Forward-Looking Statements
The following is management's discussion and analysis (|MD&A") of certain
significant factors that have affected our financial position and operating
results during the periods included in the accompanying financial statements, as
well as information relating to the plans of our current management. This report
includes forward-looking statements. Generally, the words "believes,"
"anticipates," "may," "will," "should," "expect," "intend," "estimate,"
"continue," and similar expressions or the negative thereof or comparable
terminology are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, including the matters set forth
in this report or other reports or documents we file with the Securities and
Exchange Commission from time to time, which could cause actual results or
outcomes to differ materially from those projected. Undue reliance should not be
placed on these forward-looking statements which speak only as of the date
hereof. We undertake no obligation to update these forward-looking statements.
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The following discussion and analysis should be read in conjunction with our
financial statements and the related notes thereto and other financial
information contained elsewhere in this Form 10-K.
Our MD&A is comprised of significant accounting estimates made in the normal
course of its operations, overview of our business conditions, results of
operations, liquidity and capital resources and contractual obligations. We did
not have any off balance sheet arrangements as of December 31, 2019 or 2020.
The discussion and analysis of our financial condition and results of operations
is based upon its financial statements, which have been prepared in accordance
with generally accepted accounting principles generally accepted in the United
States (or "GAAP"). The preparation of those financial statements requires us to
make estimates and judgments that affect the reported amount of assets and
liabilities at the date of its financial statements. Actual results may differ
from these estimates under different assumptions or conditions.
Background
We are a software development and services company that offers a suite of
integrated computer network security products 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. Apart from our 49% holding in BlockSafe
Technologies, Inc., we have no other subsidiaries.
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
our products, and harm our business and results of operations. We cannot
anticipate the effect that the impairments caused by the COVID-19 pandemic or
the degree to which the economy rebounds post-pandemic will have on our fiscal
2021 results, or the effectiveness and distributions of recently announced
vaccines. We will continue to evaluate the nature and extent of COVID-19's
impact to our business, consolidated results of operations, financial condition
and liquidity, and our results presented herein are not necessarily indicative
of the results to be expected for future years.
During the year ended December 31, 2020, we believe the COVID-19 pandemic did
impact its operating results as sales to customers were down 73% as compared
from the year ended December 31, 2019. However, we have not observed any
impairments of our assets or a significant change in the fair value of our
assets due to the COVID-19 pandemic. At this time, it is not possible for us to
predict the duration or magnitude of the adverse results of the outbreak and its
effects on our business or results of operations, financial condition, or
liquidity.
We have been following the recommendations of health authorities to minimize
exposure risk for our team members, including the temporary closure of our
corporate office and having team members work remotely. Most customers and
vendors have transitioned to electronic submission of invoices and payments.
Management believes that cyber security is a growing requirement as the pandemic
continues, more people are working remotely as well as using digital forms on a
regular basis. Consequently, the market demand, in our estimation, is
increasing. However, our company is also experiencing the impact of the
pandemic. Currently our management is not working from our office location and
impedes our ability to take full advantage of the increasing market demand. Many
of our current clients have experienced a dramatic slowdown in their business,
limiting their ability to have the resources to pay for our services. We still
generate revenues and we anticipate, but cannot guarantee, we will have the
resources to advance our video conferencing tool, SafeVchat™ and PrivacyLoK™,
that provides authentication and encryption (using our existing products), for
which we believe will have a great interest in the market. Currently, we have
already earned revenues from SafeVchat™ and PrivacyLoK™ in 2021.
Our executive office is located at 1090 King Georges Post Road, Suite 603,
Edison, NJ 08837. Our telephone number is (732) 661-9641. We have 9 employees.
Our Company's website is www.strikeforcetech.com (we are not including the
information contained in our website as part of, nor should the information be
relied upon or incorporated by reference into, this report on Form 10-K).
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Results of Operations
FOR THE YEAR ENDED DECEMBER 31, 2020 COMPARED TO THE YEAR ENDED DECEMBER 31,
2019
Revenues for the year ended December 31, 2020 were $207,000 compared to $768,000
for the year ended December 31, 2019, a decrease of $561,000 or 73.1%. The
decrease in revenues was primarily due to a reduction in the sales of our
products with impairments related to the economic consequences of the COVID-19
pandemic. Revenues are derived from software, key fobs and services.
Cost of revenues for the year ended December 31, 2020 was $13,000 compared to
$10,000 for the year ended December 31, 2019, an increase of $3,000, or 30.0%.
The increase resulted from the increased fees related to certain revenues. Cost
of revenues are fees and key fobs related to our revenues, and as a percentage
of total revenues for the year ended December 31, 2020 was 6.2% compared to 1.3%
for the year ended December 31, 2019.
Research and development expenses for the year ended December 31, 2020 were
$520,000 compared to $520,000 for the year ended December 31, 2019. 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 year ended December 31, 2020 were
$2,350,000 compared to $1,839,000 for the year ended December 31, 2019, an
increase of $511,000 or 27.8%. The increase was due primarily to an increase in
employee stock-based compensation 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 year ended December 31, 2020, other expense was $7,412,000 as compared
to other expense of $2,147,000 for the year ended December 31, 2019,
representing an increase in other expense of $5,265,000, or 245.2%. The increase
was primarily due to increases in the loss on extinguishment of debt and in the
change in the fair value of derivative liabilities, offset by decreases in
private placement costs and in debt discount amortization.
Our net loss for the year ended December 31, 2020 was $10,088,000 compared to
$3,750,000 for the year ended December 31, 2019, an increase of $6,338,000, or
169.0%. The increase was primarily due to increases in the loss on
extinguishment of debt, in the change in the fair value of derivative
liabilities, in employee stock-based compensation, in professional fees, and the
decrease in revenues, offset by decreases in private placement costs and in debt
discount amortization.
Liquidity and Capital Resources
Our total current assets at December 31, 2020 were $203,000, which included cash
of $162,000, as compared with $99,000 in total current assets at December 31,
2019, which included cash of $75,000. Additionally, we had a stockholders'
deficit in the amount of $14,342,000 at December 31, 2020 compared to a
stockholders' deficit of $15,464,000 at December 31, 2019. We have historically
incurred recurring losses and have financed our operations through loans,
principally from affiliated parties such as our directors, and from the proceeds
of debt and equity financing. We financed our operations during the year ended
December 31, 2020 primarily from the issuance of various debentures with
proceeds of $1,495,000 which includes the receipt of the SBA-Payroll Protection
Program loan funds of $313,000 and the SBA-Economic Injury Disaster Loan funds
of $150,000. On November 13, 2020, our filing of an Offering Circular on Form
1-A, pursuant to Regulation A (File Number: 024-11267) was qualified by the
Securities and Exchange Commission. We registered 668,449,198 shares of common
stock maximum proceeds of $2,315,000 (after deducting the maximum broker
discount and costs of the offering). As of December 31, 2020, we sold
subscriptions for $976,000 and issued 436,337,203 shares of our common stock to
27 investors relating to our November 2020 Offering Circular.
Subsequent to December 31, 2020, convertible notes aggregating $45,000 of
principal and $6,000 of accrued interest and fees were converted into 16,168,589
shares of common stock at conversion prices ranging from $0.00156 to $0.02 per
share.
Subsequent to December 31, 2020, we issued 460,829 shares of common stock in
exchange for the cancellation of accrued interest of $24,000 and the token
financing obligation of $100,000.
Subsequent to December 31, 2020, we issued 34,139,772 shares of common stock
upon a cashless exercise of 17,500,000 options shares and 17,045,454 warrants
shares.
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Subsequent to December 31, 2020, we issued 128,527 shares of common stock for
services with a fair value of $26,000.
Subsequent to December 31, 2020, we issued 38,116,450 shares of its common stock
to investors for cash proceeds of $1,525,000 pursuant to our November 2020
Offering Circular.
Subsequent to December 31, 2020, we repaid related party convertible notes,
secured notes payable and accrued interest in the aggregate of $367,000.
Subsequent to December 31, 2020, we applied for funding pursuant to the Small
Business Administration program. The second round of the Paycheck Protection
Program provides forgivable funding for payroll and related costs as well as
some non-payroll costs. We applied for funding and, to date, have received (on
March 16, 2021) funding in the amount of $177,000.
Going Concern
We have yet to establish any history of profitable operations. During the year
ended December 31, 2020, the Company incurred a net loss of $10,088,000 and used
cash in operating activities of $2,256,000, and at December 31, 2020, the
Company had a stockholders' deficit of $14,342,000. In addition, we are in
default on notes payable and convertible notes payable in the aggregate amount
of $3,604,000. 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. 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.
At December 31, 2020, we had cash on hand in the amount of $162,000. Subsequent
to December 31, 2020, we sold subscriptions for $1,525,000 and issued 38,116,450
shares of its common stock in an offering under Regulation A and received one
SBA Paycheck Protection assistance loan for $177,000. 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.
Changes in Authorized Shares and Forward Split of BlockSafe Shares
In June 2015, an increase of the authorized shares of the Company's common stock
from three billion (3,000,000,000) to five billion (5,000,000,000), $0.0001 par
value, was ratified, effective upon the filing of an amendment to our
Certificate of Incorporation with the Wyoming Secretary of State. The amendment
was adopted in July 2015.
In June 2019, an increase of the authorized shares of the Company's common stock
from five billion (5,000,000,000) to seven billion five hundred million
(7,500,000,000), $0.0001 par value, was ratified, effective upon the filing of
an amendment to our Certificate of Incorporation with the Wyoming Secretary of
State. The amendment was adopted in July 2019.
In October 2019, an increase of the authorized shares of the Company's common
stock from seven billion five hundred million (7,500,000,000) to twelve billion
(12,000,000,000), $0.0001 par value, was ratified, effective upon the filing of
an amendment to our Certificate of Incorporation with the Wyoming Secretary of
State. The amendment was adopted in November 2019.
In April 2020, an increase of the authorized shares of the Company's common
stock from twelve billion (12,000,000,000) to seventeen billion
(17,000,000,000), $0.0001 par value, was ratified, effective upon the filing of
an amendment to our Certificate of Incorporation with the Wyoming Secretary of
State. The amendment was adopted in April 2020.
In April 2020, our Board of Directors and the holders of a majority of the
voting power approved a resolution to effectuate a 500:1 Reverse Stock Split
resolution for a reduction in the authorized common stock from seventeen billion
(17,000,000,000) to fourteen billion (14,000,000,000), $0.0001 par value, of the
Company. The amendment was adopted in June 2020.
In December 2020, a decrease of the authorized shares of the Company's common
stock from fourteen billion (14,000,000,000) to four billion (4,000,000,000),
$0.0001 par value, was ratified, effective upon the filing of an amendment to
our Certificate of Incorporation with the Wyoming Secretary of State. The
amendment was adopted in December 2020.
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.
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Critical Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Significant estimates include those related to accounting for 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 of our
ProtectID®, GuardedID® and MobileTrust® 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.
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.
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
Monte Carlo simulation 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.
Recently Issued Accounting Pronouncements
Refer to Note 1 in the accompanying consolidated financial statements.
Additional Information
You are advised to read this Form 10-K in conjunction with other reports and
documents that we file from time to time with the SEC. In particular, please
read our Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K, and
Current Reports on Form 8-K that we file from time to time. You may obtain
copies of these reports directly from us or from the SEC at the SEC's Public
Reference Room at 100 F. Street, N.E. Washington, D.C. 20549, and you may obtain
information about obtaining access to the Reference Room by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains information for electronic filers
at its website http://www.sec.gov.
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