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Liquidity

9 Months Ended

Sep. 30, 2019

3	LIQUIDITY

The Company had a net loss of approximately $5.3 million for the nine months ended September 30, 2019. As of September 30, 2019, the Company had cash and working capital deficit of approximately $144,000 and $1.7 million, respectively.

Management has made the decision to invest in its infrastructure in order to cross market and maximize product rollouts allowing for larger scale revenue in Q4 2019 and beyond. As part of this strategy, the Company is rolling out the SurgePays Marketplace platform to the AATAC network of 40,000 retail plus locations. This process includes placement orders of 500,000 Sim Starter kits, wireless top-ups platform, a nationwide exclusive master distributorship for Weekend Warrior Wellness products that include CBD products and the exclusive distributor of Pastime Foods candy. The Company is in the first phase of the rollout, during which it fulfilled over $2,800,000 in purchase orders during the three months ended September 30, 2019. The asset purchase agreement of the ECS Business executed with GBT gives the Company access to a network of over 9,800 retail locations and 160 independent sales people processing over 18,000 transactions per day (see Note 1). ECS generates approximately $46,500,000 in annualized revenue through third party wireless services.

In addition, during the three months ended September 30, 2019, management made the decision to expedite programming, software development and integration to enable the successful launch of the SurgePays Prepaid Visa card.

To support the significant growth inflection, the Company has reorganized its human resources department, including building the administrative, legal and finance office in Bartlett, and the operations center in El Salvador which will be able to host 300 employees. Management believes the Company now has the ability to support its expected growth, which was a major goal for fiscal year 2019. During the nine months ended September 30, 2019, the Company was able to continue the utilization of the internal controls and operating procedures and techniques employed by the Company’s management in order to enhance the business by creating operating efficiencies and controlling costs. Lastly, the Company has significantly restructured its balance sheet to be an effective platform for growth as the Company continues to work towards listing on the Nasdaq Capital Market.

These factors, among others, were addressed by management in determining whether the Company could continue as a going concern. The Company projects that it should be cash flow positive by the end of Quarter 1 2020 from ongoing operations by the combination of increased cash flow from its current subsidiaries, as well as the collection of outstanding receivables and the restructuring of the current debt burden. While management believes it is more likely than not the Company has the ability to continue as a going concern, this is dependent upon the ability to further implement the business plan, generate sufficient revenues and to control operating expenses.

Additionally, if necessary, based on the Company’s history of being able to raise capital from both internal and external sources coupled with current favorable market conditions, management believes that debt and/or equity financing can be obtained from both related parties (management and members of the Board of Directors of the Company) and external sources to pay down existing debt obligations, cover short term shortfalls, meet the shareholders equity requirements for Nasdaq, and complete proposed acquisitions. Although the Company believes in the viability of management’s strategy to generate sufficient revenue, control costs and the ability to raise additional funds if necessary, there can be no assurances to that effect. Therefore, the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

Subsequent to September 30, 2019, the Company executed debt agreements resulting in gross proceeds of $750,000 to support short-term working capital needs.