Business Context and Reporting Period
This Form 8-K filing by Ipsidy Inc. (not Authid Inc.) reports events occurring on February 14, 2020. The company, an emerging growth company incorporated in Delaware, entered into a private placement of debt securities and amended existing debt agreements to secure liquidity.
Key Financial Metrics and Obligations
- New Debt Issuance: Sold 15% Senior Secured Convertible Notes ("2020 Notes") with an aggregate principal amount of $1,510,000.
- Existing Debt Modifications:
- 8% Convertible Notes: Principal reduced to $428,000 (from $478,000) with maturity extended to match the 2020 Notes.
- Stern Note: Principal of $2,000,000 with accrued interest of $662,000 (as of Jan 31, 2020). Maturity extended to match the 2020 Notes.
- Transaction Costs: Paid approximately $104,800 in cash fees to Network 1 Financial Securities, Inc.
- Collateral: All assets of the Company and its subsidiaries (FIN Holdings, Inc. and ID Solutions, Inc.) are pledged as security for the 2020 Notes, 8% Notes, and Stern Note on a pari passu basis.
Material Changes and Terms
- Interest and Prepayment: The 2020 Notes bear interest at 15% per annum. Prepayment prior to maturity requires paying 150% of the principal due. If prepaid before the one-year anniversary, interest must be paid through that anniversary date.
- Conversion Terms: Investors may convert notes into common stock at a price of $0.20 per share, receiving shares equal to 150% of the principal converted. The Company may force conversion if the 20-day volume-weighted average price exceeds $0.30 after the first anniversary.
- Board Representation: Investors are entitled to nominate a new Board member if the aggregate principal of 2020 Notes is at least $1,500,000.
- Warrant Extension: Warrants for 6,385,000 shares were extended until February 2022 for investors who participated in the offering, subject to an exercise price increase to $0.06 per share.
Outlook, Risks, and Contingencies
- Liquidity Risk: The Company has secured significant debt but faces substantial repayment obligations. The 2020 Notes mature on February 28, 2022, with a potential repayment requirement of 150% of principal upon maturity or default.
- Asset Restrictions: Sales of assets are restricted to a value of $1,000,000 without secured party consent, though proceeds may be used for working capital.
- Related Party Transactions: CEO Philip D. Beck invested $50,000 via salary deduction; Director Theodore Stern invested $50,000 and holds the $2,000,000 Stern Note; Herbert Selzer invested $100,000 (with $50,000 deferred until April 30, 2020).
Investor Verification Checklist
- Verify the Company's ability to service the 15% interest on the new $1.51M debt and the existing $2.668M in other notes.
- Confirm the status of the $50,000 deferred funding from Herbert Selzer due by April 30, 2020.
- Review the full Security Agreement to understand the scope of the lien on all company assets.
- Assess the dilution impact of the 150% conversion premium at the $0.20 conversion price.
- Check for any subsequent filings regarding the $104,800 transaction fee and its impact on cash reserves.