L.A. May Block Pensions of Some Valley City Workers Politics by Jacqueline Fox Representatives of Valley VOTE, the group spearheading the secession drive, say they are getting warm and fuzzy feedback from city employee unions regarding its proposal for transferring workers to a new San Fernando Valley city. But while the group’s plan calls for protecting every existing city position, they say they’ve been told by Los Angeles city officials that, because of sharp staffing shortages in the police and fire departments, those workers would have to forfeit their pensions if they decide to transfer over. Valley VOTE has proposed to the Local Agency Formation Commission (LAFCO), the state agency crafting final terms and conditions for a split, that all L.A. city workers currently stationed in the Valley be given the first “invitations” to work for the new city. Valley VOTE President Jeff Brain claims the city thinks this is a good idea. But only civilian employees, according to Brain, would be allowed to leave and retain their pensions. However, Brain said, because of state laws regarding reciprocity for union workers, LAFCO would have the final say over the impasse because it has the authority to intervene when state and city laws collide. “LAFCO has the authority to say you will have reciprocity, or we (LAFCO) will simply divide the pension funds and those who are vested would be able to take their accrued pensions with them,” Brain said. “LAFCO can say you must make the pensions portable.” Hahn spokeswoman Julie Wong confirmed that LAFCO and Valley VOTE were told police and fire workers are barred from taking their pensions with them if they go to work for another city. But she said the rules are part of the City Charter and an effort to retain its trained police and fire units. “It has nothing to do with the current shortage everyone is hearing about,” Wong said. “If we had more than the number of employees in those departments than we needed, the rule on pensions would still apply.” Valley VOTE has also proposed that any workers who transfer to the new city be given five years to change their minds and go back to Los Angeles with their pensions intact. Brain said, while union leaders are some of the loudest opponents to their plan for transferring employees, many of the rank and file workers seem to feel differently. “We are hearing from employees in every department saying they are interested in working in the Valley,” Brain said. And, during a March 7 negotiating session between Valley VOTE, the city and attorneys for both camps, the city claimed it did not have to relinquish state or federal grants it expects to receive for 2003 for Valley-specific programs. Brain said his group was told any federal or state money earmarked for the Valley would be returned to the agency from whence it came. Funny thing is, Brain said, the city might just have a hard time figuring out what to return. He said Valley VOTE asked the city to provide the group’s attorneys with data indicating how much of state and federal grant money actually flowed to the Valley in 2001. “We were told there was no record of that,” said Brain. In fact, he said, one city representative indicated that “a lot of it stays downtown.” That’s fine fodder for secessionists, who say the city has long shortchanged Valley residents. Valley VOTE is proposing that the new city, should voters approve its formation Nov. 2, apply for its first grants in 2003 for 2004. Making the Rounds Mayor James Hahn made the rounds in the Valley last week, announcing a new online business permitting program that ultimately, he said, would allow applicants to apply for and receive their business permits within hours instead of weeks or months. He followed that up with a visit to the Encino Town Center to announce a new citywide Business Improvement District Service Improvement Plan, and later dined on chicken and vegetables at a Woodland Hills Chamber of Commerce luncheon, where he served as keynote speaker. Announcing the new business permit program, Hahn said, “We’re going to make it so wonderful that you wouldn’t ever want to think about leaving us.” Unfortunately, Hahn didn’t appear to have quite as much time on his hands when he spoke at the Public Hearing on Special Reorganization March 9 in San Pedro, where a drive for a breakup is also underway. Hahn stood before the LAFCO panel and attendees and, according to Brain, “gave a long speech about how much he loves San Pedro,” then left the hearing before other public speakers could voice their own comments. According to Brain, had Hahn stuck around, he’d have gotten an earful about his departure. “Several speakers came up to the podium afterward asking, ‘If he likes it here so much, why doesn’t he stick around?”‘ said Brain. Hahn and City Council President Alex Padilla also drew criticism at the first public hearing on secession in the Valley last summer when they were allowed the first two speaker slots and then left immediately afterward. Jacqueline Fox is the politics reporter with the San Fernando Valley Business Journal. She can be reached at [email protected].

Pending Federal Legislation May Help Verizon in Valley By JACQUELINE FOX Staff Reporter Bring it on. That’s the sentiment of one DSL Internet service provider in the San Fernando Valley regarding a bill making its way through the U.S. Congress that could give Verizon Communications and three other regional Bell telephone companies clearance to build up their broadband infrastructures. The bill also would allow the companies to reclaim telephone lines they now are federally mandated to lease to competitors. Verizon and supporters of the measure, including the Valley Industry and Commerce Association, say the bill would spur competition and boost quality of service within the broadband market, particularly in rural areas like Lancaster and Acton. Representatives from Rochester, N.Y.-based PaeTec Communications, which has roughly 2,000 Valley-based customers and leases lines from Verizon, say they would likely not be threatened by the legislation because they have other markets that can be exploited. “Don’t worry about Paetec,” said J.T. Ambrosi, the firm’s senior vice president of carrier and government relations. “Our core customer base is the small to mid-sized company, but we could always adjust our business policies to focus on bigger corporations. But, he said, the bill would force smaller DSL and phone service providers in the Valley out of business, and those left standing would have to pass higher prices on to their customers. “It’s the consumers and the smaller DSL carriers that are going to be impacted and, if the bill wins, it threatens to create a renewed monopoly by the Bells,” Ambrosi said. The so-called “broadband bill,” which won sweeping approval in the House of Representatives last month, would lift the requirement under the 1996 Telecommunications Act that forced Verizon and the three other regional Bell telephone giants to open up their networks to competitors. Verizon already provides DSL service in parts of the Northeast Valley, alongside SBC Communications (parent company of PacBell). But Verizon would like to expand its broadband services into rural areas, like Lancaster, Acton and Palmdale, where DSL is still a relatively untapped market, particularly for the home consumer. DSL is nearly 2,000 times faster than regular dial-up service and offers additional perks, such as high-definition video. PaeTec leases access to Verizon’s lines in the area at reduced or “unbundled” prices, but has also invested its own capital in transforming them from traditional telephone to digital subscriber lines. Successful passage of the bill would give Verizon the option of reclaiming those lines and switching rents back to “street price” levels. “Competitive carriers, like Paetec, are the ones who brought the innovative digital technology in,” said Ambrosi. “We groomed the networks and brought in the competition, and taking the power away from companies smaller than ours is a fundamental mistake, because it means the customers will have fewer choices. But don’t worry, we aren’t going anywhere.” Verizon representatives say mandates forcing it to provide access to others were in place long before DSL service was even an option. They maintain the bill would level the playing field by giving the Bells an opportunity to compete more fairly with big cable companies that, it’s estimated, now claim roughly two-thirds of the DSL customer base nationwide. In addition, cable companies like Adelphia Communications, which operates in the Lancaster area, aren’t subjected to the same mandates because they did not use taxpayer money to build their lines. “In 1996, the Internet was not on the minds of the Congress,” said Francisco Uribe, director of government affairs for Verizon. “The mandates originally had to do with telephone networks, not DSL networks, and we think there’s a definite economic advantage to lifting these requirements.” Verizon claims the bill would bring a $500 billion benefit to the U.S. economy and create roughly 1.2 million jobs in the high-tech sector. Uribe said Verizon has had to accept such low rents from competitors that there’s been little incentive to make capital expenditures in its broadband network, particularly in areas where it already has to share it with so many other companies. However, Verizon reported record growth in the DSL market for the fourth quarter of 2001 with an additional 225,000 lines of service nationwide, doubling the number of its high-speed subscribers to 1.2 million.

Toyota of N. Hollywood Expands By SHELLY GARCIA Senior Reporter Toyota of North Hollywood is set to begin a $4 million expansion that will net the dealership a brand new showroom and an expected 14-percent increase in monthly car sales. The dealership, touted as the No. 1 Toyota retailer in Los Angeles, has torn down its old showroom to make way for a new 56,000-square-foot facility that will house 250 cars on two levels along with expanded office and administrative space. “Right now, I’ve got 500 cars parked at storage lots all over the place,” said Chris Ashworth, vice president and general manager of the Lankershim Boulevard dealership. In addition to more display space, the new showroom will include enlarged office areas right now some 35 Toyota of North Hollywood salespeople share about 30 tightly situated desks a new customer lounge and a new conference room. Additional service bays will be constructed behind the showroom, bringing the dealership’s total number of service bays to 38. The expansion is the second for Toyota of North Hollywood since mid-1998, when the dealership acquired the adjoining piece of property on which the new showroom will be built to accommodate what was then a fledgling business in sports utility vehicle and mini-van sales. That business has since mushroomed, contributing to overall monthly unit sales of 400 new cars and 300 used and certified (pre-owned vehicles sold with a warranty) cars. The company’s showroom facilities, first constructed in 1942 and expanded piecemeal through the years, have not kept pace with that growth. “When I came here in 1985, we were selling 120 new cars and 60 used cars,” Ashworth said. With the expanded parking and showroom facilities, the dealership is expected to bump its monthly sales by 75 new cars and 25 certified cars. “If I can’t stock more cars, I can’t meet customer demand,” Ashworth said. “The new space is going to make the sales process a lot more efficient and provide a better choice of vehicles on one lot.” Rather than the slowdown in car sales anticipated after Sept. 11, Toyota of North Hollywood saw sales jump by 25 percent for the final quarter of 2001, compared to the fourth quarter of 2000. Some of that increase was fueled by zero-percent financing incentives offered by most manufacturers, including Toyota. Those incentives have largely been withdrawn since January but, hoping to maintain the momentum of the last quarter, Toyota of North Hollywood has continued to offer the program by paying the difference between Toyota’s finance company rates for qualifying customers. “It costs us quite a bit of money to buy down the interest rate,” Ashworth said. “It’s hurt margins, but we’re still selling more cars.” Others point out that it is not uncommon for larger dealerships to do what Toyota of North Hollywood is doing. “They like to sell cars,” said Chris Denove, a partner with J.D. Power and Associates, a consultancy in Agoura Hills. “It is that simple.” For dealers like Toyota of North Hollywood, who rely not only on local customers but on traffic from outlying regions, these incentives can be crucial. “What they’re doing here is capitalizing on the manufacturers’ success of zero percent and advertising it so that they can offer something that no other dealer is advertising,” Denove said. At the same time, a larger retailer like Toyota of North Hollywood can lessen the toll on margins by spreading their fixed costs across a larger volume base, Denove added. January and February are typically the slowest selling months of the year for dealers, but car sales in the first two months of 2002 have risen over last year. Nationwide, Toyota sold 109,257 vehicles in January of this year and 109,457 cars in February, compared to 102,497 cars in January and 108,757 in February of 2001, according to J.D. Power & Associates. Industry-wide, carmakers sold 1,111,337 cars in January, and 1,307,594 in February of this year, compared to 1,169,872 cars in January and 1,355,590 cars in February of 2001, the Power data revealed. Given the success of the incentives, Ashworth said he has not yet determined how long he will keep the promotion going. “I’m playing it by ear,” Ashworth said. “But right now I do not see taking it away. If it’s bringing in customers, that’s great. I’m just happy to see more traffic.”

What’s Left Unsaid After Saying No to Home Depot Real Estate by Shelly Garcia It looks like Proposition H, the initiative that will limit all retail development in Agoura Hills to businesses of less than 60,000 square feet, will pass. At the Business Journal’s press time, it was leading by 110 votes, less than 1 percent of Agoura Hills’ registered voters. To be exact, of the 5,028 voters who cast votes either way for the measure, (representing about a 40-percent voter turnout) 2,569 were for it, 2,459 against. Which brings me to another question: What were the voters voting for? And what were they voting against? Sure, the encroachment of the urban on the suburban has created a backlash. Sure, NIMBYs have made it more and more difficult for developers to do what they do. But Proposition H was touted by its proponents as a way to strike back against traffic, congestion and urbanization. When a city of educated, affluent citizens obsessed with their oak trees can muster only 20 percent of its voters to pull a lever for what was promoted as the biggest environmental issue to hit Agoura Hills since the birth of the freeway, it makes you wonder just what kind of cause this really is. With the passage of the measure, Home Depot, the store that was set to become the anchor tenant of a retail development proposed by Selleck Development Group will not be coming to town. Dan Selleck, the president of the development company that bears his name, will go back to the drawing board to come up with another plan for the property, much of which he has already purchased. Selleck said he will look at a scaled-down version of the original plan, maybe alternative uses industrial, office buildings or a mixed use project. One thing is certain, there won’t be any easy choices. “Because of all the infrastructure improvements and traffic mitigation fees, it’s going to be a very expensive site to develop,” Selleck said, “and without a major tenant taking approximately 11 acres and paying for a large portion of the traffic improvements, we’re going to have to sit down and study the economics.” The passage of Measure H will likely limit Agoura Hills’ choices in many ways. Short of repealing the law, it means no new large stores can ever move to town no supermarkets, no department stores, no Target, no Circuit City, no Staples, no Lowe’s Home Improvement Centers, not even a Nordstrom. If an existing supermarket wants to expand, adding, say, a pharmacy or a bakery, it can’t. A respectably sized garden center can’t even plant roots in Agoura Hills now. The idea that Agoura Hills is now hamstrung in this way is troublesome to city officials like Ed Corridori, the town’s former mayor and a member of the city council. “Whenever you encumber property with restrictions that other properties don’t have, you affect the value and marketability of the property,” Corridori said. “Short term, is that going to make a difference? Probably not. The issue is whether long term, because there is a class of buyers that are eliminated or no longer going to be interested in that property, that affects the value and it attracts uses that are inclined toward lower values.” Corridori doesn’t think voters deliberately voted to reduce the value of and marketability of their city. He doesn’t even think they voted to keep big retailers out. What they voted for, was to keep Home Depot out. A lot of other folks agree. “I think they were perhaps voting on whether or not to approve a Home Depot,” said Mike Kamino, director of planning for the city. “And that wasn’t the issue here. Measure H wasn’t specifically a Home Depot measure.” Measure H was a Home Depot measure for the business group that put the vote in motion. Citizens for Responsible Growth, a group of local merchants who banded together to initiate and support the measure, wanted to keep Home Depot out because the store would compete directly with theirs. Competition probably wasn’t on the minds of the other 2,569 voters who gave the measure the green light. But Home Depot was, for reasons that may have more to do with the attitudes of the citizenry than the store. Here’s what one outspoken critic had to say on the CRG Web site, albeit anonymously: “Home Depot won’t care if you don’t shop you will get all the yahoos from the Valley stopping in and polluting our neighborhood. Look what trash from the Valley the Canyon Club is bringing in. More low renters lurking around in our neighborhoods seeing what house to rob for drug money.” Home Depot has struck an emotional chord in many neighborhoods because it brings with it pickup trucks, construction workers and day laborers. Those reactions may have been more pronounced in Agoura Hills, where brokers, at least privately, call the locals snooty at best, racist at worst. “Home Depot and Wal-Mart are especially lightning-rod tenants,” said a local retail broker who asked not to be named. “Home Depot because it draws a lot of day laborers. Wal-Mart is not always welcome because of their non-union stance. I don’t know if it would have been as big a lightning rod if it was a Target or Kohl’s.” So developers and brokers can rest assured that the passage of Measure H is not a harbinger of more problems and obstacles to come. Or can they? Whatever you think about attitudes surrounding Home Depot, the fact remains that a small group was able to manipulate a citizenry to permanently alter the way development is decided in a community. That’s not a very reassuring trend for the real estate industry. Senior reporter Shelly Garcia can be reached at 818-676-1750, ext. 14 or by e-mail at [email protected].

StemSource Struggles With Low Funding, Controversial Research By CARLOS MARTINEZ Staff Reporter StemSource Inc. in Thousand Oaks is every bit the struggling biotech startup its founders anticipated. Its offices filled with used furniture and second-hand computer equipment, StemSource is making do with the $2.5 million it raised last fall in its first round of funding. About half came from a medical device company, the rest from family, friends and individual investors. “We knew things would be tough at first and we expected that funding would be difficult,” said company CFO Terry Butler. StemSource had hoped to raise $4 million to $5 million during that first round, but it “just wasn’t there,” Butler said. The year-old firm is developing proprietary stem cell technology that Butler says could ultimately help heal damaged organs and tissues without the problems of rejection facing other types of stem cells. Stem cells are so-called “unprogrammed” cells that give rise to others in the body. They are considered a potential source of replacement cells and tissues to treat disorders such as spinal cord injuries, diabetes and stroke. But even as it undertakes research that could develop therapies the company says may be worth millions in potential revenue, the tiny startup is struggling to get a second round of funding off the ground. “We had an initial goal of $8 million,” Butler said, “but we felt $4 million would probably be more realistic.” “The problem today is that venture capitalists are focusing less on startup companies and more on their portfolio,” said Brent Reinke, managing director of Crosby Heafey. “Most of the investments I see in biotech are from family and friends and wealthy individuals that put a lot of faith in the individuals and the company.” Butler expects revenue of between $10 million and $20 million in the first year after the company’s products hit the market, hopefully in 2005. He believes those figures could double in every succeeding year. StemSource received about half of its initial funding from small San Diego-based medical device-maker Macropore Inc., which went public in 2000. “It’s much more difficult to have that kind of relationship with a larger company, They’re so much bigger and so there isn’t this equal negotiation,” Butler said. With funding trickling in slowly, StemSource went ahead last month with one revenue-generating idea it believes will raise about $1.5 million this year: a fat cell bank that stores fat tissue retrieved from liposuction patients for possible future use. The company, which began operations in January 2001, moved into new quarters in August, a 15,000-square foot building, about half of which is devoted to lab space. Even so, scant funding makes the company’s leadership choosy about how it spends its money. “Priorities change from day to day,” said CEO Mark Hedrick. “Without a lot of money and without a big staff you can’t get everything done that you want to do. “You do what’s most urgent and what’s most critical, but it is a juggling act.” StemSource’s nine employees saved money by doing their own interior renovations and by purchasing furniture at a dot-com auction several months ago. “You do whatever has to get done,” Butler said. “We come in on a Saturday and we’ll go into the different labs and hang phone wires and paint floors.” StemSource is seeking out individual investors and other such “angel investors” but, Butler said, he’s not averse to funding from venture capitalists as long as the terms are right. “What they usually want is more control over business decisions and more control over the strategic direction of the company,” he said. Some analysts see potential in StemSource. Others, like Eric S. Sharps of Four Square Partners, say biotech investments aren’t for everyone. “There’s a lot of risk involved, especially for small investors,” he said. The lure of potentially millions is what drives investors to these small biotechs, said Crosby Heafey’s Reinke. “StemSource is one startup that has a lot of potential and shows some good signs,” he said, “but biotech is funny. Something may look extremely promising, but then never make it.” That’s nothing new, said James Harber, director of Ventura College’s Central Coast Biotechnology Center, but investments involving stem cell research are perhaps riskier than most. Research like that conducted by StemSource offers the chance to perhaps eradicate maladies such as Alzheimer’s disease and diabetes, Harber said. But stem cell research has been the subject of great controversy in recent years as scientists and religious leaders debate the use of stem cells from fetuses. None of which applies to him, said Hedrick, who hopes his research into stem cells taken from fat would eliminate the need for fetal cells. Hedrick said that stem cells taken from fat can be engineered into various kinds of tissues bone, cartilage, muscle and fat with the same ease as those from fetal cells. Because fat is so abundant, it can be a major source of stem cells for scientific use. Such laboratory-engineered stem cells could be available within three years, Hedrick said. “Stem cells are really the best engine out there to drive healing,” he said. “Not only can they participate in the healing process, but they can handle every different tissue or organ in the body.” Today, the company is working with doctors and patients who wish to store their own stem cells in their cell bank where they are frozen and can be retrieved eventually to heal injuries or conditions. “That way, you don’t have rejection issues like you have in instances of transplants,” Hedrick said, adding that a person who may be in his 70s could use his own stem cells stored at age 30, and would thus have the tissue of a 30-year-old man to heal an injury rather than weaker cells of a 70-year-old.

Nomadix Gets $9 Million In Latest Round of Funding By SHELLY GARCIA Senior Reporter Despite the tough investment climate and the slowdown in Internet technology spending, one local software developer has raised $9 million of a $12 million financing round from both new and existing investors in its fourth funding round. Nomadix, a Westlake Village-based company that develops “plug and play” software solutions that allow mobile users to connect with their service providers in any location, expects the round to be its last before reaching profitability. The company said it will use the financing to increase its business development and sales and marketing efforts, and boost revenues so that the company can become self-sustaining. “There are some investments in additional sales talent we’d like to bring in,” said CFO Eric J. Larson. “There are marketing programs Pat (Parker, CEO) likes to say we are the best unknown company in Southern California and we’d like to change that.” Four-year-old Nomadix was founded with a proprietary technology that connects end users to their home-office, high-speed communications networks, regardless of whether they are using personal digital assistants, computers or laptops and without the need to reconfigure the equipment, essentially with the push of a button. That means, for instance, a business executive without any technical savvy can sit in a hotel room hundreds of miles from the home office and use the same high-speed Internet provider with which the company already has an account to send and receive e-mail or access the Internet or the corporate network. The technology not only provides more flexibility for travelers, it can simplify billing and accounting paperwork and provide greater security for communications. But getting the technology to the end users who would most appreciate its benefits has proven somewhat elusive. Nomadix initially sought to sell its technology directly to the telecom companies that provide Internet service and to computer makers who would add a piece of hardware containing the function to their equipment. With the appointment of its current CEO, Patrick Parker, about a year ago, the company has shifted its marketing efforts to component manufacturers servicing the telecom and computer industries, where distribution channels are already in place for the systems Nomadix designs. The company recently signed a licensing agreement with Agere Systems, a wireless access point vendor, and plans are underway to further these types of marketing efforts. “We are now starting to really build relationships with leading vendors who are selling equipment to (these providers),” Larson said. Larson would not release specific sales data. He said that since it began shipments of its Network Service Engines two years ago, Nomadix has shipped over 2,000 units and the company’s workforce has increased in the past six months from 45 to 55 employees. Those results helped to retain three investor groups who participated in previous rounds AvTech Ventures in Del Mar, Intel Communications Fund and L.A.-based Smart Technology Ventures along with a new source of capital for Nomadix, Keystone Venture Capital in Philadelphia. “I can tell a pretty exciting story in that we have revenue. We have grown for three consecutive quarters, we have decreased expenses, have cash in the bank and are solving an important problem that is begin magnified as the world becomes more mobile,” Larson said. While valuations for tech companies have generally decreased precipitously since the heyday of the Nasdaq market a year ago, Larson said those trends are less important to companies like Nomadix. “Getting overly concerned about the valuation as of today should not be a priority,” he said. “The issue is, do you have a fund-able business, which the answer (for us) was yes. “In today’s climate, to get a nice, clean deal with new investors stepping up is an outstanding accomplishment.”

Digital Insight Preps a $100M Stock Offering By SHELLY GARCIA Senior Reporter Digital Insight Corp. is going on a buying spree. The Calabasas-based provider of customized Internet sites for small- and mid-sized banks and other financial institutions late last month registered its intent to issue a public stock offering to fund an aggressive acquisition strategy. Digital Insight plans to offer an additional 4 million shares of its common stock, raising more than $100 million at current prices, to buy up some of its competitors. “The timing couldn’t be any better,” said Jeffery B. Baker, senior research analyst with US Bancorp Piper Jaffray. “We’ve seen competitors to Digital Insight cut their support staff and sales staff down to the point of survival because they’re trying to cut their cash burn rates. It’s a good time for Digital Insight to consolidate the industry.” The move signals not just Digital Insight’s strength in a fragmented industry, but also an anticipated surge in demand among financial services companies for online services. Once a service provided only by the largest financial institutions, those with smaller assets are increasingly seeking ways to add Internet banking to the mix of services they offer. “These mid-tier and community banks, those are the ones that are scratching their heads saying, ‘How do I implement this stuff?'” said Virginia Philipp, senior analyst for e-banking at TowerGroup, a research and consulting firm in Needham, Mass. Officials at Digital Insight noted they are in a quiet period and were unable to comment for this story. But analysts who watch the financial services technology sector point out that acquiring weaker competitors in the current market is probably the cheapest, most efficient way to grow. “The attractive part of the story is that, in many cases, they can buy customers cheaper than if they acquire those customers on their own,” said Jeff John, an analyst with SunTrust Robinson Humphrey, an investment firm in Atlanta. “Not only can you add customers for a cheaper rate, you can do it a lot more quickly.” Digital Insight toiled in the red for seven years as it built out the infrastructure it needed to sell to banks, savings and loans and credit unions. Now in the black for the first time since its founding in 1995, Digital Insight boasts a customer base of about 1,200 financial institutions, 2.4 million end users and a 12-percent market share among those banks that offer online services. With about 22 percent of consumers now conducting some form of banking business online, e-banking has not grown at the rates once expected, Philipp said. But most believe that acceptance of online banking will grow in much the same way automated teller machines once did. In a report advising investors that he expects Digital Insight to outperform the market in the coming year, Morgan Stanley analyst Michael Sherrick wrote, “We note that with nearly 30 million potential end users, Digital Insight boasts an ample base of potential revenue-generating users.” Meanwhile, interest among bank customers is increasing, regardless of the speed at which end users adopt such services. Legislation passed several years ago allows banks to expand the range of products they offer, and many have added such services as stock brokerage and insurance. Those customers who use these online services tend to be more affluent, capable of generating more revenue for the bank, but there is fierce competition for those customers, not just among other banks, but among online brokerages and other e-commerce companies. By establishing an online presence, a bank can tap into individual customer profiles and target its marketing specifically to each user, making it easier to cross-sell products. And those banks that succeed in capturing customers for several different services and products are far more likely to retain them despite intense competition from other institutions. “It’s not so much about market share,” Philipp said. “If they only check balances (online), that’s not nearly as important as getting into the attractive customer you already have and selling them stocks and mortgages. Those consumers will think many times before they take their business elsewhere.” Large banking institutions have for some time now worked to attract these customers by building an in-house Internet infrastructure. But the far greater percentage of banks and credit unions, some 9,400, are smaller institutions that, in many cases, are struggling to provide an Internet presence with limited budgets and in-house resources. Digital Insight, analysts say, offers these institutions a cost-effective method of delivering online services because of its low licensing fee – $20,000 to $40,000 and affordable monthly charges based on usage. At the same time, the company’s past efforts to build its infrastructure now allow Digital Insight to add customers without a lot of additional cost. “They have a very fixed cost platform,” said John at SunTrust. “They’ve built these data centers out, now the game is to add customers to this platform, and the marginal cost of supporting each individual customer is (a lot less than) the revenue they’re bringing in.” Digital Insight last year acquired three companies, both to bolster its customer base and to add technologies it lacked. But those acquisitions were largely made with stock shares. By using cash for its future acquisitions, Digital Insight stands to drive a better bargain than it could with stock. Analysts also point out that by adding to the number of shares outstanding, Digital Insight increases its visibility on the street. “A lot of their stock is held by a couple of institutions, and this equity offering will improve the floats, which should make it more attractive for other institutions to come in and take positions,” said Baker. Already, Digital Insight has begun to garner more attention among investors. The company’s stock price has risen sharply in recent months to the mid-$20 range from $10 to $12 in October, following a strong fourth-quarter financial report in which the company reported a 10-percent growth in revenues to $27 million and a pro forma operating profit of $0.04 per share.

Biotech Investing Takes Patience, Comfort With Risk By CARLOS MARTINEZ Staff Reporter When former Amgen Inc. CEO and Chairman Gordon Binder told an audience last year how the now-giant company started out by securing $19 million in investment capital with no technology, no business plan and exactly one employee, many in the crowd laughed. They knew how much things have changed. Today, for investors interested in the biotech sector, the promise of a revolutionary new drug or therapy is not enough. They’ve got to see a viable business plan too. “People are looking at the potential and viability of a company more now than ever,” said Brent Reinke, managing director of Westlake Village-based Crosby Heafey, a law firm that specializes in putting together deals for the area’s biotech firms. “People are always looking for the next Amgen, but that doesn’t mean they’ll invest in something just because it sounds promising.” Thousand Oaks-based Amgen reported $1.2 billion in net income on $3.7 billion in total revenue last year, and is widely viewed as the prototype of a tiny startup that grew to be an industry leader. “The payoff can be huge if you’re a serious investor willing to wait years for a product to come to market,” Reinke said. For instance, Amgen’s recently approved anemia drug, Aranesp, took nearly 10 years to develop. Analysts believe it could bring the company sales of as much as $2 billion a year. Bill Robbins, managing director of Los Angeles-based venture capital firm Convergent Ventures LLC, said investors realize they’re making gambles that could prove immensely profitable or turn out to be just another bad bet. Because of the intricate research and development process required for new drugs and therapies, companies can often take years just to get to the point where they can conduct early clinical trials, which can drag on even longer before products are finally approved and brought to market. Those protracted time frames are not particularly appealing to eager investors hoping for returns on their investments sooner rather than later, Robbins said. “For people who follow the industry, that’s a part of the normal process of developing new drugs. You can’t guarantee a winner,” said Robbins, who has invested millions in firms like Neurion Pharmaceuticals Inc. in Los Angeles and Cyrano Sciences in Pasadena. Such was the case in January when Santa Barbara-based Miravant Medical Technologies failed to meet its goals during late-stage clinical trials for its SnET2 drug for the treatment of macular degeneration, a leading cause of blindness. The drug, in development for nearly 10 years, now faces an uncertain future. So does the company, with a stock price that fell from $9.75 to about $1 following its announcement of the drug’s failures. Miravant, which has no other products in the market, is seeking new partners to continue its research with SnET2. “Stories like that hurt the industry and makes investors leery of these technologies,” Reinke said. But Norm Higo, an individual so-called “angel investor” in Thousand Oaks-based stem cell biotech startup StemSource Inc., said he’s not fazed by the troubles of other biotechs. “I don’t worry about what other companies are doing. I felt that this is a solid investment, based upon my understanding of the stem cell field,” he said. Higo said his investment is, of course, financial and he’s hoping for a return on his money, but his interest is humanitarian as well. “My investment is kind of a gift back to society,” said Higo, who would not disclose how much he invested in StemSource, “to advance some promising technologies, and I believe that stem cells, in particular adult stem cells, show a tremendous potential to help mankind.” Angel investors with that attitude are coveted by biotech firms that have trouble finding venture capital, said Sidney Edwards, a principal with TL Ventures in Los Angeles. Early angel funding is critical in the development process, when venture capital is particularly hard to find, he said. Biotech startups require substantial capital for everything from acquiring expensive laboratory space and equipment to office space and qualified personnel, Edwards said. “That’s where angel funding comes in,” he said. But it comes with a double-edged sword, said Reinke, who noted that angel investors often insist on substantial control over how the funds they provide are used. “We focus on companies that have a good business plan and great product potential,” Robbins said. “Everybody wants to be a part of the next Amgen. But you have to be willing to be in it for the long haul.”

Small Business Profile: Something in the Air After a quarter century of manufacturing toxic gas detection systems for industry, Interscan finds itself in the middle of today’s headlines By JACQUELINE FOX Staff Reporter Could you have bad breath and not know it? How do pesticide companies ensure customers it’s safe to go back in their homes after they have tented them for fumigation? And could residue from the chemicals used to kill anthrax spores released inside lawmakers’ offices in Washington, D.C. last year be posing just as deadly a risk as the anthrax itself? As disjointed as they may seem, these questions are intricately linked for engineers and workers at Chatsworth-based Interscan Corp. The privately held company, launched in 1976, manufactures toxic gas detection systems for urban hospitals, major public works facilities and private-sector firms of all sizes. Three or four decades ago, gas detection devices were primarily bought by industrial users to, for instance, test for carbon dioxide levels in manufacturing plants. Then, the so-called “sick-building” syndrome that began attracting attention a decade ago spurred interest in specialty markets. And today, Interscan’s products can be found in a wide range of places its founders never dreamed of, everywhere from the dentist’s chair to recycling plants to the offices of U.S. Sen. Tom Daschle. Interscan representatives are even being consulted by experts exploring cleanup efforts at the World Trade Center’s Ground Zero, now under scrutiny by the government following complaints from workers there about exposure to potentially harmful toxins. “Although we came early into this business and remain one of the leading providers in the industry, there were and still are many, many competitors out there,” said Michael D. Shaw, Interscan founder and executive vice president. “So we decided that the only real way to expand was to dive into niche markets. The challenge, however, is that they tend to be small markets, so you have to keep churning out new ones in order to keep growing. But it’s the niche markets that have made us profitable over the years.” The company’s revenues for 2001 were $8.4 million and Shaw is projecting they will top the $10 million mark this year. Interscan’s detectors come with interchangeable sensors, which can be used to test for and monitor different types of gases. Locally, the Las Virgenes Water District in Calabasas recently began using Interscan’s hydrogen sulfide meters to test toxin levels at its recycling and composting center. “We’ve used gas detectors for years for other purposes, but now companies like Interscan are testing for oddity things,” said Jacqy Gamble, management analyst for the district. “So this is a new application, a new technology that’s developing, and it’s worked very well for us because they have products that now allow us to do continuous monitoring, not just random testing.” One sensor designed to check formaldehyde levels is being used by big pesticide companies, such as Orkin Pest Control, to check post-fumigation toxin levels. Interscan’s patented Halimeter, which costs about $1,600, is used by dentists both here and, most recently, in Japan, for diagnostic testing of chronic halitosis, better known as bad breath. Interscan introduced the first Halimeter in the 1990s and now sells 500 to 600 a year, Shaw said. “With the change in the medical field and reimbursements, dentists, like doctors, recognize the value of a fee-for-service procedure, and the Halimeter offers them a way to test for this problem and retest for follow-up treatment,” said Shaw. Since Interscan is one of only three companies in the country that makes detectors and sensors for chlorine dioxide, the gas commonly used to kill anthrax, the company landed a contract with Washington, D.C.-based waste management firm IT Technologies. IT was hired to test the toxin levels in the Hart Senate Office Building where high levels of chlorine dioxide were used to kill anthrax spores following the attacks of Sept. 11. High levels of chlorine dioxide, Shaw said, can be potentially fatal. “They (those involved in the cleanup effort) went in very quickly and cleaned up those offices, but what have we heard about how safe the chemicals they used were?” Shaw asked. “If you think about it, not a lot.” Because of the proprietary nature of the anthrax cleanup process, Shaw said he has no indication of what IT has found and who the company is turning results over to. One thing for certain, it isn’t Interscan. “Put it this way,” said Shaw, “some things we just aren’t privy to. So we have no idea.” Interscan representatives have also been asked to weigh in at public meetings in New York between state and local officials and workers at Ground Zero concerned about exposure to toxins in the World Trade Center rubble. Future growth, said Shaw, will hinge on moving into other specialty markets. But the company also has plans to launch a massive marketing program for another product: software for gas detection devices, which can be used with or without Interscan’s own machines. “I think that’s the one area where I have to say we have let fall off and we shouldn’t have,” said Shaw. “So growth there has been slow, and I think what it will boil down to is getting outside distributors involved.” SPOTLIGHT: Interscan Corp. Core Business: Manufacturer of toxic gas detectors and software Revenue in 1976: $400,000 Revenue in 2001: $8.4 million Employees in 1976: 4 Employees in 2001: 25 Goal: To expand applications in niche markets and push software sales Driving force: The need to detect airborne toxins

The Digest Homestore Again Restates Revenues Westlake Village-based Homestore.com Inc. announced that it has completed its accounting inquiry, and filed its restated results for 2000 with the Securities and Exchange Commission. The company determined that a total of $36.4 million in revenue had been recorded as cash transactions, when they actually should have been recorded as reciprocal exchanges and barter. The company’s accounting woes have resulted in a complete management changeover as well as widespread layoffs. Most recently, Richard Smith, the chairman and chief executive of Cendant Corp.’s real estate unit, has resigned from the Homestore board of directors. Cendant, Homestore’s biggest shareholder with an 18.5-percent stake, is the franchiser of Coldwell Banker, Century 21 and ERA residential brokers. The New York-based company acquired the stock when it sold its Move.com division to Homestore in February 2001 for $575 million. Cendant wrote down the value of its Homestore holdings to zero last month. Smith’s departure reduces the number of Homestore directors to seven. Homestore announced in December that its board was looking into its accounting practices. The company later said that it overstated revenue by as much as $45 million during 2000 and as much as $113 million in the first three quarters of 2001. The inquiry led to the resignation of Chief Executive Stuart Wolff. ValueClick Merges With Be Free Inc. Westlake Village-based ValueClick Inc. and Be Free Inc. of Marlborough, Mass. have entered into a merger agreement. The combined company will be named ValueClick Inc. and continue to be headquartered in Westlake Village. The merger, approved by both boards of directors, provides that each share of Be Free common stock will be converted into the right to receive 0.65 shares of ValueClick common stock. The merger, anticipated to close by July, must still be approved by stockholders of both companies. When the merger is completed, Be Free’s stockholders will own approximately 45 percent of the combined company’s outstanding shares. The combined company will offer an array of online and offline technology and media services. ValueClick has acquired five companies in the past two years, most recently Mediaplex, best known for its MOJO ad serving and eCRM technology, and AdWare Systems, a provider of agency management software. ValueClick’s previously announced 2002 revenue guidance was $60 million; Be Free’s previously announced 2002 revenue guidance was $23 million. WellPoint Announces Stock Split The WellPoint Health Networks Inc. board of directors has approved a two-for-one split of the company’s common stock. The stock split will be in the form of a stock dividend of one additional share of WellPoint stock for each share held. The stock split was effective March 15 for stockholders of record on March 5, 2002. Dole Plans Hotel Dole Food Co. will build a hotel and spa near its Lindero Canyon Road headquarters. The project, which includes a restaurant and retail facilities, would be built on half of Dole’s 20-acre site, with its offices on the other half. Dole’s builder, Castle and Cooke, has five possible designs, although the preferred concept calls for a seven-story, 280-room hotel with a health spa and a 468-space parking garage. The hotel would be an independent facility and not part of a chain. Santa Clarita Gravel Operation Dumped The Los Angeles County Board of Supervisors unanimously rejected a concrete company’s plans for a sand and gravel mine in the Santa Clarita area. The supervisors turned down Transit Mixed Concrete’s appeal of a county Regional Planning Commission decision that denied the company a mining permit for the 460-acre Soledad Canyon project. Transit Mixed, owned by Mexico-based mining giant Cemex, has federal approval to extract 78 million tons of material from federal land east of the Antelope Valley Freeway. It would be the largest gravel mine in the nation. Critics say the mine would damage air quality, deplete water resources and endanger wildlife along the Santa Clara River. Transit Mixed officials say the mine would not harm the environment, and is needed to meet the demands of the local building industry. In January, the company filed a lawsuit in U.S. District Court that seeks to force the county to issue the mining permit, which the planning commission denied in August 2000.