Drone Aviation Holdi (OTCMKTS:DRNE) Tumbles Downhill
Drone Aviation Holdi (OTCMKTS:DRNE) issued their latest press release on June 24 and it must be said that they came up with some good news. They announced that BAE Systems, a prime contractor for the US Government, has placed an order for some parts and services which should enhance and support two WASP aerostat systems owned by the US Army.
The press release didn’t say how much money DRNE is about to receive and, generally speaking, it leaves you with the impression that the management team got a bit carried away with the technical stuff. There’s no denying the fact, however, that a purchase order from BAE Systems is good news, especially in light of the company’s financial situation.
As we discussed in our previous articles, DRNE did have some money in the bank at the end of Q1 and the debt wasn’t that horrendous. They put in quite a lot of effort into the development of the WATT product line during Q1, though, and as a result, the revenue figures tumbled. In fact, the drop amounts to 93% on a year-over-year basis. The purchase order, no matter how big, should definitely give DRNE‘s sales a boost.
Despite this, the stock is not performing as expected. It did go up on the day of the announcement when it reached almost $0.33, but it’s been slipping towards the bottom since then and, after an 8% drop yesterday, it stopped at just under $0.24 per share.
Clearly, something or someone is exerting pressure on the ticker and if you want to find one of the potential suspects, you really need to take a deep look into the company’s filings. If you do, you’ll notice that the stock has experienced some significant dilution over the last few months. In fact, between December 31, 2014 and May 15, 2015, the number of issued and outstanding common shares grew from 37,078,114 to 49,566,014.
In most cases, penny stocks get diluted because of convertible notes, but that’s where things get interesting because DRNE doesn’t seem to have any toxic debt on its books at the moment. This, of course is a good thing, but it doesn’t answer the question of where all the dilution came from.
The 12,487,900 common shares that saw the light of day during the first four and a half months of 2015 were actually issued as a conversion of 124,879 Series A Preferred shares. On May 15, there were 271,871 Series A shares still outstanding which could dilute the ticker even further.
The next question that is probably occupying your mind at the moment is: “Where did all those Series A shares come from?”. The answer can be found in our article from November 19, 2014 (hint: convertible debt might have had something to do with it after all).
Of course, this is just one of the potential reasons for DRNE‘s less-than-stellar performance. Dilution, however, is one of the biggest problems encountered by penny stock investors and it should never be underestimated.
About twenty minutes after the opening bell, DRNE is sitting at just over $0.24 per share (about 0.7% in the green).
