Zerify, Inc. - Quarter Report: 2016 March (Form 10-Q)

UNITED STATES

SECURITIES EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

1090 King Georges Post Road, Suite 603

Edison, NJ08837

(Address of Principal Executive Offices)

(732) 661-9641

(Issuer's telephone number)

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

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

Common stock, $0.0001 par value

Title of Class

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

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

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

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

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

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

Transitional Small Business Disclosure Format Yes ¨ No x

Documents Incorporated By Reference

STRIKEFORCE TECHNOLOGIES, INC.

INDEX TO FORM 10-Q FILING

MARCH 31, 2016

TABLE OF CONTENTS

PART I

ITEM 1. FINANCIAL STATEMENTS AND NOTES TO INTERIM FINANCIAL STATEMENTS

See accompanying notes to the financial statements.

StrikeForce Technologies, Inc.

Three Months Ended March 31, 2016 and 2015

Notes to the Condensed Financial Statements

(Unaudited)

Note 1 – Organization and Operations

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

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

Liquidity and Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, for the three months ended March 31, 2016, the Company incurred a loss from operations of $551,421 and at March 31, 2016, the Company had a stockholders' deficit of $7,633,226. These factors raise substantial doubt about the Company's ability to continue as a going concern. In addition, the Company's independent registered public accounting firm, in its report on the Company's December 31, 2015 financial statements, has raised substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

At March 31, 2016, the Company had cash on hand in the amount of $2,144,752. The Company's ability to continue as a going concern is dependent upon its ability to implement its business plan. Currently, management is attempting to increase revenues and improve gross margins by a revised sales strategy. The Company is redirecting its sales focus from direct sales to domestic and international sales channels, where it is primarily selling through a channel of Distributors, Value Added Resellers, Strategic Partners and Original Equipment Manufacturers. While the Company believes in the viability of its strategy to increase revenues, there can be no assurances to that effect. The Company's ability to continue as a going concern is dependent upon its ability to continually increase its customer base and realize increased revenues from recently signed contracts. No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, if needed, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its stock holders, in the case of equity financing.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation-Unaudited Interim Financial Information

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the rules and regulations of the United States Securities and Exchange Commission to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods have been included. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2016. These financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2015 and notes thereto contained in the Annual Report on Form 10-K of the Company as filed with the United States Securities and Exchange Commission ("SEC") on April 14, 2016.

Reverse Stock Splits

In March 2014, the Company effected a 1:1,500 reverse stock split of the Company's issued and outstanding shares of common stock.

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

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

Share numbers, share prices, and exercise prices have been adjusted, on a retroactive basis, to reflect the reverse stock splits adopted by the Company as if the reverses had occurred at the beginning of the earliest period presented.

Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include those related to accounting for potential liabilities and the assumptions made in valuing stock instruments issued for services and derivative liabilities. Actual results could differ from those estimates.

Stock Compensation

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

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

Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

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

Fair Value of Financial Instruments

Effective January 1, 2008, fair value measurements are determined by the Company's adoption of authoritative guidance issued by the FASB, with the exception of the application of the statement to non-recurring, non-financial assets and liabilities as permitted. The adoption of the authoritative guidance did not have a material impact on the Company's fair value measurements. Fair value is defined in the authoritative guidance as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels as follows:

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

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

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

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

As of March 31, 2016 and December 31, 2015, the Company's balance sheets included the fair value of derivative liabilities of $394,066 and $989,019, respectively, which were based on Level 2 measurements. 

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

Income (loss) per Share

Basic income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share reflects the potential dilution, using the treasury stock method that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the income (loss) of the Company. In computing diluted income (loss) per share, the treasury stock method assumes that outstanding options, warrants, and convertible preferred stock are exercised and the proceeds are used to purchase common stock at the average market price during the period. Options, warrants, and convertible preferred stock may have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options and warrants.

The following table sets forth the computation of basic and diluted earnings per share:

Significant Concentrations

For the interim period ended March 31, 2016, sales to three customers comprised 44%, 30% and 12% of revenues, respectively. For the interim period ended March 31, 2015, sales to two customers comprised 64% and 23% of revenues, respectively. At March 31, 2016, two customers comprised 51%, and 25% of accounts receivable, respectively. At December 31, 2015, two customers comprised 67% and 17% of accounts receivable, respectively.

Recent Accounting Pronouncements

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

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

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

Note 3 – Convertible Notes Payable

Convertible notes payable consisted of the following:

______________

At December 31, 2015, the balance of the unsecured convertible notes with adjustable conversion features was $824,861. During the interim period ended March 31, 2016, the Company repaid a total of $613,351 of unsecured convertible notes principal. In addition, note holders converted an aggregate of $143,123 of unsecured convertible note principal. At March 31, 2016, the balance of unsecured convertible notes with adjustable conversion features was $68,387 and pertains to one unsecured convertible note which was repaid in April 2016.

At December 31, 2015, the balance of the accrued interest on the unsecured convertible notes with adjustable conversion features was $296,396. During the interim period ended March 31, 2016, the Company repaid a total of $147,829 of accrued interest, and note holders converted an aggregate of $37,968 of accrued interest into shares of common stock. During the interim period ended March 31, 2016, interest expense of $16,702 was recorded. Additionally, accrued interest of $15,843 was forgiven and written-off. At March 31, 2016, the balance of accrued interest on unsecured convertible notes payable with adjustable conversion features was $111,458.

During the interim period ended March 31, 2016, a total of $181,071 principal and accrued interest on unsecured convertible notes with adjustable conversion features was converted into 1,394,298,115 shares of the Company's common stock at conversion prices ranging from $0.000058 to $0.0008 per share. In addition, 397,937,526 shares of common stock were issued with a fair value of $239,153 as additional interest to certain note holders.

At March 31, 2016 and December 31, 2015, accrued interest due for all convertible notes was $1,064,082 and $1,228,668, respectively, and is included in accrued interest in the accompanying balance sheets. Interest expense for all convertible notes payable for the interim period ended March 31, 2016 and 2015 was $36,784 and $52,213, respectively.

Note 4 – Convertible Notes Payable – Related Parties

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

At March 31, 2016 and December 31, 2015, accrued interest due for the convertible notes – related parties was $404,448 and $391,001, respectively, and is included in accrued expenses in the accompanying balance sheets. Interest expense for convertible notes payable – related parties for the interim period ended March 31, 2016 and 2015 was $13,447 and $12,252, respectively.

Note 5 – Notes Payable

Notes payable consisted of the following:

_______________ 

At March 31, 2016 and December 31, 2015, accrued interest due for the notes was $1,779,632 and $1,731,874, respectively, and is included in accrued expenses in the accompanying balance sheets. Interest expense for notes payable for the interim period ended March 31, 2016 and 2015 was $50,561 and $47,603, respectively.

Note 6 – Notes Payable – Related Party

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

At March 31, 2016 and December 31, 2015, accrued interest due for the notes – related party was $562,635 and $548,653, respectively, and is included in accrued interest in the accompanying balance sheets. Interest expense for notes payable - related parties for the interim period ended March 31, 2016 and 2015 was $13,982 and $13,828, respectively.

Note 7 – Derivative Financial Instruments

Under authoritative guidance issued by the FASB, instruments which do not have fixed settlement provisions, are deemed to be derivative instruments. The conversion feature of certain of the Company's convertible notes payable and liabilities payable in shares (described in Note 3 and 4 above) did not have fixed settlement provisions because the ultimate determination of shares to be issued could exceed current available authorized shares.

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

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

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

At December 31, 2015, the balance of the derivative liabilities was $989,019. During the three months ended March 31, 2016, convertible notes and accrued interest totaling $958,114 were converted into shares of common stock or paid in cash, and the Company recorded a gain of $635,620 related to the extinguishment of the corresponding derivative liability. As of March 31, 2016, the Company re-measured the derivative liabilities and determined the fair value to be $394,066, and for the three months ended March 31, 2016, recorded a loss on the change in fair value of derivatives of $(40,647).

Note 8 – Stockholders' Deficit

Common Stock

During the three month period ended March 31, 2016, the Company issued an aggregate of 1,792,243,141 shares of its common stock as follows:

Capital contribution

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

Note 9 – Warrants

The table below summarizes the Company's warrant activities at March 31, 2016:

The following table summarizes information concerning outstanding and exercisable warrants as of March 31, 2016:

Subsequent to March 31, 2016, the Company processed a cashless exercise of 30 warrants into 155 million shares of the Company's common stock.

Note 10 – Options

In August 2015, the Company awarded options to purchase 1,000,000 shares of its common stock to an unrelated consultant, exercisable at $0.0005 per share. The options expire in August 2017, and vested over a four-month period. The fair value of these options was determined using the Black-Scholes-Merton option-pricing model based on the following assumptions: (i) volatility rate of 387%, (ii) discount rate of 0.67%, (iii) zero expected dividend yield, and (iv) expected life of 2 years. The risk-free interest rate was based on rates established by the Federal Reserve Bank. The expected life of the exercise feature of the options was based on the remaining term of the options. The expected dividend yield was based on the fact that the Company has not customarily paid dividends in the past and does not expect to pay dividends in the future. Fair value of $7,917 was expensed in the interim period ended March 31, 2016, and included as part of operating expenses on the statement of operations.

The table below summarizes the Company's 2004 Incentive Plan and 2012 Stock Incentive Plan activities through March 31, 2016:

As of March 31, 2016, options to purchase an aggregate of 1,000,001 shares of common stock was outstanding under the 2004 incentive plan and 2012 Stock Incentive Plan and there were 5,500,000 shares remaining available for issuance.

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

Note 11 – Other Income

On March 28, 2013 the Company initiated patent litigation against an outside party. In March 2015, the case was in full discovery, the pre-trial hearing was held, and the deliberations were continuing. Mediation took place in May 2015 to discuss a potential settlement, and on January 15, 2016, the parties reached a settlement in the matter. As part of the settlement, the Company received a payment in January 2016 of $9,750,000 and incurred fees related to the settlement of $4,187,257.

In March 2015 the Company entered into a settlement agreement relating to a lawsuit with a former channel partner for $412,500 which was recorded as other income. In September 2015, the Company and the former channel partner amended the settlement agreement and reduced the total settlement to $305,000.

Note 12 – Income Taxes

For the three months ended March 31, 2016 and 2015, the Company recognized net income of $4,900,831 and $451,299, respectively. The Company did not record any provision for income taxes because the net income for these periods was offset by available net operating losses of approximately $18.9 million and $18.0 million, respectively.

In accordance with Accounting Standards Codification ("ASC") 740, Income Taxes, the Company evaluates its deferred tax assets to determine if a valuation allowance is required based on the consideration of all available evidence using a "more likely than not" standard, with significant weight being given to evidence that can be objectively verified. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability; the length of statutory carryover periods for operating losses and tax credit carryovers; and available tax planning alternatives. Our deferred tax assets are composed primarily of U.S. federal net operating loss carryforwards and temporary differences related to stock based compensation. Based on available objective evidence, management believes it is more likely than not that these deferred tax assets are not recognizable and will not be recognizable until its determined that we have sufficient taxable income. We may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods, and disclosures. As of March 31, 2016, the Company does not have any liabilities for unrecognized tax uncertainties.

Note 13 – Commitments and Contingencies

Asset Sale and Licensing Agreement

On August 24, 2015, the Company entered into an agreement with Cyber Safety, Inc., a New York corporation ("Cyber Safety") for Cyber Security to license, and retain an option to purchase, the patents and Intellectual Property related to the GuardedIDÒ and MobileTrustÒ software. In conjunction with the licensing and the option to purchase, Cyber Safety loaned the Company $408,000 (see Note 5).

Cyber Safety has the option to buy our GuardedIDÒ patent for $9,000,000 that expires on September 30, 2020. At March 31, 2016, the Company does not have an estimate when Cyber Safety will exercise its option to make the purchase. Cyber Safety will also resell our GuardedIDÒ and MobileTrustÒ products, for which we will receive a royalty, while we retain an unlimited license to resell those products.

As a condition of the asset purchase agreement, Cyber Safety will license the Malware Suite (as defined in the Asset Purchase Agreement) up to and until September 30, 2020. Pursuant to this license, Cyber Safety shall pay the Company 15% of the net amount Cyber Safety receives, as defined, which amount may be increased to 20% under certain conditions for ProtectIDÒ, and is subject to reduction for commissions and support costs that Cyber Safety will be obligated to pay to the Company. During the three months ended March 31, 2016, the Company did not receive any license revenue related to this agreement.

Due to Factor

In March 2007, the Company entered into a sale and subordination agreement with a factoring firm whereby the Company sold its rights to two invoices, from February 2007 and March 2007, totaling $470,200 to the factor. Upon signing the agreement and providing the required disclosures, the factor remitted $197,450 to the Company. By December 31, 2007, the two invoice were deemed uncollectible. In February 2008, the Company agreed to pay the factor a settlement of $75,000 in September 2008, unless both parties mutually agreed to extend the due date. In September 2008, the Company and the factor reached a verbal agreement to extend the due date to December 31, 2008. The Company is currently pursuing a further extension. As of March 31, 2016, the balance due to the factor by the Company was $209,192 including interest.

Note 14 – Subsequent Events

Repayment of Unsecured Convertible Notes Payable

Subsequent to March 31, 2016, the Company repaid $110,000 of principal and accrued interest of unsecured convertible notes, which resulted in the extinguishment of approximately $114,000 of derivative liabilities and the forgiveness of approximately $55,000 of accrued interest.

Issuance of shares of Common Stock upon conversion of accrued interest

Subsequent to March 31, 2016, convertible note holders were issued 313,002,342 shares of the Company's common stock with a fair value of approximately $31,956 as additional interest.

Cashless Exercise of Warrants

Subsequent to March 31, 2016, the Company executed a settlement agreement with an investor relating to outstanding warrant agreements issued in conjunction with convertible notes that were repaid by the Company in January 2016. Per the terms of the settlement, the Company received and processed a final cashless exercise of warrants, valued at $37,200, into 155,000,000 shares of the Company's common stock at an exercise price of $0.00024 per share. The Company is determining the accounting impact of this transaction.

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

CAUTION REGARDING FORWARD-LOOKING INFORMATION

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 Financial Statements" and elsewhere in this report constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the expectations reflected in these forward-looking statements will prove to be correct. Our actual results could differ materially from those anticipated in forward-looking statements as a result of certain factors, including matters described in the section titled "Risk Factors." Forward-looking statements include those that use forward-looking terminology, such as the words "anticipate," "believe," "estimate," "expect," "intend," "may," "project," "plan," "will," "shall," "should," and similar expressions, including when used in the negative. Although we believe that the expectations reflected in these forward-looking statements are reasonable and achievable, these statements involve risks and uncertainties and we cannot assure you that actual results will be consistent with these forward-looking statements. We claim the protection afforded by the safe harbor for forward-looking statements provided by the PSLRA.

Such risks include, among others, the following: international, national and local general economic and market conditions: our ability to sustain, manage or forecast our growth; material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other factors referenced in this filing.

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

Background

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