Musclemaster

Copy # _ vw- 34 Musclemaster.com p _lack _ Netsoalle: _ Mils cl_Ma_ter Heallll and Fitne os;Sitlperst oi_ _ .... t-n_*g prfn_ S*¢uvl W Stop Fce_+,t.,1 l_lO_ <&,_-e._ r4+t_>e o* _ll +.: I_+_","+'+" m for _I_] Fr'_ov.Moreh 1S W_IcmnebackChris. ¢_ _ Vis_ OlZ_ . .... J_he_s t_emher LOql_ B_,c_ e_e_r_et Ll_d_leYour Pro|ile I _, ] 11_b+lhernome_mlve _enkmmcet _nd mllql_'l_G_=T "_wwl'+H_l_'t_°_a_'afl _1_ ,+, [] T-.gpTenWaY'_eaLoseWe_l_ y_r bestdu,i_J1heco,ringho_d_+/ [] Mu_¢teMaster.eam )+reinin+_ I_t)_and Secrete* Ct_ec_: out°1 ti_e_te_ experl Youll lindinfcem°dion onhow to g_ lrail)n9, n_t_itio_ e._ml ro_ bp_. let Neellh and Fitness S_pel_toret Get _1th_bte._tinfo+'_._fioll ond NOW$_,95 +.Rel_R_e $44,951 " _ " ++,,+++ .... +°+ Xlrlema " "" IIem't /u_t'_ia J tm musote u_'¢il_tl b 0meinin lOO cao_ AST OVme_trine _._ b_. 100C_ e£r mre_._ +l_0r ! o ommr _lueheesPerl_erLoqin _eco_ne _u_ a parlner Now $22.9S (Re_ei_ FY_o$33_+;) ........ ) Nicholas G. Chunias Chief Executive Officer 153 Northboro Road Southborough, Massachusetts 01772 (508) 303-2055 Customer Testimonials Below is a representative sampling of the unsolicited customer testimonials that we have received from our customers and web site visitors over the last several months: "Just wanted to thanks for your quick response to my e-mail. I also would like to say that I am always satisfied with your products and your customer service is the greatest on the web. Once again, thank you. t'" -Todd Ransonet "'Just dropping a note, your company rocks.t I just got my stuff and it came quicker than I thought it would, thanks for the quick shipments and service. "" -Kevin Hett "Thanks for responding. You guys are really good about servicing your customers- that's why I continue to shop with you. Thanks'" -Jeffrey Anderson "Thanks for such a quick response. I rec'd my products and everything looks great. Will be using your web site to order products in the future. Also, thank youfor the catalog of your products. " Kevin Williams "1're recently placed my second order with your company and was astounded with the response to my order. You are the first online, mailorder supplement company to ship my order so fast. I have ordered plenty of supplements from other companies and it took up to three weeks to have a check clear and my order shipped to me. I will continue to order from your site. Your prices are great tool Keep up the great work...A loyal Musclemaster customer'" -Chris Moon CONFIDENTIALITY STATEMENT The information, data and drawings embodied in this business plan are strictly confidential and are supplied on the understanding that they will be held confidentially and not disclosed to third parties without the prior written consent of Musclemaster.com. MEMORANDUM OF RISK The following business plan represents management's best current estimate of the future potential of the business. It must be recognized that no business is free of major risks and few business plans are free of errors of omission or commission. Investors should be aware that this business has inherent risks that must be thoroughly evaluated and discussed with management and experts fully capable of appropriately interpreting the information prior to any investment. Musclemaster. corn Table of Contents Tab 1: Musclemaster.com Executive Summary .................................................................. 1-3 Overview ............................................................................................................ Revenue Sources .......................................................................................................... .......... 1 2 3 3 3 4-6 4 4-6 6 7-8 7 8 8 9-10 9 10 11-12 13-16 13-14 14-15 15-16 17-18 19-20 Historical Traffic and Revenue Statistics ........................ ......................................... Content and Subscribers ............................................................................................. Summary and Conclusion ........................................................................................... Tab 2: Company Details ......................................................................................................... History .......................................................................................................................... Mission ....................................................................................................................... Legal Form of Business ............................................................................................... Tab 3: Management Team ..................................................................................................... Management Biographies ........................................................................................... Board of Directors ....................................................................................................... Strategic Advisors ........................................................................................................ Tab 4: Products & Services ................................................................................................ Products & Services ................................................................................................... Additional Service Offerings and Revenue Streams .............................................. Tab 5: Tab 6: Market Analysis ..................................................................................................... Marketing Plan ....................................................................................................... Traditional Marketing Tactics ............................................................................ Online Marketing Tactics .................................................................................... Guerilla Marketing Tactics ................................................................................. Tab 7: Tab 8: Competitive Analysis ............................................................................................. Technology ................................ .............................................................................. Musclemaster.corn Tab 9: Partnership Strategy ................................................................................................... 21 22 23-37 Tab 10: Risk Factors ................................................................................................................ Tab 11: Financial Projections .............................................................................................. Summary Historical and Projected Financial Information ............................. 23-24 Summary of Unique Visitors (graph) ...................................................................... Summary of Projected Unique Visitors (graph) .................................................... Summary of Revenues and Marketing Costs (graph) ............................................ 25 26 27 Summary of Projected Revenues and Marketing Costs (graph) .......................... 28 Historical and Projected Statements of Financial Position .................................... Historical and Projected Statements of Cash Flow ................................................. Sources and Uses of Cash .......................................................................................... Historical and Projected Employee Salaries and Headcount ................................. Historical and Projected Expense Forecasts ............................................................. Notes to Financial Projections ............................................................................... Summary of Assumptions ...................................................................................... Tab 12: Appendices ............................................................................................................... A. Customer Testimonials ........................................................................................... 29 30 31 32 33 34-35 36-37 38-47 38 39-47 B. New Web Site Concept Pages ............................................................................ Musclemaster. corn o IS-oM ca._g I Musclemaster.com - Company Details I The Company was co-founded in July of 1997 by Nick Chunias, its Chief Executive Officer, and Bob Myhal, its President, with initial funding of $25,000. The Company launched its web site, Musclemaster.com, in January of 1998 and began selling nutritional supplements and an internallypublished training and nutrition program. Since that time, the Company has experienced an average monthly growth rate of 15%. Musclemaster.com is now known as a leading online health and fitness information source and retailer of nutritional supplements and vitamins. It has attained this status within the online fitness community largely due to the Company's industry-leading focus on customer service and its ability to provide valuable information to its customers, newsletter subscribers, and web site visitors. The Company's mission is to emerge as the leading health & fitness Super Store on the web. By providing a content-rich and user friendly environment, Musclemaster.com will continue to attract a loyal following of consumers interested in receiving the latest health and fitness news, industry information, and product updates. Musclemaster.com will offer a full range of complementary products to these consumers and will continually seek to expand into additional product lines that are consistent with the Company's growth strategy. The Company's mission will be accomplished by taking the following steps: Provide Unparalleled Content and Expertise Musclemaster.com will launch a new web site on September 30, 1999 that is designed to surpass any related site in terms of breadth of content and level of expertise. The new site will be an integrated resource for each of our market segments. As such, it will cater to our consumer's health and fitness needs, from basic information and advice to an expanded product selection that will include equipment, clothing, CDs, cassettes, videos, books, and more. The site will include a product and customer database along with many other customer-oriented features. An additional site development phase is scheduled for launch in November of 1999. Implementation of this second phase will further automate back-end processing and provide additional customer functionality. At Musclemaster.com, web site development is viewed as an ongoing process resulting in continual updating and expansion of the information and products offered. >_ Cultivate Customer Loyalty and Trust Since the inception of Musclemaster.com, we have realized the importance of offering top quality information and responsiveness to our web site visitors and newsletter subscribers. With this in mind, the Company as a whole has made content expertise a primary focus through our information-rich web site, free expert newsletters, and free catalogs. As a result, the Company has developed deep customer and visitor loyalty. Build the Musclemaster.com Brand Branding the Musclemaster.com name is an over-riding strategic key to the Company's longterm success. With this in mind, the Company has aggressively begun to brand its name within the health and fitness community. In addition, Musclemaster.com has further committed to 4 Musclemaster. corn gaining national exposure through its hiring of Tom Davis & Company to initiate Public Relations efforts on its behalf. The Company is also embarking on an aggressive Fall marketing campaign that includes mailing 100,000 catalogs and 50,000 direct mail postcards to a diverse selection of health and fitness consumers. Maintain the Company's Industry-Leading Focus on Customer Service Musclemaster.com has gone to great lengths to make the consumer experience a satisfying one. At Musclemaster.com we treat each customer, newsletter subscriber, and web site visitor as a valued member of our community. This focus on service has translated into a high level of customer retention and enables us to aggressively pursue the acquisition of new customers. Our commitment to customer service provides a distinct and ultimately decisive competitive advantage for Musclemaster.com. Sustain a State-of-the-Art Warehouse Musclemaster.com has relocated its operations to a new 7,000 square foot warehouse in Southborough, Massachusetts. With this move, the Company has significantly automated the daily processing of customer orders and implemented an integrated technology solution which allows same-day fulfillment of all orders received by 2:00pm EST. By centralizing office and warehouse operations within the same facility, the Company has completely streamlined back office, warehouse, inventory, and management systems. This has significantly reduced the staff time committed to these operations. >" Offer Competitive Pricing Musclemaster.com has been successful in pricing its products competitively within the marketplace while still achieving a gross profit margin of 33% on vitamin and supplement sales. We will continue to offer competitive pricing on these items and will work to steadily increase the Company's overall gross profit margin by offering high-margin proprietary information products and by generating cash (i.e. non-barter) advertising revenues for ads placed on the Musclemaster.com web site, in the product catalogs, and in the popular Musclemaster.com newsletters. Provide Proactive Management Musclemaster.com's management team will continue to be proactive in response to the marketplace as it grows the Company. Market conditions and trends are changing and developing rapidly on the web. Because of this, our management team will continue to be responsive to changes in market conditions and will put the appropriate resources and programs in place to rapidly react as well as proactively anticipate such changes. Maintain Cutting Edge Technology Musclemaster.com's goal is to provide a premium shopping experience to the consumer that is cost effective and efficient for the Company. We have contracted with CenterMedia, Inc. of Boston to build Musclemaster.com a state-of-the-art web site. The site, which will launch on October 8, 1999, is content rich, customer-oriented, and offers excellent e-commerce functionality. The new web site is the first of many future technology upgrades that will keep Musclemaster.com at the cutting edge of e-commerce technology. 5 Musclemaster. corn As part of our commitment to improved technology, we have also automated the fulfillment of catalog requests with a large, regional mail house located in Massachusetts. In addition, we will automate the responses to a significant amount of customer and subscriber email questions and will also incorporate state-of-the-art web connectivity through the LAN in our warehouse to further aid in providing top flight customer service. >" Hire Talented People As of September 1, 1999, Musclemaster.com individuals: has 10 employees, including the following key = CEO-Nicholas Chunias, CPA, co-founder • President- Robert Myhal, co-founder • Controller- Whitney Cahn, CPA • System Administrator- Marty Lonergan We plan to continue to aggressively hire additional personnel in the marketing, content and customer service areas during the Fall. We will also explore hiring an experienced CFO to help support the next phase of our growth. With proper funding, we expect to quickly expand our staff from its current 10 to 25 people and additional hiring will become an ongoing process to help fuel the growth of the Company. Legal Form of Business The legal form of Musclemaster.com is a Limited Liability Company, with a principal place of business in Massachusetts. The Company anticipates changing its structure to that of a Delaware Ccorporation in conjunction with raising the additional capital necessary to achieve its business goals. Business Location Musclemaster.com has recently centralized and consolidated its facilities pursuant to a 5-year lease in a new 7,000 square foot office/warehouse located in Southborough, Massachusetts in the Rte. 495 Technology Belt. 6 Musclemaster. corn 3 [ Management Musclemaster.com Biographies - Management Team ! Nicholas G. Chunias, Chief Executive Officer, 34. Nick co-founded Musclemaster.com in January of 1998 and has been CEO since that time. From September of 1993 until March of 1999, he was employed as a Director of Mutual Fund Administration and Fund Accounting at Investors Bank & Trust Company. During this time, Mr. Chunias participated in a number of successful marketing presentations and was an integral part of the Bank's growth (which included an IPO in 1996) from 350 people to 1,400 people when he left the Company. From 1988 to 1993, Nick was employed by Coopers & Lybrand as a CPA in the auditing group. Nick graduated from Boston University in 1988 with a BSBA in Accounting. Robert L. Myhal, President, 34. Bob co-founded Musclemaster.com in January of 1998 and has been President since that time. Bob's professional experience includes eight years of teaching experience at the college level. Bob has taught writing (including business writing and writing for lawyers), literature, and rhetoric at numerous institutions including Boston College, the Massachusetts School of Law, and the University of Connecticut. Bob also served as the Director of the Writing Resource Center at the University of Connecticut in 1996 and 1997. In addition to his teaching and managing experiences, Bob has extensive experience in the publishing field as both a writer and an editor. Through his published training and nutrition programs and his numerous articles in the health and fitness field, Bob has become a noted fitness expert and leading commentator on the current state of nutritional health and supplementation. Bob is a Phi Beta Kappa graduate of Skidmore College, with a Master's Degree in English from Boston College and an ABD in Rhetoric and Composition from the University of Connecticut, Storrs. Whitney Cahn, Controller, 31. Whitney joined Musclemaster.com in June of 1998 as Controller. From August 1992 until March of 1997, she was employed by KPMG as a CPA in the auditing group. During this time, she worked on a diverse client base ranging from Healthcare, Real Estate, Retail and Financial Services. She participated in several successful proposals for additional business. She also developed and taught firm training programs. Whitney graduated from Wellesley College in 1990 with a BA in Psychology. Marly Lonergan, Senior Network Administrator, 30. Marty joined Musclemaster.com in June of 1998 as Senior Network Administrator. From January of 1998 through June of 1999, he was employed by Paxon Corporation as a Senior Network Administrator. In that capacity, Marty was responsible for bi-coastal network communications and various internet-related functions such as video conferencing, web site development and maintenance of internet connectivity and security. Prior to that, Marty served in a similar capacity with Iconics, Inc. Marty graduated from Bridgewater State College in 1996 with a B.S. in Physics. Marty also taught high school computer programming at Foxboro High School in 1996. 7 Musclemaster. corn Board of Directors A Board of Directors has been established that currently consists of Nicholas G. Chunias and Robert L. Myhal. Additional internal and external Directors will be recruited to serve on Musclemaster.com's board. The candidates who will be sought include highly qualified business and industry professionals to assist our management team in making appropriate decisions and taking the most effective action. Strategic Advisors Legal Counsel - Testa, Hurwitz and Thibeault, LLP (Boston, Massachusetts) PR Firm - Tom Davis & Company (Lexington, Massachusetts) Web Development Finn - CenterMedia (Boston, Massachusetts) 8 Musclemaster. corn 4 Musclemaster.com - Products & Services i Musclemaster.com currently carries over 50 product lines consisting of more than 800 products that are sold through its web site. The Company plans to aggressively increase the number of products and product lines to its web site beginning in the Fall of 1999. The addition of more diverse and extensive product lines are a strategic move by Musclemaster.com to further establish itself as the leading onestop shopping center for all health, fitness and nutrition needs. Below is a summary of the product lines Musclemaster.com will offer. Current Product Offerings Supplements... including prohormones, creatine, nutrition bars, protein powders and drinks, meal replacement powders, growth hormones, amino acids, essential fatty acids, energizers, neuro agents, and more. Training Gear & Accessories...including weight management products. straps/supports/wraps, belts, gloves, gym bags and Tanning / Cosmetic Products... including self tanners, tan accelerators, lotions, gels, and skin care products. >_ Vitamins & Herbs...including multi vitamins, anti-oxidants, vitamin C, vitamin E, vitamin B, calcium, sawgrass, gingko biloba, ginseng, st. john's wort, echininacea, and more. Weight Loss Products...including appetite suppressants, fat burners, products, Atkins Diet products, blood sugar regulators, and more. Nutrition Products... including nutrition bars and meal replacement powders. Zoneperfect Diet Future Product Offerings Equipment... including home gyms, bars, weight plates, aerobic equipment, bicycles, and professional machines. All of these products will be sold on a drop ship basis and will be fulfilled by strategic partners. Videos, Cassettes and Books...including training books and programs, diet books and programs, nutrition books and programs, training journals, training videos, and aerobic videos. Musclemaster.com will create and internally publish a number of these products in order to maximize profit margins. Clothing...including the Musclemaster.com T-shirts, hats, shorts and accessories as well as other major lines of fitness apparel such as Otomix and Champion. 9 Musclemaster. corn Additional Service Offerings and Revenue Streams Paid Advertising Advertsing in the Company's magalog, web sites and newsletters. Musclemaster.com has begun to accept paid advertising in its magalog and will do the same on its web sites and in its proprietary email newsletters. _" Free Newsletters Musclemaster.com offers 3 free opt-in email newsletters. The Ultimate Muscle Newsletter is sent via email to 150,000 people each week. The Musclemaster.com VIP Specials Newsletter goes out weekly to 125,000 people and the Musclemaster.com Fit-Tip-of-the-Day Newsletter is sent via email to 10,000 subscribers each day. Free Email Consultations Musclemaster.com currently receives and responds to 1,500 emails each week. Free Magalog Musclemaster,com currently receives 600 catalog requests each week. 10 Musclemaster. corn 5 Musclemaster.com Current Product Offerings - Market Analysis I According to Nutritional Business Journal (NBJ), the U.S. Nutrition Industry generated over $25.5 billion in consumer sales in 1998, a 10% gain over 1997. Growth rates within the U.S. Nutrition dfiTd'U-stry expected to continue atOver 10% per year until 2001, at which time they are expected to " are grow at a rate slightly less than 10% per year. NBJ divides consumer sales in the nutrition industry into three product categories: supplements, natural foods and personal care. Sales of supplements (vitamins, minerals, herb_s, nutrition, meal supplements and specialty supple'_ents) grew 7% in 1998 t_ nutrition accounted f_fthis amount. sports Sports Manufacturers universally deem education as the key element to selling dietary supplements and expanding the market for nutritional products. Thus, the Internet is a perfect selling channel for the nutrition industry, whose core customer base of baby boomers is dedicated to self-help and personal improvement. Internet sales of dietary sup_nt_ according to NBJ. While t_still r_.a_ed $40 million in 1998, up from $12 million in 1997, only 0.3% of total 1998 U.S. consumer supplement sales, sales over the Internet repretsent the fastest growing distribution channel, far in excess of the modest growth seen in natural foo_ stores, mass market stores, multilevel marketing and the mail order and practitioner channels. _ _ _ l_)_ According to NBJ, e-commerce sales of nutrition products are projected to expand four-fold in 1999 to reach $160 million and to almost double in the subsequent two years to reach $500 million in 2001, which will be roughly 3% of the market at that time. Future Product Offerings According to a study by the Sporting Goods Manufacturers Association (SGMA), manufacturers' sales (i.e. wholesale) of sports equipment, sports apparel, athletic footwear, and recreational transport items in the United States totaled $61.7 billion in 1997 and was estimated to reach $64.5 billion in 1998 -- a 4.5% increase over 1997. Sports equipment sales ($17.8 billion) grew by 4.1% in 1998. Sports apparel sales ($19.2 billion) grew by 5.5% in 1998. According to the SGMA/NPD Sports Apparel Market Index, the retail market for sports apparel reached approximately $34.7 billion in consumer purchases in 1998. Manufacturer's sales of fitness equipment rose 10% in 1997 to $2.9 billion and 7% in 1998 to $3.1 billion. Of these totals, approximately 93% represent sales to retailers and consumers and 7% to fitness facilities. Equipment for the home typically accounts for about 93% of total manufacturers' sales. If this pattern holds true, consumer spending in retail dollars for fitness equipment in 1998 was roughly $5.7 billion and will rise to about $6.1 billion this year. 11 Musclemaster.com Demographic and social trends also favor the fitness industry as baby boomers, who created the running boom in the 1970s, are now exercising for health and vitality. The health care industry and the government are also encouraging exercise as preventive medicine. "As the 1990s progressed, consumers have become increasingly willing to buy exercise equipment for the home, far more so than even a decade ago," said Gregg Hartley, executive director of the Fitness Product Council (FPC). "For many Americans, home exercise equipment is now seen as an amenity, a possession that contributes to the quality of life." A 1997 Fitness Products Council (FPC) study of 1,600 American adults found that exercise equipment is used regularly in 32.3 million households, 32.5% of the total. It is owned, but not used regularly, in another 17.6 million households (17.7% of the total). FPC is an association of 180 manufacturers of fitness equipment and accessories. It is part of the Sporting Goods Manufacturers Association. The sales estimates are based on data provided by FPC members, retailers and other sources. 12 Musclemaster.com I Musclemaster.com - Marketing Plan I Musclemaster.com will implement an integrated, measurable marketing strategy to drive the next stage of the Company's growth. The marketing plan will rely heavily on a combination of traditional marketing techniques, newer online marketing strategies and a steady dose of low cost guerilla marketing tactics. The marketing plan will also tie into the Company's customer service strategy which has proven to be a driving force behind sales revenue over the past 18 months with approximately 55% of the Company's revenue generated from repeat customers. Traditional Direct Mail Marketing Tactics The Company will initially focus its efforts on postcard and catalog mailings targeted towards the active health and fitness market. Mailing lists will be rented from relevant sources such as Muscle & Fitness, Flex, Ironman and various women's fitness magazines. The focus of the mailings will be to target individuals with lifestyle interests that translate to high prospect potential. The intent will be to generate awareness of the brand to these highly-qualified prospects, drive traffic to Musclemaster.com, brand the Musclemaster.com name, and build primary customer loyalty by generating requests for our print catalog. Musclemaster.com Magalog The Company currently receives about 600 catalog requests each week. A mailing house in the Boston area has been contracted to fulfill these catalog requests using US Postal first class mail. Thus, each catalog request is mailed and received by the requestor within one week of the request. Magazine Ads Musclemaster.com currently advertises in Natural Muscle Magazine, a monthly free publication that is distributed in gyms throughout Florida and California. The Company plans to advertise in paid circulation publications with greater interest commitment such as Muscle & Fitness, Flex, Men's Health and a number of other national health & fitness-related publications which focus on activities beyond bodybuilding and weightlifting in categories such as distance running, mountain biking, triathlons, etc. Radio Ads Musclemaster.com will embark upon an aggressive national radio campaign. On a short-term basis, radio can be one of the most effective media choices to generate awareness of the brand and interest in the Musclemaster.com site. Radio allows us to focus limited media dollars in specific geographic areas where business is currently strong. It allows targeting of particular lifestyle segments through station and format selection as well as commercial message variation. Furthermore, radio allows for numerous merchandising promotional opportunities on a localized basis that can heighten brand awareness and convert potential customers at an accelerated rate. 13 Musclemaster. corn Television Ads Musclemaster.com will embark upon a national television campaign that is projected to occur once the proper funding is secured. Television's communicative strength lies in its ability to deliver messages dramatically with the advantages of sight, sound and motion. It will allow us to demonstrate screen shots from our web site in a dynamic fashion. TV's other strength is its broad coverage and reach capability. Television can deliver a compelling message about our brand to more of our prospects in a shorter period of time. Public Relations Campaign Musclemaster.com has hired a firm to perform public relations functions for the Company. This finn will carry out the following functions for Musclemaster.com: • • • Create national brand identity and consistency in marketing strategy. Coordinate NAPS press release and track clippings. Develop and implement national public relations strategy. OnLine Marketing Tactics Cliek-Thru Banner Programs Musclemaster.com has entered into the following banner advertising programs: • • Burst Media banner click-thru program. GoTo.com click through program. The Company will continue to identify banner click through programs that are cost effective and result in significant additional traffic being sent to the Musclemaster.com site. Newsletter Subscriptions Musclemaster.com has entered into the following agreements to generate subscribers to its newsletters: • • • • Newslettersforfree.com. Lycos Special Delivery Program. Memail.com. Lifeminders.com. In aggregate, these four programs generate 1,800 newsletter subscribers per day to Musclemaster.com's three proprietary newsletters. In addition to these programs, Musclemaster.com's site generates 100 new subscribers to these newsletters each day. The Company will continue to identify additional programs that are cost effective and result in significant additional newsletter subscribers. 14 Musclemaster. corn Catalog Requests Musclemaster.com currently receives 600 catalog requests each week on its site. Furthermore, it receives an additional 125 catalog requests per week via co-branding agreements it has in place with Freeshop.com (formerly Catalog Site) and Catalog City. Affinity & Affiliate Programs Musclemaster.com has entered into affinity co-branding agreements with CollegeClub.com and eHealth.com. The Company will aggressively pursue as many additional commission-based affinity programs as possible with other relevant sites. Search Engine Placements Musclemaster.com will utilize the Web Position Gold software combined with its knowledge of meta tags and the major search engines to optimize the site to rank high with the search engines. The Company's focus will be on the major 11 search engines: research suggests that these top engines generate 90% of the overall search engine traffic on the web. Newsgroup Postings Musclemaster.com will utilize newsgroups to drive additional traffic to its site. Affiliate Program and Link Exchanges Musclemaster.com will embark upon an aggressive campaign to exchange links with as many related, non-competitive sites as possible. We will use our affiliate program (which pays a 10% commission for all referred sales) as an enticement to get other existing web sites to prominently refer consumers to Musclemaster.com. Public Relations Campaign As previously mentioned, Musclemaster.com has hired a firm to perform public relations functions for the Company. In addition to the traditional public relations functions, this firm will also coordinate Musclemaster.com's online public relations efforts that will include: # Creating a national brand identity and consistency in marketing strategy. • Developing and implementing an online public relations strategy. Guerilla Marketing Tactics Customer Retention Marketing Program Musclemaster.com has implemented an aggressive program that proactively seeks to maximize customer retention. Under the program, customers are offered various incentives to retum to Musclemaster.com and complete additional sales transactions. Customers are segregated into nine different categories based on their sales history with the Company in determining which incentives they are offered. This program is updated on a monthly basis. 15 Musclemaster.com Coupons & Flyers The Company will utilize promotional tools such as coupons and flyers to make additional offers to first time and repeat customers to improve upon its customer retention and repeat sales. T-Shirts and Promotional Items Musclemaster.com will use various promotional items to encourage consumers to shopping transaction on the site: industry statistics show that as many as 70% of are abandoned prior to checkout. Initially, a free gift will be offered for transactions. The Company will also use these promotional items to increase offering a free T-shirt for orders over $100. complete their shopping carts all completed order size by Customer Loyalty Programs Musclemaster.com will consider offering additional incentive programs such as Click Rewards to customers as an enticement to get them to continue to shop at our site. We may also create our own customer loyalty program. Business to Business Programs Musclemaster.com will also seek to enter into wholesale agreements with other businesses that sell supplements and vitamins. College Internship Program Musclemaster.com is currently working with several of the major colleges in the Boston area to launch its college internship program. Selected students will work for the Company on a probono basis to promote Musclemaster.com's affiliate program, build the Company's link exchanges and carry out additional online marketing initiatives. Trade Show Attendance The Company will display at a number of trade shows each year beginning with the Olympia in October of 1999. The focus of these trade shows will be bodybuilding and fitness contests and other active fitness events such as triathalons and cycling events. The Company will also seek to sponsor major charitable events. 16 Musclemaster.com 7 [ IVlusclemaster.com - Competitive Ana lysis Companies in the Musclemaster.com currently competes marketplace in the following key areas: >_ very favorably against other prominent Sticky Web Site Musclemaster.com has established a web site that provides a solid balance between content and commerce. Because of this, our customers visit often and stay for extended periods. "I'm impressed with your web-site which offers so much informative advice on bodybuilding and a wide variety ofsupplementproducts. "'Rgds, Kenny. Building Trust At Musclemaster.com we understand the importance of building customer trust. In light of this, we have made every effort to reassure our customers that Musclemaster.com is a company they can depend on to respond to all inquiries in a timely and professional manner, protect and secure personal and confidential information, and offer value-added services and advice. "I really wasn't holding my breath for any response to my email questions so I appreciate your quick and favorable answer. I'li make sure to visit your site and tell all my women canoe paddling teammates and other athletic women friends about it. Thank you!" Erin Speed of Web Site In the modem world, people want the information they need and they want it fast. At Musclemaster.com we understand the value of a quick and efficient web experience, and we are committed to balancing in-depth content with the real need for speed. "I LOVE your website. It is so easy to use, no searching endlessly, everything is very easy to find. I would like to thank you for listing product ingredients and detailed information about how they work. ""Deborah Customer Service In the new economy, those companies that are able to best serve the wants and needs of their customers will enjoy a substantial competitive edge. Musclemaster.com understands the value of customer service and will continue to lead the way in this key area. "7 am extremely impressed by your customer satisfaction practices !!!! Keep up the great work, you make ordering over the net a wonderful experience -" Kind regards, Ann Allport Shipping Policy and Back Orders E-commerce offers the consumer convenience and choice like never before, but this matters very little if a Company's shipping and inventory management is not world-class. At Musclemaster.com we pay attention to the details that make the difference. "l just received my order -- thanks for your quick handling of it -- you'll definitely get more business from me!" Anne M. Candreva 17 Musclemaster. com Pricing Leading electronic vendors can offer products at 10-25% off retail prices and up to 50% savings on selected items. Musclemaster.com's pricing is very aggressive with discounts of 20% to 50% off retail prices "Just wanted to say thanks for providing the body building world with a company that gives killer prices on supplements we need.t'" Steve Below is a summation of current competition within the supplements category of the U.S. Nutrition Industry: • • , • A handful of venture backed e-commerce sites have emerged recently. Pharmacy/supplement web sites capable of handling prescriptions have also appeared. Catalog companies and retail outlets. Finally, there are a number of small niche players and a host of entrepreneurs selling in this market. Early forecasts suggest that the winning e-commerce business strategy in the health and fitness segment will not be based primarily on price but rather on consistency of service, quality and convenience. These are all areas where Musclemaster.com excels. In summary, Musclemaster.com is uniquely positioned to succeed in this market as trust in the distributor, depth and quality of information and the expertise offered through a Company's site will be critical to capturing market share. There are very few sites that can match Musclemaster.com's combination of content and commerce and even fewer that provide the level of customer service and expertise found at Musclemaster.com. 18 Musclemaster.com I Musclemaster.com - Technology I Musclemaster.com has developed an integrated technology plan that will afford it a further competitive advantage within the marketplace. With the implementation of a state-of-the-art web site and warehouse, the Company will be able to scale efficiently and profitably from an operations perspective as sales volume increases. Technology efforts will focus on several critical areas. Web Site The key distinguishing components of the Musclemaster.com web site include the following: • Authoritative Educational Information Musclemaster.com provides consumers with direct access to hundreds of proprietary articles, interviews, and advice from recognized experts in the health and fitness industry. Our web site is a fully integrated resource for all of our targeted consumers and is designed specifically to cater to their needs, from basic information and advice to an expanded product selection that will include equipment, clothing, CDs, cassettes, videos, books, and more. Integration of Content and Commerce The new Musclemaster.com web site is content rich and customer-oriented • in addition to offering consumers state-of-the-art e-commerce functionality. From a technological and content based perspective, the launch of the new web site has established Musclemaster.com as a world class leader in e-commerce. • Convenient, Private, and Secure Shopping Consumers can browse or shop on our site 24 hours a day, seven days a week in the privacy of their homes or offices. At Musclemaster.com, consumers have the ability to conveniently research and purchase products for all of their health and fitness needs. As an added feature, consumers can use the Musclemaster.com web site to fully personalize their shopping experience. This will allow them to, amoung other things, reorder previous selections with one click and personalize the products and content they see to more closely reflect their own current interests and purchasing habits. Wide-Ranging, Expandable Product Variety Our product selection is substantially larger than that offered by store-based retailers. We offer approximately 800 products, or SKUs, on our site and we can special order thousands of additional products through our supplier relationships. Our online store is easily expandable to include additional products and services. Ongoing Customer Information and Communication We use email to provide order status and shipping confirmation and to keep our customers aware of special VIP sales and selected news related to their past purchases. Because we obtain demographic information on our customers through the registration process, we are able to refine our site and customize our product offerings. • • 19 Musclemaster. corn Web site development is viewed as an ongoing process that will continually need to be updated and expanded in order to provide a consistently fresh look and top-flight functionality to our customers. Warehouse and Fulfillment Facility Musclemaster.com has relocated its operations to a brand new 7,000 square foot warehouse located in Southborough, Massachusetts. With this move, the Company has significantly streamlined the daily processing of customer orders allowing for quicker fulfillment of orders resulting in increased customer satisfaction. All customer orders now flow through an automated process through our web site to our warehouse with minimal human intervention. Phone System and Call Center Musclemaster.com is utilizing a state-of-the-art Comdial phone system to service all of its incoming phone calls for customer service and sales. The Company currently provides live phone support for 14 hours each day, Monday to Friday, and sophisticated mailbox support during off hours. By November, 24 x 7 phone coverage will be in place. Automated E-mail Management and Filtering System As part of the new technology upgrades, Musclemaster.com will be implementing an extensive automated email management system. Our customer service module on the site auto filters emails to the appropriate group and sends an auto response acknowledging the email. Auto responders are used to respond to basic inquiries and all others are answered within 24 hours of receipt. Automated email management is another way Musclemaster.com plans to be a leader in online customer service. Automated Delivery of Newsletters and Catalogs The Company has automated the fulfillment of catalog requests with a mailing house in Massachusetts. All catalog requests are fulfilled the same day via US Postal first class mail. Networked Office for Order Processing Customer service representatives process all phone and mail orders online via an administrative function on our web server in order to avoid duplication of effort, minimize the risk of errors and speed up the booking and fulfillment processes. 20 Musclemaster. corn 9 [ Musclemaster.com - Partnership Strategy I Musclemaster.com will continue to aggressively seek affinity relationships with as many relevant web sites and businesses as possible. Currently, 750 sites link into Musclemaster.com through its affiliate program and other marketing initiatives. The Company also has co-branding relationships set up with Amazon.com, CollegeClub.com, eHealth.com, Catalog City and I-Mall. The Company's Partnership Strategy is summarized as follows: >_ Affiliate program Musclemaster.com's affiliate program is currently 750 affiliate members strong. The Company will aggressively expand this program by offering additional fmancial incentive and prominently promoting the program on its new site. The Company's newsletters and other direct marketing techniques will also be leveraged to further advertise the affiliate program. Co-branding and Affinity relationships Musclemaster.com has already entered into several successful co-branding relationships. The Company now plans to approach major portals and relevant health and fitness sites in order to significantly expand reach on the web. A typical arrangement would involve Musclemaster.com paying a commission to sites that refer sales. We will also enter into relationships where we pay or barter for advertising on prime, high-traffic web real estate. >" Trade advertising with relevant sites Musclemaster.com will continue to exchange banner ads and newsletter sponsorships with other relevant sites. Exchange reciprocal links Musclemaster.com will continue to aggressively exchange links with as many sites as possible. 21 Musclemaster. corn 10 Musclemaster.com - Risk Factors ] The major risks involved with this venture are the actual growth rate on the Internet of buyers of health and fitness related products and the competitive environment that surrounds this market. Secondary risks include our ability to retain customers, access to additional capital when required, ability to attract and retain key personnel, and changes in enforcement of government regulations affecting our business. At this time, it is not anticipated that any pending or proposed regulation will materially affect the operations of Musclemaster.com. One indication that Musclemaster.com will overcome these challenges and continue to prosper is that the Company has already been able to compete favorably within this marketplace with little capital or infrastructure. As indications of its already strong position within the market, Musclemaster.com has: • Established a strong following of loyal customers by sticking to the solid business fundamentals of offering value in the form of information, great customer service and competitive pricing. Assembled a talented management team that understands the wants and needs of its customers. Created a sticky web site that draws customers and visitors back time and again. Developed exceptional technology in all facets of business allowing the Company to process orders efficiently and effectively and focus attention on growth. Committed to on-going development of unique technologies that help offer value to customers and differentiate the Company. Diversified its product line to reduce risk and significantly expand the Company's offerings of complementary products to existing and new customers. • • • • • In summary, despite the inherent risks of any venture, Musclemaster.com is uniquely positioned to expand rapidly within this market segment. There are very few sites that can match Musclemaster.com's combination of content and commerce and even fewer that provide the level of customer service and expertise found at Musclemaster.com. 22 Musclemaster. corn 11 Musclemaster.com Musclemaster.com Historical and Projected Financial Summary Financial Information ($O00's) (Unaudited) - Financial Projections I Information We have presented below a summary of some of the key financial data for Musclemaster.com. The detail supporting this information is contained in the supporting schedules attached hereto and in the notes to financial information. These financial projections assume an initial capital investment of $5.0 million and an additional capital infusion of $15.0 million in 2001 and do not include any merger or acquisition transactions. Six Months Six Months Ended Year Ended Ended Projected 6/30/98 12/31/98 6/30/99 1999 Revenue YOY% Cost of Goods Sold Gross Profit SG&A: Sales & Marketing General & Administrative Total SG&A EBITDA $6 $27 N/A 17 $10 $221 N/A 147 $74 $470 1634% 319 $151 $1,318 496% 869 $449 Projected 2000 $5,227 296%. 3,295 $1,932 Projected 2001 $19,562 274% 12,091 $7,471 Projected 2002 $38,334 96% 23,460 $14,874 Projected 2003 $72,322 89% 43,822 $28,500 $1 3 4 $11 18 29 $45 $50 55 105 $380 334 714 $3,869 2,122 5,991 ($4,059) $10,964 3,717 14,681 ($7,210) $13,619 5,540 19,159 ($4,285) $14,760 7,440 22,200 $6,300 $4.____.._6 ($265) Gross Margin EBITDAMargin 38% 23% 33% 20% 32% 10% 34% -20% 37% -78% 38% -37% 39% -11% 39% 9% 23 Musclemaster.com Musclemaster.com Historical and Projected Financial Information Summary Financial Information ($000's) (Unaudited) Six Months Ended 6/30/98 ITransactions Key Metrics/Drivers: ITransactions per User Visit - Penetration % IAverage Transaction $ IAvg. Sales & Mktg per Transaction Selected Cash Flow Data: Beginning of Period Deficit EBITDA Inventory Build Capital Expenditures End of Period Deficit- Cumulative 319 0.68% $84.99 $4.18 Year Ended 12/31/98 2,555 1.09% $86.51 $4.48 Six Months Ended Projected Projected Projected 6/30/99 1999 2000 2001 5,242 1.39% $89.70 $9.47 • 15,004 1.56% $87.87 $25.33 59,822 1.73% $87.38 $64.67 Projected 2002 Projected 2003 786,617 I 213,557 2.16% $91.60 $51.34 417,542 2.32% $91.81 $32.62 2.62% I $91.94I $18.76I ($23) 6 (15) ($32) ($23) 45 (43) (8) ($29) ($29) 46 (47) (15) ($45) ($29) (265) (80) (175) ($549) ($549) (4,059) (225) (180) ($5,013) ($5,013) (7,210) (250) (270) ($12,743) ($12,743) (4,285) (600) (300) ($17,928) ($17,928) 6,300; (1,200)i (350) ($13,178)! Unique UserVisits Non-Financial Statistics: I Email Newsletter Subscribers I Catal°g Requests I Employee Headcount 47,024 3,000 1,000 2 234,324 8,000 7,500 2 376,662 44,000 14,850 6 960,662 224,000 37,350 11 3,450,000 555,000 99,000 50 9,875,000 680,000 171,000 78 18,000,000 800,000 250,000 116 30,000,000I 1,000,000I 350,000 I 1421 24 Musclemaster,com Musclemaster.com Summary of Unique Visitors (January 1, 1998 to June 30, 1999) 250,0001J 200 150 100 50 Q1-1998 Q2-1998 Q3-1998 Q4-1998 Q1-1999 Q2-1999 Note: This summary is based on management's best estimate of the site's traffic history. 25 Musclemaster. com Musclemaster.com Summary of Projected Unique Visitors 30-J (millions) 15- 10__ o-_ _t{ A 1998A 1999P 2000P 2001 P 2002P Note: This summary is based upon management's best estimate of the site's traffic projections. 2003P 26 Musclemaster.com Musclemaster.com Summary of Revenues and Marketing (January 1, 1998 to June 30, 1999) Costs $3O0 $250 $2O0 $150 nMarketing nRevenues 1 Q1-1998 Q2-1998 Q3-1998 Q4-1998 Q1-1999 Q2-1999 27 Musclemaster. corn Musclemaster.com Projected Revenues and Marketing Costs (millions) • Revenues • Marketing 1998A 1999P 2000P 2001 P 2002P 2003P Note: This summary is based on management's best estimate of the Company's financial projections. 28 Musclemaster. corn Musclemaster.com Historical and Projected Financial Information Statements of Financial Position (in 000's) (Unaudited) Actual& Pro Forma 1999 $4,481 125 $4,606 $25 $20 $4,651 $50 5 $55 $0 $4,596 $4,651 Cash Other Current Assets Total Current Assets Net Property, Plant & Equipment Other Long Term Assets Total Assets Accounts Payable and Accruals Other Liabilities Total Current Liabilities Total Debt Owner's Equity Total Liabilities& Owners Equity Actual 1998 $10 45 $55 $0 $1 $56 $19 1 $20 $25 $11 $56 Pro Forma 2000 $109 350 $459 $75 $25 $559 $65 10 $75 $0 $484 $559 Pro Forma 2001 $7,967 600 $8,567 $125 $30 $8,722 $110 15 $125 $0 $8,597 $8,722 Pro Forma 2002 $2,949 1,200 $4,149 $200 $35 $4,384 $125 25 $150 $0 $4,234 $4,384 Pro Forma 2003 $8,290 2,400 $10,690 $300 $40 $11,030 $175 40 $215 $0 $10,815 $11,030 29 Musclemaster. com Musclemaster.com Historical and Projected Financial Information Statements of Cash Flows (in O00's) (Unaudited) Actual & Pro Forma 1999 ($441) 31 4 (80) ($485) ($19) (25) ($44) Actual 1998 Cash-Flow From Operations: Pre-Tax Income Accounts Payable Other Liabilities Inventory Cash Flow From Operations InvestinqActivities: Other Long Term Assets Net Property, Plant & Equipment Cash Flow From Investing Activities Financinq Activities: Capital Funding Interest Income (expense) Cash Flow From Financing Activities Net cash increase (decrease) for period Cash at beginning of period Cash at end of period $37 13 0 (43) $7 $0 3 $3 Pro Forma 2000 ($4,239) 15 5 (225) ($4,444) ($5) (50) ($55) Pro Forma 2,001 ($7,480) 45 5 (250) ($7,680) ($5) (50) ($55) Pro Forma 2002 ($4,585) 15 10 (600) ($5,160) ($5) (75) ($80) Pro Forma 2003 $5,950 50 15 (1,200) $4,815 ($5) (100) ($105) $0 ($3) ($3) $5,000 $0 $5,000 $0 $127 $127 $15,000 $593 $15,593 $0 $222 $222 $0 $631 $631 $7 $3 $10 $4,471 $10 $4,481 ($4,372) $4,481 $109 $7,858 $109 $7,967 ($5,018) $7_967 $2,949 $5,341 $2,949 $8,290 30 Musclemaster.com Musclemaster.com Historical and Projected Financial Information Sources & Uses of Cash (O00s) (Unaudited) Pro Forma 1999 Sourcesof Cash: InvestorFunding InterestIncome Total Sourcesof Cash $5,000 $0 $5,000 $0 $127 $127 $15,000 $593 $15,593 $0 $222 $222 $0 $631 $631 Pro Forma 2000 Pro Forma 2001 Pro Forma 2002 Pro Forma 2003 Uses ofCash: Advertising& Marketing Fund Operating Losses Capital Expenditures Working Capital Total Uses of Cash Total Change in Cash Position $380 (115) 175 89 $529 $4,471 $3,869 190 180 260 $4,499 ($4,372) $10,964 (3,754) 270 255 $7,735 $7,858 $13,619 (9,334) 300 655 $5,240 ($5,018) $14,760 (21,060) 350 1,240 ($4,710) $5,341 31 Musclemaster. com Musclemaster.com Historical and Projected Financial Information Employee Salaries and Headcount (Unaudited) Actual & Pro Forma 1999 Dollars People Employee Headcount: Customer Service General & Administrative Sales & Marketing Systems Support & Development Warehouse Staff Web Site Content & Editorial Totals Pro Forma 2000 Dollars People Pro Forma 2001 Dollars People Pro Forma 2002 D.ollars People Pro Forma 2003 Dollars People 20,125 78,775 20,125 43,125 20,700 64,400 $247,250 1 4 2 1 1 2 11 345,000 460,000 460,000 414,000 207,000 402,500 $2,288,500 10 8 10 6 6 10 50 579,600 598,000 772,800 724,500 362,250 680,800 $3,717,950 16 10 16 10 10 16 78 910,800 885,500 1,315,600 897,000 607,200 1,076,400 $5,692,500 24 14 26 12 16 24 116 1,127,000 1,200,600 1,587,000 1,251,200 805,000 1,414,500 $7,385,300 28 18 30 16 20 30 142 32 Musclemaster. corn Musclemaster.com Historical and Projected Financial Information Expense Forecasts (in O00's) (Unaudited) Actual & Pro Forma 1999 $253 317 33 175 46 48 10 40 $923 Actual & Pro Forma 1999 Actual 1998 Payroll Expenses Marketing Credit Card Processing Fees Technology Enhancements Professional Fees Lease Space Telephone Other Expenses Total Expenses $0 11 5 8 1 4 2 11 $42 Pro Forma 2000 $2,289 3,314 131 180 155 90 39 105 $6,303 Pro Forma 2001 $3,718 10,127 489 270 165 180 99 391 $15,439 Pro Forma 2002 $5,693 12,310 958 300 165 225 192 575 $20,418 Pro Forma 2003 $7,385 13,215 1,808 350 165 350 362 723 $24,358 Actual Marketing Expenses Traditional Marketing Postcards& BTB Musclemaster.com Magalog Magazines Radio TelevisionAds PressReleases/ PR Firm Sub-Total Traditional Web Marketing Click-Thru Banner Programs NewsletterSubscriptions CatalogRequests Affinity& Affiliate Programs SearchEnginePlacements NewsgroupPostings Affiiliate Programand Link Exchanges PublicRelations Campaignand BrandingEfforts CustomerRetentionand Reward Programs Sub-Total Web Total Marketing Expenses 1998 Pro Forma 2000 Pro Forma 2001 Pro Forma 2002 Pro Forma 2003 $0 10 0 0 0 0 $10 $50 130 13 0 0 24 $217 $170 70 100 850 1,200 108 $2,498 $300 70 200 2,800 4,500 180 $8,050 $200 35 250 4,000 5,000 200 $9,685 $250 15 300 4,000 5,000 250 $9,815 $1 0 0 0 0 0 0 0 0 $1 $11 $18 25 4 3 13 6 7 10 14 $100 $317 $45 55 35 18 125 55 53 285 145 $816 $3,314 $85 85 58 29 180 70 130 1,100 340 $2,077 $10,127 $100 100 65 35 200 75 150 1,500 400 $2,625 $12,310 $125 125 75 50 225 100 200 2,000 500 $3,400 $13,215 33 Musclemaster. corn Musclemaster.com Notes to Financial Projections (Unaudited) A discussion of the preceding historical and estimated pro forma financial statements follows: Revenue. Revenue is primarily derived from the sale of products described in Section 4 of this document on the Company's web site. The Company also derives additional revenue by selling ad space on it's web site, in its email newsletters and in it's print catalog. Management anticipates that the Company will continue to demonstrate strong revenue growth, increasing from $0.2 million in 1998 to an estimated $1.3 million in 1999 to an estimated $72.3 million in 2003. The primary drivers for the growth is an increase in the marketing and branding of the Musclemaster.com site, the creation of a new state-ofthe-art website and the Company's commitment to the integration of content and commerce on it's web site. Gross Profit. The Company's pro forma gross profit margin increased from 33% in 1998 to a projected 34% in 1999. This increase is primarily attributed to better pricing the Company obtained from its vendors as a result of bulk purchases that were made. The Company's gross profit margin is expected to increase to 37% in 2000 and reach 39% in 2003. The Company will achieve this increase in gross profit margin in 2000 by continuing to negotiate better pricing on products from vendors. The Company will also continue to offer and create higher margin products and services such as training programs, videos and cassettes and the generation of ad revenue on its site, and in its newsletters and catalogs. These gains will be partially offset by continuing downward price pressure on internet prices for vitamins, supplements and minerals. Sales and Marketing Expense. The Company's sales and marketing expenses increased from $11,000 in fiscal 1998 to a projected $380,000 in fiscal 1999. This increase is primarily attributable to an increase in the number of online and traditional marketing mediums in which the Company has advertised. Sales and marketing expenses are projected to increase to $3.9 million in 2000, $11.0 million in 2001, $13.6 million in 2002 and $14.8 million in 2003. These increases are consistent with the Company's goal to significantly increase the marketing and branding of the Musclemaster.com name and site. Marketing initiatives include direct mailings, magazine and newspaper ads, radio ads, public relations, online ads, and the Company's customer retention and rewards program. Technology Expenses (Capital Expenditures). The Company's technology expenses increased from $8,000 in fiscal 1998 to a projected $175,000 in fiscal 1999. This increase from 1998 to 1999 is primarily attributable to the development of the Company's new web site and the set up of the Company's new warehouse facility with a LAN, computers, and phone system. Technology expenses are projected to increase to $180,000 in 2000, $270,000 in 2001, $300,000 in 2002 and $350,000 in 2003. This increased spending on technology will allow the Company to maintain a state-of-the-art ecommerce site and deliver the outstanding customer service and user experience that will allow the Company to meet its goals. For depreciation purposes, an average life of five years is assumed for furniture and warehouse equipment and three years for computer equipment. Professional Fees. The Company's professional fees increased from $1,000 in fiscal 1998 to a projected $46,000 in fiscal 1999. This increase from 1998 to 1999 is primarily attributable to increased legal fees incurred in 1999. Professional fees are projected to increase significantly to $155,000 in 2000, $165,000 in 2001, $165,000 in 2002 and $165,000 in 2003. These increases are attributable to the Company's need to hire expert legal, accounting / auditing, and benefits consultants to assist the Company in its growth phase. 34 Musclemaster. corn Musclemaster.com Notes to Financial Projections (Unaudited) Internet Expenses. Expenses associated with the intemet are divided into three categories: production, marketing and sales. The production expenses, including domain registrations, the maintenance of the web sites, databases and software, are classified as cost of goods sold and are generally expensed as incurred. The marketing expenses and the sales costs (including commissions) are classified as sales and marketing expenses. The projections contained herein reflect the Company's plan to significantly increase Intemet marketing expenditures to develop brand awareness. General and Administrative Expenses. General and administrative expenses increased from $18,000 in fiscal 1998 to a projected $334,000 in fiscal 1999. This increase from 1998 to 1999 is primarily attributable to the hiring of new employees and the lease of the warehouse facilities in Southborough, Massachusetts. General and administrative expenses are projected to increase to $2.1 million in 2000, $3.7 million in 2001, $ 5.5 million in 2002 and $7.4 million in 2003. The trend of higher operating expenses is based upon the additional administrative personnel that will be required to support the growth of the Company. Incremental expenses, including salaries, benefits, and office rental were all based on the headcount assumptions. Additional expenses were projected for incremental travel and other miscellaneous items. Working Capital Requirements. After analyzing working capital, it is estimated that $260,000 is necessary to meet the operating working capital requirements for the next year of operations. After that time, the cash generated from operations may not be adequate to finance working capital needs and additional working capital needs may exist. 35 Musclemaster.com Musclemaster.com Summary of Assumptions (Unaudited) Musclemaster.com has made the following assumptions in preparing the projected financial statements contained in this business plan: Capital Needs. Based on the opportunities and requirements identified herein for Musclemaster.com and based on the business assumptions that have been made, we feel that raising an initial round of $5.0 million in capital will allow Musclemaster.com to finance it's expansion over the course of the next 1218 months. With this funding, Musclemaster.com will be able to significantly increase its valuation and position itself to be able to raise an additional $15.0 million within 12-18 months to further expand its brand name and reach within the marketplace. At that point, the Company will become an attractive acquisition target or candidate for an IPO. Revenue Projections. For the period July 1, 1999 to December 31, 1.999and for the years ended December 31, 2000 and 2001, we have projected a compounded quarterly growth rate of approximately 35% which includes the natural growth of the business plus the impact that marketing initiatives will have on the Company's growth. For the years ended December 31, 2002 and 2003, we have projected an annual growth rate of approximately 96% and 89%, respectively. These projected growth rates are conservative when compared to the Company's historical growth rates which have been 615% for the six months ended December 31, 1998 and 142% for the six months ended June 30, 1999. Sales and Marketing Expense. Sales and marketing expenses are projected to increase from $11,000 in 1998 to $380,000 in 1999, $3.9 million in 2000, $11.0 million in 2001, $13.6 million in 2002 and $14.8 million in 2003. These increases are consistent with the Company's goal to significantly increase the marketing and branding of the Musclemaster.com name and site. Marketing initiatives include direct mailings, magazine and newspaper ads, radio ads, public relations, online ads, and the Company's customer retention and rewards program. Technology Expenses. Technology expenses are projected to increase increase from $8,000 in 1998 to $175,000 in 1999, $180,000 in 2000, $270,000 in 2001, $300,000 in 2002 and $350,000 in 2003. This increased spending on technology will allow the Company to maintain a start of the art ecommerce site and deliver the outstanding customer service and user experience that will allow the Company's to meet its goals. Professional Fees. Professional fees are projected to increase significantly from $1,000 in 1998 to $46,000 in 1999, $155,000 in 2000, $165,000 in 2001, $165,000 in 2002 and $165,000 in 2003. These increases are attributable to the Company's need to hire expert legal, accounting / auditing, and benefits consultants to assist the Company in its growth phase. General and Administrative Expenses. General and administrative expenses are projected to increase from $18,000 in 1998 to $334,000 in 1999, $2.1 million in 2000, $3.7 million in 2001, $5.5 million in 2002 and $7.4 million in 2003. The trend of higher general and administrative expenses is based upon the additional administrative personnel that will be required to support the growth of the Company. Incremental expenses, including salaries, benefits, and office rental were all based on the headcount assumptions. Additional expenses were projected for incremental travel and other miscellaneous items. 36 Musclemaster.com Musclemaster.com Summary of Assumptions (Unaudited) Working Capital Requirements. After analyzing working capital, it is estimated that $260,000 is necessary to meet the operating working capital requirements for the next year of operations. After that time, the cash generated from operations may not be adequate to finance working capital needs and additional working capital needs may exist. 37 Musclemaster.corn 12 I Husclemaster.com - Appendix A I Customer Testimonials _Your site and weekly email newsletter are invaluable to me! invaluable received Your website and newsletters are packed with useful information presented in realistic terms. It's all encouraging!" -Jonathan McBrien _Thank you very much for your response. musclemaster gives and the courtesy you -Brian Churchin _My order was -Paul Weller _Thanks everyone -Yani received in excellent time tips and gratefully and I appreciate the have shown me." service that and condition. Thank you!" again for I know." all your help. I'll be sure to recommend your site to _I just wanted to say that I've been reading your newsletter on a weekly basis for just over two months now, and I am overwhelmed with the information that you have to offer. What you're doing is great! Keep up the good work, and I look forward to receiving your next issue!" -Mark Blaskiewicz _I just received my order -- thanks for your quick handling it -- you'll definitely get more business from me!" -Anne M. Candreva _Thanks for the quick response. prices. I've been recommending believe how much we're saving. -Kevin Connolly of I've been so happy with your business and you to everyone in my office. They can't I won't even set foot in GNC anymore!" _Thanks for everything. Got the package, I'll recommend you to my friends." -Mark no extra costs, perfect condition. _I just received my first order of nutritional supplements from your company...only one day after I ordered! I LOVE your website. It is so easy to use, no searching endlessly, everything is very easy to find. I would like to thank you for listing product ingredients and detailed information about how they work. I also received a catalog today from the nutritional supplement company I had been ordering from in the past, so I compared prices and your Discount Warehouse offers a much better variety at 30% - 50% less! I guess -Deborah I've found a new source for my nutritional needs!" 38 Musclemaster. corn I Musclemaster.com - Appendix B I New Web Site Concept Pages Musclemaster.com will launch a new state-of-the-art web site on October 8, 1999. Our new site is content rich, customer-oriented, and offers excellent e-commerce functionality. Musclemaster.com's goal is to provide a premium shopping experience to the consumer that is cost effective and efficient for the Company. On the following pages are copies of concept pages for the new Musclemaster.com including the following: • • • • • • • • Musclemaster.com home page; Store home page; Bodybuilding home page; Weight Loss home page; Health & Fitness home page; Ask Musclemaster home page; Customer Service home page; Product sample page. web site, 39 Musclemast r.corn e Eriday,:Mer_1_l_'.. W_lcome ..... back-Chris. ": _ : .... ' : Visit our Customer Service Center for assistance on shopping and ordedng. Log or:Re_s_"." in . • .. : • .... I ............ _ ...... ! " - " . .: , ,',,%., ASTThis isDyrnetrinethe most effectiveXtreme metabolic synergist money _...................... By ]:)632_¢:"C- ."_.v- -.. ..,_...:.......: .:.~..,._-, .#_ ")::-'_ _::..: _ ' S(_l_ch ]3_8 'i_",'' !i ":. :. ;' _. (Retail 1QOCaps can buy. energy enhancer and l _," .... Uodata _':.:: Y0urP_Ie _:__IfOOt • :;; O_ I I Ask MuscleMaster.com about your training Have a question Price $44.95) ._ _ I_ .. Now $22.95 (Retail • • Next Nutrition Designer or nutrition program? Traininq Secrets or nutrition FREE , Email program? Newsletter Whey muscle building protein in One of the best sources of the world. I $33.95) , . , Price - • .................... E ,I, " -" I_ ! or nutrition program? Have a question about your training FREE Cataloq Have a question about your training or nutrition program? ...... _ ' .' :_% This is the most effective _E$_I_I[ I ' . - .. Have a question about Ask MuscleMaster.com your training or nutrition program? I i_ '-_:-,,:,_' can buy. metabolic synergist money energy enhancer and 100 Caps : FREE Cataloo Have a question about your training or nutrition program? Ask MuscleMaster.com Now $34,95 I (Retail Price $44.95) " " :- • . Have a question about your training or nutrition program? :" . " ._. Ask MuscleMaster.com Have a question about your training or nutrition program? FREE Catalog Have a question about your training or nutrition program? Pure Protein $24.95 $24.95 $24.95 I _e0adrine,RFA-1 L . *. Cellaselle .-::':'i_.;" ,:" , _ ' ":"' -,,._ .v:..:i- ..... : _:" ;i" '- ' ..':'_."i::: _.: . HOME I _ I BODYBUILDING I _ I_ ABOUT MM I CUSTOMER SERVICE I .,V.J.EW YOUR CART © MUSCLEMASTER FREE NEWSLETTERS 1999 coovdoht & disclaimer FREE CATALQ(_ I I ASK MM [ I 1 Po_rBa_ 1 VitaminC 2 3 1 1 Androsteidione _ PoweL-GooD TSh|[ts TOTAL -I -, .---,-:_ : ' _ "" " IQ .k_Gk._Ejtlf ,_ $17.50 $17.50 $19.45 $22.00 $13.50 $7.50 $347.75 .= e= . _" ' • = Read can go here that article. Text Mr, MM's latest explains that MM is THE place for bodybuilding and you can click from here to your level of bodybuilding knowledge, Ask Mu_sc_eMaster,¢0m Have a question about your training or nutrition program? FREE Catalo_ Have a question about your training or nutrition program? Ask MuscleMaster, colll Have a question about your training or nutrition program? FREE Catalo_a Have a question about your training or nutrition program? Ask _MuscleMast¢r,com Have a question about your training or nutrition program? '_ _ ' .- - _. AST Dymetrine Xtreme ;., " '_ " This is the most effective metabolicsynergistmoney can buy. energyenhancerand 100 CaDs _,,:, _ Now $34.95 (Retail Price $44.95) • , . . ORDF.jt/I • _" ,i_= • :-. _ ;:ii_ I ..... . % AST Dymetrine Xtrerne This Is the mosteffective energyenhancerand : canmetab°lic synergistbuy, money 100 CaDs J: . Now $34,95 (Retail Price $44.95) ..... :1 _ i_,_ AST Dymetrtne Xtteme This is the most effective metabolicsynergistmoney energyenhancerand " - " ,_:.:i-':-':"-:""-._ -_.-. "-:. ' i_ -:..:_!" ._- ,, 1-" _- .... " :. Have Ca_alo_ FREE a question about your training or AsJcJVtu#.cleMaster,¢olTl Have a question about your training or nutrition program? .,/,:'i:_:ii._ .... = :_:_`. . _..... '_ 100 Cabs Now $34,95 (Retail Price $44,95) .... :": "_":. :,':::_i.:,i :" ' ' Pure Protein $24.95 _ i :_:{I-::I_ ....... Xenadrine RFA-1 $24.95 C-_]lasene $24.95 1 HOME I THE STOR_ I.t_DYBU!LDJNG IWEIGHTLO$S I.HEALTH& FITNESS I _ ABLQUT M I CUSTOMER SERVICE I M © _ MUSCLEMASTER1999 co_0vright disclaimer I FREE NE_WSLE'r:TER8 & I + : ! " " 1 PowerBars 1 Vitamin C 3 1 2 1 ProteinPowder PowerGooo _ T Shirts TOTAL " _ " " ......... " -......... Reed Mr MM's latest article $17.50 $17.50 $22.00 $13.50 $19.45 $7.50 $347.75 •, " ' : Text can go here that explains that MM is THE place for bodybuilding and you can click from here to your level of FREE Catalo 0knowledge bodybuilding Have a question about your training or nutrition program? Ask Mus¢leMast_r,com Have a question about your training or nutrition program? Have a question about your training or nutrition program? Ask MusG|eMaster.¢om Have a question about your training or nutrition program? FREE Cataloa Have a question about your training or nutrition program? _ '_I _ _j : AST Dymetrine Xtreme -'_,_,.. This is the mosteffective , energyenhancerand :Ji_'.'_d_--qIIIBlqI|¢M_(i]_I can buy metabolicsynergistmoney _ .'100CaDs Now $34.95 i (Retail Price $44.95) !!Ii_!_tllY • --'---, _ "-"-:: "'. Olll_tix,t:: --, --" '_:'__- :, _ .,:..:,./:-.:.i-_., . • - ," -". : AST Dymetrine Xtreme This iSthe mosteffective energyenhancerand • • can buy. synergist money metabolic 100 Ca_s Now $34,95 Retail Price $44.95) : " _ _ _ :_ AST Dymetdne Xtteme This is the most effective energyenhancerand metabolicsynergistmoney •: "':_:" ,, "::]_i::: .: Ask MusGleMaster.corq Have a question about your training or nutrition program? FREE Cataloa Have a question about your training or nutrition program? can buy. ....... _ 100 Cabs Now $34.95 i Retail Price $44,95) :_*:" Pure Protein $24.95 I Xenadrine RFA-I $24.95 i _ :_ .. . ::,:::-:.,.-,, ':,'/ Cellasene $24.95 I HOME _T ORESODYSUILDING I !HE_ I I_ ABOUT MM ICUSTOMER _;ERVICE I © MUSCLEMASTER1999 g0ovrioht& disclaimer FREE CATALOG I FREE NEWSLETTERS I HEALTH& FITNESS I ASK MM I . ;: • I" ! • : I 1 PowerBars 2 Androsteldione 1 Vitamin C 3 ProteinPowder 1 T Shirts 1 PowerGooD TOTAL $17.50 $19.45 $17.50 $22.00 $7.50 $13.50 $347.76 Read Mr. MM's latest article. Text can go here that explains that MM is THE place for bodybuilding and bodybuilding knowledge, you can click from here to your level of Have a question about your training or Ask MuscleMaster.com nutrition program? FREE Cataloq Have a question about your training or nutrition program? Ask MuscleMaster.com _ F" :.. '" " ;_' ":' '* ;_J AST Dymetrine Xtreme This is the most effective energyenhancerand can buy, ! 100 CaDs metabolicsynergistmoney Now $34.95 (Retail Price $44.95) •:": "" _:. Next Nutrition NiB_ l, Now $22.95 (Retail Price $33,95) • ]_E3E3:E!3_z Designer Whey One of the best sources of the WOrld. tn musclebuildingprotein _]0(3 C,_,DS ;:.i }/_ _]::_:_:: ;• " Have a program? nutritionquestion about your training or Ask MuscleMaster.com Have a question about your training or nutrition program? FREE Cataloq Have a question about your training or nutrition program? -:: ._:.::.. .,;,_, ' . ._,L- : '..* _ AST Dymetrine Xtreme _,_' ! :_ This is the most effective _ " energyenhancerand metabolicsynergistmoney i can buy. _i.00.Caos i :-: Now $34,95 (Retail Price $44,95) Pqre protein _;::i_ii' $24.95 Xenadrine RFA-1 $24.95 Cellasene $24.95 HOME ITHE S,TOREI BODYBUI,LD!NG1WEIGHTLOSS I HEALTH& FITNE$_S_S MM ] [ ASK ABOUT MM [CUSTOMER SERVICE I VIEW YOUR CART © MUSCLEMASTER1999 CODVrk}ht disclaimer & FREE CATALOG I FREE NEW$1-ETTERS i 1 Power Bars 1 YitamlnC 2 3 1 1 Androsteidione ProteinPowder PowerGooo T Shirts TOTAL ":.". $17.50 $17.50 $19.45 $22.00 $13,50 $7.50 $34735 seen the new hats and ,shorts? We have three easy and convenient ways for you to shop! Name Brand Category Lifestyle : ,' _ "_% i ..,_'_, ' ,_ .:.. _ • AST Dymetrlne Xl_'eme This is the most effective enhancerand energymetabollc synergistmoney can buy. Have a question about your training or nutrition program? " i_i:_i, Ask MuscleMaster,com Have a question about your training or nutrition program? FREE Cataloa Have a question about your training or nutrition program? Ask MuscleMaster, con_ Have a question about your training or nutrition program? -. _,' 100 Cap_ Now $34.95 Retail Price $44.95) ,::- ._ "- _,, -;_ _ AST Dymetrine Xtreme This Is the most effective energyenhancerand can buy, i_1_. .:.._. metabolicsynergistmoney .., 100 Caos Now $34.95 Retail Price $44.95) " •:" :_ i_ ."i!,i., AST Dymetrlne Xtreme Thi_ iS the most effective metabolicsynergistmoney can buy. energyenhancerand Have a question about your training or FREE Catalog L ,' ': nutrition program? _ I. ,3,.i/ " _" _ " IJ'" I Super Fast Delivery UPS 3 Day Select $4.95 Flat Fee FREE DELIVERY on orders over $100 L_ ....... Retail Price $44.95t . _ _ Pure Proteill $24.95 _-_- I J ;_, ' ::'_' Xenaddne RFA,1 $24.95 Cettasene $24.95 UOME I THE STORE I _QDYB..UILDIN.GWEIGHTLO$S I HEALTH& FITNESS IASK MM I I ABOUT MM ICUSTOMER SERVICE I VIEW YOUR CART © MUSCLEMASTER1999 coovriaht& disclaimer FREE CATALOGIFREENEWSLETTERS 1 Power Bars 1 Vitamin C 2 Androsteidione 3 Protein Powder $17.50 $17.50 $19.45 $22.00 You've come to the right place for expert advice and information. Now you have to tell them why they came to the right place. Now you have to tell them why they came to the right place, Now you have to tell them why they came to the right place. What's in Articles ! Brief description Brief description Brief description of article of article of article 1 PowetGooD 1 T Shirts TOTAL $13.50 $7.50 $347.76 What's in FAQs ....... Brief description Brief description Brief description of FAQ of FAQ of FAQ Order Your FREE Catalog Brief description of catalog Free Newsletters from MuscleMaster.com Brief description of newsletters .. k ,- .jL : . -_, HOME I THE STORE t 13ODYBUILDING I WEIGHTLOSS I .HEALTH & FITNESS I ASK MM I ABOUT MM I CUSTOMER SERVICE I VIEW YOUR CART © MUSCLEMASTER 1999 copyriqht & disclaimer FREE CATALOG I FREE NEWSLETTERS . ,'/" I Search Brads _ . 'i."' ,.,_Jim_,-,.._ • ' • _:_ " Quality MuscleMaster Customer Sorvice Security and Privacy Statement This tells how we take care of your customer information. !. i, i i t , i 1 1 Power Barn 1 VJtamlnC 2 3 1 1 AndrosteidtpjZ_ ProteinPowder _ T__Shir_. TOTAL $17.50 $17.50 $19.45 $22.00 $13.50 $7.50 $347.75 , : : ," ,. : , General text all about MuscleMaster and commitment about MuscleMaster General text all to quality goes here. and commitment to quality goes here. General text all to quality goes here. and commitment about MuscleMaster General text all about MuscleMaster and commitment to quality goes here. General text all about MuscleMaster and commitment to quality goes here. Ordering and Shipping Here's where you find out about ordering and " About Your Account Here's where you update your account information• Policies and Returns Find out how to return purchases and about generous policy• Guided Tour Find out how the process of buying online a MuscleMaster.com takes place• ".:/:,'_.'_ : "", - -=' Service General text all and commitment General text all and commitment General text all and commitment General text all and commitment General text all about MuscleMaster to quality goes here. about MuscleMaster to quality goes here. about MuscleMaster to quality goes here. about MuscleMaster to quality goes here. about MuscleMaster and commitment to quality goes here. Store FAQ The 10 most frequently asked questions about our store. (_ :_ Contact Us A convenient way to send us a message about any topic. rl HOMJE ITHE STORE I BODYBUILDING ] WEIGHT_LOSS .HE/_LTH F.ITNESSI ASK MM I I & ABQUT MM I CUSTOMER SERVICE I VIEW YOUR CART FREE CATALOG l FREE NEWSLETTERS © MUSCLEMASTER1999 co#yriqht & disclaimer i - • ....... Illr .......................................... I.................. i .... ___":"- -- :;I ":_,- _i " Natrol 5HTP 64 Character Title Here •",:-_:---,:-_:. '........ _,_..... _ ........... _ • 128 Character Sub Headlineabout the product. More about this productin depth. This tells all about the product.More about this productin. :'!- L!_t Prlcs Our 1 Power Bars 1 Vitamin C 2 3 1 1 Androsteidione Protein Powder PowerGooo T Shirts TOTAL $17.50 $17.50 $19,45 $22.00 $13.50 $7.50 $347.75 ', "" ,: .I ...... : : You 1 $I 2..'7° Price $8.95 Save _ $2.15 If you like this product also try: AST Muscle Stuff Nutro GIow J&J Vitagrow Tell a friend about thj_ product! ..._: Product Description This tells all aboutthe product,More aboutthis productin depth. Here'swhat MM says about this product.Here'swhat MM says about this product.Here'swhat MM says about this product.Here'swhat MM says about this product.Here'swhat MM says about this product. Nutrition Facts 500g 20g 5g 3g 2g lg 12g MM Sez: Here's what MM says about.this product. Here's what MM says about this product.Here's what MM says about this product.Here's what MM says about this product.Here's what MM says about this product. Calories " Fat Saturated Fat , Sodium Carbohydrates Sugars X:'!'!_I; ' ._ Protein ............... _-_ _: _• 1 Ingredients Dextrose, Creatine Monohydrate(5 grams per serving),Natural and Artificials Fruit Flavorings, Citric Acid, Taurine, Magnesium Oxide Suggested Use ":""-i;' - r Take one scoop 3 times daily. For 1 week maintain 1 scoop daily thereafter. Warnings : This includes any warnings about this product. this product. This includes any warnings about warnings about this product. This includes any warnings about this product. This includes any I 4L__..._L__ _:_....... -_'_'::_ _............. _ ,: - :__LL_. HOME I THE STORE I BODYBUILDING I WEiGHTLOSS I HEALTH & FITNESS I ASK .MM I ABOUT MM I .CUSTOMER SERVICE } VIEW YOUR CART © MUSCLEMASTER FREE .NEWSLETTERS FREE CAT&LOG I 1999 coDvriaht & disclaimer 153 Northboro Road Southborough, MA 01772 (508) 303-2055 I Musclemaster.com Where Mind and Body Meet