December 2004

Compiled and written by
Gary Will
E-mail:
gary@garywill.com

Issue 94 -- January 10, 2005
In this digest:

1. 2004: Banner year for RIM; Navtech tops stock chart
   
2. RIM reports quarterly profits of US$90M
   
3. RIM loses appeal of patent infringement decision

4. Inscriber acquired by Leitch for $18M
   
5. Com Dev sales up 35% in 2004; first profitable year since 1997
   
6. Virtek numbers disappoint

7. Navtech reports 12th consecutive profitable quarter
   
8. Biorem takes next step in plans to go public
   
9. STOCK REPORT: Navtech and Virtek reunited at the top of the chart

10. Miscellaneous tidbits from RDM, Unitron, GBG, WorldWithoutWire, Reqwireless, Open Text.

2004: Banner year for RIM; Navtech tops stock chart

Not surprisingly, RIM was the big story again in 2004. It started the year raising over a billion dollars through a stock offering and then grew (for a while, anyway) to over $20 billion in value. By the end of the year its stock had come within a millimetre of matching its all-time high, peaking at $127.91 in December. That just missed the $130 achieved in February 2000 -- a number that many people never expected to see again. As recently as March 2003, RIM shares had traded under $8 (all figures adjusted for a 2004 stock split).

RIM now runs neck-and-neck with Nortel for the title of Canada's most valuable high-tech company, even with an ominous court ruling hanging over its head. Its BlackBerry products, introduced at the beginning of 1999, took five years to hit the one-million subscriber mark, but then added its second million within nine months.

RIM stock increased in value by 128% in 2004, which was good for second place among local companies. At the top of the list was Navtech, a small company that not long ago couldn't pay its bills and had a working capital deficiency that was over a million dollars. It finished digging itself out of that hole in 2004 with its third straight profitable year. Its stock price tripled over the year.

Stock performance for 2004:

Navtech [OTCBB: NAVH] +217%
RIM [TSX: RIM] +128%
Dalsa [TSX: DSA] +43%
Turbosonic [OTCBB: TSTA] +17%
--S&P TSX COMPOSITE INDEX +12%
Com Dev [TSX: CDV] +6%
--S&P TSX VENTURE INDEX +4%
RDM [TSX: RC] +3%
MKS [TSX: MKX] +1%
===============================
Open Text [TSX: OTC] -2%
ATS [TSE: ATA] -16%
Virtek [TSX: VRK] -21%
Descartes [TSX: DSG] -35%
ClearFrame [TSXV: CLF] -60%
ARISE [TSXV: APV] -69%

The median result on this list was MKS's meagre 1% increase -- its stock actually went up by one penny over the year -- well below last year's median of a 35% increase.

For the second straight year, ARISE was the biggest loser -- and it only went public a year-and-a-half ago. Its 69% decline in stock value in 2004 follows a 27% drop in 2003.

If it had hung around to the end of the year, the worst performer would have been Newlook Industries, the public company behind Onlinetel. It was given a ridiculously high valuation in the spring when it merged with Kitchener's Onlinetel, and its stock fell 88% over the next nine months.

CME Telemetrix -- now NIR Diagnostics -- would also have been near the bottom on the list if it has stayed in town. It was actually up 11% on the year when it left Waterloo, but it's been all downhill since then. It ended 2004 with a 66% decline in its share value. Its stock has traded as low as $0.09 recently. At their peak in 2001, CME Telemetrix shares hit $6.65. After struggling through over a quarter-century in Waterloo, CME left for Campbelville in 2004.

Year-end market capitalization in millions, using outstanding shares (year-over-year change in parentheses):

1. RIM -- $18,541 (+$11,671)
   
2. Open Text -- 1,220 (+230)
   
3. ATS -- 653 (-120)
   
4. Dalsa -- 349 (+109)
   
5. Com Dev -- 181 (+10)
   
6. Descartes -- 97 (-51)
   
7. MKS -- 65 (+1)
   
8. RDM -- 21 (+1)
   
9. Virtek -- 19 (-5)
   
10. Navtech -- 6.6 (+4.0)
    
11. TurboSonic -- 5.2 (+0.4)
    
12. ARISE -- 1.8 (-3.4)
    
13. ClearFrame -- 0.7 (N/A)

During 2004, the biggest acquisition made by a Waterloo company was Open Text's acquisition of Germany's Ixos -- which was announced in 2003, but closed in 2004. It was the largest of the many acquisitions Open Text has made through its history.

Notable investments in privately-owned companies included $23 million raised by Sirific, $8 million for Meikle Automation, $3 million to Handshake VR, and $2 million raised by start-up Diskstream.

Dspfactory was acquired by AMI Semiconductor, EMJ was bought by Synnex Canada, and Symbility Solutions became part of Automated Benefits.

Dalsa ended the year reporting record quarterly revenue and then opened a digital cinema rental business in the Los Angeles. Com Dev had its first profitable year since 1997. SlipStream became a world-leader with a product that even its own executives didn't think would have the legs it has proven to have. Dialup? That's so ... 2004, apparently.

After more than 20 years of talk and planning, UW's North Campus Research & Technology Park opened with Sybase as its first tenant. Open Text will move in this year.

ARISE announced a too-good-to-be-true acquisition in March, then found out that it couldn't raise the funds to close the deal. The company's CFO distanced himself from the books and then distanced himself from the company, along with several other senior managers. Only a bailout by EMJ kept ARISE afloat. But before the end of the year, it raised nearly a quarter-million dollars and was able to pay off $325,000 in debt with shares.

Descartes' announced Q4 numbers turned out to have been prepared by the Brothers Grimm, with a bottom line that turned out to be off by US$6.3 million. Lawsuits were filed in the U.S. claiming the company had issued false and misleading statements to the market. Descartes settled the suits by agreeing to pay US$1.5 million. For the fourth straight year, the company announced major layoffs, this time cutting 130 jobs and firing its CEO. It gave the job to the last remaining member of its old guard. Through the year, Descartes racked up four more quarters of losses, running its streak to 35.

Carol Leaman left Fakespace and later became CEO of RSS Solutions. Ray Simonson left CheckFree i-Solutions and ended up working with Randall Howard at Verdexus. Manuel Pietra's internal machinations to become sole CEO of Descartes did not have a long-lasting effect as he was fired after having the job to himself for about a year.

And 14 service providers put their money behind the launch of WatStart to help nurture very-early-stage high-tech entrepreneurs in the community -- a group that had been largely neglected for years.

RIM reports quarterly profits of US$90M
December 21, 2004

RIM may not be winning battles in the courtroom (see next item), but it's been much more successful in the marketplace, as it reported another strong quarter in the period ended November 27 (Q3 05).

RIM reported net income of US$90.4 million (US$0.46/share) on revenue of US$365.9 million, which topped its forecast of US$340-360 million. Sales were up 138% from a year ago (which, in turn, had been up 107% from the previous year) and 18% from the previous quarter. The reported net income is after a litigation provision of US$24.6 million related to court ruling in the NTP patent infringement case.

The number of BlackBerry subscribers increased by a net 387,000 --compared to 317,000 in Q2 -- to a total of 2.044 million. RIM expects to add about another 450,000 subscribers in the current quarter. A year ago, there were 865,000 million BlackBerry users.

Handheld sales were up 200% from last year with an average selling price of US$368, which is almost unchanged from a year ago. RIM has said that it expects the average price to decline, along with the average total revenue it receives per unit (which goes beyond the initial selling price).

Operations generated US$72.3 million in cash and RIM ended the quarter with US$1.6 billion in cash, on top of the US$90 million it has set aside so far for NTP, pending a final court decision.

The company is expecting sales of US$390-410 million in the final quarter of the fiscal year, and US$430-455 million in the first quarter of fiscal 2006, with increased GAAP net income in both periods.

RIM loses appeal of patent infringement decision
December 14, 2004

Most of the original court decision finding that RIM had infringed on patents held by NTP Inc. was upheld by U.S. Court of Appeals for the Federal Circuit.

RIM did win one minor point surrounding the term "originating processor," and that was enough for the original judgment and injunction against it to be vacated, but that really means very little. The matter now goes back to the lower court, which can decide what impact the appeals court ruling has on its judgment. There's no reason to believe that the injunction won't be reimposed. The decision is expected to come in the spring. RIM can also ask for the appeals court ruling to be reconsidered.

With this loss, it has become much more likely that RIM will choose to negotiate an agreement with NTP. NTP needs RIM to receive any value from its patents, and it now looks like RIM is going to need NTP as well.

Inscriber acquired by Leitch for $18M
December 16, 2004

Inscriber Technology is being acquired by Toronto's Leitch Technology Corporation for $18 million. Leitch is a TSX-listed company with a market value of over $300 million. Its provides video systems for the television industry.

Inscriber will form the core of Leitch's broadcast graphics unit and will continue to operate in Waterloo. Inscriber founder Dan Mance will become CTO of Leitch, while Inscriber COO Randy Fowlie will head the broadcast graphics product line within Leitch.

The deal is expected to close this month. According to the release, Inscriber is expected to generate $14 million in revenue this year and to contribute positive earnings.

Leitch raised gross proceeds of $42.7 million through a stock offering in October and over the first half of fiscal 2005 has reported a net loss of $1.7 million on sales of $111.0 million. It just completed its first profitable quarter in four years and its stock is up 67% from a year ago. Leitch had $58.8 million in cash at the end of October.

Inscriber was founded in 1986 by Mance and his wife Kathy Mance after he left Electrohome. It was known as Image North Technologies until around 1997. Four years ago, it spun off technology that became the core of Adobe's development office in Waterloo.

Com Dev sales up 35% in 2004; first profitable year since 1997
December 16, 2004

Com Dev ended its 2004 fiscal year with Q4 sales of $32.2 million and a net loss of $1.5 million ($2.0 million including interest on convertible debentures) in the period ended October 31. Sales were flat from the previous quarter and up 27% from 2003.

The net loss included a $4.1 million write-off of its investment in Gatineau's SpaceBridge Semiconductor and a $1 million charge to increase its reserve for costs associated with its former wireless business facility in Dunstable, England (see October digest).

Operations generated $7.6 million in cash, of which $3.9 million was spent to pay down debt owed to THL. That reduces Com Dev's loans payable to $9.4 million. A net $2.3 million was spent on capital assets. The company ended the quarter with $27.1 million in cash.

Order backlog remained unchanged over the quarter at $79 million, so new orders in Q4 were about double the weak $16 million recorded in the previous quarter and were in line with what was achieved in Q2. Most of the new business came from one big contract with Boeing.

For the full fiscal year 2004, Com Dev revenue climbed 35% to $118.5 million. Its net income for the year of $7.3 million ($5.5 million after deducting debenture costs), broke its string of six straight money-losing years. Through the year, operations generated $21.2 million in cash.

Com Dev expects to grow its revenue by another 10% in 2006. It ended the year with 825 employees, up 47 from the end of Q3. It hopes to fill another 60 vacancies over the next couple of quarters.

Com Dev also announced the resignation of its chairman, Val O'Donovan. Although O'Donovan was technically not one of the company's founders (he bought out one of the founders), he was the main force behind its growth over the last 30 years. O'Donovan has suffered some health setbacks over the last couple of years. "His ongoing poor health made it impossible for him to maintain the high level of commitment and enthusiasm that he gave to Com Dev throughout his career," the company said in a release. "His pioneering vision of space, of Canada in space, and Canada's place in the world in general, drove Com Dev from a tiny start-up company to where it is today."

Virtek numbers disappoint
December 14, 2005

It was another weak quarter for Virtek -- its third straight -- in the period ended October 31 (Q3 05). While sales were up 17% from a disastrous Q2, a sharp decline in gross margins led to a 4% sequential decline in gross profits. The company says it expects margins to return to normal levels in Q4. Compared to last year, Q3 sales were down 9%.

Net loss was $2.8 million ($0.10/share), which included a $1.8 million provision for income taxes, some of which could end up being reversed in future quarters if Virtek's traditional imaging & templating business returns to profitability.

With the cost reductions made in the previous quarter, total SG&A and R&D expenses were down 19% from Q2, allowing Virtek to cut its operational loss to $1.2 million from $2.2 million.

Operations used $1.2 million in cash and Virtek ended the quarter with $2.7 million in net cash, including $1.6 million in restricted funds.

Navtech reports 12th consecutive profitable quarter
December 20, 2004

In the quarter ended October 31 (Q4 04), Navtech reported net income of US$160,000 (US$0.03/share) on sales of US$2.0 million. It was the company's twelfth straight profitable quarter.

Sales were flat from the previous quarter and operational income was just US$26,000, but that was boosted by a US$137,000 recovery of income taxes.

Operations generated US$417,000 in cash in the quarter, partly achieved by running up accounts payable by US$150,000. Deferred revenue increased by US$167,000 to US$623,000. Navtech ended the quarter with US$445,000 in cash, up from US$37,000 at the beginning of the quarter.

It had 95 employees at the end of the year, which is about where it was a year ago.

Biorem takes next step in plans to go public
December 16, 2004

Biorem announced at the beginning of September that it planned to go public by merging with Ontario Capital Opportunities Inc., a capital pool company listed on the TSX Venture Exchange. Not much had been said about it since, but a filing statement has now been filed at SEDAR setting out the details of the deal.

In the nine months ended September 30, Biorem reported net income of $642,000 on sales of $7.9 million. Revenue was up 17% from 2003. Over that period, the company only spent 1% of revenue on R&D, but it was expecting to triple that to 3% by the final quarter of 2004.

Biorem had 20 employees, including four temporary positions. It plans to recruit a CFO soon. Brian Herner, who has been CEO since 1993, is acting as interim CFO.

The company also hopes to make an acquisition this year.

STOCK REPORT: Navtech and Virtek reunited at the top of the chart
December 2004

The year ended as it began, with Navtech and Virtek as the top two gainers in December, as they were in January. Unfortunately for Virtek, the two companies followed widely divergent paths between those points. Navtech was the year's top stock market winner (see above) and its shares ended the year at their highest point since February 2001, while Virtek shares actually set an all-time low in December before bouncing back.

For the month of December:

Navtech [OTCBB: NAVH] +22%
Virtek [TSX: VRK] +19%
Com Dev [TSX: CDV] +18%
MKS [TSX: MKX] +17%
Descartes [TSX: DSG] +16%
RDM [TSX: RC] +14%
Open Text [TSX: OTC] +9%
--S&P TSX VENTURE INDEX +4%
--S&P TSX COMPOSITE INDEX +2%
===============================
Dalsa [TSX: DSA] -0%
RIM [TSX: RIM] -6%
Turbosonic [OTCBB: TSTA] -7%
ClearFrame [TSXV: CLF] -20%
ARISE [TSXV: APV] -32%

As mentioned in the yearly review, RIM shares hit a high of $127.91 in December, narrowly missing the all-time high of $130 set in 2000. They fell back to end the month at $98.78.

Companies with core operations outside the area had an excellent month, with every one of them recording a gain:

Automated Benefits [TSXV: AUT] +71%
CVF [OTCBB: CNVT] +17%
Sybase [NYSE: SY] +16%
Blue Coat [Nasdaq: BCSI] +12%
AMIS [Nasdaq: AMIS] +9%
Senesco [Amex: SNT] +8%
SBS Technologies [Nasdaq: SBSE] +7%
Ansys [Nasdaq: ANSS] +4%
Siebel [Nasdaq: SEBL] +4%
Agfa-Gevaert [Brussels: AGFA] +4%
Adobe [Nasdaq: ADBE] +4%
LSI Logic [NYSE: LSI] +4%
CheckFree [Nasdaq: CKFR] +3%
McAfee [NYSE: MFE] +0%
==================================

Miscellaneous Tidbits

• RDM closed a $1.4 million financing through a private placement with Dynamic Venture Opportunities Fund (DVOF), part of the Dynamic Group. DVOF received 1,400,000 common shares of RDM at $1.00 a share, along with warrants exercisable over the next two years to purchase 700,000 common shares at $1.35 a share.

• Cameron Hay, who has overseen Unitron Hearing's operations in Kitchener since 2002, has been named the company's new president and CEO. He replaces Mike Jones, who was based in Chicago.

• Another acquisition for GBG -- its ninth in the last three years. This time it has picked up Distribution Information Systems Corp. (DISC) of Charlotte, North Carolina. DISC specializes in applications for wine and liquor distributors. Details were not disclosed.

• Waterloo's WorldWithoutWire was acquired by TeraGo Networks, based in Calgary and Richmond Hill. No details were provided, other than that it was an all-cash transaction.

• Reqwireless announced an agreement with Telus Mobility to bring its REQMail e-mail client to the Fastap-enabled LG 6190 handset available through Telus.

• Open Text has said that its Q2 results -- to be announced in February -- will be above the high end of the guidance it provided in October.