November 1999

Compiled and written by
Gary Will

E-mail:
gary@garywill.com

Issue 33 -- December 3, 1999
In this digest:

1. STOCK REPORT: Explosive growth widespread in best month ever
2. Descartes shares soar on a quarter that meets expectations
3. RIM reaches anticipated distribution agreement with Dell
4. PixStream raises $12.5 million in third round of financing
5. BlueGill announces US$19.5 million in financing

6. RDM CEO Pat Pavlik steps down; new director becomes acting CEO
7. MKS licensing revenues continue to rebound
8. Virtek revenues jump to record levels
9. GUARD shelves two projects as cash reserves near depletion
10. Open Text says we're not knowledge management, we're...

11. Open Text halts stock slide with special issuer bid
12. DALSA makes another acquisition, buys Arizona firm
13. Com Dev acquires California engineering firm
14. Focus acquires Boston company, creates new subsidiary
15. Maple invests in the future as current revenues remain flat

16. Little news from CME Telemetrix with its quarterly results
17. Scotiabank gives UW $2.5 million for software engineering
18. CTT smart communities proposal makes it to the final round
19. Still no revenues at Finline, although some may be on the way

STOCK REPORT: Explosive growth widespread in best month ever
November 1999

It was a phenomenal month for almost all CTT tech stocks, with the shares of many companies making explosive gains.

Topping the list was Descartes, up 166% to $15.05 for the month and trading at record highs after it had plummeted to its lowest levels ever just three months ago.

MKS -- which just a month ago had a market cap below last year's revenues -- saw its shares nearly double to $5.75, its highest point since May. It's now at about 1.6 times this year's revenues. RIM shares -- which already had a huge run up this year -- gained a remarkable 67% in November and are now up 641% in 1999. Its market cap crossed the $5 billion mark during the month.

Even Com Dev shares jumped 51% in their best month since last December while CME Telemetrix gained 40% and Open Text improved by 25% to take back some of its recent losses.

Some companies with development offices in Waterloo had equally impressive gains. CacheFlow left a lot of money on the table but gave its investors one of the fastest-growing IPOs of the year. The company went public in November with an offering of 5 million shares at US$24, which closed the month at US$151.50. The shares were initially expected to be priced around US$12.

Cyberplex shares gained 63% after announcing strong quarterly results and some significant contracts (Ford Canada, 3M), while the former shareholders of LivePage -- who already received what seemed like a strong valuation when the company was acquired in October -- probably watched in amazement as the shares they received in Janna Systems more than doubled in value.

Descartes shares soar on a quarter that meets expectations
November 30, 1999

After issuing warnings in the last two quarters and being severely penalized by investors, Descartes shares soared to an all-time high with the announcement of a quarter that either met or beat expectations, depending on which analyst you listen to.

The run-up began early in the month when it became clear that no warning was coming for this quarter. The numbers announced at month- end showed that for the quarter ended October 31 (Q2 00) Descartes lost US$4.0 million (US$0.11/share) on revenues of US$10.5 million.

Revenues were down 16% from the same period last year, but the company's new e-business focus has been paying off, with 80% of licensing revenues -- about $3.8 million -- coming from e-commerce, up from 60% in the previous quarter. Combine that with the strong 27% growth quarter-over-quarter in licensing revenue to US$4.8 million and this would mean that Descartes e-commerce licensing revenues grew about 65% from the last quarter -- something you'd think would be worth mentioning directly in a news release (it wasn't), since it's the e-commerce momentum that is driving Descartes share gains (and the more licensing revenues it achieves now, the higher the transaction-based revenue stream should be in the future).

Gross margins on services grew from 4% last quarter to 16.5%. Expenses were cut by 11% from the previous quarter, with sales & marketing costs down by 16%. The balance sheet shows US$14.9 million in cash and short-term investments.

RIM reaches anticipated distribution agreement with Dell
November 22, 1999

Dell Computer, the largest direct seller of computers, has signed on as a reseller for RIM's BlackBerry service. The deal has been widely anticipated at least since mid-August when a story on TheStreet.com said that Dell and RIM were in discussions.

The terms of the deal were not disclosed, but RIM will receive revenues from the sale of the pagers, as well as a cut of the monthly access fees.

Dell was expected to begin selling BlackBerry this week. The deal will benefit RIM both from the addition of a sales channel that could ship more than 30,000 units over the next year and from the added exposure and endorsement that Dell provides.

Perhaps moderating that good news a little was the absence of any announcement this month of a new deal with BellSouth. An agreement is expected to be announced very soon, but the delays suggest that BellSouth may ship fewer devices -- at least in the next quarter -- than originally anticipated.

Speculation continues that RIM is talking to AOL about offering the BlackBerry service to AOL's customer base.

PixStream raises $12.5 million in third round of financing
November 29, 1999

PixStream completed its third major round of financing this month, raising $12.5 million. The company says that all of its existing investors participated in this round -- a group that includes Newbridge, Terry Matthews's Celtic House, BDC, and VenGrowth -- along with one new investor, J.L. Albright Venture Partners.

The company says it will use the money to develop its video networking systems and expand sales & marketing efforts.

PixStream raised $7 million in its second round of financing in March.

Earlier in the month, PixStream announced that it has opened a sales office in McKinney, Texas, north of Dallas near the Telecom Corridor in Richardson. The office will oversee sales to the south and western U.S. as well as Central and South America.

BlueGill announces US$19.5 million in financing
November 8, 1999

BlueGill -- based in Ann Arbor, Michigan, but with all software development performed in Waterloo -- formally announced this month that it has received US$19.5 million in financing from a group of investors that includes FT Ventures of San Francisco. FTV specializes in financial technologies.

BlueGill had said during the summer that it had received significant financing, but the exact amount and source were not disclosed at that time.

The company plans to expand its Waterloo office and hire at least another 20 developers.

RDM CEO Pat Pavlik steps down; new director becomes acting CEO
November 26, 1999

Pat Pavlik, the president and CEO of RDM Corp. who founded the company 12 years ago, has resigned "to pursue other interests." He will remain a director of the company.

Stepping in as acting CEO while the board looks for a permanent successor is Thomas DiGiacomo, who was named a director of RDM earlier in the month. DiGiacomo was previously the CEO of Manulife and was on the board of Waterloo Maple until resigning in the fall of 1998.

Also new to RDM's board this month is Fred Militello, president of Finquest Partners, based in Cornwallville, NY, and adjunct professor of international business at New York University's Leonard N. Stern School of Business.

MKS licensing revenues continue to rebound
December 1, 1999

For the quarter ended October 31 (Q2 00), MKS reports revenues of US$9.3 million -- up just 1% from the same period last year, but 14% above sales in the previous quarter. Licensing revenues were up 20% from Q1 to $6.2 million while services revenues remained relatively flat at $3.1 million.

Net income, excluding acquisition-related amortization expenses, was US$265,000 (US$0.02/share), down from US$460,000 last year. With amortization charges, MKS lost US$148,000 (US$0.01/share).

The balance sheet shows US$8.0 million in cash, down from $9.4 million at the beginning of the quarter. CFO Eric Palmer says the company will be cash-flow neutral or slightly negative over the next two quarters.

President Mike Hubbert said that MKS's average transaction size should increase from the current level of $10-20,000 as the company sells more suites and integrated solutions. The company also announced this month that Tech Data, one of the major IT distributors, will add Source Integrity and Toolkit (but not the other components of MKS Integrity Framework) to their distribution list.

Bell Atlantic has been MKS's largest customer this fiscal year, purchasing $1.2 million in MKS products over what was said to be the last couple quarters.

Virtek revenues jump to record levels
December 1, 1999

For the quarter ended October 31 (Q3 00), Virtek reports record revenues of $4.4 million -- up 44% from the previous quarter and 171% from a weak quarter in the same period last year. Over the first nine months of the current fiscal year, Virtek revenues have grown by 67%.

"We are on track to achieve the aggressive growth targets we established at the beginning of the fiscal year," said CEO Jim Crocker in a release.

Net income was $494,000 ($0.03/share), but there are several asterisks to go with that number, which includes a one-time gain of $1.5 million from the sale of Virtek's leather nesting software to Gerber Scientific. Gerber had been its primary distributor. This quarter's numbers also included an inventory write-off (not specified), charges from the cancellation of an agreement with a LaserQC distributor, and moving expenses as the company relocated within Waterloo. In total, operating expenses were up 63% from the previous quarter.

Revenues from Virtek's imaging business more than doubled from the previous quarter to $1.8 million, with what was described as "strong sales" for the LaserQC product and the first revenues for ChipReader.

The company's traditional templating business also had a strong quarter, with revenues of $2.5 million -- up 14% from the previous quarter and 76% from the same period last year (although the news release says 41%; it's the second quarter in a row where the release seems to understate the company's actual gains, which is odd).

Net working capital is $3.8 million with $793,000 in cash. Inventory levels jumped by a million dollars over the quarter.

Virtek's acquisition of the aerospace templating business of GSI Lumonics, announced in August, closed yesterday (December 2). It looks like the price dropped from the $4 million plus royalties initially announced to $3.5 million plus royalties. Crocker said that the deal should add an average of $4 million in revenue annually (or $1 million per quarter) in each of the next five years.

The acquisition was funded through a combination of cash and $2.65 million in debt financing through HSBC Capital and Royal Bank. The debt carries a term of two years for $2 million and four years for $650,000. In addition, HSBC will receive 500,000 share warrants exercisable at $1.71 over a three year term. Virtek shares closed November at $1.80.

GUARD shelves two projects as cash reserves near depletion
November 29, 1999

For the quarter ended September 30 (Q3 99), GUARD reports that it is still awaiting its first revenues and ran a net loss of $1.1 million ($0.18/share). Accumulated deficit is $11.2 million. The balance sheet shows just $1.5 million in cash remaining, with net working capital of $731,000.

In his letter to shareholders, CEO Brian Cox said that "initiatives are in place" to raise the additional funding needed to allow the company to continue operations beyond next month.

Project costs of $1.0 million for the quarter were the same as a year ago, and down slightly from $1.1 million in the previous quarter. Cash burn was slowed to $360,000/month from $389,000/month in the previous quarter.

GUARD discontinued its two smallest projects during the quarter -- the boar taint and plant transformation technologies -- while establishing separate corporations for its electroluminescent display technology (Elite Display Systems Inc.) and its bone densitometer (Magnos Technologies Inc.). Both of those projects have received IRAP grants, while the Ontario Centre for Excellence in Materials and manufacturing will provide another $193,000 over two years for development of the electroluminescent display technology.

Nanodesign continues to account for the bulk of spending at 66% of total project costs. GUARD announced that there was additional evidence that two compounds discovered through Nanodesign's technology were of potential value as drug candidates. Tests are ongoing as the company looks for a partner to commercialize the technology.

Open Text says we're not knowledge management, we're...
December 1, 1999

The e-business virus has made it up the elevator at 185 Columbia, and Open Text, just like its neighbours below at MKS, positioned itself as an e-business company at its annual general meeting.

The meeting itself was lacklustre -- no grumblings or hard questions, even with the company's shares declining in value by 42% so far this year. In fact, according to the scruitineers, there were only five shareholders present and, even including proxies, the holders of less than half of the company's outstanding shares were represented.

Open Text's "e-communities strategy" was outlined by Les McNeill, executive VP of marketing, who defined e-business as a combination of e-commerce and collaboration, and said that Open Text is focused on creating portals to provide those capabilities to various industries. (McNeill said there's no reason for VerticalNet and others who are also building online trading communities to have the much higher market caps that they do since "we've got ten times what they've got.")

The company is currently looking to partner with a major telco/ASP who would provide a reliable infrastructure and host the applications. Along with revenues from software licensing, advertising, and content subscriptions, Open Text would make money through recurring revenues from data moved through the system, as well as using user profiles to provide additional services.

Fifty-two year-old company president John Shackleton said that one of the key reasons for the disappointing first quarter was that "some of our younger managers were not able to get to that next level of maturity." He said that in the future he'd shift managers from other international offices rather than give these "younger managers" that kind of opportunity again. There didn't seem to be many Open Text managers of any vintage in the room as this was said, although the company's four 30-something directors were all there.

Shackleton said that although the current quarter (ending December 31) will probably be weak, the company is looking forward to next month when its customers can put the Y2K issue completely behind them and begin spending their IT budgets on other projects.

In response to a question, CEO Tom Jenkins said there was no update on the NetSys situation, currently in arbitration. The issue wasn't mentioned during the presentation by company management.

Open Text halts stock slide with special issuer bid
November 10, 1999

Two weeks after expanding its normal course issuer bid to a maximum of 2 million shares (see last month's digest), Open Text announced its offer to purchase and cancel up to 4,000,000 of its own shares. The price offered was only US$14 -- a level that Open Text shares have rarely traded below in the last year.

When the offer was announced, Open Text shares last traded at US$12.50, but they had moved above the $14 level by the next day and haven't dipped below it since. Not surprisingly, Jenkins said at the AGM that there have been no takers so far of any significance.

The offer essentially established a floor price for Open Text shares which had been in freefall for the last six months. There has been speculation that the Open Text board may extend the issuer bid, which expires December 14, with an offer of US$16 per share, but Jenkins said they'll make that decision when the current offer expires. (As of Friday morning, Open Text shares were trading just under US$19.)

DALSA makes another acquisition, buys Arizona firm
November 22, 1999

DALSA has made its second acquisition in recent months, this time acquiring MedOptics Corporation of Tucson, Arizona for $4.5 million.

MedOptics designs digital X-ray medical imaging cameras for high resolution applications. Revenues for 1999 are forecast at $4.5 million. The company was founded in 1994 and has 16 employees.

DALSA CEO Savvas Chamberlain said the acquisition "positions DALSA well to capture additional market chare in the medical imaging market over the next several years."

DALSA acquired Silicon Mountain Design for US$11.5 million in June.

Com Dev acquires California engineering firm
November 22, 1999

Com Dev has acquired Lober & Walsh Engineering, an 11-person engineering firm in San Luis Obispo, California founded in 1994. Terms were not disclosed.

Com Dev says the acquired company will form the nucleus of its wireless group's new software and digital hardware product development arm. An expanded facility will be opened in California that the company says will become its "centre of excellence for digital hardware and software development."

"This acquisition expands Com Dev's product reach into Internet related products," said wireless group president Peter Scovell. Com Dev says it is performing field trials of wireless Internet infrastructure products and anticipate the development next year of high speed wireless Internet user terminals.

Earlier in the month, Com Dev said that it had completed four agreements worth more than $65 million "in recent weeks." None of the deals was disclosed, although details were promised "when our major corporate customers provide approvals for the press releases." Three of the deals were for the space group, and one for the wireless group.

Space group president John Keating said the company "continues to believe in the future of multimedia satellite systems, despite the much publicized problems of ICO and Iridium."

Com Dev had said that there would be some type of financing arranged in the quarter ended October 31, but none was announced. The results for that quarter and fiscal year 1999 should be released this month.

Focus acquires Boston company, creates new subsidiary
November 9, 1999

Focus Automation has acquired AOI International of Lowell, Massachusetts, which is now Focus AOI Inc., a wholly-owned subsidiary of Focus. The company provides automated optical inspection (AOI) solutions to electronics manufacturers.

No terms of the deal were disclosed, but Focus COO Dave Chornaby told The Record's Ron DeRuyter that the company was paying close to bok value for AOI, with additional payments contingent on profitiability. AOI had revenues of US$4 million in the year ended March 30, but had recently been going through financial difficulties and layoffs. "They have great technology and a great market presence, they just haven't been successful in getting the backing," Chornaby told DeRuyter.

Focus CEO Ron Strauss said the acquisition is "an important step in our strategy of becoming one of the leading AOI suppliers in the world."

Maple invests in the future as current revenues remain flat
November 15, 1999

For the quarter ended September 30 (Q2 00), Waterloo Maple reports a loss of $75,000 ($0.02/share) on revenues of $2.9 million. Revenues did climb 14% from the previous quarter, when the company showed a slight profit, but were down from $3.0 million in the same period last year, when it earned $807,000.

The difference on the bottom line comes from increased expenditures in both sales & marketing (up 20% from last year and 35% from the previous quarter) and R&D (46% from last year and 25% from Q1). Some of the increase is related to the launch of Maple 6 next spring and growth in the number of employees, which is now up to over a hundred. Maple has previously said that it is focusing on opportunities in markets other than education, its traditional strength.

The balance sheet shows $2.6 million in cash, and CEO Ian Suttie said in his letter to shareholders that additional funds will be raised through a planned private equity placement.

Little news from CME Telemetrix with its quarterly results
November 30, 1999

For the quarter ended September 30 (Q3 99), CME Telemetrix reports a net loss of $496,000 ($0.07/share) on revenues of $131,000. Development of its non-invasive glucose monitor continues, with Duncan MacIntyre suggesting in his letter to shareholders that the technology should have value beyond that single application.

At the end of the quarter, CME had net working capital of $3.4 million with $666,000 in cash. MacIntyre says that he finds the company's cash burn rate of $275,000 a month to be "appropriate and manageable."

Although various other minimally invasive devices seem to be regularly profiled on TV and elsewhere, MacIntyre says that the CME technology "remains clearly differentiated and a leader amongst emerging technologies."

Apparently, the earlier predictions of increased sales of the company's Food Quantifier haven't yet proved correct, since the product is not even mentioned in this quarter's report. There was also no mention of anything happening at the Boston University photonics center, which was announced as CME's development partner in September.

Scotiabank gives UW $2.5 million for software engineering program
November 15, 1999

Scotiabank is giving UW $2.5 million to help create a software engineering program to be offered jointly by the computer science and electrical & computing engineering departments.

Of the donation, $1.3 million will go to construct and equip the Scotiabank Software Engineering Lab, $800,000 will be used to fund two research chairs, and the remaining $400,000 will be for the creation of an endowment that will provide about $20,000 in scholarships annually.

The program will enrol 100 first-year students each year. Graduates will receive a Bachelor of Software Engineering degree.

In other UW news, for the eighth year in a row, the university finished in first place in Maclean's magazine's dubious but popular annual survey of the reputation of Canadian universities.

The rankings are based on a survey of academics, CEOs (who had the lowest response rate at just 8%), high-school guidance counsellors, and recruiters across Canada. Maclean's sent out 5,467 questionnaires and received 738 responses.

In the survey that rates universities by specific, quantitative performance measures, UW ranked in a 2nd place tie among the 12 universities in the "comprehensive" category. Guelph topped the list, moving up from 2nd place last year. The magazine said that Guelph won because of its "balance between high-tech research and undergraduate intimacy."

Laurier placed 5th among 21 universities in the "primarily undergraduate" category -- maintaining its ranking of the last two years.

CTT smart communities proposal makes it to the final round
November 17, 1999

The CTTmPOWERED proposal submitted for consideration as one of Industry Canada's smart communities demonstration projects has made it past the first stage to the short list. It now goes up against proposals from Lanark-Carleton-Kanata, Ottawa-Carleton, Kingston, and Windsor to be the sole project in Ontario to receive funding.

The government is funding 12 projects across Canada -- one in each province, one Aboriginal, and one from the north. The project selected will each receive up to $5 million over three years. The winners are expected to be announced in March.

The CTT must now submit a full business plan to support its proposal by January 14.

CTT also found out this month that it will receive $12,000 from Bell Canada's economic development fund, managed in partnership with the Economic Developers Council of Ontario.

The money will go toward creating an enhanced community profile for the region on the CTT Web site.

The City of Guelph will receive $6,000 from the same fund to finance a telecommunications infrastructure survey.

Still no revenues at Finline, although some may be on the way
November 30, 1999

In the final set of financials for this month, Finline reports a loss of $120,000 on revenues of only $15,000 for the quarter ended September 30 (Q3 99).

Still nothing in from Brazil, even though Finline announced in July that Richardson Electronics had placed orders for about $500,000 for Brazilian customers (see July digest).

The balance sheet does show $122,000 in deferred revenue, perhaps related to shipments to Somalia that were announced as beginning in October -- just after the end of the quarter. Sales & marketing expenses went up 10-fold from the previous quarter to $12,000/month, so there is some sign of activity, if the numbers are accurate.