March 2003

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 73 -- April 7, 2003
In this digest:

1. Covarity gets $2M in seed funding
2. Virtek acquires German laser marking business for $7M
3. SlipStream signs deals with NetZero, IKANO
4. RIM's legal woes overshadow a strong end to fiscal 2003

5. Sirific receives investment from Agilent
6. Descartes write-off triggers US$100M quarterly loss
7. Nanodesign shuts down; parent company ceases operations
8. STOCK REPORT: Descartes shares lose a third of their value

9. Miscellaneous tidbits from ARISE, Dalsa, Com Dev, LogiSense, Biorem, Sandvine, Northern Digital, Global Beverage, Maplesoft, Senesco, iAnywhere, Knexa, Open Text

Covarity gets $2M in seed funding
March 21, 2003

Covarity has closed a $2 million seed round of financing. All funds were provided by Waterloo's Tech Capital Partners.

Covarity develops credit risk management and automation software for financial institutions and launched its initial product in December. It was founded at the end of 2001, rising from the ashes of Ardesic Corp., which also received funding through Tech Capital (from Waterloo Ventures). Covarity CTO Jeff Fedor was Ardesic's co-founder.

According to the report in The Record, Covarity currently employs four people and hopes to grow to 17 by the end of 2004.

Virtek acquires German laser marking business for $7M
March 27, 2003

Virtek has acquired 75% of Germany's FOBA Technology + Services GmbH, along with the assets of Missouri-based FOBA North American Laser Systems for approximately $6.8 million in cash.

Virtek paid $2.4 million on the closing of the deal and will pay an additional $1.7 million over the next three years and guarantee payment of $2.7 million from FOBA to its previous owner, the German-based HASCO Group. HASCO continues to own the remaining 25% of FOBA, which Virtek has the option to purchase after five years.

FOBA is a marking and engraving company founded in 1969 that has been developing laser products for the last 10 years. FOBA North America was formed in 1998.

Virtek expects FOBA will contribute revenue of $20 million and a small profit in the current fiscal year (ending January 31, 2004). Virtek will keep the three FOBA facilities -- two in Germany and one in Missouri -- and expects to retain all of the 98 employees at those sites.

SlipStream signs deals with NetZero, IKANO
March 12 & April 1, 2003

SlipStream Data is providing its Web accelerator to discount ISP NetZero, a subsidiary of California's United Online Inc. NetZero will use the compression technology for its new NetZero HiSpeed dial-up service. NetZero is offering the accelerator for an additional US$5/month, for a total cost of US$15/month. Juno, another United Online ISP, is also offering a SlipStream-accelerated service as Juno SpeedBand.

Earlier in the month, SlipStream announced a deal with IKANO Communications, a Utah-based provider of private-label Internet services. IKANO is offering the Web accelerator as part of its BrowseBlast dial-up service, priced at an additional US$7/month.

SlipStream's asking price for its accelerator is US$1/month per user.

In November, SlipStream's main competitor, Propel Software Corp. of San Jose, announced deals with EarthLink and 12 smaller ISPs. Propel was launched in 1999 by Steve Kirsch, the founder of Infoseek. EarthLink charges customers an additional US$7/month (total cost of US$29) to use the Propel accelerator as part of its EarthLink Plus service.

RIM's legal woes overshadow a strong end to fiscal 2003
April 3, 2003

RIM finished the year strongly, reporting sales of US$87.5 million in the quarter ended March 1 (Q4 03). Sales were up 18% from the previous quarter and 32% from the same period last year.

Sales of RIM's handheld devices drove the sales growth, with 89,000 devices shipped in the quarter -- up from 63,000 in Q3. The average selling price of the devices also increased with the added features RIM has been adding, such as voice communications. Handheld revenue jumped about 46% from the previous quarter to approximately US$40 million. Software revenue declined by about 30% sequentially to approximately US$5.3 million.

The total number of BlackBerry subscribers crossed the half-million mark, with a record 71,000 net new subscribers added in Q4. The gains were just above the high end of the company's forecast of 60-70,000 new subscribers.

Net loss for the quarter was US$12.6 million (US$0.16/share). Just three months ago, the company forecast that its cash burn in the quarter would be US$20 million, but it turned out to be only US$384,000. RIM ended the quarter with US$530.7 million in cash and investments.

For the year, RIM's sales were US$306.7 million, up 4% from fiscal 2001, with a net loss of US$130.0 million, bringing its accumulated deficit to US$151.0 million.

Looming over the results was the ongoing NTP litigation (see previous digests). RIM made an additional provision of US$6.9 million in the quarter to cover ongoing damages and interest over the last five months of the fiscal year. The total provision in fiscal 2003 relating to the NTP patent infringement suit was US$39.5 million. In future quarters, RIM will be placing 5.7% of "infringing revenues" (the company has never specified exactly what those revenues are) plus interest in escrow. This will be about US$3-4 million per quarter. RIM will get the money back if the judgment is reversed. A further ruling in the case is expected on April 15.

RIM has raised its revenue estimates for Q1 to US$90-100 million from the US$85-95 million estimate it provided three months ago.

RIM also unveiled its highly-anticipated BlackBerry 6210 "world band" Java-based voice/e-mail/Web/SMS/organizer handheld. It operates on GSM/GPRS networks throughout U.S., Canada, Europe, and Asia Pacific.

Sirific receives investment from Agilent
March 17, 2003

California's Agilent Technologies has been added to the list of investors in Sirific's latest round of funding. Agilent has participated in Sirific's Series A round (which is actually its second post-seed round -- the first was done with common shares instead of prefs) which was announced in November.

Details weren't disclosed, but it looks like Agilent invested about US$2 million, bringing the total funding in the round from the US$11.5 million announced in November to "more than US$13.5 million."

Agilent made the investment through its Agilent Ventures arm.

Sirific also announced that it has hired Bryan Bell as VP of engineering and operations and Richard Murphy as VP of sales and marketing. Murphy has been with Sirific for three months and was previously sales and marketing VP at Embedded Wireless Devices, which -- like Sirific -- was a venture-backed fabless semiconductor company that developed some multi-standard communications chips.

Descartes write-off triggers US$100M quarterly loss
March 12, 2003

In the quarter ended January 31 (Q4 03), Descartes lost US$108.5 million (US$2.08/share) on sales of US$18.0 million. Sales were up 3% from the previous quarter and flat from the same period a year ago.

The loss included a US$104.7 million write-down of the value of assets obtained through previous acquisitions. There was also an additional US$2.0 million in restructuring costs, including what was described as the removal of an additional layer of upper-middle management. Overall, staffing increased by 17 over the quarter to 556 company-wide.

Quarterly network revenue was US$10.8 million, which is what Descartes forecast three months ago. Licensing and service revenue both fell below expectations and total revenue fell US$1 million below the company's forecast.

For the third consecutive quarter, gross margins improved significantly and this gave Descartes a 10% sequential increase in gross profits. The company does not expect that there will be similar increases in future quarters. Expenses, excluding restructuring and write-downs, decreased 8% from the previous quarter.

For the fiscal year, Descartes had sales of US$70.4 million, down 11% from the previous year and far below forecasts of US$85-90 million made at the beginning of the year. Loss for the year was US$138.2 million, bringing the company's accumulated deficit to US$316.9 million.

At year-end, Descartes had US$174.1 million in cash and marketable securities, down US$8.2 million over the final quarter. Net cash, after deducting the outstanding US$72 million in convertible debentures, was about CDN$2.90/share at the end of Q4.

After missing its start-of-year revenue forecasts badly two years in a row, Descartes has provided a much more conservative forecast of a 7-10% increase in sales for fiscal 2004. That would result in annual revenue of US$75-77 million. The company is forecasting Q1 revenue of US$17.3-18.2 million, a 3-8% increase from a year ago.

Descartes said that a few large customers of its network-based ocean services had decided not to renew their contracts for this year. It is also expecting a US$5-6 million charge in fiscal 2004 as it ceases to use network infrastructure from BCE Emergis that was made redundant with Descartes' acquisition of Tradevision last year.

Nanodesign shuts down; parent company ceases operations
March 12, 2003

Guelph's Nanodesign, a subsidiary of Montreal-based SignalGene, has closed its doors and laid off most of its 15 employees. Four employees will remain to try to sell the company's assets.

Nanodesign was a UofG spin-off founded in 1997 as a majority-owned subsidiary of GUARD, a corporation set up by the university to commercialize research. Nanodesign was sold to SignalGene in May 2000 in a stock swap valued at the time at $15 million, but Nanodesign's shareholders never saw anything close to that as the value of SignalGene shares started to decline rapidly after the deal closed. GUARD ran out of money and ceased operations in 2001.

George Masters, the former chairman of GUARD and of CME Telemetrix, was the chairman and interim CEO of SignalGene. SignalGene has ceased operations after losing $24.5 million on sales of just $878,000 in 2002.

STOCK REPORT: Descartes shares lose a third of their value
March 2003

It was mostly an uneventful month on the stock market, with most gains or losses in the single-digit percentages. The notable exception was Descartes, which saw the value of its shares plummet by 32%, setting a new all-time low in intra-day trading at the end of the month. Descartes shares closed March at $3.25 -- their all-time lowest monthly close.

For the month of March:

Dalsa [TSX: DSA] +6%
RIM [TSX: RIM] +2%
MKS [TSX: MKX] +1%
RDM [TSX: RC] 0%
===============================
EMJ [TSX: EMJ] -1%
Open Text [TSX: OTC] -2%
--S&P TSX COMPOSITE -3.2%
Com Dev [TSX: CDV] -7%
Virtek [TSX: VRK] -8%
Turbosonic [OTCBB: TSTA] -10%
Descartes [TSX: DSG] -32%
Finline [TSXV: FIN] -33%
Navtech [OTCBB: NAVH] -35%
CME Telemetrix [TSXV: YME] -43%

As was the case with its 80% gain last month, that Navtech number needs a big asterisk beside it. The apparent large jumps and dips in its stock price are just artifacts of a wide bid/ask spread. Navtech shares ended March with the exact same bid/ask prices that they had at the end of February.

For Com Dev, it was the first time that its shares traded below $1 for an entire calendar month. Its stock hit an all-time low on March 5 and then set a new low for a monthly close, finishing March at 80 cents.

Trading in Finline shares was halted for three days after the company lost its transfer agent. In the four days since trading resumed, the total trading volume in Finline shares has been $40.

Dalsa's market cap is now almost $100 million more than Descartes'.

Companies with headquarters outside the area:

Adobe [Nasdaq: ADBE] +12%
Blue Coat [Nasdaq: BCSI] +12%
CheckFree [Nasdaq: CKFR] +7%
Betacom [TSXV: YCA] +7%
LSI Logic [NYSE: LSI] +2%
Senesco [Amex: SNT] +1%
=================================
Bio-Rad [Amex: BIO] -1%
Siebel [Nasdaq: SEBL] -7%
CVF Technologies [Amex: CNV] -7%
Network Assoc [NYSE: NET] -7%
Agfa-Gevaert [Brussels: AGFA] -10%
Sybase [NYSE: SY] -12%
Knexa [TSXV: KNX] -22%
Eiger Technology [TSX: AXA] -22%
Engineering.com [TSXV: EGN] -37%

Miscellaneous Tidbits

• ARISE has filed a new preliminary prospectus for its planned IPO. As was previously announced, the offering has been repriced at $0.75 per unit (one share and one-half purchase warrant), down from the $1 price in last year's prospectus. The total size of the offering will be between $900,000 and $3 million depending on how many buyers the company can attract. The new agent for the IPO is Northern Securities. ARISE also says it expects to close its amalgamation with capital pool company Intercedent Ventures Ltd. in May.

• You know that Dalsa is attracting more interest nationally when you see Savvas Chamberlain's salary being reported in the Toronto Star. Excluding options, Chamberlain was paid $467,075 in fiscal year 2002, up 70% from the previous year. Dalsa earned $11.5 million in 2002 while its shares went up 131%.

• Com Dev is still giving out six-figure bonuses, awarding current CEO John Keating $100,000 for his performance as COO in fiscal 2002. With the bonus, his total compensation for the year was $447,863. Com Dev lost $35 million in fiscal 2002 and saw its stock price decline by 63%. Com Dev's AGM -- a tense affair last year -- will be held on April 23.

• LogiSense announced that its metering and billing software for Wi-Fi hot-spot Internet access is being deployed at hotels through a partnership with California's Inviz Network Inc.

• Biorem says it has received US$8 million in firm orders to be completed over the next two years for its odor control biofilter technology.

• Sandvine was one of the companies making a pitch at the Toronto Venture Fair. The company says it is looking for a $6 million third round of funding.

• Jerry Krist, the founder and former president of Northern Digital (NDI), died in March at age 56. Krist founded NDI in 1981 and retired in 1998 after selling the company to six NDI employees.

• Bruce McIntyre is the new VP of product management at Global Beverage Group, McIntyre was in charge of product development at ERP developer JBA International when it was acquired by Geac in 1999. He was recently marketing VP for Vancouver's Antarctica Systems, which was founded by former Waterloonie Tim Bray, who ran Waterloo Maple and Open Text in their early days. McIntyre was also previously with Markham's Delano Technology.

• Waterloo Maple is now calling itself Maplesoft, which is what its Internet domain name has been since the late 1980s. Waterloo Maple Inc. remains the company's legal name. "Waterloo just doesn't have the recognition in an international setting as much as Maple does," CEO Jim Cooper told The Record.

• New Jersey-based Senesco, which does all its research in Waterloo, has received its first U.S. patent. The company's gene technology can be used to delay natural and stress-induced cell death in plants. It has begun studying whether its technology can be applied to humans.

• iAnywhere Solutions announced in February that it has created a Japanese subsidiary.

• Knexa reported that its Waterloo-based SuiteResponse business lost $360,000 on sales of $103,000 over the last six weeks of 2002.

• Open Text closed its acquisition of California-based Eloquent, announced in January (see January digest).