Art/everyone,
My concerns with IVFH don't lie with the underlying company right now but rather with the manner in which they are treating their public share structure. I mostly agree with Art's "reasons to consider this stock" with the major assumption that DiMaggio's experience and connections provide the company with margins which are high enough to offset the normally challenging profit difficulties faced when dealing with perishable products and by new innovative companies in general. Apparently 75 percent of their clients are “premium white tablecloth restaurants, including hotels, country clubs and casinos" with the rest of the business coming from "mom-and-pops where the average check is $18," a good balance (the most recent customer list I can find includes the Turtle Club at Vanderbilt Beach Resort, Ola' & Chicama, Boone Valley Golf Club, various properties with Starwood Hotels & Resorts Worldwide, Trump International Group, Harrah's Casinos, Marriott Hotels, Wolfgang Puck Properties in Las Vegas and the Four Seasons Hotels & Resorts). The company went national in 2002, said that it had five consecutive months of record sales in the beginning of 2004 and recorded “extraordinary sales growth” for the end of fiscal (calendar) year 2004 as well. They continue to win new customers even while increasing sales to existing customers. They have demonstrated smart business sense in the clever leveraging of their associations with U.S. Food Service (sales) and Harvest Pak Foods (IVFH premium food lines). The U.S. Food Service contract was signed 16 months ago, expanded six months ago and last July IVFH and U.S. Food Service had a joint booth at the American Culinary Federation's National Convention. In August DiMaggio said “As we continue to grow the Food Innovations brand, Chefs are now asking for us by name.” Last month he promised that “in 2005 we will be aggressively seeking new lines to add to our distribution channels and introduce them into our customer and market base. We will be announcing a number of new products in January and February.” I think there is plenty of room for IVFH to grow as a top-tier highly personalized service even in a space dominated by Sysco.
However, nearly one year ago they went public “to aid the company's growth.” Presumably that means that they needed money (but why if they are doing so well?) so they cashed-in public shares which they created by backing into the public shell of a company which had been bought out two years earlier. Yet without any followup since that time they have seen (allowed!) their share price decline, from over $1.00 to under 01¢ on relatively thin volume. I can appreciate that their time and energy should be plowed into the business right now and that they probably are much more interested in running the company than in supporting the stock. That’s great and all for them and their customers but it could spell big trouble for their forgotten shareholders. With the stock now trading so low it undoubtedly has become even more vulnerable to manipulation. The low (practically no) visibility and small float make it a particularly attractive candidate for P&D and boxing campaigns. With only 36% of their shares currently outstanding there is IMHO a high risk of dilution whenever they decide they need more money. Their website is restricted. Their PR company (why contract for PR/IR yet not get any?) doesn’t return calls (not promptly anyway; maybe next week), though maybe they’ve been dismissed as they weren’t listed on the last release. They are not a reporting company, which opens up a whole host of additional risks for public shareholders (no Reg SHO protection, 504 filings, etc) though at .0092 I consider the risks to be reflected in the share price.
I’m betting that the foundation of a profitable and growing company is in place and that the principals now are planning to take the business to the next level. I’m willing to take a chance on their success or failure in doing so but I always worry about the unsophisticated entrepreneurs’ plunge into the public marketplace. Often the professionals eat the public company alive even as the underlying business thrives and escapes unscathed. In other words, the shareholders all too often pay the price for the principals’ education in public financing. Since in just under one year in existence this company’s share price has run inverse to the apparent results of the underlying business, is anyone else worried that that might happen here?
