Potnetwork Holdings Inc. (fka POTN)

[Rick_Sanchez]

Boy.. Where to start with Alan Brochstein's half-baked article.. While he does a great job spinning the negatives, many of these points we already knew, as folks that follow POTN regularly. Let me do my best trying to break this down piece by piece:

Name Changes: Thanks for pointing this out, but anyone who has followed the company to date, has already been well aware of their names changes over the years. To that end, let me just provide a couple of links with dates where this data is mentioned. I could go back further, but I won't bother
4/30/18 - Q1 report: https://backend.otcmarkets.com/otcapi/company/financial-report/191918/content
4/02/18 - 2017 Annual Financials: https://backend.otcmarkets.com/otcapi/company/financial-report/190136/content

Share Count: Of course this is the most important. The company had previously stated that they were in the process of reducing their outstanding common shares by 300M in exchange for non-trading preferred shares. The reduction of 131M Brochstein calls out in his article that seemingly "came out of nowhere" are a part of this process. With about 465M current outstanding shares, we have 169M left to reduce, thereby bringing us a total of 296M shares post complete reduction.. Now we don't know what rate these common to preferred shares converted at - but let's use the 44,227 preferred we already know about and the covertible at .0018% of total outstanding. The math breaks down as follows:

296M (full reduced future share count) X .000018 (the conversion rate) = 5,328 shares for every 1 preferred.

5,328 X 44,227 (current preferred share count) = 235.6M new common shares

296M (fully reduced shares) + 235.6M (total known preferred to common conversion) = 531.6M TOTAL COMMON SHARES
^ A far cry from the 825M Brochstein calls out in his article.

Warrants and Convertible Debt: Much of what Brochstein points out has, again, already been common knowledge based on previous filings. The average investor that has followed this company has already known the shares that have been issued against those debts. Moving forward, there are only 2 convertibles left, both pending court cases:
https://backend.otcmarkets.com/otcapi/company/financial-report/191918/content

Financial Statements: This is the only piece I will give Brochstein credit for - specifically on the Cash Flows and Balance Sheet item. This needs further analysis, as something does not add up. However, based on the math above, his commentary on share count is incorrect.

Operations + Sales / Marketing: POTN has grown at an incredibly competitive rate over the last 12 months. As investors, why should we want them to carry inventory? Why do I want them to pay for a warehouse and on hand product? I don't. Continue to take orders and provide on-demand drop shipping - this model works. When it comes to sales + marketing, POTN participates in an incredible number of trade shows. These shows are expensive to participate in - between the slip for space, paying employees to be there, giveaways for marketing, etc. Much of that sales + marketing cost can be attributed to pre-paying future trade shows.

Valuation: Brochstein calls out a fully diluted market cap of $260M based on price of $0.3113. That market cap is incorrect, based on his incorrect assumption of share count. Using the math provided above, the market cap is about $165M (.3113 X 531.6M fully diluted shares). Again, with 12-month trailing sales at $18.9M, this brings the sales multiple down from his purported 13.8X to 8.75X, which is incredibly more in line with the industry.

All in all, Brochstein does a great job of spinning the negative for the unsavvy investor. For those of us that have been in this from the long haul, everything he points out has already been common knowledge. Disregard the noise and good luck to longs.