December 2005

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

Issue 106 -- January 9, 2006
In this digest:

1. 2005: RIM in the spotlight; TurboSonic top stock
   
2. Google unveiled as Reqwireless buyer; now hiring in Waterloo
   
3. Tech Capital makes one investment, with a second expected

4. Biomedical Photometrics gets $625K from GrowthWorks
   
5. Miovision Technologies becomes Accelerator Centre client
   
6. RIM sales jump despite reduction in BlackBerry growth rate

7. Com Dev back on schedule
   
8. Virtek expects strong quarter following a weak Q3
   
9. TurboSonic has busy October, looking for big year

10. STOCK REPORT: TurboSonic pulls off the biggest month of the year
    
11. Miscellaneous tidbits from ATS, Broadband Learning, Meikle, Symbility, IMS, Jaywil, Maplesoft, ARISE, Agile.

2005: RIM in the spotlight; TurboSonic top stock

To the outside world, the big Waterloo tech story of the year -- probably of all-time -- was the ongoing battles in the courthouse, the patent office, and the media between RIM and NTP. I think RIM lost every skirmish in court, won them all in the patent office, and probably came out ahead in the media, where the case was frequently cited as an exemplar of an out-of-control patent system. But the biggest challenges are ahead as RIM and NTP head back to court to face a judge eager to wrap the case up ... more than three years after the jury reached its decision.

For most of the year, the legal wrangling didn't seem to have much impact on RIM's operations, which churned out a string of record quarters. But by the end of 2005, BlackBerry sales had dropped below forecasts and RIM shares ended the year down 22% -- erasing $4 billion in market value over the year. But coming off a 128% gain in 2004, that still leaves RIM investors up 77% over the last two years.

Also getting some national attention was Tech Capital Partners, which successfully raised another $50 million, bringing its total capital under management to $85 million.

The stock market performer of the year -- thanks to a huge jump in December -- was TurboSonic, which saw its shares nearly quadruple in value (adjusted for a 5-for-4 split during the year) after some impressive sales gains.

Stock performance for 2005:

TurboSonic [OTCBB: TSTA] +290%
ClearFrame [TSXV: CLF] +148%
ARISE [TSXV: APV] +124%
Navtech [OTCBB: NAVH] +92%
MKS [TSX: MKX] +75%
Descartes [TSX: DSG] +54%
ATS [TSE: ATA] +34%
--S&P TSX VENTURE INDEX +23%
--S&P TSX COMPOSITE INDEX +22%
Biorem [TSXV: BRM] +7% (last 11 months)
Virtek [TSX: VRK] +1%
===============================
RDM [TSX: RC] -22%
RIM [TSX: RIM] -22%
Com Dev [TSX: CDV] -26%
Open Text [TSX: OTC] -32%
Dalsa [TSX: DSA] -39%

Shares of ClearFrame and ARISE, which were both on life support in 2004, bounced back in 2005, even though both companies were struggling with the top line. (Well, we can't say that with certainty about ClearFrame since the most recent financial statements it has filed are for the period ended March 31, but it wasn't looking good.)

Navtech, the top stock performer of 2004, put in another strong year with another four profitable quarters, running its streak to 16. It also raised US$25 million -- most of it in debt -- to pay for a European acquisition.

Two chronic underperformers -- MKS and Descartes -- turned in strong performances, with MKS achieving record sales and Descartes becoming profitable for the first time in its history as a public company ... ending a string of 35 consecutive quarters of losses, during which it lost over US$400 million.

Several private companies, including Christie, SlipStream, and Desire2Learn, kept up a steady pace of good news through the year.

Sandvine raised $19 million and Agile got $7 million in rounds that were led by U.S. VCs. Shoplogix received over $5 million from EdgeStone and Covarity raised $5.3 million, while IMS, ARISE, and Biomedical Photometrics (see below) brought in several hundred thousand dollars from investors.

Inscriber was acquired for $18 million by Leitch, which itself was acquired later in the year by Harris. SRE Controls was acquired by UK-based MCC Energy and Reqwireless was acquired by a mystery buyer (see below).

FibreTech merged with FibreWired Guelph to form Atria Networks. Bill Gates came to town. And the Accelerator Centre at the UW Research & Technology Park announced its first two clients. The Centre is scheduled to open in April. Open Text became the second company to move to the R&T park.

On the downside, CheckFree left town and Vital Innovations went into receivership. Com Dev fell behind schedule for much of the year. Open Text and Dalsa had some rough quarters and announced significant layoffs, although most of the people effected were outside Waterloo.

Two of Waterloo Region's most prominent technology leaders -- Val O'Donovan and Klaus Woerner -- passed away on the same weekend after lengthy illnesses.

RIM wasn't the only company with legal troubles, as Kaleidescape was sued by the DVD Copy Control Association, and Virtek forked over $600,000 plus its FONA IP to resolve a dispute with Bio-Rad. Three former executives of Betacom, which evolved out of Waterloo's Control Advancements, were arrested and charged with fraud, while a former director of Control Advancements/Betacom and CME Telemetrics was charged with making unreported insider trades.

Year-end market capitalization
in millions, using outstanding shares
(year-over-year change in parentheses):

1. RIM $14,207 (-$4,334)
2. ATS 851 (+198)
3. Open Text 800 (-420)
4. Dalsa 239 (-90)
5. Descartes 149 (+52)
6. Com Dev 136 (-45)
7. MKS 117 (+52)
8. Biorem 33 (N/A)
9. TurboSonic 20 (+14)
10. Virtek 19 (0)
11. RDM 18 (-3)
12. Navtech 14 (+8) **
13. ARISE 5.3 (+3.5)
14. ClearFrame 3.8 (+3.1)

** Navtech market cap does not include shares issued through the funding announced in November.

Google unveiled as Reqwireless buyer; now hiring in Waterloo
December 22, 2005

Two mysteries were resolved simultaneously last week when Google finally identified itself as the company that acquired Waterloo's Reqwireless. Financial terms weren't disclosed.

The deal closed months ago (and was reported in the July digest) but both parties were tight-lipped about the identity of the buyer. In fact, just the report that there was a deal with an unnamed buyer was a concern for Reqwireless founder and CEO Roger Skubowius, who did his best to keep a lid on the whole transaction.

As people speculated about who the buyer was, rumors also began going around town that Google was coming to Waterloo. They became so persistent and widespread that I mentioned them in the October digest. Still, no one at Reqwireless or Google said anything.

But then, just before Christmas, Google posted an ad on its website looking for a mobile wireless application developer: "position based in Waterloo, Canada." When Reqwireless principal Joanne McKinley was advertised as a speaker at this week's CUTC conference as a Google software engineer, it didn't take much to connect the dots, and a couple of days later I got a note from Skubowius with Google's official acknowledgement of the deal.

Google -- which has a market value about 10 times that of RIM -- is hiring in Waterloo, but it hasn't yet made any public statement about its plans for the office. As I said in my blog, Adobe has been here for years and hardly anyone knows about it, and we've had Cisco and AOL and HP here in the past only to have them leave, so it's too early to speculate on what this might mean to the area in the long-term.

Tech Capital makes one investment, with a second expected
December 23, 2005

Tech Capital Partners has made an investment in Software Innovation, a Toronto-based developer of web-based project collaboration software headed by MKS co-founder Randall Howard and BlueGill co-founder Ray Simonson, who was previously Tech Capital's executive-in-residence. Software Innovation has a development office in Kitchener.

Tech Capital's Andrew Abouchar has joined the company's board of directors. Software Innovation also announced that it has hired former Open Text VP Robert Logan as its sales VP.

Rumoured to be the next addition to Tech Capital Partners' portfolio is Waterloo's LiveHive Systems, a developer of technology for online sports wagering.

Biomedical Photometrics gets $625K from GrowthWorks
December 23, 2005

Biomedical Photometrics Inc. (BPI) has received $625,000 from GrowthWorks Commercialization Fund through the sale of convertible debentures. The deal closed at the end of November.

GrowthWorks already had representation on BPI's board after taking over management of what used to be the Canadian Science and Technology Growth Fund, which invested $500,000 in the Waterloo company in 1998.

In a release, CEO Ted Dixon said the funding "allows BPI to accelerate commercialization of the TissueScope 2 and look ahead to mid-2006 for additional financing to expand our sales and marketing organization."

Miovision Technologies becomes Accelerator Centre client
December 19, 2005

The other initial tenant-client of the Accelerator Centre (along with Semacode Corp. -- see previous digest) is Miovision Technologies. The company was co-founded by three UW grads: president Kurtis McBride, bizdev VP Kevin Madill, and Tony Brijpaul. The fourth founder, Nick Miller, is a graduate of Queen's.

Miovision is developing "intelligent vision" technology that can automatically track visual objects and analyze images in applications that could be used in security, transportation, and other areas.

The Accelerator Centre facility is scheduled to open on April 1.

RIM sales jump despite reduction in BlackBerry growth rate
December 21, 2005

In the quarter ended November 26 (Q3 06), RIM reported profits of US$120.1 million (US$0.61/share) on revenue of US$560.6 million. Sales were up 14% from the previous quarter and 53% from a year ago, and were in line with the company's forecast of US$540-570 million.

The bottom line remained impressive even after a US$26.2 million litigation expense, most of it relating to a writedown of a license asset RIM had put on the books when it thought it had negotiated a settlement with NTP.

Handheld devices accounted for 70% of sales, with services providing another 18.5% -- about the same breakdown as in Q2.

There were about 645,000 new BlackBerry subscribers in Q3, just up a little from the 620,000 signed up in the previous quarter. At the beginning of the quarter, RIM had been expecting 680,000-710,000 new subscribers in the period. It has again reduced its forecast for BlackBerry additions in Q4, this time to 700,000-750,000. Initially, it was looking for 775,000-825,000, which it then lowered to 750,000-800,000 and has now lowered again. This year RIM's Q4 has 14 weeks instead of 13, so that by itself should provide an 8% increase across the board.

RIM ended the quarter with US$1.6 billion in cash, not including the US$196.1 million it has set aside as the court-ordered royalty payment to NTP. Operations generated US$148.3 million in cash in Q3, and RIM spent US$391.2 million to buy back some of its shares, and another US$43.6 million on capital assets.

It is forecasting sales of US$590-620 million in the current quarter and US$610-650 million in Q1.

Com Dev back on schedule
December 15, 2005

Com Dev's results for the quarter ended October 31 (Q4 05) weren't particularly exciting, but they did show signs of a company emerging from the productivity problems that had pestered it for much of the year.

It reported net income of $1.6 million ($0.03/share) -- same as the previous quarter -- on sales of $29.8 million. Revenue was down 4% from the previous quarter and 7% from a year ago, but an improvement in margins provided a slight increase in gross profit, although margins were still down sharply from 2004.

On the balance sheet, there were significant drops in inventory levels and deferred revenue, and a jump in accounts receivable, suggesting that the company was getting product out the door -- something it had been challenged to do all year.

Com Dev ended the quarter with $5.8 million in cash, down $0.6 million from the end of Q3. Operations provided $4.8 million in cash -- a big turnaround from consuming $2.9 million and $3.8 million in the previous two quarters. Com Dev used $3.9 million to repay debt and has now completely paid the money it owed to THL. It also spent $1.3 million on capital assets.

For the year, sales of $123.6 million were up 4% from 2004. Net income was $5.2 million, down slightly from $5.3 million the previous year. Com Dev booked $133 million in orders during the year, resulting in a year-end backlog of $86 million (with another $18 million added to that through the acquisition of the former EMS operations in Ottawa -- see previous digest)

Virtek expects strong quarter following a weak Q3
December 15, 2005

Virtek had predicted that its Q3, ended October 31, would be "soft" and it was correct. The company lost $780,000 ($0.03/share) on sales of $10.9 million. Sales were down 14% from the previous quarter and 11% from a year ago. A reduction in margins led to a 16% sequential decline in gross profits.

Operations consumed $1.1 million in cash and an additional $0.2 million was spent on capital assets. By the end of the quarter, Virtek was down to net cash of just $0.9 million, but it believes that its existing cash and credit lines are sufficient to cover its cash requirements.

The company is forecasting a strong Q4, which it expects will be profitable and with sales of at least $13 million.

TurboSonic has busy October, looking for big year
December 8, 2005

At its AGM, TurboSonic told investors that revenue in the four months ended October 31 was US$6.2 million. That means sales in October alone were about US$2.7 million with pre-tax net income of US$386,000.

TurboSonic later distributed a December 13 report by analyst William Gregozeski of CapStone Investments which forecasts an 85% increase in revenue for the company this year. It also announced a US$6.6 million order for a facility in Alabama, which helped expand its backlog to US$15.3 million.

TurboSonic also announced that Andrew Meikle, the founder and CEO of Meikle Automation, has joined its board of directors. Glen Wright, founder of Wright, Mogg and Associates and former Hydro One chairman, has also been elected to the board.

STOCK REPORT: TurboSonic pulls off the biggest month of the year
December 2005

TurboSonic shares not only had the best month of all stocks followed here, its December performance was the biggest one-month gain of any company through the whole 12 months of 2005.

For the month of December:

TurboSonic [OTCBB: TSTA] +83%
Descartes [TSX: DSG] +33%
Com Dev [TSX: CDV] +16%
MKS [TSX: MKX] +11%
--S&P TSX VENTURE INDEX +9%
RIM [TSX: RIM] +8%
ARISE [TSXV: APV] +6%
Navtech [OTCBB: NAVH] +4%
--S&P TSX COMPOSITE INDEX +4%
Dalsa [TSX: DSA] +2%
ClearFrame [TSXV: CFA] 0%
===============================
Biorem [TSXV: BRM] -3%
RDM [TSX: RC] -3%
Open Text [TSX: OTC] -6%
Virtek [TSX: VRK] -11%

Com Dev shares began the month by dropping to their lowest point since August 2003, but they bounced back following the positive news the company released in the month.

MKS shares hit their highest point in over five years while Descartes stock ended December with its highest month-end price since February 2004.

Companies with core operations outside the area:

Adobe [Nasdaq: ADBE] +13%
AMIS [Nasdaq: AMIS] +7%
Ansys [Nasdaq: ANSS] +2%
Blue Coat [Nasdaq: BCSI] +1%
Siebel [Nasdaq: SEBL] +1%
Automated Benefits [TSXV: AUT] 0%
==================================
NCR [NYSE: NCR] -0%
SBS Technologies [Nasdaq: SBSE] -2%
McAfee [NYSE: MFE] -2%
Sybase [NYSE: SY] -3%
LSI Logic [NYSE: LSI] -3%
Agfa-Gevaert [Brussels: AGFA] -8%
Senesco [Amex: SNT] -11%

Miscellaneous Tidbits

• I don't think anyone really expected that Jim Kopperson was going to retire, despite the announcement from RDM last month (see previous digest), but it paid to bet the "under" as he's already taken a new job as the first CFO of the ATS Solar Group -- comprised of Photowatt International and Spheral Solar Power. ATS has hired BMO Nesbitt Burns to help assess funding opportunities, including the possibility of taking the unit public. ATS Solar Group is headed by CEO Syl Ghirardi. In the six months ended September 30, it had sales of $70.1 million and operational earnings of $9.7 million.

• Broadband Learning, a Utah-based company that partly evolved out of Waterloo's AccessTNG, went public through the capital pool program (see August digest) and is now listed on the TSX Venture Exchange. Michael Ben, who helped take ARISE public in 2003, worked with BLC as a contract CFO through the year leading to the listing.

• Meikle Automation will get about $400,000 from NRC-IRAP to help develop automation platforms for medical device manufacturers. A prototype is scheduled to be completed in November. Meikle has grown to over 350 employees in Canada, the U.S., and Mexico, with annual sales over $50 million. It expects about 10% of its sales this year will be to the medical market.

• The patent infringement lawsuit filed in Utah against Symbility Solutions by competitor Xactware (see August digest) was dismissed when the judge decided that Symbility didn't have a sufficient connection to Utah (where Xactware is based) to give his court jurisdiction. The dispute will now move to Michigan, where Symbility filed suit against Xactware. Xactware has filed a counterclaim, making the same charges against Symbility as it made in Utah.

• IMS unveiled its DriveSync GPS vehicle tracking system at the 2006 Consumer Electronics Show in Las Vegas. One of the applications of DriveSync is to allow parents to monitor how recklessly their children drive their car. IMS also announced that its iPaid system -- essentially the same as DriveSync except the information is reported to your auto insurance company instead of your parents -- is being used in a pilot project by Winterthur, a German insurance group. iPaid measures how much you drive your car, where, how fast, and other information and allows insurance providers to base your premiums on actual usage. So you can feel just like the teen driver whose parents bought DriveSync.

• Guelph's Jaywil Software announced that its ResourceMate library automation software now has 4,000 registered users worldwide, and set a new monthly sales record in June.

• Maplesoft says sales of Maple 10 "far exceeds" its expectations and was particularly hyping its adoption in commercial and government (i.e. not academic) markets. It says its software is now used by 81 of the top 100 corporate R&D spenders worldwide, as ranked by IEEE Spectrum magazine.

• A group called the Toronto Region Research Alliance (TRRA), which includes representation from Waterloo, Kitchener, Hamilton, and Guelph, along with the GTA, says the Perimeter Institute and UW's Institute for Quantum Computing want to get into the business of creating products -- "working to translate foundational ideas in physics and quantum computing into commercialized applications." I suspect PI might offer a different take on its role. But with governments stuck in a "commercialization" trance, that's what you have to say you do these days. Factions in Waterloo Region get in a tizzy when we try to use "Waterloo" as a brand to sell the area, but they're okay with getting behind the Toronto name (Toronto is a good brand to get behind, but so is Waterloo). Kitchener mayor Carl Zehr is a TRRA board member. TRRA is lamenting the absence of a NRC facility in the area.

• ARISE is hoping to close a private placement of shares this month. The offering is priced at 30 cents a share.

• Agile Systems got a makeover -- new logo and new website.

• Dean Hopkins, the Waterloo native and UW grad who founded Cyberplex, has left the company. Cyberplex had a development office in Waterloo from 1998 to 2002.