Revenue Process (continued)

Revenue Process (continued)

The Company generates revenue from payment processing services, licensing fees and equipment sales as follows:

Property and Equipment, Net

Property and equipment, net, are stated at cost. Depreciation is calculated using the straight-line method over the following useful lives:

When assets are retired or disposed of, the cost and accumulated depreciation thereon are removed, and any resulting gains or losses are included in the consolidated statements of operations. Leasehold improvements are amortized using the straight-line method over the estimated life of the asset, not to exceed the length of the lease. Repair and maintenance costs are expensed as incurred.

Charge Savvy, LLC and Subsidiary

Notes to Consolidated Financial Statements

Deferred Revenue

Deferred revenue generally includes the proceeds from sales of the Point-of-Sale credit card terminals that the Customer uses to process payments. The Company invoices the customer for this equipment and generally receives its first payment prior to the equipment being shipped. Some customers are provided a “3-payment” option (first payment upon agreement to an equipment Estimate; second payment upon completion of installation and training; final payment thirty days following the second payment). The Company assembles and tests the system purchased by the customer and an installer/trainer either brings the equipment to the customer, or the equipment is shipped to the customer in advance. The installer/trainer installs our point-of-sale system and trains the customer’s staff how to operate it. Revenue is recognized upon the entry of an invoice into the accounting software which occurs at the point of shipment. Any payment received in advance is recorded in “Prepaid Equip Sales” – a Current Liability.

Income Taxes

The Company follows ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

The Company, with the consent of its members. has elected the limited liability company to be taxed as a partnership under the provisions of the federal and state tax codes. Under federal laws, each member is taxed on their proportionate share of the Company’s taxable income on their respective individual income tax returns. Accordingly, no provision for federal income taxes has been made in the accompanying financial statements. For Illinois purposes, state income tax is assessed at based on the revenue of the Company. The income tax for Illinois was not material for the year ended December 31, 2020 and 2019.

Fair Value Measurements

The Company follows FASB ASC Topic 820, Fair Value Measurements. ASC 820 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.

ASC 820 establishes a hierarchy of valuation inputs based on the extent to which the inputs are observable in the marketplace. Observable inputs reflect market data obtained from sources independent of the reporting entity and unobservable inputs reflect the entity’s own assumptions about how market participants would value an asset or liability based on the best information available. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value.

The following describes the hierarchy of inputs used to measure fair value and the primary valuation methodologies used by the Company for financial instruments measured at fair value on a recurring basis.

Charge Savvy, LLC and Subsidiary

Notes to Consolidated Financial Statements

Fair Value Measurements (continued)

The three levels of inputs are as follows:

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Our financial instruments include cash and cash equivalents, restricted cash, short-term financial instruments, short-term loans, accounts receivable, investments, accounts payables and debt. The carrying values of these financial instruments approximate their fair value due to their short maturities.  The carrying amount of our debt approximates fair value because the interest rates on these instruments approximate the interest rate on debt with similar terms available to us. The financial statements do not include any financial instruments at fair value on a recurring or non-recurring basis.

Impairment of Long-lived Assets

The Company’s long-lived assets (consisting of property and equipment) are reviewed for impairment in accordance with the guidance of the FASB ASC 360, Property, Plant, and Equipment and FASB ASC 205 Presentation of Financial Statements. The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.  Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset.  If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value.  Impairment evaluations involve management’s estimates on asset useful lives and future cash flows. 

Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions.  Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. The Company had not experienced impairment losses on its long-lived assets and intangible assets during any of the periods presented.

The Company’s management currently believes there is no impairment of its long-lived assets. There can be no assurance, however, that market conditions will not change or demand for the Company’s products under development will continue. Either of these could result in future impairment of long-lived assets.

Concentration of Credit Risk and Significant Customers

The Company maintain cash balances at several major financial institutions. While we attempt to limit credit exposure with any single institution, balances often exceed insurable amounts. The Company did not have any excess cash not insured by the Federal Deposit Insurance Corporation (the “FDIC”).

Charge Savvy, LLC and Subsidiary

Notes to Consolidated Financial Statements

Concentration of Credit Risk and Significant Customers (continued)

The Company extends credit to various members. Collection of trade receivables may be affected by changes in economic or other industry conditions and may, accordingly, impact our overall credit risk. The Company performs ongoing credit evaluations of customers and maintains reserves for potential credit losses.

Impact of Recently Issued Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases (ASC Topic 842), a comprehensive new lease recognition standard which will supersede previous existing lease recognition guidance. Under the standard, lessees will need to recognize a right-of use asset and a lease liability for leases with terms of greater than twelve months. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. For income statement purposes, leases will be required to be classified as either operating or finance. Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases). The standard is effective for fiscal periods beginning after December 15, 2022. The Company’s management is currently evaluating the impact of the adoption of this standard on the financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326). The new accounting standard affects all entities that hold financial assets and net investment in leases that are not accounted for at fair value through net income. The ASU is intended to provide users of financial statements with additional decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit. Application of this statement is effective for the fiscal year beginning after December 15, 2021. The Company is currently evaluating the impact this pronouncement will have on its financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes, which removes certain exceptions, such as the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year and simplifies the accounting for income taxes in areas such as franchise tax (or similar tax) that is partially based on income. The new standard is effective for annual and interim periods beginning after December 15, 2021. The Company does not believe this ASU will have a material impact on our financial statements.

Other recently issued accounting standards are not expected to have a material effect on the Company's financial statements.

Charge Savvy, LLC and Subsidiary

Notes to Consolidated Financial Statements

Depreciation expense on property and equipment amounted to approximately $21,333 and $19,960 for the years ended December 31, 2020 and 2019, respectively.

Deposits consisted mostly of a deposit with WorldPay as insurance for chargebacks. As of December 31, 2020 and 2019, the deposit to World Pay was $1,200,000 and $0, respectively. The Company has subsequently received $750,000 of its $1,2000,000 deposit in 2021. As a result, the Company has taken a Gateway reserve of $450,000 and $0 as of December 31, 2020 and 2019, respectively.

For payfac customers, a reserve is set-aside in the FBO account and held back from being funded to the merchant by WorldPay based on the Company’s determination of the sub merchant’s risk profile.

The Company’s merchant customers have the legal obligation to refund any charges properly reversed by the cardholder. However, in the event the Company is not able to collect the refunded amounts from the merchants, the Company may be liable for the reversed charges. In the event, however, that the Company is not able to collect such amounts from the merchants due to merchant fraud, insolvency, bankruptcy or another reason, the Company may be liable for any such reversed charges. The merchant payable reserve account was $1,200,000 and $0 as of December 31, 2020 and 2019, respectively

Charge Savvy, LLC and Subsidiary

Notes to Consolidated Financial Statements

Loan payable to members consist of the following:

As of December 31, 2020, loan payable to members were paid off.

Charge Savvy, LLC and Subsidiary

Notes to Consolidated Financial Statements

The following table provides future minimum payments as of December 31, 2020:

The Paycheck Protection Program Loan (the “PPP Loan”) is administered by the U.S. Small Business Administration (the “SBA”). The interest rate of the loan is 0.98% per annum and accrues on the unpaid principal balance computed on the basis of the actual number of days elapsed in a year of 360 days. Commencing six months after the effective date of the PPP Loan, the Company is required to pay the Lender equal monthly payments of principal and interest as required to fully amortize any unforgiven principal balance of the loan by the two-year anniversary of the effective date of the PPP Loan (the “Maturity Date”). The PPP Loan contains customary events of default relating to, among other things, payment defaults, making materially false or misleading representations to the SBA or the Lender, or breaching the terms of the PPP Loan. The occurrence of an event of default may result in the repayment of all amounts outstanding under the PPP Loan, collection of all amounts owing from the Company, or filing suit and obtaining judgment against the Company. Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of the loan granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. Recent modifications to the PPP by the U.S. Treasury and Congress have extended the time period for loan forgiveness beyond the original eight-week period, making it possible for the Company to apply for forgiveness of its PPP loan.

Charge Savvy, LLC and Subsidiary

Notes to Consolidated Financial Statements

The following table provides future minimum payments as of December 31, 2020:

May 8, 2020 – $150,000

On May 8, 2020, the Company executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the TNB’s business. As of December 31, 2020, the loan payable, Emergency Injury Disaster Loan noted above is not in default.

Pursuant to that certain Loan Authorization and Agreement (the “SBA Loan Agreement”), the Company borrowed an aggregate principal amount of the EIDL Loan of $150,000, with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date of each advance. Installment payments, including principal and interest, are due monthly beginning May 8, 2021 (twelve months from the date of the SBA Loan) in the amount of $731. The balance of principal and interest is payable thirty years from the date of the SBA Loan. In connection therewith, the Company also received a $10,000 grant, which does not have to be repaid. During the year ended December 31, 2020, $10,000 was recorded in Economy injury disaster loan (EIDL) grant income in the Statements of Operations.

In connection therewith, the Company executed (i) a loan for the benefit of the SBA (the “SBA Loan”), which contains customary events of default and (ii) a Security Agreement, granting the SBA a security interest in all tangible and intangible personal property of the Company, which also contains customary events of default (the “SBA Security Agreement”)

Charge Savvy, LLC and Subsidiary

Notes to Consolidated Financial Statements

The Company had the following related party transactions:

Litigation

The Company is subject to claims and contingencies related to lawsuits and other matters arising out to the normal course of business. Management believes the ultimate liabilities associated with such claims and contingencies, if any, is not likely to have material adverse effect on the financial position or results of the Company.

The Company evaluated all events or transactions that occurred after December 31, 2020 up through the date the financial statements were available to be issued. During this period, the Company did not have any material recognizable subsequent events required to be disclosed as of and for the year ended December 31, 2020 other than the following:

Revenue Process (continued)

The Company recognizes revenue when 1) it is realized or realizable and earned, 2) there is persuasive evidence of an arrangement, 3) delivery and performance has occurred, 4) there is a fixed or determinable sales price, and 5) collection is reasonably assured.

Charge Savvy, LLC and Subsidiary

Notes to Unaudited Consolidated Financial Statements

Cost of Sales

Cost of sales includes equipment cost of goods sold, supplies and materials, shipping and postage, merchant fees, payment and equipment testing, ISO commissions, tech services, and transaction processing fees, and directly related to revenue.

Advertising Costs

The Company expenses advertising costs as incurred. For the three months ended March 31, 2021 and 2020, advertising expense totaled $252,545and $12,026, respectively.

Charge Savvy, LLC and Subsidiary

Notes to Unaudited Consolidated Financial Statements

Accounts Receivable

Accounts receivables consist of accounts arising in the normal course of business. Accounts receivables are carried at original invoice amount less a reserve made for doubtful receivables based on a review of all outstanding amounts on a periodic basis. The Company determines the allowance for bad debt by evaluating customer creditworthiness; historical experience; age of current accounts receivable balances; and changes in financial condition or payment terms of our customers. The provision for doubtful accounts is recorded as a charge to general and administrative expense when a potential loss is identified. Losses are written off against the allowance when the receivable is determined to be uncollectible. Significant management judgment is required to estimate our allowance for doubtful accounts in any accounting period. The amount and timing of our bad debt expense and cash collection could change significantly as a result of a change in any of the evaluation factors mentioned above. The amount of the bad debt attributable to the Company was $4,963,743 and $5,084,868 as of March 31, 2021 and December 31, 2020, respectively.

Inventory

Inventories primarily consist finished goods and are stated at the lower of cost or market, with cost determined using an average cost method. The Company assesses for potentially excess and obsolete inventories each reporting period and provides for inventory adjustments as deemed necessary.