March 2002

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 61 -- April 1, 2002
In this digest:

1. Virtek CEO resigns after $7M loss in fiscal 2002
2. CheckFree i-Solutions cuts 60 jobs in Waterloo
3. Big bonuses for Com Dev executives
4. CME still working toward accuracy targets
5. Navtech records small quarterly profit

6. STOCK REPORT: Navtech, RIM show gains in quiet month
7. Miscellaneous tidbits from Cyberplex, RDM, Fakespace, Dalsa, Meikle Automation, Handshake Interactive, TurboSonic, Gensel.

Virtek CEO resigns after $7M loss in fiscal 2002
March 19 & 27, 2002

After a year of record losses, dwindling margins, disappointing sales, salary cutbacks and layoffs, Virtek has announced that president and CEO Jim Crocker has left the company. He follows former CFO and Virtek Biotech president Phil Nafekh, who left in February. Two years ago, Crocker and Nafekh were the company's only two executive officers.

Crocker's duties have been split between chairman Chuck Greb, who becomes CEO, and Bob Sandness, now president and COO. Greb has been Virtek's chairman since 1997 and on its board since 1996. Sandness joined Virtek in October 1999 as aerospace business unit manager when the company was acquiring the aerospace templating business of GSI Lumonics. He became VP of engineering, R&D and business development a year ago and then president of Virtek Laser Systems last August.

Crocker had been Virtek's CEO since he joined the company in October 1996. He added the president title about six months later.

For the year ended January 31, Virtek lost $7.0 million ($0.18/share) on sales of $31.0 million. While revenue was up slightly from the $29.9 million recorded in fiscal 2001, a steady decline in gross margins through the year resulted in a 17% drop in gross profits. Virtek attributed the shrinking margins in part to deep discounts demanded by customers. At the same time, expenses climbed 42% and that combination sent the bottom line tumbling from the $2.3 million profit earned a year ago.

Most of the losses came in Q4, where the company lost $4.2 million on sales of $8.1 million. Losses in the quarter included a $400,000 write-down of goodwill associated with the acquisition of Belgium's LaserTechniek in October 1999. There was also an inventory adjustment charge of $870,000 and a $1.2 million reduction in the value of the company's biotech demonstration units.

Both of Virtek's business units were money losers in the quarter: biotech lost $2.9 million on sales of $2.4 million, while laser systems lost of $1.2 million on sales of $5.7 million.

At year-end, Virtek had net cash of $699,000, comprised of $1.4 million in cash and bank indebtedness of $692,000. It will be relying of a $5 million line of credit and perhaps some government funding to finance operations until it returns to profitability.

In the conference call, Sandness said that the company's strategy under Crocker was not sustainable or focused and was "too grand." Greb said the new executive team will take "a more strategic approach than ever before." There is no longer any plan to split Virtek into separate biotech and laser systems companies.

The company hopes to have some form of partnership in place for its biotech instrumentation business in the next 45-60 days and says that some of the companies it has talked to have expressed an interest in acquiring parts of the instrumentation business. Controller Rob Lamka said that the company needed to resolve that situation before it could make revenue forecasts for the current year.

Virtek is currently preparing a detailed business plan for its FONA biosensor, and it expects that FONA will start to generate significant revenue in about 18-24 months.

In the current fiscal year, Virtek expects that its largest growth will come from its prefabricated construction unit.

Virtek now has 100 employees with 80 in Waterloo. The company eliminated about a third of its positions over the last six months to cut costs.

CheckFree i-Solutions cuts 60 jobs in Waterloo
March 19, 2002

Half of the employees at Waterloo's CheckFree i-Solutions facility have been let go. The company said it is concentrating resources "in the most promising areas in our i-Solutions business unit" following a steady decline in sales over the last six months (see last month's digest).

Following the layoffs, there are about 60 employees at the Waterloo site on Phillip Street. The company had 35 employees at the beginning of 2000 in its waning days as BlueGill Technologies (acquired by CheckFree two years ago this month) and grew as large as 185 employees company-wide.

The i-Solutions office in Ann Arbor, Michigan that evolved from the head office of BlueGill has been closed, as has the i-Solutions office in Singapore. Those closures add another 40 layoffs, bringing the total cuts at i-Solutions to 100.

Parent company CheckFree is cutting 550 jobs in total and shutting offices in San Francisco, Houston, and Austin. It expects to record a charge of about US$20 million in the current quarter to cover severance and other costs related to the closures and layoffs.

Big bonuses for Com Dev executives
March 20, 2002

Com Dev may have lost over $100 million in fiscal 2001, watched its share price fall by 85%, and laid off hundreds of employees, but that didn't stop its executives from accepting hefty bonuses during the year.

The biggest bonus went to CEO Keith Ainsworth, who -- on top of his salary and perks of $415,500 -- was paid a bonus of $347,000. COO John Keating received a $125,000 bonus on top of his other compensation of $328,000. Roger Boivin, president of Com Dev's ill-fated wireless division, took home a $75,000 bonus.

With the bonus, Ainsworth's compensation for the year averaged $63,500 a month, for a total of $762,500. That's about $100,000 more than Open Text CEO Tom Jenkins made in the most recently reported year, making Ainsworth the highest-paid CEO among the locally-based public companies covered here (I don't follow ATS, but its CEO -- Klaus Woerner -- was paid $1.1 million last year). Descartes CEO Peter Schwartz is next on list with total compensation of about $490,000 (excluding the amounts he received by selling Descartes shares), followed by CME Telemetrix CEO Duncan MacIntyre, who got $448,485 in 2000. Com Dev, Descartes, and CME have all had their share price fall by more than 80% over the last 15 months, and I can only imagine how heartwarming it would have been for Karl Marx to witness this triumph of the labourer over the capitalist.

Ainsworth was also granted 100,000 options in fiscal 2001, all of which are on currently the ocean floor. I mentioned in the November digest that the record price at that time for a house in Cambridge was the $800,000 paid by Ainsworth in 1994 (which brought some replies from Silicon Valley about what sized condo they could get for that).

CME still working toward accuracy targets
March 27 & 28, 2002

CME Telemetrix announced the results of patient tests of its glucose monitor conducted late last year. Of the various configurations tested, the best produced a standard error of prediction (SEP) of 1.3 mmol/L over a fairly restricted glucose range (4-7 mmol/L). In November 2000, CEO Duncan MacIntyre said he was confident that an SEP of 1.0 mmol/L would be achieved within five weeks. Now, 16 months later, that target still hasn't been hit.

CME says it will provide another update on its progress in six months. It plans to move ahead with development of a miniaturized instrument design.

For the quarter ended December 31 (Q4 01), CME reported a loss of $429,000 on revenue of $134,000. The company ended the year with $4.3 million in cash and short-term investments, down $712,000 over the quarter. Operations used $335,000 in Q4 and the company repaid debts of $311,000 (I'll have to read the MD&A for the quarter when it's filed -- the company had been borrowing money to pay for development of products other than its glucose monitor and it wasn't allowed to use the cash it received from Motorola to repay those debts).

The company is currently trading right around its book value of $7.2 million. Accumulated deficit at year-end was $13.7 million. The company's stock fell to an all-time low of 62 cents mid-month, but climbed back to close at 80 cents last Friday.

Navtech records small quarterly profit
March 7, 2002

For the quarter ended January 31 (Q1 02), Navtech reported a profit of US$72,000 on sales of US$1.6 million. Sales were up 3% sequentially and 20% from a year ago.

The company eliminated one-third of all positions company-wide between June and January, but still has 71 employees. R&D expenses in Q1 were just 3.6% of revenue, while sales and marketing expenses were 11%.

At the end of Q1, Navtech had a working capital deficiency of US$828,000 with US$109,000 in cash. It expects that it will need to raise money over the next three months.

STOCK REPORT: Navtech, RIM show gains in quiet month
March 2002

This may have been the most uneventful month in the markets -- and elsewhere, for that matter -- since I've been doing these reports. RIM had a good month and its stock has recovered to the point where its six-month chart actually looks pretty good, showing a gain of 75% over that time. RIM launched its combined voice/data BlackBerry for North America in March. It's expected to be available in Canada later this year through Rogers AT&T.

Com Dev and Dalsa are now neck-and-neck in market value. By the numbers I have, Dalsa's market cap is $156 million while Com Dev's is $139 million, but that doesn't include the $18 million in convertible debentures that Com Dev just sold. Add that in and it's about even. Descartes is worth more than Dalsa and Com Dev combined; Open Text is worth more than Descartes, Dalsa, and Com Dev combined, and RIM has a greater value than Open Text, Descartes, Dalsa, and Com Dev combined (with enough room to throw in ATS, MKS, Virtek, and RDM as well ... with another $800 million to spare).

For the month of March:

Navtech [OTCBB: NAVH] +237%
RIM [TSE: RIM] +21%
Turbosonic [OTCBB: TSTA] +6%
RDM [CDNX: RC] +5%
Dalsa [TSE: DSA] +4%
MKS [TSE: MKX] +3%
Com Dev [TSE: CDV] +2%
RecycleNet [OTC: GARM] 0%
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Open Text [TSE: OTC] -2%
EMJ [TSE: EMJ] -4%
CME Telemetrix [CDNX: YME] -5%
Descartes [TSE: DSG] -6%
GUARD [CDNX: GUA] -11%
Virtek [TSE: VRK] -13%
Finline [CDNX: FIN] -22%
Urbana.ca [OTCBB: URBA] -50%

Navtech shares climbed in March, although the magnitude of the gains might be a bit misleading. It has a big bid/ask spread, and the last sale went through at the ask. The bid price went up about 35% in March -- still good enough for top spot.

Virtek shares matched their three-year low set last November. The company is now trading near its book value of $28.8 million.

I said last month that Urbana seemed to be on its last legs, and this month its Web site vanished and its phone was disconnected. Its shares are still trading on the OTCBB, but they're now down to one-tenth of a U.S. cent. I'm going to scratch it off the list for future digests.

GUARD will probably be the next to go. By the time of the next digest it will have been half a year since the company shut down its operations and fired most of its employees. There hasn't been a peep from the company in months.

Companies with headquarters outside the area:

Agfa-Gevaert [Brussels: Agfa] +23%
CVF Technologies [Amex: CNV] +23%
Siebel [Nasdaq: SEBL] +17%
Cyberplex [TSE: CX] +11%
CheckFree [Nasdaq: CKFR] +10%
Sybase [NYSE: SY] +4%
Network Assoc [Nasdaq: NETA] +2%
=================================
CacheFlow [Nasdaq: CFLO] -1%
Engineering.com [CDNX: EGN] -8%

I've taken VoiceIQ off the list since it shut down its Waterloo operations, but its shares fell 52% in March.

I mentioned last month the restructuring at CacheFlow, and I'm told that the Waterloo office was not affected. The company shut down its facility in Redmond, Wash. and is now doing all development work in Waterloo and its head office in Sunnyvale, Calif.

Miscellaneous Tidbits

• Jeff Janssen and Tom Gross both left Cyberplex in December on the same day that Bob Dawson left (see last month's digest). Janssen, Gross, and Rob Payne (who left several months ago) were the three Mutual Group employees who founded Emerald Technology Concepts, which was acquired by Cyberplex in December 1997 and became the foundation of Cyberplex's Waterloo development site. Janssen and Gross are launching a new venture which has not yet been unveiled.

• Jim Kopperson has left KPMG to become CFO and VP of business development for RDM (which is a KPMG client). The company's previous CFO, Doug Newman, was promoted to CEO last September.

• Carol Leaman has given up acting and is now the president of Fakespace Systems, while retaining her previous role as finance VP. Leaman was named acting president in October following the resignation of Dan Wright. Fakespace had an operating loss of $1.0 million on sales of $2.6 million in the quarter ended December 31. It had 40 employees at the end of September.

• Dalsa has negotiated the details of its acquisition of the CCD image sensor business of Philips, announced in January. Dalsa will pay $9.7 million in cash for the business, which will operate as Dalsa Netherlands and remain in Eindhoven. Albert Theuwissen, formerly the head of R&D for the Philips group, has become Dalsa's CTO. Operations of DALSA Netherlands will be managed by Robert Ballizany, who had been operations manager under Philips. With the acquisition, DALSA has raised its revenue target for the current fiscal year to $114-126 million.

• Forgot to mention last month that former Waterloo mayor Marjorie Carroll has joined Dalsa's board.

• Kitchener's Meikle Automation, picked as the top presenter at the VC fair in Kitchener in February, made it a double after receiving the investors' choice award (first round category) at the Toronto VentureFair in March. Meikle also announced that it has acquired Electro-Mechanical Specialties Inc. of North Carolina for an undisclosed amount.

• Handshake Interactive Technologies also presented at the Toronto VentureFair and is seeking $5 million. It sent out a news release summarizing some of its activities over the last few months, including the appointment of Com Dev CEO Keith Ainsworth as its chairman and the addition of ex-Communitech boss and former Rodin COO Vince Schiralli to its advisory board. Handshake says it will have revenue of $125 million in four years, which is about as realistic as many of the forecasts heard at the Kitchener VC fair. ($125 million is better than Com Dev's current run rate -- maybe Ainsworth should switch companies. He might have to take a bit of a pay cut.)

• Hamon Research-Cottrell has purchased 450,000 shares in Turbosonic from CVF Technologies and now owns about 9% of TurboSonic's outstanding shares. Hamon invested $500,000 in TurboSonic last summer. For about the last year, CVF has said it is "actively pursuing" the sale of its holdings in TurboSonic, RDM, Biorem, and Dantec. It plans to keep its stake in SRE Controls.

• In what may be the last report from Gensel, the company sold its lab assets to the University of Guelph for $150,000. Gensel shut down at the end of October and subsequently had its license revoked for the UofG-owned technology it had been developing. Gensel says two companies have expressed some interest in licensing the technology from UofG, and Gensel would get 40% of the licensing revenue if a deal is made. At the end of January, Gensel had a book value of $118,000 ($0.003/share) and an accumulated deficit of $9.0 million. It remains listed on the CDNX.