October 1999

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 32 -- November 2, 1999
In this digest:

1. Livelink distributor threatens online sales at huge discounts
2. Open Text CFO resigns following weak quarter
3. Virtek makes another acquisition -- picks up Belgian firm
4. STOCK REPORT: Record lows for Open Text, MKS, GUARD, Com Dev
5. RIM share offering nets $241.2 million

6. DALSA acquisition leads to revenue growth
7. Control Advancements quarterly revenues top $1 million
8. Brick leaps into e-commerce with GroceryGateway.com deal
9. Tidbits from RIM, Descartes, Inscriber, SST

Mike covered local technology businesses and issues for the Record for several years. More than anyone else, he was responsible for digging up and getting out the stories about emerging tech companies in this area ... whether they wanted it or not.

The depth of knowledge of the local technology business scene and the people behind it that Mike developed at The Record will be impossible to replace anytime soon.

--Gary Will

Livelink distributor threatens online sales at huge discounts
October 18, 1999

NetSys Technology Group, the Swedish software company that has been involved in various legal proceedings against Open Text (see July digest) turned up the heat this month by announcing plans to sell Open Text's Livelink software from its Web site for a price 80% below Open Text's list price.

Open Text denies that NetSys has the right to license the software this way. The NetSys release says that company CEO Christen Ager-Hanssen "personally negotiated an agreement that gave NetSys the right to sell Livelink (and all other Open Text products) back in 1997 when Open Text was a much smaller company."

There is some form of a written arrangement between the two companies from 1997, but Open text is apparently going to argue that it isn't really a distribution agreement and that even if it is, it is limited to Scandinavia. NetSys' position seems to be that they have exclusive distribution rights in Scandinavia and non-exclusive rights everywhere else. The dispute is going before an international arbitration panel, but a decision isn't expected until spring or summer next year. Currently, the NetSys Web site (www.netsys.net) has a form that you can fill out if you're interested in being contacted about licensing Livelink. There are no sales taking place directly from the site itself.

Open Text CFO resigns following weak quarter
October 28, 1999

For the quarter ended September 30 (Q1 00) Open Text reports net income of US$2.8 million (US$0.11/share FD) on revenues of US25.4 million. Despite the rosy-sounding profits, it was a very disappointing quarter for the company, with revenues falling far below expectations -- down 14% from the previous quarter, although still a 47% jump from last year.

Excluding one-time gains, earnings per share were only US$0.06 -- about half what was expected. Income from operations, which had averaged more than US$4 million in the last three quarters, plummeted to just US$26,000.

Licensing revenues were at their lowest point over the last four quarters and now account for less than half of sales, with services contributing 51%.

The company pointed to the lack of sales in the UK and Y2K lockdowns as the cause of the shortfalls. Its UK operations have since been restructured. There were few major orders during the quarter, causing the average order size to fall by about 30%. Open Text is guiding analysts to expect even weaker numbers in Q2.

The balance sheet shows US$129.6 million in cash and another US$50.0 million in securities available for sale (about US$6.71/share or C$10/share combined).

With the quarterlies, the company announced that CFO Thomas Hearne will soon be leaving for what it described as "personal reasons" (the National Post reported that the "long commute" from Toronto was a factor).

It also revealed plans to increase their normal course issuer bid and will now buy back up to 2 million shares, using proceeds from their successful Internet investments. In February, it announced plans to buy up to one million shares. At the end of Q1, Open Text had 24.2 million shares issued and outstanding.

Virtek makes another acquisition -- picks up Belgian firm
October 19, 1999

After making a $4 million acquisition in August (see that month's digest), Virtek got out the cheque book again this month to acquire LaserTechniek of Belgium.

Virtek will pay $1.2 million in cash and shares for full ownership of the company. Another $1.2 million may be paid over the next two years if unspecified sales and profit milestones are achieved.

LaserTechniek makes equipment for projecting laser templates. It had sales of about $1.5 million in the most recent fiscal year -- mostly in Europe and in applications that Virtek had not yet developed, such as for CNC cutting, concrete forming, and recreational vehicle manufacturing.

"The best way to grow in Europe is through a strong presence there," said Virtek CEO Jim Crocker in a release.

Michiel Mirandolle, founder of LaserTechniek, will continue as general manager of the new Virtek subsidiary.

STOCK REPORT: Record lows for Open Text, MKS, GUARD, Com Dev
October 1999

October lived up to its reputation, with falling stock prices nearly across the board. Exceptions were DALSA, which closed the month up 4%, and RIM, which squeaked out a nickel gain (0.1%) to extend its monthly growth streak to eight months. Otherwise, CTT tech stocks took a beating.

Open Text's woes led to a 40% decline in the month, closing at $17.55. It was briefly a $60 stock in April and is now down 54% in 1999. Last Friday, the shares dipped as low as $15.00 -- their TSE record low -- before rebounding.

The biggest percentage decline of the month was GUARD. Some investors have clearly lost patience with the company, which has been promising imminent revenues from its Nanodesign subsidiary for over a year. Its shares plummeted 47% and ended the month at just 80 cents. The shares were trading at $3.00 for the first five months of the year, but have declined 73% since the end of May.

MKS and Com Dev both fell below $3 for the first time, with MKS down 26% for the month and 73% since the end of January. MKS's market cap has now fallen below last year's revenues. Com Dev shares fell 18% in October and are now off 64% this year after a 74% drop in 1998.

RIM share offering nets $241.2 million
October 29, 1999

The share offering announced by RIM last month (see September digest) closed in October, giving the company net proceeds of $215.4 million from the sale of 5 million shares in the U.S. and Canada.

The underwriters exercised most of their over-allotment option and acquired an additional 595,000 shares (of a possible 750,000), which added another $25.7 million to RIM's take for total net proceeds of $241.2 million.

RIM's IPO two years ago netted $94.4 million through the sale of 13.8 million shares (not including over-allotment).

DALSA acquisition leads to revenue growth
October 28, 1999

For the quarter ended September 30 (Q3 99), DALSA reports net earnings of $1.4 million ($0.26/share) -- excluding amortization charges related to the acquisition of SMD -- on revenues of $10.7 million. With amortization, the company lost $1.4 million ($0.25/share).

This was the first quarter to include results from DALSA's SMD division, acquired in June. Revenues are up 41% from last year and 33% from the previous quarter, but the gains would seem to be attributable to the addition of revenues from SMD. (In June, SMD was said to have $10 million in annual revenue, and DALSA's sequential increase in revenues this quarter was $2.66 million). DALSA said that both of its divisions "met their targets" but did not break down revenues by division.

With the acquisition, DALSA's balance sheet shows cash and marketable securities at $5.0 million, down from $18.7 million at the beginning of the quarter. SMD was acquired for an announced price of US$11.5 million in cash.

DALSA says it expects further consolidation in the machine vision industry and is currently reviewing potential acquisitions. The company believes it is on track to achieve 30% annual revenue growth over the next three years, with approximately one-third of that growth coming from acquisitions.

Control Advancements quarterly revenues top $1 million
October 29, 1999

For the quarter ended August 31, Control Advancements reports revenues of $1.0 million and a net loss of $159,000. Revenues were up 5% from the previous quarter, even though product sales were down slightly.

The net loss was enlarged by goodwill amortization charges of $102,000, but the company also reported an unspecified "extraordinary gain" of $77,000. Control Advancements' numbers are difficult to analyze because it only files bare financial statements each quarter with no discussion or notes. In fact, according to the listing on SEDAR, the company has never filed MD&A even with its annual statements. Its annual reports don't appear on SEDAR and there are no management information circulars to be found there either. It is the only publicly-traded CTT tech company that apparently doesn't file any of this information. On top of all that, it no longer even has a Web site (although two wholly-owned subsidiaries do).

The positive cash flow of the previous quarter was apparently acquisition-related and the company otherwise continues to have negative cash flow. Accumulated deficit at the end of the quarter was $4.6 million.

Brick leaps into e-commerce with GroceryGateway.com deal
October 25, 1999

Long before Waterloo was considered a tech centre, it was known for brewing and distilling, and those two worlds came together this month with Brick Brewing's announcement that all its beers can now be purchased over the Internet ... if you live in Toronto, anyway.

Brick is partnering with Toronto-based Grocery Gateway, which operates a Web site at www.grocerygateway.com. Orders placed through the site are delivered the next day across Toronto.

The company says it is the first time that beer can be purchased in Canada using the Web.

Miscellaneous Tidbits

• RIM has signed an agreement with Merrill Lynch to supply BlackBerry Exchange Edition to Merrill employees across North America. The Merrill Lynch technology group will deploy more than 1,500 of RIM's devices over the next four months.

• Descartes announced that G.O.D Inc. of New Jersey has implemented the DeliveryNet.LOG wireless routing application running on RIM's Inter@ctive Pager. There is no truth to the rumour that the deal was delayed while Descartes developed an unconvincing proof of the existence of G.O.D. [Sorry.]

• Inscriber points out that each of India's three major broadcasters used their Inscriber RTX graphics application to show live election results in their coverage of that country's national election on October 6.

• Old news I missed: Steve Montgomery became the new president of SST in September. He succeeds Ian Suttie, who became CEO of Waterloo Maple in March. Montgomery was previously a sales director with Aspen Technology.