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What changed in SurgePays, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of SurgePays, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+193 added−148 removedSource: 10-K (2024-03-12) vs 10-K (2023-03-30)

Top changes in SurgePays, Inc.'s 2023 10-K

193 paragraphs added · 148 removed · 80 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeGrowth Strategies We have different strategies for each of our sales channels: SurgePhone and Torch Wireless Federally Subsidized Mobile Broadband / Affordable Connectivity Program (ACP) ● Prioritize sales channels with lower cost per acquisition in conjunction with shipping devices direct fulfillment for enhanced inventory controls and logistics. ● Integrate Shockwave CRM into our SurgePays software to enable ACP enrollments initiated from convenience stores. ● Integrate Shockwave CRM into existing ATM machines and Point of Sale registers to initiate ACP enrollments. ● Partner with existing regional distribution companies already provide consumable goods to convenient stores. ● Analyze attrition/retention data to continually monitor and improve customer experience with the goal of industry best retention. ● Enhance our offering by adding a mix of smartphones. ● Increase the national sales team nationally.
Biggest changeThe Company still derived revenue from this segment of our business in 2023, however, we plan to make a final decision on whether to maintain or discontinue the Lead Generation segment of its business in the second quarter of fiscal year ended 2024. 1 Growth Strategies We have different strategies for each of our current business segments: Mobile Virtual Network Operators Assuming the ACP is extended, we plan to do the following for the federally subsidized portion of our MVNO business: ● Prioritize sales channels with lower cost per subscriber acquisition. ● Continue to integrate Shockwave CRM and Clearline Mobile into our Comprehensive Platform Service software to enable ACP enrollments initiated from convenience stores. ● Integrate Shockwave CRM into existing ATM machines and Point of Sale registers to initiate ACP enrollments. ● Partner with existing regional distribution companies already provide consumable goods to convenient stores. ● Analyze attrition/retention data to continually monitor and improve customer experience with the goal of industry best retention. ● Increase the national sales team nationally.
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 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. 3 Our strategy for increasing revenues is based on developing, maintaining, and expanding our nationwide network of retail stores.
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.
Based on available data for our served markets, we estimate that our market share of the convenience store sales business at this time is substantially less than 1%. A substantial acquisition would be necessary to meaningfully and rapidly change our market share percentage.
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, 2020.
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 our name to SurgePays, Inc. on October 29, 2020.
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. We’re also closely watching the development of AI tools to see how they could help in support of our merchants and customers.
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. We are also closely watching the development of AI tools to see how they could help in support of our merchants and customers.
Our website and the information contained in, or accessible through, our website will not be deemed to be incorporated by reference into this Annual Report and does not constitute part of this Annual Report. 6
Our website and the information contained in, or accessible through, our website will not be deemed to be incorporated by reference into this Annual Report and does not constitute part of this Annual Report. 4
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.
However, we believe that with our diverse product line and better efficiencies, we have the ability to obtain a large market share and continue to generate sales growth and compete in the industry.
Branded Prepaid Wireless Proprietary Mobile Network Virtual Operator (MVNO) ● Leverage the volume of buying power for wholesale carrier minutes/texts/data to build market low plans to offer customers using SIM kits in convenience stores transacting on the SurgePays network. ● Penetrate rural America where there is less competition and higher consumer pricing. ● Offer incentivized family plans to the rapidly growing base of subsidized customer households.
We also plan to do the following for the non-subsidized MVNO portion of our MVNO business: ● Leverage the volume of buying power for wholesale carrier minutes/texts/data to build market low plans to offer customers using SIM kits in convenience stores transacting on the SurgePays network. ● Penetrate rural America where there is less competition and higher consumer pricing. ● Offer incentivized family plans to the rapidly growing base of subsidized customer households.
The ACP (the successor program, as of March 1, 2022 to the Emergency Broadband Benefit program) provides SurgePhone and Torch up to a $100 reimbursement for the cost of each tablet device distributed and a $30 per customer, per month subsidy for mobile broadband (internet connectivity) services.
For providing mobile broadband on tablets to these eligible customers, the ACP (the successor program, as of March 1, 2022 to the Emergency Broadband Benefit program) reimburses us up to a $100 for the cost of each tablet device we distribute and a $30 per customer, per month subsidy for mobile broadband (internet connectivity) services.
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.
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. We have established relationships with distribution companies delivering significant sales per day for our subsidized mobile broadband product.
SurgePays Fintech Prepaid Wireless Top-ups and Underbanked Financial Products at Convenience Stores ● Continue building a national sales team of in-house salespeople, Independent Sales Organizations, Chain Retail Stores, and Distributors, all incentivized to add store locations and drive increased sales per store. ● Strategically acquire other companies that offer prepaid products and other complimentary fintech products.
Comprehensive Platform Services We plan to do the following for our Comprehensive Platform Services business: ● Build a national sales team of in-house salespeople, Independent Sales Organizations, Chain Retail Stores, and Distributors, all incentivized to add store locations and drive increased sales per store. ● Strategically acquire other companies that offer prepaid products and other complimentary fintech products.
Employees, Affiliates and Exclusive Partners As of March 30, 2023, our human capital resources consist of approximately twenty (20) SurgePays employees, a dedicated team of over forty (40) logistics, activation, and fulfilment personnel, and over two hundred (200) sales, customer service and back-office personnel in our near shore operations center.
Employees, Affiliates and Exclusive Partners As of March 10, 2024, our human capital resources consist of approximately twenty-two (22) SurgePays employees, providing accounting, finance, human resources, programming, sales and back office departments, a dedicated team of over forty (40) logistics, activation, and fulfilment personnel, and over two hundred (200) sales, customer service and back-office personnel located in El Salvador with our third-party relationship with CenterCom.
SurgePhone Wireless and Torch Wireless SurgePhone and Torch, wholly owned subsidiaries of SurgePays, are mobile virtual network operators (MVNO) licensed by the Federal Communications Commission (the “FCC”) to provide subsidized access to quality internet through mobile broadband services to consumers qualifying under the federal guidelines of the Affordable Connectivity Program (the “ACP”).
Further, we provide two types of MVNO’s, subsidized and non-subsidized. Our subsidized MVNO’s are licensed by the Federal Communications Commission (the “FCC”) to provide subsidized access to the internet through mobile broadband services to consumers qualifying under the federal guidelines of the Affordable Connectivity Program (the “ACP”).
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.
We believe this creates a significant opportunity for a dynamic paradigm shift to a nationwide wholesale e-commerce platform.
The principal purposes of our equity and cash incentive plans are to attract, retain and reward personnel through the granting of stock-based and cash-based compensation awards, in order to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives. 5 Reverse Stock Split On November 1, 2021, the Company filed a Certificate of Amendment to the Company’s Articles of Incorporation, as amended, with the Secretary of State of the State of Nevada in connection with a 1-for-50 reverse stock split of the Company’s issued and outstanding shares of Common Stock (the “Reverse Split”).
The principal purposes of our equity and cash incentive plans are to attract, retain and reward personnel through the granting of stock-based and cash-based compensation awards, in order to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives.
We have established relationships with distribution companies delivering significant sales per day for our subsidized mobile broadband product. 4 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 convenience stores.
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 convenience stores. The SurgePays software platform is housed on the Amazon Web Service Cloud for redundancy, stability, and reliability.
Centercom is based in El Salvador. 2 Experienced Leadership Team Our management team consists of four executives with over 20 years in the wireless, underbanked and convenience store distribution industry while presiding over companies with a collective revenue run of over $3 billion.
Additionally, our management team consists of four executives with over 20 years in the wireless, underbanked and convenience store distribution industry while presiding over companies with substantial revenue. Our finance team is led by a CFO with a background in private equity backed and publicly traded companies ranging with substantial revenue.
The Company paid $800,000 and agreed to pay the Sellers monthly residual payments for customers enrolled by the Company through December 31, 2022 of either $2 or $3 per customer totaling $1,679,723. 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.
Corporate Information 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.
LogicsIQ, Inc. LogicsIQ, Inc. is a lead generation and case management solutions company primarily serving law firms in the mass tort industry. The company’s CRM “Intake Logics” facilitates the entire life cycle of converting a lead into a signed retainer client integrated into the law firms case management software.
LogicsIQ is a lead generation and case management solutions company primarily serving law firms in the mass tort industry. Revenues from this segment of our business are earned from our lead generation retained services offerings and call center activities through CenterCom.
SurgePays fintech platform empowers clerks at thousands of convenience stores to provide a suite of prepaid wireless and financial products to underbanked customers. About SurgePays, Inc. SurgePays, Inc. is a financial technology and telecom company focused on providing these essential services to the underbanked community.
ITEM 1. BUSINESS Company Overview and History About SurgePays, Inc. SurgePays, Inc. (“SurgePays”, “we”, the “Company”) is a financial technology and telecom company focused on providing these essential services to the underbanked community. We were previously known as North American Energy Resources, Inc. and KSIX Media Holdings, Inc.
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ITEM 1. BUSINESS Business Overview SurgePays, Inc (“SurgePays,” “we” the “Company”) was incorporated in Nevada on August 18, 2006, is a technology and telecom company focused on the underbanked and underserved communities. SurgePhone and Torch Wireless provide subsidized mobile broadband to over 250,000 low-income subscribers nationwide.
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As described in more detail below, we currently operate in three different business segments through the following subsidiaries: (i) Surge Blockchain, LLC, formerly Blvd.
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The Company’s wireless subsidiaries provide mobile broadband, voice and SMS text messaging to both subsidized and direct retail prepaid customers. The Company’s blockchain fintech platform utilizes a suite of financial and prepaid products to convert corner stores into tech-hubs for underbanked neighborhoods.
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Media Group, LLC, a Nevada limited liability company; (ii) LogicsIQ, Inc., a Nevada corporation; (iii) SurgePhone Wireless, LLC, a Nevada limited liability company; (iv) SurgePays Fintech, Inc., a Nevada limited liability company; (v) ECS Prepaid, LLC, a Missouri limited liability company and (vi) Torch Wireless, LLC a Wyoming limited liability company.
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SurgePhone and Torch combined are licensed to offer subsidized mobile broadband to all fifty states. 1 Surge Fintech (ECS Business) We refer to the collective operations of ECS Prepaid, LLC, a Missouri limited liability company, Electronic Check Services, Inc., a Missouri corporation, and Central States Legal Services, Inc., a Missouri corporation, as “Surge Fintech.” This was previously referred to as the “ECS Business.” Surge Fintech has been a financial technology tech and wireless top-up platform for over 15 years.
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Our Business Segments Mobile Virtual Network Operators We provide mobile broadband (internet connectivity), voice and SMS text messaging to both subsidized and direct retail prepaid customers through SurgePhone Wireless, LLC and Torch Wireless, LLC, wholly owned subsidiaries of SurgePays. We consider this the Mobile Virtual Network Operators (MVNO) segment of our business.
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Through a series of transactions between October 2019 and January 2020, we acquired the ECS Business primarily for the favorable ACH banking relationship and a fintech transactions platform processing over 20,000 transactions a day at approximately 8,000 independently owned convenience stores.
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We provide these services by supplying consumers eligible for the ACP with tablet devices with mobile broadband capabilities for use in their homes.
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The platform serves as the proven backbone for wireless top-up transactions and wireless product aggregation for the SurgePays nationwide network. ShockWave CRM™ SurgePays acquired the Software as a Service (SaaS) Customer Relationship Management (CRM) and Billing System software platform “MVNO Cloud Services” on June 7, 2022. SurgePays is rebranding the software as ShockWave CRM.
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SurgePhone and Torch combined are licensed to offer subsidized mobile broadband to all fifty states. Revenue from this portion of our business currently accounts for 86% of our total revenue. However, according to the FCC website, on February 7, 2024, the ACP stopped accepting new applications and enrollments and the ACP will cease to be funded after April 2024.
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Payment for the software consisted of $300,000 in cash, of which $100,000 was paid in June 2022, and the remaining $200,000 in July 2022. Additionally, the Company issued 85,000 shares of common stock having a fair value of $411,400 ($4.84/share), based upon the quoted closing trading price.
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The Company hopes that the program will be funded by Congress, however, at this time, we cannot predict any outcome.
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ShockWave is an end-to-end cloud-based SaaS offering an Omnichannel CRM, billing system and carrier integrations specific to the telecommunication and broadband industry. Some of these services include sales agent management, device and SIM inventory management, order processing and provisioning, retail Point of Service (POS) activations and payments, customer service management, retention tools, billing, and payments.
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Through our subsidiary LinkUp Mobile, we plan to roll-out in the second quarter of 2024 a non-subsidized portion of our MVNO business to leverage the volume of buying power we have with our subsidized subscriber base to build low-cost plans using SIM kits in convenience stores transacting on the SurgePays network.
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Surge Blockchain Surge Blockchain Software is a back-office marketplace (accessed through the SurgePays fintech portal for convenience stores) offering wholesale consumable goods direct to convenience stores who are transacting on the SurgePays Fintech platform. The wholesale e-commerce platform is easily accessed through the secure app interface – similar to a website.
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Our market will be to penetrate rural America where there is less competition and higher consumer pricing and offer incentivized family plans to the rapidly growing base of subsidized customer households. The revenue will be generated by subscribers paying a monthly fee for talk, text and data carrier services on a prepaid basis.
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We believe what makes this sales platform unique is that it also offers the merchant the ability to order wholesale consumable goods at a significant discount from traditional distributors with one touch ease. We are able to sell products at a significant discount by using on demand Direct Store Delivery (DSD).
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If the ACP is not funded, we plan to competitively market our non-subsidized MVNO business to our current ACP customers and hope to be able to retain them as customers in this segment.
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Our platform is connected directly to manufactures, who ship products direct to the store while cutting out the middleman. The goal of the SurgePays Portal is to leverage the competitive advantage and efficiencies of e-commerce to provide as many commonly sold consumable products as possible to convenience stores, corner markets, bodegas, and supermarkets while increasing profit margins for these stores.
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Comprehensive Platform Services We provide f inancial technology and a wireless top-up platform to independently owned convenience stores throughout the country via our subsidiaries SurgePays Fintech, ECS Prepaid, LLC, Electronic Check Services, Inc. and Central States Legal Services, Inc. We consider these services the “Comprehensive Platform Services” segment of our business.
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Our proven strategy of delivering cost-effective retained cases to our attorney and law firm clients means those clients are better able to manage their media and advertising budgets and reach targeted audiences more quickly and effectively when utilizing our proprietary data driven analytics dashboards.
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Specifically, our Comprehensive Platform Services provides ACH banking relationships and a fintech transactions platform that processes thousands of transactions a day at independently owned convenience stores . The Comprehensive Platform Service also provides wireless top-up transactions and wireless product aggregation for our nationwide network of convenience stores.
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Our ability to deliver transparent results through our integrated Business Intelligence (B.I.) dashboards has bolstered our reputation as an industry leader in the mass tort client acquisition field. Centercom Since 2019, we have owned a 40% equity interest in Centercom Global, S.A. de C.V. (“Centercom”).
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By linking together the customer, the carrier plan and the convenience store to allow all parties to have one location to get what they need. Our revenue is derived from the transaction that takes place when an individual using a prepaid cellular carrier plan needs to add more minutes to their cellular phone .
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Centercom is a bilingual operations center providing the Company with sales support, customer service, IT infrastructure design, graphic media, database programming, software development, revenue assurance, lead generation, and other various operational back-office services.
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These services are vital to convenience store operations and we believe we can utilize our relationships with convenience stores from our ACP services to expand the network for our Comprehensive Platform Services.
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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.
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The Company expects this segment to be the biggest percent of year-over-year revenue growth opportunity for 2024 and plans to hire a new head of sales for our Comprehensive Platform Service segment to tap into such growth opportunity. Lead Generation We refer to LogicsIQ, Inc. as the Lead Generation segment of our business.
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SurgePays Blockchain Wholesale Marketplace in the SurgePays platform offering Consumables Shipped Direct ● Rollout a national sales team of in-house salespeople incentivized to add stores and sales per store. ● Acquire other companies offering prepaid products to an existing base of convenience stores to deploy our comprehensive fintech suite to maximize the value of the existing relationships. ● Integrate with more manufacturers of commonly sold consumable items to drive interest, sales and revenue. ● Increase efforts in rural America where many distributors do not have routes to deliver affordable wholesale goods.
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Lead generation consist of sourcing leads, which requires us to drive traffic to our landing pages for a specific marketing campaign. We also achieve this in certain marketing campaigns by using third-party preferred vendors to meet the needs of our clients. Revenues are recognized at the time the lead is delivered to the client.
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LogicsIQ Lead Generation and Signed Retainer Clients for Law Firms ● Hire national salespeople incentivized to add law firm clients and top-line revenue. ● Continue to develop a centralized software platform to maximize efforts and data collection ● Identify additional revenue streams to complement existing revenue streams such as SSI enrollments and other lead generation services. 3 Competition There are many competitors in the prepaid wireless and mobile broadband industry.
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If payment is received in advance of the delivery of services, it is included in deferred revenue, and subsequently recognized once the performance obligation has been completed. Retained service offerings consist of turning leads into a retained legal case. To provide this service to our customers, we qualify leads through verification of information collected during the lead generation process.
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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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Additionally, we further qualify these leads using a client questionnaire which assists in determining the services to be provided. The qualification process is completed using our call center operations.
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The SurgePays software platform is housed on the Amazon Web Service Cloud for redundancy, stability, and reliability.
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In 2023, we decided to focus less on this segment of our business and the Company is in the process of determining how best this service fits into the overall plans of SurgePays.
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The Reverse Split became effective on November 2, 2021. All references in this Annual Report, including in our financial statements, to our Common Stock, share data, per share data and related information has been adjusted to reflect the Reverse Split. Corporate Information We were previously known as North American Energy Resources, Inc. and KSIX Media Holdings, Inc.
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If the ACP is not funded, we will take the resources dedicated to the subsidized MVNMO business and move into the non-subsidized MVNO quicker than currently planned. We believe there is an opportunity to accomplish both goals, expand subscribers and add stores simultaneously. We also believe there is an opportunity to convert the subsidized subscribers into a non-subsidized plan.
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Historically, we operated through these 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.
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Those individuals currently utilizing the ACP may be looking for an alternative.
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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 (this has been a dormant entity that does not own any assets since January 1, 2019); (vi) LogicsIQ, Inc., a 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.
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Lead Generation We currently have no set plans on how to grow our Lead Generation business as we are making a final decision on whether to maintain or discontinue the Lead Generation segment of its business in the second quarter of fiscal year ended 2024. 2 Market Opportunity Mobile Virtual Network Operators Subsidized As currently implemented, individuals are eligible for ACP if they are eligible for the following other government subsidized programs: (i) the Supplemental Nutrition Assistance Program (SNAP) in the United States, (ii) Medicaid, (iii) Supplemental Security Income (SSI), (iv) Federal Public Housing Assistance, (v) Women, Infants and Children Assistance and (vi) the Lifeline program.
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On January 22, 2021, the issued and outstanding equity securities of DigitizeIQ, LLC and KSIX, LLC were transferred to LogicsIQ and became wholly-owned subsidiaries of LogicsIQ.
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Accordingly, as of February 2024, the government estimated that 51.7 million households were eligible for the ACP. As of this same time, the government estimates that only 23.3 million households have enrolled in ACP to date.
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On May 7, 2021, the Company disposed of its subsidiary True Wireless, Inc., however we retained $1,097,659 in liabilities which consisted of $1,077,659 in accounts payable and accrued expenses as well as $20,000 in related party loans. The balance at December 31, 2022 was $668,649.
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If ACP is funded, we believe that we can tap into the estimated 28.4 million households eligible for ACP that are not currently enrolled in the program.
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In connection with the sale, the Company received an unsecured note receivable for $176,851, bearing interest at 0.6%, with a default interest rate of 10%. The Company will receive 25 payments of principal and accrued interest totaling $7,461 commencing in June 2023.
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Non-subsidized If the ACP is not funded, we expect the subsidized market opportunity listed above could become the market opportunity for our non-subsidized prepaid phone and internet services we believe these households will look to continue with an MVNO.
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On January 30, 2020, the Company acquired ECS Prepaid, LLC, a Missouri limited liability company, Electronic Check Services, Inc., a Missouri corporation, and Central States Legal Services, Inc., a Missouri corporation. On January 1, 2022, the Company acquired 100% of Torch Wireless, LLC resulting in Torch becoming a wholly-owned subsidiary, in a transaction accounted for as a business combination.
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In addition to those individuals, as of December 12, 2023, there were approximately 330.8 million cell phone users in the United States. As of the end of 2021, approximately 36% of these cell phone users were using prepaid cell phones.
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Once we launch our non-subsidized MVNO’s, we hope to be able to entice some of these prepaid cell phone users to our products. Comprehensive Platform Services Our market opportunity for our Comprehensive Platform Services continues to be smaller convenience stores, bodegas, mercados and tiendas. As of December 31, 2023, there were 152,396 convenience stores operating across the United States.
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This represents a 1.5% increase from the store count in the previous year, reversing a four-year decline. We continue to expand our product portfolio to capitalize on market trends, changes in technology and new product releases.
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Based on available data for our served markets, we estimate that our market share of the convenience store sales business at this time is substantially less than 1% and we plan to utilize a new sales force to expand our customers in this market. Marketing and Sales We utilize different marketing methods for each segment of business that we operate.
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For the federally subsidized portion of our MVNO business, we utilize third parties to help identify potential customers for ACP and additional convenience stores where we can sell our ACP products.
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Additionally, we have a campaign where we utilize social media platforms to help identify potential customers for ACP and provide knowledge to individuals who are not aware that they are eligible for ACP so they can utilize our ACP services.
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We currently do not market for the non-subsidized portion of our MVNO business but we plan to move forward by marketing our business to families of those who are ACP eligible. Also, in the event that the ACP is not extended, we plan to utilize a marketing effort to get our current ACP clients to utilize our non-subsidized MVNO’s.
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For our Comprehensive Platform Services, we plan to hire a new head of sales to market our platform to their existing convenience store connections and create a national strategy to market our platform in rural areas that may not currently have the capabilities our platform can provide.
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In the past, we have utilized social media platforms to market to specific segment of the population to identify potential plaintiffs for our Lead Generation segment. However, we have stopped these campaigns as we decide the future of our Lead Generation business. Competition There are many competitors in the prepaid wireless and mobile broadband industry.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

21 edited+17 added−8 removed44 unchanged
Biggest changeMany 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 including, as of March 30, 2023, the ongoing military conflict between Russia and Ukraine (which has resulted in various countries, including the U.S., Canada and the United Kingdom, as well as the European Union, issuing broad-ranging economic sanctions against Russia) may have adverse effects on regional and global economic markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for us to obtain additional funds and increasing the volatility of our share price; ● actual or anticipated fluctuations in our quarterly financial and operating results; and ● the degree of trading liquidity in our shares of Common Stock. 11 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.
Biggest changeMany 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; ● the discontinuation of the ACP program; ● actual or anticipated fluctuations in our quarterly financial and operating results; and ● the degree of trading liquidity in our shares of Common Stock.
With the repeal of net neutrality rules in effect, we could incur greater operating expenses, which could harm our results of operations. ● “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.
With the repeal of net neutrality rules in effect, we could incur greater operating expenses, which could harm our results of operations. ● “Open Access” - we hold certain wireless licenses that require us to comply with so-called “open access” FCC regulations, which generally require licensees of a particular spectrum to allow customers to use devices and applications of their choice.
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.
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. 8 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.
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. 7 We could be impacted by unfavorable results of legal proceedings, and may, from time to time, be involved in future litigation in which substantial monetary damages are sought.
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. 5 We could be impacted by unfavorable results of legal proceedings, and may, from time to time, be involved in future litigation in which substantial monetary damages are sought.
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. 12 We could issue additional Common Stock, which might dilute the book value of 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. 9 We could issue additional Common Stock, which might dilute the book value of our Common Stock.
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. 13 ITEM 1B.
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.
In addition, investors may lose confidence in our reported information and the market price of our Common Stock may decline. 9 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 and our Chief Financial Officer (“CFO”), Anthony Evers.
In addition, investors may lose confidence in our reported information and the market price of our Common Stock may decline. 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 and our Chief Financial Officer (“CFO”), Anthony Evers.
Risks Related to Our Securities 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 currently owns approximately 39% of our outstanding voting equity. Subject to any fiduciary duties owed to our other stockholders under Nevada law, Mr.
Risks Related to Our Securities Our CEO and Chair, Kevin Brian Cox, has significant control over shareholder matters and the minority shareholders will have little or no control over our affairs. Mr. Cox currently owns approximately 28.5% of our outstanding voting equity. Subject to any fiduciary duties owed to our other stockholders under Nevada law, Mr.
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.
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 these instances, our future revenue will be materially dependent upon the success of the efforts of these third parties. 10 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.
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.
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 product development capabilities and customer and employee relationships growth may be harmed and overall growth may be limited.
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 product development capabilities and customer and employee relationships growth may be harmed and overall growth may be limited. 7 We offer competitive compensation packages in order to retain the services of our senior management, and we could be required to pay significant compensation payments in the case we are unable to retain our senior management.
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.
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 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.
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. Risks and uncertainties related to the Company’s foreign operations could negatively impact the Company’s operating results.
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 operate in a highly competitive industry.
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.
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.
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.
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.
We may, in some instances, rely significantly on sales, marketing and distribution arrangements with collaborative partners and other third parties.
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.
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 Government Regulation and Legal Proceedings Changes in the regulatory framework under which we operate could adversely affect our business prospects or results of operations.
Additional risks that we do not yet know of or that we currently think are immaterial may also affect our business and the results of operations. Risks Related to Government Regulation and Legal Proceedings The United States Government’s dissolution or reduction of the Affordable Connectivity Program (“ACP”) could have a substantial adverse effect on our current and planned business operations.
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.
If we are unable to do so on a cost-effective basis, we could experience reduced profits.
At this time, we cannot accurately predict whether there will be further effects of the COVID-19 pandemic on our business. 8 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 addition, there could be legal or regulatory restraints on our ability to phase out current services. 6 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 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.
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.
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.
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.
Removed
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.
Added
Since the introduction of the ACP, we have derived over 70% of our revenue from reimbursement payments from the federal government under the ACP. According to the Federal Communications Commission (the “FCC”) website, the government entity that oversees the ACP, the ACP is winding down and they have stopped accepting new applications and enrollments as of February 7, 2024.
Removed
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. The main specific impact of the COVID-19 pandemic on our business was on SurgePays Fintech.
Added
The FCC has also indicated that the last fully funded month of the ACP is April 2024 due to lack of additional funding from Congress.
Removed
Its revenues went down by $8,309,490 in 2022 as compared to 2021. This was partly related to the continued impact of COVID-19 on SurgePays Fintech. During the economic lock-down of 2020 and 2021, the inability of our independent representatives to visit existing stores and seek out new stores, limited our revenue growth, both existing and new revenue.
Added
If the ACP is allowed to expire, as indicated that it will on the FCC website, the governmental agencies will reduce or cease reimbursement payments, which will have a substantial adverse effect on our business, financial condition, and operating results.
Removed
Combined with a shift of prepaid wireless payments at stores to subsidized wireless expansion at the federal level, resulted in the lower revenue in 2022.
Added
Furthermore, the percentage of revenue from our ACP business has been growing year over year while revenue from other business segments has been decreasing.
Removed
Centercom, an entity that we own 40% of, operates in El Salvador.
Added
If the ACP is not funded and we need to shift our focus to other business segments, there is no guarantee that we will be able to successfully do so, which will have a substantial adverse effect on our business, financial condition, and operating results.
Removed
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.
Added
Additionally, some of our growth plans for the non-ACP business segments of the Company are dependent on the growth of the ACP customers. Therefore, if the ACP business is not funded, we may lose the opportunity to expand our other business segments, which will have a substantial adverse effect on our business, financial condition, and operating results.
Removed
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.
Added
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.
Removed
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.
Added
We have undertaken in the past, and may in the future undertake, strategic acquisitions. Failure to integrate acquisitions could adversely affect our value. One of the ways we have grown our business in the past is through strategic acquisitions of other businesses, products, and technologies.
Added
We may, from time to time, evaluate additional acquisition opportunities, and may, in the future, strategically make further acquisitions of, and investments in, businesses, products and technologies when we believe the opportunity is advantageous to our prospects, such as the acquisition of Clearline Mobile, Inc (“Clearline”).
Added
There can be no assurance that in the future we will be able to find appropriate acquisitions or investments.
Added
In connection with these acquisitions or investments, we may: ● issue stock that would dilute our shareholders’ percentage of ownership; ● be obligated to make milestone or other contingent or non-contingent payments; ● incur debt and assume liabilities; and/ or ● incur amortization expenses related to intangible assets or incur large and immediate write-offs.
Added
We also may be unable to find suitable acquisition candidates and may not be able to complete acquisitions on favorable terms, if at all, or obtain adequate financing for such acquisitions.
Added
If we do complete an acquisition, such as with Clearline, we may not be able to successfully integrate the acquired business into our preexisting business, and we may not ultimately strengthen our competitive position or ensure that we will not be viewed negatively by customers, financial markets or investors.
Added
Further, acquisitions could also pose numerous additional risks to our operations, including: ● problems integrating the purchased business, products or technologies without substantial costs, delays or other problems; ● increases to our expenses; ● the failure to have discovered undisclosed liabilities of the acquired asset or company for which we may not be adequately indemnified; ● diversion of management’s attention from their day-to-day responsibilities and our core business; ● inability to enforce indemnification and non-compete agreements; ● the failure to successfully incorporate acquired products or technologies into our business; ● the failure of the acquired business, products or technologies to perform as well as anticipated; ● the failure to realize expected synergies and cost savings; ● harm to our operating results or financial condition, particularly during the first several reporting periods after the acquisition is completed; ● entrance into markets in which we have limited or no prior experience; and ● potential loss of key employees or customers, particularly those of the acquired entity.
Added
As the continued employment of our executive officers is critical to the Company’s success, we have entered into competitive employment agreements in order to retain the services of our existing officers.
Added
In addition to guaranteed base compensation, we have offered our CEO incentive compensation upon the Company’s completion of milestones including achieving certain annual revenue, annual EBITDA, and market capitalization goals, that could require the Company to pay large equity grants for the achievement of each milestone completed.
Added
In the case our CEO were to terminate their employment agreement due to breach of contract, a substantial downturn in the Company’s business or personnel, a reduction in officer’s role, responsibilities, or compensation, or significant change in the Company’s location of business and operations, the Company would be required to pay a severance package that, in combination with the compensation that would need to be paid to a replacement executive, could have a severe strain on the Company’s finances.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES We presently occupy space at 3 locations: 3124 Brother Blvd, Suite 410, Bartlett, TN 38133 (this building is owned by an entity owned by Mr. Cox, our CEO and Chairman), 1375 E Woodfield Road, Schaumburg IL 60173 and1615 S Ingram Mill, Building B, Springfield, Missouri 65804. See pages F-42 and F-43 for detail lease information.
Biggest changeITEM 2. PROPERTIES We presently occupy space at 3 locations: 3124 Brother Blvd, Suite 410, Bartlett, TN 38133 (this building is owned by an entity owned by Mr.
We will acquire additional office space as needed.
We will acquire additional office space as needed. 11
Added
Cox, our CEO and Chair), which houses our corporate headquarters along with back office, inventory and marketing departments, 1375 E Woodfield Road, Schaumburg IL 60173, which houses our finance and human resources departments, and 1615 S Ingram Mill, Building B, Springfield, Missouri 65804, which houses our Comprehensive Platform Services technical operations. See pages F-25 - F-27 for detailed lease information.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeFollowing analysis by our litigation counsel stating that there is a good defense, management has decided that a reserve is not necessary. (3) On December 17, 2021, Ambess Enterprises, Inc. v SurgePays, Inc., Blair County Pa. case number 2021 GN 3222. Plaintiff alleged breach of contract and prayed for damages of approximately $73,000.00, plus fees, costs and interest.
Biggest change(5) On December 17, 2021, Ambess Enterprises, Inc. v SurgePays, Inc., Blair County Pa. case number 2021 GN 3222. Plaintiff alleges breach of contract and prays for damages of approximately $73,000, plus fees, costs and interest. Litigation counsel is managing the motion practice and discovery process.
Plaintiffs’ petition alleges breach of a Stock Purchase Agreement by SurgePays, SurgePhone Wireless, LLC, and Kevin Brian Cox, and makes other allegations related to SurgePays’ consulting work with Jonathan Coffman, a True Wireless employee. Blue Skies believes the Defendants are in violation of their non-competition and non-solicitation agreements related to the sale of True Wireless from SurgePays to Blue Skies.
Plaintiffs petition alleges breach of a Stock Purchase Agreement by SurgePays, SurgePhone Wireless, LLC, and Kevin Brian Cox, and makes other allegations related to SurgePays’ consulting work with Jonathan Coffman, a True Wireless employee. Blue Skies believes the Defendants are in violation of their non-competition and non-solicitation agreements related to the sale of True Wireless from SurgePays to Blue Skies.
SurgePays, Inc. d/b/a Surge Logics , filed January 4, 2023, in the U.S. District Court for the Northern District of Illinois, Case No. 1:23-cv-00042. Plaintiffs’ allege violations of the Telephone Consumer Protection Act (TCPA) and the Florida Telephone Solicitations Act (FTSA) based on telephone solicitations allegedly made by or on behalf of SurgePays, Inc.
SurgePays, Inc. d/b/a Surge Logics, filed January 4, 2023, in the U.S. District Court for the Northern District of Illinois, Case No. 1:23-cv-00042. Plaintiffs allege violations of the Telephone Consumer Protection Act (TCPA) and the Florida Telephone Solicitations Act (FTSA) based on telephone solicitations allegedly made by or on behalf of SurgePays, Inc.
Plaintiffs’ seek damages for themselves and seek certification of a class action on behalf of others similarly situated. Defendants intend to vigorously defend the action however most similar cases are eventually resolved by an out-of-court settlement.
Plaintiffs seek damages for themselves and seek certification of a class action on behalf of others similarly situated. Defendants intend to vigorously defend the action however most similar cases are eventually resolved by an out-of-court settlement. At this time, it is difficult to estimate the amount or range of potential loss.
At this stage no defendant has asserted a counter-claim against SurgePays. The case is still at the early pleadings stage. SurgePays filed a Second Amended Petition on January 27, 2023. Defendants Fina, Blue Skies, True Wireless, and Government Consulting Solutions filed a Motion to Dismiss on March 10, 2023. It is SurgePays’ present intent to vigorously prosecute this case.
At this stage, no defendant has asserted a counterclaim against SurgePays. 12 SurgePays filed a Second Amended Petition on January 27, 2023. Defendants Fina, Blue Skies, True Wireless, and Government Consulting Solutions filed a Motion to Dismiss on March 10, 2023.
Entry of a dismissal order is pending on the Court’s docket. 14 (4) Blue Skies Connections, LLC, and True Wireless, Inc. v. SurgePays, Inc., et. al. : In the District Court of Oklahoma County, OK, CJ-2021-5327, filed on December 13, 2021.
ITEM 3. LEGAL PROCEEDINGS (1) Blue Skies Connections, LLC, and True Wireless, Inc. v. SurgePays, Inc., et. al.: In the District Court of Oklahoma County, OK, CJ-2021-5327, filed on December 13, 2021.
This matter is an anti-competitive attempt by Blue Skies and True Wireless to damage SurgePays, SurgePhone, and Cox. Written discovery is winding down and depositions are anticipated in the second and third quarters of 2023. (5) Robert Aliotta and Steve Vasquesz, on behalf of themselves and others similarly situated v.
This matter is an anti-competitive attempt by Blue Skies and True Wireless to damage SurgePays, SurgePhone, and Cox. Written discovery is winding down and depositions began in the third quarter of 2023 and are expected to continue in 2024. The case is anticipated set for trial in January 2025.
Removed
ITEM 3. LEGAL PROCEEDINGS (1) 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 Jan 21, 2020. On January 21, 2020, a complaint was filed related to a noncompetition dispute. Terracom believed Mr. Coffman and Mr.
Added
In the Circuit Court of Tennessee for the 30th Judicial District at Memphis, Docket # CT-3219-23. On August 8, 2023, a complaint was filed by SurgePays for breach of a promissory note by Blue Skies Connections, LLC.
Removed
Carroll were 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 believed True Wireless had a strong case against Terracom. The matter is entering the discovery process. Both Mr.
Added
The note at issue is dated June 14, 2021, and requires Blue Skies Connections to repay the principal sum of $176,850.56, by monthly payments of $7,461.37 commencing on June 1, 2023.
Removed
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 case was dismissed without prejudice by the court on December 15, 2022. (2) Juno Financial v. AATAC and Surge Holdings Inc. AND Surge Holdings Inc. v.
Added
Blue Skies Connections has failed to make any payments due under the terms of the note, and this breach entitles SurgePays to demand payment of the entire amount of the note together with all accrued interest.
Removed
AATAC; Circuit Court of Hillsborough County, Florida, Case # 20-CA-2712 DIV A: Breach of Contract, Account Stated and Open Account claims against Surge by a factoring company. Surge has filed a cross-complaint against defendant AATAC for Breach of Contract, Account Stated, Open Account and Common Law Indemnity. Case is in discovery.
Added
Blue Skies Connections has responded by preparing a Motion to Dismiss or, in the alternative, a Motion to Stay, taking the position that, under the prior suit pending doctrine, the subject promissory note is subject to the prior litigation instituted by Blue Skies Connections against SurgePays, styled Skies Connections, LLC and True Wireless, Inc. v.
Removed
Litigation counsel is managing the motion practice and discovery process. The case was settled and a settlement agreement entered into on January 30, 2023. The following payments were made pursuant to the settlement agreement: February 3, 2023 for $5,000, February 15, 2023 for $25,000 and March 15, 2023 for $30,000. The payments under the settlement agreement have been completed.
Added
SurgePays, Inc., et al., Case No. CJ-2021-5327, District Court of Oklahoma County, Oklahoma. Counsel for Blue Skies Connections has requested that Surge Pays either voluntarily dismiss the subject action or agree to stay the subject action until conclusion of the Oklahoma litigation. (2) SurgePays, Inc. et al. v. Fina et al., Case No. CJ-2022-2782, District Court of Oklahoma County, Oklahoma.
Removed
At this time, it is impossible to estimate the amount or range of potential loss, but similar matters are usually settled for $100,000.00 or less. SurgePays, Inc has been removed from the case following a Motion to Dismiss and LogicsIQ, Inc. has been named as the defendant. The case remains in the pleadings stage.
Added
On June 29, 2023, the Court granted the Motion to Dismiss, ruling the claims asserted are “derivative” and could only be asserted by the True Wireless entity now owed by Blue Skies. The Court rejected SurgePays’ request to certify this ruling for immediate appeal.
Removed
(6) Meral Demiray v Surge Holdings, Inc. a/k/a SurgePays, Inc. : In the United States District Court for the Northern District of Illinois, Case # 22-cv-6591, filed November 23, 2022. Plaintiff filed a claim against SurgePays following her dismissal from her position as an employee of the company.
Added
Defendant Misty Garrett has filed a Motion for Summary Judgment seeking the same relief as the Motion to Dismiss granted by the Court. Defendants Rob Rowlen and Terracom, LLC remain as defendants in the case after answering the Second Amended Petition.
Removed
Following negotiations among and between SurgePays, SurgePays’ insurance carrier and the Plaintiff, a settlement has been reached and has been completed and the case was dismissed by Stipulation of the Parties. (7) SurgePays, Inc. et al. v. Fina et al., Case No. CJ-2022-2782, District Court of Oklahoma County, Oklahoma.
Added
It is SurgePays’ present intent to vigorously appeal the Court’s dismissal of Fina, Blue Skies, True Wireless, and Government Consulting Solutions, and to continue prosecuting the case against the other Defendants. At this stage, no attempts at settlement have been made. (3) Robert Aliotta and Steve Vasquesz, on behalf of themselves and others similarly situated v.
Removed
At this early stage, no attempts at settlement have been made. ITEM 4. MINE SAFETY DISCLOSURES Not Applicable. PART II
Added
SurgePays Inc has been removed from the case following a Motion to Dismiss and LogicsIQ, Inc. has been named as the defendant. The case has begun written discovery and depositions are expected later this year. (4) Consumer Attorney Marketing Group, LLC v . LogicsIQ, Inc. and SurgePays, Inc.
Added
On February 13, 2024, in the Superior Court of California, Los Angeles County, Case No. 24 ST CV 03653, Consumer Attorney Marketing Group, LLC (“CAMG”) filed a complaint naming SurgePays, Inc. (the “Company”) a defendant and alleging claims for breach of contract, declaratory judgment and express and implied indemnity.
Added
The complaint demands that defendants indemnify CAMG for any damages or losses that CAMG may incur in the case Robert Aliotta, et al. v. SurgePays, Inc. d/b/a SurgeLogics , Case No. 23 C 00042, pending in the U.S. District Court for the Northern District of Illinois.
Added
CAMG’s claims against the Company are solely based upon theories of participatory and vicarious liability. The Company was served on or about February 27, 2024. The Company’s answer or other pleading is currently due on March 28, 2024. This case is in the initial stages.
Added
The Company has not yet filed an appearance in the matter, and the Court has not scheduled any dates or deadlines. The Company is reviewing the claims and determining its defenses. At this time, it is not possible to estimate the amount or range of potential loss.
Added
The case was settled and dismissed in 2023 for $60,000, which has been recorded as a component of general and administrative expenses. ITEM 4. MINE SAFETY DISCLOSURES Not Applicable. 13 PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 15 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 15 Item 6 Selected Financial Data 17 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
Biggest changeItem 4. Mine Safety Disclosures 13 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 14 Item 6 Selected Financial Data 15 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 15

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeUnregistered Sales of Equity Securities We have previously disclosed in our 10-Qs and 8-Ks filed in 2022 all 2022 sales of securities without registration under the Securities Act of 1933 other than the following: In 2022, the Company issued 270,745 shares of common stock at $4.01/share to settle $1,086,413 of debt principal.
Biggest changeTransfer Agent The transfer agent of our Common Stock is VStock Transfer, LLC. Their address is 18 Lafayette Place, Woodmere, NY 11598. Unregistered Sales of Equity Securities We have previously disclosed in our 10-Qs and 8-Ks filed in 2023 all 2023 sales of securities without registration under the Securities Act of 1933. 14
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information The Common Stock and the Warrants began trading on the Nasdaq Capital Market under the symbols SURG and SURGW, respectively, on November 2, 2021. 15 As of March 30, 2023, there were approximately 3,657 holders of record of our Common Stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information The Common Stock and the Warrants began trading on the Nasdaq Capital Market under the symbols SURG and SURGW, respectively, on November 2, 2021. As of March 5, 2024, there were approximately 7,277 holders of record of our Common Stock.
Any future determination as to the payment of cash dividends on our Common Stock will be at the discretion of our Board and will depend on our financial condition, operating results, capital requirements and other factors that the Board considers to be relevant. Securities Authorized for Issuance under Equity Compensation Plans None.
Any future determination as to the payment of cash dividends on our Common Stock will be at the discretion of our Board and will depend on our financial condition, operating results, capital requirements and other factors that the Board considers to be relevant. Securities Authorized for Issuance under Equity Compensation Plans See the information incorporated by reference in “Item 12.
The last reported sales price for our Common Stock as reported on the Nasdaq Capital Market on March 28, 2023 was $4.45. Dividends We have not declared or paid any cash dividends on our Common Stock, and we do not anticipate declaring or paying cash dividends for the foreseeable future.
The last reported sales price for our Common Stock as reported on the Nasdaq Capital Market on March 5, 2024 was $6.64. Dividends We have not declared or paid any cash dividends on our Common Stock, and we do not anticipate declaring or paying cash dividends for the foreseeable future.
Removed
Preferred Stock As of December 31, 2022, the Company does not have any shares of preferred stock outstanding. Transfer Agent The transfer agent of our Common Stock is VStock Transfer, LLC. Their address is 18 Lafayette Place, Woodmere, NY 11598.
Added
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters” for information regarding shares of our common stock authorized for issuance under our stock compensation plans, which information is incorporated herein by reference. Preferred Stock As of December 31, 2023, the Company does not have any shares of preferred stock outstanding.
Removed
These shares were issued pursuant to the exemption from the registration requirements of the Securities Act of 1933, as amended, afforded by Section 4(a)(2) thereof for the sale of securities not involving a public offering. 16

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

25 edited+47 added−24 removed31 unchanged
Biggest changePlease see the description in Item 1 of this Annual Report for a description of our SurgePhone, Torch Wireless, and LocoRabbit Wireless, Surge Blockchain, Shockwave CRM™, Surge Fintech (ECS Business), LogicsIQ, and CenterCom operations. 17 COMPARISON OF YEAR ENDED DECEMBER 31, 2022 AND 2021 Revenues during the years ended December 31, 2022 and 2021 consisted of the following: 2022 2021 Revenue $ 121,544,190 $ 51,060,589 Cost of revenue (exclusive of depreciation and amortization) (108,074,782 ) (44,890,610 ) General and administrative (12,835,623 ) (12,162,547 ) Income (Loss) from operations $ 633,785 $ (5,992,568 ) Revenue increased overall by $70,483,601 (138%) from year ended December 31, 2021 to year ended December 31, 2022.
Biggest changeRevenues during the years ended December 31, 2023 and 2022 consisted of the following: 2023 2022 Revenue $ 137,141,832 $ 121,544,190 Cost of revenue (exclusive of depreciation and amortization) (101,499,341 ) (108,074,782 ) General and administrative (16,777,107 ) (12,835,623 ) Income (Loss) from operations $ 18,865,384 $ 633,785 15 Revenue increased overall by $15,597,642 (12.8%) from year ended December 31, 2022 to year ended December 31, 2023.
The Company may also engage external advisors to assist us in determining fair value, as appropriate. 20 Impairment of Long-lived Assets including Internal Use Capitalized Software Costs Management evaluates the recoverability of the Company’s identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists, in accordance with the provisions of ASC 360-10-35-15 “Impairment or Disposal of Long-Lived Assets.” Events and circumstances considered by the Company in determining whether the carrying value of identifiable intangible assets and other long-lived assets may not be recoverable include but are not limited to significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; and changes in the Company’s business strategy.
The Company may also engage external advisors to assist us in determining fair value, as appropriate. 21 Impairment of Long-lived Assets including Internal Use Capitalized Software Costs Management evaluates the recoverability of the Company’s identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists, in accordance with the provisions of ASC 360-10-35-15 “Impairment or Disposal of Long-Lived Assets.” Events and circumstances considered by the Company in determining whether the carrying value of identifiable intangible assets and other long-lived assets may not be recoverable include but are not limited to significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; and changes in the Company’s business strategy.
These transactions had a net effect of $0 on stockholders’ equity. Exercise of Warrants The Company issued 100 shares of common stock in connection with an exercise of 100 warrants at an exercise price of $4.73 per share for proceeds of $473.
These transactions had a net effect of $0 on stockholders’ equity. Exercise of Warrants The Company issued one hundred (100) shares of common stock in connection with an exercise of one hundred (100) warrants at an exercise price of $4.73 per share for proceeds of $473.
Significant estimates during the years ended December 31, 2022 and 2021, respectively, include, allowance for doubtful accounts and other receivables, inventory reserves and classifications, valuation of loss contingencies, valuation of derivative liabilities, valuation of stock-based compensation, estimated useful lives related to intangible assets, capitalized internal-use software development costs, and property and equipment, implicit interest rate in right-of-use operating leases, uncertain tax positions, and the valuation allowance on deferred tax assets.
Significant estimates during the years ended December 31, 2023 and 2022, respectively, include, allowance for doubtful accounts and other receivables, inventory reserves and classifications, valuation of loss contingencies, valuation of stock-based compensation, estimated useful lives related to intangible assets, capitalized internal-use software development costs, and property and equipment, implicit interest rate in right-of-use operating leases, uncertain tax positions, and the valuation allowance on deferred tax assets.
Recent Accounting Pronouncements In the normal course of business, we evaluate all new accounting pronouncements issued by the Financial Accounting Standards Board, SEC, or other authoritative accounting bodies to determine the potential impact they may have on our Consolidated Financial Statements.
Recent Accounting Pronouncements In the normal course of business, we evaluate all new accounting pronouncements issued by the Financial Accounting Standards Board, SEC, or other authoritative accounting bodies to determine the potential impact they may have on our Consolidated Financial Statements. Refer to Note 2 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements. ITEM 7A.
Critical Accounting Policies and Estimates Management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which were prepared in accordance with U.S. generally accepted accounting principles, or GAAP.
The uncertainty of the economy and program funding for the ACP program may delay the planned business expansion. 20 Critical Accounting Policies and Estimates Management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which were prepared in accordance with U.S. generally accepted accounting principles, or GAAP.
General and administrative during the years ended December 31, 2022 and 2021 consisted of the following: 2022 2021 Depreciation and amortization $ 931,593 $ 759,383 Selling, general and administration 11,904,030 11,403,164 Total $ 12,835,623 $ 12,162,547 The increase in depreciation and amortization costs for 2022 is the result of capitalizing costs associated with software enhancements to our various software platforms in 2022.
General and administrative during the years ended December 31, 2023 and 2022 consisted of the following: 2023 2022 Depreciation and amortization $ 1,064,099 $ 931,593 Selling, general and administration 15,713,008 11,904,030 Total $ 16,777,107 $ 12,835,623 The increase in depreciation and amortization costs for 2023 is the result of capitalizing costs associated with software enhancements to our various software platforms in 2023.
The following five steps are applied to achieve that core principle: ● Step 1: Identify the contract with the customer. ● Step 2: Identify the performance obligations in the contract. ● Step 3: Determine the transaction price. ● Step 4: Allocate the transaction price to the performance obligations in the contract. ● Step 5: Recognize revenue when, or as, the company satisfies a performance obligation.
The following five steps are applied to achieve that core principle: ● Step 1: Identify the contract with the customer. ● Step 2: Identify the performance obligations in the contract. ● Step 3: Determine the transaction price. ● Step 4: Allocate the transaction price to the performance obligations in the contract. ● Step 5: Recognize revenue when, or as, the company satisfies a performance obligation. 22 Stock-Based Compensation The Company accounts for our stock-based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value-based method.
Our gross profit in future periods will depend on a variety of factors, including: market conditions that may impact our pricing, sales mix among devices, sales mix changes among consumables, excess and obsolete inventories, and our cost structure for manufacturing operations relative to volume.
Gross profit margin is gross profit expressed as a percentage of revenue. Our gross profit in future periods will depend on a variety of factors, including market conditions that may impact our pricing, sales mix among devices, sales mix changes among consumables, excess and obsolete inventories, and the cost of our products from manufacturers.
The following table sets forth the major sources and uses of cash for the years ended December 31, 2022 and 2021. 2022 2021 Net cash provided by or (used in) operating activities $ 793,272 $ (15,288,261 ) Net cash used in investing activities (1,498,582 ) (376,724 ) Net cash provided by financing activities 1,457,468 21,274,486 Net change in cash and cash equivalents $ 752,158 $ 5,609,501 As a result of net positive cash provided by operating activities in 2022, the cash increased in 2022 by $752,158, compared to cash used in operations of $15,288,261 in 2021.
The following table sets forth the major sources and uses of cash for the years ended December 31, 2023 and 2022. 2023 2022 Net cash provided by or (used in) operating activities $ 10,287,345 $ 793,272 Net cash used in investing activities (281,304 ) (1,498,582 ) Net cash provided by financing activities (2,419,635 ) 1,457,468 Net change in cash and cash equivalents $ 7,586,406 $ 752,158 As a result of net positive cash provided by operating activities in 2023, the cash increased in 2023 by $7,586,406, compared to an increase of cash increase provided in operations of $793,272 in 2022.
Software development costs that do not meet the qualification for capitalization, as further discussed below, are expensed as incurred and recorded in general and administrative expenses in the consolidated results of operations. 21 Revenue from Contracts with Customers We account for revenue earned from contracts with customers under ASC 606, Revenue from Contracts with Customers (“ASC 606”), and ASC 842, Leases (“ASC 842”).
Software development costs that do not meet the qualification for capitalization, as further discussed below, are expensed as incurred and recorded in general and administrative expenses in the consolidated results of operations.
LIQUIDITY and CAPITAL RESOURCES At December 31, 2022 and 2021, our current assets were $27,563,785 and $13,892,681, respectively, and our current liabilities were $23,464,062 and $9,998,194, respectively, which resulted in a working capital surplus of $4,099,723 and of $3,894,487, respectively.
LIQUIDITY AND CAPITAL RESOURCES At December 31, 2023 and 2022, our current assets were $33,366,661 and $27,563,785, respectively, and our current liabilities were $12,705,044 and $23,464,062, respectively, which resulted in a working capital surplus of $20,661,617 and of $4,099,723, respectively.
At December 31, 2022, assets consisted of current assets of $27,563,785, net property and equipment of $643,373, net intangible assets of $2,779,977, goodwill of $1,666,782, equity investment in Centercom of $354,206, note receivable of $176,851, internal use software of $387,180, and operating lease right of use asset of $431,352 compared to current assets of $13,892,681, net property and equipment of $200,448, net intangible assets of $3,433,484, goodwill of $866,782, equity investment in Centercom of $443,288, note receivable of $176,851, and operating lease right of use asset of $486,668 at December 31, 2021.
At December 31, 2023, assets consisted of current assets of $33,366,661, net property and equipment of $361,841, net intangible assets of $2,126,470, goodwill of $1,666,782, equity investment in Centercom of $464,409, note receivable of $176,851, internal use software of $539,424, operating lease right of use asset of $387,869, and deferred income taxes of $2,835,000 compared to current assets of $27,563,785, net property and equipment of $643,373, net intangible assets of $2,779,977, goodwill of $1,666,782, equity investment in Centercom of $354,206, note receivable of $176,851, internal use software of $387,180, and operating lease right of use asset of $431,352.
Selling, general and administrative expenses during the years ended December 31, 2022 and 2021 consisted of the following: 2022 2021 Contractors and consultants $ 1,667,016 $ 2,284,135 Professional services 1,204,133 1,758,055 Compensation 4,780,885 3,872,765 Computer and internet 403,583 552,455 Advertising and marketing 259,393 661,238 Bad debt expense (recovery) (7,767 ) 24,841 Insurance 1,535,687 791,535 Other 2,061,100 1,458,140 Total $ 11,904,030 $ 11,403,164 18 Selling, general and administrative costs (S, G & A) increased by $500,866 (4.4%).
Selling, general and administrative expenses during the years ended December 31, 2023 and 2022 consisted of the following: 2023 2022 Contractors and consultants $ 2,715,605 $ 1,667,016 Professional services 1,949,407 1,204,133 Compensation 6,342,955 4,780,885 Computer and internet 858,041 403,583 Advertising and marketing 152,851 259,393 Bad debt expense (recovery) - (7,767 ) Insurance 1,249,556 1,535,687 Other 2,444,593 2,061,100 Total $ 15,713,008 $ 11,904,030 Selling, general and administrative costs (S, G & A) increased by $3,808,978 (32.0%).
The increase in current assets is a result of expansion of the Affordable Connectivity Program, whereby inventory increased by $6,826,946 for tablets and phones and accounts receivable increased by $5,980,476. Total assets at December 31, 2022 and 2021 amounted to $34,003,506 and $19,500,202, respectively.
The increase in current assets is a result of expansion of the Affordable Connectivity Program, whereby cash increased by $7,586,406. 19 Total assets at December 31, 2023 and 2022 amounted to $41,925,307 and $34,003,506, respectively.
At December 31, 2022, our total liabilities were $28,885,253. This $12,936,372 increase (from $15,948,881 at December 31, 2021) was related to the installment sales liability increase of $ 13,018,184 related to inventory purchases for the Affordable Connectivity Program. At December 31, 2022, our total stockholders’ surplus was $5,118,253 as compared to $3,551,321 at December 31, 2021.
At December 31, 2023, our total liabilities were $13,521,843 compared to total liabilities of $28,885,253 at December 31, 2022. This $15,363,410 decrease was related to the repayment during 2023 of the installment sales liability of $13,018,184 at December 31, 2022. At December 31, 2023, our total stockholders’ surplus was $28,403,464 as compared to $5,118,253 at December 31, 2022.
Stock-Based Compensation The Company accounts for our stock-based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period.
Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services.
Equity Transactions for the Year Ended December 31, 2021 Stock Issued for Services The Company issued 13,411 shares of common stock for services rendered, having a fair value of $99,436 ($5 - $14.05/share), based upon the quoted closing trading price.
The Company recorded this forgiveness as other income in the accompanying consolidated statements of operations. Equity Transactions for the Year Ended December 31, 2023 Stock Issued for Services The Company issued 242,615 shares of common stock for services rendered, having a fair value of $1,290,024 ($4.19 - $9.40/share), based upon the quoted closing trading price.
During 2022, the Company received a forgiveness on a PPP loan totaling $524,143, of which $518,167 was for principal and $5,976 for accrued interest. The Company recorded this forgiveness as other income in the accompanying consolidated statements of operations.
The equity investment in Centercom, an unconsolidated subsidiary of the Company in which we are a minority owner, increased by $110,203 in 2023 compared to a decrease of $89,082 in 2022. During 2022, the Company received a forgiveness on a PPP loan totaling $524,143, of which $518,167 was for principal and $5,976 for accrued interest.
The increase in total assets is a result of the expansion of the Affordable Connectivity Program, whereby inventory increased by $6,826,946 for tablets and phones and accounts receivable increased by $5,980,476. Total assets increased by $14,503,304 from December 31, 2021 to December 31, 2022.
The increase in total assets is a result of the expansion of the Affordable Connectivity Program, whereby cash increased by $ 7,586,406 and inventory decreased by $2,139,648. Total assets increased by $7,921,801 from December 31, 2022 to December 31, 2023.
The breakout was as follows: For the Years Ended December 31, 2022 2021 Revenues Surge Phone and Torch Wireless $ 88,351,547 $ 7,289,239 Surge Blockchain, LLC 112,911 138,106 LogicsIQ, Inc. 16,760,656 17,846,698 Surge Fintech & ECS 16,319,076 24,628,566 True Wireless - 1,157,980 Surge Pays, Inc. - - Total $ 121,544,190 $ 51,060,589 SurgePhone and Torch Wireless revenues (as detailed in Notes 2 and 11 of the financial statements) increased by $81,062,308 related to the additional revenue stream generated by the increase in subscribers to over 200,000 at the end of 2022 from 30,000 at the end of 2021 for the Emergency Broadband Benefit and Affordable Connectivity programs (the “ACP”) started in August of 2021.
The breakout was as follows: For the Years Ended December 31, 2023 2022 Revenues: Mobile Virtual Network Operator $ 118,577,920 $ 88,351,547 Comprehensive Platform Services 11,341,183 16,319,076 Lead Generation 7,184,283 16,760,656 Other 38,446 112,911 Total $ 137,141,832 $ 121,544,190 Mobile Virtual Network Operators consisting of SurgePhone Wireless and Torch Wireless revenues (as detailed in Notes 2 and 10 of the financial statements) increased by $30,226,373 (34.2%) relating to the additional revenue stream generated by the increase in subscribers to over 260,000 at the end of 2023 from 200,000 at the end of 2022 since ACP started in August of 2021.
Related party transactions - See page F-29 and F-30 to the Consolidated Financial Statements. Cash requirements and capital expenditures –At the current level of operations, the Company does not anticipate borrowing funds to meet basic operating costs. The Company may need to borrow funds to meet the hyper-growth expected to occur in the ACP in 2023.
At December 31, 2022, the Company had the following material commitments and contingencies. Cash requirements and capital expenditures –At the current level of operations, the Company does not anticipate borrowing funds to meet basic operating costs.
Our gross profit in future periods will vary based upon our revenue stream mix and may increase based upon our distribution channels. We expect that our gross profit margin for product and service will increase over the long term as our sales and production volumes increase and our cost per unit decreases due to efficiencies of scale.
Our gross profit in future periods will vary based upon our revenue stream mix and may increase based upon our distribution channels.
Cost of Revenue, Gross Profit and Gross Margin Cost of revenue for services primarily consists of tablet, phone and SIM cards and associated freight, shipping and handling costs, marketing services, data plan expenses, royalties, and out-sourced call center expenses.
Cost of Revenue, Gross Profit and Gross Margin For the year of 2023, cost of revenue for services primarily consists of data plan expenses ($28,612,000), devices ($28,476,000), marketing and advertising ($23,227,000), and other expenses such as royalties and call-center expenses ($3,604,000).
Refer to Note 2 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements. 22 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Consolidated Financial Statements on page F-1 of this Annual Report.
Removed
SurgePhone wireless companies provide mobile broadband (internet connectivity) to low-income consumers nationwide. SurgePays Fintech platform utilizes a suite of financial and prepaid products to convert corner stores and bodegas into tech-hubs for underbanked neighborhoods. We are aggressively cornering the underbanked market directly to the consumer and in the stores they shop.
Added
Our Mobile Virtual Network Operators consisting of SurgePhone Wireless and Torch Wireless provide mobile broadband (internet connectivity) to low-income consumers nationwide.
Removed
LogicsIQ revenues decreased by $1,086,042 related to the maturity cycle of the various litigations we are delivering retained cases on. The overall case count went from 14,492 in 2021 to 9,362 in 2022. Surge Fintech (ECS) revenues decreased by $8,309,490 due to Covid-19 impact and the shifting of customers to the ACP from wireless prepaid services at our stores.
Added
Our Comprehensive Platform Services consisting of SurgePays Fintech, ECS Prepaid, LLC, Electronic Check Services, Inc. and Central States Legal Services, Inc. provides ACH banking relationships and a fintech transactions platform that processes thousands of transactions a day independently owned convenience stores. We are aggressively pursuing the underbanked market directly to the consumer and in the stores they shop.
Removed
True Wireless revenues decreased by $1,157,980 as a result of the May 7, 2021 disposition. We expect revenues to grow for each segment of the Company in future periods, specifically our subscriber base and active store count.
Added
Please see the description in Item 1 of this Annual Report for a description of our Mobile Virtual Network Operators, Comprehensive Platform Services and Lead Generation business segments. COMPARISON OF YEAR ENDED DECEMBER 31, 2023 AND 2022 We measure our performance on a consolidated basis as well as the performance of each segment.
Removed
For the Years Ended December 31, 2022 2021 Income (loss) from operations Surge Phone and Torch Wireless $ 11,921,855 $ 1,160,124 Surge Blockchain, LLC 56,823 124,704 LogicsIQ, Inc. 324,259 705,224 Surge Fintech & ECS (1,974,773 ) (546,665 ) True Wireless - 236,905 Surge Pays, Inc.
Added
We report our financial performance based on the following segments: Mobile Virtual Network Operators (MVNO), Comprehensive Platform Service (Top-up) and Lead Generation. The MVNO segment is further broken down into subsidized and non-subsidized components.
Removed
(9,694,379 ) (7,672,860 ) Total $ 633,785 $ (5,992,568 ) Operations income improved overall by $6,626,353 from year ended December 31, 2021 to year ended December 31, 2022, primarily as a result of an increase in operating profit of $10,761,731 in SurgePhone and Torch Wireless, a decrease in operating profit of $380,965 in LogicsIQ, and a decrease in operating profit of $1,428,108 in Surge Fintech.
Added
The subsidized component or ACP is the result of the mobile broadband (internet connectivity) services provided by SurgePhone Wireless and Torch Wireless to low-income consumers and accounts for the majority of our revenue. The Comprehensive Platform Service segment is comprised of Surge Fintech and ECS as previously shown. The Lead Generation is comprised of LogicsIQ as previously shown.
Removed
Most of these changes are directly related to the change in revenue for each stream. Overall margins remained consistent in 2021 and 2022.
Added
The segment amounts included in MD&A are presented on a basis consistent with our internal management reporting. Additional information on our reportable segments is contained in Note 10 – Segment Information and Geographic Data of the Notes to Financial Statements.
Removed
We expect that our cost of revenue will increase or decrease to the extent that our revenue increases and decreases and depending on our subscriber base and store count. Gross profit is calculated as revenue less cost of revenue. Gross profit margin is gross profit expressed as a percentage of revenue.
Added
According to the FCC website, on February 7, 2024, the ACP stopped accepting new applications and enrollments and the ACP will cease to be funded after April 2024. Lead Generation services consisting of LogicsIQ revenues decreased by $9,576,373 as a result of operational changes by management in 2023.
Removed
We intend to use our design, information systems, and sales force capabilities to further advance and improve the efficiency of our revenue streams, which we believe will reduce costs and increase our gross margin.
Added
The Company is still in the process of determining how best this service fits into the overall plans of SurgePays.
Removed
The changes are discussed below: ● Contractors and consultants expense decreased by $617,119 or 27% from $2,284,135 in 2021 to $1,667,016 in 2022. ● Professional services decreased $553,922 in 2022 primarily due to a decrease in legal fees of $395,989.
Added
Comprehensive Platform Services revenues decreased by $4,977,893 as a result of focusing our efforts on our MVNO segment, specifically the ACP component of the MVNO segment while we strategized on how to enhance our sales and on-boarding approach to adding convenience stores to our platform.
Removed
Legal proceedings and fees related to the listing of our common stock on the Nasdaq Capital Market were the main reason for the higher spending on professional services in 2021. ● Compensation increased from $3,872,765 in 2021 to $4,780,885 in 2022 primarily as a result of one-time bonuses paid to various management personnel in 2022. ● Computer and internet costs decreased by 26.9% to $403,583 in 2022 from $552,455 in 2021. ● Advertising and marketing costs decreased to $259,393 in 2022 from $661,238 in 2021 primarily due to the normalization of advertising spending in 2022. ● Bad debt expense recovery decreased to $(7,767) in 2022 from $24,841 in 2021. ● Insurance expense increased to $1,535,687 in 2022 from $791,535 in 2021 primarily as a result of a full year of additional coverage amounts related to the listing of our common stock on the Nasdaq Capital Market. ● Other costs increased to $2,061,100 in 2022 from $1,458,140 in 2021 primarily due to an increase various administrative expenses such as office, building, travel and bank fees.
Added
The Company expects this segment to be the biggest percent of year-over-year revenue growth opportunity for 2024 and plans to hire a new head of sales for our Comprehensive Platform Service segment to tap into such growth opportunity.
Removed
Other (expense) income during the years ended December 31, 2022 and 2021 consisted of the following: 2022 2021 Interest, net $ (1,843,396 ) $ (3,840,616 ) Change in fair value of derivative liabilities` - 1,806,763 Derivative expense - (1,775,057 ) Gain (loss) on equity investment in Centercom (89,082 ) 28,676 Gain (loss) on settlement of liabilities 336,726 1,469,641 Amortization of debt discount (115,404 ) (3,677,121 ) Gain on deconsolidation of True Wireless - 1,895,871 Settlement expense - (3,750,000 ) Warrant modification expense - (74,476 ) Other income 524,143 377,743 Total other (expense) income $ (1,187,013 ) $ (7,538,576 ) Interest expense decreased to $1,843,396 in 2022 from $3,840,616 in 2021 primarily due to the payoff of various debt instruments in 2021 as a result of the cash raised from the listing of our common stock on the Nasdaq Capital Market.
Added
If the ACP is fully funded, we expect revenue to grow overall for the Company in 2024 and we will be focusing our business efforts on the continued growth of our Mobile Virtual Network Operators and rolling out a new sales approach for the Comprehensive Platform Service segments.
Removed
During the years ended December 31, 2022 and 2021, the Company recorded a change in fair value of derivative liabilities of $0 and $1,806,763, respectively. These amounts reflect a mark to market adjustment recorded to the accompanying consolidated statements of operations.
Added
Specifically, we plan to grow our Comprehensive Platform Service business by increasing our subscriber base and active store counts in 2024 by hiring a new head of sales. Our planned new head of sales has substantial experience and connections with convenience stores that we believe can be added to our platform services.
Removed
During the year ended December 31, 2021, in connection with the repayment of convertible notes which contained embedded conversion features, the related derivative liabilities ceased to exist.
Added
However, if the ACP is not renewed, we expect revenue for the Company in 2024 to substantially decrease because ACP reimbursement we derive a substantial portion of our revenue from the ACP.
Removed
A reconciliation of the beginning and ending balances for the derivative liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows at December 31, 2022 and 2021: Derivative liability - December 31, 2020 1,357,528 Fair value at commitment date 1,877,250 Fair value mark to market adjustment (1,806,763 ) Gain on derivative liability upon related debt settled (1,428,015 ) Derivative liability - December 31, 2021 and 2022 $ - Changes in fair value of derivative liabilities are included in other income (expense) in the accompanying consolidated statements of operations.
Added
Additionally, the Company plans to make a final decision on whether to maintain or discontinue the Lead Generation segment of its business in the second quarter of fiscal year ending 2024.
Removed
For the years ended December 31, 2022 and 2021, the Company recorded a derivative expense of $0 and $1,775,057, respectively.
Added
For the year of 2022, cost of revenue for services primarily consists of data plan expenses ($21,056,000), devices ($35,313,000), marketing and advertising ($17,449,000), and other expenses such as royalties and call-center expenses ($2,312,000). We expect that our cost of revenue will increase or decrease to the extent that our revenue increases and decreases.
Removed
During the years ended December 31, 2022 and 2021, the Company recorded a gain of $0 and $1,428,015, respectively, related to the settlement of convertible debt which contained an embedded conversion feature and was separately bifurcated and classified as a derivative liability.
Added
The Company expects to continue the improvement of gross margin in the MVNO segment, assuming the ACP program if fully funded for 2024. The Company expects the overall cost to acquire a new ACP subscriber will decrease in 2024 as we introduce new social media approaches to capture new subscribers.
Removed
The Company has recorded these gains in the accompanying consolidated statements of operations as a component of gain on settlement of liabilities. 19 The equity investment in Centercom decreased by $89,082 in 2022 compared to an increase of $28,676 in 2021.
Added
We anticipate the cost of device acquisition will continue to be lower in 2024 as we transition from buying devices to using SIM cards to capture and switch subscribers to our services. As we roll out new approaches to acquire an ACP subscriber, our marketing-related expenses should decrease.
Removed
In 2021, in connection with the listing of our common stock on the Nasdaq Capital Market, 433,017 warrants were repriced at a lower exercise price to better reflect the current market offering. No other terms had been modified.
Added
In addition, the Company plans to implement a new sales force for Comprehensive Platform Services to capture what we believe is an untapped underbanked convenience store market.
Removed
As a result, the Company recorded a warrant modification expense of $74,476 in the accompanying consolidated statements of operations with an offsetting increase to additional paid in capital.
Added
For the Years Ended December 31, 2023 2022 Cost of Revenue (exclusive of depreciation and amortization): Mobile Virtual Network Operator $ 83,918,968 $ 76,130,286 Comprehensive Platform Services 11,281,722 16,966,332 Lead Generation 6,228,650 14,975,647 Other 70,001 2,517 Total $ 101,499,341 $ 121,544,190 Gross profit margin is calculated as revenue less cost of revenue.
Removed
Stock and Warrants Issued for Cash and Related Direct Offering Costs The Company issued an aggregate 4,862,247 shares of common stock for $21,294,800 ($4.30 -$8/share). In connection with raising these funds, the Company paid $2,222,952 in direct offering costs, resulting in net proceeds of $19,076,710.
Added
For the Years Ended December 31, 2023 2022 Gross Profit (Loss) (exclusive of depreciation and amortization): Mobile Virtual Network Operator $ 34,658,952 $ 12,221,261 Comprehensive Platform Services 59,461 (647,256 ) Lead Generation 955,633 1,785,009 Other (31,555 ) 110,394 Total $ 35,642,491 $ 13,469,408 The Company expects to continue the improvement of gross margin in all segments, assuming the ACP program is fully funded for 2024.
Removed
We expect the positive operating income results of $3,322,294 for the period October 1, 2022 to December 31, 2022 will continue to be positive for each reporting period of 2023. The gross margin for the period of October 1, 2022 to December 31, 2022 was approximately 18%. Revenue streams are expecting to increase quarter over quarter in 2023.
Added
For the Years Ended December 31, 2023 2022 Gross Margin: Mobile Virtual Network Operator % 29.2 % 13.8 Comprehensive Platform Services 0.5 (4.0 ) Lead Generation 13.3 10.6 Other (82.1 ) 97.8 Total % 26.0 % 11.1 16 We expect that our gross profit margin for product and service will increase over the long term as our sales and production volumes increase and our cost per unit decreases due to efficiencies of scale.
Removed
At December 31, 2022, the Company had the following material commitments and contingencies. Notes payable – related party - See Note 6 to the Consolidated Financial Statements. Notes payable and long-term debt - See Note 8 to the Consolidated Financial Statements. Convertible promissory notes - See Note 9 to the Consolidated Financial Statements.
Added
The changes are discussed below: ● Contractors and consultants expense increased by $1,048,589 or 62.9% from $1,667,016 in 2022 to $2,715,605 in 2023. The Company engaged several contractors to overhaul the financial platform to allow for the conversion to a tablet-based transaction at the store level from the outdated VeriFone terminal.
Removed
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.
Added
The Company also engaged with consultants to provide advisory services specifically in the area of investment relations to identify opportunities to increase our shareholder value. ● Professional services increased $745,274 or 61.9% in 2023 primarily due to an increase in legal fees of $599,535.
Removed
This guidance establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services.
Added
Specifically, the legal fees for the Blue Skies Connections, LLC litigation increased by $199,153 from 2022 to 2023. ● Compensation increased from $4,780,885 in 2022 to $6,342,955 in 2023 primarily as a result of one-time bonuses paid to various management personnel and the implementation of an employee stock program in 2023.
Added
There was a non-cash component for $576,625 related to the implementation of a stock option plan for all employees except the executives. The overall cash payment to executives increased by less than 10% year over year.
Added
The remaining increase in 2023 was related to additional hires over the course of 2022. ● Computer and internet costs increased to $858,041 in 2023 from $403,583 in 2022. The increase was primarily the result of increased internet support services and database management costs.
Added
A significant portion of the increase was related to the continued maintenance and enhancements of the shockwave software platform.
Added
In 2022, the expenses for the Shockwave software represented only a 6-month period of time whereas the 2023 activity includes 12 months of similar expenses. ● Advertising and marketing costs decreased to $152,851 in 2023 from $259,393 in 2022 primarily as a result of a shift from marketing-oriented vendors to investor relation type vendors.
Added
This also relates to the increase in the overall spending with contractors and consultants to try to obtain new ACP customers through direct marketing efforts to individuals and social media marketing efforts to educate individuals that they may be eligible for ACP. ● Insurance expense decreased to $1,249,556 in 2023 from $1,535,687 in 2022 primarily as a result of improved premium rates for the renewal of coverage in 2023. ● Other costs increased to $2,444,593 in 2023 from $2,061,100 in 2022 primarily due to an increase in the vesting of options for the board of directors and cybersecurity insurance premiums, as well as various administrative expenses such as office, building, travel and bank fees. 17 Other (expense) income during the years ended December 31, 2023 and 2022 consisted of the following: 2023 2022 Interest, net $ (595,975 ) $ (1,843,396 ) Gain (loss) on equity investment in Centercom 110,203 (89,082 ) Gain (loss) on settlement of liabilities - 336,726 Amortization of debt discount - (115,404 ) Other income - 524,143 Total other (expense) income $ (485,772 ) $ (1,187,013 ) Interest expense decreased to $595,975 in 2023 from $1,843,396 in 2022 primarily due to the payoff of various debt instruments in 2023.
Added
All of these shares are for consultants based upon agreements.
Added
Exercise of Warrants The Company issued 43,814 shares of common stock in June 2023 upon an exercise of warrants with an exercise price of $4.73 for $207,240. 18 Non-Vested Shares – Related Parties Chief Financial Officer In 2023, the Company granted common stock to its Chief Financial Officer having a fair value of $3,114,000 ($5.19/share), based upon the quoted closing trading price.

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