================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________.
Commission file number 0-28968
MDSI MOBILE DATA SOLUTIONS INC.
(Exact name of registrant as specified in its charter)
CANADA NOT APPLICABLE
(Jurisdiction of incorporation) (I.R.S. Employer Identification No.)
10271 Shellbridge Way
Richmond, British Columbia,
Canada V6X 2W8
(604) 207-6000
(Address and telephone number of registrant's principal executive offices)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of outstanding shares of the Registrant's
common stock, no par value, at September 30, 2000 was 8,951,150.
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<PAGE>
MDSI Mobile Data Solutions Inc.
INDEX TO THE FORM 10-Q
For the quarterly period ended September 30, 2000
<TABLE>
Page
----
<S> <C>
Part I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets................................................................1
Consolidated Statements of Operations and Deficit......................................... 2
Consolidated Statements of Cash Flows......................................................3
Notes to the Consolidated Financial Statements.............................................4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.....................................................................10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.................................18
Part II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ........................................................................19
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.................................................19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ..........................................................19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................19
ITEM 5. OTHER INFORMATION.........................................................................19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..........................................................19
SIGNATURES.............................................................................................20
</TABLE>
<PAGE>
Part I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MDSI MOBILE DATA SOLUTIONS INC.
Consolidated Balance Sheets
(Expressed in United States dollars (note 1b))
(Unaudited)
<TABLE>
As at
----------------------------------------
September 30, December 31,
2000 1999
---------------- ----------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents........................................ $ 9,541,426 $ 14,612,923
Accounts receivable, net
Trade......................................................... 15,890,797 14,147,011
Unbilled...................................................... 11,546,082 5,595,902
Prepaid expenses ................................................ 1,585,176 1,121,580
Deferred income taxes............................................ 577,427 577,427
Current portion of lease receivable.............................. 232,439 386,861
---------------- ----------------
39,373,347 36,441,704
Lease receivable...................................................... - 133,723
Investments........................................................... 6,783,296 4,140,457
Capital assets, net................................................... 9,676,097 6,858,747
Intangible assets, net................................................ 1,913,536 1,907,297
---------------- ----------------
57,746,276 49,481,928
Assets of discontinued operations (note 4)............................ 1,103,167 960,610
---------------- ----------------
Total assets.......................................................... $ 58,849,443 $ 50,442,538
================ ================
Liabilities and stockholders' equity
Current liabilities
Accounts payable ................................................ $ 2,764,622 $ 1,760,644
Accrued liabilities ............................................. 4,239,439 2,655,522
Income taxes payable ............................................ 966,357 1,567,671
Deferred revenue................................................. 7,880,885 4,742,038
Current portion of long term debt................................ 39,041 52,153
Current obligations under capital leases ........................ 2,120,173 1,289,208
---------------- ----------------
18,010,517 12,067,236
Obligations under capital leases...................................... 3,108,554 2,632,406
Long Term Debt ....................................................... - 32,181
Liabilities of discontinued operations (note 4) ...................... 331,020 173,424
---------------- ----------------
Total liabilities..................................................... 21,450,091 14,905,247
---------------- ----------------
Stockholders' equity
Common stock..................................................... 48,407,174 44,961,759
Additional paid-up capital ...................................... 220,700 220,700
Treasury stock................................................... (85,043) (85,043)
Deficit.......................................................... (10,453,375) (9,130,688)
Accumulated comprehensive income (loss) (note 1b)................ (690,104) (429,437)
---------------- ----------------
37,399,352 35,537,291
---------------- ----------------
Total liabilities and stockholders' equity............................ $ 58,849,443 $ 50,442,538
================ ================
</TABLE>
See notes to consolidated financial statements
-1-
<PAGE>
MDSI MOBILE DATA SOLUTIONS INC.
Consolidated Statements of Operations and Deficit
(Expressed in United States Dollars (note 1b))
(Unaudited)
<TABLE>
Three months ended Nine months ended
September 30, September 30,
--------------------------------- -------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue
Software and services.............................. $ 10,430,718 $ 10,542,682 $ 29,608,742 $ 29,746,810
e-Business......................................... 1,848,989 1,246,794 4,889,168 3,677,612
Third-party products and services.................. 963,729 1,609,186 2,144,865 7,164,444
Maintenance and support............................ 2,295,522 1,685,980 6,292,960 3,993,959
-------------- -------------- -------------- --------------
15,538,958 15,084,642 42,935,735 44,582,825
Direct costs............................................ 7,631,556 7,024,666 19,478,584 21,137,700
-------------- -------------- -------------- --------------
Gross profit............................................ 7,907,402 8,059,976 23,457,151 23,445,125
-------------- -------------- -------------- --------------
Operating expenses
Research and development........................... 2,254,015 1,835,799 6,568,237 5,196,082
Sales and marketing ............................... 3,059,276 2,017,497 9,250,174 7,159,203
General and administrative......................... 1,806,270 1,529,723 5,999,047 4,839,110
Costs of merger ................................... - - 2,076,028 -
Amortization of intangible assets.................. 67,479 69,810 204,768 209,430
-------------- -------------- -------------- --------------
7,187,040 5,452,829 24,098,254 17,403,825
-------------- -------------- -------------- --------------
Operating income........................................ 720,362 2,607,147 (641,103) 6,041,300
Other income (expense).................................. 88,797 44,357 (300,321) (451,458)
-------------- -------------- -------------- --------------
Income before tax provision............................. 809,159 2,651,504 (941,424) 5,589,842
Provision for income taxes.............................. (262,991) (811,512) (381,263) (1,669,103)
-------------- -------------- -------------- --------------
Net income from continuing operations................... 546,168 1,839,992 (1,322,687) 3,920,739
Loss from discontinued operations (note 4).............. - - - (3,872,683)
-------------- -------------- -------------- --------------
Net income (loss)....................................... 546,168 1,839,992 (1,322,687) 48,056
Deficit, Beginning of period............................ (10,999,543) (12,069,012) (9,130,688) (10,130,076)
-------------- -------------- -------------- --------------
(10,453,375) (10,229,020) (10,453,375) (10,082,020)
Dividends .............................................. - - - (147,000)
-------------- -------------- -------------- --------------
Deficit, end of period.................................. $ (10,453,375) $(10,229,020) $(10,453,375) $(10,229,020)
============== ============== ============== ==============
Earnings (loss) per common share
Earnings from continuing operations
Basic .............................................. $ 0.06 $ 0.23 $ (0.16) $ 0.49
============== ============== ============== ==============
Diluted ............................................ $ 0.06 $ 0.20 $ (0.16) $ 0.43
============== ============== ============== ==============
Net earnings (loss)
Basic .............................................. $ 0.06 $ 0.23 $ (0.16) $ 0.01
============== ============== ============== ==============
Diluted ............................................ $ 0.06 $ 0.20 $ (0.16) $ 0.01
============== ============== ============== ==============
Weighted average shares outstanding
Basic............................................... 8,570,378 8,172,032 8,501,004 8,039,624
============== ============== ============== ==============
Diluted............................................. 9,486,467 9,011,036 8,501,004 9,027,099
============== ============== ============== ==============
</TABLE>
See notes to consolidated financial statements
-2-
<PAGE>
MDSI MOBILE DATA SOLUTIONS INC.
Consolidated Statements of Cash Flows
(Expressed in United States dollars (note 1b))
(Unaudited)
<TABLE>
Nine months ended September 30,
--------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
Cash flow from operating activities
Net income (loss) from continuing operations..................... $ (1,322,687) $ 3,920,739
Items not affecting cash:
Depreciation and amortization............................... 2,163,121 1,280,029
Deferred income taxes....................................... - 132,710
Changes in non-cash operating working capital items......... (3,047,961) (4,853,456)
---------------- ----------------
Net cash used in operating activities............................ (2,207,527) 480,022
---------------- ----------------
Cash flows from financing activities
Issuance of common stock......................................... 3,445,415 11,783,530
Payment of dividends............................................. - (147,000)
Repayment of long-term debt...................................... (45,293) (281,060)
Proceeds from capital leases..................................... 1,307,113 1,730,923
---------------- ----------------
Net cash provided by financing activities........................ 4,707,235 13,086,393
---------------- ----------------
Cash flows from investing activities
Long term lease receivable....................................... 288,145 300,513
Acquisition of investments....................................... (2,642,839) -
Acquisition of intangible assets ................................ (220,000) -
Acquisition of capital assets ................................... (4,750,883) (3,399,704)
---------------- ----------------
Net cash used in investing activities............................ (7,325,577) (3,099,191)
---------------- ----------------
Cash provided by (used in) continuing operations...................... (4,825,869) 10,467,224
Cash provided by (used for) discontinued operations (note 4).......... 15,039 (625,677)
---------------- ----------------
Net cash inflow (outflow)............................................. (4,810,830) 9,841,547
Effects of foreign exchange fluctuations on cash...................... (260,667) 1,202,765
Cash and cash equivalents, beginning of period........................ 14,612,923 3,605,559
---------------- ----------------
Cash and cash equivalents, end of period.............................. $ 9,541,426 $ 14,649,871
================ ================
</TABLE>
See notes to consolidated financial statements
-3-
<PAGE>
MDSI MOBILE DATA SOLUTIONS INC.
Notes to the Consolidated Financial Statements
For the three months ended September 30, 2000
(Expressed in United States dollars (note 1b))
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States for
interim financial reporting and pursuant to the instructions of the
United States Securities and Exchange Commission Form 10-Q and Article
10 of Regulation S-X. While these financial statements reflect all
normal recurring adjustments which are, in the opinion of management,
necessary for fair presentation of the results of the interim period,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. For further information, refer to the financial statements
and footnotes thereto included in the Company's Annual Report filed on
Form 10-K for the year ended December 31, 1999.
(b) Reporting and functional currency
The company changed its reporting currency to the U.S. dollar
effective January 1, 2000. The change in reporting currency was made
to improve investors' ability to compare the Company's results with
those of most other publicly traded businesses in the industry. These
consolidated financial statements and those amounts previously
reported in Canadian dollars have been translated from Canadian
dollars to U.S. dollars by translating assets and liabilities at the
rate in effect at the respective balance sheet date and revenues and
expenses at the average rate for the reporting period. Any resulting
foreign exchange gains and losses are recorded as a separate component
of shareholder equity and described as accumulated comprehensive
income (loss).
Comprehensive Income for the period can be summarized as follows:
<TABLE>
Three months ended September 30, Nine months ended September 30,
--------------------------------- ---------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net income from continuing $ 546,168 $ 1,839,992 $ (1,322,687) $ 3,920,739
operations
Comprehensive items
- Translation adjustment - 192,755 (260,667) 1,202,765
--------------- --------------- --------------- ---------------
Comprehensive income for the $ 546,168 $2,032,747 $ (1,583,354) $ 5,123,504
period
=============== =============== =============== ===============
</TABLE>
-4-
<PAGE>
MDSI MOBILE DATA SOLUTIONS INC.
Notes to the Consolidated Financial Statements
For the three months ended September 30, 2000
(Expressed in United States dollars (note 1b))
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
As at June 1, 2000 the Company and its subsidiaries adopted the U.S.
dollar as their primary currency of measurement. The change in the
Company's currency of measurement was made due to the Company's
purchase of Connectria Corporation ("Connectria") and the resulting
increase in the Company's sales and costs denominated in U.S. dollars.
The purchase of Connectria as well as U.S. dollar denominated
expenditures as a percentage of overall expenditures increasing over
time and an increase in the generation of cash flows from sales in
U.S. dollars resulted in the Company's decision to change the currency
of measurement to the U.S. dollar.
The company translates transactions in foreign currencies at the
exchange rate in effect on the transaction date. Monetary assets and
liabilities denominated in a currency other than the measurement
currency are translated at the exchange rates in effect at the balance
sheet date. The resulting exchange gains and losses are recognized in
earnings.
As a result of the change in the currency of measurement, the
company's foreign currency risk has changed from U.S. dollar
denominated monetary assets and liabilities to non-U.S. dollar
denominated monetary assets and liabilities and the risk of the impact
of exchange rate changes relative to the U.S. dollar. The ultimate
effects of the change on our financial position and results of
operations will only be determinable in the future based on exchange
rate changes that occur in such periods.
(c) Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
-5-
<PAGE>
MDSI MOBILE DATA SOLUTIONS INC.
Notes to the Consolidated Financial Statements
For the three months ended September 30, 2000
(Expressed in United States dollars(note 1b))
(Unaudited)
2. SEGMENTED INFORMATION
Segmented information
The Company develops, markets and supports mobile work force management
systems serving the needs of industry and government. Examples include the
utility, telecommunications/cable and public safety industries. At December
31, 1999, the Company reported only one business segment - Field Service.
On February 1, 2000, the Company announced its intentions to sell its
products of mobile workforce management and wireless connectivity
application software over the internet from a wirelessly-enabled
Applications Service Provider ("ASP") site. As a result of that decision,
the Company now has two business segments.
On June 1, 2000 the company completed it's merger with Connectria
Corporation (note 5). As Connectria is considered part of the Company's
e-Business operating segment and the transaction has been treated using the
pooling of interests method, the Company has reflected the merger by
segregating the e-Business segment for the three and nine month periods
ending September 1999, as well as 2000.
Business Segments
<TABLE>
Three months ended September 30, 2000 Three months ended September 30, 1999
------------------------------------------- ---------------------------------------------
Field Field
Service e-Business(1) Total Service e-Business(1) Total
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 12,978,269 $ 2,560,689 $ 15,538,958 $ 13,569,589 $ 1,515,053 $ 15,084,642
Operating earnings (loss) 1,969,490 (1,249,128) 720,362 2,615,996 (8,849) 2,607,147
Depreciation & Amortization 720,710 96,688 817,398 360,352 27,178 387,530
Long lived assets 14,492,237 3,880,692 18,372,929 11,664,148 350,023 12,014,171
Capital Expenditures 1,861,409 474,494 2,335,903 850,942 24,694 875,636
</TABLE>
<TABLE>
Nine months ended September 30, 2000 Nine months ended September 30, 1999
------------------------------------------- ---------------------------------------------
Field Field
Service e-Business(1) Total Service e-Business(1) Total
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 37,280,067 $ 5,655,668 $ 42,935,735 $ 37,916,421 $ 6,666,404 $ 44,582,825
Operating earnings (loss) 1,866,244 (2,507,347) (641,103) 5,810,910 230,390 6,041,300
Depreciation & Amortization 2,000,305 162,816 2,163,121 1,211,644 68,385 1,280,029
Long lived assets 14,492,237 3,880,692 18,372,929 11,664,148 350,023 12,014,171
Capital Expenditures 4,001,279 749,604 4,750,883 3,235,782 163,922 3,399,704
</TABLE>
(1) The e-Business operating segment also includes revenues from third-party
products and services.
-6-
<PAGE>
MDSI MOBILE DATA SOLUTIONS INC.
Notes to the Consolidated Financial Statements
For the three months ended September 30, 2000
(Expressed in United States dollars(note 1b))
(Unaudited)
2. SEGMENTED INFORMATION (continued)
Geographic information
The Company earned revenue from sales to customers in the following
geographic locations:
<TABLE>
Three months ended September 30, Nine months ended September 30,
---------------------------------- ---------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Canada................. $ 749,955 $ 300,627 $ 1,203,562 $ 1,751,092
United States.......... 10,806,024 9,802,332 33,301,336 32,900,846
Europe................. 2,458,178 4,650,522 6,518,655 8,669,954
Other.................. 1,524,801 331,161 1,912,182 1,260,933
-------------- -------------- -------------- --------------
$ 15,538,958 $ 15,084,642 $ 42,935,735 $ 44,582,825
============== ============== ============== ==============
</TABLE>
3. EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share is calculated by dividing net income
(loss) by the weighted average number of common shares outstanding during
the period. Diluted earnings (loss) per share was calculated by dividing
net income (loss) by the sum of the weighted average number of common
shares outstanding plus all additional common shares that would have been
outstanding if potentially dilutive common shares had been issued. In
periods for which there is a reported net loss, potentially dilutive
securities have been excluded from the calculation as their effect would be
anti-dilutive.
The following table reconciles the number of shares utilized in the
earnings (loss) per common share calculations for the periods indicated:
<TABLE>
Three months ended Nine months ended
September 30, September 30,
-------------------------------- ---------------------------------
2000 1999 2000 1999
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding......... 8,570,378 8,172,032 8,501,004 8,039,624
Common stock equivalents
Stock options............................... 916,089 839,004 - 987,475
--------------- -------------- --------------- ---------------
Total shares for diluted earnings (loss) per
common share................................ 9,486,467 9,011,036 8,501,004 9,027,099
=============== ============== =============== ===============
</TABLE>
-7-
<PAGE>
MDSI MOBILE DATA SOLUTIONS INC.
Notes to the Consolidated Financial Statements
For the three months ended September 30, 2000
(Expressed in United States dollars (note 1b))
(Unaudited)
4. DISCONTINUED OPERATIONS
As a result of the Company's decision to dispose of its Delivery segment,
the Delivery segment has been classified as a discontinued operation and
the results of operation, financial position and cash flow for this segment
have been segregated from those of continuing operations.
Summarized financial information of the discontinued operations is as
follows:
<TABLE>
Results of discontinued operations
--------------------------------------------------------------------------------------------------------------------
September 30, 2000 September 30, 1999
------------------------ --------------------------
<S> <C> <C>
Revenues $ - $ 1,912,378
======================== ==========================
Loss before income taxes - (1,572,278)
Income tax - -
------------------------ --------------------------
- (1,572,278)
Estimated loss on future operations and disposal
net of income taxes - (2,300,405)
------------------------ --------------------------
Income (loss) from discontinued operations $ - $ (3,872,683)
======================== ==========================
Financial position of discontinued operations
--------------------------------------------------------------------------------------------------------------------
September 30, 2000 December 31, 1999
------------------------ --------------------------
Current assets $ 1,103,167 $ 960,610
Long term assets - -
------------------------ --------------------------
Total assets of discontinued operations $ 1,103,167 $ 960,010
======================== ==========================
Current liabilities $ 331,020 $ 173,424
Long term liabilities - -
------------------------ --------------------------
Total liabilities of discontinued operations $ 331,020 $ 173,424
======================== ==========================
Changes in cash flow of discontinued operations
--------------------------------------------------------------------------------------------------------------------
September 30, 2000 September 30, 1999
------------------------ --------------------------
Operating activities $ 15,039 $ (538,679)
Investing activities - (86,998)
Financing activities - -
------------------------ --------------------------
Cash provided by (used for) discontinued operations $ 15,039 $ (625,677)
======================== ==========================
</TABLE>
-8-
<PAGE>
MDSI MOBILE DATA SOLUTIONS INC.
Notes to the Consolidated Financial Statements
For the three months ended September 30, 2000
(Expressed in United States dollars (note 1b))
(Unaudited)
5. BUSINESS COMBINATION
On June 1, 2000 the Company acquired all of the issued and outstanding
shares of Connectria Corporation ("Connectria"), a privately held company
based in St. Louis, Missouri, that is an application service provider (ASP)
and provider of online service management solutions for service companies.
The Company issued approximately 845,000 common shares, and approximately
584,000 employee stock options to acquire common shares of the Company, in
exchange for all of the outstanding stock and options of Connectria.
The transaction is accounted for under the pooling of interest method of
accounting and all historical financial information contained herein has
been restated to include combined results of operations, financial position
and cash flows of Connectria.
Separate results of the operations for the periods prior to the merger with
Connectria are outlined below.
<TABLE>
Three months ended Six months ended
March 31, June 30,
---------------------------------- -------------------
2000 1999 1999
------------- ------------- -------------------
<S> <C> <C> <C>
Revenue:
MDSI Mobile Data Solutions Inc........ $12,191,232 $12,460,510 $25,885,948
Connectria Corporation 1,519,689 2,171,283 3,612,235
------------- ------------- -------------------
Combined $13,710,921 $14,631,793 $29,498,183
============= ============= ===================
Net Income:
MDSI Mobile Data Solutions Inc........ $612,495 $(3,272,225) $(2,017,411)
Connectria Corporation................ (2,991) 171,402 225,475
------------- ------------- -------------------
Combined $609,504 $(3,100,823) $ 1,791,936
============= ============= ===================
Other changes in stockholders' equity:
MDSI Mobile Data Solutions Inc........ $ (260,666) $ 349,647 $ 1,010,010
Connectria Corporation................ - - -
------------- ------------- -------------------
Combined $ (260,666) $ 349,647 $ 1,010,010
============= ============= ===================
</TABLE>
6. COMPARITIVE AMOUNTS
Certain comparative amounts have been reclassified to conform with current
years presentation.
-9-
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements and information contained in this Form constitute
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results,
performance or achievement of the Company, or developments in the Company's
industry, to differ materially from the anticipated results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, but are not limited to: the Company's limited operating
history, history of losses, lengthy sales cycles, the Company's dependence upon
large contracts and relative concentration of customers, risks involving the
management of growth and integration of acquisitions, risks associated with
performance of pre-existing contracts assumed through acquisitions, e-Business
development, competition, product development risks and risks of technological
change, dependence on selected vertical markets and third-party marketing
relationships and suppliers, risks associated with international operations, the
Company's ability to protect its intellectual property rights and the other
risks and uncertainties detailed in the Company's Securities and Exchange
Commission filings, including the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.
All financial information in this Form is expressed in United States
dollars unless otherwise noted.
Overview
MDSI develops, markets, implements and supports mobile workforce management
and wireless connectivity software for use by a wide variety of companies that
have substantial mobile workforces, such as utilities, telecommunications
companies, cable companies and insurance companies. MDSI's products are used by
such companies in conjunction with public and private wireless data
communications networks to provide comprehensive solutions for the automation of
business processes associated with the scheduling, dispatching and management of
a mobile workforce. The Company's products provide a cost-effective method for
companies with mobile workers to utilize data communications to communicate with
such workers, and for such workers to interface on a real-time basis with their
corporate information systems.
The Company's revenue is derived from (i) software and services, consisting
of the licensing of software and provision of related services, including
project management, installation, integration, customization and training; (ii)
e-Business services such as the provision of application services, other online
service management solutions, and the provision of hosting services (iii) third
party products and services, consisting of the provision of non-MDSI products
and services as part of the total contract, and (iv) maintenance and support,
consisting of the provision of after-sale support services as well as hourly,
annual or extended maintenance contracts.
Field Service Business
The implementation of a complete mobile data solution requires a wireless
data communications network, a land-based data communications network, mobile
computing devices integrated with wireless data communication modems, host
computer equipment, industry specific application software such as MDSI's
Advantex products, wireless connectivity software and a variety of services to
manage and install these components, integrate them with an organization's
existing computer systems and configure or customize the software to meet
customer requirements. Frequently, in the Company's larger contracts only a
limited number of the mobile computing devices and in-vehicle equipment are
installed initially, with the balance implemented over a rollout period that may
extend up to one year or more. Where increases in mobile work forces require, or
where additional departments of mobile workers are added, additional mobile
computing devices may be installed.
Revenue for software and services has historically accounted for a
substantial portion of the Company's revenue. Typically, the Company enters into
a fixed price contract with a customer for the licensing of selected software
products and the provision of specific services that are generally performed
within six to twelve months. Pricing for these contracts includes license fees
as well as a fee for professional services. The Company generally recognizes
total revenue for software and services associated with a contract using a
percentage of completion method based on the total costs incurred over the total
estimated costs to complete the contract.
-10-
<PAGE>
Field Service Business (continued)
The Company's customers typically enter into ongoing maintenance agreements
that provide for maintenance and technical support services for a period
commencing after expiration of the initial warranty period. Maintenance
agreements typically have a term of twelve months and are invoiced either
annually or monthly. Revenue for these services is recognized ratably over the
term of the contract.
Prior to 1996, MDSI typically supplied only the MDSI application and
wireless connectivity software and related services as part of its contract with
a customer. The portion of contracts requiring the supply of third party
products and services was not material and was not separated for revenue
purposes. Beginning in 1996, however, the Company was called on to provide, in
addition to MDSI products and services, certain third party products, such as
host computer hardware and operating system software, and mobile computing. The
Company recognizes revenue of the supply of third party hardware upon transfer
of title to the customer. The Company recognizes revenue of the supply of third
party services using a percentage of completion method based on the costs
incurred over the total estimated cost to complete the third party services
contract.
The Company believes that it will often supply some portion of third party
products and services to customers where it is successful in selling its own
products and services. There can be no assurance, however, that any contracts
entered into by the Company to supply third party software and products in the
future will represent a substantial portion of revenue in any future period.
Since the revenue generated from the supply of third party products and services
may represent a significant portion of certain contracts and the installation
and rollout of third party products is generally at the discretion of the
customer, the Company may, depending on the level of third party products and
services provided during a period, experience large quarterly fluctuations in
revenue.
The Company's revenue is dependent, in large part, on significant contracts
from a limited number of customers. As a result, any substantial delay in the
Company's completion of a contract, the inability of the Company to obtain new
contracts or the cancellation of an existing contract by a customer could have a
material adverse effect on the Company's results of operations. Some of the
Company's contracts are cancelable upon notice by the customer. The loss of
certain contracts could have a material adverse effect on the Company's
business, financial condition, operating results and cash flows. As a result of
these and other factors, the Company's results of operations have fluctuated in
the past and may continue to fluctuate from period-to-period.
During the second quarter of 2000, the Company launched version r7 of its
Advantex product, and it is currently in the implementation phase of its first
contract using version r7. The increased time required for the initial
implementation and field testing of a new version of software has resulted in
anticipated delays in commencement of additional installations of the Advantex
r7 product. The Company anticipates that it will complete its first r7
installation, and commence additional installations of the Advantex r7 product,
by the first quarter of 2001.
e-Business
The Company launched its e-Business division in February 2000 to develop
internet-based business solutions for companies of any size, in any service
market. Like the Company's other Advantex mobile workforce management
applications, the Company's e-Business solutions will allow companies to empower
mobile workers by providing a reliable wireless link to enterprise or Internet
applications. Customers of service providers that use the Company's e-Business
solutions will be able to purchase, schedule, confirm and track service
appointments online without human intervention, providing convenience and
flexibility 24 hours a day, 7 days a week.
The Company intends to offer its e-Business solutions through four
channels: Internet sites that aggregate service providers, wireless carriers,
major vertical-focused ASPs (Application Service Providers), and directly to
service providers. On June 1, 2000 the Company acquired Connectria Corporation,
based in St. Louis, Missouri, which currently provides consulting and Internet
hosting services for third-party applications. During the third quarter of 2000
the Company announced several alliances that will further its e-Business
strategy. The Company anticipates that it will commence the launch of its
scheduling and dispatch applications, Advantex and eServiceManager (formerly
ServeClick), on an ASP basis to service providers in the fourth quarter of 2000.
-11-
<PAGE>
e-Business (continued)
The Company's e-Business model will allow companies to use MDSI products
and services on a subscription or transaction fee basis, rather than license and
host these MDSI products themselves. The Company believes that its e-Business
solutions subscription and transaction fee programs will be a attractive
alternative for medium or small-sized companies that can benefit from MDSI's
workforce management and scheduling applications, but do not have the financial
or information technology resources to license and implement MDSI's on-site
solutions.
A significant portion of the Company's e-Business revenue to date has been
generated by the provision of hosting and consulting services to third parties.
The Company anticipates, however, that the future success of the Company's
e-Business development strategy will depend on the Company's ability to develop
and implement the technology related to its e-Business solutions, as well as the
Company's ability to enter into contracts with service providers, service
portals and ASP's, and the adoption of the Company's e-Business solutions by
service providers and their customers. Growth in the Company's e-Business
revenue is anticipated to be derived from transaction fees generated by customer
and service provider use of the Company's e-Business scheduling solutions that
include the ASP version of Advantex and e-Service Manager. The Company has not
generated material revenues from fees associated with its e-Business scheduling
solutions and there can be no assurance that the Company's e-Business division
will generate material revenues in future periods.
Disposition of Transportation Business Unit
In February 1999, the Company's Board of Directors approved a plan to
dispose of its Delivery segment (Transportation Business Unit). Effective June
1, 1999, the Company completed the sale of the transportation business unit to
Digital Dispatch Systems, Inc. ("DDS"), a supplier of dispatch systems to the
taxi market for proceeds of $3,805,476. The proceeds comprised of common shares
of DDS, representing an 11% interest in DDS, and a promissory note in the
principal amount of $343,905, due January 1, 2001, bearing interest at 8% per
annum.
Under the terms of the agreement between the company and DDS, the Company
has retained certain assets and liabilities of the discontinued operations. The
Company expects that it will liquidate these assets and liabilities by June 30,
2001. In addition, the Company has agreed to complete the implementation of a
large contract with a taxi customer. The Company has experienced, and is
continuing to experience delays in the implementation of this contract. If the
Company is unable to complete the implementation of the contract on a timely
basis, the taxi customer has the right to cancel the contract. Any such
cancellation may require the Company to reimburse the customer for payments
received to date. The Company believes that it has adequately provided for the
costs to complete this contract.
As a result of the Company's decision to dispose of its Delivery segment,
the Delivery segment has been classified as a discontinued operation and the
results of the operation, financial position and cash flow for this segment have
been segregated from those of continuing operations. The following discussion
and analysis of the Company's results of operations excludes the Delivery
segment for the current and corresponding prior period.
Results of Operations
The Company's net loss was $1.3 million for the nine months ended September
30, 2000. This compares to a net earnings of $48,000 for the nine months ended
September 30, 1999, comprised of an after-tax profit from continuing operations
of approximately $3.9 million and an after-tax loss of slightly less than $3.9
million on discontinued operations. The loss on discontinued operations is
comprised of a loss on operation of $1.6 million and a loss on disposal of $2.3
million. There is no tax effect on these losses. The discontinued operating loss
includes not only the results of operations but also foreign exchange losses and
provisions against contracts to the measurement date of February 25, 1999. The
loss on disposal includes the operating results from the measurement date to the
effective date, the costs of disposal, severance costs, and the estimated costs
to complete the remaining taxi contract.
-12-
<PAGE>
Results of Operations (continued)
The following table sets forth, for the periods indicated, certain
components of the selected financial data of the Company as a percentage of
total revenue:
<TABLE>
Three months ended Nine months ended
September 30, September 30,
-------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue
Software and services....................... 67.1% 69.8% 68.9% 66.7%
e-business.................................. 11.9 8.3 11.4 8.2
Third-party products and services........... 6.2 10.7 5.0 16.1
Maintenance and support..................... 14.8 11.2 14.7 9.0
----------- ----------- ----------- -----------
100.0 100.0 100.0 100.0
Direct costs................................... 49.1 46.6 45.4 47.4
----------- ----------- ----------- -----------
Gross profit................................... 50.9 53.4 54.6 52.6
----------- ----------- ----------- -----------
Operating expenses
Research and development.................... 14.5 12.2 15.3 11.7
Sales and marketing ........................ 19.7 13.4 21.5 16.1
General and administrative.................. 11.6 10.1 14.0 10.9
Costs of merger............................. - - 4.8 -
Amortization of intangible assets........... 0.4 0.5 0.5 0.5
----------- ----------- ----------- -----------
46.2 36.2 56.1 39.2
----------- ----------- ----------- -----------
Operating income (loss)........................ 4.7 17.2 (1.5) 13.4
Other income .................................. 0.6 0.3 (0.7) (1.1)
----------- ----------- ----------- -----------
Income (loss) before tax provision............. 5.3 17.5 (2.2) 12.3
Provision for income taxes..................... (1.7) (5.4) (0.9) (3.7)
----------- ----------- ----------- -----------
Net income (loss) from continuing operations... 3.6 12.1 (3.1) 8.6
Income (loss) from discontinued operations..... (0.0) (0.0) (0.0) (8.6)
----------- ----------- ----------- -----------
Net income (loss).............................. 3.6% 12.1% (3.1)% 0.0%
=========== =========== =========== ===========
</TABLE>
Three Months Ended September 30, 2000 Compared to the Three Months Ended
September 30, 1999
Revenue. Revenue increased slightly by $0.5 million (3.0%) for the three
months ended September 30, 2000 as compared to the three months ended September
30, 1999. This increase was primarily due to increases in revenue from
maintenance and support, and e-Business revenues during the third quarter of
2000 relative to the same period in 1999. This increase was partially offset by
the decrease in third party products and services revenues.
Software and services revenue decreased by $(112,000) (1.1%) for the three
months ended September 30, 2000 as compared to the three months ended September
30, 1999. The Company believes that its software and service revenue during the
most recent period was impacted by decisions of certain customers to defer
purchasing decisions and to delays associated with the implementation of the
Company's first installation of the Advantex r7 product.
-13-
<PAGE>
Three Months Ended September 30, 2000 Compared to the Three Months Ended
September 30, 1999 (continued)
Third party products and services revenue decreased by $(0.6) million
(40.1%) for the three months ended September 30, 2000 as compared to the three
months ended September 30, 1999. These third party products typically include
host computer equipment and mobile computing devices, delivered as part of the
installation of software and provision of services. Revenue from deliveries of
third party products and services will fluctuate from period to period given the
timing and nature of certain contracts and the rollout schedules which are
established primarily by the customers. In addition, not all customers under
contract require the provision of third party products and services.
Accordingly, there may be large fluctuations in revenue, direct costs, gross
profits and income from operations from one period to another.
Maintenance and support revenue was $2.3 million for the three months ended
September 30, 2000 as compared to $1.7 million for the three months ended
September 30, 1999. Maintenance and support revenue has increased primarily due
to the increased growth in the Company's installed customer base. Such revenue
is expected to fluctuate as it corresponds to the level of software and services
revenue the Company is engaged to provide in support of its installations.
e-Business revenues primarily consist of sales by the Company's newly
acquired subsidiary, Connectria. Revenue for the three months ended September
30, 2000 was $1.8 million as compared to $1.2 million for the three months ended
September 30, 1999. Connectria's revenues in both periods consisted primarily of
revenues from consulting and hosting services. The Company does not expect to
generate revenue from its new e-Business product offering prior to the first
quarter of 2001. The increase of period-to-period revenues is a result of the
increased business growth and expansion within the e-Business market segment,
and is not attributable to one particular contract.
Direct Costs. Direct costs were 49.1% of revenue for the three months ended
September 30, 2000 as compared to 46.6% for the three months ended September 30,
1999. Direct costs include labor and other costs directly related to a project,
including the provision of services and support, production and costs related to
host equipment and mobile devices on behalf of third party product sales. Labor
costs included direct payroll, benefits and overhead charges. The increase in
direct costs as a percentage of revenue resulted from the Company incurring
additional costs for embedded software included in the Company's products as
compared to prior year. As a result, the percentage of direct costs compared to
revenues for the three months ended September 30, 2000 increased as compared to
the three months ended September 30, 1999.
Gross Margins. Gross margins were 50.9% of revenue for the three months
ended September 30, 2000 as compared to 53.4% for the three months ended
September 30, 1999. The decrease in gross margin as a percentage of revenue
relates primarily to the change in the mix of revenues and to additional costs
for embedded software licenses. During the three months ended September 30, 2000
there was a decrease in software and services revenue, which typically has a
higher gross margin than the Company's other sources of revenue, and the Company
incurred increased costs for embedded software included in the Company's
products. These factors resulted in a decrease in gross margin for the three
months ended September 30, 2000 compared to the three months ended September 30,
1999.
Research and Development. Research and development expenses were 14.5% of
revenue for the three months ended September 30, 2000 and 12.2% of revenue for
the three months ended September 30, 1999. Total research and development
expenditures for the three months ended September 30, 2000 of $2.3 million
represents an increase of $418,000 (22.8%) as compared to the same period in
1999. The increase in research and development expenses in 2000 is a result of
the development and enhancement of the Company's Advantex products (version r7,
wireless and ASP versions) as well as development of the Company's eService
offering. The Company anticipates continuing to commit a significant portion of
its product revenues to enhancement of existing products and the development of
new products, resulting in an anticipated increase in the dollar amounts of
research and development expenses.
-14-
<PAGE>
Three Months Ended September 30, 2000 Compared to the Three Months Ended
September 30, 1999 (continued)
Sales and Marketing. Sales and marketing expenses were 19.7% of revenue for
the three months ended September 30, 2000 and 13.4% of revenue for the three
months ended September 30, 1999. This represents an increase of $1,041,000
(51.6%) as compared to the same period in 1999. The increase was primarily due
to an increase in marketing, sales and technical support personnel supporting
the Company's increased product offerings, including Advantex r7 and e-Business
initiatives. The Company anticipates that the dollar amounts of its sales and
marketing expenses will continue to increase as a result of the Company's
commitment to its international marketing efforts and attempt to penetrate
additional markets for existing and new products.
General and Administrative. General and administrative expenses were 11.6%
of revenue for the three months ended September 30, 2000 and 10.1% of revenue
for the three months ended September 30, 1999. Total general and administrative
expenses of $1.8 million represents an increase of $277,000 (18.1%) for the
three months ended September 30, 2000 as compared to the same period in 1999.
The increase represents expanded administrative activity to support the
Company's current and expected growth. The Company expects that the dollar
amounts will continue to increase as the Company expands its staffing,
information systems and other administrative requirements necessary to support
this growth.
Other Income (Expense). Other income (expense) was $89,000 for the three
months ended September 30, 2000 as compared to $44,000 for the three months
ended September 30, 1999. Substantially all of other income relates to
fluctuations in the currencies of the Company's foreign operations, interest on
cash and short term deposits, short-term borrowings under the line of credit and
capital lease obligations.
Income Taxes. The Company provided for income tax recoveries on losses for
the three months ended September 30, 2000 at the rate of 30.0%, after adjusting
for the amortization of intangible assets. The Company's effective tax rate
reflects the blended effect of Canadian, US, and other foreign jurisdictions'
tax rates.
Nine months ended September 30, 2000 Compared to the Nine months ended September
30, 1999
Revenue. Revenue decreased by $1.6 million (3.7%) for the nine months ended
September 30, 2000 as compared to the nine months ended September 30, 1999. This
decrease mainly relates to third party products and services revenue, partially
offset by an increase in maintenance and support revenue, and e-Business revenue
for the nine months ended September 30, 2000 relative to the same period in
1999.
Software and services revenue decreased by ($138,000) (0.5%) for the nine
months ended September 30, 2000 as compared to the nine months ended September
30, 1999. The Company believes that its software and service revenue during the
nine months ended September 30, 2000 was impacted by decisions of certain
customers to defer purchasing decisions and to delays associated with the
implementation of the Company's first installation of the Advantex r7 product.
e-Business revenues materially consist of sales by the Company's newly
acquired subsidiary, Connectria. e-Business revenue for the nine months ended
September 30, 2000 was $4.9 million compared to $3.7 million for the nine months
ended September 30, 1999. Connectria's revenues in both periods consisted
primarily of revenues from consulting and hosting services. The Company does not
expect to generate revenue from its new e-Business product offerings prior to
the first quarter of 2001. The increase in period-to-period revenues is a result
of the increased business growth and expansion within the e-Business market
segment, and is not attributable to one particular contract.
Third-party products and services revenue decreased by $5.0 million (70.1%)
for the nine months ended September 30, 2000 compared to the nine months ended
September 30, 1999. Revenue from deliveries of third-party products and services
will fluctuate from period to period given the timing of certain contracts and
the rollout schedules which are established primarily by the customers.
Accordingly, this may result in large fluctuations in revenue, direct costs,
gross profits and income from operations from one period to another.
-15-
<PAGE>
Nine Months Ended September 30, 2000 Compared to the Nine Months Ended September
30, 1999 (Continued)
Maintenance and support revenue was $6.3 million for the nine months ended
September 30, 2000 as compared to $4.0 million for the nine months ended
September 30, 1999. Maintenance and support revenue increased as a result of an
increase in the level of the Company's installed customer base.
Direct Costs. Direct costs were 45.4% of revenue for the nine months ended
September 30, 2000 as compared to 47.4% for the nine months ended September 30,
1999. The change in direct costs as a percentage of revenue is reflective of the
relative increase for the nine months ended September 30, 2000 in the software
and services component of revenue and a relative decrease in lower margin third
party products and services component of revenue.
Gross Margins. Gross margins were 54.6% of revenue for the nine months
ended September 30, 2000 as compared to 52.6% for the nine months ended
September 30, 1999. The increase in gross margin as a percentage of revenue
relates primarily to the increase in higher margin software and services
component of revenue as a percentage of total revenue, and the relative decrease
in the lower margin third party products and service component of revenue for
the nine months ended September 30, 2000 compared to the nine months ended
September 30, 1999.
Research and Development. Research and development expenses were 15.3% of
revenue for the nine months ended September 30, 2000 and 11.7% of revenue for
the nine months ended September 30, 1999. Total research and development
expenditures for the nine months ended September 30, 2000 of $6.6 million
represents an increase of $ 1.4 million (26.4%) as compared to the same period
in 1999. The increase in the dollar amount of research and development expenses
in 2000 is a result of the continued development and enhancement of the
Company's Advantex products (version r7, wireless, and ASP versions), as well as
development of the Company's eService offering. The Company intends to continue
committing a significant portion of its product revenues to enhance existing
products and develop new products, resulting in an anticipated increase in the
dollar amounts of research and development expenses.
Sales and Marketing. Sales and marketing expenses were 21.5% of revenue for
the nine months ended September 30, 2000 and 16.1% of revenue for the nine
months ended September 30, 1999. This represents an increase of $2.1 million
(29.2%) as compared to the same period in 1999. The increase was primarily due
to an increase in marketing, sales and technical support personnel supporting
the Company's increased product offerings including Advantex r7 and e-Business
initiatives. The Company anticipates that the dollar amounts of its sales and
marketing expenses will continue to increase as a result of the Company's
commitment to its international marketing effort, and attempt to penetrate
additional markets for existing and new products.
General and Administrative. General and administrative expenses were 14.0%
of revenue for the nine months ended September 30, 2000 and 10.9% of revenue for
the nine months ended September 30, 1999. Total general and administrative
expenses of $6.0 million represents an increase of $1.2 million (24.0%) for the
nine months ended September 30, 2000, as compared to the same period in 1999.
The Company expects that its general and administrative expenses will increase
in the future as the Company expands its staffing, information systems and other
administrative costs to support its expanding operations.
Costs of merger. During the nine months ended September 30, 2000 the
Company completed its acquisition of Connectria. This transaction has been
accounted for under the pooling of interests method. During the nine months
ended September 30, 2000 the Company incurred one time acquisition costs of
approximately $2.1 million.
Other Income (Expense). Other income (expense) was ($300,000) for the nine
months ended September 30, 2000 as compared to ($451,000) for the nine months
ended September 30, 1999. Substantially all of other income relates to
fluctuations in the currencies of the Company's foreign operations, interest
income on cash, short-term deposits, short-term borrowings under the line of
credit and capital lease obligations.
Income Taxes. The Company provided for income taxes on earnings for the
nine months ended September 30, 2000 at the rate of 28.4%, after adjusting for
the amortization of intangible assets, and the costs of merger. The Company's
effective tax rate reflects the blended effect of Canadian, US and other foreign
jurisdictions' tax rates.
-16-
<PAGE>
Liquidity and Capital Resources
The Company finances its operations, acquisitions and capital expenditures
with cash generated from operations, lines of credit, capital leases, private
placements and public offerings of its securities. At September 30, 2000, the
Company had cash and cash equivalents of $9.5 million and working capital of
$21.4 million.
Cash provided by (used in) operating activities was ($2.2) million for the
nine months ended September 30, 2000 compared to $480,000 for the nine months
ended September 30, 1999. The net outflow of cash from operating activities,
after adding back depreciation and amortization of $2.2 million, is due to a net
increase in non-cash working capital items of $3.0 million and a net loss of
($1.3) for the nine months ending September 30, 2000. The net increase in
non-cash operating working capital items is due primarily to a net increase in
unbilled trade receivables of $6.0 million, and an increase in trade receivables
of $1.7 million. The increase in unbilled trade receivables is due to timing
differences arising between revenue recognition and billing milestones in
certain multiphase implementations, as well as extended Advantex version r7
implementations. This increase is partially offset by an increase in deferred
revenue of $3.1 million and an increase in accrued liabilities of $1.6 million.
Cash provided by financing activities of $4.7 million during the nine
months ended September 30, 2000 primarily relates to proceeds from common shares
issued for $3.4 million pursuant to the exercise of stock options and the
Company's Employee Share Purchase Plan. The Company also received $1.3 million
from its capital lease program for the nine months ending September 30, 2000.
The capital leases are to be repaid evenly over a 36 month period ending
September 27, 2003, bear interest at 7.89% and are secured by certain computer
hardware and software assets of the Company.
Cash used in investing activities was $7.3 million for the nine months
ended September 30, 2000 as compared to $3.1 million for the nine months ended
September 30, 1999. Total investing activity during the nine months ended
September 30, 2000 consisted of $2.6 million in investments, $4.8 million in
purchases of capital assets, $220,000 acquisition of intangible assets and a
$288,000 net decrease in lease receivable. The increase in investments is
comprised principally of a $2.0 million purchase of convertible preferred stock
of eFrenzy Inc., and a $500,000 purchase of preferred stock of OurHouse Inc.
Purchases of capital assets include computer hardware and software for use in
research and development activities and to support the growth of the Company's
corporate information systems and acquisition of investments. Investing
activities in 1999 related primarily to purchases of capital assets.
Existing sources of liquidity at September 30, 2000 include $9.5 million of
cash and cash equivalents and up to $8.0 million available under the Company's
operating line of credit. At September 30, 2000, the Company had provided a
performance bond an irrevocable revolving letter of credit expiring May 28, 2001
for Belgian Franc 101,068,000 ($4.2 million). Under the terms of the agreement,
borrowings and letters of credit under the line are limited to 60% to 90% of
eligible accounts receivable. Borrowings accrue interest at the bank's prime
rate plus 0.5%. At September 30, 2000, the Company had no borrowings under the
line of credit.
The Company believes that future cash flows, in addition to funds on hand
and its borrowing capacity under the line of credit, will provide sufficient
funds to meet cash requirements for at least the next twelve months.
Commensurate with its past and expected future growth, the Company may increase,
from time to time, its borrowing facility under its operating line of credit to
support its operations. The Company may use cash to fund other acquisitions of
businesses or products complementary to the Company's business although the
Company has no plans to do so. The Company has no material additional
commitments other than operating and capital leases. The Company may look to
obtain additional equity or debt financing to fund future growth or other
investing activities, which may or may not be available on attractive terms, or
at all, and may be dilutive to current or future shareholders.
-17-
<PAGE>
ITEM 3: QUANTITIATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's primary market risk is foreign currency exchange rates. The
Company's foreign currency exposure is primarily with Canada and Western Europe.
Foreign exchange risk arises when the Company enters into transactions
denominated in local currencies and not the Company's functional currency, the
U.S. dollar.
The Company has established procedures to manage sensitivity to foreign
currency exchange rate market risk. These procedures include the monitoring of
the Company's net exposure to each foreign currency and the use of foreign
currency forward contracts to hedge firm exposures to currencies other than the
Canadian dollar, the Euro and the Great Britain pound sterling. The Company has
operations in the United States, Great Britain and the Netherlands in addition
to its Canadian operations and did not hedge these exposures in 2000. However,
the Company may from time-to-time hedge any net exposure to the Canadian dollar,
the Great Britain pound sterling, and the Euro.
As of September 30, 2000, the potential reduction in future earnings from a
hypothetical instantaneous 10% change in quoted foreign currency exchange rates
applied to the foreign currency sensitive contracts would be approximately $3.3
million. The majority of the Company's foreign exchange exposure is to the
Canadian dollar. The foreign currency sensitivity model is limited by the
assumption that all foreign currencies, to which the Company is exposed, would
simultaneously change by 10%. Such synchronized changes are unlikely to occur.
The sensitivity model does not include the inherent risks associated with
anticipated future transactions denominated in foreign currencies or future
forward contracts entered into for hedging purposes.
The Company believes that it does not have any material exposure to
interest or commodity risks. The Company is exposed to economic and political
changes in international markets where the Company competes such as inflation
rates, recession, foreign ownership restrictions and other external factors over
which the Company has no control; domestic and foreign government spending,
budgetary and trade policies.
-18-
<PAGE>
Part II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of the date hereof, there is no material litigation pending against the
Company. From time to time, the Company is a party to litigation and claims
incident to the ordinary course of business. While the results of litigation and
claims cannot be predicted with certainty, the Company believes that the final
outcome of such matters will not have a material adverse effect on the Company's
business, financial condition, results of operations and cash flows.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Sales of Unregistered Securities
None.
(b) Use of Proceeds from Sales of Registered Securities
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
99.1 Discussion of risk factors.
(b) Reports on Form 8-K
During the three month period ended September 30, 2000 the
Registrant filed the following reports on Form 8-K;
On August 14, 2000, the Registrant amended the previously
filed 8K report dated June 15, 2000 that reported the Registrant
had consummated the merger of MDSI Acquisition Corporation, a
wholly owned subsidiary of MDSI with and into Connectria
Corporation, a Missouri Corporation, pursuant to which Connectria
became a wholly-owned subsidiary of the Registrant. The document
was amended to include the audited financial statements of
Connectria Corporation, as of December 31, 1999, the unaudited
financial statements as of June 30, 2000, and the unaudited Pro
Forma Consolidated Financial Statements of MDSI Mobile Data
Solutions Inc. dated December 31, 1997, 1998, 1999 and June 30,
2000, reflecting the results of the acquisition of Connectria
Corporation.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MDSI MOBILE DATA SOLUTIONS INC.
Date: November 14, 2000 By: /s/ Kenneth R. Miller
--------------------------------------
Name: Kenneth R. Miller
Title: Chief Executive Officer
Date: November 14, 2000 By: /s/ Verne D. Pecho
Name: Verne D. Pecho
--------------------------------------
Title: Vice President Finance & Administration
and Chief Financial Officer
(Principal Financial and Accounting
Officer)
-20-
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
99.1 Discussion of risk factors.
