COLUMN

A strange way to run a company

Diane Francis September 28 1987
COLUMN

A strange way to run a company

Diane Francis September 28 1987

A strange way to run a company

COLUMN

Diane Francis

In the Queen Elizabeth Building, an upright machine occupied a lonely corner near the “Bravo Canada!” exhibit at this year’s Canadian National Exhibition in Toronto. Beside the machine was a set of golf clubs. A demonstrator listlessly swung a club at the white golf ball attached to the machine, and he watched the results on the machine’s monitor. The “golf simulator” allegedly registers the strength as well as the direction of the shot, then displays the distance and direction toward the hole on the screen. All for roughly $17,000. This machine, called the GS 2020, is made by a Saskatoon company called Joytec Ltd. and is being billed by its promoter, Technigen Platinum Corp. of Vancouver, as part of Canada’s hightech future. If it is, goodness help us.

Joytec was launched in 1986 using $3.75 million raised from 250 investors through the generous Saskatchewan Venture Capital tax credit program, which allowed the investors to write off $1.1 million in taxes. Joytec also has received another $210,000 in direct assistance from Saskatchewan government agencies for research—in effect, a total government “stake” of almost $1.3 million. In the fall of 1986 Joytec’s simulator netted a buyer: former Winnipeg rabbi Lawrence Nesis, president of Technigen. Technigen had been listed on the Vancouver Stock Exchange (VSE) on July 30, 1986, at $1.25 a share. In the months to follow, a series of carefully orchestrated press releases and letters, containing statements that stretched the imagination, spiralled the price of the stock to $16 a share by April 3.

What follows is a chronology showing that the rules by which public companies are governed—full and timely disclosure to ensure that present and future investors know what insiders know—were disregarded. Even worse, the VSE examined some Technigen press releases but never took the company truly to task, which underscores the fact that Canadiáns may be better off investing in Canada Savings Bonds, or even their mattresses, rather than in companies governed by that exchange.

On Nov. 10, 1986, Technigen announced it would buy 100 per cent of Joytec and also said that the golf simulator was “scheduled to start rolling off the production line for delivery to the world market early in 1987.” Technigen shares hit $4.10 that day. In January, 1987, a promotional letter sent to bro-

kers and others claimed that “sales are now proceeding worldwide” and added, “Joytec is presently in negotiations with four of the top 10 Japanese trading companies including Marubeni of Tokyo which had 1986 sales in excess of $50 billion!” The letter also estimated that Joytec would produce 4,400 machines worth about $115 million in the first full year of production.

On Feb. 17 Technigen announced an agreement with Marubeni to market the simulator on an exclusive basis in Japan after a period of evaluation. Technigen stock hit $8 a share. Despite such boasts, on Feb. 20 seven of Joytec’s 32 employees in Saskatoon were informed that they were being laid off, including its production manager Bob Bugden. But the layoffs, which belied boasts about big sales and backlogs, did not take effect until after the Feb. 26 plant tour of Saskatchewan Premier Grant Devine.

On Mar. 16 Technigen reiterated that

The potential exists for precious capital to be diverted from real economic activity into puffed-up promotions

Marubeni had “recently won the exclusive distribution rights.” In a press release, Nesis added, “With sale orders backlogging rapidly, delivery of the GS 2020 worldwide is scheduled for the fall of 1987.” On April 1 it announced a $116-million distribution deal with Corporación Relacio S.A., identified in the Technigen press release as a Swiss company. Technigen stock hit $13.25 the next day, then $16 by April 3. On April 9 Premier Devine, in Japan on a 12-day Saskatchewan trade mission, met with Marubeni to promote the machine along with other items.

But on April 21 at least two newspapers— The Province in Vancouver and the Saskatoon Star Phoenix—published articles that questioned the boasts about sales. Indeed, The Star Phoenix reported that Takashi Kobayashi, general manager of Marubeni Canada Ltd. in Vancouver, said that the company had not yet agreed to distribute the product and had only begun a feasibility study. Share prices fell to $12.25, and on April 22 the VSE halted trading in Technigen shares—at the company’s

request—pending clarification.

On the same day, Technigen issued another press release, again saying that “agreement was reached in February with Marubeni Corporation of Japan under which Marubeni would start marketing the golf simulator on an exclusive basis in Japan after a period of evaluation.” The next day the VSE allowed trading of Technigen stock to resume after it had reviewed some of the company’s statements. “Our questions have been satisfied. They issued a release. We are satisfied so long as it is clarified, and there have been other public exposés giving additional information,” said Alfred Woo, VSE vice-president of listings.

But what Woo called “exposés” were articles in a handful of local papers, hardly protection for investors or brokers in other parts of Canada and outside of the country. And although Marubeni spokesmen refused to comment on their company’s negotiations with Technigen, they told Maclean's that no definite decision has yet been made. They also reiterated that last spring—at the time that Technigen was stating that Marubeni had “won the exclusive distribution rights”—no such final distribution agreement existed. And Technigen has not contradicted published reports that Corporación Relacio S.A. is registered in Panama and is not a Swiss company.

On June 23 Technigen announced a $72-million deal with Computech (Canada) Inc. in Mississauga, Ont., for 4,000 machines “over three years from availability.” But production has not geared up yet, and shares have slumped to less than $9 each. For his part, Nesis refused to be interviewed. To a list of questions submitted by Maclean's, he wrote: “Certain of your queries relate to information which is not new, some deal with the business of the company which are inappropriate for comment at this time, and others relate to matters which are the subject of litigation to which counsel has advised it would be inappropriate to respond at this time.”

Of course, the golf simulator may end up being the greatest thing since sliced bread. But as long as exchanges do not uncover questionable practices and rely on the press to do so, investors lack protection. And worse yet, the potential exists for precious capital to be diverted from real economic activity and into puffed-up promotions. Things may work out, but this sure has not been any way to run a company.