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Derivative Liabilities
 9 Months Ended
Sep. 30, 2022
Derivative Liabilities

Note 6 – Derivative Liabilities

 

During 2021, the above convertible notes contained embedded conversion options with a conversion price that could result in issuing an undeterminable amount of future common stock to settle the host contract. Accordingly, the embedded conversion option is required to be bifurcated from the host instrument (convertible note) and treated as a liability, which is calculated at fair value, and marked to market at each reporting period.

 

The Company used the binomial pricing model to estimate the fair value of its embedded conversion option liabilities with the following inputs:

 

   December 31, 2021
Expected term (years)    0.20 - 1 year
Expected volatility    143% - 291%
Expected dividends    0%
Risk free interest rate    0.03% - 0.09%

 

A reconciliation of the beginning and ending balances for the derivative liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows at December 31, 2021:

 

Derivative liability - December 31, 2020  $1,357,528 
Fair value at commitment date   1,877,250 
Fair value mark to market adjustment   (1,806,763)
Gain on derivative liability upon related debt settled   (1,428,015)
Derivative liability - December 31, 2021  $- 

 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

(UNAUDITED)

 

Changes in fair value of derivative liabilities are included in other income (expense) in the accompanying consolidated statements of operations.

 

During the three months ended September 30, 2022 and 2021, the Company recorded a change in fair of derivative liabilities of $0 and $202,784, respectively. These amounts reflect a mark to market adjustment recorded to the accompanying consolidated statements of operations.

 

During the nine months ended September 30, 2022 and 2021, the Company recorded a change in fair of derivative liabilities of $0 and $746,896, respectively. These amounts reflect a mark to market adjustment recorded to the accompanying consolidated statements of operations.

 

 

In connection with bifurcating the embedded conversion option and accounting for this instrument at fair value, the Company computed a fair value on the commitment date, and upon the initial valuation of this instrument, determined that the fair value of the liability exceeded the proceeds of the debt host instrument. As a result, the Company recorded a debt discount at the maximum amount allowed (the face amount of the debt), which required the overage to be recorded as a derivative expense.

 

For the three months years ended September 30, 2022 and 2021, the Company recorded a derivative expense of $0 and $0, respectively.

 

For the nine months years ended September 30, 2022 and 2021, the Company recorded a derivative expense of $0 and $1,775,057, respectively.

 

During the year ended December 31, 2021, in connection with the repayment of convertible notes which contained embedded conversion features, the related derivative liabilities ceased to exist.

 

During the three months ended September 30, 2022 and 2021, the Company recorded a gain of $0 and $136,487, respectively, related to the settlement of convertible debt which contained an embedded conversion feature and was separately bifurcated and classified as a derivative liability. The Company has recorded these gains in the accompanying consolidated statements of operations as a component of gain on settlement of liabilities.

 

During the nine months ended September 30, 2022 and 2021, the Company recorded a gain of $0 and $979,469, respectively.

 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

(UNAUDITED)