Business Context and Reporting Period
This Form 8-K Current Report was filed by Ipsidy Inc. (not Authid Inc.) on December 16, 2019, covering events occurring on December 10, 2019. The registrant is an emerging growth company incorporated in Delaware. The filing details a private debt offering, an amendment to an existing promissory note, and a new board appointment.
Key Financial Metrics and Obligations
- New Debt Issuance: The Company sold 8% Convertible Notes in an aggregate principal amount of $478,000 to accredited investors.
- Existing Debt: The Company has an outstanding Promissory Note (the "Stern Note") originally issued in 2017. As of the filing, the principal balance is $2,000,000 (following a $1,000,000 prepayment in 2018).
- Interest Rates: New notes bear 8% annual interest; the Stern Note bears 10% annual interest compounded annually.
- Liquidity and Cash Flow: The filing does not provide specific cash flow, revenue, or liquidity metrics. Proceeds from the new notes are intended to support operations, though specific allocation is not detailed.
Material Changes and Agreements
8% Convertible Note Private Offering
On December 13, 2019, the Company entered into agreements to sell $478,000 of 8% Convertible Notes. Key terms include:
- Maturity: November 30, 2021.
- Conversion: Convertible at the holder's option at $0.08 per share.
- Automatic Conversion: Triggered if holders of more than 50% of the notes elect to convert.
- Insider Participation: CEO Philip D. Beck invested $25,000.
Stern Note Amendment
The Company amended its agreement with the Theodore Stern Revocable Trust:
- Extension: Maturity date extended from April 30, 2020, to April 30, 2021.
- Interest Payment: Interest on the outstanding balance is due April 30, 2020, contingent on the Company receiving sufficient funding by that date.
- Subordination: The new 8% Notes are senior to the Stern Note up to $1,000,000; any amount exceeding $1,000,000 is subordinated to the Stern Note.
- Repayment Trigger: The Stern Note remains payable in full if the Company raises gross proceeds of $15,000,000 or more in a financing event.
Board Appointment
Phillip L. Kumnick was appointed to the Board of Directors on December 10, 2019. His compensation package includes:
- Equity Award: Shares with a market value of $72,000, vesting over 12 months.
- Stock Options: Options to purchase 3,000,000 shares at an exercise price of $0.055, vesting over three years.
- Cash Compensation: $5,000 per annum per committee served.
Outlook, Risks, and Contingencies
- Funding Contingency: The ability to pay interest on the Stern Note in April 2020 is explicitly contingent on the Company securing sufficient funding.
- Dilution Risk: The conversion of the new notes at $0.08 per share and the issuance of options to the new director represent potential dilution to existing shareholders.
- Debt Structure: The Company has layered debt obligations with varying seniority and maturity dates, creating a complex capital structure.
- Management Commentary: The filing does not contain forward-looking guidance regarding revenue or profitability.
Investor Verification Checklist
- Verify the Company's current cash position and ability to meet the April 2020 interest payment on the Stern Note.
- Confirm the total number of shares outstanding to assess the dilution impact of the $478,000 note conversion at $0.08/share and the 3,000,000 options granted to Mr. Kumnick.
- Review the full text of the Securities Purchase Agreements (Exhibit 4.2) and the Stern Note Letter Agreement (Exhibit 4.1) for covenants not summarized here.
- Monitor for any future financing events that could trigger the mandatory repayment of the $2,000,000 Stern Note.