | Total | $7,098,436 | NOTE 7 – ACCRUED AND OTHER CURRENT LIABILITIES Accrued and other current liabilities significantly decreased from December 2024 to June 2025, primarily due to a substantial reduction in cost provision | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Cost provision | $18,442,141 | $53,939,336 | | Accrued liabilities | $1,329,285 | $928,858 | | Salary payable - management | $172,946 | $420,447 | | Total | $20,572,944 | $55,624,784 | NOTE 8 - LOANS PAYABLE Total loans payable (net of discount) increased from December 2024 to June 2025, with new borrowings from third parties and a decrease in related party loans | Category | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Total loans payable (net of discount) | $4,455,875 | $2,455,641 | | Loans payable - related parties | $352,007 | $720,485 | - During the six months ended June 30, 2025, the company borrowed $3,215,000 from third parties and repaid $1,260,562[70] - The company settled notes payable by issuing 264,980 shares of common stock, resulting in a loss on settlement of debt of $801,255[72] NOTE 9 - CONVERTIBLE LOANS Total convertible notes (net of discount) decreased from December 2024 to June 2025, primarily due to significant conversions into common stock and cash settlements, despite new borrowings | Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Total convertible notes | $2,082,673 | $4,876,358 | | Current portion | $2,082,673 | $1,864,432 | | Long-term convertible notes | $0 | $3,011,926 | - During the six months ended June 30, 2025, one note holder converted $3,222,222 in principal and accrued interest into 694,914 shares of common stock[76] - The company settled $671,870 in principal of convertible notes by paying $725,000 cash, resulting in a loss on settlement of debt of $77,337[76] - New convertible notes totaling $1,113,316 were borrowed in fiscal year 2025, with interest rates ranging from 14% to 24% and various payment/conversion terms[77][78] NOTE 10 – STOCK PURCHASE OPTION A Common Stock Purchase Option issued to ADI Funding LLC expired unexercised, having no financial statement impact as the company did not receive the funds - A Common Stock Purchase Option for $100,000, granting the right to acquire up to 187,500 shares, was issued to ADI Funding LLC on January 14, 2025, and expired on July 14, 2025[85] - The company did not receive the $100,000, and the options were not exercised, resulting in no impact on the financial statements as of June 30, 2025[85] NOTE 11 – STOCKHOLDERS' EQUITY Common stock outstanding increased due to a reverse stock split adjustment and issuances for compensation, debt conversion, and settlement, with details on various Preferred Stock series - A 1-for-80 reverse stock split was approved and became effective on May 2, 2025, reducing authorized common stock from 300,000,000 to 3,750,000 shares[86] - As of June 30, 2025, 3,504,454 common shares were issued and outstanding, up from 2,537,209 at December 31, 2024[87] - Series A Preferred Stock holders have 51% of total stockholder voting rights and participate equally with common stock in distributions[89] - Series B Preferred Stock holders have a $81 per share liquidation preference, 24% annual dividends, no voting rights, and can convert to common stock after 12 months at a 12.5:1 ratio[90] - Series C and D Preferred Stock have specific liquidation preferences and conversion rights but no voting rights, with no Series C or D shares issued/outstanding as of December 31, 2024[92][94][95][96] NOTE 12 - RELATED PARTY TRANSACTIONS The company has unsecured, non-interest bearing, due-on-demand amounts due from and to related parties, with employment agreements allowing CEO/CFO salary conversion into stock | Category | June 30, 2025 | December 31, 2024 | | :----------------------- | :------------ | :---------------- | | Due from related parties | $659,338 | $630,715 | | Due to related parties | $26,613 | $26,613 | | Management salaries | $549,000 (6 months) | $423,000 (6 months) | | Stock-based compensation | $55,198 (6 months) | $77,665 (6 months) | - Amended employment agreements allow the CEO and CFO to convert accrued salary/bonus into common stock (at a 25% discount to 10-day average VWAP) or Series B Preferred Stock (at a further 12.5:1 ratio)[100] - During the six months ended June 30, 2025, 6,571 shares of Series B Preferred Stock were issued to settle $631,500 of CEO and CFO salary payable, resulting in a $216,981 loss on settlement[101] NOTE 13 – COMMITMENTS AND CONTINGENCIES The company has no long-term leases, contracts, or commitments, only short-term facility leases, with rent expense for the six months ended June 30, 2025, being $14,324 - The company has not entered into any long-term leases, contracts, or commitments, only 12-month facility leases[104] - Rent expense for the six months ended June 30, 2025, was $14,324, compared to $14,028 for the same period in 2024[104] NOTE 14 - SEGMENT The company operates in one industry segment (telecommunication services) across three geographic segments (USA, UK, and Switzerland), with the Telecom Division remaining the primary revenue generator - The company operates in one industry segment (telecommunication services) and three geographic segments (USA, UK, Switzerland)[105] Revenues by Geographic Segment (Six Months Ended June 30) | Segment | 2025 | 2024 | | :---------- | :----------- | :----------- | | USA | $78,290,551 | $99,044,789 | | Switzerland | $10,589,061 | $2,062,716 | | UK | $66,270,084 | $31,474,055 | | Elimination | $(25,333,644) | $(2,530,918) | | Total | $129,816,052 | $130,050,642 | Gross Profit by Geographic Segment (Six Months Ended June 30) | Segment | 2025 | 2024 | | :---------- | :----------- | :----------- | | USA | $1,608,845 | $2,156,479 | | Switzerland | $460,743 | $342,473 | | UK | $1,959,492 | $1,043,698 | | Elimination | $(222,635) | $0 | | Total | $3,806,445 | $3,542,650 | NOTE 15 – SUBSEQUENT EVENTS Subsequent events include the potential sale of ItsBchain, acquisition of Globetopper, debt exchange for Series D Preferred Stock, and a non-binding MOU with Cycurion Inc. for AI-powered cybersecurity - The company signed a non-binding MOU to potentially sell its 75% equity interest in ItsBchain, LLC to Accredited Solutions, Inc. (ASII), with the expiration date extended to September 30, 2025[111] - An agreement was made to acquire 51% of Globetopper, LLC for $700,000 (cash and restricted common shares), with additional payments based on EBITDA growth and a $1,200,000 investment over 24 months[112][113][114][115] - On July 3, 2025, $3,546,136 in outstanding debt was exchanged for 37,110 shares of newly amended Series D Preferred Stock, which now includes a 12% cumulative dividend, conversion rights after three months, and a 10% leak-out restriction on sales[117][119][121][126] - A non-binding MOU was signed with Cycurion Inc. to explore a $1,000,000 stock exchange transaction and expand strategic partnership in AI-powered cybersecurity services[122][123][124] Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, noting slight revenue decrease but increased gross profit due to synergies, widened operating losses from growth investments, and a focus on consolidation and cash preservation Overview IQSTEL Inc. is a global technology company with four divisions: telecommunications, EV, fintech, and AI-enhanced metaverse, with Telecom as the main revenue source and a strategy of leveraging synergies and AI - IQSTEL Inc. operates globally in 20 countries with offices in USA, Argentina, UK, Switzerland, Turkey, and Dubai, maintaining over 603 network interconnections[128] - The Telecom Division is the main revenue source, offering VoIP, SMS, IoT solutions, and international fiber-optic connectivity through subsidiaries like Etelix and SwissLink Carrier[129] - Developing business lines include a Blockchain Platform (MNPA), Fintech (MasterCard Debit Card, US Bank Account, Mobile App/Wallet), Electric Vehicle (electric motorcycles, EV Mid Speed Car), and AI-Enhanced Metaverse (white-label immersive content with AI-powered NPCs for dynamic interaction and sales assistance)[130][131][132][134][135][136][137][138] Methods of Valuation The company uses non-GAAP measures, Adjusted EBITDA and gross revenue, to evaluate performance, with Adjusted EBITDA excluding non-operational items for core performance and gross revenue measuring operational scale - The company uses non-GAAP financial measures: Adjusted EBITDA and gross revenue, to supplement GAAP financial information[140] - Adjusted EBITDA excludes interest expenses, taxes, depreciation, amortization, change in fair value of derivative liabilities, loss on settlement of debt, stock-based compensation, FX gains/losses, and other non-recurrent expenses to provide a clearer view of cash-generating potential[143][147][171] - Gross revenue (revenue before intercompany eliminations) is used to measure the scale of operations, monitor revenue trends, and evaluate sales and marketing effectiveness[144] Results of Operations Consolidated revenue slightly decreased, but gross profit increased due to synergies; operating expenses rose from QXTEL consolidation and investments, leading to wider operating and net losses, mainly from holding entity financial expenses Revenues Consolidated revenue slightly decreased, but gross revenues (pre-elimination) increased, reflecting organic growth and strategic optimization through intercompany transactions | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total Revenue | $72,183,236 | $78,635,764 | $129,816,052 | $130,050,642 | | Gross Revenues (pre-elimination) | $84,107,739 | $79,434,384 | $155,149,696 | $132,581,560 | | Intercompany eliminations | $(11,924,503) | $(798,620) | $(25,333,644) | $(2,530,918) | - Consolidated revenues decreased by 8.21% for the three months and 0.18% for the six months ended June 30, 2025, compared to the prior year[145] - Gross revenues increased by 6% for the three months and 17% for the six months ended June 30, 2025, year-over-year, indicating strong organic growth (100% of total revenue)[148][150] Cost of Revenue Total cost of revenue decreased, aligning with revenue trends, while QXTEL's inclusion and portfolio restructuring led to significant intercompany transactions for cost efficiency | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total Cost of Revenue | $70,311,749 | $76,472,140 | $126,009,607 | $126,507,992 | | Cost of Revenue (pre-elimination) | $82,025,514 | $77,270,760 | $151,120,616 | $129,038,910 | | Intercompany eliminations | $(11,713,765) | $(798,620) | $(25,111,009) | $(2,530,918) | - Cost of revenue decreased by 8.05% for the three months and 0.39% for the six months ended June 30, 2025, compared to the prior year[151] - The inclusion of QXTEL and portfolio restructuring among subsidiaries resulted in a significant volume of intercompany transactions, aimed at optimizing routing and cost efficiency[154] Gross Margin Gross profit increased by 7.45% for the six months ended June 30, 2025, reaching $3,806,445, with the consolidated gross margin percentage rising to 2.93% due to intercompany synergies | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | | Gross profit | $3,806,445 | $3,542,650 | | Consolidated Gross Margin % | 2.93% | 2.72% | - Gross profit increased by 7.45% for the six months ended June 30, 2025, compared to the same period in 2024[156][157] - The increase in gross profit and margin is attributed to commercial and operational synergies achieved through intercompany collaboration and integrated service portfolio[157] Operating Expenses Total operating expenses, primarily general and administrative costs, increased by 24.55% for the six months ended June 30, 2025, due to QXTEL's full consolidation and investments in technology and salaries | Category | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | | Total Operating Expense | $5,066,900 | $4,068,205 | | Salaries, wages and benefits | $2,067,038 | $1,143,692 | | Technology | $692,509 | $542,140 | | Professional fees | $562,834 | $1,064,047 | | Depreciation and amortization | $288,224 | $68,939 | - Operating expenses increased by 24.55% for the six months ended June 30, 2025, compared to the same period in 2024[158] - The increase is largely due to the full consolidation of QXTEL's expenses for the entire six-month period in 2025, compared to only three months in 2024, and investments in technology and salaries[159][160] Operating Income/Loss The operating loss widened to $1,260,455 for the six months ended June 30, 2025, reflecting increased operating expenses from development and growth initiatives, though the Telecom Division remained profitable | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Consolidated Operating loss | $(656,229) | $(342,103) | $(1,260,455) | $(525,555) | | Telecom Division Operating income | $465,911 | $424,746 | $732,564 | $909,370 | | IQSTEL Operating loss | $(1,121,703) | $(762,731) | $(1,991,149) | $(1,420,141) | - The operating loss increased due to an overall rise in operating expenses associated with ongoing investments in development and growth initiatives[162] - The Telecom Division continued to generate positive Operating Income, serving as a growth engine for the development and expansion of new business lines[163][164] Other Expenses/Other Income Other expenses increased for both the three and six months ended June 30, 2025, primarily due to a higher loss on settlement of debt and increased interest expenses | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total other expense | $(1,600,989) | $(1,556,509) | $(2,120,649) | $(1,953,273) | | Loss on settlement of debt | $(878,592) | $0 | $(878,592) | $(102,660) | | Interest expense | $(459,118) | $(496,080) | $(990,844) | $(861,554) | - The increase in other expenses for the six months ended June 30, 2025, is mainly due to a higher loss on settlement of debt and increased interest expenses[166] Net Loss The net loss widened to $3,493,375 for the six months ended June 30, 2025, largely influenced by significant interest and other financial expenses at the IQSTEL holding entity level | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Consolidated Net loss | $(2,348,914) | $(1,963,887) | $(3,493,375) | $(2,544,103) | | Telecom Division Net income (loss) | $321,321 | $(809,767) | $568,609 | $(580,216) | | IQSTEL Net loss | $(2,669,798) | $(762,731) | $(4,060,114) | $(1,420,141) | - The net loss is significantly impacted by high interest and other financial expenses incurred by the IQSTEL holding entity, related to funds borrowed for acquisitions like QXTEL Limited[168] - The Telecom Division, the primary revenue-generating division, maintains a positive operating income, supporting the development of new business lines[169] Liquidity and Capital Resources As of June 30, 2025, the company had negative working capital, with improved operating cash flow but decreased investing and financing inflows, indicating a shift to consolidation and non-cash financing | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Total Current Assets | $35,555,030 | $63,015,046 | | Total Current Liabilities | $36,843,884 | $63,821,196 | | Working Capital | $(1,288,854) | $(806,150) | - Operating activities used $1,649,283 in cash for the six months ended June 30, 2025, a decrease from $3,151,688 used in the same period of 2024, despite a larger net loss[175] - Investing activities used $173,812, down from $2,720,197, indicating a pause in M&A. Financing activities provided $1,351,026, down from $5,306,444, showing reduced reliance on equity and convertible debt[176] - The company is shifting from aggressive expansion to consolidation and cash preservation, relying heavily on working capital management and non-cash financing tools[177] Inflation Management believes that inflation did not have a material effect on the company's results of operations during the six-month period ended June 30, 2025 - Inflation did not have a material effect on the company's results of operations during the six-month period ended June 30, 2025[180] Critical Accounting Polices The company's critical accounting policies, involving significant management judgment and estimates, include allowance for doubtful accounts, valuation of long-lived assets, and income taxes - Critical accounting policies include allowance for doubtful accounts, valuation of long-lived assets, and income taxes, which require significant management judgment and estimates[182] Off Balance Sheet Arrangements As of June 30, 2025, the company had no off-balance sheet arrangements - As of June 30, 2025, there were no off-balance sheet arrangements[183] Recent Accounting Pronouncements The company does not expect the adoption of recently issued accounting pronouncements to significantly impact its financial statements, except for ASU 2024-03, effective January 1, 2027 - The company is currently evaluating the impact of adopting ASU 2024-03, which requires disaggregated disclosure of income statement expenses for public business entities, effective January 1, 2027[57] - The adoption of other recently issued, but not yet effective, accounting pronouncements is not expected to have a material impact on the company's financial statements[58][184] Item 3: Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, IQSTEL Inc. is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, IQSTEL Inc. is not required to provide quantitative and qualitative disclosures about market risk[185] Item 4: Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of June 30, 2025, due to inadequate segregation of duties, ineffective risk assessment, and insufficient written policies - The CEO and CFO concluded that disclosure controls and procedures were ineffective as of June 30, 2025[188] - Material weaknesses identified include inadequate segregation of duties, ineffective risk assessment, and insufficient written policies and procedures for accounting and financial reporting[188] - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the six-month period ended June 30, 2025[192] PART II – OTHER INFORMATION Item 1: Legal Proceedings The company is not a party to any material pending legal proceedings, nor is it aware of any such proceedings involving its officers, directors, or significant beneficial holders - The company is not a party to any material pending legal proceeding[194] Item 1A: Risk Factors The company refers readers to the "Risk Factors" section in its Annual Report on Form 10-K for the year ended December 31, 2024, for a comprehensive discussion of risks - Readers are directed to the "Risk Factors" section in the Annual Report on Form 10-K for the year ended December 31, 2024, for a comprehensive list of risks[195] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds During the six months ended June 30, 2025, the company issued 967,245 shares of common stock without registration, primarily for compensation, debt conversion, and settlement Common Stock Issued (Six Months Ended June 30, 2025) | Purpose | Shares Issued | Value | | :-------------------------------- | :------------ | :------------ | | Compensation to directors | 3,750 | $55,198 | | Conversion of debt | 694,914 | $3,227,904 | | Settlement of debt | 264,980 | $1,886,658 | | Common stock payable | 3,563 | $82,194 | | Reverse stock split adjustment | 38 | — | | Total | 967,245 | $5,251,954 | Item 3: Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[197] Item 4: Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company[197] Item 5: Other Information There is no other information to report under this item - There is no other information to report under this item[197] Item 6: Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications under Sarbanes-Oxley and XBRL formatted financial statements - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[198] - The financial statements are provided in Extensible Business Reporting Language (XBRL) format[198]