Iqstel Inc current report, 07 August 2019

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Business Context and Reporting Period

Company: iQSTEL Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: August 7, 2019
Event: Completion of the acquisition of 51% of the equity and certain assets of SwissLink Carrier AG ("SwissLink"), a Swiss telecommunications corporation.

Key Financial Metrics and Transaction Details

Acquisition Consideration: Total consideration of $500,000 USD for 51% equity and assets.

  • Cash Component: $50,000 USD paid upon execution.
  • Stock Component: $450,000 USD paid via issuance of 187,500 shares of common stock (based on $2.40/share).
Debt Assumption:
  • SwissLink held a loan from the Seller (Ralf Kohler) of approximately CHF 1,937,077 (~$1,941,893 USD) as of December 31, 2018.
  • Upon closing, iQSTEL acquired 51% of this debt obligation, meaning SwissLink now owes iQSTEL approximately CHF 987,909 (~$990,237 USD).
  • SwissLink continues to owe the Seller 49% of the debt, approximately CHF 949,168 (~$951,432 USD).
Additional Issuance: 510 shares issued to the Seller specifically for the 51% loan interest.

Material Changes and Transaction Structure

Assets Acquired: 51% equity interest, telecommunications equipment, VAMP software platform, intellectual rights, receivables, cash, interconnection agreements, and Swiss telecommunication licenses.
Future Option: iQSTEL secured an option to acquire the remaining 49% interest in SwissLink exercisable 365 days post-closing, with an estimated minimum purchase price of $750,000 USD.
Management Continuity:

  • Employment agreements extended for two SwissLink individuals (3 years) and Seller Ralf Kohler (5 years as CEO/COO).
  • Board composition: Two iQSTEL officers (Leandro Iglesias, Alvaro Quintana Cardona) and Ralf Kohler will serve as directors of SwissLink.
Closing Conditions Met: Board approval, satisfactory due diligence, and preparation of auditable financial statements by a PCAOB auditor.

Guidance, Risks, and Contingencies

Financial Reporting: Required financial statements of the acquired business and pro forma financial information are not included in this filing. They will be filed by amendment within 71 calendar days.
Termination Risks: The Purchase Agreement allows for termination if either party is deemed economically unviable or bankrupt, or if due diligence reveals material issues.
Securities Exemption: The stock issuance was made pursuant to Section 4(a)(2) of the Securities Act and/or Regulation D, relying on the private placement exemption as the Seller is an accredited investor.
Representations: Standard representations and warranties were made solely for the benefit of the parties to the agreement and are not third-party beneficiary facts for investors.

Investor Verification Checklist

  • Pro Forma Impact: Verify the upcoming amendment (within 71 days) for pro forma financial data to understand the dilution and debt impact on iQSTEL's balance sheet.
  • Stock Valuation: Confirm if the $2.40 per share valuation used for the stock consideration aligns with the current market price, as additional shares may be payable if the stock value is lower.
  • Debt Service: Assess SwissLink's ability to service the remaining debt owed to the Seller (~$951k) and the debt now owed to iQSTEL (~$990k) within the two-year repayment term.
  • Option Exercise: Monitor the 365-day window for the option to acquire the remaining 49% stake and the associated $750,000 minimum cost.
  • Regulatory Compliance: Verify the status of the Swiss telecommunication licenses and the auditable financial statements of SwissLink.