iQSTEL Inc. Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. The filing is an annual Form 10-K, not a standalone fourth-quarter report. iQSTEL provides wholesale telecommunications services, primarily voice, SMS and data, through operations in the United States, Switzerland and other international markets. Fintech, blockchain, electric vehicle and metaverse initiatives remained pre-revenue or developmental.
Business Context
- Telecommunications generated 100% of reported revenue.
- The company had approximately 70 employees and operations in 19 countries at December 31, 2023.
- Voice revenue was $67.7 million, or 46.85% of total revenue, compared with 42.50% in 2022.
- SMS revenue represented 53.15% of total revenue, compared with 57.50% in 2022.
- Voice traffic increased to 4.2 billion minutes from 2.7 billion minutes. The filing states SMS traffic increased to 11.3 billion from 8.5 billion, although one passage contains an apparent year-labeling error.
Financial Performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $144.5 million | $93.2 million | +55% |
| Cost of revenue | $139.8 million | $91.4 million | +53% |
| Gross profit | $4.7 million | $1.8 million | +161% |
| Gross margin | 3.23% | 1.92% | +131 basis points |
| Operating expenses | $5.0 million | $5.0 million | Approximately flat |
| Operating loss | $315,503 | $3.2 million | Improved |
| Net loss | $219,436 | $5.9 million | Improved |
| Net loss attributable to iQSTEL | $763,258 | $6.0 million | Improved |
| Net loss attributable to iQSTEL stockholders | $1.6 million | $6.0 million | Improved |
| Basic and diluted loss per share | $0.01 loss | $0.04 loss | Improved |
Other income was $96,067 in 2023 versus other expense of $2.7 million in 2022. The improvement primarily reflected a $381,848 favorable change in the fair value of derivative liabilities, compared with a $2.65 million unfavorable change in 2022. The company continued to report a net loss and has not achieved profitable operations.
Cash Flow, Liquidity and Debt
| Metric | 2023 | 2022 |
|---|---|---|
| Cash and cash equivalents | $1.36 million | $1.33 million |
| Net cash used in operating activities | $1.48 million | $1.77 million |
| Net cash used in investing activities | $332,550 | $2.00 million |
| Net cash provided by financing activities | $1.83 million | $1.77 million |
| Working capital | $1.88 million | $(15,089) |
| Current ratio | 1.14 to 1 | 0.99 to 1 |
| Total liabilities | $14.1 million | $6.7 million |
| Accumulated deficit | $26.1 million | $24.5 million |
- Accounts receivable increased to $12.5 million from $4.2 million, contributing substantially to operating cash usage.
- Current liabilities increased to $13.8 million from $6.5 million, primarily reflecting higher accrued and other current liabilities.
- Debt included $592,263 of loans payable net of discount, $259,447 owed to related parties and $101,856 of convertible notes at year-end.
- Financing cash flow included $1.4 million from warrant exercises and $250,000 of convertible-note proceeds.
- Management stated that existing cash was insufficient to operate at the current level for the next twelve months and that additional debt, equity financing and increased sales would be required.
Material Changes Versus 2022
- Revenue increased 55%, led by Etelix, IoT Labs and Smartbiz. Whisl revenue declined from $4.3 million to $1.9 million.
- Gross profit and gross margin improved materially, but the company remained slightly loss-making at the operating level.
- Operating expenses were essentially unchanged despite higher revenue.
- Net loss narrowed significantly, partly because 2022 included a large derivative-liability remeasurement loss.
- Common shares outstanding increased to 172.1 million at December 31, 2023 from 161.6 million at December 31, 2022. The company issued 10.3 million shares for warrant exercises and 240,000 shares as director compensation.
- The company issued 10,080 Series B preferred shares as a dividend valued at $816,480. Series B preferred shares carry a 24% annual dividend rate based on a $81 liquidation preference and may convert into common stock.
- All warrants outstanding at December 31, 2022 were exercised or expired by December 31, 2023; no warrants were outstanding at year-end.
Guidance, Outlook, Risks and Unusual Items
- No formal revenue or earnings guidance was provided. Management’s stated strategy is to increase telecommunications sales, expand through acquisitions and develop fintech, blockchain, EV and metaverse businesses.
- The independent auditor reported substantial doubt about the company’s ability to continue as a going concern. Management expects to seek public or private equity financing and loans, but no financing is assured.
- Management identified a need for approximately $1.75 million during the next twelve months for acquisitions and business-plan execution.
- Management concluded that disclosure controls and internal control over financial reporting were ineffective. Material weaknesses involved inadequate segregation of duties and insufficient written accounting and reporting policies. Remediation is dependent in part on obtaining additional financing.
- Revenue is highly concentrated: 12 customers, representing approximately 2.6% of the customer base, accounted for 89% of 2023 revenue. Approximately 52% of revenue was prepaid.
- The business faces telecommunications price competition, declining per-minute pricing, substitution by over-the-top services, carrier-agreement renewal risk, customer credit risk, cybersecurity threats, foreign-exchange exposure and extensive telecommunications and payment-services regulation.
- The filing reported no current legal proceedings, no off-balance-sheet arrangements and no material cybersecurity incident identified through December 31, 2023.
- Subsequent to year-end, the company agreed to acquire 51% of QXTEL Limited for $5.0 million, including a $1.5 million nonrefundable escrow deposit if the transaction did not close by April 30, 2024.
- In January and March 2024, the company issued secured convertible notes with aggregate face value of approximately $3.89 million for total purchase proceeds of $3.5 million. The notes bear 18% annual interest, are convertible initially at $0.11 per share and are secured by company assets.
Investor Verification Items
- Verify the company’s ability to fund operations, meet near-term debt maturities and satisfy the going-concern requirements without relying on uncertain financing.
- Reconcile the substantial increase in accounts receivable and accrued liabilities with reported revenue growth and operating cash flow.
- Assess whether the 3.23% consolidated gross margin can improve sufficiently to cover operating expenses and produce sustainable positive cash flow.
- Review the terms, collateral, conversion features and potential dilution from the 2024 secured convertible notes and any additional financing.
- Confirm the status, funding and expected closing of the QXTEL acquisition and the treatment of the $1.5 million escrow deposit.
- Evaluate customer concentration, collection exposure and the sustainability of prepaid revenue arrangements.
- Monitor remediation of internal-control material weaknesses and the consequences of ineffective disclosure controls.
- Review the economic effect and potential dilution of Series B preferred shares, management compensation arrangements and future equity issuances.