February 1999

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 24 -- March 10, 1999
In this digest:

1. MKS acquires U.S. software firm in US$10 million stock swap
2. MKS quarterly revenues near $15 million
3. Technology Horizons agrees to sell RIM shares
4. Focus Automation receives $3 million from Taiwanese investors
5. STOCK REPORT: Get the "F" out of there, say Waterloo firms

6. CME Telemetrics sells off Advantage Medical division
7. COM DEV acquires assets of cellular infrastructure developer
8. RIM recieves order from U.S. security equipment manufacturer
9. Maple nabs SST head as new CEO
10. PixStream searching for new CEO

11. Waterloo North Hydro hopes to offer phone service by the fall
12. Losses for RDM as they gear up for volume production
13. New military implementations for Open Text's Livelink
14. Descartes underwriters exercise over-allotment option
15. Descartes service selected by Sun Microsystems

16. Northern Digital wins regional innovation award
17. Avenir has left the building ... and the country
18. Cowpland on PPV

MKS acquires U.S. software firm in US$10 million stock swap
February 1, 1999

MKS has acquired Virginia-based DataFocus Inc. for US$10 million in an all-stock transaction. DataFocus is one of the two main developers of software that ports UNIX applications for use on Microsoft Windows operating systems (95/98 as well as NT).

MKS Toolkit has been a component of DataFocus' core product, called Nutcracker, for the last five years. MKS will incorporate Nutcracker into their Integrity Framework family of products and continue to sell and support the product. According to a release from Updata Capital, DataFocus' M&A advisors, the DataFocus management team and employees will remain in Virginia and "form the nucleus of MKS's interoperability business."

"MKS has a very focused acquisition plan," said MKS CEO Randall Howard in a release. "DataFocus is a highly synergistic merger for MKS."

The acquisition is being treated as a pooling of interests under U.S. GAAP. (It's a practice that many expect will be abolished shortly; an article in the San Jose Mercury News last week by Adam Lashinsky begins with the line "The end is in sight for Silicon Valley's favorite merger-accounting tactics.") We'll come back to this in the next item.

MKS quarterly revenues near $15 million
March 1, 1999

For the three months ended January 31, MKS reports record revenues of $14.7 million. This compares with $7.2 million reported a year ago, but because the DataFocus acquisition is a pooling of interests, all of MKS' historical financial data are revised to include DataFocus' results. Once the DataFocus revenue from a year ago is added in, the combined company had revenues of $9.1 million in the same period last year, which makes this year's figure a 61% increase.

Subtracting MKS' old numbers from the new ones shows that DataFocus' annual revenues were about CDN$7.5 million, or roughly half of what MKS paid for the company.

And subtracting DataFocus' contribution also shows that MKS's revenues were uncharacteristically flat on a quarter-over-quarter basis.

Excluding one-time charges related to acquisitions, MKS earned $1.5 million for the quarter ($0.09/share). Once the charges are included, the company lost $918,000 ($0.05/share).

MKS has also restated the accounting for their acquisition of the SDM unit of Silvon Software Inc. ("in response to recent guidance" from the U.S. SEC). The write-off of in-process R&D in the first quarter has been reduced from $17.9 million to $7.3 million, with a corresponding increase in intangible assets shown on the balance sheet.

(Returning to the San Jose Mercury News article, it reported that a committee of the Financial Accounting Standards Board -- the group that determines U.S. GAAP -- voted unanimously in February to eliminate in-process R&D charges. Many high-tech companies have been accused of overly-aggressive calculations of IPRD charges to improve future earnings reports.)

MKS' balance sheet at January 31 shows $19.5 million in cash.

Technology Horizons agrees to sell RIM shares
February 3, 1999

The squabbling between RIM and its one-time largest shareholder, COM DEV spin-off Technology Horizons, appears to be nearing an end. Technology Horizons has apparently agreed to sell all of their RIM shares.

The company sold 5.35 million shares on February 3 (for more than $80 million), and Mark Evans reports in the Globe & Mail that it is expected to sell the remaining 1.6 million shares later this year.

Technology Horizons had owned more than 15% of RIM just last summer. A sale of more than 3 million shares with no warning given to RIM and in violation of company insider trading policy led to the resignation of COM DEV CEO Val O'Donovan from RIM's board (see the September issue of the Digest for more details, and the July issue about COM DEV's strong reaction when one of their directors violated their insider trading policy just a couple months earlier).

Focus Automation receives $3 million from Taiwanese investors
February 2, 1999

Two Taiwanese venture capital firms -- including one that is a subsidiary of computer component manufacturer Acer Inc. -- have invested a combined $3 million in Focus Automation.

Acer VP Steven Cheng has become a director of Focus, and the company will be opening an office in Taiwan. The money will be used in part to strengthen Focus' marketing efforts in Asia. Focus CEO Ron Strauss said the two investors will help find "important partners in the region."

It is the company's second round of venture-capital financing in the last four months (see the October Digest for details about the previous round).

STOCK REPORT: Get the "F" out of there, say Waterloo firms
February 1999

All of the Waterloo firms trading on the NASDAQ system took the opportunity to remove (or avoid using) the "F" suffix in their ticker symbols. A change in NASDAQ rules allowed many international companies to take off the F tag, which had previously been required for "foreign" companies, and was looked upon as a scarlet letter by some investors. Descartes (DSGX) and Open Text (OTEX) both modified their NASDAQ tickers, and newly-listed RIM (RIMM) was able to avoid ever using their previously announced F ticker.

RIM began trading through the NASDAQ system on February 4 -- the day after the Technology Horizons sell-off, which greatly increased the company's float.

The big gains from the past two months did not continue into February. Descartes (-20%) and MKS (-15%) both declined over the month, as did RIM (-12%) which at one point climbed as high as $19.00 (+24%) before falling to finish the month at $13.40. An exception was Open Text, which gained 7% for the month on the TSE. Com Dev shares are again in decline, losing nearly 13% in February to close at $6.15. They were as low as $5.00 during the month.

CME Telemetrics sells off Advantage Medical division
February 2, 1999

CME Telemetrics has reached an agreement to sell Advantage Medical, their physiological monitoring business, to Virginia-based Neurosoft. The company will now focus on their near-infrared products, particularly the noninvasive glucose monitor they've been developing for the past few years.

"We believe the proceeds from the sale will enable the company to pursue commercialization of our GlucoNIR instrument," said CME's CEO Duncan MacIntyre.

CME acquired Advantage Medical in 1996. It was the division that developed CME's NT-based EMG instrument, formally launched only last fall. CME recently reported they had expanded their sales force in anticipation of increased EMG sales.

The company's GlucoNIR product is still waiting for approval by the U.S. FDA. This month CME reported they are trying to persuade the FDA to give the device approval as a supplement to traditional sampling techniques. If approved, the device could be used in institutional settings where it would be under the supervision of a health care professional. The company says the FDA agreed to give "due consideration" to this request.

COM DEV acquires assets of cellular infrastructure developer
February 1, 1999

COM DEV has acquired some of the assets of Memphis-based Celcore, a 6-year-old wireless infrastructure equipment supplier. COM DEV will receive AMPS cellular infrastructure systems contracts, inventory, software and other intellectual property, lab & test equipment, and facilities. Cost was not disclosed.

"This acquisition strategically augments our engineering capability, complements our base station expertise, and enhances our systems knowledge and ability to support wireless customers," said COM DEV Wireless president Paul Graham.

Celcore was acquired by DSC Communications in 1997, which then became part of Alcatel USA last year

RIM receives order from U.S. security equipment manufacturer
February 10, 1999

Long Island-based The Ademco Group will use RIM radio modems in their long-range wireless security products. The modems will be used to send alarm and status messages from the security system to an Ademco operations centre. The value of the deal was not disclosed. Ademco is the world's largest manufacturer of electronic security equipment.

Two other U.S. firms also had announcements about services using RIM products this month. Mobeo of Bethesda, MD will use RIM pagers to provide their customers real-time information on stocks, options, and futures contracts, while New Jersey-based wireless ISP GoAmerica will use the pagers as part of their new Go.Web service, that will send personalized content such as news, sports, travel, and stock updates to customers using the RIM device.

Maple nabs SST head as new CEO
February 23, 1999

Waterloo Maple has found a new CEO, and it's Ian Suttie, president of SST. Maple has been without a CEO since the resignation of Dieter Hensler last May.

Suttie has worked for SST in its various incarnations for more than 10 years and has been president since 1996. SST was acquired by Woodhead Industries of Illinois last July.

He takes over the reigns of a company that has never grown to the levels expected of it, and which been plagued with internal battles and lawsuits over ownership of its core technology. Still, Mike Strathdee reported in The Record that the company is profitable, with net earnings of more than $1.1 million on revenues of $8.6 million in the nine months ended December 31. A new board was elected in November, and the company may finally be getting its act together.

PixStream searches for new CEO
March 4, 1999

Stephen Bacso, CEO and co-founder of PixStream (formerly Pixel Scientific) has resigned from the company, recognizing that the fast-growing company now needs experienced, professional management. PixStream has gone from a staff of 6 to 64 in the last 15 months.

A formal search process will be established, with a search committee formed by the board of directors. In the interim, CFO Timothy Jackson will act as president and CEO.

PixStream is also expected to announce this week that they have closed a significant round of financing. Hopefully, there'll be more details in the March Digest.

Waterloo North Hydro hopes to offer phone service by the fall
February 4, 1999

Waterloo North Hydro has found its first partner in making use of excess capacity in the company's fibre network (see the November Digest for more details).

Combined Telecommunications Inc. will lease fibre from Waterloo North Hydro and expects to offer local and phone service, as well as Internet services.

CTI is affiliated with the Campbell family of Toronto, owners of Tricaster Management, which has a long history of investments in various telecommunications businesses, including cellular services provider Telezone, The Beeper People, International Teledata Group, stock quote company CMQ, cable TV, and fax services.

According to Mike Strathdee's report in The Record, CTI plans to invest $7 million locally to create a new company with 47 full-time jobs in Waterloo. Waterloo North Hydro could earn $4 million over the next 10 years through the CTI deal.

Metronet Communications had also announced plans to offer local phone service soon, and was expected to establish a switching centre at the Marsland Centre in Waterloo. Metronet has not yet said if their plans have changed after their recent merger with AT&T Canada.

Losses for RDM as they gear up for volume production
February 1999

For the quarter ended December 31 (Q1 99), RDM reports a net loss of $518,000 ($0.054/share) on revenues of $768,000. Revenues were up just 6% from the same period last year, when the company lost $101,000 on revenues of $721,000.

The higher net loss was due to increased spending in sales & marketing (up 110% from last year) and R&D (up 75%).

At December 31, the balance sheet shows no net working capital, with $224,000 in cash, down from $1.4 million a year ago. (As reported in last month's digest, the company has filed a prospectus to raise a minimum of $1.25 million.)

This quarter was the first to include revenues from RDM's EC5000i terminals and related software. Volume production of the EC5000i (which used to be referred to as the EasyCheck POS system) is running behind schedule but is expected to begin in the third quarter. "The design and development of what we believe to be a superior and unmatched product is essentially complete," the company said in a release.

At the RDM AGM this week, shareholders are being asked to approve an additional 400,000 shares to be allocated to the stock option plan (implemented a year ago). After the shares under the company's January prospectus are issued, the stock option plan represents 20% of issued and outstanding shares.

New military implementations for Open Text's Livelink
February 1999

Three Livelink contracts announced in the month were related to the military. The U.S. Air Force will use Livelink to manage their service contracting processes; the Naval Surface Warfare Centre in California will use Livelink to manage their missile systems contracts, and most significantly, Lockheed Martin, manufacturers of military aircraft, will implement Livelink as an extranet application to manage its Joint Strike Fighter proposal.

"We plan to have thousands to users on our extranet in the next month and this number will grow exponentially," said a Lockheed Martin team leader for the project. All of Lockheed Martin's partners and suppliers will be able to use the extranet to develop the proposal for a new fighter aircraft.

Descartes underwriters exercise over-allotment option
February 3, 1999

The underwriters of Descartes' recent share offering have exercised their over-allotment option in full, taking an additional 525,000 shares. Of those shares, 375,000 were from the company, and the remaining 150,000 were sold by Descartes CEO Peter Schwartz.

Descartes service selected by Sun Microsystems
February 1, 1999

Descartes' Energy DeliveryNet.com has been selected by Sun Microsystems as part of a new global logistics management system. The service will initially be used by Sun manage the delivery of goods from Sun's international suppliers. The first phase of the project is expected to go live this month. Sun will use Descartes' hosting service.

Northern Digital wins regional innovation award
February 25, 1999

Northern Digital Inc. was recognized with the innovation award at the first Ontario Global Traders Awards for the southwestern Ontario region. The awards are sponsored by the Ontario Ministry of Economic Development, Trade and Tourism.

NDI is now eligible for the provincial awards that will be announced later this month.

NDI also received an honourable mention in the market expansion category for product manufacturers. Waterloo Hydrogeologic was given honourable mention in the market expansion category for services.

Avenir has left the building ... and the country
February 11, 1999

An article in the Globe & Mail this month profiled former Waterloo-based software developer Avenir Internet Solutions, now based in Boulder, Colorado. Elizabeth Church's article says the company has just three employees: the CEO (whose salary is being paid by Avenir's largest shareholder), the former CEO (UW grad student Jagdeep Bachher), and a receptionist.

At least one of the high-profile directors the company listed on their Web site parted ways with Avenir more than half a year ago.

Avenir used to have their offices at 175 Columbia, which was also home to Digital Extremes, co-developer of the best-selling game Unreal. Digital Extremes is also long-gone from Waterloo and I believe the company no longer exists under that name (the work they were doing has become part of a U.S.-based company). The last I heard, owner James Schmalz was working out of London, Ontario.

Cowpland on pay-per-view
March 17, 1999

Corel CEO Michael Cowpland tried his hand in a new industry this month -- pay-per-view. Nearly 400 people paid about $30 a shot to watch Cowpland on TV. Actually, none of them paid for that, but that's what they got (along with lunch and, in most cases, free software) as for the second straight year Cowpland failed to make it to town for a scheduled appearance (bad weather in Ottawa was given as the reason for this no-show).

It would have been interesting to contrast the audience with the similar number of people who attended James Gosling's talk at UW in November. The Gosling event was particularly refreshing for the complete absence of antiquated "mover and shaker" wannabes in the audience, something that undoubtedly can't be said for Cowpland's crowd.

(I enjoyed David Coursey's open letter in the current issue of Upside. It's titled "Move over, Cowpland" and thankfully makes no mention of Cowpland's wife or his tennis playing.)