January 2001

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 47 -- February 5, 2001
In this digest:

1. Howard leaves Vertical Sky/MKS management team
2. MKS bailed out with $5M; "was going under" says new CEO
3. Switchview plans merger with competitor, public company
4. RIM prepares to open Mississauga development centre
5. Navtech achieves profitability, raises capital

6. Arius Software closes $1.5 million financing
7. AdExact taps FedEx exec as new CEO
8. Open Text quarterly sales & profits climb
9. Dalsa achieves 40% revenue growth in 2000
10. STOCK REPORT: MKS bounces back

11. Miscellaneous tidbits from Virtek, Com Dev, Treasury International, LiquiMedia

Howard leaves from Vertical Sky/MKS management team
January 23, 2001

Ontario's high-tech entrepreneur of the year for 1997 is out of a job. MKS co-founder Randall Howard, who had already been replaced as chairman in November, no longer has any management role at either MKS or Vertical Sky. Howard had been CEO of Vertical Sky and an executive officer of MKS.

The news release said only that Howard had ceased to be an officer of MKS, but reports in the Globe and the Record said that he no longer an employee of the company. Howard remains on MKS' board.

Howard founded MKS in 1984, along with Alex White and Trevor Thompson. Ruth Songhurst later became a fourth major shareholder. Thompson sold his share of the company in 1995-96, while Songhurst sold her shares for $7.7 million (which is what MKS' market cap had fallen to a month ago) as part of MKS' IPO in 1997.

Howard and White have remained MKS's largest shareholders. As of last summer, Howard owned 3.77 million shares, or 22% of the company at that time. White owned 3.37 million shares, or a 19% stake. But those percentages are about to drop significantly (see next item).

With Howard gone, it means that within a one-year period, MKS lost its CEO, COO, CFO, VP Sales, VP HR, general counsel, and undoubtedly many more senior executives in addition to dozens of developers and others. (I see that Gary Collins, the former MKS sales VP who left to become president of Sangoma.com a year ago, was made CEO of Sangoma in November -- and, at the same time, his old boss at MKS, Mike Hubbert, was appointed to Sangoma's board.)

MKS bailed out with $5M; "was going under" says new CEO
January 23, 2001

MKS has made a deal to get the cash it needs to stay alive. But, not surprisingly for a company where the buzzards were already circling, the terms of the financing were quite harsh and highly dilutive to existing shareholders.

HSD Partners and the Clairvest-Yorkton Transition Capital Fund combined to provide $5 million to MKS. In return, they received debentures and warrants that, if fully exercised, will give the new investors about a 40% stake in MKS at an average price of only 63 cents a share (by last Friday's close, MKS shares had climbed to $2.04).

HSD partner Phil Deck, the former CEO of UW spinoff Certicom (and the "D" in HSD), has taken over as CEO of MKS. He told the National Post that "it was our assessment that the company was going under" if HSD and Clairvest-Yorkton hadn't stepped in.

For HSD's $3 million investment, it will get 4.7 million MKS shares plus warrants for an additional 4.9 million shares that it will receive for an additional $3.1 million.

Immediately following the close of this transaction, HSD sold 43% of the MKS debentures it had just acquired. The purchaser has not yet been identified, even though it would end up with about 14% of MKS if all the warrants that come with the debentures are exercised. HSD retains debentures that could give it about 18% of MKS.

Clairvest-Yorkton will likely end up with 3.3 million shares plus interest for its $2 million investment. The Clairvest-Yorkton fund was launched last August with capitalization of $7 million. It is a joint venture of Clairvest Group and Yorkton Securities.

That means it's likely that 12.9 million new shares will be issued as a result of this financing. MKS only had 17.4 million shares outstanding before this deal, and this will bring the number to more than 30 million (MKS also has 2.4 million options outstanding, although I'm sure most of them are so far under water that they won't be a factor unless there's a significant turnaround).

Barry Critchley reported in the National Post that, despite MKS' desperate efforts to raise money, it was actually Yorkton Securities who approached MKS and initiated the discussions that led to this deal. The banks MKS approached -- TD and CIBC -- were not interested in lending it money.

With this financing and the gains in MKS's share price in January, the company's market cap on a fully-diluted basis has gone from about $10 million to $65 million in the last month.

Switchview plans merger with competitor, public company
January 10, 2001

In a complicated transaction that has been in the works for some time, Switchview plans to merge with an Oakville-based competitor, MDR Technologies, and two other companies to form MDR Switchview Global Networks Inc.

Switchview plans to merge with Aquilium Software Corp. [CDNX: AQQ], which is acquiring MDR in a cash and stock deal worth $24.1 million. A fourth company, Netperforma Corp. of Toronto, will also be merged into the new MDR Switchview, which will take over Aquilium's CDNX listing.

Switchview shareholders will end up with the largest portion of the new company -- probably somewhere around 50%, although the exact proportions can't be calculated yet because, in conjunction with the amalgamation, the companies are planning to raise about $25 million (gross) through a mixed equity/debt offering led by Yorkton Securities. Precisely how much of the new company everyone ends up with will depend on the details of the equity offering.

The merging companies had revenues of $42.2 million for the 12 months ended October 31. Over half of that, $23.5 million, came from Switchview, with MDR adding $16.3 million and Aquilium $2.5 million. Netperforma had no revenues.

According to the information circular, Aquilium made an offer to acquire Switchview in October 1999. When that offer was rejected, Aquilium began talks with MDR and reached an agreement to buy that company last July. Even before that agreement was finalized, talks had begun again with Switchview, with the proposal now including a merger with MDR. A term sheet was given to Switchview on July 24, and the final amalgamation agreement was reached on January 10.

Art Linton, the CEO of Switchview who founded the company (technically, a predecessor company) in 1985, will be stepping down from his management role following the merger. He is expected to be the third largest shareholder of MDR Switchview, with about an 11% stake, but he will not sit on the board. Bell Canada and TD Capital, Switchview's two largest investors, are expected to be the combined company's largest shareholders with about 12% each.

Bob Casselli, Switchview's executive VP, will become MDR Switchview's COO. The CEO will be Stan Tyo, who is currently CEO of both Aquilium and MDR (Tyo had been CEO of MDR from 1991 to 1999; he left to become CEO of Aquilium in 1999 and took back the reigns at MDR last October following the announcement of Aquilium's intention to acquire MDR).

Don Morrison, appointed COO of RIM in September, will be a director of MDR Switchview (it's not the only connection between the companies -- Switchview leases its office space on Columbia from RIM).

Switchview has achieved a significant financial turnaround since 1997. It went from a net loss of $2.2 million on sales of $15.0 million for the year ended January 31, 1998 to net income of $3.0 million on sales of $25.4 million two years later (the sales numbers for fiscal 2000 were inflated by about $1.5 million because of a change in accounting policies).

Over the first nine months of fiscal 2001, Switchview lost $518,000 on sales of $16.7 million. The loss was attributed in part to increased expenses in building the UK office the company opened in 1999. Revenue from Internet-related services grew by 50% over the same period the previous year.

The balance sheet shows Switchview had run up a big tab at the bank, maxing out a $3.75 million line of credit at the end of October.

Switchview had 171 employees at the end of December, while MDR had 127 and Aquilium 23. No layoffs are expected as a consequence of the merger.

Switchview and Aquilium shareholders are expected to approve the transaction on February 15.

RIM prepares to open Mississauga development centre
January 18, 2001

As it continues to buy and develop property near Columbia and Phillip in Waterloo, RIM announced in January that it will also be opening an "applications centre and operations centre" in Mississauga. It is currently recruiting both technical and administrative staff for the new site.

RIM already employs more than 100 people at the R&D centre it opened in Kanata just over a year ago.

Also announced in January was a partnership with IBM, which will sell RIM's BlackBerry service. This came just after the unveiling of RIM's BlackBerry for Lotus Notes (Lotus is owned by IBM). RIM didn't say how many sales they are expecting through IBM. IBM will also buy thousands of BlackBerries for use by its field engineers.

As well, RIM announced that it has hired Larry Conlee as its new COO of engineering and manufacturing. Conlee spent more than 25 years at Motorola, where he was a corporate VP, although the release didn't say how long ago he left that company.

Navtech achieves profitability, raises capital in 2000
January 10, 2001

Navtech cleaned out a lot of old baggage during fiscal 2000 and ended the year with positive working capital and an operating profit. For the year ended October 31, Navtech's revenues climbed 33% to US$7.0 million. Sales gains are partly attributable to the inclusion of a full year's results from the company's UK subsidiary, as well as to a single US$500,000 sale to a U.S. customer. Navtech's largest customer last year was Universal Weather & Aviation of Houston. Net income was US$1.1 million, although that requires an asterisk since the company had a one-time gain of US$904,000 through the return of shares to treasury and a transfer of assets in recovery of what had previously been provisioned for bad debt.

Operations used US$456,000 in cash over the year. Navtech raised US$1 million through two private placements of 500,000 shares at $1 each. One of the new investors, Robert Snyder of Maryland, is now the company's largest shareholder. The second investment came from Easy Flying S.A. of France, a company that provides Internet-based services to the aviation industry that complement Navtech's. Easy Flying became Navtech's third-largest shareholder with this investment.

Those financing activities enabled Navtech to report working capital of US$115,000 at year-end, a significant improvement from its working capital deficiency of US$1.3 million a year ago.

The annual report says Navtech will try to get its shares listed on Nasdaq, but that would require some significant changes in the company's status since its market cap is about US$4 million and its shares are trading at US$1.12 -- both too small for a Nasdaq listing.

Navtech has 85 employees, about half of whom are in R&D. All R&D is performed in Canada.

Arius Software closes $1.5 million financing
January 22, 2001

Arius Software of Waterloo has raised $1.5 million from unidentified investors. The company creates Web applications and has developed a product that automates the creation of GUIs for database querying. It was formed in 1999 by two UW students who expect to graduate this year.

AdExact taps FedEx exec as new CEO
January 15, 2001

David Roussain, formerly VP of e-commerce marketing at FedEx, has been appointed CEO of AdExact, succeeding company founder Stephen Bacso. Roussain has been a director of the Kitchener-based company for the last year and will remain on the board.

AdExact was launched by Bacso after he stepped down as PixStream's CEO and left that company's management team. This time, he will remain a senior manager, becoming AdExact's VP of business development. He will also continue as the company's chairman.

According to the release, Roussain will be based in Portland. What is currently billed as AdExact's Portland office is a Mail Boxes Etc. mail drop.

Bacso was one of the speakers at this year's Canadian Undergraduate Technology Conference, held on the UW campus in January. It has quickly become one of the best high-tech events in Waterloo, attracting hundreds of attendees from universities across Canada and presenting a good roster of speakers. Local speakers included Mike Lazaridis of RIM, who was scheduled to deliver one of the keynotes, and Dave Simons from Quack.com, along with scheduled presentations from Sybase, Intellitactics, and Kickstarts.com. Mark Skapinker of Brightspark was probably the highest profile speaker other than Lazaridis, and there were representatives from Certicom, Nortel, IBM, Cyberplex, and XDL Ventures, among many others.

Open Text quarterly sales & profits climb
February 1, 2001

For the quarter ended December 31 (Q2 01), Open Text reported sales of US$37.8 million, up 26% sequentially and 42% from a year ago. Licence revenues jumped 40% from the previous quarter to US$20.1 million.

Net income, excluding acquisition-related accounting charges, was US$4.5 million (US$0.21/share), up from US$3.1 million in the previous quarter.

The company spent US$17 million to repurchase 724.900 shares over the quarter. Open Text had US$81.7 million in cash, down US$27.6 million over the quarter. In addition to the share repurchase, the company spent $9.5 million on two acquisitions (see October and November digests). CFO Alan Hoverd said that operations generated US$2 million in cash.

In the conference call, CEO Tom Jenkins said Open Text's ASP business generated nearly US$1 million in revenue and grew its order backlog significantly from the US$5 million reported at the end of last quarter.

Jenkins also said that Open Text's b2bScene division will be spun off "when the right market conditions exist."

Dalsa achieves 40% revenue growth in 2000
February 1, 2001

For the year ended December 31, Dalsa earned $6.2 million (excluding acquisition-related amortization charges) on sales of $53.3 million. Revenue climbed 40% from 1999, with over half of that growth attributable to acquisitions (Dalsa acquired MedOptics in fiscal 2000, and received a full year's revenues from SMD, which it acquired in mid-1999).

A year ago, Dalsa targetted sales of $100 million in 2002, and if it can sustain a 40% annual growth rate, it will achieve that goal.

In the fourth quarter, revenues were $16.0 million, up 17% sequentially and 33% from the same period a year ago. Net income for the quarter was $2.0 million.

Following its warrant offering in the fall that raised $7.4 million (net), Dalsa now has $8.6 million in cash -- up from $2.9 million at the beginning of the quarter. Operations used $1.3 million in cash in Q4. Net of bank indebtedness, Dalsa's cash position is $3.3 million.

STOCK REPORT: MKS bounces back
January 2001

MKS shares made a significant -- if only partial -- recovery in January, jumping from 53 cents to $2.12. It's still the third worst monthly closing price in MKS' three-year history as a public company, but a huge improvement over November and December levels.

Not only did Open Text shares climb by $15.56 over the month, they're already up another $4 in the first two trading days of February.

For the month of January:

MKS [TSE: MKX] +300%
Turbosonic [OTCBB: TSTA] +86%
Open Text [TSE: OTC] +48%
Treasury Int'l [OTCBB: TREY] +30%
Navtech [OTCBB: NAVH] +25%
Finline [CDNX: FIN] +20%
Descartes [TSE: DSG] +18%
GUARD [CDNX: GUA] +17%
Virtek [TSE: VRK] +14%
Gensel Biotech [CDNX: GSB] +8%
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Com Dev [TSE: CDV] -10%
Dalsa [TSE: DSA] -10%
CME Telemetrix [CDNX: YME] -16%
RIM [TSE: RIM] -17%
RDM [CDNX: RC] -18%

After being the success story of most of 2000, Com Dev shares have given back 22% over the last two months. CME Telemetrix' monthly closing price of $4.80 was its lowest since November 1999.

Companies based elsewhere but with development offices in Waterloo:

CheckFree [Nasdaq: CKFR] +30%
Sybase [Nasdaq: SYBS] +27%
CacheFlow [Nasdaq: CFLO] +6%
=================================
Siebel [Nasdaq: SEBL] -2%
Cisco [Nasdaq: CSCO] -2%
Cyberplex [TSE: CX] -19%

Miscellaneous Tidbits

• Virtek has signed a U.S. distribution agreement for its ChipReader product with Fisher Scientific. It has also created a subsidiary in Singapore that will operate as the company's Asian sales and support centre.

• Com Dev has received a $1.15 million gift from the province of New Brunswick -- which works out to nearly $5 per household. The money will help fund an expansion of Com Dev's Moncton facility expected to raise the number of employees to 600 from the current 400. If the jobs are discontinued, Com Dev would have to repay the money. Com Dev laid off over 100 people in Moncton in 1997 and 1998 but has more than doubled the size of its New Brunswick workforce since then.

• Shares of Treasury International, parent company of Kitchener-based Compelis, will undergo a 1-for-100 reverse split this month. Treasury's shares are currently trading at 3.8 cents U.S. on the OTCBB. After the split, the company will have fewer than a million shares outstanding.

• Keith Bates, the former CEO of Waterloo's Liquimedia who oversaw the company through its demise, has been CEO of Toronto-based Plazmic since May. Plazmic, like Liquimedia, is a Ventures West portfolio company funded by ETSIF and started by a UW graduate. Plazmic had been based in Halifax but moved to Toronto about a year ago.

• January must have been homecoming month -- McMaster grad Tom Jenkins went back to Hamilton to deliver the keynote address at the McMaster World Congress, while Descartes CEO Peter Schwartz, a former Western student, returned to London to address the London Venture Group.