SURG SurgePays Inc

SurgePays, Inc. (Nasdaq: SURG) (“SurgePays” or the “Company”), a technology and telecommunications company focused on the underbanked and underserved, today announced its financial results for the year ended December 31, 2021.

Full Year 2021 Financial Highlights

• Revenue of $51.1 million in 2021 compared to $54.4 million in 2020
• Gross profit of $6.2 million in 2021 compared to $2.5 million in 2020. Gross margin improved to 12.1% in 2021 compared to 4.5% in the prior year.
• Net loss of SurgePays of $(13.5) million in 2021 compared to a loss of ($10.7) million in 2020.
• Adjusted EBITDA loss of $(3.9) million in 2021 compared to a loss of ($8.1) million in 2020.
• Strong balance sheet with unrestricted cash and cash equivalents of $6.3 million as of December 31, 2021.

Commenting on the progress in the business, Chairman and CEO Brian Cox stated, “I’m extremely proud of the work we accomplished in 2021 including our capital raise and uplist to the Nasdaq Market. We made strategic decisions in 2021 to rationalize our customer base and product offering to focus on profitable customers rather than driving a higher store count. This is evident in 2021 revenue that was slightly down but improved margins.

“Additionally, we seized upon the opportunity presented to us by the Affordable Connectivity Program (ACP), to connect millions of Americans with affordable mobile broadband access. The significant investments made to establish this program required upfront equipment purchases, but we are now producing positive cash flow from our subscriber base. We expect the growth of this program to drive significant revenue growth, substantially higher margins and produce positive EBITDA in 2022. The growth in this business was extraordinary in the five months it was live in 2021 and we expect the momentum to continue throughout 2022.”

Mr. Cox Continued: “As we have enhanced our offering to include wireless broadband along with a comprehensive suite of value-driven financial service products for the underbanked, our ability to attract mobile broadband subscribers, increase store count and grow market share has significantly increased.”

Business OutlookFor the full year 2022, the Company expects to achieve the following financial targets:

• Total revenues of at least $130 million.
• Adjusted EBITDA is expected to be at least $15 million.
• Greater than 200,000 subscribers in the mobile broadband business.

Conference Call and Webcast InformationSurgePays will host a conference call today to review its results and discuss its performance at 4:30 p.m. ET / 1:30 p.m. PT. Participants may join the conference call by dialing 1-877-407-9208 (United States) or 1-201-493-6784 (International). A telephonic replay of the call will also be available shortly after the completion of the call, until 11:59 pm ET on Thursday, April 7, 2022, by dialing 1-844-512-2921 (United States) or 1-412-317-6671 (International) and entering the replay pin number: 13728105.

A live webcast will be available on SurgePays, Inc Investor Relations site under the Upcoming Event section at http://ir.surgepays.com and will be archived online upon completion of the conference call.

About SurgePays, Inc.SurgePays, Inc. is a technology and telecommunications company focused on the underbanked and underserved communities. SurgePhone Wireless provide mobile broadband to low-income consumers nationwide. SurgePays blockchain fintech platform utilizes a suite of financial and prepaid products to convert corner stores and bodegas into tech-hubs for underbanked neighborhoods. Please visit SurgePays.com for more information.

About Non-GAAP Financial MeasuresThe Company believes that EBITDA (earnings before interest, taxes, depreciation and amortization) is useful to investors because it is commonly used in the cloud communications industry to evaluate companies on the basis of operating performance and leverage. Adjusted EBITDA provides an adjusted view of EBITDA that takes into account certain significant non-recurring transactions, if any, such as impairment losses and expenses associated with pending acquisitions, which vary significantly between periods and are not recurring in nature, as well as certain recurring non-cash charges such as changes in fair value of the Company’s derivative liabilities and stock-based compensation. The Company also believes that Adjusted EBITDA provides investors with a measure of the Company’s operational and financial progress that corresponds with the measurements used by management as a basis for allocating resources and making other operating decisions.

EBITDA and Adjusted EBITDA are not intended to represent cash flows for the periods presented, nor have they been presented as an alternative to operating income or as an indicator of operating performance and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In accordance with SEC Regulation G, the non-GAAP measurements in this press release have been reconciled to the nearest GAAP measurement, which can be viewed under the heading “Reconciliation of Net Income (loss) from Operations to EBITDA and Adjusted EBITDA” in the financial tables included in this press release.

Cautionary Note Regarding Forward-Looking StatementsThis press release includes express or implied statements that are not historical facts and are considered forward-looking within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. Forward-looking statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance and may contain projections of our future results of operations or of our financial information or state other forward-looking information. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words.

Although we believe that the expectations reflected in these forward-looking statements such as the growth in the ACP to drive significant revenue growth, substantially higher margins and produce positive EBITDA in 2022 along with the statements under the heading Business Outlook are reasonable, these statements relate to future events or our future operational or financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control, including, without limitation, statements about our future financial performance, including our revenue, cash flows, costs of revenue and operating expenses; our anticipated growth; our predictions about our industry; the impact of the COVID-19 pandemic on our business and our ability to attract, retain and cross-sell to clients. The forward-looking statements contained in this release are also subject to other risks and uncertainties, including those more fully described in our filings with the Securities and Exchange Commission (“SEC”), including in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The forward-looking statements in this press release speak only as of the date on which the statements are made. We undertake no obligation to update, and expressly disclaim the obligation to update, any forward-looking statements made in this press release to reflect events or circumstances after the date of this press release or to reflect new information or the occurrence of unanticipated events, except as required by law.

SurgePays, Inc. and SubsidiariesConsolidated Statements of Operations

		For the Years Ended December 31,
		2021				2020
Revenues		$	51,060,589			$	54,406,788
Costs and expenses
Cost of revenue			44,890,610				51,938,111
General and administrative expenses			12,162,547				12,614,345
Total costs and expenses			57,053,157				64,552,456
Loss from operations			(5,992,568	)			(10,145,668	)
Other income (expense)
Interest expense			(3,840,616	)			(4,801,520	)
Derivative expense			(1,775,057	)			(566,789	)
Change in fair value of derivative liabilities			1,806,763				577,936
Gain on investment in Centercom - related party			28,676				210,912
Gain on settlement of liabilities			1,469,641				2,575,978
Amortization of debt discount			(3,677,121	)			1,417,524
Gain on deconsolidation of True Wireless			1,895,871				-
Settlement expense			(3,750,000	)			-
Warrant modification expense			(74,476	)			-
Other income			377,743				10,000
Total other income (expense) - net			(7,538,576	)			(575,959	)
Net loss		$	(13,531,144	)		$	(10,721,627	)
Loss per share - basic and diluted		$	(3.09	)		$	(5.02	)
Weighted average number of shares - basic and diluted			4,381,709				2,134,417

SurgePays, Inc. and SubsidiariesConsolidated Balance Sheets

		December 31, 2021				December 31, 2020
Assets
Current Assets
Cash		$	6,283,496			$	673,995
Accounts receivable - net			3,249,889				180,499
Lifeline revenue - due from USAC			-				212,621
Inventory			4,359,296				178,309
Prepaids			-				5,605
Total Current Assets			13,892,681				1,251,029
Property and equipment - net			200,448				236,810
Other Assets
Note receivable			176,851				-
Intangibles - net			3,433,484				4,125,742
Goodwill			866,782				866,782
Investment in Centercom - related party			443,288				414,612
Operating lease - right of use asset - net			486,668				368,638
Other			-				61,458
Total Other Assets			5,407,073				5,837,232
Total Assets		$	19,500,202			$	7,325,071
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable and accrued expenses		$	6,602,577			$	6,827,487
Accounts payable and accrued expenses - related party			1,389,798				1,753,837
Deferred revenue			276,250				443,300
Operating lease liability			49,352				210,556
Line of credit			-				912,870
Loans payable - related parties			1,553,799				2,389,000
Notes payable - SBA government			126,418				-
Notes payable - net			-				250,000
Convertible notes payable - net			-				1,516,170
Derivative liabilities			-				1,357,528
Total Current Liabilities			9,998,194				15,660,748
Long Term Liabilities
Loans payable - related parties			4,507,017				1,100,440
Notes payable - SBA government			1,004,767				1,134,682
Operating lease liability			438,903				155,167
Total Long Term Liabilities			5,950,687				2,390,289
Total Liabilities			15,948,881				18,051,037
Commitments and Contingencies (Note 8)
Stockholders' Equity (Deficit)
Series A, Convertible Preferred stock, $0.001 par value, 100,000,000 shares authorized, 13,000,000 and 13,000,000 shares issued and outstanding, respectively			260				260
Series C, Convertible Preferred stock, $0.001 par value, 1,000,000 shares authorized, 0 and 721,598 shares issued and outstanding, respectively			-				722
Common stock, $0.001 par value, 500,000,000 shares authorized 12,063,834 and 2,542,624 shares issued and outstanding, respectively			12,064				2,543
Additional paid-in capital			38,662,340				10,862,708
Accumulated deficit			(35,123,343	)			(21,592,199	)
Total Stockholders' Equity (Deficit)			3,551,321				(10,725,966	)
Total Liabilities and Stockholders' Equity (Deficit)		$	19,500,202			$	7,325,071

SurgePays, Inc. and SubsidiariesConsolidated Statements of Cash Flows

		For the Years Ended December 31,
		2021				2020
Operating activities
Net loss		$	(13,531,144	)		$	(10,721,627	)
Adjustments to reconcile net loss to net cash used in operations
Bad debt expense			20,554				1,750,239
Depreciation and amortization			759,383				1,173,369
Amortization of right-of-use assets			158,085				197,381
Amortization of debt discount			3,677,121				2,016,764
Recognition of share based compensation			3,575				182,968
Change in fair value of derivative liabilities			(1,806,763	)			(577,936	)
Derivative expense			1,775,057				566,789
Gain on settlement of liabilities			(1,443,016	)			(2,644,960	)
Gain on equity method investment - Centercom - related party			(28,676	)			(210,912	)
Gain on forgiveness of PPP loan			(371,664	)			-
Gain on deconsolidation of subsidiary (True Wireless)			(1,895,871	)			-
Warrant modification expense			74,476				-
Changes in operating assets and liabilities
(Increase) decrease in
Accounts receivable			(3,089,944	)			1,146,611
Lifeline revenue - due from USAC			105,532				(151,831	)
Inventory			(4,255,637	)			(178,309	)
Prepaids			5,605				91,278
Other			61,458				4,999
Increase (decrease) in
Accounts payable and accrued expenses			4,056,812				2,824,165
Accounts payable and accrued expenses - related party			757,429				-
Deferred revenue			(167,050	)			405,260
Operating lease liability			(153,583	)			(200,296	)
Net cash used in operating activities			(15,288,261	)			(4,326,048	)
Investing activities
Purchase of property and equipment			(51,408	)			(6,605	)
Cash disposed in deconsolidation of subsidiary (True Wireless)			(325,316	)			-
Repayment of notes receivable			-				14,959
Net cash provided by (used in) investing activities			(376,724	)			8,354
Financing activities
Proceeds from stock and warrants issued for cash			21,299,662				1,068,500
Cash paid for direct offering costs			(2,222,952	)			-
Repurchase of common stock			-				(500,000	)
Proceeds from loans - related party			4,355,386				1,579,710
Repayments of loans - related party			(2,476,468	)			(295,710	)
Proceeds from notes payable			1,101,000				3,481,582
Repayments on notes payable			(1,377,257	)			(280,636	)
Proceeds from SBA notes			518,167				-
Proceeds from convertible notes			2,550,000				-
Repayments on convertible notes - net of overpayment			(2,473,052	)			(245,797	)
Cash paid for debt issuance costs			-				(162,000	)
Net cash provided by financing activities			21,274,486				4,645,649
Net decrease in cash			5,609,501				327,955
Cash - beginning of year			673,995				346,040
Cash - end of year		$	6,283,496			$	673,995
Supplemental disclosure of cash flow information
Cash paid for interest		$	866,684			$	98,113
Cash paid for income tax		$	-			$	-
Supplemental disclosure of non-cash investing and financing activities
Debt discount/issue costs recorded in connection with debt/derivative liabilities		$	2,748,084			$	1,457,402
Conversion of Series C, preferred stock into common stock		$	722			$	-
Gain on forgiveness of Centercom AP - Related Party		$	429,010
Stock issued in settlement of liabilities		$	1,997,977			$	-
Conversion of debt into equity		$	3,363,561			$	-
Right-of-use asset obtained in exchange for new operating lease liability		$	515,848			$	355,203
Termination of ECS ROU lease		$	228,752			$	-
Stock issued in connection with debt modification		$	108,931			$	67,650
Stock issued under make-whole arrangement		$	90,401			$	165,000
Stock issued for acquisition of membership interest in ECS		$	17,900			$	-
Reclassifcation of accrued interest - related party to note payable - related party		$	692,458			$	-
Deconsolidation of subsidiary (True Wireless)		$	2,434,552			$	-
Stock issued for acquisition		$	-			$	210,794
Stock and warrants issued with debt recorded as a debt discount		$	-			$	993,780

Reconciliation of Net Income (loss) from Operations to EBITDA and Adjusted EBITDA

SurgePays, Inc.
		For the Years Ended December 31,
		2021					2020				Variance
Net loss			(13,531,144	)				(10,721,627	)		(2,809,517	)
Addbacks for EBITDA:
Interest expense			3,840,616					4,801,520			(960,904	)
Depreciation			759,393					1,172,426			(413,033	)
EBITDA (non GAAP)			(8,931,135	)				(4,747,681	)		(4,183,454	)
Addbacks for Adjusted EBITDA:
Derivative expense			1,775,057					566,789			1,208,268
Change in fair value of derivative liabilities			(1,806,763	)				(577,936	)		(1,228,827	)
Gain on settlement of liabilities			(1,469,641	)				(2,575,978	)		1,106,337
Amortization of debt discount			3,677,121					(1,417,524	)		5,094,645
Gain on deconsolidation of True Wireless			(1,895,871	)				-			(1,895,871	)
Settlement expense			3,750,000					-			3,750,000
Warrant modification expense			74,476					-			74,476
Other income			(377,743	)				(10,000	)		(367,743	)
Litigation expense			1,306,579					633,156			673,424
Adjusted EBITDA (non GAAP)			(3,897,920	)				(8,129,175	)		4,231,255