Seratosa Inc (OTCMKTS:STOA) Announces Reverse Split and Crashes

Things were not looking good for Seratosa Inc (OTCMKTS:STOA) a couple of months ago. The stock performance, for example, was far from impressive. STOA was spending most of its time deep in the triple-zero range and although it made a couple of attempts to emerge out of it, there simply wasn’t enough volume to support its runs.

The company was struggling as well. As we mentioned on Friday, at the end of Q1, it had no cash in the bank whatsoever and it registered a 40% drop in revenues on a year-over-year basis. To top it all off, the dilution was monstrous. In March 2014, the number of issued and outstanding shares was sitting at a tiny 492 thousand. A few weeks ago, it was already at more than 306 million. Curiously enough, STOA are not particularly keen on telling us who got the truly astonishing number of newly printed shares, but the toxic notes from Asher Enterprises, Magna Asset Services, and KBM Worldwide did provide a hint.

All in all, the red flags were flying high. Then, investors saw a glimmer of hope.

First, at the end of April, STOA announced that they have converted all the debt owed to Magna and Asher and said that the KBM notes should be retired before the end of May. The conversion rate was not disclosed, but the potential absence of toxic debt certainly got some investors excited.

Last week, STOA really got the fire going when they said that they are about to complete an acquisition of a mobile application developer. The future subsidiary is called Technopreneurs Resource Centre Private Limited and it’s based in Singapore. The press release (which, for reasons that are not particularly clear, appeared on only a handful of websites) said that the acquisition should be closed within the next ten business days and it also said that the new daughter company should bring about $11.6 million in annual revenues and around $2.6 million in net income.

Investors were absolutely ecstatic about the news and they jumped in. In a matter of just three sessions, they managed to push the stock from $0.0008 all the way to $0.0023. Just as everyone thought that STOA is finally going to reward long-term shareholders for their patience, however, the company filed an 8-K form and ruined the party.

The report in question came out a couple of hours after Friday’s opening bell and it shed some light on Technopreneurs’ acquisition. Apparently, if the deal is to be closed, STOA‘s shareholders will need to go through a reverse split. The ratio and the exact date have yet to be determined, but we reckon that the more important question here is: “Why wasn’t this little piece of information included in the press release?” We’ll leave it up to you to contemplate the potential answers.

Predictably, the market wasn’t pleased with the news. STOA experienced a Hindenburg-like crash and in a matter of just a few hours, it burned through more than 70% of its value. Five minutes after today’s opening bell, it’s sitting at $0.0006 per share or about 7.7% in the red.

A pretty devastating performance, no doubt, but does it mean that STOA will continue crashing down?

Not necessarily. If they complete the announced acquisition, they should be able to come up with a much more decent financial statement. Staying away from the toxic debt providers could also help with the company reputation.

Until the reverse split is through and the acquisition is closed, however, any investment will be little more than a gamble. And as STOA showed us on Friday, these sort of gambles don’t always pay off.