Buy now or buy later? Going back to Hoagy's example of reverse split for 1:40 a shareholder who originally owns, say, 100000, by exercising the Right he can buy for every share he owns 8 shares at 2cents a share, thus paying 16000 to Cline, money Cline can use for working capital, and also paying for Bates salary, assuming he is still around;with the reverse split he will own a total of 100000+800000=900000. With the reverse split in a 1:40 ratio, the price of the stock will be 2cents x 40=80cents. Putting aside the original price you pay for the 100000, the total cost for the 800000 will be 800000 x 2cents=16000. With the reverse split nothing changes in total cost: 20000shares x 80cents=16000dollars. Now the interesting part. you have to ask yourself why the reverse split? Because the company wants to issue more stock at 80 cents; it can not sell stock at 2 cents/sh, for no institution would buy them at that low price due to the instituation's policies. So a reverse split will help the company to find a buyer, a mutual fund, hedge fund, money fund or whatever. But as soon as the word is out that the company would issue stock at 80cents the stock will drop like a stone and will probably go to 60cents or lower to 40cents. If the stock goes back down to 40cents, after the revers split, you have lost half of your investment you made by exercising the Rights and buying 800000 shares at 2 cents at a total cost of $16000. Now your investment is worth 20000shares x 40cents=8000dollars. You have immediately lost $8000 because of the reveerse split and the rumor that the company will issue new stock and cause more dilution. So instead of exercising the Rights and buy 800000shares at 2cents a share, don't exercise them, wait until the revers split is complete, have the company issue new stock, and when the stock hits 40cents go and buy it at that price; it's the same thing as buying the stock at 1cent in the secondary market rather than at the 2cents price that the Bond holders want you to do. And the money you'll be paying for the stock will be going to a fellow shareholder instead of to Cline to be used for paying Bate's salary. So I would say don't buy now, but buy later when the reverse split is over and the stock starts going back down due to new dilution.