Replies to post #8138 on Reverse Splits

[e-ore]

In my opinion, the vast majority "backfire" because the sole purpose of the reverse split is to increase the supply of authorized but unissued shares. If a company has 1 billion authorized, and 1 billion outstanding, they can no longer sell shares to raise capital, and finance companies holding convertible debt can no longer convert to common and sell when the company doesn't generate revenue and profit to pay off the loan. So in that case, if they did a 1 for 100 reverse split, they would still have 1 billion authorized, but only 10 million outstanding, and the share selling (dilution) can continue.

If a company announces a reverse split, it's the "investor's" choice to determine if this is a legitimate company needing capital for business development, a failing company that can't pay it's loans, a naive company that has fallen victim to a toxic lender, or simply a company that makes money for it's principals by selling shares, and doesn't even have a business.

It's a rare case with a pink sheet or OTCBB stock, imo, that the reverse split is done by a legitimate company in order to meet a minimum price to trade on a higher exchange. If the company is legitimate, the share price should reflect that and rise to the point that a reverse split is not necessary.

All the above is my opinion.