iQSTEL Inc 8-K/A, filed Feb 8, 2024
iQSTEL Inc (IQST)
About this 8-K/A
iQSTEL Inc filed this 8-K/A on February 8, 2024, reporting on events of January 19, 2024.
Items reported
- Item 1.01: Entered into a material agreement
- Item 2.01: Completed an acquisition or sale of assets
- Item 2.03: New debt or off-balance-sheet obligation
- Item 9.01: Financial statements and exhibits
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM
Amendment No. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date
of Report (Date of earliest event reported):
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________________________________________________ (Former name or former address, if changed since last report) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Securities registered pursuant to Section 12(b) of the Act: None.
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Explanatory Note
On January 25, 2024, we filed a Current Report on Form 8-K to disclose the closing of a Share Purchase Agreement (the “Agreement”) with Yukon River Holdings, Ltd., described in Item 1.01 to that report, which agreement provides for the purchase of 51% of the equity of QXTEL LIMITED, a company incorporated in England and Wales. This Amendment to the Current Report on Form 8-K is filed to provide the required financial statements of the business to be acquired and pro forma financial information.
SECTION 1 - REGISTRANT'S BUSINESS AND OPERATIONS
ITEM 1.01 - ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
Share Purchase Agreement
On January 19, 2024, we entered into a Share Purchase Agreement (“Purchase Agreement”) with Yukon River
Holdings, Ltd. (“Yukon River”), a corporation formed under the laws of the British Virgin Islands (“Seller”) concerning the contemplated sale by Seller and the purchase by us of 51% of the ordinary shares Seller holds in QXTEL LIMITED, a company incorporated in England and Wales (the “Company”).
The Company is one of the most advanced & diversified telecommunications and technology services provider focused on platform services for wholesale, retail and cloud communications service providers, wholesale carrier voice, wholesale carrier messaging (A2P SMS) and carrier technology services with over 20 years in the telecom industry switching more than 5 billion voice & A2P SMS transactions over 200 interconnections worldwide. Headquartered in London (UK) with regional offices in Florida (USA), Buenos Aires (Argentina), Dubai (UAE), Belgrade (Serbia) and Istanbul (Turkey).
The purchase price (the “Purchase Price”) payable to the Seller for the shares is US $5,000,000. Upon the execution of the Purchase Agreement, we agreed to deposit US $1,500,000 of the Purchase Price into the trust account of a law firm acting as escrow agent (the “Escrow Agent”) as a nonrefundable deposit to evidence our good faith intention to purchase the shares. If the Purchase Agreement does not close before April 30, 2024, the deposit is non-refundable. If the Purchase Agreement closes, the deposit will be credited against the Purchase Price.
At closing, in addition to the US $1,500,000 with the Escrow Agent that will form part of the Purchase Price, we are required to pay US $1,500,000 in cash and US $2,000,000.00 to the Seller, either (A) in the form of a promissory note (the “Promissory Note”), or (B) by the delivery of iQSTEL shares to Seller. Seller may decide the form of payment between the Promissory Note or the share of iQSTEL, and if a Promissory Note is chosen, we have agreed to allow Seller the option to exchange the Promissory Note for shares of iQSTEL.
We are required to reserve a sufficient number of shares for the iQSTEL shares payable to the Seller under a formula discounted by 20% of the average closing sales price for 5 consecutive days on the trading market.
Also, in the event Seller chooses the Promissory Note, Seller shall also have a security interest, or pledge, in 40% of the ordinary shares that are being sold to us. In the event Seller chooses the Promissory Note, the $2,000,000 will be paid with no interests in 7 monthly payments of $200,000 each and an eighth payment of $600,000.
For the period commencing on January 1, 2024 and ending December 31, 2024 (the “Determination Period”), Seller may receive an earn-out payment (“Earnout Payment”), as additional consideration. If we have positive Net Income of greater than US $1,000,000 during the Determination Period, then we shall pay to Seller an Earnout Payment equal to the Earnout Amount. If we have positive Net Income equal to or greater than $750,000, but less than US $1,000,000, during the Determination Period, then we shall pay to Seller an Earnout Payment equal to the amount of the Net Income. If we have positive Net Income of less than $750,000 during the Determination Period, then Seller shall not be entitled to any Earnout Payment.
At closing, which must occur before April 30, 2024, we have agreed to enter into a shareholder’s agreement with Seller that, among other things, establishes a first of first refusal for us to repurchase the shares from Seller.
Our obligation to close the transactions contemplated by the Purchase Agreement is contingent upon the closing of debt and/or equity financing of up to an additional US $1,500,000 on terms reasonably satisfactory to us.
The closing of the Purchase Agreement is subject to, among other things, the Company having prepared all accounting information in accordance with SEC standards in such manner that any audit of the Company, if required, may be performed.
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The Purchase Agreement contains customary representations and warranties of the parties, including, among others, with respect to corporate organization, capitalization, corporate authority, financial statements and compliance with applicable laws. The representations and warranties of each party set forth in the Purchase Agreement were made solely for the benefit of the other parties to the Purchase Agreement, and investors are not third-party beneficiaries of the Purchase Agreement. In addition, such representations and warranties (a) are subject to materiality and other qualifications contained in the Purchase Agreement, which may differ from what may be viewed as material by investors, (b) were made only as of the date of the Purchase Agreement or such other date as is specified in the Purchase Agreement and (c) may have been included in the Purchase Agreement for the purpose of allocating risk between the parties rather than establishing matters as facts. Accordingly, the Purchase Agreement is included with this filing only to provide investors with information regarding the terms of the Purchase Agreement, and not to provide investors with any other factual information regarding any of the parties or their respective businesses.
The foregoing description of the Purchase Agreement is not complete and is qualified in its entirety by reference to the text of such document, which is filed as Exhibit 2.1 hereto and which is incorporated herein by reference.
Securities Purchase Agreement and Secured Convertible Promissory Note
On January 24, 2024, we entered into a securities purchase agreement (the “SPA”) with M2B Funding Corp., a Florida
corporation, for it to purchase up to the principal amount of US $3,888,888.89 in secured convertible promissory notes (the “Notes”) for an aggregate purchase price of US $3,500,000.00 (the “Purchase Price”), which Notes are convertible into shares (“Conversion Shares”) of our common stock with an initial conversion price of $0.11 per share. Each noteholder shall receive shares of common stock (“Kicker Shares”) in an amount equal to ten percent of the
principal amount of any Note issued divided by $0.11. The Notes are secured by all of our assets under a Security Agreement signed with the SPA.
The initial tranche will be for US $2,222,222.22 in face value of Notes and Kicker Shares, with an original issue discount of US $222,222.22, and the second tranche will be for US $1,666,666.67 in face value of Notes and Kicker Shares, with an original issue discount of US $166,666.67. Each one-year note bears interest at 18% per annum.
Provided no default has occurred, we may prepay the Notes at 110% of the outstanding principal amounts plus all other sums due and owing.
We have agreed with certain covenants in connection with the financing, including a prohibition on us entering any variable rate transactions, restrictions on future offerings or incurring indebtedness, and a most favored nation clause, among other provisions.
We have also agreed, pursuant to a Registration Rights Agreement, to register the Conversion Shares and the Kicker Shares with the Securities and Exchange Commission in a registration statement.
The foregoing description of the SPA, the Registration Rights Agreement, the Security Agreement and form of Note is not complete and is qualified in its entirety by reference to the text of such documents, which are filed as Exhibit 10.1, 10.2, 10.3 and 4.1 hereto and which are incorporated herein by reference.
SECTION 2 - FINANCIAL INFORMATION
Item 2.01 Completion of Acquisition or Disposition of Assets.
The information set forth in Items 1.01 is incorporated into this Item 2.01 by reference.
ITEM 2.03 – CREATION OF A DIRECT FINANCIAL OBLIGATION
The information set forth in Items 1.01 is incorporated into this Item 2.03 by reference.
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SECTION 9 – FINANCIAL STATEMENTS AND EXHIBITS
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
iQSTEL Inc.
/s/ Leandro Iglesias
Leandro Iglesias
Chief Executive Officer
Date: February 8, 2024
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| Financial Statements | ||
| As of and For the Years Ended | ||
| December 31, 2022 and 2021 |
| Independent Auditor’s Report | 1-2 | ||
| Financial Statements | |||
| Balance Sheets | 3 | ||
| Statements of Income | 4 | ||
| Statements of Changes in Shareholders’ Equity | 5 | ||
| Statements of Cash Flows | 6 | ||
| Notes to Financial Statements | 7-11 | ||
Independent Auditor’s Report
To the Members of
Qxtel Limited
Opinion
We have audited the financial statements of Qxtel Limited (the Company), which comprise the balance sheets as of December 31, 2022 and 2021, and the related statements of income, changes in shareholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements.
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are available to be issued.
Auditor’s Responsibilities for the Audits of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
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In performing an audit in accordance with GAAS, we:
| · | Exercise professional judgment and maintain professional skepticism throughout the audit. | ||
| · | Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. | ||
| · | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed. | ||
| · | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. | ||
| · | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audits, significant audit findings, and certain internal control-related matters that we identified during the audits.
Pittsburgh, Pennsylvania February 5, 2024
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Qxtel Limited
Balance Sheets
| December 31, | 2022 | 2021 |
|
Assets |
||
| Current assets | ||
| Cash and cash equivalents | $ 1,841,237 | $ 1,228,674 |
| Accounts receivable - trade, net | 5,558,471 | 4,746,529 |
|
Total current assets |
7,399,708 |
5,975,203 |
|
Property and equipment |
||
| Fixtures and fittings | 14,281 | 14,281 |
| Computer equipment | 36,100 | 22,508 |
| 50,381 | 36,789 | |
| Less accumulated depreciation | (26,500) | (21,418) |
|
Total property and equipment |
23,881 |
15,371 |
|
Other assets |
||
| Intangible assets | 73,798 | - |
| Other asset | 150,000 | 150,000 |
|
Total other assets |
223,798 |
150,000 |
|
Total assets |
$ 7,647,387 |
$ 6,140,574 |
| Liabilities and shareholders' equity | ||
| Current liabilities | ||
| Accounts payable | 3,809,526 | 2,856,075 |
| Accrued expenses | 1,535,963 | 1,410,382 |
|
Total current liabilities |
5,345,489 |
4,266,457 |
|
Shareholders' equity |
||
| Share capital | 152 | 152 |
| Retained earnings | 2,301,746 | 1,873,965 |
| Total shareholders' equity | 2,301,898 | 1,874,117 |
|
Total liabilities and shareholders' equity |
$ 7,647,387 |
$ 6,140,574 |
The accompanying notes are an integral part of these financial statements.
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Qxtel Limited
Statements of Income
| Years Ended December 31, | 2022 | 2021 |
Sales |
$ 81,506,401 |
$ 82,514,250 |
| Cost of sales | 77,623,467 | 78,644,593 |
Gross profit |
3,882,934 |
3,869,657 |
| Selling, general, and administrative expenses | 2,569,589 | 2,484,817 |
Net income before provision for income taxes |
1,313,345 |
1,384,840 |
| Income tax expense | 235,564 | 283,144 |
Net income |
$ 1,077,781 |
$ 1,101,696 |
The accompanying notes are an integral part of these financial statements.
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Qxtel Limited
Statements of Changes in Shareholders’ Equity
Share capital |
Retained earnings | Total Shareholders' Equity | |||||||||
Balance - December 31, 2020 |
$ | 152 | $ | 1,772,269 | $ | 1,772,421 | |||||
| Net income | — | 1,101,696 | 1,101,696 | ||||||||
| Distributions | — | (1,000,000 | ) | (1,000,000 | ) | ||||||
Balance - December 31, 2021 |
$ | 152 | $ | 1,873,965 | $ | 1,874,117 | |||||
| Net income | — | 1,077,781 | 1,077,781 | ||||||||
| Distributions | — | (650,000 | ) | (650,000 | ) | ||||||
Balance - December 31, 2022 |
$ | 152 | $ | 2,301,746 | $ | 2,301,898 | |||||
The accompanying notes are an integral part of these financial statements.
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Qxtel Limited
Statements of Cash Flows
| Years Ended December 31, | 2022 | 2021 |
Cash flows from operating activities: Net income |
$ 1,077,781 |
$ 1,101,696 |
Adjustment to reconcile net income to net cash provided by operating activities: Depreciation expense |
5,082 |
3,820 |
| Changes in operating assets and liabilities: Accounts receivable - trade |
(811,942) |
527,677 |
| Accounts payable | 953,451 | (217,053) |
| Accrued expenses | 125,581 | (512,060) |
| Net cash provided by operating activities | 1,349,953 | 904,080 |
Cash flows from investing activities: Purchase of property and equipment |
(13,592) |
(7,825) |
| Purchase of intangible assets | (73,798) | - |
| Net cash used in investing activities | (87,390) | (7,825) |
Cash flows from financing activities: Distributions paid |
(650,000) |
(1,000,000) |
| Net increase (decrease) in cash and cash equivalents | 612,563 | (103,745) |
| Cash and cash equivalents, beginning of year | 1,228,674 | 1,332,419 |
| Cash and cash equivalents, end of year | $ 1,841,237 | $ 1,228,674 |
Supplemental disclosure of cash flow information: Cash paid for taxes |
$ 235,564 |
$ 283,144 |
The accompanying notes are an integral part of these financial statements.
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Qxtel Limited
Notes to Financial Statements
For the Years Ended December 31, 2022 and 2021
| 1. General Information |
Qxtel Limited (the “Company”) is a private company, domiciled and incorporated in England and Wales. The registered office address is No. 1 Poultry, London, EC2R 8EJ.
The principal activity of the Company is the provision of international telecommunications traffic, offering both wholesale voice and retail services. In 2022, the Company also began to offer retail and wholesale A2P SMS services.
| 2. Accounting Policies |
| Basis of Preparation of Financial Statements |
| The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which, in the opinion of management, have been consistently applied. |
| The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates. |
| The following principal accounting policies have been applied: |
| Foreign Currency Translation and re-measurement |
| The Company's functional and presentational currency is USD. |
| Foreign currency transactions are translated into the functional currency using the spot exchange rates at the dates of the transactions. |
| At each period end foreign currency items are translated using the closing rate. Non monetary items measured at historical cost are translated using the exchange rate at the date of the transaction and non monetary items measured at fair value are measured using the exchange rate when fair value was determined. No material foreign currency translation amounts are included in the accompanying financial statements. |
| Revenue |
The Company recognizes revenue related to monthly usage charges and other recurring charges during the period in which the telecommunication services are rendered in accordance with FASB ASC 606, “Revenue from Contracts with Customers, provided that persuasive evidence of a sales arrangement existed and collection was reasonably assured. Persuasive evidence of a sales arrangement exists upon execution of a written interconnection agreement. Revenue is measured at the fair value of the consideration receivable, excluding discounts, rebates, value added tax and other sales taxes or duty. The Company’s payment terms vary by clients. |
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Qxtel Limited
Notes to Financial Statements
For the Years Ended December 31, 2022 and 2021
| 2. Accounting Policies (cont.) | |
| Cost of Sales | |
| Cost of sales represent direct charges from vendors that the Company incurs to deliver services to its customers. These costs primarily consist of usage charges for calls terminated in the Company’s vendor networks. | |
| Cash and Cash Equivalents | |
| Cash and cash equivalents include cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash. The Company maintains certain of its cash and cash equivalents in non-interest bearing accounts that are insured by the Federal Deposit Insurance Company up to $250,000. The Company’s deposits may, from time to time, exceed the $250,000 limit; however, management believes that there is no unusual risk present, as the Company places its cash and cash equivalents with financial institutions which management considers being of high quality. | |
| Accounts Receivable and Allowance for Uncollectible Accounts | |
| Substantially all of the Company’s accounts receivable balance is related to trade receivables. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company reviews its allowance for doubtful accounts daily and past due balances over 60 days and a specified amount are reviewed individually for collectability. Account balances are charged off after all means of collection have been exhausted and the potential for recovery is considered remote. | |
| Intangible Assets | |
| Intangible assets are initially recognized at cost. After recognition intangible assets are measured at cost less any accumulated amortization and any accumulated impairment losses. | |
| The assets relate to software which is still in development as of December 31, 2022 and 2021. No amortization expense was recorded for the years ending December 31, 2022 or 2021. | |
| Property and Equipment | |
| Property and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes all expenditures that are directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. | |
| Depreciation is charged so as to allocate the cost of assets less their residual value over their estimated useful lives. Depreciation expense was $5,082 and $3,820 for the years ended December 31, 2022 and 2021, respectively. | |
| The recovery periods of the asset classes are as follows: | |
| Fixtures and fittings | 4 years | |
| Computer equipment | 4 years |
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in the statements of income.
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Qxtel Limited
Notes to Financial Statements
For the Years Ended December 31, 2022 and 2021
| 2. Accounting Policies (cont.) |
| Impairment of Long-Lived Assets |
In accordance with FASB ASC 360-10-45, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets, such as property and equipment, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recognized when the estimated future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset. When impairment is identified, the carrying amount of the asset is reduced to its fair value. No impairments were recorded in the accompanying financial statements. |
| Defined Contribution Pension Plan |
| The Company operates a defined contribution plan for its employees. A defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity in accordance with the terms of the People’s Pension Scheme of the United Kingdom. Once the contributions have been paid the Company has no further payment obligations. Contributions totaled $3,908 and $4,669 during the years ended December 31, 2022 and 2021, respectively. |
| Income Taxes |
| The Company accounts for income taxes in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740, Accounting for Income Taxes, which requires, among other things, the recognition of deferred income tax assets and liabilities based on the temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities using the current applicable income tax rates. A valuation allowance is established when necessary to reduce deferred income tax assets to the amount that will more-likely-than-not be realized. |
The Company accounts for uncertainty in income taxes pursuant to FASB ASC 740-10, Accounting for Uncertainties in Income Taxes, which prescribes a minimum recognition threshold and measurement methodology that a tax position taken or expected to be taken in a tax return is required to meet before being recognized in the financial statements. See Note 4 for additional details. Management has reviewed the tax positions that have been taken and has concluded that no liability or disclosure is necessary. |
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Qxtel Limited
Notes to Financial Statements
For the Years Ended December 31, 2022 and 2021
| 2. Accounting Policies (cont.) |
| Dividends |
| Equity dividends are recognized when they become legally payable when approved by the shareholders at an annual general meeting. |
| Advertising |
| The Company expenses advertising costs as incurred. Advertising expense was $9,584 and $1,143 for the years ended December 31, 2022 and 2021, respectively. |
| 3. Revenue |
| An analysis of revenue by class of business is as follows: |
| December 31, | 2022 | 2021 |
Voice Services |
$ 80,097,727 |
$ 82,514,250 |
| SMS Services | 1,408,674 | - |
| Total | $ 81,506,401 | $ 82,514,250 |
Analysis of revenue by country of destination:
| December 31, | 2022 | 2021 |
United Kingdom |
$ 14,474,905 |
$ 19,640,261 |
| Rest of the world | 67,031,496 | 62,873,989 |
| Total | $ 81,506,401 | $ 82,514,250 |
| 4. Income Taxes |
| The Company provides for income taxes under ASC 740, “Income Taxes.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax basis of assets and liabilities and the tax rates in effect when these differences are expected to reverse. There were no material differences between the financial statement and tax basis of assets and liabilities as of December 31, 2022 and 2021. |
| The income tax provision attributable to the net income before income taxes for the years ended December 31, 2022 and 2021 differed from the amounts computed by applying the standard 19% corporate tax rate in the UK primarily due to differences in the method of calculating depreciation and certain expenses that are reflected in the accompanying financial statements that are not deductible for tax purposes. Such differences are not material to the financial statements taken as a whole. |
| Finance Act 2021 includes legislation to increase the UK corporate tax from 19% to 25%, effective April 1, 2023. |
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Qxtel Limited
Notes to Financial Statements
For the Years Ended December 31, 2022 and 2021
| 5. Share Capital |
| Share capital consistent of the following: |
| December 31, | 2022 | 2021 | ||||||
Ordinary A shares | $ | 27 | $ | 27 | ||||
| Ordinary B shares | 125 | 125 | ||||||
| Total | $ | 152 | $ | 152 | ||||
There are no differences in rights between Ordinary A and Ordinary B shares. There were 100 shares authorized and 18 and 82 shares of Ordinary A and Ordinary B shares, respectively, issued and outstanding at December 31, 2022 and 2021. The par value of the shares is $1.00.
| 6. Related Party Transactions |
During the years ended December 31, 2022 and 2021 the Company entered into transactions totaling $360,000 with Topax Consulting Corp, an entity in which one of the directors of the Company is also a director. Such amounts are included in Selling, general, and administrative expenses in the accompanying Statements of Income. No amounts are payable to Topax Cosulting Corp. as of December 31, 2022 or 2021. During the years ended December 31, 2022 and 2021 the Company entered into transactions totaling $27,118 and $0 with Valorex Holdings Inc., an entity with a majority interest in the Company. Such amounts are included in Selling, general, and administrative expenses in the accompanying Statements of Income. Payables of $25,618 and $0 are included in Accounts payable in the accompany Balance sheets as of December 31, 2022 and 2021. |
| 7. Major Customer and Supplier |
The Company had one major customer representing approximately 11% of revenues during the year ended December 31, 2022, and accounts receivable from the customer totaled $372,542 at December 31, 2022. There were no major customers for the year ended December 31, 2021. The Company had one major supplier who accounted for 11% of purchases during the year ended December 31, 2022. There were no amounts payable to the supplier at December 31, 2022. There were no major suppliers for the year ended December 31, 2021. The products and services provided by the suppliers are available from other sources. |
| 8. Subsequent Events |
Management has evaluated events and transactions subsequent to the balance sheet date through the date of the independent auditor’s report (the date the financial statements were available to be issued) for potential recognition or disclosure in the financial statements. On January 19, 2024, iQSTEL, Inc. entered into a share purchase agreement with Yukon River Holdings, Ltd. (“Seller”) concerning the contemplated sale by Seller and the purchase by iQSTEL, Inc. of 51% of the ordinary shares Seller holds in the Company. The accompanying financial statements have not been adjusted to reflect the transaction. Management has not identified any other items requiring recognition or disclosure. |
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| Financial Statements | |
| As of September 30, 2023 and December 31, 2022 | |
And the Three and Nine Month Periods Ended | |
September 30, 2023 and September 30, 2022 | |
| Financial Statements | |||
| Balance Sheets as of September 30, 2023 and December 31, 2022 (unaudited) | 3 | ||
| Statements of Income for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited) | 4 | ||
| Statements of Changes in Shareholders’ Equity for the Nine Months Ended September 30, 2023 and 2022 (unaudited) | 5 | ||
| Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 (unaudited) | 6 | ||
| Notes to Financial Statements (unaudited) | 7-11 | ||
Qxtel Limited
Balance Sheets
(unaudited)
| September 30, 2023 | December 31, 2022 | |
|
Assets |
||
| Current assets | ||
| Cash and cash equivalents | $ 1,238,633 | $ 1,841,237 |
| Accounts receivable - trade, net | 6,434,280 | 5,558,471 |
| Related party receivable | 120,000 | - |
| Total current assets | 7,792,913 | 7,399,708 |
| Property and equipment | ||
| Fixtures and fittings | 14,281 | 14,281 |
| Computer equipment | 41,525 | 36,100 |
| 55,806 | 50,381 | |
| Less accumulated depreciation | (26,500) | (26,500) |
| Total property and equipment | 29,306 | 23,881 |
| Other assets | ||
| Intangible assets | 147,430 | 73,798 |
| Other asset | 150,000 | 150,000 |
| Total other assets | 297,430 | 223,798 |
| Total assets | $ 8,119,649 | $ 7,647,387 |
| Liabilities and shareholders' equity | ||
| Current liabilities | ||
| Accounts payable | 4,827,775 | 3,809,526 |
| Accrued expenses | 673,739 | 1,535,963 |
| Total current liabilities |
5,501,514 |
5,345,489 |
| Shareholders' equity | ||
| Share capital | 152 | 152 |
| Retained earnings | 2,617,983 | 2,301,746 |
| Total shareholders' equity | 2,618,135 | 2,301,898 |
|
Total liabilities and shareholders' equity |
$ 8,119,649 |
$ 7,647,387 |
The accompanying notes are an integral part of these financial statements.
| 3 |
Qxtel Limited
Statements of Income
(unaudited)
Three Months Ended September 30, |
Nine Months Ended September 30, | |||
| 2023 | 2022 | 2023 | 2022 | |
Sales |
$ 19,198,370 |
$ 19,574,379 |
$ 59,702,308 |
$ 60,766,675 |
| Cost of Sales | (17,825,223) | (18,745,592) | (56,533,224) | (58,709,106) |
| Gross Profit | 1,373,147 | 828,787 | 3,169,084 | 2,057,569 |
| Selling, general, and administrative expenses | (778,687) | (617,396) | (2,184,222) | (1,662,796) |
Net income before provision for income taxes |
594,460 |
211,391 |
984,862 |
394,773 |
| Income tax expense | (109,750) | (42,278) | (203,975) | (78,954) |
Net income |
$ 484,710 |
$ 169,113 |
$ 780,887 |
$ 315,819 |
The accompanying notes are an integral part of these financial statements.
| 4 |
Qxtel Limited
Statements of Changes in Shareholders’ Equity
(unaudited)
Share capital |
Retained earnings | Total Shareholders' Equity | |
Balance - December 31, 2021 |
$ 152 |
$ 1,873,965 |
$ 1,874,117 |
| Net income | - | 315,819 | 315,819 |
| Distributions | - | (139,216) | (139,216) |
Balance - September 30, 2022 |
$ 152 |
$ 2,050,568 |
$ 2,050,720 |
Retained |
Total Shareholders' | ||
| Share capital | earnings | Equity | |
Balance - December 31, 2022 |
$ 152 |
$ 2,301,746 |
$ 2,301,898 |
| Net income | - | 780,887 | 780,887 |
| Distributions | - | (464,650) | (464,650) |
Balance - September 30, 2023 |
$ 152 |
$ 2,617,983 |
$ 2,618,135 |
The accompanying notes are an integral part of these financial statements.
| 5 |
Qxtel Limited
Statements of Cash Flows
(unaudited)
| Nine Months Ended September 30, | 2023 | 2022 |
Cash flows from operating activities: Net income |
$ 780,887 |
$ 315,819 |
Changes in operating assets and liabilities: Accounts receivable - trade |
(875,809) |
(6,299,962) |
| Accounts payable | 1,018,249 | 6,404,562 |
| Accrued expenses | (862,224) | (374,963) |
Net cash provided by operating activities |
61,103 |
45,456 |
Cash flows from investing activities: Purchase of property and equipment |
(5,425) |
(8,531) |
| Advances of amounts due from related party | (120,000) | - |
| Purchase of intangible assets | (73,632) | - |
Net cash used in investing activities |
(199,057) |
(8,531) |
Cash flows from financing activities: Distributions paid |
(464,650) |
(139,216) |
Net cash used in financing activities |
(464,650) |
(139,216) |
Net decrease in cash and cash equivalents |
(602,604) |
(102,291) |
| Cash and cash equivalents, beginning of period | 1,841,237 | 1,228,674 |
Cash and cash equivalents, end of period |
$ 1,238,633 |
$ 1,126,383 |
Supplemental disclosure of cash flow information: Cash paid for taxes |
$ 203,975 |
$ 78,954 |
The accompanying notes are an integral part of these financial statements.
| 6 |
Qxtel Limited
Notes to Financial Statements
For the Three and Nine Month Periods
Ended September 30, 2023 and 2022
(unaudited)
| 1. General Information |
Qxtel Limited (the “Company”) is a private company, domiciled and incorporated in England and Wales. The registered office address is No. 1 Poultry, London, EC2R 8EJ.
The principal activity of the Company is the provision of international telecommunications traffic, offering both wholesale voice and retail services. In 2022, the Company also began to offer retail and wholesale A2P SMS services.
| 2. Accounting Policies |
| Basis of Preparation of Financial Statements |
| The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which, in the opinion of management, have been consistently applied. |
| The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates. |
| The following principal accounting policies have been applied: |
| Foreign Currency Translation and re-measurement |
| The Company's functional and presentational currency is USD. |
| Foreign currency transactions are translated into the functional currency using the spot exchange rates at the dates of the transactions. |
| At each period end foreign currency items are translated using the closing rate. Non monetary items measured at historical cost are translated using the exchange rate at the date of the transaction and non monetary items measured at fair value are measured using the exchange rate when fair value was determined. No material foreign currency translation amounts are included in the accompanying financial statements. |
| Revenue |
The Company recognizes revenue related to monthly usage charges and other recurring charges during the period in which the telecommunication services are rendered in accordance with FASB ASC 606, “Revenue from Contracts with Customers, provided that persuasive evidence of a sales arrangement existed and collection was reasonably assured. Persuasive evidence of a sales arrangement exists upon execution of a written interconnection agreement. Revenue is measured at the fair value of the consideration receivable, excluding discounts, rebates, value added tax and other sales taxes or duty. The Company’s payment terms vary by clients. |
| 7 |
Qxtel Limited
Notes to Financial Statements
For the Three and Nine Month Periods
Ended September 30, 2023 and 2022
(unaudited)
| 2. Accounting Policies (cont.) | |
| Cost of Sales | |
| Cost of sales represent direct charges from vendors that the Company incurs to deliver services to its customers. These costs primarily consist of usage charges for calls terminated in the Company’s vendor networks. | |
| Cash and Cash Equivalents | |
| Cash and cash equivalents include cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash. The Company maintains certain of its cash and cash equivalents in non-interest bearing accounts that are insured by the Federal Deposit Insurance Company up to $250,000. The Company’s deposits may, from time to time, exceed the $250,000 limit; however, management believes that there is no unusual risk present, as the Company places its cash and cash equivalents with financial institutions which management considers being of high quality. | |
| Accounts Receivable and Allowance for Uncollectible Accounts | |
| Substantially all of the Company’s accounts receivable balance is related to trade receivables. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company reviews its allowance for doubtful accounts daily and past due balances over 60 days and a specified amount are reviewed individually for collectability. Account balances are charged off after all means of collection have been exhausted and the potential for recovery is considered remote. | |
| Intangible Assets | |
| Intangible assets are initially recognized at cost. After recognition intangible assets are measured at cost less any accumulated amortization and any accumulated impairment losses. | |
| The assets relate to software which is still in development as of September 30, 2023 and December 31, 2022. No amortization expense was recorded for the three and nine month periods ended September 30, 2023 and 2022. | |
| Property and Equipment | |
| Property and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes all expenditures that are directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. | |
| Depreciation is charged so as to allocate the cost of assets less their residual value over their estimated useful lives. No material amounts of depreciation expense were recorded for the three and nine month periods ended September 30, 2023 or 2022. | |
| The recovery periods of the asset classes are as follows: | |
| Fixtures and fittings | 4 years | |
| Computer equipment | 4 years |
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in the statements of income.
| 8 |
Qxtel Limited
Notes to Financial Statements
For the Three and Nine Month Periods
Ended September 30, 2023 and 2022
(unaudited)
| 2. Accounting Policies (cont.) |
| Impairment of Long-Lived Assets |
In accordance with FASB ASC 360-10-45, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets, such as property and equipment, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recognized when the estimated future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset. When impairment is identified, the carrying amount of the asset is reduced to its fair value. No impairments were recorded in the accompanying financial statements. |
| Defined Contribution Pension Plan |
| The Company operates a defined contribution plan for its employees. A defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity in accordance with the terms of the People’s Pension Scheme of the United Kingdom. Once the contributions have been paid the Company has no further payment obligations. Contributions totaled $3,120 and $2,973 during the nine-months ended September 30, 2023 and 2022, respectively, $1,022 and $945 during the three-months ended September 30, 2023 and 2022, respectively |
| Income Taxes |
| The Company accounts for income taxes in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740, Accounting for Income Taxes, which requires, among other things, the recognition of deferred income tax assets and liabilities based on the temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities using the current applicable income tax rates. A valuation allowance is established when necessary to reduce deferred income tax assets to the amount that will more-likely-than-not be realized. |
The Company accounts for uncertainty in income taxes pursuant to FASB ASC 740-10, Accounting for Uncertainties in Income Taxes, which prescribes a minimum recognition threshold and measurement methodology that a tax position taken or expected to be taken in a tax return is required to meet before being recognized in the financial statements. See Note 4 for additional details. Management has reviewed the tax positions that have been taken and has concluded that no liability or disclosure is necessary. |
| 9 |
Qxtel Limited
Notes to Financial Statements
For the Three and Nine Month Periods
Ended September 30, 2023 and 2022
(unaudited)
| 2. Accounting Policies (cont.) |
| Dividends |
| Equity dividends are recognized when they become legally payable when approved by the shareholders at an annual general meeting. |
| Advertising |
| The Company expenses advertising costs as incurred. Advertising expense was $23,248 and $9,361 for the nine month periods ended September 30, 2023 and 2022, respectively. Advertising expense was $486 and $0 for the three month periods ended September 30, 2023 and 2022, respectively. |
| 3. Revenue |
| An analysis of revenue by class of business is as follows: |
| Nine Months Ended September 30, | Three Months Ended September 30, | |||
| 2023 | 2022 | 2023 | 2022 | |
|
Sale of Voice Services |
$ 55,850,292 |
$ 59,992,356 |
$ 17,250,618 |
$ 19,185,991 |
| Sales of SMS Services | 3,852,016 | 774,319 | 1,947,752 | 388,388 |
| Total | $ 59,702,308 | $ 60,766,675 | $ 19,198,370 | $ 19,574,379 |
Analysis of revenue by country of destination:
| Nine Months Ended September 30, | Three Months Ended September 30, | |||
| 2023 | 2022 | 2023 | 2022 | |
|
United Kingdom |
$ 18,792,944 |
$ 12,077,706 |
$ 5,794,865 |
$ 3,839,775 |
| United States of America | 17,120,702 | 23,783,470 | 5,547,774 | 6,917,573 |
| Rest of the world | 23,788,662 | 24,905,499 | 7,855,731 | 8,817,031 |
| Total | $ 59,702,308 | $ 60,766,675 | $ 19,198,370 | $ 19,574,379 |
| 4. Income Taxes |
| The Company provides for income taxes under ASC 740, “Income Taxes.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax basis of assets and liabilities and the tax rates in effect when these differences are expected to reverse. There were no material differences between the financial statement and tax basis of assets and liabilities for the three and nine month periods ended September 30, 2023 and 2022.. |
| The income tax provision attributable to the net income before income taxes for the three and nine month periods ended September 30, 2023 and 2022 differed from the amounts computed by applying the standard 19% corporate tax rate in the UK primarily due to differences in the method of calculating depreciation and certain expenses that are reflected in the accompanying financial statements that are not deductible for tax purposes. Such differences are not material to the financial statements taken as a whole. |
| Finance Act 2021 includes legislation to increase the UK corporate tax from 19% to 25%, effective April 1, 2023. |
| 10 |
Qxtel Limited
Notes to Financial Statements
For the Three and Nine Month Periods
Ended September 30, 2023 and 2022
(unaudited)
| 5. Share Capital |
| Share capital consistent of the following: |
| December 31, | September 30, 2023 | December 31, 2022 | ||||||
Ordinary A shares | $ | 27 | $ | 27 | ||||
| Ordinary B shares | 125 | 125 | ||||||
| Total | $ | 152 | $ | 152 | ||||
There are no differences in rights between Ordinary A and Ordinary B shares. There were 100 shares authorized and 18 and 82 shares of Ordinary A and Ordinary B shares, respectively, issued and outstanding at September 30, 2023 and December 31, 2022. The par value of the shares is $1.00.
| 6. Related Party Transactions |
During the nine months ended September 30, 2023 and 2022, the Company entered into transactions totaling $270,000 with Topax Consulting Corp (“Topax”), an entity in which one of the directors of the Company is also a director. During the three months ended September 30, 2023 and 2022, the Company entered into transactions totaling $90,000 with Topax. Such amounts are included in Selling, general, and administrative expenses in the accompanying Statements of Income. No amounts are payable to Topax Cosulting Corp. as of September 30, 2023 or 2022. During the nine months ended September 30, 2023 and 2022 the Company entered into transactions totaling $55,632 and $0 with Valorex Holdings Inc. (“Valorex”), an entity with a majority interest in the Company. During the three months ended September 30, 2023 and 2022, the Company entered into transactions totaling $5,465 and $0 with Valorex. Such amounts are included in Selling, general, and administrative expenses in the accompanying Statements of Income. Payables of $31,249 and $0 are included in accounts payable in the accompany balance sheets as of September 30, 2023 and 2022. |
| 7. Major Customer and Supplier |
The Company had two major customers representing approximately 26% of revenues for the nine months ended September 30, 2023. There were no major customers for the nine months ended September 30, 2022. The Company had two and one major customers representing approximately 24% and 12% of revenues for the three months ended September 30, 2023 and 2022, respectively. There were no net receivables from the customers at September 30, 2023 and 2022. The Company had one major supplier who accounted for 14% and 10% of purchases during the nine months ended September 30, 2023 and 2022, respectively. The Company had one and two major suppliers who accounted for 13% and 23% of purchases during the three months ended September 30, 2023 and 2022. Accounts payable to the suppliers totaled $522,155 and $504,068 at September 30, 2023 and 2022, respectively. The products and services provided by the suppliers are available from other sources. |
| 8. Subsequent Events |
Management has evaluated events and transactions subsequent to the balance sheet date through the date these financial statements were available to be issued for potential recognition or disclosure in the financial statements. On January 19, 2024, iQSTEL, Inc. entered into a share purchase agreement with Yukon River Holdings, Ltd. (“Seller”) concerning the contemplated sale by Seller and the purchase by iQSTEL, Inc. of 51% of the ordinary shares Seller holds in the Company. The accompanying financial statements have not been adjusted to reflect the transaction. Management has not identified any other items requiring recognition or disclosure. |
| 11 |
iQSTEL INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect to the probable acquisition of QXTEL Limited:
| Page | |
| Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2023 | 2 |
| Unaudited Pro Forma Consolidated Statement of Operations for the Nine Months Ended September 30, 2023 | 3 |
| Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2022 | 4 |
| 1 |
iQSTEL Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
At September 30, 2023
| Transaction | Pro Forma | |||||||||||||
| iQSTEL Inc. | Qxtel Limited | Adjustments | Notes | As Adjusted | ||||||||||
| ASSETS | ||||||||||||||
| Current Assets | ||||||||||||||
| Cash | $ | 2,001,320 | $ | 1,238,633 | $ | 452,500 | A, B, C | $ | 3,692,453 | |||||
| Accounts receivable, net | 7,635,615 | 6,434,280 | - | 14,069,895 | ||||||||||
| Inventory | 27,121 | - | - | 27,121 | ||||||||||
| Due from related parties | 427,194 | 120,000 | - | 547,194 | ||||||||||
| Prepaid and other current assets | 1,696,944 | - | - | 1,696,944 | ||||||||||
| Total Current assets | 11,788,194 | 7,792,913 | 452,500 | 20,033,607 | ||||||||||
| Property and equipment, net | 463,036 | 29,306 | - | 492,342 | ||||||||||
| Intangible asset | 99,592 | 147,430 | - | 247,022 | ||||||||||
| Goodwill | 5,172,146 | - | 3,664,751 | D | 8,836,897 | |||||||||
| Deferred tax assets | 444,504 | - | - | 444,504 | ||||||||||
| Other asset | 156,388 | 150,000 | - | 306,388 | ||||||||||
| TOTAL ASSETS | $ | 18,123,860 | $ | 8,119,649 | $ | 4,117,251 | $ | 30,360,760 | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||
| Current Liabilities | ||||||||||||||
| Accounts payable | $ | 4,014,529 | $ | 4,827,775 | $ | - | $ | 8,842,304 | ||||||
| Accrued and other current liabilities | 5,204,219 | 673,739 | - | 5,877,958 | ||||||||||
| Payable for acquisition of QXTEL | - | - | 2,000,000 | B | 2,000,000 | |||||||||
| Due to related parties | 26,613 | - | - | 26,613 | ||||||||||
| Loan payable | 252,779 | - | - | 252,779 | ||||||||||
| Loan payable - related parties | 238,291 | - | - | 238,291 | ||||||||||
| Convertible note | 177,666 | - | 3,477,500 | A | 3,655,166 | |||||||||
| Total Current Liabilities | 9,914,097 | 5,501,514 | 5,477,500 | 20,893,111 | ||||||||||
| Loans payable, non-current | 91,018 | - | - | 91,018 | ||||||||||
| Employees benefits, non-current | 155,909 | - | - | 155,909 | ||||||||||
| TOTAL LIABILITIES | 10,161,024 | 5,501,514 | 5,477,500 | 21,140,038 | ||||||||||
| Commitments and contingencies | - | - | - | - | ||||||||||
| Stockholders' Equity | ||||||||||||||
| Preferred stock: 1,200,000 authorized; $0.001 par value | ||||||||||||||
| Series A Preferred stock: 10,000 designated; $0.001 par value, 10,000 shares issued and outstanding |
10 | - | - | 10 | ||||||||||
| Series B Preferred stock: 200,000 designated; $0.001 par value, 31,080 shares issued and outstanding | 31 | - | - | 31 | ||||||||||
| Series C Preferred stock: 200,000 designated; $0.001 par value, No shares issued and outstanding | - | - | - | - | ||||||||||
| Common stock: 300,000,000 authorized; $0.001 par value, 170,231,395 shares issued and outstanding | 170,232 | - | - | 170,232 | ||||||||||
| Share capital | - | 152 | (152) | D | - | |||||||||
| Additional paid-in capital | 34,350,837 | - | - | 34,350,837 | ||||||||||
| Accumulated deficit | (25,960,018) | 2,617,983 | (2,642,983) | C, D | (25,985,018) | |||||||||
| Accumulated other comprehensive loss | (33,485) | - | - | (33,485) | ||||||||||
| Equity attributed to stockholders of iQSTEL Inc. | 8,527,607 | 2,618,135 | (2,643,135) | 8,502,607 | ||||||||||
| Equity (Deficit) attributable to noncontrolling interests | (564,771) | - | 1,282,886 | 718,115 | ||||||||||
| TOTAL STOCKHOLDERS' EQUITY | 7,962,836 | 2,618,135 | (1,360,249) | 9,220,722 | ||||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 18,123,860 | $ | 8,119,649 | $ | 4,117,251 | $ | 30,360,760 | ||||||
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Statements
| 2 |
iQSTEL Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
Period Ended September 30, 2023
| iQSTEL Inc. | Qxtel Limited | |||||||||||||
| Nine months ended | Nine months ended | Proforma | Proforma | |||||||||||
| September 30, 2023 | September 30, 2023 | Adjustments | Notes | As Adjusted | ||||||||||
| Net revenues | $ | 97,248,561 | $ | 59,702,308 | $ | - | $ | 156,950,869 | ||||||
| Cost of revenues | 94,218,838 | 56,533,224 | - | 150,752,062 | ||||||||||
| Gross profit | 3,029,723 | 3,169,084 | - | 6,198,807 | ||||||||||
| Operating Expenses | ||||||||||||||
| Selling, general and administrative expenses | 3,529,218 | 2,184,222 | 25,000 | C | 5,738,440 | |||||||||
| Total operating expenses | 3,529,218 | 2,184,222 | 25,000 | 5,738,440 | ||||||||||
| Operating income (loss) | (499,495) | 984,862 | (25,000) | 460,367 | ||||||||||
| Other Income (Expense) | ||||||||||||||
| Other income | 3,126 | - | - | 3,126 | ||||||||||
| Other expense | (105,714) | - | - | (105,714) | ||||||||||
| Interest expense | (54,322) | - | - | (54,322) | ||||||||||
| Change in fair value of derivative liabilities | 381,848 | - | - | 381,848 | ||||||||||
| Total other income | 224,938 | - | - | 224,938 | ||||||||||
| Net (loss) income before provision for income taxes | (274,557) | 984,862 | (25,000) | 685,305 | ||||||||||
| Income taxes | - | (203,975) | - | (203,975) | ||||||||||
| Net (loss) income | $ | (274,557) | $ | 780,887 | $ | (25,000) | $ | 481,330 | ||||||
| Less: Net income attributable to noncontrolling interests | 364,586 | - | - | 364,586 | ||||||||||
| Net (loss) income attributed to iQSTEL Inc. | $ | (639,143) | $ | 780,887 | $ | (25,000) | $ | 116,744 | ||||||
| Dividend on Series B Preferred Stock | (816,480) | - | - | - | ||||||||||
| Net loss attributed to stockholders of iQSTEL Inc. | $ | 177,337 | $ | 780,887 | $ | (25,000) | $ | 116,744 | ||||||
| Other comprehensive income (loss) | ||||||||||||||
| Net (loss) income | $ | (274,557) | $ | 780,887 | $ | (25,000) | $ | 481,330 | ||||||
| Foreign currency translation adjustment | 142 | - | - | 142 | ||||||||||
| Total comprehensive (loss) income | $ | (274,415) | $ | 780,887 | $ | (25,000) | $ | 481,472 | ||||||
| Less: Comprehensive income attributable to noncontrolling interests | 364,656 | - | - | 364,656 | ||||||||||
| Total comprehensive (loss) income | $ | (639,071) | $ | 780,887 | $ | (25,000) | $ | 116,816 | ||||||
| Basic and diluted income (loss) per common share | $ | (0.00) | $ | 7,808.87 | $ | 0.00 | ||||||||
| Basic and diluted weighted average number of common shares outstanding | 165,640,341 | 100 | (100) | D | 165,640,341 | |||||||||
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Statements.
| 3 |
iQSTEL Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended December 31, 2022
| iQSTEL Inc. | Qxtel Limited | |||||||||||||
| Year ended | Year ended | Proforma | Proforma | |||||||||||
| December 31, 2022 | December 31, 2022 | Adjustments | Notes | As Adjusted | ||||||||||
| Net revenues | $ | 93,203,532 | $ | 81,506,401 | $ | - | $ | 174,709,933 | ||||||
| Cost of revenues | 91,412,016 | 77,623,467 | - | 169,035,483 | ||||||||||
| Gross profit | 1,791,516 | 3,882,934 | - | 5,674,450 | ||||||||||
| Operating Expenses | ||||||||||||||
| Selling, general and administrative expenses | 4,983,176 | 2,569,589 | 25,000 | C | 7,577,765 | |||||||||
| Total operating expenses | 4,983,176 | 2,569,589 | 25,000 | 7,577,765 | ||||||||||
| Operating income (loss) | (3,191,660) | 1,313,345 | (25,000) | (1,903,315) | ||||||||||
| Other Income (Expense) | ||||||||||||||
| Other income | 118,871 | - | - | 118,871 | ||||||||||
| Other expense | (112,962) | - | - | (112,962) | ||||||||||
| Interest expense | (29,641) | - | - | (29,641) | ||||||||||
| Change in fair value of derivative liabilities | (2,650,369) | - | - | (2,650,369) | ||||||||||
| Total other income | (2,674,101) | - | - | (2,674,101) | ||||||||||
| Net loss before provision for income taxes | (5,865,761) | 1,313,345 | (25,000) | (4,577,416) | ||||||||||
| Income taxes | - | (235,564) | - | (235,564) | ||||||||||
| Net income (loss) | $ | (5,865,761) | $ | 1,077,781 | $ | (25,000) | $ | (4,812,980) | ||||||
| Less: Net income attributable to noncontrolling interests | 101,713 | |||||||||||||
| Net loss attributed to iQSTEL Inc. | $ | (5,967,474) | $ | 1,077,781 | $ | (25,000) | $ | (4,812,980) | ||||||
| Dividend on Series B Preferred Stock | - | - | - | - | ||||||||||
| Net loss attributed to stockholders of iQSTEL Inc. | $ | (5,967,474) | $ | 1,077,781 | $ | (25,000) | $ | (4,812,980) | ||||||
| Other comprehensive income (loss) | ||||||||||||||
| Net income (loss) | $ | (5,865,761) | $ | 1,077,781 | $ | (25,000) | $ | (4,812,980) | ||||||
| Foreign currency translation adjustment | 6,080 | - | - | 6,080 | ||||||||||
| Total comprehensive income (loss) | $ | (5,859,681) | $ | 1,077,781 | $ | (25,000) | $ | (4,806,900) | ||||||
| Less: Comprehensive income attributable to noncontrolling interests | 104,692 | - | - | 104,692 | ||||||||||
| Total comprehensive income (loss) | $ | (5,964,373) | $ | 1,077,781 | $ | (25,000) | $ | (4,911,592) | ||||||
| Basic and diluted income (loss) per common share | $ | (0.04) | $ | 10,777.81 | $ | (0.03) | ||||||||
| Basic and diluted weighted average number of common shares outstanding | 151,850,443 | 100 | (100) | D | 151,850,443 | |||||||||
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Statements.
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iQSTEL INC.
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
On January 19, 2024, we entered into a Share Purchase Agreement (“Purchase Agreement”) with Yukon River Holdings, Ltd., a corporation formed under the laws of the British Virgin Islands (“Seller”) concerning the contemplated sale by Seller and the purchase by us of 51% of the ordinary shares Seller holds in QXTEL LIMITED, a company incorporated in England and Wales (the “QXTEL”).
NOTE 1. BASIS OF PRO FORMA PRESENTATION
The unaudited pro forma condensed combined financial statements are based on the QXTEL Limited historical financial statements and iQSTEL Inc. (“iQSTEL”) historical consolidated financial statements as adjusted to give effect to the probable transaction as outlined in the Purchase Agreement. The unaudited pro forma condensed combined balance sheet gives pro forma effect to the transaction as if it had been consummated on September 30, 2023. The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2023 gives effect to the transaction as if they had occurred on January 1, 2023, the beginning of the earliest period presented. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022 gives effect to the transaction as if they had occurred on January 1, 2022, the beginning of the earliest period presented.
The unaudited pro forma condensed combined financial statements were prepared in accordance with Article 11 of SEC Regulation S-X, as amended by the final rule, Release No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses. Release No. 33-10786 replaced the previous pro forma adjustment criteria with simplified requirements to depict the accounting for the transaction (“Transaction Accounting Adjustments”) and present the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management’s Adjustments”). Management has elected not to present Management’s Adjustments and will only be presenting Transaction Accounting Adjustments in the unaudited pro forma condensed combined financial information. The adjustments presented in the unaudited pro forma condensed combined financial statements have been identified and presented to provide relevant information necessary for an understanding of the combined company reflecting the transaction.
The pro forma financial information does not give effect to any synergies, operating efficiencies, tax savings, or cost savings that may be associated with the acquisition and the related transactions. The unaudited pro forma condensed combined financial statements do not reflect the income tax effects of the pro forma adjustments, as management believes income tax adjustments to not be meaningful given the combined entity during the historical periods presented. There were no existing contractual relationships between iQSTEL and QXTEL during the periods presented in the unaudited pro forma condensed combined financial statements.
Accounting for the Business Combination
In accordance with accounting principles generally accepted in the United States, iQSTEL is the acquirer and will account for the acquisition using the acquisition method of accounting for business combinations in accordance with Accounting Standards Codification 805, Business Combinations ("ASC 805"). The allocation of the estimated purchase price with respect to the acquisition is based upon management's preliminary estimates of and assumptions related to the fair values of assets acquired and liabilities assumed as of September 30, 2023, using currently available information. For this purpose, fair value shall be determined in accordance with the fair value concepts defined in ASC 820, Fair Value Measurements and Disclosures ("ASC 820"). Fair value is defined in ASC 820 as "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date." Fair value measurements can be highly subjective and can involve a high degree of estimation.
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NOTE 2. ACCOUNTING PERIODS PRESENTED
The unaudited pro forma condensed combined financial statements are provided for illustrative purposes only and are not necessarily indicative of what the actual results of operations and financial position would have been had the transaction taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of the combined company.
The unaudited pro forma condensed combined balance sheet as of September 30, 2023 has been prepared using, and should be read in conjunction with, the following:
| · | QXTEL’s unaudited condensed balance sheet as of September 30, 2023 and the related notes included elsewhere in this Form 8-K/A; and |
| · | iQSTEL’s unaudited condensed balance sheet as of September 30, 2023 and the related notes included in the From 10-Q as filed on November 14, 2023. |
The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2023 has been prepared using, and should be read in conjunction with, the following:
| · | QXTEL’s unaudited condensed statement of operations for the nine months ended September 30, 2023 derived from the historical information of QXTEL included elsewhere in this Form 8-K/A; and |
| · | iQSTEL’s unaudited condensed statements of operations for the nine months ended September 30, 2023 derived from the historical information of iQSTEL included in the From 10-Q as filed on November 14, 2023. |
The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022 has been prepared using, and should be read in conjunction with, the following:
| · | QXTEL’s audited statement of operations for the year ended December 31, 2022 derived from the historical information of QXTEL included elsewhere in this Form 8-K/A; and |
| · | iQSTEL’s audited statements of operations for the year ended December 31, 2022 derived from the historical information of iQSTEL included in the From 10-K as filed on April 14, 2023. |
NOTE 3. PRELIMINARY PURCHASE PRICE ALLOCATION
On January 19, 2024, iQSTEL entered into an agreement to acquire QXTEL LIMITED for total consideration of $5,000,000. The unaudited pro forma condensed combined financial statements include various assumptions, including those related to the preliminary purchase price allocation of the assets acquired and liabilities assumed of QXTEL based on management’s best estimates of fair value. The final purchase price allocation may vary based on final appraisals, valuations and analysis of fair value of the acquired assets and assumed liabilities. Accordingly, pro forma adjustments are preliminary and have been made solely for illustrative purposes.
The consideration for the acquisition of QXTEL consists of $5,000,000, payable as follows:
| 1. | $1,500,000 upon the execution of the Purchase Agreement. |
| 2. | $1,500,000 at closing. | |
| 3. | $2,000,000 to the Seller, either (A) in the form of a promissory note (the “Promissory Note”), or (B) by the delivery of iQSTEL common shares to Seller. Seller may decide the form of payment between the Promissory Note or the common shares of iQSTEL, and if a Promissory Note is chosen the $2,000,000 will be paid with no interest in seven (7) monthly payments of $200,000 each and an eighth payment of $600,000. |
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The following table shows the preliminary allocation of the purchase price of QXTEL to the acquired identifiable assets, assumed liabilities and pro forma goodwill:
| Total purchase consideration | $ | 5,000,000 |
| Assets | ||
| Cash | 1,238,633 | |
| Accounts receivable | 6,434,280 | |
| Related party receivable | 120,000 | |
| Property and equipment | 29,306 | |
| Intangible assets | 147,430 | |
| Other asset | 150,000 | |
| Liabilities | ||
| Accounts payable | (4,827,775) | |
| Accrued expenses | (673,739) | |
| Total acquired net asset value | 2,618,135 | |
| Less noncontrolling interest (NCI) | (1,282,886) | |
| Total acquired net asset value to iQSTEL shareholders | 1,335,249 | |
| Goodwill | $ | 3,664,751 |
NOTE 4. PRO FORMA ADJUSTMENTS
The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:
| A. | To record cash received of $3,477,500, from issuance of a convertible promissory note of $3,888,889 with debt discounts totaling $411,389. |
| B. | To record the $5,000,000 acquisition consideration, consisting of $3,000,000 in cash and a payable of $2,000,000, |
| C. | To record legal fee of $25,000 related to business combination, |
| D. | To eliminate the equity account of QXTEL incurred before the closing date of purchase agreement and record 49% noncontrolling interest. |
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