Pervasip Corp (PVSP)

[Arthur]

Suppose we have company P, stock is $0.002 a share.
For financing, it announces a secondary stock offering that doubles its A/S and will double its O/S when completed.
The first effect of those new shares on the market will be, as they are being sold, to lower the share price towards $0.001, leaving the overall market cap unchanged.
Of course, the company will raise money doing so, and hopes that the new funds will help increase sales, to the point that the share price will recover from $0.001 to $0.002 and beyond in time.
For the shareholders that owned shares before the secondary offering, that is a bitter deal. They will see the share price go down, and they will have to share any future growth with twice as many other people, who obtained their shares for less than the first bunch had paid.

Now take company Q, that also doubles its A/S, but, instead of selling the shares directly, issue Convertible Debentures, at, say, a 50% discount. Half of the money raised from the sale of shares will go into the coffers of the CD holder and, as the share price drops because of the selling pressure, company Q will have to issue more and more shares to satisfy the CD amount.


In both of these scenarios, the idea that a Reverse Split will somehow "undo the dilution" is utter baloney.

In our scenarios, suppose the company P or Q does a 2 for 1 RS when the stock is $0.001.
The post-RS price goes to $0.002, but, for the people that bought at $0.002, their shares are still underwater. So now they have half their initial number of shares, and there is now twice as many underwater shareholders, and the stock must climb back to $0.004 just so they be back to where we started.

In most sub-penny stocks, the company dilutes its stock, announce a RS, and then dilutes it all over again. The RS just gives the stock more leeway to fall.

That's why most Penny Stock holders are extremely leery of Reverse Splits.
And the claim that dilution does not matter and can be reversed by a RS is still baloney.