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Debt
 9 Months Ended
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)

 

                     
   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 

 

1During 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.

 

2In connection with the deconsolidation of TW in 2021, $150,000 of debt was assumed by the TW’s buyer.

 

3During 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

 

   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 

 

1Activity 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.

 

2Activity is with the Company’s former President, Chief Operating Officer and Board Member (Anthony Nuzzo). Mr. Nuzzo passed away in March 2022.

 

3Activity is with David May, who is a Board Member.

 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

(UNAUDITED)

 

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

 

   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   -    76,947C   -    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.