RCHN..OTCbargains..5/30/2012 Conversation with Mr.

RCHN..OTCbargains..5/30/2012 Conversation with Mr. Gabriel Rouchon, Ceo of RCHN DBA Swiftech. I think there is very useful info here but you will have to read it all. 

I called him at 9:05 am PST. The call finished at 11:23 PST. We went over a whole host of issues and the only reason the call ended when it did, was because he had to go to a meeting. I will start off with the questions asked by others.

Bobwins: Focator of 3 Factor of 2, why the Change? It changed to factor of 2 due to an increase in the cost of product. The original estimate of factor 3 changed when the cost of product increased.

ZEN: EVGA GTX 680/690 and Hydro copper - Why the wait? He said the design was done 5 months ago but they had to wait for a sample. He went into some detail and even though I wrote this down as fast I could I am sure I missed some of it. The jist of the problem though was he had to wait for the sample from EVGA to finish all of the specifics of manufacturing his product to fit. As far as supply, they tell him how many to send and he sends them.

First CAD Programming, then get model, then send to prototyping, then validate w/mechanical sample. Then manufacture it. Again the delay was due to waiting for the sample.

While discussing this he mentioned there is another big EVGA collaboration coming soon in the future.

I asked about Salary and benefit increases that were reported in first q. I asked if those were long overdue raises or if he was hiring new staff. He said both. He said he had some underpaid employees that recd raises and he had hired some new employees. (Especially in China). I asked how many employees he had now. He said at last count it was 35 and he was hiring more. (Especially for the manufacturing plant in China but also stateside),.

I asked how many engineers he had. He said 3. One in China, One in Cal and himself. 1 of the engineers is a Thermal engineer with 2 masters degrees. One in Thermal Dynamics and 1 in Fluid Dynamics.

I asked about the KOMODO HD 7950 that was due for release on 5/25. He said it is In Stock and will be released as soon as he has a chance to update the website etc.

I asked about more product releases in the 3rd and 4th q and he said there would be lots of smaller products but not as many major releases as in the 2nd q. He went into some detail about the Apogee II. Again i write as fast as I can and I am missign a lot of what he said but, It's a big release. The Apogee was his Flagship product. And the Apogee II is an upgraded version that he expects to sell well. I know I am missing something here. I can't remember what it was but it was major. It could have been that it is a big part of both the industrial sales and retail sales but I just can't remember.

I asked about dilution. He said there would be none this year. He said he couldn't see far enough into the future to promise next year.

I asked about Mr. Adams and the 1.6 mil shares. Mr. Adams was his first engineer and he couldn't afford to pay him properly(back in the 90's) so he supplemented his pay with company shares. He said he is no longer in contact with him and doesn't know if he still has his shares or not. He said he could check some list(NOBOS) but it wasn't currently available to him.

I asked how big is the China deal? He said plenty. He said becoming eligible to sell products in China was a very difficult process that took years to achieve. Much different than dealing with U.S. Govt. He said They are already selling some products in China. The website is finished but he needs marketing people and he is putting together a marketing team right now. He said once he has the marketing team in place and finishes the changes to the manufacturing subsidiary in China, he will be able to manufacture all of his own products(no 3rd party subcontractors and vendors) and he expects product sales in China to GREATLY accellerate. The manufacturing plant is a 100% owned subsidiary..

Some other random things he said. He said he works 6 days a week 12 hours a day. He said he loves what he does. He values his employees and their families and he considers them as his own family. He said he has very low turnover among his employees and a lot of them have been there for over 10 years. He said the way to be successful in life is to empathize with others and try to do what benefits everyone. Not just yourself. He said his Goal is to grow the company not for personal gain but for the betterment of all. His employees, customers and shareholders.

I got lost but I wrote this down and make what sense out of it you can. 3 elements(TO what I can't remember) Water block, Radiator and Pump distributor. He said they currently have to purchase the pump distributor from a third party(rebrand it) but will soon be manufacturing it themselves and it will save a lot of cost.

He was very proud of his products and called them the best in the industry. He was proud of his employees for helping to create them as well. He said they are growing beyond expectations and he did not have to pursue new contracts. He said he and his employees are busy, very busy. I asked for guidance. He was surprisingly forthcoming. He told me this will be a record year exceeding his expectations. I tried to pin him down on quarterly results. He said, it's hard for him to do it that way because some quarters the cash flow will go into manufacturing, some into R and D, and the timing of each isn't known at this time but the annual net profit would be a record and it would afford him the opportunity to grow even further.

PR's. He said it is not the cost of the pr's that is prohibitive but finding the time to do it. I pointed out that the info in the reports is well written and says a lot but not a lot of people read your report right now. I said, if you put that info into a pr on quarterly basis it would increase awareness. He agreed that since he had already given thought to and written the info in the report, it would not take much effort to submit a PR through the wire services. He sounded very open to the idea and while he didn't promise anything, I definitely had the impression it was something he was going to give serious thought to.

He was very interested in you and I. He asked me a lot of questions about what investors are looking for and went into detail about how he had tried to increase investor awareness, going so far as to hire a IR firm.(Agoracom) He said he spent 15K on it and they were good people and initially it showed some results but never brought the interest he thought it would. I told him I could only speak for myself but I don't go to IR firms looking for stock picks and neither do any of the investors I know. I said, I will purposely avoid them thinking there is a chance the company is trying to dilute the stock and sell shares on the open market. I told him I read thousands of reports a year. I try to find the hidden gems that noone else knows about. Then I tell others. I told him I was amazed when I read your annual report and saw that you had put up back to back net profits of approximately 80 k and looked at the share price and lack of trade volume. I looked at the share structure, past reports, dug through the website and everything I looked at told me this should be trading much higher. Especially with all of the forward looking developments. I said, it was as if noone was following your company and the progress that you were making in the investment community. I said it was like the saying, "if a tree falls in a forest and noone is there to hear it did it happen?" This was before more discussions about releasing pr's.

He asked about uplisting to a higher exchange with audited reports. I told him it didn't make a bit of difference to me. I have no trust in the auditing firms and the S.E.C. and all the rest. I said, but it does make a difference to others. Some investors will not invest in companies that do not file audited reports. He told me it costs between 50K and 100K a year to have the auditing done. I said, I personally would rather see that money hit the bottom line and contribute to net income but others feel differently. He said, It is something he is considering doing possibly next year when there is a lot more cash available for that type of expense.

He sounded interested in investing and asked what I used to determine the value of a stock. I told him every investor is different otherwise the second a co released their report it would immediately move to a set price and stay there until there was a new development. I told him that I valued his company at a trailing p/e of 20 to begin with because he has a nice balance sheet, no Debt, is profitable, and doesnt dilute. I said then I try to figure out what future earnings are going to look like which is a bit of a guessing game and sometimes I guess right and sometimes I don't. But I will pay a premium to even a p/e of 20 times trailing earnings if I feel like future earnings are going to justify larger moves. I also told him that I will also annualize the most recent earnings if I feel like they are more reflective of future annc's than trailing 4 q's due to changes in operations etc. I said, I do this only with stocks that I plan on holding for a long time and I don't have to worry about dilution. I also said, If a company is profitable but their earnings are stagnant or remain roughly the same and there are no future developments to look forward to I wont buy it unless it trades at a lower than normal ratio and at best it would probably trade at a trailing pe of 10. I also said the types of operations your involved in helps too. There is a cool factor to what you do. I said, I had no idea that your products existed and people pimp out their computers the way some do cars. I also said, investors are customers too and increased awareness could result in more customers. Think of pr's as a form of advertising. I told him I am in the minority when it comes to determing the value of a stock. I said value investors tend to give lower valuations, while growth investors tend to give higher valuations and some investors/traders just like to jump on something that is moving which can propel it even higher. Especially when there is a "Cool" factor.

We talked about a lot of other stuff and I can't remember it all but I came away from the conversation thinking I am glad I put my money behind his company. I also came away thinking, when I do sell, I will be leaving behind a significant portion of my investment because I think this is the kind of company that could expand into other arenas possibly down the line. When you have your own engineers, your own r and d people, and your own manufacturing plant. I see no reason to believe they couldn't branch out to possibly non computer related items in the future. He also said that I could talk to him any time he has the time and I can simply send emails and set up an appt. Which is good because I had more questions before we ran out of time.

I told him I was a fan and I think it is creative, hardworking people like himself that will hopefully one day help to lift this country and the rest of the world out of our current fiscal problems.

I'm glad I own RCHN and I think it is going to be one of the better investments I have ever made and possibly the best! I'm not done buying either. I see what is coming!

Otcbargains