Drone Aviation Holdi (OTCMKTS:DRNE) Resurfaces Above the $0.30 Mark
Drone Aviation Holdi (OTCMKTS:DRNE) registered its first truly active session in a while yesterday. Investors traded more than a million shares in a matter of six and a half hours which resulted in a dollar volume of just under $320 thousand. The price jumped up by around 10% and it finished the day at about $0.33. Not a bad performance, but surely, there must be a reason for it.
There is. Yesterday, some government officials informed the public that the army is experiencing a shortage of surveillance and battle drones for their military operations in the Middle East. Even CNN covered the subject and this, it seems, was enough to get some investors all fired up.
The news is certainly positive for unmanned aircraft manufacturers throughout the country, but we should probably note that nobody mentioned the name of DRNE as a potential supplier and this means that yesterday’s spike is somewhat speculative. And the more experienced among you probably know that when a stock is running on nothing more than rumors and speculations, things can often turn ugly in a matter of minutes. There’s one more thing.
While yesterday’s jump wasn’t too bad, the performance from the last week or so is not that impressive. On November 11, DRNE slipped and fell below the $0.30 mark and although it did fluctuate a bit during the next few days, it seemed reluctant to jump back up. And this is a bit strange because the company published its Q3 report on November 7. We should note that it doesn’t look too bad:
- cash: $1.9 million
- current assets: $2.2 million
- current liabilities: $346 thousand
- quarterly revenues: $328 thousand
- quarterly net loss: $1 million
Indeed, DRNE is still not ready to take on Boeing Co (NYSE:BA), but the financials are relatively solid when compared to the ones shown by some of its penny stock counterparts. Apparently, however, they’re not decent enough to push the stock on a more consistent run in the right direction. At least not with the dilution that DRNE is experiencing.
If you open the last two 10-Q’s and take a closer look at them, you’ll see that the number of issued and outstanding shares grew from under 18 million on August 13 to more than 32 million on November 7. Naturally enough, we were eager to find out who got the newly printed stock and why.
Shares have been issued for all sorts of reasons, but if you look carefully, you’ll see that most of them saw the light of day as a conversion of Series A preferred stock. To be a bit more specific, during the three months ended September 30, 98,650 Series A preferred shares were turned into 9,865,000 common ones. Between October 21 and November 4, a further 13,000 preferred shares were converted into 1,300,000 common ones. About 445 thousand Series A shares should still be outstanding which could potentially lead to even more dilution.
And that got us wondering: “How did the Series A preferred stock came to be and why are its holders eager to turn it into freely tradeable common shares?”.
In order to find out, you need to have a look at an 8-K form published on April 18 (when the company was still called Macrosolve Inc). In there, you’ll read that a total of $781 thousand worth of notes and debentures were converted into 595,000 Series C Convertible Preferred shares. We know what you’re thinking: these are not the shares we’re looking for. As it turns out, however, they are.
The 10-Q covering the first quarter of 2014 tells us that when the merger agreement between Macrosolve and Drone Aviation Holding was completed, all of the Series C shares were turned into Series A shares.
In other words, the Series A shares that are now outstanding were issued as a conversion of debt at a rate of $1.31 a piece. Currently they are convertible into common stock at a ratio of 1:100.
