Hi BirdsOfFire,
I am sorry to tell you, but a RS is NOT an accounting trick that signals that a company is in distress. And no, not everyone knows that because what you stated is simply not true. Companies will do a RS for two primary reasons, to get their stock price at a level that will enable to uplist to or maintain listing on a major stock exchange and to get their stock price at a level that would attract the primary drivers of stock price, the institutional investors. I am not sure what information you are being fed about reverse splits. If you would like to see a return on your investment, you and every other shareholder should be wishing for these two things to happen.
As I mentioned in a previous post, RC has invested more than any other person into this company. He owns a majority shares of the stock and he has loaned the company millions of dollars. If he makes a decision that ends in your losing, he loses a lot more than you. He knows the right time for if and when a RS should be done.
Sure, a RS should be done at the right time, but a company does not need to profitable to do it. What is most important is that they have enough cash to keep them as a going concern. With regards to your comment, I have no idea what you mean by "For a RS to work, a company needs to be profitable (millions of dollars) in money profit assets." First of all, this sentence does not make sense. Second, ask CLDX investors what they think of the RS that CLDX did 3 years ago. I think that they are very happy seeing that shares of the stock have increased significantly since then, despite not yet achieving profitability. Also, please see my earlier post of CELH, a beverage company, who did a RS and have given their shareholders a significant return on their investment. Just like you, there were people who were saying the same thing about a RS being bad for the company.
You also state that for a RS split to work, the company must operate in more than one state. Says who? Are you implying that there is no company in the country that operates in one state that is profitable? Then you further state that, so far, KGKG operates in SC and a few others. First you say that they must operate in more than one state but then follow that up with saying that they operate in a few states. What was the point of saying that they must operate in more than one state?
You then mention that a RS only looks good for a moment and then you have the same problem as before. Again, this is incorrect. Please do a simple Internet search on this topic.
You state that after KGKG has proven they can survive, a buyback would look better. And by what strategy are they going to prove that they can survive? Is it by doing nothing? Have you read any of their financial statements? Do you know how to read them? Have you read any of their quarterly or annual reports? In their 10K that came out this week, they had $1.6M in current assets at the end of last year. Their current liabilities were $4.1M. Please tell me how they would be able to pay this debt if they are short $2.5M. Please tell me how would be able to buyback shares with money they do not have. You clearly have not taken a look at the company's financial statement, because you surely would not be making comments about buyback if you had.
The whole point of issuing more shares (yesterday's drop) was to raise money to pay their bills that are due and that are coming due in the coming months and to increase inventory to place in stores. I am sorry, but you are sadly mistaken with your last sentence.
If you are not happy with what the company is doing then you should not have bought because they have been warning you, if you just took the time to read their annual reports. The following is from page 33 of their latest report:
Going Concern
We have incurred operating losses since inception and have negative cash flow from operations since inception. As of December 31, 2021, we had a stockholders’ deficit of approximately $4.1 million and we incurred a net loss of approximately $7.0 million during the year ended December 31, 2021. We also utilized cash in operations of approximately $2.7 million during the year ended December 31, 2021. As a result, our continuation as a going concern is dependent on our ability to obtain additional financing until we can generate sufficient cash flow from operations to meet our obligations. We intend to continue to seek additional debt or equity financing to continue our operations.
Our consolidated financial statements have been prepared on a going concern basis, which implies we may not continue to meet our obligations and continue our operations for the next fiscal year. The continuation of our Company as a going concern is dependent upon our ability to obtain necessary debt or equity financing to continue operations until we begin generating positive cash flow.
There is no assurance that we will ever be profitable or that debt or equity financing will be available to us in the amounts, on terms, and at times deemed acceptable to us, if at all. The issuance of additional equity securities by us would result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, would increase our liabilities and future cash commitments. If we are unable to obtain financing in the amounts and on terms deemed acceptable to us, we may be unable to continue our business, as planned, and as a result may be required to scale back or cease operations for our business, the result of which would be that our stockholders would lose some or all of their investment. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue as a going concern.
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