STOCKHOLDER'S EQUITY (DEFICIT)

9 Months Ended

Sep. 30, 2017

Equity [Abstract]

STOCKHOLDER'S EQUITY (DEFICIT)

NOTE 9 – STOCKHOLDER’S EQUITY (DEFICIT)

Common Stock

On September 28, 2017, the stockholders of the Company approved increasing the number of authorized shares of common stock from 500,000,000 to 1,000,000,000.

As described in Note 5, 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. (“Network 1”), a registered broker-dealer, 1,200,000 shares of common stock of the Company in conjunction with its services.

As described in Notes 5 and 6, on January 31, 2017, the Company entered into Conversion Agreements with Investors pursuant to which each 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 an approximately of 84,822,000 shares of Company common stock.

On March 22, 2017, 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 proceeds were received during 2017. 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 issued Network 1,000,000 shares of common stock of the Company.

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

During the nine months ended September 30, 2017, the Company issued approximately 594,000 shares of common stock as consideration for services. The fair value of the shares, totaling approximately $140,000 was estimated based on the publicly quoted trading price and recorded as expense.

In connection with the engagement of the CEO and Chief Financial Officer (“CFO”) on January 31, 2017 (the “Grant Date”), the Company agreed to enter into Restricted Stock Purchase Agreements (the “Restricted Shares”) with the CEO and CFO to provide 15,000,000 and 5,000,000 shares of common stock, respectively, at a per share price of $0.0001. On September 29, 2017, and in connection with the increase in the authorized shares, the Company issued the Restricted Shares. The shares are restricted and are not able to be sold or otherwise transferred by the CEO or CFO until such time the Restricted Shares vest. The Restricted Shares vest only upon achieving one of several performances thresholds. As of September 30, 2017, none of the performance thresholds have been met. Accordingly, no compensation expense has been recorded in connection with the issuance of these Restricted Shares. Compensation expense associated with these Restricted Shares will be recorded based on the fair value of the shares on the date it is determined that it is probable that one or more of the performance thresholds will be met in the near term.

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.

Furthermore, as more fully described above in Note 5, 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 nine months ended September 30, 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 September 30, 2017		47,538,697		$	0.08		2.9 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 when Mr. Beck became 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. Additionally, the Company granted one employee stock options to acquire 1,000,000 shares of common stock at an exercise price of $0.29 per share for a period of ten years.

The Company determined the grant date fair value of the options granted during the Nine months ended September 30, 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 nine months ended September 30, 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		21,000,000		$	0.11		10.0	$	—
Forfeitures		(3,425,000	)	$	0.06		10.0	$	—
Outstanding as of September 30, 2017		104,500,000		$	0.19		9.1	$	3,989,000
Exercisable as of September 30, 2017		78,704,170		$	0.17		8.7	$	2,788,000

The following table summarizes stock option information as of September 30, 2017:

Exercise Prices		Outstanding		Weighted Average Contractual Life		Exercisable
$	0.0001		3,500,000		8.00 Years		3,500,000
$	0.05		33,950,000		8.86 Years		23,312,502
$	0.10		27,250,000		9.05 Years		15,583,336
$	0.15		6,300,000		7.85  Years		4,258,332
$	0.25		500,000		8.50 Years		300,000
$	0.29		1,000,000		9.75 Years		—
$	0.40		1,000,000		8.42 Years		1,000,000
$	0.45		31,000,000		8.00 Years		30,750,000
	Total		104,500,000		8.57 Years		78,704,170

Stock option expense for the three and nine months ended September 30, 2017 was approximately $625,000 and $4,892,000, respectively, and for the corresponding periods ended September 30, 2016 was $654,000 and $6,806,000, respectively. The three and nine months ended September 30, 2017, included approximately $61,000 and $1,565,000, respectively of non-employee stock compensation. As of September 30, 2017, there was approximately $3,652,000 of unrecognized compensation costs related to stock options outstanding which will be expensed through 2020.