April 2003

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 74 -- May 5, 2003
In this digest:

1. ADexact shuts down; no new investors found
2. Intellitactics gets US$7M investment
3. Virtek getting out of biotech; posts strong sales in Q4
4. Open Text rolls along with another strong quarter

5. Dalsa gets over traditional Q1 hurdle
6. STOCK REPORT: Almost no big gains or losses in steady month
7. Nine UW researchers receive CITO funding
8. Miscellaneous tidbits from Inscriber, Labtronics, SRE Controls, Biorem, Global Beverage, Dspfactory, IMS, AccessTNG, Fakespace.

ADexact shuts down; no new investors found
April 16, 2003

ADexact has ceased operations. The company had been looking for an infusion of capital from a new investor, but wasn't successful in its search. About half of the staff were laid off several weeks ago and, in April, new CEO Brad Anderson told those who remained that it was all over. Founder Steve Bacso pointed to the disastrous year for the U.S. cable industry in 2002 as a barrier the company couldn't overcome.

ADexact was created by Bacso in 1999 after he stepped down as chief executive of PixStream. It won the investors' choice award at the 2001 Canadian IT Financing Forum in Toronto and announced a $5.5 million round of financing from RBC Capital Partners a few months later. There was apparently a $2 million follow-on round, since RBC said last October that it had invested $7.5 million in the company.

I don't believe the company got to the stage where it had customers -- certainly no deals were ever announced. Although it was often lumped in with interactive advertising companies, ADexact's technology was to enable the delivery of targetted advertising through cable/satellite TV systems.

Intellitactics gets US$7M investment
April 14, 2003

It wasn't long ago that it seemed that Intellitactics was also on the verge of shutting down, but its future is looking brighter today after the company closed a US$6.8 million round of funding. The lead investor was Lazard Technology Partners of Washington, DC.

Baltimore-based JMI Equity, which provided Intellitactics a lifeline follow-on investment of US$2 million last year and was the lead investor in its first round of funding in 2000, also participated in this round.

To try to get some press coverage in the U.S., Intellitactics announced with the funding that it was moving its head office from Kitchener to Bethesda, Maryland, something it actually did last year. It worked -- the story was picked up in the Washington Post and the Baltimore Business Journal. CEO Randall Davis told the Post that this should be the company's final round of funding as it expects to be profitable next year.

Virtek getting out of biotech; posts strong sales in Q4
April 15, 2003

Virtek is putting an end to the last vestige of its four-year involvement with biotechnology, announcing that it will be discontinuing its Mississauga-based FONA Technologies subsidiary. Virtek had been looking for an investor or strategic partner to take over the financial burden of developing and commercializing the FONA biosensor, but the search has been unsuccessful. It says it is still in talks with some companies, but if none step forward, it will "conclude a suitable divestiture."

The company wrote down the value of FONA's assets by $3.0 million in its quarter ended January 31 and expects to record an additional charge to exit the business of $1.7 million in the quarter that ended last week. The assets of the FONA business unit were listed as $4.6 million on October 31 and that's now down to $354,000, which is just over 1% of Virtek's total assets.

Virtek dipped a toe in biotech with its development of ChipReader, a laser reader for micro-arrays launched in 1999. Biotech then became the growth engine of choice for the company's previous management team, which acquired some complementary products in 2000, acquired FONA for $2.0 million in 2001, and created a proteomics subsidiary a few months later. The instruments business was sold last year, the proteomics subsidiary was abandoned around the same time, and with the FONA divestiture, Virtek will now be biotech-free.

When Virtek acquired FONA, it expected to launch a commercial product in 2002, but that date kept being pushed further into the future. After two years of further development, the sensitivity of the biosensor was still not at the levels the company had hoped.

For the quarter ended January 31 (Q4 03), Virtek reported sales of $8.4 million, up 19% from the previous quarter and 47% from the same period last year. Net loss was $4.7 million ($0.20/share), which included the $3.0 million charge for the decline in FONA's value as well as a $813,000 write-down of the goodwill associated with Virtek's acquired European operations.

The company ended the quarter with $10.1 million in cash ($9.9 million net of bank indebtedness), up $595,000 from the end of Q3. The FOBA acquisition (see previous digest) was closed following the end of the quarter. Virtek received a new $5 million line of credit in March.

For the year, Virtek's sales were $27.7 million, a 22% increase from fiscal 2002. Net loss for the year was $9.5 million, which takes the company's accumulated deficit to $15.1 million.

In the conference call (which again had no analysts participating), CEO Bob Sandness said that the company hopes to have sales of $100 million in three years and that there is a lot of room to grow the sales of FOBA, which are now around the $20 million mark, in the U.S. and Asia.

He also said he didn't know if any of the organizations that provided grants for FONA development will want their money back, but said that most payments were milestone-driven and that they've only been paid for the milestones that have been achieved. Genome Canada and the Ontario Ministry of Agriculture had both provided research grants.

Virtek also announced that Chuck Greb has stepped down as the company's chairman, a position he has occupied since 1997. He was also Virtek's interim CEO last year after the departure of Jim Crocker. Greb has been succeeded as chairman by Bob Nally, one of Virtek's founding directors and the former chairman of RDM.

Open Text rolls along with another strong quarter
April 23, 2003

Yet another good quarter for Open Text, which reported a profit of US$6.8 million (US$0.33/share) on sales of US$44.0 million in the period ended March 31 (Q3 03). Overall sales were up 2% from the previous quarter and 19% from the same period a year ago. Licensing revenue was up 10% from Q2. Gross margins improved and expenses were flat, which put an additional US$574,000 on the bottom line from the previous quarter.

This was the first quarter to include results from recent acquisitions Corechange (see February Digest) and Eloquent (see January Digest). There was only one deal with a value over US$1 million in the quarter, down from 4-5 in previous quarters. Open Text says that US$5 million in revenue in the quarter was driven by its MeetingZone conferencing product as companies continue to cut back on travel costs.

Open Text ended the quarter with US$108.2 million in cash and securities, up $5.9 million over the period. Operations generated US$10.7 million in cash, and US$2.7 million was used in the acquisition of Corechange and the same amount was used in the Eloquent acquisition. Open Text raised US$2.4 million through the issuance of shares in the quarter.

The company is forecasting revenue of US$48 million in the current quarter, for a total of US$173 million for fiscal 2003. It is projecting revenue of US$205 million for fiscal 2004. But those gains are not expected to make their way to the bottom line. Because of increased tax provisions, Open Text is actually forecasting a decrease in its after-tax adjusted EPS in 2004 to US$1.10/share, down from a projected US$1.27/share in 2003.

Dalsa gets over traditional Q1 hurdle
May 1, 2003

Thanks to its semiconductor business, Dalsa's traditional weak quarter was less of a bump in the road than it had in previous years. Total revenue for the three months ended March 31 (Q1 03) was $33.4 million, down just 2% from the previous quarter. Digital imaging sales had their usual decline, falling 16% sequentially to $20.4 million, but much of that shortfall was filled in by sales in Dalsa's semiconductor business, which increased 30% from Q4 to $10.0 million.

With shift in the mix toward the less profitable semiconductor business, net income fell to $2.4 million ($0.14/share) from $3.4 in the previous quarter, but it was still more than double the $1.0 million profit in the same period last year. The semiconductor business contributed 38% of the quarter's profits, compared to 8.5% in Q3.

Dalsa ended the quarter with a net cash deficiency of $3.5 million, as it borrowed $5.2 million in Q4 and ended the quarter with $1.7 million in cash. Operations used $4.0 million in cash with most of that going to pay for additional equipment.

The company reaffirmed its guidance of $155 million in revenue for fiscal year 2003 and net income of $17.3 million.

In April, Dalsa also unveiled its digital movie camera -- called Origin -- at the National Association of Broadcasters (NAB) trade show in Las Vegas. The camera will go through field trials for the rest of the year and its full commercial release is scheduled for early 2004. In its standard mode, the camera produces 1,440Gb of data for each hour of shooting -- and that's with compression.

(The compression technology Dalsa uses was developed by McMaster's Xiaolin Wu, a leading compression researcher. In 2000, Finline announced that Wu was going to join its board of directors. He didn't, of course.)

Dalsa also announced that its finance VP, Peter Voss, is leaving the company at the end of this week. He had been with Dalsa for four years and became VP in November 2000. Dalsa is looking for a new CFO.

STOCK REPORT: Almost no big gains or losses in steady month
April 2003

Among the 13 local companies listed here, only RIM saw its shares move more than a few pennies or dimes in April. The only decliner for the month was MKS, and its shares were only down 3 cents (and they've made that back and more in the first two trading days of May).

Open Text did have a wide intra-month swing, with its shares briefly went over $50 for the first time in over two years. But they ended the month back at $41.30 and over the first third of 2003, Open Text's monthly closing prices have been $41.14, $41.81, $40.91, and $41.30, which is about as consistent as it gets.

For the month of April:

RIM [TSX: RIM] +17%
Descartes [TSX: DSG] +13%
RDM [TSX: RC] +11%
Com Dev [TSX: CDV] +6%
--S&P TSX COMPOSITE +4%
Turbosonic [OTCBB: TSTA] +4%
Navtech [OTCBB: NAVH] +3%
EMJ [TSX: EMJ] +3%
Dalsa [TSX: DSA] +1%
Open Text [TSX: OTC] +1%
Virtek [TSX: VRK] 0%
CME Telemetrix [TSXV: YME] 0%
Finline [TSXV: FIN] 0%
===============================
MKS [TSX: MKX] -2%

Even with the 13% gain, Descartes' closing price in April was still the second-lowest monthly close in company history. Com Dev also logged its second-lowest monthly close ever.

Finline shares fell to an all-time low of $0.02 in intra-day trading on Friday. Daily volume was 95,253 shares -- the highest for Finline stock since 2001. The company's 2002 results should be released this month.

Companies with headquarters outside the area:

Engineering.com [TSXV: EGN] +36%
Bio-Rad [Amex: BIO] +31%
Knexa [TSXV: KNX] +29%
Eiger Technology [TSX: AXA] +27%
CheckFree [Nasdaq: CKFR] +23%
CVF Technologies [Amex: CNV] +21%
LSI Logic [NYSE: LSI] +19%
Blue Coat [Nasdaq: BCSI] +18%
Adobe [Nasdaq: ADBE] +12%
Siebel [Nasdaq: SEBL] +8%
=================================
Agfa-Gevaert [Brussels: AGFA] -1%
Sybase [NYSE: SY] -1%
Betacom [TSXV: YCA] -7%
Senesco [Amex: SNT] -8%
Network Assoc [NYSE: NET] -17%

Nine UW researchers receive CITO funding
April 10, 2003

After a one year break from funding new projects, CITO's Research Partnerships Program made its return in April with the announcement that it was providing over $9 million to fund 29 new projects (the CITO news release said 28, but there are 29 listed on its Web site). UW had a strong showing in this round, with nine projects receiving funding -- almost a third of all funded projects. That's its best performance in any of the five rounds of the CITO program.

RIM is the industrial co-sponsor for Prof. Catherine Gebotys' research into low-energy security on RIM PDAs. CITO is providing $200,000 for that project with RIM contributing an additional $100,000. SlipStream Data co-founder En-Hui Yang received $120,000 from CITO for further research into data compression and the user datagram protocol (UDP). SlipStream is providing $30,000 in cash for that project and additional "in-kind" support.

CITO has said that it would like to bring new researchers into the program and of the nine UW researchers receiving funding, eight have received CITO grants in previous years.

Other industrial co-sponsors of UW projects are Gennum, AT&T, Nortel, ATI, IBM, and C-Com Satellite Systems.

Miscellaneous Tidbits

• According to information supplied by the company for its inclusion on the Branham 100 list, Inscriber had sales of $14 million in 2002, down 7% from $15 million in 2001. It is listed as having 85 employees. Guelph's Labtronics reported sales of $3.3 million in 2002, up 17% from $2.8 million in 2001. It has 51 employees.

• CVF reports that Waterloo's SRE Controls lost US$801,000 on sales of US$2.3 million in 2002. Guelph's Biorem earned US$418,000 on sales of US$2.7 million.

• Global Beverage Group (GBG) has made another acquisition, this time buying Pennsylvania-based Intelligent Computer Systems (ICS). According to the release, ICS had over 200 customers and the acquisition brings GBG's customer base to over 450. GBG says that ICS was particularly strong in the beer market and the acquisition gives GBG a presence in the snack food, candy, and tobacco markets. GBG also announced the appointment of Bruce Cameron as its new sales VP, based in the Chicago area. From June 2001 to July 2002 he was SVP of sales for SEEC Inc., a Nasdaq-listed software company based in Pittsburgh.

• Dspfactory announced that its Toccata Plus platform is being used in hearing instruments by France's Intrason and Denmark's Microsound.

• Intelligent Mechatronic Systems (IMS) received a U.S. patent for its vehicle occupant proximity sensor, filed in 2001.

• AccessTNG hasn't updated the news section on its Web site in nearly two years, but I see that the company has recently launched high-bandwidth wireless service to some remote areas south of Ottawa.

• Fakespace completed its merger with Iowa-based Mechdyne Corp. (see November Digest). The merged company will be called Fakespace and its headquarters will be in Iowa.

• Digital Extremes, which was founded in Waterloo and which developed its huge hit game Unreal in Waterloo, just celebrated its 10th anniversary. The company left town in 1998 and is now based in London.