UNITED STATES

SECURITIES EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

 

 

For the quarterly period ended September 30, 2022

 

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

 

 

 

For the transition period from _________ to _________

 

ZERIFY, 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(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, $0.0001 par value

 

 ZRFY

 

OTCQB

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes     No ☒

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No ☐

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b–2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated Filer

Smaller reporting company

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

 

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

 

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

 

Class

 

Outstanding at November 14, 2022

Common stock, $0.0001 par value

 

1,064,942,572

 

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

 

Class

 

Outstanding at November 14, 2022

Preferred stock, Series A, no par value

 

3

 

Class

 

Outstanding at November 14, 2022

Preferred stock, Series B, $0.10 par value

 

36,667

 

Transitional Small Business Disclosure Format Yes ☐     No ☒

 

Documents Incorporated By Reference

None

 

 

 

 

ZERIFY, INC.

 

INDEX TO FORM 10-Q FILING

September 30, 2022

 

TABLE OF CONTENTS

   

PART I

Financial Information

 

Page

Number

 

 

 

 

Item 1.

Financial Information

 

F-1

 

 

 

 

 

Condensed Consolidated Balance Sheets at September 30, 2022 (unaudited) and December 31, 2021

 

F-1

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Nine months ended September 30, 2022 and 2021 (unaudited)

 

F-2

 

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the Three and Nine months ended September 30, 2022 and 2021 (unaudited)

 

F-3

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine months ended September 30, 2022 and 2021 (unaudited)

 

F-5

 

 

 

 

 

Notes to the Condensed Consolidated Financial Statements for the Nine months ended September 30, 2022 and 2021 (unaudited)

 

F-6

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

3

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

8

 

 

 

 

Item 4.

Controls and Procedures

 

8

 

 

 

 

PART II

Other Information

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

10

 

 

 

 

Item 1A.

Risk Factors 

 

10

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

11

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

11

 

 

 

 

Item 4.

Mine Safety Disclosures

 

11

 

 

 

 

Item 5.

Other Information

 

11

 

 

 

 

Item 6.

Exhibits

 

12

 

 

 

 

SIGNATURES

 

14

 

 

 

 

EX-31.1

Management Certification

 

 

 

 

 

 

EX-32.1

Sarbanes-Oxley Act

 

 

        

 
2

Table of Contents

    

PART I

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

ZERIFY, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

September 30,

2022

 

 

December 31,

2021

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash (includes VIE balances of $1,000 and $1,000, respectively)

 

$263,000

 

 

$2,084,000

 

Accounts receivable, net

 

 

14,000

 

 

 

24,000

 

Prepaid expenses

 

 

4,000

 

 

 

13,000

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

281,000

 

 

 

2,121,000

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

37,000

 

 

 

-

 

Operating lease right-of-use asset

 

 

67,000

 

 

 

107,000

 

Other assets

 

 

11,000

 

 

 

12,000

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$396,000

 

 

$2,240,000

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses (includes VIE balances of $2,000 and $2,000, respectively)

 

$1,087,000

 

 

$996,000

 

Convertible notes payable (including $895,000 and $895,000 in default)

 

 

1,308,000

 

 

 

1,398,000

 

Convertible notes payable - related parties

 

 

268,000

 

 

 

268,000

 

Notes payable (including $1,930,000 and $1,972,000 in default, respectively) (includes VIE balances of $285,000 and $310,000, respectively)

 

 

2,105,000

 

 

 

1,972,000

 

 

 

 

 

 

 

 

 

 

Notes payable - related parties

 

 

693,000

 

 

 

693,000

 

Accrued interest (including $1,557,000 and $1,497,000 due to related parties, respectively) (includes VIE balances of $125,000 and $120,000, respectively)

 

 

5,787,000

 

 

 

5,477,000

 

 

 

 

 

 

 

 

 

 

Contingent payment obligation

 

 

1,500,000

 

 

 

1,500,000

 

VIE Financing obligation

 

 

1,263,000

 

 

 

1,263,000

 

Operating lease liability, current portion

 

 

56,000

 

 

 

39,000

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

14,067,000

 

 

 

13,606,000

 

 

 

 

 

 

 

 

 

 

Notes payable, long-term portion

 

 

226,000

 

 

 

150,000

 

Operating lease liability, long-term portion

 

 

15,000

 

 

 

73,000

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

14,308,000

 

 

 

13,829,000

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Deficit

 

 

 

 

 

 

 

 

Series A Preferred stock, no par value; 100 shares authorized; 3 shares issued and outstanding

 

 

987,000

 

 

 

987,000

 

Series B Preferred stock par value $0.10: 100,000,000 shares authorized; 36,667 shares issued and outstanding

 

 

4,000

 

 

 

4,000

 

Preferred stock series not designated par value $0.10: 10,000,000 shares authorized; none issued or outstanding

 

 

-

 

 

 

-

 

Common stock par value $0.0001: 4,000,000,000 shares authorized; 1,059,942,572 and 955,380,225 shares issued and outstanding, respectively

 

 

106,000

 

 

 

96,000

 

Additional paid-in capital

 

 

64,435,000

 

 

 

59,788,000

 

Accumulated deficit

 

 

(78,559,000)

 

 

(71,595,000)

Total Zerify, Inc. stockholders' deficit

 

 

(13,027,000)

 

 

(10,720,000)

Noncontrolling interest in consolidated subsidiary

 

 

(885,000)

 

 

(869,000)

 

 

 

 

 

 

 

 

 

Total Stockholders' Deficit

 

 

(13,912,000)

 

 

(11,589,000)

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders' Deficit

 

$396,000

 

 

$2,240,000

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 
F-1

Table of Contents

 

ZERIFY, INC.

 

 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

September 30,

2022

 

 

September 30,

2021

 

 

September 30,

2022

 

 

September 30,

2021

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$22,000

 

 

$40,000

 

 

$78,000

 

 

$153,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

11,000

 

 

 

7,000

 

 

 

33,000

 

 

 

18,000

 

Selling, general and administrative expenses

 

 

1,137,000

 

 

 

672,000

 

 

 

6,224,000

 

 

 

8,120,000

 

Research and development

 

 

135,000

 

 

 

112,000

 

 

 

447,000

 

 

 

386,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

1,283,000

 

 

 

791,000

 

 

 

6,704,000

 

 

 

8,524,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(1,261,000 )

 

 

(751,000 )

 

 

(6,626,000 )

 

 

(8,371,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest  and financing expenses (including $92,000 and $91,000 to related parties, respectively)

 

 

12,000

 

 

 

(102,000 )

 

 

(352,000 )

 

 

(6,913,000 )

Debt discount amortization

 

 

-

 

 

 

 -

 

 

 

-

 

 

 

(52,000 )

Change in fair value of derivative liabilities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(219,000 )

Loss on extinguishment of debt, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(286,000 )

Other expense

 

 

(1,000 )

 

 

 

 

 

 

(2,000 )

 

 

(1,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other expense, net

 

 

11,000

 

 

 

(102,000 )

 

 

(354,000 )

 

 

(7,471,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(1,250,000 )

 

 

(853,000 )

 

 

(6,980,000 )

 

 

(15,842,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interest

 

 

3,000

 

 

 

20,000

 

 

 

16,000

 

 

 

37,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to Zerify, Inc.

 

$(1,247,000 )

 

$(833,000 )

 

$(6,964,000 )

 

$(15,805,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-Basic and diluted

 

$(0.00 )

 

$(0.00 )

 

$(0.01 )

 

$(0.02 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding -Basic and diluted

 

 

1,039,538,614

 

 

 

894,767,114

 

 

 

993,424,764

 

 

 

840,258,105

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 
F-2

Table of Contents

  

ZERIFY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (Unaudited)

  

Three months ended September 30, 2022

 

 

 

Series A Preferred

stock, no

 

 

Series B Preferred

stock, par

 

 

Common stock, par value

 

 

Additional

 

 

 

 

 

Non

 

 

Total

 

 

 

par value

 

 

value $0.10

 

 

$0.0001

 

 

Paid-in

 

 

Accumulated

 

 

controlling

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Interest

 

 

Deficit

 

Balance at July 1, 2022

 

 

3

 

 

$987,000

 

 

 

36,667

 

 

$4,000

 

 

 

1,013,111,161

 

 

$101,000

 

 

$63,850,000

 

 

$(77,312,000)

 

$(882,000)

 

$(13,252,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued upon exercise of warrants for cash

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50,000,000

 

 

 

5,000

 

 

 

495,000

 

 

 

 

 

 

 

 

 

 

 

500,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of

warrants granted for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

63,000

 

 

 

-

 

 

 

-

 

 

 

63,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of common stock issued for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13,000,000

 

 

 

2,000

 

 

 

190,000

 

 

 

-

 

 

 

-

 

 

 

192,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase of common stock and warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(16,168,589)

 

 

(2,000)

 

 

(163,000)

 

 

-

 

 

 

-

 

 

 

(165,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,247,000)

 

 

(3,000)

 

 

(1,250,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2022 (unaudited)

 

 

3

 

 

$987,000

 

 

 

36,667

 

 

$4,000

 

 

 

1,059,942,572

 

 

$106,000

 

 

$64,435,000

 

 

$(78,559,000)

 

$(885,000)

 

$(13,912,000)

 

Nine months ended September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A Preferred stock, no

 

 

Series B Preferred stock, par

 

 

Common stock, par value

 

 

Additional

 

 

 

 

 

Non

 

 

Total

 

 

 

per value

 

 

value $0.10

 

 

$0.0001

 

 

Paid-in

 

 

Accumulated

 

 

controlling

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Interest

 

 

Deficit

 

Balance at January 1, 2022

 

 

3

 

 

$987,000

 

 

 

36,667

 

 

$4,000

 

 

 

955,380,225

 

 

$96,000

 

 

$59,788,000

 

 

$(71,595,000)

 

$(869,000)

 

$(11,589,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued upon exercise of warrants  for cash

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

100,000,000

 

 

 

10,000

 

 

 

1,430,000

 

 

 

-

 

 

 

-

 

 

 

1,440,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of  warrants granted for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

63,000

 

 

 

-

 

 

 

-

 

 

 

63,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of common stock issued for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

20,730,936

 

 

 

2,000

 

 

 

358,000

 

 

 

 

 

 

 

 

 

 

 

360,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of vested options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,959,000

 

 

 

 

 

 

 

 

 

 

 

2,959,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase of common stock and warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(16,168,589)

 

 

(2,000)

 

 

(163,000)

 

 

 

 

 

 

 

 

 

 

(165,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,964,000)

 

 

(16,000)

 

 

(6,980,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2022 (unaudited)

 

 

3

 

 

$987,000

 

 

 

36,667

 

 

$4,000

 

 

 

1,059,942,572

 

 

$106,000

 

 

$64,435,000

 

 

 

(78,559,000)

 

$(885,000)

 

$(13,912,000)

 

See accompanying notes to the condensed consolidated financial statements.

 

 
F-3

Table of Contents

 

ZERIFY, INC.

(formerly known as StrikeForce Technologies, Inc.)

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (Unaudited)

  

Three months ended September 30, 2021

 

 

 

Series A Preferred

stock,

 

 

Series B Preferred

stock, par

 

 

Common stock, par value

 

 

Additional

 

 

 

 

 

Non

 

 

Total

 

 

 

no par value

 

 

value $0.10

 

 

$0.0001

 

 

Paid-in

 

 

Accumulated

 

 

controlling

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Interest

 

 

Deficit

 

Balance at July 1, 2021

 

 

3

 

 

$987,000

 

 

 

36,667

 

 

$4,000

 

 

 

876,169,478

 

 

$88,000

 

 

$56,701,000

 

 

$(69,368,000)

 

$(840,000)

 

$(12,428,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

53,800,000

 

 

 

5,000

 

 

 

2,596,000

 

 

 

-

 

 

 

-

 

 

 

2,601,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of common stock issued for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

179,839

 

 

 

-

 

 

 

9,000

 

 

 

-

 

 

 

-

 

 

 

9,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued upon cashless exercise of options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

22,747,320

 

 

 

2,000

 

 

 

1,000

 

 

 

-

 

 

 

-

 

 

 

3,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(833,000)

 

 

(20,000)

 

 

(853,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2021 (unaudited)

 

 

3

 

 

$987,000

 

 

 

36,667

 

 

$4,000

 

 

 

952,896,637

 

 

$95,000

 

 

$59,307,000

 

 

$(70,201,000)

 

$(860,000)

 

$(10,668,000)

 

 

 

Nine months ended September 30, 2021

 

 

Series A Preferred stock, no par value

 

 

Series B Preferred stock, par value $0.10

 

 

Common stock,

par value $0.0001

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Noncontrolling

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Interest

 

 

Deficit

 

Balance at January 1, 2021

 

 

3

 

 

$987,000

 

 

 

36,667

 

 

$4,000

 

 

 

718,263,338

 

 

$72,000

 

 

$39,814,000

 

 

$(54,396,000)

 

$(823,000)

 

$(14,342,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

119,666,450

 

 

 

12,000

 

 

 

5,356,000

 

 

 

-

 

 

 

-

 

 

 

5,368,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of common stock issued for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

881,550

 

 

 

-

 

 

 

66,000

 

 

 

-

 

 

 

-

 

 

 

66,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of vested options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,387,000

 

 

 

-

 

 

 

-

 

 

 

6,387,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of common stock issued as a financing cost

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

45,150,500

 

 

 

5,000

 

 

 

6,564,000

 

 

 

-

 

 

 

-

 

 

 

6,569,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued upon cashless exercise of warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

12,349,726

 

 

 

1,000

 

 

 

(1,000)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued upon cashless exercise of options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

39,955,655

 

 

 

3,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued upon conversion of notes and accrued interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

16,168,589

 

 

 

2,000

 

 

 

1,033,000

 

 

 

-

 

 

 

-

 

 

 

1,035,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued upon conversion of debt settlement

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

460,829

 

 

 

-

 

 

 

88,000

 

 

 

-

 

 

 

-

 

 

 

88,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(15,805,000)

 

 

(37,000)

 

 

(15,842,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2021 (unaudited)

 

 

3

 

 

$987,000

 

 

 

36,667

 

 

$4,000

 

 

 

952,896,637

 

 

$95,000

 

 

$59,307,000

 

 

$(70,201,000)

 

$(860,000)

 

$(10,668,000)

 

See accompanying notes to the condensed consolidated financial statements.

 

 
F-4

Table of Contents

  

ZERIFY, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

 

For the

Nine Months

 

 

For the

Nine Months

 

 

 

Ended

 

 

Ended

 

 

 

September 30,

2022

 

 

September 30,

2021

 

 

 

(Unaudited)

 

 

(Unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$(6,980,000 )

 

$(15,842,000 )

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,000

 

 

 

4,000

 

Amortization of discount

 

 

-

 

 

 

52,000

 

Amortization of right-of-use asset

 

 

40,000

 

 

 

38,000

 

Fair value of common stock issued for services

 

 

360,000

 

 

 

69,000

 

Fair value of vested options and warrants

 

 

3,022,000

 

 

 

6,387,000

 

Fair value of common stock issued for financing services

 

 

-

 

 

 

6,569,000

 

Change in fair value of derivative liabilities

 

 

-

 

 

 

219,000

 

Loss on extinguishment of debt, net

 

 

-

 

 

 

286,000

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

10,000

 

 

 

8,000

 

Prepaid expenses and other asset

 

 

10,000

 

 

 

10,000

 

Accounts payable and accrued expenses

 

 

92,000

 

 

 

19,000

 

Accrued interest

 

 

310,000

 

 

 

205,000

 

Operating lease liability

 

 

(41,000 )

 

 

(38,000 )

Net cash used in operating activities

 

 

(3,175,000 )

 

 

(2,014,000 )

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(39,000 )

 

 

-

 

Net cash used in investing activities

 

 

(39,000 )

 

 

-

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

1,440,000

 

 

 

5,368,000

 

Proceeds from notes payable

 

 

275,000

 

 

 

177,000

 

Repayment of notes payable

 

 

(67,000 )

 

 

(224,000 )

Repayment of convertible note payable

 

 

(90,000 )

 

 

-

 

Repayment of convertible notes payable-related parties

 

 

-

 

 

 

(30,000 )

Repurchase of common stock and warrants

 

 

(165,000 )

 

 

-

 

Repayment of notes payable-related parties

 

 

-

 

 

 

(259,000 )

Net cash provided by financing activities

 

 

1,393,000

 

 

 

5,032,000

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

(1,821,000 )

 

 

3,018,000

 

 

 

 

 

 

 

 

 

 

Cash at beginning of the period

 

 

2,084,000

 

 

 

162,000

 

 

 

 

 

 

 

 

 

 

Cash at end of the period

 

$263,000

 

 

$3,180,000

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$42,000

 

 

$113,000

 

Income tax paid

 

$-

 

 

$-

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing transactions

 

 

 

 

 

 

-

 

Common stock issued for conversion of notes and accrued interest

 

$-

 

 

$1,035,000

 

Common stock issued upon conversion of debt settlement

 

$-

 

 

$88,000

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 
F-5

Table of Contents

    

Zerify, Inc.

Notes to the Condensed Consolidated Financial Statements

Three  and Nine months ended September 30, 2022 and 2021

 

Note 1 - Organization and Summary of Significant Accounting Policies

 

Zerify, Inc. (formerly known as StrikeForce Technologies, Inc.) (the “Company”) is a software development and services company that offers a suite of integrated computer network security products using proprietary technology. The Company’s operations are based in Edison, New Jersey.

 

On April 26, 2022, the Company applied for the Zerify trademark. ZERIFY™ which is intended to cover the categories of downloadable or recorded computer software for encryption; downloadable or recorded computer software for cyber security assessment and protection; anti-spyware software; downloadable or recorded computer application software for mobile devices, namely, software for protecting people from identity theft; downloadable or recorded computer software for guarding users of computers and remote access devices from identity theft, featuring various software tools, namely, anti-keyboard logger and keyboard stroke encryption.

 

On June 14, 2022, the Board of Directors and holders of a majority of the voting power approved a resolution to change the Company’s name from StrikeForce Technologies, Inc. to Zerify, Inc. The Board of Directors believes that the name change will better reflect the business plans of the Company reflected in the current cyber security software products and in the name Zerify which emphasizes the Company’s mission to ensure Zero-Trust for the most secure collaborative communications and that every participant is verified prior to entering a video conference. 

 

On August 1, 2022, pursuant to the approval from FINRA, our Common Stock is now quoted on the OTCQB Market under the symbol “ZRFY” (formerly “SFOR”).

 

Basis of presentation and principles of consolidation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods have been included. The results of operations for the nine months ended September 30, 2022 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2022. These financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2021 and notes thereto contained in the Annual Report on Form 10-K of the Company as filed with the SEC on April 14, 2022 (and amended for non-financial matters on July 18, 2022).

 

The condensed consolidated financial statements include the accounts of the Company and its subsidiary, BlockSafe Technologies, Inc. (“BST”).  BST is owned 49% by the Company and 31% by three executive officers of the Company. BST meets the definition of a variable interest entity (“VIE”) and based on the determination that the Company is the primary beneficiary of BST. BST’s operating results, assets and liabilities are consolidated by the Company. Intercompany balances and transactions have been eliminated in consolidation.

 

 
F-6

Table of Contents

 

At September 30, 2022, noncontrolling interests represents 51% of BST that the Company does not directly own. The Company and BST have a management agreement pursuant to which BST shall remit a management fee of $36,000 per month to the Company, and when BST reaches a milestone of $1,000,000 in financing, an additional management fee of $5,000,000 shall be owed to the Company, payable monthly over three years. The management fee is eliminated in consolidation. At September 30, 2022 and December 31, 2021, the amount of VIE cash on the accompanying condensed consolidated balance sheets can be used only to settle obligations of BST, and the amounts of VIE accounts payable, VIE Notes Payable, VIE Accrued Interest, and VIE Financing Obligation have no recourse to the general creditors of the Company.

 

Going Concern

 

We have yet to establish any history of profitable operations. During the nine months ended September 30, 2022, the Company incurred a net loss of $6,980,000 and used cash in operating activities of $3,175,000 and at September 30, 2022, the Company had a stockholders’ deficit of $13,912,000. In addition, we are in default on notes payable and convertible notes payable in the aggregate amount of $2,829,000. These factors raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. In addition, the Company’s independent registered public accounting firm, in its report published on our December 31, 2021 year-end financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments that might result from the outcome of this uncertainty should we be unable to continue as a going concern.

  

Management estimates that the current funds on hand will be sufficient to continue operations through the next six months. Our ability to continue as a going concern is dependent upon our ability to continue to implement our business plan. Currently, management is attempting to increase revenues by selling through a channel of distributors, value added resellers, strategic partners and original equipment manufacturers. While we believe in the viability of its strategy to increase revenues, there can be no assurances to that effect. Our ability to continue as a going concern is dependent upon our ability to increase our customer base and realize increased revenues. No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, if needed, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.

 

COVID-19

 

In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, has adversely affected workforces, customers, economies, and financial markets globally. It has also disrupted the normal operations of many businesses. This outbreak could decrease spending, adversely affect demand for the Company’s products, and harm the Company’s business and results of operations.

 

During the Nine months ended September 30, 2022 and the year ended December 31, 2021, the Company believes the COVID-19 pandemic did impact its operating results. For the Nine months ended September 30, 2022 and the year ended December 31, 2021, sales to customers decreased by 55% respectively, as compared to the prior year. However, the Company has not observed any impairments of its assets or a significant change in the fair value of its assets due to the COVID-19 pandemic. At this time, it is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations, financial condition, or liquidity.

 

 
F-7

Table of Contents

  

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, and other factors that management believes to be reasonable. In addition, the Company has considered the potential impact of the pandemic, as well as certain macroeconomic factors, including inflation, rising interest rates, and recessionary concerns, on its business and operations.

 

Significant estimates include those related to accounting for financing obligations, assumptions used in valuing equity instruments issued for services, assumptions used in valuing derivative liabilities, the valuation allowance for deferred tax assets, and the accrual of potential liabilities. Actual results could differ from those estimates.

 

Revenue Recognition

 

The Company follows the guidance of Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients.

 

The Company’s revenue consists of revenue from sales and support of our software products. Revenue primarily consists of sales of software licenses of our ProtectID®, GuardedID®, MobileTrust® and SafeVchat™ products. The Company recognizes subscription revenue over a one-month period based on a typical monthly renewal cycle in accordance with its customer agreement terms. For service contracts, the Company’s performance obligations are satisfied, and the related revenue is recognized, as services are rendered.

 

The Company offers no discounts, rebates, rights of return, or other allowances to clients which would result in the establishment of reserves against service revenue. Additionally, to date, the Company has not incurred incremental costs in obtaining customer contracts.

 

Cost of revenue includes direct costs and fees related to the sale of our products.

 

The following tables present our revenue disaggregated by major product and service lines:

 

 

 

Three months ended

 

 

 

September 30,

2022

 

 

September 30,

2021

 

Software

 

$

22,000

 

 

$

39,000

 

Service

 

 

-

 

 

 

1,000

 

Total revenue

 

$

22,000

 

 

$

40,000

 

 

 

 

Nine months ended

 

 

 

September 30,

2022

 

 

September 30,

2021

 

Software

 

$

78,000

 

 

$

148,000

 

Service

 

 

-

 

 

 

5,000

 

Total revenue

 

$

78,000

 

 

$

153,000

 

 

Fair Value of Financial Instruments

 

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

 

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

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

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

 

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

 

The Company believes the carrying amounts reported in the balance sheet for accounts receivable, accounts payable, accrued expenses, convertible notes, and notes payables approximate fair values because of the short-term nature of these financial instruments.

 

 
F-8

Table of Contents

    

Derivative Financial Instruments

 

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The Company evaluates embedded conversion features within its convertible debt to determine whether the embedded conversion features should be bifurcated from the host instrument and accounted for as a derivative. The fair value of the embedded derivatives are determined using the trinomial/binomial valuation method at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. All outstanding derivative financial instruments were extinguished during fiscal year 2021.

 

Stock-Based Compensation

 

The Company periodically issues stock options, warrants, and shares of common stock as share-based compensation to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for such grants issued and vesting based on FASB ASC 718, Compensation – Stock Compensation (Topic 718) whereby the value of the award is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. The Company recognizes the fair value of stock-based compensation within its Statements of Operations with classification depending on the nature of the services rendered. 

 

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

 

Loss per Share

 

Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Dilutive potential shares of common stock consist of incremental shares of common stock issuable upon exercise or conversion. Diluted loss per share excludes all potential common shares if their effect is anti-dilutive. The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive:

  

 

 

Nine months ended

 

 

 

September 30,

2022

 

 

September 30,

2021

 

Options to purchase common stock

 

 

83,133,001

 

 

 

15,633,001

 

Warrants to purchase common stock

 

 

21,375,757

 

 

 

68,981,234

 

Convertible notes

 

 

21

 

 

 

21

 

Convertible Series B Preferred stock

 

 

5,047,667

 

 

 

608,886

 

Total

 

 

109,556,446

 

 

 

85,223,142

 

 

Concentrations

 

For the Nine months ended September 30, 2022, sales to two customers comprised 37% and 32% of revenues. For the Nine months ended September 30, 2021, sales to three customers comprised 35%, 14% and 16% of revenues. At September 30, 2022, two customers comprised 59% and 16% of accounts receivable.

 

The Company maintains the majority of its cash balances with one financial institution, in the form of demand deposits. At September 30, 2022, the Company had cash deposits that exceeded the federally insured limit of $250,000 per account. The Company believes that no significant concentration of credit risk exists with respect to its cash balances because of its assessment of the creditworthiness and financial viability of the financial institution.

 

Segments

 

The Company operates in one segment for the development and distribution of our software products. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base, single sales team, marketing department, customer service department, operations department, finance and accounting department to support its operations and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing and distribution processes. Since the Company operates in one segment, all financial information required by “Segment Reporting” can be found in the accompanying financial statements.

 

 
F-9

Table of Contents

    

Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC 326”). The standard significantly changes how entities will measure credit losses for most financial assets, including accounts and notes receivables. The standard will replace today’s “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. As a small business filer, ASU 2020-06 will be effective January 1, 2024, for the Company and the provisions of this update can be adopted using either the modified retrospective method or a fully retrospective method. Management is currently assessing the impact of adopting this standard on the Company’s financial statements and related disclosures.

 

In May 2021, the FASB issued ASU 2021-04, “Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity – Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force).” The ASU addresses how an issuer should account for modifications or an exchange of freestanding written call options classified as equity that is not within the scope of another Topic. For both public and private companies, the ASU is effective for fiscal years beginning after December 15, 2021. Transition is prospective. The Company has elected early adoption of ASU 2021-04.

 

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

 

Note 2 - Convertible Notes Payable

 

Convertible notes payable consisted of the following:

  

 

 

September 30,

2022

 

 

December 31,

 2021

 

Unsecured

 

 

 

 

 

 

(a) Convertible notes due to AL-Bank

 

$413,000

 

 

$503,000

 

 

 

 

 

 

 

 

 

 

Unsecured

 

 

 

 

 

 

 

 

(b) Convertible notes with fixed conversion features, in default

 

 

895,000

 

 

 

895,000

 

Total Convertible notes payable

 

$1,308,000

 

 

$1,398,000

 

 

 

(a)

During fiscal 2005, the Company issued notes payable to DART/Citco Global in the aggregate of $543,000. The notes bear interest at an average rate of 7.5% per annum and matured in December 2010. The aggregate notes are convertible by the note holder into approximately less than one share of the Company’s common stock based on a fixed conversion price adjusted for applicable reverse stock splits that occurred in prior fiscal years. In fiscal 2009, the note holders agreed to the forbearance of any interest on the notes payable to DART/Citco Global. In August 2021, the notes were assigned to Aktieselskabet Arbejdernes Landsbank (“AL-Bank”), a financing institution based in Denmark. In September 2021, the Company executed a repayment agreement with AL-Bank whereby the Company shall make monthly payments of $10,000 to AL-Bank, starting in October 2021 and ending in January 2025, for a total of $400,000. Once the payments are made in full in accordance with the repayment agreement, the remaining balance of $143,000 shall be forgiven and will be accounted at that time. At December 31, 2021, the outstanding balance of convertible notes payable amounted to $503,000.

 

 

 

 

 

During the nine months ended September 30, 2022, the Company made principal payments of $90,000.

 

 

 

 

 

At September 30, 2022, the outstanding balance of the Unsecured convertible notes payable amounted to $413,000. The convertible notes payable, including accrued interest are convertible to approximately two shares of the Company’s common stock.

 

 

 

 

(b)

During fiscals 2005 through 2007, the Company issued notes payable in the aggregate of $895,000. The notes are unsecured, bear interest at a rate starting at 8% up to 18% per annum, were due on various dates from March 2008 to March 2015, and are currently in default. The aggregate notes are convertible by the note holders into approximately less than one share of the Company’s common stock based on fixed conversion prices adjusted for applicable reverse stock splits that occurred in prior fiscal years.

 

 

 

 

 

At September 30, 2022 and December 31, 2021, the outstanding balance of unsecured convertible notes payable amounted to $895,000, respectively and are deemed in default. The convertible notes payable, including accrued interest are convertible to approximately thirteen shares of the Company’s common stock.

 

Note 3 - Convertible Notes Payable – Related Parties

 

In prior years, the Company issued unsecured convertible notes to its Chief Executive Officer (CEO) in exchange for cash and/or services rendered. The notes have a compounded interest rate of 8% per annum and will mature on December 31, 2022, as amended. The aggregate notes are convertible by the note holders into less than one share of the Company’s common stock at fixed conversion prices adjusted for applicable reverse stock splits. As of September 30, 2022 and December 31, 2021, the outstanding balance of the notes payable amounted to $268,000.

 

 
F-10

Table of Contents

    

Note 4 - Notes Payable

 

Notes payable consisted of the following:

 

 

 

September 30,

2022

 

 

December 31,

2021

 

Unsecured notes payable

 

 

 

 

 

 

(a) Notes payable- $1,639,000 - in default

 

$1,639,000

 

 

$1,639,000

 

(b) Notes payable issued by BST - in default

 

 

285,000

 

 

 

310,000

 

(c) Note payable-EID loan

 

 

150,000

 

 

 

150,000

 

 

 

 

 

 

 

 

 

 

Secured notes payable

 

 

 

 

 

 

 

 

(d) Notes payable - in default

 

 

6,000

 

 

 

23,000

 

(e) Notes payable – July 2022

 

 

251,000

 

 

 

-

 

Total notes payable principal outstanding

 

 

2,331,000

 

 

 

2,122,000

 

Less current portion of notes payable, net of discount

 

 

(2,105,000 )

 

 

(1,972,000 )

Long term notes payable

 

$226,000

 

 

$150,000

 

 

 

(a)

In previous years, the Company issued notes payable in exchange for cash. The notes are unsecured, bear interest at a rate of 8% through 14% per annum and matured starting in fiscal 2011 up to November 2021. At September 30, 2022 and December 31, 2021, the outstanding balance of the notes payable was $1,639,000, respectively, and are in default.

 

 

 

 

(b)

In fiscal 2018, the Company’s consolidated subsidiary BlockSafe, issued promissory notes in exchange for cash. The notes are unsecured, bearing interest at a rate of 8% per annum, and matured in September 2019. At December 31, 2021, the outstanding balance of the notes payable amounted to $310,000.

 

During the Nine months ended September 30, 2022, the Company made principal payments of $25,000. At September 30, 2022, the outstanding balance of the BlockSafe notes payable amounted to $285,000, and are in default.

 

 

 

 

(c)

On May 15, 2020, the Company received a $150,000 loan (the “EID Loan”) from the Small Business Administration (SBA)under the SBA’s Economic Injury Disaster Loan program. The EID Loan has a thirty-year term and bears interest at a rate of 3.75% per annum. Monthly principal and interest payments of $250 per month are deferred for twenty-four months and will commence in June 2022. The EID Loan may be prepaid at any time prior to maturity with no prepayment penalties. The proceeds from the EID Loan must be used for working capital. The EID Loan contains customary events of default and other provisions customary for a loan of this type.

 

 

 

 

 

Outstanding balance of the note payable as of September 30, 2022 and December 31, 2021 amounted to $150,000, respectively. The Company was in compliance with the terms of the EID loan as of September 30, 2022.

 

 

 

 

(d)

In fiscal 2019 and 2020, the Company issued notes payable aggregating $468,000. The notes bear interest at a rate starting from 8% to 37% per annum, each agreement secured by substantially all of the assets of the Company, maturing between March 2020 and July 2021. The Company also made principal payments of $319,000, and one unsecured note of $21,000 was extinguished as part of a debt settlement obligation transaction. At December 31, 2021, the outstanding balance of the unsecured note agreements was $23,000.

 

 

 

 

 

During the nine months ended September 30, 2022, the Company made principal payments of $17,000.

 

 

 

 

 

At September 30, 2022, the outstanding balance of the secured notes payable was $6,000 and is in default. 

 

 

(e)

In July 2022, the Company issued notes payable aggregating $275,000. The notes bear average interest rate of 51% per annum, each agreement secured by substantially all of the assets of the Company and maturing in January 2024.

 

 

 

 

 

During the nine months ended September 30, 2022, the Company made principal payments of $24,000.

 

 

 

 

 

At September 30, 2022, the outstanding balance of the secured notes payable was $251,000

 

Note 5 - Notes Payable – Related Party

 

Notes payable-related party notes represent unsecured notes payable to the Company’s Chief Executive Officer (CEO) ranging in interest rates of 0% per annum to 10% per annum and will mature on December 31, 2022, as amended. The outstanding balance of these notes payable at September 30, 2022 and December 31, 2021 amounted to $693,000.

 

Note 6 - VIE Financing Obligation

 

The Company is in the process of developing Coins or Tokens which are an envisioned virtual currency. In fiscal 2018, the Company’s consolidated subsidiary BlockSafe, issued promissory notes to unrelated parties aggregating $776,000. As part of issuance, the Company agreed to pay a financing obligation to the note holders equal to the note principal in tokens, as defined, to be issued by BlockSafe. In addition, the Company also agreed to issue tokens to an unrelated party in exchange for cash of $50,000.

 

During the year ended December 31, 2019, BlockSafe agreed to issue tokens to unrelated parties in exchange for cash of $122,000. In addition, certain note holders of promissory notes issued by BlockSafe agreed to exchange $315,000 of outstanding principal and accrued interest into the financing obligation to be paid by tokens to be issued by BlockSafe.

 

At September 30, 2022 and December 31, 2021, the outstanding balance of financing obligations amounted to $1,263,200, respectively, to be paid in tokens, as defined. At September 30, 2022 and through the date of filing, BlockSafe has not developed or issued any tokens and there is no assurance as to whether, or at what amount, or on what terms, tokens will be available to be issued, if ever. At September 30, 2022, as the tokens do not exist, and any amounts received for tokens are not considered equity or revenue, management determined that 100% of the obligation of $1,263,200 is a liability to be settled by BlockSafe, through the issuance of tokens, or through other means if tokens are never issued.

 

Note 7 - Contingent Payment Obligation

 

On September 6, 2017, the Company entered into a litigation funding agreement with Therium Inc. (subsequently Therium Luxembourg) and VGL Capital, LLC (collectively the “Funders”). Under the agreement, the Company received $1,500,000 from the Funders to allow the Company to pursue patent enforcement actions against infringements of its patents. In exchange, the Funders are entitled to receive, after the payment of legal fees, the first $1,500,000 from the gross proceeds of any claims awarded, 10% of any additional claim proceeds until the Funders have received an additional $7,500,000, and 2.5% of any claim proceeds thereafter.  The Funders shall be paid only in the event that the Company achieves recoveries of claim proceeds.

 

 
F-11

Table of Contents

    

At September 30, 2022 and December 31, 2021, the Company has reflected the $1,500,000 received from the Funders as a contingent payment obligation to be paid only if claim proceeds are recovered.

 

Note 8 - Operating Lease

 

In January 2019, the Company entered into a noncancelable operating lease for its office headquarters office requiring payments of approximately $4,000 per month, payments increasing 3% each year, and ending on January 31, 2024. We determine if an arrangement is a lease at inception. Lease assets are presented as operating lease right-of-use assets and the related liabilities are presented as lease liabilities in our consolidated balance sheets pursuant to ASC 842, Leases.

 

Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The operating lease ROU asset includes any lease payments made and excludes lease incentives.

 

The components of lease expense and supplemental cash flow information related to leases for the period are as follows:

 

 

 

Nine months

ended

September 30,

2022

 

 

Nine months

ended

September 30,

2021

 

Lease Cost

 

 

 

 

 

 

Operating lease cost (included in general and administration in the Company’s statement of operations)

 

$42,000

 

 

$42,000

 

 

 

 

 

 

 

 

 

 

Other Information

 

 

 

 

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities for the Nine months ended September 30, 2022 and 2021

 

$42,000

 

 

$42,000

 

Weighted average remaining lease term – operating leases (in years)

 

 

1.3

 

 

 

2.3

 

Average discount rate – operating leases

 

 

10.0%

 

 

10.0%

 

The supplemental balance sheet information related to leases for the period is as follows:

 

 

 

At September 30, 2022

 

Operating leases

 

 

 

Long-term right-of-use assets

 

$67,000

 

 

 

 

 

 

Short-term operating lease liabilities

 

$56,000

 

Long-term operating lease liabilities

 

 

15,000

 

Total operating lease liabilities

 

$71,000

 

 

Maturities of the Company’s lease liabilities are as follows:

 

Year Ending

 

Operating

Leases

 

2022 (3 months)

 

 

16,000

 

2023

 

 

59,000

 

2024

 

 

5,000

 

Total lease payments

 

 

80,000

 

Less: Imputed interest/present value discount

 

 

(9,000 )

Present value of lease liabilities

 

$71,000

 

 

Lease expenses were $42,000 and $42,000 during the Nine months ended September 30, 2022 and 2021.

 

Note 9 - Stockholders’ Deficit

 

Common Stock

 

During the Nine months ended September 30, 2022, the Company issued an aggregate of 20,730,936 shares of its common stock for consulting services, with a fair value of $360,000. These shares of common stock were valued based on the closing price of the Company’s common stock on the date of the issuance or the date the Company entered into the agreement related to the issuance.

 

 
F-12

Table of Contents

      

Warrants

 

The table below summarizes the Company’s warrant activities for the Nine months ended September 30, 2022:

 

 

 

Number of

Warrant Shares

 

 

Exercise Price Range

Per Share

 

 

Weighted Average Exercise Price

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2022

 

 

68,981,234

 

 

$

  0.0045-2.90

 

 

$0.042647

 

Granted

 

 

53,000,000

 

 

 

0.05

 

 

 

0.05

 

Canceled/Expired

 

 

(605,477)

 

0.085-2.90

 

 

 

1.49

 

Exercised

 

 

(100,000,000)

 

 

0.02

 

 

 

0.02

 

Balance outstanding and exercisable, September 30, 2022

 

 

21,375,757

 

 

$

 0.0045-0.75

 

 

$0.041562

 

  

At September 30, 2022, the intrinsic value of the warrants amounted to $60,000.

 

The following table summarizes information concerning outstanding and exercisable warrants as of September 30, 2022:

 

 

 

 

Warrants Outstanding and Exercisable

 

Range of Exercise Prices

 

 

Number

Outstanding

 

 

Average

Remaining

Contractual

Life (in years)

 

 

Weighted

Average

Exercise Price

 

 

 

 

 

 

 

 

 

 

 

 

$

0.0045

 

 

 

13,333,333

 

 

 

3.00

 

 

$

0.0045

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

0.05-0.02

 

 

 

8,000,000

 

 

 

4.00

 

 

$

0.04

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

0.75

 

 

 

42,424

 

 

 

2.00

 

 

$

0.75

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

0.0045 - $0.75

 

 

 

21,375,757

 

 

 

2.00

 

 

$

0.26

 

 

A. Modification, Exercise and Grant of Warrants

 

On May 5, 2022, we entered into Inducement Offer to Exercise Common Stock Purchase Warrants Letter Agreements (the “Exercise Agreements”) with certain of the holders of the Existing Warrants, The Special Equities Opportunity Fund, LLC and Gregory Castaldo, to exercise existing warrants to purchase an aggregate of 50,000,000 shares of Common Stock (the “Exercising Holders”). Pursuant to the Exercise Agreements, the Exercising Holders and the Company agreed that, subject to any applicable beneficial ownership limitations, the Exercising Holders would exercise their Existing Warrants (the “Investor Warrants”) for shares of Common Stock underlying such Existing Warrants (the “Exercised Shares”) at a reduced exercise price of $0.02 per share of Common Stock. In order to induce the Exercising Holders to cash exercise the Investor Warrants, the Exercise Agreements provide for the issuance of new warrants to purchase up to an aggregate of 50,000,000 shares of Common Stock (the “New Warrants”), with such New Warrants to be issued in an amount equal to the number of the Exercised Shares underlying any Investor Warrants. The New Warrants are exercisable after issuance, provide for a cashless exercise provision if the shares of Common Stock underlying the New Warrants are not registered and terminate on the date that is five years following the issuance of the New Warrants. The New Warrants have an exercise price per share of $0.05. The New Warrants and the shares of Common Stock issuable upon the exercise of the New Warrants are not being registered under the Securities Act of 1933 and are being offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act of 1933. The Exercised Shares are registered for resale on effective registration statements previously filed with the Securities and Exchange Commission. As a result, these warrant holders exercised their warrants and the Company issued 50 million shares of common stock for cash proceeds of $940,000, net of direct fees and commission.

  

In August 2022, the Company modified the exercise price of the warrants granted to the two investors/warrant holders in May 2022 from $0.05 per share to $0.01 per share. As a result of this modification, the warrant holders exercised 50,000,000 shares of warrants and the Company received $500,000 in cash and issued 50,000,000 shares of common stock.

  

As a result of these transactions, the Company issued a total of 100 million shares of common stock and received cash of $1,440,000, net of direct costs.

 

B. Grant of Warrants For Services

 

On July 1,  2022, the Company granted warrants to a consultant, to purchase 3,000,000 shares of common stock for financing services rendered. The warrants are fully vested, exercisable at of $0.02 per share, will expire in 5 years and with an estimated fair value $63,000 using the Black-Scholes-Merton option pricing model with the assumptions as set forth in the table below:

 

 

 

Assumptions

 

Exercise Price

 

$0.02

 

Share Price

 

$0.02

 

Volatility %

 

 

233%

Risk Free Rate

 

 

2.88%

Expected Term (yrs.)

 

 

5

 

Dividend Rate

 

 

0%

 

 
F-13

Table of Contents

  

Note 10 – Stock Options

 

The table below summarizes the Company’s stock option activities for the Nine months ended September 30, 2022:

 

 

 

Number of

Options Shares

 

 

Exercise Price Range

Per Share

 

 

Weighted Average Exercise Price

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2022

 

 

83,133,001

 

 

0.005-1,121,250,000

 

 

$

0.0274

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

Expired

 

 

-

 

 

 

-

 

 

 

-

 

Balance outstanding, September 30, 2022

 

 

83,133,001

 

 

$

0.005-1,121,250,000

 

 

$

0.0274

 

Balance exercisable, September 30, 2022

 

 

83,133,001

 

 

$

0.005-1,121,250,000

 

 

$

0.0274

 

       

At September 30, 2022, the intrinsic value of outstanding options was $70,000.

 

During the periods ended September 30, 2022 and 2021, the Company recognized stock compensation expense of $2,959,000 and  $6,387,000, respectively, to account for the fair value of stock options that vested during the period.

  

The following table summarizes information concerning the Company’s stock options as of September 30, 2022:

 

 

 

 

Options Outstanding

 

 

Options Exercisable

 

Range of Exercise Prices

 

 

Number Outstanding

 

 

Average Remaining Contractual Life (in years)

 

 

Weighted Average Exercise Price

 

 

Number Exercisable

 

 

Average Remaining Contractual Life (in years)

 

 

Weighted Average Exercise Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,121,250,000

 

 

 

1

 

 

 

0.3

 

 

$

1,121,250,000

 

 

 

1

 

 

 

0.3

 

 

$

1,121,250,000

 

$

2.85

 

 

 

126,000

 

 

 

7

 

 

 

2.85

 

 

 

126,000

 

 

 

7

 

 

 

2.85

 

$

3.125

 

 

 

392,000

 

 

 

5

 

 

 

3.125

 

 

 

392,000

 

 

 

5

 

 

 

3.125

 

$

2.05

 

 

 

115,000

 

 

 

7

 

 

 

2.05

 

 

 

115,000

 

 

 

7

 

 

 

2.05

 

$

0.0375

 

 

 

65,000,000

 

 

 

9

 

 

 

0.0375

 

 

 

65,000,000

 

 

 

9

 

 

 

0.0375

 

$

0.005

 

 

 

17,500,000

 

 

 

8

 

 

 

0.005

 

 

 

17,500,000

 

 

 

8

 

 

 

0.005

 

$

0.005 – 1,121,250,000

 

 

 

83,133,001

 

 

 

6

 

 

$

0.03704

 

 

 

83,133,001

 

 

 

6

 

 

$

0.0274

 

 

Note 11 – Subsequent Events

 

A. Issuance of Note Payable

 

On October 26, 2022, we finalized a Securities Purchase Agreement (the “Agreement”) with Walleye Opportunities Master Fund Ltd., a Cayman Islands company (“Walleye”), whereby Walleye purchased a promissory note of the Company, in the aggregate principal amount of One Million Dollars ($1,000,000) (the “Note”), which is convertible by Walleye into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) upon an Event of Default (as defined therein) in accordance with the terms and conditions set forth therein.

 

On the Closing Date (specifically October 26, 2022), we received $800,000 which represented the principal of $1,000,000 less an original issue discount in the amount of $200,000 paid to Walleye. In addition, we wired $12,500 from the Purchase Price to cover the Walleye’s legal fees in connection with the transactions contemplated by this Agreement. Walleye received a seven (7) month note, with no interest and, only in the event of a default (after the Maturity Date) of twelve percent (12%) per annum. The Company shall have the right, exercisable on seven (7) Trading Days prior written notice to Walleye, to prepay the outstanding Principal Amount then due under this Note prior to any default. Walleye may demand immediate repayment in the event of a certain events, including a financing. In the event of default, Walleye shall have, as of and after any event of default, the option to cover the outstanding obligation of the Note time 120% at 90% of the lowest VWAP of the Common Stock on the date of the applicable conversion (the “Conversion Date”) or at any point during the four (4) Trading Day period immediately prior to the date of the applicable conversion.

 

In addition, on the Closing Date, Walleye received a five year Fifty Million (50,000,000) common stock purchase warrants, exercisable at $0.01 per share, pursuant to the terms of contained therein, which shall be earned in full as of the Closing Date of October 26, 2022. This common stock purchase warrant shall have a cashless exercise provision (unless there is a registration statement registering the underlying shares to the common stock purchase warrants).

 

From October 26, 2022 until the Note is extinguished in its entirety, Walleye shall receive a right of participation and first right of refusal on subsequent financings as described in the Agreement.

 

On October 26, 2022, through a Security Agreement of the same date, our Subsidiaries (specifically BlockSafe Technologies, Inc. and Cyber Security Risk Solutions, LLC) agreed to guarantee and act as surety for payment of the Note.

 

We agreed to use the proceeds for business development, and not for (i) the repayment of any indebtedness owed to officers, directors or employees of the Company or their affiliates, (ii) any loan to or investment in any other corporation, partnership, enterprise or other person (except in connection with the Company’s currently existing operations), (iii) any loan, credit, or advance to any officers, directors, employees, or affiliates of the Company, or (iv) in violation or contravention of any applicable law, rule or regulation.

 

B. Issuance of Common Stock

 

In October 2022, the Company issued 5 million shares of common stock with a fair market value of $38,000 for services rendered.

 

 
F-14

Table of Contents

     

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

Included in this interim report are “forward-looking” statements, within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”) as well as historical information. Some of our statements under “Business”, “Properties”, “Legal Proceedings”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”,” the Notes to Condensed Consolidated Financial Statements” and elsewhere in this report constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the expectations reflected in these forward-looking statements will prove to be correct. Our actual results could differ materially from those anticipated in forward-looking statements as a result of certain factors, including matters described in the section titled “Risk Factors.” Forward-looking statements include those that use forward-looking terminology, such as the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “project,” “plan,” “will,” “shall,” “should,” and similar expressions, including when used in the negative. Although we believe that the expectations reflected in these forward-looking statements are reasonable and achievable, these statements involve risks and uncertainties and we cannot assure you that actual results will be consistent with these forward-looking statements. We claim the protection afforded by the safe harbor for forward-looking statements provided by the PSLRA.

 

Such risks include, among others, the following: international, national and local general economic and market conditions: our ability to sustain, manage or forecast our growth; material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the current inflation rate and supply chain disruptions; the implications and consequences of the COVID-19 pandemic on our business and on our clients’ business, and the transitioning from a pandemic to an endemic; the ability to attract and retain qualified personnel; the ability to protect technology; and other factors referenced in this filing.

 

Consequently, all the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results anticipated by management will be realized or, even if substantially realized, that they will have the expected consequences to or effects on our business operations. We undertake no obligation to update or revise these forward-looking statements, whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or otherwise.

 

Unless otherwise noted, references in this Form 10-Q to “Zerify”, “we”, “us”, “our”, “our company”, and the “Company” means Zerify, Inc., a Wyoming corporation.

 

Background

 

We are a software development and services company that offers a suite of integrated computer network security products using proprietary technology. Our ongoing strategy is developing and marketing our suite of network security products to the corporate, financial, healthcare, legal, government, technology, insurance, e-commerce and consumer sectors. We plan to continue to grow our business primarily through our expanding sales channel and internally generated sales, rather than by acquisitions. We hold a 49% interest in BlockSafe Technologies, Inc., and a 100% interest in Cybersecurity Risk Solutions, LLC.

 

On April 26, 2022, the Company applied for the Zerify trademark. ZERIFY™.  The trademark registration is intended to cover the categories of downloadable or recorded computer software for encryption; downloadable or recorded computer software for cyber security assessment and protection; anti-spyware software; downloadable or recorded computer application software for mobile devices, namely, software for protecting people from identity theft; downloadable or recorded computer software for guarding users of computers and remote access devices from identity theft, featuring various software tools, namely, anti-keyboard logger and keyboard stroke encryption.   

 

On June 14, 2022, the Board of Directors and holders of a majority of the voting power approved a resolution to change our name from StrikeForce Technologies, Inc. to Zerify, Inc. 

 

 
3

Table of Contents

    

The Board of Directors believes that the reason for the name change, among other reasons, is that it will better reflect the business plans of the Company reflected in the current cyber security software and in the name Zerify which emphasizes the Company’s mission to ensure Zero-Trust for the most secure collaborative communications and that every participant is verified prior to entering a video conference. Learn more at www.zerify.com (which website is expressly not incorporated into this Information Statement)  

 

On August 1, 2022, pursuant to the approval from FINRA, our Common Stock is now quoted on the OTCQB Market under the symbol “ZRFY” (formerly “SFOR”).

 

Our executive office is located at 1090 King Georges Post Road, Suite 603, Edison, NJ 08837. Our telephone number is (732) 661-9641. At September 30, 2022, we had 15 employees. Our Company’s website is www.zerify.com (we are not including the information contained in our website as part of, nor should the information be relied upon or incorporated by reference into, this report on Form 10-Q).

 

Downturns in economic conditions, or other macroeconomic factors more generally, including inflation, could have adverse effects on our results of operations.

 

While we make our strategic planning decisions based on the assumption that the markets we are targeting will grow in the long term, our business is dependent, in large part on, and directly affected by, business cycles and other factors affecting the economy generally. Our industry depends on general economic conditions and other factors, including consumer spending and preferences, changes in inflation rates, supply chain issues and impediments should they arise for us, as the U.S. and various other major economies are now experiencing, consumer confidence, fuel costs, fuel availability, environmental impact, any consequences arising from the COVID 19 endemic governmental incentives and regulatory requirements, and political volatility, especially in cybersecurity growth markets.

 

In addition, the outbreak of hostilities between Russia and Ukraine and global reactions thereto have increased U.S. domestic and global energy prices. Oil supply disruptions related to the Russia-Ukraine conflict, and sanctions and other measures taken by the U.S. and its allies, could lead to higher costs for gas, food, and goods in the U.S. and other geographies and exacerbate the inflationary pressures on the worldwide economy, with potentially adverse impacts on our customers and on our business, results of operations and financial condition.

 

 
4

Table of Contents

    

Results of Operations

 

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2021

 

Revenues for the three months ended September 30, 2022 were $22,000 compared to $40,000 for the three months ended September 30, 2021, a decrease of $18,000 or 45%. The decrease in revenues was primarily due to a decrease in revenues relating to our ProtectID®, GuardedID® and MobileTrust® and Zerify™ Meet products, as affected by impairments related to the economic consequences of the COVID-19 pandemic. Revenues are derived from software and services.

 

Cost of revenues for the three months ended September 30, 2022 was $11,000 compared to $7,000 for the three months ended September 30, 2021, an increase of $4,000 or 35%. The increase in cost of revenues was primarily due to an increase in the fees related to our product offerings. Cost of revenues are fees and key fobs related to our revenues, and as a percentage of total revenues for the three months ended September 30, 2022 was 35% compared to 50% for the three months ended September 30, 2021.

 

Research and development expenses for the three months ended September 30, 2022 were $135,000 compared to $112,000 for the three months ended September 30, 2021, an increase of $23,000 or 17%. The increase was primarily due to the overall increase in salaries and benefits of the personnel conducting research and development. The salaries, benefits and overhead costs of personnel conducting research and development of our software products primarily comprises our research and development expenses.

 

Compensation, professional fees, and selling, general and administrative (collectively, “SGA”) expenses for the three months ended September 30, 2022 were $1,137,000 compared to $672,000 for the three months ended September 30, 2021, an increase of $465,000 or 41%. The increase was due primarily to increases in compensation/benefits expenses and professional fees. SG&A expenses consist primarily of salaries, benefits and overhead costs for executive and administrative personnel, insurance, fees for professional services, including consulting, legal, and accounting fees, plus travel costs and non-cash stock compensation expense for the issuance of stock options to employees and other general corporate expenses.

 

For the three months ended September 30, 2022, other expense was $11,000 as compared to other expense of $102,000 for the three months ended September 30, 2021. The increase was primarily due to decrease in financing expense and interest expense.

  

Our net loss for the three months ended September 30, 2022 was $1,250,000 compared to $853,000 for the three months ended September 30, 2021, an increase of $397,000. The increase was due to increase in research and development expenses and compensation, professional fees, and selling, general and administrative expenses.  

  

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2021

 

Revenues for the nine months ended September 30, 2022 were $78,000 compared to $153,000 for the nine months ended September 30, 2021, a decrease of $75,000 or 49%. The decrease in revenues was primarily due to a decrease in revenues relating to our ProtectID®, GuardedID® and MobileTrust® and Zerify™ Meet products, as affected by impairments related to the economic consequences of the COVID-19 pandemic. Revenues are derived from software and services.

 

Cost of revenues for the Nine months ended September 30, 2022 was $33,000 compared to $18,000 for the nine months ended September 30, 2021, an increase of $15,000 or 19%. The increase in cost of revenues was primarily due to an increase in the fees related to our product offerings. Cost of revenues are fees and key fobs related to our revenues, and as a percentage of total revenues for the Nine months ended September 30, 2022 was 39.3% compared to 9.7% for the nine months ended September 30, 2021.

 

Research and development expenses for the Nine months ended September 30, 2022 were $447,000 compared to $386,000 for the Nine months ended September 30, 2021, an increase of $61,000 or 14%. The increase was primarily due to the overall increase in salaries and benefits of the personnel conducting research and development. The salaries, benefits and overhead costs of personnel conducting research and development of our software products primarily comprises our research and development expenses.

    

 
5

Table of Contents

 

Compensation, professional fees, and selling, general and administrative (collectively, “SGA”) expenses for the Nine months ended September 30, 2022 were $6,224,000 compared to $8,120,000 for the nine months ended September 30, 2021, a decrease of $1,896,000. The decrease was due primarily to a decrease in stock-based compensation, offset by an increase in compensation/benefits expenses and professional fees. SG&A expenses consist primarily of salaries, benefits and overhead costs for executive and administrative personnel, insurance, fees for professional services, including consulting, legal, and accounting fees, plus travel costs and non-cash stock compensation expense for the issuance of stock options to employees and other general corporate expenses.

  

For the nine months ended September 30, 2022, other expense was $354,000 as compared to other expense of $7,471,000 for the nine months ended September 30, 2021, a decrease in other expense of $7,117,000 or 95%. The decrease was primarily due to decreases in financing expense, interest expense, debt discount amortization, the change in the fair value of derivative liabilities and the loss on debt extinguishment.

 

Our net loss for the nine months ended September 30, 2022 was $6,980,000 compared to $15,842,000 for the nine months ended September 30, 2021, a decrease of $8,862,000, or 55%. The decrease was primarily due to decreases in stock-based compensation, financing expense, interest expense, debt discount amortization, the change in the fair value of derivative liabilities and the loss on debt extinguishment, offset by increases compensation/benefits expenses and professional fees.   

 

Liquidity and Capital Resources

 

Our total current assets at September 30, 2022 were $281,000,  as compared with $2,121,000 in total current assets at December 31, 2021, which included cash of $2,084,000. Additionally, we had a stockholders’ deficit in the amount of $13,912,000 at September 30, 2022 compared to a stockholders’ deficit of $11,589,000 at December 31, 2021. 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 Nine months ended September 30, 2022 primarily from the cash balance from the year ended December 31, 2021 and from proceeds of equity instruments and notes payable issued during fiscal 2022.

  

On August 12, 2022, our registration statement on Form S-1 was declared effective by the Securities and Exchange Commission. This registration statement registered 50,000,000 shares underlying certain common stock purchase warrants. . The common stock purchase warrants were exercised contemporaneously with the execution of exercise agreements. The Company received aggregate gross proceeds of $500,000 from the cash exercise of the common stock purchase warrants by the exercising holders and such holders, as a condition to exercising their common stock purchase warrants, were issued an aggregate of 50,000,000 shares of Common Stock (arising from the exercise of the common stock purchase warrants) and, as a condition to exercising the common stock purchase warrants early,  new common stock purchase warrants to purchase an aggregate of 50,000,000 shares of Common Stock.

  

Securities Purchase Agreement

 

On October 26, 2022, we finalized a Securities Purchase Agreement (the “Agreement”) with Walleye Opportunities Master Fund Ltd., a Cayman Islands company (“Walleye”), whereby Walleye purchased a promissory note of the Company, in the aggregate principal amount of One Million Dollars ($1,000,000) (the “Note”), which is convertible by Walleye into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) upon an Event of Default (as defined therein) in accordance with the terms and conditions set forth therein. The Form of Agreement is attached as Exhibit 10.1 to the Form 8-K filed on November 2, 2022.

 

On the Closing Date (specifically October 26, 2022), we received $800,000 which represented the principal of $1,000,000 less an original issue discount in the amount of $200,000 paid to Walleye. In addition, we wired $12,500 from the Purchase Price to cover the Walleye’s legal fees in connection with the transactions contemplated by this Agreement. Walleye received a seven (7) month note, with no interest and, only in the event of a default (after the Maturity Date) of twelve percent (12%) per annum. The Note is qualified in its entirety pursuant to Exhibit 10.2 to the Form 8-K filed on November 2, 2022.

 

In addition, on the Closing Date, Walleye received a five year Fifty Million (50,000,000) common stock purchase warrants, exercisable at $0.01 per share, pursuant to the terms of contained therein, which shall be earned in full as of the Closing Date of October 26, 2022. This common stock purchase warrant shall have a cashless exercise provision (unless there is a registration statement registering the underlying shares to the common stock purchase warrants). A copy of the form of common stock purchase warrant is attached as Exhibit 4.1 to the Form 8-K filed on November 2, 2022, (See Note 11 in the attached Financial Statements: “Subsequent Events:”).

 

The above offerings, apart from the offerings registered pursuant to the Securities Act of 1933, were made in reliance upon the exemption from registration under Rule 506 of Regulation D promulgated under the Securities Act of 1933 and/or Section 4(2) of the Securities Act of 1933, based on the following: (a) the investors confirmed to us that they were “accredited investors,” as defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933 and had such background, education and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in the securities; (b) there was no public offering or general solicitation with respect to the offering; (c) the investors were provided with certain disclosure materials and all other information requested with respect to our company; (d) where applicable, the investors acknowledged that all securities being purchased were “restricted securities” for purposes of the Securities Act of 1933, and agreed to transfer such securities only in a transaction registered under the Securities Act of 1933 or exempt from registration under the Securities Act; and (e) where applicable, a legend was placed on the certificates representing each such security stating that it was restricted and could only be transferred if subsequent registered under the Securities Act of 1933 or transferred in a transaction exempt from registration under the Securities Act of 1933.

 

Concentrations

 

For the nine months ended September 30, 2022, sales to two customers comprised 42% and 30% of revenues. For the nine months ended September 30, 2021, sales to three customers comprised 39%, 31% and 16% of revenues. At September 30, 2022, two customers comprised 61% and 16% of accounts receivable.

  

The Company maintains the majority of its cash balances with one financial institution, in the form of demand deposits. At September 30, 2022, the Company had cash deposits that exceeded the federally insured limit of $250,000 per account. The Company believes that no significant concentration of credit risk exists with respect to its cash balances because of its assessment of the creditworthiness and financial viability of the financial institution.

 

Going Concern

 

We have yet to establish any history of profitable operations. During the nine months ended September 30, 2022, the Company incurred a net loss of $6,980,000 and used cash in operating activities of $3,175,000, and at September 30, 2022, the Company had a stockholders’ deficit of $13,912,000. In addition, we are in default on notes payable and convertible notes payable in the aggregate amount of $2,829,000. These factors raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. In addition, the Company’s independent registered public accounting firm, in its report published on our December 31, 2021 year-end financial statements, and Note 1 in our unaudited financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments that might result from the outcome of this uncertainty should we be unable to continue as a going concern.

 

Management estimates that the current funds on hand will be sufficient to continue operations through the next six months. Our ability to continue as a going concern is dependent upon our ability to continue to implement our business plan. Currently, management is attempting to increase revenues by selling through a channel of distributors, value added resellers, strategic partners and original equipment manufacturers. While we believe in the viability of its strategy to increase revenues, there can be no assurances to that effect. Our ability to continue as a going concern is dependent upon our ability to increase our customer base and realize increased revenues. No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, if needed, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.

 

 
6

Table of Contents

     

Cybersecurity Risk Solutions, LLC

 

On April 15, 2021, we formally finalized c a Member Interest Purchase Agreement in which we acquired all the Member Interests of Cybersecurity Risk Solutions, LLC, a New Jersey limited liability company. In April 2021, we issued 500,000 shares of common stock with a fair value of $36,000, for the purchase of Cybersecurity Risk Solutions, LLC. At the date of acquisition, Cybersecurity Risk Solutions, LLC had nominal assets and liabilities, no revenues and limited operating history. Furthermore, we also determined that the acquisition did not meet the requirement of a significant acquisition pursuant to the regulations of the Securities and Exchange Commission. 

 

Cybersecurity Risk Solutions, LLC is a cybersecurity firm offering cyber, privacy & data protection services including a personal cyber risk assessment, the industry’s first cyber health score, report and custom action plan, as well as ongoing vulnerability scanning, hack monitoring and dark web intelligence monitoring. For more information, go to https://SecureCyberID.com (which website is expressly not included in this filing). Will Lynch, the prior sole member of Cybersecurity Risk Solutions, LLC was hired by Zerify as the Director of Channel Distribution and not as a Named Executive Officer. A Director of Channel Distribution develops, services, and grows relationships with clients. Mr. Lynch has an annual salary of $100,000 and will also receive 2% net of all Channel sales. Mr. Lynch reports to our Executive Vice President and Marketing Director.

  

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, result of operations, liquidity or capital expenditures.

 

Critical Accounting Policies

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Management bases these estimates and assumptions upon historical experience, existing and known circumstances, and other factors that management believes to be reasonable. In addition, the Company has considered the potential impact of the pandemic, as well as certain macroeconomic factors, including inflation, rising interest rates, and recessionary concerns, on its business and operations.

 

Significant estimates include those related to accounting for financing obligations, assumptions used in valuing stock instruments issued for services, assumptions used in valuing derivative liabilities, the valuation allowance for deferred tax assets, and the accrual of potential liabilities. Actual results could differ from those estimates.

 

Revenue Recognition

 

The Company follows the guidance of Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients.

 

The Company’s revenue consists of revenue from sales and support of our software products. Revenue primarily consists of sales of software licenses and subscriptions of our ProtectID®, GuardedID®, MobileTrust®, Zerify Defender™ and Zerify Meet™ products. We recognize revenue from these arrangements ratably over the contractual service period. For service contracts, the Company’s performance obligations are satisfied, and the related revenue is recognized, as services are rendered.

 

The Company offers no discounts, rebates, rights of return, or other allowances to clients which would result in the establishment of reserves against service revenue. Additionally, to date, the Company has not incurred incremental costs in obtaining a client contract.

 

Cost of revenue includes direct costs and fees related to the sale of our products.

 

 
7

Table of Contents

    

Share-Based Payments

 

The Company periodically issues stock options, warrants, and shares of common stock as share-based compensation to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for such grants issued and vesting based on FASB ASC 718, Compensation – Stock Compensation (Topic 718) whereby the value of the award is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. The Company recognizes the fair value of stock-based compensation within its Statements of Operations with classification depending on the nature of the services rendered. 

 

Recently Issued Accounting Pronouncements

 

Refer to Note 1 in the accompanying consolidated financial statements.

 

Additional Information

 

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

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controls and Procedures.

 

Regulations under the Securities Exchange Act of 1934 (the “Exchange Act”) require public companies to maintain “disclosure controls and procedures,” which are defined as controls and other procedures that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

We carried out an evaluation, with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (CFO) of the effectiveness our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of September 30, 2022. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are not effective at the reasonable assurance level due to the following material weaknesses:

 

1. We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to us as of and for the interim period ended September 30, 2022. 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.

 

 
8

Table of Contents

     

To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.

 

Remediation of Material Weaknesses

 

We intend to remediate the material weaknesses in our disclosure controls and procedures identified above by adding an independent director or member with financial expertise or hiring a full-time CFO with SEC reporting experience in the future when working capital permits and by working with our independent registered public accounting firm to refine our internal procedures.

 

(b) Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 
9

Table of Contents

    

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

 On September 9, 2022, Onstream Media, a company Zerify, Inc. has no current or prior business relationship with, filed seven lawsuits against Zerify, Inc., each asserting infringement of a single patent owned by Onstream Media. Zerify is in the process of negotiating a settlement with Onstream Media.

  

The Company is subject at times to other legal proceedings and claims, which arise in the ordinary course of its business.  Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity.  There was no outstanding litigation as of September 30, 2022 other than that described above.

 

ITEM 1A. RISK FACTORS

 

The risk factors required pursuant to Regulation S-K, Item 503(c) are not required for smaller reporting companies. Accordingly, the Company has determined to provide particular risk factors at this time. The risks and uncertainties described below are not the only ones facing us. Other events that we do not currently anticipate or that we currently deem immaterial also may affect our results of operations and financial condition. If any events described in the risk factors actually occur, our business, operating results, prospects and financial condition could be materially harmed. In connection with the forward-looking statements that appear in our Annual Report on Form 10-K/A for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission on July 18, 2022, you should also carefully review the cautionary statement referred to under “Special Note Regarding Forward Looking Statements.” The forward-looking statements made in this report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

 

 
10

Table of Contents

    

ITEM 2. RECENT ISSUANCES OF UNREGISTERED SECURITIES

 

On August 12, 2022, our registration statement on Form S-1 was declared effective by the Securities and Exchange Commission. This registration statement registered 50,000,000 shares underlying certain common stock purchase warrants. . The common stock purchase warrants were exercised contemporaneously with the execution of exercise agreements. The Company received aggregate gross proceeds of $500,000 from the cash exercise of the common stock purchase warrants by the exercising holders and such holders, as a condition to exercising their common stock purchase warrants, were issue an aggregate of 50,000,000 shares of Common Stock (arising from the exercise of the common stock purchase warrants) and, as a condition to exercising the common stock purchase warrants early,  new common stock purchase warrants to purchase an aggregate of 50,000,000 shares of Common Stock.

 

Subsequent issuances:

 

Issuance of Common Stock

 

In October 2022, the Company issued 5 million shares of common stock with a fair market value of $38,000 for services rendered.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

At September 30, 2022, the Company is in default on notes payable and convertible notes payable in the aggregate amount of $2,829,000.  We have not made various principal and interest payments on many of our debt obligations. We continue to seek work-out arrangements and applicable refinancing with new or revised debt or equity instruments. See Notes 2 and 4 to the condensed consolidated financial statements.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

 
11

Table of Contents

     

ITEM 6. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

 

Exhibit Number

 

Description

1.1

 

Placement Agreement dated July 7, 2020, by and between StrikeForce Technologies, Inc. and Spencer Clarke LLC (23)

1.2

 

Addendum to Placement Agreement dated November 11, 2020, by and between StrikeForce Technologies, Inc. and Spencer Clarke LLC (25)

1.3

 

Addendum to Placement Agreement dated April 20, 2021, by and between StrikeForce Technologies, Inc. and Spencer Clarke LLC (28)

1.4

 

Addendum to Placement Agreement dated October 17, 2022, by and between StrikeForce Technologies, Inc. and Spencer Clarke LLC (32)

1.5

 

Addendum to Placement Agreement dated November 4, 2022, by and between StrikeForce Technologies, Inc. and Spencer Clarke LLC (32)

3.1

 

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

3.2

 

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

3.3

 

Amended By-laws of StrikeForce Technologies, Inc. (2)

3.4

 

Amended By-laws of StrikeForce Technologies, Inc. (3)

3.5

 

Articles of Amendment of StrikeForce Technologies, Inc. (2)

3.6

 

Amendments to Articles of Incorporation (6)

3.7

 

Amendments to Articles of Incorporation (7)

3.8

 

Registration of Classes of Securities (8)

3.9

 

Amendments to Articles of Incorporation (9)

3.10

 

Registration of Classes of Securities (10)

3.11

 

Amendments to Articles of Incorporation (11)

3.12

 

Registration of Classes of Securities (12)

3.13

 

Amendments to Articles of Incorporation (13)

3.14

 

Amendments to Articles of Incorporation (14)

3.15

 

Amendments to Articles of Incorporation (15)

3.16

 

Amendments to Articles of Incorporation (16)

3.17

 

Amendments to Articles of Incorporation (17)

3.18

 

Amendments to Articles of Incorporation (18)

3.19

 

Amendments to Articles of Incorporation (22)

3.20

 

Amendments to Articles of Incorporation (26)

3.21

 

Amendments to Articles of Incorporation (30)

4.1

 

Form of Subscription Agreement (25)

4.2

 

Form of Convertible Promissory Note-Related Party (24)

4.3

 

Form of Promissory Note-Related Party (24)

4.4

 

Form of Warrant (29)

4/5

 

Form of Common Stock Purchase Warrant for Walleye Opportunities Master Fund Ltd, dated October 26, 2022 (31)

10.1

 

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

10.2

 

Irrevocable Waiver of Conversion Rights of Mark L. Kay (4)

10.3

 

Irrevocable Waiver of Conversion Rights of Ramarao Pemmaraju (4)

10.4

 

Irrevocable Waiver of Conversion Rights of George Waller (4)

10.5

 

CFO Consultant Agreement with Philip E. Blocker (4)

10.6

 

2012 Stock Option Plan (5)

10.7

 

Asset Purchase Agreement between StrikeForce Technologies, Inc. and Cyber Safety, Inc., dated August 24, 2015 (18)

10.8

 

Amendment to the Asset Purchase Agreement and Distributor and Reseller Agreement between StrikeForce Technologies, Inc. and Cyber Safety, Inc. (19)

10.9

 

Execution of Litigation Funding Agreement (20)

10.10

 

BlockSafe Technologies, Inc. Intellectual Property License Agreement (21)

10.11

 

BlockSafe Technologies, Inc. Management Agreement (21)

10.12

 

BlockSafe Technologies, Inc. Amended Management Agreement (21)

10.13

 

Software License and Development Agreement, amendment two, by and between StrikeForce Technologies, Inc. and Intersections, Inc., dated October 1, 2010 (24)

10.14

 

Form of Settlement and Exchange Agreement (26)

10.15

 

Cybersecurity Risk Solutions LLC Member Interest Purchase Agreement, dated April 15, 2021 (27)

10.16

 

Inducement Offer to Exercise Common Stock Purchase Warrants, dated May 5, 2022 (29)

10.17

 

Securities Purchase Agreement, by and between Zerify, Inc. and Walleye Opportunities Master Fund Ltd, dated October 26, 2022.(31)

10.18

 

Promissory Note for $1,000,000 with Walleye Opportunities Master Fund Ltd., dated October 26, 2022.(31)

10.19

 

Form of Security Agreement, by and between Zerify, Inc. (and its subsidiaries) and Walleye Opportunities Master Fund Ltd. dated October 26, 2022. (31)

10.20

 

Form of Subsidiary Guarantee, by and between Zerify, Inc. (and its subsidiaries) and Walleye Opportunities Master Fund Ltd , dated October 26, 2022. (31)

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. (33)

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. (33)

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. (33)

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. (33)

101.INS

 

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). (31)

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document. (31)

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document. (31)

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document. (31)

101.LAB

 

Inline XBRL Taxonomy Extension Labels Linkbase Document. (31)

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document. (31)

104

 

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). (31)

 

 
12

Table of Contents

     

(1)

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

(2)

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

(3)

Filed as an exhibit to the Registrant’s Form 10-Q dated December 13, 2010 and incorporated herein by reference.

(4)

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

(5)

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

(6)

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

(7)

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

(8)

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

(9)

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

(10)

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

(11)

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

(12)

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

(13)

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

(14)

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

(15)

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

(16)

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

(17)

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

(18)

Filed as an exhibit to the Registrant’s Form 8-K dated August 24, 2015 and incorporated herein by reference.

(19)

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

(20)

Filed as an exhibit to the Registrant’s Form 8-K dated September 11, 2017 and incorporated herein by reference.

(21)

Filed as an exhibit to the Registrant’s Form 10-Q dated June 30, 2018 and incorporated herein by reference.

(22)

Filed as an exhibit to the Registrant’s Form 8-K dated June 25, 2020 and incorporated herein by reference.

(23)

Filed as an exhibit to the Registrant’s Form 1-A dated July 13, 2020 and incorporated herein by reference.

(24)

Filed as an exhibit to the Registrant’s Form 1-A.1 dated September 11, 2020 and incorporated herein by reference.

(25)

Filed as an exhibit to the Registrant’s Form 1-A.1 dated November 12, 2020 and incorporated herein by reference.

(26)

Filed as an exhibit to the Registrant’s Form 8-K dated February 8, 2021 and incorporated herein by reference.

(27)

Filed as an exhibit to the Registrant’s Form 8-K dated April 19, 2021 and incorporated herein by reference.

(28)

Filed as an exhibit to the Registrant’s Form 1A/A- dated April 26, 2021 and incorporated herein by reference.

(29)

Filed as an exhibit to the Registrant’s Form 8-K dates May 10, 2022 and incorporated herein by reference.

(30)

Filed as an exhibit to the Registrant’s Form 8-K/A dated August 3, 2022 and incorporated herein by reference.

(31)

Filed as an exhibit to the Registrant’s Form 8-K dated November 2, 2022 and incorporated herein by reference.

(32)

Filed as an exhibit to the Registrant’s Form 1-A/A dated November 4, 2022 and incorporated herein by reference.

(33)

Filed herewith.

 

 
13

Table of Contents

     

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.

 

 

ZERIFY, INC.

 

 

 

 

 

Dated: November 21, 2022

By:

/s/ Mark L. Kay

 

 

Mark L. Kay

 

 

Chief Executive Officer

 

 

Dated: November 21, 2022

By:

/s/ Philip E. Blocker

 

 

 

Philip E. Blocker  

 

 

Chief Financial Officer and

Principal Accounting Officer

 

 
14