STOCKHOLDER'S EQUITY

12 Months Ended

Dec. 31, 2017

Equity [Abstract]

STOCKHOLDER'S EQUITY

NOTE 11– STOCKHOLDERS’ DEFICIT

On August 24, 2016, 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 and then 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. The Company had 403,311,988 and 234,704,655 shares issued and outstanding as of December 31, 2017 and 2016, respectively. In addition, the Company is authorized to issue 20,000,000 shares of preferred stock.

Common Stock

2017 Common Stock Transactions

● As described in Note 6, 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 Stern Trust 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 6 and 7, on January 31, 2017, the Company entered into Conversion Agreements with Investors pursuant to which each Investor 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 share. 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 in 2017. In connection with this private offering, the Company paid Network 1, 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 year ended December 31, 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.

● On December 18, 2017, the Company entered into Subscription Agreements with accredited investors (the “December 2017 Accredited Investors”) pursuant to which the December 2017 Accredited Investors agreed to purchase an aggregate of approximately 38,464,000 shares of the Company’s common stock for an aggregate purchase price of $5,000,000. In connection with this private offering, the Company agreed to pay Network 1, a registered broker-dealer, a cash fee of $350,000 and issue common stock purchase warrants valued at $181,154 to acquire 1,153,846 shares of common stock of the Company exercisable for a term of five years at an exercise price of $0.143 per share.

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.

● From August 10, 2016 through August 26, 2016, the Company entered into and closed Subscription Agreements with several accredited investors (the “August 2017 Accredited Investors”) pursuant to which the August 2017 Accredited Investors purchased an aggregate of 25,000,000 shares of the Company’s common stock (the “2017 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, 2017, the Company issued 1,153,846 warrants in connection with the issuance of approximately 38,461,500 shares of common stock at an exercise price of $.143 per share for a period of five years. See above

● During the year ended December 31, 2017, an investor exercised 528,000 warrants at $0.05 cents for an aggregate price of $26,400 in exchange for shares of common stock of the Company.

● On February 22, 2017, the Company entered the “February 22, 2017 Agreement”) with a holder of certain debentures that represented final and full payment of all amounts owed under these debentures which included debt with a face value of $300,000, accrued interest of approximately $31,000, and cancellation of 3,600,000 warrants. See Note 6.

● 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 2017 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, 2017 and 2016:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Life
Outstanding at December 31, 2015		35,171,744		$	0.10
Granted		15,966,953		$	0.11
Outstanding at December 31, 2016		51,138,697		$	0.11		2.8 Years
Granted		1,153,846		$	0.14		5.0 Years
Exercised/Cancelled		(4,128,000	)		0.08		—
Outstanding at December 31, 2017		48,164,543		$	0.08		2.9 Years

Stock Options

 The Company has adopted the Ipsidy Inc. 2014 Equity Compensation Plan and the 2017 Incentive Stock Plan. The Company has no other stock options plans in effect as of December 31, 2017.

On November 21, 2014, our Board of Directors authorized the Ipsidy Inc. Equity Compensation Plan (the “2014 Plan”). On September 28, 2017, the shareholders of the Company approved the 2017 Incentive Stock Plan (“2017 Incentive Plan”). The following is a summary of principal features of the 2014 Plan and the 2017 Incentive Plan. The summaries, however, does not purport to be a complete description of all the provisions of each plan.

The 2014 Plan covers 25,000,000 shares of common stock and the 2017 Incentive Plan covers 70,000,000 shares of common stock. Both Plans are administered by the Compensation Committee.

The terms of Awards granted under the plans shall be contained in an agreement between the participant and the Company and such terms shall be determined by the Compensation Committee consistent with the provisions of the applicable plan. The terms of Awards may or not require a performance condition in order to vest the equity comprised in the relevant Award. The terms of each Option granted shall be contained in a stock option agreement between the optionee and the Company and such terms shall be determined by the Compensation Committee consistent with the provisions of the applicable plan

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

2017 Stock Option Issuances

● 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, the Company has entered into Restricted Stock Purchase Agreements with the CEO and CFO in which they were 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 which has not been achieved at December 31, 2017.

● Additionally, the Company granted two employee stock options to acquire 1,250,000 shares of common stock at an exercise price representing fair value at the time of grant.

2016 Stock Option Issuances

● In March and April 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, 2017 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, 2017. 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, 2017 and 2016 using the Black Scholes Method and the following assumptions:

	2017	2016
Expected Volatility	79.0% to 93.0%	79.0% to 93.0%
Expected Term	2.5 – 5.9 Years	2.5 to 5.9 Years
Risk Free Rate	1.16% to 1.49%	1.16% to 1.49%
Dividend Rate	0.00%	0.00%

Activity related to stock options for the years ended December 31, 2017 and 2016 is summarized as follows:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Contractual Term (Yrs.)		Aggregate Intrinsic Value
Outstanding as of January 1, 2016		47,800,000		$	0.32		8.7	$	7,698,650
Granted		40,000,000		$	0.32		10.0	$	7,475,000
Forfeited		(875,000	)	$	0.07		—	$	—
Outstanding as of December 31, 2016		86,925,000		$	0.21		9.5	$	10,023,400
Granted		21,250,000		$	0.11		10.0	$	2,868,750
Forfeited		(4,966,669	)	$	0.08		—	$	—
Outstanding as of December 31, 2017		103,208,331		$	0.19		8.3	$	11,457,291
Exercisable as of December 31, 2017		81,787,506		$	0.22		8 2	$	3,316,208

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

Exercise Prices		Outstanding		Weighted Average Contractual Life		Exercisable
$	0.0001		3,500,000		7.8 Years		3,500,000
$	0.05		33,450,000		8.6 Years		25,020,838
$	0.10		27,250,000		8.8 Years		16,833,336
$	0.13		250,000		9.8 Years		—
$	0.15		5,258,331		7.6 Years		4,258,332
$	0.25		500,000		8.3 Years		300,000
$	0.29		1,000,000		9.3 Years		—
$	0.40		1,000,000		8.2 Years		1,000,000
	0.45		31,000,000		7.8 Years		30,875,000
	Total		103,208,331		8.3 Years		81,787,506

As of December 31, 2017, there was approximately $2,187,000 and $881,000 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, 2017 and December 31, 2016 was approximately $5,651,000 and $8,648,000, respectively.