July 2002

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 65 -- August 6, 2002
In this digest:

1. Acquisitions help Dalsa double revenues
2. RDM reports record sales from new business units
3. Open Text shows new account strength in record quarter
4. RIM sales up 8% from previous quarter
5. Waterloo's Philips Analytical acquired by U.S. company

6. Former JPH acquired by knowledge management firm
7. ATS receives $29.5 million from federal government
8. STOCK REPORT: Positive results bring some quick gains
9. MKS hires ex-Geac exec as COO
10. Miscellaneous tidbits from PrinterOn, Cyberplex. Dspfactory, Sirific, Waterloo Maple, Global Beverage Group, RIM, Descartes, Com Dev, Handshake Interactive, Onlinetel.

Acquisitions help Dalsa double revenues
August 1, 2002

The quarter ended June 30 (Q2 02) marked the debut of the new Dalsa -- now a much larger company following the acquisitions announced in January. This was the first full quarter to include results from Dalsa's semiconductor foundry, acquired from Zarlink, and the CCD business acquired from Philips. While the changes in the business make comparisons with prior periods almost meaningless, several numbers jump out -- most notably a profit of $3.4 million ($0.24/share) and cash from operations of $8.5 million.

Revenue more than doubled (sequentially and from a year ago) to $32.0 million while expenses grew by only 46% from the previous quarter, leading to a tripling of net income from Q1.

Dalsa Semiconductor accounted for $11.2 million in revenue, or 35% of total sales. Digital imaging, which now includes the former Philips business, provided the remaining $20.8 million. Both segments were profitable, with digital imaging reporting earnings of $2.4 million and Dalsa Semiconductor earning $1.0 million.

The balance sheet has a whole new look, with total assets increasing by one-third to $113.5 million and liabilities almost doubling to $48.8 million. At the end of Q2, Dalsa had $16.0 million in cash, up $10.8 million over the quarter. Debt increased by $11.9 million. Working capital at quarter-end was $32.2 million.

During the quarter, Dalsa invested an additional $10 million in Dalsa Semiconductor, which increased its ownership of the subsidiary to 85.5% (from 80.1%). Zarlink Semiconductor owns the remaining 14.5%.

The company said that its digital cinema team had recently demonstrated a prototype camera that produced full-motion, 24 frames-per-second, 8 million pixel resolution. CEO Savvas Chamberlain said the digital cinema group now has a business model and has begun negotiations with companies from the motion picture industry.

RDM reports record sales from new business units
July 24, 2002

RDM made a much better effort to let the world know about its recent progress -- CEO Doug Newman said the company plans to devote more attention to communicating with investors and analysts, and it began by sending out a detailed news release and holding its first conference call to discuss its Q3 results.

In the quarter, ended June 30, RDM reported sales of $3.8 million, up 11% from the previous quarter and 251% from the same period a year ago. Earnings were around the break-even point, with net income of $98,000 ($0.005/share).

For the first time, RDM's legacy cheque quality assurance business accounted for the least amount of revenue among the company's three operating segments. Quality assurance provided $829,000 in revenue, down 17% sequentially and representing 22% of all sales. For the year, the segment is still running 34% ahead of last year's revenue totals and remains profitable, with operating earnings of $308,000 in the quarter.

Digital imaging provided $1.9 million in revenue -- a 20% increase from Q2. RDM sold about 3,500 of its EC5000 line of scanners in the quarter. CFO Jim Kopperson said the increased sales were "largely attributable to the senior U.S. salespeople we brought on board."

The third reported segment, electronic payment solutions, logged sales of $1.0 million, up 28% sequentially. Most of those sales came from a single, unidentified U.S.-based customer. Digital imaging and electronic payments combined to provide 78% of all revenue, up from 70% in the previous quarter. They combined for an operational loss of $184,000 in Q3.

R&D expenses in the quarter more than doubled from Q2 to $676,000. Almost all of that R&D was in digital imaging and electronic payments.

Operations provided $301,000 in cash in the quarter and at quarter-end RDM had $5.4 million in cash and short-term investments, down $731,000 over Q3.

Newman said that Q4 sales may dip below the $3.8 million of Q3, but will be above the $2.8 million reported in the fourth quarter of last year. That would give the company around $12.7 million in sales for fiscal 2002 -- about an 85% increase from 2001.

RDM is in the process of completing its strategic plan, Newman said, and has identified three potential high-growth markets: 1) electronic cheque conversion -- the largest opportunity, 2) walk-in bill payment and 3) accounts receivable conversion (conversion of cheques in drop boxes into electronic payments). Newman estimated the revenue opportunity in these markets to be $500 million.

Marketing VP Tom Kettell identified MagTech and France's Ingenico as RDM's two biggest competitors in electronic cheque conversion. Ingenico has a strong presence in Europe and last year acquired North America's IVI Checkmate. RDM said that with Ingenico entering the imaging market, that it is under pressure to reduce the price of its line of scanners and has already started to cut costs. The company believes that it currently has about 75% of the market among the "tier-3 dial-up point-of-sale" customers it is targetting.

Open Text shows new account strength in record quarter
July 31, 2002

Joining RDM and Dalsa, Open Text also reported the highest quarterly revenue in company history in its most recent quarter. For the quarter ended June 30 (Q4 02), Open Text earned US$7.3 million (US$0.34/share) on sales of US$41.2 million, up 2% from the same period a year ago and 12% from Q3.

Driving the sequential gains was a 28% increase in licence & networking revenue to US$19.9 million. Income from operations was US$5.5 million, up from US$4.0 million in the previous quarter.

Half of all license revenue came from new accounts, which had been one of the company's weak spots. Open Text closed six deals in the quarter with a value over US$1 million, the most in its history.

Operations provided US$8.5 million in cash and Open Text ended the quarter with US$109.9 million in cash and equivalents, up US$5.9 million over the quarter. The company received US$2.7 million from the sale of its Accelio shares to Adobe. Open Text spent US$5.5 million in the quarter to repurchase 271,000 of its shares.

For the year, Open Text had sales of US$152.5 million, up 3% from fiscal 2001. Net income for the year was US$16.7 million (US$0.78/share).

To celebrate the completion of its 10th year, Open Text has put together a 111-page corporate history that is available in PDF form on its Web site. The story begins in the mid-80s with the Oxford English Dictionary project, through the formation of predecessor company Open Text Systems in 1989 and covers Open Text's history from 1991-2001. I was a bit surprised to see a picture taken off my Web site on page 9 (I'm sure a complimentary print copy of the book is on its way to me as we speak ... right guys?), and as an official corporate history it's sanitized and self-serving ("Why was Livelink so successful over software giants such as Oracle and Microsoft?" asks one subhead), but for what it is, it's a good effort with some interesting stories.

RIM sales up 8% from previous quarter
July 2, 2002

RIM couldn't make it 4-for-4 with companies reporting record revenue, but it surprised some observers with a stronger-than-expected bottom line in the quarter ended June 1, 2002 (Q1 03). Sales increased 8% sequentially to US$71.6 million, while an improvement in margins boosted gross revenue by 12% from the previous quarter. Sales declined 7% from the same period a year ago.

Loss from operations remained US$16.6 million -- as it was in the previous quarter. Net loss for the quarter was US$10.8 million (US$0.14/share).

Hardware sales provided US$31.9 million or 45% of all revenue. While that was still the largest component of RIM's revenue, its contribution has declined from 61% of total revenue in fiscal year 2002 and 79% in 2001. About 85% of hardware revenue in the quarter came from sales of handheld devices. Service accounted for 41% of total sales, while software and other sources provided the remaining 14%.

There were a net 34,000 increase in BlackBerry subscribers in the quarter -- up 11% from the previous quarter. There were 60,000 new subscribers and 26,000 deactivations.

On the balance sheet, RIM had cash and marketable securities of US$616.0 million at quarter-end, down US$28.6 million over the quarter. RIM spent US$10.1 million to repurchase 685,000 of its shares.

Revenue guidance for fiscal 2003 was lowered to US$350-375 million, down from the US$375-425 million projected three months ago. Net loss is still expected to be in the US$0.30-0.45 range.

RIM's annual meeting will be held on August 12, and the Globe and Post have reported that two of Canada's largest institutional investors -- OMERS and the Ontario Teachers' Pension Plan -- were planning to vote against the company's proposal to increase the size of its option pool (neither OMERS nor Teachers control a significant percentage of RIM stock). RIM is asking shareholders to approve the addition of 2.8 million shares to its stock option plan -- to replace the 2.8 million options that have been awarded and exercised. At June 28, there were options to purchase 10.4 million shares outstanding under the existing plan, and 1.2 million options to purchase shares available to be issued, and this proposal would return the total number of shares available under its option plan to 14.3 million, or 18.3% of the company's outstanding shares. At the 2000 AGM, shareholders approved a proposal to increase the stock option pool to 20% of the company's outstanding shares.

About 12% of the company's outstanding options are held by co-CEOs Lazaridis and Balsillie, who have seen their compensation climb up toward that of their peers over the last two years. Two years ago, they each had a base salary of $250,000, which was raised to $350,000 last year and $400,000 this year. In April, they each received 100,000 options, valued at $1.7 million each using RIM's parameters to the Black-Scholes formula. They also each received 100,000 options last year, valued at $1.8 million using RIM's parameters.

RIM said it granted a total of 507,000 options in Q1 with an average Black-Scholes value of US$10.40 per option.

[RIM has recently been mentioned in some stories (e.g. Globe, Canadian Business) on the hot topic of expensing stock options. Over the coming months, we will no doubt read even more stories about how RIM, if it had expensed the stock options awarded in fiscal 2002, would have seen its reported losses increase by US$21.4 million to US$49.7 million. Since the issue doesn't seem to be going away any time soon, maybe I'll have time some month to discuss why I don't want to see options expensed on the income statement. I'm all for placing the estimated value in the footnotes or even in a separate table (and I'd like to see the dollar value of options added to the executive compensation table in the annual information circular), but the income statement is not the place for such an inexact and malleable, non-cash number.]

Waterloo's Philips Analytical acquired by U.S. company
July 17, 2002

Philips Analytical's Waterloo operations have been acquired by Accent Optical Technologies of Bend, Oregon. Financial details haven't been disclosed, but Accent is retaining all of the 53 employees in Waterloo

Philips Analytical's Waterloo office was launched in 1985 as Waterloo Scientific, with technology based on the research of UW physics professor Ted Dixon (now with Biomedical Photometrics). Its shareholders, which included Turbosonic's Pat Forde and Electrohome's John Pollock sold the company to Philips in 1996. It then operated as Philips Material Characterization Systems until 1998. The Waterloo site developed photoluminescence and X-ray diffraction instruments for the SiGe/compound semiconductor market. It moved into a 25,000 sq-ft facility on Kumpf Drive last December.

The acquiring company, Accent, was spun out of Bio-Rad Laboratories in 2000. Bio-Rad is the company that acquired Virtek's biotech instruments business last month.

The largest component of Philips Analytical -- its x-ray business -- is also being sold. The buyer is England's Spectris.

Former JPH business acquired by knowledge management firm
July 2, 2002

Knexa.com Enterprises of Vancouver is acquiring the Waterloo-based SuiteResponse business of EVER America. The business has been acquired in exchange for 9 million shares in Knexa, which had a value of $1.1 million as of Friday's close.

According to Knexa's release, the SuiteResponse business had revenue of $1.5 million in 2001, which it expects will grow to about $2 million this year. Founder J. Paul Haynes will join Knexa's board and 11 EVER America employees in Waterloo, including marketing VP Graeme Somerville, will transfer to Knexa. EVER will maintain a Waterloo office and will share space with Knexa. According to The Record, EVER will have seven employees in Waterloo.

Knexa was formed in 1999 to provide an Internet-based "knowledge exchange auction." It has since released a software product that enables organizations to reward employees who share knowledge. In three years, it has reported no revenue and accumulated losses of $2.4 million. It is backed by McMaster professor Nick Bontis, a well-known researcher in knowledge management and Knexa's Chief Knowledge Officer. The company was previously known as Demand Ventures Ltd. and before that was Demand Gold Ltd., all under the same management and principal shareholders, who also control the TSX-listed Cusac Gold Mines Ltd. In the heady days of March 2000, the company's stock peaked at $2.30 a share, but with the exception of that one month, it has traded below a dollar every month since the company was formed. At the time the EVER deal was announced, Knexa had a market cap of $1.3 million.

Knexa also announced that it has raised $800,000 through a private placement of 5 million shares at $0.16 each.

EVER America was formed in October 2000 when France's EVER (now known as EVER Team) acquired JPH International. The JPH name was dropped at the beginning of this year. The company was previously owned by Calgary's Enbridge, which bought the assets of J.P. Haynes & Associates in November 1997.

ATS receives $29.5 million from federal government
July 17, 2002

The federal government has invested $29.5 million in ATS -- $25.5 million from Technology Partnerships Canada and $4 million from the Climate Change Action Fund. The money will help fund the company's development of a manufacturing system for its new solar cell technology.

ATS has formed a new subsidiary, Spheral Solar Power Inc. and has begun work on a 120,000 sq-ft production facility in Cambridge for the solar cells. It plans to begin commercial production by the fall of 2003. ATS estimates that over the next three years, the net costs to commercialize the technology will be $80-85 million. The government says the project is expected to create 108 jobs in the R&D phase, and an additional 729 jobs during the commercialization phase.

The president of Spheral, Milfred Hammerbacher, had been president of ATS' Matrix Solar Technologies subsidiary and has worked on solar technology at ATS for five years. He had previously performed much of the initial R&D that led to the Spheral Solar technology while at Texas Instruments. A year ago, Hammerbacher told the Ontario Committee on Alternative Fuel Sources that ATS planned to spend $100 million to finish development of the Spheral Solar technology and that "over the next 10 years, we see at least $1 billion of further investment in equipment and new manufacturing facilities."

STOCK REPORT: Positive results bring some quick gains
July 2002

RDM and RIM showed some gains in July after reporting their quarterly results (so did Open Text and Dalsa, but their gains came in August), while shares of Com Dev and Descartes had a bounce after hitting the floor in June. But in both cases this was their second-worst monthly closing price ever.

For the month of July:

Com Dev [TSX: CDV] +22%
RDM [TSXV: RC] +11%
Descartes [TSX: DSG] +10%
RIM [TSX: RIM] +8%
Dalsa [TSX: DSA] +1%
Open Text [TSX: OTC] +1%
================================
EMJ [TSX: EMJ] -6%
CME Telemetrix [TSXV: YME] -7%
--S&P TSX COMPOSITE -8%
Virtek [TSX: VRK] -11%
MKS [TSX: MKX] -16%
Navtech [OTCBB: NAVH] -20%
Turbosonic [OTCBB: TSTA] -34%
Finline [TSXV: FIN] -35%

Dalsa shares climbed 25% on Friday after it released its results. Open Text shares are up 8% over the first two days of trading in August after releasing its results on July 31.

Companies with headquarters outside the area:

Sybase [NYSE: SY] +15%
=================================
CacheFlow [Nasdaq: CFLO] -6%
Cyberplex [TSX: CX] -7%
Bio-Rad [Amex: BIO] -9%
Agfa-Gevaert [Brussels: Agfa] -10%
Engineering.com [TSXV: EGN] -10%
Adobe [Nasdaq: ADBE] -16%
Knexa.com [TSXV: KNX] -22%
Senesco [Amex: SNT] -30%
Siebel [Nasdaq: SEBL] -34%
CheckFree [Nasdaq: CKFR] -36%
Network Assoc [Nasdaq: NETA] -37%
CVF Technologies [Amex: CNV] -44%
Eiger Technology [TSX: AXA] -48%

MKS hires ex-Geac exec as COO
July 22, 2002

Michael Harris is the new COO at MKS. He will report to CEO Phil Deck and oversee sales, services, marketing, customer care and R&D from the company's Waterloo office.

Harris had recently been president and CEO of Interealty Corp., a subsidiary of Geac which was spun-off from that company's residential real estate B2B division in 2000. Harris had previously been president of Geac Property Systems and before that was with SunGard Data Systems.

Miscellaneous Tidbits

• There were a significant number of layoffs at PrinterOn and its Spicer subsidiary at the end of June -- dozens of people, I'm told. The layoffs came just a couple weeks before the second anniversary of the company's launch.

• Cyberplex is down to just 15 people in its local office, which has moved from the Waterloo Technology Campus to the Galleria in Kitchener.

• Dspfactory has moved into a spacious new home on Kumpf Drive. At its old office, the company had almost been at the point where it couldn't have visitors unless an equal number of staff left. The new building was developed by Richard Boyer, who recently stepped down as acting CEO of Sirific Wireless, passing the baton to Sirific's other seed investor, Andrew Abouchar of Tech Capital Partners. Boyer plans to construct more buildings at the site.

• Marketing magazine ran a profile of Waterloo Maple VP Tom Lee in its June 24 issue. Maple will soon be moving to a new site, now that the former Seagram Museum property has been selected as the site of the new Centre for International Governance Innovation, which is backed by a $30 million donation from RIM co-CEO Jim Balsillie.

• Global Beverage Group has acquired DSD software developer Bottler Systems Inc. of Durham, North Carolina. It also announced a joint development and marketing alliance called Expedium with Numeric Computer Systems Inc. of Hauppauge, NY and RouteTek of Dallas (which acquired GBG's perishable products software line in February 2001).

• RIM announced that it has filed two more complaints against Good Technology, these ones involving trademarks and copyrights. A patent infringement complaint was filed last month (see previous digest).

• Speaking of lawsuits, this has apparently been on the Web for a while, but I just came across it. It's a 46-page ruling on a preliminary injunction sought by Descartes in its suit against ProLogis and others filed in September 2000, accusing them of misappropriating its pricing model, go-to-market strategy, and user manuals. This ruling is from May 2001 and describes in detail a relationship that quickly soured (six months before the suit was filed, ProLogis issued a news release announcing that it was using Descartes' DeliveryNet).

• Val O'Donovan has bought another 547,000 shares of Com Dev -- an additional 1.1% of the company, bringing his total stake to just over 14%.

• Catholic rock band Critical Mass, which includes members of the Waterloo tech community, most notably Handshake Interactive CEO David Wang, was a featured performer at World Youth Day in Toronto.

• Kitchener's Onlinetel is providing the VoIP long distance telephone service being used by Labatt Breweries in its Labatt Blueline promotion. The service is available to many areas of Ontario.