Borislav Tonev

Strikeforce Technologies Inc (OTCMKTS:SFOR) With An Inevitable Correction

by Borislav Tonev August 30, 2013
1SFOR.pngBack in April 1, Strikeforce Technologies Inc (OTCMKTS:SFOR, SFOR message board)'s stock was hovering around $0.01 per share. Four months later it had slid to $0.001 and there were no signs of slowing down. The second quarter financial results were due soon and the last thing the shareholders wanted to see was some decreased revenues. They were in for a nasty surprise.

But before we get to the latest financials, let's take a broader look at the company and try to figure out what caused the gigantic slide.

First of all we must point out that SFOR's business plan is to develop personal protection products aimed at battling cybercrime. Without a doubt this is a noble cause but it's also not a bad idea since reports show that this particular industry is quite lucrative at the moment. More importantly, unlike other penny stocks working in this sector (Cloud Security Corp (OTCBB:CLDS) is a prime example), SFOR are ready with their products and have been generating revenues for quite a while.

Despite that, as we already mentioned, the ticker lost a whopping 90% in just four months. There could be a couple of reasons for this, but we reckon that the main culprit is the colossal dilution that the shareholders have had to go through. Between February 2011 and May 2013 the number of authorized shares had grown from 100 million to 1.5 billion and last week they announced that the capital has now been increased to 3 billion shares.

The 10-Q covering the first quarter of 2013 says that back in May the number of outstanding shares was around 425 million. By August, it had grown to over 832 million which is putting more and more pressure on the price. What's more, most of the stock was issued as a conversion of notes, a lot of it was valued at triple-zero figures and, peculiarly enough, a large portion of it is completely unrestricted.

Despite that, when you put the two latest quarterly reports side-by-side, you'll see that the liabilities have hardly moved and that brings us neatly to the Q2 results. As we suggested in the first paragraph, the 10-Q left much to be desired but before we go into any details, we would like to draw your attention to the most important financials found in the statement:

  • cash: $14 thousand
  • current assets: $69 thousand
  • current liabilities: $11.4 million
  • quarterly revenue: $27 thousand
  • quarterly net loss: $688 thousand

Without a doubt, the most disturbing aspect of the figures above is the fact that the revenues for the reviewed quarter have shrunk by about 83% compared to the corresponding period of 2012. SFOR say that the reason for this, in their opinion, is a breach of contract from one of their partners and they also say that they have filed a lawsuit in an attempt to seek some of the losses back, but even so, we can see a couple of potential problems with the legal proceedings. The first one is quite obvious - there can be no guarantees that the Court will rule in SFOR's favor and the second one refers to the lack of financial resources. Lawsuits are usually very expensive and we doubt that the $14 thousand they have in cash will be enough. Additional funding will be hard to come by at this sort of stock prices and it will probably result in yet more convertible notes and more potential dilution.

The green light for their latest patent did give the ticker a massive boost on Wednesday, but we've yet to see if the intellectual property protection will help SFOR in the long run. What's more, the 475% run isn't suggestive of any sort of consistent performance - a point proven by the 21% losses from yesterday. Once the interest subsides a bit, we could see some more red sessions - a behavior often displayed by penny stocks (especially ones targeted by paid promoters) like Xumanii, Inc. f/k/a Medora Corp (OTCMKTS:XUII) and Affinity Mediaworks Corp (OTCBB:AFFW). Make sure you tread carefully and consider all the risks while making your investment decision.

Comments 1

1. Guest
October 07, 2013, 11:49AM

Quotes They just announced shares increasing again from 3 billion to 5 billion.

Type the characters that you see in the box (5 characters).