United States securities and exchange commission logo
July 21, 2021
Kevin Brian Cox
Chief Executive Officer
Surge Holdings, Inc.
3124 Brother Boulevard, Suite 104
Bartlett, TN 38133
Re: SurgePays, Inc.
Amendment No. 2 to
Registration Statement on Form S-1
Filed June 21, 2021
File No. 333-233726
Dear Mr. Cox:
We have reviewed your amended registration statement and have the
following
comments. In some of our comments, we may ask you to provide us with
information so we
may better understand your disclosure.
Please respond to this letter by amending your registration
statement and providing the
requested information. If you do not believe our comments apply to your
facts and
circumstances or do not believe an amendment is appropriate, please tell
us why in your
response.
After reviewing any amendment to your registration statement and
the information you
provide in response to these comments, we may have additional comments.
Unless we note
otherwise, our references to prior comments are to comments in our March
16, 2021 letter.
Amendment No. 2 to Registration Statement on Form S-1 filed June 21,
2021
Risk Factors, page 14
1. We note your amended
disclosure in response to prior comment 4 and reissue it in part.
Please disclose the
percentage of outstanding shares that all Series A Preferred Sock and
all Series C Preferred
Stock shareholders (not just the CEO) currently own and must keep
to continue to control
the outcome of matters submitted to shareholders for approval and
revise to acknowledge
that any future issuances of Series A Preferred Stock and Series C
Preferred stock, to any
person (not just the CEO), may be dilutive to holders of your
Common Stock.
Kevin Brian Cox
FirstName LastNameKevin Brian Cox
Surge Holdings, Inc.
Comapany
July NameSurge Holdings, Inc.
21, 2021
July 21,
Page 2 2021 Page 2
FirstName LastName
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Segment Information, page 30
2. We note your response to prior comment 5. For all periods presented,
please revise
to separately discuss each reportable segment s results, including
revenues, gross margin,
and operating income (loss). Please also revise segment-level
disclosures to identify,
quantify, and analyze each material factor underlying changes in
results, including when
such factors offset each other. See Item 303(a)(3)(i) of Regulation
S-K and Section III.D
of SEC Release No. 33-6835.
Business
Disrupting the Supply Chain, page 35
3. We note your amended disclosure in response to prior comment 11. To
the extent that
you have relied on sources for claims made in this section, such as
"labor normally
accounts for 25% of the retail cost of a product sold in convenience
stores" or "the store
owner realizes a 10%-15% lower price on the wholesale products they
are currently
buying or in many cases, can select from a wider variety of products
from manufacturers
nationwide," please revise to provide sources for such statements. In
the alternative,
please revise to characterize your claims as management's beliefs.
Legal Proceedings, page 38
4. Your disclosure regarding the Glen Eagles legal proceedings states
that "[a] scheduling
order from the court is forthcoming, with tentative dates for a
calendar call scheduled for
June 2, 2021 and a bench trial scheduled for June 20, 2021." Please
revise to update this
information as of the date of the filing.
Financial Statements
Consolidated Statements of Operations, page F-3
5. We note your revision to the line-item description in response to
prior comment 15.
However, you continue to report a figure identified as "gross profit"
that is an
income amount before depreciation and amortization. As previously
requested, please
remove this "gross profit" figure from your income statements. We
refer you to the
guidance in SAB Topic 11:B.
Note 2. Summary of Significant Accounting Policies
Revenue Recognition, page F-10
6. We note your response to prior comment 16. In regard to all
significant revenue categories
presented, please identify and describe in further detail your
contractual performance
obligations that are transferred to your customers. As an example,
LogicsIQ is described
as a full-service digital advertising agency; however, you disclose
neither the terms
nor the nature of your contractual performance obligations.
Accordingly, please disclose
Kevin Brian Cox
Surge Holdings, Inc.
July 21, 2021
Page 3
in sufficient detail the significant contractual terms and conditions
(e.g. payment terms,
refunds, and any warranties), and the nature of the performance
obligations that you
promise to transfer in your contracts with customers. Refer to ASC
606-10-50-12.
Note 6. Intangible Assets, page F-16
7. Please revise to clarify the nature of your proprietary software,
provide the estimated useful lives (or range) for each asset class, and
disclose whether you
are amortizing your intangible assets utilizing the straight line method
or another
acceptable method.
Note 11. Derivative Liabilities, page F-25
8. Please explain the derivative liabilities balance of approximately $1.4
million related to
embedded conversion features in convertible promissory notes that no
longer appear to be
outstanding. We note that Note 10 represented that you either settled or
satisfied all notes
during the year and did not have any outstanding convertible promissory
notes as of
December 31, 2020.
Note 10. Derivative Liabilities, page F-60
9. We note your disclosure that you determined the conversion option in the
convertible note
executed during the three months end March 31, 2021 met the definition
of a derivative
liability in accordance with ASC 815, and you bifurcated the embedded
conversion
option. Please more fully address the following:
Citing authoritative guidance, tell us how you determined it was
appropriate to record
a "derivative expense" of approximately $1.8 million during first
quarter of 2021,
given the change in fair value of your derivative liability was
$303,043 as of March
31, 2021; and
Clarify in the filing the reason for the expense, which appears to
be the result
of the debt discount exceeding the face value of the note, and
explain how you
determined the amount of the expense.
You may contact Joseph Cascarano at (202) 551-3376 or Robert Littlepage
at (202) 551-
3361 if you have questions regarding comments on the financial statements and
related matters.
Please contact Cara Wirth at (202) 551-7127 or Mara Ransom at (202) 551-3264
with any other
questions.
Sincerely,
FirstName LastNameKevin Brian Cox
Division of
Corporation Finance
Comapany NameSurge Holdings, Inc.
Office of Trade &
Services
July 21, 2021 Page 3
cc: Steven Lipstein
FirstName LastName