Ontario government gives LSIFs one more year

In its 2007 Economic Outlook and Fiscal Review, the Ontario government announced that it will extend the LSIF tax credit one more year to 2011. The current 15% credit will now continue until 2009 before the credit is reduced 5% each year, vanishing entirely for the 2012 tax year.

The government is also boosting to $7,500 the amount that you can invest in an LSIF and qualify for the tax credit, up from the current $5,000. It says this "will provide an estimated $38 million in additional financial support to the industry over three years."

That may be an optimistic figure, but it's a bit of a reprieve for the LSIF industry. They must see that as a good sign since hardly anyone took up their cause during the election, and Roger Martin's Institute for Competitiveness and Prosperity in its recent annual report [PDF] implored the government not to back down on the phase-out of the tax credit (and even to speed it up).

Government delays onerous IP legislation ... for now

Responding to a wave of protest from across the country, the federal government has decided not to introduce its U.S.-DMCA-styled legislation -- at least not today.

The legislation was a product of some intense lobbying, particularly from the U.S. This would be the country that gave us NTP vs RIM and which recently fined a woman US$220,000 for having 24 songs in a shared folder on her computer. Yes, they're now lecturing Canada on our IP laws, trying to keep the 21st century at bay for as long as possible under the guise of being anti-theft. This lobby even managed to get the Ontario Chamber of Commerce to endorse its position.

Fortunately, the pro-legislation lobby has been overwhelmed over the last few days by critics, which include many high-profile members of Canada's high-tech community. It's a story that's been gaining momentum in the media as the outrage has built throughout the country.

It's way too early to think of this as a victory -- the legislation could still be introduced later this week or some other time soon.

Meanwhile, Michael Geist's Facebook group, Fair Copyright for Canada, has now grown to more than 15,000 members, including several names that will be familiar to people in Waterloo tech circles.

Hamilton chamber gets it right

Kudos to the Hamilton Chamber of Commerce for doing what the Greater K-W Chamber should have done but didn't. Michael Geist reports that the Hamilton Chamber has dissociated itself from the Ontario Chamber of Commerce's call for far-reaching and onerous new intellectual property legislation -- a call that was largely based on dubious claims and fabricated data.

Unfortunately, it's looking like the federal government is about to introduce U.S.-DMCA-style legislation to Canada. Like the PR pros they are, lobbyists for these additional laws like to refer to "piracy" and "counterfeiting" -- who would defend activities with those labels? (Johnny Depp fans, maybe.) For people who only read headlines and lead paragraphs, intellectual property protection sounds like something to support. It's only when you go deeper that you see the oppressive measures some lobbyists are championing. Michael Geist's blog is a great resource if you want to dig deeper, and the Facebook group he created -- Fair Copyright for Canada -- has links to other blogs and websites with informative content.

On a related subject ... Matthew Ingram writes that the Songwriters Association of Canada is asking the government to pass legislation that would tax everyone in Canada $60 a year per Internet account, with this money somehow to be split between music "creators and rights holders." In return, there would be no threat of legal action against people sharing music for personal use in Canada as P2P file sharing would be explicitly permitted.

On the one hand, I suppose I can commend the SAC's efforts to create an environment where P2P filesharing is an accepted practice while, at the same time, artists are compensated for their work. But they quickly lose my support -- a mandatory, government-collected $60 a year charge to every Internet account is not the way to go about achieving those goals.

And it was disappointing to see bogus statistics yet again being quoted to support this position. The SAC even provides footnotes, but in this case it just makes it easier to see how weak its "facts" are. One line that grabbed my attention said that "Virtually every song ever recorded is available through P2P file sharing (more than 79 million recordings)." A careful reading of the footnotes revealed that both claims in that sentence are misrepresentations of the cited source material (which, in one case, seems only to be one person's off-the-cuff commentary). And those aren't even the worst examples. Just more made-up statistics and phoney facts that will no doubt be repeated many times.

Waterloo Tech Digest - December 4, 2007

Compiled and written by
Gary Will
gary@garywill.com

In this issue:

1. Navtech goes private, OTCBB listing dropped
2. Com Dev warns Q4 won't meet expectations; launches option review
3. Virtek replaces CEO
   
4. RDM reports 39% sales growth in 2007
5. MKS has first profitable quarter since early-2006
6. ATS selects permanent CEO
   
7. Descartes continues on steady path
8. Arise continues R&D, plant investments, reports $2.7M loss
9. Biorem reports loss, growing backlog; looks for new CFO
   
10. STOCK REPORT: Big drops for ATS, Virtek, Com Dev, RDM
11. Miscellaneous tidbits from Maplesoft, Verdexus, RIM, LiveHive, Open Text

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[1]---------------------------------------------------------------
Navtech goes private, OTCBB listing dropped
November 30, 2007

Waterloo now has one fewer publicly traded company, with Navtech going private at the end of November.

Last month, Navtech's largest shareholders offered to buy all of the shares in the company that it did not already hold (see October digest). Following a couple of deadline extensions, the offer was accepted by most of Navtech's remaining shareholders. The ownership group ended up with enough shares in the company to force shareholders who hadn't accepted the US$2.50 a share offer to take the deal.

Over the last two years, Navtech's shares hadn't finished a month under US$2.50 until August. They had spent most of the last year between US$2.50 and US$3.00.

[2]---------------------------------------------------------------
Com Dev warns Q4 won't meet expectations; launches option review
November 29, 2007

Com Dev has warned that its Q4 results (period ended October 31) will fall short of forecasts, with the stronger Canadian dollar being blamed for the shortfall.

The company says Q4 revenue will be about $45 million -- which would still be an all-time record, but about $3 million below the level Com Dev felt confident it would achieve in September. It says that changes in the U.S.-Canadian dollar exchange rate in the quarter reduced revenue by $4.3 million. Gross margins plummeted to 17% after being in the 25-30% range previously.

As a result, the company will miss its target of 10% annual growth, and will instead be around the 8% mark. Full results will be announced next week.

At the same time, Com Dev announced that its board of directors has created a special committee to review the company's historical stock option granting practices. It didn't say what led to the review, how far back the it will go, or what issues it will be looking for (such as backdating or springloading). Earlier this year, RIM restated its financial results for the previous three fiscal years following a review of its option granting processes.

[3]---------------------------------------------------------------
Virtek replaces CEO
November 29, 2007

Bob Sandness is leaving Virtek at the end of this month after five years as CEO. He has been with the company since 1999.

The new CEO will be Stephen Sorocky, who has been the CEO of Mississauga-based Dynacon since 2000. He had previously led the space robotics business of Spar Aerospace and spent 16 years at that company, making him the second ex-Spar executive to become a Waterloo Region CEO this month (see ATS story below).

Sandness became president and, a few months later, CEO of Virtek in 2002, adopting a stick-to-our-knitting approach after the company had lost millions of dollars trying to create a biotech instruments business. Much of the knitting unravelled over the last year as Virtek's traditional markets in imaging and templating went through a rough period. The company has been looking to its engraving business -- acquired in 2003 -- as its hope for future revenue growth.

[4]---------------------------------------------------------------
RDM reports 39% sales growth in 2007
November 26, 2007

RDM reported earnings of $636,000 on sales of $7.5 million in the quarter ended September 30 (Q4 07). Revenue was up 10% from the previous quarter and 4% from 2006. Earnings were boosted by the recognition of $666,000 in R&D tax credits in the quarter. The company also recorded a foreign exchange gain of $215,000.

Operations provided $980,000 in cash and RDM ended the quarter with $17.4 million in cash. The company is talking about using some of that money to make acquisitions. ITMS weekly transaction volume ended the quarter at 2.1 million, up from 850,000 a year ago.

Digital imaging and electronic payment solutions combined to provide 96% of company revenue, with RDM's traditional cheque quality assurance business providing the remaining 4%.

For the year, RDM reported earnings of $5.8 million on sales of $33.9 million, up 39% from 2006. Of the net income, $2.7 million came from an accounting gain with the sale of RDM's stake in Xign (see April digest). Ignoring the Xign sale and a foreign exchange gain, RDM's operational earnings were $3.6 million in 2007 compared to $1.3 million in 2006. It shipped 54,700 scanners in the year, a jump from 33,900 the previous year. The number of locations where payments can be processed through ITMS grew from 3,300 to 8,400 in the year.

Over the year, RDM paid Data Treasury Corp. $831,000 in royalties, up from $552,000 in 2006. DataTreasury had sued RDM and others for patent infringement five years ago. The companies reached a settlement in 2003 and RDM continues to question the validity of Data Treasury's patents.

RDM expects that its growth rate for fiscal 2008 will be in line with what it has achieved over the last two years (25% last year and 39% this year).

[5]---------------------------------------------------------------
MKS has first profitable quarter since early-2006
November 27, 2007

For the first time in a year-and-a-half, MKS has reported a quarterly profit. In the period ended October 31 (Q2 08), it earned US$197,000 on sales of US$13.6 million, with sales flat from the previous quarter but up 18% from 2006.

The company's core ALM business, which accounted for 87% of revenue, reported 1% sales growth sequentially and 23% growth from last year. The ALM business also returned to profitability with income of US$92,000, up from a loss of US$833,000 last quarter. There were 29 ALM deals with a value over US$100,000, compared to 17 last quarter.

While revenue was flat from Q2, MKS was able to cut operating expenses by 8% sequentially, and that's with costs reported in U.S. dollars. The company said it had a foreign exchange gain of about US$300,000 in the quarter by keeping more of its money in Canadian dollars.

Operations used US$761,000 in cash and another US$1.0 million was distributed to shareholders through the usual quarterly dividend. MKS ended the quarter with US$9.9 million in cash, and has burned through US$5.4 million in the last two quarters, but expects to stronger cash flow through the last half of the fiscal year.

In the conference call, CEO Phil Deck said the company is seeing its ALM products used more by companies that put software into their products, rather than by companies developing software for internal use. He said that, traditionally, the business had been split pretty evenly between those two groups.

[6]---------------------------------------------------------------
ATS selects permanent CEO
November 19, 2007

Tony Caputo (no relation to Sandvine's Dave Caputo) is the new CEO of ATS. He takes over from John Bell, who was interim CEO for nine weeks following the ouster of the company's board of directors in September.

Caputo was the CEO of Spar Aerospace when it was acquired by L-3 Communications in 2002. He then became president of L-3 Communications Canada. He previously headed Spar's aviation business and had been with the company for nearly 20 years when it was acquired.

Caputo was immediately granted 640,000 options with a $4.40 exercise price. He also paid $247,000 to buy 55,000 ATS shares on the open market. Bell received 100,000 options, priced, not at the level ATS' shares were trading when he became CEO, but at the level they had fallen to more than two months later (and after he had passed the reins to Caputo) -- a difference that should eventually give Bell an additional $220,000.

[7]---------------------------------------------------------------
Descartes continues on steady path
November 29, 2007

Descartes' latest quarterly results once again showed consistency, if not organic growth. The company reported earnings of US$1.7 million on sales of US$15.5 million in the quarter ended October 31 (Q3 08). Revenue was up 8% from the previous quarter, with nearly all of those gains coming through the acquisition of UK-based Global Freight Exchange (GF-X) early in the quarter. Earnings and operational income were both flat from Q2.

Descartes has now been profitable for almost three years, but there's been no significant revenue growth over that period, other than a few acquisition-related bumps.

The company reports its results in U.S. dollars, and while there was a small sequential dip in margins in Q3, its operating expenses only went up 5% from the previous quarter.

Operations generated US$3.7 million in cash and Descartes spent a net US$6.0 million on the GF-X acquisition in the quarter. It has now US$48.3 million in cash.

The official cost of the GF-X acquisition was US$13.0 million plus US$5.2 million that will become payable if certain milestones are met by GF-X over the next four years. That's US$3.8 million more than was initially announced, which may reflect of the amount of cash that GF-X had on hand (which would go to Descartes with the acquisition). The full cost includes US$2.0 million in expenses, including US$1.0 million in termination benefits.

[8]---------------------------------------------------------------
Arise continues R&D, plant investments, reports $2.7M loss
November 12, 2007

Arise lost $2.7 million on sales of $356,000 in the quarter ended September 30 (Q3 07). The company is essentially in a pre-revenue stage as it prepares to commercialize research in new solar technologies. Gross profit in the quarter was just under $30,000.

The company had $1.1 million in R&D expenses in the quarter (down 30% from the previous quarter), along with $1.4 million in general and administrative expenses.

Operations consumed $4.5 million in cash with an additional $5.3 million spent on capital assets. Arise ended the quarter with $9.0 million in cash. This was before the company's share offering in October, which netted $32.4 million. As of November 9, the company had a cash balance of $41.9 million.

Accumulated deficit now stands at $19.1 million.

[9]---------------------------------------------------------------
Biorem reports loss, growing backlog; looks for new CFO
November 9, 2007

Biorem lost $1.7 million on sales of $2.5 million in the quarter ended September 30 (Q3 07). The loss included a $760,000 accounting expense when the company decided that it no longer meets the "more likely than not" GAAP standard for its future tax asset. Excluding that charge, results were in line with the previous quarter.

Operations used $498,000 in cash and Biorem ended the quarter with a cash balance of $1.9 million. Its order backlog at quarter-end stood at $9.5 million. For the second consecutive quarter, Biorem reported new orders of $3.6 million.

The company also announced that Greg Flanagan, its CFO for the last two-and-a-half years, has resigned. He had previously worked with Nu-Gro in Brantford, and Biorem says he left to work on a buyout opportunity with his old team. Biorem is looking for a new CFO.

San Francisco's Expansion Capital is investing another $450,000 in Biorem, buying 300,000 shares at $1.50 each. Expansion Capital's Clean Technology funds now own 3.4 million shares in the company, or 28% of its outstanding shares. Expansion Capital also invested in Agile Systems in 2005.

[10]---------------------------------------------------------------
STOCK REPORT: Big drops for ATS, Virtek, Com Dev, RDM
November 2007

First the good news: Open Text shares climbed to their best month-end price since July 2004.

And that's it. Open Text was the only company followed here to record a gain in its share price in November. It was a tough month for stocks in general in North America, and Canadian companies are struggling with the reduced margins and profitability that come with having the Canadian dollar now at par with the U.S. dollar.

The list of bad news is much longer:

• Virtek shares fell to an all-time low, surpassing the previous record set in April 2005
• Dalsa shares had their lowest month-end price in nearly six years
• MKS had its lowest month-end in three years
• TurboSonic's was its lowest in two years
• Com Dev had its worst month-end since February 2006
• RDM and Descartes shares fell to their lowest month-end in the last year
• Sandvine has lost over $200 million in value over the last two months

RDM, Com Dev and Virtek all lost between a quarter and a third of their value. But the hardest hit was ATS, as its shares fell 40% and are now down 61% in 2007 following a 22% drop in 2006.

For the month of November:

Open Text [TSX: OTC] +9%
Arise [TSXV: APV] 0%
===============================
RIM [TSX: RIM] -3%
--S&P TSX VENTURE INDEX -5%
Descartes [TSX: DSG] -6%
--S&P TSX COMPOSITE INDEX -6%
MKS [TSX: MKX] -7%
Biorem [TSXV: BRM] -13%
Dalsa [TSX: DSA] -14%
TurboSonic [OTCBB: TSTA] -14%
Sandvine [TSX: SVC] -18%
RDM [TSX: RC] -24%
Com Dev [TSX: CDV] -28%
Virtek [TSX: VRK] -35%
ATS [TSX: ATA] -40%

Navtech has been dropped from the list, since it is no longer a public company.

In the market capitalization rankings, pre-revenue (essentially) ARISE has overtaken Com Dev, although the gap is narrow enough that the positions could quickly reverse. RDM fell below MKS in market value and Virtek is now at the bottom of the list, trailing TurboSonic.

While RIM shares were down in November, they had set an all-time high early in the month.

Companies with core operations outside the area:

Ansys [Nasdaq: ANSS] +0%
AMIS [Nasdaq: AMIS] 0%
===================================
Google [Nasdaq: GOOG] -2%
McAfee [NYSE: MFE] -6%
Oracle [Nasdaq: ORCL] -9%
Sybase [NYSE: SY] -10%
Blue Coat [Nasdaq: BCSI] -11%
Adobe [Nasdaq: ADBE] -12%
NCR [NYSE: NCR] -13%
Agfa-Gevaert [Brussels: AGFA] -21%

[11]---------------------------------------------------------------
Miscellaneous Tidbits

• Maplesoft signed what it says is the biggest deal in company history, a multi-year contract with Toyota. Maplesoft will develop physical modelling tools for Toyota's "model-based development" processes, where advanced software tools are used to develop automotive systems. The companies are also forming a physical modelling consortium and are working together on "other yet-to-be-announced projects."
  
  
• Randall Howard is the new chairman of Ottawa's Iotum, following an investment in the company by his firm, Verdexus. Iotum's CEO is Alec Saunders, a UW grad in the 1980s who worked for Vestronix before spending over seven years with Microsoft. He co-founded Iotum in 2003.
  
  
• The BlackBerry is coming to Russia, although not very many of them. The Globe & Mail reported that two wireless companies received permission from the Federal Security Service of the Russian Federation to import about 1,000 devices each in the first year, expected to start some time in 2008.
  
  
• LiveHive worked with ProElite (owners of UFC competitor EliteXC) to provide real-time prediction games on the ProElite website during the UFC pay-per-view in November. That's like having the CFL put games on its website predicting outcomes during NFL games. LiveHive had to figure out a way to announce this without ever saying "UFC" so it referred instead to "the upcoming MMA fight being held in New Jersey." It turned out to be weakest UFC PPV in years, so what few viewers there were probably appreciated the diversion. Next one should be much better.
  
  
• Forgot to mention last month that Phil Menary is now engineering VP at LiveHive. He was previously with RSS Solutions and DiskStream and then spent a few months with Tech Capital Partners. Menary also worked in software development with CheckFree in Waterloo, and before that was with Mutual Group/Clarica.
  
  
• With Ottawa's Cognos set to be acquired by IBM for $5 billion early in 2008, there were a few stories during the month speculating about when it will be Open Text's turn to be snapped up. Open Text CEO John Shackleton told the National Post that he is working on a partnership with Google but said he isn't looking to sell the company to anyone

Chamber's counterfeiting gaffe

It was disappointing to see the Greater Kitchener Waterloo Chamber of Commerce's misguided endorsement of the Ontario Chamber of Commerce "Protection of Intellectual Property" [PDF] report, issued this morning.

Protection of IP might sound like something non-contentious, but this report is filled with misrepresentation and fabrication and makes the OCC look like a stooge for the copyright lobby.

Chambers of commerce usually like to make themselves out to be champions of smaller government, but the OCC is lobbying for significant increases in government power and bureaucracy, along with additional layers of legislation -- all in response to a problem it defines with made-up statistics.

As Michael Geist writes, "With today's report, the Ontario Chamber of Commerce has done little more than embarrass itself and its members."