Last Thursday DRONE AVIATION HOLDI (OTCMKTS:DRNE) submitted an 8-K filing revealing that the TV network CNN is going to use DRNE’s drones as part of its global newsgathering operations under the Federal Aviation Administration’s (FAA) Pathfinder Program. After sliding down the chart for over a month the stock of the company needed that kind of a major boost.

Investors reacted almost immediately and by the end of the session the stock had managed to climb nearly 14.8% higher to $0.264. The traded volume for the day of 1.3 million shares was more than 6 times bigger than the one for the previous session and three times above the 30-day average for the company. On Friday the positive momentum only got stronger and DRNE finished the week with a gain of 15.5% sitting at $0.305 when the closing bell rang. The market showed even greater interest in the ticker and over 3 million shares changed hands throughout the session.

Although financially DRNE seems to be a lot more stable than the majority of the pennystock companies so far their operations are not that impressive. The annual report for 2014 showed that they finished last year with:

• $1.37 million cash
• $1.49 million total current assets
• $176 million total current liabilities
• $858 thousand annual revenues
• $2.1 million net loss

An even bigger red flag however is the dilution of the common stock. Primarily due to the conversion of preferred A shares the outstanding shares of DRNE ballooned from around 4 million at the end of April 30, 2014, to over 37 million by December 31. In 2015 the conversions have continued with another 86,300 preferred A shares being turned into 8,630,000 common shares between January 1 and March 26. This means that around 300 thousand preferred A shares remain outstanding.

By May 15 DRNE should file their financial report for the first quarter of 2015 and it is more than likely going to impact the movement of the stock. If the numbers found inside show little progress the ticker could return to sliding. DRNE may not have some of the more glaring problems associated with pennystocks and they may have the support of Dr. Phillip Frost of Opko Health Inc (NYSE:OPK) fame but investing in them should still be preceded by extensive due diligence. 

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