March 2001

Compiled and written by
Gary Will

Issue 49 -- April 2, 2001
In this digest:

  1. STOCK REPORT: Tech slide continues; RIM down 72% in 2001
  2. VoiceIQ to acquire INM in all-stock deal
  3. Rittal acquires remainder of Kaparel
  4. Virtek sales nearly double in fiscal 2001
  5. MKS acquires Massachusetts software developer

  6. CME Telemetrix falls behind development schedule
  7. Navtech reports losses as quarterly sales drop
  8. Treasury International ailing; shares plummet, staff bail
  9. Miscellaneous tidbits from PrinterOn, Sirific Wireless, myCIO.com, Waterloo Maple, Com Dev


STOCK REPORT: Tech slide continues; RIM down 72% in 2001
March 2001

March wasn't quite as bleak as February, but the decliners not only significantly outnumbered the advancers, but completely overpowered them as well, with seven companies losing at least one-fifth of their value:

Com Dev [TSE: CDV] +8%
Dalsa [TSE: DSA] +7%
Turbosonic [OTCBB: TSTA] +4%
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EMJ [TSE: EMJ] -2%
Descartes [TSE: DSG] -8%
MKS [TSE: MKX] -9%
CME Telemetrix [CDNX: YME] -10%
GUARD [CDNX: GUA] -11%
Virtek [TSE: VRK] -12%
RecycleNet [OTC: GARM] -22%
Finline [CDNX: FIN] -25%
RDM [CDNX: RC] -29%
Open Text [TSE: OTC] -32%
Navtech [OTCBB: NAVH] -35%
RIM [TSE: RIM] -43%
Treasury Int'l [OTCBB: TREY] -67%

Com Dev shares had climbed 40% in anticipation of the unveiling of its M/ERGY product at a major trade show in Las Vegas. But the lack of any immediate buzz following the launch dropped the shares back near their previous levels. Still good enough to be the top performer for the month, though.

(The absence of buzz was despite the appearance of what Com Dev called the "M/ERGY Girls." I enjoyed the apparently straight-faced explanation of Com Dev's communications VP that the company was too classy for the typical trade show "hostesses in tiny skirts" and went with the M/ERGY Girls instead. There was so little buzz that Com Dev had to release positive comments not from potential customers, but from its own consumer focus groups. Apparently, people are generally in favour of affordable wireless broadband Internet access. Go figure.)

Back-to-back months of more than 40% declines sent RIM shares to their lowest monthly closing price since June 1999.

Open Text, which made it through February with only a 6% decline in its share price, took its turn on the anvil and was hammered for its biggest monthly drop in a year. Even so, its shares are down only 5% this year, which would make it the envy of nearly every other company on this list.

Things weren't any better for companies headquartered elsewhere but with development offices in the Waterloo area:

Network Assoc [Nasdaq: NETA] +28%
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Gensel Biotech [CDNX: GSB] -10%
VoiceIQ [CDNX: VIQ] -14%
Cyberplex [TSE: CX] -15%
Sybase [Nasdaq: SYBS] -21%
Siebel [Nasdaq: SEBL] -29%
Cisco [Nasdaq: CSCO] -33%
MDR Switchview [CDNX: MSW] -34%
CVF Technologies [Amex: CNV] -35%
CacheFlow [Nasdaq: CFLO] -36%
CheckFree [Nasdaq: CKFR] -39%

Network Associates, the company that owns what used to be myCIO.com (see story below), had its first good month since its shares went into freefall in December when it warned that quarterly sales would fall far below expectations.

Over the first quarter of 2001, the big losers locally have been RIM (-72%), Treasury International (-68%), and RDM (-64%).

Cisco's shares have now fallen nearly 70% since its all-stock acquisition of PixStream in December.


VoiceIQ to acquire INM in all-stock deal
March 27, 2001

VoiceIQ has agreed to acquire the 63.5% of Waterloo's International Neural Machines (INM) that it doesn't already own. It will pay INM's two shareholders 4.316 million VoiceIQ shares, which had a value at Friday's close of $3.9 million. VoiceIQ trades on the Canadian Venture Exchange and was previously known as BCB Voice Systems.

Oleg Feldgajer, INM's CEO and owner of 46.5% of INM's shares, will become CTO of VoiceIQ and oversee all of the combined company's R&D activities in Waterloo. All other activities will be performed at VoiceIQ's Markham headquarters. Feldgajer will also join VoiceIQ's board of directors. The details of the transaction haven't been announced yet, but it looks like Feldgajer will become VoiceIQ's largest shareholder, with about 14% of the company. INM's other shareholder is Aleksander Szlam, founder and CEO of Atlanta's eShare Technologies.

VoiceIQ acquired a 36.5% stake in INM from Working Ventures a year ago, and has been talking about the possibility of merging the companies since last July (see July digest for details). VoiceIQ has a market capitalization of about $25 million.


Rittal acquires remainder of Kaparel
March 20, 2001

Germany's Rittal now owns 100% of Kaparel, after buying the shares held by the company's employees. In November, Rittal paid $12.8 million to PixStream for its 40% stake in Kaparel.

Financial details were not disclosed, and I haven't yet heard any gloating from Kaparel employees about how well they made out compared to some of their cousins at PixStream.

Kaparel will operate as a subsidiary of Rittal and retain its name, management, and employees.


Virtek sales nearly double in fiscal 2001
March 20, 2001

For the year ended January 31, Virtek Vision International saw its sales grow by 92% to $29.9 million while net income excluding goodwill charges climbed to $3.1 million ($0.15/share), up from $1.2 million in 2000.

The results include a full year of sales for the GSI aerospace templating business Virtek acquired in 1999, as well as for LaserTechniek, also acquired in 1999. About $2.5 million in sales came from Virtek's acquisition of the ESI biotechnology business last summer.

Each of Virtek's four business units -- pre-fabricated construction, industrial imaging, aerospace, and biotechnology -- contributed at least 20% of total revenue for the year. Three of the four units (with pre-fab construction the exception) showed significant sales growth in 2001.

Biotech was the smallest but fastest-growing segment over the year, accounting for $5.9 million in sales, up from $406,000 in 2000.

In Q4, Virtek sales climbed to $9.6 million -- up 99% from the same period last year and 19% sequentially. Net income for the quarter excluding goodwill charges was $902,000 ($0/04/share). Income from operations was $976,000, down 6% from the same period a year ago.

For the quarter, Virtek's traditional precision manufacturing segment actually grew at a faster pace than biotech, climbing 23% quarter-over-quarter, compared to biotech's 11% gain.

The launch of Virtek's desktop arrayer has been delayed. It was originally scheduled to ship in Q4 but is now expected to be released before the end of the current quarter. The company has not yet decided what its next new product will be, but expects that it will not be released until late in the fiscal year.

Sales of the ChipReader product fell below expectations for the second straight quarter. At quarter-end, Virtek said the ChipReader installed base stood at 43, up 11 from the end of Q3. The company had hoped to sell 18 ChipReaders in the quarter to make up the shortfall in Q3.

As it did for fiscal 2001, Virtek is forecasting sales growth of 50% for fiscal 2002, and CFO Phil Nafekh said in the conference call that biotechnology sales are expected at least to double. "This company isn't anywhere close to achieving what it is capable of achieving," said CEO Jim Crocker in a release.

Crocker would like to see the company grow to $200 million in sales in five years, and said that each of Virtek's four business units is capable of doing $100 million in annual sales.

Although it was not announced at the time, Crocker said that Virtek had implemented a hiring freeze in Q3 "in response to early economic concerns." That freeze was lifted in Q4.

At year-end, Virtek had working capital of $17.1 million with $7.7 million in cash.


MKS acquires Massachusetts software developer
March 26, 2001

MKS has acquired the assets of Upspring Software Inc., a developer of software development and management tools based in Burlington, Massachusetts, near Boston.

The MKS release says Upspring had revenues of US$5.5 million for the year ended September 30, but the company had undergone a restructuring since then, when it was known as Software Emancipation Technology Inc.

MKS will pay $700,000 in cash plus 561,000 warrants, convertible into an equal number of MKS shares, which had a value of $774,000 at Friday's closing price. It will also assume $2.2 million in liabilities, half of which was deferred revenue. The news release said the cash and liability figures were in U.S. dollars, but the company's recently-filed prospectus says they're Canadian dollars. MKS allocated $3 million from its warrant offering last month to "the acquisition of Upspring and related expenses."

The Upspring office in Burlington will be maintained as an engineering, sales, and service office for MKS. According to Ron Deruyter's report in The Record, 38 Upspring employees will join MKS. MKS will grant up to 525,000 options to employees of Upspring who accept jobs with MKS.

The prospectus for MKS' warrant offering says that on March 13 the company settled a lawsuit brought against it by workplace design firm Mayhew+Associates last November for $830,000. It sounds like MKS paid its bill once it had the money from the financing.

MKS now has 55,000 square feet of space in Waterloo, not including the 20,000 sq ft it is subleasing to Cisco. The lease runs until August 2010 with options to extend for up to an additional 10 years. MKS has an additional 63,000 sq ft among its offices in Illinois, Virginia, Massachusetts, Germany, the UK, New Jersey (not occupied by MKS), Connecticut, and Barbados.

Ex-CEO Randall Howard is listed as the CEO of Middlebrook Corporation, a management consulting firm. Howard was paid a lump sum of $25,000 upon his resignation and will receive an additional $23,540 a month for one year. And, in usual MKS fashion, will provide consulting services to the company until January 21, 2002 (not surprisingly, the prospectus reveals that the consulting agreement with former president Mike Hubbert announced last summer was terminated after six weeks).

The prospectus shows that it was HSD managing partners (and MKS directors since January) Phil Deck and Gerald Hurlow who acquired most of the MKS debentures sold by HSD Partners immediately following HSD's investment in MKS in January. HSD had received $3 million (principal amount) in debentures for its investment and retains $1.71 million. Deck and Hurlow each acquired $0.57 million in MKS debentures from HSD. The buyer of the remaining $0.15 million was apparently Bernard Crotty, MKS' other new director who is also on the board of two other HSD portfolio companies.

According to the prospectus, once all debentures and warrants and converted and exercised, Howard will own 8.5% of MKS, co-founder and chief architect Alex White will have 7.6%, Deck will own 6.0% and Hurlow 4.1%. HSD Partners will be the largest shareholder with a 12.1% stake.

HSD received a $100,000 "arrangement fee" from MKS for structuring the debentures and warrants for its investment in January. In addition, MKS is paying two HSD employees (other than Deck) a combined $16,000 a month for "management and administrative services."

MKS has also taken out a $12.5 million key-person life insurance policy on the life of Deck (which means he's worth more dead than the entire company was valued at a couple months ago).


CME Telemetrix falls behind development schedule
March 27, 2001

CME Telemetrix has fallen a full quarter behind the schedule it released last year for the development of its non-invasive glucose monitor. The company had forecast that it would achieve acceptable error levels for the instrument by the end of 2000, but as CME begins the second quarter of 2001, it has still not achieved its accuracy targets.

Tom Scecina, CME's chief scientific officer, said in a release that he is still confident the company will achieve its goals.

CME plans to submit the monitor for approval by the U.S. FDA two years after it has met its accuracy targets. At its AGM last year, the company had hoped that application would be submitted by the end of 2002.

In March, the FDA approved a non-invasive glucose monitor by Cygnus Inc. of California, but that device will be used as a supplement to a finger-prick test rather than as a replacement, as the CME monitor is designed to be.

For the quarter ended December 31 (Q4 00), CME lost $1.1 million on revenue of $177,000. Its cash position was reduced by $1.1 million over the quarter to $1.7 million, but it has since received an additional $5.3 million investment from Motorola which pushed its working capital at February 28 to $7.0 million. For the year, CME lost $3.45 million and now has an accumulated deficit of $10.9 million.

There has been no update on the status of CME's lawsuit against Neurosoft, the company that acquired CME's Advantage Medical division in 1999 and subsequently refused to pay the full price CME had expected to receive. CME is still carrying a $2.0 million note receivable from Neurosoft on its books. CME is suing Neurosoft for $2.2 million; Neurosoft filed a $9.5 million counterclaim in November.


Navtech reports losses as quarterly sales drop
March 15, 2001

Quite a change for Navtech, which just last quarter reported profitable operations, sales growth, and positive working capital. Now, for the quarter ended January 31 (Q1 01), Navtech reports a loss of US$336,000 on sales of US$1.4 million. Sales were down 31% from a year ago and 20% sequentially.

The company has returned to a working capital deficiency, with the shortfall standing at US$129,000 at quarter-end. Operations consumed US$212,000 in cash, dropping Navtech's cash position to US$119,000. It expects it will need to raise additional funds over the next six months.

Navtech is still telling shareholders that it will seek to have its shares relisted on Nasdaq this year, although it currently falls well short of Nasdaq's listing requirements (it would have to meet the Nasdaq criteria for a new listing to be relisted). Navtech's market cap is now US$2.8 million. Its shares fell to penny-stock status last week, but there hasn't yet been a significant volume of shares traded for under a dollar.


Treasury International ailing; shares plummet, staff bail
March 2001

The future of Kitchener's Treasury International, parent company of Compelis Corp., is looking bleak. The company completed a 1-for-100 reverse stock split in March, sending its shares crashing down 67% in the month to an all-time low of what would have been under a penny pre-split. It was a year ago (March 2000) that Treasury shares hit a record high of US$1.69 -- an insane level given that there were over 90 million shares outstanding at the time. They fell back to $0.49 by the end of that month and have been in steady decline since.

Lorne Shantz, who had headed Compelis' RetailPort.com spinoff, left the company last fall (maybe late summer) to start Santege Technologies, which also recently hired Compelis' former operations VP, Lyle Williams.

COO Marlin Doner, who told me last summer that he was thinking about offering investor relations services to other companies because it was something he enjoyed doing, has had very little to say to his own shareholders for months. Even the reverse split was only announced to all shareholders after more than a month had passed since the decision to split was made and approved by selected shareholders.

Treasury had revenues of only US$62,000 for the quarter ended October 31 and has yet to report its results for the quarter (and year) that ended January 31.


Miscellaneous Tidbits