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RSA SITUATIONS & SPECULATIONS Volume 1 # 17.990th Oct 07 1997
P.O. Box 335, Owen Sound, Ontario, Canada N4K 5P5 519-372-8855
resource@sentex.net Yearly subscription $149 cdn/year $119 US
Web Site "http://www.sentex.net/~resource"
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Many of the selections in my Situations and Speculation letter are much more risky and volatile then those in my regular newsletter. You should consider carefully if these types of investments are suitable for you and risk capital only should be invested in the majority of these.
Excerpt from RSA Issue Oct 7 1997
RSA HOT TECHNOLOGY PICKS and EXUBERANT MOONSHOTS
I have almost 25 years experience in the technology sector and know a lot about what is going on inside the industry. I have watched many tech stocks soar in the last several months even if they were nothing to brag about. Therefore I have decided that I will tell you about some of these from time to time in this newsletter. I am not going to pick a whole bunch of technology stocks for you, but just the best ones of course 'the cream of the crop'. I will just let you in on the ones I feel are the next Microsoft or Netscape. I will also continue to feature other special situations perhaps outside of mining that Mr. Greenspan might call 'exurberant moonshots'
I have always preferred mining stocks because they are actually much easier to make money with in normal markets, meaning a stable market, compared to the recent bear market in mining and a bull in technology and some other sectors. As they say in a good bull market even the turkeys will fly. The tough thing about technolgy stocks is they are very similar to junior mining exploration companies. They spend a lot of time researching and developing that requires money and good people just like a gold exploration junior. The big difference is a technology company can be very successful and develop a great new technology but they than have to sell it in the market place, once a miner finds the gold there is already an easy market like any commodity. The next problem is a new technology can be obsolete or become worthless if some other company comes out with something new and better. One miners ounce of gold is the same as anothers and can obtain the same market price.
The technolgy stocks I am going to tell you about in this newsletter are the ones the market place is not aware of yet but are most likely to be the leader in their field. Companies with technology that is far superior or advantageous to anyone else. I just so happen to know of two such companies now that are soon going public. The one I will tell you about this month is the first public company involved with the new 'smart card technolgy' This will be even better than getting into the first company with DOS and Windows or the first Internet stock for reasons you will soon see are obvious.
SMART CARD TECHNOLGY
Most of you have probably heard of this. It involves a credit card with a tiny chip inside it that can store data and programs. I believe this is destined to replace the credit card, the debit card and cash in the very near future. There are many advantages to the smart card that benefit consumers and the banking and retail industry. It is simply a win win situation all the way around. The system is in use in several places/countries and there was a recent pilot test in North America in Guelph Ontario, not to far from my home town. Retailers report it is fast, convenient and secure and has gone very well such that a national rollout in Canada will begin in late 1998.
Hundreds of millions of cards are now in use ranging from payphones to electronic purses. The original card was patented in 1974 by Roland Moreno in France , had 4 Kbyte of memory and the processor was built into the terminal, not in the card.
The typical smartcard now in use is based on 8-bit micro-controller architectures which have been enhanced with hardware security features. Cards conform to specifications established by the Int. Standards Organization. The dominant architectures include Intel 8051, Motorola 6805 and Hitashi H8. New 32 bit architectures are on the horizon.
A smartcard contains a processor, arithmetic processing registers, RAM used during program execution, read only memory (ROM) for the operating system and EEPROM (electrically erasable programmable read only memory) for data storage
Clients are issued a preprogrammed smartcard. The smartcard can be loaded with funds from any of the financial facilities available to the cardholder that we have today. Once loaded/authorized it is equivilant to cash and when used the merchant is effectively offered cash for all transactions which does not require signatures, verifications, authorization, concern about hot cards, fraudulent notes or credit terms. The smart card enables you to load money on it from a bank machine, a special phone or your home computer. It is just like going to the bank machine and getting cash to stuff in your wallet. You can choose how much to get and how often. You then use your smart card just like cash.
Once funds have been loaded, the smartcard is offered to a merchant and the transaction takes on a point of sale (POS) terminal which will transfer the value from one card to the other.
The electronic funds stored on the merchant card can be credited to the merchants bank account in a number of ways, such as an ATM or teller, using the merchants existing on-line equipment, batching or milking where one smartcard collects the funds stored on several merchant cards
There are currently over 35 manufactures/producers of smartcards and the number is expected to rise. GemPlus Card International, Schlumberger Technologies, Datacard and Bull account for almost 80% of the market and supply their products worldwide. World production in 1996 reached over 550 million cards and is predicted to reach 1.0 billion in 1999. costs have been dropping at a yearly rate of 20-25%
The U.S. accounted for 0.4% of worldwide smartcard revenue in 1989 which increased to 1.5% in 1992. By 1999 the U.S. marketshare is projected to increase to 3.6%. There are currently over 200 smartcard projects across the U.S.
The advantages of the smart card are numerous:
To the Financial Service provider
a new source of income, structure fees can be levied/transaction
risks removed, security staff removed, cash handling reduced, the amount of real time transactions are gretly reduced with no need for central PIN validation
credit risk is reduced compared to cheques and credit cards
administration costs are reduced in the industry at every level
efficiency, will relieve transaction pressure on the bank's mainframe
easy to implement with new services introduced to the market easily with less administration
The card's chip could be used to store more than cash, such as drivers license and medical care information.
To the Consumer
covenient, used for any transaction to any party and is light-weight and slim, easier than carrying cash, no fumbling for exact change & coins.
speed, no need for on-line data transfer, less waiting in line
all risks with traditional financial delivery are removed, the current PIN system is replaced with passwords that may be changed by the user at any times
guaranteed payment, once cash is loaded on the card
privacy, no longer required to wait for authorization or embarrassment of refusal
tailored services could be programmed to various card holders
There is no transaction fee for consumers like a debit card. Retailers will still pay a fee for its use though
It's use has proven a real deterent to crime. Yourself, the cab driver or store clerk no longer have cash to be robbed.
You can even transfer cash among each other or from one card to another.
To the Merchant
speed of settlement (2 to 3 seconds) reduces labour cost/transaction, administration and training at every level
no risk, white collar crime reduced, till shrinkage and fraud are reduced as no cash is available in the system. The card is not legal tender without the password
guaranteed payment, each till will be supplied with a single card, with load only password access. The smartcard data can be down loaded onto a PC
reasonable cost, the off-line hardware can be small, battery operated, purchased outright, leased or provided by the financial institution
the no risk benefit will attract all the economically active population
the transaction is not restricted by time of day or location
You can use it for small purchases such as a pack of gum, cab fair or a movie ticket. If your card is lost or stolen it is just like loosing $20 or what ever amount is still on the card, but it won't get used and your card may even be returned. The card can be locked and without the PIN/password number is useless. Entering the wrong PIN number three times and the chip in the card will self destruct just like 'Mission Impossible'.
It is a preferred choice for transactions of $10 or less which add up to about $75 billion a year in Canada
NOW YOU CAN BENEFIT with MORE THAN a SMART CARD, THE STOCK
Net One UEPS Technologies Inc on Nasdaq Bulletin Board
Issue Price $1.62. I would buy at this level
For sake of tracking, I will round up to $1.70
Shares Outstanding approx. 7 million -- Fully Diluted less than 9 million
Management/Insiders approx 65% -- Float approx 2.5 million
Most of this float is some large blocks that likely won't be on the market. The trading float will be about 600,000 shares divided among approx. 500 holders.
THE COMPANY and MANAGEMENT
Net 1 is an American, Florida based company with powerful backing behind it. More about this should become known in a few months. Net 1's management has already proved itself and it's technology. The company was formed in South Africa in 1989 and since has been developing and perfecting this technology, referred to as UEPS (universal electronic payment system) and is compatible with all banking systems worldwide. Net 1 has secured patents on the technology around the world except in Asia where they feel it is better not to register a patent at this time because of posible infringement.
The technology was developed by Messrs Serge Belamant and Andre Mansvelt in South Africa who have a broad range of experience in research, financial planning, large project admin., banking and all forms of data processing.
Andre Peter Mansvelt , Director is a founding member of Net 1 and General Manager of Saswitch (pty) Ltd. the SA national ATM computer switch services provider. He holds senior positions with Greyvelt & Associates C.C., a provider of management information services, Datababnk (PTY) Ltd., which provides data processing services to financial institutions and Volkskas Industrial Bank specializing in medium term financing
Serge Christian Pierre Belamant, Director is a founding member of Net 1, Creative Logic (PTY) Ltd., a developer of time critical software and Solution Systems, voice recognition response sytems and artificial intelligence. Mr. Belamant is Technical Manager of Saswitch (PTY) Ltd as well as a consultant to Bankorp Data (Pty) Ltd. (financial services group), Volkskas Industrial bank and Control Data Corp (U.S. computer manufacturer)
President Jim Rogers has been involved with Net 1 for several years and has over 15 years experience in securities law in Vancouver B.C. He specializes in financing emerging growth companies through public markets. Mr Rodgers will manage Net 1's operations outside of South Africa.
As a result of world wide interest in UEPS, Net 1 plans to commercialize the technology on a wide scale by developing strategic alliances with national and international banks and card srvice organizations.
You might have heard about Mondex, Visa and Exact Card here in North America. Net One has superior technology and these companies would have to infringe on patents to compete with Net 1. Mondex has already approached Net 1 to buy an interest along with many others in the financial and smart card industry. Simply put from what I can find out, everyone wants a peice of this company, but they likely won't get it. I expect Net 1 to dominate in this market
THE TECHNOLOGY and THE PLAN
Net 1 has been in South Africa since 1989, perfecting this technology in a real market place. Their system has run with out a glitch there since 1992. The system is state of the art and the whole operation in South Africa is run by four employees. The software or programming is all on the chip in the smart card. Transactions are taken throughout the day and uploaded to main frame computers once a day for processing. This is a perfect solution for all the 3rd world countries and developing nations who do not want the big expense of the online system in North America.
Net 1 is already leaps and bounds ahead of its competition. They have the S. African market as a model and are already expanding into other African countries. Net 1 currently has about 70% of the Russia market and their system is also in use at major financial institutions in Nambia, Botswana, Australia and Poland. They are currently making inroads into most of the major countries around the world
The smart card technology is easily accepted in the more developing nations as they need a system that helps prevent crime, fraud and is easy and cheap to implement. The architecture is user friendly and compatible with all international banking systems.
In North America, Net 1 plans on letting the Mondex's and Visa's convert the current online systems and move in with their superior product as the market gets more developed.
Net 1, sells a total solution and package as a systems integrator. They sell strategic consulting, the smart card, the devices in the retail outlets, the software and main frame computers to run the system. A swat team would move in to implement the system and then just a handful of employees are needed to run it.
The company can generate revenue from sales of all the hardware, software licensing fees and the best of all is one red cent from every transaction. It is hard to fathom the amount of pennies that would add up from the millions of retail transactions everyday in a good sized country, let alone several countries.
Net 1 chose to list on the Nasdaq market, as they felt this would best serve their image as they grown into a multinational corporation. The company expects and I can find no reason to doubt them that they will become a full listed company in about six months and will have a big board listing in one to two years.
FINANCIAL
The intial share offering of about 7 miilion shares at US$1.62 will raise plenty of funds for Net 1 to expand their market and enable the founders of the company to begin to get their investment back from the research and development.
Net 1 expects that revenue would be approx US$50 million in their first year of operation. I expect the companies business plan will proceed along the lines they expect and these revenues would balloon in no time at all.
It is premature to do revenue and earnings estimates but the potential is absolutely enormous.
SUMMARY
Net 1 is one of the most extraordinary investment opportunities I have ever come across. There will be a lot more information come out in the next few months to support this and as this happens the investment community will catch on how huge and successful this company will be.
The stock will open trading at $1.62 but I don't think it will stay there for long, perhaps hours or maybe a few days at best. The only common thing about the 500 investors in the float I could find out is they all wanted more shares.
The technology sector is hot and when something like this becomes known there is no telling how high and how fast it might climb.
The stock should be purchased as soon as you can to get the best price and then held for about two to three years as the company implements their business plan and technology. During this period of time, I expect the stock will split a couple times as the company grows and dominates this particular industry.
I think you can understand why I had made an exception to mining stocks and told you about this technology oppertunity. I believe the downside risk is very small by getting in early on the ground floor.
I strongly believe that at least a small position in this stock is warranted for all portfolios.
For more information, contact David Anthony or Randy Saunders 604-669-2624
*********************** UPDATES ********************
Pacific Bay Minerals Ltd PBM on VSE
Westmin Resources has outlined a strong geophysical anomaly coincident with a multi-element geochemical anomaly on the company's TY property in the Finlayson Lake exploration camp, Yukon. Geological mapping of the zone confirms its potential for VMS style, polymetallic precious metals rich mineralization. Westmin has now spent approximately $330,000 and earned a 50% interest in the TY property. Westmin can earn a further 10% by spending an additional $175,000.
Westmin's 1997 work program on the TY property comprised MAXMIN and MAG ground geophysical surveys, linecutting, soil sampling, and geological mapping. The MAXMIN survey resulted in the recognition of a zone which produced a strong EM response consistent with the source being massive sulphide conductors.
The soil sampling program outlined several multi-element trends, with the most significant trend being linear and parallels the strong EM anomaly. According to Westmin, the multi-element base/precious metal soil anomaly and coincident EM conductor which extends for 300m along the approximate strike projection of a bedded barite outcrop hosted in volcanic schists collectively suggest a setting permissive for massive sulphide mineralization Drilling is warranted to test the conductive unit down-dip of its surface projection. Westmin/Pacific Bay expect to be in a position to drill this new target next season.
Things are looking good here but the geology was much more trickier then Westmin thought and I also expected this property to be further along by now. It looks like next years drilling could make or break this project
Pacific Bay Lance Abbott 604-682-2421 US toll free 800-665-5101
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