DNA Brands Inc (DNAX)

[Ed the Trader]

DNA BRANDS TO EXECUTE A REVERSE MERGER?

At first, I did not like the latest press release. It very much appeared that Adrian simply had no idea what he should be doing.

Now, after further consideration, I believe I understand what he is planning, and if I am right, he is much smarter than we are thinking.

Let’s consider what was stated in the press release… and overlay some realities of the current state of the corporation.

For the month of July, amongst other things. The company has been focused on negotiations with Its creditors.

"To date, the creditors have kept the company alive. The main goal has been to reduce the company's debt and negotiate an acceptable debt pay-off ratio, with all creditors. In doing so DNA has been in constant contact with creditors, negotiating an acceptable debt forgiveness package, which is getting a good reception.“ Stated CEO, Adrian McKenzie.

We all know that Adrian needs to raise funds to reboot a dormant business. Adrian took over DNA Brands, Inc. last February, so he has been in control for almost six months. By his own earlier admission, his background is in finance, not beverages. Over the last six months, I believe that Adrian has gotten educated about many realities of what will be required to reboot the business.

So, knowing that Adrian needs additional funds to reboot the business by putting the existing energy drink product line back into the market, we must wonder why would it make any sense at all that he is focused on creditors, and more importantly, why he is interested in debt payoffs, and debt forgiveness.

To put the energy drinks back into stores, he needs to spend money (which means more debt for the corporation), not pay off any existing debt!

In addition to debt negotiations, within the last month, the company has received interest from several private companies, looking to align themselves with a public entity. It is only a matter of time before we select the right candidate(s), to work with DNA. My main goal is to work with a self-sustaining, revenue-generating operation, which not only brings Intellectual property, but instant revenue-generating sales to DNA Brands.

From this paragraph of the press release, Adrian is basically telling us that he is planning to do a reverse merger with a privately held corporation which has a dependable revenue stream from an existing product line.

The reason that he has been focused on DNA’s creditors is that he needs to get their buy-in to let DNA do a reverse merger with another business, and keep the existing debt obligations predictable and stable. He may even need to get the debt paid off or restructured to get the company targeted for the merger to agree to close the deal.

As CEO of DNA Brands, my number one goal has been to get the DNA energy drink back into retail shelves. However with recent interest from various private companies, I believe bringing on board instant revenue, will generate more immediate shareholder value (versus waiting for funding, then T+30 day or even T+60 days sales, etc). In turn, instant revenue, will allow the company to raise the funds necessary to purchase inventory.

Until now, we have assumed that the only way in which Adrian could raise the necessary funds which would allow rebooting the business would be through the sale of additional shares of new stock. I believe that once Adrian gathered enough information about what level of funding would really be necessary to do what is necessary to fund the reboot properly, he realized that there is simply not enough headroom between the current O/S and the current A/S to do generate enough funding to give the reboot an excellent chance of success.

He probably has rightfully decided that yet another increase in the A/S would not be received well by the market. He has also stated quite vocally that he would not do a reverse split.

So instead, he found a different way than stock generated funds to execute a creditable reboot. If he can get a privately held corporation to merge with DNA, he can use the revenue from their existing product line to reboot the DNA energy drink product line. The privately held company instantly becomes a publicly held company which gives them access to many orders of magnitude increase in future funding for additional expansion. So, it can be a HUGE win-win situation for both companies and HUGE win for DNA stockholders!

Although the products are not back on the shelves as yet, there has definitely been no lack of interest from the public. The company receives emails on a daily basis from both patrons of the drinks and distributors alike, wanting to get the product back into retail.

If this is accurate, then distribution agreements can be had by DNA Brands, Inc. for the asking. Adrian just needs to obtain the necessary funds to pay for production, warehousing and marketing first.

If he pulls off a creditable reverse merger, all of the ducks will fall into place extremely rapidly and the legitimate value of the company will also increase extremely rapidly as well.

The big question will be how would a reverse merger affect the holdings of the existing shareholders.

The principals and debt holders of the other company would receive shares of stock in proportion to the respective values of both companies.

The reason that DNAX is so appealing is that at its current price level, every increase of one tick represents another 100% profit. A reverse merger can involve some type of stock split, forward or reverse. It would not be repressive as is typically done in the world of OTC Pinks, but don’t be surprised if a 1:2 or 1:5 split, forward or reverse, is done to match up the respective values of the two merging companies, and allow for giving at least half (and probably more than half) of the total stock value of DNA Brands, Inc. to the principals of the other company. That could dampen the short term profit potential for those holding DNAX. However, the longer term potential should still be amazing.