10-K 1 f10k123120_10k.htm FORM 10-K ANNUAL REPORT

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

[ ] TRANSITION REPORT UNDER SECTION 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) |  | (I.R.S. Employer Identification No.)

300 Aragon Avenue, Suite 375 Coral Gables, FL |  | 33134
(Address of principal executive offices) |  | (Zip Code)
Registrant’s telephone number: (954) 951-8191

Securities registered under Section 12(b) of the Exchange Act:

Title of each class

None

Name of each exchange on which registered

not applicable

Securities registered under Section 12(g) of the Exchange Act:

Title of each class

Common Stock, par value of $0.001

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [ ] No [X]

Indicate by checkmark 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. Yes [X] 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). Yes [X] No [ ]

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

[ ] | 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [ ]

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter $11,272,190.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. 136,881,964 common shares as of April 12, 2021.

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TABLE OF CONTENTS

|  | Page
PART I |  |
Item 1. | Business | 4
Item 1A. | Risk Factors | 6
Item 2. | Properties | 11
Item 3. | Legal Proceedings | 11
Item 4. | Mine Safety Disclosures | 11
PART II |  |
Item 5. | Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities | 12
Item 6. | Selected Financial Data | 13
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14
Item 8. | Financial Statements and Supplementary Data | 17
Item 9. | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure | 18
Item 9A. | Controls and Procedures | 18
Item 9B. | Other Information | 19
PART III |  |
Item 10. | Directors, Executive Officers and Corporate Governance | 20
Item 11. | Executive Compensation | 23
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 24
Item 13. | Certain Relationships and Related Transactions, and Director Independence | 25
Item 14. | Principal Accountant Fees and Services | 26
PART IV |  |
Item 15. | Exhibits, Financial Statement Schedules | 27

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PART I

Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. 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.” 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. 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.

Item 1. Business

Company Description

iQSTEL Inc. (the “Company”) (OTC Pink: IQST) (www.iqstel.com) is a technology company offering a wide array of services to global telecommunications and technology industries with presence in 13 countries.

The Company has an extensive portfolio of products and services for its clients such as: SMS, VoIP, 4G & 5G international infrastructure connectivity, Cloud-PBX, OmniChannel Marketing, IoT services, blockchain and payment solutions. These services are grouped within three business divisions: Telecom, Technology and Fintech.

The company operates its business through its wholly-owned subsidiary Etelix.com USA, LLC (“Etelix”) (www.etelix.com); and its majority-owned subsidiaries SwissLink Carrier AG (www.swisslink-carrier.com), QGlobal SMA (https://www.qglobalsms.com/), Smart Gas (http://iotsmartgas.com/) and ItsBChain (http://itsbchain.com/). The information contained on our websites is not incorporated by reference into this Annual Report, and such information should not be considered to be part of this Annual Report.

History

iQSTEL, formerly known as PureSnax International, Inc., was incorporated under the laws of the State of Nevada on June 24, 2011. PureSnax was previously a wellness brand focused on bringing healthy snacks and foods to consumers. On March 8, 2017, PureSnax exited a previous License Agreement with a Canadian snack food Licensor. From March of 2017 until its acquisition of Etelix.com USA, LLC, PureSnax was working to develop its own brand and its own products for manufacture, distribution, sales and marketing of various products within the health foods and snacks industry and to pursue related business opportunities. PureSnax acquired Etelix.com USA, LLC on June 25, 2018. The company left the healthy snacks and foods business to focus on the Telecommunications Business.

In August 30, 2018, PureSnax changed its name to “iQSTEL Inc.” and received a new CUSIP number: 46265G107, as well as a new trading symbol “IQST” in order to better resemble its new name. iQSTEL also changed the Standard Industrial Classification (SIC Code) to 4813, Telephone Communications, Except Radiotelephone.

The transformative process is an ongoing effort. However, in the last year the Company achieved the restructuring of its revenue from a 100% VoIP business to one where currently VoIP represents half of overall Company revenue, while SMS and value-added SMS services account for the other half. SMS and value-added SMS is a much higher gross profit business, thus the Company’s bottom line has increased in tandem.

Operating Subsidiaries

Based on our current business infrastructure, the Company has expanded from its original VoIP services into new business areas: Short Message Service (SMS) for Applications to Person (A2P) and Person to Person (P2P); Internet of Things (IoT) solutions and Blockchain-based platforms.

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Etelix.com USA LLC is a wholly owned subsidiary of iQSTEL Inc. Etelix.com USA, LLC is a Miami, Florida-based international telecom carrier founded in 2008 that provides telecom and technology solutions worldwide, with commercial presence in North America, Latin America, and Europe. Etelix provides International Long-Distance voice services for Telecommunications Operators (ILD Wholesale), and Submarine Fiber Optic Network capacity for internet (4G and 5G). Etelix was founded in 2008.

Etelix is interconnected to the most important players in the industry, with a very strong focus on Asian markets, among which it is worth mentioning: China Telecom, PCCW, Hutchinson Telecom, Vodafone India, KDDI, Airtel, Reliance, Viettel, TATA Communications, Flow Jamaica (Cable and Wireless Caribbean), Cable and Wireless Panama, Millicom (TIGO), Telefonica de España (Movistar), Telecom Italia (TIM), Portugal Telecom (MEU), Optimus (NOS), Belgacom (BICS), Deutsche Telekom, iBasis, Orbitel and Entel.

An important milestone in the evolution of Etelix was in 2013, when the company became part of a consortium of major carriers for the upgrade of the Maya-1 submarine cable systems that runs from Hollywood, Florida to the city of Tolu in Colombia. This consortium is led by Orange Telecom and Orbitel, where Etelix participates with 10 Gbps of capacity. The bulk of this contract was sold to Millicom (Tigo Costa Rica). This capacity considerably enhanced Tigo’s ability to deploy world-class 4G services to its customers in Costa Rica.

SwissLink Carrier AG is a 51% owned subsidiary of iQSTEL Inc. SwissLink Carrier AG is a Switzerland based international Telecommunications Carrier founded in 2015 providing international VoIP connectivity worldwide, with commercial presence in Europe, CIS and Latin America. SwissLink Carrier AG is a Swiss licensed Operator.

One of Company’s strategic line of actions is to expand the participation in Asian and African traffic. Africa is currently the market with the higher contribution to margin and Asia represents one third of the termination traffic in the industry. Estimations show that 56% (International Telecommunication Union) of the traffic terminating in Africa is originated from customers in Europe; while the corresponding percentage of traffic terminated in Asia is 37% (International Telecommunication Union). Based on these numbers the goal to expand the participation in the Asian and African traffic goes through establishing a strong presence in Europe.

The acquisition of Swisslink strengthened the Company’s presence in Europe putting us in a very competitive position to capture traffic to Asian and African countries; however it will also give us the opportunity to compete in the European traffic, where we currently have a low participation.

QGlobal SMS LLC is a 51% owned subsidiary of iQSTEL Inc. QGlobal SMS is a USA based company founded in 2020 specialized in international and domestic SMS termination.

IoT Labs LLC, is a 51% owned subsidiary of iQSTEL Inc. IoT Labs is a SMS service provider based in Austin, TX.

The Company has entered into the SMS business in 2020 through the acquisition of QGlobal and IoT Labs. Both companies specialize in international and domestic SMS termination, with emphasis on the Applications to Person (A2P), Person to Person (P2P) and OmniChannel Marketing Services for several markets: Wholesale Carrier, Government, Corporate, Enterprise, Small and Medium Companies.

QGlobal SMS has commercial presence in Europe, USA and Latin America, with robust international interconnection with Tier-1 SMS Aggregators, guarantying to its customers high quality and low termination rates, in over more than 100 countries; while IoT Labs is specialized in the SMS traffic exchange between US and Mexico.

With the acquisition of these two SMS providers we quickly began to cross-sell services to our existing client base.

The Global A2P SMS Market is expected to grow at a CAGR of 4.1% during the forecast period 2018 – 2030, to account for US$ 101 billion in 2030, according to Transparency Market Research. This market has experienced significant growth and adoption rate in the past few years and is expected to experience notable growth and adoption in years to come

ItsBchain LLC is a 75% owned subsidiary of iQSTEL Inc. ItsBchain is a blockchain technology developer and solution provider, with a strong focus on the telecom sector. The company is in the final stage of development of a series of blockchain solutions aimed at using the blockchain ledger and smart contract solutions to enable more efficiency, quickness in execution and fraud-prevention in the telco industry. Specifically, the company is developing a solution that will enable users and carriers to transfer mobile phone numbers with just a few clicks, allowing users and carriers the ability to transfer retail users from one mobile carrier to another instantly.

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Regulations

Telecommunications services are subject to extensive government regulation in the United States. Any violations of the regulations may subject us to enforcement actions, including interest and penalties. The FCC has jurisdiction over all telecommunications common carriers to the extent they provide interstate or international communications services, including the use of local networks to originate or terminate such services

Regulation of Telecom by the Federal Communications Commission

Telecommunication License

Anyone seeking to conduct telecommunications business where the telecommunication services will transpire between the United States and an international destination must obtain a license from the Federal Communications Commission (FCC). This particular license is named a Section 214 license, after the section in the Communications Act of 1934.

Etelix.com USA, LLC was authorized by the Federal Communications Commission to provide facility-based services in accordance with section 63.18(e)(1) of the Commission’s rules; and also to provide resale services in accordance with section 63.18(e)(2) under license number ITC-214-20090625-00303.

Since Etelix has no other network infrastructure outside the United States, no other licenses are required for us to operate as an international carrier service provider.

Universal Service and Other Regulatory Fees and Charges

In 1997, the FCC issued an order, referred to as the Universal Service Order, which requires all telecommunications carriers providing interstate telecommunications services to contribute to universal service support programs administered by the FCC (known as the Universal Service Fund). These periodic contributions are currently assessed based on a percentage of each contributor’s interstate and international end user telecommunications revenues reported to the FCC. Etelix also contributed to several other regulatory funds and programs, most notably Telecommunications Relay Service and FCC Regulatory Fees (collectively, the Other Funds). Due to the manner in which these contributions are calculated, we cannot be assured that we fully recover from our customers all of our contributions.

In addition, based on the nature of our current business, we receive certain exemptions from federal Universal Service Fund contributions. Changes in our business could eliminate our ability to qualify for some or all of these exemptions. Changes in regulation may also have an impact on the availability of some or all of these exemptions. If even some of these exemptions become unavailable, they could materially increase our federal Universal Service Fund or Other Funds’ contributions and have a material adverse effect on the cost of our operations and, therefore, on our ability to continue to operate profitably, and to develop and grow our business. We cannot be certain of the stability of the contribution factors for the Other Funds. Significant increases in the contribution factor for the Other Funds in general and the Telecommunications Relay Service Fund in particular can impact our profitability. Whether these contribution factors will be stable in the future is unknown, but it is possible that we will be subject to significant increases.

Employees

iQSTEL, including all subsidiaries, has 49 employees as of December 31, 2020.

Item 1A. Risk Factors

Risks Relating to Business and Financial Condition

Our business, operating results or financial condition could be materially adversely affected by any of the following risks.

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Risk Factors Related to the Business of the Company

Because our auditor has issued a going concern opinion regarding our company, there is an increased risk associated with an investment in our company.

We have limited cash as of December 31, 2020 of $753,316, and we have continually operated at a loss with an accumulated deficit of $14,699,148 as of December 31, 2020. We have not attained profitable operations and are dependent upon obtaining financing or generating revenue from operations to continue operations for the next twelve months. Our future is dependent upon our ability to obtain financing or upon future profitable operations. We reserve the right to seek additional funds through private placements of our common stock and/or through debt financing. Our ability to raise additional financing is unknown. We do not have any formal commitments or arrangements for the advancement or loan of funds. The Company has been qualified for a public offering of 80,000,000 shares of our common stock under the Regulation A. This offering is being conducted on a “best efforts” basis, which means that there is no guarantee that any minimum amount will be sold. For these reasons, our auditors stated in their report that they have substantial doubt we will be able to continue as a going concern. As a result, there is an increased risk that you could lose the entire amount of your investment in our company.

Our telecommunications line of business is highly sensitive to declining prices, which may adversely affect our revenues and margins.

The telecommunications industry is characterized by intense price competition, which has resulted in declines in both our average per-minute price realizations and our average per-minute termination costs.

A reduction of our prices to compete with any other offers in the market will not always guarantee an increase in the traffic, which may result in a reduction of revenue. If these trends in pricing continue or accelerate, it could have a material adverse effect on the revenues generated by our telecommunications businesses and/or our gross margins. The continued growth of Over-The-Top calling and messaging services, such as WhatsApp, Skype and Viber has adversely affected the use of traditional phone communications. We expect this IP-based services which offer voice communications for free to continue to increase, which may result in increased substitution on our service offerings.

The termination of our carrier agreements or our inability to enter into new carrier agreements in the future could materially and adversely affect our ability to compete, which could reduce our revenues and profits.

We rely upon our carrier agreements in order to provide our telecommunications services to our customers. These carrier agreements are in most cases for finite terms and, therefore, there can be no guarantee that these agreements will be renewed at all or on favorable terms to us. Our ability to compete would be adversely affected if our carrier agreements were terminated or we were unable to enter into carrier agreements in the future to provide our telecommunications services to our customers, which could result in a reduction of our revenues and profits.

Our customers could experience financial difficulties, which could adversely affect our revenues and profitability if we experience difficulties in collecting our receivables.

As a provider of international long-distance services, we depend upon sales of transmission and termination of traffic to other long distance providers and the collection of receivables from these customers. The wholesale telecommunications market continues to feature many smaller, less financially stable companies. If weakness in the telecommunications industry or the global economy reduces our ability to collect our accounts receivable from our major customers our profitability may be substantially reduced. While our most significant customers, from a revenue perspective, vary from quarter to quarter, our fourteen largest customers (5% of our total customer base) collectively accounted for 80% of total consolidated revenues in fiscal year 2020. This concentration of revenues increases our exposure to non-payment by our larger customers, and we may experience significant write-offs if any of our large customers fail to pay their outstanding balances, which could adversely affect our revenues and profitability.

Natural disasters, terrorist acts, acts of war, pandemics, cyber-attacks or other breaches of network or information technology security may cause equipment failures or disrupt our operations.

Our inability to operate our telecommunications networks because of the events listed above, even for a limited period of time, may result in loss of revenue, significant expenses, which could have a material adverse effect on our results of operations and financial condition.

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We could be harmed by network disruptions, security breaches, or other significant disruptions or failures of our IT infrastructure and related systems. To be successful, we need to continue to have available a high capacity, reliable and secure network for our and our customers’ use. As any other company, we face the risk of a security breach, whether through cyber-attacks, malware, computer viruses, sabotage, or other significant disruption of our IT infrastructure and related systems. There is a risk of a security breach or disruption of the systems we operate, including possible unauthorized access to our proprietary or classified information. We are also subject to breaches of our network resulting in unauthorized utilization of our services, which subject us to the costs of providing those services, which are likely not recoverable. The secure maintenance and transmission of our information is a critical element of our operations. Our information technology and other systems that maintain and transmit customer information may be compromised by a malicious third-party penetration of our network security, or impacted by advertent or inadvertent actions or inactions by our employees, or those of a third party service provider or business partner. As a result, our or our customers’ information may be lost, disclosed, accessed or taken without the customers’ consent, or our services may be used without payment.

Although we make significant efforts to maintain the security and integrity of these types of information and systems, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging, especially in light of the growing sophistication of cyber-attacks and intrusions. We may be unable to anticipate all potential types of attacks or intrusions or to implement adequate security barriers or other preventative measures. Certain of our business units have been the subject of attempted and successful cyber-attacks in the past. We have researched the situations and do not believe any material internal or customer information has been compromised.

We operate a global business that exposes us to currency, economic and regulatory.

Our revenue comes primarily from sales outside the U.S. and our growth strategy is largely focused on emerging markets. Our success delivering solutions and competing in international markets is subject to our ability to manage various risks and difficulties, including, but not limited to:

`·`our ability to effectively staff, provide technical support and manage operations in multiple countries;

`·`fluctuations in currency exchange rates;

`·`timely collecting of accounts receivable from customers located outside of the U.S.;

`·`trade restrictions, political instability, disruptions in financial markets, and deterioration of economic conditions;

`·`compliance with the U.S. Foreign Corrupt Practices Act, and other anti-bribery laws and regulations;

`·`variations and changes in laws applicable to our operations in different jurisdictions, including enforceability of intellectual property and contract rights; and

`·`compliance with export regulations, tariffs and other regulatory barriers.

Tax Risks

We are subject to tax and regulatory audits which could result in the imposition of liabilities that may or may not have been reserved. We are subject to audits by taxing and regulatory authorities with respect to certain of our income and operations. These audits can cover periods for several years prior to the date the audit is undertaken and could result in the imposition of liabilities, interest and penalties if our positions are not accepted by the auditing entity.

We may be unable to achieve some, all or any of the benefits that we expect to achieve from our plan to expand our operations.

In the future we may require additional financing for capital requirements and growth initiatives. Accordingly, we will depend on our ability to generate cash flows from operations and to borrow funds and issue securities in the capital markets to maintain and expand our business. We may need to incur debt on terms and at interest rates that may not be as favorable. If additional financing is not available when required or is not available on acceptable terms, we may be unable to operate our business as planned or at all, fund our expansion, successfully promote our business, develop or enhance our products and services, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations

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Risks Relating to Our Securities

If a market for our common stock does not develop, shareholders may be unable to sell their shares.

Our common stock is quoted under the symbol “IQST” on the OTCPink operated by OTC Markets Group, Inc., an electronic inter-dealer quotation medium for equity securities. We do not currently have an active trading market. There can be no assurance that an active and liquid trading market will develop or, if developed, that it will be sustained.

Our securities are very thinly traded. Accordingly, it may be difficult to sell shares of our common stock without significantly depressing the value of the stock. Unless we are successful in developing continued investor interest in our stock, sales of our stock could continue to result in major fluctuations in the price of the stock.

The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control.

Our stock price is subject to a number of factors, including:

`·`Technological innovations or new products and services by us or our competitors;

`·`Government regulation of our products and services;

`·`The establishment of partnerships with other telecom companies;

`·`Intellectual property disputes;

`·`Additions or departures of key personnel;

`·`Sales of our common stock;

`·`Our ability to integrate operations, technology, products and services;

`·`Our ability to execute our business plan;

`·`Operating results below or exceeding expectations;

`·`Whether we achieve profits or not;

`·`Loss or addition of any strategic relationship;

`·`Industry developments;

`·`Economic and other external factors; and

`·`Period-to-period fluctuations in our financial results.

Our stock price may fluctuate widely as a result of any of the above. In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

9

Because we are subject to the “Penny Stock” rules, the level of trading activity in our stock may be reduced.

The Securities and Exchange Commission has adopted regulations which generally define "penny stock" to be any listed, trading equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules which may increase the difficulty Purchasers may experience in attempting to liquidate such securities.

We do not expect to pay dividends in the foreseeable future. Any return on investment may be limited to the value of our common stock.

We do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as the board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will occur only if our stock price appreciates.

Provisions in the Nevada Revised Statutes and our Bylaws could make it very difficult for an investor to bring any legal actions against our directors or officers for violations of their fiduciary duties or could require us to pay any amounts incurred by our directors or officers in any such actions.

Members of our board of directors and our officers will have no liability for breaches of their fiduciary duty of care as a director or officer, except in limited circumstances, pursuant to provisions in the Nevada Revised Statutes and our Bylaws as authorized by the Nevada Revised Statutes. Specifically, Section 78.138 of the Nevada Revised Statutes provides that a director or officer is not individually liable to the company or its shareholders or creditors for any damages as a result of any act or failure to act in his or her capacity as a director or officer unless it is proven that (1) the director’s or officer’s act or failure to act constituted a breach of his or her fiduciary duties as a director or officer and (2) his or her breach of those duties involved intentional misconduct, fraud or a knowing violation of law. This provision is intended to afford directors and officers protection against and to limit their potential liability for monetary damages resulting from suits alleging a breach of the duty of care by a director or officer. Accordingly, you may be unable to prevail in a legal action against our directors or officers even if they have breached their fiduciary duty of care. In addition, our Bylaws allow us to indemnify our directors and officers from and against any and all costs, charges and expenses resulting from their acting in such capacities with us. This means that if you were able to enforce an action against our directors or officers, in all likelihood, we would be required to pay any expenses they incurred in defending the lawsuit and any judgment or settlement they otherwise would be required to pay. Accordingly, our indemnification obligations could divert needed financial resources and may adversely affect our business, financial condition, results of operations and cash flows, and adversely affect prevailing market prices for our common stock.

The extent to which the coronavirus ("COVID-19") outbreak impacts our business, results of operations and financial condition will depend on future developments, which cannot be predicted.

The COVID-19 pandemic has caused us to modify our business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities.

The extent to which COVID-19 impacts our business, results of operations and financial condition will depend on future developments, which are uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the coronavirus outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future.

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Item 2. Properties

The disclosures concerning our properties are contained in Item 1 Business above and incorporated herein by reference.

Item 3. Legal Proceedings

We have no current legal proceedings.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is quoted under the symbol “IQST” on the OTCPink operated by OTC Markets Group, Inc. Only a limited market exists for our securities. There is no assurance that a regular trading market will develop, or if developed, that it will be sustained. Therefore, a shareholder may be unable to resell his securities in our company.

The following tables set forth the range of high and low bid information for our common stock for the each of the periods indicated as reported by the OTCPink. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

Fiscal Year Ending December 31, 2020
Quarter Ended |  | High $ |  | Low $
December 31, 2020 |  | 0.20 |  | 0.0592
September 30, 2020 |  | 0.099 |  | 0.0599
June 30, 2020 |  | 0.142 |  | 0.0510
March 31, 2020 |  | 0.5174 |  | 0.03
Fiscal Year Ending December 31, 2019
Quarter Ended |  | High $ |  | Low $
December 31, 2019 |  | 1.35 |  | 0.032
September 30, 2019 |  | 2.39 |  | 0.131
June 30, 2019 |  | 2.44 |  | 1.175
March 31, 2019 |  | 3.5 |  | 0.81

On April 12, 2021, the last sales price per share of our common stock was $0.77.

Penny Stock

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer's account.

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.

These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.

12

Holders of Our Common Stock

As of April 12, 2021, we had 136,881,964 shares of our common stock issued and outstanding, held by approximately 59 shareholders of record at our transfer agent, with additional shareholders holding our shares in street name.

Dividends

We currently intend to retain future earnings for the operation of our business. We have never declared or paid cash dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future.

In the event that a dividend is declared, common stockholders on the record date are entitled to share ratably in any dividends that may be declared from time to time on the common stock by our board of directors from funds legally available.

There are no restrictions in our articles of incorporation or bylaws that restrict us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:

`1.`We would not be able to pay our debts as they become due in the usual course of business; or

`2.`Our total assets would be less than the sum of our total liabilities, plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.

Securities Authorized for Issuance under Equity Compensation Plans

We do not have an equity compensation plan.

Recent Sales of Unregistered Securities

The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933 during the reporting period which were not previously included in a Quarterly Report on Form 10-Q or Current Report on Form 8-K.

During the year ended December 31, 2020, we issued 100,224,841 shares valued at $4,940,646 as follow:

`·`23,937,500 shares issued for cash of $1,915,005

`·`12,818,145 shares issued for settlement of debt of $889,093

`·`6,267,600 shares issued for services valued at $647,858

`·`1,150,000 shares issued for forbearance of debt of $92,250

`·`46,575,378 shares issued for conversion of debt of $1,396,440

`·`9,476,218 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 6. Selected Financial Data

Not required under Regulation S-K for “smaller reporting companies.”

13

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations for the Years Ended December 31, 2020 and 2019

Net Revenue

Our net revenue for the year ended December 31, 2019 was $44,910,006 as compared with $18,031,548 for the year ended December 31, 2019. These numbers reflect an increase of 149% year over year on our consolidated Revenues.

When looking at the numbers by subsidiary, we have the following breakout for the year ended December 31, 2020:

Subsidiary |  | Revenue Year Ended December 31, 2020
Etelix.com USA, LLC | $ | 14,033,528
SwissLink Carrier AG |  | 5,432,022
QGlobal LLC |  | 421,619
IoT Labs LLC |  | 25,022,837
| $ | 44,910,006

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.

If net revenues continue growing at a similar rates for the next twelve months, we believe that the company will reach a total consolidated revenue of approximately $60 million by December 31, 2021.

Cost of Revenue

Our total cost of sales for the year ended December 31, 2020 was $43,947,654 as compared with $17,250,623 for the year ended December 31, 2019.

When looking at the numbers by subsidiary, we have the following breakout for the year ended December 31, 2020:

Subsidiary |  | Cost of revenue Year Ended December 31, 2020
Etelix.com USA, LLC | $ | 14,062,553
SwissLink Carrier AG |  | 4,656,865
QGlobal LLC |  | 311,409
IoT Labs LLC |  | 24,916,827
| $ | 43,947,654

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 reached a higher volume of sales and every additional unit sold (minutes and SMS) has its corresponding termination cost.

Gross Margin

Our gross margin, which is simply the difference between our revenues and our cost of sales, discussed above, increased from $780,925 in 2019 to $962,352 in 2020.

We expect an increase in the gross margin for the next twelve months as a result of having better termination costs.

14

Operating Expenses

Operating expenses for the year ended December 31, 2020 were $4,174,367, as compared with $1,449,624 for the year ended December 31, 2019. The detail by major category is reflected in the table below.

|  | Years Ended December 31
|  | 2020 |  | 2019
Salaries, Wages and Benefits | $ | 1,208,709 | $ | 657,790
Technology |  | 133,400 |  | 160,251
Professional Fees |  | 374,821 |  | 346,567
Legal & Regulatory |  | 121,229 |  | 58,126
Travel & Events |  | 8,596 |  | 22,689
Public Cost |  | 87,234 |  | 33,537
Allowance for doubtful accounts |  | 183,414 |  | -
Depreciation and Amortization |  | 68,602 |  | 41,737
Advertising |  | 942,950 |  | 61.346
Bank Services and Fees |  | 137,598 |  | 21,687
Office, Facility and Other |  | 209,956 |  | 45,894
Subtotal |  | 3,476,509 |  | 1,449,624
Stock-based compensation |  | 697,858 |  | -
Total Operating Expense | $ | 4,174,367 | $ | 1,449,624

The main reasons for the overall increase in operating expenses for the year ended December 31, 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. This is compared with 2019 where operating expenses corresponded only to Etelix, a portion corresponding to SwissLink (this subsidiary is consolidated since August 15, 2019) and corporate costs of iQSTEL; as shown in the table below.

|  | Years Ended December 31,
|  | 2020 |  | 2019 |  | Difference
iQSTEL | $ | 2,623,555 | $ | 746,932 | $ | 1,876,623
Etelix |  | 407,937 |  | 442,748 |  | (34,811)
SwissLink |  | 815,130 |  | 259,944 |  | 555,186
ItsBchain |  | 52,684 |  | - |  | 52,684
QGlobal |  | 83,304 |  | - |  | 83,304
IoT Labs |  | 191,757 |  | - |  | 191,757
| $ | 4,174,367 | $ | 1,449,624 | $ | 2,724,743

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 a marketing program for the Reg A; and (3) Stock-based compensation.

The item Technology already reflects the savings resulting from the implementation of the new switching platform.

No allowance for doubtful accounts were established due to additional controls already implemented within the commercial area and collection team.

Item 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 a marketing program for the Reg A.

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.

15

Other Expenses

We had other expenses of $3,487,315 for the year ended December 31, 2020, as compared with other expenses of $4,774,039 for the year ended December 31, 2019. Our other expenses in 2020 were mainly related to interest expense of $3,509,323, loss on the settlement of debt of $154,629 and other expenses of $117,562, offset mainly by a $255,614 change in fair value of derivative securities. Our other expenses in 2019 were mainly related to interest expense of $2,653,996 and a $2,111,783 change in fair value of derivative securities.

Net Loss

We finished the year ended December 31, 2020 with a loss of $6,699,482 as compared to a loss of $5,442,738 during the year ended December 31, 2019. ‬

Liquidity and Capital Resources

As of December 31, 2020 we had total current assets of $3,581,584, compared with current liabilities of $7,911,939, resulting in a working capital deficiency of $4,330,355 and a current ratio of approximately 0.45 to 1. This compares with the working capital deficiency of $7,707,148‬ and the current ratio of 0.31 to 1 at December 31, 2019.‬‬

Following is a table with summary data from the consolidated statement of cash flows for the year ended December 31, 2020 and 2019, as presented.

|  | 2020 |  | 2019
Net cash used in operating activities | $ | (2,116,174) | $ | (1,244,027)
Net cash provided by (used) in investing activities |  | (91,211) |  | 152,069
Net cash provided by financing activities |  | 2,662,756 |  | 1,357,526
Effect of exchange rate changes on cash |  | 27,442 |  | 365
Net change in cash and cash equivalents | $ | ‬‬‬‬‬‬‬‬‬‬‬‬482,813‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬ | $ | 265,933‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬

Our operating activities used $2,116,174 in the year ended December 31, 2020, as compared with $1,244,027 used in operating activities in the year ended December 31, 2019. Our cash flow from operations varies depending on our operating results and the timing of operating cash receipts and payments, specifically trade accounts receivable and trade accounts payable. Our negative operating cash flows in 2020 and 2019 is largely the result of our net loss for the years.

Investing activities used $91,211 for the year ended December 31, 2020, as compared with $152,069 provided by investing activities for the year ended December 31, 2019. Our negative investing cash flow for 2020 is largely due to the acquisition of property and equipment of $90,192 and net payment of loans between related parties of $18,888.

Financing activities provided $2,662,756 for the year ended December 31, 2020, as compared with $1,357,526 provided for the year ended December 31, 2019. Our positive financing cash flow in 2020 was largely the result of the net proceeds from loans of $1,239,620; net proceeds from convertible notes of $1,420,000; and proceed from the subscription of new common stock under our Regulation A offering $1,915,005; offset by repayments on loans of $969,664 and repayments of convertible notes of $942,190.

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 80,000,000 common stocks. 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 twelve month period ended December 31, 2020.

16

Critical Accounting Policies

A “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Our accounting policies are discussed in detail in the footnotes to our financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2020; however, we consider our critical accounting policies to be those related to allowance for doubtful accounts, valuation of assets, significant estimates in the valuation of convertible debt and income taxes. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. See the Consolidated Financial Statements in this Annual Report for a complete discussion of our significant accounting policies.

Off Balance Sheet Arrangements

As of December 31, 2020, there were no off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

We do not expect the adoption of these or other recently issued accounting pronouncements to have a significant impact on our results of operation, financial position or cash flow.

Item 8. Financial Statements and Supplementary Data

Index to Financial Statements Required by Article 8 of Regulation S-X:

Audited Financial Statements:

F-1 | Report of Independent Registered Public Accounting Firm Audited Financial Statement for the Year ended December 31, 2020;
F-4 | Report of Independent Registered Public Accounting Firm Audited Financial Statement for the Year ended December 31, 2019;
F-5 | Consolidated Balance Sheets as of December 31, 2020 and 2019;
F-6 | Consolidated Statements of Operations for the years ended December 31, 2020 and 2019;
F-7 | Consolidated Statement of Stockholders’ Equity for the years ended December 31, 2020 and 2019;
F-8 | Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019; and
F-9 | Notes to Consolidated Financial Statements.

17

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors

iQSTEL, Inc.

Coral Gables, FL

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of iQSTEL, Inc. (the “Company”) as of December 31, 2020, the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered recurring losses from operations, has a working capital deficiency, and does not have an established source of revenues sufficient to cover its operating costs. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit Company’s board of directors and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

F-1

Revenue Recognition

Critical Audit Matter Description

The Company recognizes revenue upon transfer of control of promised services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those services.

Significant judgment is exercised by the Company in determining revenue recognition for customer agreements, and include the pattern of delivery (i.e., timing of when revenue is recognized) for each distinct performance obligation.

The related audit effort in evaluating management’s judgments in determining revenue recognition for customer agreements required a high degree of auditor judgment.

How the Critical Audit Matter was Addressed in the Audit

Our principal audit procedures related to the Company’s revenue recognition for customer agreements included the following:

`·`We gained an understanding of internal controls related to revenue recognition.

`·`We evaluated management’s significant accounting policies for reasonableness.

`·`We selected a sample of revenues recognized and performed the following procedures:

`·`Obtained and read contract source documents for each selection and other documents that were part of the agreement, if applicable.

`·`Assessed the terms in the customer agreement and evaluated the appropriateness of management’s application of their accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions.

`·`We tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the financial statements.

Going Concern

Critical Audit Matter Description

As described further in Note 3 to the financial statements, the Company has suffered recurring losses from operations, has a working capital deficiency, and does not have an established source of revenues sufficient to cover its operating costs. The ability of the Company to continue as a going concern is dependent on executing business plan and ultimately to attain profitable operations. Accordingly, the Company has determined that these factors raise substantial doubt as to the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. Management intends to continue to fund its business by way of public or private offerings of the Company’s stock or through loans from private investors, in order satisfy the Company’s obligations as they come due for at least one year from the financial statement issuance date. However, the Company has not concluded that these plans alleviate the substantial doubt related to its ability to continue as a going concern.

How the Critical Audit Matter was Addressed in the Audit

We determined the Company’s ability to continue as a going concern is a critical audit matter due to the estimation and uncertainty regarding the Company’s available capital and the risk of bias in management’s judgments and assumptions in their determination. Our audit procedures related to the Company’s assertion on its ability to continue as a going concern included the following, among others:

`·`We inquired of Company management and reviewed company records to assess whether there are additional factors that contribute to the uncertainties disclosed.

`·`We assessed whether the Company’s determination that there is substantial doubt about its ability to continue as a going concern was adequately disclosed.

F-2

`·`We performed testing procedures such as analytical procedures to identify conditions and events that indicate there could be substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time.

`·`We reviewed and evaluated management's plans for dealing with adverse effect of these conditions and event.

Valuation of Derivative Liabilities

Critical Audit Matter Description

As described further in Notes 2, 9, and 10 to the financial statements, the Company determined that the conversion features of its convertible notes and certain warrants issued in conjunction with financing arrangements required to be accounted for as derivative liabilities. The derivative liabilities are recorded at fair value when issued and subsequently re-measured to fair value each reporting period. The Company utilized a binomial option pricing model to determine the fair value of the derivative liabilities, which uses certain assumptions related to exercise price, term, expected volatility, and risk-free interest rate.

How the Critical Audit Matter was Addressed in the Audit

We determined the assessment of the fair values of the derivative liabilities as a critical audit matter due to the significant judgements used by the Company in determining the fair value of the derivative liabilities. Auditing the valuation of the derivative liabilities involved a high degree of auditor judgement and specialized skills and knowledge were needed.

Our audit procedures consisted of the following, among others:

`·`Testing management’s process for developing the fair value measurement.

`·`Evaluating the appropriateness of the binomial option model used by the Company to value the derivative liabilities.

`·`Testing the reasonableness of the assumptions used by the Company in the binomial option model including exercise price, term, expected volatility, and risk-free interest rate.

`·`Testing the accuracy and completeness of data used by the Company in developing the assumptions use in the binomial option model.

/s/ Urish Popeck & Co., LLC

Pittsburgh, PA

April 15, 2021

We have served as the Company's auditor since 2020.

F-3

Boyle CPA, LLC

Certified Public Accountants & Consultants

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and

Board of Directors of iQSTEL Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of iQSTEL Inc.(the “Company”) as of December 31, 2019, the related consolidated statements of operations, stockholder’s equity (deficit), and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Substantial Doubt About the Company’s Ability to Continue as a Going Concern

As discussed in Note 3 to the consolidated financial statements, the Company’s lack of cash and lack of an established source of revenues raises substantial doubt about its ability to continue as a going concern for one year from the issuance of these financial statements. Management’s plans are also described in Note 3. The financial statements do not include adjustments that might result from the outcome of this uncertainty.

Basis of Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to fraud or error. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing and opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Boyle CPA, LLC

We served as the Company’s auditor from 2017 to 2020.

Bayville, NJ

April 15, 2020

`361 Hopedale Drive SE` `P (732) 822-4427`

`Bayville, NJ 08721` `F (732) 510-0665`

F-4

iQSTEL INC

Consolidated Balance Sheets

|  | December 31, |  | December 31,
|  | 2020 |  | 2019
ASSETS |  |  |  |
Current Assets |  |  |  |
Cash and cash equivalents | $ | 753,316 | $ | 270,503
Accounts receivable, net |  | 2,528,321 |  | 2,759,164
Due from related parties |  | 221,790 |  | 316,860
Prepaid and other current assets |  | 78,157 |  | 91,970
Total Current Assets |  | 3,581,584 |  | 3,438,497
Property and equipment, net |  | 350,530 |  | 287,970
Intangible asset |  | 21,875 |  | -
Goodwill |  | 1,537,742 |  | 1,455,960
Deferred tax assets |  | 460,036 |  | 420,519
TOTAL ASSETS | $ | 5,951,767 | $ | 5,602,946
LIABILITIES AND STOCKHOLDERS' DEFICIT |  |  |  |
Current Liabilities |  |  |  |
Accounts payable |  | 2,737,411 |  | 2,291,921
Due to related parties |  | 94,616 |  | 34,631
Loans payable - net of discount of $19,221 and $0 |  | 1,332,612 |  | 89,671
Loans payable - related parties |  | 2,054,379 |  | 1,885,708
Current portion of convertible notes - net of discount of $370,106 and $597,654 |  | 253,554 |  | 1,251,096
Other current liabilities |  | 413,676 |  | 848,484
Derivative liabilities |  | 1,025,691 |  | 4,744,134
Total Current Liabilities |  | 7,911,939 |  | 11,145,645
Convertible notes - net of discount of $2,184 and $48,558 |  | 2,816 |  | 11,442
Loans payable |  | 270,836 |  | 178,021
Employee benefits, non-current |  | 161,212 |  | 38,253
TOTAL LIABILITIES |  | 8,346,803 |  | 11,373,361
Stockholders' Deficit |  |  |  |
Preferred stock: 1,200,000 authorized; $0.001 par value |  |  |  |
Series A Preferred stock: 10,000 designated; $0.001 par value, 10,000 and 0 shares issued and outstanding, respectively |  | 10 |  | -
Series B Preferred stock: 200,000 designated; $0.001 par value, No shares issued and outstanding |  | - |  | -
Series C Preferred stock: 200,000 designated; $0.001 par value, No shares issued and outstanding |  | - |  | -
Common stock: 300,000,000 authorized; $0.001 par value 118,133,432 and 18,008,591 shares issued and outstanding, respectively |  | 118,133 |  | 18,008
Additional paid in capital |  | 13,267,261 |  | 3,240,528
Accumulated deficit |  | (14,699,148) |  | (8,125,257)
Accumulated other comprehensive loss |  | (74,831) |  | (181)
Deficit attributed to stockholders of iQSTEL Inc. |  | (1,388,575) |  | (4,866,902)
Deficit attributable to noncontrolling interests |  | (1,006,461) |  | (903,513)
Total stockholders' Deficit |  | (2,395,036) |  | (5,770,415)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 5,951,767 | $ | 5,602,946

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

F-5

iQSTEL INC

Consolidated Statements of Operations

|  | Year Ended
|  | December 31,
|  | 2020 |  | 2019
Revenues | $ | 44,910,006 | $ | 18,031,548
Cost of revenue |  | 43,947,654 |  | 17,250,623
Gross profit |  | 962,352 |  | 780,925
Operating expenses |  |  |  |
General and administration |  | 4,174,367 |  | 1,449,624
Total operating expenses |  | 4,174,367 |  | 1,449,624
Operating loss |  | (3,212,015) |  | (668,699)
Other income (expense) |  |  |  |
Other income |  | 38,585 |  | 2,631
Other expenses |  | (117,562) |  | (10,891)
Interest expense |  | (3,509,323) |  | (2,653,996)
Change in fair value of derivative liabilities |  | 255,614 |  | (2,111,783)
Loss on settlement of debt |  | (154,629) |  | -
Total other expense |  | (3,487,315) |  | (4,774,039)
Net loss before provision for income taxes |  | (6,699,330) |  | (5,442,738)
Income taxes |  | (152) |  | -
Net loss |  | (6,699,482) |  | (5,442,738)
Less: Net income (loss) attributable to noncontrolling interests |  | (125,591) |  | 15,131
Net loss attributed to stockholders of iQSTEL Inc. | $ | (6,573,891) | $ | (5,457,869)
Comprehensive loss |  |  |  |
Net loss | $ | (6,699,482) | $ | (5,442,738)
Foreign currency adjustment |  | (146,373) |  | (354)
Total comprehensive loss | $ | (6,845,855) | $ | (5,443,092)
Less: Comprehensive income (loss) attributable to noncontrolling interests |  | (197,314) |  | 14,958
Net comprehensive loss attributed to stockholders of iQSTEL Inc. | $ | (6,648,541) | $ | (5,458,050)
Basic and diluted loss per common share | $ | (0.10) | $ | (0.35)
Weighted average number of common shares outstanding - Basic and diluted |  | 63,941,222 |  | 15,684,477

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

F-6

iQSTEL INC

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

For the years ended December 31, 2020 and 2019

| Series A Preferred Stock | Common Stock | Additional Paid in | Accumulated | Accumulated Other Comprehensive |  | Non Controlling | Total Shareholders'
| Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Total | Interest | Deficit
Balance – December 31, 2018 | - | $ - | 15,022,650 | $ 15,023 | $ 1,054,718 | $ (2,667,388) | $ - | (1,597,647) | $ - | $ (1,597,647)
Common stock issued for acquisition | - | - | 343,512 | 344 | 449,656 | - | - | 450,000 | (918,471) | (468,471)
Capital Contribution | - | - | - | - | 10,000 | - | - | 10,000 | - | 10,000
Common stock issued in conjunction with convertible notes | - | - | 661,216 | 661 | 817,238 | - | - | 817,899 | - | 817,899
Common stock issued for conversion of debt | - | - | 1,169,723 | 1,169 | 32,581 | - | - | 33,750 | - | 33,750
Common stock issued for exercised cashless warrant | - | - | 811,490 | 811 | (811) | - | - | - | - | -
Debt forgiveness | - | - | - | - | 406,080 | - | - | 406,080 | - | 406,080
Resolution of derivative liabilities | - | - | - | - | 471,066 | - | - | 471,066 | - | 471,066
Foreign currency translation adjustments | - | - | - | - | - | - | (181) | (181) | (173) | (354)
Net loss | - | - | - | - | - | (5,457,869) | - | (5,457,869) | 15,131 | (5,442,738)
Balance – December 31, 2019 | - | $ - | 18,008,591 | $ 18,008 | $ 3,240,528 | $ (8,125,257) | $ (181) | $ (4,866,902) | $ (903,513) | $ (5,770,415)
Preferred stock issued for conversion of common stock | 10,000 | 10 | (100,000) | (100) | 90 | - | - | - | - | -
Common stock issued for cash | - | - | 23,937,500 | 23,938 | 1,891,067 | - | - | 1,915,005 | - | 1,915,005
Common stock issued for settlement of debt | - | - | 12,818,145 | 12,818 | 876,275 | - | - | 889,093 | - | 889,093
Common stock issued for services | - | - | 6,267,600 | 6,268 | 641,590 | - | - | 647,858 | - | 647,858
Common stock issued for forbearance of debt | - | - | 1,150,000 | 1,150 | 91,100 | - | - | 92,250 | - | 92,250
Common stock issued for conversion of debt | - | - | 46,575,378 | 46,575 | 1,349,865 | - | - | 1,396,440 | - | 1,396,440
Common stock issued for exercised cashless warrant | - | - | 9,476,218 | 9,476 | (9,476) | - | - | - | - | -
Common stock issued for acquisition of Itsbchain LLC | - | - | - | - | 50,000 | - | - | 50,000 | - | 50,000
Acquisition of IoT Lab | - | - | - | - | - | - | - | - | 94,366 | 94,366
Resolution of derivative liabilities | - | - | - | - | 5,136,222 | - | - | 5,136,222 | - | 5,136,222
Foreign currency translation adjustments | - | - | - | - | - | - | (74,650) | (74,650) | (71,723) | (146,373)
Net loss | - | - | - | - | - | (6,573,891) | - | (6,573,891) | (125,591) | (6,699,482)
Balance – December 31, 2020 | 10,000 | $ 10 | 118,133,432 | $ 118,133 | $ 13,267,261 | $ (14,699,148) | $ (74,831) | $ (1,388,575) | $ (1,006,461) | $ (2,395,036)

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

F-7

iQSTEL INC

Consolidated Statements of Cash Flows

|  | Year Ended
|  | December 31,
|  | 2020 |  | 2019
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |
Net loss | $ | (6,699,482) | $ | (5,442,738)
Adjustments to reconcile net loss to net cash used in operating activities: |  |  |  |
Stock based compensation |  | 697,858 |  | -
Bad debt |  | 137,749 |  | -
Write-off of due from related party |  | 43,375 |  | -
Depreciation and amortization |  | 68,602 |  | 41,737
Amortization of debt discount |  | 2,221,506 |  | 1,939,687
Change in fair value of derivative liabilities |  | (255,614) |  | 2,111,783
Gain on settlement of debt |  | 154,629 |  | -
Prepayment and Default penalty |  | 358,046 |  | -
Changes in operating assets and liabilities: |  |  |  |
Accounts receivable |  | 167,077 |  | 522,360
Other current assets |  | 21,629 |  | 27,075
Accounts payable |  | 432,872 |  | (571,974)
Other current liabilities |  | 535,579 |  | 128,043
Net cash used in operating activities |  | (2,116,174) |  | (1,244,027)
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |
Acquisition of subsidiary, net of cash acquired |  | 15,781 |  | 239,516
Purchase of property and equipment |  | (90,192) |  | (32,007)
Payment of loan receivable - related party |  | (18,888) |  | (129,387)
Collection from due from related parties - related party |  | 2,088 |  | 73,947
Net cash provided by (used in) investing activities |  | (91,211) |  | 152,069
CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |  |
Bank overdraft |  | - |  | (82)
Proceeds from loans payable |  | 1,239,620 |  | 424,960
Repayments of loans payable |  | (969,664) |  | (527,239)
Proceeds from loans payable - related parties |  | 20,182 |  | 46,438
Repayment of loans payable - related parties |  | (20,197) |  | (38,400)
Contribution |  | - |  | 10,000
Common stock issued |  | 1,915,005 |  | -
Proceeds from convertible notes |  | 1,420,000 |  | 2,266,250
Repayment of convertible notes |  | (942,190) |  | (824,401)
Net cash provided by financing activities |  | 2,662,756 |  | 1,357,526
Effect of exchange rate changes on cash |  | 27,442 |  | 365
Net change in cash and cash equivalents |  | 482,813 |  | 265,933
Cash and cash equivalents, beginning of period |  | 270,503 |  | 4,570
Cash and cash equivalents, end of period | $ | 753,316 | $ | 270,503
Supplemental cash flow information |  |  |  |
Cash paid for interest | $ | 976,234 | $ | 678,663
Cash paid for taxes | $ | - | $ | -
Non-cash transactions: |  |  |  |
Derivative liabilities recognized as debt discount | $ | 1,673,393 | $ | 1,313,350
Common stock issued in conjunction with convertible notes | $ | - | $ | 817,900
Common stock issued for conversion of debt | $ | 1,396,440 | $ | 33,750
Common stock issued for cashless warrant exercised | $ | 9,476 | $ | 39,760
Resolution of derivative liabilities | $ | 5,136,222 | $ | 430,495
Debt forgiveness | $ | - | $ | 406,080
Common stock issued for settlement of debt | $ | 889,093 | $ | -
Amount owing for acquisition of IOT | $ | 60,000 | $ | -
Common stock issued for forbearance of debt | $ | 92,250 | $ | -
Replacement of convertible notes to note payable | $ | 1,000,000 | $ | -
Preferred stock issued for conversion of common stock | $ | 10 | $ | -

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

F-8

iQSTEL INC

Notes to the Consolidated Financial Statements

December 31, 2020 and 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 B-Maven Inc. The Company changed its name to PureSnax International, Inc. on September 18, 2015; and more recently it 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, SMS and data for other telecom companies around the World with more than 150 active interconnection agreements with mobile companies, fixed line companies and other wholesale carriers.

Acquisition

On April 1, 2019, the Company entered into a Company Purchase Agreement (the “Purchase Agreement”) by and between by Company and the Ralf Kohler (the “Seller”), which agreement provides for the purchase of 51% of the equity and certain assets of SwissLink Carrier AG (“SwissLink”) (www.swisslink-carrier.com), a Swiss corporation, by the Company.

The consideration for the acquisition consists of $500,000 USD, payable as follows:

`·`$50,000 USD shall be paid in cash upon execution of the Purchase Agreement; and

`·`The balance of $450,000 USD shall be paid at Closing in the form of 187,500 shares of common stock in the Company based upon an agreed upon price of $2.40 per share. Additional shares may be payable at Closing, if the Company’s stock is valued at less than $2.40 per share, to account for the full $450,000 USD.

On August 7, 2019, having completed all conditions under the Purchase Agreement, the Company closed the transaction with Seller, and paid $50,000 and issued a total of 343,512 shares of common stock at $1.31 per share to the Seller for the 51% equity interest and certain assets in SwissLink, including 51% of the loan in SwissLink.

The payment for the acquisition of SwissLink Carrier AG, was agreed to be done with $50,000 in cash and the balance of $450,000 in common shares of iQSTEL with an initial price per share of $2.40; giving us a number of 187,500 shares ($450,000 / 2.40 $ per shares = 187,500 shares) to be issued; but the purchase agreement included a clause to adjust the number of shares to be ultimately issued if the price of the shares was less than $2.40 at the closing date. Since at the closing date the price of the shares was $1.31 the total shares to be issued to the Seller should be 343,512, and this was the total shares finally issue to the Seller.

SwissLink is a provider of international telephone traffic around the globe, which trades international VoIP (voice over IP) telephone minutes through its Software Management platform named VAMP.

On April 15, 2020, we entered into a Company Acquisition Agreement (the “Agreement”) with Francisco Bunt regarding the acquisition of 51% of the shares in IoT Labs, LLC (“IoT Labs”). The IoT Labs’ principal business activity is the sale of Short Messages (SMS) between USA and Mexico.

COVID-19

A novel strain of coronavirus (COVID-19) was first identified in December 2019, and subsequently declared a global pandemic by the World Health Organization on March 11, 2020. As a result of the outbreak, many companies have experienced disruptions in their operations and in markets served. The Company has instituted some and may take additional temporary precautionary measures intended to help ensure the well-being of its employees and minimize business disruption. The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that there were no material adverse impacts on the Company’s results of operations and financial position at December 31, 2020. The full extent of the future impacts of COVID-19 on the Company’s operations is uncertain. A prolonged outbreak could have a material adverse impact on financial results and business operations of the Company, including the timing and ability of the Company to collect accounts receivable and the ability of the Company to continue to provide high quality services to its clients. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of April 15, 2021, the date of issuance of this Annual Report on Form 10-K. These estimates may change, as new events occur and additional information is obtained.

F-9

iQSTEL INC

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial statements have been prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) of the United States. The Company’s fiscal year end is December 31.

Consolidation Policy

The consolidated financial statements of the Company include the accounts of the Company and its owned subsidiaries, Etelix.com USA, LLC, SwissLink Carrier AG, ITSBCHAIN, LLC, QGLOBAL SMS, LLC and IoT Labs, LLC. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated 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.

Business Combinations

In accordance with ASC 805-10, “Business Combinations”, the Company accounts for all business combinations using the acquisition method of accounting. Under this method, assets and liabilities, including any remaining non-controlling interests, are recognized at fair value at the date of acquisition. The excess of the purchase price over the fair value of assets acquired, net of liabilities assumed, and non-controlling interests is recognized as goodwill. Certain adjustments to the assessed fair values of the assets, liabilities, or non-controlling interests made subsequent to the acquisition date, but within the measurement period, which is up to one year, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period are recorded in income. Any cost or equity method interest that the Company holds in the acquired company prior to the acquisition is re-measured to fair value at acquisition with a resulting gain or loss recognized in income for the difference between fair value and the existing book value. Results of operations of the acquired entity are included in the Company’s results from the date of the acquisition onward and include amortization expense arising from acquired tangible and intangible assets.

Foreign Currency Translation and Re-measurement

The Company translates its foreign operations to U.S. dollar in accordance with ASC 830, “Foreign Currency Matters”.

The Company’s, Etelix’s, QGlobal’s and IoT Labs’ functional currency and reporting currency is the U.S. dollar, SwissLink’s functional currency is the Swiss Franc (“CHF”).

The Company’s subsidiaries, whose functional currency is not the U.S. dollar, translate their records into U.S. dollar as follows:

`·`Assets and liabilities at the rate of exchange in effect at the balance sheet date

`·`Equities at historical rate

`·`Revenue and expense items at the average rate of exchange prevailing during the period

F-10

iQSTEL INC

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Adjustments arising from such translations are included in accumulated other comprehensive income in shareholders’ equity.

|  | December 31, |  | December 31,
|  | 2020 |  | 2019
Spot CHF: USD exchange rate | $ | 1.1304 | $ | 1.0333
Average CHF: USD exchange rate | $ | 1.0662 | $ | 1.0122

Cash and Cash Equivalents

Cash and cash equivalents include cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value.

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. During the year ended December 31, 2020 and 2019, the Company had bad debt expense of $137,749 and $0, respectively.

Long-Lived Assets

Long-lived assets are evaluated for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted future cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value.

Fixed Assets

Fixed assets, consisting of telecommuting equipment and software, is recorded at cost reduced by accumulated depreciation and amortization. Depreciation and amortization expense is recognized over the assets’ estimated useful lives of 3 years for computers and laptops, 5 years for telecommunications equipment and switches; and 5 years for software using the straight-line method. Major additions and improvements are capitalized as additions to the property and equipment accounts, while replacements, maintenance and repairs that do not improve or extend the life of the respective assets, are expensed as incurred. Estimated useful lives are periodically reviewed and, when appropriate, changes are made prospectively. When certain events or changes in operating conditions occur, asset lives may be adjusted and an impairment assessment may be performed on the recoverability of the carrying amounts.

Impairment of tangible and intangible assets

Tangible and intangible assets (excluding goodwill) are assessed at each reporting date for indications that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the asset's recoverable amount. The asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs of disposal and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or a group of assets exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or the group of assets.

F-11

iQSTEL INC

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Goodwill

We allocate goodwill to reporting units based on the reporting unit expected to benefit from the business combination. We evaluate our reporting units on an annual basis and, if necessary, reassign goodwill using a relative fair value allocation approach. Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.

Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated primarily through the use of a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital.

The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions, and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit.

Retirement Benefit Costs

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Company’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.

For defined benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognized in full in the period in which they occur. They are recognized outside the income statement and are presented in other comprehensive income. Past service cost is recognized immediately in the income statement in the period in which it occurs.

The retirement benefit obligation recognized in the balance sheet represents the present value of the defined obligation as adjusted for unrecognized past service cost, and as reduced by the fair value of the scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the scheme.

Net Income (Loss) Per Share of Common Stock

The Company has adopted ASC 260, ”Earnings per Share” which requires presentation of basic earnings per share on the face of the statements of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic earnings per share computation. In the accompanying financial statements, basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock and potentially dilutive outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent share arrangements, stock options and warrants unless the result would be antidilutive. There were no potentially dilutive shares of common stock outstanding for the years ended December 31, 2020 and 2019.

F-12

iQSTEL INC

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 year ended December 31, 2020 and 2019, 6 customers represented 70% of our revenues and 8 customers represented 70% of our revenues, respectively. 34% of the revenue comes from customers under prepayment conditions which means there is no credit or bad debt risk on that portion of the customers portfolio.

Financial Instruments

The Company follows ASC 820, “Fair Value Measurements and Disclosures,” which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The carrying values of our financial instruments, including, cash and cash equivalents; accounts receivable; prepaid expenses; accounts payable and other payable and due to related parties approximate their fair values due to the short-term maturities of these financial instruments.

Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated. It is not, however, practical to determine the fair value of amounts due to related party’s due to their related party nature.

F-13

iQSTEL INC

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. We evaluate all of our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company used a Black Scholes valuation model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.

Income Taxes

The Company uses the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on differences between financial reporting and the tax basis of assets, liabilities, the carry forward of operating losses and tax credits, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. An allowance against deferred tax assets is recorded when it is more likely than not that such tax benefits will not be realized.

Related Parties

The Company follows ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions (see Note 13).

Revenue Recognition

The Company recognizes revenue from telecommunication services in accordance with ASC 606, “Revenue from Contracts with Customers.”

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. Management considers persuasive evidence of a sales arrangement to be a written interconnection agreement. The Company’s payment terms vary by clients.

Cost of revenue

Costs of revenue represent 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.

Lease

The Company leases office space for corporate and network monitoring activities and to house telecommunications equipment.

In accordance with ASC 842, “Leases”, we determine if an arrangement is a lease at inception.

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.

F-14

iQSTEL INC

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. This guidance will be effective for entities for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 on a prospective basis, with early adoption permitted. We will adopt the new standard effective January 1, 2021 and do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt—Debt with “Conversion and Other Options” and ASC subtopic 815-40 “Hedging—Contracts in Entity’s Own Equity”. The standard reduced the number of accounting models for convertible debt instruments and convertible preferred stock. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting; and, (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial statements.

NOTE 3 - GOING CONCERN

The Company's consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has suffered recurring losses from operations, has a working capital deficiency and does not have an established source of revenues sufficient to cover its operating costs. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated 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 in the industry and continuing its marketing efforts. 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.

NOTE 4 - ACQUISITION

IoT Labs

On April 15, 2020, we entered into a Company Acquisition Agreement (the “Agreement”) with Francisco Bunt regarding the acquisition of 51% of the shares in IoT Labs. The Company’s principal business activity is the sale of Short Messages (SMS) between USA and Mexico.

We have agreed to pay a total of $180,000 for the 51% interest in the Company. The consideration shall occur with an installment of $60,000 on the date of the execution of the Agreement, followed by a second payment of $60,000 at closing and a final payment of $60,000 that is set to occur 60 days following the closing date. Under the Agreement, Mr. Bunt has the right to request that any of the aforementioned payments be made in shares of our common stock, which the parties have agreed to value at $2.00 per share. The shares are subject to adjustment after 180 days and up to 360 days after issuance if our stock trades at less than $2.00 per share. The Agreement provides for a right of return to Mr. Bunt of the shares in the Company if we fail to make timely payments.

F-15

iQSTEL INC

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

NOTE 4 – ACQUISITION (CONTINUED)

The following table summarizes the fair value of the consideration paid by the Company and the fair value amounts assigned to the assets acquired on the acquisition date:

|  | April 15,
|  | 2020
Fair Value of Consideration: |  |
Cash | $ | 180,000
Total Purchase Price | $ | 180,000

IoT Labs has been included in our consolidated results of operations since the acquisition date.

The following table summarizes the identifiable assets acquired and liabilities assumed upon acquisition of IoT Labs and the calculation of goodwill:

Total purchase price | $ | 180,000
Cash |  | 135,781
Other current assets |  | 953
Property and equipment |  | 34,075
Intangible asset |  | 21,875
Total identifiable assets |  | 192,684
Accounts payable |  | (100)
Total liabilities assumed |  | (100)
Net assets |  | 192,584
Non-controlling interest |  | 94,366
Total net assets |  | 98,218
Goodwill | $ | 81,782

SwissLink

On April 1, 2019, iQSTEL Inc. (the “Company”) entered into a Company Purchase Agreement (the “Purchase Agreement”) by and between the Company and the Ralf Kohler (the “Seller”), which agreement provides for the purchase of 51% of the equity and certain assets of SwissLink Carrier AG (“SwissLink”) (www.swisslink-carrier.com), a Swiss corporation, by the Company for a consideration of $500,000.

On August 7, 2019, having completed all conditions under the Purchase Agreement, the Company closed the transaction with Seller, and paid $50,000 and issued a total of 343,512 shares of common stock at $1.31 per share to the Seller for the 51% equity interest and certain assets in SwissLink, including 51% of the loan in SwissLink.

The following table summarizes the fair value of the consideration paid by the Company and the fair value amounts assigned to the assets acquired on the acquisition date:

|  | August 7,
Fair Value of Consideration: |  | 2019
Cash | $ | 50,000
343,512 shares of common stock at $1.31 per share |  | 450,000
Total Purchase Price | $ | 500,000

Swisslink has been included in our consolidated results of operations since their respective acquisition dates.

F-16

iQSTEL INC

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

NOTE 4 – ACQUISITION (CONTINUED)

The following table summarizes the identifiable assets and liabilities assumed upon acquisition of SwissLink and the calculation of goodwill:

Total purchase price | $ | 500,000
Cash |  | 289,516
Accounts receivable, net |  | 1,462,786
Other current assets |  | 101,629
Deferred tax assets |  | 418,932
Property and equipment, net |  | 12,070
Total identifiable assets |  | 2,284,933
Accounts payable |  | (1,479,949)
Other current liabilities |  | (84,591)
Long term loans |  | (156,441)
Long term loans – related party |  | (2,199,907)
Employee benefits |  | (238,476)
Total liabilities assumed |  | (4,159,364)
Net assets |  | (1,874,431)
Non-controlling interest |  | 918,471
Total net assets |  | (955,960)
Goodwill | $ | 1,455,960

Unaudited combined proforma results of operations for the year ended December 31, 2020 and 2019 as though the Company acquired IoT Labs and SwissLink on January 1, 2019, are set forth below:

|  | Year Ended
|  | December 31,
|  | 2020 |  | 2019
Revenues | $ | 55,784,168 | $ | 50,971,291
Cost of revenues |  | 54,631,017 |  | 49,585,229
Gross profit |  | 1,153,151 |  | 1,386,062
Operating expenses |  | 4,224,903 |  | 1,919,871
Operating loss |  | (3,071,752) |  | (533,809)
Other expense |  | (3,487,315) |  | (4,798,447)
Net Loss | $ | (6,559,067) | $ | (5,332,256)

NOTE 5 – PREPAID AND OTHER CURRENT ASSETS

Other prepaid and other current assets at December 31, 2020 and 2019 consisted of the following:

|  | Year Ended
|  | December 31,
|  | 2020 |  | 2019
Advance payment to suppliers | $ | - | $ | 6,600
Other receivable |  | 77,557 |  | 78,936
Prepaid expenses |  | - |  | 5,834
Tax receivable |  | 600 |  | 600
| $ | 78,157 | $ | 91,970

F-17

iQSTEL INC

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

NOTE 6 – PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2020 and 2019 consisted of the following:

|  | December 31, |  | December 31,
|  | 2020 |  | 2019
Telecommunication equipment | $ | 259,000 | $ | 249,169
Telecommunication software |  | 530,514 |  | 436,124
Other equipment |  | 47,206 |  | 8,497
Total property and equipment |  | 836,720 |  | 693,790
Accumulated depreciation and amortization |  | (486,190) |  | (405,820)
Total property and equipment | $ | 350,530 | $ | 287,970

Depreciation expense for the year ended December 31, 2020 and 2019 amounted to $68,602 and $41,737, respectively.

F-18

iQSTEL INC

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

NOTE 7 –LOANS PAYABLE

Loans payable at December 31, 2020 and 2019 consisted of the following:

|  | December 31, |  | December 31, |  |  |  | Interest
|  | 2020 |  | 2019 |  | Term |  | rate
Unique Funding Solutions_2 | $ | 2,000 | $ | 2,000 |  | Note was issued on October 12, 2018 and due on January 17, 2019 |  | 28.6%
YES LENDER LLC |  | - |  | 25,500 |  | October 17, 2019 and due on March 31, 2020 |  | 30.0%
YES LENDER LLC 3 |  | 5,403 |  | - |  | Note was issued on August 3, 2020 and due on January 12, 2021 |  | 26.0%
Complete Business Solutions_8 |  | - |  | 52,170 |  | December 24, 2010 and due on June 09, 2020 |  | 26.0%
Advance Service Group LLC |  | 12,143 |  | - |  | Note was issued on October 20, 2020 and due on February 19, 2021 |  | 29.0%
Nicolas Arvelo |  | - |  | 5,000 |  | Note was issued on November 20, 2019 and due on November 20, 2020 |  | 12.0%
Martin Mendoza Diaz |  | - |  | 5,000 |  | Note was issued on November 20, 2019 and due on November 20, 2020 |  | 12.0%
Apollo Management Group, Inc |  | 63,158 |  | - |  | Note was issued on March 18, 2020 and due on December 15, 2020 |  | 12.0%
Apollo Management Group, Inc 2 |  | 68,421 |  | - |  | Note was issued on March 25, 2020 and due on December 15, 2020 |  | 12.0%
Apollo Management Group, Inc 3 |  | 66,316 |  | - |  | Note was issued on April 1, 2020 and due on October 1, 2021 |  | 12.0%
Apollo Management Group, Inc 4 |  | 73,684 |  | - |  | Note was issued on April 2, 2020 and due on October 2, 2021 |  | 12.0%
Apollo Management Group, Inc 5 |  | 36,842 |  | - |  | Note was issued on April 7, 2020 and due on October 7, 2021 |  | 12.0%
Apollo Management Group, Inc 6 |  | 84,211 |  | - |  | Note was issued on April 15, 2020 and due on October 15, 2021 |  | 12.0%
Apollo Management Group, Inc 7 |  | 55,000 |  | - |  | Note was issued on April 20, 2020 and due on December 15, 2020 |  | 12.0%
Apollo Management Group, Inc 14 |  | 32,432 |  |  |  | Note was issued on December 4, 2020 and due on January 4, 2021 |  | 12.0%
Labrys Fund |  | 280,000 |  | - |  | Note was issued on June 26, 2020 and due on April 1, 2021 |  | 12.0%
M2B Funding Corp |  | 300,000 |  | - |  | Note was issued on September 1, 2020 and due on September 1, 2021 |  | 12.0%
M2B Funding Corp 1 |  | 77,778 |  | - |  | Note was issued on December 10, 2020 and due on January 9, 2021 |  | 22.0%
M2B Funding Corp 2 |  | 27,778 |  | - |  | Note was issued on December 18, 2020 and due on January 17, 2021 |  | 22.0%
M2B Funding Corp 3 |  | 55,556 |  | - |  | Note was issued on December 24, 2020 and due on January 23, 2021 |  | 22.0%
M2B Funding Corp 4 |  | 111,111 |  | - |  | Note was issued on December 30, 2020 and due on January 29, 2021 |  | 22.0%
Martus |  | 108,609 |  | 99,399 |  | Note was issued on October 23, 2018 and due on January 3, 2022 |  | 5.0%
Swisspeers AG |  | 49,187 |  | 78,623 |  | Note was issued on April 8, 2019 and due on October 4, 2022 |  | 7.0%
Darlene Covi19 |  | 113,040 |  | - |  | Note was issued on April 1, 2020 and due on March 31, 2025 |  | 0.0%
Total |  | 1,622,669 |  | 267,692 |  |  |  |
Less: Unamortized debt discount |  | (19,221) |  | - |  |  |  |
Total loans payable |  | 1,603,448 |  | 267,692 |  |  |  |
Less: Current portion of loans payable |  | 1,332,612 |  | 89,671 |  |  |  |
Long-term loans payable | $ | 270,836 | $ | 178,021 |  |  |  |

F-19

iQSTEL INC

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

NOTE 7 –LOANS PAYABLE (CONTINUED)

Loans payable related parties at December 31, 2020 and 2019 consisted of the following:

|  | December 31, |  | December 31, |  |  |  | Interest
|  | 2020 |  | 2019 |  | 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%
49% of Shareholder of Swisslink |  | 1,737,512 |  | 1,588,261 |  | Note is due on demand |  | 0%
49% of Shareholder of Swisslink |  | 226,080 |  | 206,660 |  | Note is due on demand |  | 5%
Total |  | 2,054,379 |  | 1,885,708 |  |  |  | 16.5%
Less: Current portion of loans payable |  | 2,054,379 |  | 1,885,708 |  |  |  | 0%

During the year ended December 31, 2020 and 2019, the Company borrowed from third parties totaling $1,239,620 and $424,960, which includes original issue discount and financing costs of $63,970 and $17,953 and repaid the principal amount of $969,664 and $527,239, respectively.

During the year ended December 31, 2020 and 2019, the Company recorded interest expense of $77,101 and $207,660 and recognized amortization of discount, included in interest expense, of $44,749 and $17,953, respectively.

NOTE 8 – OTHER CURRENT LIABILITIES

Other current liabilities at December 31, 2020 and 2019 consisted of the following:

|  | December 31, |  | December 31,
|  | 2020 |  | 2019
Accrued liabilities | $ | 6,789 | $ | 2,700
Credit card liabilities |  | - |  | 4,987
Accrued interest |  | 170,960 |  | 365,345
Salary payable - management |  | 28,300 |  | 268,231
Employee benefits |  | 181,231 |  | 192,288
Other current liabilities |  | 26,396 |  | 14,933
| $ | 413,676 | $ | 848,484

NOTE 9 - CONVERTIBLE LOANS

At December 31, 2020 and 2019, convertible loans consisted of the following:

|  | December 31, |  | December 31,
|  | 2020 |  | 2019
Promissory notes – Issued in fiscal year 2019, with variable conversion features | $ | 5,000 | $ | 1,908,750
Promissory notes – Issued in fiscal year 2020, with variable conversion features |  | 623,660 |  | -
Total convertible notes payable |  | 628,660 |  | 1,908,750
Less: Unamortized debt discount |  | (372,290) |  | (646,212)
Total convertible notes |  | 256,370 |  | 1,262,538
Less: current portion of convertible notes |  | 253,554 |  | 1,251,096
Long-term convertible notes | $ | 2,816 | $ | 11,442

During the year ended December 31, 2020 and 2019, the Company recorded interest expense of $487,012 and $506,649 and recognized amortization of discount, included in interest expense, of $2,176,757 and $1,921,734, respectively.

F-20

iQSTEL INC

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

NOTE 9 - CONVERTIBLE LOANS (CONTINUED)

During the year ended December 31, 2020 and 2019, the Company repaid notes of $942,190 and $824,401 and accrued interest including prepayment penalty of $675,771 and $365,133, respectively.

Notes in Default

Certain convertible notes held by the company were in default. During the period ended December 31, 2020 and 2019, the Company did not maintain the covenant requiring the Company to be current with all financial filings. As a result of the breach, the company recorded a penalty of $0 and $8,151 as principal amount.

Conversion

During the year ended December 31, 2020, the Company converted notes with principal amounts of $1,302,785 and accrued interest of $93,656 into 46,575,378 shares of common stock. The corresponding derivative liability at the date of conversion of $4,275,728 was settled through additional paid in capital.

During the year ended December 31, 2019, the Company converted notes with principal amounts and accrued interest of $33,750 into 1,169,723 shares of common stock. The corresponding derivative liability at the date of conversion of $430,495 was settled through additional paid in capital.

Settlement

On June 10, 2020, the Company settled a convertible note with accrued interest of $64,230 with a total of 650,000 share issuances. The Company issued 200,000 shares in June, 225,000 shares in July and 503,571 shares in August, which included 278,571 true-up shares. As a result, the Company recognized a loss on settlement of debt of $24,699.

On June 26, 2020, the Company issued a loan payable of $700,000 to Labrys Fund to settle the previously-outstanding convertible notes with accrued interest of $986,340. As a result, the Company recognized a gain on settlement of debt of $286,340 (Note 7).

On July 22, 2020, the Company settled a convertible note with accrued interest of $ 64,363 and an original common stock purchase warrant to purchase 20,000 shares of common stock with a total of 650,000 share issuances. During the period ended September 30, 2020, the Company issued 1,038,375 shares which included 388,375 true-up shares. As a result, the Company recognized a loss on settlement of debt of $9,886.

On September 1, 2020, the Company entered into a Multipurpose agreement and issued a new note which a principal balance of $1,045,327 to replace the 15 notes issued from January 2020 to May 2020 which an aggregate principal amount was $985,556 and an aggregate accrued interest was $59,771. The Company also issued another promissory note of $300,000 (Note 7). As a result, the Company recognized a loss on settlement of debt of $300,000.

Promissory Notes - Issued in fiscal year 2019

During the year ended December 31, 2019, the Company issued a total of $2,544,250 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 0% 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 661,216 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.

F-21

iQSTEL INC

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

NOTE 9 - CONVERTIBLE LOANS (CONTINUED)

Certain notes allow the Company to redeem the notes at rates ranging from 110% to 150% depending on the redemption date provided that no redemption is allowed after the 180th day. Likewise, the notes include original issue discount and financing costs totaling $278,000 and the Company received cash of $2,266,250.

Promissory Notes - Issued in fiscal year 2020

During the year ended December 31, 2020, the Company issued a total of $2,708,771 in notes with the following terms:

`·`Terms 12 months.

`·`Annual interest rates 5% or 12%.

`·`Convertible at the option of the holders 90 or 180 days from issuance.

`·`Conversion prices are typically based on the discounted (25% or 60% discount) lowest trading prices of the Company’s shares during 30 trading day periods prior to conversion. Certain note has a capped conversion price of $0.025.

Notes allow the Company to redeem the notes at a range from 120% to 125% provided that no redemption is allowed after the 180th or 185th day. Likewise, the notes include original issue discount and financing costs totaling $229,444 and the Company received cash of $1,420,000. Certain convertible notes were also provided with a total of 6,500,000 warrants with exercise price ranging from $0.02 to $0.03.

Derivative liabilities

The Company determined that the conversion option in the note 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 of convertible notes and warrants using the Black Scholes valuation model. The fair value of the derivative liability for all the note and warrants that became convertible for the year ended December 31, 2020, amounted to $2,714,029. $1,673,393 of the value assigned to the derivative liability was recognized as a debt discount to the notes while the balance of $1,040,636 was recognized as a “day 1” derivative loss.

The fair value of the derivative liability for all the notes and warrants that became convertible for the year ended December 31, 2019 amounted to $4,916,471. $1,313,350 of the value assigned to the derivative liability was recognized as a debt discount to the notes while the balance of $3,603,121 was recognized as a “day 1” derivative loss.

F-22

iQSTEL INC

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

NOTE 9 - CONVERTIBLE LOANS (CONTINUED)

Warrants

A summary of activity during the year ended December 31, 2020 and 2019 follows:

| Warrants Outstanding |  |
| Shares |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual life (in years)
Outstanding, December 31, 2018 | - | $ | - |  | -
Granted | 92,000 |  | 3.00 |  | 3.66
Reset | 1,115,038 |  | 0.066 |  | 4.46
Cashless Exercised | (839,695) |  | 0.066 |  | 4.46
Forfeited/canceled | - |  | - |  | -
Outstanding, December 31, 2019 | 367,343 | $ | 0.480 |  | 4.05
Granted | 6,500,000 |  | 0.024 |  | 6.00
Reset | 10,813,001 |  | 0.014 |  | 1.92
Cashless Exercised | (10,597,010) |  | 0.023 |  | 4.24
Settled | (7,083,334) |  | 0.012 |  | 1.64
Outstanding, December 31, 2020 | - | $ | - |  | -

The reset feature of warrants associated with the convertible notes was effective at the time that a separate convertible note with lower exercise price was issued. As a result of the reset features for warrants, the warrants increased by 10,813,001 at $0.0014 per share. We accounted for the issuance of the warrants as a liability and recognized the derivative liability.

NOTE 10 – DERIVATIVE LIABILITY

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 December 31, 2020. 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 year ended December 31, 2020 and 2019, the estimated fair values of the liabilities measured on a recurring basis are as follows:

| Year Ended |  | Year Ended
| December31, |  | December31,
| 2020 |  | 2019
Expected term | 0.02 - 6.00 years |  | 0.03 - 5.00 years
Expected average volatility | 74% - 550% |  | 4% - 639%
Expected dividend yield | - |  | -
Risk-free interest rate | 0.05% - 2.56% |  | 1.44% - 2.57%

F-23

iQSTEL INC

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

NOTE 10 – DERIVATIVE LIABILITY (CONTINUED)

The following table summarizes the changes in the derivative liabilities during the year ended December 31, 2020 and 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 |  | 1,313,350
Addition of new derivatives recognized as loss on derivatives |  | 3,603,121
Settled on issuance of common stock |  | (471,066)
Gain on change in fair value of the derivative |  | (1,491,338)
Balance - December 31, 2019 | $ | 4,744,134
Addition of new derivatives recognized as debt discounts |  | 1,673,393
Addition of new derivatives recognized as loss on derivatives |  | 1,040,636
Settled on issuance of common stock |  | (5,136,222)
Change in fair value of the derivative |  | (1,296,250)
Balance - December 31, 2020 | $ | 1,025,691

The following table summarizes the change in fair value of derivative liability included in the income statement for the year ended December 31, 2020 and 2019, respectively.

|  | Year Ended
|  | December 31,
|  | 2020 |  | 2019
Addition of new derivatives recognized as loss on derivatives | $ | 1,040,636 | $ | (1,491,338)
Revaluation of derivative liabilities |  | (1,296,250) |  | 2,111,783
(Gain) loss on change in fair value of the derivative | $ | (255,614) | $ | 3,603,121

NOTE 11 – SHAREHOLDERS’ EQUITY

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

Series A Preferred Stock

On November 3, 2020, pursuant to Article III of our Articles of Incorporation, our Board of Directors voted to designate a class of preferred stock entitled Series A Preferred Stock, consisting of up 10,000 shares, par value $0.001. Under the Certificate of Designation, holders of Series A Preferred Stock will participate on an equal basis per-share with holders of our common stock in any distribution upon winding up, dissolution, or liquidation. Holders of Series A Preferred Stock are entitled to vote together with the holders of our common stock on all matters submitted to shareholders at a rate of 51% of the total vote of shareholders.

The rights of the holders of Series A Preferred Stock are defined in the relevant Certificate of Designation filed with the Nevada Secretary of State on November 3, 2020

During the year ended December 31, 2020, 100,000 shares of common stock were converted into 10,000 shares of Series A Preferred Stock by our management.

As of December 31, 2020 and 2019, 10,000 and 0 shares of Series A Preferred Stock were issued and outstanding, respectively.

F-24

iQSTEL INC

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

NOTE 11 – SHAREHOLDERS’ EQUITY (CONTINUED)

Series B Preferred Stock

On November 11, 2020, pursuant to Article III of our Articles of Incorporation, our Board of Directors voted to designate a class of preferred stock entitled Series B Preferred Stock, consisting of up 200,000 shares, par value $0.001. Under the Certificate of Designation, holders of Series B Preferred Stock will receive a liquidation preference of $81 per share in any distribution upon winding up, dissolution, or liquidation of the Company before junior security holders, as provided in the designation. Holders of Series B Preferred Stock are entitled to receive as, when, and if declared by the Board of Directors, dividends in kind at an annual rate equal to twenty four percent (24%) of $81 per share for each of the then outstanding shares of Series B Preferred Stock, calculated on the basis of a 360-day year consisting of twelve 30-day months. Holders of Series B Preferred Stock do not have voting rights but may convert into common stock after twelve months from the issuance date, at a conversion rate of one thousand (1,000) shares of Common Stock for every one (1) share of Series B Preferred Stock. Upon conversion, the shares are subject to a one-year leak-out restriction on sales into the market of no more than 5% previous month’s stock liquidity.

Series C Preferred Stock

On January 7, 2021, pursuant to Article III of our Articles of Incorporation, our Board of Directors voted to designate a class of preferred stock entitled Series C Preferred Stock, consisting of up 200,000 shares, par value $0.001. Under the Certificate of Designation, holders of Series C Preferred Stock will rank junior to the Series B Preferred Stock, but on par with common stock and Series A Preferred Stock in any distribution upon winding up, dissolution, or liquidation of the company, as provided in the designation. The holders of shares of Series C Preferred Stock have no dividend rights except as may be declared by the Board in its sole and absolute discretion, out of funds legally available for that purpose. Holders of Series B Preferred Stock do not have voting rights but may convert into common stock after twenty four months from the issuance date, at a conversion rate of one thousand (1,000) shares of Common Stock for every one (1) share of Series C Preferred Stock. Upon conversion, the shares are subject to a one-year leak-out restriction on sales into the market of no more than 5% previous month’s stock liquidity.

The rights of the holders of Series C Preferred Stock are defined in the relevant Certificate of Designation filed with the Nevada Secretary of State on January 7, 2021.

Common Stock

During the year ended December 31, 2020, the Company issued 100,224,841 shares of common stock, valued at fair market value on issuance as follows;

`·`23,937,500 shares issued for cash of $1,915,005

`·`12,818,145 shares issued for settlement of debt of $889,093

`·`6,267,600 shares issued for services valued at $647,858

`·`1,150,000 shares issued for forbearance of debt of $92,250

`·`46,575,378 shares issued for conversion of debt of $1,396,440

`·`9,476,218 shares issued for cashless exercised warrant

F-25

iQSTEL INC

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

NOTE 11 – SHAREHOLDERS’ EQUITY (CONTINUED)

During the year ended December 31, 2019, the Company issued 2,985,941 shares of common stock as follows;

`·`661,216 shares in conjunction with convertible notes.

`·`811,490 shares for cashless exercised warrant

`·`1,169,723 shares for conversion of debt of $33,750 (see Note 9)

`·`343,512 shares for acquisition of SwissLink

As of December 31, 2020 and 2019, 118,133,432 and 18,008,591 shares of common stock were issued and outstanding, respectively.

NOTE 12 – PROVISION FOR INCOME TAXES

The Company provides for income taxes under ASC 740, “Income Taxes.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax basis of assets and liabilities and the tax rates in effect when these differences are expected to reverse. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.

The components of the Company’s deferred tax asset and reconciliation of income taxes computed at the statutory rate to the income tax amount recorded as of December 31, 2020 and 2019, are as follows:

|  | December 31, |  | December 31,
|  | 2020 |  | 2019
Net Operating loss carryforward | $ | 8,601,999 | $ | 4,378,894
Effective tax rate |  | 21% |  | 21%
Deferred tax asset |  | 1,806,420 |  | 919,568
Foreign taxes |  | (5,112) |  | -
Less: valuation allowance |  | (1,341,272) |  | (499,049)
Net deferred tax asset | $ | 460,036 | $ | 420,519

As of December 31, 2020, the Company has approximately $8,432,000 of net operating losses (“NOL”) generated to December 31, 2020 carried forward to offset taxable income in future years which expire commencing in fiscal 2037. NOLs generated in tax years prior to December 31, 2017, can be carryforward for twenty years, whereas NOLs generated after December 31, 2017 can be carryforward indefinitely. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against all of the deferred tax assets relating to NOLs for every period because it is more likely than not that all of the deferred tax assets will not be realized.

Utilization of the NOL carry forwards may be subject to an annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). These ownership changes may limit the amount of the NOL carry forwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders.

Tax returns for the years ended 2012 through 2020 are subject to review by the tax authorities.

F-26

iQSTEL INC

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

NOTE 13 - RELATED PARTY TRANSACTIONS

Due from related party

During the year ended December 31, 2020, the Company loaned $20,182 to related parties who are a shareholder and a former director, collected $20,197 and wrote off amounts totaling $43,375.

During the year ended December 31, 2020 and 2019, the Company loaned $18,888 and $129,387 to a related party and collected $2,088 and $73,947, respectively.

As of December 31, 2020 and 2019, the Company had due from related parties of $221,790 and $316,860, respectively. The loans are unsecured, non-interest bearing and due on demand.

Due to related parties

During the year ended December 31, 2020 and 2019, the Company borrowed $20,182 and $46,438 from CEO and CFO of the Company, and repaid $20,197 and $38,400 to the CEO and CFO, respectively.

During the year ended December 31, 2020, the Company borrowed $20,000 from Francisco Bunt who owns 49% of loT Labs and repaid $20,000.

As of December 31, 2020 and 2019, the Company had amounts due to related parties of $94,616, which included $60,000 to Francisco Bunt (Note 4) and $34,631, respectively. The amounts are unsecured, non-interest bearing and due on demand.

Debt forgiveness

During the year ended December 31, 2019, the Company recorded debt forgiveness of $406,080 as additional paid in capital.

Employment agreements

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.

On November 1, 2020, our board of directors approved amended employments in favor of our Chief Executive Officer, Leandro Iglesias, our Chief Financial Officer, Alvaro Quintana, and our Chief Commercial Officer, Juan Carlos Lopez Silva.

The amended employment agreement in favor of Mr. Iglesias extended the term of employment from 36 months to 60 months. The now five year employment agreement with Mr. Iglesias provides that we will compensate him with a salary of $17,000 monthly and he is eligible for quarterly bonus of 250,000 shares of our common stock. If we do not have the cash available, the agreement provides that Mr. Iglesias may convert his accrued salary/bonus into shares of our common stock or newly created Series A Preferred Stock. For common shares, the amount of accrued salary to be converted into shares must be determined by considering the average price per share of the Company’s common stock on the OTC Markets during the last 10 days and applying a discount of 25%.” For Series A Preferred Shares, the amount of accrued salary to be converted into shares is the per share conversion price for common shares multiplied by ten US Dollars ($10). Mr. Iglesias has a further right to convert any common shares under his control into Series A Preferred shares at any time at a rate of ten (10) common shares for each Series A Preferred share.

F-27

iQSTEL INC

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

NOTE 13 - RELATED PARTY TRANSACTIONS (CONTINUED)

The amended employment agreement in favor of Mr. Quintana extended the term of employment from 36 months to 60 months. The now five year employment agreement with Mr. Quintana provides that he is eligible for quarterly bonus of 200,000 shares of our common stock. If we do not have the cash available, the agreement provides that Mr. Quintana may convert his accrued salary/bonus into shares of our common stock or newly created Series A Preferred Stock. For common shares, the amount of accrued salary to be converted into shares must be determined by considering the average price per share of the Company’s common stock on the OTC Markets during the last 10 days and applying a discount of 25%.” For Series A Preferred Shares, the amount of accrued salary to be converted into shares is the per share conversion price for common shares multiplied by ten US Dollars ($10). Mr. Quintana has a further right to convert any common shares under his control into Series A Preferred shares at any time at a rate of ten (10) common shares for each Series A Preferred share.

The amended employment agreement in favor of Mr. Silva extended the term of employment from 36 months to 60 months. Mr. Silva is eligible for quarterly bonuses of 150,000 shares of our common stock. If we do not have the cash available, the agreement provides that Mr. Iglesias may convert his accrued salary/bonus into shares of our common stock at the average price of our common stock during the last 10 days after applying a discount of 25%.

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.

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 year ended December 31, 2020 and 2019, the Company recorded management fees of $504,000 and $334,000, bonus of $79,880 and $0 and paid $130,400 and $126,200, respectively. During the year ended December 31, 2020, the Company settled accrued salary – management of $619,531 and issued 10,851,199 shares. As at December 31, 2020 and 2019, the Company recorded and accrued management salaries of $22,300 and $268,231, respectively.

F-28

iQSTEL INC

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

NOTE 14 – COMMITMENTS AND CONTINGENCIES

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 years ended December 31, 2020 and 2019, the Company incurred $18,400 and $19,900, respectively.

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 year ended December 31, 2020 and 2019, the Company incurred $0 and $7,200, respectively.

NOTE 15 - SEGMENT

At December 31, 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 years ended December 31, 2020 and 2019:

|  | USA |  | Switzerland |  | Elimination |  | Total
Revenues | $ | 39,495,542 |  | 5,432,022 | $ | (17,558) | $ | 44,910,006
Cost of revenue |  | 39,308,347 |  | 4,656,865 |  | (17,558) |  | 43,947,654
Gross profit |  | 187,195 |  | 775,157 |  | - |  | 962,352
Operating expenses |  |  |  |  |  |  |  |
General and administration |  | 3,359,237 |  | 815,130 |  | - |  | 4,174,367
Operating loss |  | (3,172,042) |  | (39,973) |  | - |  | (3,212,015)
Other expense |  | (3,356,881) |  | (130,434) |  | - |  | (3,487,315)
Net loss | $ | (6,528,923) | $ | (170,407) | $ | - | $ | (6,699,330)

F-29

iQSTEL INC

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

NOTE 15 - SEGMENT (CONTINUED)

|  | USA |  | Switzerland |  | Elimination |  | Total
Revenues | $ | 16,327,871 |  | 1,726,359 | $ | (22,682) | $ | 18,031,548
Cost of revenue |  | 15,796,310 |  | 1,476,995 |  | (22,682) |  | 17,250,623
Gross profit |  | 531,561 |  | 249,364 |  | - |  | 780,925
Operating expenses |  |  |  |  |  |  |  |
General and administration |  | 1,189,680 |  | 259,944 |  | - |  | 1,449,624
Operating loss |  | (658,119) |  | (10,580) |  | - |  | (668,699)
Other expense |  | (4,753,739) |  | (20,300) |  | - |  | (4,774,039)
Net loss | $ | (5,411,858) | $ | (30,880) | $ | - | $ | (5,442,738)

Asset Information

The following table shows asset information by geographic segment as of December 31, 2020 and 2019:

December 31, 2020 |  | USA |  | Switzerland |  | Elimination |  | Total
Assets |  |  |  |  |  |  |  |
Current assets | $ | 3,245,725 | $ | 1,225,399 | $ | (889,540) | $ | 3,581,584
Non-current assets | $ | 3,478,147 | $ | 561,551 | $ | (1,669,515) | $ | 2,370,183
Liabilities |  |  |  |  |  |  |  |
Current liabilities | $ | 5,630,060 | $ | 3,171,419 | $ | (889,540) | $ | 7,911,939
Non-current liabilities | $ | 2,816 | $ | 432,048 | $ | - | $ | 434,864
December 31, 2019 |  | USA |  | Switzerland |  | Elimination |  | Total
Assets |  |  |  |  |  |  |  |
Current assets | $ | 3,073,654 | $ | 1,174,856 | $ | (810,013) | $ | 3,438,497
Non-current assets | $ | 3,146,894 | $ | 456,070 | $ | (1,438,515) | $ | 2,164,449
Liabilities |  |  |  |  |  |  |  |
Current liabilities | $ | 9,041,421 | $ | 2,914,237 | $ | (810,013) | $ | 11,145,645
Non-current liabilities | $ | 11,442 | $ | 216,274 | $ | - | $ | 227,716

F-30

iQSTEL INC

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

NOTE 16 - SUBSEQUENT EVENTS

Subsequent to December 31, 2020 and through the date that these financials were made available, the Company had the following subsequent events:

On January 15, 2021, we entered into Conversion Agreements with Leandro Iglesias, our Chief Executive Officer and director, Alvaro Quintana, Chief Financial Officer and director, and Juan Carlos Lopez, our Chief Commercial Officer, pursuant to which we agreed to convert 21,000,000 shares of common stock from officers into 21,000 shares of our Series B Preferred Stock, as follow:

Shareholders | Number of Shares of Common Stock Converting Into Series B Preferred Stock | Number of shares of Series B Preferred Stock acquired in Conversion
Leandro Iglesias | 12,200,000 | 12,200
Alvaro Cardona | 5,300,000 | 5,300
Juan Carlos Lopez | 3,500,000 | 3,500
Total | 21,000,000 | 21,000

The features of our Series B Preferred Stock are found in the Certificate of Designation for our Series B Preferred Stock, which is made Exhibit 3.1 in the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 13, 2020.

The Series B Preferred Stock have one (1) year lock-up after the issuance, and 1 year of leak out after the conversion back into a common, and the Shareholder cannot sell more than 5% of the liquidity of the market.

On February 16, 2021, we entered into a Termination Agreement and Release with Apollo Management Group, Inc. (“Apollo”), pursuant to which we agreed to settle loans amounting to $500,000 with Apollo by issuing to Apollo 735,295 shares of our common stock as full and complete settlement of the aggregate outstanding principal amount and by paying Apollo $1,500 representing the outstanding accrued and unpaid interest on the loans. In connection with the agreement, the parties entered into a mutual release of claims.

Also on February 16, 2021, we entered into a Termination Agreement and Release with M2B Funding Corp. (“M2B”), pursuant to which we agreed to settle loans amounting to $716,666.67 with M2B by issuing to M2B 1,053,922 shares of our common stock as full and complete settlement of the aggregate outstanding principal amount and by paying M2B $10,511 representing the outstanding accrued and unpaid interest on the loans. In connection with the agreement, the parties entered into a mutual release of claims.

Also on February 16, 2021, we entered into a Termination Agreement and Release with M2B, pursuant to which we agreed to settle an “additional loan” amounting to $300,000 with M2B by issuing to M2B 441,177 shares of our common stock as full and complete settlement of the aggregate outstanding principal amount and by paying M2B $789 representing the outstanding accrued and unpaid interest on the loan. In connection with the agreement, the parties entered into a mutual release of claims.

F-31

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

There were no changes or disagreements with our accountants on accounting and financial disclosure.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this annual report, being December 31, 2020. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Based upon that evaluation, including our Chief Executive Officer and Chief Financial Officer, we have concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this annual report.

Management’s Annual Report on Internal Control over Financing Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2020 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this assessment, management concluded that, as of December 31, 2020, our internal control over financial reporting was not effective. 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 plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this annual report on Form 10-K, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we hope to implement the following changes during our fiscal year ending December 31, 2021: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out in (i) and (ii) are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to an exemption for non-accelerated filers set forth in Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

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.

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Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting during the three month period ended December 31, 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.

Item 9B. Other Information

None

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

The following information sets forth the names, ages, and positions of our current directors and executive officers.

Name |  | Age |  | Positions and Offices Held
Leandro Iglesias |  | 55 |  | President, Chairman, Chief Executive Officer and Director
Alvaro Quintana Cardona |  | 49 |  | Chief Operating Officer, Chief Financial Officer and Director
Juan Carlos Lopez Silva |  | 52 |  | Chief Commercial Officer

Set forth below is a brief description of the background and business experience of each of our current executive officers and directors.

Leandro Iglesias

Before founding Etelix in year 2008, where he has acted as President and CEO, Mr. Iglesias was the International Business Manager at CANTV/Movilnet (the Venezuelan biggest telecommunications services provider). He held this position between January 2003 and July 2008, while the company was under the control of Verizon. Previous to his position in Cantv/Movilnet Mr. Iglesias was Executive Vice President and responsible of the Latin America marketing division of American Internet Communications (August 1998 – December 2002). Leandro Iglesias has developed a career for more than 20 years in the telecommunications industry with a particular emphasis in the international long-distance traffic business, submarine cables, satellite communications and international roaming services. He is Electronic Engineer graduate from Universidad Simon Bolivar and graduated from the Management Program at IESA Business School. He also holds an MBA from Universidad Nororiental Gran Mariscal de Ayacucho.

Aside from that provided above, Mr. Iglesias does not hold and has not held over the past five years any other directorships in any company with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940.

We believe that Mr. Iglesias is qualified to serve on our Board of Directors because of his wealth of experience in the telecom industry.

Alvaro Quintana Cardona

Alvaro Quintana has developed a career of more than twenty years of experience in the telecommunication industry with particular focus on regulatory affairs, strategic planning, value added services and international interconnection agreements. Before joining Etelix in year 2013 as Chief Operation Officer and Chief Financial Officer, Mr. Quintana acted between June 2004 and May 2013 as Interconnection and Value-Added Services Manager at Digitel (a mobile service provider in Venezuela, formerly a Telecom Italia Mobile subsidiary). He holds a Bachelor Degree in Business Administration and a Specialist Degree in Economics, both from the Universidad Catolica Andres Bello. He also holds a Master in Telecommunications from the EOI Business School in Spain.

Aside from that provided above, Mr. Cardona does not hold and has not held over the past five years any other directorships in any company with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940.

We believe that Mr. Quintana is qualified to serve on our Board of Directors because of his wealth of experience in the telecom industry.

Juan Carlos Lopez Silva

Juan Carlos Lopez Silva is an Engineer graduated from Universidad de Los Andes, with a Master degree in Project Management from the Pontificia Universidad Javeriana; and MBA from EADA Business School; with more than 20 years of experience in project management, negotiation, business development and management on international companies. Previous to joining Etelix in August 2011 as Chief Commercial Officer, Juan Carlos was International Carrier Relations Manager at Colombia Telecomunicaciones S.A. Esp. a subsidiary of Telefonica of Spain, between September 2003 and June 2011.

Aside from that provided above, Mr. Silva does not hold and has not held over the past five years any other directorships in any company with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940.

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Term of Office

Our Directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board, subject to their respective employment agreements.

Significant Employees

We have no significant employees other than our officers and directors.

Family Relationships

There are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers.

Involvement in Certain Legal Proceedings

During the past 10 years, none of our current directors, nominees for directors or current executive officers has been involved in any legal proceeding identified in Item 401(f) of Regulation S-K, including:

`1.`Any petition under the Federal bankruptcy laws or any state insolvency law filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he or she was a general partner at or within two years before the time of such filing, or any corporation or business association of which he or she was an executive officer at or within two years before the time of such filing;

`2.`Any conviction in a criminal proceeding or being named a subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

`3.`Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him or her from, or otherwise limiting, the following activities:

`i.`Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;

`ii.`Engaging in any type of business practice; or

`iii.`Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;

`4.`Being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any type of business regulated by the Commodity Futures Trading Commission, securities, investment, insurance or banking activities, or to be associated with persons engaged in any such activity;

`5.`Being found by a court of competent jurisdiction in a civil action or by the SEC to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;

`6.`Being found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;

21

`7.`Being subject to, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

`i.`Any Federal or State securities or commodities law or regulation; or

`ii.`Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or

`iii.`Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

`8.`Being subject to, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Director Independence

The Board of Directors reviews the independence of our directors on the basis of standards adopted by the NASDAQ Stock Market (“NASDAQ”). As a part of this review, the Board of Directors considers transactions and relationships between our company, on the one hand, and each director, members of the director’s immediate family, and other entities with which the director is affiliated, on the other hand. The purpose of such a review is to determine which, if any, of such transactions or relationships were inconsistent with a determination that the director is independent under NASDAQ rules. As a result of this review, the Board of Directors has determined that none of our directors is an “independent director” within the meaning of applicable NASDAQ listing standards.

Committees of the Board

Our full board serves the functions that would normally be served by a separately-designated Audit Committee, Nominating Committee, and Compensation Committee. Further, we do not have an audit committee financial expert on the Board.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of the Company’s equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent beneficial shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. To the best of our knowledge based solely on a review of Forms 3, 4, and 5 (and any amendments thereof) received by us, no persons have failed to file, on a timely basis, the identified reports required by Section 16(a) of the Exchange Act during fiscal year ended December 31, 2020. Following the year end, all of the Form 3s were filed late for incoming management of Etelix.com USA LLC.

Code of Ethics

We do not have a code of ethics but we plan to adopt one this fiscal year.

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Item 11. Executive Compensation

The table below summarizes all compensation awarded to, earned by, or paid to our former or current executive officers for the fiscal years ended December 31, 2020 and 2019.

Name and principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | All Other Compensation ($) (1)(2) | Total ($)
Leandro Iglesias President, CEO and Director | 2019 2020 | 52,700 76,800 | - - | - - | - - | - - | 52,700 76,800
Alvaro Quintana Treasury, Secretary and Director | 2019 2020 | 33,500 25,100 | - - | - - | - - | - - | 33,500 25,100
Juan Carlos López Chief Commercial Officer | 2019 2020 | 35,000 28,500 | - - | - - | - - | - - | 35,000 28,500

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.

On November 1, 2020, our board of directors approved amended employments in favor of our Chief Executive Officer, Leandro Iglesias, our Chief Financial Officer, Alvaro Quintana, and our Chief Commercial Officer, Juan Carlos Lopez Silva.

The amended employment agreement in favor of Mr. Iglesias extended the term of employment from 36 months to 60 months. The now five year employment agreement with Mr. Iglesias provides that we will compensate him with a salary of $17,000 monthly and he is eligible for quarterly bonus of 250,000 shares of our common stock. If we do not have the cash available, the agreement provides that Mr. Iglesias may convert his accrued salary/bonus into shares of our common stock or newly created Series A Preferred Stock. For common shares, the amount of accrued salary to be converted into shares must be determined by considering the average price per share of the Company’s common stock on the OTC Markets during the last 10 days and applying a discount of 25%.” For Series A Preferred Shares, the amount of accrued salary to be converted into shares is the per share conversion price for common shares multiplied by ten US Dollars ($10). Mr. Iglesias has a further right to convert any common shares under his control into Series A Preferred shares at any time at a rate of ten (10) common shares for each Series A Preferred share.

The amended employment agreement in favor of Mr. Quintana extended the term of employment from 36 months to 60 months. The now five year employment agreement with Mr. Quintana provides that he is eligible for quarterly bonus of 200,000 shares of our common stock. If we do not have the cash available, the agreement provides that Mr. Quintana may convert his accrued salary/bonus into shares of our common stock or newly created Series A Preferred Stock. For common shares, the amount of accrued salary to be converted into shares must be determined by considering the average price per share of the Company’s common stock on the OTC Markets during the last 10 days and applying a discount of 25%.” For Series A Preferred Shares, the amount of accrued salary to be converted into shares is the per share conversion price for common shares multiplied by ten US Dollars ($10). Mr. Quintana has a further right to convert any common shares under his control into Series A Preferred shares at any time at a rate of ten (10) common shares for each Series A Preferred share.

The amended employment agreement in favor of Mr. Silva extended the term of employment from 36 months to 60 months. Mr. Silva is eligible for quarterly bonuses of 150,000 shares of our common stock. If we do not have the cash available, the agreement provides that Mr. Iglesias may convert his accrued salary/bonus into shares of our common stock at the average price of our common stock during the last 10 days after applying a discount of 25%.

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Option Grants

We have not granted any options or stock appreciation rights to our named executive officers or directors since inception. We do not have any stock option plans.

Compensation of Directors

All Directors shall receive reimbursement for reasonable travel expenses incurred to attend Board and committee meetings.

Effective on January 01, 2020 and thereafter, 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%.

Pension, Retirement or Similar Benefit Plans

There are no arrangements or plans in which we provide pension, retirement or similar benefits to our directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the board of directors or a committee thereof.

Compensation Committee

We do not currently have a compensation committee of the board of directors or a committee performing similar functions. The board of directors as a whole participates in the consideration of executive officer and director compensation.

Indebtedness of Directors, Senior Officers, Executive Officers and Other Management

None of our directors or executive officers or any associate or affiliate of our company during the last two fiscal years is or has been indebted to our company by way of guarantee, support agreement, letter of credit or other similar agreement or understanding currently outstanding.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth, as of April 12, 2021, certain information as to shares of our voting stock owned by (i) each person known by us to beneficially own more than 5% of our outstanding voting stock, (ii) each of our directors, and (iii) all of our executive officers and directors as a group.

Unless otherwise indicated below, to our knowledge, all persons listed below have sole voting and investment power with respect to their shares of voting stock, except to the extent authority is shared by spouses under applicable law. Unless otherwise indicated below, each entity or person listed below maintains an address of 300 Aragon Avenue, Suite 375, Coral Gables, FL 33134.

The number of shares beneficially owned by each stockholder is determined under rules promulgated by the SEC. The information is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting or investment power and any shares as to which the individual or entity has the right to acquire beneficial ownership within 60 days through the exercise of any stock option, warrant or other right. The inclusion in the following table of those shares, however, does not constitute an admission that the named stockholder is a direct or indirect beneficial owner.

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| Common Stock
Name and Address of Beneficial Owner | Number of Shares Owned (1) |  | Percent of Class (2)
Leandro Iglesias | 818,094 |  | 0.598%
Alvaro Quintana Cardona | 588,509 |  | 0.430%
Juan Carlos Lopez Silva | 525,497 |  | 0.384%
All Directors and Executive Officers as a Group (3 persons) | 1,932,100‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬ |  | 1.412%
| Series A Preferred Stock
Name and Address of Beneficial Owner | Number of Shares Owned (1) |  | Percent of Class (3)
Leandro Iglesias | 7,000 |  | 70.00%
Alvaro Quintana Cardona | 3,000 |  | 30.00%
Juan Carlos Lopez Silva | - |  | -
All Directors and Executive Officers as a Group (3 persons) | 10,000‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬ |  | 100.00%

`(1)`Unless otherwise indicated, each person or entity named in the table has sole voting power and investment power (or shares that power with that person’s spouse) with respect to all shares of voting stock listed as owned by that person or entity.

(2) Pursuant to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership includes any shares as to which a shareholder has sole or shared voting power or investment power, and also any shares which the shareholder has the right to acquire within 60 days, including upon exercise of common shares purchase options or warrants. The percent of class is based on 136,881,964 voting shares as of April 12, 2021.

(3) Pursuant to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership includes any shares as to which a shareholder has sole or shared voting power or investment power, and also any shares which the shareholder has the right to acquire within 60 days, including upon exercise of common shares purchase options or warrants. The percent of class is based on 10,000 voting shares as of April 12, 2021.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Other than described below or the transactions described under the heading “Executive Compensation” (or with respect to which such information is omitted in accordance with SEC regulations), there have not been, and there is not currently proposed, any transaction or series of similar transactions to which we were or will be a participant in which the amount involved exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years, and in which any director, executive officer, holder of 5% or more of any class of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest.

Due from related party

During the year ended December 31, 2020, the Company loaned $17,187 to related parties who are a shareholder and a former director, collected $388 and wrote off amounts totaling $43,375.

During the year ended December 31, 2020 and 2019, the Company loaned $18,888 and $129,387 to a related party and collected $2,088 and $73,947, respectively.

As of December 31, 2020 and 2019, the Company had due from related parties of $221,790 and $316,860, respectively. The loans are unsecured, non-interest bearing and due on demand.

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Due to related parties

During the year ended December 31, 2020 and 2019, the Company borrowed $20,182 and $46,438 from CEO and CFO of the Company, and repaid $20,197 and $38,400 to the CEO and CFO, respectively.

During the year ended December 31, 2020, the Company borrowed $20,000 from Francisco Bunt who owns 49% of loT Labs and repaid $20,000.

As of December 31, 2020 and 2019, the Company had amounts due to related parties of $94,616, which included $60,000 to Francisco Bunt (Note 4) and $34,631, respectively. The amounts are unsecured, non-interest bearing and due on demand.

Debt forgiveness

During the year ended December 31, 2020, the Company recorded debt forgiveness of $406,080 as additional paid in capital.

Item 14. Principal Accounting Fees and Services

Below are tables of Audit Fees (amounts in US$) billed by our auditors in connection with the audits of the Company’s annual financial statements for the years ended:

Financial Statements for the Year Ended December 31 |  | Audit Services |  | Audit Related Fees |  | Tax Fees |  | Other Fees
2019 | $ | 24,000 | $ | 0 | $ | 0 | $ | 0
2020 | $ | 39,000 | $ | 4,650 | $ | 0 | $ | 0

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PART IV

Item 15. Exhibits, Financial Statements Schedules

|  | (a) Financial Statements and Schedules

The following financial statements and schedules listed below are included in this Form 10-K.

Financial Statements (See Item 8)

|  | (b) Exhibits

Exhibit No. |  | Description of Exhibit
Exhibit 2.1 |  | Membership Interest Purchase Agreement(1)
Exhibit 2.2 |  | Memorandum of Understanding and Shareholders Agreement dated February 21, 2020(5)
Exhibit 2.3 |  | Memorandum of Understanding and Shareholders Agreement dated February 12, 2020(6)
Exhibit 2.4 |  | Company Purchase Agreement, dated April 1, 2019(11)
Exhibit 3.1 |  | Articles of Incorporation of the Registrant (2)
Exhibit 3.2 |  | Bylaws of the Registrant (2)
Exhibit 3.3 |  | Certificate of Amendment(3)
Exhibit 4.1 |  | Amendment #2 to the Crown Capital Note dated March 2, 2020(4)
Exhibit 4.2 |  | Amendment #2 to the Auctus Fund Note dated March 2, 2020(4)
Exhibit 4.2 |  | Amendment #1 to the Labrys Fund Note dated February 11, 2020(7)
Exhibit 4.3 |  | Amendment #1 to the Apollo Note dated December 23, 2019(8)
Exhibit 4.4 |  | Amendment #1 to the Apollo Note dated December 24, 2019(8)
Exhibit 4.5 |  | Amendment #1 to the Apollo Note dated December 24, 2019(8)
Exhibit 4.6 |  | Amendment #1 to the Apollo Note dated December 24, 2019(8)
Exhibit 4.7 |  | Amendment #1 to the Apollo Note dated December 24, 2019(8)
Exhibit 4.8 |  | Amendment #1 to the Apollo Note dated December 24, 2019(8)
Exhibit 4.9 |  | Amendment #1 to the Apollo Note dated December 24, 2019(8)
Exhibit 4.10 |  | Amendment #1 to the Crown Capital Note dated December 23, 2019(8)
Exhibit 4.11 |  | Amendment #1 to the Auctus Fund Note dated January 1, 2020(8)
Exhibit 4.12 |  | Senior Secured Convertible Promissory Note to Labrys Fund dated December 3, 2019(9)
Exhibit 10.1 |  | Conversion Agreement with Carmen Cabell(1)
Exhibit 10.2 |  | Conversion Agreement with Patrick Gosselin(1)
Exhibit 10.3 |  | Conversion Agreement with Mark Engler(1)
Exhibit 10.4 |  | Employment Agreement with Leandro Iglesias(1)
Exhibit 10.5 |  | Employment Agreement with Alvaro Quintana Cardona(1)
Exhibit 10.6 |  | Employment Agreement with Juan Carlos Lopez Silva(1)
Exhibit 10.7 |  | Forbearance Agreement dated December 12, 2019(8)
Exhibit 10.8 |  | Temporary Forbearance Agreement dated December 18, 2019(8)
Exhibit 10.9 |  | Securities Purchase Agreement, dated December 3, 2019(9)
Exhibit 10.10 |  | Employment and Indemnification Agreements with Leandro Iglesias, dated May 2, 2019(10)
Exhibit 10.11 |  | Employment and Indemnification Agreements with Alvaro Quintana, dated May 2, 2019(10)
Exhibit 10.12 |  | Employment and Indemnification Agreements with Juan Carlos Lopez Silva, dated May 2, 2019(10)
Exhibit 31.1** |  | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2** |  | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 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
Exhibit 101** |  | The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 formatted in Extensible Business Reporting Language (XBRL).

Filed herewith**

`(1)`Incorporated by reference to the Company’s Form 8-K filed with the US Securities and Exchange Commission on June 28, 2018.

`(2)`Incorporated by reference to the Company’s Registration Statement on Form S-1 filed with the US Securities and Exchange Commission on August 18, 2011.

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`(3)`Incorporated by reference to the Company’s Form 8-K filed with the US Securities and Exchange Commission on August 31, 2018.

`(4)`Incorporated by reference to the Company’s Form 8-K filed with the US Securities and Exchange Commission on March 30, 2020.

`(5)`Incorporated by reference to the Company’s Form 8-K filed with the US Securities and Exchange Commission on February 25, 2020.

`(6)`Incorporated by reference to the Company’s Form 8-K filed with the US Securities and Exchange Commission on February 19, 2020.

`(7)`Incorporated by reference to the Company’s Form 8-K filed with the US Securities and Exchange Commission on February 13, 2020.

`(8)`Incorporated by reference to the Company’s Form 8-K filed with the US Securities and Exchange Commission on January 6, 2020.

`(9)`Incorporated by reference to the Company’s Form 8-K filed with the US Securities and Exchange Commission on December 11, 2019.

`(10)`Incorporated by reference to the Company’s Form 8-K filed with the US Securities and Exchange Commission on May 6, 2019.

`(11)`Incorporated by reference to the Company’s Form 8-K filed with the US Securities and Exchange Commission on April 4,2019.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

| IQSTEL Inc.
By: | /s/ Leandro Iglesias
| Leandro Iglesias Chief Executive Officer, Principal Executive Officer
| April 15, 2021

By: | /s/ Alvaro Quintana Cardona
| Alvaro Quintana Cardona
Title: | Chief Operating Officer, Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer
Date: | April 15, 2021

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By: | /s/ Leandro Iglesias
| Leandro Iglesias Chief Executive Officer, Principal Executive Officer
| April 15, 2021

By: | /s/ Alvaro Quintana Cardona
| Alvaro Quintana Cardona
Title: | Chief Operating Officer, Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer
Date: | April 15, 2021

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