Sample Business Plan Trakus

f'"x KUS, INC. Business Plan This document does not constitute an offer to sell securities January 2000 CONFIDENTIAL AND PROPRIETARY Eric Spitz Trakus, Inc. 10 Cabot Road Medford, MA 02155 Phone: (781) 393-0333, ext. 400 Fax: (781) 393-9033 spitz@trakus.com www.trakus.com _ _ ..... • : : : : 0 _ _- _'_ _. -- _ _ ! ! i _ i i ! _ ! ! _ _ _ _ i i _ : : : : : : _ ! i i i _ i i i ! i _ .... = _ _ i i _ _" _ Z i _. iili • . o ....... :::: iiii i i i i i i i i iili . . , • o :::: iili i i i i i i i ! iili . ° . • o :::: o . • iiiiii i i i i ! i i i ! i i ! iilili ..... _ ..... :::::: o ii!i i i i i _ _ -[ _ m Z o i i i i _ _!!i = .... .... ::::: o ::::: i!ii : : : : : : : : !!ii : : : : : : ! : : _ ilii : : : i ! :::: :::: :::: :::: : _ _ _ ! i _ !!i!i! : : : : i i ! ! : : i i iiiii: : : : ! i ! i : _ iiili: : : : : : : : : : ............ _ i i _ _ i :::: :::: :::: :::: :::: :::: :::: :::: : : : : : : : : : : : : :::::: :::::: :::::: :::::: : : : : : : : : : : ::::: ::::: ::::: ::::: : : : : : : : : : : ::::: ::::: ::::: ::::: iii_ :::: :::: :::: :::: :::: iiii :::: :::: :::: :::: :::: !!ii :::: :::: :::: :::: :::: iii!!i :::::: :::::: :::::: :::::: :::::: iiili ::::: ::::: ::::: ::::: ::::: illii ::::: ::::: ::::: ::::: ::::: : : : : : : : : __ : : : : : : : : __ : : ; : .... __ : : : : : : : : : : : : _ _ : ; : : : : : : : : _ : : : : : : : : : : _: : : : 8 EXECUTIVE SUMMARY Digital technology has changed the way we communicate, shop, and obtain information. It is now beginning to change the way we are entertained, and, as usual, sports, a large and lucrative market, is among the leading product categories. The fan has at his fingertips increasingly more information, from bat speed to biometrics, and as technologies such as Broadband and Digital TV proliferate, entertainment is becoming more immersive and interactive. Trakus captures and licenses Digital Sports Information TM (DSI). DSI is real-time performance information including speed, acceleration, position patterns, distance traveled, stamina, hit intensity, and ball position. DSI dramatically enhances the fan experience by providing new insights into a sport, and enabling innovative entertainment opportunities such as user-controlled broadcasts and live video games. DSI is suitable for both traditional and new media including TV, video games, Internet and Broadband. Trakus creates DSI using its proprietary Digital Sports Information TM Platform. The Platform consists of patent-pending hardware and software for real-time gathering of data, converting it to information, and formatting it for a broadcast or for a video game. Our core system uses radio signals sent from transmitters in players' helmets and received by antennas located around an athletic venue. The Platform is modular, as Trakus plans to develop systems for all major sports. We are in advanced testing phases of our hockey product, and have a fully operational system for golf and motorsports. The motorsports product comes to Trakus through a recent acquisition of Zytex Racing Telemetry, the world leader in providing live data feeds for televised auto races. Trakus business model is based on collecting, marketing, and distributing content. By partnering with major sports leagues and broadcast networks, we obtain the right to market and sell DSI in exchange for a royalty stream from sales in that league's sport. We are in the final stages of negotiating a long-term contract with the NHL, and expect to enter golf in 2000. In auto racing we will cover 45 races on CBS, TNN, TBS for the NASCAR, American Le Mans, and World of Outlaws racing series. Our revenue estimates for TV are based on an advertising and content model, and are a function of the number of brandable statistics or vignettes per game, and the estimated value of each based on current ad rates. We will derive Internet revenues from both ad rates and content fees. In the video game market, Trakus data will full the growth of pay-per-play events linked to live events. We expect Trakus revenues to reach $1.9m, $16m, and $50m in 2000, 2001, and 2002 respectively. In the emerging digital media environment we believe the long-term annual revenue potential to be greater than $400m at gross margins of greater than 75%. Founded in 1997 by MIT graduates and financed with venture capital and an investment from new media giant SportsLine.com the firm employs an accomplished team of engineers and sports industry executives. Management includes founder and CEO Eric Spitz; Gary Jacobus (formerly VP at the NFL and IMG); Mike Golub (NBA, Nike); and engineering managers Brian Wadell (Teradyne) and Bob McCarthy (Raytheon). Our board of directors includes Harlan Stone (former President of sports marketing firm Octagon); Andy Sturner, President of SportsLine; and Steve Solomon (former COO of the NHL). Our advisors include MIT professor A10ppenheim, a digital signal processing pioneer and Bob Grayson, former vice chairman of Tommy Hilfiger. - OPPORTUNITY The Digital Age has brought great change to the way we communicate, obtain information, and transact, and now it is beginning to change the way we get entertained. Infrastructure being laid now will place unprecedented control in the hands of the viewer, but the question of what content will the user manipulate has yet to be answered. With its Digital Sports Information TM (DSI) systems, Trakus has a great opportunity to provide unique and compelling content for the market of sports, one that has traditionally been a leader for new technologies. Sports According to the 1998 ESPN Chilton Sports Poll fully 87% of Americans over the age of 12 consider themselves sports fans. In addition, a recent study conducted by Street & Smith's Sports Business Journal positions the organized sports industry as: • • $213 billion in revenue in 1999, about 3% of the US gross domestic product 6 th largest industry in the US economy The worldwide sports market is also vast. As evidence, Coca-Cola spends over 80% of all its sports marketing dollars on soccer, a sport that has little penetration in the US! In addition to its size, the sports industry has some compelling characteristics as an entertainment medium. Sports commands loyalty, and its big events repeatedly aggregate a mass audience. Neil Pilson, former President of CBS Sports says, "The only entertainment product that is guaranteed to provide an audience is sports. Sports delivers." And, sports delivers 18-34 year old males, the most valuable and hard to reach consumers. Today's delivery vehicles for sports range from newspaper, books, and magazines, to radio, television, the Internet and video games. Trakus' Digital Sports Information TM provides new and unique sports content for all media, concentrating on digital media. Television According to the Sports Business Journal, in 1999 US network television logged over $5.6 billion in advertising revenue from sports and $14 billion came from cable sports- both huge portions of the total advertising revenue. And, given the importance of sports programming, networks have no choice but to pay whatever the leagues ask. The television landscape is also changing drastically. With cable and satellite and now the Internet, viewers have hundreds of choices only a click away. This and other new technologies like those from TiVo and Replay make 30-second advertisements too easy for consumers to avoid. Sports programming provides advertisers with a somewhat unique opportunity to insert messages inside the broadcast, making them immune to channel surfing. Table. Recent Fees for US National Broadcast and Cable Rights Networks Organization Average Annual Rights Fee Contract Duration NFL NBA NCAA Tournament NASCAR $2.2B $660M $550M $400M 8 years ending 2005-06 4 years ending 2001-02 8 years ending 2012 6,8 years ending 2006 (NBC) & 2008 (Fox) 5 years ending 2000 (Fox, NBC) & 2006 (ESPN) 5 years ending 2003-04 Fox, CBS, ABC, ESPN NBC, TNT CBS NBC/TBS, Fox Major League Baseball NHL $430M Fox, NBC, ESPN $120M ABC, ESPN The Internet According to International Data Corporation worldwide Internet usage will grow from approximately 196 million users in 1999 to 502 million by 2003, and during that same period the total value of goods and services sold over the Web will rise from approximately $111.4 billion to $1.3 trillion. Advertising spending on the Internet is expected to grow in lock-step from approximately $2.8 billion to $17.2 billion according to Forrester Research. As expected, sports content is among the most popular on the web. Consumers go to the web for real-time scores and game summaries, extensive news coverage, statistics, analysis and commentary- before during and after an event. The sports category of Web sites ranks third on the Web in user visits, and over 75% of all Internet users have visited sports sites, averaging 1.7 visits per day according to Harris Black International. Increasingly, the Internet is becoming an alternative source of real-time coverage of sporting events, especially for out-of-town games or sports where television coverage limits viewing to the leaders or to certain parts of the venue. Video Games Industry analystsexpect the total video game consolemarket to grow 32% in 1999to a record $8.2 billion, which follows a 30% growth in sales in 1998. The key elements in today's marketplace are the ability to create franchise games, and the transition of the entire industry to the Internet. A franchise game is one that can sell updated versions over and over, thereby creating a recurring revenue stream, as opposed to the hit-driven model that is difficult to predict. Sports titles provide this recurring stream because they can be updated year after year, with new data, new players, and new game-play features, and consumers feel they need to get the latest version. This is why sports games consistently account for 6 of the top 20 video game titles, and sports is the leading contributor to Electronic Arts domination of the video game market. Over halfofEA's $1.2 billion in revenues in 1999 came from recurring sports titles. f i EA also leads the way on the Internet. They already earn $1 million per month in subscription fees from their community of Ultima Online players, and they have recently announced a partnership with AOL to become the exclusive games provider to the on-line giant. This announcement was accompanied by the establishment of a new on-line division at EA, along with an IPO for a new tracking stock for EA On-line. Analysts at Gerard Klauer Madison & Co. expect that by 2003 fully 20% of EA's revenue, or $500m will come from on-line. EA President and COO John Rieeitiello, who will run the on-line business, is even more bullish, "Everybody says that interactive television is dead. It's not dead; it just got mowed over by Hollywood. But what happens when people can play golf on their computers and compete in real time against other people around the world? And also against the real players during PGA tournaments? ... I have news for the naysayers: Watch out." Broadband The word "broadband" is an elusive concept that means different things to different people. According to the IEEE (International Electrical and Electronic Engineers' Association) broadband is defined as "wide bandwidth equipment or systems that can carry signals occupying a large portion of the electromagnetic spectrum. A broadband communications system can simultaneously accommodate television, voice, data, and many other services." Less technical people describe broadband as an in-home data connection with the following characteristics: high speed (>2 megabytes/see.); requires no dial-up; is always on; has 2-way capability; in the future will carry V2D (video, voice, data). As for the result, "broadband will combine the spellbinding visuals of television with the seductive control of the Web to create a new form we call 'immersive interactivity'," according to Forrester Research. Timing Major bets are being laid today in an effort to carve out valuable territory. It's like a gold rush. Most communications, entertainment, and technology companies have a broadband strategy, and many are spending huge dollars to install fiber or cable or create set-top boxes. The following are some examples of recent headlines concerning broadband. • • • • • "AT&T's $31B acquisition of TC1 "may haveforced the Internet industry to take a long, hard look at broadband development. "June 25, 1998 "@Home's $6. 7B acquisition of Excite is a plan "to use Excite's content and expertise to make itself the portal in the coming broadband era. "Feb. 1, 1999 "AOL - TimeWarner [$130B] deal shakes up Broadband market. "Jan. 10, 2000 "MCI, Sprint say broadband key component of[$129B] merger." Oct. 5, 1999 "SBC Communications makes $6B broadbandplay. " Oct. 18. 1999 The combination of these investments and the FCC's mandate requiring 100% of all television broadcasting be digital by 2006 suggests a rapid adoption of broadband. The following shows the dramatic drop in adoption rates of new communications platforms. 4 ¢ i Content Number 45 40 35 3O 25 (_ 20 >15 10 10 5 of Years to Reach 50MM Users 38 5 0 Telephone Source: PC f.lagazine, November 4, 1997 ___ Radio Cable TV Internet ? Broadband While most people recognize the inevitability of broadband and are preparing for it, the question remains unanswered as to what content will unlock all the capability. Everyone has an opinion, industry pundits and moguls alike. Sandy Grushow, chairman of the Fox Television Entertainment Group claims, "It's all moving inexorably toward greater viewer control." And we agree that above all, broadband will bring choice and control into the hands of the viewer. Other clues as to the form of content that will succeed in broadband come from examining the capabilities that the infrastructure will provide. Broadband is... Broadband o On-demand i, - _ = Interactive = Immersive o Personalized Control _,Plethora of choices o Highly targetable Selling opportunities content is... High bandwidth Always on 2-way Converged Extensive data storage Of course, the most important requirement for new content is that it be extremely compelling. Digital Sports Information TM content fits all of the above conditions, as well as being entertaining and interesting for consumers. Companies in the Space Below is a list of broadband pure-plays and sports Internet companies that are either public or filed for an IPO with the SEC. The valuation multiples testify to the enormous potential of interactive entertainment. Table. Summary Financial Data for Interactive Entertainment Companies i i Company Year Founded "99 Sales (MM) '99 Income (MM) ($763) ($12) ($19) ($36) ($2,3) ($28) ($.T_ ($18) $115 ($49) ($46) ($14) ($16) ($70) Market Cap (I 2/28/99) $16B $2.5 B $1.5B $1.3B $4B $ 1.7B $9.4B $1.8B $5.3B $ 1.2B $608M $300M (E) $250M (E) $3.5 B Mkt Cap / Sales 70 I 19 214 32,500 174 243 88 1,800 4 25 87 33 28 99* At Home OpenTV Intervu TiVo N BCi M P3.com RealNetworks Wink Electronic Arts C BS Sportsline Quokka Sports Broadband Sports Total Sports AVE RAG E 1995 1994 1995 1997 1999 1998 1994 1994 1982 1994 1996 1998 1996 $227 $21 $7 $.04 $23 $7 $107 $1 $1,320 $48 $7 $9 $9 $137 and Wink. *Average market cap / sales ratio excludesTiVo i i PRODUCT DESCRIPTION Today, two streams of information come Off an athletic field, an audio stream and a video stream. Trakus will introduce the Third Stream, the Digital Stream, to sports entertainment. By building electronic systems that measure the precise movement of athletes and objects on an athletic field, we enable the real-time measurement of athletic performance and provide a unique, new way to record and represent an athletic contest through digital media. Trakus' Digital Sports Information TM Platform We believe that the future will provide many different ways to collect and present the Digital Stream, thus we have set out to create an open-architecture platform that can be used to broadcast any sport through any medium. The Trakus architecture has three parts- Acquisition, Processing and Display. The system captures on-field activity using a sport-specific sensor that is customized for the athlete's equipment and the field of play. These sensors can use a variety of technologies including radio frequency, lasers, accelerometers, and many others. Once the raw data enters the system, the processing engine organizes the numbers into meaningful statistics and passes the data on to be displayed. The information can then simultaneously be fed to any media type- television, Internet, video games- or archived for future use. Television Acquisition Processing Display .... _._._ ,_:_,.. _ .... _[_::_'_ !_"i!_) 'i _i)_ ["( E!_ENT _ Internet Video Games 11 DataCapture1' _ Data Archive ELAPS (Electronic Local Area Positioning System), the cornerstone of Trakus' technology, is a radio frequency based tracking system that locates people and objects in real time, creating a dynamic digital record of the event. Each player carries a transmitter (player patch) that sends signals to a set of antennas (tower transceivers) located around the arena. By comparing the arrival time of the signals at each of the antennas, the system calculates the exact location of the signals' origin. Then the data feeds into the processing and display sections of the system for analysis and broadcast. ELAPS can be used in most team sports. There are presently three display options available from the Trakus system- television, Internet, and video games. The most sophisticated of Trakus' solutions exists for television, as we have built our own graphics workstation called the Broadcaster TM which is easily integrated into the television production environment. The Broadcaster TM provides an advanced real-time character generator allowing broadcasters to show the speed or acceleration of an athlete live or on replay. i" i Uses for Trakus Statistics Content Trakus systems provide statistics that have never before been known, like the speed of a quarterback as he eludes the blitzing linebacker, the putting percentage of Greg Norman on 12foot attempts, or the force of an Eric Lindros body-check. Trakus statistics can be used to augment television broadcasts, radio calls, or newspaper re-caps. They can multiply dramatically the amount of new content on the Web and provide sports sites with more of what fans go to these sites for. In addition, Trakus stats will, for the first time, enable sponsors to brand and own a proprietary statistic. Unlike normal, observable statistics that become part of the public domain as soon as they occur, Trakus stats can be controlled. They are proprietary and can be sold to sponsors. Imagine how much Budweiser would pay for the Budweiser Hit Gauge! Graphics The ability to capture the position of athletes and objects in real-time enables the creation of live graphics that will dramatically enhance television, Internet and especially broadband coverage of sporting events. Examples include a view of a golf hole comparing David Duval's strategy on day's 1 through 3 of a tournament, or a Hot Spots TM diagram that shows where every Bruins player spends his time during a power-play. Of course, all this can be sponsored. Picture. Graphics generated with the Trakus Broadcaster Animated Recreations The most compelling way to useTrakus information is as a feed to a live animatedrecreation of an event. Video game animations will serve as the virtual environments and Trakus data will provide the real-time link to the live events. Imagine a new, interactive option to viewing a game on television. Instead of being confined to the viewpoint, angle, and other choices of the director, a fan can opt to immerse himself in the virtual world and make his own decisions. He could move at his own pace through the event, choose the players that he wants to follow, or even control the perspective through which he enjoys the experience. The ultimate immersion comes when fan becomes a player. Using these video game recreations fed by live data streams, fans can actually place themselves as "ghost" participants in the events. t_ i Imagine playing against Tiger Woods as he completes the final round at the Masters, or racing in the Daytona 500 against the top drivers. Strategy By Sport While Trakus expects that its Digital Sports Information TM platform will become a standard through which fans view their digital sports entertainment in the future, we have narrowed our focus in the near term to five sports, three that use the ELAPS system and two that allow us to integrate and develop new sensors. Since we believe that our Digital Sports Information TM platform will become the standard, we expect one day to cover every major sporting event. Hockey As our flagship sport, and in accordance with our partnership with the NHL, we will introduce our ELAPS system in hockey to pioneer Digital Sports Information TM. As the fastest-moving of the major sports, hockey is well suited to speed and acceleration measurements, and the Hit Gauge will delight fans who now must guess about the severity of body check. Hockey is also a strategic game that does not translate particularly well to television. Trakus' DSI will provide commentators and fans with the tools they need to explain and understand the nuances and tactics being employed. Trakus has been working closely with the NHL since our first meeting in early 1998. The NHL has been very helpful in introducing us to equipment manufacturers, teams, and stadiums, who have cooperated with us though the testing phase. We currently test regularly at the FleetCenter and will begin working with Bruins players in the next couple of months. We expect to complete our contract with the NHL this winter, which will formalize our relationship. The current version of the agreement contemplates a partnership where Trakus receives full rights to wire the NHL's stadiums and players, and also markets and licenses the data to the various media companies. So far, we have successfully tested the system with multiple players, and we regularly test both indoors and outdoors. We currently test using our own personnel wearing player patch antennas in their helmets, with the electronics and batteries in fanny packs. The final phases of development include two main areas. First, we need to migrate the player patch design back into the helmet and make it withstand the rigors of a real hockey game. This final design and ruggedization should be completed by the spring of 2000. The second area of concentration is on accuracy. We are currently very pleased with our accuracy and have just begun this final stage of design. We expect to launch in the beginning of the 2000-01 NHL season. t' i Football The Trakus system for football also uses our ELAPS sensor technology and works almost identically to the hockey system. The only real changes come in migrating the player tag from a hockey helmet to a football helmet and changing the software so it applies to the new sport. In addition to the speed, acceleration, and impact measurements found in hockey, football lends itself very nicely to the X-O diagrams of plays that the Trakus system can produce. We have had numerous discussions with the NFL to date, and we expect that the addition of Gary Jacobus to our team will provide instant credibility. We have also had some contact with NFL teams like the New England Patriots who are interested in using the Trakus system for analysis purposes. After proving the system in the NHL, we expect to launch in the NCAA in 2001 and the NFL 2002. Soccer Since soccer is a very tactical sport, fans have been clamoring for Digital Sports Information TM for years, even prompting several companies to design manual-entry systems that attempt to track player and ball movement. Trakus will automate this process as well as adding the ability to measure speed, acceleration, and field position. We will soon begin downsizing our player patch for use in helmet-less sports and expect to launch an ELAPS system for soccer in 2001. With the press that our ELAPS system is generating, we have already been approached by several of the major worldwide soccer entities. The US league, Major League Soccer, has asked us to come up with solutions prior to the 2001 season, and we expect to be doing some work in MLS during the upcoming season. Golf In the Golf system, Trakus scorekeepersuse laser range-finders to collect the exact position of every ball on the courseonce it lands. This data yields unique statistics like the distanceof every shot, the accuracyof approachshots and the percentageof putts made from a given distance.The statscan he fed in real time to television, or sentto the Intemet or a video game for live animated play-by-play like the "Play with the pros" version of Tiger Woods Golf recently announced by EA Sports. We have demonstrated our golf system on a single hole at the Ryder Cup in September with the PGA of America and at the Buick Open at Torrey Pines in February with CBS. We are now talking to all of the major television networks and Internet providers, and we have signed a data licensing agreement with CBS SportsLine. We are also speaking to several video game companies like Microsoft and Electronic Arts, who want to use Trakus data. The development steps for golf are two-fold. First, we need to build enough copies of the hardware to accommodate 18 holes, and then we need to test rigorously the communications issues involved in getting the data from 18 holes simultaneously. 10 i i Auto Racing Auto Racing is popular, growing, and lends itself very well to Digital Sports Information TM. The sport is not covered particularly well on TV, and the broadband opportunities are nearly endless. The ability to create a virtual race environment, where every car's position is known at all times changes the entertainment experience. In acquiring Zytex Racing Telemetry, the leader in televised motorsports telemetry, we now collect and present speed, acceleration, and various other information live onto televised races for NBC, CBS, Speedvision, and Fox. Our auto racing product development will have two phases. Currently, we present the telemtry data (speed, acceleration, tire pressure, etc.), and the second phase will entail adding the piece that is missing from other auto racing systems, and that is the ability to position a car on a track in 3-D in order to fuel a real-time recreation of the race. Through the Zytex acquisition, we currently have rights to provide television graphics for three race leagues: NASCAR, American Le Mans, and World of Outlaws. During 2000 we will be approaching all of the major race leagues including NASCAR in order to secure data rights. Broadband Vision Think of the analogy that today's user experience is like riding a bus, where we move from site to site with little control, while the broadband experience is like driving a car, where the user controls every aspect of what happens. Trakus is building the tools and the content that will lift the sports viewing experience from a passive one to an active, immersive one. Trakus in a Broadband World Imagine... experiencing a hockey game where you can choose to view the real-time statistics for any player at any time. Watch the speed ofJaromir Jagr increase as he skates through the neutral zone, and then during a break compare that to his best times of the year, or to the league leaders. Imagine... analyzing a football game while it's going on. You want to see the dynamic X-O diagram of the play displayed in the comer of the screen alongside the video action. Or maybe, you only want to concentrate on the offense so you make the defense disappear, or isolate the receivers and watch what patterns they ran. Imagine... creating your own golf dashboard. You want to watch the live TV feed in the middle of your screen, but on side-bars you have animated renditions of Davis Love III, Tom Lehman, and Sergio Garcia as they progress through the course. You compare different players on the same hole, replay shots that you missed, and even play the course using a real-time video game. Imagine... becoming part of the virtual pit crew. You can select your favorite driver and watch the entire race from his perspective. Using the animation engine, you can change viewpoints or even jump in the race with a "ghost car" for a couple of laps. While you are watching, you have access to the car's telemetry information so you second-guess the decision makers. All of these examples are made real by having a digital data feed that connects the event to the outside world. Trakus is building this data feed in time for broadband to connect the world. 11 MARKET STRATEGY AND REVENUE MODEL With the advent of broadband it will no longer be sufficient to present a sporting event with only pictures and words, as fans will demand a richer, more immersive experience. We believe that real-time data feeds will become a required part of every broadband program and we expect to become the major player in the creation and dissemination of this information. The rich archive of Digital Sports Information TM that Trakus will compile over time is the ultimate leverageable asset. The digital record of a sports event will be used in the future in numerous ways on multiple platforms. Business Model Trakus will secure access and rights to deploy its systems in partnership with major worldwide sports leagues. Once access is obtained we will operate at sports events and license the Digital Sports Information TM content to multiple media outlets simultaneously. In our highly profitable data licensing model, Trakus becomes not only a data collector but also a piece of industry infrastructure that can command a toll from all users. f_!_.._,! I._:_:7" _ " :_,,z_;_ Rights * '._:1 ...,_.= ..... :',,',.:_::;.':'_.'i"_ Data := IL !'ag___"__: eI .... _,': ii _'__' _ -',',."" = Royalties i_'_'_- --USI,_KLicense _::_._: ......J <_-_--$_ <>$$$$$= • Internet Site ,ZV Network • Video Game Producer There are three main players in the sports entertainment marketplace- leagues, advertisers and media companies- and each is a prime beneficiary of DSI. The ideal path through a sport is first to secure a league deal, then go to with the league to its media partners, and from them to the advertising partners. However, each of the three can provide and entry point, and each provides an opportunity to derive revenue from licensing data. League Deals In order to place sensors on athletes Trakus must partner with the league, but in the case where the data is acquired remotely (i.e. laser or video based sensors) Trakus could partner solely with existing rights-holders. Regardless, though, leagues are always important. In general, sports leagues prefer deals where they do not put up capital, but instead pledge their assets in exchange for a percentage of downstream revenues. Leagues know they have valuable digital assets, but they do not yet know what to do with them or how much they are worth. Trakus offers a league the opportunity to maximize these assets with little risk. Instead of paying the league for the rights, we offer to fund the technology development and share the upside revenues associated with licensing the programming. This deal is similar to ones they already do with apparel companies, video game companies and trading card companies. Trakus will obtain the exclusive long-term rights to equip all players and teams 12 with Trakus technology and the right to use leagues' official marks in order to market and sell DSI. For this, Trakus will pay the league a percentage of the sport's sales as a royalty fee. We want to be known as the "Official Digital Sports Information xM'' provider of the league, and we need access to all of the operational contacts that the league can provide like the equipment providers, the Players Association, etc. We should also get the leagues to promote DSI using their own promotional inventory. The league deals should be extremely beneficial to Trakus, as they serve to align the incentives of the league to those of Trakus, creating a situation where the league is highly motivated to help Trakus succeed. Media Deals Media companies and advertisers will provide Trakus with its main sources of revenues. In most cases, Trakus will collect revenues from the media companies, but we will, in some cases deal directly with the advertisers. Standard Television After they invest billions in rights fees for sports programming, networks seek ways to improve programming and differentiate their offerings from the competition. The stakes are high. A halfpoint ratings increase for NFL coverage translates into a 25% increase in spot rates for advertisements, yielding a $100 million addition to the bottom line! Although we believe our content to be unique, we use history to provide a range for what we can expect to generate from the licensing of Trakus' Digital Sports Information TM. There are basically two types of outside content that broadcasters of sports license, content that they can brand and resell to advertisers, and content that they pay for because it dramatically enhances the broadcast. An example of paid-for content is the in-car camera feature that is prevalent in auto racing, while the "First & 10" line is an example of content that the networks pay for themselves. We believe that our content falls into both categories, as it is a strong complement to the programming in addition to being very brandable. We have grounded our estimates of revenue in the value of the advertising that can be sold by our content, assigning a CPM rate and estimating the number of on-air mentions. We will ultimately price our content using a minimum license fee rate plus a share of the advertising that the content generates. Internet Although Internet companies have tiny advertising revenues compared to television, they have lofty public market valuations because people expect the medium to take off. As such, the Internet sites are very hungry for content that legitimizes their medium, and they are willing to pay handsomely for it. Evidence of this statement comes from our history as an acquisition target for several Internet sports companies. We expect to sell season-long packages and license content for games where we can leverage multiple revenue streams in addition to the Internet. We do expect occasional exceptions to this rule in cases where an Internet company wants to showcase its technology. 13 Video Games Trakus' Digital Sports Information I. 2. 3. 4. TM has four primary benefits for video game companies: Trakus Inside- real data for making video game behavior closely resemble on-field play Subscription Model- enables fans to update games with downloadable data packets on monthly or weekly basis New Fiewing Medium- animated recreations using Trakus data to feed games in real-time creates new use for video games Play vs. the Pros- the ultimate video game, where users pay per play for the opportunity to participate in virtual versions of an event while it happens We envision our video game deals to be similar to those made with other content development companies where there is an upfront content fee paid along with a share of game sales. These revenue sharing agreements range from 30%-50% going to the content developer. Broadband Broadband access providers like @Home, US West, and Roadrunner will need special content to differentiate their medium from traditional television, and they will pay handsomely for this. They are already out searching for clues to help them define the broadband experience, with each company having a research lab investigating opportunities. The payment structure will again likely be one part content fee and one part revenue share, with end-users paying extra fees per month for access to enhanced content. Given the amount of data that we can provide, we expect to be able to generate huge revenues branding our content. Revenue Expectations We have projected revenues based on some straightforward calculations made internally and also based on a study that we commissioned through the sports marketing firm Octagon. Although Digital Sports Information TM should be treated as both value-added content and as a way to sell advertised vignettes, we have conservatively assumed that TV and Internet revenues be based on the amount generated by the broadcaster through selling advertising and sponsorships of the data. Thus, for each TV event we have taken the 30-second spot rate, multiplied it by an estimate of uses per game and used a discount factor to estimate the percentage of that revenue that would be shared with the broadcaster. For our Internet numbers we used similar calculations, but weighted content fees more heavily, since Internet companies are used to paying for the specialized content they need. (see financial assumptions) The video game calculations are based on estimates of the money that can be derived from payper-play and downloading updated content. As mentioned, consumers are currently paying $9.95 per month to play Electronic Arts' Ultima Online. We do not include revenue from using video games as real-time viewers or from Trakus Inside, although do believe these revenues to be vast. We believe that the emergence of broadband will propel DSI fully into the realm of content. When this occurs, our data could command between 10%-20% on top of the rights fees that 14 i ii networks are paying. Imagine the NHL selling their TV rights for $200MM per season without Digital Sports Information TM, and $240m with it. We have not included these numbers in our revenue estimates, but we believe strongly that this is the ultimate end. Deployment Plan By populating our sales and marketing team with industry insiders, we will gain a strategic advantage and create a small, high-level, direct sales force aimed at the industry's decision makers. Given the "concentrated" nature of the sports industry, we expect to be able to leverage these relationships across sports and media types. We expect the following sales per sport in each year: Sport 2000 Hockey Golf Auto Racing Soccer 2001 Hocko' Golf Auto Racing Soccer Football 2002 Hockey League NHL PGA Tour, PGA Europe CART, IRL, Le Mans, NASCAR M LS NHL PGA Tour, PGA Europe CART, IRL, NASCAR MLS, FIFA (Europe) NCAA NHL Television US national US networks European networks US networks US network US national, Canadian national US networks European networks US networks US network, European networks US networks US national, Canadian national, Major regionals US networks European networks Internet Major portals Major golf sites & portals Major portals League site Major portals, Team sites Major golf sites & portals Major portals League site Major portals Major portals, Team sites Video Game Test events Test events Live games Live races Test Event Live games Golf PGA Tour, PGA Europe Major golf sites & portals Live games, Pay-per-play Live races, Pay-per-play Live events Test events Auto Racing CART, ¿RL, NASCAR US networks Major portals Soccer Football MLS, FIFA (Europe) NCAA, NFL US network, European networks US networks League site Major portals 15 THE ORGANIZATION Management Team Eric Spitz Chief Executive Officer Eric has been the CEO of Trakus since its founding in early 1997. While in this role he has led the marketing, sales, and fundraising efforts for Trakus. Prior to Trakus, he spent four years at Information Resources, Inc., a global market research firm, where he developing and sold the company's test-marketing capabilities. He earned a BA from the University of Pennsylvania and an MBA from MIT's Sloan School of Management. Gary Jacobus President Prior to joining Trakus, Gary spent 10 years in the sports industry including seven years at NFL Properties, where he rose to the position of VP in charge of sponsorship. For the past two and a half years he was a Senior VP, managing the corporate consulting practice at the world's largest sports management company, IMG. Consistently regarded as one of the brightest young talents in the sports industry, Gary was recently named as one of the 40 top sports executives under the age of 40, by the Sports Business Journal. He holds a BS from the University of Wisconsin at Eau Claire, and an MBA from Dartmouth's Tuck School of Business. With his extensive high-level industry connections, Gary will run Trakus' business development and sales efforts. The business development group focuses on securing league relationships and creating partnerships with media companies, while the sales group concentrates on selling finished products to customers. Brian C. Wadell Vice President, Chief Technology Officer Brian brings 15 years of experience designing precision audio, video, RF, and microwave instrumentation to Trakus' hardware design team. He is the author of the best-selling text Transmission Line Design Handbook and was a lead Microwave Architect at Teradyne, Inc. before starting a consulting firm in microwave test and high-speed digital system modeling. He holds both BS and MS degrees in Electrical Engineering from Cornell. As CTO, Brian performs the technical business development tasks in addition to running Trakus' research and development group. Brian's group develops the technologies that feed new product offerings and provides the technology vision for the companies future growth. Bob McCarthy Vice President, Engineering & Field Operations Bob brings strong project management experience to Trakus. For seven years Bob worked at Raytheon Electronic Systems, where he contributed to the designs of several next-generation missile systems including the Patriot and Standard missiles. He holds a BSEE from Tufts, an MSEE from Georgia Tech. and an MS in Engineering and Management from MIT. Bob's groups focus on turning technologies into commercially viable products and then fielding those products in real-world environments. The engineering group contains the majority of Trakus' employees, and will continue to do so until eclipsed by the field operations staff, once Trakus moves into full-scale deployment mode. 16 Mike Golub Vice President, Marketing & Sport Development Mike has spent over 15 years in the sports industry, working for nearly all of its constituent groups. He began his career as a television producer for MLB Productions before becoming the Director of Marketing for the Oakland Coliseum. From there Mike joined the NBA as Managing Director of Events and Attractions, where he ran the division responsible for developing and managing all of the league's domestic and international events. Most recently Mike was a founding member and Director of Nike Sports Entertainment, the group that developed Nike owned sporting events and television properties, which he left to run his own sports consulting practice. Mike holds a BA from Dartmouth College and an MBA from Stanford University's Graduate School of Business. The marketing group is in charge of developing and maintaining the Trakus brand, including PR, advertising, and corporate relations. The sport development group serves as the primary liaison between Trakus and its customers and partners, and will also sell one-time events. CY Smith General Manger, Motorsports CY founded Zytex in 1995 in order to pursue his dream of providing new information to increase a fan's understanding and enjoyment of an auto race. In the past 5 years he built Zytex into the leading company in the filed of televised motorsports telemetry by forging deals with most of the major racing leagues across the country. He also architected deals with several broadcast networks and Intemet companies. CY began his career as an aviator in the US Marine Corps and went on to become a Program Manger at General Dynamics, where he worked on the Patriot Missile. CY holds a BSME from the US Naval Academy. Employees Trakus currently employs 30+ people with 20+ of them engineers. We have only recently begun hiring people in business roles, and we expect rapid growth in both engineering and business personnel. The engineers at Trakus are used to building complex systems, as they bring with them over 150 years of combined experience in their fields of expertise. The hardware engineers come from the defense, semiconductor, and telecommunications industry, and the software engineers represent television, aerospace and the Internet. In its nearly three years of existence Trakus boasts an average yearly turnover rate of under 5%, remarkable for this employment climate. We attribute this to the strong team atmosphere, as well as the high level of achievement that the environment fosters. Board of Directors Eric Spitz Eric is the company's Chief Executive Officer Harlan Stone Harlan recently resigned as the President of the North American division of Octagon, a leading sports marketing company. He is now the CEO of Mysportsguru.com. Steve Solomon Steve was the Chief Operating Officer of the NHL for 6 years after a 21 year career as a top executive at ABC. He is now the President of the sports division at Univision. 17 Bob Roeper Bob is the managing director at VIMAC, a Boston-based venture capital firm. Prior to joining VIMAC, Bob had a successful career in consumer packaged goods with Colgate Polmolive and its affiliates. Dr. Len Lodish Dr. Lodish has been a marketing professor at Wharton for 30 years. He sits on the board of several companies including IRI and Franklin Electronic Publishing. Andrew Sturner Andy is the President of Corporate and Business Development at SportsLine.com. Prior to SportsLine he was the VP of Business Development at MovieFone. Doug Bailey Doug the CEO of American Bailey, an investment company with holdings in energy, manufacturing, and technology companies. Board of Advisors Bob Grayson Bob has been the Vice Chairman of Tommy Hilfiger Corporation and CEO of two of the largest divisions of The Limited. Bob currently serves as a Director of Ann Taylor Corporation, Sunglass Hut International, and Kenneth Cole, among others. Kevin McGovern Kevin specializes in emerging business, licensing, capital foundation, and joint venture law. He is a principal in over 20 companies and is a founder of 4 companies that are worldwide leaders in their respective product categories. Dr. Howard Morgan Howard is a former professor of Decisions Sciences and Computer Science at Wharton. He is the Vice Chairman of Idealabs, and he advises and invests in many small companies. Dr. Ai Oppenheim Dr. Oppenheim is a pioneer in the field of digital signal processing. As a professor at MIT, he has written several textbooks on the topic, including Signals and Systems and Discrete-Time Signal Processing. Jerry Zindler Jerry is the founder of Design Continuum, an engineering development and design firm. The firm has developed numerous exciting new products from medical devices to athletic gear, including the Reebok Pump and Rollerblades. Support Our legal team consists of B. David Sandberg as general corporate counsel, with the Boston firm of Hutchins, Wheeler & Dittmar in a support role for general legal issues. For intellectual property matters we use Testa, Hurwitz, & Thibeault. Our accounting firm is PriceWaterhouseCoopers, We have retained Alan Taylor Communications, the sports industry. and we bank at Silicon Valley Bank. a public relations firm that concentrates on 18 TECHNOLOGY The key to Trakus' Digital Sports Information TM systems is their ability to collect the real-time position of athletes and objects and disseminate that information simultaneously to multiple media types. While each sport has its own set of rules and requirements, the Trakus system architecture has the flexibility to work in any sport. The modular architecture consists of three parts, Acquisition, Processing, and Display, which together form a signal chain, converting an object's motion into digital data. Our design philosophy requires that the first steps when addressing a sport are to determine the important information from the sport, assess the sport's on-field needs, and then to find which parts of the Trakus system can be tailored to the sport and which need to be built from scratch. Our ELAPS system has applications across most team sports, and we have the unique capability of either plugging in ready-built sensors that we buy or developing sensors ourselves. When we are approached to work on a sport we first need to determine whether the project fits into our corporate mission. We will generally steer away from projects where the ultimate goal is not to recreate the event digitally. An example of a project we would not take on would be drawing a yellow line on a football field to indicate a first down. We will describe now the overall system, using ELAPS as an explanation tool. (For more detail, see Appendix B) ELAPS An Electronic Local Area Positioning System is a distributed system of software and hardware that tracks precisely the motion of people or objects moving in a confined space. Each person carries a transmitter that sends a signal to set of antennas located around the covered area. By comparing the arrival time of the signal at each of the antennas, the system calculates the exact location of the signal's origin. The signal travels from the antennas to a cluster of computers that process the data and send it to a display device such as a television or the Internet, or to a database for storage. Acquisition The core input device Trakus will introduce is a 2.4 GHz spread spectrum transceiver design called a Player Patch (PP). The PPs transmit signals to a set of at least four antennas called Tower Tranceivers (TTs) that surround the covered area. We optimized the design for tracking a relatively large number of autonomous objects in real-time at video update rates, allowing us to track athletes over a football field, ice rink, or soccer pitch. The output is a packet of information sent over an Ethernet called a digital signal processing record (DSPR). Our architecture has been designed to work with a wide-range of input devices. Trakus and our partners can plug many different input devices into the architecture simply by generating data in our proprietary DSPR format. Some other acquisition devices that we already considered are video, GPS, body motion sensors, heart rate monitors, and ball and puck trackers. 19 Processing As described above, the Acquisition subsystem generates packets of data called DSPRs. A cluster of networked computers takes this record and converts it into information that can later be displayed under control of the user. The main computational engine in the system is called the Information Server. Here, raw DSPR data is converted into an athlete's location, velocity and acceleration (LVA). This LVA is passed to the Application Server, which calculates statistics and gauges. The processing done in the Application Server is modular. Thus, we can quickly customize it to each specific customer's tastes and needs. Once the statistics and gauges have been calculated they are passed to the last part of the signal chain to be stored and viewed. Display There are presently two display options available from the Trakus system -- broadcast quality animated graphics and Internet graphics. For Internet use we have developed viewers using both Java and Microsoft's ActiveX software that display data as three-dimensional representations of the playing surface. We have created truly interactive, customized sports viewing. A fan can select his preferred statistics and gauges and set up his own viewing environment. For example, a fan could choose to display a real-time leader board consisting not only of the score but also the top speeds, highest accelerations, and hardest hits of the game. For television, the Trakus Broadcaster is a graphics platform that provides an advanced real-time character generator capable of synchronizing graphics with live or taped action. This allows broadcasters to show the speed or acceleration of an athlete live or on replay. In addition, an announcer could use our real-time telestrator to explain accurately how a play was run, referencing the deviation from the playbook or its previous execution. Regardless of the display mechanism, all of the data is stored in a database. This database archives each event and can be accessed in real-time or mined to provide analysis capability across games, seasons and decades. It also provides animators with the data needed to build a virtual recreation of an event. The processing and display portions of the Trakus system are either housed in the control room of a stadium, or more likely in our Trakus truck. We now own two trucks that are fully equipped to provide Trakus data from a live sports event. Sensors for Other Sports The sensors from the ELAPS system have now been optimized for use in the sport of hockey. They are designed fit into a hockey helmet and withstand the impacts that occur in a hockey game. These sensors will need to be modified slightly for use in football, which has a different helmet, and the sensor will need to shrink in order to be used in non-helmet sports like soccer. Fresh sensor designs are needed for other sports, and some examples follow. 20 .i i Golf The sensor that we developed for golf consists of a tablet computer mounted to a customized laser range-finder. The computer provides a human scorekeeper with a map of each hole along with visual prompts that walk him through the scorekeeping process. The scorer enters the player, the club used, and the type of shot, and then uses the laser to sight the ball. Based on the angle, elevation, and distance of the ball from the laser, we can calculate the exact position of the ball on a coordinate framework of the course. This calculation begins by having an accurate way to read the course map into our platform. We have developed this software, along with the algorithms that convert the raw laser data into position. This data is fed to the processing and display portions of the system either using fiber-optic cable or a wireless link. Auto Racing In auto racing, using the Zytex telemetry, we currently collect the speed, acceleration, and other information from every car in real time and display that data in various media formats. In order to recreate the event we need a way to capture the exact location of each car, so we are building the technical capability to do so over the next year. Intellectual Property We have three patents pending on the Trakus technology. Our first patent application encompasses the overall system design and architecture for the Trakus Digital Sports Information TM platform. It is for a system to determine the position of multiple objects, in a local area such as an indoor playing field, with centimeter resolution without the use of precision clocks. We filed this patent with a priority date of February 1997, and while we have had not action from the US Patent Office, but, in Europe we have been approved on 9 of the first 12 claims. According to our patent counsel, Testa, Hurwitz & Thibeault, this time lag is normal, and they expect us to be awarded our patents. We have had no action whatsoever on the other two patents, the first of which covers the placement of electronics equipment directly on an athlete's body, which we call our Player Patch j patent. The third patent that we applied for covers a system that can be used on a large outdoor event like a running race. We expect to be filing many more patents in the near future. 21 RISKS There are a number of risks that management has identified and is prepared to overcome. For the sake of explanation, we will separate them into technology based risks and market risks, with competitive risks analyzed on their own, as they include technology and market factors. Technology Time As in any technology development process, the risk exists that the technology cannot be developed before competitors enter the space. At this stage, Trakus has proven the viability of its technology solution and only needs now to complete the product. Trakus to deliver working systems in 2000 and we believe that no other company will introduce a similar system in 2000. Uncertain Technology Environment For Trakus to be truly be successful as a provider of content for a new programming environment, the broadband era must take hold. Since this is outside of the control of Trakus, we have planned to provide content in today's world, knowing that the inevitable onset of broadband will propel Trakus' value when it arrives. Complexity of Product One risk in developing a complex product is that the market does not know how to differentiate this product from other less sophisticated ones in the marketplace. We plan to mitigate this in two ways- by making our products simple to use by our partners, and through a public relations and branding campaign. Market New Marketplace As an industry pioneer there is always a risk that the market will not want to buy the goods. The recent success of products in the space, along with the near unanimous interest from fans, customers, and leagues assures us that the market will exist when we get there. The recent acquisition attempts for Trakus also convince us of the market for our products and services. Erratic Consumer Demand Curve While Trakus will sell to a business audience, our success ultimately will depend on consumers' acceptance of the new technology and new information. Given this, we plan to introduce products into multiple markets in partnership with the programmers. Our display tools leave the broadcaster with complete control over the viewer's experience. Finite Number of Large Customers 22 The constituents with whom Trakus will need to do business are large and bureaucratic entities. In order to deal in this environment Trakus has brought in management and board members with years of experience dealing in this space. We plan to construct our deals in ways that leagues and media companies find palatable, and we will find ways to ensure that these entities are motivated by Trakus' success. Marketplace Complicated by Alliances The entities in the sports marketplace are hyper competitive. Thus, a network might shy away from something that another is doing, or that a league would not want to do business if one of its broadcast partners wants to use another technology. The way around this is to employ a Switzerland strategy and convince our customers to compete with each other based on the employment of the new data, not on the access to it. Our relationships with the leagues will also enable us to maintain neutrality, since leagues wants compelling content wherever possible. Competition There are two forms of competition for Trakus, companies that provide the sports world with technology to enhance a fan's experience and companies that make medium range positioning technology. For this analysis, we focus on sports companies, since none of the technology companies has shown any intention of moving into the sports space. We believe these companies would have to change their technologies substantially to solve the sports problem. Orad The Orad VirtualLive system uses video images of a soccer game and processes them for player positions in 3-D space. Operators manually assign player body motions ("jump" or "kick") to create a realistic re-creation of the game. Orad has their own custom video processing computer, but this system cannot keep up with the game in real-time. Orad seems to be developing a radar system which they plan to unveil in 2001. Orad recently went public on the Neuer Market in Germany, and their lead bankers were Lehman Brothers. We will be able to keep a close eye on their progress from here on. Sportvision Before creating Sportvision, the founding executives were at Fox, where they developed the FoxTrax puck to make a hockey puck more visible to fans, and since its inception Sportvision has concentrated on video based technologies that can be developed quickly and deployed on sports television. They have introduced the First & 10 Line which superimposes a virtual line on the TV screen to indicate the first down mark, and they also have a product that measures the speed of a bat swing. They have a very talented team of executives whom we know well, and we expect to compete in certain areas while collaborating in others. They have clearly indicated that they would like to license our ELAPS technology instead of building it themselves. ChampionChip TIRIS sensors from Texas Instruments are packaged for mounting on a runner's shoelaces. Mats placed along the course record a signal whenever athletes run over them. The computer can then log the runner's ID and time. It is primarily a timing and scoring system which has been used by 23 major marathons in an effort to thwart cheating. It is unlikely that this system will evolve into the kind of system required for continuous player tracking. Questec SuperVision is their main product, and it uses video analysis to digitally recreate the flight path of a baseball pitch. The system creates a graphic of the ball as it travels from the pitchers hand to home plate as well as measuring the distance that the ball breaks from its original trajectory. The company is publicly traded and has been around for over ten years. Yet, only recently has it begun to achieve moderate success. They recently signed a long-term deal with Fox Sports Net. International Display Systems (IDS) IDS was created to provide in-venue signage for golf and tennis events. They grew their business to the point where they build scoring systems for sports leagues and networks. They are primarily a software and systems integration company, and they have deep roots in the sports world. In building some of their scoring systems they have often been asked to include new hardware, something they have tended to farm out instead of developing in-house. ESPN.com, Sportskine, YotalSports, Quokka, IBM Sports Solutions Sports Internet sites provide news, photo archives, streaming audio and video, and live score updates, and while they would normally be considered customers, some have moved into the business of collecting their own data. All of the major sites have some version of cybercasting, with TotalSports and IBM highlighting this a primary feature. We see these as low-end alternatives, as they require manually entered data and are much less sophisticated. 24 USE OF FUNDS Trakus is currently seeking to raise $25 million of equity capital primarily from strategic investors. We expect to close the round in the early spring of 2000. We have undertaken to raise $25 million for both strategic and tactical reasons, and both are important in understanding how the funds will get used. From a strategic standpoint, there are three reasons to raise a large round now" Move Quickly The Digital Sports Information TM marketplace is wide open today, but it will not be forever. Most leagues have not yet determined their digital strategy, and we believe that we have an opportunity to become a major part of those plans. In order to design, develop, and build systems for enough sports to become the industry standard, we must move quickly, and this means having enough resources to develop multiple products in parallel. Make strategic acquisitions As part of the strategy of locking down markets quickly, we want to be able to purchase companies that have either technology or relationships in given sports. In addition, given the margins that we expect to enjoy, we will be in a position to acquire related companies with revenues in order to increase our IPO value. We have already identified a few companies that might fit within these parameters, and we need the cash and the market capitalization in order to execute. Size Matters Since our prospective clients and partners are all huge entities (Disney, NFL, GE, etc.) and market leaders, we need the appropriate infrastructure and resources to engender the right relationships and comfort level in order to strike the long term deals we are seeking. Fulfill the NHL and other contracts In our business model we are funding the development and operation of the Trakus systems. Given this, we need capital to pay for the initial manufacture and deployment of NHL systems as well as to fulfill the other deals that we plan to close in 2000. Normal capital expenditures In addition to building systems we also need to continue to market and sell the data licenses in multiple sports. We also need to support the R&D and IP effort to ensure that we remain the market leader. Note, that unlike many Internet companies, we do not expect heavy marketing costs since we should be getting promoted on TV by our partners. 25 A APPENDIX ACurrent Situation FINANCIALS To date Trakus has raised $10m of venture capital. The bulk of this money has come from angel investors in a series of rounds. We recently completed a $3.5m bridge financing, in which SportsLine and the current investors participated. SportsLine also committed to investing more money in the Series C round. We were also approached to be acquired three times in 1999 by very credible players in the sports broadband marketplace. We took different steps with each of the suitors, but ultimately backed away each time and decided that we were better off on our own. With our recent hiring and ramp-up of the manufacturing and sales side of the business, we are now burning around $350,000 per month, and we expect to increase that to beyond $500,000 per month now that Zytex is on board. With the Zytex acquisition, we now have revenues which will continue into the future. Trakus currently employs 30+ people in our Medford office and 12+ people in our new office in Braselton, GA, outside of Atlanta. Assumptions in Financial Projections The following table shows the process we used in ascertaining our revenues per event. The figures shown are for the first year of deployment for each media type. We expect that the per event value will increase dramatically, as Digital Sports Information TM becomes an integral part of digital entertainment. Television Television revenues are calculated by multiplying the average 30-second spot rate for an event by the assumed number of spots per game and by the percentage that goes to Trakus. Similar to the methodology that Octagon used, we start with the 30-second spot rate and then discount accordingly. Value/30 sec spot Hockey Golf Football Auto Racing Soccer $12,000 $43,000 $208,000 $20,000 $7,000 Trakus stats/game 3 6 3 3 6 % revenue to Trakus 50% 50% 25% 50% 50% Value/event $18,000 $130,000 $156,000 $30,000 $20,000 26 Internet We assume that Internet deals are for an entire season, but are based on a per game rate. Here, we multiply the value per feature by the number of Trakus features by the per feature rate and discount by some amount to reflect that the site will want to make some money. Sites now regularly pay for live statistical feeds like SportsTicker, Reuters, STATS, etc. Value/feature Hockey Golf Football Auto Racing Soccer Video Games Subscription models for video games already exist, so we keep the $9.95 per month fee and multiply by the estimated players (based on total game sales) and assume a conservative 10% across the board revenue share with the game manufacturers. Companies like EA currently share up to 50% of a game's revenue with the content provider. Hockey Golf Football Auto Racing Soccer Operations Monthly fee $10/player $10/player $ I0/player $10/player $10/player Players/event 200 35,000 5,000 100,000 5,000 % revenue to Trakus 10% 10% 10% 10% 10% Value/event $2,000 $35,000 $5,000 $100,000 $5,000 $125 $1,875 $2,500 $2,500 $500 # of Sites 2 2 2 2 2 Features/site 4 4 4 4 4 % revenue to Trakus 100% 100% 25% 50% 50% Value/event $1,000 $15,000 $5,000 $10,000 $2,000 Cost per Event (steady state) Our variable cost of putting on an event is measures the cost of people, travel, and general system upkeep. These numbers are for steady state deployment, when we can allocate our people and maintenance costs across a significant number of events. Hockey Golf Football Auto Racing Soccer Cost/Event $12,000 $100,000 $20,000 $18,000 $16,000 27 I • Management Projections 28 Proforma Profit & Loss 1/1/00thru 12/31/02 ($000) IQoo Revenue Internet Television Video Game Sub-total League royalties Net revenues Costs Cost of sales Gross margin GM% Sales & mrktg Engineering G&A Total operating expenses Income from operations Net interest Profit before tax Income taxes Net income % of sales 80 720 470 1,269 (1,269) (0) (1,270) (1,270) 0.0% 2Qoo 10 25 3Qoo 140 883 50 1,073 107 966 _00 67 i:_::,, 769 ? :_;" 30 866 i!i:i 87 779 I 1,261 i 217 1 6_ 80 1974 197 1,777 " ..=_: :" 2,381 ::.., _; ••••(605) t 1QOl 182 1,804 535 2,521 252 2,269 2Q01 322 3,294 1,235 4,851 485 4,366 3Q01 226 2,642 1,295 4,163 416 3,747 4Q01 354 i il t,084 11;88_ 3,693 4,142 628 ;:_ 1Q02 607 4,682 3,801 9,090 909 8,181 2Q02 690 4,910 5,730 11,330 1,133 10,197 3o02 1,255 6,154 6,010 13,419 1,342 12,077 _02 , 1,780 l i_ i 4332 10,712 J_,_. 26458. 3,980 " 19,521 16,472 ,!]_,,.._.t5031:1 1,647 _ _;: 503;I. 14,825 45,280 35 4 32 5,124 . , 16,659:. 512 ::_'_:__1,6661 4,612 14,993 _ ! • ':' 9,452" 654i 93 (62) (2) 104 1,039 518 1,661 (1,722) 141 (1,582) (1,582) -5020.8% 1,027 (61) (O) 178 1,016 619 1,613 (1,874) 215 (1,658) (1,658) -171.7% _. 1,403 866 0 285 1,108 996 2,389 (1,523) 41 (1,482) (1,482) -65.3% 2,283 2,083 0 490 1,092 1,024 2,606 (523) (78) (601) (601) -13.8% 2,339 1,408 0 440 987 1,065 2,492 (1,084) 209 (875) (875) -23.4% 2,428 :_ 3,619 4,562 1 716 1,002 824 2,542 2,020 408 3,738 6,459 1 811 1,002 615 2,428 4,031 400 4,274 7,803 1 938 1,001 613 2,552 5,251 414 5,545 • 17,175 (482) _,: 2,184 i .. 0 ..... 9,280 ;_:., 28,105 _:: _.._ _: (1) ;_':....:_u 183 _: 993 _._: 714 _ 1,891 'i_,. 1 := :_:_ ..3,54__ ,. _!4007 2,782_ 10334 . ._ 3768_ 2,321 6,633.,; 478 _" " 1,692 992 1 _..:.4,1"/9 1.242 " 4,327 2,711 _... _,. (528) 467 101981 _ 1,080 i 1,002 730 =. 2,812 _' 6,468 (2,373) _:. " (7,236) _._ "::_: i 130 (2.242) (2,242) -287.7% ,!' i (3,657] i_ :_ ii:. _, 2,428 2,428 29.7% 4,431 4,43t 43.5% 5,665 5,665 46.9% ,:_...:17 ._.' '770_ .... 486 ii=_:. _ 639! i -20.1% 361 _'..: , 1,582 • _, _. 6.829 :,. '19,353 _.'._ " 6,829 ._ 46.1% _19,353 42.7% (6;752.) (6,752) -380.0% (61) i_:"_ (3,019) _' "_:. (61) _ =._..,.(3,019) -1.3% Proforma Statement of Cash Flows 1/1/00thru12/31/02 ($ooo) 1QO0 Cash from operating: Cash used for investing: Purchases of fixed assets Cash from financing: Proceeds from debt obligations Payment of debt obligations Proceeds from sale of stock Cash from financing: Net cash flows Beginning cashbalance Ending cashbalance (16) 2,000 1,984 844 1,062 1,906 (56) 23,500 23,444 21,913 1,906 23,819 (128) (128) (1,836) 23,819 21,983 (182) _....... .. 251500 (182) 25,1.!9 (1,956) ;,_18;9_5 21,983;_i:'i_,062 20,027 _ 20,027. (237) (237) (2,330) 20,027 17,698 (323) (370) 46,400 (323) 46,030 (685) 45,650 17,698 17,013 17,013 62,662 (1,140) 2QO0 (1,532) 3QO0 (1,708) 4QO0 (1,774) • (6;153) _o, , _._._' ,._ _,. ,,.;,,_:._... . _;_:..._ 1Q01 (2,093) 2Q01 (362) 3Q01 (380) 4Q01 696 . (2,139) _,_" . ._,_._. !:_. ., :_i_ _':'. ._:_.i_ :. (447)(,,377) ?, _,6_,00 (447) 45;023_ (503) (503) (530) (530) 5,453 62,988 68,441 (586) (586) 3,868 68,441 72,308 ' : " ' 1Q02 579 2Q02 5,983 3Q02 4,453 4Q02 8,737 19,752 " .:.i'(705) ! (2,323)!:! . ..: _,.' ,_:-:._i_ (705) 'i_.;(2_323) 8,032 72,308 80,340 17_429 62,911 80,340 249 ii•42•884_I 77 62,662 i".20,027_ 62,911 62,911 I 62,9!_1_: 62,988 Proforma Balance Sheet for the fiscalyears endingDecember31, 2000/2001/2002 ($000) FY2000 Assets: Cash and cash equivalents Accountsreceivable Othercurrentassets Current assets Fixed assets, net of depreciation Total assets Liabilities Accountspayable Currentportionof debtobligations Current liabilities Long-term debt obligations Total liabilities Shareholders' quity e Capitalstock Retainedearnings Total shareholders' equity Total liabilities and shareholders' equity 31,451 (11,696) 19,755 23,165 546 752 1,298 2,112 3,410 20,027 78 20,106 3,059 23,165 FY2001 62,911 1,324 64,235 6,572 70,808 FY2002 80,340 4,100 84,440 8,789 93,228 1,225 1,901 3,126 4,545 7,671 2,154 2,938 5,092 5,647 10,739 77,851 (14,714) 63,136 70,808 77,851 4,638 82,489 93,228