STOCKHOLDER'S EQUITY

9 Months Ended

Sep. 30, 2016

Equity [Abstract]

STOCKHOLDER'S EQUITY

NOTE 10 – STOCKHOLDER’S DEFICIT

Common Stock

During the nine months ended September 30, 2016, the Company issued 704,074 shares of common stock upon the conversion of principal and interest on convertible debt totaling $21,222.

During the nine months ended September 30, 2016, the Company issued 94,068 shares of common stock as consideration for information technology services. The fair value of the shares, totaling $15,227, was estimated based on the publicly quoted trading price and recorded as expense.

During the nine months ended September 30, 2016, the Company issued 675,000 shares of common stock as consideration for services related to its acquisition of FIN Holdings. The fair value of the shares, totaling $270,000, was estimated based on the publicly quoted trading price and recorded as expense.

During the nine months ended September 30, 2016, the Company issued 260,537 shares of common stock in partial settlement of a contingent liability of $59,681 related to its acquisition of MultiPay. See Note 12.

During the nine months ended September 30, 2016, the Company issued 1,430,000 shares of common stock as consideration for debt issuance costs. The fair value of the shares, totaling $169,125, was estimated based on publicly quoted trading prices and recorded as debt issuance costs to be amortized into interest expense over the terms of the respective debt agreements.

During the nine months ended September 30, 2016, the Company issued 1,033,337 shares of common stock in connection with the April 2016 convertible notes (See Note 7) of which $54,470 of the proceeds from the issuance of convertible notes was attributed to the common stock based on their relative fair value to that of the note and recorded as a debt discount to be amortized into interest expense over the terms of the respective debt agreements.

During the nine months ended September 30, 2016, the Company issued 22,500,000 shares of common stock as consideration for the acquisition of FIN Holdings. See Note 2.

On August 10, 2016 through August 26, 2016, the Company entered into and closed Subscription Agreements with several accredited investors (the "August 2016 Accredited Investors") pursuant to which the August 2016 Accredited Investors purchased an aggregate of 25,000,000 shares of the Company's common stock (the "2016 Subscription Shares") for an aggregate purchase price of $1,250,000. In order to reduce the dilution to the other shareholders as a result of this private offering, certain shareholders of the Company including the Chief Executive Officer, directors and others agreed to return to the Company 10,000,000 shares of common stock in the aggregate for cancellation. As of September 30, 2016, only 3,345,616 had been returned. The majority of the remaining 6,654,384 were returned and cancelled in the first quarter of 2017. In connection with this private offering, the Company paid Network 1 Financial Securities, Inc., a registered broker-dealer, a cash fee of $100,000 and issued 2,000,000 shares of common stock of the Company.

Warrants

During the nine months ended September 30, 2016, in connection with the issuance of debt and the purchase of inventory, the Company issued warrants to acquire 15,966,953 shares of common stock over five-year terms. Warrants to acquire 208,332, 258,621 and 1,550,000 shares of common stock are exercisable for an exercise price of $0.48 per share, $0.58 per share and $0.10 (previously $0.25) per share, respectively. On August 10, 2016, the Company and the April 2016 Accredited Investors entered into a letter agreement whereby the conversion price of the secured convertible debentures was reduced to $0.10 in consideration of the modification of the price protection features. Furthermore, the exercise price of the common stock purchase warrants was reduced to $0.10 per share and the number of shares issuable upon exercise of the common stock purchase warrants was increased from 6,200,000 to 15,500,000.

The following is a summary of the Company’s warrant activity for the nine months ended September 30, 2016:

	Number of  Shares		Weighted Average Exercise Price		Weighted Average Remaining Life
Outstanding at December 31, 2015		35,171,744	$	0.10	3.83 Years
Granted		15,966,953	$	0.11	4.55 Years
Outstanding at September 30, 2016		51,138,697	$	0.11	4.05 Years

Stock Options

During the six months ended June 30, 2016, the Company granted to employees, options to acquire 3,000,000 shares of common stock, of which 1,000,000 are exercisable at an exercise price of $0.45 per share vesting over two years, 1,000,000 are exercisable at an exercise price of $0.40 per share vesting on the date of grant, 500,000 are exercisable at an exercise price of $0.25 per share with 100,000 exercisable immediately and the balance vesting over two years, and 500,000 are exercisable at an exercise price of $0.10 per share vesting over two years.

On August 10, 2016, the Company issued to several of its employees and consultants stock options (the "Plan Options") under its Equity Compensation Plan to acquire an aggregate of 17,000,000 shares of common stock of the Company exercisable at $0.05 per share. The Plan Options contain vesting periods over 12 quarters commencing on October 1, 2016 as well as various vesting milestones. The Plan Options are exercisable for a period of ten years. Further, the Company amended existing stock options to acquire 50,800,000 shares of common stock under its Equity Compensation Plan to extend the term from five years to 10 years.

On August 10, 2016, the Company entered into an amended agreement (the "Amendment") with Parity Labs, LLC ("Parity") to amend the compensation section of an existing Advisory Agreement previously entered into between the Company and Parity on November 16, 2015 for the provision of strategic advisory services. The Amendment calls for the Company to issue to Parity the option (the "Parity Option") to acquire 20,000,000 shares of common stock of the Company, exercisable at $0.05 per share for a period of ten years. The Parity Option vests as to 10,000,000 options immediately and then in 12 equal tranches of 833,333 options per month commencing on September 1, 2016. Parity options vested in entirety upon Mr. Beck becoming Chief Executive Officer of Ipsidy, Inc. in January 2017. Mr. Beck is the manager of Parity.

The Company determined the grant date fair value of the options granted during the nine months ended September 30, 2016 using the Black Scholes Method and the following assumptions:

Expected Volatility – 79% to 93%

Expected Term – 2.5 – 5.9 Years

Risk Free Rate – 1.16% - 1.49%

Dividend Rate – 0.00%

Activity related to stock options for the nine months ended September 30, 2016 is summarized as follows:

	Number of  Shares		Weighted Average Exercise  Price		Weighted Average Contractual Term (Yrs.)		Aggregate Intrinsic Value
Outstanding as of December 31, 2015		47,800,000	$	0.32		3.99	$	924,650
Granted		40,000,000	$	0.09		9.89	$	3,725,000
Outstanding as of September 30, 2016		87,800,000	$	0.21		9.40	$	4,649,650
Exercisable as of September 30, 2016		51,258,333	$	0.30		9.19	$	1,570,658

The following table summarizes stock option information as of September 30, 2016:

Exercise Prices		Outstanding		Weighted Average Contractual Life	Exercisable
$	0.0001		3,500,000	9.0 Years		1,750,000
$	0.05		37,000,000	9.93 Yeas		10,833,333
$	0.10		8,500,000	8.98 Years		4,500,000
$	0.15		6,300,000	9.0 Years		2,825,000
$	0.25		500,000	9.51 Years		100,000
$	0.40		1,000,000	9.42 Years		1,000,000
$	0.45		31,000,000	9.01Years		30,250,000
	Total		87,800,000	9.19 Years		51,258,333

As highlighted on the previous page, the term of all options was extended for all previous awards to ten years from the original grant date and therefore the remaining contractual term in the table above is now 9.19 years. The incremental cost associated with the term extension was approximately $402,000.

During the nine months ended September 30, 2016, the Company recognized approximately $6,806,000 of stock-based compensation expense. As of September 30, 2016, there was approximately $3,111,000 of unrecognized compensation costs related to stock options outstanding which will be expensed through 2019.