SurgePays, Inc. Leases Disclosure

13

LEASES

 

The Company determines if an arrangement contains a lease at inception. Right of use (“ROU”) assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

 

The Company leases office space in Memphis, TN and a call center space in El Salvador. The term of the office is for 2 years beginning on November 1, 2019 commencing with monthly payments of $1,600. The term of the call center lease is for 3 years beginning on March 1, 2019 commencing with monthly payments of $6,680. As part of the ECS transaction discussed above, the Company acquired office space in Springfield, MO. The term of the lease is for 3 years commencing on January 1, 2020 with monthly payments of $12,000.

 

During the year ended December 31, 2020 and 2019, the Company paid lease obligations of $200,296 and $55,608, respectively, under the leases.

 

The Company utilized a portfolio approach in determining the discount rate. The portfolio approach takes into consideration the range of the term, the range of the lease payments, the category of the underlying asset and the Company’s estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. The Company also considered its recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating the incremental borrowing rates.

 

The lease terms include options to extend the leases when it is reasonably certain that the Company will exercise that option. These operating leases contain renewal options for periods ranging from three to five years 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.

 

Leases with a term of 12 months or less are not recorded on the balance sheets, per the election of the practical expedient noted above.

 

The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company recognizes variable lease payments in the period in which the obligation for those payments is incurred. Variable lease payments that depend on an index or a rate are initially measured using the index or rate at the commencement date, otherwise variable lease payments are recognized in the period incurred.

 

The components of lease expense, including short term leases, were as follows:

 

		For the Year Ended				For the Year Ended
		December 31, 2020				December 31, 2019
Operating lease		$	324,728			$	80,760
Interest on lease liabilities			50,062				7,002
Total net lease cost		$	374,790			$	87,762

 

Supplemental balance sheet information related to leases was as follows:

 

		December 31, 2020				December 31, 2019
Operating leases:
Operating lease ROU assets - net		$	368,638			$	210,816
Current operating lease liabilities, included in current liabilities		$	210,556			$	90,944
Noncurrent operating lease liabilities, included in long-term liabilities			155,167				119,872
Total operating lease liabilities		$	365,723			$	210,816

 

Supplemental cash flow and other information related to leases was as follows:

 

		For the Year Ended				For the Year Ended
		December 31, 2020				December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$	200,296			$	55,608
ROU assets obtained in exchange for lease liabilities:
Operating leases		$	355,203			$	266,424
Weighted average remaining lease term (in years):
Operating leases			1.80				2.12
Weighted average discount rate:
Operating leases			11.4	%			5.5	%

 

Total future minimum payments required under the lease obligations as of December 31, 2020 are as follows:

 

Twelve Months Ending December 31,
2020 (remainder of year)		$	240,160
2021			164,041
2022			-
Total lease payments		$	404,201
Less: amounts representing interest			(38,474	)
Total lease obligations		$	365,723