BakBone Slapped in Toronto

Shares of BakBone Software Inc. (Toronto: BKB) won't be traded for 15 days on the Toronto Stock Exchange, following an order issued today by the Alberta Securities Commission (ASC) (see Alberta Halts BakBone).

The commission announced the halt in trading because BakBone missed the November 15 deadline for filing results of the quarter ended in September with the U.S. Securities and Exchange Commission. If BakBone doesn't file its report by December 17, the commission will consider further action.

BakBone blames a recent change in auditors for the late filing, although its accounting problems began in May (see BakBone Slip Called Temporary and Bakbone Reports Restated). That's when BakBone shareholders gave the board approval to enact a reverse stock split anytime until May 2005 at up to a 5-to-1 ratio (see BakBone Calls a Reverse). The goal was to reduce the number of shares and raise the stock price to $5.00 so BakBone could get listed on Nasdaq.

But in late May, the company said it did not properly take into account deferred stock-based compensation charges when it reconciled from Canadian GAAP to U.S. GAAP.

Events began to snowball. Bakbone performed poorly in the quarter that ended in June, losing $1 million on revenue of $7.9 million. That was the last period for which the company filed a quarterly report. In early October, auditor KPMG abruptly quit without explanation. BakBone hired Deloitte & Touche LLP as its new auditor on October 25 (see BakBone Gets New Head).Then, BakBone's board suddenly hired James Johnson to replace Keith Rickard as CEO November 1. BakBone said the CEO swap was unrelated to the accounting problems. Still, it falls on Johnson to minimize the fallout from customers and investors.

All this may be taking its toll. There is no significant change in the fundamentals of the company due to trading restrictions on the stock,” says analyst Kaushik Roy of Susquehanna Financial Group. “I continue to hear positive comments from BakBone’s customers and partners. However, this does impact the company's ability to focus and execute on product development and sales.” [emphasis added] Another financial analyst, Bradley Mook of Emerging Growth Equities (EGE), says he doesn’t think the trading halt will have much of a negative impact but BakBone customers might be getting frustrated by the events of the past months.

“The stock still has liquidity in the U.S., which is where the company would be likely to raise additional funds if needed,” he says. “The company has clearly had its share of issues over the past year, and customers are probably as alarmed by that as an interruption in trading in Canada.”

One thing: The ASC’s cease-trade order does not affect trading of BakBone’s stock in the U.S. on the OTC Bulletin Board, and today’s news had little influence on the price of those shares. After rallying this morning, OTC shares fell to $0.92 by mid-afternoon -- the same as Monday’s closing price. BakBone shares closed on the Toronto Exchange at $1.07 Monday, after dropping steadily from $4.38 in March.

Still, unless BakBone gets its accounting act together, its future on Nasdaq could go to the back burner. Given the current share price, financial analysts say it is unlikely that BakBone will go ahead with plans to enact a reverse stock split.Meanwhile, the clock ticks on. Karen Silva, BakBone’s director of investor relations, says the company is awaiting Deloitte's review of the tardy SEC filing.

— Dave Raffo, Senior Editor, Byte and Switch