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Nakina Systems Inc., which provides network management and service assurance software to service providers and network operators, said it closed a debt financing round of $2.25 million.

MMV Financial Inc. provided the debt financing, which closed September 30.

The funds will be used to expand Nakina's research and development team by about 10. Currently the company has 55 employees, mainly in its Ottawa headquarters.

Nakina President and Chief Executive Dave Vicary said the company is seeing significant traction among Tier 1 telecom firms, which is why it needs to expand in R&D and why it was offered the debt. The company chose debt over equity because it offered minimal dilution.

"Given the telecom bust, for these Tier 1 telecoms to work with a start-up of our size is very significant," said the CEO.

Nakina drew down $1 million, and has the option to use the rest through 2005. Vicary does not expect to use all of the money.

The company is in trials through 2004 with six Tier 1 telecom companies, said Vicary, and is getting recurring revenue from two of the six. "Achieving revenue in our second year of operations was significant. We expect to double revenue again next year," he said. Born January 1, 2003, the company will be cash flow positive in early 2005.

Nakina's multi- vendor element management and VoIP performance management solutions aim to simplify how service providers manage their telecommunications networks and to reduce operating costs in large-scale networks.

The CEO isn't seeing a lot of competition in the company's market. "We're breaking into a market previously dominated by equipment vendors," he said.

Vicary said Nakina's exit strategy will most likely be a merger or acquisition into either a system integrator or a large independent software vendor.

Nakina, which has two U.S. offices, in Texas and New York, closed a Series A equity round with C$6.5 million in December 2002 from VenGrowth Partners.

Prior to co-founding Nakina, Vicary led the optical network management R&D organization for Nortel Networks Ltd.

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