SurgePays, Inc.

SURGEPAYS, INC. AND SUBSIDIARIES

Note 1 -Organization and Nature of Operations

Organization and Nature of Operations

SurgePays, Inc. (“SurgePays,” “we,” or the “Company”) is a telecommunications and financial technology company focused on delivering wireless connectivity and point-of-sale solutions to underserved and value-conscious communities across the United States. The Company’s mission is to enhance access to essential digital services where people live, shop, and work.

We operate through three primary business segments: (1) our MVNO wireless brands, (2) our MVNE enablement platform (HERO), and (3) our point-of-sale (POS) and fintech services. These businesses are supported through subsidiaries including SurgePhone Wireless, LLC, SurgePays Fintech, Inc., ECS Prepaid, LLC, and Torch Wireless, LLC, among others.

The Company and its subsidiaries are organized as follows:

All of the following entities have nominal operations.

See discussion below regarding the discontinuation of the Company’s lead generation segment in 2024.

Discontinued Operations – LogicsIQ Segment

Management’s Decision

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 strategic objectives.

In accordance with ASC 205-20, Presentation of Financial Statements – Discontinued Operations, the Company assessed whether the abandonment met the criteria for classification as a discontinued operation. ASU 2014-08 provides that a discontinued operation must represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The Company determined that this threshold was not met for the following reasons:

Based on these factors, the Company has concluded that the abandonment does not constitute a strategic shift that has or will have a major effect on its financial results or operations. As a result, the segment will not be presented as a discontinued operation in the financial statements.

Segment Reporting (ASC 280) Considerations

Under ASC 280, Segment Reporting, the lead generation segment was historically identified as a reportable segment, as the CODM regularly reviewed its financial performance separately from other segments. However, given its diminished financial impact and lack of long-term strategic significance, the Company has concluded that the segment no longer meets the quantitative or qualitative thresholds for separate segment reporting. Accordingly, financial data previously presented under the Lead Generation segment will be reclassified to “Other” in the segment disclosure included in Note 10 to the consolidated financial statements.

In line with the amendments introduced by ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, (adopted January 1, 2024), the Company has evaluated the impact of this change on its segment disclosures. The key considerations are as follows:

Accounting and Financial Statement Impact

Since the lead generation segment is being abandoned rather than sold, it does not qualify as held for sale. The Company does not expect to recognize any material exit costs, impairment losses, or restructuring charges related to this decision. Any remaining assets and liabilities associated with the segment will be derecognized as appropriate in accordance with applicable accounting standards.

Future Business Operations

The lead generation segment did not have any workforce, customers, or existing contracts, and its abandonment will not result in any employee layoffs, customer transitions, or contract terminations. This decision reflects management’s focus on core business areas that offer higher growth potential and operational efficiency.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements.

In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all of the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of September 30, 2025 and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended September 30, 2025 are not necessarily indicative of the operating results for the full fiscal year or any future period.

These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 25, 2025.

Management acknowledges its responsibility for the preparation of the accompanying unaudited consolidated financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its consolidated financial position and the consolidated results of its operations for the periods presented.

Liquidity and Management’s Plans

As reflected in the accompanying consolidated financial statements, for the nine months ended September 30, 2025, the Company had:

Additionally, at September 30, 2025, the Company had:

We manage liquidity risk by reviewing, on an ongoing basis, our sources of liquidity and capital requirements. The Company has cash on hand of $2,514,862 at September 30, 2025.

The Company has historically incurred significant losses and has not demonstrated an ability to generate sufficient revenues from the sales of its products and services to achieve profitable operations.

There can be no assurance that profitable operations will be achieved and could be sustained on a continuing basis. In making this assessment we performed a comprehensive analysis of our current circumstances including: our financial position, our cash flows and cash usage forecasts for the next twelve months, and our current capital structure including equity-based instruments and our obligations and debts.

Effective February 7, 2024, the Affordable Connectivity Program (“ACP”) stopped accepting new applications and enrollments. The program ceased funding on June 1, 2024. See discussion below regarding revenue recognition.

The Company believes it does not have sufficient cash resources on hand to meet its current obligations for a period that is more than one year from the issuance date of these financial statements.

Management’s strategic plans include the following:

Note 2 -Summary of Significant Accounting Policies

Principles of Consolidation and Non-Controlling Interest

These unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated.

For entities that are consolidated, but not 100% owned, a portion of the income or loss and corresponding equity is allocated to owners other than the Company. The aggregate of the income or loss and corresponding equity that is not owned by us is included in Non-controlling Interests in the consolidated financial statements.

Business Combinations and Asset Acquisitions

The Company accounts for acquisitions that qualify as business combinations by applying the acquisition method according to Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”).

Transaction costs related to the acquisition of a business are expensed as incurred and excluded from the fair value of consideration transferred.

The identifiable assets acquired, liabilities assumed, and noncontrolling interests in an acquired entity are recognized and measured at their estimated fair values. The excess of the fair value of consideration transferred over the fair values of identifiable assets acquired, liabilities assumed, and noncontrolling interests in an acquired entity, net of the fair value of any previously held interest in the acquired entity, is recorded as goodwill. Such valuations require management to make significant estimates and assumptions.

Purchase price allocations may be preliminary, and, during the measurement period not to exceed one year from the date of acquisition, changes in assumptions and estimates that result in adjustments to the fair value of assets acquired and liabilities assumed are recorded in the period the adjustments are determined.

Significant judgments are used in determining fair values of assets acquired and liabilities assumed, as well as intangibles. Fair value and useful life determinations are based on, among other factors, estimates of future expected cash flows, and appropriate discount rates used in computing present values. These judgments may materially impact the estimates used in allocating acquisition date fair values to assets acquired and liabilities assumed, as well as the Company’s current and future operating results. Actual results may vary from these estimates which may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever occurs first. Adjustments to fair values of assets and liabilities made after the end of the measurement period are recorded within the Company’s earnings.

The Company evaluates acquisitions of assets and other similar transactions to assess whether the transaction should be accounted for as a business combination or asset acquisition by first applying a screen test to determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If so, the transaction is accounted for as an asset acquisition. If not, further determination is required as to whether the Company has acquired inputs and processes that can create outputs that would meet the definition of a business. When applying the screen test, significant judgment is required to determine whether an acquisition is a business combination or an acquisition of assets.

Accounting for asset acquisitions falls under the guidance of Topic 805, Business Combinations, specifically Subtopic 805-50. A cost accumulation model is used to determine an asset acquisition’s cost. Assets acquired are based on their cost, generally allocated to them on a relative fair value basis. Direct acquisition-related costs are included in the cost of the acquired assets.

The distinction between business combinations and asset acquisitions involves judgment, particularly when applying the screen test to determine the nature of the transaction. Incorrect judgments or changes in decisions in these areas could materially affect the determination of goodwill, the recognition and measurement of acquired assets and assumed liabilities, and, consequently, our financial position and results of operations.

Acquisition of ClearLine Mobile, Inc

On January 5, 2024, the Company closed a purchase agreement and acquired ClearLine Mobile, Inc’s. (“CLMI”) related software development in exchange for $2,500,000.

CLMI produces a touchscreen display, positioned by the cash register, that is integrated into the SurgePays software platform and markets SurgePays products 24/7 from a central server. SurgePays can advertise its entire suite of products and services while utilizing the POS device for transactions.

Following the guidance of ASC 805, we performed the screen test to evaluate whether the acquired set is a business or a group of assets. The acquired group of assets included inputs and a substantive process that together significantly contributed to the ability to create outputs. At the time of purchase, CLMI had insignificant operations, however, the transaction was accounted for as a business combination in accordance with ASC 805-50.

Payments were paid as follows:

In connection with this business combination, the Company assumed a right-of-use operating lease and corresponding lease liability of $98,638 with a period of two (2) years remaining.

Additionally, the acquired technology/software having a net carrying amount of $0. As a result, the Company determined that it has acquired both tangible and intangible assets.

The table below summarizes the estimated fair value of the assets acquired and the liabilities assumed at the effective acquisition date.

At the time of acquisition, CLMI had nominal revenues and historical losses from operations. As a result, and given the immaterial nature of this acquisition, the Company elected not to present any pro-forma financial information.

This transaction did not involve the purchase of a “significant amount of assets” as defined in the Instructions to Item 2.01 of Form 8-K. Additionally, the acquisition of CLMI was not deemed to be significant to the Company at any level under SEC Regulation S-X 3.05 and did not require the presentation of any additional historical audited financial statements.

At September 30, 2025 and December 31, 2024 goodwill was $3,300,000, respectively.

At December 31, 2024, the Company determined that its subsidiary LogicsIQ would be considered a discontinued operation (See Note 1). Prior to this determination, and during the year ended December 31, 2024, the Company recorded a goodwill impairment loss of $866,782.

Note Receivable (Sale of Former Subsidiary)

On May 7, 2021, the Company disposed of its former subsidiary True Wireless, Inc.

In connection with the sale, the Company received an unsecured note receivable for $176,851, bearing interest at 0.6%, with a default interest rate of 10%. The Company was expected to receive twenty-five (25) monthly payments of principal and accrued interest totaling $7,461 commencing in June 2023.

Payments were scheduled as follows:

On July 12, 2023, Notice of Default was provided by SurgePays, Inc. to Blue Skies Connections, LLC for failure to pay amounts due under that certain Promissory Note dated June 14, 2021 by Blue Skies Connections, LLC in favor of SurgePays, Inc. in the original principal amount of $176,851 (the “Note”). Pursuant to the terms of the Note, SurgePays, Inc. accelerated the amount due.

As of September 30, 2025, the Company believes the note is collectible. See Note 8 for Contingencies – Legal Matters for additional discussion.

Business Segments and Concentrations

The Company uses the “management approach” to identify its reportable segments. The management approach requires companies to report segment financial information consistent with information used by management for making operating decisions and assessing performance as the basis for identifying the Company’s reportable segments. The Company manages its business asmultiple reportable segments. See Note 10 regarding segment disclosure.

Revenues related to the Mobile Virtual Network Operator (SurgePhone and Torch Wireless) business segment are 100% derived from programs administered by the Federal Communications Commission (FCC), and all funds related to these programs are received directly from organizations under the direction of the FCC and subject to administrative rulings, statutory changes, and other funding restrictions that could impact the Company’s operations in this segment.

Revenues related to the Point-of-Sale and Prepaid Services business segment are derived from suppling digital top-ups to a broad base of Independent Sales Organizations (ISOs), direct dealer stores, and convenience retailers, enabling us to sell domestic and international airtime and data replenishments for multiple carriers. Top ups are purchased at a wholesale rate and resold at a retail pricing, with the Company capturing margin on each transaction.

Accounts receivable related to these programs made up 91% and 97% of accounts receivable at September 30, 2025 and December 31, 2024, respectively.

Use of Estimates

Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates, and those estimates may be material.

Significant estimates during the nine months ended September 30, 2025 and 2024, respectively, include, allowance for doubtful accounts and other receivables, inventory reserves and classifications, valuation of loss contingencies, valuation of stock-based compensation, estimated useful lives related to property and equipment and intangible assets, capitalized internal-use software development costs, related impairment assessments of long lived assets, implicit interest rate in right-of-use operating leases, uncertain tax positions, income tax payable and the valuation allowance on deferred tax assets.

Risks and Uncertainties

The Company operates in an industry that is subject to intense competition and changes in consumer demand. The Company’s operations are subject to significant risk and uncertainties including financial and operational risks including the potential risk of business failure.

The Company has experienced, and in the future may experience, variability in sales and earnings. The factors expected to contribute to this variability include, among others, (i) the cyclical nature of the industry, (ii) general economic conditions in the various local markets in which the Company competes, including a potential general downturn in the economy, and (iii) the volatility of prices in connection with the Company’s distribution of the product. These factors, among others, make it difficult to project the Company’s operating results on a consistent basis.

Effective February 7, 2024, the Affordable Connectivity Program (“ACP”) stopped accepting new applications and enrollments. The program ceased funding on June 1, 2024. See discussion below regarding revenue recognition.

At December 31, 2024, the Company discontinued its lead generation services segment.

Fair Value of Financial Instruments

The Company accounts for financial instruments in accordance with Financial Accounting Standards Board (FASB) ASC 820, Fair Value Measurements, which provides a framework for measuring fair value and requires related disclosures. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company determines fair value based on its principal market or, if unavailable, the most advantageous market for the specific asset or liability.

To classify and disclose assets and liabilities measured at fair value, the Company utilizes a three-tier fair value hierarchy, which prioritizes observable inputs over unobservable ones:

Determining fair value and assigning a measurement within the hierarchy involves judgment. Level 3 valuations, in particular, require greater judgment and complexity, as they may involve various valuation methods—such as cost, market, or income approaches—applied to management estimates and assumptions. These assumptions can include price estimates, earnings projections, market factors, or the weighting of different valuation methods. The Company may also engage external advisors to assist in fair value determinations when appropriate. While management believes recorded fair values are reasonable, they may not reflect future fair values or net realizable values.

The Company’s financial instruments, including cash, accounts receivable, note receivable, accounts payable, and accrued expenses (including related-party amounts), are recorded at historical cost. As of September 30, 2025 and December 31, 2024, the carrying values of these instruments approximate their fair values due to their short-term nature.

Additionally, ASC 825-10, Financial Instruments, allows entities to elect the fair value option, enabling financial assets and liabilities to be measured at fair value on an instrument-by-instrument basis. This election is irrevocable unless a new election date occurs, and any unrealized gains or losses would be recognized in earnings at each reporting date. The Company has not elected to apply the fair value option to any outstanding financial instruments.

Cash and Cash Equivalents, Restricted Cash and Concentration of Credit Risk

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and money market accounts to be cash equivalents.

The Company is exposed to credit risk on its cash and cash equivalents in the event of default by the financial institutions to the extent account balances exceed the amount insured by the FDIC, which is $250,000.

At September 30, 2025 and December 31, 2024, respectively, the Company did not experience any losses on cash balances in excess of FDIC insured limits.

Restricted Cash

At September 30, 2025, the Company had $224,947 in cash restricted under the terms of its line of credit with a third-party lender. While these funds remain under the Company’s control, they may be used to cover shortfalls related to advances under its receivables-based financing facility.

At December 31, 2024, the Company had $1,000,000 held in escrow, restricted in connection with a potential acquisition. The restriction lapsed in January 2025, and the funds were subsequently released and returned to the Company’s operating cash account.

Marketable Securities - Classification and Valuation

The Company may classify its marketable securities as either trading, available-for-sale, or held-to-maturity.

Trading securities are recorded at fair value with unrealized gains and losses included in earnings.

Available-for-sale securities are recorded at fair value with unrealized gains and losses excluded from earnings and reported in other comprehensive income.

Held-to-maturity securities are recorded at amortized cost.

At December 31, 2024, the Company classified all of its marketable securities as trading, based upon our intent to sell them in the near term. Our securities consist of U.S. Treasury and government exchange traded funds.

At December 31, 2024, the Company’s marketable securities were $0.

Marketable securities were as follows at December 31, 2024:

Impairment of Marketable Securities

The Company evaluates its marketable securities for impairment at each reporting period.

An impairment is considered to be other-than-temporary if the Company (a) intends to sell the security, (b) is more likely than not to be required to sell the security before recovery of its amortized cost basis, or (c) does not expect to recover the entire amortized cost basis of the security.

If a decline in fair value is determined to be other-than-temporary, the impairment loss is recognized in earnings. For debt securities, the amount of the other-than-temporary impairment recognized in earnings depends on the extent to which the security’s fair value is less than its amortized cost and the severity and duration of the decline.

The determination of whether a decline is other-than-temporary involves significant judgment and includes an assessment of various factors including:

The Company did not record any impairment losses related to its marketable securities.

See Note 7 for additional disclosure of our marketable securities at fair value.

Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstanding customer balances. Credit is extended to customers based on an evaluation of their financial condition and other factors. Interest is not accrued on overdue accounts receivable. The Company does not require collateral.

Management periodically assesses the Company’s accounts receivable and, if necessary, establishes an allowance for estimated uncollectible amounts. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. Accounts determined to be uncollectible are charged to operations when that determination is made.

Allowance for doubtful accounts was $0 at September 30, 2025 and December 31, 2024, respectively.

There was bad debt expense (recovery) of $0 for the three and nine months ended September 30, 2025 and 2024, respectively.

Bad debt expense (recoveries) is recorded as a component of general and administrative expenses in the accompanying consolidated statements of operations.

Inventory

Inventory primarily consists of cell phones, store racking, and sim cards. Inventories are stated at the lower of cost or net realizable value using the average cost valuation method.

During the year ended December 31, 2024, and in connection with the cessation of the ACP Program on June 1, 2024, the Company wrote off inventory totaling $6,382,471.

At September 30, 2025 and December 31, 2024, the Company had inventory of $1,917,617 and $1,781,365, respectively.

Impairment of Long-lived Assets

Management evaluates the recoverability of the Company’s identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists, in accordance with the provisions of ASC 360-10-35-15*“Impairment or Disposal of Long-Lived Assets.”* Events and circumstances considered by the Company in determining whether the carrying value of identifiable intangible assets and other long-lived assets may not be recoverable, but are not limited to significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; and changes in the Company’s business strategy. In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of these assets.

If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

There wereno impairment losses for the three and nine months ended September 30, 2025 and 2024, respectively.

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets.

Expenditures for repair and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected in operations.

Management reviews the carrying value of its property and equipment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

There wereno impairment losses for the three and nine months ended September 30, 2025 and 2024, respectively.

Internal Use Software Development Costs

We capitalize certain internal use software development costs associated with creating and enhancing internally developed software related to our technology infrastructure. These costs include personnel and related employee benefits expenses for employees who are directly associated with and who devote time to software projects, and external direct costs of materials and services consumed in developing or obtaining the software. Software development costs that do not meet the qualification for capitalization, as further discussed below, are expensed as incurred and recorded in general and administrative expenses in the consolidated results of operations.

Software development activities generally consist of three stages:

Costs incurred in the planning and post implementation stages of software development, including costs associated with the post-configuration training and repairs and maintenance of the developed technologies, are expensed as incurred.

We capitalize costs associated with software developed for internal use when the planning stage is completed, management has authorized further funding for the completion of the project, and it is probable that the project will be completed and perform as intended. Costs incurred in the application and infrastructure development stages, including significant enhancements and upgrades, are capitalized. Capitalization ends once a project is substantially complete, and the software and technologies are ready for their intended purpose. There is judgment involved in estimating the stage of development as well as estimating time allocated to a particular project. A significant change in the time spent on each project could have a material impact on the amount capitalized and related amortization expense in subsequent periods.

We amortize internal use software development costs using a straight-line method over a three-year (3) estimated useful life, commencing when the software is ready for its intended use. The straight-line recognition method approximates the manner in which the expected benefit will be derived. We determined the life of internal use software based on historical software upgrades and replacement.

On an ongoing basis, we assess if the estimated remaining useful lives of capitalized projects continue to be reasonable based on the remaining expected benefit and usage. If the remaining useful life of a capitalized project is revised, it is accounted for as a change in estimate and the remaining unamortized cost of the underlying asset is amortized prospectively over the updated remaining useful life.

We also evaluate internal use software for abandonment and use that as a significant indicator for impairment on a quarterly basis.

At December 31, 2024, the Company determined that there was no future use for its capitalized internal use software development costs based upon its current and expected future operations. As a result, the Company recorded an impairment loss of $316,594.

Right of Use Assets and Lease Obligations

The Right of Use Asset and Lease Liability reflect the present value of the Company’s estimated future minimum lease payments over the lease term, which may include options that are reasonably assured of being exercised, discounted using a collateralized incremental borrowing rate.

Typically, renewal options are considered reasonably assured of being exercised if the associated asset lives of the building or leasehold improvements exceed that of the initial lease term, and the performance of the business remains strong. Therefore, the Right of Use Asset and Lease Liability may include an assumption on renewal options that have not yet been exercised by the Company. The Company’s operating leases contained renewal options that expire at various dates with no residual value guarantees. Future obligations relating to the exercise of renewal options is included in the measurement if, based on the judgment of management, the renewal option is reasonably certain to be exercised. Factors in determining whether an option is reasonably certain of exercise include, but are not limited to, the value of leasehold improvements, the value of the renewal rate compared to market rates, and the presence of factors that would cause a significant economic penalty to the Company if the option is not exercised. Management reasonably plans to exercise all options, and as such, all renewal options are included in the measurement of the right-of-use assets and operating lease liabilities.

As the rate implicit in leases are not readily determinable, the Company uses an incremental borrowing rate to calculate the lease liability that represents an estimate of the interest rate the Company would incur to borrow on a collateralized basis over the term of a lease within a particular currency environment. See Note 8 regarding operating leases.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606 to align revenue recognition more closely with the delivery of the Company’s services and will provide financial statement readers with enhanced disclosures. In accordance with ASC 606, revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services.

To achieve this core principle, the Company applies the following five steps:

Step 1: Identify the contract(s) with customers

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to performance obligations

Step 5: Recognize revenue when the entity satisfies a performance obligation

Identify the contract with a customer

A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.

Identify the performance obligations in the contract

Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services, the Company must apply judgment to determine whether promised services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance obligation.

Determine the transaction price

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of the Company’s contracts contain a significant financing component and there are no contracts with variable consideration.

Allocate the transaction price to performance obligations in the contract

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. For example, a bonus or penalty may be associated with one or more, but not all, distinct services promised in a series of distinct services that forms part of a single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

Recognize revenue when or as the Company satisfies a performance obligation

The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service to a customer.

The following reflects additional discussion regarding our revenue recognition policies for each of our material revenue streams. For each revenue stream we do not offer any returns, refunds or warranties, and no arrangements are cancellable. Additionally, all contract consideration is fixed and determinable at the initiation of the contract.

Performance obligations for Torch and LogicsIQ are satisfied when services are performed. Performance obligations for ECS and SB are satisfied at point of sale. For each of our revenue streams we only have a single performance obligation.

Mobile Virtual Network Operators

Torch Wireless is licensed to provide subsidized mobile broadband services through the Lifeline program to qualifying low-income customers. Revenue is recognized when the Company satisfies its performance obligation by providing eligible service to active Lifeline subscribers as of the last day of each month.

At the end of each month, the Company determines the number of active Lifeline users based on internal usage data and eligibility status. A report is submitted to the Universal Service Administrative Company (USAC) for review and approval. Upon submission, the Company has fulfilled its performance obligation, and accordingly, revenue and accounts receivable are recognized.

Revenue is recorded in the month in which the Lifeline service was provided and the subscriber remained active at month-end, regardless of when payment is received. Payment is typically received by the 28th of the following month.

Lead Generation Services

LogicsIQ, Inc. was a lead generation and case management solutions company primarily serving law firms in the mass tort industry. Revenues were earned from our lead generation retained services offerings and call center activities.

Effective January 1, 2024, the Company no longer provided these services.

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. See Note 1.

Additionally, the segment disclosure for this former segment is now combined as a part of other corporate overhead.

Revenues are generated through the sale of telecommunication products such as mobile phones, wireless top-up refills, and other mobile related products. At the time in which our products are sold through our online web portal (point of sale), our performance obligation is considered complete. At point of sale (completion of performance obligation), our web portal platform initiates an automated clearing house transaction (ACH) resulting in the recording revenue.

The Company has evaluated revenue recognition and related disclosures and has determined the Company is a principal in these arrangements. As a result, we record all revenues at their gross amounts and the related costs are recorded as costs of revenues in the accompanying consolidated financial statements.

Contract Liabilities (Deferred Revenue)

Contract liabilities represent deposits made by customers before the satisfaction of performance obligation and recognition of revenue. Upon completion of the performance obligation(s) that the Company has with the customer based on the terms of the contract, the liability for the customer deposit is relieved and revenue is recognized.

At September 30, 2025 and December 31, 2024, the Company had deferred revenue of $0, respectively.

The following represents the Company’s disaggregation of revenues for the nine months ended September 30, 2025 and 2024:

The above disaggregation of revenues includes the following entities:

Mobile Virtual Network Operators (SPW and TW),

Point-of-Sale and Prepaid Services (Surge Fintech and ECS); and

Other Corporate Overhead (Surge Blockchain and formerly LogicsIQ and Injury Survey)

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. See Note 1. As a result, segment reporting/disaggregation of revenues for lead generation was no longer required and have now been included as a component of “other corporate overhead”.

Cost of Revenues

Cost of revenues consists of tablet purchases, mobile phone purchases, purchased telecom services including data usage and access to wireless networks. Additionally, cost of revenues consists of call center costs, prepaid phone cards, commissions, and advertising costs.

Income Taxes

The Company accounts for income tax using the asset and liability method prescribed by ASC 740,“Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.

The Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. As of September 30, 2025 and December 31, 2024, respectively, the Company hadno uncertain tax positions that qualify for either recognition or disclosure in the financial statements.

The Company recognizes interest and penalties related to uncertain income tax positions in other expense. No interest and penalties related to uncertain income tax positions were recorded for the three and nine months ended September 30, 2025 and 2024, respectively.

As of September 30, 2025, the loss resulted in the Company being in a three-year cumulative historic loss position. As a result, the Company recorded a full valuation allowance on its deferred tax assets as of September 30, 2025 and December 31, 2024.

The Company currently has an unapplied net operating loss carryforward (deferred tax asset), which have been evaluated for applicability in offsetting current taxable net income. The Company has determined that the federal net operating loss carryforward is limited to 80% of the current year’s net taxable income. Since the Company entered a three-year cumulative loss during the nine months ended September 30, 2025, a full valuation allowance has been recorded against all net operating loss carryforwards.

Investment

On January 17, 2019, we announced the completion of an agreement to acquire a 40% equity ownership of CenterCom Global, S.A. de C.V. (“CenterCom”). CenterCom is a dynamic operations center currently providing sales support, customer service, IT infrastructure design, graphic media, database programming, software development, revenue assurance, lead generation, and other various operational support services. Our CenterCom team is based in El Salvador. CenterCom also provides call center support for various third-party clients.

The strategic partnership with CenterCom as a bilingual operations hub has powered our growth and revenue. CenterCom has been built to support the infrastructure required to rapidly scale in synergy and efficiency to support our sales growth, customer service and development.

We account for this investment under the equity method. Investments accounted for under the equity method are recorded based upon the amount of our investment and adjusted each period for our share of the investee’s income or loss. All investments are reviewed for changes in circumstance or the occurrence of events that suggest an other than temporary event where our investment may not be recoverable. The financial information used to account for the investment is unaudited.

The following is a summary of our investment at December 31, 2024:

During the three and nine months ended September 30 2024, we recognized a gain of $0 and 33,864, respectively.

As of December 31, 2024, The Company determined that it would no longer utilize the Business Process Outsourcing (BPO) services of CenterCom. As of December 31, 2024, the Company assessed its investment in CenterCom and determined there was an impairment. Factors leading to this decision included a change in ownership and large reduction in human capital. As a result, CenterCom was materially impacted and could no longer continue its operations.

As a result, for the year ended December 31, 2024, the Company recorded an impairment loss of $498,273.

Advertising Costs

Advertising costs are expensed as incurred. Advertising costs are included as a component of general and administrative expense in the consolidated statements of operations.

The Company recognized marketing and advertising costs during the three and nine months ended September 30, 2025 and 2024, respectively, as follows:

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation”, as amended by ASU 2018-07 – Improvements to Nonemployee Share-Based Payment Accounting. Under the fair value-based method:

For equity instruments granted to non-employees, the Company applies the fair value method, using the Black-Scholes option pricing model to measure the fair value of stock options.

The fair value of stock-based compensation is determined either:

Assumptions Used in Fair Value Determination

When using the Black-Scholes model, the Company considers the following key assumptions, in accordance with ASU 2017-09 – Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting:

Stock Warrants

The Company may issue warrants to purchase shares of its common stock in connection with financing transactions (debt or equity), consulting agreements, and collaboration arrangements.

Basic and Diluted Earnings (Loss) per Share

The Company computes earnings (loss) per share in accordance with ASC 260-10-45, Earnings Per Share, as amended by ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

During the nine months ended September 30, 2025, the Company reacquired 333,333 shares of treasury stock for $999,999 ($3/share), in connection with a third party convertible debt lender (See Note 6).

During the year ended December 31, 2024, the Company reacquired 362,620 shares of treasury stock for $631,967.

Treasury shares are excluded from the denominator in computing basic and diluted earnings (loss) per share, as these shares are not considered outstanding.

Potentially Dilutive Securities

Potentially dilutive common shares include:

These securities may be dilutive in the future, but in periods where the Company reports a net loss, diluted loss per share is equal to basic loss per share because the inclusion of potential common stock equivalents would be anti-dilutive.

Outstanding Potentially Dilutive Equity Securities

The following potentially dilutive equity securities were outstanding as of September 30, 2025 and 2024:

Warrants and stock options included as common stock equivalents represent those that are fully vested and exercisable. See Note 9.

Sufficiency of Authorized Shares

As of September 30, 2025 and December 31, 2024, the Company has 500,000,000 authorized shares of common stock, which is sufficient to accommodate any potential exercises of common stock equivalents.

The Company accounts for treasury stock under the cost method, which records treasury stock at the purchase price and presents it as a reduction in stockholders’ equity. Under this method, the purchase, sale, issuance, or retirement of treasury stock does not impact the income statement. Gains or losses on the reissuance of treasury stock are reflected as adjustments to additional paid-in capital. In cases where additional paid-in capital is insufficient to cover a loss, the remaining balance is charged to retained earnings.

Treasury stock is initially recorded at cost on the date of repurchase. If treasury shares are subsequently reissued, they are removed from treasury stock at the cost at which they were originally acquired. Any excess of the reissuance price over cost is credited to additional paid-in capital, while any deficiency is charged to additional paid-in capital to the extent of previously recorded credits, with any remaining deficiency charged to retained earnings.

The Company periodically assesses the need to retain treasury shares and may retire shares if they are no longer deemed necessary for future use, resulting in a reduction of issued shares and a corresponding adjustment to retained earnings.

Related Parties

The Company identifies and discloses related party relationships and transactions in accordance with ASC 850, “Related Party Disclosures”, and follows guidance set forth by the SEC under Regulation S-X, Rule 4-08(k) regarding related party disclosures.

A party is considered related to the Company if it meets any of the following criteria:

The Company follows the SEC’s Regulation S-K, Item 404(a), which requires the disclosure of related party transactions exceeding a materiality threshold and details on the nature of the relationship, transaction terms, and amounts involved.

During the nine months ended September 30, 2025 and 2024, respectively, the Company incurred expenses with a related party (annual rental agreement) in the normal course of business as follows:

From time to time, the Company may use credit cards to pay corporate expenses, these credit cards are in the names of certain of the Company’s officers and directors. These amounts are insignificant.

See Note 6 for debt transactions with our Chief Executive Officer.

Recent Accounting Standards

The Financial Accounting Standards Board (FASB) establishes changes to accounting principles through Accounting Standards Updates (ASUs), which amend the FASB Codification. The Company evaluates the applicability and impact of all newly issued ASUs on its consolidated financial position, results of operations, stockholders’ equity, and cash flows.

Management has assessed all recent accounting pronouncements issued through the date these financial statements were available for issuance. Except as described below, no newly issued but not yet effective accounting pronouncements are expected to have a material impact on the Company’s consolidated financial statements.

Recently Adopted Accounting Standards

Recently Not Yet Adopted Accounting Standards

ASU 2025-05 — Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets

In July 2025, the FASB issued ASU 2025-05, which provides (1) all entities with a practical expedient and (2) entities other than public business entities with an accounting policy election when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606,Revenue from Contracts with Customers.

The practical expedient allows an entity to assume that, when estimating expected credit losses, current conditions as of the balance sheet date remain unchanged for the remaining life of the asset. The accounting policy election permits nonpublic entities that elect the practical expedient to also consider collection activity occurring after the balance sheet date when estimating expected credit losses.

The standard is effective for fiscal years beginning after December 15, 2025, and for interim periods within those annual reporting periods. Early adoption is permitted.

The Company has evaluated ASU 2025-05 and does not expect the standard to have a material impact on its financial condition, results of operations, or cash flows.

Other Recent Updates

Various other ASUs have been issued that primarily contain technical corrections or industry-specific guidance. These updates are not expected to have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no material effect on the consolidated results of operations, stockholders’ equity, or cash flows.

Note 3 –Property and Equipment

Property and equipment consisted of the following:

Depreciation and amortization expense for the three months ended September 30, 2025 and 2024, were $26,839 and $282,067, respectively.

Depreciation and amortization expense for the nine months ended September 30, 2025 and 2024, were $179,322 and $861,001, respectively.

These amounts are included as a component of general and administrative expenses in the accompanying consolidated statements of operations.

Note 4 –Intangibles

Intangibles consisted of the following:

Amortization expense for the three and nine months ended September 30, 2025 and 2024 was as follows:

Estimated amortization expense for each of the succeeding years is as follows:

Note 5 –Internal Use Software Development Costs

Internal Use Software Development Costs consisted of the following:

Costs incurred for Internal Use Software Development Costs

At December 31, 2024, the Company determined that there was no future use for its capitalized internal use software development costs based upon its current and expected future operations. As a result, the Company recorded an impairment loss of $316,594 and removed the gross amount of its capitalized costs totaling $668,484. See Note 1.

For the three months ended September 30, 2024, amortization of internal software development costs was $55,707.

For the nine months ended September 30, 2024, amortization of internal software development costs was $167,121.

Note 6 –Debt

The following represents a summary of the Company’s notes payable – SBA government, notes payable – related parties, convertible notes payable and notes payable, key terms, and outstanding balances at September 30, 2025 and December 31, 2024, respectively:

Notes Payable – SBA government

Economic Injury Disaster Loan (“EIDL”)

During 2020, this program was made available to eligible borrowers in light of the impact of the COVID-19 pandemic and the negative economic impact on the Company’s business. Proceeds from the EIDL were used for working capital purposes.

Installment payments, including principal and interest, are due monthly (beginning twelve (12) months from the date of the promissory note) in amounts ranging from $74 - $731/month. The balance of principal and interest is payable over the next thirty (30) years from the date of the promissory note. There are no penalties for prepayment. The EIDL Loan was not required to be refinanced by the PPP loan.

Notes Payable – Related Parties

The following is a summary of the Company’s Notes Payable - Related Parties:

On March 12, 2024, as approved by the Audit Committee, the Company consolidated all remaining outstanding principal ($4,584,563) and accrued interest payable ($498,991) into one note totaling $5,083,554. This note bears interest at 10% (with a default interest rate of 15%) and will be repaid ratably over a period of 36 months aggregating $5,905,427 in total payments to be made (inclusive of interest). Each monthly payment will be $164,039. The note is unsecured. The Note is expected to be repaid in full by December 2026.

Due to the Company’s current cash flow shortfall, payments under this note were temporarily suspended at the request of the Company’s Chief Executive Officer, beginning in July 2025. Management is evaluating options to restructure or resume payments in future periods.

The following is a detail of the Company’s Notes Payable - Related Party:

Senior Secured Convertible Notes and Warrants

The following is a summary of the Company’s Convertible Note Payable:

The following is a detail of the Company’s Convertible Notes Payable:

Note #1- Convertible Note Issuance and Warrants

On May 12, 2025, the Company entered into a two-year (2) Senior Secured Note Purchase Agreement with Funicular Funds, LP (the “Investor”), pursuant to which the Company issued a Senior Secured Convertible Note in the original principal amount of $6,999,999 (the “Note”). The transaction resulted in net cash proceeds of $6,000,000 to the Company and included the repurchase of 333,333 shares of the Company’s common stock from the Investor at $3/share. These repurchased shares will be cancelled and retired, and the corresponding shares will not be returned to the pool of authorized but unissued shares, and remain as treasury stock. See Note 9.

The Note is secured by a first-priority lien on substantially all of the Company’s and its subsidiaries’ assets pursuant to a Security and Pledge Agreement, and is fully guaranteed by certain subsidiaries of the Company.

The Note accrues interest at a rate of 1.25% per month (15% per annum). Interest is payable monthly, either in cash or in-kind (“PIK Interest”) at the Company’s election. Beginning January 31, 2026, the Company is required to make monthly principal payments of $500,000, with the remaining balance due on the Note’s maturity date of May 12, 2027, unless earlier repaid, redeemed, or converted.

Embedded Conversion Feature

The Note includes an embedded conversion option, which permits the Investor to convert the outstanding principal and accrued interest into shares of the Company’s common stock at an initial conversion price of $4.00 per share.

Warrant Issuance and Classification

In connection with the issuance of the Note, the Company also issued warrants to purchase 700,000 shares of its common stock at an exercise price of $6/share. The warrants are immediately exercisable and remain outstanding through May 12, 2030.

In connection with the issuance of the $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 Company also recorded a corresponding increase to additional paid-in capital of $207,640.

The fair value of the warrants was determined using the Black-Scholes model with the following assumptions:

In addition to the warrants, the Company incurred direct debt issuance costs of $595,000, which were also recorded as part of the debt discount.

As a result, the Company recorded a total debt discount of $802,640, consisting of $207,640 related to the warrants and $595,000 related to direct offering costs. The debt discount will be fully amortized over the contractual term of the note (2 years).

Note #2- Convertible Note Issuance

On September 25, 2025, the Company entered into a one-year (1) unsecured Note Purchase Agreement with LGH Investments, LLC (the “Investor”), pursuant to which the Company issued a Convertible Note in the original principal amount of $770,000 (the “Note”).

● Third tranche: the remaining principal and accrued interest convertible at $6.00 per share; however, upon the occurrence of an event of default, all tranches may alternatively be converted at 85% of the lowest daily volume-weighted average price (“VWAP”) of the Company’s common stock during thefive trading days immediately preceding the conversion date.

All three tranches are immediately exercisable at the Investor’s option at their respective fixed conversion prices. The fixed conversion prices are subject to customary anti-dilution adjustments for stock splits, stock dividends, or recapitalizations. The Company may also, subject to specified price and volume conditions and with the prior written consent of the Investor, effect a mandatory conversion of all or a portion of the Note into common stock.

Accounting Treatment

The Company evaluated the embedded conversion features in accordance with ASU 2020-06, ASC 815-10-15-74(a) and ASC 815-40 to determine whether bifurcation and separate recognition as derivative liabilities were required. The conversion options were determined to be conventional fixed-price features that are indexed solely to the Company’s common stock and meet the “fixed-for-fixed” criteria under ASC 815-40-15. Accordingly, these features qualify for the scope exception from derivative accounting.

All three tranches contain fixed conversion prices of either $4.00 or $6.00 per share prior to the occurrence of an event of default, along with a contingent variable conversion feature based on 85% of the Company’s VWAP that becomes exercisable only upon an event of default. Management assessed the likelihood of such an event and concluded that the probability of default is remote, based on the Company’s history of compliance with its debt obligations and continued access to capital markets.

Because the variable conversion feature is contingent on an event considered remote, and the conversion terms under all probable scenarios remain fixed, the Company determined that the embedded conversion features, including the contingent variable option, are clearly and closely related to the debt host and qualify for the equity scope exception under ASC 815-10-15-74(a). As a result, the Note is accounted for in its entirety as a debt instrument.

The Company reassesses the probability of default at each reporting date. If circumstances change such that an event of default is no longer considered remote, the contingent variable conversion feature would be bifurcated and recognized as a derivative liability at fair value, with subsequent changes in fair value recognized in earnings. Any such liability would be limited to the fair value of the contingent conversion option.

As of September 30, 2025, the Company was in compliance with all terms and conditions of the Note.

In connection with the issuance of the $770,000 convertible promissory note, the note had an original issue discount of $70,000. The Company also incurred $7,500 in professional fees related to the financing. The transaction resulted in net cash proceeds of $692,500 to the Company.

Notes Payable

The following is a summary of the Company’s Notes Payable:

The following is a detail of the Company’s Convertible Notes Payable:

Note #3- Note Issuance and Warrants

On September 9, 2025, the Company entered into a six-month (6) Unsecured Note with an individual (the “Investor”), in the original principal amount of $1,000,000 (the “Note”).

As of September 30, 2025, the Company was in compliance with all terms and conditions of the Note.

Warrant Issuance and Classification

In connection with the issuance of the Note, the Company also issued warrants to purchase 30,000 shares of its common stock at an exercise price of $2.50/share. The warrants are immediately exercisable and remain outstanding through September 9, 2028.

In connection with the issuance of the $1,000,000 note, the Company issued warrants to purchase 30,000 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 $19,947, which was recorded as a debt discount and is being amortized to interest expense over the term of the note. The Company also recorded a corresponding increase to additional paid-in capital of $19,947. See Note 9.

The fair value of the warrants was determined using the Black-Scholes model with the following assumptions:

Note #4 – Accounts Receivable Financing Facility and Line of Credit

On September 9, 2025, the Company entered into a one-year (1) Business Loan and Security Agreement (the “Agreement”) with Paragon Bank (“Paragon”) establishing a $1,500,000 accounts receivable financing facility (the “Facility”). The Facility is secured by a first-priority lien on substantially all of the Company’s accounts receivable and related collateral. The Facility is a recourse arrangement under which the Company remains liable to Paragon for all advances, including amounts related to uncollected or disputed customer receivables.

Borrowings under the Facility are available based on eligible accounts (up to 85%), subject to customary reserves and reporting requirements. The Facility is intended to provide working-capital financing and liquidity support for the Company’s operations.

Under the terms of the agreement, each advance is evidenced by a corresponding factoring or receivables purchase transaction recorded through the Company’s Paragon Business Manager account.

During 2025, Paragon purchased $1,499,645 of invoices, of which $657,826 had been collected and remitted by period-end. The resulting outstanding balance of $841,819 represents amounts advanced to the Company under the Facility as of September 30, 2025.

Paragon retains a reserve account equal to a portion of factored receivables to cover charge-backs, adjustments, and service fees (15%). At September 30, 2025, the reserve balance was $224,947, which is classified as restricted cash on the Company’s consolidated balance sheet.

Service charges and related finance fees of $27,743 were incurred during the three and nine months ended September 30, 2025 and are recognized as interest expense within the consolidated statements of operations

As of September 30, 2025, the Company was in compliance with all covenants and terms of the Facility.

Debt Maturities

The following represents the maturities of the Company’s various debt arrangements for each of the five (5) succeeding years and thereafter as follows:

Note 7 –Fair Value of Financial Instruments

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. This determination requires significant judgments to be made.

The Company did not have any financial assets and liabilities that were measured at fair value on a recurring basis at September 30, 2025 and December 31, 2024, respectively.

Note 8 –Commitments and Contingencies

Operating Leases

We have entered into various operating lease agreements, including our corporate headquarters. We account for leases in accordance with ASC Topic 842:*Leases,*which requires a lessee to utilize the right-of-use model and to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either financing or operating, with classification affecting the pattern of expense recognition in the statement of operations. In addition, a lessor is required to classify leases as either sales-type, financing or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as financing. If the lessor does not convey risk and rewards or control, the lease is treated as operating. We determine if an arrangement is a lease, or contains a lease, at inception and record the lease in our financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor.

Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments over the lease term. Lease right-of-use assets and liabilities at commencement are initially measured at the present value of lease payments over the lease term. We generally use our incremental borrowing rate based on the information available at commencement to determine the present value of lease payments except when an implicit interest rate is readily determinable. We determine our incremental borrowing rate based on market sources including relevant industry data.

We have lease agreements with lease and non-lease components and have elected to utilize the practical expedient to account for lease and non-lease components together as a single combined lease component, from both a lessee and lessor perspective with the exception of direct sales-type leases and production equipment classes embedded in supply agreements. From a lessor perspective, the timing and pattern of transfer are the same for the non-lease components and associated lease component and, the lease component, if accounted for separately, would be classified as an operating lease.

We have elected not to present short-term leases on the balance sheet as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that we are reasonably certain to exercise. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of our leases do not provide an implicit rate of return, we used our incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments.

Our leases, where we are the lessee, do not include an option to extend the lease term. For purposes of calculating lease liabilities, lease term would include options to extend or terminate the lease when it is reasonably certain that we will exercise such options.

Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense, included as a component of general and administrative expenses, in the accompanying consolidated statements of operations.

Certain operating leases provide for annual increases to lease payments based on an index or rate, our lease has no stated increase, payments were fixed at lease inception. We calculate the present value of future lease payments based on the index or rate at the lease commencement date. Differences between the calculated lease payment and actual payment are expensed as incurred.

In 2024, in connection with our purchase of CLMI, we acquired a right-of-use operating lease and related lease liability for a building having a fair value of $98,638.

Year End December 31, 2024

Lease Termination and Loss on Right-of-Use Asset

Effective August 31, 2024, the Company entered into an agreement to terminate two (2) of its operating leases prior to the expiration of the lease term. The early termination resulted in the derecognition of these Right-of-Use (ROU) assets and the corresponding lease liabilities associated with these leases.

In connection with the termination, the Company made a buyout payment of $212,175 to the lessor to settle all remaining lease obligations.

The carrying amounts of the lease liability and ROU asset as of the termination date were as follows:

As a result of the termination, the Company recognized a loss of $194,862 which is reported in the Company’s consolidated statements of operations under the line item “Other expenses” for the years ended December 31, 2024.

The loss was calculated as follows:

The termination of these leases resulted in the complete derecognition of these ROU assets and the corresponding lease liabilities. The Company does not expect any future obligations or payments related to these lease agreements following the settlement.

On October 1, 2024, the Company signed a lease for 2,293 square feet of office space in San Salvador. The lease term is 32 months, and expires May 2027, and the total monthly payment is $18,958, including base rent, estimated operating expenses and sales tax.

The lease is subject to a 3% annual increase. An initial Right of Use (“ROU”) asset of $565,650 will be recognized as a non-cash asset addition.

At September 30, 2025 and December 31, 2024, respectively, the Company had no financing leases as defined in ASC 842,“Leases.”

The tables below present information regarding the Company’s operating lease assets and liabilities at September 30, 2025 and December 31, 2024, respectively:

The components of lease expense were as follows:

Future minimum lease payments for the years ended December 31:

Employment Agreements (Chief Executive Officer and Chief Financial Officer)

Chief Financial Officer

In November 2023, the Company finalized the terms of its employment agreement with its Chief Financial Officer as follows:

See Note 9 regarding the vesting provisions of these shares.

Chief Executive Officer

In December 2023, the Company finalized the terms of its employment agreement with its Chief Executive Officer as follows:

On March 1, 2024, the Board approved a long-term equity program for the Company’s Chief Executive Officer providing for a maximum of 2,500,000 shares of common stock to be awarded over a five-year period, subject to annual Board approval. The program anticipates awards of 500,000 shares per year, with each award scheduled to be granted and vest on June 1 of the applicable year. In accordance with ASC 718-10-25-2 and ASC 718-10-55-108 through 55-110, the requirement for annual Board approval means that no grant date for future installments is established until such approval is obtained.

The initial award of 500,000 shares was granted on July 1, 2024, to vest ratably over the period July 2024 through December 2024 (83,333 shares per month). The fair value of this award, measured at the July 1, 2024 grant date, was $3,800,000, based on the closing market price of $7.60 per share.

The second award of 500,000 shares was approved on June 26, 2025, with a revised vesting date of December 31, 2025 (originally June 1, 2025). In subsequent years, additional 500,000 share awards are expected to be approved and granted on or around June 1 of 2026, 2027, and 2028. In accordance with SEC SAB Topic 14.D.2, the fair value of each award will be determined at its respective grant date based on the closing market price on that date.

Because each year’s installment is subject to separate Board approval, each represents a separate award under ASC 718. Consistent with ASC 718-10-55-87 through 55-88, the grant-date fair value for each installment will be measured when Board approval is obtained and recognized as compensation expense over the requisite service period applicable to that installment, which is expected to be grant date, as no future service is required.

Shares shall immediately vest if any of the following occur and the Chief Executive Officer is employed by the Company at the time of:

See Note 9 regarding the vesting provisions of these shares.

Contingencies – Legal Matters

In the normal course of business, the Company may be subject to litigation, claims, and legal proceedings. The Company evaluates legal contingencies in accordance with FASB ASC 450-20-50, “Contingencies”, which requires recognition of a liability if an unfavorable outcome is both probable and can be reasonably estimated.

When a legal matter arises, the Company:

As of September 30, 2025, based on management’s review and consultation with legal counsel, the Company is not aware of any contingent liabilities that require accrual or disclosure in the consolidated financial statements.

Surge Holdings – Juno Litigation

Juno Financial v. AATAC and Surge Holdings Inc. and Surge Holdings Inc. v. AATAC; Circuit Court of Hillsborough County, Florida, Case # 20-CA-2712 DIV A: Breach of Contract, Account Stated and Open Account claims against Surge by a factoring company. Surge has filed a cross-complaint against defendant AATAC for Breach of Contract, Account Stated, Open Account and Common Law Indemnity. The Court dismissed the case with the agreement of the parties at a case management conference on September 12, 2024.

True Wireless and SurgePays – Litigation

Blue Skies Connections, LLC, and True Wireless, Inc. v. SurgePays, Inc., et. al.: In the District Court of Oklahoma County, OK, CJ-2021-5327, filed on December 13, 2021. Plaintiffs’ petition alleges breach of a Stock Purchase Agreement by SurgePays, SurgePhone Wireless, LLC, and Kevin Brian Cox (“Defendants”), and makes other allegations related to SurgePays’ consulting work with Jonathan Coffman, formerly a True Wireless employee. The petition requests injunctive relief, general damages, punitive damages, attorney fees and costs for alleged breach of contract, tortious interference with a business relationship, and fraud. Blue Skies alleged the Defendants are in violation of their non-competition and non-solicitation agreements related to the sale of True Wireless from SurgePays to Blue Skies. Defendants filed various dispositive motions with the Court demonstrating Oklahoma state law does not recognize non-compete agreements and non-solicitation agreements in the manner alleged by Plaintiffs, and the Court granted these motions, finding the non-solicitation and non-competition clauses in the Stock Purchase Agreement void as a matter of Oklahoma law. Defendants then filed additional dispositive motions on Plaintiffs’ claims in tort and equity, which the Court granted in part based on its prior rulings. Plaintiffs took the position the Court granting Defendants’ dispositive motions on these material issues only leaves partial contract claims that are inextricably intertwined with the remaining claims and defenses. Plaintiffs sought a certified interlocutory appeal of the Court’s orders. On March 10, 2025, the Oklahoma Supreme Court entered an order denying Plaintiffs’ Petition for Certiorari to review the certified interlocutory appeal. The case will now proceed in the district court on the parties’ remaining claims. Both parties have filed motions for summary judgment on the remaining claims, which will be decided in Fall of 2025. Presently, there is no trial date. An attempt at mediation in July 2022 did not achieve a settlement. Any further settlement discussions will occur in the context of Defendants having prevailed on the majority of Plaintiffs’ claims.

In the Circuit Court of Tennessee for the 30th Judicial District at Memphis, Docket # CT-3219-23. On August 8, 2023, a complaint was filed by SurgePays for breach of a promissory note by Blue Skies Connections, LLC. The note at issue is dated June 14, 2021, and requires Blue Skies Connections to repay the principal sum of $176,850.56, by monthly payments of $7,461.37 commencing on June 1, 2023. Blue Skies Connections has failed to make any payments due under the terms of the note, and this breach entitles SurgePays to demand payment of the entire amount of the note together with all accrued interest. Blue Skies Connections responded by filing a Motion to Dismiss or, in the alternative, a Motion to Stay, taking the position that, under the prior suit pending doctrine, the subject promissory note is subject to the prior litigation instituted by Blue Skies Connections against SurgePays, styled Skies Connections, LLC and True Wireless, Inc. v. SurgePays, Inc., et al., Case No. CJ-2021-5327, District Court of Oklahoma County, Oklahoma. Surge Pays elected to dismiss its complaint without prejudice and of re-filed the matter in the District Court of Oklahoma County, Oklahoma at Case No. CJ-2025-810. The matter is in the early stages of discovery.

Note 9 –Stockholders’ Equity

At September 30, 2025, the Company had three (3) classes of stock:

Common Stock

Series A, Convertible Preferred Stock

Series C, Convertible Preferred Stock

Securities and Incentive Plan

In March 2023, the Company’s shareholders approved the 2022 Plan (the “Plan”) initially approved, authorized and adopted by the Board of Directors in August 2022.

The Plan initially provided for the following:

See the proxy statement filed with the SEC on January 19, 2023 for a complete detail of the Plan.

Effective January 1, 2024, in accordance with the Plan, we increased the available amount of shares by 10% of the common stock outstanding on December 31, 2023, approximating an additional 1,400,000 shares of common stock. After this increase, total shares authorized and available to be issued under the Plan approximated 4,900,000 shares.

Effective January 1, 2025, in accordance with the Plan, we increased the available amount of shares by 10% of the common stock outstanding on December 31, 2024, approximating an additional 2,007,000 shares of common stock. After this increase, total shares authorized and available to be issued under the Plan approximated 6,907,000 shares.

Of the total shares authorized and available, the Company has reserved shares for its officers, directors and employees for non-vested shares that are expected to vest in accordance with the terms of the related employment agreements and stock options that may be converted into common stock. At September 30, 2025, the Company had sufficient authorized shares to settle any possible awards that vested or stock options eligible for conversion.

Equity Transactions for the Nine Months Ended September 30, 2025

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 266,877 shares of common stock for gross proceeds of $649,383 ($2.12 - $2.98/share).

In connection with the capital raise, the Company paid cash as direct offering costs (including professional fees) totaling $58,880, resulting in net proceeds of $590,503.

The Company issued 9,000 shares of common stock for services rendered, having a fair value of $25,830 ($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

In connection with the issuance of convertible debt, the Company issued 30,000 shares of common stock, which has been recorded as a debt discount totaling $85,800. See Note 6.

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 5.

Equity Transactions for the Years Ended December 31, 2024

Stock Issued for Cash - Capital Raise

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. See warrant table below.

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.

See separate discussion below for the issuance and related vesting of common stock granted to the Company’s officers and directors.

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.

Non-Vested Shares – Related Parties (Officer and Directors) – and related Vesting

Chief Financial Officer

In 2023, the Company granted common stock to its Chief Financial Officer (600,000 shares – see Note 8), having a fair value of $3,114,000 ($5.19/share), based upon the quoted closing trading price.

The shares will vest as noted above (see Note 8). The Company records stock compensation expense ratably over these vesting periods. All shares are expected to vest in accordance with the terms of the agreement.

For the three months ended September 30, 2025 and 2024, the Company recognized stock compensation expense of $119,769 and $488,123, respectively, related to vesting of grants made to the Chief Financial Officer.

For the nine months ended September 30, 2025 and 2024, the Company recognized stock compensation expense of $359,308 and $1,946,848, respectively, related to vesting of grants made to the Chief Financial Officer.

Board Directors

2025 Grant

In May 2025, the Company granted an aggregate 150,000 shares of common stock to various members of the Board of Directors, having a fair value of $474,000 ($3.16/share), based upon the quoted closing trading price.

The shares will vest at the earlier to occur:

2024 Grant

In 2024, the Company granted an aggregate 44,640 shares of common stock to various members of the Board of Directors, having a fair value of $149,990 ($3.36/share), based upon the quoted closing trading price.

The shares will vest at the earlier to occur:

The Company records stock compensation expense over the vesting period. All shares are expected to vest in accordance with the terms of these related employment agreements.

For the three months ended September 30, 2025 and 2024, the Company recognized stock compensation expense of $71,811 and $35,349, respectively, related to vesting of grants made to the Board of Directors.

For the nine months ended September 30, 2025 and 2024, the Company recognized stock compensation expense of $166,817 and $96,674, respectively, related to vesting of grants made to the Board of Directors.

Chief Executive Officer

In 2024, the Company granted common stock to its Chief Executive Officer (500,000 shares – see Note 8), having a fair value of $3,800,000 ($7.60/share), based upon the quoted closing trading price.

The shares will vest as noted above (see Note 8). The Company records stock compensation expense ratably over these vesting periods. All shares are expected to vest in accordance with the terms of the agreement.

For the three months ended September 30, 2025 and 2024, the Company recognized stock compensation expense of $0 and $1,057,818, respectively, related to vesting of grants made to the Chief Executive Officer.

For the nine months ended September 30, 2025 and 2024, the Company recognized stock compensation expense of $0 and $3,580,090, respectively, related to vesting of grants made to the Chief Executive Officer.

Director of Human Resources and Legal Services

In 2024, the Company granted 100,000 shares of common stock to its Director of Human Resources and Legal Services, having a fair value of $672,000 ($6.72/share), based upon the quoted closing trading price.

The shares will vest ratably over the period July 2024 – December 2024. The Company records stock compensation expense ratably over these vesting periods. All shares are expected to vest in accordance with the terms of the agreement.

For the three months ended September 30, 2024, the Company recognized stock compensation expense of $187,066, related to vesting.

For the nine months ended September 30, 2024, the Company recognized stock compensation expense of $633,113, related to vesting.

Total Compensation Expense due to Vesting (All Officers and Directors)

For the three months ended September 30, 2025 and 2024, the Company recognized total stock compensation expense of $191,580 and $1,768,357, related to all arrangements with vesting.

For the nine months ended September 30, 2025 and 2024, the Company recognized total stock compensation expense of $526,125 and $6,256,726, related to all arrangements with vesting.

The following is a summary of the Company’s non-vested shares at September 30, 2025 and December 31, 2024.

The following is a detail of the common stock granted, which is subject to the vesting provisions noted above at September 30, 2025 and December 31, 2024, respectively.

Stock Options

Stock option transactions for the nine months ended September 30, 2025 and the year ended December 31, 2024 are summarized as follows:

Nine Months Ended September 30, 2025

13,024 stock options were cancelled related to the termination of an employee.

Years Ended December 31, 2024

Stock Options - Related Party – Chief Financial Officer

The remaining 5,101 stock options vested, and the related expense was $6,196.

Stock Options – Chief Executive Officer, Chief Financial Officer and Employees

The Company granted an aggregate of 1,054,603, fully vested, seven (7) year stock options to the Company’s Chief Executive Officer (248,424), Chief Financial Officer (157,335) and various employees (648,844) for services rendered, having a fair value of $1,602,997. Of the total expense recognized, $616,754 related to the officers, and $986,243 related to the employees. These options have an exercise price of $1.78 per share.

The fair value of these stock options was determined using a Black-Scholes option pricing model with the following inputs:

Stock-based compensation expense for the three and nine months ended September 30, 2025 and 2024 was as follows:

Warrants

Warrant activity for the nine months ended September 30, 2025 and the year ended December 31, 2024 are summarized as follows:

See Note 6 regarding debt issued with an aggregate 730,000 warrants.

Note 10 –Segment Information

Operating segments are defined as components of an enterprise about which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision–making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer.

The Company evaluated the performance of its operating segments based on revenue and operating loss. All data below is prior to intercompany eliminations.

Segment information for the Company’s operations for the three and nine months ended September 30, 2025 and 2024, are as follows:

Segment information for the Company’s assets and liabilities at September 30, 2025 and December 31, 2024, are as follows:

All intercompany accounts are separately presented above as both a component of the assets and liabilities. These amounts net to $0 in the Company’s consolidated balance sheets.

Note 11 –Subsequent Event

The Company issued 40,000 shares of common stock for services rendered, having a fair value of $111,600 ($2.79/share), based upon the quoted closing trading price.

Convertible Notes Payable

Note #1

On October 15, 2025, the Company entered into a one-year (1) unsecured, Note Purchase Agreement with ClearThink Capital Partners, LLC (the “Investor”), pursuant to which the Company issued a Convertible Note in the original principal amount of $385,000 (the “Note”).

● First tranche: $103,950 of principal and accrued interest convertible at $4.00 per share;

● Second tranche: $148,500 of principal and accrued interest convertible at $6.00 per share; and

● Third tranche: the remaining principal and accrued interest convertible at $6.00 per share; however, upon the occurrence of an event of default, all tranches may alternatively be converted at 85% of the lowest daily volume-weighted average price (“VWAP”) of the Company’s common stock during thefive trading days immediately preceding the conversion date.

All three tranches are immediately exercisable at the Investor’s option at their respective fixed conversion prices. The fixed conversion prices are subject to customary anti-dilution adjustments for stock splits, stock dividends, or recapitalizations. The Company may also, subject to specified price and volume conditions and with the prior written consent of the Investor, effect a mandatory conversion of all or a portion of the Note into common stock.

Accounting Treatment

The Company evaluated the embedded conversion features in accordance with ASC 815-10-15-74(a) and ASC 815-40 to determine whether bifurcation and separate recognition as derivative liabilities were required. The conversion options were determined to be conventional fixed-price features that are indexed solely to the Company’s common stock and meet the “fixed-for-fixed” criteria under ASC 815-40-15. Accordingly, these features qualify for the scope exception from derivative accounting.

All three tranches contain fixed conversion prices of either $4.00 or $6.00 per share prior to the occurrence of an event of default, along with a contingent variable conversion feature based on 85% of the Company’s VWAP that becomes exercisable only upon an event of default. Management assessed the likelihood of such an event and concluded that the probability of default is remote, based on the Company’s history of compliance with its debt obligations and continued access to capital markets.

Because the variable conversion feature is contingent on an event considered remote, and the conversion terms under all probable scenarios remain fixed, the Company determined that the embedded conversion features, including the contingent variable option, are clearly and closely related to the debt host and qualify for the equity scope exception under ASC 815-10-15-74(a). As a result, the Note is accounted for in its entirety as a debt instrument.

The Company reassesses the probability of default at each reporting date. If circumstances change such that an event of default is no longer considered remote, the contingent variable conversion feature would be bifurcated and recognized as a derivative liability at fair value, with subsequent changes in fair value recognized in earnings. Any such liability would be limited to the fair value of the contingent conversion option.

In connection with the issuance of the $385,000 convertible promissory note, the note had an original issue discount of $35,000. The transaction resulted in net cash proceeds of $350,000 to the Company.

Note #2

On October 8, 2025, the Company entered into a one-year (1) unsecured, Note Purchase Agreement with BHP Capital NY, Inc. (the “Investor”), pursuant to which the Company issued a Convertible Note in the original principal amount of $660,000 (the “Note”).

All three tranches are immediately exercisable at the Investor’s option at their respective fixed conversion prices. The fixed conversion prices are subject to customary anti-dilution adjustments for stock splits, stock dividends, or recapitalizations. The Company may also, subject to specified price and volume conditions and with the prior written consent of the Investor, effect a mandatory conversion of all or a portion of the Note into common stock.

The Company evaluated the embedded conversion features in accordance with ASC 815-10-15-74(a) and ASC 815-40 to determine whether bifurcation and separate recognition as derivative liabilities were required. The conversion options were determined to be conventional fixed-price features that are indexed solely to the Company’s common stock and meet the “fixed-for-fixed” criteria under ASC 815-40-15. Accordingly, these features qualify for the scope exception from derivative accounting.

All three tranches contain fixed conversion prices of either $4.00 or $6.00 per share prior to the occurrence of an event of default, along with a contingent variable conversion feature based on 85% of the Company’s VWAP that becomes exercisable only upon an event of default. Management assessed the likelihood of such an event and concluded that the probability of default is remote, based on the Company’s history of compliance with its debt obligations and continued access to capital markets.

Because the variable conversion feature is contingent on an event considered remote, and the conversion terms under all probable scenarios remain fixed, the Company determined that the embedded conversion features, including the contingent variable option, are clearly and closely related to the debt host and qualify for the equity scope exception under ASC 815-10-15-74(a). As a result, the Note is accounted for in its entirety as a debt instrument.

The Company reassesses the probability of default at each reporting date. If circumstances change such that an event of default is no longer considered remote, the contingent variable conversion feature would be bifurcated and recognized as a derivative liability at fair value, with subsequent changes in fair value recognized in earnings. Any such liability would be limited to the fair value of the contingent conversion option.

In connection with the issuance of the $660,000 convertible promissory note, the note had an original issue discount of $60,000. The transaction resulted in net cash proceeds of $600,000 to the Company.

The Company also issued 24,000 shares of common stock in connection with this note, having a fair value of $67,920 ($2.83/share), based upon the quoted closing price. These shares are a component of the total debt discount totaling $127,920.

Note #3

On October 7, 2025, the Company entered into a one-year (1) unsecured, Note Purchase Agreement with GS Capital Partners, LLC (the “Investor”), pursuant to which the Company issued a Convertible Note in the original principal amount of $385,000 (the “Note”).

All three tranches are immediately exercisable at the Investor’s option at their respective fixed conversion prices. The fixed conversion prices are subject to customary anti-dilution adjustments for stock splits, stock dividends, or recapitalizations. The Company may also, subject to specified price and volume conditions and with the prior written consent of the Investor, effect a mandatory conversion of all or a portion of the Note into common stock.

The Company evaluated the embedded conversion features in accordance with ASC 815-10-15-74(a) and ASC 815-40 to determine whether bifurcation and separate recognition as derivative liabilities were required. The conversion options were determined to be conventional fixed-price features that are indexed solely to the Company’s common stock and meet the “fixed-for-fixed” criteria under ASC 815-40-15. Accordingly, these features qualify for the scope exception from derivative accounting.

All three tranches contain fixed conversion prices of either $4.00 or $6.00 per share prior to the occurrence of an event of default, along with a contingent variable conversion feature based on 85% of the Company’s VWAP that becomes exercisable only upon an event of default. Management assessed the likelihood of such an event and concluded that the probability of default is remote, based on the Company’s history of compliance with its debt obligations and continued access to capital markets.

Because the variable conversion feature is contingent on an event considered remote, and the conversion terms under all probable scenarios remain fixed, the Company determined that the embedded conversion features, including the contingent variable option, are clearly and closely related to the debt host and qualify for the equity scope exception under ASC 815-10-15-74(a). As a result, the Note is accounted for in its entirety as a debt instrument.

The Company reassesses the probability of default at each reporting date. If circumstances change such that an event of default is no longer considered remote, the contingent variable conversion feature would be bifurcated and recognized as a derivative liability at fair value, with subsequent changes in fair value recognized in earnings. Any such liability would be limited to the fair value of the contingent conversion option.

In connection with the issuance of the $385,000 convertible promissory note, the note had an original issue discount of $35,000. The transaction resulted in net cash proceeds of $50,000 to the Company.

The Company also issued 14,000 shares of common stock in connection with this note, having a fair value of $39,480 ($2.82/share), based upon the quoted closing price. These shares are a component of the total debt discount totaling $74,480.