Note 1 - Organization and Summary of Significant Accounting Policies | 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 ongoing strategy is developing and marketing its suite of network security products to the corporate, financial, healthcare, legal, government, technology, insurance, e-commerce and consumer sectors. The Company’s operations are based in Edison, New Jersey. Basis of Presentation-Unaudited Interim Financial Information 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 six months ended June 30, 2019 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2019. These financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2018 and notes thereto contained in the Annual Report on Form 10-K of the Company as filed with the SEC on April 15, 2019. The consolidated financial statements include the accounts of the Company and its controlled subsidiary, BlockSafe Technologies, Inc. (“BlockSafe”). BlockSafe is owned 49% by the Company and 31% by three executive officers of the Company, which combined represents an 80% controlling interest in BlockSafe. Accordingly, BlockSafe is consolidated by the Company. Intercompany balances and transactions have been eliminated in consolidation. At June 30, 2019, noncontrolling interests represents 51% of BlockSafe that the Company does not directly own. 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 six months ended June 30, 2019, the Company incurred a net loss of $2,497,560 and used cash in operating activities of $681,790 and at June 30, 2019, the Company had a working capital deficiency of $15,330,268 and a stockholders’ deficit of $15,272,797. In addition, the Company is in default on notes payable and convertible notes payable in the aggregate amount of $3,441,924. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that these financial statements are issued. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s December 31, 2018 financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. At June 30, 2019, the Company had cash on hand in the amount of $89,870. Subsequent to June 30, 2019, the Company issued two unsecured convertible promissory note for proceeds of $86,000. Management estimates that the current funds on hand will be sufficient to continue operations through the next six 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 stock holders, in the case of equity financing. 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 income taxes, and 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 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. The following tables present our revenue disaggregated by major product and service lines: Three Months Ended June 30, 2019 June 30, 2018 Software $ 264,577 $ 56,199 Service 43,162 114,752 Total revenue $ 307,739 $ 170,951 Six Months Ended June 30, 2019 June 30, 2018 Software $ 390,791 $ 110,385 Service 48,635 125,259 Total revenue $ 439,426 $ 235,644 Leases Prior to January 1, 2019, the Company accounted for leases under ASC 840, Accounting for Leases Leases, Fair Value of Financial Instruments The Company follows the authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) for fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels as follows: Level 1—Quoted prices in active markets for identical assets or liabilities. Level 2—Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly. Level 3—Unobservable inputs based on the Company's assumptions. The Company is required to use of observable market data if such data is available without undue cost and effort. The Company believes the carrying amount 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. As of June 30, 2019 and December 31, 2018, the Company’s balance sheet includes Level 3 liabilities comprised of the fair value of embedded derivative liabilities of $2,237,480 and $1,313,904, respectively (see Note 5). These embedded derivatives result in Level 3 classification because one or more of the significant inputs are not observable in the market or cannot be derived principally from, or corroborated by, observable market data. The following table sets forth a summary of the changes in the estimated fair value of our embedded derivative during the six month periods ended June 30, 2019 and 2018: Six months ended June 30, 2019 Six months ended June 30, 2018 Fair value at beginning of period $ 1,313,904 $ 623,195 Recognition of derivative liabilities upon initial valuation 920,558 744,249 Extinguishment of derivative liabilities (678,692 ) (68,493 ) Net change in the fair value of derivative liabilities 681,710 (486,278 ) Fair value at end of period $ 2,237,480 $ 812,673 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. For stock-based derivative financial instruments, the Company uses a probability weighted average Black-Scholes-Merton models to value the derivative instruments at inception and on subsequent valuation dates through the June 30, 2019, reporting date. 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. Share-Based Payments The Company issues stock options and warrants, shares of common stock, and equity interests as share-based compensation to employees and non-employees. The Company accounts for its share-based compensation to employees in accordance with FASB ASC 718, Compensation – Stock Compensation . Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period. In prior periods through December 31, 2018, the Company accounted for share-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC 505-50 , Equity - Based Payments to Non-Employees In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting 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. Diluted 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 loss of the Company. In computing diluted loss per share, the treasury stock method assumes that outstanding options, warrants, and convertible preferred stock are exercised and the proceeds are used to purchase common stock at the average market price during the period. Options, warrants, and convertible preferred stock may have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options and warrants. For the six months ended June 30, 2019 and 2018, the dilutive impact of stock options exercisable into 259,500,002 and 259,000,001 shares of common stock, respectively, convertible Series B Preferred stock that can convert into 16,825,556 and 3,135,197 shares of common stock, respectively, and notes payable that can convert into 177,854,318 and 41,131,421 shares of common stock, respectively, have been excluded because their impact on the loss per share is anti-dilutive. Concentrations For the six months ended June 30, 2019, sales to three customers comprised 64%, 19% and 11% of revenues, respectively. For the six months ended June 30, 2018, sales to three customers comprised 47%, 33% and 10% of revenues, respectively. At June 30, 2019, three customers comprised 67%, 17% and 11% of accounts receivable, respectively. At December 31, 2018, two customers comprised 68% and 12% of accounts receivable, respectively. The Company maintains the majority of its cash balances with one financial institution, in the form of demand deposits. At June 30, 2019, the Company did not have cash deposits that exceeded the federally insured limit of $250,000. 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. Recent Accounting Pronouncements In June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments 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. |