Thread by @WildRhino

#IntoTheDD
#ReverseSplits

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Reverse splits are often seen as evil incarnate. This is sometimes true and false.

Today we'll slightly go over:
1. What is a reverse split
2. The high-level process
3. The good
4. The bad
5. The ugly
6. How to spot a reverse split

#ReverseSplits

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What is a reverse split--
* A reduction of shares which increases the share price
* Does not change the value of your shares
* Market cap does not change

#ReverseSplits

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The High-level Process--
1. Announcement via 8-K, 10-Q, 10-K, or articles of incorporation.
2. Shareholder approval (if required).
3. Company submits notice to FINRA 10 days prior to the effective date.
4. Split posted to the OTC Daily List.

#ReverseSplits

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Reverse Split Example--
* You own 1,000 shares at $1.00.
* 1-for-10 m split is announced.
* For every 10 shares owned, you get 1 share.
* 1-for-10 split executed.
* You now own 100 shares at $10.00.
* Total value pre and post split is $1,000.

#ReverseSplits

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How it can be good--
* To remain listed on an exchange with a minimum share price requirement.
* Cheap priced stocks may cause fear. A reverse split will increase the share price.

#ReverseSplits

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How can it be bad--
We often see sell offs when a reverse split is announced, therefore impacting the share price.

#ReverseSplits

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How it can be ugly--
In the OTC, we see a company execute a split while not reducing the authorized shares.

This is a cause for concern. As an example, if the new OS is 500M and the AS is still 5B, there is a possibility of 4.5B new shares entering the OS.

#ReverseSplits

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How to spot a reverse split--
* Filings (8K, 10K, 10Q, etc.)
* Amendment to the articles of incorporation (Found on the secretary of state website).
* Press release announcing the intent.

Found a mistake? Let me know.

Interested in another topic? Post below!

Below are previous articles:
* Dilution: #DiluteMeNot
* Custodianships: #CustoAndFlow

Correction. Ignore the "m" in the second bullet.