iQSTEL Inc: Form 10-Q for the period ended Jun 30, 2025

Forward-Looking Statements

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

Overview

IQSTEL Inc. (www.IQSTEL.com (http://www.IQSTEL.com)) is a technology company with a presence in 20 countries (Argentina, Armenia, Austria, Canada, Colombia, Germany, Greece, Guatemala, India, Italy, Pakistan, Romania, Serbia, Spain, Switzerland, Turkey, UAE, UK, USA and Venezuela) 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 USA, Argentina, UK, Switzerland, Turkey, and Dubai, and we target diverse and high-growth markets. We maintain more than 603 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 9 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 Voice over Internet Protocol (VoIP), SMS, proprietary Internet of Things (IoT) solutions (www.iotsmartgas.com (http://www.iotsmartgas.com) and www.iotsmarttank.com (http://www.iotsmarttank.com)), and international fiber-optic connectivity through its subsidiaries: Etelix (www.etelix.com (http://www.etelix.com)), SwissLink Carrier (www.swisslink-carrier.com (http://www.swisslink-carrier.com)), Smartbiz Telecom (www.smartbiztel.com (http://www.smartbiztel.com)), Whisl Telecom (www.whisl.com (http://www.whisl.com)), IoT Labs (www.iotlabs.mx (http://www.iotlabs.mx)), QGlobal SMS (www.qglobalsms.com (http://www.qglobalsms.com)), and QXTEL Limited (www.qxtel.com (http://www.qxtel.com)).

Also under the Telecom Division, our developing BlockChain Platform Business Line (www.itsbchain.com (http://www.itsbchain.com)) offers our proprietary Mobile Number Portability Application (MNPA) to serve the in-country portability needs through our subsidiary, ItsBchain.

Our developing Fintech Business Line (www.globalmoneyone.com (http://www.globalmoneyone.com)) (www.maxmo.vip (http://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 offers electric motorcycles for work and recreational use in the USA, Spain, Portugal, Panama, Colombia. 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 (http://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 quarterly report and should not be considered part of this or any other report filed with the SEC.

Methods of Valuation

We use supplemental measures of our performance which are derived from our consolidated financial information but which are not presented in our consolidated financial statements prepared in accordance with GAAP. These non-GAAP financial measures include: Adjusted EBITDA and gross revenue.

The Company derives these financial calculations on the basis of methodologies other than GAAP, primarily by excluding from a comparable GAAP measure certain items the Company does not consider to be representative of its actual operating performance. These financial calculations are “non-GAAP financial measures” as defined under the SEC rules. The Company uses these non-GAAP financial measures in operating its business because management believes they are less susceptible to variances in actual operating performance that can result from the excluded items, other infrequent charges and currency fluctuations. The Company presents these financial measures to investors because management believes they are useful to investors in evaluating the primary factors that drive the Company’s core operating performance and provide greater transparency into the Company’s results of operations. However, items that are excluded and other adjustments and assumptions that are made in calculating these non-GAAP financial measures are significant components in understanding and assessing the Company’s financial performance. These non-GAAP financial measures should be evaluated in conjunction with, and are not a substitute for, the Company’s GAAP financial measures. Further, because these non-GAAP financial measures are not determined in accordance with GAAP, and are thus susceptible to varying calculations, the non-GAAP financial measures, as presented, may not be comparable to other similarly-titled measures of other companies.

Adjusted EBITDA is not a recognized accounting measurement under GAAP; it should not be considered as an alternative to net income, as a measure of operating results, or as an alternative to cash flow as a measure of liquidity. It is presented here not as an alternative to net income, but rather as a measure of the Company's operating performance. Adjusted EBITDA excludes, in addition to non-operational expenses like interest expenses, taxes, depreciation and amortization; items that we believe are not indicative of our operating performance, such as:

• Change in Fair Value of Derivative Liabilities: These adjustments reflect unrealized gains or losses that are non-operational and subject to market volatility.
• Loss on Settlement of Debt: This represents non-recurring expenses associated with specific financing activities and does not impact ongoing business operations.
• Stock-Based Compensation: As a non-cash expense, this adjustment eliminates variability caused by equity-based incentives.

The Company believes Adjusted EBITDA offers a clearer view of the cash-generating potential of its business, excluding non-recurring, non-cash, and non-operational impacts. Management believes that Adjusted EBITDA is useful in evaluating the Company's operating performance compared to that of other companies in its industry because the calculation of Adjusted EBITDA generally eliminates the effects of financing, income taxes, non-cash and certain other items that may vary for different companies for reasons unrelated to overall operating performance and also believes this information is useful to investors.

Gross revenue, which equals revenue before intercompany eliminations, represents a key performance metric that management uses to measure the scale of the Company’s operations, monitor revenue trends across reporting segments, and evaluate the effectiveness of sales and marketing initiatives on a consolidated basis prior to the impact of intercompany transactions.

Results of Operations

Revenues

Our total revenue reported for the three months ended June 30, 2025 was $72,183,236, compared with $78,635,764 for the three months ended June 30, 2024. These numbers reflect a decrease of 8.21% quarter over quarter on our consolidated revenues. Our total revenue reported for the six months ended June 30, 2025 was $129,816,052, compared with $130,050,642 for the six months ended June 30, 2024; which reflect a decrease of 0.18%.

When looking at the numbers by companies, we have the following breakout for the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024:

6

For the three months ended June 30, 2025, we recorded an increase of 6% in gross revenues (revenue before intercompany eliminations) compared to the same period in 2024. See Methods of Valuation for a discussion of gross revenue.

Similarly, for the six months period ended June 30, 2025, gross revenues increased by 17% year-over-year. However, due to a higher volume of intercompany transactions during both periods, net consolidated revenue (revenue after eliminations) was lower compared to the prior year.

These intercompany transactions are part of our strategy to optimize operations across subsidiaries by leveraging more efficient routing alternatives for our voice and SMS services, cost reductions, and improved service delivery. This synergy among our entities strengthens our position in the market and contributes to enhanced gross margin results.

The organic growth during the three and six months ended June 30, 2025 was 100% of the total revenue for those periods. This reflects the solid foundation of our revenue and the growth capacity the Company has with its current operations.

We consider organic growth the revenues reported by our existing subsidiaries once fully integrated to our operations. These subsidiaries include Etelix, SwissLink, QGlobal, IoT Labs, Smartbiz, Whisl and QXTEL.

Cost of Revenue

Our total cost of revenue for the three months ended June 30, 2025 decreased to $70,311,749, compared with $76,472,140 for the three months ended June 30, 2024. Our total cost of revenue for the six months ended June 30, 2025 decreased to $126,009,607, compared with $126,507,992 for the six months ended June 30, 2024.

When looking at the numbers by subsidiary, we have the following breakout for the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024:

Our cost of revenue 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.

The behavior in the costs shows a logical correlation with the behavior of the revenue commented above, as each additional unit sold (minutes and SMS) has its corresponding termination cost.

In this sense, the inclusion of QXTEL in the consolidation process, along with the restructuring of the portfolio among subsidiaries, reflects the synergies derived from the commercial and operational integration of all group companies. This integration has resulted in a significant volume of intercompany transactions, which are part of our strategic approach to optimizing routing and cost efficiency. We expect this to positively impact revenues and margins in the future.

Gross Margin

Our gross margin, which is simply the difference between our revenues and our cost of sales, discussed above, was $3,806,445 for the six months ended June 30, 2025 compared to $3,542,650 for six three months ended June 30, 2024, reflecting an increase of 7.45% quarter over quarter

The Consolidated Percentage of Gross Margin for the six months ended June 30, 2025 was 2.93%, which represents an increase of 7.64% compared to the six months ended June 30, 2024.

For the six months ended June 30, 2025, gross profit increased by 7.45% compared to the same period in 2024. This growth is the result of commercial and operational synergies achieved through intercompany collaboration. We expect this trend to strengthen as we continue aligning internal operations and leveraging our integrated service portfolio.

Operating Expenses

Operating expenses, which consist solely of general and administrative costs, increased slightly by 0.94% for the three months ended June 30, 2025, compared to the same period in 2024. For the six months ended June 30, 2025, general and administrative expenses rose to $5,066,900 from $4,068,205 reported in the same period of 2024, reflecting a 24.55% increase. A detailed breakdown by major category for the three and six months ended June 30, 2025 and 2024 is presented in the table below:

8

When looking at the numbers by subsidiary, we have the following breakout for the six months ended June 30, 2025 compared to the six months ended June 30, 2024:

The most significant differences are: (1) the increase in technology expenses related to the deployment and upgrade of the Switching platform to allocate all subsidiaries; (2) the increases in other items such as salaries, wages and benefits; depreciation and amortization; and office, facility and other are largely the result of the addition of QXTEL to our consolidated financial statements.

For the six months ended June 30, 2024, QXTEL consolidated only the expenses incurred between April and June 2024. In contrast, for the same period in 2025, expenses from January through June were included. This difference in the reporting periods explains the 113% increase in general and administrative expenses compared to the prior year.

We are continually identifying operational synergies among all of our subsidiaries to be more cost efficient. The investment we are currently making in the development of a unique voice and SMS switching platform that will allow us to reduce costs between fifty and sixty thousand dollars per quarter.

Operating Income/Loss

For the three months ended June 30, 2025, the Company reported an operating loss of $656,229, representing a significant increase compared to the operating loss of $342,103 for the same period in 2024. Similarly, for the six months ended June 30, 2025, the operating loss widened to $1,260,455, up from $525,555 reported during the corresponding period in the prior year. These results reflect an overall rise in operating expenses, largely associated with ongoing investments in development and growth initiatives.

Our Telecom Division, currently the primary source of revenue for the Company, continued to generate positive Operating Income. Meanwhile, our pre-revenue companies are operating with minimal expenses, focused solely on completing product and service development prior to their market launch.

A comparison of the tables below highlights the significant progress of our Telecom Division, as evidenced by the increase in revenue, gross profit, and operating income for both the three- and six-month periods ended June 30, 2025. As we have previously stated, our strategy remains centered on strengthening the telecommunications segment to serve as a growth engine for the development and expansion of new business lines.

10

Other Expenses/Other Income

We had other expenses of $1,600,989 for the three months ended June 30, 2025, as compared with other expenses of $1,556,509 for the same period ended 2024. We had other expenses of $2,120,649 for the six months ended June 30, 2025, as compared with other expenses of $1,953,273 for the same period ended 2024. The increase in other expenses for the six months ended June 30, 2025 is mainly due to the change in the loss on settlement of debt, and increased interest expenses incurred.

Net Loss

We finished the three months ended June 30, 2025 with a loss of $2,348,914, as compared to a loss of $1,963,887 during the three months ended June 30, 2024. We finished the six months ended June 30, 2025 with a loss of $3,493,375, as compared to a loss of $2,544,103 during the six months ended June 30, 2024.

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.

Our Telecom Division, the division presently generating revenue, has a positive operating income when presented separately from the rest of our Company. 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, such as Fintech and Cybersecurity.

11

In evaluating our financial performance, we utilize Adjusted EBITDA as a supplemental measure to provide insights into the profitability of our core operations. (Please see Adjusted EBITDA, which is reconciled to the Net Income in the table above.) Adjusted EBITDA excludes, in addition to non-operational expenses like interest expenses, taxes, depreciation and amortization; items that we believe are not indicative of our operating performance, such as:

• FX Gains and Losses.
• Stock-Based Compensation: As a non-cash expense, this adjustment eliminates variability caused by equity-based incentives.
• Other non-recurrent expenses: Adjusted EBITDA removes one-time, irregular, or non-recurring expenses to reflect the Company's sustainable earnings.

We believe Adjusted EBITDA offers a clearer view of the cash-generating potential of our business, excluding non-recurring, non-cash, and non-operational impacts.

Based on the analysis of our Adjusted EBITDA our Telecom Division is a high-performing division that generates strong operational profits.

Consolidated figures show a slightly negative Adjusted EBITDA; while this isn’t ideal, in our opinion it implies the Company is close to breaking even and might achieve positive Adjusted EBITDA with small improvements in efficiency or revenue growth. We are in a transitional period, scaling operations and investing heavily in growth initiatives with the execution of our M&A plan. Management has also identified areas for cost-cutting and operational improvements and has acted in that direction.

Liquidity and Capital Resources

As of June 30, 2025, we had total current assets of $35,555,030 and current liabilities of $36,843,884, resulting in a negative working capital of $1,288,854.

Our operating activities used $1,649,283 in the six months ended June 30, 2025 as compared with $3,151,688 used in operating activities in the six months ended June 30, 2024. Our negative operating cash flow for both periods is a result of our net loss and changes in operating assets and liabilities which varies depending on our operating results and the timing of operating cash receipts and payments, specifically trade accounts receivable and trade accounts payable. Despite a larger net loss, operating cash burn decreased due to working capital changes, especially receivables and payables.

Investing activities used $173,812 for the six months ended June 30, 2025 compared to $2,720,197 used during the same period of year 2024. Investing outflows dropped sharply, indicating a pause in our M&A campaign.

Financing activities provided $1,351,026 in the six months ended June 30, 2025 compared with $5,306,444 provided in the six months ended June 30, 2024. Financing inflows dropped significantly, indicating a reduced reliance on equity and convertible debt.

These figures show an improved operating cash flow despite net losses and strategic use of equity for debt settlement.

The Company is shifting from aggressive expansion in 2024 with the acquisition of QXTEL to consolidation and cash preservation in these first six months of 2025, with a heavy reliance on working capital management and non-cash financing tools. The Company’s debt repayments suggest a maturing capital structure.

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 public and 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.

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 six-month period ended June 30, 2025.

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 financial statements included in this Quarterly Report on Form 10-Q for the six months ended June 30, 2025; however, we consider our critical accounting policies to be those related to 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 June 30, 2025, 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.

We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.

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 June 30, 2025. 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 six-month period ended June 30, 2025, 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.

Our business faces many risks, a number of which are described in the section captioned “Risk Factors” in our Annual Report for the year ended December 31, 2024, filed with the SEC on March 31, 2025. The risks described may not be the only risks we face. Other risks of which we are not yet aware, or that we currently believe are not material, may also materially and adversely impact our business operations or financial results. If any of the events or circumstances described in the risk factors contained in our Annual Report occur, our business, financial condition or results of operations could be adversely impacted and the value of an investment in our securities could decline. Investors and prospective investors should consider the risks described in our Annual Report, and the information contained in the section captioned “Forward-Looking Statements” and elsewhere in this Quarterly Report before deciding whether to invest in our securities.