Installment Sale Liability

6 Months Ended

Jun. 30, 2023

Installment Sale Liability

Installment Sale Liability

Note 11 – Installment Sale Liability

Agreement

In 2022, the Company executed a two-year (2) financing arrangement with Affordable Connectivity Financing (“ACF”, “Seller”) to receive up to $25,000,000 to purchase devices for sale.

This agreement is based upon the Company submitting a purchase order and ACF approving the request. The Company may cancel the purchase order prior to ACF paying for the devices. The agreement may be extended by a period of one (1) year upon mutual consent.

Under the terms of the agreement, ACF is directly purchasing products and reselling to the Company at a markup. At December 31, 2022, the markup was 9.85%. Effective April 1, 2023 and each quarter thereafter, this amount is subject to increase based upon the secured overnight financing rate.

Repayment Period

Each installment sale contract shall be repaid over a period of nine (9) months.

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023

(UNAUDITED)

Security

This arrangement is fully secured by all assets of the Company.

Minimum Outstanding Balance

3 month rolling average of 70% of the installment sale credit amount.

Prepayment Penalty

The Company is subject to a cancellation fee of 3% during the first year and 2% during the second year.

Administrative Fee

The Company is required to pay $2,000 per month.

Default Rate

For any unpaid amounts under this agreement, the Company is subject to a fee of 1.35% per month (16.2% annualized).

Commitment Fee

ACF charged a 2% commitment fee on the initial installment sale, and 2% for each incremental increase of $5,000,000 in the installment sale credit amount.

For example, if the initial installment sale credit amount is $15,000,000, the credit availability fee would be $300,000 (2%). Any subsequent increase of $5,000,000 or more would result in an additional fee of $100,000 (2%). Commitment fees are paid over a period of 12 months as part of the Seller’s monthly invoicing.

Covenants

At June 30, 2023 and December 31, 2022, respectively, the Company was in compliance with all of the following ratios:

1.	Company adjusted EBITDA,
2.	Total Leverage Ratio,
3.	Fixed Charge Coverage Ratio,
4.	Minimum Subscriber Base; and
5.	Minimum Liquidity

Additionally, the Company is required to provide various data to the vendor on a periodic basis. The Company has not received notice from the vendor regarding any instances of non-compliance.

Lockbox

The Company will maintain a lockbox for the benefit of the Seller.

Installment Sale Liability

At June 30, 2023 and December 31, 2022, the Company has recorded an installment sale liability of $11,349,440 and $13,018,184, respectively, which is included in the accompanying consolidated balance sheets.

During the three and six months ended June 30, 2023, the Company paid fees of $135,500 and $266,500, respectively. These amounts have been included as a component of cost of goods sold in the accompanying consolidated statements of operations.