Quarterly report pursuant to Section 13 or 15(d)

Debt

v3.21.2
Debt
9 Months Ended
Sep. 30, 2021
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, 2021 and December 31, 2020, 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.

 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

 

(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.

 

    PPP     EIDL     EIDL     PPP  
Terms   SBA     SBA     SBA     SBA  
                         
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  

 

                            Total  
                               
Principal   $ 498,082     $ 150,000     $ 486,600     $ 518,167     $ 1,652,849  
                                         
Balance - December 31, 2019     -       -       -       -       -  
Gross proceeds     498,082       150,000       486,600       -       1,134,682  
Balance - December 31, 2020     498,082       150,000       486,600       -       1,134,682  
Gross proceeds     -       -       -       518,167       518,167  
Deconsolidation of subsidiary (“TW”)     -       -       (150,000 )*     -       (150,000 )
Repayments     -       (1,040 )     (2,385 )     -       (3,425 )
Balance - September 30, 2021   $ 498,082     $ 148,960     $ 334,215     $ 518,167     $ 1,499,424  

 

* In connection with the deconsolidation of TW, $150,000 was assumed by the buyer.

 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

 

Notes Payable – Related Parties

    1   2
    Note Payable   Note Payable
Terms   Related Party   Related Party
         
Issuance dates of notes   Various   May 2020/January 2021
Maturity date   June 30, 2022 or January 1, 2023 due on demand   March 2021 and due on demand
Interest rate   10%   15%
Collateral   Unsecured   Unsecured
Conversion price   N/A   N/A

 

                Total     In-Default  
                         
Balance - December 31, 2019     2,205,440       -       2,205,440     $      -  
Gross proceeds     1,136,500       147,500       1,284,000          
Balance - December 31, 2020     3,341,940       147,500       3,489,440       -  
Gross proceeds     3,625,000       63,000       3,688,000          
Repayments     -       (163,000 )     (163,000 )        
Balance - September 30, 2021   $ 6,966,940     $ 47,500     $ 7,014,440     $ -  

 

1 Activity is with the Company’s Chief Executive Officer and Board Director (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. All notes bear interest at 10%.

 

2 Activity is with the Company’s President, Chief Operating Officer and Board Director (Anthony Nuzzo). In 2021, the Company received advances of $63,000 in the quarter ended March 31, 2021, which were repaid in the quarter ended March 31, 2021 (this related to the January 2021 note). The remaining outstanding amount of $47,500 is due on demand.

 

On November 4, 2021, the Company’s Chief Executive Officer converted notes totaling $2,415,560 into 561,758 shares of common stock, having a fair value of $1,808,861 ($3.22/share), based upon the quoted closing trading price. As a result of the debt conversion, the Company recognized a gain on debt extinguishment of $605,699. However, since this is a related party transaction, accordingly no gain can be recognized, resulting in an increase to additional paid-in capital.

 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

 

Notes Payable

Terms   Note   Note   Note   Notes
                 
Issuance dates of notes   2016   2016   November 4, 2019   August/September 2021
Maturity date   2016   2017   November 3, 2020   August/September 2022
Interest rate   5%   10%   18%   10%
Collateral   Unsecured   Unsecured   Unsecured   Unsecured
Conversion price   N/A   N/A   N/A   N/A
Warrants issued as discount   N/A   N/A   N/A   2,406,250

 

                            Total     In-Default  
                                     
Principal   $ 485,000     $ 27,500     $ 250,000     $ 853,386 *   $ 1,615,886          
                                                 
Balance - December 31, 2019     485,000       27,500       223,672       -       736,172     $ 512,500  
Amortization of debt discount     -       -       26,328       -       26,328          
Repayments     (485,000 )     (27,500 )     -       -       (512,500 )        
Balance - December 31, 2020     -       -       250,000       -       250,000       250,000  
Gross proceeds     -       -       -       853,386       853,386          
Debt discount     -       -       -       (265,268 )**     (265,268 )        
Amortization of debt discount     -       -       -       5,087       5,087          
Repayments     -       -       (250,000 )     -       (250,000 )        
Balance - September 30, 2021   $ -     $ -     $ -     $ 593,205     $ 593,205     $ -  

 

* In the event of default, notes with principal totaling $386,000 are convertible at 75% of the market price based upon the VWAP in preceding 10 days.
** Debt discount on notes totaling $386,000 includes original issue discounts of $36,000 and debt discounts associated with warrants totaling $229,268.

 

Subsequent to September 30, 2021, the Company repaid $386,000 and related accrued interest of $5,016. At this time the remaining debt discount was fully amortized to interest expense.

 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

 

Convertible Notes Payable – Net

 

Terms   Notes Payable   Notes Payable   Notes Payable
             
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

 

                      Total     In-Default  
                               
Principal   $ -     $ 2,347,000     $ 2,550,000     $ 4,897,000          
                                         
Balance - December 31, 2019   $ 4,436,684     $ -     $ -     $ 4,436,684     $ -  
Gross proceeds     -       2,347,000       -       2,347,000          
Debt discount     -       (2,347,000 )     -       (2,347,000 )        
Amortization of debt discount     161,217       1,829,219       -       1,990,436          
Repayments - cash     (438,698 )     (130,061 )     -       (568,759 )        
Repayments - common stock     (4,159,203 )     (182,988 )     -       (4,342,191 )        
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       1,458,912       1,976,693          
Repayments - cash     -       (1,132,170 )     (250,000 )     (1,382,170 )        
Repayments - common stock     -       (978,728 )     -       (978,728 )        
Reclassified to receivable     -       76,947 C     -       76,947          
Balance - September 30, 2021   $ -     $ -     $ 1,298,083     $ 1,298,083     $ -  

 

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.

 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

 

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 September 30, 2021 and December 31, 2020 was $0 and $912,870. In connection with the deconsolidation of TW in May 2021, the buyer assumed the line of credit.