March 2007

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

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

1. Geosign raises record $188M
   
2. RapidMind receives $7.5M investment
   
3. Photowatt IPO cancelled; Spheral Solar to be re-evaluated

4. Com Dev appoints interim leader after surgery to CEO
   
5. Com Dev reports best Q1 in its history
   
6. Descartes and ARISE restate earnings after finding option errors

7. Descartes reports steady sales; appoints new CFO
   
8. ARISE expenses grow; looks to raise more money
   
9. Kaleidescape wins suit filed by DVD group

10. Navtech returns to profitability; hires new CFO
    
11. Synnex Canada to acquire Redmond Group for $45M
    
12. STOCK REPORT: Sandvine hits $450M market cap

13. Miscellaneous tdbits from Software Innovation, Biorem, Google Waterloo, Sandvine, Symbility

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Geosign raises record $188M
March 6, 2007

In the largest private round of funding ever seen in this area, Geosign has received $188 million (US$160 million) from Maryland-based American Capital. The deal involves a combination of equity and convertible debt. Geosign founder Tim Nye remains majority shareholder.

While the size of the deal came as a shock, it was no secret in the local tech community that Geosign had been doing very well over the last couple of years. It admits to annual revenue over US$100 million, and it believed that the company clears that bar with ample room to spare. The company operates at least 180 websites and owns many more domains than that. It has 230 employees and had been expecting to grow to more than 300 this year even before the funding. The company expects to use much of the money on acquisitions, and has said that it is looking at dozens of potential deals covering both technology and web domains.

Geosign is based in Guelph and most of its executive team came from Waterloo Region tech companies. President Ted Hastings is the former president of GBG Group, which began as a Descartes spinoff. The company just hired CFO Brandon Nussey away from Descartes, where he had worked for nearly seven years. COO Brent Drewery used to be at Logisense, VP Chris Howlett was previously CEO of Freedom Intelligence and CTO of Maplesoft, and HR VP Linda Barlow used to be with BlueGill/CheckFree.

The company was founded in 2000 by Nye, who previously ran Cadsoft in Guelph. Jim Estill was one of Geosign's early supporters. It hasn't always been a runaway success -- it attracted some media attention in 2001 for a local search engine that ended up taking a few years to take off, and, other than Nye, the management team from those days are long gone.

In an interview with domain-name investor Frank Schilling, Nye said he had owned 100% of Geosign's shares before the funding and American Capital provided the valuation he wanted. He said he will use some of the funds he receives to back a renewable energy venture. Nye called the deal his "20 year overnight success."

Geosign donated $20,000 to the Guelph and District Multicultural Centre last week after a story in the Guelph Mercury on Wednesday said the centre needed $20,000 by Saturday or it would shut down.

RapidMind receives $7.5M investment
March 7, 2007

RapidMind has raised another $7.5 million in venture capital. The company received seed funding from BDC Venture Capital last year and had also received support from the Ontario Centres for Excellence. The lead VC for the latest round hasn't yet been announced.

The company was founded by professor Michael McCool and Stefanus Du Toit and is headed by CEO Ray DePaul, who previously oversaw BlackBerry product management and has also worked with Kaleidescape and Switchview.

RapidMind technology provides software developers a simple way to take advantage of multicore processors. The platform is used with graphics applications and with the Cell microprocessor, and will soon be expanded to use multicore processors from Intel and AMD. The company just released a report demonstrating what it calls an "8x performance advantage" on an Intel quadcore processor.

Photowatt IPO cancelled; Spheral Solar to be re-evaluated
March 27, 2007

The seventh revised prospectus wasn't the charm, and ATS has decided not to go ahead with the IPO for its Photowatt subsidiary.

The company announced an extension of the sales period on March 16 and then, 11 days later, said it was shelving the IPO. "Due to market conditions, we were not able to complete an IPO on terms that were acceptable to us," said CEO Ron Jutras in a release. The market has been very enthusiastic about alternate/renewable energy companies in the last year, but apparently the buyers were staying away from this offering.

ATS said that another factor in its decision was a $6 million shortfall in Photowatt revenue in the quarter ended March 30 -- after the IPO was expected to close, and not yet announced. Two customers postponed large orders that had been expected to ship in the quarter.

With the IPO a no-go, things aren't sounding promising for Spheral Solar. ATS said it will be "re-evaluating" future development of the technology.

Photowatt IPO cancelled; Spheral Solar to be re-evaluated
March 27, 2007

The seventh revised prospectus wasn't the charm, and ATS has decided not to go ahead with the IPO for its Photowatt subsidiary.

The company announced an extension of the sales period on March 16 and then, 11 days later, said it was shelving the IPO. "Due to market conditions, we were not able to complete an IPO on terms that were acceptable to us," said CEO Ron Jutras in a release. The market has been very enthusiastic about alternate/renewable energy companies in the last year, but apparently the buyers were staying away from this offering.

ATS said that another factor in its decision was a $6 million shortfall in Photowatt revenue in the quarter ended March 30 -- after the IPO was expected to close, and not yet announced. Two customers postponed large orders that had been expected to ship in the quarter.

With the IPO a no-go, things aren't sounding promising for Spheral Solar. ATS said it will be "re-evaluating" future development of the technology.

Com Dev appoints interim leader after surgery to CEO
March 21, 2007

Com Dev CEO John Keating is expected to spend the next three months recuperating from a sudden medical condition that required surgery in March. In his absence, Com Dev president Mike Pley has been made interim CEO. Pley has been with Com Dev for more than 20 years and became president in 2001.

The company did not disclose medical details.

Com Dev reports best Q1 in its history
March 15, 2007

Com Dev reported earnings of $5.6 million on sales of $39.5 million in the quarter ended January 31 (Q1 07). Sales were up 21% from what had been a strong Q1 last year, and down 5% from the previous quarter. Operating expenses were reduced at a higher rate than the sequential drop in sales, so earnings climbed from $5.3 million in Q4 and from $4.2 million last year.

The company only received $22 million in new orders in Q1, but expects to report a big jump in new business in the current quarter. Backlog was reduced to $89 million from $108 million at the start of the quarter. Of the revenue recorded in Q1, 43% came from customers in the UK.

Ten new satellite programs were awarded to prime contractors during the quarter, and Com Dev has won orders on one and is bidding on all the rest. In Q1, it also received contracts on five satellite programs that had been awarded to satellite manufacturers in 2006 and is bidding on six others.

Operations consumed $10.5 million in cash, as the company significantly expanded its inventory and reduced payables. Com Dev ended the quarter with $15.2 million in cash.

At Com Dev's AGM during the month, a by-law change was opposed by 44% of shareholders, which is an unusually high number. It wasn't immediately apparent from the text of the new by-laws what the contentious issue was. The board had recommended that the new by-law be passed. Shareholders didn't hold that against the directors, and re-elected them with 97% support.

Descartes and ARISE restate earnings after finding option errors
March 2007

In the wake of RIM's US$250 million restatement of its historical earnings to correct improper accounting of stock options (see previous digest), two more Waterloo companies have announced adjustments -- much smaller ones -- to their earnings because of option errors.

ARISE lowered its reported earnings over the first three quarters of 2006 by $297,000, attributing the restatement to "a clerical error." Net loss in Q3 went from $501,000 as initially reported to $651,000.

Descartes reported a US$1.5 million understatement of stock-based compensation expenses in the seven fiscal years through 2006. It attributed the understatement to "administrative errors" and added US$1.5 million to its opening accumulated deficit for fiscal 2007.

Descartes reports steady sales; appoints new CFO
March 7, 2007

Pretty much more of the same in the quarter ended January 31 (Q4 07) from Descartes, which has turned into a model of revenue stability over the last couple of years. Sales of US$13.6 million were up just under 1% sequentially, and with a dip in margins, gross profits declined by just a bit more than 1% from Q3.

Operating expenses were reduced from the previous quarter, leading to a stronger bottom line with earnings of US$1.2 million (US$0.025/share), up from US$0.4 million in Q3 and US$1.1 million in Q2. The numbers for Q4 would include a few weeks' worth of results from Cube Route, which Descartes acquired on December 6.

Operations provided US$2.7 million in cash, and Descartes ended the quarter with cash and securities of US$21.9 million, up US$1.1 million from the end of Q3. It spent about US$1.6 million in cash to acquire Cube Route.

For the year, Descartes reported earnings of US$4.0 million (US$0.09/share) on sales of US$52.0 million.

As mentioned above, Brandon Nussey has left Descartes to become CFO of Geosign. The new CFO at Descartes is Stephanie Ratza, who had been CFO of Ipico in Burlington for the last two years. She worked for Open Text in the late 1990s and joined MKS in 1999, becoming finance VP in 2000.

ARISE expenses grow; looks to raise more money
March 7, 2007

It was an expensive quarter for ARISE, which lost $903,000 on revenue of $151,000 in the quarter ended December 31 (Q4 07). Loss was up from 651,000 in the previous quarter. Sales declined 26% sequentially and gross profits for the quarter were just $26,000 as the company continues development of new technology.

ARISE reported an accounting recovery of US$56,000 in the quarter after settling a lawsuit filed by an unnamed creditor. ARISE had previously recorded the full amount of the suit, US$216,000, as a liability, and was able to negotiate a settlement for US$160,000.

The company used a net $454,000 in cash in the quarter, ending with $198,000, and raised $3.6 million (gross) through the sale of warrants shortly after the end of the quarter.

For the year, ARISE lost $2.9 million on revenue of $0.7 million. Accumulated deficit now stands at $11.6 million.

The company says it expects to begin construction of a PV cell manufacturing facility in Germany in the summer and to have it operating by the spring of 2008, initially using off-the-shelf manufacturing processes. It hopes to add a second manufacturing line using its proprietary technology before the end of 2008.

ARISE has filed a preliminary prospectus for a share offering, as yet unpriced, which it says it expects will close around the end of next week. It has moved back to Waterloo from Kitchener, into a Marsland-owned building on Northland.

Kaleidescape wins suit filed by DVD group
March 29, 2007

Kaleidescape was victorious in a lawsuit filed against it in December 2004 by the DVD Copy Control Association, the organization that tries to prevent the unauthorized copying of DVDs. A Superior Court of California judge ruled that Kaleidescape did not breach its license from DVD CCA for the Content Scramble System, the technology uses to encrypt DVDs so they can't easily be copied.

The DVD CCA said it will appeal the decision.

Kaleidescape's technology enables users to copy DVDs -- with all copy protection intact -- onto home servers from which the content can be delivered to any TV in the house that is connected to the system. The DVD CCA has complained that the Kaleidescape system doesn't require the user to keep the physical DVD once the content has been copied to the server.

Navtech returns to profitability; hires new CFO
March 20, 2007

Navtech earned US$256,000 (US$0.03/share) on sales of US$10.3 million in the quarter ended January 31 (Q1 07). Sales were up 5% from the previous quarter and an improvement in margins led to an 8% sequential increase in gross profits.

The company ended the quarter with US$4.2 million in cash, down US$2.4 million from the end of Q4 as it reduced its payables and saw a sequential jump in DSO.

These were the last quarterly results signed by CFO Gordon Heard, who was replaced during the month by Gordon Kilpatrick, a UW accounting grad who was previously finance VP at Shur-Gain, the animal feed division of Maple Leaf Foods. Under the terms of Heard's employment agreement, termination without cause would trigger a payment of half of his $185,000 base salary. Kilpatrick was awarded 100,000 options with an exercise price of US$3.10. There will be no accusations of backdating here, since US$3.10 was Navtech's highest closing share price of the month and second highest in the last five months.

Synnex Canada to acquire Redmond Group for $45M
March 27, 2007

Synnex Canada will pay about $45 million to acquire Mississauga's Redmond Group of Companies, including Quebec-based electronics distributor AVS Technologies. CEO Jim Estill said he spent much of the last three months working on the deal.

Redmond Group had revenue of about $300 million last year, although Synnex does not expect the acquisition will add that much to its top line.

Earlier in the month, Redmond Group announced that it had purchased the Electrohome trademark from Kitchener's Electrohome Ltd. It had been distributing products under the Electrohome name since 1999. Synnex sees consumer electronics as a growth area for the company.

STOCK REPORT: Sandvine hits $450M market cap
March 2007

After going nowhere over their first two months on the TSX, Sandvine shares have jumped 91% over first three months of 2007. In March, the company passed Com Dev for market capitalization and ended the month worth almost as much as Dalsa and Descartes combined. Sandvine is now challenging RIM for the area's most expensive stock relative to run-rate gross profits (ARISE shares are more expensive, but the company is essentially pre-revenue).

The three-month-long skyrocket of ARISE shares came to an end with a 17% decline in March. The stock is still up 138% so far in 2007. Following four strong months, RDM shares have now dropped by 28% since the end of January, taking the company's market value back under $100 million.

For the month of March:

Sandvine [TSX: SVC] +30%
Biorem [TSXV: BRM] +30%
Navtech [OTCBB: NAVH] +4%
Virtek [TSX: VRK] +3%
Descartes [TSX: DSG] +3%
--S&P TSX COMPOSITE INDEX +1%
Dalsa [TSX: DSA] +1%
--S&P TSX VENTURE INDEX +0%
Open Text [TSX: OTC] +0%
===============================
Com Dev [TSX: CDV] -1%
RIM [TSX: RIM] -4%
TurboSonic [OTCBB: TSTA] -13%
RDM [TSX: RC] -14%
MKS [TSX: MKX] -15%
ARISE [TSXV: APV] -17%
ATS [TSX: ATA] -20%

ATS shares have lost nearly a third of their value over the last two months. RIM shares were down slightly after the company's US$250 million earnings adjustment early in the month (see previous digest), but even at their lowest point in the month, RIM stock had traded lower in every other month in the company's history.

At the end of the first quarter of 2007, here's a list of market capitalization, in millions, using outstanding shares (change from last quarter in parentheses):

1. RIM ----- $29,274 (+$1,744)
2. Open Text ----- 1,278 (+105)
3. ATS ----- 489 (-171)
4. Sandvine ----- 446 (+213)
5. Com Dev ----- 392 (-43)
6. Descartes ----- 234 (+35)
7. Dalsa ----- 227 (-15)
8. RDM ----- 88 (+4)
9. MKS ----- 82 (-21)
10. ARISE ----- 40 (+24)**
11. Virtek ----- 30 (n/c)
12. TurboSonic ----- 20 (+2)
13. Biorem ----- 19 (+2)
14. Navtech ----- 14 (-1) **

** ARISE and Navtech both have significant amounts of warrants/options outstanding so these numbers understate the companies' fully-diluted market values.

Companies with core operations outside the area:

Blue Coat [Nasdaq: BCSI] +14%
Oracle [Nasdaq: ORCL] +10%
Adobe [Nasdaq: ADBE] +6%
NCR [NYSE: NCR] +3%
LSI Logic [NYSE: LSI] +3%
Google [Nasdaq: GOOG] +2%
Sybase [NYSE: SY] +1%
Agfa-Gevaert [Brussels: AGFA] +0%
===================================
Ansys [Nasdaq: ANSS] -0%
McAfee [NYSE: MFE] -3%
AMIS [Nasdaq: AMIS] -4%
Automated Benefits [TSXV: AUT] -4%
Senesco [Amex: SNT] -17%

Miscellaneous Tidbits

• Software Innovation raised $3 million through a debenture sale in February.

• Peter Bruijns is the new CEO of Biorem, succeeding Brian Herner, who had been in the role for 14 years. Bruijns had been the president of the Stiller Centre for Technology Commercialization, an incubator in London, Ont. While there, Bruijns expanded the facility's focus from biotech into other technologies, taking it to 92% occupancy. The Stiller Centre was recently brought under the London Economic Development Corp. as part of a restructuring of the City of London's economic development activities. Herner has agreed to remain with Biorem for two years as an advisor.

• Roger Skubowius had turned over the reins of Google's Waterloo office to Joanne McKinley. Both joined the company through its acquisition of Reqwireless in 2005. Skubowius will continue to work for Google in the area, but not as a member of the Waterloo team. Google will be looking to hire someone to run the office on a permanent basis as part of its plan to grow the site to 200 people.

• Sandvine announced that one of the top 20 U.S. broadband providers has agreed to use Sandvine's 10 Gbps Policy Traffic Switch platform.

• Symbility Solutions signed a five-year deal to provide its mobile claims processing software to New Jersey-based Mercer Insurance Group. It has now signed multi-year deals with eight insurance companies in North America and has demonstration installations in another five companies.