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Replies to post #102662 on Blum Holdings Inc (BLMH)
01/05/15 12:10 PM
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In January 2013, TRTC announced it was acquiring GroRite. GroRite was described as one of New Jersey's largest gardening super centers with 10 acres of retail gardening center, hydroponic cultivation facility and plant nursery. Derek Peterson stated: "GroRite's facility is amazing, they carry everything a home gardener would need". And hopefully they could provide exactly what TRTC desperately needed which was a viable business. The press release stated that GroRite had "annual revenue in excess of $4 million with positive net income" (source). This would have been a great addition, but TRTC did not actually buy GroRite. The letter of intent to buy GroRite must have fallen through and they ended up with the scraps, a cultivation business called Edible Garden.
At this stage, however, any addition of revenue would be helpful as the existing GrowOp business was in free fall. Revenues for the first quarter of 2013 had plummeted to only $66,000. With the Edible Garden's merger complete at the end of Q1 2013, revenue seemed to have bounced back to $665,000 due to the Edible Garden integration in Q2 2013 (source). Although revenues were higher, cost of goods sold were as high as ever $660,000. The remaining gross margin of $6,000 was nowhere near enough to cover overhead, let alone make it a viable business.
However, the hype from this acquisition was not meant to last. By Q1 of 2014, sales were plunging once again. Revenues were only $560,000, with cost of sales of $558,000 (latest 10-Q). That left only $2,000 of gross profit to cover a staggering $2.2 million of Selling, General and Administrative (SG&A) expenses.[color=red] At this level of gross margins, TRTC would have to do over $500 million in sales per quarter just to cover their overhead. Appendix K provides additional details on how the increase SG&A is another sign of promotion.
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To hear him talk, you would think Derek Peterson was pure as the driven snow and just shocked by all the things that happen with penny stocks. Now, we have already shown that his comments were factually challenged, but there is more. Exactly who is Derek Peterson? In October of 2010, The Telegraph UK, wrote an article and posted a video on Derek and Amy Almsteier's hydroponics business and their slogan, 'The First Honest Hydro Store'. As part of that 'honesty' Derek's last name was reported to be Oppedisano, not Peterson. Derek Oppedisano - what is the CEO's legal name and why did he change it? Terra Tech plays up the fact that Peterson was once an investment banker; however, if he's so good with financials, why in 2012 did he personally file for bankruptcy "On February 22, 2012, Mr. Peterson filed a petition for bankruptcy in the United States Bankruptcy Court for the Central District of California". Peterson (or Oppedisano) did not leave the world of 'white shoe firms' voluntarily. It turns out he was fired for not disclosing his marijuana equipment side business.
Amy Almsteier, like her husband, has no business background of her own that would qualify her to hold her current position as Treasurer. She maintains previous experience as an interior designer.
Rounding out the TRTC board, Michael Nahass, Director, filed for bankruptcy likely due to casino debt in 2012.
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"...the controlling management of TRTC were defendants in a lawsuit. In this lawsuit, Amy and her husband Derek, were defendants in a case for wrongfully accepting over $300k through illegally traded securities in 2009. They "accepted illegally-issued, unrestricted IEAM securities to which they were not entitled, and which, upon information and belief, they resold for full market value to the detriment of IEAM and its shareholders". Sounds like a group of people that Thomas Puzzo would be delighted to involve in his quest for stock promotions. Refer to appendix D for additional details.
Each stock appreciates in value for a variety of reasons, some of which include strong management, a growing industry or fundamental valuation. In this report, I will get to the bottom of each of these themes and how Terra Tech (OTCQB:TRTC) has none of them. In addition, a tell-tale sign of dubious management is when a company's share price is being driven by paid promotion and nothing else.
A promotion from cradle (and inevitably) to grave
Some stocks have an ever lasting impact from the circumstances that create it. In the case of Terra Tech, it crawled out of the great stock promotion primordial ooze. It all started with attorney Thomas Puzzo, who has set up shells for promotions over and over (see his public company involvement). A few of his most successful pump and dump creations include xxx xxxx xxxx xxxx:
All of these promotions resulted in shareholder losses of at least 90%. Puzzo followed a similar pattern to set up the shell that eventually became TRTC (with his involvement beginning in as early as 2008). It was originally a company called Private Secretary with the symbol PVST. And the pattern was so clear that it would be a future promotion, an internet researcher using the alias 'nodummy' identified it in December of 2011 with these comments: "Here is another shell to keep an eye on in the future because it follows some similar patterns with NSRS and RAYS: Private Secretary, Inc (PVST). If you see a change in CEO and a name change/acquisition done by the PVST shell then the paid promotion shouldn't be too far behind."
A few things made PVST an obvious choice for a future promotion shell. The first is that it never made any real attempt at forming an actual business. In its original S-1, PVST claimed to be entering the Voice Over IP business. Yet, it only had one employee at the time, Maureen Frances Cotton. Maureen was 66 years old and the only experience she had with telecommunications was a stint from 1959 - 1962 as a switchboard operator / receptionist. Considering IP was not even invented at that time, the relevance of her experience was highly questionable. Even worse, according to the S-1, "Mrs. Cotton is employed elsewhere and has the flexibility to work on Private Secretary up to 10 hours per week. She is prepared to devote more time to our operations as may be required. She is not being paid at present."
The second big clue is despite the fact the only employee had no background in IP, was only working part time and was not even being paid, is that PVST actually found investors. In the last quarterly report (10-Q) before becoming TRTC, PVST reported having 48 million shares in the hands of anonymous 'investors'. These investors received these shares for a fraction of a penny per share with no restriction on the trading of these shares (making them completely free trading). As would be expected, PVST turned around and did not make much use of investor money. In fact, it looks like Private Secretary just did enough to keep the SEC filings current, but they ultimately walked away with lots of stock.
And just as 'nodummy' had predicted, PVST acquired a private company called GrowOp Technology Ltd. Its first step was to change Private Secretary to Terra Tech Corp and the stock symbol PVST to TRTC. Next, the management of GrowOp assumed control and management over the public company (see link). Derek Peterson took over the role of CEO, while his wife Amy Almsteier became the Secretary, Treasurer, and Director. The GrowOp owners got 34 million shares of common stock, as well as some convertible preferred stock. Maureen Cotton had been the only employee of PVST for five years and never received any compensation. As a reward for her service, all her shares were cancelled. On the other hand, the anonymous investors with a de minimis cost base retained all 48 million of their shares. With these shares spread across various anonymous investors, they retained the ability to sell their holdings at their leisure - meaning at any time and at any price.
This brings us to the third clue that TRTC was going to be a stock promotion. A typical reverse takeover of this nature (with the public entity having negligible assets) will result in existing shareholders retaining a minor stake in the new or merged entity (ie. 5% or less). PVST had no assets, yet its anonymous shareholders retained 60% of the common stock after the merger.
For what possible business reason and in exchange for what assets would GrowOp agree to a deal like that? Why would Derek Peterson, a former investment banker, agree to a deal with such unfavorable economics? The only value in the PVST shell was that it was a public company. Remember that while Maureen Cotton cancelled her shares, the anonymous PVST shareholders who contributed nothing to the business had a huge block of freely trading shares. The obvious conclusion is two fold: Maureen Cotton was just a figurehead; the real parties controlling the shell and now TRTC were the ones holding on to those 48 million shares.
Refer to Appendix B for more information on Terra Tech and Derek Peterson's use of buzz words outside of regulatory filings.
A very serious, repetitive and dedicated history with stock promotion
Putting aside all the issues that existed when the company was created, not much changed with the acquisition of GrowOp, as it was never much of a business. At the time of the merger, it had produced $630,000 of revenue over the previous 9 months, with a net loss of $605,000 (see financial statements). However, at least there was some business there that sold hydroponics equipment. This business was the key as it afforded management the ability to use various buzz words to hype up the business like 'sustainable', 'renewable' and most importantly 'medical marijuana'. Fortunately for TRTC, a few buzz words were all that it needed to fulfill its destiny to use promotion to advance its stock price.
In August 2012, the emails went out from such sites as Phd-Trading.com, StockParlay.com, PennyStockCheatSheets.com and PennyStockParlay.com touting TRTC as their new 'Monster Pick' and that it was "poised to become one of the biggest names in the agricultural industry". There was one common denominator, which was buried at the bottom of each promotion email. A disclaimer that Red Brick Media had paid them to send out the emails and that Red Brick Media "may have shares and may liquidate it". This continued for a few weeks before a new group of promoters started sending out similar emails - this time, interVCap LLC had paid for the marketing and the disclaimer noted that interVCap "will sell shares of common stock of TRTC in the open market at any time without notice". Not long thereafter, the promoters (Crème Dellatex Inc.) changed but the game did not. One month after another, the promoters and the parties paying the promoters changed, but the result was the same, an unidentified party paying for promotion. Now why would unidentified parties pay for TRTC to be promoted?
Then the story finally changed a little. Perhaps TRTC got tired of operating through other parties or perhaps they got lazy, but essentially they started to pay SmallCapVoice, another prominent stock promoter, directly. Over the next 15 months, TRTC compensated SmallCapVoice over $90,000 in cash and 450,000 shares of restricted stock. Not to be out done, Red Brick Media shows up again in February of 2013, by spending a whopping $550,000 on a promotion campaign managed by Capital Financial Media.
TRTC has been the subject of one of the broadest and most relentless promotional campaigns I have ever seen. This is not surprising given how much effort is needed to generate enough demand to dump 48 million shares of stock into the market.
What is very surprising is that Derek Peterson (CEO) continues to blatantly lie about the company's involvement in any promotion throughout the campaign. In a December 2013 audio interview with 420 Investor (Audio track beginning at 48:50), Peterson responds to a direct question on the subject: "I have seen those things come through, we have an IR team…there are what they call email lists out there, again I come from white shoe firms, me learning how the penny stock world works was an eye opening experience, so there are email lists out there that put out you know promotion on companies, and you know generally those promotions result in sell offs and that type of thing down the line, so our company does not engage in that type of activity…". Obviously Peterson was not aware that his hired promoter had to disclose their compensation and SmallCapVoice makes it perfectly clear that the company does engage in that type of activity (see link of SmallCapVoice's current disclaimer): "TRTC: Small Cap Voice received five thousand dollars from the company on 1-18-13 for 30 days of service. On 3-1-13 Small Cap Voice signed a 180 day agreement for $2500 per month and 100,000 restricted shares subject to Rule 144 of the Securities Act of 1933 for the six month term. On 3/26/13 SmallCapVoice.com received an additional $30,000 from the Company to manage an investor awareness campaign on behalf of TRTC. SmallCapVoice.com, Inc. received cash payment of $14,000 from the Company on 5/29/13 from the Company to manage an investor awareness campaign on behalf of TRTC. On 9-1-13 Small Cap Voice signed a 180 day agreement for $2500 per month and 200,000 restricted shares subject to Rule 144 of the Securities Act of 1933 for the six month term. On 12-10-13 Small Cap Voice received an additional cash budget of $10,000 to hire additional groups for awareness campaign. On 4-1-14 Small Cap Voice signed a one year agreement for 150,000 restricted shares subject to Rule 144 of the Securities Act of 1933". Never a good thing when your CEO is caught lying.
If this was not enough, refer to Appendix I for more information on TRTC's history with promotion.
Refer to Appendix C for a detailed account of Derek Peterson's questionable recent past. See appendix E for additional details on Derek Peterson, Amy Almsteier, Michael Nahass and the rest of management. Appendix F outlines players surrounding TRTC that have similar issues. Appendix G highlights errors that the company has made in their filings. Given Terra Tech has had various accounting and filing issues, it is not surprising that management continues to deal with internal control issues noted in a recent filing, Appendix H provides a summary of these control issues, going concern details and shareholder dilution which seems imminent (more on this below).
A bad business as well
TRTC got lucky to be swept up in the marijuana craze
Terra Tech has had a going concern note attached to its financial statements for as long as I can see. As early as March 31, 2012, the company continued to operate under this red flag. During this same quarter, the company had a $16.7 million operating loss driven primarily by $16.3 million of compensation expense. This expense did not show on the financials subsequent to this 10-Q. Another unmistakable sign of a promotion story is when management is being paid handsomely at the cost of shareholders. So why is this company in the stock market?
Prior to the acquisition of Edible Gardens, TRTC's hydroponics business had faded away to less than $100,000 of revenue per quarter. After the inclusion of Edible Gardens in Q2 of 2013, management discussed the increase in revenue and admitted that "The primary reason was due the revenue generated from Edible Gardens." Certainly some people have bought hydroponic equipment from TRTC to grow marijuana for either legal or illegal purposes. But the reality is that almost all the business now is growing produce (source).
Per the 2013 10-K, the business "ceased our prior operations and we are now a holding company and our wholly owned subsidiary engages in the design, marketing and sale of hydroponic equipment with proprietary technology to create sustainable solutions for the cultivation of indoor agriculture.", and the company also states "We do not own patents." The net result is a company that is overvalued on all fundamentals with no real intellectual property.
Perhaps the 2013 acquisition of Edible Garden should help. On April 24, 2013, Terra Tech purchased Edible Garden and its 5 acres of greenhouse structures through a share exchange. The company in its own disclosure lays out the potential of the land "The facility, at maximum production, can produce up to 25,000 plants per week, per acre, operating 52 weeks a year at an average sale price of $1.55 per plant. The Company believes that at full production, the facility is capable of producing up to $10 million in annual sales." With $2 million of revenue in 2013, Terra Tech is far from its prior promises.
The company on March 23, 2013, raised $504,500 through a senior secured promissory note bearing interest at 60% per annum. It raised another $250,000, $153,000 and $229,000 for another 60% annual interest rate in Apr-13, May-13 and Jul-13.
In Feb-14, Terra Tech entered another significantly dilutive agreement with Dominion Capital to receive up to $6.6 million for 18 months of liquidity. All notes are convertible at $0.307 a share which represented a 46% discount to the close price on February 5, 2014. I note that this does not even include the warrants.
Terra Tech has also done toxic financings with Hanover Holdings. Hanover Holdings and Magna Group have a history of destroying shareholder value for their own benefit.
"As of October 28, 2013, there were 123,577,646 shares of common stock". Shortly thereafter: "As of December 31, 2013, the Registrant had a total of 233,802,141 shares of common stock issued and outstanding". There have been minimal changes in operations or the company during this three month period. The only change was Terra Tech being forced to report their real share count (inclusive of converted preferred shares).
As at 31-Mar-14, the company has 246 million shares outstanding in addition to 19.5 million warrants outstanding (at an average price of $0.21 per share). Couple that with the 21 million shares and 11 million warrants granted to Dominion Capital for convertible notes held and to be issued. Total shares outstanding are approximately 298 million. The market cap is thus just shy of $224 million for a company that has $2 million in revenue. This 112x revenue multiple yells 'overvalued'.
With only $3 million of cash on its books as at March 31, 2014 (per latest 10-Q) and $1.5 million cash burn (aka cash used in operations per cash flow statement), the company is on pace to be out of cash in one or two more quarters. I guess it makes sense that they filed an S-3 on April 17, 2014 for a proposed raise of up to $50 million which basically sets the current shareholders up for massive dilution.
To top it off, insiders are cashing out
Insiders have sold $1.1 million of the company in the last few months. In addition to that, take a look at the circled disposition from Amy Almsteier (treasurer/decorator) to Michael Nahass. Why would one director transfer 2.5 million shares to another for no consideration?
Additionally, it looks like Amy Almsteier purchased 100k of shares at $0.58, but do not be fooled - she was really paying a penalty as a result of yet another violation of Section 16(b) of the Securities Exchange Act of 1934. Derek and Amy, CEO and treasurer, have cashed out a little under $400,000 recently and like other areas of their lives are unable to follow rules.
Terra Tech is another story whereby a faulty management team is touting a lot more than they will ever achieve. Eight companies that operate in the marijuana have had their trading suspended this year, I would not be surprised if TRTC is next (refer to Appendix A for details). Management's history is quite the opposite of the pristine quality that they proclaim. TRTC has a downside of 90% to equity holders with insiders selling out and an imminent financing.
In October 2012, Goldman Small Cap Research posted a report on TRTC. Timothy Sykes, a penny stock guru, suggests "Very similar to how Goldman Smallcap Research tricks the financially ignorant into believing they are associated with Goldman Sachs while in fact they too are compensated and conflicted penny stock promoters whose picks I've successfully shorted several times before…almost uniformly for solid profits since the promotions inevitably fail and their "picks" inevitably crash". This was posted as a "Goldman Opportunity Research" report, and on Goldman Small Cap's website, they state "Opportunity Research reports, updates and Microcap Hot Topics articles reflect sponsored (paid) research".
