8-K: Alpha Modus Secures $100K Convertible Note

Alpha Modus Holdings, Inc. has secured a $100,000 convertible promissory note from Alexander Haase-Dubosc, carrying a 7% interest rate and convertible into Class A common stock.

Summary

• Alpha Modus Holdings, Inc. (AMOD) entered into a Securities Purchase Agreement with Alexander Haase-Dubosc.
• The company issued a convertible promissory note with an original principal amount of $110,000 for a purchase price of $100,000, implying a $10,000 original issue discount.
• The note accrues interest at 7% per annum and matures on December 29, 2026.
• The investor can convert the note into Class A common stock at any time six months after issuance.
• The conversion price is fixed at 80% of the 5-day volume-weighted average price (VWAP) on December 31, 2025.
• The investor is an accredited investor, and the securities are unregistered, relying on a Section 4(a)(2) exemption.

Sentiment

Score: 5

Explanation: The filing describes a capital raise that provides necessary funding but comes with potentially dilutive terms and significant investor protections, reflecting a neutral to slightly cautious sentiment regarding the company's financial position and future equity structure.

Positives

• Secured $100,000 in funding for the company's operations.
• The note carries a fixed interest rate of 7% per annum, providing a defined cost of capital.
• The investor is restricted from engaging in short selling of the company's common stock.

Negatives

• The note includes a $10,000 original issue discount, meaning the company received $100,000 but owes $110,000 in principal.
• Potential for significant shareholder dilution upon conversion, as the conversion price is 80% of a future VWAP, which could be below current market price.
• A 15% prepayment penalty applies if the company chooses to prepay the note.
• The company is obligated to seek shareholder approval for conversions exceeding the Nasdaq Exchange Cap (8,000,000 shares), and failure to obtain this approval could limit conversion or trigger an Event of Default.
• Numerous events can trigger an 'Event of Default,' leading to immediate repayment of the Mandatory Default Amount (100% principal + interest + late fees).

Risks

• Dilution Risk: Conversion of the note into common stock at 80% of VWAP could lead to significant dilution for existing shareholders, especially if the stock price declines.
• Default Risk: The company faces numerous potential 'Events of Default' (e.g., failure to make payments, breach of covenants, other material defaults, bankruptcy, significant judgments, change of control without holder approval), which could trigger immediate repayment of the entire Mandatory Default Amount.
• Financing Costs: The effective cost of capital is higher than the stated 7% due to the $10,000 original issue discount and potential 15% prepayment penalty.
• Regulatory Compliance Risk: Failure to obtain shareholder approval for conversions exceeding the Nasdaq Exchange Cap (8,000,000 shares) could lead to limitations on conversion or an Event of Default.
• Liquidity Risk: The company's ability to repay the note at maturity or upon an Event of Default depends on its future cash flows or ability to secure additional financing.
• Registration Risk: The company is obligated to register the conversion shares for resale, which involves costs and the risk of not achieving effectiveness within the specified timeframe, potentially leading to an Event of Default.

Future Outlook

The company is obligated to seek shareholder approval for conversions exceeding the Nasdaq Exchange Cap within 120 days of the note's issuance and then every three months thereafter until obtained. It also commits to using commercially reasonable best efforts to register the shares for resale with the SEC and have the registration statement declared effective within 90 days of filing.

Management Comments

• "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." (Signed by William Alessi, President and CEO)

Industry Context

This transaction represents a common method for smaller public companies, particularly those that may have limited access to traditional bank financing or equity markets, to raise capital. Convertible notes offer a blend of debt and equity, appealing to investors seeking potential upside from equity conversion while having the downside protection of a debt instrument. The original issue discount and high default interest rate suggest the company may be perceived as higher risk by investors. The Nasdaq Exchange Cap and the requirement for shareholder approval are standard regulatory considerations for such transactions to prevent excessive dilution without investor consent.

Comparison to Industry Standards

• The 7% annual interest rate on the convertible note is within a reasonable range for unsecured debt for a growth-stage or smaller public company, though the $10,000 original issue discount effectively increases the cost of capital.
• The 15% prepayment penalty is a common feature in such notes, designed to compensate the investor for the loss of future interest income and potential equity upside if the company repays early.
• The conversion price set at 80% of a future 5-day VWAP is a 'discount to market' conversion feature, which is typical for investor-friendly convertible notes, but it can be more dilutive than a fixed conversion price above the current market.
• The 4.99% beneficial ownership limitation and the 8,000,000 share Exchange Cap (subject to shareholder approval) are standard provisions to manage regulatory compliance (e.g., Section 13(d) reporting, Nasdaq listing rules) and mitigate immediate, excessive dilution without shareholder consent.
• The extensive list of 'Events of Default' and the 'Mandatory Default Amount' are typical for high-yield or structured debt instruments, providing strong protections for the noteholder.

Stakeholder Impact

• Shareholders: Potential for dilution from future conversion of the note into common stock, especially given the 80% VWAP conversion price. Shareholder approval will be required for conversions exceeding the Nasdaq Exchange Cap.
• Creditors: The company has taken on additional debt, which could impact its overall debt-to-equity ratio and creditworthiness. The noteholder has strong protections in case of default.
• Company Operations: The $100,000 in proceeds provides working capital or funding for strategic initiatives.

Next Steps

• The company must seek shareholder approval for conversions exceeding the 8,000,000 share Nasdaq Exchange Cap within 120 days of December 30, 2025, and every three months thereafter until approval is obtained.
• The company is required to use commercially reasonable best efforts to file a registration statement with the SEC for the resale of shares issuable upon conversion within an unspecified number of days from December 30, 2025.
• The company must use commercially reasonable efforts to have the registration statement declared effective within 90 days of filing.
• The investor gains the right to convert the note into common stock six months after December 30, 2025.

Key Dates

Recommendation

The company has secured necessary capital, which is a positive for its operations. However, the terms of the convertible note, including the original issue discount, the 80% VWAP conversion price, and the extensive default provisions, suggest a higher cost of capital and potential for significant future dilution for existing shareholders. The requirement for shareholder approval for conversions exceeding the Exchange Cap introduces a degree of uncertainty. While the funding is beneficial, the dilutive nature and investor-friendly terms warrant a cautious 'hold' recommendation, pending further clarity on the company's operational performance and how the conversion impacts the share structure.

Keywords

Convertible Note, Promissory Note, Capital Raise, Debt Financing, Equity Dilution, SEC Filing, 8-K, Alpha Modus Holdings, AMOD, Alexander Haase-Dubosc, Nasdaq, Shareholder Approval, Original Issue Discount, Risk Management