February 2000

Compiled and written by
Gary Will

Issue 36 -- March 6, 2000
In this digest:

  1. STOCK REPORT: Many new highs set in phenomenal month
  2. Software Metrics acquired by Florida firm
  3. PixStream raises $35 million, selects U.S.-based CEO
  4. RIM signs deals with AOL, Compaq
  5. AMSC partners with IBM to sell service that uses RIM device

  6. Open Text unveils new collaborative e-com division
  7. Descartes acquires Pittsburgh logistics firm E-Transport Inc.
  8. Com Dev to raise $25-36 million through rights offering
  9. CME Telemetrix plans to license technology to Motorola
  10. Waterloo Maple launches Maple 6 while revenues continue to sag

  11. New imaging product helps RDM revenue climb 59%
  12. Virtek chip reader to be used by Robarts Research Institute
  13. Notes from DALSA's annual report, information form
  14. Control Advancements completes licensing deal with Johns Hopkins
  15. Financing deals for Agile Systems and Entrade

  16. Miscellaneous Tidbits from Vital Innovations, MKS, Inscriber, and Compelis


STOCK REPORT: Many new highs set in phenomenal month
Febuary 1999

February produced sensational results almost across the board for local tech stocks. RIM, Descartes, Open Text, Virtek, CME Telemetrix, and Finline all hit all-time highs. Com Dev rose to its highest monthly close since its shares plummeted 62% in June 1998. Control Advancements shares reached their highest levels since 1997:

Finline +292%
Virtek +156%
COM DEV +135%
Open Text +129%
RIM +112%
Treasury International +100%
Gensel Biotech +97%
RDM +84%
Descartes +74%
CME Telemetrix +69%
Control Advancements +37%
MKS +19%

Over the last year, RIM shares have increased in value by 1,407%, making the company worth more than $15 billion on the stock market -- about the same as CIBC and more than Scotiabank, according to globeinvestor.com.

But RIM isn't the only stock market success among local high-tech firms. In fact, Waterloo now boasts two of the top four software companies in Canada ranked by market cap (although the rankings can vary depending on who you include as software companies). Ottawa's Cognos tops the list at more than $4 billion, followed by the newly-public sensation 724 Solutions of Toronto. In third spot is Descartes with a market cap approaching $3 billion, while Open Text takes the fourth spot with a market cap somewhere above $1.6 billion (Geac and Pivotal are just below that level).

In an item that was big news across Canada, Michael Barnstijn -- RIM's former VP of software and one of the company's first employees (joining Mike Lazaridis and Don Fregin in 1985) -- and Louise MacCallum, a fellow ex-RIMer, donated an amazing $13 million worth of their RIM shares to local charities this month.

Following RIM's IPO in 1997, Barnstijn owned more than 3 million shares -- about 5% of the company. Along with overseeing software development, Barnstijn sat on RIM's board of directors. MacCallum was also a software developer at the company. The couple left RIM in 1998.

The only declining stocks in February were DALSA -- off 13% and falling to its lowest monthly close since May -- and GUARD, which dropped 36% as the company has still made no announcements of new financing. Without that infusion of cash, GUARD's balance sheet should be rather gaunt by now. GUARD has still not registered domain names for either of the two new subsidiary companies it formed last summer -- although both domains remain available in .com form.


Software Metrics acquired by Florida firm
February 14, 2000

Waterloo's Software Metrics has been acquired by Equitrac Corp. of Coral Gables, Florida. Terms were not disclosed.

Equitrac is a former Nasdaq-listed company that went private after a management buyout a year ago. It had revenues of US$55.7 million in fiscal 1999 and was valued at around US$100 million at the time of the buyout.

Software Metrics, founded in 1992, had been working with Equitrac for the last two years under a technology licensing agreement.


PixStream raises $35 million, selects U.S.-based CEO
February 15 & 28, 2000

PixStream has raised another $35 million through special warrant offerings priced at $8.00 per warrant. Sprott Securities and CIBC World Markets were the lead agents for the offering. Investors were not identified.

It's PixStream's third round of financing over the last 12 months, after raising $7 million last March and $12.5 million in November.

The company told The Record that it expects to go public by the fall and is planning on moving to a larger facility in Waterloo. PixStream's revenues for the year ended November 30 were $7.3 million.

Two of PixStream's earliest investors -- Terry Matthews and Newbridge Networks (rumoured to have collectively taken a 30% position in the company in 1997, with Matthews' stake held by his VC firm, Celtic House International) -- were in the news in February. Newbridge has been making arrangements to dispose of some of its investments in "affiliate" companies before it is acquired by Alcatel. No announcement has been made about what Newbridge intends to do with its PixStream holdings.

Another PixStream investor -- the VenGrowth Fund -- used the latest round of financing at $8.00 per share to boast about the success of its investment in PixStream last March at $1.50 per share.

Later in the month, PixStream announced that its new CEO is Ralph Calistri, previously VP & GM, North America, of Nortel's Cogent Global Services.

Calistri will not be coming to Waterloo, but will instead be based in PixStream's new office in Parsippany, New Jersey. He succeeds PixStream co-founder Steven Bacso, who resigned a year ago. CFO Tim Jackson had been acting CEO in the interim.

PixStream also announced that its products have been selected by QuebecTel for a technical trial that will see QuebecTel offer multimedia services like "cable" TV and video-on-demand. QuebecTel has annual revenues of about $350 million.


RIM signs deals with AOL, Compaq
February 28, 2000

The anticipated agreement between RIM and AOL was announced at the end of the month. AOL will use a customized, private-label version of RIM's handheld device as part of its AOL Mobile Messenger service. The service will provide AOL users with wireless access to e-mail and instant messenger services.

Pricing details were not announced and AOL isn't expected to start selling the service until the summer.

At the same time AOL made this announcement, it also said it was entering into similar agreements with RIM competitors Motorola and Nokia, with the latter using WAP technology. AOL, Motorola, and Nokia also all announced that they were taking equity stakes in another RIM competitor, Palm Inc., which is 95% owned by 3Com.

In another significant announcement, RIM's BlackBerry service will be sold by Compaq -- one of the largest resellers of Microsoft Exchange (for which BlackBerry is designed). Compaq is said to have an Exchange installed base of more than 6 million users. Compaq is expected to begin selling the BlackBerry service this spring -- which is also when RIM's new device is scheduled to be released.


AMSC partners with IBM to sell service that uses RIM device
February 29, 2000

Another deal that should have a significant impact on RIM is American Mobile Satellite Corp.'s announcement that it has entered into a joint marketing agreement with IBM for AMSC's eLink service. eLink is the ARDIS-based service that uses RIM's Interactive Pager 850.

The initiative will target enterprise-wide installations, as well as sales to ISPs, ASPs and mail service providers (MSPs).

RIM had said at its most recent AGM that it had no interest in developing a version of BlackBerry for use with Lotus Notes -- a user base that will be the prime target for the AMSC-IBM partnership. Lotus Notes has an installed base of over 25 million seats.

Other announcements from RIM in February:


Open Text unveils new collaborative e-com division
February 24, 2000

Open Text has pulled the wrappers off the multi-industry collaborative marketplace portal it had been talking about for several months. Called b2bScene.com, the initiative will operate as an independent division of the company, with Kirk Roberts as president. Roberts had been Sr. VP of customer services and IT for Open Text.

The Web service is designed to provide all the information and collaboration required to complete online business transactions in a wide range of industries and segments.

b2bScene.com will offer users access to hosted e-biz applications, including applications for collaboration and content management, aggregated business content in a service based on Open Text's BusinessWeb (www.businesswebsource.com), subscription-based hosting for intranets, extranets, and virtual projects, and online transactions.

Along with Roberts, Open Text has transferred two other senior managers to b2bScene.com, with Dan Latendre taking the VP marketing position and Doug Arthur becoming VP sales. The division will begin with a core staff of about 25 employees and will initially add about $1 million in expenses per quarter to Open Text's income statements.

The company also announced that the myLivelink personalization component for its Livelink suite will begin shipping in March. myLivelink is designed to be the interface to both Livelink and b2bScene.com

Earlier in the month, Open Text announced that Stanley Stern, managing director of STI Ventures Advisors and formerly head of technology banking with CIBC Oppenheimer, has joined its board of directors.


Descartes acquires Pittsburgh logistics firm E-Transport Inc.
February 24, 2000

Descartes has signed a definitive agreement to acquire Pittsburgh's E-Transport Inc. in an all-stock deal. E-Transport shareholders will receive Descartes stock that was valued at US$80 million (C$116 million) at the time of the agreement. Exactly how many shares that will be was not disclosed.

E-Transport is a logistics company with 180 employees, primary focused on ocean carriers. It was founded in 1987 and known as DXI Inc. until a year ago. According to the Journal of Commerce, the company built its reputation by developing the Federal Maritime Commission's automated tariff-filing system.

An article by Maria Guzzo in the Pittsburgh Business Times one year ago said the company was considering going public in 2000. "[CEO Robert] Ryan said merging or selling the company is not an option," she wrote. According to that article, the company had sales in 1998 of US$16 million. Another article in October 1999 said E-Transport's annual revenues had grown by an average of nearly 20% per year over the last three years.

Descartes is announcing its latest financial results this week.


Com Dev to raise $25-36 million through rights offering
February 8, 2000

Com Dev announced this month that it will follow through on the rights offering it originally announced in September and then quickly retracted.

Each Com Dev shareholder received one right for each share held. Rights holders are entitled to buy one Com Dev common share for $4.60 for every four rights held. If every shareholder exercised all of their rights, Com Dev would net $36.6 million from the offering.

Technology Horizons, the Com Dev spin-off that is one-third owned by Com Dev chairman Val O'Donovan and 10% owned by Com Dev CEO Keith Ainsworth, has agreed to pay up to $25 million for shares not taken through the offering, creating a floor of $25 million on the amount that Com Dev will gross.

The rights themselves are listed on the TSE under the ticker CDV.RT until Friday, when they expire.

Proceeds will be used to repay up to $12 million in bank indebtedness, with the balance going toward general working capital.

Com Dev shares closed at $10.50 last Friday. The company is expected to release its latest financial results this week.

An unrelated note: I just noticed that Peter Scovell, the president of Com Dev's wireless group, is a director of Ottawa-based fibre optics company Nu-Wave Photonics Inc.


CME Telemetrix plans to license technology to Motorola
February 23, 2000

CME Telemetrix has signed a non-binding letter of intent that would see Motorola receive a worldwide (excluding Japan) exclusive license for CME's non-invasive medical devices.

CME would receive a 10% royalty from the net selling price of the devices, once they are commercialized. Motorola would also make a $2.9 million investment in CME at $7/share, giving it a 6% interest in the company.

Motorola would also have the option to invest a further $2.2 million through a private placement and pay CME an advance on royalties of $5.8 million in return for a reduction in royalty payments to 7% from 10%.

CME says it hopes to find a partner for the Japanese market by the end of the year.

The $2.9 million will certainly be a welcome addition to CME's balance sheet, especially if Neurosoft succeeds in getting out of making further payments for its acquisition of CME's Advantage Medical division (see last month's Digest).

CME shares took off after this announcement, and have now climbed 150% in 2000.


Waterloo Maple launches Maple 6 while revenues continue to sag
February 20, 2000

For the quarter ended December 31 (Q3 00), Maple reports a loss of $649,000 ($0.14/share) on revenue of $2.2 million. Revenues declined 18% from the same period last year. With one quarter to go in fiscal 2000, it looks like the company's annual revenues will be around $10 million.

Gross margins fell from 95% last year to 81%, while R&D expenses jumped 59% to $1.1 million, creating a loss from operations of $777,000 versus income of $418,000 last year. The company says its investments in "initiatives with exciting potential" account for the increased R&D expenses.

Despite the losses, Maple had positive cash flow during the quarter, with $631,000 provided by operations. The balance sheet at the end of the quarter shows $3.1 million in cash. Working capital was negligible, but the company does have $2.8 million in deferred revenue on the books.

On February 23, the company began shipping Maple 6 -- the latest version of its flagship product, which should help boost Maple's revenues in fiscal 2001.

Maple also announced that it has completed an small equity offering that raised $2.5 million. Investors were not disclosed but were said to include "a prominent group of private and corporate investors and senior Waterloo Maple employees."


New imaging product helps RDM revenue climb 59%
February 7, 2000

For the quarter ended December 31 (Q1 00), RDM reports a net loss of $274,000 ($0.02/share) on revenue of $1.2 million. Revenue was up 59% from the same period last year, as the new RC5000 digital cheque conversion and imaging system brought the company's point-of-sale revenues to $425,000 or 35% of overall sales.

Sales of RDM's traditional cheque quality systems grew by 9% from last year and contributed 65% of revenues.

The new product mix saw gross margins fall to 63% from 83% a year ago, but the bottom line was helped by significant reductions in sales and marketing (-13%) and R&D (-25%) expenses.

The balance sheet shows working capital of $1.4 million and $759,000 in cash. Operations consumed $376,000 in cash during the quarter.

RDM shares climbed 84% February, closing the month at $2.67. They briefly topped $4 for the first time ever on March 2.

The company also announced this month that it has entered into an agreement with Canaccord Capital to raise up to $632,000 through the sale of warrants priced at $1.45. The warrants consist of a common share and the option to purchase another common share for $1.65 over the next two years. A private placement through Canaccord in January priced at $1.30 per warrant raised $299,910.


Virtek chip reader to be used by Robarts Research Institute
February 15, 2000

Researchers at the John P. Robarts Research Institute in London, Ontario will use Virtek's ChipReader DNA chip scanner in projects to identify the genetic factors of various human diseases and disorders.

Virtek announced what it called a "collaborative research partnership" with the institute, which is affiliated with the University of Western Ontario and the London Health Sciences Centre. "Scientists at Robarts will form a centre of excellence for microchip technology and provide Virtek with user-based input for future developments," the company said in a release.

Virtek shares have jumped in value by 266% over the last four months.


Notes from DALSA's annual report, information form
February 21, 2000

DALSA's annual report confirms that 69% of the increase in the company's 1999 revenues came from its acquisition of Silicon Mountain Design. But when you look only at standard product sales, the increase in revenues was much more balanced between internal growth and growth by acquisition.

DALSA's product sales grew by 16% ($3.8 million) in 1999, while SMD contributed another $3.6 million over the six months it was part of the company. DALSA's revenues from application-specific contracts (ASC) fell by about 18% ($1.1 million) in 1999, but that shortfall was more than made up for by SMD's $2.3 million in ASC revenue.

The annual report also shows that DALSA paid US$8.3 million (C$12.1 million)in cash for SMD, with an additional US$3.5 million plus interest (LIBOR +3%) to be paid in three equal annual installments beginning on June 30, 2000.

A further US$2.5 million may be payable if SMD achieves certain revenue levels over the next three years. DALSA reports that SMD's revenues in the last two quarters of 1999 grew by 30% over 1998.

DALSA's information circular shows that the company's four highest-paid officers (excluding SMD president David Gardner) received an average pay hike of 35% in 1999, with CEO Savvas Chamberlain receiving salary and bonus of $342,000. Gardner received about $160,000 for the six months he was with DALSA in 1999. The company's next highest-paid officer was paid just less than $200,000 for the full year. Chamberlain is listed as holding 1.2 million shares in DALSA (which has 5.5 million shares outstanding) with 1.3 million shares owned by a company he controls.


Control Advancements completes licensing deal with Johns Hopkins
February 8, 2000

This may be our final report on Control Advancements -- it has essentially become Betacom and is based in Inglewood (between Brampton and Orangeville) with Betacom founder Brian McCarthy as CEO. Graham Strong, UW optometry professor and director of the university's Centre for Sight Enhancement, is listed as Betacom's VP of R&D.

A development office will apparently remain in K-W, although the company has not said whether it will continue to operate as Alliance Technologies. A recent research report from a Montreal's CTI Capital says that the "engineering resources at Alliance have been incorporated into the Betacom family and the low-volume manufacturing facility dissolved."

This month, Control Advancements announced that it entered into an exclusive worldwide licensing agreement for the LVES technology developed at Johns' Hopkins University's Lions Vision Research and Rehabilitation Center (see September Digest for initial announcement).

The closing of that deal should trigger the release of an additional 900,000 Control Advancements shares to McCarthy and the other former Betacom minority shareholders. There are now 17.4 million outstanding shares of Control Advancements. The company's stock has increased in value by 132% this year.


Financing deals for Agile Systems and Entrade
February 2000

Along with the money raised PixStream, Com Dev, Maple, and RDM, three other area tech companies either have closed or are expected to close financing deals:


Miscellaneous Tidbits