August 2005

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

Issue 102 -- September 5, 2005
In this digest:

1. RDM numbers fall short; U.S. slow to adopt electronic payments
2. Com Dev can't convert orders to dollars in latest quarter
3. ARISE raises $111K through debenture sale

4. FibreTech merges with FibreWired Guelph to form Atria Networks
5. Broadband Learning to go public through capital pool program
6. STOCK REPORT: Com Dev, RDM results disappoint

7. Miscellaneous tidbits: Funding for Shoplogix, IMS; receivership for Vital Innovations, news from Desire2Learn, Symbility, Auto-Ref, Leitch, Meikle

RDM numbers fall short; U.S. slow to adopt electronic payments
August 2, 2005

It was a disappointing quarter for RDM in the period ended June 30 (Q3 05) as the company continues to wait for electronic payments and the digital conversion of paper cheques to take hold in the U.S. Sales of $4.1 million were 23% below the same period last year and down 13% from the previous quarter. RDM eked out a profit of $88,000 ($0.00/share). CEO Doug Newman said the company's internal target had been sales of $5.3 million in the quarter.

At the beginning of the year, the company had expected that its revenue would grow 17% in 2005, but with just one quarter left in the fiscal year and sales running even with 2004 over the first nine months, it now expects annual sales will be about what they were last year with possibly a slight increase.

The only segment to show any revenue growth was RDM's traditional quality assurance business for paper cheques, which now accounts for just 14% of company revenue. Sales for electronic payments were down 3% from the previous quarter and 16% from last year. The biggest shortfall came from digital imaging, which saw revenues fall 24% sequentially and 34% from last year. Scanner sales were said to be disappointing in the quarter. RDM has just introduced a new scanner that captures images of both sides of a cheque simultaneously.

RDM ended the quarter with $4.6 million in cash, up slightly from the end of Q2. Operations provided $291,000 in cash and $205,000 was spent on capital assets.

Com Dev can't convert orders to dollars in latest quarter
August 25, 2005

Despite a strong order book, Com Dev reported disappointing results in the quarter ended July 31 (Q3 05). Sales of $31.2 million were 4% below both last year and the previous quarter. Net income for the quarter was $1.6 million ($0.03/share).

The loss included a restructuring charge of $531,000 after the company chopped 30 jobs at its UK site and consolidated work on its multiplexer product line at its Cambridge facility.

Com Dev received $44 million in new orders in the quarter, up from $29 million in Q2. About 40% of the new orders were placed in the final week of the quarter, which was later than the company had been expecting.

It has shaved about $5 million off the revenue it expects to generate in the last half of the fiscal year, and reduced its expected revenue growth rate to 6% from 10%. That would require sales of about $32 million in the current quarter. It's looking for 10% revenue growth next year, which doesn't sound like much of a stretch, given the current healthy order backlog, but as the company said in its conference call, it felt confident in setting a 10% growth target for this year, and that didn't work out, so it's hoping it can overdeliver on its target for next year.

Operations consumed $3.0 million in cash during the quarter, and an additional $0.9 million was spent on capital assets. Cash at quarter-end was $6.4 million, down $4.2 million from the end of Q2. Com Dev said it had received payments from customers in the first week of the current quarter that raised its cash balance to $15 million and blamed the cash shortfall on collection delays, even though DSO actually dropped sharply during the quarter to 72 days from 85 in Q2. Inventory levels jumped by $11.3 million over the quarter to $37.3 million.

ARISE raises $111K through debenture sale
August 29, 2005

ARISE has raised $111,000 through the sale of 6% convertible debentures to keep the company afloat as it continues its transition from being a distributor to commercializing photovoltaic technology being developed at the University of Toronto.

At the end of June, ARISE's working capital deficiency had grown to $2.3 million with just $15,000 in cash on hand. It has fallen just over $100,000 behind on its payments to the U of T development program but says it expects to have caught up by the end of this month. If the development stays on schedule, ARISE hopes to begin shipping PV cells to manufacturers in 2007.

In the quarter ended June 30 (Q2 05), ARISE lost $369,000 ($0.03/share) on sales of $266,000. Sales fell 56% from the previous year, although gross profits remained flat at $76,000. The company's accumulated deficit now stands at $7.6 million.

ARISE disclosed that it is being sued by a supplier for $260,000 and is planning to countersue. It also said it has cut staff and arranged to sublet space in its building.

FibreTech merges with FibreWired Guelph to form Atria Networks
September 1, 2005

Kitchener-based FibreTech Telecommunications, owned by the three Waterloo Region hydro utilities, has merged with its Guelph counterpart, FibreWired Guelph. The merged company has been renamed Atria Networks, and is headed by FibreTech CEO Steven McCartney.

In October, FibreTech announced that it would be merging with FibreWired Hamilton, but the two companies never made it to the altar after negotiations bogged down. The Guelph and Hamilton companies were affiliated with seven other utility-owned telecom services in Ontario in a co-marketing and shared-services arrangement under the FibreWired name.

Atria says it manages 1,000 kilometres of fibre-optic cable in Orangeville (added earlier this year), Fergus, Elora, Guelph, Waterloo, Kitchener, Cambridge, and surrounding areas.

I don't think I mentioned here when it was announced a few months ago that FibreTech launched a free Wi-Fi hotspot at the Waterloo Public Library. The company has built a few hotspots around town -- at the airport, Chapters in Waterloo, Waterloo Inn, and the original zone near UW. The service at WPL is the first to provide free Wi-Fi access.

Broadband Learning to go public through capital pool program
August 30, 2005

Broadband Learning Corp., which is at least nominally headquartered in Waterloo, even if its controlling shareholder and CEO -- and most of its operations -- are based in Utah, is planning to go public through a merger with a capital pool company listed on the TSX Venture Exchange.

BLC is the former AccessTNG of Waterloo, which merged with Broadband Communications Inc. of Salt Lake City last year. It provides distance learning services -- including Web- and satellite-delivered content -- to the professional education and certification markets.

Michael Ben, who helped take ARISE public in 2003, has been working with BLC as a contract CFO since December. AccessTNG founder Eric Meger is BLC president.

BLC is expecting to merge with YTW Weslea Growth Capital Corporation. The chairman of YTW Growth Capital is John Yarnell, who is also a BLC shareholder and was previously chairman of GUARD, the now-defunct company created to commercialize technology developed at the University of Guelph. Hank Vander Pol, who was a founding director of GUARD, is also listed as a shareholder in YTW Weslea.

If the deal closes, Yarnell will serve on the merged company's board of directors, as will David Peterson, the former Ontario premier, who will be hoping that this turns out better than YBM Magnex. (The YTW prospectus says Peterson "was fully exonerated" by the OSC in the YBM matter. Well ... the OSC panel did say Peterson acted reasonably. It also said it was "disappointed that he did not offer more insight and leadership to the board" and that "his due diligence defence is available to him, but just barely.") According to the prospectus, Peterson currently serves on the board of seven TSX-listed companies.

Under the proposed terms of the deal, BLC shareholders would end up with 65% of the merged company. As of June 30, YTW Weslea had working capital of $1.7 million. It was incorporated last October and completed its IPO in March.

STOCK REPORT: Com Dev, RDM results disappoint
August 2005

The market didn't react well to the quarterly results of either Com Dev or RDM. Com Dev shares had run up in anticipation of the announcement and were up 12% from the end of July. The lacklustre results caught investors by surprise, and they reacted strongly, chopping $35 million off the company's market value in one day. Com Dev stock remained at those levels to the end of August, giving back the gains made the previous month.

RDM shares fell 15% the day the company announced its results, and they closed the month under a dollar -- the first time that's happened in a year.

For the month of August:

MKS [TSX: MKX] +10%
ARISE [TSXV: APV] +10%
Turbosonic [OTCBB: TSTA] +8%
RIM [TSX: RIM] +7%
--S&P TSX VENTURE INDEX +7%
Dalsa [TSX: DSA] +6%
--S&P TSX COMPOSITE INDEX +2%
===============================
Biorem [TSXV: BRM] -2%
Navtech [OTCBB: NAVH] -2%
Open Text [TSX: OTC] -6%
Virtek [TSX: VRK] -8%
Com Dev [TSX: CDV] -10%
Descartes [TSX: DSG] -12%
RDM [TSX: RC] -15%
ClearFrame [TSXV: CFA] -15%

Descartes stock -- for no apparent reason -- had its worst month in over a year. Open Text shares continued to slide, falling to their lowest point in over three years. MKS stock rebounded to make back most of its losses from July.

Companies with core operations outside the area:

Blue Coat [Nasdaq: BCSI] +20%
Sybase [NYSE: SY] +5%
Leitch [TSX: LTV] +4%
Ansys [Nasdaq: ANSS] +4%
==================================
LSI Logic [NYSE: LSI] -1%
Siebel [Nasdaq: SEBL] -2%
McAfee [NYSE: MFE] -2%
SBS Technologies [Nasdaq: SBSE] -3%
AMIS [Nasdaq: AMIS] -6%
Senesco [Amex: SNT] -7%
Agfa-Gevaert [Brussels: AGFA] -7%
Adobe [Nasdaq: ADBE] -9%
Automated Benefits [TSXV: AUT] -18%

Miscellaneous Tidbits

• Catching up on my OSC reading: Waterloo's Shoplogix reported three months ago that it had received a significant investment from EdgeStone Capital. The OSC bulletin shows a total purchase price of over $5 million. The same bulletin shows a $5.3 million warrant financing for Covarity.

• And while I'm catching up: Vital Innovations in Waterloo went into receivership three months ago. The company's secured creditors were owed $1 million. The receivership papers list creditors owed $2.2 million.

• TriNorth Capital has invested another $300,000 in Waterloo's Intelligent Mechatronic Systems (IMS), bringing the total amount it has invested in the company to $1.9 million. It holds a 14.5% stake in IMS. There have been delays in the testing of IMS' occupant classification system, but the company hopes to have final tests completed by the end of the year. IMS just introduced a product called iPaid that would be installed in a car and let auto insurers know how much a car is being driven, at what time of day, in which areas, and other factors. It would enable them to offer "pay as you drive" usage-based insurance.

• Desire2Learn's web-based Learning Platform suite has been selected by the Calgary Board of Education for what the company says is one of the largest K-12 e-learning initiatives in North America. Deployment is scheduled to start in the fall.

• Symbility Solutions is being accused of patent infringement by a U.S. competitor. Xactware filed a complaint a motion for preliminary injunction in the U.S. District Court for the Central District of Utah. Symbility says it has been advised by its U.S. patent lawyers that its products do not infringe on any valid claim of the Xactware patents and suggested that the suit was a response to Xactware losing business to Symbility. Xactware is based in Orem, Utah.

• Symbility also announced a five-year deal with Gore Mutual Insurance Company that will see Gore use Symbility's mobile property claims system across Canada. Gore had been using the system in Ontario on a pilot basis for five months.

• Waterloo-based Auto-Ref announced that its animated video replay technology was used in Rogers Cup tennis coverage by TSN, CBC, ESPN, The Tennis Channel, and Eurosport. Auto-Ref developed an automated line-calling system for tennis and had been working with the International Tennis Federation in partnership with a company in Florida, but that partnership fell apart earlier this year. The ITF tested the line-calling system last year. The Auto-Ref technology also includes a graphics system for TV broadcasts that shows ball trajectory, speed, and other statistics, and it was that component that was used at the Rogers Cup.

• Leitch Technology, which acquired Inscriber at the beginning of the year, is itself being acquired -- by Harris Corp., a Florida-based communications equipment company with a market value of US$5 billion. Harris will pay just under $600 million for Leitch. The deal still need to be approved by Leitch shareholders.

• Add one more name to those associated with Control Advancements/Betacom who have been accused of wrongdoing by the OSC. Lawyer Christopher Freeman, who was a director of Control Advancements and CME Telemetrix, has been accused of unreported insider trading. Control Advancements is not among the three companies in which he was an insider and is alleged to have made over 50 unreported trades, but CME Telemetrics (now NIR Diagnostics) is. A hearing is scheduled for next month.

• In a news release dated August 9, Meikle Automation announced that Jim Estill had stepped down as chairman and director on April 19. He had been chairman since 2002.