SurgePays, Inc.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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 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.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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 was 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.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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 financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Going Concern, Liquidity and Management’s Plans

As reflected in the accompanying consolidated financial statements, for the year ended December 31, 2025, the Company had:

Additionally, at December 31, 2025, the Company had:

The Company has unrestricted cash on hand of $1,731,400 at December 31, 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. In making this assessment, the Company performed a comprehensive analysis of its current circumstances, including its financial position, cash flows and cash usage forecasts for the twelve months ending December 31, 2026, and its current capital structure including equity-based instruments and outstanding debt obligations.

Effective February 7, 2024, the Affordable Connectivity Program (“ACP”) stopped accepting new applications and enrollments, and 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 of more than one year from the issuance date of these financial statements.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

These conditions create substantial doubt about the Company’s ability to continue as a going concern within the twelve-month period subsequent to the date that these consolidated financial statements are issued. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Management has evaluated the significance of these conditions and has developed plans intended to mitigate the substantial doubt. The Company’s specific strategic and financing plans include the following:

The Company is also actively pursuing additional equity and debt financing alternatives and strategic partnerships. These plans are subject to successful execution and prevailing market conditions, and there can be no assurance that they will generate sufficient liquidity to alleviate the substantial doubt.

See Note 12 for cash proceeds from the issuance of stock and warrants.

Note 2 -Summary of Significant Accounting Policies

Principles of Consolidation and Non-Controlling Interest

These 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.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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 and Related Impairment

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 (the lease expired on December 31, 2025). The acquired technology and software had a net carrying amount of $0 at the 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 pro-forma financial information.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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, and the acquisition of CLMI was not deemed significant to the Company at any level under SEC Regulation S-X Rule 3-05 and did not require the presentation of additional historical audited financial statements.

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

Goodwill Impairment - ClearLine Mobile, Inc. & Torch Wireless

The Company tests goodwill for impairment at the reporting unit level annually, or more frequently when events or changes in circumstances indicate that the carrying amount of a reporting unit may exceed its fair value, in accordance with ASC 350-20,Intangibles—Goodwill and Other.

At December 31, 2025, the Company performed its annual goodwill impairment assessment. Based on this analysis, the Company determined that the fair value of the CLMI reporting unit was less than its carrying amount. The CLMI reporting unit was unable to generate revenues or cash flows sufficient to sustain operations. Accordingly, the Company recognized a full goodwill impairment charge of $2,500,000, representing the entire carrying amount of goodwill attributable to CLMI. This charge is included in other expense in the accompanying consolidated statements of operations. The Company also determined that the fair value of the Torch Wireless reporting unit was less than its carrying amount, and recognized a full goodwill impairment charge of $800,000, representing the entire carrying amount of goodwill attributable to Torch Wireless.

*During the year ended December 31, 2024, the Company recognized a goodwill impairment loss of $866,782 related to the LogicsIQ reporting unit, prior to its classification as a discontinued operation (see Note 1).

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

At December 31, 2025 and December 31, 2024 goodwill was as follows:

Note Receivable (Sale of Former Subsidiary) and Related Impairment

On May 7, 2021, the Company disposed of its former subsidiary True Wireless, Inc. In connection with the sale, the Company received an unsecured promissory note receivable from Blue Skies Connections, LLC in the original principal amount of $176,851, bearing interest at 0.6% per annum, with a default interest rate of 10%. The note was payable in twenty-five (25) monthly installments of principal and accrued interest of $7,461, commencing June 2023.

On July 12, 2023, the Company provided Notice of Default to Blue Skies Connections, LLC for failure to make required payments, and accelerated the full outstanding balance in accordance with the terms of the note.

As of December 31, 2025, the Company determined that the note is uncollectible. Accordingly, the Company recognized an impairment loss of $176,851, representing the full carrying amount of the note receivable, which is included in other expenses – net, in the accompanying consolidated statements of operations. See Note 8 for additional discussion of related legal proceedings.

The note was placed on non-accrual status upon default in July 2023. No interest income (including default interest at 10%) has been recognized since that date due to uncertainty of collection.

The Note Receivable was as follows:

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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 as multiple 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 approximately 84% and 97% of accounts receivable at December 31, 2025 and 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 years ended December 31, 2025 and 2024 include the following:

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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, the following:

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.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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, accounts payable, and accrued expenses (including related-party amounts), are recorded at historical cost. As of December 31, 2025 and 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 December 31, 2025 and 2024, respectively, the Company did not experience any losses on cash balances in excess of FDIC insured limits.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Restricted Cash

At December 31, 2025, the Company had $281,811 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 classified its marketable securities as trading, available-for-sale, or held-to-maturity.

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

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

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

During the year ended December 31, 2024, the Company held marketable securities consisting of U.S. Treasury and government exchange-traded funds, which were classified as trading securities based on the Company’s intent to sell them in the near term and recorded at fair value with unrealized gains and losses included in earnings. The Company did not hold any marketable securities during the year ended December 31, 2025.

Marketable securities were as follows at December 31, 2024:

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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

At December 31, 2025 and 2024, the allowance for doubtful accounts was $0, andno bad debt expense or recoveries were recorded during the years then ended.

Inventory

Inventory primarily consists of 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 December 31, 2025 and 2024, the Company had inventory of $339,570 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 ASC 360-10-35-15,Impairment or Disposal of Long-Lived Assets. Factors considered in determining whether a potential impairment exists include, but are not limited to:

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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 loss is measured as the amount by which the carrying amount of the assets exceeds their fair value.

During the year ended December 31, 2024, the Company recorded an impairment loss on long-lived assets (see below). There wereno impairment losses on long-lived assets for the year ended December 31, 2025.

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 years ended December 31, 2025 and 2024, respectively.

Internal Use Software Development Costs

The Company capitalizes certain costs associated with internally developed software related to its technology infrastructure, including personnel and related employee benefit expenses for employees directly involved in software development projects and external direct costs of materials and services. Costs that do not meet the criteria for capitalization are expensed as incurred and recorded in general and administrative expenses.

Software development activities consist of three stages:

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Costs incurred in the planning and post-implementation stages, including training and maintenance, are expensed as incurred. Costs incurred in the application and infrastructure development stage, including significant enhancements and upgrades, are capitalized once the planning stage is complete, management has authorized further funding, and it is probable the project will be completed and perform as intended. Capitalization ends when the software is substantially complete and ready for its intended purpose.

Capitalized internal-use software costs are amortized on a straight-line basis over an estimated useful life of three (3) years, commencing when the software is ready for its intended use. The Company periodically evaluates the remaining useful lives of capitalized projects and assesses whether facts and circumstances warrant a revision. The Company also evaluates capitalized projects for abandonment on a quarterly basis, which serves as a significant indicator of impairment.

At December 31, 2024, the Company determined that its capitalized internal-use software development costs had no future use based upon its current and expected future operations and recorded an impairment loss of $316,594. There wereno capitalized internal-use software development costs or impairment charges during the year ended December 31, 2025. The net carrying value of capitalized internal-use software was $0 at both December 31, 2025 and 2024.

Right-of-Use Assets and Lease Obligations

The Company accounts for leases in accordance with ASC 842,Leases.

Recognition and Measurement

At lease commencement, the Company recognizes a right-of-use (“ROU”) asset and a corresponding lease liability measured at the present value of the lease payments over the lease term. The Company evaluates ROU assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Lease Classification

All of the Company’s leases are classified as operating leases and are presented as right-of-use assets and operating lease liabilities on the consolidated balance sheets. The Company has no finance leases. Operating lease expense is recognized on a straight-line basis over the lease term and is recorded in general and administrative expenses in the accompanying consolidated statements of operations.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Short-Term Leases

The Company has elected the short-term lease exemption under ASC 842 for leases with an initial term of twelve (12) months or less. These leases are not recorded on the balance sheet, and the related lease payments are expensed on a straight-line basis over the lease term.

Lease Term and Renewal Options

In determining the lease term, the Company evaluates whether renewal options are reasonably certain to be exercised. Factors considered include the useful life of leasehold improvements relative to the lease term, the economic performance of the business at the leased location, the comparative cost of renewal rates versus market rates, and any significant economic penalties for non-renewal. The Company’s operating leases contain renewal options but no residual value guarantees. Management does not currently expect to exercise any renewal options, which are therefore excluded from the measurement of ROU assets and lease liabilities.

Discount Rate

As the implicit rate in the Company’s leases is not readily determinable, the Company uses an incremental borrowing rate (“IBR”) that represents the rate it would incur to borrow on a collateralized basis over a similar term in a similar economic environment.

See Note 8 for additional information regarding the Company’s operating leases.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606,Revenue from Contracts with Customers. Revenue is recognized when control of promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company applies the following five-step model:

All contract consideration is fixed and determinable at contract inception. The Company’s contracts do not contain variable consideration, significant financing components, or multiple performance obligations. The Company does not offer returns, refunds, or warranties, and no arrangements are cancellable.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Mobile Virtual Network Operators

Torch Wireless is licensed to provide subsidized mobile broadband services through the Lifeline program to qualifying low-income customers. The Company’s performance obligation is satisfied as mobile broadband services are provided to eligible subscribers.

Revenue is recognized in the month services are provided to Lifeline subscribers who remain active as of the last day of the month.

At month-end, the Company determines the number of eligible active subscribers based on internal usage data and subscriber eligibility status. The Company then submits a report to the Universal Service Administrative Company (“USAC”), which administers the Lifeline reimbursement program on behalf of the federal government. Upon submission of this report, the related accounts receivable is recorded. Payment is typically received by the 28th day of the following month.

Point-of-Sale and Prepaid Services

Revenues are generated through the sale of telecommunication products, including mobile phones, wireless top-up refills, and other mobile-related products through the Company’s online web portal. The performance obligation is satisfied at the point of sale, at which time the web portal initiates an automated clearing house (“ACH”) transaction and revenue is recognized. The Company has determined it is the principal in these arrangements, as it takes control of the products prior to transferring them to the customer, and accordingly records revenue on a gross basis with related costs recorded as cost of revenues.

Lead Generation Services

LogicsIQ, Inc. was a lead generation and case management solutions company primarily serving law firms in the mass tort industry. Effective January 1, 2024, the Company ceased providing these services. Effective December 31, 2024, management elected to abandon the lead generation segment as part of a strategic reassessment of its business (see Note 1). Segment disclosure for this former operation has been combined with other corporate overhead.

Contract Liabilities - Deferred Revenue

Contract liabilities represent customer deposits received prior to the satisfaction of the related performance obligation. Upon completion of the performance obligation, the liability is relieved and revenue is recognized.

At December 31, 2025 and 2024, deferred revenue was $0.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

The following represents the Company’s disaggregation of revenues for the years ended December 31, 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, 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 taxes 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 years in which the differences are expected to reverse. 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.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

The Company records a valuation allowance against deferred tax assets when, 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.

Uncertain Tax Positions

The Company follows the provisions of ASC 740 with respect to uncertainty in income taxes. Tax positions are recognized in the financial statements when it is more likely than not that the position will be sustained upon examination by the taxing authorities.

As of December 31, 2025 and 2024, the Company hadno uncertain tax positions that qualify for recognition or disclosure in the financial statements. The Company recognizes interest and penalties related to uncertain income tax positions in other expense. No such interest or penalties were recorded for the years ended December 31, 2025 and 2024.

Valuation Allowance and Net Operating Loss Carryforwards

The Company has net operating loss carryforwards that have been evaluated for applicability in offsetting current taxable income. Federal net operating loss carryforwards are limited to 80% of the current year’s net taxable income. During 2024, the Company entered a three-year cumulative loss position and remained in that position at December 31, 2025. As a result, a full valuation allowance has been recorded against all net operating loss carryforwards at December 31, 2025 and 2024.

Income Tax Expense and Liability

The recognition of the full valuation allowance resulted in income tax expense of $2,870,000 for the year ended December 31, 2024. No income tax expense or benefit was recorded for the year ended December 31, 2025.

At December 31, 2025 and 2024, the Company hadno accrued income tax liability (see Note 11).

Investment

Acquisition

On January 17, 2019, the Company acquired a 40% equity ownership interest in CenterCom Global, S.A. de C.V. (“CenterCom”), an operations center based in El Salvador that provided sales support, customer service, information technology infrastructure design, graphic media, database programming, software development, revenue assurance, lead generation, and call center support services.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

The Company accounted for its investment in CenterCom under the equity method in accordance with ASC 323,Investments - Equity Method and Joint Ventures. The investment was initially recorded at cost and adjusted each period for the Company’s proportionate share of CenterCom’s net income or loss. The financial information of CenterCom used for equity-method accounting was unaudited. The Company reviewed its equity-method investment for impairment whenever events or changes in circumstances indicated that the carrying amount may not be recoverable.

Equity in Earnings

No equity-method gain or loss was recognized on the investment during the year ended December 31, 2024.

Impairment

During the year ended December 31, 2024, the Company determined that a change in ownership and a significant reduction in human capital materially impacted CenterCom’s ability to continue operations. Based on this assessment, the Company concluded that the decline in the investment’s value was other than temporary and recorded an impairment loss of $498,273 for the year ended December 31, 2024.

Following the recognition of this impairment charge, the carrying value of the Company’s investment in CenterCom was $0 at December 31, 2024, reflected as follows:

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 years ended December 31, 2025 and 2024, respectively, as follows:

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718,Compensation—Stock Compensation. Compensation cost is measured at the grant-date fair value of the award and is recognized over the requisite service period (generally the vesting period) on a straight-line basis.

This guidance applies to share-based payment awards granted to both employees and non-employees. Pursuant to ASU 2018-07,Improvements to Nonemployee Share-Based Payment Accounting, awards granted to non-employees are accounted for in substantially the same manner as awards granted to employees, with fair value determined on the grant date.

Fair Value Estimation

The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model. The model incorporates the following key assumptions:

Forfeitures and Expense Classification

The Company has elected the practical expedient under ASU 2016-09 to account for forfeitures as they occur rather than estimating them in advance. This election is applied consistently to all stock-based awards. Stock-based compensation expense is classified in the consolidated statements of operations as a component of general and administrative expenses.

Tax Treatment

The Company applies the provisions of ASU 2016-09 related to the recognition of all excess tax benefits and tax deficiencies in income tax expense in the period in which they occur and the classification of cash paid for tax withholdings on behalf of employees as financing activities in the consolidated statement of cash flows.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Stock Warrants

In connection with certain financing transactions (debt or equity), consulting arrangements, or strategic partnerships, the Company may issue warrants to purchase shares of its common stock. Warrants that do not meet liability classification under ASC 480,Distinguishing Liabilities from Equity, are evaluated under ASC 815-40,Derivatives and Hedging—Contracts in Entity’s Own Equity. The Company’s outstanding warrants are not puttable or mandatorily redeemable, do not require net cash settlement, and are indexed to the Company’s own common stock. Accordingly, they are classified as equity instruments in additional paid-in capital.

The fair value of warrants issued for compensation purposes is measured using the Black-Scholes option pricing model.

Warrants issued in conjunction with common stock issuances are initially recorded at fair value as a reduction in additional paid-in capital. Warrants issued for services are recorded at fair value and expensed over the requisite service period or immediately upon issuance if no service period exists. Warrants classified as liabilities due to settlement features or pricing adjustments are remeasured at fair value each reporting period, with changes recognized in earnings.

Basic and Diluted Earnings (Loss) per Share

Computation

The Company computes basic and diluted 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.

Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period.

Diluted earnings (loss) per share includes the impact of potentially dilutive securities and is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding plus the weighted-average number of common stock equivalents and other potentially dilutive securities during the period.

Treasury Stock

Treasury shares are excluded from the denominator in computing both basic and diluted earnings (loss) per share because they are not considered outstanding.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

During the year ended December 31, 2025, the Company reacquired 333,333 shares of treasury stock for $999,999 ($3 per share) in connection with a third-party convertible debt lender arrangement (see Note 6).

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

Potentially Dilutive Securities

Potentially dilutive common shares include contingently issuable shares, common stock issuable upon the exercise of stock options and warrants (calculated using the treasury stock method in accordance with ASC 260-10-55), and convertible debt instruments, if applicable.

These securities may be dilutive in future periods. However, in periods in which 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.

The following potentially dilutive equity securities were outstanding as of December 31, 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 December 31, 2025 and 2024, the Company has 500,000,000 authorized shares of common stock, respectively, which is sufficient to accommodate any potential exercises of common stock equivalents.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

The Company accounts for treasury stock using the cost method in accordance with ASC 505-30,Equity—Treasury Stock. Under this method, treasury stock is recorded at cost on the date of repurchase and presented as a reduction in stockholders’ equity. Purchases, sales, issuances, or retirements of treasury stock do not affect the consolidated statements of operations.

Reissuance of Treasury Stock

When treasury shares are reissued, they are removed from treasury stock at their original cost. Any excess of the reissuance price over cost is credited to additional paid-in capital. Any deficiency is charged first to additional paid-in capital to the extent of previously recorded credits from treasury stock transactions, with any remaining deficiency charged to retained earnings.

Retirement of Treasury Stock

The Company periodically assesses whether to retain treasury shares or retire them. Upon retirement, the shares are removed from issued stock and a corresponding adjustment is made 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:

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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 years ended December 31, 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

Recently Adopted Accounting Standards

FASB ASU 2023-07 – Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued ASU 2023-07, which enhances reportable segment disclosure requirements by requiring disclosure of significant segment expenses regularly provided to the chief operating decision maker (“CODM”), the title and position of the CODM, and extending certain annual disclosures to interim periods. It also clarifies that single-reportable-segment entities must apply ASC 280 in its entirety.

This ASU was effective for annual periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024, with retrospective application required. The Company adopted ASU 2023-07 effective January 1, 2025. The adoption resulted in enhanced segment disclosures but did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

FASB ASU 2023-09 – Income Taxes (Topic 740): Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09, which enhances income tax disclosure requirements by standardizing and disaggregating rate reconciliation categories and requiring disclosure of income taxes paid by jurisdiction.

This ASU was effective for annual periods beginning after December 15, 2024, and may be applied on a prospective or retrospective basis. The Company adopted ASU 2023-09 effective January 1, 2025. The adoption resulted in enhanced income tax disclosures but did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

FASB 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 a practical expedient that permits entities to assume that current economic conditions as of the balance sheet date will remain unchanged over the remaining life of current (short-term) accounts receivable and current contract assets arising from transactions accounted for under ASC 606.

The Company early adopted ASU 2025-05 effective January 1, 2025, and elected the practical expedient. The amendments were applied prospectively. The adoption did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

Recently Issued Accounting Standards Not Yet Adopted

FASB ASU 2024-03 / ASU 2025-01 – Income Statement (Topic 220): Reporting Comprehensive Income - Expense Disaggregation Disclosures

In November 2024, the FASB issued ASU 2024-03, which requires public business entities to disclose, in both annual and interim reporting periods, disaggregated information about certain income statement expense line items in a tabular format, along with a qualitative reconciliation to the captions on the face of the financial statements. In January 2025, the FASB issued ASU 2025-01 to clarify the effective date for non-calendar year-end entities.

The ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted and may be applied on either a prospective or retrospective basis. The Company is currently assessing the potential impact of ASU 2024-03/2025-01 on its consolidated financial statement disclosures.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

FASB ASU 2024-04 – Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments

In November 2024, the FASB issued ASU 2024-04, which clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion.

ASU 2024-04 is effective for annual periods beginning after December 15, 2025, and interim reporting periods within those annual periods. Early adoption is permitted for all entities that have adopted the amendments in ASU 2020-06. Adoption may be applied on a prospective or retrospective basis. The Company is currently evaluating the impact that ASU 2024-04 may have on its consolidated financial statement presentation and disclosures.

Other Accounting Standards Updates

The Company has evaluated all other recently issued accounting standards not yet effective and has determined that the adoption of such standards is not expected to have a material impact on the Company’s financial statements or disclosures.

Reclassifications

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 years ended December 31, 2025 and 2024, were $206,161 and $942,450, respectively.

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

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Note 4 –Intangibles

Intangibles consisted of the following:

Amortization expense for the years ended December 31, 2025 and 2024 was as follows:

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

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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.

The following is a summary of our capitalized internal use software development costs at December 31, 2024:

For the year ended December 31, 2024, amortization of internal software development costs was $222,830.

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 December 31, 2025 and 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.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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.

Note Payable – Related Party

The following is a summary of the Company’s Note Payable - Related Party:

On March 12, 2024, as approved by the Audit Committee, the Company consolidated all remaining outstanding principal and accrued interest of $4,584,563 and $498,991, respectively, into a single consolidated note with an aggregate face amount of $5,083,554. The consolidated note bears interest at 10% per annum, with a default interest rate of 15%, and is repayable in equal monthly installments of $164,039 over 36 months, resulting in total aggregate payments of $5,905,427 inclusive of interest. The note is unsecured and was scheduled to be repaid in full by December 2026.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Beginning in July 2025, monthly payments under the consolidated note were temporarily suspended as a result of the Company’s current cash flow constraints. The note holder has confirmed that the suspension does not constitute a default under the note terms; accordingly, the 15% default interest rate has not been triggered, and interest has continued to accrue at the contractual rate of 10% per annum. The suspension did not result in a modification of the note’s contractual terms and does not constitute a troubled debt restructuring. Management is evaluating options to restructure or resume payments in future periods.

See Note 12 for information regarding the conversion of $1,000,000 of note principal into shares of common stock.

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

Convertible Notes Payable

The following is a summary of the Company’s Convertible Notes Payable and related Debt Discounts:

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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

Convertible Notes Payable - Notes #1 through #6

Overview

During the year ended December 31, 2025, the Company entered into six Note Purchase Agreements with institutional investors and issued Convertible Notes (collectively, the “Notes”) with an aggregate original principal of $9,694,999. Note #1 is a senior secured obligation collateralized by a first-priority lien on substantially all of the Company’s and its subsidiaries’ assets. Notes #2 through #6 are unsecured obligations. The Notes are summarized in detail below.

Note #1 - Senior Secured Convertible Note

On May 12, 2025, the Company entered into a Senior Secured Note Purchase Agreement with an institutional investor, pursuant to which the Company issued a Senior Secured Convertible Note in the original principal amount of $6,999,999 (the “Note”), resulting in net cash proceeds of $5,405,000, after deducting $175,000 in legal fees and $420,000 in broker fees paid directly from the proceeds. 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.

In connection with the issuance, the Company repurchased 333,333 shares of its common stock from the investor at $3.00 per share. These shares were cancelled and retired and are recorded as treasury stock (see Note 9).

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Interest and Amortization Terms

The Note accrues interest at a rate of 1.25% per month (15% per annum). Interest is payable monthly, either in cash or as payment-in-kind (“PIK Interest”) at the Company’s election. Commencing with the month ending June 30, 2026, the Note obligation amortizes in equal monthly installments of $500,000, with the remaining outstanding balance due on the Maturity Date of October 12, 2027.

Amendment

On January 31, 2026, the Company and the investor entered into an amendment to the Note, which revised the amortization commencement date from January 31, 2026 to June 30, 2026 and extended the Maturity Date from May 12, 2027 to October 12, 2027. The amendment was evaluated in accordance with ASC 470-50 and accounted for as a debt modification. Accordingly, no gain or loss was recognized, and the carrying value of the Note was not adjusted. The remaining unamortized debt discount is being amortized over the revised term to the new Maturity Date using the effective interest method. See Note 12.

Embedded Conversion Feature

The Note contains an embedded conversion option that permits the investor to convert outstanding principal and accrued interest into shares of the Company’s common stock at an initial conversion price of $4.00 per share. The Company evaluated this feature in accordance with ASC 815-10-15-74(a) and ASC 815-40. The conversion option is indexed solely to the Company’s own common stock and satisfies the fixed-for-fixed criteria under ASC 815-40-15, qualifying for the scope exception from derivative accounting. Accordingly, the Note is accounted for in its entirety as a debt instrument.

Warrant Issuance

In connection with the issuance of the Note, the Company issued warrants to purchase 700,000 shares of its common stock at an exercise price of $6.00 per share. The warrants are immediately exercisable and expire on May 12, 2030.

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 at issuance was estimated at $1,084,927, which was recorded as a debt discount with a corresponding credit to additional paid-in capital.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

The assumptions used in the Black-Scholes model were as follows:

Debt Discount

In connection with the issuance of the Note, the Company recorded total debt discounts of $1,679,927, consisting of the following:

Debt discounts are being amortized to interest expense over the revised contractual term of the Note through the Maturity Date of October 12, 2027 using the effective interest method in accordance with ASC 835-30.

Convertible Notes Payable - Notes #2, #3, #4, #5 and #6

During the period from September 25, 2025 through November 17, 2025, the Company entered into five separate one-year unsecured Note Purchase Agreements with institutional investors and issued Convertible Notes (collectively, the “Notes”). In accordance with ASC 835-30, each Note was issued at a discount arising from original issue discounts, guaranteed interest capitalized at issuance, the fair value of common shares issued to investors as additional consideration, and, where applicable, debt issuance costs. On the commitment date these components are recorded as a reduction of the carrying value of the respective Notes and are amortized to interest expense using the effective interest method over each Note’s one-year contractual term.

These Notes had an aggregate original principal amount of $2,695,000. Guaranteed interest of $215,600 was capitalized at issuance, resulting in a total aggregate obligation of $2,910,600.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

The following tables summarize the key terms and debt discount components of each issuance:

The fair value of shares issued to investors was determined based on the quoted closing price of the Company’s common stock on each respective grant date. Total debt discounts of $745,480 are being amortized over the contractual term of each respective Note using the effective interest method in accordance with ASC 835-30.

Interest and Repayment Terms

Each Note accrues interest at 8% per annum, with a default rate of 22% per annum.

The guaranteed interest is capitalized at issuance and included in the total obligation.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Each Note is repayable in five equal monthly installments inclusive of the capitalized guaranteed interest, with any unpaid amounts due and payable as part of the fifth and final installment, as follows:

Embedded Conversion Features

Each Note contains embedded conversion features that allow the investor to convert outstanding principal and accrued interest into shares of the Company’s common stock in three tranches:

Upon the earlier of i) the occurrence of an event of default or ii) the company’s failure to pay any amortization payment when due, 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 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 any Note into common stock.

Accounting Treatment

The Company evaluated the embedded conversion features of the Notes in accordance with ASC 815-10-15-74(a) and ASC 815-40 to determine whether bifurcation as derivative liabilities was required. The fixed-price conversion options ($4.00 and $6.00 per share) are conventional convertible features indexed solely to the Company’s own common stock that satisfy the fixed-for-fixed criteria under ASC 815-40-15 and therefore qualify for the scope exception from derivative accounting.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Each Note also contains a contingent variable conversion feature (85% of the lowest daily VWAP) that is exercisable only upon an event of default. Management has assessed the likelihood of default as remote, based on the Company’s history of compliance with its debt obligations and continued access to capital markets. Accordingly, this contingent feature does not require bifurcation, is considered clearly and closely related to the debt host under ASC 815-10-15-74(a), and qualifies for the equity scope exception under ASC 815-40. Each Note is therefore accounted for in its entirety as a debt instrument.

The Company reassesses the probability of default at each reporting date. Should an event of default no longer be 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. As of December 31, 2025, the Company was in compliance with all terms and conditions of the Notes.

Notes Payable

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

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

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Note #1 - Note Issuance and Warrants

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

As of December 31, 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.

Debt Discount

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 $48,418, 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 $48,418. See Note 9.

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

The debt discount will be fully amortized over the contractual term of the note (six-months).

Note #2 – 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.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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 $5,628,811 of invoices, of which $4,751,765 had been collected and remitted by period-end. The resulting outstanding balance of $877,046 represents amounts advanced to the Company under the Facility as of December 31, 2025.

Paragon retains a reserve account equal to a portion of factored receivables to cover charge-backs, adjustments, and service fees (15%). At December 31, 2025, the reserve balance was $281,811, which is classified as restricted cash on the Company’s consolidated balance sheet.

Service charges and related finance fees of $86,481 were incurred during the year ended December 31, 2025 and are recognized as interest expense within the consolidated statements of operations

As of December 31, 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:

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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 December 31, 2025 and 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.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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 operating leases prior to the expiration of the lease terms. The early termination resulted in the derecognition of the associated right-of-use (ROU) assets and corresponding lease liabilities in accordance with ASC 842.

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

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

As a result of the termination, the Company recognized a loss on lease termination of $194,863, which is reported in the consolidated statements of operations under the line item “Other expenses” for the year ended December 31, 2024.

The loss was calculated as follows:

Following the settlement, the Company has no remaining obligations or future payments related to these terminated leases.

New Operating Lease – Year Ended December 31, 2024

On October 1, 2024, the Company entered into a 32-month operating lease for 2,293 square feet of office space in San Salvador. The lease expires in May 2027. The initial monthly payment is $18,958, which includes base rent, estimated operating expenses, and sales tax. The lease is subject to annual increases of 3%.

In accordance with ASC 842,Leases, the Company recognized a right-of-use (“ROU”) asset and a corresponding lease liability of $565,650 upon lease commencement. The recognition of the ROU asset was a non-cash transaction.

The Company had no financing leases as of December 31, 2025 and 2024.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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

The components of lease expense were as follows:

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Future minimum lease payments for the years ended December 31:

Employment Agreements (Chief Executive Officer and Chief Financial Officer)

In December 2023, the Company entered into an employment agreement with its Chief Executive Officer through December 31, 2028, as subsequently amended. The agreement provides for an annual base salary of $750,000 for the year ended December 31, 2023, with 3% annual increases thereafter, and an annual cash bonus of $870,000.

The agreement includes a long-term equity incentive program under the SurgePays, Inc. 2022 Omnibus Securities and Incentive Plan, pursuant to which the Company is required to grant the Chief Executive Officer 500,000 shares of restricted common stock annually for a minimum of five years. Because each annual grant requires separate Board approval, each grant constitutes a separate award under ASC 718. Compensation cost is measured at the grant-date fair value and recognized over the requisite service period, which in this case is expected to be the grant date itself (as the awards are fully vested upon grant), consistent with ASC 718-10-55-87 through 55-88.

The initial award of 500,000 shares was granted in monthly installments during the second half of 2024 and had a total grant-date fair value of $3,800,000 ($7.60 per share). These shares were fully vested and the related compensation expense was fully recognized in 2024. The second award of 500,000 shares was approved by the Board on June 26, 2025, with an original planned grant and vesting date of June 1, 2025. On December 31, 2025, the Company and the Chief Executive Officer entered into Amendment No. 3 to the Employment Agreement, which deferred the grant and vesting of this award to April 1, 2026 and also deferred payment of the 2025 annual cash bonus of $870,000 to April 1, 2026. Because no grant date had been established for this award as of December 31, 2025, no stock-based compensation expense has been recognized with respect to this award for the year ended December 31, 2025. The fair value of this award was $360,000 ($0.72/share), based upon the quoted closing market price on the grant date of April 1, 2026. See Note 12.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Future awards of 500,000 shares are scheduled to be granted on or around June 1 of 2026, 2027, and 2028, and on each June 1 of any renewal term, with fair values to be determined at their respective grant dates.

The agreement also provides for additional performance-based restricted stock awards upon achievement of specified Revenue, EBITDA, and Market Capitalization thresholds, with potential award values ranging from $2,500,000 to $200,000,000. No such performance thresholds were met during the year ended December 31, 2025.

All awards vest immediately upon the Chief Executive Officer’s death, total disability, termination without cause, or a change in control, provided the executive remains employed by the Company at such time.

See Note 9 regarding the vesting provisions of these shares.

In November 2023, the Company finalized the terms of its employment agreement with its Chief Financial Officer (CFO), providing for a base salary of $489,250 for the year ended December 31, 2024 and $503,928 for the year ended December 31, 2025, and an annual cash bonus of at least $510,000 for the year ended December 31, 2024, with the 2025 bonus subject to Board approval.

In November 2023, the Company granted 600,000 shares of restricted common stock to its CFO, having a fair value of $3,114,000 ($5.19/share), based upon the quoted closing trading price on the grant date. The award was structured in two tranches:

All 600,000 shares vested in accordance with their original vesting schedules in their respective periods, and all compensation cost associated with this award has been fully recognized as of December 31, 2025 and 2024, respectively.

In October 2025, the Company provided notice to the CFO that his employment agreement would not be renewed upon its expiration on December 31, 2025. Subsequent to December 31, 2025, the Company and the CFO entered into a separation agreement pursuant to which the CFO will provide consulting services through June 30, 2026. In connection therewith, the Company will pay consulting fees of $250,000, payable in twelve equal monthly installments of approximately $20,833, as well as reimburse health insurance premiums under COBRA through December 31, 2026.

See Note 9 regarding the vesting provisions of these shares.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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 December 31, 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.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Fina and SurgePays – Litigation

SurgePays, Inc. et al. v. Fina et al., Case No. CJ-2022-2782, District Court of Oklahoma County, Oklahoma. Plaintiffs SurgePays, Inc. and Kevin Brian Cox initiated this case against its former officer Mike Fina, his companies Blue Skies Connections, LLC, True Wireless, Inc., Government Consulting Solutions, Inc., Mussell Communications LLC, and others. This case also arises from the June 2021 transaction by which SurgePays sold True Wireless to Blue Skies. During the litigation of CJ-2021-5327 described above, SurgePays learned information that showed Mike Fina breached his duties owed to True Wireless during his employment and consulting work for True Wireless prior to SurgePays’ sale of True Wireless to Blue Skies. SurgePays alleges that Mike Fina conspired with the other defendants to damage True Wireless thereby harming the value of the company and causing its eventual sale at a greatly reduced price. SurgePays asserts claims for (i) breach of contract; (ii) breach of fiduciary duty; (iii) fraud; (iv) tortious interference; and (v) unjust enrichment. At this stage, no defendant has asserted a counterclaim against SurgePays. SurgePays filed a Second Amended Petition on January 27, 2023. Defendants Fina, Blue Skies, True Wireless, and Government Consulting Solutions filed a Motion to Dismiss on March 10, 2023. On June 29, 2023, the Court granted the Motion to Dismiss, ruling the claims asserted are “derivative” and could only be asserted by the True Wireless entity now owed by Blue Skies. The Court rejected SurgePays’ request to certify this ruling for immediate appeal. Defendant Misty Garrett filed a Motion for Summary Judgment seeking the same relief as the Motion to Dismiss, which was granted by the Court.

All claims against all parties have been adjudicated by the Court. SurgePays filed a Motion for New Trial, which was denied by the Court on February 20, 2025. SurgePays’ has filed an appeal of the Court’s dismissal of Fina, Blue Skies, True Wireless, Government Consulting Solutions, and summary judgment for Misty Garrett.

With regard to the appeal against Misty Garrett and Misty Garrett’s claims against SurgePays, Misty Garrett and SurgePays have entered into a Settlement Agreement and Release dated as of October 16, 2025 in which the parties have agreed to dismiss all matters in the courts and release each other from liability, with an agreement to file such dismissal documents at the in the respective courts.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Ellenoff Grossman & Schole, LLP and SurgePays – Litigation

Ellenoff Grossman & Schole LLP v. SurgePays, Inc., Index No. 651282/2026, Supreme Court of the State of New York, County of New York, filed March 2, 2026. The action sought recovery of $234,151 in unpaid legal fees, plus costs and attorneys’ fees. Effective April 7, 2026, the Company entered into a settlement agreement resolving all claims, pursuant to which the Company agreed to pay the total settlement amount of $234,151 in eight equal monthly installments of $29,269, commencing April 2026 and ending November 2026. The first installment has been paid. The settlement agreement provides for a default interest rate of 9% per annum on any overdue amounts and is secured by an Affidavit of Confession of Judgment held in escrow by the plaintiff, which may be filed upon an uncured payment default.

MVNx Reseller Agreement

In August 2024, the Company entered into an MVNx Reseller Agreement (the “AT&T Agreement”) with AT&T Mobility LLC (“AT&T”), pursuant to which the Company purchases wholesale wireless network services from AT&T for resale to the Company’s end users under the Company’s own brand. After an extensive systems integration with AT&T, commercial services under the AT&T Agreement did not commence until April 2025. The AT&T Agreement has an initial three-year term commencing on the Launch Date, defined as the date that is 90 days following the completion of such API integration. Following the initial term, the AT&T Agreement automatically renews for successive one-year periods unless either party provides written notice of non-renewal at least 120 days prior to the end of the then-current term.

Under the AT&T Agreement, the Company is subject to minimum annual spend commitments over the initial three-year term, as follows:

The aggregate minimum spend commitment over the initial term is $50,000,000. During each month of Year 1, the Company is invoiced for the greater of (i) actual usage charges incurred during that month or (ii) a specified monthly minimum floor that escalates beginning in Month 7 of the term (October 2025), reaching $3,500,000 in Month 12. During Years 2 and 3, the monthly obligation equals the greater of actual usage or one-twelfth of the applicable annual minimum commitment. To the extent cumulative invoiced payments in any contract year exceed the applicable annual minimum commitment, the excess is applied toward the minimum commitment for the following year. Any portion of an annual minimum commitment that remains unsatisfied at the end of the applicable contract year constitutes an unconditional payment obligation of the Company.

In accordance with Accounting Standards Codification (ASC) 440-10-50, the Company has evaluated its remaining obligations under the AT&T Agreement and determined that a material contractual commitment exists. As of December 31, 2025, the Company had a remaining unsatisfied minimum spend commitment of $1,981,142 under Year 1 of the AT&T Agreement, representing the portion of the $10,000,000 Year 1 minimum commitment not yet satisfied through invoiced amounts as of the balance sheet date. Amounts invoiced and due under the AT&T Agreement are reflected in accounts payable and accrued liabilities in the accompanying consolidated balance sheets.

The remaining Year 1 unsatisfied commitment of $1,981,142 must be satisfied by March 2026, which represents the end of the Year 1 contract period, through ongoing usage charges and, to the extent actual usage is insufficient, minimum commitment payments. Thereafter, beginning in April 2026, the Company will be subject to the Year 2 minimum spend commitment of $15,000,000, payable monthly at the greater of actual usage or $1,250,000 per month.

Note 9 –Stockholders’ Deficit

At December 31, 2025, the Company had three (3) classes of stock:

Common Stock

Series A, Convertible Preferred Stock

Series C, Convertible Preferred Stock

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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 December 31, 2025, the Company had sufficient authorized shares to settle any possible awards that vested or stock options eligible for conversion.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Equity Transactions for the Year Ended December 31, 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 697,691 shares of common stock for gross proceeds of $1,774,636 ($2.12 - $2.98/share).

In connection with the capital raise, the Company paid cash as direct offering costs (including professional fees) totaling $123,197, resulting in net proceeds of $1,651,439.

The Company issued 324,000 shares of common stock for services rendered, having a fair value of $641,430 ($1.70 - $2.87/share), based upon the quoted closing trading price.

In connection with the issuance of various convertible notes payable, the Company issued 103,000 shares of common stock, having a fair value of $271,880 ($1.90 - $2.86/share), based upon the quoted closing trading price on each respective grant date. This amount has been recorded as a debt discount. See Note 6 for discussion of the various common stock issuances related to convertible note offerings.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

In connection with the issuance of various convertible notes payable and a note payable, the Company issued warrants to purchase shares of common stock, having an aggregate fair value of $1,133,345, comprised of $1,084,927 related to convertible notes payable and $48,418 related to the note payable. The fair value of each warrant was determined using the Black-Scholes pricing model on each respective grant date. These amounts have been recorded as a debt discount. See Note 6 for discussion of the assumptions and inputs used in these fair value calculations.

The Company repurchased 333,333 shares of its common stock from a convertible note payable holder for $999,999 ($3/share). In connection with the transaction, the principal balance of the related convertible note was increased by $999,999. See Note 6.

Recognition and Vesting of Share Based Compensation

See Note 9 for discussion related to various arrangements.

Restricted Stock Awards – Employees

On December 16, 2025, the Company granted 54,331 restricted stock awards (“RSAs”) of its common stock to various employees pursuant to the Company’s 2022 Omnibus Securities and Incentive Plan.

The RSAs vest in full on the third anniversary of the grant date and have a total grant-date fair value of $93,449 ($1.72 per share), based upon the quoted closing stock price on the grant date. Compensation expense of $93,449 will be recognized on a straight-line basis over the 36-month requisite service period.

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.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 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.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Shares – Related Parties (Officer and Directors) – and related Vesting

In 2024, the Company granted 500,000 shares of restricted common stock to its Chief Executive Officer (CEO), having a fair value of $3,800,000 ($7.60/share), based upon the quoted closing trading price on the grant date. The shares vested ratably over the period July 2024 through December 2024. All shares vested in accordance with the terms of the agreement. See Note 8 for additional information regarding the CEO employment agreement and future RSA grants.

In November 2023, the Company granted 600,000 shares of restricted common stock to its Chief Financial Officer (CFO), having a fair value of $3,114,000 ($5.19/share), based upon the quoted closing trading price on the grant date. The award was structured in two tranches, with 400,000 shares vesting ratably over the period July 2024 through December 2024 and 200,000 shares vesting on December 31, 2025. All shares vested in accordance with their original vesting schedules. See Note 8 for additional information regarding the CFO employment agreement.

Board of Directors

2025 Grant

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

Effective December 31, 2025, a board member resigned their position. In accordance with the terms of their agreement, all unvested shares vested immediately upon resignation. As a result,88,880 shares of common stock vested on December 31, 2025.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

2024 Grant

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

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 on the grant date. The shares vested ratably over the period July 2024 through December 2024. All shares vested in accordance with the terms of the agreement.

Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense recognized for all officer and director arrangements for the years ended December 31, 2025 and 2024:

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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

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

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Stock Options

Stock option transactions for the years ended December 31, 2025 and 2024 are summarized as follows:

Year Ended December 31, 2025

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

The Company granted an aggregate of 1,144,116 fully vested, seven-year stock options for services rendered, allocated as follows:227,336 to its Chief Executive Officer (CEO),143,979 to its Chief Financial Officer (CFO), and 772,801 to various employees. The aggregate grant-date fair value was $1,701,735, of which $552,286 related to the officers and $1,149,449 related to employees. All options have an exercise price of $1.75 per share.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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

Stock Options – Employee Terminations

17,253 stock options were cancelled in connection with employee terminations.

Years Ended December 31, 2024

Stock Options - Related Party – Chief Financial Officer

During the year ended December 31, 2024, the remaining 5,101 stock options from a prior grant to the CFO vested, with related stock-based compensation expense of $6,196.

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

During the year ended December 31, 2024, the Company granted an aggregate of 1,054,603 fully vested, seven-year stock options for services rendered, allocated as follows:248,424 to its CEO,157,335 to its CFO, and 648,844 to various employees. The aggregate grant-date fair value was $1,602,997, of which $616,754 related to the officers and $986,243 related to employees. All 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 related to stock options for the years ended December 31, 2025 and 2024 was as follows:

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Warrants

Warrant activity for the years ended December 31, 2025 and 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.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

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 years ended December 31, 2025 and 2024, are as follows:

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Segment information for the Company’s assets and liabilities at December 31, 2025 and 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 –Income Taxes

Provision (benefit) for Income Taxes and Effective Income Tax Rate

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

A reconciliation of the provision for income taxes to the amount computed by applying the statutory federal income tax rate of 21% to income before provision for income taxes for the years ended December 31, 2025 and 2024, respectively, is approximately as follows:

Deferred Tax Assets and Liabilities

As of December 31, 2025 and 2024, respectively, the significant components of deferred tax assets and liabilities are approximately as follows:

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Deferred tax assets and liabilities are computed by applying the federal and state income tax rates in effect to the gross amounts of temporary differences and other tax attributes, such as net operating loss carryforwards. In assessing if the deferred tax assets will be realized, the Company considers whether it is more likely than not that some or all of these deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which these deductible temporary differences reverse. As a result of historic losses, the Company has recorded a full valuation allowance as of December 31, 2025.

As of December 31, 2025, the Company had federal and state net operating loss carryforwards of approximately $80,415,000 and $39,568,000, respectively. The federal net operating losses carry forward indefinitely, and accordingly have been reserved. The state net operating losses will expire between the years ending December 31, 2036 and 2038. The state net operating losses have been fully reserved as management does not believe that it is probable that the losses will be utilized before their expiration.

During the year ended December 31, 2025, the valuation allowance increased by approximately $8,489,000. The total valuation allowance results from the Company’s estimate of its future recoverability of its net deferred tax assets.

The Company is in the process of analyzing their NOL and has not determined if the Company has had any change of control issues that could limit the future use of these NOL’s. As of December 31, 2025, all federal NOL carryforwards that were generated after 2017 may only be used to offset 80% of taxable income and are carried forward indefinitely.

The Company follows the provisions of ASC 740, which requires the computations of current and deferred income tax assets and liabilities only consider tax positions that are more likely than not (defined as greater than 50% chance) to be sustained if the taxing authorities examined the positions. There are no significant differences between the tax provisions represented in the accompanying consolidated financial statements and that reported in the Company’s income tax returns.

The Company files corporate income tax returns in the United States and several state jurisdictions. Due to the Company’s net operating loss posture, all tax years are open and subject to income tax examination by tax authorities. The Company’s policy is to recognize interest expense and penalties related to income tax matters as tax expense. At December 31, 2025 and 2024, respectively, there are no unrecognized tax benefits, and there were no accruals for interest related to unrecognized tax benefits or tax penalties.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Note 12 –Subsequent Event

Subsequent to December 31, 2025, the Company had the following transactions:

Stock Issued for Cash

ATM Offering

The Company issued an additional 7,323 shares of common stock for net proceeds of $14,375.

Underwritten Public Offering

On January 20, 2026, the Company entered into an underwriting agreement with R.F. Lafferty & Co., Inc. for an underwritten public offering of 2,000,000 shares of common stock at a public offering price of $1.25 per share, for gross proceeds of $2,500,000. The offering closed on January 22, 2026. The underwriter was granted a 45-day option to purchase up to an additional 300,000 shares at the public offering price to cover over-allotments. The Company intends to use the net proceeds for expansion of its Lifeline business and for working capital and general corporate purposes.

In connection with the offering, the Company issued warrants to the underwriter to purchase a number of shares equal to 3.0% of the total shares sold (60,000 warrants), at an exercise price equal to 110% of the public offering price ($1.38/share). The warrants are exercisable commencing six months after the closing date and expire five years after the commencement of sales, and were issued without registration under the Securities Act of 1933 in reliance on the exemption provided by Section 4(a)(2).

The offering was made pursuant to the Company’s effective registration statement on Form S-3 (File No. 333-273110).

Nasdaq Continued Listing Compliance

In March 2026, the Company received two notices from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) indicating non-compliance with certain continued listing requirements.

On March 18, 2026, the Company was notified that it no longer meets the minimum market value of listed securities (“MVLS”) requirement of $35,000,000. On March 23, 2026, the Company received a separate notice of non-compliance with the $1.00 minimum bid price requirement. These notices have no immediate effect on the listing or trading of the Company’s common stock on Nasdaq.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

Under Nasdaq listing rules, the Company has 180 calendar days to regain compliance with each requirement - until September 14, 2026 for the MVLS deficiency and September 21, 2026 for the minimum bid price deficiency. Compliance with the MVLS requirement will be regained if the market value of listed securities closes at or above $35,000,000 for at least ten consecutive business days during the compliance period. Compliance with the minimum bid price requirement will be regained if the closing bid price of the Company’s common stock is at or above $1.00 per share for at least ten consecutive business days during the applicable period.

If the Company does not regain compliance with the minimum bid price requirement within the initial 180-day period, it may be eligible for an additional 180-day compliance period, subject to meeting certain other continued listing standards and notifying Nasdaq of its intention to cure the deficiency.

If the Company’s common stock were ultimately delisted from Nasdaq, it could have a material adverse effect on the liquidity and market price of its shares, its ability to raise equity financing, its access to the public capital markets, and its ability to provide equity incentives to employees. The Company is actively monitoring its compliance status and intends to pursue all available options to regain compliance within the applicable cure periods.

Conversion of Related Party Note Payable to Common Stock

On March 23, 2026, the Company issued 800,000 shares of common stock to its Chief Executive Officer in connection with the partial conversion of a related party note payable (see Note 6). The shares had a fair value of $707,200 ($0.884 per share), based on the quoted closing market price on the issuance date. In connection with this transaction, the Chief Executive Officer forgave an additional $292,800 of principal. The forgiveness of principal by the Chief Executive Officer, acting in his capacity as a principal shareholder and creditor, has been accounted for as a capital contribution, with the $292,800 credited to additional paid-in capital. No gain on extinguishment of debt has been recognized. The aggregate extinguishment of $1,000,000 reduced the outstanding balance of the related party note payable accordingly.

Convertible Secured Notes Payable Financing

On January 6, 2026, the Company’s Board of Directors authorized a private placement of convertible secured promissory notes (the “Notes”) in an aggregate principal amount of up to $20,000,000, to be issued in one or more closings. The Notes bear interest at 14.5% per annum, computed on the basis of actual days elapsed over a 365-day year, with interest payable quarterly in arrears commencing on the date that is three months from each respective issue date, and mature 24 months from each respective issue date. Beginning on the 12-month anniversary of each respective issue date, the Company is required to make equal quarterly principal amortization payments over four consecutive quarters through maturity.

The Notes may not be prepaid prior to the one-year anniversary of each respective issue date. From the one-year anniversary through the maturity date, the Company may prepay the outstanding principal and accrued interest upon five Trading Days’ prior written notice to the applicable Holder, during which period the Holder retains the right to convert any or all of the amount subject to prepayment.

The Company’s subsidiary, Torch Wireless, acts as guarantor of the Notes pursuant to an unconditional guaranty of payment, and the Notes are secured by a junior perfected security interest in substantially all assets of the Company, subordinated to the senior indebtedness held by an existing lender pursuant to an intercreditor and subordination agreement.

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

The Convertible Secured Notes are convertible into shares of the Company’s common stock at the applicable holder’s option at any time from each respective issue date. The conversion price is determined on a tiered basis according to the portion of outstanding principal and accrued interest being converted. The applicable conversion prices vary by closing: notes issued in one closing, representing an aggregate principal amount of $175,000, are subject to the lower tier pricing, and notes issued in other closings, representing an aggregate principal amount of $650,000, are subject to the higher tier pricing. The tiered conversion price structure is as follows:

All conversion prices are subject to adjustment for stock splits, dividends, recapitalizations, and similar events. Conversions are subject to a 4.99% beneficial ownership limitation, which may be increased to 9.99% upon 61 days’ prior written notice to the Company. The Notes do not contain any cash settlement provisions upon conversion; all conversions are settled exclusively in shares of the Company’s common stock.

Commencing six months after each respective issue date, the Company has the right to force conversion of any portion of the outstanding Notes into common stock at the applicable tiered conversion price, subject to specified conditions, including the absence of any Event of Default, minimum volume-weighted average price thresholds, and trading volume requirements during the 20 trading days preceding the forced conversion effective date, and the requirement that all conversion shares be freely tradeable and eligible for immediate resale by the applicable Holder.

Upon an uncured Event of Default, the outstanding principal balance of the applicable Note becomes immediately due and payable, and default interest accrues at 18% per annum from the date of such Event of Default. A going concern disclosure in the Company’s financial statements is expressly excluded from constituting an Event of Default under the terms of the Notes.

The Convertible Secured Notes are being issued in a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506(b) promulgated thereunder. Through the date of these financial statements, the Company has completed closings under this offering, issuing Convertible Secured Notes in an aggregate principal amount of $825,000. In connection with these issuances, the Company issued 31,525 shares of common stock as commitment shares, having an aggregate fair value of $54,828, based on the quoted closing price of the Company’s common stock on each respective issuance date, ranging from $0.83 to $2.04 per share. The commitment shares are treated as a debt issuance cost and are amortized to interest expense over the contractual term of the respective Convertible Secured Notes using the effective interest method in accordance with ASC 835-30.

The Company evaluated the embedded conversion features of the Notes in accordance with ASC 815-10-15-74(a) and ASC 815-40. The tiered fixed conversion prices are indexed solely to the Company’s own common stock and are subject only to standard anti-dilution adjustments for stock splits, dividends, and recapitalizations. These features satisfy the fixed-for-fixed criteria under ASC 815-40-15 and therefore qualify for the scope exception from derivative accounting. Accordingly, each Note is accounted for in its entirety as a debt instrument. Debt issuance costs associated with each Note are recorded as a direct reduction of the carrying amount of the related debt and amortized to interest expense over the contractual term of each respective Note using the effective interest method in accordance with ASC 835-30.

Convertible Notes Payable – Other

In March 2026, the Company entered into two separate one-year unsecured note purchase agreements with institutional investors and issued convertible promissory notes and accompanying common stock purchase warrants (collectively, the “Subsequent Notes”). In accordance with ASC 835-30, each Subsequent Note was issued at a discount arising from original issue discounts, guaranteed interest capitalized at issuance, and debt issuance costs paid to or on behalf of the holders at closing. These discount components are recorded as a reduction of the carrying value of the respective Subsequent Notes on the commitment date and are amortized to interest expense using the effective interest method over each Subsequent Note’s one-year contractual term.

The Subsequent Notes had an aggregate original principal amount of $833,333 and aggregate guaranteed interest of $66,667 capitalized at issuance, resulting in a total aggregate obligation of $900,000. The aggregate purchase price paid by the investors was $750,000, consisting of $450,000 under the first note and $300,000 under the second note. After deducting $14,500 in debt issuance costs paid to or on behalf of the holders at closing, consisting of $5,000 under the first note and $9,500 under the second note, net cash proceeds to the Company were $735,500.

Each Subsequent Note matures twelve months from its respective issue date and accrues a one-time guaranteed interest charge at a rate of 8% per annum on the original principal amount, which is fully earned as of the respective issue date regardless of early repayment or conversion, with a default interest rate of 22% per annum. Each Subsequent Note is repayable in four fixed monthly cash installments followed by a fifth and final payment equal to all remaining outstanding amounts, inclusive of the capitalized guaranteed interest. The first note, with an original principal amount of $500,000 and a total obligation of $540,000, requires four monthly payments of $106,920 commencing November 12, 2026, with the final payment of all remaining amounts due March 12, 2027. The second note, with an original principal amount of $333,333 and a total obligation of $360,000, requires four monthly payments of approximately $72,000 commencing November 27, 2026, with the final payment of all remaining amounts due March 27, 2027.

Each Subsequent Note contains embedded conversion features that allow the investor to convert outstanding principal and capitalized guaranteed interest into shares of the Company’s common stock, structured in three tranches:

SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024

The first and second tranche fixed conversion prices are subject to customary anti-dilution adjustments for stock splits, stock dividends, and recapitalizations, and are also subject to reduction to the price of any dilutive issuance of common stock or common stock equivalents at an effective price below the then-applicable conversion price, subject to specified exempt issuances. The holder of each Subsequent Note is subject to a 4.99% beneficial ownership limitation (subject to increase to 9.99% upon 61 days’ prior written notice) and is entitled to deduct $1,250 from each conversion amount to reimburse conversion-related expenses.

The Company evaluated the embedded conversion features of the Subsequent Notes in accordance with ASC 815-10-15-74(a) and ASC 815-40 to determine whether bifurcation as derivative liabilities was required. The first and second tranche fixed conversion prices ($4.00 and $6.00 per share, respectively) are subject to downward adjustment upon dilutive issuances of common stock or common stock equivalents at effective prices below the then-applicable conversion price, subject to specified exempt issuances. The Company evaluated whether this provision causes the conversion features to fail the fixed-for-fixed criteria under ASC 815-40-15 and concluded that, consistent with its analysis of Notes #2 through #6, the adjustment provisions applicable to the Subsequent Notes do not cause the fixed-price conversion features to require bifurcation. The fixed-price conversion options therefore qualify for the scope exception from derivative accounting under ASC 815-10-15-74(a). The third tranche of each Subsequent Note becomes convertible only upon an event of default or a missed monthly amortization payment, at a variable rate of 85% of the lowest daily VWAP during the five preceding trading days. Management has assessed the likelihood of default as remote, based on the Company’s history of compliance with its debt obligations and continued access to capital markets. Accordingly, this contingent feature does not require bifurcation, is considered clearly and closely related to the debt host under ASC 815-10-15-74(a), and qualifies for the equity scope exception under ASC 815-40. Each Subsequent Note is therefore accounted for in its entirety as a debt instrument.

The Company reassesses the probability of default at each reporting date. Should an event of default no longer be 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. As of the date of these financial statements, the Company was in compliance with all terms and conditions of the Subsequent Notes.

In connection with each Subsequent Note, the Company issued common stock purchase warrants to the respective investors, consisting of 225,000 warrant shares issued with the first note and 150,000 warrant shares issued with the second note, each with a five-year term (5) and an initial exercise price of $1.25 per share. The warrants contain exercise price adjustment provisions, including a stock combination event adjustment under which the exercise price may be reduced to a market-based price following certain recapitalization events, and a cash settlement provision under which the Company may be required to settle warrant exercises in cash to the extent shares cannot be issued due to the Company’s failure to obtain required shareholder approval.

The Company evaluated the warrants under ASC 815-40 to determine the appropriate classification. Because the cash settlement obligation is potentially outside the Company’s control and could require net cash settlement under specified circumstances, the Company has preliminarily concluded that the warrants do not qualify for equity classification and will be recognized as derivative liabilities measured at fair value on the issuance date. The initial fair value of the warrants will be recorded as a debt discount, to the extent it does not exceed the face amount of the respective Subsequent Note, with any excess recognized as derivative expense. The warrant liabilities will be remeasured at fair value at each subsequent reporting date, with changes in fair value recognized in the consolidated statements of operations. The Company will complete the fair value measurement and record all related accounting entries in the quarter ending March 31, 2026.

Stock Issued for Services – Related Party

On April 1, 2026, the Company issued Mr. Cox 500,000 shares of common stock for services rendered, having a fair value of $360,000. See Note 8.

Ellenoff Grossman & Schole, LLP and SurgePays – Litigation

Ellenoff Grossman & Schole LLP v. SurgePays, Inc., Index No. 651282/2026, Supreme Court of the State of New York, County of New York, filed March 2, 2026. The action sought recovery of $234,151 in unpaid legal fees, plus costs and attorneys’ fees. Effective April 7, 2026, the Company entered into a settlement agreement resolving all claims, pursuant to which the Company agreed to pay the total settlement amount of $234,151 in eight equal monthly installments of $29,269, commencing April 2026 and ending November 2026. The first installment has been paid. The settlement agreement provides for a default interest rate of 9% per annum on any overdue amounts and is secured by an Affidavit of Confession of Judgment held in escrow by the plaintiff, which may be filed upon an uncured payment default.

Amendment of Promissory Note

On January 31, 2026, the Company agreed to an amendment of Note #1 which revised the amortization commencement date from January 31, 2026 to June 30, 2026 and extended the Maturity Date from May 12, 2027 to October 12, 2027.