EXECUTIVE
SUMMARY
OnLinePhoto,
Inc. (the "Company")
intends to become the dominant
business-to-business
provider to the online photo industry of photo-related including photo-personalized
hard goods and fulfillment services, content. The
media products featuring licensed entertainment
Company has entered into strategic relationships with several of the leading Intemet consumer imaging services, including America Online's "You've Photonet.com, to act as the photo-customized in discussions established Got Pictures" and Eastman Kodak's
hard good fulfillment center for these sites, and is Additionally, the Company has
with other major online photo services. site Kideo.eom
the Internet
to sell photo-personalized
home videos, books,
calendars, posters, and stickers direct to consumers, and the Company is developing the Internet sites OnlinePhoto.eom and FrameMyPhoto.eom to market various photo-related products and
online framing services, respectively.
The Company currently has a $4 million revenue business selling photo-personalized through traditional sales channels, including direct mail and television,
products its
and through
Kideo.eom website. To date the Company, operating under the Kideo brand name, has focused on the market for photo-personalized children's products and has licensed certain characters on
an exclusive basis for use in these products, including certain Disney characters and Barney the Dinosaur. The Company has negotiated exclusive licensing agreements for various other
popular entertainment properties with which it intends to aggressively expand the portfolio of products and services it offers to the online photo industry on both a branded and private label basis, and which it will offer direct to Internet users under the Kideo.eom, and FrameMyPhoto.com brands. OnlinePhoto.com
The Company has developed a proprietary, patented process for the high-volume manufacturing of photo-customized of photo-personalized media products, and has patent claims pending for various other categories consumer goods. The Company will leverage its existing manufacturing
and fulfillment infrastructure and industry-leading experience in high-volume photo-customized product fulfillment to become the leading supplier to this rapidly expanding market.
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Arnhold
and S. Bleichroeder,
Inc.
Photography industry analysts project that the migration of traditional consumer photography to a digital platform that is now under way will be accompanied by rapid growth in consumer demand for new Internet-based applications for digital images, as well as for traditional photorelated products established and services that are enhanced by the web. The Company of such applications, has already in the
itself as a leader in the development
particularly
combining of online consumer
images with popular entertainment
content. The Company
anticipates that online consumer images will be integrated into, or associated with, a wide range of both online and hard good photo-personalized applications featuring popular licensed content, including photo-personalized television broadcasting, home video (linear analog, linear digital, non-linear digital), digital software and games, animated online greeting cards,
interactive
traditional greeting cards, books, posters, calendars, stickers, stationery, apparel, toys, and more.
As the digital tools and delivery systems necessary for increasingly sophisticated methods of combining consumer images with popular content become available (e.g. photo-personalized digital television products programming), the Company believes the market for photo-personalized The Company believes it possesses
and applications
will expand even further.
significant, and in certain cases proprietary, competitive advantages in this field, and that those advantages will allow the Company to capture and maintain a leadership position in this category.
The target market for the Company's products and services, which consists of the combined markets for consumer photography ($14.2 billionl), home video ($17 billion2), children's books ($2 billion3), greeting cards ($7.5 billion 4 ), and other categories of photo-related services that the Company intends to offer, exceeds $40 billion. goods and
Imerge Consulting, a leading
imaging research firm, projects that the revenues derived from film digitization will grow to $5.6 billion by 2003. Infotrends projects that the number of unique Intemet users who store and share photos online will grow to more than 11.5 million by 2003, and more than 30 million digital
1Photo Markting Association ("PMA") 2 Video Software Dealers Assocation ("VSDA") 3Assocation of American Publishers ("AAP") 4 The Greeting Card Association
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Arnhold
and S. Bleichroeder,
Inc.
cameras will be purchased in the same period. By 2002, Eastman Kodak projects that it will be digitizing 44 million rolls of film annually.
The Company has no known competitors for several of its major product categories and enjoys exclusive ownership of various patented and/or patent-pending photo-personalization and software applications. processes
The Company also benefits from Kideo's five year operating history media products, and currently has properties. The
as the leading manufacturer of digitally photo-personalized uncontested licensing
access to many of the most popular entertainment
Company intends to exploit these competitive advantages by: (1) securing, where possible, longterm exclusive photo-personalization rights to the most popular content; (2) entering into
strategic online marketing partnership with leading Internet sources of consumer online images; (3) establishing the Company's online brands ("OnLinePhoto.eom .... Kideo.com" entertainment
"FrameMyPhoto.com")
as the leading Internet sources of photo-personalized
content and related services; and (4) continuing to develop industry leading processes and technologies necessary for the execution and fulfillment of photo-customized hard goods, home
entertainment media, online applications, and related services. These factors will combine to present significant barriers to entry that the Company believes will protect its leadership position.
The Company currently possesses rights to develop and market photo-personalized products featuring certain Disney characters and Barney the Dinosaur.
children's
Current product
categories include home videos (Barney), calendars (Barney), posters (Barney), and books (Disney and Barney). The Company is currently negotiating for photo-personalization rights for
a wide variety of additional properties, as well as for additional categories of photo-personalized Disney and Barney products. Categories in the Company's anticipated portfolio of photo-
personalized products include linear analog video, linear digital video, non-linear digital video, still photos, printed matter (books, photo-albums, greeting cards, calendars, stickers, posters, trading cards), various substrates transferable to apparel, ceramic, puzzles, buttons, etc., and online personalized applications such as screen-savers, interactive games and animated greeting cards.
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Arnhold
and
S. Bleichroeder,
Inc.
As the methods for consumer uploading, storage and accessing of digital images on the Intemet have recently increased, the number of Intemet sites offering applications for those images have begun to proliferate. Hewlett-Packard's PhotoCenter, They include AOL's "You've Got Pictures", Kodak's PhotoNet.com, Excite's PhotoCenter, Wal-Mart's PhotoPoint.com, Ofoto.com,
Cartogra.com,
Intel's GatherRound.com,
Shutterfly.com,
Snapfish.com,
PhotoAccess.com, and others.
PhotoLoft.com, Zing.com, eMemories.com,
Each of these services is seeking to
distinguish itself from its competitors by offering applications for digital images that go beyond basic storage, viewing, and photo sharing. some cases exclusive, The Company expects that as the leading, and in products and
provider of several major categories of photo-related
services, it will be successful in establishing relationships with many of the major online imaging services who aim to attract online imaging consumers by offering compelling imaging applications. value-added
The Company has already entered into a strategic agreements with AOL's
"You've Got Pictures", and with PictureVision, Inc., a division of the Eastman Kodak Company, under which its products will be offered to online consumers through PictureVision's
PhotoNet.com online imaging service. The Company is currently engaged in discussions with virtually all of the major online imaging services, and expects to enter into agreements with many of them in the near future.
The Company also intends to apply its imaging-related fulfillment competencies to various other photo-based services. One such area where the Company projects substantial Internet-related growth, and where the Company again possesses significant competitive advantages, is photoframing. Photo-finisher based photo-framing in the U.S. is today a $600 million market 5, and the Company estimates that the overall U.S. photo-framing market is approximately Online consumer $2 billion.
imaging will dramatically simplify the photo-framing process, turning a and expensive process into a "one-click" online impulse buy
complicated, time-consuming,
("Would you like this photograph framed? Click to Order!"). convenience of online framing
The Company expects that the
will induce online consumers to frame some significant
percentage of the billions of consumer images that will be viewed online.
5PMA
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Arnhold
and S. Bleichroeder,
Inc.
The Company
believes that the highly fragmented photo-framing
industry, which consists
primarily of independent professional framers and large retailers of "off-the-shelf" photo frames (Wal-Mart, Pottery Barn, etc.) can be consolidated substantially by an online provider of a simple, fast, and affordable online framing service. provider by aggressively source of photo-framing establishing The Company believes it can be that brand as the leading online
its FrameMyPhoto.eom
services, and by leveraging its strategic relationships with leading
online sources of consumer imaging services.
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Arnhold
and S. Bleichroeder,
Inc.
SUMMARY FINANCIAL PROJECTIONS
Revenues Online Offiine Total Cost of Sales Gross Profit Gross Margin Expenses Selling G&A Total Operating Income
6 Months Ended 31-Jul-00 $106,000 864,000 970,000 578,937 391,063 40.3 %
Year Ended 31-Jul-01 31-Jul-02 $8,285,190 9,633,580 17,918,770 10,157,276 7,761,494 43.3 % $26,235,407 21,504,820 47,740,227 26,376,975 21,363,252 44. 7%
1,582,464 2,007,618 3,590,082 ($3,199,019)
6,432,807 4,642,120 11,074,927 ($3,313,433)
12,974,104 6,831,086 19,805,190 $1,558,062
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Arnhold
and S. Bleichroeder,
Inc.