STOCKHOLDER'S EQUITY (DEFICIT)

3 Months Ended

Mar. 31, 2017

Equity [Abstract]

STOCKHOLDER'S EQUITY (DEFICIT)

NOTE 11 – STOCKHOLDER’S EQUITY (DEFICIT)

Common Stock

As described in Note 7, on January 31, 2017, in connection with the issuance of a $3,000,000 Senior Unsecured Note, an aggregate of 4,500,000 shares of Common Stock was issued to the Investor and the Company issued Network 1 Financial Securities, Inc., a registered broker-dealer, 1,200,000 shares of common stock of the Company in conjunction with its services.

As described in Notes 7 and 8, on January 31, 2017, the Company entered into Conversion Agreements with Investors pursuant to which Investors agreed to convert all amounts of debt accrued and payable to such person 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 shares. The Conversion Agreements resulted in the issuance of approximately 84,822,000 shares of Company common stock.

On March 22, 2017, Ipsidy Inc. (the “Company”) entered into Subscription Agreements with several accredited investors (the “March 2017 Accredited Investors”) pursuant to which the March 2017 Accredited Investors agreed to purchase an aggregate of 20,000,000 shares of the Company’s common stock for an aggregate purchase price of $4,000,000. The Company has received proceeds of $3,170,000. One individual March 2017 Accredited Investor, has agreed to fund $830,000 by the balance of the offering by the end of the third quarter of 2017 of which $400,000 has been received as of the date of this report. In connection with this private offering, the Company paid Network 1 Financial Securities, Inc. (“Network”), a registered broker-dealer, a cash fee of $240,000 and agreed to issue Network 1,000,000 shares of common stock of the Company upon increasing its authorized shares of common stock.

Additionally, the Company cancelled certificates for 2,500,000 shares of common stock acquired in conjunction with the purchase of certain debentures.

During the quarter ended March 31, 2017, the Company issued 366,750 shares of common stock as consideration for services. The fair value of the shares, totaling $42,377, was estimated based on the publicly quoted trading price and recorded as expense.

Warrants

As more fully described above 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. Certain warrants were issued in connection with business arrangements and those warrants remained at original price per share of common stock.

Furthermore, as more fully described above in Note 7, the Company as part of a transaction cancelled 3.6 million warrants.

The following is a summary of the Company’s warrant activity for the three months ended March 31, 2017:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Life
Outstanding at December 31, 2016		51,138,697		$	0.11		3.8 Years
Cancelled		(3,600,000	)	$	0.08		3.9 Years
Outstanding at March 31, 2017		47,538,697		$	0.08		3.5 Years

Stock Options

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. Parity options vested in entirety upon Mr. Beck becoming Chief Executive Officer (“CEO”) of Ipsidy, Inc. in January 2017. Mr. Beck is the manager of Parity.

In connection with the engagement of the CEO and Chief Financial Officer (“CFO”) on January 31, 2017, the Company granted the CEO and CFO stock options to acquire 15,000,000 shares and 5,000,000 shares of common stock of the Company respectively at an exercise price of $0.10 per share for a period of ten years. Further, upon the Company being legally entitled to do so, the Company has agreed to enter a Restricted Stock Purchase Agreements with the CEO and CFO in which they will be provided 15,000,000 shares and 5,000,000 shares of common stock at a per share price of $0.0001, which shares of common stock vest upon achieving a performance threshold as defined in their respective agreements.

The Company determined the grant date fair value of the options granted during the three months ended March 31, 2017 using the Black Scholes Method and the following assumptions:

Expected Volatility – 85% 

Expected Term – 5.0 Years

Risk Free Rate – 1.92% 

Dividend Rate – 0.00%

Activity related to stock options for the three months ended March 31, 2017 is summarized as follows:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Contractual Term (Yrs.)		Aggregate Intrinsic Value
Outstanding as of December 31, 2016		86,925,000		$	0.21		9.5	$	10,023,400
Granted		20,000,000		$	0.10		9.8	$	—
Forfeitures		(875,000	)	$	0.10		8.8	$	—
Outstanding as of March 31, 2017		106,050,000		$	0.19		9.1	$	16,594,997
Exercisable as of March 31, 2017		72,575,000		$	0.16		8.9	$	9,411,664

The following table summarizes stock option information as of March 31, 2017:

Exercise Prices		Outstanding		Weighted Average Contractual Life		Exercisable
$	0.0001		3,500,000		8.5 Years		3,062,500
$	0.05		36,500,000		9.4 Years		21,750,000
$	0.10		27,250,000		9.6 Years		12,520,834
$	0.15		6,300,000		8.4 Years		3,641,666
$	0.25		500,000		9.0 Years		100,000
$	0.40		1,000,000		8.9 Years		1,000,000
$	0.45		31,000,000		8.5 Years		30,500,000
	Total		106,050,000		9.1 Years		72,575,000

During the three months ended March 31, 2017, the Company recognized approximately $3,294,000 of stock-based compensation expense of which approximately $1,620,000 and $1,674,000 was related to employee and non-employees, respectively. As of March 31, 2017, there was approximately $4,830,000 of unrecognized compensation costs related to stock options outstanding which will be expensed through 2019 (see Note 15).