10-Q 1 f10q063019_10q.htm FORM 10-Q QUARTERLY REPORT Form 10-Q Quarterly Report

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

[X]

Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

For the quarterly period ended June 30, 2019

 

 

[  ]

Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

For the transition period from __________ to__________

 

 

 

Commission File Number: 000-55984

 

iQSTEL Inc.

(Exact name of registrant as specified in its charter)

 

 

Nevada

45-2808620

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

 

300 Aragon Avenue, Suite 375

Coral Gables, FL 33134

(Address of principal executive offices)

 

(954) 951-8191

(Registrant’s telephone number)

 

_______________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  [X] Yes [   ] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  [X] Yes [   ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company.

 

 

[   ] Large accelerated filer

[   ] Accelerated filer

[   ] Non-accelerated filer

[X] Smaller reporting company

[   ] Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [   ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  [   ] Yes [X] No

 

Securities registered pursuant to Section 12(b) of the Act: None

 

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 15,627,364 common shares as of August 08, 2019


1


 

Picture 1 

 

TABLE OF CONTENTS

 

 

Page

 

PART I – FINANCIAL INFORMATION

 

Item 1:

Financial Statements

3

Item 2:

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 3:

Quantitative and Qualitative Disclosures About Market Risk

19

Item 4:

Controls and Procedures

19

 

PART II – OTHER INFORMATION

 

Item 1:

Legal Proceedings

20

Item 1A:

Risk Factors

20

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

20

Item 3:

Defaults Upon Senior Securities

20

Item 4:

Mine Safety Disclosures

20

Item 5:

Other Information

20

Item 6:

Exhibits

20

 


2


 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Our unaudited consolidated financial statements included in this Form 10-Q are as follows:

 

Page

 

4

Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018;

5

Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018 (unaudited);

6

Consolidated Statements of Stockholder’s Equity as of June 30, 2019 and 2018;

7

Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (unaudited); and

8

Notes to Consolidated Financial Statements (unaudited).

 

These interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q.  In the opinion of management, all adjustments considered necessary for a fair presentation have been included.  Operating results for the interim period ended June 30, 2019 are not necessarily indicative of the results that can be expected for the full year.

 


3


 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

iQSTEL INC

Consolidated Balance Sheets

(Unaudited)

 

 

 

 

 

June 30,

 

December 31,

 

 

 

2019

 

2018

 

 

 

 

 

 

ASSETS

 

 

 

 

Current Assets

 

 

 

 

 

Cash

$

80,486

$

4,570

 

Accounts receivable, net

 

1,596,925

 

1,825,854

 

Due from related parties

 

272,121

 

258,020

 

Prepaid and other current assets

 

109,079

 

17,503

Total Current Assets

 

2,058,611

 

2,105,947

 

 

 

 

 

 

Property and equipment, net

 

265,826

 

285,107

 

TOTAL ASSETS

$

2,324,437

$

2,391,054

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

Current Liabilities

 

 

 

 

 

Bank overdraft

$

-

$

82

 

Accounts payable

 

1,038,781

 

1,390,048

 

Due to related parties

 

40,631

 

23,193

 

Loans payable

 

106,191

 

194,557

 

Loans payable - related parties

 

90,787

 

90,787

 

Current portion of convertible notes - net of discount of $597,124 and $158,696

 

508,876

 

63,205

 

Other current liabilities

 

394,030

 

436,762

 

Derivative liabilities

 

2,560,212

 

1,790,067

Total Current Liabilities

 

4,739,508

 

3,988,701

 

 

 

 

 

 

 

Convertible notes - net of discount of $58,631 and $0

 

1,369

 

-

 

TOTAL LIABILITIES

 

4,740,877

 

3,988,701

 

 

 

 

 

 

Stockholders’ Deficit

 

 

 

 

Preferred stock: 8,500,000 authorized; $0.0001 par value at June 30, 2019 and December 31, 2018 - no shares issued and outstanding

 

-

 

-

Common stock: 2,000,000,000 authorized; $0.001 par value at June 30, 2019 and December 31, 2018 - 15,475,916 and 15,022,650 shares issued and outstanding, respectively

 

15,476

 

15,023

Additional paid in capital

 

1,745,291

 

1,054,718

Accumulated deficit

 

(4,177,207)

 

(2,667,388)

Total Stockholder’s Deficit

 

(2,416,440)

 

(1,597,647)

 

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

$

2,324,437

$

2,391,054

 

 The accompanying notes are an integral part of these unaudited consolidated financial statements.  


4


 

iQSTEL INC

Consolidated Statements of Operations

(Unaudited)

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

Revenues

$

4,253,359

$

3,700,670

$

8,416,562

$

5,880,835

Cost of goods sold

 

4,345,087

 

3,223,540

 

8,072,713

 

5,190,699

Gross profit

 

(91,728)

 

477,130

 

343,849

 

690,136

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

General and administration

 

341,553

 

334,749

 

532,060

 

458,725

 

  Total operating expenses

 

341,553

 

334,749

 

532,060

 

458,725

 

 

 

 

 

 

 

 

 

 

Operating income

 

(433,281)

 

142,381

 

(188,211)

 

231,411

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

Other income

 

-

 

9,968

 

2,600

 

9,968

 

Other expenses

 

(233)

 

-

 

(375)

 

(12,935)

 

Interest expense

 

(511,125)

 

(100,515)

 

(776,162)

 

(157,569)

 

Change in fair value of derivative liabilities

 

460,398

 

-

 

(547,671)

 

-

 

  Total other expense

 

(50,960)

 

(90,547)

 

(1,321,608)

 

(160,536)

 

 

 

 

 

 

 

 

 

 

Net loss before provision for income taxes

 

(484,241)

 

51,834

 

(1,509,819)

 

70,875

 

Income taxes

 

-

 

-

 

-

 

-

Net income (loss)

$

(484,241)

$

51,834

$

(1,509,819)

$

70,875

 

 

 

 

 

 

 

 

 

 

Basic and dilutive loss per common share

$

(0.03)

$

0.00

$

(0.10)

$

0.01

Weighted average number of common shares outstanding

 

15,357,689

 

13,717,518

 

15,199,517

 

12,409,011

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

 


5


 

iQSTEL INC

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

(Unaudited)

 

 

 

Common Stock

 

Additional

Paid in

Capital

 

Accumulated

Deficit

 

Total

 

 

Shares

 

Amount

Balance - December 31, 2018

15,022,650

$

15,023

$

1,054,718

$

(2,667,388)

$

(1,597,647)

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued in conjunction with convertible notes

254,074

 

254

 

249,746

 

-

 

250,000

 

Capital contribution

-

 

-

 

10,000

 

-

 

10,000

 

Net loss

-

 

-

 

-

 

(1,025,578)

 

(1,025,578)

Balance - March 31, 2019

15,276,724

$

15,277

$

1,314,464

$

(3,692,966)

$

(2,363,225)

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for conversion of debt

76,335

 

76

 

4,924

 

-

 

5,000

 

Resolution of derivative liabilities

-

 

-

 

181,326

 

-

 

181,326

 

Common stock issued in conjunction with convertible notes

122,857

 

123

 

244,577

 

-

 

244,700

 

Common stock issued for services

-

 

-

 

-

 

-

 

-

 

Capital contribution

-

 

-

 

-

 

-

 

-

 

Net loss

-

 

-

 

-

 

(484,241)

 

(484,241)

Balance - June 30, 2019

15,475,916

$

15,476

$

1,745,291

$

(4,177,207)

$

(2,416,440)

 

 

 

Common Stock

 

Additional

Paid in

Capital

 

Subscription

Receivable

 

Accumulated

Deficit

 

Total

Shares

 

Amount

Balance - December 31, 2017

11,085,965

$

11,086

$

737,429

$

-

$

(563,227)

$

185,288

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued

1,184,849

 

1,185

 

58,615

 

-

 

-

 

59,800

 

Debt forgiveness

-

 

-

 

45,200

 

-

 

-

 

45,200

 

Net income

-

 

-

 

-

 

-

 

19,041

 

19,041

Balance - March 31, 2018

12,270,814

$

12,271

$

841,244

$

-

$

(544,186)

$

309,329

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued

1,481,061

 

1,481

 

73,519

 

-

 

-

 

75,000

 

Recapitalization

1,175,724

 

1,176

 

(77,450)

 

(8,750)

 

-

 

(85,024)

 

Common stock issued for services

75,000

 

75

 

149,925

 

-

 

-

 

150,000

 

Net income

-

 

-

 

-

 

-

 

51,834

 

51,834

Balance - June 30, 2018

15,002,599

$

15,003

$

987,238

$

(8,750)

$

(492,352)

$

501,139

 

The accompanying notes are an integral part of these unaudited consolidated financial statements. 


6


 

iQSTEL INC

Consolidated Statements of Cash Flows

(Unaudited)

  

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2019

 

2018

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income (loss)

$

(1,509,819)

$

70,875

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Stock based compensation

 

-

 

150,000

 

Depreciation and amortization

 

19,281

 

3,275

 

Amortization of debt discount

 

541,894

 

-

 

Change in fair value of derivative liabilities

 

547,671

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

228,929

 

(835,834)

 

Accounts receivable - related party

 

(10,701)

 

-

 

Other current assets

 

(91,576)

 

(48,961)

 

Accounts payable

 

(351,267)

 

527,742

 

Other current liabilities

 

(42,149)

 

(5,504)

 

Net cash used in operating activities

 

(667,737)

 

(138,407)

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Payment of loan receivable - related party

 

(10,000)

 

-

 

Collection from loan receivable - related party

 

10,000

 

-

 

Net cash used in investing activities

 

-

 

-

 

  

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Bank overdraft

 

(82)

 

-

 

Proceeds from loans payable

 

64,400

 

332,182

 

Repayments of loans payable

 

(171,302)

 

(326,436)

 

Proceeds from loans payable - related parties

 

46,438

 

800

 

Repayment of loans payable - related parties

 

(32,400)

 

(850)

 

Contribution

 

10,000

 

134,800

 

Proceeds from convertible notes

 

1,048,500

 

-

 

Repayment of convertible notes

 

(221,901)

 

-

 

Net cash provided by financing activities

 

743,653

 

140,496

 

 

 

 

 

 

Net change in cash and cash equivalents

 

75,916

 

2,089

Cash and cash equivalents, beginning of period

 

4,570

 

23,266

Cash and cash equivalents, end of period

$

80,486

$

25,355

 

 

 

 

 

 

Supplemental cash flow information

 

 

 

 

 

Cash paid for interest

$

208,557

$

148,406

 

Cash paid for taxes

$

-

$

-

 

 

 

 

 

 

Non-cash transactions:

 

 

 

 

 

Derivative liabilities recognized as debt discount

$

403,800

$

-

 

Related party debt forgiveness

$

-

$

45,200

 

Common stock issued in conjunction with convertible notes

$

494,700

$

-

 

Common stock issued for conversion of debt

$

5,000

$

-

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 


7


 

iQSTEL INC

Notes to the Unaudited Consolidated Financial Statements

June 30, 2019

 

NOTE 1 -ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Organization and Operations

 

iQSTEL Inc. (“iQSTEL”, “we”, “us”, or the “Company”) was incorporated under the laws of the State of Nevada on June 24, 2011 under the name of PureSnax International, Inc. and changed its name to iQSTEL Inc. on August 7, 2018.

 

The Company has been engaged in the business of telecommunication services as a wholesale carrier of voice and data for other telecom companies around the World with more than 150 active interconnection agreements with mobile companies, fix line companies and other wholesale carriers.

 

NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements.

 

In the opinion of the company’s management, the accompanying unaudited interim financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the company as of June 30, 2019 and the results of operations and cash flows for the periods presented. The results of operations for the six months ended June 30, 2019 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited financial statements should be read in conjunction with the financial statements and related notes thereto included in the company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on April 10, 2019.

 

Consolidation Policy

 

For June 30, 2019, the consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiary, Etelix.com USA, LLC. All significant intercompany balances and transactions have been eliminated in consolidation. Prior to June 25, 2018, the financial statements presented are those of Etelix.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ from these good faith estimates and judgments.

 

Accounts Receivable and Allowance for Uncollectible Accounts

 

Substantially all of the Company’s accounts receivable balance is related to trade receivables. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company reviews its allowance for doubtful accounts daily, past due balances over 60 days and a specified amount are reviewed individually for collectability. Account balances are charged off after all means of collection have been exhausted and the potential for recovery is considered remote. As of June 30, 2019 the Company had no valuation allowance for doubtful accounts for the Company’s accounts receivable and recorded no bad debt expense.

 

Concentrations of Credit Risk

 

The Company’s financial instruments that are exposed to concentrations of credit risk primarily consist of its cash and cash equivalents and related party payables that it will likely incur in the near future. The Company places its cash and cash equivalents with financial institutions of high creditworthiness. At times, its cash and cash equivalents with a particular financial institution may exceed any applicable government insurance limits.

 

During the six months ended June 30, 2019 and 2018, eight customers represented 81% of our revenues and fourteen customers represented 81% of our revenues, respectively.


8


 

 

Revenue Recognition

 

The Company recognizes revenue from the sale of products in accordance with ASC 606, “Revenue from Contracts with Customers”. The Company recognizes revenue only when all of the following criteria have been met:

 

Identify the contract(s) with a customer   

Identify the performance obligations in the contract   

Determine the transaction price.   

Allocate the transaction price to the performance obligations in the contract.   

Recognize revenue when (or as) the entity satisfies a performance obligation.   

 

The Company recognizes revenue related to monthly usage charges and other recurring charges during the period in which the telecommunication services are rendered. Provided that persuasive evidence of a sales arrangement existed, and collection was reasonably assured. Persuasive evidence of a sales arrangement existed upon execution of a written interconnection agreement. The Company’s payment terms vary by clients.

 

Lease

 

The office lease meets the definition of a short-term lease because the lease term is 12 months or less. Consequently, consistent with Company’s accounting policy election, the Company does not recognize the right-of-use asset and the lease liability arising from this lease.

 

Reclassifications

 

Certain prior year amounts have been reclassified to conform with the current year presentation.

 

Recent Accounting Pronouncements

 

Management has considered all recent accounting pronouncements issued since the last audit of our financial statements. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.

 

NOTE 3 - GOING CONCERN

 

The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company does not have significant cash, nor does it have an established source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. In addition, as of June 30, 2019, the Company had a net loss of $1,509,819. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish its business plan and eventually attain profitable operations.

 

During the next year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and marketing expenses. The Company may experience a cash shortfall and be required to raise additional capital.

 

Historically, the Company has relied upon funds from its stockholders. Management may raise additional capital through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon its operations and its stockholders.


9


 

 

NOTE 4 – PREPAID AND OTHER CURRENT ASSETS

 

Prepaid and other current assets at June 30, 2019 and December 31, 2018 consist of the following:

 

 

June 30,

 

December 31,

 

2019

 

2018

Advance payment to suppliers

$

6,600

 

$

11,310

Other receivable

 

34,039

 

 

500

Prepaid expenses

 

17,840

 

 

5,093

Tax receivable

 

600

 

 

600

Prepayment for acquisition

 

50,000

 

 

-

 

$

109,079

 

$

17,503

 

NOTE 5 – FIXED ASSETS, NET

 

Fixed assets, net at June 30, 2019 and December 31, 2018 consist of the following:

 

 

June 30,

 

December 31,

 

2019

 

2018

Telecommunication equipment

$

245,686

 

$

245,686

Telecommunication software

 

400,903

 

 

400,903

Total fixed assets

 

646,589

 

 

646,589

Accumulated depreciation and amortization

 

(380,763)

 

 

(361,482)

Total Fixed assets

$

265,826

 

$

285,107

 

Depreciation expense for the six months ended June 30, 2019 and 2018 amounted to $19,281 and $3,275, respectively.

 

NOTE 6 –LOANS PAYABLE

 

Loans payable at June 30, 2019 and December 31, 2018 consist of the following:

 

 

 

June 30,

 

December 31,

 

 

Interest

 

 

2019

 

2018

 

Term

rate

Complete Business Solutions_3

 

$

-

 

$

80,994

 

Note was issued on April 13, 2018 and due on March 9, 2019

33.3%

Green Capital Funding_2

 

 

89

 

 

89

 

Note was issued on October 1, 2018 and due on February 27, 2019

31.5%

Unique Funding Solutions_2

 

 

2,000

 

 

9,000

 

Note was issued on October 12, 2018 and due on January 17, 2019

28.6%

Green Note Capital Partner

 

 

11,135

 

 

18,278

 

Note was issued on October 22, 2018 and due on February 22, 2019

28.6%

Queen Funding LLC

 

 

-

 

 

17,083

 

Note was issued on November 29, 2018 and due on March 13, 2019

31.5%

Green Capital Funding_3

 

 

10,614

 

 

69,113

 

Note was issued on December 20, 2018 and due on May 15, 2019

31.5%

Leonite Capital LLC

 

 

82,353

 

 

-

 

Note was issued on May 22, 2019 and due on Demand.  Note is guaranteed by the Company’ CEO.

Higher of 14% and WSJ Prime rate plus 10%

Total

 

 

106,191

 

 

194,557

 

 

 

Less: Current portion of loans payable

 

 

106,191

 

 

194,557

 

 

 

Long-term loans payable

 

$

-

 

$

-

 

 

 

 

During the six months ended June 30, 2019 and 2018, the Company borrowed $82,353, and $332,182, which includes original issue discount and financing cost of $17,953 and $0, respectively, and repaid the principal amount of $171,302 and $326,436 and interest expense of $88,551 and $148,406, respectively.  

 

During the six months ended June 30, 2019 and 2018, the Company recognized amortization of discount, included in interest expense, of $17,953 and $0, respectively.


10


 

 

NOTE 7 – OTHER CURRENT LIABILITIES

 

Other current liabilities at June 30, 2019 and December 31, 2018 consist of the following:

 

 

June 30,

 

December 31,

 

2019

 

2018

Accrued liabilities

$

237,427

 

$

361,779

Credit card

 

14,937

 

 

14,647

Accrued interest

 

30,435

 

 

4,905

Salary payable – management (see Note 11)

 

111,231

 

 

55,431

 

$

394,030

 

$

436,762

 

NOTE 8 - CONVERTIBLE LOANS

 

At June 30, 2019 and December 31, 2018, convertible loans consisted of the following:

 

 

 

June 30,

 

December 31,

 

 

2019

 

2018

Promissory notes – Issued in fiscal year 2018, with variable conversion features

 

$

-

 

$

221,901

Promissory notes – Issued in fiscal year 2019, with variable conversion features

 

 

1,166,000

 

 

-

Total convertible notes payable

 

 

1,166,000

 

 

221,901

Less: Unamortized debt discount

 

 

(655,755)

 

 

(158,696)

Total convertible notes

 

 

510,245

 

 

63,205

 

 

 

 

 

 

 

Less: current portion of convertible notes

 

 

508,876

 

 

63,205

Long-term convertible notes

 

$

1,369

 

$

-

 

During the six months ended June 30, 2019 and 2018, the Company recognized amortization of discount, included in interest expense, of $523,941 and $0, respectively.

 

During the six months ended June 30, 2019 and 2018, the Company repaid notes of $221,901 and $0 and accrued interest including the prepayment penalty of $120,006 and $0, respectively.

 

Conversion

 

During the six months ended June 30, 2019, the Company converted notes with principal amounts of $5,000 into 76,335 shares of common stock. The corresponding derivative liability at the date of conversion of $181,326 was settled through additional paid in capital.

 

Promissory Notes - Issued in fiscal year 2018

 

During the year ended December 31, 2018, the Company issued a total of $213,750 in notes with the following terms:

 

Terms ranging from 9 months to 12 months.   

Annual interest rates ranging from of 10% to 12%.   

Convertible at the option of the holders at issuance.   

Conversion prices are typically based on the discounted (50% discount) lowest trading prices of the Company’s shares during various periods prior to conversion.   

 

Certain notes allow the Company to redeem the notes at rates ranging from 130% to 150% depending on the redemption date provided that no redemption is allowed after the 180th day. Likewise, the notes include financing costs totaling $12,250 and the Company received cash of $201,500.


11


 

 

Promissory Notes - Issued in fiscal year 2019

 

During the six months ended June 30, 2019, the Company issued a total of $1,171,000 in notes with the following terms:

 

Terms ranging from 6 months to 3 years.   

Annual interest rates ranging from of 8% to 12%.   

Convertible at the option of the holders at issuance or 180 days from issuance.   

Conversion prices are typically based on the discounted (39% or 50% discount) lowest trading prices of the Company’s shares during various periods prior to conversion.   

 

The convertible notes were also provided with a total of 376,931 common shares and warrant to purchase up to 92,000 shares of common stock at exercise price of $2.5 per share for 3 years.

 

Certain notes allow the Company to redeem the notes at rates ranging from 117% to 150% depending on the redemption date provided that no redemption is allowed after the 180th day. Likewise, the notes include financing costs totaling $122,500 and the Company received cash of $1,048,500.

 

Derivative liabilities

 

The Company determined that the conversion option in the note and the exercise feature of the warrants met the definition of a liability in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity’s Own Stock. The Company will bifurcate the embedded conversion option in the note once the note becomes convertible and account for it as a derivative liability.

 

The Company valued the conversion features using the Black Scholes valuation model. The fair value of the derivative liability for all the note that became convertible for the year ended December 31, 2018 amounted to $896,593. $201,500 of the value assigned to the derivative liability was recognized as a debt discount to the notes while the balance of $695,093 was recognized as a “day 1” derivative loss.

 

The Company valued the conversion features of convertible notes and warrant using the Black Scholes valuation model. The fair value of the derivative liability for all the note and warrant that became convertible for the six months ended June 30, 2019 amounted to $2,583,990. $403,800 of the value assigned to the derivative liability was recognized as a debt discount to the notes while the balance of $2,180,190 was recognized as a “day 1” derivative loss.

 

Warrants

 

A summary of activity during the six months ended June 30, 2019 follows:

 

 

Warrants Outstanding

 

 

 

Weighted

Average

 

Shares

 

Exercise Price

 

 

 

 

Outstanding, December 31, 2018

-

 

$

-

Granted

92,000

 

 

2.50

Exercised

-

 

 

-

Forfeited/canceled

-

 

 

-

Outstanding, June 30, 2019

92,000

 

$

2.50

 

The following table summarizes information relating to outstanding and exercisable warrants as of June 30, 2019:

 

Warrants Outstanding

 

Warrants Exercisable

Number of

Shares

 

Weighted Average

Remaining

Contractual life
(in years)

 

Weighted

Average

Exercise

Price

 

Number

of

Shares

 

Weighted

Average

Exercise

Price

92,000

 

3.40

 

$

               2.50

 

92,000

 

$

               2.50


12


 

 

NOTE 9 - DERIVATIVE LIABILITIES

 

The Company analyzed the conversion option for derivative accounting consideration under ASC 815, Derivatives and Hedging, and hedging, and determined that the instrument should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.

 

Fair Value Assumptions Used in Accounting for Derivative Liabilities.

 

ASC 815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in the fair market value as other income or expense item.

 

The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of June 30, 2019. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note is estimated using the Black-Scholes valuation model.

 

For the six months ended June 30, 2019, the estimated fair values of the liabilities measured on a recurring basis are as follows:

 

 

Six months ended

 

Year Ended

 

June 30, 2019

 

December 31, 2018

Expected term

0.22 - 5.00 years

 

0.37 - 1.00 years

Expected average volatility

4% - 491%

 

405% - 528%

Expected dividend yield

-

 

-

Risk-free interest rate

1.71% - 2.57%

 

2.24 - 2.71%

 

The following table summarizes the changes in the derivative liabilities during the six months ended June 30, 2019:

 

Fair Value Measurements Using Significant Observable Inputs (Level 3)

 

 

 

 

Balance - December 31, 2018

 

$

1,790,067

 

 

 

 

Addition of new derivatives recognized as debt discounts

 

 

403,800

Addition of new derivatives recognized as loss on derivatives

 

 

2,180,190

Settled on issuance of common stock

 

 

(181,326)

Gain on change in fair value of the derivative

 

 

(1,632,519)

Balance - June 30, 2019

 

$

2,560,212

 

The aggregate loss on derivatives during the six months ended June 30, 2019 and 2018 was as follows;

 

 

Six Months Ended

 

June 30,

 

2019

 

2018

Addition of new derivatives recognized as loss on derivatives

$

2,180,190

 

$

-

Gain on change in fair value of the derivative

 

(1,632,519)

 

 

-

 

$

547,671

 

$

-

 

NOTE 10 – SHAREHOLDERS’ EQUITY

 

The Company’s authorized capital consists of 2,000,000,000 shares of common stock with a par value of $0.001 per share.

 

During the six months ended June 30, 2019, the Company issued 453,266 shares of common stock as follows;

 

376,931 shares in conjunction with convertible notes. 

76,335 shares for conversion of debt of $5,000 (see Note8) 


13


 

 

As of June 30, 2019 and December 31, 2018, 15,475,916 and 15,022,650 shares of common stock were issued and outstanding, respectively.

 

During the six months ended June 30, 2019, $10,000 was contributed to the Company and the Company recorded it as additional paid in capital.

 

NOTE 11 - RELATED PARTY TRANSACTIONS

 

Loans payable – related parties

 

 

 

June 30,

 

December 31,

 

 

Interest

 

 

2019

 

2018

 

Term

rate

Alonso Van Der Biest

 

$

80,200

 

$

80,200

 

Note was issued on June 12, 2015 and due on June 11, 2019

16.5%

Alvaro Quintana

 

 

10,587

 

 

10,587

 

Note was issue on September 30, 2016 and due on September 29, 2019

0%

Total

 

 

90,787

 

 

90,787

 

 

 

Less: Current portion of loans payable

 

 

90,787

 

 

90,787

 

 

 

Long-term loans payable

 

$

-

 

$

-

 

 

 

 

During the six months ended June 30, 2019, the Company repaid interest expense of $7,414.

 

Due from related parties

 

During the six months ended June 30, 2019, the Company loaned $10,000 to a related party and collected $10,000. As of June 30, 2019, the Company recorded accounts receivable from a related party of $10,701, included in due from related parties. As of June 30, 2019 and December 31, 2018, the Company had due from related parties of $288,908 and $278,207, respectively. The loans are unsecured, non-interest bearing and due on demand.

 

Due to related parties

 

During the six months ended June 30, 2019, the Company borrowed $46,438 from CEO of the Company and repaid $32,400. As of June 30, 2019 and December 31, 2018, the Company had due to related parties of $40,631 and $23,193, respectively. The loans are unsecured, non-interest bearing and due on demand.

 

Employment agreements

 

On June 25, 2018, the Company entered into Employment Agreements with the following persons: (i) Leandro Iglesias as President, CEO and Chairperson of the Company’s Board of Directors with an annual salary of $54,000; (ii) Juan Carlos Lopez Silva as Chief Commercial Officer with an annual salary of $54,000; and Alvaro Quintana Cardona as Chief Operating Officer and Chief Financial Officer with an annual salary of $30,000. The Employment Agreements have a term of 36 months, are renewable automatically for 24-month periods, unless the Company gives written notice at least 90 days prior to termination of the initial 36-month term. The Company shall have the right to terminate any of the employment agreements at any time without prior notice, but in that event, the Company shall pay these persons salaries and other benefits they are entitled to receive under their respective agreements for three years.

 

On May 2, 2019, the Company entered into Employment Agreements with the following persons: (i) Leandro Iglesias as President, CEO and Chairperson of the Company’s Board of Directors with an annual salary of $168,000 with an annual bonus of 3% of our net income; (ii) Juan Carlos Lopez Silva as Chief Commercial Officer with an annual salary of $120,000 with an annual bonus of 3% of our net income; and Alvaro Quintana Cardona as Chief Operating Officer and Chief Financial Officer with an annual salary of $144,000 with an annual bonus of 3% of our net income. The Employment Agreements have a term of 36 months, are renewable automatically for 24-month periods, unless the Company gives written notice at least 90 days prior to termination of the initial 36-month term. The Company shall have the right to terminate any of the employment agreements at any time without prior notice, but in that event, the Company shall pay these persons salaries and other benefits they are entitled to receive under their respective agreements for three years. The above executive officers agreed to two year non-compete and non-solicit restrictive covenants with the Company. If any of the executive officers are terminated for cause they shall forfeit any rights to severance.

 

During the six months ended June 30, 2019 and 2018, the Company recorded management fees of $118,000 and $0 and paid $62,200 and $0, respectively. As at June 30, 2019 and December 31, 2018, the Company accrued management salaries of $111,231 and $55,431, respectively.

 


14


 

 

NOTE 12 – COMMITMENTS AND CONTINGENCIES

 

Leases and Long-term Contracts

 

The Company has not entered into any long-term leases, contracts or commitments.

 

Rent

 

The Company leases office space at $1,200 per month with one-year term, starting July 1, 2018 and ending June 30, 2019. For the six months ended June 30, 2019 and 2018, the Company incurred $7,200 and $6,158, respectively.

 

The Company leases facilities which the term is 12 months. For the six months ended June 30, 2019 and 2018, the Company incurred $13,000 and $0, respectively.

 

NOTE 13 - SUBSEQUENT EVENTS

 

Subsequent to June 30, 2019 and through the date that these financials were made available, the Company had the following subsequent events:

 

On April 1, 2019, the Company entered into a Company Purchase Agreement (the “Purchase Agreement”) with Ralf Kohler (the “Seller”), which agreement provides for the Company’s purchase of 51% of the equity and certain assets of SwissLink Carrier AG (“SwissLink”), a Swiss corporation.

 

On August 7, 2019, having completed all conditions under the Purchase Agreement, the Company closed the transaction with Seller, and issued 187,500 shares to Seller for the 51% equity interest and certain assets in Swisslink and another 510 shares to Seller for 51% of the loan in Swisslink.

 

On July 11, 2019, the Company issued a convertible note in the principal amount of $282,000. The convertible note has a term of six months, accrues interest at 12% annually and the balance outstanding thereunder is convertible into the Company’s common stock at a price equal to 50% multiplied by the lowest trading price during the previous thirty days ending on the latest complete trading day prior to the conversion date.

 

On July 19, 2019, the Company issued a convertible note in the principal amount of $36,000. The convertible note has a term of twelve months, accrues interest at 10% annually and the balance outstanding thereunder is convertible into the Company’s common stock at a price equal to 50% multiplied by the lowest trading price during the previous twenty five days ending on the latest complete trading day prior to the conversion date.

 

On July 22, 2019, the Company issued a convertible note in the principal amount of $112,750. The convertible note has a term of nine months, accrues interest at 12% annually and the balance outstanding thereunder is convertible into the Company’s common stock at a price equal to 50% multiplied by the lowest trading price during the previous twenty five days ending on the latest complete trading day prior to the conversion date.

 

On July 23, 2019, the Company issued a convertible note in the principal amount of $125,000. The convertible note has a term of twelve months, accrues interest at 12% annually and the balance outstanding thereunder is convertible into the Company’s common stock at a price equal to 50% multiplied by the lowest trading price during the previous twenty five days ending on the latest complete trading day prior to the conversion date.


15


 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

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

 

We are a technology company offering a wide array of services to the telecommunications and internet industry. We currently offer, through our wholly owned subsidiary, Etelix.com USA LLC, international long-distance voice services for telecommunications operators (ILD Wholesale), and submarine fiber optic network capacity for Internet (4G and 5G).

 

Etelix.com USA LLC is based in the city of Miami, Florida; founded in 2008 and holder of an International Telecommunications Carrier 214-license issued by the Federal Telecommunications Commission (FCC).

 

In addition to pursuing the growth and development of the business of our subsidiary, Etelix.com USA LLC, we plan to expand our services to the retail market offering international long-distance voice communications to corporate, small business and individuals (ILD retail), supported in part on our current infrastructure.

 

We are also exploring opportunities in new business areas and markets, such as satellite communications; mobile services under the figure of a Mobile Virtual Network Operator (MVNO); Internet of Things (IoT) solutions and Data Centers. We expect that these new ventures will be developed either through mergers or acquisitions, or through strategic partnerships.

 

In addition, we are allocating resources to develop a Blockchain Payment Solution to facilitate the settlement of exchanged traffic among international carriers based on smart contracts.     

 

Our principal place of business is located at 300 Aragon Avenue, Suite 375 Coral Gables, FL 33134. General information about us can be found at www.iqstel.com. The information contained on or connected to our website is not incorporated by reference into this Quarterly Report on Form 10-Q and should not be considered part of this or any other report filed with the SEC.

 

Results of Operations

 

Revenues

 

Our total revenue reported for the three months ended June 30, 2019 was $4,253,359, compared with $3,700,670 for the three months ended June 30, 2018. Our total revenue reported for the six months ended June 30, 2019 was $8,416,562, compared with $5,880,835 for the six months ended June 30, 2018.

 

These numbers reflect an increase of 142% month over month primarily from the continuity of our commercial strategy put in place since the beginning of year 2018.

 

If net revenues continue growing at a similar rates for the next six months, we believe that the company will reach a total revenue of approximately $17 million by December 31, 2019.


16


 

 

Cost of Revenues

 

Our total cost of revenues for the three months ended June 30, 2019 increased to $4,345,087, compared with $3,223,540 for the three months ended June 30, 2018. Our total cost of revenues for the six months ended June 30, 2019 increased to $8,072,713, compared with $5,190,699 for the six months ended June 30, 2018.

 

Our cost of revenues 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 terminated in vendor’s network.

 

The increase results from a higher volume of minutes of African destinations, which rates are on average 9 times higher compared to the average rates of the rest of the World. This behavior in the costs shows a logical correlation with the behavior of the revenue commented above.

 

Operating Expenses

 

Operating expenses increased to $341,553 for the three months ended June 30, 2019 from $334,749 for the three months ended June 30, 2018. Operating expenses increased to $532,060 for the six months ended June 30, 2019 from $458,725 for the six months ended June 30, 2018. The detail by major category for the six month ended June 30, 2019 and 2018 is reflected in the table below.

 

 

 

Six Months Ended June 30

 

 

2019

 

2018

Salaries, Wages and Benefits

$

162,242

$

116,182

Technology

 

94,847

 

81,220

Professional Fees

 

162,662

 

211,945

Legal & Regulatory

 

-

 

25

Trade Insurance

 

-

 

9,665

Travel & Events

 

3,375

 

12,015

Public Cost

 

19,432

 

-

Advertising

 

50,000

 

-

Depreciation and Amortization

 

19,281

 

3,274

Office, Facility and Other

 

20,221

 

24,399

 

 

 

 

 

     Sub Total

 

532,060

 

458,725

 

 

 

 

 

Stock-based compensation

 

-

 

-

Lawsuit settlement

 

-

 

-

 

 

 

 

 

Total Operating Expense

$

532,060

$

458,725

 

The main reasons for the overall increase in operating expenses in 2019 were: (1) the Salaries, Wages and Benefits of $46,060; (2) Public cost of $19,432; and (3) Advertising and Promotion of $50,000.

 

On the other hand there was a significant reduction in the item Professional Fees of $49,283.

 

All other items were stable from one year to the other, which allows us to affirm that the cost structure of the company is under control and supervision.

 

Operating Income

 

The Company showed negative Operating Income for the three months ended June 30, 2019 of $433,281 compared with a positive result of $142,381 for the three months ended June 30, 2018. The Company showed negative Operating Income for the six months ended June 30, 2019 of $188,211 compared with a positive result of $231,411 for the six months ended June 30, 2018.

 

The increase of the numbers for the six month period above is primarily due to the costs associated to the operation of the public entity (iQSTEL, Inc.) estimated in the amount of $365,868. When we look at the results of our operating entity Etelix.com USA, LLC the Operating Income for the six months ended June 30, 2019 is $146,910.

 

It is important to remark that iQSTEL is in its first year of operations since the acquisition of Etelix.com USA, LLC; and during this period the company has incurred in high costs related to its reorganization, the preparation of the offering statement and due diligence activities related to the execution of the merge and acquisitions strategy.


17


 

 

Even though the Operating Expenses increases in absolute value when comparing the six months ended June 30, 2019 to the same period of 2018, those Operating Expenses experimented a reduction in terms of a percentage of Revenue from 7.80% as of June 30, 2018 to 6.32% for the same period of 2019.

 

Other Expenses/Other Income

 

We had other expenses of $50,960 for the three months ended June 30, 2019, as compared with other expenses of $90,547 for the same period ended 2018.  We had other expenses of $1,321,608 for the six months ended June 30, 2019, as compared with other expenses of $160,536 for the same period ended 2018. The increase in other expenses is a result of the change in fair value of derivative liabilities of $547,671, and the increase of interest expenses to $776,162 for the six months ended June 30, 2019 compared to $157,569 for the same period ended 2018.

 

Net Loss

 

We finished the three months ended June 30, 2019 with a loss of $484,241, as compared to a net income of $51,834 during the three months ended June 30, 2018. We finished the six months ended June 30, 2019 with a loss of $1,509,819, as compared to a net income of $70,875 during the six months ended June 30, 2018.

 

The reasons for specific components are discussed above. Overall, these are the main concepts impacting the net result: (1) a loss in the change in fair value of derivative liabilities of $547,671; (2) an increment in interest expenses of $618,593 year over year and (3) the Operating Expenses of the public entity of $365,868.

 

Liquidity and Capital Resources

 

As of June 30, 2019, we had total current assets of $2,058,611 and current liabilities of $4,739,508, resulting in a working capital deficit of $2,680,897. This compares with the working capital deficit of $1,882,754 at December 31, 2018. This increase in working capital deficit, as discussed in more detail below, is primarily the result of the increment in the derivative liabilities.

 

Our operating activities used $667,737 in the six months ended June 30, 2019 as compared with $138,407 used in operating activities in the six months ended June 30, 2018.

  

Financing activities provided $743,653 in the six months ended June 30, 2019 compared with $140,496 provided in the six months ended June 30, 2018. Our positive financing cash flow in 2018 was largely the result of the proceeds from loans, capital contributions and proceeds from convertible notes.

 

Based upon our current financial condition, we do not have sufficient cash to operate our business at the current level for the next twelve months. We intend to fund operations through increased sales and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan to seek additional financing in a 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 three month period ended June 30, 2019.

 

Critical Accounting Polices

 

In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that 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 critical accounting policies are disclosed in Note 2 of our audited consolidated financial statements included in the Form 10-K filed with the Securities and Exchange Commission.

 

Off Balance Sheet Arrangements

 

As of June 30, 2019, there were no off balance sheet arrangements.


18


 

 

Recent Accounting Pronouncements

 

The recent accounting pronouncements that are material to our financial statements are disclosed in Note 2 of our consolidated audited financial statements included in the Form 10-K filed with the Securities and Exchange Commission and in Note 2 of our unaudited consolidated financial statements included herein.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

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

 

Item 4.  Controls and Procedures

 

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 effective as of June 30, 2019.

 

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 three month period ended June 30, 2019, 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.


19


 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are not a party to any material pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

 

Item 1A: Risk Factors

 

See Risk Factors contained in our Form 10-K filed with the SEC on April 10, 2019.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933.

 

During the six months ended June 30, 2019, the Company converted notes with principal amounts of $5,000 into 76,335 shares of common stock.

 

During the six months ended June 30, 2019, the Company issued a total of $1,171,000 in convertible notes and the lenders were also provided with a total of 376,931 common shares and warrant to purchase up to 92,000 shares of common stock at exercise price of $2.5 per share for 3 years.

 

These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

N/A

 

Item 5. Other Information

 

None

 

Item 6. Exhibits

 

 

 

Exhibit Number

Description of Exhibit

 

31.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101**

The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 formatted in Extensible Business Reporting Language (XBRL).

 

 

**Provided herewith

 


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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on August 09, 2019 on its behalf by the undersigned thereunto duly authorized.

 

IQSTEL INC.

 

/s/ Leandro Iglesias

Leandro Iglesias

Principal Executive Officer

 

 

/s/ Alvaro Quintana Cardona

Alvaro Quintana Cardona

Principal Financial and Accounting Officer


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