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Non-Tech : Meet Gene, a NASDAQ Market Maker
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To: LPS5 who wrote (340)7/31/2000 8:35:14 PM
From: EL KABONG!!!  Read Replies (1) of 1426
 
LPS5,

Here's the explanation.

The stock price has dropped dramatically. The company continues to sell stock (now at depressed prices) to meet normal monthly obligations and expenses. The additional shares sold dilutes the value of the common shares for all stockholders. Had the price not fallen, fewer shares would need to be sold; therefore less dilution. That's the way the theory goes.

Here's my version of the same story. A small company, replete with its band of merry men (aka shareholders), continues to sell stock to the faithful to support cash flow. The company hasn't and isn't generating sufficient revenues from operations to even cover the monthly electricity bill, or the telephone bill. So, proceeds from the sale of equities (and/or debt instruments) replaces normal cash flow. For now, please disregard the nasty "D" word. Some day, far far away, the company will turn the corner and generate revenues other than the sale of their own stock or debt instruments.

So, by the company continuing to sell stock at depressed prices, and dilution occurring at a more rapid rate, the faithful are watching their capital disappear at a more accelerated rate. (Isn't this called "cash burn" in some circles? <g>) Instead of dying a long drawn out death, these companies are now succumbing much quicker with lower valuations.

KJC
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