Issue of dilution VS proper use of the A/S heres a concept (by USC Cowboy)
i have been reviewing the latest quarterly report and now ready to comment:
What I see is….
• increased cash on hand
• huge increase in inventory
• large A/R
• increased property and equipment
The old Cowlitz flooring line of credit that was not renewed because the bank failed and the FDIC took it over is being renegotiated, that should result in a lower amount due and payable to the FDIC on favorable terms and conditions, as the FDIC wants this worked out in a positive way. This has happened tens of thousands of times as we had the major bank meltdown over the last ten years.
A lot has been said that attempts to impune the activities of our CEO, but I offer a different vision in that he is doing exactly what a prudent and concerned CEO should do, negotiate better terms and conditions, don’t be too eager to close negotiations as that is when you leave money on the table (I am an expert at this as I perform professional negotiations for major companies for a living as a consultant/hired gun). The renegotiated terms and conditions benefit the bottom line in the instant, for example should Mark negotiate a reduced loan and interest with a financial value of say $200,000, it will be reflected immediately on the bottom line of the corporation. It is simply debt forgiven and has a dollar for dollar value without any discounting as it affects the instant year and the instant year filings.
A great deal of hand wringing was performed by some fearing that Mark is personally on the hook for the outstanding debt shown as $700,000 subject to any renegotiation. This is only partially true, note that the debt is secured by inventory and property/equipment valued at 1,829,408 which represents a collateralization of about 261% without looking to Mark for repayment. Not bad in my simple Cowboy mind. I don’t think we have an issue here folks.
Mark has a lot of personal skin in this game, namely $387,588 and made that loan to Tytan for a very conservative 5% interest rate. Also is the majority stockholder of the common shares, just like us. If he does anything to hurt us, you and me, he hurts himself even worse as he holds far more common shares in his name than all of us combined.
I am again reassured in the stated O/S, certified at 1,583,729,409 shares issued as of 6/30/2011. I have to fall back on good business practices wherein a new company must provide future capitalization by using or having available various financing vehicles as banks are not currently in the frame of mind to lend, they are keeping most, if not all stimulus funding in their basement vaults. Just read the financial pages.
Let’s look at some potential ways to raise capital:
1) Traditional Bank Lending – not really viable right now due to reluctance of financial institutions to part with cash in their vaults while the USA economy jumps up then down without any clear direction or support.
2) Venture Capitalists – this is the most expensive dollars for a corporation to pursue, VC’s will demand controlling ownership of the corporation and will impose aggregious interest rates for the dollars because they know if you’ve come to them you have no other cheaper sources of dollars. Even more onerous is their lack of patience and a demand for immediate performance standards they impose of the corporation and the management. It is not uncommon for them to even bet against you by using hedge funds willing to short the hell out of the stock off shore, thusly killing the company. An example of this is the way the major institutions such as Goldman Sachs, Lehman Bros, etc screwed everyone with their bets against us in the housing market as the encouraged the failure and foreclosure on the crappy loans they packaged and sold off to suckers.
3) Private Placements - 504 www.sec.gov/answers/rule504.htm, check this out for the rules.
Consider a previous thought made by myself in an effort to expand business vision and potential uses for the A/S for wholesale (think Dealers and Distribution):
With all the hand wringing and brow sweat dedicated to the issue of dilution versus proper use of the newly authorized share structure let me throw this concept out.
I am coming at this from a businessman perspective and the potential appropriate use of A/S to grow a business and not damaging the business or shareholder base.
• Mark is establishing dealerships and distributors of the tractor and implements.
• Mark has a delayed payment structure set up with the manufacturers of the tractors and implements.
• Mark has limited cash on hand today.
• Mark increased the A/S buy 5B shares recently.
• O/S of record has not increased since the A/S increase.
To establish product distributors and dealerships product needs to be manufactured and made available to same, also there must exist motivating factors to drive sales such as market price and profit spreads in the short term and some long term additional financial motivation.
To create a focus and some numbers we can use to visualize this scenario I am going to make a few assumptions:
A new distributor will need 10 tractors and appropriate implements to stock showroom, average cost of tractors and implements is $500,000. Mark provides internal 5 year financing at 8% APR using the following plan:
Collateral value of tractors and implements while on floor.
Distributor acquires rights by buying TYTN shares at 0.0012 - 0.0015 for cash equivalent value of floor stock receiving 333.3 Million shares with 5 year restriction with Tytan right to call in at the then current share price to retire the said stock to the Tytan treasury.
This allows Mark to now bank $500,000 to finance his expansion and to retire the carried debt to the Chinese manufactures. Assuming a profit to Tytan of 35% this amounts to $175,000 retained by Tytan as profit on the initial distributor set up. Also, the distributor now is motivated to sell and to grow Tytan so that the share price over the 5 year restriction period increases substantially so that additional profits come to the distributor on sale of the shares, for instance if the share price goes up to 0.003 the distributor could potentially sell for just under $1,000,000, representing a great profit to the distributor on their original investment. Remember that Tytan has the right to call in the shares during this period so that mark can buy back those restricted shares at the current market and return them to the treasury or simply retire them permanently, and if the company is doing well he will have the cash internally to do so. I believe this would be a great motivator to him to ramp this company up across the industry.
Tytans’ internal financing option to the buyers of the tractors and implements now generates its own profit stream. As a simple example, the 1st year of the 5 year financing term generates $40,000 ($500,000@8%), year 2 $32,000 ($400,000@8%), etc. proving over the 5 years financing period a total of approximately $120,000. This is in addition to the original $175,000 profit realized on the original sale of floor stock to the distributor and as it comes back to Tytan, it increases the internal cash on hand to finance additional sales.
Rinse and then wash again, over and over, always expanding.
4) What a great tool that Tytan has committed to in the 3rd quarter, Retail and Wholesale financing to motivate potential buyers, dealers and distributors. I addressed the wholesale angle above in the example given, but let’s now look at how the retail customer might benefit. BTW this was presented before but not in the whole context of my review of Tytan.
Let’s Grow Our Own Farm! Please understand the following is only the musings of an Ol’ Cowboy attempting to envision possible financial arrangements that benefit Tytan and the customer base of farmers. I have no knowledge of the following being planned, done, or even if it is possible but I do offer this scenario for general discussion and debate over potential outcomes or applicability.
Consider if you will a potential sales/marketing plan using some grass roots motivation. That motivation is to use money wisely and to grow your own farm if you are the farmer; or in the case of being Tytan, to provide a unique way to assist the farmer with limited capital to tie up in machinery while increasing the sales of Tytan’s machinery inventory.
The Ol’ Cowboy assumptions are as follows:
A) Outright purchase for cash – Tractor ($25,000) + Implements ($15,000) = $40,000 leaving the farmer with the ability to depreciate over a 5 year period.
B) Cash down payment ($16,000) with 5 year installment purchase agreement Tractor ($25,000) + Implements ($15,000) = $24,000 to be repaid over 60 months @ 10% is $510/month leaving the farmer with the ability to depreciate over a 5 year period.
C) A ybrid lease type arrangement with a residual value of the tractor and implements of say 40% at end of the lease period incorporating a collateral and residual payoff of the residual at the end of the 5 year period or sooner. To provide the farmer the ability to pay off the residual ($16,000), Tytan could sell restricted stock to the farmer at the current share price say $ .0015/share or 10,700,000 shares. Collateral could be a lien on the machinery and a corporate hold on the shares with the first right of refusal at the time of redemption by sale or surrender to Tytan at the then current share price but not less than the original acquisition price of $ .0015/share. The amount to be amortized into a payback agreement is $24,000, the monthly payment being $510/month.
In the case#A – the farmer has tied up $40,000 cash, straight forward but without leveraged use of the available capital.
In the case #B – the farmer ties up less capital ($16,000) saving the $24,000 for other purposes. Using a standard loan agreement to pay the financed balance of $24,000 over 5 years @10% with a monthly payment of $510.00.
In the case #C – the farmer uses a lease type agreement wherein the assumed residual value of the machinery at the end of period is 40%, a capital reduction is made on the front end wherein the farmer buys Tytan shares at current market (in this example $ .0015/share) subject to collateral restriction over the next 5 years additional collateral for the benefit of Tytan is a lien on the actual machinery during this same agreement term. The collateral shares amount to 10,700,000 shares = $16,000; the lease portion of the agreement is $510/month for 60 months.
You are probably starting to wonder what’s the difference between Case #B and #C. Here is the motivator:
The farmer is at no additional risk an now if the TYTN shares say reflect a value at the end of the first year of only $ .0050/share the value of the collateral shares is $53,500 far in excess of the amount to be paid off, in fact you can see it would be an actual profit of $13,500 over case #A.
What about the comparison over case#B? $24,000 less $6,120 or $17,880. Again, $53,500 - $17,880 = $35,620 as a profit. I say not bad after just one year.
If you are beginning to see the motivator, just consider if the TYTN share price goes up only $ .0025/share in each subsequent year or end of year 2 ($.0075), year 3 ($ .0100), year 4 ($ .0125) and year 5 ($ .0150).
Keep in mind that Tytan can buy back the shares at the then current market and retire those shares from the A/S and O/S, both would be great publicity to any new or prospective shareholders, thus pushing the share price up even more. Or Tytan could return those shares to the treasury and make them available to the next farmer needing assistance to buy Tytan Machinery.
Ask yourself the question…What would I choose to do?
5) I also note that Mark personally owns the real estate that Tytan operates from, and that no rent has been charged the corporation, a definite plus for a business to have no rent or lease payment to make each month. An additional benefit is that this represents a significant asset value of our CEO so he has the ability to survive on personal assets and thusly has stability that is often missing with PS CEOs.
6) Increased advertising is good especially now that we have inventory, a best time to let our agriculture minded market know what is available and how good it is.
IT IS ALL GOOD NOW in my humble opinion.
To wrap this extended post up, I think Mark is making good decisions. Those who are more concerned about grammar and spelling, I’ll personally take a humble and dedicated roll your shirt sleeves up and poo on boot CEO over a flash man wearing a $2500 Armani suit with two or more Phd. English Professors checking grammar and spelling any day of the week.
Offered for your review and consideration.
Go TYTN!
posted by USC
Long & Strong
