May 2005

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

Issue 99 -- June 6, 2005
In this digest:

1. Nine-year streak ends -- Descartes reports quarterly profit
2. Sandvine closes $19M round of funding
3. Agile Systems raises $7M

4. MKS ends year with record quarterly revenue and profits
5. Com Dev sees orders increase; production still behind schedule
6. STOCK REPORT: RIM and Navtech take off

7. Miscellaneous tidbits from Dalsa, Biomedical Photometrics, ARISE, LaunchPad $50K

Nine-year streak ends -- Descartes reports quarterly profit
May 25, 2005

After 35 consecutive quarters of GAAP losses, Descartes reported net income of US$465,000 (US$0.01/share) in the quarter ended April 30, 2005 (Q1 06). It was the first quarterly profit in Descartes' history as a public company, a period in which the company had accumulated over US$400 million in losses.

The profit does get a bit of an asterisk, since recovery of a previously expensed restructuring charge accounted for all of the operational income and an investment in another company provided all of the net income, but Descartes and its long-suffering investors will take it as a starting point. In the conference call, CEO Art Mesher said he was looking forward to presenting next quarter's results.

For years, Descartes didn't need to be profitable after a stock offering in October 2000 grossed $192 million. A few months earlier, it had gone from being one of the worst performers on the TSX to delivering a 2,000% return to investors between November 1999 and March 2000 -- making all of Descartes' senior executives multi-millionaires. The offering, priced at $64 a share, closed on October 24 ... and Descartes shares never again traded at those levels. No sooner had the company put investors' money in the bank than its share price tanked, losing 40% of its value over the next month and 67% in 2001. Over the last five years, Descartes' stock price has fallen 95%, making it the worst performer among companies followed here. Investors stopped being marks for bubble-remnant buzz words like "B2B pure-play" and began demanding profits ... something Descartes could never deliver with the large number of employees it was carrying.

The company has since shrunk from 700 employees to 230. Sales are about half of what they were at their peak four years ago, but costs are finally aligned with revenue. In Q1, Descartes reported sales of US$11.3 million, up 2.5% from the previous quarter, but down 15% from a year ago.

At the end of the quarter, it had US$53.1 million in cash or US$26.1 million net of the US$27.0 million in debentures that it must repay this month. It has said it will pay the entire amount in cash. Operations provided US$3.3 million in cash in Q1 and Descartes received an additional US$1.2 million for 22% of its stake in UK online grocer Ocado. It had invested US$5 million in the company in 2000. An unspecified amount of cash was spent in the quarter to settle a patent infringement suit brought against Descartes in January 2004 by Florida-based ArrivalStar (which, like RIM nemesis NTP, is a non-operational corporation that essentially exists to collect license fees and file patent infringement lawsuits).

Descartes also announced that it had added two members to its executive team. Chris Jones is the new EVP of solutions and markets, while Mark Weisberger becomes EVP of field operations. Jones used to work at the Gartner Group (as did CEO Mesher) and was most recently with Boston's Aberdeen Group. Weisberger was previously sales VP at Texas-based Synchron. Bruce Gordon, who had been SVP of products and technology since 2003 and SVP of sales before that, has left the company.

Sandvine closes $19M round of funding
May 19, 2005

Sandvine has raised $19 million in a round of funding led by Newbury Ventures. Existing Sandvine investors BDC Venture Capital, Celtic House Venture Partners, Tech Capital Partners, and VenGrowth Capital Partners also participated in the round.

California-based Newbury Ventures is affiliated with Kanata's Eagle One Ventures. Eagle One co-founder and former Newbridge CFO Ken Wigglesworth has joined Sandvine's board, representing Newbury. Also joining the board is Mark Guibert, RIM's VP of corporate marketing.

Sandvine raised $19.5 million when it launched at the end of August 2001.

Agile Systems raises $7M
May 12, 2005

Agile Systems has closed a $7.0 million round of financing lead by New York's Expansion Capital Partners with participation from RBC Capital Partners, Covington Capital, RoyNat Capital and BEST Total Return Fund.

RBC and Covington (through the Triax Growth Fund) first invested in Agile a few years ago. They are both represented on Agile's new board, along with new investor Expansion. Agile's other directors are CEO Ralph Steedman and chairman Richard Black, who's been involved with Arise since he was with Helix Investments in the 1990s. GrowthWorks, which took over the Working Ventures funds -- a significant investor in Agile -- did not participate in this round.

Steedman said Agile has an "aggressive product development schedule" planned for the next 18 months. He was the CEO of Burlington's CRS Robotics during its turnaround period from 1998 to 2002 when it was acquired by Thermo Electron, which is an Agile customer. From 1995 to 1996 he was CEO of Zenon Environmental, also of Burlington. Steedman joined Agile in 2003 and the company has had a low profile locally since then.

MKS ends year with record quarterly revenue and profits
June 1, 2005

MKS has broken its five-year-old quarterly and annual revenue records, reporting sales of US$12.5 million in the quarter ended April 30 (Q4 05) and US$41.3 million in sales for fiscal 2005. The results surpass the US$12.0 million and US$40.3 million, respectively, that the company posted in 2000.

And the record sales are starting to show up on the bottom line, where MKS reported net income of US$1.5 million (US$0.04/share) in the quarter and US$2.7 million for the year. It was MKS' first quarter topping the million-dollar profit mark in five years.

Sales in Q4 were up 18% from the previous quarter and 36% from a year ago. For 2005, revenue was up 29% from 2004.

MKS has renamed it core business segment application lifecycle management (ALM) replacing the old label, software configuration management. ALM revenue of US$10.2 million was up 23% from the previous quarter and 50% from a year ago. For the year, the ALM segment reported operational income of US$0.5 million on sales of US$32.5 million.

Operations provided US$2.7 million in cash in the quarter, up from US$191,000 in Q4. Only US$0.1 million was spent on capital assets, and MKS raised an additional US$0.3 million through the sale of shares, giving the company US$7.8 million in cash at the end of the year, up US$2.9 million from the end of Q3.

MKS expects sales in 2006 will grow to US$45-49 million, an increase of 9-19%. Income from operations is not expected to rise significantly, with the company forecasting a range of US$2-4 million. Operational income was US$2.7 million in 2005. It plans to expand its ALM sales and services staff and increase spending on marketing and R&D.

Com Dev sees orders increase; production still behind schedule
May 26, 2005

Com Dev's quarter ended April 30 (Q2 05) wasn't as strong as the company had hoped, but it was still an improvement over Q1.

It reported net income of $1.8 million ($0.03/share) on revenue of $32.4 million. Sales were up 8% from the previous quarter and 3% from the same period a year ago, but were still below Com Dev's expectations.

New orders in the quarter totalled $28.8 million, an improvement on a weak $19 million in Q1.

The main problem once again was the disruption to operations caused by Com Dev's expansion in production capacity. In the conference call, CEO John Keating said that there were eight projects due for delivery to customers in September-October which had slipped to May-June because of production delays. The expansion program is nearly complete and the company expects that new orders will be delivered on time and that gross margins, which have been very low for the last two quarters, will start to return to traditional levels.

Operations used $3.8 million in cash, while an additional $1.8 million was spent on capital assets and another $4.0 million was used on debt repayment. Com Dev had $10.6 million in cash at the end of the quarter, down $9.8 million from the end of Q1, but its receivables jumped by $13.4 million, so there should be a significant amount of cash arriving in Q3.

Com Dev is still predicting that order levels will increase substantially over the last half of the year. It had 855 employees at the end of the quarter. The company is hosting a function this week to celebrate its 25th anniversary in Waterloo Region.

STOCK REPORT: RIM and Navtech take off
May 2005

RIM shares bounced back from their worst monthly decline in over two years (see previous digest) and hit their highest point in 2005, finishing the month over $100 for the first time since November. It was their third-highest month-ending price ever.

Something odd happened to Navtech stock on May 27. I don't know if the company got mentioned somewhere (I saw that a different company called Navtech got some coverage around that time), but its shares were up 162% in intra-day trading that day, setting an all-time high, and finished the day with a 126% gain. They then dropped 40% the next day and were off another 9% the day after that. But they still had their highest monthly close ever and are up 119% over the first five months of the year, making them by far the top performer of all stock tracked here.

For the month of May:

RIM [TSX: RIM] +29%
Navtech [OTCBB: NAVH] +24%
Descartes [TSX: DSG] +18%
MKS [TSX: MKX] +17%
Open Text [TSX: OTC] +8%
Turbosonic [OTCBB: TSTA] +6%
Virtek [TSX: VRK] +4%
--S&P TSX COMPOSITE INDEX +3%
Com Dev [TSX: CDV] +2%
ARISE [TSXV: APV] 0%
===============================
Biorem [TSXV: BRM] -2%
Dalsa [TSX: DSA] -2%
--S&P TSX VENTURE INDEX -3%
ClearFrame [TSXV: CFA] -12%
RDM [TSX: RC] -16%

Promising quarterly results helped shares of Descartes and MKS rebound to levels they haven't seen in some time. Descartes stock had its highest monthly close since it collapsed a year ago, and MKS shares finished the month over $2 for the first time since October 2003.

At the other end of the list, RDM shares fell to their lowest level since last fall for no apparent reason. It released its quarterly results at the beginning of May (see previous digest) but it was only late in the month that its share price really dropped off, hitting a low of $1 last week.

Companies with core operations outside the area:

LSI Logic [NYSE: LSI] +37%
McAfee [NYSE: MFE] +37%
Blue Coat [Nasdaq: BCSI] +28%
Adobe [Nasdaq: ADBE] +11%
Ansys [Nasdaq: ANSS] +10%
Sybase [NYSE: SY] +8%
AMIS [Nasdaq: AMIS] +7%
SBS Technologies [Nasdaq: SBSE] +3%
Siebel [Nasdaq: SEBL] +2%
CheckFree [Nasdaq: CKFR] +2%
Leitch [TSX: LTV] +0%
==================================
Agfa-Gevaert [Brussels: AGFA] -8%
Automated Benefits [TSXV: AUT] -12%
Senesco [Amex: SNT] -28%

Miscellaneous Tidbits

• Dalsa revised its financial forecasts following the acquisition of Coreco (see last digest) and is now looking for revenue of $44-48 million in the quarter ending June 30 (Q2 05). That's up from $40-43 million before the acquisition. The quarter will include about two months' worth of Coreco results. For the year, Dalsa is now expecting sales in the $215-234 million range, up from $192-208 million, and net income of $23-25.5 million. Coreco had sales of about $30 million in 2004 and earnings of US$2.4 million.

• Andrew Pinkerton of GrowthWorks has joined the board of Biomedical Photometrics. Earlier this year, GrowthWorks acquired Fullarton Capital, manager of the Canadian Science and Technology Growth Fund which had invested $500,000 in the Waterloo company. GrowthWorks expects to merge the fund with its GrowthWorks Canadian Fund.

• Not really anything new with ARISE, which filed its annual and Q1 financial statements. The company still has no money and its working capital deficiency is up to $1.9 million. It says it's looking to raise money by the end of this month "to continue its operations in its current manner." The company lost $394,000 on sales of $429,000 in the quarter ended March 31. Gross profits were just $42,000.

• If you think of Waterloo only as a hotbed for software development, you might be surprised that the top three finishers in the inaugural LaunchPad $50K venture creation competition were companies selling specialized window blinds, wind turbines, and spices. The winner was Moon Shade Blinds.