I am an Individual Investor and business owner who at times takes large positions in Small Cap Companies. My current position exceeds 95,000 shares. With the $3.50 per share support broken I decided it was time to get a face to face with the management. I have spent a great deal of time learning about the industry and the Company and I will gladly respond to any questions you may have concerning this issue.
My visit took place on 6/29/98(yesterday). The Network Connection can be best described as a company that is run by experienced Engineers. Typically business Leaders favor their strengths and run their business with their best foot forward. People who have a strong Sales background tend to push Sales, sometimes to a fault often ignoring the needs of operations, quality etc. The Finance type traditionally drives his or her business by looking in the rear view mirror. This means the finance person focuses on the past more than the road ahead and fatal accidents are prone with market shifts. I am currently watching a similar mess develop in my home town. Engineering and Operational leaders focus on the reality of the market. They know how to make the product or mass produce it. The only down side to the engineering mentality is they appear too patient for the world of Wall Street. As we all know Wall Street is only concerned with "What have done for me lately and how about next quarters earning?". Engineers come equipped with strong detail orientation, great follow-up and Patience. Unfortunately Engineering Personalities typically (there are some exceptions) are not gifted with the infectious charisma that most brokers use to get investors to buy into companies we know nothing about. After studying the releases and the negative remarks from those who followed the stock I now understand what happened.
First let me tell you about the markets that The Network Connection serves. The Network Connection up until 1995 was a provider of Video On Demand Servers for the Corporate Training environment. The Riner Family made a comfortable living developing this line of servers. With the success of developing an in flight entertainment server and client prototype in late 1995 they were blessed with a USA Toady article dated Dec. 13, 1995. Soon after they went public to finance the development of this new product.
Please keep in mind that the act of going public was to help finance the development of this NEW PRODUCT LINE. In hind sight the USA Today article was a blessing and a curse. USA Today is in the business of selling newspapers and what better article to write about in late 1995 than accessing the Internet from 30,000 feet above the earth. As the expression goes on Wall Street "Buy the dream and sell the reality". The Network Connection goes public and every broker following the story has a hot new issue to get their clients into and the Swiss Air Contract helps drive the price up to $26.00 a share. BUY THE DREAM ! The Financing is complete.
Two and a half years have past and The Network Connection is the only In flight Entertainment Company that provides a fully digital network capable of accessing the Internet at 30,000 feet that has FAA approval and is flying. The system is being installed on 9 more Fairlines MD-81 planes (unfortunately the delivery of MD-81 airplanes is delayed, not the in flight entertainment system). Boeing's RFQ for delivery in early August 1998 for installation on the "Demonstrator" system is anticipated to come through shortly. When I received my tour of The facility I noticed there was a complete Air View Server sitting in Storage, hmm that is a lot of money to have sitting in storage with out an order for it? I also took a look at the visitor log and recent entries included KLM, British Air and Dassault (makers of the Falcon jet). There were many others listed too but I can't safely state their names at risk of accidentally stating the wrong name. The visitor book tells me people from around the world are making time for TNCX and are willing to travel to Little Alpharetta Georgia. This is good. The FAA approval and Fairlines has validated the product now the sales should start picking up the pace.
The Air View system for those of you who have not seen it in person is very ingenious. The client (the screen at each seat) is similar to a lap top computer. The difference being the screen is a touch screen that allows a computer novice the opportunity to view movies, work on Microsoft Word & Excel(a small key board will be made available from the flight attendant for a fee), play black jack, listen to music (you simply plug the headphones into the front of the unit), shop online, and learn more about your destination. The possibilities are endless.
The internet was not a part of the Fairlines System and when I asked Will Riner Jr. he commented that with the correct Satellite service the internet can be received in flight similar to the connection the GTE air touch phone makes when you call from a plane. So eventually you will be able to dial your network and laplink in to your system and work on any folder you chose. BUY THE REALITY DO NOT SELL! WALL STREET IS SUFFERING FROM PREMATURE EJACULATION SINDROME. The product works and they are the only game with FAA certification and it works.
Cruise View is an equally exciting project. The Cruise View product is unique because the system integrates a television and a computer (like web TV). The remote control turns both systems on and has a miniature joy-stick that manipulates the cursor across the television screen. The remote control can run everything. The system offers movies, information on the ports included in the cruise you purchased as well as other vacation packages, you can gamble from the room, shop in your room, contact room service, dry cleaning, and information about customs when returning to your home port. There is tremendous amount of opportunity for the cruise line to make money.
When I asked about the additional costs of retrofitting existing ocean liners the answer made sense. Yes, there is additional cost of retro fitting existing ships because the wires are pulled after the boat was constructed. Although, it is not as difficult as one might imagine because a cruise boat is divided into sections for fire and water containment purposes. So approximately 20 rooms would all share the same path of electrical service. This number (20) coincidentally works well for TNCX due to the number of clients each hub serves. If the number of rooms was to change to 30 TNCX could alter the system to accomodate the Cruise line.
The size of the ships is another point of interest. For those of you who have seen the Carnival "Paradise" ship you will note the shear magnitude of the boats that are being constructed today. The "Paradise" weighs in at 70,000 tons and when moored next to other cruise ships it looks like it is three times bigger than the standard ship cruising the Caribbean (I saw it off Nassau a few years ago). I suppose we have learned something from super tankers because the next generation of Cruise Boats is averaging 100,000 tons. Our friends at Star are building a boat that is 140,000 tons. These monster boats are going to need a better way to communicate the available options to the passengers. There will be over two thousand berths and a staff of 1,500. The logistics alone require a better communication method. Think about educating every passenger about filling out the customs information. The old way involves too much human contact.
Yes, Star has been shipped product in the second quarter !!!!
The C.O.D. (courseware on demand) and I.C.O.D. (internet courseware on demand) represent the future of corporate training. Imagine logging on to the net and you go to I.C.O.D. and pay a few bucks and you watch an instructional video about Material safety Data Sheets, Sexual Harassment, Fork Truck Operation, Hazardous Waste Disposal, or Microsoft Word. Any one who has managed a large group of people recognize the difficulty and the cost associated with scheduling and implementing required training. Can you imagine the number of people who are certified Microsoft techs? What a better way to keep current with the rapidly changing standards. Most importantly look at the money that all businesses large and small will save.
When I asked about the revenues of these two products Mr. Riner Sr. commented it was in its infancy although they had received strong interest and support from Earthlink and other partners.
My interpretation on this product is that the company is not going to see a lot of revenue in the beginning but, if it could get some momentum it could drive the organization. In terms of a burden on the organization it is small. I did not see a huge staff in fact I saw a very conservative effort. I am keeping my fingers crossed.
The Big Picture:
The Company just signed a deal with a suitor for a ten percent stake in the business for $10,000,000.00. Granted there are royalties? Either way the major aeronautical electronics company recognizes the potential. They think TNCi is worth 100 million (simple multiplication).
I was at TNCi yesterday and I asked myself if either Cruise View or Air View really picked up the pace could TNCi build all the units in Alpharetta? Answer, No they do not have the space and they do not own the land around them to easily add on to accomodate the additional business. Now let us play a "what if" scenario. You are the British Air purchasing director and you are concerned with service of these TNCi units. TNCi has just solved the problem by selling a portion of the business to a major aeronautical electronics copmpany. The big companies have technicians all over the world to do predictive and preventative maintenance. TNCi could not efficiently handle the needs of a global carrier (this is my interpretation I may be wrong). In my eyes the writing is on the wall. The In Flight Entertainment Business is a small circle and I bet the buyers or the engineers at the Airlines suggested this type of arrangement.
The Stock price is hurting for the following reasons.
1. Fairlines delayed the installation from the end of third quarter 97 to the 2nd quarter 98.
2. The Asian financial crisis put a halt to the South Korean School server shipments. This 25 million dollar contract is only a third complete. No Revenue came in for this contract in the first quarter 98 which combined with Fairlines left the first Quarter 98 with only 100,000 in revenues. This disappointed the street.
3. Because of the earnings short fall the Analyst who was covering the company ran for cover.
4. The youngest Riner needed money and sold a little bit of his stock to ease the pain. This insider sale looked real bad even though the amount was a small percentage of his holding.
Those four things have hurt the stock badly.
On a brighter note I found the Riner clan to be down to earth and all the staff I had contact with was very up beat. In fact I left TNCi at 5:10Pm Monday and 80% of the employees cars were still working strong. There are not many clock watchers at TNCi which says that the Employees like the opportunity they see for themselves.
I will continue adding to my position at these ridiculously low prices.
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