Business Context and Reporting Period
This Form 8-K Current Report was filed by Surge Holdings, Inc. (referred to in the metadata as Surgepays, Inc.) on June 23, 2020. The filing details the entry into material definitive agreements involving debt-to-equity conversions, stock cancellations, and unregistered sales of equity securities.
Key Financial Metrics and Transactions
The filing does not provide standard financial statements (revenue, profit, cash flow, or margins). However, it discloses specific transaction values:
- Debt Conversion: $4,000,000 principal of a Convertible Promissory Note was converted into equity.
- Equity Issuance (Debt Conversion): 8,000,000 shares of Common Stock issued in total ($2,750,000 debt for 5,500,000 shares; $1,250,000 debt for 2,500,000 shares).
- Stock Cancellation Payment: $500,000 cash paid to cancel 2,380,952 shares.
- Private Placement Proceeds: $555,000 gross proceeds from the sale of 1,585,714 shares at $0.35 per share.
Material Changes and Agreements
The following material agreements were executed on June 23, 2020:
- AltCorp Exchange Agreement: Converted $2,750,000 of debt owed to AltCorp Trading LLC into 5,500,000 shares. These shares are subject to a one-year lock-up. A "True-Up" provision allows AltCorp to receive additional shares if the 20-day VWAP falls below $0.50 after the lock-up expires.
- Glen Eagles Exchange Agreement: Converted $1,250,000 of debt into 2,500,000 shares assigned to Glen Eagles Acquisition LP. These shares have a "leak-out" provision allowing sales of up to 7,500 shares per trading day. A similar "True-Up" provision applies if the 20-day VWAP falls below $0.50 on June 23, 2021.
- Stock Cancellation Agreement: The company paid $500,000 to shareholder Yossi Attia to cancel 2,380,952 shares. The company retains an option until July 23, 2020, to pay $0.21 per share to cancel the remaining 952,381 shares held by Mr. Attia.
- Unregistered Sales: Sold 1,585,714 shares to four accredited investors at $0.35/share. Additionally, CEO Kevin Brian Cox sold 1,585,714 of his own shares to the same investors at $0.001/share.
Outlook, Risks, and Contingencies
Contingencies: Future share issuances are contingent on the company's stock price performance. Both AltCorp and Glen Eagles have rights to receive additional shares ("True-Up Value") if the 20-day VWAP is less than $0.50 per share at specific future dates. The Glen Eagles agreement also includes a contingency where the True-Up right is voided if the leak-out provision is violated.
Risks: The issuance of significant new shares (8,000,000 from debt conversion plus 1,585,714 from private placement) may result in dilution to existing shareholders. The filing notes that all equity issuances were unregistered and relied on Section 4(a)(2) exemptions.
Investor Verification Checklist
- Verify the exact number of shares outstanding post-transaction to assess dilution impact.
- Confirm the current 20-day VWAP to evaluate the likelihood of triggering the "True-Up" share issuances.
- Review the full text of Exhibits 10.1, 10.2, and 10.3 for detailed terms regarding the lock-up and leak-out provisions.
- Check if the company exercised its option to cancel the remaining 952,381 shares from Yossi Attia by July 23, 2020.
- Confirm the company's cash position following the $500,000 payment for stock cancellation and the receipt of $555,000 from the private placement.