June 1999

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 28 -- July 5, 1999
In this digest:

1. STOCK REPORT: RIM market cap explodes after blockbuster month
2. DALSA acquires U.S. CCD camera manufacturer for US$11.5 million
3. Waterloo software firm moves to Redmond after MS acquisition
4. Com Dev revenues decline; profits still forecast this year
5. Com Dev space group president resigns

6. RIM quarter goes as expected
7. MKS quarter in line with warning; product sales off sharply
8. Finline says they had profitable quarter, seek NASDAQ listing
9. Waterloo Maple sells product line to Massachusetts firm
10. Mapconnects partners with new mining firm spinoff

11. GUARD shareholders voice anxieties at AGM
12. IBM to help market RDM's eCheck software
13. Tidbits from Electrohome, Open Text, Virtek, Switchview

STOCK REPORT: RIM market cap explodes after blockbuster month
June 1999

It was another big month for RIM shares, as their value climbed 46% to close the month on the TSE at $29.55. RIM shares climbed 188% in the first half of 1999, giving the company a market cap of nearly $2 billion -- more than Open Text, Descartes, Com Dev, MKS, DALSA, and Virtek COMBINED (which puts founder and co-CEO Mike Lazaridis's shares at a value of $270 million -- about equal to Descartes' market cap).

RIM shares were highly volatile during the month, with seven trading days where their value gained or lost more than $2.

The American Stock Exchange (AMEX -- affiliated with NASDAQ) announced this month that they will trade options on RIM's NASDAQ-traded shares.

DALSA also had a big month (see next item), with their shares jumping 31% to $16.00. Over the last two months, DALSA shares have climbed 60%.

Virtek's shares were listed on the TSE this month, under the ticker VRK. The move helped the shares gain 24% for the month, crossing the $2 level. Virtek shares had previously traded through the Canadian Dealing Network.

Com Dev had their best month of the year, gaining 9% to close June at $6.45. The shares are still down 17% over the first six months of 1999.

Losing ground in June was GUARD, off 25% to $2.25.

DALSA acquires U.S. CCD camera manufacturer for US$11.5 million
June 23, 1999

DALSA finally pulled the trigger on an acquisition, buying Colorado-based Silicon Mountain Design for US$11.5 million in cash.

Silicon Mountain Design (SMD) is a manufacturer of high-speed CCD cameras, founded in 1992. It has annual revenues of $10 million (neither the news release nor any of the press reports specified whether that's Canadian or U.S. dollars -- it would seem to be quite a bargain if it's US$10 million) and 28 employees. DALSA expects the acquisition will be particularly valuable in raising their presence in the medical imaging market.

The acquisition will immediately be accretive to earnings, with analyst Rajiv Das at CIBC World Markets forecasting up to an $0.08/share boost to DALSA's earnings this year. DALSA CEO Savvas Chamberlain said in the release that he expects SMD to produce 10%-12% net earnings, which would create an even bigger earnings gain than Das forecast.

DALSA also announced a collaboration with Redlake Imaging of California. Redlake and DALSA will develop CMOS image sensors for Redlake's high-speed video cameras.

Waterloo software firm moves to Redmond after MS acquisition
June 7, 1999

Microsoft has acquired ShadowFactor Software of Waterloo for an undisclosed amount. The four company founders -- all UW grads -- will move to Microsoft's headquarters in Redmond, WA.

ShadowFactor is the developer of the BattleCom (Battlefield Communicator) technology that allows players of action games such as Quake II to communicate by voice while playing over the Internet.

The technology will be incorporated into Microsoft's next release of DirectX, scheduled for late summer 2000 (if anyone still pays attention to Microsoft release date forecasts).

The BattleCom software was released just last November. Sales were up to about $100,000, according to numbers in the National Post and The Record.

Com Dev revenues decline; profits still forecast this year
June 10, 1999

Com Dev lost $1.7 million ($0.05/share) on revenues of $44.4 million for the three months ended April 30 (Q2 99). Revenues declined by 4.5% from the same period last year and 1.5% from the previous quarter.

The wireless group was the only Com Dev division to show revenue gains from the previous quarter, up 4% to $17.2 million.

Space group revenues declined 5% from Q1 to $24.2 million. The group received $18 million in new orders during the quarter, up from $14 million last quarter, but still the second lowest figure over the last two years. Order backlog is down to $55 million, its lowest point over that period.

New U.S. regulations requiring that potential American customers apply for Technology Assistance Agreements and export licenses from the State Department were cited as a cause for declines in orders. "We have seen a temporary slowdown in requests for proposals from our U.S. customers," said space group president Alan Winter in a release. Orders from major multimedia satellite programs have also not yet been received.

Revenue for the wireless systems group fell 9% from the previous quarter to $2.9 million, but the division is still expected o contribute to company profitability by Q4, as is the wireless group.

"These results are not unexpected, but belie the underlying achievements which were very encouraging," said new CEO Keith Ainsworth in a release.

The balance sheet shows only $1.7 million in cash, down from $7.2 million at the beginning of the quarter. Net working capital is $52.6 million. Accumulated deficit is now $18.9 million, compared to retained earnings of $8.3 million a year ago.

Com Dev space group president resigns
June 25, 1999

Changes to the senior management team at Com Dev continued with the resignation of space group president Alan Winter, whose duties will be taken over by CEO Keith Ainsworth.

Winter apparently has an expanding private consulting practice in Vancouver, where he continued to live while working with Com Dev. He will now add Com Dev to his list of clients and continue to work with the space group as a consultant. Winter had been president for the past two years.

In his new role as CEO, Ainsworth says in a Record article by Ron DeRuyter that lower sales volumes make closing one of Com Dev's eight facilities "a logical outcome", although Canadian operations won't be affected and total employment levels should hold steady.

In other news from Com Dev in June, the space group has entered the satellite battery market in association with Britain's AEA Technology. Com Dev will manufacture lithium ion batteries that power a satellite's electronics and control systems when its solar panels are eclipsed. "Our goal is to become the leading supplier of batteries for space applications," said Winter in a release before his resignation. "We hope to garner a significant portion of this $50 million market within the next three to five years."

Com Dev also announced a $3.25 million contract with Lockheed Martin to supply microwave equipment for a satellite that will provide telecom services to Japan.

RIM quarter goes as expected
June 23, 1999

For the three months ended May 31 (Q1 00), RIM reports earnings of $2.7 million ($0.04/share) on revenue of $24.1 million. Revenues were up 172% over the same period last year. RIM had previously said that revenues and earnings would not match those of last quarter, and revenues did decline 11% on a quarter-over-quarter basis, with a 32% drop in income from operations.

Pager sales accounted for 77% of revenues. Revenue from BlackBerry is expected to be reported in the current quarter.

The balance sheet shows $90.1 million in cash and securities.

And, to answer a question I raised last month, Jim Balsillie -- and Mike Lazaridis -- received comparatively modest 29% raises for fiscal 1999, giving each a base salary of $225,000. RIM's five highest paid executive officers received 12% of all options issued to employees, although they do have another seven VPs whose options weren't reported.

MKS quarter in line with warning; product sales off sharply
June 9, 1999

MKS officially announced their Q4 and fiscal year 1999 results this month, and they were as described in their earnings warning last month.

For fiscal 1999, MKS had revenues of $50.8 million, up 37% from the previous year. Net loss, including one-time charges related to acquisitions, was $12.3 million ($0.74/share). Excluding those charges, MKS reports a net loss of $770,000 ($0.05/share).

In Q4, product sales showed a huge drop -- down 20% from the period last year and 36% from the previous quarter. Services revenues climbed 56% over 1998 but were off 7% from Q3. With the decline in high-margin product sales, gross margins fell to 81% from 89% in both the previous quarter and 1998.

Balance sheet at year-end shows $17.1 million in cash.

Finline says they had profitable quarter, seek NASDAQ listing
June 30, 1999

More odd news from Finline this month. Just a month after releasing their FY99 results -- which showed a company fighting off insolvency -- Finline now says they are profitable and have begun preparing for a NASDAQ listing.

According to their quarterly results (which, as detailed in last month's Digest, were thoroughly revised at year-end last year), Finline earned $45,000 ($0.01/share) on revenues of $226,000 for the three months ended March 31 (Q1 00). They also report that they achieved a gross margin of 65% -- pretty incredible for a hardware manufacturer who reported gross margins of 5% for 1999. The $226,000 includes $179,500 previously reported as deferred revenue. Finline no longer has any deferred revenue on the balance sheet.

The balance sheet is still infirmed, with no cash and only $2,000 in accounts payable, compared to current liabilities of $560,000 (an additional $484,000 in loans from shareholders has been moved from the current to long-term liabilities section). Total assets declined by 22% over the quarter. Accumulated deficit stands at $2.6 million.

After the end of the quarter, Finline announced they have raised $321,000 through a private placement involving a New York-based company called Kuper-Hughs (about which no information can be found on the Web). Over a million shares at $0.30/share were sold. According to a release, Kuper-Hughs will sell Finline systems in Europe, the Middle East, and the Pacific Rim.

Finline hopes to raise additional money through a private placement of up to a million units at a price of $0.20 each. The units consist of a common share and a warrant to purchase an additional share for $0.30 over the next year.

The company says they are preparing Form 20-F to submit to the U.S. SEC, and once that process is complete, will file for a NASDAQ listing. CEO Einar Fiskvatn says they hope this will "position the company to be valued in line with other broadband and bandwidth solution companies." Finline's shares are currently listed on the Alberta Stock Exchange.

Waterloo Maple sells product line to Massachusetts firm
June 9, 1999

Waterloo Maple has sold their Theorist/Expressionist/MathView product lines to WebPrimitives of Cambridge, MA. The value of the transaction was not disclosed. The products had been purchased by Maple in 1993 as part of their acquisition of San Francisco-based Prescience.

Mike Strathdee reports in The Record that Maple earned nearly $1.5 million on revenues of $11 million for fiscal 1999 (March 31 year-end), finally breaking through the $10 million mark that the company had talked about for several years. In 1998, Maple lost nearly $1 million on revenues of almost $9 million.

CEO Ian Suttie told Strathdee that he expects to hire an additional 30-40 sales & marketing and R&D staff over the next two years and wants to grow the company to revenues of $50 million in five years. The company is now focused on the commercial market, and is still expecting to seek venture capital financing in the future.

Mapconnects partners with new mining firm spinoff
June 28, 1999

Mapconnects has signed a letter of intent with Toronto-based Altai Technologies to create a new jointly-owned company that will commercialize Mapconnect's map-based user interface software.

Altai is the new subsidiary of Altai Resources, a TSE-listed mining firm. I don't mean data warehousing, but copper and zinc and nickel and so on. They saw which was the wind was blowing and formed an IT division about a month ago, probably in part anticipating the agreement with Mapconnects (their announcement in May listed "Web-based presentation of information" as one of the areas the new IT company would focus on).

Altai will provide management support and financing to the joint venture with MapConnects.

The Mapconnects software is used on the City of Waterloo's Waterloo Information Network Web site (win.waterloo.ca).

GUARD shareholders voice anxieties at AGM
June 23, 1999

The mood was more restless than tense at GUARD's AGM -- the nominated board was unanimously elected -- but a few shareholders let management and directors know that if revenues don't start coming in soon, they won't be in such an agreeable mood next year.

GUARD invests in technologies in early, pre-revenue stages and develops them to a point where they can be spun off with GUARD earning money through a majority equity stake. GUARD was launched five years ago, and so far none of their projects have left the pre-revenue stage.

All of the company's hopes are now riding on Nanodesign, GUARD's first spin-off and their only project that's close to generating revenues. Nanodesign designs therapeutic drugs based on a proprietary mathematical technology. The company expects revenues to come from the licensing of drugs they develop, and through R&D partnerships with pharmaceutical companies.

So far, they've found that partnerships are more difficult to forge than they expected. Revenues had been expected by this time, but GUARD CEO Brian Cox reported that there's one project with a big pharmaceutical company waiting high-level approval and their entering into discussions with three others.

Cox said they are not looking to develop additional technologies until more of the five projects they're currently funding have been spun out. If revenues continue to be delayed, some projects can be "put on the back burner," Cox said, if they need to reduce their cash burn rate.

Chairman John Yarnell said he recognized that it was "time we saw some fresh faces" on the board, but he had no such faces to introduce.

IBM to help market RDM's eCheck software
June 29, 1999

RDM has entered into an agreement with IBM that will see the computer giant assist RDM in marketing the RDM eCheck Payment Software for Business.

IBM and RDM have been partners in developing the eCheck system through the Financial Services Technology Consortium.

Miscellaneous tidbits

• Electrohome won a seven-figure order from AT&T for 186 high-resolution projectors. The projectors will be used in a video wall at AT&T's command & control centre in New Jersey.

• The Livelink licensees of the month for Open Text include Kinko's, Parsons Corporation, and Glaxo Wellcome.

• Virtek has received a combined $600,000 in orders for its LaserEdge systems from Raytheon Aircraft, Israel Aircraft Industries, and Turkish Aerospace Industries, a Lockheed Martin subsidiary.

• AT&T Canada launched their local telephone service in the K-W area. They activated their digital switch and fibre network and are offering local phone service to business and government. AT&T Canada expects to create 30 additional jobs in K-W in 1999.

• Switchview has teamed with Montreal's Locus Dialogue to combine Locus's Liaison speech recognition technology with Switchview's telecom management systems. Switchview also announced the launch of their Telecom Web Page software that will provide access to telecom data through a Web browser.