February 2006

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

Issue 108 -- March 6, 2006
In this digest:

1. Sandvine plans to go public through UK market
   
2. RIM settles NTP suit for US$612M
   
3. RDM sales up 15% from last year

4. Descartes completes first profitable year, will raise $15M
   
5. MKS sales jump with big licensing deal
   
6. STOCK REPORT: RDM shares soar to highest level in years

7. Miscellaneous tidbits from Sonami, Ladybug, Alt, LiveHive, IRAP, Kaleidescape, Dalsa, ARISE, SlipStream, Virtek, Ansys, TurboSonic, UW, GUARD

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Sandvine plans to go public through UK market
February 18, 2006

Sandvine is planning an IPO as early as this month with a listing on AIM (Alternative Investment Market), the junior market of the London Stock Exchange. It hopes to raise about US$40 million through an offering that could see the company valued as high as US$174 million. Sandvine lost $3 million on sales of $15.8 million in the year ended November 30.

The news was first reported in a National Post story by Mark Evans and Boyd Erman.

AIM is becoming popular in Canada and the U.S., particularly among companies that want to avoid the burdens imposed by the Sarbanes-Oxley disclosure legislation. Over 30 Canadian companies are already listed on AIM, about three-quarters of which are mining or oil & gas companies. The weaker disclosure rules and lower listing requirements have led to some worries that the wrong kinds of companies might be attracted to AIM (the ones you typically see on the OTCBB today).

The highest-profile supporter of AIM in the Canadian high-tech community has been Terry Matthews, who has taken three companies public through that route (although the best-known, Ottawa's March Networks, did a dual listing on AIM and the TSX and the other two are based in the U.K. with offices in Ottawa). Some of Sandvine's founders have had a relationship with Matthews going back at least to 1997, when he selected Pixel Scientific as a Newbridge affiliate. Pixel was renamed PixStream shortly after, and Sandvine rose from PixStream's ashes in 2001. Matthews is the founder of Celtic House, an investor in Sandvine.

[Deloitte is hosting a free breakfast presentation on AIM at the end of the month. See the Communitech website for more information.]

RIM settles NTP suit for US$612M
March 3, 2006

Yes, RIM settled with NTP. Unlike the last time this was reported (see March 2005 digest), this time it's for real. The claims have been settled, the proceedings dismissed, and RIM has received a perpetual license for the NTP technologies.

NTP gets US$612.5 million, about CDN$700 million, equal to the combined market value of Dalsa, Descartes, Com Dev, and MKS. That's 36% more than RIM thought it would be paying last year, but less than some observers speculated RIM could have paid.

RIM still has about US$1.2 billion in cash after making the payment.

NTP filed the suit in 2001 and won the jury trial the following year. RIM lost its appeal at the end of 2004 and a settlement was pretty much inevitable from that point -- despite the bluster that was continually quoted in newspaper stories. RIM's last hope was to have the judge postpone making a decision on the appropriate penalty until after the U.S. Patent and Trademark Office completed its review of the NTP patents and all appeals coming out of that process. Once the judge made it clear that he had no intention of holding off any longer, RIM had little choice but to settle now.

The case has intensified demands for patent reform, but some of the proposed solutions would only make things worse. It's unlikely that there will ever be an acceptable definition of a patent troll, and if there was one it wouldn't include NTP, which was co-founded and co-owned by the inventor of its patents. I expect there will be a lot of talk and little action, especially now that there's a settlement and the case will no longer be in the news.

At the same time it announced the settlement, RIM warned that its Q4 numbers will be well below forecasts. Net BlackBerry subscriber additions are expected to be only around 625,000, well below the company's most recent forecast of 700,000-750,000, not to mention its original projection of 775,000-825,000. The uncertainty around the NTP litigation was obviously having a huge impact on customer decisions.

Sales in the current quarter may actually show a sequential decline, which has been a rarity for RIM in recent years. Q4 results will be released in April.

RDM sales up 15% from last year
February 10, 2006

RDM's digital imaging and electronic payments solutions businesses reported 32% annual growth in the quarter ended December 31 (Q1 06). Overall, the company just broke even, with a $10,000 loss on sales of $5.0 million. Sales were up 15% from last year, but down 20% from the previous quarter.

Transaction volumes through RDM's ITMS cheque electronification system grew 10% from Q4 to an average of 550,000 items per week. The company hopes to reach 2 million transactions per week by year-end.

Operations used $1.0 million in cash in the quarter and RDM ended Q1 with $4.4 million in cash.

Descartes completes first profitable year, will raise $15M
February 28, 2006

Descartes ended the first profitable year in its history as a public company with Q4 net income of US$966,000 (US$0.02/share) on sales of US$11.5 million. It was the seventh consecutive quarter that sales have fallen in the US$11-11.5 million range.

Revenue was up 4% from a year ago and flat from the previous quarter, although an improvement in margins led to a 5% sequential increase in gross profits.

Operations provided US$2.8 million in cash and Descartes ended the quarter with US$33.0 million in cash, up US$1.8 million from the end of Q3.

For the year, sales of US$45.7 million were down slightly from fiscal 2005, but earnings of US$3.0 million (US$0.07/share) were a huge turnaround from a loss of US$55.3 million in the previous year.

With its shares trading at their highest point in two years, Descartes is going to raise $14.9 million through the sale of 3.6 million shares at $4.15/share. The offering is being underwritten -- as usual -- by GMP, along with TD Securities and is expected to close later this month. Gross proceeds would climb to $17.2 million if the overallotment is taken in full.

[There was a long story in the National Post by Theresa Tedesco about the deterioration in the relationship between RIM and GMP -- which had counted RIM among its largest clients and for some reason not entirely explained in the story chose to advise NTP in its litigation against RIM. "For GMP, it has meant the end of a long and lucrative association," Tedesco wrote. "For RIM, 'it was the ultimate betrayal,' said a source who asked not to be named." Tedesco says RIM has refused to provide references for GMP, but it's unlikely GMP will ever have that problem with Descartes.]

The company also announced that it has hired Greg Cronin as its new EVP of business development and corporate strategy. From 2001 until last summer, he was the CEO of Colorado-based TrenStar, a mobile asset management company, which he guided from a start-up to over US$50 million in annual sales.

MKS sales jump with big licensing deal
March 1, 2006

As was pre-announced last month (see January digest), a US$2.2 million licensing deal led MKS to record-setting revenue in the period ended January 31 (Q3 06). The company earned US$1.6 million (US$0.03/share) on sales of US$13.4 million. Sales were up 16% from the previous quarter and 27% from last year.

Operations consumed US$0.4 million in cash, but MKS raised US$3.3 million through the conversion of warrants and options, with most of that coming through the warrants issued five years ago when the new management team was brought in. MKS ended the quarter with US$13.2 million in cash, up US$2.7 million from the end of Q2.

With one quarter remaining in its fiscal year, MKS did not revise its annual revenue forecast, which remains US$47-51 million. That would require Q4 sales of US$11-15 million, which is a pretty wide range.

STOCK REPORT: RDM shares soar to highest level in years
February 2006

RDM's quarterly results were solid, but hardly a breakthrough, but that didn't stop investors from taking the company's shares to their highest month-end price in five years, closing February at $1.47.

Over the first two months of 2006, RDM stock is up 65%.

For the month of February:

RDM [TSX: RC] +36%
MKS [TSX: MKX] +12%
ATS [TSX: ATA] +7%
Com Dev [TSX: CDV] +6%
Descartes [TSX: DSG] +5%
Open Text [TSX: OTC] +5%
RIM [TSX: RIM] +4%
Dalsa [TSX: DSA] 0%
===============================
--S&P TSX VENTURE INDEX -1%
--S&P TSX COMPOSITE INDEX -2%
Navtech [OTCBB: NAVH] -5%
Virtek [TSX: VRK] -7%
TurboSonic [OTCBB: TSTA] -10%
ARISE [TSXV: APV] -16%
Biorem [TSXV: BRM] -16%

Descartes shares closed the month above $4 for the first time since January 2004, and for only the third time in the last three years.

MKS stock had its highest month-end price since September 2000.

ATS has climbed back over the $1 billion mark in market value. Com Dev had squeaked back ahead of MKS in market value by Friday's close, although it's close enough to change with any trade.

Companies with core operations outside the area:

Agfa-Gevaert [Brussels: AGFA] +18%
Ansys [Nasdaq: ANSS] +8%
NCR [NYSE: NCR] +8%
LSI Logic [NYSE: LSI] +7%
McAfee [NYSE: MFE] +0%
Automated Benefits [TSXV: AUT] 0%
==================================
Senesco [Amex: SNT] -1%
Oracle [Nasdaq: ORCL] -1%
Sybase [NYSE: SY] -1%
SBS Technologies [Nasdaq: SBSE] -3%
Adobe [Nasdaq: ADBE] -3%
Google [Nasdaq: GOOG] -16%
AMIS [Nasdaq: AMIS] -17%
Blue Coat [Nasdaq: BCSI] -48%

Miscellaneous Tidbits

• Sonami Communications, co-founded in 2004 by Dspfactory co-founder Dan Murray, has released its first product, a US$300 assistive listening device that removes background noise for people trying to have a conversation in a noisy environment. The device uses Dspfactory (now AMI Semiconductor) technology. Sonami raised $240,000 last summer from nine investors, including Mike Stork, who was also a founder and investor at Dspfactory. Stork, Murray, and Sonami's other founder, Gary Young, all previously worked at Unitron, as did Sonami CFO & chairman Ray Biscaro. Stork is on Sonami's board, as is Geoff Bellew, former sales & marketing VP at Dspfactory.

• Mike Stork has also put another $300,000 into Ladybug Teknologies -- founded by two other ex-Dspfactory employees. Ladybug develops alcohol awareness programs and technologies.

• Toronto's Alt Software, which does about half of its R&D in Waterloo, just disclosed that it raised $3 million in the fall.

• LiveHive Systems has partnered with California-based Walton Communications to offer real-time wagering on events on the TV series Survivor. Walton operates the fan site Survivor.com, where registered visitors can now bet on who will win challenges, who will get voted off, and so on, using LiveHive technology. It's just for fun -- no money bets, but there are prizes for the winners.

• Ben Wagner, one of two IRAP ITAs in K-W (and still the youngest ITA in Canada), is leaving the organization this month to become program manager at Christie Digital. IRAP is looking for a replacement and would love to have an engineer with an extensive network. Another valuable resource to the local tech community, CITO/OCE representative Dave Dietz, left that job a couple of months ago to join RIM.

• I keep forgetting to mention that Dan Collens, the co-founder of Kaleidescape who oversaw the company's R&D in Waterloo, was deleted from the company website a few months ago. John Corman, who operated Corman Technologies in Waterloo, filled in as interim R&D director, and I see Kaleidescape now has a new engineering VP. Corman continues to oversee hardware engineering.

• Brian Doody was promoted to COO of Dalsa, overseeing all day-to-day operations across the company. CEO Savvas Chamberlain remains in charge of strategy and long-term planning. Doody had been president of Dalsa's digital imaging business since 1999 and was operations VP before that. The semiconductor business, under president Ralf Brooks, is being expanded and Brooks will now report to Doody.

• Bruce West has stepped down as president and COO of ARISE after joining the company in September. ARISE could only raise $132,000 through a sale of common shares and warrants. It's now looking at finding investors from outside of Canada and possibly spinning off its in-development photovoltaic technology into a separate company. ARISE had a working capital deficiency of $2.5 million at the end of September.

• SlipStream announced the launch of its mobile acceleration product, promising to do for users of PDAs, smartphones, laptops, and other mobile devices what it has done for dial-up Internet users over the past couple of years.

• Virtek expects to see additional revenue of $7 million over the next five years through a deal with California's MetalSoft Inc., a subsidiary of Japan-based Amada Group. MetalSoft will distribute a private label version of Virtek's LaserQC product under the FabriVISION Laser brand name in Asia and North America.

• Ansys is paying about US$565 million to acquire Fluent Inc., whose computation fluid dynamics software competes with the Ansys products developed in Waterloo. The Waterloo office of Ansys evolved out Advanced Scientific Computing, which was acquired by a British company in 1997 and sold to Ansys in 2003. Nothing has been announced about the impact this deal will have on the Waterloo site.

• TurboSonic reported earnings of US$0.6 million (US$0.05/share) on sales of US$6.5 million in the quarter ended December 31. Sales were up 433% from a year ago.

• Srinivasan Keshav of UW's David Cheriton School of Computer Science was one of 17 researchers awarded a combined US$1.2 million by Microsoft to fund research focusing on how technology "can unlock the potential of people in underserved communities by making computing affordable, accessible and relevant."

• From the whatever-happened-to file: Dave Simons and Verna Friesen, the senior members of the small Quack.com office in Waterloo that closed in May 2001, have rejoined UW grad and Quack co-founder Steve Woods at NeoEdge Networks in Toronto.

• From the same file: it's been nearly four years since I've heard anything about GUARD, the U of G affiliate created to commercialize research at the university and other sources. GUARD burned through about $12 million and saw its first spinoff company acquired for a bunch of shares that ended up being worth very little (pretty much the final nail for GUARD as an operating company). I've referred to GUARD as "now-defunct" here a couple of times, but apparently I was putting shareholders out of their misery prematurely, as it turns out that GUARD still exists -- although there is a desire to wind it down. Jim Romahn wrote an interesting story about a recent meeting of people who got burned investing in the company. U of G is now distancing itself from the whole mess, with president Alastair Summerlee saying he "deeply regrets" the university's "implied support of GUARD." It was pretty heavily implied, with U of G owning more than 20% of GUARD's shares, housing GUARD's office on-campus, and transferring to the company a 10-year right of first refusal to commercialize all intellectual property owned or controlled by the university. "Summerlee basically said the failure is neither the university's fault or responsibility, but did say he's learned important lessons, the main one being that the university keep its money and nose out of commercialization ventures," writes Romahn. Well, at least something good came out of it.