PHOT Analysis: 8K’s and PRs since November On

PHOT Analysis: 8K’s and PRs since November

This is the moment that GrowLife ceased to be a small company, and became a potential giant in the marijuana sector. Here is a link to, and an analysis of, all PHOT’s 8k’s and PR’s, beginning with the Nov. 30, 2013 CANX JV.

Link : https://trading.scottrade.com/quotesresearch/...2fMoreNews

Understanding the J/V with CANX...the GIFT program

This is what the deal states: "Under the terms of the JV, CANX will provide GrowLife with immediate funding of $1,300,000 to support an initial GIFT program transaction with additional funding up to $40,000,000 to be provided under the terms of the JV. CANX has also agreed to provide $1,000,000 in immediate growth capital funding to GrowLife under the terms of a convertible note offering. GrowLife will own a non-dilutable 45% share of the joint venture company, Organic Growth International LLC (OGI), and GrowLife may acquire a controlling share of OGI under the terms of the JV.

CANX has incentives under the JV to increase the value of assets and market value of GrowLife by and through ownership of initial common stock warrants with additional warrants awarded over the stages of the JV based upon performance metrics tied to OGI performance and the value of GrowLife's ownership interest in OGI."

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CANX paid $1.3M for a 55% stake in a JV, called OGI. If they meet financial benchmarks which increase PHOT's value, they can be issued more.

Takeaways:
1. CANX must perform under the agreement and meet certain performance metrics to get the shares from Growlife. What those metrics are have not been disclosed. That is to say no guarantee CANX ever sees one share past the 1.4M already issued; shares must be earned.

2. While we do not know exactly what CANX's metrics are, we have been given to understand that earning the shares only happens when they take actions that raise the PPS. They must make Growlife more profitable, and if/when they do they are rewarded with shares (max 3.4 million as per agreement) at a price of .033. This is not just an outright sale but a rather reward for their performance, should they perform for Growlife!

3. If/when CANX has earned these shares they are unrestricted. Sell, hedge, hold... up to them. In my experience, many agreements like this 'split the baby' and sell some/keep some. Say under the first metric they meet they are rewarded with 100,000 shares. CANX can do whatever it wants with them - why wouldn't they be able to? No capital investor would lend the $$$ if they received shares with serious strings attached and couldn't use them.

But ask yourself … what is the incentive for CANX to dump them immediately? If I receive 100k and am in line to receive 3M more, I want to see the value rise!

Link to 1/31 PR, which along with the 8k, are the source of the data below: https://trading.scottrade.com/quotesresearch/...VCD73BBBPB

Re-Evaluating 1/30’s 8k as 2 Separate Deals

PHOT filed an 8k with the SEC on 1/30, stating in part what the 2B in their Feb. 7 proposed A/S increase will be used for.

* Note the difference here between Operating Shares (O/S) and Authorized Shares (A/S). Currently PHOT has 738.5M O/S out of their 1B A/S, which is to say they have roughly 25% of the company’s stocks still in reserve. They plan bigger moves that require them to ask shareholders for an increase to 3B A/S, giving them 2.25B left in the company coffers.

On Jan 30, Growlife filed an 8k containing these 2 separate deals, one with CEN and one with RXNB. In total these deals will cost PHOT about 500M shares, or 25% of the proposed 2B A/S increase.

DEAL 1 – GrowLife acquires an interest in CEN

Brief overview of what CEN gets

235,294,118 shares of Growlife common stock. 

Brief overview of what OGI* gets

(*OGI is a joint venture between PHOT and CANX, a group of private investors. OGI is anticipated to be controlled and owned by PHOT at completion of the JV.)

25% interest in CEN - They own 25% of the facility and the product being made at the CEN facility. Incidentally, PHOT owns more shares in CEN than anyone else as per the 8k. FITX by comparison owns 10%. The revenue numbers selling tons directly to Canada for the MMJ program here are massive. MJNAGirl did a great job breaking down some revenue projections here in a post from 1/30.

Share in 7.7% of gross revenue sharing annually - annual cut off the top, from gross sales.

Exclusive equipment provider - all the equipment for the state of the art grow op supplying the Canadian gov’t up to 1.3 million pounds annually.

One time 100M bonus when 1M pounds grown is reached. 45M of this accrues directly to GrowLife.

Income distribution - In addition to the 25% equity interest in CEN, OGI is entitled to a preference should there be any Distributed Income...Under the terms of the Interest Purchase Agreement (“IPA”), Distributed Income is to be allocated 60% to OGI, 20% to AJOA, and 20% to WP until distributions have been made equal to $40,000,000. After the distribution of $40,000,000, any Distributed Income is to be allocated 40% to OGI, 30% to AJOA, and 30% to WP. It is the intention of the parties to the IPA that distributions from available funds are to be made at least on an annual basis."

They intend to make at least annual distributions. When they do, OGI gets the lion's share.

OGI gets 60% of the first $40M
OGI gets 40% of every years thereafter.

Snapshot : PHOT proposes to use approximately 12% of the raised A/S to make this deal, potentially worth millions per annum. 

DEAL 2 – GrowLife acquires an interest in RXNB

What PHOT gives : In exchange for the rights discussed above, the Company is obligated to issue a total of 264,705,882 restricted shares of its common stock

What PHOT gets : A 40% equity stake in RXNB, a company with involved with THC research having a portfolio valuation of $110 million dollars and approximately $27.5 million dollars in annual revenue.

What is RXNB : RXNB is an investment company with holdings in drug formulation, manufacturing, and distribution. RXNB has numerous pending patents in the field of THC research and development.

RXNB’s intellectual property includes technology for manufacturing and growing legal, medical grade cannabis in accordance with current good manufacturing practices (“cGNP”) to pharmaceutical standards.

RXNB has a pharmacy division which dispenses prescription drugs to 50,000 patients per month in the US. RXNB owns a distribution network, which supplies approximately 2700 clinicians.

The lab and pharmaceutical division may be used as a strain testing facility, as well as introducing existing technology to improve yield from existing GrowLife products.


Sterling’s Thoughts : "We are looking for five times the return on our investment from this partnership." Article published 1/31 - http://www.mainstreet.com/article/small-busin...wlife-buzz


Other takeaway quotes from the PR 1/31 :
“RXNB technologies will accelerate plant growth, allow perpetual grow cycles of about 35 days and protect plants from adulterants, which will yield greater harvests...and sustain GrowLife as a technology leader in the medical marijuana industry through its explosive future growth tomorrow."

"GrowLife intends to take advantage of the infrastructure to better service its clients on the GrowLife platform at a national level," further stated Hegyi. In addition, it owns software technologies, which maintain and perform features of compliant monthly auto shipment processes. It has a grass roots national sales force, which calls upon, sells and educates physicians nationwide."

"We are not eager to disrupt what's working for us with an IPO but we are open to stepping up to a bigger exchange in 2015 if we out grow being listed on the OTCBB because of this venture," Sterling said."

Snapshot : A foothold in the all-important medical side of legal cannabis, and already a viable revenue stream. Scott might be underselling his 5x estimate IMO. Moreover, PHOT gets to name a member to the BOD, ensuring the company interests are actively raised.

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Overall Summary of the 2 Deals : On Feb 7, PHOT is asking shareholders to authorize a raise of the Authorized Shares (A/S) by 2B shares. The company has informed us of the plans form the first 25% of the shares, and they are revenue driven measures exemplifying ‘healthy dilution.’ The plan, as stated, is to use the other 1.5B similarly to acquire assets and garner revenue within an emerging field.

GrowLife has given us reason to believe them here, and the transparency is refreshing within the marijuana sector. PHOT has the capital on hand and the top equipment in the industry, and the contracts signed to date reflect they are bargaining from strength. Expect this to continue.

CEO Sterling Scott has stated the RXNB deal could bring a return of 5x the investment, and the deal with CEN gives OBI 25% ownership, revenue, and a $1M bonus. If the facility yields the anticipated 1.3M lbs per annum, the revenue stream will be in the multi millions annually. Of course, the bonus alone gives PHOT $45M lump sum early into the deal.

2/4/2014 (PR) - PHOT PR Feb. 4 - cobranding with FSPM

Link : http://online.wsj.com/article/PR-CO-20140204-908231.html

Key quote : “The new line of professional components will be co-branded under FusionPharm's PharmPod(TM) brand name and GrowLife's Stealth Grow(TM) line of equipment. This co-branded component line will initially include a line of professional hoods/reflectors and will quickly be expanded to include a wide range of custom designed components. The first shipment of components is anticipated to be available for installation in FusionPharm's PharmPod(TM) system and to the general public through the GrowLife network of hydroponic stores and websites in February.”

Takeaway : An existing relationship enlarges. PHOT is foremost an equipment company. Cobranding to put the Stealth Grow line in FusionPharms ‘pod based ’ growing technology . Partial revenues from equipment sales in Q1, full income from the equipment Q2-4. On March 24, Fusion Pharm announced they will be expanding and have leased a Seattle, WA warehouse. As they grow, so does the cobranding with GrowLife.

2/7/2014 (PR) - GrowLife Votes 'YES' 88% approve A/S increase

Link : https://trading.scottrade.com/quotesresearch/...7BBTC9BTLE

Key Quote : “GrowLife requests all media to accurately report that the increase is to the authorized shares, not the outstanding, and does not immediately dilute the current issued and outstanding share count.”

Takeaway : GIFT ON .

GrowLife Completes First Colorado G.I.F.T. Transaction with Premier Medical Cannabis Dispensary, LEAF Aspen

Link: http://finance.yahoo.com/news/growlife-comple...00107.html

Key Quote : " LEAF Aspen is a preeminent name in medicinal cannabis in Aspen, Colorado, a top company that we're pleased to support through the GIFT program," said Sterling Scott, CEO, GrowLife Inc. "By providing LEAF Aspen with the tools they need to expand, GrowLife has found a terrific long-term partner . This is the exact type of partner we had in mind when developing the program, and is the first of many we hope to support in the industry. "

Takeaway : Less than a month after the raise is A/S, PHOT announces a second GIFT transaction, officially quelling any rumors about the legality of the program in the U.S. GrowLife will be providing equipment to Leaf Aspen, a fully compliant grower in Colorado .

Details we know are that a REIT, Articulated Investors , purchased the real estate for Leaf Aspen... the land transaction does not implicate GrowLife. Additional details may be gleaned from this article : http://www.aspendailynews.com/section/home/161271

The article details how LEAF owners Gideon Murray, Cloud Shadowshot and Jesse Miller purchased a building in Rifle, CO. They plan to tear it down, and in its place will be a two-story structure for a 2,000-plant grow operation that, if all goes as planned, will double or triple LEAF’s current yield. The article, published in February, also mentioned the partners are shopping for new locations, both to sell medical and retail marijuana and conduct their side business manufacturing edibles. This transaction is the GIFT, and we await details of both facilities.

GLTU

TM 

"We are the 88%"