The accompanying unaudited condensed interim financial statements have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders’ deficit in conformity with generally accepted accounting principles. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2016. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that can be expected for the year ending December 31, 2017.
Notes to the Financial Statements
(Unaudited)
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 three months ended March 31, 2017, the Company incurred a loss from operations of $1,096,259 and used cash in operating activities of $475,043, and at March 31, 2017, the Company had a stockholders’ deficit of $8,987,547. 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 March 31, 2017, the Company had cash on hand in the amount of $362,587. Management estimates that the current funds on hand will be sufficient to continue operations through the next three months. The Company’s ability to continue as a going concern is dependent upon its ability to continue to implement its business plan. Currently, management is attempting to increase revenues by redirecting its sales focus from direct sales to domestic and international sales channels, primarily selling through a channel of distributors, value added resellers, strategic partners and original equipment manufacturers. While the Company believes in the viability of its strategy to increase revenues, there can be no assurances to that effect. The Company’s ability to continue as a going concern is dependent upon its ability to continually increase its customer base and realize increased revenues from recently signed contracts. No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, if needed, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its stock holders, in the case of equity financing.
Basis of Presentation
-
Unaudited Interim Financial Information
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the rules and regulations of the United States Securities and Exchange Commission to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods have been included. The results of operations for the three months ended March 31, 2017 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2017. These financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2016 and notes thereto contained in the Annual Report on Form 10-K of the Company as filed with the United States Securities and Exchange Commission (“SEC”) on April 14, 2017.
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.
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 March 31, 2017 and December 31, 2016, the Company’s balance sheets included the fair value of derivative liabilities of $471,093 and $262,185, 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.
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 three months ended March 31, 2017, the dilutive impact of stock options exercisable into 196,000,001 shares of common stock, convertible Series B Preferred Stock that can convert into 7,964,162 shares of common stock, respectively, and notes payable that can convert into 25 shares of common stock, respectively, have been excluded because their impact on the loss per share is anti-dilutive. For the three months ended March 31, 2016, the calculations of diluted earnings per share included stock options and warrants exercisable into 340,024 shares of common stock calculated under the treasury method, and convertible Series B Preferred stock that can convert into 175,338 shares of common stock.
The following tables set forth the computation of basic and diluted earnings (loss) per share:
|
|
Three months ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Income (Loss) per share – Basic:
|
|
|
|
|
|
|
Income (Loss) for the period
|
|
$
|
(1,395,609
|
)
|
|
$
|
4,900,831
|
|
Basic average common stock outstanding
|
|
|
2,319,686,386
|
|
|
|
554,465,907
|
|
Net earnings (loss) per share
|
|
$
|
-
|
|
|
$
|
0.01
|
|
|
|
Three months ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Income (Loss) per share – Diluted:
|
|
|
|
|
|
|
Income (Loss) for the period
|
|
$
|
(1,395,609
|
)
|
|
$
|
4,900,831
|
|
Basic average common stock outstanding
|
|
|
2,319,686,386
|
|
|
|
554,465,907
|
|
Diluted effect of outstanding stock options, warrants, notes and Series B Preferred stock
|
|
|
-
|
|
|
|
515,362
|
|
Diluted average common stock outstanding
|
|
|
2,319,686,386
|
|
|
|
554,981,269
|
|
Net earnings (loss) per share
|
|
$
|
-
|
|
|
$
|
0.01
|
|
Significant Concentrations
For the three months ended March 31, 2017, sales to three customers comprised 44%, 21% and 18% of revenues, respectively. For the three months ended March 31, 2016, sales to three customers comprised 44%, 30% and 12% of revenues, respectively. At March 31, 2017, two customers comprised 68% and 13% of accounts receivable, respectively. At December 31, 2016, one customer comprised 82% of accounts receivable. At March 31, 2016, two customers comprised 51%, and 25% of accounts receivable, respectively
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, ASU 2016-20, and ASU 2017-05, all of which clarify certain implementation guidance within ASU 2014-09. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. The standard can be adopted either retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company is currently in the process of analyzing the information necessary to determine the impact of adopting this new guidance on its financial position, results of operations, and cash flows. The Company will adopt the provisions of this statement in the first quarter of fiscal 2018.
In February 2016, the FASB issued ASU No. 2016-02, Leases. This update will require the recognition of a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease payments, for all leases with terms longer than 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the statement of comprehensive income and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. Upon adoption, leases will be recognized and measured at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the impact of the adoption of ASU 2016-02 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 - Convertible Notes Payable
Convertible notes payable consisted of the following:
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Secured
|
|
|
|
|
|
|
(a) DART
|
|
$
|
542,588
|
|
|
$
|
542,588
|
|
|
|
|
|
|
|
|
|
|
Unsecured
|
|
|
|
|
|
|
|
|
(b) Convertible notes with fixed conversion features
|
|
|
898,012
|
|
|
|
910,512
|
|
Total convertible notes
|
|
$
|
1,440,600
|
|
|
$
|
1,447,100
|
|
(a)
|
At March 31, 2017 and December 31, 2016, $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 6). DART/Citco Global did not process any conversions of notes into shares of common stock during the three months ended March 31, 2017 or in fiscal 2016. 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 the three months ended March 31, 2017 or in fiscal 2016, 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 three months ended March 31, 2017, there were no additional notes issued and the Company repaid $6,500 of note principal.
|
|
|
|
At December 31, 2016, the balance of the accrued interest on the fixed convertible notes was $936,639. During the three months ended March 31, 2017, interest expense of $19,644 was accrued. At March 31, 2017, the balance of accrued interest on the fixed convertible notes was $956,283. During the three months ended March 31, 2016, interest expense of $20,082 was recorded.
|
Note 3 - Convertible Notes Payable – Related Parties
At March 31, 2017 and December 31, 2016, 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 a fixed conversion price of $7,312,500 per share and $322,500 of the notes are convertible at a fixed conversion price of $9,750,000,000 per share, as defined in the note agreements.
At December 31, 2016, accrued interest due for the convertible notes – related parties was $437,305. During the three months ended March 31, 2017, interest expense of $14,504 was accrued. At March 31, 2017, accrued interest due for the convertible notes – related parties was $451,809. During the three months ended March 31, 2016, interest expense of $13,447 was recorded.
Note 4 - Notes Payable
Notes payable consisted of the following:
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
Unsecured
|
|
|
|
|
|
|
(a) Promissory notes
|
|
$
|
413,824
|
|
|
$
|
413,824
|
|
(b) Promissory notes – StrikeForce Investor Group
|
|
|
1,250,000
|
|
|
|
1,290,000
|
|
Notes payable, current maturities
|
|
$
|
1,663,824
|
|
|
$
|
1,703,824
|
|
(a)
|
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 March 31, 2017 and December 31, 2016, the balance due under these notes was $413,824.
|
|
|
|
At December 31, 2016, the balance of the accrued interest on the notes payable-various was $414,342. During the three months ended March 31, 2017, $11,233 of interest expense was accrued. At March 31, 2017, accrued interest on the notes payable was $425,575. During the three months ended March 31, 2016, $14,160 of interest expense was recorded.
|
|
|
(b)
|
Notes payable to StrikeForce Investor Group (SIG), made up of various investors with unsecured notes, interest at 10% per annum, originally due in 2011, and currently in default. The Company is currently pursuing extensions on the delinquent notes. At December 31, 2016, the balance of notes payable-SIG was $1,290,000. During the three months ended March 31, 2017, the Company repaid $40,000 of principal and at March 31, 2017, the balance of notes payable-SIG was $1,250,000.
|
|
|
|
At December 31, 2016, the balance of the accrued interest on the notes payable-SIG was $1,425,087. During the three months ended March 31, 2017, $31,249 of interest expense was accrued, and $71,639 of accrued interest was paid. At March 31, 2017, accrued interest on the notes payable-SIG was $1,384,697. During the three months ended March 31, 2016, $36,400 of interest expense was recorded.
|
At March 31, 2017 and December 31, 2016, accrued interest due for all notes payable above was $1,810,272 and $1,839,429, respectively, and is included in accrued interest in the accompanying balance sheets. Interest expense for notes payable for the three months ended March 31, 2017 and 2016 was $42,482 and $50,561, respectively.
Note 5 - 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 are unsecured and have extended due dates of December 31, 2017. At March 31, 2017 and December 31, 2016, the balance due under these notes $742,513.
At December 31, 2016, accrued interest due for the notes payable – related party was $591,784. During the three months ended March 31, 2017, interest expense of $13,828 was accrued. At March 31, 2017, accrued interest due for the notes payable – related party was $605,612. During the three months ended March 31, 2016, interest expense of $13,828 was recorded.
Note 6 - 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 2) 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, 2016, the balance of the derivative liabilities was $262,185. During the three months ended March 31, 2017, the Company recorded a change in fair value of derivatives of $208,908. At March 31, 2017, the balance of the derivative liabilities was $471,093.
The derivative liability was valued at the following dates using a probability weighted Black-Scholes-Merton model with the following assumptions:
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Conversion feature:
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
0.16
|
%
|
|
|
0.16
|
%
|
Expected volatility
|
|
|
168
|
%
|
|
|
75
|
%
|
Expected life (in years)
|
|
|
1year
|
|
|
|
1year
|
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Fair Value:
|
|
|
|
|
|
|
|
|
Conversion feature
|
|
$
|
471,093
|
|
|
$
|
262,185
|
|
The risk-free interest rate was based on rates established by the Federal Reserve Bank. The expected volatility is based on the historical volatility of the Company’s stock. The expected life of the conversion feature of the notes was based on the remaining terms of the related notes. The expected dividend yield was based on the fact that the Company has not customarily paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future.
Note 7 - Stockholders’ Deficit
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.
Series B Preferred Stock
The Series B Preferred Stock has preferential liquidation rights in the event of any liquidation, dissolution or winding up of the Company, such liquidation rights to be paid from the assets of the Company not delegated to parties with greater priority at $1.00 per share or, in the event an aggregate subscription by a single subscriber of the Series B Preferred Stock is greater than $100,000,000, $0.997 per share. The Series B Preferred Stock shall be convertible to a number 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 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. For the three months ended March 31, 2017, the Company recorded a beneficial conversion feature expense of $17,778 relating to the issuance of the Series B Preferred Stock.
Common Stock
During the three months ended March 31, 2017, the Company issued an aggregate of 7,500 shares of its common stock for services valued at $236.
During the three months ended March 31, 2016, the Company issued an aggregate of 1,792,243,141 shares of its common stock as follows:
|
·
|
Convertible note holders converted $143,123 of principal, $37,968 of accrued interest and $239,153 of additional interest into 1,792,235,641 shares of common stock at conversion prices ranging from $0.000058 to $0.0008 per share.
|
|
·
|
The Company issued 7,500 shares of common stock for services, valued at $14.
|
Note 8 - Options
In September 2016, the Company issued options to purchase 196,000,000 shares of its common stock to its management team and employees with a total fair value of $1,568,000 determined using the Black-Scholes Option Pricing model. The options are exercisable at $0.00625 per share, vest in 6 months, and expire in September 2026. During the three months ended March 31, 2017, the Company recognized compensation costs of $749,538 based on the fair value of options that vested.
The table below summarizes the Company’s 2004 Incentive Plan and 2012 Stock Incentive Plan activities for the period January 1, 2017 to March 31, 2017:
|
|
Number of
Options Shares
|
|
|
Exercise Price
Range Per Share
|
|
|
Weighted Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2017
|
|
|
196,000,001
|
|
|
$
|
0.0023-975,000,000
|
|
|
$
|
0.00625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2017
|
|
|
196,000,001
|
|
|
$
|
0.0023-975,000,000
|
|
|
$
|
0.00625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable, March 31, 2017
|
|
|
196,000,001
|
|
|
$
|
0.0023-975,000,000
|
|
|
$
|
0.00625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested, March 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
As of March 31, 2017, 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 March 31, 2017 and December 31, 2016, the intrinsic value of outstanding options was zero.
The following table summarizes information concerning 2004 Incentive plan and 2012 Stock Incentive Plan as of March 31, 2017:
|
|
|
|
|
|
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
|
|
|
|
196,000,000
|
|
|
|
10.00
|
|
|
$
|
0.00625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
0.00625 - 975,000,000
|
|
|
|
196,000,001
|
|
|
|
10.00
|
|
|
$
|
0.00625
|
|
|
|
196,000,001
|
|
|
|
10.00
|
|
|
$
|
0.00625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9 - Other Income
In 2013 the Company initiated patent litigation against an outside party. Mediation took place in 2015 and in January, 2016, the parties reached a settlement in the matter. As part of the settlement, the Company received $9,750,000 and incurred fees related to the settlement of $4,187,257.
Note 10 - 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 lease payments under the non-cancelable lease at March 31, 2017 are as follows:
Years ending December 31,
|
|
Amount
|
|
2017
|
|
$
|
37,714
|
|
2018
|
|
|
51,661
|
|
2019
|
|
|
4,316
|
|
Total
|
|
$
|
93,691
|
|
For the three months ended March 31, 2017 and 2016, rent expense was $12,448 and $11,941, 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® and MobileTrust® 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.
Cyber Safety has the option to buy the Company’s GuardedID® patent for $9,000,000 that expires on September 30, 2020. At March 31, 2017, 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® and MobileTrust® products, for which the Company will receive a royalty, while the Company retains an unlimited license to resell those products. Cyber Safety also licensed the Malware Suite until September 30, 2020 and agreed to pay the Company 15% to 20% of the net amount Cyber Safety receives from this product. Dering the three months ended March 31, 2017 and 2016, the Company did not receive any royalty or license payments from Cyber Safety.
Legal Proceedings
On June 20, 2016, the Company initiated additional patent litigation against three major competitors in the U.S. 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) (a procedure for challenging the validity of a United States patent before the United States Patent and Trademark Office) 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 March 31, 2017, and December 31, 2016 the balance due to the factor was $209,192 including interest.