Business Context and Reporting Period
This Form 8-K, filed on April 11, 2018, by Surge Holdings, Inc. (also referenced as Surgepays, Inc. in metadata), reports the completion of a material definitive agreement and the acquisition of True Wireless, Inc. ("TW"). The transaction was structured as a tax-free reverse triangular merger where TW merged into a newly formed subsidiary, becoming a wholly-owned subsidiary of Surge Holdings.
Key Financial Metrics and Transaction Consideration
The total consideration for the acquisition of TW is valued at approximately $64,003,006. The filing does not provide standalone revenue, profit, cash flow, or margin data for the company or the acquired entity, as financial statements are to be filed in a subsequent amendment.
| Consideration Component | Details | Value |
|---|---|---|
| Prior to Closing | ||
| Cash Paid | Previously paid to TW shareholders | $500,000 |
| Common Stock Issued | 12,000,000 shares | $1,200,000 |
| At Closing | ||
| Common Stock Issued | 152,707,516 shares (providing 69.5% pro forma interest) | $60,683,006 |
| Series A Preferred Stock | 3,000,000 shares | $120,000 |
| Promissory Note | $3,000,000 face value, 3% interest, maturing Dec 31, 2018 | $1,500,000 (recorded value) |
| Total Consideration | $64,003,006 |
Material Changes
The primary material change is the consolidation of True Wireless, Inc. into Surge Holdings, Inc. Following the closing, TW's financial statements will be consolidated with the Company's. The transaction results in a significant dilution of existing shareholders, with TW shareholders receiving a 69.5% pro forma interest in the total common shares. Additionally, the Company has incurred a new debt obligation in the form of a $3,000,000 promissory note.
Guidance, Outlook, and Risks
The filing does not contain forward-looking guidance, management commentary on future operations, or specific risk factors beyond the standard legal disclaimers. However, the following contingencies and unusual items are noted:
- Deferred Financial Reporting: Required financial statements of the acquired business and pro forma financial information are not included in this filing. They are scheduled to be filed via amendment within 71 days of the report date.
- Debt Obligation: The Company is obligated to pay $3,000,000 plus 3% annual interest by December 31, 2018.
- Share Issuance: The issuance of over 152 million new shares significantly alters the capital structure.
Investor Verification Checklist
- Verify the valuation methodology used to assign the $60,683,006 value to the 152,707,516 shares of common stock issued at closing.
- Review the upcoming amendment (due within 71 days) for the audited financial statements of True Wireless, Inc. to assess the quality of earnings and assets acquired.
- Confirm the liquidity position of Surge Holdings to ensure it can service the $3,000,000 promissory note maturing in December 2018.
- Examine the full text of the Merger Agreement (Exhibit 2.1) for any earn-out provisions, covenants, or restrictions on the newly issued Series A Preferred Stock.