SurgePays, Inc 10-Q for FY2021 Q1

SurgePays, Inc. (SURG)

10-Q 2021-05-17 For: 2021-03-31

Added on April 12, 2026

About this 10-Q

SurgePays, Inc filed this 10-Q on May 17, 2021, covering the quarter ended March 31, 2021 (FY2021 Q1).

Headline figures

Quarter ended March 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $10.99M; down 30.4% from $15.79M a year earlier
Net loss: $4.82M; compared with a net loss of $3.06M a year earlier

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

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

Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [X]	Smaller reporting company [ ]
(Do not check if a smaller reporting company)	Emerging growth company [X]

		Page
PART I – FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	F-1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	8

Item 4.	Controls and Procedures	8

PART II - OTHER INFORMATION		9

Item 1.	Legal Proceedings	9

Item 1A.	Risk Factors	10

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	11

Item 3.	Defaults upon Senior Securities	11

Item 4.	Mine Safety Disclosures	11

Item 5.	Other Information	11

Item 6.	Exhibits	11

Condensed Consolidated Balance Sheets as of March 31, 2021 (unaudited) December 31, 2020	F-2
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020 (unaudited)	F-3
Condensed Consolidated Statement of Stockholders’ Deficit for the Three Months Ended March 31, 2021 and 2020 (unaudited)	F-4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 (unaudited)	F-5
Notes to Condensed Consolidated Financial Statements	F-6

	March 31, 2021			December 31, 2020
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,602,474		$	673,995
Accounts receivable, less allowance for doubtful accounts of $116,664 and $774,841, respectively		489,437			180,499
Lifeline revenue due from USAC		221,790			212,621
Inventory		233,809			178,309
Prepaid expenses		6,421			5,605
Total current assets		2,553,931			1,251,029

Property and Equipment, less accumulated depreciation of $121,315 and $105,484, respectively		223,594			236,810
Intangible assets less accumulated amortization of $1,829,906 and $1,627,779, respectively		3,923,615			4,125,742
Goodwill		866,782			866,782
Investment in Centercom		340,839			414,612
Operating lease right of use asset, net		819,632			368,638
Other long-term assets		61,458			61,458
Total assets	$	8,789,851		$	7,325,071

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expenses - others	$	4,462,922		$	5,589,547
Accounts payable and accrued expenses - related party		1,604,278			1,753,837
Credit card liability		382,191			383,073
Deferred revenue		725,200			443,300
Derivative liability		2,729,151			1,357,528
Operating lease liability		235,379			210,556
Line of credit		912,870			912,870
Debt – related party		3,624,000			2,369,000
Convertible promissory notes payable - net		144,932			—
Notes payable and current portion of long-term debt, net		153,383			2,283,950
Total current liabilities		14,974,306			15,303,661

Long-term debt less current portion – related party		1,120,440			1,120,440
Operating lease liability – net		578,476			155,167
Trade payables - long term		854,868			854,868
Notes payable and long-term portion of debt - net		1,652,849			616,901
Total liabilities	$	19,180,939		$	18,051,037

Commitments and contingencies

Stockholders’ deficit:

Series A preferred stock: $0.001 par value; 100,000,000 shares authorized; 13,000,000 and 13,000,000 shares issued and outstanding at December 31, 2020 and 2019, 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 at December 31, 2020 and 2019, respectively		722			722
Common stock: $0.001 par value; 500,000,000 shares authorized; 127,131,210 shares and 127,131,210 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively		152,849			127,131
Additional paid in capital		15,849,971			10,725,380
Accumulated deficit		(26,407,630	)		(21,592,199	)
Total stockholders’ deficit		(10,391,088	)		(10,725,966	)
Total liabilities and stockholders’ deficit	$	8,789,851		$	7,325,071

	For the Three Months Ended March 31,
	2021			2020
	(unaudited)			(unaudited)
Revenue	$	10,988,948		$	15,787,799

Cost of revenue (exclusive of depreciation and amortization shown below)		9,857,309			15,058,914

Gross profit		1,131,639			728,885

Cost and expenses
Depreciation and amortization		217,958			265,464
Selling, general and administrative		3,021,851			3,228,660
Total costs and expenses		3,239,809			3,494,124

Operating loss		(2,108,170	)		(2,765,239	)

Other income (expense):
Interest expense		(1,303,859	)		(482,722	)
Derivative expense		(1,775,057	)		(348,334	)
Change in fair value of derivative liability		303,850			(31,816	)
Gain on investment in Centercom		(73,773	)		32,369
Gain on settlement of liabilities		141,578			538,436
Total other income (expense)		(2,707,261	)		(292,067	)

Net loss before provision for income taxes		(4,815,431	)		(3,057,306	)

Provision for income taxes		-			-

Net loss	$	(4,815,431	)	$	(3,057,306	)

Net loss per common share, basic and diluted	$	(0.04	)	$	(0.03	)

Weighted average common shares outstanding – basic and diluted		130,222,802			103,821,561

	Series A				Series C								Additional
	Preferred				Preferred				Common Stock				Paid-in		Accumulated
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Deficit			Total

Balance, January 1, 2021		13,000,000	$	13,000		721,598	$	722		127,131,210	$	127,131	$	10,725,380	$	(21,592,199	)	$	(10,725,966	)

Issuance of Common Stock and options for services rendered		-		-		-		-		63,000		63		61,508		-			61,571

Sale of Common Stock		-		-		-		-		13,000,000		13,000		1,497,000					1,510,000

Issuance of Common Stock and warrants with debt recorded as debt discount		-		-		-		-		900,000		900		2,037,735					2,038,635

Shares issued for conversion of debt		-		-		-		-		6,614,537		6,615		851,543		-			858,158

Make whole Common Stock issued pursuant to SPA		-		-		-		-		757,345		757		89,644		-			90,401

Issuance of Common Stock for modification of debt		-		-		-		-		695,818		696		108,235		-			108,931

Shares issued for the settlement of liabilities		-		-		-		-		3,586,850		3,587		461,126		-			464,713

Issuance of Common Stock for an acquisition		-		-		-		-		100,000		100		17,800		-			17,900

Net loss		-		-		-		-		-		-		-		(4,815,431	)		(4,815,431	)

Balance, March 31, 2021		13,000,000		13,000		721,598		722		152,848,760		152,849		15,849,971		(26,407,630	)		(10,391,088	)

	1.	Not separate non-lease components from lease components and instead to account for each separate lease component and the non-lease components associated with that lease component as a single lease component.

	2.	Not to apply the recognition requirements in ASC 842 to short-term leases.

	3.	Not record a right of use asset or right of use liability for leases with an asset or liability balance that would be considered immaterial.

	●	Level 1 — quoted prices in active markets for identical assets or liabilities.
	●	Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable.
	●	Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions).

	For the Three Months Ended
	March 31, 2021		March 31, 2020
True Wireless, Inc.	$	628,325	$	290,705
Surge Blockchain, LLC		-		229,802
LogicsIQ, Inc.		3,408,403		5,451,919
ECS		6,914,486		9,746,773
Other		37,734		68,600
Total revenue	$	10,988,948	$	15,787,799

	Contingent shares issuance arrangement, stock options or warrants
	For the Three Months Ended March 31, 2021		For the Three Months Ended March 31, 2020

Convertible note		15,738,269		12,461,539
Common stock options		850,176		850,176
Common stock warrants		15,410,500		7,063,919
Total contingent shares issuance arrangement, stock options or warrants		31,998,945		20,375,634

	March 31, 2021			March 31, 2020
	(unaudited)			(unaudited)
Net cash used in operating activities	$	(3,435,354	)	$	(1,043,922	)
Net cash used in investing activities		(2,615	)		(3,072	)
Net cash provided by financing activities		4,366,448			1,139,500
Net change in cash and cash equivalents	$	928,479		$	92,506

	March 31, 2021			December 31, 2020
	(unaudited)
Computer Equipment and Software	$	315,411		$	312,796
Furniture and Fixtures		9,774			9,774
Leasehold Improvements		19,724			19,724
		344,909			342,294
Less: Accumulated Depreciation		(121,315	)		(105,484	)
	$	223,594		$	236,810

	March 31, 2021			December 31, 2020
	(unaudited)
Promissory note payable to a lender dated November 4, 2019; accruing interest at 18% per annum; due November 3, 2020; 100,000 shares of restricted Common Stock granted on execution recorded as a debt discount¹	$	-		$	250,000
Promissory note payable to Bank3 dated April 17, 2020; accruing interest at 1% per annum, due October 17, 2021.		498,082			498,082
Note payable to US Small Business Administration dated May 25, 2020; accruing interest at 3.75% per annum; due May 25, 2050.		150,000			150,000
Note payable to US Small Business Administration dated July 5, 2020; accruing interest at 3.75% per annum; due July 5, 2050.		150,000			150,000
Note payable to US Small Business Administration dated July 5, 2020; accruing interest at 3.75% per annum; due July 5, 2050.		15,100			15,100
Note payable to US Small Business Administration dated July 7, 2020; accruing interest at 3.75% per annum; due July 7, 2050.		150,000			150,000
Note payable to US Small Business Administration dated July 21, 2020; accruing interest at 3.75% per annum; due July 21, 2050.		150,000			150,000
Note payable to US Small Business Administration dated July 21, 2020; accruing interest at 3.75% per annum; due July 21, 2050.		21,500			21,500
Promissory note payable to BHP Capital NY dated January 30, 2020 with interest at 14% per annum; due February 5, 2021; convertible into shares of Common Stock upon default²		-			100,343
Promissory note payable to Armada Capital Partners LLC dated January 30, 2020 with interest at 14% per annum; due February 5, 2021; convertible into shares of Common Stock upon default²		28,499			118,394
Promissory note payable to Jefferson Street Capital LLC dated January 30, 2020 with interest at 14% per annum; due February 5, 2021; convertible into shares of Common Stock upon default²		79,203			148,500
Promissory note payable to GS Capital Partners dated February 7, 2020 with interest at 14% per annum; due February 6, 2021; convertible into shares of Common Stock upon default³		-			216,000
Promissory note payable to Fourth Man LLC dated February 7, 2020 with interest at 14% per annum; due April 5, 2021; convertible into shares of Common Stock upon default³		-			187,018
Promissory note payable to GS Capital Partners dated March 5, 2020 with interest at 14% per annum; due February 6, 2021; convertible into shares of Common Stock upon default⁴		-			378,000
Promissory note payable to Tangiers Global LLC dated March 15, 2020 with interest at 14% per annum; due March 15, 2021; convertible into shares of Common Stock upon default⁵		-			50,695
Promissory note payable to LGH Investments LLC dated May 29, 2020 with interest at 10% per annum; due March 29, 2021; convertible into shares of Common Stock upon default⁶		-			400,000
Promissory note payable to Vista Capital LLC dated July 21, 2020 with interest at 10% per annum; due March 29, 2021; convertible into shares of Common Stock upon default⁷		-			270,000
Promissory note payable to Lucas Ventures dated December 14, 2020 with interest at 10% per annum; due September 10, 2021; convertible into shares of Common Stock upon default⁸		165,000			165,000
Promissory note payable to Bank3 dated March 1, 2021; accruing interest at 1% per annum, due March 2, 2026.		518,167			-
		1,925,551			3,418,632
Less: Debt discount		(119,319	)		(517,781	)
	$	1,806,232		$	2,900,851

	March 31, 2021 (unaudited)			December 31, 2020
Convertible note payable to Evergreen Capital Management dated March 8, 2021 with interest at 15% per annum; due March 8, 2022; convertible into shares of Common Stock ¹		2,300,000			-
		2,300,000			0
Less: Debt discount		(2,155,068	)		-
	$	144,932		$	0

For the Years Ending December 31,
2021 (remainder of year)	$	7,582,861
2022		2,300,000
	$	9,882,861

	Fair Value Measurement Using Level 3 Inputs
	Total
Balance, December 31, 2020	$	1,357,528
Change in fair value of derivative liabilities		303,043
Derivative liabilities recorded on issuance of convertible notes		1,612,053
Write-off of derivative liabilities upon settlement of debt		(543,473	)
Balance, March 31, 2021	$	2,729,151

	March 31, 2021 (unaudited)
Risk-free interest rate		0.03 – 0.08	%
Expected life of grants		0.75 year
Expected volatility of underlying stock		169 - 291	%
Dividends		0	%

	For the Three Months Ended		For the Three Months Ended
	March 31, 2021 (unaudited)		March 31, 2020 (unaudited)
Operating lease	$	73,618	$	70,070
Interest on lease liabilities		6,542		14,306
Total net lease cost	$	80,160	$	84,376

	March 31, 2021 (unaudited)		December 31, 2020
Operating leases:
Operating lease ROU assets - net	$	819,632	$	368,638

Current operating lease liabilities, included in current liabilities		235,379		210,556
Noncurrent operating lease liabilities, included in long-term liabilities		578,476		155,167
Total operating lease liabilities	$	813,855	$	365,723

Twelve Months Ending December 31,
2021 (remainder of year)	$	283,136
2022		222,751
2023		60,293
2024		61,877
2025		63,460
Thereafter		300,030
Total lease payments	$	991,547
Less: amounts representing interest		(175,227	)
Total lease obligations	$	816,320

	Warrants		Weighted Average Exercise Price

Outstanding – December 31, 2020		9,715,865	$	0.65
Exercisable – December 31, 2019		9,715,865	$	0.6
Granted		-	$	-
Exercised		-	$	-
Forfeited/Cancelled		-	$	-
Outstanding – March 31, 2021		9,715,865	$	0.65
Exercisable – March 31, 2021		9,715,865	$	0.6

Warrants Outstanding								Warrants Exercisable
Exercise Price		Number Outstanding		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price

$	0.40 – 3.00		9,715,865		1.27 years	$	0.65		9,715,865	$	0. 65

	Surge Blockchain & Other			LogicsIQ			TW			ECS			Total
Three Months ended March 31, 2021
Revenue	$	37,734		$	3,408,403		$	628,325		$	6,914,486		$	10,988,948
Cost of revenue (exclusive of depreciation and amortization)		(4,434	)		(2,966,753	)		(185,537	)		(6,700,585	)		(9,857,309	)
Gross margin		33,300			441,650			442,788			213,901			1,131,639
Costs and expenses		(2,144,500	)		(455,398	)		(242,401	)		(397,510	)		(3,239,809	)
Operating profit (loss)	$	(2,111,200	)	$	(13,748	)	$	200,387		$	(183,609	)	$	(2,108,170	)

Three Months ended March 31, 2020
Revenue	$	298,402		$	5,451,919		$	290,705		$	9,746,773		$	15,787,799
Cost of revenue (exclusive of depreciation and amortization)		(303,503	)		(4,738,537	)		(491,557	)		(9,525,317	)		(15,058,914	)
Gross margin		(5,101	)		713,382			(200,852	)		221,456			728,885
Costs and expenses		(1,716,882	)		(343,138	)		(1,049,910	)		(384,194	)		(3,494,124	)
Operating income (loss)	$	(1,721,983	)	$	370,244		$	(1,250,762	)	$	(162,738	)	$	(2,765,239	)

March 31, 2021
Total assets	$	1,874,911		$	1,866,783		$	616,221		$	4,431,936		$	8,789,851
Total liabilities		12,274,317			3,181,477			3,477,262			247,883			19,180,939

December 31, 2020
Total assets	$	911,316		$	1,079,806		$	515,592		$	4,818,357		$	7,325,071
Total liabilities		10,922,335			2,440,758			4,301,249			386,695			18,051,037

	●	Sales and Contract Processing;

	●	Customer Service and Support;

	●	Software Development and Integration;

	●	Data Processing and Programming;

	●	Multimedia and Graphic Design Services;

	●	Email and Live Chat Support;

	●	Merchant Support and Onboarding; and

	●	Lead Generation and Live Transfer.

	March 31, 2021 (unaudited)		March 31, 2020 (unaudited)
Revenue	$	10,988,948	$	15,787,799
Cost of revenue (exclusive of depreciation and amortization)		9,857,309		15,058,914
Gross profit	$	1,131,639	$	728,885

	March 31, 2021 (unaudited)		March 31, 2020 (unaudited)
Contractors and consultants	$	308,826	$	492,503
Professional services		537,319		579,976
Compensation		956,752		729,918
Webhosting/internet		217,915		187,146
Advertising and marketing		446,760		100,552
Other		554,279		1,138,565
Total	$	3,021,851	$	3,228,660

*	Contractors and consultants decreased to $308,826 in 2021 from $492,503 in 2020 primarily due decrease in IT consultants and outsourced management fees.

*	Compensation increased from $729,918 in 2020 to $956,752 in 2021 primarily as a result of the increase in direct payroll moved shared services.
*	Webhosting/internet costs increased to $217,915 in 2021 from $187,146 in 2020.

*	Professional services decreased from $579,976 in 2020 to $537,319 in 2021 primarily as a result of decreased IT services.

*	Advertising and marketing costs increased to $446,760 in 2021 from $100,552 in 2020 primarily due to the Company implementing new advertising and marketing campaigns.
*	Other costs decreased to $554,279 in 2021 from $1,390,900 in 2020 primarily due to a decrease in shared services on a consolidated basis.

	March 31, 2021 (unaudited)			March 31, 2020 (unaudited)
Interest, net	$	(1,303,859	)	$	(482,722	)
Change in fair value of derivative liability		303,850			(31,816	)
Derivative expense		(1,775,057	)		(348,334	)
Gain on equity investment in Centercom		(73,773	)		32,369
Gain (loss) on settlement of liabilities		141,578			538,436
	$	(2,707,261	)	$	(292,067	)

Exhibit
Number		Exhibit Description
4.1		15% OID Convertible Promissory Note, dated March 8, 2021, in the principal amount of $2,300,000, issued to Evergreen Capital Management LLC (included as Exhibit 4.1 in the Company’s Current Report on Form 8-K filed on March 16, 2021)
4.2		Warrant, dated March 8, 2021, issued to Evergreen Capital Management LLC (included as Exhibit 4.2 in the Company’s Current Report on Form 8-K filed on March 16, 2021)
10.1		Mutual Release and Settlement Agreement, dated January 1, 2021, between SurgePays, Inc., AltCorp Trading, LLC, and Stanley Hills, LLC (included as Exhibit 10.1 in the Company’s Current Report on Form 8-K filed on January 25, 2021)
10.2		Securities Purchase Agreement, dated March 8, 2021, by and between SurgePays, Inc. and Evergreen Capital Management, LLC (included as Exhibit 10.1 in the Company’s Current Report on Form 8-K filed on March 16, 2021)
31.1*		Certification pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer
31.2*		Certification pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer
32.1*		Certification pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer
32.2*		Certification pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

	SURGEPAYS, INC.
Date: May 17, 2021
	By:	/s/ Kevin Brian Cox
		Kevin Brian Cox
		Chief Executive Officer (Principal Executive Officer)

Date: May 17, 2021	/s/ Anthony Evers
	Anthony Evers
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

1.	I have reviewed this report on Form 10-Q of SurgePays, Inc. (the registrant);

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-a15(f) and 15d-15(f) for the registrant and have:

	a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, is made known to me by others, particularly during the period in which this report is being prepared;

	b.	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c.	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d.	disclosed in this report any change in the registrant’s internal controls over financial reporting that occurred during the registrant’s current fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and;

5.	I have disclosed, based on my most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions);

	a.	All significant deficiencies and material weaknesses in the design or operation of internal controls which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

May 17, 2021	/s/ Kevin Brian Cox
	Kevin Brian Cox
	Chief Executive Officer
	(Principal Executive Officer)