Last week, there was a new kid on the pink sheets block. Here is a screen cap of its website:
Some facts about them from their “investor relations” page:
- The Grilled Cheese Truck, Inc. is an American entrepreneurial “emerging growth” company with a brand and menu that is widely followed throughout the nation within the Gourmet Food Truck Space*.
*Although I always thought that the phrase “widely followed” was a kind way of saying “not followed at all, never heard of it, who?”
- They have about $1 million in assets, funded by about $3 million in liabilities (awkward).
- In the 3 months ended 30 September 2014, they made a loss of $939,189.
- But they’re doing better, because in the 9 months ended 30 September 2014, the company made a loss of $4.4 million. And by my calculations, that means that the first six months of 2014 yielded a loss of $3.5 million.
- So they’re losing less than they did before. But they’re still losing a lot.
For my money, I can’t understand how a company consisting of just 4 food trucks can make such heavy losses in so short a period of time.
I’m lying – I can. But it involves hiring a lot of “top talent” at “market-related compensation” to take the company “to the next level” when you still only have four trucks in operation. Fortunately, in exchange for salaries that are higher than your revenue, you can get these professionals who really know how to cost cut on the non-essentials – like why use a proper web designer who knows that Comic Sans is just too much cheese for a grilled cheese truck company when you could just use a template from 1995?
But you’re not paying these professionals for nothing.
Because before you know it, they’ll be taking your company and its losses to the OTC Markets Group LLC (the artists formerly known as Pink Sheets), getting it a trading name (GRLD), and allowing it to trade over the counter*.
*This is easier and less onerous than making the company shares trade on a real exchange like the NYSE or the NASDAQ.
And then this:
The shares are currently trading at $5.94 per share. As of 30 September 2014, there were 18,037,158 shares in issue.
You have a company worth $6 per share × 18 million shares = $107 million.
Four food trucks; $1 million of assets; $12 million in accumulated losses.
But it’s worth $107 million.
But Not Really
The reaction that the Cheese Truck Business is generating is mostly along the lines of “Look at how frothy the market is – people are so crazy for fast food it’s crazy – we’re near the end of the equity bubble – etc”
In particular, Barry Ritholtz at Bloomberg View: Grilled Cheese and $100 million of Irrational Exuberance.
Here’s the thing:
- We’re not really talking about $100 million here.
- We’re talking about daily trades of between 800 and 2,400 shares.
- At the time I pulled the graph (earlier this morning), a total of 9,458 shares had traded.
- We’re talking about, at most, $56,000 worth of trades. Not $100 million.
- Sure – there’s an implied value of $100 million.
- But there is a bit of a fallacy here: that any amount of money is treated equally in terms of investment.
- That’s just not true.
- For example, I might put R10 into an investment that’s extremely high risk (like a bet at a casino). Because I can afford to lose R10 without even noticing that it’s gone, and sometimes, why the hell not.
- But I wouldn’t do the same with R10,000. Or R100,000. Or R1 million.
- In fact, I would bet that we get more risk averse the larger the amount of money that we’re talking about.
- And in this case, $56,000 might just be small change for many large investors.
- In fact, these trades might be more in the nature of charitable donations.
- According to their website, “The Grilled Cheese Truck Inc. has committed the first 100 trucks to be run by qualified Veterans. We feel that the skill set developed by a veteran’s military training lends itself incredibly well to operating one of our Trucks.”
- So $100 million valuation?
- No – that’s probably not it.
Just some clever people who know that “Support our veterans” is quite a rallying cry – and you don’t always need the promise of return to raise money.
So to sum up:
How To Be A $100 Million Company?
- Borrow money
- Invest in one or two food trucks
- Inexplicably lose lots of money
- Hire someone to do your finances
- Don’t hire someone to do your website
- Commit yourself to a cause that could be supported by Republicans without them feeling like it’s social welfare (“These are not handouts, we’re empowering people to work for themselves!”).
- Ask your finance guy to list you on an OTC exchange.
- Sell shares at a high relative valuation.
- Do some multiplication.
- Ta dah!
It reminds me of the whole Cynk scandal from last year. Which is still, to date, one of my favourite stories of market crazy: “The Curious Penny Stock Named Cynk. And A Scheme!”
Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.
Gerri Sutton February 10, 2015 at 21:13
As someone who was intimately involved in the very beginning of GCT’s debacle, I can say that most of the loss comes from “hiring a lot of ‘top talent'”. Can you say “Ponzi Scheme”?Reply