July 2000

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 41 -- August 8, 2000
In this digest:

1. Spicer unveils PrinterOn; announces $27.5 million financing
2. PrinterOn nabs ex-Waterloo Maple CEO as exec VP
3. MKS e-biz segment becomes Vertical Sky
4. MKS COO Mike Hubbert leaves the company
5. INM looks at merger with BCB Voice Systems

6. Virtek acquires biotech products from U of Toronto spin-off
7. STOCK REPORT: Com Dev quietly has a strong month; RDM drops
8. RDM reports flat revenues, growing losses in Q3
9. DALSA Q2 sales jump 68%
10. Finline plans Cuban wireless network

11. Miscellaneous tidbits from ATS Automation Tooling Systems, Macrosonic Innovations, Nexsys Commtech, Endgame Systems, RIM, iAnywhere Solutions, CME Telemetrix, LiquiMedia

Spicer unveils PrinterOn; announces $27.5 million financing
July 17, 2000

Kitchener's Spicer Corporation has spun off and been swallowed by PrinterOn Corporation, a new business that was formally launched this month. PrinterOn raised $27.5 million from unnamed investors in May through a private placement of 8.87 million shares (about $3.10/share) led by Griffiths McBurney and CIBC World Markets.

Spicer Corporation has become a wholly-owned subsidiary of PrinterOn, with Steve Spicer becoming president and CEO of the new company. Spicer founded Spicer Corp. in 1983, initially under the name Spicer Computer Developments.

PrinterOn, which calls itself "the Internet printing company," is developing software that uses the Internet printing protocol (IPP), a standard developed over the last few years that enables documents to be sent to any printer connected to the Internet. PrinterOn's service will be marketed as a replacement for low-resolution, black-and-white-only faxes, e-mailed source documents, and courier delivery.

PrinterOn isn't unique in developing IPP software -- several companies, including IBM, have IPP products -- but it hopes its offering will simplify the process of printing over the Internet, while providing a suite of additional services for users, such as reports and controls. And it plans to build what it calls the Global Printing Directory -- a registry of printers around the world hooked up to the Internet and available to accept documents through the PrinterOn software.

The company is emphasizing the potential use of the service through wireless devices, where a mobile worker could, for one example, have a document -- including e-mail attachments -- sent to whatever printer is nearby.

The service is scheduled to be launched in the fall with a universal printer driver called PrintWhere to be available for download soon. PrinterOn has not yet said if it's revenues will be subscription-based, pay-for-use, or some other alternative.

PrinterOn nabs ex-Waterloo Maple CEO as exec VP
August 1, 2000

Ian Suttie, CEO of Waterloo Maple since February 1999, has joined PrinterOn as the company's executive VP.

Before joining Maple, Suttie had been president of SST, and this move reunites him with Rick Brock, the former owner of SST (and now a major shareholder of SST's parent company). Brock is one of the directors of PrinterOn.

MKS e-biz segment becomes Vertical Sky
July 6, 2000

Coming up on its third anniversary as a public company, MKS has never been able to capture the imagination of the investment community. Its stock closed July at $5.55 -- 26% below its IPO price of $7.50. Despite operating at a profit, with revenues growing at a respectable if unimpressive 20% last year, there have only been two months in the last two years where MKS' shares traded consistently above their initial offering price.

Among the six tech companies in this area that went public and began listing on either the TSE or Nasdaq between January 1996 and January 1998, MKS has so far been the dud of the group. At month-end, it was the only one trading below its initial price. Com Dev is the second worst performer, $8.50 at the July 31 close -- up 3% from its IPO price of $8.25 in December 1996. At the other end of the scale, the clear winners have been RIM (+1,010%) and Descartes (+570%), while Dalsa (+49%) and Open Text (+28%) take the middle spots on the list.

To try to pump some life into its stock and image, MKS has decided to follow in the footsteps of Descartes and others and isolate what it considers to be the most attractive part of its business. It has jettisoned the MKS label for its "code and content management" business segment and brought it under the banner of a new wholly-owned subsidiary called Vertical Sky Inc. The interoperability business unit will continue under the MKS name.

The MKS Integrity Framework product has re-emerged as the Vertical Sky Solution, although Vertical Sky is emphasizing consulting expertise in what it calls "rapid evolution management" rather than the software as a stand-alone product. Bill Blitek, MKS' consulting VP, has become the senior VP of operations for Vertical Sky. MKS chairman and CEO Randall Howard is Vertical Sky's president and CEO.

Vertical Sky is nominally based in Chicago -- MKS has been calling Chicago its U.S. headquarters for nearly two years -- but its key operations, including development, continue to be in Waterloo.

The new subsidiary may end up being spun off entirely -- in an interview with TWST.com/The Wall Street Transcript, Howard said he hopes Vertical Sky will have revenues in excess of US$250 million within three years and plans to have it listed on Nasdaq. MKS has been talking about a Nasdaq listing for more than two years. Howard said that on the TSE "there is not necessarily as high a degree of understanding or specialization in companies such as ours." With the restructuring and new name there can't be many more excuses if the stock continues its flaccid performance.

MKS COO Mike Hubbert leaves the company
July 6, 2000

Mike Hubbert, president and COO of MKS for the last two years, is leaving the company at the end of this month for the ever-popular pursuit of "other opportunities."

The release says Hubbert will serve in an advisory role for "subsequent months" which was funny to me because someone just pointed out a few weeks ago how MKS likes to say that departing senior managers will continue in a consulting role. (This was most recently said about Eric Palmer, who became CFO of Syndesis immediately upon leaving MKS.)

INM looks at merger with BCB Voice Systems
July 2000

Waterloo's International Neural Machines (INM) is looking at the possibility of merging with BCB Voice Systems, the company which recently acquired a stake in INM from Working Ventures Canadian Fund (see April digest). According to BCB, the merger would be conditional upon INM raising "significant equity financing" before September 1.

BCB, which plans to change its name to VoiceIQ next month, currently holds a 36.5% stake in INM, although it has agreed to sell 9% back to INM founder and CEO Oleg Feldgajer for $1 once INM has repaid a $625,000 debenture held by BCB. Feldgajer currently owns 46.5% of the company. The only other shareholder is Aleksander Szlam, the founder and CEO of Atlanta's eShare Technologies, who holds 17%.

Feldgajer's option to purchase the shares is conditional on INM holding an IPO before March 20 of next year with minimum proceeds of $10 million and minimum pre-money valuation of $25 million, but an IPO won't proceed if a merger is negotiated. BCB is publicly traded on the Canadian Venture Exchange under the ticker BIV. Its shares jumped in value by about 90% in July.

BCB is paying INM $1 million over 10 months to build an "intelligent voice" platform.

For the year ended April 30, INM lost $575,000 on revenues of $739,000. Revenues were down 22% from 1999 when the company lost $71,000 on revenues of $942,000. Contract revenues accounted for 84% of sales in fiscal 2000, with licensing contributing 14% and product sales making up the remaining 2%. Accumulated deficit stands at $1.6 million. INM was incorporated in 1990.

INM's board of directors currently consists of Feldgajer, COO Gideon Vardi, two representatives from BCB, and Ernie Davidson, the Waterloo IRAP advisor.

BCB has announced that it intends to battle incumbents Nuance and Speechworks in the voice-control software market. It's not a very big market space at the moment, but one of the other companies working within it -- Quack.com -- has its research office just downstairs from INM. Quack will be profiled in the Record's Tech Spotlight in October.

Virtek acquires biotech products from U of Toronto spin-off
July 26, 2000

Virtek has acquired the biotechnology business of Engineering Services Inc. (ESI), a spin-off from the University of Toronto founded by Andrew Goldenberg, director of UofT's Robotics and Automation Laboratory.

Virtek paid ESI $4.5 million in cash and 1.12 million shares, with a market value of $4.8 million at month-end. In return, the company received ESI's DNA micro-arrayer business plus four products under development. These four products will developed by a new wholly-owned subsidiary called Virtek Engineering Services Inc., to be headed by Goldenberg.

Goldenberg and ESI will also split a 4% royalty on all sales of the acquired products over the next five years. Virtek says the arrayer currently has an order backlog of $1.5 million.

Virtek and ESI have also entered into a consulting agreement under which ESI will make available to Virtek Engineering Services the services of some of its employees. Options to purchase 45,000 Virtek shares have been granted to ESI employees.

"The arrayer perfectly complements our ChipReader DNA reader and brings us closer to providing the complete solution that researchers need to acquire and evaluate important data from raw DNA," said Virtek CEO Jim Crocker in a release. In an article that appeared in the National Post, Crocker said Virtek is now looking to acquire a biotech software company.

STOCK REPORT: Com Dev quietly has a strong month; RDM drops
July 2000

Com Dev didn't make any major announcements during the month -- one unnamed customer added $50 million in orders over the remainder of this year and next -- but its shares had their third-best month of the last year, jumping 30% to $8.50. It was their best monthly close since March. Following two poor years, Com Dev shares are now up 81% this year.

COM DEV [TSE: CDV] +30%
GUARD [CDNX: GUA] +29%
Finline [CDNX: FIN] +24%
RIM [TSE: RIM] +21%
Descartes [TSE: DSG] +7%
Virtek [TSE: VRK] +6%
MKS [TSE: MKX] -7.5%
CME Telemetrix [CDN: CMET] -10%
DALSA [TSE: DSA] -10%
Open Text [TSE: OTC] -10%
Gensel Biotech [CDNX: GSB] -12%
RDM [CDNX: RC] -26%

At the bottom of the list for July was RDM, giving back most of the gains that came following the Charles Schwab announcement in June (see previous digest). Even with the decline, RDM shares have still tripled in value so far in 2000.

RIM shares had another strong month, closing at $80.50, and have now climbed 67% in the last two months and 21% this year. They remain well below the heady days of February, when the stock hit an all-time high of $260. RIM's fiscal year-end is February 29, so the management information circular for this week's AGM shows that the options granted to co-CEOs Mike Lazaridis and Jim Balsillie during fiscal 2000 were in the money by $19 million (each) at year-end (this isn't including options granted in previous years). They've since fallen in value to $7 million above the exercise price.

RIM is asking shareholders to approve an expanded options pool, and the circular shows that the company granted about 1.9 million options in fiscal 2000, down about a third from the previous year. Lazaridis and Balsillie each received 5.3% of all options granted by the company last year. Their salaries remained at the 1999 level of $225,000. Lazaridis now owns 12.6% of the company, while Balsillie holds 10.2%.

RDM reports flat revenues, growing losses in Q3
July 28, 2000

For the quarter ended June 30, RDM reports a net loss of $508,000 ($0.04/share) on sales of $1.1 million. Sales were flat compared to a year ago and down 15% sequentially and lower margins reduced gross profits by 13% compared to 1999.

The company's traditional cheque quality control segment had a good quarter, with revenues climbing 24% from the previous quarter to $848,000 or 74% of total revenues. The shortfall came from RDM's point-of-sale segment from the previous quarter -- which showed a sequential decline that was probably in the 50-60% range, although the company didn't provide the numbers to make an exact calculation.

Sales and marketing expenses were down 33% from the previous quarter and 31% from last year, while R&D spending jumped 35% sequentially and 25% year-over-year to 49% of revenues. The sale of shares in subsidiary Xign Inc. added $3.9 million in cash to RDM's balance sheet, which shows working capital of $6.2 million and $5.6 million in cash. RDM also announced that Tom Glassanos has been appointed president and CEO of Xign. Glassanos was previously executive VP of e-business solutions for PeopleSoft, and president of its PeopleSoft Business Network (PSBN) before resigning in June of last year. Before joining PeopleSoft, he had been marketing VP for Edify.

DALSA Q2 sales jump 68%
July 27, 2000

For the quarter ended June 30, DALSA reports revenue of $13.4 million and net earnings from operations, excluding acquisition-related charges, of $1.6 million ($0.14/share). Aided by two acquisitions over the last year, sales climbed 68% from the same period last year. Sales were up 33% sequentially although a decline in margins held the increase in gross profits to 21%.

DALSA's recent acquisition, Tucson-based MedOptics, contributed $1 million to revenue in the quarter and has an order backlog of $2.5 million. DALSA's total backlog is $15.7 million.

The balance sheet shows working capital of $8.5 million with $3.7 million in cash, down $1.6 million over the quarter.

Finline plans Cuban wireless network
July 27, 2000

Finline has announced that it has signed a "memorandum of understanding" with Havana's Grupo de la Electronica to build and co-manage a wireless MMDS network for voice, video, and Internet services in Cuba. The Reuters piece on the deal (which was picked up by the National Post and the Toronto Star) called Finline "an obscure Canadian company." The Star edited that line out.

The announcement didn't include any financial information or details about the proposed size of the network. Ron Deruyter wrote in The Record that the plans are for initial installations to be in tourist areas. Finline expects to sign the deal in October.

The announcement gave Finline shares a brief bump, most of which has been given back in the first few days of trading in August.

Miscellaneous Tidbits

• ATS Automation Tooling Systems raised $121.6 million through a share offering in July. The company sold 3.45 million shares at $35.25 each. Those numbers include the full over-allotment option of 450,000 which were taken by the underwriters, led by Merrill Lynch Canada. ATS shares are trading at their all-time highest levels.

• Macrosonic Innovations, which seems to be a Canadian tech company passing itself off as a U.S. firm, has announced that it has opened a Kitchener office. I don't know the full story, but it appears to be Albert Kemp's Net Electric Design with a new name. The Macrosonic Web site had an investor relations page -- since taken down -- where it said it was trading under the ticker MNCI on the OTCBB Foreign list. The company has a Walnut Creek, California address, but its Web site is hosted by Waterloo's Interactive Online. The company's core product is an finance application called System:0110.

• Gaston Germain has been named the new CEO of Waterloo's Nexsys Commtech International. His background seems to be in the broadcasting and cable industries. As a senior VP at Mississauga's Pelmorex, he was involved in setting up a weather channel in Britain in 1996. Ten years ago, he was finance VP for Sudbury's Northern Cable Holdings Ltd.

• David Reifsnyder is the new president of Endgame Systems, the Descartes spin-off initially known as DSD Solutions. He had been Descartes' VP of strategic business development. Ed Diamond remains CEO.

• RIM was one of the investors in the US$7 million first-round financing for San Francisco-based Neomar. RIM's contribution wasn't specified.

• iAnywhere Solutions, the Sybase subsidiary based in Waterloo, has announced an alliance with Ericsson to co-develop mobile banking and trading applications based on the WAP protocol for Ericsson mobile phones.

• Further details about CME Telemetrix' agreement with ESE Inc., that company that will manufacture and distribute CME's food analyzer products. ESE will pay CME $300,000 plus a 20% royalty on "net revenue" from sales and licensing of the food analyzer. CME will also continue to develop the products and deliver the next-generation versions to ESE for an additional $200,000.

• Forgot to mention this last month: In the May digest, I noted that all mention of Waterloo's LiquiMedia had vanished from the Web site of Ventures West, the VC which provided the company's seed financing. Keith Bates, the Ventures West associate installed as CEO didn't respond to e-mail asking about LiquiMedia. As it turns out, Bates himself was erased from the Ventures West Web site in June. He's no longer with the firm.