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EX-31.1 - CERTIFICATION - StrikeForce Technologies Inc.sfor_ex311.htm
EX-32.2 - CERTIFICATION - StrikeForce Technologies Inc.sfor_ex322.htm
EX-31.2 - CERTIFICATION - StrikeForce Technologies Inc.sfor_ex312.htm
EX-32.1 - CERTIFICATION - StrikeForce Technologies Inc.sfor_ex321.htm

 

UNITED STATES

SECURITIES EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the fiscal year ended December 31, 2015

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the transition period from _______________ to _______________

 

STRIKEFORCE TECHNOLOGIES, INC.

(Exact name of registrant as specified in its Charter)

 

WYOMING

000-55012

22-3827597

(State or other jurisdiction of

incorporation or organization)

(Commission file number)

(I.R.S. Employer

Identification No.)

 

1090 King Georges Post Road, Suite 603

Edison, NJ08837

(Address of Principal Executive Offices)

 

(732) 661-9641

(Issuer's telephone number)

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

Name of each exchange  on which registered

N/A

N/A

 

Securities registered pursuant to Section 12(g) of the Exchange Act:

 

Common stock, $0.0001 par value

Title of Class

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ¨

 

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 x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such a shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company. See definition of "accelerated filer", "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act. Yes ¨ No x

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

Class

Outstanding at April 8, 2016

Common stock, $0.0001 par value

2,127,957,407

 

Class

Outstanding at April 8, 2016

Preferred stock, Series A, no par value

3

 

Class

Outstanding at April 8, 2016

Preferred stock, Series B, $0.10 par value

175,338

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. Solely for purposes of the foregoing calculation, all of the registrant's directors and officers are deemed to be affiliates. This determination of affiliate status for this purpose does not reflect a determination that any persons are affiliates for any other purposes. $1,419,938

 

Transitional Small Business Disclosure Format Yes ¨ No x

 

Documents Incorporated By Reference

 

None

 

 

 

STRIKEFORCE TECHNOLOGIES, INC.

FORM 10-K ANNUAL REPORT

FOR THE FISCAL YEARS ENDED DECEMBER 31, 2015 and 2014

 

TABLE OF CONTENTS

 

PART I

ITEM 1.

BUSINESS

4

ITEM 1A.

RISK FACTORS

12

ITEM 1B.

UNRESOLVED STAFF COMMENTS

18

ITEM 2.

PROPERTIES

18

ITEM 3.

LEGAL PROCEEDINGS

18

ITEM 4.

MINE SAFETY DISCLOSURES

18

PART II

ITEM 5.

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

19

ITEM 6.

SELECTED FINANCIAL DATA

20

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

21

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

30

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

30

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

31

ITEM 9A.

CONTROLS AND PROCEDURES

31

ITEM 9B.

OTHER INFORMATION

32

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.

33

ITEM 11.

EXECUTIVE COMPENSATION

36

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

39

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

44

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

48

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

49

SIGNATURES

51

CERTIFICATIONS

Exhibit 31 –Management certification

 

Exhibit 32 –Sarbanes-Oxley Act

 

 

 
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CAUTION REGARDING FORWARD-LOOKING INFORMATION

 

Included in this annual 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 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 ability to attract and retain qualified personnel; the ability to protect technology; and other factors referenced in this filing.

 

Consequently, all of the forward-looking statements made in this Form 10-K 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-K to "StrikeForce" "we", "us", "our", "SFT", "our company", and the "Company" means StrikeForce Technologies, Inc., a Wyoming corporation.

 

 
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PART I

 

ITEM 1. BUSINESS

 

We are a software development and services company that offers a suite of integrated computer network security products using proprietary technology. StrikeForce Technical Services Corporation was incorporated in August 2001 under the laws of the State of New Jersey. On September 3, 2004, we changed our name to StrikeForce Technologies, Inc. On November 15, 2010, we redomiciled under the laws of the State of Wyoming. We initially conducted operations as an integrator and reseller of computer hardware and telecommunications equipment and services until December 2002. In December 2002, and formally memorialized in September 2003, we acquired certain intellectual property rights and patent pending technology from NetLabs.com, Inc. ("NetLabs") including the rights to further develop and sell their principal technology. In addition, certain officers of NetLabs joined our company as officers and directors of our company. Our ongoing strategy is developing and marketing our suite of network security products to the corporate, financial, healthcare, legal, government, technology, insurance, e-commerce and consumer sectors. We plan to continue to grow our business primarily through our globally expanding sales channel and internally generated sales, rather than by acquisitions. We have no subsidiaries and we conduct our operations from our corporate office in Edison, New Jersey.

 

We began our operations in 2001 as a reseller and integrator of computer hardware and iris biometric technology. From the time we started our operations through the first half of 2003, we derived the majority of our revenues as an integrator. In December 2002, upon the acquisition of the licensing rights to certain intellectual property and patent pending technology from NetLabs, we shifted the focus of our business to developing and marketing our own suite of security products. Based upon our acquired licensing rights and additional research and development, we have developed various identification protection software products to protect computer networks from unauthorized access and to protect users from identity theft.

 

We completed the development of our ProtectIDÒ platform at the end of June 2006. We completed the core development of our keyboard encryption and anti-keylogger product, GuardedIDÒ, in December 2006 and commenced deployment of our new mobile product, MobileTrustÒ into the mobile stores in 2014. All are currently being sold and distributed. ProtectIDÒ patent titled "Multi-Channel Device Utilizing a Centralized Out-of-Band Authentication System" is now protected by three patents. The keystroke encryption technology we developed and use in our GuardedIDÒ product is protected by three patents.

 

In November 2010, we received notice that the United States Patent and Trademark Office ("USPTO") had issued an official Notice of Allowance for the patent application for the technology relating to our ProtectIDÒ product. In January 2011, we received notice that the USPTO issued to us Patent No. 7,870,599. This "Out-of-Band" Patent went through a USPTO Re-Examination process starting on August 16, 2011 and concluded on December 27, 2011, with all of our patent claims remaining intact and eight additional patent claims being added. Since 2011, we submitted additional continuation patents on the "Out-of-Band" Patent, two additional patents granted and a fourth pending.

 

In January 2013, we were assigned the entire right, title and interest in the "Out-of-Band" Patent from NetLabs, with the agreement of the developer, and the assignment was recorded with the United States Patent and Trademark Office ("USPTO").

 

In February 2013, we executed a retainer agreement with our patent attorneys to aggressively enforce our patent rights as "Out-of-Band Authentication" is becoming the standard for authenticating consumers in the financial market and for many Saas application users (e.g., SalesForce, Quickbooks, etc.). In February 2013, our patent attorneys submitted a new "Out-of-Band" Patent continuation, which has been granted.

 

In March 2013, our patent attorneys submitted a new "Methods and Apparatus for securing user input in a mobile device" Patent, which is now patent pending. Our MobileTrustÒ product is the invention supporting the patent pending.

 

In July 2013, we received notice that the USPTO had added approximately sixty additional patent claims for our Out-of-Band patent we received in January 2011, by issuing to us Patent No. 8,484,698 thereby strengthening our position with clients and our current and potential lawsuits.

 

In October 2013, we received notice that the USPTO issued to us Patent No. 8,566,608 "Methods and apparatus for securing keystrokes from being intercepted between the keyboard and a browser." This protects our GuardedIDÒ product and the keystroke encryption portion of our MobileTrustÒ products.

 

 
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In February 2014, we received a Notice of Allowance from the USPTO for our third patent relating to our "Multi-Channel Device Utilizing a Centralized Out-of-Band Authentication System" Patent No. 7,870,599. Upon receipt of this "Out-of-Band" patent we filed another continuation patent.

 

In March 2014, we received Notice of Allowance from the USPTO for our second patent and first continuation of our Keystroke Encryption patent, which only furthers our protection for all mobile devices when utilizing any keyboard for data entry. Upon receipt of this Notice, we also filed another continuation patent for Patent No. 8,566,608.

 

In April 2014, we were granted our third patent relating to our "Multi-Channel Device Utilizing a Centralized Out-of-Band Authentication System" Patent No. 8,713,701.

 

In September 2014, we filed an International Patent for MobileTrustÒ (PCT/US20114/029905).

 

In March 2015, we received our third patent from the USPTO, Patent No. 8,973,107, of our Keystroke Encryption patent. This enhances our position for our Keystroke Encryption product, GuardedIDÒ, and our MobileTrustÒ product.

 

Our suite of products is targeted to the financial, e-commerce, corporate, government, healthcare, legal, insurance, technology and retail sectors. We seek to locate customers in a variety of ways. These primarily include contracts with value added resellers and distributors (both inside the United States and internationally), direct sales calls initiated by our internal staff, exhibitions at security and technology trade shows, through the media, through consulting agreements, and through our agent relationships. Our sales generate revenue either as an Original Equipment Manufacturer ("OEM") model, through a Hosting/License agreement, bundled with other company's products or through direct purchase by distributors and resellers. We price our products for cloud consumer transactions based on the number of transactions in which our software products are utilized. We also price our products for business applications based on the number of users. These pricing models provide our company with one-time, monthly, quarterly and annual recurring revenues with volume discounts. We are also generating revenues from annual maintenance contracts, renewal fees and expect, but cannot guarantee, an increase in revenues based upon the execution of various agreements that we have recently closed and were implemented during the fourth quarter of 2015, primarily in the retail and insurance sectors.

 

We generated all of our revenues of $271,559 for the year ended December 31, 2015, compared to $324,807 for the year ended December 31, 2014, from the sales of our security products. The decrease in revenues was primarily due to the decrease in our software and maintenance sales and a decrease in hardware sales. We have realized delays in revenues from some of our new distributor's that, although there can be no assurances, we anticipate will appear in 2016, and in the delayed rollout of our new mobile security technologies, now rolling out through the Apple and Android markets during the fourth quarter of 2015 and into 2016. In addition, we rolled out our GuardedIDÒ MAC version that we anticipate, but cannot guarantee, that combined with the new mobile security technologies, will increase our revenues during 2016 and thereafter. Additionally, we believe we have opportunities through our sales distribution channels, including current pilots, which we believe should increase revenues in 2016 and thereafter, especially with the addition of our new mobile security products and new multi-marketing partners.

 

We market our products globally to financial service firms, healthcare related companies, legal services companies, e-commerce companies, gaming, automotive, government agencies, multi-level marketing groups, the enterprise market in general, and with virtual private network companies, as well as technology service companies and retail distributors that service all the above markets. We seek such sales through our own direct efforts, through distributors, resellers and third party agents internationally. We are also seeking to license the technology as original equipment with computer hardware and software manufacturers. We are engaged in multiple production installations and pilot projects with various distributors, resellers and direct customers primarily in the United States. Our GuardedIDÒ product is also being sold directly to consumers, primarily through the Internet as well as distributors, resellers, third party agents, affiliates and potential OEM agreements by bundling GuardedIDÒ with their products (providing a value-add and competitive advantage to their own products and offerings). Currently this is the most active market for us with multiple programs in production. We anticipate, but cannot guarantee, increases in revenues in 2016 from these programs. In addition, we have completed the development and testing of our new mobile products, MobileTrustÒ and GuardedIDÒ Mobile Software Development Kit (SDK), which is in now in production, by Apple Store and the Android Play Store, with completion of our new sCloud registration process. The mobile products play a major role in our anticipated, but not guaranteed, 2016 revenue projections. Although no assurances can be provided that revenues will increase as anticipated, our GuardedIDÒ MAC version, recently rolled out, is another reason for the anticipated increase in revenues during 2016 and thereafter.

 

 
5
 

  

We have incurred substantial losses since our inception. Our management believes that our products provide a cost-effective, more secure and technologically competitive solution to address the problems of cyber security and data breaches in general, especially when considering our new mobile applications. Considering recent public announcements by Symantec and other media sources that anti-virus solutions barely protect against the new malware threats, primarily keylogging malware, we contend that our keystroke encryption patented products are becoming more important, especially in the healthcare and retail markets. However, there can be no assurance that our products will continue to gain increased acceptance and continue to grow in the commercial and retail marketplaces or that one of our competitors will not introduce technically superior products.

 

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 7 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-K).

 

Our Products

 

StrikeForce is a software development and services company. We own and are seeking to commercially exploit various identification protection software products that we developed to protect computer networks from unauthorized access, real time, and to protect network owners and users from cyber security attacks and data breaches. Our principal products ProtectIDÒ, GuardedIDÒ, inclusive of our unique CryptoColorÒ technology and MobileTrustÒ, are proprietary authentication and keystroke encryption technologies that are intended to eliminate unauthorized access to computer networks and all mobile devices, and to prevent unauthorized individuals from copying (logging) keystrokes. We are increasing our market for our suite of products in the financial services, e-commerce, corporate, healthcare, government and consumer sectors. Our cyber security products are as follows:

 

o

ProtectIDÒ is our multi-patented authentication platform that uses "Out-of-Band" multi-factor in-house installation, cloud service technology and a hybrid to authenticate computer network users by a variety of methods including traditional passwords combined with a telephone, iPhone, Droid, Blackberry, PDA, or multiple computer secure sessions, biometric identification and encrypted devices such as tokens or smartcards as examples. The authentication procedure separates authentication information such as usernames from the pin/passwords or biometric information, which are then provided to or from the network's host server across separate communication channels. The platform allows for corporate control and client choices, per their company's security policies, which evolves over time with newly available and customer requested technologies. (Patent Nos:7,870,599, 8,484,698, and 8,713,701 and one patent pending for Out-of-Band Authentication)

o

GuardedIDÒ creates a 256-bit AES encrypted real time separate pathway for information delivery from a keyboard to a targeted application on a local computer, preventing the use of spyware/malware to collect user information. This product provides keyboard encryption and helps prevent keylogging from occurring in real time, which helps prevent the number one threat to consumers and businesses in today's market: keylogging software, which is stealth software embedded in web sites, emails, pictures, MP3 files, videos, USB's or other software and hardware that, once unknowingly launched, secretly monitors and records all of a user's keystrokes on the computer and sends the data to the cyber thief without the user's awareness. Keylogging has been reported as the one of the major causes of major data breaches that occurred from 2010 to 2014, as reported in the 2010-2014 Verizon Data Breach Reports. (Patent No: 8,566,608, 8,732,483 and 8,973,107).

o

MobileTrustÒ (Patent Pending) is an advanced iPhone/iPad and Android device password vault that includes a strong password generator. MobileTrustÒ also provides for Mobile Multi-Factor One Time Password authentication, a secured browser and keystroke encryption between its virtual keyboard and secured browser, which is critical to all confidential online transactions and other features, which is now in final Beta. This new feature for mobile devices, which helps prevent data breaches and stolen credentials is a critical and vital addition to all enterprise mobile users, as enterprises transition to "Bring Your Own Devices" (BYOD).

o

GuardedIDÒ Mobile SDK is a software development kit that provides developers our patent protected keystroke encryption protection for all Apple and Android mobile device's secure keyboards, allowing our keystroke encryption software to be embedded in any mobile applications, utilizing DES 256 Encryption.

 

Our products sometimes include software and hardware that we contractually license from other vendors. These products include VASCO (an authentication and e-signature solutions company) tokens, as well as additional authentication and telecommunication software devices. ProtectIDÒ also uses a software product for its Voice Biometric Out-of-Band method through a partnership with Trade HarborÓ.

 

 
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The ProtectIDÒ Cloud Service can be hosted by our service provider (we have a strategic arrangement with a third party SAS70 hosting service) as well as the ProtectIDÒ Out-of-Band and Multi-Factor Platform, which can be installed internally in a customer's infrastructure or as a hybrid implementation. With the exception of our free redistributable Microsoft software components, our reseller agreement with VASCO and our partnership with Trade Harbor, none of our contracts for hardware or software are with a sole supplier of that feature or product.

 

Factors that are considered important to our success include, but are not limited to, the following:

 

o

Our productsaddress the needs of a broad variety of customers for authentication and cyber security overall. One of the biggest problems facing the world is Cyber Theft, the effects of which, our management contends, total an estimated $221 billion per year in business losses and more recently, based on anecdotal evidence provided to management, stated to be in the trillions going forward.

o

Symantec reported there were over 401 million new pieces of Spyware found over the past year.

o

48% of all data breaches were caused by key loggers (malware copying keystrokes), as reported by the Verizon 2012 Data Breach Report. Similar percentages are reported in the Verizon 2014 report, recently published. All of the companies breached, per these reports, had an anti-virus program installed.

o

In 2011, it was reported that RSA Security's data was breached from which Lockheed Martin and others were affected and lost millions of dollars. This event caused many companies to look to other means of two-factor authentication, such as Out-of-Band. The RSA Data Breach started with a keylogging virus which our GuardedIDÒ product, management believes would most likely would have prevented.

o

In February 2013, Computerworld reported that the Federal Government put security on the frontline of IT agendas with its announcement of a new cyber security center in Canberra, AU and an additional $1.46 billion in funding for cyber security as part of a new national security blueprint.

o

In respect to the latest version of our keyboard encryption and anti-keylogger Product, GuardedIDÒ, a recent report from a government security group known as CERT states that minimally 80% of the malicious keylogging programs are undetected by the major anti-virus software suites. Our Guarded IDÒ is designed, we believe, to render the malicious programs useless, in real time.

o

In June 2013, PhoneArena.com, The Multiple Threat Center of Juniper Networks, found mobile malware growing exponentially at an alarming rate – a 614% one year increase reaching a total of just about 280,000 malicious apps.

In February 2015, the New York Times reported that a Global Bank heist occurred in banks around the globe from a keylogger. This was the first known time that a large hack was reported with the details which included a keylogger that our management believes GuardedIDÒ would have most likely prevented. The article was noted as caused by keystroke encryption in a picture on the front page of the New York Times.

 

o

The Effectiveness of Our Products: Our products have been designed to provide, we believe, a high available level of security for computer networks and individual users. In particular, we believe that the now Patented "Out-of-Band" authentication process is an innovative technology that will greatly prevent unauthorized access to computer networks and will provide effective security products to drastically reduce the incidence of identity fraud for our customers. We have contractually commenced implementation of our products on a large global scale, yet there can be no assurance that they will function in all aspects as intended. Likewise, a high level of innovation characterizes the software industry and there can be no assurance that our competitors will not develop and introduce a superior product. The effective functioning of our products once deployed is an important factor in our future success. To date and our knowledge, all of our clients have reported, per a report by Research 2.0, that our products work as described.

o

Ability to Integrate our Software with Customer Environments: There are numerous operating systems that are used by computer networks. The ability of a software product to integrate with multiple operating systems is likely to be a significant factor in customer acceptance of particular products. StrikeForce's ProtectIDÒ operates on an independent Cloud Service platform and is also able to integrate with multiple operating systems and user interfaces for an in-house implementation. ProtectIDÒ has been designed to use multiple authentication devices that are currently on the market (including, but not limited to, biometrics, key-fob tokens, iPhones, iPads, Blackberrys, Androids, PDA's, smart cards and other mobile devices). Our ability to integrate our products with multiple existing and future technologies is currently a key factor in the growth of our product's acceptance and is demonstrated by our success with recent clients and installations referred to in a number of our 2014 and 2015 press releases. Our GuardedIDÒ product currently operates with Windows Internet Explorer (IE), Firefox, Chrome and Safari browsers and our upgraded Premium version works with almost all applications running on a Windows desktop platform, inclusive of Microsoft Office and now also the MAC. New features and functions for both products continue to be developed via our research and development. We are also now live with our MobileTrustÒ and GuardedIDÒ Mobile SDK products.

 

o

Relative Cost: We have attempted to design our products to provide a cost-effective suite of products for financial services, e-commerce, commercial, healthcare, government and direct-consumer customers. Our ability to offer our products at a competitive price and to add to existing installations is likely in our opinion, to be a key factor in the acceptance of our product as we have seen with many of our clients.

 

 
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Business Model

 

We are focusing primarily on developing sales through "channel" relationships in which our products are offered by other manufacturers, distributors, value-added resellers and agents, internationally. In 2015, we added and publicly announced additions to our global distribution sales channel, which provides additional presence for us in the United States, Canada, Europe and Africa. We continue to add additional channel partners, especially on the consumer side and developed a new retail business. We also sell our suite of security products directly from our Edison, New Jersey office, which also augments our channel partner relationships. It is our strategy that these "channel" relationships will provide the greater percentage of our revenues ongoing, as was the case in the past two years. Examples of the channel relationships that we are seeking include already established original equipment manufacturer ("OEM") and bundled relationships with other security technology and software providers that would integrate or bundle the enhanced security capabilities of ProtectIDÒ, GuardedIDÒ and/or MobileTrustÒ into their own product lines, thereby providing greater value to their clients. These would include providers of networking software and manufacturers of computer and telecommunications hardware and software that provide managed services, and multi-level marketing groups, as well as all markets interested in increasing the value of their products and packages, such as financial services software, anti-virus, government integrators and identity theft product companies. We signed various new distributors during the fourth quarter of 2015 and have optimistic expectations for 2016, resulting from these distribution relationships. Additionally, in February 2016, Advanced Cyber Security ("ACS") purchased their option to buy our GuardedIDÒ patent, as well as our GuardedIDÒ and MobileTrustÒ products, while we retain an unlimited license to resell those products. The distributors have already obtained new clients and we expect, but cannot guarantee, that more clients will be obtained during 2016 and thereafter. There is no guarantee as to the timing and success of these business relationships or reaching our self-imposed expectations.

 

From our MobileTrustÒ security new mobile application, which is now built and with our sCloud registration process in production, we have created and announced two new products: our new ProtectIDÒ Mobile OTP (One Time Password) to be used with ProtectIDÒ; and our new GuardedIDÒ Mobile keystroke encryption software development kit (SDK). Both new products are now in production. With the creation of this new GuardedIDÒ Mobile SDK, we now focus the sales of this software product to the development groups of our target markets to be added to their mobile applications. We are in discussions with many large scale parties that are interested in this software. Management has already received requests for this software, including for mobile devices, as keystroke encryption malware grows and remains a major problem for the cyber security market. Particularly, in management's estimation, with anti-virus products being seen as non-effective against malware threats.

 

Our primary target markets include financial services such as banks and insurance companies, healthcare providers, legal services, government agencies through integrators, technology platforms, e-commerce based services companies, telecommunications and cellular carriers, technology software companies, government agencies and consumers, especially for our mobile and keystroke encryption products. We are focusing our concentration on cyber security and data breach strategic problem areas, such as where compliance with financial, healthcare, legal and government regulations are key and stolen passwords are used to acquire private information illegally. In the fourth quarter of 2015, a number of our channel partners had pilots and client implementations in place that are expected, although no assurances can be provided, to increase our revenues in 2016. With our mobile products commencing production in the first quarter of 2016, we anticipate, but cannot guarantee, increased revenues for the remainder of 2016 and thereafter. There is no guarantee as to the timing and success of these efforts.

 

Because we are now expecting a continual, recurring growing market demand, especially in the mobility and encryption markets, we continue to develop an increasing global reseller and distribution channel as a strategy to generate, manage and fulfill demand for our products across market segments, minimizing the requirement for an increase in our staff. We continue to minimize the concentration on our initial direct sales efforts as our distribution and reseller channels continue to grow internationally and provide appropriate levels of sales and support in the growing Cyber Security market.

 

We seek to generate revenue through fees for ProtectIDÒ based on client consumer usage in the financial, healthcare services and legal services markets, as well as enterprises in general, through our Cloud Service, plus one-time and annual per person fees in the enterprise markets which often are for in-house installations of our products, and set-up and recurring transaction fees when the product is accessed in our Cloud Service, along with annual maintenance fees, and other one-time and recurring fees. We also intend to generate revenues through sales of our GuardedIDÒ product. GuardedIDÒ pricing is for an annual license and we discount for volume purchases. GuardedIDÒ pricing models, especially when bundling through OEM contracts, include monthly and quarterly recurring revenues. As more agreements are reached by our distributors, we are experiencing monthly increasing sales growth, through the execution of GuardedIDÒ bundled OEM agreements. We also provide our clients a choice of operating our ProtectIDÒ software internally by licensing it or through our hosted Cloud Service or a hybrid that some clients have implemented and none of our competitors presently offer. GuardedIDÒ requires a download on each and every computer it protects, whether for employees or consumers. We have four GuardedIDÒ products, (i) a standard version which protects browser data entry only, (ii) a premium version which protects almost all the applications running under Microsoft Windows on the desktop, including Microsoft Office Suite and almost all applications running on the desktop, (iii) an Enterprise version which, in addition, provides the Enterprise administrative rights and the use of Microsoft's Enterprise tools for the product's deployment, and (iv) an Apple MAC version for all the latest MAC operating systems and for the browsers and entire desktop. Our MobileTrustÒ mobile product will be priced for the consumer through the appropriate mobile phone stores, as well as direct, distribution and OEM sales for higher volume enterprises, including volume discounts to the degree allowed by the telecommunications providers. Our GuardedIDÒ Mobile SDK (software development kit) will be priced on an annual recurring fee based on volume and number of users or an enterprise plus maintenance price. We anticipate, but can provide no assurances, that these new product offerings will result in the largest number of sales and related revenues for us in 2016 and thereafter.

 

 
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Our management believes that our products provide a cost-effective and technologically competitive solution to address the increasing problems of network security and cyber security in general. Updated guidance for the Federal Financial Institutions Examination Council ("FFIEC") regulations include the requirement for solutions that have Two-Factor Out-of-Band Authentication and products that stop keylogging malware, real time, which our management believes our proprietary products uniquely and directly address. This new updated guidance went into effect as of January 1, 2012. Additionally, the 2014 Verizon Data Breach report, published in April 2015, stated that 80% of all the data breaches they reported would not have occurred if the corporations used two factor authentication, such as our ProtectIDÒ system. The report also indicates that over 79% of the data breaches would most likely not have occurred if the corporations breached used anti-keylogging software, such as our GuardedIDÒ system in addition to the typical anti-virus programs. Based on the FFIEC requirement in the latest FFIEC update that was published in June 2011 (being enforced as of January 2012) the latest Verizon Data Breach Report and the new articles from the White House urging law firms and legal services firms to add two factor authentication, we have recently experienced a growing increase in pilots and sales orders and inquiries specifically in the financial and legal markets. In January 2014, PCI Compliance published an update that includes the requirement for not only encrypting data at rest, but also to encrypt data in motion including the keystrokes users enter in their device. Additionally, Symantec's senior vice-president for information security, Brian Dye, told the Wall Street Journal that anti-virus "is dead", in an article published in May 2014. However, there can be no assurance that our products will continue to gain acceptance and continue to grow in the commercial marketplace or that one of our competitors will not introduce technically superior products.

 

Marketing

 

Our multi-channel marketing strategy includes:

 

1.

Direct sales to enterprise and commercial customers. In this effort, we join ACS, in order to meet other companies, at the RSA Security Show annually as well as other security related shows and we are looking at other sales alternatives in order to respond aggressively to inquiries relating to our products.

2.

The global addition of resellers, agents & distributors (our strategic sales channel) who distribute and resell our products and services to enterprise and commercial customers globally (technology and software product distributors, systems integrators, managed service companies, other security technology and software vendors, telecom companies, cyber security related product companies, etc.).

3.

Application Service Provider (ASP) Partners: Our third party service provides a hosting platform that facilitates faster implementations at competitive prices for our Cloud Service option.

4.

Original Equipment Manufacturers (OEM): SFT products are sold to other security technology vendors that integrate ProtectIDÒ and GuardedIDÒ and now GuardedIDÒ Mobile SDK into their products (bundling) and services providing for monthly/annual increasing recurring revenues.

5.

Internet sites that sell GuardedIDÒ to consumers and small enterprises, such as affiliates.

6.

Technology and other providers and resellers, agents and distributors interested in purchasing and or selling our new MobileTrustÒ cyber solution for all mobile devices, initially for all Apple and Android devices, that we now have in production starting in 2016.

7.

Outside Independent consultants selling our products for commission only, focusing on the healthcare, legal and consumer markets.

 

Our sCloud service provider is Hosting.com and we have been under contract with them since December 2007 when we executed an agreement with a nationwide premier data center and co-location services provider who functions as an Application Service Provider for our ProtectIDÒ, GuardedIDÒ and MobileTrustÒ products, which require a secondary server used for the "Out-of-Band" two-factor authentication technology. We believe that this relationship improves the implementation time, reduces the cost and training requirements, and allows for ease of scalability, with hot backups in multiple locations across the U.S., on an as needed basis. Our sCloud site is also SAS 70 (Statement on Auditing Standards (SAS) No. 70) certified, which is critical to providing a secure compliant service that is required by most of our clients. Our agreement with the services provider was for a one-year (1) term, initially ending in December 2008 and renewing automatically for one-year (1) terms, and is still in effect. The relationship can be terminated by either party on sixty days written notice. The cloud service is based on a flat monthly fee per the terms of the contract that can increase as we require additional services.

 

 
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Intellectual Property

 

We are working with our patent attorneys to aggressively enforce our patent rights per the terms of a retainer agreement executed in February 2013, now that we have successfully settled our first major patent lawsuit. Our patent attorneys also filed our fourth "Out of Band" continuation patents. The third patent was recently granted and the fourth patent is pending. We currently have three patents granted to us for Out-of-Band ProtectIDÒ (Patent Nos.: 7,870,599, 8,484,698 and 8,713,701). In September 2014, we filed an International Patent for MobileTrustÒ (PCT/US20114/029905), which is pending.

 

We are also working with our patent attorneys to plan our strategy to aggressively enforce the patent rights relating to our granted Keystroke Encryption patents that help protect our GuardedIDÒ and MobileTrustÒ products. We were granted three related keystroke encryption patents for which we received the most recent patent on March 3, 2015 (Patent Nos.: 8,566,608, 8,732,483 and 8,973,107). In February 2016, a channel partner exercised their option to purchase our GuardedIDÒ patents, which, if effectuated, requires them to pay us $9,000,000 for the patents before September 30, 2020.

 

We have four trademarks that have been approved and registered: ProtectIDÒ, GuardedIDÒ, MobileTrustÒ and CryptoColorÒ. A portion of our software is licensed from third parties and the remainder is developed by our own team of developers while leveraging some external consultant expertise as necessitated. We rely upon confidentiality agreements signed by our employees, consultants and third parties to protect the intellectual property rights.

 

We license technology from third parties, including software that is integrated with internally developed software and used in our products to perform key functions. We anticipate that we will continue to license technology from third parties in the future. Although we are not substantially dependent on any individual licensed technology, some of the software that we license from third parties could be difficult for us to replace. The effective implementation of our products depends upon the successful operation of third-party licensed products in conjunction with our suite of products, and therefore any undetected errors in these licensed products could create delays in the implementation of our products, impair the functionality of our products, delay new product introductions, damage our reputation, and/or cause us to provide substitute products.

 

Business Strategy

 

While we will most likely continue to post operating deficits, our first quarter 2016 results will show an overall net income, due to the award we received from the confidential settlement of our first major patent remediation litigation. Most of the costs that we incur are related to salaries, professional fees, marketing, sales and research & design. We increased our technology staff by contracting an outsourced firm in 2015. Our operations presently require funding of approximately $130,000 per month. We expect that our monthly cash usage for operations will increase slightly due to contracted and anticipated increased volumes and adding some targeted channel marketing programs. We anticipate that the areas in which we will experience the greatest increase inoperating expenses is in marketing, selling, product support, product research and new technology development in the growing cyber security market. We are committed to maintaining our current level of operating costs until we reach the level of revenues needed to absorb any potential increase in costs.

 

Our primary strategy in 2016 is to focus on the growth and support of our channel partners, including distributors, resellers and original equipment manufacturers (OEMs). Our internal sales team targets potential direct sales in industries that management believes provides the greatest potential for short term sales. These include small to medium sized financial institutions, government agencies, e-commerce, healthcare, legal and enterprise businesses. We are also executing agreements with strategic resellers and distributors for marketing, selling and supporting our products internationally. We primarily work with distributors, resellers and agents to generate the bulk of our sales internationally, realizing that this strategy takes longer to nurture, however it is progressing well. We are starting to realize positive results, however slowly, with our sales channel and anticipate, but cannot guarantee a successful 2016, through the sales channel and from our new mobile and GuardedIDÒ MAC products with a concentration of sales already contracted. There can be no assurances, however, that we will succeed in implementing our sales strategy. Although management believes that there is an increasingly strong market for our products as the need for cyber security solutions increases globally, we have not generated substantial revenue from the sale of our products and there is no assurance we can secure a market sufficient to permit us to achieve profitability in the next twelve months.

 

 
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Competition

 

The software development and services market is characterized by innovation and competition. There are several well-established companies within the authentication market that offer network security systems in our product market and newer companies with emerging technologies. We believe that our multi-patented "Out-of-Band" multi-factor identity authentication platform is an innovative, secure, adaptable, competitively priced, integrated network authentication platform. The main features of ProtectIDÒ include: an open architecture "Out-of-Band" platform for user authentication; operating system independence; biometric layering; soft mobile tokens; mobile authentication; secure website logon; Virtual Private Network ("VPN") access; domain authentication; newly added Office 365 authentication and multi-level authentication. Unlike other techniques for increased network security, ProtectIDÒ does not rely on a specific authentication device or method (e.g., phone, tokens, smart cards, digital certificates, soft mobile tokens, or biometrics, such as a retinal or fingerprint scan). Rather ProtectIDÒ has been developed as an "open platform" that incorporates an unlimited number of authentication devices and methods. For example, once a user has been identified to a computer network, a system deploying our ProtectIDÒ authentication system permits the "Out-of-Band" authentication of that user by a telephone, iPhone, iPad, Blackberry, PDA, email, hard token, SSL client software, a biometric device such as a voice biometric, or others, before that user is permitted to access the network. By using "Out-of-Band" authentication methods, management believes that ProtectIDÒ, now patented and protected through our ongoing litigation, with plans for additional litigation, provides a competitive product for customers with security requirements greater than typical name and password schemes for virtual private networks and computer systems with multiple users at remote locations, as examples. We also believe that our multi-patented keystroke encryption product, GuardedIDÒ, offers an additional competitive edge for network security and e-commerce applications that should provide greater levels of security and the ability to evolve over time based on newer technologies when made available. There is less competition for the keystroke encryption product and there are no well-established companies in this space, which explains our current growth in pilots and sales for GuardedIDÒ, especially relating to bundled channel partner programs. GuardedIDÒ is critical to help prevent key logging viruses, one of the largest sources of cyberattacks and data breaches. GuardedIDÒ also is protected with three patents. Our newest product, MobileTrustÒ, is ideal for bringing the functionality of our other two products, especially including keystroke encryption, to all mobile devices, with initial focus on all Apple and Android devices. This product is also protected with our GuardedIDÒ patents and some of its features and functions are covered by the Out-of-Band Authentication patent. Our other new mobile product is GuardedIDÒ Mobile SDK, which allows our secured keyboard function as a software development kit for developers to purchase and integrate as part of their secured applications. Considering the features and functions, all of our cyber solutions have limited competition based on our products' ability to protect individual identities and computers/devices against some of the most dangerous and increasing threats. We also have great demand for the mobile products, which are being marketed to all potential new clients.

 

Although we believe that our suite of products offer competitive advantages, there is no assurance that any of these products will continue to increase its market share in the marketplace. Our competitors include established software and hardware companies that are likely to be better financed and to have established sales channels. Due to the high level of innovation in the software development industry, it is also possible that a competitor will introduce a product that provides a higher level of security than our products or which can be offered at prices that are more advantageous to the customer.

 

Employees

 

As of fiscal year end December 31, 2015, we had 7 employees and our relations with employees are good.

 

WHERE YOU CAN FIND MORE INFORMATION

 

You are advised to read this Form 10-K 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 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.

 

 
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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 elsewhere in this annual report, you should also carefully review the cautionary statement referred to under "Special Note Regarding Forward Looking Statements."

 

SHOULD ONE OR MORE OF THE FOREGOING RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE UNDERLYING ASSUMPTIONS OF OUR BUSINESS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR PLANNED.

 

OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM HAS EXPRESSED SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN, WHICH MAY HINDER OUR ABILITY TO OBTAIN FUTURE FINANCING.

 

We have yet to establish any history of profitable operations. For the year ended December 31, 2015, we incurred a net loss of $1,807,245, used cash in operations of $878,236, and at December 31, 2015, had a stockholders' deficit of $13,724,487. These factors raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2015 with respect to this uncertainty. This going concern opinion could materially limit our ability to raise additional funds through the issuance of new debt or equity securities or otherwise, and future reports on our financial statements may also include an explanatory paragraph with respect to our ability to continue as a going concern.

 

At December 31, 2015, we had cash on hand in the amount of $37,153. Management estimates that the current funds on hand will be sufficient to continue operations through the next twelve months. Our ability to continue as a going concern is dependent upon our ability to raise additional funds and implement our business plan. Management is currently seeking additional funds, primarily through the issuance of debt and equity securities for cash to operate our business. Currently, management is attempting to increase revenues and improve gross margins by a revised sales strategy. We are redirecting our sales focus from direct sales to domestic and international sales channel, where we are primarily selling through a channel of Distributors, Value Added Resellers, Strategic Partners and Original Equipment Manufacturers. While we believe in the viability of our strategy to increase revenues and in our ability to raise additional funds, there can be no assurances to that effect. Our ability to continue as a going concern is dependent upon our ability to continually increase our customer base and realize increased revenues from recently signed contracts. No assurance can be given that any future financing 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, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in the case of equity financing.

 

THE PATENT APPLICATION MOBILETRUSTÒ TECHNOLOGY IS PENDING AND THERE IS NO ASSURANCE THAT THIS APPLICATIONS WILL BE GRANTED. FAILURE TO OBTAIN THE PATENT FOR THE APPLICATION COULD PREVENT US FROM SECURING REVENUES IN THE FUTURE. THREE PATENT APPLICATIONS FOR THE PROTECTIDÒ TECHNOLOGY AND THREE FOR GUARDEDIDÒ HAVE BEEN GRANTED. ONE PATENT APPLICATION FOR THE PROTECTIDÒ TECHNOLOGY IS PENDING.

 

In November 2010, we received notice that the United States Patent and Trademark Office ("USPTO") had issued an official Notice of Allowance for the patent application for the technology relating to our ProtectIDÒ product, titled "Multi-Channel Device Utilizing a Centralized Out-of-Band Authentication System". In January 2011, we received notice that the USPTO issued to us Patent No. 7,870,599. This "Out-of-Band" Patent went through a USPTO Re-Examination process starting on August 16, 2011 and concluded on December 27, 2011, with all of our patent claims remaining intact and eight additional patent claims being added. Since 2011, we submitted additional continuation patents on the "Out-of-Band" Patent. The keystroke encryption technology we developed and use in our GuardedIDÒ product is protected by three patents and one continuation pending.

 

 
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In January 2013, we were assigned the entire right, title and interest in the "Out-of-Band" patent from NetLabs, with the agreement of the developer, and the assignment was recorded with the USPTO.

 

In February 2013, we executed a retainer agreement with our patent attorneys to aggressively enforce our patent rights as "Out-of-Band Authentication" is becoming the standard for authenticating consumers in the financial market. In February 2013, our patent attorneys submitted a new "Out-of-Band" Patent continuation, which has been granted.

 

In March 2013, our patent attorneys submitted a new "Methods and Apparatus for securing user input in a mobile device" Patent, which is now patent pending. Our MobileTrustÒ product is the invention supporting the patent pending.

 

In July 2013, we received notice that the USPTO had added 54 additional patent claims for our Out-of-Band patent we received in January 2011, by issuing to us Patent No. 8,484,698 thereby strengthening our position with clients and our current and potential lawsuits.

 

In October 2013, we received notice that the USPTO issued to us Patent No. 8,566,608 "Methods and apparatus for securing keystrokes from being intercepted between the keyboard and a browser." This protects our GuardedIDÒ product and the keystroke encryption portion of our MobileTrustÒ products.

 

In February 2014, we received a Notice of Allowance from the USPTO for our third patent relating to our "Multi-Channel Device Utilizing a Centralized Out-of-Band Authentication System" Patent No. 7,870,599. Upon receipt of this Out-of-Band patent we filed another continuation patent.

 

In March 2014, we received Notice of Allowance from the USPTO for our second patent and first continuation of our Keystroke Encryption patent, which only furthers our protection for all mobile devices when utilizing any keyboard for data entry. Upon receipt of this Notice, we also filed another continuation patent for Patent No. 8,566,608.

 

In April 2014, we were granted our third patent relating to our "Multi-Channel Device Utilizing a Centralized Out-of-Band Authentication System" Patent No. 8,713,701.

 

In September 2014, we filed an International Patent for MobileTrustÒ (PCT/US20114/029905).

 

In March 2015, we received our third patent from the USPTO, Patent No. 8,973,107, of our Keystroke Encryption patent. This enhances our position for our Keystroke Encryption product, GuardedIDÒ, and our MobileTrustÒ product.

 

We completed the development of our ProtectIDÒ platform at the end of June 2006, we completed the core development of our keyboard encryption and anti-keylogger product, GuardedIDÒ, in December 2006 and commenced deployment of our new mobile product, MobileTrustÒ into the mobile stores in 2014, of which the first two are currently being sold and distributed. Our suite of products is targeted to the financial, e-commerce, corporate, government, healthcare, legal, insurance, technology and retail sectors. We seek to locate customers in a variety of ways. These primarily include contracts with value added resellers and distributors (both inside the United States and internationally), direct sales calls initiated by our internal staff, exhibitions at security and technology trade shows, through the media, through consulting agreements, and through our agent relationships. Our sales generate revenue either as an Original Equipment Manufacturer ("OEM") model, through a Hosting/License agreement, bundled with other company's products or through direct purchase by distributors and resellers. We price our products for cloud consumer transactions based on the number of transactions in which our software products are utilized. We also price our products for business applications based on the number of users. These pricing models provide our company with one-time, monthly, quarterly and annual recurring revenues with volume discounts. We are also generating revenues from annual maintenance contracts, renewal fees and expect, but cannot guarantee, an increase in revenues based upon the execution of various agreements that we have recently concluded and implemented during the fourth quarter of 2014, primarily in the retail and insurance sectors. To date the MobileTrustÒ patent application has not yet been granted. We cannot be certain that this patent will be granted nor can we be certain that other companies have not filed for patent protection for these technologies. In the event the patents were granted for the MobileTrustÒ technology, there is no assurance that we will be in a position to enforce the patent rights. Failure to be granted patent protection for the technology could result in greater competition or in limited payments. This could result in inadequate revenue and cause us to cease operations.

 

 
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WE WILL FACE INTENSE COMPETITION FROM COMPETITORS THAT HAVE GREATER FINANCIAL, TECHNICAL AND MARKETING RESOURCES. THESE COMPETITIVE FORCES MAY IMPACT OUR PROJECTED GROWTH AND ABILITY TO GENERATE REVENUES AND PROFITS, WHICH WOULD HAVE A NEGATIVE IMPACT ON OUR BUSINESS AND THE VALUE OF YOUR INVESTMENT.

 

We likely will face competition from alternate security software programs and services. As is typical of a new industry, demand and market acceptance for recently introduced services are subject to a high level of uncertainty and risk. In addition, the software industry is characterized by frequent innovation. As the market for computer security products evolves, it will be necessary for us to continually modify and enhance our existing products and develop new products. We believe that our competitors will enhance existing product lines and introduce new products. If we are unable to update our software to compete or to meet announced schedules for improvements and enhancements, it is likely that our sales will suffer and that potential customers will be lost to a competing company's product.

 

Because the market for our services is new and evolving, it is difficult to predict the future growth rate, if any, and the size of this market. Substantial marketing activities have been implemented and will continue to be required to meet our revenue and profit goals. There can be no assurance we will be successful in such marketing efforts. There can be no assurance either that the market for our services will develop or become sustainable. Further, other companies may decide to provide services similar to ours. These companies may be better capitalized than us and we could face significant competition in pricing and services offered.

 

IF WE DO NOT ADEQUATELY PROTECT THE INTELLECTUAL PROPERTY RIGHTS, WE MAY EXPERIENCE A LOSS OF REVENUE AND OUR OPERATIONS MAY BE MATERIALLY IMPAIRED.

 

We rely upon confidentiality agreements signed by our employees, consultants and third parties to protect the intellectual property. These agreements generally provide that the individual must keep confidential and not disclose to other parties any confidential information developed or learned by the individual during the course of the individual's relationship with us except in limited circumstances. These agreements generally also provide that we shall own all inventions conceived by the individual in the course of rendering services to us. These agreements may not effectively prevent disclosure of confidential information or result in the effective assignment to us of intellectual property, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information or other breaches of the agreements. In addition, others may independently discover trade secrets and proprietary information that have been licensed to us or that we own, and in such case we could not assert any trade secret rights against such party.

 

We cannot assure that we can adequately protect the intellectual property or successfully prosecute potential infringement of the intellectual property rights. Also, we cannot assure that others will not assert rights in, or ownership of, trademarks and other proprietary rights of ours or that we will be able to successfully resolve these types of conflicts to our satisfaction. Failure to protect the intellectual property rights would result in a loss of revenue and could adversely affect our operations and financial condition. In December 2011, we executed an exclusive agreement with a firm to defend and protect our "Out-of-Band" Patent No. 7,870,599, which now includes Patent No. 8,484,698 and 8,713,701.In January 2013, we were assigned the entire right, title and interest in the "Out-of-Band" patent by NetLabs, with approval by the developer, and the assignment was recorded with the USPTO. We are working with our patent attorneys to aggressively enforce our Out-of-Band Authentication patent rights per the terms of a retainer agreement executed in February 2013.

 

OUR INABILITY TO RETAIN OUR KEY EXECUTIVE OFFICERS WOULD IMPEDE OUR BUSINESS PLAN AND GROWTH STRATEGIES, WHICH COULD HAVE A NEGATIVE IMPACT ON OUR BUSINESS AND THE VALUE OF YOUR INVESTMENT.

 

Our success depends, to a critical extent, on the continued efforts and services of our Chief Executive Officer, Mark L. Kay, our Chief Technical Officer and Inventor, Ramarao Pemmaraju, and our Executive Vice President and Head of Marketing, George Waller. Were we to lose two or more of these key executive officers, we would be forced to expend significant time and money in the pursuit of a replacement, which would result in both a delay in the implementation of our business plan and the diversion of limited working capital. We can give you no assurance that we can find satisfactory replacements for these key executive officers at all, or on terms that are not unduly expensive or burdensome to our Company. We do not currently carry key-man life insurance policies on any of our employees, which would assist us in recouping our costs in the event of the loss of those officers.

 

 
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THE INABILITY TO MANAGE OUR GROWTH COULD IMPEDE OUR ABILITY TO GENERATE REVENUES AND PROFITS AND TO OTHERWISE IMPLEMENT OUR BUSINESS PLAN AND GROWTH STRATEGIES, WHICH WOULD HAVE A NEGATIVE IMPACT ON OUR BUSINESS AND THE VALUE OF YOUR INVESTMENT.

 

We plan to grow rapidly, which will place strains on our management team and other Company resources to both implement more sophisticated managerial, operational and financial systems, procedures and controls and to hire, train and manage the personnel necessary to implement those functions. Our staff is currently comprised of seven people and we believe that in order for us to achieve our goals, it will be necessary to further expand our personnel, particularly in the area of sales, support services, technology development and client support. As we grow, we also expect to increase detailed and pertinent internal and administrative controls and procedures, require further product enhancements and customization of our existing products for specific clients, as well as enter new geographic markets. We do not presently have in place the corporate infrastructure common to larger organizations. We do not, for example, have a separate human resources department or purchasing department designed for a larger organization. Some of our key personnel do not have experience managing large numbers of personnel. Substantial expansion of our organization will require the acquisition of additional information systems and equipment, a larger physical space and formal management of human resources. It will require that we expand the number of people within our organization providing additional administrative support (or consider outsourcing) and to develop and implement additional internal controls appropriate for a larger organization. Our experience to date in managing the minimal growth of our Company has been positive, without product failures or breakdowns of internal controls. 

 

The time and costs to effectuate our business development process may place a significant strain on our management personnel, systems and resources, particularly given the limited amount of financial resources and skilled employees that may be available at the time. There can be no assurance that we will integrate and manage successfully new systems, controls and procedures for our business, or that our systems, controls, procedures, facilities and personnel, even if successfully integrated, will be adequate to support our projected future operations. There can be no assurance that any expenditure incurred during this expansion will ever be recouped. Any failure to implement and maintain such changes could have a material adverse effect on our business, financial condition and results of operations.

 

THE REGULATION OF PENNY STOCKS BY SEC AND FINRA (FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC.) MAY DISCOURAGE THE TRADABILITY OF OUR SECURITIES AND THEREBY MAKE IT HARD FOR INVESTORS TO SELL THEIR SHARES AT THE TIME AND PRICES THEY MIGHT OTHERWISE EXPECT.

 

We are a "penny stock" company. We are subject to a Securities and Exchange Commission rule that imposes special sales practice requirements upon broker-dealers who sell such securities to persons other than established customers or accredited investors. For purposes of the rule, the phrase "accredited investors" means, in general terms, institutions with assets in excess of $5,000,000, or individuals having a net worth in excess of $1,000,000 or having an annual income that exceeds $200,000 (or that, when combined with a spouse's income, exceeds $300,000). For transactions covered by the rule, the broker-dealer must make a special suitability determination of the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. Effectively, this discourages broker-dealers from executing trades in penny stocks. Consequently, the rule will affect the ability of purchasers in this offering to sell their securities in any market that might develop, because it imposes additional regulatory burdens on penny stock transactions.

 

In addition, the Securities and Exchange Commission has adopted a number of rules to regulate "penny stocks". Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, and 15g-9 under the Securities and Exchange Act of 1934, as amended. Because our securities constitute "penny stocks" within the meaning of the rules, the rules would apply to us and to our securities. The rules will further affect the ability of owners of shares to sell their securities in a market that might develop for them because it imposes additional regulatory burdens on penny stock transactions.

 

Shareholders should be aware that, according to the Securities and Exchange Commission Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) "boiler room" practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, leaving investors with losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.

 

 
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RULE 144 SALES IN THE FUTURE MAY HAVE A DEPRESSIVE EFFECT ON OUR STOCK PRICE AS AN INCREASE IN SUPPLY OF SHARES FOR SALE, WITH NO CORRESPONDING INCREASE IN DEMAND WILL CAUSE PRICES TO FALL.

 

All of the outstanding shares of common stock held by the present officers, directors, and affiliate stockholders are "restricted securities" within the meaning of Rule 144 under the Securities Act of 1933, as amended. As restricted shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Act and as required under applicable state securities laws. Rule 144 provides in essence that a person who is an affiliate or officer or director who has held restricted securities for six months may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1.0% of a company's outstanding common stock. There is no limit on the amount of restricted securities that may be sold by a non-affiliate after the owner has held the restricted securities for a period of six months if the company is a current reporting company under the 1934 Act. A sale under Rule 144 or under any other exemption from the Act, if available, or pursuant to subsequent registration of shares of common stock of present stockholders, may have a depressive effect upon the price of the common stock in any market that may develop.

 

FINRA SALES PRACTICE REQUIREMENTS MAY ALSO LIMIT A STOCKHOLDER'S ABILITY TOBUY AND SELL OUR STOCK.

 

In addition to the "penny stock" rules described above, the Financial Industry Regulatory Authority (FINRA) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

 

BECAUSE WE ARE QUOTED ON THE OTCMarkets.com PINK SHEETS INSTEAD OF AN EXCHANGE OR NATIONAL QUOTATION SYSTEM, OUR INVESTORS MAY HAVE A MORE DIFFICULT TIME SELLING THEIR STOCK OR EXPERIENCE NEGATIVE VOLATILITY ON THE MARKET PRICE OF OUR STOCK.

 

Our common stock is traded on the OTCMarkets.com Pink Sheets. The OTCMarkets.com Pink Sheets is often highly illiquid. There is a greater chance of volatility for securities that trade on the OTCMarkets.com Pink Sheets as compared to a national exchange or quotation system. This volatility may be caused by a variety of factors, including the lack of readily available price quotations, the absence of consistent administrative supervision of bid and ask quotations, lower trading volume, and market conditions. Investors in our common stock may experience high fluctuations in the market price and volume of the trading market for our securities. These fluctuations, when they occur, have a negative effect on the market price for our securities. - Accordingly, for the reasons above, our stockholders may not be able to realize a fair price from their shares when they determine to sell them or may have to hold them for a substantial period of time until the market for our common stock improves.

 

FAILURE TO ACHIEVE AND MAINTAIN EFFECTIVE INTERNAL CONTROLS IN ACCORDANCE WITH SECTION 404 OF THE SARBANES-OXLEY ACT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND OPERATING RESULTS.

 

It may be time consuming, difficult and costly for us to develop and implement the additional internal controls, processes and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal auditing and other finance staff in order to develop and implement appropriate additional internal controls, processes and reporting procedures.

 

If we fail to comply in a timely manner with the requirements of Section 404 of the Sarbanes-Oxley Act regarding internal control over financial reporting or to remedy any material weaknesses in our internal controls that we may identify, such failure could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial information and have a negative effect on the trading price of our common stock.

 

 
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Pursuant to Section 404 of the Sarbanes-Oxley Act and current SEC regulations, we are required to prepare assessments regarding internal controls over financial reporting and, furnish a report by our management on our internal control over financial reporting. We have begun the process of documenting and testing our internal control procedures in order to satisfy these requirements, which is likely to result in increased general and administrative expenses and may shift management time and attention from revenue-generating activities to compliance activities. While our management is expending significant resources in an effort to complete this important project, there can be no assurance that we will be able to achieve our objective on a timely basis. Failure to achieve and maintain an effective internal control environment or complete our Section 404 certifications could have a material adverse effect on our stock price.

 

In addition, in connection with our on-going assessment of the effectiveness of our internal control over financial reporting, we may discover "material weaknesses" in our internal controls as defined in standards established by the Public Company Accounting Oversight Board, or the PCAOB. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The PCAOB defines "significant deficiency" as a deficiency that results in more than a remote likelihood that a misstatement of the financial statements that is more than inconsequential will not be prevented or detected.

 

In the event that a material weakness is identified, we will employ qualified personnel and adopt and implement policies and procedures to address any material weaknesses that we identify. However, the process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. We cannot assure you that the measures we will take will remediate any material weaknesses that we may identify or that we will implement and maintain adequate controls over our financial process and reporting in the future.

 

Any failure to complete our assessment of our internal control over financial reporting, to remediate any material weaknesses that we may identify or to implement new or improved controls, or difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Any such failure could also adversely affect the results of the periodic management evaluations of our internal controls and, in the case of a failure to remediate any material weaknesses that we may identify, would adversely affect the annual auditor attestation reports regarding the effectiveness of our internal control over financial reporting that are required under Section 404 of the Sarbanes-Oxley Act. Inadequate internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

 

VOLATILITY IN OUR COMMON SHARE PRICE MAY SUBJECT US TO SECURITIES LITIGATION, THEREBY DIVERTING OUR RESOURCES THAT MAY HAVE A MATERIAL EFFECT ON OUR PROFITABILITY AND RESULTS OF OPERATIONS.

 

As discussed in the preceding risk factors, the market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management's attention and resources.

 

COMPLIANCE WITH CHANGING REGULATION OF CORPORATE GOVERNANCE AND PUBLIC DISCLOSURE WILL RESULT IN ADDITIONAL EXPENSES AND POSE CHALLENGES FOR OUR MANAGEMENT TEAM.

 

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations promulgated thereunder, the Sarbanes-Oxley Act and SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the U.S. public markets. Our management team will need to devote significant time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities.

 

 
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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.

 

Special Note Regarding Forward-Looking Statements

 

This annual report contains forward-looking statements about our business, financial condition and prospects that reflect our management's assumptions and good faith beliefs based on information currently available. We can give no assurance that the expectations indicated by such forward-looking statements will be realized. If any of our assumptions should prove incorrect, or if any of the risks and uncertainties underlying such expectations should materialize, our actual results may differ materially from those indicated by the forward-looking statements.

 

The key factors that are not within our control and that may have a direct bearing on operating results include, but are not limited to, acceptance of our proposed services and the products we expect to market, our ability to establish a customer base, managements' ability to raise capital in the future, the retention of key employees and changes in the regulation of our industry.

 

There may be other risks and circumstances that management may be unable to predict. When used in this filing, words such as, "believes," "expects," "intends," "plans," "anticipates," "estimates" and similar expressions are intended to identify and qualify forward-looking statements, although there may be certain forward-looking statements not accompanied by such expressions.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

This Item is not applicable to us as we are not an accelerated filer, a large accelerated filer, or a well-seasoned issuer; however, we have not received written comments from the Commission staff regarding our periodic or current reports under the Securities Exchange Act of 1934 within the last 180 days before the end of our last fiscal year.

 

ITEM 2. PROPERTIES

 

We operate from leased offices located at 1090 King Georges Post Road, Suite #603, Edison, New Jersey 08837. We do not hold any material investments in other real or personal property other than office equipment. We anticipate these facilities will be adequate for the immediate future but that if we are successful in introducing our products, we will need to seek larger or additional office quarters. We pay a monthly base rent of $3,807 which commenced on July 1, 2009, with an extended lease termination date of January 31, 2016. In November 2015, the lease was extended for three years to January 31, 2019. We will pay a monthly base rent of $4,067 from February 2016 thru January 2017, $4,190 from February 2017 thru January 2018 and $4,316 from February 2018 thru January 2019. The landlord holds the sum of $8,684 as our security deposit. The lease requires us to pay costs such as maintenance and insurance.

 

ITEM 3. LEGAL PROCEEDINGS

 

On March 28, 2013 we initiated patent litigation against an outside party. As of March 31, 2015, the case was in full discovery, the pre-trial hearing was held, and the deliberations were continuing. Mediation took place in May 2015 to discuss a potential settlement, and on January 15, 2016, the parties reached a settlement in the matter. As part of the settlement, we will receive a payment of $4.9 million, net of legal fees, which will be recorded as other income in the first quarter of 2016.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

 
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PART II

 

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

(A) MARKET INFORMATION

 

Our registration statement on Form SB-2 was declared effective by the SEC in August 2005 and our shares were approved for listing on the OTC Bulletin Board by the Financial Industry Regulatory Authority (FINRA) in December 2005. Prior to December 2005, there was no public market for the common stock. Our common stock is currently quoted on the OTC Electronic Bulletin Board maintained by OTCMarkets.com under the symbol "SFOR.PK". It has been traded in the over-the-counter market on a limited basis. The following sets forth high and low bid price quotations for each calendar quarter during the last fiscal years that trading occurred or quotations were available, calculated based on the result post-prior reverse splits of our common stock. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

 

Quarter Ended:

 

Low:

 

 

High:

 

March 31, 2014

 

$91,000.00

 

 

$117,000.00

 

June 30, 2014

 

$21,450.00

 

 

$35,750.00

 

September 30, 2014

 

$1,690.00

 

 

$2,210.00

 

December 31, 2014

 

$6.50

 

 

$1,300.00

 

March 31, 2015

 

$0.0025

 

 

$70.00

 

June 30, 2015

 

$0.0001

 

 

$4.50

 

September 30, 2015

 

$0.008

 

 

$0.07

 

December 31, 2015

 

$0.0005

 

 

$0.0084

 

 

The closing bid price for our shares of common stock on April 8, 2016 was $0.0017.

 

Our common stock is considered a low priced security under the "Penny Stock" rules promulgated by the Securities and Exchange Commission. Under these rules, broker-dealers participating in transactions in these securities must first deliver a risk disclosure document which describes risks associated with these stocks, broker-dealers' duties, customers' rights and remedies, market and other information, and make suitability determinations approving the customers for these stock transactions based on financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing, provide monthly account statements to customers, and obtain specific written consent of each customer. With these restrictions, the likely effect of designation as a low priced stock is to decrease the willingness of broker-dealers to make a market for the stock, to decrease the liquidity of the stock and increase the transaction cost of sales and purchases of these stocks compared to other securities.

 

(B) HOLDERS

 

As of April 8, 2016, there were approximately 454 holders of the common stock on record with our transfer agent.

 

(C) DIVIDENDS

 

We have not previously paid any cash dividends on common stock and do not anticipate or contemplate paying dividends on common stock in the foreseeable future. Our present intention is to utilize all available funds to develop and expand our business. The only restrictions that limit the ability to pay dividends on common equity, or that are likely to do so in the future, are those restrictions imposed by law and those restrictions imposed under contractual obligation. Under Wyoming corporate law, no dividends or other distributions may be made which would render a company insolvent or reduce assets to less than the sum of liabilities plus the amount needed to satisfy outstanding liquidation preferences.

 

Any future determination to pay cash dividends will be at the discretion of our board of directors, and will be dependent upon our financial condition, results of operations, capital requirements and other factors as our board may deem relevant at that time.

 

 
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(D) RECENT ISSUANCES OF UNREGISTERED SECURITIES

 

In October 2015, note holders converted an aggregate of $4,318 of principal and $692 of accrued interest into 2,316,868 shares of the Company's common stock at conversion prices ranging from $0.001972 to $0.003 per share.

 

In November 2015, note holders converted an aggregate of $7,030 of principal and $3,093 of accrued interest into 7,700,229 shares of the Company's common stock at conversion prices ranging from $0.000928 to $0.002073 per share.

 

In December 2015, note holders converted an aggregate of $1,942 of principal and $1,243 of accrued interest into 7,851,722 shares of the Company's common stock at conversion prices ranging from $0.00024 to $0.000638 per share.

 

In December 2015, we issued a total of 7,500 shares of restricted common stock, valued at $4, relating to a December 2009 retainer agreement with an attorney.

 

All of the above offerings and sales, except the afore-mentioned shares issued pursuant to a conversion of convertible notes, 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 1933or transferred in a transaction exempt from registration under the Securities Act of 1933.

 

Issuer Purchases of Equity Securities

 

None.

 

ITEM 6. SELECTED FINANCIAL DATA.

 

While not required under Regulation S-K for "smaller reporting companies," we are providing this information. The following information has been summarized from financial information included elsewhere and should be read in conjunction with such financial statements and notes thereto.

 

 
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Summary of Statements of Operations of StrikeForce

 

Statement of Operations Data:

 

 

 

 

 

For the Years Ended December 31,

 

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

Revenues

 

$271,559

 

 

$324,807

 

Cost of Sales

 

 

(8,441)

 

 

(9,658)

Operating and Other Expenses

 

 

(2,070,363)

 

 

(3,665,379)

 

 

 

 

 

 

 

 

 

Net Loss

 

$(1,807,245)

 

$(3,350,230)

 

 

 

 

 

 

 

 

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

Current Assets

 

$60,409

 

 

$70,424

 

Total Assets

 

 

89,187

 

 

 

104,095

 

Current Liabilities

 

 

13,570,808

 

 

 

12,205,751

 

Non Current Liabilities

 

 

242,866

 

 

 

97,404

 

Total Liabilities

 

 

13,813,674

 

 

 

12,303,155

 

Working Capital (Deficit)

 

 

(13,510,399)

 

 

(12,135,327)

Shareholders' Equity (Deficit)

 

$(13,724,487)

 

$(12,199,060)

  

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward-Looking Statements

 

The following is management's discussion and analysis (|MD&A") of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements, as well as information relating to the plans of our current management. This report includes forward-looking statements. Generally, the words "believes," "anticipates," "may," "will," "should," "expect," "intend," "estimate," "continue," and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.

 

The following discussion and analysis should be read in conjunction with our financial statements and the related notes thereto and other financial information contained elsewhere in this Form 10-K.

 

 
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Our MD&A is comprised of significant accounting estimates made in the normal course of its operations, overview of our business conditions, results of operations, liquidity and capital resources and contractual obligations. We did not have any off balance sheet arrangements as of December 31, 2014 or 2015.

 

The discussion and analysis of our financial condition and results of operations is based upon its financial statements, which have been prepared in accordance with generally accepted accounting principles generally accepted in the United States (or "GAAP"). The preparation of those financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities at the date of its financial statements. Actual results may differ from these estimates under different assumptions or conditions.

 

Background

 

We are a software development and services company that offers a suite of integrated computer network security products (patented and patent pending) using proprietary technology.

 

We generated all of our revenues of $271,559 for the year ended December 31, 2015, compared to $324,807 for the year ended December 31, 2014, from the sales of our security software products.

 

We have incurred substantial losses since our inception. Our management believes that our products provide a cost-effective and technologically competitive solution to address the problems of network security and identity theft in general. Updated guidance for the Federal Financial Institutions Examination Council ("FFIEC") regulations include the requirement for solutions that have Two-Factor Out-of-Band Authentication and products that stop keylogging malware, real time, which our management believes our proprietary products uniquely and directly address. This new updated guidance went into effect as of January 1, 2012. Based on this new requirement in the latest FFIEC update that was published in June 2011 with enforcement commencing in January 2012, we have recently experienced a growing increase in sales orders and inquiries. However, there can be no assurance that our products will continue to gain acceptance and continue to grow in the commercial marketplace or that one of our competitors will not introduce technically superior products. 

 

Because we are now experiencing a continual growing market demand, we are developing a sizeable global reseller and distribution channel as a strategy to generate, manage and fulfill demand for our products across market segments, minimizing the requirement for an increase in our staff. We have minimized the concentration on our initial direct sales efforts as our distribution and reseller channels continue to grow internationally and require appropriate levels of support.

 

In February 2014, a 1:1,500 reverse stock split of our issued and outstanding shares of common stock 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 March 2014. In December 2014, a 1:650 reverse stock split of our issued and outstanding shares of common stock 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 January 2015. In June 2015, a 1:1,000 reverse stock split of our issued and outstanding shares of common stock 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 July 2015.

 

All shares and per share amounts in the financial statements have been adjusted to give retroactive effect to the reverse stock splits adopted by us as if the reverse had occurred at the beginning of the earliest period presented.

 

 
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Results of Operations

 

FOR THE YEAR ENDED DECEMBER 31, 2015 COMPARED TO THE YEAR ENDED DECEMBER 31, 2014

 

Revenues for the year ended December 31, 2015 were $271,559 compared to $324,807 for the year ended December 31, 2014, a decrease of $53,248 or 16.4%. The decrease in revenues was primarily due to the decrease in hardware sales, maintenance sales and revenue from sign on fees. We have experienced delays in realizing anticipated revenues from some of our new distributor's clients, and in delayed rollout of our new mobile security technologies. We have opportunities, through our sales channels, including current pilots, that we expect, but cannot guarantee, will increase revenues in 2016. We anticipate, but cannot guarantee, revenues will increase as we currently rollout MobileTrustÒ.

 

Revenues generated consisted of hardware and software sales, services and maintenance sales, revenue from sign on fees, and recurring transaction revenues. Software, services and maintenance sales for the year ended December 31, 2015 were $267,205 compared to $318,376 for the year ended December 31, 2014, a decrease of $51,171. The decrease in software, services and maintenance revenues was primarily due to the decrease in the sales of our products.Hardware sales for the year ended December 31, 2015 were $4,354 compared to $6,431 for the year ended December 31, 2014, a decrease of $2,077. The decrease in hardware revenues was primarily due to the decrease in our sales of our one-time-password token key-fobs.

 

Cost of revenues for the year ended December 31, 2015 was $8,441 compared to $9,658 for the year ended December 31, 2014, a decrease of $1,217, or 12.6%. The decrease resulted primarily from the decrease in processing fees relating to our ProtectIDÒ product and due to the decrease in our sales of our one-time-password token key-fobs. Cost of revenues as a percentage of total revenues for the year ended December 31, 2015 was 3.1% compared to 2.9% for the year ended December 31, 2014. The decrease resulted primarily from the decrease in our hardware sales, resulting in lower cost of revenues.

 

Gross profit for the year ended December 31, 2015 was $263,118 compared to $315,149 for the year ended December 31, 2014, a decrease of $52,031, or 16.5%. The decrease in gross profit was primarily due to the decrease in our revenues.

 

Research and development expenses for the year ended December 31, 2015 were $262,973 compared to $287,646 for the year ended December 31, 2014, a decrease of $24,673, or 8.6%. The decrease in research and development expenses was primarily due to the elimination of one staff member through attrition. The salaries, benefits and overhead costs of personnel conducting research and development of our software products comprise research and development expenses.

 

Compensation, professional fees, and selling, general and administrative (collectively, "SGA") expenses for the year ended December 31, 2015 were $1,111,679 compared to $1,294,882 for the year ended December 31, 2014, a decrease of $183,203 or 14.2%. The decrease was due primarily to the decrease in professional fees we expensed. 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 to non-employees and other general corporate expenses.

 

Other (income) expense for the year ended December 31, 2015 was $695,711 as compared to $2,082,851 for the year ended December 31, 2014, representing a decrease in other expense of $1,387,140, or 66.6%. The decrease was primarily due to the settlement of a lawsuit with one of our channel partners, WhiteSky, Inc. ("WhiteSky") which was settled on March 9, 2015 with mutually agreed upon terms (subsequently amended on June 26, 2015), a decrease in changes in fair value of derivative liabilities, and a decrease in interest expense.

 

Our net loss for the year ended December 31, 2015 was $1,807,245 compared to a net loss of $3,350,230 for the year ended December 31, 2014, a decrease in the net loss of $1,542,985, or 46.1%. The decrease in our net loss was due primarily to the increase in other income caused by the settlement of the WhiteSky lawsuit, as amended, a decrease in professional fees, decreases in the change in fair value of derivative liabilities and a decrease in interest expense.

 

 
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Liquidity and Capital Resources

 

Our total current assets at December 31, 2015 were $60,409, which included cash of $37,153, as compared with $70,424 in total current assets at December 31, 2014, which included cash of $13,129. Additionally, we had astockholders' deficit in the amount of $13,724,487 at December 31, 2015 compared to a stockholders' deficit of $12,199,060 at December 31, 2014. 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. The liabilities include a computed liability for the fair value of derivatives of $989,019, which will only be realized on the conversion of the derivatives, or settlement of the debentures.

 

We financed our operations during the year ended December 31, 2015 primarily through the issuance of debt in the aggregate amount of $951,599, through revenues from our products in the aggregate amount of $271,559, and through proceeds of the sale of Series B preferred stock in the amount of $25,000. Post 2015 year end, our company received funds through a legal settlement (see Subsequent Event below) . Management anticipates that we will rely on our revenues and the proceeds from the one-time lump sum net payment we received in the first quarter of 2016, as a result of the settlement of litigation, to finance our operations in 2016 and 2017. While management believes that there will be a substantial percentage of our sales generated from our GuardedIDÒ and new mobile products and there are an increasing number of customers for our patented ProtectIDÒ product, we will continue to have customer concentrations. Inherently, as time progresses and corporate exposure in the market continues to grow, with increasing marketing efforts, management believes, but cannot guarantee, we will continue to attain greater numbers of customers.

 

Our number of common shares outstanding increased from 2,454 shares at the year ended December 31, 2014 to 22,711,924 at the year ended December 31, 2015, an increase of 925,406%. The increase in the number of common shares outstanding was due to common shares issued related to the issuance, conversion and settlement of debt, the exercise of warrant agreements, or equity financing and consulting obligations in order to reduce our outstanding debentures.

 

Our number of shares of Series B Preferred Stock issued and outstanding increased from 142,004 shares at the year ended December 31, 2014 to 175,338 at the year ended December 31, 2015. The increase in the number of shares of Series B Preferred Stock issued and outstanding was due to the sale of shares of Series B Preferred Stock, through subscription agreements, related to equity financing.

 

We have historically incurred losses and our operations presently require funding of approximately $130,000 per month. Management believes, but cannot provide assurances, that we will be cash flow positive from operations in the first half of 2016, based on recently executed and announced contracts and potential contracts that we closed in the fourth quarter of 2015 in the financial industry, technology, insurance, enterprise, healthcare, government, legal, and consumer sectors in the United States, Latin America, Europe, Africa and the Pacific Rim. There can be no assurance, however, that the sales anticipated will materialize or that we will achieve the profitability we have forecasted. Management also recognizes the consequences of current world economic developments and the possible volatile effect on currency rates resulting from revenues derived from foreign markets.

 

Going Concern

 

We have yet to establish any history of profitable operations. For the year ended December 31, 2015, we incurred a net loss of $1,807,245, used cash in operations of $856,806, and at December 31, 2015, had a stockholders' deficit of $13,724,487. These factors raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2015 with respect to this uncertainty. This going concern opinion could materially limit our ability to raise additional funds through the issuance of new debt or equity securities or otherwise, and future reports on our financial statements may also include an explanatory paragraph with respect to our ability to continue as a going concern.

  

 
24
 

  

At December 31, 2015, we had cash on hand in the amount of $37,153. Management estimates that the current funds on hand will be sufficient to continue operations through the next twelve months. Our ability to continue as a going concern is dependent upon our ability to raise additional funds and implement our business plan. Management is currently seeking additional funds, primarily through the issuance of debt and equity securities for cash to operate our business. Currently, management is attempting to increase revenues and improve gross margins by a revised sales strategy. We are redirecting our sales focus from direct sales to domestic and international sales channel, where we are primarily selling through a channel of Distributors, Value Added Resellers, Strategic Partners and Original Equipment Manufacturers. While we believe in the viability of our strategy to increase revenues and in our ability to raise additional funds, there can be no assurances to that effect. Our ability to continue as a going concern is dependent upon our ability to continually increase our customer base and realize increased revenues from recently signed contracts. No assurance can be given that any future financing 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, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in the case of equity financing.

 

Subsequent Events

 

In January 2016, our litigation with an outside party was settled. As part of the settlement, we will receive a payment of $4.9 million, net of legal fees, which will be recorded as other income in the first quarter of 2016.

 

On August 24, 2015, we entered into an asset purchase and licensing agreement with Cyber Safety, Inc., a New York corporation ("Cyber Safety") to license and retain an option to purchase the patents and Intellectual Property related to the GuardedIDÒ and MobileTrustÒ software (the "Asset Purchase Agreement"). Effective January 28, 2016, Cyber Safety, finalized the purchase of the option to buy the keystroke encryption patents and Intellectual Property related to the GuardedIDÒ and MobileTrustÒ software pursuant to the terms and conditions of the Asset Purchase Agreement for a purchase price of Nine Million Dollars ($9,000,000), which may be paid in the form of a promissory note due by and no later than September 30, 2020. Pursuant to the terms and conditions of the Asset Purchase Agreement, our license granted to Cyber Safety does not affect or impact existing distributor relationships. We, directly and through our distribution channel, will maintain the right to sell in the retail space in perpetuity. As a condition of the Asset Purchase Agreement, Cyber Safety will license the Malware Suite (as defined in the Asset Purchase Agreement) up to and until September 30, 2020. Pursuant to this license, Cyber Safety shall compensate us with fifteen percent (15%) of the net amount Cyber Safety receives (defined as the amount received by Cyber Safety from the sale or licensing of the Malware Suite), which amount may be increased to twenty percent (20%) under certain conditions for ProtectIDÒ, and is subject to reduction for commissions and support costs that Cyber Safety will be obligated to pay StrikeForce.

 

Changes in Authorized Shares

 

In February 2014, a 1:1,500 reverse stock split of our issued and outstanding shares of common stock 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 March 2014.

 

In February 2014, a decrease of the authorized shares of our common stock from six billion seven hundred fifty million (6,750,000,000) to one billion, five hundred million (1,500,000,000), $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 March 2014.

 

In December 2014, an increase of the authorized shares of our common stock from one billion, five hundred million (1,500,000,000) to nine billion (9,000,000,000), $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 2014.

 

 
25
 

  

In December 2014, a 1:650 reverse stock split of our issued and outstanding shares of common stock 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 January 2015.

 

In December 2014, a decrease of the authorized shares of our common stock from nine billion (9,000,000,000) to three billion (3,000,000,000), $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 January 2015.

 

In June 2015, a 1:1,000 reverse stock split of our issued and outstanding shares of common stock 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 July 2015.

 

All shares and per share amounts in the financial statements have been adjusted to give retroactive effect to the reverse stock splits adopted by us as if the reverse had occurred at the beginning of the earliest period presented.

 

In June 2015, an increase of the authorized shares of our common stock from three billion (3,000,000,000) to five billion (5,000,000,000), $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 July 2015.

 

SUMMARY OF FUNDED DEBT TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 2015

 

During the year ended December 31, 2015, we issued unsecured convertible notes in an aggregate total of $67,000 to two unrelated parties pursuant to the terms and conditions of term sheets executed with investor firms at various times during 2015. Additionally, during the year ended December 31, 2015, we settled and transferred $25,000 of unsecured note balances to one unrelated party in the form of a convertible note for $25,000. Additionally, during the year ended December 31, 2015, twelve investor firms converted $245,040 of convertible notes, and $13,195 of accrued interest, into 22,691,904 shares of our common stock, pursuant to an exemption provided under Rule 144 of the Securities Act of 1933. The conversion prices ranged from $0.00024 per share to $39.00 per share.

 

During the year ended December 31, 2015, we issued unsecured notes in an aggregate total of $581,724 to four unrelated parties, of which $25,000 was used to pay down an open unsecured convertible note. Additionally, during the year ended December 31, 2015, we repaid a total of $68,414 of three unsecured notes to an unrelated party.

 

During the year ended December 31, 2015, we issued an unsecured note in an aggregate total of $19,875 to one related party.

 

Summary of Funded Debt

 

As of December 31, 2015, our company's open secured note balances were $289,973, net of discount on notes of $20,027, listed as follows:

 

 

·

$310,000 to an unrelated company - current portion = $103,333; long term portion = $206,667

 

 
26
 

  

As of December 31, 2015, our company's open unsecured promissory note balance was $2,385,809, listed as follows:

 

 

·

$50,000 to an unrelated individual - current term portion

 

·

$210,000 to an unrelated company - current portion

 

·

$1,475,000 to twenty unrelated individuals through term sheet with the StrikeForce Investor Group - current portion

 

·

$137,500 to an unrelated company - current portion

 

·

$12,000 to an unrelated company - current portion

 

·

$41,785 to an unrelated company - current portion

 

·

$16,324 to an unrelated company - long term portion

 

·

$408,000 to an unrelated company - current portion

 

·

$35,200 to an unrelated company - current portion

 

As of December 31, 2015, our company'sopen unsecured related party promissory note balances were $742,513, listed as follows:

 

 

·

$722,638 to our CEO - current portion

 

·

$19,875 to our CEO - long term portion

 

As of December 31, 2015, our company's open convertible secured note balances were $542,588, listed as follows:

 

 

·

$542,588 to DART (custodian for Citco Global and as assigned in 04/09 by YA Global and Highgate House Funds, Ltd.)

 

As of December 31, 2015, our company's open convertible note balances were $1,721,107, net of discount on convertible notes of $14,266, listed as follows (month/year):

 

 

·

$235,000 to an unrelated company (03/05 unsecured debenture) - current portion

 

·

$7,000 to an unrelated company (06/05 unsecured debenture) - current portion

 

·

$10,000 to an unrelated individual (06/05 unsecured debenture) - current portion

 

·

$40,000 to three unrelated individuals (07/05 unsecured debentures) - current portion

 

·

$5,000 to an unrelated individual (09/05 unsecured debenture) - current portion

 

·

$10,000 to an unrelated individual (12/05 unsecured debenture) - current portion

 

·

$30,000 to an unrelated individual (06/06 unsecured debenture) - current portion

 

·

$70,000 to an unrelated individual (09/06 unsecured debenture) - current portion

 

·

$3,512 to an unrelated individual (02/07 unsecured debenture) - current portion

 

 
27
 

 

 

·

$100,000 to an unrelated individual (05/07 unsecured debenture) - current portion

 

·

$100,000 to an unrelated individual (06/07 unsecured debentures) - current portion

 

·

$100,000 to an unrelated individual (07/07 unsecured debenture) - current portion

 

·

$120,000 to three unrelated individuals (08/07 unsecured debentures) - current portion

 

·

$50,000 to two unrelated individuals (12/09 unsecured debentures) - current portion

 

·

$30,000 to an unrelated company (03/10 unsecured debenture) - current portion

 

·

$103,387 to an unrelated company (01/12 unsecured debentures) - current portion

 

·

$75,000 to an unrelated company (03/12 unsecured debenture) - current portion

 

·

$36,500 to an unrelated company (11/13 unsecured debenture) - current portion

 

·

$50,000 to an unrelated company (12/13 unsecured debenture) - current portion

 

·

$40,000 to an unrelated company (12/13 unsecured debenture) - current portion

 

·

$83,851 to an unrelated company (03/14 unsecured debenture) - current portion

 

·

$16,440 to an unrelated company (04/14 unsecured debenture) - current portion

 

·

$6,511 to an unrelated company (04/14 unsecured debenture) - current portion

 

·

$15,860 to an unrelated company (04/14 unsecured debenture) - current portion

 

·

$7,500 to an unrelated company (05/14 unsecured debenture) - current portion

 

·

$85,078 to an unrelated company (05/14 unsecured debenture) - current portion

 

·

$56,001 to an unrelated company (06/14 unsecured debenture) - current portion

 

·

$32,685 to an unrelated company (07/14 unsecured debenture) - current portion

 

·

$24,862 to an unrelated company (08/14 unsecured debenture) - current portion

 

·

$27,376 to an unrelated company (10/14 unsecured debenture) - current portion

 

·

$26,250 to an unrelated company (10/14 unsecured debenture) - current portion

 

·

$78,750 to an unrelated company (10/14 unsecured debenture) - current portion

 

·

$7,070 to an unrelated company (10/14 unsecured debenture) - current portion

 

·

$9,740 to an unrelated company (02/15 unsecured debenture) - current portion

 

·

$42,000 to an unrelated company (02/15 unsecured debenture) - current portion

 

As of December 31, 2015, our company's open convertible note balances - related parties were $355,500, listed as follows:

 

 

·

$268,000 to our CEO - current portion

 

·

$57,500 to our VP of Technical Services - current portion

 

·

$30,000 to a relative of our CTO & one of our Software Developers - current portion

   

Based on present revenues and expenses, we are unable to generate sufficient funds internally to sustain our current operations. We must raise additional capital or determine other borrowing sources to continue our operations. It is management's plan to seek additional funding through the sale of Common and Series B Preferred Stock, the sale and settlement of trade payables and debentures, and the issuance of notes and debentures, including notes and debentures convertible into common stock. If we issue additional shares of common stock, the value of shares of existing stockholders is likely to be diluted.

 

 
28
 

  

However, the terms of the convertible secured debentures issued to certain of the existing stockholders require that we obtain the consent of such stockholders prior to our entering into subsequent financing arrangements. No assurance can be given that we will be able to obtain additional financing on terms that are favorable to us or that the holders of the secured debentures will provide their consent to permit us to enter into subsequent financing arrangements.

 

Our future revenues and profits, if any, will primarily depend upon our ability, and that of our distributors and resellers, to secure sales of our suite of network security and anti-malware products. We do not presently generate significant revenue from the sales of our products. Although management believes that our products are competitive for customers seeking a high level of network security, we cannot forecast with any reasonable certainty whether our products will gain acceptance in the marketplace and if so by when.

 

Except for the limitations imposed upon us respective to the convertible secured debentures of DART (custodian for Citco Global and as assigned by YA Global and Highgate House Funds, Ltd.), there are no material or known trends that will restrict either short term or long-term liquidity.

 

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 potential liabilities and the assumptions made in valuing stock instruments issued for services and derivative liabilities. Actual results could differ from those estimates.

 

Revenue Recognition Policy

 

We recognize revenue when it is realized or realizable and earned. We consider revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. When we recognize revenue, no provisions are made for returns because, historically, there have been very few sales returns and adjustments that have impacted the ultimate collection of revenues. In addition to the aforementioned general policy, the following are the specific revenue recognition policies for each major category of products and services:

 

Software, Services and Maintenance

 

Revenue from time and service contracts is recognized as the services are provided. Revenue from delivered elements of one-time charge licensed software is recognized at the inception of the license term, provided we have vendor-specific objective evidence of the fair value of each delivered element. Revenue is deferred for undelivered elements. We recognize revenue from the sale of software licenses when the four criteria discussed above are met. Delivery generally occurs when the product is delivered to a common carrier or the software is downloaded via email delivery or an FTP web site. We assess collection based on a number of factors, including past transaction history with the customer and the creditworthiness of the customer. We do not request collateral from customers. If we determine that collection of a fee is not reasonably assured, we defer the fee and recognizes revenue at the time collection becomes reasonably assured, which is generally upon receipt of cash.Revenue from monthly software licenses is recognized on a subscription basis.

  

ASP Hosted Cloud Services

 

We offer an Application Service Provider Cloud Service whereby customer usage transactions are invoiced monthly on a cost per transaction basis. The service is sold via the execution of a Service Agreement between us and the customer. Initial set-up fees are recognized over the period in which the services are performed.

 

 
29
 

  

Stock Compensation

 

We periodically issue stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. We account for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board (FASB) whereas the value of the award is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. We account for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the FASB whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Options granted to non-employees are revalued each reporting period to determine the amount to be recorded as an expense in the respective period. As the options vest, they are valued on each vesting date and an adjustment is recorded for the difference between the value already recorded and the then current value on the date of vesting. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

 

The fair value of our stock option and warrant grants are estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model, and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods. 

 

Derivative Financial Instruments

 

We evaluate our 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 classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

 

To determine the number of authorized but unissued shares available to satisfy outstanding convertible securities, we use a sequencing method to prioritize its convertible securities as prescribed by ASC 815-40-35. At each reporting date, we review our convertible securities to determine their classification is appropriate.

 

Recently Issued Accounting Pronouncements

 

Refer to Note 2 in the accompanying financial statements.

 

Additional Information

 

We file reports and other materials with the Securities and Exchange Commission. These documents may be inspected and copied at the Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C., 20549. You can obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. You can also get copies of documents that we file with the Commission through the Commission's Internet site at www.sec.gov.

  

ITEM 7A. 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Please see pages F-1 through F-26.

 

 
30
 

 

StrikeForce Technologies, Inc.

December 31, 2015 and 2014

Index to the Financial Statements

 

Contents

 

Page(s)

 

 

 

 

Reports of Independent Registered Public Accounting Firms

 

F-2

 

 

 

 

 

Balance Sheets at December 31, 2015 and 2014

 

F-4

 

 

 

 

 

Statements of Operations for the Year Ended December 31, 2015 and 2014

 

F-5

 

 

 

 

 

Statement of Change in Stockholders' Deficit for the Year Ended December 31, 2014

 

F-6

 

 

 

 

 

Statement of Change in Stockholders' Deficit for the Year Ended December 31, 2015

 

F-7

 

 

 

 

 

Statements of Cash Flows for the Year Ended December 31, 2015 and 2014

 

F-8

 

 

 

 

 

Notes to the Financial Statements

 

F-9

 

 

 
F-1
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

StrikeForce Technologies, Inc.

 

We have audited the accompanying balance sheet of StrikeForce Technologies, Inc. (the "Company") as of December 31, 2015, and the related statements of operations, stockholders' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2015, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

The financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, during the year ended December 31, 2015, the Company incurred a net loss and utilized cash flows in operations, and at December 31, 2015, had a shareholders' deficit. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regards to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Weinberg and Company, P.A.                                 

Los Angeles, California

April 14, 2016

 

 
F-2
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

StrikeForce Technologies, Inc.

 

We have audited the accompanying balance sheets of StrikeForce Technologies, Inc. (the "Company") as of December 31, 2014 and 2013 and the related statements of operations, stockholders' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the Unites States of America.

 

The financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company had an accumulated deficit at December 31, 2014, a net loss and net cash used in operating activities for the reporting period then ended. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans in regards to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Li and Company, PC                                            

Li and Company, PC

Skillman, New Jersey

April 15, 2015

 

 
F-3
 

 

STRIKEFORCE TECHNOLOGIES, INC.

BALANCE SHEETS

 

 

 

December 31,

2015

 

 

December 31,

2014

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash

 

$37,153

 

 

$13,129

 

Accounts receivable

 

 

18,524

 

 

 

38,507

 

Prepayments and other current assets

 

 

4,732

 

 

 

18,788

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

60,409

 

 

 

70,424

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

4,184

 

 

 

5,522

 

Patents, net

 

 

15,910

 

 

 

17,965

 

Website development costs, net

 

 

-

 

 

 

1,500

 

Security deposit

 

 

8,684

 

 

 

8,684

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$89,187

 

 

$104,095

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Current maturities of convertible notes payable, net

 

$2,263,695

 

 

$1,484,703

 

Convertible notes payable - related parties

 

 

355,500

 

 

 

355,500

 

Current maturities of notes payable, net

 

 

2,452,791

 

 

 

1,897,500

 

Current maturities of notes payable - related parties

 

 

722,638

 

 

 

722,638

 

Accounts payable

 

 

1,295,829

 

 

 

1,376,300

 

Accrued expenses

 

 

13,368

 

 

 

13,368

 

Accrued interest

 

 

3,921,004

 

 

 

3,375,681

 

Accrued salaries and payroll taxes

 

 

1,347,772

 

 

 

1,355,467

 

Derivative liabilities

 

 

989,019

 

 

 

1,415,402

 

Due to factor

 

 

209,192

 

 

 

209,192

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

13,570,808

 

 

 

12,205,751

 

 

 

 

 

 

 

 

 

 

Non-current Liabilities:

 

 

 

 

 

 

 

 

Convertible notes payable, net of current maturities

 

 

-

 

 

 

97,404

 

Notes payable, net of current maturities

 

 

222,991

 

 

 

-

 

Notes payable - related parties, net of current maturities

 

 

19,875

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Total non-current liabilities

 

 

242,866

 

 

 

97,404

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

13,813,674

 

 

 

12,303,155

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Deficit

 

 

 

 

 

 

 

 

Series A Preferred stock, no par value; 100 shares authorized;

 

 

 

 

 

 

 

 

3 shares issued and outstanding

 

 

987,000

 

 

 

987,000

 

Series B Preferred stock par value $0.10: 100,000,000 shares authorized;

 

 

 

 

 

 

 

 

175,338 and 142,004 shares issued and outstanding, respectively

 

 

17,534

 

 

 

14,200

 

Preferred stock series not designated par value $0.10: 10,000,000 shares authorized;

 

 

 

 

 

 

 

 

none issued or outstanding

 

 

-

 

 

 

-

 

Common stock par value $0.0001: 5,000,000,000 shares authorized;

 

 

 

 

 

 

 

 

22,711,924 and 2,454 shares issued and outstanding, respectively

 

 

2,271

 

 

 

1

 

Additional paid-in capital

 

 

22,526,096

 

 

 

22,249,882

 

Accumulated deficit

 

 

(37,257,388)

 

 

(35,450,143)

 

 

 

 

 

 

 

 

 

Total Stockholders' Deficit

 

 

(13,724,487)

 

 

(12,199,060)

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders' Deficit

 

$89,187

 

 

$104,095

 

 

See accompanying notes to the financial statements

 

 
F-4
 

 

STRIKEFORCE TECHNOLOGIES, INC.

STATEMENTS OF OPERATIONS

 

 

 

For the Year Ended Ended

 

 

December 31,

2015

 

 

December 31,

2014

 

 

 

 

 

 

 

 

Revenue

 

$271,559

 

 

$324,807

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

8,441

 

 

 

9,658

 

 

 

 

 

 

 

 

 

 

Gross margin

 

 

263,118

 

 

 

315,149

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Compensation

 

 

353,141

 

 

 

331,193

 

Professional fees

 

 

471,674

 

 

 

680,673

 

Selling, general and administrative expenses

 

 

286,864

 

 

 

283,016

 

Research and development

 

 

262,973

 

 

 

287,646

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

1,374,652

 

 

 

1,582,528

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(1,111,534)

 

 

(1,267,379)

 

 

 

 

 

 

 

 

 

Other (income) expense:

 

 

 

 

 

 

 

 

Interest and financing expense

 

 

545,324

 

 

 

320,644

 

Debt discount amortization

 

 

851,894

 

 

 

866,160

 

Change in fair value of derivative liabilities, net

 

 

(426,383)

 

 

895,969

 

Other (income) from settlement

 

 

(305,000)

 

 

-

 

Other (income) expenses

 

 

29,876

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Other (income) expense, net

 

 

695,711

 

 

 

2,082,773

 

 

 

 

 

 

 

 

 

 

Income tax provision

 

 

-

 

 

 

78

 

 

 

 

 

 

 

 

 

 

Net loss

 

$(1,807,245)

 

$(3,350,230)

 

 

 

 

 

 

 

 

 

Net loss per common share - basic and diluted

 

$(0.47)

 

$(11,032.43)

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding -basic and diluted

 

 

3,845,454

 

 

 

304

 

 

See accompanying notes to the financial statements.

 

 
F-5
 

 

STRIKEFORCE TECHNOLOGIES, INC.

STATEMENT OF CHANGE IN STOCKOLDERS' DEFICIT

FOR THE YEAR ENDED DECEMBER 31, 2014

 

 

 

Series A Preferred stock, no par value

 

 

Series B Preferred stock, par value $0.10

 

 

Common stock, par value $0.0001

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2013

 

 

3

 

 

$987,000

 

 

 

-

 

 

$-

 

 

 

5

 

 

$1

 

 

$20,099,010

 

 

$(32,099,913)

 

$(11,013,902)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sale of shares of series B preferred stock

 

 

-

 

 

 

-

 

 

 

142,004

 

 

 

14,200

 

 

 

-

 

 

 

-

 

 

 

198,800

 

 

 

 

 

 

 

213,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock discount due to convertible features

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(14,830)

 

 

-

 

 

 

(14,830)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of shares of common stock and warrants for consulting services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,713

 

 

 

-

 

 

 

1,713

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of shares of common stock for conversions of convertible notes payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,127

 

 

 

-

 

 

 

657,882

 

 

 

-

 

 

 

657,882

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares in connection with the exercise of warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

323

 

 

 

-

 

 

 

8,489

 

 

 

 

 

 

 

8,489

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification of derivative liabilities due to conversion of convertible notes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,298,818

 

 

 

-

 

 

 

1,298,818

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,350,230)

 

 

(3,350,230)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2014

 

 

3

 

 

$987,000

 

 

 

142,004

 

 

$14,200

 

 

 

2,454

 

 

$1

 

 

$22,249,882

 

 

$(35,450,143)

 

$(12,199,060)
 

See accompanying notes to the financial statements.

 

 
F-6
 

 

STRIKEFORCE TECHNOLOGIES, INC.

STATEMENT OF CHANGE IN STOCKOLDERS' DEFICIT

FOR THE YEAR ENDED DECEMBER 31, 2015

 

 

 

Series A Preferred stock,

no par value

 

 

Series B Preferred stock,

par value $0.10

 

 

Common stock,

par value $0.0001

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2014

 

 

3

 

 

$987,000

 

 

 

142,004

 

 

$14,200

 

 

 

2,454

 

 

$1

 

 

$22,249,882

 

 

$(35,450,143)

 

$(12,199,060)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of shares of common stock and warrants for consulting services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

17,377

 

 

 

2

 

 

 

148

 

 

 

-

 

 

 

150

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of shares of series B preferred stock for financing

 

 

-

 

 

 

-

 

 

 

33,334

 

 

 

3,334

 

 

 

-

 

 

 

-

 

 

 

46,666

 

 

 

-

 

 

 

50,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of shares of common stock for conversions of convertible notes payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

22,691,902

 

 

 

2,268

 

 

 

225,922

 

 

 

-

 

 

 

228,190

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of common shares in connection with the exercise of warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

191

 

 

 

-

 

 

 

1,395

 

 

 

-

 

 

 

1,395

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of stock options for non -employee services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,083

 

 

 

-

 

 

 

2,083

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,807,245)

 

 

(1,807,245)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2015

 

 

3

 

 

$987,000

 

 

 

175,338

 

 

$17,534

 

 

 

22,711,924

 

 

$2,271

 

 

$22,526,096

 

 

$(37,257,388)

 

$(13,724,487)

 

See accompanying notes to the financial statements.

 

 
F-7
 

 

STRIKEFORCE TECHNOLOGIES, INC.

STATEMENTS OF CASH FLOWS

 

 

 

For the Year

Ended

December 31,

2015

 

 

For the Year

Ended

December 31,

2014

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

Net (loss)

 

$(1,807,245)

 

$(3,350,230)

Adjustments to reconcile net (loss) to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

7,247

 

 

 

9,038

 

Amortization of discount on notes payable

 

 

937,167

 

 

 

1,126,800

 

Change in fair value of derivative financial instruments

 

 

(487,404)

 

 

432,960

 

Interest expense

 

 

545,323

 

 

 

 

 

Reclassification of derivative liability from equity to other income

 

 

-

 

 

 

-

 

Fair value of stock options for employee services

 

 

 

 

 

 

-

 

Fair value of common stock, options and warrants for consulting services

 

 

2,233

 

 

 

1,469

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

19,983

 

 

 

947

 

Prepaid expenses

 

 

14,056

 

 

 

12,499

 

Accounts payable

 

 

(80,471)

 

 

139,135

 

Accrued expenses

 

 

(7,695)

 

 

472,193

 

Garnishment withheld

 

 

 

 

 

 

1,777

 

Common stock to be issued

 

 

-

 

 

 

(1)

Net cash used in operating activities

 

 

(856,806)

 

 

(1,153,413)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(2,354)

 

 

(5,517)

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

(2,354)

 

 

(5,517)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from sale of series B preferred stock

 

 

25,000

 

 

 

213,000

 

Proceeds from convertible notes payable

 

 

67,000

 

 

 

901,500

 

Proceeds from notes payable - related parties

 

 

19,875

 

 

 

-

 

Repayment of convertible notes payable

 

 

(25,000)

 

 

-

 

Proceeds from secured notes payable

 

 

310,000

 

 

 

-

 

Proceeds from notes payable

 

 

539,524

 

 

 

50,000

 

Repayment of notes payable

 

 

(53,215)

 

 

-

 

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

883,184

 

 

 

1,164,500

 

 

 

 

 

 

 

 

 

 

Net change in cash

 

 

24,024

 

 

 

5,570

 

 

 

 

 

 

 

 

 

 

Cash at beginning of the year

 

 

13,129

 

 

 

7,559

 

 

 

 

 

 

 

 

 

 

Cash at end of the year

 

$37,153

 

 

$13,129

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$78

 

 

$78

 

Income tax paid

 

$-

 

 

$-

 

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Common shares issued for conversion of debt and accrued interest

 

$228,190

 

 

$658,094

 

Common shares issued for exercise of warrants

 

$1,395

 

 

$8,521

 

Preferred stock discount due to convertible feature

 

$-

 

 

$(14,830)

Debt discount due to convertible feature

 

$61,021

 

 

$1,761,827

 

Debt discount on note payable

 

$

27,000

 

 

$

 

 

Reclassification of derivative liability to equity

 

$-

 

 

$1,298,818

 

Issuance of series B preferred stock in connection with secured notes payable recognized as debt discount

 

$25,000

 

 

$-

 

Issuance of common stock for common stock to be issued

 

$-

 

 

$(1)

 

See accompanying notes to the financial statements.

 

 
F-8
 

 
StrikeForce Technologies, Inc.

December 31, 2015 and 2014

Notes to the Financial Statements

 

Note 1 - Organization and Operations

 

StrikeForce Technical Services Corporation was incorporated in August 2001 under the laws of the State of New Jersey. On September 3, 2004, the Company changed its name to StrikeForce Technologies, Inc. (the "Company"). On November 15, 2010, the Company was re-domiciled under the laws of the State of Wyoming. The Company's operations are based in Edison, New Jersey.

 

The Company is a software development and services company. The Company owned the exclusive right to license and has developed various identification protection software products that were developed to protect computer networks from unauthorized access and to protect network owners and users from identity theft. The Company has developed a suite of products based upon the licenses and its strategy is to develop and exploit the products for customers in the areas of financial services, e-commerce, corporate, government, health care and consumer sectors.

 

In February 2014, a 1:1,500 reverse stock split of the Company's issued and outstanding shares of common stock was ratified, effective upon the filing of an amendment to the Company's Certificate of Incorporation with the Wyoming Secretary of State. The amendment was adopted in March 2014.

 

In December 2014, a 1:650 reverse stock split of the Company's issued and outstanding shares of common stock was ratified, effective upon the filing of an amendment to the Company's Certificate of Incorporation with the Wyoming Secretary of State. The amendment was adopted in January 2015.

 

In June 2015, a 1:1,000 reverse stock split of the Company's issued and outstanding shares of common stock was ratified, effective upon the filing of an amendment to the Company's Certificate of Incorporation with the Wyoming Secretary of State. The amendment was adopted in July 2015.

 

All shares and per share amounts in the financial statements have been adjusted to give retroactive effect to the reverse stock splits adopted by the Company as if the reverses had occurred at the beginning of the earliest period presented.

 

Liquidity and 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, during the year ended December 31, 2015, the Company incurred a net loss of $1,807,245, used cash in operations of $856,806, and at December 31, 2015, had a stockholders' deficit of $13,724,487.  These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

  

At December 31, 2015, the Company had cash on hand in the amount of $37,153. Subsequent to December 31, 2015, as part of the settlement of a litigation matter against an outside party, the Company received a payment of $4.9 million, net of legal fees, which will be was recorded as other income in the first quarter of 2016. In addition subsequent to December 31, 2015, the Company repaid approximately $1.8 million of convertible and notes payable principal and accrued interest, and converted approximately $247,000 of convertible notes and accrued interest into 2.1 billion shares of the Company's common stock. Management estimates that the current funds on hand will be sufficient to continue operations through the next twelve months. The ability of the Company to continue as a going concern is dependent upon the Company's ability to raise additional funds and implement its business plan. Management is currently seeking additional funds, primarily through the issuance of debt and equity securities for cash to operate our business. Currently, management is attempting to increase revenues and improve gross margins by a revised sales strategy. The Company is redirecting its sales focus from direct sales to domestic and international sales channel, where the Company is primarily selling through a channel of Distributors, Value Added Resellers, Strategic Partners and Original Equipment Manufacturers. While the Company believes in the viability of its strategy to increase revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company's ability to continually increase its customer base and realize increased revenues from recently signed contracts. No assurance can be given that any future financing 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, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case of equity financing.

  

 
F-9
 

  

Note 2 - Summary of Significant Accounting Policies

 

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 potential liabilities and the assumptions made in valuing stock instruments issued for services and derivative liabilities. Actual results could differ from those estimates.

 

Revenue Recognition Policy

 

The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. When the Company recognizes revenue, no provisions are made for returns because, historically, there have been very few sales returns and adjustments that have impacted the ultimate collection of revenues. In addition to the aforementioned general policy, the following are the specific revenue recognition policies for each major category of products and services:

 

Software, Services and Maintenance

 

Revenue from time and service contracts is recognized as the services are provided. Revenue from delivered elements of one-time charge licensed software is recognized at the inception of the license term, provided the Company has vendor-specific objective evidence of the fair value of each delivered element. Revenue is deferred for undelivered elements. The Company recognizes revenue from the sale of software licenses when the four criteria discussed above are met. Delivery generally occurs when the product is delivered to a common carrier or the software is downloaded via email delivery or an FTP web site. The Company assesses collection based on a number of factors, including past transaction history with the customer and the creditworthiness of the customer. The Company does not request collateral from customers. If the Company determines that collection of a fee is not reasonably assured, the Company defers the fee and recognizes revenue at the time collection becomes reasonably assured, which is generally upon receipt of cash. Revenue from monthly software licenses is recognized on a subscription basis.

 

ASP Hosted Cloud Services

 

The Company offers an Application Service Provider Cloud Service whereby customer usage transactions are invoiced monthly on a cost per transaction basis. The service is sold via the execution of a Service Agreement between the Company and the customer. Initial set-up fees are recognized over the period in which the services are performed.

 

Property and Equipment

 

Property and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation of property and equipment is computed by the straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives of the respective assets as follows:

 

 

 

Estimated Useful Life (Years)

 

 

 

 

 

Computer equipment

 

 

5

 

 

 

 

 

 

Computer software

 

 

3

 

 

 

 

 

 

Furniture and fixture

 

 

7

 

 

 

 

 

 

Office equipment

 

 

7

 

 

Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.

 

 
F-10
 

  

Patent Costs

 

Patent costs consist of patent-related legal and filing fees for internally developed patents and costs to acquire patents. Patent cost is amortized over its legal life, or estimated useful life, or the term of the contract, whichever is shorter. The legal lives of the patents are generally 17 to 20 years for domestic patents and 5 to 20 years for foreign patents.

 

Long-lived Assets

 

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made.

 

The Company had no such asset impairments at December 31, 2015 and 2014.

 

Income Taxes

 

The Company accounts for income taxes using the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 

Stock Compensation

 

The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board (FASB) whereas the value of the award is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the FASB whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Options granted to non-employees are revalued each reporting period to determine the amount to be recorded as an expense in the respective period. As the options vest, they are valued on each vesting date and an adjustment is recorded for the difference between the value already recorded and the then current value on the date of vesting. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

 

The fair value of the Company's stock option and warrant grants are estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model, and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods.

 

 
F-11
 

  

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 classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

 

To determine the number of authorized but unissued shares available to satisfy outstanding convertible securities, the Company uses a sequencing method to prioritize its convertible securities as prescribed by ASC 815-40-35. At each reporting date, the Company reviews its convertible securities to determine their classification is appropriate.

 

Fair Value of Financial Instruments

 

Effective January 1, 2008, fair value measurements are determined by the Company's adoption of authoritative guidance issued by the FASB, with the exception of the application of the statement to non-recurring, non-financial assets and liabilities as permitted. The adoption of the authoritative guidance did not have a material impact on the Company's fair value measurements. Fair value is defined in the authoritative guidance 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, 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.

 

As of December 31, 2015 and 2014, the Company's balance sheets included the fair value of derivative liabilities of $989,019 and $1,415,402, respectively, which were based on Level 2 measurements. 

 

The recorded amounts for accounts payable, accrued expenses and convertible debentures approximate their fair value due to their short term nature.

 

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 reflects the potential dilution, using the treasury stock method that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the loss of the Company. In computing diluted loss per share, the treasury stock method assumes that outstanding options and warrants are exercised and the proceeds are used to purchase common stock at the average market price during the period. Options and warrants may have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options and warrants.

 

 
F-12
 

  

For the years ended December 31, 2015 and 2014, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have an anti-dilutive effect. The potentially dilutive securities consisted of the following as of:

 

 

 

December 31,

 

 

 

2015

 

 

2014

 

Options

 

 

1,000,001

 

 

 

154

 

Warrants

 

 

30

 

 

 

4

 

Shares issuable on conversion of notes

 

 

291,470

 

 

 

551

 

 

 

 

1,291,501

 

 

 

709

 

 

Advertising, Sales and Marketing Costs

 

Advertising, sales and marketing costs are expensed as incurred and are included in sales and marketing expenses. For the years ended December 31, 2015 and 2014, advertising, sales and marketing expenses were $75,591 and $57,400, respectively.

 

Research and Development Costs

 

Costs incurred for research and development are expensed as incurred. The salaries, benefits, and overhead costs of personnel conducting research and development of the Company's software products comprise research and development expenses. Purchased materials that do not have an alternative future use are also expensed.

 

For the years ended December 31, 2015 and 2014, research and development costs were $262,973 and $287,646, respectively.

 

Significant Concentrations

 

For the year ended December 31, 2015, sales to one customer comprised 66% of revenues. For the year ended December 31, 2014, sales to two customers comprised 46% and 23% of revenues, respectively. At December 31, 2015, two customers comprised 67% and 17% of accounts receivable, respectively. At December 31, 2104, three customers comprised 42%, 36%, and 12% of accounts receivable, respectively.

 

Concentrations of Credit Risk

 

Financial instruments that potentially subject the Company to significant concentrations of credit risk consisted primarily of cash and accounts receivable. From time to time, the amount of the Company's cash on deposit may exceed the federally insured limits. Management believes that the financial institution that holds the Company's cash is financially sound and, accordingly, minimal credit risk exists. The Company does not require collateral and maintains reserves for potential credit losses related to its accounts receivables. Such losses have historically been immaterial and have been within management's expectations.

 

Recent Accounting Pronouncements

 

In August, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity's ability to continue as a going concern. The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted.

 

 
F-13
 

  

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is in the process of evaluating the impact of ASU 2014-09 on the Company's financial statements and disclosures.

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of ASU 2016-02 on the Company's financial statements and 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 statement presentation or disclosures.

 

Note 3 - Property and Equipment

 

Property and equipment, stated at cost, less accumulated depreciation consisted of the following:

 

 

 

December 31,

2015

 

 

December 31,

2014

 

 

 

 

 

 

 

 

Computer equipment

 

$76,953

 

 

$76,952

 

 

 

 

 

 

 

 

 

 

Computer software

 

 

28,988

 

 

 

26,634

 

 

 

 

 

 

 

 

 

 

Furniture and fixture

 

 

10,157

 

 

 

10,157

 

 

 

 

 

 

 

 

 

 

Office equipment

 

 

16,511

 

 

 

16,511

 

 

 

 

 

 

 

 

 

 

 

 

 

132,609

 

 

 

130,254

 

 

 

 

 

 

 

 

 

 

Less accumulated depreciation

 

 

(128,425)

 

 

(124,732)

 

 

 

 

 

 

 

 

 

 

 

$4,184

 

 

$5,522

 

 

Depreciation expense for the year ended December 31, 2015 and 2014 was $3,692 and $3,983, respectively.

 

 
F-14
 

  

Note 4 - Patents

 

Patents, stated at cost, less accumulated amortization, consisted of the following:

 

 

 

December 31,

2015

 

 

December 31,

2014

 

 

 

 

 

 

 

 

Patents

 

 

22,329

 

 

 

22,329

 

 

 

 

 

 

 

 

 

 

Accumulated amortization

 

 

(6,419)

 

 

(4,364)

 

 

 

 

 

 

 

 

 

 

 

$15,910

 

 

$17,965

 

 

Amortization expense for the years ended December 31, 2015 and 2014 was $2,055 and $2,054, respectively.

 

Note 5 - Convertible Notes Payable

 

Convertible notes payable consisted of the following:

 

 

 

December 31,

2015

 

 

December 31,

2014

 

Secured

 

 

 

 

 

 

(a) DART

 

$542,588

 

 

$542,588

 

 

 

 

 

 

 

 

 

 

Unsecured

 

 

 

 

 

 

 

 

(b) Convertible notes with fixed conversion features

 

 

910,512

 

 

 

910,512

 

(c) Convertible notes with adjustable conversion features

 

 

824,861

 

 

 

995,168

 

Total convertible notes

 

 

2,277,961

 

 

 

2,448,268

 

Discount on convertible notes

 

 

(14,266)

 

 

(866,161)

Convertible notes, net of discount

 

 

2,263,695

 

 

 

1,582,107

 

Long-term portion

 

 

-

 

 

 

(97,404)

 

 

 

 

 

 

 

 

 

Convertible notes, current maturities

 

$2,263,695

 

 

$1,484,703

 

_________________

(a)

At December 31, 2015, $542,588 in aggregate principal amount of the DART/Citco Global debentures was issued and outstanding and are secured through the note holder's claim on the Company's intellectual property. The secured convertible debentures are past maturity. Due to the adjustable conversion price feature of the secured convertible debentures, our obligation to issue shares upon conversion of the secured convertible debentures owed to DART is potentially limitless. DART did not process any conversions in fiscal 2015 or 2014 and the Company has been in contact with the note holder who has indicated that it has no present intention of exercising its right to convert the debentures into shares of the Company's common stock. In connection with the secured convertible debentures with DART/Citco Global, we granted DART/Citco Global a secured interest in all of our assets. Under the terms of the secured debentures, we are restricted in our ability to issue additional securities as long as any portion of the principal or interest on the secured debentures remains outstanding. During 2015 or 2014, we did not obtain DART/Citco Global's written consent related to any of our financing agreements.

 

 
F-15
 

 

(b)

Convertible notes payable consisted of fourteen unsecured convertible notes ranging in interest rates of 0% per annum to 18% per annum. The notes are convertible at a fixed amount into 44 shares of the Company's common stock, at fixed per share amounts ranging from $1,950,000 to $9,750,000,000 per share, as defined in the agreements. The notes were due in various dates through 2015 and are all currently in default. The company is currently pursuing settlements with certain of the holders.

 
(c)

Convertible notes payable with adjustable conversion features consisted of twenty-one unsecured convertible notes ranging in interest rates of 4% per annum to 12% per annum. Certain of the notes carry default interest rates up to 24% per annum. The remaining principal balance of the Convertible notes included $13,581 of notes originally issued to non-related third parties from September 29, 2006 to January 23, 2009, and sold to the investors with no additional consideration to the Company. All of the notes were due in various dates through 2015 and are all currently in default except for $135,591 of notes which are due in 2016. The Company is currently pursuing settlements with certain of the holders.

   

The Notes are convertible into shares of Common Stock of the Company at the option of the holder commencing on various dates following the issuance date of the Notes and ending on the later of the maturity date or date of full payment of principal and interest. The principal amount of the Notes along with, at the holder's option, any unpaid interest and penalties, are convertible at price per share at discounts ranging from 40% to 60% of the Company's Common Stock trading market price during a certain time period, as defined in the agreements. In addition, the conversion prices are subject to adjustment in certain events, such as in conjunction with any sale, conveyance or disposition of all or substantially all of the Company's assets or consummation of a transaction or series of related transactions in which the Company is not the surviving entity.

  

The Company considered the current FASB guidance of "Contracts in Entity's Own Stock" which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability of whether or not within the issuers' control means the instrument is not indexed to the issuers own stock. Accordingly, the Company determined that the conversion prices of the Notes were not a fixed amount because they were subject to an adjustment based on the occurrence of future offerings or events. In addition, the Company determined that instruments with floor prices ranging from $0.004 to $0.015 were de minimus and in substance not indexed to the Company's own stock. As a result, the Company determined that the conversion features of the Notes were not considered indexed to the Company's own stock and characterized the fair value of the conversion features as derivative liabilities upon issuance. The Company records debt discount to the face amount of the notes, and any excess is recorded as a derivative liability.

 

During the year ended December 31, 2015, the Company issued $67,000 of convertible notes with interest at 10% per annum and maturing through February 2016. The notes are convertible are convertible into shares of the Company's common stock at a price per share discount ranging from 40% to 42% of the Company's common stock trading market price during a certain time period, as defined in the agreements.

 

During the year ended December 31, 2015, note holders converted an aggregate of $245,040 of principal and $13,195 of accrued interest into 22,691,904 shares of the Company's common stock at conversion prices ranging from $0.00024 to $39.00 per share. During the year ended December 31, 2014, note holders converted an aggregate of $925,209 of principal and $34,348 of accrued interest into 2,127 shares of the Company's common stock at conversion prices ranging from $37.70 to $72,280.00 per share. Subsequent to December 31, 2015, approximately $247,000 of convertible notes and accrued interest were converted into 2.1 billion shares of the Company's common stock.

 

Note 6 - Convertible Notes Payable – Related Parties

 

Convertible notes payable - related parties consisted of twelve unsecured convertible notes payable: six to the Company's Chief Executive Officer, for $268,000, at a compounded interest rate of 8% per annum; two to the Company's VP of Technology, for $57,500, interest ranging from prime plus 2% to prime plus 4% per annum; and four to a Developer who is the spouse of the Company's Chief Technology Officer, for $30,000, at a compounded interest rate of 8% per annum. All of the notes are convertible at a fixed conversion price of $9,750,000,000 per share, as defined in the agreements, and have extended due dates of December 31, 2016. The balance of the outstanding convertible notes payable - related parties was $355,500 and $355,500 as of December 31, 2015 and 2014, respectively. At December 31, 2015, all convertible notes payable-related parties are current liabilities.

 

At December 31, 2015 and 2014, accrued interest due for the convertible notes – related parties was $391,001 and $339,812, respectively, and is included in accrued expenses in the accompanying balance sheets. Interest expense for convertible notes payable – related parties for the year ended December 31, 2015 and 2014 was $51,189 and $47,363, respectively.

 

 
F-16
 

  

Note 7 - Notes Payable

 

Notes payable consisted of the following:

 

 

 

December 31,

2015

 

 

December 31,

2014

 

Secured

 

 

 

 

 

 

(a) H. Group Partners, Inc.

 

$310,000

 

 

$-

 

(b) Promissory note - factoring

 

 

35,200

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Unsecured

 

 

 

 

 

 

 

 

(c) Promissory notes – various parties

 

 

875,609

 

 

 

397,500

 

(d) Promissory notes – StrikeForce Investor Group

 

 

1,475,000

 

 

 

1,500,000

 

 

 

 

 

 

 

 

 

 

Total notes payable

 

 

2,695,809

 

 

 

1,897,500

 

Discount on secured notes payable

 

 

(20,027)

 

 

-

 

Notes payable, net of discount

 

 

2,675,782

 

 

 

1,897,500

 

Long-term portion

 

 

(222,991)

 

 

-

 

 

 

 

 

 

 

 

 

 

Promissory notes, current maturities

 

$2,452,791

 

 

$1,897,500

 

_______________

(a)

In May 2015, per the terms of a Security Agreement, the Company executed a secured promissory note with an unrelated party for $310,000, bearing interest at 10% per annum maturing in equal thirds on March 31, 2016, March 31, 2017 and March 31, 2018. The note is secured through the note holder's first position claim on the Company's intellectual property, accounts, fixtures and property. The proceeds of the note were received by the Company through April 2015. As inducement to make the loan, the note holder received 16,667 shares Series B preferred stock at $1.50 per share, valued at $25,001, in May 2015, that are convertible into shares of the Company's common stock at a 30% discount to current market value, defined as the average of the immediately prior five trading day's closing prices upon receipt of a conversion notice. The Series B preferred shares can be converted at any time after six months from the date of issuance, but only once every 30 days. The conversion feature contains an embedded derivative (see Note 10).

  

(b)

In October 2015, the Company entered into a promissory note agreement with a funder whereby the Company has the option to sell certain of its future receipts from accounts receivables to the funder. The Company executed a note for $50,400 with the funder. The Company will make 126 daily loan payments of $400 each, and the funder has a security interest in all accounts, chattel paper, equipment, general intangibles, instruments and inventory, as defined, until the promissory note is repaid. As of December 31, 2015, the Company has repaid $15,200 of the note.

 

 
F-17
 

 

(c)

Notes payable consists of twenty unsecured promissory notes ranging in interest rates of 0% per annum to 10% per annum. During the year ended December 31, 2015, the Company issued unsecured promissory notes for $534,324 to three unrelated parties, interest up to 8% per annum, maturing through July 2017. One note, for $408,000 and due December 2016, was issued in relation to an asset purchase and licensing agreement (see Note 15). Notes in the amount of $397,500 were due in various dates through 2015 and are currently in default. Certain of the notes carry default interest rates up to 14% per annum. The Company is currently pursuing settlements with certain of the holders.

 
(d)

Consists of seventy units, with each unit consisting of a 10% promissory note of $25,000, matured in 2011, and currently in default, with a 10% discount rate, and 1 non-dilutable (for one (1) year) restricted share of the Company's common stock, at market price. The Company is currently pursuing extensions on the remaining twenty-one notes.

 

At December 31, 2015 and 2014, accrued interest due for the notes was $1,731,874 and $1,539,206, respectively, and is included in accrued expenses in the accompanying balance sheets. Interest expense for notes payable for the year ended December 31, 2015 and 2014 was $192,668 and $209,371, respectively. At December 31, 2015, accrued interest due for the secured note was $20,808 and included in accrued expenses in the accompanying balance sheets. Interest expense for secured note payable for the year ended December 31, 2015 was $20,808. At December 31, 2014, there was no accrued interest or interest expense.

 

Principal maturities of non-current notes payable, outstanding at December 31, 2015, were as follows:

 

 

 

Amount

 

2017

 

$119,657

 

2018

 

 

103,334

 

Total

 

$222,991

 

 

Note 8 - Notes Payable – Related Parties

 

Notes payable- related party consist of eighteen unsecured notes payable to the Company's Chief Executive Officer ranging in interest rates of 0% per annum to 10% per annum. All of the notes have extended due dates of December 31, 2016, and are shown as current liabilities except for one note, for $19,875, which is due in 2017. The balance of the outstanding notes payable - related party was $742,513 and $722,638 as of December 31, 2015 and 2014, respectively.

 

At December 31, 2015 and 2014, accrued interest due for the notes – related party was $548,653 and $492,573, respectively, and is included in accrued expenses in the accompanying balance sheets. Interest expense for notes payable - related parties for the year ended December 31, 2015 and 2014 was $56,080 and $56,080, respectively.

  

 
F-18
 

  

Note 9 - Derivative Financial Instruments

 

Under authoritative guidance issued by the FASB, instruments which do not have fixed settlement provisions, are deemed to be derivative instruments. The conversion feature of the certain of the Company's convertible notes payable and liabilities payable in shares (described in Note 5 through 7 above) did not have fixed settlement provisions because the ultimate determination of shares to be issued could exceed current available authorized shares.

 

In accordance with the FASB authoritative guidance, the conversion feature of the financial instruments was separated from the host contract and recognized as a derivative instrument. The conversion feature of the financial instruments had been characterized as a derivative liability and was re-measured at the end of every reporting period with the change in value reported in the statement of operations.

 

At December 31, 2015, the fair value of the derivative liabilities was determined through use of a probability-weighted Black-Scholes-Merton valuation model, based on the following assumptions: (i) volatility rate of 100%, (ii) discount rate of 0.16% (iii) zero expected dividend yield, and (iv) expected life ranging from 0.25 to 5 years. The risk-free interest rate was based on rates established by the Federal Reserve Bank. The expected life of the exercise feature of the warrants was based on the remaining term of the notes, warrants, and preferred stock. The expected dividend yield was based on the fact that the Company has not customarily paid dividends in the past and does not expect to pay dividends in the future.

 

At December 31, 2014, the Company utilized a third party valuation consultant to assist the Company in determining the fair value of its derivative financial instruments related to convertible notes, preferred stock, and warrants, based on the following assumptions generally for notes or warrants; Initial conversion price of 40%-60% of the average bid price, as defined; projected volatility in the range of 486% to 491%; an event of default would occur 1% of the time, increasing 1.00% per month to a maximum of 10%; The company would redeem the notes (some notes at 130% on average in the first 90 days and 145% on average from 91 to 180 days or 150%) the notes projected initially at 0% of the time and increase monthly by 2.0% to a maximum of 10.0% (from alternative financing being available for a redemption event to occur); and the holder would not automatically convert the note at the maximum of 2 times the conversion price.

 

As noted above, for the year ended December 31, 2015, the Company utilized the probability-weighted Black-Scholes-Merton valuation mode to value its derivatives, whereas in the prior period a lattice model was utilized. To meet the fair value objective of valuation, a company should select a technique or model that (a) is applied in a manner that is consistent with the fair value measurement objective and other requirements of FASB ASC 815 or other literature, (b) is based on established principles of financial economic theory and generally applied in that field and (c) reflects all substantive characteristics of the instrument. Management believes the probability-weighted Black-Scholes-Merton valuation model utilized meets all three of these requirements. Further, SEC Codification of Staff Accounting Bulletins Topic 14: Share-Based Payment (used by analogy to stock based derivative instruments) states the SEC would not object to a company changing its valuation technique or model and such change would not be considered a change in accounting principle. Management's basis for changing methodologies included: (1) its conclusion that the probability-weighted Black-Scholes-Merton valuation model would meet the fair value objective for these types of derivatives; (2) the simplicity and transparency of the probability-weighted Black-Scholes-Merton valuation model, including the Company's disclosure of all input assumptions, provides the user of the financial statements the benefit of more clearly understanding managements judgments and estimates utilized in valuing these instruments in comparison to the more complex and less transparent lattice binomial model; and (3) cost benefit considerations in preparing the estimates, considering that both methodologies (Black Scholes Merton and the lattice model) are acceptable for valuing instruments with these characteristics.

 

Note 10 - Preferred and Common Stock Transactions

 

Preferred Stock

 

On October 21, 2010, the Company amended its Articles of Incorporation in New Jersey to authorize 10,000,000 shares of preferred stock, par value $0.10. The designations, rights, and preferences of such preferred stock are to be determined by the Board of Directors. On November 15, 2010, the Company changed its domicile from the State of New Jersey to the State of Wyoming.

 

In addition to the 10,000,000 shares of preferred stock authorized on October 21, 2010, on January 10, 2011, 100 shares of preferred stock were designated as Series A Preferred Stock and 100,000,000 shares were designated as Series B Preferred Stock. The bylaws under the Wyoming Incorporation were amended to reflect the rights and preferences of each additional new designation.

 

 
F-19
 

  

The Series A Preferred Stock collectively has voting rights equal to eighty percent of the total current issued and outstanding shares of common stock. If at least one share of Series A Preferred Stock is outstanding, the aggregate shares of Series A Preferred Stock shall have voting rights equal to the number of shares of common stock equal to four times the sum of the total number of shares of common stock issued and outstanding, plus the number of shares of Series B Preferred Stock (or other designated preferred stock) which are issued and outstanding.

 

The Series B Preferred Stock has preferential liquidation rights in the event of any liquidation, dissolution or winding up of the Company, such liquidation rights to be paid from the assets of the Company not delegated to parties with greater priority at $1.00 per share or, in the event an aggregate subscription by a single subscriber of the Series B Preferred Stock is greater than $100,000,000, $0.997 per share. The Series B Preferred Stock shall be convertible to a number of shares of common stock equal to the price of the Series B Preferred Stock divided by the par value of the Series B Preferred Stock. The option to convert the shares of Series B Preferred Stock may not be exercised until three months following the issuance of the Series B Preferred Stock to the recipient shareholder. The Series B Preferred Stock shall have ten votes on matters presented to the shareholders of the Company for one share of Series B Preferred Stock held. The initial price of the Series B Preferred Stock shall be $2.50, (subject to adjustment by the Company's Board of Directors) until such time, if ever, the Series B Preferred Stock are listed on a secondary and/or public exchange.

 

In February 2014, the Company's Board of Directors amended the conversion feature of the Series B Preferred Stock, to permit conversion to common shares at a 40% market discount to current market value at the time the Company receives a conversion request. Current market value is defined as the average of the immediately prior five trading day's closing prices. Additionally, when Series B Preferred Stock shares convert to the Company's common stock, the minimum price discount floor level is set at $0.005, as decided by the Company's Board of Directors.

 

Series A Preferred Stock

 

In February 2011, the Company issued three (3) shares of non-convertible Series A preferred stock valued at $329,000 per share, or $987,000 in aggregate, for voting purposes only, to the three members of the management team at one share each. The issued and outstanding shares of the Series A preferred stock have voting rights equal to eighty percent of the total issued and outstanding shares of the Company's common stock. This effectively provided the management team, upon retention of their Series A Preferred Stock, voting control on matters presented to the shareholders of the Company. They have each irrevocably waived their conversion rights relating to the Series A preferred shares issued.

 

Series B Preferred Stock

 

In July 2015, the Company sold subscriptions to one individual for the purchase of shares of its Series B preferred stock at $1.50 per share. The Company sold a total of 16,667 shares, for $25,000, that are convertible into shares of its common stock at a 40% discount to current market value, as defined with a minimum price level set by the Company's Board of Directors at $0.005.

 

In May 2015, as an inducement to execute a secured promissory note, the note holder received 16,667 shares Series B preferred stock at $1.50 per share, valued at $25,001,that are convertible into shares of the Company's common stock at a 30% discount to current market value, as defined with a minimum price level set by the Company's Board of Directors at $0.005.

 

In 2014, the Company sold subscriptions to individuals for the purchase of shares of its Series B preferred stock at $1.50 per share. The Company sold a total of 142,004 shares, for $213,000, that are convertible into shares of its common stock at a 40% discount to current market value, as defined with a minimum price level set by the Company's Board of Directors at $0.005. As of December 31, 2015, there were 175,338 shares of Series B Preferred Stock issued and outstanding, 16,667 shares which convert to common shares at a 30% market discount, and 158,617 shares which convert at a 40% market discount, as defined. The Series B preferred shares can be converted at any time after six months from the date subscribed or issued, with one conversion allowed per a 30 day period.

 

 
F-20
 

  

Common Stock

 

In June 2015, an increase of the authorized shares of the Company's common stock from three billion (3,000,000,000) to five billion (5,000,000,000), $0.0001 par value, was ratified, effective upon the filing of an amendment to the Company's Certificate of Incorporation with the Wyoming Secretary of State. The amendment was adopted in July 2015.

 

During the year ended December 31, 2015, the Company issued an aggregate of 22,709,470 shares of its common stock as follows:

 

 

·

Convertible note holders converted $228,190 of principal and $13,195 of accrued interest into 22,691,902 shares of common stock at conversion prices ranging from $0.00024 to $39.00 per share.

 

·

The Company issued 17,377 shares of common stock, valued in aggregate of $150, including 15,018 shares issued for services valued at $123, and 2,360 shares valued at $23 that were issued for rounding shares related to the stock splits of the Company's issued and outstanding shares of common stock in 2015.

 

·

The Company issued 191 shares of common stock to warrant holders that exercised 1 warrant at $1,395 per share.

   

During the year ended December 31, 2014, the Company issued an aggregate of 2,454 shares of its common stock as follows:

 

 

·

Convertible note holders converted an aggregate of $657,882 of principal and $34,348 of accrued interest into 2,127 shares of the Company's common stock at conversion prices ranging from $37.70 to $72,280.00 per share.

 

·

The Company issued 323 shares of common stock to warrant holders that exercised 1 warrant at $8,489 per share.

 

Note 11 - Warrants

 

The table below summarizes the Company's warrant activities through December 31, 2015:

 

 

 

Number of

Warrant Shares

 

 

Exercise Price Range

Per Share

 

 

Weighted Average Exercise Price

 

 

Fair Value at Date of Issuance

 

 

Aggregate

Intrinsic Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2014

 

 

33

 

 

$

1,462,500-9,750,000,000

 

 

$155,025,000

 

 

$1,105,250

 

 

$-

 

Granted

 

 

2

 

 

$

695,000-312,000,000

 

 

$2,651,000

 

 

$19,949

 

 

$-

 

Exercised

 

 

(1)

 

$

35,159,000

 

 

 

-

 

 

$(8,521)

 

$-

 

Expired

 

 

(2)

 

$

19,500,000–9,750,000,000

 

 

$86,314,000

 

 

$(528,199)

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2014

 

 

32

 

 

$

695,000-9,750,000,000

 

 

$25,486,000

 

 

$588,479

 

 

$-

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

$-

 

Canceled

 

(-

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

(1

)

 

$

39.00

 

 

$39.00

 

 

 

(1,395)

 

 

-

 

Expired

 

 

(1

)

 

$

19,500,000-39,000,000

 

 

$587,918

 

 

$(83,404)

 

$-

 

Balance, December 31, 2015

 

 

30

 

 

$

695,000-9,750,000,000

 

 

$10,430,000

 

 

$509,262

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and exercisable, December 31, 2015

 

 

30

 

 

$

695,000-9,750,000,000

 

 

$25,495,000

 

 

$509,262

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unvested, December 31, 2015

 

 

-

 

 

$

-

 

 

$-

 

 

$-

 

 

$-

 

  

 
F-21
 

  

The following table summarizes information concerning outstanding and exercisable warrants as of December 31, 2015:

 

 

 

 

Warrants Outstanding

 

 

Warrants 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$9,750,000,000

 

 

 

1

 

 

 

0.15

 

 

$9,750,000,000

 

 

 

1

 

 

 

0.15

 

 

$9,750,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$695,000 - 312,000,000

 

 

 

29

 

 

 

0.88

 

 

$25,318,000

 

 

 

29

 

 

 

0.88

 

 

$25,318,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$695 - $9,750,000

 

 

 

30

 

 

 

0.88

 

 

$25,495,000

 

 

 

30

 

 

 

0.88

 

 

$25,495,000

 

 

Note 12 - Options

 

In August 2015, the Company awarded options to purchase 1,000,000 shares of its common stock to an unrelated consultant, exercisable at $0.0005 per share. The options expire in August 2017, and vested over a four month period. The fair value of these options was determined using the Black-Scholes-Merton option-pricing model based on the following assumptions: (i) volatility rate of 387%, (ii) discount rate of 0.67%, (iii) zero expected dividend yield, and (iv) expected life of 2 years. The risk-free interest rate was based on rates established by the Federal Reserve Bank. The expected life of the exercise feature of the options was based on the remaining term of the options. The expected dividend yield was based on the fact that the Company has not customarily paid dividends in the past and does not expect to pay dividends in the future. The fair value of $2,083 was expensed during 2015.

 

The table below summarizes the Company's 2004 Incentive Plan and 2012 Stock Incentive Plan activities through December 31, 2015:

 

 

 

Number of

Options Shares

 

 

Exercise Price Range

Per Share

 

 

Weighted Average Exercise Price

 

 

Fair Value at Date of Issuance

 

 

Aggregate

Intrinsic

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2014

 

 

4

 

 

$

2,242,500–9,750,000,000

 

 

$12,646,000

 

 

$2,799,653

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

-

 

 

$-

 

 

$-

 

 

$-

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

(1)

 

$9,750,000,000

 

 

$9,750,000,000

 

 

$(14,840)

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2014

 

 

3

 

 

$

2,242,500-9,750,000,000

 

 

$12,650,000

 

 

$2,775,163

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

1,000,000

 

 

$0.0005

 

 

$0.0005

 

 

$10,000

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2015

 

 

1,000,003

 

 

$

0.0005-9,750,000,000

 

 

$2.00

 

 

$2,785,163

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and exercisable, December 31, 2015

 

 

208,334

 

 

$

0.0005-9,750,000,000

 

 

$2.00

 

 

$2,777,246

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unvested, December 31, 2015

 

 

791,669

 

 

$0.0005

 

 

$0.0005

 

 

$7,917

 

 

$-

 

 

 
F-22
 

 

As of December 31, 2015, options to purchase an aggregate of 3 shares of common stock were outstanding under the 2004 incentive plan and 2012 Stock Incentive Plan and there were 5,500,000 shares remaining available for issuance.

 

The following table summarizes information concerning 2004 Incentive plan and 2012 Stock Incentive Plan as of December 31, 2015:

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$9,750,000,000

 

 

 

1

 

 

 

0.01

 

 

$9,750,000,000

 

 

 

1

 

 

 

0.01

 

 

$9,750,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$975,000,000

 

 

 

1

 

 

 

1.02

 

 

$975,000,000

 

 

 

1

 

 

 

1.02

 

 

$975,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$2,437,500-365,625,000

 

 

 

0

 

 

 

0.64

 

 

$10,935,000

 

 

 

0

 

 

 

0.64

 

 

$10,935,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$2,242,500

 

 

 

1

 

 

 

7.51

 

 

$2,242,500

 

 

 

1

 

 

 

7.51

 

 

$2,242,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.0005

 

 

 

1,000,000

 

 

 

2.00

 

 

$0.0005

 

 

 

208,333

 

 

 

2.00

 

 

$0.0005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$2,242.50-9,750,000

 

 

 

1,000,003

 

 

 

1.13

 

 

$2.00

 

 

 

208,336

 

 

 

1.13

 

 

$2.00

 

 

Note 13 - Other Income

 

In March 2015 the Company entered into a settlement agreement relating to a lawsuit with a former channel partner. In September 2015, the Company and the former channel partner amended the settlement agreement. In accordance with the amended settlement agreement the Company received payments totaling $305,000 which have been reflected as other income in the accompanying statement of operations.

 

Note 14 - Income Tax Provision

 

The Company has no tax provision for any period presented due to our history of operating losses. As of December 31, 2015, the Company had deferred tax assets of approximately$6,435,772, resulting from certain temporary differences and net operating loss("NOL")carry-forwards of approximately $18,928,742, which are available to offset future taxable income, if any, through 2035. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as management has determined that their realization is not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards.

 

Components of deferred tax assets as of December 31, 2015 and 2014 are as follows:

 

 

 

December 31,

2015

 

 

December 31,

2014

 

Net deferred tax assets – non-current:

 

 

 

 

 

 

 

 

 

 

 

 

 

Expected income tax benefit from NOL carry-forwards

 

$6,435,772

 

 

$6,250,388

 

 

 

 

 

 

 

 

 

 

Less valuation allowance

 

 

(6,435,772)

 

 

(6,250,388)

 

 

 

 

 

 

 

 

 

Deferred tax assets, net of valuation allowance

 

$-

 

 

$-

 

 

 
F-23
 

  

A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income tax provision is as follows:

  

 

 

For the year ended December 31, 2015

 

 

For the year ended December 31, 2014

 

 

 

 

 

 

 

 

Federal statutory income tax rate

 

 

34.0%

 

 

34.0%

 

 

 

 

 

 

 

 

 

Change in valuation allowance on net operating loss carry-forwards

 

 

(34.0)

 

 

(34.0)

 

 

 

 

 

 

 

 

 

Effective income tax rate

 

 

0.0%

 

 

0.0%

 

The Company's operations are based in New Jersey and it is subject to federal and New Jersey state income tax. Tax years subsequent to 2008 are open to examination by United States and state tax authorities.

 

The Company adopted accounting rules which address the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under these rules, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. These accounting rules also provide guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of December 31, 2015, no liability for unrecognized tax benefits was required to be recorded.

 

Note 15 - Commitments and Contingencies

 

Payroll Taxes

 

At December 31, 2015, the Company recorded $53,901 of payroll taxes, of which approximately $45,000 were delinquent. The Company had also recorded $32,462 of estimated penalties and interest on the delinquent payroll taxes.

 

Lease Agreement

 

The Company operates from a leased office in New Jersey. Per the terms of the lease agreement with the landlord, the Company pays a monthly base rent of $3,807 commencing on July 1, 2009 through the lease termination date of January 31, 2016. In November 2015, the lease was extended for three years to January 31, 2019. The Company will pay a monthly base rent of $4,067 from February 2016 thru January 2017, $4,190 from February 2017 thru January 2018 and $4,316 from February 2018 thru January 2019.

 

Future minimum payments required under this non-cancelable operating lease were as follows:

 

Year ending December 31:

 

 

 

 

 

 

 

2016

 

$48,548

 

 

 

 

 

 

2017

 

 

50,162

 

 

 

 

 

 

2018

 

 

51,662

 

 

 

 

 

 

2019

 

 

4,316

 

 

 

 

 

 

 

 

$154,688

 

 

 
F-24
 

  

Consulting Agreements

 

In 2014, the Company entered into consulting agreements with a firm whereby the consultant will assist the Company in obtaining investors. The consultant will receive a commission of 10% cash per deal, plus warrants to purchase shares of the Company's common stock, to be negotiated per deal, of all financing raised as a result of the consultant's efforts. For the year ended December 31, 2015, the consultant received cash commissions of $49,700 as a result of financing raised relating to the agreements. For the year ended December 31, 2014, the Company issued warrants to purchase 1 share of its common stock, exercisable at $19,500 per share, to the consultant per the terms of the agreement. The warrant shares have a 50% exercise price premium and expire three (3) years from the date of issuance.

 

Licensing Agreement

 

On August 24, 2015, the Company entered into an asset purchase and licensing agreement with Cyber Safety, Inc., a New York corporation ("Cyber Safety") to license and retain an option to purchase the patents and Intellectual Property related to the GuardedIDÒ and MobileTrustÒ software for a purchase price of $9 million, which may be paid in the form of a promissory note due September 30, 2020. Pursuant to the terms of the Asset Purchase Agreement, Cyber Safety will license and have the option to purchase the white label version of the "GuardedIDÒ" software for up to $120,000 of development and the MobileTrustÒ software products. The Company's license granted to Cyber Safety does not affect or impact existing distributor relationships. The Company, directly and through its distribution channel, will maintain the right to sell in the retail space in perpetuity.

 

As a condition of the Asset Purchase Agreement, Cyber Safety will license the Malware Suite, as defined, to September 30, 2020. Pursuant to this license, Cyber Safety shall pay the Company 15% of the net amount Cyber Safety receives, as defined, from the sale or licensing of the Malware Suite, which amount may be increased to 20% under certain conditions, and is subject to reduction for commissions and support costs Cyber Safety will pay the Company (see Note 16). In conjunction with the licensing, the Company has executed a Distributor and Reseller Agreement with Cyber Safety, dated August 24, 2015. In conjunction with the licensing and the option to purchase, Cyber Safety loaned the Company $408,000 (see Note 7).

 

Due to Factor

 

In March 2007, the Company entered into a sale and subordination agreement with a factoring firm whereby the Company sold its rights to two invoices, from February 2007 and March 2007, totaling $470,200 to the factor. Upon signing the agreement and providing the required disclosures, the factor remitted $197,450 to the Company, including $144,440 of the February 2007 invoice and $53,010 of the March 2007 invoice. In September 2007, the February 2007 factored invoice was deemed uncollectible and in December 2007, the March 2007 factored invoice was deemed uncollectible. In February 2008, the Company and the factor agreed to a total settlement amount of $75,000 in September 2008, unless both parties mutually agreed to extend the due date. In September 2008, the Company and the factor reached a verbal agreement to extend the due date to December 31, 2008. The Company is currently pursuing a further extension. As of December 31, 2015, the balance due to the factor by the Company was $209,192 including interest.

 

Litigation

 

On March 28, 2013 the Company initiated patent litigation against an outside party. As of March 31, 2015, the case was in full discovery, the pre-trial hearing was held, and the deliberations were continuing. Mediation took place in May 2015 to discuss a potential settlement, and on January 15, 2016, the parties reached a settlement in the matter. As part of the settlement, the Company will receive a payment of $4.9 million, net of legal fees, which will be recorded as other income in the first quarter of 2016.

 

 
F-25
 

  

Note 16 - Subsequent Events

 

The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued. The Management of the Company determined that there were certain reportable subsequent events to be disclosed as follows:

 

Repayment of Unsecured Convertible Notes Payable

 

Subsequent to December 31, 2015, the Company repaid $623,351 of principal and $218,350 of accrued interest and/or fees of unsecured convertible notes to nine unrelated parties, which resulted in the extinguishment of approximately $637,330 of derivative liabilities.

 

Repayment of Unsecured and Secured Notes Payable

 

Subsequent to December 31, 2015, the Company received proceeds of $75,000 from one unsecured note payable, and repaid $465,000 of principal of unsecured notes to two unrelated parties.

 

Subsequent to December 31, 2015, the Company repaid $310,000 of principal and $228,171 of accrued interest and fees of a secured note to one unrelated party.

 

Issuance of shares of Common Stock upon conversion of convertible notes

 

Subsequent to December 31, 2015, convertible note holders converted a total of $151,169 principal and $95,947 of accrued interest into 2,105,237,983 shares of the Company's common stock at conversion prices ranging from $0.000058 to $0.0003 per share. The Company also issued 7,500 shares of common stock valued at $5, or $0.00067 per share, for services.

 

Compensation

 

In January 2016, the Company's Board of Directors increased the base salaries of the Company's officers and employees, including its named executive officers, such that the new salaries are comparable to similarly situated companies. Consequently, the base salaries of the Company's officers have been set at $150,000 per annum. Other employees were granted increases to between $105,000 and $125,000 per annum. Additionally, the Company's officers forgave an aggregate total of $699,000 of accrued payroll owed to them by the Company.

 

Licensing Agreement

 

In January 2016, Cyber Safety, finalized the purchase of the option to buy the keystroke encryption patents and Intellectual Property related to the GuardedIDÒ and MobileTrustÒ software pursuant to the terms and conditions of an asset purchase agreement, executed in August 2015, for a purchase price of $9 million, which may be paid in the form of a promissory note due by and no later than September 30, 2020. Pursuant to the terms and conditions of the asset purchase agreement, the Company's license granted to Cyber Safety does not affect or impact its existing distributor relationships. The Company, directly and through our distribution channel, will maintain the right to sell in the retail space in perpetuity. As a condition of the asset purchase agreement, Cyber Safety will license the Malware Suite (as defined in the Asset Purchase Agreement) up to and until September 30, 2020. Pursuant to this license, Cyber Safety shall pay the Company 15% of the net amount Cyber Safety receives, as defined, which amount may be increased to 20% under certain conditions for ProtectIDÒ, and is subject to reduction for commissions and support costs that Cyber Safety will be obligated to pay to the Company (see Note 15).

  

 
F-26
 

  

ITEM 9. CHANGE IN ACCOUNTANTS

 

On March 21, 2016, we dismissed Li and Company, P.C. as our independent registered public accounting firm as Li and Company determined not to perform public company audits going forward. On March 21, 2016, we engaged Weinberg and Company, P.A. as our new independent registered public accounting firm.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

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.

 

We carried out an evaluation, with the participation of our management, including our Chief Executive Officer ("CEO"), of the effectiveness our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of December 31, 2015. Based upon that evaluation, our CEO concluded that our disclosure controls and procedures are not effective at the reasonable assurance level due to the material weaknesses described below.

 

Management's Report on Internal Control Over Financial Reporting

 

Our principal executive officer and our principal financial officer, are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) as of December 31, 2015. Management is required to base its assessment of the effectiveness of our internal control over financial reporting on a suitable, recognized control framework, such as the framework developed by the Committee of Sponsoring Organizations (COSO). The COSO framework, published in Internal Control-Integrated Framework (2013), is known as the COSO Report. Our principal executive officer and our principal financial officer have chosen the COSO framework on which to base their assessment.

 

It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

 

 
31
 

  

In light of the material weaknesses described below, we performed additional analysis and other post-closing procedures to ensure our financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

 

A material weakness is a control or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified the following three material weaknesses which have caused management to conclude that, as of December 31, 2015, our disclosure controls and procedures were not effective at the reasonable assurance level:

 

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 year ending December 31, 2015. 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. To date, we have not been successful in reducing the number of audit adjustments, but will continue our efforts in the coming fiscal year.

 

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.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

 
32
 

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

 

DIRECTORS AND EXECUTIVE OFFICERS.

 

The following sets forth our executive officers and/or Directors, their ages, and all offices and positions held with us.

 

Name

Age

Position

Mark L. Kay

67

Chief Executive Officer and Chairman of the Board of Directors

Philip E. Blocker

59

Chief Financial Officer

Ramarao Pemmaraju

55

Chief Technical Officer and Director

George Waller

58

Executive Vice President and Marketing Director

 

Our Directors hold their offices until the next annual meeting of the shareholders and until their successors have been duly elected and qualified or until their earlier resignation, removal of office or death. Our executive officers are elected by the Board of Directors to serve until their successors are elected and qualified.

 

The following is a brief description of the business experience of our executive officers who are also the Directors and significant employees:

 

Mark L. Kay, Chief Executive Officer and Chairman of the Board of Directors

 

Mr. Kay joined StrikeForce as our CEO in May 2003 following his retirement at JPMorganChase & Co. In December 2008, a majority of the Board of Directors, by written consent, eliminated the position of our President, with those responsibilities being assumed by Mr. Kay. A majority of the Board of Directors also appointed Mr. Kay as the Chairman of the Board in December 2008. Prior to joining StrikeForce Mr. Kay was employed by JPMorganChase & Co. from August of 1977 until his retirement in December 2002, at which time he was a Managing Director of the firm. During his tenure with JPMorganChase & Co. Mr. Kay led strategic and corporate business groups with global teams up to approximately 1,000 people. His responsibilities also included Chief Operations Officer, Chief Information Officer, and Global Technology Auditor. Mr. Kay's business concentrations were in securities (fixed income and equities), proprietary trading and treasury, global custody services, audit, cash management, corporate business services and web services. Prior to his employment with JPMorganChase & Co., Mr. Kay was a systems engineer at Electronic Data Services (EDS) for approximately five years from September 1972 through to August 1977. He holds a B.A. in Mathematics from CUNY.

 

Philip E. Blocker, Chief Financial Officer

 

Mr. Blocker was CFO of MediaServ, a NYC based Internet software development company, in 2001. Prior to MediaServ, Mr. Blocker was a partner in POLARIS, a $25 million technology reseller, specializing in storage and high availability solutions. He is a Certified Public Accountant and has practical experience with taking private companies public.

 

Ramarao Pemmaraju, Chief Technology Officer

 

Mr. Pemmaraju Joined StrikeForce in July 2002 as our Chief Technology Officer (CTO) and the inventor of the ProtectIDÒ product. In May 1999 Mr. Pemmaraju co-founded NetLabs, which developed security software products. Mr. Pemmaraju concentrated his time on NetLabs from July 2001 through to July 2002. From June 2000 to July 2001 Mr. Pemmaraju was a systems architect and project leader for Coreon, an operations service provider in telecommunications. From October 1998 through May 2000, Mr. Pemmaraju was a systems engineer with Nexgen systems, an engineering consulting firm. Mr. Pemmaraju has over eighteen years experience in systems engineering and telecommunications. His specific expertise is in systems architecture, design and product development. Mr. Pemmaraju holds a M.S.E.E. from Rutgers University and a B.E. from Stevens Tech.

 

 
33
 

  

George Waller, Executive Vice President and Head of Marketing

 

Mr. Waller joined StrikeForce in June 2002 as a Vice President in charge of sales and marketing. In July 2002, Mr. Waller became the CEO of StrikeForce, a position he held until Mr. Kay joined us in May 2003. Since May 2003, Mr. Waller has been the Executive Vice President overseeing Sales, Marketing, Business Development and product development. From 2000 through June 2002, Mr. Waller was Vice President of business development for Infopro, an outsourcing software development firm. From 1999 to 2001, Mr. Waller was Vice President of sales and Marketing for Teachmeit.com-Incubation systems, Inc., a multifaceted computer company and sister company to Infopro. From 1997 through 1999, Mr. Waller was the Vice President of Internet Marketing for RX Remedy, an aggregator of medical content for online services. Previously, Mr. Waller was a Vice President of Connexus Corporation, a software integrator.

 

Family Relationships

 

There are no family relationships between any two or more of our directors or executive officers. There is no arrangement or understanding between any of our directors or executive officers and any other person pursuant to which any director or officer was or is to be selected as a director or officer, and there is no arrangement, plan or understanding as to whether non-management shareholders will exercise their voting rights to continue to elect the current board of directors. There are also no arrangements, agreements or understandings to our knowledge between non-management shareholders that may directly or indirectly participate in or influence the management of our affairs.

 

Involvement in Certain Legal Proceedings

 

To the best of our knowledge, during the past five years, none of the following occurred with respect to a present or former director or executive officer of our Company: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of any competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the commodities futures trading commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

 

Board of Directors

 

Our By-laws provide that there must be no less than one and no more than seven directors, as determined by the Board of Directors. Our Board of Directors currently consists of three directors.

 

Directors need not be our stockholders or residents of the State of Wyoming. Directors are elected for an annual term and generally hold office until the next Directors have been duly elected and qualified. A vacancy on the Board may be filled by the remaining Directors even though less than a quorum remains. A Director appointed to fill a vacancy remains a Director until his successor is elected by the Stockholders at the next annual meeting of Shareholder or until a special meeting is called to elect Directors.

 

Our executive officers are appointed by the Board of Directors.

 

During fiscal 2015, our Board of Directors met twenty four times. The Board of Directors also uses written resolutions to deal with certain matters and, during fiscal 2015 fourteen written resolutions were signed by a majority of the Directors.

   

Compensation of Directors

 

Our bylaws provide that, unless otherwise restricted by our certificate of incorporation, our Board of Directors has the authority to fix the compensation of directors. The directors may be paid their expenses, if any, related to attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as our director. Our bylaws further provide that no such payment will preclude any director from serving our company in any other capacity and receiving compensation therefore. Further, members of special or standing committees may be given compensation for attending committee meetings.

 

 
34
 

  

Committees

 

We have two committees: the Audit Committee and the Compensation Committee. At this time, there are no members of either Committee and the Board of Directors performs the acts of the Committees. None of our current directors are deemed "independent" directors as that term is used by the national stock exchanges or have the requisite public company accounting background or expertise to be considered an "audit committee financial expert" as that term is defined under Regulation S-K promulgated under the Securities Act of 1933, as amended.

 

It is anticipated that the principal functions of the Audit Committee will be to recommend the annual appointment of our auditors, the scope of the audit and the results of their examination, to review and approve any material accounting policy changes affecting our operating results and to review our internal control procedures.

 

It is anticipated that the Compensation Committee will develop a Company-wide program covering all employees and that the goals of such program will be to attract, maintain, and motivate our employees. It is further anticipated that one of the aspects of the program will be to link an employee's compensation to his or her performance, and that the grant of stock options or other awards related to the price of the common shares will be used in order to make an employee's compensation consistent with shareholders' gains. It is expected that salaries will be set competitively relative to the technology development industry and that individual experience and performance will be considered in setting salaries.

 

At present, executive and director compensation matters are determined by a majority vote of the board of directors.

 

We do not have a nominating committee. Historically our entire Board has selected nominees for election as directors. The Board believes this process has worked well thus far particularly since it has been the Board's practice to require unanimity of Board members with respect to the selection of director nominees. In determining whether to elect a director or to nominate any person for election by our stockholders, the Board assesses the appropriate size of the Board of Directors, consistent with our bylaws, and whether any vacancies on the Board are expected due to retirement or otherwise. If vacancies are anticipated, or otherwise arise, the Board will consider various potential candidates to fill each vacancy. Candidates may come to the attention of the Board through a variety of sources, including from current members of the Board, stockholders, or other persons. The Board of Directors has not yet had the occasion to, but will, consider properly submitted proposed nominations by stockholders who are not our directors, officers, or employees on the same basis as candidates proposed by any other person.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent (10%) of our outstanding Common Stock, or the Reporting Persons, to file with the SEC initial reports of ownership on Form 3 and reports of changes in ownership of Common Stock on Forms 4 or 5. Such persons are required by SEC regulation to furnish us with copies of all such reports they file. Based solely on a review of Forms 3 and 4 furnished to us by the Reporting Persons or prepared on behalf of the Reporting Persons by the Company, the Company believes that the Reporting Persons have not complied with reporting requirements applicable to them.

   

Code of Ethics.

 

We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Our code of ethics contains standards that are reasonably designed to deter wrongdoing and to promote:

 

o

Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

 

o

Full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submits to, the Commission and in other public communications made by us;

 

o

Compliance with applicable governmental laws, rules and regulations;

 

o

The prompt internal reporting of violations of the code to the board of directors or another appropriate person or persons; and

 

o

Accountability for adherence to the code.

 

 
35
 

 

Indemnification of Officers and Directors

 

As permitted by Wyoming law, our Articles of Incorporation provide that we will indemnify our directors and officers against expenses and liabilities they incur to defend, settle, or satisfy any civil or criminal action brought against them on account of their being or having been our directors or officers unless, in any such action, they are adjudged to have acted with gross negligence or willful misconduct.

 

Pursuant to the foregoing provisions, we have been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in that Act and is, therefore, unenforceable.

 

Stockholder Communications with the Board

 

Stockholders who wish to communicate with the Board of Directors should send their communications to the Chairman of the Board at the address listed below. The Chairman of the Board is responsible for forwarding communications to the appropriate Board members.

 

StrikeForce Technologies, Inc.

1090 King George's Post Road

Suite #603

Edison, NJ 08837

Attn: Mark L. Kay, Chairman

   

ITEM 11. EXECUTIVE COMPENSATION.

 

Summary Compensation Table

 

The following table sets forth certain compensation information for: (i) the person who served as the Chief Executive Officer of StrikeForce during the years ended December 31, 2015 and 2014, regardless of the compensation level, and (ii) each of our other executive officers, serving as an executive officer at any time during 2015 and 2014. The foregoing persons are collectively referred to in this Form 10-K as the "Named Executive Officers." Compensation information is shown for the years ended December 31, 2015 and 2014:

 

Name/ Principal Position

 

Year

 

Salary

 

 

Bonus

 

 

Stock

Awards

 

 

Incentive Plan Option

Awards

 

 

Securities

Underlying

Options/SARs

 

 

Nonqualified Deferred

Compensation

Earnings

 

 

All Other

Compensation

 

 

Total

 

 

 

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark L. Kay

 

2015

 

 

101,231

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

101,231

 

Chief Executive Officer

 

2014

 

 

98,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

98,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

George Waller

 

2015

 

 

105,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

105,000

 

Executive Vice President

 

2014

 

 

98,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

98,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ramarao Pemmaraju

 

2015

 

 

105,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

105,000

 

Chief Technical Officer

 

2014

 

 

98,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

98,000

 

  

On July 31, 2010, Philip E. Blocker was appointed our Chief Financial Officer. Mr. Blocker is not our employee and he received no payments or option awards in 2015.

 

 
36
 

  

Outstanding Option Awards at Year End

 

The following table provides certain information regarding unexercised options to purchase common stock, stock options that have not vested, and equity-incentive plan awards outstanding at December 31, 2015 for each Named Executive Officer and/or Director.

 

Outstanding Equity Awards At Fiscal Year-End Table

 

Option Awards

Stock Awards

Name

 

Number of Securities Underlying Unexercised Options

(#)

Exercisable

 

 

Number of Securities Underlying Unexercised Options

(#)

Unexercisable

 

 

Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)

 

 

Option Exercise Price ($)

 

 

Option Expiration Date

 

Number of Shares or Units of Stock That Have Not Vested (#)

 

 

Market Value of Shares or Units of Stock That Have Not Vested ($)

 

 

Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)

 

 

Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)

 

Mark L. Kay

 

 

1

 

 

 

-

 

 

 

-

 

 

$365,265,000

 

 

03/02/17

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

-

 

 

$234,000,000

 

 

03/16/17

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

-

 

 

$224,250,000

 

 

04/27/17

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

-

 

 

$195,000,000

 

 

05/25/17

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

-

 

 

$146,250,000

 

 

06/08/17

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

-

 

 

$165,750,000

 

 

06/22/17

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

3

 

 

 

-

 

 

 

-

 

 

$78,000,000

 

 

11/23/17

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

-

 

 

$300,000.00

 

 

12/12/17

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

16

 

 

 

-

 

 

 

-

 

 

$9,750,000

 

 

04/21/16

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

-

 

 

$2,242,500

 

 

01/03/23

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

George Waller

 

 

1

 

 

 

-

 

 

 

-

 

 

$146,250,000

 

 

06/08/17

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

-

 

 

$165,750,000

 

 

06/22/17

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

-

 

 

$78,000,000

 

 

11/23/17

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

-

 

 

$195,000,000

 

 

12/12/17

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

16

 

 

 

-

 

 

 

-

 

 

$9,750,000

 

 

04/21/16

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

-

 

 

$2,242,500

 

 

01/03/23

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ramarao Pemmaraju

 

 

1

 

 

 

-

 

 

 

-

 

 

$195,000,000

 

 

05/25/17

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

7

 

 

 

-

 

 

 

-

 

 

$146,250,000

 

 

06/08/17

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

-

 

 

$165,750,000

 

 

06/22/17

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

-

 

 

$78,000,000

 

 

11/23/17

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

3

 

 

 

-

 

 

 

-

 

 

$5,850,000

 

 

12/23/15

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

16

 

 

 

-

 

 

 

-

 

 

$9,750,000

 

 

04/21/16

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

-

 

 

$2,242,500

 

 

01/03/23

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 
37
 

 

Option Exercises and Stock Vested Table

 

None.

 

Pension Benefits Table

 

None.

 

Non-Qualified Deferred Compensation Table

 

Name

 

Executive Contributions

in Last Fiscal Year

 

 

Registrant

Contributions in Last

Fiscal Year

 

 

Aggregate Earnings

in Last Fiscal Year

 

 

Aggregate

Withdrawals /

Distributions

 

 

Aggregate Balance at

Last Fiscal Year-End

 

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark L. Kay

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

322,182

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

George Waller

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

298,572

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ramarao Pemmaraju

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

310,086

 

 

All Other Compensation Table

 

None.

 

Perquisites Table

 

None.

 

Director Compensation

 

All three of our directors were also our executive officers through December 31, 2015. Our directors did not receive any separate compensation for serving as such during fiscal 2015.

 

Effective January 25, 2016, the Board of Directors determined to increase the base salaries of its officers and employees, including its named executive officers, such that the new salaries are comparable to similarly situated companies. Consequently, the base salaries of Mark Kay, George Waller, and Ram Pemmaraju have been set at $150,000 per annum. Other employees were granted increases to between $105,000 and $125,000 per annum. Additionally, our officers forgave an aggregate total of $699,000 of accrued payroll, from prior years' missed salaries, that we owed to them.

 

 
38
 

  

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

Share Ownership of Certain Beneficial Owners

 

The following table sets forth certain information as of December 31, 2015, with respect to the shares of common stock beneficially owned by: (i) each director; (ii) each executive officer; (iii) all current executive officers (regardless of salary and bonus level) and directors as a group; and (iv) each person or entity known by us to beneficially own more than 5% of our outstanding common stock. The address for each director and executive officer is 1090 King Georges Post Road, Suite 603, Edison, New Jersey 08837. Unless otherwise indicated, the shareholders listed in the table below have sole voting and investment powers with respect to the shares indicated:

 

This table is based upon information obtained from our stock records.

 

NAME OF BENEFICIAL OWNER

 

AMOUNT OF

OWNERSHIP(1)

 

PERCENTAGE OF CLASS(2) (excluding Preferred Stock (11))

Mark L. Kay

35 (3),(11)

0.0001%

Ramarao Pemmaraju

37 (4),(5),(11)

0.0002%

George Waller

22 (6),(7),(11)

0.0001%

All directors and executive officers as a group (3 persons)

94 (8)

0.0004%

NetLabs.com, Inc.

2 (9),(10)

0.000008%

______________

(1)

A person is deemed to be the beneficial owner of securities that can be acquired by such person within 90 days from the date hereof.

(2)

Based on 22,711,924 shares of common stock outstanding as of December 31, 2015; also including 291,470 shares of common stock available upon the conversion of certain convertible loans, 1,000,080 shares of common stock underlying options and 30 shares of common stock underlying common stock purchase warrants.

(3) 

Includes 6 shares of common stock available upon the conversion of certain convertible loans valued at $9,750,000,000 per share for $240,000 of convertibles and $7,312,500,000 per share for $28,000 of convertibles, 25 shares of common stock underlying vested five-year options valued from $2,242,500 to $9,750,000 per share, 1 share of common stock underlying vested ten-year options valued from $78,000,000 to $365,625,000 per share and 1 share of common stock underlying common stock purchase warrants, exercisable at $9,750,000,000. Mark L. Kay, along with Ramarao Pemmaraju and George Waller each hold one share of Series A Preferred Shares which, collectively, allow the holders to vote up to 80% of the issued and outstanding shares of common and preferred stock; Mark Kay, along with Ramarao Pemmaraju and George Waller have irrevocably waived any conversion rights.

(4)

Includes 4 shares of common stock available upon the conversion of certain convertible loans valued at $9,750,000,000 per share for $25,000 of convertibles and $7,312,500,000 per share for $5,000 of convertibles, 29 shares of common stock underlying vested five-year options valued from $2,242,500 to $9,750,000 per share, 1 share of common stock underlying vested ten-year options valued from $78,000,000 to $195,000,000 per share and 1 share of common stock underlying common stock purchase warrants, exercisable at $9,750,000,000. Of the total shares, 9 shares, consisting of 4 shares of common stock available upon the conversion of certain convertible loans valued at $9,750,000,000 per share for $25,000 of convertibles and $7,312,500,000 per share for $5,000 of convertibles, 2 shares of common stock underlying vested five-year options valued from $2,242,500 to $9,750,000 per share, 2 share of common stock underlying vested ten-year options valued from $78,000,000 to $195,000,000 per share and 1 share of common stock underlying common stock purchase warrants, exercisable at $9,750,000, are in the name of Sunita Pemmaraju who is a family member of Ramarao Pemmaraju. Mark L. Kay, along with Ramarao Pemmaraju and George Waller each hold one share of Series A Preferred Shares which, collectively, allow the holders to vote up to 80% of the issued and outstanding shares of common stock; Mark Kay, along with Ramarao Pemmaraju and George Waller have irrevocably waived any conversion rights.

 

 
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(5) 

Excludes shares owned by NetLabs.com, Inc. which is controlled by Ramarao Pemmaraju and another individual.

(6) 

Shares are listed in the name of Katherine LaRosa who is a family member of George Waller.

(7)

Includes 19 shares of common stock underlying vested five-year options valued from $2,242,500 to $9,750,000 per share and 2 shares of common stock underlying vested ten-year options valued from $78,000,000 to $195,000,000 per share. Mark Kay, along with Ramarao Pemmaraju and George Waller each hold one share of Series A Preferred Shares which, collectively, allow the holders to vote up to 80% of the issued and outstanding shares of common stock; Mark Kay, along with Ramarao Pemmaraju and George Waller have irrevocably waived any conversion rights.

(8)

Includes 10 shares of common stock available upon the conversion of certain convertible loans valued at $9,750,000,000 per share for $265,000 of convertibles and $7,312,500,000 per share for $33,000 of convertibles, 73 shares of common stock underlying vested five-year options valued from $2,242,500 to $9,750,000,000 per share, 4 shares of common stock underlying vested ten-year options valued from $78,000,000 to $195,000,000 per share and 2 shares of common stock underlying common stock purchase warrants, exercisable at $9,750,000,000. Excludes the Series A Preferred Shares: Mark L. Kay, along with Ramarao Pemmaraju and George Waller, each hold one share of Series A Preferred Shares which, collectively, allow the holders to vote up to 80% of the issued and outstanding shares of common stock; Mark Kay, along with Ramarao Pemmaraju and George Waller, have irrevocably waived any conversion rights.

(9)

Ramarao Pemmaraju controls NetLabs.com, Inc. along with another individual.

(10) 

Includes 1 share of common stock underlying vested ten-year options valued at $1,950,000 per share.

(11)

Mark Kay, along with Ramarao Pemmaraju and George Waller hold 3 shares of preferred stock. The Series A Preferred Stock collectively has voting rights equal to eighty percent of the total current issued and outstanding shares of common stock.

 

DESCRIPTION OF SECURITIES

 

Equity Incentive Plan Information

 

The following table sets forth as of December 31, 2015, the total number of shares of our common stock which may be issued upon the exercise of outstanding stock options and other rights under compensation plans approved by the shareholders, and under compensation plans not approved by the shareholders. The table also sets forth the weighted average purchase price per share of the shares subject to those options, and the number of shares available for future issuance under those plans.

 

Plan Category

 

Number of securities to be issued upon exercise of outstanding options

 

 

Weighted-average exercise price of outstanding options

 

 

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

 

Equity compensation plans approved by security holders

 

 

80

 

 

$2,785,163

 

 

 

220

 

Equity compensation plans not approved by security holders

 

 

N/A

 

 

$N/A

 

 

 

N/A

 

Total

 

 

80

 

 

$2,785,163

 

 

 

220

 

 

Options for 80 shares have been granted under StrikeForce's 2004 Equity Incentive Plan which was approved by unanimous consent of the Board of Directors. The option shares were granted at various times from May 2003 through December 2011 and are exercisable at a range of $9,750,000 to $975,000,000 per share.

 

 
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2012 Stock Option Plan

 

In November 2012, the stockholders approved the 2012 Stock Option Plan for our employees, effective January 3, 2013. The number of shares authorized for issuance under the plan is 6,500,000.

 

In August 2015, we awarded options to purchase 1,000,000 shares of our common stock to an unrelated consultant, exercisable at $0.0005 per share, expiring two years from the date of grant, and vesting over a four month period.

  

General

 

Common Stock

 

The shares of our common stock presently outstanding, and any shares of our common stock issues upon exercise of stock options and/or common stock purchase warrants, will be fully paid and non-assessable. Each holder of common stock is entitled to one vote for each share owned on all matters voted upon by shareholders, and a majority vote is required for all actions to be taken by shareholders. In the event we liquidate, dissolve or wind-up our operations, the holders of the common stock are entitled to share equally and ratably in our assets, if any, remaining after the payment of all our debts and liabilities and the liquidation preference of any shares of preferred stock that may then be outstanding. The common stock has no preemptive rights, no cumulative voting rights, and no redemption, sinking fund, or conversion provisions. Since the holders of common stock do not have cumulative voting rights, holders of more than 50% of the outstanding shares can elect all of our Directors, and the holders of the remaining shares by themselves cannot elect any Directors. Holders of common stock are entitled to receive dividends, if and when declared by the Board of Directors, out of funds legally available for such purpose, subject to the dividend and liquidation rights of any preferred stock that may then be outstanding.

 

In February 2011, an increase of the authorized shares of our common stock from one hundred million (100,000,000) to five hundred million (500,000,000), $0.0001 par value, was ratified, effective upon the filing of an amendment to our Certificate of Incorporation with the Wyoming Secretary of State.

 

In December 2012, an increase of the authorized shares of our common stock from five hundred million (500,000,000) to seven hundred fifty million (750,000,000), $0.0001 par value, was ratified, effective upon the filing of an amendment to the our Certificate of Incorporation with the Wyoming Secretary of State. The amendment was adopted in February 2013.

 

In May 2013, an increase of the authorized shares of our common stock from seven hundred fifty million (750,000,000) to one billion, five hundred million (1,500,000,000), $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 May 2013.

 

In July 2013, an increase of the authorized shares of our common stock from one billion, five hundred million (1,500,000,000) to three billion (3,000,000,000), $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 July 2013.

 

In August 2013, an increase of the authorized shares of our common stock from three billion (3,000,000,000) to five billion (5,000,000,000), $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 September 2013.

 

In December 2013, an increase of the authorized shares of our common stock from five billion (5,000,000,000) to six billion seven hundred fifty million (6,750,000,000), $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 January 2014.

 

 
41

 

  

In February 2014, a 1:1,500 reverse stock split of our issued and outstanding shares of common stock 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 March 2014.

 

In February 2014, a decrease of the authorized shares of our common stock from six billion seven hundred fifty million (6,750,000,000) to one billion, five hundred million (1,500,000,000), $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 March 2014.

 

In December 2014, an increase of the authorized shares of our common stock from one billion, five hundred million (1,500,000,000) to nine billion (9,000,000,000), $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 2014.

 

In December 2014, a 1:650 reverse stock split of our issued and outstanding shares of common stock 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 January 2015.

 

In December 2014, a decrease of the authorized shares of our common stock from nine billion (9,000,000,000) to three billion (3,000,000,000), $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 January 2015.

 

In June 2015, a 1:1,000 reverse stock split of our issued and outstanding shares of common stock 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 July 2015.

 

All shares and per share amounts in the financial statements have been adjusted to give retroactive effect to the reverse stock splits adopted by us as if the reverse had occurred at the beginning of the earliest period presented.

 

In June 2015, an increase of the authorized shares of our common stock from three billion (3,000,000,000) to five billion (5,000,000,000), $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 July 2015.

 

Preferred Stock

 

On October 21, 2010, we amended our Articles of Incorporation in New Jersey to authorize 10,000,000 shares of preferred stock, par value $0.10. The designations, rights, and preferences of such preferred stock are to be determined by the Board of Directors. On November 15, 2010, we changed our domicile from the state of New Jersey to the state of Wyoming.

 

In addition to the 10,000,000 shares of preferred stock authorized, on January 10, 2011, 100 shares of preferred stock were designated as Series A Preferred Stock and 100,000,000 shares were designated as Series B Preferred Stock. The bylaws under the Wyoming Incorporation were amended to reflect the rights and preferences of each additional new designation.

 

The Series A Preferred Stock collectively has voting rights equal to eighty percent of the total current issued and outstanding shares of common stock. If at least one share of Series A Preferred Stock is outstanding, the aggregate shares of Series A Preferred Stock shall have voting rights equal to the number of shares of common stock equal to four times the sum of the total number of shares of common stock issued and outstanding, plus the number of shares of Series B Preferred Stock (or other designated preferred stock) which are issued and outstanding.

 

 
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In February 2011, we issued three shares of non-convertible Series A preferred stock valued at $329,000 per share, or $987,000 in aggregate, for voting purposes only, to the three members of our management team at one share each. The issued and outstanding shares of the Series A preferred stock have voting rights equal to eighty percent of the total issued and outstanding shares of the our common stock. This effectively provided them, upon retention of their Series A Preferred Stock, voting control on matters presented to our shareholders. They have each irrevocably waived their conversion rights relating to the Series A preferred shares issued.

 

The Series B Preferred Stock have preferential liquidation rights in the event of any liquidation, dissolution or winding up of the Company, such liquidation rights to be paid from our assets not delegated to parties with greater priority at $1.00 per share or, in the event an aggregate subscription by a single subscriber of the Series B Preferred Stock is greater than $100,000,000, $0.997 per share. The Series B Preferred Stock shall be convertible to a number of shares of common stock equal to the price of the Series B Preferred Stock divided by the par value of the Series B Preferred Stock, par value $0.10. The option to convert the shares of Series B Preferred Stock may not be exercised until three months following the issuance of the Series B Preferred Stock to the recipient shareholder. The Series B Preferred Stock has ten votes on matters presented to our shareholders for one share of Series B Preferred Stock held.

 

In February 2014, our Board of Directors amended the conversion feature of the Series B Preferred Stock, to permit conversion to common shares at a 40% market discount to current market value at the time we receive a conversion request. Current market value is defined as the average of the immediately prior five trading day's closing prices. Additionally, when Series B Preferred Stock shares convert to our common stock, the minimum price discount floor level is set at $0.005, as decided by our Board of Directors. As of December 31, 2015, there were 175,338 shares of Series B Preferred Stock issued and outstanding, 16,667 of which convert to common shares at a 30% market discount.

 

All of the above offerings and sales, except the afore-mentioned shares issued pursuant to a conversion of convertible notes, 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 1933or transferred in a transaction exempt from registration under the Securities Act of 1933.

 

Voting Rights

 

Each holder of Common Stock is entitled to one vote for each share of Common Stock held on all matters submitted to a vote of stockholders.

 

Each share of the issued and outstanding shares of the Series A preferred stock have voting rights equal to eighty percent of the total issued and outstanding shares of our common stock

 

Dividends

 

Subject to preferences that may be applicable to any then-outstanding shares of Preferred Stock, if any, and any other restrictions, holders of Common Stock are entitled to receive ratably those dividends, if any, as may be declared from time to time by our board of directors out of legally available funds. We and our predecessors have not declared any dividends in the past. Further, we do not presently contemplate that there will be any future payment of any dividends on Common Stock.

 

 
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Amendment of our Bylaws

 

Our bylaws may be adopted, amended or repealed by the affirmative vote of a majority of our outstanding shares. Subject to applicable law, our bylaws also may be adopted, amended or repealed by our Board of Directors.

 

Transfer Agent

 

Our transfer agent is Worldwide Stock Transfer, LLC. Their address is One University Plaza, Suite 505, Hackensack, NJ 07601.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

None of the following parties has, since our date of incorporation, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us:

 

o

Any of our directors or officers, except as described below;

 

o

Any person proposed as a nominee for election as a director;

 

o

Any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock;

 

o

Any of our promoters;

 

o

Any relative or spouse of any of the foregoing persons who has the same house address as such person.

 

RELATED PARTY CONVERTIBLE NOTES

 

Mark L. Kay, our Chief Executive Officer, loaned us an aggregate of $568,000 during 2004, 2005 and 2006, memorialized in the form of convertible loans. As of December 31, 2015 an aggregate amount of $268,000 remained outstanding. The details of these convertible notes are as follows: 

 

In February 2004, we issued a principal amount $60,000 convertible note with common stock purchase warrants to purchase 1 share of common stock to Mr. Kay, our CEO. The note payable had a maturity date of September 30, 2005 and an amended fixed interest rate of 8%. The conversion feature allows Mr. Kay to convert the note into shares of our common stock at $9,750,000,000 per share. The warrant exercise period ended in February 2014. In April 2007, the interest calculation was amended from simple to compound effective April 1, 2007. The maturity date of the note has been extended to December 31, 2016.

 

In June 2004, we issued a principal amount $50,000 convertible note to Mr. Kay, our CEO. The note payable had a maturity date of December 31, 2005 and an amended fixed interest rate of 8%. The conversion feature allows Mr. Kay to convert the note into shares of our common stock at $9,750,000,000 per share. In April 2007, the interest calculation was amended from simple to compound effective April 1, 2007. The maturity date of the note has been extended to December 31, 2016.

 

 
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In September 2004, we issued a principal amount $30,000 convertible note with common stock purchase warrants to purchase 1 share of common stock, to Mr. Kay, our CEO. The note had a maturity date of December 31, 2005 and an amended fixed interest rate of 8%. The conversion feature allows Mr. Kay to convert the note into shares of our common stock at $9,750,000,000 per share. The warrant exercise period ended in September 2014. In April 2007, the interest calculation was amended from simple to compound effective April 1, 2007. The maturity date of the note has been extended to December 31, 2016.

 

In August 2005, we issued a principal amount $90,000 convertible note with common stock purchase warrants to purchase 1 share of common stock to Mr. Kay, our CEO. The note payable had a maturity date of December 31, 2005 and an amended fixed interest rate of 8%. The conversion feature allows Mr. Kay to convert the note into shares of our common stock at $9,750,000,000 per share. The warrant exercise period ended in August 2015. In April 2007, the interest calculation was amended from simple to compound effective April 1, 2007. The maturity date of the note has been extended to December 31, 2016.

 

In January 2006, we issued a principal amount $10,000 convertible note with common stock purchase warrants to purchase 1 share of common stock to Mr. Kay, our CEO. The note payable had a maturity date of December 31, 2006 and an amended fixed interest rate of 8%. The conversion feature allows Mr. Kay to convert the note into shares of our common stock at $9,750,000,000 per share. The warrant exercise period ended in January 2016. In April 2007, the interest calculation was amended from simple to compound effective April 1, 2007. The maturity date of the note has been extended to December 31, 2016.

 

In February 2006, we issued a principal amount $28,000 convertible note with common stock purchase warrants to purchase 1 share of common stock to Mr. Kay, our CEO. The note payable had a maturity date of December 31, 2006 and an amended fixed interest rate of 8%. The conversion feature allows Mr. Kay to convert the note into shares of our common stock at $7,312,500,000 per share. The warrant exercise period ended in February 2016. In April 2007, the interest calculation was amended from simple to compound effective April 1, 2007. The maturity date of the note has been extended to December 31, 2016.

 

For the seven months ended July 31, 2006, the variable interest rate of the six outstanding notes ranged between 8.625% and 11.000% per annum. In September 2006, the interest rate of the six open notes was revised to a fixed rate of 8%, effective August 1, 2006.

 

Michael C. Brenner, one of our Vice Presidents, loaned us an aggregate of $65,000 during 2003 and 2004, memorialized in the form of convertible loans. As of December 31, 2015 an aggregate amount of $57,500 remained outstanding. The details of these convertible notes are as follows: 

 

In November 2003, we issued a principal amount $50,000 convertible note with common stock purchase warrants to purchase 1 share of common stock to Mr. Michael Brenner, one of our Vice Presidents. The note payable had a maturity date of December 31, 2004 and an interest rate of prime plus two percent. The conversion feature allows Mr. Michael Brenner to convert the note into shares of our common stock at $9,750,000,000 per share. The warrant exercise period ended in November 2013. In April 2007, the interest calculation was amended from simple to compound effective April 1, 2007. The maturity date of the note has been extended to December 31, 2016.

 

In January 2004, we issued a principal amount $15,000 convertible note with common stock purchase warrants to purchase 1 share of common stock to Mr. Michael Brenner, one of our Vice Presidents. The note payable had a maturity date of December 31, 2004 and an interest rate of prime plus four percent. The conversion feature allows Mr. Michael Brenner to convert the note into shares of our common stock at $9,750,000,000 per share. The warrant exercise period ended in January 2014. In December 2004, Mr. Michael Brenner elected to convert half of the principal amount, $7,500, into common stock at a conversion price of $7,020,000,000 and received 1 share of our common stock. In April 2007, the interest calculation was amended from simple to compound effective April 1, 2007. The maturity date of the note has been extended to December 31, 2016.

 

 
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Other related party convertible notes:

 

In August, September and December 2005 and March 2006, we executed 8% convertible promissory notes in the amounts of $10,000, $5,000, $10,000 and $5,000 with one of its Software Developers and a relative of the Chief Technology Officer. The conversion feature allows the note holder to convert the first three notes into shares of our common stock at $9,750,000,000 per share and the fourth note into shares of our common stock at $7,312,500,000 per share. The principal due hereunder shall be payable in full in immediately available funds of one million dollars or more through any sales or investment by the end of December 31, 2005, for the 2005 notes, and December 31, 2006, for the 2006 note, or later if agreed upon by the individual and us. In December 2005, the maturity dates of the 2005 notes were extended to March 31, 2006. In April 2007, the interest calculation was amended from simple to compound effective April 1, 2007. The maturity dates of the notes have been extended to December 31, 2016.

 

At December 31, 2015 and 2014, accrued interest due for the convertible notes – related parties was $391,001 and $339,812, respectively, and is included in accrued expenses in the accompanying balance sheets. Interest expense for convertible notes payable – related parties for the year ended December 31, 2015 and 2014 was $51,189 and $47,363, respectively.

 

RELATED PARTY PROMISSORY NOTES

 

At December 31, 2015, we had executed twenty-one notes payable with our CEO that have an aggregate open balance of $742,513:

 

 

·

Three of the notes, aggregating $189,000, had maturity dates of December 31, 2005 with interest at a per annum rate equal to the CEO's private account monthly lending rate. In December 2005, the maturity dates of the notes were extended to March 31, 2006. In September 2006, the maturity dates of the notes were extended to March 31, 2007 and the interest rate was revised to a fixed rate of 8%, effective August 1, 2006. The maturity dates of the notes have been extended to December 31, 2016.

 

·

Two of the notes, aggregating $160,000 have maturity dates of May 13, 2006 for the $150,000 note and September 30, 2006 for the $10,000 note. Both notes bear interest at a rate equal to 8% per annum. In September 2006, the maturity dates of the notes were extended to March 31, 2007. The maturity dates of the notes have been extended to December 31, 2016.

 

·

Three of the notes, in the amounts of $7,000, $5,000 and $150,000, were executed in April 2006 and bear interest at a per annum rate equal to the CEO's private account monthly lending rate. The $7,000 note was repaid in April 2006. The $5,000 note has a maturity date of September 30, 2006. The $150,000 note has a maturity date of June 30, 2006. In September 2006, the maturity dates of the notes were extended to March 31, 2007 and the interest rate was revised to a fixed rate of 8%, effective August 1, 2006. The maturity dates of the notes have been extended to December 31, 2016.

 

·

One of the notes, in the amount of $100,000, was executed in May 2006 and bears interest at a rate equal to 9% per annum with a maturity date of July 31, 2006. In September 2006, the maturity date of the $100,000 note was extended to March 31, 2007. The maturity date of the note has been extended to December 31, 2016.

 

·

One of the notes, in the amount of $22,000, was executed in February 2007 and bears interest at a rate equal to 8% per annum with a maturity date of July 31, 2007. In September 2006, the maturity date of the $22,000 note was extended to March 31, 2007. The maturity date of the note has been extended to December 31, 2016.

 

·

One of the notes, in the amount of $50,000, was executed in March 2010 and bears interest at a rate equal to 10% per annum with a maturity date of April 30, 2010. The maturity date of the note has been extended to December 31, 2015.

 

·

One of the notes, in the amount of $2,400, was executed in June 2010 and is non-interest bearing with a maturity date of August 31, 2010. The maturity date of the note has been extended to December 31, 2016.

 

·

Four of the notes, in the amounts of $13,500, executed in July 2010, $3,000, executed in August 2010, and $19,000 and $2,800, executed in September 2010, are non-interest bearing and have extended maturity dates of April 30, 2011. Partial repayments of the July 2010 note were made in August 2010 for $3,100, September 2010 for $3,480 and February 2011 for $2,700. The maturity dates of the notes have been extended to December 31, 2016.

 

·

One of the notes, in the amount of $20,761, resulted in the assignment of six of our open receivables invoices to the CEO. The assignment is non-interest bearing and fee free with a due date for repayment of November 20, 2010. Partial repayments of the assignment were made in October 2010 for $4,218 and November 2010 for $4,125. The due date of the assignment has been extended to December 31, 2016.

 

·

One of the notes, in the amount of $2,800, was executed in March 2011 and is non-interest bearing with an extended maturity date of December 31, 2016.

 

·

The remaining note, in the amount of $19,875, was executed in January 2015 and is non-interest bearing with a maturity date of January 9, 2017.

 

At December 31, 2015 and 2014, accrued interest due for the notes – related party was $548,653 and $492,573, respectively, and is included in accrued expenses in the accompanying balance sheets. Interest expense for notes payable - related parties for the year ended December 31, 2015 and 2014 was $56,080 and $56,080, respectively.

 

 
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DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

 

Wyoming corporation law provides that:

 

 

·

a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful;

 

·

a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys' fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper; and

 

·

to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding, or in defense of any claim, issue or matter therein, the corporation shall indemnify him against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense.

 

Our articles of incorporation require us to indemnify our directors and officers against all damages incurred in connection with our business to the fullest extent provided or allowed by law.

 

Our bylaws provide that we will advance all expenses incurred to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suite or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was our director or officer, or is or was serving at our request as a director or executive officer of another company, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request. This advancement of expenses is to be made upon receipt of an undertaking by or on behalf of such person to repay said amounts should it be ultimately determined that the person was not entitled to be indemnified under our bylaws or otherwise.

 

Our bylaws also provide that no advance shall be made by us to any officer in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made: (a) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding; or (b) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to our best interests.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Commission this indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

 
47
 

  

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The following table shows the audit fees incurred for fiscal year 2015 and 2014:

 

 

 

2015

 

 

2014

 

Audit fees (1)

 

$45,000

 

 

$49,500

 

Audit related fees (2)

 

 

-

 

 

 

-

 

Tax fees (3)

 

 

2,500

 

 

 

2,500

 

Total

 

$47,500

 

 

$52,000

 

______________

(1)

Audit Fees – This category includes the audit of our annual financial statements, review of financial statements included in our quarterly reports and services that are normally provided by the independent registered public accounting firm in connection with engagements for those years and services that are normally provided by our independent registered public accounting firm in connection with statutory audits and SEC regulatory filings or engagements.

(2)

Audit-Related Fees – This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under "Audit Fees".

(3)

Tax Fees – This category consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.

 

The Board of Directors has reviewed and discussed with the our management and independent registered public accounting firm our audited financial statements contained in our Annual Report on Form 10-K for our 2014 fiscal year. The Board has also discussed with the auditors the matters required to be discussed pursuant to SAS No. 61 (Codification of Statements on Auditing Standards, AU Section 380), which includes, among other items, matters related to the conduct of the audit of our financial statements.

 

The Board has received and reviewed the written disclosures and the letter from the independent registered public accounting firm required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and has discussed with its auditors its independence from us. The Board has considered whether the provision of services other than audit services is compatible with maintaining auditor independence.

 

Based on the review and discussions referred to above, the Board approved the inclusion of the audited financial statements be included in our Annual Report on Form 10-K for our 2015 fiscal year for filing with the SEC.

 

Pre-Approval Policies

 

The Board's policy is now to pre-approve all audit services and all permitted non-audit services (including the fees and terms thereof) to be provided by our independent registered public accounting firm; provided, however, pre-approval requirements for non-audit services are not required if all such services (1) do not aggregate to more than five percent of total revenues paid by us to our accountant in the fiscal year when services are provided; (2) were not recognized as non-audit services at the time of the engagement; and (3) are promptly brought to the attention of the Board and approved prior to the completion of the audit.

 

The Board pre-approved all fees described above.

 

 
48
 

 

PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

 

Exhibit Number

Description

3.1

 

Amended and Restated Certificate of Incorporation of StrikeForce Technologies, Inc.(1)

3.2

 

Amended Articles of Incorporation of StrikeForce Technologies, Inc. (5)

3.3

 

By-laws of StrikeForce Technologies, Inc. (1)

3.4

 

Amended By-laws of StrikeForce Technologies, Inc. (5)

3.5

 

Amended By-laws of StrikeForce Technologies, Inc. (6)

3.6

 

Articles of Amendment of StrikeForce Technologies, Inc. (6)

10.1

 

2004 Stock Option Plan (1)

10.2

 

Securities Purchase Agreement dated December 20, 2004, by and among StrikeForce Technologies, Inc. and YA Global Investments, LP. (1)

10.3

 

Secured Convertible Debenture with YA Global Investments, LP. (1)

10.4

 

Investor Registration Rights Agreement dated December 20, 2004, by and between StrikeForce Technologies, Inc. and YA Global Investments, LP in connection with the Securities Purchase Agreement.(2)

10.5

 

Escrow Agreement, dated December 20, 2004, by and between StrikeForce Technologies, Inc. and YA Global Investments, LP in connection with the Securities Purchase Agreement. (2)

10.6

 

Security Agreement dated December 20, 2004, by and between StrikeForce Technologies, Inc. and YA Global Investments, LP in connection with the Securities Purchase Agreement. (1)

10.7

 

Secured Convertible Debenture with YA Global Investments, LP dated January 18, 2005. (1)

10.8

 

Royalty Agreement with NetLabs.com, Inc. and Amendments. (1)

10.9

 

Employment Agreement dated as of May 20, 2003, by and between StrikeForce Technologies, Inc. and Mark L. Kay. (1)

10.10

 

Amended and Restated Secured Convertible Debenture with YA Global Investments, LP dated April 27, 2005. (1)

10.11

 

Amendment and Consent dated as of April 27, 2005, by and between StrikeForce Technologies, Inc. and YA Global Investments, LP. (1)

10.12

 

Securities Purchase Agreement dated as of April 27, 2005 by and between StrikeForce Technologies, Inc. and Highgate House Funds, Ltd. (1)

10.13

 

Investor Registration Rights Agreement dated as of April 27, 2005 by and between StrikeForce Technologies, Inc. and Highgate House Funds, Ltd. (2)

10.14

 

Secured Convertible Debenture with Highgate House Funds, Ltd. dated April 27, 2005. (2)

10.15

 

Escrow Agreement dated as of April 27, 2005 by and between StrikeForce Technologies, Inc., Highgate House Funds, Ltd. and Gottbetter & Partners, LLP. (1)

10.16

 

Escrow Shares Escrow Agreement dated as of April 27, 2005 by and between StrikeForce Technologies, Inc., Highgate House Funds, Ltd. and Gottbetter & Partners, LLP. (1)

10.17

 

Security Agreement dated as of April 27, 2005 by and between StrikeForce Technologies, Inc. and Highgate House Funds, Ltd. (1)

10.18

 

Network Service Agreement with Panasonic Management Information Technology Service Company dated August 1, 2003 (and amendment). (1)

10.19

 

Client Non-Disclosure Agreement. (1)

10.20

 

Employee Non-Disclosure Agreement. (1)

10.21

 

Secured Convertible Debenture with Highgate House Funds, Ltd. dated May 6, 2005. (2)

10.22

 

Termination Agreement with YA Global Investments, LP dated February 19, 2005. (1)

10.23

 

Securities Purchase Agreement with WestPark Capital, Inc. (4)

10.24

 

Form of Promissory Note with WestPark Capital, Inc. (4)

10.25

 

Investor Registration Rights Agreement with WestPark Capital, Inc. (4)

10.26

 

Drawdown Equity Financing Facility with Auctus Private Equity Fund, LLC., dated April 13, 2012 (7)

10.27

 

Registration Rights Agreement with Auctus Private Equity Fund, LLC, dated April 13, 2012 (7)

10.28

 

StrikeForce Technologies Inc. WEBEX Presentation dated May 30, 2012 (8)

10.29

 

Irrevocable Waiver of Conversion Rights of Mark L. Kay (9)

10.30

 

Irrevocable Waiver of Conversion Rights of Ramarao Pemmaraju (9)

10.31

 

Irrevocable Waiver of Conversion Rights of George Waller (9)

10.32

 

CFO Consultant Agreement with Philip E. Blocker (9)

10.33

 

Resume of Philip E. Blocker (9)

10.34

 

Corporate Resolution for Issuance of Common Stock to Auctus Private Equity Fund, LLC (9)

10.35

 

Termination of a Material Definitive Agreement (11)

 

 
49
 

 

10.36

2012 Stock Option Plan (12)

10.37

Amendments to Articles of Incorporation (13)

10.38

Amendments to Articles of Incorporation (14)

10.39

Registration of Classes of Securities (15)

10.40

Amendments to Articles of Incorporation (16)

10.41

Registration of Classes of Securities (17)

10.42

Amendments to Articles of Incorporation (18)

10.43

Registration of Classes of Securities (19)

10.44

Amendments to Articles of Incorporation (20)

10.45

Amendments to Articles of Incorporation (21)

10.46

Amendments to Articles of Incorporation (22)

10.47

Amendments to Articles of Incorporation (23)

10.48

Amendments to Articles of Incorporation (24)

10.49

Asset Purchase Agreement between StrikeForce Technologies, Inc. and Cyber Safety, Inc., dated August 24, 2015 (25)

10.51

to the Asset Purchase Agreement and Distributor and Reseller Agreement between StrikeForce Technologies, Inc. and Cyber Safety, Inc. (26)

31.1

Certification by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act, promulgated pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (3)

31.2

Certification by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act, promulgated pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (3)

32.1

Certification by Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code, promulgated pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (3)

32.2

Certification by Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code, promulgated pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (3)

101Interactive data files pursuant to Rule 405 of Regulation S-T

_________________

(1)

Filed as an exhibit to the Registrant's Form SB-2 dated as of May 11, 2005 and incorporated herein by reference.

(2)

Filed as an exhibit to the Registrant's Amendment No. 1 to Form SB-2 dated as of June 27, 2005 and incorporated herein by reference.

(3)

Filed herewith.

(4)

Filed as an exhibit to the Registrant's Form 8-K dated August 1, 2006 and incorporated herein by reference.

(5)

Filed as an exhibit to the Registrant's Form 8-K dated December 23, 2010 and incorporated herein by reference.

(6)

Filed as an exhibit to the Registrant's Form 8-K dated February 4, 2011 and incorporated herein by reference.

(7)

Filed as an exhibit to the Registrant's Form 8-K dated May 9, 2012 and incorporated herein by reference.

(8)

Filed as an exhibit to the Registrant's Form 8-K dated May 30, 2012 and incorporated herein by reference.

(9)

Filed as an exhibit to the Registrant's Form S-1/A dated July 31, 2012 and incorporated herein by reference.

(10)

Filed as an exhibit to the Registrant's Form S-1/A dated September 7, 2012 and incorporated herein by reference.

(11)

Filed as an exhibit to the Registrant's Form 8-K dated October 3, 2012 and incorporated herein by reference.

(12)

Filed in conjunction with the Registrant's Form 14A filed October 5, 2012 and incorporated herein by reference.

(13)

Filed as an exhibit to the Registrant's Form 8-K dated February 5, 2013 and incorporated herein by reference.

(14)

Filed as an exhibit to the Registrant's Form 8-K dated May 14, 2013 and incorporated herein by reference.

(15)

Filed as an exhibit to the Registrant's Form 8-A dated July 29, 2013 and incorporated herein by reference.

(16)

Filed as an exhibit to the Registrant's Form 8-K dated August 22, 2013 and incorporated herein by reference.

(17)

Filed as an exhibit to the Registrant's Form 8-A dated October 3, 2013 and incorporated herein by reference.

(18)

Filed as an exhibit to the Registrant's Form 8-K dated October 3, 2013 and incorporated herein by reference.

(19)

Filed as an exhibit to the Registrant's Form 8-A dated December 31, 2013 and incorporated herein by reference.

(20)

Filed as an exhibit to the Registrant's Form 8-K dated December 31, 2013 and incorporated herein by reference.

(21)

Filed as an exhibit to the Registrant's Form 8-K dated March 18, 2014 and incorporated herein by reference.

(22)

Filed as an exhibit to the Registrant's Form 8-K dated December 22, 2014 and incorporated herein by reference.

(23)

Filed as an exhibit to the Registrant's Form 8-K dated February 13, 2015 and incorporated herein by reference.

(24)

Filed as an exhibit to the Registrant's Form 8-K dated August 4, 2015 and incorporated herein by reference.

(25)

Filed as an exhibit to the Registrant's Form 8-K dated August 28, 2015 and incorporated herein by reference.

(26)

Filed as an exhibit to the Registrant's Form 8-K dated February 2, 2016 and incorporated herein by reference.

 

 
50
 

  

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.

 

 

STRIKEFORCE TECHNOLOGIES, INC.

 

 

 

Dated: April 14, 2016

By:

/s/ Mark L. Kay

Mark L. Kay

Chief Executive Officer

 

Dated: April 14, 2016

By:

/s/ Philip E. Blocker

Philip E. Blocker

Chief Financial Officer and Principal Accounting Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons in the capacities and on the dates indicated.

 

 

Signature 

Title

Date 

/s/ Mark L. Kay

Director 

April 14, 2016 

Mark L. Kay

/s/ Ramarao Pemmaraju

Director 

April 14, 2016 

Ramarao Pemmaraju

/s/ George Waller

Director

April 14, 2016 

George Waller

 

 

51