Staying long, no choice while its a GREY.
Nov 20, 2014 14:00 UTC
GrowLife Announced Revenues of $2.1 Million for Third Quarter Ending September 30, 2014
SEATTLE--(Business Wire)--GrowLife, Inc. (OTC:PHOT), one of the largest cultivation service providers in the nation, reported today in its latest financial statement revenues of $2.1 million for the third quarter ending on September 30, 2014. GrowLife also reported gross margins were (8.5%), resulting from the Company’s decision to convert its high inventory level of $1.8 million from last quarter to working capital and reduce ending inventory at $800,000. General and administrative expenses were $1.9 million for the quarter, which included approximately $1.1 million in non-cash stock expenses.
“Our third quarter revenues delivered an impressive 60 percent growth compared to this time last year, which is when we first recognized revenue from major retail acquisition that occurred in June 2013,” said Marco Hegyi, President of GrowLife, Inc. “As we continue to work through challenges such as limited access to capital due to gray market trading and lawsuits, which are in negotiations, we elected to convert about three month’s of inventory into cash while optimizing sales.”
Mr. Hegyi, who assumed leadership over the Company in the second quarter 2014, has reduced operational expenses while increasing revenue. The Company has achieved record revenue of $6.7 million in the first nine months of 2014 over last year’s $2.9 million, representing 131% growth.
“Our solid revenue is attributed to customers and management who have remained confident in our future,” said Hegyi. “The Company’s growth is now moving closer to critical mass, where gross profit will offset expenses, and move us towards profitability.”
Noteworthy details from today’s extensive quarterly report are as follows:
Q3 2014 Highlights
Net revenue for the three months ended September 30, 2014 increased $792,000 to $2,105,000 as compared to $1,313,000 for the three months ended September 30, 2013.
Gross margin was $(179,000) as compared to $262,000 for the three months September 30, 2013.
The gross margin was (8.5%) for the three months ended September 30, 2014 as compared to 19.9% for the three months ended September 30, 2013. The decrease was due to selling our products at a higher discount and the liquidation of inventory at lower margins during the three months ended September 30, 2014.
General and administrative expenses for the three months ended September 30, 2014 increased $633,000 to $1,923,000 as compared to $1,290,000 for the three months ended September 30, 2013. Non-cash general and administrative expenses for the three months ended September 30, 2014 totaled $1,062,000.
Other expense for the three months ended September 30, 2014 was $35,664,000 as compared to other expense of $777,000 for the three months ended September 30, 2013. The expenses for the three months ended September 30, 2014 included loss on change – derivative liability warrants of $6,949,000 and interest expense of $28,715,000.
Net loss for the three months ended September 30, 2014 was $37,766,000 as compared to a net loss of $1,805,000 for the three months ended September 30, 2013 for the reasons discussed above.
Our cash used in operations for the three months ended September 30, 2014 was $411,000.
YTD 2014 Highlights
Net revenue for the nine months ended September 30, 2014 increased $3,806,000 to $6,745,000 as compared to $2,939,000 for the nine months ended September 30, 2013.
Cost of sales for the nine months ended September 30, 2014 increased $3,654,000 to $5,903,000 as compared to $2,249,000 for the nine months ended September 30, 2013.
Gross margin was $842,000 as compared to $690,000 for the nine months September 30, 2013. The gross margin was 12.5% for the nine months ended September 30, 2014 as compared to 23.5% for the nine months ended September 30, 2013.
General and administrative expenses for the nine months ended September 30, 2014 increased $3,138,000 to $6,684,000 as compared to $3,546,000 for the nine months ended September 30, 2013. Non-cash general and administrative expenses for the nine months ended September 30, 2014 totaled $3,359,000.
Our cash used in operations for the nine months ending on September 30, 2014 was $1,979,000.
GrowLife implemented additional changes to its business operations that were reflected in the third quarter, such as payroll, rent and other expense reductions, comprehensive market coverage, and the consolidation of disparate business divisions. These critical changes should be more apparent in the three months ended December 31, 2014.
For more information about GrowLife, please visit: www.growlifeinc.com. Additional commentary on the Company as well as the industry is also provided on Mr. Hegyi’s blog.
About GrowLife, Inc.
GrowLife, Inc. (PHOT) (www.growlifeinc.com) aims to become the nation’s largest cultivation service provider for cultivating organics, herbs and greens and plant-based medicines. Our mission is to best serve more cultivators in the design, build-out and expansion of their facilities with products of high quality, exceptional value and competitive price. Through a nationwide network of local representative, regional centers and its e-Commerce team, GrowLife provides essential goods and services including media (farming soil), industry-leading hydroponics equipment, plant nutrients, and thousands more products to specialty grow operations in 17 states. GrowLife is headquartered in Seattle, WA and was founded in 2012.
Cautionary Language Concerning Forward-Looking Statements
This release contains "forward-looking statements" that include information relating to future events and future financial and operating performance. The words "may," "would," "will," "expect," "estimate," "can," "believe," "potential" and similar expressions and variations thereof are intended to identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which that performance or those results will be achieved. Forward-looking statements are based on information available at the time they are made and/or management's good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause these differences include, but are not limited to: fluctuations in demand for GrowLife's products, the introduction of new products, the Company's ability to maintain customer and strategic business relationships, the impact of competitive products and pricing, growth in targeted markets, the adequacy of the Company's liquidity and financial strength to support its growth, and other information that may be detailed from time-to-time in GrowLife's filings with the United States Securities and Exchange Commission. Examples of such forward-looking statements in this release include statements regarding future sales, costs and market acceptance of products as well as regulatory actions at the State or Federal level. For a more detailed description of the risk factors and uncertainties affecting GrowLife, Inc. please refer to the Company's Securities and Exchange Commission filings, which are available at www.sec.gov. GrowLife, Inc. undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
GrowLife, Inc.
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Tina Qunell, 206-919-9652
GrowLife Communication Team
tina@growlifeinc.com
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Tina Qunell, 206-919-9652
Shareholders Support Team
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The 10-day trading halt in April, followed by charges brought against four individuals for stock manipulation, unaffiliated with GrowLife, has had a profound and lasting impact on GrowLife as well other publicly-traded companies operating in the Cannabis-related industry. We have spent considerable effort to resolve these matters, working closely with the SEC and FINRA, to restore financial equilibrium for our Company and its shareholders.
GrowLife has also emphasized customers, and took many strategic steps to best serve cultivators across the nation. We have strengthened our distribution power to provide a wide range of opportunities to customers, improved business fundamentals, and resolved legacy issues. As a result, we’ve reached record sales for 2014, serving more than 1 million square feet of operations with hydroponic equipment, lighting, nutrients, soil and supplies.
Despite our sales growth, our stock price remains highly volatile given that we’re trading in the greys. We trust the process we have in place will get us back to active trading, however, I understand there are still a litany of questions and concerns. I wanted to personally address some of the questions we’ve received from shareholders either in email or on the Company’s Facebook page in an effort to help shed some light on our situation. Please keep in mind that while there is much discussion from shareholders, it is our customers, suppliers and employees that are critical to the Company’s growth.
Is it likely or unlikely GrowLife will obtain a market maker?
Yes, we’re confident the Company will secure a market maker. While there are many market makers interested in participating, there is a significant downside risk to the first one that applies for the 15c2–11. Therefore, an interested broker-dealer must do extensive due diligence in the Company before applying to FINRA with the 15c2–11. Then, FINRA must thoroughly review and, if approved, will reintroduce liquidity in the stock.
What reason does an investor have to stay around?
As with any stock trading on the OTC Bulletin Board, the risks are extremely high and returns on these investments, if any, could take years to recognize?—?even with all the careful consideration and due diligence by an investor. Investors considering GrowLife need to be willing to have confidence in our long game, and clearly see both the opportunities and risks. Unfortunately, some investors are short-sighted, and those who know me are aware of my feelings towards these people. These Short traders bet against both the Company and the Long investors resulting in great volitility in the stock price. When the stock price is low, as it normally is for OTC stocks, the swings can create double-digit gains in just a few days. It’s a reality but I am not a big fan.
I hope to see GrowLife uplist and provide stability that will discourage such predatory behavior so that the Company, on average, is valued on its business performance instead of the Buy-at-$0.10-Sell-at-$0.12 short mentality. I know that many of our current shareholders are from this camp but in time I hope to convince those shareholders to move GrowLife from their short sale portfolio segment to their long-term segment. My plan is to have GrowLife earn that position in their portfolio.
Allow me to speak about the current Long investors who have a deep appreciation for strong financial controls and business fundamentals over daily trade gains or losses. They stay because they trust GrowLife will inevitably become a huge and true success in this industry, appreciate the steps we have taken so far, and most important to me, trust us to achieve our vision as a leading and lasting partner to cultivators.
How will GrowLife deal with competitors? In other words, what does the business plan look like?
Our customers come to us because we have an experienced and knowledgeable team who work with them to help manage build-out investments, track supply usage and streamline their supply chain needs. Many, therefore, compare us to the ‘picks and shovels’ sold to miners during the gold rush, but that is a small part of the story.
Picks and shovels was a retail play for miners and is ridiculously simplistic. GrowLife’s mission is far greater as we serve cultivators who have an expensive crop for human consumption; I really hate the picks comparison. Our supplies, equipment and services enable cultivators to grow crops that ensure their operations meet compliance standards and produce medicinal crops that are safe for consumption. Comparing our business to picks and shovels dismisses patients who consume these crops.
On another note, we also help cultivators identify products that can reduce their carbon footprint and conserves vital resources, such as water and electricity. This is an area where we will be more actively involved starting this quarter. Few of our competitors take this long view.
How much of your predecessor’s claims still ring true and are still a possibility? i.e., partnerships, GIFT, kiosks, etc. Granted you have so much more to gain by being successful, but how can you assure your investors that you’re not just out to sell shares and shut down the company?
I see GrowLife as a dramatically different Company than it was before. For example, partnerships and claims that make business sense will be pursued, others will not. GrowLife is about its customers and helping them serve their customers. No one can be everything to everyone without sacraficing quality and GrowLife is about quality. I’ve seen it in the tech industry where the leaders offer dozens of products but it’s usually their top two or three that make up 80%+ of the business because that’s what matters.
In GrowLife’s case, we serve cultivators with equipment, supplies and services. We’re not a bank so financing, ATM kiosks, etc. were tested concepts that are off the table. I see our customers as Commercial Cultivators, Urban Farmers, and Home Growers. Although we have five retail stores, I believe that our other sales channels?—?eCommerce, direct sales, and distribution?—?will eclipse our retail business. GrowLife may best serve the industry by helping other retailers address Urban Farmers and Home Growers.
As for your second question, my short answer is that if you believe in a company, then invest in it. If you don’t, then don’t. I would not invest in a company that I do not trust. I didn’t come here to fix a company; I came here to grow an industry. It just so happens that, for whatever reason, things broke in the industry and fixing has become the priority. I hope to get past this fixing distraction soon and focus on building.
There are so many cool things that I see coming out of this new cultivation industry beyond legalization: Smart growing technologies, cleaner and healthier ways to control our food supply in an affordable manner, the economic engine behind a crop that provides undiscovered medicinal benefits without insane side effects, a new entrepreneurial segment that rewards and validates a healthier lifestyle, and a crop that funds all this innovation without tapping our already depleated government funds; Not to mention the crime reduction benefits.
You recently promoted Joseph Barnes to Senior VP. Can you tell us more about him?
When I took charge of the Company in May I zero-based it, including every employee. I decided that we were going to either have the best people or have open positions, but we were not going to compromise the Company. Joe has been with our Hydroponics subsiduary for about five years; four years before it was merged with GrowLife. I stack ranked our organization and found him not only consistently number one but a solid leader who puts the business and his team before himself.
Joe leads a team responsible for serving cultivators across the nation. He also strengthens our distribution power so that our customers can have access to premium cultivation equipment and supplies that are good for the plants and people at the best possible price. The Company is fortunate to have him on the team. I promoted him to Senior Vice-President of Business Development to head up all our sales channels because he is the best both inside and outside of GrowLife.
