Quarterly report pursuant to Section 13 or 15(d)

Stockholders??? Deficit

v3.21.2
Stockholders’ Deficit
9 Months Ended
Sep. 30, 2021
Equity [Abstract]  
Stockholders’ Deficit

Note 9 – Stockholders’ Deficit

 

At September 30, 2021, and prior to the conversions noted below, the Company had three (3) classes of stock:

 

Common Stock

 

  - 500,000,000 shares authorized
  - Par value - $0.001
  - Voting at 1 vote per share

 

Series A, Convertible Preferred Stock

 

  - 100,000,000 shares authorized
  - 13,000,000 issued and outstanding
  - Par value - $0.001
  - Voting at 10 votes per share (130,000,000 votes)
  - Ranks senior to any other class of preferred stock
  - Dividends - none
  - Liquidation preference – none
  - Rights of redemption - none
  - Conversion into 1/10 of a share of common stock for each share held (1,300,000 common stock equivalents)

 

Series C, Convertible Preferred Stock

 

  - 1,000,000 shares authorized
  - 721,598 issued and outstanding
  - Par value - $0.001
  - Voting at 250 votes per share (180,399,500 votes)
  - Ranks junior to any other class of preferred stock
  - Dividends – equal to the per share amount (as converted basis) as the common stockholders should the Board of Directors declare a dividend
  - Liquidation preference – original issue price plus any declared yet unpaid accrued dividends
  - Rights of redemption - none
  - Conversion into 250 shares of common stock for each share held (180,399,500 common stock equivalents)
    In October 2021, prior to the reverse stock split, all Series C stockholders representing 721,598 shares issued and outstanding agreed to convert their holdings into common stock. The conversion was based upon the expected 1 for 50 reverse stock split which occurred on November 2, 2021. As a result of the conversion, the Company issued 3,607,980 shares of common stock. The net effect on equity was $0.

 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

 

Equity Transactions for the Nine Months Ended September 30, 2021

 

Reverse Stock Split

 

On November 2, 2021, the Company effected a 1 for 50 reverse stock split. All share and per share amounts have been retroactively restated to the earliest period presented.

 

Stock Issued for Cash

 

The Company issued 260,000 shares of common stock for $1,510,000 ($5 -$8/share).

 

Stock Issued for Services

 

The Company issued 9,991 shares of common stock for services rendered, having a fair value of $79,505 ($5 - $14.05/share), based upon the quoted closing trading price.

 

Exercise of Warrants

 

The Company issued 2,133 shares of common stock in connection with a cashless exercise of warrants. The transaction had a net effect of $0 on stockholders’ deficit.

 

Stock Issued as Debt Discount

 

The Company issued 18,000 shares of common stock in connection with the issuance of debt, having a fair value of $2,038,635 ($5.35/share), based upon the quoted closing trading price.

 

Warrants Issued as a Debt Discount

 

The Company issued 2,406,250 three (3) year warrants, having an exercise price of $8/share, with notes totaling $386,000, resulting in a debt discount of $265,268. The notes had an original issue discount of $36,000 as well as warrants that were accounted for at fair value totaling $229,268.

 

Fair value of the warrants was determined using a Black-Scholes option pricing model with the following inputs:

 

Expected term (years)     3 years  
Expected volatility     118 %
Expected dividends     0 %
Risk free interest rate     0.53 %

 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

 

Conversion of Debt

 

The Company issued 147,916 shares of common stock in connection with the conversion of convertible debt, having a fair value of $948,002 ($3.40 - $10.40/share), based upon the quoted closing trading price.

 

Make-whole Arrangement

 

The Company issued 15,147 shares of common stock to debt holders that were entitled to shares upon the settlement of debt and related accrued interest. The shares had a fair value of $90,401 ($5.60 - $6/share), based upon the quoted closing trading price.

 

Stock Issued for Debt Modification

 

The Company issued 13,916 shares of common stock in connection with the modification of debt arrangements. The shares had a fair value of $108,931 ($5.60 - $8/share), based upon the quoted closing trading price.

 

Stock Issued in Settlement of Liabilities

 

The Company issued 276,702 shares of common stock to various vendors and debt holders to settle accounts payable, debt and derivative liabilities. The shares had a fair value of $1,879,785 ($4.50 - $13.50/share), based upon the quoted closing trading price. In connection with these debt settlements, the Company recorded a gain of $979,469.

 

Stock Issued in Acquisition of Membership Interest in ECS

 

On January 30, 2020, the Company entered into a Membership Interest Purchase Agreement and Stock Purchase Agreement with ECS Prepaid, ECS, CSLS and the Winfrey’s. Pursuant to the agreements, the Company acquired all of the membership interests of ECS Prepaid and all of the issued and outstanding stock of each ECS and CSLS. The agreements provide that the consideration is to be paid by the Company through the issuance of 10,000 shares of the Company’s Common Stock. In addition, the agreements called for 500 shares of Common Stock to be issued to the Winfrey’s on a monthly basis over a 12-month period. During the three months ended March 31, 2021, the Company issued 2,000 shares of Common Stock in full settlement of the agreements. The shares had a fair value of $17,900 ($8.95/share), based upon the quoted closing trading price.

 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

 

Stock Options

 

Stock option transactions under the Company’s Plan for the nine months ended September 30, 2021 and the year ended December 31, 2020 are summarized as follows:

 

                Weighted           Weighted  
                Average           Average  
          Weighted     Remaining     Aggregate     Grant  
    Number of     Average     Contractual     Intrinsic     Date  
Stock Options   Options     Exercise Price     Term (Years)     Value     Fair Value  
Outstanding - December 31, 2019     -     $ -                          0.00     $ -     $ -  
Exercisable - December 31, 2019     -     $ -       0.00     $ -     $ -  
Vested and Exercisable - December 31, 2020     -     $ -       0.00     $ -     $ -  
Unvested and non-exercisable - December 31, 2020     -     $ -       0     $ -     $ -  
Granted     17,004     $ 16.00       7.00     $ -     $ 8.75  
Exercised     -     $ -             $ -          
Cancelled/Forfeited     -     $ -             $ -          
Outstanding - December 31, 2020     17,004     $ 16.00       6.16     $ -     $ -  
Vested and Exercisable - December 31, 2020     -     $ -       0.00     $ -     $ -  
Unvested and non-exercisable - December 31, 2020     17,004     $ 16.00       6.16     $ -     $ -  
                                         
Outstanding - December 31, 2020     17,004     $ 16.00       6.16     $ -     $ -  
Vested and Exercisable - December 31, 2020     -     $ -       0.00     $ -     $ -  
Unvested and non-exercisable - December 31, 2020     17,004     $ 16.00       6.16     $ -     $ -  
Granted     -       -                     $ -  
Exercised     -       -                          
Cancelled/Forfeited     -       -                          
Outstanding - September 30, 2021     17,004     $ 16.00       5.42     $ -     $ -  
Vested and Exercisable - September 30, 2021     3,401     $ 16.00       5.42     $ -     $ -  
Unvested and non-exercisable - September 30, 2021     13,603     $ 16.00       5.42     $ -     $ -  

 

 

 

Compensation expense recorded for stock-based compensation is as follows for the nine months ended September 30, 2021 and 2020, respectively:

 

Nine Months Ended  
September 30, 2021     September 30, 2020  
             
$ 27,880     $ 21,685  

 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

 

As of September 30, 2021, compensation cost related to the unvested options not yet recognized was as follows:

 

Compensation expense   $ 89,837  
         
Weighted average period in which compensation will vest (years)     2.42  

 

The unvested stock option expense is expected to be recognized through March 2024.

Warrants

 

Warrant activity for the Nine Months Ended September 30, 2021 and the Year Ended December 31, 2020 are summarized as follows:

 

                Weighted        
                Average        
          Weighted     Remaining     Aggregate  
    Number of     Average     Contractual     Intrinsic  
Warrants   Warrants     Exercise Price     Term (Years)     Value  
Outstanding and exercisable - December 31, 2019     136,993     $ 35.50                       1.98     $     -  
Exercisable     -       -       -       -  
Granted     62,325     $ 26.50       -       -  
Exercised     -       -       -       -  
Cancelled/Forfeited     (5,000 )   $ 40.00       -       -  
Outstanding - December 31, 2020     194,317     $ 32.50       1.52     $ -  
Exercisable - December 31, 2020     194,317     $ 32.50       1.52     $ -  
                                 
Outstanding - December 31, 2020     194,317     $ 32.50       1.52     $ -  
Exercisable - December 31, 2020     194,317     $ 32.50       1.52     $ -  
Granted     326,075     $ 8.13       -       -  
Exercised     (2,133 )     12.50       -       -  
Cancelled/Forfeited     (44,650 )   $ 23.49       -       -  
Outstanding - September 30, 2021     473,609     $ 16.68       3.21     $ -  
Exercisable - September 30, 2021     473,609     $ 16.68       3.21     $ -  

 

During 2021, the Company granted 277,950 warrants to convertible note holders and additional 48,125 warrants to note holders. These warrants were exercisable upon grant, had expiration dates ranging from 35 years, and an exercise price of $8/share.

 

 

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021