Quarterly report pursuant to Section 13 or 15(d)

Derivative Liabilities

v3.21.2
Derivative Liabilities
9 Months Ended
Sep. 30, 2021
Derivative Liability [Abstract]  
Derivative Liabilities

Note 6 – Derivative Liabilities

 

The above convertible notes contained an embedded conversion option 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:

Schedule of Weighted Average Assumptions 

    September 30, 2021     December 31, 2020  
Expected term (years)     0.20 - 1 year       0.75 years  
Expected volatility     143% - 291 %     96% - 132 %
Expected dividends     0 %     0 %
Risk free interest rate     0.03% - 0.09 %     0.08% - 1.51 %

 

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 September 30, 2021 and December 31, 2020:

 

 Summary of Changes in Fair Value

Derivative liability - December 31, 2019   $ 190,846  
Fair value at commitment date     2,024,191  
Fair value mark to market adjustment     (577,936 )
Gain on derivative liability upon related debt settled     (279,573 )
Derivative liability - December 31, 2020     1,357,528  
Fair value at commitment date     1,877,251  
Fair value mark to market adjustment     (746,896 )
Gain on derivative liability upon related debt settled     (920,375 )
Derivative liability - September 30, 2021   $ 1,567,508  

 

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, 2021 and 2020, the Company recorded a change in fair of derivative liabilities of (202,784) and $212,851, respectively.

 

During the nine months ended September 30, 2021 and 2020, the Company recorded a change in fair of derivative liabilities of $746,896 and $405,413, respectively.

 

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 ended September 30, 2021 and 2020, the Company recorded a derivative expense of $0 and $33,239, respectively.

 

For the nine months ended September 30, 2021 and 2020, the Company recorded a derivative expense of $1,775,057 and $529,294, respectively.

 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021