November 2005

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

Issue 105 -- December 5, 2005
In this digest:

1. MKS sales continue to climb
   
2. RDM makes up for slow year with big Q4
   
3. Semacode selected as initial Accelerator Centre tenant

4. Navtech raises US$25M for big European acquisition
   
5. Descartes makes it three profitable quarters in a row
   
6. Open Text bounces back, expects strong growth in current quarter

7. Com Dev acquires Ottawa-based operations for $5M
   
8. STOCK REPORT: MKS and RDM shares boosted by strong quarters
   
9. Miscellaneous tidbits from UW, RIM, ARISE, TurboSonic, Symbility, MedShare, NCR, Agile, Christie, Biomedical Photometrics, Atria

MKS sales continue to climb
November 30, 2005

It was another record quarter for sales at MKS in the quarter ended October 31 (Q2 06) with revenue of US$11.5 million -- blowing away by 23% what has been an all-time record Q2 last year. Sales were up 7% from the previous quarter.

Net income of US$0.9 million (US$0.02/share) showed an improvement from both last year and the previous quarter. MKS continues to spend over 40% of its revenue on sales & marketing, with an additional 20% spent on R&D.

MKS hasn't yet filed or posted its detailed financial results, but sales in its core ALM segment were up by about 9% from Q1 and 31% from a year ago. ALM accounted for 83% of total sales, with the balance coming from the shrinking interoperability segment.

Operations provided US$1.4 million in cash and an additional US$0.8 million was raised through the issuance of common shares. MKS ended the quarter with US$10.5 million in cash, up US$1.6 million from the end of Q1.

MKS has hired 40 people since the spring and expects to add another 50. It now has 288 employees worldwide, with just over half of them based in Waterloo.

Doug Sawatzky is the new CFO of MKS, succeeding Rob Dietrich who had held the job for a little over four years. Sawatzky, a UW grad, was formerly MKS' finance VP. And Michael Harris, who has been COO since July 2002, was given the additional title of president.

RDM makes up for slow year with big Q4
November 28, 2005

Three months ago, after three disappointing quarters in its 2005 fiscal year, RDM threw in the towel on its forecast of $20 million in sales for the year. But just as it was abandoning that target, the company came up with a strong Q4 that nearly took it to that level for the year.

RDM ended FY2005 with sales of $19.5 million with Q4 revenue of $6.3 million. Sales in the final quarter were up 51% from Q3 and 53% from last year. At the beginning of the quarter, RDM expected Q4 results would be nearly flat from a disappointing Q4 a year ago, and actual results were about $2 million better than that.

Earnings in the quarter were $0.6 million ($0.03/share), and that accounted for 82% of RDM's profits for the year.

All three of RDM's business segments reported impressive sequential revenue gains. Leading the way was digital imaging sales, with sales of $3.4 million, up 83% from the previous quarter and 85% from last year. A jump in scanner sales accounted for the bulk of that increase. RDM's ITMS transaction processing service was up to 500,000 transactions per week by the end of the quarter, up from 415,000 at the end of Q3 and 300,000 a year ago. CEO Doug Newman said he expects volumes will double over the next year, and called that a "conservative estimate."

RDM ended the year with $5.5 million in cash, with operations contributing $1.0 million in Q4.

Jim Kopperson, who's in his fourth year as RDM's CFO, is leaving the company in what was called a "planned retirement." He will continue in the job until a successor is hired.

Semacode selected as initial Accelerator Centre tenant
November 23, 2005

The new Accelerator Centre at the UW Research & Technology Park has hired an executive director and selected its first two tenants ... although the building won't actually open until April.

One of the initial tenants is Semacode Corp., which has developed a URL barcode system that can be scanned by Java-based camera phones. The company was founded by UW grad Simon Woodside and has already been mentioned by Wired, The Economist, New Scientist, and other news media.

The other tenant, which hasn't yet been publicly disclosed, is a new company, also founded by a UW grad (the founders of the two tenant companies actually have an odd connection to each other from their UW days).

In October, UW announced that Dan Melymuk had been hired as the Accelerator Centre's first executive director. He's a Canadian who spent the last five years in Indiana.

Melymuk was previously a consultant with Smith Weaver Smith in Indianapolis and before that was CEO of Distortion Graphics in Indianapolis. That company was part of the Rose Hulman Ventures business incubator. In the late 1990s, he was president of ThinApse, based in Vancouver and Toronto.

In the news release announcing his appointment, the Centre was twice called the Waterloo Research and Technology Park Accelerator -- I don't know if that foreshadows a name change, but "Accelerator Centre" is certainly proving to be too generic.

Navtech raises US$25M for big European acquisition
November 22, 2005

Navtech has acquired European Aeronautical Group (EAG) from Sweden's SAS Group for approximately US$20 million.

To complete the deal, Navtech raised US$25 million -- US$4 million in equity and US$21 million in debt. Equity investors were Cambridge Information Group of Maryland and Belgium's Externalis, which bought a combined 1.6 million shares -- about a quarter of the company -- with warrants to purchase another 100,000 shares at an exercise price of US$3/share at any time over the next 10 years.

The $21 million in debt financing was provided by Boston's ABRY Mezzanine Partners, which usually specializes in media and communications deals. The debt is due in 2011 and carries a weighted-average interest rate of 11.5%. ABRY also received 10-year warrants to purchase 312,176 common shares for a penny a share.

The acquisition will quadruple Navtech's sales. In 2004, EAG revenue was US$23.8 million compared to Navtech's US$7.9 million. Navtech has also gained 155 employees in Sweden and the U.K., giving the company 250 employees worldwide.

Descartes makes it three profitable quarters in a row
December 1, 2005

A third straight quarter of profits for Descartes -- and no asterisk this time, as there were no asset sales needed to put the company in the black as was the case in the previous two quarters. The company reported net income of US$0.6 million on sales of US$11.5 million in the period ended October 31 (Q3 06).

It was the sixth consecutive quarter where the company's sales fell in the range of US$11-11.5 million, although this one was slightly higher than the previous five -- up 4% from a year ago.

"The new Descartes" was CEO Art Mesher's theme in the conference call. "We're not the company that some of you may have known or invested in prior to May 2004. We do things very differently here ... we've produced results." Mesher is in his eighth year as a member of Descartes' senior executive team.

The company ended the quarter with US$31.2 million in cash, with operations generating US$3.0 million in Q3.

Descartes has started to rebuild its sales team, hiring six new sales reps in addition to sales managers. "We've had no sales force for the last year," Mesher said, "they've been here for about four weeks." The company now has 229 employees, with 10 quota-carrying sales reps.

Mesher also said the company is "clearly looking at acquisitions" but would only make deals where Descartes can maintain its strong balance sheet.

Open Text bounces back, expects strong growth in current quarter
November 3, 2005

Coming off a terrible Q4, Open Text was able to hit its forecasts in the quarter ended September 30 (Q1 06) with sales of US$92.6 million. That was within the range of US$85-95 million the company had projected. Q1 is traditionally Open Text's weakest quarter for sales, and revenue this year was down 15% from the previous quarter but up 8% from Q1 last year.

Net loss was US$12.9 million (US$0.27/share), which included a restructuring charge of US$18.1 million related to the company's recent layoffs. An additional US$7-12 million in restructuring costs are expected in the current quarter.

This was also the first quarter where Open Text has expensed stock options, and those costs came to US$1.4 million.

Operations contributed $324,000 in cash and US$7.4 million was spent on acquisition-related expenses, including another US$3.1 million for IXOS. Open Text also spent US$5.9 million on capital assets and ended Q1 with US$66.8 million in cash.

As was the case last year, Open Text is expecting a big quarter-over-quarter jump in sales in the current quarter. It has forecast 20-32% sequential growth to US$103-113 million in Q2. Even at the high end of the range, however, sales would fall below the US$115 million achieved last year. In 2004, Open Text recorded a 34% increase in sales between the first and second quarters.

Com Dev acquires Ottawa-based operations for $5M
November 23, 2005

Com Dev has acquired part of what used to be EMS Space & Technology for about $5 million. It was part of a three-way deal that saw BC's MacDonald Dettwiler and Associates acquire the S&T division from Atlanta-based EMS and then sell part of it to Com Dev.

Com Dev will get the EMS space science and optical payload operations, based in Ottawa, as well as the search and rescue transponder product line, now build in the Montreal area. EMS had operations in Ottawa since acquiring CAL Corp. (formerly Canadian Astronautics Ltd.) in 1993. The Montreal-based S&T division evolved out of EMS' acquisition of SPAR Aerospace in 1999 (and SPAR, in the 1970s, bought the Montreal facility of RCA, which is where Com Dev sprang from).

Com Dev will pay $5.0 million plus an adjustment for working capital, with an additional $1.0 million payable if certain conditions are met before the end of 2006. The company expects the new operations will add about 10% to its total revenue in 2006 (Com Dev's FY2005 revenues will be around $125 million) and will contribute to earnings in the first year. It will immediately add $18 million to Com Dev's order backlog.

With the acquisition, Com Dev picked up 23 employees in Ottawa and are looking to move into a new facility in that area over the next six months. The SAR product line will be moved to Cambridge.

Com Dev used a line of credit and other bank debt to pay for the acquisition.

STOCK REPORT: MKS and RDM shares boosted by strong quarters
November 2005

Both MKS and RIM saw investors react strongly -- and favourably -- to their latest results. RDM's percentage gain was higher, but MKS' performance was the more impressive. Despite a big 28% jump, RDM shares failed to make back their losses from October and finished with their second-lowest month-end price in two years.

MKS shares, on the other hand, closed November with their highest month-end price since the waning days of the Randall Howard era five years ago. The company has now climbed back over the $100 million mark in market value.

For the month of November:

RDM [TSX: RC] +28%
MKS [TSX: MKX] +24%
Biorem [TSXV: BRM] +10%
Open Text [TSX: OTC] +8%
Descartes [TSX: DSG] +8%
ClearFrame [TSXV: CFA] +8%
Dalsa [TSX: DSA] +6%
--S&P TSX COMPOSITE INDEX +4%
ARISE [TSXV: APV] +3%
--S&P TSX VENTURE INDEX +3%
Virtek [TSX: VRK] +1%
===============================
RIM [TSX: RIM] -2%
Com Dev [TSX: CDV] -4%
Turbosonic [OTCBB: TSTA] -7%
Navtech [OTCBB: NAVH] -14%

The Navtech decline is misleading -- the company's shares ended the month on a short-lived drop and bounced all the way back with the first trade in December.

With just one month left in the year, Navtech shares are on track to be the top performing local tech stock of 2005, with a 130% gain since the beginning of the year. The worst performing stock of the year looks to be a battle between Dalsa and Com Dev. Descartes overtook Com Dev in market value during November.

Companies with core operations outside the area:

Ansys [Nasdaq: ANSS] +13%
NCR [NYSE: NCR] +12%
SBS Technologies [Nasdaq: SBSE] +6%
Siebel [Nasdaq: SEBL] +1%
LSI Logic [NYSE: LSI] +1%
Adobe [Nasdaq: ADBE] +1%
Sybase [NYSE: SY] +1%
==================================
Blue Coat [Nasdaq: BCSI] -4%
Senesco [Amex: SNT] -6%
Agfa-Gevaert [Brussels: AGFA] -7%
McAfee [NYSE: MFE] -7%
AMIS [Nasdaq: AMIS] -10%
Automated Benefits [TSXV: AUT] -15%

Miscellaneous Tidbits

• Google hasn't said anything about coming to town (see last digest), but some of its money made it here ... or at least money made from investing in Google. David Cheriton, a computer science professor at Stanford, Google's birthplace, donated $25 million to the UW School of Computer Science, which will be renamed the David R. Cheriton School of Computer Science. Cheriton received his master's and doctoral degrees from UW and went on to be one of Google's seed investors. Earlier this year, he ranked seventh in Forbes' "Midas List" of top tech dealmakers.

• A UW contingent that included president David Johnston, chancellor Mike Lazaridis, and assoc VP & Accelerator Centre chair Gerry Thompson rang the opening bell at the New York Stock Exchange on November 23. They were in town to open a New York branch of UW's Institute for Computer Research, known as Waterloo ICR Manhattan. In the tech world, NYSE has for years been eclipsed by Nasdaq ... except for bell ringing. It's like getting to drop the puck at Maple Leaf Gardens. This is UW's first international office. At the beginning of the year, the university was looking at opening an engineering school in Kuwait, but some market research quickly put an end to those plans.

• Bloomberg reported that RIM is suing companies in the IT space that have products with "berry" in their name. Reporter Susan Decker writes: "On Nov. 10, it sued the software company BackOffice Associates, whose technology division is called Cranberry." The other suit is against New Jersey's Sakar International Inc. which makes PDAs for kids called Berrys, coming in flavours StrawBerry, BlueBerry, GreyBerry, and GrapeBerry. In the suit filed against BackOffice -- based in the Cape Cod area of Massachusetts -- RIM claims the Cranberry name is "clearly intended to trade on the substantial goodwill that RIM has developed in its BlackBerry."

• The bigger RIM news in the month was that the preliminary settlement terms agreed upon by RIM and NTP -- back in March when RIM announced that the parties had reached a settlement -- was found not to be an enforceable agreement. So there is no settlement, and the judge has made it clear that he's tired of the whole case (isn't everyone?) and is going to wrap it up as quickly as possible ... meaning that he has no intention of waiting to see the final outcome of the challenges to the validity of NTP's patents. So look for a settlement -- a real one this time, and one that's going to cost RIM a lot more than the US$450 million it was trying to pay. All for patents that in the end could very well be invalid.

• The other RIM news is that the company is opening a technical support call centre in Halifax. The Province of Nova Scotia is kicking in a $14 million performance-based payroll rebate and an additional $5 million financial package including recruitment and training incentives. RIM expects to hire up to 1,200 people for the centre over a five-year period. Apparently, Nova Scotia premier John Hamm even came to Waterloo to pitch RIM on the idea.

• ARISE lost $576,000 ($0.04/share) on sales of just $155,000 in the quarter ended September 30 (Q3 05). Sales were down 42% from the previous quarter. Gross profits were just $51,000. During the quarter, the cash-poor company raised $240,500 through the sale of debentures, giving it $102,000 at quarter-end. Despite the poor results, it paid out $81,000 in bonuses to employees in the quarter (it only has nine employees). Operations consumed $170,000 in cash and ARISE ended the quarter with a working capital deficiency of $2.5 million.

• TurboSonic reported earnings of US$153,000 on sales of US$3.5 million in the quarter ended September 30. Sales were up 43% from last year.

• Symbility Solutions announced the signing of the 1000th user to its Symbility.NET software platform for mobile claims processing. In the quarter ended September 30, Symbility -- the property and casualty software subsidiary of Automated Benefits Corp. -- reported sales of $67,000 and a loss of $734,000. Sales were up from $24,000 in the previous quarter. In the summer, Symbility signed five-year contracts with Economical, Allstate Canada, and Gore Mutual. It has also launched a pilot with an insurance company in the U.S. midwest.

• Guelph's MedShare received the prize for project implementation team of the year at the 2005 Canadian Health Informatics Awards, held at the Royal York in Toronto. The award is sponsored by the Canadian Healthcare Information Technology Trade Association, which just announced that it is becoming a division of ITAC.

• Kevin Thomson, formerly with the local CheckFree office, is now director of engineering at Waterloo's NCR Payments Solutions.

• Agile Systems unveiled its new SilentStep technology, which it says can double motor speeds and reduce energy demand by taking basic stepper motors used in such applications as printers, photocopiers, and packaging and lab automation equipment and converting them into high-performance servo-motors. This is the technology that attracted a $7 million round of funding in May (see May digest).

• DreamWorks and Sony are the latest two studios to support the digital distribution and projection system being built by Christie/AIX, using technology from Christie Digital Systems Canada.

• Biomedical Photometrics (BPI) was a presenter at the BioFinance Investor Conference in Toronto.

• Atria Networks was referred to in two news releases from other companies during the month, as Kanata's BelAir Networks announced that its technology was used in Atria's Waterloo Wi-Fi hotspot, and Markham's NTG Clarity Networks announced that Atria was using NTG's operations support system software.