August 1999

Compiled and written by
Gary Will

Issue 30 -- September 13, 1999
In this digest:

  1. "Father of computing at Waterloo" Wes Graham dies
  2. STOCK REPORT: Another black August ... except for RIM
  3. Com Dev lays off 200 following disappointing quarter
  4. Open Text revenues double in FY 1999 with record profits
  5. Open Text acquires another small Ottawa company

  6. Open Text invests in Internet chat company
  7. Descartes rebounds from weak quarter with e-biz focus
  8. We're an e-business leader, MKS says
  9. RIM signs US$10 million deal with U.S. ISP
  10. TheStreet.com reports Dell wants OEM deal with RIM

  11. RIM accused of patent infringement by California company
  12. Imaging revenues a bright spot in Virtek's quarter
  13. Virtek acquires aerospace templating business from GSI Lumonics
  14. Division sale creates windfall for CME Telemetrix
  15. CME Telemetrix finds partner for glucose monitor development

  16. RDM receives US$2 million order for cheque imaging system
  17. RDM quarter shows expansion of sales & marketing efforts
  18. GUARD decreases cash burn while search for financing continues
  19. Finline revenues nearly non-existent; hints at acquisition
  20. Electrohome focuses on visualization systems

  21. Tidbits from Maple, LivePage, Open Text


"Father of computing at Waterloo" Wes Graham dies
August 22, 1999

Wes Graham, called the "father of computing at Waterloo" and described as the person who did more than any other individual to establish the University of Waterloo as a computer science powerhouse, passed away in August at age 67.

Graham joined UW 40 years ago, leaving IBM in Toronto where he was manager of the company's applied science division. He was a graduate of the University of Toronto, where he had met Ralph Stanton, then a U of T professor who moved to Waterloo in 1956 and established UW's mathematics department. Stanton convinced Graham to give up his job at IBM to come to UW as a mathematics professor.

Along with his teaching duties, Graham was put on UW's computer committee, which in February 1960 recommended to the president of the university that they lease a digital computer -- the IBM 1620. While waiting for delivery, Graham arranged for an IBM 610 to be installed, and it became the university's first computer.

Graham was director of UW's Computing Centre from 1962 to 1973, when he became director of the Computer Systems Group. He also held the title of dean of computing from 1983 to 1988 -- a position created for him that no one had held since the end of his term.

Watcom was spun off from the Computer Systems Group in 1981, with Graham as its chairman and CEO. He was said to have owned 10% of the company when it was acquired by Powersoft for $58 million in 1994, making Graham a multi-millionaire.

Graham was co-founder of LivePage and was CEO of the company until a year ago. He continued as chairman until his death.

Graham was named an officer of the Order of Canada this year, and just three days before his death was presented the honour by Ontario Lt. Governor Hilary Weston at a private ceremony in his home.


STOCK REPORT: Another black August ... except for RIM
August 1999

It wasn't as broad-based or well-publicized as last year's August market collapse, but local tech companies had a very rough month with a few setting record lows.

The exception, of course, was RIM, which gained another 25% to close the month at $44.40. At the end of August, RIM shares had rocketed in value by 333% so far in 1999. As of last Friday, they were already up 22% so far in September. In fact, if you bought RIM shares at their low last month, you would have more than doubled your money by the end of last week.

DALSA shares remained steady in August, but every other company saw declines. After their second straight earnings warning, Descartes shares fell more than 40% to set an all-time low before bouncing back to end the month down 23.5% (almost all of which has been regained in early September trading).

Com Dev issued their own warning and saw their shares plunge 49% in August, hitting an all-time low of $3.05 near month-end.

MKS shares also set a record low and ended the month at $3.80, down 20%. Other decliners of note were Open Text, down 11% and now down slightly for the year after a strong spring, and Finline, which dropped to an all-time low of 11.5 cents before making gains in early September.


Com Dev lays off 200 following disappointing quarter
September 8, 1999

Com Dev has slashed 200 jobs -- mostly in Cambridge -- and shut down the California-based wireless systems group they acquired only a year ago. The major restructuring of the business follows a quarter that saw the company lose $5.3 million from continuing operations on revenues of $39.5 million.

Including restructuring-related charges, Com Dev reported a net loss for the quarter ended July 31 (Q3 99) of $59.1 million ($1.84/share).

The company issued a warning on August 12 that revenues for the quarter would only be about $42 million, and even that turned out to be overly optimistic. According to the Globe, analysts had forecast revenues of $46 million.

Space Group revenues were down 17% from the previous quarter to $20.0 million, while revenues for the Wireless Group climbed 13% on a quarter-over-quarter basis and 51% above the same period last year to $19.5 million (those numbers may now include sales from products formerly in the wireless systems group). The company has stopped reporting orders received during the quarter and the current order backlog, which can't be taken as a positive sign.

John Keating, who previously headed the Wireless Group, is now president of the Space Group. His successor as Wireless Group president is Peter Scovell, formerly VP of wireless networks at Nortel.

Com Dev had paid $27.4 million for the wireless systems group -- previously known as 3dbm Inc. Com Dev CEO Keith Ainsworth said in a release that the group "would be unable to meet its objectives for the foreseeable future." Some of its product lines will be shifted to the Wireless Group while others will be discontinued.

In their earnings warning, Com Dev said they were planning a rights offering which would raise up to $30 million, but apparently they changed those plans almost immediately. The latest release says there will be a financing of unspecified size and type in the current quarter. The balance sheet shows the company went through $1.5 million in cash over Q3 and now has just $171,000. Bank indebtedness increased by $2.9 million over the quarter.


Open Text revenues double in FY 1999 with record profits
August 11, 1999

For fiscal year 1999, ended June 30, Open Text reports revenues of US$92.5 million and net income of US$20.2 million (US$0.85/share). Revenues were up 104% from 1998. Net income from operations was US$8.8 million, with the balance coming from interest and a tax adjustment in the fourth quarter.

In the last quarter, excluding the tax recovery and acquisition-related charges, Open Text earned US$6.3 million (US$0.24/share) on revenues of US$29.4 million. Revenues were up 83% from the same period last year and 17% from the previous quarter.

Sales and marketing expenses showed a jump of 26% from the previous quarter to US$11.1 million.

The balance sheet shows working capital of US$199.4 million with US$186.2 million in cash and securities and unrealized gains in About.com, Deja.com, and other Internet investments.

"The highlight of our year was the launch of another major product line -- MyLivelink -- our innovative corporate portal strategy," said CEO Tom Jenkins in a release.

Open Text, which earlier this year was accused of some overly-aggressive acquisition-related write-offs, has restated their results for 1998. Instead of a loss of US$23.5 million on sales of US$45.3 million, the company now reports a loss of just US$6.3 million.


Open Text acquires another small Ottawa company
August 26, 1999

Open Text has acquired PSSoftware Solutions Ltd. of Ottawa in a $5 million cash and stock deal. PSSoftware is a records management company founded in the mid-1980s. It has 35 employees and last year had sales of about $2.1 million.

Open Text will create a records management division to be headed by PSSoftware CEO David Gibbard.

The deal follows Open Text's acquisition of Ottawa's Microstar Software, announced last month. On September 3, Open Text announced that they had successfully acquired 88.6% of Microstar's shares and were extending their offer to try and push that number up past 90%.


Open Text invests in Internet chat company
August 18, 1999

Open Text also announced this month that they have taken about a 15% stake in Communities.com and has been given a perpetual license to use the California company's avatar-based chat technology. The technology will be added to Livelink's messaging capabilities. Financial terms were not disclosed.

Tom Jenkins will become a director of Communities.com, which was known as Electric Communities until June. The company's CEO is Larry Samuels, formerly COO of Creative Labs.

In other Open Text news this month, the $170 million lawsuit against the company filed by Sweden's NetSys Technology Group (discussed in July's Digest) was dismissed on August 3. NetSys was ordered to pay Open Text's costs.


Descartes rebounds from weak quarter with e-biz focus
September 8, 1999

The month started poorly for Descartes, who issued their second consecutive quarterly earnings warning on August 6. When the final numbers for the quarter (Q2 00) came out at the end of the month, they showed a net loss of US$6.5 million (US$0.18/share) on revenues of US$9.8 million.

Revenues were down 13% from both the same period last year and the previous quarter. The main cause of the shortfall was the near elimination of hardware revenues, down more than 80% from both the previous quarter and year to only US$342,000.

Software licensing revenue was up slightly from the previous quarter, but still down 28% from the same period last year. Services revenues were flat from the previous quarter and up 45% from last year.

Services now contribute most of the company's revenues. Gross margin on services was only 4%, up from 1% in the previous quarter.

Descartes still had US$11.7 million in cash and another US$8.4 million in short-term investments at quarter-end.

"We have experienced a significant decline in revenues from the enterprise applications market, which had been an important driver of our revenue growth until this year," said CEO Peter Schwartz. "We believe this revenue decline represents a decisive market shift."

With the enterprise application market dried up, Descartes shifted its focus to the e-business initiatives they launched last year as Energy DeliveryNet.com. The company redesigned its Web site, got rid of the Energy brand name and launched four new industry-specific "DeliveryNets" -- customer fulfillment networks -- for consumer packaged goods, field service management, home delivery, and third-party logistics. DeliveryNets for other industries can be built using Descartes' e-Frame architecture (formerly DeliveryNet.com).

With the announcement, Descartes held a news conference in Boston with various e-business customers and partners -- including RIM, whose Inter@ctive pager will be offered by Descartes as part of their DeliveryNet service.

By creating a buzz around their e-business initiatives, Descartes was able to regain the confidence of investors, who pushed the company's shares back over the $6.50 level after they had plummeted to $3.50 following the earnings warning.

Of course, the momentum will all be wiped out if the company doesn't show revenue growth soon, but Schwartz told analysts that their e-business revenues had jumped to 60% of sales in Q2, up from 25% in Q1. "And a significant percentage of this revenue is predictable," said Schwartz, who has pushed Descartes into the application service provider (ASP) space where a significant amount of revenues will be generated on an ongoing per-transaction basis rather than upfront software licensing fees.


We're an e-business leader, MKS says
September 8, 1999

Descartes wasn't the only Waterloo tech company trying to get a rub from "e-business" this month. MKS began attaching an e-business story to itself earlier this year and now calls itself "the leader in e-business management solutions."

That tag may have left many people scratching their heads -- particularly those who remember the company's "interoperability" push last year -- but CEO Randall Howard explained the e-business connection at MKS's annual meeting this month.

Companies who want to implement an e-business strategy have to do develop content for their Web site (Web object management), they have to develop e-business applications (software configuration management) and also have to get disparate back-end systems to work together (interoperability) -- and MKS has the tools to manage those three processes.

At the AGM, every effort was made to connect the company to e-business, including using retailers like Borders and Wal-Mart as reference customers and mentioning that they've installed a Siebel CRM system. Howard used the word "e-business" about two dozen times in his presentations (compare that to the just-released annual report, where the word appears only three times).

Howard said that MKS helps customers "cross the eBusiness integration chasm" between Web publishing and becoming an e-business.

For the quarter ended July 31 (Q1 00), MKS lost US$1.1 million (US$0.07/share) on revenues of US$8.2 million. Most of the losses were from acquisition-related charges.

Revenues were up only 8.5% from the same period last year and were a 13% improvement over the company's very disappointing previous quarter. The balance sheet shows working capital of US$3.0 million with US$9.4 million in cash.

New to MKS's board of directors this year is Geoff Mott, the managing partner of The McKenna Group -- Regis McKenna's IT consulting firm.


RIM signs US$10 million deal with U.S. ISP
August 18, 1999

RCN Corp., a U.S. Internet service provider with more than 500,000 subscribers, will offer RIM's BlackBerry service to its customers. The initial order has a value of more than US$10 million over the next 12 to 16 months.

RCN is probably best known as the company that acquired Erols Internet of Washington, DC last year. They become the first ISP to offer the BlackBerry service.

RIM also announced this month that they have received a $1.8 million contract from Telcel Cellular of Venezuela who will re-sell a Spanish-language version of the RIM Inter@ctive Pager 950 for the Venezuelan Mobitex network.


TheStreet.com reports Dell wants OEM deal with RIM
August 16, 1999

Scott Moritz of TheStreet.com reported this month that Dell Computer Corp. has approached RIM about selling RIM two-way pagers under the Dell brand name.

The article says that RIM marketing VP Dave Werezak confirmed that talks have taken place but that there's so far nothing to announce.


RIM accused of patent infringement by California company
August 25, 1999

The Wireless Access Group of Glenayre Technologies, based in Santa Clara, California, has filed suit against RIM in U.S. District Court in San Francisco. The company claims RIM's pagers violate one of their patents and seeks unspecified monetary damages. The complaint was filed July 14.

Glenayre is a once-promising Canadian technology company that is neither Canadian nor promising anymore. They began operations in Vancouver in 1963 but left the country ten years ago. They're now based in North Carolina. Glenayre acquired Wireless Access Inc. of Santa Clara in 1997 which became their Wireless Access Group. The company sells two-way pagers for Motorola's ReFLEX protocol.

The patent in question -- "Apparatus for generating power for use in a communications device" -- was granted to Wireless Access Inc. in 1997.

RIM says Glenayre offered them a license for the disputed technology for a one-time fee of US$4 million (RIM's most recent balance sheet showed C$90 million in cash), but they intend to launch a defence against the charges.


Imaging revenues a bright spot in Virtek's quarter
September 2, 1999

For the quarter ended July 31 (Q2 00), Virtek reports a net loss of $342,000 ($0.02/share) on revenues of $3.0 million. Revenues slipped 12% from the previous quarter, and while they were up 14.5% from the same period last year, a move to new product lines with initially lower margins kept gross profits flat. Through the first half of the fiscal year, revenues are still up 33% from FY99.

Last quarter, it was Virtek's templating business showing strength with 62% annual growth, but it was a different story this time. Templating -- which provides nearly three-quarters of Virtek's revenues -- showed only slight annual growth and a 19% decline in sales from the previous quarter.

To meet their growth targets, the company is now focusing on its imaging business. Following the rollout of the new LaserQC product, Virtek's imaging revenues grew 79% over the same period last year (the news release said 44% which seems to have been erroneous) and 16% above sales in the previous quarter.

Adding to expenses in the quarter was a ramping up of sales & marketing, which jumped nearly 30% from the previous quarter to over a million dollars. R&D spending continued to decline as development of the new ChipReader product neared completion. The company had originally expected revenues from ChipReader in Q2. The bottom line was also affected by costs of about $100,000 associated with getting a TSE listing.

The balance sheet shows net working capital of $3.4 million with $544,000 in cash. Although cash levels are down from $920,000 at the beginning of the quarter, Virtek's operations were cash flow positive, providing $221,000. During the quarter, $300,000 in capital assets were added to the balance sheet.


Virtek acquires aerospace templating business from GSI Lumonics
August 26, 1999

After the close of Q2, Virtek announced they have signed a letter of intent to acquire the aerospace ply lay-up templating business of GSI Lumonics. Virtek will pay $4.0 million for the operating assets and an exclusive technology license. They will also pay a 10% royalty of sales of ply lay-up templating products to the aerospace industry over the next three years.

GSI Lumonics -- formed earlier this year by a merger of General Scanning Inc. of Massachusetts and Kanata's Lumonics Inc. -- has agreed not to compete in the ply lay-up business for six years. Virtek described the company as their primary competitor in the aerospace templating market.


Division sale creates windfall for CME Telemetrix
August 31, 1999

For the quarter ended June 30 (Q2 99), CME Telemetrix reports net income of $1.9 million ($0.26/share) on revenues of $101,000. The profits were generated by the sale of the company's Advantage Medical division during the quarter, which provided $2.6 million. Looking only at continuing operations, the company lost $626,000 ($0.09/share).

Sales of CME's Food Quantifier 100 product accounted for $65,000 in revenues. The company says they expect an "acceleration in unit sales" of the product over the rest of the year while development continues on their non-invasive glucose monitor.

The balance sheet shows $1.2 million in cash at the end of the quarter, with continuing operations using up $676,000 over the three month period.

CME will receive an additional $1.15 million from the sale of Advantage Medical in April 2001.


CME Telemetrix finds partner for glucose monitor development
September 10, 1999

After a lengthy search for a development partner for the non-invasive glucose monitor (GlucoNIR), CME Telemetrix has signed a letter of intent with the Photonics Center at Boston University.

CEO Duncan MacIntyre said finding a partner had been his primary focus and he had held discussions with ten organizations before signing the deal with BU. The university will provide space, equipment, and personnel in exchange for royalties on the monitor and other related products as they are commercialized.

CME will continue to seek additional partners.

The company also announced they have abandoned efforts to receive approval from the U.S. FDA for use of the GlucoNIR instrument as a supplement to traditional testing methods. Although CME had called getting this approval a "key objective" for the last six months, they now say it would have been of little value. "Any intermediary step would only delay our development plans and consume additional capital," said MacIntyre in a release.

Along with this announcement, CME says that company founder Ted Cadell is being replaced as chief scientific officer by Tom Scecina. Cadell will continue as a director and in a scientific advisory role. Scecina has worked with CME as a consultant for the last three years.


RDM receives US$2 million order for cheque imaging system
August 12, 1999

Fidelity Express Money Order Company of Sulphur Springs, Texas will pay about US$2 million for RDM's EC5000i cheque scanners and related software and services.

The scanning system captures information from cheques at the point of sale -- a retail store, for example -- enabling the payment to be processed electronically while the paper cheque is returned to the customer. The deal is the first major sale for the new RDM product.


RDM quarter shows expansion of sales & marketing efforts
August 5, 1999

For the quarter ended June 30 (Q3 99), RDM reports a net loss of $290,000 ($0.03/share) on revenues of $1.1 million. Some revenues from sales of the EC5000i were realized this quarter. Sales were up 59% from the same period last year, but off the previous quarter's revenues by 19%.

With the launch of the new cheque imaging system, spending on sales and marketing jumped by 26% from the previous quarter.


GUARD decreases cash burn while search for financing continues
August 1999

For the quarter ended June 30 (Q2 99), GUARD reports a loss of $1.3 million ($0.37/share) on interest revenues of $37,332. The company is now going through cash at a rate of $389,000/month, down from $473,000/month in the previous quarter. The balance sheet shows $2.6 million in cash remaining and net working capital of $1.8 million.

Accumulated deficit now stands at $10.1 million.

The search for financing for the company's Nanodesign subsidiary continues, and they are also looking for funding for two other projects.


Finline revenues nearly non-existent; hints at acquisition
August 30, 1999

For the quarter ended June 30 (Q2 99), Finline reports a loss of $85,000 on revenues of only $23,000.

The cash flow report shows the company received $320,565 from their share sale to Kuper-Hughs during the quarter. Some of that money went to repay shareholder loans that were listed as long-term liabilities on the balance sheet, although the bulk seemed to go towards accounts payable. The company still has no cash and negative working capital.

"I am pleased to report that our initial contracts in Brazil, albeit delayed, are coming to fruition," said CEO Einar Fiskvatn in a subsequent release.

He also said that the company is "reviewing an acquisition opportunity which would not only put Finline in a world leading position in terms of transmission capacity and speed within the MMDS spectrum, but could also provide a solution to the world wide Internet bandwidth problem."

It will be interesting to see how they pull that off with no cash and a penny stock.


Electrohome focuses on visualization systems
August 1999

Electrohome has sold off their projection systems business to Christie Inc. of California. The value of the deal was $38 million, of which Electrohome will use $25 million to pay off debts.

The company will now focus on its visualization business which consists of majority stakes in Robotel Electronique of Montreal, Fakespace Systems of Kitchener, and Pyramid Systems of Michigan, as well as a minority position in Immersion Studios Inc. of Toronto. Combined revenues in FY 2000 are expected to be more than $20 million.

Electrohome also announced this month that Pyramid Systems has merged with Fakespace Systems. The latter company was created when Fakespace Inc. of Mountain View, California was split into two companies: Fakespace Systems and Fakespace Labs. Electrohome had paid $7 million for 64% ownership of Fakespace Systems before the merger.

Fakespace Systems is now led by CEO Dan Wright, president of Electrohome's visualization group. The former presidents of Fakespace and Pyramid will continue in senior management positions with Fakespace Systems. Electrohome calls the merged company "an industry powerhouse."


Miscellaneous Tidbits