Streamtrack Inc (OTCMKTS:STTK) Spikes Despite the Crippling Dilution

It’s no secret that more and more people nowadays prefer to get up from the desktop PC’s and use mobile devices. The race is on to create the most useful, best-looking, and most reliable application for smartphones and tablets. Streamtrack Inc (OTCMKTS:STTK) are aware of that.

On Monday, they announced that they have launched the latest version of their RadioLoyalty app for Android devices. They said that the interface has been completely overhauled and that they have included some exciting new features. We went through the reviews of the application and we can see that not everyone is impressed with the new look and functionality. Investors, however, don’t seem to care.

On Monday, STTK closed the session 40% in the green which is not bad. It is nothing, however, compared to what happened yesterday. Almost 290 million shares changed hands in a matter of six and a half hours which resulted in a dollar volume of around $400 thousand (an absolute record for the stock). STTK added a total of 85% which means that it finished the day above the $0.001 per share mark for the first time since the beginning of October.

The question now is: “Can it stay there?”.

While some people are clearly unimpressed with the new app, others are fond of it. A fresh iOS version should also be out soon which, in turn, means that more people will be looking at the ads on it. And that means that more revenues should be coming STTK‘s way.

Speaking of revenues, the company is not doing too badly on that front. Here’s what the figures in the latest 10-Q (the one covering the period ended May 31) look like:

• cash: $39 thousand
• current assets: $463 thousand
• current liabilities: $3.4 million
• quarterly revenues: $445 thousand
• quarterly net loss: $394 thousand

The report is far from perfect. STTK‘s bottom line is still negative and the working capital deficit is hardly confidence-inspiring. Nevertheless, we should mentioned that the revenues have jumped up by a healthy 24% on a year-over-year basis and that the gross and operating margins have been improved.

So, once the new apps pick up speed, everything should be alright, right?

That would have been the case if it wasn’t for the significant dilution that has taken place.

We read in the 10-Q that an entity called ASC Recap LLC (whose name can be found in the filings of many other penny stock companies) initiated legal proceedings against STTK in regards to some liabilities. The dispute was eventually settled, but as a part of it, ASC Recap received more than 24 million shares during the nine months ended May 31.

This means that six months ago, the number of issued and outstanding shares was hovering just below the 120 million mark. On October 7, STTK issued an 8-K form and informed its shareholders that they have printed a “significant amount” of common stock during the period after its latest 10-Q. A quick calculation reveals that the exact number of shares issued between May 31 and October 7 hovers around 149 million. STTK failed to disclose the reasons for the stock printing, but they did say that the O/S count back then amounted to a little over 266 million.

Another 8-K told us that on November 19, it was sitting at almost 385 million. The latest portion of shares were issued as a conversion of debt and although the 8-K doesn’t give us the exact conversion rate, we know that almost all of STTK‘s convertible notes can be turned into stock at discounts ranging from 45% to 50%.