March 2006

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

Issue 109 -- April 3, 2006
In this digest:

1. Sandvine market value tops $250 million after IPO
   
2. Com Dev reports highest quarterly profit in eight years
   
3. IMS raises $9.5 million

4. RapidMind gets $500K from BDC
   
5. Agribiotics acquired by Germany's Merck for $28M
   
6. ATS plans to take Photowatt public

7. Navtech closing in on $10 million in quarterly sales
   
8. STOCK REPORT: Com Dev shares soar; big gains for ARISE, Navtech
   
9. Miscellaneous tidbits from Peer Group, EVER America, Sonami, Texada, Waterloo Angel Group, Kaleidescape, Creative Options, Descartes, RIM, Atria, MedShare, ARISE, Geo-3D, Dalsa

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Sandvine market value tops $250 million after IPO
March 21, 2006

Sandvine raised $40 million through its initial public offering, and is now listed on the London Stock Exchange's AIM market. As of Friday's close, with a market value of $264 million, it is now the fourth most-valuable tech company based in Waterloo Region, trailing only RIM, ATS, and Open Text.
The five founders -- Dave Caputo, Brad Siim, Marc Morin, Tom Donnelly, and Don Bowman -- each hold shares that are currently valued at over $10 million.

The company issued 26.7 million new shares, priced at £0.75, or $1.50 each. There was also a secondary offering in which some existing shareholders (not identified in anything I've seen) sold 6.9 million shares. Sandvine now has 114.4 million shares outstanding, with the new shares accounting for 23% of the total.

Before the IPO, Sandvine's largest shareholder was Celtic House, which held 23% of the shares. VenGrowth owned 17%, Newbury Ventures 11%, Tech Capital Partners 9%, and BDC 7%. The five founders collectively owned 27% of the company (which would now be about 21% post-IPO). At the IPO price, Tech Capital's stake would have been valued at about $12 million, and that would now be worth around $18 million.

In the year ended November 30, Sandvine lost $3 million on sales of $15.8 million. Revenue was up 390% from 2004, when the company lost $6.2 million on sales of $3.2 million.

AIM may be across the ocean, but Sandvine's valuation is from another planet, when you compare it to those of local firms listed on the TSX. Com Dev just reported QUARTERLY sales of $32.7 million with profits of $4.2 million, and it has a lower valuation than Sandvine. In fact, Sandvine is nearly worth twice what Com Dev was valued at a month ago (Com Dev CEO John Keating is on Sandvine's board) and it's worth 71% more than MKS. If the share price doesn't come back to earth, that might create a challenge for a future TSX listing ... unless Sandvine's sales go through the roof in the next year.

As I said in my blog, Sandvine will be a good test drive of AIM for Waterloo tech companies. There could be a lot of demand for an alternative to the TSX Venture Exchange, especially for companies that don't yet qualify for a TSX listing. It's too early to draw any conclusions yet -- obviously the demand for Sandvine shares has been strong, which is great, even if the resulting valuation isn't one that would likely be sustained right now on the TSX. The inaccessibility of information is also a concern. If you want to be a public company in 2006, your core financial statements should be readily available to the public -- even if they're only released twice a year (which is fine). You'll have a hard time finding that kind of information for Sandvine. So the scorecard so far has some As and some Ds, and we'll get to see how it all plays out over the months ahead.

Com Dev reports highest quarterly profit in eight years
March 9, 2006

A trio of events -- each not likely to reoccur this year -- sent Com Dev's gross margins soaring in the quarter ended January 31 (Q1 06), giving the company net income of $4.1 million ($0.07/share) on revenue of $32.7 million. Sales were up 8% from last year and 10% from the previous quarter. It was the company's highest quarterly profit in eight years.

Operations provided $8.5 million in cash, of which $5.3 million was spent to acquire what had been the EMS Ottawa-based space science and optical payload business (see November digest). Com Dev ended the quarter with $8.5 million in cash, up $2.7 million from the end of Q4.

Gross profits climbed 41% sequentially and 54% from a year ago, with margins climbing to 30.0%, up from 23.3% in Q4. That was partly due to high-margin follow-on orders from defense customers, as well as a release of funds that had been held in reserve last year when Com Dev was missing its delivery targets. It hit every one of its delivery targets in Q1 and incurred no late delivery penalties.

CEO John Keating warned investors not to extrapolate too much from this quarter, and said it was unrealistic to think the rest of the year could continue along the same trajectory. The company still expects gross margins for the year to be in the mid-20 percent range, which means it could be back to Q4 levels for the rest of the year.

This was the first quarter to include revenue from the EMS acquisition. It's expected to add about $10 million to Com Dev's top line this year, but most of that will come in later periods, as the new business only provided about $0.5 million in sales in Q1. Excluding that amount, Com Dev's organic sales growth was about 6% from a year ago. The EMS business added $18 million to Com Dev's order backlog at the end of Q1.

Com Dev had about 800 employees world-wide at the end of January.

It has $17 million in convertible debentures that have to be repaid at the end of the year. During the conference call, Com Dev management expected that it would be paying that back in cash and discussed the possibility of paying part of it through a loan, if there wasn't enough cash on hand at the end of the year. But that may not be an issue anymore, with Com Dev shares up 71% in March, closing Friday at a 29% premium to the conversion price of $3.15. At these prices, many debentureholders will likely opt to convert their debentures into common shares. The debentures pay 6.75% annual interest.

IMS raises $9.5 million
March 15, 2006

Intelligent Mechatronic Systems (IMS) announced that it raised $9.5 million through a sale of common shares. It says it received money from several individuals and companies, including Bahrain-based ASA Consultants.

IMS believes it can reach profitability with this round and doesn't expect that it will need to raise additional funds.

At the same time, one of the company's previous investors, Toronto's TriNorth Capital, announced that it sold all its shares in IMS at cost. TriNorth received $1.9 million for its 14.4% stake. It had been an investor in IMS since December 2001 and had put additional money into the company as recently as last year. TriNorth is also an investor in Biorem.

RapidMind gets $500K from BDC
March 14, 2006

RapidMind has received $500,000 from BDC Venture Capital in a deal that closed February 1. The company, formerly known as Serious Hack, is a CITO-backed UW spinoff, co-founded by Prof. Michael McCool and headed by CEO Ray DePaul, who was formerly oversaw BlackBerry product management and has also worked with Kaleidescape and Switchview.

RapidMind has created a platform that lets software developers write C++ applications that take advantage of high-performance processors, with applications in games, image processing, and other computationally-heavy areas.

The entire executive team was at the Game Developers Conference (GDC 2006) in San Jose this month, as part of the IBM booth.

Agribiotics acquired by Germany's Merck for $28M
March 28, 2006

Cambridge biotech firm Agribiotics, which has developed crop enhancing technologies, has been acquired by Merck KGaA in a cash deal for about 20 million euros, or $28 million.

Last year, Agribiotics told the Record that it had annual sales of $5 million. The company was founded in 1997 by sisters Alison and Hannah McIver, who won the 2004 BDC young entrepreneur award for Ontario. Agribiotics was named small business of the year at the 2001 Waterloo Region Business Achievement Awards, and raised a $2.5 million round of funding in November 2003 from FCC Ventures (part of Farm Credit Canada). Earlier that year, it acquired McGill spin-off Bios Agriculture Inc. of Quebec.

Agribiotics is now owned by Milwaukee-based Nitragin, the crop bioscience arm of Germany's Merck KGaA (not to be confused with the company known as Merck in the U.S. and Canada, which has been a completely separate entity since World War I).

ATS plans to take Photowatt public
March 13, 2006

ATS had talked about the possibility of holding an IPO for its solar group, and its board made it official in March. It will create a new subsidiary, called Photowatt Technologies, to hold its solar assets, and has begun preparations to take Photowatt public.

ATS expects to launch the offering later this year, with underwriters in Canada and the U.S. But it wasn't an unequivocal move, as it says it's still "open to considering alternative transactions during this preparatory period."

Photowatt will consist of ATS' holdings in Photowatt International and Spheral Solar Power. In the nine months ended December 31, the solar group reported revenue of $105.3 million and operational earnings of $6.8 million. All sales were generated by Photowatt, since Spheral Solar is still in a pre-revenue stage. Photowatt reported operating earnings of $14.8 million over the nine month period.

Former RDM CFO Jim Kopperson was hired as the first CFO of the solar group in December.

Navtech closing in on $10 million in quarterly sales
March 17, 2006

The new-look Navtech reported its first results following the acquisition of European Aeronautical Group (EAG) in November. The combined company reported earnings of US$380,000 on sales of US$7.9 million in the quarter ended January 31 (Q1 06). EAG's revenues were significantly higher than Navtech's, so any comparisons with prior periods would be meaningless. About 2.3 months' worth of EAG results were included in the Navtech numbers. Over 90% of sales in the quarter was said to be from recurring subscription-based revenue.

The conversion terms of the preferred shares issued to pay for the acquisition included what was deemed to be a one-time dividend component to them, and when that is factored in, the net loss applicable to common shareholders was US$680,000 (US$0.12/share).

The company ended the quarter with US$6.5 million in cash. Operations used US$302,000 in cash in the quarter with an additional US$371,000 spent on capital assets.

Navtech also announced that it has paid US$1.8 million to buy back 620,690 shares from one of the company's largest shareholders, who has sold all his stock in the company. John Bethanis had acquired nearly one million shares in Navtech. The remainder of his shares were bought by Cambridge Information Group, the largest investor in November's preferred share offering.

STOCK REPORT: Com Dev shares soar; big gains for ARISE, Navtech
March 2006

Com Dev's investors apparently didn't heed the pleadings of its CEO not to extrapolate from one quarter's excellent bottom line. Like its products, Com Dev's shares went on a rocket ride with a 71% gain in March, finishing at their highest month-end price since July 2001. It actually wasn't the all-time best month for Com Dev shares, which jumped 135% in February 2000 (an insane month for stock prices across the board in the waning days of the tech bubble), but it was the second-best.

The company ended the month with a market value of $243 million, just slightly behind Dalsa's $249 million.

Sandvine shares leaped out of the IPO gate and didn't look back. They were priced at £0.75 for the IPO but never traded below £0.97 and finished March at £1.13.

ARISE shares shot up 84% on the day the Toronto Star erroneously reported that it had "already pre-sold its first two years of production, equating to $100 million in revenues." That was quite an exaggeration since -- according to its own announcements -- the company hasn't actually made any sales yet. It has some non-binding letters of intent with no price specified. The stock had another one day gain of 49% that same week, but has now fallen 40% from that peak. It was still good for an 89% gain in the month.

ARISE shares began trading on the Frankfurt Stock Exchange in Germany last Tuesday. The company was also profiled in the March issue of Photon International, a German-based trade magazine for the photovoltaic industry.

For the month of March:

ARISE [TSXV: APV] +89%
Com Dev [TSX: CDV] +71%
Sandvine [AIM: SAND] +51% (from IPO price)
Navtech [OTCBB: NAVH] +43%
Virtek [TSX: VRK] +25%
RIM [TSX: RIM] +23%
--S&P TSX VENTURE INDEX +15%
MKS [TSX: MKX] +9%
Descartes [TSX: DSG] +8%
Dalsa [TSX: DSA] +6%
--S&P TSX COMPOSITE INDEX +4%
RDM [TSX: RC] +2%
===============================
ATS [TSX: ATA] -2%
Open Text [TSX: OTC] -3%
TurboSonic [OTCBB: TSTA] -5%
Biorem [TSXV: BRM] -5%

Navtech's results took its shares to their all-time highest month-end price.

The settlement of the NTP suit (announced March 3, see previous digest) pushed RIM shares to a 23% gain. They traded at over $100 dollars a share for the first time since June.

Virtek shares tied their highest month-end price since June 2003. The company announced a $2 million contract with France's Airbus during the month.

Companies with core operations outside the area:

SBS Technologies [Nasdaq: SBSE] +46%
Senesco [Amex: SNT] +35%
LSI Logic [NYSE: LSI] +19%
Ansys [Nasdaq: ANSS] +14%
Oracle [Nasdaq: ORCL] +10%
Google [Nasdaq: GOOG] +8%
AMIS [Nasdaq: AMIS] +5%
McAfee [NYSE: MFE] +5%
NCR [NYSE: NCR] +4%
Blue Coat [Nasdaq: BCSI] +2%
==================================
Sybase [NYSE: SY] -1%
Agfa-Gevaert [Brussels: AGFA] -6%
Adobe [Nasdaq: ADBE] -9%
Automated Benefits [TSXV: AUT] -22%

Miscellaneous Tidbits

• Michael Cox, the former president and co-founder of RSS Solutions -- which had been a Cox family business -- is now sales & marketing VP at Peer Group. It was just over three years ago that RSS raised $1.6 million from Toronto's EdgeStone Capital. Eighteen months later, Carol Leaman was brought in as the new CEO.

• EVER America has been acquired by Toronto's Versa Systems. The deal closed in February, according to the bio of EVER America CEO J Paul Haynes on CATA's website. Haynes is now COO at Versa. He and the EVER America management team bought the company about a year ago from France's EVER (which had previously tried to spin out the operations into a company called Knexa). EVER America was formed in 2000 when EVER acquired JPH International. JPH was previously owned by Calgary's Enbridge, which bought the assets of J.P. Haynes & Associates in 1997. Versa Systems is a privately-held company founded in 1972 that reported sales of $11.2 million in the year ended September 30. It ranked 144th on the 2006 Branham Top 250 Canadian Technology Companies list.

• Sonami received $150,000 from an investor in January, on top of $102,400 it raised from two investors in September and October. That's all in addition to the $240,000 raised during the summer.

• Guelph's Texada Software closed a $1.1 million private placement of 8% convertible debentures and warrants. The debentures mature on January 31, 2008 and can be converted to common shares at a price of $0.10 a share before then.

• The Waterloo Angel Group (WAG) has officially shut down. For all practical purposes, it had ceased operating long ago. There are efforts underway to develop something in the Waterloo area to facilitate angel investing, although it may not be in the form of an angel group (people who run angel groups always have great things to say about them, but not many others do).

• Dan Collens is still working with Kaleidescape, the company he co-founded (see previous digest). He's now the senior director of system architecture.

• Waterloo's Creative Options, which does software development as part of its business, was acquired in February by Protiviti, a subsidiary of Robert Half International Inc. Financial details weren't disclosed.

• Descartes closed the bought-deal share offering announced last month (see previous digest), grossing $17.2 million through the sale of 4.1 million shares.

• RIM acquired San Jose-based Ascendent Systems for an undisclosed amount. Ascendant's products push PBX capabilities to mobile devices so that users can work away from their offices with most of the same phone features that they would have at their desks. Ascendent will operate as a RIM subsidiary.

• Atria Networks hopes to cover most of Waterloo Region with Wi-Fi by the end of next year. It plans to install transmitters on traffic lights and hydro poles throughout the region starting this summer.

• Paul Lupinacci is the new COO of MedShare. He was formerly one of the senior executives at Changepoint in Richmond Hill.

• Brian Smith, the former BC attorney general and ex-chairman of BC Hydro, has resigned as chairman of ARISE. He had been in that role since the beginning of 2003. Smith becomes the chair of ARISE's advisory board. He is succeeded by Vern Heinrichs, an ARISE director since 2001.

• Montreal-based geomatics software developer Geo-3D says it is opening an office in the Waterloo area, staffed by its newly-hired bizdev VP.

• Dalsa's Origin digital movie camera was used to shoot a long-form Snickers commercial featuring the Black Eyed Peas.