January 2002

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 59 -- February 4, 2002
In this digest:

1. Dalsa to acquire foundry, image sensor unit; raises $23M
2. Dalsa sales climb slightly in 2001
3. ADexact looks for new CEO
4. Japanese owners abandon former Focus Automation
5. STOCK REPORT: Dalsa shares up 77% in three months

6. Adobe trumps Open Text bid for Accelio
7. RDM breaks even in Q1
8. Miscellaneous tidbits from Mitra, Com Dev, BNW Software, Biomedical Photometrics, RIM, Gensel, JPH International, Systematic

Dalsa to acquire foundry, image sensor unit; raises $23M
January 21 & 23, 2002

A busy month for Dalsa, which held three conference calls over the last eight days of January to announce two acquisitions and its financial results for 2001.

Dalsa will acquire a majority stake in a foundry in Bromont, Quebec, now owned by Ottawa's Zarlink Semiconductor. Dalsa will pay Zarlink $21.6 million for 80.1% ownership in the site, which will become Dalsa Semiconductor Inc. Zarlink will own the remaining 19.9% of the company, which will operate as a business unit within Dalsa with segmented financial statements.

Ralf Brooks, GM of Dalsa's core Vision for Machines division will become president of Dalsa Semiconductor.

Zarlink had wanted to transform itself into a fabless design company, while Dalsa saw a benefit in moving in the opposite direction and take control of the most important element in its supply chain.

"One question we considered very carefully over the past five months as we were trying to acquire this facility is, why are we entering a business which everyone else wants to exit?," said CEO Savvas Chamberlain in a conference call. Dalsa outlined nine benefits to the company from the acquisition, including competitive differentiation, control of a critical input, opportunities for growth in new markets, diversified customer base, and cost reductions.

Dalsa president Brian Doody said that with consolidation in the wafer fabrication industry, and the shift to production of standard high-volume chips, it was becoming more difficult to find foundries for specialized, lower-volume production -- the focus of the Bromont site.

Dalsa expects the foundry will generate $36-42 million in revenue in the last 10 months of this year and will contribute 13-26 cents a share to earnings ($1.8-3.6 million). About 30% of the plant's production will continue to be Zarlink products, and Dalsa and Zarlink have signed a three-year supply agreement. Most of the site's production will be for customers other than Zarlink and Dalsa.

Two days after the Zarlink announcement, Dalsa said it had signed a term sheet to acquire the CCD image sensor business of Philips -- formally Koninklijke Philips Electronics N.V. of The Netherlands (which owns Waterloo's Philips Analytical). Financial details haven't been disclosed, but Dalsa says the Philips unit was generating annual sales of about $20 million. Dalsa plans to move wafer production for the Philips unit to its Bromont foundry over the next nine to 12 months. It will fill 10% of the plant's capacity.

Initially, Dalsa said it would finance the foundry acquisition through a credit facility with the Bank of Montreal, but it later announced that it was raising $23 million through the sale of 2.3 million warrants at $10 each, convertible into common shares. The financing was led by Yorkton Securities. The credit facility is presumably available for the Philips transaction.

About 250 Zarlink employees will be transferred to Dalsa, with another 60 coming over from Philips. That would double Dalsa's staffing levels to 610 people.

Dalsa sales climb slightly in 2001
January 31, 2002

For the quarter ended December 31 (Q4 01), Dalsa reported net income of $1.2 million ($0.10/share) on sales of $12.5 million. Revenue was down 13% from the previous quarter and 22% from the same period last year. The sales shortfall was attributed to the slowdown in the semiconductor and electronics market.

Gross margins improved from Q3 to 54.7% while expenses were reduced by 12% sequentially.

For the year, Dalsa had sales of $56.4 million, up 6% from 2000. Revenue was consistent with the company's mid-year forecast of $53-60 million. Net income was $4.0 million ($0.33/share).

In Q4, operations provided $4.0 million in cash, and the company ended the quarter with $9.3 million in cash and equivalents -- up $3.3 million over the quarter. Dalsa made a final payment of $184,000 to the former owners of Tucson's MedOptics, acquired by Dalsa two years ago.

ADexact looks for new CEO
January 21, 2002

ADexact has parted ways with its CEO for the last year, David Roussain. Company founder and previous CEO Steve Bacso has taken back the reigns and says ADexact plans to search for a new CEO who can drive the company's growth within the North American advertising/television/cable market.

Roussain came to ADexact from FedEx and had worked with Bacso at PixStream in 1998. With his departure, his spot on ADexact's board of directors has also been vacated and the company no longer lists a Portland address as its U.S. office (that spot is now taken by the Boulder, Colorado address of sales & marketing VP Peter Moran).

V Technology returns Focus to Waterloo owners
January 2002

The former Focus Automation didn't last long under its Japanese owners, V Technology Co. Ltd., which acquired the Focus assets last May and renamed the company V Technology North America. While there's been no announcement, the rumour is that V Tech was going to shut the site down and transferred the assets back to some of the company's previous owners. It will now operate under the name Avvida Systems Inc.

In the late 1990s, Focus raised more than $10 million in financing, most of it from well-established Canadian VCs -- Telsoft, Bank of Montreal Capital, and Ventures West. I don't know if preferred shareholders received anything when the company's assets were acquired by V Tech -- if they did it wasn't much; common shareholders received nothing.

STOCK REPORT: Dalsa shares up 77% in three months
January 2002

Dalsa stock continued its hot streak, climbing another 45% in January on top of its 17% gains in December and 47% in November (which followed five straight months of declines). That gives Dalsa shares a jump of 77% over the last three months. Its market cap, which was just over $100 million a month ago, has climbed to over $160 million (including the new 2.3 million warrants).

The stock finished January at $11.44, closing in on its all-time high of $12.10 set in April 1998 (and not come close to since).

Dalsa shares had been a model of stability over a very volatile year (in which stability was a good thing), but with these gains, the company passes the stability baton to Open Text, whose 52-week high is 2.2 times its 52-week low, as is MKS'. Dalsa's is now 2.8.

For the month of January:

Finline [CDNX: FIN] +52%
Dalsa [TSE: DSA] +45%
Com Dev [TSE: CDV] +16%
RecycleNet [OTC: GARM] +13%
RIM [TSE: RIM] +7%
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RDM [CDNX: RC] -6%
Virtek [TSE: VRK] -6%
CME Telemetrix [CDNX: YME] -9%
Open Text [TSE: OTC] -12%
MKS [TSE: MKX] -14%
Descartes [TSE: DSG] -16%
Turbosonic [OTCBB: TSTA] -39%
GUARD [CDNX: GUA] -44%
Navtech [OTCBB: NAVH] -52%
Urbana.ca [OTCBB: URBA] -70%

Companies with headquarters outside the area:

VoiceIQ [CDNX: VIQ] +218%
Siebel [Nasdaq: SEBL] +26%
Engineering.com [CDNX: EGN] +18%
Network Assoc [Nasdaq: NETA] +16%
Sybase [NYSE: SY] +15%
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Agfa-Gevaert [Brussels: Agfa] -8%
Cyberplex [TSE: CX] -9%
CVF Technologies [Amex: CNV] -19%
CheckFree [Nasdaq: CKFR] -19%
CacheFlow [Nasdaq: CFLO] -37%

There was nothing to explain the move in VoiceIQ -- the company hadn't filed anything with SEDAR in nearly five months and its only news release in that time was to announce an appearance at a conference in Toronto.

Adobe trumps Open Text bid for Accelio
February 1, 2002

The directors of Ottawa's Accelio (formerly JetForm) are supporting an all- stock takeover bid from Adobe Systems valued at US$72 million or what the company says is $4.50 a share -- in opposition to the hostile $2.75 a share cash bid made by Open Text last month.

There's been no response from Open Text, which actually owns far more Accelio shares than Accelio's board and executive team. Accelio didn't say how it calculated the $4.50 per share, but it looks like it includes options that would be in the money at that price and excludes underwater options. (Two months ago, Accelio's management team was granted options priced at about $1.75 a share -- just after the company's stock hit it lowest point in years).

It's debatable whether Accelio's employees -- many of whom will be fired if the transaction receives shareholder approval -- see Adobe as a white knight, but Open Text never said what its plans were for Accelio and its staff. I suspect that the senior management team will fare better under Adobe (for a little while, anyway) than they would have with Open Text.

Three years ago -- when Open Text was in the middle of a failed bid to acquire PC Docs -- Adobe and Open Text announced that they were collaborating on a forms module for Adobe Acrobat. Adobe was described at that time as a Livelink user.

Adobe, based in San Jose, recently opened an office in Waterloo. It has a market value of US$8.5 billion.

RDM breaks even in Q1
January 30, 2002

For the quarter ended December 31 (Q1 02), RDM reported sales of $2.1 million -- up 47% from a year ago, but down 23% from the previous quarter.

Digital imaging sales fell 45% sequentially to $1.0 million, but were well above the $443,000 of two quarters ago.

Sales in the company's traditional cheque quality segment climbed 23% from the previous quarter to $1.1 million.

The company broke even in the quarter, with net income of $18,214 ($0.00/share), all of which came from interest on cash and investments. Excluding interest and amortization, RDM reported a loss of $146,613. Gross margins were flat sequentially at 52.5%.

RDM used $6.4 million in cash to invest in Xign and ended the quarter with $6.4 million in cash and short-term investments. Operations provided $386,000.

The company has set a target of just over $10 million in revenue this year.

RDM also announced that it has hired Tom Kettell as its marketing VP. Kettell had been marketing VP at Minnesota-based R2 Corp., a provider of point-of-sale systems.

Miscellaneous Tidbits

• Agfa-Gevaert completed its acquisition of Mitra, following German regulatory approval. Mitra founders Eric Peterson and Larry Williamson, and COO Yvan Couture all left the company following the transaction.

• Com Dev closed the sale of its wireless division to Mitec Telecom of Pointe- Claire, Quebec (see December digest). The deal was changed from about $23 million in stock and cash, as announced in December, to $20.7 million in cash.

• BNW Software, which now lists a head office in London, appeared on ROBTv's VC pitch segment last week, looking to raise $1.5 million. No bites from the two VCs on the show.

• Biomedical Photometrics has licensed technology to Genetix Group plc of the UK that will be used in microarray scanners.

• UW's board of governors will be asked on Tuesday to approve the sale of about 3,000 square feet of land near the former BFGoodrich building to RIM. RIM also plans to rent another strip of land from the university for parking.

• The University of Guelph has cancelled Gensel's license for the sperm- sexing technology it had been trying to commercialize. Gensel shut down operations in October. If the technology is relicensed, Gensel will receive part of the proceeds.

• JPH International, which was acquired by France's EVER SA in October 2000, has dropped its old name and now operates as EVER America, which has been its formal corporate name since the acquisition. The company was originally named after its founder, J. Paul Haynes, who continues as CEO of EVER America. EVER America has U.S. offices in Phoenix and Atlanta.

• Ancient news I just came across: Systematic Computer Services of Guelph, which specializes in rental management software, was acquired in September by RentOnTheDot Inc. of Vancouver. A month later, RentOnTheDot announced that it was merging with a CDNX-listed capital pool company and renaming the combined company Texada Software, but there hasn't been a peep about it in the three months since. Systematic had sales of $2.7 million in fiscal 2001.