0001392694 false --12-31 Q1 2354589 0001392694 2022-01-01 2022-03-31 0001392694 us-gaap:CommonStockMember 2022-01-01 2022-03-31 0001392694 SURG:CommonStockPurchaseWarrantsMember 2022-01-01 2022-03-31 0001392694 2022-05-02 0001392694 2022-03-31 0001392694 2021-12-31 0001392694 SURG:SeriesAConvertiblePreferredStockMember 2022-03-31 0001392694 SURG:SeriesAConvertiblePreferredStockMember 2021-12-31 0001392694 2021-01-01 2021-03-31 0001392694 us-gaap:SeriesAPreferredStockMember us-gaap:PreferredStockMember 2021-12-31 0001392694 us-gaap:SeriesCPreferredStockMember us-gaap:PreferredStockMember 2021-12-31 0001392694 us-gaap:CommonStockMember 2021-12-31 0001392694 us-gaap:AdditionalPaidInCapitalMember 2021-12-31 0001392694 us-gaap:RetainedEarningsMember 2021-12-31 0001392694 us-gaap:NoncontrollingInterestMember 2021-12-31 0001392694 us-gaap:SeriesAPreferredStockMember us-gaap:PreferredStockMember 2020-12-31 0001392694 us-gaap:SeriesCPreferredStockMember us-gaap:PreferredStockMember 2020-12-31 0001392694 us-gaap:CommonStockMember 2020-12-31 0001392694 us-gaap:AdditionalPaidInCapitalMember 2020-12-31 0001392694 us-gaap:RetainedEarningsMember 2020-12-31 0001392694 us-gaap:NoncontrollingInterestMember 2020-12-31 0001392694 2020-12-31 0001392694 us-gaap:SeriesAPreferredStockMember us-gaap:PreferredStockMember 2022-01-01 2022-03-31 0001392694 us-gaap:SeriesCPreferredStockMember us-gaap:PreferredStockMember 2022-01-01 2022-03-31 0001392694 us-gaap:CommonStockMember 2022-01-01 2022-03-31 0001392694 us-gaap:AdditionalPaidInCapitalMember 2022-01-01 2022-03-31 0001392694 us-gaap:RetainedEarningsMember 2022-01-01 2022-03-31 0001392694 us-gaap:NoncontrollingInterestMember 2022-01-01 2022-03-31 0001392694 us-gaap:SeriesAPreferredStockMember us-gaap:PreferredStockMember 2021-01-01 2021-03-31 0001392694 us-gaap:SeriesCPreferredStockMember us-gaap:PreferredStockMember 2021-01-01 2021-03-31 0001392694 us-gaap:CommonStockMember 2021-01-01 2021-03-31 0001392694 us-gaap:AdditionalPaidInCapitalMember 2021-01-01 2021-03-31 0001392694 us-gaap:RetainedEarningsMember 2021-01-01 2021-03-31 0001392694 us-gaap:NoncontrollingInterestMember 2021-01-01 2021-03-31 0001392694 us-gaap:SeriesAPreferredStockMember us-gaap:PreferredStockMember 2022-03-31 0001392694 us-gaap:SeriesCPreferredStockMember us-gaap:PreferredStockMember 2022-03-31 0001392694 us-gaap:CommonStockMember 2022-03-31 0001392694 us-gaap:AdditionalPaidInCapitalMember 2022-03-31 0001392694 us-gaap:RetainedEarningsMember 2022-03-31 0001392694 us-gaap:NoncontrollingInterestMember 2022-03-31 0001392694 us-gaap:SeriesAPreferredStockMember us-gaap:PreferredStockMember 2021-03-31 0001392694 us-gaap:SeriesCPreferredStockMember us-gaap:PreferredStockMember 2021-03-31 0001392694 us-gaap:CommonStockMember 2021-03-31 0001392694 us-gaap:AdditionalPaidInCapitalMember 2021-03-31 0001392694 us-gaap:RetainedEarningsMember 2021-03-31 0001392694 us-gaap:NoncontrollingInterestMember 2021-03-31 0001392694 2021-03-31 0001392694 SURG:SurgePaysIncMember 2022-01-01 2022-03-31 0001392694 SURG:KsixMediaIncMember 2022-01-01 2022-03-31 0001392694 SURG:KsixLLCMember 2022-01-01 2022-03-31 0001392694 SURG:SurgeBlockchainLLCMember 2022-01-01 2022-03-31 0001392694 SURG:InjurySurveyLLCMember 2022-01-01 2022-03-31 0001392694 SURG:DigitizelIQLLCMember 2022-01-01 2022-03-31 0001392694 SURG:SurgeLogicsIncMember 2022-01-01 2022-03-31 0001392694 SURG:SurgePaymentsLLCMember 2022-01-01 2022-03-31 0001392694 SURG:SurgephoneWirelessLLCMember 2022-01-01 2022-03-31 0001392694 SURG:SurgePaysFintechIncMember 2022-01-01 2022-03-31 0001392694 SURG:TrueWirelessIncMember 2022-01-01 2022-03-31 0001392694 SURG:EcsPrepaidLlcMember 2022-01-01 2022-03-31 0001392694 SURG:TorchWirelessLLCMember 2022-01-01 2022-03-31 0001392694 SURG:CentralStatesLegalServicesIncMember 2022-01-01 2022-03-31 0001392694 SURG:ElectronicCheckServicesIncMember 2022-01-01 2022-03-31 0001392694 us-gaap:SubsequentEventMember 2022-04-06 0001392694 SURG:CustomerOneMember 2022-01-01 2022-03-31 0001392694 SURG:CustomerTwoMember 2022-01-01 2022-03-31 0001392694 2021-01-01 2021-12-31 0001392694 2020-01-01 2020-12-31 0001392694 SURG:TrueWirelessIncMember 2021-05-07 0001392694 SURG:TrueWirelessIncMember 2021-01-01 2021-12-31 0001392694 SURG:TrueWirelessIncMember 2021-12-31 0001392694 us-gaap:RevenueFromContractWithCustomerMember us-gaap:CustomerConcentrationRiskMember SURG:CustomerMember 2022-01-01 2022-03-31 0001392694 2019-01-17 0001392694 SURG:ConvertibleNoteMember 2022-01-01 2022-03-31 0001392694 us-gaap:VariableInterestEntityNotPrimaryBeneficiaryMember 2022-03-31 0001392694 2021-05-07 0001392694 2021-05-06 2021-05-07 0001392694 SURG:SurgePhoneWirelessMember 2022-01-01 2022-03-31 0001392694 SURG:SurgePhoneWirelessMember 2022-03-31 0001392694 SURG:SurgePhoneWirelessMember 2021-01-01 2021-03-31 0001392694 SURG:SurgePhoneWirelessMember 2021-03-31 0001392694 SURG:SurgeFintechAndECSMember 2022-01-01 2022-03-31 0001392694 SURG:SurgeFintechAndECSMember 2022-03-31 0001392694 SURG:SurgeFintechAndECSMember 2021-01-01 2021-03-31 0001392694 SURG:SurgeFintechAndECSMember 2021-03-31 0001392694 SURG:TorchWirelessIncMember 2022-01-01 2022-03-31 0001392694 SURG:TorchWirelessIncMember 2022-03-31 0001392694 SURG:TorchWirelessIncMember 2021-01-01 2021-03-31 0001392694 SURG:TorchWirelessIncMember 2021-03-31 0001392694 SURG:LogicsIQIncMember 2022-01-01 2022-03-31 0001392694 SURG:LogicsIQIncMember 2022-03-31 0001392694 SURG:LogicsIQIncMember 2021-01-01 2021-03-31 0001392694 SURG:LogicsIQIncMember 2021-03-31 0001392694 SURG:SurgeBlockchainLLCMember 2022-03-31 0001392694 SURG:SurgeBlockchainLLCMember 2021-01-01 2021-03-31 0001392694 SURG:SurgeBlockchainLLCMember 2021-03-31 0001392694 SURG:TrueWirelessIncMember 2022-03-31 0001392694 SURG:TrueWirelessIncMember 2021-01-01 2021-03-31 0001392694 SURG:TrueWirelessIncMember 2021-03-31 0001392694 SURG:OtherMember 2022-01-01 2022-03-31 0001392694 SURG:OtherMember 2022-03-31 0001392694 SURG:OtherMember 2021-01-01 2021-03-31 0001392694 SURG:OtherMember 2021-03-31 0001392694 us-gaap:ConvertibleDebtSecuritiesMember 2022-01-01 2022-03-31 0001392694 us-gaap:ConvertibleDebtSecuritiesMember 2021-01-01 2021-03-31 0001392694 SURG:CommonStockWarrantsMember 2022-01-01 2022-03-31 0001392694 SURG:CommonStockWarrantsMember 2021-01-01 2021-03-31 0001392694 us-gaap:EmployeeStockOptionMember 2022-01-01 2022-03-31 0001392694 us-gaap:EmployeeStockOptionMember 2021-01-01 2021-03-31 0001392694 us-gaap:SeriesAPreferredStockMember 2022-01-01 2022-03-31 0001392694 us-gaap:SeriesAPreferredStockMember 2021-01-01 2021-03-31 0001392694 SURG:SeriesCConvertiblePreferredStockMember 2022-01-01 2022-03-31 0001392694 SURG:SeriesCConvertiblePreferredStockMember 2021-01-01 2021-03-31 0001392694 SURG:CommonStockWarrantsMember 2022-03-31 0001392694 SURG:CommonStockWarrantsMember 2021-03-31 0001392694 us-gaap:EmployeeStockOptionMember 2022-03-31 0001392694 us-gaap:EmployeeStockOptionMember 2021-03-31 0001392694 us-gaap:ComputerEquipmentMember srt:MinimumMember 2022-01-01 2022-03-31 0001392694 us-gaap:ComputerEquipmentMember srt:MaximumMember 2022-01-01 2022-03-31 0001392694 us-gaap:FurnitureAndFixturesMember srt:MinimumMember 2022-01-01 2022-03-31 0001392694 us-gaap:FurnitureAndFixturesMember srt:MaximumMember 2022-01-01 2022-03-31 0001392694 us-gaap:ComputerSoftwareIntangibleAssetMember 2022-03-31 0001392694 us-gaap:ComputerSoftwareIntangibleAssetMember 2021-12-31 0001392694 us-gaap:ComputerSoftwareIntangibleAssetMember 2022-01-01 2022-03-31 0001392694 us-gaap:TradeNamesMember 2022-03-31 0001392694 us-gaap:TradeNamesMember 2021-12-31 0001392694 us-gaap:TradeNamesMember 2022-01-01 2022-03-31 0001392694 SURG:ECSMembershipAgreementMember 2022-03-31 0001392694 SURG:ECSMembershipAgreementMember 2021-12-31 0001392694 SURG:ECSMembershipAgreementMember 2022-01-01 2022-03-31 0001392694 us-gaap:NoncompeteAgreementsMember 2022-03-31 0001392694 us-gaap:NoncompeteAgreementsMember 2021-12-31 0001392694 us-gaap:NoncompeteAgreementsMember 2022-01-01 2022-03-31 0001392694 us-gaap:CustomerRelationshipsMember 2022-03-31 0001392694 us-gaap:CustomerRelationshipsMember 2021-12-31 0001392694 us-gaap:CustomerRelationshipsMember 2022-01-01 2022-03-31 0001392694 srt:MinimumMember 2021-01-01 2021-12-31 0001392694 srt:MaximumMember 2021-01-01 2021-12-31 0001392694 us-gaap:SubsequentEventMember 2022-04-25 2022-04-27 0001392694 SURG:PrincipalAmountMember us-gaap:SubsequentEventMember 2022-04-25 2022-04-27 0001392694 SURG:AccruedInterestMember us-gaap:SubsequentEventMember 2022-04-25 2022-04-27 0001392694 2021-04-01 2021-04-30 0001392694 SURG:PaycheckProtectionProgramAndEconomicInjuryDisasterLoanMember 2022-01-01 2022-03-31 0001392694 SURG:RelatedPartyMember 2022-01-01 2022-03-31 0001392694 SURG:NotesPayableMember 2022-01-01 2022-03-31 0001392694 us-gaap:ConvertibleNotesPayableMember 2022-01-01 2022-03-31 0001392694 SURG:PaycheckProtectionProgramMember 2022-01-01 2022-03-31 0001392694 SURG:EconomicInjuryDisasterLoanMember 2022-01-01 2022-03-31 0001392694 SURG:EconomicInjuryDisasterLoanOneMember 2022-01-01 2022-03-31 0001392694 SURG:PaycheckProtectionProgramOneMember 2022-01-01 2022-03-31 0001392694 SURG:PaycheckProtectionProgramMember 2022-03-31 0001392694 SURG:EconomicInjuryDisasterLoanMember 2022-03-31 0001392694 SURG:EconomicInjuryDisasterLoanOneMember 2022-03-31 0001392694 SURG:PaycheckProtectionProgramOneMember 2022-03-31 0001392694 SURG:PaycheckProtectionProgramMember 2022-03-31 0001392694 SURG:EconomicInjuryDisasterLoanMember 2022-03-31 0001392694 SURG:EconomicInjuryDisasterLoanOneMember 2022-03-31 0001392694 SURG:PaycheckProtectionProgramOneMember 2022-03-31 0001392694 SURG:PaycheckProtectionProgramAndEconomicInjuryDisasterLoanMember 2022-03-31 0001392694 SURG:PaycheckProtectionProgramMember 2020-12-31 0001392694 SURG:EconomicInjuryDisasterLoanMember 2020-12-31 0001392694 SURG:EconomicInjuryDisasterLoanOneMember 2020-12-31 0001392694 SURG:PaycheckProtectionProgramOneMember 2020-12-31 0001392694 SURG:PaycheckProtectionProgramAndEconomicInjuryDisasterLoanMember 2020-12-31 0001392694 SURG:PaycheckProtectionProgramMember 2021-01-01 2021-12-31 0001392694 SURG:EconomicInjuryDisasterLoanMember 2021-01-01 2021-12-31 0001392694 SURG:EconomicInjuryDisasterLoanOneMember 2021-01-01 2021-12-31 0001392694 SURG:PaycheckProtectionProgramOneMember 2021-01-01 2021-12-31 0001392694 SURG:PaycheckProtectionProgramAndEconomicInjuryDisasterLoanMember 2021-01-01 2021-12-31 0001392694 SURG:PaycheckProtectionProgramAndEconomicInjuryDisasterLoanMember 2020-01-01 2020-12-31 0001392694 SURG:PaycheckProtectionProgramMember 2021-12-31 0001392694 SURG:EconomicInjuryDisasterLoanMember 2021-12-31 0001392694 SURG:EconomicInjuryDisasterLoanOneMember 2021-12-31 0001392694 SURG:PaycheckProtectionProgramOneMember 2021-12-31 0001392694 SURG:PaycheckProtectionProgramAndEconomicInjuryDisasterLoanMember 2021-12-31 0001392694 SURG:PaycheckProtectionProgramMember 2022-01-01 2022-03-31 0001392694 SURG:EconomicInjuryDisasterLoanMember 2022-01-01 2022-03-31 0001392694 SURG:EconomicInjuryDisasterLoanOneMember 2022-01-01 2022-03-31 0001392694 SURG:PaycheckProtectionProgramOneMember 2022-01-01 2022-03-31 0001392694 SURG:PaycheckProtectionProgramAndEconomicInjuryDisasterLoanMember 2022-01-01 2022-03-31 0001392694 srt:ChiefExecutiveOfficerMember SURG:NotesPayableToRelatedPartiesMember 2022-01-01 2022-03-31 0001392694 SURG:PresidentChiefOperatingOfficerAndBoardDirectorMember SURG:NotesPayableToRelatedPartiesMember 2022-01-01 2022-03-31 0001392694 SURG:BoardMemberMember SURG:NotesPayableToRelatedPartiesMember 2022-01-01 2022-03-31 0001392694 srt:ChiefExecutiveOfficerMember SURG:NotesPayableToRelatedPartiesMember 2022-03-31 0001392694 SURG:NotesPayableToRelatedPartiesMember SURG:PresidentChiefOperatingOfficerAndBoardDirectorMember 2022-03-31 0001392694 SURG:BoardMember SURG:NotesPayableToRelatedPartiesMember 2022-03-31 0001392694 srt:ChiefExecutiveOfficerMember SURG:NotesPayableToRelatedPartiesMember 2020-12-31 0001392694 SURG:PresidentChiefOperatingOfficerAndBoardDirectorMember SURG:NotesPayableToRelatedPartiesMember 2020-12-31 0001392694 SURG:BoardMemberMember SURG:NotesPayableToRelatedPartiesMember 2020-12-31 0001392694 SURG:NotesPayableToRelatedPartiesMember 2020-12-31 0001392694 srt:ChiefExecutiveOfficerMember SURG:NotesPayableToRelatedPartiesMember 2021-01-01 2021-12-31 0001392694 SURG:PresidentChiefOperatingOfficerAndBoardDirectorMember SURG:NotesPayableToRelatedPartiesMember 2021-01-01 2021-12-31 0001392694 SURG:BoardMemberMember SURG:NotesPayableToRelatedPartiesMember 2021-01-01 2021-12-31 0001392694 SURG:NotesPayableToRelatedPartiesMember 2021-01-01 2021-12-31 0001392694 srt:ChiefExecutiveOfficerMember SURG:NotesPayableToRelatedPartiesMember 2021-12-31 0001392694 SURG:PresidentChiefOperatingOfficerAndBoardDirectorMember SURG:NotesPayableToRelatedPartiesMember 2021-12-31 0001392694 SURG:BoardMemberMember SURG:NotesPayableToRelatedPartiesMember 2021-12-31 0001392694 SURG:NotesPayableToRelatedPartiesMember 2021-12-31 0001392694 SURG:NotesPayableToRelatedPartiesMember 2022-01-01 2022-03-31 0001392694 SURG:BoardMemberMember SURG:NotesPayableToRelatedPartiesMember 2022-03-31 0001392694 SURG:NotesPayableToRelatedPartiesMember 2022-03-31 0001392694 2021-09-01 2021-09-30 0001392694 srt:ChiefExecutiveOfficerMember 2021-01-01 2021-12-31 0001392694 SURG:NotesPayableOneMember 2022-01-01 2022-03-31 0001392694 SURG:NotesPayableTwoMember 2022-01-01 2022-03-31 0001392694 SURG:NotesPayableThreeMember 2022-01-01 2022-03-31 0001392694 SURG:NotesPayableOneMember 2022-03-31 0001392694 SURG:NotesPayableTwoMember 2022-03-31 0001392694 SURG:NotesPayableThreeMember 2022-03-31 0001392694 SURG:NotesPayableOneMember 2020-12-31 0001392694 SURG:NotesPayableTwoMember 2020-12-31 0001392694 SURG:NotesPayableThreeMember 2020-12-31 0001392694 SURG:NotesPayableInDefaultMember 2020-12-31 0001392694 SURG:NotesPayableOneMember 2021-01-01 2021-12-31 0001392694 SURG:NotesPayableTwoMember 2021-01-01 2021-12-31 0001392694 SURG:NotesPayableThreeMember 2021-01-01 2021-12-31 0001392694 SURG:NotesPayableOneMember 2021-12-31 0001392694 SURG:NotesPayableTwoMember 2021-12-31 0001392694 SURG:NotesPayableThreeMember 2021-12-31 0001392694 SURG:NotesPayableInDefaultMember 2021-12-31 0001392694 SURG:NotesPayableInDefaultMember 2022-03-31 0001392694 SURG:ConvertibleNotesPayableOneMember 2022-01-01 2022-03-31 0001392694 SURG:ConvertibleNotesPayableTwoMember 2022-01-01 2022-03-31 0001392694 SURG:ConvertibleNotesPayableThreeMember 2022-01-01 2022-03-31 0001392694 us-gaap:ConvertibleNotesPayableMember 2022-03-31 0001392694 SURG:ConvertibleNotesPayableTwoMember srt:MinimumMember 2022-03-31 0001392694 SURG:ConvertibleNotesPayableTwoMember srt:MaximumMember 2022-03-31 0001392694 SURG:ConvertibleNotesPayableThreeMember srt:MinimumMember 2022-03-31 0001392694 SURG:ConvertibleNotesPayableThreeMember srt:MaximumMember 2022-03-31 0001392694 SURG:ConvertibleNotesPayableOneMember 2022-03-31 0001392694 SURG:ConvertibleNotesPayableTwoMember 2022-03-31 0001392694 SURG:ConvertibleNotesPayableThreeMember 2022-03-31 0001392694 SURG:ConvertibleNotesPayableOneMember 2020-12-31 0001392694 SURG:ConvertibleNotesPayableTwoMember 2020-12-31 0001392694 SURG:ConvertibleNotesPayableThreeMember 2020-12-31 0001392694 us-gaap:ConvertibleNotesPayableMember 2020-12-31 0001392694 SURG:ConvertibleNotesPayableOneMember 2021-01-01 2021-12-31 0001392694 SURG:ConvertibleNotesPayableTwoMember 2021-01-01 2021-12-31 0001392694 SURG:ConvertibleNotesPayableThreeMember 2021-01-01 2021-12-31 0001392694 us-gaap:ConvertibleNotesPayableMember 2021-01-01 2021-12-31 0001392694 SURG:ConvertibleNotesPayableOneMember 2021-12-31 0001392694 SURG:ConvertibleNotesPayableTwoMember 2021-12-31 0001392694 SURG:ConvertibleNotesPayableThreeMember 2021-12-31 0001392694 us-gaap:ConvertibleNotesPayableMember 2021-12-31 0001392694 SURG:PrincipalAmountMember 2021-01-01 2021-12-31 0001392694 SURG:AccruedInterestMember 2021-01-01 2021-12-31 0001392694 SURG:PaycheckProtectionProgramAndEconomicInjuryDisasterLoanMember 2021-01-01 2021-12-31 0001392694 SURG:KevinBrianCoxMember srt:MinimumMember SURG:ChiefExecutiveOfficerAndBoardDirectorMember 2021-09-30 0001392694 SURG:KevinBrianCoxMember srt:MaximumMember SURG:ChiefExecutiveOfficerAndBoardDirectorMember 2021-09-30 0001392694 SURG:ChiefExecutiveOfficerAndBoardDirectorMember SURG:KevinBrianCoxMember 2021-09-30 0001392694 srt:ChiefExecutiveOfficerMember 2021-12-31 0001392694 SURG:NotesPayableFiveMember 2022-03-31 0001392694 SURG:ConvertibleNotePayableOneMember 2022-01-01 2022-03-31 0001392694 SURG:ConvertibleNotePayableTwoMember srt:MinimumMember 2022-01-01 2022-03-31 0001392694 SURG:ConvertibleNotePayableTwoMember srt:MaximumMember 2022-01-01 2022-03-31 0001392694 SURG:ConvertibleNotePayableOneMember 2021-01-01 2021-12-31 0001392694 us-gaap:ConvertibleNotesPayableMember 2022-03-31 0001392694 us-gaap:ConvertibleNotesPayableMember 2022-01-01 2022-03-31 0001392694 srt:MinimumMember us-gaap:MeasurementInputExpectedTermMember 2021-01-01 2021-12-31 0001392694 srt:MaximumMember us-gaap:MeasurementInputExpectedTermMember 2021-01-01 2021-12-31 0001392694 srt:MinimumMember us-gaap:MeasurementInputPriceVolatilityMember 2021-12-31 0001392694 srt:MaximumMember us-gaap:MeasurementInputPriceVolatilityMember 2021-12-31 0001392694 us-gaap:MeasurementInputExpectedDividendRateMember 2021-12-31 0001392694 srt:MinimumMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2021-12-31 0001392694 srt:MaximumMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2021-12-31 0001392694 us-gaap:FairValueInputsLevel3Member 2020-12-31 0001392694 us-gaap:FairValueInputsLevel3Member 2021-01-01 2021-12-31 0001392694 us-gaap:FairValueInputsLevel3Member 2021-12-31 0001392694 SURG:ECSBusinessMember 2021-05-31 0001392694 SURG:SettlementAndReleaseAgreementMember SURG:UnimaxCommunicationsLLCMember 2020-07-09 0001392694 2016-08-28 0001392694 2016-08-29 0001392694 SURG:SettlementAgreementMember SURG:GBTMember 2022-03-31 0001392694 SURG:StanleyHillsLLCMember 2022-01-06 2022-01-07 0001392694 2022-01-06 2022-01-07 0001392694 2022-01-03 2022-01-04 0001392694 2022-01-05 2022-01-07 0001392694 2022-01-07 0001392694 SURG:IgorOneCorpMember 2022-03-31 0001392694 SURG:IgorOneCorpMember 2022-01-28 2022-01-30 0001392694 SURG:IgorOneCorpMember 2022-01-01 2022-03-31 0001392694 SURG:GlenEaglesSharesMember 2022-03-31 0001392694 SURG:GlenEaglesSharesMember 2022-01-01 2022-03-31 0001392694 SURG:IgorOneCorpMember 2022-02-15 2022-02-16 0001392694 2021-12-16 2021-12-17 0001392694 2021-10-27 2021-11-02 0001392694 SURG:SeriesAConvertiblePreferredStocksMember 2022-03-31 0001392694 SURG:SeriesAConvertiblePreferredStocksMember 2022-01-01 2022-03-31 0001392694 SURG:SeriesCConvertiblePreferredStockMember 2022-03-31 0001392694 SURG:SeriesCConvertiblePreferredStockMember 2022-01-01 2022-03-31 0001392694 us-gaap:SeriesCPreferredStockMember 2021-10-31 0001392694 us-gaap:SeriesCPreferredStockMember 2021-10-27 2021-10-31 0001392694 SURG:CommonStocksMember 2022-01-01 2022-03-31 0001392694 srt:MinimumMember us-gaap:CommonStockMember 2022-03-31 0001392694 srt:MaximumMember us-gaap:CommonStockMember 2022-03-31 0001392694 SURG:StockAndWarrantsMember 2022-01-01 2022-03-31 0001392694 srt:MinimumMember SURG:StockAndWarrantsMember 2022-03-31 0001392694 srt:MaximumMember SURG:StockAndWarrantsMember 2022-03-31 0001392694 SURG:OverAllotmentWarrantsMember 2022-01-01 2022-03-31 0001392694 us-gaap:CommonStockMember 2021-11-03 2021-11-04 0001392694 SURG:StockAndWarrantsMember 2021-11-03 2021-11-04 0001392694 SURG:OverAllotmentWarrantsMember 2021-11-03 2021-11-04 0001392694 SURG:StockAndWarrantsMember 2021-11-04 0001392694 2021-11-03 2021-11-04 0001392694 us-gaap:CommonStockMember 2021-11-04 0001392694 SURG:OverAllotmentWarrantsMember 2021-11-04 0001392694 SURG:OverAllotmentWarrantsMember 2022-03-31 0001392694 SURG:UnderwriterMember 2021-11-03 2021-11-04 0001392694 SURG:UnderwriterMember 2021-11-04 0001392694 SURG:StockAndWarrantsMember 2022-03-31 0001392694 us-gaap:WarrantMember 2022-01-01 2022-03-31 0001392694 us-gaap:WarrantMember 2022-03-31 0001392694 us-gaap:CommonStockMember 2021-01-01 2021-12-31 0001392694 us-gaap:WarrantMember 2021-12-31 0001392694 us-gaap:ConvertibleDebtMember 2022-01-01 2022-03-31 0001392694 srt:MinimumMember us-gaap:ConvertibleDebtMember 2022-03-31 0001392694 srt:MaximumMember us-gaap:ConvertibleDebtMember 2022-03-31 0001392694 SURG:StockIssuedUnderMakeHoleArrangementMember 2022-01-01 2022-03-31 0001392694 srt:MinimumMember SURG:StockIssuedUnderMakeHoleArrangementMember 2022-03-31 0001392694 srt:MaximumMember SURG:StockIssuedUnderMakeHoleArrangementMember 2022-03-31 0001392694 SURG:StockIssuedForDebtModificationMember 2022-01-01 2022-03-31 0001392694 SURG:StockIssuedForDebtModificationMember srt:MinimumMember 2022-03-31 0001392694 SURG:StockIssuedForDebtModificationMember srt:MaximumMember 2022-03-31 0001392694 SURG:StockIssuedForSettlementLiabilitiesMember 2022-01-01 2022-03-31 0001392694 SURG:StockIssuedForSettlementLiabilitiesMember srt:MinimumMember 2022-03-31 0001392694 SURG:StockIssuedForSettlementLiabilitiesMember srt:MaximumMember 2022-03-31 0001392694 SURG:StockIssuedForSettlementLiabilitiesMember srt:MaximumMember 2022-01-01 2022-03-31 0001392694 SURG:MembershipInterestPurchaseAgreementAndStockPurchaseAgreementMember 2020-01-28 2020-01-30 0001392694 us-gaap:CommonStockMember SURG:SettlementOfAgreementsMember 2021-01-01 2021-12-31 0001392694 SURG:StockIssuedForAcquisitionMember 2021-12-31 0001392694 us-gaap:CommonStockMember 2020-01-01 2020-12-31 0001392694 SURG:ConvertibleNoteHoldersMember 2021-01-01 2021-12-31 0001392694 SURG:WarrantsHoldersMember 2021-01-01 2021-12-31 0001392694 us-gaap:WarrantMember srt:MinimumMember 2021-12-31 0001392694 us-gaap:WarrantMember srt:MaximumMember 2021-12-31 0001392694 SURG:UnderswritersMember 2022-03-31 0001392694 us-gaap:WarrantMember srt:MaximumMember 2022-03-31 0001392694 SURG:WarrantOneMember 2022-01-01 2022-03-31 0001392694 SURG:WarrantTwoMember 2022-01-01 2022-03-31 0001392694 SURG:WarrantThreeMember 2022-01-01 2022-03-31 0001392694 SURG:WarrantFourMember 2022-01-01 2022-03-31 0001392694 SURG:WarrantOneMember us-gaap:MeasurementInputExpectedTermMember 2022-03-31 0001392694 SURG:WarrantOneMember us-gaap:MeasurementInputPriceVolatilityMember 2022-03-31 0001392694 SURG:WarrantOneMember us-gaap:MeasurementInputExpectedDividendRateMember 2022-03-31 0001392694 SURG:WarrantOneMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2022-03-31 0001392694 SURG:WarrantTwoMember us-gaap:MeasurementInputExpectedTermMember 2021-12-31 0001392694 SURG:WarrantTwoMember us-gaap:MeasurementInputPriceVolatilityMember 2021-12-31 0001392694 SURG:WarrantTwoMember us-gaap:MeasurementInputExpectedDividendRateMember 2021-12-31 0001392694 SURG:WarrantTwoMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2022-03-31 0001392694 SURG:WarrantFourMember us-gaap:MeasurementInputExpectedTermMember 2022-03-31 0001392694 SURG:WarrantFourMember us-gaap:MeasurementInputPriceVolatilityMember 2022-03-31 0001392694 SURG:WarrantFourMember us-gaap:MeasurementInputExpectedDividendRateMember 2022-03-31 0001392694 SURG:WarrantFourMember us-gaap:MeasurementInputRiskFreeInterestRateMember 2021-12-31 0001392694 SURG:WarrantThreeMember us-gaap:MeasurementInputExpectedTermMember srt:MinimumMember 2022-03-31 0001392694 SURG:WarrantThreeMember us-gaap:MeasurementInputExpectedTermMember srt:MaximumMember 2022-03-31 0001392694 SURG:WarrantThreeMember us-gaap:MeasurementInputPriceVolatilityMember srt:MinimumMember 2022-03-31 0001392694 SURG:WarrantThreeMember us-gaap:MeasurementInputPriceVolatilityMember srt:MaximumMember 2022-03-31 0001392694 SURG:WarrantThreeMember us-gaap:MeasurementInputExpectedDividendRateMember 2022-03-31 0001392694 SURG:WarrantThreeMember us-gaap:MeasurementInputRiskFreeInterestRateMember srt:MinimumMember 2022-03-31 0001392694 SURG:WarrantThreeMember us-gaap:MeasurementInputRiskFreeInterestRateMember srt:MaximumMember 2022-03-31 0001392694 SURG:SurgeFintechECSMember 2022-01-01 2022-03-31 0001392694 SURG:SurgeFintechECSMember 2021-01-01 2021-03-31 0001392694 SURG:SurgePaysIncMember 2021-01-01 2021-03-31 0001392694 SURG:SurgePhoneWirelessMember 2022-03-31 0001392694 SURG:SurgePhoneWirelessMember 2021-12-31 0001392694 SURG:TorchWirelessIncMember 2022-03-31 0001392694 SURG:TorchWirelessIncMember 2021-12-31 0001392694 SURG:SurgeBlockchainLLCMember 2022-03-31 0001392694 SURG:SurgeBlockchainLLCMember 2021-12-31 0001392694 SURG:LogicsIQIncMember 2022-03-31 0001392694 SURG:LogicsIQIncMember 2021-12-31 0001392694 SURG:SurgeFintechECSMember 2022-03-31 0001392694 SURG:SurgeFintechECSMember 2021-12-31 0001392694 SURG:TrueWirelessIncMember 2022-03-31 0001392694 SURG:TrueWirelessIncMember 2021-12-31 0001392694 SURG:SurgePaysIncMember 2022-03-31 0001392694 SURG:SurgePaysIncMember 2021-12-31 0001392694 SURG:StockIssuedForServicesMember us-gaap:SubsequentEventMember 2022-04-01 2022-04-30 0001392694 SURG:StockIssuedForServicesMember us-gaap:SubsequentEventMember 2022-04-30 0001392694 us-gaap:SubsequentEventMember 2022-04-30 0001392694 us-gaap:SubsequentEventMember SURG:SecuredRevolvingDebtMember 2022-04-30 0001392694 us-gaap:SubsequentEventMember SURG:SecuredRevolvingDebtMember 2022-04-01 2022-04-30 0001392694 us-gaap:SubsequentEventMember SURG:TermLoansMember 2022-04-30 iso4217:USD xbrli:shares iso4217:USD xbrli:shares xbrli:pure

 

 

 

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 March 31, 2022

 

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 May 2, 2022 was 12,246,528 shares.

 

 

 

 
 

 

SurgePays, Inc. and Subsidiaries

 

  Page(s)
   
Consolidated Balance Sheets 2
   
Consolidated Statements of Operations 3
   
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) 4 - 5
   
Consolidated Statements of Cash Flows 6
   
Notes to Consolidated Financial Statements 7 - 58

 

1
 

 

SurgePays, Inc. and Subsidiaries

Consolidated Balance Sheets

 

   March 31, 2022   December 31, 2021 
   (Unaudited)     
Assets          
           
Current Assets          
Cash  $3,442,926   $6,283,496 
Accounts receivable - net   5,644,120    3,249,889 
Inventory   3,075,529    4,359,296 
Prepaids   239,400    - 
Total Current Assets   12,401,975    13,892,681 
           
Property and equipment - net   204,158    200,448 
           
Other Assets          
Note receivable   176,851    176,851 
Intangibles - net   3,270,107    3,433,484 
Goodwill   866,782    866,782 
Investment in CenterCom - former related party   418,105    443,288 
Operating lease - right of use asset - net   462,716    486,668 
Total Other Assets   5,194,561    5,407,073 
           
Total Assets  $17,800,694   $19,500,202 
           
Liabilities and Stockholders’ Equity          
           
Current Liabilities          
Accounts payable and accrued expenses  $5,645,134   $6,602,577 
Accounts payable and accrued expenses - related party   1,369,611    1,389,798 
Deferred revenue   317,700    276,250 
Operating lease liability   36,871    49,352 
Loans payable - related parties   1,086,413    1,553,799 
Notes payable - SBA government   -    126,418 
Notes payable - net   461,047    - 
Total Current Liabilities   8,916,776    9,998,194 
           
Long Term Liabilities          
Loans payable - related parties   4,974,403    4,507,017 
Notes payable - SBA government   1,125,572    1,004,767 
Operating lease liability   429,354    438,903 
Total Long Term Liabilities   6,529,329    5,950,687 
           
Total Liabilities   15,446,105    15,948,881 
           
Commitments and Contingencies (Note 8)   -    - 
           
Stockholders’ Equity          
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   260    260 
Preferred Stock Value          
Common stock, $0.001 par value, 500,000,000 shares authorized 12,063,834 and 12,063,834 shares issued and outstanding, respectively   12,064    12,064 
Additional paid-in capital   38,710,587    38,662,340 
Accumulated deficit   (36,335,677)   (35,123,343)
Stockholders’ equity before non-controlling interest   2,387,234    3,551,321 
 Non-controlling interest   (32,645)   - 
Total Stockholders’ Equity   2,354,589    3,551,321 
           
Total Liabilities and Stockholders’ Equity  $17,800,694   $19,500,202 

 

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

 

2
 

 

SurgePays, Inc. and Subsidiaries

Consolidated Statements of Operations

 

   2022   2021 
   For the Three Months Ended March 31, 
   2022   2021 
   (Unaudited)   (Unaudited) 
Revenues  $21,141,372   $10,988,948 
           
Costs and expenses          
Cost of revenue   18,507,741    9,859,434 
General and administrative expenses   3,683,782    3,237,684 
Total costs and expenses   22,191,523    13,097,118 
           
Loss from operations   (1,050,151)   (2,108,170)
           
Other income (expense)          
Interest expense   (169,645)   (599,636)
Derivative expense   -    (1,775,057)
Change in fair value of derivative liabilities   -    303,850 
Loss on investment in CenterCom - former related party   (25,183)   (73,773)
Gain on settlement of liabilities   -    141,578 
Amortization of debt discount   -    (704,223)
Total other income (expense) - net   (194,828)   (2,707,261)
           
Net loss including non-controlling interest  $(1,244,979)  $(4,815,431)
           
Non-controlling interest   (32,645)   - 
           
Net loss available to common stockholders  $(1,212,334)  $(4,815,431)
           
Loss per share - basic and diluted  $(0.10)  $(1.85)
           
Weighted average number of shares - basic and diluted   12,063,834    2,604,456 

 

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

 

3
 

 

SurgePays, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended March 31, 2022

(Unaudited)

 

   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Interest   Equity 
   Series A Preferred Stock   Series C Preferred Stock   Common Stock  

Additional

Paid-in

   Accumulated   Non-Controlling  

Total

Stockholders’

 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Interest   Equity 
                                         
December 31, 2021   260,000   $260         -   $   -    12,063,834   $12,064   $38,662,340   $(35,123,343)  $-   $3,551,321 
                                                   
Recognition of stock based compensation   -    -    -    -    -    -    9,294    -    -    9,294 
                                                   
Warrants issued as debt issue costs   -    -    -    -    -    -    38,953    -    -    38,953 
                                                   
Non-controlling interest   -    -    -    -    -    -    -    -    (32,645)   (32,645)
                                                   
Net loss   -    -    -    -    -    -    -    (1,212,334)   -    (1,212,334)
                                                   
March 31, 2022   260,000   $260    -   $-    12,063,834   $12,064   $38,710,587   $(36,335,677)  $(32,645)  $2,354,589 

 

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

 

4
 

 

SurgePays, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ (Deficit)

For the Three Months Ended March 31, 2021

(Unaudited)

 

   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   (Deficit) 
   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   260,000   $260    721,598   $722    2,542,624   $2,543   $10,862,708   $(21,592,199)-  $(10,725,966)
                                              
Stock issued for services rendered and recognition of share based compensation   -    -    -    -    63,000    63    61,508    -    61,571 
                                              
Stock issued for cash   -    -    -    -    13,000,000    13,000    1,497,000    -    1,510,000 
                                              
Stock and warrants issued with debt recorded as a debt discount   -    -    -    -    900,000    900    2,037,735    -    2,038,635 
                                              
Conversion of debt   -    -    -    -    6,614,537    6,615    851,543    - -   858,158 
                                              
Stock issued under make-whole arrangement   -    -    -    -    757,345    757    89,644    -    90,401 
                                              
Stock issued in connection with debt modification   -    -    -    -    695,818    696    108,235    -    108,931 
                                              
Stock issued in settlement of liabilities   -    -    -    -    3,586,850    3,587    461,126    -    464,713 
                                              
Stock issued for acquisition of membership interest in ECS   -    -    -    -    100,000    100    17,800    -    17,900 
                                              
Net loss   -    -    -    -    -    -    -    (4,815,431) - (4,815,431)
                                              
March 31, 2021   260,000   $260    721,598   $722    28,260,174   $28,261   $15,987,299   $(26,407,630) - $(10,391,088)

 

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

 

5
 

 

SurgePays, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

 

   2022   2021 
   For the Three Months ended March 31, 
   2022   2021 
   (Unaudited)   (Unaudited) 
Operating activities          
Net loss - including non-controlling interest  $(1,244,979)  $(4,815,431)
Adjustments to reconcile net loss to net cash used in operations          
Depreciation and amortization   171,068    217,958 
Amortization of right-of-use assets   23,952    64,854 
Amortization of debt discount/debt issue costs   -    704,223 
Recognition of share based compensation   9,294    61,571 
Change in fair value of derivative liabilities   -    (303,850)
Derivative expense   -    1,775,057 
Gain on settlement of liabilities   -    (201,778)
Gain on equity method investment - Centercom - former related party   25,183    73,773 
Changes in operating assets and liabilities          
(Increase) decrease in          
Accounts receivable   (2,394,231)   (308,938)
Lifeline revenue - due from USAC   -    (9,169)
Inventory   1,283,767    (55,500)
Prepaids   (239,400)   (816)
Increase (decrease) in          
Accounts payable and accrued expenses   (957,443)   (851,492)
Accounts payable and accrued expenses - related party   (20,187)   - 
Deferred revenue   41,450    281,900 
Operating lease liability   (22,030)   (67,716)
Net cash used in operating activities   (3,323,556)   (3,435,354)
           
Investing activities          
Purchase of property and equipment   (11,401)   (2,615)
Net cash used in investing activities   (11,401)   (2,615)
           
Financing activities          
Proceeds from stock and warrants issued for cash   -    1,510,000 
Proceeds from loans - related party   -    1,255,000 
Proceeds from notes payable   500,000    768,167 
Repayments on notes payable   -    (1,466,719)
Repayments on SBA notes   (5,613)   - 
Proceeds from convertible notes   -    2,300,000 
Net cash provided by financing activities   494,387    4,366,448 
           
Net increase (decrease) in cash   (2,840,570)   928,479 
           
Cash - beginning of period   6,283,496    673,995 
           
Cash - end of period  $3,442,926   $1,602,474 
           
Supplemental disclosure of cash flow information          
Cash paid for interest  $8,552   $- 
Cash paid for income tax  $-   $- 
           
Supplemental disclosure of non-cash investing and financing activities          
           
Debt issue costs recorded in connection with notes payable  $38,953   $- 
Debt discount/issue costs recorded in connection with debt/derivative liabilities  $-   $2,038,635 
Right-of-use asset obtained in exchange for new operating lease liability  $-   $515,848 
Stock issued in connection with debt modification  $-   $108,931 
Stock issued under make-whole arrangement  $-   $90,401 

 

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

 

6
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

Note 1 - Organization and Nature of Operations

 

Organization and Nature of Operations

 

SurgePays, Inc. (“SurgePays,” “SP,” “we,” “our” or “the Company”), and its operating subsidiaries, is a technology-driven company building a next generation supply chain software platform that can offer wholesale goods and services more cost efficiently than traditional and existing wholesale distribution models.

 

The parent (SurgePays, Inc.) and subsidiaries are organized as follows:

 

Company Name   Incorporation Date   State of Incorporation
SurgePays, Inc.   August 18, 2006   Tennessee
KSIX Media, Inc.   November 5, 2014   Nevada
KSIX, LLC   September 14, 2011   Nevada
Surge Blockchain, LLC   January 29, 2009   Nevada
Injury Survey, LLC   July 28, 2020   Nevada
DigitizeIQ, LLC   July 23, 2014   Illinois
Surge Logics, Inc.   October 2, 2018   Nevada
Surge Payments, LLC   December 17, 2018   Nevada
Surgephone Wireless, LLC   August 29, 2019   Nevada
SurgePays Fintech, Inc.   August 22, 2019   Nevada
True Wireless, Inc. * October 29, 2020   Oklahoma
ECS Prepaid, LLC   June 9, 2009   Missouri
Torch Wireless, LLC

**

January 29, 2019

 

Wyoming

Central States Legal Services, Inc.   August 1, 2003   Missouri
Electronic Check Services, Inc.   May 19, 1999   Missouri

 

* Entity was disposed of on May 7, 2021.
** As of January 1, 2022, this was accounted for as a variable interest entity

 

7
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

Impact of COVID-19

 

The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies and financial markets. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability. The COVID-19 pandemic has the potential to significantly impact the Company’s supply chain, distribution centers, or logistics and other service providers.

 

In addition, a severe prolonged economic downturn could result in a variety of risks to the business, including weakened demand for products and services and a decreased ability to raise additional capital when needed on acceptable terms, if at all. As the situation continues to evolve, the Company will continue to closely monitor market conditions and respond accordingly.

 

We have implemented adjustments to our operations designed to keep employees safe and comply with international, federal, state, and local guidelines, including those regarding social distancing. The extent to which COVID-19 may further impact the Company’s business, results of operations, financial condition and cash flows will depend on future developments, which are highly uncertain and cannot be predicted with confidence. In response to COVID-19, the United States government has passed legislation and taken other actions to provide financial relief to companies and other organizations affected by the pandemic.

 

The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced customer traffic and reduced operations.

 

Any resulting financial impact cannot be reasonably estimated at this time but is anticipated to have a material adverse impact on our business, financial condition, and results of operations.

 

To date, the Company has not experienced any significant negative economic impact due to COVID-19.

 

8
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all of the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of March 31, 2022 and the results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 24, 2022.

 

Management acknowledges its responsibility for the preparation of the accompanying unaudited consolidated financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its consolidated financial position and the consolidated results of its operations for the periods presented.

 

Liquidity, Going Concern and Management’s Plans

 

These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.

 

As reflected in the accompanying consolidated financial statements, for the three months ended March 31, 2022, the Company had:

 

Net loss available to common stockholders of $1,212,334; and
Net cash used in operations was $3,323,556

 

Additionally, at March 31, 2022, the Company had:

 

Accumulated deficit of $36,335,677
Stockholders’ equity of $2,354,589, and
Working capital of $3,485,199

 

9
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

We manage liquidity risk by reviewing, on an ongoing basis, our sources of liquidity and capital requirements. The Company has cash on hand of $3,442,926 at March 31, 2022.

 

The Company has incurred significant losses since its inception and has not demonstrated an ability to generate sufficient revenues from the sales of its products and services to achieve profitable operations. There can be no assurance that profitable operations will ever be achieved, or if achieved, could be sustained on a continuing basis. In making this assessment we performed a comprehensive analysis of our current circumstances including: our financial position, our cash flows and cash usage forecasts for the twelve months ended March 31, 2022, and our current capital structure including equity-based instruments and our obligations and debts.

 

Without sufficient revenues from operations, if the Company does not obtain additional capital, the Company will be required to reduce the scope of its business development activities or cease operations. The Company may explore obtaining additional capital financing and the Company is closely monitoring its cash balances, cash needs, and expense levels.

 

These factors create substantial doubt about the Company’s ability to continue as a going concern within the twelve-month period subsequent to the date that these consolidated financial statements are issued. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

 

Management’s strategic plans include the following:

 

Continue the hyper growth of the Affordable Connectivity Program revenue stream,
Execution of business plan and significant revenue growth from prior period,
Pursuing a line of credit to achieve the hyper growth of the Affordable Connectivity Program,
Expand product and services offerings to a larger surrounding geographic area.
Continuing to explore and execute prospective partnering or distribution opportunities; and
Identifying unique market opportunities that represent potential positive short-term cash flow.

 

10
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

Note 2 - Summary of Significant Accounting Policies

 

Principles of Consolidation and Non-Controlling Interest

 

These consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated.

 

For entities that are consolidated, but not 100% owned, a portion of the income or loss and corresponding equity is allocated to owners other than the Company. The aggregate of the income or loss and corresponding equity that is not owned by us is included in Non-controlling Interests in the consolidated financial statements.

 

Variable Interest Entities

 

A variable interest entity (“VIE”) is an entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured such that equity investors lack the ability to control the entity’s activities or do not substantially participate in the gains and losses of the entity. Upon inception of a contractual agreement, and thereafter, if a reconsideration event occurs, the Company performs an assessment to determine whether the arrangement contains a variable interest in an entity and whether that entity is a VIE. The primary beneficiary of a VIE is the party that has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. Under Accounting Standards Codification (“ASC”) 810 – Consolidations, where the Company concludes that it is the primary beneficiary of a VIE, the Company consolidates the accounts of that VIE.

 

Effective January 1, 2022, the Company executed a management agreement with Torch Wireless (“Torch”). Generally, the Company was engaged to handle the following services:

 

  Oversee management of the business being conducted by Torch,
  Involved in the performance of Torch’s obligations under contracts regarding its business operations and maintenance of Torch’s customer relationships,
  Assist Torch with regulatory compliance,
  Manage all billing and collection functions, including the right to collect revenues related to Torch’s business operations, as part of the agreement, Torch may not participate in this function
  Manage all payment functions related to the business, including the right to disburse funds, as part of the agreement, Torch may not participate in this function; and

 

On April 6, 2022, the Company acquired 100% of the equity of Torch in exchange for $800,000, resulting in Torch becoming a wholly-owned subsidiary in a transaction accounted for as a business combination. Payment for Torch is expected to be completed during the second quarter of 2022.

 

11
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

In addition, the Company will pay the Sellers monthly residual payments for customers enrolled by the Company through December 31, 2022 of either $2 or $3 per customer (depending on the category of customer). While Torch has existing operations, it has not yet generated material revenues. This transaction does not involve the purchase of a “significant amount of assets” as defined in the Instructions to Item 2.01 of Form 8-K.

 

Torch is a provider of subsidized mobile broadband services to consumers qualifying under the federal guidelines of the U.S. Federal Communication Commission’s Affordable Connectivity Program (“ACP”). The ACP provides the Company up to a $100 reimbursement for the cost of each tablet device distributed and a $30 per customer, per month subsidy for mobile broadband (internet connectivity) services. With the purchase of Torch, the Company now has approval to offer subsidized mobile broadband in all fifty states.

 

At March 31, 2022, Torch is a VIE and has been consolidated with the Company’s financial position, results of operations, and cash flows.

 

The following table summarizes the carrying amounts of Torch’s assets and liabilities (after the elimination of intercompany transactions and balances) included in the Company’s consolidated balance sheet at March 31, 2022:

 

     2022 
Assets     
Cash  $1,017,756 
Accounts receivable   1,665,906 
Inventory   923,415 
Total Assets  $3,607,077 
      
Liabilities     
Accounts payable  $63,254 
Total Liabilities  $63,254 

 

12
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

Business Combinations

 

The Company accounts for business acquisitions using the acquisition method of accounting, in accordance with which assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date.

 

The fair value of the consideration paid, including contingent consideration, is assigned to the assets acquired and liabilities assumed based on their respective fair values. Goodwill represents excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed.

 

Significant judgments are used in determining fair values of assets acquired and liabilities assumed, as well as intangibles. Fair value and useful life determinations are based on, among other factors, estimates of future expected cash flows, and appropriate discount rates used in computing present values. These judgments may materially impact the estimates used in allocating acquisition date fair values to assets acquired and liabilities assumed, as well as the Company’s current and future operating results. Actual results may vary from these estimates which may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever occurs first. Adjustments to fair values of assets and liabilities made after the end of the measurement period are recorded within the Company’s operating results.

 

At December 31, 2021 and 2020, goodwill was $866,782, respectively. There were no impairment losses for the years ended December 31, 2021 and 2020, respectively.

 

13
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

Deconsolidation of Subsidiary

 

In accordance with ASC Topic 810-10-40, a parent company must deconsolidate a subsidiary as of the date the parent ceases to have a controlling interest in that subsidiary and recognize a gain or loss in net income at that time.

 

On May 7, 2021, the Company disposed of its subsidiary True Wireless, Inc. (“TW”), however we retained $1,097,659 in liabilities which consisted of $1,077,659 in accounts payable and accrued expenses as well as $20,000 in related party loans. During 2021, the $20,000 was forgiven. In connection with the sale, the Company received an unsecured note receivable for $176,851, bearing interest at 0.6%, with a default interest rate of 10%. The Company will receive twenty-five (25) payments of principal and accrued interest totaling $7,461 commencing in June 2023. Payments are scheduled as follows:

 

For the Year Ended December 31, 2021    
     
2022  $- 
2023   52,227 
2024   89,532 
2025   44,766 
Receivables, gross   186,525 
Less: amount representing interest   (9,674)
Total  $176,851 

 

14
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

As a result of the sale, we deconsolidated our entire ownership interest in TW from our consolidated financial statements on May 7, 2021, the effective date of the sale agreement, and recognized a gain on deconsolidation of $1,895,871 as follows:

 

Consideration     
Note receivable  $176,851 
      
Fair value of consideration received   176,851 
      
Recognized amounts of identifiable assets sold and liabilities assumed by buyer:     
      
Cash   325,316 
Lifeline revenue due from USAC   74,650 
Inventory   107,089 
Property and equipment - net   20,645 
Operating lease - right of use asset - net   10,981 
Total assets sold   538,681 
      
Accounts payable and accrued expenses   1,183,850 
Line of credit   912,870 
Note payable - SBA government   150,000 
Operating lease liability   10,981 
Total liabilities assumed by buyer   2,257,701 
      
Total net liabilities assumed by buyer   1,719,020 
      
Gain on deconsolidation of True Wireless   1,895,871 

 

Business Segments and Concentrations

 

The Company uses the “management approach” to identify its reportable segments. The management approach requires companies to report segment financial information consistent with information used by management for making operating decisions and assessing performance as the basis for identifying the Company’s reportable segments. The Company manages its business as multiple reportable segments.

 

Customers in the United States accounted for 100% of our revenues. We do not have any property or equipment outside of the United States.

 

See Note 10 regarding segment disclosure.

 

15
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

Use of Estimates

 

Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates, and those estimates may be material.

 

Significant estimates during the three months ended March 31, 2022 and the year ended December 31, 2021, respectively, include, allowance for doubtful accounts and other receivables, inventory reserves and classifications, valuation of loss contingencies, valuation of derivative liabilities, valuation of stock-based compensation, estimated useful lives related to intangible assets and property and equipment, implicit interest rate in right-of-use operating leases, uncertain tax positions, and the valuation allowance on deferred tax assets.

 

Risks and Uncertainties

 

The Company operates in an industry that is subject to intense competition and change in consumer demand. The Company’s operations are subject to significant risk and uncertainties including financial and operational risks including the potential risk of business failure.

 

The Company has experienced, and in the future expects to continue to experience, variability in sales and earnings. The factors expected to contribute to this variability include, among others, (i) the cyclical nature of the industry, (ii) general economic conditions in the various local markets in which the Company competes, including a potential general downturn in the economy, and (iii) the volatility of prices in connection with the Company’s distribution of the product. These factors, among others, make it difficult to project the Company’s operating results on a consistent basis.

 

Fair Value of Financial Instruments

 

The Company accounts for financial instruments under Financial Accounting Standards Board (“FASB”) ASC 820, Fair Value Measurements. ASC 820 provides a framework for measuring fair value and requires disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company’s principal or, in absence of a principal, most advantageous market for the specific asset or liability.

 

16
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value.

 

The three tiers are defined as follows:

 

  Level 1 —Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets;
  Level 2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and
  Level 3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions.

 

The determination of fair value and the assessment of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. The Company may also engage external advisors to assist us in determining fair value, as appropriate.

 

Although the Company believes that the recorded fair value of our financial instruments is appropriate, these fair values may not be indicative of net realizable value or reflective of future fair values.

 

The Company’s financial instruments, including cash, accounts receivable, accounts payable and accrued expenses, and accounts payable and accrued expenses – related party, are carried at historical cost. At March 31, 2022 and December 31, 2021, respectively, the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments.

 

ASC 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (“fair value option”). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding financial instruments.

 

17
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

Cash and Cash Equivalents and Concentration of Credit Risk

 

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and money market accounts to be cash equivalents.

 

At March 31, 2022 and December 31, 2021, respectively, the Company did not have any cash equivalents.

 

The Company is exposed to credit risk on its cash and cash equivalents in the event of default by the financial institutions to the extent account balances exceed the amount insured by the FDIC, which is $250,000. At March 31, 2022 and December 31, 2021, the Company did not experience any losses on cash balances in excess of FDIC insured limits.

 

Accounts Receivable

 

Accounts receivable are stated at the amount management expects to collect from outstanding customer balances. Credit is extended to customers based on an evaluation of their financial condition and other factors. Interest is not accrued on overdue accounts receivable. The Company does not require collateral.

 

Management periodically assesses the Company’s accounts receivable and, if necessary, establishes an allowance for estimated uncollectible amounts. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. Accounts determined to be uncollectible are charged to operations when that determination is made.

 

Allowance for doubtful accounts was $137,218 and $137,218 at March 31, 2022 and December 31, 2021, respectively.

 

For the three months ended March 31, 2022 and 2021, the Company recorded a bad debt expense of $0 and $0, respectively.

 

Bad debt expense (recovery) is recorded as a component of general and administrative expenses in the accompanying consolidated statements of operations.

 

18
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

Inventory

 

Inventory primarily consists of primarily of tablets and sim cards. Inventories are stated at the lower of cost or net realizable value using the first-in, first-out (FIFO) valuation method. At March 31, 2022 and December 31, 2021, the Company had inventory of $3,075,529 and $4,359,296, respectively.

 

Impairment of Long-lived Assets

 

Management evaluates the recoverability of the Company’s identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists, in accordance with the provisions of ASC 360-10-35-15 “Impairment or Disposal of Long-Lived Assets.” Events and circumstances considered by the Company in determining whether the carrying value of identifiable intangible assets and other long-lived assets may not be recoverable include but are not limited to significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; and changes in the Company’s business strategy. In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of these assets.

 

If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

 

There were no impairment losses for the three months ended March 31, 2022 and 2021, respectively.

 

Property and Equipment

 

Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets.

 

Expenditures for repair and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected in operations.

 

Management reviews the carrying value of its property and equipment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

 

There were no impairment losses for the three months ended March 31, 2022 and 2021, respectively.

 

19
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

Right of Use Assets and Lease Obligations

 

The Right of Use Asset and Lease Liability reflect the present value of the Company’s estimated future minimum lease payments over the lease term, which may include options that are reasonably assured of being exercised, discounted using a collateralized incremental borrowing rate.

 

Typically, renewal options are considered reasonably assured of being exercised if the associated asset lives of the building or leasehold improvements exceed that of the initial lease term, and the performance of the business remains strong. Therefore, the Right of Use Asset and Lease Liability may include an assumption on renewal options that have not yet been exercised by the Company. At March 31, 2022, the Company’s operating leases contained renewal options for periods ranging from three to five years that expire at various dates with no residual value guarantees. Future obligations relating to the exercise of renewal options is included in the measurement if, based on the judgment of management, the renewal option is reasonably certain to be exercised. Factors in determining whether an option is reasonably certain of exercise include, but are not limited to, the value of leasehold improvements, the value of the renewal rate compared to market rates, and the presence of factors that would cause a significant economic penalty to the Company if the option is not exercised. Management reasonably plans to exercise all options, and as such, all renewal options are included in the measurement of the right-of-use assets and operating lease liabilities.

 

As the rate implicit in leases are not readily determinable, the Company uses an incremental borrowing rate to calculate the lease liability that represents an estimate of the interest rate the Company would incur to borrow on a collateralized basis over the term of a lease within a particular currency environment. See Note 8.

 

Derivative Liabilities

 

The Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic No. 480, (“ASC 480”), “Distinguishing Liabilities from Equity” and FASB ASC Topic No. 815, (“ASC 815”) “Derivatives and Hedging”. Derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives. The Company uses a binomial model to determine fair value.

 

Upon conversion of a note where the embedded conversion option has been bifurcated and accounted for as a derivative liability, the Company records the shares at fair value, relieves all related notes, derivatives, and debt discounts, and recognizes a net gain or loss on debt extinguishment. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date.

 

20
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

Debt Issue Cost

 

Debt issuance cost paid to lenders, or third parties are amortized to interest expense in the consolidated statements of operations, over the life of the underlying debt instrument.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC 606 to align revenue recognition more closely with the delivery of the Company’s services and will provide financial statement readers with enhanced disclosures. In accordance with ASC 606, revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. To achieve this core principle, the Company applies the following five steps:

 

Identify the contract with a customer

 

A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.

 

Identify the performance obligations in the contract

 

Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services, the Company must apply judgment to determine whether promised services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance obligation.

 

21
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

Determine the transaction price

 

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of the Company’s contracts as of March 31, 2022 and December 31, 2021, respectively, contained a significant financing component.

 

Allocate the transaction price to performance obligations in the contract

 

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. For example, a bonus or penalty may be associated with one or more, but not all, distinct services promised in a series of distinct services that forms part of a single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

 

22
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

Recognize revenue when or as the Company satisfies a performance obligation

 

The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service to a customer.

 

The following reflects additional discussion regarding our revenue recognition policies for each of our material revenue streams. For each revenue stream we do not offer any returns, refunds or warranties, and no arrangements are cancellable. Additionally, all contract consideration is fixed and determinable at the initiation of the contract. Performance obligations for Torch, TW and LogicsIQ are satisfied when services are performed. Performance obligations for ECS and SB are satisfied at point of sale.

 

For each revenue stream we only have a single performance obligation.

 

Surge Phone Wireless (SPW)

 

SPW is licensed to provide subsidized mobile broadband services through the FCC’s Affordable Connectivity Program (ACP) to qualifying low-income customers in fourteen states. Revenues are recognized when an ACP application is completed and accepted. Each month we reconcile subscriber usage to ensure the service was utilized. A monthly file is submitted to the Universal Service Administrative Company for review and approval, at which time we have completed our performance obligation and recognize accounts receivable and revenue. Revenues are recorded in the month when services were rendered, with payment typically received on the 28th of the following month.

 

Torch Wireless

 

Torch Wireless is licensed to provide subsidized mobile broadband services through the FCC’s Affordable Connectivity Program (ACP) to qualifying low-income customers in all fifty states. Revenues are recognized when an ACP application is completed and accepted. Each month we reconcile subscriber usage to ensure the service was utilized. A monthly file is submitted to the Universal Service Administrative Company for review and approval, at which time we have completed our performance obligation and recognize accounts receivable and revenue. Revenues are recorded in the month when services were rendered, with payment typically received on the 28th of the following month.

 

23
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

Surge Blockchain

 

Revenues are generated through the sale of various products such as energy drinks, CBD products, and other top selling products in convenience store and bodega nationwide. At the time in which our products are sold at the store our performance obligation is considered complete. At point of sale, our web portal platform initiates an automated clearing house transaction (ACH) resulting in the recording revenue.

 

LogicsIQ

 

LogicsIQ is an enterprise software development company providing marketing business intelligence (“BI”), plaintiff generation and case load management solutions for law firms representing plaintiffs in Mass Tort legal cases. Revenues are earned from our lead generation and retained services offerings.

 

Lead generation consist of sourcing leads, which requires us to drive traffic to our landing pages for a specific marketing campaign. We also achieve this in certain marketing campaigns by using third-party preferred vendors to meet the needs of our clients. Revenues are recognized at the time the lead is delivered to the client. If payment is received in advance of the delivery of services, it is included in deferred revenue, and subsequently recognized once the performance obligation has been completed.

 

Retained service offerings consist of turning leads into a retained legal case. To provide this service to our customers, we qualify leads through verification of information collected during the lead generation process. Additionally, we further qualify these leads using a client questionnaire which assists in determining the services to be provided. The qualification process is completed using our call center operations.

 

If payment is received in advance of the delivery of services, it is included in deferred revenue, and subsequently recognized once the performance obligation has been completed. At the time of delivery of leads and the creation of retained cases (customers are qualified at this point), our performance obligation has been completed and revenues are recognized. Arrangements with customers do not provide the customer with the right to take possession of our software or platform at any time. Once the advertising is delivered, it is non-refundable.

 

Surge Fintech and ECS

 

Revenues are generated through the sale of telecommunication products such as mobile phones, wireless top-up refills, and other mobile related products. At the time in which our products are sold through our online web portal (point of sale), our performance obligation is considered complete. At point of sale, our web portal platform initiates an automated clearing house transaction (ACH) resulting in the recording revenue.

 

24
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

True Wireless (TW) (Former Subsidiary)

 

TW was licensed to provide wireless services to qualifying low-income customers in five states. Revenues were recognized when a lifeline application was completed and accepted. Each month we reconciled subscriber usage to ensure the service was utilized. A monthly file was submitted to the Universal Service Administrative Company for review and approval, at which time we completed our performance obligation and recognized accounts receivable and revenue. Revenues were recorded in the month when services were rendered, with payment typically received on the 15th of the following month. If the subscriber did not utilize the Lifeline service during the month, we had 15-days to cure usage. If not cured, the subscriber was de-enrolled from the lifeline program at day 45. This process to verify usage and de-enrollment had been temporarily suspended due to the COVID-19 pandemic. Historically, we had had an insignificant amount of subscribers de-enrolled.

 

TW was sold in May 2021 and has been deconsolidated as of the disposal date.

 

Contract Liabilities (Deferred Revenue)

 

Contract liabilities represent deposits made by customers before the satisfaction of performance obligation and recognition of revenue. Upon completion of the performance obligation(s) that the Company has with the customer based on the terms of the contract, the liability for the customer deposit is relieved and revenue is recognized.

 

At March 31, 2022 and 2021, the Company had deferred revenue of $317,700 and $276,250, respectively.

 

25
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

The following represents the Company’s disaggregation of revenues for the three months ended March 31, 2022 and 2021:

 

   Three Months Ended 
   2022   2021 
Revenue  Revenue   % of Revenues   Revenue   % of Revenues 
                 
Surge Phone Wireless  $10,985,878    52%  $1,077    0%
Surge Fintech and ECS   4,770,440    23%   6,914,486    63%
Torch Wireless   3,062,153    14%   -    0%
LogicsIQ, Inc.   2,293,072    11%   3,408,403    31%
Surge Blockchain, LLC   29,829    0%   35,887    0%
True Wireless   -    0%   628,325    6%
Other   -    0%   770    0%
Total Revenues  $21,141,372    100%  $10,988,948    100%

 

Cost of Revenues

 

Cost of revenues primarily consists of purchased telecom services and access to wireless networks.

 

Income Taxes

 

The Company accounts for income tax using the asset and liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.

 

The Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. As of March 31, 2022 and December 31, 2021, respectively, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements.

 

26
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

The Company recognizes interest and penalties related to uncertain income tax positions in other expense. No interest and penalties related to uncertain income tax positions were recorded for the three months ended March 31, 2022 and 2021, respectively.

 

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”). Corporate taxpayers may carryback net operating losses (NOLs) originating between 2018 and 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.

 

In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any material adjustments to our income tax provision for the three months ended March 31, 2022 and 2021, respectively.

 

Investment – Former Related Party

 

On January 17, 2019, we announced the completion of an agreement to acquire a 40% equity ownership of CenterCom Global, S.A. de C.V. (“CenterCom”). CenterCom is a dynamic operations center currently providing sales support, customer service, IT infrastructure design, graphic media, database programming, software development, revenue assurance, lead generation, and other various operational support services. Our CenterCom team is based in El Salvador. CenterCom also provides call center support for various third-party clients.

 

Anthony N. Nuzzo, a director and officer and the holder of approximately 10% of our voting equity had a controlling interest in CenterCom Global. During 2022, Mr. Nuzzo passed away. See Form 8-K filed on March 24, 2022.

 

The strategic partnership with CenterCom as a bilingual operations hub has powered our growth and revenue. CenterCom has been built to support the infrastructure required to rapidly scale in synergy and efficiency to support our sales growth, customer service and development.

 

27
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

We account for this investment under the equity method. Investments accounted for under the equity method are recorded based upon the amount of our investment and adjusted each period for our share of the investee’s income or loss. All investments are reviewed for changes in circumstance or the occurrence of events that suggest an other than temporary event where our investment may not be recoverable.

 

At March 31, 2022 and December 31, 2021, our investment in CenterCom was $418,105 and $443,288, respectively.

 

During the three months ended March 31, 2022 and 2021, we recognized a loss of $25,183 and $73,773, respectively.

 

During 2021, CenterCom forgave $429,010 of accounts payable owed by SurgePays to CenterCom. As a result of this debt forgiveness, occurring with a related party, accordingly, there is no gain that is recorded, the Company has increased additional paid in capital.

 

Advertising Costs

 

Advertising costs are expensed as incurred. Advertising costs are included as a component of general and administrative expense in the consolidated statements of operations.

 

The Company recognized $86,637 and $446,760 in marketing and advertising costs during the three months ended March 31, 2022 and 2021, respectively.

 

Stock-Based Compensation

 

The Company accounts for our stock-based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.

 

The Company uses the fair value method for equity instruments granted to non-employees and use the Black-Scholes model for measuring the fair value of options.

 

The fair value of stock based compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.

 

28
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

When determining fair value of stock based compensation, the Company considers the following assumptions in the Black-Scholes model:

 

Exercise price,
Expected dividends,
Expected volatility,
Risk-free interest rate; and
Expected life of option

 

Stock Warrants

 

In connection with certain financing, consulting and collaboration arrangements, the Company may issue warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of the awards using the Black-Scholes option pricing model as of the measurement date. Warrants issued in conjunction with the issuance of common stock are initially recorded at fair value as a reduction in additional paid-in capital of the common stock issued. All other warrants are recorded at fair value as expense over the requisite service period or at the date of issuance if there is not a service period.

 

Basic and Diluted Earnings (Loss) per Share and Reverse Stock Split

 

Pursuant to ASC 260-10-45, basic earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the periods presented.

 

Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially dilutive common shares may consist of common stock issuable for stock options and warrants (using the treasury stock method), convertible notes and common stock issuable. These common stock equivalents may be dilutive in the future. In the event of a net loss, diluted loss per share is the same as basic loss per share since the effect of the potential common stock equivalents upon conversion would be anti-dilutive.

 

29
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

The following potentially dilutive equity securities outstanding as of March 31, 2022 and 2021 were as follows:

 

   March 31, 2022   March 31, 2021 
Convertible notes payable and related accrued interest (1)   -    314,765 
Warrants (2)   5,852,127    308,210 
Stock options (3)   6,801    3,401 
Series A, convertible preferred stock (4)   26,000    26,000 
Series C, convertible preferred stock (5)   -    3,607,980 
Total common stock equivalents   5,884,928    4,260,356 

 

1- exercise prices variable
2- weighted average exercise price - $8.58/share and $30/share, respectively
3- weighted average exercise price - $16/share and $16/share, respectively
4- each share converts to 1/10 of a share of common stock
5- each share converts to 250 shares of common stock

 

The convertible notes contain exercise prices that had a discount to market ranging from 70% - 75% of the 10 or 20 days (See Note 5). As a result, the amount computed for common stock equivalents could have changed given the quoted closing trading price at each reporting period.

 

Warrants and stock options included as commons stock equivalents represent those that are vested and exercisable.

 

Based on the potential common stock equivalents noted above at March 31, 2022 and December 31, 2021, respectively, the Company has sufficient authorized shares of common stock (500,000,000) to settle any potential exercises of common stock equivalents.

 

Related Parties

 

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.

 

30
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

Recent Accounting Standards

 

Changes to accounting principles are established by the FASB in the form of ASU’s to the FASB’s Codification. We consider the applicability and impact of all ASU’s on our consolidated financial position, results of operations, stockholders’ deficit, cash flows, or presentation thereof. Management has evaluated all recent accounting pronouncements as issued by the FASB in the form of Accounting Standards Updates (“ASU”) through the date these financial statements were available to be issued and found no recent accounting pronouncements issued, but not yet effective accounting pronouncements, when adopted, will have a material impact on the consolidated financial statements of the Company.

 

In June 2016, the FASB issued ASU 2016-13 - Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial Instruments. Codification Improvements to Topic 326, Financial Instruments – Credit Losses, have been released in November 2018 (2018-19), November 2019 (2019-10 and 2019-11) and a January 2020 Update (2020-02) that provided additional guidance on this Topic. This guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For SEC filers meeting certain criteria, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

 

For SEC filers that meet the criteria of a smaller reporting company (including this Company) and for non-SEC registrant public companies and other organizations, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

 

We adopted this pronouncement on January 1, 2021; however, the adoption of this standard did not have a material effect on the Company’s consolidated financial statements.

 

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” This guidance, among other provisions, eliminates certain exceptions to existing guidance related to the approach for intra period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax law. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted.

 

31
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

We adopted this pronouncement on January 1, 2021; however, the adoption of this standard did not have a material effect on the Company’s consolidation financial statements.

 

In August 2020, FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity; Own Equity (“ASU 2020-06”), as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Among other changes, the new guidance removes from GAAP separation models for convertible debt that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will no longer separately present such embedded conversion features in equity and will instead account for the convertible debt wholly as debt. The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the Company’s current accounting treatment under the current guidance. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the fiscal year.

 

We adopted this pronouncement on January 1, 2022; however, the adoption of this standard did not have a material effect on the Company’s consolidated financial statements.

 

Reclassifications

 

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the consolidated results of operations, stockholders’ equity (deficit), or cash flows.

 

32
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

Note 3 – Property and Equipment

 

Property and equipment consisted of the following:

 

Type  March 31, 2022   December 31, 2021   Estimated Useful
Lives (Years)
            
Computer equipment and software  $293,130   $283,484   3 - 5
Furniture and fixtures   84,507    82,752   5 - 7
Property and equipment, gross   377,637    366,236    
Less: accumulated depreciation   (173,479)   (165,788)   
Property and equipment - net  $204,158   $200,448    

 

Depreciation expense for the three months ended March 31, 2022 and 2021 was $7,691 and $15,831, respectively.

 

These amounts are included as a component of general and administrative expenses in the accompanying consolidated statements of operations.

 

Note 4 – Intangibles

 

Intangibles consisted of the following:

 

Type  March 31, 2022   December 31, 2021   Estimated Useful
Lives (Years)
            
Proprietary Software  $4,286,402   $4,286,402   7
Tradenames/trademarks   617,474    617,474   15
ECS membership agreement   465,000    465,000   1
Noncompetition agreement   201,389    201,389   2
Customer Relationships   183,255    183,255   5
    5,753,520    5,753,520    
Less: accumulated amortization   (2,483,413)   (2,320,036)   
Intangibles - net  $3,270,107   $3,433,484    

 

33
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

ECS has been a financial technology and wireless top-up platform for over 15 years. On October 1, 2019, we acquired ECS primarily for the favorable ACH banking relationships and a fintech transactions platform (proprietary software) processing over 20,000 transactions a day at approximately 8,000 independently owned retail stores. The goal was to incorporate our blockchain components into the existing ECS network (proprietary software). After a year of development and integration, we believe the ECS platform has been successfully merged into our platform with secure ledger data backups and will continue to serve as the proven backbone for wireless top-up transactions and wireless product aggregation. The majority of the purchase price was allocated to the “Proprietary Software” category being amortized straight-line over seven years.

 

Amortization expense for the three months ended March 31, 2022 and 2021 was $163,377 and $202,127, respectively.

 

Estimated amortization expense for each of the five (5) succeeding years is as follows:

 

For the Year Ended December 31, 2022:    
     
2022 (9 months)  $490,131 
2023  653,508 
2024  653,508 
2025  653,508 
2026  653,508 
2027   165,944 
Total  $3,270,107 

 

34
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

Note 5 – Debt

 

The following represents a summary of the Company’s notes payable – SBA government, loans payable – related parties, notes payable and convertible notes, key terms, and outstanding balances at March 31, 2022 and December 31, 2021, respectively:

 

Notes Payable – SBA government

 

(1) Paycheck Protection Program - PPP Loan

 

Pertaining to the Company’s eighteen (18) month loan and in accordance with the Paycheck Protection Program (“PPP”) and Conditional Loan Forgiveness, the promissory note evidencing the loan contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, or provisions of the promissory note. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Company, and/or filing suit and obtaining judgment against the Company.

 

Under the terms of the PPP loan program, all or a portion of this Loan may be forgiven upon request from Borrower to Lender, provided the Loan proceeds are used in accordance with the terms of the Coronavirus Aid, Relief and Economic Security Act (the “Act” or “CARES”), Borrower is not in default under the Loan or any of the Loan Documents, and Borrower has provided documentation to Lender supporting such request for forgiveness that includes verifiable information on Borrower’s use of the Loan proceeds, to Lender’s satisfaction, in its sole and absolute discretion.

 

(2) Economic Injury Disaster Loan (“EIDL”)

 

This program was made available to eligible borrowers in light of the impact of the COVID-19 pandemic and the negative economic impact on the Company’s business. Proceeds from the EIDL are to be used for working capital purposes.

 

Installment payments, including principal and interest, are due monthly (beginning twelve (12) months from the date of the promissory note) in amounts ranging from $109 - $751/month. The balance of principal and interest is payable over the next thirty (30) years from the date of the promissory note. There are no penalties for prepayment. Based upon guidance issued by the SBA on June19, 2020, the EIDL Loan is not required to be refinanced by the PPP loan.

 

35
 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(UNAUDITED)

 

   PPP   EIDL   EIDL   PPP     
Terms  SBA   SBA   SBA   SBA     
                     
Issuance dates of SBA loans   April 2020    May 2020    July 2020    March 2021      
Term   18 months    30 Years    30 Years    5 Years      
Maturity date   October 2021    May 2050    July 2050    March 2026      
Interest rate   1%   3.75%   3.75%   1%     
Collateral   Unsecured    Unsecured    Unsecured    Unsecured      
Conversion price   N/A    N/A    N/A    N/A      
                          
                        Total 
                          
Principal  $498,082   $150,000   $486,600   $518,167   $1,652,849 
                          
Balance - December 31, 2020  $498,082   $150,000   $486,600