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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%.