8-K: iQSTEL Inc. Enters Share Purchase Agreement and Secures Convertible Financing

iQSTEL Inc. has agreed to acquire a 51% stake in QXTEL LIMITED and secured up to $3.89 million in convertible financing.

Summary

• iQSTEL Inc. has entered into a Share Purchase Agreement to acquire 51% of QXTEL LIMITED for $5 million, with a $1.5 million non-refundable deposit.
• The remaining $3.5 million will be paid with $1.5 million in cash and $2 million either in a promissory note or iQSTEL shares, at the seller's discretion.
• The seller has the option to exchange the promissory note for iQSTEL shares.
• An earn-out payment is possible if iQSTEL's net income exceeds $750,000 in 2024, potentially reaching $1 million if net income exceeds $1 million.
• iQSTEL has also entered into a securities purchase agreement with M2B Funding Corp. for up to $3.89 million in secured convertible promissory notes for $3.5 million.
• The notes are convertible into iQSTEL common stock at an initial price of $0.11 per share and include kicker shares equal to 10% of the principal amount divided by $0.11.
• The notes bear 18% annual interest and are secured by all of iQSTEL's assets.
• The initial tranche of the notes is for $2.22 million, and the second is for $1.67 million, both with an original issue discount.

Sentiment

Score: 7

Explanation: The document outlines a significant acquisition and financing, which are generally positive for growth. However, the high interest rate on the convertible notes and the non-refundable deposit introduce some risk. Overall, the sentiment is moderately positive.

Positives

• The acquisition of QXTEL LIMITED could expand iQSTEL's telecommunications and technology services.
• The convertible financing provides iQSTEL with additional capital.
• The earn-out structure for the QXTEL acquisition aligns the seller's interests with iQSTEL's performance.

Negatives

• The $1.5 million deposit for the QXTEL acquisition is non-refundable if the deal does not close by April 30, 2024.
• The convertible notes are secured by all of iQSTEL's assets, potentially increasing risk for existing shareholders.
• The notes have an 18% interest rate, which could be a significant expense.
• The conversion of the notes could dilute existing shareholders.

Risks

• The QXTEL acquisition is contingent on iQSTEL securing an additional $1.5 million in financing.
• The QXTEL acquisition is subject to the company having prepared all accounting information in accordance with SEC standards.
• The closing of the QXTEL acquisition is subject to a number of conditions, including the closing of debt and/or equity financing.
• The convertible notes have restrictive covenants, including a prohibition on variable rate transactions and restrictions on future offerings or incurring indebtedness.
• The conversion of the notes could dilute existing shareholders.

Future Outlook

The document outlines the terms of the acquisition and financing agreements, but does not provide specific forward-looking statements about future performance or guidance.

Management Comments

• The document includes a signature from Leandro Iglesias, Chief Executive Officer of iQSTEL Inc., indicating management's approval of the agreements.

Industry Context

This announcement reflects a trend of consolidation and strategic acquisitions in the telecommunications and technology sectors, as companies seek to expand their service offerings and market reach. The financing also indicates a continued interest in convertible debt as a means of raising capital.

Comparison to Industry Standards

• The acquisition of a 51% stake is a common approach in strategic mergers and acquisitions, allowing for control while sharing risk.
• The use of a non-refundable deposit is standard practice in M&A transactions to ensure commitment from the buyer.
• The earn-out structure is a common mechanism to align the interests of the buyer and seller, particularly in acquisitions of companies with uncertain future performance.
• Convertible debt is a frequently used financing tool for growth companies, offering flexibility and potential upside for investors.
• The 18% interest rate on the convertible notes is relatively high, which may reflect the risk profile of the company or the current market conditions.

Stakeholder Impact

• Shareholders may experience dilution from the conversion of the notes.
• Employees of QXTEL LIMITED may be impacted by the acquisition.
• Creditors of iQSTEL may be impacted by the secured nature of the convertible notes.
• Customers of both iQSTEL and QXTEL LIMITED may see changes in service offerings.

Next Steps

• iQSTEL needs to secure an additional $1.5 million in financing to complete the QXTEL acquisition.
• iQSTEL needs to prepare all accounting information in accordance with SEC standards for the QXTEL acquisition.
• iQSTEL needs to close the QXTEL acquisition before April 30, 2024.
• iQSTEL needs to fulfill the terms of the securities purchase agreement with M2B Funding Corp.

Key Dates

Keywords

acquisition, convertible notes, telecommunications, financing, share purchase agreement, promissory note, earn-out, equity, debt, technology