SurgePays(US:SURG)2025-05-13 20:31Financial Performance Consolidated Statements of Operations Q1 2025 saw a significant financial downturn, with revenues dropping 66.3% to $10.6 million and a $7.6 million operating loss, largely due to the ACP cessation Key Consolidated Statements of Operations Data | Financial Metric | Q1 2025 (Unaudited) | Q1 2024 (Unaudited) | Change | | :--- | :--- | :--- | :--- | | Revenues | $10,577,429 | $31,429,135 | -66.3% | | Cost of Revenues | $13,519,775 | $23,246,468 | -41.8% | | Income (Loss) from Operations | ($7,579,902) | $1,751,861 | Significant Decline | | Net Income (Loss) to Common Stockholders | ($7,635,084) | $1,224,595 | Significant Decline | | Basic EPS | ($0.38) | $0.07 | Significant Decline | | Diluted EPS | ($0.38) | $0.07 | Significant Decline | Consolidated Balance Sheets As of March 31, 2025, total assets decreased 34.7% to $15.7 million, driven by a 54.2% drop in cash, leading to a 49.0% decline in stockholders' equity Key Consolidated Balance Sheet Data | Balance Sheet Item | March 31, 2025 (Unaudited) | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $5,397,770 | $11,790,389 | -54.2% | | Total Current Assets | $9,850,620 | $17,870,323 | -44.9% | | Total Assets | $15,664,039 | $23,976,005 | -34.7% | | Total Liabilities | $7,882,600 | $8,714,392 | -9.6% | | Total Stockholders' Equity | $7,781,439 | $15,261,613 | -49.0% | Consolidated Statements of Cash Flows Q1 2025 saw a $7.0 million negative operating cash flow, a reversal from Q1 2024, with overall cash and equivalents decreasing by $7.4 million Key Consolidated Cash Flow Data | Cash Flow Activity | Q1 2025 (Unaudited) | Q1 2024 (Unaudited) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | ($6,963,484) | $4,040,058 | | Net cash used in investing activities | ($18,590) | $0 | | Net cash provided by (used in) financing activities | ($410,545) | $24,282,960 | | Net increase (decrease) in cash | ($7,392,619) | $28,323,018 | Management's Discussion and Analysis (MD&A) Business Overview and Strategy SurgePays, a fintech and telecom company, is adapting its strategy post-ACP cessation by transitioning subscribers to Lifeline and launching new MVNE and prepaid service initiatives - The company operates through two primary business segments: MVNO Telecommunications (providing wireless services) and Comprehensive Platform Services (offering point-of-sale technology)335337342 - The Affordable Connectivity Program (ACP), a key revenue driver, ceased funding in June 2024. The company's strategy involves absorbing costs to retain its subscriber base and transitioning them to the Lifeline program341358 - Key growth strategies include expanding prepaid services (LinkUp Mobile), growing subsidized services in new markets like California (Torch Wireless), and launching a new Mobile Virtual Network Enabler (MVNE) business337351352 - The company discontinued its Lead Generation segment at the end of 2024 to align with its long-term strategic objectives338349 Results of Operations Q1 2025 operational results show a dramatic decline, with total revenue falling 66.3% to $10.6 million due to ACP cessation, and gross margin turning negative Segment Revenue Performance | Segment Revenue | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Mobile Virtual Network Operator | $2,285,823 | $28,892,590 | -92.1% | | Comprehensive Platform Services | $8,291,606 | $2,530,589 | +227.7% | | Total Revenue | $10,577,429 | $31,429,135 | -66.3% | Segment Gross Profit (Loss) | Segment Gross Profit (Loss) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Mobile Virtual Network Operator | ($2,903,795) | $8,132,391 | | Comprehensive Platform Services | ($38,551) | $48,783 | | Total Gross Profit (Loss) | ($2,942,346) | $8,182,667 | - Selling, general and administrative (SG&A) expenses decreased by $1.8 million (28.6%) YoY, primarily due to reduced non-cash stock compensation for executives and lower legal fees related to the Blue Skies litigation367368 Liquidity and Capital Resources Liquidity tightened significantly in Q1 2025, with working capital decreasing to $4.1 million and a $7.0 million operational cash burn, necessitating new financing secured post-quarter - Working capital surplus decreased from $11.8 million at Dec 31, 2024 to $4.1 million at March 31, 2025380 - Management warns that due to the end of the ACP program, the company may not have sufficient resources to fund operations for the next twelve months without additional funding393 - In response to liquidity pressures, the company launched several initiatives in April 2025, including LinkUp Mobile SIM cards, a phone-in-a-box program, and expansion of Torch Wireless into California394 - Subsequent to the quarter's end, on May 12, 2025, the company secured $6.0 million in net cash proceeds from a Senior Secured Convertible Note issuance, addressing immediate liquidity concerns324 Key Notes to Financial Statements Business Organization and Discontinued Operations SurgePays operates in fintech and telecom, abandoning its immaterial lead generation segment effective December 31, 2024, without classifying it as discontinued operations - The company operates through subsidiaries in two main segments: Comprehensive Platform Services (ECS Prepaid, SurgePays Fintech) and Mobile Virtual Network Operators (Torch Wireless, SurgePhone Wireless)21 - The lead generation segment was abandoned effective December 31, 2024, as it was no longer aligned with strategic objectives and was financially immaterial2527 Debt As of March 31, 2025, total debt was $3.6 million, primarily comprising $3.1 million in CEO notes at 10% interest and $0.5 million in government EIDL loans Debt Breakdown | Debt Component | Balance at Mar 31, 2025 | | :--- | :--- | | Notes Payable - Related Parties (CEO) | $3,147,879 | | Notes Payable - SBA government | $466,627 | | Total Debt | $3,614,506 | - In March 2024, all outstanding principal and accrued interest payable to the CEO were consolidated into a single note of $5.08 million, bearing 10% interest and payable over 36 months220 Stockholders' Equity and Compensation Equity structure includes common and preferred stock, with significant executive stock-based compensation, totaling $155,119 in Q1 2025, and 1.26 million dilutive equivalents outstanding - The CEO's employment agreement includes future stock awards totaling 2,500,000 shares and additional awards tied to ambitious revenue, EBITDA, and market capitalization goals251254 - The CFO was granted 600,000 shares of restricted common stock in November 2023249292 - Total stock compensation expense recognized for related parties was $155,119 in Q1 2025, compared to $1,497,417 in Q1 2024302 - As of March 31, 2025, there were 93,000 warrants and 1,166,081 stock options outstanding183 Commitments and Contingencies The company faces significant commitments including $548,535 in operating leases, ongoing Blue Skies litigation, settled TCPA cases, and substantial executive employment agreements - The company is involved in ongoing litigation with Blue Skies Connections, LLC and its former officer Mike Fina related to the 2021 sale of True Wireless259261 - Litigation related to TCPA violations (Aliotta v. SurgePays) and an associated indemnity claim (CAMG v. LogicsIQ) were settled and dismissed in April 2024266267 - The company has employment agreements with its CEO and CFO that include substantial base salaries ($750,000+ and $475,000+ respectively), annual cash bonuses, and large restricted stock awards248249251 Subsequent Event: Major Financing Post-quarter, on May 12, 2025, the company secured $6.0 million in net cash from a $7.0 million Senior Secured Convertible Note at 15% interest, convertible at $4.00 per share - On May 12, 2025, the company entered into a financing agreement, issuing a Senior Secured Convertible Note and receiving $6.0 million in net cash proceeds324 - The note accrues interest at 15% per annum and is convertible into common stock at $4.00 per share. It is secured by a first-priority lien on substantially all company assets325326327 - The company also issued 700,000 warrants exercisable at $6.00 per share. Both the warrants and the note's conversion feature are classified as derivative liabilities330331