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Attorney and Professor of American and World History in Orlando, Florida, I have authored books and composed scholarly journal articles in the fields of history, law, and finance. A penny stock investor for over a decade, an avid follower of the market, a devoted father to two beautiful... More
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  • GrowLife (PHOT) Inks Deal With VegaMatrix Potentially Worth $14-$19 Million In Annual Gross Revenue

    Today, GrowLife announced it will be the exclusive distributor of the VegaMatrix product line and Kyle Kushman designed nutrients and supplements. Growing aficionados are no doubt familiar with this product line, having been used to help grow multiple Cannabis Cup winners.

    Using one paragraph from the press release, an interesting projection can be 'read between the lines' and revenue projections materialize.

    "Nutrients and supplements for growing legal cannabis are a major part of GrowLife's business in its retail and online sales channels. Nutrients and supplements for the legal cannabis industry typically represent approximately 30-40% of the reported $1.6 billion annual sector sales in the U.S. and consistently represent some of the highest gross margin products in hydroponics stores across the country. GrowLife expects to capture a minimum 3% market share with the VegaMatrix line, focused principally on the premium quality growers, which is already the Company's core market emphasis.

    If nutrients and supplements are 30%-40% of the $1.6B in sales, that would mean they account for between $480-640 Million per annum.

    A 3% market share would equate to between $14.4 - $19.2M per annum in gross revenue accretive to GrowLife.

    -----------------

    Link to PR: http://finance.yahoo.com/news/growlife-secures-exclusive-rights-represent-121500790.html?soc_src=mediacontentstory

    Interesting projections.

    Disclosure: I am long PHOT.

    Apr 07 11:12 AM | Link | Comment!
  • Buying The ‘Pharm - Why There Should Be Room For FSPM In Your Portfolio

    Who says you can't grow vegetables in a warehouse? FusionPharm (OTC:FSPM), Inc. manufactures and sells a line of vertical farming cultivation containers under the PharmPod brand name. PharmPods are hydroponics commercial container systems used in the indoor plant cultivation, marketing them to businesses, universities, and individuals alike. So, back to that warehouse idea and a plan that is likely very different from your expectations.

    The company states that a 'single 40-foot PharmPod container is capable of growing more produce than a one full acre of traditional farm agriculture,' and the 'Ikea-esque' design utilizes stacking pods one upon the other to maximize growing space. In fact, an area smaller than that needed to park a single motor home or recreational vehicle can produce more than three acres worth of traditionally grown produce. Maximizing the farming process to create hyper-efficient growth is accompanied by a faster cultivation process and shorter distribution time.

    Cobranding w/PHOT (Stealth Grow) with 'green' results

    FusionPharm has recently expanded an existing relationship with GrowLife (OTC:PHOT) to use GrowLife's advanced Stealth Grow LED advanced lighting technology. Under the collaboration agreement, GrowLife will provide the necessary grow equipment and consulting services to FusionPharm and co-market the PharmPods. The result? This technology purports to utilize less than 20% of the water required for traditional agriculture. Additionally, the PharmPods require no harmful pesticides and produce no environmentally damaging wastewater runoff. In the green industry of marijuana growth and cultivation, this technology is a 'green friendly' self-contained farming ecosystem.

    Financials - Is the Current $11M market cap supportable?

    A look at revenue and profit trends over the last 3 years shows growth in key areas. FSPM issued a press release on January 15, 2014 reporting a 38% revenue growth, quarter to quarter, in 2013 Q3. The company also anticipated posting end of year results by the end of February. Unfortunately that deadline was not met, and the company filed a 'Notification of Late Filing' with the OTC on March 18, citing staffing limitations which were addressed by the company in March. However, with the 38% growth in Q3 states above, there is reason to be optimistic regarding the upcoming annual financials. FusionPharm reported $227,000 in revenue and $69,000 profit on 2011. 2012 saw revenue spike to $808,000 and profit multiply nearly tenfold over a years' time, rising to $676,000. While there was a spike in total liabilities from $332,000 to $438,000, long term debt dropped from $265,000 to $264,000.

    Despite this, investors may not believe these fundamentals and revenue equate to the $11M market cap. However, the market price of FusionPharm should not be weighted heavily by the past data. Should investors begin to speculate in the medical or recreational marijuana sector, forward looking analysis may be more pertinent than hindsight. As in any emerging sector and company, investors will need to decide whether or not FusionPharm is poised to continue year over year revenue growth in a nascent industry offering a chance at large-scale growth. More importantly, the question becomes whether or not this company is going to be able to capture a large enough share of what is expected to be an ever-growing pie.

    How big will the marijuana market be? Very large by recent estimations. With domestic businesses emerging as additional states cross the green line, the marijuana business should continue to expand domestically. Colorado's reported $2M in revenue from the first month of recreational marijuana taxes will not go unnoticed by other states facing budget deficits. Additional revenue growth can be captured north of the border, where the Canadian government has legalized medical marijuana on a nationwide scale and Health Canada is projecting between 300,000 to 400,000 patients within the next decade, carrying a projected annual revenue of a massive $1.3 billion by 2024. This data projects large growth both in the US and particularly in Canada, and on both sides of the border, FusionPharm is implementing large, revenue accretive growth.

    2014 growth: Equipment sales in Canada

    FusionPharm announced on March 27 that they are shipping their second Canadian order, supplying approximately $270,000 worth of PharmPod containers is the first installment of an anticipated $2.3million, 12 month build-out of the Canadian facility. CEO Scott Dittman, states that 'the Canadian market has become our largest customer base so far in 2014 and we are excited to build the PharmPod brand in Canada and elsewhere." Dittman, a Certified Public Accountant with a business degree from the University of Colorado and former member of the Small Business Consulting Group of Arthur Andersen's San Francisco office, must like what he sees when he looks north, as FusionPharm is currently exploring sales and distribution partnership opportunities in Canada, even intending to open a sales center in Canada in 2014.

    2014 growth: Planned US Expansion

    FusionPharm is growing domestically as well, recently doubling the production capacity of their Denver facility. The company announced on February 25 that it had received $1M in equity funding, money which management intends to use to complete outfitting of its recently expanded manufacturing facilities and construct new sales centers in key markets. Management followed through just four weeks later.

    On March 24 FusionPharm announced they had leased space in Seattle, Washington in anticipation of opening its first Washington state sales and design center. Construction on the facility is expected to be completed by approximately May 15. FusionPharm also completed their first sale and financing agreement in Massachusetts on February 11, providing Greenway Wellness Foundation, a recipient of 3 of the 35 available licenses to grow medical marijuana in Massachusetts. The company has stated that it anticipates additional facilities being constructed on the east coast of the US in 2014.

    Note on risk and a prediction

    FusionPharm offers great expansion potential, appears well connected, and is poised to continue expansion into the budding marijuana industry. However, there is risk here, and perhaps more than with most other investments one could make. Currently trading on the OTC pink, FusionPharm is a non-reporting company who recently filed a 'Notice of Late Financials' with the OTC, although as described above, the information that has been released for Q3 2013 is promising. Appearing on ICannabis Radio in January, CEO Dittman stated FusionPharm is focused on becoming current and SEC reporting this spring, which would give a large boost to investors' confidence in this stock.

    With only 8.02M shares outstanding, large orders shipping, manufacturing, design and sales centers being built in Canada and both US coasts, it is easy to project FusionPharm with a large footprint and ever-increasing revenue in the marijuana industry. I do not feel an EOY price target of $10-$12, up from the current $4.70 at the closing bell Friday, April 6, is unattainable. Things will have to go right for that to happen. That starts with the 2013 financials.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in FSPM over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: FSPM, long-ideas
    Apr 07 9:30 AM | Link | 6 Comments
  • First Impressions Of GrowLife's (PHOT) 2013 Annual Report

    Highlights

    •Quarter over quarter growth

    •Year over year growth of 235%

    •Future projections for 2014 are of critical importance, as revenue potential in a post-legalization climate offers immense potential (2014 will have full year of CO, partial WA state legalization, and more states implementing medical marijuana at or before November elections).

    Foundation - 2013 revenues comprised of brick and mortar stores (7 stores in California - Los Angeles (Southern) and Santa Rosa (Northern); Colorado - Edwards (Vail Valley) and Boulder; Massachusetts - Peabody (North Shore); New Hampshire - Plaistow; and Maine - Portland and 3 websites (58Hydro.com, Greners.com, Phototron.com)

    Revenue is up Quarter over Quarter
    2013 -
    Quarter #1: $91,809
    Quarter #2: $208,446
    Quarter #3: $475,870
    Quarter #4: $674,620

    2014 -
    Quarter #1: $760,709
    Quarter #2: $872,557
    Quarter #3: $1,313,339
    Quarter #4: $1,912,311

    Also, see page 18 of the filing. Gross profit for 2013 is reported as 853k, up from 2012 gross operating profit of 411k in 2012. (Net loss overall, as described below… but gross operating profit nevertheless for the second straight year)

    Revenue is up year over year

    2011 - $948,406
    2012 - $1,450,745
    2013 - $4,858,976

    Revenue up 235% year to year shows great growth in an emerging sector. This is a positive.

    LOSS and other debt issues in the report

    Net Loss shows a $19.2mil increase year over year, and this is huge. A silver lining is that it appears the majority of losses are non-cash as the company is issuing stock options as payment. So, it's not equipment/business model and the number may be misleading. It certainly provides ammo for any looking to attack this report and/or company. The PR states:

    Moreover, the Company's financial results also include substantial non-cash, one time charges related to warrants that were issued by the company in 2013 and expensed by the company in accordance with GAAP requirements. The reported net loss of the Company for 2013, on a non-GAAP basis, exclusive of non-cash one-time charges, was $2,038,907.

    Sterling Scott, CEO, addressed this issue in the PR today, stating "With the exception of one-time, non-cash charges in 2013, the important metrics of the Company are sound and improving."

    Not counting the stock related expense, GrowLife's operating loss in 2013 was $1,327,380. This total is up $299,369 from 2012. A positive here, IMO, is that share based compensation declined $131,932.

    Impairment of Goodwill and Intangible assets, loss of $279,515

    This is unexpected compensation and changes in the legal climate affecting assets value.

    It is significantly down from $634,128 in 2012. A positive.

    Change in Fair Value of Derivative, loss of $3,598,455 in Q4

    Each financial instrument is evaluated and initially recorded at its fair value; this is re-valued at each reporting date. Here, there was a BIG change in value. See Note 21 on page 57-61. GrowLife had a change in value of its financial instruments (notes) of -$3,701,078, offset by $42,269 in rent from the Boulder store. This is an aggregate total of several notes to various holders.

    This shouldn't be taken lightly, but shouldn't be overly worrisome, either. The company issued notes to several holders to grow the business. The expression 'it takes money to make money' applies. Each note adds up, though, and must be offset by increased revenue and company growth. They obviously feel confident in their ability to generate enough short term revenue to expire the notes and/or exercise them. Acquisitions, debt… will it pay off?

    Dilution a minimum

    Company issued 262,595,733 shares for notes (see above 'derivative liability'). GrowLife also issued 36,981,862 shares for cash at .035 per, for a total of $1,294,365.
    We really only need to focus on the 36M shares sold for cash, as the other shares are for convertible notes and used to grow the company.

    Takeaway: Taking 2013 Q4 revenue as a base, the $1.9M projects to $7.6M over a full year. With legalization upon us in Colorado as of Jan 1, the Portland store operating in a legal MJ environment as well, and overall business booming across the sector this year it is not unreasonable to see $10M revenue or more in this segment of GrowLife's business in 2014. I have talked to employees at several GrowLife stores, who have informed me that inventory is moving very rapidly over the last few months, further confirming a potential spike in 2014. I encourage any investors to make similar phone calls!

    Future growth… an estimation of the GIFT program

    Background: The JV with CANX detailed in the Nov. 30 PR created the entity Organic Growth International (OGI). PHOT owns 45% of OGI, a percentage rising to 51% at the conclusion of the JV. Revenues detailed below are accretive to PHOT at that %.

    GIFT to CMMS (LEAF Aspen)

    1. "Per the terms of the G.I.F.T. agreement, the Company has agreed to finance $280,000 of equipment, to be purchased from the Company, over a term of 5.5 years (66 months), with monthly payments in the amount of $6,878 beginning in month seven and ending in month sixty-six."

    60 months of payments, $6878 per month = $412,680. Profit of $132,680 to OGI, giving PHOT $59,706 profit from their 45% cut.

    I'm underwhelmed. This is just under $12,000 per year in profit on $37,141.20 in annual revenue.

    Perhaps volume would remedy the meager bottom line. OGI has been given up to $40M to utilize for GIFT, and this was only $280k, or 0.7%.

    If PHOT can string together enough GIFTs, accretion of this revenue may prove productive.

    Sterling Scott, CEO, intimates on MoneyTV there are currently 10-20 potential GIFT customers currently under consideration.

    The projections here are estimations with a huge assumption, because mot all GIFTs are created equal. Each potential grow operation will be of different size. For the sake of discussion and operation, we can use the LEAF deal and extrapolate.

    $12,000 per year in profit on $37,141.20 in annual revenue from LEAF, times 10, equates to $120,000 profit from the equipment on just over $371k in revenue.

    Still not loving the numbers.

    Mitigating this is the fact that PHOT will sell all nutrients, bulbs, and supplies to each GIFT under an exclusive equipment provision. This revenue and profit cannot be ignored. Information on this revenue total would be welcome from management.

    Takeaway: This is the big move GrowLife made in the sector, asking shareholders to approve an increase in Authorized Shares and trust the company to use these shares combined with the Joint Venture money received from CANX to grow the company revenue and footprint. Early revenue and profit projections don't move the needle as anticipated, IMO.

    Other factors

    Lawsuit with RXNB - This looms large with closing rescheduled to take place Friday. RXNB wants the shares NOW. GrowLife doesn't think they have shown them the books to there satisfaction. This is a huge issue looming for Friday, IMO. See page 15 for details.

    Much has been made about [b]insider stock compensation[/b], as the slew of Form 5's were filed Friday. On the top of page 17 this is summarized. During 2013, 44,150,110 shares valued at $1,428,636 as wages. Non issue JMO. Actually, a plus as it incentivized performance in the company growth.

    The chart on page 83 lists each member's compensation. By way of example, CEO Sterling Scott made $615,933 in cash and stock.

    Expectations
    Quarter 3 earnings saw an immediate drop post-earnings, much related to CEO Sterling's comments intimating better revenue numbers. Not the case this quarter.

    After the drop, the PPS ook an immediate turn in PPS 3 days later, as GrowLife released news of the CANX JV (announcing the GIFT) immediately following the Q3 earnings release, moving the PPS from $.07 and reaching $.17 within a very short time. If earnings are again met with disappointment, don't rule out the possibility of more GIFT news immediately. It happened before, just 4 months ago.

    Brick and mortar stores and websites, potentially $10M in 2014 ( see above).

    GIFT needs to be implemented in volume to be revenue accretive to the point it makes the company very profitable, as hoped.

    I don't make PPS predictions. Especially in the OTC. I will say that there's good and bad here. That being said, I'm holding my position and watching closely. If there is a dip, even a severe one, I expect it to be recovered within the month of April. On the other hand, revenue is up, debt is understandable when growing this business at the rate they are growing it. Damned if you report, because people will poke holes. If you believe in the business model, and I do, then it's a hold.

    Overall I give the 10k a C+/B-. I'm underwhelmed by GIFT details and don't like the derivative debt they are banking on paying off. I also don't like the recurring losses of $24,400,704 and stockholder deficit of $5,843,964.

    As stated, I do understand that the money has to be spent to grow and make the money GrowLife projects to make in 2014 and beyond. These details underscore for me how 'all in' this company went to capitalize in this industry immediately.

    Sorry so long, I like to be thorough. This is a first read… surely a deeper understanding awaits over the next few days.

    TM

    Disclosure: I am long PHOT.

    Tags: PHOT, marijuana
    Apr 01 10:34 AM | Link | 8 Comments
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