SurgePays(SURG) - 2025 Q2 - Quarterly Report

FORM 10-Q Filing Information This section outlines SurgePays, Inc.'s Form 10-Q filing details, including its Nasdaq listing, outstanding shares, and regulatory classifications Registrant Information SurgePays, Inc. filed its Form 10-Q, detailing its Nevada incorporation, Nasdaq listing under SURG, 20.43 million outstanding shares, and non-accelerated filer status - SurgePays, Inc. is a non-accelerated filer and a smaller reporting company[3] Consolidated Balance Sheet Highlights | Metric | Value | | :------------------------------------------------ | :------------------- | | Shares of Common Stock Outstanding (as of Aug 13, 2025) | 20,431,549 shares | | Trading Symbol | SURG | | Exchange | The Nasdaq Stock Market LLC | Consolidated Financial Statements This section presents SurgePays, Inc.'s unaudited consolidated financial statements, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows Consolidated Balance Sheets Total assets decreased to $15.22 million by June 30, 2025, driven by reduced cash, while total liabilities increased to $15.15 million due to new convertible notes, significantly impacting stockholders' equity Consolidated Balance Sheet Highlights | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :-------------------------------- | :-------------------------- | :------------------ | | Cash and cash equivalents | $4,404,449 | $11,790,389 | | Total Current Assets | $9,694,382 | $17,870,323 | | Total Assets | $15,215,409 | $23,976,005 | | Total Current Liabilities | $8,702,069 | $6,059,476 | | Total Long Term Liabilities | $6,451,948 | $2,654,916 | | Total Liabilities | $15,154,017 | $8,714,392 | | Total Stockholders' Equity | $61,392 | $15,261,613 | - Cash and cash equivalents decreased by approximately $7.39 million from December 31, 2024, to June 30, 2025[7] - Convertible note payable (net) increased significantly from $0 at December 31, 2024, to $1,430,267 (current) and $4,833,979 (long-term) at June 30, 2025[7] Consolidated Statements of Operations For the six months ended June 30, 2025, net loss increased to $14.72 million on a 52.5% revenue decline to $22.10 million, primarily due to the ACP cessation, widening the loss from operations Consolidated Statements of Operations Highlights | Metric | For the Three Months Ended June 30, 2025 | For the Three Months Ended June 30, 2024 | For the Six Months Ended June 30, 2025 | For the Six Months Ended June 30, 2024 | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Revenues | $11,518,166 | $15,085,699 | $22,095,596 | $46,514,834 | | Total costs and expenses | $18,328,675 | $25,961,752 | $36,486,008 | $55,639,026 | | Loss from operations | $(6,810,509) | $(10,876,053) | $(14,390,412) | $(9,124,192) | | Net loss available to common stockholders | $(7,082,598) | $(12,865,765) | $(14,717,682) | $(11,641,170) | | Basic EPS | $(0.36) | $(0.66) | $(0.74) | $(0.63) | - Revenues for the six months ended June 30, 2025, decreased by 52.5% compared to the same period in 2024[9] - Net loss available to common stockholders for the six months ended June 30, 2025, increased by 26.4% year-over-year[9] Consolidated Statements of Changes in Stockholders' Equity Total stockholders' equity significantly decreased to $0.06 million by June 30, 2025, primarily due to a $14.72 million net loss and $1.00 million treasury stock reacquisition Changes in Stockholders' Equity (Six Months Ended June 30, 2025) | Metric | December 31, 2024 | June 30, 2025 | | :----------------------------------- | :------------------ | :-------------- | | Total Stockholders' Equity | $15,261,613 | $61,392 | | Net loss | - | $(14,717,682) | | Additional paid-in capital (increase) | $76,842,878 | $77,360,756 | | Treasury stock (increase) | $(631,967) | $(1,631,966) | - The company reacquired 333,333 shares of treasury stock for $999,999 in connection with convertible debt financing during the six months ended June 30, 2025[11] - Recognition of stock-based compensation for unvested shares (related parties) contributed $310,238 to additional paid-in capital during the six months ended June 30, 2025[11] Consolidated Statements of Cash Flows Net cash, cash equivalents, and restricted cash decreased by $8.39 million to $4.40 million by June 30, 2025, driven by $13.08 million in operating cash outflows, partially offset by financing activities Consolidated Statements of Cash Flows Highlights | Metric | For the Six Months Ended June 30, 2025 | For the Six Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------------- | :------------------------------------- | | Net cash used in operating activities | $(13,082,419) | $(90,112) | | Net cash used in investing activities | $(18,590) | $- | | Net cash provided by financing activities | $4,715,069 | $23,902,632 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(8,385,940) | $23,812,520 | | Cash, cash equivalents and restricted cash - end of period | $4,404,449 | $38,434,580 | - Operating cash outflows significantly increased from $90,112 in H1 2024 to $13,082,419 in H1 2025, primarily due to the net loss[15][406] - Financing activities in H1 2025 included $6,000,000 from the issuance of a convertible note payable, partially offset by $595,000 in direct offering costs and $684,419 in repayments of related party loans[15] Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the unaudited consolidated financial statements, covering accounting policies, debt, equity, and segment information Note 1 - Organization and Nature of Operations SurgePays operates in telecom and fintech for underserved communities, discontinued its LogicsIQ segment, faces significant liquidity challenges with a $14.72 million net loss, and plans strategic initiatives to address going concern doubts - SurgePays operates in three primary business segments: MVNO wireless brands, MVNE enablement platform (HERO), and point-of-sale (POS) and fintech services[19] - The lead generation segment (LogicsIQ) was abandoned effective December 31, 2024, as it contributed 0% of total consolidated revenue and less than 1% of total assets, not qualifying as a discontinued operation under ASC 205-20[24][26] Key Financial Indicators (Six Months Ended June 30, 2025) | Metric | Amount | | :----------------------------------- | :------------- | | Net loss available to common stockholders | $(14,717,682) | | Net cash used in operations | $(13,082,419) | | Accumulated deficit | $(75,633,109) | | Stockholders' equity | $61,392 | | Working capital | $992,313 | - The Affordable Connectivity Program (ACP) ceased funding on June 1, 2024, impacting the company's MVNO segment[42] - Management's strategic plans include * Enhance market visibility and customer reach for SurgePays' direct 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[45] Discontinued Operations – LogicsIQ Segment Segment Reporting (ASC 280) Considerations Future Business Operations Basis of Presentation Liquidity and Management's Plans Note 2 - Summary of Significant Accounting Policies This note outlines SurgePays' critical accounting policies, covering consolidation, business combinations like ClearLine Mobile, revenue recognition (ASC 606), asset valuation, impairment, software development costs, stock-based compensation, and recent accounting standard adoptions - The acquisition of ClearLine Mobile, Inc. on January 5, 2024, for $2,500,000 was accounted for as a business combination, resulting in $2,500,000 in goodwill[58][62][67] - The Mobile Virtual Network Operator (MVNO) segment's revenue share decreased significantly from 89% in H1 2024 to 20.64% in H1 2025, while Point-of-Sale and Prepaid Services revenue share increased from 10.98% to 79.36% over the same period[154] Disaggregation of Revenues (Six Months Ended June 30) | Revenue Segment | 2025 Revenue | % of Revenues (2025) | 2024 Revenue | % of Revenues (2024) | | :--------------------------------- | :------------- | :------------------- | :------------- | :------------------- | | Mobile Virtual Network Operators | $4,559,530 | 20.64% | $41,396,096 | 89.00% | | Point-of-Sale and Prepaid Services | $17,536,066 | 79.36% | $5,107,409 | 10.98% | | Other Corporate Overhead | $- | 0.00% | $11,329 | 0.02% | | Total Revenues | $22,095,596 | 100.00% | $46,514,834 | 100.00% | - The company recorded a full valuation allowance on its deferred tax assets as of June 30, 2025, due to being in a three-year cumulative historic loss position[160][161] - The investment in CenterCom was impaired and written down to $0 as of December 31, 2024, due to a change in ownership and a large reduction in human capital, leading to the discontinuation of BPO services[168][169] Principles of Consolidation and Non-Controlling Interest Business Combinations and Asset Acquisitions Acquisition of ClearLine Mobile, Inc Note Receivable (Sale of Former Subsidiary) Business Segments and Concentrations Use of Estimates Risks and Uncertainties Fair Value of Financial Instruments Cash and Cash Equivalents, Restricted Cash and Concentration of Credit Risk Marketable Securities - Classification and Valuation Impairment of Marketable Securities Accounts Receivable Inventory Impairment of Long-lived Assets Property and Equipment Internal Use Software Development Costs Right of Use Assets and Lease Obligations Revenue Recognition Cost of Revenues Income Taxes Investment Advertising Costs Stock-Based Compensation Stock Warrants Basic and Diluted Earnings (Loss) per Share Treasury Stock Related Parties Recent Accounting Standards Reclassifications Note 3 – Property and Equipment As of June 30, 2025, SurgePays' net property and equipment totaled $457,195, a decrease from $591,088 at December 31, 2024, reflecting $152,483 in depreciation and amortization for the six months ended June 30, 2025 Property and Equipment - Net | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :------------------ | | Computer equipment and software | $1,135,178 | $1,135,178 | | Leasehold improvements | $324,901 | $306,311 | | Furniture and fixtures | $165,738 | $165,738 | | Less: accumulated depreciation/amortization | $(1,168,622) | $(1,016,139) | | Property and equipment - net | $457,195 | $591,088 | Depreciation and Amortization Expense | Period | 2025 | 2024 | | :-------------------------------- | :------- | :------- | | Three months ended June 30 | $66,365 | $70,383 | | Six months ended June 30 | $152,483 | $140,766 | Note 4 – Intangibles Net intangible assets decreased to $1.15 million at June 30, 2025, from $1.47 million at December 31, 2024, primarily due to ongoing amortization, with proprietary software as the largest component Intangible Assets - Net | Type | June 30, 2025 | December 31, 2024 | Estimated Useful Lives (Years) | | :------------------------ | :-------------- | :------------------ | :----------------------------- | | Proprietary Software | $4,286,402 | $4,286,402 | 7 | | Tradenames/trademarks | $617,474 | $617,474 | 15 | | ECS membership agreement | $465,000 | $465,000 | 1 | | Noncompetition agreement | $201,389 | $201,389 | 2 | | Customer Relationships | $183,255 | $183,255 | 5 | | Less: accumulated amortization | $(4,607,764) | $(4,280,558) | | | Intangibles - net | $1,145,756 | $1,472,962 | | Amortization Expense for Intangibles | Period | 2025 | 2024 | | :-------------------- | :------- | :------- | | Three Months Ended June 30 | $163,452 | $163,377 | | Six Months Ended June 30 | $327,206 | $326,754 | - Estimated amortization expense for the remaining six months of 2025 is $326,754, and for 2026 is $653,508[206] Note 5 – Internal Use Software Development Costs Net internal use software development costs were $0 at June 30, 2025, following a $316,594 impairment loss recorded at December 31, 2024, due to no future use Internal Use Software Development Costs - Net | Type | December 31, 2024 | | :------------------------------------ | :------------------ | | Internal use software development costs | $668,484 | | Less: accumulated amortization | $(351,890) | | Less: impairment loss | $(316,594) | | Internal Use Software Development Costs - net | $- | - An impairment loss of $316,594 was recorded at December 31, 2024, due to the determination of no future use for capitalized internal use software development costs[209] Amortization of Internal Software Development Costs (2024) | Period | Amount | | :------------------------------------ | :------- | | Three months ended June 30, 2024 | $55,707 | | Six months ended June 30, 2024 | $111,414 | Note 6 – Debt Total debt, net of unamortized discount, increased to $9.60 million at June 30, 2025, from $3.56 million at December 31, 2024, primarily due to a new $7.00 million Senior Secured Convertible Note Summary of Debt Balances | Debt Type | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :------------------ | | Notes Payable – SBA government | $463,884 | $469,396 | | Notes Payable – Related Parties | $2,871,236 | $3,555,655 | | Convertible Note Payable - net | $6,264,246 | $- | | Total Debt - net | $9,599,366 | $4,025,051 | - On May 12, 2025, the company issued a Senior Secured Convertible Note for $6,999,999, resulting in net cash proceeds of $6,000,000. This note accrues interest at 1.25% per month (15% per annum) and is convertible at $4.00 per share[221][223][224] - In connection with the convertible note, warrants to purchase 700,000 shares at $6/share were issued, and a total debt discount of $802,640 (including $207,640 for warrants and $595,000 for direct offering costs) is being amortized[227][228][229][230] - The related party note with the CEO was consolidated on March 12, 2024, into a single $5,083,554 note bearing 10% interest, with monthly payments of $164,039[218] Notes Payable – SBA government Notes Payable – Related Parties Senior Secured Convertible Note and Warrants Debt Maturities Note 7 – Fair Value of Financial Instruments SurgePays did not have financial assets or liabilities measured at fair value on a recurring basis as of June 30, 2025, with carrying values approximating fair values due to their short-term nature - The company did not have any financial assets and liabilities measured at fair value on a recurring basis at June 30, 2025, and December 31, 2024[236] Note 8 – Commitments and Contingencies SurgePays has operating lease commitments with a 1.84-year weighted-average remaining term, details employment agreements for its CEO and CFO, and is involved in ongoing legal matters, with no current contingent liabilities requiring accrual Operating Lease Assets and Liabilities | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :-------------- | :------------------ | | Operating lease - right-of-use asset - non-current | $441,225 | $564,781 | | Operating lease liability | $446,249 | $567,301 | | Weighted-average remaining lease term (years) | 1.84 | 2.29 | | Weighted-average discount rate | 8% | 8% | Future Minimum Lease Payments (Undiscounted) | Year Ended December 31, | Amount | | :------------------------ | :------- | | 2025 (6 months) | $141,831 | | 2026 | $236,078 | | 2027 | $100,563 | | Total undiscounted cash flows | $478,472 | - CEO's employment agreement extends through December 31, 2028, with a base salary of $750,000 (2023) increasing by 3% annually, an annual cash bonus of $870,000, and a long-term equity program for up to 2,500,000 shares[260][264] - CFO's employment agreement includes a base salary of $503,928 for 2025, an annual cash bonus of at least $510,000 (2024), and a restricted stock award of 600,000 shares (granted Nov 2023) vesting over specific periods[257] - The legal case 'Juno Financial v. AATAC and Surge Holdings Inc.' was dismissed with agreement of the parties on September 12, 2024[272] - In 'Blue Skies Connections, LLC, and True Wireless, Inc. v. SurgePays, Inc., et. al.', the Oklahoma Supreme Court denied Plaintiffs' petition for certiorari on March 10, 2025, and the case will proceed in district court on remaining claims[273] Operating Leases Employment Agreements (Chief Executive Officer and Chief Financial Officer) Contingencies – Legal Matters Note 9 – Stockholders' Equity SurgePays' stockholders' equity section details common stock, preferred stock, and the 2022 Securities and Incentive Plan, with key H1 2025 transactions including the repurchase of 333,333 treasury shares for $999,999 and $310,238 in stock-based compensation expense - The 2022 Securities and Incentive Plan authorized 3,500,000 common shares initially, with annual increases of 10% of outstanding common stock. As of January 1, 2025, total authorized shares under the plan approximated 6,907,000[284][286][287] - For the six months ended June 30, 2025, the company repurchased 333,333 shares of treasury stock for $999,999 ($3/share) in connection with a convertible debt financing[289] Total Stock Compensation Expense (Vesting) | Period | 2025 | 2024 | | :-------------------- | :------- | :------- | | Three months ended June 30 | $155,119 | $2,981,577 | | Six months ended June 30 | $310,238 | $4,478,994 | Outstanding Potentially Dilutive Equity Securities | Security Type | June 30, 2025 | June 30, 2024 | | :-------------- | :-------------- | :-------------- | | Warrants | 703,000 | 3,619,278 | | Stock options | 1,166,081 | 121,276 | | Total | 1,869,081 | 3,740,554 | Common Stock Series A, Convertible Preferred Stock Series C, Convertible Preferred Stock Securities and Incentive Plan Equity Transactions for the Six Months Ended June 30, 2025 Equity Transactions for the Years Ended December 31, 2024 Non-Vested Shares – Related Parties (Officer and Directors) – and related Vesting Stock Options Warrants Note 10 – Segment Information For H1 2025, MVNO segment revenue significantly decreased to $4.56 million with a $5.90 million operating loss, while Point-of-Sale and Prepaid Services revenue grew to $17.54 million but still reported a $2.15 million operating loss Segment Revenues (Six Months Ended June 30) | Segment | 2025 Revenue | 2024 Revenue | | :--------------------------------- | :------------- | :------------- | | Mobile Virtual Network Operators | $4,559,530 | $41,396,096 | | Point-of-Sale and Prepaid Services | $17,536,066 | $5,107,409 | | Other Corporate Overhead | $- | $11,329 | | Total | $22,095,596 | $46,514,834 | Segment Income (Loss) from Operations (Six Months Ended June 30) | Segment | 2025 Income (Loss) | 2024 Income (Loss) | | :--------------------------------- | :----------------- | :----------------- | | Mobile Virtual Network Operators | $(5,895,378) | $4,552,821 | | Point-of-Sale and Prepaid Services | $(2,148,108) | $(1,382,103) | | Other Corporate Overhead | $(6,346,926) | $(12,294,910) | | Total | $(14,390,412) | $(9,124,192) | Segment Total Liabilities | Segment | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :-------------- | :------------------ | | Mobile Virtual Network Operators | $1,835,032 | $1,505,400 | | Point-of-Sale and Prepaid Services | $696,235 | $103,612 | | Other Corporate Overhead | $12,622,750 | $7,105,380 | | Total | $15,154,017 | $8,714,392 | Note 11 – Subsequent Event In August 2025, SurgePays entered an At The Market Offering Agreement (ATM Agreement) to sell up to $15,000,000 of common stock to fund working capital needs - In August 2025, SurgePays entered into an At The Market Offering Agreement (ATM Agreement) to sell up to $15,000,000 of common stock[335][336] - The ATM Agreement is intended to fund working capital needs on an ongoing basis[336] ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on SurgePays' financial condition, operational results, business segments, growth strategies, and critical accounting policies About SurgePays, Inc. SurgePays, Inc., incorporated in Nevada in 2006, has evolved into a financial technology and telecom company providing essential services to the underbanked through MVNO wireless and Point-of-Sale services - SurgePays, Inc. was incorporated in Nevada on August 18, 2006, and has evolved from an oil and natural gas company to a financial technology and telecom company[338] - The company operates in two business segments: SurgePhone Wireless, LLC, SurgePays Fintech, Inc., ECS Prepaid, LLC, and Torch Wireless[339] Our Business Segments SurgePays operates two primary segments: MVNO Wireless Services (LinkUp Mobile and Torch Wireless) and Point-of-Sale and Prepaid Services, having launched its high-margin HERO MVNE platform in late 2024 and discontinued its Lead Generation segment - MVNO Wireless Services include LinkUp Mobile (prepaid wireless) and Torch Wireless (subsidized Lifeline program)[343][344] - Point-of-Sale and Prepaid Services offer prepaid wireless top-ups and ClearLine POS Technology for in-store marketing and loyalty[349][350] - In late 2024, SurgePays launched its HERO platform, a Mobile Virtual Network Enabler (MVNE) system, providing SIM provisioning, billing, CRM, and other services to independent MVNOs through a strategic agreement with AT&T[341][346][348] - The Lead Generation segment was discontinued in 2024[342] Growth Strategies SurgePays' growth strategy focuses on scaling Lifeline enrollments, expanding prepaid retail distribution, enabling wireless services via its HERO platform, and increasing ClearLine deployments and POS feature upsells - Current growth initiatives include * Scaling Lifeline enrollments in California and other high-subsidy states * Expanding prepaid retail distribution across rural and multicultural markets * Enabling wireless service launches for non-telecom brands through HERO * Increasing ClearLine deployments and upselling POS features to merchants[354] Synergy Across Business Units SurgePays achieves synergy through technology integration across POS platforms, data-driven engagement from fintech transactions, and strategic market expansion targeting underserved and rural communities - Synergy is built on * Technology Integration: POS platforms unify transactions across prepaid wireless, financial products, and merchant services * Data-Driven Engagement: Data analytics from ACH banking and fintech transactions enhance customer engagement * Strategic Market Expansion: Focus on underserved and rural markets to capture untapped potential[359] COMPARISON OF THREE MONTHS ENDED June 30, 2025 AND 2024 For Q2 2025, total revenue decreased by 23.7% to $11.52 million due to an 81.8% MVNO decline, while POS and Prepaid Services revenues surged by 258.8%, resulting in a gross loss and widened operating loss Revenue Comparison (Three Months Ended June 30) | Segment | 2025 Revenue | 2024 Revenue | Change ($) | Change (%) | | :--------------------------------- | :------------- | :------------- | :----------- | :--------- | | Mobile Virtual Network Operator | $2,273,706 | $12,503,507 | $(10,229,801) | (81.8%) | | Point-of-Sale and Prepaid Services | $9,244,460 | $2,576,820 | $6,667,640 | 258.8% | | Other Corporate Overhead | $- | $5,372 | $(5,372) | (100.0%) | | Total | $11,518,166 | $15,085,699 | $(3,567,533) | (23.7%) | Gross Profit (Loss) and Margin (Three Months Ended June 30) | Segment | 2025 Gross Profit (Loss) | 2024 Gross Profit (Loss) | 2025 Gross Margin (%) | 2024 Gross Margin (%) | | :--------------------------------- | :----------------------- | :----------------------- | :-------------------- | :-------------------- | | Mobile Virtual Network Operator | $(2,109,831) | $(3,510,190) | (92.8%) | (28.1%) | | Point-of-Sale and Prepaid Services | $(544,835) | $67,704 | (5.9%) | 2.6% | | Other Corporate Overhead | $- | $(589) | - | (24.9%) | | Total | $(2,654,666) | $(3,443,075) | (23.0%) | (22.8%) | - General and administrative costs decreased by $3,217,484 (45.0%) due to reductions in contractors and consultants, professional services (legal fees), and compensation (stock compensation)[369][370] - Interest expense increased to $212,419 in Q2 2025 from $116,722 in Q2 2024, partly due to amortization of debt discount from the convertible note[371][372] Revenues Cost of Revenue, Gross Profit and Gross Margin General and administrative Other (expense) income Provision for income tax benefit (expense) COMPARISON OF SIX MONTHS ENDED June 30, 2025 AND 2024 For H1 2025, total revenue decreased by 52.5% to $22.10 million due to an 89.0% MVNO decline, while POS and Prepaid Services revenues increased by 243.3%, leading to a gross loss and widened operating loss Revenue Comparison (Six Months Ended June 30) | Segment | 2025 Revenue | 2024 Revenue | Change ($) | Change (%) | | :--------------------------------- | :------------- | :------------- | :----------- | :--------- | | Mobile Virtual Network Operator | $4,559,530 | $41,396,096 | $(36,836,567) | (89.0%) | | Point-of-Sale and Prepaid Services | $17,536,066 | $5,107,409 | $12,428,657 | 243.3% | | Other Corporate Overhead | $- | $11,329 | $(11,329) | (100.0%) | | Total | $22,095,596 | $46,514,834 | $(24,419,238) | (52.5%) | Gross Profit (Loss) and Margin (Six Months Ended June 30) | Segment | 2025 Gross Profit (Loss) | 2024 Gross Profit (Loss) | 2025 Gross Margin (%) | 2024 Gross Margin (%) | | :--------------------------------- | :----------------------- | :----------------------- | :-------------------- | :-------------------- | | Mobile Virtual Network Operator | $(5,013,626) | $4,622,200 | (110.0%) | 11.2% | | Point-of-Sale and Prepaid Services | $(583,385) | $116,487 | (3.3%) | 2.3% | | Other Corporate Overhead | $- | $904 | - | 39.2% | | Total | $(5,597,011) | $4,739,591 | (25.3%) | 10.2% | - Selling, general and administrative costs decreased by $4,970,838 (37.4%), driven by reductions in contractors and consultants, professional services (legal fees), and compensation (stock compensation)[385][386] - Interest expense increased to $331,853 in H1 2025 from $249,305 in H1 2024, partly due to amortization of debt discount from the convertible note[387][388] Revenues Cost of Revenue, Gross Profit and Gross Margin General and administrative Other (expense) income Provision for income tax benefit (expense) Equity Transactions for the Six Months Ended June 30, 2025 Segment Information LIQUIDITY AND CAPITAL RESOURCES Working capital significantly decreased to $0.99 million by June 30, 2025, with total assets down and liabilities up due to new debt, resulting in $13.08 million net cash outflow from operations, prompting management to plan ATM usage and other initiatives Liquidity and Capital Resources Summary | Metric | June 30, 2025 | December 31, 2024 | | :-------------------- | :-------------- | :------------------ | | Current assets | $9,694,382 | $17,870,323 | | Current liabilities | $8,702,069 | $6,059,476 | | Working capital | $992,313 | $11,810,847 | | Total assets | $15,215,409 | $23,976,005 | | Total liabilities | $15,154,017 | $8,714,392 | | Stockholders' equity | $61,392 | $15,261,613 | - Net cash used in operating activities for the six months ended June 30, 2025, was $13,082,419[406] - Management plans to fund operations by * Selectively using the At The Market (ATM) agreement for up to $15,000,000 * Suspending monthly payments on the related party note * Launching LinkUp Mobile SIM cards and 'phone in a box' programs * Expanding Torch Wireless Lifeline subscriber base in California * Leveraging MVNE solutions for other wireless companies[403][412][413] Critical Accounting Policies and Estimates This section details SurgePays' critical accounting policies and estimates, requiring significant management judgment for allowances, inventory, loss contingencies, stock-based compensation, and fair value measurements, adhering to ASC 606 and ASC 718 - Significant estimates include * Allowance for doubtful accounts and other receivables * Inventory reserves and classifications * Valuation of loss contingencies and derivative liabilities * Valuation of stock-based compensation * Estimated useful lives for intangible assets, internal-use software, and property and equipment * Implicit interest rate in right-of-use operating leases * Uncertain tax positions and valuation allowance on deferred tax assets[419] - The company accounts for revenue under ASC 606, applying a five-step process to recognize revenue when performance obligations are satisfied[428][432] - Stock-based compensation is accounted for under ASC 718 using the fair value-based method, with the Black-Scholes model used for valuing stock options and warrants[429][430][431] ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section addresses market risk disclosures, stating that there are no applicable quantitative and qualitative disclosures for the reporting period Market Risk Disclosures SurgePays, Inc. reports no applicable quantitative and qualitative disclosures regarding market risk for the current period - Not applicable[435] ITEM 4: CONTROLS AND PROCEDURES This section covers the evaluation of SurgePays' disclosure controls and procedures and any changes in internal control over financial reporting Evaluation of disclosure controls and procedures As of June 30, 2025, SurgePays' management determined its disclosure controls and procedures are effective, despite acknowledging a common lack of segregation of duties for a company of its size - As of June 30, 2025, the company's disclosure controls are effective[437] - The company lacks segregation of duties, similar to other companies of its size[437] Changes in Internal Control over Financial Reporting No material changes in SurgePays' internal controls over financial reporting were identified during the period ended June 30, 2025 - No material changes in internal control over financial reporting were identified during the period ended June 30, 2025[438] PART II - OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, unregistered sales of equity, defaults, mine safety, and other disclosures ITEM 1: LEGAL PROCEEDINGS SurgePays is involved in several legal proceedings, including a dismissed case, an ongoing district court case after an Oklahoma Supreme Court denial, and an appeal filed by SurgePays against dismissal and summary judgment rulings - The 'Juno Financial v. AATAC and Surge Holdings Inc.' case was dismissed with the agreement of the parties on September 12, 2024[440] - In 'Blue Skies Connections, LLC, and True Wireless, Inc. v. SurgePays, Inc., et. al.', the Oklahoma Supreme Court denied Plaintiffs' Petition for Certiorari on March 10, 2025, and the case will proceed in the district court on remaining claims[442] - In 'SurgePays, Inc. et al. v. Fina et al.', SurgePays has filed an appeal of the Court's dismissal and summary judgment rulings against its claims[441][442] ITEM 1A: RISK FACTORS SurgePays, Inc. reports no applicable risk factors for the current reporting period - Not applicable[443] ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS On May 12, 2025, SurgePays issued a $6,999,999 Senior Secured Convertible Note to Funicular Funds, LP, yielding $5,925,000 in net cash proceeds, convertible at $4.00 per share - On May 12, 2025, the company issued a Senior Secured Convertible Note for $6,999,999 to Funicular Funds, LP, with net cash proceeds of $5,925,000[444] - The convertible note allows conversion into common stock at an initial price of $4.00 per share, subject to down-round adjustment[444] ITEM 3: DEFAULTS UPON SENIOR SECURITIES SurgePays, Inc. reported no defaults on senior securities for the current period - None[445] ITEM 4: MINE SAFETY DISCLOSURES Mine safety disclosures are not applicable to SurgePays, Inc.'s operations - Not applicable[445] ITEM 5: OTHER INFORMATION For H1 2025, no Rule 10b5-1 trading arrangements were adopted or modified, and the company repurchased 333,333 common shares for $999,999 while terminating its share repurchase program - No Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or executive officers during the six months ended June 30, 2025[445] - On May 12, 2025, the company repurchased 333,333 shares of common stock for $999,999 ($3/share) from a convertible note payable holder[446] - The share repurchase program was terminated on October 1, 2024, after reacquiring 81,850 shares for $146,836[447] ITEM 6: EXHIBITS This section lists the exhibits filed with the Form 10-Q, including Sarbanes-Oxley Act certifications from the CEO and CFO, and Inline XBRL documents - Exhibits include * Certifications pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002 from the CEO and CFO * Certifications pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002 from the CEO and CFO * Inline XBRL Instance Document and Taxonomy Extension Documents[448] SIGNATURES This section confirms the official signing of the Form 10-Q report by SurgePays, Inc.'s principal executive and financial officers Signatures The Form 10-Q report was officially signed on August 13, 2025, by Kevin Brian Cox, CEO, and Anthony Evers, CFO, on behalf of SurgePays, Inc - The report was signed by Kevin Brian Cox, Chief Executive Officer, and Anthony Evers, Chief Financial Officer, on August 13, 2025[452]