Global - Dilution
I wasn't going to blast away on the big board but since you bring up some salient points on CANX I think it is appropriate to complete the circle. In particular I think that the longs who have invested their trust in management need to understand the filings and ask the tough yet pertinent questions that are necessary.
I have a lot on my mind but I will try to truncate it -
1) Double dilution - I think a lot of people are wondering how the heck we would ever get to 3B but you need to consider phase 4 of the CANX deal. Recall that this part of the deal gives CANX the right of 49% of the outstanding shares on a fully diluted basis (assuming full deal realization). This means that when new shares are issued and outstanding that the basis from which CANX draws the 49% increases and thus current shareholders get double diluted. Within Note 2 of the latest 10Q it states that there is 112m additional shares that could be put into dilution from either warrants or convertible debt, not including CANX. Considering these deals have conversion prices of between 2 and 5 cents I think it is safe to assume that all will be converted because those that do convert get an immediate 4-10x gain.
So here is my math
O/S today 730m
plus other non-CANX dilution 112m
Pre CANX # of shares 842m
CANX dilution (.98 x 842m) 825m
O/S ending 1.67B
It is important to also note that this assumes that there will be no additional dilution on top of what we already know. If we were to make an acquisition (By PHOT and not CANX) then whatever shares we issue as compensation would increase the basis from which CANX draws and double dilute current shareholders.
This whole point 2 above is why they did not propose the 1.4B that Kurt had told me was the case in a prior email.
2) Blank Check preferred shares - some might be inclined to write off my point 1) above by pointing to Sterling, Rob act having skin in the game - aka a bunch of shares. But this argument goes out the window because there is potential for blank check preferred shares that can be issued to management at any time. See the CANX deal for this reference. What is so important about this is that it is the CANX BOD members who will be deciding when to issue preferred shares and to whom to issue them. This creates the opportunity for a 'you scratch my back and I will scratch yours' effect between management and CANX. Sterling gets diluted but he doesn't care because CANX has promised to make it all worth his while. Unfortunately, while everybody else is winning, the current shareholders get diluted into oblivion.
3) Core business to be ran through CANX - PHOT only gets 50% of the JV. So this is effectively further diluting shareholder value than points 1) and 2) above might indicate. I asked Kurt for clarification as to which revenue streams would be given to PHOT and which ones would be given to CANX (of which we only get 50%). He basically stone walled me. It seems to reason that most of the key operations will flow through CANX.
So again, here is my math
Share price .30
Fully diluted o/s 1.67B
fully diluted market cap 500m
Assume nearly all operations go through CANX:
fully diluted market cap 500m
50% of JV application 50%
Effective market cap 1B
- So in summary, if you can get management to explain how shareholders are not getting stabbed in the back here then I will gladly jump back on the train. I post all of this not to bash but to hold management accountable. They have set it up where they can cash in and crush the investors at the same time. I hope you guys don't let them do that to you.
AI
