SURG 10-K & 10-Q changes, risk factors and insider trading
SurgePays, Inc. · Nasdaq · Telephone Communications (No Radiotelephone) · CIK 1392694 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Sales of a significant number of shares of our common stock in the public markets, or the perception that such sales could occur, could depress the market price of our common stock.”
New heading “We are not currently in compliance with Nasdaq’s minimum market value of listed securities and minimum bid price listing requirements; if we are not able to regain compliance with those requirements within the time periods permitted by Nasdaq, our common stock may be delisted, which would likely impair our ability to raise capital and could constitute an event of default under our outstanding promissory notes.”
Largest changes
“There is no guarantee that the Company will be able to regain compliance with the MVLS Requirement or Bid Price Requirement. …”see in full comparison
“We are not currently in compliance with Nasdaq’s minimum market value of listed securities and minimum bid price listing requirements; if we are not able to regain compliance with those requirements within the time periods permitted by Nasdaq, our common stock may be delisted, which would likely impair our ability to raise capital and could constitute an event of default under our outstanding promissory notes.”see in full comparison
“In the event of delisting, the Company can provide no assurance that any action taken by it to restore compliance with listing requirements would allow its securities to become listed again, stabilize the market price or improve the liquidity of its securities, prevent its securities from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements. …”see in full comparison
“Sales of a significant number of shares of our common stock in the public markets, or the perception that such sales could occur, could depress the market price of our common stock.”see in full comparison
Futuresee in full comparisonIssuanceissuances ofOurourCommoncommonStock,stock,Preferredpreferred stock,Stock,convertibleOptionspromissory notes, options andWarrantswarrantsCouldcouldDilutedilute theInterestsinterests ofExistingexistingStockholders.stockholders.
“On March 18, 2026, the Company received a written notice (the “MVLS Notice”) from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) indicating that the Company no longer meets the minimum market value of listed securities (“MVLS”) of $35,000,000 (the “MVLS Requirement”) set forth in Nasdaq’s Listing Rules (the “Rules”). …”see in full comparison
Full comparison: every changed paragraph (20)
SinceFollowing the introduction of the
ACP, we derived
over 70% of our revenue during 2023 from reimbursement payments from the federal government under the ACP. According to the Federal Communications
Communications Commission (the “FCC”), the government entity that oversees the ACP, the ACP wound down and stopped accepting
new applications
and enrollments as of February 7, 2024, and June 2024 was the last funded month of the ACP due to lack of additional
funding from Congress.
The expiration of the ACP and the cessation in reimbursement payments had a substantial adverse effect on our business,
financial condition,
and operating results during the yearyears ended December 31, 2024.2024, and 2025. Without revenue from the ACP, we have shifted our
focus to other
business segments, including our MVNO Communications and Comprehensive Platform Services further described herein, however
there is no
guarantee that we will be able to successfully replicate our revenues from the ACP or past profitability, which willmay have
a substantial
adverse effect on our business, financial condition, and operating results.
Additionally,
there is no guarantee whether or for
how long the FCC or other federal agencies will continue to provide funding for the Lifeline program.
As a material component of our current
business operations and source of revenue, any decrease or end to funding of the Lifeline program
would wouldlikely have a substantial adverse effect
on our business, financial condition, and operating results.
We
are currently subject to a number of litigationslitigation
matters as described under the heading “Legal Proceedings.” In connection with certain
of these litigations,litigation matters, we may
be required to pay significant monetary damages. Defending against the current litigations is or can be
time-consuming, expensive and
cause diversion of our management’s attention.
If
we are unable to implement or maintain effective
disclosure controls and procedures, or if there are identified significant deficiencies or material
weaknesses in the future, our ability
to produce accurate and timely financial statements and public reports could be impaired, which
could adversely affect our business and
financial condition. In addition, investors may lose confidence in our reported information and
the market price of our Commoncommon Stockstock may
decline.
Our
success is substantially dependent on the
continued service of our Chief Executive Officer (“CEO”), Kevin Brian CoxCox, and our
Chief Financial Officer (“CFO”),
Chelsea Anthony Evers.Pullano. We do not carry key person life insurance on any of itsour management, which
would leave us uncompensated for the loss of
any of its management. The loss of the services of any of our senior management personnel could make
it more difficult to successfully
operate our business and achieve our business goals. In addition, competition in our industry for senior
management and other key personnel
is intense. If we are unable to retain our existing personnel, or attract and train additional qualified
personnel, either because of
competition in our industry for such personnel or because of insufficient financial resources, our product
development capabilities and
customer and employee relationships growth may be harmed and overall growth may be limited.
As
the continued employment of our executive officers
is critical to the Company’s success, we have entered into competitive employment
agreements in order to retain the services of
our existing officers. In addition to guaranteed base compensation, we have offered our
CEO incentive compensation upon the Company’s
completion of milestones including achieving certain annual revenue, annual EBITDA,
and market capitalization goals, that could require
the Company to paymake large equity grants for the achievement of each milestone completed.
Continuation
of market acceptance for our existing
services and products requirerequires substantial marketing efforts and will require our sales account
executives and contract partners to make
significant expenditures of time and money. In some instances, we will be significantly or totally
reliant on the marketing efforts and
expenditures of our contract partners, outside sales agents and distributors.
Commercialization
of our products and services, requireservices
requires us to expand our own
marketing and sales capabilities or consider collaborating with additional third parties to perform these
functions. We may, in some
instances, rely significantly on sales, marketing and distribution arrangements with collaborative partners
and other third parties.
In these instances, our future revenue will be materially dependent upon the success of the efforts of these
third third
parties.
Mr.
Cox currently ownsowned approximately 28.3%26.7% of our outstanding voting equity.equity
as of April 6, 2026. Subject to any fiduciary duties owed to our other stockholders
under Nevada law, Mr. Cox is able to exercise significant
influence over matters requiring stockholder approval, including the election
of directors and approval of significant corporate transactions,
and will have some control over our management and policies. Mr. Cox
may have interests that are different from yours. For example, Mr.
Cox may support proposals and actions with which you may disagree.
The concentration of ownership could delay or prevent a change in control
of our Company or otherwise discourage a potential acquirer
from attempting to obtain control of our Company, which in turn could reduce
the price of our stock. In addition, Mr. Cox could use his
voting influence to maintain our existing management and directors in office,
delay or prevent changes in control of our Company, or
support or reject other management and proposals of the Board of Directors (the
“Board”) that are subject to stockholder
approval, such as amendments to our employee stock plans and approvals of significant
financing transactions.
The
price of our Commoncommon Stockstock has been and may
in the future continue to be extremely volatile, ranging from a high of $8.43$3.47 and a low of $1.13,$0.6807, since the beginning of 2024.2025 through
April 9, 2025. Many factors could have a significant impact
on the future price of our shares of Common Stock, including:
We
could issue additional Commoncommon Stock, stock,
which mightcould dilute the book value of our Commoncommon Stock.stock.
The
Board has authority, without action or vote
of our shareholders, to issue all or a part of our authorized but unissued shares. Such stock
issuances could be made at a price that
reflects a discount or a premium from the then-current trading price of our Commoncommon Stock.stock. In
addition, in order to raise capital, we may
need to issue securities that are convertible into or exchangeable for our Commoncommon Stock.
stock. These issuances would dilute the percentage ownership
interest, which would have the effect of reducing your influence on matters requiring
shareholders vote and might dilute the book value
of our Commoncommon Stock.stock. You may incur additional dilution if holders of convertible promissory notes, stock warrants
or options, whether
currently outstanding or subsequently issued or granted, exercise their options,rights to convert their securities into common stock or if warrant holders exercise their warrants
to purchase
shares of our Commoncommon Stock.stock.
Future
Issuance issuances of Ourour Commoncommon Stock,stock, Preferredpreferred
stock, Stock,convertible Optionspromissory notes, options and Warrantswarrants Couldcould Dilutedilute the Interestsinterests of Existingexisting Stockholders.stockholders.
We
may issue additional shares of our Commoncommon Stock,
preferred stock, convertible promissory notes, options and warrants in the future, including throughunder the Company’s 2022 Omnibus Securities
and Incentive Plan and the evergreen provisions contained
therein. These issuances may include substantial
milestone-based issuances of
securities to our executive officers as described in Item 11 of this Annual Report under the heading “Employment
Agreements.”
The issuance of acommon substantialstock, amountpreferred ofstock, Commonconvertible Stock,promissory notes, options and warrants could have the effect of substantially
diluting the interests of our current stockholders. In addition, the sale of a substantial amount of Common Stock or preferredcommon stock
in the public market, or
including the exercise of a substantial number of warrants and options either in the initial issuance or in a subsequent
resale by thea target companycompany’s owners in an acquisition which received such Commoncommon Stockstock or other securities convertible
into common stock as consideration in the acquisition, or by investorsshareholders who acquired suchcommon Common
Stockstock in a private placement or other securities
offering could have an adverse effect on the market price of our Commoncommon Stock.stock.
Sales of a significant number of shares of our common stock in the public markets, or the perception that such sales could occur, could depress the market price of our common stock.
Sales of a substantial number of shares of our common stock in the public markets, or the perception that such sales could occur, could depress the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities. We cannot predict the effect that future sales of our common stock would have on the market price of our common stock.
We are not currently in compliance with Nasdaq’s minimum market value of listed securities and minimum bid price listing requirements; if we are not able to regain compliance with those requirements within the time periods permitted by Nasdaq, our common stock may be delisted, which would likely impair our ability to raise capital and could constitute an event of default under our outstanding promissory notes.
On March 18, 2026, the Company received a written notice (the “MVLS Notice”) from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) indicating that the Company no longer meets the minimum market value of listed securities (“MVLS”) of $35,000,000 (the “MVLS Requirement”) set forth in Nasdaq’s Listing Rules (the “Rules”). On March 23, 2026, the Company received a written notice (the “Bid Price Notice” and together with the MVLS Notice collectively the “Notices”) from the Nasdaq Listing Qualifications Department indicating that the Company is not in compliance with the $1.00 minimum bid price requirement (the “Bid Price Requirement”) set forth in the Rules.
There is no guarantee that the Company will be able to regain compliance with the MVLS Requirement or Bid Price Requirement. If the Company’s common stock ultimately were to be delisted for any reason, including because the Company cannot regain compliance with the MVLS Requirement or Bid Price Requirement, it could negatively impact the Company by (i) reducing the liquidity and market price of the Company’s common stock; (ii) reducing the number of investors willing to hold or acquire the Company’s common stock, which could negatively impact the Company’s ability to raise equity financing; (iii) limiting the Company’s ability to use a registration statement to offer and sell freely tradable securities, thereby preventing the Company from accessing the public capital markets; and (iv) impairing the Company’s ability to provide equity incentives to its employees. Additionally, delisting of the Company’s common stock from the Nasdaq Capital Market could constitute an event of default under its outstanding convertible promissory notes, resulting in those notes becoming immediately due and payable, and resulting in default penalties being applied to those notes.
In the event of delisting, the Company can provide no assurance that any action taken by it to restore compliance with listing requirements would allow its securities to become listed again, stabilize the market price or improve the liquidity of its securities, prevent its securities from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements. Additionally, if the Company’s securities are not listed on, or become delisted from, Nasdaq for any reason, and are quoted on the OTC Link ATS, an alternative trading system operated by OTC Markets Group Inc. for equity securities that is not a national securities exchange, the liquidity and price of our securities may be more limited than if we were quoted or listed on Nasdaq or another national securities exchange. You could be unable to sell your securities unless a market could be established or sustained.
Management's Discussion & Analysis (MD&A)
New heading “Stock Issued for Cash – At the Market Offering (“ATM”)”
New heading “Stock Issued for Services”
New heading “Stock Issued to Settle Accounts Payable”
New heading “Debt Discount – Common Stock”
New heading “Debt Discount – Warrants”
Removed heading “Equity Transactions for the Years Ended December 31, 2024”
Removed heading “Stock Issued for Cash - Capital Raise”
Removed heading “Exercise of Warrants - Cash”
Removed heading “Exercise of Warrants - Cashless”
Removed heading “Exercise of Warrants”
Removed heading “Inventory Valuation”
Removed heading “Internal Use Software Development Costs”
Largest changes
Total assets at December 31,see in full comparison20242025, and20232024, amounted to$23,976,005$8,515,846 and$41,925,307,$23,976,005, respectively, a decrease of$17,949,302$15,460,159 from20232024 to2024.2025. The decrease in total assets is a result of athedecreasesuspensionin available cash and an impairment of $3,300,000 of goodwill. At December 31, 2025, assets consisted of current assets ofthe$6,979,766,AffordablenetConnectivityintangibleProgramassets of $819,153, andshutteringoperating lease right oftheuseLogicsIQ business segment, whereby accounts receivable decreased by $6,535,865, the write-downasset ofthe inventory of $6,382,471,$313,410, andthe impairment loss of $1,681,649. Atat December 31, 2024, assets consisted of current assets of $17,870,323, net property and equipment of $591,088, net intangible assets of $1,472,962, goodwill of $3,300,000, note receivable of $176,851, and operating lease right of use asset of$564,781 and at December 31, 2023, assets consisted of current assets of $33,366,661, net property and equipment of $361,841, net intangible assets of $2,126,470, goodwill of $1,666,782, equity investment in Centercom of $464,409, note receivable of $176,851, internal use software of $539,424, operating lease right of use asset of $387,869, and deferred income taxes of $2,835,000.$564,781.
“As a result of shuttering the operations of LogicsIQ, the Company took an aggregate impairment loss of $1,183,376 relating to goodwill and software development assets.”see in full comparison
Full comparison: every changed paragraph (88)
We
report our financial performance based on the following segments: Mobile Virtual Network Operators (MVNO), and ComprehensivePoint-of-Sale Platformand Prepaid
ServiceServices (Top-up). The MVNO segment is further broken down intoincludes subsidized (Lifeline) and non-subsidized components.components (LinkUp Mobile). The
subsidized component
or Lifeline is the result of the mobile broadband (phone and internet connectivity) services provided by SurgePhone Wireless and
Torch Wireless to low-incomeeligible consumersconsumers. The
Point-of-Sale and accountsPrepaid for the majority of our revenue. The Comprehensive Platform ServiceServices segment is
comprised of Surge Fintech and ECS as previously shown.
Revenues
and expenses during the years ended December 31, 20242025, and 20232024, consisted of the following:
Revenue
decreased overall by $76,260,659$3,918,253 (55.6%6.4%)
from fromthe year ended December 31, 20232024, to year ended December 31, 2024.2025. TheSegment breakoutrevenues waswere as follows:
As
a transition strategy, we decided to keep the existing base of subscribers from the former ACP enrolled in our network with a built-in
subscriber base of 250,000. We chose to keep our subscribers active, absorbing the wholesale costs (averaging around $7-10 per subscriber
subscriber per month), and put our strong balance sheet to work to replace the cash inflow we lost once ACP funding ran out. We
transitioned over
80,000 subscribers to the Lifeline program during 2024.2024, and continued to add new users to Lifeline in 2025 as we scaled that portion of the business.
ComprehensivePoint-of-Sale
Platformand Prepaid Services revenues increased by $6,077,905$26,090,683 from December 31, 2024 to December 31, 2025, as a result of increasing our
sales force and hiring of a new Director of Sales.
Effective December 31, 2024, the Company’s
management elected to
abandon its lead generation segment operations as part of a strategic reassessment of its business lines. This decision
followed a review
by the Chief Operating Decision Maker (“CODM”, which is our Chief Executive Officer), who had been regularly
evaluating the
segment’s financial performance and determined that its continued operation was no longer aligned with the Company’s
long-term long-term
strategic objectives. TheLead generation segment revenue was therefore $0 andin $7,184,283 respectively inthe years ended December 31, 20242025 and 2023.2024. Comparison
numbers for the lead generation segment expenses are shown in the respective Other Corporate Overhead lines.lines below.
For the year 2025, cost of revenue for services primarily consisted of data plan expenses ($7,708,012), prepaid retail expenses ($45,209,470), devices ($975,276), marketing ($7,006,084), advertising ($1,332,189), and other expenses such as royalties and call-center expenses ($5,320,781). For the year 2024, cost of revenue for services primarily consisted of data plan expenses ($21,684,451), prepaid retail expenses ($16,779,312), devices ($5,685,656), marketing ($15,632,078), advertising ($4,808,305), and other expenses such as royalties and call-center expenses ($4,233,099).
For
the year 2024, cost of revenue for services primarily consists of data plan expenses ($21,684,451), prepaid retail expenses
($16,779,312), devices ($5,685,656), marketing ($15,632,078), advertising ($4,808,305), and other expenses such as royalties and
call-center expenses ($4,233,099). With the stoppage of ACP, we reviewed the inventory associated with the program and decided to
write off the entirety of the tablets ($6,382,471). Efforts to find buyers of this inventory have been challenging, thus, the
Company has decided to write-off any inventory related to ACP. For the year 2023, cost of revenue for services primarily consists of data plan
expenses ($28,612,000), devices ($28,476,000), marketing and advertising ($23,227,000), and other expenses such as royalties and
call-center expenses ($3,604,000).
Gross profit margin is calculated as revenue less cost of revenue. Gross profit margin is gross profit expressed as a percentage of revenue. Our gross profit in future periods will depend on a variety of factors, including market conditions that may impact our pricing, sales mix among devices, sales mix changes among consumables, excess and obsolete inventories, and the cost of our products from manufacturers. Our gross profit (loss) in future periods will vary based upon our revenue stream mix and may increase or decrease based upon our distribution channels.
The
Company expects to continuefocus on the improvement
of gross margin in the ComprehensivePoint-of-Sale Platformand ServicePrepaid Services segment during 2025.2026. Most of the costs to prepare Clearline ready for launch
have already been incurred, and we expect gross margin to begin moving towards positive in 2026 for this revenue channel. As we continue
to expand
both subsidized (Lifeline) and non-subsidized products of(LinkUp Mobile) in the MNVO segment in 2025,2026, we also anticipate gross
margins in the MVNO segment will
increase with an aim to return to positive results.results in late 2026.
The
increase in depreciation and amortization costs for 2024 is the result of capitalizing costs associated with software enhancements to
our various software platforms.
Selling,
general and administrative costs (S, G & A) increaseddecreased by $10,579,865$7,081,726 (67.3%26.9%). The changes are discussed below:
Interest
expense decreasedincreased to $2,003,935 in 2025 from $554,200 in 2024 from $595,975 in 2023 primarily due to additional notes entered into during the payoff2025 of various debt instruments in 2024.fiscal
year.
In connection with the issuance of a $6,999,999 convertible promissory note, the Company issued warrants to purchase 700,000 shares of common stock. The Company allocated a portion of the proceeds to the warrants based on their relative fair value, determined using the Black-Scholes option pricing model. The fair value of the warrants was estimated to be $207,640, which was recorded as a component of the total debt discount and is being amortized to interest expense over the term of the note.
The equity investment in Centercom changed by $0 in the year ended December 31, 2025 compared to an increase of $33,864 in the year ended December 31, 2024. As of December 31, 2024, The Company determined that it would no longer utilize the Business Process Outsourcing (BPO) services of CenterCom.
The
equity investment in Centercom, an unconsolidated subsidiary of the Company in which we are a minority owner, increased by $33,864 in
2024 compared to an increase of $110,203 in 2023.
As
a result of shuttering the operations of LogicsIQ, the Company took an aggregate impairment loss of $1,183,376 relating to goodwill
and software development assets.
Other
income increased by $636,868, mostly related to one-time reduction in accounts payable to CenterCom for invoices deemed not to be payable.
As
of December 31, 2024, The Company determined that it would no longer utilize the Business Process Outsourcing (BPO) services of CenterCom.
The Company has commenced similar operations internally, eliminating the need for its investment in Centercom. Consequently, an assessment
of the investment was performed to determine whether it should be written off in accordance with U.S. GAAP. As a result, the Company
took an aggregate impairment loss of $498,273.
Equity
Transactions for the Years Ended December 31, 2024
Stock
Issued for Cash - Capital Raise
In
January 2024, the Company issued 3,080,356 shares of common stock for gross proceeds of $17,249,994 ($5.60/share).
In
connection with the capital raise, the Company paid cash as direct offering costs totaling $1,395,000, resulting in net proceeds of $15,854,994.
This
offering was made pursuant to the Company’s registration statement on Form S-3 (File No. 333-273110) previously filed with the
Securities and Exchange Commission (the “SEC”) on July 3, 2023, as amended, and declared effective by the SEC on November
3, 2023.
A
preliminary and final prospectus supplement were filed with the Securities and Exchange Commission pursuant to Rule 424(b) under the
Securities Act of 1933 (the “Securities Act”) on January 17, 2024 and January 19, 2024, respectively. The Offering closed
on January 22, 2024.
Exercise
of Warrants - Cash
During
2024, the Company issued 1,860,308 shares of common stock in connection with the exercise of 1,860,308 warrants for $8,799,257
($4.73/share). See warrant table below.
Exercise
of Warrants - Cashless
During
2024, the Company issued 40,238 shares of common stock in connection with the cashless exercise of warrants ($0.001/share). The transaction
had a net effect of $0 on stockholders’ equity.
The
Company issued 47,386 shares of common stock for services rendered, having a fair value of $411,740 ($3.85 - $7.34/share), based upon
the quoted closing trading price.
Treasury
Stock
Effective
July 2024, the Company implemented a share repurchase program. Under the terms of this program, the Company undertook the following:
The
Company reacquired 362,620 shares of treasury stock for $631,967, at an average price of $1.74/share.
Effective
October 2024, the Company ceased its share repurchase program.
Stock Issued for Cash – At the Market Offering (“ATM”)
In August 2025, the Company entered into an At the Market Offering Agreement (the “ATM Agreement”) with Titan Partners Group LLC, a division of American Capital Partners, LLC (“Titan”), pursuant to which the Company may, from time to time, offer and sell shares of its common stock, $0.001 par value per share, to or through Titan, acting as sales agent and/or principal, in transactions deemed to be “at-the-market offerings” under Rule 415(a)(4) of the Securities Act of 1933, as amended. Under the Prospectus Supplement, the Company may offer and sell shares of its common stock having an aggregate offering price of up to $15,000,000, which is within the Company’s current “baby shelf” limitations under General Instruction I.B.6. of Form S-3. The Company will pay Titan a commission of 3.0% of the gross proceeds from each sale. The Company intends to utilize the ATM Agreement, when appropriate, to fund working capital needs on an ongoing basis.
The
Company issued 242,615 shares of common stock for services rendered, having a fair value of $1,290,024 ($4.19 - $9.40/share), based upon
the quoted closing trading price. All of these shares are for arrangements with consultants as called for per their respective agreements.
Exercise
of Warrants
The
Company issued 43,814697,691 shares of common stock infor Junegross 2023 upon an exerciseproceeds of warrants$1,774,636 with($2.12 an- exercise price of $4.73 for $207,240.$2.98/share).
In connection with the capital raise, the Company paid cash as direct offering costs (including professional fees) totaling $123,197, resulting in net proceeds of $1,651,439.
Stock Issued for Services
The Company issued 324,000 shares of common stock for services rendered, having a fair value of $641,430 ($1.70 - $2.87/share), based upon the quoted closing trading price.
Stock Issued to Settle Accounts Payable
The Company issued 22,807 shares of common stock to settle outstanding vendor payables, having a fair value of $65,456 ($2.87/share), based upon the quoted closing trading price.
Debt Discount – Common Stock
In connection with the issuance of various convertible notes payable, the Company issued 103,000 shares of common stock, having a fair value of $271,880 ($1.90 - $2.86/share), based upon the quoted closing trading price on each respective grant date. This amount has been recorded as a debt discount. See Note 6 for discussion of the various common stock issuances related to convertible note offerings.
Debt Discount – Warrants
In connection with the issuance of various convertible notes payable and a note payable, the Company issued warrants to purchase shares of common stock, having an aggregate fair value of $1,133,345, comprised of $1,084,927 related to convertible notes payable and $48,418 related to the note payable. The fair value of each warrant was determined using the Black-Scholes pricing model on each respective grant date. These amounts have been recorded as a debt discount. See Note 6 for discussion of the assumptions and inputs used in these fair value calculations.
The Company repurchased 333,333 shares of its common stock from a convertible note payable holder for $999,999 ($3/share). In connection with the transaction, the principal balance of the related convertible note was increased by $999,999. See Note 6.
Non-Vested
Shares – Related Parties
Chief Executive Officer
In 2024, the Company granted 500,000 shares of restricted common stock to its Chief Executive Officer (CEO), having a fair value of $3,800,000 ($7.60/share), based upon the quoted closing trading price on the grant date. The shares vested ratably over the period July 2024 through December 2024. All shares vested in accordance with the terms of the agreement. See Note 8 for additional information regarding the CEO employment agreement and future RSA grants.
In November 2023, the Company granted 600,000 shares of restricted common stock to its Chief Financial Officer (CFO), having a fair value of $3,114,000 ($5.19/share), based upon the quoted closing trading price on the grant date. The award was structured in two tranches, with 400,000 shares vesting ratably over the period July 2024 through December 2024 and 200,000 shares vesting on December 31, 2025. All shares vested in accordance with their original vesting schedules. See Note 8 for additional information regarding the CFO employment agreement.
In
2023, the Company granted common stock to its Chief Financial Officer having a fair value of $3,114,000 ($5.19/share), based upon the
quoted closing trading price.
For the year ended December 31, 2023, the Company
recognized stock compensation expense of $486,242 related to vesting.
In 2024, the Company issued shares based on the following
vesting schedule:
For
the year ended December 31, 2024, the Company recognized stock compensation expense of $486,242 related to vesting.
Board of Directors
2025 Grant
In
2023, the Company granted an aggregate 95,000 shares of common stock to various members of the Board of Directors, having a fair value
of $519,500 ($5.14 - $5.53/share), based upon the quoted closing trading price.
What changed in the latest 10-Q
Risk Factors
We could not find a separate Risk Factors item in the latest 10-Q. Some companies leave it out of quarterly reports; see the annual 10-K risk factors and the original filing. Open the filing on SEC.gov.
Management's Discussion & Analysis (MD&A)
New heading “Stock Issued for Services – Related Party”
New heading “Recognition of Stock Based Compensation – Restricted Stock Awards – Employees”
New heading “Recognition of Stock Based Compensation – Non-Vested Shares – Related Parties”
New heading “Board of Directors Grant”
New heading “Conversion of Debt to Common Stock”
New heading “COMPARISON OF SIX MONTHS ENDED JUNE 30, 2026 AND 2025”
New heading “We measure our performance on a consolidated basis as well as the performance of each segment.”
New heading “Cost of Revenue, Gross Profit and Gross Margin”
New heading “General and administrative during the six months ended June 30, 2026 and 2025, consisted of the following:”
New heading “Selling, general and administrative expenses during the six months ended June 30, 2026 and 2025, consisted of the following:”
New heading “Other (expense) income during the six months ended June 30, 2026 and 2025, consisted of the following:”
New heading “Equity Transactions for the Six Months Ended June 30, 2026”
New heading “Stock Issued for Services - Related Party”
New heading “Recognition of Stock Based Compensation - Non-Vested Shares - Related Parties”
New heading “Conversion of Debt to Common Stock”
New heading “Derivative Liabilities”
Removed heading “Stock Issued for Services”
Largest changes
“Our convertible notes payable, and the warrants issued together with them, contain features that require significant judgment both to classify and to measure. Determining whether a warrant qualifies for classification within stockholders’ deficit, and whether a conversion feature embedded in a convertible note must be separated from its debt host and accounted for as a derivative liability, requires us to evaluate the terms of each instrument under ASC 815-40 and ASC 815-15. …”see in full comparison
“Derivative liabilities were $1,107,421 at June 30, 2026, comprising $127,114 attributable to the warrants and $980,307 attributable to the separated conversion features, compared to none at December 31, 2025. These liabilities are measured using the Black-Scholes-Merton option pricing model, are classified within Level 3 of the fair value hierarchy, and will continue to fluctuate with the market price of the Company’s common stock and the other inputs to the model. …”see in full comparison
“Derivative liabilities were $1,107,421 at June 30, 2026, comprising $127,114 attributable to the warrants and $980,307 attributable to the separated conversion features, compared to none at December 31, 2025. These liabilities are measured using the Black-Scholes-Merton option pricing model, are classified within Level 3 of the fair value hierarchy, and will continue to fluctuate with the market price of the Company’s common stock and the other inputs to the model. …”see in full comparison
“In connection with the issuance of convertible promissory notes (Notes #7 and #8), in March 2026, the Company issued 375,000 common stock purchase warrants. These warrants contain certain cash settlement features triggered upon events of default or change of control and therefore do not qualify for equity classification. Accordingly, the warrants are accounted for as derivative liabilities. For the three months ended March 31, 2026 and 2025, the Company recorded a loss (gain) on the change in fair value of derivative liabilities of $30,241 and $0, respectively.”see in full comparison
“Selling, general and administrative expenses during the six months ended June 30, 2026 and 2025, consisted of the following:”see in full comparison
“General and administrative during the six months ended June 30, 2026 and 2025, consisted of the following:”see in full comparison
Full comparison: every changed paragraph (118)
This
statement contains forward-looking statements within the meaning of the Securities Act of 1933, as amended (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 MarchJune 31,30, 2026 and 2025 and for the three and six months then ended includes
the accounts
of SurgePays, Inc. and its wholly owned subsidiaries during the period owned by SurgePays, Inc.
Please
see the description in Item 1 of this AnnualQuarterly Report for a description of our Mobile Virtual Network Operators and Comprehensive Platform
Services.
COMPARISON
OF THREE MONTHS ENDED MARCHJUNE 31,30, 2026 AND 2025
Revenues
and expenses during the three months ended MarchJune 31,30, 2026 and 2025, consisted of the following:
Revenue
increased overall by $5,406,554$4,686,655 (51.1%)or 40.69% from the three months ended MarchJune 31,30, 2025, to the three months ended MarchJune 31,30, 2026. Segment
revenues were as follows:
Mobile
Virtual Network Operators consisting of SurgePhone Wireless and Torch Wireless revenues (as detailed in Notes 2 and 10 of the financial
statements) decreased by $482,311$686,461 or (21.1%30.19%). In the fourth quarter of 2025, due to an audit delay, our Eligible Telecommunications
Carrier Carrier
paused the intake of new users, leading to a temporary dip in Lifeline revenues in early 2026.
Point-of-Sale
and Prepaid Services revenues increased by $5,888,865$5,373,116 from MarchJune 31,30, 2025 to MarchJune 31,30, 2026, as a result of continued efforts to scale
this segment by theour VP of Sales, and the continued increasing use of our sales force.
For
the three months ended MarchJune 31,30, 2026, cost of revenue for services primarily consisted of dataMobile planVirtual Network Operator expenses of
($622,176$2,300,917), prepaid retail
expenses ($22,629,899), marketing ($63,029), advertising ($27,779$14,229,075), and other expenses such as royalties and call-center expenses ($338,549$100,000).
For the
three months ended MarchJune 31,30, 2025, cost of revenue for services primarily consists of data plan expenses ($2,859,283$1,931,585), prepaid retail
retail expenses ($8,330,157$9,788,814), devices ($391,539$481,737), marketing ($124,721$368,647), advertising ($516,778$331,00) and other expenses such as royalties and call-center
call-center expenses ($1,297,297$1,230,802).
The
Company expects to focus on the improvement of gross margin in the Point-of-Sale and Prepaid Services segment during the remainder
of of
2026. In the fourth quarter of 2025, the Company pivoted its focus for the Clearline platform, significantly reducing expenses
within Clearline
as the Company continues to focus on future revenue growth. As we continue to expand both subsidized (Lifeline) and
non-subsidized products
(LinkUp Mobile) in the MNVO segment in 2026, we also anticipate gross margins in the MVNO segment will
increase with an aim to return
to positive results in late 2026.
General
and administrative during the three months ended MarchJune 31,30, 2026 and 2025, consisted of the following:
Selling,
general and administrative expenses during the three months ended MarchJune 31,30, 2026 and 2025, consisted of the following:
Selling,
general and administrative costs (S, G & A) decreasedincreased by $1,239,807,$517,547, or (27.2%).13.2%. The changes are discussed below:
● Contractors and consultants expense increased by $567,475 or 113.4% from $500,448 in the three months ended June 30, 2025, to $1,067,923 in the three months ended June 30, 2026. This increase is primarily due to stock issuances to certain consultants made during the three months ended June 30, 2026.
● Professional services decreased by $125,750 or 40.6% in the three months ended June 30, 2026, as compared to the same period in 2025.
● Contractors
and consultants expense decreased by $460,481 or 54.5% from $845,094 in 2025 to $384,613 in 2026. The Company decreased these expenses
during the three months ended March 31, 2026, due to the reduction in advisory services specifically in the area of investment relations
and the internalization of marketing efforts.
● Professional
services remained fairly steady, decreasing by 5,649 or 3.4% in 2026.
●
Compensation Compensation
increased slightly from $1,730,440$1,929,704 in 2025the three months ended June 30, 2025, to $1,801,049$1,921,917 in 2026.the comparable period in
2026, or by 6.4%.
●
Computer Computer
and internet costs decreased slightlyby 21.2% to $253,053$195,360 in 2026the three months ended June 30, 2026, from $259,085$247,771 in the comparable
period in 2025.
●
Advertising Advertising
and marketing costs increased to $29,922$128,880 in 2026the three months ended June 30, 2026, from $23,480$14,143 in 2025the comparable period
in 2025, primarily due to additional marketing of the Clearline platform.
● Insurance expense increased to $494,948 in the three months ended June 30, 2026, from $283,377 in the comparable period in 2025.
● Contract settlement gain expenses increased from $0 in the three months ended June 30, 2025, to $8,511,672 in the comparable period in 2026 as a product of the MVNx Reseller Agreement and Related Amendments. See Note 8 - Commitments and Contingencies for more details on this settlement gain.
● Insurance
expense decreased to $258,616 in 2026 from $283,202 in 2025 primarily as a result of improved premium rates for the renewal of coverage.
●
Other Other
costs decreased to $424,209$443,117 in 2026the three months ended June 30, 2026, from $1,244,321in$756,627 2025in the comparable period in 2025, primarily
due to the resolution of various taxes associated with the ACP and
other company-wide cost-cutting measures.
Other
(expense) income during the three months ended MarchJune 31,30, 2026 and 2025, consisted of the following:
Interest expense, including amortization of debt discount, was $1,026,341 for the three months ended June 30, 2026, compared to $279,306 for the three months ended June 30, 2025. Of these amounts, interest expense was $533,520 in the three months ended June 30, 2026, and $212,419 in the comparable period in 2025, and amortization of debt discount recognized in interest expense was $492,821 in the three months ended June 30, 2026, and $66,887 in the comparable period in 2025. The increases were driven primarily by the higher level of convertible notes payable outstanding during the 2026 comparative period, including notes issued during the quarter, together with amortization of the debt discounts established on those notes.
During the three months ended June 30, 2026, the Company advanced an additional $500,000 of principal under its $6,999,999 senior secured convertible note pursuant to the amendment entered into earlier in 2026. The advance was accounted for as a modification of the existing note and did not result in any gain or loss or the issuance of additional warrants.
During the three months ended June 30, 2026, the Company issued Convertible Notes #18, #21 and #22 together with warrants to purchase 285,000 shares of common stock at an exercise price of $1.25 per share. The warrants provide for settlement in cash at the holder’s election upon specified fundamental transactions and therefore do not qualify for equity classification under ASC 815-40-25; their aggregate issuance-date fair value of $78,989 was recorded as a component of debt discount. The conversion features of Convertible Notes #21 and #22, neither of which carries a fixed conversion price, were separated from their debt hosts and recorded as derivative liabilities at an aggregate issuance-date fair value of $176,510, also as a component of debt discount. No derivative expense arose on these issuances, because the debt discount recorded on each note did not exceed the proceeds received.
The Company recognized derivative expense of $1,168,511 for the three months ended June 30, 2026, with no comparable amount in the prior-year period. Scheduled amortization payments came due on Convertible Notes #2, #3, #4 and #5 during the quarter and were not paid in cash, which made a market-based conversion rate available to each holder and required the conversion feature of each note to be separated from its debt host under ASC 815-15-25-1. Because each host note was already outstanding, no proceeds remained to be allocated and no debt discount arose, and the aggregate fair value of the separated features on their separation dates was charged to earnings. The expense reflects the initial recognition of these features and does not represent a cash payment or any change in the principal or interest payable under the notes.
The Company recognized a gain on the change in fair value of derivative liabilities of $292,577 for the three months ended June 30, 2026, with no comparable amount in the prior-year period, reflecting remeasurement at each conversion date during the quarter and at the reporting date, and attributable principally to the decline in the market price of the Company’s common stock and to shorter expected terms. Five conversions at the market-based rate settled $385,880 of principal and capitalized guaranteed interest through the issuance of 935,843 shares of common stock, and $208,606 of the related derivative carrying amount was reclassified to additional paid-in capital with no effect on earnings.
Derivative liabilities were $1,107,421 at June 30, 2026, comprising $127,114 attributable to the warrants and $980,307 attributable to the separated conversion features, compared to none at December 31, 2025. These liabilities are measured using the Black-Scholes-Merton option pricing model, are classified within Level 3 of the fair value hierarchy, and will continue to fluctuate with the market price of the Company’s common stock and the other inputs to the model. Several of the Company’s other convertible notes payable carry the same market-based conversion rate, which becomes available on a failure to pay a scheduled amortization payment when due or on an event of default; either event would require separation of that note’s conversion feature and a further charge to derivative expense. See Note 6.
The Company recognized a loss on present value measurement of long-term accounts receivable of $415,067 during the three months ended June 30, 2026, with no comparable charge in the prior-year period, upon the reclassification of $3,613,561 of reimbursements withheld under programs administered by the Universal Service Administrative Company from current to non-current accounts receivable. Because the withheld amounts do not bear interest and are not expected to be collected within twelve months, the receivable was measured at its present value by discounting the face amount over an estimated collection period of thirty-six (36) months at a discount rate of 4.15%. The discount is accreted to income using the effective interest method, and accretion of $132,727 was recognized during the quarter and is presented as accretion of discount on accounts receivable within other income (expense).
Interest
expense increased to $881,908 in 2026 from $119,434 in 2025 primarily due to additional notes entered into during the latter three quarters
of 2025 and first quarter of 2026.
In
connection with the issuance of a $6,999,999 convertible promissory note, the Company issued warrants to purchase 700,000 shares of common
stock. The Company allocated a portion of the proceeds to the warrants based on their relative fair value, determined using the Black-Scholes
option pricing model. The fair value of the warrants was estimated to be $207,640, which was recorded as a component of the total debt
discount and is being amortized to interest expense over the term of the note.
In connection
with the issuance of convertible promissory notes (Notes #7 and #8), in March 2026, the Company issued 375,000 common stock purchase
warrants. These warrants contain certain cash settlement features triggered upon events of default or change of control and therefore
do not qualify for equity classification. Accordingly, the warrants are accounted for as derivative liabilities. For the three months
ended March 31, 2026 and 2025, the Company recorded a loss (gain) on the change in fair value of derivative liabilities of $30,241 and
$0, respectively.
Other
income was $20,290 for the three months ended June 30, 2026. The
Company invested excess cash in various instruments during 2025, resulting
in interest, dividends, and gains resulting in aninterest aggregate
increaseincome of $56,903$7,008 in the three months ended June 30, 2025, compared to $0 in 2026.
Equity
Transactions for the Three Months Ended MarchJune 31,30, 2026
The Company issued 385,000 shares of common stock for services rendered during the three months ended June 30, 2026, having an aggregate fair value of $509,935, based upon the quoted closing trading price on each grant date.
Stock Issued for Services – Related Party
On April 1, 2026, the Company issued its Chief Executive Officer 500,000 shares of common stock for services rendered under his employment agreement, having a fair value of $360,000, or $0.72 per share. On June 1, 2026, the Company issued its Chief Executive Officer an additional 500,000 shares of common stock for services rendered under the same agreement, having a fair value of $297,900, or $0.5958 per share. An aggregate compensation expense of $657,900 was recognized.
Recognition of Stock Based Compensation – Restricted Stock Awards – Employees
The Company recognized $7,787 in compensation expense during the three months ended June 30, 2026, related to the December 16, 2025, grant of 54,331 restricted shares of common stock to employees, which vest in full on the third anniversary of the grant date, with compensation cost recognized on a straight-line basis over the thirty-six (36) month requisite service period.
Recognition of Stock Based Compensation – Non-Vested Shares – Related Parties
The Company recognized $60,313 in compensation expense during the three months ended June 30, 2026, related to non-vested shares of common stock awarded to members of the Board of Directors under their respective agreements.
Board of Directors Grant
On June 24, 2026, the Company granted an aggregate of 945,537 shares of common stock to three members of its Board of Directors, having an aggregate fair value of $375,000, or $0.3966 per share, based upon the quoted closing trading price on the grant date. Subject to the holder’s continuous service as a director of the Company, the restricted shares become fully vested upon the earliest to occur of: (i) the date on which the holder no longer serves as a director for any reason (including the death of the holder or the occurrence of a disability that renders the holder incapable of providing services to the Company), other than a termination of service for cause; (ii) the occurrence of a change of control (as defined in the Plan); or (iii) June 24, 2029.
Conversion of Debt to Common Stock
During the three months ended June 30, 2026, holders of convertible notes payable converted an aggregate of $385,880 of principal and capitalized guaranteed interest into 935,843 shares of common stock, at effective conversion prices ranging from $0.3587 to $0.4490 per share. The conversions were effected under the original conversion terms of the respective notes, and accordingly the carrying amount of the notes converted, net of the related unamortized debt discount, was credited to common stock and additional paid-in capital, with no gain or loss recognized. See Note 5.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2026 AND 2025
We measure our performance on a consolidated basis as well as the performance of each segment.
We report our financial performance based on the following segments: Mobile Virtual Network Operators (MVNO), and Point-of-Sale and Prepaid Services (Top-up). The MVNO segment includes subsidized (Lifeline) and non-subsidized components (LinkUp Mobile). The subsidized component or Lifeline is the result of the mobile broadband (phone and internet) services provided by Torch Wireless to eligible consumers. The Point-of-Sale and Prepaid Services segment is comprised of Surge Fintech and ECS as previously shown.
The segment amounts included in MD&A are presented on a basis consistent with our internal management reporting. Additional information on our reportable segments is contained in Note 10 – Segment Information of the Notes to Financial Statements.
Revenues and expenses during the six months ended June 30, 2026 and 2025, consisted of the following:
Revenue increased overall by $10,093,208 (45.7%) from the six months ended June 30, 2025, to the six months ended June 30, 2026. Segment revenues were as follows:
Mobile Virtual Network Operators consisting of SurgePhone Wireless and Torch Wireless revenues (as detailed in Notes 2 and 10 of the financial statements) decreased by $1,168,773 or (25.6%). In the fourth quarter of 2025, due to an audit delay, our Eligible Telecommunications Carrier paused the intake of new users, leading to a temporary dip in Lifeline revenues in early 2026.
Point-of-Sale and Prepaid Services revenues increased by $11,261,980 from June 30, 2025 to June 30, 2026, as a result of continued efforts to scale this segment by our VP of Sales, and the continued increasing use of our sales force.
Cost of Revenue, Gross Profit and Gross Margin
For the six months ended June 30, 2026, cost of revenue for services primarily consisted of mobile virtual network operator expenses ($3,318,445), prepaid retail expenses ($36,859,083), and other expenses such as royalties and call-center expenses ($134,005). For the six months ended June 30, 2025, cost of revenue for services primarily consists of data plan expenses ($4,790,868), prepaid retail expenses ($18,118,971), devices ($873,276), marketing ($493,368), advertising ($847,778) and other expenses such as royalties and call-center expenses ($2,568,346).
We expect that our cost of revenue will increase or decrease to the extent that our revenue increases and decreases.
Gross profit margin is calculated as revenue less cost of revenue. Gross profit margin is gross profit expressed as a percentage of revenue. Our gross profit in future periods will depend on a variety of factors, including market conditions that may impact our pricing, sales mix among devices, sales mix changes among consumables, excess and obsolete inventories, and the cost of our products from manufacturers. Our gross profit (loss) in future periods will vary based upon our revenue stream mix and may increase or decrease based upon our distribution channels.
The Company expects to focus on the improvement of gross margin in the Point-of-Sale and Prepaid Services segment during the remainder of 2026. In the fourth quarter of 2025, the Company pivoted its focus for the Clearline platform, significantly reducing expenses within Clearline as the Company continues to focus on future revenue growth. As we continue to expand both subsidized (Lifeline) and non-subsidized products (LinkUp Mobile) in the MNVO segment in 2026, we also anticipate gross margins in the MVNO segment will increase with an aim to return to positive results in late 2026.
SURG insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 1 Form 4 filing (1 insider, 3 trade dates, 40,250 shares, about $21.3K) and open-market sales in 0 filings. Net open-market shares: 40,250 (purchases minus sales); net value about $21.3K.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-07-31 | Weisberg Laurie |
Grant/award | 315,179 | — | — |
| 2026-07-31 | Keys David N |
Grant/award | 315,179 | — | — |
| 2026-07-31 | May David Allen |
Grant/award | 315,179 | — | — |
| 2026-06-05 | May David Allen |
Open-market purchase | 34,716 | $0.53 | $18.4K |
| 2026-06-04 | May David Allen |
Open-market purchase | 121 | $0.53 | $64 |
| 2026-06-03 | May David Allen |
Open-market purchase | 5,413 | $0.53 | $2.9K |
| 2026-06-01 | Cox Kevin Brian |
Grant/award | 500,000 | — | — |
Well-known investors holding SURG (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 83,163 | $30.0K | 0.0% | New position |
| Renaissance Technologies | 2026-06-30 | 50,900 | $18.4K | 0.0% | Added 2% |