Thanks for the link to the reverse split, EmptyBones.
I am surprised at the magnitude of the reverse split. Apparently we are getting only 1 new share for 20,000 current shares, effective on Monday 6-23-14. But I am not surprised about the reverse split itself. We have known for some time that a reverse split was likely, even though I don't think the company ever actually said it. But when you have diluted up to 140 billion shares and you think the company has a shot at survival, a reverse split should be expected at some point. I had thought it would be later, after Utica, but apparently not.
So what does this really mean? If you assume that there were eventually going to be 140 billion shares, then a reverse split of 1 for 20,000 would reduce the share count to 7 million shares outstanding, best I can tell. Where did the 140 billion shares come from, you ask? 20 billion current, plus 20 billion more later from the share dividend, plus potentially 100 billion more from the recent $2.5 million financing. Some of this is assumption on my part.
7 million shares is a good number to have, in my opinion, for a small company like FNRC. With some financial success, this will allow rapid appreciation of the future share price if the company recovers, which now seems likely.
What about the share price? Best I can tell, with 7 million new shares outstanding we should go to about $2.00 a share. This is simply the current $.0001 times 20,000. This makes sense to me, because the company has $14 million in restricted cash on hand, plus cash from the new financing, and a $7 million line of credit that I think is being used for the Utica play. In any event, $14 million divided by 7 million shares outstanding comes to the same $2.00.
Take your current shares and just divide by 20,000 to get your new amount of shares.
One possible scenario is that this could be a real good deal for current share holders "if" there is good news coming from the Wyoming methane wells and the Ohio Utica play. $2 could easily go to $3 or $5 or even $10 if the news looks promising for increasing revenue and profit for the company. No news or bad news and we could gravitate back down again.
Keep in mind why FNRC diluted in the first place. Number one was to prevent a take over of the company. Number two was the necessity to get involved in creative financing to tide the company over until the price of natural gas improved, which it has, and until the company could take a shot at drilling the Utica in Ohio. In other words, it was go through all this or go bankrupt. The company obviously chose to make a go of it.
This reverse split, if true, which it seems to be, could end up being a real good thing. Maybe management has a good feel that good news is on the way and right now is the best time to go ahead and do the reverse split.
Or everything I wrote above could be out in left field. We should find out this year.
Good luck to all.
Cropduster
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