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TCT - Message to Shareholders
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Dear Shareholder,
The last twelve months have been very challenging for the Management of Thermal Control Technologies Corp. We have been focused on building a Corporation which will be able to deliver our technologically superior Charge Air Coolers (CACs) to the marketplace. With all of the advances we have made, the stock price has declined. I would like to discuss some changes TCT has undergone that we feel will make the Company a big winner amongst its competitors.
As most shareholders are aware, the market for our product is immense. The National Automotive Radiator Service Association (NARSA) estimates 400,000 CAC's are replaced on Class 8 trucks each year (at an average retail price of C$1650 per unit, for a potential of C$660,000,000) in the U.S. and Canada. This number does not include the Class 7, 6 and 5 trucks and engines used in various other industrial, agricultural and marine applications. Needless to say the immediate and future potential exists for us to sell our established product line and the continuous development of new models. Virtually all Class 8 heavy-duty trucks are turbo-charged and Legislation dictates that all turbo-charged Class 8 heavy-duty trucks must have a CAC for environmental purposes.
TCT's proprietary technology (patented and pending) is superior to any other CAC available. No other manufacturer has been able to produce a CAC that does not crack, fail and eventually cause leakage. Our warranty claims are less than 1% to date and we have approximately 1000 units which have gone beyond the warranty coverage period due to excessive mileage.
The March 10th announcement of Volkswagen Industrial Engine Division purchasing TCT CACs was another significant milestone for the Company.They have given our CAC an OEM part number and since this announcement we have received numerous inquiries from other manufacturers and suppliers to OEMs regarding TCTs product line.
Thermal Control Technologies Corp.'s distribution agreements with Pacific Truck & Trailer and the Australasian group have been a strong indicator of the market acceptance of our products and revolutionary for us in terms of the means by which our product is distributed. We are working on establishing more distribution channels like these which have existing sales networks and established relationships within our target market.
The relocation from Lincoln, Nebraska to Prescott, Arizona was expected to be a smooth transition, but we had a contingency plan in place just in case it did not. The inventory was built up to a level that would last through any disruptions that we anticipated could occur. The move took more time than expected as the completion of our Prescott Building was behind schedule. In turn, this delay was the reason for reduced capacity. Even with the disruptions TCT will be able to exceed last year's revenues
substantially.
Without the new manufacturing facility TCT would not be able to pursue the wholesale distributors like Pacific Truck and Trailer. The ability to increase production on short notice also allows the Company to compete with the large competitors who currently own the OEM market. In Lincoln, TCT was not able to exceed 1000 unit per month, whereas in Prescott the existing plant has the ability to manufacture up to 3000 units per month.Lincoln would never have been able to meet the demand for the smallest Class 8 Truck Manufacturer which builds approximately 700-800 trucks per month. In addition to the increased capacity of Prescott, we are now able to start implementing our program to become ISO 9000 certified, a designation which by all indications will be mandatory in the years to come.
The custom cooling systems TCT has designed have been a relatively new sector for TCT and to date the promise it offers has been encouraging. The market for diesel engines is quite large in the areas of stationary generators, agricultural, drilling rigs, pumps and marine. These applications also suffer from cooling problems, not just CAC failures. The custom systems manufactured by TCT usually consist of a radiator, CAC, surge tank, fan and shroud. TCT has been able to meet and generally exceed the rigorous demands these systems face on a daily basis. Over the next two years we anticipate the custom cooling systems will comprise 20-30% of TCTs Revenues.
Our Year-End is March 31 and we expect to report approximately $8,000,000 in revenues for the year and net earnings of $1,110,000. Based on the current 13,930,978 shares outstanding, the net earnings per share should be in the range of $.08. Based on $.08 per share TCT is trading at only 6 times earnings! The large North American Competitors are trading at an average of 16.5 times price earnings. At the end of the third quarter, TCT faced a working capital deficit of $2,970,000. This deficit in working capital was a result of TCT raising C$11,000,000 for the acquisition of property, plant and equipment which totaled C$17,000,000. Proceeds from the Tax-exempt Bond and internal cash flows were earmarked to cover the additional property, plant and equipment expenditures. The Bond issue had an estimated closing date of mid October, but the U.S. Bond market collapsed with Corporations like Ford not being able to close debt offerings during that period. Since the beginning of 1999, TCT has put into place measures which will increase working capital by $1,783,000. For the following fiscal year, we are expecting to generate close to $10,800,000 in revenues and $1,450,000 in net earnings.
The disruptions and distractions have been plentiful this year. TCT changed the Manufacturers of their CAC tanks and gaskets, relocated its main manufacturing facility and changed Auditors. Thermal Control Technologies Corp. has undergone a redefining year with many positive changes, which we feel, will position the Company for continued growth in the future.
Thank you for your continued support during these times of soft market conditions.
Sincerely,
THERMAL CONTROL TECHNOLOGIES CORP.
Blaine Maller
President & CEO
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