Note 8 – Commitments and Contingencies

Operating Leases

The Company’s accounting policy for leases, including lease classification, the short-term lease exemption, the determination of the lease term and the discount rate applied, is described in Note 2.

Operating Lease

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 June 30, 2026 and December 31, 2025.

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2026 AND 2025

The tables below present information regarding the Company’s operating lease assets and liabilities at June 30, 2026 and December 31, 2025, respectively:

 Schedule of Operating Lease Assets and Liabilities

The components of lease expense were as follows:

 Schedule of Components of Lease Expense

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2026 AND 2025

Future minimum lease payments for the years ended December 31:

 Schedule of Future Minimum Lease 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/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 originally scheduled for April 1, 2026, and has been deferred until October 1, 2026. Because no grant date had been established for this award as of December 31, 2025, no stock-based compensation was recognized with respect to this award for the year ended December 31, 2025.

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2026 AND 2025

The fair value of this award was $360,000 ($0.72/share), based upon the quoted closing market price of the common stock on the grant date of April 1, 2026 (See Note 9).

The third award of 500,000 shares of restricted common stock was granted on June 1, 2026 and had a grant date fair value of $297,900 ($0.5958/share), based upon the quoted closing market price of the common stock on that date. These shares were fully vested upon grant and the related compensation cost was recognized in full during the three months ended June 30, 2026.

Future awards of 500,000 shares are scheduled to be granted on or around June 1 of 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, earnings before interest, taxes, depreciation and amortization, and market capitalization thresholds, with potential award values ranging from $2,500,000 to $200,000,000. No performance thresholds were met during the three and six months ended June 30, 2026 and 2025 or 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.

Chief Financial Officer (Former)

In November 2023, the Company finalized the terms of its employment agreement with its former 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 former 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 in the periods where services were provided.

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2026 AND 2025

In October 2025, the Company provided notice to the former 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 former CFO entered into a separation agreement pursuant to which the former CFO provided consulting services through June 30, 2026. The Company agreed to pay consulting fees of $250,000 in twelve (12) equal monthly installments of $20,833 and to reimburse health insurance premiums under COBRA through December 31, 2026.

See Note 9 regarding the vesting provisions of these shares.

MVNx Reseller Agreement and Related Amendments

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. Commercial services under the AT&T Agreement commenced on August 2024 (the “Launch Date”), following completion of the application programming interface (“API”) integration contemplated by the AT&T Agreement. The AT&T Agreement has an initial term of three (3) years commencing on the Launch Date and expiring August 2027. 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 one hundred twenty (120) days prior to the end of the then-current term. The AT&T Agreement was previously amended by Amendment No. 1 dated December 2024, which added certain purchasing instructions to the AT&T Agreement.

Minimum Spend Commitments Prior to Amendment No. 2

Prior to Amendment No. 2 described below, the Company was subject to minimum annual spend commitments over the initial three-year term, as follows:

The aggregate minimum spend commitment over the initial term was $50,000,000. During each month of Year 1, the Company was invoiced for the greater of:

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2026 AND 2025

During Years 2 and 3, the monthly obligation equaled the greater of actual usage or one-twelfth of the applicable annual minimum commitment. To the extent cumulative invoiced payments in any contract year exceeded the applicable annual minimum commitment, the excess was applied toward the minimum commitment for the following year. Any portion of an annual minimum commitment that remained unsatisfied at the end of the applicable contract year constituted an unconditional payment obligation of the Company.

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

In accordance with Accounting Standards Codification (ASC) 440-10-50, the Company evaluated its obligations under the AT&T Agreement and determined that a material contractual commitment existed. 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 that date. Amounts invoiced and due under the AT&T Agreement are reflected in accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheets.

Amendment No. 2

On June 29, 2026, the Company and AT&T entered into Amendment No. 2 to the AT&T Agreement. Amendment No. 2 provides that:

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2026 AND 2025

Under the revised pricing schedule, the Company pays a monthly network connectivity charge of $50,000 beginning with the first full billing month following execution, together with a monthly recurring charge of $2.50 per active end user for plans including data, voice and messaging, or $1.75 per active end user for data-only plans. Each plan includes one gigabyte of on-network high speed data per month, and data usage in excess of the included allowance is billed at $1.75, $1.70 or $1.65 per gigabyte depending on aggregate monthly volume. All other charges, including off-network roaming and international long distance, are billed at the rates set forth in the revised pricing schedule.

Release of Previously Billed Minimum Commitment Charges

In connection with Amendment No. 2, AT&T released the Company from $8,511,672 of previously billed minimum commitment charges in excess of actual usage. The Company was legally released from the obligation on June 29, 2026 and accordingly derecognized the related liability during the three months ended June 30, 2026, in accordance with ASC 405-20-40-1, and recognized a gain on contract settlement of $8,511,672 within costs and expenses.

The amounts released, and the periods in which the related charges were originally recognized in the statements of operations, were as follows:

The entire amount was recognized in the three months ended June 30, 2026. Prior period financial statements have not been restated, and no portion of the release has been recorded as a change in accounting estimate, because the release arose from a new agreement entered into on June 29, 2026 and does not represent the correction of an error or the resolution of an uncertainty that existed at an earlier reporting date. As a result, the results of operations for the three and six months ended June 30, 2026 are not comparable with the corresponding prior year periods.

Effect on Comparability of Results

The release was recognized as a gain on contract liability settlement of $8,511,672 for the three and six months ended June 30, 2026. No comparable amount was recognized in the corresponding prior year periods, and the results of operations for the three and six months ended June 30, 2026 are therefore not comparable with the corresponding prior year periods. The Company does not expect to recognize any further amounts in respect of minimum commitments or shortfall obligations under the AT&T Agreement. The release is a non-recurring gain and did not involve the receipt or payment of cash.

The Company concluded that Amendment No. 2 with AT&T resulted in the legal extinguishment of previously accrued minimum commitment and shortfall obligations pursuant to ASC 405. Because the extinguished obligations arose from the Company’s primary operating contract, classification as non-operating income was not considered appropriate. The Company further concluded that presentation as a reduction of current-period cost of revenues would not faithfully depict operating performance because the benefit is unrelated to current-period network usage and would materially distort gross profit trends. Accordingly, management determined that separate presentation as "Contract Settlement Gain" within operating income, immediately preceding “Income (Loss) from Operations” is appropriate.

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2026 AND 2025

Remaining Commitments

As a result of Amendment No. 2, the Company had no remaining minimum spend commitments under the AT&T Agreement at June 30, 2026. The Company is obligated to pay the monthly network connectivity charge of $50,000 from July 2026 through the expiration of the initial term on August 21, 2027. Future minimum payments under that charge at June 30, 2026 totaled $850,000 as follows:

Amounts payable for actual usage of wireless network services are variable and are not unconditional purchase obligations. Accordingly, they are excluded from the remaining commitments above.

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 June 30, 2026, based on management’s review and consultation with legal counsel, and other than the matters described below, the Company is not aware of any contingent liabilities that require accrual or disclosure in the consolidated financial statements.

Universal Service Program Audit and Regulatory Review

A subsidiary of the Company is the subject of an audit commenced by the program administrator in November 2025 and a related regulatory review opened in March 2026, as described in Note 2. Pending completion of those proceedings, reimbursements aggregating $3,613,561 have been withheld from payment. A program audit may result in a determination that reimbursements previously received and recognized as revenue were not properly payable, in which case the Company could be required to repay those amounts and could become subject to further administrative action. That exposure is not limited to the amounts withheld. The Company is unable to estimate the amount or range of any such loss, and no liability has been recorded.

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2026 AND 2025

Blue Skies Connections, LLC, and True Wireless, Inc. v. SurgePays, Inc., et. al.

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. In December 2025, Judge Dishman recused himself from the case following a request from the Blue Skies and True Wireless parties and objection by SurgePays’ counsel. Judge Andrews has been assigned to the matter and has set remaining matters for status and briefing schedules on outstanding motions in the trial court. The case will now proceed in the district court on the parties’ remaining claims. On August 2, 2026, the parties appeared before Judge Andrews to argue Plaintiffs’ Motions to Reconsider Summary Judgment.  Judge Andrews took the matters under advisement to review the briefs and decide whether to reverse any of Judge Dishman’s prior rulings.   Presently, there is no trial date.

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. SurgePays elected to dismiss its complaint without prejudice and is in the process of evaluating re-filing the matter in the District Court of Oklahoma County, Oklahoma.

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2026 AND 2025

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. It is SurgePays’ intent to evaluate an additional options in the Court’s dismissal of Fina, Blue Skies, True Wireless, Government Consulting Solutions, and Misty Garrett. At this stage, no attempts at settlement have been made.

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

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

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2026 AND 2025

SSB Communications, Inc., Plaintiff v SurgePays, Inc., and American Broadband & Telecommunications Company, Defendants, Case No. DC-26-07054

District Court 116^th Judicial District, Dallas County, Texas filed April 20, 2026. Plaintiff filed this collection suit seeking an amount over $250,000 but less than $1,000,000 for breach of contract for the provision of goods, plus interest, fees and costs.  The matter was settled on June 18, 2026 for $376,000.00 payable in four (4) monthly installments, due on the following dates and in the following amounts: (i) One Hundred Thousand U.S. Dollars ($100,000.00) on or before June 15, 2026 or upon the execution of this Agreement (the “First Payment”); (ii) One Hundred Thousand U.S. Dollars ($100,000.00) on or before July 5, 2026; (iii) One Hundred Thousand U.S. Dollars ($100,000.00) on or before August 5, 2026; and (iv) a final installment of Seventy-Six Thousand U.S. Dollars ($76,000.00) on or before September 5, 2026, until the Settlement Amount is fully paid to SSB. The matter is abated before the court until a status hearing on September 30, 2026.

Ellenoff Grossman & Schole, LLP and SurgePays

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. All required installments have been paid to date. 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. Entry of a judgment against the Company above a specified threshold would constitute an event of default under certain of the Company’s convertible notes payable. See Note 5.