July 1999

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 29 -- August 3, 1999
In this digest:

1. PixStream unleashes compactPCI spin-off
2. Open Text acquires Ottawa XML firm for $7 million
3. National Post questions Open Text's disclosure of lawsuit
4. RIM hints at 1999 plans at AGM
5. STOCK REPORT: Another 20% gain for RIM, slowing at month-end

6. Finline cuts estimated value of Brazilian sales in half
7. Nanodesign CEO resigns
8. Com Dev senior management resignations continue
9. DALSA reorganizes management, reports consistent profits
10. Control Advancements sales continue to ramp up

11. Gartner Group SCM analyst becomes Descartes VP
12. Tidbits from Mapconnects, Switchview, Electrohome

PixStream unleashes compactPCI spin-off
July 26, 1999

PixStream is creating its first spin-off company, operating as Kaparel CompactPCI. The new company has leased 5,000 square feet of space at the former home of Campana Systems in the Weber-Northfield complex in Waterloo. (Campana recently moved into a custom-designed building on Randall.)

Kaparel Technologies was the Quebec-based company managed by Benoit Robitaille, now VP of PixStream's compactPCI division. It's this division that's being spun off. The new company designs and manufactures backplanes and bridges for the compactPCI platform. The new company hasn't been formally announced yet, but its logo can be found on the PixStream Web site.

PixStream has also formed a European subsidiary, called PixStream Limited. It will be based in the UK with an office in Newport, South Wales. Chris Colman has been appointed sales director with responsibility for business development in Europe, the Middle East, and Africa.

The company says it is their third office, following the opening of an Ottawa site earlier this year.

And in old news I hadn't noticed before, Stephen Bacso -- a PixStream director and the company's CEO until he resigned in March -- is now listed as CEO of ObjectSoft Inc., a multimedia development company. PixStream has hired executive search firm Heidrick & Struggles to find a successor as CEO.

Open Text acquires Ottawa XML firm for $7 million
July 26, 1999

It's only about one-thirtieth the size of the unsuccessful PC Docs offer, but Open Text has agreed to acquire 16-year-old Ottawa-based Microstar Software Ltd. for an all-cash deal of $2.10/share -- about $7.3 million total.

Open Text's offer was a 35% premium above the market price at the time the agreement was announced. Microstar had revenues of $6.2 million for FY99 (ended Jan. 31) and the balance sheet at April 30 showed $2.3 million in cash and net working capital of $4 million. Microstar is also profitable, with earnings of $136,000 on revenues of $1.6 million in the first quarter of the current fiscal year. Microstar had no revenue growth in FY99, and that stagnation continued into Q1 of this fiscal year, when they actually reported a 2% decline in sales.

Microstar specializes in XML-related services. Only 13% of their revenues come from product sales. "The purchase of Microstar will all to our XML-based capability," said Open Text CEO Tom Jenkins in a release. "In addition, Microstar has a great deal of experience in the government sector."

[One of the three editors of the XML specs was former Open Text vice president Tim Bray, a University of Guelph grad who about a decade ago was one of the founders of Open Text Systems (Open Text's predecessor company) -- and simultaneously the part-time CEO of Waterloo Maple. Bray left Open Text in 1996.]

National Post questions Open Text's disclosure of lawsuit
July 10, 1999

Katherine Macklem and Greg Crone, writing in the National Post, reported this month on a $170 million lawsuit filed against Open Text in Ontario. The suit was filed on February 4 by NetSys Technology Group of Sweden.

According to Macklem & Crone, NetSys had hired Open Text to help develop a Scandanavian portal site, but claims that "Open Text was late to deliver the site, and eventually failed to deliver the product at all." In the meantime, a competitor launched their own Sweden-based portal.

The Post story questioned whether it was appropriate that several company insiders, including CEO Tom Jenkins, sold Open Text shares after the suit was filed but before investors were informed of it (in Open Text's subsequent 10-K filing, all that was said about the suit was "The distributor [NetSys] subsequently brought an action in Ontario against the Company in respect of which management of the Company does not believe it will incur any material liability").

Another interesting tidbit from Open Text insider trading information, is that Helix (Quebec) Inc. is shown as selling nearly 700,000 shares between March and June.

RIM hints at 1999 plans at AGM
July 20, 1999

A seemingly endless Q&A session took some life out of the party, but RIM shareholders were in a cheerful mood at this year's annual general meeting, held at the Canadian Clay & Glass Gallery.

RIM shares are trading at about six times the level they were at for the 1998 AGM, and the company's two CEOs were both more lively and droll than at last year's event, which was held shortly after RIM shares hit what was then an all-time low.

Some of RIM's plans for this fiscal year include the development of a consumer product, different colour plastics (shown in RIM's annual report) and smaller form factors, and expansion into the European market.

CFO Dennis Kavelman said that some of RIM's internal targets go beyond the doubling of revenues and profits that some analysts have forecast.

A few months ago there were questions about whether RIM sales would hold up once the Palm VII and its wireless e-mail capability was introduced. Any fears about the Palm VII seem to have vanished. Co-CEO Jim Balsillie did some Palm bashing in response to a question, saying that within 3Com the Palm VII is considered to be "a disaster."

Microsoft, on the other hand, was the recipient of some genuflections as Balsillie described the benefits of their partnership and why RIM has no interest in developing versions of BlackBerry to work with competitors to Microsoft Exchange.

One shareholder asked Balsillie and co-CEO Mike Lazaridis if they'd talked to Ericsson recently, probably in reference to rumours that the Swedish telecom giant was looking at RIM as a takeover candidate (although now Ericsson is rumoured to have made an offer for Newbridge -- and Microsoft has come up as a potential acquirer of RIM).

Neither CEO said much about the possibility of being acquired, other than that they'll handle it responsibly if the issue arises.

STOCK REPORT: Another 20% gain for RIM, slowing at month-end
July 1999

RIM managed to pull off another month of double-digit gains, closing July up 20% at $35.50 on the TSE. It finally started to lose support in the final week of the month, however, dropping 17% from an all-time high of $42.95 on July 22.

RDM also had a good month, gaining 39% to cross the $2 level and close the month at $2.15. Noteworthy decliners in July were CME Telemetrix (-22%), Descartes (-12%) and GUARD (-11%).

Comparing July's closing prices with those from a year ago gives us these annual changes in stock price (an asterisk denotes companies whose shares traded below $2 at the beginning or end of the period -- they may experience large percentage swings from small changes in share price):

Advancing:
RIM +497%, Open Text +80%, *Virtek +69%, *RDM +17%, DALSA +9%

Declining:
*Finline -68%, *Control Advancements -53%, GUARD -52%, MKS -45%, Descartes -26%, Com Dev -20%, CME Telemetrix -14%.

Even though losers significantly outnumber winners, if you'd bought a share (or 100 shares, or whatever number) of each of these CTT tech companies a year ago, your investments would still have earned a 48% annual return thanks to RIM.

The companies on the decliners list would no doubt be happy to have it pointed out that if we'd done this list a year ago, RIM would have been listed at -18%.

Finline cuts estimated value of Brazilian sales in half
July 1999

Finline has slashed the forecasted value of their agreement with Richardson Electronics. The deal, announced a year and a half ago, was initially said to be worth US$24 million over three years. Finline now says that Richardson "has re-evaluated their forecasts to Finline in the amount of $11.0 million" over the next two years. I assume this is supposed to mean they now expect $11 million in sales through Richardson over that two-year period, and that this is U.S. dollars, although it's not specified.

Finline has still not issued a news release disclosing these reduced forecasts. In the letter to shareholders from their annual report, CEO Einar Fiskvatn said that by June of last year, with delays in Brazil "it became inevitable that the company would experience difficult third and fourth quarters."

If it was so clearly "inevitable" it's hard to understand why Fiskvatn said after the end of Q2 last year that he "looks forward to a stronger second half, which will more fully reflect the significance of the Richardson contract" or why in November the company issued a news release saying they expected to begin shipments to Brazil before year-end that "should result in orders for $2-3 million in the first few weeks of delivery." It's also puzzling why it took a year for Finline to disclose any revision of their announced forecasts.

Finline says that through June 1999, Richardson has placed orders for about $500,000. "Despite delays, the outlook for the current year remains positive," says Fiskvatn's letter.

Finline's 1999 management information circular reveals that the COO the company hired early last year resigned in October. The company also had two vice presidents of marketing resign last year -- the first in February, and then his replacement, hired in March, resigned in August.

About 1.2 million new shares were issued last year. Fiskvatn holds 21.5% of outstanding shares, with TIC Montreal Invest Inc. holding 17% and Kuper Hughs holding 14.5%.

Three people nominated a year ago for Finline's board are not standing for re-election. One of Finline's directors looks like he has plenty on his plate from his regular job. He's listed as the CFO of Active Control Technologies (CDN: ATIV), whose shares are currently trading at 3 cents.

About Finline's announcement last month that they're seeking a Nasdaq listing -- according to the Nasdaq Web site, the requirements for listing on the Nasdaq SmallCap Market include annual profits of US$750,000 or a market cap of US$50 million. Under the best of circumstances it would still be a long time before Finline could qualify.

Perhaps they were referring to the U.S. over-the-counter bulletin board. Although the OTCBB is a service operated by the Nasdaq Stock Market, the NASD has repeatedly told companies it should never be referred to as Nasdaq. Barry Goldsmith, head of NASD Regulation’s enforcement department, has said that "contrary to a popular misconception, often perpetuated by unscrupulous operators, the over-the-counter market is not Nasdaq. The two are separate and distinct."

Nanodesign CEO resigns
July 15, 1999

Laurence Russ, CEO of Nanodesign, resigned from the company on July 12. Nanodesign is the spin-off company from GUARD which was expected to be generating revenues many months ago, but which has found it difficult to forge partnerships with big pharmaceutical companies.

Nanodesign is the only GUARD project that's close to having revenues, and if the company isn't able to create sales over the next six months, it could present GUARD with some significant financial challenges (see last month's Digest for more details).

Brian Cox, GUARD's CEO, will be acting CEO of Nanodesign until a replacement is found. One of Nanodesign's directors is MKS CEO Randall Howard.

I spoke to Russ at the GUARD AGM last month. He seemed upbeat about the company and he had agreed to be interviewed for a Record Tech Spotlight article, which suggests that idea of resigning may have come up fairly quickly.

Com Dev senior management resignations continue
July 23, 1999

Paul Graham, president of Com Dev's wireless systems division, has resigned. His departure is the third senior management switch at Com Dev in the last six weeks, following the resignations in June of CEO Val O'Donovan and space group president Alan Winter.

Graham joined Com Dev when the Cambridge company acquired 3dbm Inc. of California last August.

The division's new acting president is Anita Davis, Com Dev's VP of corporate development, who helped lead 3dbm's integration into the company and the creation of the wireless systems division following the acquisition.

DALSA reorganizes management, reports consistent profits
July 7, 1999

Following the acquisition of Silicon Mountain Design last month, DALSA has now reorganized senior management to accommodate the new subsidiary. Savvas Chamberlain continues as chairman and CEO of DALSA Corporation, which is introducing a new subsidiary called DALSA Inc., that will include DALSA's traditional operations. The new president of DALSA Inc. is Brian Doody, formerly VP operations.

Silicon Mountain Design Inc. will continue under the presidency of David Gardner as a second DALSA subsidiary. DALSA reports that the sales distribution networks of SMD were consolidated with those of DALSA within two weeks of the acquisition.

For the quarter ended June 30 (Q2 99), DALSA reports earnings of $1.2 million ($0.22/share) on revenues of $8.0 million. Revenues grew 8% from the same period last year.

Coming off a quarter where product sales were flat from the previous year, this quarter DALSA had their all-time highest quarterly product revenues -- $6.9 million -- up 17% from last year. Application specific contract revenues declined 25% to $1.2 million. Gross margins dipped to 60% from 65% in the previous quarter.

The balance sheet shows $18.7 million in cash (prior to the SMD acquisition) and $6.2 million in inventory -- up 44% over the quarter.

Control Advancements sales continue to ramp up
July 30, 1999

For the quarter ended May 31 (Q1 00), Control Advancements reports a loss of $159,000 ($0.015/share) on revenues of $970,500. Revenues jumped 506% from the same period last year and 27% from the most recently reported quarter (Q3 99 -- the company has not yet filed their results for Q4 99). Product sales in particular continue to show strong growth and now account for 91% of revenues.

The expenses side also shows a ramping up of activity, with wages & benefits almost doubling over the last six months.

The balance sheet shows a new loan payable of $327,000. There was a positive cash flow of $161,000 over the quarter -- a turnaround from a negative cash flow of $165,000 over the first three quarters of last year.

Control Advancements' $2 million investment in Ventax Robotics is no longer mentioned in the financial statements -- perhaps the FY 99 statements will discuss this when they're filed later this month.

Control Advancements is still expecting to change its name to Odyssey Corp. soon. Last year, they split the technology side of the company into a subsidiary called Control Advancements Canada Inc., which subsequently merged with Smart-Tech Inc. to form Alliance Technologies Corp.

Gartner Group SCM analyst becomes Descartes VP
July 22, 1999

Beth Enslow, the lead supply chain management analyst at the Gartner Group, has become vice president of strategic initiatives for the Descartes Services Group.

She will report to Art Mesher, VP corporate strategy.

Miscellaneous tidbits:

• Don Cowan of Mapconnects tells me that Altai jumped the gun with their announcement last month that the two companies had reached a partnership agreement. Apparently Altai is just one of the companies Mapconnects is talking to, and while they may end up working together, nothing has been finalized (as of about 10 days ago).

• Switchview's Internet Voice Information Services (IVIS) is now available in the U.S. The service provides businesses with reports on their telecom resource usage through the Internet. It is sold for a monthly fee rather than the upfront costs normally associated with licensing the technology to create similar reports. It will be sold in the U.S. directly by Switchview. The service has been sold in Canada by Bell for the last year.

• Electrohome won a 3-year non-exclusive agreement to provide projection technology to Lucasfilm. Electrohome technology was used in the Lucasfilm post-production department for The Phantom Menace.