Financial Analysis

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 …

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Note 6 Debt The following represents a summary of the Companys 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 Companys 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. Schedule of Loans Payable EIDL EIDL Terms SBA SBA Total Issuance dates of SBA loans May 2020 July 2020 Term 30 Years 30 Years Maturity date May 2050 July 2050 Interest rate 3.75 % 3.75 % Collateral Unsecured Unsecured Balance - December 31, 2023 141,994 318,529 460,523 Interest expense adjustment - SBA loans 5,487 14,263 19,750 Repayments (3,532 ) (7,345 ) (10,877 ) Balance - December 31, 2024 143,949 325,447 469,396 Repayments (3 …

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The following represents the Companys disaggregation of revenues for the years ended December 31, 2025 and 2024: Schedule of Disaggregation of Revenue from Contracts with Customers For the Years Ended December 31, 2025 2024 Revenue Revenue % of Revenues Revenue % of Revenues Mobile Virtual Network Operators $ 13,453,149 23.62 % $ 43,450,244 71.37 % Point-of-Sale and Prepaid Services 43,509,771 76.38 % 17,419,088 28.61 % Other Corporate Overhead - 0.00 % 11,841 0.02 % Total Revenues $ 56,962,920 100.00 % $ 60,881,173 100.00 % …

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Note 11 Income Taxes Provision (benefit) for Income Taxes and Effective Income Tax Rate Schedule of Income Taxes and Effective Income Tax Rate December 31, 2025 December 31, 2024 Federal Current $ - $ - Deferred - 2,835,000 Total provision (benefit) $ - $ 2,835,000 State Current $ - $ 35,000 Deferred - - Total provision (benefit) $ - $ 35,000 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: Schedule of Components of Income Tax Expense (Benefit) December 31, 2025 December 31, 2024 Federal income tax expense (benefit) 21.00 % $ (7,575,000 ) $ (9,044,000 ) State income tax expense (benefit) 5.13 % - net of federal effect (1,220,000 ) (1,489,000 ) Non-deductible items 111,000 1,392,000 Other - 163,000 Subtotal (8,683,000) ) (8,978,000 ) Change in valuation allowance 8,683,000 11,848,000 Income tax (expense) benefit $ - $ (2,870,000 ) Effective tax rate 0.0 % -6.7 % 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: Schedule of Deferred Tax Assets and Liabilities December 31, 2025 December 31, 2024 Deferred Tax Assets Reserve for uncollecti …

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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 Companys 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 p …

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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 decisionmaking group, in deciding how to allocate resources and in assessing performance. The Companys 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 Companys operations for the years ended December 31, 2025 and 2024, are as follows: Schedule of Operating Segments 2025 2024 For the Years Ended December 31, 2025 2024 Revenues Mobile Virtual Network Operators $ 13,453,149 $ 43,450,244 Point-of-Sale and Prepaid Services 43,509,771 17,419,088 Other Corporate Overhead - 11,841 Total $ 56,962,920 $ 60,881,173 Revenues $ 56,962,920 $ 60,881,173 Cost of revenues Mobile Virtual Network Operators $ 22,242,341 $ 58,410,842 Point-of-Sale and Prepaid Services 45,209,470 16,779,312 Other Corporate Overhead 100,000 15,218 Total $ 67,551,811 $ 75,205,372 Cost of revenues $ 67,551,811 $ 75,205,372 Operating expenses Mobile Virtual Network Operators $ 1,284,002 $ 1,204,818 Point-of-Sale and Prepaid Services 3,412,642 3,132,457 Other Corporate Overhead 15,374,477 23,120,877 Total $ 20,071,1 …

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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 acqu …

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Note 9 Stockholders Deficit At December 31, 2025, the Company had three (3) classes of stock: Common Stock - 500,000,000 shares authorized - Par value - $ 0.001 - Voting at 1 vote per share Series A, Convertible Preferred Stock - 13,000,000 shares authorized - None issued and outstanding - Par value - $ 0.001 - Voting at 10 votes per share - Ranks senior to any other class of preferred stock - Dividends - none - Liquidation preference none - Rights of redemption - none - Conversion into 1/10 of a share of common stock for each share held Series C, Convertible Preferred Stock - 1,000,000 shares authorized - None issued and outstanding - Par value - $ 0.001 - Voting at 250 votes per share - Ranks junior to any other class of preferred stock - Dividends equal to the per share amount (as converted basis) as the common stockholders should the Board of Directors declare a dividend - Liquidation preference original issue price plus any declared yet unpaid accrued dividends - Rights of redemption - none - Conversion into 250 shares of common stock for each share held SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 AND 2024 Securities and Incentive Plan In March 2023, the Companys 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: 1. 3,500,000 shares of common stock 2. An annual increase on the first day of each c …

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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 Companys effective registration statement on Form S-3 (File No. 333-273110). Nasdaq Continued Listing Compli …

SubsequentEventsTextBlock · excerpt; the full note is in the filing