January 2006

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

Issue 107 -- February 6, 2006
In this digest:

1. Tech Capital Partners raises another $10M
   
2. LiveHive gets $1.8M investment from Tech Capital
   
3. Sirific reveals first major product

4. MKS closes US$2M licensing deal for another record quarter
   
5. Open Text results in line with expectations
   
6. Software Innovation moves HQ to Kitchener

7. Navtech sales up 41% in 2005
   
8. Dalsa hopes to rebound in 2006
   
9. STOCK REPORT: Big jumps on little news for Virtek, RDM

10. Miscellaneous tidbits from We-Create, RDM, Symbility

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Tech Capital Partners raises another $10M
December 20, 2005

Tech Capital Partners has raised another $10 million for its Tech Capital II LP, adding to the $50 million that was announced in July. The fund is now closed.

According to OSC documents, there were five investors. The only new investor that was identified is Export Development Canada.

The new investment brings Tech Capital's total capital under management to $95 million.

LiveHive gets $1.8M investment from Tech Capital
January 17, 2006

As expected, LiveHive Systems has become the latest recipient of funds from Tech Capital II. It will get up to $1.8 million to develop its real-time wagering product, that will enable online gaming companies to take bets on small, within-the-game events -- like "Will Viktor Kozlov score on Eddie Belfour on the penalty shot?" LiveHive calls it NanoGaming.

LiveHive was founded by Jean-Pierre Bhavnani (product development), Dave Bullock (operations), Jean Paul Dupuis (technology), and Robert Riopelle (business development), all of whom previously worked at IMS in Waterloo.

The company will hire a president and hopes to grow to as many as 30 employees in the next year.

Sirific reveals first major product
January 24, 2006

Nearly six years after its launch, Sirific has unveiled its next-generation product -- described as the first single-chip CMOS RF transceiver for 3.5G cellphones using the HSDPA/WEDGE protocols. It will sell the product to handset manufacturers and hopes to be in production by the end of the year.

The chip, called the SW3200, supports five WCDMA bands, as well as EDGE, GPRS, and GSM bands. Sirific says it's far smaller than competing solutions. Price starts at US$8 a piece for 10,000 units, but Sirific will be hoping to sell them in much bigger batches (with lower unit prices).

The company is promising an entire line of 3.5G RF transceivers under the Nexus III brand name.

Sirific hadn't issued a news release since 2004. Somewhere in that period the company moved its headquarters from Santa Rosa, Calif. to the "Telecom Corridor" in Richardson, Texas. About two-thirds of its employees are in Waterloo, including CTO and founder Taj Manku, a former UW professor. The company's VPs of finance and sales & marketing are also UW grads.

According to OSC filings, Sirific raised $5.3 million in December through a preferred share offering to six investors.

MKS closes US$2M licensing deal for another record quarter
February 1, 2006

MKS didn't waste any time letting investors know that its Q3, ended January 31, is going to be another record-setter. The day after quarter-end, it said it's expecting Q3 revenue of US$13.2-13.5 million, which will be up at least 25% from last year and 14% from the previous quarter.

Putting it over the top was a US$2.2 licensing deal to an unnamed existing customer which is expanding its use of MKS' software.

Full Q3 results will be announced later.

MKS also announced that all of the remaining warrants issued as part of its death-bed restructuring and management change five years ago were exercised in the quarter, for proceeds of US$3.1 million. MKS now has 49.6 million shares outstanding, up from 42.7 million last month.

Open Text results in line with expectations
February 1, 2006

In the quarter ended December 31 (Q2 06), Open Text earned US$2.7 million on revenue of US$110.8 million. Sales were down 3% from last year but up 20% from the previous quarter, and were in line with the company's forecast of US$103-113 million.

The net income comes after a US$7.1 restructuring charge and a US$1.7 million asset write-down.

Operations provided US$16.3 million in cash and Open Text received an additional US$12.9 million by taking a mortgage on its new building at the UW R&T Park. It ended the quarter with US$87.0 million in cash, up US$20.2 million over the quarter. Open Text has also negotiated an expanded US$40 million line of credit.

Q3 isn't expected to be as strong on the top line, with the company forecasting sales of US$100-110 million. Last year, Open Text had Q3 sales of US$105 million.

Software Innovation moves HQ to Kitchener
January 2006

Software Innovation is moving its headquarters from Toronto to Kitchener. The company closed a $3.5 million funding in December, led by Tech Capital Partners (see last Digest).

It is run by CEO Randall Howard, co-founder of MKS, and CTO Ray Simonson, co-founder of BlueGill, which became the Waterloo site of CheckFree that closed down last year. Howard and Simonson are partners in Verdexus, which acquired Software Innovation in 2004.

Software Innovation provides web-based project collaboration software for large-scale engineering projects. It is affiliated with Norway's Software Innovation ASA, which opened a Toronto office in 1997.

Navtech sales up 41% in 2005
January 30, 2006

For fiscal year 2005, ended October 31, Navtech reported sales of US$11.1 million and earnings of US$0.6 million. Sales were up 41% from the previous year (and this was before the company's big acquisition of EAG in November -- see November Digest).

Q4 sales would have been about US$3.5 million, a huge increase from both the previous quarter and the same period last year. Net income in the quarter was US$302,000, making it Navtech's 16th straight profitable quarter.

It ended the year with US$0.4 million in cash -- unchanged over the year. Operating activities were essentially cash flow neutral through the year. The company raised US$0.4 million through the exercise of warrants and issuance of common shares and spent US$0.3 million on capital assets.

CEO David Strucke was rewarded with a big raise of more than 40% for this year. Navtech's second-highest paid employee in 2005, sales VP Derek Dawson -- who was president & COO several years ago -- left the company just after fiscal year-end.

Navtech says it will move in the fall from its current offices in a RIM-owned building at Columbia and Phillip.

Dalsa hopes to rebound in 2006
January 26, 2006

Financially, it was a disappointing end to a disappointing year for Dalsa, with Q4 sales of $41.8 falling well below the company's forecast of $43.5-47.5 million, which was lowered from initial expectations of $53-58 million. Sales were down 13% from a year ago (which was before Dalsa's acquisition of Coreco) and 5% from the previous quarter. Net income for the quarter was $0.9 million ($0.05/share).

Digital imaging sales were down 7% from both last year and the previous quarter. Dalsa says there was a big drop in demand from professional photography customers who are shifting to next-generation products using image sensors not yet in full production. Semiconductor sales declined 3% sequentially and 26% from 2005. The company's traditional base in CMOS chips has been in decline and Dalsa says it doesn't expect demand to return to previous levels. It hopes to make up for that loss in revenue through its new MEMS products which will be launched through 2006.

Dalsa is now separating the results from its digital cinema business, which lost $1.0 million on revenue of $0.4 million in Q4. The segment contributed sales of $1.3 million in 2005, although none of that came from rentals of Dalsa's Origin digital movie camera, which is expected to become the core of that business in 2006. Dalsa is still trying to solve a technical problem with the camera's filter, but is continuing to produce Origin cameras in Waterloo.

Operations provided $4.7 million in cash, which Dalsa used to pay back its bank debt. It spent another $3.6 million on capital assets, and ended the quarter with $2.6 million in cash.

For the year, sales of $156.7 million was down slightly from $159.0 million in 2004, but the 2005 results include eight full months of Coreco revenue, which should have added about $20 million in sales by itself. Initially Dalsa had been hoping for sales of $215-234 million in 2005. Net income for the year was $8.6 million. Digital imaging had operating income of $11.5 million, while the semiconductor business contributed another $1.0 million. Losses in the digital cinema business were $3.8 million.

CEO Savvas Chamberlain said that 2006 will be "an inflection point" for the company, as it rolls out new products made possible by the expansion of its semiconductor facility in Quebec, launches the rental business of its Origin movie camera, and looks forward to recovery in some of its digital imaging markets, particularly in flat panel display inspection.

In the current quarter, Dalsa expects to spend $2.4 million to buy land in Waterloo.

STOCK REPORT: Big jumps on little news for Virtek, RDM
January 2006

Virtek made no announcements during the month, and RDM's announcement of a partnership with Unisys is hard to evaluate right now, but the market smiled on both long-suffering stocks, driving their values up by 21%.

Virtek stock had its highest month-end price in four months while RDM shares finished the month above a dollar for the first time since July -- and are already up another 11% so far in February.

For the month of January:

RDM [TSX: RC] +21%
Virtek [TSX: VRK] +21%
ATS [TSX: ATA] +18%
Open Text [TSX: OTC] +15%
--S&P TSX VENTURE INDEX +14%
Navtech [OTCBB: NAVH] +12%
--S&P TSX COMPOSITE INDEX +6%
Descartes [TSX: DSG] +5%
Biorem [TSXV: BRM] +3%
RIM [TSX: RIM] +1%
===============================
Com Dev [TSX: CDV] -1%
TurboSonic [OTCBB: TSTA] -1%
Dalsa [TSX: DSA] -2%
MKS [TSX: MKX] -7%
ARISE [TSXV: APV] -16%

MKS shares made back all their January losses in the first few days of trading in February, after the company announced strong preliminary Q3 results. With the conversion of its purchase warrants, and its rising stock price, MKS overtook Com Dev in market value last week. Descartes, MKS, and Com Dev are all valued in the $140-150 million range.

Descartes shares traded over $4 for the first time in almost two years. They closed the month at $3.85. Open Text stock had its highest month-end price since May.

Some investors were expecting good news in Dalsa's quarterly results and drove the stock up as much as 17% by mid-month. The gains were all erased once the numbers came out.

Companies with core operations outside the area:

Automated Benefits [TSXV: AUT] +32%
LSI Logic [NYSE: LSI] +14%
SBS Technologies [Nasdaq: SBSE] +13%
Senesco [Amex: SNT] +11%
NCR [NYSE: NCR] +9%
Adobe [Nasdaq: ADBE] +7%
Google [Nasdaq: GOOG] +4%
Oracle [Nasdaq: ORCL] +3%
Ansys [Nasdaq: ANSS] +3%
==================================
Sybase [NYSE: SY] -1%
AMIS [Nasdaq: AMIS] -3%
Agfa-Gevaert [Brussels: AGFA] -8%
Blue Coat [Nasdaq: BCSI] -10%
McAfee [NYSE: MFE] -15%

Siebel has been acquired by Oracle, so we can add Oracle to Adobe as the tech giants that nearly no one knows are in Waterloo.

Miscellaneous Tidbits

• We-Create raised another $100,000 through a debenture offering with an angel investor.

• RDM's new CFO is James Merwin, formerly a consultant with Toronto-based corporate travel management services firm BTI Canada who previously spent 10 years with Mayne Logistics Loomis, the courier company acquired by DHL at the beginning of 2003.

• Symbility Solutions says it has launched three more pilot programs with unnamed U.S. insurance companies. The first U.S. pilot was announced a couple of months ago.

• Last month, I briefly mentioned the Toronto Region Research Alliance (TRRA) -- which includes representation from Waterloo, Kitchener, Hamilton, and Guelph, along with the GTA -- and its lobbying efforts to get an NRC institute within the region. Well, about 10 days before the election, Prime Minister Martin opened the nation's wallet and announced funding for two new NRC facilities in the GTA, and, on top of that, provided $50 million each to Perimeter Institute and UW's Institute for Quantum Computing. While most recipients marched off with a smile to Markham to participate in the campaign photo-op, PI head Howard Burton -- not wanting to appear to be a political flunky -- chose to stay home. And he let everyone know he wasn't going to attend and questioned the judgment of those who would participate in what he called a "desperate attempt to rescue a quasi-moribund political campaign during an election that was wholly devoid of any substantive dialogue on science and research policy." Apparently that response didn't go over so well with PI's lead benefactor, Mike Lazaridis, who was happy to sing the government's praises (as did Burton, actually -- he just opposed the use of superficial research funding announcements as a campaign tool). The announcements are all moot now, anyway, although the new government will certainly be lobbied to follow through on Martin's promises.

• High-tech Waterloo optometrist Jawad Minhas won the Dell-RBC Small Business Excellence Award. Along with $20,000 in technology and up to $5,000 in professional services from Dell, he gets to meet Michael Dell and spend a day with Dell executives.

• Waterloo is one of the seven finalists for the annual Intelligent Community award, selected by the Intelligent Community Forum (ICF). The ICF promotes growth in what it calls "the broadband economy." It's the City of Waterloo that has been nominated, although the ICF confuses the city and the region in its description and makes many other errors. Some of the local initiatives referred to in the ICF nomination are the Research & Technology Park, Perimeter Institute, Communitech, UW Centre For Wireless Communications, RIM, and the Waterloo Public Library. The ICF is chaired by John Jung, international marketing VP with the Greater Toronto Marketing Alliance. Previous Canadian nominees are Toronto, Nova Scotia's Annapolis Western Valley, and Calgary (a co-winner in 2002).

• I see that the FRED digital signage products, which were developed in Waterloo and acquired by a company in the Seattle area in 2003, are now part of 3M. Mercury Online Solutions, which acquired FRED Systems, was itself acquired last summer by 3M. John Kirkpatrick, who was FRED's president in Waterloo, is listed as the sales director of 3M Digital Signage. LiveHive is moving into the building on Lodge Street that was FRED's headquarters for years.