It is June 3, 2026, and you are working as a CPA with Kuri and Yasovich Consulting LLP (KYC). You have been assigned to develop a report for the board of directors and management of Singular Textiles Corp. (STC).

STC has approached KYC to assist in strategic analysis and to set a new direction. Sales have been declining as offshore textile imports have become less expensive. One long-term customer recently shut down, further negatively impacting future sales. Shareholders have conflicting viewpoints on how to grow the company given cash constraints.

All dollar values are in Canadian dollars unless specifically stated otherwise.

STC is a private company that owns two textile mills. The Quebec mill produces fabric from natural unbleached and untreated cotton and linen single fibre, sold to high-end apparel manufacturers. The Ontario mill produces a water-resistant polyester fabric sold to outdoor clothing manufacturers.

STC was incorporated in 1997 by Doris and Hugo Le Guen. Because of Quebec's Charter of the French Language, the company operates under a different name in Quebec only. In 2016, their two sons Henri and Philippe Le Guen became shareholders. Today each shareholder owns 100 shares, representing 25% of the company.

The textile industry in Canada is made up of manufacturers involved in spinning yarn, manufacturing knit, woven, or non-woven fabrics, and finishing and coating. Carpet and rug manufacturers are excluded. "Textiles" refers to any material made from textile fibres. "Fabric" refers to a particular type of textile that goes through additional steps to become a finished product, ready to be transformed for a specified use.

In 2024, the textile industry had total revenues of $3,780 million. The quality and value of the finished textile depends on: the quality and type of raw materials; the character of the spun yarn and the character of the twisting; the density of the weave; and any finishing processes applied, including dyes and chemicals to make the textile stain resistant, wrinkle-free, fire resistant, or water repellant.

Inbound Logistics — Raw materials include natural fibres, synthetic fibres, thread, and yarns. Cotton and linen can be purchased directly from farmers or an intermediary. As many raw materials are commodities, farmers often enter into long-term agreements that provide protection against volatile prices and that are not tied to current market commodity prices.

Operations — Energy, significant amounts of water, and various chemicals are used in production. Skilled workers and researchers are required. As automation increases, the number of production employees and related wage costs decline. Key production steps include: Spinning, Interweaving (weaving, knitting/crocheting, braiding, felting, bonding), and Dyeing and Finishing.

Outbound Logistics — Textiles require utmost care in handling, packaging, and transportation. Most textiles are shipped in rolled form. Downstream manufacturers take the textiles and use them in the production of apparel, canvas products, curtains, and linens. Some downstream manufacturers are vertically integrated and produce their own textiles in-house.

Marketing and Sales — Mills use social media and websites to attract new business and attend industry trade shows. Direct selling develops longer-term customer relationships. Alternatively, mills may sell using a sourcing commission-based agent, making the selling process more efficient but creating no direct mill-customer relationship.

Support Activities — Procurement: long-term supply agreements to fix prices and guarantee supply. Technological Development: automation across spinning, weaving, dyeing, and quality control. Human Resources: skilled labour for equipment operation and R&D. Infrastructure: compliance with occupational health, safety, and environmental discharge regulations.

Doris and Hugo Le Guen spent their entire lives in Quebec's Lower Laurentians region, both working for a large international textile manufacturer — Doris as a designer, Hugo as a plant manager. During the 1980s and 1990s, the company struggled to compete against imports due to union-negotiated wages and the labour-intensive nature of the industry, eventually closing in 1997 and selling its buildings, equipment, and terminating all employees.

Doris and Hugo decided to open their own textile mill. They incorporated STC in 1997 with each owning 50%, purchasing the land, building, and equipment of one of the mills in the Lower Laurentians from their former employer. This mill specialized in natural single-fibre textiles — specifically unbleached and untreated virgin cotton and virgin linen fabrics (not certified organic) — sold to Quebec clothing manufacturers. STC was able to rehire many former employees, reducing training costs, allowing the mill to become operational within a few months, and preserving the convivial workplace culture.

Over the next few years, due to Doris's dedication to participating in industry events and supporting Montreal fashion schools, STC developed a good name in the apparel industry. By 2007, the mill operated at 80% capacity with 10 customers for whom STC was the primary fabric supplier. In 2008, Henri Le Guen joined as assistant plant manager. In 2010, Philippe Le Guen joined STC part-time as director of R&D, working closely with Doris to create new all-natural yarns.

In late 2014, Philippe heard that Rain Away Materials (RAM Inc.) in Ontario was looking for a buyer. The mill specialized in a patented water-resistant polyester fabric sold to outdoor clothing manufacturers. After visiting, Philippe and Hugo agreed it was a good investment. In 2015, STC purchased all the assets of RAM Inc. Philippe came to work full time, retained most employees including plant manager Randy Simpson and controller Kelvin Oliphant, and became VP of synthetics and product development.

In 2016, Henri and Philippe each received 100 shares, with Hugo and Doris each retaining 100 shares — resulting in 25% ownership each. Hugo became CEO, Henri became VP of operations, Anita St. Denis was promoted to Quebec mill plant manager, and Kelvin Oliphant became CFO. From 2017 to 2023, RAM mill sales increased due to attracting new customers who wanted the premium-quality, innovative water-resistant materials. In 2024, Anita St. Denis was promoted to CEO and Hugo became chair of the board.

Today, the Quebec mill continues to produce unbleached and untreated all-natural cotton and linen fabrics sold only to high-end apparel manufacturers in Quebec. Due to long delivery distances, the company has lost its customers in British Columbia, Alberta, and Saskatchewan. STC's all-natural fabrics are ranked as the best made in Canada today; the mill has a reputation for premium quality and meeting delivery commitments, and has not colour dyed any yarns to date. Since 2023, inflation and input cost increases have forced STC to increase selling prices, causing existing customers to reduce their purchase volumes. In late 2025, the Quebec mill lost one of its long-time customers when it closed its business.

With respect to the RAM mill, the company has spent little on product innovation, still producing only one type of water-resistant polyester fabric sold primarily to outerwear manufacturers in Ontario, Quebec, and one in Saskatchewan. In contrast, competitors have spent heavily on R&D, resulting in a variety of better water-resistant materials now available in the market. Since 2024, customers have started to switch to these improved products. Currently, fabric produced at the RAM mill is known to be well made and of good quality, but it is no longer the leader in the industry or innovative.

The vision and mission statements and core values below were developed and approved by Doris and Hugo in 2014 and have not been updated since that time.

Vision statement: To be the leader in producing Canadian-made all-natural cotton and linen textiles, serving high-end clothing manufacturers. To be a company that remains loyal to its customers, suppliers, and employees.

Mission statement: We are a textile company making the highest-quality, Quebec-made all-natural cotton and linen fabrics. We strive to work with our customers to create innovative designs and fabrics to meet their ever-changing requirements. We are committed to standing by our suppliers and employees through both good and difficult economic times.

STC has three core values:

1. Quality is our driving force — meaning quality in our product and quality in customer service, including on-time delivery and a zero-defect rate.

2. We are committed to constantly improving the living standards of our employees — by ensuring fair compensation and respectful treatment, and providing a safe and healthy workplace.

3. We will treat our customers and suppliers like partners — helping them to achieve and maintain success, ensuring long-term business relationships.

In March 2026, the board set the following corporate objectives to be achieved by 2029:

Increase annual revenues by $15 million (over 2025 revenues); increase the operating profit margin to 6%; add one new customer segment that is not in the apparel market; add one new product or service.

The board is composed of the four shareholders (Hugo, Doris, Henri, Philippe Le Guen) and CEO Anita St. Denis. The board meets quarterly to review financial statements and provides little oversight on day-to-day operations. Operational decisions are made by the various executive managers related to their areas of responsibility.

Reporting to board chair Hugo Le Guen: CEO Anita St. Denis (overall management); VP of Design and Development Doris Le Guen (Quebec mill marketing and customer relations); VP of Operations Henri Le Guen (oversees both mills, with Quebec mill plant manager Trace Beaujolais and RAM mill plant manager Randy Simpson reporting to him); VP of Synthetics and Product Development Philippe Le Guen (RAM mill marketing and customer relations); CFO Kelvin Oliphant (finance and accounting, IT, supplier contracts, human resources).

Hugo Le Guen — Chair of the Board: Chairs board meetings and ensures managers follow board decisions; serves as advisor to executive managers. Hugo's priority is to keep the Quebec mill open and keep local people employed. He wants immediate results and does not support resources going into R&D. He and Doris are comfortable with maintaining the status quo, believe their natural cotton and linen fabrics will always have a market, and are cautious about large-scale automation.

Doris Le Guen — VP of Design and Development: Strengths are being creative and able to take customers' concepts and create the textile that will meet their needs. She has taken multiple fashion design courses internationally and gained accolades through speaking engagements at industry conferences and fashion schools. Doris has a strong connection to the Quebec mill workforce and prioritizes the local community, aligned closely with Hugo.

Anita St. Denis — CEO: Has worked at the Quebec mill since 1997 and completed a Masters in Strategy with honours in 2016. She has driven numerous initiatives including digital payments, equity and inclusion policy, and supply process improvements. Anita strongly believes the mill cannot survive without more automation, but aims to keep as many employees as possible employed. She takes a longer view of planning and understands that some investments must be made that take longer to pay back.

Henri Le Guen — VP of Operations: Strong technical knowledge of equipment; keeps up to date on robotics and AI. He is concerned about reducing waste and believes STC should become an environmental industry leader. Henri believes STC's future success will come from investing in R&D and up-to-date equipment, and that the target market for environmentally conscious products is larger than for "Quebec-made" products.

Philippe Le Guen — VP of Synthetics and Product Development: Expertise in synthetic fibre research. Currently spending most of his time trying to keep customers who are considering leaving due to lack of product development. Like Henri, Philippe takes a longer view and believes environmental sustainability and long-term innovation are critical. He is frustrated with his parents' lack of vision; his main goal is to make the RAM mill once again a leader in a new technical fibre.

Kelvin Oliphant — CFO: Has worked at the RAM mill since 2003; accounting designation; meticulous in his work. Oversees monthly financial statements, budgets, cash forecasts, and production plans. Pushed for e-commerce and advocates for automated accounting processes and electronic payments. Risk averse, like Doris and Hugo, and believes a strong balance sheet is vital for long-term sustainability.

In early 2026, the Quebec mill has 10 long-time customers that manufacture clothing in facilities in Montreal, within a one-hour driving distance from the Quebec mill. Given increasing costs, volumes sold to these remaining customers have declined. In 2026, Quebec mill customers are contracting only on an as-needed basis, giving STC about 60 days' lead time to manufacture and deliver. Normal credit terms are to pay within 30 days of the invoice date.

Usually, orders are shipped as completed. However, starting in late 2024, an increasing number of customers have asked STC to hold the inventory until the customer is ready to take delivery. In these cases, payment is made only after the order is shipped, received, and inspected by the customer. With reduced production, the company has the warehouse space and has agreed to do this at no additional cost in order to keep customers satisfied.

As part of their contracts, the customers have the right to visit and audit the Quebec mill to verify that only unbleached and untreated cotton and linen are being used. These audits have always reported excellent ratings, and it is the customers that perform these audits that have remained most loyal to STC. These customers require STC to comply with their supplier codes of conduct related to safe and healthy working conditions and to start adopting some environmentally sustainable practices. Both Quebec and RAM mill revenue contracts require STC to pay delivery charges for shipping. Control of the goods transfers once delivered and inspected at the customers' premises. STC uses its own fleet of trucks to make deliveries in Quebec and Ontario and a third-party logistics company for Saskatchewan.

Of the RAM mill's product sales, 60% are to the top four customers, with one customer representing 21% of total revenues. In the first half of 2025, several two-year customer contracts were due to expire, and customers were required to make good on their contracts' guaranteed purchase volumes, which resulted in an increase in sales. However, instead of renewing as longer-term contracts, the RAM mill's customers are now signing only six-month contracts that fix the selling price, and although volumes are specified in the contracts, these can be reduced with 60 days' notice and no penalties. Selling prices have remained relatively constant, as have input costs and the RAM mill products' gross profit margins. Based on contractual commitments, RAM mill product sales are projected to decline in 2026 and later as customers move their business to other mills.

The RAM mill customers hire independent inspection and verification companies to test the fabric to ensure it meets performance specifications related to abrasion, water resistance, and colour fastness. To date, RAM mill products have passed all these inspections.

Raw materials, packaging materials, and other direct supplies are purchased from wholesalers, distributors, or directly from producers. STC has negotiated long-term supply agreements with major suppliers of its cotton and linen inputs to fix prices and guarantee supply, mitigating the risk of volatile input prices and lack of supply. STC has also negotiated one-year supply contracts for the raw materials required for its RAM mill. STC has located its mills close to customers, rather than close to its suppliers.

In the Quebec mill, little automation has been adopted, with human labour still used predominantly for spinning, weaving, cutting, handling, and quality control. Manufacturing overhead includes plant operating costs for utilities (natural gas, electricity, and water); factory supplies and consumables; machinery repairs and maintenance; property taxes, insurance, and maintenance related to the mills; and also the costs related to operating the delivery trucks. Also included in manufacturing overhead are product development costs; however, the company engages in very little product development. In the Quebec mill, new product design is done upon request by customers; Doris creates the new fabrics to the customer's specifications, and modifications can easily be accommodated.

Production Planning: In previous years, when longer-term revenue contracts were the norm, STC used to work collaboratively with customers for forecasting sales and production planning. As customers have moved to contracts on an as-needed basis, the number of customers involved in this collaboration has declined. This has made forecasting and production planning far more difficult for STC, and forecasting models are now prone to greater variability of projected versus actual.

The company owns both mills. The head office is at the Quebec mill, located just north of Montreal in a rural area. The RAM mill is located in southern Ontario, also in a rural area, outside of Kingston. The company owns a fleet of delivery vehicles split between the two mills. In 2015, STC purchased all the operating assets of RAM Inc., including the customer list, brand name RAM, and the patent. The customer list has been fully amortized and the brand name is not amortized as it has an indefinite life. The patent, which had a value of $9,283,300 at the time of acquisition, expires in 2028 and is amortized on a straight-line basis at $714,100 annually.

There have been minimal equipment upgrades at the Quebec mill — only what has been necessary to sustain the existing PPE and to reduce water usage to demonstrate environmental responsibility for the customer contracts. At the RAM mill, investments to automate spinning and weaving were completed during 2023. In late 2023, additional machinery upgrades were made at the RAM mill that use less water and electricity. For 2026, the company has committed to replace existing production equipment for $1 million in the Quebec mill and $1 million in the RAM mill, as well as $400,000 for delivery vehicles.

STC uses its website to provide information on its products and attract new business. Because the company wants to deal directly with customers, it does not use any third-party commission-based agents. To ensure STC can meet new customers' requirements and that corporate philosophies are aligned, Doris or Philippe spend considerable time upfront to meet and vet new customers with face-to-face meetings. This ensures that once contracts are signed, STC has confidence it can meet customers' expectations. STC attends various annual Canadian industry trade shows to market its fabrics. In 2025, STC did not attend any trade shows in order to save cash, and travel to visit new customers was also reduced because there were no new customers seriously interested in STC's products. STC's brands are recognized only by manufacturers and are not known by end consumers; its brand recognition has a limited segment and geographic scope.

Currently, at only the RAM mill, data is collected and analyzed on the properties of the raw material and for its finished-product characteristics and defects to ensure consistent product excellence and to improve quality control. Management wants to use this data to identify variables that will impact the quality, as well as identify deviations in the production process and correct them in real time. At the RAM mill, plant supervisors are required to fill out an incident report each time there is a production delay. Delays occur for the following reasons: raw materials issues, such as delays in sourcing or procuring materials; equipment breakdown or scheduled maintenance; quality control issues that require resolution or rework; planning issues, such as capacity constraints and employee scheduling; and human error.

To increase energy efficiency and manage energy costs, the RAM mill has set energy usage targets based on time-of-use periods: off-peak times, 15%; mid-peak times, 30%; on-peak times, 55%. Management has collected data from recent orders and would like to determine whether the RAM mill is meeting these energy usage targets and whether any adjustments are required. An industry report was also recently shared with STC management that included data on what customers are looking for when selecting textiles, segmented by textile type for RAM mill customers and Quebec mill customers separately.

STC follows ASPE for financial reporting purposes and prepares an income statement budget for each mill and monthly cash flow forecasts for the entire company. STC's auditors, LeCroix and Company, LLP, have audited the company's financial statements since 2015. The 2025 audit was completed in March 2026.

STC has banked with Bank of Quebec since STC was incorporated. A copy of the audited financial statements is sent annually to the bank. STC has its corporate bank accounts, line of credit, and term loan all with Bank of Quebec. Current outstanding loans are as follows:

Line of credit: Secured by the accounts receivable and inventories, maximum available limit of $5 million, to be renegotiated in April 2027. Bears interest at prime plus 1.0%, payable monthly. Prime is currently 3.8%.

Term loan: Advanced on September 30, 2022, matures on March 31, 2033. Annual principal payments of $3.2 million are payable on March 31, and interest at 7.5% is payable monthly. The debt is secured by STC's Quebec mill and head office, which includes the land, building, and production equipment. The loan proceeds were used to repay debt that was coming due and for the RAM mill's new production equipment.

In the past, STC has never paid dividends, since Hugo and Doris have always wanted to retain any excess cash in the company to maintain a strong balance sheet and working capital balance. Hugo is concerned about the low amount of cash on hand and would like to see the minimum cash balance for 2026 increase to at least $500,000. The company pays income taxes at 27%.

The board met on June 1, 2026. Prior to the meeting, a briefing was distributed on four proposed projects. The meeting's agenda: (1) Consider the four proposed strategic alternatives; (2) Discuss any other business.

Additional items discussed: Doris requested KYC guidance on the processes for terminating employees without cause under the BFC proposal — specifically, how to assess who gets terminated, how the meeting should proceed, how the company-wide announcement should be made, and what should be in the HR policies. Doris also noted that a government grant audit would be required and asked KYC to detail the nature of this audit, what the auditor would be required to do, and the nature of the final opinion. Philippe requested information on the R&D tax treatment. Henri asked KYC to research adopting AI machine learning in RAM mill production, explaining how it might be used to improve product quality and the challenges of implementing this technology. Anita raised that one of STC's high-end apparel manufacturer customers uses a third-party manufacturer that exploits child labour, and asked KYC whether it is illegal and/or unethical that STC has sold to this customer and what actions should be taken.

Bio Friendly Cotton Ltd. (BFC) is a start-up that mechanically processes pre-consumer waste (industrial waste scraps from the production of virgin cotton textiles, and semi-finished products and cutting scraps from apparel manufacturers) into recycled cotton fibres. BFC is interested only in recycling all-natural cotton textiles that have not been dyed, bleached, or treated, and already has several contracts with producers and apparel manufacturers. BFC is looking for a textile mill that would purchase its recycled cotton fibres, spin them into a yarn blended with virgin cotton, and weave the new blended yarn into a new recycled fabric. The proposed brand name for this new product is "EnviRyc Cotton."

Key discussion points: Anita believes this proposal addresses many of STC's current issues, introducing a new product and new target market, with current capacity confirmed sufficient by Henri. Philippe and Henri both support the proposal for its positive environmental impact. Doris is reluctant to terminate 10 employees and concerned about morale. Hugo is cautious about the capital expenditure and concerned about reliance on BFC as a single supplier given BFC's start-up status. Doris is concerned about using TVI as a sourcing agent, believing in STC's direct-selling approach. Anita argues that using an agent is necessary given that the Quebec mill has not gained any new customers since 2020.

Control Sediment Systems Inc. (CSS) is a well-known and respected manufacturer of specialized silt fences used for controlling sediment run-off caused by flooding and mudslides. Municipal and provincial governments and construction companies are looking for a Canadian-made silt fence with better properties than those currently on the market. CSS owner Blair Watson — a civil engineer and Henri's university friend — has approached STC to collaborate on developing a new synthetic textile that CSS would then purchase for use in manufacturing improved silt fences. There is an increasing demand from governments and construction companies for improved silt fences due to climate change and increased rainfall.

Key discussion points: Henri and Philippe both fully support this proposal as an ideal R&D project aligned with Philippe's expertise, with potential for STC to be first to market. Anita likes that the proposal allows STC to diversify its product line and customer base. Doris is concerned about STC's lack of experience in this industry and reliance on Blair. Hugo is concerned about upfront capital requirements and cash flow during the R&D phase with no revenue being generated. Hugo also does not like several terms of the contract, believing they favour CSS, and asks KYC to review the draft terms for pros and cons from STC's perspective and give recommendations on changes to request.

Brooke Beauvais is a Kanyen'kehà:ka (Mohawk) artist from Kahnasatà:ke who started the Indigenous Fabric Artist Collective (IFAC) two years ago. Brooke has noticed an increase in demand for Indigenous-designed fabrics and is looking to partner with a mill. The idea is that the collective would authenticate the designs, and STC would print them on the cotton it is producing. Because of IFAC's commitment to a healthy environment, the collective wants her designs used only in textiles made from organic or in-conversion cotton.

Brooke has already lined up potential customers including a well-known international fabric retailer that owns a chain of stores throughout Canada and the United States, and some home furnishing manufacturing companies. Doris proposes that STC provide financial support to existing supplier farmers as they convert their crops to organic cotton during the three-year conversion period. This proposal also involves applying for a provincial-federal grant program that provides a forgivable loan of up to $450,000 for strategic partnerships between Indigenous and non-Indigenous businesses.

Key discussion points: Doris and Anita are supportive, seeing it as an opportunity to expand into new customer segments and products while supporting the local Indigenous community. Hugo likes that it requires minimal upfront investment, with the possibility of transferring a RAM mill printer to the Quebec mill. Henri and Philippe are concerned about being tied to a small artist collective that is just a few years old. Anita raises concerns about Indigenous IP being quite different than the IP STC is used to working with and asks KYC to do some preliminary research on this, and also to inform STC on what terms and conditions it can expect from the IFAC's perspective.

Philippe proposes converting the RAM mill into a research facility with a leading research team with expertise in synthetic fibrous materials. The objective of this research facility is to perform basic research as well as development work on behalf of other mills that do not have these capabilities and manufacturers that need new or upgraded materials with specific properties. What will make STC unique is that it will not only develop the prototype but also test it on the machines to assess how quickly it can be scaled for commercialization and what costs might be required to do so. Chanda Shahid, a chemist with experience at an international company providing technical support from concept to prototype and marketing these services, will be one of Philippe's first hires and has proposed a financing arrangement.

Key discussion points: Henri fully supports it, believing the time is right as demand for specialized synthetic fibre R&D is increasing. Anita likes the proposal as it allows STC to diversify further, while acknowledging that RAM mill customer losses are inevitable regardless. Hugo believes this proposal is far too risky — asking existing customers to go elsewhere will negatively impact STC's reputation, and failure to complete contract objectives will result in unsatisfied customers. Doris is concerned about letting go of many production and selling people. Hugo and Doris are firmly against increasing debt or using Quebec mill cash flows to fund this proposal. Anita asks KYC to discuss recommendations for governance changes if Chanda has a seat on the board, and also identifies a potential impairment issue with the RAM mill brand and patent.

Alternative 1: New Term Loan — Bank of Quebec — The Bank of Quebec has indicated that it could issue a new term loan of up to $11 million, repayable in 60 monthly instalments to July 2031. The interest on this loan will be 7% annualized, payable monthly. The loan will be secured by the land, building, and equipment of the RAM mill. In addition, a new covenant will be required whereby total debt to total assets cannot exceed 60%.

Alternative 2: Chanda Shahid's Proposal — Chanda's mother recently died and left her $10 million with the stipulation that it be used for investing. Chanda has proposed that she will initially invest $8.5 million in STC as a loan to be used solely for investment in the RAM mill's R&D venture. Interest on the loan will be equal to 20% of the RAM mill's operating profit each year. Chanda must be appointed a director of STC as soon as the loan is advanced. As a condition of the loan, Chanda may purchase shares in STC in the future, at a share price that will be set by Chanda and STC now.

The production of the recycled textile will require upgrades in the Quebec mill's equipment. In particular, the spinning process will have to be automated. The new spinning equipment will cost $1,500,000 (Class 43), with delivery costs of $80,000 and installation costs of $310,000. The old spinning machine can be sold for net proceeds of $140,000. Christine requires that any textile producer become certified under GRS. For this certification, STC will have to install new automated quality control equipment costing $1,000,000 (Class 43). It will initially cost STC $40,000 to become certified in 2027, and then the annual recertification will cost $10,000. Employee training on the new machinery will be $25,000 immediately after installation. TVI will sell and deliver the new fabric, charging a rate equal to 18% of revenues.

All equipment will be purchased and installed in October 2026, with training and testing occurring for the next few months. Production will commence January 1, 2027. The equipment is expected to be able to be sold for $560,000 at the end of the five years. With the new automated equipment, 10 employees will be terminated effective January 1, 2027. At the time of termination, these employees will be earning an average of $40,700 in annual wages and benefits at 12%. The severance package will be one year's wages. Some direct labour is still required to complete the whole process, and the cost of this is 11% of revenues. Wages are expected to increase 2% annually.

Three experienced R&D employees will be hired starting as soon as July 2026, for a total annual salary expense of $350,000 and benefits equal to 22% of annual salaries. After the product is initially developed, the R&D employees will focus on product improvements, and their salaries will increase annually starting in 2028 by 2%. New lab equipment at the RAM mill will be required immediately at a cost of $650,000 (Class 8, four-year useful life, no salvage value). During 2027, it will cost $500,000 for operating the new machines to test the various prototypes and $80,000 each year for lab supplies. New spinning and weaving equipment for production will cost $7,000,000 (Class 43), to be purchased in 2027; it will be state-of-the-art, customized for STC, and will also track data analytics. The new equipment is expected to last eight years and will have no residual value.

Revenue and sales terms: The geotextile will be sold exclusively to CSS at a price equal to 95% of its fair market price for the first three years of production. After this period, CSS will pay the fair market price, and STC will be free to sell the product to other customers. CSS will agree to use STC as its exclusive supplier for the first five years. CSS agrees to pay its invoices within 60 days of shipment, and STC will be required to hold 60 days of finished goods on hand at all times.

The projections assume that STC will phase out linen products and move to only producing certified organic cotton products by 2029, with in-conversion cotton used during the transition period (2026–2028). Linen product sales were $5 million in 2025, forecasted to decline to $4 million in 2026, $3 million in 2027, and $2 million in 2028, which will be the last year of linen production. The contribution margin on linen sales is 12.4%. The existing production equipment can produce up to 7.5 million kilograms annually; once this capacity is reached, new equipment costing $12 million will be required with a useful life of eight years. The forgivable loan program provides a maximum of $450,000, with $150,000 paid at the beginning of each year starting in 2027, subject to conditions: at least $1,000,000 annually in revenues from the sale of Indigenous products; at least $300,000 annually to market and promote the Indigenous products in the United States; a minimum of 5% Indigenous workforce by the end of the three-year agreement (at least 8 employees self-identifying as Indigenous; 3 currently do, so 5 additional must be hired); fairly pay the Indigenous artist/community for the licensing of their IP; demonstrate integration of Indigenous collaboration and consultation; the loan will be forgiven at the end of the three-year period following an audit by an independent auditor that demonstrates reasonable assurance of meeting the conditions.

All new capital investments will be made in July 2026: Renovations to the building to reduce the warehouse size and build a new R&D laboratory for $4 million (Class 1, 6% declining balance; the renovations will extend the useful life of the building, and the cost will be amortized for 30 years); new lab equipment costing $3 million (Class 8, 20% declining balance, five-year useful life); new computer equipment costing $1.5 million (Class 50, 55% declining balance, five-year useful life).

R&D team: five senior scientists at $150,000 each; five junior scientists at $90,000 each; eight lab technicians at $65,000 each. Benefits will be 22% of gross annual salaries, expected to increase at 3% annually commencing in 2028. Staff will be hired in July 2026; Chanda will be one of the senior scientists. Sales from current RAM mill customers are forecasted to decline: $30,000,000 (2026), $20,000,000 (2027), $15,000,000 (2028), $10,000,000 (2029). Raw materials and supplies and production wages and benefits for this current customer production will be 59% of revenues.

Three sources of new revenue: Fixed-price lab contracts ($2M in 2026, $6M in 2027, $10M in 2028, $12M in 2029, $14M in 2030); Lab contracts with upfront payments ($1M in 2026, $2M in 2027, $4M in 2028, $5M in 2029, $6M in 2030); Licensing arrangements (minimum $610,000 annually each for at least five years; expected new arrangements: one in 2028, two in 2029, three in 2030, four in 2031, annual licence fee paid at the beginning of each year).