UNITED STATES
SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
UNITED STATES
SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549FORM 10-Q
FORM 10-Q
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
☒ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended March 31, 2023 |
For the quarterly period ended September 30, 2017
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ____________ to _____________
| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
| |
For the transition period from _________ to _________ |
|
(Exact name of registrant as specified in its Charter) |
Wyoming |
| 000-55012 |
| 22-3827597 | |
(State or other jurisdiction of incorporation or organization) | (Commission file number) |
| (
|
(I.R.S. Employer
Identification No.)
1090 King Georges Post Road, Suite 603
Edison, NJ08837
(Address of Principal Executive Offices)
(732) 661-9641
(Issuer’s telephone number)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class |
| Name of each exchange on which registered | ||
N/A | N/A |
|
Securities registered pursuant to Section 12(g)12(b) of the Exchange Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.0001 par value | ZRFY | OTCQB |
Common stock, $0.0001 par value
TitleIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of Classthe Act. ☐ Yes No ☒
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x ☒ No o☐
Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such a shorter period that the registrant was required to submit and post such files). Yes x ☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-212b–2 of the Exchange Act.
Large accelerated |
| Accelerated filer |
|
|
| Smaller reporting company |
|
| Emerging growth company |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a)7(a)(2)(B) of the ExchangeSecurities Act. ¨☐
Indicate by check mark whether the Registrantregistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Act.) Yes ¨☐ No x☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class |
| Outstanding at |
Common stock, $0.0001 par value |
|
|
Indicate the number of shares outstanding of each of the issuer’s classes of preferred stock, as of the latest practicable date.
Class |
| Outstanding at |
Preferred stock, Series A, no par value |
| 3 |
Class |
| Outstanding at |
Preferred stock, Series B, $0.10 par value |
|
|
Transitional Small Business Disclosure Format Yes ¨☐ No x☒
Documents Incorporated By Reference
None |
STRIKEFORCE TECHNOLOGIES,ZERIFY, INC.
INDEX TO FORM 10-Q FILING
SEPTEMBER 30, 2017MARCH 31, 2023
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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EX-31.1 | Management Certification |
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EX-32.1 | Sarbanes-Oxley Act |
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| 2 |
| Table of Contents |
PART I
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ZERIFY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
General
The accompanying unaudited condensed interim financial statements have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders’ deficit in conformity with generally accepted accounting principles. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the condensed financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2016. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results that can be expected for the year ending December 31, 2017.
CONDENSED BALANCE SHEETS September 30, 2017 December 31, 2016 (Unaudited) ASSETS Current Assets: Cash Accounts receivable Prepaid expenses Total current assets Property and equipment, net Other assets Total Assets LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities: Accounts payable Convertible notes payable, net Convertible notes payable - related parties Current maturities of notes payable, net Current maturities of notes payable - related parties Accrued interest (including $1,115,993 and $939,654 due to related parties, respectively) Contingent payment obligation Derivative liabilities Accrued expenses Accrued salaries and payroll taxes Due to factor Total Current Liabilities Stockholders' Deficit Series A Preferred stock, no par value; 100 shares authorized; 3 shares issued and outstanding Series B Preferred stock par value $0.10: 100,000,000 shares authorized; 103,335 and 50,001 shares issued and outstanding, respectively Preferred stock series not designated par value $0.10: 10,000,000 shares authorized; none issued or outstanding Common stock par value $0.0001: 5,000,000,000 shares authorized; 2,319,706,386 and 2,319,683,886 shares issued and outstanding, respectively Additional paid-in capital Accumulated deficit Total Stockholders' Deficit Total Liabilities and Stockholders' Deficit $ 902,792 $ 804,130 61,298 152,009 11,067 9,265 975,157 965,404 8,799 8,926 20,999 22,539 $ 1,004,955 $ 996,869 $ 874,906 $ 890,799 1,438,100 1,447,100 355,500 355,500 1,788,824 1,703,824 742,513 742,513 3,912,060 3,805,158 1,500,000 - 591,887 262,185 - 9,539 - 10,549 - 209,192 11,203,790 9,436,359 987,000 987,000 10,333 5,000 - - 231,972 231,970 25,497,797 24,655,363 (36,925,937 ) (34,318,823 ) (10,198,835 ) (8,439,490 ) $ 1,004,955 $ 996,869
See accompanying notes to the condensed financial statements.
CONDENSED STATEMENTS OF OPERATIONS For the Three Months Ended For the Nine Months Ended September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenue Cost of revenue Gross margin Operating expenses: Compensation Professional fees Selling, general and administrative expenses Research and development Total operating expenses Loss from operations Other income (expense): Interest expense Debt discount amortization Private placement costs Change in fair value of derivative liabilities Extinguishment of derivative liabilities Income tax expense Forgiveness of debt Litigation settlement Fees related to litigation settlement Other income (expense) Other income (expense), net Net income (loss) Deemed dividend on convertible preferred stock Net income (loss) attributable to common stockholders Earnings (loss) per common share - basic and diluted -Basic -Diluted Weighted average common shares outstanding -Basic -Diluted $ 76,342 $ 183,029 $ 218,946 $ 392,628 3,168 888 9,547 4,852 73,174 182,141 209,399 387,776 137,008 124,282 490,586 345,000 67,499 45,883 249,822 521,742 74,586 312,896 967,785 558,456 123,750 125,654 402,532 378,874 402,843 608,715 2,110,725 1,804,072 (329,669 ) (426,574 ) (1,901,326 ) (1,416,296 ) (561,854 ) (95,481 ) (744,177 ) (1,022,178 ) - - (4,000 ) (34,293 ) (88,455 ) - (222,949 ) - (90,895 ) 23,776 (289,580 ) 96,765 557,827 - 557,827 635,600 (452 ) - (71,318 ) - - 180,587 86,140 485,372 - - - 9,750,000 - - - (4,187,257 ) 28 181 47 (1,357 ) (183,801 ) 109,063 (688,010 ) 5,722,652 (513,470 ) (317,511 ) (2,589,336 ) 4,306,356 - - (17,778 ) - $ (513,470 ) $ (317,511 ) $ (2,607,114 ) $ 4,306,356 $ - $ - $ - $ - $ - $ - $ - $ - 2,319,701,359 2,284,590,677 2,319,693,932 1,699,727,344 2,319,701,359 2,284,590,677 2,319,693,932 1,700,489,249
See accompanying notes to the condensed financial statements.
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 (Unaudited) Series A Preferred stock, no par value Series B Preferred stock, par value $0.10 Common stock, par value $0.0001 Additional Paid-in Accumulated Total Stockholders' Shares Amount Shares Amount Shares Amount Capital Deficit Deficit Balance at December 31, 2016 Sale of shares of series B preferred stock Deemed dividend on convertible preferred stock Fair value of common stock issued for services Fair value of vested options Net loss Balance at September 30, 2017 3 $ 987,000 50,001 $ 5,000 2,319,683,886 $ 231,970 $ 24,655,363 $ (34,318,823 ) $ (8,439,490 ) - - 53,334 5,333 - - 74,667 - 80,000 - - - - - - 17,778 (17,778 ) - - - - - 22,500 2 451 - 453 - - - - - - 749,538 - 749,538 - - - - - - - (2,589,336 ) (2,589,336 ) 3 $ 987,000 103,335 $ 10,333 2,319,706,386 $ 231,972 $ 25,497,797 $ (36,925,937 ) $ (10,198,835 )
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||
|
| (Unaudited) |
|
|
| |||
ASSETS |
|
|
|
|
|
| ||
Current Assets: |
|
|
|
|
|
| ||
Cash (includes VIE balances of $0 and $1,000, respectively) |
| $ | 229,000 |
|
| $ | 192,000 |
|
Accounts receivable, net |
|
| 20,000 |
|
|
| 20,000 |
|
Total current assets |
|
| 249,000 |
|
|
| 212,000 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
| 34,000 |
|
|
| 36,000 |
|
Operating lease right-of-use asset |
|
| 41,000 |
|
|
| 54,000 |
|
Other assets |
|
| 10,000 |
|
|
| 11,000 |
|
Total Assets |
| $ | 334,000 |
|
| $ | 313,000 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
|
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Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses (includes VIE balances of $4,000 and $2,000, respectively) |
| $ | 1,336,000 |
|
| $ | 1,160,000 |
|
Convertible notes payable, net of discount of $204,000 and $96,000, respectively (including $895,000 and $895,000 in default) |
|
| 1,318,000 |
|
|
| 1,282,000 |
|
Convertible notes payable – related parties |
|
| 268,000 |
|
|
| 268,000 |
|
Notes payable, net of discount of $136,000 and $323,000, respectively (including $1,930,000 and $1,930,000 in default, respectively) (includes VIE balances of $285,000 and $285,000, respectively) |
|
| 2,966,000 |
|
|
| 2,826,000 |
|
Notes payable – related parties |
|
| 693,000 |
|
|
| 693,000 |
|
Accrued interest (including $1,648,000 and $1,557,000 due to related parties, respectively) (includes VIE balances of $155,000 and $134,000, respectively) |
|
| 5,958,000 |
|
|
| 5,865,000 |
|
Contingent payment obligation |
|
| 1,500,000 |
|
|
| 1,500,000 |
|
VIE Financing obligation |
|
| 1,263,000 |
|
|
| 1,263,000 |
|
Operating lease liability, current portion |
|
| 44,000 |
|
|
| 56,000 |
|
Derivative liability |
|
| 265,000 |
|
|
| 112,000 |
|
Total current liabilities |
|
| 15,611,000 |
|
|
| 15,025,000 |
|
|
|
|
|
|
|
|
|
|
Notes payable, long-term portion |
|
| 142,000 |
|
|
| 142,000 |
|
Operating lease liability, long-term portion |
|
| - |
|
|
| 1,000 |
|
Total Liabilities |
|
| 15,753,000 |
|
|
| 15,168,000 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficit |
|
|
|
|
|
|
|
|
Series A Preferred stock, no par value; 100 shares authorized; 3 shares issued and outstanding |
|
| 987,000 |
|
|
| 987,000 |
|
Series B Preferred stock par value $0.10: 100,000,000 shares authorized; 36,667 shares issued and outstanding |
|
| 4,000 |
|
|
| 4,000 |
|
Preferred stock series not designated par value $0.10: 10,000,000 shares authorized; none issued or outstanding |
|
| - |
|
|
| - |
|
Common stock par value $0.0001: 4,000,000,000 shares authorized; 1,109,417,572 and 955,380,225 shares issued and outstanding, respectively |
|
| 128,000 |
|
|
| 110,000 |
|
Additional paid-in capital |
|
| 68,211,000 |
|
|
| 67,124,000 |
|
Accumulated deficit |
|
| (83,837,000 | ) |
|
| (82,190,000 | ) |
Total Zerify, Inc. stockholders’ deficit |
|
| (14,507,000 | ) |
|
| (13,965,000 | ) |
Noncontrolling interest in consolidated subsidiary |
|
| (912,000 | ) |
|
| (890,000 | ) |
Total Stockholders’ Deficit |
|
| (15,419,000 | ) |
|
| (14,855,000 | ) |
Total Liabilities and Stockholders’ Deficit |
| $ | 334,000 |
|
| $ | 313,000 |
|
See accompanying notes to the condensed consolidated financial statements.
| Table of Contents |
ZERIFY, INC.
CONDENSED STATEMENTS OF CASH FLOWS For the Nine Months Ended For the Nine Months Ended 2017 2016 (Unaudited) (Unaudited) Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization Amortization of discount on notes payable Discount on notes payable recorded as interest expense Fair value of common stock issued for interest on conversion notes Fair value of common stock issued for services Fair value of vested options Forgiveness of debt Change in fair value of derivative liabilities Private placement costs Extinguishment of derivative liabilities Changes in operating assets and liabilities: Accounts receivable Prepaid expenses Accounts payable Accrued expenses Accrued interest Accrued salaries and payroll taxes Net cash provided by (used in) operating activities Cash flows from investing activities: Purchases of property and equipment Cash flows from financing activities: Proceeds from contingent payment obligation Proceeds from convertible note payable Proceeds from sale of Series B preferred stock Proceeds from notes payable Repayment of convertible notes payable Repayment of notes payable Net cash provided by (used in) financing activities Net increase (decrease) in cash Cash at beginning of the period Cash at end of the period Supplemental disclosure of cash flow information: Interest paid Income tax paid Non-cash investing and financing activities: Deemed dividend on convertible preferred stock Note payable in exchange for due to factor and accrued interest Common stock issued for conversion of debt and accrued interest Forgiveness of accrued officers salaries recorded as capital contribution Common stock issued for conversion of Series B preferred stock Common stock issued for exercise of warrants September 30, September 30, $ (2,589,336 ) $ 4,306,356 4,981 3,823 4,000 34,293 371,000 - - 386,351 453 186,037 749,538 269,250 (86,140 ) (485,372 ) 289,580 (96,765 ) 222,949 - (557,827 ) (635,600 ) 90,711 (251,321 ) (1,802 ) (7,049 ) (15,893 ) (416,600 ) (9,539 ) (7,616 ) 193,850 78,668 (10,549 ) (585,497 ) (1,344,024 ) 2,778,958 (3,314 ) (1,499 ) 1,500,000 - 375,000 - 80,000 - - 75,000 (384,000 ) (686,738 ) (125,000 ) (978,985 ) 1,446,000 (1,590,723 ) 98,662 1,186,736 804,130 37,153 $ 902,792 $ 1,223,889 $ 86,310 $ 233,973 71,318 - $ 17,778 $ - 210,000 - - 3 - 762,275 - 12,534 - 12
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(UNAUDITED)
|
| For the Three Months Ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
| (Unaudited) |
|
| (Unaudited) |
| ||
|
|
|
|
|
|
| ||
Revenue |
| $ | 22,000 |
|
| $ | 32,000 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Cost of revenue |
|
| 17,000 |
|
|
| 10,000 |
|
Selling, general and administrative expenses |
|
| 1,166,000 |
|
|
| 2,636,000 |
|
Research and development |
|
| 157,000 |
|
|
| 154,000 |
|
Total operating expenses |
|
| 1,340,000 |
|
|
| 2,800,000 |
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (1,318,000 | ) |
|
| (2,768,000 | ) |
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Interest and financing expenses (including $30,000 and $30,000 to related parties) |
|
| (140,000 | ) |
|
| (99,000 | ) |
Debt discount amortization |
|
| (233,000 | ) |
|
| - |
|
Change in fair value of derivative liabilities |
|
| 22,000 |
|
|
| - |
|
Other income (expense), net |
|
| (351,000 | ) |
|
| (99,000 | ) |
|
|
|
|
|
|
|
|
|
Net loss |
|
| (1,669,000 | ) |
|
| (2,867,000 | ) |
Net loss attributable to noncontrolling interest |
|
| 22,000 |
|
|
| 7,000 |
|
Net loss attributable to Zerify, Inc. |
| $ | (1,647,000 | ) |
| $ | (2,860,000 | ) |
|
|
|
|
|
|
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|
|
Net loss per common share |
|
|
|
|
|
|
|
|
-Basic and diluted |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
-Basic and diluted |
|
| 1,176,808,681 |
|
|
| 955,465,906 |
|
See accompanying notes to the condensed consolidated financial statements.
| Table of Contents |
ZERIFY, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT |
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022 (UNAUDITED) |
Three months ended March 31, 2023 | ||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
|
| Series A Preferred stock, no par value |
|
| Series B Preferred stock, par value $0.10 |
|
| Common stock, par value $0.0001 |
|
| Additional Paid-in |
|
| Accumulated |
|
| Non controlling |
|
| Total Stockholders' |
| |||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Interest |
|
| Deficit |
| ||||||||||
Balance at December 31, 2022 |
|
| 3 |
|
| $ | 987,000 |
|
|
| 36,667 |
|
| $ | 4,000 |
|
|
| 1,109,417,572 |
|
| $ | 110,000 |
|
| $ | 67,124,000 |
|
| $ | (82,190,000 | ) |
| $ | (890,000 | ) |
| $ | (14,855,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
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|
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Vested stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 292,000 |
|
|
|
|
|
|
|
|
|
|
| 292,000 |
|
|
|
|
|
|
|
|
|
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Sale of common shares and warrants |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 176,599,998 |
|
|
| 18,000 |
|
|
| 777,000 |
|
|
| - |
|
|
| - |
|
|
| 795,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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|
|
|
|
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Proceeds on the sale of warrants |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 18,000 |
|
|
| - |
|
|
| - |
|
|
| 18,000 |
|
|
|
|
|
|
|
|
|
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|
|
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|
|
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|
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Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,647,000 | ) |
|
| (22,000 | ) |
|
| (1,669,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2023 (unaudited) |
|
| 3 |
|
| $ | 987,000 |
|
|
| 36,667 |
|
| $ | 4,000 |
|
|
| 1,286,017,570 |
|
| $ | 128,000 |
|
| $ | 68,211,000 |
|
| $ | (83,837,000 | ) |
| $ | (912,000 | ) |
| $ | (15,419,000 | ) |
Three months ended March 31, 2022 | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
|
| Series A Preferred stock, no per value |
|
| Series B Preferred stock, par value $0.10 |
|
| Common stock, par value $0.0001 |
|
| Additional Paid-in |
|
| Accumulated |
|
| Non controlling |
|
| Total Stockholders’ |
| |||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Interest |
|
| Deficit |
| ||||||||||
Balance at December 31, 2021 |
|
| 3 |
|
| $ | 987,000 |
|
|
| 36,667 |
|
| $ | 4,000 |
|
|
| 955,380,225 |
|
| $ | 96,000 |
|
| $ | 59,788,000 |
|
| $ | (71,595,000 | ) |
| $ | (869,000 | ) |
| $ | (11,589,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock issued for services |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 134,853 |
|
|
| - |
|
|
| 6,000 |
|
|
|
|
|
|
|
|
|
|
| 6,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of vested options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,636,000 |
|
|
|
|
|
|
|
|
|
|
| 1,636,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,860,000 | ) |
|
| (7,000 | ) |
|
| (2,867,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2022 (unaudited) |
|
| 3 |
|
| $ | 987,000 |
|
|
| 36,667 |
|
| $ | 4,000 |
|
|
| 955,515,078 |
|
| $ | 96,000 |
|
| $ | 61,430,000 |
|
|
| (74,455,000 | ) |
| $ | (876,000 | ) |
| $ | (12,814,000 | ) |
See accompanying notes to the condensed consolidated financial statements.
| 5 |
| Table of Contents |
ZERIFY, INC.
CONSENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(UNAUDITED)
|
| Three Months Ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
| (Unaudited) |
|
| (Unaudited) |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (1,669,000 | ) |
| $ | (2,867,000 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
| 2,000 |
|
|
| - |
|
Amortization of discount |
|
| 233,000 |
|
|
| - |
|
Financing costs |
|
| 21,000 |
|
|
| - |
|
Right-of-use asset |
|
| 13,000 |
|
|
| 13,000 |
|
Fair value of common stock issued for services |
|
| - |
|
|
| 6,000 |
|
Fair value of vested options and warrants |
|
| 292,000 |
|
|
| 1,636,000 |
|
Change in fair value of derivative liabilities |
|
| (22,000 | ) |
|
| - |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| - |
|
|
| 10,000 |
|
Prepaid expenses and other assets |
|
| 1,000 |
|
|
| 11,000 |
|
Accounts payable and accrued expenses |
|
| 176,000 |
|
|
| 46,000 |
|
Accrued interest |
|
| 93,000 |
|
|
| 99,000 |
|
Operating lease liability |
|
| (13,000 | ) |
|
| (14,000 | ) |
Net cash used in operating activities |
|
| (873,000 | ) |
|
| (1,060,000 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| - |
|
|
| (24,000 | ) |
Net cash used in investing activities |
|
| - |
|
|
| (24,000 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from sale of common stock |
|
| 795,000 |
|
|
| - |
|
Proceeds from sale warrants |
|
| 18,000 |
|
|
| - |
|
Proceeds from notes payable |
|
| 154,000 |
|
|
| - |
|
Repayment of convertible note payable |
|
| (10,000 | ) |
|
| (20,000 | ) |
Repayment of notes payable |
|
| (47,000 | ) |
|
| (6,000 | ) |
Net cash provided by (used in) financing activities |
|
| 910,000 |
|
|
| (26,000 | ) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
| 37,000 |
|
|
| (1,110,000 | ) |
|
|
|
|
|
|
|
|
|
Cash at beginning of the year |
|
| 192,000 |
|
|
| 2,084,000 |
|
|
|
|
|
|
|
|
|
|
Cash at end of the year |
| $ | 229,000 |
|
| $ | 974,000 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
| $ | - |
|
| $ | - |
|
Income tax paid |
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing transactions |
|
|
|
|
|
|
|
|
Fair value of derivative upon issuance of convertible debt recorded as debt discount |
| $ | 176,000 |
|
| $ | - |
|
See accompanying notes to the condensed consolidated financial statements.
| 6 |
| Table of Contents |
ZERIFY, INC.
NOTES TO THE CONDENSED CONSOLIDATD FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2023 AND 2022
StrikeForce Technologies, Inc.
Three Months and Nine Months Ended September 30, 2017 and 2016
Notes to the Condensed Financial Statements
(Unaudited)
Note 1 - Organization and Summary of Significant Accounting Policies
Zerify, Inc. (formerly known as StrikeForce Technologies, Inc.) (the “Company”) is, a software development and services company, that offers a suite of integrated computer network security products using proprietary technology. The Company’s ongoing strategy is developing and marketing its suite of network security products to the corporate, financial, healthcare, legal, government, technology, insurance, e-commerce and consumer sectors. The Company’s operations are based in Edison, New Jersey.
Going ConcernOn April 26, 2022, the Company applied for the Zerify trademark, ZERIFY™, which is intended to cover the categories of:
· | downloadable or recorded computer software for encryption; | |
· | downloadable or recorded computer software for cyber security assessment and protection; | |
· | anti-spyware software; downloadable or recorded computer application software for mobile devices, namely, software for protecting people from identity theft; | |
· | downloadable or recorded computer software for guarding users of computers and remote access devices from identity theft, featuring various software tools, namely, anti-keyboard logger and keyboard stroke encryption. |
On June 14, 2022, the Company’s Board of Directors and by consent majority shareholder vote approved changing the Company’s name from StrikeForce Technologies, Inc. to Zerify, Inc. The name change was made to better reflect the Company’s business plans centered around its cyber security software products.
The accompanying condensed financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying condensed financial statements, for the nine months ended September 30, 2017, the Company incurred a net loss of $2,607,114 and used cash in operating activities of $1,344,024, and at September 30, 2017, the Company had a stockholders’ deficit of $10,198,835. These factors raise substantial doubt aboutOn August 1, 2022, FINRA approved the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued. In addition, the Company’s independent registered public accounting firm, in its reportCommon Stock being quoted on the Company’s December 31, 2016 financial statements, has expressed substantial doubt aboutOTCQB Market under the Company’s ability to continue as a going concern. The condensed financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.symbol “ZRFY” (formerly “SFOR”).
At September 30, 2017, the Company had cash on hand in the amount of $902,792. Management estimates that the current funds on hand will be sufficient to continue operations through the next twelve months. The Company’s ability to continue as a going concern is dependent upon its ability to continue to implement its business plan. Currently, management is attempting to increase revenues by redirecting its sales focus from direct sales to domestic and international sales channels, primarily selling through a channel of distributors, value added resellers, strategic partners and original equipment manufacturers. While the Company believes in the viability of its strategy to increase revenues, there can be no assurances to that effect. The Company’s ability to continue as a going concern is dependent upon its ability to continually increase its customer base and realize increased revenues from recently signed contracts. No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, if needed, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its stock holders, in the case of equity financing.
Basis of Presentation-Unaudited Interim Financial Informationpresentation and principles of consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods have been included. The results of operations for the ninethree months ended September 30, 2017March 31, 2023 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2017.2023. These financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 20162022 and notes thereto contained in the Annual Report on Form 10-K of the Company as filed with the United States Securities and Exchange Commission (“SEC”)SEC on April 14, 2017.2023.
The condensed consolidated financial statements include the accounts of the Company and its subsidiary, BlockSafe Technologies, Inc. (“BST”). BST is owned 49% by the Company and 31% by three executive officers of the Company. BST meets the definition of a variable interest entity (“VIE”) and based on the determination that the Company is the primary beneficiary of BST. BST’s operating results, assets and liabilities are consolidated by the Company. Intercompany balances and transactions have been eliminated in consolidation.
The Company and BST have a management agreement pursuant to which BST shall remit a monthly management fee of $36,000 to the Company; when BST reaches $1,000,000 in financing, BST will owe the Company an additional monthly management fee of approximately $140,000 for a three-year period. The management fee is eliminated in consolidation. At March 31, 2023 and December 31, 2022, the amount of VIE cash on the accompanying condensed consolidated balance sheets can be used only to settle obligations of BST. The amounts of VIE accounts payable, VIE Notes Payable, VIE Accrued Interest, and VIE Financing Obligation have no recourse to the Company’s general creditors.
| 7 |
| Table of Contents |
Going Concern
The Company has yet to establish any history of profitable operations. During the three months ended March 31, 2023, the Company incurred a net loss of $1,669,000 and used cash in operating activities of $873,000 and at March 31, 2023, the Company had a stockholders’ deficit of $15,419,000. In addition, the Company is in default on notes payable and convertible notes payable in the aggregate amount of $2,825,000. These factors raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. In addition, the Company’s independent registered public accounting firm, in its report published on our December 31, 2022 year-end financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments that might result from the outcome of this uncertainty should we be unable to continue as a going concern.
Management estimates that the current funds on hand will be sufficient to continue operations through the next few months. Our ability to continue as a going concern is dependent upon our ability to continue to implement our business plan. Currently, management is attempting to increase revenues by selling through a channel of new distributors, value added resellers, strategic partners and original equipment manufacturers. While we believe in the viability of its strategy to increase revenues, there can be no assurances to that effect. The Company’s ability to continue as a going concern is dependent upon its ability to increase its customer base and realize increased revenues. No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, if needed, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution to its stockholders, in the case of equity financing.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, and other factors that management believes to be reasonable. In addition, the Company has considered the potential impact of the pandemic, as well as certain macroeconomic factors, including inflation, rising interest rates, and recessionary concerns, on its business and operations.
Significant estimates include those related to accounting for potential liabilities,financing obligations, assumptions used in valuing stockequity instruments issued for services, assumptions used in valuing derivative liabilities, and the valuation allowance for deferred income taxes.tax assets, and the accrual of potential liabilities. Actual results could differ from those estimates.
| 8 |
| Table of Contents |
Stock CompensationRevenue Recognition
The Company periodically issues stock optionsfollows the guidance of Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs.(5) recognizing revenue as each performance obligation is satisfied. The Company accountsonly applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for stock optionthe services it transfers to its clients.
The Company’s revenue consists of revenue from sales and warrant grants issuedsupport of our software products. Revenue primarily consists of sales of software licenses of our ProtectID®, GuardedID®, MobileTrust®, Zerify Meet™ and vesting to employeesZerify Defender™ products. The Company recognizes subscription revenue over a one-month period based on the authoritative guidance provided by the Financial Accounting Standards Board (FASB) whereas the value of the award is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employeesa typical monthly renewal cycle in accordance with its customer agreement terms. For service contracts, the authoritative guidance of the FASB whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which aCompany’s performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Options granted to non-employeesobligations are revalued each reporting period to determine the amount to be recorded as an expense in the respective period. As the options vest, they are valued on each vesting date and an adjustment is recorded for the difference between the value already recordedsatisfied, and the then current value on the date of vesting. In certain circumstances where thererelated revenue is recognized, as services are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.
The fair value of the Company’s stock option and warrant grants are estimated using the Black-Scholes-Merton option pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model, and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods.
Derivative Financial Instrumentsrendered.
The Company evaluates its financial instrumentsoffers no discounts, rebates, rights of return, or other allowances to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changesclients which would result in the fair value reported in the statementsestablishment of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. At each reportingreserves against service revenue. To date, the Company reviews its convertible securities to determine that their classification is appropriate.has not incurred incremental costs in obtaining customer contracts.
Cost of revenue includes direct costs and fees related to the sale of the Company’s products.
The following tables present our revenue disaggregated by major product and service lines:
|
| Three Months Ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Software |
| $ | 19,000 |
|
| $ | 32,000 |
|
Service |
|
| 3,000 |
|
|
| - |
|
Total revenue |
| $ | 22,000 |
|
| $ | 32,000 |
|
Fair Value of Financial Instruments
The Company follows the authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) for fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels as follows:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.
Level 3—Unobservable inputs based on the Company'sCompany’s assumptions.
The Company is required to use of observable market data if such data is available without undue cost and effort.
As of September 30,2017 and December 31, 2016,The Company believes the Company’scarrying amounts reported in the balance sheets included the fair value of derivative liabilities of $591,887 and $262,185, respectively, which were based on Level 2 measurements.
The recorded amountssheet for accounts receivable, accounts payable, accrued expenses, convertible notes, and notes payables approximate theirfair values because of the short-term nature of these financial instruments.
As of March 31, 2023 and December 31, 2022, the Company’s balance sheet includes Level 3 liabilities comprised of the fair value due to their short-term nature.of embedded derivative liabilities of $265,000 and $112,000, respectively (see Note 8).
| 9 |
| Table of Contents |
Derivative Financial Instruments
Income (loss)The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The Company evaluates embedded conversion features within its convertible debt to determine whether the embedded conversion features should be bifurcated from the host instrument and accounted for as a derivative. The fair value of the embedded derivatives are determined using the trinomial/binomial valuation method at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.
Stock-Based Compensation
The Company periodically issues stock options, warrants, and shares of common stock as share-based compensation to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for such grants issued and vesting based on FASB ASC 718, Compensation – Stock Compensation (Topic 718) whereby the value of the award is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. The Company recognizes the fair value of stock-based compensation within its Statements of Operations with classification depending on the nature of the services rendered.
The fair value of the Company’s stock options and warrants are estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or restricted stock, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods.
Loss per Share
Basic income (loss)loss per share is computed by dividing net income (loss)loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income (loss)loss per share reflectsis computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding, plus the number of additional common shares that would have been outstanding if all dilutive potential dilution,common shares had been issued using the treasury stock method that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the income (loss) of the Company. In computing diluted income (loss)method. Diluted loss per share excludes all potential common shares if their effect is anti-dilutive. The following potentially dilutive shares were excluded from the treasury stock method assumes that outstanding options, warrants, and convertible preferred stock are exercised and the proceeds areshares used to purchase common stock at the average market price during the period. Options, warrants, and convertible preferred stock may have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options and warrants.calculate diluted earnings per share as their inclusion would be anti-dilutive:
|
| Three Months Ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Options to purchase common stock |
|
| 150,633,000 |
|
|
| 83,133,001 |
|
Warrants to purchase common stock |
|
| 476,049,076 |
|
|
| 68,981,234 |
|
Convertible notes |
|
| 101,745,573 |
|
|
| 21 |
|
Convertible Series B Preferred stock |
|
| 1,255,638 |
|
|
| 1,284,394 |
|
Total |
|
| 729,683,287 |
|
|
| 153,398,650 |
|
Concentrations
For the ninethree months ended September 30, 2017, the dilutive impactMarch 31, 2023, sales to two customers comprised 40% and 35% of stock options exercisable into 196,000,001 shares of common stock, convertible Series B Preferred stock that can convert into 19,292,137 shares of common stock, and notes payable that can convert into 25 shares of common stock have been excluded because their impact on the loss per share is anti-dilutive.
revenues. For the ninethree months ended September 30, 2016, the calculations of diluted earnings per share included stock options exercisable into 197,000,001 shares of common stock, convertible Series B Preferred stock that can convert into 14,097,838 shares of common stock and notes payable that can convert into 25 shares of common stock.
The following tables set forth the computation of basic and diluted earnings (loss) per share:
Nine months ended September 30, 2017 2016 Income (Loss) per share – Basic: Income (Loss) for the period Basic average common stock outstanding Net earnings (loss) per share $ (2,607,114 ) $ 4,306,356 2,319,693,932 1,699,727,344 $ - $ -
Nine months ended September 30, 2017 2016 Income (Loss) per share – Diluted: Income (Loss) for the period Basic average common stock outstanding Diluted effect of outstanding stock options, warrants, notes and Series B Preferred stock Diluted average common stock outstanding Net earnings (loss) per share $ (2,607,114 ) $ 4,306,356 2,319,693,932 1,699,727,344 - 761,905 2,319,693,932 1,700,489,249 $ - $ -
Significant Concentrations
For the nine months ended September 30, 2017,March 31, 2022, sales to three customers comprised 51%, 10% and 10% of revenues, respectively. For the nine months ended September 30, 2016, sales to three customers comprised 45%, 29% and 12% of revenues, respectively. At September 30, 2017, four customers comprised 32%40%, 24%35%, 20%17% and 15%4% of accounts receivable, respectively.revenues. At DecemberMarch 31, 2016, one customer2023, only two customers comprised 82%more than 10% of accounts receivable.
Recent Accounting PronouncementsThe Company maintains the majority of its cash balances with one financial institution, in the form of demand deposits. At March 31, 2023, the Company had cash deposits that exceeded the federally insured limit of $250,000 per account. The Company believes that no significant concentration of credit risk exists with respect to its cash balances because of its assessment of the creditworthiness and financial viability of the financial institution.
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. Under ASU 2014-09, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has recently issued ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, ASU 2016-20, and ASU 2017-05, all of which clarify certain implementation guidance within ASU 2014-09. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. The standard can be adopted either retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company is currently in the process of analyzing the information necessary to determine the impact of adopting this new guidance on its financial position, results of operations, and cash flows. The Company will adopt the provisions of this statement in the first quarter of fiscal 2018.
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Segments
The Company operates in one segment for the development and distribution of our software products. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base, single sales team, marketing department, customer service department, operations department, finance and accounting department to support its operations and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing and distribution processes. Since the Company operates in one segment, all financial information required by “Segment Reporting” can be found in the accompanying financial statements.
Recent Accounting Pronouncements
In FebruaryJune 2016, the FASB issued ASU No. 2016-02, Leases. This update2016-13, Credit Losses – Measurement of Credit Losses on Financial Instruments (“ASC 326”). The standard significantly changes how entities will requiremeasure credit losses for most financial assets, including accounts and notes receivable. The standard will replace today’s “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the recognition of a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease payments, for all leases with terms longer than 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the statement of comprehensive income and the repayment of the principal portion of the lease liability will be classifiedstandard’s provisions as a financing activity while the interest component will be included in the operating sectioncumulative-effect adjustment to retained earnings as of the statement of cash flows. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. Upon adoption, leases will be recognized and measured at the beginning of the earliestfirst reporting period presentedin which the guidance is effective. As a small business filer, ASU 2020-06 will be effective January 1, 2024, for the Company and the provisions of this update can be adopted using aeither the modified retrospective approach. The Companymethod or a fully retrospective method. Management is currently evaluatingassessing the impact of adopting this standard on the adoption of ASU 2016-02 on itsCompany’s financial statements and related disclosures.
In July 2017,May 2021, the FASB issued ASU 2017-11, 2021-04, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity, Debt–- Modifications and Extinguishments (Subtopic 470-50), Compensation–- Stock Compensation (Topic 480);718), and Derivatives and Hedging (Topic 815)– Contracts in Entity’s Own Equity (Subtopic 815-40): (Part I)Issuer’s Accounting for Certain Financial Instruments with Down Round Features, (Part II) ReplacementModifications or Exchanges of Freestanding Equity – Classified Written Call Options (a consensus of the Indefinite DeferralFASB Emerging Issues Task Force).” The ASU addresses how an issuer should account for Mandatorily Redeemable Financial Instrumentsmodifications or an exchange of Certain Nonpublic Entitiesfreestanding written call options classified as equity that is not within the scope of another Topic. For both public and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception.private companies, the ASU 2017-11 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value of a down round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. The guidance in ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption2021. Transition is permitted, and the guidance is to be applied using a full or modified retrospective approach.prospective. The Company has elected adoption of ASU 2017-11 is not expected to have a material impact on the Company’s financial statements because the embedded conversion feature of the Company’s convertible notes have features other than down round provisions that require the current accounting and classification as derivative liabilities.2021-04.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company'sCompany’s present or future consolidated financial statements.
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Note 2 -– Convertible Notes Payable
Convertible notes payable consisted of the following:
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||
Unsecured |
|
|
|
|
|
| ||
(a) Convertible notes due to AL-Bank |
| $ | 373,000 |
|
| $ | 383,000 |
|
(b) Convertible note with Diagonal Lending |
|
| 254,000 |
|
|
| 100,000 |
|
|
|
|
|
|
|
|
|
|
Unsecured |
|
|
|
|
|
|
|
|
(c) Convertible notes with fixed conversion features, in default |
|
| 895,000 |
|
|
| 895,000 |
|
Convertible notes payable |
|
| 1,522,000 |
|
|
| 1,378,000 |
|
Less debt discount |
|
| (204,000 | ) |
|
| (96,000 | ) |
Total Convertible notes payable |
| $ | 1,318,000 |
|
| $ | 1,282,000 |
|
September 30, 2017 December 31, 2016 Secured (a) DART Unsecured (b) Convertible notes with fixed conversion features (c) Convertible notes with adjustable conversion features Total convertible notes $ 542,588 $ 542,588 895,512 910,512 - - $ 1,438,100 $ 1,447,100
(a) During fiscal 2005, the Company issued notes payable to DART/Citco Global in the aggregate of $543,000. The notes bear interest at an average rate of 7.5% per annum and matured in December 2010. The aggregate notes are convertible by the note holder into less than one share of the Company’s common stock based on a fixed conversion price adjusted for applicable reverse stock splits that occurred in prior fiscal years. In fiscal 2009, the note holders agreed to the forbearance of any interest on the notes payable to DART/Citco Global. In August 2021, the notes were assigned to Aktieselskabet Arbejdernes Landsbank (“AL-Bank”), a Denmark based financing institution. In September 2021, the Company executed a repayment agreement with AL-Bank requiring the Company to make monthly payments of $10,000 to AL-Bank, starting in October 2021 and ending in March 2025, for a total of $400,000. Once the payments are made in full pursuant to the repayment agreement, the remaining balance of $143,000 will be forgiven and will be accounted for at that time. At December 31, 2022, the outstanding balance of the unsecured convertible notes payable amounted to $383,000. During the three months ended March 31, 2023, the Company made principal payments of $10,000. At March 31, 2023, the outstanding balance of the unsecured convertible notes payable amounted to $373,000. The convertible notes payable, including accrued interest are convertible to approximately two shares of the Company’s common stock.
As the ultimate determination of shares of common stock to be issued upon conversion of these debentures can exceed the current number of available authorized shares, the Company determined that the conversion features of these debentures are not considered indexed to the Company’s own stock and characterized the fair value of the conversion features as a derivative liability (see Note 8). During the three months ended March 31, 2023, of the incurred derivative liability of $175,000 related to the conversion feature of the debentures, $154,000 was accounted as debt discount and the remaining $21,000 as financing costs. The debt discount is being amortized to interest expense over the term of the corresponding debentures. As of December 31, 2022, the unamortized debt discount was $96,000. During the three months ended March 31,2023, $154,000 was added related to the convertible notes issued during the period, and $46,000 was recorded to interest expense. As of March 31, 2023, the unamortized debt discount was $204,000.
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(c) During fiscals 2005 through 2007, the Company issued notes payable in the aggregate of $895,000. The notes are unsecured, bear interest at a rate starting at 8% up to 18% per annum, were due on various dates from March 2008 to March 2015, and are currently in default. The aggregate notes are convertible by the note holders into less than one share of the Company’s common stock based on fixed conversion prices adjusted for applicable reverse stock splits that occurred in prior fiscal years. At March 31, 2023 and December 31, 2022, the outstanding balance of unsecured convertible notes payable amounted to $895,000 and $895,000, respectively, and are deemed in default. The convertible notes payable, including accrued interest are convertible to approximately thirteen shares of the Company’s common stock.
Note 3 -– Convertible Notes Payable – Related Parties
At September 30, 2017 and December 31, 2016,In prior years, the Company issued unsecured convertible notes payable - related parties consist of 12 convertible notes payable in the aggregate of $355,500. The notes are unsecured and due December 31, 2017. Six notes totaling $268,000 are due to the Company’sits Chief Executive Officer at(CEO) in exchange for cash and/or services rendered. The notes have a compounded interest rate of 8% per annum; twoannum and will mature on December 31, 2023, as amended. The aggregate notes totaling $57,000 are due toconvertible by the Company’s VP of Technology, interest at prime plus 2% and prime plus 4% per annum; and four notes totaling $30,000 are due to the spousenote holder into less than one share of the Company’s Chief Technology Officercommon stock at a compounded interest ratefixed conversion prices adjusted for applicable reverse stock splits. As of 8% per annum. $33,000March 31, 2023 and December 31, 2022, the outstanding balance of the notes are convertible at a fixed conversion price of $7,312,500 per share and $322,500 of the notes are convertible at a fixed conversion price of $9,750,000,000 per share, as defined in the note agreements.payable amounted to $268,000.
At December 31, 2016, accrued interest due for the convertible notes – related parties was $437,305. During the nine months ended September 30, 2017, interest expense of $44,959 was accrued. At September 30, 2017, accrued interest due for the convertible notes – related parties was $482,264. During the nine months ended September 30, 2016, interest expense of $41,289 was recorded.
Note 4 -– Notes Payable
Notes payable consisted of the following:
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||
Unsecured |
|
|
|
|
|
| ||
(a) Notes payable - in default |
| $ | 1,639,000 |
|
| $ | 1,639,000 |
|
(b) Notes payable issued by BST - in default |
|
| 286,000 |
|
|
| 286,000 |
|
(c) Note payable - EID loan |
|
| 148,000 |
|
|
| 149,000 |
|
|
|
|
|
|
|
|
|
|
Secured |
|
|
|
|
|
|
|
|
(d) Notes payable – October 2022 |
|
| 1,000,000 |
|
|
| 1,000,000 |
|
(e) Notes payable - in default |
|
| 6,000 |
|
|
| 6,000 |
|
(f) Notes payable – July 2022 |
|
| 165,000 |
|
|
| 211,000 |
|
Total notes payable principal outstanding |
|
| 3,244,000 |
|
|
| 3,291,000 |
|
Less debt discount |
|
| (136,000 | ) |
|
| (323,000 | ) |
Total notes payable |
|
| 3,108,000 |
|
|
| 2,968,000 |
|
Less current portion of notes payable, net of discount |
|
| (2,966,000 | ) |
|
| (2,826,000 | ) |
Long term notes payable |
| $ | 142,000 |
|
| $ | 142,000 |
|
September 30, 2017 December 31, 2016 Unsecured (a) Promissory notes (b) Promissory notes – StrikeForce Investor Group (c) Promissory note Notes payable, current maturities $ 413,824 $ 413,824 1,245,000 1,290,000 130,000 - $ 1,788,824 $ 1,703,824
(c) On May 15, 2020, the Company received a $150,000 loan (the “EID Loan”) from the Small Business Administration (SBA) under the SBA’s Economic Injury Disaster Loan program. The EID Loan has a thirty-year term and bears interest at a rate of 3.75% per annum. Monthly principal and interest payments of $250 per month were deferred for twenty-four months and commenced in June 2022. The EID Loan may be prepaid at any time prior to maturity with no prepayment penalties. The proceeds from the EID Loan must be used for working capital. The EID Loan contains customary events of default and other provisions customary for a loan of this type. As of December 31, 2022, the outstanding balance of the EID loan amounted to $149,000. During the three months ended March 31, 2023, the Company made principal payments of $1,000. At March 31, 2023, the outstanding balance of the EID loan amounted to $148,000. The Company was in compliance with the terms of the EID loan as of March 31, 2023.
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(d) On October 26, 2022, the Company entered into a Securities Purchase Agreement with Walleye Opportunities Master Fund Ltd., a Cayman Islands company (“Walleye”), whereby Walleye purchased a promissory note of the Company, in the aggregate principal amount of One Million Dollars ($1,000,000) (the “Note”), which is convertible by Walleye into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) upon an Event of Default .
On the Closing Date (specifically October 26, 2022), the Company received $800,000 which represented the principal of $1,000,000 less an original issue discount in the amount of $200,000 paid to Walleye. Walleye received a seven (7) month note, with no interest and, only in the event of a default (after the Maturity Date) of twelve percent (12%) per annum. The Company shall have the right, exercisable on seven (7) Trading Days prior written notice to Walleye, to prepay the outstanding Principal Amount then due under this Note prior to any default. Walleye may demand immediate repayment in the event of certain events, including a financing event. In the event of default, Walleye shall have, as of and after any event of default, the option to cover the outstanding obligation of the Note at 90% of the lowest VWAP of the Common Stock on the date of the applicable conversion (the “Conversion Date”) or at any point during the four (4) Trading Day period immediately prior to the date of the applicable conversion.
In addition, on the Closing Date, Walleye received a five year Fifty Million (50,000,000) common stock purchase warrants, exercisable at $0.0045 per share which shall be earned in full as of the Closing Date of October 26, 2022. The common stock purchase warrant has a cashless exercise provision (unless there is a registration statement registering the underlying shares to the common stock purchase warrants). As a result of these issuances and grants, the Company incurred the following (a) relative fair value of the warrants granted of $260,000; and (b) original issue discounts of $200,000 of the debentures for a total of $460,000 which was allocated as debt discount. The debt discount is being amortized to interest expense over the term of the corresponding debentures. As of December 31, 2022, the unamortized debt discount was $323,000. During the three-month ended March 31, 2023, the Company recorded $187,000 as interest expense, leaving an unamortized debt discount balance of $136,000 at March 31, 2023.
From October 26, 2022 until the Note is extinguished in its entirety, Walleye shall receive a right of participation and first right of refusal on subsequent financings as described in the Agreement.
On October 26, 2022, through a Security Agreement of the same date, the Company’s Subsidiaries (specifically BlockSafe Technologies, Inc. and Cyber Security Risk Solutions, LLC) agreed to guarantee and act as surety for payment of the Note.
At March 31, 2023 and December 31, 2022, the outstanding balance of the note payable was $1,000,000, respectively.
(e) In fiscal 2019 and 2020, the Company issued notes payable aggregating $468,000. The notes bear interest at a rate starting from 8% to 37% per annum, each agreement secured by substantially all of the assets of the Company, maturing between March 2020 and July 2021. The Company also made principal payments of $319,000, and one unsecured note of $21,000 was extinguished as part of a debt settlement obligation transaction. At March 31, 2023 and December 31, 2022, the outstanding balance of the secured notes payable was $6,000 and $6,000, respectively, and is in default.
(f) In July 2022, the Company issued notes payable aggregating $275,000. The notes bear an average interest rate of 51% per annum, each agreement secured by substantially all of the assets of the Company and maturing in January 2024. At December 31, 2022, the outstanding balance of the secured notes payable was $211,000. During the three months ended March 31, 2023, the Company made principal payments of $46,000. At March 31, 2023, the outstanding balance of the secured notes payable was $165,000.
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| Table of Contents |
At September 30, 2017 and December 31, 2016, accrued interest due for all notes payable above was $1,809,612 and $1,839,429, respectively, and is included in accrued interest in the accompanying balance sheets. Interest expense for notes payable for the nine months ended September 30, 2017 and 2016 was $127,962 and $169,276, respectively.
Note 5 -– Notes Payable – Related Party
Notes payable- relatedpayable-related party consist of 18notes represent unsecured notes payable to the Company’s Chief Executive Officer (CEO) ranging in interest rates of 0% per annum to 10% per annum. The notes are unsecuredannum and have extended due dates ofwill mature on December 31, 2017. At September 30, 20172023, as amended. The outstanding balance of these notes payable at March 31, 2023 and December 31, 2016,2022 amounted to $693,000.
Note 6 – VIE Financing Obligation
The Company is in the balance due under theseprocess of developing Coins or Tokens which are envisioned as virtual currency. In fiscal 2018, the Company’s consolidated subsidiary, BlockSafe, issued promissory notes $742,513.to unrelated parties aggregating $776,000. As part of issuance, the Company agreed to pay a financing obligation to the note holders equal to the note principal in tokens, as defined by promissory notes and subscription agreements that would be controlling with respect to any offer or sale of tokens to be issued by BlockSafe. In addition, the Company also agreed to issue tokens to an unrelated party in exchange for cash of $50,000.
During the year ended December 31, 2019, BlockSafe agreed to issue tokens to unrelated parties in exchange for cash of $122,000. In addition, certain note holders of promissory notes issued by BlockSafe agreed to exchange $315,000 of outstanding principal and accrued interest into the financing obligation to be paid by tokens to be issued by BlockSafe.
At March 31, 2023 and December 31, 2016, accrued interest due2022, the outstanding balance of financing obligations amounted to $1,263,000, respectively, to be paid in tokens. At March 31, 2023 and through the date of filing, BlockSafe has not developed or issued any tokens and there is no assurance as to whether, or at what amount, or on what terms, tokens will be available to be issued, if ever. At March 31, 2023, as the tokens do not exist, and any amounts received for tokens are not considered equity or revenue, management determined that 100% of the notes payable – related party was $591,784. Duringobligation of $1,263,000 is a liability to be settled by BlockSafe, through the nine months ended September 30, 2017, interest expenseissuance of $41,945 was accrued. At September 30, 2017, accrued interest due for the notes payable – related party was $633,729. During the nine months ended September 30, 2016, interest expense of $42,098 was recorded.tokens, or through other means if tokens are never issued.
Note 67 – Contingent Payment Obligation
On September 6, 2017, the Company entered into a litigation funding agreement with Therium Inc. (subsequently Therium Luxembourg) and VGL Capital, LLC (collectively the “Funders”). Under the agreement, the Company received for financing of $1,500,000 from the Funders to allow the Company to pursue patent enforcement actions against alleged infringements of its patents (see Note 10).patents. In exchange for the financing, the Funders are entitled to receive after(after the payment of legal fees,fees), the first $1,500,000 from the gross proceeds of any claims awarded, 10% of any additional claim proceeds until the Funders have received an additional $7,500,000, and 2.5% of any claim proceeds thereafter. The Funders shallare to be paid only in the event thatif the Company achieves recoveries of claim proceeds. The terms of the litigation funding agreement allow for additional funding of $1,500,000 between February 1, 2018 to JanuaryAt March 31, 2019, which would require2023 and December 31, 2022, the Company has reflected the $1,500,000 received from the Funders as a contingent payment obligation to repay the funders an additional $5,000,000, plus a percentage of anybe paid only if patent enforced claim proceeds thereafter.are recovered.
Note 78 – Derivative Financial Instruments
At September 30, 2017, the Company had convertible promissory notes outstanding thatThe FASB has issued authoritative guidance whereby instruments which do not have fixed settlement provisions are convertible into shares of common stock of the Company at the option of the holder at a price per share discount of 20% of the Company’s common stock market price, as defined in the note agreements. As the ultimate determination of sharesdeemed to be derivative instruments. The Company has issued upon conversion of these notes could exceedconvertible debentures, and in accordance with the current number of available authorized shares,FASB authoritative guidance, the conversion feature of these notes is recorded as a derivative liability. Accordingly, the conversion feature of the notes was separated from the host contract (i.e. the notes) andfeatures have been characterized as derivative liabilities to be re-measured at the end of every reporting period with the change in value reported in the statement of operations.
At December 31, 2016, the balance of the derivative liabilities was $262,185. During the nine months ended September 30, 2017, the Company recorded additions of $597,949 (see Note 2), a change in fair value of derivatives of $289,580, and an extinguishment of $557,827. At September 30, 2017, the balance of the derivative liabilities was $591,887.
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The derivative liability wasliabilities were valued atusing the following dates using a probability weighted Black-Scholes-MertonBinomial pricing model and/or Black Scholes pricing model with the following assumptions:
September 30, 2017 June, July 2017 (dates issued) December 31, 2016 Conversion feature: Risk-free interest rate Expected volatility 152%-157 % 75 % Expected life (in years) 1 year 1 year 1 year Expected dividend yield Fair Value: Conversion feature 0.13 % 0.16 % 0.16 % 147 % - - - $ 591,887 $ 597,949 $ 262,185
|
| At March 31, 2023 |
|
| Issued 2023 |
|
| At December 31, 2022 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Stock Price |
| $ | 0.0026 |
|
| $ | 0.0054 |
|
| $ | 0.0055 |
|
Exercise Price |
| $ | 0.0034 |
|
| $ | 0.0034 |
|
| $ | 0.0034 |
|
Expected Life (Years) |
|
| 0.79 |
|
|
| 1.00 |
|
|
| 0.80 |
|
Volatility |
|
| 163 | % |
|
| 162 | % |
|
| 165 | % |
Dividend Yield |
|
| 0 | % |
|
| 0 | % |
|
| 0 | % |
Risk-Free Interest Rate |
|
| 4.64 | % |
|
| 4.84 | % |
|
| 4.73 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
Conversion feature |
| $ | 265,000 |
|
| $ | 175,000 |
|
| $ | 112,000 |
|
The risk-free interest rate was based on rates established by the Federal Reserve Bank. The expected volatility is based onCompany uses the historical volatility of its common stock to estimate the Company’sfuture volatility for its common stock. The expected life of the conversion feature of the notes was based on the remaining termsterm of the related notes. The expected dividend yield was based on the fact that the Company has not customarily paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future.
At December 31, 2022, the balance of the derivative liabilities was $112,000. During the three months ended March 31, 2023, the Company recognized derivative liabilities of $175,000 upon issuance of additional secured convertible debentures (see Note 8–2). Pursuant to current accounting guidelines, the Company determined the fair value of the derivative liability on March 31, 2023 was $265,000, and as a result, recorded a change in fair value of $22,000 as a component of other income and expenses in the consolidated statements of operations.
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Common Stock
SeriesDuring the three months ended March 31, 2023, pursuant to the Company’s Qualified Regulation A Preferred Stock
In 2011,Offering, the Company issued three shares of non-convertible Series A Preferred Stock valued at $329,000 per share, or $987,000 in aggregate to three members of the management team. The Series A Preferred Stock are convertible into four times the total number of common shares plus the total number of shares of Series B preferred stock issued and outstanding at the time of conversion, and have voting rights equal to eighty percent of the total issued and outstanding shares of the Company's common stock. This effectively provided the management team, upon retention of their Series A Preferred Stock, voting control on matters presented to the shareholders of the Company. The shareholders of the Series A Preferred Stock have each irrevocably waived their conversion rights relating to the Series A Preferred Stock issued.
Series B Preferred Stock
The Series B Preferred Stock has preferential liquidation rights in the event of any liquidation, dissolution or winding up of the Company, such liquidation rights to be paid from the assets of the Company not delegated to parties with greater priority at $1.00 per share or, in the event an aggregate subscription by a single subscriber of the Series B Preferred Stock is greater than $100,000,000, $0.997 per share. The Series B Preferred Stock shall be convertible to a number of176,599,998 shares of common stock equal to the pricein exchange for cash of $795,000, net of direct fees and commissions. As part of the Series B Preferred Stock divided by the par value of the Series B Preferred Stock. The option to convert the shares of Series B Preferred Stock may not be exercised until three months following the issuance of the Series B Preferred Stock to the recipient shareholder. The Series B Preferred Stock shall have ten votes on matters presented to the shareholders ofoffering, the Company for one share of Series B Preferred Stock held. The initial price of the Series B Preferred Stock shall be $2.50, (subjectalso issued warrants to adjustment by the Company’s Board of Directors) until such time, if ever, the Series B Preferred Stock are listed on a secondary and/or public exchange.
In January 2017, the Company sold subscriptionscertain investors and placement agent to two individuals for the purchase of 53,334 shares of its Series B Preferred Stock at $1.50 per share, or an aggregate of $80,000. The shares of Series B Preferred Stock are convertible into shares of the Company’s common stock at a 25% discount to current market value, as defined, with a minimum conversion price set by the Company's Board of Directors of $0.001 per share. The Series B Preferred Stock can be converted at any time into35,319,999 shares of common stock after twelve months from acceptance by the Company of the subscription agreements, but only once every 30 days. For the nine months ended September 30, 2017, the Company recorded a deemed dividend for the beneficial conversion feature of $17,778 relating to the issuance of the Series B Preferred Stock.stock. The warrants are fully vested, exercisable at $0.02 per share and will expire in five years.
Common Stock
During the nine months ended September 30, 2017, the Company issued an aggregate of 15,000 shares of its common stock for services valued at $452.
During the nine months ended September 30, 2016, the Company issued an aggregate of 2,295,964,462 shares of its common stock as follows:
Note 9 - Options
In September 2016, the Company issued options to purchase 196,000,000 shares of its common stock to its management team and employees with a total fair value of $1,568,000 determined using the Black-Scholes Option Pricing model. The options are exercisable at $0.00625 per share, vest in 6 months, and expire in September 2026. During the nine months ended September 30, 2017, the Company recognized compensation costs of $749,538 based on the fair value of options that vested.Warrants
The table below summarizes the Company’s 2004 Incentive Plan and 2012 Stock Incentive Planwarrant activities for the period January 1, 2017 to September 30, 2017:three months ended March 31, 2023:
|
| Number of Warrant Shares |
|
| Exercise Price Range Per Share |
|
| Weighted Average Exercise Price |
| |||
|
|
|
|
|
|
|
|
|
| |||
Balance, January 1, 2023 |
|
| 362,729,077 |
|
| $ 0.0045-0.75 |
|
| $ | 0.006 |
| |
Granted |
|
| 113,319,999 |
|
|
| 0.02 |
|
|
| 0.02 |
|
Canceled/Expired |
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
Balance outstanding and exercisable, March 31, 2023 |
|
| 476,049,076 |
|
| $ | 0.0045 – 0.75 |
|
| $ | 0.009 |
|
Number of Options Shares Exercise Price Range Per Share Weighted Average Exercise Price Balance, January 1, 2017 0.0023-975,000,000 Granted Exercised Expired Balance, September 30, 2017 0.0023-975,000,000 Vested and exercisable, September 30, 2017 0.0023-975,000,000 Unvested, September 30, 2017 196,000,001 $ $ 0.00625 - $ - $ - - $ - $ - - $ - $ - 196,000,001 $ $ 0.00625 196,000,001 $ $ 0.00625 - $ - $ -
As of September 30, 2017, options to purchase an aggregate of 196,000,001 shares of common stock were outstanding underAt March 31, 2023, the 2004 incentive plan and 2012 Stock Incentive Plan and there were 4,000,000 shares remaining available for issuance. At September 30, 2017 and December 31, 2016, thewarrants had no intrinsic value of outstanding options was zero.value.
The following table summarizes information concerning 2004 Incentive planoutstanding and 2012 Stock Incentive Planexercisable warrants as of September 30, 2017:March 31, 2023:
|
|
| Warrants Outstanding and Exercisable |
| ||||||||||
Range of Exercise Prices |
|
| Number Outstanding |
|
| Average Remaining Contractual Life (in years) |
|
| Weighted Average Exercise Price |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
| $ | 0.0045 |
|
|
| 346,666,653 |
|
|
| 4.47 |
|
| $ | 0.0045 |
|
| 0.02 |
|
|
| 124,339,999 |
|
|
| 4.90 |
|
|
| 0.02 |
|
| 0.05 |
|
|
| 5,000,000 |
|
|
| 3.48 |
|
|
| 0.50 |
|
| 0.75 |
|
|
| 42,424 |
|
|
| 1.68 |
|
|
| 0.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 0.0045 - $0.75 |
|
|
| 476,049,076 |
|
|
| 4.46 |
|
| $ | 0.009 |
|
Options Outstanding Options Exercisable Range of Exercise Prices Number Outstanding Average Remaining Contractual Life (in years) Weighted Average Exercise Price Number Exercisable Average Remaining Contractual Life (in years) Weighted Average Exercise Price 975,000,000 0.00625 0.00625 - 975,000,000 $ 1 1.00 $ 975,000,000 1 1.00 $ 975,000,000 $ 196,000,000 10.00 $ 0.00625 196,000,000 10.00 $ 0.00625 $ 196,000,001 10.00 $ 0.00625 196,000,001 10.00 $ 0.00625
During the three months ended March 31, 2023, pursuant to our private placement under Rule 506(b) of Regulation D, the Company sold 78,000,000 warrants to purchase shares of common stock in exchange for cash of $18,000, net of direct fees and commissions. The warrants are fully vested, exercisable at $0.02 per share, and expire in five years.
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The table below summarizes the Company’s stock option activities for the three months ended March 31, 2023:
|
| Number of Options Shares |
|
| Exercise Price Range Per Share |
|
| Weighted Average Exercise Price |
| |||
Balance, January 1, 2023 |
|
| 150,633,001 |
|
| $ | 0.0045- 1,121,250,000 |
|
| $ | 0.0307 |
|
Granted |
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| (1 | ) |
| $ | 1,121,250,000 |
|
|
| 1,121,250,000 |
|
Expired |
|
| - |
|
|
| - |
|
|
| - |
|
Balance outstanding, March 31, 2023 |
|
| 150,633,000 |
|
| $ | 0.0045-3.00 |
|
| $ | 0.0306 |
|
Balance exercisable, March 31, 2023 |
|
| 120,591,791 |
|
| $ | 0.0045-3.00 |
|
| $ | 0.0371 |
|
The following table summarizes information concerning the Company’s stock options as of March 31, 2023:
|
|
| Options Outstanding |
|
| Options Exercisable |
| |||||||||||||||||||
Range of Exercise Prices |
|
| Number Outstanding |
|
| Average Remaining Contractual Life (in years) |
|
| Weighted Average Exercise Price |
|
| Number Exercisable |
|
| Average Remaining Contractual Life (in years) |
|
| Weighted Average Exercise Price |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
| $ | 3.0000 |
|
|
| 518,000 |
|
|
| 3.80 |
|
| $ | 3.0000 |
|
|
| 518,000 |
|
|
| 3.80 |
|
| $ | 3.000 |
|
| 2.0000 |
|
|
| 115,000 |
|
|
| 6.72 |
|
|
| 2.0000 |
|
|
| 115,000 |
|
|
| 6.72 |
|
|
| 2.0000 |
|
| 0.0375 |
|
|
| 65,000,000 |
|
|
| 8.73 |
|
|
| 0.0375 |
|
|
| 65,000,000 |
|
|
| 8.73 |
|
|
| 0.0375 |
|
| 0.005 |
|
|
| 17,500,000 |
|
|
| 7.84 |
|
|
| 0.0050 |
|
|
| 17,500,000 |
|
|
| 7.84 |
|
|
| 0.0050 |
|
| 0.0045 |
|
|
| 67,500,000 |
|
|
| 9.72 |
|
|
| 0.0045 |
|
|
| 37,458,791 |
|
|
| 9.97 |
|
|
| 0.0045 |
|
| $ | 0.0045 – 3.000 |
|
|
| 150,633,000 |
|
|
| 6.18 |
|
| $ | 0.0307 |
|
|
| 120,591,791 |
|
|
| 6.18 |
|
| $ | 0.0371 |
|
At March 31, 2023 and December 31, 2022, the intrinsic value of outstanding options was $0 and $76,000, respectively.
Note
Asset SaleConstantino Zanfardino, Derivatively on Behalf of Nominal Defendant Zerify, Inc., formerly known as Strikeforce Technologies, Inc. v. Mark L. Kay, Ramarao Pemmaraju and Licensing Agreement
On August 24, 2015, the Company entered into an agreement with Cyber Safety,George Waller, Defendants, and Zerify, Inc. formerly known as Strikeforce Technologies, Inc., a New York corporation (“Cyber Safety”) for Cyber Safety to license, and retain an option to purchase, the patents and Intellectual Property related to the GuardedID® and MobileTrust® software. Cyber Safety has the option to buy the Company’s GuardedID® patent for $9,000,000 that expires on September 30, 2020. The Company anticipates Cyber Safety will make the purchase by September 30, 2020. Cyber Safety will also resell the Company’s GuardedID® and MobileTrust® products, for which the Company will receive a royalty, while the Company retains an unlimited license to resell those products. Cyber Safety also licensed the Malware Suite until September 30, 2020 and agreed to pay the Company 15% to 20% of the net amount Cyber Safety receives from this product. During the nine months ended September 30, 2017 and 2016, the Company did not receive any royalty or license payments from Cyber Safety.
Legal Proceedings
On June 20, 2016, the Company initiated additional patent litigation against three major competitors in the U.S.Nominal Defendant (U.S. District Court, for the District of New Jersey, Civil Action No. 2:22-cv-07258-MCA-AME)
On December 13, 2022, a claimed stockholder, Constantino Zanfardino (“Plaintiff”), filed a stockholder derivative Complaint against the Company’s directors, Mark L. Kay, Ramarao Pemmaraju and George Waller (collectively, “Defendants”). Plaintiff asserts claims against each of the Defendants for infringementbreach of United States Patent No. 8,484,698. Thisfiduciary duty, waste of corporate assets and unjust enrichment resulting from Defendants’ alleged wrongdoing in their management of the Company. Through the litigation, is ongoing.Plaintiff seeks judgment against each of the Defendants in favor of the Company. On March 14, 2017, one3, 2023, the Defendants’ filed a Memorandum of Law in Support of their Motion to Dismiss Plaintiff’s Complaint. On March 10, 2023, the parties initiated an inter partes review (IPR) (a procedure for challengingDefendants served a motion to dismiss the validitycomplaint upon the Plaintiff. The Plaintiff’s opposition to the Defendants’ motion to dismiss is due on May 9, 2023. Defendants are vigorously defending this litigation. At this time, it is not possible to estimate the ultimate outcome of a United Statesthis litigation.
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Onstream Media Corporation
The Company is currently engaged in several patent beforelitigations brought by Onstream Media Corporation in the United States PatentDistrict Court, District of Wyoming. The parties are currently in negotiations to resolve all of the pending cases.
The cases and Trademark Office) against the Company’s second Patent No. 8,484,698.their filing dates follow:
Case | Date Filed | |
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00191 (DWY) | September 9, 2022 | |
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00192 (DWY) | September 9, 2022 | |
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00193 (DWY) | September 9, 2022 | |
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00194 (DWY) | September 9, 2022 | |
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00195 (DWY) | September 9, 2022 | |
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00196 (DWY) | September 9, 2022 | |
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00197 (DWY) | September 9, 2022 |
Note 12 – Subsequent Events
On May 2, 2023, The Company issued Supplemental No. 1 dated May 2, 2023 to the Offering Circular qualified on December 31, 2022. The Company elected to affect the Qualified Offering of December 21, 2022 by: (a) reducing the Per Unit Price from $0.0225 to $0.018; and (b) reducing the per share price of each of the 5 shares from $0.0045 to $0.0036 that comprise each 1 Unit. The warrant that is also a part of each Unit as previously disclosed in the Qualified Offering remains with a $0.02 cent exercise price. The Unit Price and the Per Share Price are being made pursuant to Rule 253(g)(2) of the Securities Act of 1933, as amended (the “Securities Act’), which allows an up to 20% price change in a qualified offering statement.
Subsequent to March 14, 2017,31, 2023, pursuant to the Company’s Qualified Regulation A Offering, the Company initiated additional patent litigation against two major competitorsissued 70,000,000 shares of common stock in exchange for cash of $261,000, net of direct fees and commissions. As part of the U.S. District Court foroffering, the DistrictCompany also issued warrants to certain investors and placement agent to purchase 14,000,000 shares of Massachusetts, for infringement of United States Patent Nos. 7,870,599, 8,484,698common stock. The warrants are fully vested, exercisable at $0.02 per share and 8,713,701. This litigation is ongoing.will expire in five years.
On March 14, 2017, the Company initiated additional patent litigation against two major competitors in the U.S. District Court for the Eastern District of Virginia, for infringement of United States Patent Nos. 7,870,599, 8,484,698 and 8,713,701. This litigation is ongoing. On June 13, 2017, one of the competitors initiated a lawsuit against the Company in the U.S. District Court for the District of New Jersey for patent infringement (which the Company believes is without merit and will defend vigorously). This litigation is ongoing.
Due to Factor
In March 2007,April 18, 2023, the Company entered into a sale and subordinationconsulting agreement withfor corporate advisory services. The agreement is for a factoring firm whereby the Company sold its rights to two invoices, from February 2007 and March 2007, totaling $470,200 to the factor. Upon signing the agreement and providing the required disclosures, the factor remitted $197,450 to the Company. By December 31, 2007, the two invoices were deemed uncollectible. In February 2008,period of six months for which the Company agreed to payissue 10,000,000 shares of common stock for the factor a settlement of $75,000 in September 2008, unless both parties mutually agreed to extend the due date. In September 2008, the Company and the factor reached a verbal agreement to extend the due date to December 31, 2008. As of December 31, 2016, the balance due to the factor was $209,192 including interest.services.
In July 2017, the Company executed an exchange agreement with the factor which transferred the amount due to the factor into a promissory note for $210,000, non-interest bearing, and maturing on February 7, 2018 (see Note 4).
Note 11 – Subsequent Event
In October 2017, one holder of the Company’s Series B Preferred Stock converted 33,334 Series B Preferred shares into 16,129,355 shares of the Company’s common stock at a conversion price of $0.0031 per share.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Included in this interim report are "forward-looking"“forward-looking” statements, within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"(“PSLRA”) as well as historical information. Some of our statements under "Business”“Business”, "Properties”“Properties”, "Legal“Legal Proceedings”, "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations”,"” the Notes to Condensed Consolidated Financial Statements” and elsewhere in this report constitute "forward-looking statements"“forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the expectations reflected in these forward-looking statements will prove to be correct. Our actual results could differ materially from those anticipated in forward-looking statements as a result of certain factors, including matters described in the section titled "Risk“Risk Factors."” Forward-looking statements include those that use forward-looking terminology, such as the words "anticipate," "believe," "estimate," "expect," "intend," "may," "project," "plan," "will," "shall," "should,"“anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “project,” “plan,” “will,” “shall,” “should,” and similar expressions, including when used in the negative. Although we believe that the expectations reflected in these forward-looking statements are reasonable and achievable, these statements involve risks and uncertainties and we cannot assure you that actual results will be consistent with these forward-looking statements. We claim the protection afforded by the safe harbor for forward-looking statements provided by the PSLRA.
Such risks include, among others, the following: international, national and local general economic and market conditions: our ability to sustain, manage or forecast our growth; material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the current inflation rate and supply chain disruptions; the implications and consequences of the COVID-19 pandemic on our business and on our clients’ business, and the transitioning from a pandemic to an endemic; the ability to attract and retain qualified personnel; the ability to protect technology; and other factors referenced in this filing.
Consequently, all the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results anticipated by management will be realized or, even if substantially realized, that they will have the expected consequences to or effects on our business operations. We undertake no obligation to update or revise these forward-looking statements, whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or otherwise.
Additional information concerning these and other risks and uncertainties is contained in our filings with the Securities and Exchange Commission, including the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016.
Unless otherwise noted, references in this Form 10-Q to “StrikeForce”“Zerify”, “we”, “us”, “our”, “SFT”, “our company”, and the “Company” means StrikeForce Technologies,Zerify, Inc., a Wyoming corporation.
Background
We are a software development and services company that offers a suite of integrated computer network security products using proprietary technology. Our ongoing strategy is developing and marketing our suite of network security products to the corporate, financial, healthcare, legal, government, technology, insurance, e-commerce and consumer sectors. We plan to continue to grow our business primarily through our globally expanding sales channel and internally generated sales, rather than by acquisitions. We have no subsidiarieshold a 49% interest in BlockSafe Technologies, Inc., and we conduct our operations from our corporate officea 100% interest in Edison, New Jersey.Cybersecurity Risk Solutions, LLC.
On September 6, 2017, we entered into a Litigation Funding Agreement with two parties (the “Funders”)April 26, 2022, the Company applied for the purposeZerify trademark. ZERIFY™. The trademark registration is intended to cover the categories of fundingdownloadable or recorded computer software for encryption; downloadable or recorded computer software for cyber security assessment and protection; anti-spyware software; downloadable or recorded computer application software for mobile devices, namely, software for protecting people from identity theft; downloadable or recorded computer software for guarding users of computers and remote access devices from identity theft, featuring various software tools, namely, anti-keyboard logger and keyboard stroke encryption.
| 20 |
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On June 14, 2022, the enforcementBoard of certain patents relatingDirectors and holders of a majority of the voting power approved a resolution to change our name from StrikeForce Technologies, Inc. to Zerify, Inc.
The Board of Directors believes that the name change will better reflect the business plans of the Company as reflected in the current cyber security software and in the name Zerify which emphasizes the Company’s mission to ensure Zero-Trust for the most secure collaborative communications and that every participant is verified prior to entering a video conference.
On August 1, 2022, pursuant to the process of providing dual channel authentication against several infringers. Our management believes that this Litigation Funding Agreement will allow us to pursue litigation against any infringementapproval from FINRA, our Common Stock is now quoted on our patents.the OTCQB Market under the symbol “ZRFY” (formerly “SFOR”).
Our executive office is located at 1090 King Georges Post Road, Suite 603, Edison, NJ 08837. Our telephone number is (732) 661-9641. We have 8At March 31, 2023, we had 14 employees. Our Company’s website is www.strikeforcetech.comwww.zerify.com (we are not including the information contained in our website as part of, nor should the information be relied upon or incorporated by reference into, this report on Form 10-Q).
Intellectual Property
Downturns in economic conditions, or other macroeconomic factors more generally, including inflation, could have adverse effects on our results of operations.
WeWhile we make our strategic planning decisions based on the assumption that the markets we are working with two patent attorney firms to aggressively continue to enforcetargeting will grow in the long term, our patent rights. We currently have three patents granted tobusiness is dependent, in large part on, and directly affected by, business cycles and other factors affecting the economy generally. Our industry depends on general economic conditions and other factors, including consumer spending and preferences, changes in inflation rates, supply chain issues and impediments should they arise for us, for Out-of-Band ProtectID® (Patent Nos.: 7,870,599, 8,484,698as the U.S. and 8,713,701). In March 2013, our patent attorneys submitted a new “Methodsvarious other major economies are now experiencing, consumer confidence, fuel costs, fuel availability, environmental impact, any consequences arising from the COVID 19 endemic governmental incentives and Apparatus for securing user inputregulatory requirements, and political volatility, especially in a mobile device” Patent, which is now patent pending. Our MobileTrust® product is the invention supporting the patent pending. In September 2014, we filed an International Patent for MobileTrust® (PCT/US20114/029905) which is pending.
cybersecurity growth markets.
WeIn addition, the outbreak of hostilities between Russia and Ukraine and global reactions thereto have four trademarks that have been approvedincreased U.S. domestic and registered: ProtectID®, GuardedID®, MobileTrust®global energy prices. Oil supply disruptions related to the Russia-Ukraine conflict, and CryptoColor®. A portionsanctions and other measures taken by the U.S. and its allies, could lead to higher costs for gas, food, and goods in the U.S. and other geographies and exacerbate the inflationary pressures on the worldwide economy, with potentially adverse impacts on our customers and on our business, results of our software is licensed from third partiesoperations and the remainder is developed by our own team of developers while leveraging some external consultant expertise as necessitated. We rely upon confidentiality agreements signed by our employees, consultants and third parties to protect the intellectual property rights.financial condition.
Results of Operations
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017MARCH 31, 2023 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2016MARCH 31, 2022
Revenues for the three months ended September 30, 2017March 31, 2023 were $76,342$22,000 compared to $183,029$32,000 for the three months ended September 30, 2016,March 31, 2022, a decrease of $106,687$10,000 or 58.3%31%. The decrease in revenues was due to the decrease in our sales. Software, services, support, and maintenance sales for the three months ended September 30, 2017 were $76,342 compared to $182,029 for the three months ended September 30, 2016, a decrease of $105,687. The decrease in software, services, support, and maintenance revenues was primarily due to thea decrease in revenues relating to our ProtectID®, GuardedID® and MobileTrust® and Zerify™ Meet products, as affected by impairments related to the saleseconomic consequences of the COVID-19 pandemic, and supportseveral of our clients changing their strategy. Revenues are derived from software products. Hardware sales for the three months ended September 30, 2017 were $0 compared to $1,000 for the three months ended September 30, 2016. The decrease in hardware revenues was due to the decrease in sales of our one-time-password token key-fobs, as we move towards our phone based one-time-password.and services.
Cost of revenues for the three months ended September 30, 2017March 31, 2023 was $3,168$17,000 compared to $888$10,000 for the three months ended September 30, 2016,March 31, 2022, an increase of $2,280,$7,000 or 257%70%. The increase resulted from thein cost of revenues was primarily due to an increase in third party processingthe software fees related to our revenues.product offerings. Cost of revenues are fees and key fobs related to our revenues, and as a percentage of total revenues for the three months ended September 30, 2017March 31, 2023 was 4.2%77.3% compared to 0.5%31.3% for the three months ended September 30, 2016.
Gross profit for the three months ended September 30, 2017 was $73,174 compared to $182,141 for the three months ended September 30, 2016, a decrease of $108,967, or 59.8%. The decrease in gross profit was due to the decrease in our hardware, software, services, maintenance, and support sales resulting from several delayed revenue transactions. No assurances can be provided that the revenue transactions will occur.
Research and development expenses for the three months ended September 30, 2017 were $123,750 compared to $125,654 for the three months ended September 30, 2016, a decrease of $1,904, or 1.5%. The decrease in research and development expenses was due to a nominal decrease in the purchase of peripherals for testing purposes. The salaries, benefits and overhead costs of personnel conducting research and development of our software products primarily comprises our research and development expenses.
Compensation, professional fees, and selling, general and administrative (collectively, “SGA”) expenses for the three months ended September 30, 2017March 31, 2023 were $279,093$1,166,000 compared to $483,061$2,636,000 for the three months ended September 30, 2016,March 31, 2022, a decrease of $203,968 or 42.2%.$1,470,000. The decrease was due primarily to decreased expenses relating to vesting of options granted to employees in September 2016. SG&A expenses consist primarily of salaries, benefits and overhead costs for executive and administrative personnel, insurance, fees for professional services, including consulting, legal, and accounting fees, plus travel costs and non-cash stock compensation expense for the issuance of stock options to employees and other general corporate expenses.
Other income (expense) for the three months ended September 30, 2017 was expense of ($183,801) as compared to income of $109,063 for the three months ended September 30, 2016, representing a decrease in other income of $292,864, or 269%. The decrease was primarily due to an increase in private placement costs, an increase in interest expense, an increase in the fair value of derivative liabilities, and a decrease in forgiveness of debt,stock-based compensation, offset by an increase in the extinguishment of derivative liabilities.
Our net loss for the three months ended September 30, 2017 was $513,470 compared to $317,511 for the three months ended September 30, 2016, an increase of $195,959, or 61.7%. The increase was primarily due to the decrease in revenues, an increase in private placement costs, an increase in interest expense, an increase in the fair value of derivative liabilities,compensation/benefits expenses and a decrease in forgiveness of debt, offset by an increase in the extinguishment of derivative liabilities.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2016
Revenues for the nine months ended September 30, 2017 were $218,946 compared to $392,628 for the nine months ended September 30, 2016, a decrease of $173,682 or 44.2%. The decrease in revenues was due to the decrease in our sales. Software, services, support, and maintenance sales for the nine months ended September 30, 2017 were $217,847 compared to $389,388 for the nine months ended September 30, 2016, a decrease of $171,541. The decrease in software, services, support, and maintenance revenues was primarily due to the decrease in the sales and support of our software products. Hardware sales for the nine months ended September 30, 2017 were $1,099 compared to $3,240 for the nine months ended September 30, 2016, a decrease of $2,141. The decrease in hardware revenues was due to the decrease in sales of our one-time-password token key-fobs, as we move towards our phone based one-time-password
Cost of revenues for the nine months ended September 30, 2017 was $9,547 compared to $4,852 for the nine months ended September 30, 2016, an increase of $4,695, or 96.8%. The increase resulted from the increase in third party processing fees related to our revenues. Cost of revenues as a percentage of total revenues for the nine months ended September 30, 2017 was 4.4% compared to 1.2% for the nine months ended September 30, 2016.
Gross profit for the nine months ended September 30, 2017 was $209,399 compared to $387,776 for the nine months ended September 30, 2016, a decrease of $178,377, or 46.0%. The decrease in gross profit was due to the decrease in our hardware, software, services, maintenance, and support sales resulting from several delayed revenue transactions. No assurances can be provided that the revenue transactions will occur.
Research and development expenses for the nine months ended September 30, 2017 were $402,532 compared to $378,874 for the nine months ended September 30, 2016, an increase of $23,658, or 6.2%. The increase in research and development expenses was due to an overall increase in salaries and the testing of our mobile products, which required the purchase of peripherals for testing purposes. The salaries, benefits and overhead costs of personnel conducting research and development of our software products primarily comprises our research and development expenses.
Compensation, professional fees, and selling, general and administrative (collectively, “SGA”) expenses for the nine months ended September 30, 2017 were $1,708,193 compared to $1,425,198 for the nine months ended September 30, 2016, an increase of $282,995 or 19.9%. The increase was due primarily to the decrease in expenses relating to vesting of options granted to employees in September 2016 and an increase in salaries and related payroll taxes resulting from retention bonuses paid to the Officers in April 2017, offset by a decrease in professional fees. SG&A expenses consist primarily of salaries, benefits and overhead costs for executive and administrative personnel, insurance, fees for professional services, including consulting, legal, and accounting fees, plus travel costs and non-cash stock compensation expense for the issuance of stock options to employees and other general corporate expenses.
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Other income (expense)Research and development expenses for the ninethree months ended September 30, 2017March 31, 2023 were $157,000 compared to $154,000 for the three months ended March 31, 2022, an increase of $3,000 or 2%. The increase was expense of ($688,010)primarily due to a slight increase in salaries and benefit expenses as compared to incomethe prior year period. The salaries, benefits and overhead costs of $5,722,652personnel conducting research and development of our software products primarily comprise our research and development expenses.
For the three months ended March 31, 2023, other expense was $351,000 as compared to other expense of $99,000 for the ninethree months ended September 30, 2016, representingMarch 31, 2022, an increase in other expense of $252,000 or 255%. The increase was primarily due to debt discount amortization of $233,000 and financing expenses of $21,000, offset by the change in the fair value of derivative liabilities of 22,000, all of which did not occur in the prior year period. Interest expenses increased $21,000, or 21%, due to our increased debt levels.
Our net loss for the three months ended March 31, 2023 was $1,669,000 compared to $2,867,000 for three months ended March 31, 2022, a decrease in other income of $6,410,662,$1,198,000, or 112%42%. The decrease was primarily due to the net settlement in the prior year of patent remediation litigation, which was settled in January 2016, slightly reduced by an increase in private placement costs, an increase in the fair value of derivative liabilitiesdecreased revenue and a decrease in forgiveness of debt,increased other expenses, offset by a decrease in interestdecreased operating expense and an increase in the extinguishment of derivative liabilities.discussed above.
Our net income (loss) for the nine months ended September 30, 2017 was a net loss ($2,607,114) compared to a net income of $4,306,356 for the nine months ended September 30, 2016, a decrease in net income of $6,913,470, or 161%. The decrease was primarily due to the net settlement of patent remediation litigation in the prior year, which was settled in January 2016, reduced by an increase in private placement costs, an increase in the fair value of derivative liabilities and a decrease in forgiveness of debt, offset by a decrease in interest expense and an increase in the extinguishment of derivative liabilities.
Liquidity and Capital Resources
Our total current assets at September 30, 2017March 31, 2023 were $975,157, which included cash of $902,792,$249,000, as compared with $965,404$212,000 in total current assets at December 31, 2016, which included cash of $804,130.2022. Additionally, we had astockholders’ deficit in the amount of $10,198,835$15,419,000 at September 30, 2017March 31, 2023 compared to a stockholders’ deficit of $8,439,490$14,855,000 at December 31, 2016.2022. We have historically incurred recurring losses and have financed our operations through loans, principally from affiliated parties such as our directors, and from the proceeds of debt and equity financing.
We financed our operations during the ninethree months ended September 30, 2017March 31, 2023 primarily throughfrom the first tranche,cash balance from the year ended December 31, 2022 and from proceeds of equity instruments and notes payable issued during the three months ended March 31, 2023.
During the three months ended March 31, 2023, pursuant to our Qualified Regulation A Offering, we issued 176,599,998 shares of common stock in exchange for $1,500,000, from a litigation funding agreement executed on September 6, 2017. In addition,cash of $795,000, net of direct fees and commissions. As part of the offering, we also issued warrants to certain investors and placement agent to purchase 35,319,999 shares of common stock. The warrants are fully vested, exercisable at $0.02 per share and will expire in five years.
During the three months ended March 31, 2023, pursuant to our private placement under Rule 506(b) of Regulation D, we sold 78,000,000 warrants to purchase shares of Series B Preferredcommon stock in January 2017exchange for $80,000.cash of $18,000, net of direct fees and commissions. The warrants are fully vested, exercisable at $0.02 per share and will expire in five years.
Going Concern
We have yet to establish any history of profitable operations. ForDuring the ninethree months ended September 30, 2017, weMarch 31, 2023, the Company incurred a net loss from operations of $1,901,326$1,669,000 and used cash in operating activities of $1,344,024,$873,000 and at September 30, 2017, weMarch 31, 2023, the Company had a stockholders’ deficit of $10,198,835.$15,419,000. In addition, we are in default on notes payable and convertible notes payable in the aggregate amount of $2,825,000. These factors raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. This going concern condition could materially limitIn addition, the Company’s independent registered public accounting firm, in its report published on our December 31, 2022 year-end financial statements, raised substantial doubt about the Company’s ability to raise additional funds through the issuance of new debt or equity securities, or otherwise, and future reports on ourcontinue as a going concern. The Company’s financial statements may alsodo not include an explanatory paragraph with respect to our abilityany adjustments that might result from the outcome of this uncertainty should we be unable to continue as a going concern.
Management estimates that the current funds on hand will be sufficient to continue operations through the next six months. Our ability to continue as a going concern is dependent upon our ability to raise additional funds andcontinue to implement our business plan. Management is currently seeking additional funds, primarily through the issuance of debt and equity securities for cash to operate our business. Currently, management is attempting to increase revenues and improve gross margins by a revised sales strategy. We are redirecting our sales focus from direct sales to domestic and international sales channels, where we are primarily selling through Distributors, Value Added Resellers, Strategic Partnersa channel of distributors, value added resellers, strategic partners and Original Equipment Manufacturers.original equipment manufacturers. While we believe in the viability of ourits strategy to increase revenues, and in our ability to raise additional funds, there can be no assurances to that effect. Our ability to continue as a going concern is dependent upon our ability to continually increase our customer base and realize increased revenues from recently signed contracts.revenues. No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, if needed, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stock holders,stockholders, in the case of equity financing.
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, result of operations, liquidity or capital expenditures.
Critical Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, and other factors that management believes to be reasonable. In addition, the Company has considered the potential impact of the pandemic, as well as certain macroeconomic factors, including inflation, rising interest rates, and recessionary concerns, on its business and operations.
Significant estimates include those related to accounting for potential liabilities and thefinancing obligations, assumptions madeused in valuing stock instruments issued for services, assumptions used in valuing derivative liabilities, the valuation allowance for deferred tax assets, and derivativethe accrual of potential liabilities. Actual results could differ from those estimates.
Revenue Recognition Policy
We recognizeThe Company follows the guidance of Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is realized or realizable and earned. We consider revenue realized or realizable and earned when all ofprobable that the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii)Company will collect the product has been shipped orconsideration it is entitled to in exchange for the services have been renderedit transfers to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. When we recognize revenue, no provisions are made for returns because, historically, there have been very few sales returns and adjustments that have impacted the ultimate collection of revenues.its clients.
The Company’s revenue consists of revenue from sales and support of our software products. Revenue from hardwareprimarily consists of sales is recognized when the product is shipped to the customerof software licenses and there are either no unfulfilled obligations by us, or any obligations that will not affect the customer's final acceptancesubscriptions of the arrangement. All costs of these obligations are accrued when the corresponding revenue is recognized.
Revenue from timeour ProtectID®, GuardedID®, Zerify Meet™ and service contracts is recognized as the services are provided. Revenue from delivered elements of one-time charge licensed software is recognized at the inception of the license term, and determined by the fair value of each delivered element. Revenue is deferred for undelivered elements.Zerify Defender™ products. We recognize revenue from these arrangements ratably over the contractual service period. For service contracts, the Company’s performance obligations are satisfied, and the related revenue is recognized, as services are rendered.
The Company offers no discounts, rebates, rights of return, or other allowances to clients which would result in the establishment of reserves against service revenue. Additionally, to date, the Company has not incurred incremental costs in obtaining a client contract.
Cost of revenue includes direct costs and fees related to the sale of software licenses when the four criteria discussed above are met. If we determine that collection of a fee is not reasonably assured, we defer the fee and recognize revenue at the time collection becomes reasonably assured, which is generally upon receipt of cash. Revenue from monthly software licenses is recognized on a subscription basis.our products.
We offer an Application Service Provider (ASP) hosted cloud service whereby customer usage transactions are invoiced monthly on a cost per transaction basis.
Share-Based Payments
Stock Compensation
WeThe Company periodically issueissues stock options, warrants, and warrantsshares of common stock as share-based compensation to employees and non-employees in non-capital raising transactions for services and for financing costs. We accountThe Company accounts for stock option and warrantsuch grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board (FASB) whereasFASB ASC 718, Compensation – Stock Compensation (Topic 718) whereby the value of the award is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. We account for stock option and warrant grants issued and vesting to non-employees in accordance withThe Company recognizes the authoritative guidance of the FASB whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Options granted to non-employees are revalued each reporting period to determine the amount to be recorded as an expense in the respective period. As the options vest, they are valued on each vesting date and an adjustment is recorded for the difference between the value already recorded and the then current value on the date of vesting. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.
The fair value of our stock option and warrant grants are estimated usingstock-based compensation within its Statements of Operations with classification depending on the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected lifenature of the stock options or warrants, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model, and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods.services rendered.
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Derivative Financial Instruments
Derivative Financial Instruments
We evaluate ourThe Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The Company evaluates embedded conversion features within its convertible debt to determine whether the embedded conversion features should be bifurcated from the host instrument and accounted for as a derivative. The fair value of the embedded derivatives are determined using the trinomial/binomial valuation method at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
To determine the number of authorized but unissued shares available to satisfy outstanding convertible securities, we use a sequencing method to prioritize its convertible securities as prescribed by ASC 815-40-35. At each reporting date, we review our convertible securities to determine their classification is appropriate.
Recently Issued Accounting Pronouncements
Refer to Note 1 in the accompanying condensed consolidated financial statements.
Additional Information
You are advised to read this Form 10-Q in conjunction with other reports and documents that we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K, and Current Reports on Form 8-K that we file from time to time. You may obtain copies of these reports directly from us or from the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E. Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers at its website http://www.sec.gov.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
Regulations under the Securities Exchange Act of 1934 (the “Exchange Act”) require public companies to maintain “disclosure controls and procedures,” which are defined as controls and other procedures that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission'sCommission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer'sissuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
We carried out an evaluation, with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (CFO) of the effectiveness our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of September 30, 2017.March 31, 2023. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are not effective at the reasonable assurance level due to the following material weaknesses:
1. We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to us as of and for the interim period ended September 30, 2017.March 31, 2023. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
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2. Our board of directors has no independent director or member with financial expertise which causes ineffective oversight of our external financial reporting and internal control over financial reporting.
3. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.
Remediation of Material Weaknesses
We intend to remediate the material weaknesses in our disclosure controls and procedures identified above by adding an independent director or member with financial expertise or hiring a full-time CFO with SEC reporting experience in the future when working capital permits and by working with our independent registered public accounting firm to refine our internal procedures.
(b) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Constantino Zanfardino, Derivatively on Behalf of Nominal Defendant Zerify, Inc., formerly known as Strikeforce Technologies, Inc. v. Mark L. Kay, Ramarao Pemmaraju and George Waller, Defendants, and Zerify, Inc. formerly known as Strikeforce Technologies, Inc., Nominal Defendant (U.S. District Court, District of New Jersey, Civil Action No. 2:22-cv-07258-MCA-AME)
On December 13, 2022, a claimed stockholder, Constantino Zanfardino (“Plaintiff”), filed a stockholder derivative Complaint against our directors, Mark L. Kay, Ramarao Pemmaraju and George Waller (collectively, “Defendants”). Plaintiff asserts claims against each of the Defendants for breach of fiduciary duty, waste of corporate assets and unjust enrichment resulting from Defendants’ alleged wrongdoing in their management of the Company. Through the litigation, Plaintiff seeks judgment against each of the Defendants in favor of the Company. On March 3, 2023, the Defendants’ filed a Memorandum of Law in Support of their Motion to Dismiss Plaintiff’s Complaint. On March 10, 2023, the Defendants served a motion to dismiss the complaint upon the Plaintiff. The Plaintiff’s opposition to the Defendants’ motion to dismiss is due on May 9, 2023. Defendants are vigorously defending this litigation. At this time, it is not possible to estimate the ultimate outcome of this litigation.
Onstream Media Corporation
We are currently engaged in several patent litigations brought by Onstream Media Corporation in the United States District Court, District of Wyoming. The parties are currently in negotiations to resolve all of the pending cases.
The cases and their filing dates follow:
Case | Date Filed | |
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00191 (DWY) | September 9, 2022 | |
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00192 (DWY) | September 9, 2022 | |
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00193 (DWY) | September 9, 2022 | |
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00194 (DWY) | September 9, 2022 | |
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00195 (DWY) | September 9, 2022 | |
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00196 (DWY) | September 9, 2022 | |
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00197 (DWY) | September 9, 2022 |
ITEM 1A. RISK FACTORS
The risk factors required pursuant to Regulation S-K, Item 503(c) are not required for smaller reporting companies.
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ITEM 2. RECENT ISSUANCES OF UNREGISTERED SECURITIES
OnDuring the three months ended March 28, 2013, we initiated patent litigation against an outside party. On January 15, 2016,31, 2023, pursuant to the parties reached a settlementCompany’s Qualified Regulation A Offering, the Company issued 176,599,998 shares of common stock in the matter.exchange for cash of $795,000, net of direct fees and commissions. As part of the settlement, we received a paymentoffering, the Company also issued warrants to certain investors and placement agent to purchase 35,319,999 shares of common stock. The warrants are fully vested, exercisable at $0.02 per share and will expire in January 2016 of $9,750,000 and incurred fees related to the settlement of $4,187,257.five years.
On June 20, 2016, we initiated additional patent litigation againstDuring the three major competitors in the U.S. District Court for the District of New Jersey, for infringement of United States Patent No. 8,484,698. This litigation was filed by our patent attorneys, Blank Rome LLP, and is ongoing. Onmonths ended March 14, 2017, one of the parties initiated an inter parties review (IPR) (a procedure for challenging the validity of a United States patent before the United States Patent and Trademark Office) against our second Patent No. 8,484,698.
On March 14, 2017, we initiated additional patent litigation against two major competitors in the U.S. District Court for the District of Massachusetts, for infringement of United States Patent Nos. 7,870,599, 8,484,698 and 8,713,701. This litigation was filed by our patent attorneys, Ropes and Gray LLP, and is ongoing.
On March 14, 2017, we initiated additional patent litigation against two major competitors in the U.S. District Court for the Eastern District of Virginia, for infringement of United States Patent Nos. 7,870,599, 8,484,698 and 8,713,701. This litigation was filed by our patent attorneys, Ropes and Gray LLP, and is ongoing. On June 13, 2017, one of the competitors initiated a lawsuit against us in the U.S. District Court for the District of New Jersey for patent infringement (which we believe is without merit and will defend vigorously). This litigation is ongoing.
ITEM 1A. RISK FACTORS
Not required under Regulation S-K for “smaller reporting companies.”
Information about risk factors for the interim period ended September 30, 2017, does not differ materially from that set forth in Part I, Item 1A of our 2016 Annual Report on Form 10-K.
ITEM 2. RECENT ISSUANCES OF UNREGISTERED SECURITIES
In September 2017, we issued a total of 7,500 shares of restricted common stock, valued at $206, relating to a December 2009 retainer agreement with our SEC attorney.
All of the above offerings and sales, except the afore-mentioned shares issued31, 2023, pursuant to a conversion of convertible notes, were made in reliance upon the exemption from registrationour private placement under Rule 506506(b) of Regulation D, promulgated under the Securities ActCompany sold 78,000,000 warrants to purchase shares of 1933 and/or Section 4(2)common stock in exchange for cash of the Securities Act$18,000, net of 1933, based on the following: (a) the investors confirmed to us that they were “accredited investors,” as defineddirect fees and commissions. The warrants are fully vested, exercisable at $0.02 per share, and expire in Rule 501 of Regulation D promulgated under the Securities Act of 1933 and had such background, education and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in the securities; (b) there was no public offering or general solicitation with respect to the offering; (c) the investors were provided with certain disclosure materials and all other information requested with respect to our company; (d) where applicable, the investors acknowledged that all securities being purchased were “restricted securities” for purposes of the Securities Act of 1933, and agreed to transfer such securities only in a transaction registered under the Securities Act of 1933 or exempt from registration under the Securities Act; and (e) where applicable, a legend was placed on the certificates representing each such security stating that it was restricted and could only be transferred if subsequent registered under the Securities Act of 1933 or transferred in a transaction exempt from registration under the Securities Act of 1933.five years.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
At March 31, 2023, the Company is in default on notes payable and convertible notes payable in the aggregate amount of $2,825,000. We have not made various principal and interest payments on many of our debt obligations. We continue to seek work-out arrangements and applicable refinancing with new or revised debt or equity instruments. See Notes 2 and 4 to the condensed consolidated financial statements.
ITEM 4. MINE SAFETY DISCLOSURESDISCLOSURES.
Not applicable.
On September 8, 2017, our retail distributor, WYNIT Distribution, LLC, filed for Chapter 11 bankruptcy protection in the Minnesota Bankruptcy Court (Bankruptcy Petition #17-42726). WYNIT serves a wide range of customers, including large national retailers such as Home Shopping Network, Office Depot/Max, Best Buy Canada, Staples and others as well as smaller independent resellers. Our Management has or will file the appropriate forms, for our benefit, with the Minnesota Bankruptcy Court, but recognizes that we are an unsecured creditor.None.
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ITEM 6. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
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Amended and Restated Certificate of Incorporation of StrikeForce Technologies, Inc.(1) | |||
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| Irrevocable Waiver of Conversion Rights of Mark L. Kay | ||
| Irrevocable Waiver of Conversion Rights of Ramarao Pemmaraju | ||
| Irrevocable Waiver of Conversion Rights of George Waller | ||
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BlockSafe Technologies, Inc. Intellectual Property License Agreement (21) | |||
BlockSafe Technologies, Inc. Amended Management Agreement (21) | |||
Cybersecurity Risk Solutions LLC Member Interest Purchase Agreement, dated April 15, 2021 (27) | |||
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101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). (29) | ||
101.SCH | Inline XBRL Taxonomy Extension Schema Document. (29) | ||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. (29) | ||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. (29) | ||
101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document. (29) | ||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. (29) | ||
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). (29) | ||
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(1) | Filed as an exhibit to the Registrant’s Form SB-2 dated as of May 11, 2005 and incorporated herein by reference. |
(2) | |
Filed as an exhibit to the Registrant’s Form 8-K dated February 4, 2011 and incorporated herein by reference. | |
(3) | Filed as an exhibit to the Registrant’s Form 10-Q dated December 13, 2010 and incorporated herein by reference. |
(4) | Filed as an exhibit to the Registrant’s Form S-1/A dated July 31, 2012 and incorporated herein by reference. |
(5) | Filed in conjunction with the Registrant’s Form 14A filed October 5, 2012 and incorporated herein by reference. |
(6) | Filed as an exhibit to the Registrant’s Form 8-K dated February 5, 2013 and incorporated herein by reference. |
(7) | Filed as an exhibit to the Registrant’s Form 8-K dated May 14, 2013 and incorporated herein by reference. |
(8) | Filed as an exhibit to the Registrant’s Form 8-A dated July 29, 2013 and incorporated herein by reference. |
(9) | Filed as an exhibit to the Registrant’s Form 8-K dated August 22, 2013 and incorporated herein by reference. |
(10) | Filed as an exhibit to the Registrant’s Form 8-A dated October 3, 2013 and incorporated herein by reference. |
(11) | Filed as an exhibit to the Registrant’s Form 8-K dated October 3, 2013 and incorporated herein by reference. |
(12) | Filed as an exhibit to the Registrant’s Form 8-A dated December 31, 2013 and incorporated herein by reference. |
(13) | Filed as an exhibit to the Registrant’s Form 8-K dated December 31, 2013 and incorporated herein by reference. |
(14) | Filed as an exhibit to the Registrant’s Form 8-K dated March 18, 2014 and incorporated herein by reference. |
(15) | Filed as an exhibit to the Registrant’s Form 8-K dated December 22, 2014 and incorporated herein by reference. |
(16) | Filed as an exhibit to the Registrant’s Form 8-K dated February 13, 2015 and incorporated herein by reference. |
(17) | Filed as an exhibit to the Registrant’s Form 8-K dated August |
(18) | Filed as an exhibit to the Registrant’s Form 8-K dated August 24, 2015 and incorporated herein by reference. |
(19) | Filed as an exhibit to the Registrant’s Form 8-K dated February 2, 2016 and incorporated herein by reference. |
(20) | Filed as an exhibit |
(21) | Filed as an exhibit to the Registrant’s Form 10-Q dated June 30, 2018 and incorporated herein by reference. |
(22) | Filed as an exhibit to the Registrant’s Form 8-K dated June 25, 2020 and incorporated herein by reference. |
(23) | Filed as an exhibit to the Registrant’s Form 1-A dated July 13, 2020 and incorporated herein by reference. |
(24) | Filed as an exhibit to the Registrant’s Form 1-A.1 dated September 11, 2020 and incorporated herein by reference. |
(25) | Filed as an exhibit to the Registrant’s Form 1-A.1 dated November 12, 2020 and incorporated herein by reference. |
(26) | Filed as an exhibit to the Registrant’s Form 8-K dated February 8, 2021 and incorporated herein by reference. |
(27) | Filed as an exhibit to the Registrant’s Form 8-K dated April 19, 2021 and incorporated herein by reference. |
(28) | Filed as an exhibit to the Registrant’s Form 1A/A- dated April 26, 2021 and incorporated herein by reference. |
(29) | Filed herewith. |
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In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Dated: | By: | /s/ Mark L. Kay |
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Dated: | By: | /s/ Philip E. Blocker |
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| Chief Financial Officer and Principal Accounting Officer |
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