June 2000

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 40 -- July 5, 2000
In this digest:

1. STOCK REPORT: Schwab investment boosts RDM shares to new high
2. RIM enters "new stage" with higher spending, short-term losses
3. RIM moves into Europe with BT Cellnet agreement
4. Virtek share offering nets $18.8 million
5. Descartes raises US$75 million in debenture offering

6. myCIO.com joins list of U.S. companies with Waterloo office
7. MKS annual revenues hit US$40 million
8. CME says FDA application is still two years away
9. Miscellaneous Tidbits from Focus Automation, PixStream, Navtech, Mapcheck, Treasury International, InStoreForACure.com, Finline, Dalsa

STOCK REPORT: Schwab investment boosts RDM shares to new high
June 2000

News that Charles Schwab made a US$3 million investment in RDM's Xign subsidiary lifted RDM shares to record levels in June. Schwab, founder of the brokerage that bears his name, personally acquired 2.8 million preferred shares in Xign at US$1.06/share.

According to the release, this gives Schwab about 16% of the company, while RDM holds a 76% stake (but RDM says in a securities commission filing that it controls 17 million Xign shares, so the numbers don't quite add up, since RDM's stake should be six times Schwab's). The investment puts the valuation of Xign at approximately CDN$27 million. Schwab joins Xign's board of directors and Xign has pledged to "use its best efforts" to hire a CEO by the end of the year. Schwab must approve the selection.

RDM says that ownership of all of its intellectual property relating to e-check technology has been transferred to Xign. Development will continue to be performed in Waterloo, where RDM says that six of its 35 employees are focused on e-check development. Xign, which was incorporated in 1998, will be based in California and is currently seeking additional investors.

RDM shares jumped 79% in June and climbed 317% over the first half of 2000. New CEO Michael Carr appeared on ROBTv Monday afternoon and said the company is looking to make acquisitions in the e-payment space and, like most high-tech companies, hopes to have a Nasdaq listing at some point in the future.

How the shares fared in June:

RDM [CDNX: RC] +79%
RIM [TSE: RIM] +38%
MKS [TSE: MKX] +35%
Open Text [TSE: OTC] +13%
Virtek [TSE: VRK] +11%
DALSA [TSE: DSA] +8%
Descartes [TSE: DSG] +6%
Finline [CDNX: FIN] +2%
COM DEV [TSE: CDV] +2%
Gensel Biotech [CDNX: GSB] -5%
CME Telemetrix [CDN: CMET] -26%
GUARD [CDNX: GUA] -36%

Despite a brutal Spring on the stock market, several Waterloo tech companies achieved impressive gains over the first half of the year. Finline, which has tailed off significantly from its highs in February, is still up 356% this year. It is followed by RDM (+317%), CME Telemetrix (+104%), and Virtek (+90%). The shares of Com Dev (+39%), Descartes (+39%), and Open Text (+23%) have also made solid gains over the first half of the year.

And despite the volatility in RIM shares, which have ranged from $35 to $260 in the last six months, they closed the first half of the year exactly where they started -- at $66.70.

RIM enters "new stage" with higher spending, short-term losses
June 29, 2000

RIM co-CEO Jim Balsillie told analysts that "the time to invest heavily is now," signaling the company's shift into a new operational mode where it will make heavy short-term investments to stake its claim to a quickly expanding market opportunity.

The company now forecasts that it will operate at a loss in the current fiscal year, but return to profitability next year. Balsillie said RIM has hit an "inflection point" in the market where it has gone beyond early adopters to the mainstream market. Balsillie said that RIM is now established as the market leader. "I pinch myself," he said, when looking at the expanding distance between RIM and competing products.

For the quarter ended May 31 (Q1 01), RIM reports revenue of US$27.1 million, up 67% from last year and 5% from the previous quarter. It was the first quarter to include sales of RIM's PDA-sized 957 product, and Balsillie described the product's launch as a "major success" with shipment of "several thousand" units in its first month.

Selling, marketing, and administration expenses more than doubled from the previous quarter to US$10.4 million as the company spent heavily on a brand awareness marketing campaign. R&D spending increased 21% sequentially, and the combined 72% jump in expenses created a loss from operations of US$2.3 million, down significantly from a positive income of US$1.9 million in Q4. The losses were offset by investment income of US$2.9 million, creating net income in the quarter of US$388,000 (US$0.00/share).

BlackBerry sales jumped 27% sequentially to US$13.5 million and accounted for about half of all revenues, up from 41% in the previous quarter. At the end of the quarter there were 45,000 BlackBerry subscribers and 4,000 companies using the service. There are about 60 companies using more than 100 units.

Sales of handheld devices fell 29% from Q4 to US$6.8 million, while sales of OEM radios also dropped, by 33% to US$3.8 million or 14% of revenues. The remaining revenue came from software sales, primarily to Aether Systems.

On the balance sheet, RIM has US$198.8 million in cash and marketable securities and working capital of US$259.6 million. There was another big jump in capital assets, with US$10 million added over the quarter, reflecting, in part, RIM's additional real estate acquisitions.

RIM also disclosed in the conference call that it has invested a combined US$7 million in AvantGo (mentioned in the April digest), Dejima, and Outercurve Technologies.

The company's R&D group has grown to 235 people and is expected to be up to 335 by year-end. The sales and marketing team is going to grow at a faster pace, to 300 by the end of the year from the current level of 160. RIM has opened sales offices across the U.S. after finding that it was "too difficult to run direct sales out of Waterloo," according to CFO Dennis Kavelman.

RIM has brought its customer support call centre in-house after finding that the staff of the outsourced service didn't understand the complexities of the BlackBerry service.

The company just hired a new CIO, Valdis Martinsons, who will be upgrading the IT infrastructure and implementing a new ERP system. Martinsons was previously director of IT at ATI.

RIM moves into Europe with BT Cellnet agreement
June 27, 2000

RIM's much-anticipated entry into the European market moved forward in June with the announcement of a deal to offer BlackBerry to corporate customers of BT Cellnet in the UK. BT Cellnet is part of what used to be known as British Telecom, Britain's largest phone company.

The service will operate over BT Cellnet's new packet-based GPRS network which is promising data rates up to 10 times as fast as PCS networks.

RIM is opening a 50-person office in London to support its European activities. Customer trials for the BlackBerry service in the UK are expected to begin later this year.

Virtek share offering nets $18.8 million
June 22, 2000

Virtek has closed the share offering it announced in April, raising gross proceeds of $20.1 million through the sale of shares priced at $3.50 each. That amount includes the underwriters' over-allotment options, which were fully exercised. After the underwriters' fee, Virtek received $18.8 million. Expenses related to the offering are expected to be around $450,000.

With the offering, company founder Andrew Wong's stake in Virtek dropped below the 10% threshold to 9%.

New to Virtek's board of directors is Hugh Sloan, best known in these parts as the president of Budd Canada in the early 1980s, as well as a director of Manulife (and Dominion Life before that) and past director of Schneider. Outside this area, Sloan is remembered as a major figure in the Watergate scandal that brought down U.S. president Richard Nixon. Sloan had been a Nixon supporter and treasurer of the Committee for the Re-election of the President, but resigned when he learned that Committee money was being used to fund clandestine operations. Sloan became one of the key sources for reporters uncovering the Watergate story (and was portrayed by Stephen Collins in the movie All the President's Men). He lived in the K-W area from 1979 to 1985.

Descartes raises US$75 million in convertible debenture offering
June 15, 2000

Descartes will raise US$75 million through the sale of convertible debentures through Griffiths McBurney & Partners.

The debentures are due in five years but will likely all be converted into common shares, which the holder can do at any time at a price of US$35 per share. Descartes shares are currently trading just under US$30 on Nasdaq.

myCIO.com joins list of U.S. companies with Waterloo office
June 28, 2000

myCIO.com announced its new office in Waterloo by suggesting that it was the first Silicon Valley company to open a development office in Waterloo. This might have come as a surprise to Ian Telford and the Waterloo team at CacheFlow, whose head office is in Sunnyvale, California, and the developers at Quack.com's Waterloo office. Quack.com is also headquartered in Sunnyvale. And, although it deserves an asterisk, Sybase of Emeryville, California just created a Waterloo-based subsidiary called iAnywhere Solutions.

Other U.S.-based companies that have opened Waterloo development offices over the last couple years include Entrade, based near Chicago, which does all its development in Waterloo, as does Michigan-based BlueGill, which is now CheckFree i-Solutions. New York's YOUpowered, a developer of permission-based personalization software that was recently named one of Upside magazine's Hot 100 companies of the year, has also opened a Waterloo development office, according to a company spokesperson. And then there's NCR and Raytheon, which have had large sites in Waterloo for years.

myCIO.com says it has 10 developers in place in Waterloo and plans to have 20-40 within a year. The office is led by Mark McArdle, a Stratford native and UW grad who moved to California and became myCIO.com's VP of security development.

Entrade (which I'll be profiling in the Record's Technology Spotlight this fall) has a similar story with the company's CTO, Marc Gingras, supervising a Waterloo development office with a 23-person staff that is expected to grow to 50 by the end of the year. Gingras originally came to Waterloo to do his graduate studies at UW. Entrade just moved into spacious new offices at 72 Victoria Street in Kitchener.

MKS annual revenues hit US$40 million
June 7, 2000

For the quarter ended April 30 (Q4 00), MKS reported revenues of US$12.0 million -- up 66% from a terrible Q4 a year ago and 11.5% from the previous quarter.

By keeping the reigns on operational expenses -- up only 2% from Q3 -- the company reported a strong bottom line with net income of US$1.2 million, or US$1.6 million (US$0.09/share) excluding acquisition-related amortization charges. On an EBITDA basis, It was the most profitable quarter in company history.

In particular, sales & marketing expenses were kept in check over the quarter and were down to 44% of sales -- its lowest level in years. The company says that sales & marketing spending should rise back up to 50-52% of sales in future quarters. COO Mike Hubbert said in the conference call that while total head count in MKS' sales organization may be down, MKS has been "maturing" its salesforce, hiring salespeople with an average of eight years' experience and sales managers with an average of 10 years' management experience.

For the year, MKS revenues grew 20% to US$40.3 million. Excluding acquisition-related charges, net income was US$2.6 million (US$0.15/share), up from a net loss of US$510,000 in 1999.

The balance sheet at year-end shows US$8.2 million in cash and working capital of US$5.8 million.

There was no significant news on the status of the search for a new CFO. Former CFO Eric Palmer left MKS in March to become CFO of Richmond Hill's Syndesis Ltd. (whose board includes Richard Black, a director of Open Text and Waterloo Ventures).

CME says FDA application is still two years away
June 29, 2000

At its AGM, CME Telemetrix laid out a timeline for the development of its non-invasive glucose monitoring device. By the end of this year, the company expects to have achieved "an acceptable level of accuracy" which will lead into a single-site trial early next year, to be followed by a comprehensive trial at up to 25 sites.

By the fall of 2002, CME intends to file an application with the FDA for approval of the device in the U.S.

The company has also signed a 10-year, royalty-bearing, exclusive license and distribution agreement with ESE Inc. of Wisconsin for CME's food analyzer product.

Miscellaneous Tidbits

• Focus Automation received $2 million in mezzanine financing in May from the Advanced Manufacturing Technology Venture Fund of Royal Bank Ventures.

• PixStream has hired Charles Lenis to be its VP of world wide sales. Lenis was previously a VP at PakNetX Corp. of New Hampshire, which was acquired by eCRM developer Aspect Communications in February. PakNetX specialized in multimedia over IP applications. Lenis will head up the direct salesforce and be based "near Boston." He is the second senior manager hired by PixStream this year to be based in the U.S. -- new CEO Ralph Calistri is based in the company's New Jersey office.

• Prashant Gupta, CTO of CrossWorlds Software has been nominated to join Navtech's board of directors at the company's AGM later this month. Also nominated is Tom Beynon, partner in Kitchener law firm McCarter Grespan Robson Beynon & Thomson and a director of Virtek. Dorothy English, who is still listed as the company's largest shareholder and was co-founder of the original Navtech, is stepping down from the board. For the quarter ended April 30 (Q2 00), Navtech reports net income of US$119,000 on sales of US$1.7 million. Sales were up 13% from the same period last year, but down 19% from the previous quarter. Working capital deficiency was cut over the quarter to US$657,000 while operations consumed US$162,000 in cash.

• Several tech firms in the area were recognized as one of "Canada's Top 100 Employers" in a book by that name from Richard Yerema, the editor of the annual Career Directory. I'd make a bigger deal of this except for the fact that the only local non-tech company that made the list was the City of Waterloo, where my wife worked from 1993 to 1998. From first-hand experience I can say unequivocally that its recognition as a top employer is farcical and destroys whatever credibility the book may have had with me.

• Mapcheck says that a Waterloo company called P2C2 Inc. will operate a "community portal" for Waterloo Region using Mapcheck's technology.

• Treasury International, parent of Waterloo's Compelis, reported a net loss of US$222,000 (US$0.00/share) on sales of just US$57,000 for the quarter ended April 30. The company has working capital of US$335,000, and says it expects to generate sufficient cash flow from operations to meet operating requirements for the next year. At quarter-end, the company says its order backlog stood at US$457,000.

• InStoreForACure.com, a Waterloo-based company founded by Betty McCormick, announced that it will raise money for cancer research through its online "shopping mall" (which looks like the company has joined the associate programs of various e-tailers).

• Finline says that it has signed an agreement with Toronto-based Liborbank Financial Group that will see Liborbank CEO Leslie Thomas become the director of strategic business development for a new offshore subsidiary called Finline International Inc. Finline's "Millennium Transceiver," which it said in January would be out in the first half of the year, has yet to be released. The company apparently cancelled its appearance at the New Orleans wireless trade show mentioned in last month's digest.

• Dalsa says it has received a $2 million order for its Piranha cameras from an unnamed "European leader in printed circuit board instruments."