Sample Business Plan extreme gear

Extreme Gear Online An E-CommerceSports EntertainmentCommunity Business Plan February 2000 THE INFORMATION CONTAINED HEREIN IS CONFIDENTIAL AND IS INTENDED ONLY FOR THE USE OF THE PERSON TO WHOM IT IS TRANSMITTED. NEITHER THE PLAN NOR ANY PART OF IT MAY BE COPIED, DISCLOSED OR TRANSFERRED WITHOUT EXPRESS WRITTEN CONSENT OF EXTREME GEAR ONLINE. Copy # __presented to Contact: Isaac Sun, CEO 5126 Beeler Street ° Pittsburgh, PA 15217 (412) 681-9653 isun@andrew.cmu.edu f Executive Summary An E-Commerce Sports Entertainment Portal Industry Overview The "Extreme" sports industry is currentlyone of the fastest growingindustriesin the country. Over 3.6million Americanswent snowboardinglast year, 5.8million skateboarded, 1.3million rode waveson a surfboard,and 29.1million used in-lineskates. Growth rates have been consistentlyhigh over recent years in each of these categories. The customer base for Extremesports is considerablydifferentfrom the traditional sporting goodsmarket. These consumers are more interested in specialtybrands rather than mass consumer brands. In other words, they prefer to purchase items from a smallspecialtystore as opposed to Wal-Martor Sports Authority. Customer Need Manufacu_rers high-end extreme sporting goodscurrentlyprohibit the sale of products on of the Internet partiallyover fears of dilutingtheir brands. High-end products typicallyrequire experts for customization and fitting,which ensure performance and durability. Moreover, manufacturers are very concernedwith E-commerce salescannibalizingretail sales. By offering their products over the Internet, manufacturerswould jeopardizetheir longo standing relationshipswith their retailers - the smallspecialtystores fragmented throughout the country. The primary market for extreme sports gear today is 12to 19year old males,part of the burgeoning 54-millionstrong Generation Y, three timesthe size of Generation X. In addition, Generation Y is one of the largestpopulations on the Internet. The nation's teens spent $122 billionlast year (Teen-AgeResearchUnlimited). Online expendituresare projected to top $1.2billion by 2002 (JupiterCommunications)for this group. The manufacturers are wary of the fact that their target customers are on the Internet, but have yet to resolve how to use this channelto sell their products. Strategy Extreme Gear Online (EGO) is a sports entertainmentportal that will offer high-end Extreme sporting goods through the Internet andretail stores. EGO utilizesan Ecommerceweb site as the primarymarketingcenter andpoint of customer acquisitionwith traditional brick-and-mortarstoresserving as distributionand customer servicecenters. As a sports entertainment community,EGO willfeature product reviews,events, contests, resort and weather information, chat rooms, and freeweb-based email accounts. In the product reviewsarea, one of the main featureswill be user posted reviews,like Epinions. In addition,streamingvideo of events and music downloadswill be available. Establishinga strong brand that appealsto EGO's target marketwill be a competitive advantage. Confidential and Proprietary Page 2 Buildinga largecommunity is criticalto EGO's success. As we acquireand retain a large user base, EGO will gain leveragefor executingthe E-commerce functionalitiesof the web site. EGO's users willbe idealconsumers for targeted manufacturingpartners. In addition, EGO will compile an extensivedatabase that profilesusers, which is valuableinformation that manufacturers don't have. EGO will revolutionizethe current distributionsystem. Target customers will purchase merchandiseat EGO's web site and pick up the merchandiseat one of EGO's franchise partner outlets,where customizationand fittingtakes place. Furthermore, franchisepartners willhandle all customer serviceissues,such astune-ups, exchanges,and returns. EGO's valueproposition to the franchisepartners is threefold: marketing expenseswill decreasedue to their affiliationwith the well recognizedEGO brand, inventory costswill decreasesince individualstores are not requiredto hold largeamounts of expensive products, and finally,more cross-sellingopporttmitiesfor other high-marginproducts. EGO's value proposition to the manufacturers are equallyas compelling- better understandingof consumer behaviorfrom EGO's data managementservices,increased efficiencyin distribution and inventorycontrol, and lowermarketing expenses. EGO's business model addressesmanufacturers' concern through franchisepartners. These partners, in concert with exclusiveagreementswith high-end manufacturers,will give EGO a competitive advantage over competing E-commerceweb sites. The first mover in this space will have exclusiverights for high-end extreme sporting goods on the Internet. Management Team A team of extreme sports enthusiasts founded EGO. Isaac Sun,the CEO brings marketing experiencewith Xpede, an E-commercestartup in SiliconValley,as well as consulting experiencewith a number of Pittsburgh-based startups. In addition, Isaachas considerable project management experiencein systemsintegration,particularlyin the financialservices industry. Erol Caglarcanleads the engineeringefforts as the CTO. He has held various managementpositions during his four years at Applied Materials. Erol alsohas experience implementingCustomer RelationshipManagementprojectsas well as other systems integrationinitiatives. Capital Requirements EGO represents a unique investment opportunity. Byleveragingthe company's combination of industry and technology expertise,and strategicrelationshipswith standardssettingindustry leaders,the company anticipatesachievingprofitabilitywithin 24 months. EGO anticipatesreaching 20 full time employeesby the end of 2000. This rapid growth in headcount is indirectlyproportional to the growthin the number of product lines EGO will offer. The companywill generate a profit of $0.2MM in 2002and $8.7MM in 2003 (Table A). These estimates are conservativeand the managementteam has every confidence in exceedingthem. Confidential and Proprietary Page 3 t Number of Users Revenues Net Income (aftertax) Year End Head Count 2000 10,000 $0 MM $0.9MM) 20 Table A. 2001 100,000 $4.6MM ($3.2MM 47 2002 550,000 $18.6MM $0.2MM 98 2003 1,200,000 $68.9MM $8.7MM 164 EGO is seekinga seed capitalequityinvestment of $1,000,000,for execution of the business plan. These funds will primarilybe used for branding, engineeringof technologyand management and staff hiring. The companybelievesthis round of capitalwill satisfyits needs for the first 6 months, and will serveas a bridge for the first round of financing. The EGO web site will officiallylaunchin Q1 of 2001. Confidential and Proprietary Page 4 Table of Contents I. Extreme Sporting Goods Industry ......................................................................................... A. Target Customers are Wired ................................................................................................ B. Consistent Growth Makes Industry Attactive ....................................................................... C. Online Shopping ................................................................................................................ D. Sporting Goods Online ....................................................................................................... 6 6 7 8 8 8 8 9 10 10 10 10 11 11 11 12 12 12 12 13 13 14 14 14 15 16 17 17 II. EGOs Opportunity ............................................................................................................... A. Current Landscape ............................................................................................................. B. Synergies Between Extreme Sports ...................................................................................... III. A. B. C. D. E. F. G. H. Market Strategy and Plan .................................................................................................. Extreme Sports Portal ...................................................................................................... Branding .......................................................................................................................... E-Commerce .................................................................................................................... Core Product Lines ........................................................................................................... Equity Partnerships .......................................................................................................... Franchise Partnerships ...................................................................................................... Data Warehouse ............................................................................................................... Revenue Model ................................................................................................................ IV. EGO Management Team and Key People ......................................................................... A. Management Team ........................................................................................................... B. Advisors ........................................................................................................................... V. Time Line ............................................................................................................................ VI. A. B. C. D. E. F. EGO Pro-Forma Financial Plan ........................................................................................ Assumptions .................................................................................................................... Funding Requirements ...................................................................................................... Income Statement ............................................................................................................ Balance Sheet ................................................................................................................... Cash Flow ........................................................................................................................ Exit Strategy .................................................................................................................... Confidential and Proprietary Page 5 I. Extreme Sporting Goods Industry The "Extreme" sports industry is currently one of the fastest growing industries in the country. Over 3.6 million Americans went snowboarding last year, 5.8 million skateboarded, 1.3 million rode waves on a surfboard, and 29.1 million used in-line skates. Growth rates have consistently increased over recent years in each of these categories. The customer base for Extreme sports is considerably different from the traditional sporting goods market. These consumers are more interested in specialty brands rather than mass consumer brands. In other words, they prefer to purchase items from a small specialty store as opposed to Wal-Mart or Sports Authority. A. Target Customers are Wired EGO's target market is the Generation Y consumer. The primary market for extreme sports gear today is 12 to 19 year old males, part of the burgeoning 54-miUionstrong Generation Y, three times the size of Generation X. The nation's 70.2 million teens spent $122 billion last year, according to Teen-Age Research Unlimited. Online Users by Age Group, 1996-2002 (Mllion of Users) 100% 90% 8O% Distribution by Age of the Online Users 60% [] 70% 50% i BB B B 40% 30% 20% 10% 2002 0% 1996 1997 1998 1999 2000 2001 2002 1996 1997 I 1998 1999 2000 ITotal 2001 teen users ISeniors 50+ ITotal Onlineadults 18-50 collegeusers t_Online kids(2-t2) ISeniors 50+ IOnline adult_ 18-50 ITotal teen users DTotal college users oOnline kids (2-12) COPYRIGHT 1998JUPITER COMMUNICATIONS/CONSUMER INTERNET ECONOMY The Generation Y consumers are not the only target consumers. EGO also targets the Internet savvy population that has made prior purchases on-line. The main reasons our customers will buy our products are convenience, our breadth of selection and the evolution of consumer behavior. The Internet savvy crowd (which is growing exponentially) is purchasing more on-line than ever before. Moreover, these consumers are getting accustomed to customized experiences that can only be offered on-line. Confidential and Proprietary Page 6 B. Consistent Growth Makes Industry Attractive The number of U.S. snowboarding participants increased by 29.1% to 3.6 million in 1998, according to Mr. Prospect, Illinois-based National Sporting Goods Association _). More importantly, 90% of snowboarders use the Internet and 53% say they buy goods online, according to a 1998 Transworld Media reader survey. A whopping 5.8 million Americans, aged 7 and up, skateboarded at least once last year, and 1.3 million rode the waves on a surfboard. In 1997, there were 29.1 million in-line skaters in the U.S., according to the 1998 American Sports Data. Furthermore, In-line skating is the fastest growing sport in the country over the past eight years with a participation increasing more than 849% since 1989. Children under 12 represent the largest group of skaters (40%)while teens account for 26% of all inline skaters. The mountain biking industry is currently at a crossroads. Bicycle sales began to stall in the early '90s. According to the National Sporting Goods Association, U.S. mountain bike sales have dropped since 1993, when they were $1.17.billion. In 1995, sales were $889.million, and in 1997, the most recent year available, sales were $745 million. Bike experts don't seem particularly worried about the trend. Mountain Bike magazine explains the industry is moving out of the pioneering phase, in which there's rapid growth, and into a more mature phase of retaining riders. US Households Online from 1990-2002 (Millions of HHs) 60 50 40 (% of C_erall HHs C_line) 100% 9O% 80% 7O% (:0% 4O% 3"3 I0 _% 2O% 10% 0% 1990199119921993199419951996199719981999200020012002 %online ofall H-Is I '_ C_line HHs i COPYRIGHT 1998 JUPITER COMMUNICATIONS/CONSUMER INTERNET ECONOMY Confidential and Proprietary Page 7 C. Online Shopping "Buying online is no longer the exception. It's one of the most common things people do online, particularly at the holiday season, when people are in the gift-buying frame of mind." Kate Delhagen, Director of the online retail group at Forrester While shopping on the Internet has lagged behind other online consumer activities such as information gathering and online communications (e.g. e-mail and chat), the web is evolving into a viable and large-scale sales channel. The extraordinary growth of online shopping is clearly supported by the exponential increase in holiday shopping results. This is primarily due to evolving technology, improved security on the Internet, and consumer preference changes. The online shopping market is on track to eclipse the traditional, paper-based catalog market in the next 10years in the US, making the online channel a market that no retailer can afford to ignore. Based on Jupiter's 1998 Home Shopping Report, online shopping revenues increased from $2.6 billion in 1997 ..................................... to $5.8 billion in 1998 (123% increase) and is projected to reach $38 billion by 2002. D. Sporting Goods Online According to a Harris study, about one-tenth of sporting-goods buyers have bought online in the past month. However, the Net still lags far behind brick-and-mortar outlets. "The sports industry has been slow to capitalize on Internet growth," saysJ. Nadine Gelberg, sports research manager at Harris. _ ,i_:,i_ . _ _ st _ _ $1 st • !_ ] S_ _ :_ _., o mm _ .............. _st_ 200_ I _el, s,_ Im ..... -. :,,: _:..... . _'_ i_, "_ _ _: _: u.5.oau_i_ .... _ rot_j Gooas _ II. EGO's Opportunity A. Current Landscape EGO's targeted sporting goods categories include: Mountain Biking, In-line Skating, Skateboarding, Snowboarding, and Surfing. Currently,there are a few small companies that occupy specific categories, and their selection is severely limited. The large E-commerce web sites that exist today in this space only offer traditional sporting goods (football, basketball, baseball, etc). Manufacturers of high-end extreme sporting goods currently prohibit the sale of products on the Internet partially over fears of diluting their brands. High-end products typically require Confidential and Proprietary Page 8 experts for customization and fitting, which ensure performance and durability. However, manufacturers are mainly concerned with E-commerce sales cannibalizing retail sales. By offering their products over the Internet, manufacturers would jeopardize their longstanding relationships with their retailers - the small specialty stores fragmented throughout the country. B. Synergy Between Extreme Sports EGO chose these categories because they are commonly shared interests among our target customers. Each of these categories, by themselves, represents seasonal revenues. For example, the snowboarding season typically begins in September and ends in February. The off months would prove challenging for a company that exclusively sells equipment for Winter sports. Furthermore, dosely related sporting categories offer tremendous crossselling oppommities. Image Appeal Breadth of Products The current state of extreme sports on the Intemet is severely limited. Virtually all high-end manufacturers prohibit the sales of their merchandise over the Internet based on their fears of cannibalizing sales from their retail partners. However, manufacturers are aware of the fact that their customers are online. Dave Schmidt, VP Sales for Burton Snowboards, told Snowboarding Business, "If our customer feels the Intemet is where they want to buy our product, then we have to be there." At the moment, many brands still have not resolved how to sell products online without angering their brick-and-mortar retailers. A few brands allow existing dealers to sell closeout products online, but nothing else. Confidential and Proprietary Page 9 III. Market Strategy and Plan Extreme Gear Online (EGO) is a sports entertainment portal that will offer high-end Extreme sporting goods through the Internet and retail stores. EGO utilizes an Ecommerce web ske as the primary marketing center and point of customer acquisition with traditional brick-and-mortar stores serving as distribution and customer service centers. A. Extreme Sports Portal Prior to the official web site launch, EGO will initially start as an extreme sports portal. As a sports entertainment community, EGO will feature product reviews, events, contests, resort and weather information, chat rooms, and free web-based email accounts. In the product reviews area, one of the main features will be user posted reviews, like Epinions. In addition, streaming video of events and music downloads will be available. Building a large commtmity is critical to EGO's success. As we acquire and retain a large user base, EGO will gain leverage for executing the E-commerce functionalities of the web site. EGO's users will be ideal consumers for targeted manufacturing partners. In addition, EGO will compile an extensive database that profiles users, which is valuable information that manufacturers don't have. Initial marketing efforts will concentrate on banner advertising and free web-based email accounts. Viral marketing through free email will be a very effective vehicle for customer acquisition. Other marketing efforts will include incentive-based product give-aways, free tickets, t-shirts, stickers, etc. An established customer base will increase EGO's value proposition to manufacturers and franchise partners. For the purpose of ramping up the customer base, EGO would consider purchasing or merging with existing extreme sports web sites. Possible candidates include: bluetorch, Xtreme scene, Extremesports.com, LiquidSource, playhard.com, and AdventureTime. B. Branding A strong brand is critical to the success of EGO. The brand must appeal to the target market in a way that establishes EGO above and beyond competitors. Moreover, a strong brand is essential in maintaining strong relationships with core manufacturers. There is a strong possibility that EGO will change its identity in the near future. C. E-Commerce The distribution strategy for EGO will be a combination of E-commerce and traditional retail channels, or as k is ubiquitously termed, "clicks and mortar" approach. EGO will implement a franchising model, where local specialty stores are partners that carry and service EGO's entire product line. Confidential and Proprietary Page 10 EGO's customers will browse and purchase merchandise at the web site. Merchandise will then be shipped to partner stores, where customized fitting is performed. In addition, returns and exchanges would be handled at the partner stores. This arrangement is mutually beneficial; retail stores will have considerably lower inventory and marketing costs, while the on-line store will have low customer service costs. Furthermore, a retail store's affiliation with EGO will increase traffic in their stores and present addkional cross-selling opportunities for high margin products. EGO will revolutionize the entire current distribution system. EGO will handle inventory control for the retailers, shipping for the manufacturers, and complete management of customer data. D. Core Product Lines EGO will feature strong brand-name merchandise as core products. These high-end products are inelastic and provide steady revenue streams throughout the year. All of these products will be carried and serviced at our franchise retail partners. In addition, EGO will complement our core products with other high-end specialty manufactured products. These products are typically expensive brand-name replacement parts. As EGO's brand becomes proliferated among our target audience, private-label product lines will be introduced. Profit margins on private-label items are significantly higher than brand-name products. A partial list of EGO's product lines is as follows: Burton Snowboards, K2 Snowboards, Northwave Boots, Airwalk Boots, Specialized Bicycles, Cannondale Bicycles, Lightspeed Bicycles, Gary Fisher Bicycles, Ritchle Wheels, Shimano, Rusty Surfboards, Rollerblade Inline Skates, Birdhouse Skateboards, and Powell Skateboards. E. Equity Partnerships EGO intends to attract top core brands by offering an equity position in EGO. By offering the manufacturer an equity stake, they will have a vested interest in the future success of the partnership. Furthermore, EGO will negotiate for exclusive products from our equity partners. Management intends to set aside a total of 10% for such partnerships. F. Franchise Partnerships EGO's brick-and-mortar partners will follow a franchise model, where individual stores are affiliates that carry and service EGO's entire product line. Our value proposition to our retail partners is three-fold: lower marketing costs, lower inventory costs, and increased cross-selling opportunities. There are approximately 1,200 retail stores in the U.S. that are potential franchise partners. However, there are nine chain stores that EGO has identified as primary candidates, which have locations in more than one state. These chain stores are: Big Daddy's, Breeze, Christy Sports, Gart Brothers, Gaylan's, Max Snowboards, Peter Glenn Ski and Sport, Sports Chalet, and Zumiez. Confidential and Proprietary Page 11 G. Data Warehouse A major component of EGO's business model is collecting customer data. EGO will require registration for certain functionalities of the web site, although we will not require customers to purchase anything for registration. This data would be used to provide demographic information to our partners to better understand and target our customer base. In addition, creating a database for customer transactions will also be instrumental in crossselling opportunities and retention - i.e. sending out emails when new merchandise arrives. Finally, EGO will have promotional contests and prize give-aways as means to generate traffic and induce registration. H. Revenue Model EGO will generate revenues through four major channels: E-commerce, affiliate program, data management, and float. The primary source of revenue for EGO will be through E-commerce. This includes direct sales of merchandise offered through EGO's web site. EGO will sell merchandise directly to consumers and through our franchise partners. Some of the items (such as replacement parts and accessories) will be available directly, but many of our items cannot be offered due to manufacturer restrictions. EGO will also implement an affiliate program. EGO will offer partners commission on sales that are referred through their websites, manufacturer promotions, and in-store referrals. Data management will be another source of revenue for EGO. Through sales and visitors to EGO's web site, we will have comprehensive data on customers and potential customers. This information is invaluable to both manufacturers and retail outlets. EGO will manage database for retail partners for potential cross-selling opportunities and provide this information to our manufacturers for product development. A minor source of revenue for EGO will be float. The time difference between the point at which money is collected at the web site (through credit card transactions) and when the merchandise is actually delivered to retail partners is and excellent source of revenue for EGO. For example, if a customer makes a purchase at the web site and indicates a delivery date one month away, EGO will be able to take advantage of this float period since delivery takes merely a few days. IV. EGO Management and Key People A. Team Isaac Sun, CEO An avid snowboarder, surfer and mountain biker, Mr. Sun has marketing experience with Xpede, an E-commerce startup in Silicon Valley as well as consulting experience with a number of Pittsburgh-based startups. In addition, Isaac has considerable project management experience in systems integration, particularly in the financial services industry. Confidential and Proprietary Page 12 He has a BS in Cognitive Science from the University of California at San Diego and is an MBA candidate at Carnegie Mellon University. Erol Caglarcan, CTO A long-time mountain biker, Erol has held various management positions during his four years at Applied Materials. In addition, he has experience implementing Customer Relationship Management projects as well as other systems integration initiatives. Erol has a BS in Physics from Carnegie Mellon University, completed graduate studies in Physics at University of Texas, and is an MBA candidate at CMU. B. Advisors Nick Flor, Assistant Professor in Information Systems, Carnegie Mellon University. Professor Flor specializes in on-line business, strategic uses of on-line technologies, computer supported collaborative work, market simulations, distributed cognition in software groups, cognitive theories of improvisation, and computational artifacts. He received his BA, MS and Ph.D. in Cognitive Science from the University of California at San Diego. V. Time Line EGO plans on launching the web site officially in Q1 '01. At this point, we will have brought on board a seasoned CEO and V.P. of Marketing. By Q3 '01, we will have secured strategic partnerships with manufacturers and retailers in targeted regions, and will launch the E-commerce functionalities of the web site. t, .._ / g/ __/__ _/_ o-% 03 - O4 2001 ! L _/._ .#/_ 1/., o . 01 - 02 2002) IPO 03 - Q4 2000 QI - 02 2001 I/ Confidential and Proprietary Page 13 VI. EGO Pro-Forma Financial Plan A. Assumptions EGO has used the following assumptions to develop the Company's pro-forma financial statements. We believe these assumptions to be conservative. We have assumed the following details about the company's ability to establish relationships with franchise partners and the resulting growth in EGO's consumer database (Table 1). Whether these consumers trickle in over time or come, as a one-time population of the database has no impact on the company's ability to process them. In either case EGO will control the number of consumers processed through its systems by varying the number of consumers to whom marketing is targeted. Cumulative Number of Franchise Partners Total Number of Consumers in Data Warehouse Table 1. B. Funding Requirements 2001 50 100,000 2002 150 550,000 2003 400 1,200,000 EGO represents a unique investment opportunity. By leveraging the company's combination of industry and technology expertise, strategic relationships with standardssetting industry leaders, and the strength of its management team, the company anticipates achieving profitability within 24 months. EGO anticipates reaching 20 full time employees by the end of 2000. This rapid growth in headcount is indirectly propo_ional to the growth in the number of product lines EGO will offer. The company will generate a profit of $0.2 MM in 2002 and $8.7 MM in 2003. These estimates are conservative and the management team has every confidence in exceeding them. 2000 $0 MM ($0.9MM 20 Table 2. EGO is seeking a seed capital equity investment of $1,000,000. The company believes this round of capital will satisfyits needs for the next 6 months. The total capital structure necessary to maximize the company's opportunity is anticipated to be approximately $6 million. Revenues Net Income (after tax) Year End Head Count 2001 $4.6 MM $3.2 MIV 0 47 2002 $22.6 MM $0.2 MM 98 2003 $72.4 MM $8.7 MM 164 Confidential and Proprietary Page 14 C. Income Statement (000) 2000 200t 0 0 0 0 0 4,240 120 250 5 4,615 2002 21,920 384 324 12 22,640 2003 69,947 898 1,540 38 72,423 2004 176,244 4,22C 3,877 82 184,423 Revenue E-Commerce Affiliate Program Data Management Float Total gross revenue Direct variable expenses E-Commerce Affiliate Program Data Management Float Total direct variable expense Contribution Margin E-Commerce Affiliate Program Data Management Float Total gross margin Expenses Payroll General and administrative Marketing, sales and support Operations Engineering and adv. Development Depreciation Total operating expense Operating income Other income and expenses Interest income (expense) Total other income and expense Net income before tax Income tax Net income 0 0 0 0 0 2,756 250 120 1 3,127 14,248 276 148 1 14,673 45,466 342 218 1 46,027 114,55c 1,355 42: ' 116,33_ 0 0 0 0 0 1,484 (130) 130 4 1,488 7,672 108 176 11 7,967 24,481 556 1,322 37 26,396 61,68E 2,86E 3,454 81 68,08E 373 47 235 42 148 0 845 (845) 1,314 196 2,350 74 765 4 4,703 (3,215) 2,190 763 3,480 268 957 84 7,742 225 3,650 1,864 4,824 1,546 1,788 198 13,870 12,526 4,38( 3,347 5,078 4,221 2,713 417 20,156 47,929 (845) (3,215) 225 12,526 3,815 47,929 19,172 28,758 (845) (3,215) 225 8,712 Confidential and Proprietary Page 15 D. Balance Sheet (000) 2000 2001 2002 2003 2004 Assets Current Assets Cash and cash equivalents Net accounts receivable Net inventory Total current assets Fixed Assets Land Buildings Equipment Gross fixed assets Less accumulated depreciation Net fixed assets Intangible assets Other non-current assets Total Assets Liabilities and Equity Current liabilities Accounts payable Accrued expenses Short term debt Total current liabilities Non-current liabilities Other long term liabilities Total non-current liabilities Total liabilities Stock holders equity Capital stock and paid in capital Retained earnings Total shareholders equity Total liabilities and equity 0 0 0 0 75 48 123 _ 123 1,072 2,380 6,17! 762 310 1,072 1,669 711 2,380 5,12,_ 1,053 6,17_ 105 0 105 1,230 25 1,255 11,667 1,078 12,745 22,400 3,347 25,747 56,92e 10,232 67,16£ 168 168 2 166 - 564 564 4 560 1,062 1,062 84 978 1,628 1,628 198 1,430 2,431 2,43E 417 2,021 271 1,815 13,723 27,177 69,181 1,000 (729) 271 271 5,000 (3,308) 1,692 1,81 5 15,000 (2,349) 12,651 13,723 15,000 9,797 24,797 27,177 15,00C 48,00E 63,00E 69,181 Confidential and Proprietary Page 16 E. Cash Flow (000) 2000 Cash from operations Net earnings (loss) Add depreciation and amortization Net cash from operations Cash provided (used) by operating activities Accounts receivable Accounts payables Accrued expenses Dividends paid Net cash provided (used) by operations Investments Gross fixed assets Net Investments (Cash Required) Financial Transactions Increase (Decrease) Short-term notes payable Other long-term liabilities Capital stock and paid in capital Net cash from financing Net increase (decrease) in cash Cash at beginning of period Cash at end of period (845) 0 (845) 2001 (3,215) 4 (3,211) 2002 225 84 309 2003 8,712 198 8,910 2004 28,75 41 29,17 0 0 0 0 0 (25) 75 (48) 0 (2) (1,078) 762 (310) 0 626 (3,347) 1,669 (711) 0 2,389 (10,232 5,12 (1,053 6,16 148 (148) 564 (564) 498 (498) 566 (566) 81 (810 1,000 5,000 10,000 7 1,223 7 1,230 10,437 1,230 11,667 10,733 11,667 22,400 34,52 22,40 56,928 7 F. Exit Strategy It is the management's objective to provide a dear exit strategy. When the EGO brand name becomes widely recognized as the leader in offering extreme sporting goods on the Internet, EGO will be positioned for an initial public offering. We anticipate this within a 24-30 month timeframe. Akernatively, as EGO builds an attractive customer base, larger sporting goods retailers (like Fogdog, Broadband Sports or Sports Authority) or general interest portals (like Yahoo, Snowball.corn, Disney/EXPN or AOL) may be interested in integrating our web community into their business. Given the current market climate, EGO could be an acquisition target. Confidential and Proprietary Page 17