SurgePays Inc
For the period ended Jun 30, 2024. Filed Aug 13, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 13, 2024
SURG$0.17+2.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-13.
0001493152-24-018890
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-13.
0001493152-24-031624
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 116 previous paragraphs and 136 current paragraphs.
75 unchanged; 24 reworded; 20 added; 17 removed; 0 previous and 17 current paragraphs rearranged.
Tables are not compared: 14 previous and 24 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (20)
Current report
As a transition strategy moving forward, we decided to keep the existing base of subscribers from the former ACP enrolled in our network through June 30, 2024 and beyond. We believe it would have been an easy, though short-sighted, decision to de-enroll these subscribers once the ACP funding ran out because we have a built-in subscriber base of 250,000 and a distribution network of thousands of local convenience stores and bodegas where our consumers shop every day. We believe these are huge and valuable assets and to hold on to these valuable assets during this transition period, we chose to keep our subscribers active, absorb the wholesale costs, averaging around $7-10 per subscriber per month, and put our strong balance sheet to work to replace the cash inflow we lost once ACP funding ran out. This will allow us to maintain our current customer base if that occurs.
Current report
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 $17,711,323 (58.6%). Due to a lack of additional funding from Congress, April 2024 was the last month ACP households received the full ACP discount, as they had received in prior months, with some ACP households receiving a partial ACP discount in May 2024 if their provider elected to participate in the May partial reimbursement month, as we did. The $14.2 billion Congress initially made available for the ACP has run out. As a result, the ACP has ended for now. Effective June 1, 2024, households will no longer receive an ACP discount. As a transition strategy moving forward, we decided to keep the existing base of subscribers from the former ACP enrolled in our network through June 30, 2024 and beyond. We believe it would have been an easy, though short-sighted, decision to de-enroll these subscribers once the ACP funding ran out because we have a built-in subscriber base of 250,000 and a distribution network of thousands of local convenience stores and bodegas where our consumers shop every day. We believe these are huge and valuable assets and to hold on to these valuable assets during this transition period, we chose to keep our subscribers active, absorb the wholesale costs, averaging around $7-10 per subscriber per month, and put our strong balance sheet to work to replace the cash inflow we lost once ACP funding ran out. It is also our plan to communicate to this base our intention to transition these subscribers to our LinkUp Mobile service line. Since the ACP was not funded, we expect revenue for the Company for the remainder of 2024 to substantially decrease because ACP reimbursement was a substantial portion of our revenue.
Current report
Other income increased by $636,868, mostly related to one-time reduction in accounts payable to CenterCom for invoices deemed not to be payable.
Current report
A reconciliation of the provision for income taxes to the amount computed by applying the statutory federal income tax rate of 21% to income before provision for income taxes for the six months ended June 30, 2024 and 2023, respectively, is approximately as follows:
Current report
COMPARISON OF SIX MONTHS ENDED June 30, 2024 AND 2023
Current report
Revenue decreased overall by $24,148,042 (34.2%) from the six months ended June 30, 2023 to the six months ended June 30, 2024. The breakout was as follows:
Current report
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 $17,478,118 (29.7%). Due to a lack of additional funding from Congress, April 2024 was the last month ACP households received the full ACP discount, as they had received in prior months, with some ACP households receiving a partial ACP discount in May 2024 if their provider elected to participate in the May partial reimbursement month, as we did. The $14.2 billion Congress initially made available for the ACP has run out. As a result, the ACP has ended for now. Effective June 1, 2024, households will no longer receive an ACP discount. As a transition strategy moving forward, we decided to keep the existing base of subscribers from the former ACP enrolled in our network through June 30, 2024 and beyond. We believe it would have been an easy, though short-sighted, decision to de-enroll these subscribers once the ACP funding ran out because we have a built-in subscriber base of 250,000 and a distribution network of thousands of local convenience stores and bodegas where our consumers shop every day. We believe these are huge and valuable assets and to hold on to these valuable assets during this transition period, we chose to keep our subscribers active, absorb the wholesale costs, averaging around $7-10 per subscriber per month, and put our strong balance sheet to work to replace the cash inflow we lost once ACP funding ran out. It is also our plan to communicate to this base our intention to transition these subscribers to our LinkUp Mobile service line. Since the ACP was not funded, we expect revenue for the Company for the remainder of 2024 to substantially decrease because ACP reimbursement is a substantial portion of our revenue.
Current report
Selling, general and administrative expenses during the six months ended June 30, 2024 and 2023 consisted of the following:
Current report
Interest expense decreased to $249,305 in the six months ended June 30, 2024 from $348,593 in the six months ended June 30, 2023.
Current report
Other income increased by $636,868, mostly related to one-time reduction in accounts payable to CenterCom for invoices deemed not to be payable.
Current report
The equity investment in Centercom increased by $33,864 in the six months ended June 30, 2024 compared to an increase of $43,742 in the six months ended June 30, 2023.
Current report
Provision for income tax benefit during the six months ended June 30, 2024 and 2023 consisted of the following:
Current report
A reconciliation of the provision for income taxes to the amount computed by applying the statutory federal income tax rate of 21% to income before provision for income taxes for the six months ended June 30, 2024 and 2023, respectively, is approximately as follows:
Current report
Six Months Ended June 30, 2024
Current report
The remaining 5,101 stock options vested.
Current report
Stock-based compensation expense for the three months ended June 30, 2024 and 2023 was $0 and $9,294, respectively.
Current report
Stock-based compensation expense for the six months ended June 30, 2024 and 2023 was $6,196 and $18,587, respectively.
Current report
Segment information for the Company’s operations for the six months ended June 30, 2024 and 2023, are as follows:
Current report
The Affordable Connectivity Program (ACP) revenue for the six months ended June 30, 2024 decreased by $17,478,118 as compared to the six months ended June 30, 2023. Cost of revenues for the six months ended June 30, 2024, decreased by $5,666,242 from the same period ended June 30, 2023, due to a lack of additional funding from Congress, April 2024 was the last month ACP households received the full ACP discount, as they had received in prior months, with some ACP households receiving a partial ACP discount in May 2024 if their provider elected to participate in the May partial reimbursement month, as we did. The $14.2 billion Congress initially made available for the ACP has run out and as a result, the ACP has ended for now. Effective June 1, 2024, households will no longer receive an ACP discount and therefore until new or alternative funding for this program is available, we expect revenue for the remainder of 2024 to substantially decrease as the ACP reimbursement was a substantial portion of the Company’s revenue.
Current report
As a result of the end of funding to the ACP, we expect to incur a loss for the calendar year 2024 as we transition our focus to the non-subsidized market and LinkUp Mobile. Although the Company expects the loss of revenue from the ACP to have a substantial financial impact on the Company, we believe that the Company’s cash balance and working capital as of June 30, 2024, will be sufficient to fund operations for at least the next twelve months.
Removed paragraphs (17)
Previous report
Reclassifications
Previous report
Mobile Virtual Network Operators consisting of SurgePhone Wireless and Torch Wireless revenues (as detailed in Notes 2 and 10 of the financial statements) increased by $233,206 (0.8%). On February 7, 2024, the ACP stopped accepting new applications and enrollments and the ACP will cease to be funded after May 20, 2024.
Previous report
If the ACP is fully funded, we expect revenue to grow overall for the Company in 2024 and we will be focusing our business efforts on the continued growth of our Mobile Virtual Network Operators. Specifically, we realigned our management team to best produce results in all facets of the Company. We hired a new head of sales with substantial experience and connections with convenience store to specifically increase revenue and store counts. However, if the ACP is not renewed, we expect revenue for the Company in 2024 to substantially decrease because ACP reimbursement is a substantial portion of our revenue. Additionally, the Company plans to make a final decision on whether to maintain or discontinue the Lead Generation segment of its business in the second quarter of fiscal year ending 2024.
Previous report
The Company expects to continue the improvement of gross margin in the MVNO segment, assuming the ACP program continues to be fully funded for 2024. The Company expects the overall cost to acquire a new ACP subscriber will decrease in 2024 as we introduce our connections to convenience stores and new social media approaches to capture new subscribers. We anticipate the cost of device acquisition will continue to be lower in 2024 as we transition from buying devices to using SIM cards to capture and switch subscribers to our services. As we roll out new approaches to acquire an ACP subscriber, our marketing-related expenses should decrease.
Previous report
The Company expects to continue the improvement of gross margin in all segments, assuming the ACP program is fully funded for 2024.
Previous report
Stock Issued for Cash - Capital Raise
Previous report
In 2024, the Company issued 3,080,356 shares of common stock for gross proceeds of $17,249,994 ($5.60/share).
Previous report
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.
Previous report
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.
Previous report
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.
Previous report
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.
Previous report
Exercise of Warrants - Cashless
Previous report
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. See warrant table below.
Previous report
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.
Previous report
See separate discussion below for the issuance and related vesting of common stock granted to the Company’s officers and directors.
Previous report
The Affordable Connectivity Program (ACP) revenue for the three months ended March 31, 2024 increased by $233,206 as compared to the three months ended March 31, 2023. Cost of revenues for the three months ended March 31, 2024, decreased by $551,660 from the same period ended March 31, 2023, as a result of the purchases of devices ($3,900,413), data usage expenses ($6,706,958) and marketing services paid of ($5,799,322) for the ACP program. The operating income increased from an operating income of $7,298,049 as of the three months ended March 31, 2023, to operating income of $8,097,560 as of three months ended March 31, 2024. As of this filing, the ACP has not been funded by Congress. We expect revenues and associated gross margin to be lower in the second quarter of 2024.
Previous report
If the ACP is fully funded, we expect positive operating income results for the remainder of 2024. If ACP is not fully funded, we expect to incur a loss for the calendar year 2024, as we transition to the non-subsidized market or LinkUp Mobile. The gross margin for the three months ended March 31, 2024 was approximately 26% compared to the three months ended March 31, 2023 of approximately 22%.
Reworded paragraphs (24)
Previous wording
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 March 31, 2024 and 2023 and for the three months then ended includes the accounts of SurgePays, Inc. and its wholly owned subsidiaries during the period owned by SurgePays, Inc.
Current wording
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 June 30, 2024 and 2023 and for the three months and six months then ended includes the accounts of SurgePays, Inc. and its wholly owned subsidiaries during the period owned by SurgePays, Inc.
Previous wording
We provide mobile broadband (internet connectivity), voice and SMS text messaging to both subsidized and direct retail prepaid customers through SurgePhone Wireless, LLC and Torch Wireless, LLC, wholly owned subsidiaries of SurgePays. We consider this the Mobile Virtual Network Operators (MVNO) segment of our business. Further, we provide two types of MVNO’s, subsidized and non-subsidized. Our subsidized MVNO’s are licensed by the Federal Communications Commission (the “FCC”) to provide subsidized access to the internet through mobile broadband services to consumers qualifying under the federal guidelines of the Affordable Connectivity Program (the “ACP”). We provide these services by supplying consumers eligible for the ACP with tablet devices with mobile broadband capabilities for use in their homes. For providing mobile broadband on tablets to these eligible customers, the ACP (the successor program, as of March 1, 2022 to the Emergency Broadband Benefit program) reimburses us up to a $100 for the cost of each tablet device we distribute and a $30 per customer, per month subsidy for mobile broadband (internet connectivity) services. SurgePhone and Torch combined are licensed to offer subsidized mobile broadband to all fifty states. Revenue from this portion of our business for the three months ended March 31, 2024 accounted for 92% of our total revenue as compared to 82% for the three months ended March 31, 2023. However, according to the FCC website, on February 7, 2024, the ACP stopped accepting new applications and enrollments and the ACP will cease to be funded after April 2024. The Company hopes that the program will be funded by Congress, however, at this time, we cannot predict any outcome.
Current wording
We provide mobile broadband (internet connectivity), voice and SMS text messaging to both subsidized and direct retail prepaid customers through SurgePhone Wireless, LLC and Torch Wireless, LLC, wholly owned subsidiaries of SurgePays. We consider this the Mobile Virtual Network Operators (MVNO) segment of our business. Prior to the expiration of the Affordable Connectivity Program (the “ACP”) on June 1, 2024, we provided two types of MVNO’s, subsidized and non-subsidized. Our subsidized MVNO’s were licensed by the Federal Communications Commission (the “FCC”) to provide subsidized access to the internet through mobile broadband services to consumers qualifying under the federal guidelines of the ACP. We provided these services by supplying consumers who were eligible for the ACP with tablet devices with mobile broadband capabilities for use in their homes. For providing mobile broadband on tablets to these eligible customers, until June 1, 2024, the ACP reimbursed us up to a $100 for the cost of each tablet device we distributed and a $30 per customer, per month subsidy for mobile broadband (internet connectivity) services. Revenue from this portion of our business for the three months ended June 30, 2024 accounted for 83% of our total revenue as compared to 84% for the three months ended June 30, 2024. Revenue from this portion of our business for the six months ended June 30, 2024 accounted for 89% of our total revenue as compared to 83% for the six months ended June 30, 2024. However, due to a lack of additional funding from Congress, April 2024 was the last month ACP households received the full ACP discount, as they had received in prior months, with some ACP households receiving a partial ACP discount in May 2024 if their provider elected to participate in the May partial reimbursement month, as we did. Effective June 1, 2024, households will no longer receive an ACP discount, and therefore until new or alternative funding for this program is available, we expect revenue for the remainder of 2024 to substantially decrease as the ACP reimbursement was a substantial portion of the Company’s revenue. Despite the expiration of ACP, we have decided to continue to provide broadband capabilities on our tablets to our previously subsidized customers with the belief that the ACP or a similar government program will be approved in the near future.
Previous wording
Through our subsidiaries we plan to roll-out LinkUp Mobile in the second quarter of 2024. This non-subsidized portion of our MVNO business will leverage the volume of buying power we have with our subsidized subscriber base to build low-cost plans using SIM kits in convenience stores transacting on the SurgePays network. Our market will be to penetrate rural America where there is less competition and higher consumer pricing and offer incentivized family plans to the rapidly growing base of subsidized customer households. The revenue will be generated by subscribers paying a monthly fee for talk, text and data carrier services on a prepaid basis. If the ACP is not funded, we plan to competitively market our non-subsidized MVNO business to our current ACP customers and hope to be able to retain them as customers in this segment.
Current wording
Through our subsidiaries we plan to roll-out LinkUp Mobile over the remainder of 2024. This is the non-subsidized portion of our MVNO business, which will attempt to leverage the volume of buying power we have with our previous subsidized subscriber base to build low-cost plans using SIM kits in convenience stores transacting on the SurgePays network. Our market will be to penetrate rural America where there is less competition and higher consumer pricing and offer incentivized family plans to the rapidly growing base of subsidized customer households. The revenue will be generated by subscribers paying a monthly fee for talk, text and data carrier services on a prepaid basis. As highlighted above, we continued to provide the previous ACP benefit to our subscriber base through June 30, 2024 in the hope the ACP program would be re-established. It is our plan to communicate to this base our intention to transition these subscribers to our LinkUp Mobile service line.
Previous wording
In 2023, we decided to focus less on this segment of our business and the Company is in the process of determining how best this service fits into the overall plans of SurgePays. The Company still derived revenue from this segment of our business in 2023, however, we have not received any revenue for the three months ended March 31, 2024 and plan to make a final decision on whether to maintain or discontinue the Lead Generation segment of its business in the second quarter of fiscal year ended 2024.
Current wording
In 2023, we decided to focus less on this segment of our business and the Company is in the process of determining how best this service fits into the overall plans of SurgePays. The Company still derived revenue from this segment of our business in 2023, however, we have not received any revenue for the six months ended June 30, 2024 and plan to make a final decision on whether to maintain or discontinue the Lead Generation segment of its business in the before the end of the fiscal year ended 2024.
Previous wording
Revenue decreased overall by $3,347,308 (9.6%) from the three months ended March 31, 2023 to the three months ended March 31, 2024. The breakout was as follows:
Current wording
Revenue decreased overall by $20,800,734 (58.0%) from the three months ended June 30, 2023 to the three months ended June 30, 2024. The breakout was as follows:
Previous wording
Lead Generation services consisting of LogicsIQ revenues decreased by $3,170,845 as a result of operational changes by management in late 2023. The Company plans to make a final decision on whether to maintain or discontinue the Lead Generation segment of its business in the second quarter of fiscal year ended 2024.
Current wording
Lead Generation services consisting of LogicsIQ revenues decreased by $2,791,585 as a result of operational changes by management in late 2023. The Company plans to make a final decision on whether to maintain or discontinue the Lead Generation segment of its business in fiscal year ended 2024.
Previous wording
Comprehensive Platform Services revenues decreased by $403,757 as a result of focusing our efforts on our MVNO segment, specifically the ACP component of the MVNO segment while we strategized on how to enhance our sales and on-boarding approach to adding convenience stores to our platform. The Company expects this segment to be the biggest percent of year-over-year revenue growth opportunity for the remainder of 2024.
Current wording
Comprehensive Platform Services revenues decreased by $293,765 as a result of focusing our efforts on our MVNO segment, specifically the ACP component of the MVNO segment while we strategized on how to enhance our sales and on-boarding approach to adding convenience stores to our platform. The Company expects this segment to be the biggest percent of year-over-year revenue growth opportunity for the remainder of 2024.
Previous wording
For the three months ended March 31, 2024, cost of revenue for services primarily consists of data plan expenses ($8,979,344), devices ($3,900,413), marketing ($5,799,322), advertising ($2,937,608) and other expenses such as royalties and call-center expenses ($1,849,779). For the three months ended March 31, 2023, cost of revenue for services primarily consists of data plan expenses ($10,490,657), devices ($6,225,403), marketing ($5,518,680), advertising ($2,703,759) and other expenses such as royalties and call-center expenses ($2,143,461).
Current wording
For the three months ended June 30, 2024, cost of revenue for services primarily consists of data plan expenses ($9,011,476), devices ($1,145,609), marketing ($5,763,093), advertising ($1,377,794) and other expenses such as royalties and call-center expenses ($1,230,802). For the three months ended June 30, 2023, cost of revenue for services primarily consists of data plan expenses ($9,216,892), devices ($7,378,088), marketing ($4,882,564), advertising ($1,809,257) and other expenses such as royalties and call-center expenses ($2,573,904).
Previous wording
In addition, the Company plans to implement a new sales force for Comprehensive Platform Services to capture what we believe is an untapped underbanked convenience store market.
Current wording
In addition, the Company plans to implement a new sales force for Comprehensive Platform Services to capture what we believe is an untapped underbanked convenience store market. Our sales force team has increased to five as of June 30, 2024, from one as of June 30, 2023.
Previous wording
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 in future periods will vary based upon our revenue stream mix and may increase or decrease based upon our distribution channels. If the ACP is not continually funded by Congress, we expect the gross margins to initially decrease overall as we transition from subsidized subscribers to non-subsidized subscribers through our LinkUp mobile service line.
Current wording
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 in future periods will vary based upon our revenue stream mix and may increase or decrease based upon our distribution channels. We expect the gross margins to decrease overall as we transition from subsidized subscribers to non-subsidized subscribers through our LinkUp mobile service line.
Previous wording
Selling, general and administrative costs (S, G & A) increased by $3,417,941 (125.5%). The changes are discussed below:
Current wording
Selling, general and administrative costs (S, G & A) increased by $3,586,308 (100.8%). The changes are discussed below:
Previous wording
Interest expense decreased to $132,583 in the three months ended March 31, 2024 from $192,326 in the three months ended March 31, 2023.
Current wording
Interest expense decreased to $116,722 in the three months ended June 30, 2024 from $156,267 in the three months ended June 30, 2023.
Previous wording
The equity investment in Centercom increased by $16,153 in the three months ended March 31, 2024 compared to an increase of $33,029 in the three months ended March 31, 2023.
Current wording
The equity investment in Centercom increased by $17,711 in the three months ended June 30, 2024 compared to an increase of $10,713 in the three months ended June 30, 2023.
Previous wording
Provision for income tax benefit (expense) during the three months ended March 31, 2024 and 2023 consisted of the following:
Current wording
Provision for income tax benefit during the three months ended June 30, 2024 and 2023 consisted of the following:
Previous wording
The revenue for the three months ended March 31, 2024 decreased by $3,170,845 compared to the three months ended March 31, 2023. The revenue changed due to the continued review of the line of business and how it best fits into the overall plans of the Company.
Current wording
The revenue for the six months ended June 30, 2024 decreased by $5,962,430 compared to the six months ended June 30, 2023. The revenue changed due to the continued review of the line of business and how it best fits into the overall plans of the Company.
Previous wording
The revenue for the three months ended March 31, 2024 was $2,530,589 compared to $2,934,346 for the same period in 2023. The decrease of 14% was a continuing result of the Company shift to ACP. With the uncertainty of ACP, we are committed to re-focus our attention to this market segment for 2024.
Current wording
The revenue for the six months ended June 30, 2024 was $5,107,409 compared to $5,804,931 for the same period in 2023. The decrease of 12% was a continuing result of the Company shift to ACP for January through April 2024. With the lack of additional funding and an end date of June 1, 2024 for ACP, we are committed to re-focus our attention to this market segment for 2024.
Previous wording
The overall increase in revenue of $3,347,308 from 2023 to 2024 for the three months ended March 31, can beattributable to opening of some new markets and the continued growth of subscribers with the Affordable Connectivity Program (ACP) program. The net operating income decreased by $2,953,201 from three months ended March 31, 2023 to the three months ended March 31, 2024.
Current wording
The overall decrease in revenue of $24,148,042 from 2023 to 2024 for the six months ended June 30, can be attributable to the lack of additional funding and an end date of June 1, 2024 for ACP. The net operating income decreased by $20,031,755 from six months ended June 30, 2023 to the six months ended June 30, 2024.
Previous wording
At March 31, 2024 and December 31, 2023, our current assets were $59,060,603 and $33,366,661, respectively, and our current liabilities were $9,431,948 and $12,705,044, respectively, which resulted in a working capital surplus of $49,628,655 and of $20,661,617, respectively. The increase in current assets is a result of a capital raise on January 15, 2024 which resulted in a net increase in cash of $17,249,994 and the exercise of warrants during the three months ended March 31, 2024 of $8,799,257.
Current wording
At June 30, 2024 and December 31, 2023, our current assets were $48,718,118 and $33,366,661, respectively, and our current liabilities were $6,600,396 and $12,705,044, respectively, which resulted in a working capital surplus of $42,117,722 and of $20,661,617, respectively. The increase in current assets is a result of a capital raise on January 15, 2024 which resulted in a net increase in cash of $17,249,994 and the exercise of warrants during the six months ended June 30, 2024 of $8,799,257.
Previous wording
Total assets at March 31, 2024 and December 31, 2023 amounted to $69,585,173 and $41,925,307, respectively. The increase in total assets is a result of a capital raise and exercise of warrants, whereby cash increased by $ 28,323,018. Total assets increased by $27,659,866 from December 31, 2023 to March 31, 2024. At March 31, 2024, assets consisted of current assets of $59,060,603, net property and equipment of $291,458, net intangible assets of $1,963,093, goodwill of $4,166,782, equity investment in Centercom of $480,562, note receivable of $176,851, internal use software of $483,717, operating lease right of use asset of $420,107, and deferred income taxes of $2,542,000 compared to at December 31, 2023, 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.
Current wording
Total assets at June 30, 2024 and December 31, 2023 amounted to $56,405,300 and $41,925,307, respectively. The increase in total assets is a result of a capital raise and exercise of warrants, whereby cash increased by $ 23,812,520. Total assets increased by $14,479,993 from December 31, 2023 to June 30, 2024. At June 30, 2024, assets consisted of current assets of $48,718,118, net property and equipment of $221,075, net intangible assets of $1,799,716, goodwill of $4,166,782, equity investment in Centercom of $498,273, note receivable of $176,851, internal use software of $428,010, and operating lease right of use asset of $396,475, compared to at December 31, 2023, 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.
Previous wording
At March 31, 2024, our total liabilities were $13,399,674 compared to total liabilities of $13,524,843 at December 31, 2023. This $125,169 decrease was related to the repayment during the three months ended March 31, 2024 of the various notes payable.
Current wording
At June 30, 2024, our total liabilities were $10,123,420 compared to total liabilities of $13,521,843 at December 31, 2023. This $3,398,423 decrease was related to the repayment during the six months ended June 30, 2024 of the various notes payable.
Previous wording
At March 31, 2024, our total stockholders’ equity was $56,185,499 as compared to $28,403,464 at December 31, 2023.
Current wording
At June 30, 2024, our total stockholders’ equity was $46,281,880 as compared to $28,403,464 at December 31, 2023.
Previous wording
The following table sets forth the major sources and uses of cash for the three months ended March 31, 2024 and 2023.
Current wording
The following table sets forth the major sources and uses of cash for the six months ended June 30, 2024 and 2023.
Previous wording
As a result of net positive cash provided by operating activities, a capital raise and the exercise of warrants at March 31, 2024, the cash increased in the period ended March 31, 2024 by $28,323,018, compared to $1,826,431 in the period ended March 31, 2023.
Current wording
As a result of net negative cash provided by operating activities, a capital raise and the exercise of warrants at June 30, 2024, the cash increased in the period ended June 30, 2024 by $23,812,519, compared to a decrease in cash of $1,847,556 in the period ended June 30, 2023.
Previous wording
Significant estimates during the three months ended March 31, 2024 and 2023, respectively, include, allowance for doubtful accounts and other receivables, inventory reserves and classifications, valuation of loss contingencies, valuation of derivative liabilities, valuation of stock-based compensation, estimated useful lives related to intangible assets, capitalized internal-use software development costs, and property and equipment, implicit interest rate in right-of-use operating leases, uncertain tax positions, and the valuation allowance on deferred tax assets.
Current wording
Significant estimates during the three months and six months ended June 30, 2024 and 2023, respectively, include, allowance for doubtful accounts and other receivables, inventory reserves and classifications, valuation of loss contingencies, valuation of derivative liabilities, valuation of stock-based compensation, estimated useful lives related to intangible assets, capitalized internal-use software development costs, and property and equipment, implicit interest rate in right-of-use operating leases, uncertain tax positions, and the valuation allowance on deferred tax assets.
Rearranged current paragraphs (17)
Current report — wording carried from elsewhere
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the consolidated results of operations, stockholders’ deficit, or cash flows.
Current report — wording carried from elsewhere
We measure our performance on a consolidated basis as well as the performance of each segment.
Current report — wording carried from elsewhere
We report our financial performance based on the following segments: Mobile Virtual Network Operators (MVNO), Comprehensive Platform Service (Top-up) and Lead Generation. The MVNO segment is further broken down into subsidized and non-subsidized components. The subsidized component or ACP is the result of the mobile broadband (internet connectivity) services provided by SurgePhone Wireless and Torch Wireless to low-income consumers and accounts for the majority of our revenue. The Comprehensive Platform Service segment is comprised of Surge Fintech and ECS as previously shown. The Lead Generation is comprised of LogicsIQ as previously shown.
Current report — wording carried from elsewhere
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 and Geographic Data of the Notes to Financial Statements.
Current report — wording carried from elsewhere
Revenues during the six months ended years ended June 30, 2024 and 2023 consisted of the following:
Current report — wording carried from elsewhere
Lead Generation services consisting of LogicsIQ revenues decreased by $5,962,430 as a result of operational changes by management in late 2023. The Company plans to make a final decision on whether to maintain or discontinue the Lead Generation segment of its business in fiscal year ending 2024.
Current report — wording carried from elsewhere
Comprehensive Platform Services revenues decreased by $697,522 as a result of focusing our efforts on our MVNO segment, specifically the ACP component of the MVNO segment while we strategized on how to enhance our sales and on-boarding approach to adding convenience stores to our platform. The Company expects this segment to be the biggest percent of year-over-year revenue growth opportunity for the remainder of 2024.
Current report — wording carried from elsewhere
Cost of Revenue, Gross Profit and Gross Margin
Current report — wording carried from elsewhere
For the six months ended June 30, 2024, cost of revenue for services primarily consists of data plan expenses ($17,990,820), devices ($4,826,022), marketing ($11,562,415), advertising ($4,315,402) and other expenses such as royalties and call-center expenses ($3,080,584). For the six months ended June 30, 2023, cost of revenue for services primarily consists of data plan expenses ($19,707,549), devices ($13,603,491), marketing ($10,401,244), advertising ($4,513,015) and other expenses such as royalties and call-center expenses ($4,717,366).
Current report — wording carried from elsewhere
We expect that our cost of revenue will increase or decrease to the extent that our revenue increases and decreases.
Current report — wording carried from elsewhere
In addition, the Company plans to implement a new sales force for Comprehensive Platform Services to capture what we believe is an untapped underbanked convenience store market. Our sales force team has increased to 5 as of June 30, 2024, from 1 as of June 30, 2023.
Current report — wording carried from elsewhere
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 in future periods will vary based upon our revenue stream mix and may increase or decrease based upon our distribution channels. We expect the gross margins to decrease overall as we transition from subsidized subscribers to non-subsidized subscribers through our LinkUp mobile service line.
Current report — wording carried from elsewhere
We expect that our gross profit margin for product and service will increase over the long term as our sales and production volumes increase and our cost per unit decreases due to efficiencies of scale.
Current report — wording carried from elsewhere
General and administrative during the six months ended June 30, 2024 and 2023 consisted of the following:
Current report — wording carried from elsewhere
The increase in depreciation and amortization costs for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 is the result of amortizing internal-use software development costs capitalized in 2023 associated with software enhancements to our various software platforms continuing in 2024. There were no such costs incurred in the first quarter of 2024.
Current report — wording carried from elsewhere
Selling, general and administrative costs (S, G & A) increased by $7,004,250 (111.5%). The changes are discussed below:
Current report — wording carried from elsewhere
Other (expense) income during the six months ended June 30, 2024 and 2023 consisted of the following: