July 2001

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 53 -- August 6, 2001
In this digest:

1. Descartes chops 70 jobs as sales and earnings fall short
2. New capital pool company hopes to take ARISE public
3. STOCK REPORT: Few companies immune to continued market slide
4. Kaparel acquires California PCB design firm
5. Onlinetel to be acquired by Toronto company

6. Dalsa remains profitable on declining sales
7. Finline to close reverse takeover in U.S.? Believe it or not?
8. iAnywhere receives US$5M investment from Casio
9. Virtek abandons 50% revenue growth target
10. Com Dev partners with Aliant to test M/ERGY

11. tdgInteractive lays off all staff, Mercury reports
12. Miscellaneous tidbits from MKS, Ardesic, Nanodesign, WirelessMoney, RIM, Navtech, Mitra, UW

Descartes chops 70 jobs as sales and earnings fall short
August 1, 2001

Just six weeks after reaffirming (more or less -- see June digest) its sales and operational profit forecasts, Descartes announced that it will cut about 70 jobs --just over 10% of its workforce-- and take a US$3 million restructuring charge in the current quarter (Q3) after generating almost no licensing revenues in July, the final month of its second quarter.

When the Q2 numbers are released on August 21, Descartes says they will include a US$3.5 million bad debt charge and an operational loss of about US$6 million. Total net loss, including acquisition- related expenses and other items, is expected to be about US$20 million on sales of US$19-20 million. Sales in the previous quarter were US$23.4 million.

Descartes CEO Peter Schwartz said it was the worst sales pullback he has ever experienced. He said the quarter looked to be on pace with the previous quarter at the time of Descartes' last conference call on June 20 but then everything suddenly changed in July.

Network revenue for the quarter was described as "on plan."

CFO Colley Clarke said the company expects to show an operational profit -- excluding the restructuring costs and other non-recurring expenses -- in the current quarter, ending October 31.

Descartes used about US$10 million in cash over the quarter, but still had US$215 million at the end of July.

No specifics were given on where job cuts would be made, other than that they would be from all areas of the company. Descartes said it had 604 employees at the end of April; the two companies it acquired last month had a combined 82 employees, and now Clarke says the company will have fewer than 600 employees, so it looks like there's been several departures beyond the 70 announced.

Descartes shares fell $2.00 or 10% the day BEFORE the warning was issued -- their largest one day drop in two months. They've fallen another $7.15 in the two days of trading since the announcement was made.

New capital pool company hopes to take ARISE public
June 29, 2001

Sunshine Capital Corp., a capital pool company that is expected to trade on the CDNX under the ticker symbol SUN, has filed a prospectus for an IPO that identifies ARISE Technologies of Kitchener (formerly of Waterloo until getting the boot from RIM last year) as a potential acquisition.

Capital pool companies (CPCs) have no operations, but raise funds through the public sale of shares to find a suitable private company to acquire and take public -- with the CPC's management team remaining involved in the operations of the company following the acquisition.

According to the prospectus, while there has been no agreement to acquire ARISE, Sunshine management considers it "a high probability" that the negotiations will be successful. The final decision will be made following the close of the IPO. The estimated acquisition price is $5 million, with most or all of that to be paid through the issuance of shares in Sunshine.

Three of the four backers of Sunshine Capital are from this area -- Timo Vainionpaa, president of Waterloo's Aurora International Telecommunications -- and a minority shareholder in ARISE -- is Sunshine's CFO; Grant O'Neill, controller of Waterloo's Custom Trim, is a director of the company, and Sunshine's CEO and largest shareholder is Gino DiLeonardo, president of Showtime Fireworks in Guelph. According to the prospectus, DiLeonardo is devoting half of his time to Sunshine, with the others providing assistance as needed.

DiLeonardo has invested $50,000 in Sunshine, with Vainionpaa contributing $25,000 and O'Neill $20,000. Another $40,000 was invested by a Vancouver-based backer. Sunshine hopes to raise an additional $300,000 through its IPO. The seed investors put in money at 10 cents a share on March 16 and the seed shares will be held in escrow and released to the four investors over a three-year period. The IPO is 1.5 million shares priced at 20 cents.

CPCs have been popular in Western Canada -- accounting for 129 of the 475 new listings on the CDNX in 2000. Former Waterloo businessman Mike Volker, now based in B.C., has been a big promoter of CPCs in his columns.

STOCK REPORT: Few companies immune to continued market slide
July 2001

Another bleak month has left several companies setting or testing not just 52-week lows, but 104-week lows.

Open Text and Turbosonic are the only stocks listed here that have made gains over the last 12 months, and that list will likely be down to just Open Text in the next digest. Turbosonic shares doubled in value in August 2000 and aren't likely to keep pace this year.

Year-to-date, MKS still leads the way with an 89% rise, but it is again flirting with penny-stock status, closing at $1.00 last Friday -- its lowest point since its restructuring and recapitalization in January.

Turbosonic shares are up 83% in 2001, while Open Text shares have climbed 21%. I don't track them here, but ATS shares are up 12% and, if you adjust for dividends, EMJ is also up, although its actual share price is down.

Everything else has declined, with Cyberplex (-84%) and RDM (-81%) trailing the pack. The two largest companies by market cap -- RIM and Descartes -- are both off by nearly 70% over the first seven months of the year. The Nasdaq composite is down 16% over the same period.

For the month of July:

Turbosonic [OTCBB: TSTA] +38%
RecycleNet [OTC: GARM] +14% [a gain of one penny]
Com Dev [TSE: CDV] +11%
Open Text [TSE: OTC] +8%
Navtech [OTCBB: NAVH] 0%
=================================
RDM [CDNX: RC] -7%
Dalsa [TSE: DSA] -11%
MKS [TSE: MKX] -11%
Treasury Int'l [OTCBB: TREY] -18%
Finline [CDNX: FIN] -20%
Virtek [TSE: VRK] -20%
Descartes [TSE: DSG] -25%
RIM [TSE: RIM] -26%
CME Telemetrix [CDNX: YME] -26%
GUARD [CDNX: GUA] -29%
Gensel Biotech [CDNX: GSB] -33%

Even before its latest troubles, Descartes' shares had already dropped to their lowest monthly closing price since November 1999-- the month when the company began a recovery that saw its shares go from under $5 to over $100 in just four months.

Descartes wasn't alone in falling to lows unseen in over a year. Five other companies had their lowest month-end prices since the 1990s:

• Finline: lowest since August 1999 and second-lowest since becoming a public company in January 1997
• Dalsa: lowest since April 1999; it hasn't fallen very far (or climbed very high) this year, but Dalsa shares have dipped below $6 for the first time in more than two years
• RDM: lowest since September 1997
• Gensel: lowest ever
• GUARD: lowest ever

Companies with head offices outside this area:

Network Assoc [Nasdaq: NETA] +35%
MDR Switchview [CDNX: MSW] +10%
=================================
Sybase [NYSE: SY] -10%
CheckFree [Nasdaq: CKFR] -14%
VoiceIQ [CDNX: VIQ] -14%
CVF Technologies [Amex: CNV] -22%
Siebel [Nasdaq: SEBL] -27%
CacheFlow [Nasdaq: CFLO] -32%
Cyberplex [TSE: CX] -40%

Cyberplex shares fell to their all-time low, closing July at 58 cents. Waterloo native and UW grad Dean Hopkins stepped aside as president at the end of the month, but retains the CEO title.

Kaparel acquires California PCB design firm
July 30, 2001

Kaparel has acquired Jardon Engineering Inc., a 32-year-old printed circuit board (PCB) engineering services firm based in Tustin, California, south of Los Angeles.

Jardon will operate as a division of Kaparel and remain in California with its current management team. In a release, Kaparel CEO Ben Robitaille said Kaparel hopes to produce the boards designed by Jardon.

No financial details were disclosed.

In 1998, Printed Circuit Design magazine listed Jardon as the fifth- largest PCB service bureau in the U.S.

Onlinetel to be acquired by Toronto company
July 4, 2001

Eiger Technology of Toronto -- a manufacturer of modems and other devices -- says it will acquire Kitchener's Onlinetel. Financial terms have not yet been disclosed. Eiger trades on the TSE under the ticker AXA.

Onlinetel provides what I guess we could call short-distance long distance calls to customers in the Greater Toronto Area that are free after the caller listens to a 15-second advertisement. You can only connect to nearby areas -- within the Milton-Aurora-Pickering region. Calls are routed with VoIP technology.

Onlinetel was started by the founders of Stratford Telecom, which provided a similar advertiser-supported long distance service. Initially, Stratford Telecom provided a flat-rate service between K- W and Stratford. Eiger used to be based in Stratford as was known as Alexa Ventures.

According to the release, Onlinetel will offer Canada's first IP- based 10-10 dial around service (where you can use a different carrier for long distance calls on a call-by-call basis without switching from your primary long distance service provider), expected to launch in the fall.

In its most recently reported quarter (ended March 31), Eiger had sales of $5.9 million and a loss from operations of $1.1 million. It's a penny stock on the TSE with a share price that has declined by 74% so far in 2001. Its shareholders were apparently perplexed by the Onlinetel acquisition, since Eiger issued a follow-up release two weeks later to explain the strategy behind it.

The Onlinetel Web site lists Joe Vos as acting CFO. Vos is the co-founder of Metafore/MicroAge. Jason Cassis, the former CEO of Cambridge's Urbana.ca is listed as Onlinetel's corporate affairs VP.

Dalsa remains profitable on declining sales
July 26, 2001

For the quarter ended June 30 (Q2 01), Dalsa reported net income of $426,000 ($0.035/share) on revenue of $13.8 million. Sales declined 12.5% from Q1, which has traditionally been Dalsa's weakest quarter. Standard product sales declined 19% sequentially. Year- over-year, revenues grew by 2%.

Sales were sluggish in Dalsa's traditional markets, but this was partially offset by stronger sales for its Tucson-based life sciences division. With the shift toward lower-margin life sciences products, gross margins on product sales fell to 44% from 51.5% in Q1. Dalsa says it expects margins to return to their usual levels as demand from the semiconductor and electronics markets returns.

Dalsa used $376,000 in cash during the quarter, but still had $4.4 million at quarter-end, with working capital of $19.6 million.

The company did schedule a conference call, but unfortunately neither Dalsa nor its IR firm provides archives of conference calls (MKS doesn't do this either, but the others all do -- RIM, Descartes, Open Text, Com Dev, Virtek).

Over the first half of the fiscal year, Dalsa has reported revenue of $29.5 million. It told investors last month that it expects sales for the full year will fall in the $53-60 million range, so the next two quarters should be relatively flat.

Finline to close reverse takeover in U.S.? Believe it or not?
July 27, 2001

Finline says it intends to perform a reverse merger with a shell company listed on the U.S. over-the-counter bulletin board. Given the track record of Finline's announcements, this should mean that there's little chance of it happening, but Finline and the OTCBB is a match made in ... well, they're well-suited to one another.

According to Finline, it plans to sell its Finline International subsidiary to Tekron Inc. in return for a 79% stake in Tekron. Tekron trades under the ticker TKRN.

There's already some confusion over what Finline is planning to acquire. In its release, Finline said Tekron is a Nevada corporation with an office in Fort Lauderdale, Florida. But Tekron, in its SEC filings, says it's a Delaware corporation based in Poway, California.

Assuming that Tekron knows who it is, it's a non-operational company formed in 1994 to provide boat repair services and whose president operates a automotive repair shop outside of San Diego. It reported total assets of US$370 on March 31. In March, it was set to be acquired by American Boardsports Company Inc., a manufacturer of equipment for extreme sports, but that deal fell through.

Finline says the acquisition should close before the end of this month.

When Finline issued the announcement of its intention to acquire Tekron, Tekron's market cap -- despite being a non-operational company with almost no money invested in it -- was two-and-a-half times the size of Finline's. The OTCBB is the same place where Kitchener's Treasury International traded up to a market cap of more than $200 million (very briefly) last year.

iAnywhere receives US$5M investment from Casio
July 9, 2001

Casio has invested US$5 million in iAnywhere Solutions, the Sybase subsidiary largely based in Waterloo and headed by Waterloo's Terry Stepien.

Casio received convertible preferred shares in iAnywhere that can be converted into common shares if iAnywhere goes public. The money itself isn't particularly significant -- according to Sybase CFO Pieter Van der Vorst, it gives Casio about a 1% stake in iAnywhere, which is valued at around US$500 million. Casio and iAnywhere have been working together on various projects for the last year.

Van der Vorst said there are no plans to take iAnywhere public in the current environment, but he considers it to be a strong candidate for an IPO in the future.

In the quarter ended March 31 (Q1 01), iAnywhere reported total revenue of US$20.7 million -- up 9.5% from the same period a year ago -- split evenly between direct sales to external customers and sales through other Sybase divisions, including the company's main enterprise solutions division (ESD).

iAnywhere had an operating income of US$5.1 million in the quarter, making it the second-most profitable (behind ESD) of Sybase's five reporting segments and easily the most profitable as a percentage of sales (25% vs. 15% for ESD). For the year 2000, iAnywhere reported sales of US$92.0 million and operating income of US$25.4 million.

Sybase's Financial Fusion, which has a small development team in Waterloo, reported sales of US$6.1 million and an operating loss of US$16.5 million in Q1. Sales were up 34% from the same period in 2000.

Virtek abandons 50% revenue growth target
July 27, 2001

Virtek has thrown in the towel on its hopes for 50% sales growth in the current fiscal year. It reported year-over-year growth of 46% in Q1, ended April 30, but that was helped by the acquisition of biotech business of Engineering Services Inc. last summer -- sales of its products were included in the 2001 numbers but not in the 2000.

The company will provide a revised outlook when it announces its Q2 results in another four or five weeks.

Virtek also announced the launch of the ChipWriter Compact personal arrayer -- a smaller, less expensive version of its ChipWriter (now called ChipWriter Pro).

Com Dev partners with Aliant to test M/ERGY
July 31, 2001

Com Dev has signed an agreement with Aliant subsidiary Innovatia to conduct beta user trials of Com Dev's M/ERGY high-speed wireless Internet access system.

The M/ERGY system will be used in Halifax within Aliant's LivingLAB environment. LivingLAB puts new technologies in the hands of actual users, with Aliant staff providing technical assistance and modifications. PixStream had a similar LivingLAB agreement with Aliant signed early last year.

Aliant is the BCE company that operates NBTel, MTT, and other phone companies in Atlantic Canada.

Also this month, Andrew Phillips reported in the New Brunswick Telegraph Journal that Com Dev's Moncton facility is now at 250 employees -- down from 400 at the beginning of the year. In March, the company announced it was laying off 85 Moncton employees and that it was expecting to call them back within two months. Not only have they not been called back, there have been additional layoffs, Phillips says. In January, Com Dev received $1.15 million from the province of New Brunswick and said that it expected to expand its Moncton site from 400 to 600 employees.

tdgInteractive lays off all staff, Mercury reports
July 6, 2001

The Guelph Mercury reported that Web Tactics/tdgInteractive/ agribiz.net has laid off all its staff. A few people in London have been kept on by vTraction.com, the e-commerce arm of Rabobank that had invested in the Guelph company.

The other Guelph firms that were part of the same family of companies, including VentureLabour.com and TeleCommons Development Group, seem to be continuing on.

A new company, eBiz Professionals, has been started by some former tdg employees, including Ian Richardson who had been president and COO.

In April, Web Tactics won the Ontario government's regional Global Traders Award for market expansion-service. The other Guelph company that was recognized with an award of merit in the same category, Eagle's Flight, just laid off a quarter of its staff last week.

Miscellaneous Tidbits

• Rob Dietrich is the new CFO of MKS. He was previously CFO of Mississauga's Cedara Software, a Nasdaq- and TSE-listed company, and prior to that worked at Mitel for 11 years. Dietrich is the first person to hold the CFO title at MKS since Eric Palmer left the company in March 2000.

• On ROBTv's venture pitch segment, Ardesic CEO Bob Ford unveiled the company's new positioning as a provider of XRM (extended relationship management) software and said the company is planning to raise an additional $7 million, most of which would come from current investors. He said Ardesic has one live customer, which he didn't name but described as a large electronics components manufacturer.

• Ian Anderson -- the CEO of Guelph's Nanodesign who became COO of Montreal-based SignalGene in April following SignalGene's acquisition of Nanodesign last year -- has left the company to return to consulting. Anderson had just been elected to SignalGene's board two-and-a-half months before his resignation. SignalGene shares fell to a new 52-week low on Friday.

• WirelessMoney has gained one executive and lost one, picking up David Campbell as its CFO, but losing Wesley Nelson, its CTO. Campbell joins WirelessMoney from TSE-listed Basis100 of Toronto, where he was CFO. Gary Bartholomew, the CEO of Basis100, is a director of WirelessMoney. He was previously the CEO of iGate Technologies in Waterloo which vanished not long after being sold to Sanga International in January 1999. WirelessMoney CEO James Kunkel was a VP of iGate.

• Italian Internet company DADA S.p.A. will work with RIM to introduce BlackBerry to the Italian market. DADA expects to release BlackBerry in Italy by early next year. DADA had sales of about $26 million in 2000.

• RIM announced that a California judge ruled that its products do not infringe on a patent held by Glenayre. In July 1999, Glenayre filed suit against RIM, claiming RIM had infringed on its patent for a method of generating power from a dual battery source. RIM co- CEO Jim Balsillie had characterized the suit as a "shakedown." RIM filed a separate suit against Glenayre two months ago (see May digest).

• Navtech announced that Air Jamaica has signed a five-year contract to use its DispatchPro flight planning system. It also formally launched WebFP, a Web-based flight planning and weather service. In the quarter ended April 30 (Q2 01), Navtech lost US$266,000 on revenue of US$1.7 million. At quarter-end, the company had a working capital deficiency of US$323,000 and net bank indebtedness of US$87,000. It has stopped telling shareholders that it will seek a Nasdaq listing this year. Navtech's market cap is about US$2.7 million.

• The temporary Drake Beam Morin office set up in Waterloo by Cisco to help laid-off PixStreamers find new work is closing at the end of this week.

• Mitra contributed $50,000 to UW's new Education Program for Health Informatics Professionals (EPHIP), a diploma program in applied health informatics that is modelled on the university's Education Program for Software Professionals (EPSP).

• Also at UW: the faculty of mathematics is considering a proposal to give the computer science department more autonomy by changing its status from a department to a "school of computer science." ... Prof. Mohamed Kamel, co-founder of Virtek and its second-largest shareholder, was one of four UW researchers to be awarded Canada Research Chairs. Kamel will receive $1.4 million over seven years to fund his research in artificial intelligence. Electrical engineering professor James Kuo will receive the same amount for his research in low-voltage CMOS VLSI.