Stockformation Commentary
By M.Fonseca
An Interview with the CEO of Kasten Chase
10/07/2000
For the average office employee, losing a computer to theft would be a real drag. All that e-mail, those unedited drafts,
read by an unknown villain - disaster. But as traumatic as that would be for the average employee, it just isn't an option for
the government employee, or anyone else, who works with classified data.
For the latter, Kasten Chase offers security solutions that have the stamp of approval of the US National Security Agency.
Kasten Chase KCA.TO shares have settled down in recent weeks, after experiencing significant gains based on the June
21 news of the National Security Agency certification of their RASP Secure Media product, and related partnerships.
The company's principal business is the development of high security solutions, with a secondary and more recent focus on
Internet security.
President and CEO, Paul Hyde, spoke to Stockformation on Thursday about his company's technology, and about his
growing interest in the performance of the stock.
"We looked at the marketplace and we were looking for an area of the market that was not too crowded and where we felt
we could build some fairly high barriers to entry," said Hyde, "and we looked at the security market and identified that there
was a very compelling need out there for high security where people were prepared to pay a premium to be assured of the
level of security that they were receiving."
He said his company realized that this might not necessarily take the form of traditional security.
"When we did our analysis and we looked at market sectors that might have a requirement for that technology we identified
pretty quickly that many governments have a very intense need for high security, particularly when it comes to dealing with
classified or secure or secret information, call it what you will."
Soon they were talking with the National Security Agency, which Hyde describes to Canadians as an electronically
motivated CIA.
"The CIA, they're concerned about people, places and things, and they take the perspective of protecting the national
interest of them. The National Security Agency takes the same perspective as it relates to electronic surveillance, electronic
communications and all of those kinds of things. So they both perform fairly similar roles, but the NSA is very much
concerned about electronics."
"We talked to them, they looked at the solution that we had in mind and they agreed pretty quickly that it made a
tremendous amount of sense. So as a result we invested about a year and a half and many millions of dollars to meet their
requirements."
Kasten Chase is the only company that has met these security requirements with their innovative technology. Hyde said this
would change everything for people who want to access classified data. Without Kasten Chase he said, one would have to
go to a conditioned facility, "so you couldn't just take your laptop and access it you would have to go t a special building,
into a special room, with special clearances to actually access the data."
What about competition?
Hyde said nobody has been following in his company's footsteps - that the market belongs, essentially, to Kasten Chase.
"It's pretty expensive to get into the business in the first place, and it takes quite a while to build a solution like this.
Secondly, the certification process is quite arduous and in fact our second product which is the RASP secure media
product, which we believe is even more important than our access technology, there was another company who attempted
something similar before us, but they did not succeed."
As for their customers, Hyde said the company is primarily marketing their security product to government.
"Very few governments use the Internet, as you probably know, because they're concerned about security. So we
developed the product and we were the first and so far the only company to receive certification for a product that can be
used remotely to access government classified data."
"Government has the most compelling reason to buy high security solutions, and these products are very expensive
because they are high security," he said, "As a result, we're not trying to sell a $99 piece of software to everybody."
He pointed to the company's significant success in the US marketplace, adding that Kasten Chase products are, in fact, all
over the world, but that they have been distributed primarily by US organizations.
The future holds even more partnerships, he said, as the company investigates other markets.
"I can't disclose the next market that we'll be after just due to the nature of what we're doing but I can say that there are
three other major markets that we're looking at right at the moment for product expansion."
With such a presence in the United States, investors must be wondering whether a Nasdaq listing is in the company's
future…
"We are definitely moving forward on looking at Nasdaq listing," said Hyde, "which by definition gives us much more
exposure to the US market, which in turn, I think, could be very important to valuation because the US understands what the
National Security agency is all about."
Hyde, who feels Kasten Chase is still undervalued on the Toronto Stock Exchange, said the company's stock performance
has become increasingly important to him.
"Today stock price is very important to us for a couple of reasons. Number one is it allows us access to capital, which is
critical for a growing company like ours. And secondly, stock price has everything to do with visibility of a company these
days, and so it's become very important. But until we launched our first technology and it was successful it was very difficult
for the market to understand the market that we were in," said the CEO.
"When we did demonstrate that the product was a solid, good technology, the market rewarded us very highly for that and
if you look at the stock trend we have tracked very closely to the gyrations of Nasdaq. It's been quite amazing.
Shares in Kasten Chase closed Friday at a price of $7.75. The company has seen its share price soar as high as $19.85,
with a 52-week low of $0.41.
Hyde expects even more market recognition and higher valuations in the future.
"The things that I think are important about the company are that we're working very hard on establishing partnerships. We
see revenue growth as very critical, it's a priority for us, and we believe we have a good plan to attain financial stability in
the near term. I think those things add up to a company that's going to see solid growth and improvement in its valuation,"
he said.
"I think that the business areas that we're in, in terms of Internet infrastructure, high security, our entry into the wireless
market, those things, are all things that are solid marketplace opportunities. They're not based on an immense amount of
speculations, they're solid markets that exist today."
"I think finally the approvals that our products have received, and the size of the markets that we're currently addressing,
are very substantive given that we're the only player in those markets. I think they just all add up to a very, very strong
offering."
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