November 17, 2003
Off Again
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Jeff Rowe - Managing Editor

by Jeff Rowe - Contributing Editor
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Off Again

IMSI announced early this week the termination of its bid to acquire virtually all of the assets of CADKEY Corp. through an auction sale. CADKEY instead was acquired by Kubotek Corp. (see below) when IMSI chose not to increase its initial bid of $2,500,000 based on its evaluation of CADKEY's recent performance and the potential for future litigation. As a result of the termination, IMSI will receive a break-up fee of $45,000 and will be reimbursed for $225,000 of professional fees advanced to CADKEY.

"We continue to pursue acquisitions of precision design and business service applications which will be accretive to the company's earnings in the near term," stated Martin Wade, CEO of IMSI. "We believe that the company has the ability to close other transactions which will have greater long term value to IMSI shareholders."

IMSI did, however, acquire a CAD symbol library of 30,000,000 standard parts and the domain name from Assistto International GmbH of Germany. IMSI also acquired over forty domain names that will allow multiple points of entry to engineers and designers looking for CAD symbols, thus further strengthening the IMSI network of CAD related sites.

"The acquisition of the 30 million standard parts library and the domain name are key components in the IMSI online CAD content strategy," said Bob Mayer, Executive Vice President of the Precision Design Division. "This acquisition, in combination with our previous acquisition of and the online parts library recently acquired from Cadalog Inc., make IMSI one of the leaders in online CAD content, with over 37 million symbols available. These acquisitions will enable us to become the number one site on the Internet for subscription based CAD content."

"One of the unique features of is the ability to pre-select the format you want your symbols to be downloaded in -- including AutoCAD, Inventor, AutoCAD Mechanical Desktop, Solid Edge, SolidWorks and IMSI's flagship product TurboCAD," said Mauritz Botha, Director of Precision Design Development.

Although IMSI has been on an acquisition binge of late, the hunger for additional CAD companies seems to have slowed down. Instead the company has shown greater interest in other types of companies peripheral to CAD, such as companies offering CAD symbols, standard parts, and Web-based businesses.

On Again

CADKEY Corp. announced that Kubotek Corp., headquartered in Osaka, Japan, received court approval to acquire the company's assets that include the CADKEY MCAD software product line. The acquisition will be finalized on Tuesday, November 18, 2003. The company also recently founded Kubotek USA Inc. (in Seattle, WA), which will be responsible for managing product development and business activities in the United States, including all of the CADKEY-related operations. Initially, Kubotek will focus on data translation and QA aspects of CADKEY. Kubotek has three divisions -- Creation Engineering, Media and Network Systems, and Inspection Systems. Kubotek first entered into a direct,
strategic business relationship with CADKEY Corporation in 1996 when they invested in the company in exchange for an equity position. CADKEY sales, support, and development will continue to be headquartered in the Boston area.

Robert W. Bean, President and CEO of CADKEY Corporation, said, "Existing and prospective CADKEY customers should know that this acquisition is an incredibly perfect fit that creates a very powerful union. We have enjoyed a very valued and trusting relationship with Kubotek for nearly a decade, even prior to our acquisition of the CADKEY product line. We are both strongly committed to the development of innovative and creative next-generation engineering solutions and to significant, solid growth."

Although Kubotek has appointed a new president for CADKEY, Bob Bean will assume a new role as COO and CTO.

Kubotek's Creation Engineering division develops and markets a suite of CADKEY-based design, machining, and reverse engineering products for the Japanese market. They created the concept of Computer Assisted Creation (CAC) that combines measurement and machining functions with design and modeling. Products from other Kubotek divisions include software and hardware systems for LCD panel and semi-conductor inspection, flexible video network systems for remote video monitoring, and products for factory automation.

As a little background, On August 22, 2003, CADKEY Corp. sought protection under Chapter 11 of the Bankruptcy Code as a result of an adverse litigation judgment in a breach of contract and intellectual property infringement action brought by Harold L. Bowers. The terms of the sale to Kubotek Corp., which have been approved by the Bankruptcy Court, include a settlement of claims by Bowers with respect to Kubotek Corp. and the purchased assets.

The acquisition of CADKEY by Kubotek should bode well for current CADKEY customers because there are now assurances that development of CADKEY products will continue into the future. For its part and place in the MCAD industry, CADKEY has always had a good CAD product that does things differently, and in some cases, better than anything the competition has to offer. CADKEY also has a loyal customer base that will enjoy new CADKEY products and complementary integrated products from Kubotek. According to Bob Bean, the acquisition will afford CADKEY a reinvestment in its intellectual property and infrastructure with money going toward revitalizing product development, marketing, and sales.

MCAD Industry Quarterly Overview Analyzes The Third Quarter 2003

The following is an excerpt from our quarterly review of the MCAD industry compiled and produced by Dr. Russ Henke.

In early August 2003, several scattered signs offered hope for a general economic improvement during the second half of 2003, even for high-tech. For example, the US Commerce Department had reported on August 4 that American Factory Orders for June 2003 had risen 1.7%. Business purchases of equipment & software were up 7.5% in the April-June 2003 quarter, the best showing in several years, according to Moody's Investors Service. During the same second quarter, US GDP growth was estimated at 2.4% annually, nearly double the rates in the previous two quarters (Q2's GDP growth figure was later revised up to an even more robust 3.3%). Good news ahead all around, eh? Not so fast!

Despite the preliminary report of 7.2% US GDP performance in Q3 2003, there is little in the covered MCAD companies' trailing revenue and earnings performance data, little in their recent total market basket stock price performance, and little in their forecasted financial guidance for the rest of 2003 and beyond, to suggest that a major MCAD Industry turnaround (e.g. widespread double-digit revenue growth) is any closer in November 2003 than it appeared in either August 2003 or in May 2003. Of course, a couple specific vendors will likely outpace their rivals as in the last three quarters.

What about jobs? A separate report showed initial claims for unemployment benefits falling by 5,000 to 386,000 just last week, the fourth straight week the number has remained below 400,000. But the same report showed that continuing claims for benefits, which had been declining, jumped by 60,000 to 3.57 million.

US Department of Labor reported that the number of unemployed persons, 9.0 million, was virtually unchanged in September, and the unemployment rate was 6.1 percent, the same as in August. October nudged down to an even 6%. These figures do not include long term unemployed who have stopped actively seeking work and those formerly unemployed who may have taken temporary or lower paying jobs. Some fear that many jobs may be permanently lost by a shift to offshore resources.

During the boom, many high tech companies complained about the lack of available technical resources within the US borders. H1-B visas permitted US employers to hire foreign professionals on temporary assignments of up to six years. In response to pressure from high tech companies the number of allowable H1-B visas rose from 65,000 to 195,000. With the recession the number of H1-B visas issued to workers in the technology industry in the United States dropped nearly 75 per cent from 2001 to 2002, according to a new Department of Homeland Security report. The US is now about to diminish the number of allowable H1-B visas back to the 65,000 level. While this action will reduce the
number of foreign nationals competing for jobs inside the US, it will increase the talent pool available overseas.

According to industry figures, more than 500,000 technology jobs were lost from mid-2001 to mid-2003. Many of these were due to a contraction of the tech sector after the dot-com bubble burst. Andrew S. Grove, Intel co-founder and chairman, has said "the software and technology service businesses are under siege by countries taking advantage of cheap labor costs and strong incentives for new financial investment." The cost of achieving high-speed communication plummeted. "As a result," Grove said, "The engineer sitting 6,000 miles away might as well be in the next cubicle." The Gartner Group, a market research firm,
estimates that 10 percent of jobs at US information technology vendors will move offshore by next year. And only 40 per cent of those who have lost jobs are likely to be retrained and re-deployed by their firms. Throughout all US companies, Forrester Research predicts the loss of roughly 3.3 million jobs by 2015.

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-- Jeff Rowe, Contributing Editor.


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