10-Q: SurgePays Faces Liquidity Crisis Amid Revenue Decline

SurgePays reports a significant revenue drop and worsening liquidity, shifting to a stockholders' deficit, primarily due to the cessation of the Affordable Connectivity Program.

Summary

• Total revenues decreased by $10,508,618 (20.5%) to $40,775,913 for the nine months ended September 30, 2025, compared to $51,284,531 in the prior year.
• The Mobile Virtual Network Operators (MVNO) segment revenue plummeted by $31,299,052 (75.6%) to $10,120,653, largely due to the end of the Affordable Connectivity Program (ACP).
• Point-of-Sale and Prepaid Services revenue increased significantly by $20,801,763 (211.1%) to $30,655,260 for the nine months ended September 30, 2025.
• The company reported a net loss of $(22,206,750) for the nine months ended September 30, 2025, an improvement from $(25,916,517) in the prior year.
• Net cash used in operating activities increased to $(17,728,805) for the nine months ended September 30, 2025, from $(13,412,714) in the prior year.
• The company's financial position shifted from a stockholders' equity of $15,261,613 at December 31, 2024, to a stockholders' deficit of $(6,424,480) at September 30, 2025.
• Working capital deficit worsened from $(1,751,392) at December 31, 2024, to $(8,446,750) at September 30, 2025.
• Total liabilities increased by $12,204,873 to $20,919,381 at September 30, 2025, from $8,714,392 at December 31, 2024.
• Cash and cash equivalents stood at $2,514,862 at September 30, 2025, down from $11,790,389 at December 31, 2024.
• The company discontinued its lead generation segment operations effective December 31, 2024, as part of a strategic reassessment.
• Payments on a related party note with the CEO, Kevin Brian Cox, totaling $2,730,796, were temporarily suspended starting July 2025 due to cash flow shortfalls.

Sentiment

Score: 3

Explanation: The company faces severe liquidity challenges, evidenced by a substantial working capital deficit, a shift to a stockholders' deficit, and a statement that it lacks sufficient cash for the next 12 months. While the Point-of-Sale segment shows growth, it's overshadowed by a massive decline in the MVNO segment due to the ACP program's cessation, leading to a significant overall revenue drop and worsening gross margins. The reliance on multiple new debt instruments, including convertible notes, and an ATM offering, coupled with the suspension of related party debt payments, signals distress. These factors collectively point to a highly precarious financial position and a very high-risk investment.

Positives

• Net loss available to common stockholders improved by $3,709,767 for the nine months ended September 30, 2025, compared to the same period in 2024.
• Point-of-Sale and Prepaid Services segment revenue grew by 211.1% for the nine months ended September 30, 2025, driven by increased sales force and renewed focus.
• Successfully transitioned over 80,000 ACP subscribers to the Lifeline program in 2024, mitigating some impact from the ACP cessation.
• Launched the HERO platform, a full-stack Mobile Virtual Network Enabler (MVNE) system, expanding wireless services with minimal incremental cost.
• Initiated the launch of LinkUp Mobile SIM cards into the national retail market and a 'phone in a box' program, with thousands of phones already purchased by convenience stores.
• ClearLine platform launched a comprehensive code management campaign, providing services to over 1,600 convenience stores.
• General and administrative expenses decreased by $6,973,781 (35.9%) for the nine months ended September 30, 2025, primarily due to reduced advisory services and non-cash stock compensation.

Negatives

• Overall revenue decreased by 20.5% for the nine months ended September 30, 2025, primarily due to the cessation of the Affordable Connectivity Program (ACP).
• MVNO segment revenue decreased by 75.6% for the nine months ended September 30, 2025, directly linked to the end of ACP funding.
• The company shifted from a stockholders' equity of $15,261,613 at December 31, 2024, to a stockholders' deficit of $(6,424,480) at September 30, 2025.
• Working capital deficit worsened from $(1,751,392) at December 31, 2024, to $(8,446,750) at September 30, 2025.
• Total liabilities increased significantly by $12,204,873 to $20,919,381 at September 30, 2025.
• Net cash used in operating activities increased by $4,316,091, indicating higher cash burn.
• MVNO gross margin significantly worsened from -8.2% in 2024 to -75.5% in 2025 for the nine-month period.
• Point-of-Sale and Prepaid Services gross margin turned negative from 3.1% in 2024 to -1.8% in 2025 for the nine-month period.
• The company temporarily suspended monthly payments on a related party note (with CEO Kevin Brian Cox) starting July 2025 due to current cash flow shortfalls.
• The company believes it does not have sufficient cash resources to meet its current obligations for more than one year from the issuance date of the financial statements.

Risks

• Revenues from the Mobile Virtual Network Operator (MVNO) segment are 100% derived from programs administered by the Federal Communications Commission (FCC), making them subject to administrative rulings, statutory changes, and funding restrictions.
• The company operates in an industry subject to intense competition and changes in consumer demand, leading to potential variability in sales and earnings.
• Significant financial and operational risks exist, including the potential risk of business failure, as the company has historically incurred significant losses and has not demonstrated an ability to generate sufficient revenues to achieve profitable operations.
• The cessation of the Affordable Connectivity Program (ACP) on June 1, 2024, has already had a material negative impact on MVNO revenues and could continue to affect future operations.
• The company's ability to fund expected growth and ongoing expenses for the next twelve months is uncertain without additional funding.
• Ongoing legal proceedings, including a breach of Stock Purchase Agreement and promissory note litigation with Blue Skies Connections, LLC and True Wireless, Inc., could result in unfavorable outcomes.
• Management has identified a lack of segregation of duties in internal control over financial reporting, which is a significant deficiency.
• The company's significant accumulated deficit of $83,122,177 at September 30, 2025, indicates substantial historical losses.

Future Outlook

Management plans to enhance market visibility for Linkup Mobile, diversify Lifeline revenue streams by expanding into California and other states, sustain platform growth, and investigate specialized marketing strategies through Clearline. The company expects the Point-of-Sale and Prepaid Services segment to continue growing and anticipates gross margins in both MVNO and Point-of-Sale segments to improve and return to positive results by the end of 2025. The MVNE solution is expected to become a major contributor to rapid growth in subscriber activation. The company intends to use its At the Market Offering agreement to fund working capital needs and is exploring strategic acquisition opportunities.

Management Comments

• "Managements strategic plans include enhancing market visibility and customer reach for SurgePays direct mobile virtual network operator (MVNO), linkup Mobile, diversify Lifeline revenue streams by expanding into California and other states, sustain platform growth to bolster baseline revenue and investigate specialized marketing strategies and customer engagement initiatives through our Clearline product offering."
• "The Company believes it does not have sufficient cash resources on hand to meet its current obligations for a period that is more than one year from the issuance date of these financial statements."
• "We expect this initiative will strengthen recurring revenue opportunities by improving customer acquisition efficiency and enabling data-driven cross sell programs across the Companys distribution network." (Regarding Growth Marketing and Data Partnerships Division)
• "We expect to continue the improvement of gross margin in the Point-of-Sale and Prepaid Services segment during 2025."
• "Most of the cost to get Clearline ready for launch has occurred and we expect the gross margin to be positive by the end of 2025 for this revenue channel."
• "As we continue to expand both subsidized (Lifeline) and non-subsidized products (LinkUp Mobile) of the MNVO segment in 2025, we also anticipate gross margins in the MVNO segment will increase with an aim to return to positive results."
• "We expect to use additional funding and any profitability to satisfy any cash needs going forward."
• "We are currently exploring various strategic opportunities; however, we have no commitments at this time and no known timing as to when any transaction may occur. We will only pursue options that we believe are in the best interest of, and on the best terms for, the Company."

Industry Context

The company's financial performance is significantly impacted by the cessation of the Affordable Connectivity Program (ACP) on June 1, 2024, which was a major government subsidy for wireless services. This industry-wide change has forced the company to pivot its MVNO strategy, focusing on the Lifeline program and expanding into high-subsidy states like California. The company is also leveraging its MVNE platform to adapt to the evolving telecommunications landscape and maintain its focus on underserved and value-conscious communities.

Corporate Governance

Legal Proceedings

• Juno Financial v. AATAC and Surge Holdings Inc. and Surge Holdings Inc. v. AATAC (Circuit Court of Hillsborough County, Florida, Case # 20-CA-2712 DIV A): Breach of Contract, Account Stated and Open Account claims. The case was dismissed with the agreement of the parties on September 12, 2024.
• Blue Skies Connections, LLC, and True Wireless, Inc. v. SurgePays, Inc., et. al. (District Court of Oklahoma County, OK, CJ-2021-5327): Allegations of breach of a Stock Purchase Agreement, tortious interference, and fraud. The Oklahoma Supreme Court denied Plaintiffs' Petition for Certiorari on March 10, 2025. The case will now proceed in the district court on the parties' remaining claims, with motions for summary judgment to be decided in Fall 2025.
• SurgePays, Inc. v. Blue Skies Connections, LLC (District Court of Oklahoma County, Oklahoma, Case No. CJ-2025-810): Complaint for breach of a promissory note by Blue Skies Connections, LLC, re-filed in Oklahoma after being dismissed without prejudice in Tennessee. The matter is in the early stages of discovery.

Related Party Transactions

• Annual rental agreement with Carddawg Investments, Inc. (an affiliate of CEO Kevin Brian Cox) for $124,767 for the nine months ended September 30, 2025, and 2024.
• Notes payable to Kevin Brian Cox (CEO and Board Member) totaling $2,730,796 at September 30, 2025. Payments were temporarily suspended starting July 2025 due to cash flow shortfalls.
• Stock compensation expense related to unvested shares for the CEO and CFO is recognized over their respective vesting periods.

Stakeholder Impact

• Shareholders: Face significant dilution risk from ongoing convertible debt issuances and the At the Market Offering. The shift to a stockholders' deficit and worsening liquidity could negatively impact share value.
• Creditors: Increased total liabilities and the temporary suspension of related party debt payments indicate higher credit risk, particularly for unsecured lenders.
• Employees/Management: The CEO's annual bonus was delayed, and related party note payments were suspended, reflecting the company's financial strain. Stock-based compensation remains a significant component of executive remuneration.
• Customers: The company's strategic pivot to expand Lifeline and LinkUp Mobile services aims to continue providing essential digital services to underserved and value-conscious communities, potentially benefiting this customer base.

Next Steps

• Evaluate options to restructure or resume payments on the related party note with CEO Kevin Brian Cox.
• Continue to enhance market visibility and customer reach for Linkup Mobile.
• Expand Lifeline revenue streams by entering California and other states.
• Sustain platform growth to bolster baseline revenue.
• Investigate specialized marketing strategies and customer engagement initiatives through Clearline.
• Continue to expand both subsidized (Lifeline) and non-subsidized products (LinkUp Mobile) of the MVNO segment to increase gross margins.
• Continue to improve gross margin in the Point-of-Sale and Prepaid Services segment, aiming for positive results by the end of 2025.
• Selectively use the At the Market Offering agreement to fund working capital needs.
• Explore potential strategic opportunities to acquire other businesses.
• Proceed with remaining claims in the Blue Skies Connections, LLC, and True Wireless, Inc. litigation in district court, with motions for summary judgment to be decided in Fall 2025.
• Continue discovery in the re-filed promissory note breach case against Blue Skies Connections, LLC (Case No. CJ-2025-810).
• CEO's annual bonus for the nine months ended September 30, 2025, is expected to be paid by December 31, 2025.
• Additional 500,000 share awards for the CEO are expected to be approved and granted on or around June 1 of 2026, 2027, and 2028.
• A national campaign for Shortcode, integrating dynamic content into posts, pages, and widgets, is scheduled to launch in July (presumably July 2026).

Key Dates

Recommendation

The company's financial health has significantly deteriorated, marked by a substantial revenue decline, a shift to a stockholders' deficit, and a worsening working capital deficit. The cessation of the ACP program has severely impacted its core MVNO business, and while the Point-of-Sale segment shows growth, it is insufficient to offset the overall losses and cash burn. The heavy reliance on new, often convertible, debt financing and the suspension of related party debt payments signal acute liquidity distress. The ongoing legal challenges and identified internal control deficiencies further compound the risk. Given these severe financial and operational challenges, the stock presents a very high-risk investment with significant downside potential.

Keywords

Telecommunications, Fintech, MVNO, Mobile Virtual Network Operator, Lifeline Program, Affordable Connectivity Program, Point-of-Sale, Prepaid Services, Wireless Connectivity, SEC Filing, Quarterly Report, SURG, Liquidity, Convertible Notes, Capital Raise