Alation Systems Inc Detailed Business Plan

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1. ALATION Systems, Inc. Business Plan 2. Executive Summary Overview Alation Systems, Inc. ( Alation or the Company ) designs, develops, and markets…
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  • 1. ALATION Systems, Inc. Business Plan
  • 2. Executive Summary Overview Alation Systems, Inc. ("Alation" or "the Company") designs, develops, and markets wireless home networking products and technologies to support a wide variety of communications, computer, and consumer electronics manufacturers. The Company is the developer of the best-selling wireless home networking product in the market today. Alation solutions are embodied within integrated circuits, software, andproduct-ready reference designs. Alation solutions are distributed through technology licensing agreements with established companies and through the development and production of integrated circuits and product reference designs encompassing the Alation HOP™ technology. In addition, Alation provides product manufacturing capability for its product reference designs for Company distribution partners when required. Current licensing agreements include selling wireless network interlace cards through a distribution agreement with Diamond Multimedia and selling integrated circuits that embody Alation's technology through an agreement with National Semiconductor. Through the alliance with Diamond Multimedia, Alation has developed the best selling wireless network products in the market today. In cooperation with National Semiconductor, Alation has delivered the first wireless network integrated circuits that are available for sale. Several additional distribution agreements arenow pending with major technology companies. Alation's competitive advantage stems from the Company's early recognition and understanding of the emerging home networking market and Alation's ability to build products and technologies that target the needs and requirements of this specific market. In particular, Alation management decided early on to focus Company resources exclusively on wireless products that move Internet data (TCP/IP packets) throughout the home at consumer level price points. Today Alation products provide complete wireless home networking solutions -- all of the benefits typically associated with a local area computer network and ubiquitous access to the Internet, in a low-cost and simple-to-use package. With Alation technology, any TCP/IP enabled device within the home can be connected to the Internet without regard to location or transportability. The Company is now seeking venture capital financing of $5 million dollars ($5,000,000) to maintain its technological lead in the home networking market and to develop integrated circuits and additional technology licensing agreements fordistribution of Alation products and technologies. Industry and Market The market for home networking products is being driven by the growth of multiple PC households, the emergence of broadband internet access to the home, and the emergence of digital and hand held information appliances. Industry analysts estimate that home networking sales will exceed $1 billion by 2002, fueled by the embedding of communications capabilities to support the intercommunication of PCs, cable modems and DSL lines, set top boxes, mobile phones, computer gaming devices and a wide variety of other information appliances. SAM PLE W O R K PR O D U C T N O T FO R D ISTR IBU TIO N
  • 3. Technology and Patents In order for home networking to gain mass acceptance, products must be reliable, inexpensive, easy to install and easy to use. The primary constraint to the development of the home networking market to date has been the significant costs associated with designing home networking products and technology that meets these criteria. Alation has resolved this issue by developing a TCP/IP based wireless home networking technology that is low-cost, flexible, reliable and easy to use. This new technology has been developed specifically for the home networking market. Alation's technology has been developed using innovative concepts that allow key parts normally used in RF circuits to be removed, resulting in the drastic reduction in costs while increasing reliability and performance in the home environment. The result of this design has been a reduction in the price of home networking products, coupled with the ease of use and reliability demanded of consumer based products. Alation is the first company to deliver products and technology that meet all the criteria of the home networking consumer. The Company has filed 54 patent claims for its technology addressing the above criteria. The technology developed by Alation allows for a high degree of flexibility that allows for expansion and interoperability with high bandwidth while providing the best platform for interoperability with other protocols, both wired and wireless. Business Strategy The Company business model focuses on five key strategic points: 1. Maintain the Company's technical lead in the development of low-cost, easy-to-install, and easy­ to- use products that provide the home with ubiquitous shared access to the Internet. 2. Increase the installed base of products using Alation technology through the continued development of keystrategicpartnerships. 3. Leverage those strategic relationships to assure that Alation technologies become incorporated into standards. 4. Provide manufacturing of products for strategic partners using Alation's product ready reference designs in instances where such manufacturing will shorten time to market for product introduction. 5. Maintain and develop interoperability among Alation solutions and with other accepted industry protocols. The Company's strategic plan for growth consists of forming partnerships and alliances with established companies, utilizing their existing sales and distribution channels and market presence to promote products that employ Alation technology. Management is establishing relationships with key market leaders in the following categories: 1. After Market Personal Computer Peripheral Manufacturers 2. Semiconductor SupplierandManufacturers 3. Consumer Electronics Manufacturers 4. Broadband Internet Access Providers 5. Personal ComputerManufacturers In addition to the agreements in place with Diamond Multimedia and National Semiconductor, the Company is now in detailed discussions with several internationally recognized companies in the above categories. SAM PLE W O R K PR O D U C T N O T FO R D ISTR IBU TIO N
  • 4. Management The management of the Company is led by a team of managers and engineers from the Compaq Presario group and Norand. Recognizing the shift in first time computer purchases to second and third home computer purchases, this group formed Alation in February 1997 to develop products for this emerging market, well before most industry analysts were even familiar with the term home networking. Collectively, the Alation team has worked together for the majority of the past four years and has over 150 man-years experience in the Computer Industry. Capital Structure The Company is currently owned 67% by Company founders and employees, 13% by Diamond Multimedia, 10% by National Semiconductor and 10% by Individual Investors. The Company has incurred a relatively small amount of dilution to date and has been able to attract over $5 million in equity investment and product royalty advances. Alation management believes that the current capital structure of the Company allows for an attractive investment structure from venture capital investment funds and/or strategic partners. Summary Financial Information The company has developed a detailed set of financial projections. A summary of the first five years of projections is as follows: Year 1 Year 2 Year 3 Year 4 Year 5 Revenues $1,290,000 $16,882,865 $40,695,007 $83,693,059 $145,439,228 Cost of Goods Sold $85,000 $5,601,520 $12,044,414 $27,432,345 $44,137,175 Gross Profit $1,205,000 $11,281,345 $28,650,594 $56,260,714 $101,302,053 Gross Margin 93% 67% 70% 67% 70% Operating Expenses $4,807,280 $10,614,217 $17,844,174 $28,808,953 $40,718,371 Income From Operations ($3,602,280) $667,128 $10,806,420 $27,451,761 $60,583,683 Interest Income/ Expense $1,088 ($135,143) $105,635 $732,122 $2,186,681 TaxesonIncome $0 $0 $2,418,339 $9,018,843 $20,086,516 NetIncomeAfterTaxes ($3,601,191) $531,985 $8,493,716 $19,165,041 $42,683,847 As indicated above, the Company expects to incur losses during 1999. During this time, the Company will incur significant research and development expenses in connection with the development of its current and future technologies, and will incur considerable expense in establishing marketing and business development programs. Beginning 2001, the Company anticipates that profits will show a steady increase as sales of integrated circuits and Alation designed products come on line and the market for home networking becomes a mass consumer market in which the Company has a leading position. A more detailed financial analysis is presented in section seven of the complete Business Plan. Financing Required and Use of Proceeds The Company is now in the process of procuring five million dollars ($5,000,000) in venture capital and/ or strategic partner financing. These funds will be used to maintain the Company's leading technological position in the wireless home networking market and to begin an aggressive and expansive marketing and business development campaign to distribute Alation products and technologies through third party licensing agreements. SAM PLE W O R K PR O D U C T N O T FO R D ISTR IBU TIO N
  • 5. Time Frame for Procurement of Funding Management intends to complete this round of funding by December 1999. Further Information The purpose of this document is to introduce potential investors to the opportunity for investment in the Company. This document is not intended to be a complete description of the opportunities and risks associated with an investment in the Company. Further inquiries can be made as follows: Mr. Geoff Zawolkow Chief Executive Officer Alation Systems, Inc. 100View Street Suite 101 MountainView, CA 94041 650-903-1800 650-903-1801 (Fax) email: Geof f.Zawolkow@ Alation.com Mr. Mark Harter Acting Vice President, Finance Alation Systems, Inc. 100 View Street Suite 101 Mountain View, CA 94041 650-903-1800 650-903-1801 (Fax) email: Mark.Harter@ Alation.com This package has been prepared by Alation for informational purposes only and does not constitute an offer to sell nor the solicitation of an offer to buy securities, nor does it purport to contain all the information that would be necessary to make an investment decision. In the preparation of this package, every effort has been made to base the data on conservative and realistic estimates. The information contained herein has been compiled by sources Alation considers reliable, but is not guaranteed as to completeness or accuracy. No warranty or representation of any kind is made by Alation regarding any of the information contained herein. This package is subject to revisions without notice and does not constitute a recommendation as to the value of the business ventures contained herein. Each user of this package is to rely on his or her own investigation, evaluation and judgment as to the reliability of information contained in this package. SAM PLE W O R K PR O D U C T N O T FO R D ISTR IBU TIO N
  • 6. SAM PLE W O R K PR O D U C T N O T FO R D ISTR IBU TIO N
  • 7. SAM PLE W O R K PR O D U C T N O T FO R D ISTR IBU TIO N
  • 8. Table of Contents COMPANY DESCRIPTION ............................................................................................................................. 1 THE COMPANY'S MISSION.................................................................................................................................. I PERFORMANCE TO DATE .................................................................................................................................... 1 TECHNOLOGY DEVELOPMENT ............................................................................................................................ 1 - MARKETING, SALES AND DISTRIBUTION PERFORMANCE.................................................................................... 2 INDUSTRY AND MARKET.............................................................................................................................. 3 MARKET GROWTH....................................................................................... ············ ......... ····························· ..... 3 MARKET SIZE .....................................................................................................................................................5 MARKET REQUIREMENTS ...................................................................................................................................5 PROTOCOL STANDARDS......................................................................................................................................6 STAGES OF DEVELOPMENT FOR HOME NETWORKING....................................................................................... l 0 PRESS COVERAGE OF HOME NETWORKING ...................................................................................................... 11 THE ALATION PRODUCT SOLUTION ...................................................................................................... 12 TECHNOLOGY ................................................................................................................................................... 13 PATENTS........................................................................................................................................................... 14 CURRENT PRODUCTS........................................................................................................................................ 14 FUTURE PRODUCTS AND PRODUCT DEVELOPMENT SCHEDULE ........................................................................ 15 MANUFACTURING............................................................................................................................................. 17 PLANS FOR GROWTH................................................................................................................................... 18 STRATEGY ........................................................................................................................................................ 18 DEVELOPMENT OF STRATEGIC PARTNERSHIPS ................................................................................................. 19 COMPETITION................................................................................................................................................ 21 COMPETITIVE OVERVIEW-- HOME NETWORKING TECHNOLOGIES ....................................................................21 PHONE LINE COMPETITORS ..................................... ·········································· ...............................................22 POWER LINE COMPETITORS ............................................ ······· ...........................................................................22 PROVIDERS OF WIRELESS CONNECTIVITY SOLUTIONS ......................................................................................23 CORPORATE INFORMATION..................................................................................................................... 27 MANAGEMENT TEAM ....................................................................................................................................... 27 COMPANY ORGANIZATION AND CAPITAL STRUCTURE......................................................................................29 COMPANY OPERATIONS.................................................................................................................................... 29 FINANCIAL PROJECTIONS ......................................................................................................................... 31 FINANCIAL PROJECTIONS OVERVIEW................................................................................................................ 31 DETAILED FINANCIAL PROJECTIONS .................................................................................................................32 RISKFACTORS ............................................................................................................................................... 33 FURTHER INFORMATION........................................................................................................................... 34 SAM PLE W O R K PR O D U C T N O T FO R D ISTR IBU TIO N
  • 9. TABLE OF EXHIBITS _, Exhibit A Brochure Describing Alation HOP Technology Exhibit B Diamond Home Free Marketing Poster and Ad Exhibit c National Semiconductor Press Release Exhibit D FAQ National Semiconductor - Alation Alliance Exhibit E Review of Alation Technology - Electronic Design Exhibit F PC Magazine Home Networking Article Exhibit G US News Home Networking Article Exhibit H Time Digital Home Networking Article Exhibit I Internet Connection of the Future Diagram Exhibit J Company Press Release Announcing HOP Technology Exhibit K New York Times Article on Alation Technology Exhibit L PC World Review of Alation Technology Exhibit M Listing of Alation Press Articles Exhibit N Prototype Drawings of Future Alation Products SAM PLE W O R K PR O D U C T N O T FO R D ISTR IBU TIO N
  • 10. - Company Description The Company's Mission Alation Systems' mission is to be the leading provider of consumer-level wireless home and small office networking technologies through the development of integrated circuits, software and product-ready reference designs. Performance to Date The Alation management team was among the first to identify the opportunity presented by the emergence of the home networking market. Accordingly, the Company was formed with the intent to design home networking products from the ground up. With an early start in February of 1997, the Company has developed industry leading technologies and solutions for the home networking market. Alation based products have the largest installed base of wireless Home Network nodes in the market place today. Technology Development One primary barrier to the development of the wireless home networking product traditionally has been the significant costs and difficulties associated with manufacturing wireless RF based technologies. Viable mass-market home networking products must retail for less than $100 per node, with the proposition of becoming significantly inexpensive over time. In addition, the products and technologies must be simple to install and to use. Alation's technology, known as HOP™ (HomeCast Open Protocol™), has been developed specifically for the home networking market in order to meet these demanding criteria. Six things make the HOP technology compelling: • The technology permits extremely low-cost solutions. This has been achieved by creating intellectual property that allows the removal of key hardware components that are typically seen in wireless LAN products. • The technology is extremely reliable. Homes are extreme "multipath" environments. Radiowaves in homes bounce off the many walls and surfaces and create dead spots. In the home market, resistance to these dead spots is vitally important. Many existing radio modulation schemes fail in the home due to these reflective surfaces. HOP's modulation is highly resistant to multipath problems. • The HOP technology was designed with user experience in mind. It is extremely easy to install and easy to use. This is critical to the success of the product, as it is targeted squarely at the home end user consumer-a customer with little or no toleran
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