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Capital Structure
 6 Months Ended
Jun. 30, 2020
Stockholders' Equity Note [Abstract]  
CAPITAL STRUCTURE

8. CAPITAL STRUCTURE

 

The Company's capital structure consists of preferred and common stock as described below:

 

Preferred Stock

 

The Company is authorized to issue 500,000 shares of $0.001 par value preferred stock. Of this amount, 250,000 shares have been designated as Series 1 Convertible Preferred Stock and 25,000 shares have been designated as Series 2 Convertible Preferred Stock. The Company's Board of Directors determines the rights and preferences of the Company's preferred stock.

 

● Series 1 Convertible Preferred Stock - Series 1 Convertible Preferred Stock ranks senior to common stock upon liquidation.

 

As of June 30, 2020, each share of Series 1 Convertible Preferred Stock was convertible into 1.32230 shares of the Company's common stock, subject to certain anti-dilution rights. The holders of the Series 1 Convertible Preferred Stock have the option to convert the shares to common stock at any time. Upon conversion, all accumulated and unpaid dividends, if any, will be paid as additional shares of common stock. The holders of Series 1 Convertible Preferred Stock have the same dividend rights as holders of common stock, as if the Series 1 Convertible Preferred Stock had been converted to common stock.

 

859 shares of Series 1 Convertible Preferred Stock were converted into 1,136 shares of common stock during the three months ended June 30, 2020.

 

As of June 30, 2020, there were 170,332 shares of Series 1 Convertible Preferred Stock outstanding, which were convertible into 225,230 shares of common stock.

 

● Series 2 Convertible Preferred Stock - The Company sold to B2 FIE V LLC (the "Investor"), an entity affiliated with Pacific Investment Management Company LLC, 20,000 shares of Series 2 Convertible Preferred Stock ("Series 2 Preferred Stock") for gross proceeds of $20.0 million. The Company sold an additional 1,952 shares of Series 2 Preferred Stock to a different investor for gross proceeds of $1.95 million at a subsequent closing.

 

The Series 2 Preferred Shares were sold for $1,000 per share (the "Stated Value") and accrue dividends on the Stated Value at an annual rate of 10% compounded annually. Cumulative accrued dividends as of June 30, 2020 totaled approximately $9,612,529. As of June 30, 2020, each Series 2 Preferred Share was convertible into approximately 266 shares of common stock; however, the conversion rate is subject to further increase pursuant to a weighted average anti-dilution provision. The holders of the Series 2 Preferred Stock have the option to convert such shares into shares of common stock and have the right to vote with holders of common stock on an as-converted basis. If the average closing price during any 45-day consecutive trading day period or change of control transaction values the common stock at a price equal to or greater than $23.00 per share, then conversion shall be automatic. Upon a Liquidation Event or Deemed Liquidation Event (each as defined), holders of Series 2 Preferred Stock shall be entitled to receive out of the assets of the Company prior to and in preference to the common stock and Series 1 Convertible Preferred Stock an amount equal to the greater of (1) the Stated Value, plus any accrued and unpaid dividends thereon, and (2) the amount per share as would have been payable had all shares of Series 2 Preferred Stock been converted to common stock immediately before the Liquidation Event or Deemed Liquidation Event.

 

Common Stock

 

The Company is authorized to issue 40,000,000 shares of common stock, par value $0.0001 per share. Each share of common stock entitles the holder to one vote at all stockholder meetings. The common stock is traded on the Nasdaq Capital Market under the symbol "FPAY."

 

Warrants

 

In September 2018, the Company issued warrants exercisable for 5,750,000 shares of common stock at an exercise price of $1.25 per share (the "Public Warrants"). The warrants were immediately exercisable and expire five years from the date of issuance. The warrants were listed on the Nasdaq Capital Market under the symbol "FPAYW" (See note 11).

 

The Company also issued additional warrants exercisable for an aggregate 1,055,184 shares of common stock at an exercise price of $1.25 per warrant to Mr. Heiser and NRNS in connection with partial conversions of their promissory notes. The warrants are exercisable at $1.25 per share of common stock and expire on September 28, 2023.

 

In connection with the issuance of Series 2 Convertible Preferred Stock in June 2016, the Company issued to the placement agent in such offering warrants exercisable for 439 shares of Series 2 Convertible Preferred Stock at an initial exercise price of $1,250 per share, which expire seven years after the date of issuance.

 

As part of a consulting agreement with XLR8 Capital Partners LLC (the "Consultant"), an entity of which the Company's Chairman is manager, the Company agreed to issue 40,000 warrants to the Consultant monthly for 12 months beginning on March 1, 2019 at an exercise price of $1.25 per share or, if the closing share price on the last day of the month exceeds $1.25, then such exercise price will be 110% of the closing share price. The warrants are immediately exercisable and expire following the close of business on June 30, 2023. In February 2020, this agreement was extended for an additional six months through August 31, 2020.

 

During the six months ended June 30, 2020, the Company recorded an expense of $139,480 based on a weighted average valuation of $0.58 per warrant.

 

   Warrants   Expense   Valuation 
Grant Date  Granted   Recorded   Per Warrant 
January 31, 2020    40,000   $16,503   $0.41 
February 29, 2020    40,000   $18,727   $0.47 
March 31, 2020    40,000   $8,769   $0.22 
April 30, 2020    40,000   $

25,412

  

$

0.64

 
May 31, 2020    40,000   $

33,388

  

$

0.83

 
June 30, 2020    40,000   $

36,681

  

$

0.92

 
    240,000   $ 139,480   $

0.58

 

  

The following table summarizes information about outstanding stock warrants as of June 30, 2020, all of which are exercisable:

 

      Common     Series 2 Preferred     Weighted Average
Exercise     Stock Warrants     Stock Warrants     Remaining
Price     Outstanding     Outstanding     Contractual Life
                   
$ 1.25       1,215,184             3 years
$ 1.34       40,000             3 years
$ 1.40       40,000             3 years
$ 1.54       40,000             3 years
$ 1.69       40,000             3 years
$ 1.74       40,000             3 years
$ 1.76       40,000             3 years
$ 1.91       40,000             3 years
$ 2.00       40,000             3 years
$ 2.01       40,000             3 years
$ 2.53       40,000             3 years
$ 2.78       40,000             3 years
$ 2.93       40,000             3 years
$ 5.50       177,304             2 years
$ 1,250       -       439 *   3 years
          1,872,488       439      

 

*At June 30, 2020, these warrants were convertible into 116,903 shares of common stock