Sample Business Plan N Vision Tech

N-Vision Technologies, Transforming the Way People Experience Learning And Access Information and Knowledge Inc. Business Plan CONFIDENTIAL N-Vision Technologies, Inc. 1600 Pennsylvania Ave. Dillsburg, PA 17019 Contact: Kenneth B. Kramer, President and CEO Phone: 717-432-8103 Fax: 717-432-3874 kkramer@nvisiontek.com http://www.nvisiontek.com TABLE OF CONTENTS I. II. A. Executive Summary A. Executive Summary ......................................................................... Company Overview Company Overview ................................................................................................... Products Product ....................................................................................................................... Accessories ................................................................................................................ Storage and Reading PDF .......................................................................................... 2 4 5 6 6 7 8 8 16 18 18 19 21 25 26 26 28 30 30 30 31 32 33 34 35 III. A. B. C. IV. Market Analysis A. Target Markets ........................................................................................................... B. Pricing Strategy .......................................................................................................... C. Analysis of Competition ............................................................................................ V. A. B. C. D. E. VI. A. B. C. D. VII. A. B. C. Marketing Strategy New Business Development ...................................................................................... Channels to Market.................................................................................................... Advertising Message ................................................................................................. On-Line Publishing / Partnering Strategy.................................................................. Media Plan ................................................................................................................. Engineering and R&D Strategy Development Engineering Overview ....................................................... Current Progress ........................................................................................................ General Design Summary .......................................................................................... Key Components in the Research and Development process ................................... Service / Product and Manufacturing Strategy Manufacturing Partners ............................................................................................. Support Services ........................................................................................................ Custom Development Opportunities ......................................................................... VIII. Strategic Alliances A. Everybook, Inc........................................................................................................... IX. Management and Staffing A. Management .............................................................................................................. B. Staffing ...................................................................................................................... X. Financial Proj ections A. Projections ................................................................................................................. B. Funding Requirements and Key Financial Risk Reduction ....................................... Confidential Page 1 07/23/01 I. Executive Summary Company: N-Vision Technologies, Inc., a Delaware corporation, headquartered in Pennsylvania, was incorporated in August 2000 as a Research and Development Engineering, Marketing and Sales company. N-Vision's first project is the development of a two-screen Laptop alternative/eBook product known as the NV Journal. N-Vision has an exclusive license to the IP and Technology Rights for development work completed to date by its predecessor, Everybook, Inc. and is seeking funding for the continued development and market introduction of the device. Market Opportunity: For the last 15 years most publications and documents have been composed electronically, yet distributed physically. The majority of U.S. Agencies, U.S. Government, U.S. Courts, U.S. Armed Services and U.S. publishers require PDF files for document submission and archive. The NV Journal is the only eBook reading device that supports, and enhances the PDF platform, which means that content does not need to be, converted to be electronically distributed and read. 1997 estimated total expenditures by market per year: B2B, e-Business Document Technologies Market is $13.0 bb projected to reach $41.6 bb per year by 2003. Professional reference publication market including the U.S. Technical, Scientific and Professional reference book market is $4.5 bb. College textbook market in the U.S. is $2.3 bb. K-12 is $7.7 bb. Religious book sales in the U.S. are $1.5 bb. Sales in the B2C market: U.S. Adult Trade books sales were $4.8 bb while paperbound sales were $1.7 bb. There is a multibillion-dollar foreign market for U.S. publications and domestic sales of foreign publications. U.S. book exports are $1.9 bb. Total expenditures on all books are anticipated to reach $32.8 bb in 2001. Book distribution costs average 40-60% of list price. Book and magazine production costs in professional and textbook markets can exceed 15% of consumer price. Business Concept: To transform the way people experience leaming and access information and knowledge. Objectives: 1. Converge multi-media and document handling into the most familiar tool of the last two millennia -- the book. 2. Create product flexibility to encompass the developing technologies of wireless communication and high capacity storage media, while providing customers with the ability to create and communicate using their own data files. 3. Create revenue streams by eliminating the physical distribution and cost of documents and publications, while preserving and enhancing the reading and writing experience. N-Vision Technologies is executing its objectives through the development of the next evolution of Laptops and eBook systems. This multi-use device combines and extends the traditional book, paper tablet, and Laptop PC metaphors. The company is creating a unique reading and writing product that will accept postscript or PDF files from any computer or can be used as a custom development platform for vertical markets. The NV Journal extends reading and writing into email and web access with continuous and immediate updating and access to documents. The marketing strategy is to follow the acceptance path of the PC by beginning in the B2B, e-Business markets, Professional markets, quickly expanding into Academic markets and finally the Consumer market. The NV Journal is a two-screen Laptop PC alternative with twice the workspace of a standard Laptop. It sports a uniquely useful interface that adds full-page reading, writing, audio, video, web browsing and email.. The NV Journal is the only twoscreen, full color, electronic reader that has writing via a handwriting stylus, onscreen keyboard or plug-in keyboard. Other features include USB port, removable microdrive for unlimited storage capabilities of manuals, maps, textbooks, novels, xrays, etc., and flexible PC card communications support for modems, Ethernet and wireless devices. The reader is powered by the reliable Linux operating system and unique PDF document management software. Users will be able to exchange publication files with Windows, Macintosh and UNIX Platforms. The NV Journal takes significant advantage with its' two-screen electronic book system, powerful and sophisticated Linux OS and PDF document management software. This combination of technologies provides a uniquely intuitive system with advanced reading, writing, excerpting, search, markup, email, and Internet communications capabilities. The platform and software are capable of emulating and extending the common uses of paper. The NV Journal's technology includes highConfidential Page 2 07/23/01 resolution color for a pleasurable and prolonged reading experience. The NV Joumal creates a convergence of media and document handling into the most familiar tool of the last two millennia--the book. Distribution Channels: The device will be distributed direct worldwide to B2B, e-Business and Professional customers via website, call center and fulfillment vendors. The reader may be distributed and leased to students through college bookstores. A later product for the B2C market will be distributed through similar channels. Internet/intranet or preconfigured mass storage cards will handle content distribution. Key Management Team: Kenneth B. Kramer, President and CEO: Formally EVP & General Manager, Everybook, Inc., VP Manufacturing and Logistics, Everybook, Inc.; Center Manager, IBM Customer Solution Center, Operations Manager, IBM Emergency Order Operations. IBM positions were under contract as an employee ofMorrison Knudsen Corporation. 20 years' experience Keith J. McKechnie, CTO & EVP Product Development: Formally Director of Engineering, Everybook, Inc.; Senior Development Engineer/Project Manager, AMP Inc., 19 years' experience in product development and advanced technologies Cheryl A. Meyer, EVP Operations and Sales: Formally Director of Logistics & Partner Relations, Everybook, Inc.; Operations Manager, IBM. IBM position was under contract as an employee of Morrison Knudsen Corporation. 17 years' experience David J. Landis, Manager of Product Design: Formally Mechanical Design Engineer, Everybook, Inc.; Senior Designer, AMP Inc. 19 years' experience Key Risk Reduction: Competition: (Paper): The NV Journal differentiates itself from paper through the PC extensions of multimedia, mass storage, continuous access to updates, immediate delivery, email access, and web browsing. (Laptop/Tablet PC's): The NV Journal differentiates itself by providing twice the workspace with its internationally patented two-screen system, providing superior ergonomics, a pleasurable reading experience and a superior document management interface. (eBook Tablets/PDA's): The NV Journal differentiates itself fi'om the eBook Tablet/PDA competitors through its internationally patented two-screen system with high color resolution for a better reading experience. It is further differentiated through more powerful and sophisticated Linux OS and PDF document management software. Moreover, it provides better physical ergonomics, writing interface, wireless and land line Internet access, email, and private document creation capabilities, and removable mass storage. The competition is focused on the consumer market, trying to make a cheaper paperback; a market that is currently better served by low-cost, high fidelity printing. This market is fraught with unresolved copyright, royalty and security issues. Each competitor has its own proprietary security and content description system with associated distribution costs, page reformatting, and file translating expenses. In contrast, N-Vision is following the acceptance path of the PC, initially concentrating on the business document management markets, choosing to enter the mass consumer market only when it is technologically/economically viable to do so and the market has sorted out the unresolved copyright, royalty and security issues. Financial: Starting in November 2000, N-Vision is seeking "A" round funding of $600K min.- $3mm max. to complete product development, testing, production tooling and market introduction. To reduce risk, the offering has been structured to have an 'all or none feature' requiring the escrowing of all funds invested up to the $600k min. Once reached, the $600k investment provides for the development of functional prototype units for demonstration purposes to potential customers and investors. As a contingency plan to offset the risk of not achieving full funding during the "A" round, or "B" and "C" rounds of financing, we are concurrently pursuing Joint Venture (JV) opportunities with established manufacturers for mass production and growth at each round of investment. If full funding does not occur and ajoint venture proves to not be a viable alternative, we will attempt to position the company for merger and acquisition. Financial Projections (Unaudited): Revenue: EBITDA: Year 1 $80,352 $(2,880,995) Year 2 $66,919,599 $ 9,137,691 Year 3 $137,364,291 $ 30,136,025 Year 4 $263,908,130 $ 78,522,067 Year 5 $519,463,568 $185,689,349 Confidential Page 3 07/23/01 II. Company Overview N-Vision Technologies was incorporated in August 2000 as a Delaware corporation. The company is currently headquartered in Dillsburg, Pennsylvania. N-Vision specializes in the development and marketing of the next evolution of Laptops and electronic book readers. N-Vision has taken up this development from its predecessor, Everybook, Inc., which prior to N-Vision's foundation had pursued development of this product. The vision of a two-screen eBook reading device became more of a reality in 1999, when a start-up company, Everybook, Inc. began hiring full time staff. Kenneth B. Kramer came on board in January 1999 as Vice President of Manufacturing and Logistics and later became Executive Vice President and General Manager. Among other things, Ken performed a review of the Everybook project, which resulted in the recommendation, creation, and execution of an operating plan. Ken oversaw the implementation of project plans and schedules, brought experienced engineering management in-house to oversee the motherboard design and subassembly contractors, and brought mechanical design inhouse. A better-equipped contract motherboard design house with more experience in the selected processor design was contracted while the previous motherboard and mechanical design contractors were dismissed. Significant project management improvements, quality control, cost and timesaving resulted from these actions. Ken also managed the contract manufacturer and procurement vendor review and selection process and subsequently brought onboard an operations manager to oversee procurement, manufacturing and fulfillment vendor control. In addition, Ken was responsible for and oversaw development of HR policies and procedures and all company administration efforts, with the exception of Finance and Accounting responsibilities. In June 2000, Everybook, Inc. reviewed the scope of work and capitalization required to continue development of an electronic bookstore, document management software, and the eBook Reader. Everybook, Inc. determined that the software was the least capital intensive and had the quickest time to market. Given this, Everybook, Inc. made the decision to restructure and concentrate its efforts on the document management software. Everybook, Inc. chose to discontinue development of the online bookstore and delay further development of an eBook reader device. Subsequently, Ken Kramer and his team elected to explore the feasibility of forming a stand-alone company dedicated to developing and marketing a Laptop alternative and eBook reader device. They put together a business model focused on the development of the Laptop alternative and eBook reader device, which proved to be less capital intensive as a stand-alone enterprise. The N-Vision team has great enthusiasm and confidence in the success of this endeavor based upon the overwhelming interest from industry, prospective customers and the media, in addition to a sound financial model and exit strategy. N-Vision Technologies is now pursuing funding to support the development and market introduction of the two-screen eBook system and Laptop alternative device. Confidential Page 4 07/23/01 III. Products A. Product N-Vision is launching a multi-use device that combines and extends the traditional book, paper tablet, and Laptop PC metaphors. The company is creating a unique reading and writing appliance combined with customized software that accepts postscript or PDF files. The NV Journal extends reading and writing into email, web access, and provides continuous, immediate updating and access to documents/publications for display and storage. The NV Journal replaces the facing pages of a book with two facing LCD's and overlaid touch screens, which are designed to display two full, side by side pages at one time. The NV Journal is approximately 11 x 8.5 x 1.75 inches in size. The NV Journal has no on/off switch or buttons. The main components of the NV Journal include two easy to read, high-resolution color LCD screens, touchscreens, integrated circuit board and two ports for storage of content, operating system and application software. There is a PCMCIA type II port dedicated for communication devices. Such devices may include a standard 56 dial-up modem, DSL modem, ISDN modem, or LAN card such as Ethernet 10/100, or wireless. The NV Journal runs on AC/DC power via Lithium Ion batteries or a small power adapter/battery charger that you can plug in the wall. Phone and power cables will be included with the NV Journal. The NV Journal is wrapped in a magnesium alloy case with soft cover overlay. The first NV Journal will be a Professional Model sold to, B2B, e-Business and Professional markets, as an easily read, portable, high storage reference device. Secondary markets for this model include the Academic markets (college students and K-12). We anticipate future generation products of the Professional Model will be announced within 12 to 18 months after initial market introduction. Enhancements to the NV Journal will be based upon new technologies and customer driven input. N-Vision plans to develop and introduce a Personal model to the mass consumer market when it is technologically and economically feasible to do so. This will open N-Vision to the vast eBook consumer sales market about the time this market segment becomes a sweet spot. This market has the potential to provide significant income as outlined in the executive summary and later in the market analysis. Currently, a multitude of digital eBook online bookstores are emerging and they are seeking devices to deliver content beyond desktop PC's, Laptops, PDA's and the pioneer eBook tablets on the market today. These tablets have proprietary software and access through a proprietary distributor arrangement. The N-Vision hardware and software platforms have been designed as open systems, which will allow us to incorporate eBook/Laptop industry standards, as they evolve. Confidential Page 5 07/23/01 B. Accessories Initially, customers will have the opportunity to purchase additional booster batteries, battery chargers, storage cards and micro-drives of various capacities. PCMCIA Type II modems and Ethernet cards will also be available. N-Vision plans to test and approve all peripherals prior to authorizing for sale. Use of unapproved peripherals will void warranties. We anticipate additional revenue streams, though not significant, from the sale of these peripherals. The revenues will cover the cost of shipping, handling and storage for these products. We anticipate an after market niche will also be created to be supplied by vendors specializing in this area. C. Storage & Reading of PDF Documents The user interface will take advantage of the devices networking capability to provide customers the ability to transfer documents, files, eBooks, etc. to and from the NV Journal. Documents that can be transferred in this manner include the customer's own PDF files as well as those garnered from the Internet, Intranet, email, CD-ROM and other sources. Users can annotate, highlight, search, cross-reference and print. Moreover, x-rays can be received, viewed and exchanged on the NV Journal. The NV Journal will allow timely, immediate access, delivery and storage of documents and will be capable of surfing the World Wide Web. Confidential Page 6 07/23/01 i ! IV. Market Analysis A. Target Markets Target markets have been identified based on two factors. The first is the cost of publications, training and other forms of information in a particular segment, and the second is the size and relative need of the market. Based on these factors, the primary target markets for N-Vision are the B2B, e-Business and Professional markets, with an economic stake in the accuracy and timeliness of their documents, publications and training material. Initially, the NV Journal will cost about the same as a moderately priced Laptop PC. As the price of the NV Journal drops with economies of scale, decreasing component costs and engineered cost reductions, N-Vision will pursue larger markets. The overall strategy is to establish a presence in the B2B, eBusiness and Professional reference markets and expand into the Academic markets (college textbook and K-12 markets). We plan to enter the mass consumer market when we determine that it is economically and technologically viable to do so. Public and Private expenditures for Education and Corporate Training reached almost $550.bb in 1995, or approximately 7.5% of the Gross Domestic Product (GDP) (U.S. Industry and Trade Outlook 1998). The U.S. B2B and e-Business markets spend approximately $13.0 bb annually in publication creation and distribution (U.S. Industry and Trade Outlook, 1998). This spending is anticipated to grow to $41.6 bb by 2003. The cost of development, printing, distributing, and updating of this information remains one of the largest challenges to industry. Meeting this challenge has risen in the age of the Internet, as customers and business affiliates expect to receive multiple sources of information, updated continuously, in both print and electronic form. N-Vision is ideally suited to reduce the cost and enhance the effectiveness of service and training manuals, component catalogs, and industrial references. Other opportunities in the B2B and e-Business market include internal document management and display functions dedicated to supporting retail outlets developed by wholesalers, associations, and parts makers. Problems have developed in meeting the requirements of a comfortable reading and writing platform, constant update requirements for both paper and electronic sources, and the ability of the end user to organize, bookmark, and excerpt information from manuals for their specific needs. The NV Journal is the solution to all of these problems. The Professional reference markets of medicine, law, and pharmacology are a $3.64 bb market (American Business Directory, 1995). Total expenditures in the Professional reference publication market; including U.S. Technical, Scientific and reference materials was $4.5 bb in 1997. N-Vision has the ability to replace paper for publications, records, and user-generated notes, as well as diagnostic film (x-ray, CAT, PET scans), without reducing their effectiveness. In these target markets there are few publishers, high distribution costs, frequent updates, and critical reference information. Book production costs in the Professional and Textbook markets can exceed 15% of the consumer price. Readers in this market have high incomes, are computer literate, and prolific readers. The secondary target market for N-Vision is Academic (college and K-12 market). Publication sales in the college textbook market reached an estimated $2.3 bb in 1997, (U.S. Industry and Trade Outlook, 1998). The college student population is formed from a wide mix of consumers Confidential Page 7 07/23/01 t | with substantial buying power. The rate of college enrollment continues to rise, with anticipated growth from 14.1 million students in 1994 to 16.4 million in 2006. Sales in 1996 for all college stores in North America were projected to be $7.9 bb (National Association of College Stores). On average, students spend 8.5% of their total dollars on computer products and 64% on course materials. An additional 6% is spent on general books. Expenditures in the K-12 market were estimated to be $7.7 bb in 1997, (U.S. Industry and Trade Outlook, 1998). The tertiary target market is the B2C mass consumer market. Book distribution costs average 40% to 60% of the list price. Domestic Consumer Expenditures on all books are expected to reach $32.8 bb by the year 2002; up from an estimated $21.2 bb in 1992 (Book Industry Trends 1998). Estimated expenditures on religious books were $1.5 bb (U.S. Industry and Trade Outlook, 1998). Finally, there is a multibillion-dollar foreign market for U.S. publications and domestic sales of foreign publications. U.S. Book exports totaled $1.9 bb in 1997, (U.S. Industry and Trade Outlook, 1998). B. Pricing Strategy The N-Vision pricing strategy is to price the device as inexpensively as possible, while allowing for continuous improvements in product design, new technologies, engineered cost reductions and volume efficiencies. To this end, our product will end up being priced comparable to that of a moderately priced Laptop PC. C. Analysis of Competition The competition for N-Vision's reading device fall into these categories: Paper, Laptop/Notebook PC's, Electronic Reading Tablets and Personal Digital Assistants (PDA's). No Company offers the complete solution provided by N-Vision's device, which differentiates itself from its competition through the innovative convergence of technologies as illustrated below. We believe our product's primary competitors will be large manufacturers of Tablet PC's. Volume shipments of Tablet PC's are not expected until sometime in 2002 at the earliest. Thus, the window of opportunity for N-Vision to introduce the NV Journal into our target markets is before the end of the first or second quarter of 2002 in advance of the volume shipments of Tablet PC's. Strengths and Weaknesses Strengths: Superior reading experience • The only two-full page device. • High resolution XGA TFT LCD's • Portrait orientation PDF and its ability to show pictures, charts, graphs, formulas exactly as they appear on the printed page • No scrolling • Pleasurable, prolonged reading experience • Print capable Confidential Page 8 07/23/01 • q 5 • • 6 hour battery life with intemal and booster battery packs Unlimited storage with removable storage cards Personal document management • Organization • Search • Index • • • Multiple ways to organize and search information Web based file transfer Immediate dissemination and access to publications User Interface • • • • • Easy Intuitive Touch screen based Custom tuned for reading experience Also available as a tool with Linux OS only, enabling client to develop their own applications Consumer Benefit • • • Expandable reading device that addresses all of your office/business needs Clear consumer payback based on reduced printing and distribution costs Long life span, easily upgradeable Document manipulation • Highlight • Notes: "Post it" style • Freehand annotation • • Cut and paste from books to notebooks Able to save notes, highlighted text, etc. Reliability of software platform - Linux OS • Stable Platform Base • Linux is an expanding market with opportunity for future growth Document delivery/transport • Email • Web Browser • Internet/Intranet • 56K modem, Ethernet or wireless • Easy, customized Confidential Page 9 07/23/01 Weaknesses: • Price • Weight of the device • Keyboard • Hard Drive How we are addressing these issues: Engineered and Manufacturing cost reductions New Technologies: liquid polymer batteries, plastic screens, etc Pop-up keyboard and stylus. Can add plug in USB keyboard PCMCIA removable storage. Can add plug in hard drive Paper: Paper has been an effective medium for hundreds of years by providing an inexpensive, high-resolution reading format. However, the handling of paper is labor intensive and requires manual intervention, for copying, mailing, filing, storage, etc. Additionally, paper incurs significant costs for printing, binding, production, physical distribution, storage space requirements, etc. Moreover, paper has significant environmental impact relevant to cutting down trees and contributing to global warming and pollution. As a result, more and more companies and government entities are mandating a paperless work environment. The NV Journal differentiates itself from paper through the extensions of multimedia, mass storage, continuous updates, immediate access and delivery, email access, and web browsing. Additionally, the NV Journal is more cost effective, environmentally friendly, and provides more durability than paper products. Similarities between the NV Journal and Books FEATURES 2 pages side-by-side Portrait display Full color Graphics/formulas/tables/photos Easy to use Portable Annotation and highlighting Full 8" x 11" pages No scrolling 2 books open at same time Traditional Book ¢" ¢" ¢" ¢" ¢" ¢" ¢" ¢" ¢" ¢" Professional Model ¢" ¢" ¢" ¢" ¢" ¢" ¢" ¢" ¢" ¢" Confidential Page 10 07/23/01 • J The NV Journal: More Than a Book Control TECHNOLOGY Mass storage Update information automatically: add, update and change File format - PDF Copy non-copyrighted PDFs from PC to the NV Journal for portable, no-scroll reading Copy non-copyrighted PDFs from the NV Journal to PC Pop-up keypad/keyboard Data access through phone/LAN/Ethernet/wireless Internal document management - data from server to the NV Journal Keyword search of documents Linking information within and between documents Unlimited Note taking and electronic sticky notes Audio Video • Content • Access • Delivery NV Joumal Y _" _" ,/ _" '/ '/ _" _" ,/ ¢" ,/ eBook Tablets and Cybook, goReader) PDA's: (Rocket eBook, Sof_Book, eBookMan, Qbe, Korea eBook, The electronic reader competition is focused on the B2C mass consumer market, trying to compete with cheaper, higher resolution paperback books. This market is currently better served by low-cost, high fidelity printing. The B2C market is also fraught with unresolved copyright and royalty issues. Each competitor has its own proprietary security and content description system with associated distribution costs, page reformatting, and file translating expenses. N-Vision is positioning its device as an open platform, which allows for adoption of eBook standards as they evolve. In 1998 two pioneer electronic reading tablets were brought to market, the NuvoMedia Rocket-eBook and the Soflbook Reader. While both devices are handheld tablets, The Rocket-eBook is the smaller of the two--about the size of a paperback novel. The Rocket-eBook can hold about 10 books at a time, which it receives through a user's PC. The unit contains a single, black on gray LCD. There are two buttons for turning pages, or the user can touch the screen at a pagination icon. The Rocket-eBook has a linked dictionary. The device uses an encrypted HTML file format. NuvoMedia offers approximately 300 books for purchase, at full hard cover price to 20% discount, as well as the online Wall St. Journal, specially formatted. The price of the device is approximately $269 and up, depending on memory. The Sofibook Reader is an 8.5" x 11" tablet, with a VGA color screen, approximately the size of a steno pad. It has a high contrast reading surface and a fold-over leather cover to protect the screen when not in use. The Sofibook offers annotation in addition to reading functions. It holds about 20 books, in encrypted HTML, and stores all other purchases in online accounts for users. It has an optional compact flash memory card. The Sofibook pricing strategy is either an outright Confidential Page 11 07/23/01 t estimated purchase price of $600 or $300 and a $20 monthly fee if an equivalent number of purchases are not completed. Gemstar International Group acquired Nuvomedia and Softbook in January million shares of stock (Publisher Weekly, 8/2000). 2000 for 5.5 Gemstar International Group and Thomson Multimedia announced the upcoming release of nextgeneration models to replace both Nuvomedia's Rocket Book and Softbook's Soflbook Reader. Gemstar is licensing the Intellectual Property to Thomson who will manufacture the dedicated devices under the brand name of its subsidiary, RCA. The products are to be released in October. The REBll00 will sell for approximately $300.00 and will feature a monochrome LCD touch-screen (5.5" diagonal). It will come with 8MB of memory and an upgrade to a 64MB SmartMedia memory card. The major feature enhancements include an internal modem and telephone jack. Users will download their digital library and new content via any standard phone line using a dial up service provided by Gemstar and RCA. The REB1200, which is the upgrade to the Soflbook Reader, will cost approximately $700.00. It will have a color screen (8" diagonal). Its internal modem speed has been increased from 33.6kbps to 56kbps and it retains an Ethernet port. The built in storage capacity is still limited however; this can be increased using Compact Flash Memory Cards. In comparison to the NV Journal, the reading tablets (Rocket-eBook and Softbook) appear to have a less durable design, have much lower processing power, and smaller, lower resolution screens. They aim at a paperback novel market, but their publications are priced as high as hard cover novels. They can not display full pages, as they would appear in print. Both have smaller storage capacity, and on-board communication components, making them susceptible to obsolescence through changes in technology. The NV Journal can display reference, journal, magazine, and textbook publications in the same format as a hardcover book. Publishers who have tested their publications on the Soflbook or Rocket-eBook have come to Everybook, Inc. in the past and expressed interest in the NV Journal because of increased costs associated with conversion of text in to the proprietary formats (HTML), the decreased resolution quality of their publications when displayed on the tablets and the inferior ergonomics of these devices. Research and customer inquires have shown that these products have not met user expectations. Potential customers expressed a preference to our device, citing high-resolution displays, more comfortable and natural hold and feel, and elimination of scrolling. Franklin Electronic Publishers, Inc. announced an eBook device in June 2000. It is the size and weight of a Palm Handheld with a black and white LCD screen. The base model will be available in the fall with 8 megabytes of memory for $129.95; the $179 version adds backlighting to the screen; and the top of the line model has a total of 16 MB of memory as well as the backlit screen. All three models include a slot for adding memory or plug in cards with extra titles. The company is negotiating with Peanutpress.com and Audible.com and hopes to make titles from the Palm OS and Windows CE devices readable on the eBookman by its release in the fall of 2000. eBookMan also has the ability to play music and audiobook files in the MP3 format. Other eBook tablets scheduled to come to market this fall are the Korea eBook, made by Korea eBook, Inc., sized between a PDA and the Rocket eBook, with black and white LCD touchscreen and big buttons for paging forward and backward; the Cybook, from the French firm, Cytale Confidential Page 12 07/23/01 which has a 10 inch on diagonal LCD and finally, a prototype device called the goReader, being developed by a U.S. company of the same name, which has a color LCD touchscreen and a gray plastic case weighing in at about five pounds. These are all different variations of the tablet format focused on the consumer market. The exception is the goReader, which is focused on university students. The biggest sustainable advantage and differentiation of our device from the eBook tablets and PDA competitors is N-Vision's two-page display format. This feature has been shown in consumer preference and reading physiology studies to be the way that students and professionals read fastest, comprehend the most information, and retain the most knowledge. The human eye prefers the most possible lines per page and no more than 80 characters per line to reach maximum utility. For users, two side by side displays will provide the best possible reading experience this side of the printed page. The next sustainable advantage is the sophisticated hardware and software package with a lot more internal processing power, which allows for sophisticated software like the powerful Linux OS. Our device takes advantage of active matrix XGA LCD's with high fidelity color and resolution as well. The NV Journal is differentiated through its superior combination of physical ergonomics, writing interface, Internet access, email, private document creation capabilities, and removable mass storage. We have an eBook reader/Laptop alternative. Another significant advantage of the NV Journal is the file format. It costs as much to recompose or translate a print file for display on tablets available today as it does to compose it for print in the first place. N-Vision receives, and displays the same PDF or Postscript file as was used to print or archive the original document. The device will be able to support multiple formats such as HTML, PDF, EBX, OEB, and other custom applications, etc. This fact results in a zero-cost and zero-print run risk for the B2B, e-Business and Professional markets to achieve electronic distribution. There are other electronic devices for quick reference or text searching and display, but none include so many features of the traditional book. Distinguishing the NV Journal from other electronic devices will be based on its form and function. There are technologies and companies that sell electronic texts on small displays, or on computers, via CD-ROM or IC-ROM. Our NV Journal is truly representative of the book because it shows the entire full-page layout as seen in hardcopy print. Laptop PC's: The Laptop display is oriented in the landscape mode whereas most documentation and publications are laid out in the portrait mode. This mismatch does not maximize the usable area on the display, thus for readable resolution, the document or page must be zoomed in and the user is required to continually scroll to read through the whole page and document or publication. The Laptop PC was born from the desktop PC. Therefore, the typical position of the Laptop is to be placed on a relatively fiat surface at eye level. Placing a Laptop on someone's lap does not make for a comfortable reading position. The advantage of the NV Journal over a Laptop is that it is ergonomically designed from a book. With the NV Journal, it is possible to read in many comfortable positions, similar to reading an actual book. History demonstrates that for hundreds of years the two-page book has been the preferred method of reading. Confidential Page 13 07/23/01 The five most common uses of Laptop PC's are: reading, light writing, email, web browsing and file transfer. The NV Journal addresses all five common uses equal to or better than the Laptop PC. With add-on accessories, the NV Journal provides portability and a high-end product with twice the useable workspace as a Laptop PC. N-Vision's device was designed with reading in mind, and offers the high-end portability of a Laptop PC. N-Vision differentiates itself from Laptops through its superior ergonomics and reading experience. The combination of reading, handwriting, keypad, keyboard interface and superior document management interface make the NV Journal comparable to the same technology on a one-screen Laptop PC. However, the NV Journal has a bigger sustainable advantage in the 2-page display, which eliminates scrolling and provides a pleasurable, portraitoriented reading, writing and working experience. Since the NV Journal is a two-screen device, there is twice as much useable workspace facing the user at one time. This allows more cross-referencing of multiple full pages by just moving the eye from bottom of page to top of page, as opposed to scrolling or the clicking of buttons. The Laptop does have an advantage in having a built in keyboard for applications requiring heavy writing. However, the reader does address this by providing two keyboard options in the form of a virtual keyboard on screen using the touchscreen as well as the option to plug in an external USB based keyboard. Customer feedback and case studies show that users mainly want read only capabilities and the ability to load and manage their own PDF documents. The NV Journal meets and exceeds the needs of customers. They also want special applications designed for their needs, developed on a common Open Systems Architecture; the NV Journal is capable of being configured to meet those vertical market needs as well. Tablet PC's: The development of more sophisticated handwriting recognition software is leading to the creation of a new emerging technology, the Tablet PC, which combines the full functionality of a Laptop PC into a Tablet format. There are already a couple of these devices on the market. In May 2000 Aqcess Technologies started shipping their Qbe, a large computing tablet with a touch sensitive screen. The Qbe comes in three models starting at $3,995 and climbs to $5,395, depending on options. It weighs 6.5 pounds. Users take notes and launch applications using their fingers or a special pen that plugs into the top of the machine. There is a virtual keyboard that pops up onto the screen and a separate plug-in keyboard and mouse. The Qbe can be voicecontrolled and comes with speech-recognition software and a headset. It runs Windows 98, has a CD ROM drive, built in Ethernet, and a 56K modem. It has connectors for USB and FireWire and a pair of PC card slots for plugging in wireless modems or GPS receivers. This product is heavier, more expensive and seems very awkward to hold verses the N-Vision Journal. Confidential Page 14 07/23/01 0 Sony has a tablet device on the market in Japan. Sony's tablet uses an electromagnetic stylus to use as a drawing tool. This is essentially a monitor replacement, which plugs into the computer. It will be sold in conjunction with a specially configured Vaio desktop and will be available the first part of next year according to David Yang, spokesperson for Sony. Other prototypes Tablet PC's are in development stages by such companies as Samsung and Honeywell. Toshiba is showing another prototype (non-working) tablet-style PC as a future technology. This unit includes a pair of 14-inch LCD screens that fold into a portfolio-style package and will include a SD slot for program installation and data storage. Microsoft, which is developing an operating system, expects prototype Tablet PC's to arrive in mid 2002, according to Microsoft Company spokesman, Phil Missimore. Volume shipments of Tablet PC's are not expected until sometime in 2002 at the earliest. Bill Gates recently held up an example of a prototype Tablet PC at the November 2000 Comdex keynote address. The biggest sustainable advantages and differentiation of the NV Joumal from the PC Tablets is its' two full-screen display format providing twice the usable workspace of a tablet and its opportunity to gain first market entry with a two-screen device. Consumer preference and reading physiology studies have shown that a two page layout is the way that students and professionals read fastest, comprehend the most information, and retain the most knowledge. The human eye prefers the most possible lines per page and no more than 80 characters per line to reach maximum utility. For users, two side by side displays will provide the best possible reading experience this side of the printed page. Confidential Page 15 07/23/01 a * V. Marketing Strategy A. New Business Development As of November 2000, more than 4,500 individuals have proactively expressed interest in buying the device. Approximately 128 companies have interest in the device for internal document management purposes. Many government and military branches that print and store vast amounts of information in the form of manuals, regulations, reference libraries, etc. have a mandate to go paperless. Repair and technical manuals, training manuals, regulation manuals and professional reference manuals are among the types of documents to be converted to a paperless management solution. We will market the NV Journal to our existing database of interested B2B, e-Business and Professional customers and continuously expand our customer base. Objective(s): Establish increased awareness: • • • B2B, e-Business and Professional Markets universities, colleges, and the K-12 Market professional and reference publishers N-Vision is focused on industry segments that have the highest printing (low print runs and frequent updating and reprints) and distribution costs (physical size, weight and price of publications) namely, B2B, e-Business and Professional reference and Educational textbook markets. N-Vision's strategic plan for sales is to facilitate group sales to organizations such as government civilian agencies, all branches of the military and their publishing branches and Fortune 1000 companies. Additionally, N-Vision has approached individual Professionals such as attorneys, physicians, engineers and pharmacists, among others, to facilitate initial sales. NVision will establish a presence in the Academic marketplace, among publishers, colleges and K-12 markets within 12 months of market introduction. N-Vision will penetrate the B2C market when we determine it is technologically and economically viable to do so. Confidential Page 16 07/23/01 Potential Customer Interest by Level of Commitment Customer Interest Tally As of November,2000 --70% to 90% Probability (A&B) A: 90% Expectation Professional Units for 2001 Professional Units for 2002 27,997 C: 50% Expectation - To Purchase with delivery timeframe -- Interested, waiting to see demo 4,035 B: 70% Expectation - To Purchase with strong economic need Confidential Unit Total for 2001 and 2002 32,032 P: Interested in Pilot Projects A&B Total for 2001 Goal for 2001 %of goal 4,035 5,000 80.70% A&B Total for 2002 Goal for 2002 %of goal 27,997 25,650 109.15% Customer Prospects Organization DefenseSystemsManagement College KeeslerAFB Admin Office of US Courts Time, Inc. Production Division Bombardier (Canada Air) Status A,P B B,P B,P B Units 102 402 120 10 49 47 202 16 652 40 120 102 3,000 1,500 1,200 1,100 5,000 3,220 3,650 14,500 35,032 Defense Logistics Information Systems A, P 102 402 120 10 49 47 202 1 50 40 120 102 50 10 5 5 50 20 15 602 Expected Delivery Year I Year 2 Year 3 Year4 Year 5 UN Food & AgricultureOrganization A,P Universityof IllinoisMedicalCenter A,P NF Associates/XeroxCorporation B Nat'lInst.Of Health--Allergy Infect. & Disease B,P Naval TrainingCenter,Great Lakes IL B,P Motorola2-Way Radio Division C Massachusetts General Hospital C BaltimoreGas & Electric C Astra Merck C KaiserPermanente C PacificGas & Electdc A,P OMAC B,P ComputedAir Services(CAS) Individual evice purchases D FutureSales Forecast Sub-Total Customer Forecast B,P B 2,950 1,490 1,195 1,095 4,950 200 3,000 150 3,500 2,500 12,000 47,400 100,200 4,035 27,997 50,400 100,200 200,400 200,400 Confidential Page 17 07/23/01 B. Channels to Market The distribution channel focus is direct to our Business and Professional customers. This includes ordering through our website and an 800# phone center and direct ship from our contract manufacturer or fulfillment centers. There will be limited partnering with resellers for worldwide distribution. N-Vision will integrate a third party customer service center to clarify and respond to consumer questions and concerns. In some cases the service center may act as a level one qualifier to evaluate requests for individual or multiple unit sales opportunities. The multiple unit sales opportunities will be forwarded to New Business Development. N-Vision will use these multiple unit sales to develop detailed Return on Investment (ROI) models that will be applied to appropriate vertical markets. N-Vision's direct sales staff will pursue the aforementioned vertical markets. Various markets will be penetrated by the use of trade associations, extended sales forces, foreign sales partners and retail outlets. Trade associations will be approached at the national or state level. N-Vision will extend its direct sales force in the Academic markets by facilitating partnerships with publishers that have pre-existing sales teams and an established presence in the educational market. C. Advertising Messages Users of professional reference publications buy high priced books and magazines, expect frequent updates, and demand accuracy. On average, they spend nearly $1,000 per year on publications and subscriptions. According to an article in Library Trends, Spring 1995; professional consumers understand the limitations of print and current electronic display of professional journals. They show a measured willingness to adopt electronic transmission and display of professional journals if the shortcomings of current technology are eliminated. They want clearer display from electronic interfaces, portability, availability of titles, and quick and easy access. The advertising message, in general, should be one of convenience, portability, easy access, and permanence. Advertising vehicles that we plan to utilize include print advertising, TV advertising, and direct mail. Advertising messages must be customized and crafted to reach each of our different audiences, they would include: 1. e-Business and B2B Markets Business people can carry all of their contracts, customer detail, letters and technical or sales, brochures, updates and journals in one device. They can compose and send letters, revise documents, print proposals, and carry an entire office wherever they go. The NV Journal will lower their publication costs, provide timely and immediate access to their documentation and improve their reading environment. Corporations can update both printed and electronic product catalogs, repair manuals, and training materials for their field staff, suppliers, distributors, etc. at one time. Staff can organize their documents for easy access. Confidential Page 18 07/23/01 2. Attorneys An Attorney can carry briefs, contracts, letters, client information and even an entire law library in a single NV Journal. Information from any source on the NV Journal can be searched and extracted whenever and wherever required. The NV Journal will lower their publication costs, provide timely and immediate access to their documentation and improve their reading environment. 3. Doctors A Doctor can carry patient files, a medical library, periodicals and even x-rays on the NV Journal. Doctors have actually been thrilled with the concept, for example, of being on 24 hour weekend call and be able to review a patients file, x-rays, search reference materials to diagnose medical conditions and proscribe treatments all with one portable device. Doctors have told us this would greatly simplify their life. They can also make notes, write and send letters, and then save and cross-reference the material with patient files. They can further use the e-mail feature and web browsing for research and consultation with other doctors. The NV Journal will lower their publication costs, provide timely and immediate access to their documentation and improve their reading environment. 4. The Parts Retailer One NV Journal sitting on the counter can hold all of the part manuals in a shop. This NV Journal will work just like a manual, but provides timely and immediate updates whenever there is a change made by the parts makers. Imagine being able to replace entire bookshelf worth of manuals with one book. A major automobile manufacturer is interested in pursuing the feasibility of putting our product in dealership service centers across the country. A maker of well-known parts accessory catalog has expressed interest in the feasibility of providing NV Journal's to automobile service centers to be able to provide updates of their catalog. 5. The Student Students can have all of their textbooks stored in one NV Journal. They can read, highlight, annotate in the margins, keep separate notes, write papers and submit work to their professors via e-mail. Imagine being able to go from reading the NV Journal to instant video and audio clips applicable to lecture subjects providing an enriched learning experience. Professors will be able to create and edit specialized course packs and instantaneously update their students. Students will always have the textbooks they need for their busy schedules never worrying about leaving a book behind. Students will never have to contend with carrying a heavy load of textbooks in arms or backpacks ever again. The NV Journal is a solution to students having to carry 25% or more of their bodyweight in backpacks. Physiological studies indicate this can have adverse effect on students. Moreover, the NV Journal will save students money over the course of their education and will be transferable into their professional careers. D. Online Publishing / Partnering Strategy Publishers hold the key to the publication marketplace. For more than fifteen years the majority of publishers have composed their products electronically. This composition process has created an archive of many thousands of electronic files that when used with the NV Journal, and other display devices, such as the desktop or Laptop computer, create a new distribution channel for a publisher's product that has been designated as eBooks or eContent. These Confidential Page 19 07/23/01 archived electronic files combined with the NV Joumal will provide stream for the publishing community that did not exist in years past. an additional revenue We have targeted industry specific tradeshows such as the Frankfurt Book Fair, Paris Book Fair and Book Expo America. We have planned advertisements in the leading publisher's publication of choice, Publishers Weekly, to create awareness and encourage additional publishers to provide digital content. 1. eBook Benefits Lower • • • • Costs Unit savings (frequency of updates, paper, print, bind) Distribution savings Discount (wholesale/retail) No returns or damage goods Benefits for Publishers Additional • • • • • 2. Publisher Reduce environmental pollution Promote greater accessibility of books in many languages Promote higher literacy Low-cost market research on sales Target marketing and Retailer Issues: community: The major issues that are facing the publishing • • • • Royalties (author/artist compensation) Digital Rights Management (setting up the parameters by which a book is sold, lent, copied etc.) Licensing (maintaining brand names and establishing the appropriate business relationships) Security (insuring the proper and fair use of an author's and publisher's intellectual property) N-Vision will ally with publication distributors and retailers as they migrate further in to electronic distribution and seek best avenues/products for end users delivery. This is especially suited for the mass consumer market when viable. Anderson Consulting forecasts that 28 million people will spend $2.3 bb annually on electronic content by 2005, according to eBookNet.com, Wade Rousch, 8/00. Examples of potential publisher and distributor relationships: bamesandnoble.com, iPublish.com, ecampus.com, eBookempire.com, Lightening Source, Simon and Schuster, Versaware, Fatbrain, American Academy of Pediatrics, Continental Press, Practicing Law Institute, Frontiers in Bioscience, Harcourt Brace Health and Science, Glencoe-McGraw Hill, Bloomberg Financial Markets Commodities News, Princeton Architectural Press, Institute of Confidential Page 20 07/23/01 Physics, Random House, Rodale Press, John Wiley, Blackwell Science Journals, Cambridge Scientific Abstracts, Harcourt Publishers Limited Journals, Cambridge University Press, Dow Jones Interactive, Time Inc., U.S. News, etc. E. Media Plan 1. Trade Show The media Professional appearances second step campaign to plan would begin in early 2001 and be aimed at the B2B, e-Business and reference and journal reading market. The media mix would begin with personal and demonstrations at national trade shows and trade association meetings. The to meet the objectives and strategies for advertising would be a direct mail doctors, lawyers, pharmacist's offices, etc. 2. Merchandising Strategies Objectives: • • • • Reinforce personal appearances and demonstrations at trade show, trade association, and publisher presentations. Website direct to customer Introduce potential users to the utility of the NV Journal. Show potential customers and suppliers that the NV Journal will improve their performance, lower their costs, and provide greater convenience. Strategy: • • • Create a full color brochure that will facilitate a direct mail campaign by providing a clear image of what the NV Journal is and how it can be useful to professionals. Website will be updated and used as part of the media blitz Document testimonials and reviews by professionals in the target market. Quote good reviews by computer-friendly and computer-adverse users, as well as the authoritative literature in the professional reference fields. Rationale: A color brochure must introduce the NV Journal quickly and clearly, so that the user understands the system before falling into the PC paradigm (where is the keyboard; how do I print; can I download to my PC; etc.) The brochure should mimic the NV Journal, at 90% scale, and guide the reader through the usage and purchase procedures. 3. Publicity Strategies N-Vision is in a good position with regard to publicity. It is a new product, very simple to understand, and touches on many of today's hot topics for "gee whiz" news segments. There are entire television programs devoted to demonstrating new technologies, products, and services. Confidential Page 21 07/23/01 * J N-Vision touches on the Interact, computers, reading/learning, paradigm. Rationale: The NV Journal is newsworthy with a new twist on an old for the following reasons, in the associated markets: a. National News and Computer Media: • The NV Journal will affect the majority of Americans eventually. • WOW factor---High tech, changing paradigm, new frontier. • The NV Journal is positioned to turn two major industries, publishing and Laptop PC, on their head. • The NV Journal brings up the paperless society theme that the computer industry has been promising in the national media for years. • The national media has been running stories on the promise of an electronic book for a number of years, calling each one "The End of Books", as we know them. • Cable television, especially science and learning networks, have regular series devoted to science, new technology, and new computer products • Some cable television networks cater exclusively to the technology industry (for example: ZD-TV and C/NET). • Television networks, although basically entertainment-based, are making forays into science and technology discussions and demonstrations. • The fact that N-Vision represents new MEDIA technology, with many possibilities of entertainment and advertisement, will draw media attention. Examples of Media Coverage " Now here is one that is very different and this is a prototype, a very early prototype, of the EB Journal, the Everybook. And look, two pages at once, it's almost like having two computer screens in front of you. Bring your books up on these and take them wherever you go. This is especially good for textbooks and journals." - Ed Curran, CNN (7/00) "Anderson Consulting Study of eBook Market states...by 2005...the number of eBook reading devices was projected to jump from an estimated 30,000 to 28 mm." Publishers Weekly (4/3/00) "Everybook, Inc., the developer of the world's first true electronic book, and the American Academy of Pediatrics announce that they have signed a licensing agreement that will enable the Academy to offer the Academy to offer electronic publication of the medical journal Pediatrics to its subscribers. Academy President Don Cook, M.D., FAAP said, Technologies like Everybook are likely a part of medical publishing's future and we feel a need to participate as publishing changes. The Everybook reader allows us to present our complex table and graphics without sacrificing quality, which is our main goal." -Peter Evans, Biblio Teeh Review, (2/00) Confidential Page 22 07/23/01 • Jl "The electronic Linux book. Linux was adopted, Everybook said, because it is the best operating system on the market, and to increase the speed and capability of the device." --Linux Weekly News, (2/00) "Several varieties of e-books were on display (at the Seybold '99 publishing technology conference in San Francisco). But the book that caught my attention is in production by Everybook, Inc. The reading device offers a full-color two-panel display that most emulates a real book." --Leslie Garey, MAC Now magazine, (9/99) "Bright as SoftBook's screen and marketing plan may be, they could be eclipsed by the next generation of e-books. These will present the viewer with two facing, full-color pages, just like a real book. Just before Christmas 1999, Everybook of Middletown, PA unveiled a pre-production version of its Dedicated Reader. This top-of-the-line product can hold 200 college-size textbooks. Those are whole books, not pages." -Popular Mechanics, (8/99) "(The DEVICE's) two screens would be helpful for finding information, or viewing graphics. This should make Everybook ideal for reference materials, demonstrations, and textbooks." eBookware.com: The World's largest eBook seller Online "The Everybook concept is radically different from the other e-books. When you open the reading device, you are presented with two large screens, similar to the facing pages of a printed book. ""With the Dedicated Reader's large dual-page format, practically any book could be displayed. And the device could easily handle electronic editions of newspapers, magazines, newsletters and professional journals. Everybook also has simplified the conversion process for print publishers by using Adobe's Portable Document Format (PDF) technology, which faithfully preserves the layouts and typography of the printed editions." --Online Journalism Review (4/2/99) "As the unit can hold a massive 1,000 books on each removable PC-card, you're in for a lot of reading." -Wall Street Journal Interactive Edition (3/15/99) "The high-resolution color screens of the Everybook will provide for the best graphics and general reading experience of any of the e-books." -The Internet Newsroom "Developed by Everybook, Inc., this reader looks like a genuine book with PDF documents shown on two full color screens side by side." -www.about.com "The Everybook Dedicated Reader represents a different approach to the e-book. It targets professionals with a ...device that supports color and stores titles on PCMCIA cards. "A number of publishers are interested in the Everybook. About 20 have already provided files for conversion. Interestingly, 18 of the 20 signed on after they saw implementations in other readers."The Seybold Report on Internet Publishing (Vol. 3, No. 5) "The EB Dedicated Reader TM is not only larger than the other readers, it has two side by side color displays, making it look more like a traditional book."-Internet Business (2/99) Confidential Page 23 07/23/01 "Imagine a device, the size of a text-book, that displays 200 illustrated college textbooks from a secure removable storage device the size of a credit card. Add to that a 'book-like' feature that displays the content in familiar 2-page spreads. A built-in modem is included to download periodicals, sheet music, whatever. That's a description of Everybook, a prototype product being developed by Everybook, Inc. in Middletown, Pennsylvania to replace paper-based publications. "...The company's website provides a good look at a very interesting product developed by people who obviously possess a great deal of ingenuity and grit." -The Greentree Gazette: The Business magazine of Campus Finance (1/99) b. Publishing Trade Press: • The consumer electronics industry has failed to impress publishers with the reading tablets available today. • Publishers are troubled by copyright, royalty and security issues. • Publishers want to weaken the hold of book distributors and retailers on their industry. • Publishers want an electronic medium to spur purchases and lower costs. • N-Vision will address publisher concerns through its product design, which closely emulates the book in form and function. Additionally, N-Vision's open system and custom application development process allows N-Vision to adopt industry standards for content, e.g., copyright, royalty, and security issues, as they evolve. N-Vision will forge partnerships with publishers and distributors actively seeking an end user product for customers to view their eBooks and other forms of digital content. c. Regional and Local News Media: • • New manufacturing in their backyard makes a good news story. National attention on the region for high tech products raises the potential of a ripple affect, similar to that in Washington State after the arrival of Microsoft. Silicon Valley developed the same way around the defense industry. One or two hot companies choose a location, and their suppliers, consultants, and service industries follow them. In December 1999, Pennsylvania Governor Tom Ridge made a high-visibility appearance at the Everybook, Inc. offices to sign the Commonwealth's last bill of the 20th Century, Senate Bill 555, the Electronic Transactions Act. The Act gives an electronic signature the same legal standing as a signature on paper. d. Publicity Vehicles: • • • • • • Traditional News Release: Tailored to the media markets outlined above. Video News Release Personal Demonstrations: Good for television and trade/technology shows. Demonstration Videotape: Explaining the product and its uses. Virtual Tour of the product on the N-Vision website. Publishers, Vendors and Suppliers recommendations: Use the publicity arm of our partners, associates, and vendors/suppliers. Page 24 07/23/01 Confidential t O VI. Engineering and Research and Development Strategy N-Vision seeks to enhance the ability of traditional publications to teach, read, write, and communicate with remote archives of publications. A principle focus is for the NV Journal to provide the most enjoyable and extended reading experience available on a multi-use device. Another key focus is to decrease power utilization and prolong battery life. N-Vision Research and Development is continually focused on engineering a thinner, lighter, more rugged, and weather resistant product than a traditional book. To achieve this end, engineering is leveraging existing leading edge notebook PC technology and designing for high volume manufacturing. The NV Joumal is a platform with significant room to expand into specialized applications. NVision has been approached by companies wanting to use its device as a hospital patient file reader, industry catalogue, military map and location utility, talking book, music reader and even as a device to tum text into American Sign Language. These custom-engineered applications will create a demand for a custom engineering group within N-Vision Technologies. Charging lucrative NRE fees to these companies requesting special operations, etc. will generate additional revenues. A. Development Engineering Overview Motherboard Development The motherboard used in the NV Journal uses a Pentium based CPU from National Semiconductor called the Geode GX1, (formally Media GX). Everybook Inc. previously contracted with SBC Designs, Inc. of Huntsville, Alabama to engineer the complete motherboard and BIOS for the product. SBC Designs, Inc. is a top quality, world class engineering company specializing in the design of high-end computer boards. They have experience with the Geode GX1 in four previous designs. Currently, the schematic phase of the design is complete and the printed circuit board layout phase is almost complete. N-Vision Technologies plans to continue to work with SBC Designs, Inc. to complete the project. Industrial Design The industrial design is the process of developing the look and feel of the product. We are developing this with the in-house engineering team. The software used is Pro-Engineer from PTC. This is a top of the line design and engineering CAD package. Several non-functional models were constructed throughout the development process to confirm and refine a high quality ergonomic design. Mechanical Engineering The mechanical engineering involves defining all the details and drawings of each part and subassembly that make up the entire product. Each custom and commercial component must be completely defined and dimensioned with a detailed drawing. Every part is designed and entered into a 3-D CAD system and checked and reviewed for proper design for manufacturability. ProEngineer and AutoCAD are essential tools used in this process. The mechanical engineering development effort is totally in-house with assistance of outside consultants on call as needed. Confidential Page 25 07/23/01 System Engineering The system engineering involves designing and documenting all the electrical interfaces between all the major components such as the LCD displays, motherboard, touch-screens, etc. Cable assemblies are also detailed. All system engineering is performed in-house. Software Development As part of the license agreement with Everybook, the software development work performed to date transfers to N-Vision. N-Vision is currently in negotiations with a group of software developers to continue development of the Linux operating system and PDF application software for the device. Additionally, N-Vision is considering offers from other software developers interested in developing third party application software for vertical markets. N-Vision may license a Linux version of DocAble rM from Everybook, Inc. as the PDF document management system for the product when it becomes available. B. Current Progress Hardware Concept - - Breadboard-Prototype - - Alpha - - Beta - - - Completed Completed Mechanical/Functional - Three months from date of funding (DOF) Functioning units for SW test and demo - Four months from DOF Final Design Verification Testing - Months Five through Ten from DOF Software Functional Requirements - - User Interface Design - - Detail Design - - Construction - - Systems Test - - C. General Design Summary In progress (90% complete) In progress Two months from DOF Three months from DOF Month Four through Nine from DOF General Description The NV Journal is a self-contained portable device, which is expandable based upon customer requirements; a portable computer for instance, housing two opposing displays. Touch screen surfaces are provided on each display to control image presentation on the LCD's as well as navigation through the NV Journal. It will be battery powered. An external power supply for AC use and a battery charger will be provided as well. The unit will leverage standard Laptop architecture and technology as much as possible. A custom version of Linux should be employed as the operating system in the NV Journal. The NV Journal should employ several customized applications i.e., PDF reader, document manager, web browser, email, etc. The goal is to leverage existing leading edge notebook PC technology throughout the mechanical design, especially the units that are thin and lightweight. We intend to use the same or similar materials and construction techniques. The differentiating factor will be added texture with embedded text/graphics design that orients the unit in the portrait position. Confidential Page 26 07/23/01 i 41 Dimensions The goal is to have a product that is as small as possible in the X, Y and Z directions and still house the LCD's and touch screens that are selected in a reliable manner. The outer dimensions are primarily based on a 10.4" (active area diagonal) LCD. LCD Frame To simulate the white border on a page of paper, a white bezel should be inserted around the perimeter of the LCD. Stylus A stylus should come with each NV Journal, fastened to a holder that is part of the case. Microphone An internal microphone for recording should be installed in the bezel of the N-Vision device. Proper acoustics have been considered. Speaker An internal speaker for voice or music should be installed in the bezel of the N-Vision device. Proper acoustics have been considered. Weight The goal is to produce a product that will be as light as possible. Currently there are five main items that make up the majority of the weight, they are (1) the LCD's (2) the touchscreens (3) the battery (4) the Printed Circuit Board Assembly (PCBA) and (5) the mechanical packaging. Because the functional requirements constrain us with current technology in these five categories, we are unable to dramatically reduce the weight without violating one or more functional requirements. A quick survey of current notebook computers indicates that the weights are in the range of 3 to 8 pounds. The current goal is for the weight of the NV Journal to be in the range of 5 to 6 pounds. Ultimately, the goal is to design the mechanical components to gain utility while minimizing weight. Surface Finishes The product should have a texture built into to the mold or die for the outer case cover. The result should be the look and feel of a leather-covered book. Color There should be one color for the cover initially, and that color is black. Other colors like burgundy and hunter green should be considered based on customer requests and feedback. The bezel around each screen should be fiat white. The exposed magnesium alloy case should be powder coated. Software Functions (Initial Release) • Custom User Interface • Dual screen display • Page fwd, back, first, last • Go to TOC, index, page • Highlighting Confidential Page 27 07/23/01 • • • • • • • • • • Freehand/Voice Annotations Bookmarks (auto/manual) Post-it type notes Citation copy to notebook Zoom Find/search Integrated Web Browser E-Mail Transport Page level document links Integrated Help/Tutorial Optional Accessories (Not all accessories will be available at market introduction) • Booster battery pack • Extra storage Flash Card / Microdrive (various types & sizes) • Other optional PCMCIA communications cards • USB cable assembly • Plug in hard drive • Zippered portfolio style cover cover/case w/detachable strap • Reading stand / cradle • Cleaning kit • Tripod attachment D. Key Components in the Research and Development process Displays - We are continuing to investigate the current state-of-the-art technology as it relates to LCD's. Several factors make up our selection process, weight, size, brightness, clarity, viewing angle, power requirements, cost, etc. When we become aware of new LCD candidates, they are evaluated against this criteria as well as the impact the change would make on the current phase of the project development cycle. Other advanced display solutions such as cholesteric and e-ink are being monitored to determine the feasibility of using these technologies. Touchscreens - We are continuing to investigate the current state-of-the-art technology as it relates to touchscreens. Weight and durability are the most critical attributes. We will continue to look at the current technology in plastic and weigh the advantages and disadvantages against glass based touchscreens. Battery - We are currently using lithium ion technology and are investigating the use of solid lithium polymer technology, which promises to double the capacity in the same volume. Central Processing Unit (CPU) - We are continuing to investigate the current state-of-the-art technology as it relates to the central processing unit. As a result of recent investigations, we are using a high performing, highly integrated CPU. The trend is toward higher levels of integration with each new generation CPU. This trend will greatly reduce and simplify the electrical design effort on future models. We are considering the use of the new Linux based Confidential Page 28 07/23/01 CPU from Transmeta on a future generation product once the CPU is tested and proven in the marketplace. Case Design - Currently we are using Thixomolding, a magnesium alloy that is currently the material of choice in high end, thin, light weight Laptop computers. The latest technologies and materials have been investigated with the goal of weight reduction and ergonomic styling while maintaining a low cost design for high volume manufacturing. The design has been achieved using Pro-Engineer which is state-of-the-art three-dimensional CAD software. Model Professional Size 11" x 8.5" x 1.75" Weil_ht (lbs.) -5.2 Price $2500-$2995 Confidential Page 29 07/23/01 VII. ServiceProduct A. Manufacturing Partners and Manufacturing Strategy N-Vision personnel have relationships with global contract manufacturers (CM) with facilities located in North America, Europe and Asia. Competitive, quantitative and qualitative analysis of the CM's, based upon written surveys and on-site visits have been performed and the top CM candidates have been qualified. These manufacturers can be utilized for production of the NV Joumal. We choose to refrain from signing formal agreements with one of these manufacturers until we have completely explored joint venture or strategic alliance relationship possibilities with manufacturers willing to provide services beyond a strict CM structure. This relationship could take the form of an equity position in our company or provide for favorable manufacturing and distribution advantages such as forgoing letter of credit requirements and/or serving as a factory direct distributor. Our Project plan does not require formal agreements with a manufacturer until the Alpha Phase of development is complete which ends approximately 12 weeks from the date we break escrow during the series "A" round of funding. B. Support Services N-Vision personnel have relationships with outsource customer service call centers and fulfillment centers with locations in North America, Europe and Asia, which can be utilized for distribution and support services. N-Vision has performed extensive research and interviews with some of the largest companies providing the aforementioned support services and the top candidates have been qualified. Final selection of a customer service call center and fulfillment center is pending based upon joint venture or strategic alliance outcomes. Our project plan does not require formal agreements with support service providers until we are in the beta development cycle that begins approximately 12 weeks from the date we break escrow during the series "A" round of funding. Due to our leveraging of common technologies and components we expect Mean Time Before Failure (MTBF) and thus the warranty repair rate to be comparable to the Laptop PC industry average. We anticipate having warranty repair done by our chosen CM or an appropriate mutually agreeable third party vendor. C. Custom Development Opportunities N-Vision is pursuing vertical markets. The NV Journal, as a document display platform, has unlimited potential to serve the internal storage and portable display applications of companies, government entities, and the military. Non-recurring Engineering (NRE) fees will be charged for custom development. Many organizations have approached us with various ideas of how to apply the NV Joumal in their industries. The NV Journal is the solution they have been looking for and has not existed previously. There are a number of entities we could work with to either co-develop applications or have them develop applications themselves on top of our product. This will result in products that can be cross-licensed and sold in the same industry. Confidential Page 30 07/23/01 z I VIII. Strategic Alliances A. Everybook, Inc. N-Vision has a strategic alliance with Everybook, Inc., to utilize the intellectual property and technology rights developed to date while Everybook, Inc. was pursuing the development of the eBook reader device. The alliance includes an exclusive license, for five years, of the intellectual property, and technology rights in exchange for a 1% per unit royalty and a contribution of assets, including engineering materials and equipment, in exchange for a 5% equity stake in N-Vision Technologies, Inc. Confidential Page 31 07/23/01 i • IX. Management A. Management and Staffing Kenneth B. Kramer, President and CEO Ken has 20 years' experience in management, human resources, procurement, product development, systems integration, manufacturing, and fulfillment services. Ken was employed with Everybook, Inc. from January 1999 through August 2000, serving as Executive Vice President and General Manager. Prior to that, Ken was Vice President Manufacturing and Logistics. Ken was formerly with Morrison Knudsen Corp. for five years, contracted to IBM. He last served as the Center Manager of the IBM Customer Solution Center in La Mirada, California. In this position, Ken had overall responsibility for running one of three IBM Customer Solution Centers in the United States providing custom hardware and software systems integration services. This involved Laptop PC and Desktop PC configuration and replacement as well as auxiliary logistics support for some of IBM's largest customers. Requirements included executing post-sales deliverables to customers and actively managing customer relations. Activities included determining customer requirements, project scope, time, cost and quality management, negotiating contract provisions related to scope of work, performing work according to project plan. Responsibilities included all human resource, staffing, planning, operations, quality control, audits to ISO 9002 standards, TQM, ship timeliness, inventory control, facilities, procurement, finance and security functions. He managed entire facility operations and personnel including all contract and subcontract personnel. Prior to that, managed the IBM 24/7 Emergency Orders Operation in Mechanicsburg, Pennsylvania. Previously, Ken was employed at IBM for eight years in various inventory and distribution operational and staff assignments. He received his BSoSc from the Pennsylvania State University. Keith J. McKechnie, CTO and Vice President New Product Development Keith has 19 years' experience in electronic product development having overseen the development of many products from concept to completion. He served Everybook, Inc. as Director of Engineering from May 1999 through June 2000. Prior to joining Everybook, Keith was a Senior Development Engineer and Project Manager at AMP Incorporated, where for 12 years he managed and directed global development engineering sub-contractors. He also supervised engineering support staff on the design and development of several electronics systems based products in the Local Area Networking Electronics business unit. Prior to AMP, Keith spent 6 years with GAI-Tronics Corporation as an Associate Member of the Technical Staff. Keith was involved with and led the development of several Industrial & Commercial Voice Communications Products. Keith received his education and degree in Specialized Technology from Lincoln Technical Institute in 1981, and the EBSEE Program at Penn State University in 1985. He holds five patents. Confidential Page 32 07/23/01 • m Cheryl A. Meyer, Executive Vice President Operations and Sales Cheryl has 17 years' experience including management, human resources, purchasing/planning, vendor control, quality control and warehousing/distribution services. She served as the Director of Logistics and Partner Relations with Everybook, Inc. from February 2000 through August 2000. She served as a consultant to Everybook, Inc. in the same role, beginning February 1999. Formerly, Cheryl was with Morrison Knudsen Corp. for 6 years, contracted to IBM. She last served as an Operations Manager on contract to IBM. Prior to that, Cheryl was a Buyer/Analyzer on contract to IBM. Previously, Cheryl was employed at IBM for ten years, in various inventory, distribution, vendor control, and operational/staff positions. Cheryl also worked as a Sales Consultant for Dynamics Development Enterprises. Cheryl is currently President of the Central Penn Chapter of APICS (The Educational Society for Resource Management). She has served in numerous board positions over the past 8 years, to include VP Marketing, VP Publicity and this is her second term as President of the 247 member Chapter. Dave J. Landis, Manager of Product Design Dave has 19 years' experience in Electro/mechanical product design, and is responsible for mechanical design and development of the NV Journal. Dave served Everybook, Inc. as Mechanical Design Engineer from August 1999 through June 2000. Prior to joining Everybook in 1999, Dave was employed by AMP, Inc, as Senior Designer for the Global Communications Product Development Group. Previously, Dave worked for KrautkramerBranson Inc., for 9 years as a Design Engineer. As Lead Designer he gained valuable experience developing portable hand-held instruments for the commercial and industrial marketplaces. Dave formerly worked for Elco Connector Corp. as Lead Designer to the Director of Engineering, and previously was Design/Drafter for DuPont Connector Systems. B. Staff'mg Requirements by year Year 1 Year 2 Year 3 Year 4 Year 5 3 2 3 1 2 5 2 3 1 1 2 25 4 2 3 1 2 5 2 3 1 1 2 26 4 2 3 1 2 5 2 3 1 1 2 26 5 2 3 1 2 5 2 3 1 1 2 27 NewBusiness evelopment D Finance Application evelopment D ITOperations Administration Engineering Manufacturing Operations Human esources R General Manager Marketing TOTALS: 2 3 1 1 7 (Staffing represents the anticipated head count requirements at the start of each year. Staffing is structured to manage outsource organizations in a vendor control capacity for R&D, Manufacturing, Fulfillment and Call Center Support. This allows for a large organizational infrastructure without the associated salaries and overhead. Additional outsource services will be utilized in Year I for Finance/Accounting, Legal, Marketing and Sales functions until it is feasible to bring these services in-house.) Confidential Page 33 07/23/01 X. Financial Projections Information contained in this Business Plan with respect to expected financial results and future events and trends is forward-looking, based on our estimates and assumptions and subject to risks and uncertainties. For those statements, we claim the protection of the safe harbor for forwardlooking statements contained in the Private Securities Litigation Reform Act of 1995. The following important factors could affect the future results of our company and could cause those results to differ materially from those expressed in the forward-looking statements: changes in economic and market conditions; effects of state and federal regulation; the impact of new technologies; competitive factors such as pricing and marketing efforts of rival companies; timing of product introductions; ability of contract manufacturers to meet product price objectives and delivery schedules; industry initiatives that may affect planned or actual product features and marketing methods; pace and success of product research and development; closing subsequent mezzanine rounds of financing to cover letter of credit requirements and additional working capital for the five year plan; finding a joint venture partner for mass production; or positioning the company for merger and acquisition. You should not place undue reliance on these forward-looking statements, which are applicable only as of the date hereof. We have no obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof or to reflect the occurrence of unanticipated events. A. Projections Our goal is to sell a minimum of 30,650 units, in the first 18 months of production, to the B2B, eBusiness and Professional markets including doctors, lawyers, pharmacists, computer technicians, and engineers beginning in 2001. The goal of 30,650 units represents .23% of the U.S. mobile PC market and less than .08% of the Worldwide mobile PC market. By 2005 we expect sales to reach 200,400 units per year. U.S. mobile PC unit sales are expected to reach 10.78 million in 2000, 13.61million in 2002 and 17.58 million in 2005. Worldwide mobile PC sales are expected to reach 29.76 million in 2000, 39.71 million in 2002 and 56.4 million in 2005 (eTForecasts, March 2000). Overall U.S. sales of Laptop PC's and Desktop PC's are estimated to reach 40 million in 2000, and are expected to climb to 48.6 million in 2002 and 60.9 million in 2005. Worldwide sales are expected to reach 119.6 million in 2000, and are expected to climb to 152.3 million in 2002 and 205.3 million in 2005. The computer and business press is calling the emergence of information appliances the "Post-PC Era". The implications of this term are that the information appliances will replace a large portion of PC's and will soon overtake PC's as the most important high-tech product category (eTForecasts, March 2000). Confidential Page 34 07/23/01 g B. Funding Requirements and Key Financial Risk Reduction Starting in November 2000, N-Vision is seeking series "A" round funding of $600,000 minimum to $3mm maximum to complete product development, testing, production tooling and provide for market introduction. The offering has been structured to have an 'all or none' feature, which requires the escrowing of all initial investments received until the $600,000 minimum is reached. Once reached, the $600,000 investment provides for the development of functional prototype units for demonstration purposes to potential customers and investors. Prior to breaking escrow, costs are being kept to a minimum, i.e., no salaries or professional fees, etc. However, the out-of-pocket expenses of the founders will be recorded and will be reimbursed by the company at some point in the future. Due to the capital-intensive nature of hardware manufacturing, N-Vision plans to evaluate its capital requirements at market introduction, revalue the company and pursue series "B" round funding for limited production and working capital for the five year plan. A subsequent series "C" round of financing may be required for letter of credit (LOC) requirements typical for new companies with unproven product. As a contingency plan to offset the risk of not achieving full funding during the series "A", "B" or "C" rounds of financing and to circumvent LOC requirements, we are concurrently pursuing Joint Venture opportunities with established manufacturers for mass production and growth at each stage of investment. If full funding does not occur and a JV proves not to be a viable alternative, we may offer more attractive financial options such as convertible notes, senior debt instruments, etc. Additionally, we may position the company for controlled growth to reduce capital requirements and pursue a prepayment arrangement with our customers for all or 50% of the purchase price for product due up front. Another fallback option would be to implement plans to position the company for merger and acquisition (M&A). The benefits to a JV partner or M&A lie in their ability to utilize excess capacity, increase economies of scale and reduce production costs. A JV or M&A partner should be able to manufacture the product at a lower cost and in greater volume; thereby enhancing the sales and value proposition of our current business model. Marketing expenses in years two and three have been projected at a lower amount than might traditionally be expected. This is due to the assumption that N-Vision should be able to leverage its existing database of potential customers who have already expressed interest in the NV Journal. Additionally, N-Vision expects to continue to be able to take advantage of ongoing public and media interest in the eBook and Laptop alternative market gaining continued free publicity therein. Research and Development (R&D) expenses in years one and two are lower than might be expected largely because N-Vision was able to acquire the IP and Technology Rights to a design that has already undergone substantial research and development efforts to date. As a result, the R&D expenses in years one and two reflect the anticipated costs associated with the completion of the existing design, beyond its current stage of development, for year one and improvements to the design in year two. Subsequent years project next generation product development cycle costs. Confidential Page 35 07/23/01 N-VISION TECHNOLOGIES, INC. INCOME AND EXPENSE PROJECTIONS Year 1 Year 2 Year 3 Year 4 Year 5 Revenue (#of unitssold>>>>>>) Sales- Devices Returns Interest ncome I TotalRevenue Expenses Costof Sales- Devices CostofSales- Service Center Salaries and Wages Payroll Taxes Employee Benefits Dis.Ins. Employee Benefits- HealthIns. HardwareResearchand Development Consulting Marketing Royalties Software icenses eased L L Office Building ent R Building epairs Maint. R & Non-Capitalized Equipment Professional Fees- Acctg. Professional Fees - Legal Office Supplies Non-Office Supplies Dues andSubscriptions Postage ndDelivery a Equipment Rental Miscellaneous Bank Service Charges Travel xpense E Meals andEntertainment Training Depreciation BadDebts Corporate Insurance Outside Printing and Reproduction Communications - Telephone Communications - Intemet/email Merchant Discount Founders' Expense Reimbursement Interest xpense E Interest Expense -Cony. Debt TotalExpenses $ $ 0 0 0 80,352 80,352 24,000 69,600,000 -2,784,000 103,599 $ 66,919,599 50,400 141,120,000 --4,233,600 477,891 $137,364,291 100,200 270,540,000 -8,116,200 1,484,330 $263,908,130 200,400 531,060,000 -15,931,800 4,335,368 $ 519,463,568 0 0 1,022,396 84,348 3,681 51,427 957,499 344,000 0 0 87,000 45,000 1,000 50,000 60,000 70,000 5,033 600 1,258 6,292 5,000 0 32 62,917 9,438 0 12,000 0 51,019 7,500 18,875 5,033 0 12,000 0 0 2,973,348 50,400,000 264,396 2,343,750 193,359 8,438 117,891 892,999 340,000 1,336,320 668,160 7,000 60,000 1,500 20,000 65,000 75,000 10,500 600 3,000 13,750 5,000 0 165 50,000 16,250 12,500 24,000 601,344 80,854 10,000 40,000 10,500 133,632 0 901,267 0 $ 58,707,175 95,256,000 1,328,670 2,275,000 187,688 8,190 114,433 1,375,920 370,000 2,737,728 1,368,864 7,000 62,000 1,500 20,000 65,000 75,000 11,440 600 3,640 15,600 5,000 150,000 302 59,800 16,900 13,000 24,000 1,231,978 125,602 12,000 44,200 11,440 273,773 0 1,302,037 0 $108,554,303 165,330,000 3,332,683 2,275,000 187,688 8,190 114,433 2,104,200 425,000 5,248,476 2,624,238 7,000 65,000 2,000 20,000 65,000 75,000 12,220 600 4,160 16,900 5,000 200,000 602 61,100 17,550 13,000 24,000 2,361,814 210,602 15,000 46,800 11,960 524,848 0 1,700,664 0 $187,110,727 297,594,000 7,333,585 2,362,500 194,906 8,505 !18,834 3,501,990 476,400 10,302,564 5,151,282 7,000 70,000 2,000 20,000 65,000 75,000 13,500 600 4,860 18,900 5,000 225,000 804 63,450 18,225 13,500 24,000 4,636,154 376,144 20,000 51,300 12,960 1,030,256 0 2,221,883 0 $ 336,020,102 (Year 1 will begin on the date that escrow is broken to begin the alpha project - it will not coincide with a calendar year.) Confidential Page 36 07/23/01 N-VISION TECHNOLOGIES, CASH FLOW PROJECTIONS YearI Year 2 Net Income / (Loss) Depreciation and Amortization Fixed Asset urchases P Sales Costof Sales Collection Sales of Inventory Purchases ChangenFinancing i Conv. Note / LIT Debt Financing Preferred ound R Investing Common Investing Stock Other, net Cash Flow for Period Cash Balance - Beginning Cash BalanceUnits Sold Sales Price Per Unit 0 2,900 Cost Per Unit - Professional Cost Per Unit - Personal Estimated Ave. Number of Employees Net Sales per Employee (Average EE's) Earnings Before Interest, Taxes, AmortizationandDepreciation $ $ (2,880,995) 2,100 0 13 $ $ of Period $ $ 74,005 End of Period -2,892,995 12,000 -45,000 0 0 0 0 0 0 3,000,000 0 0 74,005 $ $ 5,978,264 24,000 INC. Year3 16,709,793 24,000 -6,000 -136,886,400 95,256,000 131,449,680 -101,095,500 -5,766,291 0 0 0 0 -314,718 $ $ 667,069 352,352 $ 20,224,884 352,352 $ $ $ 20,577,236 -262,423,800 165,330,000 243,593,190 -176,352,000 5,511,000 0 0 0 0 68,509,550 20,577,236 89,086,786 Year4 44,542,494 24,000 0 Year5 106,397,210 24,000 -6,000 -515,128,200 297,594,000 477,222,540 -297,594,000 0 0 0 0 0 -30,000 -66,816,000 50,400,000 51,719,760 -58,338,000 12,655,041 0 5,000,000 0 0 593,064 74,005 667,069 24,000 2,900 2,100 0 25 656,640 9,137,691 $ 50,400 2,800 1,890 0 26 1,601,169 $ 100,200 2,700 1,650 0 26 3,734,377 $ 200,400 2,650 1,485 0 27 8,056,822 $ 30,136,025 $ 78,522,067 $ 185,689,349 (Year 1 will begin on the date that escrow is broken to begin the alpha project - it will not coincide with a calendar year. Calculations do not take into consideration a proposed stock option plan, for which 2,000,000 shares of common have been set aside as outlined in the Offering Summary of Proposed Terms Sheet). Financial Projections Inventory Financing % Accounts Receivable Financing % 50% 80% Year I Price Cost Revenue Costof Sales Gross Margin GrossSales Net Income NetMargin $ (2,892,995) $ 2,900 2,100 80,352 Year 2 2,900 2,100 66,919,599 50,400,000 24.7% 69,600,000 5,978,264 8.6% $ Year 3 2,800 1,890 137,364,291 95,256,000 30.7% 141,120,000 16,709,793 11.8% $ Year 4 2,700 1,650 263,908,130 165,330,000 37.4% 270,540,000 44,542,494 16.5% Year 5 2,650 1,485 519,463,568 297,594,000 42.7% 531,060,000 $106,397,210 20.0% Confidential Page 37 07/23/01