8-K/A: iQSTEL Inc. Amends Filing to Include QXTEL Acquisition Financials and Pro Forma Statements

iQSTEL Inc. has amended its previous 8-K filing to include the financial statements of QXTEL Limited, which it is acquiring a 51% stake in, along with pro forma financial information.

Summary

• iQSTEL Inc. has amended its initial 8-K filing to incorporate the financial statements of QXTEL Limited, a company they are acquiring a 51% stake in.
• The amendment includes audited financial statements for QXTEL for the years ending December 31, 2022 and 2021, and unaudited financials for the three and nine-month periods ending September 30, 2023 and 2022.
• iQSTEL is purchasing 51% of QXTEL for $5,000,000, with $1,500,000 paid as a non-refundable deposit, $1,500,000 in cash at closing, and $2,000,000 either in a promissory note or iQSTEL shares.
• The deal includes a potential earn-out payment to the seller if iQSTEL's net income exceeds certain thresholds in 2024.
• iQSTEL also entered into a securities purchase agreement with M2B Funding Corp. for up to $3,888,888.89 in secured convertible promissory notes, with an initial conversion price of $0.11 per share.
• The pro forma financial statements show the combined financials of iQSTEL and QXTEL as if the acquisition had occurred on September 30, 2023, with total assets of $30,360,760.

Sentiment

Score: 6

Explanation: The document presents a mix of positive and negative aspects. The acquisition of QXTEL is a positive move for growth, but the high interest rate on the convertible notes and the need for additional financing are concerning. The pro forma financials show a significant increase in revenue, but also a net loss for 2022.

Positives

• The acquisition of QXTEL provides iQSTEL with a diversified telecommunications and technology services provider with over 20 years of experience.
• QXTEL has a strong track record with over 5 billion voice and A2P SMS transactions and over 200 interconnections worldwide.
• The pro forma financials show a significant increase in combined revenue and assets for iQSTEL.
• The convertible note provides iQSTEL with additional capital to fund the acquisition and other operations.

Negatives

• The $1,500,000 deposit is non-refundable if the deal does not close by April 30, 2024.
• The promissory note option for the $2,000,000 payment includes a security interest in 40% of the shares being sold.
• iQSTEL's obligation to close the transaction is contingent on securing up to an additional $1,500,000 in financing.
• The convertible notes have an 18% interest rate and are secured by all of iQSTEL's assets.
• The pro forma financials show a net loss for iQSTEL for the year ended December 31, 2022.

Risks

• The acquisition is contingent on iQSTEL securing additional financing of up to $1,500,000.
• The deal may not close by April 30, 2024, resulting in the loss of the $1,500,000 deposit.
• The promissory note option for the $2,000,000 payment includes a security interest in 40% of the shares being sold.
• The convertible notes have an 18% interest rate and are secured by all of iQSTEL's assets, which could impact future financial flexibility.
• The final purchase price allocation may vary based on final appraisals, valuations and analysis of fair value of the acquired assets and assumed liabilities.

Future Outlook

The document outlines the terms of the acquisition and the potential for an earn-out payment based on iQSTEL's net income in 2024, but does not provide specific forward-looking statements or guidance beyond the closing of the transaction.

Industry Context

The acquisition of QXTEL by iQSTEL reflects a trend of consolidation in the telecommunications industry, where companies are seeking to expand their service offerings and geographic reach through strategic acquisitions. QXTEL's focus on wholesale, retail, and cloud communications aligns with the growing demand for these services globally.

Comparison to Industry Standards

• QXTEL's revenue of approximately $81 million in 2022 is relatively small compared to major global telecommunications providers like Vodafone or Telefonica, which generate tens of billions in revenue annually.
• However, QXTEL's focus on wholesale carrier voice and messaging services positions it within a niche market, where direct comparisons to larger, diversified telcos may not be appropriate.
• The pro forma combined revenue of $156.9 million for the nine months ended September 30, 2023, suggests a significant increase in scale for iQSTEL, but still places it as a smaller player compared to larger industry participants.
• The acquisition of a 51% stake is a common strategy for companies looking to expand into new markets or technologies, similar to how companies like Cisco have acquired smaller tech firms to enhance their product offerings.
• The use of convertible notes for financing is a common practice for smaller companies seeking capital, but the 18% interest rate is relatively high, indicating a higher risk profile compared to companies with better credit ratings.

Related Party Transactions

• QXTEL had transactions with Topax Consulting Corp. and Valorex Holdings Inc., which are related parties, as disclosed in the notes to the financial statements.

Stakeholder Impact

• Shareholders of iQSTEL will see a dilution of their ownership if the $2,000,000 payment is made in shares and if the convertible notes are converted.
• Employees of both iQSTEL and QXTEL may experience changes as the companies integrate.
• Customers of both companies may see changes in service offerings and pricing.
• Creditors of iQSTEL will have a higher risk profile due to the secured convertible notes.

Next Steps

• iQSTEL needs to secure up to an additional $1,500,000 in financing to close the QXTEL acquisition.
• The closing of the QXTEL acquisition must occur before April 30, 2024.
• iQSTEL needs to register the Conversion Shares and the Kicker Shares with the Securities and Exchange Commission.
• The seller of QXTEL will decide on the form of payment for the $2,000,000, either a promissory note or iQSTEL shares.

Key Dates

Keywords

iQSTEL, QXTEL, acquisition, telecommunications, financial statements, pro forma, convertible notes, share purchase agreement, M2B Funding Corp, Yukon River Holdings