Tech Futures:
October 6, 2000
By Michael
Volker
Futures and Taxes, CCRA disqualifies OTCBB
stocks, Stock Commentary, IPO Watch, Capital Pool Corps Update
Futures and Taxes
Last week, at a Victoria conference, I heard a
couple of encouraging speeches. One was delivered by Gordon Campbell,
leader of the Opposition in BC, and the other was by futurist and author Alvin
Toffler.
Toffler, who has a pretty good track record in
looking at future trends, believes that beyond the internet and the convergence
of related information technologies, the next profound technological impact will
be in biotech and bio-informatics.
He had a very interesting way of ranking the
change agents within our society. In comparing ten different "groups",
he likened them to traffic on a freeway. Leading the pack at 100 kph, is
business, i.e. the corporation. Just look at how even the largest companies are
re-inventing themselves through mergers, acquisitions and adoption of
technology. The products and technologies which we enjoy today are a result of
entrepreneurial, for-profit activity.
Following behind the corporation is the
"civil society". This group includes all those various non-profit
organizations that people create to advance their causes, e.g. professional and
industry organizations, lobby groups, etc.
In third position is the family unit. When he
first studied change a few decades ago, everyone told him that the
"family" was one of the most stable units of our society, i.e. that
the nuclear family of husband, wife, and 2.1 kids (or whatever the number is)
would remain constant. The husband would always be the worker, the wife would be
the homemaker and the kids would happily go off to school and learn how to
perpetuate the cycle. Chuckle. Chuckle.
Unions and government bureaucracies followed
next, but moving along at only 25 kph are the schools. Are they responding
adequately to keep up to those at the front of the traffic or are they going to
fall further behind? Are kids being equipped to deal with the new challenges
which they are going to face? (Is this why we have such a skills shortage in
high tech?)
Even slower than the schools are various global
agencies and bureaucracies. But, guess who is limping along at a snail's base on
the autobahn? Lawyers. Yes, the legal system has been the slowest to respond and
adapt to change. For example: look at how the law is dealing with intellectual
property rights issues precipitated by the internet. Technologies like MP3 and
companies like Napster are stressing the legal system. And we're just seeing the
tip of the iceberg - how are we going to deal with the complex legal questions
arising from genetic engineering, for example?
Those leading the pack, i.e. the corporations,
are being held back by those at the tail end. The U.S. Securities Act of 1933
still governs corporate America. Here, in Canada, I've bitched on numerous
occasions about our provincially dominated system of securities regulation and
the red-tape that companies must endure to comply with out-dated rules. Having
to file a prospectus in each province sucks. Fact is, that most companies are in
violation of some securities regulation or another. The tail is wagging the dog.
I liked Gordon Campbell's speech because he
clearly articulated his commitment to reduce taxes. He talked about the
importance of competitive personal taxation as well as relief on the taxation of
stock options - both hot topics among executives in BC's high tech sector. His
promise: "there will be dramatic cuts in the first 90 days in
office...and....BC will have the lowest base rate of taxation in Canada within
the first term of office".
Since our total tax bill is a combination of
federal and provincial taxes, with provincial taxes indexed to the federal rate,
I wondered how a reduction in the so-called "base" rate would
translate into a net bottom-line rate. To get an answer to this question, I sent
him an email to which he promptly replied that although he could not say what
the actual bill will be, "it will be the lowest base rate of personal
income tax within our first term, to ensure that we can attract and retain
skilled workers and investors."
He understood the fact that lowering taxes does
not decrease tax revenue. The increase in economic activity resulting from a
more favorable tax environment, results in higher government revenues.
So there it is - for the record! Finally, we
have a politician who is echoing what leaders in our industry have been saying
for years. And, if you want to double check, ask him yourself. His email is gordon.campbell.mla@leg.bc.ca.
There's hope.
CCRA comes down on OTCBB Stocks
While on the subject of taxation, Revenue
Canada - now called Canada Customs and Revenue Agency ("CCRA"),
clearly a much classier and simpler name than just "Revenue Canada",
is pooh-poohing the Over-the-Counter ("OTC") bulletin board stock
market in the U.S. In fact, good 'ole CCRA is disallowing OTCBB stocks in RRSPs
and RRIFs.
Readers of this column will know that I have
frequently commented (ad nauseam) that OTC stocks are: a) not "listed"
stocks and b) not to be confused with NASDAQ "junior" stocks.
I was quite amused when I read the CCRA notice
which stated that, "the OTC Bulletin Board of the Nasdaq Stock Market Inc.
(NASDAQ) is not a prescribed exchange under the Income Tax Regulations. Accordingly,
shares quoted on the NASDAQ OTC Bulletin Board are generally not qualified
investments for an RRSP."
CCRA goes on to say, "However, some
taxpayers have advised CCRA that they hold securities quoted on the NASDAQ OTC
Bulletin Board believing that it is a prescribed stock exchange".
Good Grief! It's bad enough hearing promoters
and misinformed executives associate OTC-BB companies with NASDAQ. Now even CCRA
is doing it. Note to the above: OTC-BB stocks are not - repeat not- NASDAQ in
any way. Promoters will take comfort knowing that even the omnipotent CCRA gets
it wrong.
Well, at least CCRA got the
"unlisted" part right. Indeed, the OTC-BB market is not a
"listed" stock exchange and imposes no particular standards on
companies whose shares trade in that market.
Even though it is quite acceptable to have some
"foreign content" in one's RRSP, CCRA is now saying that OTC-BB stocks
have got to go. Shareholders have until December 31, 2001 to get rid of them.
You can sell them for cash or transfer them to a non-RRSP account in exchange
for cash. And if you don't you will be taxed on your holdings of
such stock.
Although many of these OTC traded companies are
Canadian firms, they are still considered ineligible under the Income Tax
Regulations. So there!
Given that this may have a significant effect
on Canadian investors, the CCRA has set up a page on their website at: www.ccraadrc.gc.ca
Stock Commentary
In my previous column, I mentioned the matter
of Insider Trading. Insider trading is, of course, quite legal provided that
trading is not being done when an insider possesses privileged information. All
insiders are required to file reports to various securities commissions but it
takes a many weeks before the general public can access this information. Soon,
it will be possible to get almost instantaneous information on such stock trades
by insiders thanks to a new national internet-based reporting system which is
expected to be up and running early next year. It is called SEDI - the System
for Electronic Data on Insiders. Starting around March, 2001, insiders will
submit trading data over a secure Internet connection to SEDI which will then
post the data to a public website.
Although various securities regulators in
Canada, such as the Ontario Securities Commission collect this information now,
they don't make it available on a website. The B.C. Securities Commission does,
however, make its information readily available to investors, albeit with some
time delay. (another good reason for a national securities commission!)
SEDI will be managed by the same group that
manages SEDAR, the Canadian Depository for Securities (CDS). The site will allow
searches by company, name, date or class of security.
SEDI will make it easier for the 100,000+
individual insiders in Canada to file promptly and more accurately. It's about
time!
I invited readers to email me some of their
junior stock picks. Some of the popular ones, which also were highlighted in Canaccord
Capital Corp's "morning coffee" newsletter, will be mentioned
herein. These are your picks, not mine (but I do like a number of them).
Viacorp Technologies (CDNX:VCP), a
recent listing, has a technology for secure messaging to protect sensitive
information. The company recently announced a deal whereby it would issue debit
cards and receive an on-going transaction fee. The stock was last trading at
$4.34 but has been halted since September 25th pending an announcement. The
price is up from only $1.00 in August with only 4.1 million shares issued.
Wonder what's up?
Meteor Technologies (CDNX:MMI) has a 50%
interest in a Simon Fraser University spin-off, Thoughtshare Communications
Inc, headed up, and partly financed, by Jim Miller - co-founder of QLT
Phototherapeutics (TSE:QLT). MMI is trading at just under $2.00 but has been
as high as $3.20. Thoughtshare's product is cool (I'm biased). It may change how
users surf the web. It allows users to keep track of where they've been - making
an annotated map in the process. It allows users to easily share and archive
their web surfing and learning experiences. Check it out at www.thoughshare.com.
Dexton Technologies (CDNX:DXT), hovering
around $.90, has $8M in annual sales of computer equipment. It has an interest
in ableauction.com and Rapidfusion, a web hosting and web design tool for small
business. The company is looking for new acquisitions, acting as an incubator
and merchant bank for emerging tech ventures. This might be one way to get in
early on some new ventures.
CST Coldswitch Technologies (CDNX:LS)
completed an IPO this summer at $1.00 per share. The stock is now trading at
$1.25 and Canaccord says it is "starting to up trend". CST Coldswitch
produces fibre optic switching technology for controlling various electrical
devices such as hospital operating room surgical equipment.
WSI Interactive (CDNX:WIZ) is an
internet marketing company that has traded as high as $8.25 although it is now
down to half a buck. Although dot-coms have fallen out of favor, it is
comforting news that some are on track with their plans. WSI announced that it
has achieved its first year revenue target. Revenue for the year ended June 30,
2000 totaled $6,007,375. In the 4th quarter revenue totaled $1,906,969. The
year’s net loss was $1,810,783, of which $702,125 was amortization of capital
assets. Assets grew to $9,160,200 by June 30, 2000. WSI is focusing on achieving
profitability by the end of fiscal 2001.
IntraCoastal System Engineering Corporation
(CDNX:ISY) is involved in the development and implementation of power line
communication technology using advanced spread spectrum technology. The two
initial applications of this technology are for
automated meter reading and home automation and networking. The stock is trading
under $1 but one analyst, Scheft Ticks, has a $3-$4 target in sight.
So, those are a few juniors for your
consideration and possible inclusion in the speculative section of your
portfolio. Let me know about your favorite stock, and I'll give it a
mention next time around.
As for more senior companies, I'm sure many of
you followed my advice to load up on Pivotal Corp (NASDAQ:PVTL) and Creo
Products Inc (NASDAQ:CREO) when both were hovering in the 20's just a couple
of months ago. Pivotal is in the mid-40's and Creo in the 30's. Yesterday,
Pivotal announced the signing of a definitive agreement to acquire Project
One Business Technologies Inc., a privately held provider of Internet
solutions specifically designed for the healthcare industry.
It never rains but it pours (especially in
Vancouver). Here are some more M&A deals which follow on the heels of other
recently reported deals: Burnaby's PMC Sierra Inc (NASDAQ:PMCS) is on its
7th acquisition. The latest one involves taking over SwitchOn, a
Milpitas, California firm for a cool US$450 million. SwitchOn is a recent
startup itself, being only two years old with no revenue as of yet. SwitchOn
works in the area of packet classification - systems to assess and manage
data.
In June, PMC acquired privately held Datum
Telegraphic, also of Burnaby, for $181million. PMC-Sierra will exchange
approximately 681,000 shares of PMC-Sierra common stock. PMC had, by virtue of
an early-stage seed investment, an 8% interest in Datum. As companies such as
PMC mature, they play a vital role in the local economy by funding other
startups like Datum.
ImmGenix Pharmaceuticals Inc., a
University of British Columbia spin-off is being acquired by Abgenix, Inc. (NASDAQ:
ABGX) for approximately US$77 million (CAN$110 million) in Abgenix stock.
ImmGenics, founded in 1993, has developed a proprietary technology which can
increase both the effectiveness and speed of antibody product discovery efforts.
ImmGenics’ technology increases the number of antibodies that can be screened
for any given antigen target. This technology is expected to allow Abgenix to
rapidly select optimal product candidates from larger pools of antibodies.
Abgenix is a biopharmaceutical company focused on the development and
commercialization of antibody therapies for a variety of diseases. The company
developed XenoMouse™ technology (nothing to do with personal computers!) to
enable the rapid generation of high affinity, fully human antibody product
candidates to essentially any disease target appropriate for antibody therapy.
Nice deal!
Hot off the press - this morning Burntsand
Inc. (TSE:BRT) announced that it has signed an agreement to acquire all
outstanding shares and goodwill of Altro Solutions Inc. for approximately
CDN$37.1 million in cash, shares, options and notes. The acquisition, which is
subject to regulatory approval, is expected to close in late October, 2000.
Altro has over 80 employees located in offices
in San Jose and New York. Altro's revenue growth rate has averaged 75% over the
past 2 years with annualized revenues based upon the quarter's results ended
June 30, 2000, of approximately CDN$25 million. Burntsand anticipates that the
acquisition will have a positive accretive impact on Burntsand's fiscal year
2000 fourth quarter performance and 2001 expected results. This morning,
Burntsand stock was trading in the $5.50 range well below its 52-week high of
$15.75.
NetNation Communications Inc (NASDAQ:NNCI)
has announced that it has entered into a non-binding letter of intent to acquire
privately held American Digital Network Corporation (ADN) for 2.25 million
common shares of NetNation. ADN had revenue of $5.7 million in 1999 and has
about 50 employees.
Based in San Diego, California, ADN, provides
UNIX and NT web hosting services and ASP e-commerce solutions through its
leading storefront product - eStoreManager. ADN also offers Web application
services such as custom web site design and database interface applications.
ADN's dedicated and co-located services are provided through their own Network
Operations Center (NOC).
But before you rush in to buy, you should be
aware of some management upheavals at the company. Apparently there was an
exodus of numerous management personnel last week.
IPO Watch
The local IPO market is starting to wake up
this fall. Here are some upcoming BC offerings.
Sourcesmith Industries Inc. is a
software technology company that is proposing to raise $1,000,000 through an IPO
on the CDNX. The company designs "business process management
software". It also provides custom development and consulting services - a
good way to get cash flow going while being attuned to market needs and
opportunities. Barry Swanson, 46, is President and CEO of the company. He was
formerly a consultant with Microsoft and has 20 years experience in the computer
industry. Haywood Securities is acting as the agent for the offering. It looks
like this offering is limited to BC and Alberta. The company, based in North
Vancouver, is 6 years old and has some revenues - about $500K (annual).
WaveCom Electronics Inc. is a Victoria,
BC company which designs broadband transmission equipment for data over cable
and fixed broadband wireless networks. Its products address some of the
"last mile" needs allowing cable operators to connect their systems to
end users. Two powerful endorsements of the company's products come from Cisco
and Harris Corp. Cisco has agreed to buy US$24 million of WaveCom's upconverter
equipment - annually- and Harris has placed an initial order to purchase
up to US$34.5 million of WaveCom's 3.5 GHz broadband wireless equipment
commencing in early 2001. The company has a 12-year history of sales and
profits. In its most recent fiscal period (June 2000), sales were almost $22
million with a $4.5 million net income - after tax! Gross margins are 44% - good
for a hardware manufacturer. Furthermore, the Company's order backlog at the end
of August was $45.6 million. In reading the preliminary prospectus, I note that
he credentials of the management team look pretty good. The founder is Dr
Surinder Kumar, President and CEO with a track record in R&D in the
telecommunications field. I haven't seen any pricing information yet, but if
you're keen, contact one of their underwriting agents - Goepel McDermid, Yorkton
Securities, TD Securities, or CIBC World Markets.
Whoa! Another Victoria company is doing an IPO.
Beanstream Internet Commerce Inc's preliminary prospectus of September
11th, indicates that the Company seeks to raise $1.575 million by selling $1.75
million shares at $0.90 per share to BC investors only. Haywood Securities is
the agent for the company (those fellows are really keen on high tech!). This is
a very young company, being less than one year old. Its business is to provide
secure on-line credit card transaction processing for internet commerce
transactions. It provides a proprietary Application Service Provider (ASP)
solution for merchants requiring financial transaction processing in a secure
environment. Craig Thomson, 36, is CEO and President. Check the prospectus for
more details.
I also heard that WebCT, a UBC spinoff
and internet e-learning company, may be doing an IPO in the next year. WebCT
lets educators use the web to effectively deliver their courses to students.
We'll keep an "i" out for it.
You can get a full prospectus on
any Canadian IPO offering (or any Canadian public issuer for that matter) on the
Sedar website at http://www.sedar.com.
Thanks to David Ing of
Pacific Internation Securities for bringing some of these IPOs to our attention.
Capital Pool Corporation (CPC)
Update
In this column, I keep track of
Capital Pool Corporation ("CPC") companies (see chart below) as
defined by the CDNX because they may provide funding and management to, and in
the process acquire, technology companies. CPC's are the continuation of the
former VCP and JCP programs on the Vancouver and Alberta Stock Exchanges.
I like CPCs from an investment
perspective. Although one may regard them as speculative (indeed, they are),
they are also an inexpensive way of getting in early and inexpensively. You can
pick up 10,000 shares of a typical CPC for pennies.
Recent additions to the list are Acacia
Capital Corporation, Arsenal Capital Inc., Collingwood Solutions Inc.,
Escape.com Inc., Lattice Capital Corporation, Colt Capital Corp.,
Digital Atheneum Technology Corporation, H.A.L. Concepts Ltd., Jessian
Capital Corp., PCG Ventures Inc., and Silicon Acquisition Inc.
All the new CPCs above originate
from B.C., except for Arsenal Capital, Escape.com, Colt Capital
Corp. and Silicon Acquisition Inc. which are from Alberta. Digital
Atheneum Technology Corporation and Jessian Capital Corp. are from
Ontario. It's great to see non-Western companies getting into the act! Welcome
to the Wild West!
The following companies have come
to trade: FiberQuest Networks Corp., Goose River Capital Inc.,
Access West Capital, Baden Technologies,
Cordova Industries, E-Quisitions, Kirkless Capital, and Pure
Lean.
Check
our
Capital Pool Corporation chart (in .pdf format) for a complete updated list
of the CDNX's CPC and VCP companies, thanks to David Ing of Pacific
International Securities.
An introductory article explaining CPCs may be
found at: www.bctechnology.com/statics/
Footnotes
The Vancouver Enterprise Forum
started up again this Fall with its 2000-2001 season. The first event was held
on September 26th and the topic was early stage financing for new ventures. This
was a popular event and was sold out. There were a number of presentations
dealing with seed investors, incubators and high tech business angels. Some of
the presentations are available on-line. Details are at http://www.vef.org
as is information on various upcoming local tech events. The October 24th
event will feature a company presentation by NxtPhase.
In this morning's Globe, I was
reading about priceline.com's retreat from traditional old economy sales
on the internet. It quit selling gas on groceries on-line. I hope the company
conitnues, though. Only yesterday, I consummated my first airline purchase using
priceline.com. I want to go to San Jose next weekend to visit some friends. I
always hear about these cheap fares whenever I'm not looking. An exhaustive
on-line search produced round-trip fares starting over $500. On priceline, I put
in a bid of $110 (US, incl. taxes) to see what would happen. Lo and behold -
moments later I got my tickets along with a special deal on a weekend car
rental! The only problem with it is its unavailability in Vancouver. I have to
use Seattle. But still, not a bad deal!
For a convenient printable, pdf
version of this column, click
here.
Michael Volker is the
Director of the University/Industry Liaison Office at Simon Fraser University,
Chairman of the Vancouver Enterprise Forum, and a technology entrepreneur. He
owns shares in many of the companies he writes about. Contact: mike@risktaker.com.
Copyright,
2000.
What Do
You Think? Talk Back To Mike Volker
Tech Futures is a bi-weekly column that
focuses attention on new and emerging BC publicly listed technology companies.
Mike Volker is the Director of the University/Industry Liaison Office at Simon
Fraser University, Chairman of the Vancouver Enterprise Forum, and a technology
entrepreneur. He owns shares in many of the companies he writes about.
Contact: mike@risktaker.com
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