[10-Q] SurgePays, Inc. Quarterly Earnings Report
SurgePays (SURG) filed its Q3 2025 10‑Q, reporting quarterly revenue of $18,680,317 and a net loss available to common stockholders of $7,489,068. For the nine months ended September 30, revenue was $40,775,913 with a net loss of $22,206,750. Basic and diluted EPS were $(0.38) for the quarter and $(1.11) year‑to‑date.
Cash and cash equivalents were $2,514,862, down from $11,790,389 at December 31, 2024. Total assets were $14,494,901 versus $23,976,005 year‑end. Total liabilities rose to $20,919,381, resulting in a stockholders’ deficit of $6,424,480. Operating cash outflow was $17,728,805 year‑to‑date, partially offset by financing inflows including $6,700,000 of convertible notes and $2,274,698 of notes payable proceeds. The company disclosed it does not have sufficient cash resources on hand to meet obligations for a period that is more than one year from the issuance date.
Management highlighted the end of ACP funding on June 1, 2024 and outlined plans to expand MVNO offerings, diversify Lifeline revenue, grow its platform, and pursue ClearLine marketing initiatives. Common shares outstanding were 21,041,455 as of November 12, 2025.
- None.
- Stockholders’ deficit of
$6.42M and operating cash use of$17.73M year‑to‑date indicate elevated financial stress. - Insufficient cash resources disclosed to meet obligations for more than one year from issuance date, increasing liquidity risk.
Insights
Equity turned negative; cash burn funded by new debt.
SurgePays posted a stockholders’ deficit of
Cash fell to
Execution will depend on segment performance and cost control following ACP funding cessation on
UNITED STATES
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SurgePays, Inc. and Subsidiaries
| Page(s) | ||
| Consolidated Balance Sheets | 3 | |
| Consolidated Statements of Operations | 4 | |
| Consolidated Statements of Changes in Stockholders’ Equity | 5 - 6 | |
| Consolidated Statements of Cash Flows | 7 | |
| Notes to Consolidated Financial Statements | 8 - 71 |
| 2 |
SurgePays, Inc. and Subsidiaries
Consolidated Balance Sheets
| September 30, 2025 | December 31, 2024 | |||||||
| (Unaudited) | (Audited) | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash - line of credit reserve | - | |||||||
| Restricted cash - held in escrow | - | |||||||
| Accounts receivable - net | ||||||||
| Inventory | ||||||||
| Prepaids and other | ||||||||
| Total Current Assets | ||||||||
| Property and equipment - net | ||||||||
| Other Assets | ||||||||
| Note receivable | ||||||||
| Intangibles - net | ||||||||
| Goodwill | ||||||||
| Operating lease - right of use asset - net | ||||||||
| Total Other Assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accounts payable and accrued expenses - related party | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Operating lease liability | ||||||||
| Notes payable | - | |||||||
| Note payable - related party | ||||||||
| Note payable | ||||||||
| Convertible notes payable - net | - | |||||||
| Total Current Liabilities | ||||||||
| Long Term Liabilities | ||||||||
| Note payable - related party | ||||||||
| Notes payable - SBA government | ||||||||
| Notes payable | ||||||||
| Operating lease liability | ||||||||
| Convertible notes payable - net | ||||||||
| Total Long Term Liabilities | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock - at cost ( | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Stockholders’ equity (deficit) | ( | ) | ||||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ||||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
| 3 |
SurgePays, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Costs and expenses | ||||||||||||||||
| Cost of revenues | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total costs and expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on lease termination | - | ( | ) | - | ( | ) | ||||||||||
| Interest income | - | |||||||||||||||
| Other income | - | |||||||||||||||
| Unrealized gains - investments | - | - | ||||||||||||||
| Dividends, interest and other income - investments | - | - | ||||||||||||||
| Gain on investment in CenterCom | - | - | - | |||||||||||||
| Amortization of debt discount | ( | ) | - | ( | ) | - | ||||||||||
| Total other income (expense) - net | ( | ) | ( | ) | ||||||||||||
| Net loss before provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income tax benefit (expense) | - | - | - | ( | ) | |||||||||||
| Net loss including non-controlling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Non-controlling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss available to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Earnings per share - attributable to common stockholders | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of shares outstanding - attributable to common stockholders | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
| 4 |
SurgePays, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
(Deficit) For the Three and Nine Months Ended September 30, 2025
(Unaudited)
| Shares | Amount | Capital | Deficit | Shares | Amount | Interest | (Deficit) | |||||||||||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | Treasury Stock | Non-Controlling | Total Stockholders’ Equity | |||||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Shares | Amount | Interest | (Deficit) | |||||||||||||||||||||||||
| December 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Recognition of stock based compensation - unvested shares - related parties | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Non-controlling interest | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | - | - | - | ( | ) | ||||||||||||||||||||||
| March 31, 2025 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Recognition of stock based compensation - unvested shares - related parties | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Debt discount - convertible note payable - warrants issued | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Treasury stock reacquired in connection with convertible debt financing | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||
| Non-controlling interest | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | - | - | - | ( | ) | ||||||||||||||||||||||
| June 30, 2025 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock issued for cash | - | - | - | - | ||||||||||||||||||||||||||||
| Cash paid as direct offering costs | - | - | ( | ) | - | - | - | - | ( | ) | ||||||||||||||||||||||
| Share and par value true-up | ( | ) | - | - | - | - | - | |||||||||||||||||||||||||
| Stock issued for services | - | - | - | - | ||||||||||||||||||||||||||||
| Stock issued to settle accounts payable | - | - | - | - | ||||||||||||||||||||||||||||
| Recognition of stock based compensation - unvested shares - related parties | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Debt discount - convertible note payable - stock issued | - | - | - | - | ||||||||||||||||||||||||||||
| Debt discount - convertible note payable - warrants issued | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Non-controlling interest | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | - | - | - | ( | ) | ||||||||||||||||||||||
| September 30, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
| 5 |
SurgePays, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
For the Three and Nine Months Ended September 30, 2024
(Unaudited)
| Shares | Amount | Capital | Deficit | Shares | Amount | Interest | Equity | |||||||||||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | Treasury Stock | Non-Controlling | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Shares | Amount | Interest | Equity | |||||||||||||||||||||||||
| December 31, 2023 | $ | $ | $ | ( | ) | $ | - | $ | - | $ | $ | |||||||||||||||||||||
| Stock issued for cash | - | - | - | - | ||||||||||||||||||||||||||||
| Cash paid as direct offering costs | - | - | ( | ) | - | - | - | - | ( | ) | ||||||||||||||||||||||
| Exercise of warrants - cash | - | - | - | - | ||||||||||||||||||||||||||||
| Exercise of warrants - cashless | ( | ) | - | - | - | - | - | |||||||||||||||||||||||||
| Stock issued for services | - | - | - | - | ||||||||||||||||||||||||||||
| Recognition of stock based compensation - unvested shares - related parties | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Recognition of stock-based compensation - related party | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Non-controlling interest | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | - | - | - | - | - | - | ||||||||||||||||||||||||||
| March 31, 2024 | ( | ) | - | - | ||||||||||||||||||||||||||||
| Recognition of stock based compensation - unvested shares - related parties | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Non-controlling interest | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||
| June 30, 2024 | ( | ) | - | - | ||||||||||||||||||||||||||||
| Balance | ( | ) | - | - | ||||||||||||||||||||||||||||
| Recognition of stock based compensation - unvested shares - related parties | - | - | - | - | ||||||||||||||||||||||||||||
| Treasury shares repurchased (share buy-backs) | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||
| Non-controlling interest | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | - | - | - | ( | ) | ||||||||||||||||||||||
| Net income (loss) | - | - | - | ( | ) | - | - | - | ( | ) | ||||||||||||||||||||||
| September 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||||||
| Balance | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
| 6 |
SurgePays, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
| 2025 | 2024 | |||||||
| For the Nine Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Operating activities | ||||||||
| Net loss - including non-controlling interest | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operations | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of right-of-use assets | ||||||||
| Amortization of debt discount/debt issue costs | - | |||||||
| Amortization of internal use software development costs | - | |||||||
| Stock issued for services | ||||||||
| Recognition of stock based compensation - unvested shares - related parties | ||||||||
| Recognition of share based compensation - options - related party | - | |||||||
| Interest expense adjustment - SBA loans | - | |||||||
| Right-of-use asset lease payment adjustment true up | - | ( | ) | |||||
| Gain on equity method investment - CenterCom | - | ( | ) | |||||
| Cash paid for lease termination | - | ( | ) | |||||
| Loss on lease termination - net | - | |||||||
| Changes in operating assets and liabilities | ||||||||
| (Increase) decrease in | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaids and other | ( | ) | ||||||
| Deferred income taxes - net | - | |||||||
| Increase (decrease) in | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Accounts payable and accrued expenses - related party | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Accrued income taxes payable | - | ( | ) | |||||
| Deferred revenue | - | ( | ) | |||||
| Operating lease liability | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities | ||||||||
| Purchase of leasehold improvements | ( | ) | - | |||||
| Advances made for construction-in-process costs | - | ( | ) | |||||
| Purchase of investments - net | - | ( | ) | |||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Proceeds from stock issued for cash | ||||||||
| Proceeds from exercise of common stock warrants | - | |||||||
| Cash paid as direct offering costs - common stock | ( | ) | ( | ) | ||||
| Proceeds from issuance of notes payable | - | |||||||
| Proceeds from issuance of convertible notes payable | - | |||||||
| Cash paid as direct offering costs - convertibles note payable | ( | ) | - | |||||
| Repayments of loans - related party | ( | ) | ( | ) | ||||
| Repayments on notes payable | ( | ) | - | |||||
| Repayments on notes payable - SBA government | ( | ) | ( | ) | ||||
| Treasury shares repurchased (share buy-backs) | - | ( | ) | |||||
| Net cash provided by financing activities | ||||||||
| Net decrease in cash, cash equivalents and restricted cash | ( | ) | ( | ) | ||||
| Cash, cash equivalents and restricted cash - beginning of period | ||||||||
| Cash, cash equivalents and restricted cash - end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income tax | $ | - | $ | - | ||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||||
| Reserve deposit - amount withheld from lender | $ | $ | - | |||||
| Treasury stock reacquired in connection with convertible debt financing | $ | $ | - | |||||
| Debt discount - convertible notes payable - original issue discount | $ | |||||||
| Debt discount - convertible notes payable - issuance of common stock | $ | |||||||
| Debt discount - convertible notes payable - issuance of warrants | $ | |||||||
| Stock issued in settlement of accounts payable | $ | $ | - | |||||
| Reclassification of accrued interest - related party to note payable - related party | $ | - | $ | |||||
| Exercise of warrants - cashless | $ | - | $ | |||||
| Termination of ROU operating lease assets and liabilities | $ | - | $ | |||||
| Goodwill (ClearLine Mobile, Inc.) | $ | - | $ | |||||
| Right-of-use asset obtained in exchange for new operating lease liability | $ | - | $ | |||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
| 7 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
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:
Schedule of Subsidiaries
| Company Name (Active) | Incorporation Date | State of Incorporation | Segment | |||
All of the following entities have nominal operations.
| Company Name (Inactive) | Incorporation Date | State of Incorporation | ||||
See discussion below regarding the discontinuation of the Company’s lead generation segment in 2024.
| 8 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
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:
| ● | Revenue and Asset Impact: The lead generation segment contributed 0% of total consolidated revenue and less than 1% of total assets, making it an immaterial component of the Company’s overall business. The exit does not result in a significant change to revenue streams, total assets, or capital allocation. | |
| ● | Lack of Operational Significance: The segment was not integral to the Company’s primary business strategy and had been operating with minimal investment in technology, personnel, and infrastructure. | |
| ● | No Industry or Geographic Exit: The Company is not exiting a major product line, customer segment, or geographical region. All other segments remain unaffected by this decision, and the Company continues to operate in its primary markets with no material shift in business focus. | |
| ● | Strategic Realignment Rather Than Transformation: The abandonment reflects a refinement of operational priorities rather than a fundamental transformation of the Company’s core business model. The Company continues to focus on its core service offerings, which contribute the majority of revenue and drive long-term growth. |
Based on these factors, the Company has concluded that the abandonment does not constitute a strategic shift that has or will have a major effect on its financial results or operations. As a result, the segment will not be presented as a discontinued operation in the financial statements.
| 9 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
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:
| ● | Significant Expense Disclosures: The Company has identified that the lead generation segment did not have any significant expenses that were regularly provided to the CODM and included in the reported measure of segment profit or loss. Therefore, no additional disclosures are required under the new guidance. | |
| ● | Other Segment Items: As the lead generation segment is being reclassified to “Other,” for its segment disclosure, the Company will disclose the composition of this category, including the nature and type of activities aggregated therein, as required by the updated standard. | |
| ● | Interim Reporting: The Company will ensure that all annual disclosures about reportable segments’ profit or loss and assets, as mandated by ASC 280 and the amendments from ASU 2023-07, are also provided in interim periods going forward. |
Accounting and Financial Statement Impact
Since the lead generation segment is being abandoned rather than sold, it does not qualify as held for sale. The Company does not expect to recognize any material exit costs, impairment losses, or restructuring charges related to this decision. Any remaining assets and liabilities associated with the segment will be derecognized as appropriate in accordance with applicable accounting standards.
| 10 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Future Business Operations
The lead generation segment did not have any workforce, customers, or existing contracts, and its abandonment will not result in any employee layoffs, customer transitions, or contract terminations. This decision reflects management’s focus on core business areas that offer higher growth potential and operational efficiency.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements.
In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all of the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of September 30, 2025 and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended September 30, 2025 are not necessarily indicative of the operating results for the full fiscal year or any future period.
These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 25, 2025.
Management acknowledges its responsibility for the preparation of the accompanying unaudited consolidated financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its consolidated financial position and the consolidated results of its operations for the periods presented.
| 11 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Liquidity and Management’s Plans
As reflected in the accompanying consolidated financial statements, for the nine months ended September 30, 2025, the Company had:
| ● | Net
loss available to common stockholders of $ |
| ● | Net
cash used in operations was $ |
Additionally, at September 30, 2025, the Company had:
| ● | Accumulated
deficit of $ |
| ● | Stockholders’
deficit of $ |
| ● | Working
capital deficit of $ |
We
manage liquidity risk by reviewing, on an ongoing basis, our sources of liquidity and capital requirements. The Company has cash on hand
of $
The Company has historically incurred significant losses and has not demonstrated an ability to generate sufficient revenues from the sales of its products and services to achieve profitable operations.
There can be no assurance that profitable operations will be achieved and could be sustained on a continuing basis. In making this assessment we performed a comprehensive analysis of our current circumstances including: our financial position, our cash flows and cash usage forecasts for the next twelve months, and our current capital structure including equity-based instruments and our obligations and debts.
Effective February 7, 2024, the Affordable Connectivity Program (“ACP”) stopped accepting new applications and enrollments. The program ceased funding on June 1, 2024. See discussion below regarding revenue recognition.
The Company believes it does not have sufficient cash resources on hand to meet its current obligations for a period that is more than one year from the issuance date of these financial statements.
Management’s strategic plans include the following:
| ● | Enhance market visibility and customer reach for SurgePays’ direct mobile virtual network operator (“MVNO”), linkup Mobile, |
| ● | Diversify Lifeline revenue streams by expanding into California and other states, |
| ● | Sustain platform growth to bolster baseline revenue; and |
| ● | Investigate specialized marketing strategies and customer engagement initiatives through our Clearline product offering. |
| 12 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation and Non-Controlling Interest
These unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated.
For entities that are consolidated, but not 100% owned, a portion of the income or loss and corresponding equity is allocated to owners other than the Company. The aggregate of the income or loss and corresponding equity that is not owned by us is included in Non-controlling Interests in the consolidated financial statements.
Business Combinations and Asset Acquisitions
The Company accounts for acquisitions that qualify as business combinations by applying the acquisition method according to Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”).
Transaction costs related to the acquisition of a business are expensed as incurred and excluded from the fair value of consideration transferred.
The identifiable assets acquired, liabilities assumed, and noncontrolling interests in an acquired entity are recognized and measured at their estimated fair values. The excess of the fair value of consideration transferred over the fair values of identifiable assets acquired, liabilities assumed, and noncontrolling interests in an acquired entity, net of the fair value of any previously held interest in the acquired entity, is recorded as goodwill. Such valuations require management to make significant estimates and assumptions.
Purchase price allocations may be preliminary, and, during the measurement period not to exceed one year from the date of acquisition, changes in assumptions and estimates that result in adjustments to the fair value of assets acquired and liabilities assumed are recorded in the period the adjustments are determined.
Significant judgments are used in determining fair values of assets acquired and liabilities assumed, as well as intangibles. Fair value and useful life determinations are based on, among other factors, estimates of future expected cash flows, and appropriate discount rates used in computing present values. These judgments may materially impact the estimates used in allocating acquisition date fair values to assets acquired and liabilities assumed, as well as the Company’s current and future operating results. Actual results may vary from these estimates which may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever occurs first. Adjustments to fair values of assets and liabilities made after the end of the measurement period are recorded within the Company’s earnings.
| 13 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
The Company evaluates acquisitions of assets and other similar transactions to assess whether the transaction should be accounted for as a business combination or asset acquisition by first applying a screen test to determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If so, the transaction is accounted for as an asset acquisition. If not, further determination is required as to whether the Company has acquired inputs and processes that can create outputs that would meet the definition of a business. When applying the screen test, significant judgment is required to determine whether an acquisition is a business combination or an acquisition of assets.
Accounting for asset acquisitions falls under the guidance of Topic 805, Business Combinations, specifically Subtopic 805-50. A cost accumulation model is used to determine an asset acquisition’s cost. Assets acquired are based on their cost, generally allocated to them on a relative fair value basis. Direct acquisition-related costs are included in the cost of the acquired assets.
The distinction between business combinations and asset acquisitions involves judgment, particularly when applying the screen test to determine the nature of the transaction. Incorrect judgments or changes in decisions in these areas could materially affect the determination of goodwill, the recognition and measurement of acquired assets and assumed liabilities, and, consequently, our financial position and results of operations.
Acquisition of ClearLine Mobile, Inc
On
January 5, 2024, the Company closed a purchase agreement and acquired ClearLine Mobile, Inc’s. (“CLMI”) related software
development in exchange for $
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.
| 14 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
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 $
Additionally, the acquired technology/software having a net carrying amount of $0. As a result, the Company determined that it has acquired both tangible and intangible assets.
The table below summarizes the estimated fair value of the assets acquired and the liabilities assumed at the effective acquisition date.
Schedule of Estimated Fair Value of Assets Acquired and Liabilities Assumed
| Consideration | ||||
| Cash | $ | |||
| Fair value of consideration transferred | ||||
| Recognized amounts of identifiable assets acquired and liabilities assumed: | ||||
| Right-of-use operating lease | ||||
| Total assets acquired | ||||
| Right-of-use operating lease | ||||
| Total liabilities assumed | ||||
| Total identifiable net assets | - | |||
| Goodwill | $ |
At the time of acquisition, CLMI had nominal revenues and historical losses from operations. As a result, and given the immaterial nature of this acquisition, the Company elected not to present any pro-forma financial information.
This transaction did not involve the purchase of a “significant amount of assets” as defined in the Instructions to Item 2.01 of Form 8-K. Additionally, the acquisition of CLMI was not deemed to be significant to the Company at any level under SEC Regulation S-X 3.05 and did not require the presentation of any additional historical audited financial statements.
| 15 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
At
September 30, 2025 and December 31, 2024 goodwill was $
At
December 31, 2024, the Company determined that its subsidiary LogicsIQ would be considered a discontinued operation (See Note 1). Prior
to this determination, and during the year ended December 31, 2024, the Company recorded a goodwill impairment loss of $
Note Receivable (Sale of Former Subsidiary)
On May 7, 2021, the Company disposed of its former subsidiary True Wireless, Inc.
In
connection with the sale, the Company received an unsecured note receivable for $
Payments were scheduled as follows:
Schedule of Receivables
| For the Year Ended December 31, | In Default | |||||||
| 2025 | ** | $ | ||||||
| Less: amount representing interest | ( | ) | ||||||
| Total | $ | |||||||
On
July 12, 2023, Notice of Default was provided by SurgePays, Inc. to Blue Skies Connections, LLC for failure to pay amounts due under
that certain Promissory Note dated June 14, 2021 by Blue Skies Connections, LLC in favor of SurgePays, Inc. in the original principal
amount of $
As of September 30, 2025, the Company believes the note is collectible. See Note 8 for Contingencies – Legal Matters for additional discussion.
Business Segments and Concentrations
The
Company uses the “management approach” to identify its reportable segments. The management approach requires companies
to report segment financial information consistent with information used by management for making operating decisions and assessing
performance as the basis for identifying the Company’s reportable segments. The Company manages its business as
| 16 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Revenues
related to the Mobile Virtual Network Operator (SurgePhone and Torch Wireless) business segment are
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
Use of Estimates
Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates, and those estimates may be material.
Significant estimates during the nine months ended September 30, 2025 and 2024, respectively, include, allowance for doubtful accounts and other receivables, inventory reserves and classifications, valuation of loss contingencies, valuation of stock-based compensation, estimated useful lives related to property and equipment and intangible assets, capitalized internal-use software development costs, related impairment assessments of long lived assets, implicit interest rate in right-of-use operating leases, uncertain tax positions, income tax payable and the valuation allowance on deferred tax assets.
Risks and Uncertainties
The Company operates in an industry that is subject to intense competition and changes in consumer demand. The Company’s operations are subject to significant risk and uncertainties including financial and operational risks including the potential risk of business failure.
The Company has experienced, and in the future may experience, variability in sales and earnings. The factors expected to contribute to this variability include, among others, (i) the cyclical nature of the industry, (ii) general economic conditions in the various local markets in which the Company competes, including a potential general downturn in the economy, and (iii) the volatility of prices in connection with the Company’s distribution of the product. These factors, among others, make it difficult to project the Company’s operating results on a consistent basis.
| 17 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Effective February 7, 2024, the Affordable Connectivity Program (“ACP”) stopped accepting new applications and enrollments. The program ceased funding on June 1, 2024. See discussion below regarding revenue recognition.
At December 31, 2024, the Company discontinued its lead generation services segment.
Fair Value of Financial Instruments
The Company accounts for financial instruments in accordance with Financial Accounting Standards Board (FASB) ASC 820, Fair Value Measurements, which provides a framework for measuring fair value and requires related disclosures. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company determines fair value based on its principal market or, if unavailable, the most advantageous market for the specific asset or liability.
To classify and disclose assets and liabilities measured at fair value, the Company utilizes a three-tier fair value hierarchy, which prioritizes observable inputs over unobservable ones:
| ● | Level 1 – Quoted market prices (unadjusted) for identical assets or liabilities in active markets. | |
| ● | Level 2 – Inputs other than quoted prices in active markets that are observable, either directly or indirectly, for similar assets or liabilities. | |
| ● | Level 3 – Unobservable inputs with minimal or no market data, requiring the Company to develop its own assumptions. |
Determining fair value and assigning a measurement within the hierarchy involves judgment. Level 3 valuations, in particular, require greater judgment and complexity, as they may involve various valuation methods—such as cost, market, or income approaches—applied to management estimates and assumptions. These assumptions can include price estimates, earnings projections, market factors, or the weighting of different valuation methods. The Company may also engage external advisors to assist in fair value determinations when appropriate. While management believes recorded fair values are reasonable, they may not reflect future fair values or net realizable values.
The Company’s financial instruments, including cash, accounts receivable, note receivable, accounts payable, and accrued expenses (including related-party amounts), are recorded at historical cost. As of September 30, 2025 and December 31, 2024, the carrying values of these instruments approximate their fair values due to their short-term nature.
| 18 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
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 $
At September 30, 2025 and December 31, 2024, respectively, the Company did not experience any losses on cash balances in excess of FDIC insured limits.
Restricted Cash
At
September 30, 2025, the Company had $
At
December 31, 2024, the Company had $
Marketable Securities - Classification and Valuation
The Company may classify its marketable securities as either trading, available-for-sale, or held-to-maturity.
Trading securities are recorded at fair value with unrealized gains and losses included in earnings.
Available-for-sale securities are recorded at fair value with unrealized gains and losses excluded from earnings and reported in other comprehensive income.
Held-to-maturity securities are recorded at amortized cost.
| 19 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
At December 31, 2024, the Company classified all of its marketable securities as trading, based upon our intent to sell them in the near term. Our securities consist of U.S. Treasury and government exchange traded funds.
At
December 31, 2024, the Company’s marketable securities were $
Marketable securities were as follows at December 31, 2024:
Schedule of Marketable Securities
| U.S. Treasury & Government | ||||
| Exchange Traded Funds | ||||
| Fixed Income | ||||
| Balance - December 31, 2023 | $ | - | ||
| Purchases | ||||
| Sales | ( | ) | ||
| Realized gains | ||||
| Dividends, interest and other income | ||||
| Fees/adjustments | ( | ) | ||
| Balance - December 31, 2024 | $ | - | ||
Impairment of Marketable Securities
The Company evaluates its marketable securities for impairment at each reporting period.
An impairment is considered to be other-than-temporary if the Company (a) intends to sell the security, (b) is more likely than not to be required to sell the security before recovery of its amortized cost basis, or (c) does not expect to recover the entire amortized cost basis of the security.
If a decline in fair value is determined to be other-than-temporary, the impairment loss is recognized in earnings. For debt securities, the amount of the other-than-temporary impairment recognized in earnings depends on the extent to which the security’s fair value is less than its amortized cost and the severity and duration of the decline.
The determination of whether a decline is other-than-temporary involves significant judgment and includes an assessment of various factors including:
| ● | The length of time and the extent to which the fair value has been less than the cost basis; | |
| ● | The financial condition and near-term prospects of the issuer, including any specific events that may influence the issuer’s operations or profitability; | |
| ● | The intent and ability of the Company to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. |
The Company did not record any impairment losses related to its marketable securities.
See Note 7 for additional disclosure of our marketable securities at fair value.
| 20 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Accounts Receivable
Accounts receivable are stated at the amount management expects to collect from outstanding customer balances. Credit is extended to customers based on an evaluation of their financial condition and other factors. Interest is not accrued on overdue accounts receivable. The Company does not require collateral.
Management periodically assesses the Company’s accounts receivable and, if necessary, establishes an allowance for estimated uncollectible amounts. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. Accounts determined to be uncollectible are charged to operations when that determination is made.
Allowance
for doubtful accounts was $
There
was bad debt expense (recovery) of $
Bad debt expense (recoveries) is recorded as a component of general and administrative expenses in the accompanying consolidated statements of operations.
Inventory
Inventory primarily consists of cell phones, store racking, and sim cards. Inventories are stated at the lower of cost or net realizable value using the average cost valuation method.
During
the year ended December 31, 2024, and in connection with the cessation of the ACP Program on June 1, 2024, the Company wrote off inventory
totaling $
At
September 30, 2025 and December 31, 2024, the Company had inventory of $
Impairment of Long-lived Assets
Management evaluates the recoverability of the Company’s identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists, in accordance with the provisions of ASC 360-10-35-15 “Impairment or Disposal of Long-Lived Assets.” Events and circumstances considered by the Company in determining whether the carrying value of identifiable intangible assets and other long-lived assets may not be recoverable, but are not limited to significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; and changes in the Company’s business strategy. In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of these assets.
| 21 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
There
were
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
were
Internal Use Software Development Costs
We capitalize certain internal use software development costs associated with creating and enhancing internally developed software related to our technology infrastructure. These costs include personnel and related employee benefits expenses for employees who are directly associated with and who devote time to software projects, and external direct costs of materials and services consumed in developing or obtaining the software. Software development costs that do not meet the qualification for capitalization, as further discussed below, are expensed as incurred and recorded in general and administrative expenses in the consolidated results of operations.
| 22 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Software development activities generally consist of three stages:
| (i) | planning stage, |
| (ii) | application and infrastructure development stage, and |
| (iii) | post implementation stage. |
Costs incurred in the planning and post implementation stages of software development, including costs associated with the post-configuration training and repairs and maintenance of the developed technologies, are expensed as incurred.
We capitalize costs associated with software developed for internal use when the planning stage is completed, management has authorized further funding for the completion of the project, and it is probable that the project will be completed and perform as intended. Costs incurred in the application and infrastructure development stages, including significant enhancements and upgrades, are capitalized. Capitalization ends once a project is substantially complete, and the software and technologies are ready for their intended purpose. There is judgment involved in estimating the stage of development as well as estimating time allocated to a particular project. A significant change in the time spent on each project could have a material impact on the amount capitalized and related amortization expense in subsequent periods.
We amortize internal use software development costs using a straight-line method over a three-year (3) estimated useful life, commencing when the software is ready for its intended use. The straight-line recognition method approximates the manner in which the expected benefit will be derived. We determined the life of internal use software based on historical software upgrades and replacement.
On an ongoing basis, we assess if the estimated remaining useful lives of capitalized projects continue to be reasonable based on the remaining expected benefit and usage. If the remaining useful life of a capitalized project is revised, it is accounted for as a change in estimate and the remaining unamortized cost of the underlying asset is amortized prospectively over the updated remaining useful life.
We also evaluate internal use software for abandonment and use that as a significant indicator for impairment on a quarterly basis.
At
December 31, 2024, the Company determined that there was no future use for its capitalized internal use software development costs based
upon its current and expected future operations. As a result, the Company recorded an impairment loss of $
| 23 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Right of Use Assets and Lease Obligations
The Right of Use Asset and Lease Liability reflect the present value of the Company’s estimated future minimum lease payments over the lease term, which may include options that are reasonably assured of being exercised, discounted using a collateralized incremental borrowing rate.
Typically, renewal options are considered reasonably assured of being exercised if the associated asset lives of the building or leasehold improvements exceed that of the initial lease term, and the performance of the business remains strong. Therefore, the Right of Use Asset and Lease Liability may include an assumption on renewal options that have not yet been exercised by the Company. The Company’s operating leases contained renewal options that expire at various dates with no residual value guarantees. Future obligations relating to the exercise of renewal options is included in the measurement if, based on the judgment of management, the renewal option is reasonably certain to be exercised. Factors in determining whether an option is reasonably certain of exercise include, but are not limited to, the value of leasehold improvements, the value of the renewal rate compared to market rates, and the presence of factors that would cause a significant economic penalty to the Company if the option is not exercised. Management reasonably plans to exercise all options, and as such, all renewal options are included in the measurement of the right-of-use assets and operating lease liabilities.
As the rate implicit in leases are not readily determinable, the Company uses an incremental borrowing rate to calculate the lease liability that represents an estimate of the interest rate the Company would incur to borrow on a collateralized basis over the term of a lease within a particular currency environment. See Note 8 regarding operating leases.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606 to align revenue recognition more closely with the delivery of the Company’s services and will provide financial statement readers with enhanced disclosures. In accordance with ASC 606, revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services.
To achieve this core principle, the Company applies the following five steps:
Step 1: Identify the contract(s) with customers
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to performance obligations
Step 5: Recognize revenue when the entity satisfies a performance obligation
| 24 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Identify the contract with a customer
A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.
Identify the performance obligations in the contract
Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services, the Company must apply judgment to determine whether promised services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance obligation.
Determine the transaction price
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of the Company’s contracts contain a significant financing component and there are no contracts with variable consideration.
Allocate the transaction price to performance obligations in the contract
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. For example, a bonus or penalty may be associated with one or more, but not all, distinct services promised in a series of distinct services that forms part of a single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.
| 25 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Recognize revenue when or as the Company satisfies a performance obligation
The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service to a customer.
The following reflects additional discussion regarding our revenue recognition policies for each of our material revenue streams. For each revenue stream we do not offer any returns, refunds or warranties, and no arrangements are cancellable. Additionally, all contract consideration is fixed and determinable at the initiation of the contract.
Performance obligations for Torch and LogicsIQ are satisfied when services are performed. Performance obligations for ECS and SB are satisfied at point of sale. For each of our revenue streams we only have a single performance obligation.
Mobile Virtual Network Operators
Torch Wireless is licensed to provide subsidized mobile broadband services through the Lifeline program to qualifying low-income customers. Revenue is recognized when the Company satisfies its performance obligation by providing eligible service to active Lifeline subscribers as of the last day of each month.
At the end of each month, the Company determines the number of active Lifeline users based on internal usage data and eligibility status. A report is submitted to the Universal Service Administrative Company (USAC) for review and approval. Upon submission, the Company has fulfilled its performance obligation, and accordingly, revenue and accounts receivable are recognized.
Revenue is recorded in the month in which the Lifeline service was provided and the subscriber remained active at month-end, regardless of when payment is received. Payment is typically received by the 28th of the following month.
| 26 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Lead Generation Services
LogicsIQ, Inc. was a lead generation and case management solutions company primarily serving law firms in the mass tort industry. Revenues were earned from our lead generation retained services offerings and call center activities.
Effective January 1, 2024, the Company no longer provided these services.
Effective December 31, 2024, the Company’s management elected to abandon its lead generation segment operations as part of a strategic reassessment of its business lines. See Note 1.
Additionally, the segment disclosure for this former segment is now combined as a part of other corporate overhead.
Point-of-Sale and Prepaid Services
Revenues are generated through the sale of telecommunication products such as mobile phones, wireless top-up refills, and other mobile related products. At the time in which our products are sold through our online web portal (point of sale), our performance obligation is considered complete. At point of sale (completion of performance obligation), our web portal platform initiates an automated clearing house transaction (ACH) resulting in the recording revenue.
The Company has evaluated revenue recognition and related disclosures and has determined the Company is a principal in these arrangements. As a result, we record all revenues at their gross amounts and the related costs are recorded as costs of revenues in the accompanying consolidated financial statements.
Contract Liabilities (Deferred Revenue)
Contract liabilities represent deposits made by customers before the satisfaction of performance obligation and recognition of revenue. Upon completion of the performance obligation(s) that the Company has with the customer based on the terms of the contract, the liability for the customer deposit is relieved and revenue is recognized.
At
September 30, 2025 and December 31, 2024, the Company had deferred revenue of $
| 27 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
The following represents the Company’s disaggregation of revenues for the nine months ended September 30, 2025 and 2024:
Schedule of Disaggregation of Revenue from Contracts with Customers
| For the Nine Months Ended September 30, | ||||||||||||||||
| 2025 | 2024 | |||||||||||||||
| Revenue | Revenue | % of Revenues | Revenue | % of Revenues | ||||||||||||
| Mobile Virtual Network Operators | $ | % | $ | % | ||||||||||||
Point-of-Sale and Prepaid Services | % | % | ||||||||||||||
| Other Corporate Overhead | - | % | % | |||||||||||||
| Total Revenues | $ | % | $ | % | ||||||||||||
The above disaggregation of revenues includes the following entities:
Mobile Virtual Network Operators (SPW and TW),
Point-of-Sale and Prepaid Services (Surge Fintech and ECS); and
Other Corporate Overhead (Surge Blockchain and formerly LogicsIQ and Injury Survey)
Effective December 31, 2024, the Company’s management elected to abandon its lead generation segment operations as part of a strategic reassessment of its business lines. See Note 1. As a result, segment reporting/disaggregation of revenues for lead generation was no longer required and have now been included as a component of “other corporate overhead”.
Cost of Revenues
Cost of revenues consists of tablet purchases, mobile phone purchases, purchased telecom services including data usage and access to wireless networks. Additionally, cost of revenues consists of call center costs, prepaid phone cards, commissions, and advertising costs.
Income Taxes
The Company accounts for income tax using the asset and liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
| 28 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
The
Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using
that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position
will be sustained upon examination by the tax authorities. As of September 30, 2025 and December 31, 2024, respectively, the Company
had
The
Company recognizes interest and penalties related to uncertain income tax positions in other expense.
As of September 30, 2025, the loss resulted in the Company being in a three-year cumulative historic loss position. As a result, the Company recorded a full valuation allowance on its deferred tax assets as of September 30, 2025 and December 31, 2024.
The Company currently has an unapplied net operating loss carryforward (deferred tax asset), which have been evaluated for applicability in offsetting current taxable net income. The Company has determined that the federal net operating loss carryforward is limited to 80% of the current year’s net taxable income. Since the Company entered a three-year cumulative loss during the nine months ended September 30, 2025, a full valuation allowance has been recorded against all net operating loss carryforwards.
Investment
On
January 17, 2019, we announced the completion of an agreement to acquire a
The strategic partnership with CenterCom as a bilingual operations hub has powered our growth and revenue. CenterCom has been built to support the infrastructure required to rapidly scale in synergy and efficiency to support our sales growth, customer service and development.
We account for this investment under the equity method. Investments accounted for under the equity method are recorded based upon the amount of our investment and adjusted each period for our share of the investee’s income or loss. All investments are reviewed for changes in circumstance or the occurrence of events that suggest an other than temporary event where our investment may not be recoverable. The financial information used to account for the investment is unaudited.
| 29 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
The following is a summary of our investment at December 31, 2024:
Schedule of Investment
| Balance - December 31, 2023 | $ | |||
| Gain on investment in CenterCom | ||||
| Impairment loss - CenterCom | ( | ) | ||
| Balance - December 31, 2024 | $ | - |
During
the three and nine months ended September 30 2024, we recognized a gain of $0 and
As of December 31, 2024, The Company determined that it would no longer utilize the Business Process Outsourcing (BPO) services of CenterCom. As of December 31, 2024, the Company assessed its investment in CenterCom and determined there was an impairment. Factors leading to this decision included a change in ownership and large reduction in human capital. As a result, CenterCom was materially impacted and could no longer continue its operations.
As
a result, for the year ended December 31, 2024, the Company recorded an impairment loss of $
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs are included as a component of general and administrative expense in the consolidated statements of operations.
The Company recognized marketing and advertising costs during the three and nine months ended September 30, 2025 and 2024, respectively, as follows:
Schedule of Marketing and Advertising Costs
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||
| $ | $ | $ | $ | |||||||||||
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation”, as amended by ASU 2018-07 – Improvements to Nonemployee Share-Based Payment Accounting. Under the fair value-based method:
| ● | Compensation cost is measured at the grant date based on the fair value of the award. | |
| ● | The cost is recognized over the service period, typically the vesting period. | |
| ● | This guidance applies to transactions where equity instruments are exchanged for goods or services and also addresses liabilities settled in equity instruments. |
| 30 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
For equity instruments granted to non-employees, the Company applies the fair value method, using the Black-Scholes option pricing model to measure the fair value of stock options.
The fair value of stock-based compensation is determined either:
| ● | At the grant date, or | |
| ● | At the measurement date, when performance obligations are fulfilled. |
Assumptions Used in Fair Value Determination
When using the Black-Scholes model, the Company considers the following key assumptions, in accordance with ASU 2017-09 – Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting:
| ● | Exercise price | |
| ● | Expected dividend yield | |
| ● | Expected stock price volatility | |
| ● | Risk-free interest rate | |
| ● | Expected life of the option |
Stock Warrants
The Company may issue warrants to purchase shares of its common stock in connection with financing transactions (debt or equity), consulting agreements, and collaboration arrangements.
| ● | Classification: Warrants are classified as equity awards when they are standalone instruments that are neither puttable nor mandatorily redeemable, as per ASC 815-40 – Derivatives and Hedging: Contracts in Entity’s Own Equity. | |
| ● | Valuation: The fair value of compensatory warrants is determined using the Black-Scholes option pricing model at the measurement date. | |
| ● | Derivative Liabilities: If a warrant meets the definition of a derivative liability, fair value is determined using a binomial pricing model, in accordance with ASC 815-40. |
Accounting Treatment
| ● | Warrants issued in conjunction with common stock are recorded at fair value as a reduction to additional paid-in capital of the issued stock, in accordance with ASC 718 and ASC 815. | |
| ● | Warrants issued for services are recorded at fair value and expensed either: |
| ○ | Over the requisite service period, or | |
| ○ | Immediately at issuance if no service period is required. |
| 31 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Basic and Diluted Earnings (Loss) per Share
The Company computes earnings (loss) per share in accordance with ASC 260-10-45, Earnings Per Share, as amended by ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.
| ● | 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 per share includes the impact of potentially dilutive securities, calculated by dividing net income by the weighted average number of common shares outstanding, common stock equivalents, and other potentially dilutive securities during the period. |
During
the nine months ended September 30, 2025, the Company reacquired
During
the year ended December 31, 2024, the Company reacquired
Treasury shares are excluded from the denominator in computing basic and diluted earnings (loss) per share, as these shares are not considered outstanding.
Potentially Dilutive Securities
Potentially dilutive common shares include:
| ● | 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 | |
| ● | Convertible debt instruments, if applicable |
These securities may be dilutive in the future, but in periods where the Company reports a net loss, diluted loss per share is equal to basic loss per share because the inclusion of potential common stock equivalents would be anti-dilutive.
| 32 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Outstanding Potentially Dilutive Equity Securities
The following potentially dilutive equity securities were outstanding as of September 30, 2025 and 2024:
Schedule of Diluted Net Income (Loss) Per Share
| September 30, 2025 | September 30, 2024 | |||||||
| Warrants | ||||||||
| Stock options | ||||||||
| Total common stock equivalents | ||||||||
Warrants and stock options included as common stock equivalents represent those that are fully vested and exercisable. See Note 9.
Sufficiency of Authorized Shares
As
of September 30, 2025 and December 31, 2024, the Company has
Treasury Stock
The Company accounts for treasury stock under the cost method, which records treasury stock at the purchase price and presents it as a reduction in stockholders’ equity. Under this method, the purchase, sale, issuance, or retirement of treasury stock does not impact the income statement. Gains or losses on the reissuance of treasury stock are reflected as adjustments to additional paid-in capital. In cases where additional paid-in capital is insufficient to cover a loss, the remaining balance is charged to retained earnings.
Treasury stock is initially recorded at cost on the date of repurchase. If treasury shares are subsequently reissued, they are removed from treasury stock at the cost at which they were originally acquired. Any excess of the reissuance price over cost is credited to additional paid-in capital, while any deficiency is charged to additional paid-in capital to the extent of previously recorded credits, with any remaining deficiency charged to retained earnings.
The Company periodically assesses the need to retain treasury shares and may retire shares if they are no longer deemed necessary for future use, resulting in a reduction of issued shares and a corresponding adjustment to retained earnings.
Related Parties
The Company identifies and discloses related party relationships and transactions in accordance with ASC 850, “Related Party Disclosures”, and follows guidance set forth by the SEC under Regulation S-X, Rule 4-08(k) regarding related party disclosures.
| 33 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
A party is considered related to the Company if it meets any of the following criteria:
| ● | Directly or indirectly controls, is controlled by, or is under common control with the Company. | |
| ● | Principal owners, including any entity or individual that holds a significant ownership interest in the Company. | |
| ● | Management and key personnel, including officers, directors, and executives. | |
| ● | Immediate family members of principal owners and key management personnel. | |
| ● | Entities with significant influence, where one party can exert control or influence over the management or operating policies of another party to the extent that one of the transacting parties may not be fully pursuing its own separate economic interests. |
The Company follows the SEC’s Regulation S-K, Item 404(a), which requires the disclosure of related party transactions exceeding a materiality threshold and details on the nature of the relationship, transaction terms, and amounts involved.
During the nine months ended September 30, 2025 and 2024, respectively, the Company incurred expenses with a related party (annual rental agreement) in the normal course of business as follows:
Schedule of Related Party Expenses
| Related Party | September 30, 2025 | September 30, 2024 | ||||||
| Carddawg Investments, Inc. | 1 | |||||||
| Total | $ | $ | ||||||
| 1 |
From time to time, the Company may use credit cards to pay corporate expenses, these credit cards are in the names of certain of the Company’s officers and directors. These amounts are insignificant.
See Note 6 for debt transactions with our Chief Executive Officer.
Recent Accounting Standards
The Financial Accounting Standards Board (FASB) establishes changes to accounting principles through Accounting Standards Updates (ASUs), which amend the FASB Codification. The Company evaluates the applicability and impact of all newly issued ASUs on its consolidated financial position, results of operations, stockholders’ equity, and cash flows.
| 34 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Management has assessed all recent accounting pronouncements issued through the date these financial statements were available for issuance. Except as described below, no newly issued but not yet effective accounting pronouncements are expected to have a material impact on the Company’s consolidated financial statements.
Recently Adopted Accounting Standards
| ● | ASU 2023-01, Leases (Topic 842): Common Control Arrangements |
| ○ | Issued: March 2023 | |
| ○ | Effective Date: For fiscal years beginning after December 15, 2023 | |
| ○ | Summary: This ASU clarifies leasehold improvements accounting for entities under common control and requires leasehold improvements to be amortized over the useful life of the improvements rather than the lease term. | |
| ○ | Expected Impact: The Company adopted ASU 2023-01 on January 1, 2024, and the adoption did not have a material impact on the Company’s consolidated financial statements. |
| ● | ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures |
| ○ | Issued: November 2023 | |
| ○ | Effective Date: For fiscal years beginning after December 15, 2023 | |
| ○ | Summary: Enhances segment reporting disclosures, requiring more information about significant segment expenses. | |
| ○ | Expected Impact: The Company adopted ASU 2023-07 on January 1, 2024, and the adoption did not have a material impact on the Company’s consolidated financial statements. |
| ● | ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures |
| ○ | Issued: December 2023 | |
| ○ | Effective Date: For fiscal years beginning after December 15, 2024 | |
| ○ | Summary: Expands disclosure requirements related to income taxes, including greater detail on income tax rate reconciliations and disaggregation of tax expense components. | |
| ○ | Expected Impact: The Company adopted ASU 2023-09 on January 1, 2025, and the adoption did not have a material impact on the Company’s consolidated financial statements. |
Recently Not Yet Adopted Accounting Standards
ASU 2025-05 — Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets
In July 2025, the FASB issued ASU 2025-05, which provides (1) all entities with a practical expedient and (2) entities other than public business entities with an accounting policy election when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606, Revenue from Contracts with Customers.
| 35 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
The practical expedient allows an entity to assume that, when estimating expected credit losses, current conditions as of the balance sheet date remain unchanged for the remaining life of the asset. The accounting policy election permits nonpublic entities that elect the practical expedient to also consider collection activity occurring after the balance sheet date when estimating expected credit losses.
The standard is effective for fiscal years beginning after December 15, 2025, and for interim periods within those annual reporting periods. Early adoption is permitted.
The Company has evaluated ASU 2025-05 and does not expect the standard to have a material impact on its financial condition, results of operations, or cash flows.
Other Recent Updates
Various other ASUs have been issued that primarily contain technical corrections or industry-specific guidance. These updates are not expected to have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.
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:
Schedule of Property and Equipment
| Estimated Useful | ||||||||||
| Type | September 30, 2025 | December 31, 2024 | Lives (Years) | |||||||
| Computer equipment and software | $ | $ | ||||||||
| Leasehold improvements | ||||||||||
| Furniture and fixtures | ||||||||||
| Property and Equipment - gross | ||||||||||
| Less: accumulated depreciation/amortization | ( | ) | ( | ) | ||||||
| Property and equipment - net | $ | $ | ||||||||
| 36 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Depreciation
and amortization expense for the three months ended September 30, 2025 and 2024, were $
Depreciation
and amortization expense for the nine months ended September 30, 2025 and 2024, were $
These amounts are included as a component of general and administrative expenses in the accompanying consolidated statements of operations.
Note 4 – Intangibles
Intangibles consisted of the following:
Schedule of Intangible Assets
| Estimated Useful | |||||||||||
| Type | September 30, 2025 | December 31, 2024 | Lives (Years) | ||||||||
| Proprietary Software | $ | $ | |||||||||
| Tradenames/trademarks | |||||||||||
| ECS membership agreement | |||||||||||
| Noncompetition agreement | |||||||||||
| Customer Relationships | |||||||||||
| Intangibles - gross | |||||||||||
| Less: accumulated amortization | ( | ) | ( | ) | |||||||
| Intangibles - net | $ | $ | |||||||||
Amortization expense for the three and nine months ended September 30, 2025 and 2024 was as follows:
Schedule of Amortization Expense
| Three Months Ended | ||||||||
| 3 months ended | September 30, 2025 | September 30, 2024 | ||||||
| $ | $ | |||||||
| Nine Months Ended | ||||||||
| 9 months ended | September 30, 2025 | September 30, 2024 | ||||||
| $ | $ | |||||||
| 37 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Estimated amortization expense for each of the succeeding years is as follows:
Schedule of Estimated Amortization Expenses
| For the Years Ended December 31: | ||||
| 2025 (3 months) | ||||
| 2026 | ||||
| 2027 | ||||
| Total | $ | |||
Note 5 – Internal Use Software Development Costs
Internal Use Software Development Costs consisted of the following:
Schedule of Internal Use Software Development Costs
| Type | December 31, 2024 | |||
| Internal use software development costs | $ | |||
| Less: accumulated amortization | ( | ) | ||
| Less: impairment loss | ( | ) | ||
| Internal Use Software Development Costs - net | $ | - | ||
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 $
For
the three months ended September 30, 2024, amortization of internal software development costs was $
For
the nine months ended September 30, 2024, amortization of internal software development costs was $
Note 6 – Debt
The following represents a summary of the Company’s notes payable – SBA government, notes payable – related parties, convertible notes payable and notes payable, key terms, and outstanding balances at September 30, 2025 and December 31, 2024, respectively:
| 38 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Notes Payable – SBA government
Economic Injury Disaster Loan (“EIDL”)
During 2020, this program was made available to eligible borrowers in light of the impact of the COVID-19 pandemic and the negative economic impact on the Company’s business. Proceeds from the EIDL were used for working capital purposes.
Installment
payments, including principal and interest, are due monthly (beginning twelve (12) months from the date of the promissory note) in amounts
ranging from $
Schedule of Notes Payable
| EIDL | EIDL | |||||||||||
| Terms | SBA | SBA | Total | |||||||||
| Issuance dates of SBA loans | ||||||||||||
| Term | ||||||||||||
| Maturity date | ||||||||||||
| Interest rate | ||||||||||||
| Collateral | ||||||||||||
| Balance - December 31, 2023 | ||||||||||||
| Interest expense adjustment - SBA loans | ||||||||||||
| Repayments | ( | ) | ( | ) | ( | ) | ||||||
| Balance - December 31, 2024 | ||||||||||||
| Repayments | ( | ) | ( | ) | ( | ) | ||||||
| Balance - September 30, 2025 | $ | $ | $ | |||||||||
| 39 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Notes Payable – Related Parties
Schedule of Notes - Payable Related Parties
The following is a summary of the Company’s Notes Payable - Related Parties:
| 1 | 1 | Total | ||||||||||
| Balance - December 31, 2023 | - | |||||||||||
| Reclassification of principal into one single note | ( | ) | - | |||||||||
| Reclassification of accrued interest payable into one single note | - | |||||||||||
| Repayments | ( | ) | - | ( | ) | |||||||
| Balance - December 31, 2024 | - | |||||||||||
| Repayments | ( | ) | - | ( | ) | |||||||
| Balance - September 30, 2025 | $ | $ | - | $ | ||||||||
| 1 |
On
March 12, 2024, as approved by the Audit Committee, the Company consolidated all remaining outstanding principal ($
Due to the Company’s current cash flow shortfall, payments under this note were temporarily suspended at the request of the Company’s Chief Executive Officer, beginning in July 2025. Management is evaluating options to restructure or resume payments in future periods.
The following is a detail of the Company’s Notes Payable - Related Party:
Schedule of Notes Payable - Related Parties
| Note Payable - Related Party | ||||||||||||||||||||||
| Note Holder | Issue Date | Maturity Date | Interest Rate | Default Interest Rate | Collateral | September
30, 2025 | December
31, 2024 | |||||||||||||||
| Note #1 | % | | % | Unsecured | $ | | $ | | ||||||||||||||
| Short Term | ||||||||||||||||||||||
| Long Term | $ | $ | ||||||||||||||||||||
| 40 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Senior Secured Convertible Notes and Warrants
The following is a summary of the Company’s Convertible Note Payable:
Schedule of convertible debt
| Note #1 | Note #2 | Total | ||||||||||
| Balance - December 31, 2024 | $ | - | $ | - | $ | - | ||||||
| Proceeds from issuance of note | ||||||||||||
| Increase in note balance - common stock repurchase
($ | - | |||||||||||
| Debt discount | ( | ) | ( | ) | ( | ) | ||||||
| Amortization of debt discount | ||||||||||||
| Balance - September 30, 2025 | $ | $ | $ | |||||||||
| Unamortized debt discount | $ | $ | $ | |||||||||
The following is a detail of the Company’s Convertible Notes Payable:
| Convertible Notes Payable - Net | ||||||||||||||||||||||
| Note Holder | Issue Date | Maturity Date | Interest Rate | Default Interest Rate | Collateral | September
30, 2025 | December
31, 2024 | |||||||||||||||
| Note #1 | % | | % | All assets | $ | | $ | - | ||||||||||||||
| Note #2 | % | % | Unsecured | - | ||||||||||||||||||
| Less: unamortized debt discount | ( | ) | - | |||||||||||||||||||
| Convertible notes payable - net | - | |||||||||||||||||||||
| Short Term | - | |||||||||||||||||||||
| Long Term | $ | $ | ||||||||||||||||||||
Note #1- Convertible Note Issuance and Warrants
On
May 12, 2025, the Company entered into a two-year (2) Senior Secured Note Purchase Agreement with Funicular Funds, LP (the “Investor”),
pursuant to which the Company issued a Senior Secured Convertible Note in the original principal amount of $
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.
| 41 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Interest and Amortization Terms
The
Note accrues interest at a rate of
Embedded Conversion Feature
The
Note includes an embedded conversion option, which permits the Investor to convert the outstanding principal and accrued interest into
shares of the Company’s common stock at an initial conversion price of $
Warrant Issuance and Classification
In
connection with the issuance of the Note, the Company also issued warrants to purchase
Debt Discount
In
connection with the issuance of the $
The fair value of the warrants was determined using the Black-Scholes model with the following assumptions:
Schedule of Fair Value of Warrants
| Expected term (years) | ||||
| Expected volatility | % | |||
| Expected dividends | % | |||
| Risk free interest rate | % |
In
addition to the warrants, the Company incurred direct debt issuance costs of $
As
a result, the Company recorded a total debt discount of $
| 42 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Note #2- Convertible Note Issuance
On September 25, 2025, the Company entered
into a one-year (1) unsecured Note Purchase Agreement with LGH Investments, LLC (the “Investor”), pursuant to which the Company
issued a Convertible Note in the original principal amount of $
Interest and Amortization Terms
The
Note accrues interest at a rate of
The Company is required to make payments as follows:
Schedule of Interest and Amortization Term
| May 25, 2026 | $ | |||
| June 25, 2026 | $ | |||
| July 25, 2026 | $ | |||
| August 25, 2026 | $ | |||
| September 25, 2026 |
Embedded Conversion Features
The Note contains embedded conversion features that allow the Investor to convert outstanding principal and accrued interest into shares of the Company’s common stock at the following terms:
●
First tranche: $
●
Second tranche: $
●
Third tranche: the remaining principal and accrued interest convertible at $
All three tranches are immediately exercisable at the Investor’s option at their respective fixed conversion prices. The fixed conversion prices are subject to customary anti-dilution adjustments for stock splits, stock dividends, or recapitalizations. The Company may also, subject to specified price and volume conditions and with the prior written consent of the Investor, effect a mandatory conversion of all or a portion of the Note into common stock.
| 43 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Accounting Treatment
The Company evaluated the embedded conversion features in accordance with ASU 2020-06, ASC 815-10-15-74(a) and ASC 815-40 to determine whether bifurcation and separate recognition as derivative liabilities were required. The conversion options were determined to be conventional fixed-price features that are indexed solely to the Company’s common stock and meet the “fixed-for-fixed” criteria under ASC 815-40-15. Accordingly, these features qualify for the scope exception from derivative accounting.
All
three tranches contain fixed conversion prices of either $
Because the variable conversion feature is contingent on an event considered remote, and the conversion terms under all probable scenarios remain fixed, the Company determined that the embedded conversion features, including the contingent variable option, are clearly and closely related to the debt host and qualify for the equity scope exception under ASC 815-10-15-74(a). As a result, the Note is accounted for in its entirety as a debt instrument.
The Company reassesses the probability of default at each reporting date. If circumstances change such that an event of default is no longer considered remote, the contingent variable conversion feature would be bifurcated and recognized as a derivative liability at fair value, with subsequent changes in fair value recognized in earnings. Any such liability would be limited to the fair value of the contingent conversion option.
As of September 30, 2025, the Company was in compliance with all terms and conditions of the Note.
Debt Discount
In
connection with the issuance of the $
The
debt discount will be fully amortized over the contractual term of the note (
| 44 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Notes Payable
The following is a summary of the Company’s Notes Payable:
Schedule of Notes Payable
| Note #3 | Note #4 | Total | ||||||||||
| Balance - December 31, 2024 | $ | - | $ | - | $ | - | ||||||
| Proceeds from issuance of note | ||||||||||||
| Repayments | - | ( | ) | ( | ) | |||||||
| Debt discount | ( | ) | - | ( | ) | |||||||
| Amortization of debt discount | - | |||||||||||
| Balance - September 30, 2025 | $ | $ | $ | |||||||||
| Unamortized debt discount | $ | $ | - | $ | ||||||||
The following is a detail of the Company’s Convertible Notes Payable:
| Notes Payable - Net | ||||||||||||||||||||||
| Note Holder | Issue Date | Maturity Date | Interest Rate | Default Interest Rate | Collateral | September 30, 2025 | December 31, 2024 | |||||||||||||||
| Note #1 | % | % | Unsecured | $ | | $ | - | |||||||||||||||
| Note #2 | % | % | Accounts receivable | - | ||||||||||||||||||
| Less: unamortized debt discount | ( | ) | - | |||||||||||||||||||
| Notes payable - net | - | |||||||||||||||||||||
| Short Term | - | |||||||||||||||||||||
| Long Term | $ | - | $ | - | ||||||||||||||||||
Note #3- Note Issuance and Warrants
On
September 9, 2025, the Company entered into a six-month (6) Unsecured Note with an individual (the “Investor”), in the
original principal amount of $
As of September 30, 2025, the Company was in compliance with all terms and conditions of the Note.
Warrant Issuance and Classification
In
connection with the issuance of the Note, the Company also issued warrants to purchase
| 45 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Debt Discount
In
connection with the issuance of the $
The fair value of the warrants was determined using the Black-Scholes model with the following assumptions:
Schedule of Fair Value of Warrants
| Expected term (years) | ||||
| Expected volatility | % | |||
| Expected dividends | % | |||
| Risk free interest rate | % |
The
debt discount will be fully amortized over the contractual term of the note (
Note #4 – Accounts Receivable Financing Facility and Line of Credit
On
September 9, 2025, the Company entered into a
Borrowings
under the Facility are available based on eligible accounts (up to
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 $
Paragon
retains a reserve account equal to a portion of factored receivables to cover charge-backs, adjustments, and service fees (
Service
charges and related finance fees of $
| 46 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
As of September 30, 2025, the Company was in compliance with all covenants and terms of the Facility.
Debt Maturities
The following represents the maturities of the Company’s various debt arrangements for each of the five (5) succeeding years and thereafter as follows:
Schedule of Debt Maturities
| For the Year Ended December 31, | Note Payable - Related Party | Convertible Notes Payable | Notes Payable | Notes Payable - SBA Government | Total | |||||||||||||||
| 2025 (3 months) | $ | $ | - | $ | - | $ | | $ | ||||||||||||
| 2026 | ||||||||||||||||||||
| 2027 | - | - | ||||||||||||||||||
| 2028 | - | - | - | |||||||||||||||||
| 2029 | - | - | - | |||||||||||||||||
| Thereafter | - | - | - | |||||||||||||||||
| Total | ||||||||||||||||||||
| Less: unamortized debt discount | - | - | ||||||||||||||||||
| Debt - net | $ | $ | $ | $ | $ | |||||||||||||||
Note 7 – Fair Value of Financial Instruments
The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. This determination requires significant judgments to be made.
The Company did not have any financial assets and liabilities that were measured at fair value on a recurring basis at September 30, 2025 and December 31, 2024, respectively.
Note 8 – Commitments and Contingencies
Operating Leases
We have entered into various operating lease agreements, including our corporate headquarters. We account for leases in accordance with ASC Topic 842: Leases, which requires a lessee to utilize the right-of-use model and to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either financing or operating, with classification affecting the pattern of expense recognition in the statement of operations. In addition, a lessor is required to classify leases as either sales-type, financing or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as financing. If the lessor does not convey risk and rewards or control, the lease is treated as operating. We determine if an arrangement is a lease, or contains a lease, at inception and record the lease in our financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor.
| 47 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments over the lease term. Lease right-of-use assets and liabilities at commencement are initially measured at the present value of lease payments over the lease term. We generally use our incremental borrowing rate based on the information available at commencement to determine the present value of lease payments except when an implicit interest rate is readily determinable. We determine our incremental borrowing rate based on market sources including relevant industry data.
We have lease agreements with lease and non-lease components and have elected to utilize the practical expedient to account for lease and non-lease components together as a single combined lease component, from both a lessee and lessor perspective with the exception of direct sales-type leases and production equipment classes embedded in supply agreements. From a lessor perspective, the timing and pattern of transfer are the same for the non-lease components and associated lease component and, the lease component, if accounted for separately, would be classified as an operating lease.
We have elected not to present short-term leases on the balance sheet as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that we are reasonably certain to exercise. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of our leases do not provide an implicit rate of return, we used our incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments.
Our leases, where we are the lessee, do not include an option to extend the lease term. For purposes of calculating lease liabilities, lease term would include options to extend or terminate the lease when it is reasonably certain that we will exercise such options.
Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense, included as a component of general and administrative expenses, in the accompanying consolidated statements of operations.
Certain operating leases provide for annual increases to lease payments based on an index or rate, our lease has no stated increase, payments were fixed at lease inception. We calculate the present value of future lease payments based on the index or rate at the lease commencement date. Differences between the calculated lease payment and actual payment are expensed as incurred.
In
2024, in connection with our purchase of CLMI, we acquired a right-of-use operating lease and related lease liability for a building
having a fair value of $
| 48 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Year End December 31, 2024
Lease Termination and Loss on Right-of-Use Asset
Effective August 31, 2024, the Company entered into an agreement to terminate two (2) of its operating leases prior to the expiration of the lease term. The early termination resulted in the derecognition of these Right-of-Use (ROU) assets and the corresponding lease liabilities associated with these leases.
In
connection with the termination, the Company made a buyout payment of $
The carrying amounts of the lease liability and ROU asset as of the termination date were as follows:
| ● | Right-of-Use
Asset (ROU) carrying amount: $ | |
| ● | Lease
Liability: $ |
As
a result of the termination, the Company recognized a loss of $
The loss was calculated as follows:
Schedule of Loss
| ROU Asset | ||||
| Cash paid to execute lease termination | ||||
| ROU Liability | ( | ) | ||
| Loss on lease termination |
The termination of these leases resulted in the complete derecognition of these ROU assets and the corresponding lease liabilities. The Company does not expect any future obligations or payments related to these lease agreements following the settlement.
On
October 1, 2024, the Company signed a lease for
The
lease is subject to a
| 49 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
At September 30, 2025 and December 31, 2024, respectively, the Company had no financing leases as defined in ASC 842, “Leases.”
The tables below present information regarding the Company’s operating lease assets and liabilities at September 30, 2025 and December 31, 2024, respectively:
Schedule of Operating Lease Assets and Liabilities
| September 30, 2025 | December 31, 2024 | |||||||
| Assets | ||||||||
| Operating lease - right-of-use asset - non-current | $ | $ | ||||||
| Liabilities | ||||||||
| Operating lease liability | $ | $ | ||||||
| Weighted-average remaining lease term (years) | ||||||||
| Weighted-average discount rate | % | % | ||||||
The components of lease expense were as follows:
Schedule of Lease Expense
| September 30, 2025 | September 30, 2024 | |||||||
| Nine Months Ended | ||||||||
| September 30, 2025 | September 30, 2024 | |||||||
| Operating lease costs | ||||||||
| Amortization of right-of-use operating lease asset | $ | $ | ||||||
| Lease liability expense in connection with obligation repayment | ||||||||
| Total operating lease costs | $ | $ | ||||||
| Supplemental cash flow information related to operating leases was as follows: | ||||||||
| Operating cash outflows from operating lease (obligation payment) | $ | $ | ||||||
| Right-of-use asset obtained in exchange for new operating lease liability | $ | - | $ | |||||
| 50 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Future minimum lease payments for the years ended December 31:
Schedule of Future Minimum Payments
| Year Ended December 31, | ||||
| 2025 (3 months) | $ | |||
| 2026 | ||||
| 2027 | ||||
| Total undiscounted cash flows | ||||
| Less: amount representing interest | ||||
| Present value of operating lease liabilities | ||||
| Less: current portion of operating lease liabilities | ||||
| Long-term operating lease liabilities | $ | |||
Employment Agreements (Chief Executive Officer and Chief Financial Officer)
Chief Financial Officer
In November 2023, the Company finalized the terms of its employment agreement with its Chief Financial Officer as follows:
| 1. | Base salary |
| a. | For
the year ended December 31, 2023 - $ | |
| b. | For
the year ended December 31, 2024 - $ | |
| c. | For
the year ended December 31, 2025 - $ |
| 2. | Annual cash bonus |
| a. | For
the year ended December 31, 2023 - $ | |
| b. | For
the year ended December 31, 2024 – at least $ | |
| c. | For the year ended December 31, 2025 - subject to Board approval |
| 3. | Restricted Stock Awards |
| a. | Effective
November 10, 2023, an award of | |
| b. | The shares will vest as follows (see below for table on non-vested shares): |
| i. | ||
| ii. | ||
| iii. | Shares shall immediately vest if any of the following occur and the Chief Financial Officer is employed by the Company at the time of: |
| 1. | Death, | |
| 2. | Total disability, | |
| 3. | Termination without cause; and | |
| 4. | Change in control |
| 51 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
| 4. | Other |
| a. | Vacation, | |
| b. | Car
allowance of $ | |
| c. | Home
office expense reimbursement of $ | |
| d. | 401(K) plan participation, | |
| e. | Life insurance; and | |
| f. | Liability insurance |
See Note 9 regarding the vesting provisions of these shares.
Chief Executive Officer
In December 2023, the Company finalized the terms of its employment agreement with its Chief Executive Officer as follows:
| 1. | Term – through December 31, 2028 | |
| 2. | Base salary |
| a. | For
the year ended December 31, 2023 - $ | |
| b. | For
each year thereafter an increase of |
| 3. | Annual cash bonus |
| a. | For
the year ended December 31, 2023, and all other years throughout the term of the employment
agreement - $ |
| 4. | Restricted Stock Awards |
On
March 1, 2024, the Board approved a long-term equity program for the Company’s Chief Executive Officer providing for a maximum
of
The
initial award of
The
second award of
| 52 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Because each year’s installment is subject to separate Board approval, each represents a separate award under ASC 718. Consistent with ASC 718-10-55-87 through 55-88, the grant-date fair value for each installment will be measured when Board approval is obtained and recognized as compensation expense over the requisite service period applicable to that installment, which is expected to be grant date, as no future service is required.
Shares shall immediately vest if any of the following occur and the Chief Executive Officer is employed by the Company at the time of:
| 1. | Death, | |
| 2. | Total disability, | |
| 3. | Termination without cause; and | |
| 4. | Change in control |
| 5. | Annual Revenue Goals (only one (1) award per goal may be earned until next threshold is achieved |
| a. | $ | |
| b. | $ | |
| c. | $ | |
| d. | $ | |
| e. | Each
additional $ |
| 6. | Annual EBITDA Goals (only one (1) award per goal may be earned until next threshold is achieved |
| a. | $ | |
| b. | $ | |
| c. | Each
additional $ |
| 7. | Market Capitalization Goals (only one (1) award per goal may be earned until next threshold is achieved |
| a. | $ | |
| b. | $ | |
| c. | $ | |
| d. | $ | |
| e. | Each
additional $ |
| 53 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
| 8. | Other |
| a. | Vacation, | |
| b. | Car
allowance of $ | |
| c. | Home
office expense reimbursement of $ | |
| d. | 401(K) plan participation, | |
| e. | Life insurance; and | |
| f. | Liability insurance |
See Note 9 regarding the vesting provisions of these shares.
Contingencies – Legal Matters
In the normal course of business, the Company may be subject to litigation, claims, and legal proceedings. The Company evaluates legal contingencies in accordance with FASB ASC 450-20-50, “Contingencies”, which requires recognition of a liability if an unfavorable outcome is both probable and can be reasonably estimated.
When a legal matter arises, the Company:
| ● | Assesses the merits of the case, including available defenses. | |
| ● | Evaluates its potential exposure and possible legal or settlement strategies. | |
| ● | Determines the likelihood of an unfavorable outcome based on available information. | |
| ● | Establishes an accrual if a loss is both probable and reasonably estimable. |
As of September 30, 2025, based on management’s review and consultation with legal counsel, the Company is not aware of any contingent liabilities that require accrual or disclosure in the consolidated financial statements.
Surge Holdings – Juno Litigation
Juno Financial v. AATAC and Surge Holdings Inc. and Surge Holdings Inc. v. AATAC; Circuit Court of Hillsborough County, Florida, Case # 20-CA-2712 DIV A: Breach of Contract, Account Stated and Open Account claims against Surge by a factoring company. Surge has filed a cross-complaint against defendant AATAC for Breach of Contract, Account Stated, Open Account and Common Law Indemnity. The Court dismissed the case with the agreement of the parties at a case management conference on September 12, 2024.
| 54 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
True Wireless and SurgePays – Litigation
Blue Skies Connections, LLC, and True Wireless, Inc. v. SurgePays, Inc., et. al.: In the District Court of Oklahoma County, OK, CJ-2021-5327, filed on December 13, 2021. Plaintiffs’ petition alleges breach of a Stock Purchase Agreement by SurgePays, SurgePhone Wireless, LLC, and Kevin Brian Cox (“Defendants”), and makes other allegations related to SurgePays’ consulting work with Jonathan Coffman, formerly a True Wireless employee. The petition requests injunctive relief, general damages, punitive damages, attorney fees and costs for alleged breach of contract, tortious interference with a business relationship, and fraud. Blue Skies alleged the Defendants are in violation of their non-competition and non-solicitation agreements related to the sale of True Wireless from SurgePays to Blue Skies. Defendants filed various dispositive motions with the Court demonstrating Oklahoma state law does not recognize non-compete agreements and non-solicitation agreements in the manner alleged by Plaintiffs, and the Court granted these motions, finding the non-solicitation and non-competition clauses in the Stock Purchase Agreement void as a matter of Oklahoma law. Defendants then filed additional dispositive motions on Plaintiffs’ claims in tort and equity, which the Court granted in part based on its prior rulings. Plaintiffs took the position the Court granting Defendants’ dispositive motions on these material issues only leaves partial contract claims that are inextricably intertwined with the remaining claims and defenses. Plaintiffs sought a certified interlocutory appeal of the Court’s orders. On March 10, 2025, the Oklahoma Supreme Court entered an order denying Plaintiffs’ Petition for Certiorari to review the certified interlocutory appeal. The case will now proceed in the district court on the parties’ remaining claims. Both parties have filed motions for summary judgment on the remaining claims, which will be decided in Fall of 2025. Presently, there is no trial date. An attempt at mediation in July 2022 did not achieve a settlement. Any further settlement discussions will occur in the context of Defendants having prevailed on the majority of Plaintiffs’ claims.
In
the Circuit Court of Tennessee for the 30th Judicial District at Memphis, Docket # CT-3219-23. On August 8, 2023, a complaint was filed
by SurgePays for breach of a promissory note by Blue Skies Connections, LLC. The note at issue is dated
| 55 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Note 9 – Stockholders’ Equity
At September 30, 2025, the Company had three (3) classes of stock:
Common Stock
| - | ||
| - | Par
value - $ | |
| - |
Series A, Convertible Preferred Stock
| - | ||
| - | ||
| - | Par
value - $0 | |
| - | ||
| - | Ranks senior to any other class of preferred stock |
| 56 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
| - | Dividends - none | |
| - | Liquidation preference – none | |
| - | Rights of redemption - none | |
| - |
Series C, Convertible Preferred Stock
| - | ||
| - | ||
| - | Par
value - $ | |
| - | ||
| - | 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 | |
| - |
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:
| 1. | ||
| 2. | An annual increase on the first day of each calendar year beginning January 1, 2023 and ending on January 31, 2031 equal to the lesser of: |
| a. | ||
| b. | Such smaller amount of common stock as determined by the Board of Directors. |
| 3. | The shares may be issued as follows to directors, officers, employees, and consultants: |
| a. | Distribution equivalent rights | |
| b. | Incentive share options | |
| c. | Non-qualified share options | |
| d. | Performance unit awards | |
| e. | Restricted share awards | |
| f. | Restricted share unit awards | |
| g. | Share appreciation rights | |
| h. | Tandem share appreciation rights | |
| i. | Unrestricted share awards |
See the proxy statement filed with the SEC on January 19, 2023 for a complete detail of the Plan.
| 57 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Effective
January 1, 2024, in accordance with the Plan, we increased the available amount of shares by
Effective
January 1, 2025, in accordance with the Plan, we increased the available amount of shares by
Of the total shares authorized and available, the Company has reserved shares for its officers, directors and employees for non-vested shares that are expected to vest in accordance with the terms of the related employment agreements and stock options that may be converted into common stock. At September 30, 2025, the Company had sufficient authorized shares to settle any possible awards that vested or stock options eligible for conversion.
Equity Transactions for the Nine Months Ended September 30, 2025
Stock Issued for Cash – At the Market Offering (“ATM”)
In
August 2025, the Company entered into an At the Market Offering Agreement (the “ATM Agreement”) with Titan Partners Group
LLC, a division of American Capital Partners, LLC (“Titan”), pursuant to which the Company may, from time to time, offer
and sell shares of its common stock, $
The
Company issued
In
connection with the capital raise, the Company paid cash as direct offering costs (including professional fees) totaling $
| 58 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Stock Issued for Services
The
Company issued
Stock Issued to Settle Accounts Payable
The
Company issued
Debt Discount
In
connection with the issuance of convertible debt, the Company issued
Treasury Stock
The
Company repurchased
Equity Transactions for the Years Ended December 31, 2024
Stock Issued for Cash - Capital Raise
The
Company issued
In
connection with the capital raise, the Company paid cash as direct offering costs totaling $
This offering was made pursuant to the Company’s registration statement on Form S-3 (File No. 333-273110) previously filed with the Securities and Exchange Commission (the “SEC”) on July 3, 2023, as amended, and declared effective by the SEC on November 3, 2023.
A preliminary and final prospectus supplement were filed with the Securities and Exchange Commission pursuant to Rule 424(b) under the Securities Act of 1933 (the “Securities Act”) on January 17, 2024 and January 19, 2024, respectively. The Offering closed on January 22, 2024.
Exercise of Warrants - Cash
During
2024, the Company issued
| 59 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Exercise of Warrants - Cashless
During
2024, the Company issued
Stock Issued for Services
The
Company issued
See separate discussion below for the issuance and related vesting of common stock granted to the Company’s officers and directors.
Treasury Stock
Effective July 2024, the Company implemented a share repurchase program. Under the terms of this program, the Company undertook the following:
| ● | Maximum
dollar amount authorized for repurchase is $ |
| ● | The
Company will not repurchase more than | |
| ● | The
Company will not repurchase any shares greater than $ | |
| ● | Share repurchases will only be made to the extent it does not prevent the Company from paying its debts; and | |
| ● | The shares may either be returned to the treasury and authorized for reissuance or cancelled and retired. |
The
Company reacquired
Effective October 2024, the Company ceased its share repurchase program.
Non-Vested Shares – Related Parties (Officer and Directors) – and related Vesting
Chief Financial Officer
In
2023, the Company granted common stock to its Chief Financial Officer (
The shares will vest as noted above (see Note 8). The Company records stock compensation expense ratably over these vesting periods. All shares are expected to vest in accordance with the terms of the agreement.
| 60 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
For
the three months ended September 30, 2025 and 2024, the Company recognized stock compensation expense of $
For
the nine months ended September 30, 2025 and 2024, the Company recognized stock compensation expense of $
Board Directors
2025 Grant
In
May 2025, the Company granted an aggregate
The shares will vest at the earlier to occur:
| - | Board Member no longer serves in that capacity for any reason, except for reasons related to cause, | |
| - | Occurrence of a change in control; and | |
| - | August 2028 |
2024 Grant
In
2024, the Company granted an aggregate
The shares will vest at the earlier to occur:
| - | Board Member no longer serves in that capacity for any reason, except for reasons related to cause, | |
| - | Occurrence of a change in control; and | |
| - | 4th anniversary of the effective date (2028) |
The Company records stock compensation expense over the vesting period. All shares are expected to vest in accordance with the terms of these related employment agreements.
For
the three months ended September 30, 2025 and 2024, the Company recognized stock compensation expense of $
| 61 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
For
the nine months ended September 30, 2025 and 2024, the Company recognized stock compensation expense of $
Chief Executive Officer
In
2024, the Company granted common stock to its Chief Executive Officer (
The shares will vest as noted above (see Note 8). The Company records stock compensation expense ratably over these vesting periods. All shares are expected to vest in accordance with the terms of the agreement.
For
the three months ended September 30, 2025 and 2024, the Company recognized stock compensation expense of $
For
the nine months ended September 30, 2025 and 2024, the Company recognized stock compensation expense of $
Director of Human Resources and Legal Services
In
2024, the Company granted
The shares will vest ratably over the period July 2024 – December 2024. The Company records stock compensation expense ratably over these vesting periods. All shares are expected to vest in accordance with the terms of the agreement.
For
the three months ended September 30, 2024, the Company recognized stock compensation expense of $
For
the nine months ended September 30, 2024, the Company recognized stock compensation expense of $
Total Compensation Expense due to Vesting (All Officers and Directors)
For
the three months ended September 30, 2025 and 2024, the Company recognized total stock compensation expense of $
| 62 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
For
the nine months ended September 30, 2025 and 2024, the Company recognized total stock compensation expense of $
The following is a summary of the Company’s non-vested shares at September 30, 2025 and December 31, 2024.
Schedule of Non Vested Shares Parties
| Weighted Average | ||||||||
| Non-Vested Shares | Number of Shares | Grant Date Fair Value | ||||||
| Balance - December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Cancelled/Forfeited | - | - | ||||||
| Balance - December 31, 2024 | $ | |||||||
| Granted | ||||||||
| Vested | - | - | ||||||
| Cancelled/Forfeited | - | - | ||||||
| Balance - September 30, 2025 | $ | |||||||
| Unrecognized Compensation | $ | |||||||
| Weighted average period (years) | ||||||||
The following is a detail of the common stock granted, which is subject to the vesting provisions noted above at September 30, 2025 and December 31, 2024, respectively.
Schedule of Stock Granted
| CEO | CFO | Directors | Director of Human Resources/Legal | Total | ||||||||||||||||
| Balance - December 31, 2023 | - | - | ||||||||||||||||||
| Granted | - | | ||||||||||||||||||
| Vested | ( | ) | ( | ) | - | ( | ) | ( | ) | |||||||||||
| Cancelled/Forfeited | - | - | - | - | - | |||||||||||||||
| Balance - December 31, 2024 | - | - | ||||||||||||||||||
| Balance | - | - | ||||||||||||||||||
| Granted | - | - | - | |||||||||||||||||
| Vested | - | - | - | - | - | |||||||||||||||
| Cancelled/Forfeited | - | - | - | - | - | |||||||||||||||
| Balance - September 30, 2025 | - | - | ||||||||||||||||||
| Balance | - | - | ||||||||||||||||||
| Unrecognized Compensation | $ | - | $ | $ | $ | - | $ | |||||||||||||
| Weighted average period (years) | - | - | ||||||||||||||||||
| 63 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Stock Options
Stock option transactions for the nine months ended September 30, 2025 and the year ended December 31, 2024 are summarized as follows:
Schedule of Stock Option Transactions
| Weighted | Weighted | |||||||||||||||||||
| Average | Average | |||||||||||||||||||
| Weighted | Remaining | Aggregate | Grant | |||||||||||||||||
| Number of | Average | Contractual | Intrinsic | Date | ||||||||||||||||
| Stock Options | Options | Exercise Price | Term (Years) | Value | Fair Value | |||||||||||||||
| Outstanding - December 31, 2023 | $ | | | $ | - | |||||||||||||||
| Vested and Exercisable - December 31, 2023 | $ | $ | - | |||||||||||||||||
| Unvested and non-exercisable - December 31, 2023 | $ | $ | - | |||||||||||||||||
| Granted | $ | |||||||||||||||||||
| Exercised | - | $ | - | |||||||||||||||||
| Cancelled/Forfeited | ( | ) | $ | |||||||||||||||||
| Outstanding - December 31, 2024 | $ | $ | - | |||||||||||||||||
| Vested and Exercisable - December 31, 2024 | $ | $ | - | |||||||||||||||||
| Unvested and non-exercisable - December 31, 2024 | - | $ | - | - | $ | - | ||||||||||||||
| Granted | - | $ | - | |||||||||||||||||
| Exercised | - | $ | - | |||||||||||||||||
| Cancelled/Forfeited | ( | ) | $ | |||||||||||||||||
| Outstanding - September 30, 2025 | $ | $ | ||||||||||||||||||
| Vested and Exercisable - September 30, 2025 | $ | $ | ||||||||||||||||||
| Unvested and non-exercisable - September 30, 2025 | - | $ | - | - | $ | - | ||||||||||||||
Nine Months Ended September 30, 2025
Years Ended December 31, 2024
Stock Options - Related Party – Chief Financial Officer
The
remaining
| 64 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Stock Options – Chief Executive Officer, Chief Financial Officer and Employees
The
Company granted an aggregate of
The fair value of these stock options was determined using a Black-Scholes option pricing model with the following inputs:
Schedule of Stock Based Compensation Expense
| Expected term | ||||
| Expected volatility | % | |||
| Expected dividends | % | |||
| Risk free interest rate | % |
Stock-based compensation expense for the three and nine months ended September 30, 2025 and 2024 was as follows:
Schedule of Stock Based Compensation Expense
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||
| $ | - | $ | - | $ | - | $ | ||||||||
Warrants
Warrant activity for the nine months ended September 30, 2025 and the year ended December 31, 2024 are summarized as follows:
Schedule of Warrants Activity
| Weighted | ||||||||||||||||
| Average | ||||||||||||||||
| Weighted | Remaining | Aggregate | ||||||||||||||
| Number of | Average | Contractual | Intrinsic | |||||||||||||
| Warrants | Warrants | Exercise Price | Term (Years) | Value | ||||||||||||
| Outstanding - December 31, 2023 | $ | $ | ||||||||||||||
| Vested and Exercisable - December 31, 2023 | $ | $ | ||||||||||||||
| Unvested - December 31, 2023 | - | $ | - | - | $ | - | ||||||||||
| Granted | - | $ | - | |||||||||||||
| Exercised | ( | ) | $ | |||||||||||||
| Cancelled/Forfeited | ( | ) | $ | |||||||||||||
| Outstanding - December 31, 2024 | $ | $ | - | |||||||||||||
| Vested and Exercisable - December 31, 2024 | $ | $ | - | |||||||||||||
| Unvested and non-exercisable - December 31, 2024 | - | $ | - | - | $ | - | ||||||||||
| Granted | $ | |||||||||||||||
| Exercised | - | $ | - | |||||||||||||
| Cancelled/Forfeited | ( | ) | $ | |||||||||||||
| Outstanding - September 30, 2025 | $ | $ | ||||||||||||||
| Vested and Exercisable - September 30, 2025 | $ | $ | ||||||||||||||
| Unvested and non-exercisable - September 30, 2025 | - | $ | - | - | $ | - | ||||||||||
See
Note 6 regarding debt issued with an aggregate
Note 10 – Segment Information
Operating segments are defined as components of an enterprise about which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision–making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer.
The Company evaluated the performance of its operating segments based on revenue and operating loss. All data below is prior to intercompany eliminations.
| 65 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Segment information for the Company’s operations for the three and nine months ended September 30, 2025 and 2024, are as follows:
Schedule of Operating Segments
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenues | ||||||||||||||||
| Mobile Virtual Network Operators | $ | $ | $ | $ | ||||||||||||
| Point-of-Sale and Prepaid Services | ||||||||||||||||
| Other Corporate Overhead | - | - | - | |||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Mobile Virtual Network Operators | $ | $ | $ | $ | ||||||||||||
| Point-of-Sale and Prepaid Services | ||||||||||||||||
| Other Corporate Overhead | - | - | ||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ||||||||||||||||
| Mobile Virtual Network Operators | $ | $ | $ | $ | ||||||||||||
| Point-of-Sale and Prepaid Services | ||||||||||||||||
| Other Corporate Overhead | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Income (loss) from operations | ||||||||||||||||
| Mobile Virtual Network Operators | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Point-of-Sale and Prepaid Services | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Corporate Overhead | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 66 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Segment information for the Company’s assets and liabilities at September 30, 2025 and December 31, 2024, are as follows:
| September 30, 2025 | December 31, 2024 | |||||||
| Total Assets | ||||||||
| Mobile Virtual Network Operators | $ | $ | ||||||
| Point-of-Sale and Prepaid Services | ||||||||
| Other Corporate Overhead | ||||||||
| Total | $ | $ | ||||||
| Total Liabilities | ||||||||
| Mobile Virtual Network Operators | $ | $ | ||||||
| Point-of-Sale and Prepaid Services | ||||||||
| Other Corporate Overhead | ||||||||
| Total | $ | $ | ||||||
All
intercompany accounts are separately presented above as both a component of the assets and liabilities. These amounts net to $
Note 11 – Subsequent Event
Stock Issued for Services
The
Company issued
Convertible Notes Payable
Note #1
On October 15, 2025, the Company entered
into a one-year (1) unsecured, Note Purchase Agreement with ClearThink Capital Partners, LLC (the “Investor”), pursuant to
which the Company issued a Convertible Note in the original principal amount of $
| 67 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Interest and Amortization Terms
The
Note accrues interest at a rate of
The Company is required to make payments as follows:
Schedule of Debt Interest and Amortization Term
| June 15, 2026 | $ | |||
| July 15, 2026 | $ | |||
| August 15, 2026 | $ | |||
| September 15, 2026 | $ | |||
| October 15, 2026 |
Embedded Conversion Features
The Note contains embedded conversion features that allow the Investor to convert outstanding principal and accrued interest into shares of the Company’s common stock at the following terms:
● First tranche: $
● Second tranche: $
●
Third tranche: the remaining principal and accrued interest convertible at $
All three tranches are immediately exercisable at the Investor’s option at their respective fixed conversion prices. The fixed conversion prices are subject to customary anti-dilution adjustments for stock splits, stock dividends, or recapitalizations. The Company may also, subject to specified price and volume conditions and with the prior written consent of the Investor, effect a mandatory conversion of all or a portion of the Note into common stock.
Accounting Treatment
The Company evaluated the embedded conversion features in accordance with ASC 815-10-15-74(a) and ASC 815-40 to determine whether bifurcation and separate recognition as derivative liabilities were required. The conversion options were determined to be conventional fixed-price features that are indexed solely to the Company’s common stock and meet the “fixed-for-fixed” criteria under ASC 815-40-15. Accordingly, these features qualify for the scope exception from derivative accounting.
| 68 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
All
three tranches contain fixed conversion prices of either $
Because the variable conversion feature is contingent on an event considered remote, and the conversion terms under all probable scenarios remain fixed, the Company determined that the embedded conversion features, including the contingent variable option, are clearly and closely related to the debt host and qualify for the equity scope exception under ASC 815-10-15-74(a). As a result, the Note is accounted for in its entirety as a debt instrument.
The Company reassesses the probability of default at each reporting date. If circumstances change such that an event of default is no longer considered remote, the contingent variable conversion feature would be bifurcated and recognized as a derivative liability at fair value, with subsequent changes in fair value recognized in earnings. Any such liability would be limited to the fair value of the contingent conversion option.
Debt Discount
In
connection with the issuance of the $
The
debt discount will be fully amortized over the contractual term of the note (
Note #2
On
October 8, 2025, the Company entered into a one-year (1) unsecured, Note Purchase Agreement with BHP Capital NY, Inc. (the “Investor”),
pursuant to which the Company issued a Convertible Note in the original principal amount of $
Interest and Amortization Terms
The
Note accrues interest at a rate of
The Company is required to make payments as follows:
| May 31, 2026 | $ | |||
| June 30, 2026 | $ | |||
| July 31, 2026 | $ | |||
| August 31, 2026 | $ | |||
| October 8, 2026 |
Embedded Conversion Features
The Note contains embedded conversion features that allow the Investor to convert outstanding principal and accrued interest into shares of the Company’s common stock at the following terms:
| ● | First tranche: $ |
| ● | Second tranche: $ |
| ● | Third tranche: the remaining principal and accrued interest convertible at $ |
All three tranches are immediately exercisable at the Investor’s option at their respective fixed conversion prices. The fixed conversion prices are subject to customary anti-dilution adjustments for stock splits, stock dividends, or recapitalizations. The Company may also, subject to specified price and volume conditions and with the prior written consent of the Investor, effect a mandatory conversion of all or a portion of the Note into common stock.
| 69 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Accounting Treatment
The Company evaluated the embedded conversion features in accordance with ASC 815-10-15-74(a) and ASC 815-40 to determine whether bifurcation and separate recognition as derivative liabilities were required. The conversion options were determined to be conventional fixed-price features that are indexed solely to the Company’s common stock and meet the “fixed-for-fixed” criteria under ASC 815-40-15. Accordingly, these features qualify for the scope exception from derivative accounting.
All
three tranches contain fixed conversion prices of either $
Because the variable conversion feature is contingent on an event considered remote, and the conversion terms under all probable scenarios remain fixed, the Company determined that the embedded conversion features, including the contingent variable option, are clearly and closely related to the debt host and qualify for the equity scope exception under ASC 815-10-15-74(a). As a result, the Note is accounted for in its entirety as a debt instrument.
The Company reassesses the probability of default at each reporting date. If circumstances change such that an event of default is no longer considered remote, the contingent variable conversion feature would be bifurcated and recognized as a derivative liability at fair value, with subsequent changes in fair value recognized in earnings. Any such liability would be limited to the fair value of the contingent conversion option.
Debt Discount
In
connection with the issuance of the $
The
Company also issued
The
debt discount will be fully amortized over the contractual term of the note (
Note #3
On
October 7, 2025, the Company entered into a one-year (1) unsecured, Note Purchase Agreement with GS Capital Partners, LLC (the “Investor”),
pursuant to which the Company issued a Convertible Note in the original principal amount of $
Interest and Amortization Terms
The
Note accrues interest at a rate of
The Company is required to make payments as follows:
| June 7, 2026 | $ | |||
| July 7, 2026 | $ | |||
| August 7, 2026 | $ | |||
| September 7, 2026 | $ | |||
| October 7, 2026 |
| 70 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025
Embedded Conversion Features
The Note contains embedded conversion features that allow the Investor to convert outstanding principal and accrued interest into shares of the Company’s common stock at the following terms:
| ● | First tranche: $ |
| ● | Second tranche: $ |
| ● | Third tranche: the remaining
principal and accrued interest convertible at $ |
All three tranches are immediately exercisable at the Investor’s option at their respective fixed conversion prices. The fixed conversion prices are subject to customary anti-dilution adjustments for stock splits, stock dividends, or recapitalizations. The Company may also, subject to specified price and volume conditions and with the prior written consent of the Investor, effect a mandatory conversion of all or a portion of the Note into common stock.
Accounting Treatment
The Company evaluated the embedded conversion features in accordance with ASC 815-10-15-74(a) and ASC 815-40 to determine whether bifurcation and separate recognition as derivative liabilities were required. The conversion options were determined to be conventional fixed-price features that are indexed solely to the Company’s common stock and meet the “fixed-for-fixed” criteria under ASC 815-40-15. Accordingly, these features qualify for the scope exception from derivative accounting.
All
three tranches contain fixed conversion prices of either $
Because the variable conversion feature is contingent on an event considered remote, and the conversion terms under all probable scenarios remain fixed, the Company determined that the embedded conversion features, including the contingent variable option, are clearly and closely related to the debt host and qualify for the equity scope exception under ASC 815-10-15-74(a). As a result, the Note is accounted for in its entirety as a debt instrument.
The Company reassesses the probability of default at each reporting date. If circumstances change such that an event of default is no longer considered remote, the contingent variable conversion feature would be bifurcated and recognized as a derivative liability at fair value, with subsequent changes in fair value recognized in earnings. Any such liability would be limited to the fair value of the contingent conversion option.
Debt Discount
In
connection with the issuance of the $
The
Company also issued
The
debt discount will be fully amortized over the contractual term of the note (
| 71 |
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This statement contains forward-looking statements within the meaning of the Securities Act of 1933, as amended (the ‘Securities Act’). Discussions containing such forward-looking statements may be found throughout this statement. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors, including the matters set forth in this statement. The accompanying consolidated financial statements as of September 30, 2025 and 2024 and for the three and nine months then ended includes the accounts of SurgePays, Inc. and its wholly owned subsidiaries during the period owned by SurgePays, Inc.
About SurgePays, Inc.
SurgePays, Inc (“SurgePays,” “we” the “Company”) was incorporated in Nevada on August 18, 2006 is a financial technology and telecom company focused on providing these essential services to the underbanked community. We were previously known as North American Energy Resources, Inc. and KNINE Media Holdings, Inc. Prior to April 27, 2015, we operated solely as an independent oil and natural gas company engaged in the acquisition, exploration and development of oil and natural gas properties and the production of oil and natural gas through its wholly owned subsidiary, NAER. On April 27, 2015, NAER entered into a Share Exchange Agreement with KNINE Media whereby KNINE Media became a wholly owned subsidiary of NAER and which resulted in the shareholders of KNINE Media owning approximately 90% of the voting stock of the surviving entity. While we continued the oil and gas operations of NAER following this transaction, on August 4, 2015, we changed its name to KNINE Media Holdings, Inc. On December 21, 2017, we changed its name to Surge Holdings, Inc. to better reflect the diversity of its business operations. We changed our name to SurgePays, Inc. on October 29, 2020.
As described in more detail below, we currently operate in two different business segments through the following subsidiaries: (i) SurgePhone Wireless, LLC, a Nevada limited liability company; (ii) SurgePays Fintech, Inc., a Nevada limited liability company; (iii) ECS Prepaid, LLC, a Missouri limited liability company and (iv) Torch Wireless a Wyoming limited liability company.
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Our Business Segments
SurgePays operates through two primary business segments, each strategically designed to meet the diverse needs of our customers. These segments are driven by independent technology platforms that also function synergistically to foster mutual growth:
| ● | MVNO Wireless Services: Providing reliable, affordable prepaid wireless services. | |
| ● | Point-of-Sale and Prepaid Services: Offering Point-of-sale (“POS”) transaction and marketing technology. |
SurgePays continues to advance our initiative to provide direct access for our customers to nationwide 4G LTE and 5G wireless network services. Our robust infrastructure and capabilities, enable SurgePays to operate not only as a Mobile Virtual Network Operator (MVNO), but also as a Mobile Virtual Network Enabler (MVNE). As an MVNE, the Company offers wireless services, including SIM provisioning, billing, and airtime, to other wireless providers that do not have a direct carrier relationship. By continuing to enhance the capabilities of the internal processes as an MVNO, SurgePays is consistently expanding the MVNE revenue channel with minimal incremental cost to the Company.
The Company previously also operated a Lead Generation segment; however, this business segment was discontinued in 2024.
MVNO Wireless Services
SurgePays’ Mobile Virtual Network Operator (MVNO) business delivers high-speed, reliable, and affordable wireless services by leveraging agreements with national telecom leaders. Generating $43,450,244 of year ended December 31, 2024 operating revenue, we believe this segment will be central to our growth, offering subsidized and prepaid options to meet diverse financial needs.
Mobile Wireless Services:
● LinkUp Mobile: A prepaid wireless offering targeting customers seeking affordable, no-contract plans with nationwide coverage, including U.S., Mexico, and Canada roaming. SurgePays sells low-cost SIM kits and devices through a retail distribution network of over 9,000 convenience stores and online channels.
● Torch Wireless: A subsidized Lifeline brand serving low-income consumers across eligible states. SurgePays offers federally supported wireless service under the Lifeline program, which provides a monthly reimbursement per qualifying subscriber. In California, the combined federal and state support results in one of the most attractive reimbursement rates nationally ($28.25/subscriber).
SurgePays’ MVNO subscriber acquisition strategy includes both in-store and online enrollments, often facilitated through third-party enrollment partners and supported by in-house systems to streamline customer onboarding and device activation.
MVNE Platform – HERO
In late 2024, SurgePays launched its HERO platform, a full-stack mobile virtual network enabler (MVNE) system designed to support the launch and management of independent MVNOs. Through a strategic agreement with AT&T, the Company gained direct access to 4G LTE and 5G networks, enabling HERO to provide:
● SIM provisioning and activation
● Billing, CRM, and subscriber management tools
● Bilingual customer service
● White-labeled infrastructure for third-party brands
● Option fulfillment, logistics, and device procurement
HERO operates on a scalable per-click revenue model and supports both traditional and subsidized wireless offerings. MVNO clients benefit from HERO’s turnkey, infrastructure-free deployment and rapid go-to-market capabilities. With multiple MVNOs launched and additional partners onboarding in 2025, SurgePays is consistently expanding the MVNE revenue channel with minimal incremental cost to the Company and anticipates this component of the business will become a major contributor to the growing robust channel offering.
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Point-of-Sale and Prepaid Services
SurgePays’ retail-facing segment includes prepaid top-ups, POS transaction software, and in-store marketing technology:
● Prepaid Wireless Top-Ups: SurgePays provides convenience store clerks with the ability to process top-ups across major wireless brands, handle debit/gift card activations, and facilitate bill payments. These high-frequency transactions generate recurring revenue and support customer cross-selling opportunities, such as upselling LinkUp wireless.
● ClearLine POS Technology: ClearLine is a patent-pending SaaS application that transforms existing POS terminals and screens into interactive marketing and loyalty tools. It displays QR codes, digital promotions, real-time couponing, and captures analytics to enhance merchant engagement. ClearLine integrates with major terminal providers including Clover, PAX, and Landi.
By embedding fintech services into local store ecosystems, SurgePays creates a powerful customer acquisition and data feedback loop. The Company’s retail software is compatible with thousands of independent merchant locations, positioning it to grow with minimal hardware friction.
Growth Strategies
At SurgePays, our growth strategy is simple yet powerful: leverage our strengths across business segments to drive for sustainable, scalable growth. Each business unit and service is aligned with our mission to create lasting value, enabling us to be strategically positioned for our goal of long-term profitability.
Our current growth initiatives include:
● Scaling Lifeline enrollments including high-subsidy states
● Expanding prepaid retail distribution across rural and multicultural markets
● Enabling wireless service launches for non-telecom brands through HERO
● Increasing ClearLine deployments and upselling POS features to merchants
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Synergy Across Business Units
Our integrated approach means all units work in unison, creating efficiency and value that is hard to replicate. By aligning technology, data, and market expansion strategies, we are building a cohesive platform with a unique value proposition:
| ● | Technology Integration: Our POS platforms unify transactions across prepaid wireless, financial products, and merchant services, delivering a streamlined retail experience. | |
| ● | Data-Driven Engagement: Data analytics from our ACH banking and fintech transactions platform unlock valuable insights, enhancing customer engagement across all segments. | |
| ● | Strategic Market Expansion: With a focus on underserved and rural markets, we are capturing untapped potential and fostering lasting customer loyalty. |
COMPARISON OF THREE MONTHS ENDED September 30, 2025 AND 2024
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the consolidated results of operations, stockholders’ deficit, or cash flows.
We measure our performance on a consolidated basis as well as the performance of each segment.
We report our financial performance based on the following segments: Mobile Virtual Network Operators (MVNO), and Point-of-Sale and Prepaid Services (Top-up). The MVNO segment includes subsidized (Lifeline) and non-subsidized components (LinkUp Mobile). The subsidized component or Lifeline is the result of the mobile broadband (phone and internet) services provided by Torch Wireless to eligible consumers. The Point-of-Sale and Prepaid Services segment is comprised of Surge Fintech and ECS as previously shown.
The segment amounts included in MD&A are presented on a basis consistent with our internal management reporting. Additional information on our reportable segments is contained in Note 10 – Segment Information and Geographic Data of the Notes to Financial Statements.
Revenues during the three months ended years ended September 30, 2025 and 2024 consisted of the following:
| 2025 | 2024 | |||||||
| Revenue | $ | 18,680,317 | $ | 4,769,697 | ||||
| Cost of revenue (exclusive of depreciation and amortization) | (21,276,771 | ) | (12,602,057 | ) | ||||
| General and administrative | (4,353,684 | ) | (6,448,402 | ) | ||||
| Income (Loss) from operations | $ | (6,950,138 | ) | $ | (14,280,762 | ) | ||
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Revenue increased overall by $13,910,620 (291.6%) from the three months ended September 30, 2024 to the three months ended September 30, 2025. The breakout was as follows:
| For the Three Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Revenues: | ||||||||
| Mobile Virtual Network Operator | $ | 5,561,124 | $ | 23,608 | ||||
| Point-of-Sale and Prepaid Services | 13,119,193 | 4,746,089 | ||||||
| Other Corporate Overhead | - | - | ||||||
| Total | $ | 18,680,317 | $ | 4,769,697 | ||||
Mobile Virtual Network Operators consisting of Torch Wireless revenues (as detailed in Notes 2 and 10 of the financial statements) increased by $5,537,516 (23456.1%). The revenue increase is a direct result of the expansion of the Lifeline program in California.
The Company signed a Master Services Agreement (MSA) with TerraCom, Inc. (“TerraCom”), a wireless service provider and licensed Lifeline provider, effective October 3, 2024, in order to execute the strategy of offering Lifeline to our existing ACP subscriber base. This agreement allowed us to offer a government-subsidized program to our previous 250,000 ACP wireless subscribers. We transitioned over 80,000 subscribers to the Lifeline program during 2024. Equally important, this allows us to reignite our sales channels to acquire new Lifeline subscribers who lost their ACP service when their carrier chose to shut them off.
Point-of-Sale and Prepaid Services (Prepaid) revenues increased by $8,373,105 or 176.4% as a result of increasing our sales force and hiring of a new Director of Sales and renewed focus on this segment of the business. The Company expects this segment to continue to grow for the remainder of 2025.
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. The revenue was $0 and $0 respectively in the year ended December 31, 2024 and in the nine months ended September 30, 2025 Comparison numbers for the lead generation segment are shown in the respective Other Corporate Overhead lines.
During the quarter, the Company launched its Growth Marketing and Data Partnerships Division. The division is focused on monetizing SurgePays’ expanding consumer data ecosystem by integrating marketing performance, analytics, and audience management across the Company’s platforms, including Torch Wireless and LinkUp Mobile. In addition, this division will leverage the Company’s proprietary intake and audience intelligence platform previously developed under the legacy LogicsIQ subsidiary to support targeted engagement of underserved consumers. We expect this initiative will strengthen recurring revenue opportunities by improving customer acquisition efficiency and enabling data-driven cross sell programs across the Company’s distribution network.
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Cost of Revenue, Gross Profit and Gross Margin
For the three months ended September 30, 2025, cost of revenue for services primarily consists of data plan expenses ($1,753,538), prepaid retail expenses ($13,089,497), devices ($102,000), marketing ($3,129,483), advertising ($335,168) and other expenses such as royalties and call-center expenses ($2,867,085). For the three months ended September 30, 2024, cost of revenue for services primarily consists of data plan expenses ($3,567,303), devices ($175,170), marketing ($3,719,197), advertising ($116,771) and other expenses such as royalties and call-center expenses ($467,197).
We expect that our cost of revenue will increase or decrease to the extent that our revenue increases and decreases.
| For the Three Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Cost of Revenue (exclusive of depreciation and amortization): | ||||||||
| Mobile Virtual Network Operator | $ | 8,187,273 | $ | 8,043,714 | ||||
| Point-of-Sale and Prepaid Services | 13,089,498 | 4,556,418 | ||||||
| Other Corporate Overhead | - | 1,925 | ||||||
| Total | $ | 21,276,771 | $ | 12,602,057 | ||||
Gross profit margin is calculated as revenue less cost of revenue. Gross profit margin is gross profit expressed as a percentage of revenue. Our gross profit in future periods will depend on a variety of factors, including market conditions that may impact our pricing, sales mix among devices, sales mix changes among consumables, excess and obsolete inventories, and the cost of our products from manufacturers. Our gross profit in future periods will vary based upon our revenue stream mix and may increase based upon our distribution channels
| For the Three Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Gross Profit (Loss) (exclusive of depreciation and amortization): | ||||||||
| Mobile Virtual Network Operator | $ | (2,626,150 | ) | $ | (8,020,106 | ) | ||
| Point-of-Sale and Prepaid Services | 29,696 | 189,671 | ||||||
| Other Corporate Overhead | - | (1,925 | ) | |||||
| Total | $ | (2,596,454 | ) | $ | (7,832,360 | ) | ||
| For the Three Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Gross Margin: | ||||||||
| Mobile Virtual Network Operator | % | (47.2 | ) | % | (33,972.0 | ) | ||
| Point-of-Sale and Prepaid Services | .2 | 4.0 | ||||||
| Other Corporate Overhead | - | - | ||||||
| Total | % | (13.9 | ) | % | (164.2 | ) | ||
The Company expects to continue the improvement of gross margin in the Point-of-Sale and Prepaid Services segment during 2025. Most of the cost to get Clearline ready for launch has occurred and we expect the gross margin to be positive by the end of 2025 for this revenue channel. As we continue to expand both subsidized (Lifeline) and non-subsidized products (LinkUp Mobile) of the MNVO segment in 2025, we also anticipate gross margins in the MVNO segment will increase with an aim to return to positive results.
General and administrative during the three months ended September 30, 2025 and 2024 consisted of the following:
| 2025 | 2024 | |||||||
| Depreciation and amortization | $ | 190,291 | $ | 282,067 | ||||
| Selling, general and administration | 4,163,277 | 6,166,335 | ||||||
| Total | $ | 4,353,684 | $ | 6,448,402 | ||||
| 77 |
Selling, general and administrative expenses during the three months ended September 30, 2025 and 2024 consisted of the following:
| 2025 | 2024 | |||||||
| Contractors and consultants | $ | 820,291 | $ | 1,401,065 | ||||
| Professional services | 300,488 | 274,400 | ||||||
| Compensation | 1,854,859 | 3,313,320 | ||||||
| Computer and internet | 228,737 | 248,086 | ||||||
| Advertising and marketing | 76,948 | 14,351 | ||||||
| Insurance | 260,579 | 248,878 | ||||||
| Other | 621,375 | 666,235 | ||||||
| Total | $ | 4,163,277 | $ | 6,166,335 | ||||
Selling, general and administrative costs (S, G & A) decreased by $2,003,058 (32.5%). The changes are discussed below:
| ● | Contractors and consultants expense decreased by $580,774 or 41.5% from $1,401,065 for the three months ended September 30, 2024 to $820,291 for the three months ended September 30, 2025. The Company decreased the spend in the period ending September 30, 2025 compared to the period ending September 30, 2024, due to the reduction in advisory services specifically in the area of investment relations. |
| ● | Professional services increased $26,088 or 9.5% from the three months ended September 30, 2024 to the three months ended September 30, 2025 primarily due to an increase in legal fees of $29,241 related to our financing efforts. |
| ● | Compensation decreased from $3,313,320 or 44.0% reduction for the three months September 30, 2024 to $1,854,859 for the three months ended September 30, 2025, primarily as a result of the change in one-time non-cash component for stock compensation for the CEO and CFO of $1,543,095 for the period ending September 30, 2025 compared to the period ending September 30, 2024. |
| ● | Computer and internet costs decreased $19,349 or 7.8% from the three months ended September 30, 2024 to the three months ended September 30, 2025. The decrease was primarily the result of the one-time cost of a tax compliance software installation in 2024. |
| ● | Advertising and marketing costs increased to $76,948 or a 436.2% increase for the three months ended September 30, 2025 from $14,351 for the three months ended September 30, 2024, primarily additional marketing of the Clearline platform. |
| ● | Insurance expense increased to $260,579 or a 4.7% reduction for the three months ended September 30, 2025 from $248,878 for the three months ended September 30, 2024. |
| ● | Other costs decreased $44,860 or 6.7 % from the three months ended September 30, 2024 to the three months ended September 30, 2025. Most of the decrease was related to the decrease in taxes and licensing. |
| 78 |
Other (expense) income during the three months ended September 30, 2025 and 2024 consisted of the following:
| 2025 | 2024 | |||||||
| Interest, net | $ | (424,665 | ) | $ | (112,814 | ) | ||
| Interest income | - | 183,537 | ||||||
| Loss on lease termination | (194,862 | ) | ||||||
| Amortization of debt discount | (114,492 | ) | - | |||||
| Other income | - | 125,157 | ||||||
| Total other (expense) income | $ | (539,157 | ) | $ | 1,018 | |||
Interest expense increased to $424,665 in the three months ended September 30, 2025 from $112,814 in the three months ended September 30, 2024.
Provision for income tax benefit (expense) during the three months ended September 30, 2025 and 2024 consisted of the following:
| 2025 | 2024 | |||||||
| Current | $ | - | $ | 5,000 | ||||
| Deferred | - | 2,542,000 | ||||||
| Total provision (benefit) | $ | - | $ | 2,547,000 | ||||
| 79 |
COMPARISON OF NINE MONTHS ENDED September 30, 2025 AND 2024
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the consolidated results of operations, stockholders’ deficit, or cash flows.
We measure our performance on a consolidated basis as well as the performance of each segment.
We report our financial performance based on the following segments: Mobile Virtual Network Operators (MVNO), and Point-of-Sale and Prepaid Services (Top-up). The MVNO segment is further broken down into subsidized (Lifeline) and non-subsidized components (LinkUp Mobile). The subsidized component or Lifeline is the result of the mobile broadband (phone and internet) services provided by Torch Wireless to eligible consumers. The Point-of-Sale and Prepaid Services segment is comprised of Surge Fintech and ECS as previously shown.
The segment amounts included in MD&A are presented on a basis consistent with our internal management reporting. Additional information on our reportable segments is contained in Note 10 – Segment Information and Geographic Data of the Notes to Financial Statements.
Revenues during the nine months ended years ended September 30, 2025 and 2024 consisted of the following:
| 2025 | 2024 | |||||||
| Revenue | $ | 40,775,913 | $ | 51,284,531 | ||||
| Cost of revenue (exclusive of depreciation and amortization) | (48,969,378 | ) | (54,377,300 | ) | ||||
| General and administrative | (13,147,086 | ) | (20,312,185 | ) | ||||
| Loss from operations | $ | (21,340,551 | ) | $ | (23,404,954 | ) | ||
Revenue decreased overall by $10,508,618 (20.5%) from the nine months ended September 30, 2024 to the nine months ended September 30, 2025. The breakout was as follows:
| For the Nine Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Revenues: | ||||||||
| Mobile Virtual Network Operator | $ | 10,120,653 | $ | 41,419,705 | ||||
| Point-of-Sale and Prepaid Services | 30,655,260 | 9,853,497 | ||||||
| Other Corporate Overhead | - | 11,329 | ||||||
| Total | $ | 40,775,913 | $ | 51,284,531 | ||||
Mobile Virtual Network Operators consisting of Torch Wireless revenues (as detailed in Notes 2 and 10 of the financial statements) decreased by $31,299,052 (75.6%). Due to a lack of additional funding from Congress, April 2024 was the last month ACP households received the full ACP discount, as they had received in prior months, and effective June 1, 2024, households no longer receive an ACP discount.
The Company signed a Master Services Agreement (MSA) with TerraCom, Inc. (“TerraCom”), a wireless service provider and licensed Lifeline provider, effective October 3, 2024, in order to execute the strategy of offering Lifeline to our existing ACP subscriber base. This agreement allowed us to offer a government-subsidized program to our previous 250,000 ACP wireless subscribers. We transitioned over 80,000 subscribers to the Lifeline program during 2024. Equally important, this allows us to reignite our sales channels to acquire new Lifeline subscribers who lost their ACP service when their carrier chose to shut them off.
Point-of-Sale and Prepaid Services (Prepaid) revenues increased by $20,801,763 as a result of increasing our sales force and hiring of a new Director of Sales and renewed focus on this segment of the business. The Company expects this segment to continue to grow for the remainder of 2025.
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. The revenue was $0 and $0 respectively in the year ended December 31, 2024 and in the nine months ended September 30, 2025 Comparison numbers for the lead generation segment are shown in the respective Other Corporate Overhead lines.
| 80 |
Cost of Revenue, Gross Profit and Gross Margin
For the nine months ended September 30, 2025, cost of revenue for services primarily consists of data plan expenses ($6,544,406), prepaid retail expenses ($31,208,949), devices ($975,276), marketing ($3,622,850), advertising ($1,182,946) and other expenses such as royalties and call-center expenses ($5,434,951). For the nine months ended September 30, 2024, cost of revenue for services primarily consists of data plan expenses ($16,921,923), prepaid expense retail ($9,014,955), devices ($5,001,192), marketing ($15,281,613), advertising ($4,432.173) and other expenses such as royalties and call-center expenses ($3,725,444).
We expect that our cost of revenue will increase or decrease to the extent that our revenue increases and decreases.
| For the Nine Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Cost of Revenue (exclusive of depreciation and amortization): | ||||||||
| Mobile Virtual Network Operator | $ | 17,760,428 | $ | 44,817,610 | ||||
| Point-of-Sale and Prepaid Services | 31,208,950 | 9,547,340 | ||||||
| Other Corporate Overhead | - | 12,350 | ||||||
| Total | $ | 48,969,378 | $ | 54,377,300 | ||||
Gross profit margin is calculated as revenue less cost of revenue. Gross profit margin is gross profit expressed as a percentage of revenue. Our gross profit in future periods will depend on a variety of factors, including market conditions that may impact our pricing, sales mix among devices, sales mix changes among consumables, excess and obsolete inventories, and the cost of our products from manufacturers. Our gross profit in future periods will vary based upon our revenue stream mix and may increase based upon our distribution channels
| For the Nine Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Gross Profit (Loss) (exclusive of depreciation and amortization): | ||||||||
| Mobile Virtual Network Operator | $ | (7,639,776 | ) | $ | (3,397,905 | ) | ||
| Point-of-Sale and Prepaid Services | (553,690 | ) | 306,157 | |||||
| Other Corporate Overhead | - | (1,021 | ) | |||||
| Total | $ | (8,193,465 | ) | $ | (3,092,769 | ) | ||
| For the Nine Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Gross Margin: | ||||||||
| Mobile Virtual Network Operator | % | (75.5 | ) | % | (8.2 | ) | ||
| Point-of-Sale and Prepaid Services | (1.8 | ) | 3.1 | |||||
| Other Corporate Overhead | - | (9.0 | ) | |||||
| Total | % | (20.1 | ) | % | (6.0 | ) | ||
The Company expects to continue the improvement of gross margin in the Point-of-Sale and Prepaid Services segment during 2025. Most of the cost to get Clearline ready for launch has occurred and we expect the gross margin to be positive by the end of 2025 for this revenue channel. As we continue to expand both subsidized (Lifeline) and non-subsidized products (LinkUp Mobile) of the MNVO segment in 2025, we also anticipate gross margins in the MVNO segment will increase with an aim to return to positive results.
General and administrative during the nine months ended September 30, 2025 and 2024 consisted of the following:
| 2025 | 2024 | |||||||
| Depreciation and amortization | $ | 669,683 | $ | 861,001 | ||||
| Selling, general and administration | 12,477,403 | 19,451,184 | ||||||
| Total | $ | 13,147,086 | $ | 20,312,185 | ||||
| 81 |
Selling, general and administrative expenses during the nine months ended September 30, 2025 and 2024 consisted of the following:
| 2025 | 2024 | |||||||
| Contractors and consultants | $ | 2,165,834 | $ | 3,580,721 | ||||
| Professional services | 775,692 | 1,577,070 | ||||||
| Compensation | 5,399,568 | 10,922,462 | ||||||
| Computer and internet | 735,712 | 684,277 | ||||||
| Advertising and marketing | 114,571 | 42,202 | ||||||
| Insurance | 827,158 | 821,254 | ||||||
| Other | 2,458,868 | 1,823,198 | ||||||
| Total | $ | 12,477,403 | $ | 19,451,184 | ||||
Selling, general and administrative costs (S, G & A) decreased by $6,973,781 (35.9%). The changes are discussed below:
| ● | Contractors and consultants expense decreased by $1,414,887 or 39.5% from $3,580,721 for the nine months ended September 30, 2024 to $2,165,834 for the nine months ended September 30, 2025. The Company decreased the spend in the period ending September 30, 2025 compared to the period ending September 30, 2024, due to the reduction in advisory services specifically in the area of investment relations. |
| ● | Professional services decreased $801,378 or 50.8% from the nine months ended September 30, 2024 to the nine months ended September 30, 2025 primarily due to a decrease in legal fees of $661,693. |
| ● | Compensation decreased from $10,922,462 or a 50.6% reduction for the nine months September 30, 2024 to $5,399,568 for the nine months ended September 30, 2025, primarily as a result of change in one-time non-cash component for stock compensation for the CEO and CFO of $5,711,851 for the period ending September 30, 2025 compared to the period ending September 30, 2024 |
| ● | Computer and internet costs increased $51,435 or 7.5% from the nine months ended September 30, 2024 to the nine months ended September 30, 2025. The increase was primarily the result of increased for the one-time cost of a tax compliance software installation in 2024. |
| ● | Advertising and marketing costs increased to $114,571 or a 171.5% increase for the nine months ended September 30, 2025 from $42,202 for the nine months ended September 30, 2024, primarily due to additional marketing of the Clearline platform. |
| ● | Insurance expense increased to $827,158 or a 0.7% reduction for the nine months ended September 30, 2025 from $821,254 for the nine months ended September 30, 2024. |
| ● | Other costs increased $635,671 or 34.9 % from the nine months ended September 30, 2024 to the nine months ended September 30, 2025. Most of the increase was related to sales tax in various states. |
| 82 |
Other (expense) income during the nine months ended September 30, 2025 and 2024 consisted of the following:
| 2025 | 2024 | |||||||
| Interest expense | $ | (756,518 | ) | $ | (362,119 | ) | ||
| Interest income | 63,913 | 183,537 | ||||||
| Amortization of debt discount | (181,379 | ) | ||||||
| Loss on lease termination | - | (194,862 | ) | |||||
| Other income | 7,140 | 762,025 | ||||||
| Gain (loss) on equity investment in Centercom | 33,864 | |||||||
| Total other (expense) income | $ | (866,844 | ) | $ | 422,445 | |||
Interest expense increased to $756,518 in the nine months ended September 30, 2025 from $362,119 in the nine months ended September 30, 2024.
In connection with the issuance of the $6,999,999 convertible promissory note, the Company issued warrants to purchase 700,000 shares of common stock. The Company allocated a portion of the proceeds to the warrants based on their relative fair value, determined using the Black-Scholes option pricing model. The fair value of the warrants was estimated to be $207,640, which was recorded as a component of the total debt discount and is being amortized to interest expense over the term of the note.
On September 25, 2025, the Company entered into a one-year (1) Note Purchase Agreement with LGH Investments in the original principal amount of $770,000. The Note accrues interest at a rate of 8% per annum, with a default rate of 22%. The Note contains embedded conversion features that allow the Investor to convert outstanding principal and accrued interest into shares of the Company’s common stock at the following terms:
● First tranche: $207,900 of principal and accrued interest convertible at $4.00 per share;
● Second tranche: $208,000 of principal and accrued interest convertible at $6.00 per share; and
● Third tranche: the remaining principal and accrued interest convertible at $6.00 per share; however, upon the occurrence of an event of default, all tranches may alternatively be converted at 85% of the lowest daily volume-weighted average price (“VWAP”) of the Company’s common stock during the five trading days immediately preceding the conversion date.
On September 9, 2025, the Company entered into a six-month (6) Note with an individual in the original principal amount of $1,000,000. As of September 30, 2025, the Company was in compliance with all terms and conditions of the Note.
The equity investment in Centercom changed by $0 in the nine months ended September 30, 2025 compared to an increase of $33,864 in the nine months ended September 30, 2024. As of December 31, 2024, The Company determined that it would no longer utilize the Business Process Outsourcing (BPO) services of CenterCom. As of December 31, 2024, the Company assessed its investment in CenterCom and determined there was an impairment. Factors leading to this decision included a change in ownership and large reduction in human capital. As a result, CenterCom was materially impacted and could no longer continue its operations.
Provision for income tax benefit (expense) during the nine months ended September 30, 2025 and 2024 consisted of the following:
| 2025 | 2024 | |||||||
| Current | $ | - | $ | 135,000 | ||||
| Deferred | - | 2,835,000 | ||||||
| Total provision (benefit) | $ | - | $ | 2,970,000 | ||||
Equity Transactions for the Nine Months Ended September 30, 2025
Treasury Stock
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.
Segment Information
Operating segments are defined as components of an enterprise about which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision–making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer.
The Company evaluated the performance of its operating segments based on revenues and operating income (loss). Segment information for the three months ended September 30, 2025 and 2024, are as follows:
Segment information for the Company’s operations for the three and nine months ended September 30, 2025 and 2024, are as follows:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenues | ||||||||||||||||
| Mobile Virtual Network Operators | $ | 5,561,124 | $ | 23,608 | $ | 10,120,653 | $ | 41,419,705 | ||||||||
| Point-of-Sale and Prepaid Services | 13,119,193 | 4,746,089 | 30,655,260 | 9,853,497 | ||||||||||||
| Other Corporate Overhead | - | - | - | 11,329 | ||||||||||||
| Total | $ | 18,680,317 | $ | 4,769,697 | $ | 40,775,913 | $ | 51,284,531 | ||||||||
| Cost of revenues | ||||||||||||||||
| Mobile Virtual Network Operators | $ | 8,187,273 | $ | 8,043,714 | $ | 17,760,428 | $ | 44,817,610 | ||||||||
| Point-of-Sale and Prepaid Services | 13,089,498 | 4,556,418 | 31,208,950 | 9,547,340 | ||||||||||||
| Other Corporate Overhead | - | 1,925 | - | 12,350 | ||||||||||||
| Total | $ | 21,276,771 | $ | 12,602,057 | $ | 48,969,378 | $ | 54,377,300 | ||||||||
| Operating expenses | ||||||||||||||||
| Mobile Virtual Network Operators | $ | 237,934 | $ | 251,300 | $ | 1,119,685 | $ | 320,679 | ||||||||
| Point-of-Sale and Prepaid Services | 863,856 | 691,871 | 2,429,579 | 2,190,461 | ||||||||||||
| Other Corporate Overhead | 3,251,894 | 5,505,231 | 9,597,822 | 17,801,045 | ||||||||||||
| Total | $ | 4,353,684 | $ | 6,448,402 | $ | 13,147,086 | $ | 20,312,185 | ||||||||
| Income (loss) from operations | ||||||||||||||||
| Mobile Virtual Network Operators | $ | (2,864,083 | ) | $ | (8,271,406 | ) | $ | (8,759,460 | ) | $ | (3,718,584 | ) | ||||
| Point-of-Sale and Prepaid Services | (834,161 | ) | (502,200 | ) | (2,983,269 | ) | (1,884,304 | ) | ||||||||
| Other Corporate Overhead | (3,251,894 | ) | (5,507,156 | ) | (9,597,822 | ) | (17,802,066 | ) | ||||||||
| Total | $ | (6,950,138 | ) | $ | (14,280,762 | ) | $ | (21,340,551 | ) | $ | (23,404,954 | ) | ||||
| 83 |
Segment information for the Company’s assets and liabilities at September 30, 2025 and December 31, 2024, are as follows:
| September 30, 2025 | December 31, 2024 | |||||||
| Total Assets | ||||||||
| Mobile Virtual Network Operators | $ | 6,331,010 | $ | 8,472,349 | ||||
| Point-of-Sale and Prepaid Services | 5,279,615 | 4,884,817 | ||||||
| Other Corporate Overhead | 2,884,276 | 10,618,839 | ||||||
| Total | $ | 14,494,901 | $ | 23,976,005 | ||||
| Total Liabilities | ||||||||
| Mobile Virtual Network Operators | $ | 3,828,823 | $ | 1,505,400 | ||||
| Point-of-Sale and Prepaid Services | 1,105,081 | 103,612 | ||||||
| Other Corporate Overhead | 15,985,477 | 7,105,380 | ||||||
| Total | $ | 20,919,381 | $ | 8,714,392 | ||||
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.
Mobile Virtual Network Operator
The MVNO revenue for the three months ended September 30, 2025 increased by $5,537,516 as compared to the three months ended September 30, 2024. Cost of revenues for the three months ended September 30, 2025, increased by $143,559 from the same period ended September 30, 2024, as a result of the lack of additional funding from Congress, April 2024 was the last month ACP households received the full ACP discount, as they had received in prior months, and effective September 1, 2024, households no longer receive an ACP discount.
The MVNO revenue for the nine months ended September 30, 2025 decreased by $31,299,052 as compared to the nine months ended September 30, 2024. Cost of revenues for the nine months ended September 30, 2025, decreased by $27,057,182 from the same period ended September 30, 2024, as a result of the lack of additional funding from Congress, April 2024 was the last month ACP households received the full ACP discount, as they had received in prior months, and effective September 1, 2024, households no longer receive an ACP discount.
Point-of-Sale and Prepaid Services
The revenue for the three months ended September 30, 2025 was $13,119,194 compared to $4,746,089 for the same period in 2024. The increase of 176.4% was the result of hiring new salespersons and a renewed focus on the market segment.
The revenue for the nine months ended September 30, 2025 was $30,655,260 compared to $9,853,497 for the same period in 2024. The increase of 211.1% was the result of hiring new salespersons and a renewed focus on the market segment.
Overall
The overall decrease in revenue of $10,508,618 from 2024 to 2025 for the nine months ended September 30, can be attributed to the elimination of the ACP during the first half of 2024.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2025 and December 31, 2024, our current assets were $9,227,180 and $17,870,323, respectively, and our current liabilities were $17,674,046 and $6,059,476, respectively, which resulted in a working capital deficit of $1,751,392 and of $11,810,847, respectively. Most of the decrease is related to the decrease in available cash from $12,790,389 at December 31, 2024 to $4,404,449 at September 30, 2025.
Total assets at September 30, 2025 and December 31, 2024 amounted to $14,494,901 and $23,976,005, respectively. Total assets decreased by $9,481,104 from December 31, 2024 to September 30, 2025. At September 30, 2025, assets consisted of current assets of $9,227,180, net property and equipment of $430,352, net intangible assets of $982,606, goodwill of $3,300,000, note receivable of $176,851 and operating lease right of use asset of $377,912, compared to at December 31, 2024, current assets of $17,870,323, net property and equipment of $591,088, net intangible assets of $1,472,962, goodwill of $3,300,000, note receivable of $176,851, and operating lease right of use asset of $564,781.
At September 30, 2025, our total liabilities were $20,919,381 compared to total liabilities of $8,714,392 at December 31, 2024. This $12,204,873 increase was related to on May 12, 2025, the Company entered into a Senior Secured Note Purchase Agreement with Funicular Funds, LP (the “Investor”), pursuant to which the Company issued a Senior Secured Convertible Note in the original principal amount of $6,999,999 (the “Note”). The transaction resulted in net cash proceeds of $6,000,000 to the Company and included the repurchase of 333,333 shares of the Company’s common stock from the Investor at $3/share. These repurchased shares will be cancelled and retired, and the corresponding shares will not be returned to the pool of authorized but unissued shares, and remain as treasury stock. We have also 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 offer and sell shares of its common stock (subject to certain limitations set forth in the ATM Agreement), from time to time, to or through Titan, acting as sales agent and/or principal. In accordance with the terms of the ATM Agreement, 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, from time to time, to or through Titan, which is within the Company’s current “baby shelf” limitations under General Instruction I.B.6. of Form S-3. We plan to utilize the ATM Agreement when appropriate to fund our working capital needs on an ongoing basis. Since inception, the Company has issued 266,877 shares of common stock for gross proceeds of $649,383 ($2.12 - $2.98/share) pursuant to the ATM Agreement.
At September 30, 2025, our total stockholders’ deficit was $6,424,480 as compared to a total stockholders’ equity of $15,261,613 at December 31, 2024.
On September 9, 2025, the Company issued a six-month (6) Note with an individual in the original principal amount of $1,000,000. As of September 30, 2025, the Company was in compliance with all terms and conditions of the Note. In connection with the issuance of the 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. The Company allocated a portion of the proceeds to the warrants based on their relative fair value, determined using the Black-Scholes option pricing model. The fair value of the warrants was estimated to be $19,947, which was recorded as a debt discount and is being amortized to interest expense over the term of the note. The Company also recorded a corresponding increase to additional paid-in capital of $19,947.
On September 25, 2025, the Company entered into a one-year (1) Note Purchase Agreement with LGH Investments in the original principal amount of $770,000. The Note accrues interest at a rate of 8% per annum, with a default rate of 22%. The Note contains embedded conversion features that allow the Investor to convert outstanding principal and accrued interest into shares of the Company’s common stock at the following terms:
● First tranche: $207,900 of principal and accrued interest convertible at $4.00 per share;
● Second tranche: $208,000 of principal and accrued interest convertible at $6.00 per share; and
● Third tranche: the remaining principal and accrued interest convertible at $6.00 per share; however, upon the occurrence of an event of default, all tranches may alternatively be converted at 85% of the lowest daily volume-weighted average price (“VWAP”) of the Company’s common stock during the five trading days immediately preceding the conversion date.
The net proceeds from the notes executed during the quarter ending September 30, 2025 was $1,822,426.
On October 7, 2025, the Company entered into a one-year (1) Note Purchase Agreement with GS Capital Partners, LLC (the “Investor”), pursuant to which the Company issued a Convertible Note in the original principal amount of $385,000 (the “Note”). The purchase price of $350,000.00 plus an original issue discount in the amount of $35,000 (the “OID”), and to pay a one-time interest charge on the Principal Amount hereof at the rate of eight percent (8%) (the “Interest Rate”) (which is equal to $30,800.00 and shall be guaranteed and earned in full).
On October 9, 2025, the Company entered into a one-year (1) Note Purchase Agreement with BHP Capital NY, Inc. (the “Investor”), pursuant to which the Company issued a Convertible Note in the original principal amount of $385,000 (the “Note”). The purchase price of $600,000.00 plus an original issue discount in the amount of $60,000 (the “OID”), and to pay a one-time interest charge on the Principal Amount hereof at the rate of eight percent (8%) (the “Interest Rate”) (which is equal to $52,800.00 and shall be guaranteed and earned in full.
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The following table sets forth the major sources and uses of cash for the nine months ended September 30, 2025 and 2024.
| 2025 | 2024 | |||||||
| Net cash provided by operating activities | $ | (17,728,805 | ) | $ | (13,412,714 | ) | ||
| Net cash used in investing activities | (18,590 | ) | (10,586,695 | ) | ||||
| Net cash provided by (used in) financing activities | 7,471,868 | 23,028,908 | ||||||
| Net change in cash and cash equivalents | $ | (10,275,527 | ) | $ | (970,501 | ) | ||
Net cash used in operating activities for the nine months ended September 30, 2025, was primarily due to the net loss for the period of $22,207,395.
Net cash used in investing activities for the nine months ending September 30, 2025 was primarily due to payment for leases.
Net cash used for financing activities for the nine months ended September 30, 2025 is primarily due to proceeds from various convertible notes.
As a result of net negative cash provided by operating activities and investing activities in 2025, our overall cash decreased in 2025 by $10,050,580, compared to an increase of cash in 2024 primarily driven by net cash provided for by a capital raise and exercise of warrants $23,812,520.
At September 30, 2025, the Company had the following material commitments and contingencies.
Notes payable – related party - See Note 6 to the Consolidated Financial Statements.
Notes payable and long-term debt - See Note 6 to the Consolidated Financial Statements.
Related party transactions - See Note 2 to the Consolidated Financial Statements for additional discussion.
Cash requirements and capital expenditures – As we transition from the end of the ACP program in 2024 and the reduction in total revenues and margins, we may not have sufficient resources to continue to fund operations for the next twelve months without additional funding. We expect to use additional funding and any profitability to satisfy any cash needs going forward.
In order to fund the expected growth and on-going expenses, we plan to selectively use the ATM agreement previously disclosed. In addition, we have suspended the monthly payment on the related party note (see Note 6) until further notice. We are currently exploring various strategic opportunities; however, we have no commitments at this time and no known timing as to when any transaction may occur. We will only pursue options that we believe are in the best interest of, and on the best terms for, the Company.
The Company kicked off several initiatives in April of 2025. We have begun the launch of LinkUp Mobile SIM (subscriber identity module) cards into the national retail market. LinkUp Mobile has also launched its phone in a box program. Thousands of phones have already been purchased by convenience stores, which we believe is a positive sign for our future capabilities. Torch Wireless, supported by the Lifeline program, is now actively expanding its subscriber base in the state of California. This development is noteworthy for the growth of the Torch offering, as California provides an additional revenue incentive for its subscribers and has a large potential subscriber base. The wholesale MVNE (Mobile Virtual Network Enabler) leveraging technology and industry expertise has allowed us to expand services as a Mobile Network Enabler. Leveraging our direct carrier relationship, we offer billing, provisioning, SIM cards, and services to wireless companies lacking direct carrier access. Two such companies have already embraced this offering, and we anticipate more to join in the near future. We believe the MVNE solution will continue to uniquely position us for additional rapid growth into the subscriber activation channel by enabling other wireless companies who lack a direct carrier relationship. Clear-line has launched a comprehensive code management campaign, providing services to over 1,600 convenience stores. In addition to this new business venture, Shortcode, the ability to dynamic content and features into posts, pages and widgets, has been provisioned with all carriers in preparation for a national campaign scheduled to launch in July.
Known trends and uncertainties – The Company continues to explore potential strategic opportunities to acquire other businesses with similar business operations, or businesses we believe could be potentially symbiotic. While we are currently exploring various strategic opportunities, we have no commitments at this time and no known timing as to when any opportunities may arise. We will only pursue opportunities that we believe are in the best interest of, and on the best terms for, the Company.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which were prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue and expenses. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and any such differences may be material.
While our significant accounting policies are more fully described in Note 2—Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data of this Annual Report on Form 10-K, we believe the following discussion addresses our most critical accounting policies, which are those that are most important to our financial condition and results of operations and which require our most difficult, subjective and complex judgments.
Use of Estimates
Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates, and those estimates may be material.
Significant estimates during the nine months ended September 30, 2025 and 2024, respectively, include, allowance for doubtful accounts and other receivables, inventory reserves and classifications, valuation of loss contingencies, valuation of derivative liabilities, valuation of stock-based compensation, estimated useful lives related to intangible assets, capitalized internal-use software development costs, and property and equipment, implicit interest rate in right-of-use operating leases, uncertain tax positions, and the valuation allowance on deferred tax assets.
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Fair Value of Financial Instruments
The Company accounts for financial instruments under Financial Accounting Standards Board (“FASB”) ASC 820, Fair Value Measurements. ASC 820 provides a framework for measuring fair value and requires disclosures regarding fair value measurements. 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, based on the Company’s principal or, in absence of a principal, most advantageous market for the specific asset or liability.
The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value.
The three tiers are defined as follows:
| ● | Level 1 - Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; | |
| ● | Level 2 - Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and | |
| ● | Level 3 - Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. |
The determination of fair value and the assessment of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. The Company may also engage external advisors to assist us in determining fair value, as appropriate.
Impairment of Long-lived Assets
Management evaluates the recoverability of the Company’s identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists, in accordance with the provisions of ASC 360-10-35-15 “Impairment or Disposal of Long-Lived Assets.” Events and circumstances considered by the Company in determining whether the carrying value of identifiable intangible assets and other long-lived assets may not be recoverable include but are not limited to significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; and changes in the Company’s business strategy. In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of these assets.
If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Inventory Valuation
Inventory is stated at the lower of cost or net realizable value (average cost). For items manufactured by third parties, cost is determined using the weighted average cost method (WAC). We write down inventory when it has been determined that conditions exist that may not allow the inventory to be sold for at the intended price or the inventory is determined to be obsolete based on assumption about future demand and market conditions. The charge related to inventory write-downs is recorded as cost of goods sold. We evaluate inventory at least annually and at other times during the year. We have incurred and may in the future incur charges to write down inventory.
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Revenue from Contracts with Customers
We account for revenue earned from contracts with customers under ASC 606, Revenue from Contracts with Customers (“ASC 606”), and ASC 842, Leases (“ASC 842”). The core principle of ASC 606 is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
● Step 1: Identify the contract with the customer.
● Step 2: Identify the performance obligations in the contract.
● Step 3: Determine the transaction price.
● Step 4: Allocate the transaction price to the performance obligations in the contract.
● Step 5: Recognize revenue when, or as, the company satisfies a performance obligation.
Stock-Based Compensation
The Company accounts for our stock-based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.
The Company uses the fair value method for equity instruments granted to non-employees and use the Black-Scholes model for measuring the fair value of options.
The fair value of stock-based compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.
Stock Warrants
In connection with certain financing (debt or equity), consulting and collaboration arrangements, the Company may issue warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of warrants issued for compensation using the Black-Scholes option pricing model as of the measurement date. However, for warrants issued that meet the definition of a derivative liability, fair value is determined based upon the use of a binomial pricing model.
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Warrants issued in conjunction with the issuance of common stock are initially recorded at fair value as a reduction in additional paid-in capital of the common stock issued. All other warrants (for services) are recorded at fair value and expensed over the requisite service period or at the date of issuance if there is not a service period.
Recent Accounting Pronouncements
In the normal course of business, we evaluate all new accounting pronouncements issued by the Financial Accounting Standards Board, SEC, or other authoritative accounting bodies to determine the potential impact they may have on our Consolidated Financial Statements. Refer to Note 2 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Under the PCAOB standards, a control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit the attention by those responsible for oversight of the company’s financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act). Our management has determined that, as of September 30, 2025, the Company’s disclosure controls are effective, but the Company lacks segregation of duties similar to other companies our size.
Changes in Internal Control over Financial Reporting
During the period ended September 30, 2025, there were no changes in our internal controls over financial reporting, which were identified in connection with our management’s evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act, that materially affected, or is reasonably likely to have a material effect, on our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
From time to time, we may be engaged in various lawsuits and legal proceedings in the ordinary course of our business. Except as described below, we are currently not aware of any legal proceedings the ultimate outcome of which, in our judgment based on information currently available, would have a material adverse effect on our business, financial condition or results of operations.
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The following is a summary of threatened, pending, asserted or unasserted claims against us or any of our wholly owned subsidiaries for which there have been material developments:.
| (1) | Blue Skies Connections, LLC, and True Wireless, Inc. v. SurgePays, Inc., et. al.: In the District Court of Oklahoma County, OK, CJ-2021-5327, filed on December 13, 2021. Plaintiffs’ petition alleges breach of a Stock Purchase Agreement by SurgePays, SurgePhone Wireless, LLC, and Kevin Brian Cox (“Defendants”), and makes other allegations related to SurgePays’ consulting work with Jonathan Coffman, formerly a True Wireless employee. The petition requests injunctive relief, general damages, punitive damages, attorney fees and costs for alleged breach of contract, tortious interference with a business relationship, and fraud. Blue Skies alleged the Defendants are in violation of their non-competition and non-solicitation agreements related to the sale of True Wireless from SurgePays to Blue Skies. Defendants filed various dispositive motions with the Court demonstrating Oklahoma state law does not recognize non-compete agreements and non-solicitation agreements in the manner alleged by Plaintiffs, and the Court granted these motions, finding the non-solicitation and non-competition clauses in the Stock Purchase Agreement void as a matter of Oklahoma law. Defendants then filed additional dispositive motions on Plaintiffs’ claims in tort and equity, which the Court granted in part based on its prior rulings. Plaintiffs took the position the Court granting Defendants’ dispositive motions on these material issues only leaves partial contract claims that are inextricably intertwined with the remaining claims and defenses. Plaintiffs sought a certified interlocutory appeal of the Court’s orders. On March 10, 2025, the Oklahoma Supreme Court entered an order denying Plaintiffs’ Petition for Certiorari to review the certified interlocutory appeal. The case will now proceed in the district court on the parties’ remaining claims. Both parties have filed motions for summary judgment on the remaining claims, which will be decided in Fall of 2025. Presently, there is no trial date. An attempt at mediation in July 2022 did not achieve a settlement. Any further settlement discussions will occur in the context of Defendants having prevailed on the majority of Plaintiffs’ claims.
In the Circuit Court of Tennessee for the 30th Judicial District at Memphis, Docket # CT-3219-23. On August 8, 2023, a complaint was filed by SurgePays for breach of a promissory note by Blue Skies Connections, LLC. The note at issue is dated June 14, 2021, and requires Blue Skies Connections to repay the principal sum of $176,850.56, by monthly payments of $7,461.37 commencing on June 1, 2023. Blue Skies Connections has failed to make any payments due under the terms of the note, and this breach entitles SurgePays to demand payment of the entire amount of the note together with all accrued interest. Blue Skies Connections responded by filing a Motion to Dismiss or, in the alternative, a Motion to Stay, taking the position that, under the prior suit pending doctrine, the subject promissory note is subject to the prior litigation instituted by Blue Skies Connections against SurgePays, styled Skies Connections, LLC and True Wireless, Inc. v. SurgePays, Inc., et al., Case No. CJ-2021-5327, District Court of Oklahoma County, Oklahoma. Surge Pays elected to dismiss its complaint without prejudice and of re-filed the matter in the District Court of Oklahoma County, Oklahoma at Case No. CJ-2025-810. The matter is in the early stages of discovery. |
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ITEM 1A: RISK FACTORS
Not applicable.
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On May 12, 2025, the Company entered into a Senior Secured Note Purchase Agreement with Funicular Funds, LP, pursuant to which the Company issued a Senior Secured Convertible Note in the original principal amount of $6,999,999 (the “Note”). The Note includes an embedded conversion option, which permits the Investor to convert the outstanding principal and accrued interest into shares of the Company’s common stock (the “Conversion Shares”) at an initial conversion price of $4.00 per share. The conversion price is subject to down-round adjustment if the Company issues common stock (or equivalents) at a price below the then-current conversion price. The transaction resulted in net cash proceeds of $5,925,000 to the Company.
On September 9, 2025, the Company entered into a six-month (6) Note with an individual in the original principal amount of $1,000,000. As of September 30, 2025, the Company was in compliance with all terms and conditions of the Note.
On September 25, 2025, the Company entered into a one-year (1) Note Purchase Agreement with LGH Investments in the original principal amount of $770,000. The Note accrues interest at a rate of 8% per annum, with a default rate of 22%. The Note contains embedded conversion features that allow the Investor to convert outstanding principal and accrued interest into shares of the Company’s common stock at the following terms:
● First tranche: $207,900 of principal and accrued interest convertible at $4.00 per share;
● Second tranche: $208,000 of principal and accrued interest convertible at $6.00 per share; and
● Third tranche: the remaining principal and accrued interest convertible at $6.00 per share; however, upon the occurrence of an event of default, all tranches may alternatively be converted at 85% of the lowest daily volume-weighted average price (“VWAP”) of the Company’s common stock during the five trading days immediately preceding the conversion date.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4: MINE SAFETY DISCLOSURES.
Not applicable
ITEM 5: OTHER INFORMATION.
For the nine months ended September 30, 2025, the annual bonus for Mr. Cox, Chief Executive Officer, was delayed until December 31, 2025. This caused Mr. Cox to modify his instruction for the sale of our securities that were intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” (as defined in Item 408 of Regulation S-K). None of our other directors or executive officers adopted, modified or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” (as defined in Item 408 of Regulation S-K).
Issuer Purchases of Equity Securities
On May 12, 2025, 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.
ITEM 6: EXHIBITS
| Exhibit | ||
| Number | Exhibit Description | |
| 31.1* | Certification pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer | |
| 31.2* | Certification pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer | |
| 32.1** | Certification pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer | |
| 32.2** | Certification pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer | |
| 101.INS* | Inline XBRL Instance Document | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104* | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
*Filed herewith.
** Furnished herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SURGEPAYS, INC. | ||
| Date: November 12, 2025 | ||
| By: | /s/ Kevin Brian Cox | |
| Kevin Brian Cox | ||
Chief Executive Officer (Principal Executive Officer) | ||
| Date: November 12, 2025 | /s/ Anthony Evers |
| Anthony Evers | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
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FAQ
What were SurgePays (SURG) Q3 2025 revenues and earnings?
How did SURG perform year-to-date through September 30, 2025?
What is SurgePays’ liquidity position?
What is SURG’s balance sheet condition?
Did SURG raise financing in 2025?
How did ACP changes affect SURG?
How many SURG shares were outstanding?
