UNITED STATES
SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
☒ |
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
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For the quarterly period ended June 30, 2021 |
|
|
☐ |
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
|
For the transition period from ___________ to ___________ |
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STRIKEFORCE TECHNOLOGIES, INC. |
|
(Exact name of registrant as specified in its Charter) |
|
Wyoming |
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000-55012 |
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22-3827597 |
|
(State or other jurisdiction of incorporation or organization) |
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(Commission file number) |
|
(I.R.S. Employer Identification No.) |
1090 King Georges Post Road, Suite 603
Edison, NJ 08837
(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 |
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Name of each exchange on which registered |
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N/A |
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N/A |
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
|
Common Stock, $0.0001 par value |
SFOR |
OTCQB |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the 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 ☐ No
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted 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 ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,’ “accelerated filer,’ “smaller reporting company,’ and “emerging growth company’ in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
☐ |
Accelerated filer |
☐ |
|
Non-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 7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes ☐ No ☒
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 August 17, 2021 |
|
Common stock, $0.0001 par value |
|
893,504,326 |
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 August 17, 2021 |
|
Preferred stock, Series A, no par value |
|
3 |
|
Class |
|
Outstanding at August 17, 2021 |
|
Preferred stock, Series B, $0.10 par value |
|
36,667 |
Transitional Small Business Disclosure Format Yes ☐ No ☒
Documents Incorporated By Reference
None
|
|
STRIKEFORCE TECHNOLOGIES, INC.
INDEX TO FORM 10-Q FILING
JUNE 30, 2021
TABLE OF CONTENTS
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3 |
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Condensed Consolidated Balance Sheets at June 30, 2021 (unaudited) and December 31, 2020 |
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3 |
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4 |
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5-6 |
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8 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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20 |
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29 |
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29 |
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30 |
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32 |
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| 2 |
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| Table of Contents |
PART I
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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STRIKEFORCE TECHNOLOGIES, INC. |
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CONDENSED CONSOLIDATED BALANCE SHEETS |
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June 30, 2021 |
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December 31, 2020 |
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(Unaudited) |
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ASSETS |
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Current Assets: |
|
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||
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Cash (includes VIE balances of $66 and $2,000, respectively) |
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$ | 1,348,000 |
|
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$ | 162,000 |
|
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Accounts receivable, net |
|
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11,000 |
|
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20,000 |
|
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Prepaid expenses |
|
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27,000 |
|
|
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21,000 |
|
|
|
|
|
|
|
|
|
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|
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Total current assets |
|
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1,386,000 |
|
|
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203,000 |
|
|
|
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|
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|
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Property and equipment, net |
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1,000 |
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|
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2,000 |
|
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Operating lease right-of-use asset |
|
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132,000 |
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|
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157,000 |
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Other assets |
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13,000 |
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|
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14,000 |
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|
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Total Assets |
|
$ | 1,532,000 |
|
|
$ | 376,000 |
|
|
|
|
|
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|
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LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
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|
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Current Liabilities: |
|
|
|
|
|
|
|
|
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Accounts payable and accrued expenses (includes VIE balances of $2,000 and $3,000, respectively) |
|
$ | 1,034,000 |
|
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$ | 1,010,000 |
|
|
Convertible notes payable (net of discount of $0 and $14,000, respectively; including $1,438,000 and $1,435,000 in default, respectively) |
|
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1,438,000 |
|
|
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1,469,000 |
|
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Convertible notes payable - related parties |
|
|
268,000 |
|
|
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298,000 |
|
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Notes payable (net of discount of $0 and $52,000, respectively; including $1,969,000 and $2,146,000 in default, respectively) (includes VIE balances of $330,000 and $475,000, respectively) |
|
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2,004,000 |
|
|
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2,250,000 |
|
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Notes payable - related parties |
|
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693,000 |
|
|
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952,000 |
|
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Accrued interest (including $1,437,000 and $1,448,000 due to related parties, respectively) (includes VIE balances of $113,000 and $109,000, respectively) |
|
|
5,295,000 |
|
|
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5,187,000 |
|
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Contingent payment obligation |
|
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1,500,000 |
|
|
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1,500,000 |
|
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Financing obligation (includes VIE balance of $1,263,000 and $1,263,000, respectively) |
|
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1,263,000 |
|
|
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1,263,000 |
|
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Operating lease liability, current portion |
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39,000 |
|
|
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38,000 |
|
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Derivative liabilities |
|
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- |
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|
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163,000 |
|
|
|
|
|
|
|
|
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Total current liabilities |
|
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13,534,000 |
|
|
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14,130,000 |
|
|
|
|
|
|
|
|
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Notes payable, long term portion |
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327,000 |
|
|
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463,000 |
|
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Operating lease liability, long term portion |
|
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99,000 |
|
|
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125,000 |
|
|
|
|
|
|
|
|
|
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Total Liabilities |
|
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13,960,000 |
|
|
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14,718,000 |
|
|
|
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Commitments and Contingencies |
|
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Stockholders' Deficit |
|
|
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Series A Preferred stock, no par value; 100 shares authorized; 3 shares issued and outstanding |
|
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987,000 |
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987,000 |
|
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Series B Preferred stock par value $0.10: 100,000,000 shares authorized; 36,667 shares issued and outstanding |
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4,000 |
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4,000 |
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Preferred stock series not designated par value $0.10: 10,000,000 shares authorized; none issued or outstanding |
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- |
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- |
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Common stock par value $0.0001: 4,000,000,000 shares authorized; 876,169,478 and 718,263,338 shares issued and outstanding, respectively |
|
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88,000 |
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72,000 |
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Additional paid-in capital |
|
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56,701,000 |
|
|
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39,814,000 |
|
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Accumulated deficit |
|
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(69,368,000 | ) |
|
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(54,396,000 | ) |
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Total StrikeForce Technologies, Inc. stockholders' deficit |
|
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(11,588,000 | ) |
|
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(13,519,000 | ) |
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Noncontrolling interest in consolidated subsidiary |
|
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(840,000 | ) |
|
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(823,000 | ) |
|
|
|
|
|
|
|
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Total Stockholders' Deficit |
|
|
(12,428,000 | ) |
|
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(14,342,000 | ) |
|
|
|
|
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Total Liabilities and Stockholders' Deficit |
|
$ | 1,532,000 |
|
|
$ | 376,000 |
|
See accompanying notes to the condensed consolidated financial statements.
| 3 |
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| Table of Contents |
|
STRIKEFORCE TECHNOLOGIES, INC. |
||||||||||||||||
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
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For the Three Months Ended |
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For the Six Months Ended |
|
||||||||||
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June 30, 2021 |
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June 30, 2020 |
|
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June 30, 2021 |
|
|
June 30, 2020 |
|
||||
|
|
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(Unaudited) |
|
|
(Unaudited) |
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(Unaudited) |
|
|
(Unaudited) |
|
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Revenue |
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$ | 67,000 |
|
|
$ | 51,000 |
|
|
$ | 113,000 |
|
|
$ | 111,000 |
|
|
|
|
|
|
|
|
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|
|
|
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Operating expenses: |
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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Cost of revenue |
|
|
8,000 |
|
|
|
7,000 |
|
|
|
11,000 |
|
|
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9,000 |
|
|
Selling, general and administrative expenses |
|
|
1,820,000 |
|
|
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538,000 |
|
|
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7,448,000 |
|
|
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1,047,000 |
|
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Research and development |
|
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129,000 |
|
|
|
124,000 |
|
|
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274,000 |
|
|
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248,000 |
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
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Total operating expenses |
|
|
1,957,000 |
|
|
|
669,000 |
|
|
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7,733,000 |
|
|
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1,304,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Loss from operations |
|
|
(1,890,000 | ) |
|
|
(618,000 | ) |
|
|
(7,620,000 | ) |
|
|
(1,193,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Interest expense (including $61,000 and $65,000 to related parties, respectively) |
|
|
(114,000 | ) |
|
|
(162,000 | ) |
|
|
(242,000 | ) |
|
|
(333,000 | ) |
|
Debt discount amortization |
|
|
(29,000 | ) |
|
|
(188,000 | ) |
|
|
(52,000 | ) |
|
|
(408,000 | ) |
|
Financing costs |
|
|
(3,330,000 | ) |
|
|
- |
|
|
|
(6,569,000 | ) |
|
|
- |
|
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Private placement costs |
|
|
- |
|
|
|
- |
|
|
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- |
|
|
|
(104,000 | ) |
|
Change in fair value of derivative liabilities |
|
|
- |
|
|
|
13,000 |
|
|
|
(219,000 | ) |
|
|
212,000 |
|
|
Gain (loss) on extinguishment of debt, net |
|
|
321,000 |
|
|
|
(253,000 | ) |
|
|
(286,000 | ) |
|
|
(287,000 | ) |
|
Other income (expense) |
|
|
(1,000 | ) |
|
|
43,000 |
|
|
|
(1,000 | ) |
|
|
43,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Other income (expense), net |
|
|
(3,153,000 | ) |
|
|
(547,000 | ) |
|
|
(7,369,000 | ) |
|
|
(877,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net loss |
|
|
(5,043,000 | ) |
|
|
(1,165,000 | ) |
|
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(14,989,000 | ) |
|
|
(2,070,000 | ) |
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
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Net loss attributable to noncontrolling interest |
|
|
10,000 |
|
|
|
12,000 |
|
|
|
17,000 |
|
|
|
21,000 |
|
|
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|
|
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|
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Net loss attributable to StrikeForce Technologies, Inc. |
|
$ | (5,033,000 | ) |
|
$ | (1,153,000 | ) |
|
$ | (14,972,000 | ) |
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$ | (2,049,000 | ) |
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Net loss per common share |
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|
|
|
|
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|
|
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|
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|
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-Basic and diluted |
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$ | (0.01 | ) |
|
$ | (0.15 | ) |
|
$ | (0.02 | ) |
|
$ | (0.29 | ) |
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Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-Basic and diluted |
|
|
847,638,243 |
|
|
|
7,811,894 |
|
|
|
812,551,868 |
|
|
|
7,058,500 |
|
See accompanying notes to the condensed consolidated financial statements.
| 4 |
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| Table of Contents |
|
STRIKEFORCE TECHNOLOGIES, INC. |
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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT |
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FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (Unaudited) |
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Three months ended June 30, 2021 |
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Series A Preferred stock, no par value |
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Series B Preferred stock, par value $0.10 |
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Common stock, par value $0.0001 |
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Additional Paid-in |
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Accumulated |
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Noncontrolling |
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Total Stockholders' |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Interest |
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Deficit |
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Balance at April 1, 2021 |
|
|
3 |
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$ | 987,000 |
|
|
|
36,667 |
|
|
$ | 4,000 |
|
|
|
807,277,505 |
|
|
$ | 81,000 |
|
|
$ | 50,862,000 |
|
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$ | (64,335,000 | ) |
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$ | (830,000 | ) |
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$ | (13,231,000 | ) |
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Common stock issued for cash |
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- |
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- |
|
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- |
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- |
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|
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27,750,000 |
|
|
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3,000 |
|
|
|
1,315,000 |
|
|
|
- |
|
|
|
- |
|
|
|
1,318,000 |
|
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Fair value of common stock issued for services |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
573,184 |
|
|
|
- |
|
|
|
41,000 |
|
|
|
- |
|
|
|
- |
|
|
|
41,000 |
|
|
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Fair value of vested options |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,157,000 |
|
|
|
- |
|
|
|
- |
|
|
|
1,157,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock issued as a financing cost |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
28,219,063 |
|
|
|
3,000 |
|
|
|
3,327,000 |
|
|
|
|
|
|
|
|
|
|
|
3,330,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued upon cashless exercise of warrants |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
12,349,726 |
|
|
|
1,000 |
|
|
|
(1,000 | ) |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(5,033,000 | ) |
|
|
(10,000 | ) |
|
|
(5,043,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2021 (unaudited) |
|
|
3 |
|
|
$ | 987,000 |
|
|
|
36,667 |
|
|
$ | 4,000 |
|
|
|
876,169,478 |
|
|
$ | 88,000 |
|
|
$ | 56,701,000 |
|
|
$ | (69,368,000 | ) |
|
$ | (840,000 | ) |
|
$ | (12,428,000 | ) |
|
Six months ended June 30, 2021 |
||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
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 |
|
|
Noncontrolling |
|
|
Total Stockholders' |
|
|||||||||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Interest |
|
|
Deficit |
|
||||||||||
|
Balance at January 1, 2021 |
|
|
3 |
|
|
$ | 987,000 |
|
|
|
36,667 |
|
|
$ | 4,000 |
|
|
|
718,263,338 |
|
|
$ | 72,000 |
|
|
$ | 39,814,000 |
|
|
$ | (54,396,000 | ) |
|
$ | (823,000 | ) |
|
$ | (14,342,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
65,866,450 |
|
|
|
6,000 |
|
|
|
2,761,000 |
|
|
|
- |
|
|
|
- |
|
|
|
2,767,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock issued for services |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
701,711 |
|
|
|
- |
|
|
|
57,000 |
|
|
|
- |
|
|
|
- |
|
|
|
57,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of vested options |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,387,000 |
|
|
|
- |
|
|
|
- |
|
|
|
6,387,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock issued as a financing cost |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
45,150,500 |
|
|
|
5,000 |
|
|
|
6,564,000 |
|
|
|
- |
|
|
|
- |
|
|
|
6,569,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued upon cashless exercise of warrants |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
12,349,726 |
|
|
|
1,000 |
|
|
|
(1,000 | ) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued upon cashless exercise of options |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
17,208,335 |
|
|
|
2,000 |
|
|
|
(2,000 | ) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued upon conversion of notes and accrued interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
16,168,589 |
|
|
|
2,000 |
|
|
|
1,033,000 |
|
|
|
- |
|
|
|
- |
|
|
|
1,035,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued upon conversion of debt settlement |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
460,829 |
|
|
|
- |
|
|
|
88,000 |
|
|
|
- |
|
|
|
- |
|
|
|
88,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(14,972,000 | ) |
|
|
(17,000 | ) |
|
|
(14,989,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2021 (unaudited) |
|
|
3 |
|
|
$ | 987,000 |
|
|
|
36,667 |
|
|
$ | 4,000 |
|
|
|
876,169,478 |
|
|
$ | 88,000 |
|
|
$ | 56,701,000 |
|
|
$ | (69,368,000 | ) |
|
$ | (840,000 | ) |
|
$ | (12,428,000 | ) |
See accompanying notes to the condensed consolidated financial statements.
| 5 |
|
|
| Table of Contents |
|
STRIKEFORCE TECHNOLOGIES, INC. |
|||||||||||||||||||||||||||
|
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT |
|||||||||||||||||||||||||||
|
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (Unaudited) |
|
Three months ended June 30, 2020 |
||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
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 |
|
|
Noncontrolling |
|
|
Total Stockholders' |
|
|||||||||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Interest |
|
|
Deficit |
|
||||||||||
|
Balance at April 1, 2020 |
|
|
3 |
|
|
$ | 987,000 |
|
|
|
36,667 |
|
|
$ | 4,000 |
|
|
|
6,751,909 |
|
|
$ | 1,000 |
|
|
$ | 29,758,000 |
|
|
$ | (45,249,000 | ) |
|
$ | (786,000 | ) |
|
$ | (15,285,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock issued for services |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
98,865 |
|
|
|
- |
|
|
|
20,000 |
|
|
|
- |
|
|
|
- |
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of vested options |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
102,000 |
|
|
|
- |
|
|
|
- |
|
|
|
102,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued upon conversion of notes payable and accrued interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,068,377 |
|
|
|
- |
|
|
|
586,000 |
|
|
|
- |
|
|
|
- |
|
|
|
586,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued upon conversion of debt settlement |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
444,459 |
|
|
|
- |
|
|
|
98,000 |
|
|
|
- |
|
|
|
- |
|
|
|
98,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,153,000 | ) |
|
|
(12,000 | ) |
|
|
(1,165,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2020 (Unaudited) |
|
|
3 |
|
|
$ | 987,000 |
|
|
|
36,667 |
|
|
$ | 4,000 |
|
|
|
9,363,610 |
|
|
$ | 1,000 |
|
|
$ | 30,564,000 |
|
|
$ | (46,402,000 | ) |
|
$ | (798,000 | ) |
|
$ | (15,644,000 | ) |
|
Six months ended June 30, 2020 |
||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
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 |
|
|
Noncontrolling |
|
|
Total Stockholders' |
|
|||||||||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Interest |
|
|
Deficit |
|
||||||||||
|
Balance at January 1, 2020 |
|
|
3 |
|
|
$ | 987,000 |
|
|
|
36,667 |
|
|
$ | 4,000 |
|
|
|
5,905,388 |
|
|
$ | 1,000 |
|
|
$ | 28,675,000 |
|
|
$ | (44,353,000 | ) |
|
$ | (777,000 | ) |
|
$ | (15,463,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock issued for services |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
98,880 |
|
|
|
- |
|
|
|
20,000 |
|
|
|
- |
|
|
|
- |
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of vested options |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
216,000 |
|
|
|
- |
|
|
|
- |
|
|
|
216,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of warrants issued with convertible notes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
38,000 |
|
|
|
- |
|
|
|
- |
|
|
|
38,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued upon conversion of notes and interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,914,883 |
|
|
|
- |
|
|
|
1,517,000 |
|
|
|
- |
|
|
|
- |
|
|
|
1,517,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued upon conversion of debt settlement |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
444,459 |
|
|
|
- |
|
|
|
98,000 |
|
|
|
- |
|
|
|
- |
|
|
|
98,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,049,000 | ) |
|
|
(21,000 | ) |
|
|
(2,070,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2020 (Unaudited) |
|
|
3 |
|
|
$ | 987,000 |
|
|
|
36,667 |
|
|
$ | 4,000 |
|
|
|
9,363,610 |
|
|
$ | 1,000 |
|
|
$ | 30,564,000 |
|
|
$ | (46,402,000 | ) |
|
$ | (798,000 | ) |
|
$ | (15,644,000 | ) |
See accompanying notes to the condensed consolidated financial statements.
| 6 |
|
|
| Table of Contents |
See accompanying notes to the condensed consolidated financial statements.
| 7 |
|
|
| Table of Contents |
StrikeForce Technologies, Inc.
Notes to the Condensed Consolidated Financial Statements
Three and six months ended June 30, 2021 and 2020
(Unaudited)
Note 1 - Organization and Summary of Significant Accounting Policies
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 operations are based in Edison, New Jersey.
Basis of Presentation-Unaudited Interim Financial Information
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 six months ended June 30, 2021 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2021. These financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2020 and notes thereto contained in the Annual Report on Form 10-K of the Company as filed with the SEC on April 13, 2021.
The 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. At June 30, 2021, noncontrolling interests represents 51% of BST that the Company does not directly own. The Company and BST have a management agreement pursuant to which BST shall remit a management fee of $36,000 per month to the Company, and when BST reaches a milestone of $1,000,000 in financing, an additional management fee of $5,000,000 shall be owed to the Company, payable monthly over three years. The management fee is currently eliminated in consolidation. At June 30, 2021 and December 31, 2020, the amount of VIE cash on the accompanying consolidated balance cash can be used only to settle obligations of BST, and the amounts of VIE accounts payable, VIE Notes Payable, VIE Accrued Interest, and VIE Financing Obligation have no recourse to the general credit of the Company.
COVID-19
In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, has adversely affected workforces, customers, economies, and financial markets globally. It has also disrupted the normal operations of many businesses. This outbreak could decrease spending, adversely affect demand for the Company’s products, and harm the Company’s business and results of operations.
During the six months ended June 30, 2021 and the year ended December 31, 2020, the Company believes the COVID-19 pandemic did impact its operating results. For the year ended December 31, 2020, sales to customers decreased by 73% as compared to the prior year. However, the Company has not observed any impairments of its assets or a significant change in the fair value of its assets due to the COVID-19 pandemic. At this time, it is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations, financial condition, or liquidity.
The Company has been following the recommendations of health authorities to minimize exposure risk for its team members during the pandemic, including the temporary closure of its corporate office and having team members work remotely. During the second quarter of 2021, the Company reopened its corporate office while continuing to adhere to the guidelines issued by health authorities. Many customers and vendors have transitioned to electronic submission of invoices and payments.
Reverse Split
On June 25, 2020, the Company completed a 1:500 reverse stock split of its issued and outstanding shares of common stock and all fractional shares were rounded up. All share and per share amounts have been adjusted retroactively to reflect the reverse stock split as if it had occurred at the beginning of the earliest period presented.
| 8 |
|
|
| Table of Contents |
Going Concern
The accompanying 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 financial statements, for the six months ended June 30, 2021, the Company incurred a net loss of $14,989,000 and used cash in operating activities of $1,271,000 and at June 30, 2021, the Company had a stockholders’ deficit of $12,428,000. Also, at June 30, 2021, the Company is in default on notes payable and convertible notes payable in the aggregate amount of $3,407,000. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that these financial statements are issued. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s December 31, 2020 financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
At June 30, 2021, the Company had cash on hand in the amount of $1,348,000. Management estimates that the current funds on hand will be sufficient to continue operations through the next nine 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 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 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 its operations, in the case of debt financing, or cause substantial dilution for 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. Significant estimates include those related to accounting for financing obligations, assumptions used in valuing stock instruments issued for services, assumptions used in valuing derivative liabilities, the valuation allowance for deferred tax assets, and the accrual of potential liabilities. Actual results could differ from those estimates.
Revenue Recognition
The 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 probable that the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients.
The Company’s revenue consists of revenue from sales and support of our software products. Revenue primarily consists of sales of software licenses of our ProtectID®, GuardedID®, MobileTrust® and SafeVchat™ products. The Company usually recognizes subscription revenue over a one-month period based on a typical monthly renewal cycle in accordance with its customer agreement terms. 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 customer contracts.
Cost of revenue includes direct costs and fees related to the sale of our products.
| 9 |
|
|
| Table of Contents |
The following tables present our revenue disaggregated by major product and service lines:
|
|
|
Three months ended |
|
|||||
|
|
|
June 30,
|
|
|
June 30, 2020 |
|
||
|
Software |
|
$ | 64,000 |
|
|
$ | 49,000 |
|
|
Service |
|
|
3,000 |
|
|
|
2,000 |
|
|
Total revenue |
|
$ | 67,000 |
|
|
$ | 51,000 |
|
|
|
|
Six months ended |
|
|||||
|
|
|
June 30,
|
|
|
June 30, 2020 |
|
||
|
Software |
|
$ | 109,000 |
|
|
$ | 108,000 |
|
|
Service |
|
|
4,000 |
|
|
|
3,000 |
|
|
Total revenue |
|
$ | 113,000 |
|
|
$ | 111,000 |
|
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's assumptions.
The Company is required to use of observable market data if such data is available without undue cost and effort.
The Company believes the carrying amounts reported in the balance sheet for accounts receivable, accounts payable, accrued expenses, convertible notes, and notes payables approximate fair values because of the short-term nature of these financial instruments.
As of December 31, 2020, the Company’s balance sheet included Level 2 liabilities comprised of the fair value of embedded derivative liabilities of $163,000 (see Note 8).
Derivative Financial Instruments
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 Monte Carlo simulation 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.
| 10 |
|
|
| Table of Contents |
Loss per Share
Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per share is 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 common shares had been issued using the treasury stock 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 shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive:
|
|
|
Six months ended |
|
|||||
|
|
|
June 30, 2021 |
|
|
June 30, 2020 |
|
||
|
Options to purchase common stock |
|
|
40,633,001 |
|
|
|
633,000 |
|
|
Warrants to purchase common stock |
|
|
14,965,221 |
|
|
|
150,575 |
|
|
Convertible notes |
|
|
21 |
|
|
|
8,031,979 |
|
|
Convertible Series B Preferred stock |
|
|
1,040,756 |
|
|
|
387,984 |
|
|
Total |
|
|
56,638,999 |
|
|
|
9,203,538 |
|
Concentrations
For the six months ended June 30, 2021, sales to three customers comprised 39%, 31% and 16% of revenues, respectively. For the six months ended June 30, 2020, sales to two customers comprised 65% and 12% of revenues, respectively. At June 30, 2021, two customers comprised 62% and 12% of accounts receivable, respectively.
The Company maintains the majority of its cash balances with one financial institution, in the form of demand deposits. At June 30, 2021, 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.
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 June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC 326”). ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 is effective for the Company beginning January 1, 2023, and early adoption is permitted. The Company does not believe the potential impact of the new guidance and related codification improvements will be material to its financial position, results of operations and cash flows.
In August 2020, the FASB issued ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective January 1, 2024, for the Company. Early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year. Management is currently evaluating the effect of the adoption of ASU 2020-06 on the consolidated financial statements, but currently does not believe ASU 2020-06 will have a significant impact on the Company’s accounting for its convertible debt instruments as they are not considered indexed to the Company’s own stock. The effect will largely depend on the composition and terms of the financial instruments at the time of adoption.
| 11 |
|
|
| Table of Contents |
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. ASU 2021-04 provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. An issuer measures the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange. ASU 2021-04 introduces a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt ASU 2021-04 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The adoption of ASU 2021-04 is not expected to have a material impact on the Company’s financial statements or disclosures.
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's present or future consolidated financial statements.
Note 2 - Convertible Notes Payable
Convertible notes payable consisted of the following:
|
|
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Secured |
|
|
|
|
|
|
||
|
(a) DART/Citco Global, in default |
|
$ | 543,000 |
|
|
$ | 543,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured |
|
|
|
|
|
|
|
|
|
(b) Convertible notes with fixed conversion prices, in default |
|
|
895,000 |
|
|
|
895,000 |
|
|
(c) Convertible notes with adjustable conversion prices |
|
|
- |
|
|
|
45,000 |
|
|
Total convertible notes principal outstanding |
|
|
1,438,000 |
|
|
|
1,483,000 |
|
|
Debt discount |
|
|
- |
|
|
|
(14,000 | ) |
|
Convertible notes, net of discount |
|
$ | 1,438,000 |
|
|
$ | 1,469,000 |
|
___________
|
(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, matured in December 2010, convertible to common shares at a fixed conversion price of $3.25 per share, as adjusted for applicable reverse stock splits, and secured by all of the Company’s assets. 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 financing institution based in Denmark. |
|
|
|
|
|
At June 30, 2021 and December 31, 2020, the outstanding balance of convertible notes payable amounted to $543,000, respectively and in default. |
|
|
|
|
(b) |
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 into less than one share of the Company’s common stock based on fixed conversion prices adjusted for applicable reverse stock splits. |
|
|
|
|
|
At June 30, 2021 and December 31, 2020, the outstanding balance of convertible notes payable amounted to $895,000, respectively and in default. |
|
|
|
|
(c) |
During fiscal 2020, the Company issued convertible notes payable with adjustable conversion prices for aggregate proceeds of $803,000. The notes bear interest at 8% to 10% per annum, unsecured, and maturing between October 2020 and December 2021. At the option of the holder, the notes are convertible into shares of common stock of the Company at a price per share discount of 58% to 70% of the market price of the Company’s common stock, as defined, for 15 to 25 days preceding a conversion notice. The Company determined that the conversion options of the convertible notes were not considered indexed to the Company’s own stock and characterized the conversion features as derivative liabilities upon issuance (see Note 10). The Company also granted warrants to certain note holders to purchase 638,000 shares of the Company’s common stock. As a result, the Company recorded debt discount of $803,000, to account the fair value of the derivative liabilities of $742,000, the relative fair value of the warrants granted of $53,000 and direct fees incurred of $8,000. At December 31, 2020, the outstanding balance of the notes payable amounted to $45,000 and unamortized discount was $14,000. |
|
|
|
|
|
During the six months ended June 30, 2021, notes payable totaling $45,000 plus unpaid interest and fees of $4,000, for a total of $49,000, were converted into 16,168,589 shares of the Company’s common stock with a fair value of $1,035,000. The Company followed the general extinguishment model to record the conversion and settlement of the debt. Notes payable, accrued interest and fees converted totaled $49,000, the related unamortized debt discount totaled ($14,000), and the derivative liability related to the conversion option of these notes, after final valuation, amounted to $382,000. The fair value of the common shares issued amounted to $1,035,000 and the difference between the total debt settled and fair value of the common shares issued amounted to $618,000 and was recorded as loss on extinguishment of debt. |
|
|
|
|
|
At June 30, 2021, the Company had no more convertible notes with adjustable conversion prices outstanding. |
| 12 |
|
|
| Table of Contents |
Note 3 - Convertible Notes Payable - Related Parties
In previous years, the Company issued convertible notes to related parties/officers in exchange for cash and/or services rendered. The notes are unsecured and are due on December 31, 2021. The notes are unsecured, and have due dates of December 31, 2021, as amended. Certain notes payable are due to the Company’s Chief Executive Officer and have a compounded interest rate of 8% per annum. The aggregate notes are convertible into less than one share of the Company’s common stock at fixed conversion prices adjusted for applicable reverse stock splits. As of December 31, 2020, the outstanding balance of the notes payable amounted to $298,000.
During the six months ended June 30, 2021, notes payable aggregating $30,000 were repaid. At June 30, 2021, the balance of convertible notes payable-related parties totaled $268,000.
Note 4 - Notes Payable
Notes payable consisted of the following:
|
|
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Unsecured notes |
|
|
|
|
|
|
||
|
(a) Notes payable-in default |
|
$ | 1,639,000 |
|
|
$ | 1,699,000 |
|
|
(b) Notes payable issued by BST-in default |
|
|
330,000 |
|
|
|
475,000 |
|
|
(c) Note payable-PPP loans |
|
|
177,000 |
|
|
|
313,000 |
|
|
(d) Note payable-EID loan |
|
|
150,000 |
|
|
|
150,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Secured notes payable |
|
|
|
|
|
|
|
|
|
(e) Notes payable |
|
|
35,000 |
|
|
|
128,000 |
|
|
Total notes payable principal outstanding |
|
|
2,331,000 |
|
|
|
2,765,000 |
|
|
Debt discount |
|
|
- |
|
|
|
(52,000 | ) |
|
Less current portion of notes payable, net of discount |
|
|
(2,004,000 | ) |
|
|
(2,250,000 | ) |
|
Long term notes payable |
|
$ | 327,000 |
|
|
$ | 463,000 |
|
|
(a) |
In previous years, the Company issued notes payable in exchange for cash. The notes are unsecured, bear interest at a rate of 8% through 14% per annum and matured starting in fiscal 2011 up to November 2021. As of December 31, 2020, the outstanding balance of these notes payable amounted to $1,699,000 and unamortized debt discount of $52,000. |
|
|
|
|
|
During the six months ended June 30, 2021, $60,000 of the notes were paid and the Company amortized the debt discount of $52,000. At June 30, 2021, the outstanding balance of the notes payable was $1,639,000 and deemed in default. |
| 13 |
|
|
| Table of Contents |
|
(b) |
In fiscal 2018, the Company’s consolidated subsidiary BlockSafe, issued promissory notes in exchange for cash. The notes are unsecured, bearing interest at a rate of 8% per annum, and matured in September 2019. At December 31, 2020, the outstanding balance of the notes payable amounted to $475,000. |
|
|
|
|
|
During the six months ended June 30, 2021, $45,000 of the notes were paid, and a note holder agreed to exchange $100,000 of notes payable for 460,829 shares of the Company’s common stock with a fair value of $88,000 (see Note 10). As a result, the Company recognized a gain on extinguishment of debt of $12,000 to account the difference between the note payable settled and fair value of the common stock issued. |
|
|
|
|
|
At June 30, 2021, the outstanding balance of the notes payable amounted to $330,000 and are deemed in default. |
|
|
|
|
(c) |
On April 7, 2020, the Company was granted a loan (the “PPP loan”) of $313,000, pursuant to the Paycheck Protection Program (the “PPP”) under the CARES Act. The PPP loan matures on April 7, 2022, bears interest at a rate of 1% per annum, with the first six months of interest deferred, is payable monthly commencing on October 2020, and was unsecured and guaranteed by the U.S. Small Business Administration (“SBA”). The loan term may be extended to April 7, 2025, if mutually agreed to by the Company and lender. The PPP loan may be prepaid at any time prior to maturity with no prepayment penalties. Funds from the PPP loan may only be used for qualifying expenses as described in the CARES Act, including qualifying payroll costs, qualifying group health care benefits, qualifying rent and debt obligations, and qualifying utilities. Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses. As of December 31, 2020, outstanding balance of the PPP loan amounted to $313,000. |
|
|
|
|
|
In March 2021, the Company obtained a similar PPP loan of $177,000. |
|
|
|
|
|
In June 2021, the April 2020 PPP loan of $313,000 was forgiven by the SBA. Pursuant to ASC 470, Debt, the Company recorded a gain of $317,000 to extinguish the PPP loan and accrued interest of $4,000. |
|
|
|
|
|
As of June 30, 2021, outstanding balance of the PPP loan amounted to $177,000. The Company intends to apply for forgiveness of the PPP loan with respect to these qualifying expenses, however, the Company cannot assure that such forgiveness of any portion of the PPP loan will occur. As for the potential loan forgiveness, once the PPP loan is, in part or wholly, forgiven and a legal release is received, the liability would be reduced by the amount forgiven and a gain on extinguishment would be recorded. The terms of the PPP loan provide for customary events of default including, among other things, payment defaults, breach of representations and warranties, and insolvency events. The Company was in compliance with the terms of the PPP loan as of June 30, 2020. |
|
|
|
|
(d) |
On May 15, 2020, the Company received a $150,000 loan (the “EID Loan”) from the 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 $0.7 per month are deferred for twelve months and commenced in June 2021. 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. The Company was in compliance with the terms of the EID loan as of June 30, 2021. |
|
|
|
|
(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 148% 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 secured note of $21,000 was extinguished as part of a debt settlement obligation transaction. At December 31, 2020, the outstanding balance of the secured note agreements was $128,000. |
|
|
|
|
|
During the six months ended June 30, 2021, the Company made principal payments of $93,000. |
|
|
|
|
|
At June 30, 2021, the outstanding balance of the secured notes payable was $35,000. One note for $5,000 was due in July 2020 and is past due. The Company and the note holders are in negotiations to extend the due date of the note. |
| 14 |
|
|
| Table of Contents |
Note 5 - Notes Payable - Related Parties
Notes payable-related parties notes represent notes payable to the Company’s Chief Executive Officer ranging in interest rates of 0% per annum to 10% per annum. The notes are unsecured and the outstanding balance of these notes payable at December 31, 2020 amounted to $952,000.
During the six months ended June 30, 2021, the Company made payments of $259,000.
At June 30, 2021, the balance of notes payable-related parties totaled $693,000 which are all due to the Company’s Chief Executive Officer. The notes are due on December 31, 2021.
Note 6 - Financing Obligation
The Company is in the process of developing Coins or Tokens which are an envisioned virtual currency. In fiscal 2018, the Company’s consolidated subsidiary BlockSafe (BST), issued promissory notes 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, 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 June 30, 2021 and December 31, 2020, the outstanding balance of financing obligations amounted to $1,263,000, respectively, to be paid in tokens, as defined. At June 30, 2021 and through the date of filing, BST 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 June 30, 2021, as the tokens do not exist, and any amounts received for tokens are not considered equity or revenue, management determined that 100% of the obligation of $1,263,000 is a liability to be settled by BST, through the issuance of tokens, or through other means if tokens are never issued.
Note 7 - 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 $1,500,000 from the Funders to allow the Company to pursue patent enforcement actions against infringements of its patents. In exchange, the Funders are entitled to receive, after the payment of legal 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 shall be paid only in the event that the Company achieves recoveries of claim proceeds.
At June 30, 2021 and December 31, 2020, the Company has reflected the $1,500,000 received from the Funders as a contingent payment obligation to be paid only if claim proceeds are recovered.
Note 8 - Derivative Financial Instruments
In prior years, the Company issued convertible notes payable whose conversion shares were not explicitly limited. As a result, the Company was unable to conclude that it had enough authorized and unissued shares available to settle the conversion option. The result was that the conversion option was bifurcated from the debt host and accounted for as a derivative liability in accordance with ASC 815, and re-measured at the end of every reporting period with the change in value reported in the statement of operations. Furthermore, since the number of shares to be issued to settle the conversion option was potentially unlimited, the Company would be unable to conclude that it has sufficient authorized and available shares to satisfy other commitments to issue shares if it did not have a sequencing policy. The Company has not adopted, documented and disclosed a sequencing approach that allows its other equity linked financial instruments and conversion options to be classified as equity if they meet the requirements of ASC 815.
The derivative liability was valued using a Monte Carlo valuation method through the assistance of a valuations specialist. The Monte Carlo valuation method uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the conversion features, and future dividends. The Monte Carlo method is used in corporate finance and mathematical finance to value and analyze (complex) instruments, portfolios and investments by simulating the various sources of uncertainty affecting their value, and then determining the distribution of their value over the range of resultant outcomes. This is usually done by help of stochastic asset models. At December 31, 2020, the balance of the derivative liabilities was $163,000.
During the six months ended June 30, 2021, the corresponding convertible notes payable were converted to equity (see Note 2 and 10). Pursuant to current accounting guidelines, the Company determined the fair value of the derivative liability one last time which amounted to $382,000 and as a result, the Company recorded a change in fair value of $219,000. The Company also extinguished the derivative liability of $382,000 as part of loss on debt extinguishment in accordance with current accounting guidelines. At June 30, 2021, the Company has no more instruments accounted as derivative liabilities.
| 15 |
|
|
| Table of Contents |
The fair value of the embedded derivative was determined using the following average assumptions:
|
|
|
January 2021 to June 2021 |
|
|
December 31, 2020 |
|
||
|
Conversion feature: |
|
|
|
|
|
|
||
|
Risk-free interest rate |
|
|
0.08 | % |
|
|
0.09 | % |
|
Expected volatility |
|
|
424 | % |
|
495%-691 |
% |
|
|
Expected life (in years) |
|
0.41 year |
|
|
0.25 to 0.57 year |
|
||
|
Expected dividend yield |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value: |
|
|
|
|
|
|
|
|
|
Conversion feature |
|
$ | 382,000 |
|
|
$ | 163,000 |
|
The risk-free interest rate was based on rates established by the Federal Reserve Bank. The expected volatility is based on the historical volatility of the Company’s stock. The expected life of the conversion feature of the notes was based on the remaining terms 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.
The following table sets forth a summary of the changes in the estimated fair value of our embedded derivative during the six months ended June 30, 2021 and 2020:
|
|
|
Six months ended June 30, 2021 |
|
|
Six months ended June 30, 2020 |
|
||
|
Fair value at beginning of period |
|
$ | 163,000 |
|
|
$ | 1,516,000 |
|
|
Recognition of derivative liabilities upon initial valuation |
|
|
- |
|
|
|
535,000 |
|
|
Extinguishment of derivative liabilities |
|
|
(382,000 | ) |
|
|
(855,000 | ) |
|
Net change in the fair value of derivative liabilities |
|
|
219,000 |
|
|
|
(212,000 | ) |
|
Fair value at end of period |
|
$ | - |
|
|
$ | 984,000 |
|
Note 9 - Operating Lease
In January 2019, the Company entered into a noncancelable operating lease for its headquarters office requiring payments of approximately $4,000 per month, payments increasing 3% each year, and ending on January 31, 2024. We determine if an arrangement is a lease at inception. Lease assets are presented as operating lease right-of-use assets and the related liabilities are presented as lease liabilities in our consolidated balance sheets pursuant to ASC 842, Leases.
Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The operating lease ROU asset includes any lease payments made and excludes lease incentives.
The components of lease expense and supplemental cash flow information related to leases for the period are as follows:
|
|
|
Six months ended June 30, 2021 |
|
|
Six months ended June 30, 2020 |
|
||
|
Lease Cost |
|
|
|
|
|
|
||
|
Operating lease cost (included in general and administration in the Company’s statement of operations) |
|
$ | 28,000 |
|
|
$ | 28,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Other Information |
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities for the six months ended June 30, 2021 and 2020 |
|
$ | 25,000 |
|
|
$ | 27,000 |
|
|
Weighted average remaining lease term - operating leases (in years) |
|
|
2.6 |
|
|
|
3.8 |
|
|
Average discount rate - operating leases |
|
|
10.0 | % |
|
|
10.0 | % |
| 16 |
|
|
| Table of Contents |
The supplemental balance sheet information related to leases for the period is as follows:
|
|
|
At June 30, 2021 |
|
|
|
Operating leases |
|
|
|
|
|
Long-term right-of-use assets |
|
$ | 132,000 |
|
|
|
|
|
|
|
|
Short-term operating lease liabilities |
|
$ | 39,000 |
|
|
Long-term operating lease liabilities |
|
|
99,000 |
|
|
Total operating lease liabilities |
|
$ | 138,000 |
|
Maturities of the Company’s lease liabilities are as follows:
|
Year Ending |
|
Operating Leases |
|
|
|
2021 (remaining 6 months) |
|
|
28,000 |
|
|
2022 |
|
|
58,000 |
|
|
2023 |
|
|
59,000 |
|
|
2024 |
|
|
5,000 |
|
|
Total lease payments |
|
|
150,000 |
|
|
Less: Imputed interest/present value discount |
|
|
(13,000 | ) |
|
Present value of lease liabilities |
|
$ | 137,000 |
|
Lease expenses were $28,000 and $28,000 during the six months ended June 30, 2021 and 2020, respectively.
Note 10 - Stockholders’ Deficit
Common Stock
During the six months ended June 30, 2021, the Company issued an aggregate of 157,906,140 shares of its common stock as follows:
|
|
• |
During the period ended June 30, 2021, pursuant to our offering under Regulation A, the Company issued 65,866,450 shares of common stock in exchange for cash of $2,767,000, net of direct fees and commission. |
|
|
|
|
|
|
• |
The Company issued 701,711 shares of its common stock for services, with a fair value of $57,000. The common shares were valued at the respective date of issuances. Included in this issuance was 500,000 shares of common stock with a fair value of $36,000, for the purchase of a complimentary business, Cybersecurity Risk Solutions, LLC. At the date of acquisition, Cybersecurity Risk Solutions, LLC had nominal assets and liabilities, no revenues and limited operating history. Furthermore, the Company also determined that the acquisition did not meet the requirement of a significant acquisition pursuant to the regulations of the Securities and Exchange Commission. |
|
|
|
|
|
|
• |
The Company issued 16,168,589 shares of common stock upon conversion of convertible notes payable and accrued interest (see Note 2). |
|
|
|
|
|
|
• |
The Company issued 460,829 shares of common stock upon conversion of debt settlement (see Note 4). |
Warrants
The table below summarizes the Company’s warrant activities for the six months ended June 30, 2021:
|
|
|
Number of Warrant Shares |
|
|
Exercise Price Range Per Share |
|
|
Weighted Average Exercise Price |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
|
Balance, January 1, 2021 |
|
|
27,405,475 |
|
|
$ |
0.0045-2.90 |
|
|
$ | 0.013132 |
|
|
Granted |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Canceled/Expired |
|
|
(90,909 | ) |
|
|
- |
|
|
|
- |
|
|
Exercised |
|
|
(13,333,333 | ) |
|
|
- |
|
|
|
- |
|
|
Balance outstanding, June 30, 2021 |
|
|
13,981,234 |
|
|
$ |
0.0045-2.90 |
|
|
$ | 0.013132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance exercisable, June 30, 2021 |
|
|
13,981,234 |
|
|
$ |
0.0045-2.90 |
|
|
$ | 0.013132 |
|
| 17 |
|
|
| Table of Contents |
During the six months ended June 30, 2021, pursuant to the terms of the warrant grant, 13,333,333 warrant shares were exercised on a cashless basis in exchange for 12,349,726 shares of common stock. In addition, 90,909 warrant shares granted to a financing entity in fiscals 2019 and 2020 as part of a financing transaction was exercised. As a result of the exercise, the Company issued 45,150,500 shares of common stock with a fair value of $6,569,000. The common shares issued were valued at the date of issuance and recorded as a finance cost.
At June 30, 2021, intrinsic value of the warrants amounted to $586,000.
The following table summarizes information concerning outstanding and exercisable warrants as of June 30, 2021:
|
|
|
|
Warrants Outstanding and Exercisable |
|
||||||||||
|
Range of Exercise Prices |
|
|
Number Outstanding |
|
|
Average Remaining Contractual Life (in years) |
|
|
Weighted Average Exercise Price |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
| $ | 0.0045 |
|
|
|
13,349,242 |
|
|
|
4.00 |
|
|
$ | 0.0045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 0.085 |
|
|
|
588,235 |
|
|
|
4.00 |
|
|
$ | 0.085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 0.75 |
|
|
|
26,515 |
|
|
|
3.00 |
|
|
$ | 0.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 2.90 |
|
|
|
17,242 |
|
|
|
3.00 |
|
|
$ | 2.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
0.0045 - $2.90 |
|
|
|
13,981,234 |
|
|
|
4.00 |
|
|
$ | 0.013132 |
|
Note 11 - Stock Options
The table below summarizes the Company’s stock option activities for the six months ended June 30, 2021:
|
|
|
Number of Options Shares |
|
|
Exercise Price Range Per Share |
|
|
Weighted Average Exercise Price |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
|
Balance, January 1, 2021 |
|
|
58,133,001 |
|
|
$ |
0.005-1,121,250,000 |
|
|
$ | 0.03704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Exercised |
|
|
(17,500,000 | ) |
|
$ |
0.005 |
|
|
$ | 0.005 |
|
|
Expired |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Balance outstanding, June 30, 2021 |
|
|
40,633,001 |
|
|
$ |
0.005-1,121,250,000 |
|
|
$ | 0.05084 |
|
|
Balance exercisable, June 30, 2021 |
|
|
40,633,001 |
|
|
$ |
0.005-1,121,250,000 |
|
|
$ | 0.05084 |
|
| 18 |
|
|
| Table of Contents |
At June 30, 2021, the intrinsic value of outstanding options was $1,940,000.
In February 2021, 12,250,000 unvested options granted in fiscal 2020 were modified and such options became fully vested. Pursuant to current accounting guidelines, the Company remeasured the fair value of these options and determined their fair value to be $3,675,000 and was recorded as stock compensation expense.
During the period ended June 30, 2021, the Company recorded additional stock compensation expense of $2,712,000 to account for options granted in the prior year that vested. In addition, the Company also issued 17,208,335 shares of the Company’s common stock upon cashless exercise of 17,500,000 options.
The following table summarizes information concerning the Company’s stock options as of June 30, 2021:
|
|
|
|
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 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
| $ | 1,121,250,000 |
|
|
|
1 |
|
|
|
2 |
|
|
$ | 1,121,250,000 |
|
|
|
1 |
|
|
|
2 |
|
|
$ | 1,121,250,000 |
|
| $ | 0.005 |
|
|
|
40,000,000 |
|
|
|
10 |
|
|
$ | 0.005 |
|
|
|
40,000,000 |
|
|
|
10 |
|
|
$ | 0.005 |
|
| $ | 2.85 |
|
|
|
126,000 |
|
|
|
7 |
|
|
$ | 2.85 |
|
|
|
126,000 |
|
|
|
7 |
|
|
$ | 2.85 |
|
| $ | 2.05 |
|
|
|
115,000 |
|
|
|
9 |
|
|
$ | 2.05 |
|
|
|
115,000 |
|
|
|
9 |
|
|
$ | 2.05 |
|
| $ | 3.125 |
|
|
|
392,000 |
|
|
|
6 |
|
|
$ | 3.125 |
|
|
|
392,000 |
|
|
|
6 |
|
|
$ | 3.125 |
|
| $ |
0.0041 - 975,000,000 |
|
|
|
40,633,001 |
|
|
|
6.8 |
|
|
$ | 0.05084 |
|
|
|
40,633,001 |
|
|
|
6.8 |
|
|
$ | 0.05084 |
|
Note 12 - Subsequent Events
Subsequent to June 30, 2021, the Company issued 77,155 shares of common stock for services with a fair value of $4,000.
Subsequent to June 30, 2021, the Company issued 13,557,693 shares of common stock upon cashless exercise of 15,000,000 options.
Subsequent to June 30, 2021, the Company issued 3,700,000 shares of its common stock to investors for cash proceeds of $176,000, net of fees and commission, pursuant to the May 2021 registered Offering Circular.
| 19 |
|
|
| Table of Contents |
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" statements, within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA") as well as historical information. Some of our statements under "Business”, "Properties”, "Legal Proceedings”, "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" 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 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," 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 implications and consequences of the COVID-19 pandemic on our business and on our clients’ business and on the effectiveness and distributions of recently announced vaccines, domestically and internationally to limit the impact of COVID-19, and changes to mask mandate policies; 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.
Unless otherwise noted, references in this Form 10-Q to “StrikeForce”, “we”, “us”, “our”, “SFT”, “our company”, and the “Company” means StrikeForce Technologies, 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 expanding sales channel and internally generated sales, rather than by acquisitions. We hold a 49% interest in BlockSafe Technologies, Inc., and, as of April 2021 of this quarter, we hold a 100% interest in Cybersecurity Risk Solutions, LLC.
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In March 2020, the World Health Organization declared the spread of COVID-19 a pandemic. This outbreak continues to spread throughout the U.S. and around the world. As a result, authorities continue to implement numerous measures to try to contain the virus, including restrictions on travel, quarantines, shelter-in-place orders, business restrictions and complete shutdowns. We are not considered an “essential business” due to the industries and customers we serve. As of, and subsequent to, June 30, 2021, we have been following the recommendations of the CDC and state/local health authorities to minimize exposure risk for our team members during the pandemic, including the temporary closure of our corporate office and having our team members work remotely. During the second quarter of 2021, we reopened our corporate office while continuing to adhere to the guidelines issued by health authorities. Many customers and vendors have transitioned to electronic submission of invoices and payments. The COVID-19 pandemic has resulted in longer response times from potential new customers and certain existing customers. We cannot anticipate the effect that the impairments caused by the COVID-19 pandemic will have on our fiscal 2021 results, or the effectiveness and distributions of vaccines and their distribution in 2021 and changes to mask mandate policies. The pandemic has significantly impacted the economic conditions both in the United States and worldwide, with accelerated effects through the date of this Quarterly Report, as federal, state and local governments react to the public health crisis, creating significant uncertainties in both the worldwide and the United States economies. The situation is rapidly changing, including the onset of the current fourth wave of the virus caused by the Delta variant and the possibility of other variants over time, and additional impacts to our business may arise that we are not aware of currently. We cannot predict whether, when or the manner in which, the conditions surrounding COVID-19 will change including the timing of lifting any restrictions or office closure requirements. We will continue to evaluate the nature and extent of COVID-19’s impact to our business, consolidated results of operations, financial condition and liquidity, and our results presented herein are not necessarily indicative of the results to be expected for future periods in 2021 or beyond.
Management believes that cyber security is a growing requirement as the pandemic continues and more people are working remotely as well as using digital forms on a regular basis. Consequently, the market demand, in our estimation, is increasing. However, our Company is also experiencing the impact of the pandemic. Currently our management has limited business operating from our office location and this impedes our ability to take full advantage of the increasing market demand. Many of our current clients have experienced a dramatic slowdown in their business, limiting their ability to have the resources to pay for our services. We still produce revenues and we anticipate, but cannot guarantee, our video conferencing tool, SafeVchat™, which provides authentication and security (using our existing products), will have gained acceptance in the market. Currently, we have companies doing beta testing. During the six months ended June 30, 2021, we earned revenues of $36,000 from SafeVchat™ and PrivacyLoK™ and overall revenues of $113,000. We believe, but cannot guarantee, that our sales, partly as a consequence of the new work environment created by the pandemic and the need for our products, will significantly increase in the remainder of 2021 and continue that substantial growth into 2022.
On November 13, 2020, our filing of an Offering Circular on Form 1-A, pursuant to Regulation A (File Number: 024-11267) was qualified by the Securities and Exchange Commission. We registered 668,449,198 shares of common stock for maximum proceeds of $2,315,000 (after deducting the maximum broker discount and costs of the offering). As of June 30, 2021, the offering was fully subscribed as we accepted the subscriptions for an aggregate of 474,453,653 shares of common stock for full satisfaction of the entire offering of $2,500,000 (of which we received $2,315,000). We announced the closing of the offering on our Current Report on Form 8-K as filed on February 8, 2021.
On May 11, 2021, our filing of an Offering Circular on Form 1-A, pursuant to Regulation A (File Number: 024-11512) was qualified by the Securities and Exchange Commission. We registered 150,000,000 shares of common stock for maximum proceeds of $7,065,000 (after deducting the maximum broker discount and costs of the offering). During the six months ended June 30, 2021, we issued 27,750,000 shares of common stock to investors for cash proceeds of $1,318,000, net of fees and commission, pursuant to the May 2021 Offering Circular. Subsequent to June 30, 2021, we issued 3,700,000 shares of common stock to investors for cash proceeds of $176,000, net of fees and commission, pursuant to the May 2021 Offering Circular.
We finished development of our SafeVchat™ Secure Video Conferencing and PrivacyLoK™ products at the end of 2020 and deployed SafeVchat™ beta testing by some by our clients and individuals through our resellers. SafeVchat™, in management’s estimation, is one of the most secure video conferencing products on the market. PrivacyLoK™ adds security to all video conferencing tools and runs in conjunction with other applications on the same computer. We anticipate, but cannot guarantee, increased revenues from SafeVchat™ and PrivacyLoK™ in 2021 and beyond.
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 11 employees. Our Company’s website is www.strikeforcetech.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).
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Results of Operations
FOR THE THREE MONTHS ENDED JUNE 30, 2021 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2020
Revenues for the three months ended June 30, 2021 were $67,000 compared to $51,000 for the three months ended June 30, 2020, an increase of $16,000 or 31.4%. The increase in revenues was primarily due to revenues relating to our SafeVchat™ product, despite the impairments related to the economic consequences of the COVID-19 pandemic. Revenues are derived from software, key fobs and services.
Cost of revenues for the three months ended June 30, 2021 was $8,000 compared to $7,000 for the three months ended June 30, 2020, an increase of $1,000 or 14.3%. Cost of revenues are fees and key fobs related to our revenues, and as a percentage of total revenues for the three months ended June 30, 2021 was 11.9% compared to 12.8% for the three months ended June 30, 2020.
Research and development expenses for the three months ended June 30, 2021 were $129,000 compared to $124,000 for the three months ended June 30, 2020, an increase of $5,000 or 4.8%. The increase was primarily due to the increase in salaries and benefits of the personnel conducting research and development. 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 June 30, 2021 were $1,820,000 compared to $538,000 for the three months ended June 30, 2020, an increase of $1,282,000 or 238%. The increase was due primarily to an increase in employee stock-based compensation and 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.
For the three months ended June 30, 2021, other expense was $3,153,000 as compared to other expense of $547,000 for the three months ended June 30, 2020, an increase in other expense of $2,606,000, or 476%. The increase was primarily due to increases in financing costs, offset by decreases in debt discount amortization.
Our net loss for the three months ended June 30, 2021 was $5,043,000 compared to $1,165,000 for the three months ended June 30, 2020, an increase of $3,878,000, or 333%. The increase was primarily due to increases in employee stock-based compensation, professional fees and financing costs, offset by decreases in debt discount amortization.
FOR THE SIX MONTHS ENDED JUNE 30, 2021 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2020
Revenues for the six months ended June 30, 2021 were $113,000 compared to $111,000 for the six months ended June 30, 2020, an increase of $2,000 or 1.8%. The increase in revenues was primarily due to revenues relating to our SafeVchat™ product, despite the impairments related to the economic consequences of the COVID-19 pandemic. Revenues are derived from software, key fobs and services.
Cost of revenues for the six months ended June 30, 2021 was $11,000 compared to $9,000 for the six months ended June 30, 2020. Cost of revenues are fees and key fobs related to our revenues, and as a percentage of total revenues for the six months ended June 30, 2021 was 9.7% compared to 8.1% for the six months ended June 30, 2020.
Research and development expenses for the six months ended June 30, 2021 were $274,000 compared to $248,000 for the six months ended June 30, 2020, an increase of $26,000 or 10.5%. The increase was primarily due to the increase in salaries and benefits of the personnel conducting research and development. 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 six months ended June 30, 2021 were $7,448,000 compared to $1,047,000 for the six months ended June 30, 2020, an increase of $6,401,000 or 611%. The increase was due primarily to an increase in employee stock-based compensation and 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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For the six months ended June 30, 2021, other expense was $7,369,000 as compared to other expense of $877,000 for the six months ended June 30, 2020, an increase in other expense of $6,492,000, or 740%. The increase was primarily due to increases in financing costs, offset by decreases in private placement costs and debt discount amortization.
Our net loss for the six months ended June 30, 2021 was $14,989,000 compared to $2,070,000 for the six months ended June 30, 2020, an increase of $12,919,000, or 624%. The increase was primarily due to increases in employee stock-based compensation, professional fees and financing costs, offset by decreases in private placement costs and in debt discount amortization.
Liquidity and Capital Resources
Our total current assets at June 30, 2021 were $1,386,000, which included cash of $1,348,000, as compared with $203,000 in total current assets at December 31, 2020, which included cash of $162,000. Additionally, we had a stockholders’ deficit in the amount of $12,428,000 at June 30, 2021 compared to a stockholders’ deficit of $14,342,000 at December 31, 2020. 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 six months ended June 30, 2021 primarily from the sale of common shares for cash for net proceeds of $2,767,000 under the offering pursuant to Regulation A , and we received the second draw SBA Paycheck Protection assistance loan for $177,000.
Concentrations
For the six months ended June 30, 2021, sales to three customers comprised 39%, 31% and 16% of revenues, respectively. For the six months ended June 30, 2020, sales to two customers comprised 65% and 12% of revenues, respectively. At June 30, 2021, two customers comprised 62% and 12% of accounts receivable, respectively.
Going Concern
We have yet to establish any history of profitable operations. During the six months ended June 30, 2021, the Company incurred a net loss of $14,989,000 and used cash in operating activities of $1,271,000, and at June 30, 2021, the Company had a stockholders’ deficit of $12,428,000. In addition, we are in default on notes payable and convertible notes payable in the aggregate amount of $3,407,000. 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, 2020 year-end financial statements, and Note 1 in our unaudited 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 six 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 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. Our ability to continue as a going concern is dependent upon our ability to increase our 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 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 stockholders, in the case of equity financing.
Reverse Stock Split and Changes in Authorized Shares
In December 2020, a decrease of the authorized shares of our common stock from fourteen billion (14,000,000,000) to four billion (4,000,000,000), $0.0001 par value, was ratified, effective upon the filing of an amendment to our Certificate of Incorporation with the Wyoming Secretary of State. The amendment was adopted in December 2020.
On June 25, 2020, we completed a 1:500 reverse stock split of our issued and outstanding shares of common stock and all fractional shares were rounded up. All share and per share amounts have been adjusted retroactively to reflect the reverse stock split as if it had occurred at the beginning of the earliest period presented.
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Cybersecurity Risk Solutions, LLC
On April 15, 2021, StrikeForce formally closed a Member Interest Purchase Agreement in which StrikeForce acquired the entire Member Interests of Cybersecurity Risk Solutions, LLC, a New Jersey limited liability company. In April 2021, we issued 500,000 shares of common stock with a fair value of $36,000, for the purchase of Cybersecurity Risk Solutions, LLC. At the date of acquisition, Cybersecurity Risk Solutions, LLC had nominal assets and liabilities, no revenues and limited operating history. Furthermore, the Company also determined that the acquisition did not meet the requirement of a significant acquisition pursuant to the regulations of the Securities and Exchange Commission.
Cybersecurity Risk Solutions, LLC is a cybersecurity firm offering cyber, privacy & data protection services including a personal cyber risk assessment, the industry’s first cyber health score, report and custom action plan, as well as ongoing vulnerability scanning, hack monitoring and dark web intelligence monitoring. For more information, go to https://SecureCyberID.com (which website is expressly not included in this filing). Will Lynch, the prior sole member of Cybersecurity Risk Solutions, LLC was hired by StrikeForce as the Director of Channel Distribution and not as a Named Executive Officer. A Director of Channel Distribution develops, services, and grows relationships with clients. Mr. Lynch will have an annual salary of $100,000 and will also receive 2% net of all Channel sales. Mr. Lynch reports to our Executive Vice President and Marketing Director.
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. Significant estimates include those related to accounting for financing obligations, assumptions used in valuing stock instruments issued for services, assumptions used in valuing derivative liabilities, the valuation allowance for deferred tax assets, and the accrual of potential liabilities. Actual results could differ from those estimates.
Revenue Recognition
The 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 probable that the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients.
The Company’s revenue consists of revenue from sales and support of our software products. Revenue primarily consists of sales of software licenses and subscriptions of our ProtectID®, GuardedID®, MobileTrust®, PrivacyLoK™ and SafeVchat™ 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 our products.
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Share-Based Payments
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.
Derivative Financial Instruments
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 Monte Carlo simulation 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.
Recently Issued Accounting Pronouncements
Refer to Note 1 in the accompanying 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'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's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
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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 June 30, 2021. 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 June 30, 2021. 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.
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
None.
ITEM 1A. RISK FACTORS
The risk factors required pursuant to Regulation S-K, Item 503(c) are not required for smaller reporting companies. Accordingly, the Company has determined to provide particular risk factors at this time. The risks and uncertainties described below are not the only ones facing us. Other events that we do not currently anticipate or that we currently deem immaterial also may affect our results of operations and financial condition. If any events described in the risk factors actually occur, our business, operating results, prospects and financial condition could be materially harmed. In connection with the forward looking statements that appear in our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission on April 13, 2021, you should also carefully review the cautionary statement referred to under “Special Note Regarding Forward Looking Statements.” The forward-looking statements made in this report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.
COVID-19.
We cannot, at this point, determine the extent to which COVID-19 outbreak will impact business or the economy as both are highly uncertain and cannot be predicted.
THE OUTBREAK OF THE CORONAVIRUS MAY NEGATIVELY IMPACT SOURCING AND MANUFACTURING OF THE PRODUCTS THAT WE SELL AS WELL AS CONSUMER SPENDING, WHICH COULD ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout China and other parts of the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern.” On January 31, 2020, U.S. Health and Human Services Secretary Alex M. Azar II declared a public health emergency for the United States to aid the U.S. healthcare community in responding to COVID-19, and on March 11, 2020 the World Health Organization characterized the outbreak as a “pandemic”. The significant outbreak of COVID-19 has resulted in a widespread health crisis that could adversely affect the economies and financial markets worldwide, and could adversely affect our business, results of operations and financial condition.
In addition, we applied for funding pursuant to the Small Business Administration program. The Paycheck Protection Program provides forgivable funding for payroll and related costs as well as some non-payroll costs. We applied for funding and we received (on April 17, 2020) first draw funding in the amount of $313,000 (fully forgiven on June 10, 2021) and we received (on March 16, 2021) second draw funding in the amount of $177,000. The Economic Injury Disaster Loan provides low-interest, long-term financing. We previously applied for funding and received (on May 18, 2020) funding in the amount of $150,000. No assurances can be provided as to the adequacy of the funds received for ongoing operations in 2021 or if additional funding will be subsequently available.
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THE OUTBREAK OF THE COVID-19 MAY ADVERSELY AFFECT OUR CUSTOMERS.
Further, such risks as described above could also adversely affect our customers' financial condition, resulting in reduced spending for the merchandise we sell. Risks related to an epidemic, pandemic or other health crisis, such as COVID-19, could also lead to the complete or partial closure of one or more of our facilities or operations of our sourcing partners. The ultimate extent of the impact of any epidemic, pandemic or other health crisis on our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic or other health crisis and actions taken to contain or prevent their further spread, among others. These and other potential impacts of an epidemic, pandemic or other health crisis, such as COVID-19, could therefore materially and adversely affect our business, financial condition and results of operations.
The economic conditions arising from the pandemic have resulted in an economy that is volatile and unpredictable. Some companies are experiencing reduced revenues and in turn, as a consequence of limited cash flow, are not prepared to purchase our products. COVID-19 has led to some of our customers and potential customers being stricken with the virus causing them to not be able to work for many weeks and therefore causing delays for us in our marketing decisions. This outbreak could decrease spending, adversely affect demand for our products, and harm our business and results of operations. It is not possible for us to predict the duration or magnitude of the adverse results of the outbreak or the timing and the degree to which economic recovery will be realized post-pandemic and, consequently, its effects on our business or results of operations, financial condition, or liquidity, at this time. We cannot anticipate the effect that the impairments caused by the COVID-19 pandemic or the degree to which the economy rebounds post-pandemic will have on the last quarters of 2021 and into 2022 results, or the effectiveness and distributions of recently announced vaccines, changes to mask mandate policies, and impact of the Delta variant and other possible future variants. We will continue to evaluate the nature and extent of COVID-19’s impact to our business, consolidated results of operations, financial condition and liquidity, and our results presented herein are not necessarily indicative of the results to be expected for future years.
THE OUTBREAK OF COVID-19 HAS RESULTED IN A WIDESPREAD HEALTH CRISIS THAT COULD ADVERSELY AFFECT THE ECONOMIES AND FINANCIAL MARKETS WORLDWIDE AND COULD EXPONENTIALLY INCREASE THE RISK FACTORS DESCRIBED IN OUR PRIOR FILINGS.
SHOULD ONE OR MORE OF THE FOREGOING RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR PLANNED.
ITEM 2. RECENT ISSUANCES OF UNREGISTERED SECURITIES
In April 2021, we issued a total of 32,680 shares of restricted common stock, valued at $2,000, to a consultant for services provided relating to a consultant agreement.
In April 2021, we issued 500,000 shares of common stock with a fair value of $36,000, for the purchase of a complimentary business, Cybersecurity Risk Solutions, LLC.
In April 2021, we issued 28,219,063 shares of common stock with a fair value of $3,308,000 for financing services rendered and cancellation of warrants to purchase 56,438 shares of common stock that was granted in fiscal 2019. The common shares issued were valued at the date of issuance.
In May 2021, we sold subscriptions for $679,000, net of fees and commission, and issued 14,300,000 shares of our common stock relating to the May 2021 registered Offering Circular.
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In May 2021, we issued a total of 33,004 shares of restricted common stock, valued at $2,000, to a consultant for services provided relating to a consultant agreement.
In May 2021, we issued 12,349,726 shares of common stock with a fair value of $800,000 for financing services rendered and cancellation of warrants to purchase 12,349,726 shares of common stock that was granted in fiscal 2020. The common shares issued were valued at the date of issuance.
In June 2021, we sold subscriptions for $639,000, net of fees and commission, and issued 13,450,000 shares of our common stock relating to the May 2021 registered Offering Circular.
In June 2021, we issued a total of 7,500 shares of restricted common stock, valued at $450, relating to a December 2009 retainer agreement with our SEC attorney.
Subsequent issuances:
Subsequent to June 30, 2021, we issued 77,155 shares of common stock for services with a fair value of $4,000.
Subsequent to June 30, 2021, we issued 13,557,693 shares of common stock upon cashless exercise of 15,000,000 options.
Subsequent to June 30, 2021, we issued 3,700,000 shares of its common stock to investors for cash proceeds of $176,000, net of fees and commission, pursuant to the May 2021 registered Offering Circular.
The above offerings, apart from the offerings registered pursuant to the Securities Act of 1933, were made in reliance upon the exemption from registration under Rule 506 of Regulation D promulgated under the Securities Act of 1933 and/or Section 4(2) of the Securities Act of 1933, based on the following: (a) the investors confirmed to us that they were “accredited investors,” as defined 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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
At June 30, 2021, the Company is in default on notes payable and convertible notes payable in the aggregate amount of $3,407,000. 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 DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
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ITEM 6. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
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Exhibit Number |
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Description |
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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 Ramarao Pemmaraju (4) |
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Irrevocable Waiver of Conversion Rights of George Waller (4) |
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BlockSafe Technologies, Inc. Intellectual Property License Agreement (21) |
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BlockSafe Technologies, Inc. Amended Management Agreement (21) |
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Cybersecurity Risk Solutions LLC Member Interest Purchase Agreement, dated April 15, 2021 (27) |
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101.INS |
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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) |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document. (29) |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document. (29) |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document. (29) |
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101.LAB |
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Inline XBRL Taxonomy Extension Labels Linkbase Document. (29) |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document. (29) |
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104 |
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Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). (29) |
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| Table of Contents |
________________
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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. |
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(2) |
Filed as an exhibit to the Registrant’s Form 8-K dated February 4, 2011 and incorporated herein by reference. |
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(3) |
Filed as an exhibit to the Registrant's Form 10-Q dated December 13, 2010 and incorporated herein by reference. |
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(4) |
Filed as an exhibit to the Registrant’s Form S-1/A dated July 31, 2012 and incorporated herein by reference. |
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(5) |
Filed in conjunction with the Registrant’s Form 14A filed October 5, 2012 and incorporated herein by reference. |
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(6) |
Filed as an exhibit to the Registrant’s Form 8-K dated February 5, 2013 and incorporated herein by reference. |
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(7) |
Filed as an exhibit to the Registrant’s Form 8-K dated May 14, 2013 and incorporated herein by reference. |
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(8) |
Filed as an exhibit to the Registrant’s Form 8-A dated July 29, 2013 and incorporated herein by reference. |
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(9) |
Filed as an exhibit to the Registrant’s Form 8-K dated August 22, 2013 and incorporated herein by reference. |
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(10) |
Filed as an exhibit to the Registrant’s Form 8-A dated October 3, 2013 and incorporated herein by reference. |
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(11) |
Filed as an exhibit to the Registrant’s Form 8-K dated October 3, 2013 and incorporated herein by reference. |
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(12) |
Filed as an exhibit to the Registrant’s Form 8-A dated December 31, 2013 and incorporated herein by reference. |
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(13) |
Filed as an exhibit to the Registrant’s Form 8-K dated December 31, 2013 and incorporated herein by reference. |
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(14) |
Filed as an exhibit to the Registrant’s Form 8-K dated March 18, 2014 and incorporated herein by reference. |
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(15) |
Filed as an exhibit to the Registrant’s Form 8-K dated December 22, 2014 and incorporated herein by reference. |
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(16) |
Filed as an exhibit to the Registrant’s Form 8-K dated February 13, 2015 and incorporated herein by reference. |
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(17) |
Filed as an exhibit to the Registrant’s Form 8-K dated August 4, 2015 and incorporated herein by reference. |
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(18) |
Filed as an exhibit to the Registrant’s Form 8-K dated August 24, 2015 and incorporated herein by reference. |
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(19) |
Filed as an exhibit to the Registrant’s Form 8-K dated February 2, 2016 and incorporated herein by reference. |
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(20) |
Filed as an exhibit to the Registrant’s Form 8-K dated September 11, 2017 and incorporated herein by reference. |
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(21) |
Filed as an exhibit to the Registrant’s Form 10-Q dated June 30, 2018 and incorporated herein by reference. |
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(22) |
Filed as an exhibit to the Registrant’s Form 8-K dated June 25, 2020 and incorporated herein by reference. |
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(23) |
Filed as an exhibit to the Registrant’s Form 1-A dated July 13, 2020 and incorporated herein by reference. |
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(24) |
Filed as an exhibit to the Registrant’s Form 1-A.1 dated September 11, 2020 and incorporated herein by reference. |
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(25) |
Filed as an exhibit to the Registrant’s Form 1-A.1 dated November 12, 2020 and incorporated herein by reference. |
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(26) |
Filed as an exhibit to the Registrant’s Form 8-K dated February 8, 2021 and incorporated herein by reference. |
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(27) |
Filed as an exhibit to the Registrant’s Form 8-K dated April 19, 2021 and incorporated herein by reference. |
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(28) |
Filed as an exhibit to the Registrant’s Form 1A/A- dated April 26, 2021 and incorporated herein by reference. |
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(29) |
Filed herewith. |
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SIGNATURES
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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STRIKEFORCE TECHNOLOGIES, INC. |
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Dated: August 20, 2021 |
By: |
/s/ Mark L. Kay |
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Mark L. Kay |
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Chief Executive Officer |
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Dated: August 20, 2021 |
By: |
/s/ Philip E. Blocker |
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Philip E. Blocker |
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Chief Financial Officer and |
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Principal Accounting Officer |
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| 32 |
EXHIBIT 31.1
CERTIFICATION
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULES 13A-14 AND 15D-14
OF THE SECURITIES EXCHANGE ACT OF 1934
I, Mark L. Kay, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of StrikeForce Technologies, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c. |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d. |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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Dated: August 20, 2021 |
By: |
/s/ Mark L. Kay |
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Mark L. Kay |
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Chief Executive Officer |
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EXHIBIT 31.2
CERTIFICATION
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULES 13A-14 AND 15D-14
OF THE SECURITIES EXCHANGE ACT OF 1934
I, Philip E. Blocker, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of StrikeForce Technologies, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c. |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d. |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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Dated: August 20, 2021 |
By: |
/s/ Philip E. Blocker |
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Philip E. Blocker |
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Chief Financial Officer |
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EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
—————————————
In connection with the Quarterly Report of StrikeForce Technologies, Inc. (the "Company") on Form 10-Q for the quarter ended June 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Mark L. Kay, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2001, that:
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Dated: August 20, 2021 |
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/s/ Mark L. Kay |
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Mark L. Kay |
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Chief Executive Officer |
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EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
—————————————
In connection with the Quarterly Report of StrikeForce Technologies, Inc. (the "Company") on Form 10-Q for the quarter ended June 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Philip E. Blocker, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2001, that:
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Dated: August 20, 2021 |
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/s/ Philip E. Blocker |
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Philip E. Blocker |
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Chief Financial Officer |
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