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Reverse Stock Split and GNBT

|Includes: Generex Biotechnology Corp. (GNBT)

Well, I see that GNBT is planning on doing a reverse stock split.  While I applaud the reverse split, I am disappointed in the following line found in the proxy statement:

(ii) following the reverse stock split, to maintain the authorized shares of common stock at 750,000,000;


So if GNBT does a 1-10 reverse split (assuming 750M are outstanding), that means that the management of GNBT would be able to issue another 675M shares to fund operations.  That's a whole lot of dilution.

While I am concerned about dilution, what this really has done is shaken my faith in the Management Team and the Board of Directors.  To me, it seems to indicate a lack of faith in the business strategy.  If the Board and Management have no faith, then what are we as investors suppose to have?

Assume a 1-10 reverse split, that puts the pps at about $3.  Realizing that the average price would be weighted down, let's put the average at $1.  That means the Management Team and Board of Directors feels that potentially an additional $675M needs to be raised to bring the company to cash-flow break even.  That's an awful lot of money.

I completely understand the need to be able to issue additional stock to fund operations, GNBT could do a little more to stabilize the faith of the shareholders by reducing the number of authorized shares of common stock.  While a reduction to 75M on a 1-10 reverse split would be unreasonable, a reduction to 150-250M shares would be reasonable.

It is because of this, I will likely vote against the reverse split.  In fact, I might seek a seat on the Board of Directors if I can get nominated.

-duh

P.S. It looks like TheStreet.com has put a muzzle on Adam Feurestein as his latest article was very matter-of-fact like.


 


Disclosure: Long GNBT