8-K: iQSTEL Amends Share Purchase Agreement for QXTEL LIMITED, Modifies Payment Terms and Earnout Structure

iQSTEL Inc. has amended its share purchase agreement for QXTEL LIMITED, adjusting the promissory note and earnout payment terms.

Summary

• iQSTEL Inc. has entered into a second amendment to its share purchase agreement with Yukon River Holdings, Ltd. regarding the acquisition of 51% of QXTEL LIMITED.
• The original purchase price was $5,000,000, with $1,500,000 paid in escrow, $1,500,000 in cash at closing, and a $2,000,000 promissory note.
• The amendment restates the promissory note to $1,800,000 after a $200,000 payment, changing the payment schedule to monthly installments of $75,000 plus interest in 2024 and $212,500 plus interest in the first half of 2025.
• The earnout payment was redefined as $1,000,000, payable if QXTEL achieves $721,034.50 in net income during Q2, Q3, and Q4 of 2024, to be paid in monthly installments during the first half of 2025.
• If the net income is between $540,775.88 and $721,034.50, the earnout payment will be prorated.
• If the net income is less than $540,775.88, the determination period is extended to March 31, 2025.

Sentiment

Score: 6

Explanation: The document outlines a restructuring of payment terms and earnout conditions, which is a neutral development. While it provides more clarity, it also highlights the ongoing financial obligations and performance risks associated with the acquisition.

Positives

• The restructuring of the promissory note provides a more manageable payment schedule for iQSTEL.
• The earnout structure incentivizes QXTEL to achieve profitability targets.
• The amendment provides clarity on the earnout payment calculation and timing.

Negatives

• iQSTEL still has a significant debt obligation of $1,800,000 related to the acquisition.
• The earnout payment of $1,000,000 is contingent on QXTEL achieving specific net income targets, which may not be guaranteed.
• The earnout payment is secured by a pledge of the remaining 30 ordinary B shares of the company.

Risks

• iQSTEL may face financial strain if QXTEL does not meet the net income targets required for the earnout payment.
• Failure to make payments on the promissory note could lead to default and potential loss of the pledged shares.
• The extended earnout determination period adds uncertainty to the final payment.

Future Outlook

The earnout payment is contingent on QXTEL's performance, and the final payment will be determined based on the company's net income during the specified periods. The promissory note is to be paid in full by June 30, 2025.

Management Comments

• There are no direct quotes from management in this document.

Industry Context

This amendment reflects a common practice in acquisitions where earnout payments are used to align the interests of the buyer and seller, and payment terms are adjusted based on the performance of the acquired entity. The use of promissory notes and share pledges is also a standard practice in such transactions.

Comparison to Industry Standards

• The use of earn-out clauses in acquisitions is a common practice, particularly in deals involving private companies or those with uncertain future performance. For example, in the acquisition of smaller tech companies by larger firms, earn-outs are often tied to revenue or profit targets over a period of 1-3 years.
• The payment structure of the promissory note, with monthly installments and a final balloon payment, is also a typical arrangement in private debt financing. This structure is similar to that used in many small to medium sized business acquisitions.
• The interest rate of 4.89% on the promissory note is within the range of typical interest rates for secured private debt, although the specific rate would depend on the creditworthiness of iQSTEL and the perceived risk of the transaction.
• The security of the promissory note with a share pledge is a standard practice to protect the lender in case of default. This is similar to how banks secure loans with assets in other industries.

Stakeholder Impact

• Shareholders of iQSTEL will be impacted by the ongoing debt obligations and the potential dilution from the share pledge.
• The performance of QXTEL will directly impact the earnout payment and the overall success of the acquisition.
• Creditors of iQSTEL will be interested in the company's ability to meet its debt obligations.

Next Steps

• iQSTEL will make monthly payments on the amended promissory note.
• QXTEL will work towards achieving the net income targets to trigger the earnout payment.
• The seller will provide an earnout report by January 15, 2025, or April 15, 2025, depending on the achievement of the net income target.

Key Dates

Keywords

Share Purchase Agreement, Promissory Note, Earnout Payment, Acquisition, QXTEL LIMITED, iQSTEL Inc., Yukon River Holdings, Net Income, Payment Schedule