Lets take a few steps backward.
What is a reverse merger? The regulatory and investment banking costs of getting a private company public has become absurdly expensive. As a result, smaller companies might find a company that is fairly worthless BUT CLEAN, and buy out controlling interest in order to place the new business in the shell of a company.
Mphase is pretty worthless. IMO they were likely idea people and had no idea how to run a business. They had a large negative cash flow so everything they did caused the stock price to drop.
The new company will pay off all the existing debt so the new company will be just like an IPO without all the costs.
What is an R/S. Splits - forward and reverse are just ways to cut up a pie in big pieces or really small pieces. The value technically doesn't change by a 2/1 or 100/1 reverse split. If the company did a 1000/1 split, everyone would own 1 share for every 1000 they had yesterday, but the value of that one would be 1000 times greater - in theory on value change.
Usually when a company does a Reverse Split, the stock will move up in price right afterwards and then drop pretty big as shorters bring it down. The shorters feel comfortable shorting because when a company usually does a R/S it is because they are financially in trouble.
Here however, the new company is not in trouble. In fact, they are a private company with lots of cash. Enough to pay off the debt completely. Further, they will likely do a 100/1 RS to bring the float to 110 mil and then take 550 mil in exchange for the purchase. This 550 mil will be locked up so to speak because it will be owner's equity. They couldn't sell it even if they wanted to without filing with the SEC first.
That means that the float will be very low in a company that currently is profitable and has cash on hand. That is the formula for a substantial move up in price.
To suggest that current management and new management have anything to do with each other is not realistic. Mphase is at .0002 because they are unable to find a way to increase cashflow. The new company has cashflow and a viable business.
Watch and see what happens in the next 3 weeks. After you go through this, it will be a great learning experience for when you hear of a reverse merger in the future.
