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Capital Structure
 12 Months Ended
Dec. 31, 2021
Stockholders' Equity Note [Abstract]  
CAPITAL STRUCTURE

7. 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 December 31, 2021, 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.

 

As of December 31, 2021, there were 170,332 shares of Series 1 Convertible Preferred Stock outstanding, which were convertible into 225,231 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 December 31, 2021 totaled approximately $13,271,173. As of December 31, 2021, 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 10).

 

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 “Consulting Agreement”), an entity of which the Company’s Chairman is manager, the Company agreed to issue 40,000 warrants to XLR8 Capital Partners LLC 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. On August 30, 2020, the parties entered into an amendment to the Consulting Agreement to further extend the term for another six-month period through February 28, 2021. The Consulting Agreement automatically renewed for one successive six-month period, therefore the new termination date was August 31, 2021. There are no additional automatic renewals. The Consulting Agreement and amendments were approved by the Company’s Compensation Committee.

 

The August 2020 amendment also modified the alternative minimum exercise price of the monthly warrant consideration issuable to the Consultant to $1.60 per share going forward, and the expiration date of the warrants to the date that is four years following the last trading day of the calendar month relating to the applicable monthly warrant issuance.

 

During the year ended December 31, 2021, the Company recorded an expense of $522,808 based on a weighted average grant date fair value of $1.63 per warrant.

 

   Warrants   Expense   Grant date fair value 
Grant Date  Granted   Recorded   Per Warrant 
January 31, 2021   40,000   $73,595   $1.84 
February 29, 2021   40,000    76,318    1.91 
March 31, 2021   40,000    63,010    1.58 
April 30, 2021   40,000    60,542    1.51 
May 31, 2021   40,000    63,156    1.58 
June 30, 2021   40,000    68,228    1.71 
July 31, 2021   40,000    55,658    1.39 
August 31, 2021   40,000    62,301    1.56 
    320,000    522,808    1.63 

 

During the year ended December 31, 2020, the Company recorded an expense of $407,494 based on a weighted average valuation of $0.85 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  
July 31, 2020     40,000     $ 29,587     $ 0.74  
August 31, 2020     40,000     $ 46,744     $ 1.17  
September 30, 2020     40,000     $ 43,229     $ 1.08  
October 31,2020     40,000     $ 37,414     $ 0.94  
November 30, 2020     40,000     $ 45,883     $ 1.15  
December 31, 2020     40,000     $ 65,157     $ 1.63  
      480,000     $ 407,494     $ 0.85  

 

The expense recorded related to warrants in 2021 and 2020 are included in the line Operating expenses within the Consolidated Statement of Operations.

 

The following table summarizes information about outstanding stock warrants as of December 31, 2021, all of which are exercisable:

 

Exercise Price    Common Stock Warrants Outstanding    Series 2 Preferred Stock Warrants Outstanding    Weighted Average Remaining Contractual Life  
$1.25    1,055,184         2 years  
$1.25    160,000         1 year  
$1.34    40,000         1 year  
$1.40    40,000         1 year  
$1.54    40,000         1 year  
$1.62    40,000         1 year  
$1.68    40,000         3 years  
$1.69    40,000         1 year  
$1.74    40,000         1 year  
$1.76    40,000         1 year  
$1.91    40,000         1 year  
$1.95    40,000         3 years  
$2.00    40,000         1 year  
$2.01    40,000         1 year  
$2.08    40,000         3 years  
$2.45    40,000         1 year  
$2.53    40,000         1 year  
$2.57    40,000         3 years  
$2.70    40,000         4 years  
$2.78    40,000         1 year  
$2.79    40,000         4 years  
$2.89    40,000         4 years  
$2.93    40,000         1 year  
$2.97    40,000         4 years  
$3.09    40,000         4 years  
$3.17    40,000         4 years  
$3.19    40,000         4 years  
$3.27    40,000         4 years  
$1,250         439 * 1 year  
      2,255,184    439       

 

(*) At December 31, 2021, these warrants were convertible into 116,903 shares of common stock