iQSTEL Inc (IQST) 10-Q for FY2020 Q2, filed Aug 13, 2020

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, 2020 [ ] 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) Securities registered pursuant to Section 12(b) of the Act: None 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 every Interactive Data File required to be submitted 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 such files). [X] Yes [ ] No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. [ ] Large accelerated filer [ ] Accelerated filer[X] 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 State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 72,598,774 common shares as of August 11, 2020 1 TABLE OF CONTENTS PART I – FINANCIAL INFORMATION PageItem 1:Financial Statements4Item 2:Management’s Discussion and Analysis of Financial Condition and Results of Operations23Item 3:Quantitative and Qualitative Disclosures About Market Risk26Item 4:Controls and Procedures26 PART II – OTHER INFORMATION Item 1:Legal Proceedings28Item 1A:Risk Factors28Item 2:Unregistered Sales of Equity Securities and Use of Proceeds28Item 3:Defaults Upon Senior Securities28Item 4:Mine Safety Disclosures28Item 5:Other Information28Item 6:Exhibits28 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements Our unaudited consolidated financial statements included in this Form 10-Q are as follows: 4Consolidated Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019;5Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019 (unaudited); 6Consolidated Statements of Stockholder’s Equity as of June 30, 2020; and 2019; and7Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 (unaudited)8Notes 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 31, 2020 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, 2020 2019 ASSETS Current Assets Cash and cash equivalents779,553270,503Accounts receivable, net2,706,7332,759,164Due from related parties287,884316,860Prepaid and other current assets79,13291,970Total Current Assets3,853,3023,438,497 Property and equipment, net351,411287,970Intangible asset21,875-Goodwill1,537,7421,455,960Deferred tax assets429,757420,519TOTAL ASSETS6,194,0875,602,946 LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities Accounts payable2,280,0502,291,921Due to related parties154,61634,631Loans payable - net of discount of $9,702 and $01,205,28889,671Loans payable - related parties1,925,1411,885,708Current portion of convertible notes - net of discount of $457,454 and $597,6541,115,8521,251,096Other current liabilities675,225848,484Derivative liabilities1,159,7974,744,134Total Current Liabilities8,515,96911,145,645 Convertible notes - net of discount of $2,929 and $48,5582,07111,442Loans payable270,611178,021Employee benefits, non-current150,94938,253TOTAL LIABILITIES8,939,60011,373,361 Stockholders' Deficit Preferred stock: 1,200,000 authorized; $0.0001 par value - no shares issued and outstanding--Common stock: 300,000,000 authorized; $0.001 par value 68,295,300 and 18,008,591 shares issued and outstanding, respectively68,29518,008Additional paid in capital8,686,1033,240,528Accumulated deficit(10,729,728)(8,125,257)Accumulated other comprehensive income(17,311)(181)Deficit attributed to stockholders of iQSTEL Inc.(1,992,641)(4,866,902)Deficit attributable to noncontrolling interests(752,872)(903,513)Total stockholders' Deficit(2,745,513)(5,770,415) TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT6,194,0875,602,946All values are in US Dollars.

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, 2020 2019 2020 2019Revenues11,130,0864,253,35916,147,4988,416,562Cost of revenue10,397,7784,345,08715,576,3318,072,713Gross profit732,308(91,728)571,167343,849 Operating expenses General and administration905,016341,5532,202,543532,060Total operating expenses905,016341,5532,202,543532,060 Operating loss(172,708)(433,281)(1,631,376)(188,211) Other income (expense) Other income8,815-24,7322,600Other expenses(3,002)(233)(8,057)(375)Interest expense(653,141)(511,125)(1,454,515)(776,162)Change in fair value of derivative liabilities1,914,271460,398254,248(547,671)Gain on settlement of debt283,230-283,230-Total other income (expense)1,550,173(50,960)(900,362)(1,321,608) Net Income (loss) before provision for income taxes1,377,465(484,241)(2,531,738)(1,509,819)Income taxes----Net income (loss)1,377,465(484,241)(2,531,738)(1,509,819)Less: Net income attributable to noncontrolling interests91,446-72,733-Net income (loss) attributed to stockholders of iQSTEL Inc.1,286,019(484,241)(2,604,471)(1,509,819) Comprehensive income (loss) Net income (loss)1,377,465(484,241)(2,531,738)(1,509,819)Foreign currency adjustment(30,310)-(33,588)-Total comprehensive income (loss)1,347,155(484,241)(2,565,326)(1,509,819)Less: Comprehensive income attributable to noncontrolling interests76,594-56,275-Net comprehensive income (loss) **attributed to stockholders of iQSTEL Inc.**1,270,561(484,241)(2,621,601)(1,509,819) Basic income (loss) per common share0.02(0.03)(0.06)(0.1)Diluted loss per common share(0.01)(0.03)(0.06)(0.1) Weighted average number of common shares outstanding - Basic57,019,99315,357,68943,928,99415,199,517Weighted average number of common shares outstanding - Diluted68,551,20915,357,68943,928,99415,199,517All values are in US Dollars.

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

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’s authorized capital consists of 300,000,000 shares of common stock with a par value of $0.001 per share.

During the six months ended June 30, 2020, the Company issued 50,286,709 shares of common stock, valued at fair market value on issuance as follows; ·4,500,000 shares issued for cash of $360,000 ·4,508,510 shares issued for settlement of debt of $269,840 ·4,173,000 shares issued for services valued at $450,034 ·50,000 shares issued for forbearance of debt of $2,900 ·33,821,613 shares issued for conversion of debt of $701,500 ·3,233,586 shares issued for cashless exercised warrant As of June 30, 2020 and December 31, 2019, 68,295,300 and 18,008,591 shares of common stock were issued and outstanding, respectively. 17 iQSTEL INC Notes to the Unaudited Consolidated Financial Statements June 30, 2020

On March 3, 2020, Oscar Brito resigned as a member of our Board of Directors. There was no known disagreement with Mr. Brito on any matter relating to our operations, policies or practices. The Company provided the severance package as follows;

·2,000,000 shares of common stock valued at $300,000 ·Additional 173,000 shares in order to apply the anti-dilution protection, valued at $10,034 ·Forgiveness of amounts due to the Company totaling $43,375 ·Cash payment of $15,000. We also appointed Mr. Brito as an advisor to our Board of Directors and agreed to pay him $5,000 per month for such services. 18 iQSTEL INC Notes to the Unaudited Consolidated Financial Statements June 30, 2020 NOTE 12 - RELATED PARTY TRANSACTIONS (CONTINUED) On March 16, 2020, our Board of Directors adopted a Director Compensation Plan that applies to members of our Board of Directors. Below are the features of the plan: ·All Directors shall receive reimbursement for reasonable travel expenses incurred to attend Board and committee meetings. ·All Directors shall be compensated $3,000 monthly for their service as Directors. ·In lieu of the cash compensation set forth above, each Director may elect to receive shares of the Corporation's Common Stock equal to the total cash compensation divided by the average market value of the Company's Common Stock during the last 10 trading days and applying a discount of 10%. ·Directors Alvaro Cardona and Leandro Iglesias shall each receive 1,000,000 shares of the Company’s Common Stock, valued at $70,000 each, for their service as members of the Board of Directors for the period from June 2018 to December 2019. During the six months ended June 30, 2020 and 2019, the Company recorded management fees of $252,000 and $118,000 and paid $62,300 and $62,200, respectively. During the six months ended June 30, 2020, the Company settled accrued salary – management of $202,500 and issued 4,308,510 shares. As at June 30, 2020 and December 31, 2019, the Company accrued management salaries of $255,431 and $268,231, respectively. NOTE 13 – COMMITMENTS AND CONTIGENCIES Leases and Long-term Contracts The Company has not entered into any long-term leases, contracts or commitments. Lease The Company leases facilities which the term is 12 months. For the six months ended June 30, 2020 and 2019, the Company incurred $16,100 and $0, respectively. 19 iQSTEL INC Notes to the Unaudited Consolidated Financial Statements June 30, 2020 NOTE 14 – EARNING PER SHARE Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the periods. Diluted net income per common share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the periods. Common equivalent shares consist of stock options, unvested restricted shares, and outstanding warrants that are computed using the treasury stock method. Antidilutive stock awards consist of stock options that would have been antidilutive in the application of the treasury stock method. Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019Numerator: Net Income (Loss)1,377,465(484,241)(2,531,738)(1,509,819)Change in fair value of derivatives(1,914,271)---Interest on convertible debt111,518---Net Loss - diluted(425,288)(484,241)(2,531,738)(1,509,819) Denominator: Weighted average common shares outstanding57,019,99315,357,68943,928,99415,199,517Effect of dilutive shares11,531,215---Diluted68,551,20815,357,68943,928,99415,199,517 Net income per common share: Basic0.02(0.03)(0.06)(0.1)Diluted(0.01)(0.03)(0.06)(0.1)All values are in US Dollars. For the six months ended June 30, 2020 and three and six months ended June 30, 2019, the convertible instruments are anti-dilutive and therefore, have been excluded from earnings (loss) per share. NOTE 15 – SEGMENT At June 30, 2020, the Company operates in one industry segment, telecommunication services, and two geographic segments, USA and Switzerland, where current assets and equipment are located**.** Operating Activities The following table shows operating activities information by geographic segment for the three and six months ended June 30, 2020 and 2019: Three months Ended June 30, 2020 USA Switzerland Elimination TotalRevenues9,947,8371,183,087(838)11,130,086Cost of revenue9,387,2891,011,327(838)10,397,778Gross profit560,548171,760-732,308 Operating expenses General and administration741,967163,049-905,016Operating income (loss)(181,419)8,711-(172,708)Other income (expense)1,547,4952,678-1,550,173Net income1,366,07611,389-1,377,465All values are in US Dollars. 20 iQSTEL INC Notes to the Unaudited Consolidated Financial Statements June 30, 2020 NOTE 15 – SEGMENT (CONTINUED) Three months Ended June 30, 2019 USA Switzerland Elimination TotalRevenues4,253,359--4,253,359Cost of revenue4,345,087--4,345,087Gross profit(91,728)--(91,728) Operating expenses General and administration341,553--341,553Operating income (loss)(433,281)--(433,281)Other income (expense)(50,960)--(50,960)Net income(484,241)--(484,241)All values are in US Dollars. Six months Ended June 30, 2020 USA Switzerland Elimination TotalRevenues13,768,3702,381,204(2,076)16,147,498Cost of revenue13,508,4722,069,935(2,076)15,576,331Gross profit259,898311,269-571,167 Operating expenses General and administration1,874,059328,484-2,202,543Operating income (loss)(1,614,161)(17,215)-(1,631,376)Other income (expense)(890,776)(9,586)-(900,362)Net income(2,504,937)(26,801)-(2,531,738)All values are in US Dollars. Six months Ended June 30, 2019 USA Switzerland Elimination TotalRevenues8,416,562--8,416,562Cost of revenue8,072,713--8,072,713Gross profit343,849--343,849 Operating expenses General and administration532,060--532,060Operating income (loss)(188,211)--(188,211)Other income (expense)(1,321,608)--(1,321,608)Net income(1,509,819)--(1,509,819)All values are in US Dollars.

As of August 7, 2019,having completed all conditions under the Purchase Agreement, the Company acquired SwissLink located in Switzerland.

21 iQSTEL INC Notes to the Unaudited Consolidated Financial Statements June 30, 2020 NOTE 15 – SEGMENT (CONTINUED) Asset Information The following table shows asset information by geographic segment at June 30, 2020 and December 31, 2019: June 30, 2020USA Switzerland Elimination TotalAssets Current assets3,410,7291,270,688(828,115)3,853,302Non-current assets3,497,963512,337(1,669,515)2,340,785Liabilities Current liabilities6,422,6462,921,438(828,115)8,515,969Non-current liabilities2,071421,560-423,631All values are in US Dollars. December 31, 2019USA Switzerland Elimination TotalAssets Current assets3,073,6541,174,856(810,013)3,438,497Non-current assets3,146,894456,070(1,438,515)2,164,449Liabilities Current liabilities9,041,4212,914,237(810,013)11,145,645Non-current liabilities11,442216,274-227,716All values are in US Dollars. NOTE 15 - SUBSEQUENT EVENTS Subsequent to June 30, 2020 and through the date that these financials were made available, the Company had the following subsequent events: On July 14, 2020, we entered into a Subscription Agreement with Alpha Capital Anstalt (“Purchaser”), pursuant to which we issued and sold to the Purchaser 2,000,000 shares of our common stock (the “Shares”) for total proceeds of $160,000. The Shares were sold at $0.08 per share, after applying a 20% discount to the purchase price of $0.10 per share. The Shares were offered and sold pursuant to qualified offering circular on Form 1-A (File No. 024-10950) and related supplement, in each case filed with the Securities and Exchange Commission. A copy of the form of Subscription Agreement used in the offer and sale is attached as Exhibit 13.1 to the Form 1-A/A filed with the SEC on June 3, 2019. Also on July 14, 2020, we entered into a Securities Purchase Agreement (“SPA”) with Purchaser for the sale of a convertible promissory note, executed on July 15, 2019, in the principal amount of $200,000 (the “Note”). We received $160,000 after paying a $40,000 original issue discount on the Note. The Note bears interest at 5% per annum and matures one year from the date of issuance. After 180 days from issuance, the Note may be converted by purchaser into shares of our common stock at a conversion price of the lesser of (i) $0.025 or (ii) 40% of the lowest trading price of our common stock in the 20 days preceding the issuance date of the Note. As additional consideration for the Note, we issued to Purchaser a warrant (the “Warrant”) to purchase 2,000,000 shares of common stock at an exercise price of $0.02 per share (subject to adjustment as set forth in the Warrant) expiring six months from the date of issuance. On July 01, 2020, we entered into a 60-day term bridge loan with Apollo Management Group for the principal amount of $73,684.21 bearing interest at the rate of Twelve (12%) percent per annum, commencing on the date such Loan is funded until the date the Loan is paid in full.

On July 22, 2020, we entered into an Exchange Agreement with Jefferson Street Capital LLC, whereby we agreed to exchange a February 22, 2019 Common Stock Purchase Warrant and June 27, 2019 Convertible Promissory Note in the principal amount of $35,000 into a total of 650,000 shares of our common stock.

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 iQSTEL Inc. (the “Company”) (OTC Pink: IQST) is a leading-edge 21st Century Enhanced Telecommunications Service Provider offering a wide range of cloud-based enhanced services to the Tier-1 and Tier-2 carriers, enterprise market, as well as the retail market. iQSTEL offers international and domestic VoIP services, SMS exchange for A2P and P2P, Internet of Things (IoT) applications, 4G & 5G international infrastructure connectivity, as well as blockchain-based payment and phone number mobility platforms to international and domestic Tier-1 carrier for VoIP, SMS, and Data. 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, 2020 was $11,130,086, compared with $4,253,359 for the three months ended June 30, 2019. These numbers reflect an increase of 161.68% quarter over quarter on our consolidated revenues. Our total revenue reported for the six months ended June 30, 2020 was $16,147,498, compared with $8,416,562 for the six months ended June 30, 2019. When looking at the numbers by subsidiary, we have the following breakout for the six months ended June 30, 2020: Subsidiary Revenue Six Months Ended June 30, 2020Etelix.com USA, LLC7,221,344Swisslink Carrier AG2,381,204QGlobal LLC163,546IoT Labs LLC6,381,404 16,147,498All values are in US Dollars. 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 new acquisitions. Cost of Revenues Our total cost of revenues for the three months ended June 30, 2020 increased to $10,397,778, compared with $4,345,087 for the three months ended June 30, 2019. Our total cost of revenues for the six months ended June 30, 2020 increased to $15,576,331, compared with $8,072,713 for the six months ended June 30, 2019. 23 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 and SMS terminated in vendor’s network. The behavior in the costs shows a logical correlation with the behavior of the revenue commented above. We have reac-hed a higher volume of sales and every additional unit sold (minutes and SMS) has its corresponding termination cost. Operating Expenses Operating expenses increased to $905,016 for the three months ended June 30, 2020 from $341,553 for the three months ended June 30, 2019. Operating expenses increased to $2,202,543 for the six months ended June 30, 2020 from $532,060 for the six months ended June 30, 2019. The detail by major category for the six months ended June 30, 2020 and 2019 is reflected in the table below. Six Months Ended June 30, 2020 2019Salaries, Wages and Benefits562,427162,242Technology28,10094,847Professional Fees214,853162,662Legal & Regulatory3,224-Bad debts76,375-Travel & Events1,3413,375Public Cost49,73219,432Advertising583,07950,000Bank Services and Fees35,926-Depreciation and Amortization31,14019,281Office, Facility and Other116,31220,221 Sub Total1,702,509532,060 Stock-based compensation500,034-Total Operating Expense2,202,543532,060All values are in US Dollars. The main reasons for the overall increase in operating expenses for the six months ended June 30, 2020 compared to the same period of 2019 is that in 2020 we are reflecting the costs corresponding to 5 operating subsidiaries (Etelix.com, Swisslink, ItsBchain, QGlobal and IoT Labs) plus the corporate costs corresponding to iQSTEL itself; while in 2019 operating expenses corresponded only to one subsidiary and corporate costs of iQSTEL; as shown in the table below. Six Months Ended June 30, 2020 2019 DifferenceiQSTEL1,587,992315,6381,272,354Etelix184,100216,422-32,322Swisslink328,483-328,483ItsBchain52,684-52,684QGlobal29,952-29,952IoT Labs19,332-19,332 2,202,543532,0601,670,483All values are in US Dollars. The most significant difference is generated by iQSTEL which is due to the following: (1) the Salaries, Wages and Benefits as a result of the new employment agreements with the Management Team members valid from May 2019, where the aggregated monthly salaries varied from $11,500 to $36,000, and the implementation starting on January 2020 of a compensation for Board Members of 3,000 monthly; (2) Advertising corresponds to the third-party consultancy for the design and implementation of a Social Media communication strategy oriented to build and enhance our companies and brand image; and (3) Stock-based compensation. Operating Income The Company showed negative Operating Income for the three months ended June 30, 2020 of $172,708 compared with a negative result of $433,281 for the three months ended June 30, 2019; which is a positive variation quarter over quarter. The Company showed negative Operating Income for the six months ended June 30, 2020 of $1,627,117 compared with a negative result of $188,211 for the six months ended June 30, 2019. 24 The increase of the numbers for the six month period above is primarily due to the costs associated with the operation of the public entity (iQSTEL, Inc.) estimated in the amount of $1,587,992. When looking at the results of our operating subsidiaries, we notice a very good performance of each of them, particularly in the three months ended in June 30, 2020. Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019Revenues Etelix3,402,0494,253,3597,221,3448,416,562Swisslink1,183,088-2,381,204-ItsBChain----QGlobal163,546-163,546-IoT Labs6,381,403-6,381,404-Total Revenue11,130,0864,253,35916,147,4988,416,562Cost of revenue Etelix3,096,1464,345,0877,217,3308,072,713Swisslink1,012,566-2,069,935-ItsBChain----QGlobal102,231-102,231-IoT Labs6,186,835-6,186,835-Total Cost of Revenue10,397,7784,345,08715,576,3318,072,713 Gross profit732,308(91,728)571,167343,849 Operating Expenses Etelix85,889127,957184,100216,422Swisslink163,049-328,483-ItsBChain--52,684-QGlobal25,602-29,952-IoT Labs19,332-19,332-Total Operating Expenses293,872127,957614,551216,422 Operating Income (Loss)438,436(219,685)(43,384)127,427All values are in US Dollars. Other Expenses/Other Income We had other income of $1,550,173 for the three months ended June 30, 2020, as compared with other expenses of $50,960 for the same period ended 2019. We had other expenses of $900,362 for the six months ended June 30, 2020, as compared with other expenses of $1,321,608 for the same period ended 2019. The decrease in other expenses is a result of the positive change in fair value of derivative liabilities, and the gain on settlement of debts of $283,230. Net Income We finished the three months ended June 30, 2020 with a net income of $1,377,465, as compared to a loss of $484,241 during the three months ended June 30, 2019. We finished the six months ended June 30, 2020 with a loss of $2,531,738, as compared to a loss of $1,509,819 during the six months ended June 30, 2019. The reasons for specific components are discussed above. Overall, these are the main concepts impacting the net result: (1) an increment in interest expenses of $678,353 year over year to total $1,454,515; and (2) the Operating Expenses of the public entity of $1,587,992. Liquidity and Capital Resources As of June 30, 2020, we had total current assets of $3,853,302 and current liabilities of $8,515,969, resulting in a working capital deficit of $4,662,667‬. This compares with the working capital deficit of $7,707,148‬ at December 31, 2019. This decrease in working capital deficit, as discussed in more detail below, is primarily the result of the increase of $509,050 in the cash position and a reduction of $3,584,337 in the derivative liabilities.‬ ‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬ 25 Our operating activities used $1,126,307 in the six months ended June 30, 2020 as compared with $667,737 used in operating activities in the six months ended June 30, 2019. Investing activities provided $2,550 for the six months ended June 30, 2020. Uses of funds on investing activities were the purchase of property and equipment for value of $58,832 and net payment of loans between related parties of $14,399. Main source of funds in the Investing activities was resulting from the acquisition of subsidiary IoT Labs of $75,781. Financing activities provided $1,626,500 in the six months ended June 30, 2020 compared with $743,653 provided in the six months ended June 30, 2019. Our positive financing cash flow in 2020 was largely the result of the net proceeds from loans $483,690, net proceeds from convertible notes $782,810; and proceed from the subscription of new common stocks under our Regulation A offering $360,000. 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. The Company has received the qualification of an Offering Statement under Regulation A for the sale of up to 24,000,000 common shares. This offering is being conducted on a “best efforts” basis, which means that there is no guarantee that any minimum amount will be sold. We also 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 six month period ended June 30, 2020. 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, 2020, there were no off-balance sheet arrangements. 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. 26 Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were ineffective as of June 30, 2020. 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, 2020, 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. 27 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 15, 2020. 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, we issued: ·4,500,000 shares issued for cash of $360,000 ·4,508,510 shares issued for settlement of debt of $269,840 ·4,173,000 shares issued for services valued at $450,034 ·50,000 shares issued for forbearance of debt of $2,900 ·33,821,613 shares issued for conversion of debt of $701,500 ·3,233,586 shares issued for cashless exercised warrant 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, 2020 formatted in Extensible Business Reporting Language (XBRL). **Provided herewith 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on August 13, 2020 on its behalf by the undersigned thereunto duly authorized. IQSTEL INC. /s/ Leandro IglesiasLeandro IglesiasPrincipal Executive Officer /s/ Alvaro Quintana CardonaAlvaro Quintana CardonaPrincipal Financial and Accounting Officer 29]()

iQSTEL Inc 10-Q for FY2020 Q2

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