10-Q: SurgePays Q2 Loss Widens Amid ACP Program End

SurgePays, Inc. reports a significant increase in net loss and substantial cash burn in Q2 2025, driven by the cessation of the Affordable Connectivity Program, despite growth in its Point-of-Sale segment.

Summary

• Net loss available to common stockholders for the six months ended June 30, 2025, was $14,717,682, compared to $11,641,170 for the same period in 2024.
• Total revenues decreased by 52.5% to $22,095,596 for the six months ended June 30, 2025, from $46,514,834 in the prior year period.
• Mobile Virtual Network Operator (MVNO) segment revenues decreased by 89.0% to $4,559,530 for the six months ended June 30, 2025, primarily due to the end of the Affordable Connectivity Program (ACP).
• Point-of-Sale and Prepaid Services revenues increased by 243.3% to $17,536,066 for the six months ended June 30, 2025, driven by increased sales force and renewed focus.
• Net cash used in operations for the six months ended June 30, 2025, was $13,082,419.
• The company had cash and cash equivalents of $4,404,449 at June 30, 2025, down from $11,790,389 at December 31, 2024.
• Working capital decreased significantly to $992,313 at June 30, 2025, from $11,810,847 at December 31, 2024.
• A Senior Secured Convertible Note of $6,999,999 was issued on May 12, 2025, resulting in net cash proceeds of $6,000,000.
• The company repurchased 333,333 shares of common stock for $999,999 ($3/share) in connection with the convertible debt financing.
• The lead generation segment operations were abandoned effective December 31, 2024, as it was deemed immaterial and not aligned with long-term strategic objectives.

Sentiment

Score: 2

Explanation: The sentiment is overwhelmingly negative due to significant financial deterioration, including a widening net loss, substantial revenue decline, negative gross profit, and high cash burn. The explicit 'going concern' warning is a critical red flag, outweighing the positive growth in one segment and new strategic initiatives. The need for ongoing capital raises further underscores financial distress.

Positives

• Point-of-Sale and Prepaid Services segment revenues increased significantly by 243.3% to $17,536,066 for the six months ended June 30, 2025, indicating successful growth initiatives in this area.
• The company launched its HERO platform in late 2024, a full-stack Mobile Virtual Network Enabler (MVNE) system, creating a new high-margin, scalable revenue channel.
• Two MVNO clients have already embraced the MVNE offering, with more anticipated to join, positioning the company for additional rapid growth.
• ClearLine, the patent-pending SaaS application, has launched a comprehensive code management campaign providing services to over 1,600 convenience stores.
• The company successfully transitioned over 80,000 ACP subscribers to the Lifeline program during 2024, mitigating some impact from the ACP cessation.

Negatives

• Net loss available to common stockholders increased to $14,717,682 for the six months ended June 30, 2025, from $11,641,170 in the prior year period.
• Total revenues decreased substantially by 52.5% to $22,095,596 for the six months ended June 30, 2025, primarily due to the end of the Affordable Connectivity Program (ACP).
• The MVNO segment, historically a major revenue contributor, saw an 89.0% decrease in revenue for the six months ended June 30, 2025.
• Gross profit for the six months ended June 30, 2025, was a loss of $5,597,011, compared to a profit of $4,739,591 in the prior year period.
• Net cash used in operating activities was $13,082,419 for the six months ended June 30, 2025, indicating significant cash burn.
• Cash and cash equivalents decreased by $7,385,940 from December 31, 2024, to June 30, 2025.
• Working capital decreased significantly from $11,810,847 at December 31, 2024, to $992,313 at June 30, 2025.
• The company has an accumulated deficit of $75,633,109 at June 30, 2025.
• The company believes it lacks sufficient cash resources to meet its current obligations for more than one year from the issuance date of the financial statements, raising substantial doubt about its ability to continue as a going concern.
• The company suspended monthly payments on a related party note until further notice.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern due to significant losses and insufficient cash resources to meet obligations for the next twelve months.
• The cessation of the Affordable Connectivity Program (ACP) on June 1, 2024, significantly impacted MVNO segment revenues, which were 100% derived from FCC-administered programs.
• The company operates in an industry subject to intense competition and changes in consumer demand, leading to potential variability in sales and earnings.
• Operations are subject to financial and operational risks, including the potential risk of business failure.
• The company's ability to achieve profitable operations on a continuing basis is not assured.
• The company's investment in CenterCom Global was impaired due to a change in ownership and large reduction in human capital, leading to a $498,273 impairment loss in 2024.
• Ongoing legal proceedings, including a breach of contract claim related to the sale of True Wireless and a lawsuit against a former officer, could result in unfavorable outcomes.
• The company lacks segregation of duties, which is a control deficiency in internal control over financial reporting.

Future Outlook

Management's strategic plans include enhancing market visibility for SurgePays' direct MVNO (Linkup Mobile), diversifying Lifeline revenue streams by expanding into California and other states, sustaining platform growth to bolster baseline revenue, and investigating specialized marketing strategies and customer engagement initiatives through the Clearline product offering. The company anticipates the MVNE platform will become a major contributor to high-margin, recurring revenue with multiple MVNOs onboarding in 2025. They expect the Point-of-Sale and Prepaid Services segment to continue to grow for the remainder of 2025 and aim for positive gross margin by the end of 2025 for the Clearline channel. The company also anticipates gross margins in the MVNO segment will increase with an aim to return to positive results as they expand subsidized and non-subsidized products in 2025. They believe current cash sources will be sufficient until Q4 2025, at which point they expect to return to profitability and generate enough cash flow for ongoing operations.

Management Comments

• "The Company believes it lacks 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 consolidated financial statements. These factors create substantial doubt about the Company’s ability to continue as a going concern within the twelve month period subsequent to the date that these consolidated financial statements are issued."
• "We plan to utilize the ATM Agreement when appropriate to fund our working capital needs on an ongoing basis."
• "We believe these cash sources will be sufficient to get the Company to the fourth quarter of 2025, at which time we expect to return to profitability and generate enough cash flow to fund on-going operations."
• "We have begun the launch of LinkUp Mobile SIM (subscriber identity module) cards into the national retail market. LinkUp Mobile has also launched its phone in a box program. Thousands of phones have already been purchased by convenience stores, which we believe is a positive sign for our future capabilities."
• "Torch Wireless, supported by the Lifeline program, is now actively expanding its subscriber base in the state of California. This development is noteworthy for the growth of the Torch offering, as California provides an additional revenue incentive for its subscribers and has a large potential subscriber base."
• "The wholesale MVNE (Mobile Virtual Network Enabler) leveraging technology and industry expertise has allowed us to expand services as a Mobile Network Enabler. Leveraging our direct carrier relationship, we offer billing, provisioning, SIM cards, and services to wireless companies lacking direct carrier access. Two such companies have already embraced this offering, and we anticipate more to join in the near future."
• "We believe the MVNE solution will continue to uniquely position us for additional rapid growth into the subscriber activation channel by enabling other wireless companies who lack a direct carrier relationship."
• "Clear-line has launched a comprehensive code management campaign, providing services to over 1,600 convenience stores. In addition to this new business venture, Shortcode, the ability to dynamic content and features into posts, pages and widgets, has been provisioned with all carriers in preparation for a national campaign scheduled to launch in July."
• "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 telecommunications industry, particularly segments reliant on government subsidies like the Affordable Connectivity Program (ACP), faces significant regulatory and funding risks. The cessation of the ACP on June 1, 2024, directly impacted SurgePays' MVNO segment, leading to a substantial revenue decline. This highlights the vulnerability of businesses heavily dependent on such programs. Conversely, the growth in the Point-of-Sale and Prepaid Services segment, along with the launch of the MVNE platform, indicates a strategic pivot towards diversified revenue streams and leveraging existing infrastructure for new market opportunities, aligning with broader trends of fintech integration and white-label service provision in the telecom space.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results to assess performance against global benchmarks. Therefore, a direct comparison to industry standards is not possible based solely on the provided information.

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 related to the sale of True Wireless. The Oklahoma Supreme Court denied the Plaintiffs' petition for certiorari on March 10, 2025, and the case will proceed in the district court on remaining claims, with summary judgment motions to be decided in Fall 2025.
• SurgePays, Inc. v. Blue Skies Connections, LLC (District Court of Oklahoma County, Oklahoma, Case No. CJ-2025-810): Re-filed complaint by SurgePays for breach of a promissory note dated June 14, 2021, for $176,850.56, due to Blue Skies Connections' failure to make payments. The matter is in the early stages of discovery.
• SurgePays, Inc. et al. v. Fina et al. (District Court of Oklahoma County, Oklahoma, Case No. CJ-2022-2782): Claims against former officer Mike Fina and his companies for breach of duties, fraud, tortious interference, and unjust enrichment related to the sale of True Wireless. The Court granted motions to dismiss, ruling claims were derivative. SurgePays' Motion for New Trial was denied on February 20, 2025. SurgePays has filed an appeal of the Court's dismissal.

Related Party Transactions

• The company incurred $83,178 in expenses with Carddawg Investments, Inc., an affiliate of its Chief Executive Officer (Kevin Brian Cox), for the six months ended June 30, 2025, under an annual rental agreement.
• On March 12, 2024, the company consolidated all remaining outstanding principal ($4,584,563) and accrued interest payable ($498,991) into one unsecured note totaling $5,083,554 with its Chief Executive Officer and Board Member (Kevin Brian Cox). This note bears 10% interest and is to be repaid ratably over 36 months, with each monthly payment of $164,039. Monthly payments on this note have been suspended until further notice.
• The company granted common stock to its Chief Financial Officer (600,000 shares) in 2023 and to its Chief Executive Officer (500,000 shares) in 2024, subject to vesting provisions outlined in their employment agreements.
• Stock options were granted to the Chief Executive Officer (248,424) and Chief Financial Officer (157,335) in 2024, which were fully vested.

Stakeholder Impact

• **Shareholders:** Significant dilution risk from potential future capital raises (ATM offering, convertible note conversion) and a substantial decrease in stockholders' equity. The 'going concern' warning poses a severe risk to investment value.
• **Employees:** The abandonment of the lead generation segment did not result in layoffs, but the overall financial instability could impact job security or future compensation. Stock-based compensation plans are in place for officers and directors.
• **Customers:** The cessation of the ACP program directly impacted MVNO customers, leading to a significant reduction in subsidized services. The company is attempting to transition customers to other programs like Lifeline and expand new services (ClearLine, MVNE) to retain and acquire customers.
• **Creditors:** The company's liquidity issues and 'going concern' warning increase credit risk. The Senior Secured Convertible Note provides a first-priority lien on substantially all assets, potentially impacting other unsecured creditors.
• **Suppliers:** Reduced revenue and cash flow could lead to delayed payments or renegotiated terms with suppliers, particularly in the MVNO segment.

Next Steps

• Enhance 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.
• Investigate specialized marketing strategies and customer engagement initiatives through the Clearline product offering.
• Continue to expand both subsidized (Lifeline) and non-subsidized products (LinkUp Mobile) of the MVNO segment in 2025.
• Continue to grow the Point-of-Sale and Prepaid Services segment for the remainder of 2025.
• Aim for positive gross margin in the Point-of-Sale and Prepaid Services segment by the end of 2025 for the Clearline channel.
• Utilize the At The Market Offering Agreement (ATM Agreement) to fund working capital needs on an ongoing basis.
• Explore various strategic opportunities to acquire other businesses with similar or symbiotic operations.
• Proceed with the remaining claims in the Blue Skies Connections, LLC, and True Wireless, Inc. v. SurgePays, Inc., et. al. litigation in the district court, with motions for summary judgment to be decided in Fall 2025.
• Continue the appeal of the Court's dismissal in the SurgePays, Inc. et al. v. Fina et al. litigation.

Key Dates

Recommendation

The filing presents a highly concerning financial picture. The company reported a substantial widening of its net loss, a dramatic 52.5% decline in overall revenue driven by the end of the ACP program, and a significant increase in cash used in operations. Critically, management explicitly states 'substantial doubt about the Company’s ability to continue as a going concern' due to insufficient cash resources. While there is growth in the Point-of-Sale segment and new MVNE initiatives, these positives are overshadowed by the severe liquidity crisis, negative gross margins, and the fundamental uncertainty regarding the company's viability. The recent convertible note and ATM offering indicate an urgent need for capital, which will likely lead to further dilution. For a seasoned investor, the 'going concern' warning alone is a paramount red flag, suggesting a high probability of significant capital loss. The current financial trajectory and explicit liquidity concerns warrant a strong sell recommendation.

Keywords

Telecommunications, Fintech, MVNO, MVNE, Point-of-Sale, Prepaid Services, Lifeline Program, Affordable Connectivity Program, Wireless Services, SaaS, SEC Filing, Quarterly Report, SURG