Surgepays, Inc. current report, 24 April 2015

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SEC Filing Summary: KSIX Media Holdings, Inc. (Form 8-K)

Business Context and Reporting Period

Company: KSIX Media Holdings, Inc. (formerly North American Energy Resources, Inc., ticker NAEY, changing to KSIX).
Filing Date: April 24, 2015 (Report covers events through August 2015).
Business Overview: A digital advertising agency conglomerate operating through subsidiaries KSIX, LLC (performance-based marketing/CPA) and Blvd Media Group, LLC (incentive-based advertising/offer walls). The company also holds North American Exploration, Inc., an oil and gas subsidiary.
Key Event: Completion of a reverse merger/share exchange with KSIX Media, Inc., resulting in a change of control and business focus from energy to digital advertising.

Key Financial Metrics

Revenue (Acquired Entity - KSIX LLC & Affiliate):

  • 2014: $2,674,478 (12% decrease from 2013).
  • 2013: $3,034,829.
  • Segment Performance: KSIX, LLC revenue grew 15% to $2.19M; Blvd Media Group revenue declined 67% to $478k due to a shift from desktop to mobile gaming.
Profitability (Acquired Entity):
  • Net Income (2014): $33,299.
  • Net Income (2013): $94,810.
  • Gross Margin: Improved to 38% in 2014 (up from 33% in 2013) as cost of revenue decreased to 62% of total revenue.
Liquidity and Debt (Acquired Entity - Dec 31, 2014):
  • Cash: $29,310.
  • Total Current Liabilities: $314,969.
  • Total Liabilities: $399,910.
  • Long-Term Debt: $84,941 (down from $702,047 in 2013 due to debt forgiveness and repayment).
  • Working Capital: Negative ($99,539).
Pro Forma Financials (Unaudited - March 31, 2015):
  • Total Assets: $1,762,681.
  • Total Liabilities: $1,753,895.
  • Shareholders' Equity: $8,789.

Material Changes vs. Prior Period

  • Change of Control: Carter Matzinger acquired 71.14% of the outstanding common stock (24,778,761 shares) via the share exchange, becoming the controlling shareholder, Chairman, and CEO.
  • Management Turnover: Former Chairman/CEO Clinton W. Coldren and other directors resigned. New directors (Carter Matzinger, Ted D. Campbell II) were appointed.
  • Corporate Identity: Company name changed from North American Energy Resources, Inc. to KSIX Media Holdings, Inc., with a ticker symbol change from NAEY to KSIX.
  • Revenue Mix: Significant decline in the Blvd Media Group segment (desktop games) offset partially by growth in the KSIX, LLC segment (CPA marketing).

Guidance, Outlook, Risks, and Unusual Items

Outlook and Capital Needs:
Management estimates capital needs of $1,000,000 to $10,000,000 over the next 12 months to fund growth and acquisitions. Cash flow from operations is insufficient to meet these needs, necessitating additional equity or debt financing.

Material Risks:

  • Going Concern: The independent auditor's report for the acquired entity includes an explanatory paragraph regarding substantial doubt about the company's ability to continue as a going concern without additional financing.
  • Regulatory/Legal: Risks related to "native" advertising, data privacy (GDPR, CASL), and potential liability for third-party content.
  • Market Liquidity: Stock trades on the OTC Pink Sheets and is subject to "Penny Stock" rules, which may limit liquidity and trading volume.
  • Concentration of Control: Mr. Matzinger holds significant voting power, potentially discouraging takeover attempts.
Unusual Items:
  • Debt Forgiveness: In 2014, $29,863 of related party accrued interest was forgiven.
  • Unpaid Subscriptions: As of the filing date, shares sold to Sidney J. Lorio Jr. totaling $225,000.26 were issued but not yet paid for, recorded as subscription receivables.

Investor Verification Checklist

  • Going Concern Status: Verify the company's ability to secure the estimated $1M-$10M in capital required for operations.
  • Debt Obligations: Confirm the status of the $1.15M in long-term debt listed in the pro forma balance sheet and any covenants associated with it.
  • Subscription Receivables: Monitor the collection of the ~$225k in unpaid subscription receivables from Sidney J. Lorio Jr.
  • Revenue Sustainability: Assess the long-term viability of the KSIX, LLC segment given the 67% collapse in the Blvd Media Group segment.
  • Regulatory Compliance: Review the company's adherence to evolving data privacy laws (CASL, GDPR) and advertising regulations (FTC).
  • Stock Liquidity: Evaluate the impact of "Penny Stock" regulations on the ability to exit the investment.