In response to your post, Malc Stone, I have provided clarification and/or analysis to each of your points within the framework of what I can do on this board, which is worth my time as it may serve to help others with similar issues about SMKY. In reading your post, I suggest that in the future you refrain from seemingly self-serving, sarcastic commentary to your points, which I believe generally to detract from the enjoyment of your communication. The value of your post is positive, but you’re communicating negativity, which is contrary to what you ask viewers to hear and believe. That said, I am happy to be viewing your additional and non-negative style posts as I begin to produce this response.
CASH: Our cash (per Q3-10Q) is $68,000 (plus up to $200,000 in inventory revenue depending upon the distribution channel), which is relatively low, but since our burn-rate is also very low it represents sufficient time to operate in order to generate revenue and more financing. What cannot be made evident or visible in filing information is the “intangible” asset value of SMKY’s business organization and operating structure. Because of our operating affiliations, SMKY has minimal fixed expense to produce its product and its sales/marketing/distribution expenses relative to generating Internet, retail and wholesale revenue are over 90% variable to sales. Your commentary about SMKY’s low cash and your company having $5k capital suggests companies, particular start-ups that have evolved into major corporations, do not at some time suffer threatening cash flow issues as they navigate their learning curve …
LIABILITIES & ACCUMULATED LOSSES: SMKY, like most every concept or start-up company that experiences the development/start-up stage including countless major brand companies, is arguably – from a strictly “balance sheet” standpoint – an insolvent entity as the inherent, but intangible value of profit potential that’s been created through early-stage loss and debt cannot be shown. It was that intangible value found in all successful companies – which SMKY has – that afforded them the resources to meet their current obligations. However, auditors are required to include “going concern” statements in their audits because of such realities for probable failure. What’s important to know is that most of our current debt is owed to me and other insiders and affiliates whose support from [continued] deferred compensation and professional fees, and cash advances has helped bootstrap the company’s operations the past few years in lieu of major dilution from angel-type investors to cover expenses. Your commentary suggests that early-stage companies completing development should emerge without deficits and debt …
FINANCING & FUTURE DILUTION: SMKY has one class of common stock and is nearly 45% owned by management and affiliate shareholders (I am the largest shareholder), which means that no financing structure is going to be accepted that would be toxic to the company. Indeed, every time a company issues a single share there is “numerical” dilution, but the key factor is the value upon which the share was issued that determines whether or not there is real or effective “equity” dilution. SMKY does require more financing and of course there will be numerical dilution, however the structure of our Preferred Stock offering is [designed] to be shareholder-friendly and has the unique potential to result in equity-appreciation assuming we achieve just our conservative business objectives. Our financing vehicle is a high-yield venture capital style structure and does not involve typical dividend payments or any other form of cash return that depletes invested capital. And, because SMKY is generating sales and can grow revenue with current capital resources, proceeds of Preferred Stock sales in any increments will finance continued expansion without threat of investor shares hitting the market any time soon. Your commentary is obviously coming from what you’ve learned about traditional forms of private and public company financing, which limits your scope of understanding and vision as to how creative financing can be achieved when the interests of shareholders is the primary concern of management.
VALUATION – BarBQ DINER OPERATIONS: Valuating a company at any status is a function of the belief that the long-term potential for great or greater revenue and profitability will ultimately be reached if the market category can substantiate it. You obviously haven’t tried SMKY products nor does it appear from your comments that you have a depth of knowledge about the food/restaurant industry, as the retail smoked food and smoked meat/barbecue restaurant sectors are wide open and totally untapped in terms of potential for brand development. Our marketplace is a multi-billion dollar arena void of a gourmet-quality, fine-dining prepared food product; our Smoky Kosher brand has virtually no competition in a market niche growing nearly 20% annually. And, there is currently no USDA meat processor or FDA smoked fish processor in the country producing product quality even remotely comparable to what SMKY produces in terms of our authentic smoking process and the healthfulness depicted on our ingredient statements and nutritional panels.
As for our BarBQ Diner concept, the market is loaded with independent barbecues just as the large chain pizza, burger, chicken, etc. sectors are loaded with small independents, but the fact remains that the barbecue sector is void of a large national chain, the largest having no more than 200 stores. We had only one restaurant close in formation of our learning curve for this concept, which provided a very cost-efficient experience for positioning and focus of the fast-casual concept; Dominos’ early-stage stores nearly all closed. Our mass production gives us menu systemization, which mitigates most critical operating risks of barbecue restaurant operation, our modular no-cook kitchen building design cuts opening time and investment, and our “Franship” program provides the potential explosiveness of franchise marketing.
The intangible asset value of SMKY’s operating organization directly impacts the reasoning and justification for its current market cap value, which as said is a function of perceived profit capability. SMKY’s marketing plan for its two smoked food brands is to penetrate then dominate, just as all food companies set out to do; however, penetration is generally easy as any company can – for a low enough price – get consumers to try something new to accomplish market penetration. But, it’s the ability to get to profitability through sustained penetration (repeat buying) that dictates outcome for a company and its shareholders’ dreams, and therein lies the reasoning and justification for at least SMKY’s current market cap valuation.
Food and manufactured goods companies most often are self-producers or manufacturers of their products and their operating organization is heavily burdened from the start with extensive fixed overhead for facilities and infrastructure, which requires certain margins to be achieved to attain profitability. New product failures happen because company overhead prohibits the ability to remain competitive after demand is created if lower margins are required. Because SMKY’s operating overhead is predominately variable to sales, we have the ability to price our products wherever necessary to sustain and grow the demand our market penetration creates, and that intangible value factors in a huge mitigation to investor risk and enhances valuation. SYSCO bought our product because the quality is superior and we were able to price it competitively and still hold a margin that gets us profitable and self-capitalizing at about 25% usage of existing production capacity. SMKY’s game at this stage is simply to prove concept value and establish a beachhead of cash flow from which to spring.
Thanks for your interest in SMKY - seems like a most effective manner of DD would be to experience and form a personal opinion for the likeliness of demand of SMKY salmon. At least you'd gain a certain percentage of success certainty for yourself!
