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i www.SOLDOUT.com
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.COM .,
Your Premium Entertainment and Event Resource.
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CONFIDENTIAL
INFORMATION
MEMORANDUM
May 2000
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1. Executive Summary Introduction ................................................................................................................ The Challenge ............................................................................................................. Company Overview .................................................................................................... Strategy and Objectives .............................................................................................. Products and Services to Customers ........................................................................... Revenue Growth ......................................................................................................... Benefits to Vendors .................................................................................................... Market and Competition ............................................................................................. Market Positioning ..................................................................................................... Management Overview ............................................................................................... Board of Advisors Financial Summary ..................................................................................................... Overview 2. Industry Current Trends .......................................................................................................... Description of Industry Participants .........................................................................
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3. Company Overview History ...................................................................................................................... Lines of Business ...................................................................................................... Vendors ..................................................................................................................... Sales and Service ...................................................................................................... Customer Profile ....................................................................................................... Advertising and Marketing Programs ....................................................................... Technology ............................................................................................................... Legal Compliance ..................................................................................................... Management and Organization ................................................................................. Ownership ................................................................................................................. Professional Firms & Board of Directors and Advisors ............................................
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4. Financial Summary Income Statement ..................................................................................................... Balance Sheet ........................................................................................................... Appendices A. Preliminary Audited Financial Statements C. SOLDOUT.com Web B. Detailed Projections Site D. Web Site Statistics 36 37
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Confidential Information Memorandum This Confidential Information Memorandum ("Memorandum") has been prepared by and for SOLDOUT.com (the "Company") in connection with the Company's potential private placement and refinancing through Duff & Phelps Securities, LLC ("Duff & Phelps"). While the information contained herein is believed to be accurate, the Company and Duff & Phelps each expressly disclaims omissions all liability Memorandum or any or warranties, or expressed or implied, contained in, or for any and from, this for representations other written oral information provided or made available by the Company. Duff & Phelps has not independently verified such information and has not made an independent appraisal of promise orof the Company.as Estimates and operations of the Company. shall not be relied Upon as a the assets representation to the future projections contained herein The Memorandum is intended solely for the persons receiving it from Duff & Phelps in connection with the sale and is not authorized for reproduction or distribution to others. This Memorandum is furnished to the recipient pursuant to the Confidentiality Agreement between the recipient and the Company and constitutes part of the confidential information as defined therein and shall be governed by the provisions thereof. Duff and Phelps has not been authorized to give any information or to make any representations not not be information contained herein contained in this Memorandum, and any or statements not may relied upon as having been authorized by the Company. Neither the delivery of the Memorandum, nor beencapital raising made hereunder, shall under since circumstances, create the impression that there have any no changes in the affairs of the Company any the date hereof.
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Duff & Phelps Duff arrange forundertakes no obligation to by potential investors. with furnishing this Memorandum, will & Phelps appropriate due diligence provide the recipient In access to any additional information. All communications or inquiries relating to these materials and any requests for additional information should be directed to Duff & Phelps. The Company should not be contacted directly. Duff & Phelps Securities, LLC 280 Park Avenue East Building, Suite 2300 New York, NY Tel: (212) 450-2800 Fax: (212) 297-0517, 0518
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George E. Thomassy HI Managing Director (212) 450-2802
Michael C. Morrison Vice President (212) 450-2803
Peter C. Han Associate (212) 450-2812
Christine J. Lay Analyst (212) 450-2813
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1. EXECUTIVE SUMMARY Introduction SOLDOUT.com (the "Company") has created the first online marketplace that links corporations and high-income consumers, who value live-event entertainment, with vendors who are trying to reach by negotiating special access for them, from its them with memorable entertainment experiences and them. The Company aggregates orders providing customers in order to provide them with great service generating high margins for the Company. Likewise, vendors receive the benefits of a targeted, scalable marketing, sales, distribution products more cost-effectively. and support channel to increase reach and establish new
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Company Overview For over 12 years, SOLDOUT.com and its predecessor company, Access Marketing, Inc. (d.b.a. ' SOLDOUT and 1-800 SOLDOUT), has been a reliable source for live, event-centric products and services, offering unrivaled access to premium events, the highest levels of customer service, and exceptional client satisfaction and value, which has led to a high percentage of repeat and referral The from its business among both corporate and individual accounts. Company's success comes ability to effectively meet the needs of its customers, who, i) require access to first-rate events on short and execution, iv) prefer one-stop shopping for iii) major events, and v) are willing to payboth planning notice, ii) demand near-perfect dependability, all expect the highest quality service in a premium.
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SOLDOUT.com's sales, focus secondary focus market, which represents approximately 70% of The Company's primary with a is on the business on high net worth individuals. The Company's 20,000 active customers generate average first year sales of $1,015, a gross profit of $355, against an acquisition in years two through five, marketing expenses of margin account have resulted in repeat sales of $1,185 cost of $135. Retention with an average gross $6 per of 34%.
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The Company's and 985,000 was launched in views. 1999 and in October registered 140,000 monthly unique visitors Intemet site monthly page May During November 1999 and February 2000, SOLDOUT.com generated 18-19% of its total revenue directly through its Internet site. Due to this strong initial online market reception, achieved without any Internet marketing expenses, the Company believes it has the opportunity to become the outright leader in the highly fragmented premium live event market. The Company's successful Internet launch illustrates a strong consumer demand for online solutions to gain access to premium events. Few established brands exist in this emerging industry, and no competitor offers the breadth of event package options available at SOLDOUT.com. The Challenge
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SOLDOUT.com believes that current methods of retail ticket distribution for live entertainment events do not effectively address the needs of corporations and high-income individuals who desire immediate major to premium seating for popular by families example, a limited supply of season tickets for access sporting events are closely held events. For and corporations, and many popular theaters sell out choice seats years in advance. In addition, concert tickets are either sold to event
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sponsors or to customers on a first come, first served basis, which puts customers at a significant I disadvantage in obtaining tickets to limited seating events. Additionally, media-centric sponsorship of leagues, teams, and venues is not cost effective for smaller groups or companies that do not value niche industries have emerged, including hospitality brand exposure. In response to consumer demand for accesscompanies, tour companies, destination to premium entertainment events, several management companies, and secondary market ticket resellers. However, no dominant brand has emerged waythe national sold. and no company currently has the scale or investment base to materially alter the on tickets are level, Strategy and Objectives SOLDOUT.com's I mission is to provide the highest quality access to live sports and entertainment
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events by offering its customers superior products and services, every time. incentive and promotions become the leading player in the over $50 billion corporate entertainment, The Company intends to market, with a proven e-commerce platform and an extensive and loyal customer base. Because of the Company's strong relationships with customers, it can also provide significant benefits to vendors by helping them access a targeted, cost insensitive customer base that finds entertainment and should be to be valuable. Vendors, particularly major sports leagues, teams, venues promoters, more willing to deal directly with the Company, because it will significantly increase their revenue and value fortheir customers by using its scale to experience. sponsor result, the Company can maximize enhance its customer's overall entertainment negotiate As a level access to live events. By benefiting both customer and vendor, this marketplace will reinforce itself leading to higher sales and satisfaction for both parties. SOLDOUT.com provides information, ticket packages and ancillary services for almost every major sporting, concert and theater event, extensive profiles centralizing as much information as possible on live event availability, by utilizing nationwide. By on customers' lifestyle interests, as well as by immediately facilitating transactions for event packages, SOLDOUT.com makes every effort to save its customers available resources by helping them make can comparison shop, while also catering to aggregate all time and money so that its customers educated choices. The Company strives to those who enjoy or require the flexibility of making last minute decisions. Over the past year and a half, the Company has begun shifting its focus to become the dominant online .marketplace for value added live event entertainment for corporate and affluent individual customers. goal, significantly strengthened management To achieve this SOLDOUT.com has its team with a President/COO, an EVP Brand and Product Development, a VP Communications, a Controller, and a strong Board of Advisors that includes a number of live entertainment industry veterans. Through the development and refinement of additional business models geared toward the corporate customer base, the Company expects to broaden its strategic relationships with major sports teams, leagues and venues. Furthermore, in addition to a successful Internet site launch that has yielded surprisingly positive results, the Company has continued its rapid top line growth, with an expected 50% increase in fiscal 2000. To fuel its expansion, the Company has raised a total of $1.6 million in outside financing, and anticipates raising an additional $8 million in institutional venture capital.
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Over the next six months, the Company will recruit senior managers and support staff in Product I Development, Marketing, Technology, Business Development, Human Resources and Legal. During this time, SOLDOUT.com expects to establish several direct team/venue relationships, strategic corridor extending from Southern Boston, solidify its presence expanding and partnerships, and affiliate programs. New Jersey to intends to Massachusetts, while in the Northeast Management enhancing its corporate customer relationships through improved marketing and retention initiatives. With subsequent institutional out the SOLDOUT.com business nationally, while continuing to refine its the Company intends to roll funding, once its core service models are established in the Northeast, business models and customer and vendor relationships. Revenue Growth
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The Company has had1999. Through targeted marketing programs over an increase in technology and $9.6 million in fiscal compound annual revenue growth of 45% and the past three years, reaching sales infrastructure, SOLDOUT.com anticipates reaching revenue of $14.9 million, $33.0 million, expects years, $77.1 million and $165.2 million over the next four respectively. The Company to become cash flow break-even in fiscal 2002, when it has achieved a critical revenue mass. Products and Services to Customers
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SOLDOUT.com provides its customers with the following products and services: i) ii) iii) v) iv) vi) Up-to-date listings of events and relevant event information offers Registration for continuous news on selected events, including on-sale information and special The ability to research all ticket options, box-offices, primary distributors and resellers Access to the "virtual inventory" ticket vendors The opportunity to buy attractive of 300 packages Negotiated access to events and special opportunities
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vii) A means to sell extra tickets through SOLDOUT.com for cash or trade Not all of the above mentioned services generate revenue for the Company, but are provided to build online customer traffic, brand awareness and differentiation, and most importantly, customer loyalty. Benefits to Vendors SOLDOUT.com provides its vendors with: i) ii) to Company's Cost effective sales channel reach the 20,000 customers. Entry level sponsorship opportunities marketing to small- and mid-sized companies, who are Web-enabled service channel to directly. too small for the vendors to reachreach the Company's customers. The opportunity to be aggressively marketed by the Company's sales force. sold for substantially from new product offerings, including higher levels of hospitality, to be The ability to profit higher prices.
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iii) iv) v)
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The current market for live entertainment and sports events and related corporate hospitality is $50 of this market, and Tickets.corn only the largest participant billion and highly fragmented. Ticketmaster, comprises $220 million,in leaving substantial comprises $6 the industry, only market share to a variety of smaller entities. According to Forrester Research, on-line ticket sales are currently $300 million and expected to grow to $4 billion by 2004. This data suggests there are significant consolidation opportunities and room for substantial gains in efficiency in the live entertainment services industry. Since corporate America's entertainment needs are not being met, fragmented industries have begun to emerge including auctions, sports tour companies, and ticket broker companies. The aggregate , annual the dominantthese "cottage"inindustries is estimated to be as large as $4 billion. The chart below shows revenue of participants these categories:
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Auctions
Sp(Irts Sponsorships
llosph:diLy/lncentive
Sp(_rls Tours
]'iCkCl |_rokers
Yahoo Citygcarch E-bay
Octagon IMG
Pall Mall Carlson
Spectacular ST Classics Furgals" Tennis Esoteric
Mun'ays Golden Top Centre Western States
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This fragmented market is very inefficient as margins, prices, product and service vary widely across these different industry niches by the Company be sold several concerns are far outweighed end customer. Studies conducted and tickets may show that cost times before reaching their by inventory, service, and reliability issues. With very few established brands in the live entertainment event services industry, establish national brand recognition. SOLDOUT.com has already positioned Customer service and to great opportunities exist for the Company to differentiate its high level of itself as a premier full service provider of live event ticketing in the New York metro area. Based on its success, the Company intends to leverage its presence and customer loyalty to provide a full range of products on a national basis. Existing methods of retail ticket distribution for live sports, concert and theater entertainment primarily involve firms such as Ticketmaster which provide distribution of tickets but do not provide any value-added through sales or marketing to sell the tickets. The event promoter is responsible for providing the marketing for these sales. These "first come, first serve" approaches do not meet the needs of corporate and high income consumers who require immediate access to sold-out and premium events and expect superior service.
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Ticket Master
Primary Distributors Box Offices Telecharge
Tickets.corn
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Market Positionin_ This marketplace will be effective because the Company can create efficiencies by leveraging its single team channel to can economically justify providing this levelcustomers cost effectively. No distribution or venue offer multiple entertainment opportunities to of service to these premium consumers. SOLDOUT.com is well positioned to take advantage of these huge market opportunities commerce, which already accounts for 15%-20% and total sales. by leveraging its scale, brand name recognition, of its its substantialThe effective in Internet-enabled head start use of current and emerging technology will benefit vendors and consumers through lower selling and service costs. SOLDOUT.com's strength resides in its extensive and loyal client base, where 60% of corporate customers, and 15% of individual consumers rely on the Company as a sole source provider of premium event ticketscustomers who have purchased has approximately 75,000 prospects 2 t/2 years. base and has 20,000 and packages. The Company from SOLDOUT.com over the past in its data The Company enjoys a very high lifetime value from its customers. On average in the first year, each gross years, customer generates $1,015 of revenue and $355 of profit; and over five each customer generates $2,200 of average revenue and $775 of gross profit. Equally important, the Company has achieved this performance by only spending about $135 per customer on marketing for acquisition and for retention. Due the virtually nothing on marketing to high gross profit dollars, substantially more can be efficiently and profitably spent on marketing for new customer acquisition and retention. 35% and 17% referral rate for new business in corporate and individual rapidly, aided by an estimated In addition, SOLDOUT.com's loyal customer base continues to grow accounts, respectively.
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Management Overview Justin Fallon (Age 31), Chairman and CEO, is the founder of SOLDOUT.com.
Mr. Fallon has
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member of both The Young Entrepreneur's Organization CYEO") and the Chief Executive an active provided the vision and guidance of the Company's growth since its inception in 1987. He is Officers Club CCEO Club"). He is also a finalist for the Ernst & Young Entrepreneur of the Year Award for 2000. David Chemerow (Age 48), President and COO, oversees the Company's finance, operations, and administration. He has over 25-years of experience across public and private media, entertainment and technology firms with revenue up to $4 billion. He has served in executive, operations, and management positions, including President and COO of GT Interactive Software Corp., Executive Vice President of Finance and CFO Playboy Enterprises, Inc., President of Beechwood Capital Corp., Finance and Operations and CFO of of Entex Information Services, Inc., Executive Vice President of and various operating and finance positions at Primerica Corp. Mr. Chemerow currently serves on the Board of Directors of Playboy Enterprises and Dunham's Athleisure. Steve Wagner (Age 49), Executive Vice President - Brand and Product Development, has spent over programs 30 years pioneering innovative marketing including destination marketing, corporate brand marketing, lifestyle/event marketing, loyalty/incentive marketing and corporate sponsorship. He has companies innovative solutions for enhancing brand image and building customerTourism, Travel for developed such as American Express, American Airlines, Bermuda Department of relationships & Leisure Magazine, Entertainment Weekly, Playbill Magazine, ZD/Net and other clients in financial services, publishing and the arts and entertainment fields. Jim Erlick (Age 44), Senior Vice President, Strategic Development, is currently functioning in an
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outsidestrategic relationships with leagues, teams and experience and contacts to help as the CEO of create capacity to SOLDOUT.com, leveraging his venues. He founded and served the Company The Erlick Group since 1993. He has over 20 years of executive marketing experience with firms such as American Express, General Foods, and Seagrams, with a focus on Fortune 500 clients. These strategic sponsorships and promotions for leading theaters, venues and national, regional and local "partnerships" often include event marketing, sales promotion, direct marketing and database elements. From 1988 to 1992 Mr. Erlick served as VP Marketing at American Express, managing a portfolio of cardmember benefits and services. Stephen M. Lombardi (Age 46), Senior Vice President, Strategic Development, is currently functioning in an outside capacity to SOLDOUT.com, leveraging his experience and contacts to help the Company create strategic relationships with leagues, teams and venues. He also serves as Partner and Director of Business Development for Landes Lombardi Associates, Inc. Mr. Lombardi has over 25 years of experience in live entertainment marketing and management, and has been an executive negotiating major events such as Bruce Springsteen, He hasSinatra,extensive experience booking and Frank had Janet Jackson, Elton John, NCAA director at several prominent Northeast venues. Basketball and Hockey, US Figure Skating Championships, and several US Olympic Team events. Marianne Fulgenzi (Age 43), Vice President of Communications, has over 20 years of experience in corporate and product specific media programs. She most recently served as Vice President, Publicity Duff &PhelpsSecurities,LLC Page 6
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programs as part of the company's overall global managed all facets programming. short term publicity In addition, Ms. Programs for Mastercard International, where she communications of long and Fulgenzi has significant experience in the development of and the on-site planning, direction and the PGA TOUR/Senior TOUR, Major League Baseball, the National Hockey League and Cup Soccer, supervision of major US and international sporting event sponsorships, including World Formula One Racing. She previously worked in account management for Hill & Knowlton, and in media planning for J. Walter Thompson Company. Jill McKeon (Age 37), Vice President of Internet Strategy, established the SOLDOUT.com site, managing the daily operations, designing interactive marketing programs, driving traffic to the site, and measuring results. Ms. McKeon is an accomplished computer programmer, and is a recipient of the 1998 Award of Distinction, a Communicators Award in the category of Websites, and the 1997 APEX Communications Concepts Award for Web and Intranet Sites Excellence. SOLDOUT.com, Ms. McKeon was with Dictaphone Corp. Prior to joining
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ofin formation Systems, joined Company (Age 43), Brian Polk Vice President the with more than 20 years in information technology. He is skilled in all areas of data processing and is responsible for the management and training of the Company's computer programmers and system administrators. His of critical the of innovative experience with a vast range software programs has been to development solutions for the Company's systems, including accounting, billing, order processing, and customer , implemented a real-time securities trading system Polk worked company's traders to execute, where he services. Prior to joining SOLDOUT.com, Mr. to allow the at a NYSE specialist firm, monitor, and calculate P&L from trades in a real-time environment. Laurie Cartier (Age 35). Director of Product & Inventory, has developed a team of seven event managers and staff responsible for creating and managing product relationships. In addition, she has , developed systems to manage and communicate inventory information in a real-time environment. Glen Ferguson, CPA, (Age 35), Controller, is responsible for financial reporting and administration. He joined the Company with over 10 years experience in finance and accounting with a big 5 firm. handling and processing of ticket inventory and the fulfillment of all orders. Mary-Jo Januski (Age 37), Director of Operations, is responsible for ticket operations, including the Tot_y Rosser (Age 44), Creative Director, is responsible for all creative direction for both Web-based and offline initiatives, brand integrity, graphic design and print trafficking. Thomas Wicker (Age 27), Director, Outbound Sales, has a dual focus: to develop a team to proactively target corporations and high-end individuals as new customers of SOLDOUT.com, as well as to develop an affiliate marketing program for the company.
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David Evans of the 22), Director of Applications Development, integrating all (Age company's internal and business systems. architecture and Web37), Director of Web Applications, Alan Niebuhr (Age applications.
is responsible for upgrading
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A team of forty employees serving in sales, purchasing, finance, Internet development, information the technology and administrative capacities support Company's management team ("Management"). SOLDOUT.com is currently recruiting additional members for its senior management team, including Development, a VP of Sales, Chief Marketing and a a Chief Financial Officer, a Chief Technical Officer, a a General Counsel,Officer, Director of Human Resourcesand SVP Business
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Alan Taylor has spent more than 30 years in the communications profession and is currently the CEO i_ of Alan Recently,Associates, named him one of the Top 100 Public Relations Executives of the 20u_ arena. Taylor PR Week a leading PR firm with particular expertise in the sports entertainment Century while the New York News named him as one of the top impact players in New York in sports. Robert J. Petisi has spent the past twenty years in the marketing agency and consulting business, and has had senior consulting and management roles at the Thomson Corporation, Marketing Corporation of America, Saatchi & Saatchi, and Dryden and Petisi. Dave Hakins has over 14 years experience in the hospitality, travel and promotional event industry, as I "tli well as over 18 years as a marketing executive at General Foods, JC Penney and Chase Manhattan. Jamie Gerard has over 17 years of experience in high net worth investment advisory, as well private equity investment experience in the Internet technology industry. He is currently the Managing Principal of Ironbound Partners Fund, LLC.
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Financial Summary The Company has grown substantially over the past three years. Beginning in 1997, an information systems infrastructure, corporate and departmental systems and procedures were developed and implemented, which have propelled SOLDOUT.com into a leading position in its industry. Since 1997, the Company has had a compound annual revenue growth rate of 45%, while increasing its gross margins. A financial summary of the Company is presented below: SOLDOUT.com
K/
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FYE September 30
Summary Historical and Projected Income Statement
I. ($ inmillions) 1997
Historical 1998
1999
2000
Projected 2001 2002
2003
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Net Revenue Gross Profit
$4.289 $1.440
$5.868 $1.888
$9.601 $3.408
$14.908 $5.157
$33.041 $13.525
$77.075 $31.537
$165.160 $67.580
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Marketing. Expenses General and Administrative Total Operating Expenses
Expenses
0.100 1.335 $1.435
0.168 1.660 $1.828
1.106 2.900 $4.006
3.246 7.231 $10.477
7.744 12.653 $20.397
13.796 18.855 $32.651
25.140 30.889 $56.029
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$0.105
$0.228
$0.508
($1.686)
$1.703
$13.770
$38.487
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$0.005 ($0.035)
$0.060 $0.020
($0.599) ($0.706)
($5.126) ($5.320)
($6.041) ($6.872)
($0.026) ($1.114)
$13.347 $11.551
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Gross Profit Margin Total Revenue Growth -
33.6% 36.0%
32.2% 36.8%
35.5% 63.6%
34.6% 55.3%
40.9% 121.6%
40.9% 133.3%
40.9% 114.3%
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The projections are based on the development of several new product lines over the next three years, primarily geared toward packaged live entertainment experiences. Management believes that the Company will approach breakeven EBITDA in 2002, once a sufficient revenue scale is achieved, to offset the rapid growth of SOLDOUT.com's infrastructure and staff. The Company also anticipates increasing its gross margins significantly as it continues to focus on value added high end products and services, catering to price insensitive corporate customers. SOLDOUT.com to strengthen its position in the region stretching from New Jersey to Boston by The Company intends to raise approximately $8 million of equity capital, which will enable continuing to develop partnerships and build its customer base. In addition, the Company will build its sales and technology infrastructure to accommodate its anticipated revenue growth. Over the nine months following the proposed capital raise, the Company intends to use its funds to continue building on its substantial advantage in scale and consumer reputation to further distance itself from and expand its in the fragmented live event services industry. SOLDOUT.com also plans Company's its competitors substantial corporate customer base, which currently makes up 70% of the to focus on revenue, through aggressive sales, marketing, corporate partnership and retention programs. It is
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anticipated that SOLDOUT.com will raise a second round of institutional financing six to nine months following proposed the $8 million capital raise, which will enable the Company to expand nationally. The Company believes that an initial public offering of SOLDOUT.com could occur within eighteen months, following the second round, or possibly a third/mezzanine round of institutional The Company's summary balance sheet information is presented below: SOLDOUT.com Historical Balance fund raising.
Summary
Sheets 9/30/99 $0.062 0.058 0.103 0.157 0.595 $0.975 9/30/98 $0.086 0.246 0.184 0.193 0.390 $1.099
($ in millions)
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Cash ASSETS Accounts Receivable Inventory Prepaid Expenses and Other Assets Property and Equipment Total Assets LIABILITIES AND STOCKHOLDERS EQUITY Expenses Payables and Accrued Credit Card Advances Line of Credit Capital Lease Obligations Bank Note Payable Shareholder Note Total Stockholders Equity Total Liabilities and Stockholders Equity
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$1.473 0.224 0. 100 0.086 0.017 0.000 (0.925) $0.975
$0.577 0.360 0.100 0.141 0.047 0.059 (0.186). $1.099
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operates
with little inventory
or receivables,
yet is able to make most purchases
on
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credit, allowing it to have negative working capital and excellent cash flow management. Physical inventory is kept to a minimum, except for opportunistic purchases of premium events, where an outstanding value can be obtained, increasing resale margins and/or saving customers money. The Company's debt consists balance lease obligations, credit $600,000 convertible loan financed by The September 30, 1999 of capital sheet does not include a card advances and bank note payables. David Chemerow, which, upon closing of the proposed equity financing, will convert to common stock. During 2000, the Company also raised approximately $1 million in convertible notes, which will automatically convert into the contemplated institutional financing round, investors in the convertible notes include managing directors of Donaldson, Lufldn & Jenrette and Duff & Phelps.
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2. INDUSTRY OVERVIEW Current Trends Sources indicate that the current market for live entertainment and sports events and related hospitality is $50 billion and highly fragmented. Ticketmaster, the largest participant in the industry, only comprises $6 billion of thisof smaller entities. In addition,comprises $220 million, leaving substantial market share to a variety market, and Tickets.corn only hospitality and service spending around major sporting events is believed to be approximately $10 billion. According to Forrester Research, on-line ticket sales are currently $300 million and expected to grow to $4 billion by 2004. In addition, this data suggests that significant consolidation opportunities and room for substantial gains in efficiency exist in the live entertainment services industry. The Company believes it can create efficiencies by leveraging its distribution channel to offer multiple entertainment opportunities to customers cost effectively. No single team or venue can economically justify providing this level of service to these premium consumers. SOLDOUT.com is well positioned to take advantage of these trends by leveraging its scale, brand name recognition, and its substantial effective use Intemet enabled commerce, media and technology will benefit vendors total sales. The head start in of current and emerging which already accounts for 18%-19% of its and consumers through lower selling and service costs. Description of Industry Participants
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Since corporate America's tour companies,being met, fragmentedcompanies. have aggregate emerge industries The begun to annual including auctions, sports needs are not and ticket broker revenue of these "cottage" industries is estimated to be as large as $4 billion. The chart below shows the dominant participants in these categories:
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AIIclion_ CitySearch Yahoo
S;_nnrl_ g_non_or_hin,; IMG Octagon
I-Ic_,__nitalily/lnct_nlive Carlson Pall Mall
S;pnrtg Tnnr_ ST Classics Spectacular Esoteric Furgals" Tennis
Ticket I_rc,kt_'r_ Golden Mun'ays Westem States Top Centre
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and service these different and certain Margins, prices, product vary widely across industry niches, as segments begin to mature, consumers are starting to shop and compare different choices. However,
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and reliability issues. theWith very few established concerns in the live entertainment event services studies conducted by Company show that cost brands are far outweighed by inventory, service, industry, great opportunities exist for the Company to differentiate its high level of customer service full establish national live recognition. in the NY metro area. Based on its success, as Company and service provider ofbrandevent ticketing SOLDOUT.com has already positioned itself the a premier intends to leverage its presence and customer loyalty to provide a full range of products, first on a regional, then on a national basis.
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primarily involve of such as Ticketmaster which live sports, concert tickets but entertainment Existing methods firms retail ticket distribution for provide distribution of and theater do not provide any sales or marketing to sell the tickets. These "first come, first serve" approaches do not sufficiently meet the needs of corporate and high service. consumers who require immediate access to sold-out and premium events and expect superior income
Primary Distributors TicketMaster BoxOffices Telecharge Tickets.corn
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Recent advances in telecommunications and emerging and services technologies lnternet, enhancing research entertainment options and purchase products e-commerce through the allow customers to convenience and decreasing time commitment. Consumers are now able to purchase tickets conveniently with less time commitment. Order processing and fulfillment of tickets are becoming commodity services with scalable, off-the-shelf systems being provided by a variety of companies. What has not been addressed is the need for an efficient sales and service channel. Management believes the greatest value can be created by targeting those customers who appreciatehigh levels of service and convenience, and who are relatively price insensitive. These customers have found value profit margins of approximately the past, which has enabled to Company to maintain historical gross in the Company's services in 34%.
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Participants Ebay Ebay has the most comprehensive used ticket stubs the lntemet, ofand offers thirdThe product offering party auctions for a diverse group of live event and auction site on on behalf individuals. generally consists of less desirable seating for events, and caters to bargain hunters who can afford to I spend considerable time surfing the site. Yahoo I Through its online auction site, Yahoo offers a limited selection of tickets to a limited number of events. Otherwise, Yahoo Auction has similar features to Ebay. Octagon Worldwide Formed through the combination of Advantage International and API, Octagon is a leading sports marketing and entertainment division of the Interpublic Group. Octagon represents professional athletes, provides consulting and event management/planning, property rights sales and distribution, as well as licensing and merchandising, among other activities. The company has offices in New York, London and McLean, Virginia International Management Group I Based in Cleveland, Ohio, in 21 countries. IMG represents arguably athletes, and is also engaged organization, with 62 offices IMG is the world's oldest and world class the largest sports marketing in event management and marketing activities.
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Carlson Marketing Group, headquartered in Minneapolis, Minnesota, is one of the world's largest Marketing Group relationship marketing companies, serving clients worldwide. Carlson's core product offering and sales promotion. includes direct marketing, event and sports marketing, loyalty marketing, performance improvement
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Pall Mall Corporate the United Kingdom, provides premium corporate entertainment and sponsorship Pall Mall, based in Hospitality packages centered around major sporting events worldwide. Sports Tour Classics Sports Tour Classics offers its corporate clients sports and event packages, including housing and arrangements, company travel throughout the US. The has headquarters in Scottsdale, Arizona. Spectacular Sport Specials based in New which Spectacular Sport Specials, Orleans, Louisiana, provides sports packages may include travel and housing arrangements, primarily to corporate and individual customers. Steve Furgal's International Tennis Tours This San Diego, California based company specializes in tennis event packages, and is the official travel partner of the USTA. Esoteric Sports Tours Headquartered for Duluth, Georgia, Esoteric offers complete travel programs sporting events in corporate and individual clients. to major spectator
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Golden International provides ticket brokerage services, as well as tours and travel for sports and other Golden International live entertainment events, out of an office in Piano, Texas. Murray's Tickets and Tours Based in Los Angeles, California, Murray's Tickets and Tours offers tickets and tours for major sporting events. Top Centre Ticket Service in Top Centre, headquartered Washington, packaging to individuals and corporations. offers live entertainment tickets and
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event tour
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Western States Ticket Service Western States Ticket Service buys and sells premium tickets for live entertainment events through its Phoenix, Arizona headquarters. TicketMaster Online CitySearch (Nasdaq:TMCS) TMCS provides updated local city TicketMaster advertising for live event information and ticketing entertainment events. In addition, guides and Online offers restaurants, merchants, and art and over the Internet. Tickets for live entertainment are sold on a first come, first served basis, and most
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majority events are sold out gainthe public within amajor hours,events. makes it went public in December popular of consumers to to access to many few live which TMCS extremely difficult for the 1998 and currently has a market capitalization of $2.0 billion. The company generated $105.3 million in revenue, with a net loss of $121.4 million during fiscal year 1999. Tickets.corn (Nasdaq: TIXX) TIXX offers tickets and information tours live entertainmentThe company limited ticket auctions, services events and sells its products and as well as related products, such as sports for and packages. through retail outlets, call centers, interactive voice response systems, and over the Internet. Similar to TicketMaster, TIXXperforming arts centers, museums and entertainment sports franchises. venues, is a primary distributor of tickets for professional organizations and TIXX, such as stadiums, however, does not have substantial commerce on the Web, and derives only 8% of its total revenue through Tickets.com Internet site. TIXX went public in November 1999, and recorded $45.9 million in revenue and a net loss of $66.6 million during fiscal year 1999. The company currently has a market capitalization of $384.3 million. Telecharge Telecharge, based in New York, is a primary ticket distributor for several Broadway and OffBroadway shows and plays. Telecharge sell tickets over the phone and the Internet.
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3. COMPANY OVERVIEW History In 1999, Justin Fallon, the founder of SOLDOUT.com, began the transformation of his 12 year old ticket brokerage business into the dominant online marketplace for value added live event entertainment. By leveraging the SOLDOUT.com has successfully shiftedCompany's to established base of customers and vendors, its focus address the comprehensive entertainment needs of its predominantly corporate customer base. During 1999, the Company broadened its distribution channels to better serve its customers in two primary ways: i) the development of a transaction-focused Internet site, and ii) the creation of separate corporate, retail SOLDOUT.com Account Managerssuccessful local and national direct customers. and Internet conducted highly to focus on their respective Simultaneously, marketing campaigns in cities across the US to test the effectiveness of its marketing model across a wide range of events and locations. The Company began building out its management team, most notably by hiring David Chemerow to serve as President and CO0. Mr. Chemerow is a seasoned financial and operational professional who is preparing the Company for substantial growth. He brings over 25 and firms with years of experience in public and private media, entertainment technology revenue up to $4 billion. During the latter part of 1999, and early 2000, the Company raised a total of $1.6 million in outside funding, continued its 50% year over year revenue growth, and relocated its headquarters to organizational accommodate astructure employee base. At this time, new Company,began refining its a VP of larger to reflect SOLDOUT.com's the business focus, and added corporate Communications and a Controller. The Company also expanded its Board of Advisors to include several prominent developed leaders in the live entertainment arena. To strengthen its product offering, SOLDOUT.com industry several Internet-based business models, which generated 18-19% of monthly revenue in November 1999 and February 2000. In addition, the Company hired Alan Taylor Associates, a To help the Company raise institutional venture capital, Duff & Phelps, LLC has been leading sports entertainment PR firm to better position SOLDOUT.com in the marketplace. engaged to manage SOLDOUT.com's fund raising efforts. Following the Company's anticipated $8 million capital raise, SOLDOUT.com will solidify its business models by building out its product teams and by developing the appropriate vendor as relationships. By establishing relationships, several direct team/venue as well partnerships and affiliations with major sports leagues, the Company will further strengthen its dominant position in the online value added live entertainment industry. Simultaneously, SOLDOUT.com will expand its corporate customer base through more intensive outreach programs, supported by enhanced customer relationship/retention marketing. Over the next six months, several key staff additions are anticipated in the following departments: i) Marketing, ii) Technology, iii) Product Development, iv) Business Development, v) Human Resources, and vi) Legal. Additionally,further secure its marketplace dominance in metro DuringYork, timeframe, SOLDOUT.com intends to a formal Board of Directors will be recruited. New this while expanding into the Northeast Corridor, from Southern New Jersey to the metro Boston area. By
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profitability these initiatives,itsthe Company willmodels and by implementing new enhancements. achieve completing by leveraging proven business demonstrate its ability to accelerate growth and
Through subsequent institutional funding rounds the 2001, the Company envisions a national roll out of the SOLDOUT.com service and brand. Once in Company's new business models are established in the Northeast, Management is confident that they can be scaled up nationally through proven direct marketing techniques, as well as through the expansion of the Company's sales and marketing force. Lines of Business The Company is headquartered in Norwalk, Connecticut, and was recently re-incorporated in the state of Delaware as SOLDOUT.com. The Company currently employs fifty persons and provides its corporate and individual customers with immediate access expandmajor sporting, concert, theater and other live events. In addition, SOLDOUT.com intends to to all its product and service offering in the year 2000 to complement and augment its current business, in order to strengthen its position as a recognized leader in the live entertainment services industry.
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Current Lines of Business Ticket Packages purchases tickets primary line of business SOLDOUT.com's from season ticket holders isor ticket resellers, ticket packages, where the in a value the sale of event and includes those tickets Company added package which typically includes parties, celebrity appearances, food, drink and entertainment services, as well as hotel and restaurant discounts. Tours SOLDOUT.com with tickets to live events. through an affiliation with a and travel wrapped offers landbased packages entered the tour business This business includes hotel tour operator that around the Company's ticket packages and represents a significant revenue opportunity for the Company. Corporate Entertainment Planning The Company places a premium on providing the utmost in customer service to all its customers,
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particularly its corporate clients. SOLDOUT.com's Senior Account Managers are available to facilitate the planning, budgeting and implementation of their clients' entertainment strategies. They also work closely with their client contacts to assess their entertaining needs and provide virtually vertical fit client's and intended audience. The every available option to a budget Company's approach to segmenting the business by industry, revenue and job function allows for greater pharmaceuticals, and and travel). This unique organization has played a key role in SOLDOUT.com's IT client focus (targeted industries include finance/investments, specialization healthcare, recent growth, and has helped increase the Company's corporate sales to over 70% of SOLDOUT.com's total revenue. Senior Account Managers have the ability to build and customize entertainment
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packages to the
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nation's premier events which will to meet major corporate clients to purchase ticket the Company is developing an extranet in order permit specific customer needs. In addition, packages online
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become the and prices customized for each client. to major make it using eventsprimary supplier of entertainment packages This will companies.easier for the Company to
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Ticket A uctionshas created a full featured auction site within SOLDOUT.com. The Company believes The Company auctions can provide a valuable service to SOLDOUT.com's customers by generating increased Website traffic and page views, further improvinglaunched its auction brand awareness high advertising SOLDOUT.com's revenue potential. The Company successfully site, realizing and traffic and consumer interest. However, due to poor service by the third parties offering tickets at the auctions, the customers were dissatisfied with the auction process. The Company has temporarily withdrawn the auction from service until the third party delivery problems can be solved. Revenue Breakdown
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by Event
sales come from live sporting events, which generated
The majority of SOLDOUT.com's I
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approximately 59% of revenue in 1999, down from 66% in 1998. Sales of tickets and packages for concerts, theater and other shows have increased to 40% of the Company's revenue, further diversifying SOLDOUT.com's product offering. A breakdown of the Company's sales by event category is presented below.
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SOLDOUT.com Revenue Breakdown by Event Category
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Baseball ($ inmillions) Tennis Football Basketball Hockey Golf Boxing Wrestling Other TOTAL SPORTS TOTAL CONCERTS
$1.809 1999 1.323 0.707 1.393 0.242 0.232 0.098 0.092 0.O2_i $5.923 $3.111 $0.940
18.1% 13.3% 7. ! % 14.0% 2.4% 2.3% 1.0% 0.9% 0._% 59.4% 31.2% 9.4%
$0.623 1998 1.097 0.436 1.018 0.299 0.030 0.018 0.032 Q,Q_Q $3.604 $1.410 $0.489
11.3% 19.9% 7.9% 18.5% 5.4% 0.5% 0.3% 0.6% 0,9% 65.5% 25.6% 8.9%
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TOTAL THEATER & FAMILY SHOWS
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COMPANY TOTAL** $9.974 100.0% $5.503 100.0% ** ThesetotalsdifferfromtheCompany's Income Statements toadjustments, due suchas discounts, rebatesorexchanges, adeto m address orderprocessing orothercustomer erviceissues. s
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Developing Lines of Business Direct Sales for Venues approaching Company has developed its exclusive channel and a loyal repeat customer base, it is Now that the teams and leagues to develop distribution product offerings to meet its customers' needs. This brings the Company's marketplace concept full circle by creating a product that is attractive to
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they the vendors and the whom they The not have is attractive to the to reach. leagues because both can reach customers customers. wouldopportunitypreviously been able teams and SOLDOUT.com is able to aggregate companies, each of whom is too small for the teams and leagues to market to, and buy ticketsopportunities from teams services on their likewise, very Company's to ability to offer these and related hospitality and leagues is, behalf. The attractive exclusive its customers. The Company has already begun actively approaching the major sports teams and leagues to develop these multi-faceted entertainment packages. Internet Marketing and Business Development As the Company's Internet site traffic continues to increase, Management believes that significant opportunities will emerge for online marketing, co-branding, and other commerce driven business development. Revenue from the sale of advertising space on the SOLDOUT.com site will increase in traffic. The increase in traffic will also drive proportion to the projected growth in user expected comarketed commerce opportunities, such as direct links to related merchants for consumers interested affiliate programs teams or concert performers. major online Company intends to enter and in particular sports and licensing agreements withFurthermore, the entertainment, information into commerce sites to increase its exposure and brand awareness within the online community, as well as to expand the number and size of SOLDOUT.com's revenue streams.
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i Senior Account Managers i
Sales and Service
entertainment. SOLDOUT.com'sThey consult with corporate clients toexperienced specialists insupport a customer's four Senior Account Managers are develop strategies that live event corporate sales and marketing objectives and strengthen client relationships. The Senior Account Managers enables them utilize contact tomanagement software to amaintain needs with available products and services. which most effectively match client's an up-to-date database of their accounts, The Senior Account Managers receive a base salary draw against a percentage of gross profit, and had average product sales of $800,000 in 1999. Corporate Outbound Sales Representatives
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SOLDOUT.com corporate customers and selling affiliate deals for its Internetwhich New accounts will developing new has begun to build an outbound corporate sales force site. will specialize in be serviced by the Internet and the Senior Account Managers. The Company has hired the sales manager manage groups process who will these and is in the of hiring additional Outbound Corporate Reps.
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Account Managers The Company's twelve Account Managers receive incoming calls and respond to incoming online queries from individual consumers and corporate accounts. They also handle customer maintenance using the same contact management software program, which enables them to rank and continually market to an existing client base through a proactive outbound calling program. Account Managers earn charge backs andsalary and The Account Managers is based on the attainment of gross sales goals, less a standard base credits. a capped bonus, which are evaluated on sales volume, the integrity of their customer account records, sales closing rates and call volume. Each Account Manager produced an average of $450,000 in SOLDOUT.com's 1999.onlineofchat to answer questions from web customers. the Company's Account Managers are webenabledand participate of product sales in live All
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Customer Service Representatives Customer Service Representatives ("Customer Service Reps") who The Company currently employs are responsible for client/service issue resolution, and quality control of data entry, order processing and fulfillment. Customer Service Reps service both Intemet and phone customers. Over the next three months, SOLDOUT.com intends to add additional Customer Service Reps to service the Company's accounts and further improve reliability and execution. Product and Inventory Group The Product and Inventory Group provides the distribution link between ticket owners (vendors) and the end consumer. As such, it plays a primary role in product and promotion planning, inventory planning/control, communicating information about events, assessing the availability and pricing of Group not yet purchased, and minimizing spoilage. Through its activities the Product tickets has a major impact on customer satisfaction and the Company's overall profits. and Inventory The Product and Inventory Group is divided into three basic operations:
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[
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Strategic Product Development This group negotiates directly with teams, leagues and venues to develop exclusive access for the Company's customers. The Company has decided to utilize consultants from within its target market segments relationships with speed toleagues andThe consultants, who structure attractive deals forhave excellent to maximize its teams, market. venues, are able to have already been hired, the Company and will be compensated based on results. Included in this group is a vendor relations manager, teams, is currently employed by the Company, to ensure satisfactory long-term relationships with the who leagues and venues. Event Planning Event Planning will package events for the Company, with services provided ranging from development of the event, to invitations, to production of the event, to comment cards for evaluating the event. This function has been outsourced to Hakins Meetings & Incentives, which has provided these and related services over the past 14 years. Operations Operations provides all receiving, shipping, and reporting on the ticketing function and includes responsibilities of the specialize in include the categories: sports, concerts and and Ticket Managers whoTicket Managersone of three continual development of inventorytheater.product The sources. A core strength of the Company is its ability to source tickets for premium events on a nationwide basis through the Company's ticket holders who wishthousands of vendors throughout the country, including season ticket holders, extensive network of to sell individual tickets and tickets brokers.
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Vendors Over the past 12 years, the Company has established a substantial and reliable vendor base that includes thousands anddistributors and individuals. SOLDOUT.com's top vendors consistchange from of regional ticket distributors, of individual season ticket holders. The Company's top suppliers year to year, based on ticket availability and general consumer demand. Over the past two years, SOLDOUT.com has not relied on anyjust over 40% for more than 6.5% of total Company's purchases, and its top twenty vendors represent one supplier of SOLDOUT.com's the sales. Many of these suppliers provide access to a combination of sporting, concert and theater events.
SOLDOUT.com 1998 Top 20 Vendors
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[Vendor. [$inmillion';_ Vendor
A .... Ticket $0:2#.'1 Value B 0.159
% .6._4.%__ of Total 4.2%
X .... Baseball
X ..... Football
X Basketball X
Tennis
Concerts
X__J Theatre
_"d-or__C___
I V_endor Vendor Vendor Vendor .kV_endor Vendor
.0 a50____4.0%
0_08Y 0.084 0.115 0.073 0.064 0.053
X
X X X X X _ _ X. __ X X X X X X X X ..... .... X X X X
;
:
_;n£r
E___ F D H J L
O ....
0,073__ .09"o. Z
1.9% 1.7% 1.4%
2.3.%. 2.2% 3.1%
X
X X
X
'. x ' :
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_.ao-;7_C__.__ __0:0.72 _..4%_ I __ 0,05.4:__ ......... 1.9_%
[V.endo.... M ...... 0,05.0__1.39'o ___0:048.__ 0.050 0.044 .... 0!0_4___ 0.042 0.041 0:0.4.1 $1.584 _ 1.3.%o ....... 1.3% 1.2% .1.1'%_ I. 1% 1.1% 1.1%.............. 42.2%
x
X X X X X X X X X
1
X___ X
_X X
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Vendor Vendor
N P
X X X X
X I
[Y-endbr_____Q Vendor R I
Vendor T kX(endoe____ S ........ Total Top 20
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Total Purchases
$3.750
I ($inmillwnsl Vendor [Vendor k'_endor...... Vendor _endoor ___W _-endt3r .... Vendor [Vendor Vendor Vendor kVendor V_en_or Vendor A V U .... R ....... Y X N Z AA 1-I BB __D F _ Ticket Value % of Total
1999 Top 20 Vendors SOLDOUT.com Baseball X X X X ..... X Football X X X X X Basketball X X X X X X X .X X X X X X X X X .X X __ X X _ _X __ Tennis Concerts Theatre X ! _' : I
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0.277 4.6% .___0..1_5 __ 3.2% $0.299 ___4.9%_ 0.160 2.6% 0:1.42.... 2.3%.__ 0d27 0.136 0.118 0.1(_7 0.105 0.1)92 _ .0:091 0!0_3 0.086 2.1% .... 2.2% 2.0% 1.8%. 1.7% 1.5% 1.5%_ X 1.-5% 1.4%
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F._nT£_CT.C_ 0,085 1.4_%
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X
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[v._.do_-_ M _ Vendor
Vendor N
___.__082 1.39'° 0.083 1.4%
0.078 1.3%
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0_o:z_ 1.2%
$2.496 0.065 $6.(164 41.2% 1.1%
Total Top Vendor 20 DD Total Purchases
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i Corporate Clients
Customer Profile
middle or upper level manager in a sales, marketing, or human resource function within a is a The Company draws corporate accounts from many different industries. Typically, a customerclient company. The Company draws corporate accounts from many different industries in which the typical I customer clientslive event their sales and marketing objectives, its marketing budget. SOLDOUT.com helps its uses support entertainment as an overall part of strengthen existing client relationships, build new client relationships and reward their top performers. SOLDOUT.com's ideal corporate customer services,from industries where retail brokerage, where live entertainment is an important part financial comes pharmaceutical and there is very little differentiation between companies, such as of the overall marketing budget. Its clients are very loyal to the Company, as evidenced by data that suggests that SOLDOUT.com is the exclusive provider are ticket products for 60% of its corporate customers and that approximately 65% of corporate sales of generated by existing customers. Individual Consumers Retail customers typically range in age from 28 - 54, with average annual incomes of over $75,000. The Company believes that nearly 17% of new customers come through referrals, and nearly 15% of SOLDOUT.com for and sold-out event tickets. customers rely exclusively on premium Approximately 40% of consumer sales are generated by existing customers. Lifetime Value The Company has calculated the lifetime value of its customers based on data compiled since fiscal 1998. On average, in his or her first year, each new customer generates $1,015 of revenue and $355 of gross profit to the Company. Over three years, each new customer generates $1,650 of revenue and $575 of gross margin. And, over five years, each new customers generates $2,200 of revenue and $775 of gross margin. To generate these new customers, the Company only spent $143 per new customer in fiscal 1999.
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The Company's customer database has grown from 19,100 names On file in 1997 to over 77,700 names in 1999. As of March 2000, SOLDOUT.com had approximately 36,000 registered Web site users.
SOLDOUT.com 1998 Top Ten Customers SOLDOUT.com 1999 Top Ten Customers
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Event Planning ($inmillions) Company Event Planning Company Sports Magazine Company Insurance Insurance Company Pharmaceutical Company Mm'ketingand Promotion Company Retailer Investment Bank Pharmaceutical Company Top Total Ten Total Revenue
$0.194 Revenue 0.073 0.073 0.070 0.067 0.046 0.032 0.036 0.030 0.029 $0.650 $5.866
3.3% % of Total 1.3% 1.2% 1.2% 1.1% 0.8% 0.5% 0.6% 0.5% 0.5% 11.1%
Title Insurance ($inmillions) Company Sports Marketing Company Insurance Company Individual Computer Retailer Sports Magazine Broker Mm'ketingand Promotion Company Pharmaceutical Company Individual Total Top Ten Total Revenue
$0.223 Revenue % of 2.3% Total 0.109 1.1% 0.090 0.9% 0.077 0.077 0.069 0.054 0.060 0.046 0.044 $0.848 $9.601 0.8% 0.8% 0.7% 0.6% 0.6% 0.5% 0.5% 8.8%
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Advertising and Marketing Programs In aggregate the Company spent $1 million in marketing in fiscal 1999 and generated 7,440 new customers. This equates of gross margin expected to spending $143 per new customer, which compares favorably to the $575 be generated by each customer over a three year period. In all likelihood, higher levels of spending would have generated greater numbers of new customers and higher revenue and profit hiring a Based Marketingsuccessful results, the Company is its marketing its marketing team, including levels. Chief on these Officer, to significantly expand building out efforts pursuant to the proposed institutional financing round. Corporate Relationship Development The Company has significantly broadened its products and service to corporate customers by increasingly handling more of its clients' entertainment logistics, including event planning, budgeting and implementation. Direct Marketing Throughout its twelve-year history, the Company has engaged in proactive, event based direct immediatelywith a high degree ofon investment. Direct of advertising is predictable and the Company quantifiable return success. This mode marketing studies conducted by generates an marketing in several different markets revealed an average revenue to expense ratio of four to one, which makes the marketing investment better thanadvertising with on a gross margin basis. analysis and planning SOLDOUT.com will continue expanding this mode of self-liquidating increases in support, personnel. Public Relations Existing prejudice, whether driven by perception or reality, towards certain segments of the live event services industry, presents the Company with an opportunity tocampaigns. create barriers The entry forPresident of to Vice competitors through aggressive education and consumer "watchdog" Communications is expected to lead this effort over the next twelve months. The Company has hired Alan Taylor Associates, a leading public relations firm specializing in sports entertainment marketing, to assist the Company with this initiative. Marketing Internet Based The Company expects to develop Internet based relationships with corporate customers through the encouraged to extranets to the Internet, but will planning andbe managed tools. Corporate sales will be use of hosted migrate and licensed live event continue to budgeting by the Company's Corporate Sales Reps. In addition, Management also intends to commit significant resources to form increase SOLDOUT.com site traffic, online Internet awareness, and licensing and royalty fees. order to partnerships and licensing agreements with brand commerce sites, portals, affiliates, in A new Senior Vice President of Business Development will be recruited in the second quarter of 2000 to oversee these initiatives. The Company expects to convert many of its existing and future customers to buying over the Internet.
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The formation of distribution agreements and new business models with major sports teams, leagues Distribution Agreements and venues will be developed. Such affiliations will facilitate product line extensions, increase brand . awareness and credibility, and expose the Company to a broader audience of consumers. cross marketing opportunities will further drive SOLDOUT.com's site traffic. In addition,
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A national brand marketing Brand A wareness SOLDOUT.com as the premier
campaign will be launched in 2000 that will help establish source for live event information, corporate entertainment planning,
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backed by scalable Web ticketcall center exchanges, which online ticket in place. This campaign regional tour and event packages, and sales and support, and is currently auctions. National and will be brand marketing is expected to return one revenue dollar for each dollar of expense. Sponsorships Sponsorships
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ticket packages and will help facilitate
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completion the Company's teams, leagues increase the profile of the SOLDOUT.com brand. targeted to of deals with customers and and venues. The media portion of sponsorships
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i Management i Information Systems
Technology
financial management tool that Accounting Package, a sophisticated to accurately track time The Company utilizes the Solomon enables SOLDOUT.com's personnel and highly reliable real sales, inventory, purchasing and shipping information. This software package can easily be customized to , accessible or modify different running incorporate through workstations functions. Microsoft Windows a95 or 98. In addition,NT Server and is Solomon runs on Microsoft Windows the Company's account managers use the Telemagic contact management software package to maintain customer accounts, and to assemble profiles of each client. in order to manage the Company's all of its information systems within the next twelve months Management anticipates upgrading expected growth. Internet Platform SOLDOUT.com is built using Microsoft technology, which was selected after extensive research and among average comparison the leading Web platforms and is well suited to the Company's high order size and relatively low physical volume requirements. Microsoft offers a tightly integrated system that is easy to install, maintain and administer. This platform also allows for scalable growth and has the benefit of an abundance of Microsoft professionals in the job market, which makes finding qualified IT staff fast and cost effective. Hardware used at the Norwalk, Connecticut facility includes a , as a mirror development server housing and data 1BM servera functioning as a NetServer E60 operating Compaq Proliant 1600R web server all an functions, Hewlett Packard redundant development environment. The Company's server and bandwidth hosting is done offsite at Digex in Beltsville, MD. SOLDOUT.com has contracted with Digex for Platinum Service, which includes a dedicated technical representative maintenance of botha the hardware aand software. servicehardware at the daily site consists upgrades and available 24 hours day, 7 days week. This The also includes host monitoring, of: a Compaq ProLiant 1600R, Pentium ll running Microsoft Windows NT Server 4.0, and Microsoft I1S 4.0 functioning SQL Server 7.0 functions exclusively Compaq database server. The software consists Microsoft NT and exclusively as the Web server. A as the ProLiant 1600R, Pentium II running of the entire Microsoft BackOffice family including Exchange Server, Site Server Commerce Edition, SQL Server, and other applications, such as Cybercash and Rockliffe Mail Server. All data importing, scrubbing, and manipulation is done at the Connecticut facility, where data is a server sources, brought many into unified environment from different which include the in-house accounting system as well as third party broker systems. Through the use of outside data feeds, the house to eliminate an unnecessary information on over 30,000 box at Digex and to ensure scrubbed data Company posts updated pricing load on the live production products online. Data is that all inis carefully checked before being displayed on the live site. The New Media team has just created an industry exclusive data import scrubber and replicator to capture, clean and move data from various third party feeds to the Company's exclusive table structure. This permits SOLDOUT.com to quickly and efficiently include tickets available from third parties on its Web site. This level of automation, efficiency and breadth of reliable product offering further distinguishes SOLDOUT.com as a premier resource for live entertainment solutions.
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Legal Compliance Certain states restrict the manner in which tickets to sporting and entertainment events can be sold and/or resold. SOLDOUT.com continuously the District of Columbia relating measures to comply event the laws in each of the fifty U.S. states and researches, monitors and takes to the sale of live with tickets. Fourteen states, shown below, have potential regulatory issues; mostly relating to the sale of , tickets for an amount over the face value. Florida Georgia Minnesota Rhode Island Kentucky New Jersey South Carolina Louisiana New York Wisconsin Massachusetts North Carolina
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Management believes, however, that the Company currently operates within the framework of all applicable laws in these states. SOLDOUT.com addresses the potential statutory restrictions in these fourteen states through event packaging, delivery of tickets to out of state locations, and sales to out of state residents.
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Event Packagingstates mentioned above, SOLDOUT.com believes it can operate legally by making In all fourteen tickets only one component of an overall package of goods and services. None of these states prohibit this typean amount in and it would be extremelyif difficult for of bonafide value are included are part of sold for of strategy, excess of their face value other items states to maintain that tickets as being the overall package. Ideally, an event package includes items and services, such as celebrity autograph parties, where the value of such goods and services are highly subjective and thus not easily subject to any type of objective legal challenge. Ticket Resale For ordinary ticket sales made on its site on behalf of third party ticket owners, the Company has several methods to legally conduct its business. Certain states do not prohibit the secondary market events an sale of tickets for in-state from out-of-state location. Connecticut falls under this category, but since the Company does not generate much revenue from Connecticut events, its Connecticut of tickets to not significantly affect locations, in which case the Other states do not to deliver such location doesin-state events to in-state SOLDOUT.com's business. Company is allowed allow the resale tickets to locations outside of the state in question. Sale to Non-Residents Most of the fourteen jurisdictions listed above do not restrict the sale of tickets or event packages for in-state events to residents of other states.
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Management and Organization Justin Fallon (Age 31), Chairman and CEO, is the founder of SOLDOUT.com.
Mr. Fallon has
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member the vision and guidance of the Company's growth since its and the in 1987. He is Officers provided of both The Young Entrepreneur's Organization ("YEO") inceptionChief Executive an active Club ("CEO Club"). In addition, Mr. Fallon is a participant of MIT's Birthing of Giants Program and has been quoted in numerous magazines and publications including Inc. Magazine, Entrepreneur, Intemet World, and Industry Standard. Mr. Fallon attended the State University of New York at Purchase. He is also a finalist for the Ernst & Young Entrepreneur of the Year Award for 2000. David Chemerow (Age 48), President and COO, oversees the Company's finance, operations, and administration. He has over 25-years of experience across public and private media, entertainment and technology firms with revenue up to $4 billion. of GT Interactive Software Corp., Executive management positions, including President and CO0 He has served in executive, operations, and Vice President of Finance and CFO of Entex Information Services, Inc., Executive Vice President of
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Finance and Operations and CFO of Playboy Enterprises, Inc., President of Beechwood Capital Corp., and various operating and finance positions at Primerica Corp. Mr. Chemerow currently serves on the Board of Directors of Playboy Enterprises and Dunham's Athleisure. He served on the Board of an Trustees Institute, College of the Court Theatre and the Dartmouth Dartmouth and is annual visiting lecturer at Amos Tuck School of Business Administration. He graduated magna cum laude and received his MBA from Amos Tuck Schoolwas Business to Phi Beta Kappa at Dartmouth College, with Highest Distinction in Mathematics and of elected Administration.
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Steve Wagner (Age innovative marketing President - including destination Development, corporate brand has spent over 30 years pioneering 49), Executive Vice programs Brand and Product marketing, marketing, lifestyle/event marketing, loyalty/incentive marketing and corporate sponsorship. Prior to joining SOLDOUT.com, Mr. Wagner was President and founder of Integrated Lifestyle Marketing Group Inc. He previously served as President and co-Founder of Festival Marketing Inc., and Senior Vice President of Festival Productions Inc. During this time he launched many successful programs ' for American Express including Experiences. Events, Platinum By Invitation Only, Optima Express in and Membership Miles Unique Gold Card Mr. Wagner has also represented American Rewards, sponsorship negotiations with Ticketmaster, Radio City Music Hall, Madison Square Garden, Cirque du Soleil, PACE Theatrical, Major League Baseball, The National Football League, The National Basketball Association, and numerous Broadway productions. He has also executed sponsorship agreements for clients such as Merrill Lynch, A&E Channel, HBO, Pepsi, Disney, among others. for of the With Festival Productions, Mr. Wagner provided marketing support some world's leading jazz festivals including the JVC Newport Jazz Festival, JVC Jazz Festivals Worldwide, Playboy Jazz Festival and the New Orleans Jazz and Heritage Festival. Mr. Wagner's background also includes extensive experience in marketing, advertising and managing companies and venues which produced for Broadway, Off-Broadway, film and television. In addition, he has a long history of providing marketing and management assistance for major non-profit cultural institutions throughout the US, and has served on the board of several prominent non profit organizations. Jim Erlick (Age 44), Senior Vice President, Strategic Development, is currently functioning in an outside capacity to SOLDOUT.com, leveraging his experience and contacts to help the Company create strategic relationships with leagues, teams and venues. He has accumulated over twenty years
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General Foods and Seagram Wine packaged goods and In 1993, he founded American Express, of experience in financial services,Company, respectively. beverage industries atThe Erlick Group to conceive strategic sponsorships/promotions on a national, regional and local basis with distinctive entertainment properties in theatre, music, film and venues. These "partnerships" oftenclients include marketing, sales promotion, direct marketing and database elements. Some recent include event Carnegie Hall, MovieFone, HBO, the New Yorker, the Blue Note, American Express, VISA, Samsung, TWA, VP Marketing at American Express Barnes&Noble.com. Erlick served as Conde Nast Publications, Buick and managing a portfolio From 1988 to 1992, Mr. of Cardmember benefits and services, as well as instituting quality management programs for related telephone service and claims processing. Prior to that he spent eleven years at Seagram Wine Company, most recently as VP Marketing. He received his MBA at the University of Chicago, and holds a BA from Duke University. Stephen M. Lombardi
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(Age 46), Senior
Vice President,
Strategic
Development,
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the Company an outside capacity to SOLDOUT.com, teams and venues. He and contacts to help functioning in create strategic relationships with leagues,leveraging his experience also serves as Partner and Director of Business Development for Landes Lombardi Associates, Inc., a private marketing i & Bailey Circus. Director at agency with clients Prior to that he served Rhode lsland, WCW Wrestling, Ringling Bros.orand Barnum such as University of as an Executive Director, General Manager several venues, including the Providence Civic Center, Centre Management (Landover, MD), Great Woods Amphitheater his tenure at these venues, Haven been responsible for Garden, and negotiating Cincinnati Gardens. Throughout (Mansfield, MA), New he has Coliseum, Boston booking major events, such as the U.S. Figure Skating Championships, Neil Diamond, Elton John, Rod I Stewart, U.S. Olympic Teams, conventions and Springsteen, NCAA Basketball, NCAA Hockey, the several Janet Jackson, Frank Sinatra, Bruce trade show. In addition, he was responsible for the facility maintenance, upgrade and attendance levels, as well promotion, marketing and planning. Mr. Lombardi received his MS in the University of Rhodefrom the University of Massachusetts, and his BS in Marketing from Sports Administration Island. Amherst,
Marianne Fulgenzi (Age 43), Vice President of Communications, recently joined the Company, bringing over 20 years of experience in corporate and product specific media programs. She most recently served as Vice President, Publicity Programs for Mastercard International, where she I managed all facets of long and short term publicity programs as part of the company's overall global communications programming. In addition, Ms. Fulgenzi has significant experience in the ' sporting event and the on-site planning, direction Soccer, the PGA major US TOUR, Major development of sponsorships, including World Cup and supervision ofTOUR/Seniorand international League Baseball, the National Hockey League and Formula One Racing. Since 1988, Ms. Fulgenzi previously various executive and managerial roles at Mastercard in marketing andplanning relations. She served in worked in account management for Hill & Knowlton, and in media public for J. Walter Thompson Company. She is also a recipient of eight public relations industry awards and four MasterCard President's Awards between 1990 and 1997, including a PRSA Silver Anvil in 1995 for a sponsorship communication program. Ms. Fulgenzi received her BA in Mass Communications at St. Bonaventure University. Jill MeKeon (Age 37), Vice President oflnternet Strategy, is responsible for www.SOLDOUT.com. She has been active in establishing the site, managing the daily operations, designing interactive
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programming languages including HTML, site, and measuringScripting, Proficient in a number and marketing programs, driving traffic to the Myrmidon, Java results. Microsoft FrontPage, of Telnet, Ms. McKeon is an accomplished computer programmer. She won the 1998 Award of 1997 APEX a Communicators Award Award for Web and Intranet She is also the Prior to of the Distinction, Communications Concepts in the category of Websites. Sites Excellence. recipient joining SOLDOUT.com, Ms. McKeon was with Dictaphone Corp. She holds several degrees including a BS in Managementas Information certificates and a BA in Business Management from University of New Haven as well degrees or Systems, in Advertising, Marketing, and Internet Design.
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Brian of experience in Vice Presidenttechnology. He Systems, joined the Company with more than 20 oflnformation is skilled in all areas of data processing and is years Polk (Age 43), information responsible for the management, maintenance, and training of the Company's computer programmers range and system administrators. His experience with a vast of software programs has been critical to the development of innovative solutions for the Company's systems, including accounting, billing, order processing, and customer services. Prior to joining SOLDOUT.com, Mr. Polk worked at a NYSE specialist firm, where he implemented a real-time securities trading system to allow the company's traders to execute, monitor, and calculate P&L from trades in a real-time environment. Laurie Cartier (Age 35), Director of Product & Inventory, has developed a team of seven event managers and support staff responsible for creating and managing product relationships. In addition, she and her team have developed systems to manage and communicate inventory information in a real-time environment. She joined the Company with more than a decade of experience in management, sales and human resources. Ms. Cartier is a graduate of Western New England College and served on the college's Board of Trustees. Glen Ferguson (Age 35), Controller, is responsible for financial reporting and administration.
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joined the Company with over 10Motor experience Inc., finance and accounting, and Arthur various roles at Jeneric/Pentron Inc., Standard years Products, in Jensen Industries, Inc., serving in Andersen & Co. Mr. Ferguson is skilled with a number of financial control systems. Mr. Ferguson graduated magna cum laude in Financial Accounting from University of New Haven and is certified as a CPA in Connecticut. Mary-Jo Januski (Age 37), Director of Operations, is responsible for the maintenance of the Company's ticket inventory, including handling and processing the fulfillment of all orders. She and her team have developed procedures that allow SOLDOUT.com to ship over 500 packages per day. She is also responsible for fulfillment related to all off-site events included in ticket packages, such as parties at sports theme restaurants, celebrity appearances, and/or other events connected to sports, concerts or theater. She joined the Company in 1997 with nearly 10 years of accounting and administrative experience.
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direction in both the e-commerce Director, brings more than At SOLDOUT.com, he is responsible for Toby Rosser (Age 44), Creative and corporate industries. 15 years of experience in design and art all creative direction for both Web-based and offiine initiatives, Brand integrity, graphic design and print trafficking.
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Thomas Wicker (Age 27), Director, Outbound Sales, has a dual focus: to develop a team to proactively target corporations and high-end individuals as new customers of SOLDOUT.com, as well as I to develop an affiliate the business-to-business forand operations areas. the Company. His background management positions in marketing program includes sales
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David Evans of the company's internal and business Development, is responsible for upgrading and integrating all (Age 22), Director of Applications systems. Mr. Evans has had extensive technical training, and holds a number of software systems' certifications, including: Microsoft Certified Solution Developer (MCSD), Microsoft SQL Server 6.5 Certified and Microsoft SQL Server 7.0 Certified (Administration and Database Development), and Solomon Certified Application Developer (SCAD), among others. Alan Niebuhr (Age 37), Director of Web Applications, is the Company's leading Web applications programmer, responsible for database architecture and for building all of the Company's Web and in Web and applications. Mr. Niebuhr has more than 15 years of experience development design, software architecture. Management is supported by a team of forty employees serving in sales, purchasing, finance, Internet development, information technology and administrative capacities. SOLDOUT.com is currently recruiting additional members for its senior management team, including a Chief Technical Officer, a Chief Marketing Officer, a Chief Financial Officer, an SVP Business Development, a VP of Sales, a General Counsel, and a Director of Human Resources. The Company's anticipated organizational charts, as of May 31, 2000, are presented on the following two pages.
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The Marketing, Product and Business Development departments will report directly to the Company's ._ Chairman and Chief Executive Officer.
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i - Marianne Fulgenzi I V/_Communcations Agency - Jill McKeon " L Toby Rosser V/P Internet Strategy I-'-Web Strategy |.Creative Services ! |_ Affilate Marketing L_ Agency -- Proprietary Products _._Product Managers -- Partnership Products Line Managers / _ Product Managers -- Leagues, Managers Line Teams, Etc. L Jim Erlick [--Steve Lombardi | SVP - Strategic Development SVP- Strategic Development -- Event Management -- Strategic Partners -- V/P Sales / TomTelesales L Dir. Wicker L_ Dir. Field Sales (Regional) _--Dir. Field Sales (NorthEast) -- National Acct. Execs.
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SOLDOUT.com's President financial Operating Officer. and Chief and administrative The major operational,
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-- Brian Polk k President Information Systems Vice David Evans _ Director Development _Telephone i_ Help Desk I-- Network Operations - Director Internet Systems [Alan Niebuhr I- Maintenance / DirectorAssurance L_ Quality Web Development Staff ers Customer Service t Fulfillment Account Managers
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i Ownership I
Ownership
The Company was Fallon. as a Connecticut recently re-incorporated in outstanding,with 15 is 100% which million owned by Justin founded SOLDOUT.com company with 1,000 shares Delaware common shares outstanding. David Chemerow has invested $600,000 in a note of the Company, convertible into 600,000 funding of the proposed equity financing. immediately prior to the shares of SOLDOUT.com common stock and intends to convert the note In addition, the Company has issued 1.76 million stock options to its current employees from a pool of 3 million shares, structured as 1SO's to the extent possible under IRS regulations. 2000, high In the Company has raised approximately $1.0 million in "Bridge Financing" from certain net worth individuals and institutions. The two primary investor groups have been Duff & Phelps, fund and several Managing Directors from Donaldson, Lufkin & Jenrette. venture capital round (the LLC, the Company's operations through the anticipated institutional This capital will be used to "Institutional Round") of approximately $8 million. The Bridge Financing will convert into equity at the completion of the contemplated Institutional Round.
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Professional Firms & Board of Directors and Advisors
Company's legal counsel. Shipman & Goodwin, with 130 lawyers, is a full service firm the Shipman & Goodwin LLP, located in Hartford and Stamford, Connecticut, has been retained as that specializes in working with emerging growth companies. Haggett, Longobardi & Company, LLC, located in Glastonbury, Connecticut, has been retained as the Company's external accountant. Haggett, Longobardi is one of the leading regional accounting firms in Connecticut, employingconsulting services. and servicing middleis also an independent member by over 60 people Haggett, Longobardi market growth companies of providing compliance and the BDO Seidman Alliance, which is the seventh largest CPA firm in the world. Board of Directors The Company expects to form a Board of Directors during the first half of 2000 which will consist of two Management, one or two representatives members from from outside institutional investors, and three to four outside board members from industries relevant to SOLDOUT.com's current and future businesses, which could include sports, Internet, entertainment, and other similar industries. Board of Advisors half of those years in the promotion andthan 30 years leisure-time activities. He currently more than Alan Taylor (Age 63), has spent more publicity of in the communications profession, serves as Chief Executive Officer of Alan Taylor Associates, a leading public relations firm with a particular expertise in the sports of the 20thCentury while the New York News named one of the Top top impact Relations Executives entertainment arena. Recently, PR Week named him him one of the 100 Public players in New York sports. He was a sports writer in Miami and Los Angeles before entering the public relations profession basketball, In the sports field, he has racquet sports. events and programs he golf, auto racing, baseball, in 1961. boxing, tennis and other handled major On the product side, in has worked in the cosmetic, tobacco, toy, liquor, wines, beer and champagne, games, good and fashion apparel industries. Through the years of serving clients, he has developed strong, credible relationships with major media in key markets. He has also been an associate professor at NYU, teaching event/sports publicity in a curriculum that is the first of its type in the country. Robert J. Petisi (Age 47), has spent the past twenty years in the marketing agency and consulting business. His primary responsibilities with the Company include the development and management of corporate Internet, sales, creative and branding strategies. Mr. Petisi serves as a full time marketing consultant with Thomson Corporation, a $6 billion information publisher, while playing key strategic Prior to roles was President and Chief Executive Officer of SOLDOUT.com and Readyminds.com. advisory that, hefor several technology businesses, including Agency@MCA, the marketing, research consultancy and direct response arm of the Marketing Corporation of America ("MCA"), as well as Partner and Board Member of MCA. During branded communication, Petisi repositioned the company as an industry leader in demand creation and his tenure at MCA, Mr. for clients such as ABC, CocaCola USA, IBM, Kraft, Hertz and Xerox. Prior to MCA, he was President and CEO of Saatchi & Saatchi Promotions, Mr. Petisi isalso recipient of and Partner of Dryden and Petisi, a for his work, Inc., and the a Founder several corporate and industry awards pre-eminent marketing agency. and he currently serves as a Board Member of Xerox Venture Lab, the technology "garage" located at
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APMA, PARC facility in Palo Alto, of the promotion marketing industry. Mr. Petisi the PMAA BS Xerox's the leading executive boards California. He is also a former Board Member of received his and degree from the University of Rhode Island, where he sits on the URI College of Business Executive Committee and is a Trustee at the University. Dave Hakins (Age 52), founded Hakins Meetings & Incentives in 1986 and continue to serve as Chairman andhigh-end Hakins hospitality, &meetings, group incentive travel and promotional events for Incentives, headquartered in Wyckoff, NJ, custom-designs and manages CEO. sports Meetings more than 75 corporations and promotion marketing agencies nationwide. Previously, Mr. Hakins was a promotion marketing executivecareer18 years at General Foods, JCPenney and Chase Manhattan Corp. In the 1960s, he began his for as a sports editor for daily newspapers in Vermont and Alaska. Jamie Gerard (Age 38), is Managing Principal of Ironbound Partners Fund LLC, a private investment firm. The firm is principally engaged in seeking out investment opportunities, mostly in and focused the Internet and related As the private equity markets, more recently on technologies, part of this business, Mr. Gerard has served on the advisory board of e2enet, an Internet incubator firm. sources of has Prior to organizing for building bridges October 1998, capital firms Director Mr. Gerardcapital.also been responsible Ironbound Partners in within venture Mr. Gerard wasand other of Business Development and Client Services at Tocqueville Asset Management LP, an investment At Tocqueville, he was responsible and Paris, with over of billion advisory firm based in New York City for the development $1.2 separate in account under management. assets and mutual fund businesses for both private and institutional clienteles (which included Family Office, High Net Worth, also advised Jonathan Ledecky on 403(b), and other retirement clients). During this time, Mr. Gerard Taft-Hartley, Foundations, 401(k), international transactions for U.S. Office Products. Before joining Tocqueville in June 1993, Mr. Gerard held the same position at Train, Smith Counsel, a privately held investment advisory at Citibank's Private the High Net Worth market to 1989. Before began his financial services career firm that catered to Banking Group from 1988 exclusively. He that, he lived in Washington, DC where he founded and managed the Washington, DC office of DGH/Hunzinger Information AG, a German public and government relations firm, where he still serves on this publicly traded firm's advisory board (on the Neue Market). A 1983 graduate of George Washington University's Elliott School of International Affairs, he serves on several non-profit boards City in both New York and Paris, including the ASPCA, Chances for Children, and Phoenix House.
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4. FINANCIAL SUMMARY Management intends to significantly increase the Company's historically rapid growth rate by customers, through various product and new and marketing The Company primarily at based on implementing an aggressive traditional expansion media channels. campaign aimed believes that, corporate its studies of marketing return on investment, its projections for growth are somewhat conservative. The Company's historical and projected income statements are presented below. SOLDOUT.com Historical and Projected Income Statement
FYE September 30 Historical 199_ Projected 2001 2002
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1999
2000
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$17.640 11.907 1.378 1.933 0.090 0.003 4.289 5.868 9.601 14.908 0.090 33.041
$41.160 27.783 3.216 4.511 0.209 0.006 0.190 77.075
$88.200 59.535 6.891 9.667 0.449 0.013 0.407 165.160
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2.849 1.440
3.980 1.888
6.193 3.408
9.751 5.157
]9.516 13.525
45.537 31.537
97.580 67.580
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33.6% 0.100 1.335 1.435 0.105 2.4% 0.005
32.2% 0.168 1.660 1.828 0.228 3.9% 0.060
35.5% 1.106 2.900 4.006 0.508 5.3% (0.599)
34.6% 3.246 7.231 10.477 (1.686) -11.3% (5.126)
40.9% 7.744 12.653 20.397 1.703 5.2% (6.041)
40.9% 13.796 18.855 32.651 13.770 17.9% (0.026)
40.9% 25.140 30.889 56.029 38.487 23.3% 13.347
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0.1% 0.040 (0.035) -0.8%
1.0% 0.040
-6.2% 0.107
-34.4% 0.194
-18.3% 0.831
0.0% 1.088
8.1% 1.796
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0.020 0.3%
(0.706) -7.3%
(5.320) -35. 7%
(6.872) -20.8%
(1.114) -1.4%
11.551 7.0%
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0.013 0.000 (0.048)
0.016 0.000 0.004
0.049 (0.015) (0.739)
0.000 0.000 (5.320)
0.000 0.000 (6.872)
0.000 0.000 (1.114)
0.000 0.000 11.551
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SOLDOUT.com's historical balance sheets for the past two years are presented on the following page.
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Historical Balance Sheets SOLDOUT.com
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($ in millions) ASSETS Cuzvent Assets: Accounts receivable Cash Inventory Prepaid expenses Other assets Total Current Assets
9/30/99
9/30/98
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0.058 $0.062 0.103 0.069 0.032 0.324
0.246 $0.086 0. ]84 0.127 0.046 0.688
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Less and equipment, at cost Property accumulated depreciation Property and equipment - net
0.218 0.813 0.595
0. ] ] 8 0.508 0.390
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0.033 0.023
0.000 0.021
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Total Assets LIABILITIES AND STOCKHOLDERS Cunent Liabilities: payable Accounts expenses Accrued Credit card advances Note payable - line of credit Total Current Liabilities
$0.975 EQUITY
$1.099
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$1.213 0.260 0,224 0.100 1.797
$0.452 0. ]24 0,360 0.100 1,037
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0.000 0.017 0.086
0.059 0.047 0.141
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(0.925) (0.926) $0.975
(0.186) (0.187) $1.099
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SOLDOUT.com operates with little inventory or receivables, yet is able to make most purchases on inventory is kept to have negative working opportunistic purchases premium events, Physical credit, allowing it to a minimum, except for capital and excellent cashofflow management. where an outstanding value can be obtained, increasing resale margins and/or saving customers money. The Company's debt 30, 1999 of capital sheet does not include a card advances and bank note payables. The September consists balance lease obligations, credit $600,000 convertible loan financed by David Chemerow, which, upon closing of the proposed equity financing, will convert to common stock. During 2000, the Company contemplated approximately financing round. convertible notes, which will automatically convert into the also raised institutional $1.0 million in
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FINANCIAL STATEMENTS SE PTEMB_:_,9
I I Indeper,dent AJditors' Report Financlal Statements I I Balance Sl'eet - September 30, 1999 Statement of Loss for the Year Ended September 30, 1999 Statement of Changes in Stockholders Deficit for tr',e Year Ended September 30, 1999 Statement of Cash Flows for the Year Ended Septeml:_er 0, 1999 3 Summary of Significant Accounting Polir.Jes Notes to F;nancial Statements Supp!ementar! Financial Information I i Schedule I. Sel!,ng. General and Administrative Expenses for the Year Ended September 30. 15=39
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I ACCESS MARKETING, INC. d/b/a SOLDOUT.COM
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I ASSETS
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Current assets Cash Accounts receivable, net of allowance for doubtful accounts of $20,000 Inventory Prepaid expenses Other asset $61,878 58,330 102.864 69,030 32,136 324.238
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Property and equipment, at cost Computer equipment Web development costs Furniture and fixtures Telephone systems Less accumulated _epreciat;_n and amortization
579.412 157,050 39,936 36,464 812.862 (218.311) 594..551
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Other assets Lc_n receival_ie - stockho'C=.r Sec_,_itydepos,ts
!3 4"0 56.154 22 744
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$974 _._3
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I Current liabilities Accounts payable Accrued expenses _ _% _\%_ _ = $1,213,208 259,987 223,845 100.(300 71,305 1.885,788 17,443
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Creditpayable - line of credit Note card advances Current maturities of capital lease obligations Note payable - bank
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Capital liabilities Long-term lease obligations, tess current maturities
14,429
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Stockholder's deficit Common stock, no par value; 3,000 shares authorized: 1,000 shares issued and outstanding Deficit
1,000 (926.274) (925.274)
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$g74.943
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I The accompanying accounting poticies and notes are an integral part of the financial statements.
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I ACCESS MARKETING, d/b/a SOLDOUT,GoM STATEMENT OFI_i_S For the Year End_L__e_m_e_, 1999 INC, - " I i
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I Revenue
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Amount $9,600,868
% 100.0%
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Cost of goods sold Gross margin
(6,193,241_)_ 3,407,627
(64.5) 35.5
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Selling, general and administrative expenses (Schedule 1) Loss from operations , Other income (expense) Other income Interest income _nterestexpense
(4,113,319) (705,692)
(42.8) (7.3)
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14,250 375 (48,546) (33,921) $(739,613)
0.1 (0 5) (0.4) (7.7):./-.
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Net loss
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I The accompany!ng accounting poqcies and notes are an integral part of the financial statements.
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I ACCESS MARKETING, INC. .d/b/a SOLDOUT.COM I STATEMENT CF CHANGES ,N S_'_OLDER'S For. YearE L_'_epter,R,)_'_'_,1999 DEF,C,T
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I Common I Balance, September 30. 1998 I I Net loss Balance, September 30, 1999 Stock $1,000 $!,0.00 Deficit $(186,661) (739.613) $(926,274)
Total Stockholder's Deficit $(185,661) (739,613) $(925,274)
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I The accompanying accounting policies and notes are an integral part of the financial statements. -
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d/bla SOLDOUL'IOM
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CASH FLOWS FROM O PE RATII_qI_TIVITIE S Net ;css Ad.ius:ments to re:oncile net loss to net cash provided by operating activities: Depreciation and amortization Bad debtexpense (Increase) decrease in: Accounts receivable Inventory Prepaid expenses Other asset Secudty deposits Increase (decrease) in: Other assets Accounts payable Credit card advances Accrued expenses Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Pur_ase of equipment Loans to stockholder
$(7391613)
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106,852 38678 148.c33 50 69.4 57,620 (32,136) (1,675) 79.721 760,856 (136,593) 135.752 469.096
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(315 647) (92.415)
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Net cash used in investing activ{ties CASH FLOWS FROM FINANCING ACTIVITIES . Pay'rents on captal lease c0_igations Payments on note payable- bank Net cash usecl ;n fnanc:r_g actlvities t',e: ..ec:easencash i
_408 062)
(55 731) (29 92.2) ,...,=" 553:,
(2'_,31_)
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Cas_, :egi,_nicg cf 'year C_s_ end of year SUPPLEM ENTAL DISCLOSURES OF CA_S FLOW INFORMATION H
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C_sn paid durirg the year for: -.
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Interest Income taxes
$4F.=.546 $
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The accompanying accounting policies and notes are an integral part of the financial statements•
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SOLDOUT.COM
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SUMMARY OF SIGNIFICANT ACCOUNTIN_I:_i_IE_(ConIInued)
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Property and Equipment - OeDreci Asset Computer equipment Web development costs Furniture and F',x'tures
d) _'_' " EstimatedLives 5 years 3 years 7 years
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Telephone systems 5 - 7 years Expendrtures for repairs and maintenance are charged to expense as incurred. For assets sold or otherwise disposed of,any resultinggainor loss is reflected in income are removedfrom the accounts, and the cost and related accumulated depreciation for the period. Depreciation and amortization expense was 5106,862 for the year ended September 30, 1999. Deferred Income Taxe¢, Deferred income taxes result primarily from timing differences between the recognition of bad debt expense, depreciation and amortizationand net operatin9 losses for financial statement purposes and income tax reporting purposes. For statement purposes, Company uses financial the the allowance method for determiningbad debt expense and the straight-line method depreciation, whereas of accountingfor reportingpurposes, the Company usesthedirectwrite-off method for methods. for incometax bad debt expense and acceleratedtax depreciahon
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Use of Estimat, s e The i_reset_taticn of rr_ancial statements in conformitywith generally ac_pted that affe:t the reported amounts of assets and liab,lit:esat tP'edate of assur'-:t;cns t accounting pr_ncip!es requires management to make estimates and the _r_anc_a statemems, and the rel::oe, d amounts of revenue and expenses during the _,_,_iOdI e Actual resuits may d,ffer from those estimates. Advertisinq - Direct Market]nq & Promotion. : -.--.... .: • :,, ., ....
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The Company expenses advertising costsas they are ir, urTed. For the year ended c Sep'eml_er 30. 1999. aclvert=singof $1.106.3;'3 is refleCed in selling, general ar,d administraWe expenses. 7
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d,b,a OT.COM SO, '
At SeDtember 30, 1998, the Company owed $123.97! to the principal stock_,,c_ef Dunn9 the year, the Company Ioanecl the stockholder $157,381. The loan is noninterest beanng and has no specific repayment terms. The Company' does nc: ex_ec_ repayment of this debt dudng fiscal year 2000, therefore, the amount has been classified as long-term for financial statement purposes. The balarce a" 1999, $33,410. September 30, was
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{2) Note Payable - Line of Credit The Company has an agreement with Fleet Bank, N.A. for a revolving line of credit. interest at the bank's pdme rate (8.25% maximum of $100,000. The line bears which provides for borrowings up to a at September 30, 1999) plus two percent. Borrowings outstanding under this credit agreement were $100,000 at September 1999. 30, 1999. Interest expense amounted to $10,250 for theyear ended September 30,
(-
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(3} Note Payable. Bank The Company has a term note payable to Citibank.N.A. due in monthly installments
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of 52,777, including interest on all assets. As of September 30, 1999. the The note is collatera;ized by a first lien at 9.75% through March 2000. cutstanding balance on the note was $17,443. (4} Capital Leases Ou"ng fiscal 1998, the Company acquired furniture and computer equipment and ert_'ed into var:ct:s noncancelaOle lease agreements whichwere treated as cac;ta :.rr" :ure and computer statement pu¢oses, minimum lease rentalsare}ating ,=m '.eases Pot finaccial equipment were cap,talized and recorded as iiab:li.,:y the "- the r'cc,_sof the Company. At Sel::temlcer 30. 1999. the capitalizedcost cf the ,fi.,r";ture a".: computer equipment of $211.776 tess the accumulated depreciation of $_'333", 's ;'-.:/uded in ccmputer equipment and rum,lure and fixtures in the accompany:r.g _aance sheet. Depreciation expense related to the capri leases for tP'e year e_ced Septeml_er 30, 1999 amcunted to approximately$42,000.
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SOLDOUT.COM
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NOTES TO FINANCIAL,,,,_TATEMENTS(Continued)
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The future mir.mur'_4_a_Je payments under capita! leases are as fo',lows: S_eptember30, 2000 2001 Total future minimum lease payments Less amount representing interest Present current maturities Less value of net minimum lease i:)aymenLs Long-term maturities (5) Income Taxes The Company incurred taxable losses for federalno provisionfor income taxes.year ended September 30, 1999. Accordingly,there is and state purposes for the The significant components of the Company's net deferred tax asset as of September 30, 1999 are as follows: Net operating loss cam/forwards Nondeductible reserves Valua'.:on a!!owance Depreciation Deferred tax asset, net $213,438 4.445 (197,893) (19.990) $ $85.990 15.760 101150 (16,016) (71,305) 85,734 $14,429
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As of September 30, !999, the Company had net operating loss ¢arryforwards fcr 'ederai income tax pu.";oses of approximately $950.768 which can De used to clue: taxa_;e ,ncome frcrn loss carry'forwards for year 2017. Acld,ticnail'y. the Corr:any c:erations through the Ccr_ectic:.t income tax purposes c_ _as ret ope'ating acprox:mate'y $SE.4.972. which can be used to c%et taxable income from ccera:ions t,":ougn the'/ear 017 2
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d/b/a SOLPpOUT.COM NOTES TO FINAI_q,t,_"I_'_ATEMENTS.(Cont,rued)
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for deferre:_ when A valuation allowan_'is provided deferred ax assetwill be ,treal=zeO T_.e the tax assetnot is more I_ke./ than not thatsome portion _e of t Company has established full a valuation allowancen theaforemeri'_,oned o defen'eo tax asset due to the uncertainty of realization.
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(6) Ol_eratinq Leases Ren.t The Company leases office space located at 397 Post Road in Darien, Connecticu,. under three separate agreements. The aggregate monthlyrent of the agreements contain renewal options all leases expire January 2000. The three 2(305. The amounts to $8,115 and to extend the termsfive years l_rough Januaryagreements Company is responsible for liability and fire insurance. Rent expense amounted to
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$100,655 for the year ended September 30, 1999.
other.
W The Company also leases office equipment and a vehicle under nonc_n¢_lable operating leases ex_idng at vadous times through July 2000. The Coral:any is responsible for expensemaintenanceendedinsurance costs on the equipment aP.d vehicle. Lease taxes, for_e year and September30, 1999 was $22.740 I Aggregate future minimum lease payments required on all operat;ng leases that expmreon various dates through Jury 2000 are $38,695 for fiscal year end=ng September 30, 20(30. [7] Compensated Absences i E",'plc,tees on job classification, length cf serwce and other sick and :t is im;:"_c:'ca, deperchng of the Company are ent,t'.e-Jto paid vacation, favors. eersora' (_a'1s to est,,mate the amount Gf cem_ensatcn for future absences and accord,r';_y. ".o !i_c_ihty has I_een recorded in the accompanying, financial: statements The Company's policy is to recognLzethe _sts of :nosecompensated a_sences when actually paid to employees.
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NOTES TO FINAN_=I_'_TATEMENTS
(ConIJnue¢)
(8) Concentrati Concentration of I •I i'
,,.., ,_SX _ isk
maintains its cash in bank which The Company deposit accc_Jnts, at times may exceed federally insured hmrts. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any s!gnificant credit nsk on cash ancl cashequivalenLs. The Company extends credit to certain customers throughout the United States. The Company believes that the concentration of credit risk for accounts receivable is substantially mitigated by the Company's limiteO credit activity, ongoing credit evaluation process and its relatively short collection terms. The Company evaluates the need for an allowance for doubtful a_,ounts based uponfactors surrounding the credit risk of specific customers, histoncal trends and other information. At September 30, 1999, the Company had outstandingticketsales on credit (accounts receivable) of $78,330.
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(9} 401(k]lProfit-Sharin o Plan The Company maintains a 401(k) profit-sharing plan, whichcovers substantiallyall eligible employees who have attained the age of 21. The planprovidesfor voluntary employee contributions _rough salary reductions and employer matching contributions. The employer contributionto the plan is an amount equal to 25,'0 of employee contributions, nct to exceed 10% of compensation. Employer matching contributior's are vested after six years of empJcyment service. Matching contnbutiors to the plan amounted to $12,729 for the year ended Septemcer 30. lggg. (10} Liticjahon The Ccm,#s_y =ssubiect to litigation in tr,e r,crmai ¢c,."se of its I_us_ness. In tD, e o¢;nicn of --'ar_agem..e_t. _e disoosit_on of all litiga:c.n I::eod.,r'gwill not rave a t mater,al effect on the Ccrrcany's financ_a',cona,'t_on a_c "esats cf operation.
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d/b/a SOLOOUT.COM
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NOTES TO FINANCLAI/,_h_I_EMENTS(.Continued)
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{11) Year 2000 ,$_ue_ {un.;_R_d]%,%% Like other companies. 1:he Company could be adversely affected ff the computer catculate date-related information or customersuse do period surrounding and systems the Company, its suppliers and data from the not properly process and including January 1, 2000. This is commonty kncwn as the "Year 2000" issue this time, because of could impact non-compuler the issue, devices as canno: Additionally, this issue the complexfities involved insystems andmanagement well. At provide assurances that the Year 2000 issue will not have an impact on the company's operations. Costs relating to the Year 2000 issue cannot be determined. (12) Subsequent Events Loan Payable. Officer
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During the month of November 1999, an officero1'the Company loaned $600,000 under terms of a promissory note. The note will bear interest of 12% through February 2000 and 48% thereafter until paidin full. {13) Continqen¢ies
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Compliance Certa;n states restrict the manner in which_kets to sporting and entertainment events can be sold and/or resold. Because each of these states imposes individua; restri_ions, the Company continuously researches, monitors and updates the laws of all fifty states to be cognizant of. and to be incompliance with, theto do. business of eacn iudsdict;on in which _e Company does. or could be found applicable taws Mana;_=-ent be!ieves the Co-pan'/is substa":ia'ty in compliance w,,th all state tav.s anti re;,:'a,'.io_s
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Going Concern As shown in the accompanying financial statements, the Company incurred a net loss of $739,613 during the year ended September 30, 19gg, and as of that date, the Company's current liabilities exceeded i_scurrent assets by $1,561,550 and its total liabilities exceeded its total assets by $925,274. Those factors, as well as the uncertainty about that the Company faces to continue as a going concern. uncertain conditions the Company's ability regarding obtaining capital, create an Management of the Company is developinga plan to raise ¢apilal through outside commitments with venture capital companies and other potential lending sources. The ability of the Company to continue as a going concern may be dependent on acceptance of the plan by such companies and the plan's success. The financial statements do not include going concern. is unable to continue as a any adjustmentsthat might be necessary if the Company
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MARKETING, SOLDOUT.C_M
INC,
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SELLING, GENERAL AND k,Q,_,M,,'_'_RA_._EEXPENSES
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Amount Salaries - selling Advertising - direct marketing and promotion •Professionalfees Credit card fees Other labor Salaries - officers Salanes- administrative Telephone Depreciation and amortization Rent Payroll taxes O_ce supplies and expense Health insurance Travel and entertainment Bad debt expense Web s_e maintenance Pcsta_';,e Lease expense 40 ! i,{i exl;:e_se M_sce'ar_eous Bus:r.ess insurance $1,149,020 1,106,337 285,135 218,420 207,504 129,785 127,290 113.782 106862 100655 100367 95 639 72 048 46 576 38 678 23,531 _6.786 22,740 12.729 !26.777 12.658 $4 1133'9 % 12.0% 11.5 3.0 23 2.1 143 1 12 1.1 1.1 1.1 1 08 0.5
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,, F'01 Soldout.com Forecast F'02 F'0._3 .' Financials Revenues Concierge Private Label Events _! Partnership MasterbrokerEvents Premium Packages All Other 1,933 11,907 17,640 90 1,378 92 4,511 27,783 41,160 209 3,216 196 9,667 59,535 88,200 449 6,891 419
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Total Revenues
33,041
77,075
165,160
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Concierge Gross Mar.qin Masterbroker Private Label Events Partnership Events Premium Packages All Other
1,933 105 4,048 5,998 1,378 62
4,511 244 9,446 13,994 3,216 126
9,667 524 20,242 29,988 6,891 269
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Total Gross Margin : Gross Margin % Selling Expense
13,525 40.9%
31,537 40.9%
67,580 40.9%
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Corporate Operations Salaries RetailBonus and Operations Operations Total salaries Product Credit Card Fees Phone and Postage
1,070 280 160 3,835 2,325 826 413 245 265 1,749 5,584
1,550 580 250 5,380 3,000 1,927 963 853 617 4,360 9,740
2,500 1,020 430 8,770 4,820 4,129 2,065 2,372 1,323 9,888 18,658
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Amortization o1 partnership on selting partnerships Commission on success feesrevenues (current yr) Subtotal Total Sates expenses
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Sales expenses as % of Revenue Marketin.q Acquire new customers Revenue sharing to partners Retain existing customers Base Total Programs
16.9% 2,100 1,764 1,250 1 500 6,614 1,130 7,744 23.4%
12.6% 5,200 4,116 1,625 1,500 12,441 1,355 13,796 17.9%
11.3% 10,800 8,820 2,625 1,500 23,745 1,395 25,140 15.2%
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Marketing Salaries Total Marketing Marketing expense as % of Revenue
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SellingSelling and Marketingof Revenue & Marketing as % Total Direct Margin
40.3% 13,328 197
30.5% 23,536 8,001
26.5% 43,798 23,782
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as a % of Revenues
0.6%
10.4%
14.4%
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i Appendix B
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I F'01 Soldout.com Forecast F'O2 F'O3
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Overhead Expenses Salaries and Bonus IT Consulting (primarily Internet) Total Internet Development Admin Payroll Taxes, Medical, 401-K Total Professionalfees Business Insurance Office Supplies , Rent Phone Leaseexpense Depreciation Employee Relations Miscellaneous Cost of move Travel & Entertainment Total Overhead Overhead as % of Revenue Operating Income Operating Income Before Marketing
1,525
1,920
2,140
"B
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1,525 1,790 828 4,143 300 100 306 653 48 831
1,920 2,075 1,073 5,068 400 150 456 973 96 1,088
2,140 2,750 1,506 6,396 500 200 660 1,408 144 1,796
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400 288 7,069 21.4% (6,872) (258)
500 384 9,115 11.8% (1,114) 11,327
600 528 12,231 7.4% 11,661 35,296
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Operating Income Bef As a % of Revenues Marketing + Internet Dev. Operating Income Operating Income Before Marketing I_ Operating Income Bef Marketing + Internet Dev. Other Income/(Expense) Interest Income Total Interest Expense Pre-tax Income
2,397 -20.8% -0.8% 7.3%
14,602 -1.4% 14.7% 18.9%
38,831 7.0% 21.4% 23.5%
BI)
(6,872)
(1,114)
11,551
U' .. II
EBITDA OperatingIncome Plus: EBITDA Depreciation Plus:Marketing
(6,872)
(1,114)
11,551
(6,041) 831 7,744
(26) 1,088 13,796
13,346 1,796 25.140
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EBITDAM
1,703
13,770
38,486
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Appendix B
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Copyright _ 1999 Pc cess Marketing. Inc. _1 rights resensed. Oo not duplicate or redist6bute in any form,
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1999/2000
Web Site Traffic
Statistics
(in thousands)
July 29.3 250.0
August 50.0 331.6
September NA NA
October 142.8 985.8
November 67.5 398.3
December 61.9 320.3
January 43.6 246.8
February 56.5 311.4
March 84.5 478.2
Monthly Unique Visitors Monthly Page Views Internet Related Marketing Expenses Internet Revenue as a Percentage of Total Revenue
$0.0
$0.0
$0.0
$80.0
$0.0
$0.0
$0.0
$0.0
$0.0
0%
4%
6%
9%
19%
15%
5%
18%
17%
Appendix D