================================================================================
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 June 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 No ------ -------
The number of outstanding shares of the Registrant's
common stock, no par value, at June 30, 2000 was 8,557,299.
================================================================================
<PAGE>
MDSI MOBILE DATA SOLUTIONS INC.
INDEX TO THE FORM 10-Q
For the quarterly period ended June 30, 2000
<TABLE>
Page
----
<S> <C>
Part I - FINANCIAL INFORMATION..............................................................................1
ITEM 1. FINANCIAL STATEMENTS.......................................................................1
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.................................17
Part II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ........................................................................18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.................................................18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ..........................................................18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................18
ITEM 5. OTHER INFORMATION.........................................................................20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..........................................................20
SIGNATURES.................................................................................................21
</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
------------------------------------
June 30, December 31,
2000 1999
-------------- ---------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents........................................ $9,570,196 $ 14,612,923
Accounts receivable, net
Trade......................................................... 13,170,893 14,147,011
Unbilled...................................................... 12,449,274 5,595,902
Prepaid expenses ................................................ 1,869,983 1,121,580
Deferred income taxes............................................ 577,427 577,427
Current portion of lease receivable.............................. 329,808 386,861
-------------- ---------------
37,967,581 36,441,704
Lease receivable.................................................... - 133,723
Investments......................................................... 6,888,486 4,140,457
Capital assets, net................................................. 8,090,113 6,858,747
Intangible assets, net.............................................. 1,981,015 1,907,297
-------------- ---------------
54,927,195 49,481,928
Assets of discontinued operations (note 4).......................... 837,959 960,610
-------------- ---------------
Total assets....................................................... $ 55,765,154 $ 50,442,538
============== ===============
Liabilities and stockholders' equity
Current liabilities
Accounts payable ................................................ $ 1,761,878 $ 1,760,644
Accrued liabilities ............................................. 4,463,185 2,655,522
Income taxes payable ............................................ 898,012 1,567,671
Deferred revenue................................................. 7,981,098 4,742,038
Current portion of long term debt................................ 47,831 52,153
Current obligations under capital leases ........................ 1,611,849 1,289,208
-------------- ---------------
16,763,853 12,067,236
Obligations under capital leases..................................... 2,116,396 2,632,406
Long Term Debt ...................................................... 5,253 32,181
Liabilities of discontinued operations (note 4) ..................... 106,267 173,424
-------------- ---------------
Total liabilities.................................................... 18,991,769 14,905,247
-------------- ---------------
Stockholders' equity
Common stock..................................................... 48,327,375 44,961,759
Additional paid-up capital ...................................... 220,700 220,700
Treasury stock................................................... (85,043) (85,043)
Deficit.......................................................... (10,999,543) (9,130,688)
Accumulated comprehensive income (loss) (note 1b)................ (690,104) (429,437)
-------------- ---------------
36,773,385 35,537,291
-------------- ---------------
Total liabilities and stockholders' equity........................... $ 55,765,154 $ 50,442,538
============== ===============
</TABLE>
See notes to consolidated financial statements
1
<PAGE>
<TABLE>
MDSI MOBILE DATA SOLUTIONS INC.
Consolidated Statements of Operations and Deficit
(Expressed in United States Dollars (note 1b))
(Unaudited)
==================================================================================================================================
Three months ended Six months ended
June 30 June 30
-------------------------------- -------------------------------
2000 1999 2000 1999
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue
Software and services.............................. $ 9,508,834 $ 10,455,787 $ 19,178,024 $ 19,204,128
e-Business ........................................ 1,551,212 1,325,351 3,040,179 2,430,818
Third-party products and services.................. 652,718 1,785,795 1,181,136 5,555,258
Maintenance and support............................ 1,973,092 1,299,457 3,997,438 2,307,979
-------------- -------------- ------------- -------------
13,685,856 14,866,390 27,396,777 29,498,183
Direct costs............................................ 6,296,418 6,632,948 11,847,028 14,113,034
-------------- -------------- ------------- -------------
Gross profit............................................ 7,389,438 8,233,442 15,549,749 15,385,149
-------------- -------------- ------------- -------------
Operating expenses
Research and development............................. 2,275,316 1,739,079 4,314,222 3,360,283
Sales and marketing ................................. 3,365,434 2,545,928 6,190,898 5,141,706
General and administrative........................... 2,079,216 1,662,836 4,192,777 3,309,387
Costs of acquisition ................................ 2,076,028 - 2,076,028 -
Amortization of intangible assets.................... 67,479 69,810 137,289 139,620
-------------- -------------- ------------- -------------
9,863,473 6,017,653 16,911,214 11,950,996
-------------- -------------- ------------- -------------
Operating income........................................ (2,474,035) 2,215,789 (1,361,465) 3,434,153
Other income (expense).................................... (176,752) (333,419) (389,118) (495,815)
-------------- -------------- ------------- -------------
Income before tax provision............................... (2,650,787) 1,882,370 (1,750,583) 2,938,338
Provision for income taxes................................ 172,428 (573,481) (118,272) (857,591)
-------------- -------------- ------------- -------------
Net income from continuing operations..................... (2,478,359) 1,308,889 (1,868,855) 2,080,747
Loss from discontinued operations (note 4)................ - - - (3,872,683)
-------------- -------------- ------------- -------------
Net income (loss)......................................... (2,478,359) 1,308,889 (1,868,855) (1,791,936)
Deficit, Beginning of period.............................. (8,521,184) (13,230,901) (9,130,688) (10,130,076)
-------------- -------------- ------------- -------------
(10,999,543) (11,922,012) (10,999,543) (11,922,012)
Dividends ................................................ - (147,000) - (147,000)
-------------- -------------- ------------- -------------
Deficit, end of period.................................... $ (10,999,543) $ (12,069,012) $(10,999,543) $ (12,069,012)
-------------- -------------- ------------- -------------
============== ============== ============= =============
Earnings (loss) per common share
Earnings from continuing operations
Basic .............................................. $ (0.29) $ 0.16 $ (0.22) $ 0.26
============== ============== ============= =============
Diluted ............................................ $ (0.29) $ 0.14 $ (0.22) $ 0.23
============== ============== ============= =============
Net earnings (loss)
Basic .............................................. $ (0.29) $ 0.16 $ (0.22) $ (0.22)
============== ============== ============= =============
Diluted ............................................ $ (0.29) $ 0.14 $ (0.22) $ (0.22)
============== ============== ============= =============
Weighted average shares outstanding
Basic............................................... 8,540,870 8,101,136 8,466,613 7,973,420
============== ============== ============= =============
Diluted............................................. 8,540,870 9,135,983 8,466,613 9,035,131
============== ============== ============= =============
</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>
Six months ended June 30,
---------------------------------------
2000 1999
---------------- --------------
<S> <C> <C>
Cash flow from operating activities
Net income (loss) from continuing operations..................... $ (1,868,855) $ 2,080,747
Items not affecting cash:
Depreciation and amortization............................... 1,345,724 892,499
Deferred income taxes....................................... - 171,310
Changes in non-cash operating working capital items......... (2,263,188) (3,205,077)
---------------- --------------
Net cash used in operating activities............................ (2,786,319) (60,521)
---------------- --------------
Cash flows from financing activities
Issuance of common stock......................................... 3,365,615 11,505,220
Payment of dividends............................................. - (147,000)
Repayment of long-term debt...................................... (31,250) (269,493)
Proceeds from (repayments of) capital leases..................... (193,368) 1,046,212
---------------- --------------
Net cash provided by financing activities........................ 3,140,997 12,134,939
---------------- --------------
Cash flows from investing activities
Long term lease receivable....................................... 190,776 211,054
Acquisition of investments....................................... (2,748,029) -
Acquisition of intangible assets ................................ (220,000) -
Acquisition of capital assets ................................... (2,414,980) (2,524,068)
---------------- --------------
Net cash used in investing activities............................ (5,192,233) (2,313,014)
---------------- --------------
Cash provided by (used in) continuing operations..................... (4,837,555) 9,761,404
Cash provided by (used for) discontinued operations (note 4)......... 55,494 (206,631)
---------------- --------------
Net cash inflow (outflow)............................................ (4,782,061) 9,554,773
Effects of foreign exchange fluctuations on cash..................... (260,666) 1,010,010
Cash and cash equivalents, beginning of period...................... 14,612,923 3,605,559
---------------- --------------
Cash and cash equivalents, end of period............................ $ 9,570,196 $ 14,170,342
================ ==============
</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 June 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 June 30, Six months ended June 30,
-------------------------------------- ---------------------------------
2000 1999 2000 1999
---------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Net income from continuing $ (2,478,359) $ 1,308,889 $(1,868,855) $2,080,747
operations
Comprehensive items
- Translation adjustment - 660,363 (260,666) 1,010,010
------------------ ----------------- ---------------- --------------
Comprehensive income for the $ (2,478,359) $1,969,252 $(2,129,521) $3,090,757
period ================== ================= ================ ==============
</TABLE>
4
<PAGE>
MDSI MOBILE DATA SOLUTIONS INC.
Notes to the Consolidated Financial Statements
For the three months ended June 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 June 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 its acquisition of 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 acquisition by
segregating the e-Business segment for the three and six month periods
ending June 1999.
Business Segments
<TABLE>
Three months ended June 30, 2000 Six months ended June 30, 2000
Field Field
Service e-Business(1) Total Service e-Business(1) Total
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 12,110,566 $ 1,575,290 $ 13,685,856 $ 24,301,798 $ 3,094,979 $ 27,396,777
Operating earnings (1,732,076) (741,959) (2,474,035) (103,246) (1,258,219) (1,361,465)
Depreciation & Amortization 792,468 35,424 827,892 1,279,596 66,128 1,345,724
Long lived assets 14,058,532 2,901,082 16,959,614 14,058,532 2,901,082 16,959,614
Capital Expenditures 1,046,729 116,684 1,163,413 2,139,870 275,110 2,414,980
Three months ended June 30, 1999 Six months ended June 30, 1999
Field Field
Service e-Business(1) Total Service e-Business(1) Total
-------------------------------------------------------------------------------------------------------------------------
Revenue $ 13,425,438 $ 1,440,952 $ 14,866,390 $ 25,885,948 $ 3,612,235 $ 29,498,183
Operating earnings 2,161,716 54,073 2,215,789 3,208,678 225,475 3,434,153
Depreciation & Amortization 488,390 15,402 503,792 851,292 41,207 892,499
Long lived assets 12,567,531 338,970 12,906,501 12,567,531 338,970 12,906,501
Capital Expenditures 1,629,767 125,072 1,754,839 2,384,840 139,228 2,524,068
</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 June 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 June 30, Six months ended June 30,
--------------------------------------------------------------
2000 1999 2000 1999
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Canada.................... $ 217,300 $ 695,797 $ 453,607 $ 1,448,579
United States............. 10,412,336 11,540,035 22,492,312 23,096,891
Europe.................... 2,690,226 2,125,164 4,060,477 4,023,803
Other..................... 365,994 505,394 387,381 928,910
-------------- ------------- ------------- -------------
$ 13,685,856 $ 14,866,390 $ 27,396,777 $ 29,498,183
============== ============= ============= ==============
</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 Six months ended
June 30, June 30,
-------------------------------- ---------------------------------
2000 1999 2000 1999
--------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding......... 8,540,870 8,101,136 8,466,613 7,973,420
Common stock equivalents
Stock options............................... - 1,034,847 - 1,061,711
--------------- -------------- -------------- -------------
Total shares for diluted earnings (loss) per
common share................................ 8,540,870 9,135,983 8,466,613 9,035,131
=============== ============== ============== =============
</TABLE>
7
<PAGE>
MDSI MOBILE DATA SOLUTIONS INC.
Notes to the Consolidated Financial Statements
For the three months ended June 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
---------------------------------------------------------------------------------------------------------
June 30, 2000 June 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
---------------------------------------------------------------------------------------------------------
June 30, 2000 December 31, 1999
--------------------- ---------------------
Current assets $ 837,959 $ 960,610
Long term assets - -
--------------------- ---------------------
Total assets of discontinued operations $ 837,959 $ 960,610
===================== =====================
Current liabilities $ 106,267 $ 173,424
Long term liabilities - -
--------------------- ---------------------
Total liabilities of discontinued operations $ 106,267 $ 173,424
===================== =====================
Changes in cash flow of discontinued operations
---------------------------------------------------------------------------------------------------------
June 30, 2000 June 30, 1999
--------------------- ---------------------
Operating activities $ 55,494 $ (119,633)
Investing activities - (86,998)
Financing activities - -
--------------------- ---------------------
Cash provided by (used for) discontinued operations $ 55,494 $ (206,631)
===================== =====================
</TABLE>
8
<PAGE>
MDSI MOBILE DATA SOLUTIONS INC.
Notes to the Consolidated Financial Statements
For the three months ended June 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 acquisition
with Connectria are outlined below.
Three months ended Six months ended
March 31, June 30,
<TABLE>
------------------------------------------------------
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, as amended. 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 and other
online service management solutions, (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 like MDSI's, 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>
Overview (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.
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. Service providers that use the Company's e-Business solutions will
also be able to allow customers 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. During the quarter ended June 30, 2000, the Company acquired
Connectria Corporation, based in St. Louis, Missouri, which currently provides
Internet hosting services for third-party applications. The Company anticipates
that it will commence the launch of its scheduling and dispatch applications,
Advantex and ServeClick, on an ASP basis to service providers beginning in the
fourth quarter of 2000.
The Company anticipates that its e-Business model will allow companies to
use MDSI products and services on a subscription or transaction fee basis,
rather than purchase traditional licensed products or on-site solutions. The
Company believes that its e-Business solutions subscription and transaction fee
programs will be a particularly attractive alternative for medium- or
small-sized companies who can benefit from MDSI's workforce management and
scheduling applications, but do not have the financial or information technology
resources to implement MDSI's on-site solutions.
The Company's e-Business division has not generated material revenues from
the provision of its e-Business solutions. The success of the Company's
e-Business development strategy will depend on the Company's ability to develop
11
<PAGE>
Overview (Continued)
and implement the technology related to its e-Business solutions in a timely
manner, 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. The Company's e-Business
revenue is anticipated to be dependent, in large part, on transaction fees
generated by customer and service provider use of the Company's e-Business
scheduling solutions. The Company's ability to generate revenue from its
e-Business solutions will depend on the Company's ability to provide an
e-Business solution that is convenient, easy to use and functional. As a result
of these and other factors, the Company's results of operations may fluctuate
from period-to-period.
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 September
30, 2000. 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.
12
<PAGE>
Results of Operations
The Company's net loss was $1.9 million for the six months ended June 30,
2000. This compares to a net loss of $1.8 million for the six months ended June
30, 1999, comprised of an after-tax profit from continuing operations of $2.1
million and an after-tax loss of $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 of 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.
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 Six months ended
June 30, June 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
--------------- --------------- -------------- ----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue
Software and services....................... 69.5% 70.3% 70.0% 65.1%
e-business.................................. 11.3 8.9 11.1 8.2
Third-party products and services........... 4.8 12.0 4.3 18.8
Maintenance and support..................... 14.4 8.7 14.6 7.8
--------------- --------------- -------------- ----------------
100.0 100.0 100.0 100.0
Direct costs................................. 46.0 44.6 43.2 47.8
--------------- --------------- -------------- ----------------
Gross profit................................. 54.0 55.4 56.8 52.2
--------------- --------------- -------------- ----------------
Operating expenses
Research and development.................... 16.6 11.7 15.7 11.4
Sales and marketing ........................ 24.6 17.1 22.6 17.4
General and administrative.................. 15.2 11.2 15.3 11.2
Costs of acquisition........................ 15.2 - 7.6 -
Amortization of intangible assets........... 0.5 0.5 0.5 0.5
--------------- --------------- -------------- ----------------
72.1 40.5 61.7 40.5
--------------- --------------- -------------- ----------------
Operating income (loss)...................... (18.1) 14.9 (5.0) 11.6
Other income ................................ (1.3) (2.2) (1.4) (1.7)
--------------- --------------- -------------- ----------------
Income (loss) before tax provision........... (19.4) 12.7 (6.4) 10.0
Provision for income taxes................... 1.3 (3.9) (0.4) (2.9)
--------------- --------------- -------------- ----------------
Net income (loss) from continuing operations. (18.1) 8.8 (6.8) 7.1
Income (loss) from discontinued operations... (0.0) (0.0) (0.0) (13.1)
--------------- --------------- -------------- ----------------
Net income (loss).............................. (18.1)% 8.8% (6.8)% (6.1)%
--------------- --------------- -------------- ----------------
</TABLE>
Three Months Ended June 30, 2000 Compared to the Three Months Ended June 30,
1999
Revenue. Revenue decreased by $(1.2) million (7.9%) for the three months
ended June 30, 2000 as compared to the three months ended June 30, 1999. This
decrease was primarily due to decreases in revenue from third party products and
services, and software and services delivered during the second quarter of 2000
relative to the same period in 1999. This decrease was partially offset by
increases in e-business and maintenance and support revenues.
13
<PAGE>
Three Months Ended June 30, 2000 Compared to the Three Months Ended June 30,
1999 (continued)
Software and services revenue decreased by $(947,000) (9.1%) for the three
months ended June 30, 2000 as compared to the three months ended June 30, 1999.
This decrease was due to a reduction in revenue from telecommunications
customers, as certain major telecommunications industry prospects deferred
purchasing decisions.
Third party products and services revenue decreased by $(1.1) million
(63.4%) for the three months ended June 30, 2000 as compared to the three months
ended June 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 $2.0 million for the three months ended
June 30, 2000 as compared to $1.3 million for the three months ended June 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 generally corresponds to the level of software and
services revenue the Company is engaged to provide in support of its
installations.
E-Business revenues consist of sales by the Company's newly acquired
subsidiary, Connectria. Revenue for the thee months ended June 30, 2000 was $1.6
million as compared to $1.3 million for the three months ended June 30, 1999.
Connectria's revenues in both periods consisted primarily of revenues from
consulting services. The increase of period-to-period is a result of the
increased business growth and expansion a within the e-Business market segment.
Direct Costs. Direct costs were 46.0% of revenue for the three months ended
June 30, 2000 as compared to 44.6% for the three months ended June 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's increased
staffing levels in anticipation of the signing of contracts with certain major
telecommunications industry prospects. Certain of these prospects deferred
purchase decisions in the second quarter of 2000, resulting in higher direct
costs and reduced software and services revenue. As a result, the percentage of
direct costs compared to revenues for the three months ended June 30, 2000
increased as compared to the three months ended June 30, 1999.
Gross Margins. Gross margins were 54.0% of revenue for the three months
ended June 30, 2000 as compared to 55.4% for the three months ended June 30,
1999. The decrease in gross margin as a percentage of revenue relates primarily
to the change in the mix of revenues during the period. During the three months
ended June 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 increased staffing levels in anticipation of increased
activity, resulting in a decrease in gross margin for the three months ended
June 30, 2000 compared to the three months ended June 30, 1999.
Research and Development. Research and development expenses were 16.6% of
revenue for the three months ended June 30, 2000 and 11.7% of revenue for the
three months ended June 30, 1999. Total research and development expenditures
for the three months ended June 30, 2000 of $2.3 million represents an increase
of $536,000 (30.8%) as compared to the same period in 1999. The increase in
research and development expenses in 2000 is a result of the continued
development and enhancement of the Company's Advantex products as well as
development in the Company's new e-Business strategy. 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.
Sales and Marketing. Sales and marketing expenses were 24.6% of revenue for
the three months ended June 30, 2000 and 17.1% of revenue for the three months
ended June 30, 1999. This represents an increase of $820,000 (32.2%) 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 marketing activities worldwide. 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.
14
<PAGE>
Three Months Ended June 30, 2000 Compared to the Three Months Ended June 30,
1999 (continued)
General and Administrative. General and administrative expenses were 15.2%
of revenue for the three months ended June 30, 2000 and 11.2% of revenue for the
three months ended June 30, 1999. Total general and administrative expenses of
$2.1 million represents an increase of $416,000 (25.0%) for the three months
ended June 30, 2000 as compared to the same period in 1999. The increase
represents expanded administrative activity to support the Company's 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.
Costs of acquisitions. During the three months ended June 30, 2000 the
Company completed its acquisition of Connectria. This transaction has been
accounted for under the pooling of interests method. During the period, the
Company incurred one-time acquisitions costs of approximately $2.1 million.
Other Income (Expense). Other income (expense) was $(177,000) for the three
months ended June 30, 2000 as compared to $(333,000) for the three months ended
June 30, 1999. Substantially all of other income (expense) 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 June 30, 2000 at the rate of 34.8%, after adjusting for
the amortization of intangible assets, and acquisition costs. The Company's
effective tax rate reflects the blended effect of Canadian, US, and other
foreign jurisdictions' tax rates.
Six months ended June 30, 2000 Compared to the Six months ended June 30, 1999
Revenue. Revenue decreased by $2.1 million (7.1%) for the six months ended
June 30, 2000 as compared to the six months ended June 30, 1999. This decrease
relates primarily to a reduction in third party products and services revenue,
partially offset by an increase in maintenance and support revenue for the six
months ended June 30, 2000 relative to the same period in 1999.
Software and services revenue decreased by $26,000 (0.1%) for the six
months ended June 30, 2000 as compared to the six months ended June 30, 1999.
This decrease was due to a reduction in revenue from telecommunications
customers, as certain major telecommunications industry prospects deferred
purchasing decisions.
E-Business revenue relates to sales of the Company's newly acquired
subsidiary, Connectria. E-Business revenue for the six months ended June 30,
2000 was $3.0 million compared to $2.4 million for the six months ended June 30,
1999. Connectria's revenues in both periods consisted primarily of revenues from
consulting services. The increase period-to-period is a result of the increased
business growth and expansion within the e-Business market segment.
Third-party products and services revenue decreased by $4.4 million (78.7%)
for the six months ended June 30, 2000 compared to the six months ended June 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 will result in large fluctuations in revenue, direct costs, gross profits
and income from operations from one period to another.
Maintenance and support revenue was $4.0 million for the six months ended
June 30, 2000 as compared to $2.3 million for the six months ended June 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 43.2% of revenue for the six months ended
June 30, 2000 as compared to 47.8% for the six months ended June 30, 1999. The
decrease in direct costs as a percentage of revenue is reflective of the
relative increase for the six months ended June 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.
15
<PAGE>
Six months ended June 30, 2000 Compared to the Six months ended June 30, 1999
(Continued)
Gross Margins. Gross margins were 56.8% of revenue for the six months ended
June 30, 2000 as compared to 52.2% for the six months ended June 30, 1999. The
increase in gross margin as a percentage of revenue relates primarily to the
increase in the 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 six months ended June
30, 2000 compared to the six months ended June 30, 1999.
Research and Development. Research and development expenses were 15.7% of
revenue for the six months ended June 30, 2000 and 11.4% of revenue for the six
months ended June 30, 1999. Total research and development expenditures for the
six months ended June 30, 2000 of $4.3 million represents an increase of $
954,000 (28.4%) 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, as
well as development in the Company's new e-Business strategy. 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 22.6% of revenue for
the six months ended June 30, 2000 and 17.4% of revenue for the six months ended
June 30, 1999. This represents an increase of $1.0 million (20.4%) 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 marketing activities worldwide. 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.
General and Administrative. General and administrative expenses were 15.3%
of revenue for the six months ended June 30, 2000 and 11.2% of revenue for the
six months ended June 30, 1999. Total general and administrative expenses of
$4.2 million represents an increase of $883,000 (26.7%) for the six months ended
June 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 acquisition. During the six months ended June 30, 2000 the Company
completed its acquisition of Connectria. This transaction has been accounted for
under the pooling of interests method. During the period, the Company incurred
one time acquisition costs of approximately $2.1 million.
Other Income (Expense). Other income (expense) was ($389,000) for the six
months ended June 30, 2000 as compared to ($496,000) for the six months ended
June 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 six
months ended June 30, 2000 at the rate of 25.6%, after adjusting for the
amortization of intangible assets, and acquisition costs. 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, loans, capital leases, private placements
and public offerings of its securities. At June 30, 2000, the Company had cash
and cash equivalents of $9.6 million and working capital of $21.2 million.
Cash provided by (used in) operating activities was ($2.8) million for the
six months ended June 30, 2000 compared to $(61,000) for the six months ended
June 30, 1999. The net outflow of cash from operating activities, after adding
back depreciation and amortization of $1.3 million, is due to a net increase in
non-cash working capital items of $2.3 million. The net increase in non-cash
operating working capital items is due primarily to a net increase in unbilled
trade receivables of $6.9 million offset by an increase in accrued liabilities
of $1.8 million and an increase in deferred revenue of $3.2 million.
Cash provided by financing activities of $3.1 million during the six months
ended June 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 repaid $193,000 from its capital lease
program. The capital leases are to be repaid evenly over a 36 month period
ending July 30, 2002, bear interest at 8.03% and are secured by certain computer
hardware and software assets of the Company.
Cash used in investing activities was $5.2 million for the six months ended
June 30, 2000 as compared to $2.3 for the six months ended June 30, 1999. Total
investing activity during the six months ended June 30, 2000 consisted of $2.7
million in investments, $2.4 million in purchases of capital assets, $220,000
acquisition of intangible assets and a $191,000 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 June 30, 2000 include $9.6 million of cash
and cash equivalents and up to $8.0 million available under the Company's
operating line of credit. At June 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 June 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 functional currency.
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 and United States dollars and the Great Britain pound. 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 1999. However,
the Company may from time-to-time hedge any net exposure to the Canadian dollar,
the Great Britain pound, and the Euro.
As of June 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 $2.9
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 has entered into foreign currency forward contracts in respect
of net exposures under customer contracts to the Belgian Franc and Great Britain
Pound. Effective January 1, 1999, the Belgian Franc is tied to the Euro, the new
European Union common currency. The effect of the these transactions is to
reduce the potential reduction in future earnings from a hypothetical
instantaneous 10% change in quoted foreign currency exchange rates to $2.7
million.
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
On June 1, 2000, the Company issued a total of 845,316 MDSI common shares
to the shareholders of into Connectria Corporation, a Missouri Corporation
("Connectria"), in connection with the merger of MDSI Acquisition Corporation, a
Delaware corporation and a wholly-owned subsidiary of MDSI, with and into
Connectria. Connectria became a wholly-owned subsidiary of MDSI. The common
shares were issued pursuant to an exemption from registration under Rule 506 of
Regulation D of the Securities Act of 1933, as amended. The Company filed a Form
D with the Securities and Exchange Commission in connection with the issuance of
the shares.
(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
The Company's 2000 Annual General Meeting of Shareholders was held on June
21, 2000. A total of 4,177,189 common shares of the Company were represented in
person or by proxy at the Meeting, consisting of 54.26% of the total number of
common shares of the Company outstanding on May 17, 2000, the record date for
the Meeting.
At the Meeting, all of the current Directors of the Company, were
re-elected to serve as Directors until the 2000 Annual General Meeting or until
their earlier retirement, resignation, or removal. The following table sets
forth the voting in the election for Directors:
<TABLE>
Votes Cast Votes Cast Votes
Nominee For Nominee Against Withheld Abstentions Not Voted
----------------------- --------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Erik Dysthe 4,173,290 0 35 2,350 0
Kenneth R. Miller 4,104,638 0 68,687 2,350 0
Robert Cruickshank 4,104,618 0 68,707 2,350 0
John T. McLennan 4,173,105 0 220 2,350 0
Terrence P. McGarty 4,173,325 0 0 2,350 0
Robert C. Harris, Jr. 4,171,088 0 2,237 2,350 0
</TABLE>
19
<PAGE>
<TABLE>
Votes Cast Votes Cast Votes
Nominee For Nominee Against Withheld Abstentions Not Voted
----------------------- --------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Gerald F. Chew 4,171,188 0 2,137 2,350 0
Bruno Ducharme 4,173,105 0 220 2,350 0
Marc Rochefort 4,173,225 0 100 2,350 0
Richard Waidman 4,173,305 0 20 2,350 0
</TABLE>
The shareholders approved the proposed 2000 Stock Option Plan. The
following table sets forth the information regarding the voting on the proposal:
Votes Cast For Votes Cast Votes Withheld Abstentions Not Voted
Against
-------------- -------------- -------------- ----------- ----------
2,378,985 889,443 0 1,075 906,272
The shareholders approved the proposed 2000 Stock Purchase Plan. The
following table sets forth the information regarding the voting on the proposal:
Votes Cast Votes Cast Votes Withheld
For Against Abstentions Not Voted
-------------- -------------- -------------- ----------- ----------
3,256,621 12,282 0 500 906,272
The shareholders ratified the appointment of Deloitte & Touche LLP as the
Company's Auditors for the fiscal year ending December 31, 2000 and
authorization for the directors to fix the remuneration of the auditors. The
following table sets forth the information regarding the voting on the proposal:
Votes Cast Votes Cast Votes Withheld
For Against Abstentions Not Voted
-------------- -------------- -------------- ----------- ----------
4,167,887 5,935 820 1,033 0
The shareholders ratified the proposal to increase the number of directors
to ten. The following table sets forth the information regarding the voting on
the proposal:
Votes Cast For Votes Cast Votes Withheld
Against Abstentions Not Voted
-------------- -------------- -------------- ----------- ----------
4,171,225 3,200 0 1,250 0
The shareholders confirmed certain amendments of the Company's By-Laws
regarding Canadian residency requirements of its directors. The following table
sets forth the information regarding the voting on the proposal:
Votes Cast For Votes Cast Votes Withheld
Against Abstentions Not Voted
-------------- -------------- -------------- ----------- ----------
3,266,083 2,370 0 950 906,272
20
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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 June 30, 2000 the Registrant filed the
following reports on Form 8-K;
1. On May 18, 2000, the Registrant reported that it had issued a
press release on May 9, 2000 to announce that the Registrant had
entered into an agreement and plan of reorganization with
Connectria Corporation, a Missouri corporation ("Connectria"),
pursuant to which MDSI will acquire Connectria.
2. On June 15, 2000, the Registrant reported it consummated a 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.
21
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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: August 14, 2000 By: /s/ Kenneth R. Miller
--------------------------------------
Name: Kenneth R. Miller
Title: Chief Executive Officer
Date: August 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)
22
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EXHIBIT INDEX
Exhibit
Number Description
------ -----------
99.1 Discussion of risk factors.
