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Tech Futures:  July 30, 1999 By Michael Volker CREO's Hot IPO and other deals, Technology Portfolio Update, VCP Update  Creo's Hot IPO Shares of Burnaby based Creo Products Inc. (NASDAQ:CREOV, TSE:CEC), a printing technology company, jumped 48 percent on the first trading day (July 29) as investors bid for a piece of the action. The stock surged US$7.25 to $22.25 after pricing at $15 a share on the Nasdaq Stock Market. In Canada, shares were trading at $30.50 on the Toronto Stock Exchange, up from the C$22.67 offering price. I was a little surprised at how quickly this one hit the market. Although the preliminary prospectus was filed in May, amendments to it were only filed a couple of weeks ago and it looked like it would still be a month or so before hitting the market.  The underwriters priced the offering of 5 million shares, or about 16 percent of its 32 million shares outstanding, at the top of its range (originally proposed pricing was between US$13 and $15 per share), raising $75 million for the company. Based on the offering price, Creo's market capitalization is about US$480 million. As mentioned in earlier articles, I think this (even at the premium trading price) is a steal in comparison to other companies and other recent IPOs. The initial market interest, especially on a down-day in the markets, bears this out. Even though pricing was at the "high end", I still think that the company was somewhat short-changed by the underwriters. In view of the strong demand for the stock, Creo left a little more on the table than it needed to. After more than a decade of hard work, I believe that they deserved a little more in view of the demand. Apparently Goldman Sachs, an investment firm, holds a 15 percent stake in the company which is growing at a 34.8 percent rate. Since 1994, Creo has installed more than 900 of its computer-to-plate imaging systems in 29 countries. Its digital solutions automate the prepress phase of commercial printing, in which master printing plates are created prior to actual printing. Creo's computer-to-plate technology transfers digitized text, graphic images and line artwork from desktop publishing computer systems directly onto printing plates, eliminating labor-intensive, complex and costly preparatory steps required by the conventional prepress process. Creo offers a comprehensive line of precision imaging equipment, including scanners, proofing devices, and output devices, as well as workflow management software.  The firm's revenues rose to US$128.8 million from US$95.6 in 1997 while its profits increased to US$11.1 million from US$5.8 million in the same period. In view of the company's solid technology position, strong market presence, track record and potential, I wouldn't be surprised to see the IPO price double within months!  I look forward to having Creo join the T-Net20 list (next month). Today, July 30th, the stock closed on NASDAQ at US$20.44 and C$30.75 on the TSE. Although not a public company (dang!), HotHaus Technologies Inc (see last week's article by Brent Holliday), was taken over by Broadcom Inc. (NASDAQ:BRCM) for a whopping $414 million! Not bad for a 5-year old company doing sales of just $5 million (That's more than half Creo's valuation!).  The HotHaus deal ranks among the biggest deals done in Canada and is the largest one ever for B.C. tech firm. HotHaus, a Burnaby company of just over 50 employees, specializes in DSP algorithms for the VoIP (voice-over-internet-protocol market). Hats off to Ross Mitchell, CEO and Chairman Morgan Sturdy for pulling this one off after HotHaus' strategic investor, Texas Instruments, abandoned HotHaus by acquiring a competitor.  This is good news for B.C.'s Working Opportunity Fund (WOF) which will realize $100 million on its $4 million investment in HotHaus. A few months ago I mentioned in this column that the WOF might be a good way for a B.C. investor to participate in junior, non-public technology ventures with a tax credit to boot. At that time WOF shares were in the mid $6 range. This deal should push them up to around $9.00. So, there you have it! For those impatient investors, I would comment that WOF itself is not that old and if you look at WOF's technology holdings and technology orientation, there may be more. A Technology Portfolio - Update In my previous column, I arbitrarily "invested" $25,220 in 10 small and micro-cap companies selected from the T-Net listing of all B.C. publicly traded technology firms. This "starter" portfolio, as updated below, shows that the original investment of $25,220 has already shrunk a wee bit. Although some shares, like Sierra Wireless, went up nicely others, like Spectrum, went down substantially. So, should we bail out of Spectrum? I don't think so. Barry Jinks, CEO, resigned last week after having run the company for some ten years. But he did so after having consummated some new contracts. Martin McConnell has been appointed acting chief operating officer. He will continue to be the company's vice-president finance and chief financial officer. I see no need for alarm. Actually, this might be a buying opportunity. Those of us who thought it was a good stock to buy at $7.00, should think it's a bargain at $4.10. Besides, following the principles of "Buffetology", we're long term players, not flippers. The T-Net20 portfolio, which was 2468 two weeks ago, has dropped by a similar percentage and is presently at 2354. Sigh! Sample "Starter" BC Technology Portfolio:   Company Price 16Jul99 Symbol # Shares Price 30Jul99 $ Invested Sierra Wireless Inc 13.00 SW.TO 200 14.00 2800 A.L.I. Technologies Inc. 9.60 ALT.TO 300 9.25 2775 Sideware Systems Inc 3.18 SYD.V 1000 2.94 2940 Burnt Sand Solutions Inc 1.95 BRT.TO 1500 1.85 2775 Inflazyme Pharmaceuticals Ltd  1.35 IZP.V 1500 1.33 1995 Spectrum Signal Processing Inc 7.00 SSY.TO 400 4.10 1640 Avcorp Industries Inc 2.00 AVP.TO 1000 2.00 2000 Pacific Insight Electronics 2.81 PIH.V 1000 2.95 2950 Marine Bioproducts International Corp 0.90 MBP.V 2000 1.01 2020 Avcan Global Systems Inc. 1.10 ACN.V 2000 1.00 2000 TOTAL PORTFOLIO VALUE $25,220       $23,895 GAIN (LOSS) ($1,325) One of the companies on the list, Sideware Systems just announced today that it has arranged a non-brokered private placement in the sum of US$8-million. Under the private placement, 4,878,048 units will be issued at price of $1.64 per unit, subject to regulatory approval. Each unit is comprised of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase one additional common share of the company for a period of two years, at a price of $1.64 per share in the first year or $1.89 per share in the second year.  I mention this because it points out that, in the junior markets, companies raise far more capital via private placements than they do via public offerings. In B.C., private investors qualify for such placements at relatively small levels, e.g. $25K, in contrast to other provinces where the entry points are much higher. The next time you are really keen on a junior firm, you might want to explore this option with the company's management. As you can see from this example, you can get a "kicker" in the form of warrants. We've added another junior firm to the T-Net listing of all B.C. public companies, namely Sonic Systems Corp (OTCBB:ZSON). Thanks to the folks at Discovery Capital for drawing our attention to this one. One reason why these sometimes escape us is that, being an Over-the-Counter bulletin board company, corporate filings are not required by Canadian securities commissions. Hence, you won't find Sonic Systems on SEDAR. This is an anomaly in our securities system and one that I hope the Commission will fix soon. You'd think that with their mandate to protect Canadian investors, they'd insist that companies whose shares can be bought and sold by Canadians would become reporting issuers. Take Sonic as an example for trying to find out something about the directors, corporate performance, market cap, etc. Go ahead - let me know what you find. It sure points out the value of having companies tried on a recognized exchange like the VSE - soon to become Canada's national venture exchange. Perhaps this will win back some of the local firms that have elected to trade on the OTC boards. According to recent PR, Sonic Systems Corporation of British Columbia serves the Intelligent Transportation Systems (ITS) market with environmentally tolerant, sensor management platforms adapted to traffic signal prioritization for emergency services, and is a leading provider of acoustic-based signal prioritization systems. Sonic Systems Corp, a Delaware corporation with offices in Seattle, Washington, is the parent company of Sonic Systems. It is in no way affiliated with Sonic Systems, Inc., a California corporation with headquarters in Santa Clara, California, which provides Internet security solutions. Confusing? All the more reason to get these companies to report to SEDAR, that is if they want Canadian inverstors. VCP Update Four new Venture Capital Pool (VCP) companies have filed their prospecti with the VSE in the past two weeks. These are: Empress Capital Corp (VSE:EPR), headed up by Donald Sharpe, Wan Jung, Gordon Politeski, and Dean Claridge; ExFund (A) Capital Corp, headed up by John McEwen, Harry Jaako, and James Fletcher; First Step Ventures Corp (VSE:FS), headed up by Donald McInnes, Gerals Cook, John Greig, John MacDonald, and Rubert Legge; and Gentech Capital Corp which is headed by Joel Rutherford, Graham Lee, Carol Lee, and Joel Dumaresq. Some of these names might look familiar to you, notably John MacDonald (founder of MacDonald Dettwiler) and the folks behind ExFund (A) Ventures all of which have been active on the B.C. tech scene for many years and who certainly have the capability for putting together some new deals.  Of the other recent in-progress IPOs, Darwin Capital Corp (VSE:DWN) has not yet started trading although it has been conditionally listed. The same is true for Ceduna Capital Corp (VSE:CUN) which has been conditionally listed. The list is growing yet not many "qualifying transactions" are being announced (only two so far!). I only hope that those entrepreneurs looking not only for funding, but mentors and financiers, are knocking on the doors of these VCP listings (and vice-versa). Check our Venture Capital Pools chart for a complete updated list all the VSE's VCP companies. To date, only two of the 23 VCP's that have issued a prospectus have completed their "qualifying transaction" (QT) thereby removing their VCP status. 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, 1999. What Do You Think? Talk Back To Mike Volker Tech Futures is a bi-weekly column that focusses 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 Tech Futures Archive T-Net 20 High Tech Stock Index