September 2003

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 79 -- October 6, 2003
In this digest:

1. Com Dev offering to raise $20M, repay THL debt
2. RIM reports record quarterly sales
3. MKS shows strong year-over-year growth
4. FibreTech launches Wi-Fi hotspot near UW

5. Virtek sees strength in transportation market
6. Descartes sales still lagging behind previous year
7. Navtech profits help repair balance sheet
8. STOCK REPORT: RIM and Com Dev continue to fly

9. Miscellaneous tidbits from SlipStream, LogiSense, Dalsa, Sirific, CheckFree, Turbosonic, EMJ, TeleflexGFI, Betacom

Com Dev offering to raise $20M, repay THL debt
October 3, 2003

Com Dev will raise about $20 million through a share offering scheduled to close later this month. The company will sell 9.5 million new shares -- increasing the number of outstanding shares by 20% -- at a price of $2.10 a share. Underwriters for the offering are CIBC World Markets and National Bank Financial.

The underwriters have an over-allotment option for an additional 1.4 million shares, which -- if exercised in full -- would push the total gross proceeds of the offering to $23 million.

Com Dev will immediately use $5 million of the cash raised to pay down its debt to Technology Horizons Ltd. (THL). Com Dev and THL renegotiated the repayment of the $20.3 million owed to THL for its partnership units in Skybridge (see last month's digest). Under the original agreement, Com Dev would have paid THL 3.4 million shares and a promissory note for about $12.5 million on October 1. That was changed to a promissory note for the full $20.3 million, so THL will not be receiving any more shares in Com Dev. THL directly owns just over 6% of Com Dev (before this offering) and THL and its shareholders combined own over 25% of the company (the figure has never been disclosed).

The balance of the money raised will be used for general corporate purposes and to repay the balance of the THL promissory note between April 2004 and October 2005.

Net proceeds to Com Dev from the offering will be between $18.6 million and $21.4 million, depending on how much of the over-allotment is taken.

When the offering closes, Com Dev will have 58.2 million shares outstanding with potentially an additional 1.4 million shares from the over-allotment.

It looks like a good deal for Com Dev, which had zero cash on the balance sheet at the end of July. When the offering was announced, Com Dev shares had traded above the offering price on just nine days since May 28, 2002. They closed Friday at $2.12.

RIM reports record quarterly sales
September 25, 2003

RIM was expected to report strong sales in the quarter ended August 30 (Q2 04), but the actual results blew away most estimates. RIM reported sales of US$125.7 million -- well above its own forecast of US$105-115 million made at the beginning of the quarter.

Sales were up 20% from the previous quarter and 42% from a year ago. RIM shipped 178,000 handheld units in the quarter, up from 126,000 in Q1. Handheld sales were US$66.2 million, a 28% sequential increase and 145% above last year's numbers.

BlackBerry subscribers increased by 96,000, up from 81,000 in the previous quarter. There are now 711,000 BlackBerry subscribers world-wide, including more than 50,000 in Europe.

RIM reported a profit of US$2.1 million (US$0.03/share) in the quarter. That all came from interest income, but operations were almost at break-even levels, with a loss of just US$73,000.

Expenses related to NTP's so-far-successful lawsuit against RIM were US$5.7 million. That's lower than usual because RIM adjusted some previous estimates for its legal expenses. RIM placed an additional US$7.6 million in cash into its NTP escrow account. It expects to make a provision of US$7.5-8.5 million in Q3.

RIM finished the quarter with US$528.1 million in cash and investments (not including the NTP escrow money), up US$18.4 million from the end of Q1. Operations provided US$28.0 million in cash and RIM raised an additional US$4.7 million through the sale of shares.

For the current quarter, RIM is forecasting sales of US$140-150 million. At the high end of that range, it would be double its sales of a year ago. It expects to add 115,000-125,000 new BlackBerry subscribers in the quarter.

MKS shows strong year-over-year growth
September 4, 2003

MKS' May-to-July period (Q1) is usually its least impressive quarter each year, and that seasonality held true again in fiscal 2004, as the company reported sales of US$8.0 million in the quarter. That's down 14% from the previous quarter but up 24% from the same period last year.

MKS closed 17 deals in the quarter with a value over US$50,000, compared to just nine a year ago. Sales from its SCM unit were up 29% from a year ago and accounted for 72% of all revenue.

The company was just below break-even for the quarter with a net loss of only US$89,000 ($0.00/share). Because that was a significant improvement over a US$2.0 million loss in the same period last year, that left MKS with net income of US$223,000 over the last 12 months -- its first 12-month profitability in years.

Operations consumed US$291,000 in cash. MKS ended the quarter with US$7.2 million in cash, down US$513,000 over the period.

MKS says it will increase its sales and sales support staff this year and will be increasing its R&D spending in its SCM unit to accelerate the development of product features.

The circular for MKS' AGM shows that the company's highest-paid executive officers in fiscal 2003 (excluding options) were the COO and CTO of its interoperability unit, who received $608,700 and $607,200, respectively -- a 43% increase from a year ago, which follows their 52% raises last year. MKS COO Mike Harris received $444,700 and the options he was granted in the year are currently in the money by over $1 million. CEO Phil Deck was paid $250,000 plus 174,200 options.

FibreTech launches Wi-Fi hotspot near UW
September 30, 2003

FibreTech is today unveiling a Wi-Fi hotspot that covers the University Plaza areas east of UW. People with 802.11-enabled laptops or other devices will be able to access the Internet wirelessly through the FibreTech service over an area of 4 sq km.

FibreTech says it's a free pilot site and plans to expand the service throughout Waterloo Region. It will use Wi-Fi technology to provide high-bandwidth Internet access to residential and small business customers.

Virtek sees strength in transportation market
September 19, 2003

For the quarter ended July 31 (Q2 04), Virtek reported a net loss of $790,000 on sales of $10.95 million. Total sales were down 5% from the previous quarter. Revenue from Virtek's traditional business units was down 18% from Q1, but up 22% from a weak quarter a year ago. The newly-acquired FOBA business, in its first full quarter as part of Virtek, contributed $4.2 million in revenue.

Sales in the transportation market were particularly strong -- more than doubling from the period last year. Virtek ended the quarter with an order backlog of $6.2 million.

Virtek ended the quarter with $3.3 million in cash, down $2.4 million from the end of Q1. It used $0.9 million in cash on acquisition costs and $0.4 million to pay down its bank debt. Operations consumed $0.4 million in cash. Virtek's discontinued biosensor operations used an additional $0.4 million. Cash net of bank indebtedness was $1.8 million at quarter-end.

The company is still forecasting that it will achieve profitability in Q4.

Descartes sales still lagging behind previous year
September 4, 2003

For the second straight quarter, Descartes revenue fell 16% below last year's numbers as the company reported a net loss of US$14.7 million (US$0.29/share) on sales of US$15.2 million for the three months ended July 31 (Q2 04). Results were in line with the company's forecast in June of US$15-16 million in revenue.

On the bright side, it was a 7% improvement from sales in the previous quarter, and with a stronger gross margin, gross profits were up 11% sequentially, while expenses were down 10%.

The big hit to the bottom line came from a US$12.5 charge from the restructuring announced during the quarter (see June digest).

Descartes is forecasting a loss of about US$4-5 million in the current quarter on sales of US$15.5-16.5 million. That will make Q3 its 31st consecutive quarter in the red. One more after that, and it's a full eight years since the company had a quarterly profit. (Contrary to what has been written elsewhere, Descartes has reported GAAP profits in the past -- way back when it was a private company. It's just never happened since Descartes went public.) Accumulated deficit at the end of Q2 was US$340.6 million.

Descartes reported 151 sign-ups in the quarter -- new customers or existing customers buying new services. That's down from 177 in Q1, not that it really seems to make much difference. For the last year, every Descartes conference call has included questions about how it can have hundreds of new sign-ups with no noticeable effect on revenue. Descartes said that only 1% of its customers didn't perform any billable activity during the quarter, so customers are using the service, and there's more of them, but revenue is still down.

Of the 151 sign-ups in Q2, 92% were classified as small deals with a value over the next year of less than US$100,000. It reported three sign-ups with a value over US$250,000.

At quarter-end, Descartes had US$76.8 million in cash and securities, down US$86.6 million over the quarter. It spent US$43.3 million on the repurchase of some of its outstanding convertible debentures and an additional US$27.2 million to repurchase and cancel some of its common shares. Operations used US$15.0 million in cash. Net cash, after deducting the remaining convertible debentures, is US$49.8 million, which is about CDN$1.64/share.

The departure of ex-CEO Peter Schwartz is now complete. He had gone from chairman & CEO to chairman & co-CEO to chairman over the last year-and-a-half, and has now resigned from the board. Descartes said he left to ... you guessed it ... pursue other opportunities. He had been with Descartes for the last 10 years (he originally joined the company in 1990, but left in 1992 to take a job elsewhere) and became CEO eight years ago. He was reduced to co-CEO in February 1992 and left the management team in May of this year.

The new chairman is Stephen Watt, a computer science professor at Western who has been on Descartes' board for the last two years. Watt has also been (and may still be) a director of Maplesoft and is the director of the Ontario Research Center for Computer Algebra, which is affiliated with Western and UW.

CEO Manuel Pietra has been given the director's seat vacated by Schwartz.

Descartes also announced this month that it will be outsourcing some of its programming to Keane Inc., a Boston-based company which employs a team of code-crunchers in India.

Navtech profits help repair balance sheet
September 15, 2003

For the quarter ended July 31 (Q3 03), Navtech reported earnings of US$53,000 (US$0.01/share) on revenue of US$1.8 million. Sales were up 11% from the previous quarter and 20% from the same quarter last year.

The company continues to work away at its working capital deficiency, which is now down to US$147,000. It was US$673,000 a year ago. The company had hoped to eliminate the deficiency in the current fiscal year, but it looks like that might have to wait until the beginning of fiscal 2004. Operations provided US$34,000 in cash in the quarter and Navtech spent US$47,000 to repay loans.

STOCK REPORT: RIM and Com Dev continue to fly
September 2003

RIM and Com Dev continue to be the stock market stories. Both were up significantly again in September. That's seven straight months of gains for RIM and six for Com Dev. Over the last six months, Com Dev stock is up 186% and RIM is up 170%.

With its gains, Com Dev has passed MKS for market value -- and that's before the share offering reported above, which should boost Com Dev's value again this month. In September, Com Dev went back above the $100 million mark for the first time in well over a year.

For the month of September:

Navtech [OTCBB: NAVH] +35%
Com Dev [TSX: CDV] +35%
RIM [TSX: RIM] +31%
--S&P TSX VENTURE INDEX +6%
Descartes [TSX: DSG] +3%
MKS [TSX: MKX] +2%
RDM [TSX: RC] +1%
===============================
--S&P TSX COMPOSITE INDEX -1%
Dalsa [TSX: DSA] -3%
Turbosonic [OTCBB: TSTA] -4%
Virtek [TSX: VRK] -4%
Open Text [TSX: OTC] -10%
ARISE [TSXV: APV] -23%
CME Telemetrix [TSXV: YME] -36%

The Navtech jump is legitimate and not an artifact of a wide bid/ask spread, which is what usually accounts for its wide monthly swings.

RIM's market value is back up to $4.4 billion. All other companies on this list combined are worth $1.7 billion.

MKS shares didn't trade below $2 for the entire month. The last time they were above $2 for an entire calendar month was October 2000.

Shares of Open Text were down in September, but never traded below $45 for the entire month. That's something that had never happened before -- not even at the peak of the tech boom.

As of Friday's close, ARISE stock was down 40% from its IPO price. CME Telemetrix shares finished the month at 25 cents -- tying its all-time lowest monthly close. The company has money to fund operations for another three months.

Companies with headquarters outside the area:

Senesco [Amex: SNT] +44%
Blue Coat [Nasdaq: BCSI] +36%
Agfa-Gevaert [Brussels: AGFA] +1%
Adobe [Nasdaq: ADBE] +1%
Sybase [NYSE: SY] +1%
Ansys [Nasdaq: ANSS] +1%
==================================
Bio-Rad [Amex: BIO] -0%
Network Assoc [NYSE: NET] -1%
CVF Technologies [Amex: CNV] -3%
Eiger Technology [TSX: AXA] -3%
Siebel [Nasdaq: SEBL] -3%
SBS Technologies [Nasdaq: SBSE] -5%
Knexa [TSXV: KNX] -7%
Betacom [TSXV: YCA] -11%
CheckFree [Nasdaq: CKFR] -12%
LSI Logic [NYSE: LSI] -22%

Miscellaneous Tidbits

• SlipStream says that it has signed up 300 ISPs this year and now has over 300,000 paying users of its Internet accelerator technology.

• LogiSense announced that its EngageIP network services management software is now being used by the Government of Canada, the City of Kenora, and other municipalities in the U.S. It also said that FibreTech will be using EngageIP to automate its IP billing and traffic management operations.

• Savvas Chamberlain was named Ontario's technology and communications entrepreneur of the year at the annual awards ceremony sponsored by Ernst & Young.

• Sirific announced that it had won the 2003 Frost & Sullivan Technology Innovation Award for electronics and semiconductors. On its Web site, Frost & Sullivan -- a market consulting firm -- says that Quebec's Original Solutions Inc. won the award ... but it also says there are "34 categories of awards" for each market sector, so it's not clear exactly how exclusive an honour this really is.

• Haven't heard much from the Waterloo site of CheckFree i-Solutions lately, but I'm told that about seven people were laid off during the summer and there are now about 70 people remaining. At some point over the last several months, Sean Feeney became GM. He's the former president of CheckFree Software who left the company in 2000 to lead a dot-com. Ray Simonson remains SVP. In the quarter ended June 30, CheckFree wrote down the value of its i-Solutions-related intangible assets by US$10.2 million.

• Turbosonic reported a net loss of US$684,000 (US$0.07/share) on sales of US$6.1 million in the year ended June 30. Sales were up 33% from 2002.

• EMJ raised $19.6 million through the sale of 3-year 12% convertible debentures and preferred shares paying an 8% annual dividend. The money will be used to pay for EMJ's acquisition of Daisytek Canada, which closed this month. EMJ earned $2.3 million on sales of $190.0 million in the year ended July 31. EMJ stock is up 44% over the last four months.

• Kitchener's TeleflexGFI laid off at least nine people in September.

• Mississauga's Betacom, which has a 5-person office in Waterloo, announced the resignation of its CEO and its CFO.