Wednesday, July 17, 2002

Tier 1 Research gets update from SCITX; small fish is one quarter from cash flow breakeven Tier 1 Research had the opportunity to get an update from SCITX, a privately held carrier-neutral hosting provider in Santa Cruz, CA. When we last met with SCITX back in September 2001, the company was starting to gain momentum, having sold about 10% of its 5,700 operational net sqft facility to 10 customers. The company has continued to progress nicely as a niche regional player, adding approximately 4 customers a month to just over 40 total (30/40/30% colo/managed hosting/access). The company's data center is between 20-25% utilized, although there is another 20K sq.ft. of unfacilitized space. We believe the average managed hosting customer is roughly $2,500/month, which puts the run rate at roughly $400K for the year, with total revenues for full-year 2002 expected to be around $1mn. While still a rather small fish, SCITX expects it is a quarter away from cash flow break even, which is certainly commendable given the current market conditions. In addition, the company is looking to raise an undisclosed round of funding (which we believe would be around $3-5mn), primarily for sales and marketing initiatives. Also of note, the company is making four strategic moves in terms of target markets. First, has gained the in-house expertise necessary and is offering hosting for Apple's Xserver. Second, it is focusing its customer acquisition efforts on the media and entertainment vertical, which is somewhat related to the Apple strategy as it has found that many of its potential customers are using Apple's Quicktime media player for streaming. Third, it has
picked up 3 private label-hosting clients, and sees this as a viable market. Fourth, it is looking to partner with ISVs that want to outsource their hosted applications. In summary, SCITX is alive and well and a viable provider to the
SME market in California's central coast. We will report back with additional details once the company hits cashflow break even.