June 2006

Compiled and written by
Gary Will

Issue 112 -- July 5, 2006
In this digest:

  1. Com Dev sales and profits continue to climb
  2. MKS ends strong year with sluggish quarter
  3. Virtek sales propelled by aerospace contracts

  4. Navtech reports steady sales, move to R&T Park
  5. RIM bounces back with 680K new BlackBerry subscribers
  6. Descartes acquired Maryland business for US$29M

  7. STOCK REPORT: Com Dev soars, MKS tumbles
  8. Miscellaneous tidbits from Sonami, Sandvine, Dalsa, Symbility, LiveHive, SlipStream, Covarity, Biomedical Photometrics, ARISE


Com Dev sales and profits continue to climb
 June 8, 2006

Investors didn't listen to Com Dev CEO John Keating in March when he warned that the company's 30% gross margins in Q1 may just have been a one-time aberration. They ran the company's share price up 71% that month despite the warning -- and now they're reaping the rewards, as Com Dev's gross margins not only stayed high in Q2, they improved slightly on much higher revenue.

For the quarter ended April 30 (Q2 06), Com Dev reported sales of $38.2 million, up 17% from both the previous quarter and last year. Net income was $5.4 million, up from $4.2 million in Q1 (which had been the company's best bottom line in eight years) and $1.8 million in 2005. Gross margins, which had been in the 22-23% range before Q1, remained at the 30% level of the previous quarter.

The company booked $42 million in new orders in the quarter, up from $28 million in Q1. Order backlog at the end of the quarter was $104 million.

Operations provided $3.1 million in cash and Com Dev ended Q2 with $11.0 million in cash, up $2.5 million from the end of Q1.

In June, Com Dev completed the redemption of all $18 million of its outstanding convertible debentures. Holders of 99.74% of the debentures elected to receive Com Dev shares. The other 0.26% must not open their mail, since the cash is worth a lot less than the shares. Com Dev stock is now trading at 40% above the conversion price. Com Dev issued 5.8 million new shares and paid $141,412 to the few that didn't opt for shares. The debentures had been due to expire at the end of the year.


MKS ends strong year with sluggish quarter
 June 7, 2006

It was a languid end to an otherwise good year for MKS, as the company reported sales of US$12.6 million in the quarter ended April 30 (Q4 06), down 6% from a strong Q3 and flat from a year ago. License revenue of US$6.6 million was down 10% from 2005. The shortfall came from MKS' key ALM segment. ALM licensing was down 26% sequentially and 18% from a year ago.

Earnings of US$6.0 million (US$0.12/share) sound very impressive, but US$5.2 million of that came through a non-cash income tax recovery. Operating income of US$0.7 million was down from US$1.6 million in Q3 and US$1.5 million a year ago. The ALM segment reported an operational loss of US$0.3 million in Q4.

Operations provided US$2.3 million in cash and MKS ended the quarter with US$15.7 million in cash. With no acquisitions or other major investments in its plans, the company decided that it was accumulating too much cash and will now pay a quarterly dividend to give some of the cash to shareholders. A dividend of US$0.02/share will be paid on July 17. That works out to about US$1 million in cash, with CEO Phil Deck in line to get around $100,000 of it.

For the year, sales of US$48.3 million were up 17% from 2005 and within the company's forecast of US$47-51 million. ALM revenue was up 23% from last year. Pre-tax income of US$3.9 million was up from US$2.7 million in 2005. With the tax recovery, net income for the year was US$9.1 million.

MKS expects its growth will accelerate in 2007, predicting an 18-24% increase in revenue to US$57-60 million. It is forecasting a 10% decline in revenue from its interoperability segment, which would require ALM sales to grow by 24-31% to meet the combined target.

MKS began the year with 325 employees world-wide, 14 of them hired on the first day of the fiscal year.


Virtek sales propelled by aerospace contracts
 June 14, 2006

Virtek got off to a good start in fiscal 2007, reporting earnings of $1.7 million ($0.06/share) on sales of $16.3 million in the quarter ended April 30 (Q1 07). Sales were up 9% from the previous quarter and 20% from last year. An sequential improvement in margins pushed gross profits to 15% above Q4 levels.

Much of the quarter was devoted to work on aerospace contracts that had been awarded in earlier periods, particularly from customers providing components for the new Boeing 787 passenger airliner, billed as the first major airliner primarily built from composite materials.

Virtek's imaging & templating segment -- which includes the aerospace business -- accounted for 69% of revenue in the quarter with sales of $11.3 million, up 54% from a year ago. The company's other segment, marking & engraving, reported a 21% drop in sales from last year, but its order backlog grew to $4.2 million, up from $2.9 million at the end of Q4.

Virtek ended the quarter with net cash of $2.1 million, down $1.1 million from the end of Q4. Operations were cash-neutral, but the company spent $1.1 million on its final payment for its FOBA acquisition and another $0.2 million on capital assets.


Navtech reports steady sales, move to R&T Park
 June 14, 2006

Navtech had sales of US$9.3 million in the quarter ended April 30 (Q2 06). While that's 17% higher than what was reported in the previous quarter, that's because this was the first quarter to include a full three months' worth of results from European Aeronautical Group (EAG), which Navtech acquired in November. Once that is factored in, sales were flat from the previous quarter.

Net income was US$103,000 (US$0.01/share). The effects of a dividend component to the company's preferred shares lowers that to US$53,000.

Navtech collected a lot of cash in the quarter and reduced its DSO to 59 from 97 in Q1. That led to cash generated from operations of US$2.9 million. Navtech spent US$1.8 million to repurchase shares from one of its largest shareholders (see March digest) and had additional acquisition-related expenses in the quarter. It ended Q2 with US$6.5 million in cash, essentially unchanged from the end of Q1.

Navtech also announced that it is moving into the new Accelerator Building at the UW Research & Technology Park. It will take 20,000 square feet on the second floor, next to the new offices of CGI and UW's Centre for Business, Entrepreneurship and Technology.


RIM bounces back with 680K new BlackBerry subscribers
 June 29, 2006

RIM was back in growth mode after a sluggish end to its 2006 fiscal year. In the quarter ended June 3 (Q1 07), RIM reported earnings of US$129.8 million on sales of US$613.1 million. Sales were up 9% from the previous quarter and 35% from a year ago and above the high end of the company's forecast of US$580-610 million. Net income was slightly below the US$132.5 million recorded last year.

RIM added 680,000 BlackBerry subscribers in Q1, slightly ahead of its forecast of 675,000 and above the 625,000 added last quarter. There are now 5.5 million BlackBerry users. Nearly 63% of RIM's sales in the quarter came from the U.S.

The most notable line on the income statement was the one that wasn't there -- litigation expenses. With the NTP dispute settled at the end of Q4, this was the first quarter in a long time where RIM had no litigation expenses and didn't have to put any percentage of its BlackBerry sales into escrow. The company did settle two other patent infringement suits in the quarter, neither of which involved significant amounts of money.

RIM ended the quarter with US$1.3 billion in cash and investments, up US$6.5 million from the end of the previous quarter. Operations provided US$99.0 million in cash, while the issuance of new shares contributed another US$10.3 million. RIM used US$44.1 million in cash to purchase capital assets, US$22.1 million on intangible assets, and US$38.9 million on its acquisition of San Jose-based Ascendent Systems.

It is forecasting 675,000-700,000 new BlackBerry subscribers in the current quarter, with revenue of US$620-650 million, or a 1-6% sequential increase.


Descartes acquired Maryland business for US$29M
 June 30, 2006

Descartes has made another acquisition -- picking up Maryland-based Flagship Customs Services Inc. for US$29.3 million. FCS' technology lets logistics companies electronically file shipment information with U.S. and Canadian customs authorities. It describes itself as the largest customs service centre in North America.

Descartes paid for the acquisition through US$25.3 million in cash and the issuance of 1.1 million shares. It acquired Ottawa's ViaSafe Inc. for US$8.9 million in April.


STOCK REPORT: Com Dev soars, MKS tumbles
 June 2006

Com Dev shares have doubled in value over the first half of 2006, and with all the new shares now outstanding following the company's conversion of debentures into stock, Com Dev's market value has jumped to nearly $300 million -- up from $136 million at the end of 2005. That makes it more valuable than Dalsa and Sandvine. In June, Com Dev shares traded at their highest point in almost five years.

MKS shares, on the other hand, had their worst month in almost two years as the company lost nearly a quarter of its market value after announcing quarterly results and a dividend. And Biorem stock fell below $2 for the first time since the company went public. ATS shares continued their slide, and are now down 43% over the last two months.

For the month of June:

Com Dev [TSX: CDV] +20%
RDM [TSX: RC] +10%
RIM [TSX: RIM] +9%
Navtech [OTCBB: NAVH] +5%
Virtek [TSX: VRK] +2%
Open Text [TSX: OTC] +1%
Sandvine [AIM: SAND] +1%
===============================
--S&P TSX COMPOSITE INDEX -1%
Dalsa [TSX: DSA] -5%
Descartes [TSX: DSG] -5%
--S&P TSX VENTURE INDEX -7%
ARISE [TSXV: APV] -8%
TurboSonic [OTCBB: TSTA] -8%
ATS [TSX: ATA] -11%
Biorem [TSXV: BRM] -21%
MKS [TSX: MKX] -24%

Companies with core operations outside the area:

Senesco [Amex: SNT] +24%
Agfa-Gevaert [Brussels: AGFA] +20%
Google [Nasdaq: GOOG] +13%
NCR [NYSE: NCR] +8%
Blue Coat [Nasdaq: BCSI] +6%
Adobe [Nasdaq: ADBE] +6%
McAfee [NYSE: MFE] +3%
AMIS [Nasdaq: AMIS] +2%
Oracle [Nasdaq: ORCL] +2%
===================================
Sybase [NYSE: SY] -5%
Ansys [Nasdaq: ANSS] -5%
Automated Benefits [TSXV: AUT] -6%
LSI Logic [NYSE: LSI] -8%

SBS Technologies has been removed from the list, following its acquisition by GE Fanuc Embedded Systems.

We've reached the half-way point of 2006, and here's how the shares of local companies have fared so far this year. Shares of Com Dev, Virtek, and RDM are leading the pack, bouncing back from sluggish performances in 2005:

Com Dev [TSX: CDV] +98%
Virtek [TSX: VRK] +85%
RDM [TSX: RC] +61%
ARISE [TSXV: APV] +26%
Navtech [OTCBB: NAVH] +24%
--S&P TSX VENTURE INDEX +18%
Dalsa [TSX: DSA] +14%
Descartes [TSX: DSG] +13%
--S&P TSX COMPOSITE INDEX +3%
RIM [TSX: RIM] +1%
===============================
Open Text [TSX: OTC] -3%
Automated Benefits [TSXV: AUT] -6%
MKS [TSX: MKX] -7%
TurboSonic [OTCBB: TSTA] -14%
ATS [TSX: ATA] -30%
Biorem [TSXV: BRM] -42%

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

1. RIM $14,512 (+$305)
2. Open Text 783 (-17)
3. ATS 601 (-250)
4. Com Dev 296 (+160)
5. Dalsa 275 (+36)
6. Sandvine 260 (N/A)
7. Descartes 187 (+38)
8. MKS 126 (+9)
9. Virtek 36 (+17)
10. RDM 28 (+10)
11. Biorem 19 (-14)
12. TurboSonic 17 (-3)
13. ARISE 15 (+10)
14. Navtech 15 (+1)

The Navtech number is misleading, since it doesn't include shares that will be issued as part of its financing of the EAG acquisition last fall. If you add those, Navtech's market value would be about  $22 million.


Miscellaneous Tidbits