Annual Report (10-k)

Date : 04/14/2017 @ 2:58PM
Source : Edgar (US Regulatory)
Stock : Strikeforce Technologies, Inc. (PC) (SFOR)
Quote : 0.0116  0.0 (0.00%) @ 4:00PM

Annual Report (10-k)

 

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, 2016

 

 

¨

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, NJ 08837

(Address of Principal Executive Offices)

 

(732) 661-9641

(Issuer’s telephone number)

 

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

 

Title of each class

 

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  x   

 

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  x  

 

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 7, 2017

Common stock, $0.0001 par value

 

2,319,691,386

 

Class

 

Outstanding at April 7, 2017

Preferred stock, Series A, no par value

 

3

 

Class

 

Outstanding at April 7 , 2017

Preferred stock, Series B, $0.10 par value

 

103,335

 

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. $2,282,965

 

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, 2016 and 2015

TABLE OF CONTENTS

 

PART I

ITEM 1.

BUSINESS

 

 

4

 

ITEM 1A.

RISK FACTORS

 

 

13

 

ITEM 1B.

UNRESOLVED STAFF COMMENTS

 

 

19

 

ITEM 2.

PROPERTIES

 

 

19

 

ITEM 3.

LEGAL PROCEEDINGS

 

 

19

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

 

19

 

 

PART II

ITEM 5.

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

 

 

20

 

ITEM 6.

SELECTED FINANCIAL DATA

 

 

21

 

ITEM 7.

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

 

 

21

 

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

 

25

 

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

 

25

 

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

 

26

 

ITEM 9A.

CONTROLS AND PROCEDURES

 

 

26

 

ITEM 9B.

OTHER INFORMATION

 

 

26

 

 

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE .

 

 

27

 

ITEM 11.

EXECUTIVE COMPENSATION

 

 

31

 

ITEM 12.

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

 

 

33

 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

 

37

 

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

 

40

 

 

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

 

42

 

SIGNATURES

 

 

44

 

 

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. All forward-looking statements attributable to us are expressly qualified in their entirety by these and other factors. 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 ProtectID Ò platform at the end of June 2006, we completed the core development of our keyboard encryption and anti-keylogger product, GuardedID Ò , in December 2006 and commenced deployment of our new mobile product, MobileTrust Ò into the mobile stores in 2015. All are currently being sold and distributed. ProtectID Ò patent titled “Multi-Channel Device Utilizing a Centralized Out-of-Band Authentication System” is protected by three patents. The keystroke encryption technology we developed and use in our GuardedID Ò product is protected by three patents. MobileTrust Ò has a patent pending, as of March 2013.

 

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 ProtectID Ò 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.

 

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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” was 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 was 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 MobileTrust Ò 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 GuardedID Ò product and the keystroke encryption portion of our MobileTrust Ò 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 MobileTrust Ò (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, GuardedID Ò , and our MobileTrust Ò product.

 

In December 2016, we executed a retainer agreement with a second patent attorney, to aggressively enforce our patent rights as “Out-of-Band Authentication” has become the standard for authenticating consumers in the financial market and for many Saas application users (e.g., SalesForce, Quickbooks, etc.).

 

Our suite of products is targeted to the financial, e-commerce, corporate, government, healthcare, legal, insurance, technology and retail markets. 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 2016, primarily in the retail and insurance sectors.

 

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We generated all of our revenues of $384,289 for the year ended December 31, 2016 (compared to $271,559 for the year ended December 31, 2015), from the sales of our security products. The increase in revenues was due to the increase in our software, services, maintenance and support 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 fiscal 2017, and in the delayed rollout of our new mobile security technologies, that are now rolling out through the Apple and Android markets. In addition, we rolled out our GuardedID Ò MAC version that we anticipate, but cannot guarantee, that combined with the new mobile security technologies, will continue to increase our revenues in fiscal 2017 and thereafter. Additionally, we believe we have opportunities through our sales distribution channels, including current pilots, which we anticipate, but cannot guarantee, should continue to increase revenues in 2017 and thereafter, especially with the addition of our new mobile security products and new multi-marketing partners. Although we anticipate, but cannot guarantee, the additional revenues as discussed above will be realized in fiscal 2017.

 

We market our products globally to financial service firms, healthcare related companies, legal services companies, e-commerce companies, 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, with emphasis on retail, 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 GuardedID Ò 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 GuardedID Ò 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, continuing increases in revenues in fiscal 2017 from these programs. In addition, we have completed the development and testing of our new mobile products, MobileTrust Ò and GuardedID Ò Mobile Software Development Kit (SDK), which is in now available in the Apple Store and the Android Play Store. The mobile products play a major role in our anticipated, but not guaranteed, fiscal 2017 revenue projections.

 

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 experienced a growing increase in sales orders and inquiries every year. 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 as we grow our distributor market. We have minimized the concentration on our initial direct sales efforts as our distribution and reseller channels continue to grow internationally and will require appropriate levels of support.

 

On August 24, 2015, we entered into an agreement with Cyber Safety, Inc., a New York corporation (“Cyber Safety”) for Cyber Safety to license, and retain an option to purchase, the patents and Intellectual Property related to our GuardedID Ò and MobileTrust Ò software. Cyber Safety purchased their option to buy our GuardedID Ò patent for $9,000,000 to be paid by September 30, 2020. At December 31, 2016, the Company does not have an estimate if Cyber Safety will exercise its option to make the purchase. Cyber Safety will also resell the Company’s GuardedID Ò and MobileTrust Ò products, for which the Company will receive a royalty, while the Company retains an unlimited license to resell those products.

 

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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 us 15% of the net amount Cyber Safety receives, as defined, which amount may be increased to 20% under certain conditions for ProtectID Ò , and is subject to reduction for commissions and support costs that Cyber Safety will be obligated to pay to us.

 

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 8 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 ProtectID Ò , GuardedID Ò , inclusive of our unique CryptoColor Ò technology and MobileTrust Ò , 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

ProtectID Ò 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

GuardedID Ò 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 2016, as reported in the 2010-2016 Verizon Data Breach Reports. (Patent No: 8,566,608, 8,732,483 and 8,973,107).

 

 

o

MobileTrust Ò (Patent Pending) is an advanced iPhone/iPad and Android device password vault that includes a strong password generator. MobileTrust Ò 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 production. 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

GuardedID Ò 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. We also purchase tokens and devices from HyperSecurity Solutions in Canada. ProtectID Ò also uses a software product for its Voice Biometric Out-of-Band method through a partnership with Trade Harbor.

 

The ProtectID Ò 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 ProtectID Ò 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 agreements with VASCO and HyperSecurity Solutions, and our partnership with Trade Harbor, none of our contracts for hardware or software are with a sole supplier of that feature or product.

 

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

 

o Our products address 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 GuardedID Ò 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, GuardedID Ò , 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 ID Ò 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.

 

 

o 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 GuardedID Ò 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 ProtectID Ò 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. ProtectID Ò 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 2015 and 2016 press releases. Our GuardedID Ò 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 MobileTrust Ò and GuardedID Ò Mobile SDK products, which work on all Apple and Android devices.

 

 

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 2016, 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 ProtectID Ò , GuardedID Ò and/or MobileTrust Ò into their own product lines, including our MobileTrust Ò SDK, 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 2016 and we anticipate, but cannot guarantee, an increase in revenues in 2017. Additionally, in February 2016, Advanced Cyber Security (“ACS”) purchased their option to buy our GuardedID Ò patent for nine million dollars ($9,000,000) to be paid by September 30, 2020, and will resell our GuardedID Ò and MobileTrust Ò products, for which we will receive a royalty, while we retain a perpetual license to resell those products. The distributors have already obtained new clients and we expect, but cannot guarantee, that more clients will be obtained in fiscal 2017 and thereafter. There is no guarantee as to the timing and success of these business relationships or reaching our self-imposed expectations.

 

From our MobileTrust Ò security application, built with our sCloud registration process, we have created and announced two new products: our new ProtectID Ò Mobile OTP (One Time Password) to be used with ProtectID Ò ; and our new GuardedID Ò Mobile keystroke encryption software development kit (SDK). Both new products are now in production. With the creation of this new GuardedID Ò Mobile SDK, we now focus the sales of this software product to the development groups of our target markets for it 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, as keystroke encryption malware grows and remains a major problem for the mobile-cyber security market, particularly with anti-virus products being viewed 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 2016, several of our channel partners had pilots and client implementations in place that are expected, although no assurances can be provided, to continue to increase our revenues in -2017. Our mobile products went into production during the first quarter of 2016 and the revenues related to those products are increasing, primarily as results of the efforts of our channel partners, Advanced Cyber Security and others. There is no guarantee as to the timing and continued success of these efforts.

 

Because we are now expecting a continual, recurring growing market demand, especially in the mobility and encryption retail 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 as we grow our distributor market for which we now have 8 employees from 6. 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 to the growing Cyber Security market.

 

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We seek to generate revenue through fees for ProtectID Ò 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 have also implemented our new ProtectID Ò v2.3, which includes our Mobile One-Time-Password. We also intend to generate revenues through sales of our GuardedID Ò product. GuardedID Ò pricing is for an annual license and we discount for volume purchases. GuardedID Ò 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 GuardedID Ò bundled OEM agreements. We also provide our clients a choice of operating our ProtectID Ò 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. GuardedID Ò requires a download on each and every computer it protects, whether for employees or consumers. We have four GuardedID Ò 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 version for all the latest MAC operating systems and for the browsers and entire desktop. Our MobileTrust Ò 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 GuardedID Ò Mobile SDK (software development kit) went to the open market in the second quarter of 2016. We anticipate, but cannot guarantee, steadily increasing revenues from this product offering.

 

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 2015 Verizon Data Breach report, published in April 2016, stated that 80% of all the data breaches they reported would not have occurred if the corporations used two factor authentication, such as our ProtectID Ò 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 GuardedID Ò system in addition to the typical anti-virus programs. Based on the FFIEC requirement, 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 joined ACS at the RSA Security Show, as well as attending other security related shows and we are looking at other sales alternatives in order to respond aggressively to inquiries related 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 ProtectID Ò , GuardedID Ò and now GuardedID Ò Mobile SDK into their products (bundling) and services providing for monthly/annual increasing recurring revenues.

 

5. Internet sites and retail stores, such as Target, Office Depot, Amazon and Best Buy that sell GuardedID Ò and MobileTrust Ò to consumers and small enterprises online and in the stores.

 

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6. Technology and other providers and resellers, agents and distributors interested in purchasing and or selling our new MobileTrust Ò cyber solution for all mobile devices, initially for all Apple and Android devices (production started in 2016).

 

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

 

Our Cloud 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 ProtectID Ò , GuardedID Ò and MobileTrust Ò 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.

 

Intellectual Property

 

We are working with two patent attorney firms to aggressively continue to enforce our patent rights, now that we have successfully settled our first major patent lawsuit, in January 2016. Our patent attorneys filed our fourth “Out of Band” continuation patents. We currently have three patents granted to us for Out-of-Band ProtectID Ò (Patent Nos.: 7,870,599, 8,484,698 and 8,713,701). 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 MobileTrust Ò product is the invention supporting the patent pending. In September 2014, we filed an International Patent for MobileTrust Ò (PCT/US20114/029905) which is pending.

 

We are also working with two patent attorney firms to plan our strategy to aggressively enforce the patent rights relating to our granted Keystroke Encryption patents that help protect our GuardedID Ò and MobileTrust Ò 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 GuardedID Ò patents, and MobileTrust Ò patent pendings, and products, which requires them to pay us $9,000,000 for the patents by September 30, 2020, in addition to royalties on sales.

 

We have four trademarks that have been approved and registered: ProtectID Ò , GuardedID Ò , MobileTrust Ò and CryptoColor Ò . 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 year to date 2016 results 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 hiring a software engineer in January 2016. Our operations presently require funding of approximately $150,000 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 in operating 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.

 

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Our primary strategy throughout 2016 and into fiscal 2017 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 fiscal 2017, through the sales channel and from our new mobile and GuardedID Ò 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 fiscal 2017.

 

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 ProtectID Ò 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, ProtectID Ò 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 ProtectID Ò 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 ProtectID Ò 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 ProtectID Ò , 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, GuardedID Ò , 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 GuardedID Ò , especially relating to bundled channel partner programs. GuardedID Ò is critical to help prevent key logging viruses, one of the largest sources of cyberattacks and data breaches. GuardedID Ò also is protected with three patents. Our newest product, MobileTrust Ò , 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 GuardedID Ò patents and some of its features and functions are covered by the Out-of-Band Authentication patent. We also filed an international patent for MobileTrust Ò . Our other new mobile product is GuardedID Ò 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 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 offers 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, 2016, we had 8 employees and our relations with employees are good.

 

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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.

 

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, 2016, we incurred a loss from operations of $2,442,620 and at December 31, 2016, we had a stockholders’ deficit of $8,439,490. These factors raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. 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, 2016 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 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, 2016, we had cash on hand in the amount of $804,130. Management estimates that the current funds on hand will be sufficient to continue operations approximately through the next six 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 and proceeds relating to our patent lawsuits 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 MOBILETRUST Ò TECHNOLOGY IS PENDING AND THERE IS NO ASSURANCE THAT THIS APPLICATION 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 PROTECTID Ò TECHNOLOGY AND THREE FOR GUARDEDID Ò HAVE BEEN GRANTED. ONE PATENT APPLICATION FOR THE PROTECTID Ò 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 ProtectID Ò 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 GuardedID Ò 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” was 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 was 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 MobileTrust Ò 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 GuardedID Ò product and the keystroke encryption portion of our MobileTrust Ò 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 MobileTrust Ò (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, GuardedID Ò , and our MobileTrust Ò product.

 

In December 2016, we executed a retainer agreement with a second patent attorney, to aggressively enforce our patent rights as “Out-of-Band Authentication” has become the standard for authenticating consumers in the financial market and for many Saas application users (e.g., SalesForce, Quickbooks, etc.).

 

We completed the development of our ProtectID Ò platform at the end of June 2006, we completed the core development of our keyboard encryption and anti-keylogger product, GuardedID Ò , in December 2006 and commenced deployment of our new mobile product, MobileTrust Ò into the mobile stores in 2015. All 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 markets. 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 MobileTrust Ò 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 MobileTrust Ò 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 retainer agreements executed in February 2013 and December 2016, respectively, with two firms.

 

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 TO BUY 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. In addition, the current federal administration has indicated significant regulatory modifications and we cannot foresee the impact of any revised regulations. Our management team will need to devote significant time and financial resources to comply with both existing and evolving standards for public companies, including the policies of the recently appointed Chairman of the SEC, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities.

 

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

 

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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 paid a monthly base rent of $3,807 which commenced on July 1, 2009, with an initial extended lease termination date of January 31, 2016. In November 2015, the lease was extended for three years to January 31, 2019. We paid a monthly base rent of $4,067 from February 2016 thru January 2017, and will pay monthly base rents of $4,190 from February 2017 through January 2018 and $4,316 from February 2018 thru January 2019. The landlord holds $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, the Company received a payment in January 2016 of $9,750,000 and incurred fees related to the settlement of $4,187,257.

 

On June 20, 2016, we initiated additional patent litigation against three major competitors in the U.S. District Court for the District of New Jersey, for infringement of United States Patent No. 8,484,698. This litigation was filed by our patent attorneys, Blank Rome LLP, and is ongoing. On March 14, 2017, one of the parties initiated an IPR against our second Patent No. 8,484,698.

 

On March 14, 2017, we initiated additional patent litigation against two major competitors in the U.S. District Court for the District of Massachusetts, for infringement of United States Patent Nos. 7,870,599, 8,484,698 and 8,713,701. This litigation was filed by our patent attorneys, Ropes and Gray LLP, and is ongoing.

 

On March 14, 2017, we initiated additional patent litigation against two major competitors in the U.S. District Court for the Eastern District of Virginia, for infringement of United States Patent Nos. 7,870,599, 8,484,698 and 8,713,701. This litigation was filed by our patent attorneys, Ropes and Gray LLP, and is ongoing.

 

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, 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

 

March 31, 2016

 

$ 0.0002

 

 

$ 0.0059

 

June 30, 2016

 

$ 0.0008

 

 

$ 0.0032

 

September 30, 2016

 

$ 0.001

 

 

$ 0.0205

 

December 31, 2016

 

$ 0.0037

 

 

$ 0.0184

 

 

The closing bid price for our shares of common stock on April 7, 2017 was $0.0247.

 

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 7, 2017, there were approximately 458 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.

 

(D) RECENT ISSUANCES OF UNREGISTERED SECURITIES

 

In December 2016, we issued a total of 7,500 shares of restricted common stock, valued at $121, relating to a December 2009 retainer agreement with an attorney.

 

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In December 2016, an investor purchased 1,000,000 common stock purchase options for $500, for shares equaling 1,000,000 shares of our common stock. The payment was received in January 2017.

 

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.

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item. 

 

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

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, 2015 or 2016.

 

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.

 

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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 $384,289 for the year ended December 31, 2016, compared to $271,559 for the year ended December 31, 2015, 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 believe our company is 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.

 

On March 18, 2014, we effected a 1:1,500 reverse stock split of our issued and outstanding shares of common stock. On February 13, 2015, we effected a 1:650 reverse stock split of our issued and outstanding shares of common stock. On August 4, 2015, we effected a 1:1,000 reverse stock split of our issued and outstanding shares of common stock.

 

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.

 

Results of Operations

 

FOR THE YEAR ENDED DECEMBER 31, 2016 COMPARED TO THE YEAR ENDED DECEMBER 31, 2015

 

Revenues for the year ended December 31, 2016 were $384,289 compared to $271,559 for the year ended December 31, 2015, an increase of $112,730 or 41.5%. The increase in revenues was due to the increase in our software, services, maintenance and support sales.

 

Revenues generated consisted of hardware and software sales and license, services, support and maintenance sales, revenue from sign on fees, and recurring transaction fees. Software, services, support and maintenance sales for the year ended December 31, 2016 were $381,009 compared to $267,205 for the year ended December 31, 2015, an increase of $113,804. The increase in software, services, support and maintenance revenues was primarily due to the increase in the sales and support of our software and mobile products. Hardware sales for the year ended December 31, 2016 were $3,280 compared to $4,354 for the year ended December 31, 2015, a decrease of $1,074. The decrease in hardware revenues was due to the decrease in sales of our one-time-password token key-fobs.

 

Cost of revenues for the year ended December 31, 2016 was $6,363 compared to $8,441 for the year ended December 31, 2015, a decrease of $2,078, or 24.6%. The decrease resulted from the decrease in sales of our one-time-password token key-fobs. Cost of revenues as a percentage of total revenues for the year ended December 31, 2016 was 1.2% compared to 3.1% for the year ended December 31, 2015. 

 

Gross profit for the year ended December 31, 2016 was $377,926 compared to $263,118 for the year ended December 31, 2015, an increase of $114,808, or 43.7%. The increase in gross profit was due to the increase in our software, services, maintenance and support sales.

  

Research and development expenses for the year ended December 31, 2016 were $521,663 compared to $262,973 for the year ended December 31, 2015, an increase of $258,690, or 98.4%. The increase in research and development expenses was due to the addition of one staff member (we increased our technology staff by hiring a software engineer in January 2016), an overall increase in our salaries, and the testing of our mobile products, which required the purchase of peripherals for testing purposes. The salaries, benefits and overhead costs of personnel conducting research and development of our software products primarily comprise research and development expenses.

 

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Compensation, professional fees, and selling, general and administrative (collectively, “SGA”) expenses for the year ended December 31, 2016 were $2,298,883 compared to $1,111,679 for the year ended December 31, 2015, an increase of $1,187,204 or 107%. The increase was due primarily to the increase in salaries and related payroll taxes resulting from salary increases implemented in January 2016, an increase in professional fees, expenses relating to options granted to employees in September 2016 and an increase in warrant expense. SG&A expenses consist primarily of salaries, benefits and overhead costs for executive and administrative personnel, insurance, fees for professional services, including consulting, legal, and accounting fees, plus travel costs and non-cash stock compensation expense for the issuance of stock options to employees and non-employees and other general corporate expenses.

 

Other income (expense) for the year ended December 31, 2016 was income of $5,381,185 as compared to expenses of ($695,711) for the year ended December 31, 2015, representing an increase in other income of $6,076,896, or 874%. The increase was primarily due to the net settlement of patent remediation litigation, which was settled in January 2016 and the extinguishment of derivatives relating to the payoff of convertible debt, offset by interest expense.

 

Our net income (loss) for the year ended December 31, 2016 was $2,938,565 compared to a net loss of ($1,807,245) for the year ended December 31, 2015, an increase in net income of $4,745,810, or 263%. The increase was primarily due to the net settlement of patent remediation litigation, which was settled in January 2016 and the extinguishment of derivatives relating to the payoff of convertible debt, offset by increases in SGA expenses and interest expense.

 

Liquidity and Capital Resources

 

Our total current assets at December 31, 2016 were $965,404, which included cash of $804,130, as compared with $60,409 in total current assets at December 31, 2015, which included cash of $37,153. Additionally, we had a stockholders’ deficit in the amount of $8,439,490 at December 31, 2016 compared to a stockholders’ deficit of $13,724,487 at December 31, 2015. We have historically incurred recurring losses and have financed our operations through loans, principally from affiliated parties such as our directors, and from the proceeds of debt and equity financing.

 

We financed our operations during the year ended December 31, 2016 primarily through the net settlement of patent remediation litigation which was settled in January 2016. While management believes that there will be a substantial percentage of our sales generated from our patented GuardedID Ò and new mobile products and there are an increasing number of customers for our patented ProtectID Ò 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.

 

Going Concern

 

We have yet to establish any history of profitable operations. For the year ended December 31, 2016, we incurred a loss from operations of $2,442,620, and at December 31, 2016, we had a stockholders’ deficit of $8,439,490. These factors raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. 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, 2016 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, 2016, we had cash on hand in the amount of $804,130. Management estimates that the current funds on hand will be sufficient to continue operations through the next six months. Our ability to continue as a going concern is dependent upon our ability to raise additional funds 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.

 

23
 
Table of Contents

  

Changes in Authorized Shares

  

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.

 

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.

 

Revenue from hardware sales is recognized when the product is shipped to the customer and there are either no unfulfilled obligations by us, or any obligations that will not affect the customer's final acceptance of the arrangement. All costs of these obligations are accrued when the corresponding revenue is recognized.

 

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, and determined by 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. If we determine that collection of a fee is not reasonably assured, we defer the fee and recognize revenue at the time collection becomes reasonably assured, which is generally upon receipt of cash. Revenue from monthly software licenses is recognized on a subscription basis.

 

We offer an Application Service Provider (ASP) hosted cloud service whereby customer usage transactions are invoiced monthly on a cost per transaction basis.

 

24
 
Table of Contents

  

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 1 in the accompanying financial statements.

 

Additional 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, Annual Reports on Form 10-K, and Current Reports on Form 8-K that we file from time to time. You may obtain copies of these reports directly from us or from the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E. Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers at its website http://www.sec.gov.

 

ITEM 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-19.

 

 
25
 
Table of Contents

  

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, 2016 and 2015, and the related statements of operations, changes in 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, 2016 and 2015, and the results of its operations and its cash flows for the years 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, 2016, the Company incurred a loss from operations and at December 31, 2016, had a stockholders' 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, 2017

 

 
F-1
 
Table of Contents

  

STRIKEFORCE TECHNOLOGIES, INC.  

BALANCE SHEETS

 

 

 

December 31,

2016

 

 

December 31,

2015

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash

 

$ 804,130

 

 

$ 37,153

 

Accounts receivable

 

 

152,009

 

 

 

18,524

 

Prepaid expenses

 

 

9,265

 

 

 

4,732

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

965,404

 

 

 

60,409

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

8,926

 

 

 

4,184

 

Other assets

 

 

22,539

 

 

 

24,594

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$ 996,869

 

 

$ 89,187

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Convertible notes payable, net

 

$ 1,447,100

 

 

$ 2,263,695

 

Convertible notes payable - related parties

 

 

355,500

 

 

 

355,500

 

Current maturities of notes payable, net

 

 

1,703,824

 

 

 

2,452,791

 

Current maturities of notes payable - related parties

 

 

742,513

 

 

 

722,638

 

Accounts payable

 

 

890,799

 

 

 

1,295,829

 

Accrued expenses

 

 

9,539

 

 

 

13,368

 

Accrued interest (including $1,029,090 and $939,654 due to related parties, respectively)

 

 

3,805,158

 

 

 

3,921,004

 

Accrued salaries and payroll taxes

 

 

10,549

 

 

 

1,347,772

 

Derivative liabilities

 

 

262,185

 

 

 

989,019

 

Due to factor

 

 

209,192

 

 

 

209,192

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

9,436,359

 

 

 

13,570,808

 

 

 

 

 

 

 

 

 

 

Non-current Liabilities:

 

 

 

 

 

 

 

 

Notes payable, net of current maturities

 

 

-

 

 

 

222,991

 

Notes payable - related parties, net of current maturities

 

 

-

 

 

 

19,875

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

9,436,359

 

 

 

13,813,674

 

 

 

 

 

 

 

 

 

 

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;

 

 

 

 

 

 

 

 

50,001 and 175,338 shares issued and outstanding, respectively

 

 

5,000

 

 

 

17,534

 

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

 

 

 

 

 

 

 

 

none issued or outstanding

 

 

-

 

 

 

-

 

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

 

 

 

 

 

 

 

 

2,319,683,886 and 22,711,924 shares issued and outstanding, respectively

 

 

231,970

 

 

 

2,271

 

Additional paid-in capital

 

 

24,655,363

 

 

 

22,526,096

 

Accumulated deficit

 

 

(34,318,823 )

 

 

(37,257,388 )

 

 

 

 

 

 

 

 

 

Total Stockholders' Deficit

 

 

(8,439,490 )

 

 

(13,724,487 )

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders' Deficit

 

$ 996,869

 

 

$ 89,187

 

 

See accompanying notes to the financial statements.

 

 
F-2
 
Table of Contents

  

STRIKEFORCE TECHNOLOGIES, INC.  

STATEMENTS OF OPERATIONS

 

 

 

 

For the Year Ended

 

 

 

 

December 31,

2016

 

 

December 31,

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

$ 384,289

 

 

$ 271,559

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

 

6,363

 

 

 

8,441

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

 

 

377,926

 

 

 

263,118

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Compensation

 

 

 

491,255

 

 

 

353,141

 

Professional fees

 

 

 

617,019

 

 

 

471,674

 

Selling, general and administrative expenses

 

 

 

1,190,609

 

 

 

286,864

 

Research and development

 

 

 

521,663

 

 

 

262,973

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

 

2,820,546

 

 

 

1,374,652

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

 

(2,442,620 )

 

 

(1,111,534 )

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Litigation settlement

 

 

 

9,750,000

 

 

 

-

 

Fees related to litigation settlement

 

 

 

(4,187,257 )

 

 

-

 

Interest and financing expense

 

 

 

(875,234 )

 

 

(545,324 )

Debt discount amortization

 

 

 

(34,293 )

 

 

(851,894 )

Change in fair value of derivative liabilities

 

 

 

(92,997 )

 

 

426,383

 

Extinguishment of derivative liabilities

 

 

 

819,831

 

 

 

-

 

Other income from settlement

 

 

 

-

 

 

 

305,000

 

Other income

 

 

 

1,135

 

 

 

(29,876 )

 

 

 

 

 

 

 

 

 

 

Other income (expense), net

 

 

 

5,381,185

 

 

 

(695,711 )

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

$ 2,938,565

 

 

$ (1,807,245 )

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share - basic and diluted

 

 

 

 

 

 

 

 

 

 

-Basic

 

 

$ -

 

 

$ (0.47 )

 

-Diluted

 

 

$ -

 

 

$ (0.47 )

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

-Basic

 

 

 

1,855,338,114

 

 

 

3,845,454

 

 

-Diluted

 

 

 

1,855,338,114

 

 

 

3,845,454

 

 

See accompanying notes to the financial statements.

 

 
F-3
 
Table of Contents

 

STRIKEFORCE TECHNOLOGIES, INC.  

STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT  

FOR THE YEARS ENDED DECEMBER 31, 2015 and 2016  

 

 

 

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 January 1, 2015

 

 

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 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of common stock issued for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

154,905,000

 

 

 

15,491

 

 

 

170,668

 

 

 

-

 

 

 

186,159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of vested options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

818,462

 

 

 

-

 

 

 

818,462

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued upon conversion of notes and interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,105,237,983

 

 

 

210,525

 

 

 

368,361

 

 

 

-

 

 

 

578,886

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued upon conversion of Series B preferred stock

 

 

-

 

 

 

-

 

 

 

(125,337 )

 

 

(12,534 )

 

 

35,703,979

 

 

 

3,570

 

 

 

8,964

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued upon exercise of options and warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,125,000

 

 

 

113

 

 

 

537

 

 

 

-

 

 

 

650

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forgiveness of accrued officers salaries recorded as capital contribution

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

762,275

 

 

 

-

 

 

 

762,275

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,938,565

 

 

 

2,938,565

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2016

 

 

3

 

 

$ 987,000

 

 

 

50,001

 

 

$ 5,000

 

 

 

2,319,683,886

 

 

$ 231,970

 

 

$ 24,655,363

 

 

$ (34,318,823 )

 

$ (8,439,490 )

 

See accompanying notes to the financial statements.

 

 
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STRIKEFORCE TECHNOLOGIES, INC.  

STATEMENTS OF CASH FLOWS  

 

 

 

For the Year

 

 

For the Year

 

 

 

Ended

 

 

Ended

 

 

 

December 31,

2016

 

 

December 31,

2015

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss)

 

$ 2,938,565

 

 

$ (1,807,245 )

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

5,231

 

 

 

7,247

 

Amortization of discount on notes payable

 

 

34,293

 

 

 

876,145

 

Change in fair value of derivative liabilities

 

 

92,997

 

 

 

(426,383 )

Interest expense

 

 

353,473

 

 

 

545,324

 

Fair value of common stock issued for services

 

 

186,159

 

 

 

2,233

 

Fair value of vested options

 

 

818,462

 

 

 

-

 

Extinguishment of derivative liabilities

 

 

(819,831 )

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(133,485 )

 

 

19,983

 

Prepaid expenses

 

 

(4,533 )

 

 

14,056

 

Accounts payable

 

 

(405,030 )

 

 

(80,471 )

Accrued expenses

 

 

(3,829 )

 

 

(7,695 )

Accrued interest

 

 

(66,556 )

 

 

-

 

Accrued salaries and payroll taxes

 

 

(574,948 )

 

 

-

 

Net cash provided by (used in) operating activities

 

 

2,420,968

 

 

 

(856,806 )

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(7,918 )

 

 

(2,354 )

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayment of convertible notes payable

 

 

(687,738 )

 

 

(25,000 )

Repayment of notes payable

 

 

(1,033,985 )

 

 

(53,215 )

Proceeds from notes payable

 

 

75,000

 

 

 

539,524

 

Proceeds from exercise of options and warrants

 

 

650

 

 

 

-

 

Proceeds from sale of Series B preferred stock

 

 

-

 

 

 

25,000

 

Proceeds from convertible notes payable

 

 

-

 

 

 

67,000

 

Proceeds from secured notes payable

 

 

-

 

 

 

310,000

 

Proceeds from notes payable - related parties

 

 

-

 

 

 

19,875

 

Net cash (used in) provided by financing activities

 

 

(1,646,073 )

 

 

883,184

 

 

 

 

 

 

 

 

 

 

Net increase in cash

 

 

766,977

 

 

 

24,024

 

 

 

 

 

 

 

 

 

 

Cash at beginning of the period

 

 

37,153

 

 

 

13,129

 

 

 

 

 

 

 

 

 

 

Cash at end of the period

 

$ 804,130

 

 

$ 37,153

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$ 233,973

 

 

$ 78

 

Income tax paid

 

 

3,092

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Common stock issued for conversion of debt and accrued interest

 

$ 192,665

 

 

$ 228,190

 

Forgiveness of accrued officers salaries recorded as capital contribution

 

 

762,275

 

 

 

-

 

Common stock issued for conversion of Series B preferred stock

 

 

12,534

 

 

 

-

 

Common stock issued for exercise of options and warrants

 

 

-

 

 

 

1,395

 

Debt discount due to convertible feature

 

 

-

 

 

 

61,021

 

Debt discount on note payable

 

 

-

 

 

 

27,000

 

Issuance of Series B preferred stock in connection with secured notes payable

 

 

-

 

 

 

25,000

 

 

See accompanying notes to the financial statements.

 

 
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StrikeForce Technologies, Inc.

December 31, 2016 and 2015

Notes to the Financial Statements

 

Note 1 - Organization and Summary of Significant Accounting Policies

 

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 that offers a suite of integrated computer network security products using proprietary technology. The Company’s ongoing strategy is developing and marketing its suite of network security products to the corporate, financial, healthcare, legal, government, technology, insurance, e-commerce and consumer sectors.

 

Going Concern

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, for the year ended December 31, 2016, the Company incurred a loss from operations of $2,442,620 and at December 31, 2016, the Company had a stockholders’ deficit of $8,439,490. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued. 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, 2016, we had cash on hand in the amount of $804,130. Management estimates that the current funds on hand will be sufficient to continue operations through the next six months. The Company’s ability to continue as a going concern is dependent upon its ability to continue to implement its business plan. Currently, management is attempting to increase revenues and improve gross margins by redirecting its sales focus from direct sales to domestic and international sales channels, primarily selling through a channel of distributors, value added resellers, strategic partners and original equipment manufacturers. While the Company believes in the viability of its strategy to increase revenues, there can be no assurances to that effect. The Company’s ability to continue as a going concern is dependent upon its ability to continually increase its customer base and realize increased revenues from recently signed contracts. No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, if needed, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its stock holders, in the case of equity financing.

 

Reverse Stock Splits

 

In February 2015, the Company effected a 1:650 reverse stock split of the Company's issued and outstanding shares of common stock.

 

In August 2015, the Company effected a 1:1,000 reverse stock split of the Company's issued and outstanding shares of common stock.

 

All share and per share amounts have been adjusted, on a retroactive basis, to reflect the reverse stock splits adopted by the Company as if the reverse stock splits had occurred at the beginning of the earliest period presented.

 

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, derivative liabilities, and valuation allowance for deferred tax assets. Actual results could differ from those estimates.

 

Revenue

 

The Company recognizes revenue when (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer and there are no significant uncertainties surrounding acceptance by the customer, (iii) the sales price is fixed and 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.

 

Revenue from hardware sales is recognized when the product is shipped to the customer and there are either no unfulfilled obligations by the Company, or any obligations that will not affect the customer's final acceptance of the arrangement. All costs of these obligations are accrued when the corresponding revenue is recognized.

 

 
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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, and determined by 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. If the Company determines that collection of a fee is not reasonably assured, it defers the fee and recognizes revenue at the time collection becomes reasonably assured, which is generally upon receipt of payment. Revenue from monthly software licenses is recognized on a subscription basis.

 

The Company offers an Application Service Provider (ASP) hosted cloud service whereby customer usage transactions are invoiced monthly on a cost per transaction basis.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

The Company evaluates the collectability of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on the Company’s historical losses and an overall assessment of past due trade accounts receivable outstanding. At December 31, 2016 and 2015, the Company did not record an allowance for doubtful accounts. For the year ended December 31, 2016, the Company recorded bad debt expense of $18,226. For the year ended December 31, 2015, the Company recorded no bad debt expense.

 

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. Management assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If there is indication of impairment, management prepares an estimate of future cash flows expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value. For the years ended December 31, 2016 and 2015, the Company did not recognize any impairment for its property and equipment.

 

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. For the years ended December 31, 2016 and 2015, the Company did not recognize any such impairments.

 

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.

 

 
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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.

 

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 that their classification is appropriate.

 

Fair Value of Financial Instruments

 

The Company follows the authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) for fair value measurements.  Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels as follows:

 

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

Level 3—Unobservable inputs based on the Company's assumptions.

 

The Company is required to use of observable market data if such data is available without undue cost and effort.

 

As of December 31, 2016 and 2015, the Company’s balance sheets included the fair value of derivative liabilities of $262,185 and $989,019, respectively, which were based on Level 2 measurements. 

 

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

 

 
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Income (loss) per Share

 

Basic income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income (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 income (loss) of the Company. In computing diluted income (loss) per share, the treasury stock method assumes that outstanding options, warrants, and convertible preferred stock are exercised and the proceeds are used to purchase common stock at the average market price during the period. Options, warrants, and convertible preferred stock may have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options and warrants.

 

For the years ended December 31, 2016 and 2015, the dilutive impact of outstanding stock options for 196,000,001 shares and 1,000,001 shares, respectively; outstanding warrants for 0 shares and 30 shares, respectively; Series B Preferred Stock that can convert into 33,876,016 shares and 32,875,063 shares of the Company’s common stock, respectively, and notes payable that can convert into 25 shares and 291,470 shares of the Company’s common stock, respectively, have been excluded because their impact on the loss per share is anti-dilutive.

 

The following tables set forth the computation of basic and diluted earnings (loss) per share:

 

 

 

Years ended December 31,

 

 

 

2016

 

 

2015

 

Income (Loss) per share – Basic:

 

 

 

 

 

 

Income (Loss) for the period

 

$ 2,938,565

 

 

$ (1,807,245 )

Basic average common stock outstanding

 

 

1,855,338,114

 

 

 

3,845,454

 

Net earnings (loss) per share

 

$ -

 

 

$ (0.47 )

 

 

 

Years ended December 31,

 

 

 

2016

 

 

2015

 

Income (Loss) per share – Diluted:

 

 

 

 

 

 

Income (Loss) for the period

 

$ 2,938,565

 

 

$ (1,807,245 )

Basic average common stock outstanding

 

 

1,855,338,114

 

 

 

3,845,454

 

Diluted effect of outstanding stock options, warrants, notes and Series B Preferred stock

 

 

-

 

 

 

-

 

Diluted average common stock outstanding

 

 

1,855,338,114

 

 

 

3,845,454

 

Net earnings (loss) per share

 

$ -

 

 

$ (0.47 )

 

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, 2016 and 2015, advertising, sales and marketing expenses were $1,534 and $75,591, 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, 2016 and 2015, research and development costs were $521,663 and $262,973, respectively.

 

Significant Concentrations

 

For the year ended December 31, 2016, sales to two customers comprised 39% and 39% of revenues, respectively. For the year ended December 31, 2015, sales to one customer comprised 66% of revenues. At December 31, 2016, one customer comprised 82% of accounts receivable. For the year ended December 31, 2015, sales to one customer comprised 66% of revenues. At December 31, 2015, two customers comprised 67% and 17% of accounts receivable, respectively

  

 
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Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. Under ASU 2014-09, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has recently issued ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, and ASU 2016-20 all of which clarify certain implementation guidance within ASU 2014-09. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. The standard can be adopted either retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company is currently in the process of analyzing the information necessary to determine the impact of adopting this new guidance on its financial position, results of operations, and cash flows. The Company will adopt the provisions of this statement in the first quarter of fiscal 2018.

 

In February 2016, the FASB issued ASU 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 period presented in the financial statements. The Company is currently evaluating the expected impact that the standard could have on its financial statements and related disclosures.

 

In March 2016, the FASB issued the ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments in this ASU require, among other things, that all income tax effects of awards be recognized in the income statement when the awards vest or are settled. The ASU also allows for an employer to repurchase more of an employee's shares than it can today for tax withholding purposes without triggering liability accounting and allows for a policy election to account for forfeitures as they occur. The amendments in this ASU are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted for any entity in any interim or annual period. The Company is currently evaluating the expected impact that the standard could have on its financial statements and related disclosures.

 

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.

 

Note 2 - Property and Equipment

 

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

 

 

 

December 31,

2016

 

 

December 31,

2015

 

 

 

 

 

 

 

 

Computer equipment

 

$ 76,953

 

 

$ 76,953

 

 

 

 

 

 

 

 

 

 

Computer software

 

 

36,907

 

 

 

28,989

 

 

 

 

 

 

 

 

 

 

Furniture and fixture

 

 

10,157

 

 

 

10,157

 

 

 

 

 

 

 

 

 

 

Office equipment

 

 

16,511

 

 

 

16,511

 

 

 

 

 

 

 

 

 

 

 

 

 

140,528

 

 

 

132,610

 

 

 

 

 

 

 

 

 

 

Less accumulated depreciation

 

 

(131,602 )

 

 

(128,425 )

 

 

 

 

 

 

 

 

 

 

 

$ 8,926

 

 

$ 4,184

 

 

Depreciation expense for the years ended December 31, 2016 and 2015 was $3,177 and $3,692, respectively.

 

 
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Note 3 - Convertible Notes Payable

 

Convertible notes payable consisted of the following:

 

 

 

December 31,

2016

 

 

December 31,

2015

 

Secured

 

 

 

 

 

 

(a) DART

 

$ 542,588

 

 

$ 542,588

 

 

 

 

 

 

 

 

 

 

Unsecured

 

 

 

 

 

 

 

 

(b) Convertible notes with fixed conversion features

 

 

904,512

 

 

 

910,512

 

(c) Convertible notes with adjustable conversion features

 

 

-

 

 

 

824,861

 

Total convertible notes

 

 

1,447,100

 

 

 

2,277,961

 

Discount on convertible notes

 

 

-

 

 

 

(14,266 )

Convertible notes

 

$ 1,447,100

 

 

$ 2,263,695

 

 

(a) At December 31, 2016 and 2015, $542,588 of notes payables are due to DART/Citco Global. The notes are convertible into shares of the Company’s common stock based on adjustable conversion prices, are secured by all of the Company’s assets, were due in 2010, and are currently in default. The adjustable conversion features of the notes are accounted for as derivative liabilities (see Note 7). DART/Citco Global did not process any conversions of notes into shares of common stock in fiscal 2016 or 2015. 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. Under the terms of the secured debentures, the Company is restricted in its ability to issue additional securities as long as any portion of the principal or interest on the secured debentures remains outstanding. During 2016 or 2015, the Company did not obtain DART/Citco Global’s written consent related to any of its financing agreements.

 

 

(b) Convertible notes payable consist of 14 unsecured convertible notes convertible at a fixed amount (”fixed convertible notes”) into 13 shares of the Company’s common stock, at fixed prices ranging from $1,950,000 to $9,750,000,000 per share, as defined in the agreements. The notes bear interest at 8% to 18% per annum, and were due on various dates from March 2008 to July 2015. All of the fixed convertible notes are currently in default and the Company is pursuing settlements with certain of the holders. During the year ended December 31, 2015, there were no notes issued or repaid. During the year ended December 31, 2016, there were no notes issued and the Company repaid $6,000 of note principal.

 

 

At December 31, 2014, the balance of the accrued interest on the fixed convertible notes was $828,814. During the year ended December 31, 2015, interest expense of $80,286 was accrued. At December 31, 2015, the balance of the accrued interest on the fixed convertible notes was $909,100. During the year ended December 31, 2016, interest expense of $79,687 was accrued, $49,148 of accrued interest was forgiven and written-off, and $3,000 of accrued interest was paid. At December 31, 2016, the balance of accrued interest on the fixed convertible notes was $936,639.

 

 

(c) At December 31, 2014, the balance of convertible notes with adjustable conversion features (“adjustable convertible notes”) was $995,167. The notes bore interest at 10% to 24%, and were due on various dates from March 2013 to February 2016. During the year ended December 31, 2015, adjustable convertible notes of $57,884 were issued, and note holders converted $228,190 of note principal into shares of the Company’s common stock (see Note 8). At December 31, 2015, the balance of the adjustable convertible notes was $824,861. During the year ended December 31, 2016, the Company repaid $681,738 of note principal, and note holders converted $143,123 of note principal into shares of the Company’s common stock (see Note 8). At December 31, 2016, the balance of adjustable convertible notes was paid off.

 

 

At December 31, 2014, the balance of the accrued interest on the adjustable convertible notes was $175,276. During the year ended December 31, 2015, interest expense of $144,294 was accrued. At December 31, 2015, the balance of the accrued interest on the adjustable convertible notes was $319,570. During the year ended December 31, 2016, interest expense of $17,066 was accrued, $189,442 of accrued interest was paid, note holders converted $49,542 of accrued interest into shares of common stock (see Note 8), and $97,652 of accrued interest was forgiven and written-off. At December 31, 2016, the balance of accrued interest on adjustable convertible notes was paid off.

 

 

At the option of the holder, the adjustable convertible notes were convertible into shares of common stock of the Company at a price per share discount of 40% of the Company’s common stock trading market price during a certain time period. The Company determined that the conversion feature of the notes were not fixed, and recorded them as a derivative liability. During the year ended December 31, 2016, the payment and conversion of the convertible notes resulted in the Company recording a gain of $819,831 related to the extinguishment of the corresponding derivative liability (see Note 7).

 

 
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At December 31, 2016 and 2015, accrued interest due for all convertible notes was $936,639 and $1,230,507, respectively, and is included in accrued interest in the accompanying balance sheets. Interest expense for all convertible notes payable for the years ended December 31, 2016 and 2015 was $96,753 and $224,579, respectively.

 

Note 4 - Convertible Notes Payable – Related Parties

 

At December 31, 2016 and 2015, convertible notes payable - related parties consist of 12 convertible notes payable in the aggregate of $355,500. The notes are unsecured and due December 31, 2017. Six notes totaling $268,000 are due to the Company’s Chief Executive Officer, at a compounded interest rate of 8% per annum; two notes totaling $57,000 are due to the Company’s VP of Technology, interest at prime plus 2% and prime plus 4% per annum; and four notes totaling $30,000 are due to the spouse of the Company’s Chief Technology Officer at a compounded interest rate of 8% per annum. $33,000 of the notes are convertible at the fixed conversion price of $7,312,500 per share and $322,500 of the notes are convertible at the fixed conversion price of $9,750,000,000 per share, as defined in the note agreements.

 

At December 31, 2014, accrued interest due for the convertible notes – related parties was $339,812. During the year ended December 31, 2015, interest expense of $51,189 was accrued and at December 31, 2015, accrued interest due for the convertible notes – related parties was $391,001. During the year ended December 31, 2016, interest expense of $55,721 was accrued, and $9,417 of accrued interest due a former officer was forgiven and written-off. At December 31, 2016, accrued interest due for the convertible notes – related parties was $437,305.

 

Note 5 - Notes Payable

 

Notes payable consisted of the following:

 

 

 

December 31,

2016

 

 

December 31,

2015

 

Secured

 

 

 

 

 

 

(a) Promissory note-H. Group Partners, Inc.

 

$ -

 

 

$ 310,000

 

(b) Promissory note - factoring

 

 

-

 

 

 

35,200

 

 

 

 

 

 

 

 

 

 

Unsecured

 

 

 

 

 

 

 

 

(c) Promissory notes

 

 

413,824

 

 

 

467,609

 

(d) Promissory note-Cyber Safety

 

 

-

 

 

 

408,000

 

(e) Promissory notes – StrikeForce Investor Group

 

 

1,290,000

 

 

 

1,475,000

 

 

 

 

 

 

 

 

 

 

Total notes payable

 

 

1,703,824

 

 

 

2,695,809

 

Discount on secured notes payable

 

 

-

 

 

 

(20,027 )

Notes payable, net of discount

 

 

1,703,824

 

 

 

2,675,782

 

Long-term portion

 

 

-

 

 

 

(222,991 )

 

 

 

 

 

 

 

 

 

Promissory notes, current maturities

 

$ 1,703,824

 

 

$ 2,452,791

 

 

(a) In May 2015, the Company executed a secured promissory note with an unrelated party for $310,000, bearing interest at 10% per annum, maturing March 31, 2018. The note was secured by the Company's intellectual property, accounts, fixtures and property. As an inducement to make the loan, the note holder received 16,667 shares Series B preferred stock valued at $1.50 per share that are convertible into shares of the Company's common stock at a 30% discount to current market value, as defined. During the year ended December 31, 2016, the Company repaid $310,000 of note principal, $23,611 of accrued interest, and $204,560 of additional interest expense was paid to the note holder.

 

 

(b) In October 2015, the Company entered into a promissory note agreement for $50,400, secured by all accounts, chattel paper, equipment, general intangibles, instruments and inventory, as defined in the agreement. As December 31, 2015, the balance of the note was $35,200. During the year ended December 31, 2016, the Company repaid the balance of $35,200.

 

 

(c) Notes payable consists of various unsecured promissory notes with interest from 8% to 14% per annum. $397,500 of the notes were due on various dates from December 2011 to July 2015 and are currently in default, and the balance of $16,324 is due July 2017. The Company is currently pursuing settlements with certain of the note holders. At December 31, 2014, the balance due under these notes was $397,500. During the year ended December 31, 2015, the Company issued $123,324 of notes, and repaid $53,215 of notes. At December 31, 2015, the balance due under these notes was $467,609. During the year ended December 31, 2016, the Company paid off note principal totaling $53,785, and at December 31, 2016, the balance due under these notes was $413,824.

 

 

At December 31, 2015, the balance of the accrued interest on the notes payable-various was $438,782. During the year ended December 31, 2016, $45,681 of interest expense was accrued, and $70,121 was forgiven and written-off. At December 31, 2016, accrued interest on the notes payable was $414,342.

 

 
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(d) In 2015, the Company issued a note to Cyber Security in relation to an asset purchase and licensing agreement (see Note 13). At December 31, 2015, the balance of note payable was $408,000, and due December 31, 2016. During the year ended December 31, 2016, the Company borrowed an additional $75,000 of principal and repaid $450,000 of principal. In addition, $33,000 of principal was adjusted and written off. At December 31, 2016, the balance of the note was paid off. The note was non-interest bearing and unsecured.

 

 

(e) Notes payable to StrikeForce Investor Group (SIG), made up of various investors with unsecured notes, interest at 10% per annum. At December 31, 2016, Notes payable-SIG of $1,250,000, originally due in 2011, are in default, and the balance of $40,000 is due April 30, 2017. The Company is currently pursuing extensions on the delinquent notes. At December 31, 2014, the balance of notes payable-SIG was $1,500,000. During the year ended December 31, 2015, the Company repaid $25,000 of principal and at December 31, 2015, the balance of notes payable-SIG was $1,475,000. During the year ended December 31, 2016, the Company repaid $185,000 of principal and at December 31, 2016, the balance of notes payable-SIG was $1,290,000.

 

 

At December 31, 2014, the balance of the accrued interest on the notes payable-SIG was $1,145,271. During the year ended December 31, 2015, $147,821 of interest expense was accrued. At December 31, 2015, the balance of the accrued interest on the notes payable-SIG was $1,293,092. During the year ended December 31, 2016, $141,995 of interest expense was accrued, and $10,000 of accrued interest was paid. At December 31, 2016, accrued interest on the notes payable-SIG was $1,425,087.

 

At December 31, 2016 and 2015, accrued interest due for all notes payable above was $1,839,429 and $1,731,874, respectively, and is included in accrued interest in the accompanying balance sheets. Interest expense for notes payable for the years ended December 31, 2016 and 2015 was $190,478 and $192,668, respectively.

 

Note 6 - Notes Payable – Related Party

 

Notes payable- related party consist of 18 unsecured notes payable to the Company’s Chief Executive Officer ranging in interest rates of 0% per annum to 10% per annum. The notes have extended due dates of December 31, 2017 and all are shown as current liabilities. At December 31, 2016 and 2015, the balance of the outstanding notes payable - related party was $742,513 and $722,618, respectively.

 

At December 31, 2015, accrued interest due for the notes payable – related party was $548,653. During the year ended December 31, 2016, interest expense of $56,233 was accrued, and accrued interest of $13,102 owed to a former officer was forgiven and written-off. At December 31, 2016, accrued interest due for the notes payable – related party was $591,784. Interest expense for notes payable - related party for the year ended December 31, 2015 was $56,080.

 

Note 7 - 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 certain of the Company’s convertible notes payable (see Note 3) 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 has 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, 2014, the balance of the derivative liabilities was $1,415,402. During the year ended December 31, 2015, the decrease in derivative liability was $426,383, and at December 31, 2015, the balance of the derivative liabilities was $989,019. During the year ended December 31, 2016, convertible notes and accrued interest totaling $1,063,845 were paid off or converted into shares of common stock (See Note 3), and the Company recorded a gain of $819,831 related to the extinguishment of the corresponding derivative liabilities. Also during the year ended December 31, 2016, the Company recorded a change in fair value of derivatives of $92,997. At December 31, 2016, the balance of the derivative liabilities was $262,185.

 

 
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The derivative liability was valued at the following dates using a probability weighted Black-Scholes-Merton model with the following assumptions:

 

 

 

December 31,

2016

 

 

December 31,

2015

 

Conversion feature:

 

 

 

 

 

 

Risk-free interest rate

 

 

0.16 %

 

 

0.16 %

Expected volatility

 

 

75 %

 

 

100 %

Expected life (in years)

 

1 year

 

 

.25 to 5 years

 

Expected dividend yield

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Fair Value:

 

 

 

 

 

 

 

 

Conversion feature

 

$ 262,185

 

 

$ 989,019

 

 

The risk-free interest rate was based on rates established by the Federal Reserve Bank. The expected volatility is based on the historical volatility of a group of comparable public companies. The expected life of the conversion feature of the notes was based on the remaining terms of the related notes. The expected dividend yield was based on the fact that the Company has not customarily paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future.

 

Note 8– Stockholders’ Deficit

 

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.

 

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 2011, the Company issued three shares of non-convertible Series A Preferred Stock valued at $329,000 per share, or $987,000 in aggregate to three members of the management team. The Series A Preferred Stock are convertible into four times the total number of common shares plus the total number of shares of Series B preferred stock issued and outstanding at the time of conversion, and have voting rights equal to eighty percent of the total issued and outstanding shares of the Company's common stock. This effectively provided the management team, upon retention of their Series A Preferred Stock, voting control on matters presented to the shareholders of the Company. The shareholders of the Series A Preferred Stock have each irrevocably waived their conversion rights relating to the Series A Preferred Stock issued.

 

 
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Table of Contents

 

Series B Preferred Stock

 

In 2016, 125,377 shares of Series B Preferred Stock were converted into 35,703,979 shares of the Company’s common stock (See below).

 

In July 2015, the Company sold a total of 16,667 shares to an individual at $1.50 per share, or a total of $25,000. In May 2015, as an inducement to execute a secured promissory note, a note holder received 16,667 shares Series B preferred stock valued at $1.50 per share, or a total of $25,001. The shares of Series B Preferred Stock are convertible into shares of its common stock at a 30% to 40% discount to current market value, as defined, with a minimum price level set by the Company's Board of Directors at $0.005.

 

Common Stock

 

During the year ended December 31, 2016, the Company issued an aggregate of 2,296,971,962 shares of its common stock as follows:

 

· The Company issued 1,594,171,737 shares of its common stock in exchange for conversion of $143,123 of convertible note principal and $49,542 of accrued interest at conversion prices ranging from $0.000058 to $0.0013 per share. In addition, the Company issued 511,066,246 shares of common stock, with a fair value of $386,221, to the convertible note holders and recorded as additional interest expense.

 

 

· The Company issued 125,000 shares of its common stock upon the exercise of 30 warrants for $150. In addition, the Company issued 154,875,000 shares of its common stock, with a fair value of $185,850, to the warrant holder as additional consideration for services and recorded in general and administrative expenses

 

 

· The Company issued 30,000 shares of its common stock for services, valued at $309.

 

 

· The Company issued 1,000,000 shares of its common stock for exercise of options at a price of $0.005 per share for $500.

 

 

· The Company issued 35,703,979 shares of its common stock in exchange for conversion of 125,337 shares of Series B Preferred Stock at conversion prices ranging from $0.00383 to $0.00532 per share.

 

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 convertible note principal 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 $22 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.

 

Capital Contribution

 

In January 2016, the Company’s officers forgave an aggregate total of $762,275 of accrued payroll due to them from the Company. The Company recorded the forgiveness of accrued payroll as a capital contribution.

 

 
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Table of Contents

 

Note 9 - Warrants

 

The table below summarizes the Company’s warrant activities for the period January 1, 2015 to December 31, 2016:


 

 

Number of

Warrant Shares

 

 

Exercise Price Range

Per Share

 

 

Weighted Average Exercise Price

 

Balance, January 1, 2015

 

 

32

 

$

695,000-9,750,000,000

 

 

$ 25,486,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canceled

 

(-

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(1 )

 

$ 39.00

 

 

$ 39.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

(1 )

 

$

19,500,000- 39,000,000

 

 

$ 587,918

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2015

 

 

30

 

 

$

695,000- 9,750,000,000

 

 

$ 10,430,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canceled

 

(-

)

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(30 )

 

$ 0.00024

 

 

$ 8,382,915

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

(-

)

 

$

29,250,000-9,750,000,000

 

 

$ 29,886,738

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2016

 

 

-

 

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and exercisable, December 31, 2016

 

 

-

 

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unvested, December 31, 2016

 

 

-

 

 

$ -

 

 

$ -

 

 

In April 2016, the Company executed a settlement agreement with an investor relating to outstanding warrant agreements issued in conjunction with convertible notes that were repaid by the Company in January 2016. Per the terms of the settlement, the investor processed an exercise of 30 warrant shares into 125,000 shares of the Company’s common stock. The investor also received an additional 154,875,000 shares of the Company’s common stock valued at $185,850, for services (see Note 8).

 

 
F-16
 
Table of Contents

 

Note 10 - Options

 

In November 2012, the stockholders approved the 2012 Stock Incentive Plan effective January 3, 2013. The number of shares authorized for issuance under the plan was 100,000,000. The number of shares authorized for issuance under the Incentive Plan was increased to 200,000,000 in September 2016 by unanimous consent of the Board of Directors.

 

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.

 

In September 2016, the Company issued options to purchase 196,000,000 shares of its common stock to its management team and employees with a fair value of $1,568,000 determined using the Black-Scholes Option Pricing model. The options are exercisable at $0.00625 per share, vest in 6 months, and expiring in ten years from the date of grant. During the year ended December 31, 2016, the Company recognized compensation costs of $818,462 based on the fair value of options that vested.

 

The fair value of each stock option award was estimated using the Black-Scholes option-pricing model with the following assumptions:

 

Risk-free interest rate

 

 

0.16 %

Expected dividend yield

 

 

0 %

Expected volatility

 

 

78 %

Expected life

 

10 years

 

 

The risk-free interest rate was based on rates established by the Federal Reserve Bank. The expected volatility is based on the historical volatility of a group of comparable public companies. The expected life of the employee option is estimated by considering the contractual term of the option, the vesting period of the option, and the employees’ expected exercise behavior. The expected dividend yield was based on the fact that the Company has not customarily paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future.

 

The table below summarizes the Company’s 2004 Incentive Plan and 2012 Stock Incentive Plan activities for the period January 1, 2015 to December 31, 2016:

 

 

 

Number of

Options Shares

 

 

Exercise Price

Range

Per Share

 

 

Weighted

Average Exercise Price

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2015

 

 

3

 

 

$

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

 

 

$ 12,650,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

1,000,000

 

 

$ 0.0005

 

 

$ 0.0005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2015

 

 

1,000,003

 

 

$

0.0005-9,750,000,000

 

 

$ 2.00

 

   

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

196,000,000

 

 

$ 0.00625

 

 

$ 0.00625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(1,000,000 )

 

$ 0.0005

 

 

$ 0.0005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

(2 )

 

$ 9,750,000

 

 

$ 9,750,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2016

 

 

196,000,001

 

 

$

0.0023-975,000,000

 

 

$ 0.00625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and exercisable, December 31, 2016

 

 

103,307,693

 

 

$

0.0023-975,000,000

 

 

$ 0.005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unvested, December 31, 2016

 

 

92,692,308

 

 

$ 0.00625

 

 

$ 0.00625

 

 

As of December 31, 2016, options to purchase an aggregate of 196,000,001 shares of common stock were outstanding under the 2004 incentive plan and 2012 Stock Incentive Plan and there were 4,000,000 shares remaining available for issuance. At December 31, 2016 and 2015, the intrinsic value of outstanding options was zero.

 

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Table of Contents

 

The following table summarizes information concerning 2004 Incentive plan and 2012 Stock Incentive Plan as of December 31, 2016:

 

 

 

 

Options Outstanding

 

 

Options Exercisable

 

Range of
Exercise Prices

 

 

Number
Outstanding

 

 

Average
Remaining
Contractual Life
(in years)

 

 

Weighted
Average Exercise
Price

 

 

Number
Exercisable

 

 

Average
Remaining
Contractual Life
(in years)

 

 

Weighted
Average Exercise
Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

975,000,000

 

 

 

1

 

 

 

1.00

 

 

$ 975,000,000

 

 

 

1

 

 

 

1.00

 

 

$ 975,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

0.00625

 

 

 

196,000,000

 

 

 

10.00

 

 

$ 0.00625

 

 

 

103,307,692

 

 

 

10.00

 

 

$ 0.00625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

0.00625 - 975,000,000

 

 

 

196,000,001

 

 

 

10.00

 

 

$ 0.00625

 

 

 

103,307,693

 

 

 

10.00

 

 

$ 0.00625

 

 

Note 11 - Other Income

 

On March 28, 2013 the Company initiated patent litigation against an outside party. 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 received a payment in January 2016 of $9,750,000 and incurred fees related to the settlement of $4,187,257.

 

In 2015 the Company entered into a settlement agreement relating to a lawsuit with a former channel partner and received a total settlement of $305,000.

 

Note 12- Income Tax Provision

 

The Company has no tax provision for any period presented due to its history of operating losses. As of December 31, 2016, the Company had deferred tax assets of approximately $6,369,000, resulting from certain temporary differences and net operating loss (“NOL”) carry-forwards of approximately $18,732,000, which are available to offset future taxable income, if any, through 2036.  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, 2016 and 2015 are as follows:

 

 

 

December 31,

2016

 

 

December 31,

2015

 

Net deferred tax assets – non-current:

 

 

 

 

 

 

 

 

 

 

 

 

 

Expected income tax benefit from NOL carry-forwards

 

$ 6,369,000

 

 

$ 7,552,000

 

 

 

 

 

 

 

 

 

 

Less valuation allowance

 

 

(6,369,000 )

 

 

(7,552,000 )

 

 

 

 

 

 

 

 

 

Deferred tax assets, net of valuation allowance

 

$ -

 

 

$ -

 

 

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,
2016

 

 

For the
year ended December 31,
2015

 

 

 

 

 

 

 

 

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 %

 

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Table of Contents

 

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 2009 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, 2016, no liability for unrecognized tax benefits was required to be recorded.

 

Note 13 - Commitments and Contingencies

 

Operating Lease

 

The Company leases its office facilities in New Jersey under a non-cancellable lease agreement that expires January 31, 2019. Minimum annual rental commitments under the non-cancelable lease at December 31, 2016 are as follows:

 

Years ending December 31,

 

Amount

 

2017

 

$ 50,280

 

2018

 

 

51,729

 

2019

 

 

4,316

 

Total

 

$ 106,325

 

 

For the years ending December 31, 2016 and 2015, rent expense was $48,548 and $45,680, respectively. 

 

Asset Sale and Licensing Agreement

 

On August 24, 2015, the Company entered into an agreement with Cyber Safety, Inc., a New York corporation (“Cyber Safety”) for Cyber Safety to license, and retain an option to purchase, the patents and Intellectual Property related to the GuardedID Ò and MobileTrust Ò software. In conjunction with the licensing and the option to purchase, Cyber Safety loaned the Company $408,000 in 2015 and $75,000 in 2016. During the year ended December 31, 2016, the note was repaid in full to Cyber Safety (See Note 5).

 

Cyber Safety has the option to buy the Company’s GuardedID Ò patent for $9,000,000 that expires on September 30, 2020. At December 31, 2016, the Company does not have an estimate if Cyber Safety will exercise its option to make the purchase. Cyber Safety will also resell the Company’s GuardedID Ò and MobileTrust Ò products, for which the Company will receive a royalty, while the Company retains an unlimited license to resell those products.

 

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 ProtectID Ò , and is subject to reduction for commissions and support costs that Cyber Safety will be obligated to pay to the Company.

 

During 2016, the Company recorded revenue from Advanced Cyber, a subsidiary of Cyber Safety, of $125,000 for support services in conjunction with its agreements with Cyber Safety.

 

Legal Proceedings

 

On June 20, 2016, the Company initiated additional patent litigation against three major competitors in the U.S. District Court for the District of New Jersey, for infringement of United States Patent No. 8,484,698. This litigation is ongoing. On March 14, 2017, one of the parties initiated an inter partes review (IPR) against the Company’s second Patent No. 8,484,698.

 

On March 14, 2017, the Company initiated additional patent litigation against two major competitors in the U.S. District Court for the District of Massachusetts, for infringement of United States Patent Nos. 7,870,599, 8,484,698 and 8,713,701. This litigation is ongoing.

 

On March 14, 2017, the Company initiated additional patent litigation against two major competitors in the U.S. District Court for the Eastern District of Virginia, for infringement of United States Patent Nos. 7,870,599, 8,484,698 and 8,713,701. This litigation is ongoing.

  

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. By December 31, 2007, the two invoices were deemed uncollectible. In February 2008, the Company agreed to pay the factor a settlement of $75,000 in September 2008, unless both parties mutually agreed to extend the due date. In September 2008, the Company and the factor reached a verbal agreement to extend the due date to December 31, 2008. The Company is currently pursuing a further extension. As of December 31, 2016, the balance due to the factor was $209,192 including interest.

 

Note 14 – Subsequent Events

 

Subscription agreements for Series B Preferred Stock

 

In January 2017, the Company sold subscriptions to two individuals for the purchase of 53,334 shares of its Series B Preferred Stock at $1.50 per share, or an aggregate of $80,000. The shares of Series B Preferred Stock are convertible into shares of the Company’s common stock at a 25% discount to current market value, as defined, with a minimum conversion price set by the Company's Board of Directors of $0.001 per share. The Series B Preferred Stock can be converted at any time into shares of common stock after twelve months from acceptance by the Company of the subscription agreements, but only once every 30 days.

 

 
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

We have no disclosure required by this Item.

 

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”) and our Chief Financial Officer (CFO) of the effectiveness our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of December 31, 2016. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are not effective at the reasonable assurance level due to the following material weaknesses:

 

1. We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to us as of and for the year ending December 31, 2016. 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.

 

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

 

 
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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

68

Chief Executive Officer and Chairman of the Board of Directors

Philip E. Blocker

60

Chief Financial Officer

Ramarao Pemmaraju

56

Chief Technical Officer and Director

George Waller

59

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 ProtectID Ò 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.

 

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.

 

 
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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 2016, our Board of Directors met twenty four times. The Board of Directors also uses written resolutions to deal with certain matters and, during fiscal 2016 eighteen 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.

 

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.

 

 
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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.

 

Involvement in Certain Legal Proceedings

 

None of the following events have occurred during the past ten years and are material to an evaluation of the ability or integrity of any director or officer of the Company:

 

1. A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;

 

 

2. Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

 

3. Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:


 

a. Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;

 

 

 

 

b. Engaging in any type of business practice; or

 

 

 

 

c. Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;


4. Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity;

 

 

5. Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;

 

 
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6. Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;

 

 

7. Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:


 

a. Any Federal or State securities or commodities law or regulation; or

 

 

 

 

b. Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or

 

 

 

 

c. Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or


8. Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29)), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

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.

 

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

  

 
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Shareholder Recommendations for Board Nominees

 

There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors.

 

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, 2016 and 2015, regardless of the compensation level, and (ii) each of our other executive officers, serving as an executive officer at any time during 2016 and 2015. 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, 2016 and 2015:

 

Name/

Principal

Position

 

Year

 

Salary
($)

 

Bonus
($)

 

Stock

Awards

($)

 

Incentive Plan Option Awards (Vested)

($)

 

Securities Underlying Options/SARs

($)

 

Nonqualified

Deferred

Compensation

Earnings

($)

 

All Other

Compensation
($)

 

Total
($)

 

Mark L. Kay

 

Chief Executive

 

2016

 

146,000

 

5,769

 

-

 

150,330

 

-

 

-

 

89,182

 

391,281

 

Officer

 

2015

 

101,231

 

-

 

-

 

-

 

-

 

-

 

-

 

101,231

 

 

George Waller

 

Executive

 

2016

 

146,000

 

5,769

 

-

 

150,330

 

-

 

-

 

77,086

 

379,185

 

Vice President

 

2015

 

105,000

 

-

 

-

 

-

 

-

 

-

 

-

 

105,000

 

 

Ramarao

 

Pemmeraju

 

Chief Technology

 

2016

 

146,000

 

5,769

 

150,330

 

-

 

-

 

65,572

 

367,671

 

Officer

 

2015

 

105,000

 

-

 

-

 

-

 

-

 

-

 

-

 

105,000

 

Effective January 25, 2016, the Board of Directors determined to increase the base salaries of our officers and employees, including our named executive officers, such that the new salaries are comparable to similarly situated companies. Consequently, the base salaries of Mark Kay, George Waller, and Ramarao Pemmaraju have been set at $150,000 per annum. Other employees were granted increases to between $105,000 and $125,000 per annum. Additionally, in January 2016, our officers received an aggregate total of $231,840 of accrued payroll and forgave an aggregate total of $762,275 of accrued payroll, from prior years' missed salaries, that we owed to them. We recorded the officers’ forgiveness of accrued payroll as a capital contribution in January 2016.

 

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 2016 or 2015.

 

 
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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, 2016 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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

-

 

 

$ 78,000,000

 

 

11/23/17

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

-

 

 

$ 300,000.00

 

 

12/12/17

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

-

 

 

$ 2,242,500

 

 

01/03/23

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

18,791,209

 

 

 

17,208,791

 

 

 

-

 

 

$ 0.00625

 

 

09/28/26

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

-

 

 

$ 2,242,500

 

 

01/03/23

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

18,791,209

 

 

 

17,208,791

 

 

 

-

 

 

$ 0.00625

 

 

09/28/26

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ramarao Pemmaraju

 

 

1

 

 

 

-

 

 

 

-

 

 

$ 195,000,000

 

 

05/25/17

 

 

- -

 

 

 

- -

 

 

 

- -

 

 

 

- -

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

146,250,000

 

 

06/08/17

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

-

 

 

$ 165,750,000

 

 

06/22/17

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

-

 

 

$ 78,000,000

 

 

11/23/17

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

-

 

 

$ 5,850,000

 

 

12/23/15

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

1

 

 

 

-

 

 

 

-

 

 

$ 2,242,500

 

 

01/03/23

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

18,791,209

 

 

 

17,208,791

 

 

 

-

 

 

$ 0.00625

 

 

09/28/26

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 
32
 
Table of Contents

  

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

George Waller

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ramarao Pemmaraju

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

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 2016.

 

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, 2016, 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:

 

 
33
 
Table of Contents

  

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

 

 

18,791,217 (3),(11)

 

 

0.7370 %

Ramarao Pemmaraju

 

 

30,274,732 (4),(5),(11)

 

 

1.1874 %

George Waller

 

 

18,791,211 (6),(7),(11)

 

 

0.7370 %

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

 

 

67,857,160 (8)

 

 

2.6615 %

NetLabs.com, Inc.

 

 

2 (9),(10)

 

 

0.00000008 %

________________

(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 2,319,683,886 shares of common stock outstanding as of December 31, 2016; also including 25 shares of common stock available upon the conversion of certain convertible loans, 33,876,016 shares of common stock available upon the conversion of Series B Preferred stock and 196,000,001 shares of common stock underlying options.

 

 

(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, 1 share of common stock underlying vested ten-year options valued at $2,242,500 per share and 18,791,209 shares of common stock underlying vested ten-year options valued at $0.00625 per share. 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 2 shares of common stock underlying vested ten-year options valued at $2,242,500 per share and 30,274,727 shares of common stock underlying vested ten-year options valued at $0.00625 per share. Of the total shares, 11,483,521 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, 1 share of common stock underlying vested ten-year options valued at $2,242,500 per share and 11,483,516 shares of common stock underlying vested ten-year options valued at $0.00625 per share, 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.

(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 1 share of common stock underlying vested ten-year options valued at $2,242,500 per share and 18,791,209 shares of common stock underlying vested ten-year options valued at $0.00625 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, 4 shares of common stock underlying vested ten-year options valued at $2,242,500 per share and 67,857,143 shares of common stock underlying vested ten-year options valued at $0.00625 per share. 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.

 

 
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Table of Contents

 

DESCRIPTION OF SECURITIES

 

Equity Incentive Plan Information

 

The following table sets forth as of December 31, 2016, 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

 

 

196,000,001

 

 

$ 0.00625

 

 

 

4,000,000

 

Equity compensation plans not approved by security holders

 

 

N/A

 

 

$ N/A

 

 

 

N/A

 

Total

 

 

196,000,001

 

 

$ 0.00625

 

 

 

4,000,000

 

 

Options for an aggregate of one share 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 originally granted at various times from March 2007 through December 2007 and are exercisable at a range of $78,000,000 to $365,625,000 per share. 

 

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 100,000,000.

 

The number of shares authorized for issuance under the Incentive Plan was increased to 200,000,000 in September 2016 by unanimous consent of the Board of Directors.  

 

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. In December 2016, the consultant processed an exercise of 1,000,000 stock option shares into 1,000,000 shares of our common stock, valued at $4,000, for a $500 payment, received in January 2017.  

 

In September 2016, we awarded options to purchase 196,000,000 shares of our common stock to our management team and employees, exercisable at $0.00625 per share, expiring ten (10) years from the date of grant and vesting over a six-month period. 

 

 
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Table of Contents

 

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.

 

On March 18, 2014, we effected a 1:1,500 reverse stock split of our issued and outstanding shares of common stock. On February 13, 2015, we effected a 1:650 reverse stock split of our issued and outstanding shares of common stock. On August 4, 2015, we effected a 1:1,000 reverse stock split of our issued and outstanding shares of common stock.

 

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.

 

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.

 

 
36
 
Table of Contents

 

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.

 

In September 2016, four holders of our Series B Preferred Stock converted 125,337 Series B Preferred Stock into 35,703,979 shares of our common stock at conversion prices ranging from $0.00383 to $0.00532 per share.

 

As of December 31, 2016, there were 50,001 shares of Series B Preferred Stock issued and outstanding, 16,667 of which convert to common shares at a 30% market discount and 33,334 of which convert to common shares at a 40% 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.

 

 
37
 
Table of Contents


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

 

At December 31, 2016 and 2015, convertible notes payable - related parties consist of 12 convertible notes payable in the aggregate of $355,500. The notes are unsecured and due December 31, 2017. Six notes totaling $268,000 are due to our Chief Executive Officer, at a compounded interest rate of 8% per annum; two notes totaling $57,000 are due to our VP of Technology, interest at prime plus 2% and prime plus 4% per annum; and four notes totaling $30,000 are due to the spouse of our Chief Technology Officer at a compounded interest rate of 8% per annum. $33,000 of the notes are convertible at the fixed conversion price of $7,312,500 per share and $322,500 of the notes are convertible at the fixed conversion price of $9,750,000,000 per share, as defined in the note agreements.

 

At December 31, 2014, accrued interest due for the convertible notes – related parties was $339,812. During the year ended December 31, 2015, interest expense of $51,189 was accrued and at December 31, 2015, accrued interest due for the convertible notes – related parties was $391,001. During the year ended December 31, 2016, interest expense of $55,721 was accrued, and $9,417 of accrued interest due a former officer was forgiven and written-off. At December 31, 2016, accrued interest due for the convertible notes – related parties was $437,305.

  

 
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Table of Contents

 

RELATED PARTY PROMISSORY NOTES

 

Notes payable - related party consist of 18 unsecured notes payable to our Chief Executive Officer ranging in interest rates of 0% per annum to 10% per annum. The notes have extended due dates of December 31, 2017 and all are shown as current liabilities. At December 31, 2016 and 2015, the balance of the outstanding notes payable - related party was $742,513 and $722,618, respectively.

 

At December 31, 2015, accrued interest due for the notes payable – related party was $548,653. During the year ended December 31, 2016, interest expense of $56,233 was accrued, and accrued interest of $13,102 owed to a former officer was forgiven and written-off. At December 31, 2016, accrued interest due for the notes payable – related party was $591,784. Interest expense for notes payable - related party for the year ended December 31, 2015 was $56,080.

  

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.

   

 
39
 
Table of Contents

 

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.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

Fees billed by Weinberg & Company, P.A. for the fiscal years ended December 31, 2016 and 2015 related to the Company’s audit services were approved by the Audit Committee and paid by the Company.

 

The following table shows the audit fees incurred for fiscal year 2016 and 2015:

 

 

 

2016

 

 

2015

 

Audit fees (1)

 

$ 67,500

 

 

$ 45,000

 

Audit related fees (2)

 

 

-

 

 

 

-

 

Tax fees (3)

 

 

-

 

 

 

-

 

Total

 

$ 67,500

 

 

$ 45,000

 

 

(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.

 

 
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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 2016 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 2016 fiscal year for filing with the SEC.

 

Pre-Approval Policies

 

The Board's policy is 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.

 

 
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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)

 

 
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Table of Contents

  

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 o (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)

____________

(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.

 

 
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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 


  STRIKEFORCE TECHNOLOGIES, INC.
       
Dated: April 14, 2017 By /s/ Mark L. Kay

 

 

Mark L. Kay  
    Chief Executive Officer  

 

 

 

 

Dated: April 14, 2017

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, 2017 

Name: Mark L. Kay

 

 

 

 

 

/s/ Ramarao Pemmaraju

Director 

April 14, 2017 

Name: Ramarao Pemmaraju

 

 

 

 

/s/ George Waller

Director

April 14, 2017 

Name: George Waller

 

 

 

 

 

44

 

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