Ann: Recompliance Prospectus, page-11

G’day. I would say dilution for an existing shareholder is unwanted, but sometimes it is also a necessary evil (e.g. for growing companies).

You buy shares to own part of a company. The proportion of the company you own is based on the relative number of shares you have (your holding), compared to how many shares on issue (SOI) there are in the company in total.

A simple example for anyone that needs it:

Say you bought into a company that owns a water well, and in return they gave you a bucket that entitles you to water (when the well starts producing).
But the well company needs fresh money. The problem is, they have sold SO many buckets, that there is little incentive for new investors to jump on board (sophisticated investors don’t even buy water by the small bucket). So the well company decide to do a consolidation (aka reverse stock split) to reduce the number of buckets (SOI) and make it more attractive to potential investors.

So they consolidate 5:1, and your little bucket of shares gets turned into a cup. But that’s okay, because everyone else also gets a cup instead of a bucket! So proportionally, you all end up entitled to get exactly the same amount of water as you would have before.

BUT now, to raise capital, the well company is also selling big buckets to potential new investors.
As an existing shareholder you can buy a bucket, if you’re willing to give more money to the company. But if you don’t, you’ll still have your small cup, while others now are using big buckets. Meaning once the well starts producing, you’ll be struggling to bring up water with your little cup, and only end up getting around a third of the water you were entitled to before.