Forward-Looking Statements
The following is management's discussion and analysis (|MD&A") of certain
significant factors that have affected our financial position and operating
results during the periods included in the accompanying financial statements, as
well as information relating to the plans of our current management. This report
includes forward-looking statements. Generally, the words "believes,"
"anticipates," "may," "will," "should," "expect," "intend," "estimate,"
"continue," and similar expressions or the negative thereof or comparable
terminology are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, including the matters set forth
in this report or other reports or documents we file with the Securities and
Exchange Commission from time to time, which could cause actual results or
outcomes to differ materially from those projected. Undue reliance should not be
placed on these forward-looking statements which speak only as of the date
hereof. We undertake no obligation to update these forward-looking statements.
The following discussion and analysis should be read in conjunction with our
financial statements and the related notes thereto and other financial
information contained elsewhere in this Form 10-K.
Our MD&A is comprised of significant accounting estimates made in the normal
course of its operations, overview of our business conditions, results of
operations, liquidity and capital resources and contractual obligations. We did
not have any off balance sheet arrangements as of December 31, 2020 or 2021.
The discussion and analysis of our financial condition and results of operations
is based upon its financial statements, which have been prepared in accordance
with generally accepted accounting principles generally accepted in the United
States (or "GAAP"). The preparation of those financial statements requires us to
make estimates and judgments that affect the reported amount of assets and
liabilities at the date of its financial statements. Actual results may differ
from these estimates under different assumptions or conditions.
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Background
We are a software development and services company that offers a suite of
integrated computer network security products 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, as of April 2021, we hold a 100% interest in
Cybersecurity Risk Solutions, LLC.
In March 2020, the World Health Organization declared the spread of COVID-19 a
pandemic. This outbreak continues to spread throughout the U.S. and around the
world. As a result, authorities continue to implement numerous measures to try
to contain the virus, including restrictions on travel, quarantines,
shelter-in-place orders, business restrictions and complete shutdowns. We are
not considered an "essential business" due to the industries and customers we
serve. As of, and subsequent to, December 31, 2021, we have been following the
recommendations of the CDC and state/local health authorities to minimize
exposure risk for our team members during the pandemic, including the temporary
closure of our corporate office and having our team members work remotely.
During the second quarter of 2021, we reopened our corporate office while
continuing to adhere to the guidelines issued by health authorities. Many
customers and vendors have transitioned to electronic submission of invoices and
payments. The COVID-19 pandemic has resulted in longer response times from
potential new customers and certain existing customers. We cannot anticipate the
effect that the impairments caused by the COVID-19 pandemic will have on our
fiscal 2022 or 2023 results, or the effectiveness and distributions of vaccines,
boosters, and their distribution in 2022 and 2023, changes to mask mandate
policies and to transitioning from a pandemic to an endemic. The pandemic has
significantly impacted the economic conditions both in the United States and
worldwide, with accelerated effects through the date of this Annual Report, as
federal, state and local governments react to the public health crisis, creating
significant uncertainties in both the worldwide and the United States economies.
The situation is rapidly changing, including the onset of the ongoing subsequent
waves of the virus caused by the possibility of various variants over time, and
additional impacts to our business may arise that we are not aware of currently.
We cannot predict whether, when or the manner in which, the conditions
surrounding COVID-19 will change including the timing of lifting any
restrictions or office closure requirements. 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 periods
in 2022, 2023, or beyond.
During the year ended December 31, 2021, we believe the COVID-19 pandemic did
impact our operating results as sales to customers were down 7% as compared from
the year ended December 31, 2020. 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 ongoing
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. During the year ended
December 31, 2021, we earned revenues of $74,000 from SafeVchat™ and PrivacyLoK™
and overall revenues of $193,000.
Our executive office is located at 1090 King Georges Post Road, Suite 603,
Edison, NJ 08837. Our telephone number is (732) 661-9641. At December 31, 2021,
we had 10 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, 2021 COMPARED TO THE YEAR ENDED DECEMBER 31,
2020
Revenues for the year ended December 31, 2021 were $193,000 compared to $207,000
for the year ended December 31, 2020, a decrease of $14,000 or 6.8%. 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 and services.
Cost of revenues for the year ended December 31, 2021 was $27,000 compared to
$13,000 for the year ended December 31, 2020, an increase of $14,000, or 108%.
The increase resulted from the increased fees related to certain revenues. Cost
of revenues are fees related to our revenues, and as a percentage of total
revenues for the year ended December 31, 2021 was 14.0% compared to 6.2% for the
year ended December 31, 2020.
Research and development expenses for the year ended December 31, 2021 were
$566,000 compared to $520,000 for the year ended December 31, 2020, an increase
of $46,000 or 8.8%. The increase was primarily due to the 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 year ended December 31, 2021 were
$9,448,000 compared to $2,350,000 for the year ended December 31, 2020, an
increase of $7,098,000 or 302%. 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, 2021, other expense was $7,397,000 as compared
to other expense of $7,412,000 for the year ended December 31, 2020,
representing a decrease in other expense of ($15,000), or 0.2%. The decrease was
primarily due to decreases in the loss on extinguishment of debt, the change in
the fair value of derivative liabilities and debt discount amortization, offset
by increases in financing costs.
Our net loss for the year ended December 31, 2021 was $17,245,000 compared to
$10,088,000 for the year ended December 31, 2020, an increase of $7,157,000, or
70.9%. The increase was primarily due to the decrease in revenues, increases in
employee stock-based compensation, professional fees and financing costs, offset
by decreases in the loss on extinguishment of debt, the change in the fair value
of derivative liabilities and debt discount amortization.
Liquidity and Capital Resources
Our total current assets at December 31, 2021 were $2,121,000, which included
cash of $2,084,000, as compared with $203,000 in total current assets at
December 31, 2020, which included cash of $162,000. Additionally, we had a
stockholders' deficit in the amount of $11,589,000 at December 31, 2021 compared
to a stockholders' deficit of $14,342,000 at December 31, 2020. 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, 2021 primarily from the sale of common shares for cash
for net proceeds of $5,368,000 under the offering pursuant to Regulation A, and
we received the second draw SBA Paycheck Protection assistance loan for
$177,000.
Subsequent to December 31, 2021, we issued 134,853 shares of common stock for
services with a fair value of $6,000.
Subsequent to December 31, 2021, we repaid convertible notes, secured notes
payable and accrued interest in the aggregate of $26,000.
Going Concern
We have yet to establish any history of profitable operations. During the year
ended December 31, 2021, the Company incurred a net loss of $17,245,000 and used
cash in operating activities of $3,063,000, and at December 31, 2021, the
Company had a stockholders' deficit of $11,589,000. In addition, we are in
default on notes payable and convertible notes payable in the aggregate amount
of $2,867,000. 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, 2021, the Company had cash on hand in the amount of $2,084,000.
Management estimates that the current funds on hand will be sufficient to
continue operations through the next twelve months. The Company's ability to
continue as a going concern is dependent upon its ability to continue to
implement its business plan. Currently, management is attempting to increase
revenues by 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 increase its 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 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 stockholders,
in the case of equity financing.
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Changes in Authorized Shares and Forward Split of BlockSafe Shares
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.
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 and
subscriptions of our ProtectID®, GuardedID®, MobileTrust®, PrivacyLoK™ and
SafeVchat™ 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.
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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 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.
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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