Borislav Tonev

Growlife Inc (OTCBB:PHOT) With Some Minor Hesitations

by Borislav Tonev September 2, 2013
8PHOT.pngIn case you haven't heard already, medical marijuana is a hot topic in Pennyland once again. There's been quite a lot of brouhaha recently and it all started with Dr. Sanjay Gupta's change of heart relating to the use of cannabis for the treatment of different diseases. That gave the medical pot tickers a push at the beginning of last month. Things then subsided somewhat but on August 29, news of the government's changing views on using marijuana for recreational and medical purposes meant that there was quite a lot of movement around the cannabis penny stocks at the end of last week. Growlife Inc (OTCBB:PHOT, PHOT message board), as you might have guessed, was no exception.

Unlike other tickers like Medical Marijuana Inc (OTCMKTS:MJNA), MediSwipe Inc (OTCMKTS:MWIP) and Tranzbyte Corp (OTCMKTS:ERBB) that moved by quite a bit on Friday, PHOT registered only a minor loss of no more than 0.5% but what does this tell us about the future?

Well, not much. Let's not forget that MJNA lost nearly a fifth of its value in just six and a half hours of trading and we're pretty sure that PHOT's shareholders are quite happy to see their ticker displaying a more resilient behavior. At the same time they're probably not quite amused with the fact that the price movement seems rather uneventful at the moment, especially considering the optimistic developments.

And reading through the headlines of the latest press releases, we can see that there are indeed some good news. The most important recent event, of course, was the publishing of the Q2 financials and the management team wasted no time issuing a press release just minutes after the filing went online telling us how great the results are. But how great are they exactly? Here's a summary of the figures:

  • cash: $160 thousand
  • current assets: $1.5 million
  • current liabilities: $2.6 million
  • quarterly revenue: $872 thousand
  • quarterly net loss: $1.6 million
  • accumulated deficit: $5.8 million

It's plain to see that the revenues, when compared to the same period of 2012, have increased dramatically. PHOT also seem quite content with this result, but realistically, this shouldn't be that much of a surprise since over the last couple of months they completed quite a lot of acquisitions. Unfortunately, all the new sources of revenues means that there are also more expenses and a comparison between the net loss generated during Q2 of 2013 and the same period of last year reveals that the management team is having difficulties keeping costs at bay.

The balance sheet also gives us some mixed emotions. On the one hand, the subsidiaries acquired during the reviewed period means that the current assets have improved immensely (from $661 thousand as of March 31 to $1.5 million as of June 30). Unfortunately, the same exact thing can be said about the current portion of the liabilities ($312 thousand for Q1 vs $2.6 million for Q2). This means that PHOT are now faced with a huge working capital deficit and since the cash reserves are not that huge, this could prompt some stock issuance.

4PHOT_logo.pngWe're quite sure that the shareholders won't be particularly happy with that. In a matter of just twelve months the number of outstanding PHOT shares has doubled and this has inevitably put some pressure on the price. If the stock issuance continues,some people might get fed up with the dilution and decide to get out.

This, in turn, might lead to paid promotions designed to raise the awareness and create some market for the unwanted stock and, as PHOT has shown us in the past, this will probably end in tears. Let's hope that the dilution will be kept at bay over the coming months and that the management team will be able to deal with the larger part of the problems they are facing at the moment. Until then, considering all the risks related to a potential investment is absolutely crucial.

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