8Ks and the Coveted “Merger 8K”

This article is designed to help you quickly decipher the 8K form and use it to your advantage
when you are trading against a market that is waiting for news instead of looking at filings.

This article is designed to help you quickly decipher the 8K form and use it to your advantage
when you are trading against a market that is waiting for news instead of looking at filings.

8K and 8K/A:
Before we begin, always remember that the (/A) next to any SEC form is to notify you that this is
a re-issue of a filing that has already been released and the A stands for Amendment. If you are
seriously looking for a glaring error to be amended then it is worth tracking down the original
filing.

The short story of the 8K is that it is some form of a company announcement, usually a material
change that is of specific interest to shareholders such as mergers, changes in financial
condition, etc.

In our line of work (OTC and lower priced securities) the ultimate 8K is the reverse merger 8K. A
reverse merger is when a company that is not publicly traded buys the ticker of a company that
has failed and begins trading on that ticker, kind of like hermit crabs in the sense that a new
company is now wearing this shell.

Why is this the best catalyst? Because traders see this as the opportunity to get in on the
ground floor of a brand new company to the public markets. Traders think that this is the time
they will be first, this is the time they will correct their past trading mistakes, this is the company
that could be the next Apple or Google! (It probably isn’t).

What you are looking for in a merger 8K is a change of control. A change of control is when the
company issuing the 8K has sold more than 50% of their outstanding shares, not their
authorized shares. A recent example in MCTC shows what this looks like:

“Item 5.01 Changes in Control of Registrant”.

On May 25, 2019, Lauderdale Holdings, LLC, a Florida limited liability company, in
which Company Chief Executive Officer, Garry McHenry maintains a controlling
interest, sold 130,000,000 common shares of MCTC Holdings, Inc., a Delaware
corporation (the “Company”) representing approximately 70.7% of the
Company’s 183,869,600 issued and outstanding shares to Messrs. Robert Hymers,
Edward Manolos and Dan Nguyen, all of whom were previously unaffiliated parties to
the Company. Each purchased 43,333,333 common shares for $108,333.33 each or an
aggregate of $325,000, utilizing personal funds. This series of transactions constitute a
change in control of the Company.

Another way a merger 8K shows up is as:“Entry into a Material Definitive

Agreement”. The official explanation of this type of announcement is that some type of
transaction has occurred that is not typical to the company’s day to day business. Here
is a recent example in RBNW:

Item 1.01 Entry into a Material Definitive Agreement

On April 3, 2019, Renewable Energy & Power, Inc. (the “Company”) entered into a
Reverse Merger under the Acquisition Agreement and Plan of Share Exchange
(the “Agreement”) with Leaf of Life Holdings Limited (“LOLJ”). Pursuant to the
Agreement LOLJ acquired an exclusive license from the Company to sell and market
LED Agricultural Grow Lights for Cannabis in the territory of Jamaica and the Caribbean
Islands. As part of the transaction, the Company also issued 5,000,000 Series A
Preferred Shares to Philip Saunders of LOLJ, and the principals of the Company also
transferred their collective ownership of 5,000,000 Series A Preferred to Mr. Saunders
in exchange for $40,000, which will be paid in cash.

In this case, the 8K is not specifically specifying “change of control” but it is specifying
“Reverse Merger” therefore the the reaction from the trading community is thought to be
the same.

IF YOU ARE LOOKING AT AN 8K THAT MAY BE A MERGER YOUR FIRST ACTION IS

BELOW:

On your keyboard in your browser you use CTRL+F on your keyboard (or however you search
for text on a Mac) to find the word “Split”. You are looking for a mention of a “Reverse Split”
which is the kiss of death for any stock. Most of the time when a reverse merger occurs, the
company coming in will perform a reverse split in order to reverse the effects of dilution from the
prior company. Save for the most rare of occurrences, reverse mergers with pending reverse
splits DO NOT run so you must be sure that there is not one set as part of the terms of the
merger agreement. Here is some verbiage from the TFVR merger filing:

Immediately following the Closing, the Board of Directors and a majority of the Shareholders of
the Parent shall take action on written consent:

(A) approving the reverse split of the capital stock of the Company in an amount for 1:1
to 1:1,000 as shall be determined by the Board of Directors of Parent;
(B) changing of name of the Parent to Red Cat Propware Holdings, Inc. or similar name as
determined by the Board of Directors of Parent; and © adopting the Amended and Restated
Articles of Incorporation of the Parent. In the alternative, the Board of Directors may, in its
discretion, call a special meeting of the Shareholders to be held on notice to the Shareholders
and submit the foregoing actions for approval of the Shareholders (the “ Shareholder Approvals
”).

If you see specific language about completing a split in order to complete a merger, move on.
The final point on this is that you must be careful to ensure this is a specific action as opposed
to boilerplate language about what could happen in the future though, so here is an example of
that language:

d. Adjustment of Conversion Rate upon Subdivision or Combination of Common Stock. If the

Company, at any time while shares of Series B Preferred Stock are issued and outstanding,
subdivides (by any forward stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of shares, the
Conversion Rate in effect immediately prior to such subdivision will be proportionately
increased. If the Company, at any time while shares of Series B Preferred Stock are issued and
outstanding, combines (by combination,reverse stock split or otherwise) one or more
classes of its outstanding shares of Common Stock into a smaller number of shares,
the Conversion Rate in effect immediately prior to such combination will be
proportionately reduced. Any adjustment pursuant to this Section 4e. shall become
effective immediately after the effective date of such subdivision or combination.

You can see here that “Reverse stock split” is being mentioned as something that
COULD happen as opposed to something that will happen or needs to happen.

Let’s say you ran all the steps and you found the perfect merger 8K, what is your job
now? DD. You need to find out about the company that is taking over this ticker and ask
yourself whether or not people will see this as a real investment opportunity. You need
to ask yourself the following questions:

● Are they in a lucrative or popular industry?

● Can I easily find information about them?
● Do they have an attractive website that more casual investors will see as
being legitimate.
● Is the share structure vs. price of the shares on this ticker something that
can move?

You need to effectively balance the “turnover” calculation with the quality of the
company coming in. Sometimes, the company is not exciting but the turnover is so low
that you have to take it. Other times the company is exciting but the current share
structure makes it an immovable object. In other instances it looks good but has a 75%
spread on the bid and ask. There are a lot of factors to consider but the more you know
what to look for, the more you know when it is just perfect.

“Notes 8K”
You will often see me reference something as “just a notes 8K”. This 8K is the most common
type of announcement we see as it is a company exchanging handing authorized shares to a
lender in exchange for cash (that ultimately get dumped on you!). Here is a particularly sad
example of this type of 8K:

Item 1.01. Entry Into a Material Definitive Agreement

The information provided in Item 3.02 below is incorporated herein by reference.

Item 3.02. Unregistered Sales of Equity Securities

On May 1, 2019, Advanced Voice Recognition Systems, Inc. (the “Company”) entered into a
Stock Purchase Agreements (the “Stock Purchase Agreement”) with one private investor.
Pursuant to the Stock Purchase Agreement, on May 1, 2019, the Company sold an aggregate
of 100,000 shares of common stock at a purchase price of $0.015 per share for a total of
$1,500.

The Company paid no underwriting discounts or commissions. A copy of the form of stock
purchase agreement is filed as Exhibit 10.1 to this Current Report and is incorporated herein by
reference.

So you can see here that it was led with “Entry into a material definitive agreement” then you
can see the terms of their material definitive agreement. Convertible debt/shares for cash. In
this case, a very sad state of affairs for this company as they needed $1500/

Here is another more classic looking loan/notes 8K:

On June 19, 2019, XXXXX, Inc. (the “ Company ”) entered into a securities purchase agreement
(the “ Purchase Agreement ”) with accredited investors identified on Exhibit 10.4 hereof (the “
Holders ”) which provides for the sale of unsecured convertible promissory notes (the “ Notes ”)
with an aggregate face value of $190,000. The Notes are convertible at any time and from time
to time by the Holders into shares of Common Stock at a fixed conversion price of $0.10 per
share. Any unconverted, outstanding principal amount of the Notes is payable on June 19,
2024. The proceeds of the Notes will be used to fund operations.
My actively ignoring these 8Ks is not necessarily a negative statement on the company’s actual
value or its general direction, just that in this moment I do not expect the market to react to this
8K therefore I have time to look into it another time.

Other 8Ks:

1. DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF

DIRECTORS: This 8K can be meaningful and be the beginning of a merger 8K so it is
worth reading them through.
2. OTHER EVENTS: Sometimes these events are large contracts, mergers, or material
changes so it is very much worth reading every single one. Next to a merger 8K the
hottest stuff usually comes in this way.
3. CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT: This never moves the
needle, but this 8K showing up on a long inactive stock may be a sign of life one day and
is worth committing to the memory banks in the future.
4. Submission of Matters to a Vote of Security Holders: This doesn’t move the needle
but worth a read to see if they are voting on some type of important change in company
direction. There will be a set date for the vote here, so sometimes there can be runs up
to the vote if it is something cool. Usually this is just to vote on the Board of Directors.
5. Regulation FD Disclosure: This is the company notifying the SEC of some type of
news release or shareholder communication that has occurred. It is worth keeping an
eye on these! Reason being is sometimes a company will release excellent news, but
the way they released it didn’t hit the market the right way or at the right time. Everyone
is reading 8Ks though so this could give that news a second life. Classic example in
recent memory would be SIML.
6. Termination of a Material Definitive Agreement: What was once cool or uncool about
a company’s material agreement has now been undone. Did they do a merger with
someone? Well this would kill it. Did they give out a massive amount of shares to
someone for a super low price? Well then this could bring it back to life.