April 2002

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 62 -- May 6, 2002
In this digest:

1. Open Text achieves record earnings despite slow software sales
2. Dalsa maintains million-dollar profit in soft quarter
3. RIM sales climb 33% in fiscal 2002
4. RIM to license technology to other device manufacturers
5. Com Dev CEO tells shareholders he deserved big bonus

6. RDM's digital imaging business logs strong quarterly growth
7. STOCK REPORT: April erases six months of gains for RIM
8. Miscellaneous tidbits from Cyberplex, iAnywhere, Intellitactics, VoiceIQ, Descartes, CME Telemetrix, Navtech, Com Dev, Virtek, GeneFocus, SlipStream, Dspfactory, Betacom.

Open Text achieves record earnings despite slow software sales
April 24, 2002

Software sales remain sluggish at Open Text, but the company is still generating strong quarterly profits by keeping a lid on expenses. For the quarter ended March 31 (Q3 02), Open Text reported net income of US$4.3 million (US$0.20/share) on revenue of US$36.8 million.

Sales were down 6% sequentially with most of the drop coming from service revenue. Software licensing revenue slipped just slightly from Q2, but was down 15% from 2001. CEO Tom Jenkins said that licensing growth depends on the return of large deals with a value of over US$750,000 and that deals of that size are just starting to show up again now. Average deal size currently remains about US$250,000. Sales to new customers climbed to 35% of revenue, up from 28% in the previous quarter.

Expenses fell 9% from the previous quarter, with sales and marketing cut by 17% -- attributed in part to the reduction in management positions last fall.

Excluding amortization of intangibles, net income was US$5.9 million and the company reported cash flow from operations of US$10 million, the highest in its history. It says it is comfortable of adjusted net income estimates for the year of US$0.98/share, which would require an adjusted earnings of US$6.8 million in the current quarter.

At quarter-end, Open Text had US$104.0 million in cash -- up US$12.8 million over the quarter -- plus US$2.6 million in Accelio shares that it sold for cash in the current quarter.

Dalsa maintains million-dollar profit in soft quarter
May 2, 2002

Dalsa has always referred to its fiscal Q1 as its toughest quarter, and it lived up to its billing again this year, even if some of the numbers looked at first glance like traditional Dalsa results.

For the quarter ended March 31, Dalsa reported net income of $1.0 million ($0.07/share) on revenue of $14.7 million. Total revenue was down 7% from a year ago and up 17% sequentially, but this quarter's numbers included five weeks of revenue from the company's new semiconductor foundry business. If that revenue is subtracted, Dalsa sales fell 6% from Q4 and 25% from 2001. Despite the drop, president Brian Doody said that all business units met or exceeded their revenue targets for the quarter.

The $1.0 million in net income was down from $1.2 million in both the previous quarter and a year ago, but this also requires an asterisk since the company deferred development costs of $247,000 related to its digital cinema business unit. (These are costs that previously would have been included in quarterly R&D expenses and deducted from earnings but are now being capitalized. They will be expensed in the future.) Doody said the digital cinema business had achieved certain milestones that triggered the accounting change. Dalsa expects to capitalize digital cinema development costs for the rest of 2002 and into 2003.

The company ended the quarter with $5.1 million in cash -- down $4.1 million over the quarter. It also owes $9.7 million that was borrowed to pay for the acquisition of the CCD sensor business of Philips. Operations used $3.0 million in cash over the quarter. Dalsa raised a net $23.3 million through the sale or warrants and shares in the quarter and spent $31.7 million on its two acquisitions -- including $21.5 million paid to Zarlink for the foundry and $9.7 million paid to Philips.

The intangible assets Dalsa acquired -- $1.0 million from the Zarlink deal and $6.1 million from Philips -- will be amortized over a 12-year period.

Doody told analysts he had talked to customers of the Bromont foundry -- some of whom are Dalsa competitors -- and they were pleased with the change in ownership and comfortable with the "Chinese wall" Dalsa has placed between the foundry and its other operations to prevent the leak of information.

RIM sales climb 33% in fiscal 2002
April 9, 2002

RIM has lowered its revenue forecast for fiscal 2003 following a slow quarter in which BlackBerry sales logged their first sequential decline.

Revenue for the quarter ended March 2 (Q4 02) was US$66.1 million, down 7% sequentially and 27% from a year ago (the year ago period included a big order from AOL) -- and near the low end of the company's December projection of US$65-70 million. At the end of Q2, RIM had been expecting that Q4 revenue would be in the RIM US$75-80 range. Net loss for the quarter was US$8.6 million (US$0.11/share). The company recovered a previously written-off receivable of US$3.9 million that reduced the quarterly net loss by US3¢ a share.

For the first time, BlackBerry sales shrank from the previous quarter, dropping 7% from Q3 to about US$54 million. RIM says there were 321,000 BlackBerry subscribers at the end of the quarter, up 11% over the quarter and 96% from a year ago.

At the end of the quarter, the company had US$644.6 million in cash and marketable securities, down US$11.7 million from the end of Q3.

For fiscal year 2002, RIM reported sales of US$294.1 million, a 33% increase from 2001. Net loss for the year was US$28.5 million ($0.36/share) with a loss from operations of US$58.7 million.

RIM told analysts it expects 2003 revenue of US$375-425 million and a loss of US30-45¢ a share, which would be about US$25-35 million.

RIM to license technology to other device manufacturers
April 4, 2002

RIM plans to make its core BlackBerry platform available to other manufacturers of wireless handheld devices.

As part of its "reference design program," RIM will also make available a custom-designed chip from Analog Devices (ADI) that combines digital signal processing with microprocessor capabilities supporting Java applications. The chip is optimized for GSM/GPRS networks.

Details of the program were not announced.

Com Dev CEO tells shareholders he deserved big bonus
April 24, 2002

At Com Dev's annual meeting in April, CEO Keith Ainsworth took what he described as a "detour" to address concerns about the bonuses paid to executive managers in 2001 -- particularly the $347,000 bonus given to Ainsworth (see last digest -- parts of which were quoted on Com Dev's Web site after being sent to the company by upset shareholders).

Ainsworth told the meeting that "a few shareholders have expressed outrage" over the bonuses paid, but dismissed those concerns and admonished some shareholders to "do more homework." He pointed to the performance of Com Dev's stock in 2000 as being sufficient for management to deserve "some significant level of incentive compensation" in early 2001.

Ainsworth claimed that Com Dev was the second-best performing stock on the TSE in 2000, and while that's not accurate, Com Dev shares did rally strongly that year. That would be the argument in favour of the bonus -- or at least of *a* bonus, if not necessarily one of the magnitude Ainsworth accepted (as a percentage of base salary, Ainsworth's 86% bonus dwarfed the 41% received by the COO, the 22% paid to the wireless president, and the 8% given to the CFO).

The counter argument would be that Com Dev shares in 2000 only achieved a brief and partial bounce-back from the disastrous years registered in 1998 and 1999. The company's stock has been one of the poorest performers among local stocks in three of the last four years -- and it's off to another weak start in 2002. Com Dev put together a strong five-month string from July to November 2000, but it's mostly been a chronic underachiever in the market since its glory days in 1997 and early 1998.

Com Dev went public late in 1996 with an IPO priced at $8.25 a share. It raised almost $70 million through the offering -- about $20 million less than the company had initially projected, but chairman Val O'Donovan told The Record at the time that the company was advised to "go at an attractive discount, so a year from now, your shareholders will be very happy."

And, boy, did they end up being happy. Within the first few weeks of trading, Com Dev shares climbed 48% and they quadrupled in price by the end of the company's 1997 fiscal year. Ainsworth received an $80,000 bonus that year.

The stock continued to trade above $30 into the beginning of calendar 1998. It was in this period that Ainsworth sold $10 million worth of stock and paid what was, up to at least a year ago, the all-time highest price for a house in Cambridge. Not only did he enjoy the liquidity of holding shares in a public company, he also saw his take-home pay rise from $170,000 in 1994 and 1995 to $382,000 in 1996 and $330,000 in 1997.

And then, in its second year as a public company, the wheels fell off -- beginning with a 62% plunge in June 1998. By the end of the year, Com Dev stock had declined 74%, making it the worst performer among the stocks tracked in the digest at the time.

In 1999, during a huge bull market -- the Nasdaq composite climbed 86% that year -- Com Dev stock fell another 40%, ending the year at $4.70. That made it the second-worst performer among the stocks listed here in 1999, trailing only GUARD.

Com Dev rebounded from these decimated levels in 2000, climbing to over $13 in February and March, dropping to a low of $6 in June, and then bouncing back to close the year at $15.50.

The gains didn't last long. Com Dev shares had fallen 14% in December 2000, and that was followed by a 10% drop in January 2001 and a 47% decline in February. Com Dev stock fell 80% in value over calendar year 2001 and is down another 33% so far in 2002.

RDM's digital imaging business logs strong quarterly growth
April 30, 2002

For the quarter ended March 31 (Q2 02), RDM reported a net income of $184,000 ($0.01/share) on revenue of $3.4 million. Sales were up 61% sequentially and 114.5% from the same period a year ago. Gross margins fell to 44.4% from 52.5% in the previous quarter, resulting in a sequential increase in gross profit of 36%. Expenses were flat from Q1.

Digital imaging sales climbed to $2.4 million -- up 140% from the previous quarter and 180% from the same period a year ago. Unfortunately, as has usually been the case, the skimpy news release the company sent out gives no indication of how this growth was achieved. (I've tried prodding before to no effect, but RDM's quarterly results news releases are the weakest among the companies I track here. It's one thing to be reticent when the numbers are bad, but when they're good it's like being dealt a credibility card and choosing not to play it.)

Cheque quality sales appear to have been $1.0 million, nearly matching the $1.1 million in Q1.

RDM ended the period with $6.1 million in cash and short-term investments, down $228,000 over the quarter. There was a jump in inventory of $751,000 and payables grew by $530,000.

STOCK REPORT: April erases six months of gains for RIM
April 2002

Not a good month on the stock market. RIM stock spent an entire month under $30 for only the second time in three years, Open Text continued its 2002 slide, MKS fell to its lowest levels in six months, and the ditch got a bit deeper for Descartes, Com Dev, Virtek, and CME Telemetrix. Dalsa, one of only two companies to show a significant jump in April, has already given back all those gains over the first three days of trading in May.

For the month of April:

RDM [CDNX: RC] +15%
Dalsa [TSE: DSA] +12%
EMJ [TSE: EMJ] +1%
Navtech [OTCBB: NAVH] 0% (no trades)
=================================
CME Telemetrix [CDNX: YME] -14%
Open Text [TSE: OTC] -16%
Virtek [TSE: VRK] -18%
Descartes [TSE: DSG] -19%
Com Dev [TSE: CDV] -19%
MKS [TSE: MKX] -20%
Turbosonic [OTCBB: TSTA] -34%
RIM [TSE: RIM] -37%
Finline [CDNX: FIN] -40%

(I'm leaving the exchanges as TSE and CDNX for now. The TSE is undergoing a rebranding exercise but has botched it up so badly that even THEY don't seem to be sure what they're called anymore. They want the initials TSX to be used now (inspired by the success of the XFL, I guess) but the company's own newly redesigned Web site still uses TSE and CDNX and the old logos for each. The Web site is at tse.com and won't be moving to tsx.com since that domain is registered by a company in Silicon Valley. TSX is also the TSE ticker symbol for bankrupt 360networks -- one of the biggest flops on the Toronto exchange over the last 18 months.)

Com Dev ended the month with a market cap just under $100 million, which is now well behind Dalsa. Here's the numbers I come up with for market capitalization using last Friday's closing price and the most recently reported number of issued and outstanding shares (with convertible warrants that have already been paid for included, but excluding convertible debentures). Figures are in millions:

RIM Open Text Descartes Dalsa Com Dev MKS Virtek RDM CME Tel'x Turbosonic Finline Navtech GUARD

$2,022 691 276 155 98 65 26 18 6.0 5.6 2.2 1.4 0.5

I've taken GUARD off the stock list. There's been no sign of life from the company in months and its stock continues to trade for under ten cents a share. Year-end results from GUARD should be out later this month.

A company in Texas was set to buy the publicly traded shell of bankrupt Urbana at the end of April. SEC filings show that Urbana had issued 50 million new shares over the last six months.

It was also a rough month for some companies with headquarters outside the area:

CheckFree [Nasdaq: CKFR] +33%
Engineering.com [CDNX: EGN] +7%
Agfa-Gevaert [Brussels: Agfa] +2%
=================================
CVF Technologies [Amex: CNV] -6%
Cyberplex [TSE: CX] -19%
Sybase [NYSE: SY] -20%
Siebel [Nasdaq: SEBL] -26%
Network Assoc [Nasdaq: NETA] -27%
CacheFlow [Nasdaq: CFLO] -38%

Network Associates, which presumably still has an office in Waterloo (there's a sign, but if you search for Waterloo on the company's Web site, the only match is a link to RIM) saw its shares fall after it said it would be restating earnings from prior years. CacheFlow stock ended the month at an all-time low. CheckFree shares posted a strong rebound following the company's reorganization.

Miscellaneous Tidbits

• First, a correction: ex-Cyberplexians Jeff Janssen and Tom Gross ARE working together on a new venture, but it's not the one named in last month's digest, which was a different company started by another ex-Cyberplex employee, Jim Latimer.

• For the year ended December 31, Sybase's iAnywhere Solutions reported operating income of US$27.5 million on revenue of US$89.4 million. Sales were down 3% from 2000, while operating income grew by 8%. Q4 sales of US$25.8 million were up 11.5% from Q3. iAnywhere's operating margins are by far the best among Sybase's five business units. Financial Fusion, which also has an engineering office in Waterloo, reported an operational loss of US$43.5 million (US$21.5 million excluding amortization of intangibles) on revenue of US$28.1 million. Its sales were also down 3% from 2000.

• Another round of layoffs at Intellitactics in April, with about 25 people getting the axe. The company had chopped about 10 positions in January. The latest cutbacks came after the planned acquisition of the company by Aprisma Management Technologies suddenly fell through. Aprisma is a subsidiary of New Hampshire-based Enterasys Networks (formerly known as Cabletron Systems) which invested in Intellitactics in 2000. Enterasys is in a mess -- its planned spinoff of Aprisma in February was postponed after the U.S. SEC launched an investigation into the parent company's operations, its CEO, COO, and marketing VP all "resigned" at the beginning of April, and it recently announced that it is cutting 30% of its workforce.

• Oleg Feldgajer got some revenge on the directors of VoiceIQ who fired him in January -- he was part of a group of investors who took control of the company at its AGM and fired the board. With the change in control, Feldgajer has withdrawn his suit against the company (see February digest) and is once again on VoiceIQ's board of directors.

• Descartes has settled its suit against Massachusetts-based competitor Celarix and three former employees, which it had filed in November 2000. Descartes claimed that Celarix had induced three former Descartes employees -- Ed Murphy, Chad Burmeister, and Phil Denomme -- to violate their non-disclosure, non-solicitation, and non-compete agreements. Murphy is currently Celarix's professional services VP. Burmeister is or was the company's west coast sales director. Denomme is now listed as software development VP at IQ-Ludorum in Mississauga. According to Descartes, it has received a permanent injunction against some Celarix employees as part of the settlement, but the news release didn't say what these employees were now enjoined and restrained from doing.

• CME Telemetrix has withdrawn its patent infringement complaint against Arizona's Instrumentation Metrics (see February digest), but says it expects to re-file it in the future. According to CME, Instrumentation Metrics was going to seek protection under a U.S. law that permits the use of patented inventions to collect information required for federal regulatory approvals -- FDA trials, in this case. The law is primarily used by generic drug manufacturers, but has also been ruled by U.S. courts to apply to medical devices.

• CME also announced the appointment of Stephen Curtis as its CFO. He succeeds Ron Beath, who had been a colleague of CME CEO Duncan MacIntyre when the two worked at Monsanto. CME says Curtis is joining the company from Ernst & Young, where his practice centred on corporate taxation.

• Bill Scott, formerly with CheckFree, is about to become Navtech's VP of operations.

• Com Dev's M/ERGY wireless broadband system is being used in an operational trial in Manhattan, Kansas by Monet Mobile Networks, which is based near Seattle. It is the first commercial deployment of M/ERGY in North America.

• A $3 million project led by Ottawa's Children's Hospital of Eastern Ontario (CHEO) will develop and test Virtek's FONA biosensor technology for use in newborn screening. The project leader is Dr. Alex MacKenzie, a pediatrician and researcher at CHEO and the University of Ottawa. Genome Canada contributed $1.5 million to the project. Scientists at the University of Toronto and the University of Manitoba are also participating in the research.

• GeneFocus, part of Biomedical Photometrics, will have its microarray scanners and analysis software distributed in the U.S. by Virginia-based Sunergia Medical.

• 3C Infotech is changing its name to SlipStream Data Inc., which is formally launching this week.

• Dspfactory announced that it will be a supplier to Burlington's Gennum Corp. Gennum is an established manufacturer of analog hearing aids and last year launched its first line of digital products. Gennum will embed Dspfactory technology into a new line of digital hearing instruments.

• Mike Stork, former CEO of Unitron and an investor in Dspfactory, has joined the board of directors of Mississauga's Betacom, which used to be Kitchener's Control Advancements and has an engineering office in Waterloo.

• UW's computer science department is now the School of Computer Science. It remains part of the Faculty of Mathematics.