GrowLife Inc (PHOT)

[Trained Monkey]

Re: PPS after the A/S vote

I posted some of this last week, but thought some new investors doing DD might make use of this as I see the PPS question appear on the board continually.

For anyone new, check out my bolded post titles for analysis of all PHOT's PRs and Filings, or the recent 'stickied' posts on top of the board containing my summaries.

Just hoping to bring clarity; you can be smartly for or against the vote. Just be an intelligent investor and know the score.

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Many have asked what the PPS will be post PHOT's vote to raise the Authorized Shares (A/S) to 3B on Feb. 7. Primarily, people ask 'is this a good time to jump in? Or should I wait for a post-vote fall in PPS?'

This is the multi million dollar question, and I offer an educated guess.

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Right now, PHOT has 738.5M Outstanding Shares (O/S), out of 1B (A/S). This means that only the 738.5 O/S count against the PPS. The remaining 261.5M A/S are not currently being used.

A 'YES' vote would immediately raise the O/S to 938.5M, as PHOT must turn over 200M to CANX once approved.

We now have 938.5M O/S and of the 3B A/S, 2.0615B remaining.

A 'YES' vote also triggers the deals with CEN and RXNB, at a total of 500M shares. (For a complete break down of these deals, see my stickied post on the 1/30 8k)

Post vote, we now have 1.4385B O/S and of the 3B A/S, 1.5615B remaining.


Two points to take from this:

1. The 700M raise in A/S were used to acquire assets and revenue, not take profit. Sterling's quoted as saying a 5x return on investment is predicted for the RXNB deal alone. This is 'healthy dilution' that should minimally affect the A/S post approval, and perhaps even raise the PPS based on the markets perceived value.

2. Whatever the 1.5615B remaining shares are used for will ultimately decide PHOT's PPS going forward.

Option A: If they dump them all on the open market, the PPS will drop. This is (legitimately) investors biggest concern.

Option B: If they continue to use it as management has indicated, and the deals in place for the first 25% of the increase are indicative of what to expect from the rest, the PPS post vote will not drop, or perhaps continue to climb.

So, A or B?

CEO Sterling Scott has continually spoken on the path for PHOT.

From his open letter, Scott states that "To the extent there is "dilution" under the CANX USA JV, the relationship is structured to allow GrowLife management a great deal of control and to incentivize only success-driven dilution that will benefit all shareholders large and small, complete with milestones and checks/balances."

https://trading.scottrade.com/quotesresearch/ScottradeResearch.aspx?page=%2fqnr%2fStocks%2fArticle%3fdockey%3d1-SN20140117005361-540MD373IDLK8I38546Q738Q8J%26

Other opinions from this week agree. From the SA article on 1/31: "There is a good argument that increasing authorized shares by 2 billion is an awful thing. Well, it is if you are looking to make your entire gain in the next three months. I see it differently. I need PHOT to have currency on hand at all times. I need them to be able to acquire, at will, any company that can be immediately accretive to revenue and earnings. I need PHOT to be able to make new partnerships by using stock as an incentive to merge."


The Educated Guess
Under 'Option B' scenario above, I see PHOT keeping those 1.5615B shares off the market, right where they are keeping the 261.5M they currently have... unless they have more uses like CEN and RXNB on the horizon. Which, as discussed, would be revenue accretive and a plus for PPS.

Investors are aware of the increase but buying in only 4 days before the vote. Shows strength. PPS steady to up post vote, if the investors on the market see it how I do.

GLTU