Strikeforce Technologies Inc (OTCMKTS:SFOR) is up 37% on yesterday’s session as it heads into the Thursday morning open in the US, and up 100% on the month. What’s behind the gains, and is there more to come, or is the stock due a correction? Let’s have a look.
First up, for those not familiar with the company, Strikeforce is a software outfit that designs, develops and sells desktop and mobile device security programs. It’s headed up by two key guys – the first, CEO Mark Kay, and the second, CTO Ram Pemmaraju. Kay is an JPMorgan Chase exec, and Pemmaraju is the guy who built the technology that now underpins the company’s software offerings. The three primary products are ProtectID, designed as an out of band authentication toll; GuardedID, which protects against keylogging on desktops; and MobileTrust, which is essentially the same as GuardedID but for mobile devices.
So what’s happened recently that’s driven the price gains? Well, to be honest, not much. The latest announcement details the addition of the latter two software items to Target’s stores – though we don’t know how many, or for how long. This is a bonus, sure, but just how many sales it’s going to bring in remains to be seen. Strikeforce has developed a fresh online presence, branded to promote its two lead consumer products, and again, this should boost sales, but again, just how much difference this is going to make near term we’re not sure. The branding is sleek on the site, but metrics are low (Alexa rank 6 million+), meaning there’s very little traffic going to the site, and the company’s social media presence (facebook, Twitter) discussed in a recent press release is weak.
This said, sales are coming in slowly. Revenues for the first quarter of 2016 came in at $82K, up from $62K for the same period a year earlier. Cash on hand at March 31 was $2.1 million (we’ll get to why shortly) and management expects this, as well as revenues generated from product sales, will cover operating costs until at least December 31, 2016.
So why the big cash injection? Well, the company sued Microsoft for patent infringement back in 2013, and in January this year, the two parties settled. Strikeforce picked up more than $9 million in the settlement, though net of legal fees this came to $4.9 million. In itself, that’s a pretty big deal. It’s not often that companies of this size go up against behemoths and take home cash. One of Strikeforce’s strategies going forward is to try and bring more litigation income in based on the patent that underpins its ProtectID software, and this settlement validates the strength of this patent. Chances are, therefore, we’ll see some more income of this nature going forward. There’s also another patent related income slated for the next few years, as the company sold its GuardedID patent to a distributor for $9 million, with payment guaranteed before 2020.
So what’s the risk here?
It all depends on how long the cash on hand lasts, and how soon its patent sale revenues come through. If it burns through the cash by December end, as expected, then there could be two years of gap to fill from a capital perspective before it picks up the $9 million windfall. There’s already been a lot of dilution, and the company issues stock for fun:
“During the three month period ended March 31, 2016, the Company issued an aggregate of 1,792,243,141 shares of its common stock as follows:
Convertible note holders converted $143,123 of principal, $37,968 of accrued interest and $239,153 of additional interest into 1,792,235,641 shares of common stock at conversion prices ranging from $0.000058 to $0.0008 per share.
The Company issued 7,500 shares of common stock for services, valued at $14.”
There are around 2.1 billion shares outstanding. Market cap is $4.6 million at last count.
This said, if its patent sale cash hits balance before the pot runs out, there will be no need for fresh toxicity and the company will have plenty of capital with which to push its software. It’s a risky one, and all about timing.
We will be updating Insider Financial as soon as we know more. For the latest updates on SFOR, sign up for our free newsletter today!
Disclosure: We have no position in SFOR and have not been compensated for this article.