Sample Business Plan Tachyon Systems

0 0 0 e e o o o .." e e e e e o o 0. chon SYSTEMS, TACHYON SYSTEMS, L.L.C. 0 e 0 0 0 Confidential Business Plan 0 0 0 0 0 0 0 0 " . 0. Track smart. Trade smarter. Eye 0 0 e 0 0 0 Q 0 Q O O SYST_r_8. LLC 0 Q 0 0 Q Q Q 0 TACHYON SYSTEMS, L.L.C. 0 0 0 Q Confidential Business Plan 0 0 0 0 0 0 0 Q 0 Q 0 Q Q 0 0 0 D Q 0 Any reproduction or use of this document without the express written permission of Tachyon Systems, L.L.C. or its Founding Members is strictly prohibited. O e 0 e SYSTEMS, LLC e e e e e e TACHYON SYSTEMS, L.L.C. O O O O e O O O O Fundin_ Goal Tachyon seeks $3.0 - $3.5 million for a :25-30% interest. Our immediate goals are to finance the launch of the current products we have successfully created, especially our Java-delivered Internet products, and to support our technology and development effort in our long-term goal to become a significant player in the financial information industry. $ 0 e o o o o o o o o o o o Any reproduction or use of this document without the express written permissio n of Tachyon Systems, L.L.C. or its Founding Members is strictly prohibited 0 0 0 0 e ". " O SYSTEM.S, LLC B 0 0 0 0 0 • 0 0 The Opportunity Thanks to the Internet, investors and traders now have low-cost trade execution and lowcost access to raw financial data. Low-cost trade execution will become a commodity service with a guaranteed standard. Access to financial data, however, presents the opportunity. How will investors and traders make sense of the massive amounts of raw data available to them? And how can they benefit from data delivered in amounts too large to read or scan in any direct form? Analytics which rationalize widely distributed streams of realtime data will command a premium price and will in the long-run provide a platform for offering broader, all-inclusive services, including trade execution. The need for such analytics is only now being recognized, and this need will continue to increase. Tachyon Systems meets this need. O O O O 0 O 0 0 O 0 O O 0 O O O O O O 0 e e o e SYgTEMS, LLC e e e O Executive Summary The U.S. market for financial news, data and analytics exceeds $15 billion annually. An increasing majority of this now manifests through real-time delivery. The non-U.S. markets, though difficult to quantify, are growing at a rapid pace and within five years we believe will in aggregate equal the U.S. market. Tachyon Systems has developed a suite of core technologies that allows for the analysis of real-time market data, delivered in whole over the Internet.. We have invented the first analytics that enable investors and traders to capture, clean and analyze in real-time every tick of market data, including NASDAQ Level II data. Furthermore, we have developed O O a unique Java-based streaming technology that makes possible the Internet delivery of the above real-time analytics. We have succeeded to date in gaining initial market recognition of the speed and efficiency of our technology through our NASDAQ-oriented website FalconEye.com and through our current marketing efforts to the leading Wall Street market-makers and daytrading firms. Our strategy is to solidify a base for future expansion and scalability by licensing our technology on a private label or co-branded basis and by marketing webdelivered products to individual investors. Business-to-business and business-toconsumer call for applications driven by the same Tachyon core technology; at a limited cost we will be able to use success in each market to drive success in the other. Fees for raw data continue to drop: NASDAQ effective October 1 will lower the charge for Level II data from $50/month to $10/month. Our Level II product is well-positioned to benefit as more investors subscribe to NASDAQ level II. Our goal as a company is to provide the appropriate analytics to match the new access to complex data streams. The utility of our analytics combined with the current trend of technology outsourcing by securities firms will allow us in one year to become profitable and at the same time construct a base from which to expand, on our own or through combination with a lowcost provider, into comprehensive delivery of financial information (data, analytics, research, news) and into trade execution. 9_ O O O I_ 0 O O " • i) _lr . lc. Eye Track smart. Trade smarter. e e O 0 SYSTEMS, LLC 0 0 Strategic Plan 0 Our strategy seeks to exploit this central principle: that differential analytic content will provide a stronger and more secure business foundation at a lower cost than the current dominant strategy in web-based financial services, i.e. offer a low-cost commodity service and spend marketing dollars to attract customers. By starting with value-added content Tachyon can avoid the high cost of a marketingdriven business model, better distinguish ourselves within th_ industry, and create valid competitive barriers. To date we have developed key applications such as the Tracker Live Map, a real-time visual representation of the entire NASDAQ market, and the streaming Alerts Monitor, as well as two products which we believe invent new analytical categories: our Level II View and the Order Optimizer. Using the above applications and others, Tachyon currently attacks four important markets: O O 0 O 1) Professional market-making firms to whom we can license our products directly and for whom we can develop customized applications from our core technology. O O 0 2) Professional day-trading firms and proprietary trading firms whose needs may be more specialized than the generalist market-making firms. 3) Retail securities firms who seek private-label or co-branded products which benefit their customers and which serve to breed loyalty among those customers. 4) Retail: direct to individual investors and traders through our FalconEye.com O web product suite and other web applications. In promoting and licensing our technology, Tachyon will achieve market recognition for cutting-edge analytics in the following areas: O O Level II Data: NASDAQ has announced that it will soon reduce the monthly charge for Level II data (all market-maker bids and offers) by 80% to $10, making it universally affordable. Our unique real-time bid/offer charting and our set of five proprietary trend indicators positions our Level II View application as best-of-breed as we anticipate the increase in Level II usage. O O O O O e Q O O O O O Real-Time Visualization: Tachyon has pioneered the ability to visually depict in real-time entire markets, such as NASDAQ, and plot every stock according to selected indicators within such visual representations. This visualization provides meaning to complex streams of data which otherwise could not be tracked. We believe we are at the forefront of what will become a crucial element of market analysis that is well suited to Internet communication. Streaming Alerts: Tachyon can track all market data and compute any indicator or analysis in real-time; we can then alert an investor or trader to any of this analytical information as they desire, all performed in real-time. Optimization of Limit Orders: Tachyon has created a product derived from our real-time core technology which allows investors to receive up-to-the instant statistical advice on how best to place an order to buy or sell stocks. We believe this establishes a new category of investment analytics which has the potential to benefit anyone who has ever placed an order, either through a human broker or over the Internet. Success in applying our technological advances to the four markets noted above will provide us with a defined revenue flow and establish our brand as cutting-edge, user friendly and good value; it will also give us market leverage as we reach the second stage of our growth. In this stage, which we plan to reach within twelve months, we must decide how best to expand our scope and reach. Our goal will be to provide a comprehensive product line or service by adding commoditized elements such as news, research, and additional raw data and importantly, trade execution. We believe in the current environment it is not an advantage to commit in advance to a specific method of procuring these elements, nor do we believe it important to commit in advance to any specific vendors. At the appropriate time we will choose from the following options: O O O Q O O 10 1) License directly from low-cost providers for each service. 2) Structure a cooperative revenue-sharing arrangement for the services. 3) Acquire a trade execution platform directly (and license the other services). 4) Develop internally our own trade execution platform (and license the other services). O _D Q O O O O O I_ We believe all of the above options will be available one year from now and we will retain maximum flexibility up to that point. We will avoid high infrastructure costs and achieve marginal profitability while maximizing the further development of our technology. O000QOOOOOOOOOOOOOQOOOOeOOOOOOOOQOOOOOQQO00 Next Page: Home page of the FalconEye.com Tachyon's suite of retail applications website which includes eeoeQeeeeeeoooeeeeeeeoeeeeeeeoeoeeoeoeteoeo HERE Tracker Alerts Monitor OrderOptimizer Log In I0 day ! Real Time I1_i=1 ,r ................ FalconEye is the first and only toolset ever developed to analyze Nasdaq Level II data. We track the entire Nasdaq market in REALTIME so you can spot the opportunities as they happen. FsloonEye "rraoker Live Map T. PaloonEy e Level !1 View i:81oonllye Alerts Monitor PaloonEye Order Optimizer ]'-]-r....t-_T"_,'Tq'q--T . .......... _, See the entire market at once l Find breakaway stocks or track your own portfolio with our real-time "live map" of Nasdaq stock performance, Quite simply, the best product to interpret Nasdaq Level II data, We give you analytical features and tools not available on any other Level II screen. Get real-time streaming data on your portfolio plus unique Nasdaq Level II alerts on the entire market, Save money with limit orders using the FalconEyeOrder Optimizer, This serviceis available to out Plus+ and Pro users, _ i_iil _ ;iiiii QOOIOOOOQeOOOOOOeOQOOOOOOOOOtOOOOOOOOOQQ_O00 Next Two Pages: The Tracker Live Map real-time visualization of the entire NASDAQ market plotted according to the selected technical indicators; bright orange areas indicate a heavy concentration of stocks, dark blue uninhabited regions. The Tracker also enables the user to track the short-term historical movement of either their own portfolio stocks or those identified on the map as the fastest movers. I II [ II I sdu.,____pu._ seop;! I I :"-.i ' 8G-IO. ° o _AON+ d.o/ •' t: ................ . .. o'_ Pe_Oll!_-I $>Ioo_,8 p!nb!lll I_ 5uPI;_e_I MooI..£ leOpols.q-I _ . !'.-. [i'. _Z:BL:O_ " ' PPO I_ , , O0001000OOO00OOOOO0000000qPOOOOOOOiOOOOOO000O YahooNews WghtVoluBias 5minSignedR2 OOOO00OOOOO00OOOOOO000OOOqPOOOO000000000_OOOO Next Two Pages: The Level II View, which includes our five proprietary indicators and our real-time charting capability, also features the Market Maker Sleuth through which we can spy on the activities of market-makers across the entireNASDAQ. ?;";' .... " . .',_;,:_ !• . . .:=_; _;':-_: .31@. , .¢ i :.: . "' .... - '-" . .. ..'; . ...... ' """ _tI.6; ;; ;_:. -.._:_ {: ' _... -.-_/_:...-. -- :;i;'-...; "" -_.-_=_, F__, _. . 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Iwarhing:.Applet Window . , ...... .. ..- ......................... •.... ........ O,O,O O eO0 OO0 OO0 O0 OO0000000 O eOOOOO000000 O OO0 gO Next Page: The Alerts Monitor, by which investors and traders can set and receive real-time alerts on almost any real-time data or indicators they desire. OO0 O O 0 O O O O 0 gO0 O g OO gO O OOO O O0 OOOO0 0 O,,eO O,O 0 O O OO _' '_ -_"- ,_' " ,; --:_" _ _- _', .'i "' _ ._" ._,_ - --'_'_ ,'---' ----- .., - • -- - i "''_J--'_r_"'_ "• _ " _"" " _" "_ _' ' ' '_ ' : " '_;_:'_='"_' Symbol AMZN CIEN CMOI C800 DELL EBAY JDSU - MSFT Quality 200 100 500 1000 1350 30 10 • 750 Date 5/25/98 9111/00 6/2/99 2/5/98 1211 5/98 9/7/00 9/11/00 3/19/00 Initial Price 33.125 190.5 36.875 50.75 41.345 65.0 113.625 . 95.375 Last Price 39.0 116.5 36.125 61.75 39.0 71.125 104.718 64.625 6ain_Loss 1175.0 -7400.0 -3750 11 000.0 -3166.56 183.75 -89.064 -23062.5 -$24,103,125 %Gatn_oss 17.735% -38.845% -2.033% 21.674% -5.673% 9.423% -7.838% -32.241% Time 11:03:14 11:03:14 11:03:04 11:03:14 11:03:14 11:03:13 11:03:16 11:03:15 Value 7,800.0 11,650.0 18,062.5 61,750.0 52,650.0 2,133.75 1,047.186 48,468.75 I I Total: _"_'_" _i _' _:? ___:_:_ Time 11:03:12 11:03:12 11:02:47 11:02:46 11:02:43 11:02:43 11:02:43 Symbol CSCO ORCL JDSU CSCO DELL YHOO EBAY Alert _,_?-_:_:_" _i'i.......... Last 61.75 78.5625 104.6875 61.75 38.9375 110.5 71.125 SIz(_ 600 200 500 200 19000 100 200 B Bid 61.75 78.5625 104.625 61.6875 38.9375 110.5 71.125 B B Size 1200 1000 2300 11800 5400 1900 200 B Ask 61.8125 76.625 104.75 61.75 39 110.5625 71.1875 B A Size 14200 10200 2400 4000 13700 100 3100 Volume Description $260,589,69 I '_ ..........' '_ _':'"___-- IBLDmood < -50% IBLDmood_ -50% ISLDmood_ -50% ISLDmood= 50% MAV10dy_ 0% MAV10dy_0% MAV10dy_'0% 16624800 buy/sell bias of Island ECN 5113500 buy/sell bias of Island ECN 8913000 buy/sellbias ofIsland ECN 16567600 buy/sell bias of Island ECN 15409000 Trade price crosses 10-daymovingaverage 1549000 Trade price crosses 10-daymovlng average 4319000 Trade price crosses 10-daymovingaverage OOO O O0 0 OO0 gO'O O0 g,O O O0 OO0 0 0000 OOO O O OO0 O O O0 O O0 Next Page: The Order Optimizer which combines a dynamic "reading" of Level II information along with a real-time exponential moving average volatility calculator in order to give real-time statistical guidance for investors when using limit orders. This is a technology webelieve can be further developed and made useful to all investors who place buy and sell orders. e ": . SYSTEMS_ L£C 0 • The Market 0 0 O O O O O Although difficult to determine exactly, we estimate the total market for direct financial news and data to be in excess of $15 billion per year. Yearly subscription fees from data providers, newsletters and analytic packages are $6+ billion (Bloomberg alone generates $2+ billion from its set box fees) and this does not include substantial revenues generated from advertising/cross-marketing on web sites or data feeds. Add to this the money spent on gathering and creating Wall Street research and video deli.vered financial news and our $15 billion estimate appears conservative. O O O O O O" Initial Market Segments Tachyon Systems has identified four immediate markets for its suite of technologies that have core players and from which we can project revenue. 1. Front-end wholesale market (market-makers): The universe of firms who would be clear value-added users of our technology include: market-making firms such as Knight/Trimark Group, Mayer & Schweitzer/Schwab, Spear, Leeds & Kellogg/Goldman Sachs, and Herzog, Heine, Geduld/Merrill Lynch and full service brokers with dominant market-making operations such as Salomon Smith Barney, Lehman Brothers, Morgan Stanley Dean Witter, and Credit Suisse First Boston/DLJ. Recent mergers have demonstrated the value of these businesses; the pressure to produce results and the trend toward outsourcing technology presents increased opportunity for Tachyon. Given the multiple-user configuration of these institutions and the need for an onsite client/server installation of Tachyon's analytics, we project meaningful license fees, customization fees and on-going upsells of additional technologies. 2. Front-end wholesale market (proprietary trading/day-trading firms) Although more fragmented than the universe of market-makers, the prospects for creating specialized products are promising in that firms in this market are more aggressive and more demanding in seeking an edge. We believe this market will continue to be the driver of our development work, as it includes professional day-trading shops such as Broadway, Heartland Securities and Tradescape, as well as the entire range of hedge funds and proprietary trading organizations. Revenue possibilities for Tachyon here are numerous and varied, with a high probability for creating customized products. i_ O, O _O O" O O -O1 6i, O e Q O O ID O O O' O O 0 O e 0 0 0 0 Q 0 0 O 3. Private label retail market: Tachyon Systems believes that, as the costs to the retail client for both information and trade execution continue to plummet, brokerage firms will strive to deliver differentiated products and content that will either establish or maintain a premium-priced service or simply drive people to their execution platform. Electronic customers of a Merrill Lynch, DLJ Direct or Charles Schwab, for example, would be able to access any of our technology through the broker's web-site and instantly capture and analyze real-time market data. As with the wholesale market, Tachyon will generate license fees, ongoing software update fees, maintenance fees, and per-user fees to compensate us as our applications and products become more popular with users. 4. Internet retail: Q O Q The universe of people utilizing the Internet to execute trades is well in excess of 5 million and growing at an enormous rate. Tachyon's initial target market is the "already converted" universe of active investors who are searching for the best technology and are consumers of high-end financial data and analytics. Our initial FalconEye beta site, launched in June, attracted strong interest and volumes of feedback from potential users (and even pulled in fifty paying subscribers) who confirmed for us both the usefulness of our analytics andalso that no other provider was meeting their needs. Despite FalconEye's beta status, we received an unsolicited positive review from Online Investor magazine, which gave us 24 points out of a possible 30 in its scoring system (ranking us #8 out of the 24 sites in its active trader category). Importantly, none of the other sites offer products which directly compete with the service we offer. The updated FalconEye.com was launched September 25, 2000; we anticipate a positive reception with the goal of 1,000 paying customers six months from now at gross margins in the $18 $35 range. Exceeding this goal will depend in part upon the publicity generated by NASDAQ's move to lower Level II data charges from $50/month to $1O/month. O O O O O Q Q O O O O e e o o SYSTEMS, LLC e e e 9) Competitive Positioning 0 0 Tachyon Systems competes with part or all of the following four financial news/analytics segments: financial newsletters/web sites; shrink-wrap and web delivered analytic and charting services; electronic brokerage services (non-trade execution); and data vendors. The following delineates in each segment the major players, market dynamics, pricing levels and thresholds, and where and how the Tachyon technology competes. News Letters and Web sites O O O O Competitors: In the financial newsletter area, there are over 250 publications that deal with the equity and bonds markets. We have found no publication that deals specifically with NASDAQ Level II data. The various publications are updated daily, weekly or monthly, with e-mail and the Intemet being the mediums of delivery. Market dynamics: This segment of financial analysis has in the past eighteen months been transformed from a print medium to a web-based one, with the advent of such companies as The Street.com. Traditional monthly or weekly delivered fundamental analysis product sold by yearly subscription is now a commodity being delivered daily via the web. This means that the medium is more current and can provide more topical fundamental and technical analysis. Pricing: Costs for these newsletters range from $9.99/month to hundreds of dollars per month, depending on the level of specificity and detail. In general, the $9.99$19.99/month price point is the most prolific. The number of subscribers is difficult to ascertain, but at $9.99/month, assuming 2,000 subscribers and 250 newsletters, spending on financial publications likely exceeds $5.0 million/month (over $60 million/year). Tachyon advantage: These providers do not directly compete with Tachyon; they are relevant in that FalconEye is a monthly pay service and as such competes for the total dollars allocated by investors for technical & fundamental research. The differentiating factor is that Tachyon analytics are real-time and interactive, while even the most timesensitive sites deliver static information. O 0. O O O ¢ O O O e 0 0 0 O O Shrink-wrap & Web Delivered Analytic Packages Competitors: The best-known player in the trading software and analytics business is Omega Research with their TradeStation software application and their Windows on Wall Street web product. Leading Market Technologies, Inc. is also in the market with a real-time analytics, portfolio, and risk management software called EXPO. There are also O t_ a number of free charting packages such as client-sponsored Big Charts which provide intraday charting and analytics on up to fifty stocks. Aspen Graphics provides the most interactive charting and graphing package that can provide stock selective analytics on tick-by-tick price and volume data. None of these competitors have the ability to analyze all stocks on a real-time basis nor do they enable the user to convert visually provided NASDAQ Level II data into usable content. Market dynamics: All of the competitors in this segment allow the user to perform charting and analysis on either historical or, in a few cases, real-time trade price and volume data. No packages that come with a real-time feed allow the user to perform analytics on anything other than trade and volume data. Even the web delivered charting interfaces lack the granularity of data to chart anything other than derivatives of trade and volume. Pricing: The Omega TradeStation costs $2,399 for the software and they provide free end-of-day data, but if you require real-time data then you need to contract for it with an outside vendor at a cost of approximately $150/month + exchange fees. The Super Charts software is $1,199 for end-of-day functionality but also requires an external data feed and the attendant costs. Leading Market Technologies' EXPO basic software costs $195/month plus data and exchange fees. The Aspen Graphics software is configured to be delivered via either a network or the Internet and they charge separalMy anywhere from $50-$275 for historical data. The network user version costs $350/month and the Internet product costs $150/month. Windows On Wall Street.com charges $79/month for its web-delivered service. As with all the others, these charges are in addition to data and exchange fees (current non-professional exchange fees total $13 for NYSE, NASDAQ Level I & II, and AMEX data). Tachyon advantage: The fact that the Tachyon's analytics deliver real-time tick data and can drill down to market maker data sets it apart from this group. Tests with major trading finns have confirmed that the functionality of the Tachyon Dynamic Indicator Builder that allows the user to recursively create customized indicators, operating in either clock or tick time, is substantially easier to use than Omega's Easy Language and is a unique, differential advantage. Tachyon's seamless merging of historical and intraday data, allowing the user to zoom his analysis from yearly to second-by-second charts, is but one example of the superior technological advantage of Tachyon's streaming data and analytics. We can deliver this to wholesale customers at price points well below any of the above and our retail product FalconEye.com offers a $59/month product which includes NASDAQ Level II fees. O O O O O O e O O O O O O Electronic Brokerage Services Competitors: The e-brokerage community can be broken into two distinct segments: full service brokers and active investor-focused brokers. The full service segment is dominated by Schwab, Fidelity, DLJdirect, Discover and Merrill Lynch but these reformulated "heritage" brokers are being actively pursued by Internet spawned brokers such as E'Trade, Ameritrade, Datek Online and Waterhouse. Such firms as All-Tech, A.B. Watley, CyBerTrade, Preferred Trade and The Executioner lead the active investorfocused brokers. The active investor-focused brokers have staked out territory based on a combination of lowest price and best electronic execution while the full service brokers are generally selling at higher price points due to their greatei" menu of services and content. It appears that with the "genie out of the bottle" on commissions, this entire segment will be under consolidation pressure and will need to provide a combination of cutting edge services/analytics and best execution price to survive. Market dynamics: This group has created (or licensed) front-end interfaces that permit the customer to view data in either real-time or twenty minute delayed formats. A number of these firms (all of the active investor-focused brokers) enable their customers to retrieve price data or view NASDAQ Level II data through an interface like Townsend Analytics' Real Tick III, which provides market maker information in a color-coded visual format. Grouped with these interfaces are links to in-house and/or external research, charting packages and templates of technical price/volume based indicators. These firms provide services outside Tachyon's immediate strategic plan such as trade execution service, account information, investment advice and, in some cases, banking and money management services. O Pricing: Merrill and Schwab have staked out the high end of the e-brokerage commission scale at $29.95 per trade with Ameritrade and E'Trade populating the lower end at $19.99 for limit orders (some firms will further discount their fees for market orders). None of the full service brokers provide access to real-time data but provide the full plate of research, charts, quotes and banking services, paid for by higher market electronic execution or account wrap fees. The execution-focused brokers require minimum balances that average $10,000 and charge rock bottom execution rates. These brokers provide access to real-time data at monthly rates of $100-$300, plus exchange fees, all of which are discounted if monthly trade volume is high enough. No broker provides interactive access to the real-time data and all base their monthly charges on the front-end package of the Real Tick III visual interface, news and charts that attach to the data feed. O O Tachyon advantage: All of the above firms would be candidates for licensing Tachyon for inclusion in their e-brokerage strategies as none of them provides Tachyon's level of analytics and interactivity to complement their low cost execution strengths. Also helpful to us is that even the full-service brokers are beginning to offer more raw data to their O O O O O 0 0 0 0 B customers. Schwab, for example, offers free NASDAQ Level II quotes to their 40,000 best customers. The ability to create multiple methods (outright, transactional or annual) to pay for the real-time exchange fees would allow this segment to provide differentiated service and content through Tachyon. As the trade execution process has been and will continue to be made more efficient by the evolving universe of e-brokers, customers will need better analytics to help them parse through the sea of data that is now available. Tachyon meets this need. Data Vendors O O Competitors: This segment is dominated by the major "ticker-plant" data providers such as Bloomberg, Reuters, S&P Comstock, Bridge, Telerate, and Data Broadcasting who have traditionally delivered their data over direct telephone or satellite feeds to large, institutional customers. The high-end of this group is staked out by Bloomberg and Bridge but others in this group have developed an Internet-delivered product, such as Data Broadcasting's INSITE, which is aimed at smaller users and at a price point less than half the hardwired rate. The non-heritage players of this segment are dominated by entirely Internet-based data providers such as DTN.IQ and Quote.com. These providers look to dominate the demand for low cost NYSE, NASDAQ Level II and option price data that has been created by the active investor community. Market dynamics: This segment is being transformed from an institution only, telco delivered data feed to an individual and institutional Internet-delivered source of financial information. While the hardwired or satellite delivered products are still the choice Of the larger institutional consumers that have large numbers of users and need to integrate data into their own data architecture, the development of the Internet as a reliable source of data will greatly change this demand dynamic. The Internet born providers are building O O O their platform on low price and ease of access, but they lack the functionality to attach to in-house architecture of analytics modules. Pricing: At the high-end, Bloomberg charges $1,650/month + $200 telephone charges per user for their complete data feed. In the middle, Data Broadcasting's INSITE delivers O O a comparable data package over the Internet for $225/month (minus Bloomberg's mortgage & bond data). At the low end of the price scale, PC Quote, DTN.IQ, and eSignal provide NYSE and NASDAQ Level I & II data from $150-$250/month + exchange fees. Quote.com has the closest product offering to Tachyon's (but without our Level II real-time analytic capabilities) in their QChart product which is real-time data and charting at $99/month + exchange fees. Tachyon advantage: The Tachyon advantage is its ability to interactively capture and analyze all real-time data, to easily create an unlimited number of customized indicators that operate on market maker data as well as trade, price and volume data, and to create charts that seamlessly mesh historical and intraday data. These cutting-edge analytics are delivered at a price point that is vastly lower than the heritage data providers and substantially lower than the lowest Internet data provider. O O O O e e SYSTE_4VTS, LLC @ @ @ 9) Summary: Tachyon's value-added in the products created to date, and in future products, is three-fold: cutting-edge technology; ease of use; and good value. We will position our products to best exploit these advantages, and we will exploit the fragmented structure of the financial information industry. Our goal is to build profitable brand recognition and position in order to gain leverage in the coming industry consolidation. This consolidation will favor our value-added approach our Internet capabilities, and will allow us within five yea_:s to attain significant market share points in what at that time will be a $30 - $35 billion industry worldwide. and O O O O O O O O O O O O O O O O O O O O O O O e e _) Track smart. Trade smarter. 0 SYSTEMS, LLC 0 0 • Operational Plan 0 O The Tachyon timetable outlines our plan to penetrate the four targeted markets, including 12-month sales targets, and identifies the resources that we need to achieve these market penetration goals. The timetable lays out when and what type of customer we will serve, as well as when and what strategic hires we will make to support these levels of penetration. The current Tachyon team consists of twelve professionals: a senior developer/head of development; five additional senior developers (two of whom have experience as project managers); one web developer; a chief scientist; and four individuals who handle all nonprogramming functions including executive management, finance, marketing, sales, customer service and administration. All fou r of these individuals participate in product development with two of them actively managing that function. Tachyon plans to hire seven additional full-time professionals within the next twelve months; all except one will be senior developer or directly related to the development and maintenance of technology. O O Now with the relaunch of FalconEye.com completed, our main task in the retail market will be the promotion and advertising of the site. Beginning in month 1 post-funding we will begin a steady and selective marketing effort designed to not only drive potential users to the site but also to gain further recognition of our technology (and thus help in our sales effort to wholesale and private-label customers). We expect to achieve 1,000 paying customers by month 6 and 2,000 by month 12. We will hire a system administrator in month 3 and a customer service manager in month 5 to support the retail product; these two hires will also be able to assist in all of our other activities. In order to service the wholesale and private label markets we will need to add five professionals: four senior developers and one operations manager. We look to hire two developers by month 2 and add an operations manager by month 4. The two additional developers will be brought on-board in month 8 and month 11. This will provide us with enough development firepower to handle the amount of business called for in this plan as well as any unanticipated business above the plan. From this base we can support a significant increase in business. For all markets our marginal costs become smaller from month 12 as revenue increases. As the operational timeline below indicates, by month 12 we plan to have four private label licensing deals in place and four deals in the two wholesale markets. I_ O O O 0 Track smart.Tradesmarter. 0 II e e SYST_rt/fS, LLC e e e Operational Timeline Total Wholegale e 0 Month Retail Private label Hires • 0 9) 0 1 2 3 4 !Begin Promotional Spending First Licensing Deal First Licensing Deal Two Developers System Administrator Operations Manager Second Licensing Deal 1,000 Customers Second Licensing Deal Customer Service Manager O 5 6 O 7 8 9 Third Licensing Deal Third Licensing Deal Additional Developer • 10 11 12 2,000 Customers Fourth Licensing Deal Fourth Licensing Deal Additional Developer O O O O O O O O e SYSTEMS, LLC • Financials Expense assumptions: The company's expense run rate one year from now (after following the 12 month operational plan) will appear as follows. We believe this level of staffing and operations could support twice the amount of business (revenues) as projected based on month 12. Annual Monthly $197,917 e O 0 $ Q Personnel Costs (19 people @ $125,000 per person) Non-Personnel Costs: Technology Technology/Security maintenance Telephone leases Software Dedicated T-1 fees Computers/computer $2,375,000 $10,000 2,700 5,000 50,400 40,000 $108,100 $9,008 related purchases e Total Technology Expense e Web Site (for service up to 5,000 subscribers): Data Feed (Hyperfeed 2000) One T-3 usage (remote ISP) Managed web site fees Web design/Maintenance Customer service software $120,000 60,000 120,000 10,000 20,000 $330,000 $27,500 $ $ Total Web Site Expenses Other Costs: Sales and marketing Office rent/insurance Legal and accounting Other general expenses $250,000 96,000 45,000 50,000 $441,000 $3,254,100 $36,750 $271,175 _; e Total Other Expenses Total Expenses (Base Run Rate) O 0 e e _e ,,, e 9) St'STEMS, LLC Pro,iected Financials - Revenue and Income Statement 0 0 O O 0 O O O ID 9) O O Revenues: Wholesale Private label Internet retail Total Revenues Expenses: Personnel Costs Technology services Web site operations Sales and marketing General and administrative Total Expenses $720,000 720,000 316,025 1,756,025 $2,010,400 108,100 330,000 250,000 191,000 2,889,500 $3,060,000 3,060,000 1,087,500 7,207,500 $2,850,000 216,200 660,000 500,000 382,000 4,608,200 $50,000,000 50,000,000 75,000,000 175,000,000 N/A N/A N/A N/A N/A N/A Year 1 (Months 0 - 12) Year 2 (Months 13 - 24) Year 5 O e e O O O O -_1 O O 4) O O Gain (loss) from Operations Notes: ($1,133,475) $2,599,300 N/A 1) Year 1 follows the outline from the Operational Plan (previous section). 2) Wholesale and private label licensing contracts are assumed to be worth $30,000 of revenue per month for the first twelve months and then $10,000 per month thereafter. This includes all installation, customization, maintenance, and consulting fees. Eight licensing contracts are signed in year one; sixteen in year 2. 3) Internet retail assumptions: 2,000 subscribers to FalconEye.com in month 12, rising to 5,000 by month 24. We assume $25 per month of gross margin revenue (net of data costs) per subscriber. 4) Year 2 expenses are assumed to double from the month 12 expense run rate except for personnel costs which we assume to increase 20%. 5) Year 5 assumes that we have successfully completed our move to offering a comprehensive service. We also assume an expansion into all key foreign markets. Five years hence we estimate a total global market of $35 billion and project that our market share will be 0.5% or $175 million. O O O O e O e e . "" e SYSTEIV_S, chvon LLC e O Profitability drives our plan; we believe strongly that building a profitable base by year 2 will grant us maximum flexibility to make the right choices in ramping up to an allinclusive provider. Profitability also allows us the option to build internally and finance ourselves from cash flow; additionally it makes us more attractive to potential partners in the event that it proves advantageous to pursue cooperative ventures. Most importantly, we believe that proof of a profitable model will give us the credibiiity to raise any necessary financing for expansion. Our goal will be to finance ourselves in the future with limited or no dilution, and wherever possible to seek partners willing to finance our joint plans, especially in foreign markets. Demonstrated generation of positive cash flow allows us to achieve this goal. Q O Profitability will also assist our marketing efforts. We believe significant markets exist for investment tools such as our Order Optimizer product. Such tools can be marketed directly to consumers through a low-priced internet service on an individual basis. While our plan does not call specifically for such efforts in the next 24 months, we believe it important to retain the flexibility to do so if conditions warrant. O e O O e O e O e e e O O O O O e " e _) e Tracksmart.Tradesmarter. e Q ". 0 0 0 0 • O The Tachyon Team St'STEMS, The team below has developed our technology to date, launched our retail web product, and developed strong relationships with potential licensees. Sasha Migdal - Chief Scientist and Co-Founder In 1995, Dr. Migdal founded Real Time Geometry (RTG) to create the first scaleable 3-D software for the PC platform, a technology previously available only on expensive workstations and supercomputers. In 1997, Dr. Migdal sold RTG to MetaTools, Inc., now MetaCreations, for $14.5 million where he serves as senior consultant for MetaStream.com, a joint venture between MetaCreations and Computer Associates. Dr. Migdal has his Ph.D. from Landau Institute of Theoretical Physics, Russia, 30 years experience in Mathematical Physics, 15 years experience in Computational Physics, and 10 years experience in the software industry. He defected from the former Soviet Union in 1988 and from 1988-1995 held dual professorships in Physics and Applied and Computational Mathematics at Princeton University. Keith Danko - CEO and Co-Founder Mr. Danko has his MBA from Harvard Business School and AB from Duke University and has 18 years of domestic and international corporate finance and trading experience. He was formerly a Vice-President with Goldman, Sachs & Co. and an Executive Director of Goldman, Sachs International, as well as a founder of Minnisink Capital, L.P. and Witherspoon Investment Management. Howard Tomlinson - Executive Vice President and Co-Founder Mr. Tomlinson has his BA from Princeton University and has over20 years experience in sales and marketing. Mr. Tomlinson was for 19 years a Senior Managing Director of Bear Steams & Co. Inc. and headed the Mortgage-Backed Specialist Sales effort for Bear Stearns. He was for two years President of Orchard Brook Inc., an industrial first aid service, supply and training company. Michael Agishtein - R&D Manager/Senior Programmer Dr. Agishtein has his Ph.D. from Princeton University in Applied Mathematics and has ten years of experience in systems development, database design, Windows and UNIX programming, internet applications, and client server architecture and development. He was for four years a Director and Vice-President of Technology at Hammond Maps, Inc. Previous to Dr. Agishtein's involvement with Tachyon Systems, L.L.C., he was a consultant with Digital Equipment Corp. O O O O O _ O O O O O O O O O O O O Q O O O O O O Vadim Brazhnikov - R&D Programmer Mr. Brazhnikov received his Ph.D. in Physics from Rutgers University and a Masters degree in Engineering from Moscow Institute of Physics and Technology. He has ten years experience in statistical physics and numerical simulations. Before joining Tachyon Systems, L.L.C., Mr. Brazhnikov was a Research Associate at the University of Miami. Dimitri Zhuravytsky - R&D Programmer Mr. Zhuravytsky studied as a Ph.D. candidate at the Mathematical Institute of the Ukraine National Science Academy. Mr. Zhuravytsky previously was head of the financial computerization department at Bankconnection in Kiev, Ukraine. Andrew Elkin - R&D Programmer Mr. Elkin is a graduate of the St. Petersburg Technical University and has worked as a senior programmer for a number of companies based in St. Petersburg. Mr. Elkin was most recently head of communications software development for Kronverk0 Communications in St. Petersburg. Mr. Elkin was the sole developer ofT-Mail, a communication software package still widely used by many European and Russian companies for their various communication needs. Aleksey Zharov - R&D Programmer Mr. Zharov received his master's degree from the Moscow Institute of Physics and Technology in Kinetics of Fast Chemical Processes. Mr. Zharov has ten years of experience developing systems in both Russia and the United States. O I O O I Q O Eugene Agichtein - R&D Programmer Mr. Agichtein is a Ph.D. candidate in Columbia University's Department of Computer Science. Brett Danko - Chief Administrative Officer Mr. Danko has his BA from the University of Pennsylvania and has over seven years of experience in financial accounting and corporate administration. O Svetlana Zhuravytska - Web Developer Joelle Catania - Administrative Assistant O O O I O O O e O e ": e e e e e e chon SYSTEMS, LLC e e e e e e e O O O O O :O Tachyon Systems, L.L.C. 47 Hulfish Street Suite 300 Princeton, NJ 08542 Phone: (609) 921-2216 Fax: (609) 497-9692 E-maih ward_falconeye.com e e e 0 e e o o e e e e e e e 0 " Track smart. Trade smarter. Eye 0 e