The story of the $ 100 million New Jersey deli
Photo from Google Earth
Your Hometown Deli is a typical single-unit sandwich shop in Paulsboro, NJ. It operates in a corner of a square, gray and red building mainly occupied by a performing arts school. He sells a selection of cheesesteak and hoagie sandwiches served with fries and other finger foods.
Nearby is “The Monster Factory,” a professional wrestling training school apparently featured in Rolling Stone and the Wall Street Journal. The delicatessen does not have full-time employees. Its CEO is Paul Morina, the principal of the local high school where he is the wrestling trainer. The company’s vice-president is a high school math teacher.
This deli is valued at over $ 100 million. Or at least that was until Friday – when its shares plunged 15%, which brought its market cap down to $ 90 million.
The valuation of this local deli has spread across social media since hedge fund manager David Einhorn used the valuation as an example of poor federal securities regulation, not to mention inflated stock prices. “The pastrami must be amazing,” Einhorn wrote in a letter to investors Thursday.
Maybe, but that doesn’t sell much pastrami if you look at the numbers: deli meats only generated $ 21,772 in 2019 and $ 13,976 in a 2020 hampered by the pandemic. The combined income for those two years, $ 35,000, is not much more than the income generated by a Subway location in a month. An amount, it should be noted, which caused some consternation among the operators of said locations.
Most of the company’s expenses are on food and drink – it only paid $ 102 in labor costs in 2019 and $ 126 in 2020. It pays $ 500 per month in rent.
But Hometown generated a loss of $ 624,438 in 2020, thanks in large part to $ 320,000 in consulting fees, with $ 170,767 in professional fees and $ 124,376 in general and administrative expenses. He lost $ 132,158 in 2019, thanks to professional fees and general and administrative expenses. The company’s shares are traded over-the-counter, which means you can’t just buy them with your Robinhood app.
It started trading in 2019, although it has been submitting public filings since 2017. Its value steadily increased until it recently peaked at $ 13.50 per share, with this nine-digit market cap, ahead of its fall on Friday.
He has consulting deals with several companies, including one with a Macau company called VCH Limited, which charges him $ 25,000 a month to “build a presence with institutional and high net worth investors.” He has another with Tryon Capital Ventures, a North Carolina company, which charges him $ 15,000 a month for “research, development and analysis of products, financial and strategic matters.”
The key phrase from the company’s annual report that could do as much as anything to explain the hometown purpose is: “In the future, we intend to research, investigate and, if such an investigation justifies it, to engage in a business combination with a private entity whose business represents an opportunity for the shareholders.
Later: “We will not limit our potential target businesses to any specific business, industry, or geographic location.”
In short, this small New Jersey delicatessen run by the local wrestling coach appears to be the foundation for a shell company looking to merge with another company – much like a SPAC (Special Purpose Acquisitions Company). but with real participation.
However, that was not always his goal. The deli was first opened in 2014 and its previous public depots suggest it had expansion plans. “The company’s business strategy is to create a food-oriented social environment within the local community that offers better quality prepared foods and ingredients than those typically found locally,” its report says. Annual 2017. “If capital is available, management will select other Your Hometown Deli locations that appear to support this strategy.”
But incomes are down. It generated $ 76,213 in revenue in 2016 and $ 50,432 in revenue in 2017. Revenue fell to $ 32,205 in 2018.
In 2019, the company sold shares to Peter Coker, the chairman of South Shore Holdings, which is listed in Hong Kong and has a history with investment firms in Asia. Coker is now President of Hometown International, the parent company of Your Hometown Deli.
In fact, most of Hometown’s major shareholders have addresses in China, although at least one is in North Carolina.
For Einhorn, the charcuterie is an example of broken markets. “Small investors who find themselves drawn into these situations risk being harmed over time, but the regulators, who are supposed to protect investors, do not appear to be present or curious,” he wrote. “From a traditional perspective, the market is fractured and perhaps breaking up completely.”
UPDATE: This story has been updated to make it clear that Paul Morina is the CEO of Hometown Deli.