March 1999

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 25 -- April 4, 1999
In this digest:

1. STOCK REPORT: Open Text jumps 40%, market cap hits $1 billion
2. Descartes revenues double in FY99
3. Virtek annual revenues up 34%, boosted by new product
4. Com Dev reports quarter-over-quarter improvements
5. Inscriber wins multi-year contract with NBC

6. RDM licenses cheque reading algorithms to VeriFone
7. RDM offering raises $1.3 million
8. CME Telemetrix receives $820,000 from exercised warrants
9. RIM pagers to be distributed by PageNet
10. UW receives 10-year investment from Nortel

11. New contracts for Descartes, Open Text
12. MKS annual report roasted in National Post
13. Next infraNET talk looks at eBusiness
14. PwC Techmap for CTT to be released this week

STOCK REPORT: Open Text jumps 40%, market cap hits $1 billion
March 1999

In the last week of March, Open Text shares gained 40% and briefly crossed the $50 level on the TSE, giving the company a market cap of $1 billion. The shares closed the month at $47.50.

The gains for Open Text are mostly being attributed to their 7.7% stake in MiningCo.com (NASDAQ:MINE) which went public in late March. The MiningCo.com IPO was initially priced at US$12, but was bumped up to US$25 just before becoming publicly traded. At the end of last week, the MiningCo.com shares had climbed to US$90.50, giving Open Text's stake a value of US$80 million, or roughly CDN$120 million (for comparison, that's just a little below MKS's market cap).

Other big gainers in March were Descartes, which closed the month up 21% ($12.50) after beginning March with a 14% drop. A similar story at RIM, which was up 18% by month-end ($15.75), overcoming a decline of 22% earlier in the month.

Declining in March was MKS, falling 19% to $7.60, almost exactly where it was a year ago ($7.55 at the end of March 1998).

At the end of the month, Descartes was added to the TSE 300 and the TSE 200 in place of Remington Energy Ltd.

Descartes revenues double in FY99
March 11, 1999

For the year ended January 31, Descartes Services Group reports a 112% increase in revenues to US$48.8 million. Including one-time charges -- the largest of which was the CDN$23.8 million write-off reported in December (see the December Digest), the net loss for the year was US$25.9 million (US$0.79/share). Excluding interest, IPR&D, amortization, and other charges, the company lost US$3.1 million (US$0.09/share).

Q4 revenues were US$14.8 million, a 44% increase from the same period last year.

The balance sheet -- following the recent U.S. share offering -- shows working capital of US$36.2 million, with US$17.6 million in cash and another US$11.3 million in short-term investments.

Descartes' latest financial statements are impossible to compare with earlier reports. Not only did the company switch to U.S. dollars for its latest report, they also reorganized their accounting, getting rid of a expense category called "operations" and reallocating those charges to various other categories. (For example, on the Q3 report, the company showed R&D expenses equivalent to 19% of revenue; under the new categorization, that number jumps to 22%).

One of the effects of the new accounting categories is that some expenses which had been listed under "operations" have been moved into COGS categories, dropping Descartes' reported gross margins to 53% from 82% for FY99 (of course, there's no change in the actual margins, just how they're reported).

It appears that quarter-over-quarter revenues increased by about 14%, but it's impossible to say with certainty from the numbers released.

Descartes is also using a new PR/IR agency -- New York's Technology Solutions (which was Lightstone's agency when they were acquired by Descartes), in place of the Canadian agencies they had been using.

Virtek annual revenues up 34%, boosted by new product
March 24, 1999

For the year ended January 31, Virtek Vision International reports revenues of $10.1 million and net income of $1.0 million ($0.07/share). In fiscal year 1998, the company also earned $1.0 million, on revenues of $7.5 million.

The additional revenue did not create higher profits because of increased investment in R&D (up 86% in FY 1999) and sales & marketing (up 54%).

In the first half of the year, Virtek's R&D spending had actually declined by 17%, but they went into a heightened R&D phase in the last two quarters, with Q4 R&D expenses of $1.0 million nearly equalling the total from the first three quarters combined.

Three new products were developed over the year. Virtek reports that Laser QC, formally launched in Q3, brought in over $1 million in sales in 1999, which means that at least 13% in revenue gains can be attributed to that one new product.

Another of the three new products, ChipReader, a DNA microarray imaging system, was officially launched at a trade show in Florida earlier in March.

In Q4, Virtek's revenues were $3.7 million, which would support the company's earlier claim that their weak Q3 was due to orders being delayed into the fourth quarter. When averaged, Q3 and Q4 revenues are about equal to Q2 revenue of $2.6 million. Otherwise, revenues were distributed pretty evenly over the year, with 48% coming in the first two quarters and 52% in the final two.

The balance sheet at year-end shows net working capital of $3.8 million and $1.5 million in cash, roughly the same as at the beginning of Q4. It also shows that inventory levels jumped by 66% over the final quarter, presumably due to the new products being developed and launched.

Com Dev reports quarter-over-quarter improvements
March 11, 1999

In the final set of financials, Com Dev reports a loss of $1.9 million ($0.06/share) on revenues of $45.1 million for the quarter ended January 31 (Q1 99).

Revenues declined 15% from the same period last year, which was the final quarter before the wheels came off for the company (see various Digests from last year for details). More positively, revenues climbed 14% from the previous quarter.

"We remain on track with our plans for a return to profitability towards the end of this year," said CEO Val O'Donovan in a release.

In what may be a troubling sign, the company's Space Group only received $14 million in orders in the quarter -- the lowest total since the company went public in December 1996. Orders had been averaging $26 million per quarter over the previous year. Because of the decline in orders, the Space Group backlog fell to $61 million, which is also the lowest level in the last two years.

Cash reserves are down to $7.2 million from $61.5 million a year ago (before the 3dbm acquisition, which cost $27.4 million) and $8.1 million at the beginning of the quarter. The company says they believe they have sufficient cash for "the foreseeable future."

The company's annual information form discloses that Com Dev spent approximately $3 million on the acquisition of the Celcore assets reported in the last Digest.

Their management information circular reports that the investment in the SkyBridge consortium made last September by Com Dev spin-off Technology Horizons Ltd. was $15.55 million. It was this investment that enabled Com Dev International to become a member of the SkyBridge consortium and receive a non-binding memorandum of understanding that they would be a preferred supplier to the SkyBridge system.

If you saw the story in the Globe this month headlined "Com Dev takes a pass on investing in consortium," that was actually old news (reported in The Record six months ago) that the SkyBridge investment was made by a company related to Com Dev, but not by Com Dev directly. The SkyBridge investment came right around the time Technology Horizons sold off 3 million RIM shares (discussed in earlier Digests).

Com Dev's latest news release puts their employment number at "more than 1,300" which would mean they've hired hundreds of people in the last few months, but that seems unlikely. Their annual report, also released last month, says they have "more than 1,000" employees.

The Com Dev annual report repeatedly emphasizes the company's "heritage" as a key strength -- perhaps not the best choice for a technology company, but history is one thing a dismal year can't erase.

The annual report also mentions that Com Dev invested in Flamborough-based TalariCom Inc. in February. TalariCom has developed what they call a "smart antenna Technology" that will be incorporated into Com Dev's wireless products. The amount of the investment was not disclosed.

Inscriber wins multi-year contract with NBC
March 29, 1999

Inscriber Technology has been awarded a multi-year contract to produce a video graphics insertion system for the U.S. TV network NBC and its affiliates. A prototype of the system was shown to the affiliates at NAB 1999, the broadcasting industry's largest annual event. The value of the deal was not disclosed.

RDM licenses cheque reading algorithms to VeriFone
March 31, 1999

RDM has licensed their MICR cheque reading technology to VeriFone under a 5-year agreement. The technology will be used in VeriFone's point-of-sale payment terminals. No details were provided on the royalties RDM will receive. VeriFone is a wholly-owned subsidiary of Hewlett-Packard which calls itself "the global leader in secure payment solutions."

RDM offering raises $1.3 million
March 31, 1999

The RDM share offering (see January Digest for details) closed at the end of March, raising $1.3 million (gross) for the company. RDM sold 1.3 million shares at $1.00 each. RDM became a reporting issuer in Ontario on March 11.

CME Telemetrix receives $820,000 from exercised warrants
March 23, 1999

CME Telemetrix received $820,000 from the exercise of 164,000 warrants at $5 per share. The warrants represent 16% of the outstanding warrants which expired on March 31.

Earlier in the month, the company announced the hiring of a new CFO. Ron Beath had worked with CME's new CEO Duncan MacIntyre for more than 15 years at Monsanto and was most recently Director of Professional Affairs with Financial Executives Institute Canada.

CME also announced that MacIntyre has been added to the company's board of directors.

RIM pagers to be distributed by PageNet
March 10, 1999

RIM's Inter@ctive Pager 950 will be distributed by PageNet under a marketing agreement between PageNet and BellSouth Wireless Data. BellSouth's interactive paging service uses the RIM device.

PageNet (Paging Network Inc.), which calls itself "the world's largest wireless messaging company," will begin selling the BellSouth service through its direct sales force and reseller channel in May. PageNet has more than 10 million subscribers in the U.S. and Canada. They already offer a 2-way paging service using co-branded Motorola devices.

It was also announced this month that RIM is one of six founding members of the newly-created Wireless Messaging Group of the Virginia-based Electronic Messaging Association. The group's charter is to promote the business value of wireless technologies. Sybase's embedded computing division is also a founding member.

UW receives 10-year investment from Nortel
March 5, 1999

Nortel Networks announced this month they are providing $10.3 million in funding to UW over the next 10 years and will establish the Nortel Networks Institute for Advanced Information Technology at the university.

The funding will provide up to 126 annual scholarships and co-op work terms for computer science and electrical & computer engineering students. It will also go towards faculty research chairs and UW's efforts to boost first-year enrollment under the province's Access to Opportunities Program (ATOP). UW will receive $4 million from Nortel over the next three years, and that amount may be matched by the province.

UW also hosted a shameful (and deadly dull, I'm told) event where feeble lobbyists and a campaigning politician all got together to put each other over and pretend they had achieved something.

Jim Wilson, Ontario Minister of Energy, Science and Technology came to Waterloo, and -- according to the Ministry's news release "announces $67 million investment in R&D." In fact, you'd be hard-pressed to find any announcement from Wilson. It might not have been so bad that he re-announced the province's support for UW's applied cryptography centre, originally set forth last July, but it really takes some gall to re-declare funding for the UW Bell lab -- originally announced almost a year ago! -- as though it was something new (see May 1998 Digest).

In what might actually have been a legitimate announcement (I'm understandably skeptical), the province will provide up to $1.5 million for a joint UW-UWO project to create two chairs in computer algebra. Mike Strathdee reported in The Record that Waterloo Maple is a co-sponsor. The project is not mentioned on the UW, UWO, or Maple Web sites.

Strathdee also reports that Bell's declared intention to open a local research office, move at least a dozen staffers here from Toronto and hire many more people locally (see October 1997 Digest) has been dropped. There is no Waterloo office in Bell's current plans.

New contracts for Descartes, Open Text
March 1999

Three announcements this month, no dollar values attached:

Tropicana Products will use Descartes' Energy Mobile Solutions to automate the company's U.S. direct store delivery operations.

The Nabisco Biscuit Company will use Descartes' Energy to manage direct store delivery to 60,000 grocery stores throughout the U.S. and integrate the software with their existing SAP ERP system.

Siemens Information and Communication Network and Siemens Business Services will use Open Text's Livelink as their internal communications platform.

MKS annual report roasted in National Post
March 27, 1999

National Post senior business writer Rod McQueen included MKS in his survey of 24 randomly selected annual reports from Canadian companies. The general theme of the piece was that companies waste a lot of money putting together a bunch of puffery that does more for the CEO's ego than the company's investor relations. It was more like a humour piece than a serious look at annual reports, as you can probably tell from the paragraph about MKS:

"You cannot create experience. You must undergo it." Unable to contain itself, MKS offers this: "The only way to predict the future is to have the power to shape it." Winston Churchill had nothing on these folks. Full-face, full-page pictures of executives compliment [sic] the great big ideas. As if all that weren't enough, there's a rectangular wafer of what appears to be aluminum (bearing the company logo) sticking out of a hole on the cover. I'm waiting for the chip to utter complete sentences. Maybe it could write an annual report.
--Rod McQueen, Financial Post section, National Post

Canada Stockwatch kindly summarized this as "NP says Mortice Kern's annual report full of philosophy."

Having read the entire annual report, I think it should be said that 1) while the two quotes are legitimate roll-your-eyes material, they appear on the inside front and back covers and aren't representative of what's between the them; and 2) three of the four full-page photos are of customers, which isn't as self-absorbed as McQueen's piece may imply. The fourth photo, which comes first, is of CEO Randall Howard (MKS apparently liked it so much that it was again featured in their recent quarterly report brochure), but it is the only photo of an MKS exec in the entire annual report, which might be a record for restraint.

My favourite tidbit from the article is that Lloyd Robertson's photo appears 20 times in CTV's annual report. According to the piece, the average per-copy cost for an annual report in 1997 was $6.84.

(On the other side of the page from the MKS paragraph is an article about Marlen Cowpland's million-dollar dress for a Corel gala, complete with a photo of hubby Michael with a two-hand squeeze of her butt. And this guy can get 350 people in K-W to come watch him on TV. Sigh.)

Next infraNET talk looks at eBusiness
April 22, 1999

If you're not looking to rub shoulders with yesterday's men, one organization this has been organizing some good events with relevant speakers is the infraNET Project at UW.

Their next talk is on April 22 with Bob Fraser, information development manager for IBM's Net.Commerce product. For more information, go to the infraNET Web site at http://infranet.uwaterloo.ca/

PwC Techmap for CTT to be released this week
April 1999

PricewaterhouseCoopers will be formally releasing their Techmap for the CTT area this week. The Techmap project began in BC in 1997, and PWC has been preparing maps to chart the evolution of other tech clusters in Canada.