Stockholders’ Equity

9 Months Ended

Sep. 30, 2022

Equity [Abstract]

Stockholders’ Equity

Note 9 – Stockholders’ Equity

Reverse Stock Split

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

At September 30, 2022, 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

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

(UNAUDITED)

Series A, Convertible Preferred Stock

- 13,000,000 shares authorized

- 260,000 issued and outstanding

- Par value - $0.001

- Voting at 10 votes per share (2,600,000 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 (26,000 common stock equivalents)

Series C, Convertible Preferred Stock

- 1,000,000 shares authorized

- None issued and outstanding

- Par value - $0.001

- Voting at 250 votes per share

- 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

In October 2021, all Series C, Preferred stockholders, representing 721,598 shares issued and outstanding, agreed to convert their holdings into 3,607,980 shares of common stock. The transaction had a net effect of $0 on stockholders’ equity.

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

(UNAUDITED)

Equity Transactions for the Nine Months Ended September 30, 2022

Stock Issued as Direct Offering Costs

In April 2022, the Company issued 200,000 shares of common stock for services rendered in connection with the Company’s NASDAQ uplisting in 2021. As a result, the Company recorded the par value of the common stock issued with a corresponding charge to additional paid-in capital, resulting in a net effect of $0 to stockholders’ equity.

Stock Issued for Acquisition of Software

In June 2022, the Company acquired software having a fair value of $711,400. Payment for the software consisted of $300,000 in cash, of which $100,000 was paid in June 2022, and the remaining $200,000 in July 2022. Additionally, the Company issued 85,000 shares of common stock having a fair value of $411,400 ($4.84/share), based upon the quoted closing trading price.

Exercise of Warrants

The Company issued 147,153 shares of common stock in connection with a cashless exercise of 498,750 warrants. The transaction had a net effect of $0 on stockholders’ equity.

Equity Transactions for the Year Ended December 31, 2021

NASDAQ Listing

On November 2, 2021, the Company was approved to be uplisted to NASDAQ. The common stock and warrants are traded on the Nasdaq Capital Market under the symbols SURG and SURGW, respectively.

Stock Issued for Services

The Company issued 13,411 shares of common stock for services rendered, having a fair value of $99,436 ($5 - $14.05/share), based upon the quoted closing trading price.

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

(UNAUDITED)

Stock and Warrants Issued for Cash and Related Direct Offering Costs

The Company issued an aggregate 4,862,247 shares of common stock for $21,294,800 ($4.30 -$8/share). In connection with raising these funds, the Company paid $2,222,952 in direct offering costs, resulting in net proceeds of $19,076,710.

Of the 4,862,247 shares issued in 2021, 4,600,000 shares and 690,000 were sold in connection with the Company’s uplist to NASDAQ as follows:

On November 4, 2021, the Company issued 4,600,000 units consisting of one share of common stock and one warrant and 690,000 over-allotment warrants. The units were sold at $4.30 per unit for gross proceeds of $19,786,900 ($19,780,000 from the sale of 4,600,000 units at $4.30 and $6,900 from the sale of 690,000 over-allotment warrants at $0.01). The warrants are exercisable immediately at $4.73/share and expire three (3) years from the issuance date.

In connection with the Company’s sale of common stock, the Company incurred direct offering costs of $2,222,952 which were charged to additional paid-in capital. Net proceeds were $19,076,710.

On November 4, 2021, the Company issued 230,000 five (5) year warrants to the underwriters. These warrants are exercisable beginning May 1, 2022 until November 1, 2026. The exercise price is $4.73/share. The fair value of these warrants was $647,897 based upon the following assumptions:

Expected term (years)	5
Expected volatility	118%
Expected dividends	0%
Risk free interest rate	0.53%

Since these warrants were issued as direct offering costs associated with the offering, the Company has accounted for these warrants as both a charge and increase to additional paid-in capital, resulting in a net effect on stockholders’ equity of $0.

These 230,000 warrants were exchanged for 68,161 shares of common stock in July 2022 in a cashless exchange. The net effect on stockholders’ equity was $0.

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

(UNAUDITED)

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’ equity.

Stock and Warrants Issued as Debt Discount

During 2021, the Company issued stock and warrants in connection with the issuance of debt and derivative liabilities totaling $3,562,829, which were recorded as debt discounts to be amortized over the life of the debt. The Company issued 18,000 shares of common stock along with 137,500 three (3) year warrants, having an exercise price of $8/share. The aggregate discount recorded was $2,645,890 for the stock and warrants which are reflected in the accompanying consolidated statements of stockholders’ equity. An additional discount of $102,194 was recorded in connection with the commitment date fair value of derivative liabilities for an aggregate discount of $2,748,084.

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

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

Conversion of Debt

The Company issued 709,674 shares of common stock in connection with the conversion of convertible debt, having a fair value of $3,363,561 ($0.05 - $10.38/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.

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

(UNAUDITED)

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 $1,997,977 ($4.50 - $15.99/share), based upon the quoted closing trading price. In connection with these debt settlements, the Company recorded a gain of $1,469,641.

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 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. During 2020, the Company issued 5,500 shares.

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

(UNAUDITED)

Stock Options

Stock option transactions under the Company’s Plan for the nine months ended September 30, 2022 and the year ended December 31, 2021 are summarized as follows:

Stock Options	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value		Weighted Average Grant Date Fair Value
Outstanding - December 31, 2020		17,004	$	16.00		6.16	$	-	$	-
Vested and Exercisable - December 31, 2020		-	$	-		-	$	-	$	-
Unvested and non-exercisable - December 31, 2020		17,004	$	16.00		6.16	$	-	$	-
Granted		-		-					$	-
Exercised		-		-
Cancelled/Forfeited		-		-
Outstanding - December 31, 2021		17,004	$	16.00		5.16	$	-	$	-
Vested and Exercisable - December 31, 2021		3,401	$	16.00		5.16	$	-	$	-
Unvested and non-exercisable - December 31, 2021		13,603	$	16.00		5.16	$	-	$	-
Granted		-		-					$	-
Exercised		-		-
Cancelled/Forfeited		-		-
Outstanding - September 30, 2022		17,004	$	16.00		4.42	$	-	$	-
Vested and Exercisable - September 30, 2022		6,801	$	16.00		4.42	$	-	$	-
Unvested and non-exercisable - September 30, 2022		10,202	$	16.00		4.42	$	-	$	-

During 2022 and 2021, 3,400 stock options vested (6,801 in total), which were held by the Company’s Chief Financial Officer.

Compensation expense recorded for stock-based compensation is as follows for the three months ended September 30, 2022 and 2021, was $9,294 and $9,294, respectively.

Compensation expense recorded for stock-based compensation is as follows for the nine months ended September 30, 2022 and 2021, was $27,882 and $27,882, respectively.

As of September 30, 2022, compensation cost related to the unvested options not yet recognized was $52,663.

Weighted average period in which compensation will vest (years) 1.42 years. The unvested stock option expense is expected to be recognized through March 2024.

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

(UNAUDITED)

Warrants

Warrant activity for the nine months ended September 30, 2022 and the year ended December 31, 2021 are summarized as follows:

						Weighted
						Average
				Weighted		Remaining		Aggregate
	Number of			Average		Contractual		Intrinsic
Warrants	Warrants			Exercise Price		Term (Years)		Value
Outstanding - December 31, 2020		194,317		$	32.50		1.52	$	-
Vested and Exercisable - December 31, 2020		194,317		$	32.50		1.52	$	-
Granted		5,935,450		$	8.01		-		-
Exercised		(2,133	)	$	12.50		-		-
Cancelled/Forfeited		(44,650	)	$	23.49		-		-
Outstanding - December 31, 2021		6,082,984		$	8.68		2.93	$	-
Vested and Exercisable - December 31, 2021		5,852,984		$	8.70		2.85	$	-
Unvested - December 31, 2021		230,000		$	8.00		4.85	$	-
Granted		153,000		$	4.73		-
Exercised		(498,750	)	$	8.00		-
Cancelled/Forfeited		(88,671	)	$	40.04		-
Outstanding - September 30, 2022		5,648,563		$	8.14		2.10	$	-
Vested and Exercisable - September 30, 2022		5,648,563		$	8.14		2.10	$	-
Unvested and non-exercisable - September 30, 2022		-		$	-		0.00	$	-

Warrant Transactions for the Nine Months Ended September 30, 2022

Debt Issue Costs

In connection with $1,700,000 in notes issued in March, April and May 2022 (See Note 5), the Company issued 51,000 warrants, which are accounted for as debt issue costs, having a fair value of $115,404.

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

Expected term (years)	3 years
Expected volatility	119% - 120	%
Expected dividends	0	%
Risk free interest rate	2.45% - 2.80	%

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

(UNAUDITED)

Interest Expense

In May 2022, a vendor increased the amount of credit the Company had for making purchases. In consideration for the increase, the Company issued 90,000 warrants, which are accounted for as interest expense, having a fair value of $212,608.

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

Expected term (years)	3 years
Expected volatility	120	%
Expected dividends	0	%
Risk free interest rate	2.71	%

In September 2022, the Company extended the due dates of certain notes payable totaling $400,000 for an additional 6 months. In consideration for the extension of the maturity date, the Company issued 12,000 warrants, which are accounted for as interest expense, having a fair value of $38,754.

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

Expected term (years)	3 years
Expected volatility	119	%
Expected dividends	0	%
Risk free interest rate	4.25	%

Warrant Exercise

In July 2022, the Company issued 78,992 shares of common stock in connection with a cashless exercise of 268,750 warrants.

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

(UNAUDITED)

Warrant Transactions for the Year Ended December 31, 2021

During 2021, the Company granted 277,950 warrants to convertible note holders and additional 137,500 warrants to note holders. These warrants were exercisable upon the grant date, had expiration dates ranging from 3 – 5 years, and exercise prices of $8 - $12/share.

Additionally, in connection with the NASDAQ uplisting, 5,290,000 warrants were sold for cash and an additional 230,000 warrants were issued as an underwriters’ discount. The 230,000 warrants are exercisable six (6) months from the grant date in May 2022. See above for additional discussion, including the cashless exercise of these warrants for 68,161 shares of common stock.

In connection with the Company’s NASDAQ uplisting, 433,017 warrants were repriced at a lower exercise price to better reflect the current market offering. No other terms had been modified. As a result, for the year ended December 31, 2021, the Company recorded a warrant modification expense of $74,476 in the accompanying consolidated statements of operations with an offsetting increase to additional paid in capital.

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

Expected term (years)	3 - 5
Expected volatility	119% - 146%
Expected dividends	0%
Risk free interest rate	0.07% - 1.15%

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

(UNAUDITED)