Junior exchanges like the Vancouver and Alberta Stock Exchanges play a valuable
role in the development of promising technology companies.
Recently, I've been hearing more and more about technology firms seeking to
become public by listing on the American OTC (Over-the Counter) market. Don't
be fooled. Many say that this is a junior (or soon-to-be) NASDAQ (likely because
NASDAQ was always regarded as a kind of OTC market) listing. But that may be far
from the truth. OTC is far more rigged and manipulated that anything you've ever
seen or heard of in Canada. Beware!
Junior exchanges such as the ASE and VSE may have fairly non-onerous listing
criteria but they are highly regulated and supervised. Many companies start on
one of these exchanges and by the time that the investing public hears about
them they have often graduated to a more senior exchange like the Toronto Stock
Exchange (TSE).
In this column, we'll look at two such companies - one that started its public
life on the ASE and one that started on the VSE, namely Burnt Sand Solutions Inc
(TSE:BRT) and Silent Witness Enterprises Ltd. (TSE:SWE) - both now trading on
the TSE.
Burnt Sand Solutions Inc. started life as Rubicon Technologies Inc., a "Junior
Capital Pool" (JCP) company on the ASE. (Note - the VSE recently announced its
"Venture Capital Pool" (VCP) to compete with the ASE which pioneered the venture
pool concept.)
In February, 1996, Rubicon Technologies Inc. acquired 100% of Burnt Sand's
outstanding shares in a reverse takeover. Burnt Sand called itself "Canada's
fastest growing Silicon Graphics computer systems hardware and software
supplier" with sales at that time in excess of $3.6 million dollars since the
company started operations less than a year earlier, in May of 1995.
Then, in mid-97, Burnt Sand announced that it had entered into an agreement with
FrontLine Technology Partners Inc., a private company with headquarters in
British Columbia, under which Burnt Sand would acquire the issued and
outstanding shares of FrontLine. FrontLine is a technology integration company
which develops, markets and supports client server and web enabled customer
management systems including sales and marketing information software systems.
This transaction amounted to another reverse takeover in that the principals of
Frontline took over the control and management of Burnt Sand. This time, the
name of the company did not change, although the people did.
So, who are the people? The new Burnt Sand Board of Directors was comprised of
David Edmonds (President and CEO of Burnt Sand); Jim Yeates (Chairman and Chief
Executive Officer of FrontLine) who has, over the past sixteen years, been
Chairman and/or CEO of such companies as Computer Innovations and Integrated
Network Services Inc.; Paul Bertin (President and Director of FrontLine) who
prior to joining FrontLine, was President of the Business Systems Group Sprint
Canada; Dave Clements (Vice President, Sales and Director of FrontLine) who has
spent sixteen years in the technology industry including eleven years with SHL
Systemhouse prior to joining FrontLine; Terry Holland (Director of FrontLine)
who is the President of Trimin Enterprises Inc.; John Kelly (Director of
FrontLine) who is the President and Chief Executive Officer of JetForm
Corporation; and Reid Drury (Director of FrontLine) who is currently a partner
of Polar Capital Corporation, a Toronto-based venture capital firm.
Many of these - especially Yeates, Kelly, and Drury have tons of experience in
growing small companies into sizable, valuable TSE companies. They've all "been
there, done that".
For the nine month period ended September 30th, 1998, Burnt Sand reported
revenues of $12.23 million, an increase of 439% over revenues of $2.27 million
for the nine month period ended September 30th, 1997, and a loss of 1,263,000
($0.04 per share) compared to a loss of $932,000 ($0.06 per share) for the nine
month period ended September 30th, 1997. Results reported include the
consolidation of the recently announced acquisition of RDI Retail Dynamics Inc.
for the one-month period of September, 1998.
Yeates and company are keen on growing through acquisitions and business
expansion. In dollar terms, the stock is still cheap - presently under $1.00. In
the past year Burnt Sand traded in the $.65 to $1.30 range. It looks promising.
As mentioned in an earlier column - look at the people behind it.
The other company is Silent Witness Enterprises Ltd. (TSE:SWE). This firm
designs, manufactures and distributes CCTV (closed circuit television) security
cameras and video monitoring systems for school buses as well as public and
private transportation. Silent Witness was incorporated in British Columbia,
Canada in July 1986 with offices in both Canada and the United States. The
company went public on the Vancouver Stock Exchange in April 1987 and was listed
on the TSE on July 16, 1997.
Silent Witness, a maker of surveillance cameras was founded back in 1985 by Rob
Bakshi and Robert Galbraith (Galbraith was B.C.'s chief coroner) to develop a
data recorder for analyzing car accidents. As is often the case with tech
companies, the first idea didn't pan out and management was able to successfully
change the company's direction. In fact, the company was so successful that it
earned almost $1 million on revenue of $7.7m for just the first quarter. This
type of performance (i.e. 12% net profit after tax) is pretty darn good for a
hardware producer!
Silent Witness is one of those "silent" growing companies which raised its
initial capital through the VSE and recently moved on to list on the TSE.
According to a recent Globe and Mail story, Bakshi (President and CEO) gives due
credit to the VSE saying that the company wouldn't be here without it. Although
the capital it raised on its IPO was a modest $625,000, the company couldn't do
an acceptable deal with local VCs. Silent Witness's stock price has seen lows of
"pennies" and is recently trading at around $8, its all-time high.
Silent Witness's directors are R.K. (Rob) Bakshi, Chairman, President and CEO
Wayne A. Case, Sharon White, John Zaozirny, Q.C., Herb C. Pinder, Jr., Linda
Taylor, Corporate Secretary, and Tom Gill Chief Financial Officer.
For companies like Silent Witness and Burnt Sand, it is sometimes difficult to
learn about the management team. If you look at their websites, you really have
to hunt through old news releases to know who the directors and officers are and
what their backgrounds are. They talk more about their products and their past
than they do about their teams and their futures. Too bad they are so shy - must
be a Canadian trait!
Both of these companies follow my 10 to 1 in 10 rule, i.e. you can make 10 times
your investment in 10 years. This works out to just over 25% per year
compounded. If you're luckly, the stock can take a run sooner. Both of these
companies still have a long way to go!
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