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In the stock market, a reverse split reduces the number of outstanding shares and is supposed to increase the price-per-share proportionately. If a stock sells for a dime, say, and undergoes a 1 for 10 reverse split, the price should go up to $1, but that is deceptive, because the capitalization hasn't changed; there are fewer shares outstanding.

On June 21, Nextwave Wireless, a San Diego wireless technology firm, announced a reverse split of 1 for 7. The price of the stock was then 28 cents. Theoretically, it should have gone to $1.96. But it got to $1.75, then drifted down as low as 75 cents. Today (July 19) it is down more than 8% to 89 cents.

Originally, the company emerged from complicated bankruptcy proceedings. San Diego real estate entrepreneur Doug Manchester owned 11.6% of the company at the time of reorganization; he was the second largest shareholder. In 2007, shares began trading and got as high as $77.70. The next year, they got as high as $87.15. Manchester's paper gains have evaporated. In the proxy statement of May 6 of this year, Manchester still owned 7.9 million shares, or 4.8% of the total.

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Comments

Founder July 19, 2010 @ 11:17 a.m.

Small Companies that do Reverse $plits are a RED flag to me... Good Luck Investors!

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Don Bauder July 19, 2010 @ 11:28 a.m.

Response to post #1: Nextwave said it was doing the 1 for 7 reverse split so it could keep the price of its stock above $1 and avoid delisting by Nasdaq. But a reverse split is not a substantive move to improve the company. Best, Don Bauder

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Founder July 19, 2010 @ 12:37 p.m.

Response to post #3: ... Especially when the stock does not "stay" above a dollar! Best2U2

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Don Bauder July 19, 2010 @ 4:11 p.m.

Response to post #3: No, it dropped right through the threshold quickly. The next move is Nasdaq's. Best, Don Bauder

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byrontennyson July 19, 2010 @ 4:20 p.m.

Maybe the stock price reflects the fact that it was a mere short squeeze that made it rise from the 10 cent cellar it fell to in the first place? Considering there are 2 employees in the entire company, I'm shocked it's doing so poorly, grin... This is a stock that's predominantly greased by day-traders and high school kids with Ameritrade accounts who pump and dump on various posting boards. The company's value and assets rival that of Datsun and Enron. Manchester got burned like all people who put money into this cipher. Smoke and mirrors, hype city. At least Manchester has the Grand, that is, for now. Maybe he should put pictures of himself up in NextWave's lobby, it's such a classy touch at his hotels, sigh.

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Don Bauder July 19, 2010 @ 5:45 p.m.

Response to post #5: Yes, that company is hanging by a thread. Manchester has other assets, of course, but those aren't doing so well, either. Best, Don Bauder

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