May 2006

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

Issue 111 -- June 6, 2006
In this digest:

1. Covarity raises another $3.3M
   
2. ATS cuts 60 jobs, writes down Spheral Solar assets by $65M
   
3. RSS Solutions acquired by Atlanta company

4. ARISE puts its cash to use
   
5. RDM sees jump in sales, expenses
   
6. Descartes reports rising profits on steady sales

7. Open Text limping to the finish in 2006; focus on growth in 2007
   
8. Cancer treatment company wins LaunchPad$50K
   
9. STOCK REPORT: Investors erase $375M from ATS' value

10. Miscellaneous tidbits from SBS Technologies, Infusion Angels, LiveHive, TechTown, RapidLabs, IRAP, OCE, Symbility, Com Dev, SlipStream, RIM, Active Web, Biorem, TurboSonic, Arius, IMS.

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Covarity raises another $3.3M
May 8, 2006

Covarity has raised $3.3 million in a preferred share deal that closed on May 8.

Returning investors were Tech Capital Partners, which has been involved with Covarity since it launched in 2001 and provided seed funding in 2003, and VentureLink, which made its first investment in Covarity in 2003.

GrowthWorks was the one new investor identified. According to OSC filings, there were six participants in this round.

Covarity founder and CTO Jeff Fedor has decided to leave the company this summer. He will remain on the board of directors.

ATS cuts 60 jobs, writes down Spheral Solar assets by $65M
May 25, 2006

ATS' Cambridge-based Spheral Solar Power (SSP) has run into some technical obstacles that will delay the development of its solar technologies. The company expects that it will take another year to resolve its engineering and process development problems.

Because of the delays and uncertainties, ATS took a $65 million charge in the quarter ended March 31 (Q4 06) to reduce the value of its SSP assets, and it has cut 60 jobs in the current quarter.

"We have been unable to resolve production issues that have impacted our plans to produce SSP products commercially," said CEO Ron Jutras in a release.

ATS still expects an IPO for its combined solar businesses before the end of the year. In fiscal 2006, the France-based Photowatt International business reported operating earnings of $20.9 million on revenue of $145.3 million, while Spheral Solar Power in Cambridge lost $15.9 million.

With the write-down, ATS reported a net loss of $65.6 million on sales of $210.8 million in Q4. For the full fiscal year, ATS lost $69.3 million on sales of $734.5 million.

RSS Solutions acquired by Atlanta company
May 16, 2006

RSS Solutions has been sold to Atlanta's Visiprise for an undisclosed amount. RSS CEO Carol Leaman has left the company, but all other employees will remain. The RSS name has been dropped, and the Kitchener site will now operate as a Visiprise office.

RSS was spun off in 2000 from Northern Computer Systems of Parry Sound, which opened a Waterloo development office in November 1999. It was initially a family-run business, headed by Michel Cox with his brothers David Cox and Peter Cox. Their father, John Cox, was chairman. Family businesses can be a minefield for VCs, but that didn't stop RSS from receiving funding from EdgeStone Capital in January 2003. Leaman joined the company as CEO in August 2004. According to The Record, RSS had grown to 35 employees by November 2004, and that number fell to just under 25 by the time it was acquired.

Visiprise, the new owner, has raised about US$100 million in VC funding since it launched in 1998. Last fall, it merged with Massachusetts-based HMS Software and raised US$32 million from investors at that time for company expansion.

ARISE puts its cash to use
May 30, 2006

After raising $4.0 million through a share offering and warrant conversions, ARISE's balance sheet has never looked better, after being down to just $2,500 in cash at the end of 2005.

In the three months between December 31 and March 31, ARISE went from a working capital deficiency of $2.4 million to working capital of $0.8 million, with $51,000 in cash, and another $2.9 million in receivables from its private placement.

With money in hand for the first time in ages, ARISE had a lot to spend it on -- including paying off debt -- and operations consumed $728,000 in cash in Q1. Despite the cash infusion, ARISE is still negotiating with creditors to have its debts reduced or converted into equity. The company has $2.2 million in payables and accrued liabilities, although a lot of that is owed to insiders. One of its unpaid service providers filed suit against the company late in January for $18,000 plus interest.

Sales in the quarter ended March 31 (Q1 06) were almost non-existent at $73,000, and nearly all of that went straight out the back door, as gross profits were only $1,200.

ARISE hopes to use its cash to achieve a key technical milestone this summer in the development of its thin-film PV cell technology. In Q2, it paid the $285,000 it owed on the development project at the University of Toronto, and that should also trigger a payment from OCE which is backing the project through its Centre for Materials and Manufacturing (the former MMO).

RDM sees jump in sales, expenses
May 4, 2006

RDM had a good quarter in the period ended March 31 (Q2 06), with sales of $5.9 million -- up 25% from last year and 18% from the previous quarter. Expenses were also up sharply, both year-over-year and sequentially, so the bottom line dipped slightly from 2005 to $208,000 ($0.01/share).

G&A expenses were up 52% from Q1, which the company partly attributed to completing an SAS 70 audit, which is a thorough examination of internal controls for service companies. R&D expenses climbed 23% with the company funding development of a Web-based version of its Image & Transaction Management System (ITMS).

Sales were up from last quarter in all three of RDM's business segments. Only digital imaging reported a year-over-year increase, with revenue up 57% from 2005 to $3.8 million or 65% of all revenue.

Operations provided $1.8 million in cash, and RDM ended the quarter with $6.3 million in cash and equivalents.

Descartes reports rising profits on steady sales
May 24, 2006

In the quarter ended April 30 (Q1 07) Descartes reported earnings of US$1.2 million (US$0.03/share) on sales of US$11.7 million.

The acquisition of Ottawa's ViaSafe in April (see previous digest) provided US$0.3 million in sales in three weeks. If that number is backed out, sales were flat from the previous quarter and last year, and it would have been the eighth consecutive quarter where Descartes sales fell between US$11-11.5 million.

Descartes paid US$8.9 million for ViaSafe, consisting of 307,799 common shares and US$7.8 million in cash. ViaSafe had earnings of US$0.9 million in the year ended March 31.

Descartes netted US$14.0 million from its share offering in March and operations in the quarter provided an additional US$2.0 million. After paying for ViaSafe, it ended the quarter with US$40.9 million in cash, up US$7.9 million from the end of Q4.

The company was one of two winners of the best business turnaround award at the International Business Awards. It will get to pick up its "Stevie" at the awards ceremony this month in New York. Canadian Business magazine is listed as one of the sponsors of the awards. RIM won one of these awards at the first ceremony a couple of years ago.

One more Descartes-related item: former CEO Manuel Schiappa Pietra, whose dismissal two years ago was followed by a huge restatement of quarterly earnings, was hired in March as the new CEO of Ottawa's FreeBalance, a developer of "accountability software" for governments.

Open Text limping to the finish in 2006; focus on growth in 2007
May 4, 2006

A lot of companies would be happy to generate $30 million in cash from operations in a quarter, but that was one of the few bright spots in Open Text's results for the quarter ended March 31 (Q3 06).

Sales of US$100.9 million were at the low end of the company's forecast of US$100-110 million. Revenue was down 4% from what was thought to be a weak quarter last year, and 9% from Q2. The year-over-year drop was attributed foreign exchange effects. Net income was US$7.3 million (US$0.15/share), helped by a US$0.6 million reversal of a previously-expensed restructuring charge.

Open Text had two million-dollar deals in the quarter, and seven others over US$500,000, while adding 101 new customers.

Operations generated US$28.7 million in cash, partly attributable to a US$14.1 million jump in deferred revenue. Q3 is traditionally Open Text's biggest quarter for operational cash flow, and the number was actually down slightly from US$29.9 million a year ago. Open Text ended the quarter with US$113.5 million in cash.

For Q4, the company is repeating its Q3 forecast of US$100-110 million in revenue. That would be no better than the US$109.4 million achieved last year. Open Text says it has been focusing on profitability this year rather than on sales growth. It is continuing its search for a worldwide sales VP.

There's been a change in the executive team, with Paul McFeeters appointed the new CFO. He's a Laurier grad who's been CFO of Markham's Platform Computing for the last two years. Before that he was CFO for Silicon Valley-based Kintana, and was planning to take the company public in 2001 when the Internet bubble burst and the IPO was cancelled. Alan Hoverd, who had been Open Text's CFO for the last six years, has been given a new position as EVP of strategic initiatives.

Cancer treatment company wins LaunchPad$50K
May 11, 2006

Cellugen, a developer of cell-based treatments for leukemia which calls itself a Toronto-based company, won the second-annual LaunchPad $50K competition.

It was founded by Armand Keating, a cancer researcher at Toronto's Princess Margaret Hospital/Ontario Cancer Institute. Cellugen's LaunchPad team consisted of three MBET students -- Diana Low, Liam Gore and Ryan Bentley -- and a doctoral student in experimental medicine from McGill. It had finished second at the Ivey (Western) business plan competition in March, and has been participating in other competitions across North America.

Second place at LaunchPad went to College & University Explorations (CUE), which provides guided tours of post-secondary institutions to high school students. Finishing third was ZapWeed, which is developing a pesticide-free product that will remove weeds from lawns. There were MBET students in all three winning teams.

Cellugen and Nanodrivers -- a LaunchPad finalist that finished out of the money -- were both among the eight finalists at the 2006 Jungle Business Plan Challenge in Silicon Valley at the end of April.

STOCK REPORT: Investors erase $375M from ATS' value
May 2006

May wasn't a good month to release disappointing news. It was the worst month for the S&P TSX composite index since October and the second worst month in more than two years. Shares of ATS got caught in the whirlpool and the company lost $375 million in market value -- about the combined value of Descartes and MKS. They finished May at their lowest month-end value since December 2004.

Open Text shares didn't get roughed up as badly, but still lost nearly a quarter of their value and fell to their lowest point since last summer. Descartes stock was the only one to show any real headway. The rise in value came two weeks before the company announced its quarterly results, but the stock stayed steady and maintained its gains once the announcement was made.

For the month of May:

Descartes [TSX: DSG] +6%
Virtek [TSX: VRK] +2%
Navtech [OTCBB: NAVH] +2%
===============================
MKS [TSX: MKX] -0%
Dalsa [TSX: DSA] -2%
--S&P TSX COMPOSITE INDEX -4%
Sandvine [AIM: SAND] -4%
Biorem [TSXV: BRM] -8%
--S&P TSX VENTURE INDEX -9%
RDM [TSX: RC] -10%
Com Dev [TSX: CDV] -10%
ARISE [TSXV: APV] -13%
RIM [TSX: RIM] -17%
TurboSonic [OTCBB: TSTA] -20%
Open Text [TSX: OTC] -22%
ATS [TSX: ATA] -36%

The post-NTP honeymoon was short-lived, as RIM shares have now fallen to their lowest value in 2006.

Companies with core operations outside the area:

SBS Technologies [Nasdaq: SBSE] +1%
===================================
NCR [NYSE: NCR] -1%
Oracle [Nasdaq: ORCL] -3%
Agfa-Gevaert [Brussels: AGFA] -4%
AMIS [Nasdaq: AMIS] -5%
Sybase [NYSE: SY] -6%
LSI Logic [NYSE: LSI] -9%
McAfee [NYSE: MFE] -9%
Automated Benefits [TSXV: AUT] -11%
Google [Nasdaq: GOOG] -11%
Ansys [Nasdaq: ANSS] -11%
Senesco [Amex: SNT] -13%
Blue Coat [Nasdaq: BCSI] -27%
Adobe [Nasdaq: ADBE] -27%

Miscellaneous Tidbits

• GE Fanuc Embedded Systems, part of General Electric, has agreed to acquire SBS Technologies for about US$215 million. SBS is based in New Mexico, and came to Waterloo three years ago when it acquired Avvida Systems for US$5.5 million. Avvida evolved out of Focus Automation, a venture-backed company founded in Waterloo in 1987 (which also gave birth to Mitra, so through various twists, Agfa -- and now apparently GE -- will be in Waterloo because of Focus).

• Infusion Development, an IT services company based in New York and Toronto that counts several UW graduates among its staff, has opened a Waterloo office called Infusion Angels. It is looking to provide angel funding for ideas from UW students and alumni. Infusion Angels calls itself a full-service incubator and says it's interested in "novel, commercializable concepts of any kind." Infusion Development also plans to use its angel arm to develop internally-generated product ideas that it would otherwise not be able to commercialize.

• David Brennan is the new CFO of LiveHive. He had been with Solowave Investments since 2002. Before that, Brennan was finance VP at Sirific which he joined after being with PixStream.

• The fourth building at the UW Research & Technology Park is now under construction. TechTown, headed by Toby Jenkins, will have its official ground breaking ceremony this week. The building is expected to include a child care centre, a health club, and a restaurant among its tenants and is scheduled to open in January.

• RapidLabs will receive $195,000 from NRC's IRAP program to support development. Its technology enables quick diagnosis of bacterial infections through the measurement of microbial respiration.

• Paul Burgener, IRAP ITA for Waterloo, is taking an assignment in Nelson, B.C. for a year or two. In the last three months, K-W has lost both of its ITAs, with the departure of Ben Wagner in March. Alan Jones, who covers a wide area outside of K-W as an ITA, continues to work out of IRAP's Waterloo office.

• Ontario Centres of Excellence (OCE) says it's expanding its presence in Waterloo, although it didn't provide any details in its news release. OCE's local office will now be at the Accelerator Centre.

• Automated Benefits, the parent company of Symbility Solutions, raised $7.2 million through its private placement (see last digest). It issued 24.0 million units at $0.30 each plus 2.4 million units for its underwriters (on top of a commission). Each unit consists of a common share and half a warrant to purchase another share for $0.35. That means the company now has nearly 90 million shares outstanding, with the potential for another 13.2 million shares if all warrants are exercised. Automated Benefits reported a loss of $1.6 million ($0.03/share) on sales of $503,000 in the quarter ended March 31 (Q1 06). Symbility Solutions contributed $83,000 in revenue.

• With its stock price up 70% this year, Com Dev has chosen to redeem all $18 million of its outstanding convertible debentures. The early redemption comes about six months before the debentures matured on December 31. Com Dev shares are now trading around 25% above the $3.15 conversion price.

• After winning the regional award in April, SlipStream has now won the provincial Ontario Global Traders Award in the market expansion category. The award was presented at a ceremony in Toronto. The Ontario Ministry of Economic Development and Trade sponsors the awards to recognize top exporters. SlipStream says it now has over 2,200 customers in more than 50 countries.

• Another patent infringement suit for RIM, and this time no one can call the plaintiff a troll. California-based Visto, founded 10 years ago and backed by some big-name VCs, claims RIM has infringed on four of its patents. The suit was filed in a district in Texas with a patent holder-friendly track record. Visto also has made claims against Microsoft and Good Technology, among others. It was one of the companies that signed a licensing deal with NTP, which was undoubtedly done primarily as an annoyance to RIM.

• In March, Guelph's Active Web Corporation was acquired by VentureLabour.com. Active Web founder Barry Billings is now busy leading MedShare.

• Biorem lost $200,280 ($0.02/share) on sales of $3.3 million in the quarter ended March 31 (Q1 06). Sales fell 3% sequentially while gross profits plummeted 48%. The company ended the quarter with working capital of $3.1 million and $1.1 million in cash.

• TurboSonic reported earnings of US$32,000 (US$0.00/share) on sales of US$3.2 million in the quarter ended March 31 (Q3 06). Sales were down 23% from the same quarter last year, but through the first nine months of the fiscal year, sales are up 70%.

• You don't see a lot of patents issued to software companies, but Arius Software received a U.S. patent in May -- filed five years ago -- on its "system and method for multiple level architecture by use of abstract application notation."

• Intelligent Mechatronic Systems (IMS) is now selling its DriveSync vehicle monitoring system through Target.com. Retail price is US$330. It's described as "great for anxious parents of newly licensed teens, cost-conscious drivers, and business owners."