Business Context and Reporting Period
This Form 8-K Current Report, dated January 31, 2017, covers material events for Ipsidy Inc. (formerly ID Global Solutions Corporation). The filing details a significant restructuring of executive management, a corporate name change effective February 1, 2017, and new financing and debt conversion activities.
Key Financial Metrics and Capital Structure
- Debt Financing: The Company closed a $3 million investment from the Theodore Stern Revocable Trust, consisting of a Promissory Note bearing 10% annual compound interest and 4.5 million shares of common stock.
- Debt Conversion: The Company converted $5,534,000 of accrued debt and interest into 83,102,005 shares of common stock at a price of $0.10 per share (or lower for certain investors).
- Related Party Transactions: In 2016, the Company paid $147,078 in consulting fees to Parity Labs, LLC (principally owned by the new CEO) and $26,840 to Bridgeworks LLC for facility use.
- Equity Grants: The Company granted Philip D. Beck a stock option for 15 million shares at $0.10 per share and a restricted stock purchase agreement for 15 million shares at $0.0001 per share.
Material Changes Versus Prior Period
- Executive Leadership: Philip D. Beck was appointed Chairman, CEO, and President. Douglas Solomon resigned as Chairman and COO but remains a director and was appointed Executive Director of Government Relations. Thomas Szoke resigned as CEO and was appointed Chief Technology Officer.
- Corporate Identity: The Company legally changed its name from ID Global Solutions Corporation to Ipsidy Inc.
- Capital Structure: Significant reduction in debt obligations through conversion to equity and the addition of new senior debt via the Stern Note.
Guidance, Outlook, and Management Commentary
Management has established specific financial milestones tied to executive compensation and equity vesting:
- Milestone 1: Timely filing of the 2017 Form 10-K and raising $15 million in gross proceeds (triggers a 75% salary bonus for the CEO).
- Milestone 2: Achievement of any of the following: merger/sale, $10 million adjusted EBITDA, national exchange listing with $10 million raise or $125 million valuation, or $20 million trailing 12-month revenue (triggers a 150% salary bonus for the CEO and 75% for other executives).
- Milestone 3: Achievement of a mutually agreed gross margin (triggers up to a 50% salary bonus for the CTO and Executive Director).
Risks and Contingencies: The Stern Note requires prepayment of all principal and accrued interest if the Company raises $15 million or more in financing. Executive employment is at-will, though severance packages (12-18 months of salary) and accelerated vesting apply in cases of involuntary termination or change of control.
Investor Verification Checklist
- Verify the exact terms of the $3 million Stern Note, specifically the prepayment trigger upon raising $15 million in new capital.
- Confirm the dilution impact of the 83.1 million shares issued via debt conversion and the 4.5 million shares issued to the Stern Trust.
- Review the related party agreements with Parity Labs and Bridgeworks to ensure compliance with disclosure requirements regarding the new CEO's ownership interests.
- Assess the feasibility of the $15 million capital raise and $20 million revenue targets required to trigger executive bonuses and equity vesting.
- Check the status of the 2017 Form 10-K filing to determine if the CEO's Milestone 1 bonus is achievable.