STOCKHOLDER'S EQUITY

12 Months Ended

Dec. 31, 2016

Equity [Abstract]

STOCKHOLDER'S EQUITY

NOTE 10– STOCKHOLDERS’ DEFICIT

On August 24, 2015, the Company amended its certificate of incorporation to increase the number of its authorized shares of common stock from 300,000,000 shares to 500,000,000 shares. The Company had 234,704,655 and 187,854,139 shares issued and outstanding as of December 31, 2016 and 2015, respectively. In addition, the Company authorized 20,000,000 shares of preferred stock.

Common Stock

2015 Common Stock Transactions

● In May 2015, in connection with the acquisition of MultiPay and in consideration of the purchased assets, the Company issued 6,101,517 shares of common stock valued at $860,491 (Note 2).

● During the period from September 2015 through December 2015, holders of convertible notes payable elected to convert an aggregate $181,205 principal and interest into 6,040,166 shares of the Company’s common stock.

● During the year ended December 31, 2015, the Company issued 12,174,167 shares of common stock for debt issuance costs, consulting, legal, and other services valued at an aggregate of $856,150.

2016 Common Stock Transactions

● During the year ended December 31, 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 year ended December 31, 2016, the Company issued 4,450,000 shares of common stock for broker dealer services. The fair value of the shares based on publicly quoted trading prices was $377,938.

● During the year ended December 31, 2016, the Company issued 969,654 shares of common stock as consideration for services. The fair value of the shares, totaling $311,103, was estimated based on the publicly quoted trading price and recorded as expense.

● During the year ended December 31, 2016, the Company issued 2,966,251 shares of common stock in connection with the issuance of certain debt instruments. The fair value of the shares was estimated based on publicly quoted trading prices and $222,815 was allocated to debt issuance costs recorded against the carrying value of the related debt and amortized into interest expense over the terms of the respective debt agreements.

● During the year ended December 31, 2016, the Company issued 22,500,000 shares of common stock as consideration for the acquisition of FIN Holdings valued at $9,000,000. The fair value of the shares was estimated based on the publicly traded shares. See Note 2.

● During the year ended December 31, 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 10.

● 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 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. In connection with the sale of shares, the Company issued 2,000,000 shares of common stock and paid $120,242 of cash for equity issuance costs.

Warrants

● During the year ended December 31, 2015, in connection with the issuance of convertible debt and promissory notes, the Company issued warrants to acquire 35,171,744 shares of common stock each with a five-year term. These warrants were issued at prices ranging $0.05 per share to $0.48 cents per share.

● During the year ended December 31, 2016, in connection with the issuance of convertible debt and promissory notes, the Company issued warrants to acquire 15,708,332 shares of common stock each with a five-year term. Of these warrants, 208,332 were issued with an exercise price of $0.48 per share and 15,500,000 were issued with an exercise price of $0.25 per share (subsequently repriced in August 2016 to $0.10 per share). Additionally, the Company issued warrants to a supplier to acquire 258,621 shares of common stock at an exercise price of $0.58 per share.

The following is a summary of the Company’s warrant activity for the years ended December 31, 2016 and 2015:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Life
Outstanding at December 31, 2014		—	$	—
Granted		35,171,744	$	0.10
Outstanding at December 31, 2015		35,171,744	$	0.10		3.6 Years
Granted		15,966,953	$	0.11		4.3 Years
Outstanding at December 31, 2016		51,138,697	$	0.11		3.8 Years

Stock Options

The IPSIDY Equity Compensation Plan established on November 21, 2014 (the “2014 Plan”) authorized 25,000,000 shares of common stock to be issued under the 2014 plan. The 2014 Plan contains an “evergreen formula” pursuant to which the number of shares of common stock available for issuance under the 2014 Plan will automatically increase on the first trading day of January each calendar year during the term of the 2014 Plan, beginning with calendar year 2015, by an amount equal to 2% of the total number of shares of common stock outstanding on the last trading day in December of the immediately preceding calendar year, up to a maximum annual increase of 250,000 shares of common stock. The purpose of the 2014 Plan is to enable the Company to offer its employees, officers, directors and consultants equity-based compensation. The 2014 Plan is administered by our board of directors. Plan options may either be:

• incentive stock options (ISOs),

• non-qualified options (NSOs),

• awards of our common stock, or

• rights to make direct purchases of our common stock which may be subject to certain restrictions.

The Company has also granted equity awards that have not been approved by security holders.

2015 Stock Option Issuances

● In May 2015, the Company granted to two officers, options to acquire 7,000,000 shares of common stock, of which 3,500,000 are exercisable at an exercise price of $0.10 per share over a five-year term vesting over eight quarters, and 3,500,000 are exercisable at an exercise price of $0.0001 per share over a five-year term vesting over eight quarters.

● In September 2015, the Company granted to employees, five-year options to acquire 37,300,000 shares of common stock, of which 2,400,000 are exercisable at an exercise price of $0.15 per share vesting over twelve quarters, 1,000,000 are exercisable at an exercise price of $0.10 per share vesting on the date of grant, 3,500,000 are exercisable at an exercise price of $0.10 per share vesting over eight quarters, 400,000 are exercisable at an exercise price of $0.15 per share vesting over four quarters, and 30,000,000 are exercisable at an exercise price of $0.45 per share vesting over four quarters.

● In October 2015, the Company granted to an employee, options to acquire 3,500,000 shares of common stock, of which 1,000,000 are exercisable at an exercise price of $0.15 per share over a five-year term vesting on the date of grant, and 2,500,000 are exercisable at an exercise price of $0.15 per share over a five-year term vesting over twelve quarters

2016 Stock Option Issuances

● During the three months ended March 31, 2016, the Company granted to employees, options to acquire 2,500,000 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 and 500,000 are exercisable at an exercise price of $0.10 per share vesting quarterly over two years. The options have a 5 year term.

● 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 (including 6,500,000 performance based shares) of common stock of the Company exercisable at $0.05 per share. The Plan Options contain vesting periods of 12 quarters commencing on October 1, 2016 as well as various vesting based on achieving certain performance milestones. The Plan Options are exercisable for a period of ten 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 shares of common stock immediately and then in 12 equal tranches of 833,333 shares per month commencing on September 1, 2016. The Parity Option vested in entirety upon Mr. Beck becoming Chief Executive Officer of Ipsidy, Inc. in January 2017. Mr. Beck is a manager of Parity.

● Additionally, the Company amended existing stock options to acquire 50,300,000 shares of common stock by extending the term from five years to ten years. The additional compensation cost related to the extension of the term was approximately $516,000.

● In October 2016, options to acquire 875,000 shares (500,000 performance based shares) of common stock for an exercise price of $0.10 per share were forfeited.

The Company determined the grant date fair value of the options granted during the years ended December 31, 2016 and 2015 using the Black Scholes Method and the following assumptions:

	2016	2015
Expected Volatility	79.0% to 93.0%	85.0% to 93.0%
Expected Term	2.5 – 5.9 Years	2.5 to 4.2 Years
Risk Free Rate	1.16% to 1.49%	1.40% to 1.51%
Dividend Rate	0.00%	0.00%

Activity related to stock options for the years ended December 31, 2015 and 2016 is summarized as follows:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Contractual Term (Yrs.)		Aggregate Intrinsic Value
Outstanding as of January1, 2015		—		$	—		—	$	—
Granted		47,800,000		$	0.32		8.7	$	7,698,650
Outstanding as of December 31, 2015		47,800,000		$	0.32		8.7	$	7,698,650
Granted		40,000,000		$	0.07		9.1	$	7,475,000
Forfeited		(875,000	)	$	0.07		—	$	—
Outstanding as of December 31, 2016		86,925,000		$	0.21		9.5	$	10,023,400
Exercisable as of December 31, 2016		55,416,666		$	0.29		8.9	$	4,277,237

The following table summarizes stock option information as of December 31, 2016:

Exercise Prices		Outstanding		Weighted Average Contractual Life		Exercisable
$	0.0001		3,500,000		8.8 Years		2,625,000
$	0.05		36,500,000		9.6 Years		11,708,333
$	0.10		8,125,000		9.1 Years		6,375,000
$	0.15		6,300,000		8.7 Years		3,233,333
$	0.25		500,000		9.3 Years		100,000
$	0.40		1,000,000		9.2 Years		1,000,000
$	0.45		31,000,000		8.8 Years		30,375,000
	Total		86,925,000		8.9Years		55,416,666

As of December 31, 2016, there was approximately $1,628,000 and $2,822,000 of unrecognized compensation costs related to employee stock options and non-employee stock options outstanding which will be recognized in 2017 through 2019. The company will recognize forfeitures as they occur. Stock compensation expense for the years ended December 31, 2016 and December 31, 2015 was approximately $8,648,000 and $6,320,000, respectively.