January 2000

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 35 -- February 4, 2000
In this digest:

1. STOCK REPORT: Tech stock explosion creates first area billionaire
2. RIM & Nortel agree to technology & marketing partnership
3. Open Text shares jump on mixed quarter, biggest deal ever
4. CME Telemetrix disputes claims of Advantage Medical acquirer
5. GUARD appoints CME chairman as its new chairman

6. Jedor acquired by Sonic Foundry
7. Finline acquires Waterloo-developed image compression technology
8. Acquisition gives DALSA 29% revenue growth in 1999
9. Control Advancements revenue declines in Q3
10. PixStream wins regional innovation award

11. RDM forecasting growth in scanning & imaging system sales
12. Miscellaneous Tidbits from EMJ, Descartes, Sanga

STOCK REPORT: Tech stock explosion creates first area billionaire
January 1999

January was a weak month on most North American stock markets, but the shares of tech companies in the Waterloo area weren't slowed down a bit, turning in their strongest month ever.

Companies with double-digit percentage gains in January were:
Finline +251%
Control Advancements +68%
CME Telemetrix +48%
RIM +43%
Descartes +42%
MKS +25%
RDM +20%
Virtek +14%
COM DEV +14%
Open Text +13%

RIM co-CEO Mike Lazaridis became Waterloo's first high-tech billionaire during the month, and with RIM shares already up 38% in February, the company's other CEO, Jim Balsillie, is knocking on the door as well.

The only company whose shares went down in January was DALSA, off 6%.

Cyberplex stock also had a very strong January, up 41%. Shares in Janna jumped 63% and are now up 267% since the company acquired Waterloo's LivePage. On the other hand, CheckFree's shares have lost about a third of their value since the company acquired BlueGill in December.

RIM & Nortel agree to technology & marketing partnership
January 18, 2000

RIM has formed a technology and marketing alliance with Nortel Networks. As part of the agreement, Nortel will make a US$25 million U.S. equity investment in RIM.

The agreement might help RIM's plans to break into the European market, where Nortel has an established sales presence and distribution channels.

RIM also announced that it will supply Intel with BlackBerry servers and over 2,000 handhelds over the next three months. Intel has been an investor in RIM since 1997, and I believe still holds warrants convertible into shares for $4.50 each.

Open Text shares jump on mixed quarter, biggest deal ever
January 31, 2000

How does a quarterly conference call sound from a company without a CFO? If Open Text is anything to go by, the answer is that the numbers aren't even referred to for the first 14 minutes, and then some fundamental questions from analysts are answered with "I don't know."

But the company gets the last laugh after seeing its shares climb by about a third since announcing its latest results at the end of the month.

For the quarter ended December 31 (Q2 00), Open Text reported net earnings of US$15.6 million (US$0.61/share) on revenue of US$26.7 million. All of the earnings came from a gain of US$35 million from the sale of About.com shares.

Operationally, Open Text lost US$8.9 million. That included US$2.0 million in restructuring charges and additional one-time expenses that the company wasn't able to specify. General & administrative expenses were 2.5 times what they were in the previous quarter, which the company said was due in part to reorganization expenses that couldn't be categorized as restructuring charges under accounting rules, as well as to increased staffing.

Revenues were stronger than the company thought they might be at the AGM -- up 28% from the same period last year and 5% sequentially. License revenues were flat on a year-over-year basis, while services revenues jumped 73%.

Gross margin on services fell from 51% last quarter to 37% as the company expanded its capacity to provide services in advance of anticipated higher revenues that are expected to bring margins closer to previous levels.

The balance sheet shows US$183.1 million in cash and securities -- of which US$80 million was subsequently used to pay for the buyback of 4 million shares at US$20 each. Nearly 6.4 million shares were tendered through the issuer bid. Open Text now has 19.7 million outstanding shares.

Of Livelink's 3 million users, about 2 million are at the departmental level, and the company believes that converting departmental installations into divisional or enterprise-wide installations is one of its primary sources of future growth.

Open Text announced the largest Livelink order ever in January -- a US$3 million deal with Saudi Aramco (Saudi Arabian Oil Company) for an enterprise-wide installation. Company management said that Open Text's partnership with SAP was one element in winning the contract and that Documentum was one of the competing proposals it beat out. (They also said that Nortel remains Open Text's all-time largest customer with combined orders of more than $5 million.)

Open Text also told NetSys this month that it is no longer the exclusive Livelink distributor in Scandinavia and it "must now renegotiate a non-exclusive distribution agreement." NetSys still claims to be selling Livelink licenses on its Web site. The dispute between the two companies (see previous digests) remains in arbitration.

CME Telemetrix disputes claims of Advantage Medical acquirer
January 7, 2000

Neurosoft appears to be unhappy with its acquisition of Advantage Medical from CME Telemetrix a year ago. The company has made a claim under the terms of the purchase agreement which entitles it to withhold any future payments until the dispute is resolved.

Neurosoft acquired Advantage Medical for $5 million, minus unspecified adjustments, with payments to be made over three years. It has paid CME $2.5 million, but is now disputing US$1.5 million in scheduled future payments -- which may be all of the balance owed, depending on the size of the "adjustments."

The news was apparently of no immediate concern to CME's shareholders -- the company's stock jumped 48% in January on rumours that development of CME's non-invasive glucose monitor is progressing well.

GUARD appoints CME chairman as its new chairman
January 18, 2000

George Masters has become the new chairman of GUARD, succeeding John Yarnell who will remain a director of the company. Yarnell had said at the AGM last June that it was "time we saw some fresh faces" on the board. Masters has been chairman of CME Telemetrix since April 1998 and a director of that company since 1994. He is also the chairman of the Ontario Bio-Tech Commercialization Fund and previously worked at Warner-Lambert for 20 years.

Jedor acquired by Sonic Foundry
January 24, 2000

Jedor, the Waterloo-based developer of multimedia software, has signed an agreement to be acquired by Wisconsin's Sonic Foundry. Terms were not disclosed.

Sonic Foundry had revenues of US$14.8 million in 1999 and has seen its share price jump by nearly 400% over the last two months, giving it a market cap of US$385 million.

The Jedor team will remain in Waterloo, but the office will likely operate under the Sonic Foundry name.

Finline acquires Waterloo-developed image compression technology
February 3, 2000

Finline has signed an agreement to acquire Impress Image Corp. of Waterloo in an all-stock deal for 1.5 million Finline shares. According to the news release, Impress has developed image compression technology that "achieves compression rates approximately four to five times greater" than JPEG. Finline says it will integrate the technology into its MMDS systems.

UW physics professor James Leslie, the president of Impress (and the founder of UW's correspondence program in 1968), is expected to become a director of Finline. Andrew Zador, the architect of Impress' technology, will become Finline's technology VP.

The announcement sent Finline shares into record territory, up as high as $3.01 in intraday trading on Thursday, with volume of 1.2 million shares. It was the second time in the last month when more than a million shares in Finline have changed hands in one trading day.

Acquisition gives DALSA 29% revenue growth in 1999
January 27, 2000

DALSA's revenues climbed 29% to $38.0 million in 1999, with two-thirds of that growth coming from the acquisition of Silicon Mountain Design. The company reports earnings from operations of $5.2 million ($0.08/share) for the year, up 28% from 1998. With acquisition-related charges added in, DALSA lost $464,000.

For the quarter ended December 31 (Q4 99), DALSA had revenue of $12.1 million -- up 53% from the same period last year (before the SMD acquisition). Revenue was up 13% sequentially, with product sales climbing 6% from the previous quarter and revenue from application-specific contracts jumping 46%.

A 17% increase in expenses over the previous quarter left DALSA with earnings from operations that were flat on a quarter-over-quarter basis.

The balance sheet shows $4 million in cash added over the quarter, bringing cash assets to $9.0 million with working capital of $9.1 million.

CEO Savvas Chamberlain says the company is on track to meet its goal of $100 million in revenue in 2002.

The company also announced it has completed its acquisition of Arizona's MedOptics, announced in November.

Control Advancements revenue declines in Q3
January 2000

For the quarter ended November 30 (Q3 00), Control Advancements reports a loss of $184,000 on revenue of $837,000. Revenue was up 9.5% from the same period last year, but down 18% from the previous quarter, with product revenue declining 16% sequentially.

The company raised $310,000 during the quarter through the issuance of shares, giving it net cash holdings of $11,000. Wages and benefits expenses declined 15% from the previous quarter, revealing a drop in staffing levels.

Control Advancements also announced on January 17 that it hopes to raise up to $350,000 through a private placement of units at $0.75 each, which seems to be unfortunate timing since the company shares were trading above $2 by month-end.

And the long-delayed public offering of Ventax Robotics is apparently going ahead, although no time-line has been specified. Control Advancements holds warrants in the company which would give it about a 29% stake in the company. Ventax was originally expected to hold a public offering in 1998.

PixStream wins regional innovation award
February 2, 1999

PixStream was recognized with the innovation award at the Ontario Global Traders Awards for the southwestern Ontario region. The awards are sponsored by the Ontario Ministry of Economic Development, Trade and Tourism.

This is the same award that Waterloo's Northern Digital took home last year. PixStream is now eligible for the provincial award, to be presented in March.

PixStream also received an honourable mention in the market expansion category for product manufacturers.

RDM forecasting growth in scanning & imaging system sales
February 2, 2000

No big news coming out of RDM's annual meeting. Interim CEO Tom Di Giacomo told shareholders he expects the company will have a permanent CEO in place in 2-3 months.

The company hopes to ramp up production of its cheque scanning and imaging system and expand its distribution channels. It also said it has been looking at an ASP model for its eCheck product which is now entering its commercialization phase.

Its co-marketing deal with IBM has "gotten off to a slow start" and both companies have been rethinking their strategies.

RDM's annual report shows that 88% of 1999 revenue was generated by the company's traditional cheque quality segment. Nearly 21% of annual revenues came from a single large order in this segment. The EC5000i point-of-sale system contributed 10% of revenues in its first year on the market.

Miscellaneous tidbits:

• The OSC's insider trading bulletin revealed that the Estill family sold off over 360,000 shares in EMJ when the stock made its Linux-related jump in price in December (see December digest). The story was reported in the National Post.

• Colley Clarke is the new CFO at Descartes. He was previously sr. VP & CFO at BCE Media. Descartes' previous CFO, Ron Duncombe, remains with the company as sr. VP finance & treasurer.

• As expected (see last month's digest), Descartes' share offering grossed $69 million after the underwriters snapped up all 450,000 shares available through their over-allotment option. The offering adds $65.9 million to Descartes' cash position.

• In the digest from a year ago, we had a story about Sanga International's acquisition of Waterloo's iGate Technologies and its plans to build an R&D "center of expertise" in Waterloo which would create up to 150 jobs. Nothing ever came of it, and in December Sanga filed for bankruptcy protection. Meanwhile, iGate's co-founder Gary Bartholomew has moved on to success with Toronto's Basis100.