I attended the TCT shareholders meeting on October 6. Here are a few clarifications I was happy to receive as a result of questions addressed to Blaine Maller both during and after the meeting. I summarize them here in case someone is interested.
1. During formal meeting:
What will exactly be the use of the US $5M tax exempt Industrial Development Bond?
Answer: this very cheap financing will be used to manufacture the cores in house. The main equipment required costs about $3.2M US. While the price premium of the TCT CAC's is justified in view of the quality, manufacturing the cores in house is important to improve profitability, gain more pricing flexibility, or both. In US $, the cores currently purchased outside cost about $250, while the balance of the parts is about $160. Manufacturing the cores in house could bring the cores to the $100 range, or maybe even lower. In addition, when the cores are externally sourced, it costs from $55,000 to $100,000 per core to create the initial mold. As a result, TCT currently sells only models representing 25% of the market. In house manufacturing will permit to compete in 100% of the models in the market.
2. After the formal meeting, I asked Blaine the following questions:
2.1 Could he provide more details on the reason for the $0.5M interest free loan to directors (mainly Blaine and his father)?
Answer: he wished the question had been asked during the formal part of the meeting. This loan does not represent real cash lent by the company. When Blaine and his father started the company, they invested up to their last cent in shares and warrants. In calendar year 97 (fiscal 98), some warrants exerciseable at $0.40 were in the money and coming to their maturity date. They did not have the money required to convert the warrants into stock. The alternative therefore was a) to convert the warrants into stock and immediately sell the stock to realize their profit (while at the same time driving the stock down), or b) to convert the warrants into stock and record their indebtedness to the company by an accounting entry (supported by promissory notes). They elected to do b).
2.2 I have heard 3rd hand that a competitor had a longer warranty then TCT. Can he please comment?
Answer: the issue is more what the warranty covers; while TCT's warranty fully covers its products, that competitor's warranty has a number of qualifiers before the warranty applies. For example, while TCT's warranty covers any leakage, that competitor's warranty only covers leakage when it exceeds a certain ratio (I forgot whether 15 or 25%), etc…
2.3 What does the 2nd quarter look like?
He declined to answer, as the information is privileged (and not yet available anyway). Generally speaking, he indicated that the company was less liberal with the information it provided than they originally were, because they have been burned a few times. They do not want to provide information to their competitors, all of which are private companies (which therefore do not have to provide any information). He added that some of their competitors are shareholders of TCT, to try and gather competitive information.
2.4 The question was asked as to whether they were meeting the steps in their 5 year forecast.
Answer: they are on track.
2.5 The discussion somewhat evolved to the share price.
Blaine mused it was ironic that the share price was higher when the company was weaker and is now lower when the company is stronger. There are currently no plans to move to the TSE as it is more expensive and unlikely, in the current environment, to make much difference.
(During the formal part of the meeting, Cameron Schuler had indicated a number of presentations scheduled in October and November to raise the awareness of TCT).
I was pleased to have met Blaine. I view him as a no-nonsense businessman who knows what he is doing, and is very direct in answering questions.
Saverio
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