February 2005

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

Issue 96 -- March 8, 2005
In this digest:

1. Val O'Donovan and Klaus Woerner pass away
   
2. Open Text exceeds its forecasts, appoints new CEO
   
3. Descartes quarterly losses down to US$1M

4. MKS reports Canadian GAAP profit on strong sales
   
5. Dalsa makes offer to acquire Coreco for $72M
   
6. Dalsa's board losing local flavour

7. Com Dev breaks even despite steep margin drop
   
8. RDM reports small quarterly loss; expects 17% sales growth
   
9. STOCK REPORT: Navtech shares double in value in three months

10. Miscellaneous tidbits from Sandvine, Christie, J2X, Turbosonic, SlipStream

Val O'Donovan and Klaus Woerner pass away
February 6 & 7, 2005

Val O'Donovan and Klaus Woerner, the driving forces behind Cambridge's top two high-tech businesses, died on the same weekend in February.

O'Donovan, 68, was the former CEO and chairman of Com Dev who brought the company to Cambridge from Montreal in 1979. Along with building Com Dev into a world-class supplier of satellite components, O'Donovan had also supported other high-tech start-ups in Waterloo Region, including RIM and Dspfactory. He was also chancellor of UW for six years, taking the position in 1997.

Woerner, 65, was the founder and CEO of ATS Automation Tooling Systems, creating the company in 1978. He was named Canada's entrepreneur of the year in 1997.

In addition to their work in high-tech, O'Donovan and Woerner were both known for their involvement in and financial contributions to a variety of community initiatives. Both had been ailing for some time and had been forced to reduce their workloads because of their illnesses.

Open Text exceeds its forecasts, appoints new CEO
February 8, 2005

Open Text blew past its own forecasts for the quarter ended December 31 (Q2 05), reporting net income of US$11.0 million (US$0.21/share) on revenue of US$114.7 million. The company had predicted revenue in the range of US$100-106 million.

Sales were up 34% from the previous quarter and 69% from a year ago (before Open Text acquired Ixos).

Operations provided US$11.7 million in cash. Open Text spent US$4.2 million to purchase capital assets, an additional US$3.7 million to purchase IXOS shares, US$17.8 million to repurchase its own shares, and US$3.4 million on unspecified acquisition costs. It ended the quarter with US$102.2 million in cash, down US$9.3 million from the end of Q1.

The company is forecasting a small drop in revenue in the current quarter to US$108-112 million. It will need to average 110-125 million in revenue over the next two quarters to hit its fiscal year guidance of US$420-450 million in sales.

It looks like about 2.4 million warrants the company issued as part of the Ixos acquisition will expire this week. The exercise price on the warrants was US$20.75 a share and Open Text stock closed last week at US$18.41 on Nasdaq.

Tom Jenkins will be stepping down as CEO effective July 1 but will continue as chairman and a full-time employee. John Shackleton, who has been president since 1998, will add the CEO title.

Descartes quarterly losses down to US$1M
March 3, 2005

Descartes is now only losing money by the bucketful instead of by the trailer-load as it has for most of its history, and its operations generated cash in the quarter ended January 31 (Q4 05).

For the period, it reported a net loss of US$959,000 (US$0.02/share) on sales of US$11.0 million. Revenue was flat from the previous two quarters, but down 23% from a year ago. A decline in margins led to a 5% sequential drop in gross profits, but operating expenses were down 19% from the previous quarter, which helped to improve the bottom line from Q3.

There was a US$214,000 reversal of a restructuring and asset impairment cost, and without that, the quarterly loss would have been about US$1.2 million.

Operations generated US$2.6 million in cash and only US$68,000 was spent on capital assets in the quarter. Descartes ended the quarter with US$48.8 million in cash, up US$2.4 million from the beginning of the quarter. After deducting the company's outstanding convertible debentures, net cash is US$21.8 million.

For fiscal year 2005, Descartes lost US$38.5 million (US$1.36/share) on revenue of US$46.4 million. Sales were down 22% from the previous year. At the beginning of the year, the company had forecast that sales would grow by 10-15%.

MKS reports Canadian GAAP profit on strong sales
February 23, 2005

MKS reported net income of US$789,000 (US$0.02/share) on sales of US$10.6 million in the quarter ended January 31 (Q3 05). Revenue was up 12% from the previous quarter and 46% from last year. And, for the first time in nearly two year, the company reported a profit under Canadian GAAP, with net income of US$386,000 (MKS generally reports its results under U.S. GAAP).

The core software change management (SCM) business unit reported sales of US$8.3 million, up 13% from Q2 and 64% from a weak quarter last year. The SCM business provided 78% of MKS revenue in Q3 and was profitable for the first time in its history, according to MKS (which often gets its history wrong) with operating income of US$151,000.

MKS finished the quarter with US$4.9 million in cash, up slightly from US$4.8 million at the end of Q2.

Dalsa makes offer to acquire Coreco for $72M
February 16, 2005

Dalsa will likely be acquiring Quebec-based computer vision manufacturer Coreco Inc. after its $72 million offer was accepted by Coreco's board.

Dalsa will give Coreco shareholders the choice between $10 cash or 0.5207 Dalsa shares for each Coreco share, or a mix of the two with a maximum of $35 million to be paid in cash. At the time the offer was made, Coreco was trading at $6 a share on the TSX. As of yesterday's closing price, the fractional Dalsa share would be worth $10.50.

The offer will require the approval of two-thirds of Coreco shareholders at a meeting scheduled for April.

Coreco is reporting its 2004 results next week, but it has annual sales of just over $30 million and is expected to report net income of about $3 million.

Coreco will operate as Dalsa Coreco under its current CEO.

Dalsa's board losing local flavour
February 2005

All of Dalsa's KW-based directors, other than CEO Savvas Chamberlain, are stepping down from the board and won't be standing for reelection at the AGM this month.

Gone from the board are Ian McPhee, a well-known member of the Waterloo high-tech community, along with lawyer David Linton, who had served on Dalsa's board for 15 years, and Marjorie Carroll, the former mayor of Waterloo.

Filling those vacancies will be Doug Barber, the former CEO of Gennum, Derek Brown, a former OSC commissioner, and Carol Perry, who runs a financial advisory firm in Toronto.

Chamberlain remained the company's most highly paid executive in 2004, with total compensation (excluding options) of $581,057. He also received a net $260,040 through exercising options and selling shares. Dalsa shares went up 43% in the fiscal year.

Com Dev breaks even despite steep margin drop
February 24, 2005

Not a great quarter for Com Dev in the period ended January 31 (Q1 05). It reported a net income of $186,000 ($0.00/share) on sales of $30.2 million. Revenue was up 34% from a year ago, but down 6% from the previous quarter. A sharp decline in gross margins, partly attributed to losses in efficiency during the company's expansion activities, led to a 29% sequential decline in gross profits.

Com Dev has been told to include its debenture interest expenses on its income statement -- something that I've been doing here all along (and if I may gloat for a minute, I got an e-mail last year from a Com Dev flack protesting that I wasn't regurgitating the net income numbers the company was reporting, and now Com Dev will be restating all of its historical numbers to be in line with what I was using here).

Only $19 million in new business was booked in the quarter, compared to $43 million in a very strong period last year, but Keating said he expected orders to increase significantly in the current quarter. Order backlog fell to $68 million from $79 million at the beginning of the quarter.

Operations consumed $4.7 million in cash in the quarter, with another $1.4 million spent on capital assets. Com Dev ended the quarter with $20.4 million in cash, down $6.7 million from the end of Q4.

Keating was the company's highest-paid executive in fiscal 2004, with total compensation of $503,094 plus 250,000 options. No one else in the company received any options during the year. Com Dev stock went up 1% in fiscal 2004. The company did not name a chairman in its information circular for its AGM in February.

RDM reports small quarterly loss; expects 17% sales growth
February 7, 2005

RDM reported a net loss of $199,000 ($0.01/share) on revenue of $4.3 million in the quarter ended December 31 (Q1 05). Sales were up 7% from the previous quarter and 27% from last year, but a decline in margins led to a 5% sequential reduction in gross profit, while operating expenses climbed 29% from Q4.

Operations used $890,000 in cash, but this was called an "anomaly" and a "tiny issue" that had already been corrected in the current quarter. RDM raised a net $1.4 million through the sale of shares in the quarter, so overall its cash position grew by $301,000 to $4.3 million.

It has refined its previous forecast of "double-digit" growth in 2005 and is low looking for 17% revenue growth in the fiscal year. That would take RDM to over $20 million in sales.

RDM disclosed that its California-based spin-off company, Xign, in which it currently owns a 13% stake (fully diluted), had revenue under US$5 million in the year ended December 31.

STOCK REPORT: Navtech shares double in value in three months
February 2005

Navtech stock is up 106% over the last three months as the company is reaping the rewards from consistently profitable operations and a much improved balance sheet. Its market value is now approaching $12 million.

For the month of February:

ClearFrame [TSXV: CLF] +75%
Navtech [OTCBB: NAVH] +29%
MKS [TSX: MKX] +16%
RDM [TSX: RC] +13%
--S&P TSX VENTURE INDEX +11%
Descartes [TSX: DSG] +8%
Dalsa [TSX: DSA] +6%
--S&P TSX COMPOSITE INDEX +5%
Biorem [TSXV: BRM] +5%
ARISE [TSXV: APV] +5%
===============================
Open Text [TSX: OTC] -2%
Com Dev [TSX: CDV] -2%
RIM [TSX: RIM] -8%
Virtek [TSX: VRK] -12%
Turbosonic [OTCBB: TSTA] -25%

The 75% gain for ClearFrame was a jump of 1.5 cents from $0.02 a share to $0.035 a share.

In the first few days of trading in March, MKS shares hit the $2 level for the first time in over a year. Virtek shares fell below 50 cents for the first time ever and had their all-time lowest monthly close at $0.51.

RIM's market value has fallen back under $15 billion, which is still more than 13 times that of the second most valuable company on the list, Open Text.

Companies with core operations outside the area:

Ansys [Nasdaq: ANSS] +11%
Adobe [Nasdaq: ADBE] +9%
Senesco [Amex: SNT] +8%
AMIS [Nasdaq: AMIS] +5%
LSI Logic [NYSE: LSI] +4%
Agfa-Gevaert [Brussels: AGFA] +2%
==================================
CheckFree [Nasdaq: CKFR] -1%
Siebel [Nasdaq: SEBL] -2%
Automated Benefits [TSXV: AUT] -3%
Sybase [NYSE: SY] -3%
SBS Technologies [Nasdaq: SBSE] -7%
Leitch [TSX: LTV] -7%
McAfee [NYSE: MFE] -11%
CVF [OTCBB: CNVT] -18%
Blue Coat [Nasdaq: BCSI] -28%

Automated Benefits, parent company of pre-revenue Symbility Solutions, is now trading at a market value of $56 million, which is where MKS was just three months ago.

Miscellaneous Tidbits

• Sandvine announced that its technology is now being used in networks serving 20 million users world-wide. It says its customers include six of the top 12 residential broadband providers in North America.

• Cineplex Galaxy says it has bought 215 more digital projectors from Kitchener's Christie Digital Systems to create what it calls "Canada's first digital pre-show cinema network" which seems to be a euphemism for 20 minutes of digitally distributed filler and advertising before each movie.

• J2X Technologies' MileageTracker Pro won the Java Challenge competition for best business application. The competition is sponsored by Orange and Nokia. Orange is a major wireless operator in France and the UK. The competition asked developers to submit applications that would run on a Java-based Nokia device.

• Turbosonic reported a loss of $473,000 on sales of $1.2 million in the quarter ended December 31 (Q2 05). It said it was dissatisfied with the results and pointed to foreign exchange losses and a provision for rework on an OEM project for the weak bottom line. Revenue over the first half of the year is double what it was at this point in 2004.

• Halifax-based Aliant is the latest ISP to announce that it is offering SlipStream's dial-up accelerator.