Gary Will

Waterloo Tech Digest - July 7, 2008

2008-07-07T01:29:00.003-04:00

Compiled and written by
Gary Will
gary@garywill.com

In this issue:

Virtek shareholders asked to support hostile takeover
Virtek remains profitable on sluggish sales
Open Text acquires Spicer
Com Dev sales jump 40%
RIM quarterly sales top $2B
MKS reports record-setting quarter
STOCK REPORT: Sandvine rebounds; Dalsa tops for '08 at mid-point
Miscellaneous tidbits from Avvasi, Zoomii, ProductWiki, Well.ca, Dalsa, LiveHive, HighJump, LoyaltyMatch

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A D V E R T I S E M E N T S

DELOITTE - SHAPING CANADIAN BUSINESS FOR 150 YEARS
Deloitte's technology, media and telecommunications practice delivers a suite of services including audit, tax, financial advisory, enterprise risk and consulting. We work with all types of technology companies, including early stage and high-growth companies, to help them succeed. We'll help you grow through contacts, M&A, raising capital and most of all through great business advice. We want to be your trusted advisor and look forward to working with you. Contact Jamie Barron 289-259-3385, jabarron@deloitte.ca or Jane Jantzi at 519-650-7788, jjantzi@deloitte.ca.

BERESKIN & PARR - INTELLECTUAL PROPERTY LAW
Bereskin & Parr is a leading Canadian intellectual property law firm on your doorstep. Our Waterloo region office brings a wealth of experience to serve the growing high technology and manufacturing communities in Canada's Technology Triangle and surrounding areas. Bereskin & Parr's practice encompasses all areas of intellectual property from patents to trade marks and related litigation. Please contact us at 519-783-3210, Tim Sinnott (tsinnott@bereskinparr.com) for more information.

RISK FREE LEAD GENERATION
From sales opportunity development to increasing attendance for events, Virtual Causeway accelerates your sales process! With a focus on selling and marketing complex services and technology, we guarantee a consistent and reliable flow of quality leads - assuring that your pipeline is constantly full. Contact us today to learn how we can help connect you with your next customer. Call 519-886-1600 ext. 405 or email marketing@v-causeway.com for details.

ENHANCE YOUR COMPETITIVE ADVANTAGE
INO can deliver competitive advantage to fuel company growth. As described in this video, INO's optical recognition technology helped Optosecurity raise $20 million in financing and create a world-class team, Further information on INO's optical recognition technology can be found here. Please contact Glenn Smith in Waterloo at 519-502-1305 to explore how INO might deliver competitive advantage to your organization.

IT SEARCH AND PLACEMENT SERVICES
Procom is currently ranked as the 4th largest IT professional services firm in Canada. (Branham 300, Financial Post, April 2007). Recently awarded one of Canada's 50 Best Managed Companies, Procom is a proud, Canadian-owned, privately-held company. Our local KW office provides IT, development and technology personnel on either a contract or permanent basis. We are the largest provider of IT staffing and recruiting services in Canada. Phone: 519.885.4331

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[1]---------------------------------------------------------------
Virtek shareholders asked to support hostile takeover
June 16, 2008

Virtek is now the target of a hostile takeover bid, after its board rejected the initial acquisition offer from New Hampshire's StockerYale (see previous digest). StockerYale has taken its offer to Virtek's shareholders with a deadline for acceptance of August 1.

StockerYale slightly improved its offer to an all-cash deal of 65 cents a share (or 70 cents a share in cash and StockerYale shares, if Virtek's board agrees to the deal). The initial offer was for 65 cents a share to be paid about three-quarters in cash and the balance in StockerYale shares. Virtek's board has not responded to the revised offer, but the company said it has hired Genuity Capital to assist in assessing the offer and has created a special committee of independent directors to evaluate the bid.

Virtek's largest shareholder -- Toronto-based Howson Tattersall Investment Counsel -- didn't wait for the board's response and immediately pledged its support for StockerYale. The firm holds about 13% of Virtek's outstanding shares. (Howson Tattersall was also listed as Dalsa's second largest shareholder at the time of the company's AGM in February.) MMCAP International, which owns about 4% of Virtek, is also supporting the StockerYale offer. For its bid to proceed, StockerYale needs to get the holders of two-thirds of Virtek shares to sell their stock.

According to StockerYale's prospectus, it was Robert Tattersall who initiated the talks between StockerYale and Virtek after he met the StockerYale CEO at an investor conference in April. StockerYale says it sent the offer to Virtek's board on May 13, at a time when Virtek shares were trading around 44 cents. It says it became concerned about the trading activity two days later -- a day that Virtek shares briefly traded at 64 cents, their highest level in months. At that point, the offer from StockerYale had not yet been announced. Virtek shares closed Friday at 59 cents.

From a business perspective, it's not obvious what synergies would be achieved through the deal, since StockerYale doesn't seem to have any expertise in Virtek's markets. Together, it looks like they'd become a company with little cash and plenty of debt, with operations spread across very different markets on different continents, all under a management team with very little experience in the businesses where most of its gross profits would be generated.

StockerYale is a struggling company itself, with a loss of US$9.0 million over the last 12 months and an accumulated deficit of US$95.4 million. Its stock has dropped 65% over the last year and has been outperformed by Virtek shares over the past year, three years, and five years. The company is now facing a delisting from Nasdaq since its shares have closed under a dollar ever day since November. StockerYale seems to be planning a reverse split to get its shares back over the floor price required by Nasdaq.

At last report, StockerYale only had US$2.4 million in cash on its balance sheet and working capital of just US$1.1 million. It would use debt to finance the deal, and is already carrying US$13 million in debt on its books. This deal could add another $22 million to the total.

[2]---------------------------------------------------------------
Virtek remains profitable on sluggish sales
June 12, 2008

Virtek also announced its latest quarterly results during the month. For the period ended April 30 (Q1 09), it earned $481,000 on sales of $12.2 million. Sales were down 8% from the previous quarter and 9% from last year.

Sales from Virtek's imaging and templating sales segment down 26% sequentially and 16% from last year, but the business accounted for all of the profits in the quarter. The marking and engraving business showed a small drop in sales from Q4 but a 13% gain from last year and provided nearly 58% of all revenue in the quarter, while losing $105,000.

Virtek ended the quarter with $7.7 million in net cash, up $400,000 from the end of Q4.

[3]---------------------------------------------------------------
Open Text acquires Spicer
July 3, 2008

Open Text has acquired the assets of Spicer Corporation for $12 million. About 30 Spicer employees will join Open Text and form the core of the company's new content viewer solutions group.

Spicer Corporation had operated as a division of PrinterOn since 2000. The company traces its history back to 1983 when Steve Spicer -- who died a year ago (see July 2007 digest) -- founded a one-person software company while he was a mechanical engineering student at UW. It became Spicer Corporation in 1987. Spicer founded PrinterOn in 2000 and Spicer Corporation was folded into the new company when it closed its initial round of funding.

PrinterOn will continue with its mobile printing business.

[4]---------------------------------------------------------------
Com Dev sales jump 40%
June 12, 2008

A strong quarter for Com Dev, with sales of $54.2 million in the period ended April 30 (Q2 08). Sales were up 21% from the previous quarter and 40% from a year ago. Net income in the quarter was $2.0 million.

Com Dev booked $42 million in new orders in Q2 -- up from $33 million last quarter -- and ended the period with an order backlog of $120 million.

Operations used $1.9 million in cash and the company spent an additional $2.7 million on capital assets. It ended the quarter with $8.9 million in cash, down $5.4 million from the end of Q1.

Total R&D spending of $4.6 million was up 67% from a lull in the last quarter and back to the levels seen in the previous fiscal year. Gross margins of 22% were consistent with Q1 and the company expects to see them return to the 25-29 percent range.

Com Dev also announced that it is expanding its business and has started a $7 million program to enter the microsatellite business. The company says it will design and manufacture microsatellites (150 kg or less) that can be used in such applications as surveillance, security, environmental monitoring, scientific analysis and communications.

And the company has hired two new division presidents after reorganizing into four operating divisions on February 1. George Cwynar is now president of Ottawa-based Com Dev Canada. He was previously CEO of Mosaid Technologies. Michael Williams, who has been with Com Dev for 15 years, was named president of Com Dev International Products, based in Cambridge. Com Dev USA and Com Dev Europe are the other two divisions. COO Michael Pley oversees all four divisions.

Com Dev also reported that the special committee formed to review the company's historical stock option granting processes found that "certain directors, officers and employees" had received backdated options, or options that were priced lower than the market rate on the actual date they were granted. The committee said the option granting process was "characterized by informality and by a lack of definitive documentation" especially during the period of rapid growth following the company's IPO.

If that sounds familiar, it's because it was lifted verbatim from the report last year by RIM's committee that looked into that company's option granting practices (actually, the Com Dev committee inserted an additional "by"). But unlike RIM, which had to restate its historical earnings by US$250 million, Com Dev says that it will not require any restatements.

[5]---------------------------------------------------------------
RIM quarterly sales top $2B
June 25, 2008

RIM reported earnings of US$482.5 million on sales of US$2.2 billion in the quarter ended May 31 (Q1 09). Sales were up 19% from the previous quarter and 107% from last year.

There were 2.3 million new BlackBerry subscribers in the quarter, bringing the total to over 16 million. RIM shipped 5.4 million devices and says it will cross the 40 million mark this quarter.

It ended the quarter with US$2.1 billion in cash.

RIM is forecasting sales of US$2.55-2.65 billion in the current quarter with a projected 2.6 million new BlackBerry users. It expects earnings to be around US$490-520 million.

RIM is involved in five new patent infringement suits filed in the quarter. The litigation section of its quarterly report is nearly five pages long.

[6]---------------------------------------------------------------
MKS reports record-setting quarter
June 3, 2008

It was only MKS' second profitable quarter in the last two years, but it erased a lot of the losses that preceded it, as the company reported earnings of US$4.7 million on sales of US$21.2 million in the period ended April 30 (Q4 08). Revenue was in line with the company's pre-announcement last month (see previous digest).

Sales were up 65% from Q3 and 67% from last year. On top of US$4.1 million in operating income, MKS' return to profitability also triggered an income tax recovery during the quarter.

Revenue for the quarter included the $5 million licensing deal that MKS announced in March with an existing automotive customer. MKS had 19 deals over $100,000 in the quarter, compared to seven in Q3.

For the 2008 fiscal year, MKS had record sales of $61.2 million, up 27% from 2007. On the strength of Q4, it was able to report earnings of US$3.8 million for the year.

It ended the year with US$12.9 million in cash, up US$2.3 million from the end of Q3, and the current quarter should be a good one for cash flow, since MKS ended the year with an abnormally high level of receivables (because of the high level of Q4 sales), which it says has now been reduced to normal levels. In Q4, operations provided US$3.2 million in cash and, as usual, MKS spent US$1.0 million on dividends.

[7]---------------------------------------------------------------
STOCK REPORT: Sandvine rebounds; Dalsa tops for '08 at mid-point
June 2008

After spending most of the last six months at the bottom of our stock performance list, shares of Sandvine finally rebounded in June ... bouncing all the way to the top of the list. It was the first time since September that Sandvine's stock price showed a monthly gain. As of Friday's close, the stock was up another 9% so far in July.

For the month of June:

Sandvine [TSX: SVC] +21%
ATS [TSX: ATA] +20%
RDM [TSX: RC] +13%
Virtek [TSX: VRK] +2%
Biorem [TSXV: BRM] 0%
===============================
--S&P TSX VENTURE INDEX -1%
--S&P TSX COMPOSITE INDEX -2%
MKS [TSX: MKX] -3%
Dalsa [TSX: DSA] -8%
Open Text [TSX: OTC] -8%
Com Dev [TSX: CDV] -10%
Descartes [TSX: DSG] -11%
TurboSonic [OTCBB: TSTA] -12%
RIM [TSX: RIM] -13%
Arise [TSX: APV] -21%

With the gains, Sandvine jumped ahead of Descartes on the market capitalization list (see below).

RDM shares, which have also been off to a terrible start in 2008, had their best month in nearly a year and a half.

Investors didn't respond well to RIM's quarterly results and forecasts, even with the company expecting about a half-billion dollars in profits this quarter. The drop came after four consecutive months of gains, over which the price of RIM shares jumped by 46%.

There were no gainers among companies with core operations outside the area:

===================================
Ansys [Nasdaq: ANSS] -0%
NCR [NYSE: NCR] -5%
McAfee [NYSE: MFE] -6%
ON Semiconductor [Nasdaq: ONNN] -7%
Oracle [Nasdaq: ORCL] -8%
Sybase [NYSE: SY] -8%
Google [Nasdaq: GOOG] -10%
Adobe [Nasdaq: ADBE] -11%
Agfa-Gevaert [Brussels: AGFA] -16%
Blue Coat [Nasdaq: BCSI] -22%

We've reached the half-way point of 2008, and here's how the shares of local companies have fared so far this year:

Dalsa [TSX: DSA] +51%
ATS [TSX: ATA] +43%
Virtek [TSX: VRK] +31%
MKS [TSX: MKX] +14%
RIM [TSX: RIM] +6%
--S&P TSX COMPOSITE INDEX +5%
Open Text [TSX: OTC] +4%
===============================
--S&P TSX VENTURE INDEX -7%
Com Dev [TSX: CDV] -9%
Biorem [TSXV: BRM] -10%
Descartes [TSX: DSG] -18%
TurboSonic [OTCBB: TSTA] -35%
Arise [TSX: APV] -39%
RDM [TSX: RC] -42%
Sandvine [TSX: SVC] -63%

Even with a good June, Sandvine shares were easily the worst performer over the first half of the year. They were on the top of this list a year ago, followed by Arise, but neither stock was able to keep its momentum into 2008. Shares of Dalsa, ATS, and Virtek all had a rough year in 2007 and have started to bounce back.

Market capitalization at June 30
in millions, using outstanding shares
(Year-to-date change in parentheses):

1. RIM ----- $69,949 (+$6,803)
2. Open Text ----- 1,669 (+74)
3. ATS ----- 572 (+173)
4. Dalsa ----- 242 (+83)
5. Com Dev ----- 225 (-22)
6. Arise ----- 197 (-55)
7. Sandvine ----- 193 (-330)
8. Descartes ----- 181 (-39)
9. MKS ----- 78 (+9)
10. RDM ----- 33 (-23)
11. Virtek ----- 18 (+4)
12. Biorem ----- 11 (-1)
13. TurboSonic ----- 8 (-4)

[8]---------------------------------------------------------------
Miscellaneous Tidbits

It hasn't exactly been announced yet, but Avvasi apparently closed its first round of funding, with Celtic House among the investors. Celtic House added Avvasi to its portfolio list during the month.
Zoomii had its official launch in June. The online bookstore features a real-world bookstore user interface that links to Amazon for order processing. It's been impressing audiences at BarCamps and other events over the last year. Zoomii was founded by Chris Thiessen, who previously worked for Intellitactics and AdExact. http://zoomii.ca and http://zoomii.com
The three founders of ProductWiki -- the brother-sister/wife-husband team of Omar Ismail, Amanie Ismail and Erik Kalviainen -- are finalists for the young entrepreneur award at the Ernst & Young-sponsored Ontario Entrepreneur Of The Year Awards. They are the only nominees from this area for any of the nine awards. In fact, 80% of the finalists are from the GTA. Winners will be announced in October.
Well.ca founder Ali Asaria was named one of the Guelph Mercury's "forty under forty -- people making a difference."
Dalsa founder, chairman, and CTO Savvas Chamberlain was inducted as a fellow of the Canadian Academy of Engineering at an awards ceremony in Montreal.
Adel Sedra, dean of engineering at UW, has become a director of Dalsa. He succeeds Doug Barber, co-founder of Gennum, who had been on the board since 2005.
LiveHive has partnered with Nissan to create "Nissan Make the Call" interactive games that will run online during CFL broadcasts through the season.
HighJump Software is apparently cutting the size of its Waterloo office as part of a company-wide reorganization, following its acquisition by a VC/PE firm based in the Boston area. The company came to town through the acquisition of Waterloo's Global Beverage Group in 2006. At that time HighJump was part of 3M, which sold the business to Battery Ventures in May. Global Beverage Group was spun out of Descartes in 2000 after Descartes decided to recast itself as a pure web services business. According to the Minneapolis Star Tribune, HighJump plans to cut as much as a quarter of its workforce. The report says the company will focus on acquisitions for new products rather than creating them internally.
LoyaltyMatch was featured in a story in the New York Times travel section. The story was about two companies with websites that allow users to use loyalty program points in new ways. I'm not sure the writer realized that both companies are from Southern Ontario. LoyaltyMatch was identified as a Waterloo company, and the other -- Points.com -- is based in Toronto.

Proposed copyright amendments fall far short

2008-06-24T20:00:00.001-04:00

It's been a couple of weeks since the federal government introduced its long-awaited—or dreaded—amendments to the Copyright Act. As was feared, the bill is inconsistent and leaves Canadians vulnerable to pay outrageous damages for activities that no one could reasonably confuse with piracy.

To give one example, you come home with a new CD and a new DVD. You load them both on to your spacious hard drive to play them on your computer or to transfer them to an iPod or other mobile device. Under the proposed new law, you're probably okay with transferring the CD, at least for most CDs now in stores (record companies could decide at any time to change that—it would now be entirely up to them). With the DVD, on the other hand, you could face a lawsuit for at least $20,000 in damages, and possibly several times that, depending on who sues you. And those are just statutory damages—there could be punitive damages as well. Even the tools you used to copy your DVD to your hard drive or mobile device would be banned under bill C-61. And if record companies decide they don't want you putting music on your iPod, with a simple change on their end, you could face a $20,000 lawsuit there as well.

There's no shortage of scenarios online illustrating dire consequences of the proposed legislation—even for legitimate personal use. Larry Borsato has some observations here, Alec Saunders gives his own example here, and, of course, Michael Geist's blog and Howard Knopf's blog are chock full of comments.

Even putting those scenarios aside, C-61 is a failure. All along, we were told by the government that that amendments were needed to bring Canadian copyright law into the 21st century. But C-61 focuses on 20th century technologies—ones that will still be with us for a while, but whose days are numbered. At the same time, it either ignores the networked technologies on the horizon or explicitly removes them from the exemptions contained in the bill.

At best, this is copyright legislation for the last decade, not for the future. The government chose to avoid any serious rethinking of what copyright law should look like and will need to look like. And it's understandable that they wouldn't want to take that on—it wouldn't be easy. But what we got instead was superficial tinkering. I don't know if it's even paving the cow paths so much as throwing some gravel onto them. We're going to have to go through this all over again before too long.

Copyright law is a minefield at the best of times. One of the challenges is that these laws have been violated by nearly everyone, and we didn't need digital technology to get to that point. Photocopiers, tape recorders, and VCRs have been used for decades in ways that were not Copyright Act-approved. Canada has never even had laws that allow people to tape TV shows to watch at another time—something that is only now being introduced with C-61 ... now that people have been time shifting for more than 20 years.

But copyright laws are like speed limits—we seem to be okay with having them on the books as long as their enforcement is less than zealous. While it was never spelled out in the Copyright Act that you wouldn't get in hot water for time shifting or many other copyright violations, it was commonly understood that there was almost no chance that you would face prosecution or a lawsuit.

Unfortunately, we now have industries with outdated business models chomping at the bit to sue as many people as they can for as much as possible. That's the danger of tinkering around with copyright law at this time. Imagine how life would be if an industry association could file suit against you every time they thought they had evidence that you'd gone above the speed limit. If the government was determined to go ahead and cross this minefield, it owed it to Canadians to be very careful about what acts would be allowed or disallowed under its proposed reforms, but C-61 just isn't well thought out or precisely worded.

In the U.S., more than 20,000 people have already been sued by the recording industry. One woman was recently ordered to pay nearly a quarter-million dollars in damages for having about two CDs worth of songs in a shared folder on her computer. It looks like the government was trying to avoid these kind of situations for Canadians when it created a $500 statutory damages cap for personal use infringement. And that would be great. Unfortunately, the current language of the bill is too convoluted to provide any comfort that this would be a real cap. If that's the government's intention, then it should be easy to clarify the language through amendments.

With any contentious legislation, you have to make decisions around whose advice you're going to ignore. The problem here is that the government chose to ignore—or at least give less priority to—what was best for Canadians and brought forth legislation that only please a small number of industry groups (CRIA, CMPDA) while trying to placate Canadians with a few soundbites—throwing them a couple of bones around format shifting and time shifting, which has been an everyday practise for decades, even if it was never formally supported by legislation.

Yes, this bill could have been worse, but it should have been much better. If the government wasn't willing to tackle the deeper issues around copyright law, it should have just left the whole thing alone. But the U.S. lobbyists weren't going to let that happen, so we got what you'd expect from a half-assed process and a desire to appease the lobbyists—even if it was at the expense of Canadians.

Instead of spending his time tinkering around with copyright laws, I wish Industry Minister Jim Prentice had focused on providing more resources for IRAP. It's one of the most important programs in Canada for bringing our economy into the innovation era—and has been a great help to startups in Waterloo Region. Unfortunately, the program has run out of money just two months into its fiscal year. If Prentice really wants to do something that will benefit Canadians, he can let C-61 die on the order paper and put his support behind IRAP.

Why start a startup?

2008-06-03T17:20:00.002-04:00

The third StartupCampWaterloo will be starting soon—kicking off with a panel discussion of "why start a startup?" Maybe some startup founders will say that they needed some convincing on that question, but I suspect that if it's something you need to have answered, then maybe creating a startup isn't the best thing for you.

It's always going to be easier being employee #57 or #5,700 where you can have your job description and be given tasks to perform—maybe in a skillful way, but within a framework that is planned and managed by others. Every two weeks, money gets deposited in your bank account, even if you've been in a rut and have only been moderately productive. Want to go to a business event? Feel too sick to work? That's fine, you still get paid your full salary—no money comes out of your pocket. On top of that, you're guaranteed a paid vacation every year and probably have at least a basic benefits package.

It's a pretty good deal and one that most people are happy to take.

Forget all of that with a startup, at least at the beginning. But that's a big part of the appeal. You don't have a job description (or, if you do, it's pretty fuzzy) and you get to do things that no one in their right mind would hire you to do—developing a lot of new skills. You don't have to write a resume and go on job interviews to be asked silly questions hoping that someone will recognize your talents. You work with people you want to work with on the products of your choosing (preferably with a lot of market input) where you get to decide the strategy and how you'll execute. And you never have to stare at the clock and wish it was 5pm.

It's not for everyone, and if your startup grows into a bigger company, some of the freedom of the early days goes away, but for many people who have been there, there's no going back to being employee #57.

Waterloo Tech Digest - June 2, 2008

2008-06-02T00:47:00.006-04:00

Compiled and written by
Gary Will
gary@garywill.com

In this issue:

Funding for Igloo & Arius; details about Well.ca
RIM creates $150M investment fund
Virtek receives acquisition offer from U.S. firm
MKS quarterly sales jump 67%
Descartes sales continue at steady pace
Arise reports $5M loss, plans to spend $16M on Waterloo site
STOCK REPORT: Virtek, Sandvine repeat as best/worst performers
Miscellaneous tidbits from Google, NDI, Com Dev

Advertising note: For people who have asked about advertising in the Tech Digest -- spots only become available once or twice a year, and this is one of those times. If you want to get a message in front of 5,000 people with an interest in the Waterloo tech community, and don't compete with any existing sponsors, just send me an e-mail and I'll give you more information. I think all but one of the sponsors we've ever had have renewed, some of them for years.

--Gary Will

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A D V E R T I S E M E N T S

ENHANCE YOUR COMPETITIVE ADVANTAGE
INO can deliver competitive advantage to fuel company growth. As described in this video, INO's optical recognition technology helped Optosecurity raise $20 million in financing and create a world-class team. You'll find further information on INO's optical recognition technology here. Please contact Glenn Smith in Waterloo at 519-502-1305 to explore how INO might deliver competitive advantage to your organization.

IT SEARCH AND PLACEMENT SERVICES
Procom is currently ranked as the 4th largest IT professional services firm in Canada. (Branham 300, Financial Post, April 2007). Recently awarded one of Canada's 50 Best Managed Companies, Procom is a proud, Canadian-owned, privately-held company. Our local KW office provides IT, development and technology personnel on either a contract or permanent basis. We are the largest provider of IT staffing and recruiting services in Canada. Phone: 519.885.4331

RISK FREE LEAD GENERATION
From sales opportunity development to increasing attendance for events, Virtual Causeway accelerates your sales process! With a focus on selling and marketing complex services and technology, we guarantee a consistent and reliable flow of quality leads - assuring that your pipeline is constantly full. Contact us today to learn how we can help connect you with your next customer. Call 519-886-1600 ext. 405 or email marketing@v-causeway.com for details.

BERESKIN & PARR - INTELLECTUAL PROPERTY LAW
Bereskin & Parr is a leading Canadian intellectual property law firm on your doorstep. Our Waterloo region office brings a wealth of experience to serve the growing high technology and manufacturing communities in Canada's Technology Triangle and surrounding areas. Bereskin & Parr's practice encompasses all areas of intellectual property from patents to trade marks and related litigation. Please contact us at 519-783-3210, Tim Sinnott (tsinnott@bereskinparr.com) for more information.

////////////////////////////////////////////////////////////

[1]---------------------------------------------------------------
Funding for Igloo & Arius; details about Well.ca
April 23, May 8, 23, 2008

Two new fundings were disclosed in May, along with details about Well.ca's previously-announced funding:

Igloo Inc. -- a spinoff from the Centre for International Governance Innovation (CIGI), which became a for-profit corporation in March -- has received $4 million from RBC Venture Partners. Joining Igloo's board is Kevin Talbot, managing director of RBC Venture Partners. Jim Balsillie is also a director. According to Igloo, its platform is now being used to support more than 550 online communities.
Arius Software raised $570,000 from 12 investors on April 28, according to OSC reports. No details were announced by the company.
Details about the Well.ca reported in the last digest: the company raised $2 million from two common share investors (including Jim Estill) in April and followed with another $425,000 from six preferred share investors on May 23.

[2]---------------------------------------------------------------
RIM creates $150M investment fund for mobile apps
May 12, 2008

RIM, in partnership with Thomson Reuters and RBC, has created the $150 million BlackBerry Partners Fund. The fund will be managed by Toronto's JLA Ventures and RBC Venture Partners and will invest in a variety of mobile applications and services. It will not limit its investments to applications that run on the BlackBerry.

The fund is looking to make investments in companies anywhere in the world that are developing applications for "mobile commerce (payments, advertising, retailing, banking), enterprise applications, communications, social networking, location-based services (navigation and mapping), media and entertainment, and lifestyle and personal productivity applications."

[3]---------------------------------------------------------------
Virtek receives acquisition offer from U.S. firm
May 13, 2008

New Hampshire-based photonics company StockerYale has made an offer to acquire Virtek for about $22 million. That's nearly 50% above the level that Virtek stock was trading a month ago and is about where the company was valued last September. StockerYale says it made the offer on May 13 and Virtek announced it three days later.

StockerYale proposes to pay Virtek shareholders 7.8 million shares of StockerYale stock (just under 20% of the company) with the balance of the price -- about $16.5 million -- to be paid in cash.

StockerYale shares trade on Nasdaq and the company has a market capitalization of about US$27 million. It has a Canadian office in Montreal. Over the last twelve months, it lost US$9.0 million on sales of US$30.5 million. StockerYale only had US$2.4 million in cash as of March 31, but it says it has a "non-binding indication of interest" from a lender to provide the funds for the acquisition.

Virtek said its board would meet during the week of Victoria Day to decide what action it would take in response to StockerYale's offer. So far, there has been no further announcement from either company.

[4]---------------------------------------------------------------
MKS quarterly sales jump 67%
May 6, 2008

MKS announced that it will be reporting sales of about US$21 million in the quarter ended April 30 (Q4 08) -- a 64% jump from the previous quarter and a 67% improvement from last year. It expects to report income before taxes of US$4 million, up from a loss of US$762,000 in Q3.

Part of the revenue jump was a $5 million licensing deal that the company announced in March and which was fully recognized in the quarter. Full Q4 results will be announced on Tuesday.

[5]---------------------------------------------------------------
Descartes sales continue at steady pace
May 29, 2008

Descartes reported earnings of US$1.1 million on sales of US$16.3 million in the quarter ended April 30 (Q1 09). Sales were up 2% from the previous quarter and -- driven by acquisitions made over the last 12 months -- up 23% from last year.

The company ended the quarter with US$46.9 million in cash, up US$2.8 million from the end of Q1. Operations provided US$3.4 million in cash in the quarter.

[6]---------------------------------------------------------------
Arise reports $5M loss, plans to spend $16M on Waterloo site
May 15, 2008

In its final quarter before its PV cell manufacturing facility opened in April, Arise reported a loss of $5.4 million in the quarter ended March 31 (Q1 08). Accumulated deficit stands at $28.6 million.

Arise now has $27.5 million in inventory on its books after paying about $26 million for silicon wafers in March.

It finished the quarter with $6.6 million in cash, but has since raised gross proceeds of $45.1 million through a share offering that close in May (see previous digest). Arise says it will spend about $20 million of those funds on additional silicon wafers and will spend $16 million on a new silicon manufacturing facility that will be built in Waterloo.

[7]---------------------------------------------------------------
STOCK REPORT: Virtek, Sandvine repeat as best/worst performers
May 2008

MKS must be wondering if anyone reads its news releases. It announces a huge quarter and the company's stock actually falls by one cent on the day the announcement is made. So the news was sent out again the next day, this time to better results, but MKS stock was still down slightly for the month. This comes after the company's announcement of its $5 million licensing deal in March which got no response from investors for over two weeks (and when the stock did finally jump, it was fuelled by insider buying).

The Virtek acquisition proposal helped push the company's shares to the top of our list for the second straight month. Virtek stock is now up 46% over the last two months.

For the month of May:

Virtek [TSX: VRK] +23%
RIM [TSX: RIM] +12%
--S&P TSX VENTURE INDEX +8%
--S&P TSX COMPOSITE INDEX +6%
Descartes [TSX: DSG] +1%
Com Dev [TSX: CDV] +1%
Biorem [TSXV: BRM] 0%
===============================
MKS [TSX: MKX] -1%
TurboSonic [OTCBB: TSTA] -3%
Open Text [TSX: OTC] -5%
RDM [TSX: RC] -9%
Dalsa [TSX: DSA] -10%
Arise [TSX: APV] -11%
ATS [TSX: ATA] -11%
Sandvine [TSX: SVC] -16%

It was another bad month for Sandvine shares, which finished at the bottom of the list for the fourth month in a row and the fifth time in the last six months.

RIM ended the month with a market value of $77.5 billion, adding the equivalent of an ATS plus Dalsa plus Com Dev plus Arise plus Descartes plus Sandvine to the total in May.

Companies with core operations outside the area:

ON Semiconductor [Nasdaq: ONNN] +32%
Adobe [Nasdaq: ADBE] +18%
Ansys [Nasdaq: ANSS] +18%
Oracle [Nasdaq: ORCL] +10%
McAfee [NYSE: MFE] +9%
Sybase [NYSE: SY] +9%
NCR [NYSE: NCR] +7%
Agfa-Gevaert [Brussels: AGFA] +4%
Google [Nasdaq: GOOG] +2%
===================================
Blue Coat [Nasdaq: BCSI] -14%

That's two months in a row of 32% gains for ON Semiconductor.

[8]---------------------------------------------------------------
Miscellaneous Tidbits

Roger Skubowius has left Google, three years after the company acquired Reqwireless, which Skubowius founded in 2001.
Jamie Fraser is the new CEO of NDI. He succeeds David Crouch who announced his plans to retire from the position when NDI was acquired by Audax Group in December. Fraser had been SVP at Connecticut's Amphenol Corporation, an $8 billion, Nasdaq-listed company. He had been with Amphenol for more than 10 years.
Com Dev completed its US$12.2 million acquisition of the passive microwave devices product line from L-3 Communications (see February digest).

Waterloo startups finding money close to home

2008-05-21T18:23:00.001-04:00

Toronto lawyer Suzanne Dingwall Williams wrote a piece for the CVCA blog this week lamenting how often the startups she works with choose to seek investment from American VCs over their Canadian counterparts.

If that's the case, it sounds like another significant difference between the Toronto and Waterloo startup communities. In these parts, if you go much farther than Toronto to look for early stage capital you risk being accused of being exotic. It happens, but not often. Of the six seven-figure seed/early-stage deals we saw last year, I think only one involved a foreign investor. That seems to be consistent with the national statistics, which saw most foreign investment being put into later stage deals.

In the same post, Dingwall Williams also writes about the reputation of Canadian VCs being tarred by American brushes, but from a Waterloo perspective, I'd be shocked if one startup founder in ten here knows anything about Blackstone and Stephen Schwarzmann, to use the example she cites. Actually, my guess is that's true in Toronto as well. Some may be aware that VCs have been very well paid and that -- with some exceptions -- they haven't come close to delivering results consistent with that compensation. But that's made-in-Canada tar. The CVCA and others have published rates of return for Canadian VCs and the numbers don't paint a flattering portrait of the industry. There may have been an emperor-has-no-clothes epiphany on the part of LPs and entrepreneurs toward Canadian VCs but, from what I've seen, this has had more of an effect on LPs than on startup founders.

From any perspective, I don't agree with her view that startups should feel a "moral imperative" to get funding from Canadian VCs. That's straight out of "buy Canadian" campaigns that encourage you to buy products that you would otherwise avoid just because it might help keep people employed and extend the amount of time they spend making second-rate products. If that's the best pitch we can make for Canadian VCs we might as well just shut the whole industry down now. [Actually, with Canadian VCs collectively showing almost zero rates of return, from a strictly economic perspective it would have been better if we had let American VCs make those investments and put our money to more productive use. I wouldn't recommend that either. :-)]

Startup entrepreneurs should go where they can get the best deal for their companies. Fortunately, that will often be with a Canadian VC. What we do seem to be seeing, though, is that a greater percentage of startups today are companies where bootstapping or sub-VC funding are all that's needed to get a product to market, and often to get companies to a point where they are acquired (usually by American firms; at that point you don't hear many complaints about foreign ownership). Of those six deals from 2007 I referred to, only one of them involved a VC, and even that also included angels.

For that reason, there has been the disconnect between startups and VCs that Dingwall Williams refers to. But that's okay. Not all promising startups need VC funding. That was really an artifact of the boom years. As long as companies get the funding they need, I'm not going to lament that a shrinking percentage of startups are paired with a VC.

Unfortunately for the Canadian VC industry, many of its current problems are linked to matters of history that can't be rewritten with better mission statements and promotional campaigns (although, on the subject of marketing, I think Rick Segal has done an amazing job of both getting himself over and improving the reputation of the entire Canadian VC industry). But the message from startup entrepreneurs I'm hearing in Waterloo is more that they often don't see the need to work with VCs, not that they are avoiding Canadian VCs in favour of American investors.

BlackBerry fund looks to startups for innovation

2008-05-19T15:14:00.001-04:00

Iain Klugman on the Communitech blog already gave applause to the new BlackBerry Partners Fund and I want to add my own kudos for one of the messages that I hope this fund will send. RIM is putting its money and brand behind an initiative to look for innovation in the entrepreneurial world of startups, helping fund new companies that will create and develop innovative technologies and products.

RIM is Canada's largest company by market value and is now one of the 10 most valuable companies on Nasdaq—a list headed by Microsoft and Google in the top two positions. With its size and resources, it could have pursued any approach to innovation that it wanted, and it chose to put its support behind startups.

It could have allocated the money to university professors and told them to stop what they were working on and focus their efforts on coming up with a bunch of patents ... which RIM might then incorporate into its products.

Or it could have invited companies to rummage through RIM's patents—particularly any that aren't being used—to see if there was something there that they'd like to try to commercialize.

But it didn't do either, and there's a lesson there, particularly for government. While government policies and programs for high-tech startups have improved significantly over the last few years, there is still a tendency to think that "innovation" is something that primarily happens at universities and research labs, and that these institutions should be focusing on generating patents while the government helps create an infrastructure to push institutionally-created intellectual property into the business realm.

With the BlackBerry Partners Fund, RIM again shows that it understands that innovation isn't just something that is transferred to startups, it is something created by startups of all kinds.

Best Canadian business blogs ... and mine

2008-05-06T16:41:00.002-04:00

Just wanted to thank Andrew Willis of The Globe & Mail for including this blog as one of his five picks for Canada's best business blogs. Most of my favourite blogs aren't even on the list -- I think the Wellington Financial blog is the only other one I often read (also a Willis pick) and many of the others are ones I've never heard of. I'll have to take a look to see what I'm missing.

There's a poll where readers can choose their favourites among the ones nominated by the Globe's writers. I don't imagine too many Globe readers will be voting for a site that focuses on Waterloo tech news -- and I doubt that I can clear my cookies fast enough or log on to enough proxy servers to have much impact. :-) But it was nice to be mentioned when so many deserving others weren't.

UPDATE: Now that I read things more carefully, it says "finance and investment" blogs -- which mine isn't. That explains the e-mail I got from someone wanting to interview me about my investment philosophy (That would make a gripping story: "Um, well, actually I don't invest in any of the companies I write about.")

Ontario's innovation agenda shows progress

2008-05-06T15:46:00.001-04:00

The Ontario government released its innovation agenda last week -- outlining directions and priorities for achieving a "high and sustainable level of prosperity" for residents of the province. For the most part, these kind of documents are views from 50,000 feet and aren't particularly contentious -- not many people are going to oppose easier access to capital, building business skills, and streamlined government processes, for example.

But I was pleased to see that there's been a lot of progress made over the last couple of years. I wrote a blog post in December 2005 taking issue with the language of government "commercialization" policy at that time, and all of my key complaints were addressed in last week's document.

It shows an awareness of the primary role of markets and products -- something almost unheard of in 2005. There's no mention of "receptor capacity" or any of the other artifacts of innovation theories generated by wonks and academics that had little connection to what actually happens in business. It even recognizes graduates as a part of "knowledge transfer" from universities -- it's by far the most important part, and the government doesn't quite go so far as to say that, but it's good to see them acknowledge that universities contribute much more than intellectual property to the province's innovation system.

At the very least, the rhetoric coming from the government has improved significantly over the last two or three years. That may not sound like much, but I see it as big step.

Having said that, I'm still opposed to the government's proposal to offer income tax exemptions to companies commercializing university-created IP -- but not to other companies commercializing innovation. This may be the final relic of old school innovation theories -- that innovation is something that primarily happens in universities and labs and that university-generated innovation should be given special treatment over other innovations, regardless of the potential economic impact that each offers.

Great ideas with the potential for significant economic benefits to the province can come from anywhere. With any luck, it won't take another two or three years to overthrow the view that innovations generated outside universities and labs are less deserving of support.

Waterloo Tech Digest - May 6, 2008

2008-05-06T00:29:00.002-04:00

Compiled and written by
Gary Will
gary@garywill.com

In this issue:

Well.ca receives funding
Sandvine sales cut in half
Arise to raise $45M through share offering
Virtek ends the year in the black
RDM still forecasting big end to 2008 after weak Q2
Dalsa sets sales record, looks for digital cinema partner
Open Text piles up the cash
STOCK REPORT: Another rough month for Sandvine shares
Miscellaneous tidbits from RapidMind, Tungle, AideRSS, ParkVu, LiveHive, MKS, CTT, eSolutions, RIM, Maplesoft

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[1]---------------------------------------------------------------
Well.ca receives funding
April 17, 2008

Well.ca, already Canada's largest online retailer for non-prescription drug store products, has received funding from Jim Estill and Toronto's Maple Leaf Angels. The size of the round was not disclosed.

The deal was several months in the making and is the first external funding for Well. Joining the company's board of directors is Colin Webster, CFO of Toronto's First Coverage and the founder 10 years ago of an online marketplace for used computers that evolved into the e-commerce firm Truition.

[2]---------------------------------------------------------------
Sandvine sales cut in half
April 9, 2008

Sandvine announced the full results for its quarter ended February 29 (Q1 08), following its warning a month earlier that the numbers would be well below expectations (see previous digest). The company lost $7.0 million on sales of $8.3 million, with revenue plummeting 52% from the previous quarter and 46% from last year.

"Customer A" -- historically Sandvine's largest customer and the one commonly believed to be Comcast, although Sandvine has never said so -- was only good for $2.0 million in revenue in the quarter, down from $9.7 million last year and an average of $9.1 million per quarter over the previous four quarters. Sales to Comcast pushed Sandvine to a market value close to a billion dollars last year, but Comcast really hasn't done the company any favours over the last few months. It could have come out and said "Yes, we use Sandvine technology, here's why, and here's the service improvements we provide with Sandvine that we couldn't do otherwise." But, instead, it went into denials and then decided to play word games instead of being forthright, while avoiding any acknowledgment of Sandvine as a supplier.

And if Sandvine's financial results weren't disappointing enough, there was Kevin Martin -- not the curler, but the chairman of the FCC -- telling the U.S. Senate Commerce Committee in April that "Comcast appears to have utilized Internet equipment from Sandvine or something similar that is widely known to be a relatively inexpensive, blunt means to reduce peer-to-peer traffic by blocking certain traffic completely. In contrast, more modern equipment can be finely tuned to slow traffic to certain speeds based on various levels of congestion." Ouch. Comcast let Sandvine take the hit and just said that it would be switching to a new technology by the end of the year.

In Q1, sales to North America accounted for 86.5% of Sandvine revenue. Sales to Europe, Middle East & Africa (EMEA), which has been growing quickly in recent quarters, fell to $570,000 or 6.9% of revenue. Sandvine also disclosed that it has been approved for up to $625,000 in non-repayable Canadian government assistance, with $126,000 received in Q1. The company ended the quarter with $106.6 million in cash and securities, with operations using $5.1 million in cash in the quarter.

Sandvine's information circular for its AGM showed that sales SVP Angelo Compagnoni was again the company's highest paid officer in fiscal 2007, with salary and bonuses of $715,635, more than double the amount paid to any other executive.

Sandvine also announced that Atria CEO Steve McCartney has joined its board of directors.

[3]---------------------------------------------------------------
Arise to raise $45M through share offering
May 5, 2008

Arise is raising $45.1 million through a bought-deal share offering of 20.5 million shares at $2.20 each. As part of the offering, company founder Ian MacLellan is selling an additional 500,000 shares from his own holdings and will receive gross proceeds of $1.1 million. MacLellan currently holds 5.6 million Arise shares. Underwriters are led by Canaccord Adams and Clarus Securities.

The final amounts will almost certainly be higher, as the underwriters have a 15% overallotment option, which would bump the total amount raised to over $50 million. The offering is expected to close around May 20.

Arise announced that it will supply Germany's Aleo Solar with 90 megawatts of PV cells over a five year period. Arise's new German facility began manufacturing PV cells in April.

[4]---------------------------------------------------------------
Virtek ends the year in the black
April 15, 2008

A profitable end to a rough year for Virtek, which reported earnings of $1.3 million on sales of $13.2 million in the quarter ended January 31 (Q4 08). Sales were down 12% from the previous quarter and 15% from last year, but income from operations of $1.0 million was a $2 million improvement from Q3 and just slightly below the number a year ago.

Imaging and templating sales were up sharply from the previous quarter, while sales fell in Virtek's other business segment, marking and engraving. Operations generated $1.3 million in cash and Virtek ended the year with $7.3 million in cash.

For the year, the company reported earnings of $2.2 million (all coming from discontinued operations) on sales of $53.3 million. Sales were down 10% from fiscal 2007.

Under new CEO Stephen Sirocky, the company is again emphasizing margin improvements and profitability growth over sales growth ... which is exactly the message former CEO Bob Sandness gave when he took the reins. According to Virtek's AGM circular, Sandness was entitled to 18 months' salary ($390,000) following termination without cause. He was replaced as CEO in December. Sandness was also paid $30,000 for consulting services through the transition period.

Virtek also announced that Randy Fowlie will be added to its board of directors at the AGM in June. Fowlie spent eight years with Inscriber and its successors and is also a director of Open Text. He succeeds company co-founder Mohamed Kamel, who is leaving Virtek's board and becoming chair of the company's new technology advisory group. Brian Harrison will take over as chairman from Bob Nally, who will remain on the board. Harrison has been a Virtek director since 2006.

[5]---------------------------------------------------------------
RDM still forecasting big end to 2008 after weak Q2
May 2, 2008

It was another disappointing quarter for RDM in the period ended March 31 (Q2 08), but once again the company is forecasting huge year-over-year sales gains through the rest of the year.

Three months ago, the company forecast 10-15% annual sales growth and said it was a conservative estimate. But, following Q2, RDM now expects annual sales to be flat compared to 2007 -- cutting $3.5-5 million from its sales forecast for 2008. Still, just to achieve flat sales, RDM will need to record 40% year-over-year growth over the final two quarters of the fiscal year.

In Q2, RDM lost $269,000 on sales of $6.8 million. Sales were down 4% from the previous quarter and 13% from last year. At the halfway mark of the fiscal year, sales are running nearly 30% below last year, so even a flat year would be an achievement at this point.

RDM still has lots of cash -- $17.8 million -- with operations providing $460,000 in cash in the quarter.

[6]---------------------------------------------------------------
Dalsa sets sales record, looks for digital cinema partner
April 30, 2008

Dalsa got its new fiscal year off to a good start, with earnings of $3.8 million on sales of $54.6 million. It was the biggest top line in company history, with sales up 15% from the previous quarter and 21% from last year.

Dalsa's digital imaging and semiconductor businesses both showed strong quarter-over-quarter growth, and together they contributed $5.7 million of profits. The drag on earnings, again, was the digital cinema business, which reported a loss of $1.9 million, up slightly from both the previous quarter and last year. Digital cinema revenue was just $399,000, with most of that coming from sources other than Dalsa's digital movie camera.

After the end of the quarter, the company decided to look for "strategic partnership opportunities" for its digital cinema business. Dalsa is looking for a company with strong ties to the film industry that is prepared to make a significant financial investment. It has hired an investment bank to assist with identifying potential partners.

Operations generated $6.7 million in cash and Dalsa spent $2.0 million on property and equipment. It ended the quarter with $13.5 million in cash and securities.

[7]---------------------------------------------------------------
Open Text piles up the cash
April 29, 2008

Another big cash-generating quarter for Open Text, which reported earnings of US$7.3 million on sales of US$178.8 million in the period ended March 31 (Q3 08). Sales were down 2% from Q2 but up 15% from last year.

Revenue continued to be split almost evenly between Europe and North America. There were three licensing deals of $1 million or more and another four in the $500,000 to $1 million range.

Operations provided US$49.8 million in cash to the company, and -- because it reports in U.S. dollars -- its holding in non-U.S. cash provided added another US$9.9 million in exchange gains, leaving Open Text with US$215.8 million in cash at the end of the quarter, up US$56.1 million from the end of Q2.

[8]---------------------------------------------------------------
STOCK REPORT: Another rough month for Sandvine shares
April 2008

Even after issuing a warning about its quarterly results a month in advance, Sandvine shares still took another beating in April, finishing at the bottom of our list for the third straight month and the fourth time in the last five months. It still has a market capitalization of just under $200 million -- slightly less than Descartes, which overtook Sandvine in the market cap rankings in April. Sandvine shares are down 64% over the first four months of 2008 and 79% over the last seven months.

Virtek shares only went up seven cents in April, but that was good enough for a 19% gain, making them the top performer for the month.

For the month of April:

Virtek [TSX: VRK] +19%
Arise [TSX: APV] +17%
ATS [TSX: ATA] +15%
Open Text [TSX: OTC] +15%
Biorem [TSXV: BRM] +13%
RDM [TSX: RC] +9%
Descartes [TSX: DSG] +7%
RIM [TSX: RIM] +6%
--S&P TSX COMPOSITE INDEX +4%
Dalsa [TSX: DSA] +3%
===============================
MKS [TSX: MKX] -2%
--S&P TSX VENTURE INDEX -2%
TurboSonic [OTCBB: TSTA] -3%
Com Dev [TSX: CDV] -5%
Sandvine [TSX: SVC] -21%

Open Text ended the month with a $2 billion value. RIM's market cap jumped to $76 billion.

Companies with core operations outside the area:

ON Semiconductor [Nasdaq: ONNN] +32%
Google [Nasdaq: GOOG] +30%
Ansys [Nasdaq: ANSS] +17%
Sybase [NYSE: SY] +12%
NCR [NYSE: NCR] +8%
Oracle [Nasdaq: ORCL] +7%
Adobe [Nasdaq: ADBE] +5%
===================================
Blue Coat [Nasdaq: BCSI] -4%
Agfa-Gevaert [Brussels: AGFA] -5%
McAfee [NYSE: MFE] -7%

[9]---------------------------------------------------------------
Miscellaneous Tidbits

RapidMind was named "start-up company with the best innovation" at the 2008 Premier's Catalyst Awards. The award comes with a $200,000 cash prize from the provincial government.
Tungle has launched its first product: a free Outlook plugin that lets users share calendar information and coordinate meetings across organizations.
AideRSS's PostRank technology has been integrated into NewsGator's online RSS reader.
Jeff Fedor and Terry Goertz, both formerly with AideRSS and, before that, Primal Fusion, have founded a new company: ParkVu. Fedor previously founded Covarity and Ardesic.
Well.ca, Tungle, and AideRSS were among the startup companies at the "Tech Expo" component of the 2008 Tech Leadership Conference at Bingemans. Other exhibitors were Aeryon Labs, Client Outlook, FOSS Factory, Ghoti Studios, LoyaltyMatch, Semacode, Something On, Smartpatterns, and T-Ray Science.
LiveHive worked with the Toronto Raptors to create a interactive online trivia/predictions/polling site during the Raptors' brief run in the NBA playoffs. The Raptors are owned by Maple Leaf Sports & Entertainment Ltd., which had used LiveHive's NanoGaming technology earlier this year with the Leafs. The NBA's Philadelphia 76ers had worked with LiveHive in March.
After 16 years at MKS, Ellyn Winters-Robinson has left to become a principal of Ignition Design and Redline Promotions. She had been MKS' marketing VP for several years.
John Tennant will be stepping down as CEO of Canada's Technology Triangle, the region's economic development organization. He has led CTT since 2002.
Also changing organizations is Todd Letts, who is resigning as president of the chamber of commerce to join the management team at eSolutions Group, led by Karen Mayfield.
UW computer science professor Alex Lopez-Ortiz has been hired as chief scientist by San Francisco's Discovery Engine Corp. It is developing a "next-generation" search engine, expected to be in public beta later this year.
New Dundee's Andrew Sloss, a UW systems design engineering grad, was named "country manager" of eBay Canada and will oversee all eBay Canada operations. He had been in the role on an interim basis since September.
BlackBerry placed 51st in the third annual BrandZ ranking of the world's "most powerful brands." It had a year-over-year "brand value change" of 390%, which blew away every other brand in the top 100 (Apple was second at 123%). Surprisingly, Canada's top brand -- according to this list -- is Royal Bank of Canada, which ranked 34th -- ahead of Mercedes, Honda and Dell. RBC and BlackBerry were both placed ahead of Amazon, Yahoo! and eBay.
RIM has launched a BlackBerry certification program for IT service providers.
Maplesoft, the former Waterloo Maple, celebrated the 20th anniversary of its incorporation in April.

Showing off our startups at TLC 2008

2008-04-29T13:30:00.002-04:00

About 400 people are expected to attend the 2008 Technology Leadership Conference this Thursday at Bingemans in Kitchener. Along with being one of the top events of the year for the local tech community, the conference has become the place where you can see some of the top startup companies from the area as they present their companies at the Tech Expo in the main hall.

Exhibitors this year are AideRSS, LoyaltyMatch, Semacode, Tungle, Well.ca, Smartpatterns, Something On, Client Outlook, Aeryon Labs, Ghoti Studios, T-Ray Science, and FOSS Factory. ProductWiki, SuitedMedia, and Crez had tables at last year's event and are expected to be among the attendees this time, as are Primal Fusion and Metranome.

It's great to be able to show off our startups to the community and guests from out of town. Two years ago, I had trouble coming up with more than a handful of names but since then we've had no trouble filling all the available tables. With companies like Primal Fusion, Metranome, ParkVu and Avvasi expected to launch their first products in the coming months, next year's Tech Expo will be another one to look forward to.

Keynote speakers this year are Chris Anderson, editor of WIRED and author of The Long Tail, Chris Sacca, blogger and investor -- 1,800+ Twitter followers -- formerly with Google, and Jeff Taylor, founder and former CEO of Monster. Noted VC and blogger Rick Segal will also be speaking as part of a panel. Should be a great day.

Well.ca raises angel funding

2008-04-17T09:39:00.003-04:00

Congratulations to online drugstore Well.ca, which announced today that it has closed a round of funding -- one that has been several months in the making. The size of the round wasn't disclosed, but the investors were Jim Estill and Toronto's Maple Leaf Angels. It's the first external funding for the company and also seems to be the first deal that Maple Leaf Angels has announced.

It's the latest in a string of angel-backed deals for local startups. As I mentioned before, we had six companies raise seven-figure seed rounds in 2007 and every one of them involved angels (although one -- AideRSS -- was led by VC firm Tech Capital Partners).

Through Communitech, I first talked to Well.ca founder Ali Asaria late in 2006, and the entire entrepreneur services team -- and I think just about everyone else at Communitech too -- has enjoyed working with Ali and his team ever since.

(See Ali's comments about the investment.)

Tungle launches

2008-04-16T09:47:00.002-04:00

Tungle launched today. You can now download the beta version of the Tungle Outlook plug-in that lets you share calendars and availability across organizations.

The company is headed by Marc Gingras and Fang Yang, who have a long history as a team in Waterloo. I first met Marc eight years ago when he was heading the Kitchener-based development office of Entrade. Marc, Tungle's CEO, is now in Montreal, while Fang, the CTO, is based in Waterloo. Tungle raised $1.5 million last year from JLA Ventures and Desjardins Venture Capital, with additional funding from a U.S. based angel investor.

Marc blogged about the launch earlier today.

Waterloo Tech Digest - April 8, 2008

2008-04-08T00:57:00.002-04:00

Compiled and written by
Gary Will
gary@garywill.com

In this issue:

Sandvine cuts revenue forecast, warns of low Q1 sales
Sirific to be acquired by UK firm
Software Innovation to become part of Nasdaq-listed company
MKS expects profitable finish to fiscal year
Arise reports $4M loss; new plant to open this month
Com Dev sales climb 14%
RIM ships 4M BlackBerrys in Q4, doubles sales
Descartes finishes third consecutive profitable year
STOCK REPORT: MKS shares jump on near-record volume
Miscellaneous tidbits from MedShare, AideRSS, We-Create, LoyaltyMatch, LaunchPad, Desire2Learn, Dalsa

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[1]---------------------------------------------------------------
Sandvine cuts revenue forecast, warns of low Q1 sales
March 6, 2008

Shares in Sandvine took a huge hit after the company warned that it would have sales of only about $8.2 million in the quarter ended February 29 and that it was cutting its annual sales forecast by $20-25 million.

That quarterly revenue would be just a little better than half of what Sandvine reported a year ago, and a little less than half of its sales in the previous quarter.

Sandvine did not discuss earnings in its warning, and the full financial results are scheduled to be released tomorrow.

Shares in Sandvine had already lost 56% of their value over the previous five months and were down another 65% following this announcement -- falling to $1.03 at their lowest, before bouncing back a little to finish March at $1.75. Sandvine shares have now lost 74% of their value since the beginning of October.

[2]---------------------------------------------------------------
Sirific to be acquired by UK firm
April 7, 2008

Sirific Wireless is being acquired by UK-based Icera in an all-stock deal. The acquisition has been approved by the boards of both companies and is expected to close before the end of June. Financial details were not disclosed.

Icera says it will keep Sirific's offices in Waterloo and Richardson, Texas. The company designs software-defined chips for wireless modems and will now add Sirific's chipsets for multi-mode wireless devices to its product line. Icera is a privately-held venture-backed company that just raised $40 million in its fourth round of funding and has raised over $140 million since it was founded in 2002 (Icera included its new Waterloo and Richardson offices in its news release announcing the new funding, which went out a day before the Sirific announcement). The Daily Telegraph called it "Europe's best-backed semiconductor company." Icera is based in Bristol, with additional design offices in Cambridge, UK and at the Sophia Antipolis tech park in Southern France. It plans to raise another round of funding later this year and expects to go public within two years.

Sirific was founded in 2000 by Taj Manku, who was then associate professor of electrical engineering at UW. It received support from OCE and raised seed funding from Tech Capital Partners and Richard Boyer, who served as the company's initial CEO. Celtic House led a $10 million round of funding later that year. The company hired Texas Instruments veteran Mike Hogan as its CEO in 2002 and soon after closed an $18 million round of funding led by BDC Venture Capital. Agilent Ventures made an investment the following year and in 2004, Sirific raised another $23 million in a round led by TD Capital Ventures which also included Intel. In this period, the company started referring to itself as being Texas-based. It raised another $19 million last year, which added Dallas' Hunt Ventures to its list of investors. Hogan left the company and was succeeded as CEO by Russ Johnsen, who had been on Sirific's board of directors for three years. That was last announcement the company made. Manku has remained CTO through Sirific's eight-year history.

[3]---------------------------------------------------------------
Software Innovation to become part of Nasdaq-listed company
March 31, 2008

Acorn Energy will acquire Software Innovation -- which is in the process of renaming itself Coreworx, after its main product. Terms of the deal were not disclosed, and the transaction still requires final due diligence from Acorn.

Acorn is based in Delaware and trades on Nasdaq with a market capitalization of just under US$50 million. It had sales of US$5.7 million in 2007 but most of its assets were in shares of Comverge, a company it spun out through an IPO a year ago and which was worth several hundred million when Acorn decided to sell its stake (Comverge has since plummeted in value over the last couple of months.)

Coreworx is led by Ray Simonson and develops software used by engineering and construction firms to manage large capital projects. Simonson was originally an investor in the company through Verdexus, an investment firm founded by Randall Howard. Howard invested in Software Innovation in 2004 and served as CEO. Simonson joined the company as CTO in 2004 and became CEO when Howard stepped down from the management team. The current team includes Stephen Grinyer and Mike Davis, who both worked with Simonson at BlueGill/CheckFree, Steve Traplin, former CEO of Waterloo's Ardesic, and Kevin Thomson, who previously led NCR's Waterloo engineering office.

Along with Verdexus, Coreworx investors include Tech Capital Partners, BDC Venture Capital, Covington Capital, and RoyNat Capital.

[4]---------------------------------------------------------------
MKS expects profitable finish to fiscal year
March 4, 2008

MKS lost US$754,000 on sales of US$12.8 million in the quarter ended January 31 (Q3 08). Sales were up 11% from a year ago but down 6% from the previous quarter.

A drop in gross margins, which would have been impacted by the rise of the Canadian dollar, led to a 9% sequential decline in gross profit.

License revenue was light in the quarter, but the company says it will do much better in Q4. It still expects to be profitable for the year, which would require Q4 earnings of at least US$900,000. To achieve that, MKS will likely need to report its best quarterly operating income in over two years.

MKS ended the quarter with US$10.6 million in cash, up from US$9.9 million at the end of Q2.

The company also disclosed that RIM will be expanding its use of MKS Integrity for requirements management. It expects all of RIM's software engineers performing requirements management will be using MKS software by the end of the year.

[5]---------------------------------------------------------------
Arise reports $4M loss; new plant to open this month
March 18, 2008

Just weeks away from the opening of its new manufacturing facility in Germany, Arise reported results from what it hopes will be its second-last pre-revenue quarter. In the period ended December 31 (Q4 07), Arise lost $4.1 million on sales of $315,000. All that revenue went in the front door and out the back, as the company actually reported a slightly negative gross profit.

Arise closed a $34.5 million share offering in the quarter (see October digest) and finished Q4 with $37.9 million in cash.

For 2007, Arise lost $11.5 million on sales of $1.2 million. Accumulated deficit climbed to $23.1 million at year-end.

[6]---------------------------------------------------------------
Com Dev sales climb 14%
March 6, 2008

Com Dev earned $1.3 million on sales of $44.9 million in the quarter ended January 31 (Q1 08). Sales were up 14% from a strong Q1 last year and up 3% from the previous quarter. With the rise in the Canadian dollar, gross margins were still well below last year's levels but were double what they were in Q4.

The company received $32.7 million in new orders in the quarter, a bit below recent levels, but enough to give Com Dev an order backlog of $133 million.

R&D spending was much lower in Q4 than it had been in the previous three quarters, but the company says it expects its R&D costs will be going back up to the levels seen through most of 2007. SG&A costs in the quarter included $800,000 for the company's review of its previous stock option granting practices. A special committee of the board determined in January that no material adjustments to Com Dev's financial statements will be required. Recommendations made by that committee are expected to be announced this week.

After piling up the cash in the previous quarter, Com Dev used $13.2 million on operations in Q1 with an additional $3.5 million spent on capital assets. It ended the quarter with $14.3 million in cash. This was before the acquisition of the ETI passive microwave devices business, announced in February.

Com Dev's board has awarded CEO John Keating a $125,000 bonus to be paid each quarter for four years to be used -- after taxes -- to buy shares in the company. He received $376,000 in stock purchase bonuses in fiscal 2007. According to insider trading reports, Keating paid $196,304 for 38,200 shares in Com Dev over the year. No additional purchases have been reported over the last six months. Keating's total compensation for the year was $807,060, down from $842,196 and 400,000 options in 2006.

[7]---------------------------------------------------------------
RIM ships 4M BlackBerrys in Q4, doubles sales
April 2, 2008

RIM continues to double its sales year-over-year, reporting revenue of US$1.9 billion in the quarter ended March 1 (Q4 08) -- up 102% from the previous year and 13% from Q3. Earnings for the quarter were US$412.5 million, up from US$370.5 million in the previous quarter.

There were 2.2 million BlackBerry subscribers added in the quarter, well above the company's forecast of 1.8 million. It said that the majority of new subscribers were from the consumer market and was excited to point out that over one million users had installed the Facebook for BlackBerry application. RIM shipped 4.4 million devices in Q4. There are now more than 14 million BlackBerry users, and RIM expects to add another 2.2 million this quarter.

RIM is forecasting sales of US$2.23-2.3 billion in the current quarter. It ended Q4 with US$2.3 billion in cash, up US$210.7 million over the quarter.

For the year, RIM earned US$1.3 billion on sales of US$6.0 billion. Revenue was up 98% from 2007.

[8]---------------------------------------------------------------
Descartes finishes third consecutive profitable year
March 6, 2008

Descartes reported revenue of US$16.0 million in the quarter ended January 31 (Q4 08), up 3.5% from the previous quarter. The company made three acquisitions in the period, all in the second half of the quarter. Revenue climbed 18% from last year.

Net income was US$17.9 million, but that included a US$16.0 million non-cash deferred income tax recovery that will be expensed in future quarters. Excluding that, Descartes had net income of US$1.9 million, which was still good enough to set an all-time record for the company. Operating income was US$1.6 million, up from $1.3 million in Q3.

For the year, Descartes reported sales of US$59.0 million, up 14% from 2007. Earnings were US$22.4 million or US$6.4 million excluding the Q4 tax recovery. Over the year, Descartes acquired six businesses and saw its stock price decline by 18%.

It finished the year with US$44.1 million in cash, down US$4.2 million from the end of Q3.

[9]---------------------------------------------------------------
STOCK REPORT: MKS shares jump on near-record volume
March 2008

MKS shares climbed 33% in March -- their best month-end price since May and their strongest one-month performance since a 41% jump in May 2003. It wasn't the quarterly results that triggered the spike. If anything, the numbers were weaker than those of the previous quarter and the jump in the share price came more than two weeks after the results were announced.

The stock first jumped on March 24 and three days later the volume went through the roof, with 1.4 million shares traded on March 27. That made it the second most active trading day in MKS history, falling just short of the 1.5 million shares traded on February 12, 2003. CEO Phil Deck bought 100,000 shares on the open market, with COO Michael Harris buying 65,000 shares and Deck's investment partner Gerald Hurlow buying 80,000 shares.

For the month of March:

MKS [TSX: MKX] +33%
Arise [TSX: APV] +19%
Dalsa [TSX: DSA] +15%
RIM [TSX: RIM] +13%
Com Dev [TSX: CDV] +11%
TurboSonic [OTCBB: TSTA] +7%
Open Text [TSX: OTC] +2%
Descartes [TSX: DSG] +1%
===============================
--S&P TSX COMPOSITE INDEX -2%
Virtek [TSX: VRK] -5%
ATS [TSX: ATA] -7%
--S&P TSX VENTURE INDEX -10%
RDM [TSX: RC] -25%
Biorem [TSXV: BRM] -38%
Sandvine [TSX: SVC] -40%

Dalsa shares also had their best month-end since May and are now up 76% over the first three months of 2008. Open Text shares were pretty quiet in the month but still rose to their highest month-end price since July 2004.

We covered Sandvine above, and things haven't been much better at RDM, where the company's stock has fallen 64% over the last five months.

Despite what looks like a big drop, Biorem shares have actually been in the same trading range for the last three months. It finished February at the high end of the range and was listed here with a huge gain and then it ended March at the low end and shows a big decline, but there's been almost no change in its range this year.

As of Friday's close, RIM had a market capitalization of $68 billion. Arise has climbed back ahead of Descartes for seventh place on the market cap list with a value of $230 million.

Companies with core operations outside the area:

Adobe [Nasdaq: ADBE] +6%
Oracle [Nasdaq: ORCL] +4%
NCR [NYSE: NCR] +3%
===================================
McAfee [NYSE: MFE] -1%
Sybase [NYSE: SY] -1%
ON Semiconductor [Nasdaq: ONNN] -5%
Blue Coat [Nasdaq: BCSI] -6%
Google [Nasdaq: GOOG] -7%
Ansys [Nasdaq: ANSS] -8%
Agfa-Gevaert [Brussels: AGFA] -23%

ON Semiconductor -- newly added to this list with the close of its acquisition of AMI Semiconductor -- has seen its shares climb 20% so far in April.

[10]---------------------------------------------------------------
Miscellaneous Tidbits

J. Paul Haynes and MedShare have split, with MedShare founder and president Barry Billings adding the CEO title he gave up last year when Haynes joined the company. Over the period that Haynes was CEO, MedShare raised millions of dollars from investors and saw its revenue grow by more than 600%, according to Haynes.
Also parting ways are Kevin Thomason and AideRSS. Thomason co-founded the company last year with Ilya Grigorik and helped lead AideRSS through its launch last summer and to a seven-figure round of funding in December.
One more: Bill Waters is no longer CEO of We-Create, the Web software company he led for more than eight years. He is now working as an independent communications and leadership consultant.
LoyaltyMatch is in Boston to participate in the AlwaysOn/Vator.tv Venture Summit East 2008 competition. It received the most votes among 27 companies that submitted pitches to the competition's website. LoyaltyMatch launched its website in February, which helps users convert unused loyalty program points into cash. It is based in Kitchener and Ottawa.
The 2008 Nicol LaunchPad $50K winner is Atreo Medical, an Ottawa-based startup out of McMaster University developing a high-tech glove to be used for CPR instruction and delivery. Second place finisher was VSM Technologies out of Carleton University, which has developed a tiny chip for wireless monitoring of human vital signs. I guess I didn't have to worry about being too harsh a judge at the business plan stage, since those were the two plans I was assigned. Third place went to Digital Dash, which has created technology for a curved tactile display. It is also out of McMaster.
Upon reexamination, the U.S. Patent & Trademark Office has preliminarily rejected the validity of the patent used by Blackboard to sue Desire2Learn. The decision is a long way from being final and comes too late to be of much help to Desire2Learn, which was found to have infringed on the dubious patent last month by a jury in Texas (see previous digest).
Dalsa is selling most of what's left of its Colorado Springs operations to Colorado-based Echoserve (see August digest). Financial details have not yet been disclosed. The company also announced that a special effects sequence in the next James Bond movie, "Quantum of Solace," was shot with eight of Dalsa's 4K Origin cameras. The movie is scheduled for a fall release.

Is this the best way to meet potential investors?

2008-04-02T11:19:00.001-04:00

The Canadian Innovation Exchange (CIX) is being held in Toronto at the end of this month. If selected, a company looking for early-stage funding pays $600 to give a presentation to an audience that includes several VC firms and other potential investors.

Even though there's a Communitech logo on the site (which I had nothing to do with -- I've had no contact with anyone organizing this event), and my colleague Ron Neumann is a scheduled presenter, I have mixed feelings about these kind of events.

For entrepreneurs, it certainly seems convenient to get your company in front of several investors with just one pitch. I'm sure some would say that the amount of time saved when compared to arranging individual meetings with each investor justifies the fee by itself. And there's no question that there are some good speakers scheduled for CIX.

On the other hand, these events reinforce the myth that companies need to pay intermediaries (in this case, the event organizers) to get in front of VCs, or at least that it's beneficial to do so. It's something I mostly associate with the leeches and hangers-on who try to charge startup entrepreneurs a fee for introducing them to VCs. There aren't as many today as there were back in the bubble era, thankfully, but it still goes on.

Here's a little secret: it's not difficult to get a Canadian VC to look at your business (getting them to invest is, but that's equally true for companies that present at VC events). They aren't hard to find and contact, and it won't cost you anything.

I know people at most Canadian VC firms (including almost all of the firms whose logos appear on the Canadian Innovation Exchange site) and can guarantee you that, if you have a good investment opportunity for them, almost all of them would be happy to come to Waterloo to hear more. You won't have to hope to be selected for some dog-and-pony show in Toronto and pay hundreds of dollars. Introductions certainly help, particularly coming from someone investors believe will filter out the junk, but you don't have to pay for them. If you have a VC-fundable business, every member of Communitech's entrepreneur services team can hook you up with VCs at no cost.

I agree with Alec Saunders, who last week compared the event to a beauty pageant and said he found a lot not to like in the model. If there had been more U.S. investors participating (there are some), I might have found it to be more valuable. There are so many of them, your degrees of separation will likely be greater than one -- which won't be the case for Canadian VCs -- and most will expect you to go to them, which starts getting expensive.

But to get in touch with most of the people scheduled to be at CIX, I can't say that signing up for a beauty pageant would be the way I'd go about it.

Don't all innovative startups deserve access to the same tax break?

2008-03-26T14:06:00.002-04:00

One of the items included in the Ontario budget unveiled yesterday was "a 10-year Ontario income tax exemption for new corporations that commercialize intellectual property developed by qualifying Canadian universities, colleges or research institutes."

As with all budget announcements, this will be subject to refinements and revisions before it gets implemented ... if it ever does ... and an obvious first reaction would be that few tech startups are particularly concerned about paying income tax (and provincial income tax in particular). There's usually enough losses up-front to put off paying a significant amount of income tax for a long time.

What disappointed me, though, was the distinction this announcement made between university spinoffs and other tech startups. As presented in the budget, only spinoffs would qualify for the tax exemption.

We have several university spinoff companies in the Waterloo area, but most of our tech startups are not spinoffs -- certainly not in accordance with how Statistics Canada defines a spinoff. Neither are most of our largest tech companies. Some are, but most aren't.

I have an office at the Accelerator Centre at the UW Research & Technology Park, and on our floor we have spinoff companies and non-spinoff startups working side-by-side. If you weren't told which were which, you'd have a tough time separating one from the other in terms of the sophistication of the technology, market opportunity, or number of employees.

Under the budget proposal, however, we'd have the spinoff in one suite exempt from Ontario income tax and essentially being subsidized by its neighbouring startup that isn't a spinoff and doesn't qualify for the exemption. I can't see any justification for that distinction.

If the Ontario government wants to give a tax break to new companies commercializing innovative technology, let it extend that benefit to all tech startups regardless of their starting points. If the goal is to assist in the economic development of the province, it shouldn't matter whether companies that drive our economic success are university spinoffs or not.

Strong year for seed investment in Waterloo Region

2008-03-25T15:16:00.001-04:00

Links to a couple of posts I made on the WatStart blog:

There may be some ominous signs for the future of venture capital in Ontario, but 2007 was a good year for Canadian VC investment.

In Waterloo Region, it was an amazing year, with a record number of seed-stage investments ... even though you may never have heard about most of them.