April 2005

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

Issue 98 -- May 10, 2005
In this digest:

1. Dalsa closes $76M Coreco acquisition
   
2. Dalsa looks forward to better quarters ahead
   
3. Virtek achieves quarterly profitability on declining sales

4. Open Text misses targets, despite another acquisition
   
5. RDM improves bottom line with higher margins
   
6. Recent WatStart forum highlights

7. STOCK REPORT: RIM shares have biggest monthly decline since 2002
   
8. Miscellaneous tidbits from MKS, RIM, Ever America, SRE Controls, SlipStream, Symbility

Dalsa closes $76M Coreco acquisition
April 26, 2005

Dalsa has completed its acquisition of Quebec-based computer vision manufacturer Coreco Inc. (see February digest). Total cost was $76 million, of which $73.4 million was paid to Coreco shareholders -- $35 million in cash drawn from Dalsa's credit line and the balance through the issuance of 1.9 million new shares.

Coreco reported net income of US$2.4 million on sales of US$24.4 million in the year ended December 31, 2004.

Dalsa will be providing revised revenue and earnings forecasts at the end of July that will include the Coreco operations.

Dalsa looks forward to better quarters ahead
April 28, 2005

Dalsa's Q1 is typically a lacklustre quarter, and that proved true again this year, as the quarter was soft not only on a sequential basis, but also from a year-over-year perspective. Dalsa had forecast that sales would be slow over the first half of the year, but would accelerate over the final six months.

In the period ended March 31, Dalsa earned $2.7 million ($0.16/share) on sales of $36.9 million. Revenue was flat from a year ago and down 23% from Q4, and came in just under the low end of the company's forecast of $37-40 million. A change in mix toward lower margin products resulted in a 9% decline in gross profits compared to a year ago. Coupled with an increase in R&D spending, this cut Dalsa's bottom line from a $3.9 million profit in 2004.

Operations provided $4.8 million in cash, and $8.8 million was spent on capital assets, primarily on expanding the semiconductor facility in Quebec and purchasing inventory for the digital cinema centre near Los Angeles. Dalsa ended the quarter with $10.8 million in cash, down $4.6 million from the end of Q4.

Dalsa's Origin digital cinema camera officially entered its commercialization phase at the beginning of the quarter, so the company will now be expensing the R&D costs it has deferred over the last few years. The digital cinema segment reported a $900,000 loss in Q1, but Dalsa expects the business will break even over the year.

It is forecasting total revenue of $40-43 million in Q2 (excluding sales from Coreco), which again would not be much above the $40 million achieved in the same period in 2004.

Virtek achieves quarterly profitability on declining sales
April 18, 2005

Virtek ended fiscal 2005 fiscal with its first profitable quarter in the year. For the quarter ended January 31 (Q4 05) it reported net income of $304,000 ($0.01/share) on sales of $13.0 million. Revenue was down 11% from a year ago, but up 7% from Q3. Income from operations was $118,000, down from $553,000 a year ago.

Operations consumed $435,000 in cash and an additional $644,000 was spent on capital assets. Virtek is now living off its $4 million line of credit, with a net cash deficiency (excluding restricted funds) of $229,000 at the end of the quarter. It says it will have enough cash to fund operations.

For the year, Virtek lost $5.1 million on sales of $47.0 million, which were 7% below the previous year and below the company's expectations. It says that some of its products struggled during the year and needed "significant revitalization" while new products needed to be developed. The emergence of several low-cost competitors has created increased pricing pressures in the market, the company said in its annual report.

Virtek's primary focus over the next year will again be to improve margins and cut costs.

Open Text misses targets, despite another acquisition
May 5, 2005

Sales from Open Text fell below the company's expectations in the quarter ended March 31 (Q3 05). The company reported profits of US$5.3 million on sales of US$105.2 million. It had forecast sales of US$108-112 million. Revenue was down 8% from the previous quarter.

Operations, aided by an additional US$17.9 million in deferred revenue, provided US$29.9 million in cash. Open Text spent US$19.0 million to repurchase shares in the quarter and another US$4.9 million on capital assets.

It also spent US$3.3 million on its acquisition of Arizona-based "business process optimization" software developer Optura -- a deal the company did not announce when it happened in the middle of the quarter. Buried in its financial statements, Open Text said it paid US$3.7 million in cash for Optura.

Open Text ended the quarter with US$98.9 million in cash, down US$3.2 million over the quarter.

It is forecasting sales of US$115-125 million in the current quarter.

RDM improves bottom line with higher margins
May 2, 2005

For the quarter ended March 31 (Q2 05), RDM reported earnings of $244,000 ($0.01/share) on sales of $4.7 million. Although revenue was up only 6% from last year, an increase in sales from the higher-margin electronic payments segment boosted gross profits by 33% from 2004 and 27% from the previous quarter. RDM had a $159,000 loss in the same period last year.

Year-over-year, electronic payments revenue was up 156% to $1.8 million, while digital imaging sales were down 24% and revenue from RDM's traditional quality assurance segment fell 8%. (I think these are the correct numbers -- it looks like the RDM financial statements mixed up the year-ago performance of two of its segments. The actual decline in quality assurance sales seems to be 8%; the numbers in the financial statements as filed show a 22% decline, and then this was exaggerated in the news release into a 26% decrease.)

Operations provided $510,000 in cash and $335,000 was spent on capital assets. RDM ended the period with $4.5 million in cash, up $211,000 over the quarter.

Recent WatStart forum highlights
April 2005

WatStart -- http://www.watstart.ca/ -- is a community initiative to help prospective entrepreneurs and very-early-stage technology companies in the Waterloo area. The Web site has grown to over 240 registered users with forums covering such issues as raising capital, intellectual property, taxation, recruitment and more.

Here are some highlights from the forums in April (topic starter in parentheses):

• Putting together the financing puzzle (KPMG)
• Migrating: Product Manager to Entrepreneur (Tech Capital)
• The Art Of The Start (UW Research & Technology Park)
• Size of your "addressable" market (Tech Capital)
• Don't throw your secrets in the trash (TWNC)

STOCK REPORT: RIM shares have biggest monthly decline since 2002
April 2005

The TSX had its worst month in a year -- as measured by the S&P indices, anyway -- and locally the gainers were few in April.

Virtek shares were up three cents, which was good enough to be the second-best performance in the month, but not before hitting an all-time low.

The euphoria in March around the end of RIM's legal battle with NTP quickly came to an end and RIM shares suffered their worst monthly decline since December 2002. All the gains from March were wiped out and RIM shares had their lowest month-end price in a year.

Open Text shares closed April under $20 -- the first time that's happened since July 2003.

For the month of April:

Turbosonic [OTCBB: TSTA] +18%
Virtek [TSX: VRK] +6%
Descartes [TSX: DSG] +5%
===============================
RDM [TSX: RC] -2%
Dalsa [TSX: DSA] -2%
--S&P TSX COMPOSITE INDEX -3%
MKS [TSX: MKX] -3%
Navtech [OTCBB: NAVH] -3%
Com Dev [TSX: CDV] -4%
--S&P TSX VENTURE INDEX -10%
Biorem [TSXV: BRM] -12%
RIM [TSX: RIM] -13%
ARISE [TSXV: APV] -14%
Open Text [TSX: OTC] -14%
ClearFrame [TSXV: CFA] -17%

As of last Friday's close, the biggest gainer so far this year has been Navtech (+77%) and the biggest decliners have been Open Text (-24%) and Virtek (-22%).

Market capitalization
in millions, using outstanding shares
(change from the end of 2004 in parentheses):

1. RIM $15,993 (-$2,549)
   
2. Open Text 893 (-327)
   
3. ATS 789 (+136)
   
4. Dalsa 334 (-15)**
   
5. Com Dev 153 (-28)
   
6. Descartes 96 (-1)
   
7. MKS 82 (+17)
   
8. RDM 25 (+4)
   
9. Virtek 15 (-4)
   
10. Navtech 12 (+6)
    
11. TurboSonic 7.2 (+2)
    
12. ARISE 2.0 (+0.2)
    
13. ClearFrame 0.9 (+0.2)

Companies with core operations outside the area:

Leitch [TSX: LTV] +12%
Sybase [NYSE: SY] +3%
==================================
AMIS [Nasdaq: AMIS] -0%
Siebel [Nasdaq: SEBL] -1%
LSI Logic [NYSE: LSI] -4%
Agfa-Gevaert [Brussels: AGFA] -6%
McAfee [NYSE: MFE] -7%
CheckFree [Nasdaq: CKFR] -10%
Automated Benefits [TSXV: AUT] -10%
Ansys [Nasdaq: ANSS] -11%
Adobe [Nasdaq: ADBE] -11%
Senesco [Amex: SNT] -11%
SBS Technologies [Nasdaq: SBSE] -16%
Blue Coat [Nasdaq: BCSI] -39%

Miscellaneous Tidbits

• MKS expects Q4 revenue will be an all-time record for the company, eclipsing the mark set five years ago. Full results will be announced on June 1.

• RIM's BlackBerry service has surpassed the 3 million subscriber mark. RIM got a lot of publicity during the month when Gartner declared the BlackBerry to be the world's best selling PDA with a 20% market share. The market report excluded smartphones (such as Treo), and the line between PDAs and smartphones has become pretty blurry.

• Ever America's management team, headed by J. Paul Haynes, has purchased controlling interest in the company from Ever North America Inc. for $1.1 million. Ever America's operations has a convoluted history that runs through various acquisitions and mergers (and reversals of both) over the years. It can trace its history back to JPH International which was founded by Haynes. ClearFrame Solutions, which also evolved out of JPH International, is partly owned by Ever North America. ClearFrame completed a 1-for-20 reverse stock split in April and it looks like Ever is taking more of an interest in ClearFrame's future, which has looked bleak for the last year.

• SRE Controls has been acquired by UK-based MCC Energy Plc, and renamed Navitas Technologies. MCC invests in emerging energy companies and provides fundraising and M&A consulting services. In March, one of SRE's secured creditors had called a $550,000 demand note and put the company into receivership. It went into bankruptcy less than three weeks later. According to the receiver, SRE had assets of $902,000 and debts of $1.6 million. The GM of Navitas is Peter McDonald, formerly in charge of sales and marketing at SRE.

• SlipStream's dial-up accelerator is now being used by Bell Canada's Sympatico.

• Symbility announced what it calls its U.S. marketing launch with the company's appearance at the Property Loss Research Bureau's 2005 Claims Conference and Expo in San Antonio. It also announced a 60-day pilot with Disaster Kleenup International (Canada) Ltd., a network of restoration contractors.