All,
Following is a section of the notes taken during recent Due Diligence meetings held between Denise D, Crazy Canuk, myself, and Net Shepherd.
I would like to thank Denise and CC. A lot of time and effort was put into our meetings, before, during and after, the visit with Net Shepherd. There was always a high level of professionalism, attention to detail, and spirit of cooperation between our group and in preparing our findings. The result is one of the best Due Diligence reports available.
Regards,
Barry
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Investors Meeting with Net Shepherd Inc. (NSI)
03 Aug 1999
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Attendees
Investors
Denise D
Crazy Canuk
Barry K
Net Shepherd
Ric Charron, Chief Financial Officer
John Wester, Chief Technology Officer
Out With the Old
Business Direction Switch
· They are in the process of switching business focus. The system integration part of the business is very labor-intensive and the profit margins are low. The focus is shifting to virtual communities, developing the online data business, and i-Business initiatives to be launched next month.
· Due to the movement away from System Integration, it is providing a decreasing contribution to their revenue stream. Because Gross Margins are much higher (7x) than that of Systems Integration, they expect that the i-Business consulting service will provide a higher Gross Margin, thus providing higher profits.
Revenue Notes
· As a result of getting out of the system integration area, they are not actively pursuing small projects; instead, they are focusing their staff on building the infrastructure for their future growth. As a result, direct revenue has been impacted - short term. Their results should be released on 30 Aug 1999. Quarters 3 and 4 will be based on revenues deriving from their Virtual Communities, and they expect these quarters to be very strong, as they move to their new business focus.
In With the New
Background
· NSI uses the Internet to change data into economically valuable knowledge using their online communities.
· Business to Business is their key focus now.
· NSI is looking for annuity-based revenue. This could take the form of licensing. For example, ClickChoice.com may buy their listing of different types of sites etc.
· Trends they see:
· XML-based companies will grow
· EDI-based companies will fall by the wayside
· Their direction is "Web-inspired", described as "transformational" of the Internet. NSI is focusing their efforts on the transformational level. This will enable companies to carry out targeted research in an extremely short time frame.
· There are three levels of eBusiness:
· Transactional - handling transactions over the Internet (i.e. groceries.com)
· Value Added - using the Internet to provide an enhanced service for the client (i.e. tracking information similar to Federal Express - letting the customer follow their package)
· Transformational - providing information and data that will allow companies to transform/change/proactively respond to opportunities or challenges (i.e. employing the community to do active market research - very near real time).
· At the present time, few Canadian investment firms understand the company's objective and their plan going forward. They want to value the company based upon the 1998 revenues; using traditional valuation models on an Internet company with emerging technology. Investment firms in the United States, however, understand the business model and are very excited about what Net Shepherd wants to do. This fall, they will be doing an investment tour within both Canada and the US.
· The next 12 to 18 months will provide the real payoff; the business impact will be realized when they have fully integrated their ability to scrape and sub-categorize the information they get from the Internet. They feel Net Shepherd is an excellent long-term play as the whole industry is moving to knowledge-based technology.
· They continue to work on pilot projects with some of their clients (i.e. Dun & Bradstreet). They are waiting for these key customers to move beyond the pilot stage and sign significant project / service-related contracts.
· As their business development cycle is quite long, quarters 1 and 2 are generally focused on business development, with contracts materializing in the 3rd and 4th quarters.
· They have recently added to the Executive Team: Ray Marchand, Vice President, Business Development (from Shaw Cable) and Peter Hunt, Vice President, Corporate Affairs (from Shell International).
· The Vanenburg group has approximately 3.2 million shares of NSI (less than 10% of the company).
· Alta Vista provides / feeds web URLs and NSI classifies them back to AV.
Business Intelligence / Collaboration Productivity / i-Business Performance
· There are some potential opportunities in the Distance Education arena. They are working with a world respected Educational facility to develop a community(s) for them. This pilot project will involve the Centre of Educational Excellence (Digital Media Centre) in Calgary.
· Vanenburg group pilots are - Kindersnet (a rating database), and a radio network in the Netherlands. ClickChoice is doing the front-end work, while all the back-end work is being done by NSI.
· NSI has worked with Discover Card to perform a competitor's review.
· They have worked with Dun & Bradstreet to perform a corporate Director's search. The data was delivered in one-tenth the time and at one-tenth the cost of traditional methods, and the information was of an equal or better quality - indicative of the enormous potential of NSI's method.
· Dun & Bradstreet is still working with them on pilot projects, such as Web Center. NSI remains eager to move forward with the opportunities D&B provides.
· Current/Potential Clients:
· Business Intelligence:
- Dun & Bradstreet
- Bloomberg
- Equifax
- Information.com
· Collaboration Productivity:
- A.C. Nielson
- Angus Reid
- Newspapers
· eBusiness Performance:
- Shaw Cable
- Portals
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