Labor Smart Inc (OTCMKTS:LTNC) Feeling the Pressure
Labor Smart Inc (OTCMKTS:LTNC) has had a rough ride over the last month or so. Back in mid-September, the ticker was sitting comfortably above the $0.15 per share. It then crumbled and in a matter of a couple of weeks, it managed to drop to under $0.04. A few no-compensation emails helped it regain some of the lost ground, but the bounce proved to be of the dead feline variety which means it lost a whopping 63% of its market cap in a matter of just five sessions. The stock is currently sitting at just over $0.02 per share and many people are wondering about the reasons for the rather horrific performance.
Let’s open the latest 10-Q and see if there’s anything in there that could have predicted the terrible swings. Here’s what LTNC recorded on June 27:
- cash: $275 thousand
- current assets: $3.4 million
- current liabilities: $5.9 million
- quarterly revenues: $6.4 million
- quarterly net loss: $932 thousand
As you can see, especially by Pennyland standards, the revenues aren’t too bad. What’s more, they have experienced an impressive 60% leap year over year. Sadly, profitability is still a long way away and the balance sheet leaves a lot to be desired. Unfortunately, there’s another, more serious issue.
If you do some research on Ryan Schadel, LTNC‘s CEO, you’ll see that a few years ago, he was a shareholder at a company called Pacel Corp (a revoked OTC entity which was once traded under the PCCN symbol). According to this press release, back in 2005, Mr. Schadel wasn’t sure how many shares of Pacel common stock were issued and outstanding and he suspected that some major dilution had taken place. LTNC‘s shareholders are in a similar position at the moment.
First, on May 19, the company increased the number of authorized shares from 75 million to 150 million. A couple of weeks ago, another amendment to the articles of incorporation was filed which means that the A/S count now stands at 1 billion. A lot of stock can be printed in the near (or not so near) future and we reckon that the wise thing to do is to read through the filings and see who could potentially get it.
Once you take a closer look at the latest 10-Q, you’ll see that LTNC is burdened with quite a lot of convertible debt. As is often the case, the notes can be turned into stock at rates below the market price and in LTNC‘s case, the discounts range from 35% to 45%.
It would appear that the note holders are already taking advantage of the favorable terms. Between May 5 and June 25, a total of $324,227 worth of debt was turned into 2,471,532 shares of common stock. Between July 1 and July 22, LTNC printed a further 2,480,445 shares in order to satisfy $267,843 worth of notes.
As a result, on August 6, the number of issued and outstanding shares stood at around 27 million. According to a Schedule 13 form filed on October 28, however, it was sitting at nearly 40 million six days ago.
LTNC has clearly gone through quite a lot of dilution over the last few months and the amount of convertible debt still outstanding means that there’s no telling when the exuberant stock printing will come to an end. That’s why, proceeding with caution might not be a bad call.
