October 2001

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 56 -- November 5, 2001
In this digest:

1. MDR Switchview shuts Waterloo site; 90 jobs leave town
2. Gensel winds down operations; GUARD hanging by a thread
3. Agile lays off 60% of its workforce; funding falls through
4. Open Text reports 17.5% increase in sales
5. Dalsa bounces back to million-dollar quarterly profits

6. RIM takes big loss on Motient provision, lowers revenue forecasts
7. iAnywhere posts strong jump in sales, profits
8. Virtek creates majority-owned proteomics subsidiary
9. STOCK REPORT: Finally ... a nearly uneventful month Miscellaneous tidbits from Sirific, ADexact, Descartes, Fakespace, Com Dev, Critical Telecom, Rental Point Software, RDM, Turbosonic, PrinterOn, Cyberplex, Compelis, Pro-C, Rodin, JPH International, Watcom, MKS

MDR Switchview shuts Waterloo site; 90 jobs leave town
October 16, 2001

MDR Switchview is abandoning Waterloo and moving employees who are willing to relocate to a new facility in Mississauga and its head office in Oakville.

The company said that Mississauga offered the advantages of "a greater drawing capacity for employees, a well-established communications infrastructure, and real estate that is readily available."

MDR Switchview currently occupies a RIM-owned building on Columbia in Waterloo.

The company was the product of a complex merger and acquisition deal in February that brought together Waterloo's Switchview and Oakville's MDR Technologies, as well as two smaller companies.

Switchview was founded by Art Linton in 1985 and he remained its CEO until the merger. It had 171 employees world-wide at the beginning of the year, including 90 in Waterloo. The office is scheduled to close at the end of next month.

MDR Switchview also revealed this month that it has been given a bill for $1.3 million from the Canada Customs and Revenue Agency after an audit of the tax returns of MDR Technologies. MDR Switchview also announced the resignation of its CEO and director, Stan Tyo (who had been CEO of MDR Technologies during the years that were reassessed by CCRA). A partner from Toronto-based VC firm Jefferson Partners, one of MDR Switchview's largest shareholders, has taken over as interim CEO. Another Jefferson partner is already the company's chairman.

Gensel winds down operations; GUARD hanging by a thread
October 11 and November 1, 2001

Not a good month for University of Guelph spin-offs. Gensel has ceased operations and GUARD has given termination notices to nearly all its staff. Both companies have ran out of money.

Five of GUARD's six directors -- including chairman George Masters -- resigned from the board, leaving only CEO Brian Cox. He has been joined by two partners with Toronto's Kensington Capital Partners, described in a 1999 National Post story as a mergers and acquisitions advisory firm.

GUARD will continue to search for funding or potential acquirers and, according to the release, is "continuing discussions with domestic and multinational corporations regarding potential investment in GUARD as well as its subsidiaries."

GUARD -- derived from Guelph Alumni Research & Development -- has the right of first refusal to commercialize all IP owned or controlled by U of G. It went public in 1996 and its then-CEO Ron Moses (just named a director of Guelph's Enpar Technologies) said at the time that the IPO money would be enough to keep the company in business for five years, "which is when we expect the returns to start coming back in." Well, the five years was right. (GUARD had to raise additional funds over that period -- including $5 million through a warrant offering in 1998.)

Back in the bullish days of the late 1990s, GUARD had planned to make money by taking its incubated subsidiaries public. It never worked out that way. The only company GUARD has spun off in five years -- Nanodesign -- was acquired by Montreal's SignalGene last year. Nanodesign ended up bringing GUARD less money than it had put into developing the business after the SignalGene shares it received steadily declined in value.

Gensel was happy to have avoided an association with GUARD but it ended up being the first of the two to close down. The company says that it will attempt to find another organization willing to complete its research.

It has now been classified as an "inactive issuer" by the CDNX, and its shares continue to trade, although at a price 90% below where they were a month ago. As of Friday, the bid on Gensel's stock was one cent. The publicly traded shell could become a reverse take-over candidate.

Gensel's fiscal year-end was July 31 but it has not yet reported its annual financial results. At April 30, the company had $791,000 in cash and working capital of $388,000. Its accumulated deficit at that time was $5.7 million.

Agile lays off 60% of its workforce; funding falls through
October 26, 2001

Agile Systems -- which had seemed to be one of the bright spots in the Waterloo technology scene over the last year -- has chopped 40 jobs after it didn't receive the funding it needed.

According to the release, the company had reached a "preliminary agreement" with a U.S.-based group of investors but the deal fell through.

Don McAdam, hired as Agile's president in February and a director of the company since 1996, was one of those who were laid off. Founder Rob Lankin remains CEO. With the layoffs, Agile has been reduced to 28 employees.

Last December, the company told The Record that it hoped to grow to about 100 employees and was targetting sales of $60 million within two years. It was even considering an IPO.

As a privately held company, Agile has rarely disclosed financial information. Yorkton announced early last year that it had helped Agile raise $5.2 million through a warrant offering in December 1999. Working Ventures Canadian Fund was the lead investor in that round, putting $3 million into Agile. Working Ventures senior VP Jim Whitaker, who is also a director of Waterloo Ventures, took a seat on Agile's board with that investment.

Another labour-sponsored fund, the Triax Growth Fund, also invested $3 million in the company. Back in 1997, Agile was working with Helix Investments and had then-Helix VP Richard Black on its board.

Open Text reports 17.5% increase in sales
October 24, 2001

Open Text made it through its traditional weak quarter, ended September 30(Q1 02), with sales of US$35.5 million and net income of US$1.6 million (US$0.08/share). Excluding acquisition-related amortization costs, net income was US$3.1 million.

Sales were up 17.5% from the same period a year ago, but down 13% sequentially with the company's usual drop off in licensing revenue in the first quarter. President John Shackelton said sales would probably have been 10% higher if not for the events of September 11.

Open Text ended the quarter with US$84.1 million in cash -- down US$3.4 million, but operations continued to be cashflow positive, contributing US$3.9 million.

The company has begun shipping its Livelink MeetingZone product, which CEO Tom Jenkins says is Open Text's biggest product launch since the initial roll-out of Livelink. The product enables users to "meet" over the Internet in real-time, and interact through the use of whiteboards and live document authoring and editing. Jenkins said in the conference call that, while the company will match its expenses to revenue, it will also make the necessary investments to introduce MeetingZone to its installed base of 5 million users. "It will touch off a whole cycle of growth within Open Text," Jenkins said.

Over the quarter, Open Text repurchased and cancelled 348,700 shares at a total cost of US$8.3 million. It has now repurchased 1.13 million shares over the last year. At the end of the month the company announced that it will buy back up to another 986,366 shares over the next year.

Dalsa bounces back to million-dollar quarterly profits
October 25, 2001

After a weak second quarter, Dalsa came back with a stronger bottom line and cash flow in the quarter ended September 30 (Q3 01). Revenue for the quarter was $14.4 million, up 5% from the previous quarter and from last year. Expenses also climbed 5% sequentially, but gross margins improved significantly from a weak Q2, resulting in a 19% increase in gross profits. Net income was $1.1 million, up $665,000 from Q2.

Standard product sales were flat, both sequentially and with the same period last year. Revenue from application-specific contracts grew 27% from Q2 to $2.8 million or 20% of all sales.

Dalsa says its traditional machine vision business has been hurt by the economic slowdown, but the revenue shortfall in that unit has been balanced by gains from its Arizona-based life sciences unit (formerly MedOptics). Dalsa paid an additional $427,000 in "contingent consideration" over the quarter as part of the MedOptics acquisition, which closed in January 2000. Even though the company has distinct business segments, it doesn't tell investors the breakdown of the financial results between them. It did say that its life sciences unit is expected to contribute 20% of all sales at the end of the year.

Dalsa added $1.5 million in cash over the quarter, ending the period with $6.0 million. Most of the improved cash flow came from a $1.4 million reduction in inventory. Operations provided $2.4 million in cash, up from $487,000 in Q2. Working capital at quarter-end was $20.9 million.

Development of a CMOS sensor technology for intelligent air bag deployment has been put on hold. President Brian Doody said that in the current environment, automakers are looking for the cheapest solutions that "squeak by" toughened U.S. air bag regulations, which will be phased-in starting in two years.

Dalsa made its quarterly analyst conference call available on the Web, which leaves MKS as the only local tech company that doesn't do so.

RIM takes big loss on Motient provision, lowers revenue forecasts
October 3, 2001

For the quarter ended September 1 (Q2 02), RIM reported a net loss of US$17.5 million (US$0.22/share) on revenue of US$80.1 million. Sales were up 4% sequentially and 88% from a year ago but just barely made the company's forecast of sales in the "low 80 million range". Almost all of the gains came from BlackBerry revenues, which were up 9% from the previous quarter to US$54.4 million, or 68% of all sales.

The company wrote down the value of its long-term investments by US$5.35 million -- just about their entire value -- and also took a US$23.0 million provision (pre tax recovery) for excess inventory and uncollectable receivables related to financial problems at Motient, a RIM customer. CFO Dennis Kavelman says that the company still hopes to collect some of that money.

Despite a US$24.9 million loss from operations under GAAP, once RIM was done fiddling with the numbers, it reported a "proforma" profit of US$3.8 million. Proforma, for those who didn't have Prof. Bezos for Latin, roughly means "what we theoretically could have made if we didn't blow a heap of money on things that we don't intend to do again, so don't hold it against us when you forecast our future results."

The company used US$25.8 million in cash over the quarter, but still has US$672.9 million in cash and marketable securities. Inventory levels as shown on the balance sheet declined by US$27.3 million to US$57.9 million.

I wish I could tell you what was said in RIM's quarterly analyst conference call, but RIM removed all links to conference calls from its Web site months ago and apparently no one's told RIM's news release writer, who keeps giving the URL where the calls used to be. According to reports, the company is now predicting losses between US$11-16 million over the last two quarters of the year, and said that it had been over-reporting the number of BlackBerry subscribers it has, but there's no mention of any of this in the news release or in any other currently-available company source.

RIM expects to generate between US$302-312 million in sales this year. Before Motient's collapse, it had said it was comfortable with forecasts of US$370-390 million. It's forecasting a jump to US$450-500 million in fiscal 2003.

Over the quarter, RIM signed up 48,000 new BlackBerry subscribers, but lost 12,000 existing customers.

The company also announced that it will repurchase and cancel up to 5 million shares over the next year -- or 6.4% of the number of shares currently issued and outstanding.

iAnywhere posts strong jump in sales, profits
October 23, 2001

For the quarter ended September 30 (Q3 01), Sybase subsidiary iAnywhere Solutions reported revenue of US$23.2 million -- up 18% from the previous quarter. Operating income jumped to US$7.5 million from US$5.4 million in Q2.

iAnywhere and Sybase's core enterprise solutions division remain the only profitable business units among the company's five reporting divisions. Financial Fusion, which has an engineering office in Waterloo, reported an operating loss of US$11.1 million. Revenue was US$7.3 million, up 9% sequentially. Excluding acquisition charges, Financial Fusion's operating loss was US$4.9 million. Across the entire company, Sybase reported quarterly profits of US$20.0 million on sales of US$226.3 million.

Virtek creates majority-owned proteomics subsidiary
October 31, 2001

Virtek, in partnership with researchers from the University of Toronto, has created Virtek Proteomics Inc. The new company will provide high-throughput drug screening and validation services to pharmaceutical companies starting next year. Virtek's Colony Arrayer is one of the core components of Virtek Proteomics' screening process.

Virtek told The Record -- but didn't put in its news release -- that it owns 70% of Virtek Proteomics with the founding researchers holding the remaining 30%. It hasn't said whether that 70% stake is held by Virtek Vision International Inc. (the public company) or by its Virtek Biotech Holdings Inc. subsidiary. Virtek Proteomics is now seeking additional funding.

Another company started by researchers at the University of Toronto, Integrative Proteomics, also specializes in the use of proteomics in high-throughput drug discovery and it has raised more than $50 million (more than Virtek's market value) over the last 14 months.

Last year, Virtek touted its expertise as "driving a laser beam very quickly and accurately" and moved into biotech through its laser-based ChipReader product. Since then, it has increasingly moved away from laser products in biotech and now emphasizes its traditional expertise in robotics (the R in Virtek originally stood for "robotic" and ESI, which created the Colony Arrayer, was also a robotics company).

STOCK REPORT: Finally ... a nearly uneventful month
October 2001

For once, there wasn't much of note in the market over the last month. Gensel shares plummeted after the company announced it was shutting down, but otherwise, October was pleasantly humdrum:

Navtech [OTCBB: NAVH] +48% (12 cents)
Finline [CDNX: FIN] +47% (7 cents)
Com Dev [TSE: CDV] +21%
Open Text [TSE: OTC] +20%
RDM [CDNX: RC] +19%
Descartes [TSE: DSG] +18%
MKS [TSE: MKX] +6%
RIM [TSE: RIM] +2%
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Turbosonic [OTCBB: TSTA] -4%
Dalsa [TSE: DSA] -8%
Virtek [TSE: VRK] -14%
CME Telemetrix [CDNX: YME] -16%
GUARD [CDNX: GUA] -26%
RecycleNet [OTC: GARM] -40%
Urbana.ca [OTCBB: URBA] -64%
Gensel Biotech [CDNX: GSB] -90%

CME Telemetrix shares began the month at their all-time lowest point and fell from there, going down to $1.00 before climbing back in the last week of October to end the month at $1.30. I haven't seen any information from CME or its market to trigger the decline, other than impatience with a company whose main revenue is still years away.

Urbana, which I don't usually follow, saw a huge one-day jump in its shares after announcing what it described in a news release headline as a "$5-million (U.S.) financing agreement." The shares gave back all the gains, and then some, after investors realized that 1) the deal had actually closed three months ago and 2) the company wasn't actually receiving US$5 million, and that to get anything close to that amount it would have to flood the market with hundreds of millions of new shares. On Friday, Urbana shares closed below a U.S. penny at US$0.009. Urbana shares have fallen 96% this year -- the worst performance among all stocks listed here, with the exception of the inactive Gensel.

Companies with headquarters outside the area:

Network Assoc [Nasdaq: NETA] +49%
Sybase [NYSE: SY] +46%
CacheFlow [Nasdaq: CFLO] +34%
Siebel [Nasdaq: SEBL] +26%
=================================
Cyberplex [TSE: CX] -6%
MDR Switchview [CDNX: MSW] -6%
Engineering.com [CDNX: EGN] -14%
CheckFree [Nasdaq: CKFR] -17%
CVF Technologies [Amex: CNV] -27%
VoiceIQ [CDNX: VIQ] -32%

Miscellaneous Tidbits

• Roy Gunter is no longer CEO of Sirific. He had been hired in the spring and was based in Oakland. Back at the helm is Richard Boyer, Sirific's start-up CEO and seed investor. Boyer also financed the construction of the building on Phillip Street that has just been completed with Sirific as lead tenant. Other tenants include Waterloo Hydrogeologic and Tech Capital Partners.

• Lisa Short, marketing VP at ADexact, has left the company. She had joined ADexact in March, coming from FedEx -- which was also the previous employer of ADexact CEO David Roussain.

• Descartes' Aivars Lode, who left the company last month, was never its president according to CEO Peter Schwartz -- even though Descartes listed him under that title for over a year on its Web site (and still does on a couple pages). In formal filings he was listed as "group president." Just before Lode left, his title was changed on the Web site to "president of market and field operations," and that's what the company says was always his real position -- but even some insiders aren't clear about what Lode did. Sounds like the feelings aren't very neighbourly toward the former "president."

• Dan Wright, president of Electrohome and CEO of its Fakespace Systems subsidiary, has resigned from both roles. Carol Leaman, Fakespace's finance VP, takes over as interim president.

• Com Dev has received what it calls its first commercial order for M/ERGY. It will be used as part of a demonstration of 1xEV-DO (a 3Gish data-only standard) technology in Seoul, South Korea. The customer is Korea's SK Telecom and it hopes to have a 1xEV-DO network running in Korea before the start of soccer's 2002 World Cup, which is being held at several cities in Korea beginning on May 31.

• Saskatchewan's Critical Telecom Corp. has opened an office in Waterloo, headed by ex-PixStreamer Dan Byron (the office is currently his house, although there are plans to expand). Byron is now Critical's director of marketing and business development. According to the company's Web site, he "was responsible for generating significant revenue" at PixStream. Exactly when PixStream had significant revenue isn't specified. :-) Another former PixStream employee, Sean Caragata, has joined Critical's board of directors. Caragata had been general counsel at PixStream and his most public role was probably the settlement of the suit brought by UBS. He still works for Cisco. Until last year, Critical Telecom was known as Critical Control and was a general engineering services firm. It specializes in "last mile access solutions" for the telecommunications industry and is based in Saskatoon's Innovation Place.

• Waterloo's Rental Point Software Inc. was one of the companies making a pitch at the Chicago Software Association's Early Stage Investment Conference in September. Rental Point was looking for a $400,000 investment in its software for the management of audio-visual equipment rentals. The Canadian Department of Foreign Affairs and International Trade is one of the sponsors of the annual event.

• RDM released its fiscal year 2001 results -- and the Q4 numbers look pretty strong, but as usual the company didn't provide enough detail in its news release so I'll wait until the financials are filed with SEDAR before going over them here.

• For the year ended June 30, Turbosonic reported net income of US$593,000 on sales of US$14.1 million. Revenue more than doubled from US$6.2 million in 2000.

• PrinterOn announced that its Internet printing service will be used by AlphaNet Hospitality Systems, which provides an in-room faxing and printing services to hotels (it used to trade under the ticker FAX on the TSE; it's now owned by Tech Electro Industries, an OTCBB penny stock).

• Cyberplex laid off another 35% of its staff company-wide in October. The cuts included six jobs in Waterloo, which takes the local site down to 30 employees -- about where it was in mid-1999. At its peak a year ago, there were about 70 people working for Cyberplex in Waterloo and space for many more in the company's Albert Street office.

• I've stopped following it, but it looks like Compelis is no more -- I'm not sure it has existed in anything but name for some time, but the company's phone number now takes you to a voicemail box for owner Marlin Doner. Now that Compelis is private and inactive, we may never hear the result of the $20,000 lawsuit that was brought against the company earlier this year by a former employee.

• Speaking of lawsuits: in September, Computer City (affiliated with Radio Shack) won its appeal of the $1.2 million judgment against it handed down by an Ontario court last year. The suit was brought by Waterloo's Pro-C, remnants of the long-departed Vestronix, over a claim of trademark infringement. Computer City had sold a line of computers under the brand name Wingen, a trademark that Pro-C had registered and was using for a software application it sold. With the Ontario Court of Appeal allowing the appeal, not only doesn't Pro-C get the $1.2 million, it also has to pay Computer City's court costs.

• Rodin Communications didn't file a reorganization plan after all (see last month's digest) and is now operating under a court-appointed receiver. There's been no word from the company, but a story in The Record two weeks ago said Rodin is seeking to have the bankruptcy court approve its restructuring proposal. The company's bankruptcy trustee said that Rodin has between 180 and 200 creditors who are owed $13 million -- with half of that amount owed to secured creditors. The Pembroke Daily Observer reported this month that Renfrew County council considers its contract with Rodin to be terminated and reserves the right to claim damages.

• Jeff Papows, the former CEO of Lotus and now CEO of Maptuit, has joined the advisory board of JPH International. JPH's core product is based on the Lotus platform. Papows, who in 1998 wrote a good book called Enterprise.com, later suffered the embarrassment of having many of his claims about his background (e.g. being a fighter pilot, having a black belt in tae kwon do, earning a Ph.D. from Pepperdine -- it's actually from an unaccredited correspondence school) exposed as a sham in the Wall Street Journal. Also joining JPH's advisory board is Kitchener lawyer Tom Beynon.

• California's SciTech Software released a patch for the Watcom C/C++ and Fortran compilers this month. Not big news, but it's the first product of the Open Watcom project which will eventually see the full source code for the old Watcom products released under an open source license.

• MKS has changed its name to ... MKS. It is now formally MKS Inc. I haven't called it Mortice Kern Systems here since May 1998.

• A sign of the times: the annual Internet World Canada show is dead. It looked like a zombie in 2000, and I can't imagine how bad this year's event must have been, but back in the glory days of 1999 it was a fun show. Terry Stepien and Jim Balsillie both gave talks that year.