iQSTEL Inc: Form 10-Q for the period ended Jun 30, 2026

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. (the Company when making reference to consolidated company) is a technology company with operations 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 subsidiaries in the telecommunications, fintech, and AI-enhanced industries. Our global presence includes 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. Our strategy focuses on leveraging synergies among our subsidiaries to drive innovation, operational efficiency, and growth through organic development and strategic acquisitions.

Our Telecom Division, which represents the majority of current operations and accounted for 87% of our revenues for the six months ended June 30, 2026, offers Voice over Internet Protocol (VoIP), SMS, proprietary Internet of Things (IoT) solutions, 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 offers our proprietary Mobile Number Portability Application (MNPA) through our subsidiary, itsBchain (www.itsbchain.com (http://www.itsbchain.com)).

The Company’s developing Fintech Business Line offers a complete Fintech ecosystem including a MasterCard Debit Card, US Bank Account (No SSN Needed), and a Mobile App/Wallet for remittances and mobile top-up services. Our Fintech subsidiary, Global Money One Inc., aims to provide immigrants access to reliable financial services that makes it easier to manage their money and stay connected with their families back home. Additionally, GlobeTopper LLC (www.globetopper.com (http://www.globetopper.com)), our most recent acquisition, supports expansion and integration of our business divisions through its B2B digital gift card and incentives platform, which represented 13% of our revenues for the six months ended June 30, 2026.

Our Artificial Intelligence (AI) division, Reality Border (www.realityborder.com (http://www.realityborder.com)), initially developed an AI-enhanced immersive digital experience platform. Building on that early development work—including conversational interfaces, multilingual models, and AI-driven workflows, Reality Border now develops practical AI software solutions for enterprise and telecommunications applications.

Reality Border currently serves as IQSTEL’s AI innovation and product development platform. Its activities include AI agents and related software solutions designed for web, voice, and contact center environments, as well as integration with telecommunications infrastructure, business systems, and security layers. The Company’s AI strategy includes solutions such as Airweb.ai for AI-powered customer engagement across web and phone channels, IQ2Call.ai for AI-enabled call center and customer care applications, and IQCortex.ai for broader AI platform capabilities and enterprise use cases.

Reality Border’s current development efforts include software functionality, workflow orchestration, multilingual interaction, system integration, and operational deployment models intended for business use. Reality Border’s earlier immersive platform work contributed to capabilities that are now being applied in its AI products; however, the current business emphasis is on AI solutions for enterprise and telecommunications operations rather than metaverse-based environments.

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 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 aggregate scale and commercial activity of the Company’s operating segments prior to consolidation adjustments. Gross Revenue is particularly useful in evaluating:

Total transactional volume

Growth trends across business units

Underlying demand and commercial activity independent of consolidation structure

Gross Revenue is a non-GAAP measure and should be evaluated together with the Company’s GAAP revenue, which includes the effect of intercompany eliminations required under consolidation accounting.

Non-GAAP financial measures have inherent limitations and should not be considered superior to, or a substitute for, GAAP results. The Company provides reconciliations of each non-GAAP financial measure to the most directly comparable GAAP measure in the accompanying tables. Management believes these reconciliations provide investors with transparency into the adjustments made and enhance the overall understanding of the Company’s operating performance.

Results of Operations

Revenues

Our total revenue reported for the three months ended June 30, 2026 was $109,068,246, compared with $72,183,236 for the three months ended June 30, 2025. These numbers reflect an increase of 51.10% quarter over quarter on our consolidated revenues. Our total revenue reported for the six months ended June 30, 2026 was $206,988,082, compared with $129,816,052 for the six months ended June 30, 2025; which reflect an increase of 59.45%.

When looking at the numbers by subsidiary, we have the following breakout for the three and six months ended June 30, 2026 compared to the three and six months ended June 30, 2025:

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 expanding the synergies among our subsidiaries, particularly those engaged in VOIP Telecom services. The increase also includes the contribution from a newly acquired subsidiary, GlobeTopper LLC, which closed on July 1, 2025.

A significant reduction in intercompany transactions is also observed for the three and six months ended June 30, 2026 compared to the quarter ended June 30, 2025, which did not impact the overall position. This reflects the joint efforts of the companies to strengthen their position with third parties through new commercial agreements.

The organic growth during the three and six months ended June 30, 2026 was 65% and 65% respectively, of the total revenue increase 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, QXTEL.

GlobeTopper, acquired on July 1st, 2025, represented the rest of the increase, showing the potential this subsidiary has of creating value to the organization.

Cost of Revenues

Our total cost of revenue for the three months ended June 30, 2026 increased to $106,321,441, compared with $70,311,749 for the three months ended June 30, 2025. Our total cost of revenue for the six months ended June 30, 2026 increased to $202,160,579, compared with $126,009,607 for the six months ended June 30, 2025.

When looking at the numbers by subsidiary, we have the following breakout for the three and six months ended June 30, 2026 compared to the three and six months ended June 30, 2025:

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, as well as the costs of the digital prepaid products related to Fintech (GlobeTopper) operations.

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. A similar pattern is observed in the virtual gift-card business, where each incremental digital prepaid product delivered to customers includes the associated wholesale acquisition cost payable to the issuing partner. As a result, cost of revenue moves directionally in line with transactional volume across both business lines, reflecting the variable-cost nature of these operations.

The inclusion of GlobeTopper in the consolidation process, along with the traffic volumes by QXTEL, Etelix and Swisslink, and the reorganizing of the portfolio among subsidiaries, reflects the synergies derived from the commercial and operational integration of all group companies.

This quarter, compared to same period of 2025, reflects the positive impact of the portfolio restructuring. While intercompany transactions decreased, traffic shifted toward third parties, strengthening external relationships. This transition helped maintain growth and is expected to continue supporting revenue and margins going forward.

Gross Margin

Our gross margin, which is simply the difference between our revenues and cost of sales, was $4,827,503 for the six months ended June 30, 2026, compared to $3,806,445 for the six months ended June 30, 2025, representing an increase of 26.82%. For the three months ended June 30, 2026, our gross margin was $2,746,805, compared to $1,871,487 for the three months ended June 30, 2025, representing an increase of 46.77%.

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 by 53% for the three months ended June 30, 2026, compared to the same period in 2025. For the six months ended June 30, 2026, general and administrative expenses rose to $6,906,331 from $5,066,900 reported in the same period of 2025, reflecting a 36.30% increase. A detailed breakdown by major category for the three and six months ended June 30, 2026 and 2025 is presented in the table below:

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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, which will result in significant cost reductions once all companies are migrated to the new platform; (2) the increase in advertising expenses, mainly related to marketing and promotional activities; and (3) the increases in other items such as depreciation and amortization, office, facility and other expenses are largely the result of the addition of QXTEL and GlobeTopper to our consolidated financial statements.

When looking at the numbers by subsidiary, we have the following breakout for the three and six months ended June 30, 2026 compared to the three and six months ended June 30, 2025:

The largest portion of the increase comes from IQSTEL, which is currently bearing most of the technology-related expenses, and from QXTEL, which since its incorporation has maintained a higher cost structure compared to the other subsidiaries, although it has remained consistent over time. Additionally, starting July 1, 2025, Globetopper’s expenses were incorporated, which were not included in previous periods.

We are continually identifying operational synergies among all of our subsidiaries to be more cost efficient.

Operating Income

For the three months ended June 30, 2026, the Company reported an operating loss of $1,120,819, representing a significant increase compared to the operating loss of $656,229 for the same period in 2025. Similarly, for the six months ended June 30, 2026, the operating loss widened to $2,078,828, up from $1,260,455 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.

Our Telecom Division is making significant progress, as evidenced by the increase in revenue, gross profit, and operating income for both the three- and six-month periods ended June 30, 2026. 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.

Other Expenses/Other Income

We had other expenses of $1,222,693 for the three months ended June 30, 2026, as compared with other expenses of $1,600,989 for the same period ended 2025. We had other expenses of $1,635,117 for the six months ended June 30, 2026, as compared with other expenses of $2,120,649 for the same period ended 2025. A significant portion of the 2026 interest expense was associated with the financing for the acquisition of GlobeTopper, which allowed us to drive the growth of the Company.

Net Loss

We finished the three months ended June 30, 2026 with a loss of $2,405,621, as compared to a loss of $2,348,914 during the three months ended June 30, 2025. We finished the six months ended June 30, 2026 with a loss of $3,791,557, as compared to a loss of $3,493,375 during the six months ended June 30, 2025.

The 2026 net loss is highly impacted by interest expense incurred in the last acquisitions (QXTEL and GlobeTopper); however, the increase in the Company's value and the beneficial effects of these acquisitions could be observed in the $2,872,337 of gross profit added to our operations for the six months ended June 30, 2026, which represents 59.50% of the total consolidated gross profit.

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 and GlobeTopper LLC.

As previously stated, our strategy remains focused on strengthening the telecommunications segment as the main growth engine to support the development and expansion of new business lines, including our Fintech Division with the inclusion of GlobeTopper, which we expect to contribute positively to future performance and enhance our market positioning.

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 below.) 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, 2026, we had total current assets of $33,525,038 and current liabilities of $30,816,253, resulting in a positive working capital of $2,708,785.

Our operating activities used $1,667,174 in the six months ended June 30, 2026 as compared with $1,649,283 used in operating activities in the six months ended June 30, 2025. 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. This is due to substantial non-cash adjustments and working capital changes:

• Depreciation and amortization increased, reflecting higher non-cash expenses.
• Bad debt expense remained low, indicating stable receivables quality.
• Accounts receivable: Large positive adjustment ($3.5M in 2026 vs. $33.4M in 2025) suggesting strong collections and reduced sales on credit.
• Accounts payable and accrued liabilities: Large negative adjustments, especially accrued liabilities, indicating significant payments during the period.

The Company’s operating cash flow is still negative, but the gap between net loss and cash used is bridged by non-cash charges and working capital management.

Investing activities used $22,584 for the six months ended June 30, 2026, compared to $173,812 in the same period of 2025. The decrease in 2026 reflects lower investment activity compared to the prior period.

Financing activities provided $1,626,281 in the current period, compared to $1,351,026 in the prior year. The increase reflects higher net inflows from financing activities. This change is mainly due to increased proceeds from financing sources, partially offset by repayments and related outflows. Financing activities during the period include funding associated with the acquisition of GlobeTopper, as the Company continues to support its growth and investment strategy.

The Company is transitioning from an expansion phase in 2025, marked by the acquisition of GlobeTopper, to a more consolidated approach during the first six months of 2026, with a greater focus on cash preservation, working capital management, and non-cash financing tools. The Company’s debt repayments reflect a maturing capital structure. At the same time, the expansion of GlobeTopper during the year ended December 31, 2025 demonstrates the Company’s continued commitment to strengthening and scaling its other business divisions.

These conditions, including our recurring losses from operations, and negative operating cash flows, raise substantial doubt about the Company’s ability to continue as a going concern. See Note 3 to the consolidated financial statements for additional discussion.

We intend to fund our operations through increased sales, as well as debt and/or equity financing arrangements, to support liquidity and capital resources. We also plan to seek additional funding through public and private equity offerings. However, there can be no assurance that we will be successful in raising additional capital. If we are unable to secure such funding, our business plan and operations could be adversely affected. Additionally, there can be no assurance that such financing will be available 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, 2026.

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, 2026; however, we consider our critical accounting policies to be those related to the allowance for doubtful accounts, valuation of assets, significant estimates in the valuation of financial instruments 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, 2026, 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, 2026. 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, 2026, 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, 2025, filed with the SEC on April 06, 2026 and amended on April 23, 2026. 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.