UNITED STATES

SECURITIES EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the quarterly period ended September 30, 2023

☐	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the transition period from __________ to __________

ZERIFY, INC.

(Exact name of registrant as specified in its Charter)

Wyoming	000-55012	22-3827597
(State or other jurisdiction of  incorporation or organization)	(Commission file number)	(I.R.S. Employer Identification No.)

1090 King Georges Post Road, Suite 603

Edison, NJ 08837

(Address of Principal Executive Offices)

(732) 661-9641

(Issuer’s telephone number)

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

Title of each class	Name of each exchange on which registered
N/A	N/A

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value	ZRFY	OTCPink

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

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

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

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated Filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter, was $2,844,000.

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

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

Class	Outstanding at December 15, 2023
Common stock, $0.0001 par value	2,736,452,523

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

Class	Outstanding at December 15, 2023
Preferred stock, Series A, no par value	3

Class	Outstanding at December 15, 2023
Preferred stock, Series B, $0.10 par value	36,667

Transitional Small Business Disclosure Format Yes ☐     No ☒

Documents Incorporated By Reference

None

ZERIFY, INC.

INDEX TO FORM 10-Q FILING

SEPTEMBER 30, 2023

TABLE OF CONTENTS

PART I	Financial Information	Page Number
Item 1.	Financial Information	3
	Condensed Consolidated Balance Sheets at September 30, 2023 (unaudited) and December 31, 2022	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	4
	Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 (unaudited)	7
	Notes to the Condensed Consolidated Financial Statements for the Nine Months Ended September 30, 2023 and 2022 (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	22
PART II	Other Information
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	26
SIGNATURES		28
EX-31.1	Management Certification
EX-32.1	Sarbanes-Oxley Act

2

PART I

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

ZERIFY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
	September 30,			December 31,
	2023			2022
	(Unaudited)
ASSETS
Current Assets:
Cash (includes VIE balances of $300 and $1,000, respectively)	$	34,000		$	192,000
Accounts receivable, net		3,000			20,000
Total current assets		37,000			212,000
Property and equipment, net		31,000			36,000
Operating lease right-of-use asset		13,000			54,000
Other assets		10,000			11,000
Total Assets	$	91,000		$	313,000
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued expenses (includes VIE balances of $4,000 and $4,000, respectively)	$	1,202,000		$	1,160,000
Convertible notes payable, net of discount of $161,000 and $96,000 respectively (including $895,000 in default)		1,309,000			1,282,000
Convertible notes payable - related parties		268,000			268,000
Notes payable (including $2,930,000 and $1,930,000 in default, respectively) (includes VIE balances of $286,000 and $286,000, respectively)		3,235,000			2,826,000
Notes payable - related parties		708,000			693,000
Accrued interest (including $1,679,000 and $1,557,000 due to related parties, respectively)(includes VIE balances of $198,000 and $134,000, respectively)		6,550,000			5,865,000
Contingent payment obligation		1,500,000			1,500,000
VIE Financing obligation		1,263,000			1,263,000
Operating lease liability, current portion		14,000			56,000
Derivative liability		1,439,000			112,000
Total current liabilities		17,488,000			15,025,000
Notes payable, long-term portion		142,000			142,000
Operating lease liability, long-term portion		1,000			1,000
Total Liabilities		17,631,000			15,168,000
Commitments and Contingencies
Stockholders' Deficit
Series A Preferred stock, no par value: 100 shares authorized; 3 shares issued and outstanding		987,000			987,000
Series B Preferred stock par value $0.10: 100,000,000 shares authorized; 36,667 shares issued and outstanding		4,000			4,000
Preferred stock series not designated par value $0.10: 10,000,000 shares authorized; none issued or outstanding		-			-
Common stock par value $0.0001: 10,000,000,000 shares authorized; 2,112,230,283 and 1,452,654,997 shares issued and outstanding, respectively		204,000			110,000
Additional paid-in capital		86,101,000			67,124,000
Accumulated deficit		(103,912,000	)		(82,190,000	)
Total Zerify, Inc. stockholders' deficit		(16,616,000	)		(13,965,000	)
Noncontrolling interest in consolidated subsidiary		(924,000	)		(890,000	)
Total Stockholders' Deficit		(17,540,000	)		(14,855,000	)
Total Liabilities and Stockholders' Deficit	$	91,000		$	313,000
See accompanying notes to the condensed consolidated financial statements

3

ZERIFY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(UNAUDITED)
	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2023			2022			2023			2022
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenue	$	25,000		$	22,000		$	66,000		$	78,000
Operating expenses:
Cost of revenue		10,000			11,000			47,000			33,000
Selling, general and administrative expenses		425,000			1,137,000			2,124,000			6,224,000
Research and development		94,000			135,000			384,000			447,000
Total operating expenses		529,000			1,283,000			2,555,000			6,704,000
Loss from operations		(504,000	)		(1,261,000	)		(2,489,000	)		(6,626,000	)
Other expense:
Interest and financing expenses (including $30,000 and $60,000 to related parties, respectively)		(150,000	)		12,000			(1,505,000	)		(352,000	)
Debt discount amortization		(100,000	)		-			(601,000	)		-
Change in fair value of derivative liabilities		(419,000	)		-			(349,000	)		-
Loss on extinguishment of debt, net		(73,000	)		-			(92,000	)		-
Other expense		(2,000	)		(1,000	)		(2,000	)		(2,000	)
Total other expense, net		(744,000	)		11,000			(2,549,000	)		(354,000	)
Net loss		(1,248,000	)		(1,250,000	)		(5,038,000	)		(6,980,000	)
Net loss attributable to noncontrolling interest		11,000			3,000			34,000			16,000
Net loss attributable to Zerify, Inc.	$	(1,237,000	)		(1,247,000	)	$	(5,004,000	)	$	(6,964,000	)
Deemed dividend to warrant holders		(15,916,000	)		-			(16,718,000	)		-
Net loss to common shareholders	$	(17,153,000	)		(1,247,000	)	$	(21,722,000	)	$	(6,964,000	)
Net loss per common share
-Basic and diluted	$	(0.01	)	$	(0.00	)	$	(0.01	)	$	(0.01	)
Weighted average common shares outstanding
-Basic and diluted		1,839,431,227			1,039,538,614			1,463,429,333			993,424,764
See accompanying notes to the condensed consolidated financial statements

4

ZERIFY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE PERIOD ENDED SEPTEMBER 30, 2023
(UNAUDITED)
	Series A Preferred stock,				Series B Preferred stock,				Common stock,				Additional					Non			Total
	no par value				par value $0.10				par value $0.0001				Paid-in		Accumulated			controlling			Stockholders'
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Deficit			Interest			Deficit
Balance at December 31, 2022		3	$	987,000		36,667	$	4,000		1,109,417,572	$	110,000	$	67,124,000	$	(82,190,000	)	$	(890,000	)	$	(14,855,000	)
Vested stock options		-		-		-		-		-		-		292,000		-			-			292,000
Sale of common stock and warrants		-		-		-		-		176,599,998		18,000		777,000		-			-			795,000
Proceeds on the sale of warrants		-		-		-		-		-		-		18,000		-			-			18,000
Net loss		-		-		-		-		-		-		-		(1,647,000	)		(22,000	)		(1,669,000	)
Balance at March 31, 2023		3	$	987,000		36,667	$	4,000		1,286,017,570	$	128,000	$	68,211,000	$	(83,837,000	)		(912,000	)	$	(15,419,000	)
Sale of common stock and warrants		-								130,000,000		13,000		483,000								496,000
Fair value of common stock issued for services		-		-		-		-		5,000,000		5,000		21,000		-			-			26,000
Common stock issued upon conversion of notes payable and accrued interest		-		-		-		-		31,637,427		3,000		91,000		-			-			94,000
Deemed dividend on sale of warrant for cash														802,000		(802,000	)					-
Net loss		-		-		-		-		-		-		-		(2,120,000	)		(1,000	)		(2,121,000	)
Balance at June 30, 2023		3	$	987,000		36,667	$	4,000		1,452,654,997	$	149,000	$	69,608,000	$	(86,759,000	)	$	(913,000	)	$	(16,924,000	)
Common stock issued upon conversion of notes payable and accrued interest		-								148,686,397		15,000		301,000								316,000
Common stock issued upon cash and cashless exercise of warrants		-		-		-		-		510,888,889		40,000		276,000		-			-			316,000
Deemed dividends from warrant reset														15,916,000		(15,916,000	)					-
																						-
Net loss		-		-		-		-		-		-		-		(1,237,000	)		(11,000	)		(1,248,000	)
Balance at September 30, 2023		3	$	987,000		36,667	$	4,000		2,112,230,283	$	204,000	$	86,101,000	$	(103,912,000	)	$	(924,000	)	$	(17,540,000	)

5

	Series A Preferred stock,				Series B Preferred stock,				Common stock,					Additional						Non			Total
	no par value				par value $0.10				par value $0.0001					Paid-in			Accumulated			controlling			Stockholders'
	Shares		Amount		Shares		Amount		Shares		Amount			Capital			Deficit			Interest			Deficit
Balance at December 31, 2021		3	$	987,000		36,667	$	4,000		955,380,255	$	96,000		$	59,788,000		$	(71,595,000	)	$	(869,000	)	$	(11,589,000	)
Fair value of common stock issued for services		-		-		-		-		134,853		-			6,000			-			-			6,000
Fair value of vested options		-		-		-		-		-		-			1,636,000			-			-			1,636,000
Net loss		-		-		-		-		-		-			-			(2,860,000	)		(7,000	)		(2,867,000	)
Balance at March 31, 2022		3	$	987,000		36,667	$	4,000		955,515,108	$	96,000		$	61,430,000		$	(74,455,000	)	$	(876,000	)	$	(12,814,000	)
Common stock issued for cash		-		-		-		-		50,000,000		5,000			935,000			-			-			940,000
Fair value of common stock issued for services		-		-		-		-		7,596,083		-			163,000			-			-			163,000
Fair value of vested options		-		-		-		-		-		-			1,322,000			-			-			1,322,000
Net loss		-		-		-		-		-		-			-			(2,857,000	)		(6,000	)		(2,863,000	)
Balance at June 30, 2022		3	$	987,000		36,667	$	4,000		1,013,111,191	$	101,000		$	63,850,000		$	(77,312,000	)	$	(882,000	)	$	(13,252,000	)
Common stock issued upon exercise of warrants for cash		-		-		-		-		50,000,000		5,000			495,000			-			-			500,000
Fair value of warrants granted for services		-		-		-		-		-		-			63,000			-			-			63,000
Fair value of common stock issued for services		-		-		-		-		13,000,000		2,000			190,000			-			-			192,000
Exercise of warrants- cash and cashless		-		-		-		-		452,888,889		(2,000	)		(163,000	)		-			-			(165,000	)
Net loss		-		-		-		-		-		-			-			(1,247,000	)		(3,000	)		(1,250,000	)
Balance at September 30, 2022		3	$	987,000		36,667	$	4,000		1,529,000,080	$	106,000		$	64,435,000		$	(78,559,000	)	$	(885,000	)	$	(13,912,000	)
See accompanying notes to the condensed consolidated financial statements

6

ZERIFY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(UNAUDITED)
	For the Nine Months Ended
	September 30,
	2023			2022
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net loss	$	(5,038,000	)	$	(6,980,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		6,000			2,000
Amortization of discount		601,000			-
Amortization of right-of-use asset		41,000			40,000
Fair value of common stock issued for services		26,000			360,000
Fair value of vested options and warrants		292,000			3,022,000
Fair value of derivative liability upon default of note payable		852,000			-
Loss on extinguishment of debt		92,000			-
Allowance for bad debt		10,000			-
Change in fair value of derivative liabilities		349,000			-
Changes in operating assets and liabilities:
Accounts receivable		7,000			10,000
Prepaid expenses and other assets		-			10,000
Accounts payable and accrued expenses		42,000			92,000
Accrued interest		720,000			310,000
Operating lease liability		(42,000	)		(41,000	)
Net cash used in operating activities		(2,042,000	)		(3,175,000	)
Cash flows from investing activities:
Purchases of property and equipment		-			(39,000	)
Net cash used in investing activities		-			(39,000	)
Cash flows from financing activities:
Proceeds from common stock and warrants		1,309,000			1,440,000
Proceeds from exercise of warrants		316,000			-
Proceeds from convertible notes		286,000			-
Proceeds from notes payable		324,000			275,000
Repayment of convertible note payable		(30,000	)		(90,000	)
Repayment of notes payable		(336,000	)		(67,000	)
Proceeds from notes payable-related party		15,000			-
Repurchase of common stock and warrants		-			(165,000	)
Net cash provided by financing activities		1,884,000			1,393,000
Net (decrease) in cash		(158,000	)		(1,821,000	)
Cash at beginning of the period		192,000			2,084,000
Cash at end of the period	$	34,000		$	263,000
Supplemental disclosure of cash flow information:
Interest paid	$	-		$	42,000
Income tax paid	$	-		$	-
Supplemental disclosure of non-cash investing and financing transactions
Fair value of derivative liability upon the issuance of convertible debt recorded as debt discount	$	310,000		$	-
Deemed dividends from issuance and reset of warrants	$	16,718,000		$	-
Fair value of common stock issued upon conversion of convertible notes payable	$	410,000		$	-
See accompanying notes to the condensed consolidated financial statements

7

ZERIFY, INC.

NOTES TO THE CONDENSED CONSOLIDATD FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(UNAUDITED)

Note 1 - Organization and Summary of Significant Accounting Policies

Zerify, Inc. (formerly known as StrikeForce Technologies, Inc.) (the “Company”), a software development and services company, offers a suite of integrated computer network security products using proprietary technology. The Company’s operations are based in Edison, New Jersey and the Company’s common stock is traded on the OTCQB Market under the symbol “ZRFY” (formerly “SFOR”).

In June 2023, the Company increased its authorized capital from 4 billion common shares to 10 billion common shares.

Basis of presentation and principles of consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods have been included. The results of operations for the nine months ended September 30, 2023 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2023. These financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2022 and notes thereto contained in the Annual Report on Form 10-K of the Company as filed with the SEC on April 14, 2023.

Since 2018, the condensed consolidated financial statements include the accounts of the Company and its subsidiary, BlockSafe Technologies, Inc. (“BST”). BST is owned 49% by the Company and 31% by three executive officers of the Company. BST meets the definition of a variable interest entity (“VIE”) based on the determination that the Company is the primary beneficiary of BST. BST’s operating results, assets and liabilities are consolidated by the Company. Intercompany balances and transactions have been eliminated in consolidation.

Going Concern

The Company has yet to establish any history of profitable operations. During the nine months ended September 30, 2023, the Company incurred a net loss of $5,038,000 used cash in operating activities of $2,042,000 and at September 30, 2023, the Company had a stockholders’ deficit of $17,540,000. In addition, the Company is in default on notes payable and convertible notes payable in the aggregate amount of $3,825,000. These factors raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. In addition, the Company’s independent registered public accounting firm, in its report published on our December 31, 2022 year-end financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments that might result from the outcome of this uncertainty should we be unable to continue as a going concern.

Management estimates that the current funds on hand will be sufficient to continue operations through the next few 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 new 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. 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 our operations, in the case of debt financing, or cause substantial dilution to its stockholders, 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. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, and other factors that management believes to be reasonable. In addition, the Company has considered the potential impact of the pandemic, as well as certain macroeconomic factors, including inflation, rising interest rates, and recessionary concerns, on its business and operations.

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

Revenue Recognition

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

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

8

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. To date, the Company has not incurred incremental costs in obtaining customer contracts.

Cost of revenue includes direct costs and fees related to the sale of the Company’s products.

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

	Three Months Ended September 30,
	2023		2022
Software	$	16,000	$	22,000
Service		9,000		-
Total revenue	$	25,000	$	22,000

	Nine Months Ended September 30,
	2023		2022
Software	$	54,000	$	78,000
Service		12,000		-
Total revenue	$	66,000	$	78,000

Fair Value of Financial Instruments

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

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

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

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

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

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

As of September 30, 2023, and December 31, 2022, the Company’s balance sheet includes Level 3 liabilities comprised of the fair value of derivative liabilities of $1,439,000 and $112,000, respectively (see Note 8).

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 values 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.

Stock-Based Compensation

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

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

9

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 is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding, plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued using the treasury stock method. Diluted loss per share excludes all potential common shares if their effect is anti-dilutive. The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive:

	Nine Months Ended September 30,
	2023		2022
Options to purchase common stock		150,633,001		83,133,001
Warrants to purchase common stock		5,082,733,261		21,375,757
Convertible notes		1,798,747,503		21
Convertible Series B Preferred stock		7,333,400		5,047,667
Total		7,039,447,165		109,556,446

Concentrations

For the nine months ended September 30, 2023, sales to two customers comprised 38% and 25% of revenues. For the nine months ended September 30, 2022, sales to two customers comprised 37% and 32% of revenues. 

For the three months ended September 30, 2023, sales to 4 customers comprised 54% and 31 % of revenues. For the three months ended September 30, 2022, sales to 12 customers comprised 42% and 40% of revenues.

At September 30, 2023, two vendors comprised 12% and 10% of accounts payable and accrued expenses.  As of December 31, 2022, two vendors comprised 12% and 11% of accounts payable and accrued expenses.

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

Segments

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

Recent Accounting Pronouncements

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

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

Note 2 – Convertible Notes Payable

Convertible notes payable consisted of the following:

	September 30, 2023			December 31, 2022
Unsecured
(a) Convertible notes due to AL-Bank	$	353,000		$	383,000
(b) Convertible note with Diagonal Lending		186,000			100,000
Unsecured
(c) Convertible notes with fixed conversion features, in default		895,000			895,000
		1,434,000			1,378,000
Less debt discount		(125,000	)		(96,000	)
Total Convertible notes payable	$	1,309,000		$	1,282,000

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(a)	During fiscal 2005, the Company issued notes payable to DART/Citco Global in the aggregate of $543,000. The notes bear interest at an average rate of 7.5% per annum and matured in December 2010. The aggregate notes are convertible by the note holder into less than one share of the Company’s common stock based on a fixed conversion price adjusted for applicable reverse stock splits that occurred in prior fiscal years.
	In fiscal 2009, the note holders agreed to the forbearance of any interest on the notes payable to DART/Citco Global. In August 2021, the notes were assigned to Aktieselskabet Arbejdernes Landsbank (“AL-Bank”), a Denmark based financing institution. In September 2021, the Company executed a repayment agreement with AL-Bank requiring the Company to make monthly payments of $10,000 to AL-Bank, starting in October 2021 and ending in March 2025, for a total of $400,000. Once the payments are made in full pursuant to the repayment agreement, the remaining balance of $143,000 will be forgiven and will be accounted for at that time. At December 31, 2022, the outstanding balance of the unsecured convertible notes payable amounted to $383,000. In June 2023, AL- Bank amended the agreement and extended the maturity date by three months with no changes to the original terms and conditions the agreement. During the nine months ended September 30, 2023, the Company made principal payments of $30,000.   At September 30, 2023, the outstanding balance of the unsecured convertible notes payable amounted to $353,000. The convertible notes payable, including accrued interest are convertible into approximately 108,489 shares of the Company’s common stock.
(b)	On December 15, 2022, the Company issued a convertible note payable to 1800 Diagonal Lending LLC (“Diagonal Lending”) for $100,000. The note is unsecured, bears interest at a rate of 12%, or 22% on default, is due on December 15, 2023, and has a repayment penalty of 120% of the unpaid principal and unpaid interest if prepaid within 180 days of December 15, 2022. The convertible note payable is convertible into shares of the Company’s common stock at a conversion price of 65% of the two lowest daily volume weighted average price (“VWAP”) of the Company’s common stock during the 15 trading days immediately preceding the conversion date. As the ultimate determination of shares of common stock to be issued upon conversion of these debentures may exceed the current number of available authorized shares, the Company determined that the conversion features of these debentures are not considered indexed to the Company’s own stock and characterized the fair value of the conversion features as a derivative liability (see Note 8).  At December 31, 2022, the outstanding balance of the unsecured convertible notes payable amounted to $100,000.
	During the nine months ended September 30, 2023, the Company issued similar convertible notes payable in the aggregate of $287,000 in exchange for cash of $286,000. In addition, the Company also recorded derivative liability of $310,000 to account for the notes' conversion feature (see Note 8).  As a result of these issuances, the Company incurred total costs of $336,000, of which, $287,000  was accounted as a debt discount (limited to the face amount of the note payable) and the remaining $51,000 as interest and financing expense.  The debt discount is being amortized to interest expense over the corresponding term of the note payable. During the nine months ended September 30, 2023, a total of $201,000 notes payable principal and $11,000 of accrued interest were converted into 180,323,824 shares of the Company’s common stock with a fair value of $410,000. The Company followed the general extinguishment model to record the conversion and settlement of the debt. Note payable and accrued interest converted totaled $212,000, the related unamortized debt discount amounted to $78,000, and the derivative liability related to the conversion option of these notes, after final valuation, amounted to $184,000. The fair value of the common shares issued and the difference between the total debt settled and fair value of the common shares issued amounted to $92,000 and was recorded as loss on extinguishment of debt. As of September 30, 2023, outstanding balance of the convertible notes payable amounted to $186,000 and the unamortized debt discount amounted to $125,000. At September 30, 2023, the convertible notes payable, including accrued interest, are convertible to approximately 338,989,891 shares of the Company’s common stock.
(c)	During fiscals 2005 through 2007, the Company issued notes payable in the aggregate of $895,000. The notes are unsecured, bear interest at a rate starting at 8% up to 18% per annum, were due on various dates from March 2008 to March 2015, and are currently in default. The aggregate notes are convertible by the note holders into less than one share of the Company’s common stock based on fixed conversion prices adjusted for applicable reverse stock splits that occurred in prior fiscal years.
	At September 30, 2023 and December 31, 2022, the outstanding balance of unsecured convertible notes payable amounted to $895,000 and $895,000, respectively, and are past due and deemed in default. The convertible notes payable, including accrued interest are convertible to approximately one share of the Company’s common stock.

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Note 3 – Convertible Notes Payable – Related Parties

In prior years, the Company issued unsecured convertible notes to its Chief Executive Officer (CEO) in exchange for cash and/or services rendered. The notes have a compounded interest rate of 8% per annum and will mature on December 31, 2023, as amended. The aggregate notes are convertible by the note holder into less than one share of the Company’s common stock at fixed conversion prices adjusted for applicable reverse stock splits. As of September 30, 2023 and December 31, 2022, the outstanding balance of the notes payable amounted to $268,000.

Note 4 – Notes Payable

Notes payable consisted of the following:

	September 30, 2023			December 31, 2022
Unsecured
(a) Notes payable - in default	$	1,639,000		$	1,639,000
(b) Notes payable issued by BlockSafe - in default		286,000			286,000
(c) Note payable - SBA EID		143,000			149,000
Secured
(d) Note payable – October 2022 in default		1,000,000			1,000,000
(e) Notes payable - in default		6,000			6,000
(f) Notes payable – July 2022		79,000			211,000
(g) Advances on future receipts		275,000
Total notes payable principal outstanding		3,428,000			3,291,000
Less debt discount		(51,000	)		(323,000	)
Total notes payable		3,377,000			2,968,000
Less current portion of notes payable, net of discount		(3,235,000	)		(2,826,000	)
Long term notes payable	$	142,000		$	142,000

(a)	In previous years, the Company issued notes payable in exchange for cash. The notes are unsecured, bear interest at a rate of 8% through 14% per annum and matured starting in fiscal 2011 up to November 2021. At September 30, 2023 and December 31, 2022, the outstanding balance of the notes payable was $1,639,000, respectively, and are past due and in default.
(b)	In 2018, the Company’s consolidated subsidiary BlockSafe, issued promissory notes in exchange for cash. The notes are unsecured, bearing interest at a rate of 8% per annum, and matured in September 2019. At September 30, 2023 and December 31, 2022 the outstanding balance of the BlockSafe notes payable amounted to $286,000, and are past due and in default.
(c)	On May 15, 2020, the Company received a $150,000 loan (the “EID Loan”) from the Small Business Administration (SBA) under the SBA’s Economic Injury Disaster Loan program. The EID Loan has a thirty-year term and bears interest at a rate of 3.75% per annum. Monthly principal and interest payments of $250 per month were deferred for twenty-four months and commenced in June 2022. The EID Loan may be prepaid at any time prior to maturity with no prepayment penalties. The proceeds from the EID Loan must be used for working capital. The EID Loan contains customary events of default and other provisions customary for a loan of this type. As of December 31, 2022, the outstanding balance of the EID loan amounted to $149,000.
	During the nine months ended September 30, 2023, the Company made principal payments of $6,000. At September 30, 2023, the outstanding balance of the EID loan amounted to $143,000. The Company was in compliance with the terms of the EID loan as of September 30, 2023.

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(d)	On October 26, 2022, the Company entered into a Securities Purchase Agreement with Walleye Opportunities Master Fund Ltd., a Cayman Islands company (“Walleye”), whereby Walleye purchased a promissory note of the Company, in the aggregate principal amount of One Million Dollars ($1,000,000) (the “Note”), which is convertible by Walleye into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) upon an Event of Default .
	The Company received $800,000 in cash, which represented the principal of $1,000,000 less an original issue discount in the amount of $200,000 paid to Walleye. Walleye received a seven (7) month note, with no interest and, only in the event of a default (after the Maturity Date) of twelve percent (12%) per annum. The Company shall have the right, exercisable on seven (7) Trading Days prior written notice to Walleye, to prepay the outstanding Principal Amount then due under this Note prior to any default. Walleye may demand immediate repayment in the event of certain events, including a financing event. In the event of default, Walleye shall have, as of and after any event of default, the option to cover the outstanding obligation of the Note at 90% of the lowest VWAP of the Common Stock on the date of the applicable conversion (the “Conversion Date”) or at any point during the four (4) Trading Day period immediately prior to the date of the applicable conversion. In addition, on the Closing Date, Walleye received a five year Fifty Million (50,000,000) common stock purchase warrants, exercisable at $0.0045 per share which shall be earned in full as of the Closing Date of October 26, 2022. The common stock purchase warrant has a cashless exercise provision (unless there is a registration statement registering the underlying shares to the common stock purchase warrants). As a result of these issuances and grants, the Company incurred the following (a) relative fair value of the warrants granted of $260,000; and (b) original issue discounts of $200,000 of the debentures for a total of $460,000 which was allocated as debt discount. The debt discount is being amortized to interest expense over the term of the corresponding debentures. From October 26, 2022 until the Note is extinguished in its entirety, Walleye shall receive a right of participation and first right of refusal on subsequent financings as described in the Agreement. On October 26, 2022, through a Security Agreement of the same date, the Company’s Subsidiaries (specifically BlockSafe Technologies, Inc. and Cyber Security Risk Solutions, LLC) agreed to guarantee and act as surety for payment of the Note. As of December 31, 2022, outstanding balance of the note payable amounted to $1,000,000 and the unamortized debt discount was $323,000. On May 26, 2023, the Walleye note payable matured and became past due. Pursuant to the note agreement, the Company recorded penalty interest of $200,000 and started accruing interest at a rate of 12% per annum. In addition, the Walleye note payable also became convertible to common stock at the option of the noteholder based upon a discounted conversion price equal to 90% of the lowest 4 day VWAP of the Company’s stock price. As the ultimate determination of shares of common stock to be issued upon conversion of this debenture may exceed the current number of available authorized shares, the Company determined that the conversion features of this debenture is not considered indexed to the Company’s own stock and characterized the fair value of the conversion features as a derivative liability (see Note 8). As such, the Company recorded interest expense of $852,000 to account for the derivative liability recognized upon default of this note payable. As a result of the default of the Walleye note payable in May 2023, the Company recognized penalty interest expense totaling $1,052,000. In addition, the Company expensed the entire unamortized debt discount of $323,000 during period ended September 30, 2023. As September 30, 2023, outstanding balance of the note payable amounted to $1,000,000
(e)	In fiscal 2019 and 2020, the Company issued notes payable aggregating $468,000. The notes bear interest at a rate starting from 8% to 37% per annum, each agreement secured by substantially all of the assets of the Company, matured between March 2020 and July 2021.
	At September 30, 2023 and December 31, 2022, the outstanding balance of the secured notes payable was $6,000 and $6,000, respectively, and is in default.
(f)	In July 2022, the Company issued notes payable aggregating $275,000. The notes bear an average interest rate of 51% per annum, each agreement secured by substantially all of the assets of the Company and maturing in January 2024. At December 31, 2022, the outstanding balance of the secured notes payable was $211,000.
	During the nine months ended September 30, 2023, the Company made principal payments of $132,000. At September 30, 2023, the outstanding balance of the secured notes payable was $79,000.
(g)	During the nine months ended September 30, 2023, the Company executed agreements with financing companies and sold future receipts totaling $473,000 in exchange for cash $324,000. Under the terms of the agreements, the Company is obligated to pay these financing companies approximately $8,000 on a daily basis until the advances have been paid in full. The term future receipts mean cash, check, ACH, credit card, debit card, bank card, charged card or other form of monetary payment. These agreements mature on various dates starting from June 2023 to February 2024 and are personally guaranteed by the Company’s CEO.
	The Company accounted for these advances on future receipts as a “liability” pursuant to ASC 470-10-25-2. As a result, the Company recorded a liability of $473,000 which is equal to the future receipts sold. In addition, the Company also recorded a debt discount of $150,000 to account for the difference between the future receipts sold and cash received and other direct fees incurred. The debt discount is being amortized to interest expense over the term of the agreement. During the nine months ended September 30, 2023, the Company paid the financing companies a total of $198,000 and recorded debt discount amortization of $99,000. As of September 30, 2023, outstanding balance of the advances amounted to $275,000 with unamortized debt discount of $51,000, or a net balance of $224,000.

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Note 5 – Notes Payable – Related Party

Notes payable-related party notes represent unsecured notes payable to the Company’s Chief Executive Officer (CEO) ranging in interest rates of 0% per annum to 10% per annum and will mature on December 31, 2023, as amended. The outstanding balance of these notes payable at September 30, 2023 and December 31, 2022 amounted to $708,000 and $693,000, respectively

Note 6 – VIE Financing Obligation

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

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

At September 30, 2023 and December 31, 2022, the outstanding balance of financing obligations amounted to $1,263,000, respectively, to be paid in tokens. At September 30, 2023 and through the date of filing, BlockSafe has not developed or issued any tokens and there is no assurance as to whether, or at what amount, or on what terms, tokens will be available to be issued, if ever.

At September 30, 2023 and the date of this report, as the tokens do not exist, and any amounts received for tokens are not considered equity or revenue, management determined that 100% of the obligation of $1,263,000 is a liability to be settled by BlockSafe, through the issuance of tokens, or through other means if tokens are never issued.

Note 7 – Contingent Payment Obligation

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

At September 30, 2023 and December 31, 2022, the Company has reflected the $1,500,000 received from the Funders as a contingent payment obligation to be paid only if patent enforced claim proceeds are recovered.

Note 8 – Derivative Financial Instruments

The FASB has issued authoritative guidance whereby instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The Company has issued convertible debentures, and in accordance with the FASB authoritative guidance, the conversion features have been characterized as derivative liabilities to be re-measured at the end of every reporting period with the change in value reported in the statement of operations.

The derivative liabilities were valued using the Binomial pricing model and/or Black Scholes pricing model with the following assumptions:

	At September 30, 2023			Issued 2023			At December 31, 2022
Stock Price	$	0.0033		$	0.0054		$	0.0055
Exercise Price	$	0.0009		$	0.0034		$	0.0034
Expected Life (Years)		1.0			1.00			0.80
Volatility		178	%		162	%		165	%
Dividend Yield		0	%		0	%		0	%
Risk-Free Interest Rate		4.62	%		4.84	%		4.73	%
Fair value:
Conversion feature	$	1,439,000		$	1,162,000		$	112,000

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The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock. The expected life of the conversion feature of the notes was based on the remaining term of the notes. 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. At December 31, 2022, the balance of the derivative liabilities was $112,000. 

During the nine months ended September 30, 2023, the Company recognized derivative liabilities of $310,000 upon issuance of additional secured convertible debentures (see Note 2) and $852,000 upon default of a note payable (see Note 4).  In addition, the Company also extinguished derivative liability of $184,000 (see Note 2) pursuant to conversion of a note payable. 

At September 30, 2023, the Company determined the fair value of the derivative liability to be $1,439,000, and as a result, recorded a change in fair value of $349,000 as a component of other income and expenses in the consolidated statements of operations. 

Note 9 – Stockholders’ Deficit

Common Stock

During the nine months ended September 30, 2023, pursuant to the Company’s Qualified Regulation A Offering, the Company issued 306,599,998 shares of common stock in exchange for cash of $1,272,000, net of direct fees and commissions. As part of the offering, the Company also issued warrants to certain investors and placement agent to purchase 61,319,999 shares of common stock. The warrants are fully vested, exercisable at an average exercise price of $0.0145 per share and will expire in five years.

During the nine months ended September 30, 2023, the Company issued 5,000,000 shares of common stock with a fair value of $26,000 to a consultant for services rendered.  The common stock was valued at the corresponding date of the agreement.

Warrants

The table below summarizes the Company’s warrant activities for the nine months ended September 30, 2023:

	Number of Warrant Shares			Exercise Price Range Per Share		Weighted Average Exercise Price
Balance, January 1, 2023		362,729,077		$	0.0018-0.75	$	0.006
Granted		5,301,868,830			0.02		0.02
Canceled/Expired		(13,375,757	)		-		-
Exercised		(568,488,889	)		-		-
Balance outstanding and exercisable, September 30, 2023		5,082,733,261		$	0.00018-0.75	$	0.009

At September 30, 2023, the warrants intrinsic value amounted to $4,000.

The following table summarizes information concerning outstanding and exercisable warrants as of September 30, 2023:

		Warrants Outstanding and Exercisable
Range of Exercise Prices		Number Outstanding		Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
$	0.0009		5,079,733,261		4.21	$	0.0009
	0.020		3,000,000		3.72		0.0200
$	0.0009 - $0.02		5,082,733,261		4.21	$	0.0009

Warrants Issued for Cash

During the nine months ended September 30, 2023, four investors who participated in the Reg A offering (discussed above), offered to purchase additional warrants in exchange for cash. As a result, the Company sold 182,000,000 warrants to purchase shares of common stock in exchange for cash of $37,000. The warrants are fully vested, exercisable at $0.02 per share, and expire in five years.

At the date of sale of these warrants, the estimated fair value of these warrants sold for cash was $839,000 using a Black Scholes Option Pricing Model. The difference between the fair value of the warrants sold and cash received of $802,000 was recorded as a deemed dividend because the issuance of the warrants was only made available to certain shareholders, and not all the common shareholders.

Warrants Exercised  – Cash and Cashless

In July 2023, the Company issued 160,000,000 shares of common stock upon cashless exercise of 217,600,000 warrants.

In August and September 2023, the Company issued 350,888,889 shares of common stock and received cash of $316,000 upon exercise of 350,888,889 warrants. As part of the exercise, the Company also issued 200 million warrants as an inducement to exercise these warrants for cash (inducement warrants). The inducement warrants are exercisable at $0.0009 per share and will expire in 5 years with an estimated fair value of $1.1 million using the Black Scholes Option Pricing Model. Pursuant to current accounting guidelines, the Company accounted the 200 million inducement warrants shares as an equity offering costs.  As the fair value of these inducement warrants will be accounted as an equity offering costs, a reduction to additional paid in capital (APIC), no further accounting is deemed necessary as there is no overall effect to equity (i.e. offset to APIC).

Warrants Reset of Exercise Price

In fiscal 2019 through June 2023, the Company issued warrants to purchase a total of 598,562,208 shares of common stock with an average original exercise price of $0.015 per share that will expire in 5 years from grant date.  These warrants included certain standard anti-dilution provision that will adjust the original exercise price in case the Company will issue similar debt and equity instruments at a price lower than the original exercise price.  In addition, the warrant agreement also stipulates that additional warrants will be granted to the warrant holder upon reset or make whole warrants. 

On July 20,2023, the Company issued common stock to a note holder upon conversion of a note payable with a conversion price of $0.0009 per share.  As a result of this conversion, the reset provision of these 598,562,208 warrants was triggered and a price reset to $0.0009 per share occurred.

Pursuant to current accounting guidelines, to account for the change in the exercise price of the 598,562,208 warrants to $0.0009 per share, the Company computed the fair value of these warrants before the reset and after the reset using the Black Scholes Option Pricing Model (BSM).  The incremental change in the fair value amounted to $55,000 and was accounted as a deemed dividend.

Pursuant to the warrant agreement, the Company also granted a total of 4,858,548,831 warrant shares to these warrant holders to account for the dilutive effect of the price reset or make whole provision.  Pursuant to current accounting guidelines, the Company computed the fair value of these warrants using the BSM which amounted to $15,861,000 and was accounted as deemed dividend. As a result, the Company recognized deemed dividends totaling $15,916,000 to account for these transactions.

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Note 10 – Stock Options

The table below summarizes the Company’s stock option activities for the nine months ended September 30, 2023:

	Number of Option Shares		Exercise Price Range Per Share		Weighted Average Exercise Price
Balance, January 1, 2023		150,633,001	$0.045-$1,121,250,000		$	0.0307
Granted		-		-		-
Expired		-		-		-
Balance outstanding, September 30, 2023		150,633,001	$0.0045-$3.00		$	0.0307
Balance exercisable, September 30, 2023		120,591,791	$0.0045-$3.00		$	0.0371

Options to purchase fractional shares at an exercise price of $1,121,250,000 aggregating to less than one share expired during the nine month period ended September 30, 2023. 

The following table summarizes information concerning the Company’s stock options as of September 30, 2023:

Options Outstanding								Options Exercisable
Range of Exercise Price		Number Outstanding		Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable		Average Remaining Contractual Life (Years)		Weighted Average Exercise Price
$	3.00		518,001		3.30	$	3.00		518,001		3.30	$	3.00
$	2.00		115,000		6.22	$	2.00		115,000		6.22	$	2.00
$	0.0375		65,000,000		8.23	$	0.0375		65,000,000		8.23	$	0.04
$	0.0050		17,500,000		7.33	$	0.0050		17,500,000		7.33	$	0.01
$	0.0045		67,500,000		9.22	$	0.0045		67,500,000		9.22	$	-
$	0.0045		150,633,001		5.78	$	0.0306		150,633,001		5.78	$	0.0371

At September 30, 2023, the stock options has no intrinsic value.

During the nine months ended September 30, 2023, the Company recognized stock compensation expense of $292,000 to account for the vesting of stock options granted in fiscal year 2022.  As of September 30, 2023, there are no unvested stock options.

Note 11 – Commitment and Contingencies

Derivative Complaint

Constantino Zanfardino, Derivatively on Behalf of Nominal Defendant Zerify, Inc., formerly known as Strikeforce Technologies, Inc. v. Mark L. Kay, Ramarao Pemmaraju and George Waller, Defendants, and Zerify, Inc. formerly known as Strikeforce Technologies, Inc., Nominal Defendant (U.S. District Court, District of New Jersey, Civil Action No. 2:22-cv-07258-MCA-AME)

On December 13, 2022, a claimed stockholder, Constantino Zanfardino (“Plaintiff”), filed a stockholder derivative Complaint against our directors, Mark L. Kay, Ramarao Pemmaraju and George Waller (collectively, “Defendants”). Plaintiff asserts claims against each of the Defendants for breach of fiduciary duty, waste of corporate assets and unjust enrichment resulting from Defendants’ alleged wrongdoing in their management of the Company. Through the litigation, Plaintiff seeks judgment against each of the Defendants in favor of the Company.

On March 3, 2023, the Defendants’ filed a Memorandum of Law in Support of their Motion to Dismiss Plaintiff’s Complaint.

On March 10, 2023, the Defendants served a motion to dismiss the complaint upon the Plaintiff.

On June 8, 2023, the Defendants filed a Reply Memorandum in further support of their motion to dismiss Plaintiff’s Complaint. 

On November 28, 2023, the motions claimed by the stockholder, Constatino Zanfardino (“Plaintiff”) are granted in part and denied in part. The claims for breach of fiduciary duties and unjust enrichment are dismissed as to the allegations concerning the Auctus and Crown Bridge transactions, the issuance of preferred stock, and the approval of reverse splits, but not as to the allegations concerning the BlockSafe transactions and the issuance of common stock, other shares, and warrants. The claim for corporate waste is dismissed as to all the allegations. The dismissals are without prejudice to the filing of an Amended Complaint within thirty days that addresses the deficiencies set forth herein. Defendants are continually defending their litigation. It is still not possible to estimate the ultimate outcome of the remaining litigation. Defendants are vigorously defending this litigation. At this time, it is not possible to estimate the ultimate outcome of this litigation.

Onstream Media Corporation

We were engaged in several patent litigations brought by Onstream Media Corporation (“Onstream”) in the United States District Court, District of Wyoming.

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The cases and their filing dates follow:

Case	Date Filed
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00191 (DWY)	September 9, 2022
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00192 (DWY)	September 9, 2022
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00193 (DWY)	September 9, 2022
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00194 (DWY)	September 9, 2022
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00195 (DWY)	September 9, 2022
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00196 (DWY)	September 9, 2022
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00197 (DWY)	September 9, 2022

The above Onstream litigation has been resolved subject to a Confidential License and Settlement Agreement.

Note 12 – Subsequent Events

On November 1, 2023, the Company issued 75,000,000 shares of common stock with a fair value of $60,000 pursuant to a consulting agreement for services.

Subsequent to September 30, 2023, the Company issued 607,222,240 shares of common stock pursuant to an S1 and Reg A offering which resulted in net cash proceeds of $291,000.

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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

Background

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

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

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

The Board of Directors believes that the name change will better reflect the business plans of the Company as reflected in the current cyber security software and in the name Zerify which emphasizes the Company’s mission to ensure Zero-Trust for the most secure collaborative communications and that every participant is verified prior to entering a video conference.

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

Our executive office is located at 1090 King Georges Post Road, Suite 603, Edison, NJ 08837. Our telephone number is (732) 661-9641. At March 31, 2023, we had 14 employees. Our Company’s website is www.zerify.com (we are not including the information contained in our website as part of, nor should the information be relied upon or incorporated by reference into, this report on Form 10-Q).

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

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

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

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Results of Operations

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2022

Revenues for the three months ended September 30, 2023 were $25,000 compared to $22,000 for the three months ended September 30, 2022, an increase of $3,000 or 14%. The increase in revenues was primarily due to revenues relating to our ProtectID®, GuardedID® and MobileTrust® and Zerify™ Meet products as several of our clients changed their strategy. Revenues are derived from software and services.

Cost of revenues for the three months ended September 30, 2023 was $10,000 compared to $11,000 for the three months ended September 30, 2022, an decrease of $1,000 or 9%. The decrease in cost of revenues was primarily due to a decrease in the software fees related to our product offerings. Cost of revenues are fees and key fobs related to our revenues, and as a percentage of total revenues for the three months ended September 30, 2023 was 40% compared to 50% for the three months ended September 30, 2022.

Compensation, professional fees, and selling, general and administrative (collectively, “SGA”) expenses for the three months ended September 30, 2023 were $425,000 compared to $1,137,000 for the three months ended September 30, 2022, a decrease of $712,000. The decrease was due primarily to stock compensation, offset by an increase in compensation/benefits expenses and professional fees. SG&A expenses consist primarily of salaries, benefits and overhead costs for executive and administrative personnel, insurance, fees for professional services, including consulting, legal, and accounting fees, plus travel costs and non-cash stock compensation expense for the issuance of stock options to employees and other general corporate expenses.

Research and development expenses for the three months ended September 30, 2023 were $94,000 compared to $135,000 for the three months ended September 30, 2022, an decrease of $25,000 or 15%. The decrease was primarily due to decrease in salaries and benefit expenses as compared to the prior year period. The salaries, benefits and overhead costs of personnel conducting research and development of our software products primarily comprise our research and development expenses.

For the three months ended September 30, 2023, other expense was $744,000 as compared to other income of $11,000 for the three months ended September 30, 2022. The increase was primarily due to debt discount amortization of $100,000, loss of extinguishment of debt of $73,000 and increase in derivative liability of $419,000, which did not occur in the prior period and. Interest expenses increased to $150,000 due to our increased debt levels and penalty interest.

Our net loss for the three months ended September 30, 2023 was $1,248,000 compared to $1,250,000 for three months ended September 30, 2022, a decrease of $2,000. The increase was primarily due to increased revenue and increased other expenses, offset by decreased operating expense discussed above.

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2022

Revenues for the nine months ended September 30, 2023 were $66,000 compared to $78,000 for the nine months ended September 30, 2022, a decrease of $12,000 or 15%. The decrease in revenues was primarily due to revenues relating to our ProtectID®, GuardedID® and MobileTrust® and Zerify™ Meet products as several of our clients changed their strategy. Revenues are derived from software and services.

Cost of revenues for the nine months ended September 30, 2023 was $47,000 compared to $33,000 for the nine months ended September 30, 2022, an increase of $14,000 or 42%. The increase in cost of revenues was primarily due to an increase in the software fees related to our product offerings. Cost of revenues are fees and key fobs related to our revenues, and as a percentage of total revenues for the nine months ended September 30, 2023 was 71% compared to 42% for the nine months ended September 30, 2022.

Compensation, professional fees, and selling, general and administrative (collectively, “SGA”) expenses for the nine months ended September 30, 2023 were $2,124,000 compared to $6,224,000 for the nine months ended September 30, 2022. The decrease was due primarily to stock compensation, offset by an increase in compensation/benefits expenses and professional fees. SG&A expenses consist primarily of salaries, benefits and overhead costs for executive and administrative personnel, insurance, fees for professional services, including consulting, legal, and accounting fees, plus travel costs and non-cash stock compensation expense for the issuance of stock options to employees and other general corporate expenses.

Research and development expenses for the nine months ended September 30, 2023 were $384,000 compared to $447,000 for the nine months ended September 30, 2022, an decrease of $63,000 or 14%. The decrease was primarily due to a slight decrease in salaries and benefit expenses as compared to the prior year period. The salaries, benefits and overhead costs of personnel conducting research and development of our software products primarily comprise our research and development expenses.

For the nine months ended September 30, 2023, other expense was $2,549,000 as compared to other expense of $354,000 for the nine months ended September 30, 2022. The increase was primarily due to debt discount amortization of $601,000, loss of extinguishment of debt of $92,000 and increase in derivative liability of $349,000, which did not occur in the prior period. Interest expenses increased $1,505,000, due to our increased debt levels and penalty interest. 

Our net loss for the nine months ended September 30, 2023 was $5,038,000, compared to $6,980,000 for nine months ended September 30, 2022. The decrease was primarily due to decreased revenue and increased other expenses, offset by decreased operating expense discussed above.

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Liquidity and Capital Resources

Our total current assets at September 30, 2023 were $37,000, as compared with $212,000 in total current assets at December 31, 2022. Additionally, we had a stockholders’ deficit in the amount of $17,540,000 at September 30, 2023 compared to a stockholders’ deficit of $14,855,000 at December 31, 2022. We have historically incurred recurring losses and have financed our operations through loans, principally from affiliated parties such as our directors, and from the proceeds of debt and equity financing. We financed our operations during the nine months ended September 30, 2023 primarily from the cash balance from the year ended December 31, 2022 and from proceeds of equity instruments and notes payable issued during the nine months ended September 30, 2023.

During the nine months ended September 30, 2023, pursuant to our Qualified Regulation A Offering, we issued 306,599,998 shares of common stock in exchange for cash of $1,272,000, net of direct fees and commissions. As part of the offering, we also issued warrants to certain investors and placement agent to purchase 61,319,999 shares of common stock. The warrants are fully vested, exercisable at $0.02 per share and will expire in five years.

During the nine months ended September 30, 2023, pursuant to our private placement under Rule 506(b) of Regulation D, we sold 182,000,000 warrants to purchase shares of common stock in exchange for cash of $37,000, net of direct fees and commissions. The warrants are fully vested, exercisable at $0.02 per share and will expire in five years.

Going Concern

We have yet to establish any history of profitable operations. During the nine months ended September 30, 2023, the Company incurred a net loss of $5,038,000 and used cash in operating activities of $2,042,000 and at September 30, 2023, the Company had a stockholders’ deficit of $17,540,000. In addition, we are in default on notes payable and convertible notes payable in the aggregate amount of $3,825,000. These factors raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. In addition, the Company’s independent registered public accounting firm, in its report published on our December 31, 2022 year-end financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments that might result from the outcome of this uncertainty should we be unable to continue as a going concern.

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

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Off-Balance Sheet Arrangements

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

Critical Accounting Policies

Use of Estimates

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

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

Revenue Recognition

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

The Company’s revenue consists of revenue from sales and support of our software products. Revenue primarily consists of sales of software licenses and subscriptions of our ProtectID®, GuardedID®, Zerify Meet™ and Zerify Defender™ 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. 

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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 condensed consolidated financial statements.

Additional Information

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

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

We carried out an evaluation, with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (CFO) of the effectiveness our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of September 30, 2023. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are not effective at the reasonable assurance level due to the following material weaknesses:

1. We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to us as of and for the interim period ended September  30, 2023. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

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2. Our board of directors has no independent director or member with financial expertise which causes ineffective oversight of our external financial reporting and internal control over financial reporting.

3. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

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

Remediation of Material Weaknesses

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

(b) Changes in Internal Control over Financial Reporting

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

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Derivative Complaint

Constantino Zanfardino, Derivatively on Behalf of Nominal Defendant Zerify, Inc., formerly known as Strikeforce Technologies, Inc. v. Mark L. Kay, Ramarao Pemmaraju and George Waller, Defendants, and Zerify, Inc. formerly known as Strikeforce Technologies, Inc., Nominal Defendant (U.S. District Court, District of New Jersey, Civil Action No. 2:22-cv-07258-MCA-AME)

On December 13, 2022, a claimed stockholder, Constantino Zanfardino (“Plaintiff”), filed a stockholder derivative Complaint against our directors, Mark L. Kay, Ramarao Pemmaraju and George Waller (collectively, “Defendants”). Plaintiff asserts claims against each of the Defendants for breach of fiduciary duty, waste of corporate assets and unjust enrichment resulting from Defendants’ alleged wrongdoing in their management of the Company. Through the litigation, Plaintiff seeks judgment against each of the Defendants in favor of the Company. On March 3, 2023, the Defendants’ filed a Memorandum of Law in Support of their Motion to Dismiss Plaintiff’s Complaint. On March 10, 2023, the Defendants served a motion to dismiss the complaint upon the Plaintiff. On June 8, 2023, the Defendants filed a Reply Memorandum in further support of their motion to dismiss Plaintiff’s Complaint. 

On November 28, 2023, the motions claimed by the stockholder, Constatino Zanfardino (“Plaintiff”) are granted in part and denied in part. The claims for breach of fiduciary duties and unjust enrichment are dismissed as to the allegations concerning the Auctus and Crown Bridge transactions, the issuance of preferred stock, and the approval of reverse splits, but not as to the allegations concerning the BlockSafe transactions and the issuance of common stock, other shares, and warrants. The claim for corporate waste is dismissed as to all the allegations. The dismissals are without prejudice to the filing of an Amended Complaint within thirty days that addresses the deficiencies set forth herein. Defendants are continually defending their litigation. It is still not possible to estimate the ultimate outcome of the remaining litigation. Defendants are vigorously defending this litigation. At this time, it is not possible to estimate the ultimate outcome of this litigation

Onstream Media Corporation

We are engaged in several patent litigations brought by Onstream Media Corporation (“Onstream”) in the United States District Court, District of Wyoming. 

The cases and their filing dates follow:

Case	Date Filed
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00191 (DWY)	September 9, 2022
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00192 (DWY)	September 9, 2022
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00193 (DWY)	September 9, 2022
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00194 (DWY)	September 9, 2022
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00195 (DWY)	September 9, 2022
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00196 (DWY)	September 9, 2022
Onstream Media Corporation v. Zerify Inc. Case No. 22-cv-00197 (DWY)	September 9, 2022

The above  Onstream litigation has been resolved subject to a Confidential License and Settlement Agreement.

ITEM 1A. RISK FACTORS

The risk factors required pursuant to Regulation S-K, Item 503(c) are not required for smaller reporting companies.

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ITEM 2. RECENT ISSUANCES OF UNREGISTERED SECURITIES

During the nine months ended September 30, 2023, pursuant to the Company’s Qualified Regulation A Offering, the Company issued 306,599,998 shares of common stock in exchange for cash of $1,272,000, net of direct fees and commissions. As part of the offering, the Company also issued warrants to certain investors and placement agent to purchase 61,319,999 shares of common stock. The warrants are fully vested, exercisable at $0.02 per share and will expire in five years.

During the nine months ended September 30, 2023, pursuant to our private placement under Rule 506(b) of Regulation D, the Company sold 182,000,000 warrants to purchase shares of common stock in exchange for cash of $37,000, net of direct fees and commissions. The warrants are fully vested, exercisable at $0.02 per share, and expire in five years.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

At September 30, 2023, the Company is in default on notes payable and convertible notes payable in the aggregate amount of $3,825,000. We have not made various principal and interest payments on many of our debt obligations. We continue to seek work-out arrangements and applicable refinancing with new or revised debt or equity instruments. See Notes 2 and 4 to the condensed consolidated financial statements.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

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ITEM 6. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

Exhibit Number	Description
1.1	Placement Agreement dated July 7, 2020, by and between StrikeForce Technologies, Inc. and Spencer Clarke LLC (23)
1.2	Addendum to Placement Agreement dated November 11, 2020, by and between StrikeForce Technologies, Inc. and Spencer Clarke LLC (25)
1.3	Addendum to Placement Agreement dated April 20, 2021, by and between StrikeForce Technologies, Inc. and Spencer Clarke LLC (28)
3.1	Amended and Restated Certificate of Incorporation of StrikeForce Technologies, Inc. (1)
3.2	By-laws of StrikeForce Technologies, Inc. (1)
3.3	Amended By-laws of StrikeForce Technologies, Inc. (2)
3.4	Amended By-laws of StrikeForce Technologies, Inc. (3)
3.5	Articles of Amendment of StrikeForce Technologies, Inc. (2)
3.6	Amendments to Articles of Incorporation (6)
3.7	Amendments to Articles of Incorporation (7)
3.8	Registration of Classes of Securities (8)
3.9	Amendments to Articles of Incorporation (9)
3.10	Registration of Classes of Securities (10)
3.11	Amendments to Articles of Incorporation (11)
3.12	Registration of Classes of Securities (12)
3.13	Amendments to Articles of Incorporation (13)
3.14	Amendments to Articles of Incorporation (14)
3.15	Amendments to Articles of Incorporation (15)
3.16	Amendments to Articles of Incorporation (16)
3.17	Amendments to Articles of Incorporation (17)
3.18	Amendments to Articles of Incorporation (18)
3.19	Amendments to Articles of Incorporation (22)
3.20	Amendments to Articles of Incorporation (26)
3.21	Amendments to Articles of Incorporation (30)
4.1	Form of Subscription Agreement (25)
4.2	Form of Convertible Promissory Note-Related Party (24)
4.3	Form of Promissory Note-Related Party (24)
4.4	Form of Warrant (29)
10.1	Employment Agreement dated as of May 20, 2003, by and between StrikeForce Technologies, Inc. and Mark L. Kay (1)
10.2	Irrevocable Waiver of Conversion Rights of Mark L. Kay (4)
10.3	Irrevocable Waiver of Conversion Rights of Ramarao Pemmaraju (4)
10.4	Irrevocable Waiver of Conversion Rights of George Waller (4)
10.5	CFO Consultant Agreement with Philip E. Blocker (4)
10.6	2012 Stock Option Plan (5)
10.7	Asset Purchase Agreement between StrikeForce Technologies, Inc. and Cyber Safety, Inc., dated August 24, 2015 (18)
10.8	Amendment to the Asset Purchase Agreement and Distributor and Reseller Agreement between StrikeForce Technologies, Inc. and Cyber Safety, Inc. (19)
10.9	Execution of Litigation Funding Agreement (20)
10.10	BlockSafe Technologies, Inc. Intellectual Property License Agreement (21)
10.11	BlockSafe Technologies, Inc. Management Agreement (21)
10.12	BlockSafe Technologies, Inc. Amended Management Agreement (21)
10.13	Software License and Development Agreement, amendment two, by and between StrikeForce Technologies, Inc. and Intersections, Inc., dated October 1, 2010 (24)
10.14	Form of Settlement and Exchange Agreement (26)
10.15	Cybersecurity Risk Solutions LLC Member Interest Purchase Agreement, dated April 15, 2021 (27)
10.16	Inducement Offer to Exercise Common Stock Purchase Warrants, dated May 5, 2022 (29)

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31.1	Certification by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act, promulgated pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (31)
31.2	Certification by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act, promulgated pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (31)
32.1	Certification by Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code, promulgated pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (31)
32.2	Certification by Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code, promulgated pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (31)
101.INS	Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). (31)
101.SCH	Inline XBRL Taxonomy Extension Schema Document. (31)
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document. (31)
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document. (31)
101.LAB	Inline XBRL Taxonomy Extension Labels Linkbase Document. (31)
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document. (31)
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). (31)

(1)	Filed as an exhibit to the Registrant’s Form SB-2 dated as of May 11, 2005 and incorporated herein by reference.
(2)	Filed as an exhibit to the Registrant’s Form 8-K dated February 4, 2011 and incorporated herein by reference.
(3)	Filed as an exhibit to the Registrant’s Form 10-Q dated December 13, 2010 and incorporated herein by reference.
(4)	Filed as an exhibit to the Registrant’s Form S-1/A dated July 31, 2012 and incorporated herein by reference.
(5)	Filed in conjunction with the Registrant’s Form 14A filed October 5, 2012 and incorporated herein by reference.
(6)	Filed as an exhibit to the Registrant’s Form 8-K dated February 5, 2013 and incorporated herein by reference.
(7)	Filed as an exhibit to the Registrant’s Form 8-K dated May 14, 2013 and incorporated herein by reference.
(8)	Filed as an exhibit to the Registrant’s Form 8-A dated July 29, 2013 and incorporated herein by reference.
(9)	Filed as an exhibit to the Registrant’s Form 8-K dated August 22, 2013 and incorporated herein by reference.
(10)	Filed as an exhibit to the Registrant’s Form 8-A dated October 3, 2013 and incorporated herein by reference.
(11)	Filed as an exhibit to the Registrant’s Form 8-K dated October 3, 2013 and incorporated herein by reference.
(12)	Filed as an exhibit to the Registrant’s Form 8-A dated December 31, 2013 and incorporated herein by reference.
(13)	Filed as an exhibit to the Registrant’s Form 8-K dated December 31, 2013 and incorporated herein by reference.
(14)	Filed as an exhibit to the Registrant’s Form 8-K dated March 18, 2014 and incorporated herein by reference.
(15)	Filed as an exhibit to the Registrant’s Form 8-K dated December 22, 2014 and incorporated herein by reference.
(16)	Filed as an exhibit to the Registrant’s Form 8-K dated February 13, 2015 and incorporated herein by reference.
(17)	Filed as an exhibit to the Registrant’s Form 8-K dated August 4, 2015 and incorporated herein by reference.
(18)	Filed as an exhibit to the Registrant’s Form 8-K dated August 24, 2015 and incorporated herein by reference.
(19)	Filed as an exhibit to the Registrant’s Form 8-K dated February 2, 2016 and incorporated herein by reference.
(20)	Filed as an exhibit to the Registrant’s Form 8-K dated September 11, 2017 and incorporated herein by reference.
(21)	Filed as an exhibit to the Registrant’s Form 10-Q dated June 30, 2018 and incorporated herein by reference.
(22)	Filed as an exhibit to the Registrant’s Form 8-K dated June 25, 2020 and incorporated herein by reference.
(23)	Filed as an exhibit to the Registrant’s Form 1-A dated July 13, 2020 and incorporated herein by reference.
(24)	Filed as an exhibit to the Registrant’s Form 1-A.1 dated September 11, 2020 and incorporated herein by reference.
(25)	Filed as an exhibit to the Registrant’s Form 1-A.1 dated November 12, 2020 and incorporated herein by reference.
(26)	Filed as an exhibit to the Registrant’s Form 8-K dated February 8, 2021 and incorporated herein by reference.
(27)	Filed as an exhibit to the Registrant’s Form 8-K dated April 19, 2021 and incorporated herein by reference.
(28)	Filed as an exhibit to the Registrant’s Form 1A/A- dated April 26, 2021 and incorporated herein by reference.
(29)	Filed as an exhibit to the Registrant’s Form 8-K dates May 10, 2022 and incorporated herein by reference.
(30)	Filed as an exhibit to the Registrant’s Form 8-K/A dated August 3, 2022 and incorporated herein by reference.
(31)	Filed herewith.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ZERIFY, INC.
Dated: December 22, 2023	By:	/s/ Mark L. Kay
		Mark L. Kay
		Chief Executive Officer

Dated: December 22, 2023	By:	/s/ Philip E. Blocker
		Philip E. Blocker
		Chief Financial Officer and Principal Accounting Officer

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