UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
or
For the transition period from ________________ to ________________
Commission
file number
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
The
(Nasdaq Capital Market) | ||||
The
(Nasdaq Capital Market) |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
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Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
Smaller
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Emerging
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. ☐
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The number of shares of the registrant’s common stock outstanding as of November 10, 2023 was shares.
TABLE OF CONTENTS
1 |
PART I
ITEM 1. FINANCIAL STATEMENTS
SurgePays, Inc. and Subsidiaries
2 |
Consolidated Balance Sheets
September 30, 2023 | December 31, 2022 | |||||||
(Unaudited) | (Audited) | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash | $ | $ | ||||||
Accounts receivable - net | ||||||||
Inventory | ||||||||
Prepaids | ||||||||
Total Current Assets | ||||||||
Property and equipment - net | ||||||||
Other Assets | ||||||||
Note receivable | ||||||||
Intangibles - net | ||||||||
Internal use software development costs - net | ||||||||
Goodwill | ||||||||
Investment in CenterCom | ||||||||
Operating lease - right of use asset - net | ||||||||
Total Other Assets | ||||||||
Total Assets | $ | $ | ||||||
Liabilities and Stockholders’ Equity | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued expenses | $ | $ | ||||||
Accounts payable and accrued expenses - related party | ||||||||
Installment sale liability | ||||||||
Deferred revenue | ||||||||
Operating lease liability | ||||||||
Notes payable - related parties | ||||||||
Notes payable | ||||||||
Total Current Liabilities | ||||||||
Long Term Liabilities | ||||||||
Note payable | ||||||||
Notes payable - related parties | ||||||||
Notes payable - SBA government | ||||||||
Operating lease liability | ||||||||
Total Long Term Liabilities | ||||||||
Total Liabilities | ||||||||
Commitments and Contingencies (Note 8) | ||||||||
Stockholders’ Equity | ||||||||
Common stock, $ | par value, shares authorized and shares issued and outstanding, respectively||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Stockholders’ equity | ||||||||
Non-controlling interest | ||||||||
Total Stockholders’ Equity | ||||||||
Total Liabilities and Stockholders’ Equity | $ | $ |
The accompanying notes are an integral part of these unaudited consolidated financial statements
3 |
Consolidated Statements of Operations
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenues | $ | $ | $ | $ | ||||||||||||
Costs and expenses | ||||||||||||||||
Cost of revenue | ||||||||||||||||
General and administrative expenses | ||||||||||||||||
Total costs and expenses | ||||||||||||||||
Income (loss) from operations | ( | ) | ( | ) | ||||||||||||
Other income (expense) | ||||||||||||||||
Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Gain (loss) on investment in CenterCom | ( | ) | ( | ) | ||||||||||||
Amortization of debt discount | ( | ) | ( | ) | ||||||||||||
Gain on forgiveness of PPP loan - government | ||||||||||||||||
Total other income (expense) - net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net income (loss) including non-controlling interest | ( | ) | ( | ) | ||||||||||||
Non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||||||
Net income (loss) available to common stockholders | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Earnings (loss) per share - attributable to common stockholders | ||||||||||||||||
Basic | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Diluted | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Weighted average number of shares outstanding - attributable to common stockholders | ||||||||||||||||
Basic | ||||||||||||||||
Diluted |
The accompanying notes are an integral part of these unaudited consolidated financial statements
4 |
Consolidated Statements of Changes in Stockholders’ Equity
Common Stock | Additional Paid-in | Accumulated | Non-Controlling | Total Stockholders’ | ||||||||||||||||||||
Shares | Amount | Capital | Deficit | Interest | Equity | |||||||||||||||||||
December 31, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
Stock issued for services | ||||||||||||||||||||||||
Recognition of stock based compensation - stock options | - | |||||||||||||||||||||||
Non-controlling interest | - | ( | ) | ( | ) | |||||||||||||||||||
Net income | - | |||||||||||||||||||||||
March 31, 2023 | ( | ) | ||||||||||||||||||||||
Stock issued for services | ||||||||||||||||||||||||
Recognition of stock based compensation - stock options | - | |||||||||||||||||||||||
Exercise of warrants for cash | ||||||||||||||||||||||||
Non-controlling interest | - | |||||||||||||||||||||||
Net income | - | |||||||||||||||||||||||
June 30, 2023 | ( | ) | ||||||||||||||||||||||
Stock issued for services | ||||||||||||||||||||||||
Recognition of stock based compensation - stock options | - | |||||||||||||||||||||||
Non-controlling interest | - | ( | ) | ( | ) | |||||||||||||||||||
Net income | - | |||||||||||||||||||||||
September 30, 2023 | $ | $ | $ | ( | ) | $ | $ |
The accompanying notes are an integral part of these unaudited consolidated financial statements
5 |
Series A Preferred Stock | Series C Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Non-Controlling | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Equity | |||||||||||||||||||||||||||||||
December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
Recognition of stock based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
Warrants issued as debt issue costs | - | - | - | |||||||||||||||||||||||||||||||||||||
Non-controlling interest | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
Recognition of stock based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
Stock issued as direct offering costs | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
Stock issued to purchase software | - | - | ||||||||||||||||||||||||||||||||||||||
Warrants issued as debt issue costs | - | - | - | |||||||||||||||||||||||||||||||||||||
Warrants issued as interest expense | - | - | - | |||||||||||||||||||||||||||||||||||||
Non-controlling interest | - | - | - | |||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
June 30, 2022 | ( | ) | ||||||||||||||||||||||||||||||||||||||
Recognition of stock based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
Warrants issued as interest expense | - | - | - | |||||||||||||||||||||||||||||||||||||
Exercise of warrants (cashless) | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
Non-controlling interest | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
September 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ |
The accompanying notes are an integral part of these unaudited consolidated financial statements
6 |
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, | ||||||||
2023 | 2022 | |||||||
Operating activities | ||||||||
Net income (loss) - including non-controlling interest | $ | $ | ( | ) | ||||
Adjustments to reconcile net income (loss) to net cash used in operations | ||||||||
Provision for inventory obsolescence | ||||||||
Depreciation and amortization | ||||||||
Amortization of right-of-use assets | ||||||||
Amortization of debt discount/debt issue costs | ||||||||
Amortization of internal use software development costs | ||||||||
Stock issued for services | ||||||||
Recognition of share based compensation - related party | ||||||||
Warrants issued for interest expense | ||||||||
(Gain) loss on equity method investment - CenterCom | ( | ) | ||||||
Gain on forgiveness of PPP loan | ( | ) | ||||||
Changes in operating assets and liabilities | ||||||||
(Increase) decrease in | ||||||||
Accounts receivable | ( | ( | ||||||
Inventory | ( | ) | ( | ) | ||||
Prepaids | ( | ) | ( | ) | ||||
Increase (decrease) in | ||||||||
Accounts payable and accrued expenses | ||||||||
Accounts payable and accrued expenses - related party | ( | ) | ||||||
Installment sale liability - net | ( | ) | ||||||
Deferred revenue | ( | ) | ||||||
Operating lease liability | ( | ) | ( | ) | ||||
Net cash provided by (used in) operating activities | ( | ) | ||||||
Investing activities | ||||||||
Purchase of property and equipment | ( | ) | ||||||
Capitalized internal use software development costs | ( | ) | ||||||
Purchase of software | ( | ) | ||||||
Acquisition of Torch, Inc. | ( | ) | ||||||
Net cash used in investing activities | ( | ) | ( | ) | ||||
Financing activities | ||||||||
Proceeds from exercise of common stock warrants | ||||||||
Repayments of loans - related party | ( | ) | ||||||
Proceeds from notes payable | ||||||||
Repayments on notes payable | ( | ) | ||||||
Repayments on notes payable - SBA government | ( | ) | ( | ) | ||||
Net cash provided (used in) by financing activities | ( | ) | ||||||
Net increase in cash | ||||||||
Cash - beginning of period | ||||||||
Cash - end of period | $ | $ | ||||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid for interest | $ | $ | ||||||
Cash paid for income tax | $ | $ | ||||||
Supplemental disclosure of non-cash investing and financing activities | ||||||||
Debt issue costs recorded in connection with notes payable | $ | $ | ||||||
Stock issued to acquire software | $ | $ |
The accompanying notes are an integral part of these unaudited consolidated financial statements
7 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Note 1 - Organization and Nature of Operations
Organization and Nature of Operations
SurgePays, Inc. (“SurgePays,” “SP,” “we,” “our” or “the Company”), and its operating subsidiaries, is a technology-driven company building a next generation supply chain software platform that can offer wholesale goods and services more cost efficiently than traditional and existing wholesale distribution models.
The parent (SurgePays, Inc.) and subsidiaries are organized as follows:
Company Name | Incorporation Date | State of Incorporation | ||
* |
* |
8 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements.
In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all of the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of September 30, 2023 and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended September 30, 2023 are not necessarily indicative of the operating results for the full fiscal year or any future period.
These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 30, 2023.
Management acknowledges its responsibility for the preparation of the accompanying unaudited consolidated financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its consolidated financial position and the consolidated results of its operations for the periods presented.
Liquidity and Management’s Plans
As reflected in the accompanying consolidated financial statements, for the nine months September 30, 2023, the Company had:
● | Net
income available to common stockholders of $ |
● | Net
cash provided by operations was $ |
Additionally, at September 30, 2023, the Company had:
● | Accumulated
deficit of $ |
● | Stockholders’
equity of $ |
● | Working
capital of $ |
9 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
We
manage liquidity risk by reviewing, on an ongoing basis, our sources of liquidity and capital requirements. The Company has cash on hand
of $
The Company has historically incurred significant losses and has not, prior to 2023, demonstrated an ability to generate sufficient revenues from the sales of its products and services to achieve profitable operations. There can be no assurance that profitable operations will continue to be, or if achieved, could be sustained on a continuing basis. In making this assessment we performed a comprehensive analysis of our current circumstances including: our financial position, our cash flows and cash usage forecasts for the twelve months ended September 30, 2024, and our current capital structure including equity-based instruments and our obligations and debts.
The Company believes it has sufficient cash resources on hand along with access to additional debt and/or equity-based capital from third parties and related parties as needed to meet its current obligations for a period that is one year from the issuance date of these financial statements.
Management’s strategic plans include the following:
● | Continue the hyper growth of the Affordable Connectivity Program revenue stream, |
● | Expand product and services offerings to a larger surrounding geographic area, |
● | Continuing to explore and execute prospective partnering or distribution opportunities; and |
● | Identifying unique market opportunities that represent potential positive short-term cash flow. |
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation and Non-Controlling Interest
These consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated.
For entities that are consolidated, but not 100% owned, a portion of the income or loss and corresponding equity is allocated to owners other than the Company. The aggregate of the income or loss and corresponding equity that is not owned by us is included in Non-controlling Interests in the consolidated financial statements.
10 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Business Combinations
The Company accounts for business acquisitions using the acquisition method of accounting, in accordance with which assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date.
The fair value of the consideration paid, including contingent consideration, is assigned to the assets acquired and liabilities assumed based on their respective fair values. Goodwill represents the excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed.
Significant judgments are used in determining fair values of assets acquired and liabilities assumed, as well as intangibles. Fair value and useful life determinations are based on, among other factors, estimates of future expected cash flows, and appropriate discount rates used in computing present values. These judgments may materially impact the estimates used in allocating acquisition date fair values to assets acquired and liabilities assumed, as well as the Company’s current and future operating results. Actual results may vary from these estimates which may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever occurs first. Adjustments to fair values of assets and liabilities made after the end of the measurement period are recorded within the Company’s operating results.
Effective January 1, 2022, the Company executed a management agreement with Torch Wireless (“Torch”). Generally, the Company was engaged to handle the following services:
● | Oversee management of the business being conducted by Torch, | |
● | Involved in the performance of Torch’s obligations under contracts regarding its business operations and maintenance of Torch’s customer relationships, | |
● | Assist Torch with regulatory compliance, | |
● | Manage all billing and collection functions, including the right to collect revenues related to Torch’s business operations, as part of the agreement, Torch may not participate in this function; and | |
● | Manage all payment functions related to the business, including the right to disburse funds, as part of the agreement, Torch may not participate in this function |
Torch
is a provider of subsidized mobile broadband services to consumers qualifying under the federal guidelines of the U.S. Federal Communication
Commission’s Affordable Connectivity Program (“ACP”). The ACP provides the Company with up to a $
11 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
With the purchase of Torch, the Company offers subsidized mobile broadband in all fifty (50) states.
It
was determined that the Company had acquired
At
the time of acquisition, Torch had no significant assets or liabilities. The Company paid $
At the time of acquisition, Torch had nominal revenues and losses. As a result, and given the immaterial nature of this acquisition, the Company elected not to present any pro-forma financial information during the year ended December 31, 2022.
In
addition, the Company was required to pay the Sellers monthly residual payments for customers enrolled by the Company through December
31, 2022 of either $
For
the nine months ended September 30, 2023 and 2022, the Company incurred expenses of $
This transaction did not involve the purchase of a “significant amount of assets” as defined in the Instructions to Item 2.01 of Form 8-K. Additionally, the acquisition of Torch was not deemed to be significant at any level under SEC Regulation S-X 3.05 and did not require the presentation of any additional historical audited financial statements.
For financial reporting purposes, Torch has been consolidated into the Company’s consolidated statements of financial position, results of operations, and cash flows.
At
September 30, 2023 and December 31, 2022 goodwill was $
There
were
12 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Note Receivable (Sale of Former Subsidiary)
On May 7, 2021, the Company disposed of its subsidiary True Wireless, Inc.
In
connection with the sale, the Company received an unsecured note receivable for $
Payments are scheduled as follows:
For the Year Ended December 31, | ||||
2023 (3 months) | $ | |||
2024 | ||||
2025 | ||||
Less: amount representing interest | ( | ) | ||
Total | $ |
On
July 12, 2023, Notice of Default was provided by SurgePays, Inc. to Blue Skies Connections, LLC for failure to pay amounts due under
that certain Promissory Note dated June 14, 2021 by Blue Skies Connections, LLC in favor of SurgePays, Inc. in the original principal
amount of $
As of September 30, 2023, the Company believes the note is collectible.
Business Segments and Concentrations
The Company uses the “management approach” to identify its reportable segments. The management approach requires companies to report segment financial information consistent with information used by management for making operating decisions and assessing performance as the basis for identifying the Company’s reportable segments. The Company manages its business as multiple reportable segments. See Note 10 regarding segment disclosure.
The
SurgePhone and Torch Wireless business segment made up approximately
13 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Revenues
related to this business segment are
Accounts
receivable related to these programs made up
Customers
in the United States accounted for
Use of Estimates
Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates, and those estimates may be material.
Significant estimates during the nine months ended September 30, 2023 and 2022, respectively, include, allowance for doubtful accounts and other receivables, inventory reserves and classifications, valuation of loss contingencies, valuation of derivative liabilities, valuation of stock-based compensation, estimated useful lives related to intangible assets, capitalized internal-use software development costs, and property and equipment, implicit interest rate in right-of-use operating leases, uncertain tax positions, and the valuation allowance on deferred tax assets.
Risks and Uncertainties
The Company operates in an industry that is subject to intense competition and changes in consumer demand. The Company’s operations are subject to significant risk and uncertainties including financial and operational risks including the potential risk of business failure.
The Company has experienced, and in the future may experience, variability in sales and earnings. The factors expected to contribute to this variability include, among others, (i) the cyclical nature of the industry, (ii) general economic conditions in the various local markets in which the Company competes, including a potential general downturn in the economy, and (iii) the volatility of prices in connection with the Company’s distribution of the product. These factors, among others, make it difficult to project the Company’s operating results on a consistent basis.
14 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Fair Value of Financial Instruments
The Company accounts for financial instruments under Financial Accounting Standards Board (“FASB”) ASC 820, Fair Value Measurements. ASC 820 provides a framework for measuring fair value and requires disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company’s principal or, in absence of a principal, most advantageous market for the specific asset or liability.
The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value.
The three tiers are defined as follows:
● | Level 1 – Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; | |
● | Level 2 – Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and | |
● | Level 3 – Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. |
The determination of fair value and the assessment of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. The Company may also engage external advisors to assist us in determining fair value, as appropriate. Although the Company believes that the recorded fair value of our financial instruments is appropriate, these fair values may not be indicative of net realizable value or reflective of future fair values.
15 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
The Company’s financial instruments, including cash, accounts receivable, accounts payable and accrued expenses, and accounts payable and accrued expenses – related party, are carried at historical cost. At September 30, 2023 and December 31, 2022, respectively, the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments.
ASC 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (“fair value option”). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding financial instruments.
Cash and Cash Equivalents and Concentration of Credit Risk
For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and money market accounts to be cash equivalents.
At September 30, 2023 and December 31, 2022, respectively, the Company did not have any cash equivalents.
The
Company is exposed to credit risk on its cash and cash equivalents in the event of default by the financial institutions to the extent
account balances exceed the amount insured by the FDIC, which is $
At September 30, 2023 and December 31, 2022, respectively, the Company did not experience any losses on cash balances in excess of FDIC insured limits.
Accounts Receivable
Accounts receivable are stated at the amount management expects to collect from outstanding customer balances. Credit is extended to customers based on an evaluation of their financial condition and other factors. Interest is not accrued on overdue accounts receivable. The Company does not require collateral.
Management periodically assesses the Company’s accounts receivable and, if necessary, establishes an allowance for estimated uncollectible amounts. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. Accounts determined to be uncollectible are charged to operations when that determination is made.
16 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Allowance
for doubtful accounts was $
There
was
Bad debt expense (recovery) is recorded as a component of general and administrative expenses in the accompanying consolidated statements of operations.
Inventory
Inventory primarily consists of tablets, cell phones and sim cards. Inventories are stated at the lower of cost or net realizable value using the average cost valuation method.
There
was a provision for inventory obsolescence of $ and $
At
September 30, 2023 and December 31, 2022, the Company had inventory of $
Impairment of Long-lived Assets including Internal Use Capitalized Software Costs
Management evaluates the recoverability of the Company’s identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists, in accordance with the provisions of ASC 360-10-35-15 “Impairment or Disposal of Long-Lived Assets.” Events and circumstances considered by the Company in determining whether the carrying value of identifiable intangible assets and other long-lived assets may not be recoverable include but are not limited to significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; and changes in the Company’s business strategy. In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of these assets.
If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
There
were
17 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets.
Expenditures for repair and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected in operations.
Management reviews the carrying value of its property and equipment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
There
were
Internal Use Software Development Costs
We capitalize certain internal use software development costs associated with creating and enhancing internally developed software related to our technology infrastructure. These costs include personnel and related employee benefits expenses for employees who are directly associated with and who devote time to software projects, and external direct costs of materials and services consumed in developing or obtaining the software. Software development costs that do not meet the qualification for capitalization, as further discussed below, are expensed as incurred and recorded in general and administrative expenses in the consolidated results of operations.
Software development activities generally consist of three stages:
(i) | planning stage, |
(ii) | application and infrastructure development stage, and |
(iii) | post implementation stage. |
Costs incurred in the planning and post implementation stages of software development, including costs associated with the post-configuration training and repairs and maintenance of the developed technologies, are expensed as incurred.
18 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
We capitalize costs associated with software developed for internal use when the planning stage is completed, management has authorized further funding for the completion of the project, and it is probable that the project will be completed and perform as intended. Costs incurred in the application and infrastructure development stages, including significant enhancements and upgrades, are capitalized. Capitalization ends once a project is substantially complete, and the software and technologies are ready for their intended purpose. There is judgment involved in estimating the stage of development as well as estimating time allocated to a particular project. A significant change in the time spent on each project could have a material impact on the amount capitalized and related amortization expense in subsequent periods.
We amortize internal use software development costs using a straight-line method over a three-year estimated useful life, commencing when the software is ready for its intended use. The straight-line recognition method approximates the manner in which the expected benefit will be derived. We determined the life of internal use software based on historical software upgrades and replacement.
On an ongoing basis, we assess if the estimated remaining useful lives of capitalized projects continue to be reasonable based on the remaining expected benefit and usage. If the remaining useful life of a capitalized project is revised, it is accounted for as a change in estimate and the remaining unamortized cost of the underlying asset is amortized prospectively over the updated remaining useful life.
We also evaluate internal use software for abandonment and use that as a significant indicator for impairment on a quarterly basis.
Right of Use Assets and Lease Obligations
The Right of Use Asset and Lease Liability reflect the present value of the Company’s estimated future minimum lease payments over the lease term, which may include options that are reasonably assured of being exercised, discounted using a collateralized incremental borrowing rate.
19 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Typically, renewal options are considered reasonably assured of being exercised if the associated asset lives of the building or leasehold improvements exceed that of the initial lease term, and the performance of the business remains strong. Therefore, the Right of Use Asset and Lease Liability may include an assumption on renewal options that have not yet been exercised by the Company. The Company’s operating leases contained renewal options that expire at various dates with no residual value guarantees. Future obligations relating to the exercise of renewal options is included in the measurement if, based on the judgment of management, the renewal option is reasonably certain to be exercised. Factors in determining whether an option is reasonably certain of exercise include, but are not limited to, the value of leasehold improvements, the value of the renewal rate compared to market rates, and the presence of factors that would cause a significant economic penalty to the Company if the option is not exercised. Management reasonably plans to exercise all options, and as such, all renewal options are included in the measurement of the right-of-use assets and operating lease liabilities.
As the rate implicit in leases are not readily determinable, the Company uses an incremental borrowing rate to calculate the lease liability that represents an estimate of the interest rate the Company would incur to borrow on a collateralized basis over the term of a lease within a particular currency environment.
See Note 8 regarding operating leases.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606 to align revenue recognition more closely with the delivery of the Company’s services and will provide financial statement readers with enhanced disclosures. In accordance with ASC 606, revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. To achieve this core principle, the Company applies the following five steps:
Identify the contract with a customer
A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.
20 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Identify the performance obligations in the contract
Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services, the Company must apply judgment to determine whether promised services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance obligation.
Determine the transaction price
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of the Company’s contracts contain a significant financing component.
Allocate the transaction price to performance obligations in the contract
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. For example, a bonus or penalty may be associated with one or more, but not all, distinct services promised in a series of distinct services that forms part of a single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.
21 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Recognize revenue when or as the Company satisfies a performance obligation
The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service to a customer.
The following reflects additional discussion regarding our revenue recognition policies for each of our material revenue streams. For each revenue stream we do not offer any returns, refunds or warranties, and no arrangements are cancellable. Additionally, all contract consideration is fixed and determinable at the initiation of the contract. Performance obligations for Torch and LogicsIQ are satisfied when services are performed. Performance obligations for ECS and SB are satisfied at point of sale.
For each of our revenue streams we only have a single performance obligation.
Surge Phone Wireless (SPW) and Torch Wireless
SPW and Torch Wireless are licensed to provide subsidized mobile broadband services through the ACP to qualifying low-income customers to all fifty (50) states. Revenues are recognized when an ACP application is completed and accepted. Each month we reconcile subscriber usage to ensure the service was utilized. A monthly file is submitted to the Universal Service Administrative Company for review and approval, at which time we have completed our performance obligation and recognize accounts receivable and revenue. Revenues are recorded in the month when services were rendered, with payment typically received on the 28th of the following month.
Surge Blockchain
Revenues are generated through the sale of various products such as energy drinks, CBD products, and other top selling products in convenience store and bodega nationwide. At the time in which our products are sold at the store our performance obligation is considered complete. At point of sale, our web portal platform initiates an automated clearing house transaction (ACH) resulting in the recording revenue.
22 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
LogicsIQ
LogicsIQ, Inc. is a lead generation and case management solutions company primarily serving law firms in the mass tort industry. Revenues are earned from our lead generation retained services offerings and call center activities through CenterCom.
Lead generation consist of sourcing leads, which requires us to drive traffic to our landing pages for a specific marketing campaign. We also achieve this in certain marketing campaigns by using third-party preferred vendors to meet the needs of our clients. Revenues are recognized at the time the lead is delivered to the client. If payment is received in advance of the delivery of services, it is included in deferred revenue, and subsequently recognized once the performance obligation has been completed.
Retained service offerings consist of turning leads into a retained legal case. To provide this service to our customers, we qualify leads through verification of information collected during the lead generation process. Additionally, we further qualify these leads using a client questionnaire which assists in determining the services to be provided. The qualification process is completed using our call center operations.
Effective
February 1, 2023, LogicsIQ started offering call center services to existing clients. These services are similar in nature to the services
CenterCom offers LogicsIQ. The total revenue from these services for the three and nine months ended September 30, 2023 was $
If payment is received in advance of the delivery of services, it is included in deferred revenue, and subsequently recognized once the performance obligation has been completed. At the time of delivery of leads and the creation of retained cases (customers are qualified at this point), our performance obligation has been completed and revenues are recognized. Arrangements with customers do not provide the customer with the right to take possession of our software or platform at any time. Once the advertising is delivered, it is non-refundable.
Surge Fintech and ECS
Revenues are generated through the sale of telecommunication products such as mobile phones, wireless top-up refills, and other mobile related products. At the time in which our products are sold through our online web portal (point of sale), our performance obligation is considered complete. At point of sale, our web portal platform initiates an automated clearing house transaction (ACH) resulting in the recording revenue.
23 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Contract Liabilities (Deferred Revenue)
Contract liabilities represent deposits made by customers before the satisfaction of performance obligation and recognition of revenue. Upon completion of the performance obligation(s) that the Company has with the customer based on the terms of the contract, the liability for the customer deposit is relieved and revenue is recognized.
At
September 30, 2023 and December 31, 2022, the Company had deferred revenue of $
The following represents the Company’s disaggregation of revenues for the nine months ended September 30, 2023 and 2022:
For the Nine Months Ended September 30, | ||||||||||||||||
2023 | 2022 | |||||||||||||||
Revenue | Revenue | % of Revenues | Revenue | % of Revenues | ||||||||||||
Surge Phone and Torch Wireless | $ | % | $ | % | ||||||||||||
Surge Blockchain, LLC | % | % | ||||||||||||||
LogicsIQ, Inc. | % | % | ||||||||||||||
Surge Fintech & ECS | % | % | ||||||||||||||
Total Revenues | $ | % | $ | % |
Cost of Revenues
Cost of revenues consists of purchased telecom services including data usage and access to wireless networks. Additionally, prepaid phone cards, commissions, and advertising costs.
Income Taxes
The Company accounts for income tax using the asset and liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
24 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
The Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. As of September 30, 2023 and December 31, 2022, respectively, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements.
The Company recognizes interest and penalties related to uncertain income tax positions in other expense. No interest and penalties related to uncertain income tax positions were recorded for the nine months ended September 30, 2023 and 2022, respectively.
For
the three and nine months ended September 30, 2023, the Company generated net income. The Company currently has an unapplied net operating
loss carryforward (deferred tax asset), which is currently being evaluated for applicability in offsetting the current taxable net income.
The Company believes the current net operating loss carryforward is in excess of any amounts of income tax that may be due. At September
30, 2023, the Company has an estimated income tax liability of $
Investment – Former Related Party
On
January 17, 2019, we announced the completion of an agreement to acquire a
Anthony N. Nuzzo, a former director and officer and the holder of approximately 10% of our voting equity, had a controlling interest in CenterCom Global. During 2022, Mr. Nuzzo passed away. See Form 8-K filed on March 24, 2022.
The strategic partnership with CenterCom as a bilingual operations hub has powered our growth and revenue. CenterCom has been built to support the infrastructure required to rapidly scale in synergy and efficiency to support our sales growth, customer service and development.
We account for this investment under the equity method. Investments accounted for under the equity method are recorded based upon the amount of our investment and adjusted each period for our share of the investee’s income or loss. All investments are reviewed for changes in circumstance or the occurrence of events that suggest an other than temporary event where our investment may not be recoverable. The financial information used to account for the investment is unaudited.
25 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
At
September 30, 2023 and December 31, 2022, our investment in CenterCom was $
During
the three months ended September 30, 2023 and 2022, we recognized a gain of $
During
the nine months ended September 30, 2023 and 2022, we recognized a gain of $
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs are included as a component of general and administrative expense in the consolidated statements of operations.
The
Company recognized $
The
Company recognized $
Stock-Based Compensation
The Company accounts for our stock-based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.
The Company uses the fair value method for equity instruments granted to non-employees and uses the Black-Scholes model for measuring the fair value of options.
The fair value of stock-based compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.
26 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
When determining fair value of stock-based compensation, the Company considers the following assumptions in the Black-Scholes model:
● | Exercise price, |
● | Expected dividends, |
● | Expected volatility, |
● | Risk-free interest rate; and |
● | Expected life of option |
Stock Warrants
In connection with certain financing (debt or equity), consulting and collaboration arrangements, the Company may issue warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of warrants issued for compensation using the Black-Scholes option pricing model as of the measurement date. However, for warrants issued that meet the definition of a derivative liability, fair value is determined based upon the use of a binomial pricing model.
Warrants issued in conjunction with the issuance of common stock are initially recorded at fair value as a reduction in additional paid-in capital of the common stock issued. All other warrants (for services) are recorded at fair value and expensed over the requisite service period or at the date of issuance if there is not a service period.
Pursuant to ASC 260-10-45, basic earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the periods presented.
Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.
Potentially dilutive common shares may consist of contingently issuable shares, common stock issuable upon the conversion of stock options and warrants (using the treasury stock method), and convertible notes. These common stock equivalents may be dilutive in the future.
27 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
In the event of a net loss, diluted loss per share is the same as basic loss per share since the effect of the potential common stock equivalents upon conversion would be anti-dilutive.
September 30, 2023 | September 30, 2022 | |||||||
Warrants | ||||||||
Stock options | ||||||||
Series A, convertible preferred stock | ||||||||
Total common stock equivalents |
Warrants and stock options included as commons stock equivalents represent those that are fully vested and exercisable. See Note 9.
Based on the potential common stock equivalents noted above at September 30, 2023, the Company has sufficient authorized shares of common stock ( ) to settle any potential exercises of common stock equivalents.
3 Months Ended | 9 Months Ended | |||||||
September 30, 2023 | September 30, 2023 | |||||||
Numerator | ||||||||
Net income | $ | $ | ||||||
Denominator | ||||||||
Weighted average shares outstanding - basic | ||||||||
Effect of dilutive securities (warrants) | ||||||||
Weighted average shares outstanding - diluted | ||||||||
Earnings per share - basic | $ | $ | ||||||
Earnings per share - diluted | $ | $ |
28 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Related Parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
During
the nine months ended September 30, 2023 and 2022, the Company incurred expenses with related parties in the normal course of business
totaling $
From time to time, the Company may use credit cards to pay corporate expenses, these credit cards are in the names of certain of the Company’s officers and directors. These amounts are insignificant.
Recent Accounting Standards
Changes to accounting principles are established by the FASB in the form of Accounting Standards Updates (“ASU’s”) to the FASB’s Codification. We consider the applicability and impact of all ASU’s on our consolidated financial position, results of operations, stockholders’ equity, cash flows, or presentation thereof. Management has evaluated all recent accounting pronouncements issued through the date these financial statements were available to be issued and found no recent accounting pronouncements issued, but not yet effective accounting pronouncements, when adopted, will have a material impact on the consolidated financial statements of the Company.
29 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
In March 2022, the Financial Accounting Standards Board (the “FASB”) issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which eliminates the accounting guidance on troubled debt restructurings (“TDRs”) for creditors in ASC 310, Receivables (Topic 310), and requires entities to provide disclosures about current period gross write-offs by year of origination. Also, ASU 2022-02 updates the requirements related to accounting for credit losses under ASC 326, Financial Instruments – Credit Losses (Topic 326), and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. ASU 2022-02 was effective for the Company January 1, 2023. The adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements.
This guidance was adopted on January 1, 2023. The adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements.
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no material effect on the consolidated results of operations, stockholders’ equity, or cash flows.
Note 3 – Property and Equipment
Property and equipment consisted of the following:
Estimated Useful | ||||||||||
Type | September 30, 2023 | December 31, 2022 | Lives (Years) | |||||||
Computer equipment and software | $ | $ | ||||||||
Furniture and fixtures | ||||||||||
Less: accumulated depreciation/amortization | ||||||||||
Property and equipment - net | $ | $ |
In
June 2022, the Company acquired software having a fair value of $
30 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Depreciation
and amortization expense for the three months ended September 30, 2023 and 2022 was $
Depreciation
and amortization expense for the nine months ended September 30, 2023 and 2022 was $
These amounts are included as a component of general and administrative expenses in the accompanying consolidated statements of operations.
Note 4 – Intangibles
Intangibles consisted of the following:
Estimated Useful | ||||||||||
Type | September 30, 2023 | December 31, 2022 | Lives (Years) | |||||||
Proprietary Software | $ | $ | ||||||||
Tradenames/trademarks | ||||||||||
ECS membership agreement | ||||||||||
Noncompetition agreement | ||||||||||
Customer Relationships | ||||||||||
Less: accumulated amortization | ( | ) | ( | ) | ||||||
Intangibles - net | $ | $ |
Amortization
expense for the three months ended September 30, 2023 and 2022 was $
Amortization
expense for the nine months ended September 30, 2023 and 2022 was $
31 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Estimated amortization expense for each of the five (5) succeeding years is as follows:
For the Year Ended December 31: | ||||
2023 (3 Months) | ||||
2024 | ||||
2025 | ||||
2026 | ||||
2027 | ||||
Total | $ |
Note 5 – Internal Use Software Development Costs
Internal Use Software Development Costs consisted of the following:
Estimated Useful | ||||||||||
Type | September 30, 2023 | December 31, 2022 | Life (Years) | |||||||
Internal Use Software Development Costs | $ | $ | ||||||||
Less: accumulated amortization | ||||||||||
Internal Use Software Development Costs - net | $ | $ |
Costs incurred for Internal Use Software Development Costs
Additional
costs of $
Amortization of Software Development Costs
Management determined that all costs incurred in 2022 related to internal use software development costs related to the application and infrastructure development stage which were completed at December 31, 2022. Amortization of these costs began in 2023.
Management has determined that all costs incurred in 2023 related to internal use software development costs related to the application and infrastructure development stage will be completed as of December 31, 2023. Amortization of these costs will begin in 2024.
32 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
For
the three months ended September 30, 2023 and 2022, amortization of internal use software development costs was $
For
the nine months ended September 30, 2023 and 2022, amortization of internal use software development costs was $
Estimated amortization expense is as follows for the years ended December 31:
2023 (3 Months) | ||||
2024 | ||||
2025 | ||||
2026 | ||||
Total | $ |
Note 6 – Debt
The following represents a summary of the Company’s notes payable – SBA government, notes payable – related parties, and notes payable, key terms, and outstanding balances at September 30, 2023 and December 31, 2022, respectively:
Notes Payable – SBA government
(1) Paycheck Protection Program - PPP Loan
Pertaining to the Company’s eighteen (18) month loan and in accordance with the Paycheck Protection Program (“PPP”) and Conditional Loan Forgiveness, the promissory note evidencing the loan contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, or provisions of the promissory note. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Company, and/or filing suit and obtaining judgment against the Company.
Under the terms of the PPP loan program, all or a portion of this Loan may be forgiven upon request from Borrower to Lender, provided the Loan proceeds are used in accordance with the terms of the Coronavirus Aid, Relief and Economic Security Act (the “Act” or “CARES”), Borrower is not in default under the Loan or any of the Loan Documents, and Borrower has provided documentation to Lender supporting such request for forgiveness that includes verifiable information on Borrower’s use of the Loan proceeds, to Lender’s satisfaction, in its sole and absolute discretion.
33 |
SURGEPAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
(2) Economic Injury Disaster Loan (“EIDL”)
This program was made available to eligible borrowers in light of the impact of the COVID-19 pandemic and the negative economic impact on the Company’s business. Proceeds from the EIDL are to be used for working capital purposes.
Installment
payments, including principal and interest, are due monthly (beginning twelve (12) months from the date of the promissory note) in amounts
ranging from $
PPP | EIDL | EIDL | PPP | |||||||||||||||||
Terms | SBA | SBA | SBA | SBA | Total | |||||||||||||||
Issuance dates of SBA loans | ||||||||||||||||||||
Term | ||||||||||||||||||||
Maturity date | ||||||||||||||||||||
Interest rate | % | % | % | % | ||||||||||||||||
Collateral | ||||||||||||||||||||
Conversion price | N/A | N/A | N/A | N/A | ||||||||||||||||
Balance - December 31, 2021 | $ | $ | $ | $ | $ | |||||||||||||||
Forgiveness of loan |