Sample Business Plan PebbleSoft Learning

Pebblesoft Learning™, Inc. Business Plan May 1998 Contact Information: Linda Alepin, President and CEO 408 746-6431 lalepin@pebblesoft.com Contents I. EXECUTIVE SUMMARY .................................................................................................................. 4 II. COMPANY BACKGROUND ............................................................................................................. 7 A. B. C. III. A. B. C. D. IV. A. B. C. D. E. F. G. H. V. Vision .............................................................................................................................................. 7 Objectives ....................................................................................................................................... 8 History ............................................................................................................................................ 8 MARKET AND COMPETITIVE ANALYSIS ...............................................................................11 Corporations—Recognizing Training as a Competitive Necessity ................................................11 Compliance Training—A Hidden Market Opportunity .................................................................12 Competition ...................................................................................................................................14 Implications for Pebblesoft ............................................................................................................17 MARKETING STRATEGY ............................................................................................................19 Concept and Orientation ...............................................................................................................19 Differentiation ...............................................................................................................................19 Key Audiences and Messages ........................................................................................................20 Products & Services ......................................................................................................................21 Pricing ...........................................................................................................................................22 Channels ........................................................................................................................................22 Partnerships ..................................................................................................................................22 Brand Development and Key Marketing Programs .......................................................................23 PRODUCT DEVELOPMENT ............................................................................................................24 A. B. C. D. E. F. The Pebblesoft Adaptive Learning System .....................................................................................24 Concept ..........................................................................................................................................24 Architecture Overview ...................................................................................................................24 Learning Object Architecture ........................................................................................................25 Benefits Summary ..........................................................................................................................25 Product Overview ..........................................................................................................................27 OPERATIONS .................................................................................................................................29 ORGANIZATION ............................................................................................................................31 FINANCIALS ...................................................................................................................................33 A. B. C. Business Model ..............................................................................................................................33 Projected P & L 1998-2003 ...........................................................................................................34 Balance Sheet ................................................................................................................................35 OFFERING ......................................................................................................................................36 RISKS ...................................................................................................................................................36 SUMMARY ......................................................................................................................................37 APPENDICES .................................................................................................................................38 Exhibit II A. Key Employee Curriculum Vitae ...................................................................................39 Exhibit III A. Hambrecht & Quist’s Delivery Vehicle Comparisons .................................................42 Exhibit III B. Federal Departments and Agencies for Standards and Regulatory Compliance .........43 Exhibit III C. California Ergonomics Law .........................................................................................44 Exhibit III D. Competitive Landscape ................................................................................................46 Exhibit IV A. Competitive Differentiation .........................................................................................47 VI. VII. VIII. IX. X. XI. XII. Pebblesoft Confidential 2 Exhibit IV B. Initial Compliance Consultant Targets ........................................................................48 Exhibit IV C. Proposed Corporate Positioning/Compliance Segment ...............................................49 Exhibit IV D. Pricing Model ..............................................................................................................50 Exhibit V A. Pebblesoft Adaptive Learning System Key Functions ...................................................54 Exhibit V B. Pebblesoft Adaptive Learning System Functions and the Compliance Market .............55 Exhibit VI A. Flow Chart of Pebblesoft Delivery Process .................................................................57 Exhibit VIII A. Details of Financials .................................................................................................58 Exhibit XI A. References and Sources ...............................................................................................70 Pebblesoft Confidential 3 I. Executive Summary ―Training is the killer app for the Web‖ reports a March 2, 1998, Barron’s article titled, ―For Adults Only.‖ As the world’s pace accelerates, one of the major trends is that learning becomes the highest skill. This need, however, is not the driver in the inevitable march to web-based training. The undeniable drivers are cost and speed. IDC projects that web based training will be a $6 billion market by 2002. This represents a 95% compound annual growth rate. Pebblesoft is executing a winning market-entry strategy to dominate an important part of this web training market. We are attacking a must-have subject area, compliance. Our software and enabling services are a highly tailored, complete solution. While the ultimate goal is to play in the general corporate WBT market, the compliance area provides a large and fertile place to plant seeds. Pebblesoft has best-of-breed software that has been field-tested. The second major release of Knowledge Server 2000 and Knowledge Center 2000 is ready this month. Pebblesoft has designed a high-leverage business model. An experienced team with a unique combination of the right skills—information technology, learning, and marketing—is leading the Pebblesoft assault. A second round of $5 million in financing is required to build the sales and marketing infrastructure and continue product development. Pebblesoft was created as a separate company in March 1997. It was a spinout of technology from Amdahl’s corporate Intranet product nursery. Two of the founders—Linda Alepin, President and CEO, and William Brastow, Vice President of Product Development—were instrumental in launching this early visionary work. Together with Lisa Kenney, VP of Services (an early member of Active Learning), they established Pebblesoft. Their common belief is that learning processes can be facilitated by technology. Pebblesoft sells a solution (a package of software, content, and services) targeted at Fortune 2000 companies. Our initial market is compliance. This initial seeding provides an ideal plot from which to grow into a major player. As highlighted in the Company background section, we believe that corporate web-based training is heading toward a market formation called ―Corporate Universities.‖ The U.S. corporate compliance market is now a $9 billion opportunity. It never shrinks. Legislation, standards, attrition, employee population growth, and re-certification force a difficult choice on corporate leaders—train or risk the consequences. The consequences are high. The news of consequences resulting from insufficient compliance training include:     8,700 cases of Hepatitis B with 200 deaths $20 billion to treat repetitive stress injuries $128 million in fines for Texaco on EEO violations $1.3 billion in ethics fines for various firms Compliance training to date has been expensive, slow, and based on the inconvenience of moving instructors and students across the world. It has been concentrated in the classroom, away from and separate from the job. Except for a few quizzes during class, it has lacked measurability and documentation of actual results. The classroom method has, basically, been woefully inadequate. No wonder many companies have chosen to minimize compliance training, despite the consequences. Compliance training, like some other segments, has special, demanding requirements that go beyond normal web-based training approaches. Specifically, there are needs for faster, more customized, and more intuitive features. Course creation and update must be fast to respond to ever-changing regulations. Individual test scoring is desirable, with extensive reporting used to Pebblesoft Confidential 4 prove the company’s compliance activities. Training on compliance issues goes beyond the ITliterate professionals, even to the factory floor. This requires more industry examples, simple navigation, and training that is as customized to the individual as possible. To respond to these demanding requirements, Pebblesoft is providing tools for rapid course structuring, customization, and update. Integrated in the tool kit are ways to accelerate test creation and give instant test reporting to the student and the employer. The learner interface is intuitive and tailors lessons based on answers to a learner’s tests. Real-time collaboration is encouraged through audio as well as threaded discussion sessions. The Pebblesoft Adaptive Learning System (PALS), coupled with the expertise of compliance consultants, is moving corporations to the next plateau in compliance knowledge—breakthroughs in cost, speed, and retention. Other WBT providers are focused on markets that are familiar to them, such as information technology training or product introduction. They have less functionality than Pebblesoft. PALS enjoys a first-to-market advantage in the rapidly growing compliance education market. Like Documentum in the pharmaceutical documentation market, Pebblesoft plans to use its compliance beachhead to attack other parts of the market. Pebblesoft’s competitive advantage goes beyond its entry strategy. Its technology advantage is fundamental—an Extensible Learning Object Architecture. This allows for content objects— anywhere in the web world—to be structured into a Pebblesoft course. This allows for any HTML authoring tool to create courseware. This allows for any ODBC compliant database to act as the knowledge repository. Key to our growth and its associated profitability is a strong partnering model. The leading compliance consultants are our targeted partners in each topic area. The first such partner is already on board—Rust Environment and Infrastructure. Rust is a $1.6 billion consulting company and a subsidiary of Waste Management Inc. They have prepared 25 courses for deployment in less than six months with our tools. Our second partner is a strategic one—Bell Canada’s Bell Learning Solutions (BLS). This group is dedicated to providing web-based solutions in Canada. The first courses are ready for delivery to Bell Canada engineers and into the general market. Pebblesoft has a three-year, multi-million dollar VAR agreement with BLS. We are in discussions with more of these high-leverage partners for certain geographies (e.g. Japan) or selected market areas (such as publishing). As Pebblesoft enters the U.S. compliance education market, more than 15% of that market is rapidly moving to a web-basis (4). Our revenue forecast ramps rapidly--$7, $30, $81, $132, and $195 million respectively from 1998 forward. Revenues stem from multiple, recurring streams— licenses, hosting, course subscription fees, and production services. The revenue contribution from each area varies over time. Course revenues range from 40 to 50%, hosting ramps to almost 30% and software approaches 30%. Our software platform is leveraged across all these revenue streams. To generate these revenues, there are simple building blocks—Pebblesoft’s framework and the consultants’ compliance courses converted to the web. The strength of our model is that once a broad based compliance requirement is identified, it can be deployed over a large number of units within a company. Then it can be carried to companies in another segment. There are two focused Pebblesoft sales cycles—to capture content consultants and to sell second-tier users of compliance training. A direct sales force is closing consultants and large corporate orders. These simple building blocks and laser-like focus spur profitability to 15 to 20%. The Pebblesoft team has the right combination of experience and skills. The founders come from both information technology and learning backgrounds. Several team members have start-up experience. In addition, the team has more than 125 years of big business experience to extend Pebblesoft Confidential 5 success beyond its initial stages. Marketing expertise is a particularly strong attribute. The team shares an entrepreneurial spirit coupled with a maturity of focus. Compliance product management are being recruited to round out the team. Pebblesoft is supported by an outstanding group of professionals. Board members are David B. Wright, CEO of Amdahl Corporation, and Walter P. Wilson, former Vice President of CSC Index. Brobeck, Phleger & Harrison LLP are our attorneys. Ernst & Young provide accounting. Stone Communications advises us on presentations. The market capitalization of web-based companies is creating new standards of return for investors. Amazon.com, with revenues of $130 million, shows a market capitalization of $1.3 billion. Yahoo’s market capitalization of $2.7 billion is 160 times earnings. Pebblesoft has the potential for just such high returns to its next round of investors. Amdahl Corporation has invested $5 million to date in order to establish the team, the product, and the strategic partnerships. They are looking for long-term liquidity from either a public offering or acquisition in the next five years. The current round of $5 million will be employed in building the sales and marketing infrastructure, continuing product development, and buying equipment for hosting. Linda Alepin President and CEO Pebblesoft Learning, Inc. 2251 Lawson Lane Santa Clara, Ca 95054 Tel: 408.746.6431 e-mail: lalepin@pebblesoft.com Pebblesoft Confidential 6 II. A. Company Background Vision Pebblesoft Learning is emerging as the leading in adaptive web-based learning systems for structuring, delivering, managing, and tracking the creation of critical knowledge in large organizations. Our software and supporting services are enabling organizations to meet the challenges of the constantly increasing need of changing information into knowledge. Meeting this need is fundamental to remaining competitive and, today must be met in a real-time way. We believe that it is time to bring the power of computing to the individual learning process. We envision a very individualized process (adaptive), which results in much higher levels of retention and return on education investments for the corporation. Through our learner-centric approach, we expect to help shape the structure of the entire industry. The ultimate prize for this strategy is winning the Corporate University market. Point subject matter training courses—compliance training, sales training, information training—are examples of early adopter solutions for this emerging market. By attacking a must-have market (compliance) with a customized solution for the Fortune 2000 market, we are creating the beachhead to expand as the early majority rapidly adopts more web-based solutions. The Corporate University WBT Market 500 450 400 350 300 250 200 150 100 50 0 Innovators 1995 Short Courses, Bundled Content, IT Focus, Fragmented Supply Early Adopters Complex Curricula, Content Independent, Consolidation, Ubiquitous Content Corporate University Standard, Systems, Niche Markets, Dominant Suppliers Infinite Early Majority Content Majority Late 2005 2010 Laggards 2000 Pebblesoft Confidential 7 B. Objectives In the short term, Pebblesoft is becoming the engine of choice for compliance consulting firms and aggregate an initial content library from these partners. The critical formulation stage has been completed and provides the base for these short-term objectives. In the next few quarters, we have plans to secure financing, capture additional top consultants in three key compliance categories, and launch the sale of compliance courses. Our plan results in revenues of $6 to $7 million in 1998 and profitability in early 1999. Area/Phase Engineering Formulation 1Q97-2Q98 Complete stable product; Ready for release Add 2 to 3 wellknown references First content partners, courses, and resources Concentration 3Q98-2Q99 Strengthen individualized differentiators Launch marketing programs for compliance sales Add 2 to 5 partners, build compliance library Momentum 3Q99-4Q00 Attract and integrate top web technologies Push courses to broader customer base Attract more top tier content partners Stability 1Q01+ Keep product on the leading edge Expand international base, and other horizontal focuses Cull partners to maximize profitability Sales Partnering Over the longer term, we replicate our short-term success into international markets and other training segments. We are keeping our product on the leading edge and forming both content and strategic alliances. The platform and partnership advantages, together with the strong hold of our specialized compliance platform and content, make it difficult for companies to choose any other platform for the eventual consolidation of training into corporate universities. C. History In 1995, as a new Amdahl emerged from the shadows of the mainframe company, an idea was born. The idea was to significantly reduce Amdahl's training costs by exploiting Web deployment and relational database capabilities. The idea found a nurturing environment in Amdahl's intranet nursery. Resources--enlisted from several different organizations--soon provided a prototype to be tested. The early product was all web-built from the ground up as a new kind of application. It had a simple, but extensible, architecture built on the concept that reuse of objects would be critical in the highly volatile education environment. Meanwhile, evidence began to accumulate that web-based training would be a major part of electronic commerce over Internets, extranets, and intranets. The Alliance for Converging Technologies, headed by Donald Tapscott, wrote in its 1996 report on Networked Interactive Multimedia that education would be one of the fastest-growing web-based applications. In late 1996, the project came to a crossroads—move from a prototype to an internal application, or create a company to pursue high-flying commercial interests. The decision was not easy—for the company or the individuals. Finally, in March 1997, a new Delaware corporation was founded—Pebblesoft Learning, Inc. Two of the early founders—CEO and President Linda Alepin and Vice President of Product Development Dr. William Brastow—left Amdahl to start the new venture. Lisa Kenney, formerly of Active Learning (another education venture), joined them as a third founder. Pebblesoft Confidential 8 The new team's efforts soon began to show results.  After the launch of the company on May 6, 1997, came an exciting MOU with the Province of New Brunswick on July 30, 1997. This alliance enhanced the province's web-based learning opportunities and provided Pebblesoft with a resource for web content development. Also in July, a partnership was formed with Rust, a division of Waste Management Inc., a $9 billion consulting company. This partnership is the first in the industry of compliance content. In August, a three-year VAR contract with Bell Canada was concluded. Bell Learning Solutions resells Pebblesoft software and provide critical web-centric technologies to Canadian customers. On February 3, 1998, it was announced that the Pebblesoft Adaptive Learning System would play a critical role in a National Science Foundation program designed to support women's education in science, engineering, and math at collaborating institutions across the United States. On March 24, Walter P. Wilson, former CSC Vice President, author and speaker on new technologies, was appointed to the Board of Directors. The partnerships continued to grow as Silverstream was added in April 1998. This award-winning application server is being used to develop Pebblesoft's version 2.0 to meet the standards of ODBC/JDBC compliance. In late May 1998, release 2.0 of the Pebblesoft Adaptive Learning System will be shipped.       Pebblesoft Learning has a well-balanced, entrepreneurial, and focused team of 13 employees and 10 contractors, all with a learning-driven philosophy. The group has more than 125 years of big business experience. The following biographies present our key team members. Complete curriculum vitae can be found in the appendices in Exhibit II A. Linda Alepin, President and CEO Before founding Pebblesoft, Linda was Vice President of Corporate Strategy and an officer of Amdahl Corporation. A 19-year Amdahl veteran, her accomplishments included:    Contributing significantly to Amdahl’s turnaround from a $750 million loss in 1993 to profitability in 1994. Creating an innovative pricing strategy that resulted in more than $50 million in additional profits. Growing the OEM businesses to more than $70 million. Linda spent the first 11 years of her career at IBM Corporation. She holds a B.A. in Economics from Stanford, sits on the Board of the Leavey School of Business at Santa Clara University, and was named as one of the 50 most influential women in the San Francisco Bay Area in 1996. William Brastow, Vice President, Research and Development Before becoming a founding member of Pebblesoft, Bill was Director of Market Research and Planning for Amdahl. A 20-year Amdahl veteran, Bill's contributions included establishing Amdahl’s market research program and its intranet product nursery. Before joining Amdahl, Bill was a professor at the Stanford School of Engineering. He holds a Ph.D. from Stanford. Bill sits on the Industrial and Manufacturing Engineering Board of Advisors at California Polytechnic University and is a former U.S. Navy officer. Pebblesoft Confidential 9 Jeff Burton, Vice President of Sales Before joining Pebblesoft, Jeff spent a year consulting on business development and sales issues for a computer-based training start-up company. For five years he was CEO of a 27-person, $2.5 million printing company and he modernized this 35-year-old company. His international experience includes sourcing investment capital and distributing it to start-up companies in the areas of medical instruments, PC business software, and publishing. One of six founders and Director of International Marketing at Electronic Arts, Jeff grew the company from start-up to IPO. He holds an M.B.A. from the Stanford Graduate School of Business and a BA with honors from Stanford. Lisa Kenney, Vice President, Services and Alliances Before joining Pebblesoft as a founder, Lisa was Vice President of Instructional Programs and a General Manager of Active Learning, a learning technology start-up. Lisa was also a human resources manager at Genentech. She holds a B.A. in Applied Communications from Point Loma College. Bipin Badani, Director, Engineering and Software Development Bipin joined Pebblesoft after 13 years in systems development at Amdahl, most recently as Director of Worldwide Information Technology Architecture. He developed and implemented a plan to cut IT costs by more than $30 million per year and cut telecommunications costs by 40%. Before joining Amdahl, Bipin was Manager of Test Systems Engineering at NCR. He holds a B.S.E.E. in Electronics and Telecommunications and an M.S.E.E. in Computer Science from the University of West Virginia. Setsuko Ogata, Director, Marketing Setsuko is a native of Japan and worked for McKinsey Consulting Company and Mitsubishi while a resident of that country. She has been in the United States for more than 10 years, acting as a consultant to many small and large firms in the areas of strategy and marketing. She holds a B.S. in Operations Research from Cornell University. Pebblesoft Confidential 10 III. A. Market and Competitive Analysis Corporations—Recognizing Training as a Competitive Necessity Market Trends—Web Based Training In today’s rapidly changing global environment, employers are quickly realizing that helping their employees maintain and enhance their skill levels and knowledge is critical to remaining competitive. As this realization hits home, corporate training is expanding and shifting to webbased training. According to a March 1997 Lehman Brothers Education Services industry report, more than onefifth of the adult population in the United States, which represents more than 40 million people, pursue work-related continuing education. Roughly two-thirds is corporate sponsored, and the total spent on this education has grown at a compound rate of 6.7% per year over the past five years, reaching nearly $60 billion last year. The powerful drivers behind this growing need for training are:       The continually changing nature of today’s jobs Downsizing Geographically dispersed workforces Fast-changing information Condensed product cycles An increasingly regulatory environment Evidence indicates that the trend is unlikely to reverse.    Training magazine’s October 1997 industry report estimates that the total number of people who received some formal training from employers with 100 or more employees reached 56.6 million, representing more than 1.8 billion hours of training. In ASTD’s 1995 National HRD Executive Survey, 94% of respondents said they thought it was important to build a learning organization. IDC expects compound annual growth rates of 95% from 1997 to 2002 Training magazine’s October 1997 industry report shows classroom training with a live instructor as the predominant format—the overall average reported at 81%. Classroom training:    Is expensive Requires employees to spend time away from their jobs Burdens corporations with associated costs such as travel, in addition to the loss of an individual’s daily productivity As corporations face constrained budgets, larger number of employees requiring training, and greater breadth of education per employee, they are considering alternative vehicles that:     Provide access to more people on a more timely basis Enable more flexibility to tailor programs to the individual learner Increase and prove learning effectiveness Cost less per student Today, self-paced computer-based training (CBT) is the most widely used alternative mechanism. Training magazine (October 1997) reports that 36% of companies deliver instruction in some topic via CD-ROM. Although this method provides more flexibility and convenience, it does not Pebblesoft Confidential 11 enable instantaneous delivery of updates to a large number of users, and lacks the interactivity found in the classroom or in two-way distance learning vehicles such as video and teleconferencing. In addition, tracking and measurement is a challenge, leading to low completion rates. (See Exhibit III A: Hambrecht & Quist’s Delivery Vehicle Comparisons.) According to Lehman Brothers’ report, there is a paradigm shift taking place in the way working adults seek and corporations provide continuing education. In Lehman Brothers’ opinion, CBT increasingly is becoming synonymous with Internet delivery. IDC estimates that the U.S. market for web-based training generated $197 million in revenue in 1997, and forecasts that this market will exceed $6 billion by 2002. WBT offers this market potential because it provides real benefits. According to a recent MultiMedia Digest (February 1998) report, users cite these primary values from web-based training:       Lower cost (30%) Increased retention (21%) Better consistency (16%) Less learner time (15%) Less time off (10%) Other (7%) The general trend toward corporate downsizing has caused corporate America to focus on its essential businesses and to outsource many non-core operations. Internal training departments are becoming the catalysts for training rather than the intermediary between the employee and the content supplier. According to Lehman Brothers, this focus means outsourcing opportunities continue to expand. Training magazine’s October 1997 industry report shows that 38% of design and development, and 32% of training delivery, is being filled by outside suppliers and contractors. Outsourcing, therefore, plays a critical role in the transition to WBT. WBT Economics The economics of training dramatically change with WBT. The following is an example of the cost differences between traditional and web-based delivery: Sample Per Student Cost Traditional Delivery 2-day course Travel Time away Lost opportunities $500 to $1,000 $500 to $1,000 3 days 72 hours Web-Based Delivery 16-hour course Travel Time away Lost opportunities $200 $0 0 days 16 hours Sources: www.knav.com/new-www/big.html; Bureau of Economic Analysis and Bureau of Labor Statistics. This data translates into $1,000 to $2,000 for traditional courses versus $200 in out-of-pocket costs per student. When employee travel time is included, the traditional course costs can increase by another $1,000. Thus, web-based training can be up to 15 times more cost effective. B. Compliance Training—A Hidden Market Opportunity The market for compliance training is large and covers all industries. A Training magazine and OmniTech Consulting Group study shows that regulatory compliance in large corporations accounted for approximately 15% of U.S. corporate training (1). This is a $9 billion market that Pebblesoft Confidential 12 spans every major vertical market. It has been nearly ignored by the technology supply side, perhaps camouflaged by the attention riveted on information technology training. Compliance training is unlikely to shrink. It is mandated by legislation from federal and state agencies. (See Exhibit III B in the appendix for a list of federal departments and agencies most active in standards and regulatory compliance.) Regulation is expected to continue. California’s new law requiring that every employee in corporations of more than 10 employees be educated in ergonomics evidences this. (See Exhibit III C, California Ergonomics Law.) Employee population and re-certification are other factors affecting the size of the market. Cost-constrained corporations unquestionably benefit by adopting affordable ways to reduce the high cost of failure. The high cost of training creates both an economic and a moral dilemma for corporations—train or risk the consequences. The risks range from tangible dollar penalties to intangible risks of human suffering. Consider these examples recently in the news (2,3):     $20 billion in treatment for repetitive stress injuries $128 million in fines for Texaco on EEO violations $1.3 billion in ethics fines for various firms 8,700 cases of Hepatitis B, 200 deaths With these high costs, companies are concerned about minimizing the regulatory enforcement exposure and the resulting fines, as well as the fallout in public relations and image. Barbara Ley Toffler, director of Andersen’s ethics and responsible business practices consulting services, has stated that she ―does not know a single business that is not constantly trying to minimize its noncompliance costs.‖ Training reduces the risk of incurring the high costs of non-compliance. A recent health-care compliance settlement case demonstrates how the existence of a compliance program saved one hospital $6 million dollars in fines (5). The University of Pennsylvania, which did not have a centralized compliance program, was fined an amount that was equal to triple its estimated underpayment to the Medicare program. In another case, Thomas Jefferson University received a fine of double its estimated payment because it had a compliance program. In looking at the costs and benefits of a compliance program, the Jefferson corporate compliance officer noted that the $6 million that Jefferson saved ―would fund a compliance plan for many years.‖ According to James G. Sheenhan, the chief Justice Department attorney for the Eastern District of Pennsylvania, the most efficient way for an organization to show its good faith is to establish an effective compliance program that takes comprehensive measures to educate employees on laws and regulations (5). Compliance training is still taught in the classroom, usually by consultants. The high cost of training per student (up to $1,000 per student per classroom day) makes it nearly impossible for corporations to train all of their employees on every mandated topic, despite the large and visible risks. There may, therefore, be price elasticity in this market. The body of regulation comprises millions of pages. The size of the task leads companies, large and small, to turn to consultants and specialized compliance education companies for the information, education, and processes they need for compliance. For this reason, most compliance practices are focused and highly specialized. Rust, for instance, tends to focus on hazardous waste operations; Ernst & Young and Strategic Management Systems, on health care; and Arthur Andersen, on human resources (6). Pebblesoft Confidential 13 The compliance practices of the large consulting firms that control the supply side of the compliance market understand the problem and have a motive to solve it. Among consulting firms' priorities are:    Finding faster and cheaper ways to update and deliver content as regulations change. Providing tangible measurement to corporations of the effectiveness of their training activities Increasing the productivity of scarce consulting resources by ―packaging‖ expertise and minimizing time spent on travel for live training sessions Consulting firms are not computer technologists by trade. Their ability to take advantage of and leverage technology-based training delivery systems depends on partnerships with vendors who can help them to:   Transform their existing and future content into the new web-based media Provide them with a robust training delivery platform tailored to the demanding requirements of compliance training Pebblesoft sees compliance training as the next major market in WBT, and is positioning itself to capitalize on this yet-unaddressed opportunity. C. Competition Web-based training is an open playing field. WBT, as a new market area, has no clear winner. It is currently experiencing an influx of companies entering the market from adjacent product spaces. A few WBT providers are new start-ups. WBT delivery is re-shaping the training landscape. This point is demonstrated by the fact that some of the larger computer-based training providers (such as CBT Systems and Gartner Learning) are taking the first step by converting their courseware for online delivery. Providers of off-the-shelf training materials are also beginning to convert their content to intranet versions of their CD-ROM products. This is forcing providers of multimedia tools (such as Asymetrix Learning, Macromedia, Adobe, and Microsoft) to also shift their emphasis to the Web. IDC expects to see a substantial shift in distribution vehicles from current market options and hybrid approaches such as Web/CD-ROM to purely WBT. Other vendors with key technologies and products are expeditiously converting their ―application platforms‖ into learning systems. Examples include Lotus, which has created a series of Lotus Notes database applications that provide the functionality of a virtual campus, and Oracle Corporation. (See Appendix III-D, Competitive Landscape.) Key to the evolution of the WBT industry is the development of an infrastructure that enables the delivery of complete training solutions. A. Network Infrastructure, Hardware and Software Platforms, and Core Technologies: Advances in network bandwidth and the Internet’s ubiquitous access, the explosion in sales of multimedia PCs, as well as the emergence of interactive Internet-based technologies, are helping to propel the rapid growth of distance education content. B. Subject Expertise, Content and Course Structuring Tools: The creation of content requires subject experts, multimedia content development tools, and authoring/structuring tools that enable rapid development and updating of courses that can be deployed over the Web. C. Deployment Engine and Management and Assessment Tools: The core of WBT delivery is the deployment engine that enables the interaction between course content Pebblesoft Confidential 14 and the learning community of students, instructors, and administrators. Management and assessment tools seamlessly integrated with the engine enable measurement and tracking of learning outcomes, which are the basis of measured education investmentsa mandatory requirement of large corporations. D. Process and Integration: Delivery of education through outsourced or in-house programs requires external and internal training providers to integrate all of the pieces of the digital infrastructure, as well as to establish the required processes to deliver online training. The following chart illustrates the building blocks discussed above: Vertical Process & Integration (D) Core Technologies (A) *collaboration *e-mail *security *RDBMS *dev tools *commerce Subject Expertise (B) Content Development Tools (B) Structuring Tools (B) Deployment (C) Management and Assessment Tools ( C ) Hardware/Software Platforms (A) Network Infrastructure (A) Strategic Control Pebblesoft believes that the deployment engine and integrated management tools are key to strategic control in the industry. Once deployment engines and management tools are established and ingrained in the infrastructures of corporations, they are difficult to displace. On the other hand:     Content continues to be fluid and transitory. Training delivery supply continues to segment into vertical markets. The diverse needs of content and course developers requires different types of development and structuring tools. Many different vertical process and integration approaches are possible. The interdependencies among the different sectors described above are leading companies in the value chain to seek partnerships and joint ventures that allow them to offer a full range of services to their customers. Merger and acquisition activity in the market is already beginning, and IDC expects this activity to increase as the race continues to establish market leadership. Pebblesoft Confidential 15 Because of the evolving nature of this emerging market, the ―right‖ business models have not yet been identified. Different approaches to product/market positioning, marketing, and services are being pursued, but several business models are emerging, as shown in the following chart: Narrow Publisher Group: CBT Systems - Gartner Specialization Product Group: - Lotus - Macromedia - Centra - Docent Full Services Group: - Asymetrix Full Line Direct VARs/SIs Mix of Channels The business models in the chart display the following key characteristics: Publisher Group:         High but narrow subject expertise Own library of training titles Sell training contracts that rent training titles to corporations Administer learning systems on behalf of corporate customers Use proprietary deployment platform for hosting and delivering online courses Platform not appropriate for resale License most technology and tools from product vendors Main examples include CBT Systems and Gartner Learning Retail Product Group:        No subject expertise Sell products and technologies to develop, deploy, and/or manage training Supply products to companies and publishers, directly or through channels Offer basic support services (installation, product training, technical support) Roll out partner programs to accelerate adoption of platform License core Internet and networking technologies for integration into learning platforms Main examples: Lotus, Macromedia, WBT Systems, Centra, and Docent Pebblesoft Confidential 16 Full Services Group:      Sell products and technologies to develop, deploy, and/or manage training Acquire course portfolio for resale Provide revenue-generating services beyond basic support (consulting, hosting, custom course design and development, production services) Act as channel in selective markets Main example: Asymetrix In summary, there are three approaches that seem to fit different market needs: 1) The publisher model is geared toward owning a subject market. These business models are better suited for general-purpose training content that falls outside corporations’ expertise and core operations. Because of this, these activities are prime candidates for outsourcing completely. Examples are IT and general business skills. 2) The product model is geared toward establishing a learning platform as standard. The deployment engines and the development and management tools that the companies in this group provide and enable corporations to implement in-house training programs. These programs require customization and are created with company-specific and proprietary content. Examples are proprietary technologies, new products, and internal processes. 3) The full services model is geared toward owning a customer. Through vertical integration, companies with this business model provide cradle-to-grave services (such as consulting, course development and production, products, support, hosting, administration, and off-the-shelf courses.) Several consulting groups dedicated to helping corporations implement in-house training are emerging. These become important influencers in corporate purchases. D. Implications for Pebblesoft The compliance training market is largely unaddressed, and represents a major market entry opportunity for Pebblesoft to establish itself as a dominant player. The compliance training market is wide open for high-speed, low-cost training of an ever-changing set of regulations that expose corporations to high risks. This market is most suited for adopting low-cost, effective training programs that reduce the cost of non-compliance. With its focus on a market that no one is seriously addressing, Pebblesoft can obtain a first to market advantage, which translates into access to distribution channels and contenttwo of the major building blocks in the value chain. By working with established compliance consulting firms that are regulations experts but not technologists, Pebblesoft can gain access to large corporations to establish its deployment engine and management tools. Pebblesoft is primarily following the product group business model, but is selectively offering services and content to establish an ecosystem that is difficult to break. By licensing content from its consulting partners, Pebblesoft is building a portfolio of titles that can be used to increase customer share. Titles can also provide corporations with the opportunity to experience Pebblesoft’s WBT system before committing to an in-house program. In the longer term, deployment and management platforms that have proliferated within corporations should consolidate. Pebblesoft believes that, by establishing itself in a must-have segment of the market that has demanding requirements, it has a high probability of becoming a dominant platform. Pebblesoft Confidential 17 To ensure its place in the corporate environment, Pebblesoft starts by providing unique benefits to the compliance market. The Pebblesoft Adaptive Learning System (PALS) is being designed to:    Provide precise capabilities for measuring knowledge Enable direct use of existing content without conversion for delivery on the Web Include options for hosting training on our servers. In summary, Pebblesoft has a major opportunity to shape the structure of web-based training in the compliance market segment and to use this as an entry strategy to establish itself as a dominant player. By repeating this process on a by-segment basisselling the engine to publishers beyond the compliance market, as well as to value-added resellers who serve the corporate training market with custom solutionsPebblesoft becomes a significant force in the Corporate University. Pebblesoft Confidential 18 IV. A. Marketing Strategy Concept and Orientation Pebblesoft is committed to powering individual learning, while enabling corporations to measure organizational learning and respond quickly to training outcomes. Pebblesoft has a learner-centric philosophy and believes that the success of Web-based learning systems revolves around two key concepts:   The ability to adapt to individual learning styles and needs, which is the key to greater retention The ability for corporations to respond quickly to training outcomes and new knowledge needs To support this approach, Pebblesoft has implemented a product design strategy that is founded on the principles of adaptability, accountability, and access. Advanced services provide:    Adaptability: Maximum flexibility to design courses for diverse learning objectives and adapt to individual learning styles Accountability: Precise tracking and measurement capabilities to evaluate individual and organizational learning Access: Content, network, and platform independence for widest access to geographically dispersed people and content Pebblesoft’s marketing strategy is designed to produce a first-to-market advantage. For this purpose, Pebblesoft has geared its marketing activities to address the compliance market. This approach enables Pebblesoft to maximize its chances of shaping the structure of WBT in a segment that organizations cannot afford to do without. Pebblesoft uses this beachhead to establish itself in the corporate training market. B. Differentiation Pebblesoft’s differentiation vis-à-vis its competition in the corporate training market results from its learner-centric focus that emphasizes increased retention and its special features for the compliance market. The Company believes that the ultimate measure of success of a training program is whether or not learning occurred. Therefore, Pebblesoft concentrates on how to help individuals learn more effectively. Other providers are focused elsewhere:  Asymetrix offers one-stop shopping.  WBT Systems claims ease of use.  Centra promotes interface integration of synchronous, asynchronous, and self-pace tools.  Docent and Lotus focus on ROI and process, respectively.  Macromedia emphasizes standards. Exhibit IV A, Competitive Differentiation, shows a detailed analysis of these points. The compliance market has special needs for a faster, more customizable, and more intuititive web-based approach. Courses need to be created and updated rapidly—in concert with the pace of legislative change. If corporations are serious about really making learning happen, they need continuous, individualized testing. They need granularity down to the test question in order to prove compliance. The individuals touched by compliance training are not just the IT-literate, white-collar professionals. Many of the people in need of compliance training are on the factory floor. This Pebblesoft Confidential 19 drives a need for a more intuitive interface, less time off the job, simple navigation, specific examples, and targeted modules. Pebblesoft meets and exceeds these requirements. Some of the features of our product that satisfy these needs are:  Object re-use through web-based tools  Easy insertion of new examples  A Quiz Magician for easy, fast test creation  An architecture that facilitates learning processes, such as test-directed learning  Instant test results reporting  Question-by-question test results stored in the database  Comments stored with the course materials  Collaborations for peers and online experts (may be stored and turned into new content)  A personal notebook for creating an individual course navigation system For more detail, refer to the Product Development section and the appendices. C. Key Audiences and Messages Compliance consultants are the driving force behind compliance training. Given the vast body of regulation, U.S. companies turn to consultants and specialized compliance education companies for the information, education, and processes they need to comply. Consulting firms are looking for faster and more cost-effective ways to update and deliver content as regulations change. They are both potential users of web-based learning systems and influencers to corporate purchases. As a result, the primary audience Pebblesoft addresses with its sales and marketing efforts is Senior Compliance Partners within consulting firms. (See Appendix Exhibit IV B, Initial Compliance Consultant Targets.) Secondary efforts target Vice Presidents of Human Resources, Compliance Officers, and Risk Managers within corporations to generate incremental sales of Pebblesoft products and services. In order to tailor its marketing and messages to the compliance training market, Pebblesoft emphasizes key features and benefits critical to this market:    Powerful tracking capabilities Ease of deploying existing content Compliance titles portfolio Pebblesoft’s tracking capabilities enable corporations and consulting firms to truly test comprehension of complex and subtle legislated processes and behavior. The ease of deploying existing content, coupled with a ready-to-use compliance content portfolio, enable corporations to be up and running and deliver results quickly. Exhibit IV C, Proposed Corporate Positioning/Compliance Segment, provides information on audience profile and message strategy. Pebblesoft Confidential 20 D. Products & Services Adaptive Learning System Software Pebblesoft’s flagship software product, the Pebblesoft Adaptive Learning System (PALS), is a learning software platform offering integrated services for course design, instruction, administration, and measurement. It includes the following components:    The Designer Workbench: An application that enables designers to create courses by selecting and assembling HTML files and questions into a course outline. Knowledge Server: A deployment server that provides the interface for accessing learning materials and administrative information residing on the system’s database. The database stores all user information and course content. Utilities: Tools that offer the capabilities to import, export, convert, and optimize content. Unique Features and Benefits Highlights Features Content objects Function       Accept any content Reuse content Reorganize learning materials Collaborate in a variety of ways Store user information, course structures, tests, and reports Integrate with existing content, authoring tools, computer platforms, and databases Benefit         Fast course development Customization Highly detailed tracking Adapt to student learning style Fit any course objectives and requirements Enable interactivity Easy administration, tracking, and reporting Widespread access to geographically dispersed people and content Personal notebook Chat, whiteboarding, newsgroups, e-mail Single repository Open architecture Enabling Services To support the fast adoption of PALS, the Company is making available key services that enable consulting firms and corporations to simplify deployment. These services include: Course production. Project management services to help consulting firms and corporations to transfer content to or develop new content for PALS. A network of professionals certified by Pebblesoft provides access to resources as required for each project. Course hosting. Fee- or subscription-based renting of PALS hosted on Pebblesoftowned equipment, which enable consultants and corporations to develop and establish custom in-house training programs, while outsourcing the infrastructure required to host the programs. Customer support. Maintenance agreements for purchased products. Includes technical support and routine updates, as well as help desk functions for training delivery to corporations. Pebblesoft Confidential 21 Turnkey Training Delivery Solutions To support its market-entry strategy, Pebblesoft offers a focused range of solutions that complement its channel and partner offerings in the compliance market. The solutions offer ready-to-use compliance training titles hosted on PALS. E. Pricing Pebblesoft is pursuing a pricing strategy competitive with similar enterprise-class learning systems and training delivery offerings. It is establishing a pricing structure that provides an appropriate entry price for a departmental solution of up to 259 registered students on a single processor. The number of additional processors and incremental number of student registrations determines additional price points. Pebblesoft offers PALS and compliance titles in two formats:  Subscription. Per-user fee for rights to use PALS (hosting) or to sign up for Pebblesoft compliance courses (training delivery). The subscription model enables customers to spread the cost over time while providing Pebblesoft with an ongoing annuity stream. Purchase. Software licenses for PALS or PALS/title bundles for installation on an intranet. The pricing structure for this option provides an appropriate entry price point for a departmental solution of up to 250 registered students hosted on a single processor. Additional price points are determined by the number of additional processors and incremental number of student registrations.  Pebblesoft is also evaluating pricing strategies for OEM agreements. See Exhibit IV D, Pricing Model, for additional information. F. Channels Pebblesoft’s overall model to deliver tailored solutions to customers on PALS relies on a network of consultants, value-added resellers, and systems integrators. In the initial stages of business development, Pebblesoft’s priorities focuses on:    Signing agreements with 3 to 4 U.S. compliance consultants, who generate demand for PALS inside corporations through their own compliance training activities Working with selected value-added resellers in North America to reach other strategic segments Building a small direct sales team to manage consultant and VAR relationships, as well as sell directly to accounts created by Pebblesoft's U.S. consulting partners Pebblesoft has signed the first consultant agreement with RUST Environment and Infrastructure and the first VAR agreement with Bell Canada. G. Partnerships Pebblesoft is aggressively pursuing strategic partnerships that enable it to maintain a competitive product line. For this purpose, it pursues alliances in the following areas:   Integration of best-of-class core technologies, such as collaboration, security, and commerce Porting and conversion of existing content, particularly compliance content Pebblesoft Confidential 22  Seamless integration with third-party tools, such as authoring, measurement, and reporting In addition, Pebblesoft is exploring marketing and distribution agreements with qualified international partners to establish beachheads in Europe and Japan. H. Brand Development and Key Marketing Programs Pebblesoft believes that a central and critical success factor is its ability to establish its corporate brand in the compliance market segment. Therefore, product names and lines are secondary to the corporate brand and are used to reinforce its presence and positioning. The Company seeks to retain as much visibility for the Pebblesoft brand through the following key initiatives:  Launch an 18-month brand development campaign to position Pebblesoft Learning as the premier supplier of WBT delivery resources optimized for the compliance market. The plan consists of three phases, each with a specific time frame, spending levels, and key objectives. —Phase One focuses on establishing brand awareness and credibility among training professionals, and on generating demand among compliance consulting firms. —Phases Two continues to build on brand, but extends demand generation to Human Resources and Compliance Officers in corporate environments. —Phase Three continues to build on brand, but seeks to reach and generate demand among VARs and SIs who deliver customized training to corporations.  Build a state-of-the-art Internet site that showcases Pebblesoft’s Corporate University Vision and its products. The site enables real sampling of compliance training on PALS, and is used to support Pebblesoft’s own training program for its channels and partners. The Pebblesoft Internet site is an integral component of the brand campaign for information delivery and customer capture. Develop a channel program to support expansion of distribution channels after the initial stage of recruitment of key Compliance Consulting Firms and Strategic VARs. This program provides the necessary sales, technical, and marketing support elements to create a strong network. This program leverages the brand development campaign.  Pebblesoft Confidential 23 V. A. B. Product Development The Pebblesoft Adaptive Learning System Concept What problem are we trying to solve? Any company that wants to do better than its competitors must learn better than its competitors. Unfortunately, corporate training is     Expensive - travel costs, time off the job Slow –the classroom is a bottleneck Ineffective - diverse employee base, same material for everyone Unauditable – who learned what, who knows what? How do we propose to solve it? The Pebblesoft Adaptive Learning System has been designed to speed up, customize, and track the learning process as well as reduce its cost. Pebblesoft Adaptive Learning System C. Architecture Overview The Pebblesoft Adaptive Learning System provides a unified framework for the management of learning, storage and delivery of reusable learning material, collaborations between networked users, student testing, and tracking. Pebblesoft Confidential 24 Pebblesoft Adaptive Learning System D. Learning Object Architecture The learning object concept is at the heart of many of the Pebblesoft system’s abilities. Content objects are containers for a wide variety of content from Web based course material to programs executing on remote or local computers. Once a content object has been defined, a simple process, that object is available to be used and reused in many different contexts. The same object may be an entire course and it may be a unit within another course – all at the same time and without the need to worry about keeping the navigation straight. Pebblesoft does that for you. 1. Raw content into Content Object wrapper 2. Content Objects can be used and reused anywhere E. Benefits Summary Reduced Cost:  Ease of Use Access to all content and to all collaborations is through a Web browser. All system functions have been designed for ease of use by learners and instructors who may not be computer literate. No programming is needed for any function. Content Reuse Learning content is registered in the Pebblesoft library in chunks at the discretion of the course designer. A chunk may contain a whole course or a summary of one chapter. This chunk may be used many times in other contexts. For example, a chunk containing a short course on lease accounting may be used as a stand-alone course in one curriculum and, as a chapter in a larger course on general accounting principles. No editing of content is necessary to make this work. The Pebblesoft system automatically creates the appropriate tables of contents for each use. Collaborative Structuring The learning object architecture we have developed makes the collaborative development, and prototyping of course material between far-flung instructors an immediate reality, even using different authoring tools.   Pebblesoft Confidential 25 Anytime Anywhere Learning:  Our system for managing and delivering training content over the internet/intranet provides us with the ability to bring instructors and students together anytime, from anywhere. The classroom bottleneck can be significantly reduced when supplemented with Web-based training, and testing. Effectiveness:  Individualized Learning Students can ―take notes‖ and save any course content into their own personal Notebook and reorganize it according to their specific needs. Our integrated collaboration tool can be inserted anywhere in course material to provide online, real-time interaction between students, mentors, and instructors where needed. The collaboration sessions are captured and available for replay and incorporation into course material as reusable learning objects. Students can establish threaded discussion groups. Our Test-Directed Learning functions allow students to concentrate on only the material they need to learn. Skills Development Learning material can be hierarchically grouped according to criteria established by the customer. For example, the top level might be used for various job classifications, the next level for curricula related to that job classification, and the next level for courses in that curriculum. Students can scan the catalog of grouped learning material and self-register for courses that they see in order to enhance a skill or learn a new one.  Auditability:  Assessment & Certification All student contact with learning material is recorded, and reports are provided so that verification of contact with the material can be made. Assessments can be inserted anywhere in the learning material. Assessment results are stored in the Pebblesoft system for reporting and access is limited to authorized users. Pebblesoft Confidential 26 F. Product Overview Designer Workbench – for instructors, course designers     Identify, organize, modify, or reuse content from any source. Store HTML, and related media file content directly in the Pebblesoft repository. Create questions, assessments. Create collaborations. Knowledge Server – for everyone        Sign up for courses from course catalog. Organize learning plans. Take courses, and complete assessments. Organize personal notebook. Attach public or private comments to content. Participate in collaborations. Report on user activities. Pebblesoft Confidential 27 Administrator – for administrators  Manage various Knowledge Server activities  User ids, security privileges  Content database administration  Reporting  Import and Export of database content The Pebblesoft system requires a Web server and an ODBC compliant database supporting BLOBS. Pebblesoft Confidential 28 VI. Operations A. Order Fulfillment Pebblesoft Learning product offerings can be ordered via our web site or directly from sales representatives. Our products are delivered exclusively via the World Wide Web allowing for fast and secure delivery. We are able to support payment either by electronic commerce or direct billing, depending on product selection and the needs of each client. (Please see appendix Exhibit VI A for a detailed flow chart of our delivery process.) B. Customer Support Pebblesoft Customer Support is built on knowing how our clients are using our products, reaching resolution of problems quickly once identified, and most important, providing customer-centric services characterized by respectful, innovative, and responsive communications. For our software customers, Pebblesoft Customer Support offers:     Customer Support Technician available via toll-free telephone line, Monday—Friday 8 a.m. to 6 p.m Pacific Time Access to our Pebblesoft Adaptive Learning System Customer Support web site, which provides product documentation, FAQs and more Reply to all inquiries within 1 business day A well thought out 'Problem Resolution Process' in place to support the quick resolution and storage of all problems in our 'Problem / Resolution Database' C. IS Infrastructure Internally, Pebblesoft maintains a networked system on an Ethernet backbone with multiple servers, including UNIX and Windows NT. A T1 router that provides Internet connectivity, which allows for print sharing, inter computer communications, e-mail, and the ability to perform system back ups. Please refer to Section E, Pebblesoft Hosting Architecture, for details on our external systems. D. PebblesoftNet - Production Services To meet the content and design services needs of our clients, PebblesoftNet has been designed to create a global network of Pebblesoft Learning certified content providers who are able to:  Convert legacy content to HTML  Enhance existing content  Re-purpose non-web content for web delivery  Create new learning events  Supply content to the Pebblesoft Learning Library PebblesoftNet members are selected based on specific eligibility criteria and are required to complete training on the Pebblesoft Adaptive Learning System. This process allows for our customers’ training requirements to be filled quickly and efficiently. We have an established relationship with the Province of New Brunswick, Canada, and have five content and multimedia providers who are able to assist with meeting our clients' objectives. Content developers have access to our hosting services for a fee but cannot use them for commercial purposes (no learners can use this site for training purposes). Dedicated Pebblesoft project managers are assigned to manage these production services for our clients. Pebblesoft Confidential 29 E. Hosting Hosting Services are a cost-effective means for both content providers and corporate clients to access the Pebblesoft Adaptive Learning System. We administer a server farm at an offsite location with high-speed Internet connections, security, universal power supply backup, and other services to ensure that our system's infrastructure is safe and state of the art.   Content providers can use Pebblesoft Adaptive Learning System Hosting Services to access training for their own use, to pre-sell content materials, or to distribute content to others. The Pebblesoft Learning Library features an array of compliance courses available for corporate clients to meet their compliance training requirements. Pebblesoft Confidential 30 VII. Organization Pebblesoft Learning™ has a balanced, experienced team. There are two dimensions to this balance—skills and business experience. This can be portrayed as a grid with each member of the team placed in his or her relative position: Large Alepin Brastow Company Experience Badani Ogata Burton Small Kenney Information Technology Skills Learning A careful reading of the senior management biographies shows a wealth of experience. (See Appendix Exhibit II A.) With over 125 years big business experience, the management team can not only launch Pebblesoft, but also sustain it over its high growth period into the era when control and process become important. The learning philosophy of the company stems from the many years of experience that Bill Brastow and Lisa Kenney have spent in learning pursuits. Bill was a member of Project Plan at Stanford. Lisa has an outstanding understanding of various aspects of pedagogy. On the other end of the axis is the wealth of information technology experience. From experience in companies such as IBM, Amdahl, Atari, Electronic Arts and NCR, the team knows how to conceive, build, test, market and sell products suitable for large enterprises. In addition, both Ms. Ogata and Mr. Burton have many years of international experience. As a fast-growing Internet software company, Pebblesoft needs to expand into markets outside the U.S. The experience is already on board to help achieve success in other markets. Pebblesoft is built on a set of entrepreneurial cultural values. We are committed to building teamwork that creates bolts of lightning, focus that burns holes in tablecloths, and belief in ourselves that magnifies the ability of the world to learn. Pebblesoft’s compensation policies are competitive with those of other start-ups in Silicon Valley. We constantly monitor benchmark data to ensure that we are neither overspending nor in danger of losing talented people to competitors. Pebblesoft offers a comprehensive benefits package Pebblesoft Confidential 31 including medical, dental, vision, 401K and section 125 plans. This is necessary to attract and retain talented people in the highly competitive environment of Silicon Valley. Stock options are offered to all employees. The Stock Option Plan has standard vesting terms— 25% after one year and equal monthly vesting over the next three years. The three founders and other executives are covered by this plan. Pebblesoft’s organization is a simple functional one. Each executive has a major functional accountability. Each accountability contributes to the success of the whole. Pebblesoft Organization President L. Alepin Finance Development W. Brastow Sales J. Burton Marketing S. Ogata Services & Operations L. Kenney • • Development of product and processes Research and selection of integration technologies • • Recruit channel partners Sell hosting and software to channels and their customers Sell large WBT contracts • • Market Research and content selection Create programs for WBT sale to broader market • • • • Production services for repurposing content PebblesoftNet Ship product Provide customer support • Pebblesoft Confidential 32 VIII. Financials A. Business Model Pebblesoft’s Co-OEMing business model provides a flow of goods and services that accelerate revenues and provide economies on the cost side. The key partners are compliance consultants who provide content expertise. Since compliance consultants are usually not leading edge, independent information technology users, Pebblesoft offers them high technology production services to transform their current classroom training into state-of-the-art-delivered product and hosting for the infrastructure delivery system. These enabling services, in addition to the excellent software platform we have for compliance training, make Pebblesoft their vendor of choice. Once the compliance training course is available in web form, both the compliance consultant and Pebblesoft can offer the product for sale—to two different markets. Consultants sell their product to their existing clients, primarily in conjunction with other consulting engagements. Pebblesoft sells the training as part of a complete compliance library to the broader market of Fortune 2000 companies. The sale of courses from this library is on a subscription basis—so many courses for so many people over a one-year period. Pebblesoft pays royalties to the compliance consultant for each course sold. Pebblesoft offers a distinct advantage over many other providers of web-based training—we have a software platform that is ready for sale. We can sell the platform to both the compliance consultants to build their own delivery system and customers of the compliance consultants or ourselves who want to implement an intranet delivery system. The flow of goods and services is depicted in this diagram. Pebblesoft Production Services Hosting Content Providers Software Training ggggggg Training, Tracking, and Reporting Training, Tracking, and Reporting Software Customer A Pebblesoft Confidential Customer B 33 Thus, there are multiple revenue streams—production services, hosting, software, and courses— from the same source: a single compliance consultant’s transformed compliance material. The revenues are a combination of these revenue streams and vary over time: % of Total Revenue License Course Maintenance Prod. Serv Hosting 1998 12% 39% 1% 39% 9% 1999 19% 53% 1% 20% 7% 2000 22% 54% 1% 9% 14% 2001 19% 56% 2% 6% 17% 2002 20% 51% 2% 4% 22% 2003 23% 42% 3% 5% 27% A strength of our business model is that once a broad based compliance requirement is identified, it can be deployed over a large number of units within a company. Then it can be carried to companies in another segment. There are two focused Pebblesoft sales cycles—to capture content consultants and to sell second-tier users of compliance training. A direct sales force closes contracts with consultants and large corporate orders. The results are expected to be rapid growth of revenues from $7 million in 1999 to almost $200 million in 2003, a 92% compound annual growth. The expenses and headcount grow more slowly, 67% and 63% respectively. Key assumptions for the financial case can be found in the Appendix Exhibit IV A. B. Projected P & L 1998-2003 ($000) SUMMARY PROFIT & LOSS STATEMENT 1998 1999 2000 $383 $433 ($50) -13% $7,679 $3,625 $4,055 53% $31,156 $12,405 $18,750 60% 2001 $80,809 $30,448 $50,361 62% 2002 $132,178 $49,006 $83,172 63% 2003 $195,625 $68,513 $127,113 65% Revenues: Total COGS Gross Margin GM % Operating Expenses: R&D Sales /Marketing G&A Total Op Expenses Int Inc/(Expense) PBT PAT $1,752 $1,111 $766 $3,629 ($274) ($3,953) -1031% ($3,953) -1031% ($4,053) - $2,141 $2,786 $841 $5,769 ($274) ($1,988) -26% ($1,988) -26% ($3,660) ($7,712) $4,232 $8,163 $1,779 $14,174 ($60) $4,516 14% $4,065 13% ($448) ($8,161) $6,588 $17,560 $3,545 $27,693 ($30) $22,638 28% $13,583 17% $7,718 $(443) $11,235 $29,877 $6,969 $48,081 $35,091 27% $21,055 16% $17,743 $17,300 $16,855 $46,506 $11,218 $74,579 $52,534 27% $31,520 16% $25,564 $42,864 Cash Flow Cum Cash Flow Pebblesoft Confidential 34 C. Balance Sheet ($000) 1998 1999 $147 $198 ($29) $169 $315 $1,915 $821 ($184) $637 $2,552 BALANCE SHEET 2000 $7,329 $1,766 ($588) $1,178 $8,507 2001 $14,804 $3,518 ($1,413) $2,105 $16,909 2002 $20,682 $6,247 ($2,865) $3,383 $24,065 2003 $30,840 $9,732 ($5,096) $4,636 $35,475 Total Current Assets PP&E Depreciation Net PPE TOTAL ASSETS Total Current Liabilities LT Debts Total Liabilities Retained Earnings Total Equity Sub-Total Liab. & Equity Addnl. Invest / (Surplus) TOTAL LIAB. & EQUITY $349 $108 $458 $673 $63 $737 $1,492 $18 $1,510 $3,030 $0 $3,030 $5,086 $0 $5,086 $7,811 $0 $7,811 ($3,953) ($3,953) ($3,496) ($5,941) ($5,941) ($5,204) ($1,876) ($1,876) ($366) $11,706 $11,706 $14,736 $32,761 $32,761 $37,846 $64,281 $64,281 $72,092 $3,811 $7,756 $8,873 $2,173 ($13,782) ($36,617) $315 $2,552 $8,507 $16,909 $24,065 $35,475 Pebblesoft Confidential 35 IX. Offering Current funding requirements are $5 million. These funds will be used in four ways:     To build a small sales force to find and contract with compliance consulting firms To create marketing programs to sell web-based compliance training courses to the market not covered by our compliance consulting partners To continue the development of the Pebblesoft software platform To purchase hardware and software for the hosting of courses The investor can expect this investment to yield a significant Pebblesoft ownership position. Amdahl Corporation, the current majority owner (75%), has expressed a willingness to be flexible in terms of the deal structure. X. Risks As with any investment with the potential for high return, there are several risks inherent with an investment in Pebblesoft. The primary risks are:  The market does not develop as fast as projected. IDC’s study on web-based training cites several reasons for the projected rapid growth of web-based training—increased buyer readiness, maturation of IT infrastructures to accommodate WBT, enhanced service portfolios, increased funding from venture capital sources for companies with solutions, and continual advancements in Internet technologies/access. Coupled with the desire of companies to ―reduce costs associated with traditional classroom delivery and increase the value of their spending dollars,‖ growth rates for WBT of 95% are projected through 2002. If growth rates are lower, the cause is most likely to be resistance—by students and content experts—to this method of training. In this market, Pebblesoft should shine because of its emphasis on learning methodology and the control that production services offers for the creation of ―good‖ content. Our business model is aggressive, growing at industry rates. If lower-than-expected growth rates occur, the leverage of the co-OEMing model still provides high rates of profitability, cash flow, and return. Expenses, including development and marketing, would be adjusted as appropriate. Expansion at a faster rate into the subject areas outside of compliance could also be used to increase growth. This would mean only additional marketing, but not development expenses, in order to cultivate a new group of content consultants.  Internet bandwidths are insufficient for required performance. While we expect that the influx of capital into companies providing new approaches to Internet bandwidth to significantly expand the total bandwidth of this resource, current bandwidths are sufficient to provide an excellent learning experience. Large quantities of video or audio do not constitute good education. There is plenty of bandwidth for interactive learning processes, including simulations, testing with feedback, online threaded discussions, and distance tutoring. Pebblesoft Confidential 36  Compliance consultants do not want to move to web-based training. It is unlikely, with a fragmented supply side, that we are unable to attract a sufficient supply of content experts—namely, compliance consultants. The only exposure is in the size of these firms and, therefore, their marketing reach. The business model assumes that we work with the larger consultants whose client base provides us with an early market. Should this not materialize, we can approach the many second-tier providers. This would increase marketing costs for our own training delivery and shift the mix of revenues.  The technology cannot be completed on schedule and at cost. The technology risk in our product is low. We are using Silverstream as our development platform. This advanced development tool set provides the platform independence that is necessary to bring our product to market. Silverstream allows us to concentrate on the specific learning features that we know are vital for a good product. Similarly, we are using the synchronous platform provided by CSR. This platform provides us with more functionality and lower development costs. Our challenge is at the integration level, not at the base development level. XI. Summary Pebblesoft is positioned to be a significant player in a large and rapidly growing market—webbased training. Key to a dominant position in this market is the development of a platform for creating, delivering, managing, and tracking this resource. Pebblesoft has a best-of-breed platform in its Version 2.0. Coupled with the platform is Pebblesoft's establishment of strategic alliances with key consultants and systems integrators. This allows Pebblesoft to be first to market with turnkey solutions in the compliance market arena. The next step is to establish a brand name in the web-based compliance market. A natural path from this vital, must-have market is into other North American and international markets. The co-OEMing business model gives cost leverage and revenue acceleration. The Pebblesoft team is in place to push the Company through several levels of maturity. See Exhibit XI A for References and Sources. Pebblesoft Confidential 37 XII. Appendices Pebblesoft Confidential 38 Exhibit II A. Key Employee Curriculum Vitae Linda T. Alepin, President and CEO of Pebblesoft and a founder, brings exceptional management acumen and vision to the Company. As the former Vice President of Corporate Strategy for Amdahl Corporation, she was the principal strategist behind the transformation of Amdahl from being a PCM supplier to becoming The Enterprise Computing Company. For her work to this end, she was appointed an officer of the company. Throughout her 30-year career, she has always been an entrepreneur (albeit within two large corporations—first IBM and then Amdahl). She started at IBM as a Systems Engineer in a burgeoning new business office. In the early 1970s, she was one of the women pioneers as a new account territory Marketing Representative. She led a small development team to produce the first Industry Application Programs for the S/32. After a successful joint study assignment, she became a Product Marketing Manager and helped launch the S/34 in the western U.S. Undaunted by the task of installing 150 S/34’s within one year (and only with 10 systems engineers), she ―broke all the rules‖ and the record books by starting co-op programs with Stanford and UC Berkeley and training third-party programmers. In 1978, after joining Amdahl as Manager of Worldwide Marketing Support, she announced five products in as many weeks in a campaign to re-ignite interest in the 470 product line. She mobilized Amdahl’s limited resources to address the largest benchmark ever undertaken to date in order to prove the performance of the new 470 V7 to AT&T. She created the first industry marketing initiative to penetrate the financial industry in the eastern U.S. During this period, Amdahl became a major market force in large systems. Knowing that general management would require more than a single disciplinary view, Linda moved to finance to broaden her background. In seven years as Director of Financial Planning, she was the primary consultant to the CFO and CEO. Three highlights of this period include a pricing training program that led to higher price realization (2% to 4% of revenue), a manufacturing requirements survey for the telecommunications division that saved Amdahl $20 million, and a revenue-sharing migration strategy to bridge a substantial market gap. Upon her promotion to Vice President of Market Development, she initiated cost-saving measures in the benchmark area, pushed OEM sales to the $70 million level, partially automated the sales force, launched anti-competitive campaigns, and fostered new approaches to sales force training. In 1993, Joe Zemke, Amdahl's CEO, called on Linda to head a critical task force to steer the company through the tumultuous period following the temporary collapse of the mainframe market. Working with outside consultants and the rest of the executive team, she helped return Amdahl to profitability in the first quarter of 1994. Then, the Vice President of Corporate Strategy and an officer, she continued to shape the future of this re-engineered company. Her controversial cultural change program produced breakthrough results. In 1995, she became intrigued by the possibilities of the Internet (and in particular, Intranets) as a mechanism to change the way people learn and formed a ―product nursery‖ for experiments in this new media. The Pebblesoft Learning™ technology is a direct result of one of these early investments. In 1996, the San Francisco Chronicle recognized her as one of the 50 most influential women in the Bay Area. During that same year, she received the Amdahl Breakthrough Team Award for organizing and holding a conference for 800+ managers in just seven weeks. The YWCA has recognized her with a Tribute to Women in International Industry. Linda is an often-requested speaker for technology conferences (Forbes, Inc., WITI, PBWC) and on university campuses (George Washington University, Stanford University, Santa Clara University). Ms. Alepin holds a Bachelor of Arts degree in Economics from Stanford University, and serves on the Board of Leavey School of Business, Santa Clara University. Pebblesoft Confidential 39 William C. Brastow, Jr., Ph.D., Vice President, Product Development and a founder of Pebblesoft, was with Amdahl Corporation for 20 years. His most recent assignment was as Director of Worldwide Market Research and Planning. Bill’s forte is analyzing technologies and technology trends and being able to apply this knowledge to competitive advantage. After a successful U.S. Navy career in which he participated in constructing and playing Pentagon war game scenarios, he became a professor at the Stanford School of Engineering. Besides teaching classes, he participated in Project Plan—an educational experiment in learning methods, which is accepted as a hallmark study in this field to this day. Upon joining Amdahl, his expertise in modeling was put to work constructing forecasting models for the fast-growing mainframe industry. Bill’s forecasts were used as the basis for production planning, sales force expansion, etc. His careful attention to detail and never-ending pursuit of definitive data and information to make informed decisions made him a much-sought-after counselor to executive management. He created and taught a simulation of Amdahl’s business that shaped the management thinking of a generation of new Amdahl managers. Bill eventually took on the role of a technology ―seer‖, and was Amdahl’s representative to the CCIA and a frequent visitor to Japan. With the advent of a de-centralized Amdahl, Bill began to build tools for the market analysts in various divisions to use in guiding their new entities. His PC software tool—Market Navigator—was reprogrammed into an Internet tool almost overnight. Its conjoint analysis capabilities facilitate estimates of market share based on product features. This technology is being integrated into the Pebblesoft product set as both a survey tool and a question/answer generator. Having discovered the power of the Internet with Market Navigator, Bill became a founder in the Amdahl ―product nursery.‖ Under his careful stewardship, several of the resulting technologies sprung toward the market. He has lectured extensively on such topics as  ―Challenges in High-Tech Industry to Industry Marketing‖ at the Graduate School of Business, Stanford University  ―Empirical Experiments in Computer Equipment Demand Prediction Using an Adaptive Neural Network to Derive a Fuzzy Associative Memory,‖ at the ORSA/TIMS Marketing Science Conference, London Business School  Dr. Brastow’s Ph.D. was granted by Stanford University in Industrial Engineering, and his B.S. in Mathematics by Marietta College. He is a Member of the Industrial and Manufacturing Engineering Department Board of Advisors at Cal Poly, and a guest lecturer at Stanford University Lisa Kenney, Vice President, Services and Alliances, and a founder of Pebblesoft, came to us from Genentech, Inc., where she was involved in several organizational development initiatives. Prior to Genentech, Lisa was at a small learning start-up—Active Learning, Inc., which provides educational services. At Active Learning, she was General Manager and Vice President of Instructional Programs, managing a division with 250 personnel. During her tenure she significantly reduced staff turnover and produced a new product line that expanded market presence and provided off-cycle revenue. In addition, she managed interdepartmental product teams, with full responsibility for product development, implementation, and management. Lisa holds a B.A. in Applied Communications from Point Loma College. She has completed Postbaccalaureate coursework in Management, Psychology, and Sociology. Jeff Burton, Vice President of Sales, spent a year consulting on business development and sales issues for a computer-based training start-up company before joining Pebblesoft. For the previous five years he was CEO of a 27-person, $2.5 million printing company, and he Pebblesoft Confidential 40 modernized this 35-year-old company. His international experience includes sourcing investment capital and distributing it to start-up companies in the areas of medical instruments, PC business software, and publishing. One of six founders and Director of International Marketing at Electronics Arts, Jeff grew the company from start-up to IPO. Jeff holds a M.B.A. from the Stanford Graduate School of Business and a B.A. with honors from Stanford. Bipin Badani is Director, Engineering and Software Development. Bipin has 21 years of experience in researching, development, and designing new products. He has previously served as director of Worldwide Information Technology Architecture for Amdahl Corporation. During his 20-year tenure with Amdahl, he held various positions in the engineering, business development, corporate new product introduction, and strategic planning areas. Bipin has an M.S.E.E. granted by West Virginia University in Computer Science, and a B.S.E.E. in Electronics and Telecommunications. Setsuko Ogata, Director, Marketing, is a native of Japan and worked for McKinsey Consulting Company and Mitsubishi while she was a resident of that country. At McKinsey Consulting Company, she developed basic business discipline and analytical skills. While at a German consulting firm, later acquired by Roland Berger, she specialized in business negotiations in a multicultural environment, including negotiations in Japan, Europe, and the U.S.A. Her focus at Mitsubishi was on financial and business assessments of companies leading to joint ventures, strategic alliances, and acquisitions. She has been in the United States for more than 10 years, acting as a consultant to many small and large firms in the areas of strategy and marketing. Setsuko holds a B.S. in Operations Research from Cornell University. Chief Financial Officer (Linda Alepin is acting Chief Financial Officer. As the Company grows and approaches IPO, a full-time CFO with IPO experience will be hired.) Pebblesoft Confidential 41 Exhibit III A. Hambrecht & Quist’s Delivery Vehicle Comparisons (Separate word file--landscape) Pebblesoft Confidential 42 Exhibit III B. Federal Departments and Agencies for Standards and Regulatory Compliance Department of Agriculture Animal and Plant Health Inspection Service Biotechnology Permits Food and Nutrition Service Food Safety and Inspection Service Department of Commerce Department of Energy Federal Energy Regulatory Commission Department of Health and Human Services Agency for Toxic Substances and Disease Registry Food and Drug Administration Health Care Financing Administration U.S. Public Health Service Department of Labor Occupational Safety and Health Administration Department of Transportation Federal Aviation Administration Federal Highway Administration Federal Railroad Administration Federal Transit Administration Architectural and Transportation Barriers Compliance Board Association of Fruit and Vegetable Inspection and Standardization Agencies Consumer Product Safety Commission Environmental Protection Agency Equal Employment Opportunity Commission Federal Communications Commission Federal Deposit Insurance Corporation Federal Trade Commission’ National Transportation Safety Board Nuclear Regulatory Commission Securities and Exchange Commission Pebblesoft Confidential 43 Exhibit III C. California Ergonomics Law TITLE 8 GENERAL INDUSTRY SAFETY ORDERS SECTION 5110, ERGONOMICS Readopted by the Occupational Safety and Health Standards Board on April 17, 1997 Nonsubstantive "Clarity of Display" modifications submitted to OAL on May 16, 1997 Approved by OAL on June 3, 1997 Effective July 3, 1997 June 3, 1997 News Release IR#97-31 Add new Section 5110, Ergonomics to read: Group 15. Occupational Noise and Ergonomics. *** Article 106. Ergonomics. Section 5110. Repetitive Motion Injuries. (a) Scope and application. This section shall apply to a job, process, or operation where a repetitive motion injury (RMI) has occurred to more than one employee under the following conditions: (1) Work related causation. The repetitive motion injuries (RMIs) were predominantly caused (i.e. 50% or more) by a repetitive job, process, or operation; (2) Relationship between RMIs at the workplace. The employees incurring the RMIs were performing a job process, or operation of identical work activity. Identical work activity means that the employees were performing the same repetitive motion task, such as but not limited to word processing, assembly, or loading; (3) Medical requirements. The RMIs were musculoskeletal injuries that a licensed physician objectively identified and diagnosed; and (4) Time requirements. The RMIs were reported by the employees to the employer in the last 12 months but not before July 3, 1997. Exemption: Employers with 9 or fewer employees. (b) Program designed to minimize RMIs. Every employer subject to this section shall establish and implement a program designed to minimize RMIs. The program shall include a worksite evaluation, control of exposures which have caused RMIs and training of employees. (1) Worksite evaluation. Each job, process, or operation of identical work activity covered by this section or a representative number of such jobs, processes, or operations of identical work activities shall be evaluated for exposures which have caused RMIs. (2) Control of exposures which have caused RMIs. Any exposures that caused RMIs shall, in a timely manner, be corrected or if not capable of being corrected have the exposures minimized to the extent feasible. The employer shall consider engineering controls, such as work station Pebblesoft Confidential 44 redesign, adjustable fixtures or tool redesign, and administrative controls, such as job rotation, work pacing or work breaks. (3) Training. Employees shall be provided training that includes an explanation of: (A) The employer's program; (B) The exposures which have been associated with RMIs; (C) The symptoms and consequences of injuries caused by repetitive motion; (D) The importance of reporting symptoms and injuries to the employer; and (E) Methods used by the employer to minimize RMIs. (c) Satisfaction of an employer's obligation. Measures implemented by an employer under subsection (b)(1), (b)(2), or (b)(3) shall satisfy the employer's obligations under that respective subsection, unless it is shown that a measure known to but not taken by the employer is substantially certain to cause a greater reduction in such injuries and that this alternative measure would not impose additional unreasonable costs. Note: Authority cited: Sections 142.3 and 6357, Labor Code. Reference: Sections 142.3 and 6357, Labor Code. Pebblesoft Confidential 45 Exhibit III D. Competitive Landscape Pebblesoft Confidential 46 Exhibit IV A. Competitive Differentiation (Separate word file—landscape) Pebblesoft Confidential 47 Exhibit IV B. Initial Compliance Consultant Targets Health Care and Pharmaceuticals Strategic Management Systems, Inc. Ernst & Young LLP Arthur Andersen LLP A.T. Kearney American Hospital Association American Pharmaceutical Association American Compliance Institute Environmental and Occupational Safety and Health Rust International Inc. National Association for Environmental Management National Environmental Compliance Association Human Resources Arthur Andersen LLP Deloitte Touche LLP Ernst and Young LLP Boston Consulting Group Society for Human Resources Management Human Resource Planning Society Pebblesoft Confidential 48 Exhibit IV C. Proposed Corporate Positioning/Compliance Segment Corporate Positioning Statement FOR: IN: (industry/company size) Senior compliance partners or compliance practice Corporate consulting firms and compliance training WHO: (need) Need to differentiate from the competition, expand their consultant base and create more value with existing resources Offers comprehensive resources optimized for compliance web-based training. Enables consultants to: -reach and support more users without additional resources -create and update content faster -provide unique certification and tracking -ensure user satisfaction with an easy to use intuitive interface -lower cost delivery and content development Commodity distance learning companies that do not provide comprehensive functionality, precise tracking, content customization, or cost-effective delivery PSL: (offers - key messages) THAT: (support) UNLIKE: (competition) Pebblesoft Confidential 49 Exhibit IV D. Page 1 Pricing Model Pebblesoft Confidential 50 Page 2 of pricing Pebblesoft Confidential 51 Page 3 of pricing Pebblesoft Confidential 52 Page 4 of Pricing Pebblesoft Confidential 53 Exhibit V A. Pebblesoft Adaptive Learning System Key Functions Tools for Students Bookmarks The system remembers where in the content material the student was when he left it and returns him there the next time he enters that course. Built-in E-mail Messaging Students can easily communicate with their instructors and with each other through e-mail built into the student's learning environment. Comments Private or public comments can be attached to any learning material. Comments can help clarify concepts or expand on ideas in the learning material without having to re-edit the original. Easy Navigation Students can review the course's learning objectives and the course syllabus. Mentors Students have access to mentor lists for each course. They can also sign up to mentor or be mentored. Personalized Learning Plan Students can build their own learning plans by signing up for desired courses from the course catalog. Students register, learn, and test at their own pace. Private Online Notebook Students can capture, organize, and annotate learning material according to their preference in a personal notebook. Students can place links to any learning material in their notebooks for future use, and reorganize the content in their notebooks in any order. Real-time Collaboration Students and instructors can exchange information through a shared clipboard; display and manipulate diagrams and graphics using a whiteboard; conduct conversations using audio, or in writing, and share learning objects and data from their local machine. Self-registration Students can register themselves for courses from the Course Catalog Universal Web Browser-based Access Students can access the training environment on-demand, anytime, anywhere through a standard Web browser. Up-to-Date Personal Profile Students can access their personal information and review enrollment history, test scores, and course certification. Tools for Instructors Customized-to-Student Curricula Instructors can tailor courses to meet individual needs without affecting other students through additional assignments, tests, recommended follow-on materials and courses, and individual coaching sessions using the built-in email and collaboration tools. Pebblesoft Confidential 54 Exhibit V B. Pebblesoft Adaptive Learning System Functions and the Compliance Market The Pebblesoft Adaptive Learning System has been designed for managing and delivery learning materials of any kind but it is particularly well suited to serve the market for compliance training. The table below shows the needs of the compliance market as we see them and the Pebblesoft functions that serve these needs. Compliance Training Market Need Frequent updating of content – Compliance content changes and must be quickly updated. Customization for site specific issues – While general content may apply universally, many sites need to provide additional training specific to their local situation. Modularization at any level for easy reuse – Even though change is the hallmark of the compliance training market, not everything changes every time. It must be easy to reuse content that has not changed. Record keeping – It is increasingly necessary to provide proof, to the compliance agencies and in legal proceedings, of exposure to compliance content Pebblesoft Learning System Function  Built in content editing.  Content learning object insertion anywhere. Pebblesoft system automatically updates navigation.  Comments can be attached to any content to carry new information.  Content of any size can be wrapped in a content learning object which can be inserted anywhere. Pebblesoft system automatically updates navigation.  Built in synchronous and asynchronous collaborations provide a way for instructors and mentors to interact with students over material that may need their support.  Copies of existing content learning objects can be inserted anywhere in existing or new material. Pebblesoft system automatically updates navigation.  Pebblesoft records all interactions with content objects – who invoked them, and when. This data is securely maintained in the Pebblesoft database. Pebblesoft Confidential 55 Compliance Training Market Need Testing , and certification In many cases, proof must be provided that material has been understood in general and that specific material has been mastered. Ease of content recall – Compliance can be complex, but it is essential that an employee can recall quickly what content it relevant to them in order to stay in compliance. Pebblesoft Learning System Function  Question object editor and library  Quiz object editor and library  Quizzes can save student results for each question into the Pebblesoft database, and provide feedback to students.  Timed quizzes are supported for those cases in which time to perform certain tasks is important.  Students can use Test-directed learning quizzes to point them to material they are unsure of.  Students can save any learning object into their own Notebook and add private comments to it. They can reorganize the objects in their Notebook in any order, even through they may have come from different courses. Pebblesoft Confidential 56 Exhibit VI A. Flow Chart of Pebblesoft Delivery Process Pebblesoft Confidential 57 Exhibit VIII A. Details of Financials There are several drivers of the Pebblesoft business case. I. General Drivers: The primary drivers of revenues are 1)sales headcount, 2)productivity of the sales force in terms of the time it takes to sell a channel partner, and 3)number of courses from a compliance consultant per year. 1998 CHANNE L MGRS Sell Cycle (mms) Courses created 3 1999 5 2000 9 2001 18 2002 29 2003 43 6 10 4 10 3 10 3 10 3 10 3 10 This yields the number of compliance consultants and the number of courses available. (Note the base unit is the 2 hour course. Up to 20 of these could be combined into a 40 hour course, but the 2 hour increments makes a good base unit.) New Content Partners Cum Content Partners Total 2 Hr Courses Cum 2 Hr Courses 2 14 28 25 44 58 2 16 44 69 113 171 8 8 132 140 245 385 495 880 848 1,728 1,310 3,038 II. Software drivers: The next set of drivers relates to software revenues. They are 1)percentage preferring to host versus buying software, 2)number of customers per compliance consultant partner, 3)number of students per customer, 4)percentage of customers wanting intranet solutions, 5)pricing, 6)percentage of courses which we offer for sale from each compliance consultant, 7)the number of customers per course, and 8)percentage of customers who want licenses for intranet deployment. 1998 % Hosting New custs/CP Students/ New customer % of Cust. W. Licenses Y/Y Price Decline $/License % Offered New custs/crse % of Cust. W. Licenses 25% 16 160 1999 25% 30 275 2000 25% 40 300 2001 25% 50 300 2002 25% 60 300 2003 25% 60 300 10% 0 $25,000 50-100% 20 15% 20% 5% $23,750 30% 50 10% 30% 5% $22,563 10% 30 8% 30% 5% $21,434 5% 20 7% 30% 5% $20,363 5% 10 7% 35% 5% $19,345 5% 0 7% Pebblesoft Confidential 58 These assumptions yield the following license and license revenues: 1998 Total CP New licenses Cum CP New Licenses Total Lic Rev $$ fm CP's Total New lic fm crse CumNew Lic fm crse Rev $ fm Lic. crse 0 1999 10 2000 79 2001 326 2002 659 2003 1,143 0 10 89 415 1,074 2,217 0 $237,500 $ 1,776,797 $ 6,992,965 $ 13,408,809 $ 22,115,626 0 0 0 35 35 150 185 215 400 4,608,391 $ 250 650 5,090,664 $ 434 1,084 8,395,523 $831,250 $ 3,384,375 $ Note: The remaining license revenues each year come from the additional student registration fees of $10 per student. III. Course Drivers: There are, similarly, drivers for the course revenues. These are 1)new customers per course, 2)number of students per new customer, 3)number of hours per course and 4)price per unit delivered. 1998 New custs/course Students/ New customer # hrs/course $/course hr 20 100 1999 52 75 2000 30 50 2001 20 50 2002 10 25 2003 0 25 2 $50 2 $48 2 $45 2 $43 2 $41 2 $39 These assumptions yield the number of student hours and revenues. New Stu hrs fm crse Course Rev $$ 3,232 85,410 372,478 1,056,488 $ 1,666,610 67,873,213 2,136,203 $ 82,647,658 $161,600 $4,056,975 $ 16,808,070 $ 45,290,320 IV. Maintenance Drivers: Maintenance revenues are driven by the number of licenses (see Section II above) and the price of maintenance. This is assumed to be 15% of the license price in the year maintenance is delivered. (Dollars in millions) Total Maint $ Rev 3 $53 $ 410 $ 1,347 $ 2,848 $ 5,364 Pebblesoft Confidential 59 V. Production Services Drivers: Production Services are dependent on 1)number of compliance consultants (See Section I), 2)number of courses that could be produced (See Section I), 3)percentage of courses Pebblesoft produces, and 4)the price per hour of course produced, 1998 % Using Prod. Serv. $/hr/course to prod. 75% $15,000 1999 55% $15,000 2000 40% $15,000 2001 30% $15,000 2002 20% $15,000 2003 20% $15,000 This yields revenues of— $ Prod Serv VI. $150,000 $1,560,000 $2,940,000 $4,965,000 $5,850,000 $9,870,000 Hosted Revenues: Hosted revenues are driven by 1)number of compliance consultants (See Section I), 2)percentage choosing hosting (See Section II), 3)number of courses per compliance consultant (See Section I), 4)number of customers per content provider (See Section II), 5)number of students per customer (same section), 6)number of hours per course (same section), 7)price per hour hosted, and 8)number of courses per student per period. $8.00 4 $7.60 4 $7.22 4 $6.86 4 $6.52 4 $6.19 4 $/hr hosting # courses/ student/ year All these factors combine to produce hosting revenues: Total Hosted Rev $34 $ 533 $4,286 $ 13,501 $ 29,183 $ 52,521 The percentages for each type of revenue per year are: % of Total Revenue License Course Maintenance Prod. Serv Hosting 1998 12% 39% 1% 39% 9% 1999 19% 53% 1% 20% 7% 2000 22% 54% 1% 9% 14% 2001 19% 56% 2% 6% 17% 2002 20% 51% 2% 4% 22% 2003 23% 42% 3% 5% 27% Pebblesoft Confidential 60 VII. Gross Margin Calculations Gross margin calculations are done by revenue stream. For software, the main gross margin factor is the cost of the third party products that are integrated into the license. 1998 $4,000 1999 $3,900 2000 $3,610 2001 3,430 2002 $3,258 2003 3,095 OEM Cost/license $ $ This results in Cost of Goods and Gross Margins of— License Royalties ($000’s) GM % $ 18 $173 $ 826 $ 1,856 $ 2,960 $ 4,882 60.5% 88.3% 87.7% 88.2% 88.8% 89.2% Many revenue streams share certain services (headcount and systems-related). Therefore, these gross margin expenses are allocated based on either revenue or headcount methods. Services/Ops Expenses $437,600 Crse Alloc Left to allocate Crse rev % Ratio 0.00 PM's:Total directs Ratio maint help:directs Hstng helpdesk: other ratio $868,117 $2,815,350 0.22 0.22 0.25 0.28 88% 80% 0.50 0.31 $ 6,524,617 0.16 0.21 77% 0.22 $13,873,467 0.17 0.24 70% 0.13 $24,071,649 0.08 0.12 61% 0.14 0.13 0.13 0.21 0.21 0.29 0.29 0.31 0.31 0.37 0.37 For courses, the key assumptions are 1)allocations and 2)royalty percentages. Royalty % Royalty/crs hr 50% $25 50% $24 45% $20 43% $18 41% $17 40% $15 The resulting COGS and GM% are— Courses ($000) GM % $ 136 10.0% $ 2,220 42.3% $ 8,182 51.3% $ 20,512 54.7% $ 30,198 55.5% $ 34,873 57.8% Maintenance costs are all allocations based on headcount. As with most maintenance businesses, gross margins come only with volume. Maintenance ($000) GM % $ 93 -2735% $ 109 -103% $582 -42.0% $ 1,864 -38.4% $ 4,342 -52.4% $ 8,898 -65.9% Pebblesoft Confidential 61 Production Services is determined by 1)allocations for project managers, etc., 2)outside contractor rates, 3)number of hours per course hour of production, and 4)number of hours per course (See Section II). 1998 $ 45 50 $4500 1999 $45 40 $3600 $ $ $ 2000 45 40 3,600 2001 45 40 3,600 2002 45 $ 40 $ 3,600 $ 2003 45 40 3,600 Cost/Hr Prod Serv # Hrs/Hr of Course Direct Course Cost $ $ $ $ $ $ The Production Services Costs of Goods and Gross Margins are— Prod Services GM % $ 143 5.0% $ 898 42.5% $ 1,708 41.9% $ 3,164 36.3% $ 4,730 19.1% $ 7,857 19.7% The Hosting costs are determined by 1)allocations 2)a series of assumptions on server capacity, and 3)server costs. Per Server Cost: Softwre Environ Facilities Contingency Total (w/o ops prnst) Server Cost Total $ $ $ $ $ 8,333 12,000 4,067 24,400 91,500 $ 8,333 $12,000 $4,067 $24,400 $366,000 $ 8,333 $ $12,000 $4,067 $24,400 $878,400 8,333 $12,000 $4,067 $24,400 $1,415,200 $ 8,333 $12,000 $4,067 $24,400 $1,952,000 The Hosting COGS and GM% are-Hosting GM % VIII. Expenses Expenses are driven off of key ratios of certain personnel to business transactions or to other personnel. These assumptions are: Channel Mgrs:TSS Admin:Other ratio Project Mgr: course ratio Mgr:wrkr ratio HR:Total Pop (non G&A) IT:Total Pop Cntr:R&D 1.00 0.10 0.04 0.10 0.03 0.03 0.20 0.75 0.10 0.04 0.10 0.03 0.03 0.20 0.75 0.10 0.04 0.10 0.03 0.03 0.20 0.75 0.10 0.04 0.10 0.03 0.03 0.20 0.75 0.10 0.04 0.10 0.03 0.03 0.20 0.75 0.10 0.04 0.10 0.03 0.03 0.20 $ 45 -30.4% $ 225 57.7% $ 1,010 74.2% $ 2,491 77.4% $ 4,835 76.8% $ 7,537 77.1% Pebblesoft Confidential 62 1998 G&A Executive Directors Finance HR IT Admin Prod Services Executive Mgmt Proj Mgrs Admin Order F / help Ops Personnel Marketing & Sales Executive Vertical Sales/Manage r/Dir Channel Mgrs Tech Sales Support Admin Product Marketing Mkt Support R&D Development Executive Mgr/ Director S/W R&D Admin Contractors TOTAL 5 1 0.5 1 1 1 3 1 1 1 1999 6 1 1 1 2 1 10 1 4 1 2 2 2000 16 2 5 3 4 2 36 1 2 9 4 16 4 2001 28 2 1 11 5 6 3 77 1 6 14 7 40 9 2002 59 2 3 29 8 11 6 160 1 13 17 15 99 15 2003 88 2 6 42 13 17 8 257 1 21 29 24 162 20 10 1 1 18 1 1 30 2 2 53 2 4 79 2 6 114 2 9 2 3 1 1 1 12 1 1 8 2 30 5 4 2 4 1 17 1 1 12 3 51 9 7 3 5 2 39 1 3 27 2 6 121 18 14 5 7 3 54 2 3 38 3 8 212 27 21 8 9 6 98 2 7 70 5 14 396 40 30 11 13 9 139 2 10 100 7 20 598 Pebblesoft Confidential 63 These headcounts multiplied by salaries, travel, bonuses, facilities, miscellaneous and adjusted for inflation yield: ($000) Total G&A Total Production Services Total Sales & Mkt Total R&D TOTAL 1998 556,500 437,600 1,508,300 1,472,800 1999 668,560 844,935 2,600,346 2,080,250 2000 1,469,280 2,662,990 4,655,709 4,045,040 2001 2,804,970 6,217,360 8,492,414 6,386,820 2002 5,562,480 12,936,240 13,699,468 10,723,460 2003 9,279,500 22,850,125 20,619,527 16,380,200 3,975,200 6,194,091 12,833,019 23,901,564 42,921,648 69,129,352 Other expenses are then allocated to the expense areas: G&A recruiting Outsourced Auditing, CPA Outsourced Legal Depreciation on new fxd assets Total G&A misc Services recruitiing $ Depreciation on new fxd assets Depreciation on servers Total Services misc Sls & Mktg Recruiting $ Depreciation on new fxd assets MarComm Total S&M misc 7,665 R&D Recruiting $ Depreciation on new fxd assets Depreciation on cap equip fxd assets Total R&D Misc 12,500 186,054 4,548 12,347 43,750 3,506,884 77,670 28,325 81,250 9,067,989 42,910 39,219 118,750 16,177,125 296,755 71,176 143,750 25,886,595 224,044 100,954 150,000 60,000 72,000 132,000 3,411 75,000 90,000 4,358 172,769 15,919 7,263 74,113 7,665 23,182 19,103 13,364 153,587 48,544 93,467 155,778 11,621 309,409 126,214 26,146 146,196 152,360 57,767 22,006 3,427,111 73,561 242,427 404,044 20,336 740,368 251,333 55,924 416,629 307,257 140,379 38,638 8,888,972 306,646 396,534 660,890 42,851 1,406,921 821,021 116,206 661,692 937,227 258,176 57,595 15,861,354 309,394 586,876 978,127 63,913 1,938,311 1,034,868 186,656 1,039,425 1,221,524 372,339 82,942 25,431,314 12,500 60,645 187,245 200,880 511,681 474,998 Pebblesoft Confidential 64 A recap of expenses by function, including all costs-($000) R&D Sales & Mktg G&A 1998 $1,751,713 457% $1,111,066 290% $766,294 200% 1999 $2,140,895 $ 27.9% $2,786,400 $ 36.3% $841,329 $ 11.0% 2000 4,232,285 13.6% 8,162,593 26.2% 1,778,689 5.7% $ $ 2001 6,587,700 8.2% $ 17,560,403 21.7% 3,545,338 4.4% 2002 $11,235,141 8.5% $29,876,592 22.6% $6,969,401 5.3% 2003 $ 16,855,198 8.6% $ 46,506,122 23.8% $ 11,217,811 5.7% Balance sheet assumptions are— Cash Of Revenue 5% A/R DSO - of Revenue DSO Lic DSO Course DSO Maint DSO Prod. Serv. DSO Hosting DSO-weighted Based on 4Q Actual Revenue Prepaids PP&E All capital and fixed assets Depreciation Over 3-4 years A/P % 0f COGS & Operating Expenses Accr. % of Op Expenses, except years 1,2 Liabilities Royalty drag Days after sale of class paid 2% 5% 60 60 30 30 75 60 54 Actual 55 30 30 70 60 45 55 30 30 65 55 42 40% 50 30 30 60 55 40 35% 50 30 30 60 50 40 30% 45 30 30 55 50 40 30% 4% 3% 2% 2% 2% Pebblesoft Confidential 65 1998 By Quarter $ thousands 1998 - By Quarters 1Q'98 REVENUES: Total Lic Rev Total Course Rev Total Maint Rev Total Prod. Serv $ Total Hstd Rev $$ Total Revenue $ Cost of Goods: License Royalties Courses Maintenance Prod Services Hosting Total COGS Gross Margin GM % Operating Expenses: Development Sales/Marketing G&A Total Op Expenses Interest Inc/(Exp) PBT $ (887) $ (933) -2684% $ (889) -810% $ (970) -408% -116928% $ $ $ $ 390 291 173 854 $ $ $ $ 471 225 219 916 $ $ $ $ 424 270 197 892 $ $ $ $ 467 324 177 968 $ $ $ $ $ $ 1,752 1,111 766 3,629 (60) (3,739) -976% $ $ $ $ $ $ $ 0.28 23.17 11.15 34.59 (33.83) -4458% $ $ $ $ $ $ $ 3.50 23.17 14.25 11.15 52.07 (17.31) -50% $ $ $ $ $ $ $ 7.00 23.22 23.17 42.75 11.15 107.29 2.51 2% $ $ $ $ $ $ $ 7.00 112.50 23.17 85.50 11.15 239.32 (1.37) -1% $ $ $ $ $ $ $ 17.78 135.72 92.67 142.50 44.60 433.26 (50.00) -13% $ $ $ $ $ $ 1 1 $ $ $ $ $ $ 15 1 15 4 35 $ $ $ $ $ $ 30 26 1 45 8 110 $ $ $ $ $ $ 125 1 90 22 238 $ $ $ $ $ $ 45 151 3 150 34 383 2Q'98 3Q'98 4Q'98 Recap from detail TOTAL Pebblesoft Confidential 66 1999 Detail 1Q99 Total Lic Rev Total Course Rev Total Maint Rev Total Prod. Serv $ Total Hstd Rev $$ Total Revenue $ Rev. Incr. License Royalties Courses Maintenance Prod Services Hosting Total Gross Margin GM % R&D Sales/Mktg G&A Operating Expenses Interest Inc/(Exp) PBT PAT % Profitability $ $ $ $ $ $ $ $ $ $ $ $ $ 91,250 290,890 9,609 150,000 50,601 592,350 149% 12,000 159,200 19,533 76,622 21,393 288,748 303,602 51% 385,361 501,552 151,439 $ $ $ $ $ $ $ $ $ $ $ $ $ 2Q99 229,760 586,910 11,211 270,000 87,446 1,185,326 100% 28,000 321,208 22,788 116,319 36,970 525,286 660,040 56% 449,588 585,144 176,679 1,211,411 (551,371) (551,371) 0% 3Q99 $ 435,000 $ 1,112,545 $ 14,948 $ 435,000 $ 153,034 $ 2,150,526 81% $ 53,200 $ $ $ $ 608,881 30,384 247,403 64,700 $ $ $ $ $ $ $ 4Q99 720,310 2,066,630 17,617 705,000 241,589 3,751,146 74% 79,800 Total 1999 $ $ $ $ $ $ $ $ $ $ $ $ $ 1,476,320 4,056,975 53,384 1,560,000 532,669 7,679,348 1904% 173,000 88.3% 2,220,329 45.3% 108,515 -103.3% 897,668 42.5% 225,203 57.7% 3,451,713 4,054,634 53% 2,140,895 2,786,400 841,329 $ 1,131,039 $ $ $ $ $ 35,810 457,323 102,139 1,806,111 1,945,034 52% 706,495 919,512 277,639 1,903,646 41,389 41,389 1% $ 1,004,568 $ 1,145,958 53% $ $ $ 599,451 780,192 235,572 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1,038,352 $ (734,750) $ (734,750) 0% $ 1,615,215 $ $ (469,257) (469,257) 0% $ 5,768,624 $ (60,000) $ (1,773,989) $ (1,773,989) 0% Pebblesoft Confidential 67 ($000) 1998 Revenues: Total Lic Rev Total Course Rev Total Maint Rev Total Prod. Serv $ Total Hosted Rev Revenues: COGS: License Royalties Courses Maintenance Prod Services Hosting Total COGS Gross Margin GM % Operating Expenses: R&D Sales/Marketing G&A Total Op Expenses Int Inc/(Expense) PBT PAT $ $ $ $ $ $ $ 1,752 1,111 766 3,629 (274) (3,953) -1031% (3,953) -1031% Cash Flow Cum Cash Flow $ (4,053) $ $ $ $ $ $ $ 18 136 93 143 45 433 (50) -13% $ $ $ $ $ $ 45 151 3 150 34 383 SUMMARY PROFIT & LOSS STATEMENT 1999 2000 $ $ $ $ $ $ $ $ $ $ $ $ $ 1,476 4,057 53 1,560 533 7,679 173 2,220 109 898 225 3,625 4,055 53% $ $ $ $ $ $ $ 2,141 2,786 841 5,769 (274) (1,988) -26% (1,988) -26% $ $ (3,660) (7,712) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 6,711 16,808 410 2,940 4,286 31,156 826 8,182 582 1,708 1,106 12,405 18,750 60% 4,232 8,163 1,779 14,174 (60) 4,516 14% 4,065 13% (448) (8,161) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2001 15,706 45,290 1,347 4,965 13,501 80,809 1,856 20,512 1,864 3,164 3,052 30,448 50,361 62% 6,588 17,560 3,545 27,693 (30) 22,638 28% 13,583 17% 7,718 (443) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2002 26,423 67,873 2,848 5,850 29,183 132,178 2,960 30,198 4,342 4,730 6,776 49,006 83,172 63% 11,235 29,877 6,969 48,081 35,091 27% 21,055 16% 17,743 17,300 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Pebblesoft Confidential 68 ($000) 1998 Op Income After Tax Non-Cash Yrly Deprec Expense Funds from Operations LT Debt Equity Investment Total Sources Working Capital Invest Other Uses Cash Flow Cum Cash Flow ($000) USES: Cash A/R PPE Inventory Prepaids SOURCES: A/P Accrued Liabilities Current Debt 97 186 (67) 216 Working Capital Increase(Decr ease) 128 128 4 142 198 344 (3,953) 29 (3,924) (3,924) 128 128 (4,053) CASH FLOW SUMMARY 1999 (1,988) 155 (1,833) (1,833) 1,827 1,827 (3,660) (7,712) 4,469 4,917 4,917 (448) (8,161) 2000 4,065 404 4,469 2001 13,583 825 14,407 14,407 6,690 6,690 7,718 (443) 2002 21,055 1,452 22,506 22,506 4,763 4,763 17,743 17,300 2003 31,520 2,232 33,752 33,752 8,188 8,188 25,564 42,864 WORKING CAPITAL CHANGES 39 1,876 624 2,538 297 332 (45) 583 1,955 1,827 1,495 5,833 945 8,274 532 915 (45) 1,402 6,872 4,917 2,263 12,541 1,752 16,555 1,163 1,849 (18) 2,993 13,562 6,690 3,172 17,510 2,729 23,411 1,942 3,144 5,086 18,326 4,763 4,695 26,145 3,485 34,325 2,862 4,949 7,811 26,513 8,188 Pebblesoft Confidential 69 Exhibit XI A. References and Sources 1. American Society for Training and Development, Training, September 1996, vol.33, no.9, p.53. 2. Occupational Safety and Health Administration, www.osha-sic.gov/SLTC/Ergonimics, April1998. 3. American Management Association, Management Review, January 1997, vol.86, no.1, p.30. 4. International Data Corporation, The Emerging Market for Web-Based Training, 19962002, IDC # B15602, April 1998. 4. Philadelphia Business Journal, December 13, 1996, p.3. 5. American Compliance Institute Conference, "Building and Maintaining a Corporate Compliance Program," Alexandria, Va., May 4 and 5, 1998. Pebblesoft Confidential 70