PRE 14A, DEF 14A - Proxy notices PRE 14C, DEF 14C - Information statements these are always worth reading, and sometimes have very clear explanations of why "splits" are occurring.
8k Filings look for any detail, of an "entry into a definitive material agreement" as they are always worth reading.
New "Convertible financing" is often detailed in these filings, and if any type of "merger" or "Share Purchase Agreement" is detailed always, always, search the document for "reverse split."
Some companies deceptively, will NOT use the words "reverse split", and will instead, call it a "share consolidation."
Search the documents for the following words as they are Reverse Split warning signs. "Convertible" "Reverse" "Lenders" ("toxic lenders", are those lenders who have loaned the company money by way of interest bearing convertible notes.)
Convertible Notes:
A startup company with no revenue, often can't pay the interest, or meet other terms of the note.
To protect themselves, the lenders make the company agree, to let them convert some, or all, of the loan principal, into the company's common stock, usually at a large discount to the current share price, often 50%.
This is how the lenders protect themselves, from losing all their money, when a startup company they've loaned money to, fails, or can't generate enough revenue, defaulting on the loan.
When a company defaults, the lender converts the principal, into common stock, and then sells it.
As the price of the stock falls, the lenders are entitled to more common shares per dollar owed, and the company quickly runs out of Authorized Unissued shares.
The Reverse Split
To free up more shares for conversion, a "reverse split" is necessary.
The lender could care less about the share price; all they want is their money back.
This scenario has killed more than one legitimate company.
There are companies that are in business to take advantage of this situation at shareholder expense.
These companies claim legitimacy, but they exist solely to sell shares to the public.
Buying demand has to be created. Penny stock newsletters and ihub, are where this demand is created.
Stocks of companies like this, are very tradeable, as long as you don't believe the hype, and you get in and out, early and quickly.
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