Note 6 – Derivative Liabilities

In connection with the issuance of convertible promissory notes (Notes #7 and #8), in March 2026, the Company issued 375,000 common stock purchase warrants. These warrants contain certain cash settlement features triggered upon events of default or change of control and therefore do not qualify for equity classification. Accordingly, the warrants are accounted for as derivative liabilities.

The derivative liabilities are measured at fair value on a recurring basis and are classified as Level 3 in the fair value hierarchy because their valuation relies on significant unobservable inputs. The Company determines the fair value of these warrant liabilities using the Black-Scholes option pricing model.

Valuation Assumptions

The Company used the following key assumptions to estimate the fair value of the derivative liabilities:

 Schedule of Estimate Fair Value of Derivative Liabilities

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2026 AND 2025

Derivative Liability Activity

Changes in the fair value of these derivative liabilities are recognized in the consolidated statements of operations as “Change in fair value of derivative liabilities” within other income (expense).

For the three months ended March 31, 2026 and 2025, the Company recorded a loss (gain) on the change in fair value of derivative liabilities of $30,241 and $0, respectively.

The following table presents a reconciliation of the beginning and ending balances for the Level 3 derivative liabilities for the three months ended March 31, 2026:

 Schedule of Beginning and Ending Balances for Level 3 Derivative Liabilities