November 2001

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 57 -- December 3, 2001
In this digest:

1. Ardesic shuts down; some assets acquired by U.S. firm
2. Open Text reorganizes; abandons b2bScene
3. Descartes reports declining license sales, flat network revenue
4. No Q2 bounce this year for MKS
5. MKS warrant offering to raise $10 million

6. Com Dev makes $72 million provision for wireless disposition
7. Com Dev to raise $18 million through convertible debentures
8. Cash drying up at GUARD; operations put on hold
9. STOCK REPORT: Old days; good times I remember
10. RIM acquires Toronto's Plazmic
11. Miscellaneous tidbits from InsuroCity, QJunction, RIM, PixStream, RDM, Navtech, Com Dev, CME Telemetrix, Finline

Ardesic shuts down; some assets acquired by U.S. firm
November 22, 2001

Ardesic has laid off its staff and is winding down operations after its shareholders accepted a deal that saw the company's technology assets acquired by iMedium Inc. of Wayne, Pennsylvania, near Philadelphia.

iMedium and Ardesic are both portfolio companies of TL Ventures, which is also based in Wayne (no coincidence -- iMedium was founded by a TL employee).

Financial details weren't disclosed, but it was not a happy outcome for employees or shareholders. Investors who participated in Ardesic's $10 million round of financing in August 2000 -- led by Celtic House and TL Ventures -- will receive some shares in iMedium, which is scheduled to close a new round of financing shortly. Ardesic's other shareholders are expected to receive some money from the liquidation of remaining non-core assets. Employees received severance packages.

The company says there were some other offers for its technology, but none involved maintaining operations in Waterloo, where Ardesic had around 22 employees. Ardesic was founded in mid-1999 by Jeff Fedor, Carmen Clow, and Shawn Day. Later that year it became the first company to receive seed financing from Waterloo Ventures, now managed by Tech Capital Partners.

Steve Traplin became Ardesic's CEO in May 2000 and started building a team in Ottawa that was supposed to manage the marketing side of the company while technology development remained in Waterloo. (One of the senior executives brought on board was Randy Sexton, the co- founder and former GM of the Ottawa Senators. There used to be a video clip on Ardesic's site where Sexton -- Ardesic's sales VP -- was described as having gone "from signing contracts with hockey stars to signing deals with Fortune 500 companies" which at first gave me a chuckle thinking of how many Fortune 500 companies he had signed with Ardesic ... until I realized that it was not much fewer than the number of "hockey stars" he had signed to the Senators before he was fired in 1995. Sexton was voted the NHL's worst GM by Southam's hockey writers that season.)

Ardesic recently repositioned itself as a provider of software for the management of indirect sales channels. It was previously providing customer relationship management applications for e- marketplaces. The company never announced any of its sales or identified any customers.

Bob Ford, who replaced Traplin as CEO in April, said on ROBTv four months ago that the company was planning to raise an additional $7 million, most of which would come from current investors and that there was only room for about another million from other investors. Obviously, that never happened.

iMedium now describes itself as a provider of sales effectiveness applications. It previously raised at least US$12.5 to develop a product that embedded advertising hyperlinks into photos or other images on the Internet but that technology seems to have been dropped.

Open Text reorganizes; abandons b2bScene
November 8, 2001

Open Text has given up on b2bScene as a stand-alone division and spin-off candidate. b2bScene's operations are now part of Open Text's hosted and managed solutions division.

Open Text created b2bScene.com in February 2000 to pursue the then- promising market of e-marketplaces. It stopped referring to it as ".com" a few months later. About a year ago, the company told analysts that b2bScene had received a term sheet from a lead investor and would likely be spun off with shares in b2bScene transferred to Open Text shareholders as a dividend. Deteriorating market conditions delayed -- and ultimately killed -- those plans.

In April, PricewaterhouseCoopers resigned as Open Text's auditors to pursue business opportunities with b2bScene.

Kirk Roberts, who was president of b2bScene, has become president of Open Text's worldwide services group, which includes the hosted services division. Before heading up b2bScene, Roberts had been senior VP of customer services and IT at Open Text.

According to a story in the Globe & Mail, Open Text consolidated "several" business units and fired three vice-presidents who were no longer felt to be needed. Among those let go was Andrew Pery, VP of global marketing. Elyse Gura, who was VP of professional services and Open Text's third-highest paid officer last year -- behind only the president and the CEO -- has also left the company.

The Globe reported that Open Text merged its sales and marketing departments, which are now all under the direction of executive VP of sales Mike Farrell, one of Open Text's longest-serving employees and formerly one of the company's largest shareholders.

The information circular for this month's company annual meeting shows that CEO Tom Jenkins received salary and bonuses of $441,599 in fiscal 2001, up 41% from his 2000 compensation. In August, Jenkins received a 35% raise in his base salary retroactive to the beginning of the year. President John Shackleton remained the highest-paid employee, with total compensation of $457,111.

Helix Investments (Canada) Inc. remains Open Text's largest shareholder with a 14.6% stake, down from 16.7% a year ago.

Descartes reports declining license sales, flat network revenue
November 20, 2001

For the quarter ended October 31 (Q3 02), Descartes' revenue slid to US$18.3 million -- down 8% from the previous quarter but up 5% from a year ago. It's the second straight quarter of sales declines at the company.

Net loss was US$15.6 million (US$0.30/share), which includes US$8.8 million in amortization of intangibles and US$4.0 in restructuring costs primarily from the layoffs announced at the beginning of August (see July digest).

The sales shortfall was caused by continuing declines in Descartes' licensing revenue, which was down 25% sequentially to US$5.9 million -- despite the fact that the company had almost no licensing sales in the final month of the previous quarter.

The company used its shrinking licensing sales to reinforce its case that it is no longer a software company but a network services provider. Network revenue was flat from the previous quarter at US$9.0 million (US$8.9 million in Q2), providing nearly half of all sales.

As was the case in the previous quarter, there was a sequential drop in margins and gross profits, which fell 13% from Q1. But expenses -- excluding restructuring costs -- were slashed by 25%, enabling Descartes to meet or beat analysts' estimates of its "adjusted" net loss.

This was the first full quarter to include results from two recent acquisitions: Centricity and TranSettlements.

At the end of Q3, Descartes had US$211.1 million in cash and marketable securities, down US$4.5 million over the quarter.

Total headcount at the end of the quarter was 581, down 11% from 651 three months earlier. There was a 32% drop in Descartes' quota- carrying salesforce to 45 as the company reorganized its sales around industry-specific solutions.

No Q2 bounce this year for MKS
November 27, 2001

Historically, MKS' second quarter is where the company shows its strongest sequential sales gains -- blowing past the numbers from its traditional weakest quarter in Q1. That didn't happen this year, as sales of US$6.8 million in the quarter ended October 31 (Q2 02) were up only 2% from the previous quarter and down 12% from the same period a year ago.

A decline in margins produced a small sequential dip in gross profits to US$5.1 million. Expenses were down 3% from Q1 (and significantly below last year's numbers), producing a net loss of US$1.2 million (US$0.04/share), compared to a loss of US$1.4 million in the previous quarter.

Sales from the SCM business unit were up 9% sequentially to US$4.2 million. Q2 was the first full quarter of sales for MKS' Source Integrity Enterprise product, launched in mid-July. The company says that sales of the development group version of Source Integrity deteriorated faster than expected. (MKS was referring to Source Integrity as an enterprise application in 1997, but the new version is now described as the product's first enterprise edition.)

The company's other unit, interoperability, showed a 7% decline in revenue from Q1 to US$2.6 million.

MKS lowered its revenue forecast for the current fiscal year from US$30-35 million to "close to or just under US$30 million."

The company used US$2.7 million in cash over the quarter. Nearly a million dollars went to payment of accrued liabilities, most of which are probably related to the financing deals from earlier this year. Cash at quarter-end was US$4.5 million. Working capital, excluding deferred revenue liabilities, was US$1.2 million, down from US$2.7 million at the beginning of the quarter.

Total head-count remained flat over the quarter, although there was a turnover in 25 positions. The SCM unit is gaining staff, while reductions are being made in interoperability. MKS says that about 40% of its workforce have been hired in the last 10 months.

MKS warrant offering to raise $10 million
November 23, 2001

MKS will strengthen its balance sheet by raising $10 million through the sale of 6.7 million special warrants priced at $1.50 a piece. Each warrant is convertible into a common share.

The underwriters are Yorkton Securities, TD Securities, and Octagon Capital -- the three firms whose analysts have participated in MKS' last two conference calls.

This sale will take the number of common shares and warrants outstanding to about 48 million. A year ago, the company had 17 million shares outstanding and no warrants.

Com Dev makes $72 million provision for wireless disposition
November 23, 2001

For fiscal 2001, ended October 31, Com Dev reported total sales of $198.1 million -- $123.1 million from Com Dev Space and $75.0 million from Com Dev Wireless, which was classified as discontinued operations at year-end. The company had previously said that it was keeping part of Com Dev Wireless, but the entire division is now listed as discontinued.

Com Dev Space sales grew by 22% from 2000, while Com Dev Wireless sales fell 29%. At year-end, Com Dev made a $72.0 million provision for the discontinuation of the wireless division (including a write- down of inventory and capital assets) and that helped push its net loss for the year to $103.9 million ($2.29/share). Loss from continuing operations -- Com Dev Space and M/ERGY -- was $16.4 million.

The company had $6.9 million in cash at the end of the quarter -- down $5.4 million over the period and a drop of nearly $14 million over the last two quarters.

During the year, Com Dev wrote off the $1.5 million it had invested in Flamborough's TalariCom Inc. in 1999.

At the beginning of the month, Com Dev told the New Brunswick Telegraph-Journal that there were three or four potential buyers looking at its wireless division. Com Dev's communications VP told the Telegraph-Journal that they "started with 11 companies, but there were some bottom-feeders that just wanted to see if they could get a bargain." The company expects to sell the division early next year.

Com Dev to raise $18 million through convertible debentures
November 27, 2001

Com Dev plans to raise $18 million through the sale of 6.75% debentures, convertible to common shares at a price of $3.15 a share. The company estimates that its net proceeds will be $17.3 million. National Bank Financial and TD Securities are the underwriters.

Most of the money will be used to develop and commercialize M/ERGY.

At first, Com Dev announced it was raising $20 million through debentures convertible at $3.50 a share. It lowered the price three weeks later. Com Dev shares closed last Friday at $2.75.

Cash drying up at GUARD; operations put on hold
November 29, 2001

For the quarter ended September 30 (Q3 01), GUARD reported a net loss of $731,000 on interest income of $2,000. Operations used $619,000 in cash, which the company raised by selling $702,000 worth of SignalGene shares over the quarter.

At quarter-end, GUARD was down to just $171,000 in cash and $326,000 in SignalGene shares, but those shares have doubled in value over the last couple months. It's the first time anything good has happened for GUARD with its SignalGene shares, which it received as partial payment for its Nanodesign subsidiary. Since the deal closed, GUARD has written down the value of its SignalGene shares by $9.7 million.

Working capital at September 30 was just $50,000. GUARD's total assets were down to just $617,000 with an accumulated deficit of $12.9 million. The company's market value fell to $1 million at the end of November.

As mentioned in last month's digest, all GUARD employees were given termination notices effective October 31. It was the core item in what the company calls its "cost termination program" that will essentially see all operations mothballed unless new funding can be raised.

SignalGene announced this month that the former Nanodesign, now SignalGene's drug discovery unit, will be moving to a larger facility next year. It didn't say where the new site is, but when SignalGene acquired Nanodesign from GUARD it agreed to maintain operations in Guelph for at least three years, so I assume it would be in Guelph.

STOCK REPORT: Old days; good times I remember
November 2001

It was almost like old times on the stock market last month -- 1999 growth rates at 1998 prices. Not too bad if you just started investing six weeks ago, but most stocks have just started making slow climbs out of deep holes.

For the month of November:

Virtek [TSE: VRK] +48%
Dalsa [TSE: DSA] +47%
RDM [CDNX: RC] +40%
RIM [TSE: RIM] +33%
MKS [TSE: MKX] +30%
Descartes [TSE: DSG] +29%
Turbosonic [OTCBB: TSTA] +20%
Open Text [TSE: OTC] +9%
Com Dev [TSE: CDV] +8%
Navtech [OTCBB: NAVH] 0% (no trades all month)
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CME Telemetrix [CDNX: YME] -19%
RecycleNet [OTC: GARM] -33%
Finline [CDNX: FIN] -36%
GUARD [CDNX: GUA] -39%

Despite the upbeat month, there are still only three companies whose shares have gone up in value in 2001 -- MKS (left for dead a year ago), Open Text, and Turbosonic. Dalsa shares have lost 10% of their value this year, but that's still good enough for fourth place and no other company is close to challenging for that spot.

CME stock fell to penny levels for the first time, going as low as 80 cents. It finished the month at $1.05.

Companies with headquarters outside the area:

Siebel [Nasdaq: SEBL] +37%
CheckFree [Nasdaq: CKFR] +20%
Network Assoc [Nasdaq: NETA] +20%
Engineering.com [CDNX: EGN] +7%
Sybase [NYSE: SY] +6%
CVF Technologies [Amex: CNV] 0%
=================================
Cyberplex [TSE: CX] -5%
CacheFlow [Nasdaq: CFLO] -12%
MDR Switchview [CDNX: MSW] -33%
VoiceIQ [CDNX: VIQ] -41%

With one month left on the calendar, VoiceIQ is now in the bottom spot for stock performance in 2001 (excluding Gensel, which shut down operations). VoiceIQ shares are down 92.6% so far this year, edging out Urbana.ca (-92.5%) and Cyberplex (-92.0%). The stock is down about 90% since VoiceIQ acquired Waterloo's INM in an all- stock deal. The VoiceIQ R&D site may soon be leaving town. It's currently in a RIM-owned building in Waterloo.

RIM acquires Toronto's Plazmic
November 16, 2000

RIM hasn't said anything to its shareholders about it, but apparently it has acquired Plazmic Inc., a Toronto-based developer of a Java-based product suite that enables the creation and distribution of wireless content and applications for mobile devices. No details have been disclosed.

Plazmic was founded by UW grad Jay Steele, who is president and CTO. The company's CEO, Keith Bates, also has a local connection, although you won't find it listed on his resume. He was the CEO of Waterloo's LiquiMedia until it went belly-up early last year. (The Record's 2000 Tech Spotlight had a story about the rift between the founder of LiquiMedia and the CEO that the company's VC had installed. That CEO, unnamed in the story, was Bates.) Rob Kroeger, LiquiMedia's founder, says he helped introduce Steele to Bates.

Plazmic, like LiquiMedia, received funding from the Eastern Technology Seed Investment Fund (ETSIF) managed by Ventures West, Bates's former employer.

In September, Plazmic announced that Walt Disney Internet Group Japan launched a mobile entertainment service on NTT DoCoMo's i- mode wireless network using Plazmic's technology.

Miscellaneous Tidbits

• In September, InsuroCity.com, the insurance adjustment portal created by Waterloo's Vital Innovations, was sold to Castek Software Factory Inc. of Toronto. InsuroCity is now based in Kitchener. Rob Gow, who was Vital's VP of e-business solutions overseeing InsuroCity, has joined Castek. In September, Castek's Insure3 [cubed] software application for the insurance industry won the Branham award for top product launch of the year (the same awards where RIM was named company of the year). According to the privately-held company, it had sales of nearly $15 million in 2000.

• Waterloo's QJunction is hoping to start back up after its operations were disrupted by a prolonged battle between the company's CEO (and majority shareholder) and its other shareholders. I'm told that the relationship became so strained that the CEO at one point demanded that the company take out an ad in The Record to apologize to him. A new corporate entity is being created which may end up with a different name. It certainly has a different CEO (who has been hired but not publicly announced yet).

• In October, BrandWeek magazine named RIM's Mark Guibert one of its "marketers of the year."

• Virginia-based NTP Inc. has filed a complaint in the US District Court against RIM, alleging patent infringement. NTP has more than 20 patents based on the work of Thomas Campana of Chicago. Its most recent patent is called "Electronic mail system with RF communications to mobile processors," and there are others related to e-mail and mobile devices. RIM says it first heard from NTP almost two years ago, asked for details about how NTP's patents related to RIM products, and never heard anything again until the complaint was filed on November 13. There isn't much information about NTP. The U.S. patent office says it's based in Annandale, Va., the National Post reported Richmond, Va., and Reuters said Arlington, Va.

• In this month's installment of "... and then I built PixStream," Cereva Networks of Massachusetts announced that it has hired ex- PixStream VP Charles Lenis as its VP of sales, service and business development. "As vice-president of worldwide sales for Cisco/PixStream, he built a global sales organization and increased revenues by over 400 per cent," says the release.

• RDM has invested US$4 million in Xign, the California-based company it spun out last year. On a fully-diluted basis, RDM's stake in Xign has now dropped to 15%. The US$4 million is about half of RDM's cash, most of which was raised in a share offering in September 2000. The funds were part of a US$20 million round of financing Xign closed in November.

• A shake-up at Navtech -- four directors have resigned, along with CEO Duncan Macdonald. The new CEO is former CFO David Strucke, who also joins the board. Macdonald remains chairman. Kitchener lawyer Tom Beynon is the only other surviving director.

• According to a story in the Cambridge Reporter, the record price for a house in Cambridge was the $800,000 paid by Com Dev CEO Keith Ainsworth in 1994 for his home near Langdon Hall.

• CME Telemetrix reported a net loss of $795,000 in the quarter ended September 30 (Q3 01). The company had cash and short-term investment at quarter end of $5.0, down $601,000 over the quarter. Operations used $833,000 in cash and the company borrowed an additional $270,000 to fund work on projects other than its GlucoNIR non-invasive glucose monitor (the cash the company has is from Motorola, which only allows the money to be used on development of the glucose monitor). CME has now borrowed almost a million dollars over the last three quarters. It started a new round of human testing last month to determine the accuracy of the GlucoNIR, but the target that was to be reached a year ago still hasn't been achieved outside of simulated non-human tests.

• In the quarter ended September 30 (Q3 01), Finline reported sales of $101,488 -- down 30% from Q2. Net loss in the quarter was $192,000. Working capital deficiency grew to $763,000 with accounts payable climbing to $1.1 million and net bank indebtedness of $10,000. The company had said that its service in Cuba would start before the end of Q3, but there's been no update on its status. Tekron, the company traded on the U.S. OTBCC that Finline was supposed to acquire (through a reverse takeover), disclosed that the conditions on the transaction still haven't been met and the deal has not closed.