Business Plan 290103

Table of Contents Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 OBJECTIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 THE OPPORTUNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 THE PRODUCT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 THE MARKET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 COMPETITION AND DIFFERENCIATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 MARKETING STRATEGY AND IMPLEMENTATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 FINANCIAL PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 FUNDING, RETURNS TO INVESTORS AND HARVEST OPPORTUNITIES . . . . . . . . . . . . . . . . 9 Company Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 HISTORY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 OWNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 LOCATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Products and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 THE CONCEPT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 THE PRODUCT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 RELATED WEB DEVELOPMENT SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 INTELLECTUAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 FUTURE PRODUCTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Market Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 MARKET OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 TARGET MARKET SEGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 MARKET/CUSTOMER NEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 MARKET TRENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Business Plan, January 2003 Confidential 2 Table of Contents MARKET GROWTH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 INDUSTRY ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 COMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Marketing Strategy and Implementation Plan . . . . . . . . . . . . 19 VALUE PROPOSITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 COMPETITIVE EDGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 MARKETING STRATEGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 PRICING STRATEGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 PROMOTION STRATEGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SALES STRATEGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SALES PROGRAMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SALES FORECAST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 MILESTONES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Management and Operations . . . . . . . . . . . . . . . . . . . . . . . 26 MANAGEMENT TEAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 BOARD OF ADVISORS/DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 PROFESSIONAL ADVISORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 FUTURE MANAGEMENT CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 STAFFING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Financial Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 FINANCIAL ASSUMPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 CAPITAL REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 CRITICAL RISKS AND CONTINGENCY PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 FUNDING, RETURNS TO INVESTORS AND HARVEST OPPORTUNITIES . . . . . . . . . . . . . . . 32 Business Plan, January 2003 Confidential 3 Executive Summary Objective The objective of this plan is to obtain the next round of equity funding for PNCglobal Inc. Management is seeking an investment of $2,000,000 CAN that will be used to finance national and United States expansion of PNCglobal’s two-factor authentication product, called Universal ID (Uni-ID), and cash shortfall until cash flow breakeven is achieved by Q3, Year 1. The Opportunity As the Internet becomes an everyday pathway to information, goods, and services, more citizens expect to interact online with government. Municipal sites on the World Wide Web can offer enhanced public access and engagement, as well as tools for improving government efficiency and for attracting interest to the region. Statistics show that Canada and the United States total 45,000 municipalities. PNCglobal’s market research, conducted via telephone with 75 municipalities in the Province of Quebec, and via face-to-face meetings with administrators and directors, has revealed demand for a cost-efficient, two-factor authentication product that meets security requirements of growing municipal e-services activities. PNCglobal’s Uni-ID Authentication Card, using inexpensive mini-CD cards, is uniquely positioned to serve this segment of the market because of its low deployment costs, its universal compatibilty with every Internet user computer, and its multi-services architecture. After visiting more than 70 municipalities, it became clear no other company was offering such a product in that market segment. In a matter of two months, the company signed eleven (11) municipalities, and responded to more than 60 Request for Quotation (RFQ), totalling $1.35 Million. As of January 2003, IBM, Oracle and DMR Consulting (a Fujitsu company) have become active partners. Based on this early success, management estimates this $1.1 Billion municipal market segment will generate $8.7 Million of sales by Year 3. The Company In May 1995, François Laprade and Jean-Pierre Boudreau formed an Internet E-Business Solutions company that developed state-of-the-art web-based solutions. The company developed the first transactional web portal for the Quebec Government in 1995, and inaugurated the first extranet at Bell Mobility in 1996. The management team was joined by Michel Tyers in 1997, who became an associate. The company is located in Montreal’s well-known City Multimedia, Quebec, Canada, and was formed as a Canadian Federal Corporation. The company’s Advisory Board is composed of Norman J. Morrisson, Léon Courville, and Jacques Duchesneau; all well-respected, and successful business people. After presenting a first prototype of the Uni-ID card in February 2000, PNCglobal raised $1.8 million from proximity investors. This permitted the development of the first Uni-ID version, and first market assessment through pilot studies. Business Plan, January 2003 Confidential 4 Executive Summary The Product All business — on-line and off-line — is based on the principle of knowing whom you are entering into a transaction with. Reliable authentication is the basis for protecting financial data, valuable assets, and confidential information from theft, misuse, and fraud. Uni-ID brings strong authentication to the digital world in a solution that is easy to use and maintain, as well as cost-efficient in order to meet e-business requirements. Combining a Uni-ID CD card (something a user owns) and a PIN (something a user knows) provides effective two-factor authentication. The solution is unique in that it requires no specialized hardware, nor software installation to be used on ANY personal computer. It offers strong authentication using inexpensive, universally accepted mini-CD cards as a token, and it is the most cost-effective solution for large scale deployment, as found in e-government municipal web portals. Using Uni-ID CD-Cards is quick and simple : users simply insert their Uni-ID CD-Card into any CD-ROM reader connected to a PC and enter their PIN. The technology uses 1024 bits RSA public-key encryption, along with TwoFish symmetric session keys during the authentication process, and subsequent communication. It supports the X.509 public-key certificates standard. The Uni-ID Authentication solution is customizable through its multi-services architecture and can be configured to meet a wide variety of customer needs: • Citizen card for on-line AND off-line use (using bar codes and a photo on the label); • Town council access card to intranet documents (town meetings, budget forecasts, ...); • Access card for professionals reviewing property tax assessments; • PIN-based e-Payment card for paying bills online; • Medical Records Web Portal access card; • Government Online access card. The Company provides its Uni-ID solution at different pricing levels depending on the needs of its clients: • User license pricing, starting at 10-user license level, and up; • Share of revenues on a per transaction basis, in bill paying situations; • Partnership with industry leaders in security to integrate Uni-ID into their offerings; • Uni-ID API licensed to developers in large organizations such as Financial Institutions. Business Plan, January 2003 Confidential 5 Executive Summary The Market IDC predicts that security 3A (Authentication, Authorization, and Administration) will be both the largest and fastest-growing segment of Internet security software. 3A revenues are expected to increase at a 2000 to 2005 CAGR of 28 percent to more than $9.5 billion. This represents a 2005 Internet security market share of 67 percent. PNCglobal’s management studies showed an enormous unmet need in the e-government and municipal web portal segments. The trend towards e-government initiatives has proven to be increasing rapidly, and Government spending is on the rise (Aberdeen report, September 27, 2002). Statistics show that in Canada and United States only, there are 45,000 municipalities, representing a $1.1 Billion market. Region Canada United States TOTAL Number of municipalities 3700 41000 Market (avg. sale : $ 25K) $ 92.5 million $ 1.025 billion $ 1.1 billion Uni-ID represents the only two-factor authentication solution that even smallest towns can afford. This market segment shows tremendous potential, that has been untapped by any of PNCglobal’s competitors in the industry. Competition and differenciation PNCglobal distinguishes itself from its competitors through its easy-to-use, cost-effective proposition. Its competitive edge is its ability to provide a multi-services, key logger protected authentication card to its customers more economically, and in an easier to deploy solution than, any of its competitors. Competition will come from established providers of authentication solutions, using softwareonly tokens, electronic tokens, public-key infrastructure (PKI) certificates and smart cards. Many factors will contribute to keep Uni-ID in a very good position against the competition. Uni-ID is the only solution providing key logger protection. Electronic token technology such as SecurID™ from RSA Security does not provide a multi-services architecture, costs 5 to 10 times more, and needs battery replacement once in a while... Smart card solutions require additional equipment (specialized reader) that do not exist in today’s personal computers, and cannot store megabytes of additional information such as possible with a CD card. Both solutions will also require software installation, thus considerably reducing their mobility. Our recent success with the municipal market is due to two main reasons: no additional hardware required, and cost reduction by a factor of five (or more) when compared to competitors. Business Plan, January 2003 Confidential 6 Executive Summary Marketing Strategy and Implementation PNCglobal management has developed a marketing strategy that will enable it to achieve its sales and profitability goals quickly. The plan is divided into three stages: • Stage 1 – Strategic partnership agreements with security market leaders (Year 1); • Stage 2 – Conquer the municipal market in Canada and the United States (Year 1 - 2); • Stage 3 – Build multiple distribution channels in North America (Year 1 - 2). As of this day, PNCglobal already secured a strong partnership with IBM, and is currently developing the local Quebec municipal market with them. IBM municipal market representatives are working closely with us on proposals. On deals including IBM hardware, PNCglobal automatically receives 5 – 7% of the total sale and up to $400 per computer sold, being an IBM ISV Reseller. DMR Consulting also became an active partner for the Municipal, Government and e-Health markets in November. They recently bought a multi-client Uni-ID Server for their Web Hosting Center, enabling them to offer Uni-ID Cards to their web customers. Oracle became our latest partner in January, once we introduced them to our technology. Starting August 2002, product documentation was sent to 75 municipalities, of which 72 requested a meeting with our sales representatives, and 67 followed with an RFQ (Request For Quotation). Eleven (11) municipalities signed a contract during the last two months. Uni-ID was VERY well received, and for good reasons: the product provides two-factor authentication that everybody can use right away, at a price nobody can match. Uni-ID can be offered to professionals, city employees, as well as citizens. It can be used both on-line AND offline, sporting bar codes and a photo. The mini-CD card can also store the municipality repertoire or other useful information, up to 32 Mb in size. PNCglobal will reach the following important milestones during the period covered by this plan: • Year 1 - Develop strategic partnerships with 3 major international security vendors to promote Uni-ID as a universal authentication solution in North America; • Year 1 – Launch Uni-ID WebAccess for the municipalities web portal market in Canada and the US; • Year 1 – Cash flow breakeven point (Q3); • Year 2 - Build multiple reseller channels in North America; • Year 3 – Reach $8.7 Million sales volume. Business Plan, January 2003 Confidential 7 Executive Summary Management The core management team of PNCglobal includes several executives with successful backgrounds in the Internet software industry and experience with startup operations: Jean-Pierre Boudreau, 49, is President and CEO. His experience includes thirteen years with Transport Canada where he lead a team of telecommunication specialists to develop the first automated frequency spectrum analysis tool for Air Traffic Control UHF/VHF transmitters. Over the years he successfully lead software development teams, and launched successful new products, including Essential FTR, a multi-user, full text search engine for X.25 networks, and Bridge25, a 255 channels X.25 router for Motorola networks. Expert at motivating his teams, he is a good and respected team leader and a focused manager. Michel Tyers, 48, is PNCglobal’s Executive Vice President, Finance and Operations. Mr. Tyers has a vast experience in managing all financial and operational aspects of software development projects. Past projects included up to seven companies and budgets in excess of $10 millions. He helped bring back over $2.5 million in government grants during the last 5 years at PNCglobal. His analytical character, persistance and intimate understanding of all financial issues, including government grant policies and stock market analysis make him a winner at managing the financial and operational aspects of the company. François Laprade, 38, is PNCglobal’s Business Development Vice president. Mr. Laprade will tell you that selling is something we do all the time during our life. It’s probably true, and he certainly learnt well from his sayings, since he’s been a top business development resource in many large organizations during all his adult life, where he continually achieved record-breaking sales. He started in the early eighties by selling computers and related equipment. Year after year, he topped the sales department, with sales in excess of $10 millions a year. He was finally hired by Claris Canada, a division of Apple Computer, to soon become the top Canadian and United States sales director. His inherent ability to build large reseller networks and propel sales to new heights wherever he worked makes him the ideal candidate to drive our salesforce. Business Plan, January 2003 Confidential 8 Executive Summary Financial Plan PNCglobal is projected to breakeven in July 2003. This is based on sales of 18 Uni-ID licenses between January and July 2003 (avg. contract = $20,000). The company signed 11 municipalities during the last two months of 2002, and 2003 is looking good so far, with 7 municipalities having requested a second meeting. In achieving the sales targets just mentioned, PNCglobal will position itself for exceptional profitability and self-funded growth. The table below is a brief summary of the PNCglobal Profit and Loss Statement for the years 2002-2004*. Year-end is May 31. $000s Sales (Prod. & Serv.) Gross Profit Operating expenses Government credits (R&D) Pre-tax Income * All figures are expressed in CAN 000s. 2002-03 $ 839 $ 407 $ 829 $ 329 ($ 93) 2003-04 $ 3,358 $ 2,658 $ 2,056 $ 505 $ 1,107 2004-05 $ 8,700 $ 6,960 $ 5,690 $ 300 $ 1,570 Funding, Returns to Investors and Harvest Opportunities Seed Money : Management provided $ 60,000 to fund initial development of a working prototype and proximity investors added $ 2,000,000, which were used to complete the product and start pilot projects. Round A (Projected to start in January 2003): Funds will be used to finance rapid national and United States expansion, and to enhance the product with fingerprint identification capabilities (replacing the PIN in some highly secure environments), and add connectivity with industrystandard routers and firewalls. The total amount can combine equity investment, convertible debentures, and government loans through a financial institution (of which more than $750,000 is already secured). Round A Amount $ 2,000,000 % of company 30% (common stock) Pre-money Valuation $ 5,000,000 Value Y 5th $ 75,000,000 * Valuation based on projected net income for five years and a terminal value of 10x net income Harvest opportunities exist through a merger or an acquisition, either by a larger provider of Internet security solutions wishing to access the municipal and e-government markets or by a current provider of solutions to those markets, who wishes to strengthen their product offering in terms of security. Business Plan, January 2003 Confidential 9 Company Summary History PNCglobal Inc. has been in business for nearly eight years, starting in 1995, and revenues from the Web Services division reached $1.1 Million in 1998-99. Seeing a vast, untapped market segment in Internet security, the company started developing Universal ID (Uni-ID), its twofactor authentication product early in 2000. The product was specially designed with the Internet in mind. This means low-cost, universal solutions that can be deployed easily to hundreds of thousands of users, and that will need minimum support once in the field. Uni-ID first sales began in August 2002. PNCglobal has grown from a two-man Web development company started in 1995 to a $1-million e-business solutions company in 1998. PNCglobal’s existing client base is a Who’s Who of Quebec business and abroad, having realized more than 150 Web productions done on behalf of the likes of BCE Emergis, Bell Canada, Loto-Québec, Imperial Tobacco, Publications du Québec, Nortel, Fox Entertainment Group, and KDDI in Japan. In 1999, PNCglobal changed its business model exclusively based on web services, to concentrate on e-security software product development. Changes were dictated by an increase in securityrelated software development contracts, and repeated reports about Internet fraud. From then on, our focus has been to develop a low-cost, universal authentication solution that would target the unmet needs of e-business web portals security. As of January 2003, with eleven (11) municipalities onboard, the product has already dealt with initial success in that niche market. In March 2002, PNCglobal launched its new Web site, www.pncglobal.com. The site lists all of PNCglobal’s activities as well as a complete description of its products and services. Download links to products’ demo and literature, as well as latest news information are available to visitors. Ownership PNCglobal is owned by the following individuals and entities: Owner Jean-Pierre Boudreau Michel Tyers CTT (private outside investor) Other proximity private investors Percent Ownership 30% 30% 30% 10% Locations PNCglobal currently has one office located at: City Multimedia 80, rue Queen Suite 404 Montreal (Quebec) CAN H3C 2N5 Business Plan, January 2003 Confidential 10 Products and Services Building Trust in E-Business! The concept The U.S. Federal Trade Commission (FTC) found a reported 86,168 instances of identity theft during 2001, and Aberdeen Group estimated more than $8.75 billion in related losses in 2002. Aberdeen predicts that identity theft cases will multiply in 2003, with total economic losses to consumers, business, merchants, credit issuers, and the financial industry totaling $24 billion. Strong authentication is the foundation of successful business. This has been true in the physical world and is becoming even more critical in the digital one. But to meet their business objectives, companies must implement authentication systems that best suit their needs — this means a system that is cost-efficient for an enterprise, that provides an acceptable level of security, is easy to implement and maintain, and is as user-friendly as possible to the end-user. Although there are a number of two-factor authentication products on the market, most of these either need additional equipment, or cost too much for large-scale Internet deployment. There is also no sense in implementing a solution that is so tedious and complex for end-users that they cannot - or will not - utilize it. This lack of low-cost, easy-to-use, two-factor authentication solutions led PNCglobal to develop its own product. Uni-ID uses inexpensive, readily available, mini-CD cards to offer two-factor authentication at a cost, most organization can afford. Uni-ID enables new and current e-business projects to be run on the Web in complete security, helping companies of all size, tap into the cost-saving benefits Internet can offer. Business Plan, January 2003 Confidential 11 Products and Services The product The Uni-ID technology offers an open, multi-application architecture, and comes with the Uni-ID Authentication Server, and a choice of electronic tokens. The product, which is protected by a Patent Pending Application, relies on industry-standard encryption methods (RSA Public-Key technology/TwoFish Session keys), new CD copy-protection from I4Net (Belgium), and X.509 standards. This combination prevents the simulation of any transaction or theft of the related information. Furthermore, additional protection has been integrated to shield PIN entry against any “key logger” viruses such as “Back Orifice”. Users can insert the mini-CD card into any personal computer equipped with a CD or DVD reader and use it without any additional installation. Applications include Uni-ID Webaccess, recently integrated with IBM’s Tivoli Policy Director™, Uni-ID Gateway, a network access card, and Uni-ID Payment for the B2C and B2B markets. The Uni-ID open architecture also supports other types of tokens : - USB Key - Smart Card - EchoSystem™ Audio Card (wireless and phone-based projects) Uni-ID offers the following features: • Two-factor, multi-services authentication card to access networks and Web portals; • Universally accepted, mobile solution needing no hardware, nor software installation; • High security, RSA 1024 bits encryption, and key logger shield protection; • Runs on any personal computer (Windows, Macintosh, Unix) using standard CD/DVD drives. Uni-ID offers customers the following benefits: • No user installation required; • Lowest deployment and maintenance costs in the industry; • Provides 32 Mb of storage, so municipalities can include phone directories and related documents, on the CD; • New services can be added at any time without changing cards; • Easy as 1,2,3… – Get your card, load it into the CD drive, and type your PIN! Business Plan, January 2003 Confidential 12 Products and Services Related Web development services PNCmedia, our Web development services division (http://www.pncmedia.com) helps us provide complete turnkey solutions to municipalities buying Uni-ID. It often happens that municipalities wish to add new services to their website, which will use Uni-ID as an authentication token. PNCmedia’s team provides the skills to fullfill those mandates. Their expertise in all web-related technologies, such as XML, Java, and SQL makes them the perfect team to complement our Uni-ID offering. The team is fully eligible to Government Tax Credits for the next six years, reducing payroll by up to 40%. Intellectual Property PNCglobal Uni-ID technology is Patents Pending “SYSTEM AND METHOD FOR PROVIDING SERVICES TO A REMOTE USER THROUGH A NETWORK” US Patents Pending - no. 60/182, 184 and internationally - no. PCT/CA01/00185. The Patent number is registered with the Office of Trademarks and Patents. PNCglobal also owns a number of URLs. These include the following: • www.pncsecure.com • www.pncglobal.com • www.pncmedia.com • www.uni-id-card.com Future Products PNCglobal has identified other products that it believes will effectively complement, and leverage its current offerings. These are listed below: • Uni-ID Shadows All reports show that fraud often comes from inside a company. PNCglobal plans to extend its line of Uni-ID products with a new card-based solution that would protect data on any personal computer. To access Uni-ID protected data on a hard disk, users will need the combination of their PIN and their Uni-ID CD card, providing the level of security needed by corporate customers. • IICE IICE, the Instant Internet Commerce Enabler eliminates the need for a shopping cart system when selling digital products, and facilitates Person to Person (P2P) e-commerce. It provides a secure digital container for any digital file, such as audio, video, e-books, software, and images. The digital container embeds a secure ordering form that lets customers directly buy and extract the product to their hard disk after payment. Business Plan, January 2003 Confidential 13 Market Analysis Market Overview According to IDC, global market Internet security industry sales were $6.7 Billion in 2001 and will reach $21 Billion in 2005. The report breaks the Internet security industry into four markets: firewalls, encryption, antivirus, and 3A (authentication, authorization and administration), each of which is expected to grow 23 percent per year, on average. The 3A market will lead the way, said the report, growing annually by 28 percent on average to amass $9.5 billion in revenue in 2005. “While PC makers and dot-coms have been hit hard by the tech slump, most network and computer security companies continue to stand their ground. Worldwide revenue grew by more than 33 percent in 2000, and that’s expected to continue,” said an IDC report. “For security software vendors, the current economic instability is a double-edged sword,” Brian Burke, senior research analyst at IDC, said in a statement. “On the one hand, it’s forcing companies to reduce spending. On the other hand, it’s forcing companies to look for ways to cut costs, become more security-proficient and build trusted relationships with customers, partners, suppliers, and channels — which are areas security software can help.” “North America will continue to account for more than half of worldwide Internet security software revenue in 2005 at 52 percent. Asia-Pacific will be the fastest-growing region for Internet security software, with revenues increasing at a 2000 to 2005 CAGR of 32 percent. This growth will help hike market share in this region from 12 percent in 2000 to 17 percent in 2005.” Target Market Segments PNCglobal is currently addressing one under served segment of the 3A market with its Uni-ID technology: e-government municipal portals. With 11 clients onboard after only two months, and tens of others ready to embark as soon as budgets are voted, PNCglobal is counting on this market to gain strong recognition in North America during the next two years. The company will also hire new sales people during the coming year to enter peripheral markets, such as government, medical clinic, and e-health portals. The trend towards municipal and e-government initiatives has proven to be increasing rapidly, and Government spending is on the rise (Aberdeen report, September 27, 2002). Statistics show that in Canada and United States only, there are 45,000 municipalities, representing a $1.1 Billion mostly untapped market. Region Canada United States TOTAL Number of municipalities 3700 41000 Market (avg. sale : $ 25K) $ 92.5 million $ 1.025 billion $ 1.1 billion Business Plan, January 2003 Confidential 14 Market Analysis Market/Customer Needs Our first foray into the municipal market clearly showed there is a growing need for Internet strong authentication products. Most municipalities operate a Web site, offering new transactional e-services, which become the driving force behind the need for Uni-ID. New government regulations also impose strict rules on the publishing of confidential information, such as medical records online. While a website can be as simple as a single page of contact information, web users increasingly expect interactive, “content-rich” sites. In response, new transactional and informational services begin to appear on Municipal Web sites all around the world: general municipal information (for example, meeting dates, budget data, and planning information); service information for local residents, (such as tax payments, e-mail contacts, and service schedules); and permits and property information (including building permits, property tax assessments, and permit or license information). In many of these situations, such as gaining access to property tax assessments, and paying taxes, the Uni-ID card offers the strong authentication, and secure payment capabilities needed at a cost municipalities can afford. In the Quebec Region, Longueuil recently voted a $20 Million budget to buy new computer technology, such as IP Telephony, and increase its services to citizens through the Web. City of Terrebonne is already using IP Telephony, and recently adopted Uni-ID. IP Telephony was not a technology where Uni-ID could help at first thought, but nevertheless, City of Terrebonne proposed to use Uni-ID to authenticate IP Telephony users on computers. PNCglobal’s product has the potential to quickly become a de facto standard for all computer-based applications in municipalities, where strong authentication is needed. It is the only authentication product that was developed for the Web from the ground up. Our face-to-face meetings and studies, showed that smaller municipalities vote monthly budgets to buy technologies such as Uni-ID, while larger ones (20 in Quebec) have annual budgets ranging from 200,000$ to $30,000,000 allocated to larger technology-based projects. After visiting 75 of these, we found that at least 90% are looking to offer more services online, mostly because of Uni-ID. When it comes to Web site development, and computer technology, 97% normally prefer working with local companies. Bringing Uni-ID to the table changed all that: 90% of the municipalities which received our documentation rapidly scheduled a meeting, and in most cases, followed with a Request for Quotation (RFQ). This tremendous response is quite unique in the industry, where a 10% return rate is considered a success. Most requested services relate to providing property tax assessments online, using Uni-ID to authenticate users. Currently this service is provided by phone. Professionals call to obtain the information, then receive the information by fax. Municipalities rapidly saw the benefits of providing Uni-ID cards to professionals, so they can access the same information online, 24/24H, 7 days a week. Many municipalities will get a fast return on investment by charging a monthly fee for the property tax assessments service. Next in line, Uni-ID will be used to collect taxes and fees online. Uni-ID is the only authentication solution on the market that can offer both online authentication, AND PIN-based e-payment. Business Plan, January 2003 Confidential 15 Market Analysis In some cases, Uni-ID lead to the creation of entirely new projects. One such project, where PNCglobal and IBM recently joined their efforts, is bound to make the Headlines when launched in April 2003. After meeting with City of Terrebonne officials, PNCglobal found that they were looking to replace paper with electronic documents on a CD. It soon became clear that these documents could be made accessible on a server, instead of having to produce CDs each time. The missing link was to find a way to secure the access to those servers, and Uni-ID quickly solved the case. The idea was so well accepted in fact, that we received calls from 5 other municipalities (Sherbrooke, Laval, Quebec, Longueuil, and Granby) ready to do the same project, once we deliver Terrebonne’s solution in April. Most PNCglobal’s clients cited the fact that Uni-ID is appearing at exactly the right time, and that no other solution could replace it for their need. Uni-ID integrates very well with any other online services available, so customers see no conflict with other computer technology products. For them, there is no substitute, so the most of them didn’t even bother to search for equivalent technologies. Market Trends Major trends in Internet security call for easy-to-use, low cost, two-factor authentication solutions. It makes no sense to implement a solution that is so tedious and complex for endusers that they cannot - or will not - utilize it. Because of large scale Internet projects, customers are more likely to look after solutions that need no installation. Strong authentication solutions that deliver only security will gradually be replaced by those that offer additional features and benefits such as multi-services possibilities, low deployment and maintenance costs, flexible evolution features, and better user acceptance. Recent studies in the New York region and Southern Ontario showed a growing concern about providing multiple services through web portals. Data on municipal use of websites are taken from a survey of 270 municipalities in the binational Buffalo-Niagara region conducted by the UB Institute for Local Governance and Regional Growth in June-July 2000. Responses were submitted by 194 municipalities, a return rate of 72%. : Short-Term By 2003, 50% of Western New York municipalities and 100% of those in nearby Southern Ontario will have municipal websites providing at least basic information and services. Long-Term By 2006, 80% of Western New York municipalities will have websites, and 50% will support online services such as reviewing property tax assessments and paying bills. Market Growth The market for strong authentication – 3A – has been growing steadily for 3 years. IDC predicts that security 3A will be both the largest and fastest-growing segment of Internet security software. 3A revenues are expected to increase at a 2000 to 2005 CAGR of 28 percent to more than $9.5 billion. This represents a 2005 market share of 67 percent. Business Plan, January 2003 Confidential 16 Market Analysis Industry Analysis The municipal market is allowing larger computer technology budgets every year. Larger cities in Quebec, like Terrebonne and Longueuil, are already installing IP Telephony and optical fiber everywhere. Budgets in excess of $20 million have been recently approved in Longueuil, where PNCglobal and IBM recently met with the IT Deparment. They indicated their need for the same system we are actually installing in Terrebonne, but in a much larger project, where budgets could hover around $1 million. In Quebec, an interesting trend is helping the sale of new technology, such as Uni-ID, since there has been a recent regrouping of municipalities. Competition As an e-security solutions provider, PNCglobal competes with other authentication technology providers in the industry. Smart cards, such as ActivCard’s, are well understood by users and relatively easy to use. However, users need to install smart card readers on their home computer systems, and traveling employees need to cart around a reader. The administrative headache of helping users install and maintain smart card readers has become a major deal breaker often times. RSA Security SecurID™ tokens make more sense in that respect, but electronic devices such as these require batteries and do not offer a multi-services architecture. The SecurID solution is also vulnerable to performance problems if the client’s token and SecurID server (ACE/Server) fall out of sync, which can be the case with its client/server synchronized, one-time passwords architecture. The following table shows a list of PNCglobal’s main competitors and the types of products and services they offer compared to Uni-ID. Company Name (A) = 3A Two-factor authentication Full mobility No user installation Low cost to deploy and support No Credit/ Debit E-Payment solution No RSA Security (A) (SecurID tokens) Yes (battery-powered token) No No ActivCard (A) (ActivCard Smartcard) Yes (Smartcard) No No No No CryptoCard (A) (multiple types of tokens) Depending on token choice No No No No Business Plan, January 2003 Confidential 17 Market Analysis On the municipal market, Uni-ID is often seen as a multi-services citizen card. Other municipal solution vendors in Quebec offer software systems to manage bugget and related information. As such, PNCglobal becomes a complement to their offerings and in most mandates we added Uni-ID authentication to systems already in place. So far municipalities see Uni-ID as fullfilling their needs at much lower cost than the competition, while offering a similar level of security. As observed during our visit to 75 municipalities, cost is an important factor, and Uni-ID prices are 4 times less than SecurID in comparable configurations, while smartcard solutions, needing specialized readers, would be even higher priced: Cost comparison 100-user license server 100-user license tokens Total cost SecurID $9,000 $7,500 $16,500 Uni-ID $4,000 $500 $4,500 While smart cards were originally designed to control access to local facilities, such as computer rooms and other security perimeters, Uni-ID was developed for remote Internet access from the ground up. Smart card solution providers have to look to other vendors to find the parts needed for a complete online authentication system, such as the application server, and specialized reader. PNCglobal offers the whole system, including an open-architecture authentication server, a web access proxy server, and needs no specialized reader. When comparing smart card solutions price to Uni-ID, the following example offers a good starting point: The Quebec Government is currently studying a project to offer a citizen smartcard-based Health Care authentication solution. The project has been evaluated to cost around $ 160 million. We recently contacted the Health Care Department Ministry office to present Uni-ID as a cost-efficient replacement, priced at less than $ 30 million. In January we received a response indicating their interest in Uni-ID, and a meeting with our team will be scheduled in the near future. Business Plan, January 2003 Confidential 18 Marketing Strategy and Implementation Plan Value Proposition PNCglobal offers unique value to its municipal customers in these ways: • Two-factor authentication required by their new transactional services • No user installation required • Compatible with existing equipment… (Any personal computer with standard CD/DVD reader) • Combined On/Offline citizen card using bar codes and photo on label • Lowest cost two-factor authentication solution on the market • New revenue opportunities from professional subscribers • New service possibilities available online through Uni-ID authentication Competitive Edge PNCglobal’s Uni-ID technology is protected by a Patent Pending Application. But over that, PNCglobal is the only provider of a multi-application two-factor authentication solution, that combines remote network access, web site privilege management, and e-payment capabilities in the Internet security marketplace. Our CD-based token exceeds by a thousand (1000x) times, the storage capacity of a smart card, enabling the distribution of telephone and service directories on the card. Our patent-pending solution is also the only authentication product to protect against key logger viruses that can catch passwords in the background, while they are typed on the keyboard. On the municipal market, no other solution can match the low deployment and maintenance cost offered by Uni-ID. As such, PNCglobal is in a position to differentiate itself from the competition and rapidly build brand recognition for its solutions. Marketing Strategy Positioning Statement PNCglobal has positioned itself as “The only provider of affordable authentication solutions for the e-government municipal market”. Other marketing statements we use: “Making the Web a More Secure Place” and “The 21st Century Citizen Card”. The following logo will be used on Uni-ID protected Web sites: Business Plan, January 2003 Confidential 19 Marketing Strategy and Implementation Plan Pricing Strategy PNCglobal’s pricing is competitive and varies according to the number of users (3A market). The Uni-ID Authentication Server is available for buying, or as a monthly-priced service : Uni-ID WebAccess Server License Description Uni-ID WebAccess Authentication Server (1 - 25 users) Uni-ID WebAccess Authentication Server (26 - 50 users) Uni-ID WebAccess Authentication Server (51 - 100 users) Uni-ID WebAccess Authentication Server (101 - 500 users) Uni-ID WebAccess Authentication Server (501 - 1000 users) Uni-ID WebAccess Authentication Server (1001 - 2500 users) Uni-ID WebAccess Authentication Server (2500 et +) Uni-ID WebAccess Proxy Server (Optional) Price ($) 1 500 2 500 4 000 8 000 12 000 20 000 Call us! 750 Product Code UNISWA25 UNISWA50 UNISWA100 UNISWA500 UNISWA1000 UNISWA2500 UNIWAPROXY Prices are subject to change without notification – Installation available Uni-ID Webaccess Authentication Server ALSO AVAILABLE as a monthly service. Uni-ID Tokens Description Software-only token Mini-CD Card token USB Key Smart Card token Price per user ($) 0.00 5.00 30.00 75.00 Product Code UNISOFT UNICD UNIUSB UNISC Business Plan, January 2003 Confidential 20 Marketing Strategy and Implementation Plan Promotion Strategy PNCglobal will use public relations, and develop co-marketing activities with its resellers to promote Uni-ID in North America. Public relations tend to be more cost-effective than advertising. It’s possible, using public relations, to rapidly develop a brand name, at very low cost. Our business development team will go through these public relation activities, by writing articles for trade publications, positioning PNCglobal as an Internet security expert, and doing interviews. PNCglobal will not normally use costly advertising, but will promote co-marketing activities through its reseller channels and partners. Other promotions can include giveaways, special events, and discounts for referrals. PNCglobal recently started some of these promotional activities. IBM Canada has recently recognized Uni-ID as an authentication solution to be used with Tivoli Policy Director, while we are scheduled to meet other directors of IBM to promote Uni-ID to other markets, such as e-Health and e-Gov. In early January, PNC and IBM sale teams met to plan coming months co-marketing activities. The following municipalities have been identified, where IBM will promote Uni-ID with our team during Q1 2003: • Saguenay • Sherbrooke • Drummondville • Gatineau • Trois-Rivières As part of our promotional efforts, our marketing team will also use “Love Letters” and other evidence of success. Letters of praise, and testimonies from customers, are some of the most convincing proofs we can use as part of our promotion. Sales Strategy PNCglobal has begun with a small, in-house business development team which makes direct calls to customers, using their contact-base. They will be there to develop large distribution channels in North America during the first years. Board officers will also help our team with validated lead referrals. Good documentation and an informative web site will contribute to spread the word. Using the Internet will also help our team obtain magazines articles, find partners and contact them rapidly. We are aiming to sign 3 major resellers in North America during first year. Business Plan, January 2003 Confidential 21 Marketing Strategy and Implementation Plan Sales Programs Direct Sales PNCglobal gained its first revenues from direct sales to customers. It currently has a sales staff of three that services and maintains the accounts of existing customers and solicits new business from potential customers in the Canadian territory. The Vice President in Business Development is building reseller channels at the same time. Distributor/Reseller Channel Sales Most of PNCglobal’s Uni-ID sales will be through distributor and reseller channels in the long run. PNCglobal will develop these channels worldwide. Our first sale and marketing activities demonstrate this approach. First contacts were made with companies known by our Vice President in Business Development to find a reseller in Quebec for Uni-ID. SERTI, one of the largest IBM solutions integrator in Quebec, was signed in March 2002. The discussions with SERTI rapidly opened the doors to a much bigger player, known as IBM. An IBM representative soon arranged a meeting with one of their clients, which ordered Uni-ID. This agreement further developed into a partnership between PNCsecure and IBM teams to integrate Uni-ID into Tivoli Policy Director, their flagship web security product. In January 2003, we started developing a business strategy for the municipal market jointly with IBM, and following this, PNCglobal will be invited to three $1,000,000+ projects where IBM is involved during the next few months. DMR Consulting and Oracle Corporation recently joined the group. Business Plan, January 2003 Confidential 22 Marketing Strategy and Implementation Plan Sales Forecast As of December, 31st, 67 business proposals have been sent to municipalities at their request, for a total of $1.35 Million. PNCglobal sales, most of which were concluded late in 2002, reached $145,000, with $62,000 billed at the end of December. We are expecting $291,000 more through the end of May 2003 (fiscal year end) for a total of $353,000. These figures will grow to $3 Million in 2003-04, and $8.7 Million in 2004-05. A quarter-by-quarter deployment schedule for the next two years, is shown below: Table 1 - Deployment schedule Year - Quarter 2002 - 03 Jan - May 03 2003 – 04 (starts June 2003) Q1 Q2 Q3 Q4 2004 – 05 (starts June 2004) Q1 Q2 Q3 Q4 34 Quebec, 12 USA 34 Quebec, 36 USA 36 Quebec, 45 USA 36 Quebec, 60 USA 8 Quebec, 5 USA 9 Quebec, 8 USA 8 Quebec, 12 USA 8 Quebec, 18 USA 15 Quebec 24 Quebec, 2 USA 32 Quebec, 6 USA 32 Quebec, 10 USA 2 Quebec 4 Quebec 5 Quebec, 2 USA 6 Quebec, 4 USA 14 Quebec 1 Quebec Uni-ID Municipal & E-Gov market* Uni-ID e-Health market * Average contract : $20,000 in CAN/$30,000 in US Business Plan, January 2003 Confidential 23 Marketing Strategy and Implementation Plan Revenues Uni-ID sales come from licenses sold directly and through reseller channels in 2003. In 2003, revenues will mostly come from the e-government municipal market, while e-health services market will bring additional revenues in the coming years. Expected revenues for the 2002 – 2004 period are shown below : Table 2 - Expected revenues Year - Quarter 2002 - 03 Total Jan - May 2003 -04 Total Q1 (June 2003) Q2 Q3 Q4 2004 - 05 Total Q1 (June 2004) Q2 Q3 Q4 Total Sales (2004 - 05) * All figures are expressed in CAN $000s. Uni-ID Authentication Sales $ 353.0 291.4 $ 2,952.0 476.6 674.7 837.5 963.2 $ 8,200.0 1,056.0 1,345.0 2,147.0 3,652.0 Associated Web Services $ 485.7 138.6 $ 406.8 108.9 93.1 98.6 106.2 $ 500.0 111.2 121.6 130.2 137.0 $ 8.7 Million Business Plan, January 2003 Confidential 24 Marketing Strategy and Implementation Plan Milestones Milestone • Hire CFO • First Uni-ID dollar revenue • First Strategic partnership (IBM) • Achieve profitability • Cash flow breakeven • First municipal market client • First e-Health market client Status/Date TBD/Q4 2003 Done/March 5, 2002 Done/March 20, 2002 TBA/Q4, 2003 TBA/Q2, 2003 November 2002 December 2002 Business Plan, January 2003 Confidential 25 Management and Operations Management Team PNCglobal is lead by Jean-Pierre Boudreau, President and CEO, Michel Tyers, Executive Vice President and COO, Finance and Operations, and François Laprade as Vice President of Business Development. Each one of them brings near two decades of successful experience in the fields of software product development, finance, sales and marketing. Jean-Pierre Boudreau - President and Chief Executive Officer Mr. Boudreau worked in the Telecommunication industry for 14 years, before starting its first company in 1988. He has the ability to conceptualize new ideas based on a thorough understanding of the market and turn them into marketable products. Many of his ideas became products sold to a worlwide market, such as hi-BBS, Essential FTR, and Sharebox. During the process, he successfully built professional, dedicated software development teams that he lead to develop state-of-the-art products. Expert at motivating his teams, he is a good and respected team leader and a focused manager. Michel Tyers - Executive Vice President and Chief Operating Officer, Finance and Operations Mr. Tyers has a vast experience in managing all financial and operational aspects of software development projects. Past projects he managed, included up to seven companies and budgets in excess of $ 10 millions. He brought back over $500,000 a year in government grants during the last 3 years for the Parent company called PNCglobal. His analytical character, persistance and intimate understanding of all financial issues, including government grant policies and stock market analysis make him a winner at managing the financial and operational aspects of the company. François Laprade - Vice President, Business Development Mr. Laprade will tell you that selling is something we do all the time during our life. It’s probably true, and he certainly learnt well from his sayings, since he’s been a top business development resource in many large organizations during all his adult life, where he succeeded at significantly increasing sales. He started in the early eighties by selling computers and related equipment. Year after year, he topped the sales department, with sales in excess of $ 10 millions a year. He was finally hired by Claris Canada, a division of Apple Computer, to soon become the top Canadian and United States sales director. His inherent ability to build large reseller networks and propel sales to new heights wherever he worked makes him the ideal candidate to drive our salesforce. Business Plan, January 2003 Confidential 26 Management and Operations Board of Advisors/Directors PNCglobal’s Board of Directors form an equally impressive group. Norman Morrisson, Chairman of the Board Mr. Morrisson has been directly involved in many organizations throughout the years. He started his own brokerage firm, Saumier Morrisson, which was later purchased by Midland Walwyn. He then became President and CEO of the Cabano-Kingsway transportation company, followed by the position of President of Entreprises Premier CDN Ltée, and more recently, President of the Board of Directors of Albums DF Ltée and Multiflor Inc. His vast experience in corporate restructuration and his wisdom are widely recognized throughout the business world. Jacques Duscheneau – Board Director Mr. Duscheneau is a well-known public figure in Quebec. He was a Law Enforcement Officer in Montreal for 30 years, five of which as Chief of Police (SPCUM). He holds a Master’s in Public Administration and was rewarded with many distinctions, including the Order of Canada. Mr. Duscheneau is an active member of many Boards of Directors, to which he brings his experience and notoriety. Léon Courville – Board Director Mr Courville has had an impressive professional and academic career. He has enjoyed a long and fruitful career at National Bank, retiring as President and Chief Operating Officer. Prior to joining National Bank, he was a Professor as well as Director of the Institut d’Économie Appliquée at Montreal’s world-renowned École des Hautes Études Commerciales. He has also taught Economics at Carnegie-Mellon and Rochester Universities in the United States. He is a published author of several books and articles. Mr Courville is still very active professionally, namely as Chairman of the Board of Fondation du Centre Hospitalier de l’Université de Montréal, and Vice-President of the Board of C.D. Howe Institute. The strong character and wide network of contacts behind each of these individuals are invaluable in the development of client networks and strategic alliances. Business Plan, January 2003 Confidential 27 Management and Operations Professional Advisors PNCsecure works with different consulting firms and partners. Accounting Security certification Legal counselors Patents (Canada, USA, world) KPMG Corporate Finance KPMG Information Risk Management Group Séguin Racine Lawyers Patent & Trademark Agents, Léger Robic Richard - Lawyers Future Management Considerations PNCglobal recognizes that it will need other executives to round out its management team. Specifically, it will be necessary to look outside the company for a Chief Financial Officer, as soon as the public market becomes a target. By bringing in seasoned executives with relevant industry experience, PNCglobal will be in a better position to achieve its objectives. Staffing PNCglobal currently runs its business with a staff of 14 full time and 2 part-time employees. Each is responsible for a different function, although management has created a system of cross-functional training that will keep its business running smoothly despite illness, attrition, or turnover. The team will grow as the market develops. Management expects a 50% annual growth during the next three years, mostly in sales support, product lines management, and business development. Business Plan, January 2003 Confidential 28 Financial Plan Financial Assumptions Item Sales – Municipal market Description/Assumption made Average Uni-ID license will be sold $ 20,000 CAN ($ 30,000 in the US). Growth in the number of units sold is based on achieving 4% market penetration by 2007. This means that by May 2007, approximately 1700 Uni-ID licenses will have been sold to municipalities across Canada and the U.S. During the first fiscal year, started in May 2002, Uni-ID sales are forecasted to be $ 353,000, which means that PNCglobal will need to find approximately 13 more municipalities during the remainder of first year to meet expectations. It is expected that 10% of Uni-ID cards sold will be replaced every year at a cost of $10 per unit. At the end of the fifth year (May 2007), this would bring an additional $ 170,000 in annual revenues. A maintenance fee of 10% per year per license will be recycled in order to fund the fielding of customer service and technical adjustments. The average contract expected to be $20,000, means an annual revenue of $2,000 per license per year. At the end of the fifth year (May 2007), this would bring an additional $ 3,400,000 in annual revenues. 75% of the money charged for Product maintenance will be applied to the provision of customer service and the need for technical help on site. Office space is used in City Multimedia at $8000/month. PNCglobal receives Government Tax Credits since the company moved to City Multimedia in 1999. The company receives 40% of employee salaries, to a maximum of $15,000 a year. PNCglobal is allowed to receive those Tax Credits for 6 more years. In May 2003, the company will be entitled to receive $133,000, which completely covers the cost of the rent. PNCglobal maintains R&D activities to keep its competitive edge. The company receives R&D Tax Credits equal to 80% of the salary of every R&D team employee. PNCglobal has been receiving those R&D Tax Credits since 1997. In May 2003, the company will be entitled to receive $196,000 in R&D Tax Credits. Sales – Upgrades Sales maintenance Maintenance and customer service Rent R&D Tax Credits Business Plan, January 2003 Confidential 29 Financial Plan Capital Requirements PNCglobal management has determined that it requires $2,000,000 of capital to implement its strategy to launch Uni-ID, as defined in this plan. The Table below indicates the Sources and Uses of the required capital. Sources – 2002/03 Owners’ Investment Proceeds from this offering Total Sources Uses – 2002/03 Development Cost Marketing and Advertising Salaries Rent and Equipment Total Uses Amount Intangible assets $ 2,000,000 $ 2,000,000 Product already on the market $ 1,200,000 $ 600,000 $ 200,000 $ 2,000,000 Business Plan, January 2003 Confidential 30 Financial Plan Critical Risks and Contingency Plan Risk 1 Funding is not of desired amount or valuation Protective Measure/Contingency Sales are already started, with over 150,000$ in signed deals. Even if the funding was 50% lower than expected, growth to the US market would de delayed, but not cancelled, since Canadian marketplace revenues will continue to climb and permit market expansion at a later date. The company received over $1 Million in financing offers and Letters of Intent so far. Our recent success gives us a good indication of the contrary: PNCglobal signed deals with 11 municipalities, and received 67 RFQ during the last two months of 2002. The company benefited from an incredible 90% return rate, while success rate (signed deals) is an exceptional 15% so far. One negative effect would occur if the product did not work as expected, but probability is very low , since Uni-ID has been used by company employees, and other beta testers for months so far, without problems. Because of the narrowly defined focus, we saw no similar product offered in the e-government municipal market so far. Our early success and involvement with the municipal market builds another barrier. Once (or if) such a product appears, it would have to compete against a large installed user base of our product, and would face the IBM/PNCglobal/DMR Consulting coalition. The US market has still to be dealt with, but this is expected in the next few months. The company is already discussing with a Boston company which has been working in the municipal market for the last 17 years. The larger providers of two-factor authentication solutions are likely only to target largest municipalities, that are not the first PNCglobal’s targets. Their higher cost solutions are likely to be put down even by the largest municipal clients once they are shown Uni-ID. In the unlikely event that some municipalities would be interested by smartcard solutions, PNCglobal’s is already offering smartcards as a replacement token if needed. 2 Municipalities are slow to come on board 3 Similar products appear 4 Existing competitors in the 3A market target municipalities Business Plan, January 2003 Confidential 31 Financial Plan Funding, Returns to Investors and Harvest Opportunities Seed Money: Management provided $ 60,000 to fund initial development of a working prototype and proximity investors added $ 1,800,000 in 2000, which were used to complete the product and bring it to the market. Round A (Projected January 2003): Funds will be used to finance rapid national and United States expansion, and to enhance the product with fingerprint identification capabilities (replacing the PIN in some highly secure environments), and add connectivity with industrystandard routers and firewalls. The total amount can combine equity investment, convertible debentures, and government loans through a financial institution (of which more than $750,000 is already secured). Round A Amount $ 2,000,000 % of company 30 % (common stock) Pre-money Valuation $ 5,000,000 Value in 5th year $ 75,000,000 * Valuation based on projected net income for five years and a terminal value of 10x net income Harvest opportunities exist through a merger or an acquisition, either by a larger provider of Internet security solutions wishing to access the municipal and e-gov markets or by a current provider of solutions to those markets, who wishes to strengthen their product offering in terms of security. Business Plan, January 2003 Confidential 32