February 2003

Compiled and written by
Gary Will

Issue 72 -- March 3, 2003
In this digest:

  1. Dalsa hits five-year goal, cleans up balance sheet
  2. RSS Solutions raises $1.6M
  3. MKS achieves first quarterly profit in three years
  4. RDM blames weak quarter on delayed imaging sales

  5. Open Text acquires Boston-based portal firm
  6. Com Dev cuts costs to match soft top line
  7. STOCK REPORT: MKS passes Com Dev in market value
  8. Miscellaneous tidbits from Descartes, Equitrac, Onlinetel, Reqwireless, SlipStream, Spicer, RIM, iAnywhere


Dalsa hits five-year goal, cleans up balance sheet
February 6, 2003

Five years ago, Dalsa said its vision was to grow to be a $100 million business by 2002 -- a target it reiterated two years later. Its path may not quite have been what was envisioned in 1998, but Dalsa achieved its hundred-million milestone with revenue of $112.6 million in 2002. Thanks to two significant acquisitions, that was double the sales the company reported in 2001, although below the range of $114-126 million Dalsa had forecast in March. Net income for the year was $11.5 million.

For the final quarter of the year, Dalsa reported a profit of $3.4 million ($0.21/share) on sales of $34.2 million. Revenue was up 8% from the previous quarter but below the company's forecasts. Dalsa said product sales in its semiconductor business were below expectations. Margins improved notably, leading to a 15% sequential increase in gross profits.

Expenses were also up, with R&D spending jumping 54% from Q3 to $6.7 million or 20% of sales.

During the quarter, Dalsa raised a net $23.6 million through a stock offering and the conversion of warrants and options. It used the cash to reduce its long-term debt by $19.0 million to just $2.0 million. It also paid off $2.0 million in bank indebtedness. An additional $7.1 million in cash was used to acquire the remaining portion of its Quebec-based foundry from Zarlink Semiconductor. It also used $11.4 million on property and equipment, most of which was to upgrade the foundry. Operations provided $10.5 million in Q4 and Dalsa ended the quarter with $4.3 million in cash and almost no debt.

Dalsa now has 700 employees worldwide, with just over a third of them based in Waterloo.

Its new goal is to have $250 million in sales by 2005. Dalsa is forecasting sales of $155 million in 2003 -- a 38% increase -- with net income of $17.3 million.


RSS Solutions raises $1.6M
February 3, 2003

RSS Solutions closed its first round of venture capital funding, raising $1.6 million from Toronto's EdgeStone Capital Partners. RSS develops workflow planning and scheduling software for manufacturing companies.

RSS was spun off in 2000 from Northern Computer Systems of Parry Sound, which opened a Waterloo development office in November 1999. RSS president Michael Cox is part of the family that founded Northern Computer, which developed software for manufacturing companies. I believe that RSS -- Resource Scheduling System -- was originally a product line within Northern.

RSS CFO Rob Lamka was previously with Virtek. Jim Crocker, Virtek's former CEO, was seen wearing an RSS nametag at an event in January. RSS currently has 10 employees.

EdgeStone has provided funding to two Waterloo companies in the last year. Last May, it announced that it had made a $1.5 million investment in SlipStream Data.


MKS achieves first quarterly profit in three years
February 26, 2003

MKS earned US$365,000 (US$0.01/share) on sales of US$8.5 million in the quarter ended January 31 (Q3 03). It was the company's first quarterly profit since the final quarter of fiscal 2000.

Sales continued to climb, logging a 13% sequential increase, which follows a 16% quarter-over-quarter jump in Q2. Total revenue was up 20% from the same period a year ago. Both of MKS' operating units -- software configuration management and interoperability -- reported increased sales. The SCM unit is not yet profitable, but achieved break-even cashflow in the quarter.

MKS reported that it closed 26 deals over US$50,000 in the quarter, up from 18 in Q2. Expenses were down 3% from the previous quarter. Operations contributed US$2.1 million in cash and MKS ended Q3 with cash of US$6.2 million.

The company reaffirmed its annual revenue target of US$31-33 million, which will require sales of US$8.5-10.5 million in Q4.

MKS' largest competitor, Rational Software, was acquired by IBM during the quarter (following Borland's acquisition of another competitor, Starbase), and MKS CEO Phil Deck says the company continues to be able to compete against Rational and hopes to lure away some customers that don't want to be paying money to IBM.


RDM blames weak quarter on delayed imaging sales
February 17, 2003

RDM had warned investors that its quarter ended December 31 (Q1 03) was going to be weaker than the previous quarter, but I doubt that anyone was prepared for the magnitude of the drop. Sales in Q1 fell 55% quarter-over-quarter and 20% from a year ago to $1.7 million. Net loss for the period was $496,000 -- 50% above RDM's forecast at the beginning of the quarter.

The sequential decline came entirely from RDM's digital imaging and electronic payments segments, which saw their sales drop 72% from Q4. Revenue from the company's traditional cheque quality assurance segment actually increased 18% from Q4 to $785,000. It generated a profit of $325,000.

The shortfall was attributed to an unnamed "large customer" delaying the delivery of a "significant first quarter order" until later in the year. In its conference call, RDM said there had been a few delays requested by customers.

At the beginning of the quarter, RDM had forecast "another year of double-digit revenue growth" in 2003, and at its AGM in January it had talked of sales of $14-20 million for the year, but the company now says that its annual sales "may not significantly exceed" the $13.1 million it achieved in 2002 and that profitability for the year "may be difficult to achieve." Higher revenues will only be possible if electronic cheque conversion catches fire in the U.S.

RDM ended Q1 with $5.9 million in cash and investments, down only $146,000 over the quarter.

The company says it has accelerated R&D spending and will be releasing new products in the last half of the fiscal year. Its archiving service is now handling 75-80,000 images per week.

RDM also announced that its imagers have been certified by First Data, a huge U.S. payment services firm, and will be offered with First Data's TeleCheck Electronic Check Acceptance service.


Open Text acquires Boston-based portal firm
February 26, 2003

Open Text has acquired Corechange Inc. of Boston for US$4.25 million. Corechange is a developer of portal software that was spun out of Cambridge Technology Partners in 1997.

Corechange's history is similar to that of Eloquent, which Open Text announced it was acquiring last month (see January digest), except that Eloquent was able to close its IPO before the markets collapsed in 2000 and Corechange wasn't. Corechange filed for an IPO in 2000 but withdrew a few months later. In 2001, it closed a US$36 million round of financing, which was its third, and brought the total amount it had raised to US$76 million. One of its earlier investors was Nortel. As recently as last year, Corechange was making those "fastest growing company" lists based on 5-year revenue growth, but its sales had been in decline for the last two years.

All of the proceeds from the sale to Open Text will go to Corechange's third-round investors. Open Text is temporarily holding back US$650,000 of the payment to protect itself against any surprises, but may pay more than US$4.25 million if Corechange meets certain undisclosed revenue targets over the next year.

Corechange had 75 employees, and 35 of them are expected to join Open Text, which will open an office in Boston. Corechange's main product, Coreport, will be integrated with Open Text's Livelink.


Com Dev cuts costs to match soft top line
February 20, 2003

Com Dev lost $270,000 ($0.01/share) on sales of $22.2 million in the quarter ended January 31 (Q1 03). Its space business operations earned a profit of $344,000. All the losses came from interest charges on convertible debentures and from discontinued operations.

Sales were down 12% from the previous quarter and 13% from the same period last year. A significant decline in margins led to a drop in gross profits -- down 32% sequentially and 23% from a year ago. Expenses were also slashed by 32% from Q4 as Com Dev put most of its employees on a reduced work week.

The company used $8.3 million in cash, bringing its cash position down to $3.0 million. Much of the cash was spent on inventory for a specific project that Com Dev says will be converted to customer billings in the current quarter. The $3.0 million excludes $2.1 million held in escrow that Com Dev expected to receive during the quarter from the sale of its wireless business to Mitec last year. Mitec is challenging Com Dev's right to that money (see previous digest). Com Dev expects cash to decline over the next two quarters but says it will manage its cash tightly and expects to maintain a positive cash balance.

Com Dev booked $23.3 million in new orders in the quarter, up sharply from a minuscule $8.5 million in Q4.

At quarter-end, Com Dev had 653 employees, including 556 in Cambridge, which is down 20 from the previous quarter.


STOCK REPORT: MKS passes Com Dev in market value
February 2003

Com Dev stock fell to a new all-time low of $0.79 on February 24 and finished February at 86 cents -- its lowest monthly close ever. MKS shares, on the other hand, had their highest monthly close since May and are up 51% over the last three months. MKS' market capitalization (based on number of outstanding shares) passed that of Com Dev during the month.

For the month of February:

Navtech [OTCBB: NAVH] +80%
CME Telemetrix [TSXV: YME] +33%
MKS [TSX: MKX] +19%
Open Text [TSX: OTC] +2%
Descartes [TSX: DSG] +1%
Finline [TSXV: FIN] 0%
Turbosonic [OTCBB: TSTA] 0%
===============================
--S&P TSX COMPOSITE -0.2%
RIM [TSX: RIM] -3%
EMJ [TSX: EMJ] -7%
Dalsa [TSX: DSA] -8%
Virtek [TSX: VRK] -9%
Com Dev [TSX: CDV] -12%
RDM [TSX: RC] -12%
Texada [TSXV: TXS]

Navtech's large bid/ask spread accounted for what looks like a huge swing in its stock price over the month. It ended February with a bid/ask of .35/.54 which is almost unchanged from the end of January.

Other than announcing a new director, CME Telemetrix hasn't reported any news in over three months, but its stock is up 140% since the end of November. The shares still trade well below a dollar, and have consistently been in the pennies for the last year. Their February close was their highest since July.

Dalsa stock has now declined for three months in a row. The company is back running neck-and-neck with Descartes in overall market capitalization, with each company valued at around a quarter-billion dollars.

Companies with headquarters outside the area:

Engineering.com [TSXV: EGN] +33%
Knexa [TSXV: KNX] +13%
CheckFree [Nasdaq: CKFR] +9%
Adobe [Nasdaq: ADBE] +4%
Siebel [Nasdaq: SEBL] +3%
Sybase [NYSE: SY] +2%
Bio-Rad [Amex: BIO] +2%
=================================
LSI Logic [NYSE: LSI] -1%
Network Assoc [NYSE: NET] -3%
Senesco [Amex: SNT] -4%
Blue Coat [Nasdaq: BCSI] -6%
Agfa-Gevaert [Brussels: AGFA] -9%
CVF Technologies [Amex: CNV] -12%
Eiger Technology [TSX: AXA] -16%
Betacom [TSXV: YCA] -22%


Miscellaneous Tidbits