Good Buys, Listing Rules, T-Net20 Update, PMC Sierra's Sixth Deal, IPO Watch - Chromos Molecular, Capital Pool Corps, Footnotes A bi-weekly column focusing on new and emerging BC publicly listed technology companies     Technology Futures:     July 14, 2000 Tech Futures:  July 14, 2000 By Michael Volker Good Buys, Listing Rules, T-Net20 Update, PMC Sierra's Sixth Deal, IPO Watch - Chromos Molecular, Capital Pool Corps, Footnotes Good Buys I often get asked, "what's a good stock to buy?" Of course, "good" can mean many different things - quality and steady appreciation over the long term or it could mean making a good, fast buck without too much risk. Or, it could mean getting in early (and inexpensively) on a startup that not too many have noticed yet. Many of our local tech firms fit this latter interpretation: QLT Phototherapeutics, Westport Innovations, Burntsand Inc., Infowave Wireless, Inflazyme Pharmaceuticals, Silent Witness, and Stressgen Biotechnologies all started out at a buck or less (some not even that long ago). So what are some of the current one-buck hot picks? How about IGT Pharma Inc, Immune Network Research Inc., or Marine BioProducts International Inc? These are, in my view, well priced with some good upside room. They are young biotech companies with good management teams in place and long product life cycles. What a lot of the junior firms don't understand is the importance of promotion. Yes, I said "promotion". Let's not kid ourselves - even the big guys (take Nortel as an example - they put out several news releases almost daily) promote. They have to - both as an obligation to investors to give them liquidity and to themselves in case they need to go back to the public trough for more capital without taking major dilutive hits. Companies like QLT PhotoTherapeutics understand this. They spend over a million dollars per year on promotion (call it investor relations if you are more comfortable with that term).  I mention this because some of the juniors which I suggested above - take Marine BioProducts as a case in point - do almost no promotion. That's one reason why their stock is cheap. Sooner or later, they'll find it necessary to pay more attention to their markets and if you get in now, you can go along for the ride. It's not a question whether they will do this or not, it's a question of when. In the meantime, I'll bet of you go on the bid below the market, you'll get some well-priced order fills. "Accumulate and hold", as they say. But don't overlook some other excellent buys that can be had. Creo Products comes to mind. Creo is trading near the bottom of its US$16-$52 range. With a P/E down to 25, this looks most interesting. Is it heading lower? If you're not sure wait until it rebounds slightly. How have we fared on some earlier suggestions? Well, exactly a year ago, I put together a starter portfolio of 10 "affordable" BC Tech companies using a pool of $25,000. Today, that portfolio is worth $56,267 - more than double the starting value. Half of the picks have gained substantially and half have declined slightly. Let's take a look at how we did. Sample Portfolio after 1-year: Company Price 16Jul99 # Shares Price 13Jul00 Current Value Sierra Wireless Inc. (TSE:SW) 13.00 200  110.00 22,000 A.L.I. Technologies Inc. (TSE:ALT) 9.60 300  5.60 1,680 Sideware Systems Inc. (CDNX:SYD) 3.18 1000  4.63 4,632 Burntsand Inc. (TSE:BRT) 1.95 1500  6.75 10,125 Inflazyme Pharmaceuticals Ltd. (CDNX:IZP)  1.35 1500  4.90 7,350 Spectrum Signal Processing Inc. (TSE:SSY) 7.00 400  5.00 2,000 Avcorp Industries Inc. (TSE:AVP) 2.00 1000  1.47 1,470 Pacific Insight Electronics (CDNX:PIH) 2.81 1000  3.95 3,950 Marine Bioproducts Int'l  (CDNX:MBP) 0.90 2000  0.73 1,460 Avcan Global Systems Inc. (CDNX:ACN) 1.10 2000  0.80 1,600 TOTAL PORTFOLIO VALUE $25,220     $56,267 GAIN       31,047 With respect to types of stocks, i.e. industry sectors, which look promising, there are several in high tech but I'd like to single out two of them: the so-called G-Wave which is also referred to as G-economy, or simply Genomics. This is hot because in the US, health spending accounts for 14% of GDP whereas information technology spending accounts for only 8% - yet the health technology sector hasn't quite rivaled the internet, market action-wise. A broad basket of Genomics stocks on NASDAQ has more than doubled in value in the past year. The other is in systems - i.e. hardware/software companies with proprietary chip designs. Look at PMC Sierra. Need I say more? In both these areas, almost any company with a good team would be a good bet. The downside is that the company will be gobbled up by a bigger fish just for access to the talent. Skilled talent is now in such demand that, more than ever before, headcount - or should I say "brain count" will start driving stock prices.  T-Net 20 List Updated This week the T-Net20 listing was updated. 360Networks(TSE:TSX), which completed its IPO in the past quarter has been added. This addition bumped Multiactive Software (TSE:E) off the list. Immediately prior to the update, the T-Net20 index closed at 7318 with a total market cap for the top 20 reaching $63 billion. The market cap of the new list is $84 billion - due mainly to the addition of 360networks.  Listing Rules The Toronto Stock Exchange (TSE) is adopting new listing criteria for high technology ventures. Depending on your perspective, you might interpret these rules as either a tightening or loosening of the standards. There are five key criteria announced by the Exchange. Let's take a look at how they compare to both the CDNX and NASDAQ rules.     CDNX TSE NASDAQ Cash ON Hand $100K $10m Not specified Min.Mkt Cap $500K $50m US$50m Min. Mkt value of float $500K $10m US$5m Stage of product development Concept Advanced Not specified Cash Reserve 1 year 1 year Not specified The CDNX criteria relate to so-called Tier 2 technology companies, i.e. the entry level requirements. Comparisons are approximate as there are actually three categories into which companies can fit depending on whether or not they are generating sales and profits. A special class of company, Capital Pool Corps (see below) have their own rules.  The NASDAQ criteria refer to the NASDAQ "Small Cap" rules. Note that the Americans are less concerned than Canadians in spelling out the details for cash and cash reserves - they leave that up to management.  Other criteria are similar for all exchanges. For example, they all require a minimum of 300 board-lot shareholders, demonstration of good corporate governance, etc. Although all exchanges permit the listing of pre-revenue (i.e. R&D) companies, companies with a history of operating earnings will find it easier to obtain a listing. I like this categorization. It gives junior companies the chance to raise money from the public on a venture exchange like the CDNX, offering them a migration path to the more senior exchanges as they mature. Although this comparison is just a back-of-the-envelope exercise, it would appear that the generally perceived more "posh"  NASDAQ listing is easier to obtain than a TSE one. The TSE recently gave up its "small-cap" listings to the CDNX which ranks them as "Tier 1" companies. It has created a gap and a market opportunity for NASDAQ which might help in explaining its move into Canada via Quebec. Conclusion? Start with CDNX, then go to straight to NASDAQ. PMCS's Sixth Deal What do you do when your stock is hot? Answer: you use your stock as currency to acquire new businesses and talent. And that's exactly what PMC Sierra Inc (NASDAQ:PMCS) is doing. This week, PMC Sierra announced it's sixth acquisition, ther merger with Quantum Effect Devices, Inc. (NASDAQ:QEDI).  Approximately $2.3 billion in PMCS shares will be issued to QEDI stockholders at an exchange ratio of 0.385 PMCS shares per QEDI share.  The transaction will be accounted for as a pooling of interests and is subject to the usual approvals. Acquirors love the pooling of interest approach because it means no goodwill to write off down the road. Based on this formula, just under 12 million PMCS shares will be issued. If you think that's a lot, look at it this way: That's less than 10% of its 145+ million issued shares and is a lesser dilution than what the company would experience through the exercise of employee stock options. Think about that! Quantum Effect Devices is a provider of MIPS processors for networking applications, a good fit with PMCS's rapidly expanding offering of broadband communications semiconductors.  It also means that more than 100 employees will join PMC-Sierra as a new business unit.  Market reaction to this news was positive boosting the stock to over U$230 in recent trading (July 13) getting it closer to its high of U$255.50 reached earlier this year. Adding more fuel to the fire, PMCS then announced (after the market closing on July 13th) its quarterly results in which it reported record net revenue of $134.1 million and pro forma net income of $0.23 per share (diluted) for the second quarter of 2000. This performance beet the street's expectations. According to PMCS, second quarter revenues of $134.1 million increased 30% sequentially (I like this "sequential" comparison) and 124% compared to the second quarter of 1999.  Second quarter pro forma net income of $39.0 million was 191% higher than in the same quarter of 1999.  Pro forma net income per share (diluted) increased from $0.09 in the second quarter of 1999 to $0.23 in the quarter ended June 25, 2000. Net revenues for the first six months of $236.9 million were 115% higher than in the first half of 1999 and resulted in pro forma net income per share (diluted) of $0.41 per share compared to $0.16 for the first six months of 1999. In my last column, I mentioned that although PMCS is headquartered in Burnaby, it is not technically considered a Canadian company and is not a "reporting issuer" in Canada meaning that you won't find the company listed on Sedar (www.sedar.com). Other than its ineligibility as Canadian content for RRSPs this fact shouldn't matter very much. However, it creates an interesting situation from a securities regulation perspective. For example, it means that Canadian employees who received treasury shares (as from stock options) are prohibited from reselling these shares from within Canada. I guess they take a little day-trip south of the border whenever they want to sell a few shares. So much for our archaic securities regulations.  IPO Watch -Chromos Molecular Systems Inc Chromos Molecular Systems Inc, a Vancouver Biotech firm founded in 1995, is planning to raise $30 million in its IPO. Pricing is expected to be around $8 per share. The underwriting group is led by Yorkton Securities, Goepel McDermid, and BMO Nesbitt Burns. Prior to the IPO, Chromos had 15.5 million shares outstanding (fully diluted).  To date, Chromos has raised some $24 million from private placements. Its shareholders include Working Opportunity Fund, Royal Bank Ventures and others. The company's technology involves the production and isolation of artificial chromosomes. The technology could be used to repair certain disease-causing genetic deficiencies. A BC university spin-off you think? Nope. This one has licensed its technology from the Institute of Genetics and Biomedical Research Centre in Hungary. UBC and notable others are, however, current collaborators to Chromos. Chromos holds seven patents and patent applications in the U.S. The Company also relies on trade secrets with respect to the isolation, purification, and production of its technology. The Company's president and CEO is Alistair Duncan, Jr., a UBC grad in Biochemistry with a CA designation - a nice combo! Alistair is active on the local high tech scene and is on the Board of the B.C. Biotech Alliance. Biotech companies generally endow themselves with a top notch scientific advisory board and Chromos certainly has followed this practice.  You can get the full prospectus on Chromos from the Sedar website at www.sedar.com. The preliminary prospectus is dated May 29, 2000. Check with your broker - maybe you can get in on the IPO. MacDonald Dettwiler's IPO is getting closer. The company's final prospectus, dated July 4, 2000 has been receipted so you can expect the offering any day now. Note: this is one of few high tech companies reporting a profit for several consecutive quarters. QHR Technologies Inc. (CDNX:QHR) - The Canadian Venture Exchange has accepted for filing a share purchase agreement between QHR and New Horizon Technologies Inc. ('NHT') and its shareholders (i.e.Achievers Choice Technologies (Alvin Hilderbrandt), Zahir Shariff, Phillip Lovell, Brian Draper and Jayne Morrison) whereby QHR can acquire all of the shares of NHT for 7,380,000 shares. NHT is a software company which develops, markets and implements an enterprise software solution for automating human resources in large organizations. The shares recently traded in the $1.70 range. With regard to upcoming dot-com IPOs, I expect that we won't be seeing too many of them. I heard that the "dot-com" part of a name has already fallen out of favor - so much for adopting a faddish tag - and a number of dot-coms are reportedly thinking of changing their monikers to rid themselves of any stigmas Capital Pool Corporation (CPC) Update In this column, I keep track of Capital Pool Corporation ("CPC") companies (see chart below) as defined by the former CDNX because they may provide funding 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 less than $1.00. And when it does what is expected, you can reap a nice reward. On average, CPC share prices have appreciated over 200% from their IPO pricing. The real money, though, will be made once they complete their acquisitions of real operating companies. New additions to the list are Access West Capital Corp., Canden Capital Corp., Envirotrain Capital Corp., Fine Systems Capital Corp., First Venture Capital Corporation, Horizon Industries Ltd., Nucleus BioScience Inc., QDM Ventures Ltd., Silicon Valley Scout Ventures Ltd., SNC Capital Inc., and Stratos Biotechnologies Inc. All of the new entries are CPCs. Whew! Quite a few! Fine Systems Capital and SNC Capital originate from Alberta. Since the previous update, the following companies have come to trade: Intrinsyc Capital Inc. (CDNX:) and Saturn Ventures Inc. (CDNX: ) Check our Capital Pool Corporation chart 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/mvolker-jun0200.html Footnotes Why did Pivotal Corp (NASDAQ:PVTL) take such a jump (to U$40+) this week? Well, Pivotal's net revenues in the fourth quarter of fiscal 2000 increased 118 percent to $18.2 million compared to $8.3 million in the fourth quarter of fiscal 1999. Net income, was $523,000 or $0.02 per share, compared with an operating loss of $659,000 or $0.04 per share in the fourth quarter of fiscal 1999.  Information on local tech events may be found on-line at http://www.vef.org.  For a convenient printable 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 Tech Futures Archive T-Net 20 High Tech Stock Index