Labor Smart Inc (OTCMKTS:LTNC) is Looking for a Partner
You probably know very well that investing in companies that are delinquent in their filings is a huge risk. You’ve read the warning on these pages and you’ve probably seen it on numerous other penny stock websites. Labor Smart Inc (OTCMKTS:LTNC), however, have apparently missed it. Either that, or they’re ignoring it.
Last month, LTNC‘s CEO, Ryan Schadel used some of the company’s funds to buy more than 3.7 million shares or about 9.58% of Staffing Group Ltd (OTCBB:TSGLE). As you have probably noticed, there’s an “E” at the end of Staffing Group’s ticker symbol. It indicates delinquency in the SEC filings and it was put there last week because the company has yet to publish its report for the third quarter of this year.
Considering this, the decision to pour money in TSGLE might seem a bit unreasonable at first, but it would appear that Mr. Schadel has a plan. And he’s willing to share it with everybody. Yesterday, he published an open letter to Brian McLoone, his colleague at TSGLE, and he express his views on a potential partnership between the two companies. In a nutshell, he’s convinced that it’s going to work.
Investors, however, aren’t. The letter did cause quite a bit of stir and it pushed the dollar volume up to about $120 thousand, but despite the hectic trading, the ticker refused to climb up and it closed the session at $0.0003 – exactly the same value as the one logged at the end of Tuesday’s session.
There are indeed a few things worth bearing in mind. For one, the whole letter sounds like some sort of corporate courting and it leaves you with the impression that the big and experienced LTNC will guide the smaller, less powerful TSGLE through the perilous world of the OTC Markets. Indeed, LTNC has been in the business for a while and its revenues are bigger than the ones logged by TSGLE.
It still has some problems of its own, though. Proof of this can be found in the latest 10-Q:
- cash: $127 thousand
- current assets: $3.3 million
- current liabilities: $8.5 million
- quarterly revenues: $5.7 million
- quarterly net loss: $560 thousand
Of course, as Mr. Schadel pointed out, a potential partnership between LTNC and TSGLE should be beneficial to both parties. If he’s right, it could reverse the dropping revenues observed in Q3 and it might even help LTNC become profitable. One thing that a partnership can’t do, however, is fix the share structure.
LTNC made a common mistake among penny stocks and it buried itself under tonnes of extremely toxic notes. It wasn’t long before the conversion notices came rushing in and, predictably enough, the results were catastrophic. During the first nine months of 2015 alone, LTNC issued nearly 6.5 billion shares in order to satisfy about $667 thousand worth of debt.
Of course, Mr. Schadel said in his letter yesterday that he has learned his lesson and that from now on, he will rely on different sources of financing. Unfortunately, the fact that 97% of the last reported O/S count was issued at an average rate of $0.0001 per share suggests that the damage might be irreparable.
