iQSTEL Inc. Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2021, filed April 15, 2022. The filing reports full-year results rather than a standalone fourth-quarter period. iQSTEL is a global telecommunications and technology company operating in 13 countries through telecom, technology and fintech businesses, including VoIP, SMS, 4G/5G connectivity, cloud communications, IoT, blockchain and payment solutions.
The company operates through Etelix.com USA, SwissLink Carrier AG, QGlobal SMS, IoT Labs, ItsBChain and Global Money One. It had 49 employees at December 31, 2021 and operated primarily in the United States and Switzerland.
Financial performance and liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $64.7 million | $44.9 million | +44% |
| Cost of revenue | $63.2 million | $43.9 million | +44% |
| Gross profit | $1.5 million | $1.0 million | +59% |
| Gross margin | 2.4% | 2.1% | Improved |
| Operating loss | $(3.0) million | $(3.2) million | Improved |
| Net loss | $(3.9) million | $(6.7) million | Improved |
| Net loss attributable to iQSTEL stockholders | $(3.8) million | $(6.6) million | Improved |
| Basic and diluted loss per share | $(0.03) | $(0.10) | Improved |
| Cash flow from operations | $(3.2) million | $(2.1) million | Higher use of cash |
| Cash flow from investing | $(0.5) million | $(0.1) million | Higher use of cash |
| Cash flow from financing | $6.3 million | $2.7 million | Higher inflow |
| Cash at year-end | $3.3 million | $0.8 million | Increased |
Operating expenses were $4.5 million, including $947,464 of stock-based compensation. Interest expense declined to $675,481 from $3.5 million, contributing materially to the reduction in net loss. The company reported total assets of $9.1 million, total liabilities of $2.6 million and stockholders’ equity of $6.4 million at December 31, 2021.
Current assets were $6.6 million versus current liabilities of $2.4 million, producing working capital of $4.2 million and a current ratio of approximately 2.78 to 1. Debt included $434,745 of loans payable, including current and non-current portions, and $239,308 of loans payable to related parties. Convertible notes and derivative liabilities were reduced to zero at year-end.
Material changes versus the prior comparable period
- Revenue increased $19.8 million, led principally by IoT Labs revenue of $43.9 million versus $25.0 million in 2020. Etelix revenue increased, while SwissLink revenue declined.
- Gross profit increased by $571,363, although the consolidated gross margin remained very low at approximately 2.4%.
- Operating loss narrowed by approximately $228,000 despite higher operating expenses, while net loss improved by approximately $2.8 million.
- Interest expense decreased by approximately $2.8 million, and derivative liabilities were fully settled or revalued to zero.
- Operating cash flow deteriorated by approximately $1.0 million because the business continued to generate losses and accounts payable decreased.
- Financing cash flow increased primarily because of $6.3 million in proceeds from common-stock issuances under the Regulation A offering.
- The company issued 51.6 million common shares during 2021 for cash, debt settlements, services, management compensation, debt forbearance and debt conversion. Common shares outstanding increased to 147.5 million at year-end from 118.1 million.
- A related-party debt balance of $1.65 million was exchanged for equity during 2021.
Guidance, outlook, risks and unusual items
Management stated that, if revenue continues growing at a similar rate, consolidated revenue could reach approximately $90 million by December 31, 2022. Management also expected gross margin to increase through improved termination costs. These statements are forward-looking and are not presented as firm guidance.
The auditor identified substantial doubt about the company’s ability to continue as a going concern. Management stated that cash was insufficient to operate at the current level for the next twelve months and that operations would require increased sales and additional debt or equity financing. The Regulation A offering permits the sale of up to 80 million common shares on a best-efforts basis, with no assurance that the offering will raise a minimum amount.
- Revenue concentration is significant: seven customers represented 88% of 2021 revenue, although 68% of revenue was prepaid.
- Telecommunications pricing pressure, competition, declining traditional voice usage and dependence on carrier agreements may reduce revenue or margins.
- The company remains exposed to customer collection risk, foreign currency movements, international regulatory requirements, cyberattacks, network disruptions and economic or political instability.
- Management concluded that disclosure controls and internal control over financial reporting were ineffective at year-end. Material weaknesses involved inadequate segregation of duties, risk assessment and written accounting and reporting procedures.
- Remediation depends substantially on obtaining additional financing. The external auditor did not provide an internal-control attestation because the company is a non-accelerated filer.
- Related-party loans due from the company’s CEO and other parties totaled $424,086 at year-end; these loans were unsecured, non-interest bearing and due on demand.
- The company issued preferred stock with potentially significant voting, liquidation, dividend and conversion rights. Series A preferred stock represented 51% of the total stockholder vote, while Series B preferred stock carried a 24% annual in-kind dividend rate when declared and a conversion right.
- On March 31, 2022, the company sold 2 million common shares for $1 million under the Regulation A offering; the shares were issued April 6, 2022.
- No current legal proceedings or off-balance-sheet arrangements were reported.
Most important facts for investors to verify
- Whether the company can generate positive operating cash flow and achieve profitability without continued equity or debt financing.
- The sustainability and quality of the 44% revenue growth, particularly the concentration in IoT Labs and a small number of customers.
- Whether gross-margin expansion materializes, given the 2.4% consolidated gross margin in 2021.
- The dilutive impact of future Regulation A sales, management compensation shares, preferred-stock conversion rights and other equity-linked instruments.
- Progress in remediating ineffective disclosure controls and material weaknesses in internal control over financial reporting.
- The company’s ability to fund operations, repay short-term obligations and maintain compliance with telecommunications licenses and regulatory requirements.