June 2002

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 64 -- July 2, 2002
In this digest:

1. Virtek sells biotech instruments business to large U.S. firm
2. Sybase becomes first tenant for UW research & tech park
3. Intellitactics receives US$2 million follow-on investment
4. Descartes erases another 120 jobs world-wide
5. MKS improves bottom line in 2002; forecasts 30% growth this year

6. Navtech's cost cutting improves profits in Q2
7. STOCK REPORT: Virtek rebounds; Com Dev, RIM continue slump
8. Miscellaneous tidbits from Mitra, BlueNexus, ARISE, RIM, Onlinetel, Senesco, UW, Finline, Com Dev, Sandvine, Open Text

Virtek sells biotech instruments business to large U.S. firm
June 28, 2002

Virtek has sold its cash-draining biotech instruments business to Bio-Rad Industries of Hercules, Calif., north of San Francisco. According to Virtek, Bio-Rad will take space in Virtek's recently-constructed operations facility, next to Virtek's head office, and will operate a microarray and automation business unit in Waterloo staffed with former Virtek Biotech employees.

Bio-Rad is a manufacturer and distributor of life science research products that trades on the American Stock Exchange with a market cap over US$1 billion. The price of its shares have jumped 44% so far in 2002 and 87% in the last year. Bio-Rad has Canadian offices in Mississauga and Montreal.

Financial details have not yet been disclosed, but Virtek described the sale as being "valued in excess of $10 million." For the year ended January 31, Virtek Biotech had sales of $8.3 million, nearly all from the instruments business. Bio-Rad has acquired the ChipReader, ChipWriter, and CAPS products and related assets, while Virtek will retain the FONA component of its biotech assets.

In February, Virtek announced that it had stopped development on its biotech instruments and was seeking a partner for the business. By March, the company was talking about the possibility of selling off the instruments business entirely.

Virtek also announced in June that it has hired Kevin Quinlan as its new VP of business development. Quinlan will be based in Boston. According to the release, Quinlan was most recently sales VP for Dimensional Photonics Inc. in the Boston area.

Sybase becomes first tenant for UW research & tech park
June 6, 2002

After decades of talk and failed plans, the UW Research and Technology Park is finally becoming a reality with the announcement that Sybase will become the park's first tenant. A formal groundbreaking ceremony was held on the UW north campus at the end of the month.

Just over 20 years ago, The Record reported that UW was "poised to develop a major industrial research and high technology park on its north campus that will directly compete with such high-tech hotbeds as California's 'silicon valley.' ... Construction could start as soon as a company steps forward." A 1981 story described the park as "long-awaited."

An early promotional brochure for the park boasted that the region was home to "numerous advanced technology companies such as NCR, Raytheon, Allen-Bradley, Victor (Canada), and Die-Maco."

Hewlett-Packard purchased 100 acres of land on UW's north campus in 1985, but never used it and sold it back to the university in 1996.

Efforts to develop the park heated up in 1997 and the university subsequently signed a letter of intent with the Watpark Consortium, affiliated with OMERS, but that initiative died two years ago. The university got as far as a draft letter of intent with another group in 2000, but that also ended up being a dead-end.

Sybase came to Waterloo in 1994 when it announced it was buying Powersoft, which had acquired UW spinoff Watcom earlier in the year. Sybase's iAnywhere Solutions subsidiary is headed by Waterloo's Terry Stepien. Stepien was listed in the Sybase/UW news release as the president of Sybase Canada, which is the first time I've seen that title used. Sybase has nearly 300 employees in Waterloo. It hopes to move into a 100,000 square-foot building in the tech park before the end of next year.

Intellitactics receives US$2 million follow-on investment
June 11, 2002

Intellitactics says it has received US$2 million from Baltimore's JMI Equity Fund, one of the company's existing investors. Along with the investment, the company has also been given a new director and acting CEO in Gary Greenfield, who had been CEO of Merant until last fall and is now listed as a "special advisor" to JMI.

JMI was the lead investor in Intellitactics' first round of VC funding in 2000, contributing US$3 million of a US$4 million round where investors had an option to put in an additional US$3 million based on the company's performance. JMI says it invested an additional US$1 million late last year.

Intellitactics chopped about 10 jobs in January, followed by another 20-25 in April after a planned acquisition of the company by troubled Aprisma Management Technologies suddenly fell through.

The new CEO had headed Maryland-based Intersolv when it merged with Micro Focus in 1998 to form Merant. He was with Intersolv/Merant for 14 years before resigning last year. A week before he was made acting CEO of Intellitactics, Greenfield was also named CEO of Peregrine Systems of San Diego, another JMI portfolio company.

Intellitactics' previous CEO, co-founder John Sop, has become president of the company.

Descartes erases another 120 jobs world-wide
June 19, 2002

Descartes is cutting just under 20% of its total workforce in its second major restructuring in the last year. The company will move most of its financial operations and customer support world-wide to its Waterloo headquarters. At the same time, it says it is pushing accountability for profit and loss out to its regional general managers.

About 120 jobs will be eliminated and Descartes expects to record a restructuring charge of about US$9 million, mostly in the current quarter.

Co-CEO Manuel Pietra said in a release that the company had "grown significantly by acquisition and are now in a position to reduce inherent redundancies." Descartes made four acquisitions in 2001 and three in 2000.

The information circular for Descartes' AGM shows that CEO (now co-CEO) Peter Schwartz was paid total compensation (excluding options) of $444,500 in fiscal 2002, up 9.6% from $405,400 last year. In addition, he was granted 60,000 options with a seven-year expiry date, valued at the time (Black-Scholes) at about a million dollars. With an exercise price of $19.75, they'd be worth considerably less than that today, but there's still lots of time on the clock. During the year, Schwartz sold just over 250,000 Descartes shares for gross proceeds of $7.0 million. Over the last three years, he has sold 603,410 Descartes shares for gross proceeds of $28.5 million.

MKS improves bottom line in 2002; forecasts 30% growth this year
June 5, 2002

For MKS, fiscal 2002 (ended April 30) was a year where its main achievement was not top line growth, but instead a significant reduction in losses. Over the year, revenue grew by just US$765,000 to US$28.1 million -- and all of that increase can be attributed to the acquisition of Upspring Software at the end of the previous fiscal year. Sales were still well below the company's record US$40.3 million in fiscal 2000 and the US$33.7 million recorded in 1999.

Where the improvement shows is on the bottom line. Operations still lost US$4.3 million, but that's much better than the US$22.9 million operational loss a year ago, which included US$9.6 million in asset writedowns and restructuring charges.

And, although there was nothing about this in the news release, and, in fact, nothing in the release from which this could even be calculated (MKS' financial news releases may be even worse than RDM's), but in the conference call, CEO Phil Deck said that MKS' software configuration management (SCM) business unit saw its sales grow by 14% in 2002 to US$16.9 million, while its interoperability unit showed increased profitability, despite a 10% decline in revenue.

In the final quarter of the year, MKS lost US$719,000 (US$0.02/share) on sales of US$7.6 million. Revenue climbed 8% from the previous quarter, with licensing sales increasing 6% to US$6.1 million. Expenses grew 6% sequentially -- a bit lower pace than revenue, which improved the company's bottom line by US$106,000 from Q3.

Operations used US$605,000 in cash in Q4, an improvement from US$1.6 million used in Q3. MKS ended the year with US$7.9 million in cash. At April 30, it had 276 employees world-wide (about half of them in Waterloo), an increase of six from the beginning of the quarter.

The company is forecasting revenue growth of 30% -- more than US$8 million -- in the current year (a year ago, it forecast 10-30% growth for 2002), but is not yet forecasting when it will be profitable, other than that it won't be in the current quarter). Deck said MKS is now regularly among the handful of companies included in requests for proposals for enterprise SCM software.

Navtech's cost cutting improves profits in Q2
June 3, 2002

In the quarter ended April 30 (Q2 02), Navtech reaped the benefits of its cost-cutting over the last few quarters and registered an improved bottom line, despite a decline in sales. The company reported net income of US$100,000 (US$0.02/share) on sales of US$1.5 million. Sales were down 11% sequentially and 15% from a year ago, but a 40% drop in expenses from the previous quarter enabled the company to increase its profits by US$28,000 from Q1.

R&D spending was down to a minuscule 1.8% of revenue, or just US$27,000. G&A costs were down US$185,000 or 41% from Q1. The company has closed its Montreal facility.

Operations generated US$167,000 in cash, and Navtech used the money to pay off its expensive factoring line of credit and pay down other debt. At the end of the Q2 it had US$71,500 in cash and a working capital deficiency of US$718,400 -- an improvement from a US$827,700 shortfall at the beginning of the quarter.

In addition to the new VP of operations (mentioned in April's digest), Navtech has also hired a VP of software development.

STOCK REPORT: Virtek rebounds; Com Dev, RIM continue slump
June 2002

The news that Virtek had sold its biotech instruments business triggered a 24% jump in the company's shares on Friday and put a positive finish on what was only the second month in the last year where Virtek's shares showed a gain.

At the other end, Com Dev shares lost a quarter of their value for the second straight month, while RIM had almost a half-billion dollars chopped off its market value.

For the month of June:

Finline [TSXV: FIN] +43%
Virtek [TSX: VRK] +31%
Navtech [OTCBB: NAVH] +25%
CME Telemetrix [TSXV: YME] +9%
Turbosonic [OTCBB: TSTA] 0%
=================================
EMJ [TSX: EMJ] -1%
RDM [TSXV: RC] -6%
Dalsa [TSX: DSA] -8%
Open Text [TSX: OTC] -8%
Descartes [TSX: DSG] -13%
MKS [TSX: MKX] -15%
Com Dev [TSX: CDV] -24%
RIM [TSX: RIM] -25%

Finline shares jumped following the company's announcement that it was expecting a US$500,000 investment at about four times its market value at the time from an India-based distributor of Chinese-built motorcycles and scooters. Given Finline's extensive track record of announcing investments, joint ventures, and sales that never happen, I think I'll wait until the money shows up on a balance sheet before giving the announcement any credence.

MKS shares closed June at $1.05 -- their lowest monthly closing price since Phil Deck took the reins as CEO a year-and-a-half ago.

Companies with headquarters outside the area, for the month of June:

Agfa-Gevaert [Brussels: Agfa] +6%
Eiger Technology [TSX: AXA] +4%
=================================
Network Assoc [Nasdaq: NETA] -0%
Cyberplex [TSX: CX] -14%
Engineering.com [TSXV: EGN] -17%
CacheFlow [Nasdaq: CFLO] -18%
Sybase [NYSE: SY] -21%
Siebel [Nasdaq: SEBL] -22%
CheckFree [Nasdaq: CKFR] -26%
CVF Technologies [Amex: CNV] -29%

In April, CVF was told by the American Stock Exchange that it no longer met the minimum standards for continued listing. Amex has extended CVF's deadline to meet the standards and has put the company on probation, where its progress toward the standards will be reviewed periodically.

Half-way through the year, it's been a rough ride for tech stocks, and three of the area's four most valuable public high-tech companies at the beginning of the year have been the hardest hit.

Year-to-date:

Dalsa [TSX: DSA] +23%
EMJ [TSX: EMJ] +16%
Turbosonic [OTCBB: TSTA] +2%
=================================
---S&P TSX COMPOSITE -7%
Finline [TSXV: FIN] -13%
Navtech [OTCBB: NAVH] -19%
CME Telemetrix [TSXV: YME] -21%
---NASDAQ COMPOSITE -25%
RDM [TSXV: RC] -29%
Open Text [TSX: OTC] -36%
Virtek [TSX: VRK] -41%
MKS [TSX: MKX] -51%
RIM [TSX: RIM] -54%
Com Dev [TSX: CDV] -58%
Descartes [TSX: DSG] -62%

Miscellaneous Tidbits

• Mitra was valued at $300 million when it was acquired by Agfa in January. According to Agfa's annual report, it paid $280 million (193 million Euros, converted using the exchange rate at the time) for 92.9% of Mitra. That $300 million valuation is about equal to the current value of Descartes and Com Dev combined, so you can see why there were a lot of happy faces at Mitra in January.

• BlueNexus Software, which was voted top presenter at the K-W venture fair earlier this year (short presentation category), has shut its Kitchener office. According to a former employee, the company was wound down after its main investor, George Blake, passed away and his estate cut funding to the companies he had invested in. Blake had most recently been president of the eHealth Solutions Group of BCE Emergis. The fax number now on the BlueNexus Web site is that of Bennington Limousines in Mississauga.

• ARISE Technologies has filed the final prospectus for its IPO. The offering is set to raise between $1.2 million and $3 million through the sale of units priced at $1.00. Each unit consists of one common share and a half-share warrant, with each whole warrant convertible into a common share at a price of $1.25 a share. The company raised $280,000 ($254,000 net) through a private placement at the beginning of June. In the four months ended April 30, ARISE lost $294,000 on sales of $231,000.

• RIM co-CEO Mike Lazaridis received the most votes for "nation builder of the year" by visitors to the Globe & Mail's Web site. He edged out second-place finisher Wayne Gretzky, who has been known occasionally to finish behind guys with the initials M.L. (John A. Macdonald actually had the most votes, but he was in the "all-time greats" category; Lazaridis received more votes than anyone else in that category, including Pierre Trudeau, Wilfrid Laurier, and Terry Fox). If Lazaridis's victory gives you respect for the insight of the Globe's Web users, you'll want to avoid reading the reader comments that have been posted on the site, which include a complaint that Open Text CEO Tom Jenkins wasn't the winner. In the business category, Lazaridis was a landslide winner, although some of the nominees were so unpalatable that a bank CEO actually finished third. Even Barbara Stymiest and Terry Matthews finished in the top six.

• As expected (see last digest), RIM has filed a patent infringement complaint against California's Good Technology. The complaint was filed with the U.S. District Court in Delaware -- the court where RIM filed its complaint against Glenayre last year. In May, Good asked the U.S. District Court in San Francisco to rule that RIM's single mailbox patent is invalid. In its news release, RIM made no mention of its single mailbox patent, but referred to four other patents it claims Good is infringing, including one for a "hand-held electronic device with a keyboard optimized for use with the thumbs" that was issued to RIM at the end of May. Good's Web site features photos of RIM handhelds and invites users of the devices to "upgrade" from the BlackBerry service to Good's GoodLink.

• Old news I just came across: Channel Business magazine reported in December that Onlinetel investor and Intellitactics director Joe Vos was accused of misappropriating millions of dollars from Metafore, the company he co-founded. The allegations were not proven in court and Vos doesn't appear to have been charged with anything. Vos co-founded MicroAge SouthWestern Ontario in Kitchener in 1985 and it merged with two other companies to form Metafore in 2000. The magazine reported that Vos left Metafore in October, shortly before the company's largest shareholder filed a civil motion against him to restrain Vos from transferring certain assets. Channel Business reported that "in affidavit materials supporting this motion, Hartco [the Metafore shareholder] alleges that Vos: a) admitted to a 'misappropriation' of about $1.7 million; and, b) confessed to inflating the value of accounts receivable at another company he owned, Venture Fox [which was part of the merger], by approximately $7.3 million." Vos is no longer on the board of directors of Eiger Technology, the company that acquired Onlinetel last year and subsequently added Vos to its board.

• The shares of Senesco, headquartered in New Jersey but whose R&D work is all performed at UW, moved from the U.S. over-the-counter bulletin board to the American Stock Exchange in May. The company was co-founded by UW biology professor and associate VP of university research, John Thompson (UW's dean of science from 1990 to 2001), who is also Senesco's executive VP of R&D. The company is developing technology that delays cell death and extends the shelf life of plants. It is also developing human applications. Senesco was founded in 1998. It recently raised US$3.5 million through a private placement.

• Ottawa's C-COM Satellite Systems also makes use of UW research, and announced that it has jointly developed a mobile satellite antenna with the university that enables broadband Internet access to stationary vehicles by satellite. Professor Safieddin Safavi-Naeini, of UW's electrical and computer engineering department was the project director and system architect.

• Leitch Technology of Toronto is also partnering with UW and has provided $330,000 in cash and equipment to create the Leitch-UW Multimedia Communications Laboratory. Leitch says it is the largest and most advanced multimedia communications research lab in Canada. The lead researcher is Prof. En-Hui Yang, who is also co-founder and executive VP of Waterloo's SlipStream Data. UW's multimedia lab opened in January after Yang received funding from the Canada Foundation for Innovation (CFI) and the Ontario Innovation Trust (OIT). For now, it occupies 650 square feet of space in the department of electrical and computer engineering, but the lab will almost double in size when it moves to the new Centre for Environmental and Information Technology building, scheduled for September 2003.

• The new president Finline hired in February has already left, making him the company's third president or COO in the last four years to leave the job after just a few months.

• Com Dev has reported that in April it sold the former site of its wireless division in Moncton for $2.4 million. It also paid back $695,000 to Mitec, which leaves $20.0 million as the net proceeds of the sale of the Com Dev Wireless assets to Mitec.

• Sandvine was one of 70 presenters at the Telecom Investor Forum, part of SUPERCOMM conference held in Atlanta. It was part of the industry briefing on IP networks.

• I mentioned last month that Open Text's shares had taken a hit when one analyst gave it a 'sell' rating and reported that SAP was poised to snatch up to half of its customers. In June, Open Text announced with great fanfare that it was working with SAP on "a series of co-sponsored seminars and events." Normally, that wouldn't hold anyone's attention long enough to induce a "who cares?" but, on the day it was announced, this manufactured image of the two companies holding hands and playing nicely actually sent Open Text stock up 8.5% and triggered the company's highest volume of trades on the TSX in more than seven months.