December 2000

Compiled and written by
Gary Will

Issue 46 -- January 8, 2000
In this digest:

  1. Looking back at 2000: successes and stumbles
  2. Cisco closes PixStream acquisition
  3. RIM beats expectations on strong BlackBerry growth
  4. Com Dev reports highest quarterly revenues in company history
  5. Descartes acquires business line from BCE Emergis

  6. Motorola raises its stake in CME Telemetrix to 15%
  7. Open Text wants to be "the c in c-commerce"
  8. RDM ends year with loads of cash, plans to expand marketing
  9. Treasury International revenues fall short
  10. STOCK REPORT: MKS slide continues; e-marketplaces slump

  11. Miscellaneous tidbits from Northern Digital, Finline, Mitra, JPH International, Dalsa, Endgame, Pattern Discovery.


Looking back at 2000: successes and stumbles

In high-tech circles, 2000 will go down as the year we saw the collapse of the Great Dot-con. Castles built on a little sand and a lot of hot air by such co-conspirators as Jeff Bezos, Henry Blodgett, John Doerr, Tony Perkins, and thousands more all came crashing down, with the failures quickly spreading from B2C to B2B as the year went on.

But while the dot-com world ended the year looking like Europe in 1350, Waterloo weathered the storm much better than most high-tech centres. An absence of cheap bandwidth and the lack of free-flowing venture capital meant that this was never a dot-com centre. Waterloo's strength has been companies with real technologies -- not ones with a domain name, a prayer, and a dwindling trunk-load of cash.

We missed the highs, but were spared the lows. Although only two companies in this area beat the gains of the Nasdaq composite in 1999, only two fell below the average Nasdaq losses in 2000.

The top local stories of the year were RIM's explosion onto the international scene, a strong turnaround from Com Dev, Virtek's rapid growth in biotech, Descartes' success in building its global logistics network, Cisco's acquisition of PixStream, and the stumbling retreat of MKS.

We lost Entrade and Axia -- both just after moving into new buildings. LiquiMedia vanished -- both from Waterloo and from the Web site archives of its VC.

Control Advancements shut down its engineering consulting operations and evolved into Mississauga's Betacom. It owns a stake in Ayr's Ventax Robot, which once again announced that it was about to go public and once again didn't.

Software Metrics was acquired by a U.S. company, JPH International by a French company, and Kaparel by a German firm. AOL came to town after acquiring Quack.com.

Waterloo's Jedor was acquired by Wisconsin's Sonic Foundry in January for US$150,000 and 9,900 shares, worth US$300,000 at the time. Two months later, those shares had a value of US$643,000. They ended the year worth US$13,000. Under the deal, the Jedor principals were not allowed to sell their shares for three years.

PrinterOn and Sirific Wireless were successfully launched. Ardesic and Intellitactics closed impressive first-round financings.

RDM spun off Xign, Open Text created b2bScene, and Descartes left its once-core software behind with Endgame Solutions.

After knocking on death's door, GUARD came back to life with the sale of its Nanodesign subsidiary to Montreal's SignalGene.

Open Text won a dispute with now-bankrupt NetSys. PixStream settled with UBS, and CME Telemetrix exchanged lawsuits with Neurosoft. In June, Waterloo's Pro-C Ltd. (remnants of the long-departed Vestronix) won a $1.2 million judgment against Radio Shack for violation of its Wingen trademark. The decision is on appeal.

Waterloo Maple lost its CEO, CFO, and sales VP; MKS lost its COO, CFO, and many others. There were new CEOs at PixStream, RDM, Maple, Nexys-Commtech, Ardesic, Pattern Discovery, and RecycleNet.

On the stock market, Com Dev was the local success of 2000, and one of the top performers on the TSE, climbing from $4.70 to $15.50. It was an impressive turnaround for the company, which finished at the bottom of the list in 1998 and second from the bottom in 1999, losing 85% of their value over those two years.

For calendar year 2000:

Com Dev [TSE: CDV] +230%
RDM [CDNX: RC] +154%
Virtek [TSE: VRK] +138%
Finline [CDNX: FIN] +122%
RIM [TSE: RIM] +81%
Open Text [TSE: OTC] +23%
CME Telemetrix [CDNX: YME] +16%
Descartes [TSE: DSG] +12%
---TSE 300 +4%
================================
Gensel Biotech [CDNX: GSB] -4%
ATS [TSE: ATA] -17%
Dalsa [TSE: DSA] -18%
EMJ [TSE: EMJ] -24%
RecycleNet [OTC: GARM] -31%
GUARD [CDNX: GUA] -32%
---NASDAQ COMPOSITE -39%
Treasury Int'l [OTCBB: TREY] -79%
MKS [TSE: MKX] -91%

An even stronger performance was turned in by Janna Systems, which acquired Waterloo's LivePage in September 1999 and was itself acquired by Siebel Systems in 2000. When the acquisition by Siebel closed in November, Janna shares were up 448% in 2000 and 1,133% since the company acquired LivePage 14 months earlier.

And just so I can use a cheesy Voyager punch line, I'll mention that all Kitchener and Guelph-based companies on this list were down for the year, and Cambridge was split 50/50. How many of Waterloo's companies were stock market winners in 2000? Seven of nine.

MKS's 91% collapse was the third worst among TSE-listed software companies, according to data from globeinvestor.com. It edged out Geac for third spot, trailing only Sideware Systems (-94%) and Xenos (-92%). MKS is the only one of the four that hasn't recently announced the appointment of a new CEO.

Website tag lines for the four largest decliners:

Among the public companies with Waterloo offices but headquarters elsewhere, only Sybase had ended in positive territory for the year, and its shares have slipped significantly since the summer:

Sybase [Nasdaq: SYBS] +17%
================================
CheckFree [Nasdaq: CKFR] -59%
Cyberplex [TSE: CX] -80%
CacheFlow [Nasdaq: CFLO] -87%
Entrade [NYSE: ETA] -98%

Entrade shut its Kitchener office in October after the company ran out of cash. Cyberplex just announced 80 layoffs company-wide, including six in Waterloo, although its strategy remains to perform the bulk of its production work in Canada.

Looking at a list showing the decline in share prices from their annual high, we see that Dalsa shares ended the year closer to their 52-week high than any other, despite losing 18% of their value last year. And all but four of these companies finished the year with shares worth less than half of their peak value in 2000:

Dalsa [TSE: DSA] 25.4%
Com Dev [TSE: CDV] 30.2%
Virtek [TSE: VRK] 35.6%
RDM [CDNX: RC] 50.4%
RIM [TSE: RIM] 53.7%
GUARD [CDNX: GUA] 58.5%
Navtech [OTCBB: NAVH] 61.9%
Open Text [TSE: OTC] 63.4%
CME Telemetrix [CDNX: YME] 69.2%
Descartes [TSE: DSG] 73.7%
Gensel Biotech [CDNX: GSB] 80.8%
RecycleNet [OTC: GARM] 83.4%
Finline [CDNX: FIN] 88.9%
MKS [TSE: MKX] 96.9%
Treasury Int'l [OTCBB: TREY] 98.2%

Although Finline shares were up 122% for the year, they fell 84% over the last 10 months of 2000. All the gains came in the first two months of the year, when Finline stock jumped by 1,278%.


Cisco closes PixStream acquisition
December 20, 2000

It ended up being one of the quietest half-billion dollar deals you'll see in Canada, but Cisco closed its twice-delayed acquisition of PixStream in December.

The first announcement that the transaction had closed actually came from UBS, which reported that it had received the $25 million it was to receive in settlement of its suit against PixStream (see October digest). Payment was conditional upon the Cisco deal closing.

The next announcement came from VenGrowth, boasting of the five-fold increase in its investment in PixStream. It wasn't until the next day that Cisco sent out a 4-sentence release stating that the acquisition had been completed.

I don't have the exact final value of the transaction, but PixStream was expecting to end up with about $537 million in Cisco shares, after deducting the cost of the UBS settlement and adding in $12.8 million received from Rittal for PixStream's stake in Kaparel. It works out to about 7 million Cisco shares split among PixStream shareholders (Cisco has over 7 BILLION shares outstanding).

For the first nine months of the current fiscal year, PixStream's sales were running at about $12 million annually (more details in a minute), which means that the acquisition price was about 45x revenues -- much higher than RIM's multiple, which is around 20x on the same basis (at the other end of the scale, MKS is now valued at about one-sixth of revenues).

PixStream shareholders who participated in the company's warrant offering that closed February -- which included many of the company's employees -- essentially paid about US$27 for Cisco shares, which are now trading around US$37. Not a killing (they would have made more investing in Com Dev or Virtek, but who would have guessed that in January), but well above the average return this year. It'll be even better if Cisco shares can go back to their 2000 peak of US$82. About 11.5% of all shares will be held in escrow for one year.

In the end, PixStream shareholders didn't win the timing bonus. Under the agreement, the number of Cisco shares they received was fixed three days prior to the closing date, and Cisco shares lost nearly a quarter of their value -- setting a 52-week low -- in those three days. But, countering that, PixStream had its value set in August and almost certainly received a higher valuation than would have been negotiated in December. (iMagicTV, which has been a partner in some of PixStream's installations, went public in November at a price of $17.15/share and is now trading at $8.00.)

According to the circular, PixStream began talks with Cisco in April, shortly after it had hired Toronto's Latitude Partners to help raise additional financing. It soon became clear that Cisco was more interested in buying the company outright than in making an investment and acquisition discussions between the two companies began in July, with Cisco delivering a draft term sheet on August 1.

The transaction was approved by PixStream's board on August 29 and announced two days later. Shareholders formally approved the deal on December 15.

PixStream becomes part of Cisco's remote access business unit under Lou Santora, VP and GM of Cisco's service provider business line.

PixStream's largest shareholder as of November 14 was ex-Newbridge chairman Terry Matthews, who owned or controlled 26% of the 45.3 million shares outstanding on that date. That includes shares owned by Celtic House, the VC firm Matthews controls. Alcatel, through its acquisition of Newbridge, held an additional 16% while VenGrowth had a 15% stake. Founders Brad Siim and Marc Morin each held 9%, while the third founder, Steve Bacso, owned 8%. Those numbers only include outstanding shares and not any options or warrants that might also have been held. On a fully-diluted basis there were about 70.45 million PixStream shares.

The list of PixStream shareholders included most of the company's employees, as well as former employees, including several now with Kaparel. Some other shareholders came from Gowlings (PixStream's lawyers) and FirstService (CFO Tim Jackson's previous employer).

Ralph Calistri must be very happy he accepted the job as PixStream's CEO a year ago. The 2 million PixStream options he was given when he was hired at an exercise price of $1.775/share all vested immediately upon the Cisco acquisition, giving him nearly 200,000 Cisco shares now worth about $11 million. (Although what really attracted him to PixStream was undoubtedly the promise of "two executive airline club memberships" in his employment agreement.)

For the nine months ended August 31, PixStream had revenues of $9.3 million, up 54% from the previous year. Net loss was $9.9 million. The company had $31.2 million in cash and net working capital of $39.1 million. Accumulated deficit was $17.6 million.

In the full fiscal year 1999, ended November 30, 1999, PixStream had sales of $7.2 million and a net loss of $4.1 million. In 1998, revenues were $377,000.

Those amounts don't include sales by PixStream's compactPCI division, which was spun off in 1999 as Kaparel. Technically, the division was sold to Kaparel for $504,390 in cash plus 40% of the common shares of Kaparel and a mix of Kaparel preference shares. Those shares were sold in November to Rittal (see November digest) for $12.8 million.

An article in the National Post quoted Handol Kim, trade commissioner at Canada's consulate in Silicon Valley, telling Canadian high-tech entrepreneurs, "don't be afraid to think big. Don't be afraid of scale. Otherwise we're going to be a land of PixStreams. There's no dishonour in selling. But you should always aim for that IPO, because it raises your value inherently."

Maybe Mr. Kim should stick to ribbon cutting and gladhanding or whatever it is he knows something about.


RIM beats expectations on strong BlackBerry growth
December 20, 2000

For the quarter ended November 30 (Q3 01), RIM reported revenues of US$61.6 million -- up 160% from a year ago and 45% from the previous quarter, and well above most analysts' expectations.

The main driver of the growth was BlackBerry sales, which jumped 50% from the previous quarter to US$36.4 million or 59% of revenues. Sales of wireless handhelds for non-BlackBerry use, primarily to BellSouth, AOL, and Motient, climbed 41% sequentially to US$21.6 million, while OEM radio modem sales contributed the remaining US$3.7 million or 6%.

Operations were essentially at a break-even point, showing a US$34,000 loss, an improvement over a US$4.2 million loss in Q2. Interest income was US$5.7 million, but an unusually high provision for income tax took net income down to US$1.5 million (US$0.02/share). The company says that net income would have been US$3.5 million or US$0.04/share under its usual tax rate. The difference was blamed on US-Canadian exchange rate fluctuations.

CFO Dennis Kavelman is forecasting 20-25% growth in the current quarter, which would bring RIM's annual sales for fiscal 2001 to over US$200 million. He is also forecasting 80-100% annual sales growth for fiscal 2002.

BlackBerry grew to 115,000 subscribers, up 39,000 over the quarter. RIM shipped 60,000 BlackBerry units in Q2 and an additional 57,000 handhelds. About 37% of BlackBerry revenue in the quarter was "non-hardware" -- software and services.

Following RIM's share offering in the quarter, the company had US$733.9 million in cash and marketable securities at the end of Q3 -- up US$550.1 million. Inventory climbed 46% as RIM continues to maintain a raw materials buffer to guard against any industry-wide shortages.

BlackBerry for Lotus Notes will be released this month, effectively doubling the potential market. An upgraded version 2.1 of BlackBerry will be released next month.

In Europe, BT Cellnet is currently testing RIM devices over its GPRS network, and a full roll-out is expected in a few months.

In the conference call, co-CEO Jim Balsillie said he expects the new Waterloo manufacturing facility will be operational by June. It will boost RIM's in-house capacity from 1 million units annually to 6 million. The company continues to look at potential contract manufacturers, as well as the possibility of opening a facility in Europe. A third shift is expected to be added to the Kitchener site this month. RIM went over the 1,000 employee mark company-wide in the quarter, ending with 1,024.

Balsillie said he hopes and expects that AOL will drop the price of its Mobile Communicator service that uses RIM handhelds (currently priced at US$330 for the device with monthly service charges of US$20), but that it's entirely up to AOL. He was particularly enthusiastic about the prospects of licensing the BlackBerry service for non-RIM devices, which will be made possible as more devices become Java-capable.

At the end of the quarter, RIM had 85.9 million shares outstanding on a fully-diluted basis, making its market cap about $6.1 billion as of Friday's close.

In other news from RIM, it will now make its BlackBerry service available on Motient's network in the U.S., providing customers with an alternative to BellSouth, which has had significant congestion problems in some major centres.

It has also licensed Qualcomm's CDMA and 1xEV technology for high-speed wireless applications. Nortel announced a couple months ago that it is developing infrastructure equipment for the Qualcomm technology, which is based on the HDR technology that Com Dev licensed from Qualcomm in September.


Com Dev reports highest quarterly revenues in company history
December 4, 2000

You wouldn't know it from the news release, but in the three months ended October 31 (Q4 00), Com Dev achieved its all-time highest quarterly sales -- $68.5 million. Revenues were up 36% from the previous quarter and 69% from the same period last year.

Both the space and wireless divisions set new revenue records. Com Dev Space sales jumped 50% sequentially to $38.2 million, eclipsing the previous mark of $30.2 million set in Q4 97. At year-end, the division had an order backlog of $114 million.

Com Dev Wireless revenues were $30.3 million, up 21% from Q3 and surpassing its previous high of $29.3 million, also set in Q4 97. The company forecast that full ramp-up of its new facility in China will generate about $40 million in revenue for the wireless division next year.

Perhaps the reason for the lack of fanfare was that the company just broke even for the quarter, posting net income of $66,000 ($0.00/share). Gross margins dropped back to 20%, down from 25% in the previous quarter.

For fiscal 2000, Com Dev had sales of $205.9 million, up 27% from 1999. Net loss was $4.3 million ($0.11/share). Although Com Dev Space contributed only 49% of revenue, it accounted for 66% of gross profit, with margins over the year double that of Com Dev Wireless (28% vs 14%).

CEO Keith Ainsworth said that Com Dev is investing more than $30 million in the development of its M/ERGY wireless broadband Internet product, scheduled for launch this year.

At year-end, the company had $18.0 million in cash, nearly offset by $17.8 million in bank indebtedness. Net working capital was $54.5 million and there was $19.6 million in deferred revenue on the balance sheet.


Descartes acquires business line from BCE Emergis
December 21, 2000

Descartes has acquired BCE Emergis' transportation logistics messaging services for $25 million and 1.388 million shares in Descartes, currently valued at about $40 million.

The BCE Emergis Global Carrier Network will become part of the Descartes Global Logistics Network, adding over 30 air carriers, 200 land carriers, 20 ocean carriers and many others to the network. Descartes says that about 80% of North American air cargo messaging will now flow through its network. American Airlines, British Airways, and FedEx are among the carriers joining the Descartes GLN through this deal.

BCE Emergis will also sell Descartes DeliveryNet product as part of its e-commerce services, focusing on health care and financial services applications. Descartes will offer BCE's electronic invoice presentment and payment service as part of DeliveryNet.

Descartes says the acquisition will be operating profit-neutral initially, but will add several hundred thousand dollars to the bottom line (excluding acquisition-related accounting charges) in fiscal 2002.


Motorola raises its stake in CME Telemetrix to 15%
December 13, 2000

Motorola has exercised its option to invest an additional US$3.5 million in CME Telemetrix at a price of CDN$5.985/share. Motorola invested CDN$2.9 million in CME last March (see February digest).

With the additional investment, Motorola will hold 1.3 million CME shares, or a 14.9% stake in the company.


Open Text wants to be "the c in c-commerce"
December 14, 2000

At its AGM, Open Text outlined its evolution from document management to knowledge management to collaborative commerce or "c-commerce," which CEO Tom Jenkins said will soon be as common a term as e-commerce (unfortunately, he didn't say he was taking bets on that one).

CFO Alan Hoverd said he was comfortable with analyst projections of 40% revenue growth in the current fiscal year. That would take Open Text's yearly sales to US$155 million.

According to Jenkins, the company is running neck-and-neck with Lotus Notes for market share leadership, with both companies taking about 40% of the current market. Jenkins expects there will be tremendous growth in the market, particularly as ASP distribution channels makes collaborative applications like Livelink feasible for smaller companies.

Open Text says it is now at about 1,000 employees world-wide after adding 171 in Q4. It continues to add about a million new users annually. Nortel is the largest user with 120,000 seats.

Jenkins said that there is "a very strict mandate" for any potential acquisition to be cashflow positive within one quarter.

As of the October 31 year-end, Helix Investments (Canada) continued to be Open Text's largest shareholder, owning 16.7% of outstanding shares. Tom Jenkins holds 4.2%. President John Shackleton was the highest-paid officer last year, receiving salary and bonuses of US$430,000.

Open Text's b2bScene division announced that Exostar -- an online exchange formed by aerospace and defence suppliers -- has selected it to host a collaborative extranet. Financial details were not disclosed.

The AGM was a much fancier affair this year, held at the TSE Conference Centre Auditorium rather than a crammed room at Open Text's offices as it was in 1999. The proceedings are available through streaming video from Open Text's Web site.


RDM ends year with loads of cash, plans to expand marketing
December 21, 2000

For the quarter ended September 30 (Q4 00), RDM a loss of $1.3 million on sales of $1.4 million. For fiscal 2000, RDM had revenues of $5.1 million, up 9% from $4.7 million in 1999. Annual net loss was $2.4 million ($0.19/share).

Following its $15 million warrant offering in September, RDM ended the fiscal year with $19.6 million in cash.

Sales of the point-of-sale reading and imaging products RDM introduced in 1999 grew to $1.7 million in fiscal 2000, or about a third of sales, up from $473,000 in 1999. The point-of-sale segment had an operating loss of $2.2 million.

RDM's traditional cheque quality product line accounted for $3.2 million in sales, down 21% from the previous year. It was the company's only profitable segment, showing an operating profit of $1.6 million. RDM estimates that it has an 80% share of the cheque printing quality control market.

The company's third segment, e-commerce payment systems, had a $1.5 million operational loss on sales of $133,000.

RDM's electronic cheque payment system has been transferred to Xign Corp., in which RDM holds a 36% stake (25% on a fully-diluted basis).

The company has 39 employees -- 13 in R&D, 12 in manufacturing and customer service, 9 in sales & marketing, and 5 in administration. It says it expects to hire both senior and intermediate marketing personnel over the next year and significantly increase its marketing activities. In Q4, sales & marketing spending leaped 173% sequentially to $582,000.

The company's largest shareholder is now CVF Technologies Corp., which has acquired about a quarter-million more shares over the last year to hold 2.0 million (14.2%). Bob Nally, RDM chairman and CVF's COO, holds 1.9 million shares (13.5%).


Treasury International revenues fall short
December 15, 2000

In the summer, Treasury International said that it would begin to show revenue growth in its third quarter, ended October 31. Instead, the company reported a decline in sales and a cash burn that saw Treasury's officers lend the company US$250,000 to keep it above water.

For the quarter, Treasury reported revenues of only US$62,000 -- down from both the previous quarter and the same period a year ago -- and a net loss of US$184,577.

Net cash used by operations was US$212,000. The balance sheet shows net bank indebtedness of US$66,000 and, excluding the interest due on a US$2.6 million promissory note that it has been unable to collect, Treasury had a working capital deficiency of US$229,000.


STOCK REPORT: MKS slide continues; e-marketplaces slump
December 2000

No reprieve for MKS in December, as it fell another 40% after its 67% drop in November and ended the year at 53 cents, down from $6.20 at the beginning of the year and $17.00 at its 52-week high in March.

Two companies trying to establish online marketplaces were at the bottom of the list for the month: RecycleNet fell 50% after taking 40% hits in both October and November, while Treasury International, parent company of Retailport.com and WebCo-ops.com, also turned in its worst month of the year.

For the month of December:

RIM [TSE: RIM] +22%
Open Text [TSE: OTC] +22%
Dalsa [TSE: DSA] +12%
RDM [CDNX: RC] +3%
================================
Virtek [TSE: VRK] -4%
CME Telemetrix [CDNX: YME] -4%
Descartes [TSE: DSG] -5%
GUARD [CDNX: GUA] -5%
Navtech [OTCBB: NAVH] -6%
Com Dev [TSE: CDV] -14%
Finline [CDNX: FIN] -31%
MKS [TSE: MKX] -40%
Gensel Biotech [CDNX: GSB] -46%
RecycleNet [OTC: GARM] -50%
Treasury Int'l [OTCBB: TREY] -60%

Com Dev had its weakest month since the spring, losing $2.45 to end the year at $15.50. It fell another $1.25 last week.

In the first week of trading in the new year, Descartes set a new 52-week low after falling 21% and RIM slid by 41% -- a unusually large drop even with its customary volatility. Cyberplex has fallen another 32%.

Gensel has gone the other way, gaining 75% so far this month. Treasury International gained 100% last week, climbing to 6 cents.

Finline shares have shown their first sign of life since February after falling back to penny stock status for much of December.


Miscellaneous Tidbits