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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________________ to ________________

 

Commission file number 001-40992

 

SURGEPAYS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   98-0550352

(State or other jurisdiction of

incorporation or organization)

 

(I. R. S. Employer

Identification No.)

 

3124 Brother Blvd, Suite 104    
Bartlett TN   38133
(Address of principal executive offices)   (Zip Code)

 

847-648-7541

(Registrant’s telephone number, including area code)

 

Not applicable

(Former name, former address, and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered

Common Stock

  SURG  

The Nasdaq Stock Market LLC

(Nasdaq Capital Market)

Common Stock Purchase Warrants   SURGW  

The Nasdaq Stock Market LLC

(Nasdaq Capital Market)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer Smaller reporting company
Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).

Yes ☐ No

 

The number of shares of the registrant’s common stock outstanding as of November 11, 2021 was 12,046,528 shares.

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
PART I – FINANCIAL INFORMATION  
     
Item 1. Consolidated Financial Statements F-1 - 50
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 3
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
     
Item 4. Controls and Procedures 13
     
PART II - OTHER INFORMATION 14
   
Item 1. Legal Proceedings 14
     
Item 1A. Risk Factors 15
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 16
     
Item 3. Defaults upon Senior Securities 16
     
Item 4. Mine Safety Disclosures 16
     
Item 5. Other Information 16
     
Item 6. Exhibits 16

 

2

 

 

SURGEPAYS, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS

 

SurgePays, Inc. and Subsidiaries

 

  Page(s)
   
Consolidated Balance Sheets F-2
   
Consolidated Statements of Operations F-3
   
Consolidated Statements of Changes in Stockholders’ Deficit F-4
   
Consolidated Statements of Cash Flows F-6
   
Notes to Consolidated Financial Statements F-7

 

 F-1 

 

 

SurgePays, Inc. and Subsidiaries

Consolidated Balance Sheets

 

   September 30, 2021   December 31, 2020 
   (Unaudited)   (Audited) 
         
Assets          
           
Current Assets          
Cash  $635,527   $673,995 
Accounts receivable - net   1,667,630    180,499 
Lifeline revenue - due from USAC   -    212,621 
Inventory   502,109    178,309 
Prepaids   35,001    5,605 
Total Current Assets   2,840,267    1,251,029 
           
Property and equipment - net   217,070    236,810 
           
Other Assets          
Note receivable   176,851    - 
Intangibles - net   3,596,861    4,125,742 
Goodwill   866,782    866,782 
Investment in Centercom - related party   411,056    414,612 
Operating lease - right of use asset - net   522,072    368,638 
Other   -    61,458 
Total Other Assets   5,573,622    5,837,232 
           
Total Assets  $8,630,959   $7,325,071 
           
Liabilities and Stockholders’ Deficit          
           
Current Liabilities          
Accounts payable and accrued expenses  $4,159,473   $6,827,487 
Accounts payable and accrued expenses - related party   2,293,926    1,753,837 
Deferred revenue   235,500    443,300 
Operating lease liability   68,303    210,556 
Line of credit   -    912,870 
Loans payable - related parties   1,027,500    2,389,000 
Notes payable - net   593,205    250,000 
Convertible notes payable - net   1,298,083    1,516,170 
Derivative liabilities   1,567,508    1,357,528 
Total Current Liabilities   11,243,498    15,660,748 
           
Long Term Liabilities          
Loans payable - related parties   5,986,940    1,100,440 
Notes payable - SBA government   1,499,424    1,134,682 
Operating lease liability   447,002    155,167 
Total Long Term Liabilities   7,933,366    2,390,289 
           
Total Liabilities   19,176,864    18,051,037 
           
Commitments and Contingencies (Note 8)   -     -  
           
Stockholders’ Deficit          
Series A, Convertible Preferred stock, $0.001 par value, 100,000,000 shares authorized, 13,000,000 and 13,000,000 shares issued and outstanding, respectively   13,000    13,000 
Series C, Convertible Preferred stock, $0.001 par value, 1,000,000 shares authorized, 721,598 and 721,598 shares issued and outstanding, respectively   722    722 
Common stock, $0.001 par value, 500,000,000 shares authorized 3,288,428 and 2,542,624 shares issued and outstanding, respectively   3,289    2,543 
Additional paid-in capital   17,804,181    10,849,968 
Accumulated deficit   (28,367,097)   (21,592,199)
Total Stockholders’ Deficit   (10,545,905)   (10,725,966)
           
Total Liabilities and Stockholders’ Deficit  $8,630,959   $7,325,071 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements

 

 F-2 

 

 

SurgePays, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

 

                     
   For the Three Months Ended September 30,   For the Nine Months Ended September 30, 
   2021   2020   2021   2020 
                 
Revenues  $14,538,353   $12,802,172   $36,905,373   $43,104,767 
                     
Costs and expenses                    
Cost of revenue   12,634,871    11,216,186    32,544,619    39,422,776 
General and administrative expenses   2,279,374    3,210,910    8,254,443    12,014,616 
Total costs and expenses   14,914,245    14,427,096    40,799,062    51,437,392 
                     
Loss from operations   (375,892)   (1,624,924)   (3,893,689)   (8,332,625)
                     
Other income (expense)                    
Interest expense   (1,236,778)   (1,164,409)   (4,637,236)   (2,348,175)
Derivative expense   -    (33,239)   (1,775,057)   (529,294)
Change in fair value of derivative liabilities   (202,784)   212,851    746,896    405,413 
Gain (loss) on investment in Centercom - related party   21,072    107,649    (3,556)   252,985 
Gain on settlement of liabilities   136,487    -    979,469    2,556,979 
Gain on deconsolidation of True Wireless   -    -    1,895,871    - 
Other income   -    -    -    10,000 
Total other income (expense) - net   (1,282,003)   (877,148)   (2,793,613)   347,908 
                     
Net loss  $(1,657,895)  $(2,502,072)  $(6,687,302)  $(7,984,717)
                     
Loss per share - basic and diluted  $(0.51)  $(1.09)  $(2.21)  $(3.69)
                     
Weighted average number of shares - basic and diluted   3,264,274    2,293,669    3,024,487    2,164,930 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements

 

 F-3 

 

 

SurgePays, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Deficit

For the Nine Months Ended September 30, 2021 and the Year Ended December 31, 2020

(Unaudited)

 

                                               
   Series A
Preferred Stock
   Series C
Preferred Stock
   Common Stock  

Additional

Paid-in
    Accumulated   Total
Stockholders’
 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital    Deficit   Deficit 
                                      
December 31, 2020   13,000,000   $13,000    721,598   $722    2,542,624   $2,543   $10,849,968    $(21,592,199)   (10,725,966)
                                               
Stock issued for services rendered and recognition of share based compensation ($7.35 - $14.05/share)   -    -    -    -    1,260    1    12,410     -    12,411 
                                               
Recognition of stock option expense   -    -    -    -    -    -    49,160     -    49,160 
                                               
Stock issued for cash ($5 - $8/share)   -    -    -    -    260,000    260    1,509,740     -    1,510,000 
                                               
Stock and warrants issued with debt recorded as a debt discount ($5.35/share)   -    -    -    -    18,000    18    2,038,617          2,038,635 
                                               
Conversion of debt ($3.40 - $14/share)   -    -    -    -    132,291    132    858,026     -    858,158 
                                               
Stock issued under make-whole arrangement ($5.60 - $6share)   -    -    -    -    15,147    15    90,386     -    90,401 
                                               
Stock issued in connection with debt modification ($5.60 - $8/share)   -    -    -    -    13,916    14    108,917     -    108,931 
                                               
Stock issued in settlement of liabilities ($4.50 - $13.50/share)   -    -    -    -    71,737    72    464,641     -    464,713 
                                               
Stock issued for acquisition of membership interest in ECS ($8.95/share)   -    -    -    -    2,000    2    17,898     -    17,900 
                                               
Net loss   -    -    -    -    -    -    -     (4,815,431)   (4,815,431)
                                               
March 31, 2021   13,000,000    13,000    721,598    722    3,056,975    3,057    15,999,763     (26,407,630)   (10,391,088)
                                               
Stock issued for services rendered and recognition of share based compensation ($5.95 - $11/share)   -    -    -    -    1,260    1    10,268     -    10,269 
                                               
Recognition of stock option expense and related true up adjustment   -    -    -    -    -    -    (26,741)    -    (26,741)
                                               
Stock issued in settlement of liabilities ($6.40 - $10/share)   -    -    -    -    171,863    172    1,290,265     -    1,290,437 
                                               
Net loss   -    -    -    -    -    -    -     (213,976)   (213,976)
                                               
June 30, 2021   13,000,000    13,000    721,598    722    3,230,098    3,230    17,273,555     (26,621,606)   (9,331,099)
                                               
True up adjustment related to initial acquisition of True Wireless   -    -    -    -    -    -    87,596     (87,596)   - 
                                               
Stock issued for services rendered and recognition of share based compensation ($5 - $8.05/share)   -    -    -    -    7,471    7    56,818     -    56,825 
                                               
Recognition of stock option expense and related true up adjustment   -    -    -    -    -    -    (93,483)    -    (93,483)
                                               
Stock issued in settlement of liabilities ($5.80 - $6.30/share)   -    -    -    -    33,100    33    124,602     -    124,635 
                                               
Exercise of warrants ($0.001/share)   -    -    -    -    2,133    2    (2)    -    - 
                                               
Conversion of debt ($5.75/share)   -    -    -    -    15,625    16    89,828     -    89,844 
                                               
Warrants issued with debt recorded as a debt discount   -    -    -    -    -    -    265,268     -    265,268 
                                               
Net loss   -    -    -    -    -    -    -     (1,657,895)   (1,657,895)
                                               
September 30, 2021   13,000,000   $13,000    721,598   $722    3,288,428   $3,288   $17,804,182    $(28,367,097)   (10,545,905)

 

The accompanying notes are an integral part of these unaudited consolidated financial statements

 

 F-4 

 

 

SurgePays, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Deficit

For the Nine Months Ended September 30, 2020 and the Year Ended December 31, 2019

(Unaudited)

 

                                     
   Series A
Preferred Stock
   Series C
Preferred Stock
   Common Stock   Additional Paid-in   Accumulated   Total Stockholders’ 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
                                     
December 31, 2019   13,000,000   $13,000    721,598   $722    2,043,872   $2,044   $6,155,191   $(10,870,572)   (4,699,615)
                                              
Recognition of share based compensation   -    -    -    -    -    -    16,901    -    16,901 
                                              
Stock and warrants issued for cash   -    -    -    -    8,569    9    149,991    -    150,000 
                                              
Stock issued with debt recorded as a debt discount   -    -    -    -    35,000    35    534,765         534,800 
                                              
Stock issued for acquisition   -    -    -    -    11,000    11    177,765    -    177,776 
                                              
Net loss   -