Waterloo Tech Digest - October 6, 2008

Compiled and written by
Gary Will
gary@garywill.com

In this issue:

1. Virtek prepares to receive another takeover bid
2. Virtek reports loss on acquisition offer expenses
3. RIM sales climb 88%; now 19M BlackBerry users
4. STOCK REPORT: RIM shares lose half their value
5. Tungle raises $5M
6. Com Dev reports record new orders
7. Miscellaneous tidbits from IMS, Primal Fusion, Sandvine, Descartes, Atria, IGLOO, ATS, Xylotek

It's Entrepreneur Week -- see the list of events and sign up through the Entrepreneur Week website.

--Gary Will

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A D V E R T I S E M E N T S

IT SEARCH AND PLACEMENT SERVICES
Procom is currently ranked as the 4th largest IT professional services firm in Canada. (Branham 300, Financial Post, April 2007). Recently awarded one of Canada's 50 Best Managed Companies, Procom is a proud, Canadian-owned, privately-held company. Our local KW office provides IT, development and technology personnel on either a contract or permanent basis. We are the largest provider of IT staffing and recruiting services in Canada. Phone: 519.885.4331

RISK FREE LEAD GENERATION
From sales opportunity development to increasing attendance for events, Virtual Causeway accelerates your sales process! With a focus on selling and marketing complex services and technology, we guarantee a consistent and reliable flow of quality leads - assuring that your pipeline is constantly full. Contact us today to learn how we can help connect you with your next customer. Call 519-886-1600 ext. 405 or email marketing@v-causeway.com for details.

BERESKIN & PARR - INTELLECTUAL PROPERTY LAW
Bereskin & Parr is a leading Canadian intellectual property law firm on your doorstep. Our Waterloo region office brings a wealth of experience to serve the growing high technology and manufacturing communities in Canada's Technology Triangle and surrounding areas. Bereskin & Parr's practice encompasses all areas of intellectual property from patents to trade marks and related litigation. Please contact Tim Sinnott (tsinnott@bereskinparr.com) or Jason Hynes (jhynes@bereskinparr.com), at (519) 783-3210 for more information.

DELOITTE - SHAPING CANADIAN BUSINESS FOR 150 YEARS
Deloitte's technology, media and telecommunications practice delivers a suite of services including audit, tax, financial advisory, enterprise risk and consulting. We work with all types of technology companies, including early stage and high-growth companies, to help them succeed. We'll help you grow through contacts, M&A, raising capital and most of all through great business advice. We want to be your trusted advisor and look forward to working with you. Contact Jamie Barron 289-259-3385, jabarron@deloitte.ca or Jane Jantzi at 519-650-7788, jjantzi@deloitte.ca.

ENHANCE YOUR COMPETITIVE ADVANTAGE
INO can deliver competitive advantage to fuel company growth. As described in this video, INO's optical recognition technology helped Optosecurity raise $20 million in financing and create a world-class team. Further information on INO's optical recognition technology can be found here. Please contact Glenn Smith in Waterloo at 519-502-1305 to explore how INO might deliver competitive advantage to your organization.

////////////////////////////////////////////////////////////

[1]---------------------------------------------------------------
Virtek prepares to receive another takeover bid
September 15, 2008

Shortly after formally endorsing Gerber Scientific's $1.05-a-share takeover bid (see previous digest), Virtek received word from Toronto's Jaguar Financial that it intended to make a cash offer of $1.12-a-share for all the outstanding shares of Virtek that it does not already own. Jaguar has become Virtek's largest shareholder, holding about 20% of the company's shares.

Jaguar said it expected to make its offer "on or about September 30, 2008," but as of October 5, no offer has been made. On September 24, Virtek announced that Jaguar hadn't followed through on its request to review non-public information from Virtek, which Virtek says it invited Jaguar to do on September 18.

Jaguar would have to pay about $30 million for the remaining Virtek shares. Jaguar told the Record that it's only interested in Virtek's marking and engraving business and that it would want to sell the imaging and templating business. In August, MiTek had offered $26.5 million just for Virtek's imaging and templating business -- an offer that was trumped by Gerber's.

Gerber's offer for Virtek ends on October 21.

Jaguar calls itself a merchant bank investing in undervalued companies. Its largest shareholder is Northern Financial (which had boasted two years ago of the returns it received investing in RDM) and the two companies have the same CEO.

It's MO seems to be that it buys shares in takeover targets in the open market and then makes an offer for controlling interest or, in Virtek's case, all outstanding shares. It tried this earlier in the year with Toronto-based Telehop Communications, but Telehop instead accepted an offer from Globalive (Jim Estill became a significant investor in Telehop following the failure of the Jaguar offer -- the number of shares he bought was nearly identical to the number that Jaguar previously said it held).

Since then, Jaguar has offered to buy controlling interest in Toronto's Royal Laser Corp. Royal's board has recommended that shareholders reject the offer, which is due to expire this week.

Jaguar trades on the TSX with a market value of about $13 million. Its assets consist primarily of investments in other companies. It carries little cash on its balance sheet and says it has arranged for $30 million in credit to complete the Virtek acquisition.

[2]---------------------------------------------------------------
Virtek reports loss on acquisition offer expenses
September 11, 2008

Virtek also reported quarterly results that, in other circumstances, would have been considered promising. They may end up being the last results Virtek reports as a public company (its next quarter-end is October 31, so there may be one more depending on how events unfold this month).

In the period ended July 31 (Q2 09), Virtek reported operating income of $995,000 on sales of $13.7 million. Revenue was up 13% from the previous quarter and 16% from a year ago, while an improvement in margins bumped gross profits 21% sequentially.

Special charges of $1.3 million -- including fees paid to legal and financial advisors to evaluate the StockerYale takeover bid -- took the company to a net loss of $479,000 in the quarter.

Virtek ended the quarter with net cash of $8.3 million, which put the Gerber Scientific takeover offer at about one-half of run-rate annual revenue, net of cash on hand.

[3]---------------------------------------------------------------
RIM sales climb 88%; now 19M BlackBerry users
September 25, 2008

RIM reported earnings of US$495.5 million on sales of US$2.58 billion in the quarter ended August 30 (Q2 09). Sales were up 15% from the previous quarter and 88% from a year ago. Both revenue and earnings fell within the range RIM had forecast.

There were 2.6 million new BlackBerry subscribers in the quarter, matching RIM's forecast. That brought the total number of BlackBerry users to 19 million.

RIM ended the quarter with US$2.24 billion in cash.

The company disclosed four new patent infringement lawsuits brought against it in the quarter. One filed by Wi-LAN was settled in August and the two companies signed a licensing agreement.

For the current quarter, RIM is forecasting sales of US$2.55-2.65 billion, which is a sequential growth rate equal to what it forecast three months ago for Q2. It's looking for earnings to go above the half-billion-dollar mark to US$510-555 million. Those forecasts may sound pretty solid, but among investors they triggered a wave of selling that led to the biggest one-month decline in RIM's share price in more than eight years (see below).

RIM also introduced the first BlackBerry flip phone in September, and announced partnerships with TiVo, Microsoft, and MySpace. EE Times reported that RIM opened an R&D facility in Bochum, Germany on the campus of Ruhr University Bochum. The site has 140 employees and is expected to grow to 500.

[4]---------------------------------------------------------------
STOCK REPORT: RIM shares lose half their value
September 2008

A stormy month on the stock markets, particularly for RIM investors, who -- on paper, anyway -- collectively lost $36 billion dollars. The company's market value was cut in half from $73 billion to $37 billion as of Friday's close. According to globeinvestor.com charts, RIM now ranks sixth on the list of Canada's most valuable corporations.

The closing price of RIM shares in September was their lowest month-end since July 2007 (which really isn't that long ago and just shows how RIM's value had skyrocketed in the last year). It was their worst calendar month performance since a 59% drop in April 2000.

Shares of three companies managed to buck the trend in September and report an increase: Virtek, thanks to the acquisition offer, MKS, and Descartes. Descartes shares has since given back their September gains.

For the month of September:

MKS [TSX: MKX] +17%
Virtek [TSX: VRK] +16%
Descartes [TSX: DSG] +9%
===============================
Biorem [TSXV: BRM] -1%
Com Dev [TSX: CDV] -3%
TurboSonic [OTCBB: TSTA] -6%
Open Text [TSX: OTC] -6%
Sandvine [TSX: SVC] -8%
--S&P TSX COMPOSITE INDEX -8%
RDM [TSX: RC] -12%
Dalsa [TSX: DSA] -18%
--S&P TSX VENTURE INDEX -22%
ATS [TSX: ATA] -28%
Arise [TSX: APV] -33%
RIM [TSX: RIM] -45%

Companies with core operations outside the area:

===================================
Oracle [Nasdaq: ORCL] -7%
Adobe [Nasdaq: ADBE] -8%
Acorn Energy [Nasdaq: ACFN] -11%
Sybase [NYSE: SY] -11%
Google [Nasdaq: GOOG] -14%
McAfee [NYSE: MFE] -14%
Ansys [Nasdaq: ANSS] -15%
NCR [NYSE: NCR] -17%
Agfa-Gevaert [Brussels: AGFA] -18%
Blue Coat [Nasdaq: BCSI] -24%
ON Semiconductor [Nasdaq: ONNN] -29%

Three-quarters of the way through 2008, here's how the market capitalization of local tech companies compares to their levels three months ago:

Market capitalization at October 3
in millions, using outstanding shares
(Change since June 30 in parentheses):

1. RIM ----- $37,331 (-$32,618)
2. Open Text ----- 1,770 (+101)
3. ATS ----- 399 (-173)
4. Com Dev ----- 233 (+8)
5. Descartes ----- 189 (+8)
6. Dalsa ----- 153 (-89)
7. Sandvine ----- 134 (-59)
8. Arise ----- 101 (-96)
9. MKS ----- 86 (+8)
10. Virtek ----- 34 (+16)
11. RDM ----- 21 (-12)
12. TurboSonic ----- 11 (+3)
13. Biorem ----- 8 (-3)

With three months left in the year, Virtek, MKS, and Open Text are the only companies that have seen their share price go up in 2008. The biggest decliners so far this year are Sandvine (-74%), Arise (-68%) and RDM (-62%).

[5]---------------------------------------------------------------
Tungle raises $5M
September 30, 2008

Tungle, which is based in Montreal but does R&D in Waterloo, has raised $5 million in a round led by Commonwealth Capital Ventures of Waltham, Mass.

It is calling this its Series A funding after raising $1.5 million in 2007 from JLA Ventures and Desjardins Venture Capital, as well as funding from a U.S. based angel investor.

[6]---------------------------------------------------------------
Com Dev reports record new orders
September 11, 2008

Another good quarter for Com Dev, which reported earnings of $4.3 million on sales of $51.5 million in the quarter ended July 31 (Q3 08). Although sales were down 5% from the previous quarter (but up 20% from last year), Com Dev booked a record $95.1 million in new orders in Q3, taking its order backlog to $161 million at quarter-end, also a new record.

Even with the sequential drop in sales, an improvement in margins meant that gross profits were just slightly below those in Q2, while operating expenses fell by 21%. That enabled Com Dev to record earnings that were more than double the $2.0 million it had in Q2.

It was the first quarter that the company had significant revenue from its new U.S. office in California. The El Segundo-based Com Dev USA contributed $3.5 million in revenue.

Operations generated cash of $2.2 million and Com Dev ended the quarter with $11.1 million in cash.

[6]---------------------------------------------------------------
Miscellaneous Tidbits

• IMS' controlling shareholders have paid $14.7 million for the former site of Conestoga College in Waterloo, a property that extends from King to Weber. IMS will request that the 70,000 square foot former college building be rezoned from institutional to commercial and plans to renovate it to include a "world-class high-tech centre" capable of providing space to several tenants. The site had been purchased by Loblaws which planned to build a Real Canadian Superstore on the property -- plans that were opposed by city council.
  
  
• Primal Fusion CEO Yvan Couture pulled the wraps off his company during the month, discussing its concept of a "thought network" developed by Primal Fusion founder and CTO Peter Sweeney (who, at the same time, discussed the concept on the company's blog. Couture also publicly disclosed for the first time that the company had raised $3 million through a convertible debenture deal earlier this year.
  
  
• After months of obfuscation and denials, Comcast finally came clean -- under FCC orders -- and disclosed how it had used Sandvine technology to implement network management policies that the FCC ruled were improper. It was the first time that Comcast acknowledged being a Sandvine customer. With that out of the way, Sandvine announced that Comcast would be using Sandvine's new "congestion management" product -- designed to avoid the issues the FCC had with the previous approach -- with deployment expected to begin before the end of the year.
  
  
• Descartes has acquired Dexx, a Belgian customs filing and logistics messaging provider. Purchase price was approximately $2 million.
  
  
• Atria Networks has made another acquisition, this time buying the telecom assets of Peterborough Utilities.
  
  
• The David Suzuki Foundation used IGLOO Software's platform to create the Vote Environment 2008 website.
  
  
• ATS is selling its component manufacturing business -- the Precision Components Group -- to a group led by the PCG management team. PCG has 300 employees worldwide with manufacturing facilities in Cambridge, Stratford, and Shaghai.
  
  
• Kitchener's Xylotek Solutions was named one of the Profit Hot 50, a ranking determined by revenue growth between 2005 and 2007 among companies founded in 2004 or 2005 (with sales of at least $500,000 in 2007). Over that period, Xylotek sales climbed to $1.8 million, with $2.4 million expected this year.
  
  
• Sandvine (#7), RIM (#16), Desire2Learn (#23), and Navtech (#38) were among the companies on the 2008 Deloitte Technology Fast 50 ranking, listing Canadian companies with the highest percentage of revenue growth in the last five years.
  
  
• Canadian Business' Andrew Wahl wrote about the Waterloo-Guelph area as one of Canada's best places to do business. Thumbs up for his use of "Waterloo-Guelph" rather than the inaccurate "Kitchener-Waterloo" (which the headline writer put in anyway). As for the line about startups raising $300 million in 14 months ... well, ignore that part. The rest is good.
  
  
• While I'm at it: no, Waterloo Region doesn't come remotely close to accounting for three-quarters of all tech startups in Canada. That comment was attributed to the president of the Conference Board of Canada in a story in the Record. Maybe she was misheard, because that one's way out there.

Narrow view of innovation drives proposed Ontario law

The Ontario government introduced its "Ideas For the Future Act" last week—following through on its pledge earlier this year to provide a refund of provincial income tax to university spinoff companies over their first 10 years in business.

The refund would only be available to companies incorporated after March 24, 2008 and only to companies whose sole purpose—in the opinion of the Ministry of Research and Innovation—is selling/licensing:

1) Software created by university employees or students "in the course of" their employment at the university or their academic studies. The software must constitute "a technological advancement" in the opinion of the Ministry of Research and Innovation.

2) Computer/communications/semiconductor/electronics equipment, health technology, or bioeconomy products "an essential element of which" is a patented technology wholly developed by university employees or students "in the course of" their employment at the university or academic studies. The patent doesn't have to have been issued before the company can qualify, but it must be issued within the company's first 10 years.

There's some flexibility given to both the Ministry of Finance and the Ministry of Research and Innovation in deciding exactly what qualifies, but if your company falls into one of those two categories, there's a good chance that it will qualify. If it doesn't, I suspect you'll have a hard time getting approval.

You won't know for sure if you qualify until after the end of each year when you ask the Ministry of Research and Innovation to provide you with a certificate of eligibility. If your company is certified, you can then ask the Ministry of Finance for a refund of your provincial income tax.

The bill is only at first reading stage, so there will be opportunities to make changes before it becomes law—which is good, because there are a lot of ways that the act should be improved.

Unfortunately, the act would do nothing for the majority of our most innovative companies, most of which wouldn't qualify. It certainly won't do anything to encourage startup creation—in the 10 years I've worked with new tech companies, provincial income tax has never been raised as an issue by any entrepreneur. At best, it's like a nice Christmas bonus, which makes its overly-restrictive eligibility rules even more of a disappointment.

If the goal is to cultivate Ontario's economic future, shouldn't we be supporting all of our innovative startups? Why is a tech company started by a 22-year-old student more worthy of support than a startup created by a 26-year-old graduate ... or a 46-year-old who isn't a university employee, or anyone else?

The cardboard version of innovation driving this legislation goes something like this: research occurs at universities and labs and leads to patents which are then pushed out into the business world and commercialized, creating the innovative tech companies that the economic future of the province depends upon.

In the real world, the links between research and economic prosperity—and the two are certainly connected—follow many different routes. Unfortunately, policymakers have obsessed over one patent-centric path at the expense of others that have more impact on our economy. As Mike Lazaridis pointed out years ago, if you want to see the economic impact of research, you need to look more at students and less at patents. Few innovative companies are created to commercialize university-created patents, but almost all of them have university- or college-educated people driving them. RIM itself wasn't created to commercialize a particular university-created innovation. In fact, Lazaridis has said that over RIM's first 20 years in business it licensed just two technologies from universities.

The government should expand the eligibility for the tax refund so it includes all  innovative startups—all of which make use of ideas and knowledge that flowed from research—and not just the small percentage of those companies that were created to commercialize a specific university-based invention.

Waterloo Tech Digest - September 9, 2008

Compiled and written by
Gary Will
gary@garywill.com

In this issue:

1. Virtek board endorses $35M takeover offer
2. Medicalis raises $7M
3. Arise reports first PV cell sales, forecasts $45M by year-end
4. Open Text continues to report solid profits, cash flow
5. Open Text to acquire document capture firm for US$131M
6. MKS starts fiscal 09 with profitable quarter
7. Descartes sales up 20%
8. STOCK REPORT: Dalsa falls to multi-year low; ATS soars
9. Miscellaneous tidbits from Coreworx, Metranome, ATS, RIM, ANSYS, Desire2Learn

////////////////////////////////////////////////////////////
A D V E R T I S E M E N T S

RISK FREE LEAD GENERATION
From sales opportunity development to increasing attendance for events, Virtual Causeway accelerates your sales process! With a focus on selling and marketing complex services and technology, we guarantee a consistent and reliable flow of quality leads - assuring that your pipeline is constantly full. Contact us today to learn how we can help connect you with your next customer. Call 519-886-1600 ext. 405 or email marketing@v-causeway.com for details.

BERESKIN & PARR - INTELLECTUAL PROPERTY LAW
Bereskin & Parr is a leading Canadian intellectual property law firm on your doorstep. Our Waterloo region office brings a wealth of experience to serve the growing high technology and manufacturing communities in Canada's Technology Triangle and surrounding areas. Bereskin & Parr's practice encompasses all areas of intellectual property from patents to trade marks and related litigation. Please contact Tim Sinnott (tsinnott@bereskinparr.com) or Jason Hynes (jhynes@bereskinparr.com), at (519) 783-3210 for more information.

DELOITTE - SHAPING CANADIAN BUSINESS FOR 150 YEARS
Deloitte's technology, media and telecommunications practice delivers a suite of services including audit, tax, financial advisory, enterprise risk and consulting. We work with all types of technology companies, including early stage and high-growth companies, to help them succeed. We'll help you grow through contacts, M&A, raising capital and most of all through great business advice. We want to be your trusted advisor and look forward to working with you. Contact Jamie Barron 289-259-3385, jabarron@deloitte.ca or Jane Jantzi at 519-650-7788, jjantzi@deloitte.ca.

ENHANCE YOUR COMPETITIVE ADVANTAGE
INO can deliver competitive advantage to fuel company growth. As described in this video, INO's optical recognition technology helped Optosecurity raise $20 million in financing and create a world-class team. Further information on INO's optical recognition technology can be found here. Please contact Glenn Smith in Waterloo at 519-502-1305 to explore how INO might deliver competitive advantage to your organization.

IT SEARCH AND PLACEMENT SERVICES
Procom is currently ranked as the 4th largest IT professional services firm in Canada. (Branham 300, Financial Post, April 2007). Recently awarded one of Canada's 50 Best Managed Companies, Procom is a proud, Canadian-owned, privately-held company. Our local KW office provides IT, development and technology personnel on either a contract or permanent basis. We are the largest provider of IT staffing and recruiting services in Canada. Phone: 519.885.4331

////////////////////////////////////////////////////////////

[1]---------------------------------------------------------------
Virtek board endorses $35M takeover offer
September 2, 2008

Another month, another acquisition offer for Virtek, but this one looks like it might actually happen. Connecticut-based Gerber Scientific has made an all-cash offer of $1.05 a share -- about $35 million in total -- for all of Virtek's outstanding shares. The offer has the support of Virtek's board. Gerber trades on the New York Stock Exchange with a market value of about $200 million.

Last month, MiTek offered $26.5 million just for Virtek's imaging and templating business and, as part of that plan, Virtek was going to raise $3 million at $0.85 a share and buy back $26 million in its own shares -- about 75% of its outstanding shares -- at a price between $0.85 and $1. So, while in theory the Gerber offer would only be superior to MiTek's if you put a value of $8.5 million or less on Virtek's marking and engraving business, under the Gerber offer most shareholders would get more than they would have received under the MiTek offer. MiTek had the right to match the Gerber offer but chose not to. It will receive $927,500 in termination fees plus an additional $250,000 as an "expense reimbursement fee."

StockerYale -- the company that got all this started with a $22 million bid in May -- essentially disappeared from the picture after the MiTek offer was announced. It didn't change its final bid of $27 million and its offer expired without the necessary number of shares being tendered. The Gerber offer is nearly 60% higher than StockerYale's initial bid -- the one that was immediately accepted by the Toronto investment firm that was then Virtek's largest shareholder.

Gerber -- like MiTek -- has a history of working with Virtek. In fact, if the deal goes through it won't be the first time that Gerber has made a Virtek-related acquisition: in 1999 it bought the rights to Virtek's leather nesting software.

Assuming that no other offers are received, it will now be up to Virtek shareholders to decide whether to accept the Gerber deal. If they do, Virtek will vanish as a public company. The circular for the takeover bid is expected to be sent to shareholders next week. Nothing has been said about what Gerber would do with Virtek's Waterloo office and its employees.

[2]---------------------------------------------------------------
Medicalis raises $7M
August 18, 2008

Medicalis has closed a $7 million round of funding. Leading the deal was Boston-based HLM Venture Partners, which specializes in medical/health care technologies.

This is Medicalis' Series B round of funding. It began as a spinoff from Waterloo's Mitra (now part of Agfa) in 1999.

[3]---------------------------------------------------------------
Arise reports first PV cell sales, forecasts $45M by year-end
August 11, 2008

In the quarter ended June 30 (Q2 08), Arise recoded the first sales of PV cells made at its new manufacturing plant in Germany. It was only $461,000 from a few weeks of shipments, but the company expects that to grow to about $15 million this quarter and $30 million in Q4 as it ramps up production and improves efficiencies.

With the plant just starting production, there were significant costs associated with cells breaking or failing to meet performance requirements and that led to negative gross profits of $1.3 million. Arise expects it will be able to sell some of its scrap material from the quarter and recover part of those expenses.

Net loss for the quarter was $6.5 million, bringing the company's accumulated deficit to $35.1 million.

At the end of the period, Arise had $46.1 million in cash, mostly raised through a share offering in May. In July, it made prepayments of $20.1 million for silicon wafers and had $21.7 million in cash as of August 8.

The company also announced that it will not be building a polysilicon pilot plant at the University of Waterloo Research & Technology Park. Arise had signed a letter of intent in 2006 to build at the R&T Park but said that requirements of the university and the city for "design, appearance, and size and use ratio" would have added too many unnecessary costs for a manufacturing plant. It now expects to place the plant in an existing building in Waterloo Region.

Arise held its first quarterly results conference call following the announcement of its Q2 results. Empathizing with investors, CEO Bart Tichelman said the company was disappointed with the price of Arise shares, which have fallen 41% over the last four months.

[4]---------------------------------------------------------------
Open Text continues to report solid profits, cash flow
August 19, 2008

Open Text earned US$27.3 million on sales of US$200.3 million in the quarter ended June 30 (Q4 08). Sales were up 12% from the previous quarter, when the company earned US$7.3 million, and 14% from last year.

Operations generated US$44.6 million in cash in the quarter and US$166.0 million over the full year. Open Text ended the period with US$255 million in cash. At year-end, it had US$308 million in long-term debt on the balance sheet -- mostly from the Hummingbird acquisition.

For the year, Open Text had sales of US$725.5 million, up 22% from 2007. Net income was US$53.0 million.

[5]---------------------------------------------------------------
Open Text to acquire document capture firm for US$131M
September 4, 2008

Open Text also announced that it will acquire Bellevue, Washington-based Captaris for US$131 million. Captaris is a Nasdaq-listed company that has developed software for the digital capture of paper documents. Earlier this year, it acquired Germany's Océ Document Technologies which specialized in document capture and text recognition software. Captaris has several other products, including fax servers, which may not have a long life as part of Open Text.

The company was founded in 1982 and was previously known as Applied Voice Technology. Its shares were trading at US$3.70 when the Open Text offer was announced. Open Text will pay US$4.80 a share, or 30% above what was the market price. The deal is expected to close before the end of the year.

[6]---------------------------------------------------------------
MKS starts fiscal 09 with profitable quarter
September 3, 2008

MKS earned US$619,000 on sales of US$15.4 million in the quarter ended July 31 (Q1 09). Sales were up 13% from last year and down 27% from the company's blow-away results in the previous quarter.

Operations provided US$702,000 in cash and MKS spent US$1.1 million to repurchase 707,000 shares in the quarter, along with its usual US$1.0 million in dividends. It ended the quarter with US$11.5 million in cash, down US$1.4 million from the end of Q4.

At the AGM on August 26, MKS shareholders narrowly approved the company's poison pill plan with 53% of the votes in favour and 47% opposed. The margin of victory was much smaller than the number of shares held by MKS directors and executives.

And nearly a quarter of voting shareholders opposed the extension of the expiry date of the stock options awarded to president Michael Harris when he was hired in 2002. At that time, Harris was granted 1.2 million options with an exercise price of $1.35 and a seven year expiry period. With shareholder approval, that has now been extended to 10 years.

The circular for MKS' AGM disclosed that Harris was paid a $531,514 bonus in fiscal 2008, bringing is total compensation (excluding options) to $881,514. But he wasn't the company's top-paid executive: Thomas Hornek, managing director for central and southern Europe, received $1.05 million. CEO Phil Deck was paid $763,403.

[7]---------------------------------------------------------------
Descartes sales up 20%
September 4, 2008

Descartes earned US$1.4 million on sales of US$17.1 million in the quarter ended July 31 (Q2 09). Revenue was up 5% from the previous quarter and 20% from a year ago.

Operations generated cash of US$4.6 million and Descartes ended with period with US$50.533 million in cash.

[8]---------------------------------------------------------------
STOCK REPORT: Dalsa falls to multi-year low; ATS soars
August 2008

It's not reflected on the list below, since it happened in the first few days of September, but Dalsa shares went on a nosedive last week -- losing almost a quarter of their value in one day, despite the fact that the company has put together two strong quarters back-to-back.

According to the Globe & Mail, the selloff was triggered by Corning's warning that there was a glut of LCD panels on the market. Part of Dalsa's business is supplying flat panel inspection systems for LCD monitor manufacturers and, as far as some investors were concerned, that was apparently enough of a connection to send the stock into freefall. The drop took Dalsa shares to their lowest point since December 2001, although they came back a bit before the end of last week. The company, which was overtaken in market capitalization by Com Dev last month, has now also been passed by Descartes with Arise and Sandvine just slightly behind.

At their peak in April, Dalsa shares had nearly doubled in value since the beginning of the year. They're now down about 6% in 2008.

For the month of August:

ATS [TSX: ATA] +63%
Virtek [TSX: VRK] +31%
RDM [TSX: RC] +24%
TurboSonic [OTCBB: TSTA] +23%
Sandvine [TSX: SVC] +20%
Open Text [TSX: OTC] +18%
MKS [TSX: MKX] +11%
RIM [TSX: RIM] +3%
Descartes [TSX: DSG] +2%
--S&P TSX COMPOSITE INDEX +1%
Com Dev [TSX: CDV] +1%
===============================
Dalsa [TSX: DSA] -3%
--S&P TSX VENTURE INDEX -11%
Arise [TSX: APV] -13%
Biorem [TSXV: BRM] -25%

Investors are regaining confidence in ATS, which reported quarterly results in August. Its shares had their best month-end price in a year-and-a-half. Shares of RDM and Sandvine bounced back after plummeting in July. Virtek shares are up 178% since the end of March.

Companies with core operations outside the area:

Blue Coat [Nasdaq: BCSI] +28%
McAfee [NYSE: MFE] +21%
Agfa-Gevaert [Brussels: AGFA] +14%
Adobe [Nasdaq: ADBE] +4%
Sybase [NYSE: SY] +2%
Oracle [Nasdaq: ORCL] +2%
ON Semiconductor [Nasdaq: ONNN] +1%
===================================
NCR [NYSE: NCR] -1%
Google [Nasdaq: GOOG] -2%
Ansys [Nasdaq: ANSS] -3%

[9]---------------------------------------------------------------
Miscellaneous Tidbits

• Acorn Energy completed its acquisition of Coreworx -- the former Software Innovation (see March digest). Acorn says it issued 287,500 common shares -- worth about US$1.3 million at the time -- to pay for Coreworx. Part of that payment will be held in escrow for one year. It also "contributed to the capital of Coreworx" US$2.5 million in cash and US$3.4 million in 8% one-year promissory notes that were given to Coreworx's debenture holders in full payment of principal and outstanding accrued interest on their debentures.
  
  
• Metranome has launched its Poptiq service, delivering personalized, recommended videos to users' iPod Touch devices and iPhones.
  
  
• ATS reported strong results from both its Automated Systems Group -- sales up 32% from last year -- and from its Photowatt Technologies division -- sales up 45% from last year to $69.3 million. The company recorded a $3.2 million gain on the sale of the Spheral Solar building to RIM. ATS is completing a strategic review of its ASG divisions in the current quarter.
  
  
• According to research firm Strategy Analytics, 10% of all cellphones purchased on the U.S. in the second quarter of 2008 were BlackBerrys. It was the first time that RIM hit 10% market share.
  
  
• The Waterloo office of ANSYS was mentioned in some media reports about the high-tech Speedo swimsuits worn at the Beijing Olympics. Speedo hired ANSYS to develop software to simulate the flow of water around the suit and a swimmer.
  
  
• The U.S. Patent & Trademark Office rejected Blackboard's attempts to halt the reexamination of its patent that was at the centre of Blackboard's successful infringement lawsuit against Desire2Learn.

Waterloo Tech Digest - August 5, 2008

Compiled and written by
Gary Will
gary@garywill.com

In this issue:

1. Virtek plans to sell imaging & templating business for $26.5M
2. Dalsa reports another strong quarter
3. Sandvine withdraws revenue guidance after another weak quarter
4. RDM sales continue to fall well below forecasts
5. STOCK REPORT: Falling prices for RDM, Sandvine ... and Dalsa
6. Miscellaneous tidbits from J2Play, LiveHive, AideRSS, Desire2Learn, RIM, Open Text, Christie

////////////////////////////////////////////////////////////
A D V E R T I S E M E N T S

BERESKIN & PARR - INTELLECTUAL PROPERTY LAW
Bereskin & Parr is a leading Canadian intellectual property law firm on your doorstep. Our Waterloo region office brings a wealth of experience to serve the growing high technology and manufacturing communities in Canada's Technology Triangle and surrounding areas. Bereskin & Parr's practice encompasses all areas of intellectual property from patents to trade marks and related litigation. Please contact Tim Sinnott (tsinnott@bereskinparr.com) or Jason Hynes (jhynes@bereskinparr.com), at (519) 783-3210 for more information.

IT SEARCH AND PLACEMENT SERVICES
Procom is currently ranked as the 4th largest IT professional services firm in Canada. (Branham 300, Financial Post, April 2007). Recently awarded one of Canada's 50 Best Managed Companies, Procom is a proud, Canadian-owned, privately-held company. Our local KW office provides IT, development and technology personnel on either a contract or permanent basis. We are the largest provider of IT staffing and recruiting services in Canada. Phone: 519.885.4331

RISK FREE LEAD GENERATION
From sales opportunity development to increasing attendance for events, Virtual Causeway accelerates your sales process! With a focus on selling and marketing complex services and technology, we guarantee a consistent and reliable flow of quality leads - assuring that your pipeline is constantly full. Contact us today to learn how we can help connect you with your next customer. Call 519-886-1600 ext. 405 or email marketing@v-causeway.com for details.

DELOITTE - SHAPING CANADIAN BUSINESS FOR 150 YEARS
Deloitte's technology, media and telecommunications practice delivers a suite of services including audit, tax, financial advisory, enterprise risk and consulting. We work with all types of technology companies, including early stage and high-growth companies, to help them succeed. We'll help you grow through contacts, M&A, raising capital and most of all through great business advice. We want to be your trusted advisor and look forward to working with you. Contact Jamie Barron 289-259-3385, jabarron@deloitte.ca or Jane Jantzi at 519-650-7788, jjantzi@deloitte.ca.

ENHANCE YOUR COMPETITIVE ADVANTAGE
INO can deliver competitive advantage to fuel company growth. As described in this video, INO's optical recognition technology helped Optosecurity raise $20 million in financing and create a world-class team. Further information on INO's optical recognition technology can be found here. Please contact Glenn Smith in Waterloo at 519-502-1305 to explore how INO might deliver competitive advantage to your organization.

////////////////////////////////////////////////////////////

[1]---------------------------------------------------------------
Virtek plans to sell imaging & templating business for $26.5M
August 4, 2008

Virtek announced Monday night that it plans to sell its imaging and templating business -- its main business for the last 10+ years -- to Missouri-based MiTek Holdings for $26.5 million. That's just slightly less than the amount StockerYale was offering for the entire company. Shareholders will be asked to approve the sale at a meeting on September 10. The deal requires the support of two-thirds of Virtek's shareholders. If it closes, Virtek would strictly be in the marking and engraving business, which it had said for some time was its best hope for future growth.

Virtek has also arranged a $3 million private placement at $0.85 a share with Royal Capital Management. It will take the net proceeds of the sale to MiTek and the private placement and use $26 million to buy back shares in the company through a Dutch auction process at a price per share between $0.85 and $1.00. At that price range, Virtek would be able to repurchase and cancel 70-80% of its outstanding shares. Both the private placement and the repurchase would require shareholder approval at the September 10 meeting, although only a simple majority of votes would be needed.

Virtek can still back out of the MiTek deal -- under the terms of the agreement, the company has the rest of this week to seek other proposals and can consider unsolicited proposals even after that point. If no better offer comes forward, Virtek expects the sale to MiTek to close around September 12. If Virtek decided to go with a different offer, it would have to pay MiTek $927,500 plus expenses. The company expects to net about $23.6 million upon closing with an additional $1.3 million being placed in escrow for one year.

In fiscal 2008, imaging and templating contributed $24.8 million in revenue, or 47% of Virtek's sales. It also accounted for all of Virtek's profits, as the marking and engraving business operated at a loss. In the first quarter of the current fiscal year, the I&T business provided just 42% of total revenue but was still the source of all earnings.

Virtek got into the marking and engraving business through its majority acquisition of Germany's FOBA in 2003. It became 100% owner last year. It has moved parts of the business to Waterloo last year and parted ways with the German-based GM of the business in October. In its news release yesterday, Virtek listed "streamlining German operations" as one of the steps it plans to take to grow the M&E business.

Up until Monday's announcement, it wasn't looking good for Virtek, as the hostile acquisition offer from New Hampshire-based StockerYale had been sweetened to 80 cents a share in cash -- 70 cents at closing an the remaining 10 cents to be paid within 60 days of StockerYale acquiring all of Virtek's common shares. That brought the price of the acquisition up to about $27 million -- $5 million more than the initial stock & cash deal StockerYale offered in May.

The revised offer is more than 80% above the level Virtek shares were trading when the offer was made, and that would have been hard for shareholders to resist. Once they cashed out, it would have made little difference to them that Virtek would have been in the hands of a debt-ridden, chronic money loser offering few apparent synergies with Virtek, operating under a questionable management team (the company and its CEO were accused of fraud by the U.S. Securities and Exchange Commission in 2005; the CEO was ordered to pay a $120,000 penalty plus US$788,000 in gains improperly received through the sale of StockerYale shares after the company issued a false news release).

The deadline for shareholders to accept StockerYale's offer was extended to the end of the day on August 14. Virtek's board formally rejected StockerYale's previous offer on July 11 and StockerYale -- which has very little money of its own -- later raised its offer to 70+10 cents a share.

Virtek was founded in 1986 by UW professors Andrew Wong and Mohamed Kamel with Bob Nally -- who remains on the company's board -- and Tom King. Initially, the name was said to be an acronym for Vision Intelligence Robotics Technology. It was created to commercialize algorithms developed at UW's Pattern Analysis and Machine Intelligence lab. Virtek shares first traded on the over-the-counter market in 1994 and moved to the Toronto Stock Exchange in 1999. The stock hit an all-time high of $7.75 a share in November 2000. Its average month-end price was $1.11 in 2006 and $0.73 in 2007, and it fell to an all-time low of $0.31 in January of this year.

[2]---------------------------------------------------------------
Dalsa reports another strong quarter
July 31, 2008

Back-to-back good quarters for Dalsa, which reported earnings of $4.0 million on sales of $53.4 million in the period ended June 30 (Q2 08). Sales were up 12% from a year ago and down slightly from a strong Q1. However, improvements in margins led to a 4% sequential increase in gross margins.

Dalsa's digital imaging and semiconductor businesses were both profitable, each with sales about at the same level as Q1. The digital cinema business lost $2.0 million on revenue of $450,000. Dalsa has never disclosed how much revenue it receives from the rental of its movie camera, but the implication is that it's a small percentage of total digital cinema sales. In June, it demonstrated a smaller movie camera which is expected to be ready for commercial release this quarter.

Operations provided $9.3 million in cash and the company spent $1.0 million in April to acquire the 22% of Santa Clara-based Rad-icon Imaging that it didn't already own. It had been a part-owner of Rad-icon for several years and became majority owner in 2003. Dalsa ended the quarter with $19.0 million in cash.

The company announced that it will start paying a quarterly dividend this month. Shareholders will receive $0.05 per share, which adds up to a total cash payment of about $945,000 this quarter.

During the quarter, Dalsa also completed the sale of what was left of its Colorado Springs-based X-ray imaging business. The remaining assets were sold at book value with no significant gain or loss. Over the next five years, Dalsa is entitled to a 10% royalty on sales of products related to the assets it sold.

Early in the month, there had been a lot of buzz around a new 50 megapixel sensor from Kodak -- a Dalsa competitor -- but Denmark's Phase One quickly followed with the announcement of a new camera that features a 60.5 megapixel sensor from Dalsa.

[3]---------------------------------------------------------------
Sandvine withdraws revenue guidance after another weak quarter
July 8, 2008

It was an improvement from the previous quarter, but sales of $11.1 million in the period ended May 31 (Q2 08) still fell far enough below Sandvine's expectations that the company withdrew its revenue forecasts for the year. The company had said in March -- and reiterated in April -- that it expected annual revenue to fall in the $80-85 million range, if certain assumptions held true. They didn't, and with sales of $19.4 million at the mid-way point for the fiscal year, Sandvine would have needed revenue of $30 million a quarter for the rest of the year just to hit the low end of its forecast.

Sales were up 34% from a disastrous Q1 but down 45% from last year. Sandvine lost $4.6 million -- a $2.6 million improvement from the previous quarter -- with a loss from operations of $5.6 million.

Operations used $5.1 million in cash in Q2 with an additional $752,000 spent to repurchase shares in the company. Sandvine ended the quarter with $99.7 million in cash -- a $6.9 million reduction from the end of Q1.

The company won 12 new customers in the quarter. Most revenue continued to come from just a few customers, but it was a little more distributed this quarter with four customers accounting for 62% of sales. The infamous "Customer A" -- the one generally believed to be Comcast -- provided just $1.25 million in revenue, down from $9.5 million a year ago and $2.0 million in Q1. One of the four major customers in the quarter was a reseller. Sales to Europe/Middle East/Africa rebounded from a Q1 slump and accounted for a quarter of all revenue.

Sandvine added eight people to its sales and marketing team in the quarter, including six sales reps.

[4]---------------------------------------------------------------
RDM sales continue to fall well below forecasts
July 31, 2008

Another very disappointing quarter for RDM, which has been way below its forecasts each quarter this year. The company lost $298,000 on sales of $5.2 million in the period ended June 30 (Q3 08). The loss would have been worse, except RDM recognized a $559,000 accounting gain on its sale of Xign from last year after it received the balance of the acquisition price -- which had been held in escrow. Sales were down 23% from both Q2 and last year.

It's been a brutal year for the company's revenue forecasts. It began the year predicting that revenue would grow in line with the levels of the pervious two years -- 39% in 2007 and 25% in 2006. After Q1 was a dud, RDM said it would still see annual growth of 10-15%, which would have required 40% year-over-year growth over the remaining three quarters of the year. Then Q2 fell way below expectations and RDM said sales would be flat year-over-year, which again would have required 40% growth in the last two quarters of the year. Now, with Q3 well below last year's numbers, the company says it expects Q4 will be an improvement, but still below last year's levels. It now expects annual revenue to decline about 23% for the year.

In Q3, operations used $1.5 million in cash, which was partly offset by the $1.1 million RDM received for Xign (now JPMorgan Xign). The company still has plenty of cash, holding $17.1 million, down $743,000 from the end of Q2.

Volume on RDM's ITMS image & transaction system increased to 2.8 million items a week, up from 2.5 million in the previous quarter. The company shipped 7,500 scanners in the quarter, down from 10,300 in Q2.

[5]---------------------------------------------------------------
STOCK REPORT: Falling prices for RDM, Sandvine ... and Dalsa
June 2008

Last month's rebound in Sandvine shares was short-lived as the stock had its second-worst month ever in July, falling as low as 87 cents at one point. It closed Friday at $1.02. Sandvine has 73 cents per share in cash, so its business is being assigned very little value by investors -- a big change from the days 11 months ago when investors thought Sandvine was a billion-dollar company. Sandvine shares are down 73% this year and 86% over the last 10 months.

The biggest decliner in July was RDM stock, which fell below $1 for the first time in over two-and-a-half years and finished the month at $1.01. That wasn't a shock, given the company's financial results, but it was surprising to see Dalsa shares record their worst month in three years. The results were good, and the declines all came before the financials were released on July 31, but there was very little pop for the stock on August 1 once the numbers were in.

For the month of July:

Virtek [TSX: VRK] +24%
Biorem [TSXV: BRM] +6%
RIM [TSX: RIM] +5%
Descartes [TSX: DSG] +3%
===============================
TurboSonic [OTCBB: TSTA] -2%
Open Text [TSX: OTC] -2%
Com Dev [TSX: CDV] -3%
Arise [TSX: APV] -3%
--S&P TSX COMPOSITE INDEX -6%
MKS [TSX: MKX] -8%
--S&P TSX VENTURE INDEX -16%
Dalsa [TSX: DSA] -22%
ATS [TSX: ATA] -28%
Sandvine [TSX: SVC] -33%
RDM [TSX: RC] -35%

Virtek shares have climbed in line with StockerYale's increased bid, and jumped an additional 10% on Friday after Virtek announced that it would not use its recently-created poison pill to try to thwart or delay StockerYale's offer.

On the market capitalization list, Dalsa fell below Com Dev and is now just slightly above Descartes and Arise. Virtek pulled a little ahead of RDM -- the two had similar valuations for a long time until RDM pulled way ahead a couple of years ago. RDM stock has now given back all those gains, while the StockerYale offer has pumped some life into Virtek's shares. RDM's market value was down to $23 million at month-end.

Companies with core operations outside the area:

Agfa-Gevaert [Brussels: AGFA] +16%
Sybase [NYSE: SY] +14%
NCR [NYSE: NCR] +7%
Adobe [Nasdaq: ADBE] +5%
Blue Coat [Nasdaq: BCSI] +3%
Oracle [Nasdaq: ORCL] +3%
ON Semiconductor [Nasdaq: ONNN] +2%
===================================
Ansys [Nasdaq: ANSS] -3%
McAfee [NYSE: MFE] -4%
Google [Nasdaq: GOOG] -10%

[6]---------------------------------------------------------------
Miscellaneous Tidbits

• Waterloo's J2Play was awarded $250,000 from Facebook's fbFund. It was one of 10 recipients announced during the Facebook f8 Conference in San Francisco. J2Play's technology enables game developers to publish to all major social networking sites and makes it easier for users to discover the games and play with other users on different platforms.
  
  
• LiveHive's NanoGaming platform will be used at NBCOlympics.com starting this Friday, providing its usual array of prediction games, trivia questions, and other interactive content to complement NBC's broadcast coverage of the Olympics. LiveHive also announced the launch of its tvClickr Facebook application, providing a real-time, Internet-based add-on for viewers of dozens of TV shows
  
  
• AideRSS has made its PostRank "social engagement analysis" technology -- the algorithms it uses to rank blog posts -- available as an API, allowing other developers to integrate it with new applications. Aurora-based NSC also announced that it has included PostRank technology in its new FetchIt news reader for Windows Mobile devices.
  
  
• Blackboard's attempt to have Desire2Learn held in contempt of court was rejected by the judge in Texas. Blackboard claimed that the changes Desire2Learn made to its product were not enough to avoid infringing on Blackboard's hanging-by-a-few-threads patent. The judge had placed an injunction against sales of the infringing product. Desire2Learn then upgraded its U.S. customers to a revised product which it says no longer infringes. Blackboard has threatened to sue Desire2Learn for patent infringement all over again.
  
  
• The Record reported that RIM was the buyer of the former Spheral Solar plant in Cambridge. ATS said in June that it had sold the 193,000 square-foot building -- located near the 401 below the Toyota plant -- for $16 million. The site was also listed as the principal office of Photowatt when ATS was trying to spin that business out through an IPO.
  
  
• Open Text has acquired Seattle's eMotion from Corbis Corp. for about $5 million. It will become part of Open Text's Artesia group, which develops products for managing digital marketing assets. eMotion had been acquired by Corbis in 2005.
  
  
• The new video wall at the Nasdaq stock exchange in New York, featuring dozens of projectors from Christie Digital, was unveiled in July. Gerry Remers was among a group that rang the opening bell at the exchange on July 21.

Waterloo Tech Digest - July 7, 2008

Compiled and written by
Gary Will
gary@garywill.com

In this issue:

1. Virtek shareholders asked to support hostile takeover
2. Virtek remains profitable on sluggish sales
3. Open Text acquires Spicer
4. Com Dev sales jump 40%
5. RIM quarterly sales top $2B
6. MKS reports record-setting quarter
7. STOCK REPORT: Sandvine rebounds; Dalsa tops for '08 at mid-point
8. Miscellaneous tidbits from Avvasi, Zoomii, ProductWiki, Well.ca, Dalsa, LiveHive, HighJump, LoyaltyMatch

////////////////////////////////////////////////////////////
A D V E R T I S E M E N T S

DELOITTE - SHAPING CANADIAN BUSINESS FOR 150 YEARS
Deloitte's technology, media and telecommunications practice delivers a suite of services including audit, tax, financial advisory, enterprise risk and consulting. We work with all types of technology companies, including early stage and high-growth companies, to help them succeed. We'll help you grow through contacts, M&A, raising capital and most of all through great business advice. We want to be your trusted advisor and look forward to working with you. Contact Jamie Barron 289-259-3385, jabarron@deloitte.ca or Jane Jantzi at 519-650-7788, jjantzi@deloitte.ca.

BERESKIN & PARR - INTELLECTUAL PROPERTY LAW
Bereskin & Parr is a leading Canadian intellectual property law firm on your doorstep. Our Waterloo region office brings a wealth of experience to serve the growing high technology and manufacturing communities in Canada's Technology Triangle and surrounding areas. Bereskin & Parr's practice encompasses all areas of intellectual property from patents to trade marks and related litigation. Please contact us at 519-783-3210, Tim Sinnott (tsinnott@bereskinparr.com) for more information.

RISK FREE LEAD GENERATION
From sales opportunity development to increasing attendance for events, Virtual Causeway accelerates your sales process! With a focus on selling and marketing complex services and technology, we guarantee a consistent and reliable flow of quality leads - assuring that your pipeline is constantly full. Contact us today to learn how we can help connect you with your next customer. Call 519-886-1600 ext. 405 or email marketing@v-causeway.com for details.

ENHANCE YOUR COMPETITIVE ADVANTAGE
INO can deliver competitive advantage to fuel company growth. As described in this video, INO's optical recognition technology helped Optosecurity raise $20 million in financing and create a world-class team, Further information on INO's optical recognition technology can be found here. Please contact Glenn Smith in Waterloo at 519-502-1305 to explore how INO might deliver competitive advantage to your organization.

IT SEARCH AND PLACEMENT SERVICES
Procom is currently ranked as the 4th largest IT professional services firm in Canada. (Branham 300, Financial Post, April 2007). Recently awarded one of Canada's 50 Best Managed Companies, Procom is a proud, Canadian-owned, privately-held company. Our local KW office provides IT, development and technology personnel on either a contract or permanent basis. We are the largest provider of IT staffing and recruiting services in Canada. Phone: 519.885.4331

////////////////////////////////////////////////////////////

[1]---------------------------------------------------------------
Virtek shareholders asked to support hostile takeover
June 16, 2008

Virtek is now the target of a hostile takeover bid, after its board rejected the initial acquisition offer from New Hampshire's StockerYale (see previous digest). StockerYale has taken its offer to Virtek's shareholders with a deadline for acceptance of August 1.

StockerYale slightly improved its offer to an all-cash deal of 65 cents a share (or 70 cents a share in cash and StockerYale shares, if Virtek's board agrees to the deal). The initial offer was for 65 cents a share to be paid about three-quarters in cash and the balance in StockerYale shares. Virtek's board has not responded to the revised offer, but the company said it has hired Genuity Capital to assist in assessing the offer and has created a special committee of independent directors to evaluate the bid.

Virtek's largest shareholder -- Toronto-based Howson Tattersall Investment Counsel -- didn't wait for the board's response and immediately pledged its support for StockerYale. The firm holds about 13% of Virtek's outstanding shares. (Howson Tattersall was also listed as Dalsa's second largest shareholder at the time of the company's AGM in February.) MMCAP International, which owns about 4% of Virtek, is also supporting the StockerYale offer. For its bid to proceed, StockerYale needs to get the holders of two-thirds of Virtek shares to sell their stock.

According to StockerYale's prospectus, it was Robert Tattersall who initiated the talks between StockerYale and Virtek after he met the StockerYale CEO at an investor conference in April. StockerYale says it sent the offer to Virtek's board on May 13, at a time when Virtek shares were trading around 44 cents. It says it became concerned about the trading activity two days later -- a day that Virtek shares briefly traded at 64 cents, their highest level in months. At that point, the offer from StockerYale had not yet been announced. Virtek shares closed Friday at 59 cents.

From a business perspective, it's not obvious what synergies would be achieved through the deal, since StockerYale doesn't seem to have any expertise in Virtek's markets. Together, it looks like they'd become a company with little cash and plenty of debt, with operations spread across very different markets on different continents, all under a management team with very little experience in the businesses where most of its gross profits would be generated.

StockerYale is a struggling company itself, with a loss of US$9.0 million over the last 12 months and an accumulated deficit of US$95.4 million. Its stock has dropped 65% over the last year and has been outperformed by Virtek shares over the past year, three years, and five years. The company is now facing a delisting from Nasdaq since its shares have closed under a dollar ever day since November. StockerYale seems to be planning a reverse split to get its shares back over the floor price required by Nasdaq.

At last report, StockerYale only had US$2.4 million in cash on its balance sheet and working capital of just US$1.1 million. It would use debt to finance the deal, and is already carrying US$13 million in debt on its books. This deal could add another $22 million to the total.

[2]---------------------------------------------------------------
Virtek remains profitable on sluggish sales
June 12, 2008

Virtek also announced its latest quarterly results during the month. For the period ended April 30 (Q1 09), it earned $481,000 on sales of $12.2 million. Sales were down 8% from the previous quarter and 9% from last year.

Sales from Virtek's imaging and templating sales segment down 26% sequentially and 16% from last year, but the business accounted for all of the profits in the quarter. The marking and engraving business showed a small drop in sales from Q4 but a 13% gain from last year and provided nearly 58% of all revenue in the quarter, while losing $105,000.

Virtek ended the quarter with $7.7 million in net cash, up $400,000 from the end of Q4.

[3]---------------------------------------------------------------
Open Text acquires Spicer
July 3, 2008

Open Text has acquired the assets of Spicer Corporation for $12 million. About 30 Spicer employees will join Open Text and form the core of the company's new content viewer solutions group.

Spicer Corporation had operated as a division of PrinterOn since 2000. The company traces its history back to 1983 when Steve Spicer -- who died a year ago (see July 2007 digest) -- founded a one-person software company while he was a mechanical engineering student at UW. It became Spicer Corporation in 1987. Spicer founded PrinterOn in 2000 and Spicer Corporation was folded into the new company when it closed its initial round of funding.

PrinterOn will continue with its mobile printing business.

[4]---------------------------------------------------------------
Com Dev sales jump 40%
June 12, 2008

A strong quarter for Com Dev, with sales of $54.2 million in the period ended April 30 (Q2 08). Sales were up 21% from the previous quarter and 40% from a year ago. Net income in the quarter was $2.0 million.

Com Dev booked $42 million in new orders in Q2 -- up from $33 million last quarter -- and ended the period with an order backlog of $120 million.

Operations used $1.9 million in cash and the company spent an additional $2.7 million on capital assets. It ended the quarter with $8.9 million in cash, down $5.4 million from the end of Q1.

Total R&D spending of $4.6 million was up 67% from a lull in the last quarter and back to the levels seen in the previous fiscal year. Gross margins of 22% were consistent with Q1 and the company expects to see them return to the 25-29 percent range.

Com Dev also announced that it is expanding its business and has started a $7 million program to enter the microsatellite business. The company says it will design and manufacture microsatellites (150 kg or less) that can be used in such applications as surveillance, security, environmental monitoring, scientific analysis and communications.

And the company has hired two new division presidents after reorganizing into four operating divisions on February 1. George Cwynar is now president of Ottawa-based Com Dev Canada. He was previously CEO of Mosaid Technologies. Michael Williams, who has been with Com Dev for 15 years, was named president of Com Dev International Products, based in Cambridge. Com Dev USA and Com Dev Europe are the other two divisions. COO Michael Pley oversees all four divisions.

Com Dev also reported that the special committee formed to review the company's historical stock option granting processes found that "certain directors, officers and employees" had received backdated options, or options that were priced lower than the market rate on the actual date they were granted. The committee said the option granting process was "characterized by informality and by a lack of definitive documentation" especially during the period of rapid growth following the company's IPO.

If that sounds familiar, it's because it was lifted verbatim from the report last year by RIM's committee that looked into that company's option granting practices (actually, the Com Dev committee inserted an additional "by"). But unlike RIM, which had to restate its historical earnings by US$250 million, Com Dev says that it will not require any restatements.

[5]---------------------------------------------------------------
RIM quarterly sales top $2B
June 25, 2008

RIM reported earnings of US$482.5 million on sales of US$2.2 billion in the quarter ended May 31 (Q1 09). Sales were up 19% from the previous quarter and 107% from last year.

There were 2.3 million new BlackBerry subscribers in the quarter, bringing the total to over 16 million. RIM shipped 5.4 million devices and says it will cross the 40 million mark this quarter.

It ended the quarter with US$2.1 billion in cash.

RIM is forecasting sales of US$2.55-2.65 billion in the current quarter with a projected 2.6 million new BlackBerry users. It expects earnings to be around US$490-520 million.

RIM is involved in five new patent infringement suits filed in the quarter. The litigation section of its quarterly report is nearly five pages long.

[6]---------------------------------------------------------------
MKS reports record-setting quarter
June 3, 2008

It was only MKS' second profitable quarter in the last two years, but it erased a lot of the losses that preceded it, as the company reported earnings of US$4.7 million on sales of US$21.2 million in the period ended April 30 (Q4 08). Revenue was in line with the company's pre-announcement last month (see previous digest).

Sales were up 65% from Q3 and 67% from last year. On top of US$4.1 million in operating income, MKS' return to profitability also triggered an income tax recovery during the quarter.

Revenue for the quarter included the $5 million licensing deal that MKS announced in March with an existing automotive customer. MKS had 19 deals over $100,000 in the quarter, compared to seven in Q3.

For the 2008 fiscal year, MKS had record sales of $61.2 million, up 27% from 2007. On the strength of Q4, it was able to report earnings of US$3.8 million for the year.

It ended the year with US$12.9 million in cash, up US$2.3 million from the end of Q3, and the current quarter should be a good one for cash flow, since MKS ended the year with an abnormally high level of receivables (because of the high level of Q4 sales), which it says has now been reduced to normal levels. In Q4, operations provided US$3.2 million in cash and, as usual, MKS spent US$1.0 million on dividends.

[7]---------------------------------------------------------------
STOCK REPORT: Sandvine rebounds; Dalsa tops for '08 at mid-point
June 2008

After spending most of the last six months at the bottom of our stock performance list, shares of Sandvine finally rebounded in June ... bouncing all the way to the top of the list. It was the first time since September that Sandvine's stock price showed a monthly gain. As of Friday's close, the stock was up another 9% so far in July.

For the month of June:

Sandvine [TSX: SVC] +21%
ATS [TSX: ATA] +20%
RDM [TSX: RC] +13%
Virtek [TSX: VRK] +2%
Biorem [TSXV: BRM] 0%
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--S&P TSX VENTURE INDEX -1%
--S&P TSX COMPOSITE INDEX -2%
MKS [TSX: MKX] -3%
Dalsa [TSX: DSA] -8%
Open Text [TSX: OTC] -8%
Com Dev [TSX: CDV] -10%
Descartes [TSX: DSG] -11%
TurboSonic [OTCBB: TSTA] -12%
RIM [TSX: RIM] -13%
Arise [TSX: APV] -21%

With the gains, Sandvine jumped ahead of Descartes on the market capitalization list (see below).

RDM shares, which have also been off to a terrible start in 2008, had their best month in nearly a year and a half.

Investors didn't respond well to RIM's quarterly results and forecasts, even with the company expecting about a half-billion dollars in profits this quarter. The drop came after four consecutive months of gains, over which the price of RIM shares jumped by 46%.

There were no gainers among companies with core operations outside the area:

===================================
Ansys [Nasdaq: ANSS] -0%
NCR [NYSE: NCR] -5%
McAfee [NYSE: MFE] -6%
ON Semiconductor [Nasdaq: ONNN] -7%
Oracle [Nasdaq: ORCL] -8%
Sybase [NYSE: SY] -8%
Google [Nasdaq: GOOG] -10%
Adobe [Nasdaq: ADBE] -11%
Agfa-Gevaert [Brussels: AGFA] -16%
Blue Coat [Nasdaq: BCSI] -22%

We've reached the half-way point of 2008, and here's how the shares of local companies have fared so far this year:

Dalsa [TSX: DSA] +51%
ATS [TSX: ATA] +43%
Virtek [TSX: VRK] +31%
MKS [TSX: MKX] +14%
RIM [TSX: RIM] +6%
--S&P TSX COMPOSITE INDEX +5%
Open Text [TSX: OTC] +4%
===============================
--S&P TSX VENTURE INDEX -7%
Com Dev [TSX: CDV] -9%
Biorem [TSXV: BRM] -10%
Descartes [TSX: DSG] -18%
TurboSonic [OTCBB: TSTA] -35%
Arise [TSX: APV] -39%
RDM [TSX: RC] -42%
Sandvine [TSX: SVC] -63%

Even with a good June, Sandvine shares were easily the worst performer over the first half of the year. They were on the top of this list a year ago, followed by Arise, but neither stock was able to keep its momentum into 2008. Shares of Dalsa, ATS, and Virtek all had a rough year in 2007 and have started to bounce back.

Market capitalization at June 30
in millions, using outstanding shares
(Year-to-date change in parentheses):

1. RIM ----- $69,949 (+$6,803)
2. Open Text ----- 1,669 (+74)
3. ATS ----- 572 (+173)
4. Dalsa ----- 242 (+83)
5. Com Dev ----- 225 (-22)
6. Arise ----- 197 (-55)
7. Sandvine ----- 193 (-330)
8. Descartes ----- 181 (-39)
9. MKS ----- 78 (+9)
10. RDM ----- 33 (-23)
11. Virtek ----- 18 (+4)
12. Biorem ----- 11 (-1)
13. TurboSonic ----- 8 (-4)

[8]---------------------------------------------------------------
Miscellaneous Tidbits

• It hasn't exactly been announced yet, but Avvasi apparently closed its first round of funding, with Celtic House among the investors. Celtic House added Avvasi to its portfolio list during the month.
  
  
• Zoomii had its official launch in June. The online bookstore features a real-world bookstore user interface that links to Amazon for order processing. It's been impressing audiences at BarCamps and other events over the last year. Zoomii was founded by Chris Thiessen, who previously worked for Intellitactics and AdExact. http://zoomii.ca and http://zoomii.com
  
  
• The three founders of ProductWiki -- the brother-sister/wife-husband team of Omar Ismail, Amanie Ismail and Erik Kalviainen -- are finalists for the young entrepreneur award at the Ernst & Young-sponsored Ontario Entrepreneur Of The Year Awards. They are the only nominees from this area for any of the nine awards. In fact, 80% of the finalists are from the GTA. Winners will be announced in October.
  
  
• Well.ca founder Ali Asaria was named one of the Guelph Mercury's "forty under forty -- people making a difference."
  
  
• Dalsa founder, chairman, and CTO Savvas Chamberlain was inducted as a fellow of the Canadian Academy of Engineering at an awards ceremony in Montreal.
  
  
• Adel Sedra, dean of engineering at UW, has become a director of Dalsa. He succeeds Doug Barber, co-founder of Gennum, who had been on the board since 2005.
  
  
• LiveHive has partnered with Nissan to create "Nissan Make the Call" interactive games that will run online during CFL broadcasts through the season.
  
  
• HighJump Software is apparently cutting the size of its Waterloo office as part of a company-wide reorganization, following its acquisition by a VC/PE firm based in the Boston area. The company came to town through the acquisition of Waterloo's Global Beverage Group in 2006. At that time HighJump was part of 3M, which sold the business to Battery Ventures in May. Global Beverage Group was spun out of Descartes in 2000 after Descartes decided to recast itself as a pure web services business. According to the Minneapolis Star Tribune, HighJump plans to cut as much as a quarter of its workforce. The report says the company will focus on acquisitions for new products rather than creating them internally.
  
  
• LoyaltyMatch was featured in a story in the New York Times travel section. The story was about two companies with websites that allow users to use loyalty program points in new ways. I'm not sure the writer realized that both companies are from Southern Ontario. LoyaltyMatch was identified as a Waterloo company, and the other -- Points.com -- is based in Toronto.

Proposed copyright amendments fall far short

It's been a couple of weeks since the federal government introduced its long-awaited—or dreaded—amendments to the Copyright Act. As was feared, the bill is inconsistent and leaves Canadians vulnerable to pay outrageous damages for activities that no one could reasonably confuse with piracy.

To give one example, you come home with a new CD and a new DVD. You load them both on to your spacious hard drive to play them on your computer or to transfer them to an iPod or other mobile device. Under the proposed new law, you're probably okay with transferring the CD, at least for most CDs now in stores (record companies could decide at any time to change that—it would now be entirely up to them). With the DVD, on the other hand, you could face a lawsuit for at least $20,000 in damages, and possibly several times that, depending on who sues you. And those are just statutory damages—there could be punitive damages as well. Even the tools you used to copy your DVD to your hard drive or mobile device would be banned under bill C-61. And if record companies decide they don't want you putting music on your iPod, with a simple change on their end, you could face a $20,000 lawsuit there as well.

There's no shortage of scenarios online illustrating dire consequences of the proposed legislation—even for legitimate personal use. Larry Borsato has some observations here, Alec Saunders gives his own example here, and, of course, Michael Geist's blog and Howard Knopf's blog are chock full of comments.

Even putting those scenarios aside, C-61 is a failure. All along, we were told by the government that that amendments were needed to bring Canadian copyright law into the 21st century. But C-61 focuses on 20th century technologies—ones that will still be with us for a while, but whose days are numbered. At the same time, it either ignores the networked technologies on the horizon or explicitly removes them from the exemptions contained in the bill.

At best, this is copyright legislation for the last decade, not for the future. The government chose to avoid any serious rethinking of what copyright law should look like and will need to look like. And it's understandable that they wouldn't want to take that on—it wouldn't be easy. But what we got instead was superficial tinkering. I don't know if it's even paving the cow paths so much as throwing some gravel onto them. We're going to have to go through this all over again before too long.

Copyright law is a minefield at the best of times. One of the challenges is that these laws have been violated by nearly everyone, and we didn't need digital technology to get to that point. Photocopiers, tape recorders, and VCRs have been used for decades in ways that were not Copyright Act-approved. Canada has never even had laws that allow people to tape TV shows to watch at another time—something that is only now being introduced with C-61 ... now that people have been time shifting for more than 20 years.

But copyright laws are like speed limits—we seem to be okay with having them on the books as long as their enforcement is less than zealous. While it was never spelled out in the Copyright Act that you wouldn't get in hot water for time shifting or many other copyright violations, it was commonly understood that there was almost no chance that you would face prosecution or a lawsuit.

Unfortunately, we now have industries with outdated business models chomping at the bit to sue as many people as they can for as much as possible. That's the danger of tinkering around with copyright law at this time. Imagine how life would be if an industry association could file suit against you every time they thought they had evidence that you'd gone above the speed limit. If the government was determined to go ahead and cross this minefield, it owed it to Canadians to be very careful about what acts would be allowed or disallowed under its proposed reforms, but C-61 just isn't well thought out or precisely worded.

In the U.S., more than 20,000 people have already been sued by the recording industry. One woman was recently ordered to pay nearly a quarter-million dollars in damages for having about two CDs worth of songs in a shared folder on her computer. It looks like the government was trying to avoid these kind of situations for Canadians when it created a $500 statutory damages cap for personal use infringement. And that would be great. Unfortunately, the current language of the bill is too convoluted to provide any comfort that this would be a real cap. If that's the government's intention, then it should be easy to clarify the language through amendments.

With any contentious legislation, you have to make decisions around whose advice you're going to ignore. The problem here is that the government chose to ignore—or at least give less priority to—what was best for Canadians and brought forth legislation that only please a small number of industry groups (CRIA, CMPDA) while trying to placate Canadians with a few soundbites—throwing them a couple of bones around format shifting and time shifting, which has been an everyday practise for decades, even if it was never formally supported by legislation.

Yes, this bill could have been worse, but it should have been much better. If the government wasn't willing to tackle the deeper issues around copyright law, it should have just left the whole thing alone. But the U.S. lobbyists weren't going to let that happen, so we got what you'd expect from a half-assed process and a desire to appease the lobbyists—even if it was at the expense of Canadians.

Instead of spending his time tinkering around with copyright laws, I wish Industry Minister Jim Prentice had focused on providing more resources for IRAP. It's one of the most important programs in Canada for bringing our economy into the innovation era—and has been a great help to startups in Waterloo Region. Unfortunately, the program has run out of money just two months into its fiscal year. If Prentice really wants to do something that will benefit Canadians, he can let C-61 die on the order paper and put his support behind IRAP.

Why start a startup?

The third StartupCampWaterloo will be starting soon—kicking off with a panel discussion of "why start a startup?" Maybe some startup founders will say that they needed some convincing on that question, but I suspect that if it's something you need to have answered, then maybe creating a startup isn't the best thing for you.

It's always going to be easier being employee #57 or #5,700 where you can have your job description and be given tasks to perform—maybe in a skillful way, but within a framework that is planned and managed by others. Every two weeks, money gets deposited in your bank account, even if you've been in a rut and have only been moderately productive. Want to go to a business event? Feel too sick to work? That's fine, you still get paid your full salary—no money comes out of your pocket. On top of that, you're guaranteed a paid vacation every year and probably have at least a basic benefits package.

It's a pretty good deal and one that most people are happy to take.

Forget all of that with a startup, at least at the beginning. But that's a big part of the appeal. You don't have a job description (or, if you do, it's pretty fuzzy) and you get to do things that no one in their right mind would hire you to do—developing a lot of new skills. You don't have to write a resume and go on job interviews to be asked silly questions hoping that someone will recognize your talents. You work with people you want to work with on the products of your choosing (preferably with a lot of market input) where you get to decide the strategy and how you'll execute. And you never have to stare at the clock and wish it was 5pm.

It's not for everyone, and if your startup grows into a bigger company, some of the freedom of the early days goes away, but for many people who have been there, there's no going back to being employee #57.