Excellent thread! I think this discussion gets at the heart of the matter for longs right now. To dilute and super charge business operations now or not to dilute and allow the pps to hopefully recover and wait to raise funds in the future if needed. I tend to actually see both sides so not exactly sure where I come out in the argument. Its tough, dilution is no fun for long term investors and it is true that if it continues the pps only has one direction to go and that is down to the gutter. The problem with allowing the stock to just keep falling to the gutter is that it is very difficult to get out of the "cellar" once MMs have it "cellar boxed", especially after all the investors who had an interest in the company were burned all the way down, they typically look to cut their losses and either move on and never come back or turn into 24/7 company bashers which also hurts the stock. At the same time, the other point is valid, a real start up business with not enough capital to really get the businesses rolling absolutely NEEDs to dilute, that is a fact, otherwise we are just all trading a piece of worthless paper, even if the stock is trading at one dollar. The true value is in the growth itself, not the spot price of the stock, this seems to be a very difficult concept for most penny stock traders, partly because typically they just flip the stock occasionally rather than becoming long term investors. While we have seen the pps fall significantly during all of the dilution this year, the long term holders have gotten something from this and that is in the form of a real business with real operations now using those funds raised in order to really grow the company. Eventually the value add should come full circle and give longs shareholder value by way of an increased pps because of sales and revenues and real growth spurring higher valuations for the stock, however this takes time. So Matty does have a point that some critical level of dilution must happen over some span of time in order to raise the proper funds needed to execute on the business plan, however I still think though that the real issue is that its done in a manner which does not lean too heavily on whatever buyers exist in the market for the stock at any time. I think a good point was raised that proper timing of dilution can really change things based on when most of the seasonal buyers come around looking to get in on these kinds of names in the sector. Its a little bit harsh on the longs to consistently just dump millions of shares week after week until the buying pressure has been reduced to a couple hundred dollars a day and then is continued even after that diluting even more, crushing the pps on low volume. Of course until we get the Q2 filings we still cannot know if this is company dilution from management or just impatient investors converting and dumping millions of pref shares into the float, so its all speculation.
As usual, I think a balanced approach is key, however there are no easy solutions. I personally think the dilution is needed for the company to raise the proper funds for the plans it has but the dilution has also been excessive because the window of time during the dilution of those X number of shares has been so narrow. It feels like they have since Feb of this year just been consistently dumping huge number of shares to raise a boat load of cash for the end of the world scenario but what we need to really know is the cash burn rate recently. How much of it has been used versus costs for these business plans to get accomplished, what is left? I personally think a pause is warranted and management should halt the dilution and take stock of what they have accomplished so far with those funds and see how much they have left versus what is needed for the rest of the year. If more is needed, then wait a bit for the stock to recover and when there could be more buying pressure and sell fewer shares for more. If the costs are so high that the business plans are sucking up so much money that they are forced to dilute just to keep the ball rolling at the constant pace of what they are getting accomplished now, then it may be unfortunate but thinking about scenarios whereby they pull back slightly on those ambitious plans may be the wiser path. Just my opinions.
$RFMK!
