Filed 2025-03-25 · Period ending 2024-12-31 · 53,708 words · SEC EDGAR
← SURG Profile · SURG JSON API
# SurgePays, Inc. (SURG) — 10-K **Filed:** 2025-03-25 **Period ending:** 2024-12-31 **Accession:** 0001641172-25-000608 **Source:** [SEC EDGAR](https://www.sec.gov/Archives/edgar/data/1392694/000164117225000608/) **Origin leaf:** 04c78cabfaac2a82604e77c04ba47730186536e87400b5820d7be4302d79427b **Words:** 53,708 --- ** UNITED STATES** **SECURITIES AND EXCHANGE COMMISSION** **Washington, D.C. 20549** **FORM 10-K** **(Mark One)** **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** For the fiscal year ended December 31, 2024 or **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** Commission File Number **001-40992** **SURGEPAYS, INC.** (Exact Name of Registrant as Specified in Its Charter) | Nevada | | 98-0550352 | | | (State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) | | | | | | | | 3124 Brother Blvd, Suite 104, Bartlett, TN | | 38133 | | | (Address of Principal Executive Offices) | | (Zip Code) | | **901-302-9587** (Registrants telephone number, including area code) **Not applicable** (Former name, former address, and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: | Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered | | | Common Stock | | SURG | | The Nasdaq Stock Market LLC (Nasdaq Capital Market) | | Securities registered under Section 12(g) of the Exchange Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No Indicate by check mark whether the registrant has filed a report on and attestation to its managements assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act. | Large accelerated filer | Accelerated filer | | | Non-accelerated filer | Smaller reporting company | | | | Emerging growth company | | If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrants executive officers during the relevant recovery period pursuant to 240.10D-1(b). Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes No The number of shares of the registrants common stock outstanding as of March 21, 2025 was 20,411,549 shares. As of June 28, 2024, the aggregate market value of the shares of common stock, par value $0.001 per share held by non-affiliates of the registrant was approximately $43,673,936 based on the $3.19 closing price of the registrants common stock, par value $0.001 per share, on that date. | | | **** **TABLE OF CONTENTS** | | | Page No. | | | PART I | | | | | | | | | Item 1. | Description of the Business | 1 | | | | | | | | Item 1A. | Risk Factors | 8 | | | | | | | | Item 1B. | Unresolved Staff Comments | 14 | | | | | | | | Item 1C. | Cybersecurity | 14 | | | | | | | | Item 2. | Properties | 15 | | | | | | | | Item 3. | Legal Proceedings | 16 | | | | | | | | Item 4. | Mine Safety Disclosures | 17 | | | | | | | | PART II | | | | | | | | | Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 18 | | | | | | | | Item 6 | Selected Financial Data | 19 | | | | | | | | Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations | 19 | | | | | | | | Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 28 | | | | | | | | Item 8. | Financial Statements and Supplementary Data | 28 | | | | | | | | Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 28 | | | | | | | | Item 9A. | Controls and Procedures | 29 | | | | | | | | Item 9B. | Other Information | 30 | | | | | | | | Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 30 | | | | | | | | PART III | | | | | | | | | Item 10. | Directors, Executive Officers and Corporate Governance | 30 | | | | | | | | Item 11. | Executive Compensation | 30 | | | | | | | | Item 12. | Security Ownership of Certain Beneficial Owners, Management and Related Stockholder Matters | 30 | | | | | | | | Item 13. | Certain Relationships, Related Transactions and Director Independence | 30 | | | | | | | | Item 14. | Principal Accounting Fees and Services | 30 | | | | | | | | PART IV | | | | | | | | | Item 15. | Exhibits, Financial Statement Schedules | 31 | | | | | | | | | Exhibit Index | 31 | | | | | | | | Item 16 | Form 10-K Summary | 32 | | | | | | | | | Signatures | 33 | | | i | | **** **SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS** This Annual Report on Form 10-K (Annual Report) contains forward-looking statements within the meaning of the federal securities laws. All statements contained in this Annual Report, other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, potential growth or growth prospects, future research and development, sales and marketing and general and administrative expenses, and our objectives for future operations, are forward-looking statements. Words such as believes, may, will, estimates, potential, continues, anticipates, intends, expects, could, would, projects, plans, targets, and variations of such words and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the Risk Factors in this Annual Report. Readers are urged to carefully review and consider the various disclosures made in this Annual Report and in other documents we file from time to time with the Securities and Exchange Commission (the SEC) that disclose risks and uncertainties that may affect our business. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and circumstances discussed in this Annual Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. In addition, the forward-looking statements in this Annual Report are made as of the date of this filing, and we do not undertake, and expressly disclaim any duty, to update such statements for any reason after the date of this Annual Report or to conform statements to actual results or revised expectations, except as required by law. You should read this Annual Report and the documents that we reference herein and have filed with the SEC as exhibits to this Annual Report with the understanding that our actual future results, performance, and events and circumstances may be materially different from what we expect. This Annual Report also contains or may contain estimates, projections and other information concerning our industry, our business and the markets for our products, including data regarding the estimated size of those markets and their projected growth rates. Information that is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained these industry, business, market and other data from reports, research surveys, studies and similar data prepared by third parties, industry and general publications, government data and similar sources. In some cases, we do not expressly refer to the sources from which these data are derived. | ii | | **** **PART I** **ITEM 1. BUSINESS** **Company Overview and History** **About SurgePays, Inc.** SurgePays, Inc. (SurgePays, we, the Company) is a financial technology and telecommunications company with one clear mission: to enhance connectivity and financial access in the places people live, shop, and work. We were previously known as North American Energy Resources, Inc. and KSIX 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 KSIX Media whereby KSIX Media became a wholly owned subsidiary of NAER and which resulted in the shareholders of KSIX 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 KSIX 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 three different business segments through the following subsidiaries: (i) Surge Blockchain, LLC, formerly Blvd. Media Group, LLC, a Nevada limited liability company; (ii) LogicsIQ, Inc., a Nevada corporation; (iii) SurgePhone Wireless, LLC, a Nevada limited liability company; (iv) SurgePays Fintech, Inc., a Nevada limited liability company; (v) ECS Prepaid, LLC, a Missouri limited liability company, and (vi) Torch Wireless, LLC a Wyoming limited liability company. **Corporate Vision and Objective** **** At SurgePays, we believe we are just scratching the surface of what we believe is a valuable market opportunity. Our foundation is built on a robust infrastructure, a diversified product suite, and strategic partnerships that position us for a potential to expand rapidly. We are focused on capturing additional market potential and business opportunities across telecommunications, financial technology, and retail solutions. Our integrated approach is not just about incremental growth; it is designed for scalability. We are not in this to compete on small, tactical wins. We are here to redefine how underserved and value-conscious markets access essential services, from prepaid wireless and financial products to digital engagement solutions. With a nationwide network of convenience stores, bodegas, and neighborhood locations as our distribution backbone, we believe we are positioned to bring these services directly to the communities that need them most. We believe this is an important opportunity in an underserved market, and we are on the frontline. By seamlessly integrating telecommunications and fintech on a single platform, we strive to deliver the value and convenience customers demand while aiming to create a recurring revenue model. Our data-driven marketing strategies and the flexibility of our software enable us to tailor offerings in real time, driving high customer retention and capturing new opportunities at every turn. With every new customer and every new partner, we are advancing towards our goals. SurgePays has laid the groundwork; now, it is about execution, speed, and capturing market share. This is a pivotal moment for the Company, and we believe we are positioned not just to compete but to dominate. We are building the foundation to achieve future success and we believe the opportunity is massive. **** | 1 | | **** **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 Telecommunications: Providing reliable, affordable prepaid wireless services. | | | | | Comprehensive Platform Services: Offering Point-of-sale (POS) transaction and marketing technology. | | In addition, in November 2024, the Company entered into a multi-year strategic agreement with AT&T, providing direct access to its nationwide 4G LTE and 5G wireless network. This integration represents a significant advancement in the Companys infrastructure and capabilities, enabling 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 now offers wireless services, including SIM provisioning, billing, and airtime, to other wireless providers that do not have a direct carrier relationship. This expansion creates a new high-margin, scalable revenue channel with minimal incremental cost to the Company, and anticipate this to become another major segment for the Company starting in 2025. The Company previously also operated a Lead Generation segment; however, this business segment was discontinued in 2024. **MVNO Telecommunications** 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. **Subsidized Services** Our subsidized offeringsthrough programs like Lifeline enable us to bridge the digital divide in underserved communities. These federal initiatives empower us to provide essential connectivity, driving social impact while targeting sustainable growth. Even as funding changes, we strategically maintain resilience by utilizing our Lifeline program to keep these critical services accessible, establishing a strong foundation. Brands like SurgePhone Wireless and Torch Wireless embody this mission, reaching customers where they need it most. The Company previously offered subsidized offerings through the Affordable Connectivity Program (ACP), however funding for this program ended in June 2024. As a transition strategy, we decided to keep the existing base of subscribers from the former ACP enrolled in our network. a built-in subscriber base of 250,000. We chose to keep our subscribers active, absorbing the wholesale costs (averaging around $7-10 per subscriber per month), and put our strong balance sheet to work to replace the cash inflow we lost once ACP funding ran out. We transitioned over 80,000 subscribers to the Lifeline program during 2024. **Prepaid Services** Our prepaid plans deliver flexibility, with contract-free, affordable solutions that provide unlimited talk and text across the USA, Mexico, and Canadano credit checks or hidden fees. Through LinkUp Mobile, we leverage our purchasing power and established retailer relationships to offer low-cost SIM kits at convenience stores, creating accessible, local service hubs. Our distribution strategy centers on empowering local community stores as trusted service points, where activations and payments are seamlessly integrated into customers routines. We believe this approach will not only drive subscriber growth but builds loyalty, allowing customers to switch from competitors effortlessly. By meeting customers in familiar locations, we strengthen long-term relationships and fuel desired sustainable growth. **Comprehensive Platform Services** Our **Comprehensive Platform Services** segment is tailored to the needs of retailers, using advanced POS technology to elevate operational efficiency and customer engagement. Through **SurgePays Prepaid Wireless Top-ups** and **ClearLine**, we deliver innovative transaction and marketing solutions that aim to transform how thousands of convenience stores operate. **Prepaid Wireless Top-Ups** Our Prepaid Wireless Top-Ups platform empowers convenience store clerks to handle top-ups for all major wireless brands efficiently. Additionally, it supports debit and gift card activations, creating a seamless, all-in-one payment processing solution. This functionality not only drives recurring revenue but also gives us critical feedback on what consumers are looking for in todays Prepaid Wireless Market, allowing us to offer targeted promotions that increase retention and incremental sales. By presenting customers with a comparable Linkup wireless plan at the point of transaction, we maximize opportunities to upsell higher-margin brands, further enhancing growth. | 2 | | **** **ClearLine** Our **ClearLine**technologytransforms POS terminals and customer-facing screens into powerful engagement tools. This patent-pending touchscreen application enables in-store marketing campaigns, loyalty program enrollment, and even QR code scanning for streamlined customer interactions. ClearLine replaces traditional posters with smart TVs, displaying interactive QR-code ads and real-time coupon redemptions, creating a measurable impact on store revenue and customer satisfaction. By capturing detailed analytics, ClearLine offers merchants actionable insights to drive growth and foster customer loyalty. This Software as a Service (SaaS) solution is compatible across various devices, positioning ClearLine as a high-value asset for retailers and an anticipated growing significant revenue driver for SurgePays. **Lead Generation** Effective December 31, 2024, the Companys 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 segments financial performance and determined that its continued operation was no longer aligned with the Companys long-term strategic objectives. **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. **MVNO Communications** **** **Subsidized Services:** | | | Expand Distribution: Strengthen our footprint in convenience stores, bodegas, and neighborhood retail locations to meet customers where they are, while accelerating growth through online sales channels. | | | | | Simplify Engagement: Make Lifeline enrollments easy by integrating them directly at the point of sale, eliminating friction for eligible customers. | | | | | Drive Growth: Fuel subscriber growth through strategic partnerships and incentives, focusing on expanding our reach and value to customers. | | **Prepaid Services:** | | | Optimize Sales Channels: Amplify the POS platform to maximize every sales opportunity, while seamlessly converting subsidized subscribers to non-subsidized services as their needs evolve. | | | | | Leverage Buying Power: Harness our purchasing power to offer competitively priced plans and affordable SIM kits through our convenience store network, delivering a strong value proposition. | | | | | Expand Rural Reach: Target rural markets where competition is low and demand is high, offering compelling pricing and retaining customers by promoting non-subsidized services in times of funding variability. | | **Comprehensive Platform Services** **** **SurgePays Prepaid Wireless Top-Ups:** | | | Enhance Service Delivery: Continuously evolve our prepaid wireless offerings to align with customer needs, creating a seamless experience that keeps customers coming back. | | | | | Strengthen Partnerships: Expand our distributor relationships with innovative POS technology, deepening market penetration and maximizing channel efficiency. | | | | | Leverage Data: Deploy transaction data insights for targeted marketing, tailoring offers that boost customer retention and increase lifetime value. | | **** | 3 | | **** **ClearLine:** | | | Engage Customers: Transform each payment terminal into a dynamic engagement and SaaS marketing tool, maximizing brand interaction at every transaction. | | | | | Boost Revenues: Drive sales through digital loyalty programs, targeted marketing campaigns, and customer feedback initiatives that enhance satisfaction and retention. | | | | | Leverage Data Insights: Use customer data to create targeted promotions and operational improvements, giving merchants actionable insights that deepen their customer relationships. | | **** **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. | | **Market Opportunity** **MVNO Communications** **** **Subsidized Services** According to Forbes Advisor from May 26, 2023, 42 million americans still do not have access to broadband internet. It is the Companys initiative to address the gap created by the lack of access to high-speed internet, particularly rural areas. By focusing on these underserved regions, SurgePays not only meets an essential need but also positions itself within a market poised for growth. Government initiatives like Lifeline provide a steady stream of eligible customers allowing a consistent demand base. Our strategy aligns with these government-backed programs, allowing us to capture steady demand among value-conscious households. Lower-income Americans are still less likely to have home broadband or smartphone. According to the Pew Research Center (from June 22, 2021), research shows that 27% of low-income adults rely on smartphones for internet access, underscoring the need for affordable mobile connectivity in these communities. By serving this critical market, we are positioned for both growth and resilience. **Prepaid Services** According to Research and Markets published January 3, 2025, the prepaid wireless market in the U.S. is thriving, with 74 million of the 307 million smartphone users choosing prepaid plansa number expected to grow at a 5.2% CAGR from 2022 to 2030. SurgePays prepaid offerings directly address this demand, appealing to consumers seeking flexible, no-contract options. Targeting rural areas, where competition is minimal and pricing is often higher, gives us a strategic edge. With rural Americans comprising nearly 17.9% of the U.S. population (according to NCESC.com from June 22, 2024), these regions represent a significant growth opportunity. Additionally, the multicultural segmentparticularly Hispanic Americansis one of the fastest-growing demographics, with a projected growth rate of 2.3% annually, published by the United States Census Bureau dated June 27, 2024. By aligning our offerings with the needs of these expanding demographics, we are aiming to capture a significant market share, supporting our vision for sustained growth. | 4 | | **** **Comprehensive Platform Services** **** **SurgePays Prepaid Wireless Top-ups** We believe there is a strong market for prepaid wireless top-ups through convenience stores, bodegas, and neighborhood retail locations. Our approach aims to leverage the more than over 150,000 convenience stores (according to the National Association of Convenience Stores dated February 5, 2025) in the U.S. to deliver accessible prepaid wireless top-ups and essential services, creating a potential for a broad distribution network and we believe this high-transaction environment will become a significant revenue driver for the Company. The U.S. prepaid card market alone was valued at $542 billion in 2023 (according to Research and Markets dated May 30, 2024), and our platform is designed to captures value from every transaction in which it is utilized. Using transaction data to drive targeted marketing further enhances engagement, retention, and customer lifetime value. **ClearLine** Through our ClearLine channel, we are transforming traditional payment terminals into high-impact engagement and marketing tools that increase merchant revenue and customer satisfaction. Digital engagement can increase customer spending by up to 20% (according to McKinseys annual Digital Payments Consumer Survey from November 25, 2020), while personalized offers and loyalty programs improve retention by up to 10% and lifetime value by 25% (according to the article titled, A Guide on Impact of Personalization on Customer Lifetime Value dated February 27, 2025). We believe ClearLine solutions can be utilized across more retail locations to maximize market penetration and revenue potential, growing alongside the digital signage market expected to grow at a CAGR of 6.9% through 2028 (according to PR Newswire dated June 28, 2023). **Marketing and Sales** Our marketing strategies are meticulously designed for each business segment, anchored in three strategic pillars: strengthening retail partnerships, amplifying digital engagement, and extending market reach through direct and channel sales teams dedicated to customer retention. Our retail distribution portfolio is the backbone of our MVNO business units. Being able to reach consumers where they are is our strength. Through software enhancements, we are able to reach potential MVNO subscribers in wireless retail stores, convenience stores, markets, and online sites. By collaborating with third-party partners, we facilitate Lifeline enrollments and offer a range of non-subsidized prepaid wireless plans. Through targeted education and proactive engagement, we maximize subscriber acquisition in underserved regions. By delivering tailored, incentivized plans to existing Lifeline, we enhance retention and create enduring value within this critical market segment. For Comprehensive Platform Services, we prioritize building strong retail partnerships that ensure extensive distribution and easy access to our solutions. Our approach integrates the convenience of our expansive store network with powerful digital engagement tools, enabling us to reach a broad audience and deliver consistent customer value. To support this growth, we have and will continue as necessary to scale our national sales and distribution teams to deepen market penetration and deliver personalized, high touch support, driving for customer satisfaction and long-term growth. **Competition** SurgePays operates in a competitive and rapidly evolving market, where both traditional and non-traditional players in telecommunications and technology compete to capture market share. In telecommunications, major MVNOs dominate the prepaid wireless landscape, while national carriers leverage their infrastructure and brand strength to attract prepaid customers. Regional providers further intensify competition by focusing on specific geographic areas. In financial technology, established prepaid card providers hold significant ground, while fintech startups push the envelope with digital innovation and streamlined user experiences. Traditional convenience store distributors, with decades of legacy behind them, rely on a manufacturing-to-warehouse-to-store logistics model that has remained largely unchanged. Currently, our MVNO market share at convenience store sales is under 1%, highlighting a substantial growth opportunity. | 5 | | Yet, we believe our diverse product suite and operational efficiencies position us to capture a larger share of this market. Our ability to seamlessly integrate with others in this space, creates a unique dynamic allowing us to compensate for growth opportunities while unlocking the potential for additional revenue for stores. This collaborative approach is fueled by our unique product offerings, which drive more value for retail partners. Additionally, we may explore strategic acquisitions as a way to accelerate our path forward. Across our product markets, competition is shaped by key factors: technical features, quality, availability, price, customer support, and distribution coverage. Each region may weigh these factors differently, but by deploying our direct store distribution model nationwide, we are positioned to meet these demands head-on and open substantial growth opportunities. **Differentiation** At SurgePays, our competitive edge is rooted in relentless adaptability, a tightly integrated service ecosystem, and robust retail partnerships. These strengths allow us to bring our communication and technology platform products to market with speed and precision, creating a clear path to success. We stand apart by offering a seamless blend of telecommunications and transactions services on a single platforma one-stop solution that delivers both convenience and exceptional value to our customers. By targeting underserved and rural communities, often overlooked by larger players, we provide vital services where people live, shop, and work. Through our network of convenience stores, bodegas, and local retail spots, we bring affordable, accessible solutions to the neighborhoods that need them most. Owning the transaction software for processing, activations, and top-ups allows us to offer prepaid wireless and financial products at lower prices right at the community level. This structure not only captures a significant, value-conscious segment but also leverages efficiencies that drive down costs and improve margins. In a fragmented distribution landscape where no single player offers top consumables alongside essential services like prepaid wireless, gift cards, bill payments, and reloadable debit cards, we see a major opportunity. Our partnerships with distributors enable broad market reach and higher customer engagement. Our vision extends to building a wholesale e-commerce platform that unites these services under one roofa scalable model that enhances customer loyalty and operational efficiency. Agility is our backbone. We continuously adapt our offering to stay ahead of customer needs. Using a combination of information gathered by extracting data from our customer service system and comparing it with industry marketing trends and offerings, we are able to offer targeted social media engagement and personalized offers. Incorporating these solutions helps us drive customer acquisition and retention by allowing our product offering to meet the market where we uncover the need. With these strengthsan integrated platform, a focus on underserved markets, robust retail partnerships, and a commitment to data-driven insightswe believe SurgePays is well-positioned to thrive in a competitive market. Our approach is built to drive for long-term growth and profitability, supported by a foundation of innovation and customer focus that we believe is unmatched in the industry. **Internal Development Activities** At SurgePays, innovation is not a departmentit is our DNA. We are relentlessly focused on enhancing our products to deliver efficient, secure, and lightning-fast transactions at convenience stores. Our software platform, hosted on Amazon Web Services (AWS) Cloud, leverages the power of world-class infrastructure to enable our goal of unmatched reliability and scalability. | 6 | | Success demands a mindset of continuous improvement. We have developed integrated software solutions for popular point-of-sale systems from such companies as Clover, PAX, and Landi. These integrations provide additional opportunities to operate our platform in various types of retail businesses without the need for additional hardware, with a single goal in mind: to create powerful tools that help our retail partners operate more efficiently and serve their customers better. By embracing technologys rapid evolution, we are not just keeping pace with change, we are shaping it. **Seasonality** Our diverse product portfolio helps mitigate any significant fluctuations, and as we continue to expand our offerings, we expect the impact of seasonality to diminish further. **SurgePays Team** At SurgePays, our people are the driving force behind everything we accomplish. As of March 2025, our team of over 130 dedicated professionalsacross various areas such as accounting and finance (4), human resources (3), programming (13), customer service (79), sales (6), and operations (25)is committed to solving real problems and delivering value to our customers and shareholders every day. Our leadership team brings over a century of combined experience across telecommunications, technology, and national distribution. This depth of expertise fuels our ability to innovate, think long-term, and make bold bets that set us apart in the market. We know that a business only grows by hiring exceptional talent and empowering them with a culture that prizes continuous improvement and ownership. We focus on attracting the best, building an environment that nurtures growth, and aligning incentives to performance through equity and cash plans. These plans not only reward high performance but are designed to create alignment with our long-term vision, fostering a team that acts like owners, not employees. At SurgePays, we think in decades, not quarters. By investing in our people and cultivating a culture of excellence, we are building a foundation that will support our growth for years to come. **Corporate Information** Our executive offices are located at: 3124 Brother Blvd, Suite 410, Bartlett, TN 38133 Telephone: (800) 760-9689 Website: www.surgepays.com Please note that our website and the information contained in, or accessible through, it will not be deemed incorporated by reference into this Annual Report and does not constitute a part of this Annual Report. | 7 | | **** **ITEM 1A. RISK FACTORS** *Investing in our securities involves a great deal of risk. Careful consideration should be made of the following factors as well as other information included in this Annual Report before deciding to purchase our securities. There are many risks that affect our business and results of operations, some of which are beyond our control. Our business, financial condition or operating results could be materially harmed by any of these risks. This could cause the trading price of our securities to decline, and you may lose all or part of your investment. Additional risks that we do not yet know of or that we currently think are immaterial may also affect our business and the results of operations.* **Risks Related to Government Regulation and Legal Proceedings** **The United States Governments dissolution of the Affordable Connectivity Program (ACP) has had a substantial adverse effect on our business operations and profitability.** Since the introduction of the ACP, we derived over 70% of our revenue from reimbursement payments from the federal government under the ACP. According to the Federal Communications Commission (the FCC), the government entity that oversees the ACP, the ACP wound down and stopped accepting new applications and enrollments as of February 7, 2024, and June 2024 was the last funded month of the ACP due to lack of additional funding from Congress. The expiration of the ACP and the cessation in reimbursement payments had a substantial adverse effect on our business, financial condition, and operating results during the year ended December 31, 2024. Without revenue from the ACP, we have shifted our focus to other business segments, including our MVNO Communications and Comprehensive Platform Services further described herein, however there is no guarantee that we will be able to successfully replicate our revenues from the ACP or past profitability, which will have a substantial adverse effect on our business, financial condition, and operating results. Additionally, there is no guarantee whether or for how long the FCC or other federal agencies will continue to provide funding for the Lifeline program. As a material component of our current business operations and source of revenue, any decrease or end to funding of the Lifeline program would have a substantial adverse effect on our business, financial condition, and operating results. **Changes in the regulatory framework under which we operate could adversely affect our business prospects or results of operations.** Our operations are subject to regulation by the FCC and other federal, state and local agencies. These regulatory regimes frequently restrict or impose conditions on our ability to operate in designated areas and provide specified products or services. We are frequently required to maintain licenses for our operations and conduct our operations in accordance with prescribed standards. We are often involved in regulatory and other governmental proceedings or inquiries related to the application of these requirements. It is impossible to predict with any certainty the outcome of pending federal and state regulatory proceedings relating to our operations, or the reviews by federal or state courts of regulatory rulings. Without relief, existing laws and regulations may inhibit our ability to expand our business and introduce new products and services. Similarly, we cannot guarantee that we will be successful in obtaining the licenses needed to carry out our business plan or in maintaining our existing licenses. For example, the FCC grants wireless licenses for terms generally lasting ten (10) years, subject to renewal. The loss of, or a material limitation on, certain of our licenses could have a material adverse effect on our business, results of operations and financial condition. **New laws or regulations or changes to the existing regulatory framework at the federal, state and local level, such as those described below, could restrict the ways in which we manage our wireline and wireless networks and operate our business, impose additional costs, impair revenue opportunities and potentially impede our ability to provide services in a manner that would be attractive to us and our customers.** | | | Privacy and data protection - we are subject to federal, state and international laws related to privacy and data protection. | | | | | | | | | | Regulation of broadband Internet access services - On June 11, 2018, the repeal of the FCCs net neutrality rules took effect and returned to a light-touch regulatory framework. The prior rules were designed to ensure that all online content is treated the same by internet service providers and other companies that provide broadband services. Additionally, California and a number of other states are considering or have enacted legislation or executive actions that would regulate the conduct of broadband providers. We cannot predict whether the FCC order or state initiatives will be modified, overturned, or vacated by legal action of the court, federal legislation, or the FCC. With the repeal of net neutrality rules in effect, we could incur greater operating expenses, which could harm our results of operations. | | | | | | | | | | Open Access - we hold certain wireless licenses that require us to comply with so-called open access FCC regulations, which generally require licensees of a particular spectrum to allow customers to use devices and applications of their choice. Moreover, certain services could be subject to conflicting regulation by the FCC and/or various state and local authorities, which could significantly increase the cost of implementing and introducing new services. | | The further regulation of broadband, wireless and our other activities and any related court decisions could restrict our ability to compete in the marketplace and limit the return we can expect to achieve on past and future investments in our networks. | 8 | | **** **We could be impacted by unfavorable results of legal proceedings, and may, from time to time, be involved in future litigation in which substantial monetary damages are sought.** We are currently subject to a number of litigations as described under the heading Legal Proceedings. In connection with certain of these litigations, we may be required to pay significant monetary damages. Defending against the current litigations is or can be time-consuming, expensive and cause diversion of our managements attention. In addition, we may from time to time be involved in future litigation in which substantial monetary damages are sought. Litigation claims may relate to intellectual property, contracts, employment, securities and other matters arising out of the conduct of our current and past business activities. Any claims, whether with or without merit, could be time-consuming, expensive to defend and could divert managements attention and resources. We may maintain insurance against some, but not all, of these potential claims, and the levels of insurance we do maintain may not be adequate to fully cover any and all losses. With respect to any litigation, our insurance may not reimburse us, or may not be sufficient to reimburse us for the expenses or losses we may suffer in contesting and concluding such lawsuit. The results of any future litigation or claims are inherently unpredictable and substantial litigation costs, including the substantial self-insured retention that we are required to satisfy before any insurance applies to a claim, unreimbursed legal fees or an adverse result in any litigation may have a material adverse effect on our results of operations, cash from operating activities or financial condition. **Risks Related to Our Business, Industry and Operations** **Low demand for our products and services, and the inability to develop and introduce new products and services at favorable margins, could adversely impact our performance and prospects for future growth.** Without revenue from the ACP, we have shifted our focus to other business segments, including our MVNO Communications and Comprehensive Platform Services further described herein, however we will need to continue to develop our products and services, and introduce new products and services in a timely manner at favorable margins. There are numerous uncertainties associated with developing and introducing new products and services, including higher costs, limited market opportunity, and low demand. An increase in costs, which may continue indefinitely or until increased demand and greater availability of our products and services are available, could adversely affect our results of operations and profitability. Market acceptance of the new products and services may not meet sales expectations due to various factors, such as the failure to accurately predict consumer demands, end-user preferences, evolving industry standards, or the emergence of new or disruptive technologies. Moreover, the ultimate success and profitability of the new products and services may depend on our ability to resolve technical and technological challenges in a timely and cost-effective manner. **If we are not able to adapt to changes and disruptions in technology and address changing consumer demand on a timely basis, we may experience a decline in the demand for our services, be unable to implement our business strategy and experience reduced profits.** Our industries are rapidly changing as modern technologies are developed that offer consumers an array of choices for their communications needs and allow new entrants into the markets we serve. In order to grow and remain competitive, we will need to adapt to future changes in technology, enhance our existing offerings and introduce new offerings to address our customers changing demands. If we are unable to meet future challenges from competing technologies on a timely basis or at an acceptable cost, we could lose customers to our competitors. We may not be able to accurately predict technological trends or the success of new services in the market. In addition, there could be legal or regulatory restraints on our introduction of new services. If our services fail to gain acceptance in the marketplace, or if costs associated with the implementation and introduction of these services materially increase, our ability to retain and attract customers could be adversely affected. Additionally, we must phase out outdated and unprofitable technologies and services. If we are unable to do so on a cost-effective basis, we could experience reduced profits. In addition, there could be legal or regulatory restraints on our ability to phase out current services. | 9 | | **** **We have, and may continue to expand through investments in, acquisitions of, or the development of new products with assistance from, other companies, any of which may not be successful and may divert our managements attention.** In the past, we completed several strategic acquisitions. We also may evaluate and enter into discussions regarding an array of potential strategic transactions, including acquiring complementary products, technologies, or businesses. An acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties integrating the businesses, technologies, products, personnel or operations of the acquired companies, particularly if the key personnel of the acquired company choose not to be employed by us, and we may have difficulty retaining the customers of any acquired business due to changes in management and ownership. Acquisitions may also disrupt our ongoing business, divert our resources and require significant management attention that would otherwise be available for ongoing development of our business. Moreover, we cannot assure you that the anticipated benefits of any acquisition, investment or business relationship would be realized timely, if at all, or that we would not be exposed to unknown liabilities. In connection with any such transaction, we may: | | | encounter difficulties retaining key employees of the acquired company or integrating diverse business cultures; | | | | | | | | | | incur large charges or substantial liabilities, including without limitation, liabilities associated with products or technologies accused or found to infringe on third-party intellectual property rights or violate existing or future privacy regulations; | | | | | | | | | | issue shares of our capital stock as part of the consideration, which may be dilutive to existing stockholders; | | | | | | | | | | become subject to adverse tax consequences, legal disputes, substantial depreciation or deferred compensation charges; | | | | | | | | | | use cash that we may otherwise need for ongoing or future operation of our business; | | | | | | | | | | enter new geographic markets that subject us to different laws and regulations that may have an adverse impact on our business; | | | | | | | | | | experience difficulties effectively utilizing acquired assets; | | | | | | | | | | encounter difficulties integrating the information and financial reporting systems of acquired businesses, particularly those that operated under accounting principles other than those generally accepted in the U.S. prior to the acquisition by us; and | | | | | | | | | | incur debt, which may be on terms unfavorable to us or that we are unable to repay. | | **We have undertaken in the past, and may in the future undertake, strategic acquisitions. Failure to integrate acquisitions could adversely affect our value.** One of the ways we have grown our business in the past is through strategic acquisitions of other businesses, products, and technologies. We may, from time to time, evaluate additional acquisition opportunities, and may, in the future, strategically make further acquisitions of, and investments in, businesses, products and technologies when we believe the opportunity is advantageous to our prospects, such as the acquisition of Clearline Mobile, Inc (Clearline) assets. There can be no assurance that in the future we will be able to find appropriate acquisitions or investments. In connection with these acquisitions or investments, we may: | | | issue stock that would dilute our shareholders percentage of ownership; | | | | | | | | | | be obligated to make milestone or other contingent or non-contingent payments; | | | | | | | | | | incur debt and assume liabilities; and/ or | | | | | | | | | | incur amortization expenses related to intangible assets or incur large and immediate write-offs. | | | 10 | | We also may be unable to find suitable acquisition candidates and may not be able to complete acquisitions on favorable terms, if at all, or obtain adequate financing for such acquisitions. If we do complete an acquisition, such as with Clearline, we may not be able to successfully integrate the acquired business into our preexisting business, and we may not ultimately strengthen our competitive position or ensure that we will not be viewed negatively by customers, financial markets or investors. Further, acquisitions could also pose numerous additional risks to our operations, including: | | | problems integrating the purchased business, products or technologies without substantial costs, delays or other problems; | | | | | | | | | | increases to our expenses; | | | | | | | | | | the failure to have discovered undisclosed liabilities of the acquired asset or company for which we may not be adequately indemnified; | | | | | | | | | | diversion of managements attention from their day-to-day responsibilities and our core business; | | | | | | | | | | inability to enforce indemnification and non-compete agreements; | | | | | | | | | | the failure to successfully incorporate acquired products or technologies into our business; | | | | | | | | | | the failure of the acquired business, products, or technologies to perform as well as anticipated; | | | | | | | | | | the failure to realize expected synergies and cost savings; | | | | | | | | | | harm to our operating results or financial condition, particularly during the first several reporting periods after the acquisition is completed; | | | | | | | | | | entrance into markets in which we have limited or no prior experience; and | | | | | | | | | | potential loss of key employees or customers, particularly those of the acquired entity. | | **Our business could be adversely affected if we fail to implement and maintain effective disclosure controls and procedures and internal control over financial reporting.** If we are unable to maintain effective disclosure controls and procedures, or if there are identified significant deficiencies or material weaknesses in the future, our ability to produce accurate and timely financial statements and public reports could be impaired, which could adversely affect our business and financial condition. In addition, investors may lose confidence in our reported information and the market price of our Common Stock may decline. **Our success is substantially dependent on the continued service of our senior management.** Our success is substantially dependent on the continued service of our Chief Executive Officer (CEO), Kevin Brian Cox and our Chief Financial Officer (CFO), Anthony Evers. We do not carry key person life insurance on any of its management, which would leave us uncompensated for the loss of any of its management. The loss of the services of any of our senior management could make it more difficult to successfully operate our business and achieve our business goals. In addition, competition in our industry for senior management and other key personnel is intense. If we are unable to retain our existing personnel, or attract and train additional qualified personnel, either because of competition in our industry for such personnel or because of insufficient financial resources, our product development capabilities and customer and employee relationships growth may be harmed and overall growth may be limited. | 11 | | **** **We offer competitive compensation packages in order to retain the services of our senior management, and we could be required to pay significant compensation payments in the case we are unable to retain our senior management.** As the continued employment of our executive officers is critical to the Companys success, we have entered into competitive employment agreements in order to retain the services of our existing officers. In addition to guaranteed base compensation, we have offered our CEO incentive compensation upon the Companys completion of milestones including achieving certain annual revenue, annual EBITDA, and market capitalization goals, that could require the Company to pay large equity grants for the achievement of each milestone completed. In the case our CEO were to terminate their employment agreement due to breach of contract, a substantial downturn in the Companys business or personnel, a reduction in officers role, responsibilities, or compensation, or significant change in the Companys location of business and operations, the Company would be required to pay a severance package that, in combination with the compensation that would need to be paid to a replacement executive, could have a severe strain on the Companys finances. **We may not have sufficient resources to effectively introduce and market our services and products, which could materially harm our operating results.** Continuation of market acceptance for our existing services and products require substantial marketing efforts and will require our sales account executives and contract partners to make significant expenditures of time and money. In some instances, we will be significantly or totally reliant on the marketing efforts and expenditures of our contract partners, outside sales agents and distributors. Commercialization of our products and services, require us to expand our own marketing and sales capabilities or consider collaborating with additional third parties to perform these functions. We may, in some instances, rely significantly on sales, marketing and distribution arrangements with collaborative partners and other third parties. In these instances, our future revenue will be materially dependent upon the success of the efforts of these third parties. Should we determine that expanding our own marketing and sales capabilities continues to be required, we may not be able to attract and retain qualified personnel to serve in our sales and marketing organization, to develop an effective distribution network or to otherwise effectively support our commercialization activities. The cost of establishing and maintaining a more comprehensive sales and marketing organization may exceed its cost effectiveness. If we fail to further develop our sales and marketing capabilities, if sales efforts are not effective or if costs of increasing sales and marketing capabilities exceed their cost effectiveness, our business, results of operations and financial condition would be materially adversely affected. **We operate in a highly competitive industry.** We may encounter competition from local, regional, or national entities, some of which have superior resources or other competitive advantages in the larger wireless services space. Intense competition may adversely affect our business, financial condition, or results of operations. These competitors may be larger and more highly capitalized, with greater name recognition. We will compete with such companies on brand name, quality of services, level of expertise, advertising, product and service innovation and differentiation of product and services. As a result, our ability to secure significant market share may be impeded. **We may require additional financing to sustain or grow our operations. Raising additional capital may cause dilution to our existing stockholders and investors, or restrict our operations.** We may need to seek additional capital through a variety of means, including through private and public equity offerings and debt financings, collaborations, or strategic alliances and acquisitions. To the extent that we raise additional capital through the sale of equity or convertible debt securities, or through the issuance of shares under other types of contracts, the ownership interests of our stockholders may be diluted, and the terms of such financings may include liquidation or other preferences, anti-dilution rights, conversion and exercise price adjustments and other provisions that adversely affect the rights of our stockholders, including rights, preferences and privileges that are senior to those of our holders of Common Stock in terms of the payment of dividends or in the event of a liquidation. In addition, debt financing, if available, could include covenants limiting or restricting our ability to take certain actions, such as incurring additional debt, making capital expenditures, entering into contractual arrangements, or declaring dividends and may require us to grant security interests in our assets. **Risks Related to Our Securities** **Our CEO and Chair, Kevin Brian Cox, has significant control over shareholder matters and the minority shareholders will have little or no control over our affairs.** Mr. Cox currently owns approximately 28.3% of our outstanding voting equity. Subject to any fiduciary duties owed to our other stockholders under Nevada law, Mr. Cox is able to exercise significant influence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, and will have some control over our management and policies. Mr. Cox may have interests that are different from yours. For example, Mr. Cox may support proposals and actions with which you may disagree. The concentration of ownership could delay or prevent a change in control of our Company or otherwise discourage a potential acquirer from attempting to obtain control of our Company, which in turn could reduce the price of our stock. In addition, Mr. Cox could use his voting influence to maintain our existing management and directors in office, delay or prevent changes in control of our Company, or support or reject other management and proposals of the Board of Directors (the Board) that are subject to stockholder approval, such as amendments to our employee stock plans and approvals of significant financing transactions. **Sales of a significant number of shares of our Common Stock in the public market or the perception of such possible sales, could depress the market price of our Common Stock.** Sales of a substantial number of shares of our Common Stock in the public markets, which include an offering of our preferred stock or Common Stock could depress the market price of our Common Stock and impair our ability to raise capital through the sale of additional equity or equity-related securities. We cannot predict the effect that future sales of our Common Stock or other equity-related securities would have on the market price of our Common Stock. | 12 | | **** **Our share price has been volatile and our trading volume may fluctuate substantially.** The price of our Common Stock has been and may in the future continue to be extremely volatile, ranging from a high of $8.43 and a low of $1.13, since the beginning of 2024. Many factors could have a significant impact on the future price of our shares of Common Stock, including: | | | our inability to raise additional capital to fund our operations, whether through the issuance of equity securities or debt; | | | | | | | | | | our failure to successfully implement our business objectives and new lines of business; | | | | | | | | | | compliance with ongoing regulatory requirements; | | | | | | | | | | market acceptance and demand of our products; | | | | | | | | | | changes in government regulations; | | | | | | | | | | Replacing lost revenues from ACP; | | | | | | | | | | actual or anticipated fluctuations in our quarterly financial and operating results; and | | | | | | | | | | the degree of trading liquidity in our shares of Common Stock. | | **A decline in the price of our shares of Common Stock could affect our ability to raise further working capital and adversely impact our ability to continue operations.** The decline in the price of our shares of Common Stock, could result in a reduction in the liquidity of our Common Stock, a reduction in our ability to raise capital and hinder our ability to stay in compliance with Nasdaq listing rules. Because a significant portion of our operations has been and will continue to be financed through the sale of equity securities, a decline in the price of our shares of Common Stock could be especially detrimental to our liquidity and our operations. Such reductions and declines may force us to reallocate funds from other planned uses and may have a significant negative effect on our business plans and operations, including our ability to continue our current operations. If the price for our shares of Common Stock declines, it may be more difficult to raise additional capital. If we are unable to raise sufficient capital, and we are unable to generate sufficient funds from operations to meet our obligations, we will not have the resources to continue our operations. The market price for our shares of Common Stock may also be affected by our ability to meet or exceed expectations of analysts or investors. Any failure to meet these expectations, even if minor, may have a material adverse effect on the market price of our shares of Common Stock. **We currently do not intend to pay dividends on our Common Stock. As result, your only opportunity to achieve a return on your investment is if the price of our Common Stock appreciates.** We currently do not expect to declare or pay dividends on our Common Stock. In addition, in the future we may enter into agreements that prohibit or restrict our ability to declare or pay dividends on our Common Stock. As a result, your only opportunity to achieve a return on your investment will be if the market price of our Common Stock appreciates and you sell your shares at a profit. | 13 | | **** **We could issue additional Common Stock, which might dilute the book value of our Common Stock.** The Board has authority, without action or vote of our shareholders, to issue all or a part of our authorized but unissued shares. Such stock issuances could be made at a price that reflects a discount or a premium from the then-current trading price of our Common Stock. In addition, in order to raise capital, we may need to issue securities that are convertible into or exchangeable for our Common Stock. These issuances would dilute the percentage ownership interest, which would have the effect of reducing your influence on matters requiring shareholders vote and might dilute the book value of our Common Stock. You may incur additional dilution if holders of stock warrants or options, whether currently outstanding or subsequently granted, exercise their options, or if warrant holders exercise their warrants to purchase shares of our Common Stock. **Future Issuance of Our Common Stock, Preferred Stock, Options and Warrants Could Dilute the Interests of Existing Stockholders.** We may issue additional shares of our Common Stock, preferred stock, options and warrants in the future, including through the Companys 2022 Omnibus Securities and Incentive Plan and the evergreen provisions contained therein. These issuances may include substantial milestone-based issuances of securities to our executive officers as described in Item 11 of this Annual Report under the heading Employment Agreements. The issuance of a substantial amount of Common Stock, options and warrants could have the effect of substantially diluting the interests of our current stockholders. In addition, the sale of a substantial amount of Common Stock or preferred stock in the public market, or the exercise of a substantial number of warrants and options either in the initial issuance or in a subsequent resale by the target company in an acquisition which received such Common Stock as consideration or by investors who acquired such Common Stock in a private placement could have an adverse effect on the market price of our Common Stock. **ITEM 1B. UNRESOLVED STAFF COMMENTS** None. **ITEM 1C. CYBERSECURITY** **Cybersecurity Risk Management and Strategy** We have developed and maintained a cybersecurity risk management methodology intended to protect the confidentiality, integrity, and availability of our critical systems and information. Our cybersecurity risk management methodology is integrated into our overall enterprise risk management, and shares common methodologies, reporting channels and governance processes that apply across the Company to other legal, compliance, strategic, operational, and financial risk areas. As part of our overall risk management processes and procedures, we have instituted a cybersecurity awareness designed to identify, assess and manage material risks from cybersecurity threats, including by engaging a third-party cybersecurity service provider, which communicates directly with our management and compliance personnel. The cyber risk management methodology involves risk assessments, implementation of security measures and ongoing monitoring of systems and networks, including networks on which we rely. Through our cybersecurity awareness, the current threat landscape is actively monitored in an effort to identify material risks arising from new and evolving cybersecurity threats. We may engage external experts, including cybersecurity assessors, consultants, and auditors to evaluate cybersecurity measures and risk management processes as needed. We also depend on and engage various third parties, including suppliers, vendors, and service providers in connection with our operations. Our risk management, legal, and compliance personnel oversee and identify, including through a third-party cybersecurity service provider, material risks from cybersecurity threats associated with our use of such entities. | 14 | | Our cybersecurity risk management methodology includes: | | | risk assessments designed to help identify material cybersecurity risks to our critical systems, information, services, and our broader enterprise IT environment; | | | | | individuals, including employees and external third-party service providers, who are responsible for managing our cybersecurity risk assessment processes, our security controls, and our response to cybersecurity incidents; | | | | | the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls; | | | | | cybersecurity awareness training of our employees, incident response personnel, and senior management; | | | | | a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents; and | | | | | a third-party risk management process for service providers, suppliers, and vendors. | | We have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected us, including our operations, business strategy, results of operations, or financial condition. We face risks from cybersecurity threats that, if realized, are reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial condition. **Cybersecurity Governance** Our Board provides strategic oversight on cybersecurity matters, including material risks associated with cybersecurity threats. The Board has delegated to the Audit Committee oversight of cybersecurity and other information technology risks. The Audit Committee oversees managements implementation of our cybersecurity risk management methodology. Our Board and the Audit Committee receives periodic updates from our Chief Financial Officer and more frequently as needed, regarding the overall state of our cybersecurity preparedness, information on the current threat landscape, and material risks from cybersecurity threats and cybersecurity incidents. The Audit Committee and our management team are informed about and monitor the prevention, detection, mitigation, and remediation of cybersecurity incidents, including through the receipt of notifications from third-party service providers and reliance on communications with our risk management, legal, and/or compliance personnel. The Audit Committee reports to the full Board regarding cybersecurity activities. The full Board also receives briefings from management on cyber risk issues and best practices. Our management team is responsible for assessing and managing our material risks from cybersecurity threats. The team has primary responsibility for developing and maintaining our overall cybersecurity risk methodology and supervises both our internal cybersecurity personnel and our retained external cybersecurity consultants. Our management team supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, which may include briefings from internal security personnel; threat intelligence and other information obtained from governmental, public or private sources, including external consultants engaged by us; and alerts and reports produced by security tools deployed in the information technology environment. **ITEM 2. PROPERTIES** We presently occupy space at 3 locations: 3124 Brother Blvd, Suite 410, Bartlett, TN 38133 (this building is owned by an entity owned by Mr. Cox, our CEO and Chair), which houses our corporate headquarters along with back office, inventory and marketing departments, 8745 West Higgins, Chicago, IL 60361, which houses our human resources departments, 1615 S Ingram Mill, Building B, Springfield, Missouri 65804, which houses our Comprehensive Platform Services technical operations, and 73 Av. Norte y 5 Calle Poniente, Colonia Escalon, San Salvador, SV, which house our business process operations. See pages F-42 - F-46 for detailed lease information. We will acquire additional office space as needed. **** | 15 | | **** **ITEM 3: 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. 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 since our last annual report for the year ended December 31, 2023. | | (1) | 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. | | | | (2) | 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 defences. Plaintiffs sought a certified interlocutory appeal of the Courts 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. 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. Surge Pays elected to dismiss its complaint without prejudice and is in the process of re-filing the matter in the District Court of Oklahoma County, Oklahoma. | | | 16 | | | | (3) | Robert Aliotta and Steve Vasquesz, on behalf of themselves and others similarly situated v. SurgePays, Inc. d/b/a Surge Logics, filed January 4, 2023, in the U.S. District Court for the Northern District of Illinois, Case No. 1:23-cv-00042. Plaintiffs allege violations of the Telephone Consumer Protection Act (TCPA) and the Florida Telephone Solicitations Act (FTSA) based on telephone solicitations allegedly made by or on behalf of SurgePays, Inc. Plaintiffs seek damages for themselves and seek certification of a class action on behalf of others similarly situated. Defendants intend to vigorously defend the action however most similar cases are eventually resolved by an out-of-court settlement. A Confidential Settlement Agreement and Release of Claims has been entered into in April 2024 and a Dismissal Order was entered by the Court on April 30, 2024. | | | | | | | | | (4) | 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 appeal the Courts dismissal of Fina, Blue Skies, True Wireless, Government Consulting Solutions, and Misty Garrett. At this stage, no attempts at settlement have been made. | | | | | | | | | (5) | Consumer Attorney Marketing Group, LLC v. LogicsIQ, Inc. and SurgePays, Inc. On February 13, 2024, in the Superior Court of California, Los Angeles County, Case No. 24 ST CV 03653, Consumer Attorney Marketing Group, LLC (CAMG) filed a complaint naming SurgePays, Inc. (the Company) a defendant and alleging claims for breach of contract, declaratory judgment and express and implied indemnity. The complaint demands that defendants indemnify CAMG for any damages or losses that CAMG may incur in the case Robert Aliotta, et al. v. SurgePays, Inc. d/b/a SurgeLogics, Case No. 23 C 00042, pending in the U.S. District Court for the Northern District of Illinois. CAMGs claims against the Company are solely based upon theories of participatory and vicarious liability. A Confidential Settlement Agreement and Release of Claims has been entered into in April 2024 and the parties await a Dismissal Order to be entered by the Court. | | **ITEM 4. MINE SAFETY DISCLOSURES** Not Applicable. | 17 | | **** **PART II** **ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES** **Market Information** The Common Stock began trading on the Nasdaq Capital Market under the symbol SURG on November 2, 2021. As of March 5, 2025, there were approximately 7,277 holders of record of our Common Stock. Since certain shares of our Common Stock are held by brokers and other institutions on behalf of stockholders, the foregoing number of holders of our Common Stock is not representative of the number of beneficial holders of our Common Stock. The last reported sales price for our Common Stock as reported on the Nasdaq Capital Market on March 21, 2025 was $1.34. **Dividends** We have not declared or paid any cash dividends on our Common Stock, and we do not anticipate declaring or paying cash dividends for the foreseeable future. We are not subject to any legal restrictions respecting the payment of dividends, except that we may not pay dividends if the payment would render us insolvent. Any future determination as to the payment of cash dividends on our Common Stock will be at the discretion of our Board and will depend on our financial condition, operating results, capital requirements and other factors that the Board considers to be relevant. **Securities Authorized for Issuance under Equity Compensation Plans** See the information incorporated by reference in Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters for information regarding shares of our common stock authorized for issuance under our stock compensation plans, which information is incorporated herein by reference. **Preferred Stock** As of December 31, 2024, the Company does not have any shares of preferred stock outstanding. **Transfer Agent** The transfer agent of our Common Stock is VStock Transfer, LLC. Their address is 18 Lafayette Place, Woodmere, NY 11598. **Unregistered Sales of Equity Securities** We have previously disclosed in our 10-Qs and 8-Ks filed in 2024 all 2024 sales of securities without registration under the Securities Act of 1933. | 18 | | **** **ITEM 6. SELECTED FINANCIAL DATA** Not applicable. **ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** *The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth in Part I Item 1A. Risk Factors.* **Business Overview** We were incorporated in Nevada on August 18, 2006 as a pioneering financial technology and telecommunications company with one clear mission: to enhance connectivity and financial access in the places people live, shop, and work. Our Mobile Virtual Network Operators consisting of SurgePhone Wireless and Torch Wireless provide mobile broadband (internet connectivity) to consumers nationwide. Our Comprehensive Platform Services provides ACH banking relationships and a fintech transactions platform that processes thousands of transactions a day with independently owned convenience stores. Please see the description in Item 1 of this Annual Report for a description of our Mobile Virtual Network Operators and Comprehensive Platform Services. **COMPARISON OF YEAR ENDED DECEMBER 31, 2024 AND 2023** **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 Comprehensive Platform Service (Top-up). The MVNO segment is further broken down into subsidized and non-subsidized components. The subsidized component is the result of the mobile broadband (internet connectivity) services provided by SurgePhone Wireless and Torch Wireless to low-income consumers and accounts for the majority of our revenue. The Comprehensive Platform Service 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 years ended December 31, 2024 and 2023 consisted of the following: | | | 2024 | | | 2023 | | | | Revenue | | $ | 60,881,173 | | | $ | 137,141,832 | | | | Cost of revenue (exclusive of depreciation and amortization) | | | (75,205,372 | ) | | | (101,499,341 | ) | | | General and administrative | | | (27,458,152 | ) | | | (16,777,107 | ) | | | Income (Loss) from operations | | $ | (41,782,351 | ) | | $ | 18,865,384 | | | | 19 | | Revenue decreased overall by $76,260,659 (55.6%) from year ended December 31, 2023 to year ended December 31, 2024. The breakout was as follows: | | | For the Years Ended December 31, | | | | | | 2024 | | | 2023 | | | | | | | | | | | | | Revenues: | | | | | | | | | | | Mobile Virtual Network Operator | | $ | 43,450,244 | | | $ | 118,577,920 | | | | Comprehensive Platform Services | | | 17,419,088 | | | | 11,341,183 | | | | Other Corporate Overhead | | | 11,841 | | | | 7,222,729 | | | | Total | | $ | 60,881,173 | | | $ | 137,141,832 | | | Mobile Virtual Network Operators consisting of SurgePhone Wireless and Torch Wireless revenues (as detailed in Notes 2 and 10 of the financial statements) decreased by $75,127,676 or (63.4%). 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. As a transition strategy, we decided to keep the existing base of subscribers from the former ACP enrolled in our network with a built-in subscriber base of 250,000. We chose to keep our subscribers active, absorbing the wholesale costs (averaging around $7-10 per subscriber per month), and put our strong balance sheet to work to replace the cash inflow we lost once ACP funding ran out. We transitioned over 80,000 subscribers to the Lifeline program during 2024. 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 allows 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. Comprehensive Platform Services revenues increased by $6,077,905 as a result of increasing our sales force and hiring of a new Director of Sales. Effective December 31, 2024, the Companys 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 segments financial performance and determined that its continued operation was no longer aligned with the Companys long-term strategic objectives. The revenue was $0 and $7,184,283 respectively in years ended December 31, 2024 and 2023. Comparison numbers for the lead generation segment are shown in the respective Other Corporate Overhead lines. **Cost of Revenue, Gross Profit and Gross Margin** For the year 2024, cost of revenue for services primarily consists of data plan expenses ($21,684,451), prepaid retail expenses ($16,779,312), devices ($5,685,656), marketing ($15,632,078), advertising ($4,808,305), and other expenses such as royalties and call-center expenses ($4,233,099). With the stoppage of ACP, we reviewed the inventory associated with the program and decided to write off the entirety of the tablets ($6,382,471). Efforts to find buyers of this inventory have been challenging, thus, the Company has decided to write-off any inventory related to ACP. For the year 2023, cost of revenue for services primarily consists of data plan expenses ($28,612,000), devices ($28,476,000), marketing and advertising ($23,227,000), and other expenses such as royalties and call-center expenses ($3,604,000). | 20 | | We expect that our cost of revenue will increase or decrease to the extent that our revenue increases and decreases. | | | For the Years Ended December 31, | | | | | | 2024 | | | 2023 | | | | | | | | | | | | | Cost of Revenue (exclusive of depreciation and amortization): | | | | | | | | | | | Mobile Virtual Network Operator | | $ | 58,410,842 | | | $ | 83,918,968 | | | | Comprehensive Platform Services | | | 16,779,312 | | | | 11,281,722 | | | | Other Corporate Overhead | | | 15,218 | | | | 6,298,651 | | | | Total | | $ | 75,205,372 | | | $ | 101,499,341 | | | 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 Years Ended December 31, | | | | | | 2024 | | | 2023 | | | | | | | | | | | | | Gross Profit (Loss) (exclusive of depreciation and amortization): | | | | | | | | | | | Mobile Virtual Network Operator | | $ | (14,960,598 | ) | | $ | 34,658,952 | | | | Comprehensive Platform Services | | | 639,776 | | | | 59,461 | | | | Other Corporate Overhead | | | (3,377 | ) | | | 924,078 | | | | Total | | $ | (14,324,199 | ) | | $ | 35,642,491 | | | The Company expects to continue the improvement of gross margin in the Comprehensive Platform Service segment during 2025. As we continue to expand both subsidized and non-subsidized products 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. | | | For the Years Ended December 31, | | | | | | 2024 | | | 2023 | | | | | | | | | | | | | Gross Margin: | | | | | | | | | | | Mobile Virtual Network Operator | | % | (34.4 | ) | | % | 29.2 | | | | Comprehensive Platform Services | | | 3.7 | | | | 0.5 | | | | Other Corporate Overhead | | | (28.5 | ) | | | 12.8 | | | | Total | | % | (23.5 | ) | | % | 26.0 | | | | 21 | | **** **General and administrative during the years ended December 31, 2024 and 2023 consisted of the following:** | | | 2024 | | | 2023 | | | | Depreciation and amortization | | $ | 1,165,279 | | | $ | 1,064,099 | | | | Selling, general and administration | | | 26,292,873 | | | | 15,713,008 | | | | Total | | $ | 27,458,152 | | | $ | 16,777,107 | | | The increase in depreciation and amortization costs for 2024 is the result of capitalizing costs associated with software enhancements to our various software platforms. **Selling, general and administrative expenses during the years ended December 31, 2024 and 2023 consisted of the following:** | | | 2024 | | | 2023 | | | | Contractors and consultants | | $ | 4,303,580 | | | $ | 2,715,605 | | | | Professional services | | | 2,110,510 | | | | 1,949,407 | | | | Compensation | | | 14,605,283 | | | | 6,342,955 | | | | Computer and internet | | | 959,222 | | | | 858,041 | | | | Advertising and marketing | | | 109,004 | | | | 152,851 | | | | Insurance | | | 1,096,027 | | | | 1,249,556 | | | | Other | | | 3,109,247 | | | | 2,444,593 | | | | Total | | $ | 26,292,873 | | | $ | 15,713,008 | | | Selling, general and administrative costs (S, G & A) increased by $10,579,865 (67.3%). The changes are discussed below: | | Contractors and consultants expense increased by $1,587,975 or 58.5% from $2,715,605 in 2023 to $4,303,580 in 2024. The Company previously engaged several contractors to overhaul the financial platform to allow for the conversion to a tablet-based transaction at the store level from the outdated VeriFone terminal and consultants to provide advisory services specifically in the area of investment relations to identify opportunities to increase our shareholder value, which costs continued in 2024. Additionally, the company also engaged contractors to continue platform enhancements on the Clearline asset acquisition early in 2024 which accounted for an increase of over $1,000,000 from the previous year. | | | | | | | | Professional services increased $161,103 or 8.3% in 2024 primarily due to an increase in accounting and tax professional fees of $337,374. | | | | | | | | Compensation increased from $6,342,955 in 2023 to $14,605,283 in 2024 primarily as a result of stock compensation for the CEO and CFO of $6,752,705 per their respective employment agreements as further described in Item 11. Executive Compensation, incorporated herein. There was a non-cash component for $1,602,997 related to the implementation of a stock option plan for all employees. | | | | | | | | Computer and internet costs increased to $959,222 in 2024 from $858,041 in 2023. A significant portion of the increase was related to the continued maintenance and enhancements of the Clearline software platform of $155,000 compared with $0 spend in 2023. | | | | | | | | Advertising and marketing costs decreased to $109,004 in 2024 from $152,851 in 2023 primarily as a result of the Company slowing expenditures related to Affordable Connectivity Program (ACP). | | | | | | | | Insurance expense decreased to $1,096,027 in 2024 from $1,249,556 in 2023 primarily as a result of improved premium rates for the renewal of coverage in 2024. | | | | | | | | Other costs increased to $3,109,247 in 2024 from $2,444,593 in 2023 primarily due to the resolution of various taxes associated with the ACP. | | | 22 | | **** **Other (expense) income during the years ended December 31, 2024 and 2023 consisted of the following:** | | | 2024 | | | 2023 | | | | Interest, net | | $ | (554,200 | ) | | $ | (595,975 | ) | | | Gain (loss) on equity investment in Centercom | | | 33,864 | | | | 110,203 | | | | Realized gains - investments | | | 13,613 | | | | - | | | | Dividends, interest, and other income investments | | | 355,549 | | | | - | | | | Impairment loss internal use software development costs | | | (316,594 | ) | | | - | | | | Impairment loss - goodwill | | | (866,782 | ) | | | - | | | | Loss on lease termination - net | | | (194,863 | ) | | | - | | | | Impairment loss - CenterCom | | | (498,273 | ) | | | - | | | | Interest income | | | 105,395 | | | | - | | | | Other income | | | 636,868 | | | | - | | | | Total other (expense) income | | $ | (1,285,423 | ) | | $ | (485,772 | ) | | Interest expense decreased to $554,200 in 2024 from $595,975 in 2023 primarily due to the payoff of various debt instruments in 2024. The equity investment in Centercom, an unconsolidated subsidiary of the Company in which we are a minority owner, increased by $33,864 in 2024 compared to an increase of $110,203 in 2023. The Company invested excess cash in various instruments during 2024, resulting in interest, dividends, and gains resulting in an aggregate increase of $355,549, compared to $0 in 2023. As a result of shuttering the operations of LogicsIQ, the Company took an aggregate impairment loss of $1,183,376 relating to goodwill and software development assets. Other income increased by $636,868, mostly related to one-time reduction in accounts payable to CenterCom for invoices deemed not to be payable. As of December 31, 2024, The Company determined that it would no longer utilize the Business Process Outsourcing (BPO) services of CenterCom. The Company has commenced similar operations internally, eliminating the need for its investment in Centercom. Consequently, an assessment of the investment was performed to determine whether it should be written off in accordance with U.S. GAAP. As a result, the Company took an aggregate impairment loss of $498,273. **Equity Transactions for the Years Ended December 31, 2024** **Stock Issued for Cash - Capital Raise** In January 2024, the Company issued 3,080,356 shares of common stock for gross proceeds of $17,249,994 ($5.60/share). In connection with the capital raise, the Company paid cash as direct offering costs totaling $1,395,000, resulting in net proceeds of $15,854,994. This offering was made pursuant to the Companys 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 1,860,308 shares of common stock in connection with the exercise of 1,860,308 warrants for $8,799,257 ($4.73/share). See warrant table below. **Exercise of Warrants - Cashless** During 2024, the Company issued 40,238 shares of common stock in connection with the cashless exercise of warrants ($0.001/share). The transaction had a net effect of $0 on stockholders equity. **Stock Issued for Services** The Company issued 47,386 shares of common stock for services rendered, having a fair value of $411,740 ($3.85 - $7.34/share), based upon the quoted closing trading price. **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 $5,000,000, | | | | | The Company will not repurchase more than 20,000 shares per day, | | | | | The Company will not repurchase any shares greater than $5/share, | | | | | 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 362,620 shares of treasury stock for $631,967, at an average price of $1.74/share. Effective October 2024, the Company ceased its share repurchase program. **Equity Transactions for the Year Ended December 31, 2023** **Stock Issued for Services** The Company issued 242,615 shares of common stock for services rendered, having a fair value of $1,290,024 ($4.19 - $9.40/share), based upon the quoted closing trading price. All of these shares are for arrangements with consultants as called for per their respective agreements. **Exercise of Warrants** The Company issued 43,814 shares of common stock in June 2023 upon an exercise of warrants with an exercise price of $4.73 for $207,240. | 23 | | **** **Non-Vested Shares Related Parties** Chief Financial Officer In 2023, the Company granted common stock to its Chief Financial Officer having a fair value of $3,114,000 ($5.19/share), based upon the quoted closing trading price. For the year ended December 31, 2023, the Company recognized stock compensation expense of $486,242 related to vesting. In 2024, the Company issued shares based on the following vesting schedule: | July 1, 2024 | | 66,667 shares | | | August 1, 2024 | | 66,667 shares | | | September 1, 2024 | | 66,667 shares | | | October 1, 2024 | | 66,667 shares | | | November 1, 2024 | | 66,667 shares | | | December 1, 2024 | | 66,665 shares | | For the year ended December 31, 2024, the Company recognized stock compensation expense of $486,242 related to vesting. Board Directors In 2023, the Company granted an aggregate 95,000 shares of common stock to various members of the Board of Directors, having a fair value of $519,500 ($5.14 - $5.53/share), based upon the quoted closing trading price. 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 | | | | - | Fifth anniversary of the effective date (2028) | | The Company records stock compensation expense over the five (5) year vesting period. All shares are expected to vest in accordance with the terms of the service agreement. For the year ended December 31, 2023, the Company recognized stock compensation expense of $43,292 related to vesting. For the year ended December 31, 2023, total related stock compensation expense due to vesting was $529,534. In 2024, the Company granted an aggregate 44,640 shares of common stock to various members of the Board of Directors, having a fair value of $149,990 ($3.36/share), based upon the quoted closing trading price. 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) | | **LIQUIDITY AND CAPITAL RESOURCES** At December 31, 2024 and 2023, our current assets were $17,870,323 and $33,366,661, respectively, and our current liabilities were 6,059,476 and $12,705,044, respectively, which resulted in a working capital surplus of $11,810,847 and $20,661,617, respectively. The decrease in current assets is a result of the suspension of the Affordable Connectivity Program, whereby accounts receivable decreased by $6,535,865 and the write-down of the inventory of $6,382,471. | 24 | | Total assets at December 31, 2024 and 2023 amounted to $23,976,005 and $41,925,307, respectively, a decrease of $17,949,302 from 2023 to 2024. The decrease in total assets is a result of the suspension of the Affordable Connectivity Program and shuttering of the LogicsIQ business segment, whereby accounts receivable decreased by $6,535,865, the write-down of the inventory of $6,382,471, and the impairment loss of $1,681,649. At December 31, 2024, assets consisted of 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 and at December 31, 2023, assets consisted of current assets of $33,366,661, net property and equipment of $361,841, net intangible assets of $2,126,470, goodwill of $1,666,782, equity investment in Centercom of $464,409, note receivable of $176,851, internal use software of $539,424, operating lease right of use asset of $387,869, and deferred income taxes of $2,835,000. At December 31, 2024, our total liabilities were $8,714,392 compared to total liabilities of $13,521,843 at December 31, 2023. This $4,807,451 decrease was related to the accounts payable and debt repayment during 2024. At December 31, 2024, our total stockholders surplus was $15,261,613 as compared to $28,403,464 at December 31, 2023. The $12,643,578 decrease was primarily due to the net loss for the year. The following table sets forth the major sources and uses of cash for the years ended December 31, 2024 and 2023. | | | 2024 | | | 2023 | | | | | | | | | | | | | Net cash provided by or (used in) operating activities | | $ | (21,310,603 | ) | | $ | 10,287,345 | | | | Net cash used in investing activities | | | (3,004,576 | ) | | | (281,304 | ) | | | Net cash provided by financing activities | | | 22,483,508 | | | | (2,419,635 | ) | | | Net change in cash and cash equivalents | | $ | (1,831,671 | ) | | $ | 7,586,406 | | | Net cash provided used in 2024, was primarily due to the net loss for the year ended December 31, 2024, compared to the net gain for the year ended December 31, 2023. Net cash used in investing activities in 2024 was primarily due to the purchase and sale of investments, and the purchase of ClearLine assets in 2024 Net cash provided for financing activities is primarily due to the equity offering in January 2024 and the exercise of warrants during the year ended December 31, 2024. As a result of net negative cash provided by operating activities and investing activities in 2024, our overall cash decreased in 2024 by $1,831,671, compared to an increase of cash in 2023 primarily driven by net cash provided for by operations of $10,287,345. At December 31, 2024, the Company had the following material commitments and contingencies. **Cash requirements and capital expenditures** Due to 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 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. **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. | 25 | | **** **Critical Accounting Policies and Estimates** Managements 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 years ended December 31, 2024 and 2023, 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 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. **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 Companys 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 measurements 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. Managements 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. | 26 | | **** **Impairment of Long-lived Assets including Internal Use Capitalized Software Costs** Management evaluates the recoverability of the Companys 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 Companys 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 (first-in, first-out method). 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. **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. **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. | 27 | | **** **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 entitys 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. 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK** Not applicable. **ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA** See Index to Consolidated Financial Statements on page F-1 of this Annual Report. **ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE** None. | 28 | | **** **ITEM 9A. CONTROLS AND PROCEDURES** **a) Evaluation of Disclosure Controls and Procedures** As of December 31, 2024, our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as required by Exchange Act Rule 13a-15. Management identified no material weaknesses in our internal control over financial reporting. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure. **b) Managements Annual Report on Internal Control Over Financial Reporting** Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed by, or under the supervision of, our chief executive officer and chief financial officer, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (GAAP). Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Companys assets that could have a material effect on the financial statements. Management conducted an evaluation of the effectiveness of our control over financial reporting based on the 2013 framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2024. During the year ended December 31, 2024, management identified no weaknesses. Pursuant to Regulation S-K Item 308(b), as the Company is not an accelerated filer nor a large accelerated filer, this Annual Report does not include an attestation report of our companys registered public accounting firm regarding internal control over financial reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. A control system, no matter how well designed and operated can provide only reasonable, but not absolute, assurance that the control systems objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their cost. | 29 | | **** **c) Changes in Internal Control over Financial Reporting** During the year ended December 31, 2024, there were no changes in our internal controls over financial reporting, which were identified in connection with our managements 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 materially affect, on our internal control over financial reporting. **ITEM 9B. OTHER INFORMATION** During the year ended December 31, 2024, certain of our officers and directors adopted or terminated Rule 10b5-1 trading arrangements as follows: On March 14, 2024, Kevin Brian Cox, our President and Chief Executive Officer, adopted a trading plan that is intended to satisfy the conditions under Rule 10b5-1(c) of the Exchange Act. Mr. Coxs trading plan is equal to the number of shares of the Companys common stock as reasonably estimated by the designated broker such that the net proceeds from their sale are sufficient to cover the withholding taxes resulting from the vesting of RSA grants previously issued to Mr. Cox, in amounts and prices determined in accordance with a formula set forth in the plan. The plan was terminated on December 3, 2024. In the quarter ended December 31, 2024, 250,000 shares were received and vested from RSA grants as provided for in Mr. Coxs employment agreement and 97,380 shares were sold. On March 14, 2024, Anthony Evers, our Chief Financial Officer, adopted a trading plan that is intended to satisfy the conditions under Rule 10b5-1(c) of the Exchange Act. Mr. Evers trading plan is equal to the number of shares of the Companys common stock as reasonably estimated by the designated broker such that the net proceeds from their sale are sufficient to cover the withholding taxes resulting from the vesting of RSA grants previously issued to Mr. Evers, in amounts and prices determined in accordance with a formula set forth in the plan. The plan was terminated on December 31, 2024. For the quarter ended December 31, 2024, 199,998 shares were received and vested from RSA grants as provided for in Mr. Evers employment agreement and 110,000 shares were sold. Except as disclosed above, none of our 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 defence 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 August 13, 2024, the Company entered into a share repurchase program with ThinkEquity LLC for up to $5,000,000 shares of its common stock. No shares were repurchased during the three months ending December 31, 2024. On October 1, 2024, the Company decided to terminate the share repurchase program and will no longer be making any reacquisitions. **ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS** Not applicable. **PART III** The information required by Part III is omitted from this Annual Report in that we will file a definitive proxy statement pursuant to Regulation 14A with respect to our 2025 Annual Meeting (the Proxy Statement) on the date hereof and certain information included therein is incorporated herein by reference. Only those sections of the Proxy Statement which specifically address the items set forth herein are incorporated by reference. **Item 10. Directors, Executive Officers and Corporate Governance** The information required by this item will be included in the Proxy Statement. **Item 11. Executive Compensation** The information required by this item will be included in the Proxy Statement. **Item 12. Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters**. The information required by this item will be included in the Proxy Statement. **Item 13. Certain Relationships and Related Transactions, and Director Independence** The information required by this item will be included in the Proxy Statement. **Item 14. Principal Accounting Fees and Services** The information required by this item will be included in the Proxy Statement. | 30 | | **** **PART IV** **ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES** | Exhibit | | | | Incorporated by Reference | | Filed or Furnished | | | Number | | Exhibit Description | | Form | | Exhibit | | Filing Date | | Herewith | | | | | | | | | | | | | | | | 3.1 | | Articles of Incorporation filed August 22, 2006 | | SB-2 | | 3.1 | | 03/14/2007 | | | | | 3.2 | | Articles of Merger filed July 25, 2008 | | S-1/A | | 3.2 | | 10/21/2021 | | | | | 3.3 | | Certificate of Amendment to Articles of Incorporation filed April 27, 2009 | | 10-K/A | | 3.1 | | 05/14/2013 | | | | | 3.4 | | Certificate of Amendment to Articles of Incorporation filed May 13, 2015 | | 8-K/A | | 3.1 | | 12/11/2015 | | | | | 3.5 | | Certificate of Amendment to Articles of Incorporation filed June 30, 2015 | | S-1/A | | 3.5 | | 10/21/2021 | | | | | 3.6 | | Certificate of Amendment to Articles of Incorporation filed October 10, 2017 | | S-1/A | | 3.6 | | 10/21/2021 | | | | | 3.7 | | Certificate of Amendment to Articles of Incorporation filed December 21, 2017 | | S-1/A | | 3.7 | | 10/21/2021 | | | | | 3.8 | | Certificate of Amendment to Articles of Incorporation filed October 29, 2020 | | 8-K | | 3.1 | | 11/5/2020 | | | | | 3.9 | | Certificate of Amendment, filed November 1, 2021 | | 8-K | | 3.1 | | 11/5/2021 | | | | | 3.10 | | Bylaws | | SB-2 | | 3.2 | | 03/14/2007 | | | | | 3.11 | | Amended Bylaws | | 10-K/A | | 3.2 | | 05/14/2013 | | | | | 3.12 | | Amended Bylaws | | 8-K/A | | 3.2 | | 12/11/2015 | | | | | 4.1 | | Warrant, dated March 8, 2021, issued to Evergreen Capital Management LLC | | 8-K | | 4.2 | | 03/16/2021 | | | | | 4.2 | | Form of Underwriters Warrants | | 8-K | | 4.1 | | 11/5/2021 | | | | | 4.3 | | Warrant Agency Agreement between SurgePays, Inc. and VStock Transfer, LLC, dated November 4, 2021 | | 8-K | | 4.2 | | 11/5/2021 | | | | | 4.4 | | Description of Securities | | 10-K | | 4.4 | | 03/30/2023 | | | | | 4.5 | | Form of Promissory Note Issued to Inventory Lenders in March 2022 to May 2022 | | 10-Q | | 4.1 | | 08/11/2022 | | | | | 4.6 | | Form of Warrant with $4.73 Exercise Price Issued to Inventory Lenders in March 2022 to May 2022 | | 10-Q | | 4.2 | | 08/11/2022 | | | | | 4.7 | | Revolving Secured Promissory Note with Lender, dated April 8, 2022, as amended June 2, 2022 | | 10-Q | | 4.3 | | 08/11/2022 | | | | | 10.1+ | | Consulting Agreement, dated September 25, 2017, by and between KSIX MEDIA HOLDINGS, INC. and David C. Ansani | | S-1 | | 10.2 | | 09/12/2019 | | | | | 10.2+ | | Director Agreement, dated July 17, 2019, by and between Surge Holdings, Inc. and David N. Keys | | 8-K | | 10.1 | | 07/24/2019 | | | | | 10.3+ | | Director and Officer Indemnification Agreement, dated July 17, 2019, by and between Surge Holdings, Inc. and David N. Keys | | 8-K | | 10.2 | | 07/24/2019 | | | | | 10.4 | | Promissory Note, issued by Surge Holdings, Inc. to AN Holdings, LLC on April 24, 2020 | | 10-K | | 10.22 | | 05/12/2020 | | | | | 10.5 | | Paycheck Protection Program Note, dated April 18, 2020, issued to Bank 3 | | 10-Q | | 10.4 | | 08/14/2020 | | | | | 31 | | | 10.6 | | Office Lease, dated May 5, 2020, by and between Woodfield Financial Center LLC and Surge Holdings Inc. | | S-1/A | | 10.31 | | 02/16/2021 | | | | | 10.7 | | Master Services Agreement by and between Surge Pays, Inc. and Glass Mountain BPO, dated January 1, 2021 | | S-1/A | | 10.32 | | 02/16/2021 | | | | | 10.8 | | Commercial Lease Agreement, dated July 10, 2019, by and between CardDawg Investments, LLC and Surge Holdings, Inc. | | S-1/A | | 10.35 | | 02/16/2021 | | | | | 10.9 | | Form of On Demand Promissory Note issued by the Company in favor of SMDMM Funding, LLC | | S-1/A | | 10.36 | | 09/22/2021 | | | | | 10.10 | | Stock Purchase Agreement, by and among, SurgePays, Inc., Torch Wireless, and the Parties Listed Therein, dated April 6, 2022 | | 8-K | | 10.1 | | 04/12/2022 | | | | | 10.11 | | Installment Sale Agreement, by and among, SurgePays, Inc., SurgePhone Wireless LLC, Torch Wireless, and Affordable Connectivity Financing V Limited Liability Company, dated November 17, 2022 | | 8-K | | 10.1 | | 11/23/2022 | | | | | 10.12 | | Paying Agent Agreement, by and among, SurgePhone Wireless LLC, Torch Wireless, Affordable Connectivity Financing V Limited Liability Company, and Ivy Dallas Funding, LLC, dated November 17, 2022 | | 8-K | | 10.2 | | 11/23/2022 | | | | | 10.13 | | Consulting Agreement, by and between the Company and Jay Jones, dated December 19, 2022 | | 8-K | | 10.1 | | 12/23/2022 | | | | | 10.14+ | | Weisberg Director Agreement, by and between the Company and Ms. Weisberg, dated December 19, 2022 | | 8-K | | 10.2 | | 12/23/2022 | | | | | 10.15+ | | Form of Indemnification Agreement | | 8-K | | 10.3 | | 12/23/2022 | | | | | 10.16+ | | Employment Agreement between SurgePays, Inc. and Kevin Brian Cox | | 10-Q | | 10.1 | | 05/16/2022 | | | | | 10.17+ | | Employment Agreement between SurgePays, Inc. and Anthony Evers, dated August 8, 2022 | | 10-Q | | 10.3 | | 08/11/2022 | | | | | 10.18+ | | SurgePays, Inc. 2022 Omnibus Securities and Incentive Plan | | 10-K | | 10.18 | | 03/30/2023 | | | | | 10.19 | | Loan Agreement between the Company and Lender, dated April 8, 2022, as amended June 2, 2022 | | 10-Q | | 10.1 | | 08/11/2022 | | | | | 10.20 | | Security Agreement between the Company and Lender, dated April 8, 2022 | | 10-Q | | 10.2 | | 08/11/2022 | | | | | 10.21 | | Form of Restricted Share Award Agreement | | 10-Q | | 10.1 | | 08/10/2023 | | | | | 10.22 | | Form of Employment Agreement with Anthony Evers | | 10-Q | | 10.1 | | 11/14/2023 | | | | | 10.23 | | Form of Employment Agreement with Kevin Brian Cox | | 8-K | | 10.1 | | 01/03/2024 | | | | | 10.24 | | Underwriting Agreement, dated as of January 17, 2024, between SurgePays, Inc. and Titan Partners Group | | 8-K | | 1.1 | | 01/22/2024 | | | | | 10.25 | | Form of Promissory Note with SMDMM Funding, LLC | | 10-K | | 10.25 | | 03/12/2024 | | | | | 10.26 | | Master Services Agreement, dated as of October 3, 2024, between SurgePays, Inc. and TerraCom, Inc. | | 8-K | | 10.1 | | 10/16/2024 | | | | 14.1 | | SurgePays, Inc. Code of Ethics and Business Conduct | | 10-K | | 14.1 | | 03/24/2022 | | | | | 19.1 | | SurgePays, Inc. Insider Trading Policy | | 10-K | | 19.1 | | 03/12/2024 | | | | | 21.1 | | List of Subsidiaries | | | | | | | | X | | | 23.1 | | Consent of Rodefer Moss & Co., PLLC | | | | | | | | X | | | 31.1 | | Certification of Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | | | X | | | 31.2 | | Certification of Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | | | X | | | 32.1* | | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act 2002 | | | | | | | | X | | | 32.2* | | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act 2002 | | | | | | | | X | | | 97.1 | | SurgePays, Inc. Executive Compensation Clawback Policy | | 10-K | | 97.1 | | 03/12/2024 | | | | | | | | | | | | | | | | | | 101.INS | | Inline XBRL Instance Document | | | | | | | | X | | | | | | | | | | | | | | | | 101.SCH | | Inline XBRL Taxonomy Extension Schema | | | | | | | | X | | | | | | | | | | | | | | | | 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase | | | | | | | | X | | | | | | | | | | | | | | | | 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase | | | | | | | | X | | | | | | | | | | | | | | | | 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase | | | | | | | | X | | | | | | | | | | | | | | | | 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase | | | | | | | | X | | | | | | | | | | | | | | | | | + | Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate. | | | | | | | | | | | | | | | | | | | | | | | | | * | Furnished herewith | | | | | | | | | | **ITEM 16. FORM 10-K SUMMARY** Not applicable. | 32 | | **** **SIGNATURES** Pursuant to the requirements of Section 13 or 15(d) of the 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: March 25, 2025 | By: | /s/ Kevin Brian Cox | | | | Name: | Kevin Brian Cox | | | | Title: | Chief Executive Officer | | Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. | Signature | | Title | | Date | | | | | | | | | | /s/ Kevin Brian Cox | | Chief Executive Officer and Director | | March 25, 2025 | | | Kevin Brian Cox | | (Principal Executive Officer) | | | | | | | | | | | | /s/ Anthony Evers | | Chief Financial Officer | | March 25, 2025 | | | Anthony Evers | | (Principal Financial Officer and Principal Accounting Officer | | | | | | | | | | | | /s/ David N. Keys | | Director | | March 25, 2025 | | | David N. Keys | | | | | | | | | | | | | | /s/ David May | | Director | | March 25, 2025 | | | David May | | | | | | | | | | | | | | /s/ Laurie Weisberg | | Director | | March 25, 2025 | | | Laurie Weisberg | | | | | | | | | | | | | | /s/ Richard Schurfeld | | Director | | March 25, 2025 | | | Richard Schurfeld | | | | | | | 33 | | **** **SurgePays, Inc. and Subsidiaries** | | | Page(s) | | | | | | | | Report of Independent Registered Public Accounting Firm (PCAOB ID No. 910) | | F-2 | | | | | | | | Consolidated Balance Sheets | | F-4 | | | | | | | | Consolidated Statements of Operations | | F-5 | | | | | | | | Consolidated Statements of Changes in Stockholders Equity | | F-6 - F-7 | | | | | | | | Consolidated Statements of Cash Flows | | F-8 | | | | | | | | Notes to Consolidated Financial Statements | | F-9 - F-69 | | **** | F-1 | | **** Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of SurgePays, Inc. & Subsidiaries Bartlett, Tennessee Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of SurgePays, Inc. & Subsidiaries (the Company) as of December 31, 2024 and 2023, and the related consolidated statements of operations, stockholders equity and cash flows for each of the years in the two-year period ended December 31, 2024 and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2024 and 2023, and the results of its consolidated operations and its consolidated cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. | F-2 | | Sufficiency of audit evidence over revenue | 1) | The Company generates revenues from the delivery of processing, service and product solutions. Revenue is measured based on consideration specified in contracts, and the Company recognizes revenue when it satisfies a performance obligation by processing the transaction, which is at a point in time. The Companys revenue consists of a significant volume of transactions sourced from systems and applications. The processing of such transactions and recording of the majority of revenue is system-driven and based on contractual terms. Revenue is recognized when the services and products are delivered to the customers and control is transferred, which is at a point in time. These revenues are recognized on the gross basis as the company is considered a principal in the transaction. | | | 2) | The Company also has significant revenue from providing services and products under the Affordable Connectivity Program and Lifeline program. Revenue is recognized after services and products have been delivered to an eligible customer. | | *How the Critical Audit Matters Were Addressed in the Audit* ** Our audit procedures related to revenue recognition and disclosure included the following, among others: We obtained and understanding and evaluated managements significant accounting policies around revenue recognition for each significant line of revenue, including managements assessment of when control of goods and services are transferred to customers. For a sample of revenue transactions, we tested selected transactions by agreeing the amounts of revenue recognized to source documents and testing the mathematical accuracy of the recorded revenue. We also evaluated the source documents to determine whether terms that may impact revenue recognition were identified and properly considered by management. Goodwill impairment assessment | 3) | As discussed in note 2 to the consolidate financial statements of the Company, the Company closed an asset purchase agreement and is reporting goodwill of $2,500,000 as of December 31, 2024. Management reviewed the goodwill for impartment as of December 31 ,2024. The review of impairment for goodwill allows management to first asses qualitative factors to determine whether it is necessary to perform the more detailed quantitative goodwill impairment test. Management performed the qualitative analysis and determined that goodwill was not impaired and was not required to perform the more detailed quantitative goodwill impairment test. Management assessment included significant judgment and is subject to various risks and uncertainties. | | *How the Critical Audit Matters Were Addressed in the Audit* ** We evaluated management significant judgment and assumptions that were used in the impairment analysis. The matter required auditor judgment, subjectivity, and effort in performing procedures. /s/ Rodefer Moss & Co, PLLC We have served as the Companys auditor since 2017 Johnson City, Tennessee March 25, 2025 **** **** | F-3 | | **** **SurgePays, Inc. and Subsidiaries** **Consolidated Balance Sheets** **** | | | December 31, 2024 | | | December 31, 2023 | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | | | | | | Current Assets | | | | | | | | | | | Cash and cash equivalents | | $ | 11,790,389 | | | $ | 14,622,060 | | | | Restricted cash - held in escrow | | | 1,000,000 | | | | - | | | | Accounts receivable - net | | | 3,000,209 | | | | 9,536,074 | | | | Inventory | | | 1,781,365 | | | | 9,046,594 | | | | Prepaids and other | | | 298,360 | | | | 161,933 | | | | Total Current Assets | | | 17,870,323 | | | | 33,366,661 | | | | | | | | | | | | | | | Property and equipment - net | | | 591,088 | | | | 361,841 | | | | | | | | | | | | | | | Other Assets | | | | | | | | | | | Note receivable | | | 176,851 | | | | 176,851 | | | | Intangibles - net | | | 1,472,962 | | | | 2,126,470 | | | | Internal use software development costs - net | | | - | | | | 539,424 | | | | Goodwill | | | 3,300,000 | | | | 1,666,782 | | | | Investment in CenterCom | | | - | | | | 464,409 | | | | Operating lease - right of use asset - net | | | 564,781 | | | | 387,869 | | | | Deferred income taxes - net | | | - | | | | 2,835,000 | | | | Total Other Assets | | | 5,514,594 | | | | 8,196,805 | | | | | | | | | | | | | | | Total Assets | | $ | 23,976,005 | | | $ | 41,925,307 | | | | | | | | | | | | | | | Liabilities and Stockholders Equity | | | | | | | | | | | | | | | | | | | | | | Current Liabilities | | | | | | | | | | | Accounts payable and accrued expenses | | $ | 3,929,195 | | | $ | 6,439,120 | | | | Accounts payable and accrued expenses - related party | | | 192,845 | | | | 1,048,224 | | | | Accounts payable and accrued expenses | | | 192,845 | | | | 1,048,224 | | | | Accrued income taxes payable | | | - | | | | 570,000 | | | | Deferred revenue | | | - | | | | 20,000 | | | | Operating lease liability | | | 248,069 | | | | 43,137 | | | | Note payable - related party | | | 1,689,367 | | | | 4,584,563 | | | | Total Current Liabilities | | | 6,059,476 | | | | 12,705,044 | | | | | | | | | | | | | | | Long Term Liabilities | | | | | | | | | | | Note payable - related party | | | 1,866,288 | | | | - | | | | Notes payable - SBA government | | | 469,396 | | | | 460,523 | | | | Notes payable | | | 469,396 | | | | 460,523 | | | | Operating lease liability | | | 319,232 | | | | 356,276 | | | | Total Long Term Liabilities | | | 2,654,916 | | | | 816,799 | | | | | | | | | | | | | | | Total Liabilities | | | 8,714,392 | | | | 13,521,843 | | | | | | | | | | | | | | | Stockholders Equity | | | | | | | | | | | | | | | | | | | | | Common stock, $0.001 par value, 500,000,000 shares authorized 20,431,549 shares issued and 20,068,929 shares outstanding, respectively, at December 31, 2024 14,403,261 shares issued and outstanding at December 31, 2023 | | | 20,435 | | | | 14,404 | | | | Additional paid-in capital | | | 76,842,878 | | | | 43,421,019 | | | | Treasury stock - at cost (362,620 and 0 shares, respectively) | | | (631,967 | ) | | | - | | | | Accumulated deficit | | | (60,915,427 | ) | | | (15,186,203 | ) | | | Stockholders equity | | | 15,315,919 | | | | 28,249,220 | | | | Non-controlling interest | | | (54,306 | ) | | | 154,244 | | | | Total Stockholders Equity | | | 15,261,613 | | | | 28,403,464 | | | | | | | | | | | | | | | Total Liabilities and Stockholders Equity | | $ | 23,976,005 | | | $ | 41,925,307 | | | The accompanying notes are an integral part of these unaudited consolidated financial statements | F-4 | | **** **SurgePays, Inc. and Subsidiaries** **Consolidated Statements of Operations** **** | | | | | | | | | | | | | | For the Years Ended December 31, | | | | | | 2024 | | | 2023 | | | | | | | | | | | | | Revenues | | $ | 60,881,173 | | | $ | 137,141,832 | | | | | | | | | | | | | | | Costs and expenses | | | | | | | | | | | Cost of revenues | | | 75,205,372 | | | | 101,499,341 | | | | General and administrative expenses | | | 27,458,152 | | | | 16,777,107 | | | | Total costs and expenses | | | 102,663,524 | | | | 118,276,448 | | | | | | | | | | | | | | | Income (loss) from operations | | | (41,782,351 | ) | | | 18,865,384 | | | | | | | | | | | | | | | Other income (expense) | | | | | | | | | | | Interest expense | | | (554,200 | ) | | | (595,975 | ) | | | Loss on lease termination - net | | | (194,863 | ) | | | - | | | | Other income | | | 636,868 | | | | - | | | | Interest income | | | 105,395 | | | | - | | | | Realized gains - investments | | | 13,613 | | | | - | | | | Dividends, interest, and other income - investments | | | 355,549 | | | | - | | | | Gain on investment in CenterCom | | | 33,864 | | | | 110,203 | | | | Impairment loss - CenterCom | | | (498,273 | ) | | | - | | | | Impairment loss - internal use software development costs | | | (316,594 | ) | | | - | | | | Impairment loss - goodwill | | | (866,782 | ) | | | - | | | | Total other income (expense) - net | | | (1,285,423 | ) | | | (485,772 | ) | | | | | | | | | | | | | | Net income (loss) before provision for income taxes | | | (43,067,774 | ) | | | 18,379,612 | | | | | | | | | | | | | | | Provision for income tax benefit (expense) | | | (2,870,000 | ) | | | 2,265,000 | | | | | | | | | | | | | | | Net income (loss) including non-controlling interest | | | (45,937,774 | ) | | | 20,644,612 | | | | | | | | | | | | | | | Non-controlling interest | | | (208,550 | ) | | | 26,709 | | | | | | | | | | | | | | | Net income (loss) available to common stockholders | | $ | (45,729,224 | ) | | $ | 20,617,903 | | | | | | | | | | | | | | | Earnings per share - attributable to common stockholders | | | | | | | | | | | Basic | | $ | (2.39 | ) | | $ | 1.45 | | | | Diluted | | $ | (2.39 | ) | | $ | 1.38 | | | | | | | | | | | | | | | Weighted average number of shares outstanding - attributable to common stockholders | | | | | | | | | | | Basic | | | 19,119,181 | | | | 14,258,172 | | | | Diluted | | | 19,119,181 | | | | 14,922,881 | | | **** The accompanying notes are an integral part of these unaudited consolidated financial statements | F-5 | | **** **SurgePays, Inc. and Subsidiaries** **Consolidated Statements of Changes in Stockholders Equity** **For the Year Ended December 31, 2024** **** | | | | | | | | | Additional | | | | | | | | | | | | Non- | | | Total | | | | | | Common Stock | | | Paid-in | | | Accumulated | | | Treasury Stock | | | Controlling | | | Stockholders | | | | | | Shares | | | Amount | | | Capital | | | Deficit | | | Shares | | | Amount | | | Interest | | | Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2023 | | | 14,403,261 | | | $ | 14,404 | | | $ | 43,421,019 | | | $ | (15,186,203 | ) | | $ | - | | | $ | - | | | $ | 154,244 | | | $ | 28,403,464 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock issued for cash | | | 3,080,356 | | | | 3,081 | | | | 17,246,913 | | | | - | | | | - | | | | - | | | | - | | | | 17,249,994 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash paid as direct offering costs | | | - | | | | - | | | | (1,395,000 | ) | | | - | | | | - | | | | - | | | | - | | | | (1,395,000 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exercise of warrants - cash | | | 1,860,308 | | | | 1,861 | | | | 8,797,396 | | | | - | | | | - | | | | - | | | | - | | | | 8,799,257 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exercise of warrants - cashless | | | 40,238 | | | | 41 | | | | (41 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock issued for services | | | 47,386 | | | | 48 | | | | 411,692 | | | | - | | | | - | | | | - | | | | - | | | | 411,740 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Recognition of stock based compensation - unvested shares - related parties | | | 1,000,000 | | | | 1,000 | | | | 6,751,706 | | | | - | | | | - | | | | - | | | | - | | | | 6,752,706 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Recognition of stock-based compensation - related party | | | - | | | | - | | | | 6,196 | | | | - | | | | - | | | | - | | | | - | | | | 6,196 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Recognition of stock-based compensation | | | - | | | | - | | | | 1,602,997 | | | | - | | | | - | | | | - | | | | - | | | | 1,602,997 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Treasury shares repurchased (share buy-backs) | | | - | | | | - | | | | - | | | | - | | | | 362,620 | | | | (631,967 | ) | | | - | | | | (631,967 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-controlling interest | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (208,550 | ) | | | (208,550 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss | | | - | | | | - | | | | - | | | | (45,729,224 | ) | | | - | | | | - | | | | - | | | | (45,729,224 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2024 | | | 20,431,549 | | | $ | 20,435 | | | $ | 76,842,878 | | | $ | (60,915,427 | ) | | | 362,620 | | | $ | (631,967 | ) | | $ | (54,306 | ) | | $ | 15,261,613 | | | The accompanying notes are an integral part of these unaudited consolidated financial statements | F-6 | | **** **SURGEPAYS, INC. AND SUBSIDIARIES** **Consolidated Statements of Changes in Stockholders Equity (Deficit)** **For the Year Ended December 31, 2023** **** | | | | | | | | | Additional | | | | | | Non- | | | Total | | | | | | Common Stock | | | Paid-in | | | Accumulated | | | Controlling | | | Stockholders | | | | | | Shares | | | Amount | | | Capital | | | Deficit | | | Interest | | | Equity | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2022 | | | 14,116,832 | | | $ | 14,117 | | | $ | 40,780,707 | | | $ | (35,804,106 | ) | | $ | 127,535 | | | $ | 5,118,253 | | | | Balance | | | 14,116,832 | | | $ | 14,117 | | | $ | 40,780,707 | | | $ | (35,804,106 | ) | | $ | 127,535 | | | $ | 5,118,253 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock issued for services | | | 242,615 | | | | 243 | | | | 1,289,781 | | | | - | | | | - | | | | 1,290,024 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Recognition of stock based compensation - unvested shares - related parties | | | - | | | | - | | | | 529,534 | | | | - | | | | - | | | | 529,534 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Recognition of stock based compensation - stock options | | | - | | | | - | | | | 576,625 | | | | - | | | | - | | | | 576,625 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Recognition of stock based compensation - stock options - related party | | | - | | | | - | | | | 37,176 | | | | - | | | | - | | | | 37,176 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exercise of warrants for cash | | | 43,814 | | | | 44 | | | | 207,196 | | | | - | | | | - | | | | 207,240 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-controlling interest | | | - | | | | - | | | | - | | | | - | | | | 26,709 | | | | 26,709 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | - | | | | - | | | | - | | | | 20,617,903 | | | | - | | | | 20,617,903 | | | | Net income (loss) | | | - | | | | - | | | | - | | | | 20,617,903 | | | | - | | | | 20,617,903 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2023 | | | 14,403,261 | | | $ | 14,404 | | | $ | 43,421,019 | | | $ | (15,186,203 | ) | | $ | 154,244 | | | $ | 28,403,464 | | | | Balance | | | 14,403,261 | | | $ | 14,404 | | | $ | 43,421,019 | | | $ | (15,186,203 | ) | | $ | 154,244 | | | $ | 28,403,464 | | | The accompanying notes are an integral part of these unaudited consolidated financial statements **** | F-7 | | **** **SurgePays, Inc. and Subsidiaries** **Consolidated Statements of Cash Flows** **** | | | 2024 | | | 2023 | | | | | | For the Years Ended December 31, | | | | | | 2024 | | | 2023 | | | | | | | | | | | | | Operating activities | | | | | | | | | | | Net income (loss) - including non-controlling interest | | $ | (45,937,774 | ) | | $ | 20,644,612 | | | | Adjustments to reconcile net income (loss) to net cash provided by (used in) operations | | | | | | | | | | | Bad debt expense | | | - | | | | 90,009 | | | | Depreciation and amortization | | | 942,450 | | | | 935,039 | | | | Amortization of right-of-use assets | | | 126,970 | | | | 43,483 | | | | Amortization of internal use software development costs | | | 222,830 | | | | 129,060 | | | | Impairment loss - CenterCom | | | 498,273 | | | | - | | | | Impairment loss - internal use software development costs | | | 316,594 | | | | - | | | | Impairment loss - goodwill | | | 866,782 | | | | - | | | | Stock issued for services | | | 411,740 | | | | 1,290,024 | | | | Recognition of stock based compensation - unvested shares - related parties | | | 6,752,706 | | | | 529,534 | | | | Recognition of stock-based compensation | | | 1,602,997 | | | | - | | | | Recognition of share based compensation - options | | | - | | | | 576,625 | | | | Recognition of share based compensation - options - related party | | | 6,196 | | | | 37,176 | | | | Recognition of share based compensation - options | | | 6,196 | | | | 37,176 | | | | Realized gain in sale of investments | | | (13,613 | ) | | | - | | | | Interest expense adjustment - SBA loans | | | 19,750 | | | | - | | | | Right-of-use asset lease payment adjustment true up | | | (267,347 | ) | | | - | | | | Gain on equity method investment - CenterCom | | | (33,864 | ) | | | (110,203 | ) | | | Cash paid for lease termination | | | (212,175 | ) | | | - | | | | Loss on lease termination - net | | | 194,863 | | | | - | | | | Changes in operating assets and liabilities | | | | | | | | | | | (Increase) decrease in | | | | | | | | | | | Accounts receivable | | | 6,535,865 | | | | (395,718 | ) | | | Inventory | | | 7,265,229 | | | | 2,139,648 | | | | Prepaids and other | | | (136,427 | ) | | | (50,409 | ) | | | Deferred income taxes - net | | | 2,835,000 | | | | (2,835,000 | ) | | | Increase (decrease) in | | | | | | | | | | | Accounts payable and accrued expenses | | | (2,509,925 | ) | | | 654,746 | | | | Accounts payable and accrued expenses - related party | | | (356,388 | ) | | | (680,497 | ) | | | Accounts payable and accrued expenses | | | (356,388 | ) | | | (680,497 | ) | | | Accrued income taxes payable | | | (570,000 | ) | | | 570,000 | | | | Installment sale liability - net | | | - | | | | (13,018,184 | ) | | | Deferred revenue | | | (20,000 | ) | | | (223,110 | ) | | | Operating lease liability | | | 148,665 | | | | (39,490 | ) | | | Net cash provided by (used in) operating activities | | | (21,310,603 | ) | | | 10,287,345 | | | | | | | | | | | | | | | Investing activities | | | | | | | | | | | Purchase of property and equipment | | | (518,189 | ) | | | - | | | | Purchase of investments - net | | | (10,159,444 | ) | | | - | | | | Proceeds from sale of investments | | | 10,173,057 | | | | - | | | | Cash paid for acquisition of Clearline Mobile, Inc. assets | | | (2,500,000 | ) | | | - | | | | Capitalized internal use software development costs | | | - | | | | (281,304 | ) | | | Net cash used in investing activities | | | (3,004,576 | ) | | | (281,304 | ) | | | | | | | | | | | | | | Financing activities | | | | | | | | | | | Proceeds from stock issued for cash | | | 17,249,994 | | | | - | | | | Proceeds from exercise of common stock warrants | | | 8,799,257 | | | | 207,240 | | | | Cash paid as direct offering costs | | | (1,395,000 | ) | | | - | | | | Repayments of loans - related party | | | (1,527,899 | ) | | | (1,017,385 | ) | | | Repayments on notes payable | | | - | | | | (1,595,167 | ) | | | Repayments on notes payable - SBA government | | | (10,877 | ) | | | (14,323 | ) | | | Treasury shares repurchased (share buy-backs) | | | (631,967 | ) | | | - | | | | Net cash provided (used in) by financing activities | | | 22,483,508 | | | | (2,419,635 | ) | | | | | | | | | | | | | | Net increase (decrease) in cash, cash equivalents and restricted cash | | | (1,831,671 | ) | | | 7,586,406 | | | | | | | | | | | | | | | Cash, cash equivalents and restricted cash - beginning of year | | | 14,622,060 | | | | 7,035,654 | | | | | | | | | | | | | | | Cash, cash equivalents and restricted cash - end of year | | $ | 12,790,389 | | | $ | 14,622,060 | | | | | | | | | | | | | | | Supplemental disclosure of cash flow information | | | | | | | | | | | Cash paid for interest | | $ | 470,208 | | | $ | 222,326 | | | | Cash paid for income tax | | $ | - | | | $ | - | | | | | | | | | | | | | | | Supplemental disclosure of non-cash investing and financing activities | | | | | | | | | | | | | | | | | | | | | | Reclassification of accrued interest - related party to note payable - related party | | $ | 498,991 | | | $ | - | | | | Exercise of warrants - cashless | | $ | 41 | | | $ | - | | | | Termination of ROU operating lease assets and liabilities | | $ | 327,139 | | | | | | | | Right-of-use asset obtained in exchange for new operating lease liability | | $ | 664,288 | | | $ | - | | | **** The accompanying notes are an integral part of these unaudited consolidated financial statements **** | F-8 | | **** **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** **Note 1 - Organization and Nature of Operations** **** **Organization and Nature of Operations** SurgePays, Inc. (SurgePays, SP, we, our or the Company), and its operating subsidiaries, is a technology-driven company building a next generation supply chain software platform that can offer wholesale goods and services more cost efficiently than traditional and existing wholesale distribution models. The Company and its subsidiaries are organized as follows: Schedule of Subsidiaries | Company Name (Active) | | Incorporation Date | | State of Incorporation | | Segment | | | SurgePays, Inc. | | August 18, 2006 | | Nevada | | Corporate Parent | | | Surge Blockchain, LLC | | January 29, 2009 | | Nevada | | Other Corporate Overhead | | | ECS Prepaid, LLC | | June 9, 2009 | | Missouri | | Comprehensive Platform Services | | | LogicsIQ, Inc. | | October 2, 2018 | | Nevada | | Other Corporate Overhead | | | Torch Wireless | | January 29, 2019 | | Wyoming | | Mobile Virtual Network Operators | | | SurgePays Fintech, Inc. | | August 22, 2019 | | Nevada | | Comprehensive Platform Services | | | SurgePhone Wireless, LLC | | August 29, 2019 | | Nevada | | Mobile Virtual Network Operators | | | Injury Survey, LLC | | July 28, 2020 | | Nevada | | Other Corporate Overhead | | All of the following entities have nominal operations. | Company Name (Inactive) | | Incorporation Date | | State of Incorporation | | | Electronic Check Services, Inc. | | May 19, 1999 | | Missouri | | | Central States Legal Services, Inc. | | August 1, 2003 | | Missouri | | | KSIX, LLC | | September 14, 2011 | | Nevada | | | DigitizeIQ, LLC | | July 23, 2014 | | Illinois | | | KSIX Media, Inc. | | November 5, 2014 | | Nevada | | | Surge Payments, LLC | | December 17, 2018 | | Nevada | | See discussion below regarding the discontinuation of the Companys lead generation segment. **** | F-9 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | **** **Discontinued Operations LogicsIQ Segment** **** Managements Decision Effective December 31, 2024, the Companys 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 segments financial performance and determined that its continued operation was no longer aligned with the Companys 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 entitys 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 Companys 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 Companys 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 Companys 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. | F-10 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | 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 under ASC 280-10-50-1. 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 under ASC 360-10-45-9. 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. | F-11 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | 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 managements focus on core business areas that offer higher growth potential and operational efficiency. **** **Basis of Presentation** The accompanying 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). **Liquidity and Managements Plans** As reflected in the accompanying consolidated financial statements, for the year ended December 31, 2024, the Company had: | | Net loss available to common stockholders of $45,729,224; and | | | | Net cash used in operations was $21,310,603 | | Additionally, at December 31, 2024, the Company had: | | Accumulated deficit of $60,915,427 | | | | Stockholders equity of $15,261,613; and | | | | Working capital of $11,810,847 | | We manage liquidity risk by reviewing, on an ongoing basis, our sources of liquidity and capital requirements. The Company has unrestricted cash on hand of $11,790,389 at December 31, 2024. The Company has historically incurred significant losses and has not, prior to 2023, demonstrated an ability to generate sufficient revenues from the sales of its products and services to achieve profitable operations. The Company again generated a net loss in 2024. 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 twelve months ending December 31, 2025, 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. | F-12 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | The Company believes it has 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. Managements 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. | | **Note 2 - Summary of Significant Accounting Policies** **Principles of Consolidation and Non-Controlling Interest** **** These consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated. For entities that are consolidated, but not 100% owned, a portion of the income or loss and corresponding equity is allocated to owners other than the Company. The aggregate of the income or loss and corresponding equity that is not owned by us is included in Non-controlling Interests in the consolidated financial statements. **** **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. | F-13 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | 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 Companys 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 Companys earnings. 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 acquisitions 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. **** | F-14 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | Acquisition of ClearLine Mobile, Inc assets **** On January 5, 2024, the Company closed a purchase agreement and acquired ClearLine Mobile, Incs. (CLMI) assets related software development in exchange for $2,500,000. CLMI produces a touchscreen display, positioned by the cash register, which 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. Payments were paid as follows: | | - | $100,000 at signing, | | | | - | $800,000 at closing, | | | | - | $800,000 90 days from closing (April 2024) | | | | - | $800,000 180 days from closing (July 2024) | | In connection with this business combination, the Company assumed a right-of-use operating lease and corresponding lease liability of $98,638 with a period of two (2) years remaining. 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. | F-15 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | 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 | | $ | 2,500,000 | | | | | | | | | | | Fair value of consideration transferred | | | 2,500,000 | | | | | | | | | | | Recognized amounts of identifiable assets acquired and liabilities assumed: | | | | | | | | | | | | | | Right-of-use operating lease | | | 98,638 | | | | Total assets acquired | | | 98,638 | | | | | | | | | | | Right-of-use operating lease | | | 98,638 | | | | Total liabilities assumed | | | 98,638 | | | | | | | | | | | Total identifiable net assets | | | - | | | | | | | | | | | Goodwill | | $ | 2,500,000 | | | 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. At December 31, 2024 and 2023 goodwill was $3,300,000 and $1,666,782, respectively. At December 31, 2024, the Company determined that its subsidiary LogicsIQ would be considered a discontinued operation (See Note 1). Prior to this determination, the Company recorded a goodwill impairment loss of $866,782. There were no impairment losses recorded for the for the year ended December 31, 2023. | F-16 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | **** **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 $176,851, bearing interest at 0.6%, with a default interest rate of 10%. The Company was expected to receive twenty-five (25) monthly payments of principal and accrued interest totaling $7,461 commencing in June 2023. Payments were scheduled as follows: Schedule of Receivables | For the Year Ended December 31, | | | | | In Default | | | | 2025 | | | 186,525 | ** | | $ | 141,759 | | | | | | | 186,525 | | | | | | | | Less: amount representing interest | | | (9,674 | ) | | | | | | | Total | | $ | 176,851 | | | | | | | 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 $176,851 (the Note). Pursuant to the terms of the Note, SurgePays, Inc. accelerated the amount due. | ** | At December 31, 2024, a total of $141,759 in payments were in default, which consisted of payments due totaling $52,227 related to the year ended December 31, 2023 and an additional $89,532 of payments which were due as of December 31, 2024. | | As of December 31, 2024, 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 Companys reportable segments. The Company manages its business as multiple reportable segments. See Note 10 regarding segment disclosure. The Mobile Virtual Network Operator (SurgePhone and Torch Wireless) business segment made up approximately 70% and 85% of total consolidated revenues for the years ended December 31, 2024 and 2023, respectively. | F-17 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | Revenues related to this business segment are 100% derived from programs administered by the Federal Communications Commission (FCC), and all funds related to these programs are received directly from organizations under the direction of the FCC and subject to administrative rulings, statutory changes, and other funding restrictions that could impact the Companys operations in this segment. Accounts receivable related to these programs made up 97% and 98% of accounts receivable at December 31, 2024 and December 31, 2023, respectively. **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 years ended December 31, 2024 and 2023, 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 Companys 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 Companys distribution of the product. These factors, among others, make it difficult to project the Companys operating results on a consistent basis. | F-18 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | 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 methodssuch as cost, market, or income approachesapplied 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 Companys financial instruments, including cash, accounts receivable, note receivable, accounts payable, and accrued expenses (including related-party amounts), are recorded at historical cost. As of December 31, 2024, and December 31, 2023, the carrying values of these instruments approximate their fair values due to their short-term nature. | F-19 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | 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 $250,000. At December 31, 2024 and December 31, 2023, respectively, the Company did not experience any losses on cash balances in excess of FDIC insured limits. Additionally, at December 31, 2024, the Company had $1,000,000 held in escrow, that was restricted in connection with a potential acquisition. The restriction lapsed in January 2025, and the $1,000,000 was returned to the Companys operating cash account. **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. At December 31, 2024 and 2023, the Company has 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 and 2023, the Companys marketable securities were $0, respectively. | F-20 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | Marketable securities were as follows at December 31, 2024 and 2023, respectively. Schedule of Marketable Securities | | | U.S. Treasury & Government | | | | | | Exchange Traded Funds | | | | | | Fixed Income | | | | Balance - December 31, 2023 | | $ | - | | | | Purchases | | | 10,000,000 | | | | Sales | | | (10,173,057 | ) | | | Realized gains | | | 13,613 | | | | Dividends, interest, and other income | | | 169,306 | | | | Fees/adjustments | | | (9,862 | ) | | | 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 securitys 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 issuers 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. | | For the years ended December 31, 2024 and 2023, respectively, 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. | F-21 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | **** **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 Companys 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 $0 and $17,525 at December 31, 2024 and 2023, respectively. There was bad debt expense (recovery) of $0 for the years ended December 31, 2024 and 2023, respectively. 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 tablets, cell phones 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 $6,382,471. This amount has been included as a component of cost of revenues in the accompanying consolidated statements of operations. At December 31, 2024 and 2023, the Company had inventory of $1,781,365 and $9,046,594, respectively. **** | F-22 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | **** **Impairment of Long-lived Assets** Management evaluates the recoverability of the Companys 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 Companys 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. There were various impairment losses recorded during the year ended December 31, 2024, see below. There were no impairment losses recorded for the year ended December 31, 2023. **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. | F-23 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | **** **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. 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. | F-24 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | 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 $316,594. For the year ended December 31, 2023, the Company did not record any impairment loss. For the years ended December 31, 2024 and 2023, the Company expensed $1,095,033 and $0, respectively, related to our internal use software development costs. **Right of Use Assets and Lease Obligations** The Right of Use Asset and Lease Liability reflect the present value of the Companys 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 Companys 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 Companys 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 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 partys 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 customers intent and ability to pay the promised consideration. The Company applies judgment in determining the customers ability and intention to pay, which is based on a variety of factors including the customers 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 Companys judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of the Companys contracts contain a significant financing component and there are no contracts with variable consideration. | F-25 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | 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. 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** **** SurgePhone Wireless (SPW) and Torch Wireless are licensed to provide subsidized mobile broadband services through the ACP to qualifying low-income customers to all fifty (50) states. Revenues are recognized when an ACP application is completed and accepted. Each month we reconcile subscriber usage to ensure the service was utilized. A monthly file is submitted to the Universal Service Administrative Company for review and approval, at which time we have completed our performance obligation and recognize accounts receivable and revenue. Revenues are recorded in the month when services were rendered, with payment typically received on the 28th of the following month. | F-26 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | **** **Lead Generation Services** LogicsIQ, Inc. is a lead generation and case management solutions company primarily serving law firms in the mass tort industry. Revenues are earned from our lead generation retained services offerings and call center activities through CenterCom (40% investment ownership). Lead generation consist of sourcing leads, which requires us to drive traffic to our landing pages for a specific marketing campaign. We also achieve this in certain marketing campaigns by using third-party preferred vendors to meet the needs of our clients. Revenues are recognized at the time the lead is delivered to the client. If payment is received in advance of the delivery of services, it is included in deferred revenue and subsequently recognized once the performance obligation has been completed. Retained service offerings consist of turning leads into a retained legal case. To provide this service to our customers, we qualify leads through verification of information collected during the lead generation process. Additionally, we further qualify these leads using a client questionnaire which assists in determining the services to be provided. The qualification process is completed using our call center operations. Effective February 1, 2023, LogicsIQ started offering call center services to existing clients. These services are similar in nature to the services CenterCom offers LogicsIQ. Effective January 1, 2024, the Company no longer provides these services. The total revenue from these services for the years ended December 31, 2024 and 2023, was $0 and $1,545,397, respectively. If payment is received in advance of the delivery of services, it is included in deferred revenue and subsequently recognized once the performance obligation has been completed. At the time of delivery of leads and the creation of retained cases (customers are qualified at this point), our performance obligation has been completed, and revenues are recognized. Arrangements with customers do not provide the customer with the right to take possession of our software or platform at any time. Once the advertising is delivered, it is non-refundable. Effective December 31, 2024, the Companys 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. **** **** | F-27 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | **** **Comprehensive Platform 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 disclosure in accordance with ASC 606-10-37A and has determined the Company is a principle in the agreements. 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 December 31, 2024 and 2023, the Company had deferred revenue of $0 and $20,000, respectively. The following represents the Companys disaggregation of revenues for the years ended December 31, 2024 and 2023: Schedule of Disaggregation of Revenue from Contracts with Customers | | | For the Years Ended December 31, | | | | | | 2024 | | | 2023 | | | | Revenue | | Revenue | | | % of Revenues | | | Revenue | | | % of Revenues | | | | | | | | | | | | | | | | | | | Mobile Virtual Network Operators | | $ | 43,450,244 | | | | 71.37 | % | | $ | 118,577,920 | | | | 86.46 | % | | | Comprehensive Platform Services | | | 17,419,088 | | | | 28.61 | % | | | 11,341,183 | | | | 8.27 | % | | | Other Corporate Overhead | | | 11,841 | | | | 0.02 | % | | | 7,222,729 | | | | 5.27 | % | | | Total Revenues | | $ | 60,881,173 | | | | 100 | % | | $ | 137,141,832 | | | | 100 | % | | The above disaggregation of revenues includes the following entities: **** Mobile Virtual Network Operators (SPW and TW), Comprehensive Platform Services (Surge Fintech and ECS); and Other Corporate Overhead (Surge Blockchain and formerly LogicsIQ and Injury Survey) | F-28 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | Effective December 31, 2024, the Companys 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. For the years ended December 31, 2024 and 2023, revenues from this discontinued operation were $0 and $7,184,283, respectively. **** **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. 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 December 31, 2024 and 2023, respectively, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. The Company recognizes interest and penalties related to uncertain income tax positions in other expense. No interest and penalties related to uncertain income tax positions were recorded for the years ended December 31, 2024 and 2023, respectively. For the year ended December 31, 2023, the Company generated net income, however, during the year ended December 31, 2024, the Company has reflected a net loss. As of December 31, 2024, 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 December 31, 2024, resulting in a tax expense of $2,870,000 for the period ended December 31, 2024. | F-29 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | 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 years net taxable income. Since the Company entered a three-year cumulative loss commencing during the quarter ended June 30, 2024, and remained in a three-year cumulative loss at December 31, 2024, a full valuation allowance has been recorded against all net operating loss carryforwards. At December 31, 2024 and 2023, the Company has accrued an income tax liability of $0 and $570,000, respectively. See Note 12. **Investment** **** On January 17, 2019, we announced the completion of an agreement to acquire a 40% equity ownership of CenterCom Global, S.A. de C.V. (CenterCom). CenterCom is a dynamic operations center currently providing sales support, customer service, IT infrastructure design, graphic media, database programming, software development, revenue assurance, lead generation, and other various operational support services. Our CenterCom team is based in El Salvador. CenterCom also provides call center support for various third-party clients. 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 investees 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. The following is a summary of our investment at December 31, 2024 and December 31, 2023: Schedule of Investment | Balance - December 31, 2022 | | $ | 354,206 | | | | Gain on investment in CenterCom | | | 110,203 | | | | Balance - December 31, 2023 | | | 464,409 | | | | Gain on investment in CenterCom | | | 33,864 | | | | Impairment loss - CenterCom | | | (498,273 | ) | | | Balance - December 31, 2024 | | $ | - | | | During the years ended December 31, 2024 and 2023, we recognized a gain of $33,864 and $110,203, respectively. | F-30 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | 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 years ended December 31, 2024 and 2023, the Company has recorded an impairment loss of $498,273 and $0, respectively. **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 years ended December 31, 2024 and 2023, respectively, as follows: Schedule of Marketing and Advertising Costs | Years Ended December 31, | | | | 2024 | | | 2023 | | | | $ | 109,004 | | | $ | 152,851 | | | **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. | | 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. | | | F-31 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | 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 Entitys 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. | | | F-32 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | **** **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 Entitys 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. | | 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. Outstanding Potentially Dilutive Equity Securities The following potentially dilutive equity securities were outstanding as of December 31, 2024, and 2023: Schedule of Diluted Net Income (Loss) Per Share | | | December 31, 2024 | | | December 31, 2023 | | | | Warrants | | | 96,000 | | | | 5,574,253 | | | | Stock options | | | 2,220,684 | | | | 116,174 | | | | Total common stock equivalents | | | 2,316,684 | | | | 5,690,427 | | | Warrants and stock options included as common stock equivalents represent those that are fully vested and exercisable. See Note 9. | F-33 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | Sufficiency of Authorized Shares As of December 31, 2024, the Company has 500,000,000 authorized shares of common stock, which is sufficient to accommodate any potential exercises of common stock equivalents. The following table shows the computation of basic and diluted earnings per share for the years ended December 31, 2024 and 2023: Schedule of Earnings per Share Basic and Diluted | | | Year Ended | | | Year Ended | | | | | | December 31, 2024 | | | December 31, 2023 | | | | | | | | | | | | | Numerator | | | | | | | | | | | Net income (loss) available to common stockholders | | $ | (45,729,224 | ) | | $ | 20,617,903 | | | | | | | | | | | | | | | Denominator | | | | | | | | | | | Weighted average shares outstanding - basic | | | 19,119,181 | | | | 14,258,172 | | | | Effect of dilutive securities | | | - | | | | 664,709 | | | | Weighted average shares outstanding - diluted | | | 19,119,181 | | | | 14,922,881 | | | | | | | | | | | | | | | Earnings (loss) per share - basic | | $ | (2.39 | ) | | $ | 1.45 | | | | Earnings (loss) per share - diluted | | $ | (2.39 | ) | | $ | 1.38 | | | During the year ended December 31, 2024, the Company reacquired 362,620 shares of treasury stock for $631,967. These shares are excluded from the denominator in computing basic and diluted earnings (loss) per share, as these shares are not considered outstanding. **** **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. **** | F-34 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | **** **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. 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 SECs 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 years ended December 31, 2024 and 2023, 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 | | December 31, 2024 | | | December 31, 2023 | | | | Carddawg Investments, Inc. | | | 166,356 | | | | 166,356 | 1 | | | Total | | $ | 166,356 | | | $ | 166,356 | | | | 1 | - represents an affiliate of our Chief Executive Officer (Kevin Brian Cox) | | 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 Companys officers and directors. These amounts are insignificant. See Note 6 for debt transactions with our Chief Executive Officer. **** | F-35 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | **** **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. 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 Companys consolidated financial statements. Recently Adopted Accounting Standards | | ASU 2022-02, Financial Instruments Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures | | | | | | Issued: March 2022 | | | | | | Effective Date: January 1, 2023 | | | | | | Summary: ASU 2022-02 eliminates the troubled debt restructuring (TDR) accounting guidance under ASC 310, Receivables, and introduces additional disclosure requirements for gross write-offs by year of origination. The update also modifies the credit loss model under ASC 326, requiring enhanced disclosures related to loan refinancings and restructurings for borrowers experiencing financial difficulties. | | | | | | Company Impact: The Company adopted ASU 2022-02 on January 1, 2023, and the adoption did not have a material impact on the Companys consolidated financial statements. | | | | | | | | | | 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 Companys consolidated financial statements. | | | F-36 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | | | 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 Companys consolidated financial statements. | | Recently Issued Accounting Standards (Not Yet Adopted) | | 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 is currently assessing the impact but does not anticipate a material effect on its financial statements. | | 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 Companys 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. **** | F-37 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | **** **Note 3 Property and Equipment** **** Property and equipment consisted of the following: Schedule of Property and Equipment | | | | | | | | | Estimated Useful | | | Type | | December 31, 2024 | | | December 31, 2023 | | | Lives (Years) | | | | | | | | | | | | | | Computer equipment and software | | $ | 1,135,178 | | | $ | 1,006,286 | | | 3 - 5 | | | Leasehold improvements | | | 306,311 | | | | - | | | 5 | | | Furniture and fixtures | | | 165,738 | | | | 82,752 | | | 5 - 7 | | | Property and Equipment - gross | | | 1,607,227 | | | | 1,089,038 | | | | | | Less: accumulated depreciation/amortization | | | (1,016,139 | ) | | | (727,197 | ) | | | | | Property and equipment - net | | $ | 591,088 | | | $ | 361,841 | | | | | Depreciation and amortization expense for the years ended December 31, 2024 and 2023 was $942,450 and $935,039, respectively. 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 | | December 31, 2024 | | | December 31, 2023 | | | Lives (Years) | | | | | | | | | | | | | | Proprietary Software | | $ | 4,286,402 | | | $ | 4,286,402 | | | 7 | | | Tradenames/trademarks | | | 617,474 | | | | 617,474 | | | 15 | | | ECS membership agreement | | | 465,000 | | | | 465,000 | | | 1 | | | Noncompetition agreement | | | 201,389 | | | | 201,389 | | | 2 | | | Customer Relationships | | | 183,255 | | | | 183,255 | | | 5 | | | Intangibles - gross | | | 5,753,520 | | | | 5,753,520 | | | | | | Less: accumulated amortization | | | (4,280,558 | ) | | | (3,627,050 | ) | | | | | Intangibles - net | | $ | 1,472,962 | | | $ | 2,126,470 | | | | | | F-38 | | | SURGEPAYS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2024 AND 2023 | | **** Amortization expense for the years ended December 31, 2024 and 2023 was as follows: Schedule of Amortization Expense | December 31, 2024 | | | December 31, 2023 | | | | $ | 653,508 | | | $ | 653,507 | | | Estimated amortization expense for each of the succeeding years is as follows: Schedule of Estimated Amortization Expenses | For the Years Ended December 31: | | | | | | 2025 | | | 653,508 | | | | 2026 | | | 653,508 | | | | 2027 | | | 165,946 | | | | Total | | $ | 1,472,962 | | | **** **Note 5 Internal Use Software Development Costs** **** Internal Use Software Development Costs consisted of the following: Schedule of Internal Use Software Development Costs | | | | | | | | | Estimated Useful | | | Type | | December 31, 2024 | | | December 31, 2023 | | | Life (Years) | | | | | | | | | | | | | | Internal use software development costs | | $ | 668,484 | | | $ | 668,484 | | | 3 | | | Less: accumulated amortization | | | (351,890 | ) | | | (129,060 | ) | | | | | Less: impairment loss | | | (316,594 | ) | | | - | | | | | | Internal Use Software Development Costs - net | | $ | - | | | $ | 539,424 | | | | | Costs incurred for Internal Use Software Development Costs Management has determined that all costs incurred in 2023 ($281,304) related to internal software development costs related to the application and infrastructure development stage were completed as of December 31, 2023. Amortization of these costs began in 2024. Management determined that all costs incurred in 2022 ($387,180) related to internal use software development costs related to the application and infrastructure development stage which were completed as of December 31, 2022. Amortization of these costs began in 2023. 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 $316,594 and removed the gross amount of its capitalized costs totaling $668,484. See Note 1. | F-39 | | **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** The following is a summary of our capitalized internal use software development costs at December 31, 2024 and December 31, 2023: Schedule of Capitalized Internal Use Software Development Costs | Balance - December 31, 2022 | | $ | 387,180 | | | | Capitalized costs | | | 281,304 | | | | Balance - December 31, 2023 | | | 668,484 | | | | Impairment loss | | | (668,484 | ) | | | Balance - December 31, 2024 | | $ | - | | | For the years ended December 31, 2024 and 2023, amortization of internal software development costs was $222,830 and $129,060, respectively. **Note 6 Debt** The following represents a summary of the Companys notes payable SBA government, notes payable related parties, and notes payable, key terms, and outstanding balances at December 31, 2024 and 2023, respectively: **Notes Payable SBA government** **Economic Injury Disaster Loan (EIDL)** **** During 2020, this program was made available to eligible borrowers in light of the impact of the COVID-19 pandemic and the negative economic impact on the Companys business. Proceeds from the EIDL were used for working capital purposes. Installment payments, including principal and interest, are due monthly (beginning twelve (12) months from the date of the promissory note) in amounts ranging from $74 - $731/month. The balance of principal and interest is payable over the next thirty (30) years from the date of the promissory note. There are no penalties for prepayment. The EIDL Loan was not required to be refinanced by the PPP loan. **** | F-40 | | **** **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** Schedule of Notes Payable**** | | | EIDL | | | EIDL | | | | | | | Terms | | SBA | | | SBA | | | Total | | | | | | | | | | | | | | | | Issuance dates of SBA loans | | | May 2020 | | | | July 2020 | | | | | | | | Term | | | 30 Years | | | | 30 Years | | | | | | | | Maturity date | | | May 2050 | | | | July 2050 | | | | | | | | Interest rate | | | 3.75% | | | 3.75% | | | | | | | | Collateral | | | Unsecured | | | | Unsecured | | | | | | | | | | | | | | | | | | | | | | | Balance - December 31, 2022 | | $ | 145,922 | | | $ | 328,924 | | | $ | 474,846 | | | | Repayments | | | (3,928 | ) | | | (10,395 | ) | | | (14,323 | ) | | | Balance - December 31, 2023 | | | 141,994 | | | | 318,529 | | | | 460,523 | | | | Interest expense adjustment - SBA loans | | | 5,487 | | | | 14,263 | | | | 19,750 | | | | Repayments | | | (3,532 | ) | | | (7,345 | ) | | | (10,877 | ) | | | Balance - December 31, 2024 | | $ | 143,949 | | | $ | 325,447 | | | $ | 469,396 | | | **** **Notes Payable Related Parties** Schedule of Notes - Payable Related Parties The following is a summary of the Companys Notes Payable - Related Parties: | | | 1 | | | 1 | | | 2 | | | Total | | | | Balance - December 31, 2022 | | $ | - | | | $ | 5,134,563 | | | $ | 467,385 | | | $ | 5,601,948 | | | | Repayments | | | - | | | | (550,000 | ) | | | (467,385 | ) | | | (1,017,385 | ) | | | Balance - December 31, 2023 | | | - | | | | 4,584,563 | | | | - | | | | 4,584,563 | | | | Reclassification of principal into one single note | | | 4,584,563 | | | | (4,584,563 | ) | | | - | | | | - | | | | Reclassification of accrued interest payable into one single note | | | 498,991 | | | | - | | | | - | | | | 498,991 | | | | Repayments | | | (1,527,899 | ) | | | - | | | | - | | | | (1,527,899 | ) | | | Balance - December 31, 2024 | | $ | 3,555,655 | | | $ | - | | | $ | - | | | $ | 3,555,655 | | | **** | F-41 | | **** **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** | 1 | Activity is with the Companys Chief Executive Officer and Board Member (Kevin Brian Cox). | | At December 31, 2023, of the total $4,584,563 due, the Company owed $558,150 that had not been repaid (due December 31, 2023), the balance of $4,026,413 was due December 31, 2024. The Chief Executive Officer waived any events of default as of December 31, 2023. On March 12, 2024, as approved by the Audit Committee, the Company consolidated all remaining outstanding principal ($4,584,563) and accrued interest payable ($498,991) into one note totaling $5,083,554. This note bears interest at 10% (with a default interest rate of 15%) and will be repaid ratably over a period of 36 months aggregating $5,905,427 in total payments to be made (inclusive of interest). Each monthly payment will be $164,039. The note is unsecured. The Note is expected to be repaid in full by December 2026. **** | 2 | Activity was with David May, who is a Board Member. The note of $467,385 and related accrued interest of $63,641 (aggregate $531,026) was repaid in 2023. The note bore interest at 10% and was unsecured. | | The following is a detail of the Companys Notes Payable - Related Parties: Schedule of Notes Payable - Related Parties | Notes Payable - Related Parties | | | Note Holder | | Issue Date | | Maturity Date | | Interest Rate | | | Default Interest Rate | | | Collateral | | December 31, 2024 | | | December 31, 2023 | | | | Note #1 | | December 31, 2023 | | December 31, 2026 | | | 10.00 | % | | | 15.00 | % | | None | | $ | 3,555,655 | | | $ | - | | | | Note #2 | | December 31, 2022 | | December 31, 2023 | | | 10.00 | % | | | 0.00 | % | | None | | | - | | | | 4,584,563 | | | | | | | | | | | | | | | | | | | | | 3,555,655 | | | | 4,584,563 | | | | | | | | | | | | | | | | | | Short Term | | | 1,689,367 | | | | 4,584,563 | | | | | | | | | | | | | | | | | | Long Term | | $ | 1,866,288 | | | $ | - | | | **** | F-42 | | **** **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** **Notes Payable** Schedule of Notes Payable | | | 1 | | | 2 | | | 3 | | | | | | | Terms | | Notes Payable | | | Notes Payable | | | Note Payable | | | Total | | | | | | | | | | | | | | | | | | | Issuance dates of notes | | | April/May 2022 | | | | March 2022 | | | | 2022 | | | | | | | | Maturity date | | | October/November 2022 | | | | March 2023 | | | | 2025 | | | | | | | | Interest rate | | | 19% | | | 19% | | | | 1% | | | | | | | | Default interest rate | | | 26% | | | | 26% | | | | 0% | | | | | | | | Collateral | | | Unsecured | | | | Unsecured | | | | Unsecured | | | | | | | | Warrants issued as debt discount/issue costs | | | 36,000 | | | | 15,000 | | | | N/A | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance - December 31, 2022 | | | 1,100,000 | | | | 400,000 | | | | 95,167 | | | | 1,595,167 | | | | Repayments | | | (1,100,000 | ) | | | (400,000 | ) | | | (95,167 | ) | | | (1,595,167 | ) | | | Balance - December 31, 2023 | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | | 1 | - These notes were issued with 36,000, three (3) year warrants, which were previously reflected as debt issue costs and were amortized over the life of the debt. These notes were fully repaid in 2023. | | | 2 | - These notes were issued with 15,000, three (3) year warrants, which were previously reflected as debt issue costs and were amortized over the life of the debt. Additionally, in 2022, the Company issued an additional 12,000, three (3) year warrants, which were treated as interest expense in connection with extending the maturity date for notes totaling $400,000 to March 2023. In 2023, the Company repaid $400,000 in notes and related accrued interest of $36,204 (aggregate $436,204). | | | 3 | This loan, originally a PPP loan, was refinanced in 2022 and was extended from October 2021 to March 2025. Monthly payments were $3,566 per month. In 2023, the remaining balance of the note was repaid in full. | | | F-43 | | **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** **Debt Maturities** The following represents the maturities of the Companys 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, | | Notes Payable - Related Parties | | | Notes Payable - SBA Government | | | Total | | | | | | | | | | | | | | | | 2025 | | | 1,689,367 | | | | 11,043 | | | | 1,700,410 | | | | 2026 | | | 1,866,288 | | | | 11,461 | | | | 1,877,749 | | | | 2027 | | | - | | | | 11,902 | | | | 11,902 | | | | 2028 | | | - | | | | 12,308 | | | | 12,308 | | | | 2029 | | | - | | | | 12,820 | | | | 12,820 | | | | Thereafter | | | - | | | | 409,862 | | | | 409,862 | | | | Total | | $ | 3,555,655 | | | $ | 469,396 | | | $ | 4,025,051 | | | **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 December 31, 2024 and December 31, 2023, 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. | F-44 | | **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** 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. | F-45 | | **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** **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 $212,175 to the lessor to settle all remaining lease obligations. 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: $309,826 | | | | Lease Liability: $327,138 | | As a result of the termination, the Company recognized a loss of $194,863 which is reported in the Companys consolidated statements of operations under the line item Other expenses for the years ended December 31, 2024. The loss was calculated as follows: Schedule of Loss | | | | | | | | ROU Asset | | | 309,826 | | | | Cash paid to execute lease termination | | | 212,175 | | | | ROU Liability | | | (327,138 | ) | | | Loss on lease termination | | | 194,863 | | | 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 2,293 square feet of office space in San Salvador. The lease term is 32 months, and expires May 2027, and the total monthly payment is $18,958, including base rent, estimated operating expenses and sales tax. This space houses our business process outsourcing teams, consisting of customer service, programming, call-center and operations personnel. The lease is subject to a 3% annual increase. An initial Right of Use (ROU) asset of $565,650 will be recognized as a non-cash asset addition. At December 31, 2024 and 2023, respectively, the Company had no financing leases as defined in ASC 842, *Leases.* ** | F-46 | | ** **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** The tables below present information regarding the Companys operating lease assets and liabilities at December 31, 2024 and 2023, respectively: Schedule of Operating Lease Assets and Liabilities | | | December 31, 2024 | | | December 31, 2023 | | | | Assets | | | | | | | | | | | | | | | | | | | | | | Operating lease - right-of-use asset - non-current | | $ | 564,781 | | | $ | 387,869 | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | | Operating lease liability | | $ | 567,301 | | | $ | 399,413 | | | | | | | | | | | | | | | Weighted-average remaining lease term (years) | | | 2.29 | | | | 6.50 | | | | | | | | | | | | | | | Weighted-average discount rate | | | 8 | % | | | 5 | % | | The components of lease expense were as follows: Schedule of Lease Expense | | | Year Ended | | | Year Ended | | | | | | December 31, 2024 | | | December 31, 2023 | | | | | | | | | | | | | Operating lease costs | | | | | | | | | | | | | | | | | | | | | | Amortization of right-of-use operating lease asset | | $ | 126,970 | | | $ | 43,483 | | | | Lease liability expense in connection with obligation repayment | | | 25,639 | | | | 20,804 | | | | Total operating lease costs | | $ | 152,609 | | | $ | 64,287 | | | | | | | | | | | | | | | Supplemental cash flow information related to operating leases was as follows: | | | | | | | | | | | | | | | | | | | | | | Operating cash outflows from operating lease (obligation payment) | | $ | 148,665 | | | $ | 39,490 | | | | Right-of-use asset obtained in exchange for new operating lease liability | | $ | 664,288 | | | $ | - | | | | F-47 | | **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** Future minimum lease payments for the years ended December 31: Schedule of Future Minimum Payments | Year Ended December 31, | | | | | | 2025 | | $ | 281,956 | | | | 2026 | | | 236,078 | | | | 2027 | | | 100,563 | | | | Total undiscounted cash flows | | | 618,597 | | | | Less: amount representing interest | | | 51,296 | | | | Present value of operating lease liabilities | | | 567,301 | | | | Less: current portion of operating lease liabilities | | | 248,069 | | | | Long-term operating lease liabilities | | $ | 319,232 | | | **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 - $475,000, | | | b. | For the year ended December 31, 2024 - $489,250; and | | | c. | For the year ended December 31, 2025 - $503,928 | | | 2. | Annual cash bonus | | | a. | For the year ended December 31, 2023 - $510,000, | | | b. | For the year ended December 31, 2024 at least $510,000; and | | | c. | For the year ended December 31, 2025 - subject to Board approval | | | 3. | Restricted Stock Awards | | | a. | Effective November 10, 2023, an award of 600,000 shares of common stock. The fair value of this grant was $3,114,000, based upon the quoted closing price of $5.19/share. | | | b. | The shares will vest as follows (see below for table on non-vested shares): | | | i. | 400,000 shares ratably over the period July 2024 December 2024 (66,667 shares per month over a six-month period); and | | | ii. | 200,000 on December 31, 2025, | | | 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 | | | F-48 | | **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** | 4. | Other | | | a. | Vacation, | | | b. | Car allowance of $500 per month; and | | | c. | Home office expense reimbursement of $667 per month, | | | 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 - $750,000, | | | b. | For each year thereafter an increase of 3% | | | 3. | Annual cash bonus | | | a. | For the year ended December 31, 2023, and all other years throughout the term of the employment agreement - $870,000. | | | 4. | Restricted Stock Awards | | | a. | Effective March 1, 2024, future stock awards totaling 2,500,000 shares of common stock. | | | b. | The shares will be issued and vest as follows: | | | i. | 500,000 shares ratably over the period July 2024 December 2024 (83,333 shares per month over a six-month period). The fair value of this grant was $3,800,000, based upon the quoted closing price of $7.60/share, 500,000 on June 1, of each subsequent year (2025, 2026, 2027 and 2028), at which time these shares will have their fair value determined. These shares have no stated performance or service requirements, other than to be remain as the Chief Executive Officer, and the expense will be recorded on the grant date; and | | | ii. | 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 | | | F-49 | | **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** | 5. | Annual Revenue Goals (only one (1) award per goal may be earned until next threshold is achieved | | | a. | $250,000,000 value of restricted stock award will be $6,250,000, | | | b. | $500,000,000 value of restricted stock award will be $25,000,000, | | | c. | $1,000,000,000 value of restricted stock award will be $50,000,000, | | | d. | $2,000,000,000 value of restricted tock award will be $100,000,000; and | | | e. | Each additional $1,000,000,000 value of restricted tock award will be $50,000,000, | | | 6. | Annual EBITDA Goals (only one (1) award per goal may be earned until next threshold is achieved | | | a. | $50,000,000 - value of restricted stock award will be $2,500,000, | | | b. | $100,000,000 - value of restricted stock award will be $5,000,000; and | | | c. | Each additional $50,000,000 - value of restricted stock award will be $2,500,000 | | | 7. | Market Capitalization Goals (only one (1) award per goal may be earned until next threshold is achieved | | | a. | $250,000,000 - value of restricted stock award will be $25,000,000, | | | b. | $500,000,000 - value of restricted stock award will be $50,000,000, | | | c. | $1,000,000,000 - value of restricted stock award will be $100,000,000, | | | d. | $2,000,000,000 - value of restricted stock award will be $200,000,000; and | | | e. | Each additional $1,000,000,000 - value of restricted stock award will be $100,000,000 | | | 8. | Other | | | a. | Vacation, | | | b. | Car allowance of $500 per month; and | | | c. | Home office expense reimbursement of $667 per month, | | | d. | 401(K) plan participation, | | | e. | Life insurance; and | | | f. | Liability insurance | | See Note 9 regarding the vesting provisions of these shares. | F-50 | | **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** **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 defences. | | | | 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 December 31, 2024, based on managements 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. 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 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. The matter continues in the discovery process with other dispositive motions pending. Mr. Coffman is no longer working for True Wireless. An attempt at mediation in July, 2022 did not achieve a settlement. 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. Plaintiffs have made a written demand for damages and the parties continue to discuss a potential resolution. This matter is an anti-competitive attempt by Blue Skies and True Wireless to damage SurgePays, SurgePhone, and Cox. Written discovery is winding down and depositions began in the third quarter of 2023 and are expected to continue in 2024. The case is currently set for trial in January 2025. | F-51 | | **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** 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 is in the process of re-filing the matter in the District Court of Oklahoma County, Oklahoma. Mike Fina 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 is set on February 20, 2025. It is SurgePays intent to appeal the Courts dismissal of Fina, Blue Skies, True Wireless, Government Consulting Solutions, and Misty Garrett if its Motion for New Trial is not granted by the Court. At this stage, no attempts at settlement have been made. | F-52 | | **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** Aliotta and Vasquesz v SurgePays Litigation Robert Aliotta and Steve Vasquesz, on behalf of themselves and others similarly situated v. SurgePays, Inc. d/b/a Surge Logics, filed January 4, 2023, in the U.S. District Court for the Northern District of Illinois, Case No. 1:23-cv-00042. Plaintiffs allege violations of the Telephone Consumer Protection Act (TCPA) and the Florida Telephone Solicitations Act (FTSA) based on telephone solicitations allegedly made by or on behalf of SurgePays, Inc. Plaintiffs seek damages for themselves and seek certification of a class action on behalf of others similarly situated. Defendants intend to vigorously defend the action however most similar cases are eventually resolved by an out-of-court settlement. A Confidential Settlement Agreement and Release of Claims has been entered into in April 2024 and a Dismissal Order was entered by the Court on April 30, 2024. Consumer Attorney Marketing Group, LLC v. LogicsIQ, Inc. and SurgePays, Inc. Consumer Attorney Marketing Group, LLC v. LogicsIQ, Inc. and SurgePays, Inc. On February 13, 2024, in the Superior Court of California, Los Angeles County, Case No. 24 ST CV 03653, Consumer Attorney Marketing Group, LLC (CAMG) filed a complaint naming SurgePays, Inc. (the Company) a defendant and alleging claims for breach of contract, declaratory judgment and express and implied indemnity. The complaint demands that defendants indemnify CAMG for any damages or losses that CAMG may incur in the case Robert Aliotta, et al. v. SurgePays, Inc. d/b/a SurgeLogics, Case No. 23 C 00042, pending in the U.S. District Court for the Northern District of Illinois. CAMGs claims against the Company are solely based upon theories of participatory and vicarious liability. A Confidential Settlement Agreement and Release of Claims has been entered into in April 2024 and a Dismissal Order has been entered by the Court. SurgePays Ambess Litigation On December 17, 2021, Ambess Enterprises, Inc. v SurgePays, Inc., Blair County Pa. case number 2021 GN 3222. Plaintiff alleged breach of contract and prays for damages of approximately $73,000, plus fees, costs and interest. The case was settled and dismissed in 2023 for $60,000, which has been recorded as a component of general and administrative expenses. | F-53 | | **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **Note 9 Stockholders Equity** **** At December 31, 2024, the Company had three (3) classes of stock: **Common Stock** **** | - | 500,000,000 shares authorized | | | - | Par value - $0.001 | | | - | Voting at 1 vote per share | | **** **Series A, Convertible Preferred Stock** **** | - | 13,000,000 shares authorized | | | - | none issued and outstanding | | | - | Par value - $0.001 | | | - | Voting at 10 votes per share | | | - | Ranks senior to any other class of preferred stock | | | - | Dividends - none | | | - | Liquidation preference none | | | - | Rights of redemption - none | | | - | Conversion into 1/10 of a share of common stock for each share held | | **Series C, Convertible Preferred Stock** **** | - | 1,000,000 shares authorized | | | - | None issued and outstanding | | | - | Par value - $0.001 | | | - | Voting at 250 votes per share | | | - | Ranks junior to any other class of preferred stock | | | - | Dividends equal to the per share amount (as converted basis) as the common stockholders should the Board of Directors declare a dividend | | | - | Liquidation preference original issue price plus any declared yet unpaid accrued dividends | | | - | Rights of redemption - none | | | - | Conversion into 250 shares of common stock for each share held | | | F-54 | | **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** **Securities and Incentive Plan** **** In March 2023, the Companys shareholders approved the 2022 Plan (the Plan) initially approved, authorized, and adopted by the Board of Directors in August 2022. The Plan initially provided for the following: | 1. | 3,500,000 shares of common stock | | | 2. | An annual increase on the first day of each calendar year beginning January 1, 2023 and ending on January 31, 2031 equal to the lesser of: | | | a. | 10% of the common stock outstanding on the final day of the immediately preceding calendar year, or | | | 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. Effective January 1, 2024, in accordance with the Plan, we increased the available amount of shares by 10% of the common stock outstanding on December 31, 2023, approximating an additional 1,400,000 shares of common stock. After this increase, total shares authorized and available to be issued under the Plan approximated 4,900,000 shares. Effective January 1, 2025, in accordance with the Plan, we increased the available amount of shares by 10% of the common stock outstanding on December 31, 2024, approximating an additional 2,007,000 shares of common stock. After this increase, total shares authorized and available to be issued under the Plan approximated 6,907,000 shares. 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 December 31, 2024, the Company had sufficient authorized shares to settle any possible awards that vested or stock options eligible for conversion. **** | F-55 | | **** **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** **Equity Transactions for the Years Ended December 31, 2024** **** **Stock Issued for Cash - Capital Raise** The Company issued 3,080,356 shares of common stock for gross proceeds of $17,249,994 ($5.60/share). In connection with the capital raise, the Company paid cash as direct offering costs totaling $1,395,000, resulting in net proceeds of $15,854,994. This offering was made pursuant to the Companys 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 1,860,308 shares of common stock in connection with the exercise of 1,860,308 warrants for $8,799,257 ($4.73/share). See warrant table below. **Exercise of Warrants - Cashless** During 2024, the Company issued 40,238 shares of common stock in connection with the cashless exercise of warrants ($0.001/share). The transaction had a net effect of $0 on stockholders equity. See warrant table below. **Stock Issued for Services** The Company issued 47,386 shares of common stock for services rendered, having a fair value of $411,740 ($3.85 - $7.34/share), based upon the quoted closing trading price. **** See separate discussion below for the issuance and related vesting of common stock granted to the Companys officers and directors. | F-56 | | **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** **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 $5,000,000, | | | | The Company will not repurchase more than 20,000 shares per day, | | | | The Company will not repurchase any shares greater than $5/share, | | | | 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 362,620 shares of treasury stock for $631,967, at an average price of $1.74/share. Effective October 2024, the Company ceased its share repurchase program. **** **Equity Transactions for the Year Ended December 31, 2023** **** **Stock Issued for Services** The Company issued 242,615 shares of common stock for services rendered, having a fair value of $1,290,024 ($4.19 - $9.40/share), based upon the quoted closing trading price. **Exercise of Warrants - Cash** The Company issued 43,814 shares of common stock upon the exercise of warrants with an exercise price of $4.73 for $207,240. **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 (600,000 shares see Note 8), having a fair value of $3,114,000 ($5.19/share), based upon the quoted closing trading price. 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. | F-57 | | **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** For the years ended December 31, 2024 and 2023, the Company recognized stock compensation expense of $2,148,681 and $0, respectively, related to vesting. Board Directors **2024 Grant** In 2024, the Company granted an aggregate 44,640 shares of common stock to various members of the Board of Directors, having a fair value of $149,990 ($3.36/share), based upon the quoted closing trading price. 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) | | **** **2023 Grant** In 2023, the Company granted an aggregate 95,000 shares of common stock to various members of the Board of Directors, having a fair value of $519,500 ($5.14 - $5.53/share), based upon the quoted closing trading price. 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 | | | - | 5th anniversary of the effective date (2028) | | The Company records stock compensation expense over the five (5) year vesting period. All shares are expected to vest in accordance with the terms of the employment agreement. For the years ended December 31, 2024 and 2023, the Company recognized stock compensation expense of $132,025 and $0, respectively, related to vesting. Chief Executive Officer In 2024, the Company granted common stock to its Chief Executive Officer (500,000 shares see Note 8), having a fair value of $3,800,000 ($7.60/share), based upon the quoted closing trading price. | F-58 | | **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** 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 years ended December 31, 2024 and 2023, the Company recognized stock compensation expense of $3,800,000 and $0, respectively, related to vesting. Director of Human Resources and Legal Services In 2024, the Company granted 100,000 shares of common stock to its Director of Human Resources and Legal Services, having a fair value of $672,000 ($6.72/share), based upon the quoted closing trading price. 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 years ended December 31, 2024 and 2023, the Company recognized stock compensation expense of $672,000 and $0, respectively, related to vesting. For the years ended December 31, 2024 and 2023, the Company recognized total stock compensation expense of $6,752,706 and $0 related to vesting. The following is a summary of the Companys non-vested shares at December 31, 2024 and 2023. Schedule of Non-vested Shares Related Parties | | | | | | Weighted Average | | | | Non-Vested Shares | | Number of Shares | | | Grant Date Fair Value | | | | Balance - December 31, 2022 | | | - | | | $ | - | | | | Granted | | | 695,000 | | | | 5.24 | | | | Vested | | | - | | | | - | | | | Cancelled/Forfeited | | | - | | | | - | | | | Balance - December 31, 2023 | | | 695,000 | | | $ | 5.24 | | | | Granted | | | 644,640 | | | $ | 7.60 | | | | Vested | | | (1,000,000 | ) | | | 6.55 | | | | Cancelled/Forfeited | | | - | | | | - | | | | Balance - December 31, 2024 | | | 339,640 | | | $ | 5.30 | | | | | | | | | | | | | | | Unrecognized Compensation | | $ | 973,253 | | | | | | | | | | | | | | | | | | | Weighted average period (years) | | | 3.72 | | | | | | | | F-59 | | **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** The following is a detail of the common stock granted, which is subject to the vesting provisions noted above at December 31, 2024 and December 31, 2023, respectively. Schedule of Stock Granted | | | | | | | | | | | | Director of | | | | | | | | | CEO | | | CFO | | | Directors | | | Human Resources/Legal | | | Total | | | | Balance - December 31, 2022 | | | - | | | | - | | | | - | | | | - | | | | - | | | | Granted | | | - | | | | 600,000 | | | | 95,000 | | | | - | | | | 695,000 | | | | Vested | | | - | | | | - | | | | - | | | | - | | | | - | | | | Cancelled/Forfeited | | | - | | | | - | | | | - | | | | - | | | | - | | | | Balance - December 31, 2023 | | | - | | | | 600,000 | | | | 95,000 | | | | - | | | | 695,000 | | | | Granted | | | 500,000 | | | | - | | | | 44,640 | | | | 100,000 | | | | 644,640 | | | | Vested | | | (500,000 | ) | | | (400,000 | ) | | | - | | | | (100,000 | ) | | | (1,000,000 | ) | | | Cancelled/Forfeited | | | - | | | | - | | | | - | | | | - | | | | - | | | | Balance - December 31, 2024 | | | - | | | | 200,000 | | | | 139,640 | | | | - | | | | 339,640 | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrecognized Compensation | | $ | - | | | $ | 479,077 | | | $ | 494,176 | | | $ | - | | | $ | 973,253 | | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted average period (years) | | | - | | | | 1.00 | | | | 2.72 | | | | - | | | | 3.72 | | | **** | F-60 | | **** **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** **Stock Options** Stock option transactions for the years ended December 31, 2024 and 2023 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, 2022 | | | 17,004 | | | $ | 16.00 | | | | 4.16 | | | $ | - | | | | | | | | Vested and Exercisable - December 31, 2022 | | | 6,801 | | | $ | 16.00 | | | | 4.16 | | | $ | - | | | | | | | | Unvested and non-exercisable - December 31, 2022 | | | 10,203 | | | $ | 16.00 | | | | 4.16 | | | $ | - | | | | | | | | Granted | | | 104,272 | | | $ | 6.45 | | | | | | | | | | | $ | 5.53 | | | | Exercised | | | - | | | $ | - | | | | | | | | | | | | | | | | Cancelled/Forfeited | | | - | | | $ | - | | | | | | | | | | | | | | | | Outstanding - December 31, 2023 | | | 121,276 | | | $ | 7.79 | | | | 6.47 | | | $ | - | | | | | | | | Vested and Exercisable - December 31, 2023 | | | 116,174 | | | $ | 7.43 | | | | 6.61 | | | $ | - | | | | | | | | Unvested and non-exercisable - December 31, 2023 | | | 5,101 | | | $ | 16.00 | | | | 3.16 | | | $ | - | | | | | | | | Granted | | | 1,054,603 | | | $ | 1.78 | | | | | | | | | | | | | | | | Exercised | | | - | | | $ | - | | | | | | | | | | | | | | | | Cancelled/Forfeited | | | (9,798 | ) | | $ | 6.45 | | | | | | | | | | | | | | | | Outstanding - December 31, 2024 | | | 2,220,684 | | | $ | 2.09 | | | | 6.92 | | | $ | - | | | | | | | | Vested and Exercisable - December 31, 2024 | | | 2,220,684 | | | $ | 2.09 | | | | 6.92 | | | $ | - | | | | | | | | Unvested and non-exercisable - December 31, 2024 | | | - | | | $ | - | | | | - | | | $ | - | | | | | | | **Years Ended December 31, 2024** **Stock Options - Related Party Chief Financial Officer** The remaining 5,101 stock options vested, and the related expense was $6,196. **Stock Options Chief Executive Officer, Chief Financial Officer and Employees** The Company granted an aggregate of 1,054,603, fully vested, seven (7) year stock options to the Companys Chief Executive Officer (248,424), Chief Financial Officer (157,335) and various employees (648,844) for services rendered, having a fair value of $1,602,997. Of the total expense recognized, $616,754 related to the officers, and $986,243 related to the employees. These options have an exercise price of $1.78 per share. | F-61 | | **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** The fair value of these stock options was determined using a Black-Scholes option pricing model with the following inputs: Schedule of Fair Value of Stock Options | Expected term | | | 7 years | | | | Expected volatility | | | 104 | % | | | Expected dividends | | | 0 | % | | | Risk free interest rate | | | 4.48 | % | | Stock-based compensation expense for the years ended December 31, 2024 and 2023 was as follows: Schedule of Stock Based Compensation Expense | Year Ended December 31, | | | | 2024 | | | 2023 | | | | $ | 1,609,193 | | | $ | 613,801 | | | **Year Ended December 31, 2023** **Stock Options - Related Party Chief Financial Officer** 5,101 stock options vested, and the related expense was $37,196. **Stock Options - Employees** The Company granted 104,272, fully vested, seven (7) year stock options to various employees for services rendered, having a fair value of $576,625. These options have an exercise price of $6.45 per share. The fair value of these stock options was determined using a Black-Scholes option pricing model with the following inputs: Schedule of Fair Value of Stock Options | Expected term | | | 7 years | | | | Expected volatility | | | 106 | % | | | Expected dividends | | | 0 | % | | | Risk free interest rate | | | 3.88 | % | | **** | F-62 | | **** **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** **Warrants** Warrant activity for the years ended December 31, 2024 and 2023 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, 2022 | | | 5,681,392 | | | $ | 5.05 | | | | 1.85 | | | $ | 10,026,387 | | | | Vested and Exercisable - December 31, 2022 | | | 5,681,392 | | | $ | 5.05 | | | | 1.85 | | | $ | 10,026,387 | | | | Unvested - December 31, 2022 | | | - | | | $ | - | | | | 0.00 | | | $ | - | | | | Granted | | | - | | | $ | - | | | | | | | | | | | | Exercised | | | (43,814 | ) | | $ | 4.73 | | | | | | | | | | | | Cancelled/Forfeited | | | (63,325 | ) | | $ | 26.39 | | | | | | | | | | | | Outstanding - December 31, 2023 | | | 5,574,253 | | | $ | 4.81 | | | | 0.86 | | | $ | 9,348,348 | | | | Vested and Exercisable - December 31, 2023 | | | 5,574,253 | | | $ | 4.81 | | | | 0.86 | | | $ | 9,348,348 | | | | Unvested - December 31, 2023 | | | - | | | $ | - | | | | - | | | $ | - | | | | Granted | | | - | | | $ | - | | | | | | | | | | | | Exercised | | | (1,953,308 | ) | | $ | 4.73 | | | | | | | | | | | | Cancelled/Forfeited | | | (3,524,945 | ) | | $ | 4.86 | | | | | | | | | | | | Outstanding - December 31, 2024 | | | 96,000 | | | $ | 4.73 | | | | 0.37 | | | $ | - | | | | Vested and Exercisable - December 31, 2024 | | | 96,000 | | | $ | 4.73 | | | | 0.37 | | | $ | - | | | | Unvested and non-exercisable - December 31, 2024 | | | - | | | $ | - | | | | - | | | $ | - | | | **Note 10 Segment Information** **** Operating segments are defined as components of an enterprise about which separate financial information is available and evaluated regularly by the chief operating decision maker, or decisionmaking group, in deciding how to allocate resources and in assessing performance. The Companys chief operating decision maker is its Chief Executive Officer. The Company evaluated the performance of its operating segments based on revenue and operating loss. All data below is prior to intercompany eliminations. | F-63 | | **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** Segment information for the Companys operations for the years ended December 31, 2024 and 2023, is as follows: Schedule of Operating Segments | | | 2024 | | | 2023 | | | | | | For the Years Ended December 31, | | | | | | 2024 | | | 2023 | | | | | | | | | | | | | Revenues | | | | | | | | | | | Mobile Virtual Network Operators | | $ | 43,450,244 | | | $ | 118,577,920 | | | | Comprehensive Platform Services | | | 17,419,088 | | | | 11,341,183 | | | | Other Corporate Overhead | | | 11,841 | | | | 7,222,729 | | | | Total | | $ | 60,881,173 | | | $ | 137,141,832 | | | | | | | | | | | | | | | Cost of revenues | | | | | | | | | | | Mobile Virtual Network Operators | | $ | 58,410,842 | | | $ | 83,918,968 | | | | Comprehensive Platform Services | | | 16,779,312 | | | | 11,281,722 | | | | Other Corporate Overhead | | | 15,218 | | | | 6,298,651 | | | | Total | | $ | 75,205,372 | | | $ | 101,499,341 | | | | | | | | | | | | | | | Operating expenses | | | | | | | | | | | Mobile Virtual Network Operators | | $ | 1,204,818 | | | $ | 427,493 | | | | Comprehensive Platform Services | | | 3,132,457 | | | | 1,799,469 | | | | Other Corporate Overhead | | | 23,120,877 | | | | 14,550,145 | | | | Total | | $ | 27,458,152 | | | $ | 16,777,107 | | | | | | | | | | | | | | | Income (loss) from operations | | | | | | | | | | | Mobile Virtual Network Operators | | $ | (16,165,416 | ) | | $ | 34,231,459 | | | | Comprehensive Platform Services | | | (2,492,681 | ) | | | (1,740,008 | ) | | | Other Corporate Overhead | | | (23,124,254 | ) | | | (13,626,067 | ) | | | Total | | $ | (41,782,351 | ) | | $ | 18,865,384 | | | | F-64 | | **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** Segment information for the Companys assets and liabilities at December 31, 2024 and December 31, 2023, are as follows: | | | December 31, 2024 | | | December 31, 2023 | | | | | | | | | | | | | Total Assets | | | | | | | | | | | Mobile Virtual Network Operators | | $ | 8,472,349 | | | $ | 32,502,760 | | | | Comprehensive Platform Services | | | 4,884,817 | | | | 2,584,245 | | | | Other Corporate Overhead | | | 10,618,839 | | | | 6,838,302 | | | | Total | | $ | 23,976,005 | | | $ | 41,925,307 | | | | | | | | | | | | | | | Total Liabilities | | | | | | | | | | | Mobile Virtual Network Operators | | $ | 1,505,400 | | | $ | 2,426,964 | | | | Comprehensive Platform Services | | | 103,612 | | | | 155,295 | | | | Other Corporate Overhead | | | 7,105,380 | | | | 10,040,099 | | | | Total | | $ | 8,714,392 | | | $ | 13,521,843 | | | All intercompany accounts are separately presented above as both a component of the assets and liabilities. These amounts net to $0 in the Companys consolidated balance sheets. **Note 11 Installment Sale Liability** **** **Agreement** In 2022, the Company executed a two-year (2) financing arrangement with Affordable Connectivity Financing (ACF, Seller) to receive up to $25,000,000 to purchase devices for sale. This agreement was based upon the Company submitting a purchase order and ACF approving the request. The Company could cancel the purchase order prior to ACF paying for the devices. The agreement could be extended by a period of one (1) year upon mutual consent. Under the terms of the agreement, ACF was directly purchasing products and reselling to the Company at a markup. At December 31, 2022, the markup was 9.85%. Effective April 1, 2023 and each quarter thereafter, this amount was subject to increase based upon the secured overnight financing rate. | F-65 | | **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** **Repayment Period** Each installment sale contract was to be repaid over a period of nine (9) months. **** **Security** This arrangement was fully secured by all assets of the Company. **Minimum Outstanding Balance** **** 3 month rolling average of 70% of the installment sale credit amount. **** **Prepayment Penalty** **** The Company was subject to a cancellation fee of 3% during the first year and 2% during the second year. **** **Administrative Fee** **** The Company was required to pay $2,000 per month. **Default Rate** For any unpaid amounts under this agreement, the Company was subject to a fee of 1.35% per month (16.2% annualized). **** **Commitment Fee** ACF charged a 2% commitment fee on the initial installment sale, and 2% for each incremental increase of $5,000,000 in the installment sale credit amount. For example, if the initial installment sale credit amount is $15,000,000, the credit availability fee would be $300,000 (2%). Any subsequent increase of $5,000,000 or more would result in an additional fee of $100,000 (2%). Commitment fees are paid over a period of 12 months as part of the Sellers monthly invoicing. | F-66 | | **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** **Covenants** **** At December 31, 2023, the Company was in compliance with all of the following ratios: | 1. | Company adjusted EBITDA, | | | 2. | Total Leverage Ratio, | | | 3. | Fixed Charge Coverage Ratio, | | | 4. | Minimum Subscriber Base; and | | | 5. | Minimum Liquidity | | Additionally, the Company is required to provide various data to the vendor on a periodic basis. The Company has not received notice from the vendor regarding any instances of non-compliance. **Lockbox** **** The Company will maintain a lockbox for the benefit of the Seller. **** **Installment Sale Liability** **** At December 31, 2023, the Company recorded an installment sale liability of $0. During the year ended December 31, 2023, the Company paid fees of $491,536. These amounts were included as a component of cost of goods sold. The liability was repaid in full in 2023 and the agreement was cancelled. **Note 12 Income Taxes** **Provision (benefit) for Income Taxes and Effective Income Tax Rate** Schedule of Income Taxes and Effective Income Tax Rate | | | December 31, 2024 | | | December 31, 2023 | | | | Federal | | | | | | | | | | | Current | | $ | - | | | $ | 570,000 | | | | Deferred | | | 2,835,000 | | | | (2,835,000 | ) | | | Total provision (benefit) | | $ | 2,835,000 | | | $ | (2,265,000 | ) | | | | | | | | | | | | | | State | | | | | | | | | | | Current | | $ | 35,000 | | | $ | - | | | | Deferred | | | - | | | | - | | | | Total provision (benefit) | | $ | 35,000 | | | $ | - | | | **** | F-67 | | **** **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** A reconciliation of the provision for income taxes to the amount computed by applying the statutory federal income tax rate of 21% to income before provision for income taxes for the years ended December 31, 2024 and 2023, respectively, is approximately as follows: Schedule of Components of Income Tax Expense (Benefit) | | | December 31, 2024 | | | December 31, 2023 | | | | Federal income tax expense (benefit) - 19.64% | | $ | (9,044,000 | ) | | $ | 3,848,000 | | | | State income tax expense (benefit) - 6.5% - net of federal effect | | | (1,489,000 | ) | | | 923,000 | | | | Non-deductible items | | | 1,392,000 | | | | 174,000 | | | | Other | | | 163,000 | | | | - | | | | Subtotal | | | (8,978,000 | ) | | | 4,945,000 | | | | Change in valuation allowance | | | 11,848,000 | | | | (7,210,000 | ) | | | Income tax expense (benefit) | | $ | 2,870,000 | | | $ | (2,265,000 | ) | | | | | | | | | | | | | | Effective tax rate | | | -6.7 | % | | | -12.4 | % | | **** **Deferred Tax Assets and Liabilities** **** As of December 31, 2024 and 2023, respectively, the significant components of deferred tax assets and liabilities are approximately as follows: ****Schedule of Deferred Tax Assets and Liabilities | | | December 31, 2024 | | | December 31, 2023 | | | | Deferred Tax Assets | | | | | | | | | | | Reserve for uncollectible accounts | | $ | - | | | $ | 5,000 | | | | Investment - Centercom | | | 45,000 | | | | - | | | | Stock based compensation | | | 204,000 | | | | - | | | | Lease liabilities | | | 144,000 | | | | - | | | | Intangible assets | | | 37,000 | | | | - | | | | Goodwill | | | 15,000 | | | | - | | | | Net operating loss carryforwards | | | 12,425,000 | | | | 3,844,000 | | | | Total deferred tax assets | | | 12,870,000 | | | | 3,849,000 | | | | Less: valuation allowance | | | (12,638,000 | ) | | | (790,000 | ) | | | Net deferred tax assets | | | 232,000 | | | | 3,059,000 | | | | | | | | | | | | | | | Deferred Tax Liabilities | | | | | | | | | | | Depreciation | | | 89,000 | | | | 224,000 | | | | Right-of-use assets | | | 143,000 | | | | - | | | | Net deferred tax liabilities | | | 232,000 | | | | 224,000 | | | | | | | | | | | | | | | Deferred income taxes - net | | $ | - | | | $ | 2,835,000 | | | **** Deferred tax assets and liabilities are computed by applying the federal and state income tax rates in effect to the gross amounts of temporary differences and other tax attributes, such as net operating loss carryforwards. In assessing if the deferred tax assets will be realized, the Company considers whether it is more likely than not that some or all of these deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which these deductible temporary differences reverse. As a result of historic losses, the Company has recorded a full valuation allowance as of December 31, 2024. | F-68 | | **SURGEPAYS, INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **DECEMBER 31, 2024 AND 2023** **** As of December 31, 2024, the Company had federal and state net operating loss carryforwards of approximately $49,000,000 and $44,000,000, respectively. The federal net operating losses carry forward indefinitely and accordingly have been reserved. The state net operating losses will expire between the years ending December 31, 2036 and 2038. The state net operating losses have been fully reserved as management does not believe that it is probable that the losses will be utilized before their expiration. During the years ended December 31, 2024, the valuation allowance increased by approximately $11,848,000. The total valuation allowance results from the Companys estimate of its future recoverability of its net deferred tax assets. The Company is in the process of analyzing their NOL and has not determined if the Company has had any change of control issues that could limit the future use of these NOLs. As of December 31, 2024, all federal NOL carryforwards that were generated after 2017 may only be used to offset 80% of taxable income and are carried forward indefinitely. The Company follows the provisions of ASC 740, which requires the computations of current and deferred income tax assets and liabilities only consider tax positions that are more likely than not (defined as greater than 50% chance) to be sustained if the taxing authorities examined the positions. There are no significant differences between the tax provisions represented in the accompanying consolidated financial statements and that reported in the Companys income tax returns. The Company files corporate income tax returns in the United States and several state jurisdictions. Due to the Companys net operating loss posture, all tax years are open and subject to income tax examination by tax authorities. The Companys policy is to recognize interest expense and penalties related to income tax matters as tax expense. At December 31, 2024 and 2023, respectively, there are no unrecognized tax benefits, and there were no accruals for interest related to unrecognized tax benefits or tax penalties. **** | F-69 | |