U.S.
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,
D.C. 20549



FORM
10-Q



QUARTERLY
REPORT UNDER SECTION 13 OR 15(d)

OF
THE SECURITIES EXCHANGE ACT OF 1934



For
the quarterly period ended: June 30, 2018



File
No. 000-52522



SURGE
HOLDINGS, INC.

(Name
of small business issuer in our charter)



|Nevada                              |  | 98-0550352             
|----------------------------------- |  | -----------------------
|(State
    or other jurisdiction of |  | (IRS
    Employer      
|incorporation
    or organization)  |  | Identification
    No.)



3124
Brother Blvd 104, Bartlett TN 38133

(Address
of principal executive offices) (Zip Code)



Registrant’s
telephone number: (800) 760-9689



Indicate
by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [X] No [  ]



Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).

Yes
[  ] No [X]



Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large
accelerated filer [  ] Accelerated filer [  ] Non-accelerated filer [  ] Smaller reporting company
[X]



Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes
[  ] No[X]



State the number of shares
outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 85,339,256 shares
of common stock outstanding as of August 14, 2018.



The
accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for
interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission (“Commission”).
While these statements reflect all normal recurring adjustments which are, in the opinion of management, necessary for fair presentation
of the results of the interim period, they do not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. For further information, refer to the financial statements and footnotes
thereto, contained in SURGE HOLDINGS, INC.’s Form 10-K dated December 31, 2017 filed with the SEC on April 10, 2018 and
Form 8-K/A filed with the SEC on June 26, 2018.




















TABLE
OF CONTENTS



|                                   |                                                                                           | Page
|---------------------------------- | ----------------------------------------------------------------------------------------- | ----
|PART
    I – FINANCIAL INFORMATION |                                                                                          
|                                   |                                                                                           |     
|Item
    1:                        | Condensed Consolidated Financial Statements (Unaudited)                                   | 3   
|                                   |                                                                                           |     
|Item
    2:                        | Management’s
    Discussion and Analysis of Financial Condition and Results of Operations | 16  
|                                   |                                                                                           |     
|Item
    3:                        | Quantitative
    and Qualitative Disclosures About Market Risk                            | 20  
|                                   |                                                                                           |     
|Item
    4:                        | Controls
    and Procedures                                                               | 20  
|                                   |                                                                                           |     
|PART
    II - OTHER INFORMATION    |                                                                                          
|                                   |                                                                                          
|Item
    1:                        | Legal
    Proceedings                                                                     | 21  
|                                   |                                                                                           |     
|Item
    1A:                       | Risk
    Factors                                                                          | 21  
|                                   |                                                                                           |     
|Item
    2:                        | Unregistered
    Sales of Equity Securities and Use of Proceeds                           | 21  
|                                   |                                                                                           |     
|Item
    3:                        | Defaults
    upon Senior Securities                                                       | 22  
|                                   |                                                                                           |     
|Item
    4:                        | Mine
    Safety Disclosures                                                               | 22  
|                                   |                                                                                           |     
|Item
    5:                        | Other
    Information                                                                     | 22  
|                                   |                                                                                           |     
|Item
    6:                        | Exhibits                                                                                  | 22  



2







PART
I - FINANCIAL INFORMATION



ITEM
1: FINANCIAL STATEMENTS



SURGE
HOLDINGS, INC. AND SUBSIDIARIES

Condensed
Consolidated Balance Sheets



|                                                                                                                                                                                            |  | June
    30, |             |   | December
    31, |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ----------- | - | ---------------- | -
|                                                                                                                                                                                            |  | 2018         |             |   | 2017             |  
|                                                                                                                                                                                            |  |              | (Unaudited) |   |                  |  
|ASSETS                                                                                                                                                                                      |  |              |             |   |                  |  
|Current assets:                                                                                                                                                                             |  |              |             |   |                  |  
|Cash
    and cash equivalents                                                                                                                                                               |  | $            | 1,626,526   |   |                  | $
|Accounts receivable,
    less allowance for doubtful accounts of $17,000 and none, respectively                                                                                             |  |              | 126,507     |   |                  |  
|Lifeline revenue
    due from USAC                                                                                                                                                          |  |              | 1,087,500   |   |                  |  
|Customer phone supply                                                                                                                                                                       |  |              | 333,125     |   |                  |  
|LTC cryptocurrency
    coins at fair value                                                                                                                                                  |  |              | 55,466      |   |                  |  
|Prepaid expenses                                                                                                                                                                            |  |              | 1,462       |   |                  |  
|Due
    from related party                                                                                                                                                                  |  |              | -           |   |                  |  
|Total
    current assets                                                                                                                                                                    |  |              | 3,230,586   |   |                  |  
|Property and Equipment, less accumulated
    depreciation of $69,529 and $127,015, respectively,                                                                                            |  |              | 564,924     |   |                  |  
|Intangible
    assets less accumulated amortization of $301,049                                                                                                                             |  |              | 83,595      |   |                  |  
|Goodwill                                                                                                                                                                                    |  |              | 866,782     |   |                  |  
|Other long-term
    assets                                                                                                                                                                  |  |              | 61,457      |   |                  |  
|Total
    assets                                                                                                                                                                            |  | $            | 4,807,344   |   |                  | $
|                                                                                                                                                                                            |  |              |             |   |                  |  
|LIABILITIES AND STOCKHOLDERS’
    DEFICIT                                                                                                                                                   |  |              |             |   |                  |  
|Current liabilities:                                                                                                                                                                        |  |              |             |   |                  |  
|Accounts payable
    and accrued expenses - others                                                                                                                                          |  | $            | 2,084,105   |   |                  | $
|Accounts payable
    and accrued expenses - related party                                                                                                                                   |  |              | 24,215      |   |                  |  
|Payable - Telecom
    Operations Center - current                                                                                                                                           |  |              | 309,439     |   |                  |  
|Credit card liability                                                                                                                                                                       |  |              | 336,726     |   |                  |  
|Deferred revenue                                                                                                                                                                            |  |              | 200,500     |   |                  |  
|Derivative liability                                                                                                                                                                        |  |              | 78,890      |   |                  |  
|Advance from related
    party                                                                                                                                                              |  |              | 389,502     |   |                  |  
|Note payable - related
    party                                                                                                                                                            |  |              | 3,671,000   |   |                  |  
|Notes
    payable and current portion of long-term debt, net                                                                                                                                |  |              | 1,104,062   |   |                  |  
|Total current liabilities                                                                                                                                                                   |  |              | 8,198,439   |   |                  |  
|Long-term debt less current portion                                                                                                                                                         |  |              | 52,188      |   |                  |  
|Trade payables
    - long term                                                                                                                                                              |  |              | 881,648     |   |                  |  
|Total
    liabilities                                                                                                                                                                       |  |              | 9,132,275   |   |                  |  
|Commitments and contingencies                                                                                                                                                               |  |              |             |   |                  |  
|                                                                                                                                                                                            |  |              |             |   |                  |  
|Stockholders’ deficit:                                                                                                                                                                      |  |              |             |   |                  |  
|                                                                                                                                                                                            |  |              |             |   |                  |  
|Preferred stock:
    $0.001 par value; 100,000,000 shares authorized; 13,000,000 and 3,000,000 shares issued and outstanding at June 30, 2018 and
    December 31, 2017, respectively       |  |              | 13,000      |   |                  |  
|Series C convertible
    preferred stock C: $0.001 par value; 1,000,000 shares authorized; 594,966 shares issued and outstanding                                                            |  |              | 595         |   |                  |  
|Common stock: $0.001
    par value; 500,000,000 shares authorized; 84,182,669 shares and 152,555,416 shares issued and outstanding at June 30, 2018
    and December 31, 2017, respectively |  |              | 84,183      |   |                  |  
|Additional paid
    in capital                                                                                                                                                              |  |              | (3,566,124  | ) |                  |  
|Accumulated
    deficit                                                                                                                                                                     |  |              | (856,585    | ) |                  |  
|Total
    stockholders’ deficit                                                                                                                                                             |  |              | (4,324,931  | ) |                  |  
|Total
    liabilities and stockholders’ deficit                                                                                                                                             |  | $            | 4,807,344   |   |                  | $



See
accompanying notes to condensed consolidated financial statements.



3







SURGE
HOLDINGS, INC. AND SUBSIDIARIES

Condensed
Consolidated Statements of Operations

(Unaudited)



|                                                                   |  | For
    the Three Months Ended
    June 30, |            |   | For
    the Six Months Ended
    June 30, |  
|------------------------------------------------------------------ |  | ------------------------------------------- | ---------- | - | ----------------------------------------- | -
|                                                                   |  | 2018                                        |            |   | 2017                                      |  
|                                                                   |  |                                             |            |   |                                           |  
|Revenue                                                            |  | $                                           | 4,054,665  |   |                                           | $
|                                                                   |  |                                             |            |   |                                           |  
|Cost of revenue                                                    |  |                                             | 2,169,203  |   |                                           |  
|                                                                   |  |                                             |            |   |                                           |  
|Gross
    profit                                                   |  |                                             | 1,885,462  |   |                                           |  
|                                                                   |  |                                             |            |   |                                           |  
|Cost and expenses                                                  |  |                                             |            |   |                                           |  
|Depreciation and
    amortization                                  |  |                                             | 61,586     |   |                                           |  
|Selling,
    general and administrative                            |  |                                             | 2,016,066  |   |                                           |  
|Total
    costs and expenses                                       |  |                                             | 2,077,652  |   |                                           |  
|                                                                   |  |                                             |            |   |                                           |  
|Operating
    profit (loss)                                        |  |                                             | (192,190   | ) |                                           |  
|                                                                   |  |                                             |            |   |                                           |  
|Other
    expense (income):                                        |  |                                             |            |   |                                           |  
|Interest expense                                                   |  |                                             | 79,892     |   |                                           |  
|Change in fair
    value of derivative liability                   |  |                                             | (2,619     | ) |                                           |  
|Change
    in fair value of LTC cryptocurrency                     |  |                                             | 50,906     |   |                                           |  
|                                                                   |  |                                             |            |   |                                           |  
|Total
    other expense (income)                                   |  |                                             | 128,179    |   |                                           |  
|                                                                   |  |                                             |            |   |                                           |  
|Net income (loss)
    before provision for income taxes            |  |                                             | (320,369   | ) |                                           |  
|                                                                   |  |                                             |            |   |                                           |  
|Provision for
    income taxes                                     |  |                                             | 54,750     |   |                                           |  
|                                                                   |  |                                             |            |   |                                           |  
|Net
    income (loss)                                              |  | $                                           | (375,119   | ) |                                           | $
|                                                                   |  |                                             |            |   |                                           |  
|Net
    loss per common share, basic and diluted                   |  | $                                           | (0.00      | ) |                                           | $
|                                                                   |  |                                             |            |   |                                           |  
|Weighted
    average common shares outstanding – basic and diluted |  |                                             | 82,519,793 |   |                                           |  



See
accompanying notes to condensed consolidated financial statements.



4







SURGE
HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Stockholders’
Deficit

For the Six Months ended June 30, 2018

(Unaudited)







|                                                                      |  |                     |            |  |                    |   |        |                  |  |  | Additional |  |  |             |     |  |        | 
|--------------------------------------------------------------------- |  | ------------------- | ---------- |  | ------------------ | - | ------ | ---------------- |  |  | ---------- |  |  | ----------- | --- |  | ------ | 
|                                                                      |  | Preferred
    Stock |            |  | Series C Preferred |   |        | Common
    Stock |  |  | Paid-in    |  |  | Accumulated |     |  |        | 
|                                                                      |  | Shares              |            |  | Amount             |   |        | Shares           |  |  | Amount     |  |  | Shares      |     |  | Amount | 
|                                                                      |  |                     |            |  |                    |   |        |                  |  |  |            |  |  |             |     |  |        | 
|Balance,
    December 31, 2017                                        |  |                     | 3,000,000  |  |                    | $ | 3,000  |                  |  |  | -          |  |  | $           | -   |  |        | 
|                                                                      |  |                     |            |  |                    |   |        |                  |  |  |            |  |  |             |     |  |        | 
|Recapitalization                                                      |  |                     | 10,000,000 |  |                    |   | 10,000 |                  |  |  | -          |  |  |             | -   |  |        | 
|                                                                      |  |                     |            |  |                    |   |        |                  |  |  |            |  |  |             |     |  |        | 
|Issuance
    of common stock for services rendered                    |  |                     | -          |  |                    |   | -      |                  |  |  | -          |  |  |             | -   |  |        | 
|                                                                      |  |                     |            |  |                    |   |        |                  |  |  |            |  |  |             |     |  |        | 
|Issuance
    of Series C Preferred Stock in exchange for Common Stock |  |                     | -          |  |                    |   | -      |                  |  |  | 594,966    |  |  |             | 595 |  |        | 
|                                                                      |  |                     |            |  |                    |   |        |                  |  |  |            |  |  |             |     |  |        | 
|Net
    income                                                        |  |                     | -          |  |                    |   | -      |                  |  |  | -          |  |  |             | -   |  |        | 
|Balance,
    June 30, 2018                                            |  |                     | 13,000,000 |  |                    | $ | 13,000 |                  |  |  | 594,966    |  |  | $           | 595 |  |        | 





See
accompanying notes to condensed consolidated financial statements.





5









SURGE
HOLDINGS, INC. AND SUBSIDIARIES

Condensed
Consolidated Statements of Cash Flows

(Unaudited)





|                                                                                                       |  | Six
    months ended |          
|------------------------------------------------------------------------------------------------------ |  | -------------------- | ---------
|                                                                                                       |  | June
    30,         |          
|                                                                                                       |  | 2018                 |          
|Operating
    activities                                                                               |  |                      |          
|Net
    income (loss)                                                                                  |  | $                    | 25,883   
|Adjustments
    to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |                      |          
|Amortization
    and depreciation                                                                      |  |                      | 62,794   
|Common
    stock issued for services                                                                   |  |                      | 129,600  
|Change
    in fair value of LTC cryptocurrency coins                                                   |  |                      | (50,906  
|Change
    in fair value of derivative liability                                                       |  |                      | 2,619    
|Changes
    in operating assets and liabilities:                                                       |  |                      |          
|Accounts
    receivable                                                                                |  |                      | (22,643  
|Lifeline
    revenue due from USAC                                                                     |  |                      | 83,069   
|Customer
    phone supply                                                                              |  |                      | 187,040  
|LTC
    Cryptocurrency Coins                                                                           |  |                      | 55,932   
|Prepaid
    expenses                                                                                   |  |                      | 36,801   
|Deferred
    revenue                                                                                   |  |                      | 29,000   
|Accounts
    payable and accrued expenses                                                              |  |                      | (103,904 
|Net
    cash provided by operating activities                                                          |  |                      | 435,285  
|                                                                                                       |  |                      |          
|Investing
    activities                                                                               |  |                      |          
|Net
    cash received in business combination                                                          |  |                      | 243,768  
|Net
    cash provided by investing activities                                                          |  |                      | 243,768  
|                                                                                                       |  |                      |          
|Financing
    activities                                                                               |  |                      |          
|Capital
    contributions - net                                                                        |  |                      | -        
|Due
    from related party                                                                             |  |                      | -        
|Proceeds
    from note payable                                                                         |  |                      | -        
|Loan
    repayments - related                                                                          |  |                      | (326,687 
|Net
    cash provided by financing activities                                                          |  |                      | (326,687 
|                                                                                                       |  |                      |          
|Net
    increase in cash and cash equivalents                                                          |  |                      | 352,366  
|                                                                                                       |  |                      |          
|Cash
    and cash equivalents, beginning of period                                                     |  |                      | 1,274,160
|                                                                                                       |  |                      |          
|Cash
    and cash equivalents, end of period                                                           |  | $                    | 1,626,526
|                                                                                                       |  |                      |          
|Supplemental
    cash flow information                                                                 |  |                      |          
|Cash
    paid for interest and income taxes:                                                           |  |                      |          
|Interest                                                                                               |  | $                    | -        
|Income
    taxes                                                                                       |  | $                    | -        
|                                                                                                       |  |                      |          
|Non-cash
    investing and financing activities:                                                       |  |                      |          
|Acquisition
    of customer phones through related party note payable                                  |  | $                    | -        
|Debt
    acquired in business combination                                                              |  | $                    | 3,000,00 
|Exchange
    of Common Stock for Series C Preferred Stock                                              |  | $                    | 148,741  





See
accompanying notes to condensed consolidated financial statements.



6









SURGE
HOLDINGS, INC. AND SUBSIDIARIES

Notes
to Consolidated Financial Statements

June
30, 2018

(Unaudited)



|1 | BASIS
    OF PRESENTATION AND BUSINESS
|- | --------------------------------------



Basis
of presentation and principles of consolidation



The accompanying unaudited
condensed consolidated financial statements include the accounts of Surge Holdings, Inc. (“Surge”), formerly Ksix
Media Holdings, Inc., incorporated in Nevada on August 18, 2006, and its wholly owned subsidiaries, Ksix Media, Inc. (“Media”),
incorporated in Nevada on November 5, 2014, Ksix, LLC (“KSIX”), a Nevada limited liability company that was formed
on September 14, 2011, Surge Blockchain, LLC (“Blockchain”), formerly Blvd. Media Group, LLC (“BLVD”),
a Nevada limited liability company that was formed on January 29, 2009, DigitizeIQ, LLC (“DIQ”) an Illinois limited
liability company that was formed on July 23, 2014 Surge Cryptocurrency Mining, Inc. (“Crypto”), formerly North American
Exploration, Inc. (“NAE”), a Nevada corporation that was incorporated on August 18, 2006 and True Wireless, Inc.,
an Oklahoma corporation (formerly True Wireless, LLC) (“TW”), (collectively the “Company” or
“we”). All significant intercompany balances and transactions have been eliminated in consolidation.



The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in
the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation
S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information
and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements.
In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain
all of the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company
as of June 30, 2018 and the results of operations and cash flows for the periods presented. The results of operations for the
three and six months ended June 30, 2018 are not necessarily indicative of the operating results for the full fiscal year or any
future period. These unaudited condensed consolidated financial statements should be read in conjunction with the financial
statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31,
2017 filed with the SEC on April 10, 2018 and Form 8-K/A filed with the SEC on June 26, 2018.



Recent Developments



As reported on Form 8-K
filed with the SEC on April 16, 2018, on April 11, 2018, the Company closed the merger transaction (the “Merger”)
that was the subject of that certain Agreement and Plan of Reorganization (the “Merger Agreement”) with True Wireless,
Inc., an Oklahoma corporation (“TW”) dated as of April 11, 2018. At closing, in accordance with the Merger Agreement,
TW merged with and into TW Acquisition Corporation, a Nevada corporation (“Merger Sub”), a wholly-owned subsidiary
of Surge Holdings, Inc. (the “Merger”), with TW being the surviving corporation. As a result of the Merger, TW became
a wholly-owned subsidiary of the Company.



As a result of the controlling
financial interest of the former members of TW, for financial statement reporting purposes, the merger between the Company and
TW has been treated as a reverse acquisition with TW deemed the accounting acquirer and the Company deemed the accounting acquiree
under the acquisition method of accounting in accordance with section 805-10-55 of the FASB Accounting Standards Codification.
The reverse acquisition is deemed a capital transaction and the net assets of TW (the accounting acquirer) are carried forward
to the Company (the legal acquirer and the reporting entity) at their carrying value before the acquisition. The acquisition process
utilizes the capital structure of the Company and the assets and liabilities of TW which are recorded at their historical cost.
The equity of the Company is the historical equity of TW retroactively restated to reflect the number of shares issued by the Company
in the transaction. See Note 4.





7









Business
description



The
Company has been doing business through two of its wholly owned subsidiaries. DIQ is a full-service digital advertising agency
specializing in survey generation and landing page optimization specifically designed for mass tort action lawsuits. KSIX is an
Internet marketing company and has an advertising network designed to create revenue streams for its affiliates and to provide
advertisers with increased measurable audience. KSIX provides performance-based marketing solutions to drive traffic and conversions
with a Cost-Per-Lead (“CPL”) business model. KSIX has an online advertising network that works directly with advertisers
and other networks to promote advertiser campaigns and manage offer tracking, reporting and distribution.



Other
subsidiaries were inactive as of the end of December 2017 and the Company intends to pursue the following business models in 2018.



Blockchain
is focused on expanding development and licensing for a Blockchain Service as a Software (SaaS) Payments Platform in order to
deliver a real product that improves people’s lives.



Crypto
intends to strategically mine Bitcoin, Litecoin and other cryptocurrencies. The company finalized its first mining farm of 100
Antminer L3+ machines. The mining operation will work 24/7 to both generate revenues and deliver to the Company a commodity as
of June 30, 2018.



As noted above, the Company
executed a Master Exchange Agreement for the exchange of Common Stock, Management and Control (the “Exchange Agreement”)
with True Wireless, Inc. (“TW”). The primary business operation of TW is a full-service telecommunications
company specializing in the Lifeline program which provides subsidized mobile phone service for low income individuals.



|2 | SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES
|- | ----------------------------------------------



Fair
value measurements



The
Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair
value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of
fair value measurements.



The
estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable
and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature
of these instruments. The carrying amounts of our short and long-term credit obligations approximate fair value because the effective
yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuances
of warrants and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk.



ASC
820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value.



ASC
820 describes three levels of inputs that may be used to measure fair value:



| | ● | Level
    1 — quoted prices in active markets for identical assets or liabilities.                             
| | - | ---------------------------------------------------------------------------------------------------------------
| | ● | Level
    2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable.
| | ● | Level
    3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions).       



The
derivative liability in connection with the conversion feature of the convertible debt, classified as a Level 3 liability, is
the only financial liability measure at fair value on a recurring basis.



8









The
change in the Level 3 financial instrument is as follows:



|                                                  |  | 2018 |       
|------------------------------------------------- |  | ---- | ------
|Balance, January 1, 2018                          |  | $    | -     
|Additions – Merger
    transaction                |  |      | 59,141
|Additions                                         |  |      | 22,368
|Change in fair
    value recognized in operations |  |      | (2,619
|Balance, June
    30, 2018                        |  | $    | 78,890



The
estimated fair value of the derivative instruments was valued using the Black-Scholes option pricing model, using the following
assumptions as of June 30, 2018:



|                        |  | 2018 |                                                       
|----------------------- |  | ---- | ------------------------------------------------------
|Estimated dividends     |  |      | None                                                  
|Expected volatility     |  |      | 164.32                                                
|Risk free interest rate |  |      | 2.85                                                  
|Expected term           |  |      | .01-36
                                         months



LTC
cryptocurrency coins are valued at current quoted rates and are therefore a Level 1 input.



Income
Taxes



In
its interim financial statements, the Company follows the guidance in ASC 270 "Interim Reporting" and ASC 740
"Income Taxes" whereby the Company utilizes the expected annual effective rate in determining its income tax
provision. The income tax expenses for the three and six months ended June 30, 2018 was $54,570.





Recently
issued and adopted accounting pronouncements



Revenue
Recognition



The
Company adopted ASC 606 effective January 1, 2018 using the modified retrospective method which would require a cumulative effect
adjustment for initially applying the new revenue standard as an adjustment to the opening balance of retained earnings and the
comparative information would not require to be restated and continue to be reported under the accounting standards in effect
for those periods.



Based
on the Company’s analysis the Company did not identify a cumulative effect adjustment for initially applying the new revenue
standards. The Company principally generates revenue through providing product, services and licensing revenue.



The
adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the delivery
of the Company’s services and will provide financial statement readers with enhanced disclosures. In accordance with ASC
606, revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the
consideration to which the Company expects to be entitled to receive in exchange for these services. To achieve this core principle,
the Company applies the following five steps:



|1) | Identify
    the contract with a customer
|-- | -----------------------------------------



A
contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s
rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract
has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that
are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies
judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the
customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining
to the customer.



9









|2) | Identify
    the performance obligations in the contract
|-- | --------------------------------------------------------



Performance
obligations promised in a contract are identified based on the services that will be transferred to the customer that are both
capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources
that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the
transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple
promised services, the Company must apply judgment to determine whether promised services are capable of being distinct and distinct
in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance
obligation.



|3) | Determine
    the transaction price
|-- | -----------------------------------



The
transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring
services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount
of variable consideration that should be included in the transaction price utilizing either the expected value method or the most
likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction
price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract
will not occur. None of the Company’s contracts as of June 30, 2018 contained a significant financing component.



|4) | Allocate
    the transaction price to performance obligations in the contract
|-- | -----------------------------------------------------------------------------



If
the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.
However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract
with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or
to a specific part of the contract. For example, a bonus or penalty may be associated with one or more, but not all, distinct
services promised in a series of distinct services that forms part of a single performance obligation. Contracts that contain
multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative
standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance
obligation or to a distinct service that forms part of a single performance obligation. The Company determines standalone selling
price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable
through past transactions, the Company estimates the standalone selling price taking into account available information such as
market conditions and internally approved pricing guidelines related to the performance obligations.



|5) | Recognize
    revenue when or as the Company satisfies a performance obligation
|-- | -------------------------------------------------------------------------------



The
Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related
performance obligation is satisfied by transferring a promised service to a customer.



Recent
accounting pronouncements



We
have evaluated all recent accounting pronouncements as issued by the FASB in the form of Accounting Standards Updates (“ASU”)
through the date these financial statements were available to be issued and find no recent accounting pronouncements that would
have a material impact on the financial statements of the Company.



|3 | GOING
    CONCERN
|- | -----------------



The
Company had income (loss) from operations of approximately $25,900 and $(169,200) for the six months ended June 30, 2018 and 2017,
respectively. As of June 30, 2018, we had cash and working capital deficit of approximately $1.6 million and $5.0 million, respectively.
These factors, among others, create an uncertainty about our ability to continue as a going concern. The Company projects that
it should be cash flow positive by the end of fiscal year 2018 from ongoing operations by the combination of increased cash flow
from its current subsidiaries, as well as restructuring our current debt burden. The Company has executed an agreement with a
FINRA licensed broker, as well as several institutional investors, to bring in equity investments to pay down existing debt obligations,
cover short term shortfalls, and complete proposed acquisitions. The Company’s ability to continue as a going concern is
dependent on the success of this plan.



10









The
Company’s financial statements have been presented on the basis that it continues as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the normal course of business, and do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.



|4 | MERGER
    AGREEMENT
|- | --------------------



As
discussed in Note 1, the Company closed the merger transaction (the “Merger”) that was the subject of that certain
Agreement and Plan of Reorganization (the “Merger Agreement”) with True Wireless, Inc., an Oklahoma corporation (“TW”)
dated as of April 11, 2018. At closing, in accordance with the Merger Agreement, TW merged with and into TW Acquisition Corporation,
a Nevada corporation (“Merger Sub”), a wholly-owned subsidiary of Surge Holdings, Inc. (the “Merger”),
with TW being the surviving corporation. As a result of the Merger, TW became a wholly-owned subsidiary of the Company.



Pursuant
to the terms of the Merger Agreement, TW, Inc. merged into Acquisition Sub in a transaction where TW, Inc. was the surviving company
and become a wholly-owned subsidiary of the Company. The transaction was structured as a tax-free reverse triangular merger. In
addition to the 12,000,000 shares of Company Common Stock and $500,000 cash which has been previously paid to the shareholders
of TW, at the closing of the merger transaction, the shareholders of TW received the following as additional merger consideration:



●
152,555,416 shares of newly-issued Company Common Stock, which will give the shareholders of TW, on a proforma basis, a 69.5%
interest in the Company’s total Common Shares.



●
An additional number of shares of Company Common Stock, if any, necessary to vest 69.5% of the aggregate issued and outstanding
Common Stock in the shareholders of TW at the Closing.



●
A Promissory Note in the original face amount of $3,000,000, bearing interest at 3% per annum maturing on December 31, 2018.



●
3,000,000 shares of newly-issued Company Series A Preferred Stock



Following
the closing of the merger transaction the Company’s investment in TW consisted of the following:



|                                                                                  |  | Shares |             |  | Amount |  
|--------------------------------------------------------------------------------- |  | ------ | ----------- |  | ------ | -
|Consideration paid
    prior to Closing:                                          |  |        |             |  |        |  
|Cash paid                                                                         |  |        |             |  |        | $
|Common stock
    issued                                                           |  |        | 12,000,000  |  |        |  
|Total
    consideration paid                                                      |  |        | 12,000,000  |  |        | $
|Consideration paid
    at Closing:                                                |  |        |             |  |        |  
|Common
                                         stock to be issued at closing (1) |  |        | 152,555,416 |  |        | $
|Series A Preferred
    Stock to be issued at closing                              |  |        | 3,000,000   |  |        |  
|Note payable
    due December 31, 2018                                            |  |        |             |  |        |  
|Total
    consideration to be paid                                                |  |        |             |  |        | $
|                                                                                  |  |        |             |  |        |  
|Total consideration                                                               |  |        |             |  |        | $



| | (1) | The
    Common Shares issued at closing of the Merger Transaction were valued at approximately $0.40 per share.
| | --- | ---------------------------------------------------------------------------------------------------------------





Following
the closing of the transaction, TW’s financial statements as of the Closing will be consolidated with the Consolidated Financial
Statements of the Company.



The
following presents the unaudited pro-forma combined results of operations of the Company with the TW Business as if the entities
were combined on January 1, 2017.



|                                              |  |   | Three Months Ended |   |  |   | Six
        Months
        Ended |   |  |   | Six
        Months
        Ended |  
|--------------------------------------------- |  | - | ------------------ | - |  | - | -------------------------------- | - |  | - | -------------------------------- | -
|                                              |  |   | June
    30, 2017  |   |  |   | June
    30, 2017                |   |  |   | June
    30, 2018                |  
|Revenues, net                                 |  | $ | 3,458,605          |   |  | $ | 7,290,490                        |   |  | $ | 7,927,317                        |  
|Net (loss)                                    |  | $ | (833,118           | ) |  | $ | (2,156,707                       | ) |  | $ | (237,332                         | )
|Net (loss) per share                          |  | $ | (0.01              | ) |  | $ | (0.04                            | ) |  | $ | (0.00                            | )
|Weighted average number of shares outstanding |  |   | 67,450,740         |   |  |   | 58,335,657                       |   |  |   | 76,206,307                       |  







11







The
unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results of operations
are not intended to present actual results that would have been attained had the acquisitions been completed as of January 1,
2017 or to project potential operating results as of any future date or for any future periods.



The
Company consolidated TW as of the closing date of the agreement, and the results of operations of the Company include that of
TW.



|5 | CREDIT
    CARD LIABILITY
|- | -------------------------



The
Company previously utilized a credit card issued in the name of DIQ to pay for certain of its trade obligations. At June 30, 2018
and December 31, 2017, the Company’s credit card liability was $336,726 and $0, respectively.



|6 | NOTES
    PAYABLE – RELATED PARTY
|- | ---------------------------------



As
of June 30, 2018 and December 31, 2017, notes payable due to a related party consists of:



|                                                                                                               |  |   | June
                                         30, 2018 |  |  |   | December
                                         31, 2017 | 
|-------------------------------------------------------------------------------------------------------------- |  | - | ------------------------------------------------------ |  |  | - | ---------------------------------------------------------- | 
|Note payable to SMDMM Funding LLC; interest
    at 8% per annum; due on demand                                 |  | $ | -                                                      |  |  | $ | 344,241                                                    | 
|Note payable to SMDMM Funding LLC; interest
    at 8% per annum; due on demand                                 |  |   | 241,000                                                |  |  |   | -                                                          | 
|Note payable to SMDMM Funding LLC; interest at 8% per annum;
    due on demand                                 |  |   | 430,000                                                |  |  |   | -                                                          | 
|Promissory note
    issued according to Merger Agreement; interest at 3% per annum; maturing December 31, 2018 |  |   | 3,000,000                                              |  |  |   | -                                                          | 
|Notes payable—related
    party                                                                                |  |   | 3,671,000                                              |  |  |   | 344,241                                                    | 



SMDMM
Funding, LLC is owned by the Company’s chief executive officer. Accrued interest owed to SMDMM Funding, LLC was $21,875
and $1,711 at June 30, 2018 and December 31, 2017, respectively.



|7 | NOTES
    PAYABLE AND LONG-TERM DEBT
|- | ------------------------------------



As
of June 30, 2018 and December 31, 2017, notes payable and long-term debt consists of:



|                                                                                                                                                                                                                                         |  |   | June
                                         30, 2018 |  |  |   | December
                                         31, 2017 | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ------------------------------------------------------ |  |  | - | ---------------------------------------------------------- | 
|Note payable to former officer
    and director due in four equal annual installments of $26,875 beginning April 28, 2016; past due in 2016 and 2017; accruing
    interest at 6% per annum since April 28, 2016 on the past due portion |  | $ | 107,500                                                |  |  | $ | -                                                          | 
|Note payable to former officer due in
    four equal annual installments of $25,313 on April 28 of each year; past due in 2016 and 2017; accruing interest at 6% per
    annum since April 28, 2016 on the past due portion              |  |   | 101,250                                                |  |  |   | -                                                          | 
|Notes payable to
                                 seller of DigitizeIQ, LLC due as noted below1                                                                                                                                          |  |   | 485,000                                                |  |  |   | -                                                          | 
|Convertible note payable
    to River North Equity LLC dated July 13, 2016 with interest at 10% per annum; due April 13, 2017; convertible into common
    stock2                                                                        |  |   | 27,500                                                 |  |  |   | -                                                          | 
|Unsecured demand
    notes to an unaffiliated third-party company bearing interest at 6.49%                                                                                                                                              |  |   | 435,000                                                |  |  |   | 435,000                                                    | 
|                                                                                                                                                                                                                                         |  |   | 1,156,250                                              |  |  |   | 435,000                                                    | 
|                                                                                                                                                                                                                                         |  |   |                                                        |  |  |   |                                                            | 
|Current portion
    of long-term debt                                                                                                                                                                                                    |  |   | 1,104,062                                              |  |  |   | 435,000                                                    | 
|Long-term
    debt                                                                                                                                                                                                                       |  | $ | 52,188                                                 |  |  | $ | -                                                          | 





12







1Notes due seller of DigitizeIQ, LLC includes
a series of notes as follows:





| | ● | A
    second non-interest-bearing Promissory Note made payable to the Seller in the amount of $250,000, which was due on January
    12, 2016; (Balance at June 30, 2018 - $235,000)
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                     
| | ● | A
    third non-interest-bearing Promissory Note made payable to the Seller in the amount of $250,000, which was due on March 12,
    2016 (Unpaid).                                



The
Company is renegotiating the terms of the notes. The notes bear interest at 5% per annum when in default (after the due date).
The notes were non-interest bearing until due. Accordingly, a debt discount at 5% per annum was calculated for the notes and was
amortized to interest expense until the due date of the notes.



2Convertible
note payable to River North Equity, LLC (“RNE”) -The Company evaluated the
embedded conversion for derivative treatment and recorded an initial derivative liability and debt discount of $23,190. The debt
discount is fully amortized.



The
Company has entered into a number of agreements with RNE wherein RNE has agreed to invest up to $3,000,000 in the common stock
of the Company. These agreements require an effective Registration Statement to be on file by the Company and would allow the
Company to require RNE to purchase the Company’s common stock at 90% of the lowest trading price of the Company’s
common stock during the previous five trading days. The Company has not yet filed a Registration Statement with the SEC.



Derivative
liability



The
Company has determined that the conversion feature embedded in the notes referred to above that contain a potential variable conversion
amount constitutes a derivative which has been bifurcated from the note and recorded as a derivative liability, with a corresponding
discount recorded to the associated debt. The excess of the derivative value over the face amount of the note, if any, is recorded
immediately to interest expense at inception.



The
estimated fair value of the derivative instruments was valued using the Black-Scholes option pricing model, using the following
assumptions during the six months ended June 30, 2018:



|Estimated
    dividends     |  | None             
|--------------------------- |  | -----------------
|Expected
    volatility     |  | 164.32%          
|Risk
    free interest rate |  | 2.85%            
|Expected
    term           |  | .01-36
    months



|8 | STOCKHOLDERS’
    EQUITY
|- | ------------------------



Common
Stock



2018
Transactions



13









On
April 11, 2018, the Company issued 152,555,416 shares of Common Stock and 3,000,000 shares of Preferred Stock as consideration
for the True Wireless, Inc. merger.



On
April 25, 2018, the Company issued an aggregate of 480,000 shares of Common Stock to two consultants valued at $0.27 per
share.



Preferred
Stock



On
June 29, 2018, each of Kevin Brian Cox (“Cox”), the Company’s Chief Executive Officer, and Thirteen Nevada LLC
(“13”) entered into separate Exchange Agreements with the Company whereby the Shareholders agreed to exchange an aggregate
of 148,741,531 shares of previously issued Company Common Stock for an aggregate of 594,966 shares of newly-issued Company Series
C Convertible Preferred Stock.



The
calculation of weighted average shares was retroactively restated in order to properly account for the above noted share exchange.



Unit
Subscription Agreement - Warrants



During
January 2018, the Company entered into Unit subscription agreements
with seven unrelated companies and individuals. Each Unit was priced at $0.20 and contained: (a) one share of common stock restricted
in accordance with Rule 144; and (b) one-half Warrant to purchase an additional share of common stock restricted in accordance
with Rule 144 for $0.50 for a period of three years after the close of the offering. For total consideration of $460,000, Units
representing 2,300,000 common shares and 1,150,000 3-year $0.50 warrants were issued. The warrants were classified as equity since
they have a fixed exercise price and do not have a provision for modification.





|9 | RELATED
    PARTY TRANSACTIONS
|- | ------------------------------



The
Company’s former chief executive officer has advanced the Company various amounts on a non-interest bearing basis,
which is being used for working capital. The advance has no fixed maturity. As of June 30, 2018, the outstanding balance due was
$389,502.



For
the six months ended June 30, 2018 and 2017, outsourced management services fees of $510,000 and $510,000 was paid
to Axia Management, LLC (Axia) as compensation for services provided and were commensurate with the level of effort required to
provide these services. These costs are included in Selling, general and administrative expenses in the Statement of Operations.
Axia is owned by the majority owner of the Company.



At
June 30, 2018 and December 31, 2017, the Company had trade payables to Axia of $31,754 and $55,400, respectively.



For
the six months ended June 30, 2018 and 2017, the Company purchased telecom services and access to wireless networks from 321 Communications
in the amount of $602,265 and $850,996, respectively. These costs are included in Cost of revenue in the
Statement of Operations. The majority owner of the Company is a minority owner of 321 Communications.



At
June 30, 2018 and December 31, 2017, the Company had trade payables to 321 Communications of $76,118 and $132,404, respectively.





14









The Company contracted
with CenterCom Global, S.A. de C.V. (“CenterCom Global”) to
provide customer service call center services, manage the sales process to include handling incoming orders, the collection and
verification of all documents to comply with FCC regulations, monthly audit of all subscribers to file the USAC 497 form, yearly
audit of all subscribers that have been active over one year to file the USAC 555 form (Recertification), information technology
professionals to maintain company websites, sales portals and server maintenance.
Billings for these services in the six months ended June 30, 2018 and 2017 were $1,095,651 and $110,000, respectively, and are
included in Cost of revenue in the Statement of Operations. A director, officer, and minority owner of the Company has
a controlling interest in CenterCom Global.



At
June 30, 2018 and December 31, 2017, the Company had trade payables to CenterCom Global of $175,000 and $150,000,
respectively.



See
Note 5 for long-term debt due to related parties.



|10 | COMMITMENTS
    AND CONTINGENCIES
|-- | ---------------------------------



On November 1, 2013, The
Federal Communications Commission (“FCC”) issued a Notice of Apparent Liability for Forfeiture to the
Company for requesting and/or receiving support for ineligible subscriber lines between the months of October 2012 and May 2013
and proposed a monetary forfeiture of $5,501,285. The Company has annual compliance audits with FCC approved audit firms that
have found no compliance deficiencies. Management believes the proposed monetary forfeiture is without merit and if anything should
result from this notice, the amount would not materially affect the financial position of the Company.



|11 | SEGMENT
    INFORMATION
|-- | -----------------------



The
Company evaluated performance of its operating segments based on revenue and operating profit (loss). Segment information for
the three and six months ended June 30, 2018 and 2017 and as of June 30, 2018 and December 31, 2017, are as follows:



|                                     |  | Surge |          |   | TW |   |            | Total | 
|------------------------------------ |  | ----- | -------- | - | -- | - | ---------- | ----- | 
|Three
    Months ended June 30, 2018 |  |       |          |   |    |   |            |       | 
|Revenue                              |  | $     | 735,214  |   |    | $ | 3,319,451  |       | 
|Cost
    of revenue                  |  |       | (615,008 | ) |    |   | (1,554,195 | )     | 
|Gross margin                         |  |       | 120,206  |   |    |   | 1,765,256  |       | 
|Costs
    and expenses               |  |       | (770,267 | ) |    |   | (1,307,385 | )     | 
|Operating income
    (loss)          |  |       | (650,061 | ) |    |   | 457,871    |       | 
|                                     |  |       |          |   |    |   |            |       | 
|Three
    Months ended June 30, 2017 |  |       |          |   |    |   |            |       | 
|Revenue                              |  | $     | -        |   |    | $ | 3,381,385  |       | 
|Cost
    of revenue                  |  |       | -        |   |    |   | (2,255,283 | )     | 
|Gross margin                         |  |       | -        |   |    |   | 1,126,202  |       | 
|Costs
    and expenses               |  |       | -        |   |    |   | (1,119,063 | )     | 
|Operating income                     |  |       | -        |   |    |   | 7,139      |       | 
|                                     |  |       |          |   |    |   |            |       | 
|Six
    Months Ended June 30, 2018   |  |       |          |   |    |   |            |       | 
|Revenue                              |  | $     | 735,214  |   |    | $ | 6,750,349  |       | 
|Cost
    of revenue                  |  |       | (615,008 | ) |    |   | (3,305,262 | )     | 
|Gross margin                         |  |       | 120,206  |   |    |   | 3,445,087  |       | 
|Costs
    and expenses               |  |       | (770,267 | ) |    |   | (2,578,697 | )     | 
|Operating income
    (loss)          |  |       | (650,061 | ) |    |   | 866,390    |       | 
|                                     |  |       |          |   |    |   |            |       | 
|Six
    Months Ended June 30, 2017   |  |       |          |   |    |   |            |       | 
|Revenue                              |  | $     | -        |   |    | $ | 6,466,608  |       | 
|Cost
    of revenue                  |  |       | -        |   |    |   | (4,138,230 | )     | 
|Gross margin                         |  |       | -        |   |    |   | 2,328,378  |       | 
|Costs
    and expenses               |  |       | -        |   |    |   | (2,492,109 | )     | 
|Operating loss                       |  |       | -        |   |    |   | (163,641   | )     | 





|June 30, 2018     |  |   |           |  |  |   |           |  |  |   |           | 
|----------------- |  | - | --------- |  |  | - | --------- |  |  | - | --------- | 
|Total
    assets  |  | $ | 1,495,759 |  |  | $ | 3,311,585 |  |  | $ | 4,807,344 | 
|Total liabilities |  |   | 6,000,339 |  |  |   | 3,131,936 |  |  |   | 9,132,275 | 
|                  |  |   |           |  |  |   |           |  |  |   |           | 
|December 31, 2017 |  |   |           |  |  |   |           |  |  |   |           | 
|Total assets      |  | $ | -         |  |  | $ | 1,176,094 |  |  | $ | 1,176,094 | 
|Total liabilities |  |   | -         |  |  |   | 3,076,838 |  |  |   | 3,076,838 | 





|12 | SUBSEQUENT
    EVENTS
|-- | ---------------------







In July 2018, the
Company issued an aggregate of 1,156,587 shares of Common Stock valued at $0.20 per share to nine parties in settlement of certain
disputes between TW and Benson Communications, S.A. de C.V. The settlement had been previously reached on September 29, 2017.



15







ITEM
2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



This
statement contains forward-looking statements within the meaning of the Securities Act. Discussions containing such forward-looking
statements may be found throughout this statement. Actual events or results may differ materially from those discussed in the
forward-looking statements as a result of various factors, including the matters set forth in this statement. The accompanying
consolidated financial statements as of June 30, 2018 and June 30, 2017 and for the three and six months then ended includes the
accounts of Holdings and its wholly owned subsidiaries during the period owned by Holdings.



COMPARISON
OF THREE MONTHS ENDED JUNE 30, 2018 AND 2017



Revenues
during the three months ended June 30, 2018 and 2017 consisted of the following:



|                 |  | 2018 |           |  | 2017 |  
|---------------- |  | ---- | --------- |  | ---- | -
|Revenue          |  | $    | 4,054,665 |  |      | $
|Cost of revenue  |  |      | 2,169,203 |  |      |  
|Gross
    profit |  | $    | 1,885,462 |  |      | $



Revenue
increased $673,180 (20%) primarily as a result of the merger between Surge Holdings, Inc. and True Wireless, Inc. while gross
profit increased $759,260 (67%) primarily as a result of re-negotiated supply contracts in True Wireless, Inc.



Costs
and expenses during the three months ended June 30, 2018 and 2017 consisted of the following:



|                                        |  | 2018 |           |  | 2017 |  
|--------------------------------------- |  | ---- | --------- |  | ---- | -
|Depreciation and amortization           |  | $    | 61,586    |  |      | $
|Selling, general
    and administration |  |      | 2,016,066 |  |      |  
|Total                                   |  | $    | 2,077,652 |  |      | $



Depreciation
and amortization increased $59,851 primarily as a result of the acquisition of cryptocurrency mining equipment.



Selling,
general and administrative costs (S,G & A) increased $898,738 (80%) primarily as a result of the merger between Surge Holdings,
Inc. and True Wireless, Inc. The S,G & A expenses of the Surge companies represent $709,058 of the expenses that are not included
in the 2017 expenses.



Selling,
general and administrative expenses during the three months ended June 30, 2018 and 2017 consisted of the following:



|                              |  | 2018 |           |  | 2017 |  
|----------------------------- |  | ---- | --------- |  | ---- | -
|Telecom operations center     |  | $    | 476,237   |  |      | $
|Contractors and consultants   |  |      | 464,000   |  |      |  
|Compensation                  |  |      | 191,005   |  |      |  
|Webhosting/internet           |  |      | 125,652   |  |      |  
|Professional services         |  |      | 483,018   |  |      |  
|Other                         |  |      | 194,498   |  |      |  
|Advertising and
    marketing |  |      | 81,656    |  |      |  
|Total                         |  | $    | 2,016,066 |  |      | $



16









Total selling, general and administrative
expense (S,G & A) increased $898,738 from $1,117,328 in 2017 to $2,016,066 in 2018. The detail changes are discussed
below:





|* | Telecom
    operations center expenses increased from $110,000 in 2017 to $476,237 in 2018. In 2017 True Wireless, Inc. was in the process
    of contracting with a new vendor as their previous vendor ceased operations.                                                                        
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Contractors
    and consultants increased to $464,000 in 2018 from $173,590 in 2017. The 2018 period included $166,400 in consultants that
    were paid with common stock and based on the valuations of the stock resulted in a higher expense than if the Company had
    been able to pay cash.
|* | Compensation
    increased from $87,109 in 2017 to $191,005 in 2018.                                                                                                                                                                                                                               
|* | Webhosting/internet
    costs increased to $125,652 in 2018 from $77,228 in 2017                                                                                                                                                                                                                   
|* | Professional
    services increased from $378,351 in 2017 to $483,018 in 2018 primarily due to professional fees associated with the
    merger between Surge Holdings, Inc. and True Wireless, Inc.                                                                                               
|* | Other
    costs increased to $194,498 in 2018 from $154,076 in 2017 primarily due to the merger between Surge Holdings, Inc. and True
    Wireless, Inc.                                                                                                                                           
|* | Advertising
    and marketing costs decreased to $81,656 in 2018 from $136,974 in 2017.                                                                                                                                                                                                            



Other
expense (income) during the three months ended June 30, 2018 and 2017 consisted of the following:



|                                               |  | 2018 |         |   | 2017 |  
|---------------------------------------------- |  | ---- | ------- | - | ---- | -
|Interest expense                               |  | $    | 79,892  |   |      | $
|Change in fair value of derivative liability   |  |      | (2,619  | ) |      |  
|Change in fair
    value of LTC cryptocurrency |  |      | 50,906  |   |      |  
|                                               |  | $    | 128,179 |   |      | $



Interest
expense increased to $79,892 in 2018 from $5,541 in 2017 primarily due to consolidating the debt in Surge Holdings, Inc. after
the merger between Surge Holdings, Inc. and True Wireless, Inc.



The
change in fair value of LTC cryptocurrency increased to $50,906 in 2018 due to the decrease in the market value of LTC cryptocurrency.



COMPARISON
OF SIX MONTHS ENDED JUNE 30, 2018 AND 2017



Revenues
during the six months ended June 30, 2018 and 2017 consisted of the following:



|                 |  | 2018 |           |  | 2017 |  
|---------------- |  | ---- | --------- |  | ---- | -
|Revenue          |  | $    | 7,485,563 |  |      | $
|Cost of revenue  |  |      | 3,920,270 |  |      |  
|Gross
    profit |  | $    | 3,565,293 |  |      | $



Revenue
increased $1,018,955 (16%) primarily as a result of the merger between Surge Holdings, Inc. and True Wireless, Inc. while gross
profit increased $1,236,915 (53%) primarily as a result of re-negotiated supply contracts in True Wireless, Inc.



Costs
and expenses during the six months ended June 30, 2018 and 2017 consisted of the following:



|                                        |  | 2018 |           |  | 2017 |  
|--------------------------------------- |  | ---- | --------- |  | ---- | -
|Depreciation and amortization           |  | $    | 62,813    |  |      | $
|Selling, general
    and administration |  |      | 3,286,151 |  |      |  
|Total                                   |  | $    | 3,348,964 |  |      | $



17









Depreciation
and amortization increased $59,343 primarily as a result of the acquisition of cryptocurrency mining equipment.



Selling,
general and administrative costs (S, G & A) increased $797,602 (32%) primarily as a result of the merger between Surge Holdings,
Inc. and True Wireless, Inc. The S, G & A expenses of the Surge companies represent $709,058 of the expenses that are not
included in the 2017 expenses.



Selling,
general and administrative expenses during the six months ended June 30, 2018 and 2017 consisted of the following:





|                              |  | 2018 |           |  | 2017 |  
|----------------------------- |  | ---- | --------- |  | ---- | -
|Telecom operations center     |  | $    | 926,237   |  |      | $
|Contractors and consultants   |  |      | 595,798   |  |      |  
|Compensation                  |  |      | 244,988   |  |      |  
|Webhosting/internet           |  |      | 207,015   |  |      |  
|Professional services         |  |      | 879,925   |  |      |  
|Other                         |  |      | 327,202   |  |      |  
|Advertising and
    marketing |  |      | 104,986   |  |      |  
|Total                         |  | $    | 3,286,151 |  |      | $



Total selling, general and administrative
expense (S,G & A) increased $797,602 from $2,488,549 in 2017 to $3,286,151 in 2018. The detail changes
are discussed below:









|* | Telecom operations
    center expenses increased from $462,449 in 2017 to $926,237 in 2018. In 2017 True Wireless, Inc. was in the process of contracting
    with a new vendor as their previous vendor ceased operations.                                                                        
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Contractors and
    consultants increased to $595,798 in 2018 from $339,710 in 2017. The 2018 period included $166,400 in consultants that were
    paid with common stock and based on the valuations of the stock resulted in a higher expense than if the Company had been
    able to pay cash.
|* | Compensation increased
    from $181,452 in 2017 to $244,988 in 2018.                                                                                                                                                                                                                              
|* | Webhosting/internet
    costs increased to $207,015 in 2018 from $159,631 in 2017                                                                                                                                                                                                                  
|* | Professional services
    increased from $742,615 in 2017 to $879,925 in 2018 primarily due to professional fees associated with the merger between
    Surge Holdings, Inc. and True Wireless, Inc.                                                                                               
|* | Other costs decreased
    to $327,202 in 2018 from $337,518 in 2017.                                                                                                                                                                                                                               
|* | Advertising and
    marketing costs decreased to $104,986 in 2018 from $265,174 in 2017 primarily to the Company re-evaluating all advertising
    and marketing campaigns.                                                                                                                        







Other
expense (income) during the six months ended June 30, 2018 and 2017 consisted of the following:



|                                               |  | 2018 |         |   | 2017 |  
|---------------------------------------------- |  | ---- | ------- | - | ---- | -
|Interest expense                               |  | $    | 87,409  |   |      | $
|Change in fair value of derivative liability   |  |      | (2,619  | ) |      |  
|Change in fair
    value of LTC cryptocurrency |  |      | 50,906  |   |      |  
|                                               |  | $    | 135,696 |   |      | $



Interest
expense increased to $87,409 in 2018 from $5,541 in 2017 primarily due to consolidating the debt in Surge Holdings, Inc. after
the merger between Surge Holdings, Inc. and True Wireless, Inc.



The
change in fair value of LTC cryptocurrency increased to $50,906 in 2018 due to the decrease in the market value of LTC cryptocurrency.



18









LIQUIDITY,
CAPITAL RESOURCES AND GOING CONCERN



At June 30, 2018 and December
31, 2017, our current assets were $3,230,586 and $2,989,419, respectively, and our current liabilities were $8,198,439 and $2,810,528,
respectively, which resulted in a working capital deficit of $4,967,853 and a working capital surplus of $178,891, respectively.



Total
assets at June 30, 2018 and December 31, 2017 amounted to $4,807,344 and $3,076,838, respectively. At June 30, 2018, assets consisted
of current assets of $3,230,586, net property and equipment of $564,924, net intangible assets of $83,595, goodwill of $866,782
and other long-term assets of $61,457, as compared to current assets of $2,989.419, net property and equipment of $25.962 and
other long-term assets of $61,457 at December 31, 2017.



At
June 30, 2018, our total liabilities of $9,132,275 increased $5,438,197 from $3,694,078 at December 31, 2017.



At June 30, 2018, our
stockholders’ deficit was $4,324,931 as compared to $617,240 at December 31, 2017. The principal reason for the increase
in stockholders’ deficit was the impact of the merger with True Wireless.





The
following table sets forth the major sources and uses of cash for the three months ended June 30, 2018 and 2017.



|                                                         |  | 2018 |          |   | 2017 |  
|-------------------------------------------------------- |  | ---- | -------- | - | ---- | -
|                                                         |  |      |          |   |      |  
|Net
    cash provided by operating activities            |  | $    | 435,285  |   |      | $
|Net cash used in
    investing activities                |  |      | 243,768  |   |      |  
|Net cash provided
    by (used by) financing activities  |  |      | (326,687 | ) |      |  
|Net increase (decrease)
    in cash and cash equivalents |  | $    | 352,366  |   |      | $





At
June 30, 2018, the Company had the following material commitments and contingencies.



Notes
payable and long-term debt- See Note 7 to the Consolidated Financial Statements.



Advances
from related party- See Note 6 to the Consolidated Financial Statements to the Consolidated Financial Statements.



Cash
requirements and capital expenditures– The Company did not have any purchases of capital expenditures during
the three months ended June 30, 2018. At the current level of operations, the Company has to borrow funds to meet basic operating
costs. The Company plans to use debt and equity financing to meet the cash requirements of the TW acquisition.



Known
trends and uncertainties– The Company is planning to acquire other businesses that are similar to its operations. The
uncertainty of the economy may increase the difficulty of raising funds to support the planned business expansion.



Going
Concern– The Company has not established sources of revenues sufficient to fund the development of its business, or
to pay projected operating expenses and commitments for the next year. The Company had a working capital deficit of $4,967,853,
an accumulated deficit of $856,585 at June 30, 2018 and incurred a loss for the past two years. These factors, among others,
create an uncertainty about our ability to continue as a going concern. The Company projects that it should be cash flow positive
by the end of fiscal year 2018 from ongoing operations by the combination of increased cash flow from its current subsidiaries,
as well as lowering our current debt burden and completing the acquisition of TW. Currently, the Company is negotiating with several
institutional investors for equity investment which will be used to pay down existing debt obligations and cover any operational
shortfalls in the short term. The Company’s ability to continue as a going concern is dependent on the success of this plan.





19









The
Company’s financial statements have been presented on the basis that it continues as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the normal course of business, and do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.



OFF-BALANCE
SHEET ARRANGEMENTS



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



CRITICAL
ACCOUNTING ESTIMATES



Our
significant accounting policies are described in Note 2 of the Consolidated Financial Statements. During the period ending June
30, 2018, we were not required to make any material estimates and assumptions that affect the reported amounts and related disclosures
of assets, liabilities, revenue and expenses. However, if we complete an acquisition, we will be required to make estimates and
assumptions typical of other companies. For example, we will be required to make critical accounting estimates related to valuation
and accounting for business combinations. The estimates will require us to rely upon assumptions that were highly uncertain at
the time the accounting estimates are made, and changes in them are reasonably likely to occur from period to period. Changes
in estimates used in these and other items could have a material impact on our financial statements in the future. Our estimates
will be based on our experience and our interpretation of economic, political, regulatory, and other factors that affect our business
prospects. Actual results may differ significantly from our estimates.



ITEM
3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Not
applicable.



ITEM
4: CONTROLS AND PROCEDURES



Evaluation
of disclosure controls and procedures



Under
the PCAOB standards, a control deficiency exists when the design or operation of a control does not allow management or employees,
in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant
deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe
than a material weakness, yet important enough to merit the attention by those responsible for oversight of the company’s
financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements
will not be prevented or detected on a timely basis.



Under
the supervision and with the participation of our management, including our principal executive officer and principal financial
officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and
Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of June 30, 2018. Our management
has determined that, as of June 30, 2018, the Company’s disclosure controls and procedures are not effective due to a lack
of segregation of duties, lack of an audit committee, and lack of documented controls. The Company has undergone a complete change
of management and is in process of developing the necessary controls and procedures.



Changes
in internal control over financial reporting



The
Company’s principal executive officer and principal financial officer determined that the Company’s disclosure controls
and procedures were not effective due to a lack of segregation of duties, lack of an audit committee and lack of documented controls.
There have been no other significant changes in internal controls or in other factors that could significantly affect these controls
during the quarter ended June 30, 2018, including any corrective actions with regard to significant deficiencies and material
weaknesses.



20







PART
II - OTHER INFORMATION



ITEM
1: LEGAL PROCEEDINGS



Claims
by American Express Bank FSB:



On
or about August 26, 2016 American Express Bank FSB (“American Express”) filed a civil complaint against DIQ and Scott
Kaplan (an employee of the Company) in the District Court for Clark County, Nevada for approximately $336,726 due on a credit
card issued to DIQ, which was allegedly guaranteed by Scott Kaplan, the vice president of business development for KSIX, LLC.
This action was subsequently dismissed on July 19, 2017. While the Company was not a party to this action, ostensibly there could
be an obligation on the part of the Company to indemnify Mr. Kaplan on this matter. As of this date, no claim for indemnification
has been made against the Company and the Company seeks to resolve any issues relating to this matter on an amicable basis without
incurring any liability. Failure to resolve this matter could potentially have a material adverse effect on the Company and its
business. There is no guarantee that this matter can be resolved on any basis which is favorable to the Company.



West
Publishing v DigitizeIQ LLC.



On
or about September 28, 2017 West Publishing Corporation (“West Publishing”) filed a civil action in the Superior Court
of the State of California County of San Diego, Central Division (Case# 37-201700034215-CU-CL-CTL) for breach of contract and
open book account against the Company’s subsidiary DIQ. West Publishing claims an open account of $435,700 against DIQ from
an account originating in 2014 wherein DIQ provided lead-generation services for West Publishing. The Company has retained counsel
and will vigorously defend this action. The Company contends that the open book account claimed by West Publishing is an accounting
error and that, in fact, West Publishing owes DIQ for verified lead generation services during the relevant period. This matter
is still pending as of the date of this Report and the outcome cannot be predicted. There is no guarantee that this matter can
be resolved on any basis which is favorable to the Company.



ITEM
1A: RISK FACTORS



Not
applicable.



ITEM
2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



During
the six months ended June 30, 2018, the Company sold 2,300,000 shares of its common stock for $460,000 in cash.



On
April 13, 2018, the Company issued 152,555,416 shares of Common Stock and 3,000,000 shares of Preferred Stock as consideration
for the True Wireless, Inc. merger.



On April 25, 2018, the
Company issued an aggregate of 480,000 shares of Common Stock to two consultants valued at $0.27 per share.



In
July 2018, the Company issued an aggregate of 1,156,587 shares of Common Stock valued at $0.20 per share to nine parties in
settlement of certain disputes between True Wireless, LLC and Benson Communications, S.A. de C.V. The settlement had been previously
reached on September 29, 2017.



These
shares were sold pursuant to an exemption from registration under Section 4(2) promulgated under the Securities Act of 1933, as
amended.





21









ITEM
3: DEFAULTS UPON SENIOR SECURITIES.



None



ITEM
4: MINE SAFETY DISCLOSURES.



Not
applicable



ITEM
5: OTHER INFORMATION.



None



ITEM
6: EXHIBITS



|Exhibit
    31.1 |  | Certification
    pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer*
|---------------- |  | -----------------------------------------------------------------------------------------------------------------------------
|Exhibit
    31.2 |  | Certification
    pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer*
|Exhibit
    32.1 |  | Certification
    pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer*
|Exhibit
    32.2 |  | Certification
    pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer*
|101.INS          |  | XBRL
    Instance Document**                                                                                                 
|101.SCH          |  | XBRL
    Taxonomy Extension Schema Document**                                                                                
|101.CAL          |  | XBRL
    Taxonomy Extension Calculation Linkbase Document**                                                                  
|101.DEF          |  | XBRL
    Taxonomy Extension Definition Linkbase Document**                                                                   
|101.LAB          |  | XBRL
    Taxonomy Extension Label Linkbase Document**                                                                        
|101.PRE          |  | XBRL
    Taxonomy Extension Presentation Linkbase Document**                                                                 



*Filed
herewith.



**In
accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 in this Quarterly Report on
Form 10-Q shall be deemed “furnished” and not “filed”.



22









SIGNATURE



Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.



|                          | SURGE
    HOLDINGS, INC.
|------------------------- | ------------------------
|                          |                         
|Date:
    August 14, 2018 |                         
|                          |                         
|                          | By:                     
|                          |                         
|                          |                         



23