Executive Summary / Key Takeaways

• Strategic Transformation Underway: iQSTEL (NASDAQ:IQST) is strategically evolving from a global telecom carrier into a diversified Global Connectivity & AI Technology Corporation, aiming for $1 billion in annual revenue by 2027, driven by high-margin AI, Fintech, and EV solutions.
• Telecom Fuels Innovation: The core Telecom Division, while experiencing slight consolidated revenue shifts due to strategic intercompany transactions, remains the primary revenue generator and a high-performing, profitable engine, funding the development of emerging tech divisions.
• AI as a Differentiator: iQSTEL is investing heavily in proprietary AI, launching solutions like IQ2Call for call centers and AIRWEB agents for marketing, and developing an AI-enhanced Metaverse with OpenAI-powered NPCs, positioning itself for significant growth in these rapidly expanding markets.
• Accelerated Growth & Financial Strengthening: The company surpassed a $400 million annualized revenue run rate in July 2025, five months ahead of schedule, and is on track for $340 million in full-year 2025 revenue. Recent debt reduction and strategic acquisitions like Globetopper are bolstering its balance sheet and expanding its high-margin service portfolio.
• Execution and Liquidity are Key: Despite ambitious growth targets and a strategic pivot, iQSTEL faces a "going concern" warning due to historical losses and negative working capital. Successful execution of its M&A strategy, product launches, and securing future financing are critical for realizing its long-term vision.

The Foundation: Global Connectivity and a Strategic Pivot

iQSTEL Inc. has steadily built a formidable presence in the global telecommunications landscape, operating as a wholesale carrier of voice, SMS, and data with over 603 active interconnection agreements across 20 countries. This extensive network, encompassing VoIP, SMS, proprietary Internet of Things (IoT) solutions, and international fiber-optic connectivity, forms the bedrock of its operations. The company's strategic journey, marked by its evolution from B-Maven Inc. to IQSTEL Inc., underscores a continuous adaptation to the dynamic tech environment.

In recent years, iQSTEL has embarked on an ambitious transformation, repositioning itself as a "Global Connectivity & AI Technology Corporation." This strategic pivot aims to leverage its robust telecom foundation to fuel expansion into higher-margin, high-tech verticals including Fintech, Electric Vehicles (EV), and an AI-Enhanced Metaverse. This diversification is a direct response to the accelerating global digital revolution, where AI and integrated digital services are becoming paramount.

Technological Edge and Innovation: The AI-Powered Future

At the heart of iQSTEL's transformation lies its commitment to technological differentiation and innovation, particularly in Artificial Intelligence. The company's AI-Enhanced Metaverse Division, through its subsidiary Reality Border LLC, is developing a groundbreaking white-label solution for corporations and the telecommunications industry. This platform offers immersive content services and virtual experiences accessible via web or proprietary mobile apps.

A key differentiator is the integration of advanced AI, leveraging OpenAI's latest language models to power Non-Player Characters (NPCs). These NPCs are designed for dynamic interaction, serving as sales and brand assistants, guiding users, and even controlling access to gated spaces within the metaverse. Crucially, these intelligent agents support seven languages with advanced text-to-speech and speech-to-text technologies, and utilize function call features to perform complex tasks. This "cutting-edge" technology, as described by management, aims to deliver an unparalleled user experience and create a comprehensive virtual ecosystem, fostering collaboration and engagement.

Beyond the metaverse, iQSTEL is deploying AI across its service portfolio. The recent launch of IQ2Call, an AI-powered call center service developed by Reality Border, merges iQSTEL's telecom infrastructure with advanced AI to eliminate wait times and provide adaptive scalability. This solution targets the substantial $750 billion global call center market, offering a significant opportunity for high-margin revenue. Furthermore, a commercial agreement with ONAR Holding Corporation for the deployment of AIRWEB AI agents is creating an "AI-driven, multi-agentic operating infrastructure" to streamline and enhance agency operations. These dedicated and secure AI agents are provided for every ONAR account manager, showcasing the practical application of iQSTEL's AI in boosting business efficiency.

In its core telecom operations, iQSTEL is investing in a unique voice and SMS switching platform. This infrastructure upgrade is projected to reduce costs by an estimated $50,000 to $60,000 per quarter, directly enhancing the profitability of its foundational business. Additionally, its international flagship subsidiary, QXTEL, is leading the rollout of cutting-edge eSIM and Roaming Connectivity Services, positioning iQSTEL at the forefront of evolving mobile connectivity. These technological advancements are not merely product enhancements; they are strategic pillars designed to build a competitive moat, drive higher average selling prices, improve margins, and secure iQSTEL's long-term growth trajectory in a rapidly digitizing world.

Strategic Expansion and Synergies

iQSTEL's growth strategy is multifaceted, combining organic expansion with strategic acquisitions and partnerships. The acquisition of QXTEL Limited on April 1, 2024, was a pivotal move aimed at optimizing operations and leveraging more efficient routing for voice and SMS services. This integration has already resulted in a significant volume of intercompany transactions, a deliberate strategy to reduce costs and improve service delivery, which is expected to positively impact future revenues and margins.

Further expanding its high-margin portfolio, iQSTEL executed a definitive agreement on May 29, 2025, to acquire 51% of Globetopper, LLC, a dynamic fintech innovator. This acquisition, effective July 1, 2025, is a "major acceleration" of iQSTEL's global fintech expansion strategy. Globetopper is forecasted to contribute $34 million in revenue and positive EBITDA for the second half of 2025, directly supporting the company's ambitious growth targets. The purchase price included $200,000 in cash and $500,000 in restricted common shares, with additional payments tied to EBITDA growth, demonstrating a performance-aligned acquisition model.

A significant strategic alliance was forged on August 7, 2025, with Cycurion Inc. (NASDAQ: CYCU) through a Memorandum of Understanding for a mutual $1 million stock exchange. This partnership aims to build an "AI-driven powerhouse" in cybersecurity for the global telecom industry. The alliance is "strategically timed" as both companies' products are largely insulated from potential U.S. tariff disruptions. This collaboration is expected to unlock shareholder value, with plans to distribute half of the exchanged shares as a dividend, transforming iQSTEL shareholders into Cycurion (NASDAQ: CYCU) shareholders and vice versa. This mutual equity partnership is designed to foster cross-selling opportunities and pool AI research and development resources, combining Cycurion's (NASDAQ: CYCU) U.S. and government market strength with iQSTEL's global telecom presence.

Financial Performance: A Growth Engine in Transition

iQSTEL's financial performance in the first half of 2025 reflects a company in a transitional period, balancing growth investments with a focus on operational efficiency. For the three months ended June 30, 2025, consolidated revenue was $72.18 million, an 8.21% decrease from $78.64 million in the prior year. Similarly, for the six months ended June 30, 2025, revenue was $129.82 million, a slight 0.18% decrease from $130.05 million in the same period of 2024. However, it is crucial to note that gross revenues (before intercompany eliminations) actually increased by 6% quarter-over-quarter and 17% year-over-year for the six-month period. This divergence is a direct result of iQSTEL's strategic increase in intercompany transactions, aimed at optimizing operations and reducing costs across its subsidiaries.

Gross profit for the six months ended June 30, 2025, rose by 7.45% to $3.81 million, compared to $3.54 million in the prior year. The consolidated gross margin percentage improved to 2.93% from 2.72%, reflecting the positive impact of commercial and operational synergies. Operating expenses, primarily general and administrative costs, increased by 24.55% to $5.07 million for the six months ended June 30, 2025, largely driven by investments in the new switching platform and the full six-month consolidation of QXTEL's expenses, compared to only three months in the prior year. This led to a widened operating loss of $1.26 million for the six-month period, up from $525,555 in 2024.

Despite the consolidated operating loss, iQSTEL's Telecom Division, the primary revenue source, consistently generated positive operating income, reaching $732,564 for the six months ended June 30, 2025. This segment is clearly serving as the "growth engine" for the company's newer ventures. Consolidated Adjusted EBITDA, while slightly negative, indicates the company is "close to breaking even" and could achieve positive Adjusted EBITDA with minor improvements. The net loss for the six months ended June 30, 2025, was $3.49 million, primarily impacted by significant interest and other financial expenses related to the QXTEL acquisition.

From a liquidity perspective, iQSTEL reported negative working capital of $1.29 million as of June 30, 2025. However, operating cash flow showed improvement, using $1.65 million in the first half of 2025, down from $3.15 million in the prior year, primarily due to effective working capital management. Investing outflows dropped sharply, signaling a shift from aggressive M&A in 2024 to consolidation and cash preservation in early 2025. Financing activities also saw reduced reliance on equity and convertible debt. A significant debt reduction of $6.9 million in July 2025, achieved through debt-to-equity conversions, is expected to positively impact net stockholders' equity, which stood at $11.34 million as of Q1 2025. This indicates a maturing capital structure and a strategic use of non-cash financing tools.

Competitive Landscape: Carving a Niche in a Dynamic Market

iQSTEL operates in a highly competitive and rapidly evolving technology landscape, facing both direct and indirect rivals across its diverse business segments. Its primary direct competitors in the telecom and cloud communications space include industry giants like AT&T (T), and cloud-native players such as Twilio (TWLO) and RingCentral (RNG).

Comparing iQSTEL's financial performance against these competitors using TTM ratios reveals distinct positioning. iQSTEL's Gross Profit Margin of 3.00% is significantly lower than Twilio's 51%, RingCentral's 71%, and AT&T's 43%. This reflects its wholesale telecom roots, which typically operate on thinner margins, though its margin is improving. Similarly, iQSTEL's Operating Profit Margin of -0.57% lags behind AT&T's 20% and RingCentral's near-breakeven 0.0011%, though it is comparable to Twilio's -1%. This highlights the ongoing investment in its new, higher-margin ventures. The company's Net Profit Margin of -2.38% is also negative, similar to Twilio and RingCentral, but contrasts with AT&T's positive 9%. iQSTEL's Debt/Equity ratio of 0.72 is moderate, better than AT&T's 1.35 but higher than Twilio's 0.14. Its Price/Sales ratio of 0.06 is notably lower than its peers, potentially suggesting market undervaluation or skepticism regarding its growth trajectory.

iQSTEL's competitive advantages stem from its global network infrastructure, particularly its international fiber optics, which provides enhanced reliability for international clients and a potentially superior cost structure for international services. This helps it counter the API-centric focus of players like Twilio by offering robust connectivity in emerging markets. Its integrated service offerings, combining telecom with emerging technologies like IoT, blockchain, and AI, differentiate it from more specialized cloud communication providers like RingCentral. This comprehensive suite allows iQSTEL to target government and corporate clients with bundled solutions, appealing to customers seeking integrated telecom and tech ecosystems. The company's focus on niche markets, such as financial services for immigrants through Global Money One, further carves out distinct competitive spaces.

However, iQSTEL faces vulnerabilities. Its lower profitability margins and potentially slower innovation speed compared to agile cloud platforms like Twilio could hinder market share capture in certain segments. The company's strategic response involves leveraging its existing telecom infrastructure as a foundation for high-margin AI and Fintech services. Alliances, such as the one with Cycurion (NASDAQ: CYCU), are designed to pool resources, cross-sell solutions, and penetrate new markets more effectively, combining iQSTEL's global reach with Cycurion's (NASDAQ: CYCU) U.S. and government market strength. The company is also benefiting from significant barriers to entry in the telecom sector, including high infrastructure costs and complex regulatory approvals, which help protect its established market position.

Outlook and Growth Trajectory

iQSTEL has laid out an ambitious and clear growth roadmap. The company is "firmly on track" to achieve its full-year 2025 revenue goal of $340 million. This confidence is underpinned by strong preliminary results, including approximately $35 million in July 2025 revenue, which translates to an annualized run rate exceeding $400 million – five months ahead of its internal schedule. If this July revenue level is maintained, iQSTEL projects an additional $210 million in revenue for the second half of 2025.

The long-term vision is even more compelling: iQSTEL reaffirms its "path to $1 billion in annual revenue by 2027." This target is predicated on continued organic growth from its robust telecom division, successful integration and performance of strategic acquisitions like Globetopper (which alone is expected to add $34 million in revenue and positive EBITDA in H2 2025), and the successful market launch and scaling of its high-margin AI and Fintech products. Management's focus on identifying operational synergies and implementing cost-cutting measures, such as the new voice and SMS switching platform expected to save $50,000 to $60,000 per quarter, further supports the path to improved profitability. The strategic alliances, particularly with Cycurion (NASDAQ: CYCU), are expected to unlock new revenue streams and enhance shareholder value through mutual equity and cross-selling opportunities.

Risks and Challenges

Despite its strategic vision and growth momentum, iQSTEL faces significant risks that warrant investor attention. The company's recurring losses from operations and negative working capital of $1.29 million as of June 30, 2025, raise "substantial doubt about the Company’s ability to continue as a going concern." While management is actively pursuing increased sales and debt/equity financing, there is "no assurance that it will be able to obtain such financing" on acceptable terms. Failure to secure additional funding could materially and adversely affect its operations and stockholders.

Furthermore, iQSTEL's management identified material weaknesses in internal control over financial reporting, including inadequate segregation of duties and insufficient written policies and procedures. While these are common for smaller companies, they pose risks to financial reporting accuracy. The company also operates in highly competitive markets, where rapid technological advancements and aggressive pricing by larger, more established players could impact its market share and profitability. However, the strategic alliance with Cycurion (NASDAQ: CYCU) is noted to be "largely insulated from potential disruptions caused by changes in U.S. tariffs," mitigating one potential external risk factor.

Conclusion

iQSTEL is at a pivotal juncture, actively transforming its business model from a foundational telecom carrier to a dynamic Global Connectivity & AI Technology Corporation. The company's core investment thesis hinges on its ability to leverage its profitable telecom engine to fund and scale its burgeoning high-margin AI and Fintech divisions. With ambitious revenue targets of $340 million for 2025 and $1 billion by 2027, supported by strong organic growth, strategic acquisitions like Globetopper, and innovative AI product launches such as IQ2Call, iQSTEL is positioning itself for significant future expansion.

The strategic alliances, particularly with Cycurion (NASDAQ: CYCU), underscore a proactive approach to enhancing its competitive moat through integrated solutions and shared R&D, while also addressing market risks. While the "going concern" warning and the need for continued financing present material challenges, the company's demonstrated ability to manage working capital, reduce debt through non-cash means, and execute on its M&A strategy suggests a management team acutely focused on financial strengthening. For discerning investors, iQSTEL represents a compelling, albeit higher-risk, opportunity to participate in the convergence of global connectivity and cutting-edge AI, provided the company continues its disciplined execution and successful integration of its strategic initiatives.