February 2007

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

Issue 121 -- April 3, 2007
In this digest:

1. Covarity raises $2.5M
   
2. Sirific closes a US$19M round
   
3. RIM options review leads to US$250M earnings adjustment

4. MKS expects big finish to 2007 after another disappointing quarter
   
5. DALSA sales up 12% in 2006
   
6. STOCK REPORT: ARISE stock quadruples in one quarter

7. Miscellaneous tidbits from Biorem, Photowatt, Desire2Learn, Terapath, Open Text, Agfa, Descartes.

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Covarity raises $2.5M
February 26, 2007

Covarity has raised another $2.5 million in funding. Participating in the round were GrowthWorks and VentureLink, which were existing investors in the company, and BDC Venture Capital, which had not been announced as an investor previously. The funding follows a $3.2 million round announced last May.

Tech Capital Partners, which had participated in all previous rounds of funding for the company since its launch in 2001, did not invest in this round.

Sirific closes a US$19M round
February 14, 2007

Sirific -- which is now based in Texas, but has about half of its employees in Waterloo -- has closed a US$18.8 million round of funding. The company has now raised over US$55 million over five rounds of funding since its launch in 2000.

Joining Sirific's list of investors with this round was Hunt Ventures of Dallas, run by Texas oilman Ray Hunt (brother of former NFL owner Lamar Hunt, son of Hunt Oil founder H. L. Hunt). Also participating in the round were existing Sirific investors BDC Venture Capital, Celtic House, GrowthWorks, Intel Capital, TD Capital Ventures, and Tech Capital Partners.

The company says the investment will be used to bring its Nexus line of semiconductors into production for consumer devices. Hunt Ventures managing director Jeff Williams has joined Sirific's board.

RIM options review leads to US$250M earnings adjustment
March 5, 2007

After seven months, RIM's internal review of its historical stock option granting procedures concluded that the company had improperly dated its option grants and made other accounting errors related to options. As a result, RIM will be restating its financial statements for the last three fiscal years and for the first quarter of 2007, with earnings lowered on aggregate by about US$250 million.

RIM's review found that some option grants had been backdated to select a date when the company's stock was trading at a lower point than it was on the date when the options were really granted. This resulted in a benefit to the grantees that was not accounted for as they should have been under U.S. GAAP. It also took money out of the company's coffers when the options were exercised.

The RIM committee did not find any intentional misconduct, but found the company's option granting practices to be "informal" and poorly documented. According to RIM's release, both co-CEO Jim Balsillie and CFO Dennis Kavelman incorrectly believed that some flexibility was allowed in the date reported for option grants. The committee found no evidence of "spring-loading" -- awarding options with insider knowledge of news that will likely drive up the stock price when announced.

All of RIM's C-level officers and its directors have agreed to pay back -- with interest -- any benefit they received from options already exercised, while existing options will be repriced to the proper exercise price. Vice-presidents will be asked to make the same agreement. Balsillie and co-CEO Mike Lazaridis have also agreed to pay up to $5 million each toward the costs of the review and restatement.

RIM has separated the role of chairman from management, with Balsillie resigning as chair. He will remain co-CEO and director. Kavelman will move from CFO to become COO of administration and operations (RIM has two other COOs). RIM's current corporate controller Brian Bidulka will become chief accounting officer.

Kendall Cork and former UW president Doug Wright have resigned from all RIM board committees and will not stand for reelection as directors. They will each be given the title "director emeritus." Joining RIM's board are John Wetmore, former IBM Canada president, and Barbara Stymiest, COO at RBC who was a critic of U.S. GAAP and disclosure rules while president of the TSX. Wetmore and Stymiest, along with fellow directors Jim Estill and John Richardson, will form a committee to nominate a new chairman.

RIM may still face fines or other penalties from the OSC and the SEC, but otherwise this should have little impact on operations. Most of the US$250 million is a non-cash charge. While this was a huge media story, the immediate response of the stock market was a yawn, with RIM shares dipping less than 1% after the news was released on Monday. With RIM stock trading at all-time highs in January and February and the company now winning a million new BlackBerry subscribers a month, you won't be hearing many complaints from shareholders.

MKS expects big finish to 2007 after another disappointing quarter
February 28, 2007

Another weak quarter for MKS in the period ended January 31 (Q3 07), as the company lost US$1.2 million on sales of US$11.55 million. Sales were flat from the previous quarter and down 14% from a strong Q3 in 2006. Licensing revenue from the company's core ALM software was down 4% from a poor Q2, and was 31% below Q1 levels.

But the company is expecting sales of US$14-16 million in the final quarter of the year, which would be a 23-41% sequential jump. MKS is now expecting annual sales to be US$50-52 million, down from a forecast of US$52-55 million one quarter ago and US$57-60 million six months ago. Revenue in 2006 was US$48.3 million. MKS is forecasting earnings of US$1.4-3.4 million in the current quarter.

Operations provided US$2.0 million in cash, and about half of that was used to pay quarterly dividends. MKS ended the quarter with US$15.1 million in cash.

DALSA sales up 12% in 2006
February 28, 2007

In the quarter ended December 31 (Q4 06), Dalsa reported earnings of just $1.7 million on sales of $43.3 million. Net income was about half what it was the previous quarter, with revenue declining 9% sequentially. The drop came from the company's semiconductor business, which reported a 25% drop in sales compared to Q3. Digital imaging sales were up 3% over the same period and up 8% from last year. Dalsa expects semiconductor sales will rebound in the current quarter and says that digital imaging sales may be soft early in the year. Digital cinema reported a $1.4 million loss in Q4, a slight improvement from the previous quarter.

Operations generated $7.6 million in cash and Dalsa spent $4.9 million to repay debt and another $4.3 million on property and equipment. It ended the quarter with $2.4 million in cash.

For the year, sales of $186.3 million were up 12% from 2005. Earnings were $11.6 million, an improvement of $3 million from the previous year.

STOCK REPORT: ARISE stock quadruples in one quarter
February 2007

ARISE shares are now up 324% over the last three months, giving the company a market value of $50 million. ARISE stock hit an intra-month high of $1.87, which is nearly double its previous high of $0.98 set in January. That had broken the record of $0.97 set in March 2004.

RDM's string of strong months came to an end -- its shares were the worst performer in February, despite hitting $6 during the month for the first time since June 2000 (and only the second time ever). They're still up 215% over the last five months.

For the month of February:

ARISE [TSXV: APV] +60%
Sandvine [TSX: SVC] +17%
Open Text [TSX: OTC] +16%
RIM [TSX: RIM] +9%
--S&P TSX VENTURE INDEX +8%
Descartes [TSX: DSG] +6%
TurboSonic [OTCBB: TSTA] +4%
Com Dev [TSX: CDV] +2%
--S&P TSX COMPOSITE INDEX +0%
Navtech [OTCBB: NAVH] 0%
===============================
Dalsa [TSX: DSA] -4%
Virtek [TSX: VRK] -5%
MKS [TSX: MKX] -7%
Biorem [TSXV: BRM] -11%
ATS [TSX: ATA] -14%
RDM [TSX: RC] -16%

Descartes shares traded above $5 during March, the first time that's happened in over four years. Open Text shares traded at their highest levels since August 2004. After announcing its yearly results on March 1 (see below) Biorem shares are up 40% so far in March, reaching their highest point in five months.

ATS shares had their lowest monthly close since June and their second-lowest since November 2004. For the first time in about a year-and-a-half, MKS shares ended a month under $2. They're down another 10% so far this month.

Companies with core operations outside the area:

Blue Coat [Nasdaq: BCSI] +29%
AMIS [Nasdaq: AMIS] +9%
Automated Benefits [TSXV: AUT] +15%
LSI Logic [NYSE: LSI] +8%
McAfee [NYSE: MFE] +3%
Ansys [Nasdaq: ANSS] +2%
Senesco [Amex: SNT] +2%
Adobe [Nasdaq: ADBE] +1%
===================================
NCR [NYSE: NCR] -2%
Sybase [NYSE: SY] -4%
Oracle [Nasdaq: ORCL] -4%
Google [Nasdaq: GOOG] -10%
Agfa-Gevaert [Brussels: AGFA] -15%

Miscellaneous Tidbits

• Biorem finished 2006 with a strong quarter, reporting earnings of $346,000 on sales of $3,2 million. Sales were up 16% from the previous quarter, and an improvement in margins led to a 40% sequential jump in gross profit. Annual sales of $12.0 million set a new company record.

• Photowatt has filed a seventh -- and perhaps final -- preliminary prospectus and has started promoting its IPO. It expects to close the offering this month. The company is looking for a post-IPO market value of about $500-550 million, with ATS keeping just under a 60% stake in the company. At the high end of the range, the price is about 3.5 times run-rate revenue, which was $112.1 million in the nine months ended December 31. That pricing was apparently lower than what many had expected, since ATS' share price fell by 15% on the day the announcement was made. The Photowatt roadshow is available online at http://www.retailroadshow.com/ The company expects to raise net proceeds of about US$158 million from its IPO. Of the ATS job cuts announced in January, 20 were in the Spheral Solar unit. It now has 50 employees.

• The U.S. Patent & Trademark Office has granted Desire2Learn's request for a reexamination of the patent granted to Blackboard, which D2L is now accused of infringing upon. The USPTO had previously granted a reexamination of the same patent following a request from the Software Freedom Law Center in New York. The two may now be merged.

• Forgot to mention before that the former Indimensions, headed by CEO Yvan Couture (ex-Mitra, Tazz, Focus) with CTO Jeff Fedor (founder of Covarity and Ardesic) is now called Terapath. (Couture and Fedor would be a dream match-up in MMA, especially after last Saturday. Different guys.)

• Open Text has acquired Momentum Systems of Arlington, Virginia for US$4 million. The 50-person company had been an Open Text partner, deploying Livelink at client sites for 11 years.

• Agfa announced that it will be spinning off Agfa HealthCare, which includes its Waterloo office, into a separate, publicly-traded company. Agfa expects to split into three companies before the end of the year: Agfa HealthCare, Agfa Graphics, and Agfa Materials.

• Descartes has opened a sales and support office in Shanghai, China.