Sample Business Plan WebIdeals

Plan No. CONFIDENTIAL BUSINESS PLAN Recipient s Name -.-- June 1, 2000 • WEB-IDEALS, LLC -D Web-Ideals, LLC (the "Company" or "Web-Ideals") is a Pennsylvania limited liability company, which is converting to a Pennsylvania corporation. THE INFORMATION CONTAINED IN THIS CONFIDENTIAL BUSINESS PLAN (THE "BUSINESS PLAN") IS CONFIDENTIAL. BY ACCEPTING THIS BUSINESS PLAN, THE RECIPIENT AGREES TO KEEP CONFIDENTIAL ALL INFORMATION CONTAINED HEREIN. THE STATEMENTS 1N THIS BUSINESS PLAN ARE MADE AS OF THE DATE HEREOF AND ARE SUBJECT TO CHANGE, COMPLETION OR AMENDMENT WITHOUT NOTICE. THE DELIVERY OF THIS BUSINESS PLAN DOES NOT CREATE UNDER ANY CIRCUMSTANCES ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS BUSINESS PLAN DOES NOT CONSTITUTE AN OFFER TO SELL SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OF THE COMPANY. OR A • • • • THIS BUSINESS PLAN CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS". THESE FORWARD-LOOKING STATEMENTS RELATE TO THE PLANS, OBJECTIVES AND EXPECTATIONS OF THE COMPANY FOR FUTURE OPERATIONS. THESE STATEMENTS ARE STATEMENTS OTHER THAN HISTORICAL INFORMATION OR STATEMENTS OF CURRENT CONDITION, RELATE TO FUTURE EVENTS, AND CAN BE IDENTIFIED BY THE USE OF TERMS SUCH AS "MAY," "WILL," "SHOULD," "EXPECTS," "PLANS," "ANTICIPATES," "BELIEVES," "ESTIMATES," "PREDICTS," "POTENTIAL," "CONTINUE," THE NEGATIVE OF SUCH TERMS OR OTHER COMPARABLE TERMINOLOGY OR BY THE DISCUSSION OF STRATEGY. FORWARD-LOOKING STATEMENTS ARE SPECULATIVE AND UNCERTAIN AND NOT BASED ON HISTORICAL FACTS. BECAUSE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, THERE ARE IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS. ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED .IN THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CANNOT GUARANTEE • FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE, OR ACHIEVEMENTS. MOREOVER, NEITHER WE NOR ANY OTHER PERSON ASSUMES RESPONSIBILITY FOR THE ACCURACY AND COMPLETENESS OF SUCH STATEMENTS. WE ARE UNDER NO DUTY TO UPDATE ANY OF THE FORWARD-LOOKING STATEMENTS AFTER THE DATE OF THIS BUSINESS PLAN OR TO CONFORM SUCH STATEMENTS TO ACTUAL RESULTS. THIS BUSINESS PLAN CONTAINS MARKET DATA RELATED TO THE INTERNET GENERALLY AND OUR INDUSTRY SEGMENT SPECIFICALLY. THIS DATA WAS DERIVED, IN PART, FROM REPORTS GENERATED BY THIRD PARTY RESEARCH FIRMS. IN PREPARING THESE REPORTS, THE RESEARCH FIRMS ASSUMED CERTAIN EVENTS, TRENDS AND ACTIVITIES WILL OCCUR OR CONTINUE AND THESE FIRMS PROJECT INFORMATION BASED, IN PART, ON THOSE ASSUMPTIONS. IF TIlE MARKET RESEARCH FIRMS ARE WRONG ABOUT ANY OF THEIR ASSUMPTIONS, THEN THESE PROJECTIONS MAY ALSO BE WRONG. • • TABLE OF CONTENTS • EXECUTIVE SUMMARY .............................................................................................................................. Overview ............................................................................................................................................. Products and Services .......................................................................................................................... Business Model ................................................................................................................................... Target Market ...................................................................................................................................... Organization and Ownership .............................................................................................................. Summary Financial Data and Projections ........................................................................................... COMPANY HIGHLIGHTS ............................................................................................................................. Outstanding Design Considerations .................................................................................................... Superior Software Engineering ........................................................................................................... Expanding Market Opportunity .......................................................................................................... Scalable and Profitable Recurring Revenue License Model .............................................................. INDUSTRY AND MARKET ANALYSIS ..................................................................................................... Overview ............................................................................................................................................. 1 1 1 2 2 2 2 4 4 4 4 4 5 5 7 10 10 10 10 14 15 16 17 24 24 24 26 27 28 34 37 • • Industry Buying Patterns ..................................................................................................................... BUSINESS ..................................................................................................................................................... Company Overview .......................................................................................................................... Marketing Overview ........................................................................................................................ Product Overview ............................................................................................................................. • • Services Overview ............................................................................................................................ Business Model ................................................................................................................................ Competitive Strengths ...................................................................................................................... Business Strategy .............................................................................................................................. Customers ......................................................................................................................................... Technology ....................................................................................................................................... Competition ...................................................................................................................................... Facilities ............................................................................................................................................ Intellectual Property ......................................................................................................................... RISK FACTORS ........................................................................................................................................... • MANAGEMENT .......................................................................................................................................... PRINCIPAL EQUITY OWNERS ................................................................................................................ SUMMARY HISTORICAL AND PROJECTED FINANCIAL STATEMENTS; FINANCIAL ASSUMPTIONS ............................................................................................................................................ Sales Forecast ................................................................................................................................... Milestones ......................................................................................................................................... Revenues ........................................................................................................................................... Expenses ........................................................................................................................................... Balance Sheet Assumptions ............................................................................................................. Historical and Projected Financial Statements ................................................................................ • • 38 39 40 40 41 41 43 EXHIBIT A: DESCRIPTION OF I3C TM MODULES ............................................................................... • EXHIBIT B: ORGANIZATION STRUCTURE ......................................................................................... 51 55 EXECUTIVE SUMMARY • The following summary contains basic information about the Company. For a more complete understanding of the Company, we encourage you to read this entire Business Plan and the documents we have referred you to. As used in this Business Plan, unless the context otherwise requires, "we, " "our," "ours" and "us" refer to Web-Ideals, LLC. Overview Web-Ideals, LLC was formed in April 1999 as a Pennsylvania limited liability company. By December 1999, we completed our start-up phase and began to actively market and deploy our core products and services. Our principal product to date is a fully integrated, web-based application platform for order processing and management called I3CTM. I3CTM, which stands for Integrated Interactive Information Center, is an end-to-end order processing system that integrates data captured at all customer touch-points, from all direct-to-customer order channels, including direct response radio and television media, print, catalog, direct mail and the Internet. In addition to technology-based products, we offer direct marketing services consulting, and in selected circumstances, a limited amount of outsourced logistical support, teleservices, and fulfillment services. Products and Services Web-Ideals is an application service provider with an end-to-end order processing solution called I3C TM. The I3C TM represents a highly efficient solution to companies seeking to integrate their direct marketing programs, including e-commerce strategies, into a single, flexible operating platform that requires minimal capital investment and lead-time for implementation. I3C TM was built by a management team with many years of direct marketing industry experience to encompass the best of direct-to-customer order processing systems. The benefits of I3C TM are: • • • Accessibility. I3C TM's web-based architecture enables system access from virtually anywhere in the world with minimal incremental investment. Integration. I3C TM was designed to provide an end-to-end solution for simultaneously managing direct-to-customer sales from all order channels, including the Internet, catalog, direct response television, print and direct mail within the same application platform. This common platform integrates all necessary direct-to-customer order processing functions including teleservice order taking, inventory tracking and management, fulfillment, customer support, and response analysis. Minimal Capital Investment. I3CTM is a web-based application that operates on Web-Ideals' server network. Therefore, client companies utilizing the system need not invest in new hardware. WebIdeals offers clients a pricing structure based on the volume of transactions processed, thereby not only minimizing initial capital investment, but also facilitating a variable cost structure for the client's information management requirements. Rapid Set-up, Deployment and Training. I3C TM was designed using the Microsoft SQL database, a fully relational database engine that minimizes development time for any required client customization. Further, the core system was engineered to allow for user definable set up criteria encompassing virtually all marketing techniques in use today for direct-to-customer sales including installment billing, continuity program management, bonus promotions, up-sells, and cross-sells. As a result, fully operational deployment can be accomplished in days instead of months at minimal cost. Finally, because I3C TM iS accessed utilizing a web browser, most functions are performed using simplified "point and click" operations in a familiar web browser environment significantly simplifying user training. • • • • • •, • • 1 • In addition to I3C TM, Web-Ideals provides direct marketing services consulting in the areas of marketing, media, order processing, logistics, e-commerce, finance, strategic planning and sales management. In addition to providing enhanced value to our clients, these services enable us to diversify revenue and cash flow streams. Further, the technology based products and the consulting services products both target similar markets resulting in significant cross-sell opportunities, each providing sales leads and expansion opportunities for the other. For a more complete description of our products and services, see the "Product Overview" and "Services Overview" sections beginning on page 10. Business Model Web-Ideals employs an Application Service Provider ("ASP") business model. ASP's provide technologies to companies using a usage or leased based pricing strategy, which results in significant benefits including: • • • Minimizing client initial capital investment. With the ASP pricing model and no material hardware or software requirements, the client is able to assume less risk on new technology while enabling gradual migration of existing systems, both significant factors in our target market. Providing clients withflexible and scalable solutions. With the usage based model inclusive of variable monthly minimums and setup charges, our clients are able to minimize fixed overhead and maximize scalability while we are able to provide a cost efficient solution across a broad spectrum of potential clients each tailored to assure us profitable return on each client. Maximizing our downstream revenues. Once the client base is established, the ASP model provides us with a continuing revenue stream that will grow as our clients grow. By emphasizing value added services, continually improving technology and high levels of client support, we will minimize client attrition thereby maximizing future revenue growth as new clients are acquired. • • • • Ta rget Market Today's exploding e-commerce market represents only a percentage of the direct sales market that is projected to exceed $350 billion by 2003. Our systems and processes are designed to not only service the business-to-consumer e-commerce market, but also to facilitate the integration of this new method of direct marketing with traditional direct marketing strategies. In so doing, we are pioneering the application of proven direct marketing methodologies in the new world of e-commerce while enabling new web-based technologies to supplant and optimize traditional direct marketing processes. We intend to initially target middle market companies, defined as companies with annual sales in the range of $3 million to $100 million, engaged in integrated B2C marketing strategies, inclusive of companies who furnish outsourced services to this segment such as fulfillment and teleservices providers. Organization and Ownership • • • Web-Ideals, LLC was formed as a Pennsylvania limited Liability company in April 1999. As of April 30, 2000 the outstanding membership interests of the Company were held 95% by management and 5% by other investors. For more complete information of the membership interests, see the "Principal Equity Owners" section beginning on page 38. We intend to reorganize the Company into a Pennsylvania corporation in connection with raising equity capital. The new name of the Company will be "Web Ideals, Inc." or a derivation thereof. Summary Financial Data and Projections 2 Q • The historical financial inJbrmation provided below, set forth on a proforma basis as though the reorganization of the Company has occurred, has been prepared by the Company and is unaudited. The projectedfinancial information set forth below was developed by the management of the Company and is based upon certain assumptions presented in the "Summary Historical and Projected Financial Statements," Financial Assumptions" section beginning on page 38, including the availability to the Company of equity and debt capital. Although the Company believes that these assumptions are reasonable, actual results achieved during any future period are likely to vary from the projections, and such variations may be material and different from such projections. The Company does not make any representation or warranty as to the accuracy or completeness of this information. EXECUTIVESUMMARY In Thousands ($ 000's) SALES LlcensingRevenues Teleservlces , Quarter ended I Mar-00 I$ I 63 40 60 55 11 $ 229 Quarter ended Jun-00 $ 99 43 70 53 14 $ 278 $ Quarter ended Sep,.00 $ 229 69 90 57 24 46..=_=9 $ Quarter ended Dec-00 $ 473 149 90 62 39 813 $ $ Year ended Dec-00 : ' Quarter ended Mar-01 823 258 130 66 63 $1,340 Quarter ended Jun-01 $1,346 458 160 72 95 $2,131 Quarter ended Sep.01 $ 1,770 588 180 77 122 $2,737 Quarter ended Dec-01 $ 2,130 730 210 84 147 $3,301 $ Year ended Dec.01 6,069 2,034 680 299 427 $ 9,50_,$ Year ended Dee-02 $ 12,138 3,051 1,020 448 641 : 17.298 '$ $ Year ended Dec-03 24,275 4,577 1,530 672 962 32,016 864 $ 300 , 310 ' 227 _ 88 1,789 • FulflllmentServlces Marketing Servlcea Ob_erlncome Total OPERATINGEXPENSES Research&Development Marketlng and Sales i $ I, . 91 58 $ 152 56 $ 196 115 50 75 288 724 (255) (19) $ 251 211 $ 690 , $ 440 . 297 324 $ 363 392 $ 411 399 $ 468 498 $ 1,540 1,613 1,097 704 2,028 6,981 2,528 $ 3,079 2,934 $ 6,159 5,430 2,468 1,584 4,562 20,203 11,813 199 (4, 204) • Teleservlces OpeFat/ons General and Admlnlstratlve Total OPERATINGINCOME OTHER INCOMF-JEXPENSE 27 58 182 ' $ 416 , $ (187) (18) 46 44 203 $ 501 $ (223) (25) $ $ 89 98 468 $ 1.118 $ (305) (16) $ $ 212 . 146 275 122 1,141 477 2,758 $ 1.367 (969) ' $ ' (81) ' (27) (18) 258 168 510 $1,691 $ 440 (17) (144) 310 192 515 $ 1.826 $ 911 (17) (319) 384 222 526 $ 2.097 $ 1,204 (16) (424) $ 787 $ $ 1,646 1,056 3,041 $ 11,756 5,542 $ i $ : I$ I (67) Ii 65 ' (1,962) ,am, PROVISIONFOR TAXES NET INCOME(LOSS) BALANCESHEETDATA Cash Working Capita/ OwnersEqulty $(205) $(247) $ (254) $ (301)_ $ (28) $ (887) $ 1,647 $ ! " $ $ $ 29._=_=_.5 593 $ 3,644 $ 7,808 $ 121 $ (220) $ (503) $ 7 $ (466) $ (750) $2,334 $ 2,434 $2,496 $ 1,701 $ 1,808 $ 2,195 $ $ $ 1,701 1,808 2,195 $ 1,494 $ 1,759 $ 2,167 $1,495 $ 2,017 $2,462 $1,921 $ 2,607 $ 3,055 $ 2,422 $ 3,226 $ 3,842 $ $ $ 2,422 3,226 3,842 5,069 6,716 7,486 $ $ $ 11,009 14,518 15,294 • Current Ratio Debt:Equity FINANCINGDATA PHvatePlacement - Equity PHvatePlacement-Debt 0.52 (2.27) 0.16 (1.64) 20.38 0.32 7.74 0.35 7.74 0.35 6.58 0.37 6.65 0.34 8.22 0.27 8.67 0.18 8.67 0.18 8.67 0.18 8.67 0.18 $ $ 200 $3,500 $ $ 3,500 200 $ (50) $ (50) 3 COMPANY HIGHLIGHTS a Outstanding Design Considerations. I3C TM was designed and engineered by a team possessing over fifty years of collective direct marketing experience. It represents an efficient solution for companies seeking to integrate their direct marketing programs, including e-commerce strategies, into a single, flexible operating platform. The system includes media analysis, order and credit card processing, teleservices, e-commerce, fulfillment, inventory and database management in a complete virtual environment. Superior Software Engineering. Developed entirely in-house, I3C TM utilizes the latest technologies in web-based processing. With modular components, yet configurable to accommodate multiple promotions for multiple companies with virtually unlimited capacity for products and customers, I3C TM can be tailored to meet the demands of any business engaged in direct marketing. Designed and developed to perform all of its functions using web browser environment, the I3C TM requires no new client investment in hardware and its unique architecture facilitates a complete virtual environment that can be accessed and updated from anywhere in the world, at anytime, on a real-time basis with the ultimate in multi-tiered security. Expanding Market Opportunity Web-Ideals' market is being propelled by two separate but equally powerful forces. First, companies are beginning to reevaluate their current IT systems and marketing processes in order to meet the demands and achieve the efficiencies which exist as a result of burgeoning e-commerce technologies. Second, e-commerce first movers are beginning to consider the adequacy of their online marketing strategies, while direct marketers are striving to assert the vibrancy of their profitable offline customer relationships in an increasingly wired environment. Web-Ideals direct to consumer marketing technology platform anticipates and meets the needs of both constituencies. Scalable and Profitable Recurring Revenue License Model. a • Q O • We have organized our Company primarily according to an Application Service Provider business model. We deploy, manage and remotely host our software applications through centrally located servers in a pay-for-service arrangement. All of our platform functions are contained within a web browser environment and require no new client investment in hardware. This promotes the likelihood that I3C TM solutions will become firmly embedded in our customers' work routines while providing us with both a long-term recurring revenue stream and significant operating leverage. 4 INDUSTRY AND MARKET ANALYSIS • Overview We believe that we are positioned at the precise intersection of two converging segments of the direct to consumer marketing industry - the rapidly growing, $20 billion e-commerce industry and multibillion dollar traditional direct marketing industry. The proportional size of each segment is illustrated in the following chart. Direct To Consumer Market 1999 Direct To Consumer Marketing Sales by Medium ($ in Billions) _._=[._.._= D Tele phone $225 " • El Direct3Mao/_' $289 _ 1Z ) \//t\\/ X // t _X _--_--M $22 [ [] Magazine $42 _J 5% _ _ _T'le-Commerce -30 $20 DTelevision $62 8".4 Source. Direct Markctin_ Association, JulalteT Col't'l/ntl_catiot_ / _ \ NewsPl¢o;r $134 []Radio 3% • Our Target Market The key trends apparent in today's information technology ("IT") market which impact our target market strategy are: • • The rapid growth in outsourcing of IT solutions across all market segments, including the trend toward utilization of a new method of deployment of IT solutions known as the Application Service Provider; and The need for all companies, both large and small, to re-evaluate their current IT systems and marketing processes in order to meet the demands and achieve the efficiencies which exist as a result of the burgeoning e-commerce technologies. • • Accordingly, we have begun to initially target middle-market companies, which are companies with annual sales in the range of $3 million to $100 million, engaged in integrated B2C marketing strategies, including companies who furnish outsourced services to this segment such as fulfillment and teleservices providers. According to the Direct Marketing Association, 95% of their members intend to utilize the Internet for sales or lead generation. 5 Market Needs 6 Integration is foremost among the needs that today's IT solutions and marketing strategies must provide. In the direct to consumer market, the growth of e-commerce as an important component of total revenues, combined with the cost benefits that can be realized using new web-based technologies, have forced companies to re-evaluate their present business processes and systems. According to the Boston Consulting Group, retailers who had businesses that predated the web generated 62% of 1998 online revenues. Catalog, call centers and brick-and-mortar retailers are a growing force behind the continued rapid growth on online retail. However, existing legacy systems used by many of these companies are, for the most part, incapable of managing e-commerce activities, forcing segregation of this growing business segment from the other business processes. Further, these systems lack the capability to utilize web-based technologies such as e-mail that not only enhance customer relationship management but also reduce operating costs. Within the targeted middle market businesses involved in the B2C sector, the cost to upgrade systems to accommodate the new technologies, as well as the cost to maintain these technologies in a rapidly changing environment is also a critical factor in any IT solution. Accordingly, our target companies will need to find solutions that do not require the high capital investment often necessary to upgrade existing systems infrastructure. Another critical component for the B2C marketing company is flexibility. Possibly more than any other category of marketer, the consumer direct marketer employs complex pricing and sales strategies to enhance revenues and build customer relationships. Continuity programs, installment billing, buyer's clubs, integrated up-sell and cross-sells, customer profiling and list management are all "tools of the trade" in many direct marketing programs. Increasingly, direct marketers are seeking to apply many of these tools to their e-commerce marketing efforts as well. Accordingly, any IT solution targeted at this market segment must be flexible enough to facilitate easy configuration and management of such programs. Our I3C TM was designed specifically to address these needs. By enabling integration of orders generated through e-commerce, telemarketing and direct entry in a single, web-based order processing • and fulfillment management platform that includes both front-end marketing and media performance analysis and back-end list management modules, I3C TM accomplishes the objective of integration. Because I3C TM is deployed as a usage based web-accessible application, potential clients need to make little or no capital investment. Finally, experienced direct marketers developed the I3C TM. Consequently, all of the features required to handle even the most complex continuity programs, billing plans, up-sell and cross-sell programs and shipping and handling options are design considerations that have been incorporated into I3C TM. Market Trends We believe that many companies within our target market are beginning to recognize that the emerging world of e-commerce represents not only revenue opportunities, but also new technologies that can significantly reduce costs while enhancing customer relationship management. New forms of delivery of soft goods without fulfillment and shipping costs, new methods of delivering product information without postage and printing and new methods of communicating with customers without telephone access fees and customer service representative ("CSR") labor have all become possible via the Internet. Increasingly direct marketers are actively seeking to include e-mail addresses in information captured from customers, regardless of the method used to initially contact such customer. I3CTM was designed to enable these web-based technologies across all marketing venues. For example, a customer ordering a product via telephone from a television promotion can be offered e-mail shipment confirmation as motivation to supply his/her e-mail address, thereby increasing the number of positive responses to 6 B g • • Q • • • 6 furnish this item. Once obtained, the e-mail address can then be used to drive customers to a website offering products tailored to such customer. Further, because of use of e-mail as a communication tool to track order progress, customer service costs are reduced and customer satisfaction increased. The marketplace is also demonstrating a trend toward customer relationship management ("CRM") as a key factor in both market strategy and IT systems capability. The marketing goals of companies implementing customer relationship management technology generally focus on customer acquisition, retention, cross-selling and up-selling These companies are reorganizing around their customers, integrating technology and restructuring their organizations and processes to achieve their goals more efficiently and effectively. Many of the tools necessary for implementation of CRM strategies have been designed into I3C TM. From front-end media analysis defining how the customer was first contacted, through e-mail customer communication, automated up-sells and cross-sells, capture of demographic and geographic customer data and finally integrated customer list management, I3C TM enables potential clients many of the capabilities of sophisticated, specialized and costly CRM programs. A representation of the new customer focused direct marketing services process is illustrated in the following diagram. • CUSTOMER-CENTRIC DIRECTMARKETING SERVICECYCLE FULFILLMENT FUNCTIONS RESPONSECHANNEL • • MAIL • WEBSITE • EMAIL • • • • • PAYMENT PROCESSING RETURNSPROCESSING PICK, PACKand SHIP ORDER TRACKING WAREHOUSING MEDIA CHANNEL • DIRECT MAIL • • • • • • INTERNET TELESALES DISPLAY ADS DRTV FSIs IN__OUIRY CHANNEL • TELEPHONE • F.MAIL • LIVEWEBCHAT CRM *CONTINUITY PLANS DATABASEANALYSIS • LIFETIMEVALUE • MEDIA PROFILING • • RESPONSERATIOS • CUSTOMERSEGMENTATION • RECENCY,FREQUENCY,MONETARY VALUE * LOYALTY PROGRAMS * BUYERSCLUBS Source:.W_en'vGroup Industry Buying Patterns Direct marketing companies seeking to obtain information technologies historically have had • three basic options: total outsourcing, system acquisition and in-house development. A description of the primary attributes of each of these three categories and their problems is as follows: 7 Total Outsourcing • Many direct marketing companies have elected to outsource one or more facets of the order management, fulfillment, customer service and reporting processes, focusing internal resources on product marketing and advertising. This option generally entails contracting with one or more third party vendors to handle these functions. These vendors also furnish the IT technologies required to perform these tasks and provide periodic reporting to the client company usually in the form of hard copy reports. The advantages to electing this solution include minimal upfront investment, reduced fixed overhead and very flexible scalability. The disadvantages include lack of control, inflexible, fragmented and limited reporting, loss of direct contact with customer and high transactional costs. In today's e-commerce enabled environment, additional disadvantages to this solution have also evolved. Most of the third party vendors servicing this market have made substantial investments in legacy systems which operate on platforms which are not readily compatible with today's web-based technologies. Accordingly, companies seeking to establish e-commerce capability are often forced into seeking alternative vendors for this segment of their business. As a result, integrating e-commerce with existing programs becomes even more difficult and fragmented. Accordingly, client companies become more dissatisfied with the outsourced vendors, while, simultaneously, those same vendors are seeking solutions to integrate or operate in parallel with their existing legacy systems. Both of these scenarios represent potential opportunities for us and our principal product, I3C TM. For more complete information about us and I3C TM, see the "Business" section beginning on page 10. System Acquisition Many companies elect to purchase software or hardware systems from vendors who have designed applications tailored to the direct marketing industry. Such systems vary widely in price, functionality, capacity and system hardware requirements encompassing solutions ranging from very inexpensive, limited functionality, stand-alone PC based programs to highly sophisticated, ERP systems requiring initial capital investment in hardware and software of many millions of dollars, as well as a significant investment in ongoing MIS staffing to operate and maintain such systems. In the middle market segment the systems comparable in functionality to the I3C TM require initial investment in hardware and software ranging from $75,000 to $1,000,000, as well an equivalent amount in annual expenditures for MIS staff and maintenance. With the emergence of e-commerce, the market has been segmented further into two subcategories. One subcategory encompasses legacy systems that typically operate on mainframe platforms. Companies who market these systems have been attempting to upgrade their systems to become "web-enabled", usually defined as the ability to accept order data from a website into the legacy system and report back to the website inventory data. However, such systems have inherent limitations due to their core architecture making integration with new web technologies difficult and costly. Further, these systems are unable to apply web technologies such as e-mail and remote web access to existing non web-based programs and processes. The challenge facing marketers of legacy systems is how to redesign their systems to enable these new technologies without requiring clients to replace existing hardware platforms. The second subcategory is the pure e-commerce offerings, designed to provide enterprise solutions for the management of e-commerce activities. Though enabled with stateof-the-art web-based technology, these systems have to date, overlooked many of the functions needed to manage direct marketing programs other than e-commerce based promotions including telephone based customer support and order entry, installment billing capability, interfaces enabling downloading of order data from remote facilities and continuity program management. I3C TM was designed specifically to bridge this gap. In-House Development The third option for companies requiring sophisticated IT technologies was to develop such systems in-house. This option, though prevalent in larger companies, has not been widely adopted among middle market companies. The development of comprehensive systems for managing direct marketing 8 • • • • • • requires significant time and programming resources. Further, many of the direct marketing companies who opted for in-house solutions prior to the emergence of e-commerce suffer from the same dilemma faced by the systems providers in that what was a state-of the art system architecture five years ago is today outdated. Compounding this problem further, web savvy technical expertise is both costly and in short supply. As a result of the foregoing issues, Application Service Providers have begun to experience significant growth, especially for middle market companies. Using an ASP model, a company can obtain access to new technologies without significant up front capital outlays. Within the consumer direct marketing segment, ASP offerings have appeared which provide both individual components, primarily related to web-based credit card processing, and enterprise solutions for e-commerce. I3C TM, to the best of the company's knowledge, is among the first ASP applications designed to integrate both e-commerce and traditional direct marketing in a unified web-based platform. • 9 BUSINESS • Company Overview Web-Ideals, LLC was formed in April 1999 as a Pennsylvania limited liability company. We currently have a total of 20 employees located in Newtown, Pennsylvania and Simi Valley, California. By December 1999, we completed our start-up phase and began to actively market and deploy our core products and services. Our principal product to date is I3CTM, a fully integrated, web-based application platform for the processing and management of all aspects for businesses involved in the direct marketing process for all venues including direct response radio and television media, print, catalog, direct mail and e-commerce. In addition to technology-based products, we offer businesses marketing consulting and in selected circumstances, a limited amount of logistical support and fulfillment services. To date, our operations have been funded primarily through internally generated cash flow from client revenues, aggregating over $500,000 in our first nine months of active operations, as well as loans from one of our principals, totaling in excess of $650,000. In addition, we obtained $200,000 additional working capital from two strategic outside investors. We currently require additional funding in order to realize the full potential of our products and to rapidly expand our client base. Marketing Overview To date, we have timely completed our original milestones related to our initial marketing programs. Our logos for both our company and I3C TM have been designed and trademark registration filed. Our brochure, an upscale, eleven-page, four-color presentation of our company and products, was completed in October. Our company website has also been live since October as well. We have designed our first print advertisement as well as negotiating extremely favorable rates for our first campaign with Response magazine, a major trade monthly magazine for the direct response industry. All of these items were developed internally with the assistance of an outside graphic design agency at minimal cost, preserving our limited financial resources. Finally, we have attended two trade shows. The first was the Electronic Retailing Association show in Las Vegas, Nevada in October 1999 and the second was Response Expo in Los Angeles, California in March 2000. Our presence at these trade shows was off the main show floor in private suites in order to minimize cost as well as allowing us to selectively control our invitation list to preview our systems. Given the limited investment to date, as well as the limited management resources dedicated to the marketing effort, we have been satisfied with the results. Since commencing these efforts in October 1999, we have demonstrated our system to over 29 companies active in direct to consumer marketing. Of the foregoing companies, four have become active clients, formal proposals are pending with three others, two potential strategic relationships are in active negotiation with west coast and mid-west fulfillment companies and there are continuing discussions likely to result in formal proposals with five others. In addition, we have entered into referral agreements with two major direct response advertising agencies. All told, over 50% of our demonstrations have resulted in tangible business opportunities. Product Overview At the heart of our products and services is the belief that managing information is the single most critical component for companies to achieve and maintain success in the rapidly changing world of direct marketing. Utilizing new technologies in web-based processing, our goal was to develop information processing systems engineered to require minimal initial client investment, are easy to use and significantly enhance access to critical real-time information. Further, because our solutions are webbased, they can be rapidly deployed globally in multiple client locations, inclusive of outsourced service providers, vendors and branch offices, without significant cost. The result is an integrated information 10 • • • • • • • management solution that is inherently accessible, amazingly flexible, easily expandable and extremely reliable. 13C TM (Integrated Interactive Information) - Description Our initial product is the INTEGRATED INTERACTIVE INFORMATION CENTER (I3CTM). Developed entirely in-house, I3C TM is a fully integrated, web-based platform for the processing and management of all channels of direct marketing inclusive of direct response radio • and television media, print, catalog, direct mail and e-commerce. With modular components, yet configurable to accommodate multiple promotions for multiple companies with virtually unlimited capacity for products and customers, I3C TM can be tailored to meet the demands of any business engaged in direct marketing. Developed utilizing primarily Microsoft products, I3C TM requires no specialized hardware, is easy to maintain, user friendly and entirely web-based. _ \ • I3C TM is comprised of multiple core modules, each separately configurable for secure user access, each managing specific aspects of direct marketing and logistics functions and each available on a standalone basis or fully integrated with each other. This unique architecture facilitates a complete virtual environment that can be accessed and updated from anywhere in the world, at anytime, on a real-time basis with multi-tiered security. Designed and developed to perform all of its functions using a web browser environment, I3C TM requires no new client investment in hardware. Further, I3C TM is available based upon a transactional pricing model, thereby eliminating any major up front investment in new software. In addition, given the familiar and user-friendly operating system combined with the flexibility of the I3C TM architecture, training and setup can usually be accomplished in less than thirty days. With I3C TM, system access and configuration can be tailored specifically to each clients needs. Because the system is accessible via the web, integration of remote telemarketing and fulfillment operations is easily accomplished without investment in new hardware or software. All the while, aggregate control of the customer billing, data management, website management and inventory allocation remain in a centralized database enabling ready access to a complete suite of on-line reports by executive management from anywhere, anytime. The flexibility of I3C TM even extends to hardware configuration. To access the system, all that is needed is a standard PC with at least 150 IvlHz and 32 MB RAM with Internet Explorer (version 4.0 or later) and Internet access via ISDN, DSL, T-1 or other high-speed connectivity. For LAN access, a network T-I is recommended. Our secure, state-of-the-art, Dell Enterprise server installations located in Pennsylvania and California both have full T-1 connectivity and mirror each other for optimal access and minimal downtime. Our clients can elect to utilize our server network for all application and database storage or we can configure a remote server in the client's facilities. If the latter option is elected, our server network can serve as backup for the on-site server installation • • 11 13C TM- System Architecture The I3C TM software platform consists of an integrated suite of Microsoft components comprised • of SQL Server 7.0 Database, Internet Information Server, Transaction Server, and Internet Explorer 5.0 operating on a Windows NT 4.0 operating system. This architecture enables easy integration into client systems while providing a flexible and scalable platform for the future as we migrate to enhanced Microsoft products such as Windows 2000, Microsoft Site Server and SQL Server 2000. All of the application code for I3C TM was developed internally using the development tools included in the foregoing platform components as well as applications written in Microsoft's Visual development environment. In addition, I3C TM incorporates the use of the Microsoft Distributed Component Object Model (COM), a technology that enables software components to communicate directly with each other across networks, including the Internet and intranets. Many of the COM objects we have developed are proprietary and provide critical functionality to the overall solution. A diagram of the aggregate architecture of I3C TM is presented below. ' "\ -..../: _ ./" Remote [ Telemarkeling/I • " ' " _. MS/I'X _ / ( n'h terns, l _.... _ DD= Direct Dialup Link Ecom.m.erce I Medium I weos..es S eed.ink .I I O_L,_.. T _ = ' ' I ' TX = TI+ High Speed Link (Pennsylvania) _,mm'_or,;er I, Backup IIS Server [_up ' Config -- I_.Remote SQL Server ° IIS Intranet Server I" 13C Satellite _ I_ (_[_ _, D [ _ T-/--------| Config _.,_.Th_e_, I ' _m_ -- ,_Lo IIS lnternet I" 13C Pr,mary Server Config _ i I_ DD I, " I _rnJ The _ 1°'3CDCO_iServer T | | I IntraTnet ill , i i i , • Windows NT4.0 / 2000 Server_ SQL Server 7.0 ITI Sxt4a0b/:?S0u bscri Ption ASPTear 1.2or greater Client Software _ I IJ [ Intrane-_--t" } II External Dependencies • Windows 98/NT/2000 Microsoft greater ,E4.01B orOffice 98/2000 [[1, Paymentech alP Ill. AuthorizeNet 12 • The I3CTM dashboard screen that summarizes the primary application of each of the modules appears on the following page. Specific features of each module of I3CTM are included in Exhibit A. _...- _._-- ,+ _ _a_-- __ -wm, _, • +et+ _merce,es+o°e':c o,_ I ,+tory MEDIA IDEALS An online and real-timemedia system with advancedsourcing and complete TM TM • •_ E-COMMERCE "[I TELESERVICES LI INVENTORY • ElPROCESSING ;I REPORTING Ii LIST IDEALS IDEALS IDEALS IDEALS IDEALS IDEALS TM TM reporting and analysis capabilities. Web Site developmentand managementwith the latest in "Shopping Cart" technology, back office managementand security. TM Providing all of the componentsformanaging in-house orderentry, customer service, and returns managementand more. A completely integrated inventory,assembly, and multiple warehouse management system. TM Managing all the tasks requiredto receiveordersfrom third parties, verify and allocate inventory,process payment, create shipping documentation. A comprehensivemenu of-fullyintegrated reports A complete databaseand list managementmodule for targeted marketing and customer retention programs. TM J MARKETING IDEALS TM A multi-stage-process and model for developingthe marketing rationale, positioning, branding, sales strategy, andfinancial scenarios for a product. Client Database Vesion i All eigh_ ee_erved. Copyright (o) 1999,2000 _¢EB-Ideals LLC. 13CVen_ion 2.0 - IReleasQCmndidatQ I c,+,-,,°,:l'_emm j +,+,.,p:_' _ • _pone uoo,:i.a,mm+ ,o+++d a+__,I ,°:L+'_m :P'+'++ I '-o0,,, Ti_+:l_+ _+&_.._]c:_o:_l:[_].:_ _. = ]---l---le-) ,ntelnet_ 13 Security Given the fact that our systems are designed to operate over the Internet, system access and security are critical issues that we have addressed. First, with respect to our network, we utilized state-ofthe-art technology known as a firewall that restricts access to unauthorized individuals by serving as the single entry point to our network and evaluating each attempted connection request as it received, only allowing access to those requests which have been authorized by the system administrator. In addition, data transfers into and out of I3C TM are encoded using a technology known as Secure Sockets Layer (SSL) that encrypts all data as it is transported over the Internet. Further, our network is continually monitored by the latest in virus detection and intrusion detection software as well as by internal personnel. Second, I3C TM has a built-in fully functional, multi-tier, access and usage control module. User rights can be assigned based upon module, user-group, individual, functional and location access requirements. When the user logs into the system, the user's profile is loaded. This profile "attaches" itself to the user while the user is logged in and will monitor and control the user for the duration of the users session. User passwords are strictly controlled and maintaining their confidentiality is a specific requirement in all client contracts. Services Overview Going beyond technology based solutions, we strive to offer our clients a broad array of management, administrative and consulting services designed to guide, supplement or oversee and direct the areas of marketing, media, order processing, logistics, e-commerce, finance, strategic planning or sales management. In addition to providing enhanced value to our clients, these services enable us to diversify revenue and cash flow streams. Further, the technology based products and the consulting services products both target similar markets resulting in significant cross-sell opportunities, each providing sales leads and expansion opportunities for the other. Marketing Consulting Our marketing consulting services have, to date, generated significant revenues as well as • providing opportunities for us to expand our services to these clients with our other technology based products. Current clients include; Sony Music Direct, a division of Sony Entertainment. At the forefront of our marketing consulting services is MARKETING.IDEALS TM, a unique and variable structure for executing consumer oriented product or service marketing strategies. MARKETING.IDEALS TM is a three-phase process that uses a comprehensive, long-term and strategic approach to evaluating, positioning and launching consumer products and services. Each facet focuses on a specifically designed goal to define the product, how it is evaluated, positioned, planned, and developed, and how it will be launched and managed as a brand with its own P&L and marketing plan, including exit and capitalization strategies. Each channel of distribution is integrated into this branded strategy thereby maximizing image and positioning continuity while reducing and diversifying investment risk and redundancy. We also provide consulting services in the areas of telemarketing and media management. With over fifty years of collective direct marketing experience, our principals are able to provide clients with assistance in the areas of telemarketing script development, up-sell and cross-sell configuration, often improving "close" ratios on telemarketing sales while increasing per order profitability. We also presently consult with several clients in the area of media buying. With proprietary, sophisticated management tools, many of which are being integrated into I3C TM, we are able to determine key trends in media performance thereby increasing performance and maximizing return on media investment. In addition to • • • • • 14 client fees generated from these activities, we have formed strategic alliances with service providers in these key operating areas that provide incremental revenues for referred business. We intend to continue to pursue marketing based strategic alliances that can provide added value to clients as well as revenue opportunities in the areas of direct response media, e-commerce marketing and advertising and other related services. Logistical Support Services • For clients seeking to outsource logistical and support services functions applicable to direct marketing, we offer flexible and scalable solutions. Our present Simi Valley facility has 3,175 square feet of warehouse space, which enables us to manage pick, pack and ship functions for smaller clients. This facility also functions as a beta site for testing the functionality of enhancements to I3CVM'swarehouse management system. For our larger clients, we are seeking to form alliances with established warehouse and fulfillment companies in strategic locations throughout the United States. To date, several such companies have expressed interest in such an alliance. Under the terms of these proposed alliances, we would enter into a subcontracting agreement enabling the fulfillment company access to I3CTMfor management and processing of client's orders referred by us. We would pay the fulfillment company and in turn would invoice the client (plus a management and transaction processing fee) for these services. We would also enter into a license agreement, granting the fulfillment company a license to utilize I3CvM for client companies not referred by us for a discounted, sliding scale transaction-based license fee. A primary objective is to finalize at least three such alliances, one each on the West coast, East coast and Midwest by September 2000. In so doing, we will create a nationwide, networked fulfillment capability facilitating client companies with optimum efficiency in management of logistical services. With the online, web accessible I3CTM,this network could also be easily integrated with a clients internal distribution facilities. We maintain our own teleservices center in our Simi Valley, California facility and plan to expand this capability to our Pennsylvania office as well. The California center currently has capacity for up to twelve stations and we plan to add four to six additional stations in Pennsylvania. The company intends to utilize these facilities to provide telephone based order entry and customer support to clients seeking to outsource all (or a portion of) these functions. Given the flexible configuration options of I3CrM, this center can be on-line to a client's database in conjunction with the client's own facility(s), as well as third party teleservices providers, thus providing real time access to centralized data and optimizing the performance of all parties. When demand requires that we expand current capacity, I3CTM will enable such expansion with minimal investment in new hardware. In addition to the flexibility provided by I3CrM, we have selected a web-based LAN (Local Area Network) PBX system for managing inbound and outbound call traffic. This highly scalable, state-of-the-art LAN based telephone system, enables web-based access to system functions including extension configuration, call forwarding and call monitoring. In the third quarter of 2000, we anticipate upgrading this system in order to facilitate voice communications over the Internet (Voice over IP technology) enabling access from a button on a website directly to a customer service representative. This technology will further enhance Web-Ideals' ability to provide e-commerce clients with the ultimate in web-based customer support. Business Model In order to capitalize on the trends within our targeted market segment, we are organized primarily according to an Application Service Provider business model. Application service providers are third-party service firms that deploy, manage and remotely host software applications through centrally located servers in a rental or pay for service arrangement. ASPs manage and deliver application capabilities to multiple entities from one or more data centers across a wide area network. An ASP acts as an intermediary by facilitating a remote, centrally managed "rent an application" service between the 15 • • • • • • organization or client and the independent software vendor. The emphasis is placed on the use and not the ownership of the application allowing companies to reduce internal IT staffs and focus on strategic • objectives. The end client no longer owns the application or the responsibilities associated with initial and ongoing maintenance. This ASP alternative has varyingly been estimated to result in a 30 percent to 50 percent annual savings for its clients. Clients, through an Internet browser, accesses remote, centralized computer servers hosting the application. Only the results from the application are managed locally by the client. This web-based solution is at the forefront of the growing e-commerce market. ASPs align with independent software vendors in order to implement and integrate the application. ASPs control the data center management and provide continuous, uninterrupted connectivity and support. The ASP manages the client relationship acting as a complete end-to-end solution provider. The ASP provides seamless service in which the client only interacts with the ASP. The most significant elements of this service are providing the hardware and software, integration and testing, a secure network infrastructure, reliable mission-critical data center facilities and a high-quality team of IT experts managing the entire solution. All of these elements are integral in providing the comprehensive ASP solution. ASPs can deliver any type of software application from the simple to very complex programs. Some of the most popular applications are Analytic applications which are used for business analysis, Vertical applications which are industry specific, ERM applications which are used for business functions such as accounting and human resources, CRM applications which are used in sales and marketing functions, Collaborative applications which provide e-mail and conferencing and Personal applications which include Office suites such as Microsoft Office. As a B2B2C provider, Web-Ideals falls largely within the CRM segment, but our services incorporate features also associated with analytic and ERM functions as well. ASPs are benefiting from many market forces. First and foremost is the feasibility of the ASP solution due to the Internet. The migration from in-house application management to a hosted application solution has become possible due to the Internet and the continuous development of Web-enabled solutions. Another factor is the access and declining cost of bandwidth capacity, which enables a hosted solution to be delivered over the Internet. Finally, e-commerce and e-business solution companies have made and continue to make advances in technical security that have alleviated many companies' concerns over hosted application solutions. ASPs are also benefiting from several technical drivers, the first of which is the shortage of skilled IT labor. Organizations, particularly smaller entities, cannot afford the time and considerable expense associated with recruiting, training and retaining IT personnel. Further, IT departments struggle with the rapid pace of technological development and its increasing complexity. The ASP solution resolves this by providing full service technical and hosting solutions. Another key technical driver is the ability of ASPs to utilize premium applications. ASPs, due to favorable economics, allow smaller organizations to employ sophisticated applications such as supply chain management and customer relationship management. In the past, these applications have only been affordable and manageable by larger enterprises. Competitive ASPs can deploy these applications at an accelerated speed. • • • • • • Strengths • Our proprietary information management systems were designed to facilitate integration of all forms of direct to consumer sales including e-commerce, catalog, and television and print within a single web-based operating platform. Accordingly, our systems compete, at some level, with a diverse array of software, service providers and legacy based systems, each of which provide some, or all, of the same core functions. The four primary aspects that differentiate our systems are: 16 • • • Accessibility. I3CTM's web-based architecture enables system access from virtually anywhere in the world with minimal incremental investment. Integration. I3C TM was designed to provide an end to end solution for simultaneously managing e-commerce, catalog, direct response television and other forms of direct sales within the same environment, thereby facilitating integration of customer data, fulfillment processes, customer support and inventory management in a single system. Minimal Capital Investment. I3CTM is a web-based application that operates on the WebIdeals server network. Therefore, client companies utilizing the system need not invest in any new hardware. Web-Ideals offers clients a pricing structure based on the volume of transactions processed, thereby not only minimizing initial capital investment, but facilitating a variable cost structure for the client's information management requirements. Rapid Set-up, Deployment and Training. I3C TM was designed using the Microsoft SQL database, a fully relational database engine that minimizes development time for any required client customization. Further, the core system was engineered to allow for user definable set up criteria encompassing virtually all marketing techniques in use today for direct sales including installment billing, continuity program management, bonus promotions, up-sells, cross-sells and more. As a result, fully operational deployment can be accomplished in days instead of months at minimal cost. Finally, because I3C TM is accessed utilizing a web browser, most functions are performed using simplified "point and click" operations in a familiar web browser environment significantly simplifying user training. • • • • • • • We believe that, at present, few options are available in the marketplace that incorporate all of the above four primary characteristics of I3C TM. In addition, it will be one of our primary objectives to provide added value to our clients by emphasizing client service and satisfaction in all aspects of client relations. Second, we will capitalize on the direct marketing experience of our principals and personnel in the form of the marketing, customer support and logistical service offerings. Finally, we will continue to enhance and expand the features and functionality of I3C TM to further its application to other aspects of our clients operations including purchasing management, accounting, customer profiling and other processes which would benefit from the real time capabilities and web based flexibility of the I3C TM architecture. Business Strategy Our sales and marketing strategies have been developed to provide a focused effort aimed directly at the needs of our target market. The buying decision for our products and services will generally be determined at the executive level of our prospective clients. Therefore, we will need to demonstrate not only the features and benefits of our products and services, but the value of our people, our industry experience, our commitment to our products and our financial stability. Product Development • • We have successfully completed our first release of I3C TM inclusive of the core modules required for order processing, and inventory management. Future product development efforts related specifically to the I3C TM will be directed toward five primary areas. Marketing Analysis Enhancements • Significant resources will be devoted to the development of marketing management and customer retention components that will fully integrate into I3C TM. Planned for release in the third quarter of 2000 are the MEDIA-IDEALS TM and LIST-IDEALS TM modules. Currently, I3C TM is capable of tracking all sales data by the media source that generated such order as an integral part of each record. 17 • • Media Analysis. Targeted to appeal to clients utilizing traditional direct response marketing methods including television, print and direct mail campaigns, MEDIAIDEALS TM will enable users to input media plans applicable to individual products or promotions and will have built-in algorithms designed to enable each order record to be attributed to specific media purchases. Having established which specific media buys generated a given order, MEDIA-IDEALS TM will then be able to provide a full compliment of media analysis and performance reporting. List Management. Utilizing all of the customer data maintained by I3C TM as well as data from purchased customer lists and databases, LIST-IDEALS TM will provide clients with all of the tools necessary to design and manage targeted direct marketing campaigns or customer retention programs either via traditional direct mail or broadcasted e-mail. Website Analysis. Also planned are enhancements to the e-CON,flVIERCE-IDEALS TM module to provide detailed analysis of website traffic and customer profiles. These enhancements, to be developed utilizing features imbedded in third party software combined with internally developed or licensed programming, will provide clients with comprehensive reporting in order to measure impact of banner advertising, website design modifications and search engine performance. The target date for completion of these enhancements is June 2000. • • • • • Inventory/Distribution Enhancements Development efforts are also focused on four specific areas of I3C TM inventory management and distribution modules. • Inventory Kit Assembly. The IN_NTORY-IDEALS TM module is being improved to enable the system to automatically allocate individual components in inventory to an assembly status and facilitate the tracking of those components through an assembly process. This function will also include the ability to track labor costs associated with this function for accurate costing. Bar Code Scanning. I3C TM was designed to allow for batch processing as well as the scanning of individual shipping labels/invoices using bar coding for shipment confirmation. The bar code scanning capability is in the process of being finalized and should be completed by August 31, 2000. Least Cost RoutingManifesting. I3C TM system is currently capable of comparing UPS, FedEx and USPS shipping costs for a given order and determining the best option. This feature will be integrated with I3C TM multiple warehouse capability to provide optimum shipping efficiency and flexibility. The system will also be enabled with electronic manifesting capability for UPS, FedEx and USPS for automatic uploading to carriers' shipment tracking databases. Warehouse Management. To accommodate larger clients as well as fulfillment service providers, we plan to integrate I3C TM with one or more of today's state-ofthe-art warehouse management systems. To accomplish this, we have already commenced discussions with several companies specializing in this market segment. • • • • • • • Accounting Systems Integration Beginning in the second half of 2000, we will commence development of import/export routines to and from I3CTM enabling total integration with many of today's leading financial accounting systems. 18 This integration will include the development of export files for sales, cost of sales, inventory and accounts receivable data based upon user defined criteria. Import routines will enable automated updates • of the I3C TM with purchase order data for inventory in transit as well as cash receipts data applicable to accounts receivable and sales order data facilitating the ability to utilize to I3C TM as a platform for managing wholesale sales and distributions. Enhanced Customer Support • One of the core strengths of I3C TM is its flexible environment for providing customer service and support. Accordingly, we intend to stay on the leading edge of new technologies that could enhance I3C TM performance in this area. Currently being investigated are several third party voice over IP technologies which, when incorporated into I3C TM, will enable person to person voice customer support over the internet from websites operating on the e-COMMERCE-IDEALS TM platform. In addition, we plan to develop or acquire technology enabling on line customer support e-mail management, tracking and routing. Purchasing Management A natural extension of I3C TM will be the integration of tools to manage inventory and purchasing activities tailored specifically to companies in the B2C market. Utilizing our web based approach, purchase orders can be delivered via e-mail automatically and delivery status and tracking can be managed in a web environment affording access to all interested parties maximizing inventory turns while minimizing lead times for delivery from anywhere in the world. Market Expansion • I3C TM currently represents a highly efficient solution to companies seeking to integrate their direct marketing programs, inclusive of e-commerce strategies, into a single, flexible operating platform that requires minimal capital investment and lead time for implementation. Once the foregoing enhancements have been completed, I3C TM will also represent one of the leading enterprise solutions available in the marketplace for companies engaged in multi channel and e-commerce marketing, regardless of required investment. In addition to achieving these goals, we intend to focus on alternate channels of deployment of the I3C TM and the development and strategic requirements to accomplish these objectives as follows: International The web-based operating platform of I3C TM makes it readily adaptable for use in a global environment. By the third quarter of 2000, we plan to launch our first multilingual version of I3C TM adapted for the currency, shipping, billing and taxation attributes common to direct marketing outside of the United States. The required programming enhancements include currency conversion capability, COD shipping and payment processing, VAT tax compliancy and multilingual screen prompts. We have already identified a potential acquisition candidate strategically located in Maastricht, Netherlands, which could serve as the foundation for our expansion into the European marketplace. Among this company's assets is a twenty four seat multilingual call center that currently operates twenty four hours per day, seven days per week, as well as over ten years of experience in managing direct to consumer payment processing and logistics management on a Pan-European basis. In addition, we intend to actively seek strategic partners prominent in the service provider sectors of e-commerce and direct marketing in key Asian and South American markets. • • • • _ • 19 Small Business Once we have established a diversified client base for our enterprise version of I3C TM, a version of I3C TM will be developed targeted to appeal to the needs of rapidly growing sector of smaller ecommerce marketers. This product will emphasize the customer support features of the larger version of I3C TM, while minimizing the larger scale warehouse management and legacy system integration components of our initial version. At present, existing e-commerce products provide minimal customer support capability, particularly via telephone and are very limited in their ability to integrate other forms of direct marketing such as catalogs and direct mail promotions where orders are taken by means other than websites. This product will be tailored to enable simplified product and promotion set-up, easy integration into existing websites and minimal user training. Pricing will be based primarily upon a transactional model. To secure distribution for this product, we will seek to develop strategic alliances with companies whose core business' are based upon e-commerce web hosting and website design establishing revenue sharing arrangements with such companies while focusing our internal resources on furnishing user support as well as marketing upgrades to the full featured I3C TM. Marketing Strategy Targeting the middle market sector of companies engaged in direct to consumer sales and distribution, our strategic marketing plan consists of the following core elements: • • • • • Maximize our opportunities that have been created as a result of the rapid growth of ecommerce and the need to integrate web-based technologies. Focus our marketing efforts on companies engaged in multiple forms of sales and distribution seeking to expand their web-based capabilities in minimal time without significant capital investment. Build strong client relationships by providing value added marketing and support services in addition to our technology-based products. Continue to develop strategic relationships with companies here and in Europe who benefit directly from, or whose clients benefit from, our products and services or who can enhance the products and services we can provide our clients. Emphasize our technological leadership and industry experience as well as our ability to react swiftly to changing client needs. the • • • • In positioning our core product, I3C TM, our focus is be threefold. First, we emphasize • • versatility of I3C TM in managing not only e-commerce transactions, but also the full array of B2C sales and distribution methodologies. This element of I3C TM is the key differentiating factor from most existing web-based solutions. Second, we highlight the flexibility, accessibility and cost savings attainable through utilizing web-based technology to manage B2C processes, as well as our ability to integrate our technology with clients existing systems. The ability to deploy I3C TM in remote locations, access data from anywhere at anytime and merge web technologies such as e-mail and on-line communication with customers in all marketing channels represent significant advantages over traditional main frame systems for a wide array of business processes. Third, we quantify the benefits of the ASP model for acquiring our technology that include rapid deployment, minimal upfront investment, scalability and usage base pricing. Our ASP model is further enhanced by our commitment to continually provide system upgrades, thereby mitigating the client's concern related to keeping pace with rapidly changing technology while enhancing our company's value added focus on customer support. 2O Promotion Strategy • To effectively communicate our message we need to reach the decision makers within our target market segment with multiple impressions through multiple channels. The comprehensive nature of our products and the impact they have on a company's business processes necessitate a buying decision at the executive level. Accordingly, in addition to establishing our company and product positioning, we need to demonstrate our company's credibility, financially soundness and long-term commitment to support our products. In achieving these objectives, we are employing a multi-faceted approach to promoting our company, products and services. • Publ/c Relations. We intend to launch a proactive public relations campaign commencing in the third quarter of 2000. We are currently evaluating public relations firms experienced in launching technology-based products that can work within our budget. Our objectives of this campaign will include obtaining press coverage in key trade publications targeted at the direct marketing and e-commerce sectors highlighting our I3C TM system including client case study's, comparison with alternative systems and other stories featuring our value added marketing and support services. As new clients are obtained, we intend to issue press releases that will highlight the benefits these clients derive from application of our systems and processes. The result will be to build industry credibility for our company and products. Industry Trade Associations. Our principals continue to increase their activities in industry trade associations as well as volunteer to participate on panels and in other public forums sponsored by these associations. We have already begun this process through our membership in the Electronic Retailing Association ("ERA"). We are also active in the Web Council for this organization. We also intend to join and become active in the Direct Marketing Association as well as at least one e-commerce trade association. Referral Arrangements. Industry referrals play a significant role in directing potential clients to consider our company's products and services. We have already finalized non-exclusive agreements with multiple service providers within the direct marketing industry that provide for mutual referral arrangements as more fully described in the section entitled "Strategic Partners". These agreements provide for compensation to companies providing such referrals. Trade Shows. We intend to participate in a minimum of three industry trade shows per year. Our initial public showing of I3C TM at the ERA annual convention in October 1999 generated significant interest in our products that has resulted in recognition in the trade press as well as multiple client inquiries. In addition to the annual ERA show, we will be planning to attend the annual DMA convention as well as at least one major e-commerce exhibition. Targeted Advertising. Beginning in the third quarter of 2000, we intend to utilize targeted advertising campaigns to generate new clients leads. These campaigns will integrate print advertising in key industry trade publications, direct mail to key decision makers within our target market and outbound telephone follow-up. Prior to implementing the first such campaign, we intend to produce a CD-Rom that will highlight the features of the I3C TM as well as the marketing and support services offered by our company. Based upon quantifiable results of the initial campaign, subsequent campaigns will be planned and executed. • • • • • • • • • • Distribution Strategy • As we have indicated, our strategy for distribution and deployment for I3C TM is based upon the ASP model. In most instances, our company's server network serves as the host for client's databases and applications with clients accessing the system via high-speed connections to the World Wide Web. For larger clients, I3C TM is designed to enable remote deployment of a stand-alone PC computer in the client's 21 • facility that would house the core application and active database while automatically updating the main server network. This configuration insures operation and high-speed system access in high volume applications in the event of localized communications outages or slow downs caused by traffic on the web. A key advantage in our method of distribution is our ability to provide technical support to our clients anywhere in the world via the Internet. Enhancing this advantage even further, we have acquired software from a third party that enables our technical support team to access any client computer from our offices via the Internet to resolve issues and provide training. As a result we are able to provide optimum service and support for I3C TM with minimal costs. To further assist in our marketing and sales efforts, we have also acquired a third party software package that enables us to provide prospective clients with remote, web-based demonstrations of I3C TM, a tool that has proved valuable in terms maximizing available sales time while minimizing sales related travel costs. This same software tool has also been applied to enable remote training of user groups in the operation of I3C TM. Pricing Strategy • • • The pricing strategy for I3CTM is based primarily upon a usage model. The pricing strategy is, in most cases, driven from a fixed transaction cost for each order (or returned order) processed through the system applied against a monthly minimum which is determined based upon anticipated client demands on our company's hardware and human resources. In addition to the transaction pricing, we require an initial setup fee that is determined based upon the complexity of the clients' particular application and number of remote locations that need to have access to the system. Training costs are also quoted separately for more complex installations. Our base transaction fees also covers all updates to existing system functionality. New functions, which will come on-line in the future such as inventory assembly, list management, media analysis will be offered to new and existing clients at additional cost. Our pricing strategy was designed to accomplish the following objectives: • Minimize client initial capital investment. With the ASP pricing model and no material hardware or software requirements, the client is able to assume less risk on new technology while enabling gradual migration of existing systems, both significant factors in our target market. Provide clients with flexible and scalable solutions. With the usage based model inclusive of variable monthly minimums and setup charges, our clients are able to minimize fixed overhead and maximize scalability while we are able to provide a cost efficient solution across a broad spectrum of potential clients each tailored to assure us profitable return on our resources invested. Maximize our downstream revenues. Once the client base is established, the ASP model provides us with a continuing revenue stream that will grow as our clients grow. By emphasizing value added services, continually improving technology and high levels of client support we will minimize client attrition thereby maximizing future revenue growth as new clients are acquired. • • • • • • Strategic Alliances As both a source of new business, as well as a value added resource to clients, key strategic alliances represent an important component of our aggregate marketing strategy and future growth. In many instances, such alliances can often accomplish both of these goals. In particular, we have focused our efforts in the following key areas: 22 • • • Client Services. There are many companies in the direct marketing industry whose services or products represent a value added resource to our clients. By forming alliances with such companies, we are able to offer our clients these products and services at preferred rates while generating incremental revenue streams from our referrals. Examples include media agencies, aftermarket revenue enhancement programs, advertising agencies, website designers and web hosts. To date we have established several such relationships including WGI Enterprises, marketers of a revenue enhancement aftermarket buyers club, Prime Time Sports Media, a television direct response media agency and the Norstar Group, a website design firm. In some instances, the alliances formed with these firms are mutual, providing for both parties to compensate the other for referred business. Technology. We are continually seeking alliances with companies whose technology is complimentary to our own. To date, we have established an alliance with Aitigen Communications, a leading manufacturer of Internet enabled telecom servers for small to mid sized businesses. We have also approached Nortel, a global leader in integrated telephony systems, for incorporation into our call center and have offered to act as a beta site for future enhancements. We plan to seek formal alliances, in the form of reseller agreements, with companies who have developed compatible ecommerce and logistics technologies that could enhance the I3C TM functionality, as well as companies who distribute hardware that would be required for our larger remote installations. To date we have entered into a reseller agreement with AuthorizeNet, one of the leading providers of web-based, real time credit card and echeck processing. This agreement will enable us to offer this capability at rates significantly less than would otherwise be available to our clients through banks and other financial institutions while still providing us with incremental revenues. We are also actively seeking a reseller agreement with Dell Computers. Finally, we intend to pursue a formal alliance with Microsoft, the developer of the suite of core platform software on which the I3CTM has been built. Logistical Support. A keystone component of our aggregate strategy is to form • • • • • • • strategic alliances with selected fulfillment and telemarketing companies strategically located throughout the U.S. and Europe, and later worldwide. These companies would be licensed access to the I3C TM for their general use at preferred rates in consideration for their agreement to provide us with contracted services for warehousing, pick pack and ship, telemarketing and other services. Once in place, these alliances will form the basis of a fully integrated, geographically targeted network of direct to consumer support services all operating on a common platform, the I3C TM, thereby providing our clients with optimum efficiency in designing and deploying cost efficient, transaction based, order management, distribution, and customer support solutions. At present, we are in discussions with a West Coast and a Midwest fulfillment company who have expressed interest in this concept. Sales Strategy The selling process for enterprise level technology is a multi-phase process that requires a significant investment in time and resources. Once the client lead is obtained through our marketing efforts, finalizing the sale often requires multiple product demonstrations, face-to face meetings, technical evaluation of a client's existing systems and processes, preparation of formalized proposals and finally negotiation and contract preparation. To date, this process has been managed primarily by our principals. One of our key objectives will be to locate and train a qualified, executive level individual who possesses the technical knowledge and business skills required to manage our sales efforts. Once we have obtained 23 this objective, our focus will be to develop sales training programs and processes enabling accelerated sales growth. Customers A roster of current clients and a description of the services supplied to them appears below. o "L : £ A • Service Client Sony Music Direct CI]a t Marketing ConsulUng I3C _" _" 2000 Database Management Fulfillment Customer Service E -Commerce _ Vf Arey Jones _f Product Partner_ _" _ _" _ .ypericum Buyers Club yt" _/" _f _" _" Voice Powered Technology _ _ ,_ • F-Icons _" _" _" _" _" Global respen,e V/ _ V/ V/ V/ Phase 4 MarkeUng _" _/" _" _" _" Technology Technology and industry expertise are the keystones to our future success. The I3CTM has been developed utilizing the latest in web-based technology yet built emphasizing ease of use, reliability and low cost deployment and maintenance. Virtually all of the software which drives the I3C TM has been internally developed on standardized platforms providing us with the ability to customize and tailor its functions, processes and reporting to specific client needs without major reprogramming. All of our primary hardware has been acquired from Dell Computer within the last year and represents the latest in high performance, enterprise grade servers. Competition The options for information technologies targeted at the B2C sector are diverse not only in terms of the range of products available but in method of deployment and system architecture required to support such technologies. We will compete against all of these available options. Accordingly, the following highlights a sampling of competitors in each of the categories outlined in the "Industry and Market Analysis" section on page 5. • • 24 Outsource Service Providers • There are hundreds of companies that offer various levels fulfillment, order processing, customer support, e-commerce, web hosting and other services. Most service providers today recognize the need to provide some level of e-commerce services, particularly with respect to processing of orders generated from web sites and on-line access to reporting. This category, though representing potential competition, also represents revenue opportunities for I3C TM as these service providers seek out web enabling solutions to offer their client base. To date, we have had discussions with several such companies. It is important to note, however, that although this category taken as whole represents a significant portion of the aggregate target market, there are no individual companies which have a significant market share due to the fact their business is primarily predicated on the actual service provided (i.e. warehousing, shipping, customer service, etc.) and therefore confined to the physical facility(s) from which they operate. In this category, the information processing system is a derivative product of the core service being offered. Contrary to this approach, our approach is to emphasize the information technology solutions, with the functional components such as customer support and fulfillment as the derivative products. Software Systems Providers (Legacy Systems) Our IT solutions compete directly with many systems available for direct purchase by B2C marketing companies. These systems vary widely in functionality, cost and required hardware architecture. In the category customarily defined as legacy systems (which describes enterprise wide mainframe based systems) targeted at middle market companies, one of the leading products is known as MACS, a system marketed by Smith Gardner Associates Inc ("SGAI"). The MACS system was originally introduced in 1988 and to date has been in installed in over 250 companies worldwide. Based upon information included in the SEC filings for SGAI, installation costs for the MACS system range from $30,000 to $2.7 million. Its architecture is based upon an HP3000 mainframe computer and its core programming is in COBOL. SGAI introduced an add-on component called WebMACS in 1997, designed to enable MACS to manage sales transactions over the Internet as well as real-time access to back office data. The MACS system strengths include its proven architecture, its evolved integration with other platforms and systems and sophisticated purchasing and warehouse management capabilities. The weaknesses inherent in the MACS system are its general inflexibility and high operating costs due to its outdated programming and system architecture. In addition, a number of features that are integrated into the I3C TM, such as installment billing and continuity management, are optional add-ons in MACS requiring additional cash expenditures. Lastly, and probably most significant, we have, to date, had discussions with two potential clients who are currently MACS customers and have decided the system may no longer suit their needs in the new world of web-based technologies. For the year ended December 31, 1999, SGAI reported revenues of $46.6 million and had a market capitalization of $93 million. Other systems available in the market range in price (and equivalent functionality) from $2,000 to $75,000, however, the MACS system is among the most recognized products. Software Systems Providers (E-Commerce Systems) With the tremendous growth of e-commerce, a number of systems have been introduced designed to facilitate the creation of B2C e-commerce websites as well as manage sales transactions generated by such websites. These systems feature varying degrees of "front-end" website construction tools, ranging from the most basic designs to very sophisticated, feature rich applications. The principal focus of the majority of such systems is the operation and functionality of the website as well as tools to manage and monitor site performance, traffic and customer behavior. Higher end systems include integrated order management, fulfillment, payment, customer service, and reporting features applicable to website transactions. Open Market Systems Inc. is among the recognized leaders in this category, achieving revenues from products sales and support of $83 million in its most recent fiscal year and attaining a market capitalization in excess of $800 million. Open Market's Transact system supports most forms of high traffic B2B and B2C commerce inclusive of back end order processing and customer support. 25 • • • • • • • • • • Although systems such as Transact compete with I3C TM products within the e-commerce domain, and, at present, offer more sophisticated capabilities with respect to building and managing a website, they are not designed for, nor are they capable of, integration of other forms of non web-based B2C marketing within their operating system. Accordingly, for companies for whom e-commerce represents the only component of their aggregate marketing strategy, these package systems represent only a partial solution. Once acquired and deployed, Transact and other products of this type must be integrated into a companies existing IT systems, often at considerable additional expense. Further, such integration will rarely enable the companies non web-based programs, customers and transactions to attain access to features such as email customer notifications and support, remote system accessibility and on-line reporting that are incorporated within the I3C TM and therefore available to all distribution channels. Application Service Providers • • To address the problems of high up front cost for web-based enterprise software solutions as well as reduce the time to deploy and integrate such technologies there has been significant growth in the number of ASPs who provide such technologies to companies using a usage or leased based pricing strategy. Pandesic, a joint venture formed between Intel and SAP AG, is a leading ASP in the ecommerce B2C sector. Pandesic is actively marketing an enterprise end-to-end solution for companies seeking e-commerce capabilities, offering a pricing strategy that features a relatively low up front investment and fees based upon percentage of sales. Pandesic's strength in the market is, to a large extent, fueled by the technologies, financial resources and recognition provided by its two joint venture partners combined with the growing acceptance of the ASP model as a practical solution for the acquisition and deployment of new technologies. However, the Pandesic solution's primary weakness is very similar to the e-commerce software providers in that it is limited to stand-alone e-commerce applications and does not address integration of traditional direct marketing methodologies. Other limitations include lack of multi-company or multi-divisional capabilities due to Pandesic's architecture that stores all data in a single database. Perhaps the most direct competition we will face in the short term is from a company called ASD Systems Inc. Founded in 1998, ASD's Information Business Plan as described in their public filings has many similarities to our strategy. Originally a network of independent and owned catalog fulfillment and teleservices companies, ASD has stated publicly their goal of developing a web-based system that would enable clients and networked affiliates on-line access to teleservices, order processing, fulfillment, website commerce and reporting. The foregoing application would be deployed using a transaction based pricing model. ASD completed its initial public offering in November 1999 issuing 5 million shares aggregating $40 million in new capital. However, in their prospectus for this offering, ASD states that the development of their browser-based application has been in progress for over 20 months and has experienced numerous delays. We have been unable to determine when ASD anticipates completion of their system or evaluate its capabilities as compared to I3C TM. In-House Development IT solutions developed in-house will also represent competition for I3CVM;however, we believe the ability to develop in-house solutions enabling new web-based technologies presents multiple challenges within our targeted middle market segment. These challenges include limited availability of technical resources, length of time to develop and deploy such systems and cost of development given the rapidly changing nature of such technologies. Accordingly, we believe in-house development will not be a material competitive facto in our aggregate target market. Facilities • • • • To date we have established two operating facilities. In Simi Valley, California, we have leased a 6,175 square feet facility in an industrial center consisting of approximately 3,000 square feet of administrative office space and 3,175 square feet of warehouse space. 26 • The present lease expires April 2001 and requires a monthly rental payment of $4,875.00. In Newtown, Pennsylvania, we have leased a historically certified, stand-alone building consisting of two office suites. We presently occupy the larger, 2000 square ft. office suite and intend to utilize the smaller, 1,000 sq. ft. office suite for anticipated growth. The present lease expires September 2002 and requires a monthly rental payment of $4,500. We have completed the design, acquisition and installation of the computer network that serves as the hardware platform for the company's web-based processing applications. Both the California and Pennsylvania facilities house state-of-the-art Dell Enterprise server installations, each of which is connected directly to the Internet via a full 24 channel data T-1. In this manner, we will be able to mirror all client data and websites as well as allow for instant rerouting in the event of localized power or communications outages. Further, the two server installations are configured to provide common access to both facilities for administrative, accounting, communications and other operating functions. In addition to housing the computer network, both facilities serve as our base of operations for all marketing, sales, administrative and finance functions. At present, research and development activities are based in the California facility. In addition, the California facility houses the company's warehousing, fulfillment and teleservices operations. These services are provided to clients who desire to outsource these functions. The present warehouse and fulfillment facility is staffed by four employees and has the capacity, with additional staffing, to allow for shipment of 5,000 to 7,500 packages per week. Additional warehousing/storage could be obtained in close proximity to the existing facility should the need arise. Our teleservices operations presently have six stations, expandable to twelve, and are staffed by four employees. We expect significant growth in the demand to provide customer support for client companies and therefore anticipate expanding capacity for these services to twelve stations within our present California facility and four to six seats in our Pennsylvania facility. Notwithstanding the present capacity, we anticipate that we will outgrow our present facility by the fourth quarter of 2000. Accordingly, our plan includes a provision for relocation costs of $75,000 (inclusive of costs associated with terminating the present lease) in November of 2000. The new facility we anticipate leasing near our present facility in California would encompass approximately 25,000 square feet consisting of 15,000 square feet of warehouse space and 10,000 square feet of office space. In addition to the relocation costs, our budget includes capital expenditures of $75,000 for furniture and fixtures and $100,000 in leasehold improvements associated with this new facility. Intellectual Property • • • • • We have applied for trademark registration of our name and logo for both our company, WebIdeals and I3CTM product. We have also obtained the web site addresses under ".com", ".org" and ".net" classes for the Web-Ideals name, both with and without the hyphen. We copyright protect all of our developed software and are evaluating whether any of the processes or methodologies in our software are eligible for patent protection. To date, no patent applications have been filed. We intend to obtain outside legal counsel once our next stage funding has been completed to review the proprietary processes we have incorporated into I3C TM to determine the value of seeking patents on such processes. • 27 RISK FACTORS • You should carefully consider each of the following risks. The risks and uncertainties described below are not the only ones facing our Company. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may adversely affect our business. We have a history of losses and negative cash flow and anticipate continued losses. • Since our formation on April 12, 1999, we have incurred operating losses and negative cash flow. As of March 31, 2000, we had an accumulated deficit of approximately $502,000. We have not achieved profitability and expect to continue to incur operating losses for the foreseeable future. We anticipate that our business will generate operating losses unless and until we are successful in generating significant additional revenues to support our level of operating expenses. We cannot assure you that we will ever achieve or sustain profitability or that our operating losses will not increase in the future. If we do achieve profitability, we cannot be certain that we can sustain or increase profitability on a quarterly or annual basis in the future. To the extent we are unable to achieve profitability in the future, our business, prospects, financial condition and results of operations will suffer. We may have difficulty meeting our future capital requirements. Our ability to achieve the results set forth in this Business Plan depends on our ability currently to obtain capital. Moreover, we will require substantial capital resources to continue the development of and to market our services and to fund our operations. There can be no assurance that we will be able to raise the needed capital, or that any capital raised by us will be sufficient to meet all of our requirements or be available when needed or on terms favorable to us. Any equity financings will be dilutive to then current shareholders, and future debt financings, if available, will affect operating results and may require us to agree to restrictive convenants. Significant delays in generating or obtaining sufficient funds when needed may required us to delay or abandon some or all of our current Information Business Plan, which could have a material adverse affect on our business, financial condition and results of operations. Our business is difficult to evaluate because we have a limited operating history. Because we were formed in April 1999, we have a limited operating history which makes it difficult to evaluate our prospects. In addition, our business prospects and market are relatively unproven. You must consider the risks, uncertainties and difficulties frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets, including the market of outsourced information management systems and services. These risks and difficulties include our ability to: (i) increase awareness of our systems and services; (ii) offer compelling solutions to our clients' information management requirements; (iii) respond effectively to the offerings of competitors; (iv) expand the scale of our operations to meet client demands; (v) continue to develop and upgrade our technology; and (vi) attract, retain and motivate qualified personnel. If we fail to adequately address any of these risks or difficulties, our business may suffer, and therefore, we may not meet our financial • projections. Our business may suffer if we do not retain our two largest clients. Product Partners, LLC ("Product Partners") and Sony Music Direct (SMD) currently represent a significant portion of our business and our success depends, in part, on our ability to retain them as a client. If Product Partners or SMD, our largest clients, were to substantially reduce or stop their use of our services prior to the time we were able to obtain significant additional clients and thereby reduce our reliance on it, our business, operating results and financial condition would be materially adversely affected. Product Partners and SMD have accounted for approximately 21% and 35% respectively of our 28 • • • gross revenues during the year ended December respectively in the first three months of 2000. Our significant client contracts are either short-term 31, 1999 and for approximately 54% and 23% or terminable with minimal notice. any reason after are typically one number of these material adverse stream, or may • Each of our other clients has the option to terminate its contract with us for giving us sixty (60) or fewer days' prior written notice. The terms of our client contracts year. We presently only have seven continuing clients. The termination by one or any clients, or the failure by these clients to renew the terms of their contracts, may have a effect on our business and prospects, including our financial performance and revenue result in the loss of an important client reference. If we fail to properly manage our growth, our business could be adversely affected. • Our business is growing at a relatively rapid pace, and we intend to continue the expansion of our operations in the foreseeable future to pursue existing and potential market opportunities. If we do not manage the growth of our business effectively, our results of operations or financial conditions would be materially adversely affected. Our growth places significant demands on our management and operational resources. In order to manage our growth effectively, we must continue to invest in our systems and internal call centers and fulfillment centers, and continue to expand, train and manage our work force. We may not be able to satisfy the unique and sophisticated requirements of our clients. If we experience difficulties in meeting the needs of our clients, our business will suffer. Our • • • target market, consisting of Internet retailers and direct marketing companies, has unique and sophisticated requirements. In addition, some clients have pre-existing complex infrastructures consisting of call centers, fulfillment centers and other business processes. Accordingly, our software application may not fit exactly into a new client's operations and we must be able to customize the software accordingly and generally within a relatively short time frame. Although we believe that we have generally been successful in the timely modification of our systems to meet the specific needs of our clients, there may be situations where we are unable or unwilling to customize our systems to meet these requirements. If we encounter such situations, certain clients could elect to terminate their relationships, which could have a material adverse effect on our business, prospects, financial condition and results of operations. Failure of our computer and communications and error-free services to our clients. systems could result in our failure to provide timely • • Our success largely depends on the efficient and uninterrupted operation of our computer and communications hardware and software systems as well as the use of the Internet to communicate and process data. Although we maintain redundant systems, our systems and operations may still be vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, break-ins, the occurrence of significant human error and similar events. In addition, our servers may be vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions, delays, loss of data or our inability to provide timely and error-free services to our clients. The occurrence of any of the foregoing risks could have a material adverse effect on our business, prospects, financial condition and results of operations. 29 We may be exposed to potential liability for actual or perceived failure to provide required services. • Because our clients rely on our services to satisfy their customer order requirements, we may be exposed to potential claims for damages caused to an enterprise, including special or consequential damages, as a result of an actual or perceived failure of our services. Our failure or inability to meet a client's expectations in the performance of our services or to do so in the time frame required by the client, regardless of our responsibility for the failure, could: result in a claim for substantial damages against us by the client; discourage other clients from engaging us for these services; damage our business reputation, and have a material adverse effect on our business, prospects, financial condition and results of operations. If we are unable to respond to rapid changes in technology, our systems could become obsolete and revenues could be lost. • The market for our systems and services is characterized'by rapid technological change, frequent new systems enhancements, evolving industry standards and rapidly changing client requirements. The introduction of systems incorporating new technologies and the emergence of new industry standards could render existing systems obsolete, which could ultimately result in lost revenues. Our future success will depend, in part, on our ability to anticipate changes, enhance our current systems, develop and introduce new systems that keep pace with technological advancements and address the increasingly sophisticated needs of our clients. New systems or enhancements to existing systems may not adequately meet the requirements of our current and prospective clients and may never achieve any degree of significant market acceptance. Our failure to timely increase the eapaeity of our serviee network may reduee demand for our services. Due to the limited deployment of our services to date, the ability of our server network to connect to and manage a substantially larger number of clients is yet unknown. Our network may not be expandable to expected client levels while maintaining adequate service quality. Upgrading our infrastructure may cause delays or failures in our systems. Failure to achieve or maintain such a network could significantly reduce demand for our services and our business and prospects could suffer. Our success depends on our ability to protect our proprietary technology. • • • • • We rely on a combination of copyright, trademark, service mark and trade secret laws and contractual restrictions to establish and protect the proprietary rights in our software and services. However, we will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. In addition, these legal protections only provide us with limited protection. If we litigate to enforce our rights, it would be expensive, divert management resources and may not be adequate to protect our business. Our inability to protect our proprietary technology could have a material adverse effect on our business, prospects, financial condition and results of operations. We have not filed any United States patent applications with respect to our information management systems, nor do we have any patent applications pending. As a result, we currently do not have patented technology that would preclude or inhibit competitors from entering our market. Moreover, none of our technology is patented abroad, nor do we currently have any international patent applications pending. As of the date of this confidential information memorandum, we have not secured registration on any of our service marks in the United States nor have we pursued registration in any foreign country. We cannot be certain that future patents, registered trademarks or registered service marks, if any, will be granted or that any future patent, trademark or service mark will not be challenged, invalidated or circumvented, or that rights granted under any patents, trademarks or service marks that may be issued in the future will actually provide a competitive advantage to us. We generally enter into 30 • confidentiality agreements with our employees and consultants and with our clients and corporations with whom we have strategic relationships. We attempt to maintain control over access to and distribution of our software documentation and other proprietary information. However, the steps we have taken to protect our technology and intellectual property may be inadequate. Our competitors may independently develop technologies that are substantially equivalent or superior to ours or may have jointly developed such technologies under agreements giving them co-equal rights to exploit those technologies. Our success depends on retaining our current key personnel and attracting additional personnel, particularly in the areas of client support and technical services. Our success will depend largely on the continuing efforts of our executive officers and senior management, especially those of Justin T. Drellich, our President and Chief Executive Officer and Sharmil Hassan, our Chief Technology Officer. Our business may be adversely affected if the services of these officers or any of our other key personnel become unavailable to us. Although we have entered into employment agreements with these individuals, there is a risk that they will not continue to serve for any particular period of time. We have not obtained key person life insurance policies on our key employees. We are currently expanding our client support and technical services organizations and will need to increase our staff further to support expected new clients and the expanding needs of existing clients. The initiation of new clients, the use of a browser-based information management and fulfillment software applications, the customization of our software, the integration of these solutions into existing fulfillment systems and the ongoing client support can be complex. Accordingly, we need highly trained client support, technical personnel and outside consultants. Hiring client support and technical personnel is very competitive in our industry due to the limited number of people available with the necessary technical skills and understanding of our systems and services. Our inability to attract, train or retain the number of highly qualified client support and technical services personnel that our business needs, or the inability to hire qualified outside consultants to perform these tasks, may cause our business and prospects to suffer. The integration of key new employees and officers into our management team may interfere with our operations. We have recently hired a number of key employees and officers, each of whom has been with us for less than six months. In addition, we intend to hire additional key employees and officers to support our business growth. To integrate into our company, such individuals must spend a significant amount of time learning our business model and management system, in addition to performing their regular duties. If we fail to complete this integration in an efficient manner, our business and prospects will suffer. If we cannot accurately predict the size of our market our market is not as large as we expect, our business prospects will suffer. Our growth will largely depend on the development and wide spread acceptance of the Internet as a medium for commerce. Use of the Internet by consumers is at an early stage of development, and market acceptance of the Internet as a medium for commerce is subject to a high level of uncertainty. The growth projections for Internet-related activities that we have cited in this Business Plan are only estimates by industry analysts and may not prove to be accurate. Accordingly, our estimates of the size of our market or the potential demand for our services may turn out to be inaccurate. Our products and services need to achieve widespread acceptance for us to succeed. • • • • • • • • Even if the Internet grows at the rate we anticipate, our systems and services must achieve widespread market acceptance for us to succeed. We believe that our potential to grow and increase our market acceptance depends principally on the following factors, some of which are beyond our control: the differentiation and quality of our systems and services; our ability to provide timely and effective 31 • client support; our pricing strategies as compared to our competitors; our industry reputation; the effectiveness of our marketing strategy; concerns about transaction security; and general economic conditions, such as downturns in the systems markets. The failure of our systems and services to achieve widespread market acceptance could have a material adverse effect on our business, prospects, financial condition and results of operation. Our relationships with our clients may be adversely affected if our security measures were to fail. • • The relationships with our clients may be adversely affected if the security measures that we use to protect their proprietary or confidential information, such as sales information or the confidential information of their customers, such as credit card numbers, are ineffective. We intend to expend significant capital and other resources to protect against the threat of security breaches or to alleviate problems caused by breaches. However, our security measures may be inadequate to prevent security breaches, and our business would be harmed if we do not prevent them. In addition, security breaches could expose us to a risk of litigation and possible liability. Government regulation and legal uncertainties could increase the cost and add additional burdens to our doing business on the Internet. Due to the increasing popularity of the Internet, laws and regulations applicable to Internet communications, commerce, advertising and direct marketing are becoming more prevalent. The adoption or modification of such laws or regulations could inhibit the growth of Internet use and decrease the acceptance of the Internet as a communications and commercial medium, which could have a material adverse effect on our business, results of operations and financial condition. • • Further, due to the global nature of the Internet, governments of states or foreign countries may attempt to regulate Internet transmissions. We cannot be certain that violations of domestic or foreign laws or regulations will not be alleged by applicable governments or that we will not violate such laws or regulations or new laws or regulations will not be enacted in the future. Moreover, the applicability of existing laws or regulations governing issues such as intellectual property ownership, libel, consumer protection, personal privacy, taxation, quality of services, and distribution is uncertain with regards to the Internet. Legal compliance may prove difficult for us and may harm our business, operating results and financial condition. The value of our Company may be subject to substantial some of which are beyond our control. fluctuations due to a number of factors, • Although the Company is privately held, its valuation may be influenced, at least in part, to the stock prices of comparable, publicly traded companies. These companies' stock prices and trading volumes, as with many Internet-related companies, may fluctuate widely for a number of reasons, including some reasons that may be unrelated to their businesses or results of operations. This market volatility, as well as general domestic or international economic, market and political conditions, could materially adversely affect the value of our Company without regard to our operating performance. Our forward-looking statements may not prove to be accurate. • This Business Plan includes "forward-looking statements" including, in particular, the statements about our plans, strategies, and prospects under the headings "Executive Summary," "Industry and Market Analysis" and "Business." Although we believe that our plans, intentions and expectations reflected, in or suggested by these expectations will be achieved, the actual future results may be materially different from what we expect. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this Business Plan are set forth above in this 32 • "Risk Factors" section and elsewhere in this Business Plan. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. 33 MANAGEMENT Our officers as of June 1, 2000 are as follows: Name • Justin Drellich Mitchell Rubin Richard Wyerman Sharmii Hassan • George Hornberger T. Michael McArdle John Rutkai A_.gg 55 45 40 38 38 35 38 Position Chief Executive Officer and President Chief Financial Officer Executive Vice President of Marketing Chief Technology Officer Director of Programming and Development Director of MIS Director of Network Operations • Justin Drellich is one of the founders of Web-Ideals and has been the Chief Executive Officer and President of Web-Ideals since it inception. Prior to forming Web-Ideals, Mr. Drellich has held chief and senior executive positions with a variety of retail, marketing, distribution, media, telemarketing, and direct response companies during his thirty-six year career. He previously held senior executive positions at First Class Marketing, a leading direct response telemarketing company, TMT Media, a direct response media agency and Regal Group, at one time one of the direct response industry's largest Infomercial marketing and producing companies. He also served as President and CEO of Caldwell Consumer Services, a nationwide independently owned specialty retail chain and held various other senior level positions with Swatch USA and Casio. Mr. Drellich conceived and implemented the concept of factory authorized, outside service and repair centers around the country for numerous watch and clock manufacturers. He authored many, still existing, manufacturer warranties and service policies and was instrumental in the design and implementation of proprietary software used in this genre. Mitchell Rubin has been the Chief Financial Officer since July 1999. Mr. Rubin comes to our Company with a comprehensive and broad management, finance and operations background. Mr. Rubin has held various senior level positions, including CEO and CFO, with Voice Powered Technology International Inc. ("VPTI"), a publicly held developer and manufacturer of consumer electronic products. During his tenure at VPTI, Mr. Rubin was responsible for restructuring the company's finances and operations, inclusive of successfully reorganizing the company under Chapter 11 of the U.S Bankruptcy Code. Previously, Mr. Rubin held various positions including Chief Operating Officer, with Regal Group. Prior to joining Regal Group, Mr. Rubin was senior vice president and chief financial officer of Quantum Marketing International, where he was responsible for all aspects of the company's operations, including MIS systems, and finance. Prior to Quantum, Mr. Rubin was treasurer and chief financial officer at Chase Financial Management Corporation, a holding company, where he had responsibility for negotiation of all business and real estate acquisitions and sales, finance and operations. Mr. Rubin began his career as a certified public accountant. Richard Wyerman has been Executive Vice President-Marketing of Web-Ideals since its inception. Mr. Wyerman has held senior executive positions with Regal Group and National Media, two of the industry's largest Infomercial marketing and producing companies. He has been responsible for generating over a half billion dollars in direct response television sales, internationally. He has also 34 • • • • • helped launch two international television direct marketing companies, Quantum Marketing International and Regal Shop, and has been highly active in promoting and integrating the Infomercial format to Fortune 500 companies (Hudson Street Partners, Spalding-Top Flite, PolyGram, Saatchi & Saatchi). Prior to the direct response industry, Mr. Wyerman was a senior executive with Swatch Watch and its parent company, SMH, Inc. and was recognized as one of the key executives who helped build and established Swatch Watch into a major consumer brand. Sharmil Hassan is one of the founders of Web-Ideals and has been the Chief Technology Officer of Web-Ideals since its inception. Mr. Hassan has over seventeen years of software design, engineering, consulting, and management experience in networking, communications and client/server computing and is responsible for providing technology leadership to the company. He has developed numerous technical and business software solutions for real-time, multi-processing, distributed architecture environments. He was raised and educated in South Africa, and earned a Computer Science degree from the University of Cape Town. Mr. Hassan is the principal architect of the I3C TM, applying experience he acquired through the development of numerous state-of-the-art solutions for the direct to consumer industry, including thinclient, web-based products/solutions for a wide variety of activities inclusive of database management, fulfillment and distribution, e-commerce shopping carts, real time credit card processing and media analysis. Prior to co-founding Web-Ideals, Mr. Hassan worked for Burroughs/Unisys Corporation in South Africa, England, and the United States. In 1989 he co-founded Spectracom, Inc., a company that developed and patented a Neonatal Decision Support system for level 2 and 3 neonates. He later sold his interests in Spectracom and in 1994 founded The InfoTrends Group, Inc., holding the position of President and CEO. InfoTrends was, and remains a developer of multimedia and Internet based ecommerce solutions, one of which earned the prestigious Ben Franklin award from the Philadelphia Direct Marketing Association as most innovative new product for 1995 George Hornberger has been the Director of Programming and Development of Web-Ideals since its inception. Mr. Hornberger has over eighteen years of computer architecture, software design, engineering, consulting, and management experience, including the position of MIS director for Metro Fulfillment, a large direct response fulfillment company. He has managed enterprise Windows NT based Networks while developing web sites using his proprietary online E-Commerce solutions. Recently, Mr. Hornberger has been involved in the development of Internet based applications focusing on business to business and business to client solutions offering real time availability of information. Mr. Hornberger's early career was primarily devoted to research and development engineering activities for various military and commercial solution based companies such as Aydin Vector, RCA, General Electric, Data Cap Systems and Questar. Later, Mr. Hornberger joined The InfoTrends Group, Inc. as a developer of multimedia and Internet based e-commerce solutions. T. Michael McArdle has been the Director of MIS of Web-Ideals since April 2000. Mr. McArdle has over eighteen years experience in software engineering, MIS management, application software, hardware, networking, technical writing and all aspects of office automation using microcomputer technology. He joins our company from Metro Fulfillment, Inc., a marketing services firm, where for six years he served as Director of MIS. Mr. McArdle was instrumental in designing, writing, and implementing a complete, legacy mainframe, fulfillment software solution which at that time was unique in the industry. He previously served as MIS Director for an association of physicians for seven years, where the majority of his work involved developing proprietary systems used in the field of occupational and environmental health consulting, as well as all hardware and software management and supervision ofa staffof six. Mr. McArdle began his career as a Junior Systems Engineer in 1982 for a firm involved in the release of the first CPM operating system hardware for the original IBM PC microcomputer. During his career Mr. McArdle has been published twice in leading trade magazines specializing in database programming. Mr. McArdle was also a speaker at the 1990 FoxPro Devcon Conference in Toledo, Ohio and was a senior lead for Fox Software's beta-test team as well as a nationally recognized expert in the FoxPro application development platform. 35 • • • • • • • • • John Rutkai has been the Director of Network Operations of Web-Ideals since May 2000. Mr. Rutkai has in excess of fifteen years in MIS network engineering, LAN/WAN and database security, system management, application software, hardware, and all aspects of office client server technology. He has designed and managed the, far-flung, corporate networks for several larger corporations including Learning Tree International. Prior to joining Web-Ideals he was with Computer Dynamics where he consulted clients on LAN, WAN, Internet, and E-Commerce projects. Mr. Rutkai graduated from The University of North Carolina in 1983. For the current organization structure of the Company, see Exhibit B to this Business Plan on page 55. • 36 PRINCIPAL EQUITY OWNERS • Our five founding members formed Web-Ideals, LLC in April 1999 as a Pennsylvania limited liability company. We chose the limited liability company structure for our development phase in order to enhance our flexibility in configuring investment options for growth capital during our formative years while maximizing tax advantages to both the company and its owners. Our initial equity and voting rights were configured into three classes of ownership; Class A, Class B and Class C units. Class A units, with one vote per unit, were issued to four of the five founding members. Class B units, with four votes per unit, were issued to Mr. Drellich, Mr. Jeff Giordano and Mr. Glenn Giordano (Mr. Jeff Giordano together with Mr. Glenn Giordano collectively referred to as the "Giordano's"). Class C units are not presently issued and may be used for future capital. All of the five founding members are active in the management and operations of the company and have varying ownership interests as presented in the table on the following page. In May 1999, the Company and Mr. Drellich entered into a Revolving Loan and Security Agreement, dated as of May 1, 1999 (the "Loan and Security Agreement), whereby Mr. Drellich agreed to make periodic loans (the "Revolving Loan") to the Company up to an aggregate amount of $650,000 at interest rate equal to the "Prime Rate" set forth in the "Wall Street Journal" on the first day of each month. All principal and interest accrued will be due by the Company to Mr. Drellich on December 31, 2002. Pursuant to the Loan and Security Agreement, the Company agreed to give a security interest in certain assets of the Company, including accounts receivable, inventory, equipment, supplies and other tangible property. In addition, in March 2000, we received additional working capital loans of $200,000 (collectively, the "Giordano Loans") from two third parties, Mr. Jeff Giordano and Mr. Glenn Giordano. The Giordano's have been prominent in the direct marketing industry for many years, heading up Media Syndication Global, one of the largest syndicators of direct mail insert programs. In addition, Jeff Giordano is the Chairman-Elect of the Electronic Retailing Association, an important industry trade organization. The investment was in the form of a convertible debenture with interest payable quarterly at a rate of 10% per annum. The principal amount of each of the Giordano Loans must be paid in four equal installments of $25,000 due each December 31, commencing on December 31, 2001. Each of the Giordano's received Class B units equal to 2.5% of the equity interest in our Company. In addition, each of the Giordano's has the right to convert his loan to the Company into 2.19298 Class B units prior to the first occurrence of either repayment of his entire loan or December 31,2001. These conversion rights are subject to anti-dilution protection applicable to the first $1.5 million in new equity. • • • • • Justin T. DreHich Mitche, El. Rubin Sharrnil Hassan • Richard S. Wyerrnan George E. Hornberger ,;eft Giordano • G0ennGiordano 3hie_ Executive Officer/ F)resident 3hief FinancaagOffÉcer 3h0e_: Technology Officer Executive Vice President, Sa0es and Marketing Director o_: rogramming and P Development _utside Unvestor Dutside nnvestor 34.00 14.00 23.00 23.00 6.00 2.63 2.$3 32.30°/= _3.30% 21.85% 2t.85% 5.70°/= 2.50% 2.50°/= 37 SUMMARY HISTORICAL AND PROJECTED FINANCIAL STATEMENTS; ASSUMPTIONS FINANCIAL • • The following discussion and analysis should be read in conjunction with our financial statements available on page 44. The inclusion of projections and assumptions herein should not be regarded as a representation by us or any other person that the projections will be realized or that the assumptions will prove true. These forward-looking statements, relating to, among other matters, future results ofoperations, growth plans, sales and expense trends, capital requirements and general industry and business conditions applicable to the Company, are based largely on the current expectations of the Company's management and are subject to a number of risks and uncertainties. Actual results could differ materially from these forward looking statements. Potential investors are cautioned not to place undue reliance on the projections and assumptions and should make their own independent assessment of the Company's future results of operations, cash flows and financial condition. The projections included in this Business Plan were not (0 prepared with a view to compliance with the published guidelines of the Securities and Exchange Commission regarding projections," (ii) prepared in accordance with the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial projections; or (iii) reviewed by an independent accounting firm. The Company does not intend to update or otherwise revise the Company's projections to reflect the circumstances existing after the date hereof or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the projections are shown to be in error. Following discussion and analysis is provided on a pro forma basis as though the reorganization had already taken place As of December 1999, we have completed our start-up phase. Since our formation in April 1999, utilizing intemally generated cash flow and funding, we have: 1) established and equipped operating facilities on both the east and west coasts; 2) completed development of Version 1.0 of our core product; 3) acquired and installed all computer hardware, network communications and operating systems required to service our clients as well as maintain and expand our operations; 4) completed our initial personnel staffing for all primary operating functions; 5) designed, developed and launched our promotional website; 6) produced our marketing brochure; 7) developed and produced our initial advertising campaign; 8) showcased our products at two major electronic retailing industry tradeshow and; 9) established a diversified client base which generated over $500,000 in revenues in the first nine months of operations. Our financial plan was derived based upon, what we believe, are reasonable expectations based upon our current knowledge of our target market, the size of that market and the types of client we expect to attract within that market. Many factors will determine our ability (or inability) to achieve the results projected which will be described in detail in the prospectus or offering memorandum we will publish if and when we seek outside capital. Accordingly, no assurances can be given that we will achieve these projections and they should be considered only in conjunction with a careful review of all risk factors included in this Business Plan. In order to manage growth, our initial year sales goals have been based upon conservative goals • • • • • • and should be achieved by the addition of an average of 2 new clients per month. Accordingly, we believe that the principals of the company will have primary responsibility for this effort during this phase of our development. To date, given very limited marketing efforts, we have generated a diversified client base consisting of seven (7) clients generating over $75,000 per month in revenues and are in final stages of negotiation and contract preparation for an additional three (3) new clients representing potentially over $25,000 in monthly revenue. By the beginning of 2001, having established the integrity of our systems and technologies, built the foundation for our organizational management and developed our technical support staff and sales training programs, we will intensify our sales efforts and thereby accelerate sales growth, including the creation of an executive level position dedicated to new business development. 38 Sales Forecast • Presented below are our sales forecasts for the monthly periods ending December 2000 and fouryear annual periods from 2000 through 2003. Specific information regarding the underlying assumptions to these forecasts can be found beginning on the following page. • Monthly Sales Forecast- 2000 $350,000 / $300,000 / $250,000 / • $200,000 / $15o,ooo/ $1oo,ooo/ $50,000 • $o J F M A M J J A S O N D [] Licensing Revenues [] Teleservices • [] Marketing Services [] Other Income [] Fulfillment Services Annual Sales Forecast $ O00's $35,000 1 /' I • $3o,ooo/ $25,000 / /I • $10,000 $15,000 _/ $5,000 $20,000 / $2000 2001 2002 2003 [] Licensing evenues] Teleservices R [ • [] Marketing Services [] Other Income [] Fulfillment Services 39 Milestones • There are many components that together comprise our Business Plan and our strategy for implementation of that plan. We have presented below in table form ten specific items or milestones to be achieved in the next twelve months that we consider critical to our ultimate success. • , 1 2 3 4 Successfu0ny depnoyfirst remote installation of the n3C TM. 3omp0ete deveBopmentof software enabling automated D3C system TM configuration and setup by cflents. _omplete equity funding. Dep0ov first installation of n3C in mu0ti-cUient fulfinDment center. TM Design marketing materians for Fail 2000 direct maig and print zdve_isin 9 campaign. Identif7 and hire a Vice President of Business Development Comp0etedesign of system upgrades for use in Europe and establish strate!_ie alliance or European sages/o_ce. Identify new faci0ity 0oeation for move in DateNovember. _,chieve month0y cash flow break even. ]ntegrate Voice Over 0Pcapabi0ity for our interna0 TeHeserviees _]epartment. 3115100 513_100 7195100 7131100 7139100 8131/00 9130100 9130100 92139100 419109 • 5 6 7 8 90 Revenues • • • • System Licensing. We anticipate that transaction based fees for licensing of the I3CTM will represent our most significant source of revenues. For the first two years, the forecast assumes an average fee per transaction of $0.40, a transaction being defined as an order or credit processed through the I3C TM system. Our forecast assumes during the two-year period commencing January 1, 2000, we will obtain an average of three (3) new clients per month, each generating an average of 10,000 transactions per month, growing to an average of 25,000 transactions per month over this initial period. For the years 2002 and 2003, the forecast applies an annual growth rate of 100% per year reflecting both our anticipation of higher volume clients as our products gain market acceptance but increased revenues related to new products and services yet to be developed. Teleservices. Revenues from teleservices are projected based upon a fee per minute of $0.95 for each minute of service provided. The forecast assumes that 20% of new clients will request this service. Usage is projected based upon an average of one minute of teleservices support for each order processed. Fulfillment Services. Fulfillment service revenues are based upon an average of one additional fulfillment client per calendar quarter with an average transaction volume of 10,000 transactions per month at an average rate of $1.00 each. Marketing Services. Fees for media management and other marketing consulting services are forecasted based upon current levels with an imputed annual growth rate of 50%. Other Income. Other Income, comprised of web hosting fees, referral commissions and potential incremental revenues from resale of hardware and software products is forecasted at 5.0% of total sales. 40 • • • • Expenses • • Personnel. As primarily a provider of services, personnel represents, on average, between 65% and 70% of total operating costs for our initial year. A summary of our personnel plan is presented below: PLAN Actual as of Number Of New Hires per Quarter Q/E Q/E Q/E Q/E PERSONNEL • Q/E Q/E Q/E Q/E Dec-99 Mar-00 Research & Development Marketing and Sales, Teleservices Operations 3 t 2 4 2 1 Jun-00 Sep-00 Dec-00 Mar-01 Jun-01 Sep-01 Dec-01 3 -. 1 3 2 3 3 4 2 6 2 3 2 7 2 3 1 7 5 4 1 8 3 6 2 3 • General and Administrative 2 1 3 2 2 - • • • • • Facilities. Expenditures for rent and other facilities related costs are forecasted initially based upon our present leases. Additional rent is forecasted beginning in November 2000 at $35,000 per month to account for expansion of a new facility. Marketing Funds. We have budgeted a total of $446,000 and $1,625,000 in aggregate marketing funds for 2000 and 2001 respectively, representing 17% and 22% of revenues for their respective years. These funds encompass salaries, advertising, promotion, trade shows, production and public relations costs and were budgeted on a line item basis. Other Expenses. Other costs not described above were budgeted based on management estimates and details of these items are included in the Expense Budget included in Appendix. • Balance Sheet Assumptions • Accounts Receivable. Forecasted at an average of 30 days outstanding billing. For the initial quarter, outstanding accounts receivables have been adjusted to reflect expected balances based upon historical collections from existing clients. Deposits. Represents actual amounts prepaid on leases and utilities adjusted for anticipated future outlays related to new facilities. Prepaid Expenses. Balances include management estimates for prepaid insurance costs, warehouse supplies and marketing and promotional materials. Property and Equipment. Capital expenditures for property and equipment and the related depreciation expense are based upon the following table. • Included in computer equipment is a capitalized lease for the company's primary computer hardware. The principal balance of this lease is $150,668 payable over a 36 equal monthly payments of $5,517 inclusive of interest at 13.5%. The lessor is Mr. Justin Drellich, one of the company's principals who has agreed to deferment of the lease payments through June 2000. A portion of the proceeds of our anticipated equity funding will be used to repay such deferred lease payments in the amount of $56,243 through June 30, 2000. 41 • • • • • • • • Included in Software Costs are $179,000 in capitalized payroll related costs for Research and Development personnel through December 31, 1999, the development phase of I3C TM. The forecast assumes future R & D costs will be expensed as incurred. • Computer Equipment Telephone System Furniture and Fixtures Leasehold Improvements Software Costs $ 155,152 50,668 3t,393 190,307 $ 10,172 3,941 1,538 7,138 60 $ 61,100 60 75,000 60 87,000 60 100,000 36 23,000 $ 200,000 75,000 20,000 20,000 $ 250,000 75,000 25,000 20,000 $ 250,000 75,000 25,000 20,000 • Other Assets. Represents organizational costs being amortized over five (5) years and fees related to our anticipated equity funding budgeted at $255,000 to be amortized over three (3) years. Accounts Payable. Based upon 30-day payment terms on most expenses other than rent and payroll. Accrued Expenses. Includes accrued interest on long-term, deferred capital lease payments that have been deferred pending completion of our anticipated equity funding and deferred salary for one of the principals. The deferred lease payments, projected to total $56,243 as of June 30, 2000, are to be paid from the proceeds of our anticipated equity funding. The deferred salary totaling $37,500 is due to be paid in two installments of $18, 750 each on June 30, 2000 and December 31, 2000. Subordinated Debentures. Debentures Payable include $200,000 in debentures issued in March 2000. These debentures are repayable in $50,000 annual installments commencing December 31,2001, and, at the option of the holder, are convertible into a 4.0% equity interest in the Company. Interest is payable quarterly at 10% per annum. Revolving Note Payable. Represents a note and revolving loan agreement from Mr. Justin Drellich, a principal of the company. This note is secured by all of the assets of the company. As of March 31, 2000 funds advanced under this loan totaled $668,571. A principal repayment is anticipated in the amount of $255,000 from the proceeds of our anticipated equity funding. Interest accrues at a rate of prime plus 1%. No interest payments have been made through March 31 and the holder has agreed to defer payment of interest until July 1, however payment of deferred interest through June 30, 2000 totaling $53,093 will be paid from proceeds of our anticipated equity funding. Commencing July 1, 2000, interest payments are paid monthly with forecasted principal reductions of $100,000 on December 31, 2001, $150,000 on December 31, 2002 and the balance of $163,571 on December 31, 2003. Equity Funding. The projections anticipate the Company raising $3,500,000 in equity capital on or before July 15, 2000. • • • Q • • • • • • 42 Historical and Projected Financial Statements • QUARTERLY INCOME STATEMENTS Actual Quarter ended Mar-00 Quarter ended Jun-00 $ 278,009 $ Quarter Projected Quarter ended ended Sep-00 468,919 $ Dec-00 812,752 Year ended Dec-00 $ 1,788,893 Net Revenues • Operating costs: Research & Development Marketing and Sales Teleservices Operations General and Administrative Total operating costs Operating income (loss) Other income (expense): Interest Income Interest Expense Net income (loss) before taxes Provision for income taxes Net Income (loss) $ 229,212 90,778 58,015 27,100 58,343 181,746 415,982 (186,770) 152,071 55,959 45,714 43,607 203,213 500,563 (222,554) 196,125 114,771 49,867 75,015 288,177 723,956 (255,036) 251,250 211,151 89,486 98,315 467,657 1,117,860 (305,108) 690,224 439,896 212,167 275,281 1,140,793 2,758,361 (969,468) • 20,833 /18,431) (205,200) (24,877) (247,431) (19,443) (253,646) 21,875 /18,033) (301,266) 42,708 (80,784 / (1,007,544) $ (205,200/ $ 1247,431/ $ (253,646) $ (301,266) $ (1,007,544) QUARTERLY INCOME STATEMENTS Quarter ended Mar-01 Quarter ended Jun-01 $ 2,131,041 Quarter ended SeD-01 $ 2,737,451 $ Quarter ended Dec-01 3,300,582 $ Year ended Dec-01 9,509,044 Net Revenues Operating costs: Research & Development Marketing and Sales Teleservices Operations General and Administrative Total operating costs Operating income (loss) • Other income (expense): Interest Income Interest Expense Net income (loss) before taxes Provision for income taxes Net Income (loss) $ 1,339,969 • 297,488 324,360 146,288 121,865 477,163 1,367,163 (27,195) 363,288 391,902 257,618 168,481 509,566 1,690,854 440,187 411,175 398,726 309,551 191,831 515,024 1,826,306 911,145 467,788 497,728 383,548 221,648 ,i 525,910 2,096,621 1,203,961 1,539,738 1,612,716 1,097,003 703,825 2,027,663 6,980,945 2,528,098 17,188 (17,619) (27,627) 15,625 (17,191 / 438,621 143,848 17,188 (16,749 / 911,584 319,054 $ 592,530 $ 22,917 ', (15,895 / 1,210,982 423,844 787,139 $ ' 72,917 2,533,560 886,746 1,646,814 $ (27,627/ $ 294,773 43 . ., .. .ANNUAL PROJECTED • INCOME (LOSS) STATEMENTS Actual year ended Dec-99 Year ended Dec-00 Year ended Dec-01 Year ended Dec-02 : Year ended Dec-03 I Net Revenues Operatingcosts: • Research&Development Marketingand Sales Teleservices Operations General andAdministrative Total operatingcosts $ 279,656 100% $1,788,893 100% $ 9,509,044 100% $17,297,965 100%1 $32,015,748 l I 100% 22,073 138,966 34,072 74,725 290,616 555,452 (275,798) 8% 48% 12% 27% 104% 199% -99% 690,224 439,896 212,167 275,281 1,140,793 2,758_381 (989,488) 39% 25% 12% 15% 64% 154% -54% 1,539,738 1,612,716 1,097,033 703,825 2,027,663 6,980,945 2,528,098 16% 17% 12% 7% 21% 73% 27% 3,079,475 2,933,703 1,645,505 1,055,738 3,041r495 11,755_915 5,542,050 18%; 17% 10% . 6%! 18% ! 68% 6,158,950 5,429,812 2,468,258 1,583,606 4,562,242 20,202,868 19% 17% 8% 5% 14% 63% 37% • Operatingincome(loss) Otherincome(expense): InterestIncome InterestExpense • Net income (loss)beforetaxes Provisionfor incometaxes Net income(Ioss) $(307,427) (31,631) (307,427) 32% i 11,812,880 0% -11% -110% 0% 42,708 (80,784) (1,007,544) 2% -5% -56% 0% -56% 72,917 (67,455) 2,533,560 886,745 $1,646,814 1% -1% ' 27% 9% 125,000 (60,328) 5,606,722 1,982,353 1% 0% 32% 11%1 21°.'$ 225,000 (25,539) 12,012,341 4,204,319 7,808,022 1% 0% 38% 13% 24% -110°/% $(1,007,544) 17%., $ 3,644,369 44 QUARTERLY PROJECTED BALANCE SHEETS • CURRENTASSETS Cash Receivables,net Deposits Prepaidexpenses Actual Quarter ended Mar-00 $ 120,833 79,896 20,565 13,719 235,013 Quarter ended Jun-00 $ 7,158 43,342 20,565 16,065 87,130 468,620 80,479 388,141 3,938 656 3,282 $ 478,554 Projected Quarter ended Sep-00 $ 2,333,988 187,864 20,565 17,370 2,559,788 548,620 112,076 436,544 313,938 26,686 287,252 $ 3,283,584 $ Year ended Dec-00 $ 1,701,399 312,111 43,760 19,453 2,076,723 773,620 150,256 623,364 313,938 52,716 261,222 2,961,309 • PROPERTYAND EQUIPMENT Less:Accum.Depreciation 452,620 50,982 401,638 3,938 459 3,479 $ 640,130 • OTHERASSETS Less:Accum.Amortization TOTALASSETS • LIABILITIES& OWNERS'EQUITY CURRENTLIABILITIES Longterm debt-Current Accountspayable Accrued expenses • Other LONG TERMDEBT Subordinated Debentures Note Payable • Capitalized lease payable Less:Current Portion $ 302,738 33,940 118,023 454,700 $ 304,367 99,485 149,674 553,525 $ 51,052 48,898 25,664 125,614 $ 202,794 57,034 8,647 268,476 200,000 668,571 122,224 (302,738) 688,057 200,000 668,571 110,883 (304,367) 675,087 200,000 413,571 99,155 (51,052) 661,675 200,000 413,571 87,028 (202,794) 497,804 OWNERS'EQUITY Preferredor Common Stock Accumulatedearnings(deficit) TOTAL OWNERS'EQUITY TOTALLIABILITIES & OWNERS'EQUITY WORKINGCAPITAL($) CURRENTRATIO DEBT:EQUITY $ $ 640,130 (219,688) 0.52 (2.27) $ $ 478,554 (466,395) 0.16 (1.64) $ $ (502,627) I502,627/ (750,059) I750,059/ 3,500,000 (1,003,705) 2,496,295 3,500,000 (1,304,971) 2,195,029 3,283,584 2,434,173 20.38 0.32 $ $ 2,961,309 1,808,247 7.74 0.35 45 QUARTERLY PROJECTED BALANCE SHEETS • CURRENT ASSETS Cash Receivables, net Deposits Prepaid expenses • PROPERTY AND EQUIPMENT Less: Accum. Depreciation Quarter ended Mar-01 $ 1,493,915 514,438 43,760 22,453 2,074,565 853,620 197,436 656,184 313,938 78,747 235,192 $ 2,965,940 Projected Quarter ended Quarter ended Jun-01 $ 1,495,211 808,303 43,760 26,648 2,373,922 953,620 249,116 704,504 313,938 104,777 209,161 $ 3,287,588 $ $ Sep-01 1,921,429 973,502 43,760 29,339 2,968, 031 1,033,620 305,629 727,991 313,938 130,807 183,131 3,879,153 $ $ Year ended Dec-01 2,421,757 1,149,408 43,760 31,441 3,646,366 1,088,620 365,893 722,727 313,938 156,837 157,101 4,526,194 • OTHER ASSETS Less: Accum. Amortization TOTAL ASSETS LIABILITIES & OWNERS' EQUITY CURRENT LIABILITIES Long term debt-Current Accounts payable Accrued expenses Other • LONG TERM DEBT Subordinated Debentures Note Payable Capitalized lease payable Less: Current Portion • OWNERS' EQUITY Preferred orCommon Stock Accumulated earnings(deficit) • TOTAL OWNERS' EQUITY TOTAL LIABILITIES & OWNERS' EQUITY WORKING CAPITAL ($) D CURRENT RATIO DEBT:EQUITY $ 204,596 99,233 11,247 315,077 $ 206,460 132,773 17,552 356,785 $ 198,103 143,054 19,719 360, 877 $ 234,233 164,623 21,923 420,780 200,000 413,571 74,486 (204,596) 483,461 # 200,000 413,571 61,516 (206,460) 468,627 # 200,000 413,571 48,104 (198,103) 463, 571 # 150,000 313,571 34,233 (234,2331 263, 571 3,500,000 (1,332,597) 2,167,403 3,500,000 (1,037,825) 2,462,175 3,500,000 (445,295) 3,054,705 3,500,000 341,843 3,841,843 $ $ 2,965,940 1,759,487 6.58 0.37 $ $ 3,287,588 2,017,137 6.65 0.34 $ $ 3,879,153 2,607,154 8.22 0.27 $ $ 4,526,194 3,225,587 8.67 0.18 46 ANNUAL PROJECTED BALANCE SHEETS Actual December-99 December-00 Projected December-01 December-02 December.03 O CURRENTASSETS Cash Receivables,net Deposits Prepaidexpenses O PROPERTYAND EQUIPMENT Less: Accum. Depreciation $ 5,389 52,959 18,635 14,275 91,258 427,520 22,789 404, 731 3,938 262 3,676 $ 499,665 $ $ 1,701,399 312,111 43,760 19,453 2,076,723 773,620 150,256 623,364 313,938 52,716 261,222 2,961,309 $ $ 2,421,757 1,149,408 43,760 31,441 3,646,366 1,088,620 365,893 722,727 313,938 156,837 157,101 4,526,194 $ $ 5,068,807 2,090,896 43,760 40,662 7,244,124 1,458,620 691,391 767,229 313,938 260,958 52,980 8,064,333 $ $ 11,009,485 3,869,911 43,760 54,493 14,977,648 1,828,620 1,002,454 826,166 313,938 313,412 526 15,804,340 • OTHERASSETS Less: Accum. Amortization TOTAL ASSETS LIABILITIES& OWNERS'EQUITY CURRENT LIABILITIES Long term debt-Current Accountspayable Accrued expenses Other $ 301,162 29,757 84,813 415,732 $ 202,794 57,034 8,647 268,476 $ 234,233 164,623 21,923 420,780 $ 213,571 269,221 45,328 528,120 $ 444,566 15,539 460,106 Q LONG TERM DEBT Subordinated Debentures Note Payable Capitalized lease payable Less: Current Portion • OWNERS'EQUITY Preferredor Common Stock Accumulatedearnings(deficit) TOTALOWNERS' EQUITY TOTAL LIABILITIES & OWNERS' EQUITY CURRENTRATIO WORKINGCAPITAL(S) DEBT:EQUITY $ 499,665 $ 2,961,309 7.74 1,808,247 0.35 $ 4,526,194 8.67 3,225,587 0.18 $ 8,064,333 13.72 6,716,004 0.08 $ 15,804,340 32.55 14,517,542 0.03 (297,427) /297,427) 3,500,000 (1,304,971) 2,195,029 3,500,000 341,843 3,841,843 3,500,000 3,986,212 7,486,212 3,500,000 11,794,234 15,294,234 549,332 133,190 (301,162) 381,360 200,000 413,571 87,028 (202,794) 497,804 150,000 313,571 34,233 (234,233) 263,571 100,000 163,571 (213,571) 50,000 50,000 50,000 $ $ $ $ 47 QUARTERLY PROJECTED STATEMENTS OF CASH FLOW Actual Quarter ended March-O0 Projected Quarter ended June-O0 $ (247,431) 29,694 (217,738) Quarter ended September-Q0 $ (253,646) 57,627 (196,019) Quarter ended December-O0 $ (301,266) 64, 210 (237,056) Year ended December-Q0 $ (1,007,544) 179,481 (828,063) Net Income(Loss) ADD:. Depreciation/amortization $ (205,200) 27,950 (177,251) INVESTING ACTIVITIES (Increase) decreasein pmparty& equipment (Increase)decreasein other assets • FINANCING ACTIVITIES Proceedsfromequity ProceedsErom debt Increase(decrease)in revolvingnotepayable Decreasein capitalizedleasepayable Repayment f subordinated o debentures • Increase(Decrease)in WorkingCapital (Increase)Decreasein CurrentAssets Receivables, et n Q Depcoits Prepaidexpanses 3,500,000 200,000 119,239 (10,966) 308,273 110,922 (255,000) (11,728) 3,233,272 2,647,254 (12,128) (12,128) (474,183) 3,500,000 200,000 (135,761) (46,162) 3,518,077 2,038,914 (20,100) (20,100) (16,000) (16,000) (80,000) (310,000) (390,000) (225,000) i (225,000) (341,100) (310,000) (651,100) (11,340) (11,340) (245,078) (26,937) (1,930) 556 (28,311) 38,554 (2,346) 34,207 (144,522) (1,305) (145,827) (124,247) (23,195) (2,083) (149,525) (259,152) (25,125) (5,178) (289,455) • Increase (Decrease) in Current Uabilities Accountspayable Accrued expanses Other 4,183 33,210 37,393 65, 545 31,651 97,196 (113,675) 125,393 $ 11,718 $ (50,587) (124,009) (174,596) 2,326,831 11,718 2,338,549 $ 8,136 (17,017) (8,881) (632,589) 2,338,549 1,705,960 $ 27,277 (76,166) (48,889) 1,700,571 5,389 1,705,960 NetIncrease(Decrease) n Cash i cash - beginning Cash-ending $ 120,004 5,389 125,393 48 QUARTERLY PROJECTED STATEMENTSOF CASH FLOW Quarter ended March-01 Quarter ended June-01 $ 294,773 77,710 372,483 Quarter ended Septerri0er-01 $ 592,530 82,544 675,073 Quarter ended December-01 $ 787,139 86,294 873,432 Year ended December4)1 $ 1,646,814 319,758 1,966,572 • NetIncome(Loss) Depreciation/amortization $ (27,627) 73,210 45,584 INVESTING ACTIVITIES (Increase) ecrease property& equipment d in (Increase) ecrease otherassets d in RNANaNG ACTIVITIES Proceeds fromequity Proceeds fromdebt Increase(decrease)n revolvingnotepayable i Decreasein capitalizedleasepayable (80,000) (80,000) (100,000) (100,000) (80,000) (80,000) (55,000) (55,000) (315,000) (315,000) (12,542) (12,542) (12,970) (12,970) 259,513 (13,413) (13,413) 581,661 (100,000) (13,870) (100,000) (52,794) R_pa_nt ofsubor_nated debentures Increase(Decn_se)in WorldngCapital (Increase}Decrease CurrentAssets in Receivable&net Deposits Q Prepaidexpenses (46,958) (50,o00) _ (163,870) 654,562 (5o, ooo) (202,794) 1,448,778 (202,326) (3,000) (205,326) (293,865) (4,1£6) (298,061) (165,200) (2,691) (167,891) (175,905) (2,102) : (178,007) (837,297) (11,988) (849,285) Increase(Decrease) in Current Uabilities Accountspayable Accruedexpenses Other • Net Increase (Decrease)n Cash i Cash- beginning • Cash-ending $ 42,200 2,600 44,800 (207,485) 1,705,960 1,498,475 $ 33,539 6,305 39,844 1,297 1,498,475 1,499,772 $ 10,281 2,167 12,448 426,218 1,499,772 1,925,990 $ 21,589 2,204 23,773 500,328 1,925,9£0 2,428,317 $ 107,589 13,276 120,865 720,358 1,705,960 2,426,317 49 PROJ_'r_ STA'I13Vt13_S OFCASHFLOW Pctu_ Yearended Decent_-gg $ (307,427) 23,052 (284,375) Yearended Decent_-00 $ (I,007,544) 179,481 (828,063) Projected Yearended Yearended Decentber-01 Decent_-02 $ 1,646,814 319, 58 7 1,966,572 $ 3,644,369 429,619 4,073,988 Yearended Decent_-03 $ 7,808,022 363,517 8,171,538 NetIncome(Loss) Depred_on/amodization INVES'nNG AC3M'I1ES (Inc_rease) decrease inproperty &equipm_ (Increase) decrease inother assets RN_NG AC'I'IVI'nES Proceeds fromequity _ fromdebt Increase (decrease)in revolving payal0/e note Increase (Decrease) incapsizedlease payable (427,520) (3,939) (431,459) (341,100) (651,100) (315,000) (315,000) (370,000) (370,000) (370,000) (370,000) 10,000 549,332 133,190 692,522 3,500,000 2OO,0O0 (135,761) (46,162) 3,518,077 2,(338,914 (100,000) (52,794) (150,000) (34,233) (163,571) R,_y_r* ofsu_r=ed _ • Incre_e(Decrease) inWoddng apital C (Increase) Decrease inCurrent Receivables, net Deposits Prepaid _ (23,312) (50,000) (202,794) 1,448,778 (_,000) (234,233) 3,469,755 (50,0OO / (213,571) 7,587,967 (52,959) (18,635) (14,275) (65,869) (259,152) (25,125) (5,178) (289,455) (837,297) (11,988) (849,285) (941,488) (9,221) (950,708) (1,779,015) (13,831) (1,792,846) Ircrease(_) in OLa'rent Uabilities /_ourts pa_01e /_crued expenses 29,757 84,813 114,570 27,277 (76,166) (48,889) 1,700,571 5,389 $ 1,705,960 107,589 13,276 120,865 720,358 1.705,960 $ 2,426,317 194,598 23,405 128,003 2,647,050 2,426,317 $ 5,073,367 175,346 (29,789) 145,556 5,940,678 5,073,:367 $11,014,045 • Other NetIncrease (Decrease) inCash Cash beginning Ca.dl-ending $ 5,389 5,389 50 EXHIBIT A: DESCRIPTION OF I3C TM MODULES ,f- -- ._ -_-_. \ '.... /: _dgBolDEALS WEBoIDEALS • INTEGRATED INTERACTIVE INFORMATION I3CTM CENTER "-_ j • The WEBeIDEALS INTEGRATED INTERACTIVE INFORMATION CENTER (I3CTM), developed by Web-Ideals LLC, is a fully integrated, web based platform for the processing and management of all aspects of direct to consumer marketing inclusive of direct response radio and television media, print, catalogue, direct mail and e-commerce. With modular components, yet configurable to accommodate multiple promotions for multiple companies with virtually unlimited capacity for products and customers, I3C m can be tailored to meet the demands of any business engaged in direct to consumer marketing. Developed utilizing exclusively Microsoft TM products, 13C TM requires no specialized hardware, is easy to maintain, user friendly and entirely web-based, resulting in a solution that is inherently accessible, flexible, expandable and reliable. I3C TM is comprised of multiple core modules, each separately configurable for secure user access, each managing specific aspects of direct to consumer marketing and logistics and each available on a standalone basis or fully integrated with each other. This unique architecture facilitates a complete virtual environment that can be accessed and updated from anywhere in the world, at anytime, on a real-time basis with the ultimate in multi-tiered security. The primary features of each module are presented on the following pages. Q 51 PROCESSINGolDEALS TM - Managing all the tasks required to receive orders from third parties or enter orders directly, verify and allocate inventory, process credit card and check payments, create shipping • documentation, process and manage returns and more, PROCESSING•IDEALS TM features: • Fully automated, point and click processing of orders from third parties delivered via FTP protocol including verification of all key data fields and real time inventory availability confirmation. • Fully automated, point and click processing of credit card transactions in batch mode for third • party generated orders or choose between batch or real time processing for in-house and Internet orders. • Automated recycling for soft credit card declines. • Automated inventory allocation of all processed orders. • Customizable shipping documentation including imbedded message on packing list and personalized customer letters. • Integrated bar code scanning for all shipments and returns (in developmen O. • RMA controlled automated return processing inclusive of processing of credit card credits, issuance of check requests or printing check refunds. • Integrated e-mail notification to customers upon receipt of order (if e-mail captured on order) providing web access to order status and shipment tracking information. • Installment payment management by line item ordered including variable payment cycles and automated collection letters. • Continuity management including easily configurable parameters, variable cycle days, line item additions/deletions and installment payments. • Integrated shipping manifests for all major carriers (optional) (in developmen O including least cost routing. TELESERVICESeIDEALS TM - Providing all of the components necessary for managing order entry and customer service from any location via the web, TELESERVICES-IDEALS TM features: • Web based order entry featuring user friendly, easily navigable, color-coded screens with point and click functionality designed to capture all customer information including e-mail and demographic data. • Automated functions of order entry include order total calculation including applicable sales tax (user defined) and population of City and State fields based on zip code entry. • Customer e-mail notifications for all orders with web accessible shipping status and tracking information. • Electronic fulfillment of product information by e-mail with integrated web address for remote order entry by the customer. • Choice of batch or real time credit card processing/authorization. • RMA management for returns or reships with definable reason code tracking and comment fields. • Integrated customer search fields on all customer data fields displaying color-coded order status for all searched records. • Integrated Customer Service and Order Entry scripting. • Automatic prompting for enrollment in Continuity Programs when initial item ordered. • Optional password authorizations required for processing credits, reships and discounts. • Automated display of all historical order/customer activity including balance due on installment payments. • Batch controlled check processing from check data entry through bank deposit. • Proprietary TAPI interface (optional & in development) for full telephony integration and screen pops. PRODUCToIDEALS featuring: TM • • • • • • • - A completely integrated inventory and warehouse management system 52 • • • • • • • • • • • • Ability to manage inventory in multiple warehouses with multiple locations within each warehouse with fully addressable storage locations. Tracks pending orders from input of purchase order through receiving. Maintains perpetual history of all activity by SKU. Maintains separate inventory status conditions by SKU including in stock, on order, in transit, on dock, allocated, damaged, in assembly and reserved Full featured kit assembly management (in developmenO including allocation of inventory, labor cost tracking and pre-build planning. Appointment scheduler for receiving in multiple locations with integrated receiving time/cost tracking. Maintains minimum order quantities with automated e-mail client notification when re-order point triggered. Optional inventory costing module (in development) for LIFO, FIFO, Weighted Average and Standard Costing in development. A complete selection of on-line reports for maximum management visibility and control of all warehouse and inventory functions. REPORTINGelDEALS • TM - A comprehensive menu of fully integrated on line reports accessible from from marketing to anywhere, anytime, designed to meet the demands of all operating departments accounting to operations including. • • User definable date ranges for any one (or all) products and promotions for all reports including orders, shipments, returns, and credit card billings. Reporting by media source for all reports including orders, shipments, retums, and credit card billings. State by state reporting for marketing analysis and sales tax preparation. Automatic e-mail notification of all third party order downloads for reconciliation into third party billing and media reports. Detailed reporting on all credit card declines including listing for outbound, mail or automated e-mail follow up. Complete audit trail and reconciliation from orders to shipments and shipments to cash. Continuity management reporting including accounts receivable for multi-payment programs and continuity attrition. Credit card shipping, billing and refunds by credit card type for easy cash management. Complete reporting on inventory backorders. Unique Returns Aging Analysis Report for optimal early forecasting of a product's or promotion's actual return rate. One click printing for all on line reports. • • • • • • • • • • • 53 E-COMMERCEolDEALS TM - Providing a full featured e-commerce platform capable of standing alone or fully integrating into the other components of I3C aM, E-COMMERCEoIDEALS TM • provides all the tools to build and manage a web based business including: • • • • • • • • • • • Secure, versatile and user-friendly shopping cart for efficient capturing of order data. Point and click setup for products and promotions managed by I3C ru. Back office website management allows easy classification of products in multiple categories and subcategories, upsell and cross-sell promotions, and more. Automated customer e-mail notification with integrated shipping and order tracking information. Choice of real time or batch mode credit card processing Integrated inventory availability when used in conjunction with I3C TM. Automated import of all graphic elements for instant set up of products. Full functioned "Search" function for products, promotions and other site information. Complete site traffic analysis including point of origin (banner, search engines, etc.) and other key marketing data (optional, requires Web Trends licensing). MEDIAoIDEALS TM (in developmen 0 Fully integrated or on a stand alone basis, MEDIAoIDEALS TM is the next generation online and real-time media system with advanced sourcing, buy management and complete reporting and analysis capabilities featuring: • • • • • • Import or direct entry of media buy information for short form or long form television, print, radio or banner advertising. Full reporting capabilities include media cost per call, cost per order, advertising to sales cost ratios, upseli percentages and more. Data mining capabilities for segmenting by day part, day of week, DMA markets, cost per buy analysis and agency. Web accessible for real time information from anywhere, anytime. Week by week historical trend analysis for contiguous performance monitoring. LIST•IDEALS • TM (in development) - A complete database and list management module within 13CrU for targeted marketing and customer retention programs including: • • • • Point and click criteria selection for list generation. Data import and export compatibility with most spreadsheet, database and text file formats. Merge, purge functions for increased efficiency. Data verification functions for addresses, names and other key data fields. Integrated job control and maintenance functions for efficient administration and billing. E-mail broadcasting, label and other forms data output. • * • 54 EXHIBIT B: ORGANIZATION STRUCTURE • l,_ml WEB-IDEALS, Chief Executive LLC • Officer Chief Financial Officer Director of Human Resoumes Controller Accounting Managers Administrative Assistants i Executive V P. Marketing Chief Technology Officer ,I I Director of Client Operations Director of Teleservices " IS--sors I V I Ioct°r° 1_--ork IlSu's°rlPlC P---Hloct°° IIM--rs II II b II cu_'°m_r Ic''st°m Director of Account Warehouse TeleservIces r Development t Programming t ::'.C i Operations ] ! t t i Marketing Director(s) Programmers Technical Support Staff 1 ................. ] Warehouse Staff Service Staff (PA) Service Staff (CA)