This statement contains forward-looking statements within the meaning of the
Securities Act. Discussions containing such forward-looking statements may be
found throughout this statement. Actual events or results may differ materially
from those discussed in the forward-looking statements as a result of various
factors, including the matters set forth in this statement. The accompanying
consolidated financial statements as of March 31, 2022 and 2021 and for the
three months then ended includes the accounts of SurgePays, Inc. and its wholly
owned subsidiaries during the period owned by SurgePays, Inc.
SurgePays, Inc ("SurgePays", "we" the "Company") was incorporated in Nevada on
August 18, 2006, is a technology-driven company building a next generation
supply chain software platform that offers wholesale goods and services in a
cost-efficient manner as an alternative to traditional wholesale supply chain
distribution models. We offer goods and services direct to convenience stores,
bodegas, minimarts, tiendas and other corner stores, providing goods and
services primarily to the underbanked community. Our products are currently
distributed nationwide using our direct to store distribution ("DSD") system
that reaches more than 8,000 outlets. We market our products using a range of
marketing mediums, including in-store merchandising and promotions, experiential
marketing, sales spiffs and incentives, digital marketing and social media, and
internal regional salespeople.
About SurgePays, Inc.
SurgePays, Inc. is a financial technology and telecom company focused on
providing essential services to the underbanked community. The Company's
blockchain fintech platform utilizes a suite of financial and prepaid products
to convert corner stores into tech-hubs for underbanked neighborhoods. The
Company's telecom subsidiaries provide mobile broadband, voice and SMS text
messaging to both subsidized and direct retail prepaid customers.
SurgePhone Wireless, Torch Wireless and LocoRabbit Wireless
SurgePhone and Torch, wholly owned subsidiaries of SurgePays, are a mobile
virtual network operator (MVNO) company with 2 branded channels of business.
SurgePhone and Torch are licensed by the U.S. Federal Communications Commission
(the "FCC") to provide subsidized mobile broadband services to consumers
qualifying under the federal guidelines of the Affordable Connectivity Program
(the "ACP"). The ACP (the successor program, as of March 1, 2022 to the
Emergency Broadband Benefit program) provides SurgePhone 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. SurgePhone has received approval to offer subsidized mobile broadband
in these 14 states: California, Colorado, Florida, Illinois, Maryland,
Mississippi, Missouri, Nevada, New Jersey, Ohio, Oklahoma, Rhode Island,
Tennessee, and Texas. Torch Wireless has received approval to offer subsidized
mobile broadband to all fifty states and Puerto Rico.
LocoRabbit is the retail pure prepaid wireless offering with talk, text, and 4G
LTE data at prices that are lower than other well-known prepaid competitors.
Available nationwide, LocoRabbit is sold online direct to consumers through the
nationwide network of convenience stores, gas stations, mini-marts, bodegas and
tiendas connected to the SurgePays software platform. The SIM kits usually hang
from a peg hook on the SurgePays gift card rack. Due to owning the payment
platform, SurgePays is able to exclusively offer an industry high commission to
the retailer for top-ups paid monthly at the client's store.
SurgePays Fintech (ECS Business)
We refer to the collective operations of ECS Prepaid, LLC, a Missouri limited
liability company, Electronic Check Services, Inc., a Missouri corporation, and
Central States Legal Services, Inc., a Missouri corporation, as "SurgePays
Fintech." This was previously referred to as the "ECS Business."
SurgePays Fintech has been a financial technology tech and wireless top-up
platform for over 15 years. Through a series of transactions between October
2019 and January 2020, we acquired the ECS Business primarily for the favorable
ACH banking relationship; a fintech transactions platform 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 Business
network. As of January 1, 2021, we believe the ECS Business 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 for the SurgePays nationwide network.
SurgePays Blockchain Software is a back-office marketplace platform offering
wholesale consumable goods direct to convenience stores, bodegas, minimarts,
tiendas and other corner stores who are transacting on the SurgePays Fintech
platform. The wholesale e-commerce platform is easily accessed through the
secure app interface - similar to a website. We believe what makes this sales
platform unique is that it also offers the merchant the ability to order
wholesale consumable goods at a significant discount from traditional
distributors with one touch ease. We are able to sell products at a significant
discount by using on demand Direct Store Delivery (DSD.) Our platform is
connected directly to manufactures, who ship products direct to the store while
cutting out the middleman. The goal of the SurgePays Portal is to leverage the
competitive advantage and efficiencies of e-commerce to provide as many commonly
sold consumable products as possible to convenience stores, corner markets,
bodegas, and supermarkets while increasing profit margins for these stores.
These products include herbal stimulants, energy pills and shot drinks, dry
foods, communication accessories, novelties, PPP products, bagged snacks,
processed meats, automotive parts and many more goods, all in one convenient
wholesale e-commerce platform.
LogicsIQ, Inc. is a software development company providing marketing business
intelligence ("BI"), lead generation, and case management solutions primarily to
law firms in the mass tort industry. The company's CRM "Intake Logics"
facilitates the entire life cycle of converting a potential lead into a signed
retainer client integrated into the law firms case management software. Our
proven strategy of delivering cost-effective retained cases to our attorney and
law firm clients means those clients are better able to manage their media and
advertising budgets and reach targeted audiences more quickly and effectively
when utilizing our proprietary data driven analytics dashboards. Our ability to
deliver transparent results has bolstered our reputation as an industry leader
and solidified a solid client base.
On April 29, 2022, we confidentially submitted an amended draft registration
statement on Form S-1 with the SEC relating to an initial public offering of
LogicsIQ's common stock. If, after the SEC completes its review process, and
subject to market and other conditions, the registration statement is declared
effective and the initial public offering closes, LogicsIQ will still remain
majority owned by SurgePays.
Since 2019, we have owned a 40% equity interest in Centercom Global, S.A. de
C.V. ("Centercom"). Centercom is a bilingual operations center providing the
Company with sales support, customer service, IT infrastructure design, graphic
media, database programming, software development, revenue assurance, lead
generation, and other various operational support services. Centercom is based
in El Salvador.
As the Company announced on March 24, 2022 via the filing of a Current Report on
Form 8-K, Anthony P. Nuzzo, Jr., the Company's President, a member of the
Company's Board of Directors (the "Board"), and the Chief Executive Officer of
LogicsIQ, a subsidiary of which we own over 90%, died suddenly on March 18,
2022. The entire Company mourns this terrible loss.
Mr. Nuzzo owned 50% of Centercom.
COMPARISON OF THREE MONTHS ENDED March 31, 2022 AND 2021
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' deficit, or cash flows.
At March 31, 2022 and December 31, 2020, respectively, on the consolidated
balance sheets, the Company separated its various types of debt into more
distinct categories. Certain accounts payable were reclassified from non-current
For the three months ended March 31, 2022 and 2021, respectively, on the
consolidated statements of operations, the Company reclassified certain expenses
amongst general and administrative and cost of revenues.
Revenues during the three months ended March 31, 2022 and 2021 consisted of the
Revenue $ 21,141,372 $ 10,988,948
Cost of revenue (exclusive of depreciation
and amortization) 18,507,741 9,859,434
General and administrative expenses 3,683,782 3,237,684
Loss from operations $ (1,050,151 ) $ (2,082,170 )
Revenue increased $10,152,424 (92%) primarily as a result of an increases in
revenue for: SurgePhone Wireless of $10,984,801 and Torch Wireless of $3,062,153
offset by a decrease in Surge Fintech/ECS of $2,144,816 and LogicsIQ of
$1,115,331. Loss from operations decreased by $1,032,019 (50%) primarily as a
result of an increase in operating income in SurgePhone Wireless and Torch
General and administrative expenses during the three months ended March 31, 2022
and 2021 consisted of the following:
Depreciation and amortization $ 171,068 $ 217,958
Selling, general and administration 3,512,714 3,019,726
$ 3,683,782 $ 3,237,684
Depreciation and amortization decreased $46,890 primarily as a result of fully
Selling, general and administrative expenses during the three months ended March
31, 2022 and 2021 consisted of the following:
Contractors and consultants $ 552,089 $ 378,549
Professional services 163,791 537,319
Compensation 1,728,482 961,202
Webhosting/internet 93,999 218,400
Advertising and marketing 86,637 446,759
Other 887,716 477,497
Total $ 3,512,714 $ 3,019,726
Selling, general and administrative costs (S, G & A) increased by $492,988
(16%). The detail changes are discussed below:
* Contractors and consultants increased to $552,089 in 2022 from $378,549 in 2021
primarily due to an increase in call center expenses related to the increase in
subscribers of the ACP program. This program did not exist during the first
quarter of 2021.
* Professional services decreased from $537,319 in 2021 to $163,791 in 2022
primarily as a result of placement fees for various funding sources paid in
* Compensation increased from $961,202 in 2021 to $1,728,482 in 2022 primarily as
a result of one-time bonuses paid to various management personnel in 2022.
* Webhosting/internet costs decreased to $93,999 in 2022 from $218,400 in 2021.
* Advertising and marketing costs decreased to $86,637 in 2022 from $446,759 in
2021 primarily due to a normalization of advertising costs in 2022. The Company
implementing new advertising and marketing campaigns in the first quarter of
* Other costs increased to $887,716 in 2022 from $477,497 in 2021 primarily due
to the following changes period over period:
? Building expenses decreased by $13,922
? insurance expense increased by $353,788 as a result of additional coverages
required as part of uplisting to Nasdaq in the fourth quarter of 2021.
? Officed expenses increased by $12,638
? other operating expense decreased by $6,585
Other (expense) income during the three months ended March 31, 2022 and 2021
consisted of the following:
Interest, net $ (169,645 ) $ (599,635 )
Change in fair value of derivative liability - 303,850
Derivative expense - (1,775,057 )
Amortization of debt discount - (704,225 )
Gain on equity investment in Centercom (25,183 ) (73,773 )
Gain (loss) on settlement of liabilities - 141,579
Total Other (expense) income $ (194,828 ) $ (2,707,261 )
Interest expense decreased due to the repayment of various notes during 2021.
The loss on equity investment in Centercom of $25,183 in 2022 compared to an
equity loss of $73,773 in 2021.
Operating segments are defined as components of an enterprise about which
separate financial information is available and evaluated regularly by the chief
operating decision maker, or decision-making group, in deciding how to allocate
resources and in assessing performance. The Company's chief operating decision
maker is its Chief Executive Officer.
The Company evaluated performance of its operating segments based on revenue and
operating loss. Segment information for the three and nine months ended March
31, 2022 and 2021, are as follows:
For the Three Months Ended March 31,
SurgePhone Wireless $ 10,985,878 $ 1,077
Torch Wireless 3,062,153 -
Surge Blockchain 29,829 35,887
LogicsIQ 2,293,072 3,408,403
Surge Fintech & ECS 4,770,440 6,915,256
True Wireless - 628,325
SurgePays - -
Total $ 21,141,372 $ 10,988,948
Cost of revenues
SurgePhone Wireless $ 8,786,793 $ 2,469
Torch Wireless 3,092,209 -
Surge Blockchain - 1,966
LogicsIQ 2,000,420 2,966,953
Surge Fintech & ECS 4,628,319 6,700,585
True Wireless - 187,461
SurgePays - -
Total $ 18,507,741 $ 9,859,434
SurgePhone Wireless $ 35,195 $ 11,762
Torch Wireless 27,131 -
Surge Blockchain 369 8,475
LogicsIQ 659,894 355,630
Surge Fintech & ECS 342,124 397,540
True Wireless - 232,066
SurgePays 2,619,069 2,232,211
Total $ 3,683,782 $ 3,327,684
Operating income (loss)
SurgePhone Wireless $ 2,163,890 $ (13,154 )
Torch Wireless (57,187 ) -
Surge Blockchain 29,460 25,446
LogicsIQ (367,242 ) 85,820
Surge Fintech & ECS (200,003 ) (182,869 )
True Wireless - 208,798
SurgePays (2,619,069 ) (2,232,211 )
Total $ (1,050,151 ) $ (2,108,170 )
March 31, December 31,
SurgePhone Wireless $ 2,007,043 $ (161,110 )
Torch Wireless 6,067 -
Surge Blockchain (578,728 ) (608,188 )
LogicsIQ 1,437,247 1,284,562
Surge Fintech & ECS 3,694,102 3,870,409
True Wireless - -
SurgePays 11,234,963 15,114,529
Total $ 17,800,694 $ 19,500,202
SurgePhone Wireless $ 10,036 $ 5,773
Torch Wireless 63,254 -
Surge Blockchain 197,614 197,614
LogicsIQ 2,577,559 2,056,886
Surge Fintech & ECS 72,043 48,346
True Wireless - -
SurgePays 12,525,160 13,640,262
Total $ 15,445,666 $ 15,948,881
SurgePhone Wireless and Torch Wireless
The SurgePhone Wireless revenue for the three months ended March 31,2022
increased by $10,984,801 as compared to the three months ended March 31, 2021.
The increase was a result of being newly licensed to provide the Emergency
Broadband Benefit ("EBB") program and Affordable Connectivity Program ("ACP").
These programs provided $10,985,878 in new revenue for the quarter ended March
31, 2022. Cost of revenues for the three months ended March 31, 2022, increased
by $8,784,324 from the same period ended March 31, 2021, as a result of the
purchases of devices, data usage expenses and commission paid for the ACP
program. The operating income increased from a loss of $13,154 as of the three
months ended March 31, 2021, to operating income of $2,163,890 as of three
months ended March 31, 2022.
The Torch Wireless revenue for the three months ended March 31,2022 increased by
$3,062,153 as compared to the three months ended March 31, 2021. The increase
was a result of the acquisition of Torch Wireless on March 31, 2022 which is
licensed to provide the Emergency Broadband Benefit ("EBB") program and
Affordable Connectivity Program ("ACP"). This program provided $3,062,153in new
revenue from the same period ended March 31, 2021, Cost of revenues for the
three months ended March 31, 2022 increased by $3,092,209 as a result of the
purchases of devices, data usage expenses and commission paid for the ACP
program. The operating loss was $57,187 as of three months ended March 31, 2022.
The revenue for the three months ended March 31, 2022 decreased by $6,058
compared to the three months March 31, 2021. The operating income for the three
months ended March 31, 2022 increased by $4,014 compared to the same period in
The revenue for the three months ended March 31, 2022 decreased by $1,115,331
compared to the three months ended March 31, 2021. LogicsIQ has two main revenue
streams, leads generation and retained services. The lead generation segment
decreased by $587,070 as of the three months ended March 31, 2022 from the same
period in 2021. The retained services segment decreased by $528,261 as of the
three months ended March 31, 2022 from the same period in 2021. Operating income
decreased by $453,062 for comparable periods of 2022 to 2021. LogicsIQ ended
with an operating loss of $367,242 for the three months ended March 31, 2022
compared to an operating income of $85,820 for the same period in 2021.
Surge Fintech and ECS
The revenue for the three months ended March 31, 2022 was $4,770,440 compared to
$6,915,256 for the same period in 2021. The decrease of 31% was a continuing
result of the impact of COVID-19 and our strategic plan to move our salesforce
from independent contractors to employed salespersons.
True Wireless (TW)
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. 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 25 payments of principal and
accrued interest totaling $7,461 commencing in September 2023.
Each segment was impacted by COVID-19 in varying degrees, however, the overall
increase in revenue of $10,152,424 from 2021 to 2022 for the three months ended
March 31, can be attributable to opening of some markets and the new revenue
stream of the EBB program. The net operating loss improved by $1,058,019 from
three months ended March 31, 2021 to the three months ended March 31, 2022.
LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN
At March 31, 2022 and December 31, 2021, our current assets were $12,401,975 and
$13,892,681, respectively, and our current liabilities were $8,916,776 and
$9,998,194, respectively, which resulted in a working capital surplus of
$3,485,199 on March 31, 2022 and a working capital deficit of $3,894,487 on
December 31, 2021.
Total assets at March 31, 2022 and December 31, 2021 amounted to $17,800,694 and
$19,500,202, respectively. At March 31, 2022, assets consisted of current assets
of $12,401,975, net property and equipment of $204,158, net intangible assets of
$3,270,107, goodwill of $866,782, equity investment in Centercom (related party)
of $418,105, note receivable of $176,850 and net operating lease right of use
asset of $462,716, as compared to current assets of $13,892,681, net property
and equipment of $200,448, net intangible assets of $3,433,484, goodwill of
$866,782, equity investment in Centercom (related party) of $443,288, notes
receivable of $176,851 and net operating lease right of use asset of $486,668 at
December 31, 2021.
At March 31, 2022, our total liabilities of $15,446,105 decreased by $502,776
from $15,948,881 at December 31, 2021.
At March 31, 2022, our total stockholders' equity was $2,354,589 as compared to
$3,551,321 at December 31, 2021. The principal reason for the decrease in
stockholders' equity was the impact of the net loss for the period.
The following table sets forth the major sources and uses of cash for the three
months ended March 31, 2022 and 2021.
March 31, 2022 March 31, 2021
Net cash used in operating activities $ (3,323,556 ) $ (3,435,354 )
Net cash used in investing activities
(11,401 ) (2,615 )
Net cash provided by financing activities 494,387 4,366,448
Net change in cash and cash equivalents $ (2,840,570 ) $ 928,479
At December 31, 2021, the Company had the following material commitments and
Debt See Note 5 to the Consolidated Financial Statements.
Related party transactions - See Notes 2, 5 and 8 to the Consolidated Financial
Cash requirements and capital expenditures - At the current level of operations,
the Company has to borrow funds to meet basic operating costs.
Known trends and uncertainties - The Company is planning to acquire other
businesses with similar business operations. The uncertainty of the economy may
increase the difficulty of raising funds to support the planned business
We believe we will have a net income for the three months ended June 30, 2022
and continue to increase net income over the remaining periods of 2022. We
expect the ACP revenue stream to increase month over month for the remainder of
2022. Our attention will shift quickly from our hyper growth in the broadband
sector to the emphasis of on-boarding merchants and stores on our fintech
platform. This will allow us to fully implement our sales strategy, resulting in
increased revenue in all segments of our business. At this point in time, the
Company does not anticipate the need to raise capital through any equity plays.
We may need from time to time a line of credit to enhance the hyper growth in
the ACP programs.
On March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (the
"CARES Act") was enacted and included a provision for the Small Business
Administration ("SBA") to implement its Paycheck Protection Program ("PPP"). The
PPP provides small businesses with funds to pay up to eight (8) weeks of payroll
costs, including benefits. Funds received under the PPP may also be used to pay
interest on mortgages, rent, and utilities. Subject to certain criteria being
met, all or a portion of the loans may be forgiven. The loans bear interest at
an annual rate of one percent (1%), are due two (2) years from the date of
issuance, and all payments are deferred for the first nine (6) months of the
loan. Any unforgiven balance of loan principal and accrued interest at the end
of the nine (6) month loan deferral period is amortized in equal monthly
installments over the remaining 18-months of the loan term. On January 25, 2022,
the Company was notified of $371,665 in forgiveness of the $498,082 SBA
guaranteed PPP loan with Bank3. The outstanding balance of $126,418 is a
30-year, 1% annual interest rate. In addition, the Company received $636,600 in
several Economic Injury Disaster Loans with the Small Business Administration.
These loans all carry a 3.75% interest rate payable over 30 years. First payment
due 12 months from date of note.
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