GrowLife 2021 Shareholder Meeting
Fellow Shareholders…
GrowLife will have its upcoming shareholder meeting on November 5th and we are asking our shareholders for their support. Shareholders who have not received their proxy proposals and would like assistance please call (800) 737–3426. Allow me to explain why I encourage our investors to vote FOR the proxy with management.
New Direction: Picks and Shovels for the Mushroom Industry
This week we announced our exclusive US distribution agreement with My Fungi, a Canadian manufacturer of mushroom supplies and research company, who is securing a license from the Canadian government to conduct medical testing of psilocybin and psilocin, hallucinogenic chemicals in certain “magic” mushrooms that is showing great mental health benefits at research labs. You may have already heard of the phenomenal test results being achieved by leading universities including Johns Hopkins in the area of PTSD, anti-depression and addiction. Some serious progress in mental health treatment is being accomplished in this field and we are so proud to work with My Fungi. What also makes this exciting for us is the founder of My Fungi, Dave Auger, formerly our GM of Canada at GrowLife. He left to go start My Fungi and now we can work closer with him again, this time as a business partner.
Along with this news we announced GrowLife’s expanded direction. When I joined in 2013, we were the picks and shovel provider for the Cannabis industry, supplies for growers of cannabis. Today we see a great need for supplying an emerging market requiring quality and reliable growing supplies. The picks and shovels for the mushroom industry will focus on selling to hydroponics stores and online retailers who will be serving growers in the food, nutraceutical, and laboratories markets. Today, you can see our initial mushroom supplies at ShopGrowLife.com. Finally, we are focused on selling high-volume B2B to the hundreds of hydroponic stores. These are the customers we have been selling to for years who, in turn, sell to end-users that are growing mushrooms for business and personal use.
2021
In the first two quarters our financial results moved forward towards profitability. In Q2 we achieved an operating profit for the first time in the Company’s history, however, the interest and derivative adjustments from debt removed our gain from the bottom line earnings for that period. Today with lean operating costs, a new revenue stream and strong margins, we believe we can achieve profitability in 2022, even with the cost of debt.
Throughout 2021 we explored many target acquisitions and concluded most were over-priced with limited growth; same old products fighting for small market share. The mushroom industry, which we started exploring earlier this year, revealed demand outpacing supply, hydroponic retailers looking for suppliers, and the right North American partner with capacity to meet demand. All the right characteristics needed to deliver on serious growth for shareholders. Our sales forecast is reasonable, margins are attractive, core-competency is complimentary, and we are not depending on offshore suppliers.
Now, to build this business we need our shareholder’s support by voting FOR the proxy proposals with management.
The Votes
The one key vote we are asking shareholders to support is FOR increasing the authorized shares. The increase is necessary to support our growth and retire the debt. Without the additional shares we will continue to be in default with one creditor and will eventually enter into default with three others. Therefore this is a necessity to continue to operate the business. It is always our intention to issue only those shares we absolutely must and minimize dilution to shareholders as best we can.
The reason for the authorized shares increase is to protect from any shortfall should the price drop significantly. As most shareholders know, authorized does not mean issued. Of the 120 million shares authorized today we have less than 100 million issued. We estimate that we require at least another 100 million to convert out all our debt at today’s price, however, if the share price were to increase the number of shares needed would go down. The inverse is true as well, should the price drop significantly, the number of shares needed would be greater.
Additionally, because we have almost 100,000 shareholders, the cost of holding a shareholder meeting costs about $150,000. As a result, we chose to put all short-term possibilities on the ballot for our shareholders. That is why we recommended to increase the authorized share count as well as put other votes on the ballot.
The other noteworthy votes include a future reverse split, stock option plan, and the board election. These are important too but not vital to the success of the Company. The stock options are for engaging and retaining qualified management and employees. The board election is for the current board and is worth stating that we have met with several other qualified candidates who are interested in joining but wish to see if the Company will have the resources (stock, options and sales) to support their participation. And then there is the downstream reverse.
The Reverse
The proposal gives us discretion to implement a reverse split and will only be pursued if necessary. When we did our last reverse on November 20, 2019 from 6 billion shares to 120 million, trading at a sub-penny price, we had a plan to reach profitability in 2020. We knew after all the hard work that getting to profitability and a rising market cap of say $60 million across 6 billion shares would still keep us at a $0.01 stock. The reverse could give us the shot at a $1.50 stock. That’s something shareholders could work with.
So the Company did its part and grew sales like never before. Revenue climbed each successive quarter to our high in the third quarter where over $3 million is sales were made but only $1.4 million were shipped by our EZ Clone subsidiary. Blended margins for the $1.4 million were reported at 35% but, with the missing $2 million from the backlog, they would have been raised to 44% and about $2.4 million in gross margins. Woulda, coulda, shoulda…right. It was not reported because shipments were not made.
But why not? Coincidentally, the contract for buying the remaining 49% of EZ Clone was due and, without disclosing too much, the idea of paying $2 million for a non-performing entity did not make sense. We tried to help them by suggesting we invest in helping them grow the operations and work out the right terms. Instead, when GrowLife did not pay $2 million on the due date for their lack of performance, the 49% founders hit us with a lawsuit that must have taken several months to prepare. Call it premeditated, divisive, sabotage, or maybe sour grapes. We will let the court work it out.
Next there was Covid. And, this was 2020, that horrible year where we reported revenue of $7M, GrowLife’s first down year in five years and were knee-capped by an unforeseen, business-crippling virus. Enough said.
The point is a downstream reverse is in place for a hypothetical scenario such as this…if we were to have a market cap of say, $30 million, and say we had 300 million shares outstanding, our stock would be at $0.10. A 10:1 reverse takes us from $0.10 to $1.00 per share. There is a lot be done with stocks priced in the dollars instead of pennies. Again, hypothetical. So is a $30 million market cap achievable? A profitable mushroom supplies company with an exclusive supplier and experience with 2,000 outlets of distribution. I believe so.
In Closing
We look forward to a positive upcoming shareholder meeting and growth in 2022. Our burn is under control, exclusive sales agreement for a high-demand product line is in place providing a fulfilling supply chain and good margins. With such support we believe we can build value for our shareholders through the new revenue stream and reach profitability in 2022 with our fiscal strategy. I will now leave it in the hands of our shareholders.
FORWARD LOOKING STATEMENT: This posting contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements appear in a number of places in this release and include all statements that are not statements of historical fact regarding the intent, belief or current expectations of GrowLife, Inc., its directors or its officers with respect to, among other things: (i) financing plans; (ii) trends affecting its financial condition or results of operations; (iii) growth strategy and operating strategy. The words may, would, will, expect, estimate, can, believe, hypothetical, potential and similar expressions and variations thereof are intended to identify forward-looking statements. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond GrowLife, Inc.’s ability to control, and actual results may differ materially from those projected in the forward-looking statements as a result of various factors.
