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

☐ 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

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
Preferred stock
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	)

True up adjustment related to initial acquisition of True Wireless		-		-		-		-		-		-		-			-			-
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
Exercise of warrants ($0.001/share)
Exercise of warrants ($0.001/share), shares
Warrants issued with debt recorded as a debt discount
Stock and warrants issued for cash
Stock and warrants issued for cash, shares
Make whole stock issued pursuant to SPA
Stock and warrants issued with debt recorded as a debt discount
Stock and warrants issued with debt recorded as a debt discount, shares
Stock repurchased for cash
Stock repurchased for cash, shares
Stock and options issued for services
Stock and options issued for services, shares
Make whole stock issued pursuant to SPA, shares
Stock issued for modification of debt
Stock issued for modification of debt, shares

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		-