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FACT Corporation (OTCPK:FCTOA)

ValueRich Conference

March 27, 2007 2:25 pm ET

Executives

Jacqueline Danforth - President and CEO

Presentation

Jacqueline Danforth

Good afternoon. Thank you for joining me. My name is Jacqueline Danforth, and I am the CEO of FACT Corporation.

I am very excited to have the opportunity to speak to you today, both to introduce you to our company as a burgeoning investment, and more importantly to introduce you to the company as a step towards the solution to some of today's health issues.

Since joining FACT in August 2001, my role with the company has been focused specifically on the commercialization of our bake mixes, nutrition solutions as we call them for the bakery industry.

I am looking forward to telling you more about that. But before I do, I will just tell you a little bit about me.

I have been working in the industry for the past 13 years, working with both private and public corporations in various sectors, mostly technology based. I've worked with companies trading on both US and Canadian Exchanges. And most recently over the last five years, I have been spending my time with FACT.

And it has been my great pressure to be working with a company like FACT, in particular because not only is it a very exciting breakout investment opportunity, but also it's a rare company with a social conscience that can contribute something truly worthwhile to the consumer marketplace.

TRANSCRIPT SPONSOR

FactFoods Logo

FACT Corporation is a specialty nutrition solutions provider to the baked goods industry. The Company markets and distrubutes customized bake mixes to manufacturers, allowing them to produce nutritionally balanced bakery items to meet the demands of today's increasingly health conscious consumer. FACT's clients include organizations that manufacture and distribute products such as muffins, bagels, cookies and brownies, which are marketed via both conventional and alternative channels including branded and private label retail opportunities, food service and specialty markets. FACT's bake mixes focus on high fiber, reduced calories and low or no sugar. The finished goods manufactured from our mixes are targeted for specific consumer market categories including weight loss, digestive health, diabetes and general wellness. FACT provides its customers a turnkey nutrition solution!

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So, who is FACT? FACT is essentially a public company. It is listed on the OTC Bulletin Board. Our ticker is FCTOA. We operate in the Nutrition/Functional Foods category. And our current focuses are high fiber/reduced calorie bake mixes that are marketed to retail and wholesale clients.

I am going to give you a few facts now about our industry. Some of these things you may know and some maybe new to you.

Presently, right now in the United States, 187 million people are overweight. That's 63% of the population and 100 million of those are technically obese according to their body mass index.

62 million Americans are diagnosed each year with chronic digestive problems. More fiber is really the only solution in their diets to make that go away.

20 million Americans have Type 1 diabetes. And another 54 million have a condition called pre-diabetes, where their pancreas doesn't produce enough insulin.

Half of the population has high cholesterol.

The healthcare costs are skyrocketing, as I am sure most of you are familiar with. It was $1.9 trillion in 2005. So why is it? And the simple answer is, we have a problem with chronic illnesses and very much of that is related to our diets.

So, how large then is the market that we operate in? That was the consumer piece of it. How large is the market, the industry itself? Well, presently as I said, FACT operates in the nutrition market and specifically functional food.

The market consists of various products, including prepared foods, vitamins and other crossover items. And the total U.S. nutrition market in 2005 was about $70 billion. It's about $196 billion globally.

The Functional Foods segment of the market is where FACT specializes. This represents products that have been specially designed in order to offer the body an additional benefit, just beyond the inherent nutrition.

So in other words, Tropicana Orange Juice fortified with calcium would be considered as a functional food.

FACT works with fiber, prebiotic fibers. And these are special fibers that offer benefits to the body. They make you feel fuller and longer. They help with the absorption of good bacteria. They help you produce more good bacteria and they also help with glucose management.

That's our functionality. Similar to a company like in Canada we have Becel where they make a margarine that helps reduce your cholesterol. That product not only provides you bolstered fiber, but also helps you manage your glucose a little bit better.

So, functional foods are expected to represent 5% of the global food sales by 2010. And the annual growth rate right now on the functional category is about 14%.

And so, as I said, we focus on that market through our nutrition solutions. So, that all sounds very nice.

What exactly do we do? Well, in a nutshell what we do is, we develop, we market and customize bake mixes, which we call nutrition solutions. And we sell those to commercial manufacturers.

All of our mixes provide benefits, including high fiber, less refined carbohydrates, the ability to assist with glucose management and reduce calories.

Our complete line of mixes serve as the core for a variety of bakers and that range across the category from muffins, to cookies, to brownies, pancakes, you name it. If that can be made from a dough or batter, pretty much, we have developed a formulation to address a healthier version.

So who are we targeting with these products at FACT? Well, we are targeting all those people I spoke about at the beginning, the people with these chronic illnesses.

So, individuals with a profound need for healthier food options, and as I said that's more than half of the population.

Individuals who recognize the link between diet and health. They know that what they eat, directly impact how they are feeling and their well-being.

Those with a desire to improve general wellness and address specific health conditions. We have a full line of products for diabetics.

Low involvement consumers, consumers that are on the go. They need grabbing those snacks and so we are helping to address that niche by providing healthier versions of your favorite snack.

Consumers that want no compromise. So in other words, they don't want to have to change anything in their lifestyle to enjoy our products.

And then of course, as we all share, no one is interested in sacrificing taste and quality or you simply won't buy it.

So, who is buying our nutrition solutions right now? Right now, FACT's customers include bakeries and manufacturers that are seeking new products, healthier versions of their existing products or line extensions, in order to serve the increasingly health conscious consumer market.

We sell to weight-loss companies that sell packaged goods. We sell to bakery ingredient distributors the private label mixes that we have formulated. Branded retailers, food service, specialty markets, those are all potential customers for FACT.

Our solution in a nutshell; we provide our manufacturers with turnkey product solutions. What that means is, they can take our mix, incorporate it in their existing manufacturing environment without a lot of additional costs and a very short time window to turn around a new product to market.

We offer products with real claimable health benefits. The benefit that we focus on, as I said, is high fiber. That's the key to FACT in everything we do because most Americans don't even get a third of their daily fiber requirement. No added sugar or sugar free, less refined carbs, and then of course reduced calories.

We offer product that fit consumers' current lifestyle. What that means is many of the solutions that we provide to our customers are those ready-to-eat items, packaged brownies, packaged cookies, packaged bagels, because we are all on the go. We need quick answers when we need a snack or a meal solution.

Most importantly, our products have not sacrificed the taste and texture or eating quality. And for anyone that's here today, I would invite you to just stop by our booth and try some of our customers' products. We have some of their free to taste and I think you'll agree. You are not missing anything by eating something that's a little bit healthier for you.

We also offer products that appeal to different market segments. What that means is we can target the weight loss community, the diabetic community, digestive health. We have all these positions available. It's up to our customers to decide, how they want to position their products and we can support that.

So our market is quite simple. All of our customers have consumers that have the top-of-mind health concerns as follows.

Weight loss. As I said, with the population that's overweight, FACT is the key.

A reduction in refined carbohydrate intake. Most baked goods are made with loads of refined carbs, sugars and bleached flour. We get rid of that. There is nothing wrong with carbs as long as you are taking in the good carbs and those are complex carbohydrates.

Diabetes. Again it's an epidemic in the United States. 7% of the population has diabetes right now and that's growing at an alarming rate.

Digestive health. We like to call that the 'show me the fiber'. Many products have no fiber. FACT really is making a stake in that market. We want to be known as a provider of a fiber solution in a tasteful way.

Heart and circulatory health. That all relates directly to what you eat, your cholesterol levels, and your blood sugar levels.

Reduced calories and then of course just general wellness.

Our current product line; right now, we offer a diverse number of products to our customers. We have our commercial mixes. So, to wholesale, we sell them by the truckload. We have retail ready bake mixes. There is a shop right there with a couple of our retail ready products. You could use them at home.

We have a line of snack bars, ready to go to market. We have ready-to-eat, portion controlled servings of cookies and muffins and brownies. And then we also offer customization services for those of our clients that needs some help getting a product to market. They know what they want to put to market, but they just don't know how to do it.

Here is a few of our customers' product lines. I thought it might help you to picture the kinds of foods that I am talking about. The first here, Western Bagel, we've been working with them. They are our first commercial customer.

Actually they have been very successful. They have products in Wal-Mart and Albertson's and Gelson's and Food4Less and then they have an online store. They are the number six bagel company in the U.S. This line of products is an Alternative Bagel, 110 calories, 7 grams of fiber, no sugar.

The next are some of Glenny's products. They are one of our newest customers. They've just recently launched a line brownies and blondies. We have both of these products here today. Again, calorie control, these are 100 calorie per serving, 7 grams of fiber per serving and those ones are organic.

So, that's just a couple of examples. We have other customers we work with. Unfortunately, when you are a nutrition solution provider, not every company you deal with want the rest of the market to know who is providing them their solution. So, I can't mention those. But we do deal with weight loss companies and other organizations to fit their needs as well.

Just a quick look at our distribution channels to show you how simple it is. Basically, we develop our customized mixes. They are proprietary to FACT. We have a contracted blender located in New York. The blender combines our commodity ingredients.

That's what we sell. It's that simple. It goes to the manufacturers. The manufacturer produces the product. It's market-ready. They market it as their brand. Of it goes to supermarket, specialty retailers, health food channels, you name it. It goes there and then of course direct to the consumer. And these consumers are people that need these products to eat well and stay well.

Our unique selling propositions. As I said, our products are turnkey, which makes it quick and easy for manufacturers. Our bake mixes serve as the core for new products, which means some of our customers can maintain their existing product profile, flavors and format, which is very handy.

We offer all the claim and nutritional support that we stand behind everything that our customers manufacture. It delivers on what we say it will.

Our formulations are all high fiber, as I said, because at FACT, we are all about the fiber. And then, we have customization capabilities for those of our clients that are unable to develop or customize the product for themselves.

I won't belabor our marketing strategy. I think it's pretty simple. What we do is, sell directly to commercial manufacturers. It can be a long sale sometimes, but it's usually a very profitable one.

Most of the companies we deal with have a lot of distribution in major channels into the United States, which helps us greatly with getting our products out there to more different categories of the market.

Right now, our revenue and commercial mixes. We have licensing arrangements with bakery ingredient distributors who private label our products. And then we have product in ready-to-go formats as well.

So, as we like to say, where is the dough? Why am I telling you all of this? What will this do for us?

Well, FACT is in a position not only because of the market we are in and the high demand for products such as ours right now. But it is because of the stage of our development to be a very interesting investment opportunity to the average consumer.

The market for our product is really almost limitless. And I think if you take a look at the health stats that I provided to you, you can see, Americans and globally, we need to be making better choices.

And FACT provides the avenue for manufacturers to make those better choices, to get the healthier products on the shelf.

Our three-year plan. It's quite simple. What we are looking to do is grow our year-over-year revenues, so that by 2010 we see somewhere around $50 million in top-line revenue.

Here is a quick chart that shows you where our revenues have been since we started.

In 2002, they were around $300,000. In 2003, a little bit high around $450,000. In 2004, we jumped over a $1 million. In 2005, unfortunately, we lost one of our customers due to some financial difficulties, so we had a drop. In 2006, we recovered quickly, up around $1.7 million.

We are on target this year to do about $5 million and that's without even finding on any of the clients that we hope to bring on during the summer.

A little bit about our team. It's a simple team. Everything at FACT, we rely on a core group of professionals. We have a fellow of the Canadian and American Institutes of Food Technology. We have a food industry executive. Myself, my background is chemistry and finance.

We formally had a full product development team. Now, they are just on contract because we have a full stable of products ready for market. And for 2007 to 2010, our current plan is distribution, marketing and sales. What we need to do is get our product to more locations and different channels.

Our short-term goal. Just improve our revenue. That's what we want to do. Improve our revenue, diversify our client base, and increase our brand awareness, our "Nutrition First" brand. That's how we market our products.

Expedite our growth. We have some great merger opportunities on the table and then increase our profitability year-over-year.

Our future developments. The nutrition segment is going towards specialized products with increased functionality. So, down on the road, FACT hopes to lead in this venue by producing targeted nutrition products, targeted to men's health, women's health, children's health, senior's health, and then of course, more and more ready-to-eat items because that seems to be the trend that we are going to.

Briefly, our share structure. Currently, we have 17 million shares issued in outstanding, just over 17 million. Our float is about 4.4 million shares. We are still very tightly controlled by management, about 70%. And our market cap right now is about 10.5 million. We have a lot of room to grow.

I'll just summarize for you our contact information. We invite you to visit our website at www.factfoods.com. We have a lot more information on our company and our plans there and some educational material as well to help familiarize you with the market.

But if I could leave you with just a few thoughts, they would be: FACT is the company that has spent the last several years working hard to get to where we are. We have built a strong foundation. We're at the point now where our revenue in the $5 million to $7 million range is enough of a stable base for us to get out there with an accelerated growth plan. And it really blows the doors off with what we're doing.

It is a very timely project. And I think that we should see good returns as well in our market capitalization and our share value as we continue to succeed with our efforts.

So, don't take my word for it. I'd invite anyone that's here to come by our booth. Please try a sample of the products that we manufacture. And I think you will see that FACT is going at all the right places. Yes.

Question-and-Answer Session

Unidentified Audience Member

[Question Inaudible]

Jacqueline Danforth

We should be breakeven pretty much now with the revenues that we generate on a quarterly basis. This year we are going to do, as I said, about $5 million. We are on track for it right now. That's profitable for us.

Unidentified Audience Member

[Question Inaudible]

Jacqueline Danforth

Yeah. Our margins are between 10% and 20%. So, we need between $1 million and $2 million to be breakeven with our operations right now to implement our accelerated growth strategy. That's going to change figures a little bit. We'll obviously need to put out some upfront capital in order to get that done.

Unidentified Audience Member

[Question Inaudible]

Jacqueline Danforth

Those are our gross margins, 10% to 20%, which is quite high for the bakery industry. Most major bakery manufacturers aren't seeing more than between 3% and 7%.

Unidentified Audience Member

[Question Inaudible]

Jacqueline Danforth

We are demanding a high margin. The 10% to 20% is a pretty high margin. Our products are proprietary from their makeup, but that's not to say. It's still the food business. We can't step too far out of line, because otherwise someone else would just look to reverse engineer what you've got. And it's not unheard of. It may not be identical, but it's certainly going to be close enough.

Unidentified Audience Member

[Question Inaudible]

Jacqueline Danforth

That's right. They are trade secrets. We like to jokingly refer to them as the Coco Cola formulations. They are locked in a vault. No one sees them, but me.

Is there any other question I can address? Yes.

Unidentified Audience Member

[Question Inaudible]

Jacqueline Danforth

Our largest customer is probably more than half right now of our sales. They are a very large company. That's the main reason for diversifying our products across more segments. We need to reduce the risk of having so many sales going to one customer. I am not concerned about their financial viability, but for FACT it makes sense to diversify across as many channels as possible.

Unidentified Audience Member

[Question Inaudible]

Jacqueline Danforth

Our customers ask for exclusivity on certain of our products. This particular customer has requested exclusivity on the line we produce for them.

Unidentified Audience Member

[Question Inaudible]

Jacqueline Danforth

No. It's actually a weight loss company.

Unidentified Audience Member

[Question Inaudible]

Jacqueline Danforth

Nothing I am aware of at the moment. We haven't really over the last couple of years been out there talking to the market. And I think as we get on the road, now that our fundamentals are in place, we really look to bring in some institutional investments.

I know, as we grow, that will probably come. But now that we've got a nice story and we finally have achieved profitability, I think we can start talking to the right people.

Unidentified Audience Member

[Question Inaudible]

Jacqueline Danforth

Competitions have to pin down. Any bakery ingredient supplier is going to be a competitor, simply because they provide a mix. There is no one that we are aware of right now that provides the mixes that have the fiber content that ours do. So, we have no direct competitor. But I am very aware of all the competition that there is just in the sector as a whole.

Unidentified Audience Member

[Question Inaudible])

Jacqueline Danforth

Yeah. I get asked that a lot. Anyone could put a bunch of fiber into a product. There is a lot of ways to do it. But getting fibers that actually benefit the body and still allow the product to maintain its integrity -- a brownie still tastes like a brownie, a cookie still tastes like a cookie. That is very difficult. And it took years of development for the scientists that we had on our team to do that work.

That's really our core competency and that's where the unique quality comes from. And right now, it gives us our competitive edge.

Anyone else? No. Alright. Well, thank you very much for coming. I appreciate it.

Unidentified Audience Member

[Question Inaudible]

Jacqueline Danforth

Thank you.

TRANSCRIPT SPONSOR

FactFoods Logo

FACT Corporation is a specialty nutrition solutions provider to the baked goods industry. The Company markets and distrubutes customized bake mixes to manufacturers, allowing them to produce nutritionally balanced bakery items to meet the demands of today's increasingly health conscious consumer. FACT's clients include organizations that manufacture and distribute products such as muffins, bagels, cookies and brownies, which are marketed via both conventional and alternative channels including branded and private label retail opportunities, food service and specialty markets. FACT's bake mixes focus on high fiber, reduced calories and low or no sugar. The finished goods manufactured from our mixes are targeted for specific consumer market categories including weight loss, digestive health, diabetes and general wellness. FACT provides its customers a turnkey nutrition solution!

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