Stockholders’ Equity

12 Months Ended

Dec. 31, 2023

Equity [Abstract]

Stockholders’ Equity

Note 9 – Stockholders’ Equity

At December 31, 2023, 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

- 13,000,000 shares authorized

- none issued and outstanding

- Par value - $0.001

- Voting at 10 votes per share

- 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

In 2022, all Series A, Preferred stockholders, representing 260,000 shares issued and outstanding, agreed to convert their holdings into 1,300,000 shares of common stock. The transaction had a net effect of $0 on stockholders’ equity.

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

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Securities and Incentive Plan

In March 2023, the Company’s shareholders approved the 2022 Plan (the “Plan”) initially approved, authorized and adopted by the Board of Directors in August 2022.

The Plan initially provided for the following:

1. 3,500,000 shares of common stock

2. An annual increase on the first day of each calendar year beginning January 1, 2023 and ending on January 31, 2031 equal to the lesser of:

a.	10% of the common stock outstanding on the final day of the immediately preceding calendar year, or
b.	Such smaller amount of common stock as determined by the Board of Directors.

3. The shares may be issued as follows to directors, officers, employees, and consultants:

a.	Distribution equivalent rights
b.	Incentive share options
c.	Non-qualified share options
d.	Performance unit awards
e.	Restricted share awards
f.	Restricted share unit awards
g.	Share appreciation rights
h.	Tandem share appreciation rights
i.	Unrestricted share awards

See the proxy statement filed with the SEC on January 19, 2023 for a complete detail of the Plan.

Effective January 1, 2024, in accordance with the Plan, we increased the available amount of shares by 10% of the common stock outstanding on December 31, 2023, approximating an additional 1,400,000 shares of common stock. After this increase, total shares authorized and available to be issued under the Plan approximated 4,900,000 shares.

Of the total shares authorized and available, the Company has reserved shares for its officers, directors and employees for non-vested shares that are expected to vest in accordance with the terms of the related employment agreements and stock options that may be converted into common stock. At December 31, 2023, the Company had sufficient authorized shares to settle any possible awards that vested or stock options eligible for conversion.

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Equity Transactions for the Year Ended December 31, 2023

Stock Issued for Services

The Company issued 242,615 shares of common stock for services rendered, having a fair value of $1,290,024 ($4.19 - $9.40/share), based upon the quoted closing trading price.

Exercise of Warrants

The Company issued 43,814 shares of common stock upon the exercise of warrants with an exercise price of $4.73 for $207,240.

Non-Vested Shares – Related Parties

Chief Financial Officer

In 2023, the Company granted common stock to its Chief Financial Officer (600,000 shares – see Note 8), having a fair value of $3,114,000 ($5.19/share), based upon the quoted closing trading price.

The shares will vest as noted above (see Note 8). The Company records stock compensation expense over these vesting periods. All shares are expected to vest in accordance with the terms of the agreement.

For the year ended December 31, 2023, the Company recognized stock compensation expense of $486,242 related to vesting.

Board Directors

In 2023, the Company granted an aggregate 95,000 shares of common stock to various members of the Board of Directors, having a fair value of $519,500 ($5.14 - $5.53/share), based upon the quoted closing trading price.

The shares will vest at the earlier to occur:

- Board Member no longer serves in that capacity for any reason, except for reasons related to cause,

- Occurrence of a change in control; and

- 5^th anniversary of the effective date (2028)

The Company records stock compensation expense over the five (5) year vesting period. All shares are expected to vest in accordance with the terms of the agreement.

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

For the year ended December 31, 2023, the Company recognized stock compensation expense of $43,292 related to vesting.

For the year ended December 31, 2023, total related stock compensation expense due to vesting was $529,534.

The following is a summary of the Company’s non-vested shares at December 31, 2023.

			Weighted Average
Non-Vested Shares	Number of Shares		Grant Date Fair Value
Balance - December 31, 2022		-	$	-
Granted		695,000		5.24
Vested		-		-
Cancelled/Forfeited		-		-
Balance - December 31, 2023		695,000	$	5.24
Unrecognized Compensation	$	3,103,967
Weighted average period (years)		1.23

See Note 8 for discussion of common stock award to the Company’s Chief Financial Officer pursuant to an employment agreement.

Equity Transactions for the Year Ended December 31, 2022

Stock Issued as Direct Offering Costs

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

The Company acquired software having a fair value of $711,400. Payment for the software consisted of $300,000 in cash and 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 (Cashless)

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.

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Exercise of Warrants

The Company issued 100 shares of common stock in connection with the exercise of 473 warrants for $473.

Stock Options

Stock option transactions for the years ended December 31, 2023 and 2022 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, 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 - December 31, 2022		17,004	$	16.00		4.16	$	-
Vested and Exercisable - December 31, 2022		6,801	$	16.00		4.16	$	-
Unvested and non-exercisable - December 31, 2022		10,203	$	16.00		4.16	$	-
Granted		104,272		6.45					$	5.53
Exercised		-		-
Cancelled/Forfeited		-		-
Outstanding - December 31, 2023		121,276	$	7.79		6.47	$	-
Vested and Exercisable - December 31, 2023		116,174	$	7.43		6.61	$	-
Unvested and non-exercisable - December 31, 2023		5,101	$	16.00		3.16	$	-

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Stock Options - Related Party

During 2023 and 2022, 5,101 and 3,401 stock options vested each year, respectively, and were held by the Company’s Chief Financial Officer. The remaining 5,101 stock options vest in 2024.

Stock-based compensation expense for the years ended December 31, 2023 and 2022 was $37,176 and $37,176, respectively.

Stock Options - Employees

In 2023, the Company granted 104,272 seven (7) year stock options to various employees for services rendered, having a fair value of $576,625. These options have an exercise price of $6.45 per share.

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

Expected term	7 years
Expected volatility	106%
Expected dividends	0%
Risk free interest rate	3.88%

Total stock-based compensation expense for the years ended December 31, 2023 and 2022 was $613,801 and $37,176, respectively.

Weighted average period in which unrecognized compensation ($6,196) will vest is 0.16 years. The unvested stock option expense is expected to be recognized through March 2024.

Warrants

Warrant activity for the years ended December 31, 2023 and 2022 are summarized as follows:

Warrants	Number of Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
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		189,000		$	4.73		-
Exercised		(498,850	)	$	6.49		-
Cancelled/Forfeited		(91,743	)	$	40.02		-
Outstanding - December 31, 2022		5,681,392		$	5.05		1.85	$	10,026,387
Vested and Exercisable - December 31, 2022		5,681,392		$	5.05		1.85	$	10,026,387
Unvested - December 31, 2022		-		$	-		-	$	-
Granted		-		$	-		-
Exercised		(43,814	)	$	4.73		-
Cancelled/Forfeited		(63,325	)	$	26.39		-
Outstanding - December 31, 2023		5,574,253		$	4.81		0.86	$	9,348,348
Vested and Exercisable - December 31, 2023		5,574,253		$	4.81		0.86	$	9,348,348
Unvested and non-exercisable - December 31, 2023		-		$	-		-	$	-

Warrant Transactions for the Year Ended December 31, 2022

Warrants Issued as Debt Issue Costs

In connection with $1,700,000 in notes payable (See Note 6), the Company issued 51,000 warrants, which were accounted for as debt issue costs, having a fair value of $115,404. These debt issue costs were amortized in full as of December 31, 2022.

SURGEPAYS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

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%

Warrants Issued as Interest Expense

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 2022, the Company extended the due dates of certain notes payable totaling $1,600,000 for an additional 6 months. In consideration for the extension of the maturity date, the Company issued 48,000 warrants, which are accounted for as additional interest expense, having a fair value of $153,186. The Company also determined that these transactions were classified as debt modifications and that extinguishment accounting did not apply.

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	116% - 119%
Expected dividends	0%
Risk free interest rate	4.13% - 4.25%