Form S-1/A SurgePays, Inc.

June 18, 2021 6:08 AM EDT

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As filed with the U.S. Securities and Exchange Commission on June 17, 2021

 

Registration No. 333-233726

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1/A

(Amendment No. 2)

REGISTRATION STATEMENT

Under The Securities Act of 1933

 

SURGEPAYS, INC.

(Exact name of Registrant as specified in its charter)

 

Nevada   7310   98-0550352
(State or Other Jurisdiction of
Incorporation or Organization)
 

(Primary Standard Industrial

Classification Code Number)

  (I.R.S. Employer
Identification Number)

 

3124 Brother Blvd, Suite 410

Bartlett, TN 38133

(847) 648-7541

 

(Address, including zip code, and telephone number, including

area code, of Registrant’s principal executive offices)

 

Kevin Brian Cox, Chief Executive Officer

Anthony Evers, Chief Financial Officer

SurgePays, Inc.

3124 Brother Blvd, Suite 410

Bartlett, TN 38133

(847) 648-7541

(Name, address, including zip code, and telephone number

including area code, of agent for service)

 

With Copies to:

 

Joseph M. Lucosky, Esq.

Lucosky Brookman LLP

101 Wood Avenue South, 5th Floor

Woodbridge, New Jersey 08830

(732) 395-4400

 

M. Ali Panjwani, Esq.

Pryor Cashman LLP

7 Times Square

New York, New York 10036

(212) 421-4100

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [  ]

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 [X] Smaller Reporting Company [  ]  
      Emerging Growth Company [X]  

 

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 pursuant to Section 7(a)(2)(B) of the Securities Act. [  ]

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities to be Registered (1)  Proposed Maximum Aggregate Offering Price   Amount of Registration Fee 
Units consisting of shares of Common Stock, par value $0.001 per share, and Warrants to purchase shares of Common Stock, par value $0.001 per share (2)  $13,800,000   $1,505.58 
Common Stock included as part of the Units         
Warrants to purchase shares of Common Stock included as part of the Units (3)         
Shares of Common Stock issuable upon exercise of the Warrants (4)(5)   15,180,000    1,656.14 
Representative’s Warrants (6)         
Shares of Common Stock issuable upon exercise of the Representative’s Warrants (7)   924,000    100.81 
Total  $29,904,000(8)(9)  $3,262.53(10)

 

 

 

(1) In the event of a stock split, stock dividend, or similar transaction involving our Common Stock, the number of shares registered shall automatically be increased to cover the additional shares of Common Stock issuable pursuant to Rule 416 under the Securities Act.
   
(2) Includes Common Stock and/or Warrants that may be issued upon exercise of a 45-day option granted to the underwriter to cover over-allotments, if any.
   
(3) In accordance with Rule 457(i) under the Securities Act, because the shares of the Registrant’s Common Stock underlying the Warrants are registered hereby, no separate registration fee is required with respect to the Warrants registered hereby.
   
(4) There will be issued Warrants to purchase one share of Common Stock for every one share of Common Stock offered. The Warrants are exercisable at a per share price equal to [110]% of the Common Stock public offering price.
   
(5) Includes shares of Common Stock which may be issued upon exercise of additional Warrants which may be issued upon exercise of 45-day option granted to the underwriter to cover over-allotments, if any.
   
(6) No additional registration fee is payable pursuant to Rule 457(g) under the Securities Act.
   
(7) The Representative’s Warrants are exercisable into a number of shares of Common Stock equal to 7% of the number of shares of Common Stock sold in this offering, excluding upon exercise the option to purchase additional securities, at an exercise price equal to 110% of the public offering price per Unit.
   
(8) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended
   
(9) Includes the aggregate offering price of the additional shares of Common Stock and/or Warrants, or combination of both, that the underwriters have the option to purchase to cover over allotments, if any, within 45 days of this offering.
   
(10) The Registrant previously paid a registration fee of $1,393.80 in connection with the prior filing of this Registration Statement.

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission acting pursuant to said section 8(a), may determine.

 

 

 

 

 

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED JUNE __, 2021

 

SURGEPAYS, INC.

 

Units

 

This is a firm commitment underwritten public offering of [_______] units (the “Units”), based on an assumed public offering price of $[___] per Unit, of SurgePays, Inc., a Nevada corporation the “Company,” “we,” “us,” “our”). Each Unit consists of one share of common stock, par value $0.001 per share (“Common Stock”), and one warrant (each a “Warrant” and collectively, the “Warrants”) to purchase one share of Common Stock at an exercise price of $[_____] per share, constituting [●] % of the price of each Unit sold in this offering. The Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. The shares of Common Stock and the Warrants comprising the Units are immediately separable and will be issued separately in this offering. Each Warrant offered hereby is immediately exercisable on the date of issuance and will expire [three] years from the date of issuance.

 

We are a fully reporting company under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our Common Stock is currently quoted on the OTCQB Marketplace (the “OTCQB”) under the symbol “SURG.” As of June 16, 2021, the last reported sales price for our Common Stock as quoted on the OTCQB was $0.12 per share ($[___] per share assuming a reverse stock split of 1-for-[___]). There is currently no public market for the offered Warrants. We have applied to list our Common Stock and Warrants on the Nasdaq Capital Market under the symbol “SURG” and “SURGW”, respectively. There can be no assurance that we will be successful in listing our Common Stock or Warrants on the Nasdaq Capital Market. This offering will occur only if Nasdaq approves the listing of our Common Stock and Warrants. Prices of our Common Stock as reported on the OTCQB may not be indicative of the prices of our Common Stock if our Common Stock were traded on the Nasdaq Capital Market.

 

The offering price of the Units will be determined by us and Maxim Group LLC (“Maxim”), as representative of the underwriters, taking into consideration several factors as described between the underwriters and us at the time of pricing, considering our historical performance and capital structure, prevailing market conditions, and overall assessment of our business, and will not be based upon the price of our Common Stock on the OTCQB. Therefore, the assumed public offering price used throughout this prospectus may not be indicative of the actual public offering price for our Common Stock and the Warrants.

 

Unless otherwise noted and other than in our financial statements and the notes thereto, the share and per share information in this prospectus reflects a proposed reverse stock split of the outstanding Common Stock and treasury stock of the Company at an assumed 1-for-[___] ratio to occur immediately following the effective date but prior to the closing of the offering.

 

Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 10 of this prospectus for a discussion of information that should be considered in connection with an investment in our securities.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities offered hereby, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

    Per Share     Total  
Public offering price   $            $        
Underwriting discounts and commissions (1)   $       $    
Proceeds to us, before expenses (2)   $       $    

 

(1) We have also agreed to issue Warrants to purchase shares of our Common Stock to the underwriter and to reimburse the underwriter for certain expenses. See “Underwriting” on page 62 for additional information regarding total underwriter compensation.
(2) The amount of offering proceeds to us presented in this table does not give effect to any exercise of the: (i) Over-Allotment Option (if any) we have granted to the underwriters as described below and (ii) Representative Warrants being issued to the underwriters in this offering.

 

We have granted a 45-day option to the underwriters, exercisable one or more times in whole or in part, to purchase up to an additional [___] of the shares of Common Stock and/or [___] additional Warrants at a price from us in any combination thereof at the public offering price per share of Common Stock and per Warrant, respectively, less, in each case, the underwriting discounts payable by us, in any combination solely to cover over-allotments, if any.

 

The underwriter expects to deliver the securities against payment to the investors in this offering on or about [_________], 2021.

 

The date of this prospectus is ____ __, 2021

 

Sole Book-Running Manager

 

Maxim Group LLC

 

 

 

 

TABLE OF CONTENTS

 

  Page
Prospectus Summary 1
Risk Factors 10
Use of Proceeds 20
Market For Our Common Stock and Related Stockholder Matters 21
Cautionary Note Regarding Forward-Looking Statements 21
Capitalization 22
Dilution 23
Management’s Discussion and Analysis of Financial Condition and Results of Operations 24
Business 32
Directors and Executive Officers 40
Executive Compensation 44
Security Ownership of Certain Beneficial Owners and Management 48
Certain Relationships and Related Party Transactions 49
Description of Capital Stock 51
Shares Eligible for Future Sale 56
Material U.S. Federal Income Tax Considerations 56
Underwriting 62
Transfer Agent and Registrar 69
Legal Matters 69
Experts 69
Where You Can Find More Information 69
Index to Consolidated Financial Statements 70

 

You should rely only on information contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We have not, and the underwriter has not, authorized anyone to provide you with additional information or information different from that contained in this prospectus or in any free writing prospectus. Neither the delivery of this prospectus nor the sale of our securities means that the information contained in this prospectus or any free writing prospectus is correct after the date of this prospectus or such free writing prospectus. This prospectus is not an offer to sell or the solicitation of an offer to buy our securities under any circumstances in which the offer or solicitation is unlawful or in any state or other jurisdiction where the offer is not permitted.

 

The information in this prospectus is accurate only as of the date on the front cover of this prospectus and the information in any free writing prospectus that we may provide you in connection with this offering is accurate only as of the date of that free writing prospectus. Our business, financial condition, results of operations and prospects may have changed since those dates.

 

No person is authorized in connection with this prospectus to give any information or to make any representations about us, the securities offered hereby or any matter discussed in this prospectus, other than the information and representations contained in this prospectus. If any other information or representation is given or made, such information or representation may not be relied upon as having been authorized by us.

 

Through and including [  ], 2021 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

Neither we nor the underwriter have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. You are required to inform yourself about, and to observe any restrictions relating to, this offering and the distribution of this prospectus.

 

 

 

 

PROSPECTUS SUMMARY

 

This summary highlights selected information appearing elsewhere in this prospectus. While this summary highlights what we consider to be important information about us, you should carefully read this entire prospectus before investing in our Common Stock, especially the risks and other information we discuss under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and our consolidated financial statements and related notes beginning on page F-1. Our fiscal year end is December 31 and our fiscal years ended December 31, 2020 and 2019 are sometimes referred to herein as fiscal years 2020 and 2019, respectively. Some of the statements made in this prospectus discuss future events and developments, including our future strategy and our ability to generate revenue, income and cash flow. These forward-looking statements involve risks and uncertainties which could cause actual results to differ materially from those contemplated in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements”. Unless otherwise indicated or the context requires otherwise, the words “SurgePays,” “we,” “us,” “our”, the “Company” or “our Company” refer to SurgePays, Inc., a Nevada corporation, and its subsidiaries.

 

Business Overview

 

SurgePays, 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.

 

Listing on the Nasdaq Capital Market

 

Our Common Stock is currently quoted on the OTCQB Market under the symbol “SURG.” In connection with this offering, we have applied to list our Common Stock and the Warrants offered in the offering on the Nasdaq Capital Market (“Nasdaq”) under the symbols “SURG” and “SURGW”, respectively. If our listing application is approved, we expect to list our Common Stock and the Warrants offered in the offering on Nasdaq upon consummation of the offering, at which point our Common Stock will cease to be traded on the OTCQB Market. No assurance can be given that our listing application will be approved. This offering will occur only if Nasdaq approves the listing of our Common Stock and Warrants. Nasdaq listing requirements include, among other things, a minimum stock price threshold. As a result, prior to effectiveness, we will need to take the necessary steps to meet Nasdaq listing requirements, including, but not limited to, a reverse split of our outstanding Common Stock.

 

SurgePays Blockchain Software

 

SurgePays Blockchain Software is a multi-purpose e-commerce platform offering wholesale goods and services direct to convenience stores, bodegas, minimarts, tiendas and other corner stores providing goods and services primarily to the underbanked community. SurgePays leverages DSD and the cost saving efficiencies of e-commerce to provide our customers as many commonly sold consumable products as possible with a focus on increasing profit margins. These products include herbal stimulants, energy shots, dry foods, CBD products, communication accessories, novelties, PPP products, bagged snacks and food items, automotive parts and many more goods, all through one convenient wholesale e-commerce platform.

 

Surge Marketplace Software

 

Surge Marketplace Software allows the merchant to use the portal interface, which is similar to a website, with image driven navigation to add wireless minutes to any prepaid wireless carrier’s phone and access to other services such as bill payment and loading debit cards. We believe what makes SurgePays unique in that it also offers the merchant the ability to order wholesale consumable goods at a discount through the portal with one touch ease. SurgePays is essentially a wholesale e-commerce storefront that offers products direct from manufactures. The goal of the SurgePays Portal is to leverage the competitive advantage and efficiencies of direct e-commerce to provide as many commonly sold consumable products as possible to convenience stores, all through one convenient wholesale e-commerce platform.

 

1

 

 

Electronic Check Services (ECS)

 

ECS has been a financial technology tech and wireless top-up platform for over 15 years. On October 1, 2019, we acquired ECS 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 network. 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.

 

LocoRabbit Wireless

 

LocoRabbit Wireless offers prepaid wireless plans with talk, text, and 4G LTE data at prices that are lower than direct competitors. Available nationwide, LocoRabbit Wireless is sold online direct to consumers and by a nationwide network of convenience stores, gas stations, mini-marts, bodegas and tiendas connected to the SurgePays software platform. Due to our wireless 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.

 

True Wireless

 

True Wireless is licensed through the FCC to provide Lifeline Service (subsidized wireless service to qualifying low-income customers) in five (5) states. Utilizing the T-Mobile backbone, True Wireless provides discounted and free wireless service to veterans and other disadvantaged customers who qualify for certain federal programs such as SNAP (EBT) and Medicaid.

 

LogicsIQ

 

LogicsIQ, Inc. is wholly owned subsidiary that operates as a performance-driven marketing firm focused on the mass tort industry for attorneys and law firms. We primarily perform client acquisition and retention services for attorneys and law firms by operating highly scalable digital marketing campaigns, called performance campaigns, using our proprietary technology and data-driven analytics. These performance campaigns, and the related follow-up by our experienced in-house team, enable our attorney and law firm advertising clients to more effectively and economically connect with potential clients they are seeking to represent in existing or planned litigation. Our proven strategy of delivering cost-effective lead acquisitions and 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.

 

Our customized performance campaign offers are targeted at clients interested in completing signed retainers. The first step is to understand the specific criteria of our client. After this, we proceed to generate consumer traffic to our digital media platforms or our clients’ media platforms. Although there is no assurance of generating revenue from this move, we go all the way, bearing all the costs and risks involved. When we use our resources in acquiring consumer traffic, we want to help our clients amass cost-effective retained cases effectively. This, in turn, guarantees maximum profit margins for them.

 

CenterCom

 

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. Anthony N. Nuzzo, a director and officer and the holder of approximately 10% of our voting equity has a controlling interest in CenterCom Global. CenterCom also provides call center support for various third-party clients.

 

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.

 

2

 

 

CenterCom manages or supports the following processes:

 

Sales and Contract Processing;
     
  Customer Service and Support;
     
  Software Development and Integration;
     
  Data Processing and Programming;
     
  Multimedia and Graphic Design Services;
     
  Email and Live Chat Support;
     
  Merchant Support and Onboarding; and
     
  Lead Generation and Live Transfer.

 

Description of Capital Stock

 

Below is a summary of each of our classes of capital stock:

 

Common Stock

 

Each share of our Common Stock entitles its holder to one vote in the election of each director and on all other matters voted on generally by our stockholders, other than any matter that (1) solely relates to the terms of any outstanding series of preferred stock or the number of shares of that series and (2) does not affect the number of authorized shares of preferred stock or the powers, privileges and rights pertaining to the Common Stock. No share of our Common Stock affords any cumulative voting rights. This means that the holders of a majority of the voting power of the shares voting for the election of directors can elect all directors to be elected if they choose to do so.

 

Holders of our Common Stock will be entitled to dividends in such amounts and at such times as our Board of Directors (the “Board”) in its discretion may declare out of funds legally available for the payment of dividends. We currently intend to retain our entire available discretionary cash flow to finance the growth, development and expansion of our business and do not anticipate paying any cash dividends on the Common Stock in the foreseeable future. Any future dividends will be paid at the discretion of our Board.

 

If we liquidate or dissolve our business, the holders of our Common Stock will share ratably in all our assets that are available for distribution to our stockholders after our creditors are paid in full and the holders of all series of our outstanding preferred stock, if any, receive their liquidation preferences in full.

 

Our Common Stock has no preemptive rights and is not convertible or redeemable or entitled to the benefits of any sinking or repurchase fund.

 

As of June 14, 2021, there were 152,513,146 shares of Common Stock issued and outstanding.

 

Preferred Stock

 

Series “A” Preferred Stock

 

The Company, pursuant to the consent of the Board filed a Certificate of Designation with the Nevada Secretary of State which designated 10,000,000 shares of the Company’s authorized preferred stock as Series “A” Preferred Stock, par value $0.001. The Series “A” Preferred Stock has the following attributes:

 

  Ranks senior only to any other class or series of designated and outstanding preferred shares of the Company;

 

3

 

 

  Bears no dividend;
     
Has no liquidation preference, other than the ability to convert to common stock of the Company;
     
  The Company does not have any rights of redemption;
     
  Voting rights equal to ten shares of Common Stock for each share of Series “A” Preferred Stock;
     
  Entitled to same notice of meeting provisions as common stockholders;
     
  Protective provisions require approval of 75% of the Series “A” Preferred Shares outstanding to modify the provisions or increase the authorized Series “A” Preferred Shares; and
     
  Each ten Series “A” Preferred Shares can be converted into one share of Common Stock at the option of the holder.

 

As of June 14, 2021, there were 13,000,000 shares of Series A issued and outstanding all of which are held by two executive officers of the Company (one of which is a member of the Board). These 13 million shares have the equivalent of 130 million votes or approximately 28% of the total votes (462,912,146) outstanding as of June 14, 2021.

 

Series “C” Convertible Preferred Stock

 

On June 22, 2018, the Board of Directors approved a Certificate of Designation for Company Series C Convertible Preferred stock, which was filed with the Secretary of State of the State of Nevada on that date. The Certificate of Designations approved the creation of a new series of preferred stock consisting of 1,000,000 shares of Series C Convertible Preferred Stock par value $0.001 (“Series C Preferred Stock”) with an original issue price of $100.00 per share.

 

The Series “C” Preferred Stock has the following attributes:

 

  Ranks junior only to any other class or series of designated and outstanding preferred shares of the Company;
     
  Bears a dividend per share of Series C Preferred Stock equal to the per share amount (as converted), and in the same form as, the dividend payable to the holders of the Common Stock;
     
  With respect to such liquidation, dissolution or winding up, the holders of Series C Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Junior Securities but after distribution of such assets among, or payment thereof to holders of any Senior Preferred Stock, an amount equal to the Series C Original Issue Price for each share of Series C Preferred Stock plus an amount equal to all declared but unpaid dividends on Series C Preferred Stock;
     
  The Company does not have any rights of redemption;
     
  Voting rights equal to 250 shares of common stock for each share of Series “C” Preferred Stock;
     
  Entitled to same notice of meeting provisions as common stockholders;
     
  Protective provisions require approval of 75% of the Series “C” Preferred Shares outstanding to modify the provisions or increase the authorized Series “C” Preferred Shares; and
     
  Each one Series “C” Preferred Share can be converted into two hundred fifty (250) shares of common stock at the option of the holder.

 

4

 

 

As of June 14, 2021, there were 721,596 shares of Series C issued and outstanding all of which are held by three executive officers of the Company (two of which are members of the Board). These 721,596 shares have the equivalent of 180,399,000 votes or approximately 39% of the total votes (462,912,146) outstanding as of June 14, 2021.

 

Where You Can Find More Information

 

Our website address is www.surgepays.com. We do not intend for our website address to be an active link or to otherwise incorporate by reference the contents of the website into this prospectus. The SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

 

Going Concern Considerations

 

We are dependent upon the receipt of additional capital investments and other financings to fund our ongoing operations and to execute our business plan. If we are unable to continue to secure funding and capital resources on reasonable terms, we may not be able to implement our plan of operations. We may be required to obtain alternative or additional financing from financial institutions or otherwise, in order to maintain and expand our existing operations. The failure by us to obtain such financing would have a material adverse effect upon our business, financial condition and results of operations.

 

Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern within one year after the date that the financial statements were issued. We may be required to cease operations which could result in our stockholders losing all or almost all of their investment.

 

Corporate Information

 

We were previously known as North American Energy Resources, Inc. (“NAER”) and KSIX Media Holdings, Inc. (“KSIX Media”). Prior to April 27, 2015, we operated solely as an independent oil and natural gas company engaged in the acquisition, exploration and development of oil and natural gas properties and the production of oil and natural gas through its wholly owned subsidiary, NAER. On April 27, 2015, NAER entered into a Share Exchange Agreement with KSIX Media whereby KSIX Media became a wholly owned subsidiary of NAER and which resulted in the shareholders of KSIX Media owning approximately 90% of the voting stock of the surviving entity. While we continued the oil and gas operations of NAER following this transaction, on August 4, 2015, we changed our name to KSIX Media Holdings, Inc. On December 21, 2017, we changed our name to Surge Holdings, Inc. to better reflect the diversity of its business operations. We changed our name to SurgePays, Inc. on October 29, 2021.

 

Historically, we operated through our direct and indirect subsidiaries: (i) KSIX Media, Inc. (“Media”), incorporated in Nevada on November 5, 2014; (ii) KSIX, LLC (“KSIX”), a Nevada limited liability company that was formed on September 14, 2011; (iii) Surge Blockchain, LLC (“Blockchain”), formerly Blvd. Media Group, LLC (“BLVD”), a Nevada limited liability company that was formed on January 29, 2009; (iv) DigitizeIQ, LLC (“DIQ”) an Illinois limited liability company that was formed on July 23, 2014; (v) Surge Cryptocurrency Mining, Inc., formerly North American Exploration, Inc. (“NAE”), a Nevada corporation that was incorporated on August 18, 2006 (since January 1, 2019, this has been a dormant entity that does not own any assets); (vi) LogicsIQ Inc (“LogicsIQ”), an Nevada corporation that was formed on October 2, 2018; (vii) True Wireless, Inc., an Oklahoma corporation (formerly True Wireless, LLC) (“TW”); (viii) Surge Payments, LLC, a Nevada limited liability company; (ix) Surgephone Wireless, LLC, a Nevada limited liability company; and (x) SurgePays Fintech, Inc., a Nevada limited liability company. On January 22, 2021, the issued and outstanding equity securities of DIQ and KSIX were transferred to LogicsIQ, and became a wholly owned subsidiaries of LogicsIQ.

 

Historically, our principal business has been digital advertising and lead generation through two of its wholly owned subsidiaries—DIQ, which is a full-service digital advertising agency specializing in survey generation and landing page optimization specifically designed for mass tort action lawsuits and KSIX, which is an Internet marketing company and has an advertising network designed to create revenue streams for its affiliates and to provide advertisers with increased measurable audience. KSIX has an online advertising network that works directly with advertisers and other networks to promote advertiser campaigns and manage offer tracking, reporting and distribution. In 2017, the focus transitioned to providing life enhancing products to the underbanked. This ultimately led to the development of our platform and strategic acquisitions.

 

In February 2021, we filed a separate registration statement on Form S-1 with the Securiites and Exchange Commission (the “SEC”) pursuant to which approximately 25% of the fully diluted equity of LogicsIQ will be sold to the public (the “LogicsIQ IPO”). If the LogicsIQ IPO is completed, LogicsIQ will remain our majority-owned subsidiary, and we will therefore have the ability to control the outcome of significant decisions regarding the operations, management and other aspects of LogicsIQ’s business.

 

Our executive offices are located at 3124 Brother Blvd, Suite 410, Bartlett, TN 38133, and our telephone number is (800) 760-9689. Our website is www.surgepays.com. Our website and the information contained in, or accessible through, our website will not be deemed to be incorporated by reference into this prospectus and does not constitute part of this prospectus.

 

5

 

 

THE OFFERING
 
Securities offered by us   [●] Units, each Unit consisting of one share of our Common Stock and one Warrant to purchase one share of our Common Stock.
     
Offering Price   Each Warrant will have an exercise price of $ [●] per share ([●]% of the assumed public offering price of one Unit), is exercisable immediately and will expire [three (3)] years from the date of issuance. The Units will not be certificated or issued in stand-alone form. The shares of our Common Stock and the Warrants comprising the Units are immediately separable upon issuance and will be issued separately in this offering
     
Common Stock outstanding before the offering as of June 14, 2021   152,513,146 shares of Common Stock
     
Common Stock to be outstanding after this offering   [_______] shares (or [_______] shares if the underwriter exercises its option to purchase additional shares of Common Stock in full).
     
Over-allotment option   We have granted the underwriter a 45-day option to purchase up to [  ] additional shares of Common Stock and/or and up to an additional [_____] Warrants at the price of [___] per share of Common Stock and $[___] per Warrant, respectively, less, in each case, the underwriting discounts payable by us, solely to cover over-allotments, if any.
     
Use of proceeds   We intend to use the net proceeds of this offering for the following purposes: working capital, retiring trade payables, marketing, development of product pipeline, technology development for our wireless services, legal fees, other corporate expenses, acquisitions of complementary products, product candidates, technologies or businesses, and repayment of loans (used for general corporate expenses). See “Use of Proceeds” section on page 20.
     

Representative’s Warrants

 

  The registration statement of which this prospectus is a part also registers for sale Warrants (the “Representative’s Warrants”) to purchase [●] shares of our Common Stock (based on an offering price of $ [●] per share) to Maxim Group LLC (the “Representative”), as a portion of the underwriting compensation in connection with this offering. The Representative’s Warrants will be exercisable at any time, and from time to time, in whole or in part, during the period commencing 180 days following the closing date of this offering and expiring five years from the effective date of the offering at an exercise price of $ [●] ([●] % of the assumed public offering price per Unit). Please see “Underwriting-Representative’s Warrants” on page 63 of this prospectus for a description of these Warrants.
     
Underwriter Compensation   In connection with this offering, the underwriter will receive an underwriting discount equal to [__]% of the gross proceeds from the sale of Units in the offering. We will also reimburse the underwriter for certain out-of-pocket actual expenses related to the offering and the representative of the underwriter shall be entitled to a non-accountable expense allowance equal to one percent ([__]%) of the public offering price. See “Underwriting” starting on page 62 of this prospectus
     
Description of the Warrants:  

The exercise price of the Warrants is $[_____] per share (with an exercise price no less than [110]% of the public offering price of one Unit). Each Warrant is exercisable for one share of Common Stock, subject to adjustment in the event of stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting our Common Stock as described herein. A holder may not exercise any portion of a Warrant to the extent that the holder, together with its affiliates and any other person or entity acting as a group, would own more than 4.99% of the outstanding Common Stock after exercise, as such percentage ownership is determined in accordance with the terms of the Warrants, except that upon notice from the holder to us, the holder may waive such limitation up to a percentage, not in excess of 9.99%. Each Warrant will be exercisable immediately upon issuance and will expire five (5) years after the initial issuance date. This prospectus also relates to the offering of the Common Stock issuable upon exercise of the Warrants. For more information regarding the Warrants, you should carefully read the section titled “Description of Share Capital —Warrants” in this prospectus.

 

     
Proposed Nasdaq Capital Market Trading Symbols and Listing   Our Common Stock is presently quoted on the OTCQB Marketplace under the symbol “SURG”. We have applied to have our Common Stock and the Warrants offered in the offering listed on the Nasdaq Capital Market under the symbols “SURG” and “SURGW,” respectively. No assurance can be given that such listings will be approved or that a trading market will develop for our Common Stock and the Warrants.
     
Dividends  

We do not anticipate paying dividends on our Common Stock for the foreseeable future.

 

     
Lock-up   We and our directors, officers and principal stockholders have agreed with the underwriter not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our Common Stock or securities convertible into Common Stock for a period of 90 days after the date of this prospectus. See “Underwriting” section on page 62.
     
Risk factors   Investing in our securities is highly speculative and involves a high degree of risk. You should carefully consider the information set forth in the “Risk Factors” section beginning on page 10 before deciding to invest in our securities.

 

6

 

 

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

 

The following summary consolidated statements of operations data for the years ended December 31, 2020 and 2019 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated statements of operations data for the three months ended March 31, 2021 and 2020 and the consolidated balance sheets data as of March 31, 2021 are derived from our unaudited consolidated financial statements that are included elsewhere in this prospectus. The historical financial data presented below is not necessarily indicative of our financial results in future periods, and the results for the three months ended March 31, 2021 are not necessarily indicative of our operating results to be expected for the full fiscal year ending December 31, 2021 or any other period. You should read the summary consolidated financial data in conjunction with those financial statements and the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our consolidated financial statements are prepared and presented in accordance with United States generally accepted accounting principles (“U.S. GAAP”). Our unaudited consolidated financial statements have been prepared on a basis consistent with our audited financial statements and include all adjustments, consisting of normal and recurring adjustments that we consider necessary for a fair presentation of the financial position and results of operations as of and for such periods.

 

7

 

 

SUMMARY STATEMENTS OF OPERATIONS DATA

 

  

For The

Three Months

Ended March 31,

  

For The Fiscal

Years Ended

December 31,

 
  

(unaudited)

2021

  

(unaudited)

2020

  

(audited)

2020

  

(audited)

2019

 
Revenue  $10,988,948   $15,787,799   $54,406,788   $25,742,941 
Cost of Revenue (exclusive of depreciation and amortization)   9,857,309    15,058,914    51,938,111    22,623,521 
Gross Profit   1,131,639    728,885    2,468,677    3,119,420 
Cost and Expenses                    
Depreciation and Amortization   217,958    265,464    1,173,369    227,322 
Selling, General and Administrative   3,021,851    3,228,660    11,440,976    10,660,126 
Total Costs and Expenses   3,239,809    3,494,124    12,614,345    10,887,448 
Operating Profit (Loss)   (2,108,170)   (2,765,239)   (10,145,669)   (7,768,028)
Other Income (Expense):                    
Interest expense   (1,303,859)   (482,722)   (3,383,996)   (227,016)
Derivative expense   (1,775,057)   (348,334)   (566,789)    
Change in fair value of derivative liability   303,850    (31,816)   577,936    4,103 
Gain on investment in Centercom   (73,773)   32,369    210,912    25,192 
Gain (loss) on settlement of liabilities   141,578    538,436    2,575,978    (481,187)
Other income           10,000     
Total other income (expense)   (2,707,261)   (292,067)   (575,958)   (678,998)
Net Loss Before Provision for Income Taxes   (4,815,431)   (3,057,306)   (10,721,627)   (8,447,026)
Provision for Income Taxes                
Net Loss   (4,815,431)   (3,057,306)  $(10,721,627)   (8,447,026)
Net Loss Per Common Share, Basic and Diluted  $(0.04)  $(0.03)  $(0.10)  $(0.09)
Weighted Average Common Shares Outstanding, Basic and Diluted   130,222,802    103,821,561    106,720,836    96,186,742 

 

8

 

 

SELECTED BALANCE SHEET DATA

 

   Three Months Ended March 31,  

For The Fiscal

Years Ended

December 31,

 
   (unaudited)   (audited)   (audited) 
Consolidated Balance Sheet Data:  2021   2020   2019 
Cash and cash equivalents  $1,602,474   $673,995   $346,040 
Working Capital (deficit)   (12,420,375)   (14,052,632)   (3,479,239)
Total assets   8,789,851    7,325,071    9,986,373 
Current liabilities   14,974,306    15,303,661    7,054,124 
Total liabilities   19,180,939    18,051,037    14,685,988 
Total stockholders’ equity (deficit)  $(10,391,088)  $(10,725,966)  $(4,699,615)

 

The following table presents consolidated balance sheets data as of March 31, 2021 on:

 

  an actual basis;

 

  a pro forma basis, giving effect to the sale by us of shares of Common Stock, at an assumed public offering price of per share, after deducting underwriting discounts and commissions and estimated offering expenses.

 

The pro forma information will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.

 

   Actual   Pro Forma(1) 
Consolidated Balance Sheet Data:          
Cash and cash equivalents  $1,602,474   $   
Working capital (deficit)   (12,420,375)     
Total assets   8,789,851      
Total liabilities   19,180,939      
Total stockholders’ equity (deficit)  $(10,391,088)  $          

 

(1)

 

A $1.00 increase or decrease in the assumed public offering price per share would increase or decrease our cash and cash equivalents, working capital (deficit), total assets and total stockholders’ equity (deficit) by approximately $[  ], assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discount and estimated offering expenses payable by us.

 

9

 

 

RISK FACTORS

 

Investing in our securities involves a great deal of risk. Careful consideration should be made of the following factors as well as other information included in this prospectus before deciding to purchase our securities. There are many risks that affect our business and results of operations, some of which are beyond our control. Our business, financial condition or operating results could be materially harmed by any of these risks. This could cause the trading price of our securities to decline, and you may lose all or part of your investment. Additional risks that we do not yet know of or that we currently think are immaterial may also affect our business and results of operations.

 

RISKS RELATED TO OUR COMPANY

 

Our business has generated net loses, and we intend to continue to invest substantially in our business. Thus, we may not be able to achieve or maintain profitability. We may not be able to secure financing on favorable terms, or at all, to meet our future capital needs.

 

For the quarter ended March 31, 2021, our note payable borrowings totaled $3,555,000 and our note payable repayments totaled $1,466,719. The net cash provided by financing was requiring a substantial portion of our cash flow from operations to be dedicated to the payment of obligations with respect to our debt, thereby reducing our ability to use our cash flow to fund our operations, lease payments, capital expenditures, selling and marketing efforts, product development, future business opportunities and other purposes. We have experienced net losses in each period since inception. As of March 31, 2021, we had an accumulated deficit of $10.4 million. We have funded our operations since inception primarily through equity financings, bank credit facilities, and capital lease arrangements. We do not know when or if our operations will generate sufficient cash to fund our ongoing operations. In the future, we may require additional capital to respond to business opportunities, refinancing needs, challenges, acquisitions, or unforeseen circumstances and may decide to engage in equity or debt financings or enter into credit facilities for other reasons, and we may not be able to secure any such additional debt or equity financing or refinancing on favorable terms, in a timely manner, or at all. Any debt financing obtained by us in the future could also involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.

 

We will need to generate and sustain increased revenue levels in future periods in order to become consistently profitable, and, even if we do, we may not be able to maintain or increase our level of profitability. We intend to continue to expend significant funds to expand our marketing and sales operations, develop and enhance our software platform, upgrade our data center infrastructure and services capabilities and expand into new markets. Our efforts to grow our business may be more costly than we expect, and we may not be able to increase our revenue enough to offset our higher operating expenses. We may incur significant losses in the future for a number of reasons, including the other risks described in this prospectus, and unforeseen expenses, difficulties, complications and delays and other unknown events. If we are unable to achieve and sustain profitability, the market price of our common stock may significantly decrease.

 

Our sales model is based on earning the relationship with the store. There is no cost for the store to onboard and have access to the SurgePays platform fintech services. In other words, we establish relationships with retail stores by enabling them to offer their underbanked customers life enhancing services such as prepaid wireless payments, loading debit cards, activating gift cards, funding mobile apps such as Amazon and iTunes. There is no out of pocket cost for the store owner who earns a commission per transaction. Since these sales are more transactional based, SurgePays usually realizes gross margins of 3%-4%. These services are offered through a platform integrated into our wholesale marketplace which enables us to utilize the relationship, built based on these initial no-cost services, to upsell merchants by enticing them with lower prices on the most popular product categories sold in convenience stores. These products include bagged snacks, personal care items, herbal stimulants, energy shots, dry foods, CBD products, cell phone accessories, novelties, PPP products, processed meats, automotive parts among others, are sold at higher margins ranging from 12%-37%.

 

ECS primarily offers prepaid wireless payments to over 8,000 independently owned convenience stores. The value of the acquisition was more focused on the relationships with these stores and the ability to integrate the Surge Blockchain wholesale marketplace into the ECS software platform to create a significant increase in both revenue and gross margins per store. The integration of the software platforms was completed in mid-2020, however due to the COVID-19 pandemic and the various restrictions imposed nationwide, salespeople were unable to visit stores as planned and the rollout of the wholesale marketplace was pushed to 2021. While this did cause an unexpected delay in our expected jump in revenue and gross margins per store, it allowed our software developers to further enhance our offerings by integrating with more manufacturers and fintech providers to strengthen our sales and revenue skew once restrictions were lifted.

 

10

 

 

There is substantial doubt about our ability to continue as a going concern.

 

The report of our independent registered public accounting firm on our consolidated financial statements for the years ended December 31, 2020 and 2019 included an explanatory paragraph expressing management’s assessment and conclusion that there is substantial doubt about our ability to continue as a going concern within one year after the financial statement issuance date, citing our recurring losses and cash used from operations among other factors.

 

For the quarter ended March 31, 2021, our note payable borrowings totaled $3,555,000 and our note payable repayments totaled $1,466,719. The net cash provided by financing was requiring a substantial portion of our cashflow from operations to be dedicated to the payment of obligations with respect to our debt, thereby reducing our ability to use our cash flow to fund our operations, lease payments, capital expenditures, selling and marketing efforts, product development, future business opportunities and other purposes.

 

Our ability to continue as a going concern will be determined by our ability to generate sufficient cash flow to sustain our operations and/or raise additional capital in the form of debt or equity financing. We believe that the inclusion of a going concern explanatory paragraph in the report of our registered public accounting firm will make it more difficult for us to secure additional financing or enter into strategic relationships with distributors on terms acceptable to us, if at all, and likely will materially and adversely affect the terms of any financing that we might obtain.

 

Changes in the regulatory framework under which we operate could adversely affect our business prospects or results of operations.

 

Our operations are subject to regulation by the FCC and other federal, state and local agencies. These regulatory regimes frequently restrict or impose conditions on our ability to operate in designated areas and provide specified products or services. We are frequently required to maintain licenses for our operations and conduct our operations in accordance with prescribed standards. We are often involved in regulatory and other governmental proceedings or inquiries related to the application of these requirements. It is impossible to predict with any certainty the outcome of pending federal and state regulatory proceedings relating to our operations, or the reviews by federal or state courts of regulatory rulings. Without relief, existing laws and regulations may inhibit our ability to expand our business and introduce new products and services. Similarly, we cannot guarantee that we will be successful in obtaining the licenses needed to carry out our business plan or in maintaining our existing licenses. For example, the FCC grants wireless licenses for terms generally lasting ten (10) years, subject to renewal. The loss of, or a material limitation on, certain of our licenses could have a material adverse effect on our business, results of operations and financial condition.

 

New laws or regulations or changes to the existing regulatory framework at the federal, state and local level, such as those described below, could restrict the ways in which we manage our wireline and wireless networks and operate our business, impose additional costs, impair revenue opportunities and potentially impede our ability to provide services in a manner that would be attractive to us and our customers.

 

  Privacy and data protection - we are subject to federal, state and international laws related to privacy and data protection. A new privacy law scheduled took in California in 2020, also could have a significant impact on certain of our businesses.

 

  Regulation of broadband Internet access services - In its 2015 Title II Order, the FCC nullified its longstanding “light touch” approach to regulating broadband Internet access services and “reclassified” these services as telecommunications services subject to utilities-style common carriage regulation. The FCC repealed the 2015 Title II Order in December 2017 and returned to its traditional light-touch approach for these services. The 2017 order has been appealed to the D.C. Circuit; the outcome and timing of this appeal or any other challenge remains uncertain. Several states have also adopted or are considering adopting laws or executive orders that would impose net neutrality and other requirements on some of our services (in some cases different from the FCC’s 2015 rules). The enforceability and effect of these state rules is uncertain.

 

  “Open Access” - we hold certain wireless licenses that require us to comply with so-called “open access” FCC regulations, which generally require licensees of particular spectrum to allow customers to use devices and applications of their choice. Moreover, certain services could be subject to conflicting regulation by the FCC and/or various state and local authorities, which could significantly increase the cost of implementing and introducing new services.

 

11

 

 

The further regulation of broadband, wireless and our other activities and any related court decisions could restrict our ability to compete in the marketplace and limit the return we can expect to achieve on past and future investments in our networks.

 

Changes to the Federal Lifeline Assistance Program could negatively impact the growth of our True Wireless business and its profitability.

 

True Wireless offers service to low-income subscribers eligible for the federal Lifeline Assistance Program. True Wireless provides a monthly discount to eligible subscribers in the form of free blocks of minutes and text messages. This discount is subsidized by the Low-Income Program of the federal USF and administered by the Universal Service Administrative Company. In 2012, the FCC adopted reforms to the Low Income program to increase program effectiveness and efficiencies. More stringent eligibility and certification requirements have made it more difficult for Lifeline service providers to sign up and retain Lifeline subscribers. Some regulators and legislators have questioned the structure of the current program, and the FCC is continuing to review and implement measures to improve the program, including enforcement action involving alleged rule violations, and roll-out of the National Lifeline Accountability Database. Changes in the Lifeline program as a result of the ongoing FCC proceeding or new legislation, or potential enforcement action, could negatively impact growth of True Wireless and/or the profitability of True Wireless.

 

If we are not able to adapt to changes and disruptions in technology and address changing consumer demand on a timely basis, we may experience a decline in the demand for our services, be unable to implement our business strategy and experience reduced profits.

 

Our industries are rapidly changing as new technologies are developed that offer consumers an array of choices for their communications needs and allow new entrants into the markets we serve. In order to grow and remain competitive, we will need to adapt to future changes in technology, enhance our existing offerings and introduce new offerings to address our customers’ changing demands. If we are unable to meet future challenges from competing technologies on a timely basis or at an acceptable cost, we could lose customers to our competitors. We may not be able to accurately predict technological trends or the success of new services in the market. In addition, there could be legal or regulatory restraints on our introduction of new services. If our services fail to gain acceptance in the marketplace, or if costs associated with the implementation and introduction of these services materially increase, our ability to retain and attract customers could be adversely affected. Additionally, we must phase out outdated and unprofitable technologies and services. If we are unable to do so on a cost-effective basis, we could experience reduced profits. In addition, there could be legal or regulatory restraints on our ability to phase out current services.

 

Failure to develop new products, such as cross-media solutions, that are compelling for the marketplace in the expected time frame may adversely affect the combined company’s future results.

 

As the media and advertising industry looks to evaluate investments such as advertising campaigns across various forms of media, such as television, radio, online, and mobile, the ability to measure the combined size and composition of audiences across platforms is increasingly important and demanded. A primary strategic reason for this business combination is to allow our companies to more quickly and effectively develop cross-media capabilities using the combined talents and assets of the two companies to meet a growing market demand. The management of the combined company may face significant challenges in developing new products while integrating existing products and technologies. If the companies are not successful in developing credible products in the expected timeframe, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected.

 

12

 

 

We may expand through investments in, acquisitions of, or the development of new products with assistance from, other companies, any of which may not be successful and may divert our management’s attention.

 

In the past, we completed several strategic acquisitions. We also may evaluate and enter into discussions regarding an array of potential strategic transactions, including acquiring complementary products, technologies or businesses. An acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties integrating the businesses, technologies, products, personnel or operations of the acquired companies, particularly if the key personnel of the acquired company choose not to be employed by us, and we may have difficulty retaining the customers of any acquired business due to changes in management and ownership. Acquisitions may also disrupt our ongoing business, divert our resources and require significant management attention that would otherwise be available for ongoing development of our business. Moreover, we cannot assure you that the anticipated benefits of any acquisition, investment or business relationship would be realized timely, if at all, or that we would not be exposed to unknown liabilities. In connection with any such transaction, we may:

 

  encounter difficulties retaining key employees of the acquired company or integrating diverse business cultures;
     
  incur large charges or substantial liabilities, including without limitation, liabilities associated with products or technologies accused or found to infringe on third-party intellectual property rights or violate existing or future privacy regulations;
     
  issue shares of our capital stock as part of the consideration, which may be dilutive to existing stockholders;
     
  become subject to adverse tax consequences, legal disputes, substantial depreciation or deferred compensation charges;
     
  use cash that we may otherwise need for ongoing or future operation of our business;
     
  enter new geographic markets that subject us to different laws and regulations that may have an adverse impact on our business;
     
  experience difficulties effectively utilizing acquired assets;
     
  encounter difficulties integrating the information and financial reporting systems of acquired businesses, particularly those that operated under accounting principles other than those generally accepted in the U.S. prior to the acquisition by us; and
     
  incur debt, which may be on terms unfavorable to us or that we are unable to repay.

 

If we are unable to obtain additional financing, business operations will be harmed and if we do obtain additional financing then existing shareholders may suffer substantial dilution.

 

We need substantial capital to implement our sales distribution strategy for our current products, strategic acquisitions to maximize existing technologies to create opportunities to create synergy and opportunity. Our capital requirements will depend on many factors, including but not limited to:

 

  the problems, delays, expenses, and complications frequently encountered by early-stage companies;
     
  market acceptance of our products;
     
  the success of our sales and marketing programs; and
     
  we expect, if we raise at least $15,000,000 in this offering, that the net proceeds of such sales along with our current cash position, to be able to fund our operating expenses and capital expenditure for at least the next two years. Thereafter, unless we achieve profitability, we anticipate that we will need to raise additional capital to fund our operations and to otherwise implement our overall business strategy. We currently do not have any contracts or commitments for additional financing. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. Any additional equity financing may involve substantial dilution to then existing shareholders.

 

13

 

 

If adequate funds are not available or if we fail to obtain acceptable additional financing, we may be required to:

 

  severely limit or cease our operations or otherwise reduce planned expenditures and forego other business opportunities, which could harm our business;
     
  obtain financing with terms that may have the effect of substantially diluting or adversely affecting the holdings or the rights of the holders of our capital stock; or
     
  obtain funds through arrangements with future collaboration partners or others that may require us to relinquish rights to some or all of our technologies or products.

 

Our success is substantially dependent on the continued service of our senior management.

 

Our success is substantially dependent on the continued service of our Chief Executive Officer (“CEO”), Kevin Brian Cox, our Chief Financial Officer (“CFO”), Tony Evers, and President, Anthony P. Nuzzo. We do not carry key person life insurance on any of its management, which would leave us uncompensated for the loss of any of its management. The loss of the services of any of our senior management could make it more difficult to successfully operate our business and achieve our business goals. In addition, our failure to retain qualified personnel in the diverse areas required for continuing its operations could harm our product development capabilities and customer and employee relationships, delay the growth of sales of our products and could result in the loss of key information, expertise or know-how.

 

We may not be able to hire or retain other key personnel required for our business, which could disrupt the development and sales of our products and limit our ability to grow.

 

Competition in our industry for senior management and other key personnel is intense. If we are unable to retain our existing personnel, or attract and train additional qualified personnel, either because of competition in our industry for such personnel or because of insufficient financial resources, our growth may be limited.

 

Our CEO and Chairman, Kevin Brian Cox, has significant control over shareholder matters and the minority shareholders will have little or no control over our affairs.

 

Mr. Cox, as of June 14, 2021, has control of approximately 60.97% of the voting capital stock of the Company, broken down by 17.29% of our shares of Common Stock (which represents 5.7% of our voting capital stock), 80.77% of the Series “A” preferred shares (representing 22.68% of the voting capital stock), and 83.62% of the Series “C” preferred shares (representing 32.59% of the voting capital stock). Subject to any fiduciary duties owed to our other stockholders under Nevada law, Mr. Cox is able to exercise significant influence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, and will have some control over our management and policies. Mr. Cox would maintain voting control with just his preferred “A” and “C” shares. If Mr. Cox was not issued any more shares, the Company would have to issue shares of its capital stock equal to approximately 103,000,000 votes for Mr. Cox to no longer have voting control of the Company’s capital stock. Additionally, if the Company issues additional Series “A” and Series “C” preferred shares, such issuance may further dilute the holders of Common Stock. Mr. Cox may have interests that are different from yours. For example, Mr. Cox may support proposals and actions with which you may disagree. The concentration of ownership could delay or prevent a change in control of our Company or otherwise discourage a potential acquirer from attempting to obtain control of our Company, which in turn could reduce the price of our stock. In addition, Mr. Cox could use his voting influence to maintain our existing management and directors in office, delay or prevent changes in control of our Company, or support or reject other management and board proposals that are subject to stockholder approval, such as amendments to our employee stock plans and approvals of significant financing transactions.

 

14

 

 

We may not have sufficient resources to effectively introduce and market our services and products, which could materially harm our operating results.

 

Continuation of market acceptance for our existing services and products require substantial marketing efforts and will require our sales account executives and contract partners to make significant expenditures of time and money. In some instances, we will be significantly or totally reliant on the marketing efforts and expenditures of our contract partners, outside sales agents and distributors.

 

Because we currently have very limited marketing resources and sales capabilities, commercialization of our products, some of which require regulatory clearance prior to market entrance, we must either expand our own marketing and sales capabilities or consider collaborating with additional third parties to perform these functions. We may, in some instances, rely significantly on sales, marketing and distribution arrangements with collaborative partners and other third parties. In these instances, our future revenue will be materially dependent upon the success of the efforts of these third parties.

 

Should we determine that expanding our own marketing and sales capabilities is required, we may not be able to attract and retain qualified personnel to serve in our sales and marketing organization, to develop an effective distribution network or to otherwise effectively support our commercialization activities. The cost of establishing and maintaining a more comprehensive sales and marketing organization may exceed its cost effectiveness. If we fail to further develop our sales and marketing capabilities, if sales efforts are not effective or if costs of increasing sales and marketing capabilities exceed their cost effectiveness, our business, results of operations and financial condition would be materially adversely affected.

 

We could be impacted by unfavorable results of legal proceedings, including the pending proceedings involving Glen Eagles, and may, from time to time, be involved in future litigation in which substantial monetary damages are sought.

 

We are currently subject to a number of litigations as described under the heading “Legal Proceedings.” In connection with certain of these litigations, we may be required to pay significant monetary damages. Defending against the current litigations is or can be time-consuming, expensive and cause diversion of our management’s attention.

 

In addition, in the case of the litigation involving Glen Eagles, they are seeking the appointment of a receiver to control the operations of the Company. While we believe their claims are without merit and the likelihood of such a result is remote and we are vigorously defending against these claims, if a receive is appointed, the Board will no longer control the operations of the Company which may lead to serious complications for the Company. Therefore, our business operations could be negatively impacted by unfavorable results of this and other pending legal proceedings.

 

In addition, we may from time to time be involved in future litigation in which substantial monetary damages are sought. Litigation claims may relate to intellectual property, contracts, employment, securities and other matters arising out of the conduct of our current and past business activities. Any claims, whether with or without merit, could be time consuming, expensive to defend and could divert management’s attention and resources. We may maintain insurance against some, but not all, of these potential claims, and the levels of insurance we do maintain may not be adequate to fully cover any and all losses.

 

With respect to any litigation, our insurance may not reimburse us, or may not be sufficient to reimburse us, for the expenses or losses we may suffer in contesting and concluding such lawsuit. The results of any future litigation or claims are inherently unpredictable and substantial litigation costs, including the substantial self-insured retention that we are required to satisfy before any insurance applies to a claim, unreimbursed legal fees or an adverse result in any litigation may have a material adverse effect on our results of operations, cash from operating activities or financial condition.

 

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Risks and uncertainties related to the Company’s foreign operations could negatively impact the Company’s operating results.

 

CenterCom, our subsidiary, operates in El Salvador. Doing business in El Salvador, and in Latin America generally, involves increased risks related to geo-political events, political instability, corruption, economic volatility, property crime, drug cartel and gang-related violence, social and ethnic unrest including riots and looting, enforcement of property rights, governmental regulations, tax policies, banking policies or restrictions, foreign investment policies, public safety, health and security, anti-money laundering regulations, interest rate regulation and import/export regulations among others. As in many developing markets, there are also uncertainties as to how both local law and U.S. federal law is applied, including areas involving commercial transactions and foreign investment. As a result, actions or events could occur in El Salvador that are beyond the Company’s control, which could restrict or eliminate the Company’s ability to operate in El Salvador or significantly reduce customer traffic, product demand and the expected profitability of such operations.

 

We operate in a highly competitive industry.

 

We may encounter competition from local, regional or national entities, some of which have superior resources or other competitive advantages in the larger wireless services space. Intense competition may adversely affect our business, financial condition or results of operations. These competitors may be larger and more highly capitalized, with greater name recognition. We will compete with such companies on brand name, quality of services, level of expertise, advertising, product and service innovation and differentiation of product and services. As a result, our ability to secure significant market share may be impeded.

 

Effects of the COVD-19 Pandemic on Our Business

 

Since March 2020 there has been, and there continues to be, a significant and growing volatility and uncertainty in the global economy due to the worldwide COVID-19 pandemic affecting all business sectors and industries. The fulfillment of orders was delayed throughout 2020 due to the COVID-19 shutdowns in the United States. Moreover, our customers and suppliers could be further adversely affected as a result of additional or future quarantines, facility closures and logistics restrictions imposed, or which otherwise occur in connection with the pandemic. More broadly, negative global and national economic trends, such as decreased consumer and business spending, high unemployment levels and declining consumer and business confidence, pose challenges to our business and could result in declining revenues, profitability and cash flow. Although we continue to devote significant resources to support our business, unfavorable economic conditions may negatively affect demand for our services and products. Further, our customers have been and will be disrupted by worker absenteeism, quarantines and restrictions on employees’ ability to work and business closures.

 

Some specific effects of the COVID-19 pandemic on our business were as follows:

 

ECS primarily offers prepaid wireless payments to over 8,000 independently owned convenience stores via a software platform. The integration of the software platforms was completed in mid-2020, however due to the COVID-19 pandemic and the various restrictions imposed nationwide, salespeople were unable to visit stores as planned and the rollout of the wholesale marketplace was pushed to 2021.

 

In addition, each of our business segments was impacted by COVID-19 in varying degrees. It is difficult to determine an exact impact, but the majority in the decrease in revenue from $15,787,799 for the three months ended March 31, 2020 to $10,988,948 for the three months ended March 31, 2021 can be attributed to COVID-19.

 

For the year ended December 31, 2020, the COVID-19 impact on Surge Blockchain resulted in a decrease of $3,553,571 in revenue and a corresponding decrease in gross margin of $2,736,957.

 

The COVID-19 pandemic or other disease outbreak will in the short-run, and may over the longer term, adversely affect the domestic and global economy and financial markets, resulting in an economic downturn that will affect demand for our services and impact our operating results. There can be no assurance that any decrease in sales resulting from COVID-19 will be offset by increased sales in subsequent periods. Although the magnitude of the impact of the COVID-19 outbreak on our business and operations (and the business and operations of third-parties on which our business depends) remains uncertain, the continued spread of COVID-19 or the occurrence of other epidemics and the imposition of related public health measures and travel and business restrictions will adversely impact our business, financial condition, operating results and cash flows. In addition, we have experienced and will experience disruptions to our business operations resulting from quarantines, self-isolations, or other movement and restrictions on the ability of our employees (and the third-parties on which our business depends) to perform their jobs that may impact our ability to develop and design our products and services in a timely manner or meet required milestones or customer commitments. At this time, we cannot accurately predict the long-term effects the COVID-19 pandemic will have on our business.

 

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RISKS RELATED TO OUR SECURITIES

 

Sales of a significant number of shares of our Common Stock in the public market or the perception of such possible sales, could depress the market price of our Common Stock.

 

Sales of a substantial number of shares of our Common Stock in the public markets, which include an offering of our preferred stock or Common Stock could depress the market price of our Common Stock and impair our ability to raise capital through the sale of additional equity or equity-related securities. We cannot predict the effect that future sales of our Common Stock or other equity-related securities would have on the market price of our Common Stock.

 

Our share price could be volatile and our trading volume may fluctuate substantially.

 

The price of our Common Stock has been and may in the future continue to be extremely volatile. Many factors could have a significant impact on the future price of our shares of Common Stock, including:

 

  our inability to raise additional capital to fund our operations, whether through the issuance of equity securities or debt;
     
  our failure to successfully implement our business objectives;
     
  compliance with ongoing regulatory requirements;
     
  market acceptance of our products;
     
  changes in government regulations;
     
  general economic conditions and other external factors;
     
  actual or anticipated fluctuations in our quarterly financial and operating results; and
     
  the degree of trading liquidity in our shares of Common Stock.

 

Warrants are speculative in nature.

 

The Warrants offered in this offering do not confer any rights of Common Stock ownership on their holders, such as voting rights or the right to receive dividends, but rather merely represent the right to acquire Common Stock at a fixed price for a limited period of time. Specifically, commencing on the date of issuance, holders of the Warrants may exercise their right to acquire Common Stock and pay an exercise price of $[__] per share (with an exercise price no less than 100% of the public offering price of a Unit), prior to five years from the date of issuance, after which date any unexercised Warrants will expire and have no further value. In addition, there is no established trading market for the Warrants and we do not expect a market to develop.

 

Holders of the Warrants will have no rights as a common shareholder until they acquire our Common Stock.

 

Until holders of the Warrants acquire Common Stock upon exercise of the Warrants, the holders will have no rights with respect to the Common Stock issuable upon exercise of the Warrants. Upon exercise of the Warrants, the holder will be entitled to exercise the rights of a common shareholder as to the security exercised only as to matters for which the record date occurs after the exercise.

 

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There is no established market for the warrants to purchase our Common Stock being offered in this offering.

 

There is no established trading market for the Warrants and we do not expect a market to develop. Although we have applied to list the Warrants on the Nasdaq Capital Market, there can be no assurance that there will be an active trading market for the Warrants. Without an active trading market, the liquidity of the Warrants will be limited.

 

Provisions of the warrants offered by this prospectus could discourage an acquisition of us by a third party.

 

In addition to the discussion of the provisions of our governing organizational documents, certain provisions of the Warrants offered by this prospectus could make it more difficult or expensive for a third party to acquire us. The Warrants prohibit us from engaging in certain transactions constituting “fundamental transactions” unless, among other things, the surviving entity assumes our obligations under the Warrants. These and other provisions of the Warrants offered by this prospectus could prevent or deter a third party from acquiring us even where the acquisition could be beneficial to you.

 

A decline in the price of our shares of Common Stock could affect our ability to raise further working capital and adversely impact our ability to continue operations.

 

The relatively low price of our shares of Common Stock, and a decline in the price of our shares of Common Stock, could result in a reduction in the liquidity of our Common Stock and a reduction in our ability to raise capital. Because a significant portion of our operations has been and will continue to be financed through the sale of equity securities, a decline in the price of our shares of Common Stock could be especially detrimental to our liquidity and our operations. Such reductions and declines may force us to reallocate funds from other planned uses and may have a significant negative effect on our business plans and operations, including our ability to continue our current operations. If the price for our shares of Common Stock declines, it may be more difficult to raise additional capital. If we are unable to raise sufficient capital, and we are unable to generate funds from operations sufficient to meet our obligations, we will not have the resources to continue our operations.

 

The market price for our shares of Common Stock may also be affected by our ability to meet or exceed expectations of analysts or investors. Any failure to meet these expectations, even if minor, may have a material adverse effect on the market price of our shares of Common Stock.

 

Financial Industry Regulatory Authority (“FINRA”) sales practice requirements may also limit a stockholder’s ability to buy and sell our Common Stock.

 

FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our Common Stock, which may limit your ability to buy and sell our Common Stock and have an adverse effect on the market for our shares.

 

“Penny Stock” rules may make buying or selling our Common Stock difficult.

 

Trading in our Common Stock has previously been subject to the “penny stock” rules. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer that recommends our Common Stock to persons other than prior customers and accredited investors, must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our Common Stock, which could severely limit the market price and liquidity of our Common Stock.

 

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We currently do not intend to pay dividends on our Common Stock. As result, your only opportunity to achieve a return on your investment is if the price of our Common Stock appreciates.

 

We currently do not expect to declare or pay dividends on our Common Stock. In addition, in the future we may enter into agreements that prohibit or restrict our ability to declare or pay dividends on our Common Stock. As a result, your only opportunity to achieve a return on your investment will be if the market price of our Common Stock appreciates and you sell your shares at a profit.

 

We could issue additional Common Stock, which might dilute the book value of our Common Stock.

 

Our Board has authority, without action or vote of our shareholders, to issue all or a part of our authorized but unissued shares. Such stock issuances could be made at a price that reflects a discount or a premium from the then-current trading price of our Common Stock. In addition, in order to raise capital, we may need to issue securities that are convertible into or exchangeable for our Common Stock. These issuances would dilute the percentage ownership interest, which would have the effect of reducing your influence on matters on which our shareholders vote and might dilute the book value of our Common Stock. You may incur additional dilution if holders of stock warrants or options, whether currently outstanding or subsequently granted, exercise their options, or if warrant holders exercise their warrants to purchase shares of our Common Stock.

 

Future Issuance of Our Common Stock, Preferred Stock, Options and Warrants Could Dilute the Interests of Existing Stockholders.

 

We may issue additional shares of our Common Stock, preferred stock, options and warrants in the future. The issuance of a substantial amount of Common Stock, options and warrants could have the effect of substantially diluting the interests of our current stockholders. In addition, the sale of a substantial amount of Common Stock or preferred stock in the public market, or the exercise of a substantial number of warrants and options either in the initial issuance or in a subsequent resale by the target company in an acquisition which received such Common Stock as consideration or by investors who acquired such Common Stock in a private placement could have an adverse effect on the market price of our Common Stock.

 

RISKS RELATED TO THE OFFERING

 

Investors in This Offering Will Experience Immediate and Substantial Dilution in Net Tangible Book Value.

 

The public offering price per share of our Common will be substantially higher than the net tangible book value per share of our outstanding Common Stock. As a result, investors in this offering will incur immediate dilution of $[  ] per share, based on the assumed public offering price of $[  ] per share. Investors in this offering will pay a price per share that substantially exceeds the book value of our assets after subtracting our liabilities. See “Dilution” for a more complete description of how the value of your investment will be diluted upon the completion of this offering.

 

We May Need Additional Capital, and the Sale of Additional Shares or Equity or Debt Securities Could Result in Additional Dilution to Our Stockholders.

 

We believe that our existing cash, together with the net proceeds from this offering, will be sufficient to meet our anticipated cash needs for at least the next two years. We may, however, require additional cash resources due to changed business conditions or other future developments. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain one or more credit facilities. The sale of additional equity securities could result in additional dilution to our stockholders and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a Common Stockholder. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. It is uncertain whether financing will be available in amounts or on terms acceptable to us, if at all.

 

19

 

 

If we raise additional funds through government grants, collaborations, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue stream or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.

 

We Have Broad Discretion in the Use of the Net Proceeds from This Offering and May Not Use Them Effectively.

 

Our management will have broad discretion in the application of the net proceeds, including for any of the purposes described in the section of this prospectus entitled “Use of Proceeds.” You will be relying on the judgment of our management with regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the net proceeds are being used appropriately. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our securities to decline and delay the development of our product candidates. Pending the application of these funds, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

 

Substantial future sales of shares of our Common Stock in the public market could cause our stock price to fall.

 

Holders of shares of Common Stock that we have issued, including shares of Common Stock issuable upon conversion and/or exercise of outstanding convertible notes, shares of preferred stock options and warrants, may be entitled to dispose of their shares pursuant to an exemption from registration under the Securities Act. Additional sales of a substantial number of our shares of our Common Stock in the public market, or the perception that sales could occur, could have a material adverse effect on the price of our Common Stock. Our Common Stock is quoted on the OTCQB Marketplace and there is not now, nor has there been, any significant market for shares of our Common Stock, and an active trading market for our shares may never develop or be sustained. Investors are currently able to use Rule 144 promulgated under the Securities Act to sell shares of our Common Stock and, if they do so, the then-prevailing market prices for our Common Stock may be reduced. Any substantial sales of our Common Stock may have an adverse effect on the market price of our securities.

 

Sales of a substantial number of shares of our Common Stock in the public market following this offering could cause the market price of our Common Stock to decline. If there are more shares of Common Stock offered for sale than buyers are willing to purchase, then the market price of our Common Stock may decline to a market price at which buyers are willing to purchase the offered shares of Common Stock and sellers remain willing to sell the shares. Following the effectiveness of the registration statement of which this prospectus forms a part, all of the shares of Common Stock sold to Northbridge pursuant to the Investment Agreement will be freely tradable without restriction or further registration under the Securities Act.

 

USE OF PROCEEDS

 

We estimate that the net proceeds from this offering will be approximately $[  ] after deducting the underwriting discounts and commissions and estimated offering expenses, or if the underwriter exercises their over-allotment option in full.

 

We intend to use the net proceeds of this offering and any proceeds from the exercise of Warrants for general corporate purposes, which may include working capital, retiring trade payables, marketing, development of product pipeline, technology development, legal fees, other corporate expenses, acquisitions of complementary products, product candidates, technologies or businesses, and repayment of notes payable (used for general corporate expenses). However, we currently have no present agreements or commitments for any such acquisitions and no guarantee can be made that we will make such acquisitions in the future.

 

20

 

 

We currently expect to use the net proceeds of this offering and any proceeds from the exercise of Warrants primarily for the following purposes:

 

  approximately $2,300,000 for the repayment of loans (used for general corporate expenses) that accrue interest at 15% per year and a maturity date of March 8, 2022:
     
  the remainder for working capital and other general corporate purposes.

 

We believe that the expected net proceeds from this offering and our existing cash and cash equivalents, together with interest thereon, will be sufficient to fund our operations for at least the next two years, although we cannot assure you that this will occur.

 

The amount and timing of our actual expenditures will depend on numerous factors, including the status of our development efforts, sales and marketing activities and the amount of cash generated or used by our operations. We may find it necessary or advisable to use portions of the proceeds for other purposes, and we will have broad discretion and flexibility in the application of the net proceeds. Pending these uses, the proceeds will be invested in short-term bank deposits.

 

MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

 

Market and Other Information

 

Our Common Stock is quoted on the OTCQB under the trading symbol “SURG”. Our shares began trading on July 24, 2007.

 

As of June 14, 2021, there were approximately 3,067 holders of record of our Common Stock. The last reported sales price for our Common Stock, as reported on the OTCQB on June 16, 2021, was $0.12.

 

Dividend Policy

 

To date, we have not paid any dividends on our Common Stock and do not anticipate paying any such dividends in the foreseeable future. The declaration and payment of dividends on the Common Stock is at the discretion of our board of directors and will depend on, among other things, our operating results, financial condition, capital requirements, contractual restrictions or such other factors as our board of directors may deem relevant. We currently expect to use all available funds to finance the future development and expansion of our business and do not anticipate paying dividends on our Common Stock in the foreseeable future.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties and include statements regarding, among other things, our projected revenue growth and profitability, our growth strategies and opportunity, anticipated trends in our market and our anticipated needs for working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plans,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” or the negative of these words or other variations on these words or comparable terminology. These statements may be found under the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” as well as in this prospectus generally. In particular, these include statements relating to future actions, prospective products, market acceptance, future performance or results of current and anticipated products, sales efforts, expenses, and the outcome of contingencies such as legal proceedings and financial results. Such forward-looking statements include, without limitation, statements regarding:

 

  our need for, and our ability to raise, additional equity or debt financing on acceptable terms, if at all;

 

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  our need to take additional cost reduction measures, cease operations or sell our operating assets, if we are unable to obtain sufficient additional financing;
     
  our belief that we have sufficient liquidity to finance normal operations;
     
  the options we may pursue in light of our financial condition;
     
  the amount of cash necessary to operate our business;
     
  the expected expenses of, and benefits and results from, our research and development efforts;
     
  general economic conditions;
     
  the anticipated future financial performance and business operations of our company; and
     
  our ability to retain our core group of personnel.

 

We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all of those risks, nor can we assess the impact of all of those risks on our business or the extent to which any factor may cause actual results to differ materially from those contained in any forward-looking statement. The forward-looking statements in this prospectus are based on assumptions management believes are reasonable. However, due to the uncertainties associated with forward-looking statements, you should not place undue reliance on any forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and unless required by law, we expressly disclaim any obligation or undertaking to publicly update any of them in light of new information, future events, or otherwise.

 

CAPITALIZATION

 

The following table sets forth our consolidated cash and capitalization as of March 31, 2021. Such information is set forth on the following basis:

 

  on an actual basis.
     
  on a pro forma basis, giving effect to the sale by us of [  ] Units, at an assumed public offering price of $[  ] per Unit, after deducting underwriting discounts and commissions and estimated offering expenses.

 

The pro forma information below is illustrative only and our capitalization following the completion of this offering will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. You should read this table together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited consolidated financial statements and the related notes appearing elsewhere in this prospectus.

 

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   Actual as of March 31, 2021 (unaudited)   Pro Forma 
Cash and cash equivalents  $1,602,474   $ 
           
Stockholders’ deficit:          
Series A preferred stock: $0.001 par value; 13,000,000 shares authorized; 13,000,000 shares issued and outstanding at March 31, 2021   13,000      
Series C convertible preferred stock; $0.001 par value; 1,000,000 shares authorized; 721,598 shares issued and outstanding at March 31, 2021   722      
Common stock: $0.001 par value; 500,000,000 shares authorized; 150,792,608 shares issued and outstanding at March 31, 2021   152,849      
           
Additional paid in capital   15,849,971      
Accumulated deficit   (26,407,630)     
Total stockholders’ deficit  $(10,391,088)  $     

 

A $1.00 increase or decrease in the assumed public offering price per share would increase or decrease our pro forma cash, additional paid-in capital, total stockholders’ equity (deficit) and total capitalization by approximately $______ assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discount and estimated offering expenses payable by us.

 

DILUTION

 

If you invest in our securities, your investment will be diluted immediately to the extent of the difference between the public offering price per share of Common Stock that is part of the Unit, and the pro forma net tangible book value per share of Common Stock immediately after this offering.

 

Net tangible book value (deficit) represents the amount of our total tangible assets reduced by our total liabilities. Tangible assets equal our total assets less intangible assets. Pro forma net tangible book value per share represents our pro forma net tangible book value divided by the number of shares of Common Stock outstanding. As of [  ], 2021, our actual net tangible deficit value was $[  ] and our net tangible book deficit per share was $[  ].

 

After giving effect to the sale of Units that we are offering (attributing no value to the warrants) at the assumed public offering price of $[  ] per share, and after deducting the underwriting discount and commission and estimated offering expenses, our pro forma net tangible book value (deficit) as of [  ], 2021 would have been $[  ], or $[  ] per share. This represents an immediate increase in pro forma net tangible book value (deficit) of $[__] per share to existing stockholders and immediate dilution of $[  ] per share to new investors purchasing Units in the offering.

 

The following table illustrates this per share dilution:

 

    As of
March 31, 2020
    Pro Forma(1)  
Assumed public offering price per Unit                
Net tangible book deficit value per share as of [  ], 2021   $       $    
Increase in pro forma net tangible book value per share attributable to new investors   $                      
Pro forma net tangible book value per share after giving effect to this offering                
Dilution in net tangible book value per share to new investors                

 

 

(1) Calculated on a pro forma basis, giving effect to the conversion of all our outstanding shares of preferred stock into Common Stock.

 

If the underwriter’s overallotment option is exercised, our adjusted pro forma net tangible book value following the offering will be $[__] per share, and the dilution to new investors in the offering will be $[__] per share.

 

A $1.00 increase or decrease in the assumed public offering price per Unit would increase or decrease our pro forma as adjusted net tangible book value after this offering by approximately $[  ], and dilution per share to new investors by approximately $[  ] for an increase of $1.00, or $[( )] for a decrease of $1.00, after deducting the underwriting discount and estimated offering expenses payable by us.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management’s current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of its management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.

 

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors currently known to us could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that its assumptions are based upon reasonable data derived from and known about our business and operations and the business and operations of the Company. No assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions. Factors that could cause differences include, but are not limited to, expected market demand for the Company’s services, fluctuations in pricing for materials, and competition.

 

In February 2021, we filed a separate registration statement on Form S-1 with the SEC pursuant to which approximately 25% of the fully diluted equity of LogicsIQ will be sold to the public (the “LogicsIQ IPO”). If the LogicsIQ IPO is completed, LogicsIQ will remain our majority-owned subsidiary, and we will therefore have the ability to control the outcome of significant decisions regarding the operations, management and other aspects of LogicsIQ’s business.

 

COMPARISON OF THREE MONTHS ENDED MARCH 31, 2021 AND 2020

 

Revenues during the three months ended March 31, 2021 and 2020 consisted of the following:

 

  

March 31, 2021

(unaudited)

  

March 31, 2020

(unaudited)

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

 

Revenue decreased $4,798,851 (30%) primarily as a result of a decreases in revenue for: ECS of $2,832,287, LogicsIQ of $2,043,516 and Surge Blockchain of $260,668 offset by increase in True Wireless of $337,620 while gross profit increased $402,754 (55%) primarily as a result of an increase in gross profit of $643,640 in True Wireless.

 

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Costs and expenses during the three months ended March 31, 2021 and 2020 consisted of the following:

 

  

March 31, 2021

(unaudited)

  

March 31, 2020

(unaudited)

 
Depreciation and amortization  $217,958   $265,464 
Selling, general and administration   3,021,851    3,228,660 
Total  $3,239,809   $3,494,124 

 

Depreciation and amortization decreased $47,506 primarily as a result of fully depreciated assets.

 

Selling, general and administrative expenses during the three months ended March 31, 2021 and 2020 consisted of the following:

 

  

March 31, 2021

(unaudited)

  

March 31, 2020

(unaudited)

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

 

Selling, general and administrative costs (S, G & A) decreased by $206,809 (6%). The detail changes are discussed below:

 

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

Compensation increased from $729,918 in 2020 to $956,752 in 2021 primarily as a result of the increase in direct payroll moved shared services.

 

* Webhosting/internet costs increased to $217,915 in 2021 from $187,146 in 2020.
   
* Professional services decreased from $579,976 in 2020 to $537,319 in 2021 primarily as a result of decreased IT services.
   
*

Advertising and marketing costs increased to $446,760 in 2021 from $100,552 in 2020 primarily due to the Company implementing new advertising and marketing campaigns.

 

* Other costs decreased to $554,279 in 2021 from $1,390,900 in 2020 primarily due to a decrease in shared services on a consolidated basis.

 

Other (expense) income during the three months ended March 31, 2021 and 2020 consisted of the following:

 

  

March 31, 2021

(unaudited)

  

March 31, 2020

(unaudited)

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

 

Interest expense increased to $1,303,859 in 2021 from $482,722 in 2020 primarily due to an increase in total borrowings.

 

25

 

 

During the three months ended March 31, 2021, the Company identified certain embedded features within its borrowings that required the Company to classify the features as derivative liabilities. The Company recognized a change in fair value during the three months ended March 31, 2021 of $303,850. In addition, the Company recorded a derivative expense of $1,775,057 which represents the debt discount and derivative features that exceed the face value of the notes.

 

The loss on equity investment in Centercom of $73,773 in 2021 compared to an equity gain of $32,369 in 2020. During the three months ended March 31, 2021, the Company settled outstanding liabilities through the issuance of 875,000 shares of Common Stock and recorded a loss on settlement of $507,500. During the three months ended March 31, 2020, the Company settled outstanding liabilities and recorded a gain on settlement of $538,436.

 

Segment Information

 

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 periods ended March 31, 2021 and 2020, are as follows:

 

   Surge Blockchain & Other   LogicsIQ   TW   ECS   Total 
Three Months ended March 31, 2021                         
Revenue  $37,734   $3,408,403   $628,325   $6,914,486   $10,988,948 
Cost of revenue (exclusive of depreciation and amortization)   (4,434)   (2,966,753)   (185,537)   (6,700,585)   (9,857,309)
Gross margin   33,300    441,650    442,788    213,901    1,131,639 
Costs and expenses   (2,144,500)   (455,398)   (242,401)   (397,510)   (3,239,809)
Operating profit (loss)  $(2,111,200)  $(13,748)  $200,387   $(183,609)  $(2,108,170)
                          
Three Months ended March 31, 2020                         
Revenue  $298,402   $5,451,919   $290,705   $9,746,773   $15,787,799 
Cost of revenue (exclusive of depreciation and amortization)   (303,503)   (4,738,537)   (491,557)   (9,525,317)   (15,058,914)
Gross margin   (5,101)   713,382    (200,852)   221,456    728,885 
Costs and expenses   (1,716,882)   (343,138)   (1,049,910)   (384,194)   (3,494,124)
Operating income (loss)  $(1,721,983)  $370,244   $(1,250,762)  $(162,738)  $(2,765,239)
                          
March 31, 2021                         
Total assets  $1,874,911   $1,866,783   $616,221   $4,431,936   $8,789,851 
Total liabilities   12,274,317    3,181,477    3,477,262    247,883    19,180,939 
                          
December 31, 2020                         
Total assets  $911,316   $1,079,806   $515,592   $4,818,357   $7,325,071 
Total liabilities   10,922,335    2,440,758    4,301,249    386,695    18,051,037 

 

26

 

 

Each segment was impacted by COVID-19 in varying degrees. It is difficult to determine an exact impact, but the majority in the decrease in revenue from $15,787,799 as of March 31, 2020 to $10,988,948 as of March 31, 2021 can be attributed to COVID-19. We believe as restrictions are lifted across the country, each segment will see revenue growth, meeting or exceeding prior levels. The gross margin improved from March 31, 2020 to March 31, 2021 by $402,754. Each segment was consistent year over year, except True Wireless. With the downturn in True Wireless revenue over the past several years, we instituted an expense reduction campaign, resulting in a $643,640 change in gross margin period over period. Costs and expenses were flat period over period, with only slight decrease of over all expenses of $254,315 or 7%. Again, the biggest reason was the expense reduction campaign instituted in the True Wireless segment.

 

LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN

 

At March 31, 2021 and December 31, 2020, our current assets were $2,553,931 and $1,251,029, respectively, and our current liabilities were $14,974,306 and $15,303,661, respectively, which resulted in a working capital deficit of $12,420,375 and $14,052,632, respectively.

 

Total assets at March 31, 2021 and December 31, 2020 amounted to $8,789,851 and $7,325,071, respectively. At March 31, 2021, assets consisted of current assets of $2,553,931, net property and equipment of $223,594, net intangible assets of $3,923,615, goodwill of $866,782, equity investment in Centercom of $340,839, and operating lease right of use asset of 819,632, as compared to current assets of $1,251,029, net property and equipment of $236,810, net intangible assets of $4,125,742, goodwill of $866,782, equity investment in Centercom of $414,612 and operating lease right of use asset of $368,638 at December 31, 2020.

 

At March 31, 2021, our total liabilities of $19,180,939 increased $1,129,902 from $18,051,037 at December 31, 2020.

 

At March 31, 2021, our total stockholders’ deficit was $10,391,088 as compared to $10,725,966 at December 31, 2020. The principal reason for the increase in stockholders’ deficit was the impact of the net loss of $4,815,431 offset by equity issuances during 2021

.

 

The following table sets forth the major sources and uses of cash for the three months ended March 31, 2021 and 2020.

 

  

March 31, 2021

(unaudited)

  

March 31, 2020

(unaudited)

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

 

At March 31, 2021, the Company had the following material commitments and contingencies.

 

Notes payable – related party - See Note 7 to the Condensed Consolidated Financial Statements.

 

Notes payable and long-term debt - See Note 8 to the Condensed Consolidated Financial Statements.

 

Convertible promissory notes - See Note 9 to the Condensed Consolidated Financial Statements.

 

Related party transactions - See Note 14 to the Condensed Consolidated Financial Statements.

 

Cash requirements and capital expenditures – At the current level of operations, the Company has to borrow funds to meet basic operating costs. The Company expects to need $3,000,000 in cash requirements over the next 12 months to meet basic operating costs.

 

27

 

 

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 expansion.

 

We believe we will continue to incur net losses and do not expect positive cash flows from operations until the 4th quarter of 2021. At that time, we believe the impact of COVID-19 will have receded enough to allow us to fully implement our sales strategy, resulting in increased revenue in all segments of our business. The Company will continue to fund operations until cash flow positive through the use of promissory notes, both related and non-related party. These notes made up the majority of the $4,366,448 generated by financing activities during the three months ended March 31, 2021.

 

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 six (6) months of the loan. Any unforgiven balance of loan principal and accrued interest at the end of the six (6) month loan deferral period is amortized in equal monthly installments over the remaining 18-months of the loan term. On April 17, 2020, the Company closed a $498,082 SBA guaranteed PPP loan with Bank3. The Company expects to use the loan proceeds as permitted and apply for and receive forgiveness for the entire loan amount. 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.

 

COMPARISON OF YEAR ENDED DECEMBER 31, 2020 AND 2019

 

Revenues during the years ended December 31, 2020 and 2019 consisted of the following:

 

   2020   2019 
Revenue  $54,406,788   $25,742,941 
Cost of revenue (exclusive of depreciation and amortization)   51,938,111    22,623,521 
Gross profit  $2,468,677   $3,119,420 

 

Revenue increased $28,663,847 (111%) primarily as a result of the increase of the ECS revenues of $24,094,753 and an increase of $9,195,691 in revenues from LogicsIQ offset by decreases of $3,044,411 in True Wireless, Inc. and $3,697,947 in Surge Blockchain LLC. Gross profit decreased by $650,743 (21%) primarily as a result of a decreases in gross profit of $201,847 in True Wireless, Inc. and $765,572 of Surge Blockchain LLC that offset the gross profit gains from the increased revenues of the other subsidiaries.

 

Costs and expenses during the years ended December 31, 2020 and 2019 consisted of the following:

 

   2020   2019 
Depreciation and amortization  $1,173,369   $227,322 
Selling, general and administration   11,440,976    10,660,126 
Total  $12,614,345   $10,887,448 

 

Depreciation and amortization increased $946,047 primarily as a result of the addition of the ECS assets. The asset purchase agreement dated September 27, 2019 created an intangible asset. The amortization of this was recorded for a full year in 2020 and only 3 months in 2019.

 

28

 

 

Selling, general and administrative expenses during the years ended December 31, 2020 and 2019 consisted of the following:

 

   2020   2019 
Contractors and consultants  $2,170,279   $2,134,202 
Professional services   1,043,459    1,761,292 
Compensation   3,605,624    1,895,932 
Webhosting/internet   683,276    651,370 
Advertising and marketing   273,031    1,116,046 
DRIP fees   -    547,000 
Bad debt expense   1,750,239    985,633 
Other   1,915,068    1,568,651 
Total  $11,440,976   $10,660,126 

 

Selling, general and administrative costs (S, G & A) increased by $780,850 (7%). The 2020 period includes $554,386 in expenses for the ECS companies that are not included in the 2019 expenses. The detail changes are discussed below:

 

Contractors and consultants expense increased less than 2% from $2,134,202 in 2019 to $2,170,279 in 2020.
   
Professional services decreased $717,833 in 2020 primarily due to a decrease in the use of outside management services. The 2020 period includes $24,043 in expenses of the ECS companies that are not included in the 2019 expenses.
   
Compensation increased from $1,895,932 in 2019 to $3,605,624 in 2020 primarily as a result of the increase in staff support positions to support the expected increase in revenue in the coming months and to replace the outside management services. The 2020 period includes $158,095 in expense of the ECS companies that are not included in the 2019 expenses.
   
Webhosting/internet costs increased less than 5% to $683,276 in 2020 from $651,370 in 2019.
   
Distributive Resolution & Integration Program (“DRIP”) fees decreased from $547,000 in 2019 to $0 in 2020, as a result of the Company terminating a DRIP with the Asian American Trade Association to provide products and services for up to 40,000 locations in 2019. The DRIP fees were a one-time location activation fee.
   
Advertising and marketing costs decreased to $273,031 in 2020 from $1,116,046 in 2019 primarily due to the Company reducing advertising and marketing costs while evaluating future advertising and marketing campaigns.
   
Bad debt expense increased to $1,750,239 in 2020 from $985,633 in 2019 primarily due to the Company’s evaluation of the receivables generated during the initial rollout of the SurgePays portal and providing an appropriate allowance for bad debts.
   
Other costs increased to $1,915,068 in 2020 from $1,568,651 in 2019 primarily due to an increase in fidelity, cyber security and professional liability insurance, additional office space, shareholder communications and travel. The 2020 period includes $73,448 in expenses of the ECS companies that are not included in 2019 expenses.

 

Other (expense) income during the years ended December 31, 2020 and 2019 consisted of the following:

 

   2020   2019 
Interest, net  $(3,383,996)  $(227,016)
Change in fair value of derivative liability   577,936    4,013 
Derivative expense   (566,789)   - 
Gain on equity investment in CenterCom   210,912    25,192 
Gain (loss) on settlement of liabilities   2,575,979    (481,187)
Other income   10,000    - 
   $(575,958)  $(678,998)

 

Interest expense increased to $3,383,996 in 2020 from $227,016 in 2019 primarily due to an increase in total borrowings.

 

29

 

 

During the year ended December 31, 2020, the Company identified certain embedded features within its borrowings that required the Company to classify the features as derivative liabilities. The Company recognized a change in fair value in 2020 of $577,936. In addition, the Company recorded a derivative expense of $566,789 which represents the debt discount and derivative features that exceed the face value of the notes. The increase in derivative expense is the result of additional borrowings in 2020 with a default note conversion trigger.

 

The gain on equity investment in CenterCom of $210,912 in 2020 compared to $25,192 in 2019.

 

On June 23, 2020, the Company entered into a Stock Cancellation Agreement with Yossi Attia (the “Stock Cancellation Agreement”). Prior to entering into the Stock Cancellation Agreement, Mr. Attia owned 3,333,333 shares of Common Stock (the “Attia Shares”) without a restrictive legend. Pursuant to the Stock Cancellation Agreement, the Company agreed to pay $500,000 to Mr. Attia for the return and cancellation of 2,380,952 of the Attia Shares. The Company has the option, on or prior to July 23, 2020, to pay Mr. Attia $0.21 per share for the return and cancellation of any or all of the remaining 952,381 Attia Shares. This resulted in a gain on settlement of debt of $2,080,000 recorded in the second quarter of 2020.

 

During 2019, the Company settled outstanding liabilities through the issuance of 875,000 shares of Common Stock and recorded a loss on settlement of $481,187. During 2020, the Company settled outstanding liabilities through the issuance of 8,150,000 shares of Common Stock and recorded a gain on settlement of $2,556,979.

 

Segment Information

 

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 years ended December 31, 2020 and 2019, are as follows:

 

   Surge Blockchain & Other  

Surge

Logics

   TW   ECS   Total 
Year ended December 31, 2020                         
Revenue  $741,863   $16,430,057   $2,372,977   $34,861,891   $54,406,788 
Cost of revenue (exclusive of depreciation and amortization)   (849,225)   (14,213,769)   (3,003,099)   (33,872,018)   (51,938,111)
Gross margin   (107,362)   2,216,288    (630,122)   989,873    2,468,677 
Costs and expenses   (8,066,653)   (2,147,406)   (937,196)   (1,463,090)   (12,614,345)
Operating profit (loss)  $(8,174,015)  $68,882   $(1,567,318)  $(473,217)  $(10,145,668)
                          
Year ended December 31, 2019                         
Revenue  $4,295,434   $7,234,366   $3,446,003   $10,767,138   $25,742,941 
Cost of revenue (exclusive of depreciation and amortization)   (1,665,839)   (4,721,923)   (5,845,663)   (10,390,096)   (22,623,521)
Gross margin   2,629,595    2,512,443    (2,399,660)   377,042    3,119,420 
Costs and expenses   (6,340,282)   (2,388,181)   (1,749,975)   (409,010)   (10,887,448)
Operating loss  $(3,710,687)  $124,262   $(4,149,635)  $(31,968)  $(7,768,028)
                          
December 31, 2020                         
Total assets  $1,729,041   $199,366   $(353,476)  $4,883,357   $7,325,071 
Total liabilities   10,912,205    2,450,888    4,301,249    386,695    18,051,037 
                          
December 31, 2019                         
Total assets  $4,782,722   $249,196   $(33,718)  $4,988,173   $9,986,373 
Total liabilities   10,115,799    734,875    3,815,175    20,139    14,685,988 

 

30

 

 

Each segment was impacted by COVID-19 in varying degrees. We believe as restrictions are lifted across the country, each segment will see revenue growth, meeting or exceeding prior levels. The revenue increased from $25,742,941 for year ended 2019 to $54,406,788 for year ended 2020, resulting in an increase of $25,742,941 or 111.3% increase. The full impact of the acquisition of the ECS segment resulting in an increase of $24,094,753, year-over-year. The gross margin decreased from $3,119,420 for 2019 to $2,468,677 in 2020. COVID-19 impact on Surge Blockchain resulted in a decrease of $3,553,571 in revenue and a corresponding decrease in gross margin of $2,736,957. Operating expenses increased as a result of the full year impact of the ECS acquisition.

 

LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN

 

At December 31, 2020 and 2019, our current assets were $1,251,029 and $3,574,885, respectively, and our current liabilities were $15,303,661 and $7,054,124, respectively, which resulted in a working capital deficit of $14,052,632 and $3,479,239, respectively. The decrease in current assets is a result of recognizing bad debt expense to write off uncollectible accounts receivable. The increase in current liabilities is the result of incurring additional debt in 2020 with payment terms less than one-year.

 

Total assets at December 31, 2020 and 2019 amounted to $7,325,071 and $9,986,373, respectively. The decrease in total assets is a result of recognizing bad debt expense to write off uncollectible accounts receivable. At December 31, 2020, assets consisted of current assets of $1,251,029, net property and equipment of $236,810, net intangible assets of $4,125,742, goodwill of $866,782, equity investment in Centercom of $414,612, and operating lease right of use asset of $368,638, as compared to current assets of $3,574,885, net property and equipment of $294,616, net intangible assets of $4,769,117, goodwill of $866,782, equity investment in Centercom of $203,700 and operating lease right of use asset of $210,816 at December 31, 2019. The operating lease right of use increased related to a new lease acquired in the ECS assets purchase agreement.

 

At December 31, 2020, our total liabilities of $18,051,037 increased $3,365,049 from $14,685,988 at December 31, 2019. The Company entered into several promissory notes during 2020, creating additional debt in 2020 over 2019.

 

At December 31, 2020, our total stockholders’ deficit was $10,725,966 as compared to $4,699,615 at December 31, 2019. The principal reason for the increase in stockholders’ deficit was the impact of the net loss of $10,721,626 offset by equity issuances during 2020.

 

We believe we will continue to incur net losses and do not expect positive cash flows from operations until the 4th quarter of 2021. At that time, we believe the impact of COVID-19 will have receded enough to allow us to fully implement our sales strategy, resulting in increased revenue in all segments of our business.

 

The following table sets forth the major sources and uses of cash for the years ended December 31, 2020 and 2019.

 

   2020   2019 
         
Net cash used in operating activities  $(4,326,048)  $(6,533,141)
Net cash used in investing activities   8,354    (32,241)
Net cash provided by financing activities   4,645,649    6,466,810 
Net change in cash and cash equivalents  $327,955   $(98,572)

 

As a result of increased financing activities in 2020, the cash increased in 2020 by $327,955.

 

At December 31, 2020, the Company had the following material commitments and contingencies.

 

Notes payable – related party - See Note 8 to the Condensed Consolidated Financial Statements.

 

Notes payable and long-term debt - See Note 9 to the Condensed Consolidated Financial Statements.

 

Convertible promissory notes - See Note 10 to the Condensed Consolidated Financial Statements.

 

Related party transactions - See Note 15 to the Condensed Consolidated Financial Statements.

 

31

 

 

Cash requirements and capital expenditures – At the current level of operations, the Company has to borrow funds to meet basic operating costs.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

CRITICAL ACCOUNTING ESTIMATES

 

Our significant accounting policies are described in Note 2 of the Consolidated Financial Statements. During the year ended December 31, 2019, we were required to make material estimates and assumptions that affect the reported amounts and related disclosures of assets, liabilities, revenue and expenses as a result of the acquisitions completed during 2019. The estimates will require us to rely upon assumptions that were highly uncertain at the time the accounting estimates are made, and changes in them are reasonably likely to occur from period to period. Changes in estimates used in these and other items could have a material impact on our financial statements in the future. Our estimates will be based on our experience and our interpretation of economic, political, regulatory, and other factors that affect our business prospects. Actual results may differ significantly from our estimates.

 

BUSINESS

 

Business Overview

 

SurgePays, Inc. (“SurgePays,” “we”, “our” or “the Company”), incorporated in Nevada on August 18, 2006, 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.

 

Our current focus is offering wholesale goods and services direct to convenience stores, bodegas, minimarts, tiendas and other corner stores providing goods and services primarily to the underbanked community. We leverage Direct Store Delivery and the cost saving efficiencies of direct e-commerce to provide as many commonly sold consumable products as possible while increasing profit margins for these stores. These products include herbal stimulants, energy shots, 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.

 

As of June 14, 2021, our human capital resources consist of thirty-three (33) employees to and approximately ten (10) independent contractors. Historically all salaries have been consolidated under SurgePays while contractor expenses are paid by the appropriate subsidiary. As of January 1, 2021, all salaries are allocated to the appropriate subsidiary. The Company’s operations and sales function management teams are currently planning human capital measures and objectives for the business as the country emerges from the COVID-19 Pandemic.

 

Surge Blockchain

 

SurgePays Blockchain Software is a multi-purpose e-commerce platform offering wholesale goods and services direct to convenience stores, bodegas, minimarts, tiendas and other corner stores providing goods and services primarily to the underbanked community. The merchant or clerk is able to use the portal interface – similar to a website – with image driven navigation to add wireless minutes to any prepaid wireless carrier’s phone and access to other services such as bill payment and loading debit cards. We believe what makes us unique is that it also offers the merchant the ability to order wholesale consumable goods at a significant discount from traditional distributors through the portal with one touch ease. We are essentially a wholesale e-commerce storefront that offers products direct from manufactures while cutting out the middleman. The goal of the SurgePays Portal is to leverage the competitive advantage and efficiencies of direct 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.

 

32

 

 

The revenue decrease of $3,553,571 from fiscal 2019 to fiscal year 2020 is a direct result of COVID-19. The majority of our sales are a direct result of independent sales organizations (“ISOs”) face-to-face meetings with store owners. The pandemic shutdown virtually eliminated our sales. As an organization, we limited the reduction in overall expenses with the intention of weathering the pandemic, thus our cost of revenue increased from 38.78% in 2019 to 114.47% in 2021.

 

ECS

 

ECS has been a financial technology tech and wireless top-up platform for over 15 years. On October 1, 2019, we acquired ECS 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 network. 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 revenue increase of $24,094,753 from fiscal 2019 to fiscal 2020 is related to the acquisition as of October 1, 2019. The financials for 2019 consisted of only the 4th quarter, while 2020 financials were a full year of operations. Gross margin percent was consistent year over year.

 

True Wireless

 

True Wireless is licensed through the FCC to provide Lifeline Service (subsidized wireless service to qualifying low-income customers) in 5 states. Utilizing the T-Mobile wireless backbone, True Wireless provides discounted and free wireless service to veterans and other disadvantaged customers who qualify for certain federal programs such as SNAP (EBT) and Medicaid.

 

The revenue decrease of $1,073,026 from fiscal 2019 to fiscal year 2020 is a direct result of COVID-19. The majority of our sales are dependent upon on-site locations. The pandemic shutdown impacted the number of locations we were able to setup over the year.

 

LogicsIQ

 

LogicsIQ is a performance-driven marketing firm focused on the mass tort industry for attorneys and law firms. We primarily perform client acquisition and retention services for attorneys and law firms by operating highly scalable digital marketing campaigns, called performance campaigns, using our proprietary technology and data-driven analytics. These performance campaigns, and the related follow-up by our experienced in-house team, enable our attorney and law firm advertising clients to more effectively and economically connect with potential clients they are seeking to represent in existing or planned litigation. Our proven strategy of delivering cost-effective lead acquisitions and 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.

 

Our customized performance campaign offers are targeted at clients interested in completing signed retainers. The first step is to understand the specific criteria of our client. After this, we proceed to generate consumer traffic to our digital media platforms or our clients’ media platforms. Although there is no assurance of generating revenue from this move, we go all the way, bearing all the costs and risks involved. When we use our resources in acquiring consumer traffic, we want to help our clients amass cost-effective retained cases effectively. This, in turn, guarantees maximum profit margins for them.

 

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In 2017, the focus transitioned to providing life enhancing products to the underbanked. This ultimately led to the development of the SurgePays platform and strategic acquisitions.

 

The revenue increase of $9,195,691 from fiscal 2019 to fiscal 2020 was related to expansion of revenue streams.

 

In February 2021, we filed a separate registration statement on Form S-1 with the SEC pursuant to which approximately 25% of the fully diluted equity of LogicsIQ will be sold to the public. If the LogicsIQ IPO is completed, LogicsIQ will remain our majority-owned subsidiary, and we will therefore have the ability to control the outcome of significant decisions regarding the operations, management and other aspects of LogicsIQ’s business.

 

Experienced Leadership Team

 

Our management team consists of 4 executives with over 20 years in the prepaid wireless, underbanked and convenience store distribution industry while presiding over companies with a collective revenue run of over $2 billion. Our finance team is led by a CFO with a background in private equity backed, and publicly traded companies ranging from $100 million to over $1.3 billion in annual revenue while our software development team is led by a CTO who got his start in the early days of operating systems. The combination of operating skills from our management team with the experience of successfully leading major multi-million-dollar, multinational companies give our organization a significant strength relative to most small- and medium-sized beverage companies.

 

Growth Strategies

 

Our primary long-term goal is to become a top provider of goods and services to independently owned retail stores across the country. We intend to achieve this goal by driving organic growth and acquisitions behind our existing portfolio of life enhancing underbanked products, in all major markets and regions, through an aligned network of retailer and ISO partners.

 

Our key growth strategies include the following:

 

  developing a powerful, performance-oriented, and metric-driven organizational culture;
     
  developing sales/trade tool kits to empower our sales force network and ISOs to engage with customers nationwide;
     
  developing brand/marketing tool kits for current and new brands and segments;
     
  expanding distribution of same store sales with current clients, while adding new clients;
     
  strengthening our supply chain to achieve best in class costs, on-time/as promised logistics and superior customer service;
     
  improving gross product margins with rearchitected cost of goods sold, improved efficiency, and improved net revenue with new products;
     
  continuous development and improvements to our software platforms improving efficiencies and overall clients experience
     
  upgrading infrastructure, systems and processes with enterprise resource planning systems, improved financial reporting, operating expense control, and strengthened key metrics and accounting and control procedures; and
     
  strengthening our financial foundation via accessing the capital markets, solidifying long-term banking partners and facilities, and pursuing transformative organic and acquisitory growth.

 

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SurgePays’ strategy for increasing revenues is based on developing, maintaining, and expanding our nationwide network of retail stores. Our relationship-driven approach to selling along with providing many of the top selling products at a wholesale discount greater than traditional distributors gives management confidence of continued growth into the foreseeable future.

 

Sales and Marketing

 

Sales Growth will be through Acquisition and Organic.

 

Acquisitions

 

A key part of our business strategy includes acquiring companies to support our growth and enhance our product portfolio. Our acquisition strategy has two channels:

 

  We will acquire existing distributors of products with a sales network of stores. Upon acquisition, we will maximize the relationship with this store base by upselling our additional product offerings while utilizing the efficiencies and economies of scale from our core business to increase profit.
     
  We will acquire manufacturers of products that are either currently sold to our target based of stores, or regionally established companies that we can take nationwide, increasing exposure and thus increasing profits margins. This channel will also increase our competitive advantage by exclusively offering certain products and or offering these products at a discount compared to traditional distributors.

 

Organic – Sales team

 

Our business strategy of organically expanding our network of retail locations, or points of distribution, also includes 2 channels:

 

  We currently have an in-house sales and merchandising team, whose compensation is highly variable and highly performance based. Each salesperson has individual targets for increasing “base” volume through distribution expansion, and “incremental” volume through promotions and other in-store merchandising and display activity. As distribution to new major customers, new major channels, or new major markets increases, we will expand the sales and marketing team on a variable basis.
     
  We will also utilize the Independent Sales Organizations model similar to credit card processing vendors. These independent contractors represent various non-competing products and or already cover a sales route. While traveling or through a network of existing relationships, they sign up new stores to the SurgePays platform and are compensated a commission for ongoing sales.

 

Disrupting the Supply Chain

 

The traditional distribution components of transportation, warehousing, profit, and labor normally accounts for 25% of the retail cost of a product sold in convenience stores. The value proposition is realized by us through eliminating the markup the old-school supply chain adds to the wholesale price of goods. With Direct Store Delivery (DSD), goods can be taken to the retailer directly from the manufacturer and this will invariably reduce the cost price of the product to the store owner. Store owners can make their orders using one-click ordering on our software interface to get commonly sold wholesale products shipped directly to them. We have established models and programs to market and sell these products or services of our stores. We have the capability and capacity to scale significantly quick to bring approved products into stores nationwide.

 

Normally the higher prices at convenience stores are due to the traditional distribution model. The independent retailer generally doesn’t get a better deal on products when buying by the case as opposed to the pallet. As a result, the convenience store supply chain adds 25% to the normal wholesale price of products. These distributor costs consist mainly of third party transportation, warehousing, labor and profit. The value proposition is realized by significantly reducing this markup by eliminating the need for these costs via Direct Store Delivery (DSD).

 

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SurgePays disrupts the current C-store wholesale product distribution model by leveraging blockchain technology to provide store owners a software platform interface, similar to an e-commerce marketplace, where they can order wholesale goods that will be shipped directly from the manufacturer.

 

The same way residential B2C purchasing habits have changed due to the advent of relationship-centric retail platforms online, SurgePays offers independent store owners the ability to conveniently and efficiently order wholesale products at a lower cost than what traditional product distribution is capable of providing. With Direct Store Delivery, goods can be shipped to the retailer directly from the manufacturer which will invariably reduce the wholesale cost of the product. Store owners can select products from a variety of the most commonly sold categories using one-click ordering.

 

In most cases, the store owner realizes a 10%-15% lower price on the wholesale products they are currently buying or in many cases, can select from a wider variety of products from manufacturers nationwide.

 

Another significant advancement is that formerly regional manufacturers are now able to offer their the products beyond their existing footprint reach to stores nationwide. This increase in the supply of product options to stores should create a competitive wholesale market to keep prices affordable and in turn provide better pricing and improve margins to these independent store owners.

 

Our ability to support sales transactions nationwide has been bolstered by developing our software in a manner that fosters automation after the order is placed at the store level. Centercom, our operations center in central america, provides us a competitive advantage on economies of scale for adding bilingual customer care and support personnel to grow as needed to provide stellar relationship management.

 

Competition

 

Many of our current and potential competitors are well established and have longer operating histories, significantly greater financial and operational resources, and name recognition than we have. Most traditional convenience store distributors are companies that have been in business for over 50 years and utilize the historical “manufacturing plant to truck to warehouse to truck to store” logistics model. However, we believe that with our diverse product line, better efficiencies resulting in lower wholesale cost of goods sold, we have the ability to obtain a large market share and continue to generate sales growth and compete in the industry. The principal competitive factors in all our product markets are technical features, quality, availability, price, customer support, and distribution coverage. The relative importance of each of these factors varies depending on the region. We believe using our direct store distribution model nationwide will open significant opportunities for growth.

 

The markets in which we operate can be generally categorized as highly competitive. In order to maximize our competitive advantages, we continue to expand our product portfolio to capitalize on market trends, changes in technology and new product releases. Based on available data for our served markets, we estimate that our market share of the convenience store sales business at this time is less than 1%. A substantial acquisition would be necessary to meaningfully and rapidly change our market share percentage.

 

Distributors generally do not have a broad set of product and service offerings or capabilities, and no single distributor currently provides all the top selling consumables while offering products and services to enhance the lifestyle of the underbanked such as prepaid wireless, gift cards, bill payment and reloadable debit cards. We believe this creates a significant opportunity for a dynamic paradigm shift to a nationwide wholesale e-commerce platform.

 

Nationwide Product Deployment

 

The SurgePays Blockchain platform streamlines the process for bringing products directly to the retail store. Our sales protocols have been tested and proven transferable from one product offering to another while ultimately providing our network of stores with better pricing and a larger product selection.

 

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Competitive Edge

 

Our competitive edge is simple; we have the ability through our software platform, along with our relationships, capacity, efficiency, economies of scale and experience necessary to bring our products or services to market in an effective and efficient manner to ensure success. Our blockchain platform streamlines the process for bringing products directly to the targeted retail store. Our sales protocols have been tested and proven transferable from one product offering to another while ultimately improving our target stores with better pricing and more product selection.

 

Our strategy for increasing revenues is based on developing, maintaining, and expanding our nationwide network of retail stores. Our relationship-driven approach to selling along with providing many of the top selling c-store products at a wholesale discount greater than traditional distributors gives management confidence of continued growth into the foreseeable future.

 

Research and Development Activities

 

We conduct research and development on an ongoing basis, including new and existing products to offer and software product development to ensure we are delivering the most efficient, secure, and fast transactions at the store level. The SurgePays software platform is housed on the Amazon Web Service Cloud for redundancy, stability, and reliability. Traditionally, convenience stores are high volume and fast paces stores where space at the register is at a premium, thus leaving no room for a computer so wireless top-ups or cell phone activations are done over a Verifone terminal traditionally used for processing credit cards. We believe that our future success will depend in part upon our ability to continue the enhancement of our software platform and application to transact via tablets and other smaller devices while developing new products that meet or anticipate such changes in our served markets. Many of the stores we serve are now connected to the internet. This has allowed us to innovate our software to be more adaptive to equipment that is more compatible with the space constraints of the register area in a store.

 

Much of the development for specific products we offer is done by the manufacturers and is dictated by market conditions. For example: When the iPhone 12 was released, we simply added iPhone 12 chargers and adapters to its suite of smartphone accessories. Our continuity is secure due to our ability to adapt through adding new products seamlessly.

 

Seasonality

 

We experience some seasonality whereby the peak tax season months show a higher level of sales and consumption. However, the structure of our business and range of products in our portfolio mitigate any major fluctuations. Our revenue during the peak tax season months in the spring have historically been approximately 5% greater than the peak other months, and as our product portfolio continues to expand, the level of seasonal peaks we expect to diminish.

 

Where You Can Find More Information

 

Our website address is www.surgepays.com. We do not intend for our website address to be an active link or to otherwise incorporate by reference the contents of the website into this prospectus. The SEC maintains an Internet website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

 

Corporate Information

 

We were previously known as North American Energy Resources, Inc. and KSIX Media Holdings, Inc. Prior to April 27, 2015, we operated solely as an independent oil and natural gas company engaged in the acquisition, exploration and development of oil and natural gas properties and the production of oil and natural gas through its wholly owned subsidiary, NAER. On April 27, 2015, NAER entered into a Share Exchange Agreement with KSIX Media whereby KSIX Media became a wholly owned subsidiary of NAER and which resulted in the shareholders of KSIX Media owning approximately 90% of the voting stock of the surviving entity. While we continued the oil and gas operations of NAER following this transaction, on August 4, 2015, we changed its name to KSIX Media Holdings, Inc. On December 21, 2017, we changed its name to Surge Holdings, Inc. to better reflect the diversity of its business operations. We changed its name to SurgePays, Inc. on October 29, 2021.

 

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Historically, we operated through its direct and indirect subsidiaries: (i) KSIX Media, Inc., incorporated in Nevada on November 5, 2014; (ii) KSIX, LLC, a Nevada limited liability company that was formed on September 14, 2011; (iii) Surge Blockchain, LLC, formerly Blvd. Media Group, LLC, a Nevada limited liability company that was formed on January 29, 2009; (iv) DigitizeIQ, LLC an Illinois limited liability company that was formed on July 23, 2014; (v) Surge Cryptocurrency Mining, Inc., formerly North American Exploration, Inc., a Nevada corporation that was incorporated on August 18, 2006 (since January 1, 2019, this has been a dormant entity that does not own any assets); (vi) LogicsIQ Inc, an Nevada corporation that was formed on October 2, 2018; (vii) True Wireless, Inc., an Oklahoma corporation (formerly True Wireless, LLC); (viii) Surge Payments, LLC, a Nevada limited liability company; (ix) Surgephone Wireless, LLC, a Nevada limited liability company; and (x) SurgePays Fintech, Inc., a Nevada limited liability company. On January 22, 2021, the issued and outstanding equity securities of DIQ and KSIX were transferred to LogicsIQ and became a wholly owned subsidiaries of LogicsIQ.

 

Historically, our principal business has been digital advertising and lead generation through two of its wholly owned subsidiaries—DIQ, which is a full-service digital advertising agency specializing in survey generation and landing page optimization specifically designed for mass tort action lawsuits and KSIX, which is an Internet marketing company and has an advertising network designed to create revenue streams for its affiliates and to provide advertisers with increased measurable audience. KSIX has an online advertising network that works directly with advertisers and other networks to promote advertiser campaigns and manage offer tracking, reporting and distribution.

 

Our current focus is offering wholesale goods and services direct to convenience stores, bodegas, minimarts, tiendas and other corner stores providing goods and services primarily to the underbanked community. SurgePays leverages Direct Store Delivery and the cost saving efficiencies of direct e-commerce to provide as many commonly sold consumable products as possible while increasing profit margins for these stores. These products include herbal stimulants, energy shots, 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.

 

Historically, our principal business has been digital advertising and lead generation through two of its wholly owned subsidiaries—DIQ, which is a full-service digital advertising agency specializing in survey generation and landing page optimization specifically designed for mass tort action lawsuits and KSIX, which is an Internet marketing company and has an advertising network designed to create revenue streams for its affiliates and to provide advertisers with increased measurable audience. KSIX has an online advertising network that works directly with advertisers and other networks to promote advertiser campaigns and manage offer tracking, reporting and distribution.

 

Our executive offices are located at 3124 Brother Blvd, Suite 410, Bartlett, TN 38133, and our telephone number is (800) 760-9689. Our website is www.surgeholdings.com. Our website and the information contained in, or accessible through, our website will not be deemed to be incorporated by reference into this prospectus and does not constitute part of this prospectus.

 

Properties

 

We presently occupy space at 3124 Brother Blvd, Suite 410, Bartlett, TN 38133. This building is owned by an entity owned by Mr. Cox, our CEO and Chairman and the controlling shareholder of the Company. We also occupy space at 1375 E Woodfield Road, Schaumburg IL 60173.

 

We will acquire additional office space as its needs warrant.

 

Legal Proceedings

 

From time to time, we may be engaged in various lawsuits and legal proceedings in the ordinary course of our business. Except as described below, we are currently not aware of any legal proceedings the ultimate outcome of which, in our judgment based on information currently available, would have a material adverse effect on our business, financial condition or results of operations.

 

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The following is summary of threatened, pending, asserted or un-asserted claims against us or any of its wholly owned subsidiaries.

 

1. Regulatory matter before the Corporation Commission of Oklahoma: Oklahoma Corporation Commission v True Wireless, Inc., Cause No. PUD 202000038

 

On February 14, 2020, the Oklahoma Corporation Commission filed a complaint against True Wireless, Inc., related to a compliance dispute. The Oklahoma Corporation Commission has taken issue with some subscribers enrolled outside the designated service area. Local counsel is preparing filing of exceptions and Motion for Hearing En Banc in before Oklahoma Corporation Commission. The Oklahoma Corporation Commission is seeking a substantial fine in excess of $100,000.00 and revocation of its license in Oklahoma.

 

2. Global Reconnect, LLC and Terracom, Inc. v. Jonathan Coffman, Jerry Carroll, True Wireless, & Surge Holdings: In the Chancery Court of Hamilton County, TN, Docket # 20-00058, filed on Jan 21, 2020.

 

On January 21, 2020, a complaint was filed related to a noncompetition dispute. Terracom believes Mr. Coffman and Mr. Carroll are in violation of their non-compete agreements by working for us and True Wireless, Inc. Oklahoma and Tennessee state law does not recognize non-compete agreements and are not usually enforced in the state courts of these states, as such we believe True Wireless has a strong case against Terracom. The matter is entering the discovery process. Both Mr. Carroll and Mr. Coffman are no longer working for True Wireless in sales. Mr. Carroll is off the payroll and Mr. Coffman works for SurgePays, Inc., but not in wireless sales. The complaint requests general damages plus fees and costs for tortious interference with a business relationship in their prayer for relief. They have made no written demand for damages at this point in time. This matter is simply an anti-competitive attempt by Terracom to cause distress to True Wireless.

 

3. Juno Financial v. AATAC and Surge Holdings Inc. AND Surge Holdings Inc. v. AATAC; Circuit Court of Hillsborough County, Florida, Case # 20-CA-2712 DIV A:

 

On March 23, 2020, a complaint was filed related to a breach of contract dispute. The complaint was brought by a factoring company regarding Account Stated and Open Account claims against us. We have filed a cross-complaint against defendant AATAC for Breach of Contract, Account Stated, Open Account and Common Law Indemnity. The matter is currently in discovery. Juno Financial, a factoring company, is seeking in excess of $1,700,000.00. Surge never received any goods in this matter and has never owned or possessed the goods in this matter.

 

4. ALTCORP TRADING, LLC, a Costa Rica limited liability company; et al, Plaintiffs, vs. Surge Holdings, Inc., a Nevada corporation; VSTOCK Ttransfer, LLC, a California limited liability company, et al; District Court Clark County, Nevada; Case No.: A-20-823039-B:

 

In a settlement agreement signed on January 1, 2021 which became fully effective upon the court entering an order dismissing the case on January 19, 2021, Surge reached a settlement on all claims first asserted by plaintiffs AltCorp Trading, LLC and Stanley Hills, LLC in a case filed in Nevada state court in October 2020. On March 4, 2021, the plaintiffs filed a motion to enforce the settlement agreement (“Motion to Enforce”) in this action, seeking payment of a liquidated damages amount that Surge disputes and deny is due. Surge timely opposed this motion on March 18, 2021. The court heard the Motion to Enforce on April 12, 2021, and deferred ruling on the motion, instead ordering the parties to conduct supplemental briefing before a continued hearing on May 13, 2021. Surge timely filed its supplemental opposition as ordered by the court on April 23, 2020. At the hearing on the Motion to Enforce, the court concluded that a future hearing will be scheduled to consider the issues presented. At this time, such hearing has not been scheduled.

 

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5. SurgePays, Inc., formerly named as Surge Holdings, Inc., a Nevada corporation, Plaintiff, vs. Glen Eagles Acquisition LP, a Delaware limited partnership, Defendant; District Court Clark County, Nevada; Case No.: A-21-831204-B:

 

On March 4, 2021, Glen Eagles Acquisition LP (“Glen Eagles”) demanded payment of either $1,000,000 cash or $2,500,000 worth of Surge’s common stock based on false allegations of impropriety. In sum, Glen Eagles contended that Surge had diluted its shares and denied Glen Eagles the benefit of its June, 2020 stock exchange transaction with Surge. At the time of Glen Eagles’ demand to Surge, however, Surge’s stock price was comparable to and even greater than its price at the time of the June 2020 exchange transaction. On March 16, 2021, Surge filed suit against Glen Eagles, seeking declaratory relief and alleging Glen Eagles breached the implied covenant of good faith and fair dealing inherent in the June, 2020 exchange agreement by demanding additional payment. On April 19, 2021, Glen Eagles filed an answer and a counterclaim against Surge and its Chief Executive Officer, Brian Cox, alleging claims for declaratory relief, breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, fraudulent concealment, and seeking the appointment of a receiver. A scheduling order from the court is forthcoming, with tentative dates for a calendar call scheduled for June 2, 2021 and a bench trial scheduled for June 20, 2021.

 

DIRECTORS AND EXECUTIVE OFFICERS

 

The names of our executive officers and directors and their age, title, and biography as of February 9, 2021 are set forth below.

 

Set forth below is certain biographical information concerning our current executive officers and directors. We currently have two executive officers as described below.

 

Directors and Executive Officers   Position/Title   Age
         
Kevin Brian Cox   Chief Executive Officer and Chairman   45
Anthony P. Nuzzo, Jr.   President and Director   52
Anthony Evers   Chief Financial Officer   57
David C. Ansani   Chief Administrative Officer   55
Carter Matzinger   Chief Strategic Officer   46
David N. Keys   Independent Director   64
David May   Independent Director   52
Jay Jones   Independent Director   43

 

The following information sets forth the backgrounds and business experience of the directors and executive officers.

 

Kevin Brian Cox – Chief Executive Officer and a Director – Mr. Cox has been Chief Executive Officer and a Director since July 2017. He also served as Chief Financial Officer of the Company from July 2017 to March 2018 and as President of the Company from July 2017 to February 2019. He was the majority owner of True Wireless from January 2011 through April 2018, when True Wireless became a wholly owned subsidiary of the Company. He became CEO of True Wireless in January 2011 and served in this capacity until December 2, 2018. Mr. Cox got his start in telecom in 2004 when he founded his first telephone company (CLEC). Through organic growth and acquisition, he ran 3 CLECs providing service to 200,000 residential subscribers and became the largest prepaid home phone company in the country before selling in 2009. Mr. Cox is a minority partner, investor and or stakeholder in several other technology companies including telecom, wireless and network transactions and has realized over $550,000,000 in sales from companies he has founded or acquired. Mr. Cox graduated from Murray State University with a B.A. in Economics.

 

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Anthony P. Nuzzo Jr. – President, Chief Operating Officer and Director – Mr. Nuzzo has been the Chief Operating Officer and a director of the Company since July 2017. In February 2019, he was appointed President of the Company. In 1991 Mr. Nuzzo formed Nuzzo Enterprises, Inc. d/b/a Jackson Hewitt Tax Service, a tax franchise, and successfully expanded the company to include twenty-two locations spread over six counties in Chicago, IL and the Syracuse, NY area. In June 2003, Mr. Nuzzo became one of five co-founders and Managing Members to successfully launch Leading Edge Recovery Solutions, LLC., which, in 2008, was ranked 21st in the U.S. within the Financial Services Industry, and ranked 346th overall, by the Inc. 500 Fastest Growing Private Companies annual publication. In 2009, Mr. Nuzzo left for a new challenge and purchased Glass Mountain Capital, LLC. Mr. Nuzzo set out to create an Accounts Receivable Management company that focused on helping the consumer while achieving goals set by the clients. While Mr. Nuzzo remains Chairman and Chief Executive Officer of Glass Mountain, positions he has held since 2009, Mr. Nuzzo appointed a President and Executive Vice President to lead Glass Mountain’s day to day operations in 2019. In early 2017, Mr. Nuzzo successfully launched a near shore BPO, CenterCom Global in Central America. Mr. Nuzzo believes CenterCom will give all clients a near shore option that will drive down costs and build efficiencies.

 

David C. Ansani – Secretary and Chief Administrative Officer – Mr. Ansani has been Chief Administrative Officer since August 2017 and was a Director from August 2017 until February 2021. He was also appointed Secretary of the Company in February 2019. From 2010 to the present date, he has served as Chief Compliance Officer/Human Resources Officer/In-House Counsel for Glass Mountain Capital, LLC, the Accounts Receivable Management company purchased by Mr. Nuzzo in 2009. In this capacity, he reviews and evaluates compliance issues and concerns within the organization. The position ensures that management and employees are in compliance with applicable laws, rules and regulations of regulatory agencies (FDCPA, TCPA, GLB, CFPB, etc.); that company policies and procedures are being followed; and that behavior in the organization meets the company’s standards of conduct. Mr. Ansani received his B.A. and MBA from the University of Chicago, and J.D. from the Chicago-Kent College of Law.

 

Anthony Evers – Chief Financial Officer – Mr. Evers has been the Chief Financial Officer of the Company since May 1, 2020. Prior to joining the Company, Mr. Evers served as Chief Financial Officer for Vista Health System from October 2019 to March 2020. Between June 2019 and October 2019, Mr. Evers served as CFO of Santa Cruz Valley Regional Hospital. Between 2015 and 2019, Mr. Evers served as CFO and CIO of KSB Hospital. Prior to that, he served as CFO of various organizations, including Norwegian American Hospital and Horizon Homecare and Hospice. During his career, Mr. Evers has been the financial lead in over 20 merger and divesture transactions ranging from a single physician practice to multi-entity nursing homes. Throughout his career, Mr. Evers has served on numerous boards of directors, including Wheaton Franciscan Healthcare, Covenant Healthcare, All Saints Health System, Rogers Hospital, and the Animal Shelter in Beaver Dam WI. He has also served as a member of the Dixon Illinois Chamber of Commerce. Mr. Evers has also served as the audit and finance committee chair at several of these organizations. Mr. Evers obtained his Bachelor of Business Administration in Finance and Master of Science in Accounting from University of Wisconsin-Whitewater. Mr. Evers also successfully obtained his Certified Public Accountant and Certified Internal Auditor credentials.

 

Carter Matzinger – Chief Strategic Officer - Mr. Matzinger is the Chief Strategic Officer of the Company and served as Chief Executive Officer and Chief Financial Officer of the Company from April 2015 to July 2017. Mr. Matzinger was a Director of the Company from April 2015 to February 2021. He remains an employee of the Company and serves as President of LogicsIQ, a wholly owned subsidiary of the Company. He has over 18 years of diverse experience including working with many Fortune 500 companies including: The Limited, CompuServe, Goodyear Tire, and Amoco. For the past nine years, Mr. Matzinger has worked in the field of online marketing and has specialized in building large affiliate networks. He works closely with online advertisers and advertising networks to expand the reach of profitability of the Company. His experience in search engine optimization, list management, and pay-per-click advertising provides a vast network of relationships and industry expertise. Mr. Matzinger is the co-founder and President of Blvd Media Group, LLC (now Surge Blockchain, LLC), and KSIX LLC. Mr. Matzinger is a graduate of the University of Utah in 1997 B.A. in Business Administration.

 

David N. Keys - Director - Mr. Keys has been a director of the Company since July 2019. Mr. Keys began his career with Deloitte serving in the audit group in the Las Vegas and New York City executive offices. David was the Executive Vice President, CFO and member of the executive committee of the Board of Directors of American Pacific, a chemical company that was publicly traded on the NASDAQ for the entirety of the time he was a director and executive officer. Since 2004, Mr. Keys has been an independent financial and operations consultant. Mr. Keys currently serves as Chairman of the Board and Audit Committee of RSI International Systems Inc. (TSXV: RSY), and on the Board of private companies, including Prosetta Biosciences Inc., Akonni Biosystems Inc., Walker Digital Table Systems, LLC, and Coast Flight Training and Management Inc. He previously served on the Boards of Directors of AmFed Financial Inc., Norwest Bank of Nevada and Wells Fargo Bank of Nevada. Mr. Keys also served on the Advisory Board of Directors of FM Global, a leading provider of property and casualty insurance. Mr. Keys is a Certified Public Accountant (CPA), Certified Valuation Analyst (CVA), Certified Management Accountant (CMA), Chartered Global Management Accountant (CGMA), Certified Information Technology Professional (CITP), Certified in Financial Forensics (CFF), and Certified in Financial Management (CFM). David is a member of the National Roster of Neutrals of the American Arbitration Association. He received a Bachelor of Science in accounting from Oklahoma State University.

 

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David May – Director – Mr. May has been a director of the Company since February 2021. Mr. May has been a banking professional since 1994. Throughout his career, he has established himself as one of the leading convenience store and convenience store wholesaler financiers in the Mid-South through his cultivation of personal relationships and service to members of this close-knit community. David has been Senior Vice President of Commercial Banking since 2007 with Landmark Community Bank, a Memphis based commercial bank with over a billion dollars in assets with offices in the Memphis and Nashville, Tennessee markets. He has been a bank officer for both community banks and large regional banks over his 27-year banking career. David is a graduate of the Southeastern School of Commercial Banking at Vanderbilt University and, in the past, served as Chairman of the Board for seven years for The Agency for Youth and Family Development, a residential treatment facility for adolescent males. He is also a founding owner of Global Defense Specialists, a military aircraft fleet sustainment company specializing in Lockheed F-16’s and C-130’s and Northrop F-5 jet fighters.

 

Jay Jones – Director – Mr. Jones has been a director of the Company since February 2021. During his nearly 30-year career in the telecom industry, Jay Jones has been involved in all facets of the business, including network engineering, application development, corporate development, management of mid-size organizations, product development, business operations, and strategy. He is currently CEO of 321 Communications Inc, a competitive local exchange carrier and wireless mobile virtual network operator providing telecom services to residential and business customers. Jay serves as an executive consultant to Paricus LLC, a business process outsourcing company that provides call center services, software development, and other telecom related services and has offices in Colombia and the United States. He is co-founder of software development companies Unavo Inc. and Kavocky Group, where his role is focused on strategic business strategies while also working closely with both companies’ partners to assess new investment opportunities.

 

None of the above directors and executive officers has been involved in any legal proceedings as listed in Regulation S-K, Section 401(f), except as follows:

 

On November 20, 2018, the Oklahoma Corporation Commission (the “OCC”) entered a Final Order Approving Consent Decree (the “Order”) regarding the operations of True Wireless Inc. (our wholly owned subsidiary) as a wireless telecommunications provider in Oklahoma. This Order finalized a settlement resolving violations of the OCC’s rules governing the marketing of subsidized wireless telecommunications services from mobile locations (i.e., other than from brick-and-mortar locations). As part of that settlement, True Wireless agreed to restructure its management team to shift regulatory compliance and managerial responsibilities to other persons whose focus is on the day-to-day operations of True Wireless. As of December 7, 2018, Mr. Cox had resigned as an officer, director and manager of True Wireless. Mr. Cox is not an employee of True Wireless and does not participate in any of our or its subsidiaries’ operations in Oklahoma. Mr. Cox was expressly permitted by the settlement to remain as CEO of the Surge Holdings, Inc. (now known as SurgePays, Inc.), the parent of True Wireless.

 

Family Relationships

 

There are no family relationships among any of our directors or executive officers.

 

Board Composition, Committees, and Independence

 

Audit Committee. We intend to establish an audit committee, which will consist of independent directors. The audit committee’s duties would be to recommend to our board of directors the engagement of independent auditors to audit our financial statements and to review its accounting and auditing principles. The audit committee would review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent public accountants, including their recommendations to improve the system of accounting and internal controls. The audit committee would at all times be composed exclusively of directors who are, in the opinion of our board of directors, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.

 

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Compensation Committee. Our board of directors does not have a standing compensation committee responsible for determining executive and director compensation. Instead, the entire board of directors fulfills this function, and each member of the Board participates in the determination. Given the small size of the Company and its Board and our limited resources, locating, obtaining and retaining additional independent directors is extremely difficult. In the absence of independent directors, the Board does not believe that creating a separate compensation committee would result in any improvement in the compensation determination process. Accordingly, the board of directors has concluded that the Company and its stockholders would be best served by having the entire board of directors’ act in place of a compensation committee. When acting in this capacity, the Board does not have a charter.

 

In considering and determining executive and director compensation, our board of directors’ reviews compensation that is paid by other similar public companies to its officers and takes that into consideration in determining the compensation to be paid to our officers. The board of directors also determines and approves any non-cash compensation to any employee. We do not engage any compensation consultants to assist in determining or recommending the compensation to our officers or employees.

 

Code of Ethics

 

Our Board of Directors has not adopted a Code of Business Conduct and Ethics.

 

Term of Office

 

Our directors are appointed at the annual meeting of shareholders and hold office until the annual meeting of the shareholders next succeeding his or her election, or until his or her prior death, resignation or removal in accordance with our bylaws. Our officers are appointed by the Board and hold office until the annual meeting of the Board next succeeding his or her election, and until his or her successor shall have been duly elected and qualified, subject to earlier termination by his or her death, resignation or removal.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires our directors, executive officers and persons who beneficially own 10% or more of a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish us with copies of all reports filed by them in compliance with Section 16(a). To our knowledge, based solely on a review of reports furnished to it, our officers, directors and ten percent holders have made the required filings

 

Involvement in Certain Legal Proceedings

 

To the best of our knowledge, other than as described above, none of our directors or executive officers has, during the past ten years:

 

  been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
     
  had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;
     
  been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
     
  been found by a court of competent jurisdiction in a civil action or by the SEC Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
     
  been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

 

  been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Except as set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.

 

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EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table shows the compensation for our Chief Executive Officer and all other of our executive officers and any of our employees whose cash compensation exceeded $100,000 for the years ended December 31, 2020 and 2019.

 

    Annual Compensation           Long-Term Compensation(3)  
Name and                         Restricted     Securities        
Principal       Salary     Bonus     Other Annual     Stock     Underlying     Total  
Position   Year   (1)     (2)     Compensation     Awards     Options     Compensation  
                                         
Carter Matzinger   2020   $ 122,738     $ 60,000     $  4,471.66     $     $     $ 187,209.66  
Chief Strategic Officer   2019   $ 122,738     $ 2,500     $ 2,679.42     $     $     $ 127,917.42  
                                                     
Kevin Brian Cox   2020   $ 250,000     $     $ 30,727.46     $     $     $ 280,727.46  
CEO and Director   2019   $ 67,708.35     $     $ 26,524.4     $     $     $ 94,232.75  
                                                     
David C. Ansani   2020   $ 250,979     $     $ 11,586.88     $     $     $ 262,565.88  
Chief Administrative Officer   2019   $ 212,658     $     $ 12,831.69     $     $     $ 225,489.69  
                                                     
Anthony Evers(4)   2020   $ 225,092     $     $ 12,032.87     $     $     $ 237,124.87  
CFO   2019   $     $     $     $     $     $  
                                                     
Anthony P. Nuzzo   2020   $ 323,333.36     $     $ 21,698.48     $     $     $ 345,031.84  
President and Director   2019   $ 55,208.35     $     $ 11,737.77     $     $     $ 66,946.12  

 

(1)   Management base salaries can be increased by our Board of Directors based on the attainment of financial and other performance guidelines set by our management.

 

(2)   Salaries listed do not include annual bonuses to be paid based on profitability and performance. These bonuses will be set, from time to time, by a disinterested majority of our Board of Directors. No bonuses will be set until such time as the aforementioned occurs.
     
(3)   We plan to adopt an Equity Incentive Plan (the “Incentive Plan”) for both management and strategic consultants following the Offering and intends to seek stockholder approval of the Incentive Plan. The Incentive Plan is expected to include incentive stock options, non-qualified stock options, or stock bonuses. In addition, we anticipate executing long-term employment contracts with both senior management and strategic contractors, along with other members of the future management team, during the 2021 calendar year. It is anticipated these management agreements will contain compensation terms that could include a combination of cash salary, annual bonuses, insurance and related benefits, matching IRA contributions, restricted stock awards based upon longevity and management incentive stock options.
     
(4)   Mr. Evers joined us as Chief Financial Officer effective May 1, 2020.

 

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Equity Incentive Plan

 

We plan to adopt the Incentive Plan to authorizes the issuance of up to [____] shares of Common Stock pursuant to options or shares of Common Stock granted pursuant to the Incentive Plan. The terms and conditions of any options granted, and the terms and conditions of any stock issued, including the price of the shares of Common Stock issuable on the exercise of vested options, will be governed by the provisions of the Incentive Plan and any agreements with the Incentive Plan participants.

 

Pursuant to the Incentive Plan, awards may be in the form of Incentive Stock Options, Non-Qualified Stock Options, or Stock Bonuses.

 

Incentive Stock Options

 

All of our employees will be eligible to receive Incentive Stock Options pursuant to the Incentive Plan as may be determined by the Compensation Committee which, once established, will administer the Incentive Plan.

 

Options granted pursuant to the Incentive Plan terminate at such time as may be specified when the option is granted.

 

The total fair market value of the shares of Common Stock (determined at the time of the grant of the option) for which any employee may receive options which are first exercisable in any calendar year may not exceed $100,000.

 

In the discretion of the Compensation Committee, once established, options granted pursuant to the Incentive Plan may include instalment exercise terms for any option such that the option becomes fully exercisable in a series of cumulating portions. The Compensation Committee may also accelerate the date upon which any option (or any part of any option) is first exercisable. However, no option, or any portion thereof may be exercisable until one year following the date of grant. In no event shall an option granted to an employee then owning more than l0% of our Common Stock be exercisable by its terms after the expiration of five years from the date of grant, nor shall any other option granted pursuant to the Incentive Plan be exercisable by its terms after the expiration of ten (10) years from the date of grant.

 

Non-Qualified Stock Options

 

Our employees, directors and officers, and consultants or advisors will be eligible to receive Non-Qualified Stock Options pursuant to the Incentive Plan as may be determined by our Compensation Committee which, once established, will administer the Incentive Plan, provided however that bona fide services must be rendered by such consultants or advisors and such services must not be in connection with a capital-raising transaction or promoting our Common Stock.

 

Options granted pursuant to the Incentive Plan shall terminate at such time as may be specified when the option is granted.

 

In the discretion of the Compensation Committee options granted pursuant to the Incentive Plan may include instalment exercise terms for any option such that the option becomes fully exercisable in a series of cumulating portions. The Compensation Committee may also accelerate the date upon which any option (or any part of any option) is first exercisable. In no event shall an option be exercisable by its terms after the expiration of ten years from the date of grant.

 

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Stock Bonuses

 

Our employees, directors and officers, and consultants or advisors will be eligible to receive a grant of our shares, provided however that bona fide services must be rendered by such consultants or advisors and such services must not be in connection with a capital-raising transaction or promoting our Common Stock. The grant of the shares rests entirely with our Compensation Committee which, once established, will administer the Incentive Plan. It will also be left to the Compensation Committee to decide the type of vesting and transfer restrictions which will be placed on the shares.

 

Outstanding Equity Awards at Fiscal Year-End
Option Awards
   Number of Securities
Underlying Unexercised
Options
   Option
Exercise
   Option Expiration 
Name  Exercisable   Unexercisable   Price   Date 
                     
None.                                                   

 

Option Exercises and Stock Vested
   Option Awards   Stock Awards 
   Number of Shares Acquired on Exercise   Value Realized on Exercise   Number of Shares Acquired on Vesting   Value Realized on Vesting 
                     
None.                                   

 

Employee Pension, Profit Sharing or other Retirement Plan

 

We do not have a defined benefit, pension plan, profit sharing or other retirement plan, although we may adopt one or more of such plans in the future.

 

Compensation of Executive Officers

 

Effective May 1, 2020, we began to compensate Mr. Anthony Evers, our Chief Financial Officer, an annual salary of $270,000 paid in accordance with our standard employee payroll practices. We also paid the full cost of Mr. Evers’ health insurance premiums.

 

Effective August 20, 2020, we began to compensate Mr. Kevin Brian Cox, our Chief Executive Officer and Chairman of the Board, an annual salary of $250,000 paid in accordance with our standard employee payroll practices. We also provide Mr. Cox with a monthly car allowance of $1,800.

 

Effective August 20, 2020, we began to compensate Mr. Anthony P. Nuzzo, our President, Chief Operating Officer and a member of the Board, an annual salary of $323,333.36 paid in accordance with our standard employee payroll practices. We also provided Mr. Nuzzo with a monthly car allowance of $1,800.

 

Our Company’s executive compensation plan is based on attracting and retaining qualified professionals which possess the skills and leadership necessary to enable our Company to achieve earnings and profitability growth to satisfy our stockholders. We must, therefore, create incentives for these executives to achieve both Company and individual performance objectives through the use of performance-based compensation programs. No one component is considered by itself, but all forms of the compensation package are considered in total. Wherever possible, objective measurements will be utilized to quantify performance, but many subjective factors still come into play when determining performance.

 

As a growth stage Company with a plan of action of both vertical and horizontal industry acquisitions (and potential retention of management of acquired businesses), the main elements of compensation packages for executives shall consist of a base salary, stock options under the proposed plan discussed above under this section, and bonuses (cash and/or equity) based upon performance standards to be negotiated.

 

As we continue to grow, both through acquisition or through revenue growth from existing business interests, and financial conditions improve, these base salaries, bonuses, and incentive compensation will be reviewed for possible adjustments. Base salary adjustments will be based on both individual and Company performance and will include both objective and subjective criteria specific to each executive’s role and responsibility to us.

 

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Compensation of Directors

 

We did not make any equity or other compensation payments to non-employee director during fiscal 2020.

 

On July 17, 2019, we entered into a Director Agreement with David N. Keys (the “Keys Director Agreement”) whereby Mr. Keys is to be reimbursed for (i) all reasonable out-of-pocket expenses incurred in attending any in-person meetings; and (ii) any costs associated with filings required to be made by Mr. Keys in regard to any beneficial ownership of securities.

 

In conjunction with the Keys Director Agreement, we entered into an Indemnification Agreement (the “Indemnification Agreement”) with Mr. Keys. The Indemnification Agreement indemnifies to the fullest extent permitted under Nevada law for any claims arising out of or resulting from, amongst other things, (i) any actual, alleged or suspected act or failure to act by Mr. Keys in his capacity as a director or agent of the Company and (ii) any actual, alleged or suspected act or failure to act by Mr. Keys in respect of any business, transaction, communication, filing, disclosure or other activity of the Company. Under the Indemnification Agreement, Mr. Keys is indemnified for any losses pertaining to such claims, provided, however, that the losses shall not include expenses incurred by Mr. Keys in respect of any claim as which he shall have been adjudged liable to us, unless the court having jurisdiction rules otherwise. The Indemnification Agreement provides for indemnification of Mr. Keys during his directorship and for a period of six (6) years thereafter.

 

Other than as provided above with respect to the Keys Director Agreement and the Indemnification Agreement, at the time of this filing, directors receive no remuneration for their services as directors of the Company, nor does the Company reimburse directors for expenses incurred in their service to our Board of Directors. We plan to put in place an industry standard director compensation package during the fiscal year 2021.

 

On February 11, 2021, David C Ansani and Carter Matzinger resigned from the Board of Directors of SurgePays, Inc. Neither Mr. Matzinger’s nor Mr. Ansani’s resignations were due to any disagreements with the Company on any of the Company’s operations, policies or practices. On February 23, 2021, Jay Jones and David May were appointed to the Board of Directors. There are no family relationships between either Mr. May or Mr. Jones and any director or other executive officer of the Company, nor are there any transactions to which the Company was or are a participant and in which either Mr. May or Mr. Jones have a material interest subject to disclosure under Item 404(a) of Regulation S-K. There are no arrangements or understandings between either Mr. May or Mr. Jones and any other person pursuant to which they were selected as members of the Board. Mr. May and Mr. Jones will both enter into compensatory arrangements with the Company at a later date.

 

Change of Control

 

There are no arrangements, known to us, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control of us.

 

We are not aware of any arrangements that may result in “changes in control” as that term is defined by the provisions of Item 403(c) of Regulation S-K.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following sets forth information as of March 31, 2021, regarding the number of shares of our Common Stock beneficially owned by (i) each person that we know beneficially owns more than 5% of our outstanding Common Stock, (ii) each of our directors and executive officers and (iii) all of our directors and executive officers as a group.

 

The amounts and percentages of our Common Stock beneficially owned are reported on the basis of SEC rules governing the determination of beneficial ownership of securities. Under the SEC rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has the right to acquire beneficial ownership within 60 days through the exercise of any stock option, warrant or other right, and the conversion of preferred stock. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest. Unless otherwise indicated, each of the shareholders named in the table below, or his or her family members, has sole voting and investment power with respect to such shares of our Common Stock. Except as otherwise indicated, the address of each of the shareholders listed below is: 3124 Brother Blvd, Suite 410, Bartlett, TN 38133.

 

Name of Beneficial Owner(1)  Total
Common Stock
Shares Beneficially Owned
   % of
Common Stock Class(2)
   Total Series A Preferred Shares Owned (Total Votes) (5)   % of Series A Class(2)   Total Series C Preferred Shares Owned (Total Votes) (6)   % of Series C Class(2)   Total % of Voting Capital Stock (8) 
                             
Directors and Executive Officers:                                   
              10,500,000         603,364           
Kevin Brian Cox (3)   26,376,782    17.29%   (105,000,000)   80.77%   

(150,841,000

)   83.62%   60.97%
Anthony Evers (9)   363,549    *    -    -    -    -    * 
                                    
                        72,000           
Anthony P. Nuzzo (4)   2,599,069    1.11%   -    -    (18,000,000)   9.98%   4.45%
David C. Ansani (10)   7,000    *                        * 
              2,500,000         46,232           
Carter Matzinger   566,000         (25,000,000)   19.23%   (11,558,000)   6.40%   8.02%
                                    
David A May   708,509    *                        * 
David N. Keys   268,859    *                        * 
                                    
              13,000,000         721,596           
All Directors and Executive Officers as a Group (7 persons)   30,889,768    20.25%   (130,000,000)   100%   (180,399,000)   100%   73.73%
                                    
5% Shareholders: