December 2003

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 82 -- January 12, 2004
In this digest:

1. 2003: RIM soars as the markets rebound
2. RIM looks to raise $900M through stock offering
3. RIM sets sales records, sees strong growth continuing
4. Virtek's FOBA acquisition continues rapid growth

5. Virtek placement raises $3.5M
6. Com Dev takes $21M write-down; operations provide $7M in cash
7. Descartes closing in on eight years of quarterly losses
8. ARISE says it's looking at acquiring a $15M business

9. STOCK REPORT: RIM shares near three-year high
10. CME gets worldwide glucose monitor licence back from Motorola
11. Miscellaneous tidbits from Open Text, RSS, Dalsa, NCR, Dspfactory, Ergus, SlipStream

2003: RIM soars as the markets rebound

Coming off a couple of slow years for entire tech industry, 2003 saw several companies putting in strong performances as the economy and the markets started to bounce back.

In a year where the TSX composite index climbed 24% and the Venture Exchange index jumped 63%, there are going to be many remarkable performances, but you have to give top marks to a company that can add over $5 billion to its market value and see its stock price go up 320% while achieving breakthrough sales levels.

And that's what RIM achieved in 2003. It got a Chicken Little response from many quarters throughout the year, but its sky never fell -- not even with a potentially nasty legal decision hanging over its head. Theoretically, RIM could have been stopped from selling BlackBerry in the U.S., but investors ignored the threats and partied like it was 1999 (RIM stock's 2003 high: $93.20; RIM stock's 1999 high: $92.00).

Com Dev also had a banner 2003, which you wouldn't be able to say about most companies whose stock plummeted to an all-time low and spent almost a third of the year in penny stock territory while its sales ran well welow the previous year's levels. Com Dev even lost a $20 million legal dispute with a corporation headed by former and current company executives (although, in the end, it wasn't so much a loss as a push -- it only had to pay what it thought it had agreed to pay).

In the middle of summer, Com Dev had no cash on its balance sheet and was looking at a $20 million debt coming due, while its core space market was coming off its worst year in recent history. Then it landed the big deal it had been pursuing for months, as well as some smaller deals, and closed a fully-subscribed $23 round of financing. Its market value went from $62 million at mid-year to $171 million at December 31. Its stock price is still down almost 80% from three years ago, but it has bounded back from the bottom of a deep hole and a period when everything the company touched seemed to fall apart.

At the other end of the scale -- not quite literally, since it narrowly avoided being the area's biggest stock market loser of 2003 -- there was Descartes, which racked up four more quarters of losses, running up its streak to 31. For the third straight year, the company announced a round of restructuring and layoffs, and it began the year with a US$105 million write-down of the value of acquired assets.

Stock performance for 2003:

RIM [TSX: RIM]	+320%
Com Dev [TSX: CDV]	+191%
--S&P TSX VENTURE INDEX	+63%
EMJ [TSX: EMJ]	+50%
MKS [TSX: MKX]	+37%
RDM [TSX: RC]	+37%
Navtech [OTCBB: NAVH]	+37%
Open Text [TSX: OTC]	+35%
Turbosonic [OTCBB: TSTA]	+35%
--S&P TSX COMPOSITE INDEX	+24%
ATS [TSE: ATA]	+5%
Virtek [TSX: VRK]	+4%
=================================
Dalsa [TSX: DSA]	-20%
Descartes [TSX: DSG]	-25%
CME Telemetrix [TSXV: CEM]	-26%
ARISE [TSXV: APV]	-27%

Two years ago, the median result on this list was a 68% decline. Last year, it was a 46% drop. For 2003, it was a 35% increase.

Year-end market capitalization
in millions, using outstanding shares:

RIM Open Text ATS Dalsa Com Dev Descartes MKS EMJ Virtek RDM ARISE TurboSonic CME Navtech

6,870 990 773 240 171 148 64 51 24 20 5.2 4.8 2.8 2.6

At year-end, RIM's value was $4.3 billion higher than the other 13 companies combined; a year ago it was worth less than others. (As of Friday's close the gap was up to $4.8 billion -- it's been quite a ride on the markets so far in 2004 and many of these numbers are much higher today after just one week of trading in the new year.)

In 2003, MKS reported its first quarterly profit and trailing-12-month profitability in years. Open Text reported strong sales and profits that blew away what its peers were achieving. Dspfactory announced significant sales gains. Navtech continued its turnaround, and RDM took advantage of a window of profitability and moved onto the TSX.

Virtek swapped FONA for FOBA, abandoning the final remnant of the previous management team's infatuation with biotech and showing the world that it's back to lasers by putting its money into a German laser marking and engraving company.

Dalsa -- the top performer of 2002 -- unveiled its long-awaited digital movie camera at the National Association of Broadcasters tradeshow. It's scheduled for commercial launch in 2004.

SlipStream signed up high profile customers for its Internet accelerator and demonstrated that there's still money to be made in the dial-up market. CME Telemetrix made it through the year without a dime to spare.

ARISE closed the area's first high-tech IPO in over five years. It only raised $1 million, but just pulling it off was noteworthy.

Covarity received $3 million from investors, RSS Solutions raised $1.6 million, SlipStream got $1.9 million, IMS also received funding, and Intellitactics, now based in Maryland, raised US$7M. Sandvine got a repayable $9.5 million TPC investment.

Open Text acquired two once-high-flying U.S. companies for pocket change and then looked toward Germany, closing one acquisition while another -- its largest -- is set to be completed later this month.

Descartes spin-off Global Beverage Group made two more acquisitions, on top of the four it made in 2002. The SuiteResponse business unit of what used to be JPH International was integrated into Knexa, a public company, and then un-integrated. Fakespace merged with Mechdyne and moved its headquarters to Iowa. Avvida Systems was acquired, and is now operating under what is essentially its fourth name in three years.

We said goodbye to ADexact, which began with a lot of promise but never found a customer base. It shut its doors when it was unable to find additional investors. Fred Systems was bought out and left town. Engineering.com closed what was left of its Waterloo office.

Also winding down were the operations of what used to be Guelph's Nanodesign, which had become a subsidiary of Montreal-based SignalGene. Nanodesign was the only product of Guelph's now-defunct GUARD that ever had a life outside of its incubator.

The doors at Betacom were locked by the receiver and what assets the company had were sold off. On its deathbed, the company said its books showed non-existent revenue and missing expenses. The matter received almost no press coverage, even though Betacom's CFO is the
current chairman of the York Technology Association.

Also receiving no media coverage was the expulsion of the now-former president of Onlinetel from the Institute of Chartered Accountants of Ontario after he was accused of misappropriating over $8 million from his previous company (also based in the Region of Waterloo) and directing the falsification of the company's books.

And 2003 marks the end of a time-honoured, year-end tradition -- I can't say that Finline announced a bunch of deals that never happened. The company wasn't in any financial shape to make announcements in 2003. Through the tech boom and bust, the ever-optimistic Finline could be depended on to provide comic relief, at least to those who remained detached from its operations. The company is still around and I'm sure would tell you that it's on the verge of closing a seven-figure deal in Djibouti. But it can no longer afford to be our court jester, and now we'll just have to find enjoyment from other sources -- like a revitalized stock market.

RIM looks to raise $900M through stock offering
January 7, 2004

With RIM stock trading at its highest level in three years, the company has decided that if people are willing to pay $90 a share that it will be more than happy to sell them. It will issue up to 10.35 million new shares, which would be 11.5% of the outstanding shares in the company following the offering.

The price hasn't been set yet, but it will probably be something close to RIM's year-end price of $86.72 [or so I thought when the offering was announced; with RIM stock closing Friday at $97.16 it might be able to price the new shares a few dollars higher than I initially expected]. That would result in gross proceeds of just under $900 million. That would be just a bit below the take from RIM's share offering in October 2000 which grossed about a billion dollars at $154.90 a share. The company still has over $680 million (Canadian) in cash and investments on its balance sheet, so that will jump to over $1.5 billion when the new offering closes -- assuming it is taken up in full.

RIM didn't specify any uses for the cash, but with that kind of money it could acquire a competitor -- RIM's cash will be about equal to the value of palmOne, Palmsource, and Good Technology combined -- and it will have enough money to get rid of the NTP patent issue if it wants to (it always has).

RIM sets sales records, sees strong growth continuing
December 22, 2003

Driving RIM's stock offering was the company's latest quarterly results and its guidance for the future -- both of which came in stronger than expected.

For the quarter ended November 29 (Q3 04), RIM reported revenue of US$153.9 million, doubling its sales of a year ago. It was the second consecutive quarter that RIM reported sequential sales growth of over 20%. RIM had forecast sales of US$140-150 million for the quarter. With improved margins, gross profits were up 25% from Q2 and 150% above last year's number.

Net income in Q3 was US$16.3 million (US$0.20/share). That was after US$9.2 million in expenses in the quarter to cover damages and interest from NTP's patent infringement suit against RIM. RIM put aside US$9.0 million in cash in the quarter to cover the ongoing royalty that a judge awarded to NTP as compensatory damages. RIM is appealing the decision.

BlackBerry subscribers grew by a net 154,000 in the period to 865,000. That's up sharply from 96,000 new subscribers in Q2 and 81,000 in Q1. Handheld sales accounted for 56% of total revenue or about US$86.2 million, up 30% from the previous quarter. RIM shipped 237,000 devices in the quarter, up from 178,000 in Q2. Subscribers outside North America now account for nearly 12% of BlackBerry users.

Service revenue was US$44.6 million, up 11% from Q2, so service revenue per subscriber has declined a bit, but total service revenue is still growing strongly.

At the end of the quarter, RIM had US$531.6 million in cash and investments, up US$3.5 million from the end of Q2. Operations consumed US$2.7 million in cash but the company raised US$14.0 million through the sale of stock in the quarter.

To end its fiscal year, RIM is forecasting sales of US$195-200 million in the current quarter, which is US$45-50 million more than it was predicting three months ago and 25-35% above sales in Q3. Profits in Q4 are forecast to be US$0.30-0.40/share or US$24-32 million. RIM is forecasting revenue of US$220-240 million for the first quarter of fiscal 2005 and net income of US$0.35-0.50/share.

RIM also announced that Sony Ericsson will soon be bringing BlackBerry to its devices. Sony Ericsson joins a list of device manufacturers that included Nokia and Palm that will offer BlackBerry.

Virtek's FOBA acquisition continues rapid growth
December 17, 2003

Virtek reported a big jump in sales in the quarter ended October 31 (Q3 04), mostly due to growth in its recently-acquired FOBA operations.

Total sales for the period were $13.4 million -- up 22% from the previous quarter. Most of the gains came from FOBA, which reported Q3 sales of $6.3 million -- a 48% sequential increase. Sales in Virtek's traditional business units grew less than 2% from a year ago and were up 6% from the previous quarter.

Expenses were flat from the previous quarter, with R&D costs in Q3 equal to 7% of sales. Net loss for the quarter was just $115,000 ($0.00/share), an improvement from a loss of $790,000 in Q2. There were apparently some layoffs in the quarter, as Virtek reported expenses of $210,000 for "staff reorganization" costs.

Virtek ended the quarter with $2.9 million in cash, down $408,000 from the end of Q2. Cash net of bank indebtedness was $1.7 million (it has since raised additional funds -- see next story). Continuing operations provided $363,000 in cash while discontinued operations used $442,000.

At its current run-rate, the company is half-way to its "mid-term" goal of growing to $100 million in sales.

Virtek placement raises $3.5M
December 18, 2003

A Virtek private placement raised gross proceeds of $3.5 million. The company sold 4.62 million shares -- about 16% of the company -- at $0.75 each. The placement was led by Paradigm Capital.

Virtek will use the money for its acquisition of FOBA, for which it is paying in installments, and for general working capital.

Com Dev takes $21M write-down; operations provide $7M in cash
December 18, 2003

With its $20.6 million write-off of the value of its investment in Skybridge, Com Dev reported a net loss in the quarter ended October 31 (Q4 03) of $21.8 million ($0.44/share).

Sales for the period were $26.5 million, up 13% from the previous quarter and 5% from a year ago. A decline in margins led to a sequential increase in gross profits of 8% to $6.1 million -- down 21% from last year.

Operations generated $10.3 million in cash in Q4, of which $3.4 million was spent on capital expenses.

Order backlog stood at $74 million at year-end and was up to $95 million by the beginning of December.

For the year, Com Dev had sales of $91.0 million, down 15% from 2002, and a net loss of $24.8 million.

Net R&D spending in Q4 fell to just $313,000 or 1.2% of revenue. The drop was attributed to a million-dollar increase in external R&D funding. General expenses were bumped up by a $450,000 bad debt provision.

Com Dev raised a net $23.1 million in the quarter through the sale of stock and it made an initial payment of $5 million to THL on its Skybridge-related debt. The company ended Q4 with $23.4 million in cash -- up from $0 at the beginning of the quarter. With the THL debts, it now has $17 million in loans payable on its balance sheet.

Descartes closing in on eight years of quarterly losses
December 3, 2003

For the quarter ended October 31 (Q3 04), Descartes reported a loss of US$4.2 million (US$0.10/share) on sales of US$16.0 million. Sales were up 5% sequentially but down 8% from a year ago, and were in line the company's forecast of US$15.5-16.5 million.

Descartes reported 148 new "sign-ups" in the quarter. Over the last year, it has reported 635 new sign-ups while its quarterly revenue has declined by US$7 million. The number of transactions processed across Descartes' network in the quarter was 90 million, down slightly from 93 million a year ago.

"For the third consecutive quarter we have seen an improvement," CEO Manuel Pietra was quoted saying in the news release. I assumed it was just a release writer's slip, but on the conference call the statement that it was the "third consecutive quarter of top line and bottom line growth" came right out of Pietra's mouth. You can usually rely on a company to count to three accurately, but in this case it was actually only the second straight quarter of revenue growth for Descartes.

But it is predicting a third -- albeit with moderate sequential growth. Descartes is forecasting revenue of US$16-17 million in its final quarter of fiscal 2004 and a net loss of about US$3 million in Q4. That would make 32 consecutive quarters of losses. Its accumulated deficit now stands at US$345 million.

Descartes ended the quarter with US$69.4 million in cash and securities, down US$7.3 million from the end of Q2. Cash net of convertible debentures was US$42.4 million or about CDN$1.35 a share. Operations consumed US$5.9 million in cash with an additional US$1.2 million spent on capital assets.

ARISE says it's looking at acquiring a $15M business
December 9, 2003

ARISE, which needs to raise money for working capital purposes, sent out a teaser news release saying that it had entered into a non-binding letter of intent to acquire an unnamed profitable solar energy business that will have sales greater than $15 million in 2003.

When an unprofitable company with a market value of under $4 million (as ARISE had when the announcement was made) wants to acquire a profitable company with $15 million in sales, you'd have to think that there will be significant dilution for existing shareholders if the deal were to close. ARISE did not provide any details of how it would pay for the acquisition or what kind of business it was looking to buy.

ARISE also announced that its top engineer has left the company. Pat Cusack was engineering VP and had been with the company for five years. He was ARISE's highest-paid officer in its most recently reported year.

STOCK REPORT: RIM shares near three-year high
December 2003

Not only did RIM shares continue their streak -- that's now 10 consecutive months of gains -- they had their best month since April 2001.

At the same time, Com Dev's eight-month streak came to an end, but it will be satisfied with the 260% jump in its shares since the end of March.

For the month of December:

RIM [TSX: RIM] +45%
ARISE [TSXV: APV] +10%
Virtek [TSX: VRK] +6%
--S&P TSX COMPOSITE INDEX +5%
--S&P TSX VENTURE INDEX +4%
RDM [TSX: RC] +2%
Open Text [TSX: OTC] +1%
===============================
Dalsa [TSX: DSA] -1%
Navtech [OTCBB: NAVH] -9%
MKS [TSX: MKX] -11%
Com Dev [TSX: CDV] -13%
Descartes [TSX: DSG] -13%
Turbosonic [OTCBB: TSTA] -14%
CME Telemetrix [TSXV: CEM] -36%

RIM was added to the Nasdaq-100 index in December, while Descartes was dropped from the S&P/TSX composite index. CME Telemetrix had its ticker symbol changed after the TSX Venture Exchange abolished its Tier 3 category. Tier 3 companies were given a symbol beginning with the letter Y, and with that restriction lifted, CME's symbol changed from YME to CEM.

Companies with headquarters outside the area:

CVF Technologies [Amex: CNV] +17%
Bio-Rad [Amex: BIO] +13%
Network Assoc [NYSE: NET] +12%
Eiger Technology [TSX: AXA] +11%
Agfa-Gevaert [Brussels: AGFA] +9%
Blue Coat [Nasdaq: BCSI] +7%
Siebel [Nasdaq: SEBL] +6%
Senesco [Amex: SNT] +3%
Ansys [Nasdaq: ANSS] +3%
SBS Technologies [Nasdaq: SBSE] +0%
Sybase [NYSE: SY] +0%
CheckFree [Nasdaq: CKFR] +0%
==================================
Adobe [Nasdaq: ADBE] -5%
LSI Logic [NYSE: LSI] -6%
Knexa [TSXV: KNX] -23%

You often hear about companies' market value as a multiple of sales, but here's a more obscure statistic that can reveal some interesting results -- market capitalization as a multiple of gross profits (using the run rate from the most recently reported quarter and not trailing twelve months). As with all ratios, its more of a clue than an answer, but I found it interesting enough to include here. I've left CME off the list since it's essentially pre-revenue.

Market cap as a multiple of run-rate gross profits as of December 31:

RIM	18
ARISE	10
Com Dev	7
Open Text	6
Dalsa	4
EMJ	4
ATS	3
RDM	3
TurboSonic	3
Descartes	3
MKS	2
Virtek	<1
Navtech	<1

Even with 4.6 million new shares outstanding, Virtek was still valued at less than its run-rate gross profits at year-end (although it crossed over the 1x multiple last week). As of Friday's close, RIM's multiple was up to 21.

CME gets worldwide glucose monitor licence back from Motorola
December 4, 2003

CME Telemetrix has bought back the licence to its long-in-development non-invasive glucose monitor that it sold to Motorola nearly four years ago. Motorola held the exclusive worldwide (except Japan) rights for manufacturing, marketing, and distributing the device.

Motorola is CME's largest shareholder and since the monitor won't be coming to market for years (if ever -- there's lots of R&D still needed) and CME desperately needs to raise money right now, it was in Motorola's best financial interests to give CME a marketable asset and give a boost to the company's fundraising efforts in the hope that its 15% stake in CME will be worth something someday. CME did not disclose the terms under which Motorola returned the licence.

CME wasn't able to close a private placement in December, as it had hoped. It has extended the closing date to this Thursday -- January 15. CME's shareholders approved the placement in a special meeting on December 5. If the company can find buyers, the placement will significantly dilute the holdings of all current shareholders (see November digest). CME was set to run out of cash right about now.

Miscellaneous Tidbits

• Open Text announced preliminary results for the quarter ended December 31 (Q2 04). We'll cover the full results in depth, but the company is looking at revenue of US$60-62 million, which would be a 35-40% sequential increase and 15% above its forecast. Net income is expected to be in the US$6-7 million range. The "acceptance period" of Open Text's offer to buy IXOS (see October digest) ends this Friday, and the acquisition should be a done-deal shortly thereafter.

• It wasn't announced, but I'm told that RSS Solutions received another $750,000 from EdgeStone Capital Partners in November through a debenture sale.

• Dalsa let the world know that the images of Mars being sent back by the rover Spirit are being produced by Dalsa-built chips. The CCD image sensor chips were designed by NASA's Jet Propulsion Laboratory and made at Dalsa's semiconductor fab in Quebec.

• In November, Wayne Doran of NCR's Waterloo facility was one of five recipients of the Engineering Medal for Excellence, presented at the annual Ontario Professional Engineers Awards in Toronto. Doran was recognized for "his significant contributions in the area of electronic cheque and image exchange." The Engineering Medal for Excellence recognizes innovative applications and overall excellence in the practice of engineering. Guelph's William Rowan -- the R of engineering firm RWDI -- was another medal recipient.

• Dspfactory announced that its chips are being used by Plantronics, the world's largest supplier of communication headsets. No dollar value was disclosed.

• Ergus' WhizzDom software suite is being used by tradeshow promotion company Diversified Business Communications to perform surveys and manage customer expectation and satisfaction.

• SlipStream's Web accelerator can now be used on systems running Mac OS-X.