December 2001

Compiled and written by
Gary Will

Issue 58 -- January 7, 2002
In this digest:

  1. Looking back at 2001: The year the slowdown hit
  2. Com Dev sells wireless assets; closes Moncton plant
  3. RIM lowers forecasts again after sluggish quarter
  4. Virtek cuts salaries as laser system sales drop
  5. RDM hits record revenue; digital imaging sales take off

  6. Open Text makes take-over bid for the former JetForm
  7. STOCK REPORT: Big caps all post gains to end year
  8. Miscellaneous tidbits from VideoLocus, Covarity, ADexact, MKS, Descartes, Dalsa, Finline.


Looking back at 2001: The year the slowdown hit

For the first 69% of the year, the big story was the economic downturn and related stock market collapse. It was a year of layoffs, cutbacks, closures, slashed forecasts, and reduced expectations -- and the Waterloo tech community had its share of the whole list.

Open Text emerged as a success story of 2001, posting profits while building its stock price. As a subsidiary of Sybase, iAnywhere Solutions didn't attract as much attention, but it also put together a strong 2001, ending the year with quarterly sales higher than Descartes but below Open Text. Despite breathless hype from competitors about their products on the drawing board, RIM completed another year as the dominant player in its market, with BlackBerry subscribers climbing over the quarter-million mark.

The big stock market winners and losers from 2000 -- Com Dev and MKS -- swapped places in 2001. Com Dev shares were one of the TSE's big success stories of 2000, following disastrous years in 1998 and 1999. While Com Dev Space had a record year, Com Dev Wireless was devastated by the collapse of the telecom industry and Nortel in particular. Com Dev's shares fell 80% in 2001 -- a deeper plunge than the well-publicized stumble logged by Nortel. The company is hoping to rebound as its new wireless Internet product, M/ERGY, hits the market this year.

In contract, MKS went from being one of the biggest stock market flops of 2000 to one of the biggest successes of 2001. Its shares gained 306% over the year, the largest jump among all TSE-listed software companies, edging out Geac (which, like MKS, was on the list of biggest decliners in 2000). The company's market cap actually went up by more than 1,000% over the year -- from under $10 million to around $100 million.

PixStream, the feel-good hit of 2000 (for shareholders who cashed in quickly, at least), became a casualty of Cisco's nosedive and was shut down by its new owner. At the time, it was a heavy blow for the local tech scene, but by the fall -- with ex-PixStreamers either starting up new businesses or joining existing companies -- it was clear that it wasn't the bad-news story it initially appeared to be.

News releases from Canadian VC firms boasting of their activities in Waterloo outnumbered the meagre number of deals that actually closed here. Sandvine -- started and largely staffed by ex-PixStreamers -- raised $19.5 million, mostly from PixStream's former VCs. ADexact attracted $5.5 million while Dspfactory closed a $7.7 million round.

Ardesic, which received VC funding in 2000, closed its doors in November after selling its core technology assets to a U.S. firm. Before the year ended, the company's co-founder, Jeff Fedor, had launched a new company, called Covarity.

Along with PixStream and Ardesic, we said farewell to Gensel, Compelis, and Nexsys Commtech. AOL's Quack.com (which became AOLbyPhone), Metiom, and Xign all closed local offices, while GUARD put its operations in mothballs. Open Text abandoned plans to spin off b2bScene.

Two long-standing Waterloo firms merged with GTA-based public companies and both either left town or were on the verge of doing so by year-end. First, Switchview -- a Waterloo fixture for more than 15 years -- moved all operations to the GTA a few months after it merged with MDR Technologies and two smaller companies to become MDR Switchview. The company ended the year as a penny stock with two partners from its lead VC acting as chairman and CEO.

In the other deal, Waterloo's INM was acquired by Markham's VoiceIQ. The VoiceIQ shares received by INM's shareholders -- worth nearly $4 million at the time of the deal -- ended the year with a value of $475,000.

Descartes, Virtek, MKS, NDI, Dspfactory, and RIM all made acquisitions during the year. Mitra announced that it will be acquired by Belgium's Agfa, Rittal of Germany acquired the shares of Kaparel that it didn't already own. Assets of Focus Automation were acquired by Japan's V-Tech at bargain basement prices.

Several companies were forced to lay off staff, with perhaps the biggest shocker being Agile Systems, which slashed 60% of its workforce.

There were new CEOs at MKS, RDM, Ardesic, Navtech, QJunction, and Sirific Wireless. Sirific went back to its previous CEO after just a few months. The CEO of Fakespace also resigned but has not yet been replaced.

Finline announced a bunch of deals that never ended up happening. Oh wait a minute, I ran this item last year. And the year before that.

Along with MKS' turnaround, one of the few positive stories from the stock market story in 2001 was the success of Open Text, which posted a 47% gain following a 23% jump in 2000. It's the only company listed here to post gains in each of the last two years (even so, its shares are currently trading at their spring 1999 levels)

But with few exceptions, it was a brutal year for local tech stocks, with the median result among the companies listed below being a 68% decline. Among the big losers were three of the five largest companies by market cap -- Com Dev, RIM, and Descartes. For the year 2001:

MKS [TSE: MKX] +306%
Open Text [TSE: OTC] +47%
EMJ [TSE: EMJ] +18% [adjusted for dividends]
Turbosonic [OTCBB: TSTA] +12%
Dalsa [TSE: DSA] +5%
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---TSE 300 -14%
ATS [TSE: ATA] -15%
---NASDAQ COMPOSITE -21%
Virtek [TSE: VRK] -58%
RDM [CDNX: RC] -58%
Descartes [TSE: DSG] -67%
RIM [TSE: RIM] -69%
Navtech [OTCBB: NAVH] -69%
GUARD [CDNX: GUA] -69%
Finline [CDNX: FIN] -77%
Com Dev [TSE: CDV] -80%
CME Telemetrix [CDNX: YME] -83%
RecycleNet [OTC: GARM] -89%
Urbana.ca [OTCBB: URBA] -95%
Gensel [CDNX: GSB] -98%

In 2000, nearly all Waterloo tech companies (other than MKS) outperformed the Nasdaq composite, but that was flipped around this year with most local firms badly underperforming both the Nasdaq and TSE indices.

Among companies with headquarters outside the area, only Network Associates -- which, like MKS, was left for dead a year ago -- was able to post a gain in 2001:

Network Associates [Nasdaq: NETA] +517%
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Sybase [NYSE: SY] -20%
CheckFree [Nasdaq: CKFR] -58%
Siebel [Nasdaq: SEBL] -59%
CVF Technologies [Amex: CNV] -72%
CacheFlow [Nasdaq: CFLO] -84%
MDR Switchview [CDNX: MSW] -85%
Cyberplex [TSE: CX] -89%
VoiceIQ [CDNX: VIQ] -92%

Cyberplex's 89% drop follows an 80% decline last year, while CacheFlow's 84% fall comes after an 87% drop in 2000.


Com Dev sells wireless assets; closes Moncton plant
December 19, 2001

Assets of Com Dev's wireless business unit, put up for sale four months ago, will be acquired by Mitec Telecom of Pointe-Claire, Quebec. Mitec, a competitor of Com Dev Wireless, had been considered the most likely buyer for the business.

The deal is expected to close around the end of the month. Com Dev will receive about $23 million, split between Mitec shares and cash. The exact breakdown will be provided when the deal closes. Com Dev will receive at least $6 million in cash. The company expects that it will have $10-12 million in expenses relating to the divestiture, leaving net proceeds of about $12 million. There will be a four-month hold on the Mitec shares provided to Com Dev.

Mitec, which now operates as Mitec-Beve, will maintain Com Dev Wireless' operations in China and one of its sites in the U.K., but will not be taking its Moncton facility. Com Dev had told the Moncton Times & Transcript in August that it expected that the only change for employees in Moncton after the sale would be "the name on the outside of the building," but it didn't turn out that way. Mitec will move some of the Moncton production to its facility in Quebec.

Com Dev says it is still looking for a buyer for the Moncton site, but most of the employees have already been laid off. According to the Times & Transcript, the company owes $600,000 to the Province of New Brunswick that had been provided through loans and other financial assistance.

Com Dev Wireless reported sales of $75 million in the year ended October 31, but most of that was from the first half of the fiscal year before the bottom dropped out in the telecom market. Mitec expects the operations it is acquiring from Com Dev will add $40-60 million in revenue in the year ending April 30, 2003.


RIM lowers forecasts again after sluggish quarter
December 20, 2001

For the quarter ended December 1 (Q3 02), RIM a net loss of US$6.3 million (US$0.08/share) on sales of US$70.9 million. Revenue was at the low end of RIM's already-lowered forecast of US$70-75 million. Loss was within the company's forecast of US6-9¢ a share.

Revenue fell 11.5% from the previous quarter but was up 15% from a year ago. BlackBerry sales grew 5.5% sequentially to US$58 million or 82% of total revenue. The company shipped 63,000 units during the quarter and added a net 44,000 new subscribers (60,000 new subscribers minus 16,000 deactivations), bringing the total number of BlackBerry users to 289,000.

Sales of non-BlackBerry handhelds continued to decline, falling 56% from Q2 to around US$8.4 million. RIM shipped 21,000 non-BlackBerry devices in the quarter. OEM and other revenue was US$4.7 million, down 27% from the previous quarter.

Both R&D and selling, marketing & admin expenses climbed sequentially, with combined expenses up 25% from the proforma numbers reported in the previous quarter.

RIM chopped US$10 million off its forecast of sales in the current quarter, lowering guidance to US$65-70 million with a net loss of US13-15¢ a share (US$10-12 million). Three months ago, RIM had forecast sales of US$75-80 million in Q4 with a loss of US8-12¢ a share. For the first quarter of fiscal 2003, RIM is projecting sales of US$75-80 million with losses expected to be US$10-12¢ a share.

At quarter-end, RIM had US$656.3 million in cash and marketable securities, down US$16.6 million over the quarter. The company expects its cash burn will be US$25-30 million a quarter for the next few quarters. In Q3, RIM spent US$5.5 million to repurchase 370,000 shares at an average price of US$14.93. Inventory levels fell another US$9.5 million to US$48.4 million, following a US$27.3 million drop in Q2.

At the beginning of December the company had about 1,840 employees world-wide.

Co-CEO Jim Balsillie said he expects BlackBerry will be available in Germany by March and in France by June.

RIM also announced a multi-year agreement with Nextel that will see RIM develop a BlackBerry device to operate on Nextel's iDEN network. The details of the agreement weren't disclosed, but RIM said that Nextel has committed to purchase over 100,000 units of the BlackBerry handheld.


Virtek cuts salaries as laser system sales drop
December 6, 2001

For the quarter ended October 31 (Q3 02), Virtek reported a net loss of $1.6 million on sales of $7.1 million. Revenue was down 7.5% sequentially and 11% from a year ago. The company said that among its business segments, industrial inspection was the only one to show a year-over-year decline in sales, with prefab construction reporting a small gain, and biotech and aerospace logging 13% and 7% revenue gains, respectively.

CEO Jim Crocker said he expects sales for the fiscal year will be a little above $30 million, a small increase from 2001's $29.9 million. At the beginning of the year, Virtek was targetting sales of $45 million for fiscal 2002.

Biotech sales bounced back from a weak Q2 to $2.4 million -- up 71% sequentially and above the $2.1 million reported in Q1. Virtek says it shipped 6 of its new CAPS colony picking and arraying systems (for a total of $856,000; up from 3 units in Q2) and 19 ChipReader and ChipWriter instruments (up from 16 units in Q2 but below the 24 units shipped in Q1).

CAPS production was moved from Toronto to Waterloo in November and several employees were laid off. Virtek says it cut 10% of its workforce, following the 15% reduction announced in the previous quarter. Salaries for many of the remaining employees were reduced, with senior managers taking a minimum 10% pay cut.

Laser system sales fell 25% sequentially to $4.8 million (two-thirds of total revenue) with a net loss of $408,000.

The company used $2.1 million in cash over the quarter and received a $1.9 million loan (one of the company's laser systems customers prepaid for the purchase of several prefab construction systems through a loan to Virtek in return for a discount on the system cost). There was $2.3 million in cash remaining at the end of the quarter, but Crocker told the one analyst who participated in the company's conference call that Virtek was not in danger of running out of cash. There was $9.6 million in receivables on the balance sheet (DSO=122, up from 107 in Q2). Virtek says it is providing extended payment terms to customers as part of its marketing strategy.

Crocker says he expects that the current quarter will be the biggest yet for biotech. That would that unit's sales for the year to around $8.4 million -- below the $12 million originally targetted, but much better than how things appeared to be going three months ago.

The company still plans to make biotech a separate business and bring in additional investment to fund its growth. Currently, Virtek can only afford a three-person salesforce for its biotech products and Crocker says it is missing opportunities because its sales team is too small.


RDM hits record revenue as digital imaging sales take off
January 3, 2002

The details of RDM's fourth quarter (ended September 30) have been filed with SEDAR -- and now that the numbers are in it's even more perplexing that the company chose to issue such a lame news release for the results in October.

Here's a company that's been struggling to create a new market in digital imaging -- particularly for point-of-sale applications -- and in Q4 the company achieved an impressive 321% sequential revenue growth in that segment. Digital imaging sales for the quarter were $1.9 million -- nearly equal to sales over the previous three quarters combined. In Q4, digital imaging provided 68% of the company's total revenue, up from 41% in the previous quarter. You'd think that all of this would have been clearly drawn out in the company's news release, but none of it was even mentioned.

Operational loss for the digital imaging segment was down to $223,000 in the quarter, compared to a loss of $960,000 in Q3.

The company's traditional business segment, cheque quality, also had a good quarter, reporting a 40% sequential gain in revenue to $884,000 with an operational profit of $582,000.

Combined, RDM achieved total revenue of $2.8 million in Q4, bringing sales for fiscal year 2001 to $6.8 million -- up 34% from the previous year. With a shift to newer lower-margin digital imaging products, gross profits for the year declined 16% but the company showed a big improvement in the final quarter, growing gross margin to 53% compared to 37% in Q4 and 39% for the full year.

Its net loss for the year under GAAP was $306,000, but this includes a gain from the dilution of RDM's holdings in Xign. The company says that if gains and expenses relating to Xign are eliminated, its net loss in 2001 was $2.0 million.

At year-end, RDM had $12.5 million in cash and short-term investments, but about half of that (US$4 million) has since been used to buy shares in Xign. The company used $7.1 million in cash over the year.

Of the 1.45 million options that were outstanding at year-end, 84% are currently underwater and some have exercise prices as high as $4. RDM shares closed December at $1.27 -- their highest monthly closing price since February. RDM shares have gone up in four out of the last five months, with September being the exception.

The company's information circular shows that former CEO Mike Carr is being paid the equivalent of his base salary of $225,000 until the end of May. He resigned in May 2001.

Doug Newman, who went from CFO to COO to CEO over the year (he became CEO three days before year-end), was paid $158,333, up from $99,500 the previous year. The circular shows that RDM's next highest-paid officer, business development VP Ray Newal -- hired in October 2000 -- left the company after just six months. He had 100,000 options priced at $4.25, which is a level RDM shares haven't seen since around the time Newal was hired.

The company's largest shareholder is now chairman Bob Nally, with 1.9 million shares or 10.6%. A year ago, RDM's largest shareholder was CVF Technologies, of which Nally is a principal.


Open Text makes take-over bid for the former JetForm
December 17, 2001

It was 1998 all over again, as Open Text once again made an hostile take-over bid for a well-known Canadian software company. This time around, the target is Ottawa's Accelio -- known until September as JetForm.

Open Text offered a cash deal of $2.75 a share, which would work out to a total purchase price of $68.5 million for all of Accelio's 24.9 million shares outstanding (as of October 31). At the time the offer was made, Accelio stock was trading at $2.15. It closed Friday at $3.07 a share.

Not surprisingly, Accelio's CEO immediately attacked Open Text's offer, calling it "totally insulting." In the quarter ended October 31, Accelio reported a loss of $13.7 million on revenue of $20.9 million -- down 22% from a year ago. In response, the company chopped 25 jobs in Ottawa and cut back all employees' salaries. As of October 31, Accelio had $29.6 million in cash, partly offset by a $10 million short-term loan. Open Text's circular estimates that Accelio's directors and senior officers own less than 5% of the outstanding shares in the company.

Open Text already controls 3.7% of the outstanding shares of Accelio. It began buying shares through subsidiary companies in March and continued to make purchases through the rest of the year. It says it has received commitments to tender from holders of an additional 14.1%.

According to Open Text, it had discussions two years ago with the then-JetForm about a possible merger. Accelio likes to change names with the decades -- it was known as Indigo Software in the 1980s, JetForm in the 1990s, and now Accelio.

Three years ago to the month, Open Text made an unsolicited bid for PC Docs that launched a soap opera that dragged on for months, with PC Docs responding that Open Text was only making the bid because it was worried about the viability of its own products. In May 1999, PC Docs was acquired by Hummingbird. Shares of both Open Text and Hummingbird are currently trading at about the same levels they were at when the battle over PC Docs was taking place three years ago.


STOCK REPORT: Big caps all post gains to end year
December 2001

The rebound continued in December. Other than Virtek, which was essentially flat for the month, all of the decliners were micro-cap stocks (as were the two biggest gainers), and all of the companies with a value of $100 million or more ended the year with a positive month.

That list now includes both MKS and Dalsa, which crossed back over the $100 million mark in the last few weeks (just barely, by my math).

For the month of December:

GUARD [CDNX: GUA] +79%
Finline [CDNX: FIN] +64%
MKS [TSE: MKX] +30%
RDM [CDNX: RC] +30%
Descartes [TSE: DSG] +17%
Dalsa [TSE: DSA] +17%
Com Dev [TSE: CDV] +13%
RIM [TSE: RIM] +9%
Open Text [TSE: OTC] +6%
=================================
Virtek [TSE: VRK] -2%
Turbosonic [OTCBB: TSTA] -9%
CME Telemetrix [CDNX: YME] -9%
Navtech [OTCBB: NAVH] -16%
RecycleNet [OTC: GARM] -20%
Urbana.ca [OTCBB: URBA] -33%

Finline announced that it won't be acquiring U.S. OTCBB company Tekron after all. Both parties claimed to be the one that killed the deal. A letter of intent was announced in July and two month later Finline said it had signed a "definitive agreement" to close a reverse takeover with Tekron. Finline shares hit an all-time low of 10 cents on December 14, but miraculously, on the very next trading day, the company announced it had developed a "breakthrough" technology for videophone and video conferencing applications. Finline's shares have since quadrupled in price to 40 cents.

Companies with headquarters outside the area also put up good numbers in December:

CacheFlow [Nasdaq: CFLO] +51%
Cyberplex [TSE: CX] +34%
Siebel [Nasdaq: SEBL] +25%
Network Assoc [Nasdaq: NETA] +13%
VoiceIQ [CDNX: VIQ] +10%
Sybase [NYSE: SY] +9%
CVF Technologies [Amex: CNV] +8%
CheckFree [Nasdaq: CKFR] +6%
=================================
Engineering.com [CDNX: EGN] -6%
MDR Switchview [CDNX: MSW] -39%


Miscellaneous Tidbits