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NOTES PAYABLE, NET | 3 Months Ended
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Mar. 31, 2017
Debt Disclosure [Abstract] |
NOTES PAYABLE, NET | NOTE 7 - NOTES PAYABLE, NET On January 31, 2017, the Company entered into Conversion Agreements with several accredited investors (the “Investors”) pursuant to which substantially all Investors agreed to convert all amounts of notes payable and convertible notes payable (note 7) due and payable to such persons including interest under the terms of their respective financing or loan agreement as of January 31, 2017 into shares of Company common stock at $0.10 per share. Certain Investors that had a conversion price less than $0.10 converted at such applicable conversion price. The Conversion Agreements resulted in the conversion of notes and convertible notes amounting to $6,331,000 into 84,822,006 shares of Company common stock with a fair value of $21,691,000. The Investors also agreed to waive any existing rights with respect to certain anti-dilution rights contained in their Stock Purchase Warrants. The Company agreed to reduce the exercise of all outstanding Stock Purchase Warrants acquired as part of a financing or loan that had an exercise price in excess of $0.10 per share to $0.10 per share. As a result of the above agreements associated with the conversion Agreements, the Company recorded a loss on the conversion of debt of approximately $6.0 million (including the effect of the elimination of related conversion feature derivative liabilities - see note 9), a loss on the modification of the warrants of approximately $0.2 million, and a loss on modification of the derivatives of approximately $0.3 million. On February 22, 2017, the Company entered into an Agreement and Release (the “February 22, 2017 Agreement”) with a holder of certain debentures that will represent final and full payment of all amounts owed under these debentures which include debt with a face value of $300,000, accrued interest of approximately $31,000, cancellation of 3,600,000 warrants previously accounted for as derivative liabilities as well as certain pledged shares (2,500,000 shares) in exchange for $300,000 in cash which was paid in May 2017. As a result of the February 22, 2017 Agreement, the Company recorded a gain on the extinguishment of notes payable of approximately $2.8 million. See notes 8 and 9.
The following is a summary of notes payable as of March 31, 2017 and December 31, 2016: |  | 2017 |  |  | 2016 |
In connection with the acquisition of MultiPay in 2015, the Company assumed three promissory notes. At March 31, 2017, the remaining outstanding note carried an outstanding balance of $32,037. Payments of $6,300 including principal and interest are due monthly. The interest rate is 15.47% per annum. Total outstanding principal and interest is due on September 16, 2017. |  | $ | 32,037 |  |  | $ | 46,210 |
The below section of notes payable were all converted to common stock at $0.10 per share. In connection with the January 2017 conversion agreements described above | .
In September 2015, the Company issued 12% notes totaling $973,000. The notes were secured by the assets of the Company, matured in September 2016, and accrued interest was convertible into common stock of the Company at a rate of $0.10 per share. In connection with the issuance of these notes, the Company also issued warrants for the purchase of 6,486,667 shares of the Company’s common stock at an exercise price of $0.15 per share for a period of five years. The Company also incurred debt issuance costs of $77,480, which were presented as a discount against the notes and amortized into interest expense over the terms of the notes. |  |  | — |  |  |  | 963,000 |
In October 2015, the Company issued 12% notes in the amount of $225,000. The notes were secured by the assets of the Company, matured in October 2016, and accrued interest was convertible into common stock of the Company at a rate of $0.10 per share. In connection with the issuance of these notes, the Company also issued warrants for the purchase of 1,500,000 shares of the Company’s common stock at an exercise price of $0.15 per share for a period of five years. The Company also incurred debt issuance costs of $36,400, which were presented as a discount against the note and amortized into interest expense over the terms of the notes. |  |  | — |  |  |  | 225,000 |
In November 2015, the Company issued a 12% note in the amount of $25,000. The note was secured by the assets of the Company, matured in October 2016, and accrued interest was convertible into common stock of the Company at a rate of $0.10 per share. In connection with the issuance of this note, the Company also issued warrants for the purchase of 166,667 shares of the Company’s common stock at an exercise price of $0.15 per share for a period of five years. The Company also incurred debt issuance costs of $94,400, which was presented as a discount against the note and amortized into interest expense over the term of the note. |  |  | — |  |  |  | 25,000 |
In December 2015, the Company issued 12% notes totaling $850,000. The notes are secured by the assets of the Company and matured in December 2016. Any unpaid accrued interest on the note is convertible into common stock of the Company at a rate of $0.48 per share. In connection with the issuance of these notes, the Company also issued warrants for the purchase of 1,770,834 shares of the Company’s common stock at an exercise price of $0.48 per share for a period of five years. The conversion rate on the accrued interest and the exercise price on the warrants provide the holders with anti-dilution protection that requires these features to be bifurcated and presented as derivative liabilities at their fair values. See Note 8. |  |  | — |  |  |  | 850,000 |
In January 2016, the Company issued 12% notes totaling $100,000. The note was secured by the assets of the Company, matured in January 2017, and accrued interest was convertible into common stock of the Company at a rate of $0.48 per share. In connection with the issuance of these notes, the Company also issued warrants for the purchase of 208,332 shares of the Company’s common stock at an exercise price of $0.48 per share for a period of five years. The conversion rate on the accrued interest and the warrants provide the holders with anti-dilution protection that requires these features to be bifurcated and presented as derivative liabilities at their fair values. See Note 8. |  |  | — |  |  |  | 100,000 |
In December 2016, the Company issued promissory notes with an aggregate face value of $1,275,000 which were payable one year from the date of issuance and accrued interest of 10% per annum for the initial six months of the term of the Notes and 15% per annum for the remaining six months of the term of the Notes. The notes holders also received 1,912,500 shares of common stock, with a fair value of $191,250. The Company allocated the proceeds to the notes and common stock based on their relative fair values, resulting in a discount against the notes for the common stock of $166,304, which was amortized into expense through the date of conversion. In connection with the issuance of the notes and common stock, the Company also incurred debt issuance costs of $212,427, of which $184,719 was recorded as debt issuance costs against the notes to be amortized over the one-year terms of the notes. |  |  | — |  |  |  | 1,275,000 |
In November 2016,, the Company issued a 12% promissory note due in January 2017 to an officer and principal stockholder in the amount of $13,609. In connection with the issuance of this note, the company also issued warrants for the purchase of 1,146,667 shares of the Company’s common stock at an exercise price of $0.15 per share. This loan was repaid in April 2017. The note holder also received 20,414, shares of the Company’s common stock with a fair value of $2,041. |  |  | 13,609 |  |  |  | 13,609 |
In January 2017, the Company issued a Senior Unsecured Note with a face value of $3,000,000, payable two years form issuance, along with an aggregate of 4,500,000 shares of Common Stock, with a fair value of $1,170,000. The Company allocated the proceeds to the common stock based on their relative fair value and recorded a discount of $841,727 to be amortized into interest expense over the two-year term of the note. The Company also paid debt issuance costs consisting of a cash fee of $120,000 and 1,200,000 shares of common stock of the Company with a fair value of $312,000, of which $224,460 was recorded as debt issuance costs to be amortized into interest expense over the two-year term of the note. |  |  | 3,000,000 |  |  |  | — |
Total Principal Outstanding |  | $ | 3,045,646 |  |  | $ | 3,497,819 |
Unamortized Deferred Debt |  |  | (284,891 | ) |  |  | (159,375 | )
Unamortized Deferred Debt Issuance Costs |  |  | (771,583 | ) |  |  | (177,022 | )
Notes Payable, Net |  | $ | 1,989,172 |  |  | $ | 3,161,422 |
The following is a roll-forward of the Company’s notes payable and related discounts for the three months ended March 31, 2017:
|  | Principal Balance |  |  | Debt Issuance Costs |  |  | Debt Discounts |  |  | Total |
Balance at December 31, 2016 |  | $ | 3,497,819 |  |  | $ | (177,022 | ) |  | $ | (159,375 | ) |  | $ | 3,161,422 |
New issuances |  |  | 3,000,000 |  |  |  | (310,790 | ) |  |  | (841,727 | ) |  |  | 1,847,483 |
Payments |  |  | (14,173 | ) |  |  | — |  |  |  | — |  |  |  | (14,173 | )
Conversions |  |  | (3,438,000 | ) |  |  |  |  |  |  |  |  |  |  | (3,438,000 | )
Amortization |  |  | — |  |  |  | 202,921 |  |  |  | 229,519 |  |  |  | 432,440 |
Balance at March 31, 2017 |  | $ | 3,045,646 |  |  | $ | (284,891 | ) |  | $ | (771,583 | ) |  | $ | 1,989,172 |
Future maturities of notes payable are as follows:
Year Ending December 31, |  |  |  |
2017 |  |  | $ | 45,646 |
2018 |  |  |  | — |
2019 |  |  |  | 3,000,000 |
Thereafter |  |  |  | — |
|  |  | $ | 3,045,646 |

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