DNA Brands Inc (DNAX)

[Ed the Trader]

"You made an error in analysis. You can't compare a public "company" and how it operates with a private company. These OTC sub-penny "companies" know they can always fall back on gouging shareholders for more money by selling more shares. That "safety net" so to speak means the mindset is very very different than a private company with direct investors and loans. The OTC operates on hype and BS marketing to sell shares, for the most part. And even genuine ones with products still know they can just turn around and sell a crapload of shares to strangers - the common shareholders who in the majority get screwed over.
"

I have been trading OTC subpennies for years. I completely understand the dilution game.

What I stated was how DNA Brands could continue to operate without a reverse split, and that is simply that if it figures out how to operate in a profitable manner, it would no longer require additional financial assistance from shareholders.

Note that I did not say that DNA Brands WILL figure out how to operate in a profitable manner. I only said that if it DOES figure out how to operate in a profitable manner, Adrian will have no further need to dilute and therefore, he has no need to modify the share structure.

The only reason that I am even suggesting the profitable option is that it IS an option for DNA Brands because they have products that can be legitimately competitive in the marketplace. If that was not true, I would not waste the typing.

Any company that continues to play the dilution game will eventually run into a wall. Each time that they dilute down to $0.0001, the trading volume eventually dries up and they have no choice buy to execute a reverse split.

However, if they attempt too many reverse splits in too short of a time period, FINRA will reject their request for the split. If that does not happen, the PPS drops immediately back to $0.0001 post split and volume stays at zero effectively making the ticker go dormant.

Some con artists will rename the company and the ticker and try to promote themselves in a manner that stupid investors buy shares without realizing that the company had massive dilution under a different ticker name. Even then, enough people usually recognize the name of the CEO as a complete con artist that the word gets out shortly to stay away.

I have no way to know if any of these fates will befall DNA Brands and Adrian McKinzie.

The appearances so far are that he seems determined to scrape by with a bloated share structure so that he does the least possible damage to shareholders. As he has already pointed out, if a reverse split was really on his agenda, he would have just executed one immediately after taking control of the company last February. He does deserve some credit for the facts regarding what he has done, and what he could have done.

I am GUESSING that the initial production runs will not result in profitability because Adrian will likely require the economies of scale to kick in before sales revenue can cover all of the variable and fixed costs while still keeping retail sales prices competitive.

However, it should be quite possible to cover variable costs with either the first or second production run. Once that is accomplished, because Adrian appears to be very cost conscious, he likely will not need to dilute heavily to cover the fixed costs of the business before he can get distribution expanded enough to cover those fixed costs as well.

Remember that when DNA operated pre-2014, DNAX traded as an OTCQB ticker, not an OTC Pink ticker, and they managed to continue to operate for years with 300 million shares of stock outstanding with no heavy dilution. They did this with only annual sales of about $1.2 million.

All of the dilution from 300 million shares outstanding all the way up to 6 billion shares outstanding only occurred in the 18 months between July 2014 and December 2015 after the CEO at the time intentionally sabotaged the corporation in the summer of 2014. DNA operated for YEARS before that with no real dilution, and not one single reverse split in its history.

So, if Adrian can replicate the performance of the pre-2014 DNA Brands, he should be able to either stop, or strongly curtail, dilution while still growing the business.

Time will tell if he is a sufficiently good manager to pull that off.