The stock price of Seratosa Inc (OTCMKTS:STOA) started strong last Monday and continued to move up on the chart in the following sessions. It registered gains of more than 150% in the week. On Thursday it made a high of $0.0032 and closed with gains of more than 35% at $0.0023. With more than 67 million shares changing hands, the interest in the company seemed strong. However, on Friday the stock retreated back only to close the week at $0.00065.

The surge or decline

The rapid appreciation in the stock and then equally strong decline on Friday once again proved how risky it is to stay invested in an OTC stock. There are several red flags linked to Seratosa that supported the profit booking in Friday’s trading session. The company doesn’t have an official corporate website. In addition, it doesn’t even have a corporate logo, bringing company’s operations under doubt.

The performance

The severe problems are revealed from the analysis of latest quarterly report submitted at the end of March. It states that Seratosa has zero cash at the end of quarter. The total assets stood at $690,000 and total liabilities came at $913,000. The revenue in the quarter was $480,000 while net loss came at $9375. The revenues declined by almost 40% compared to the quarter last year. Also, the costs of goods sold came at $475,000, which indicates that the company ended the quarter with a gross profit of $5000.

Toxic dilution

The next problem is of convertible notes that Seratosa issued to KBM, Magna and Asher which are stated as some of the most severe toxic funders active in the world of penny stocks. Due to issuance of convertible notes, the common stock of Seratosa Inc (OTCMKTS:STOA) has been severely diluted. However, in a Form 8-K company revealed that all of Magna and Asher notes have been converted and a deal has been made to retire the KBM notes.