Note 8 – Commitments and Contingencies

Operating Leases

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

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

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

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

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

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

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

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

Year End December 31, 2024

Lease Termination and Loss on Right-of-Use Asset

Effective August 31, 2024, the Company entered into an agreement to terminate two operating leases prior to the expiration of the lease terms. The early termination resulted in the derecognition of the associated right-of-use (ROU) assets and corresponding lease liabilities in accordance with ASC 842.

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

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

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

The loss was calculated as follows:

 Schedule of Loss

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

New Operating Lease – Year Ended December 31, 2024

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

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

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

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

 Schedule of Operating Lease Assets and Liabilities

The components of lease expense were as follows:

 Schedule of Lease Expense

Future minimum lease payments for the years ended December 31:

 Schedule of Future Minimum Payments

Employment Agreements (Chief Executive Officer and Chief Financial Officer)

Chief Executive Officer

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

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

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

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

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

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

See Note 9 regarding the vesting provisions of these shares.

Chief Financial Officer

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

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

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

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

See Note 9 regarding the vesting provisions of these shares.

Contingencies – Legal Matters

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

When a legal matter arises, the Company:

As of December 31, 2025, based on management’s review and consultation with legal counsel, the Company is not aware of any contingent liabilities that require accrual or disclosure in the consolidated financial statements.

Surge Holdings – Juno Litigation

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

True Wireless and SurgePays – Litigation

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

Fina and SurgePays – Litigation

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

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

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

Ellenoff Grossman & Schole, LLP and SurgePays – Litigation

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

MVNx Reseller Agreement

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

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

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

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

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