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Debt | 9 Months Ended
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Sep. 30, 2022
Debt Disclosure [Abstract] |
Debt | Note 5 – Debt The following represents a summary of the Company’s notes payable – SBA government, loans payable – related parties, notes payable and convertible notes, key terms, and outstanding balances at September 30, 2022 and December 31, 2021, respectively: Notes Payable – SBA government (1) Paycheck Protection Program - PPP Loan Pertaining to the Company’s eighteen (18) month loan and in accordance with the Paycheck Protection Program (“PPP”) and Conditional Loan Forgiveness, the promissory note evidencing the loan contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, or provisions of the promissory note. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Company, and/or filing suit and obtaining judgment against the Company. Under the terms of the PPP loan program, all or a portion of this Loan may be forgiven upon request from Borrower to Lender, provided the Loan proceeds are used in accordance with the terms of the Coronavirus Aid, Relief and Economic Security Act (the “Act” or “CARES”), Borrower is not in default under the Loan or any of the Loan Documents, and Borrower has provided documentation to Lender supporting such request for forgiveness that includes verifiable information on Borrower’s use of the Loan proceeds, to Lender’s satisfaction, in its sole and absolute discretion. (2) Economic Injury Disaster Loan (“EIDL”) This program was made available to eligible borrowers in light of the impact of the COVID-19 pandemic and the negative economic impact on the Company’s business. Proceeds from the EIDL are to be 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 $109 - $751/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. Based upon guidance issued by the SBA on June19, 2020, the EIDL Loan is not required to be refinanced by the PPP loan. SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2022 (UNAUDITED) Schedule of Notes Payable
|  | PPP |  |  | EIDL |  |  | EIDL |  |  | PPP |  |  |  |
Terms |  | SBA |  |  | SBA |  |  | SBA |  |  | SBA |  |  | Total |
Issuance dates of SBA loans |  |  | April 2020 |  |  |  | May 2020 |  |  |  | July 2020 |  |  |  | March 2021 |  |  |  |  |
Term |  |  | 18 months |  |  |  | 30 Years |  |  |  | 30 Years |  |  |  | 5 Years |  |  |  |  |
Maturity date |  |  | October 2021 |  |  |  | May 2050 |  |  |  | July 2050 |  |  |  | March 2026 |  |  |  |  |
Interest rate |  |  | 1 | % |  |  | 3.75 | % |  |  | 3.75 | % |  |  | 1 | % |  |  |  |
Collateral |  |  | Unsecured |  |  |  | Unsecured |  |  |  | Unsecured |  |  |  | Unsecured |  |  |  |  |
Conversion price |  |  | N/A |  |  |  | N/A |  |  |  | N/A |  |  |  | N/A |  |  |  |  |
Principal |  | $ | 498,082 |  |  | $ | 150,000 |  |  | $ | 486,600 |  |  | $ | 518,167 |  |  | $ | 1,652,849 |
Balance - December 31, 2020 |  | $ | 498,082 |  |  | $ | 150,000 |  |  | $ | 486,600 |  |  | $ | - |  |  | $ | 1,134,682 |
Gross proceeds |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 518,167 |  |  |  | 518,167 |
Forgiveness of loan |  |  | (371,664 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (371,664 | )1
Deconsolidation of subsidiary (“TW”) |  |  | - |  |  |  | - |  |  |  | (150,000 | ) |  |  | - |  |  |  | (150,000 | )2
Balance - December 31, 2021 |  |  | 126,418 |  |  |  | 150,000 |  |  |  | 336,600 |  |  |  | 518,167 |  |  |  | 1,131,185 |
Forgiveness of loan |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (518,167 | ) |  |  | (518,167 | )3
Repayments |  |  | (20,807 | ) |  |  | (3,530 | ) |  |  | (6,455 | ) |  |  | - |  |  |  | (30,792 | )
Balance - September 30, 2022 |  | $ | 105,611 |  |  | $ | 146,470 |  |  | $ | 330,145 |  |  | $ | - |  |  | $ | 582,226 |
1 | During 2021, the Company received a partial forgiveness on a PPP loan totaling $377,743, of which $371,664 was for principal and $6,079 for accrued interest. The Company recorded this forgiveness as other income in the accompanying consolidated statements of operations.
2 | In connection with the deconsolidation of TW in 2021, $150,000 of debt was assumed by the TW’s buyer.
3 | During 2022, the Company received forgiveness on a PPP loan totaling $524,143, of which $518,167 was for principal and $5,976 for accrued interest. The Company recorded this forgiveness as other income in the accompanying consolidated statements of operations.
SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2022 (UNAUDITED) Notes Payable – Related Parties Schedule of Notes Payable
|  | 1 |  |  | 2 |  |  | 3 |  |  |  |
|  | Loan Payable |  |  | Loan Payable |  |  | Loan Payable |  |  |  |
Terms |  | Related Party |  |  | Related Party |  |  | Related Party |  |  | Total |
Issuance dates of notes |  | Various |  |  | May 2020/January 2021 |  |  | August 2021 |  |  |  |
Maturity date |  | January 1, 2023/January 1, 2024 |  |  | March 2021 |  |  | August 2031 |  |  |  |
Interest rate |  |  | 10% |  |  |  | 15% |  |  |  | 10% |  |  |  |  |
Collateral |  |  | Unsecured |  |  |  | Unsecured |  |  |  | Unsecured |  |  |  |  |
Conversion price |  |  | N/A |  |  |  | N/A |  |  |  | N/A |  |  |  |  |
Balance - December 31, 2020 |  | $ | 3,341,940 |  |  | $ | 147,500 |  |  | $ | - |  |  | $ | 3,489,440 |
Gross proceeds |  |  | 3,825,000 |  |  |  | 63,000 |  |  |  | 467,385 |  |  |  | 4,355,385 |
Accrued interest included in note balance |  |  | 692,458 |  |  |  | - |  |  |  | - |  |  |  | 692,458 |
Conversion of debt into common stock |  |  | (2,265,967 | ) |  |  | - |  |  |  | - |  |  |  | (2,265,967 | )
Repayments |  |  | - |  |  |  | (210,500 | ) |  |  | - |  |  |  | (210,500 | )
Balance - December 31, 2021 |  |  | 5,593,431 |  |  |  | - |  |  |  | 467,385 |  |  |  | 6,060,816 |
No activity - 2022 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Balance - September 30, 2022 |  | $ | 5,593,431 |  |  | $ | - |  |  | $ | 467,385 |  |  | $ | 6,060,816 |
1 | Activity is with the Company’s Chief Executive Officer and Board Member (Kevin Brian Cox). Prior to September 30, 2021, these notes were either due on demand or had a specific due date. Additionally, these advances had interest rates from 6% - 15%. On September 30, 2021, all notes and related accrued interest were combined into two (2) new notes.
| The new notes had due dates of June 30, 2022 or January 1, 2023. In April 2022, the notes were extended to January 1, 2023 and January 1, 2024, respectively. All notes bear interest at 10%. At September 30, 2021, the Company included $692,458 of accrued interest in the new note balance. In 2021, the Company issued 561,758 shares of common stock at $4.30/share to settle $2,415,560 of debt including principal of $2,265,967 and accrued interest of $149,593. As a result of the debt conversion with a related party, gains/losses were recognized, however, the Company increased additional paid-in capital for $2,415,560.
2 | Activity is with the Company’s former President, Chief Operating Officer and Board Member (Anthony Nuzzo). Mr. Nuzzo passed away in March 2022.
3 | Activity is with David May, who is a Board Member.
SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2022 (UNAUDITED) Notes Payable Schedule of Notes Payable
|  |  | 1 |  |  |  | 2 |  |  |  | 3 |  |  |  |  |  |  |  | 4 |  |  |  |  |  |  |  |  |
Terms |  |  | Notes Payable |  |  |  | Notes Payable |  |  |  | Notes Payable |  |  |  | Note Payable |  |  |  | Notes Payable |  |  |  | Total |  |  |  | In-Default |
Issuance dates of notes |  |  | April/May 2022 |  |  |  | April/June 2022 |  |  |  | March 2022 |  |  |  | 2019 |  |  |  | 2021 |  |  |  |  |  |  |  |  |
Maturity date |  |  | October/November 2022 |  |  |  | January/February 2023 |  |  |  | March 2023 |  |  |  | 2020 |  |  |  | 2022 |  |  |  |  |  |  |  |  |
Interest rate |  |  | 19% |  |  |  | 24% |  |  |  | 19% |  |  |  | 18% |  |  |  | 10% |  |  |  |  |  |  |  |  |
Default interest rate |  |  | 26% |  |  |  | N/A |  |  |  | 26% |  |  |  | 0% |  |  |  | 0% |  |  |  |  |  |  |  |  |
Collateral |  |  | Unsecured |  |  |  | All assets |  |  |  | Unsecured |  |  |  | Unsecured |  |  |  | Unsecured |  |  |  |  |  |  |  |  |
Warrants issued as discount/issue costs |  |  | 36,000 |  |  |  | N/A |  |  |  | 15,000 |  |  |  | N/A |  |  |  | 2,406,250 |  |  |  |  |  |  |  |  |
Principal |  | $ | 1,200,000 |  |  | $ | 5,000,000 |  |  | $ | 500,000 |  |  | $ | 250,000 |  |  | $ | 1,101,000 |  |  | $ | 8,051,000 |  |  |  |  |
Balance - December 31, 2020 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 250,000 |  |  |  | - |  |  |  | 250,000 |  |  | $ | 250,000 |
Gross proceeds |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,101,000 |  |  |  | 1,101,000 |  |  |  |  |
Debt discount |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (672,254 | ) |  |  | (672,254 | ) |  |  |  |
Amortization of debt discount |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 698,511 |  |  |  | 698,511 |  |  |  |  |
Repayments |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (250,000 | ) |  |  | (1,127,257 | ) |  |  | (1,377,257 | ) |  |  |  |
Balance - December 31, 2021 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Gross proceeds |  |  | 1,200,000 |  |  |  | 5,000,000 |  |  |  | 500,000 |  |  |  | - |  |  |  | - |  |  |  | 6,700,000 |  |  |  |  |
Debt issue costs |  |  | (76,451 | ) |  |  | - |  |  |  | (38,953 | ) |  |  | - |  |  |  | - |  |  |  | (115,404 | ) |  |  |  |
Amortization of debt issue costs |  |  | 56,048 |  |  |  | - |  |  |  | 38,953 |  |  |  | - |  |  |  | - |  |  |  | 95,001 |  |  |  |  |
Balance - September 30, 2022 |  | $ | 1,179,597 |  |  | $ | 5,000,000 |  |  | $ | 500,000 |  |  | $ | - |  |  | $ | - |  |  | $ | 6,679,597 |  |  | $ | - |
1 | - | These notes were issued with 36,000, three (3) year warrants, which have been reflected as debt issue costs and are amortized over the life of the debt.
2 | - | The Company executed a $5,000,000, secured, revolving promissory note with a third party. The Company may draw down on the note at 80% of eligible accounts receivable. See below.
3 | - | These notes were issued with 15,000, three (3) year warrants, which have been reflected as debt issue costs and were amortized over the life of the debt. Additionally, in September 2022, the Company issued an additional 12,000, three (3) year warrants, which have been treated as interest expense in connection with extending the maturity date for notes totaling $400,000 to March 2023. In October 2022, the Company repaid $100,000.
4 | - | In the event of default, these notes were convertible at 75% of the market price based upon the VWAP in preceding 10 days. There were defaults. Debt discount on notes totaling $1,101,000 in principal included original issue discounts of $101,000 and debt discounts associated with warrants totaling $229,268. Additionally, the Company computed a beneficial conversion feature of $341,986.
Secured Revolving Debt In April 2022, a maximum of $3,000,000 was made available to the Company, issued pursuant to a series of 270-day (9 months) revolving notes for purposes of purchasing inventory. In June 2022, this amount was increased to $5,000,000. The notes will accrue interest a monthly rate of 2% (24% annualized). The Company may take drawdowns based upon eligible accounts receivable. In the event that eligible accounts receivable is less than 80% of the loan amount, within four (4) business days, the Company will be required to make a payment to the lender so that the loan amount is no greater than 80% of the then current eligible accounts receivable. The maximum amount outstanding under the loan is the lesser of $5,000,000 or 80% of eligible accounts receivable. Additionally, any related accrued interest associated with this mandatory payment will also be due. These advances are secured by all assets of the Company. At September 30, 2022 and December 31, 2021, the Company had a balance due of $5,000,000 and $0, respectively. See table above. SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2022 (UNAUDITED) Convertible Notes Payable – Net Schedule of Notes Payable
|  | Convertible |  |  | Convertible |  |  | Convertible |  |  |  |
Terms |  | Notes Payable |  |  | Notes Payable |  |  | Notes Payable |  |  | Total |
Issuance dates of notes |  |  | 2019 and Prior |  |  |  | February 2020 - December 2020 |  |  |  | January 2021 - March 2021 |  |  |  |  |
Maturity date |  |  | 2020 |  |  |  | February 2021 - September 2021 |  |  |  | May 2021 - March 2022 |  |  |  |  |
Interest rate |  |  | 14% |  |  |  | 10% - 14% |  |  |  | 5% - 12% |  |  |  |  |
Collateral |  |  | Unsecured |  |  |  | Unsecured |  |  |  | Unsecured |  |  |  |  |
Conversion price |  |  | A |  |  |  | A |  |  |  | B |  |  |  |  |
Principal |  | $ | - |  |  | $ | 2,347,000 |  |  | $ | 2,550,000 |  |  | $ | 4,897,000 |
Balance - December 31, 2020 |  | $ | - |  |  | $ | 1,516,170 |  |  | $ | - |  |  | $ | 1,516,170 |
Gross proceeds |  |  | - |  |  |  | - |  |  |  | 2,550,000 |  |  |  | 2,550,000 |
Debt discount |  |  | - |  |  |  | - |  |  |  | (2,460,829 | ) |  |  | (2,460,829 | )
Amortization of debt discount |  |  | - |  |  |  | 517,781 |  |  |  | 2,460,829 |  |  |  | 2,978,610 |
Repayments - cash |  |  | - |  |  |  | - |  |  |  | (2,550,000 | )D |  |  | (2,550,000 | )
Conversion to equity/debt modification |  |  | - |  |  |  | (2,110,898 | ) |  |  | - |  |  |  | (2,110,898 | )
Reclassified to receivable |  |  | - |  |  |  | 76,947 | C |  |  | - |  |  |  | 76,947 |
Balance - December 31, 2021 |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |
A | – | Convertible at 65% multiplied by the lowest one (1) day volume weighted average price (“VWAP”) of the Company’s common stock during the ten (10) trading days prior to conversion.
B | – | Convertible at 70% - 75% multiplied by the lowest one (1) day volume weighted average price (“VWAP”) of the Company’s common stock during the ten (10) trading days prior to conversion.
C | - | During 2021, the Company overpaid a note holder by $76,947 when settling the outstanding balance. This overpayment had been recorded as a receivable and was repaid in full in April 2021.
D | - | During 2021, the Company repaid the $2,550,000 of convertible notes in full, however, one of the notes, having a principal of $2,300,000 was prepaid early. As a result, the Company paid an additional prepayment penalty equal to 120% of the outstanding amount due at the time of prepayment, resulting in additional interest expense of $465,239. Also, at the time of repayment, the embedded derivative liability ceased to exist.
SURGEPAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2022 (UNAUDITED) Line of Credit The Company had a $1,000,000 line of credit with a bank, bearing interest at 6%, which was due in April 2021. The line of credit was secured by all of the Company’s assets and was personally guaranteed by the owner of the majority of the Company’s voting shares. The balance at December 31, 2021 was $0. In connection with the deconsolidation of TW in May 2021, the buyer assumed the line of credit.

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