July 2005

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

Issue 101 -- August 2, 2005
In this digest:

1. Tech Capital Partners raises $50M for new fund
   
2. Dalsa slashes 2005 sales forecast
   
3. Open Text to cut jobs after another disappointing quarter

4. CheckFree to close Waterloo facility
   
5. STOCK REPORT: Dalsa shares suffer largest-ever monthly drop
   
6. Miscellaneous tidbits from Reqwireless, Broadband Learning, Foragen, Biorem, Symbility

Tech Capital Partners raises $50M for new fund
July 19, 2005

Tech Capital Partners has raised $50 million in the initial close of its new fund, Tech Capital II L.P. The new fund more than doubles the amount of money Tech Capital has under management to $85 million.

OMERS, which was one of Tech Capital's original backers in 2001, has invested in the new fund, as has BDC, which invested in the first fund shortly after it was launched. EdgeStone Capital Partners --investors in SlipStream and RSS -- is also backing Tech Capital II.

Since it launched in 2001, Tech Capital has invested in Sirific, Sandvine, Covarity, Handshake, DiskStream, VideoLocus (now part of LSI Logic) and Ardesic -- the only one of the seven which no longer exists. Excluding the two most recent additions to its portfolio, every company that has received seed funding from Tech Capital has gone on either to raise significant amounts of venture capital or to be acquired.

On a per capita basis, a $50 million fund for Waterloo Region would be like a $3.5 billion fund for Canada (or even $5.5 billion, since Tech Capital hasn't invested outside of K-W so far). Fortunately, Tech Capital's LPs chose not to think of it that way. :-)

Dalsa slashes 2005 sales forecast
July 28, 2005

Dalsa has chopped $35 million from its revenue forecast for the second half of 2005 after the recovery it thought it was seeing in some of its key markets failed to happen as rapidly as the company was anticipating.

Dalsa had been expecting $44-48 million in revenue in Q2 and $215-234 million for fiscal 2005. It hit the bottom end of its Q2 revenue forecast, with sales of $44.1 million in the quarter ended June 30. But it has now lowered its revenue forecast for the year to $180.5 to 189 million.

Net income for Q2 was below expectations at $2.0 million ($0.11/share) compared to $2.7 million in the previous quarter and $4.1 million a year ago.

The Q2 numbers included just over two months' worth of results for Coreco, which Dalsa acquired in late April. Dalsa management said the revenue generated by Coreco came in at the high end of their expectations, which means that the acquisition accounted for most of Dalsa's quarter-over-quarter revenue gains, and the company would likely have shown a year-over-year decline without the Coreco results.

Post-acquisition, Dalsa's balance sheet has a whole new look to it, with cash of just $1.4 million, bank indebtedness of $6.6 million, and long term debt of $24.2 million, of which $4.3 million is due in the next year. Operations consumed $3.2 million in cash in Q2, with an additional $5.4 million spent on capital assets and $30.7 million in cash spent on the Coreco acquisition. Dalsa expects that its operations will be cash flow positive through the remainder of 2005.

The release of Dalsa's digital movie camera was delayed after a technical problem was discovered in test shoots. The company says the issue is close to being resolved and it expects to start renting the camera in the current quarter. With the delay, the digital imaging business is now expected to run at a loss in 2005 (previously was forecast to break even) and become breakeven "on an income basis" early in 2006. Digital cinema reported a loss of $1.1 million in Q2.

Open Text to cut jobs after another disappointing quarter
July 11, 2005

The leadership baton passed to new Open Text CEO John Shackleton got a lot heavier during the month, as the first news release issued by the company on his watch was a warning that Q4 results will fall below expectations when they are announced this month.

Shackleton, who joined Open Text as president in 1998 and added the CEO title on July 1, said the results were disappointing and the company was going to "streamline" its operations in response. How many jobs would be cut wasn't announced, but it will likely be in the hundreds as Open Text said it expects a restructuring charge of US$20-30 million in Q1. Most of the cuts will probably be outside of Waterloo, since only about 15% of the company's workforce is based here.

This was Open Text's third earnings warning in the four quarters of fiscal 2005. Shackleton blamed the first one in part on poor forecasting and said the company had taken steps to correct the problem.

Former CEO Tom Jenkins now has the title executive chairman and continues to be a full-time employee. Open Text's head office is expected to move into a new building in the UW Research and Technology Park later this month.

CheckFree to close Waterloo facility
June 16, 2005

Thank you to the many past and soon-to-be-former employees of CheckFree for letting me know that I overlooked a big story last month -- the imminent closure of the company's Waterloo office.

In financial results filed in June, CheckFree disclosed that in October it will be closing the Waterloo office that it acquired in 2000 with its purchase of BlueGill Technologies.

About 55 people work for CheckFree in Waterloo. Some were given the option to relocate to the company's office near Atlanta but so far few have taken the offer. Some of the software developers have expressed an interest in moving as a team to a different company in the area and trying to repeat the success they had in helping grow BlueGill from a start-up.

BlueGill was founded in 1996 by Hal Davis and Ray Simonson and was acquired by CheckFree in 2000 in an all-stock deal valued at the time at US$250 million (then CDN$370 million). The price was negotiated in the pre-bust period of December 1999 -- great timing for BlueGill shareholders. Initially it operated as CheckFree i-Solutions before becoming part of CheckFree Software. Simonson oversaw the Waterloo office as SVP of North American operations until being let go last year.

At its peak, i-Solutions had 185 employees with 150 based in Waterloo. In 2002, two years after the acquisition closed, CheckFree laid off over half of the staff and wrote off US$107 million of the acquisition price (and would subsequently write off even more).

STOCK REPORT: Dalsa shares suffer largest-ever monthly drop
July 2005

Dalsa stock suffered its worst month ever, losing nearly a third of its value, with the company's market capitalization falling to $233 million at month-end. Dalsa was valued at about $350 million at the beginning of the year. Previously, the worst month for Dalsa shares was a 26% drop seven years ago. The stock closed July at its worst month-end price in three years and has now fallen 38% from where it was valued for the Coreco acquisition in April.

Virtek shares, on the other hand, had their second consecutive month with a 34% gain, rising to their highest price in a year.

For the month of July:

Turbosonic [OTCBB: TSTA] +56%
Virtek [TSX: VRK] +34%
ClearFrame [TSXV: CFA] +18%
Descartes [TSX: DSG] +13%
Com Dev [TSX: CDV] +12%
RDM [TSX: RC] +10%
--S&P TSX COMPOSITE INDEX +5%
--S&P TSX VENTURE INDEX +4%
===============================
Biorem [TSXV: BRM] -3%
RIM [TSX: RIM] -4%
MKS [TSX: MKX] -14%
Navtech [OTCBB: NAVH] -14%
Open Text [TSX: OTC] -15%
ARISE [TSXV: APV] -20%
Dalsa [TSX: DSA] -31%

Turbosonic announced a 5-for-4 stock split as a way of rewarding its shareholders -- something that might cause believers in a rational market to scoff, since the split wouldn't change the value of the company nor the percentage of the company owned by each shareholder. But the OTCBB market and rationality have never been close friends, and Turbosonic stock actually went up after the split, giving shareholders a 56% gain in the month.

Following the company's results warning, Open Text shares fell to their lowest point in three years, and finished July at their lowest monthly close since September 2000. Open Text's market value has fallen by about a half-billion dollars so far in 2005.

For no apparent reason, MKS shares fell almost as far as Open Text in July, and had their lowest month-end price since January.

Descartes stock had its highest month-end since April 2004 and has now regained all of the losses from the collapse in May 2004, when the stock lost half of its value. Com Dev shares had their best month of 2005 and ended July with its highest monthly closing price since February.

Companies with core operations outside the area:

McAfee [NYSE: MFE] +20%
Sybase [NYSE: SY] +16%
LSI Logic [NYSE: LSI] +15%
Blue Coat [Nasdaq: BCSI] +10%
SBS Technologies [Nasdaq: SBSE] +8%
Adobe [Nasdaq: ADBE] +4%
Ansys [Nasdaq: ANSS] +2%
Senesco [Amex: SNT] +1%
Agfa-Gevaert [Brussels: AGFA] 0%
==================================
AMIS [Nasdaq: AMIS] -4%
Siebel [Nasdaq: SEBL] -6%
Automated Benefits [TSXV: AUT] -9%
Leitch [TSX: LTV] -9%

Miscellaneous Tidbits

• Details haven't been announced yet, but four-year-old Waterloo software developer Reqwireless has been acquired. The company had been in talks for the last few months with a few potential buyers. Reqwireless has developed Web browsers and e-mail viewers for a wide range of wireless devices, including the BlackBerry.

• Broadband Learning Corp., the former AccessTNG, plans to acquire Oregon-based satellite telecommunications installation and service provider Keypoint Services International. Details were not announced. Keypoint was founded in 1992 and says it provides maintenance services to over 15,000 sites in the U.S. and Canada. The acquisition is expected to close in 3-4 months.

• Murray McLaughlin, CEO of Foragen Technologies Management Inc., has left the Guelph-based agri-tech VC. The firm's other Guelph-based manager, David Gauthier, left a few months ago.

• Biorem has acquired the assets of Victor, N.Y.-based biofilter developer Biocube. Biocube had sales of US$2.4 million in fiscal 2004, and that is roughly what the acquisition price will be. It will continue to operate in the Rochester area as Biorem Environmental Inc. Biocube's seven employees were all offered positions with Biorem. The former CEO of Biocube has invested nearly $350,000 in Biorem through a private placement at $3.15 a share.

• Allstate Insurance Company of Canada has become the second paying customer for Symbility Solutions. Symbility had announced a three-month pilot project with Allstate last October.