November 2002

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 69 -- December 2, 2002
In this digest:

1. RIM chops over 200 jobs
2. Jury says RIM infringed on patents; awards US$23M to US company
3. RIM announces licensing deals with Nokia, Handspring, Palm
4. Sirific closes $18M round of funding
5. Dalsa raises $18M million with share offering; CEO gets $20M

6. VideoLocus acquired by NYSE-listed company
7. Philips Analytical site shuts down
8. Descartes narrows loss with cost-cutting and improved margins
9. STOCK REPORT: So the last shall be first...
10. IMS lands two deals with U.S. auto suppliers

11. ARISE lowers IPO price, appoints new chairman
12. Miscellaneous tidbits from Fakespace, Open Text, UW, SlipStream, Onlinetel, RDM, CME Telemetrix, Finline

RIM chops over 200 jobs
November 12, 2002

RIM has cut about 10% of its 2,200-person workforce in an effort to accelerate its drive to profitability. The company had recently scaled back its expenses, but this was the most dramatic sign to-date that RIM wants to align its costs with its in-the-red income statement, rather than its cash-rich balance sheet. RIM's last profitable quarter ended May 31, 2000

It was the first round of layoffs that RIM had ever announced. Last December, RIM said it had 1,840 employees, so even after the cuts the company will still be larger than it was a year ago.

RIM expects the cuts will reduce costs by US$5-6 million a quarter, with some of those savings to be seen in Q4 (ending around the end of February) and the full impact to be seen starting in Q1. The company will take a charge of US$8-9 million in its fiscal third quarter, which ended on November 30.

At the time the cuts were announced, RIM shares had climbed 65% over the previous five weeks and had hit their highest levels in almost half a year. The stock fell almost 7% the day the layoffs were announced, although part of that that may also have been an adjustment from an exuberant initial reaction to a licensing deal with Nokia announced two trading days earlier (see below).

Jury says RIM infringed on patents; awards US$23M to U.S. company
November 21, 2002

A jury in Virginia has awarded NTP Inc. US$23.1 million in damages after the Virginia-based company won its patent infringement suit against RIM. Because RIM was found to have willfully infringed on NTP's patents, the judge has the option to triple the award. At the other extreme, he could reject it entirely. The court's decision is scheduled to be made in February.

RIM says it hopes to have the verdict set aside and, if necessary, will appeal the ruling. In the meantime, it will record a provision of US$23 million in Q3 (which just ended).

Both sides in the dispute doled out a lot of bluster after the verdict was announced, but at this point there isn't enough that has been decided or disclosed to provide any useful estimate of what impact this may have on RIM. NTP has no intention of bringing a product to market that uses its patents, so any revenue it hopes to generate will depend on having some kind of arrangement (voluntary or court-determined) with a company like RIM.

NTP filed suit against RIM a year ago (see November 2001 digest). Not until October, when RIM sort-of disclosed that it had spent US$5 million to defend against NTP's claims, did the company let on that the suit was something to be taken seriously. There have been some questions raised about when RIM knew that it had lost the case. It only issued a news release after the jury set the amount of the damages.

RIM announces licensing deals with Nokia, Handspring, Palm
November 5, 7, 8, 2002

RIM also announced its first software licensing deal in November. Nokia will license RIM's BlackBerry software and has unveiled its Nokia 6800 "messaging phone" with QWERTY keyboard that is scheduled to support the BlackBerry service beginning in the second half of next year.

No estimates of the financial impact of deal were disclosed, but Nokia referred to BlackBerry as "another option" for users of its devices and there doesn't seem to be any expectation that a huge number of Nokia users will become BlackBerry subscribers any time soon. If RIM can receive US$20-30 a quarter from each user, it wouldn't take many to give a significant boost to the company's revenue. We may end up looking back at this as a turning point in RIM's history ... or as another partnership with a big name that went nowhere (like Dell and AOL).

The deal with Nokia is non-exclusive and RIM has been in talks with other device manufacturers about licensing BlackBerry.

RIM shares jumped 28% the day the deal with Nokia was announced.

RIM also announced that it has signed "agreements in principle" with Palm and Handspring to license some of its keyboard patents. No details were disclosed.

Sirific closes $18M round of funding
November 6, 2002

Sirific announced its long-awaited next round of venture capital. It will receive $18 million from a group of investors, led by BDC Venture Capital. Also participating in this round were all of the company's existing investors -- Celtic House, Tech Capital Partners, Working Ventures, and Solowave.

It's the largest round of venture funding that has been announced by a company in this area in over a year.

Dalsa raises $18M million with share offering; CEO gets $20M
November 25, 2002

Dalsa sold 1.15 million new shares at $16 a share to raise $18.4 million ($17.6 million net) through a stock offering underwritten by Yorkton along with Paradigm, Sprott, Canaccord, and Acumen.

As part of the same offering, company founder and CEO Savvas Chamberlain sold 1.3 million shares -- a quarter of his stake in the company -- netting himself $20.0 million. Chamberlain still owns 4.0 million Dalsa shares, which is 25% of the company.

Dalsa will use the $18 million to reduce its debt, which has grown this year as the company made two significant acquisitions (see January digest). Dalsa's long-term debt stood at $21 million at September 30. By cleaning up its balance sheet, Dalsa can now look at making further acquisitions.

Dalsa has now raised over $40 million this year. In February, the company grossed $23 million through the sale of warrants priced at $10 a unit. The warrants were converted into common shares in May.

VideoLocus acquired by NYSE-listed company
November 14, 2002

VideoLocus has been acquired by California-based LSI Logic, which is listed on the New York Stock Exchange and has a market cap of over US$3 billion. The 17 VideoLocus employees will join LSI and remain in Waterloo. Financial details haven't been disclosed and LSI didn't issue a news release announcing the acquisition.

In September, VideoLocus co-presented its H.264 video codec with LSI at the International Broadcasting Convention in Holland. "We are working very closely together," said the senior marketing director for LSI's advanced video products to EE Times at the show. At the time, a senior VP at LSI said that he didn't see a volume market for H.264 until 2005. H.264 technology holds out the promise of delivering broadcast-quality video at data rates of less than 1 Mb/s -- a capability VideoLocus has demonstrated.

LSI describes itself as "a leading designer and manufacturer of communications, consumer and storage semiconductors." It is based in Milpitas, Calif., near San Jose.

Philips Analytical site shuts down
November 16, 2002

The Waterloo business formerly known as Philips Analytical will be closing this month. Oregon's Accent Optical Technologies, which bought the business from Philips (see July digest), is shutting down the site after consolidating its operations into other locations within the company.

The Philips Analytical office was originally called Waterloo Scientific and was founded in 1985 to commercialize the research of UW physics professor Ted Dixon (now with Biomedical Photometrics). It was sold to Philips in 1996 and moved into a new 25,000 sq-ft facility on Kumpf Drive a year ago.

The site had 53 employees as of July.

Descartes narrows loss with cost-cutting and improved margins
November 27, 2002

Descartes reported a loss of US$5.2 million (US$0.09/share) on revenue of US$17.5 million in the quarter ended October 31 (Q3 03).

Revenue was down 3% from the previous quarter, but a marked improvement in gross margins created a 16% sequential increase in gross profit. Network revenue was up slightly from Q2 to US$10.7 million. The company had been forecasting a small decline. The volume of transactions across the network grew 9% to 93 million. Logistics software licensing revenue was flat quarter-over-quarter at US$2.5 million.

Regular expenses fell 12% from the previous quarter, with R&D costs being cut by almost a third to US$2.7 million or 15% of revenue.

Included in the net loss is a restructuring charge of US$1.7 million related to layoffs and consolidations at the former TradeVision, which has now been integrated into Descartes (see previous digest). The TradeVision restructuring, once complete, is expected to save the company US$5 million a year. There was also another US$700,000 in costs related to the company-wide restructuring announced in June.

Descartes' offer to repurchase up to US$51.4 million principal amount of the US$72.0 million in convertible debentures was a total flop with debenture holders and created a loss of US$455,000 in the quarter. Descartes only offered 70 cents on the dollar for the debentures and almost no one chose to take the offer. Descartes had put aside US$36 million to buy the debentures but demand was so low that it ended up spending just $3,500. It probably spent a lot more on having the prospectus written than it did on buying debentures. Descartes now has US$71.995 million in debentures outstanding.

Descartes ended Q3 with cash and securities of US$182.3 million, down US$4.7 million over the quarter. It expects to go though another US$7 million in cash in the current quarter.

Revenue in Q4 is forecasted to be US$19 million -- a 9% sequential increase. The bulk of the increase is expected to come from logistics software licensing.

Judging from the Google searches that led people to my Web site, there seemed to be more interest than I would have expected in the lawsuit filed against Descartes by California-based BAX Global (see last month's digest). BAX is seeking US$4 million in damages plus costs. According to its complaint -- and this is one party's version of events; Descartes will likely paint a different picture in its response -- BAX hired Descartes in May 2000 to build a four-site pilot system for BAX's transportation operating system. BAX says the project was "beset by continuous setbacks, cost overruns, and other failures" and that Descartes had no experience in implementing a multi-site solution. According to BAX, the project was running almost a year behind schedule when the companies stopped working together in September 2001. The suit was filed in August of this year. [ADDENDUM: Descartes has agreed to a settlement with BAX. No details have been disclosed.]

A new lawsuit against Descartes was filed this month in Detroit. Concentrek Inc., formerly known as KNGT Logistics, is seeking US$2 million [ADDENDUM: it is seeking payment of the US$2 million that it has already been awarded by an arbitrator]. I haven't seen the complaint, which was filed on November 7, and Descartes hadn't filed a response as of a couple days ago. In 1999, Descartes issued a news release announcing KNGT as a customer.

STOCK REPORT: So the last shall be first ...
November 2002

After setting all-time lows in October, the shares of Com Dev and Descartes rebounded strongly in November. Descartes stock finished the month at $5.50 -- its highest monthly close since April. The shares have jumped 71% from their record low of $3.21 on October 10. Com Dev closed the month over a dollar for the first time in three months.

RIM stock continued the run-up it started in October and has now gained 62% over the last two months.

For the month of October:

Com Dev [TSX: CDV] +38%
Descartes [TSX: DSG] +33%
RIM [TSX: RIM] +23%
RDM [TSXV: RC] +22%
Finline [TSXV: FIN] +17% (one cent)
Open Text [TSX: OTC] +11%
Dalsa [TSX: DSA] +10%
--S&P TSX COMPOSITE +5%
Virtek [TSX: VRK] +4%
MKS [TSX: MKX] +3%
EMJ [TSX: EMJ] +1%
Navtech [OTCBB: NAVH] 0%
================================
Turbosonic [OTCBB: TSTA] -4%
CME Telemetrix [TSXV: YME] -14%

RIM is now worth about $280 million more than all the other companies in the list combined. Open Text overtook ATS in market value during the month. Dalsa has been able to stay ahead (at month-end, anyway) of Descartes in value since surpassing it in August, but both companies are worth about $90 million than they were three months ago.

Despite my headline, the very last remained last, with CME setting another all-time low in November. Its stock has plummeted 74% so far this year, following an 83% drop last year. CME now has the second-lowest market cap among the companies listed above, one notch above Finline. CME is now trading at less than half its book value.

Virtek shares held steady during the month, but November marked their first full month under $1 since back in 1997 when they traded through the Canadian Dealing Network.

Companies with headquarters outside the area:

LSI Logic [NYSE: LSI] +45%
Knexa.com [TSXV: KNX] +30%
Senesco [Amex: SNT] +29%
Adobe [Nasdaq: ADBE] +25%
CheckFree [Nasdaq: CKFR] +20%
Eiger Technology [TSX: AXA] +17%
Network Assoc [NYSE: NET] +15%
Siebel [Nasdaq: SEBL] +13%
AGFA-Gevaert [Brussels: AGFA] +8%
Blue Coat [Nasdaq: BCSI] +6%
Sybase [NYSE: SY] +4%
Engineering.com [TSXV: EGN] 0%
=================================
Bio-Rad [Amex: BIO] -7%
CVF Technologies [Amex: CNV] -38%

The LSI jump had nothing to do with the VideoLocus acquisition. The company's shares have been on a roll for about six weeks after enduring a lengthy slide.

Knexa closed its acquisition of the Waterloo-based SuiteResponse business that was previously part of EVER America (and, prior to that, known as JPH International). According to Knexa, SuiteResponse generated $1.35 million in revenue in the year ended June 30, 2002.

IMS lands two deals with U.S. auto suppliers
November 7, 2002

Intelligent Mechatronic Systems (IMS) says it has signed development and commercialization agreements with two U.S. auto suppliers.

Under the terms of the first deal, IMS will work with an unnamed Tier-1 supplier to commercialize IMS' occupant classification system. The American company will provide up to US$900,000 over the next year to complete development and begin commercialization of the technology. IMS says it expects to receive orders for the system from two of the Big Three U.S. automakers in the first half of 2003.

The second deal is a six-month project to commercialize IMS's touch activated horn technology. Another unidentified U.S. supplier will provide funding and expertise.

ARISE lowers IPO price, appoints new chairman
November 21, 2002

ARISE has had to cut the price of its IPO to make the offering attractive to institutional investors. It had originally priced its shares at $1.00 in the prospectus filed in June, but that has now been dropped to 75 cents. It is supposed to be filing a prospectus amendment soon. ARISE is still looking to raise at least $1.2 million.

It is also going ahead with its merger with capital pool company Intercedent Ventures Ltd. (IVL). IVL shareholders would now receive 923,077 ARISE shares instead of the 642,857 shares they would have received if the IPO had closed at its original price before November 1. ARISE must also refund the $25,000 deposit paid by IVL. The merger has to be formally approved by the shareholders of both companies.

ARISE also announced that former BC Hydro chairman Brian Smith will join its board of directors and become chairman on January 1. Smith is also the former chairman of Canadian National Railways and a former BC cabinet minister who spent five years as the province's attorney general.

In the quarter ended September 30, ARISE lost $193,000 on sales of $369,000. Sales were flat sequentially. It ended the quarter with a working capital deficiency of $83,000 and $42,000 in cash. Both of those numbers are in for a big adjustment if the IPO closes.

Miscellaneous Tidbits

• Kitchener's Fakespace Systems intends to merge with Iowa-based competitor Mechdyne Corp. The merged company will be called Fakespace Systems, but will be headquartered in Marshalltown, Iowa with Mechdyne CEO Chris Clover continuing as CEO. Fakespace president Carol Leaman will retain the title of president and oversee day-to-day operations. Electrohome, the majority owner of Fakespace, expects to own less than one-third of the combined company. The deal is scheduled to close this month.

• UW president David Johnston is one of three new directors expected to be elected at Open Text's AGM on December 12. Open Text CEO Tom Jenkins was paid about $750,000 in fiscal 2002, about a 10% increase from 2001. He also received 150,000 10-year options priced at US$28.20, which had a Black-Scholes value of about $5 million at the time they were awarded.

• Agfa, which owns Waterloo's Mitra, has established a research chair in health informatics at UW.

• London-based ISP Execulink says it will offer its dialup customers the web accelerator from Waterloo's SlipStream. It says that with the accelerator, downloads can be completed in as little as one-sixth of the time.

• Joe Vos has become president of Onlinetel. Vos was one of Onlinetel's investors and briefly a director of Eiger Technology, the company that acquired Onlinetel. He succeeds founder Jody Schnarr, who was erased from the company's Web site last month.

• RDM regressed back to its custom of issuing deficient financial news releases, so any analysis of its quarter ended September 30 (Q4) will have to wait until the company makes its year-end filings. It looks like its digital imaging unit business its best quarter ever with revenue up about 17% quarter-over-quarter -- which would be two years in a row where digital imaging revenue spiked in Q4 -- but there's nothing in the release discussing it or enabling an analysis. Total revenue was flat from Q3. In a conference call, RDM said it expects to lose money in Q1 and show a sequential decline in sales, but to be profitable for the year with a "double-digit" increase in revenue. It's also looking at getting a TSX listing.

• CME Telemetrix reported a net loss of $785,000 in the quarter ended September 30. It received $1.3 million in R&D tax credits during the quarter, which enabled to the company to reduce its bank indebtedness by $870,000 to $539,000. It had $1.8 million in net cash at quarter-end. CME says it will be testing "several devices" in a clinical study at three Ontario medical centres that begins this month.

• Finline says it lost $194,900 on sales of just $52,400 in the quarter ended September 30 (Q3 02). It also says it's spending $25,000 a month on sales and marketing -- including almost $1,500 a month in meals and entertainment. The company has no cash and its working capital deficiency is up to $1.4 million.