TABLE OF CONTENTS:

A) Executive Overview

B) Business Opportunity

C) Proven Success Models

D) Customer Analysis

E) Market Size

F) Competition

G) The ADhawk Strategy

H) The ADhawk Product

I) Marketing and Sales

J) Operations

K) Organization Plan

L) Timetable

M) Revenue Forecast

N) Operating P&L

O) Equity Participation

P) Summary and Conclusions

EXHIBITS (Not included here)

1) Current Newspaper Classified Rates

2) Forecasts

3) Organization Chart

4) Operating Pro Forma

5) On-line Services RFP for Classifieds **

6) Resumes

7) Frequently Asked Questions (FAQ’s)

8) ADhawk Product and Service Architecture

9) Description of Teknekron Software Systems and copy of development agreement

10) ADhawk Screen Images

**The ADhawk RFP response document (110 pages) is available on request

A) EXECUTIVE OVERVIEW

ADhawk Corporation provides a multi-category general purpose on-line classified advertising service based on the world wide web technology. The company consolidates and publishes ads from multiple listing sources including: Internet direct, on-line services, newspapers, specialty publications, and competing on-line classified services. ADhawk intends to create a useful, unified classified ad market called the ADhawk Ad Exchange, the "NASDAQ of Classifieds".

Peter Drucker said, "Anything genuinely new creates markets nobody before ever imagined." To date on line classifieds are mere novelties. They are unsearchable and chaotic. With the right user focus, functionality, and content, the on-line platform can reinvent the $14 B (in the US alone) classified advertising market. ADhawk estimates the market for on-line classified advertising to range as high as $200 million in 1998 or less than 1.5% of the total classified market in that year.

The on-line platform reduces the cost of ads by 2 orders of magnitude compared with print. Reach extends to millions at no additional cost. It delivers useful searching of massive numbers of local, national, or international ads. This new media enriches the message using pictures and audio. It enlivens the experience with exciting new features like auctioning, search agents, and marketplace information.

As the personal computer before it, the economics, individual empowerment, and compelling functionality of on-line classified advertising will define a new value point and "create a market nobody before ever imagined."

The ADhawk Ad Exchange enables readers to easily and efficiently search a vast classified ad database. The search can be based on geography or a specific criteria. Inquiries and responses are sent immediately via e-mail, fax, or voice. Readers also have single click access to related valuable information and advice forums staffed by recognized experts. Readers are also provided with comprehensive directories of all Internet classified sites. Advertisers have access to ADhawk authoring tools ranging from simple easy to use templates to sophisticated multi-media display capability.

ADhawk customers are individual and business advertisers. ADhawk receives listing fees from them. ADhawk also sells an outsource classified service to print media, on-line publications, and newspapers.

ADhawk delivers access to the largest readership world wide at costs two orders of magnitude lower than print. 1Kbytes of data (about 150 words) is priced at $2.00 per week. The economics, individual empowerment, and compelling functionality of on-line classified advertising will define a new advertiser value point.

The ADhawk Ad Exchange positions itself as the world-wide market for classified ads. It offers the most content, the most readers, good looking ads automatically generated, and comprehensive access to experts and related information. ADhawk provides an entertaining and exciting experience for both readers and advertisers.

ADhawk Ad Exchange must be promoted to both advertisers and readers through PR, advertising, and joint marketing with on-line services and print publications. Direct selling is planned to content partners, on-line services, ad agencies and large advertisers.

The ADhawk launch strategy is to build the Ad Exchange by partnering with the major on-line services thus gaining access to their content and readership. Direct access to ADhawk branded Internet service is also provided. With this audience and content established, ADhawk will solicit ads directly and pursue partnerships with print media and other on-line publications.

ADhawk Ad Exchange is web based and can be customized to the look, feel, and functional requirements of each on-line service. First release will focus on the basic functionality necessary to create the market and assure rapid launch. Subsequent releases will continually exploit the capabilities of the on-line platform. To accelerate development ADhawk is partnering with Teknekron Software Systems of Palo Alto, CA for initial development. In parallel, ADhawk builds its own internal R&D team. Prototype development was completed in Q4 1995. Customer launch is planned for Q3 1996.

ADhawk is responsible for customer care. ADhawk must assure that content adheres to laws and guidelines of on-line services, states, and countries around the world.

The ADhawk marketing launch plan is to operate the classified ad area on at least one (CompuServe) major on-line service participating in the Ad Exchange. An icon on their main screens accesses the ADhawk Ad Exchange. This provides the initial qualified readership. Additionally, ADhawk will upload all existing ads from that service. This provides the initial content. Sales and business development staff will work on promoting the ADhawk Ad Exchange to all on-line services and Internet as well as signing up new content sources like newspapers or specialty publications. Direct selling to advertising agencies is also planned.

Competition will come from on-line services, specialty Internet classified areas (such as Career Mosaic, and Match.com), and the "New Century Network" ("NCN"), a consortium of major newspapers. For example, NCN is seeking to protect their help wanted advertising with their Internet offering called CareerPath.com. About three hundred Internet classified ad areas currently exist, with more added weekly. ADhawk creates an unfair competitive advantage by being the classified ad service of choice on at least one major on-line services (CompuServe), capturing its current ad base and 4 million readers.

ADhawk 1998 revenue forecasts range from $5.7M to $27.5M (Exhibit 2a-2c). Building to a team of 16 professionals at the end of 1996, break-even is achieved in 3Q 1997 with profitability of over 50% PBT in 1998.

The associated revenues for CompuServe based on ad prices of $2 to $3 per week would reach $28.1 million in 1988. (Exhibit 2a).

The risks are in several key areas. First is ADhawk’s ability to sign-up on-line partners. This risk was eliminated with ADhawk’s award of the on-line service consortium RFP for classifieds (Exhibit 5). However, to date only CompuServe has agreed to participate. Next is product and schedule risk primarily in the area of interfacing to the specific on-line service participating in the Ad Exchange, search quality, and performance. There is also the challenge of recruiting additional content. Substantial uncertainty exists over the resources required to manage content control and customer support. Lastly the rate of adoption for on-line classifieds is a question.

Equity in the ADhawk corporation is to be divided 25% to venture capital investors, 35% to on-line service participating in the Ad Exchange and 40% to employees and founders. The on-line partners’ equity is earned based on the share of ADhawk revenues they generate. The #1 on-line service partner could earn 10-20% ownership in the company (Section O).

ADhawk is founded by two proven successful entrepreneurs. Fred Gibbons CEO, founded Software Publishing Corporation, a pioneering publicly held PC software company best known for Harvard Graphics and other "ease-of-use" software. Bill Strong Chairman, is the founder of Zipsort, Inc. the original creator of the mail presort industry (Exhibit 6).

B) BUSINESS OPPORTUNITY

Classified ads have long-existed in print media and are beginning to appear on-line. The existing on-line services have inexpensive classified areas that are not effective or widely used. Several large newspapers have launched on-line editions offered via the existing on-line services, the Internet, or both; usually having searchable classifieds.

The on-line platform reduces the cost of ads by 2 orders of magnitude compared with print. Reach is extended to millions at no additional cost. It delivers useful searching of massive numbers of local, national, or international ads. This new media enriches the message using pictures and audio. It enlivens the experience with exciting new features like auctioning, search agents, and marketplace information.

US newspaper classified advertising was $12.5B in 1994. The current on-line classified revenue is insignificant. CompuServe today has approximately 13,000 ads generating about $1.2 M in annual revenues. AOL has over 25,000 free ads. Microsoft has not unveiled their classified area. Internet advertising is predominantly free. The newspapers bundle on-line listing with their print pricing, sometimes charging extra for on-line editions. Classified features on the three major on-line services and Internet based newspapers are primitive, unstructured, and have limited search capability. The results are low customer satisfaction and minimal usage.

The future plans by all these participants are as follows:

1) Some major on-line services are upgrading existing classified areas.

2) Microsoft’s MSN recently partnered with MCI and will likely offer classifieds.

3) Telephone companies are pursuing an Internet strategy, some with classifieds and shopping.

4) Large "flagship" newspapers formed a consortium called the New Century Network. The consortium will provide technical and consulting support for affiliated daily newspapers to develop local access to news, features and sports information, home shopping, interactive advertising, entertainment guides, electronic mail, "chat" services and local discussion forums on the World Wide Web Internet service.

The near-term result will be an increasingly fractionalized marketplace. Even with improved classified areas, future users will be confused and frustrated as they are forced to search an unlimited number of sites on five or more major networks and thousands of Internet sites. What is needed is a unified market, the ADhawk Ad Exchange, the NASDAQ of Classifieds".

C) PROVEN SUCCESS MODELS

There are several notable examples of competitive businesses sharing information in order to either create a market, or to facilitate commerce. Airlines show and book competitive flights on their reservations computers. Competitive real estate brokers furnish listing information to local MLS boards. Visa and Mastercard allow individual banks to offer branded credit cards, as well as share credit information and clear transactions. Each of these existing success models created a market or enabled commerce, while maintaining competitive freedom of action. Independent entities were created to facilitate the process.

The ADhawk strategy uses another proven success model. The concept of "pay to list, free to browse" has been extremely successful for years in publishing. It allows small revenue increases as utility improves, without changing the revenue model. Many Internet ventures will initially use a "free to list, free to browse" strategy to build presence. Such a strategy results in no revenue and no investment in new capability. Because ADhawk’s on-line partners already have readership, they can use the time-proven advertising revenue model of "pay to list, free to browse".

D) CUSTOMER ANALYSIS

Advertisers are ADhawk’s customers. They are the source of ADhawk revenue. ADhawk delivers unequaled global readership and efficient, powerful tools to create compelling ads. ADhawk classifieds offer individuals and business advertisers a new value point which is substantially better and cheaper than existing alternatives. Readership is attracted by depth of content, ease of access, entertainment, and access to a community of information.

Current print classified advertising is expensive by any measure: per ad, per word, or per reader. Most advertisers place shortened ads with extremely limited descriptions and abbreviations. The cost of a 60 character general purpose classified ad in the LA Times (circ. 1,083,000) is $66 per week yielding a CPM (cost per million) of $60.94. A 60 character help wanted ad costing $240 results in a CPM of $221.61. Other "flagship" publications such as the NY Times or the Wall Street Journal can be even more expensive. An employment ad 1" high appearing three days in the Wall Street Journal costs $1,700. See Exhibit 1: Current Newspaper Classified Ad Rates.

ADhawk will be substantially cheaper, even before considering functionality. The current on-line readership will have at least 20 million at the end of 1996. Compuserve today charges $2.00 per week for two lines or 130 characters. ADhawk’s basic ad will be up to 1000 characters. Assuming the same $2 per week results in a CPM of $0.13.

If functionality is considered, the comparisons are even more favorable for the on-line services. The on-line services presently have limited search capability and limited content. The ADhawk Ad Exchange will offer unequaled functionality, including efficient searching, graphics, and other features described in section H. The CPM advantage increases as more services offer ADhawk. Lastly, there is an empowering and captivating effect when a customer quickly and easily advertises at unheard of low cost in a world-wide database.

To be valuable, the ADhawk Ad Exchange must generate results for the advertisers. Results begin with browsing. The on-line reader will be motivated first by low cost browsing. ADhawk does not charge for browsing. The on-line service will charge for connect time or any other plan they deem appropriate.

Readers are empowered immediately by the 1-stop unified search capability for a wide range of items, using multiple search criteria. Browsing rewards increase with the growth in ADhawk content. Searches can be local (for low-value items, for example), to world-wide. The customer has the option of choosing either a quick and efficient search, or alternatively participating in dynamic and entertaining interaction with rich data content and features like auctioning. On-line classified advertising will be successful directly proportional to its usefulness and credibility with readers and advertisers.

On-line services participating in the ADhawk Ad Exchange:

ADhawk collects revenues from the participating on-line services, like CompuServe, in return for operating their classified ad service. The on-line services are sources for readers, advertisers, and content. By outsourcing this function to ADhawk, the operating responsibility is off-loaded at a compelling make versus buy price. The use of ADhawk provides the on-line services an opportunity for increased customer satisfaction and increased network revenues, without limiting competitive freedom of action. Each participating on-line service sets viewer charges and advertising charges as they alone determine. Each on-line service retains the ad revenue from their customers. There is no sharing of revenues between services.

In addition to the intangible of increased customer satisfaction, there are four principal revenue opportunities for the on-line service participating in the Ad Exchange: ad listings, connect time, transactions, and possible e-mail charges. The ADhawk forecasts include OLS revenues from ad listings only. CompuServe’s ad revenues would be $8.8M in 1997, growing to $28.1M in 1998 (Exhibit 2a). This is based on pricing of $2.00 to $3.00 per week for 1kb of text. Photograph charges range from $2.00 to $3.00 per week. As the value of ADhawk Ad Exchange is proven, the opportunity exists for price increases while continuing to benefit from a falling CPM. Price and volume increases are possible due to the price umbrella created by the newspapers and other print media, provided critical mass is achieved..

On-line services joining the Ad Exchange also participate in equity ownership of ADhawk with the opportunity to realize appreciation and liquidity in the future. (Section O)

Newspapers and specialty publications:

The ADhawk proposal allows newspapers and specialty publications the opportunity to have their advertisers receive the benefit of being included in the ADhawk Ad Exchange database. ADhawk has briefed four major newspapers on the ADhawk proposal and received responses ranging from "keep us informed" to "we are doing the same thing with our own brand identity". ADhawk believes an opportunity for cooperation with the newspapers may be possible in the future.

Newspapers and specialty publications are implementing their plans for converting to on-line readership. This is clearly evident with the formation of the New Century Network in April 1995. The current newspaper on-line classified strategy is vulnerable in two areas. First, they offer only bundled pricing. An advertiser must advertise in print in order to appear on-line. This forces the advertiser to pay the print price. Second, content is limited and readership is limited. Newspaper classifieds are dependent on verbal communications with newspaper ad personnel using fixed templates. This process produces ads that are cryptic and short in order to save the advertiser money. As a result newspaper ads will never be as complete as an ADhawk ad.

In the ADhawk model, newspapers continue current business practices for print media classified ad placement. ADhawk will interface with their computerized classified system and bulk upload the ads. In the case where the newspaper has a web version of its own classifieds, ADhawk will directly access their server and perform the upload. While there is no precedent, the potential exists for ADhawk to flow local content ads to print media if the pricing can be arranged.

Newspapers and specialty publications could benefit from increased classified ad revenues, justified by offering advertisers vastly wider readership in the on-line world. Smaller papers will also find it advantageous to offer their listings on-line, without the cost or management of new on-line media. ADhawk will agree to license it’s software or operate as a complete turnkey outsourcing service to newspapers in return for access to their content. Newspapers retain all competitive flexibility, including the ability to set classified ad prices and policies.

E) MARKET SIZE

Newspaper classified advertising in the United States during 1994 grew 12% over the year earlier, and totaled $12.5 B according to the Newspaper Association of America. Continuation of the 12% annual growth will result in 1995 classified advertising of $14.0B.

According to the McCann-Erickson Report, newspaper advertising represents the largest share of the $149B domestic advertising market in 1994:

While ADhawk's focus is the classified ad market, it is useful to keep the complete $149 billion per year advertising market in mind, because the advent of the new on-line media will cause a redefinition of traditional markets.

Advertising is any form of public announcement intended to aid directly or indirectly in the sale of goods or services. We believe advertising budgets will be increasingly allocated to a new category: "On-line Advertising". As On-line Advertising evolves, we believe it will gradually assume the form of "information on demand", with hyper-links to the classified area in order to locate the desired product or service. This is in obvious contrast to traditional "in your face" broadcasting.

Even if the $14 B classified market does not grow, there are many reasons why the on-line segment targeted by ADhawk will obtain a significant size quickly. Namely the other qualitative attributes discussed elsewhere in this plan: Access, Efficiency, Information, Inexpensive, Entertaining, Comprehensive, Graphics/Photo/Audio, Empowering, and Messaging. Just two of these attributes alone: Inexpensive relative cost, and Graphics/Photo/Audio capabilities will be so persuasive as to insure effective on-line classifieds a significant piece of the classified ad market.

Another dimension of the classified ad market is to approximate the number of ads represented. High circulation publications charge $60-250 per 60 character ad. Most publications charge less. Assuming an average cost of $25 per week, there are 560 million weekly classified ads totaling $14 B, or a steady-state level of 10.77 million ads each week. This level results in a ratio of .094 ads/reader when considering the 115 million daily newspaper readers, or 4.1% of the 260 million total population. A growth rate of 10% results in 14.24 million ads in 1998.

By comparison, Adhawk believes the on-line services could obtain over a million weekly ads by the last quarter of 1998. This level results in .03 ads/reader, much less than the .094 level achieved by newspapers. This represents a small percentage of the total number of 1998 classified ads from all sources in North America. It is less than 1% of the $18.6 B 1998 classified ads on a dollar basis.

The ADhawk proposal is the on-line service's best method of obtaining on-line’s share of classified ad spending. With the proper execution in a cooperative market-making fashion, on-line services can obtain portions of the entire $149 billion per year advertising spectrum. ADhawk’s comprehensive classified Ad Exchange database is an important step toward capturing a significant share of the market.

F) COMPETITION

The primary competition is the classified areas of other on-line services, Internet specialty ad areas, and classified areas of hosted publications of on-line services. A great amount of competition within a single on-line service occurs without the ADhawk Ad Exchange service. For example, each service's classified area will compete with the ad areas of hosted publications (which could number in the hundreds), all Internet ad areas (which could number in the thousands), and even areas within a single service such as forums which could contain ads. The ADhawk proposal reduces the conflict between a confusing array of ad areas, while creating a useful resource for on-line customers.

Competition also occurs from a variety of on-line, print, and new media. The competition results in an extremely fractionated (and therefore less useful) marketplace, as shown below:

On-line Competition

1) Hosted Newspaper classified ads

2) Hosted Magazines and other publications

3) NYNEX-type Interactive Yellow Pages

4) Internet newspaper network--New Century Network or specialty offerings

5) Internet editions of Newspapers

6) Internet editions of Magazines

7) Internet web pages of direct marketers

8) Internet versions of targeted ad areas (such as Classifacts and Electric Classified’s Match.com)

9) Internet versions of Generic classifieds

10) Internet Yellow Page directories

11) Local Bulletin Boards

12) Large Company network bulletin boards

13) Search Directories and Browsers (such as Yahoo and Netscape)

14) MSN and other on-line services

Non-On-line Competition

1) Newspapers (printed) classified ads

2) Newspaper audiotext services

3) Newspaper fax on demand services

4) Specialty Publications

5) Interactive Cable TV

6) Interactive Kiosks

7) CD-ROM Yellow Pages with advertising

8) Hotel Guest Interactive TV Information

9) Phone Company audiotext directories

All of the potential competitors listed above are seeking to capture or grow the $14 B classified ad market, or portions of the total $149 billion per year advertising market. Darwinian processes will certainly occur, but it is likely all forms will be available. At present all twenty-three types of competition are moving to secure a portion of the $149 billion annual advertising market. Past experience has proven the market awards higher market shares to early solutions. ADhawk is cognizant of time to market issues, and knows the time to act is now.

The on-line competition will be fractionated even more by the individual offerings of each separate commercial on-line service. Even after the recent consolidation trend, there could be as many as six on-line services plus the Internet: America Online, CompuServe, MSN/MCI, Prodigy; joined by AT&T and Apple’s e-World. It is likely all of these networks will offer a combination of classified ad areas, publications with classified ad areas, and access to the classified ad areas available on the Web.

While the commercial on-line services have grown rapidly in the past year, a pronounced move to the Internet has emerged and accelerated. Adhawk believes it offers on-line services the opportunity to prevent a complete migration of classified advertising to the Internet. Classified advertising on the Internet will be area of competition.

Three notable potential competitors are the NYNEX-type Yellow Pages, the New Century Network, and MSN (Microsoft Network), now "MSN/MCI".

NYNEX Interactive Yellow Pages ("NIYP") are an on-line representation of the traditional yellow pages, with expanded advertising pages. The NIYP mission statement is "to be a world class leader in helping buyers and sellers manage information to complete transactions." In other words, connect buyer and seller, a function very similar to the role of classifieds. This kind of on-line publication is geographically limited by the telephone divestiture act of 1984, but NIYP sought to have this restriction removed by the Telecommunications Act of 1996.

NIYP is available on Prodigy and on the Web. The Los Angeles Times TimesLink is believed to be working on a similar effort for the West Coast. This competition is formidable because of the resources available to phone companies, including money, sales forces, and a comprehensive listing. There is a risk these efforts will evolve towards classifieds. An even greater risk is that an Internet yellow pages offering, such as YellowNet, will by-pass the on-line services entirely and greatly reduce the on-line service share of classified and other advertising.

New Century Network is an alliance representing 123 daily newspapers that will facilitate electronic publishing on the Internet. According to a New York Times article, NCN is "intended to create a unified nationwide system to withstand competition from regional phone companies, cable television operators and commercial information networks that already serve millions of customers." ADhawk believes NCN is a direct response to the newspaper’s concern that on-line services will capture a share of classified and other newspaper advertising. The ADhawk business plan encourages newspaper participation, but there is increasing evidence NCN will pursue an independent Internet presence in addition to being hosted publications on commercial on-line services. There is a substantial risk New Century Network will be direct competition for both ADhawk and the on-line services. NCN has an advantage of being able to advertise on-line offerings such as CareerPath.com frequently and cheaply in participating newspapers, but the disadvantage of having to attract an independent on-line readership. The standard CareerPath.com ad reads: "The most employment listings on the World Wide Web. The best positions and places to work. The easiest database to search. And it’s free to users! CareerPath.com offers the nation’s most complete employment database, updated daily with hundreds of new jobs." NCN is obviously attempting to protect the lucrative help wanted newspaper advertising from on-line diversion.

MSN (Microsoft Network) was launched in August 1995 with the introduction of Windows95 and signed up over 525,000 users by the end of the year. MSN must be regarded as potential competition because of their large installed base, the integration of MSN into Windows95, and interest in transactions. In December MSN’s strategy was changed to offer free Internet access instead of being based on paid subscriptions. In late January the MSN/MCI strategic alliance was announced. MSN subscribers have direct access to the ADhawk Ad Exchange via Internet. The best competitive strategy is to quickly achieve critical mass and build ADhawk Ad Exchange awareness. ADhawk met with Russ Siegelman during 1995, and is hopeful MSN will join the ADhawk Ad Exchange once critical mass is demonstrated.

"Targeted/Niche" classifieds or "Generic" Internet classified areas not linked to publications represents direct competition to ADhawk. Examples of targeted classifieds are Career Mosaic and Classifacts, which aim at the lucrative employment wanted areas. However, their revenue model is not clear and is subject to change. There is also the risk a targeted classified will later attempt to broaden into generic classifieds. At present there are about three hundred classified efforts available on the Internet. This number will grow into the thousands in the future. Each will have to create presence through favorable reviews and mentions. They also have the pricing dilemma of choosing between no revenue and free listings or a high cost/low volume approach. For example, some niche classified areas are charging $200 for a six month listing for real estate or a boat, but suffer from being unknown and containing only a small number of listings. ADhawk believes it will prevail over this type competitor by presence, functionality, comprehensiveness, and ease of use.

While many specifics are unknown at this time, Classifacts and Match.com are potential on-line competitors worthy of comment.

Classifacts receives weekly classified ad uploads from about forty major newspapers. Their current product is an 800 service where customers request a job search and pay fees of $6.00/wk. The customer receives printed search results via fax or overnight delivery. Classifacts reportedly pays 10% back to the newspapers on an allocation basis. To their credit, Classifacts has an established relationship with the newspapers. It has developed software to upload and expand the abbreviations in newspaper classified ads to full text. Classifacts may be developing "backend" software for newspapers to manage their own on-line classified service. Classifacts did not confirm if it had a long-term contract with the newspapers permitting on-line display of the uploaded classifieds. It seems doubtful Classifact’s newspaper partners will continue to cooperate with Classifacts in the area of classified ads, given their protective nature and possible future direction of New Century Network.

Until recently Electric Classified’s "Match.com" has pursued a strategy of targeted ads (Personals) offered on the Internet. Match.com offers personals for free. Searching with user criteria is not possible. To their credit, Match.com does have a limited Internet presence, however their self-touted technology is not evident from the Web offering to date. Electric Classifieds is now seeking to compete with ADhawk, by expanding to all classified ads. Electric Classifieds faces issues of: no revenue stream; the scaleability of their system; depth and sophistication of management/development team; and an uncertain strategy which includes tools development. Match.com is rumored to have just raised $ 7 million in corporate and venture capital for expansion. They claim over 60,000 members and 300,000 hits per day, and have started charging new members $6 to $10 per month.

The plethora of classified competitors and potential classified sources are the raison d’être of ADhawk, which seeks to create the on-line market. Without change since inception, ADhawk has proposed a clearly defined "on-line service centric" strategy with a simple revenue model.

G) THE ADhawk STRATEGY

The goal of ADhawk’s strategy is to build, the ADhawk Ad Exchange into the dominant branded on-line classified market worldwide. To accomplish this goal ADhawk is recruiting the leading on-line services and print media companies. ADhawk offers the broadest range of content with easiest and most efficient searching. It uses the capability of the on-line media to its fullest potential and creates a proven, reliable, credible, and valuable new market. ADhawk is a single purpose, single focus entity, completely dedicated to provided on-line classified advertising with unequaled functionality.

ADhawk uses aggressive prices to encourage frequent use by advertisers. On-line service participating in the Ad Exchange will see ADhawk continually lowering its wholesale prices. This encourages a continuing relationship. Because ADhawk will enable a useful marketplace allowing on-line services to slowly raise ad rates, ADhawk's share of the revenues due to "wholesale" charges will total only about 10%. Revenue sharing in this proportion should be extremely attractive to our on-line partners. ADhawk may outsource the physical operation of the server, but will retain R&D, Marketing, Sales/Business development, and customer care internally.

The ADhawk entry strategy is to first focus on the major on-line services. ADhawk’s basic marketing tactic exploits our position as the primary general purpose classified ad area of the on-line service participating in the Ad Exchanges. An icon on the main screens of each service accesses ADhawk. The RFP from AOL, CompuServe, MCI, and Prodigy awarded this position to ADhawk (Exhibit 5). ADhawk has to date, the commitment of only CompuServe and is still in contact with others. With the base of CompuServe readers and their ads established, ADhawk will pursue print media ads.

The ADhawk long term strategy builds broad awareness for the ADhawk Ad Exchange world wide and creates a self-sustaining business. ADhawk builds brand awareness over time by taking ads directly from Internet customers. Even a small amount of direct Internet volume is extremely profitable for ADhawk, and helps solidify our position. In both the medium and high revenue case ADhawk forecasts direct Internet revenues will exceed revenues from CompuServe by the end of 1997.

Another long term strategy is to continually provide software having unequaled utility to enable a useful on-line classified ad market. ADhawk will continue to design and implement related products to serve the on-line service's classified customers. ADhawk increases the profitability of our on-line partners.

ADhawk is an independent and unbiased "multiple listing service" database for classified ads. ADhawk exists as a wholesale aggregator enabling a significant "win-win" for all participants. It does this without restricting each service’s competitive options. ADhawk does not require a consensus from all partners, and does not dictate listing prices, nor favor any particular media.

H) THE ADhawk PRODUCT

To make the ADhawk Ad Exchange a contribution in the marketplace, it must utilize the unique functionality of the network. It must do what print media cannot do. The genes of this new functionality are: interactivity, intelligent access to vast quantities of information, and viewing multimedia content.

ADhawk is using a phased approach to features. First release offers the benefits of a unified database, and enable the market. Subsequent releases will add features to take advantage of the rich on-line capabilities.

Architecture: Exhibit 8 gives an overview of the architecture for the ADhawk Ad Exchange. Its salient features are based on existing technology from Teknekron Software Systems of Palo Alto. A central information bus manages adapters for the individual on-line services as well as query and database handlers. The "publish and subscribe" methodology optimizes performance and provides adaptability for future sources such as bulk newspaper or magazine uploads. Teknekron is developing system architecture that is flexible, scaleable, and capable of delivering unequaled response times across a variety of platforms and user interfaces.

Platform: The ADhawk Ad Exchange is a web server. The customer diagram at the end of section D shows how the users enter the ADhawk Ad Exchange. Customers entering directly from an on-line service participating in the Ad Exchange see a UI compatible with that service. Those entering the ADhawk web site from an Internet connection see the ADhawk home page.

User Registration: Browsing is free and unencumbered by registration. When first accessing the ADhawk Ad Exchange, users sees an index and begin their exploration of the site. Registration is a turn off to most time users. It elicits fears of Big Brother watching. Advertisers register their name E-mail address and payment method. An authentication process assures customer identity and correct billing information. A simple e-mail exchange completes authentication. Anonymity is also offered.

User Profile: User can create their own profile subsequent to initiating a search or ad placement. This consists of information such as preferred search or listing radius (say within 50 miles), publications to use in the search, e-mail identification, and billing information. This requires registration.

Ad Search: ADhawk users easily search using multiple options including: push-button categories to click and drill down; free text search; multiple search parameters; geographic search;, and publication pick list.

Readers easily search for a wanted item, job, or service; or simply scan the marketplace. The search can be narrowed to a specific location, or a radius for example "within 100 miles of my home", state-wide, country-wide, or worldwide. User-defined multiple criteria or free text searches are easy for a broad range of customers. Novice to experienced users; business and personal users; will all find ADhawk easy and functional.

Information Display: ADhawk is developing useful and entertaining methods of displaying ad search results (Exhibit 10). This will be much more than the simple retrieval of ad text. ADhawk will offer a variety of user controlled methods including: traditional "Newspaper" displays, and our automatic "Headline" or "Detail" spreadsheet formats with geographical displays. General area maps with ad item locations automatically plotted will be an optional display in later releases. Detailed driving instructions with local street maps will also be offered. ADhawk’s integrated map displays and automatic spreadsheets will dramatically highlight the improved nature of on-line classifieds.

On-line Ad Placement: Placing classified ads on-line uses a selection process menu similar to that used for retrieving ads, in order to place the ad in the appropriate category. Pre-designed templates tailored to a category will guide the advertiser to "fill in the blanks" with standard information like model year and mileage for cars, or # of bedrooms and baths for condos. In addition, background and content placement templates will allow the advertiser to choose a "look" for their ad. Free text descriptions are also an option. ADhawk technology assures the advertiser of a good looking ad. A collection of stock file photos are also planned to facilitate the incorporation of images.

An ADhawk classified ad is in reality a web page. Advertisers are given unique URL identifier for their ad. This may be imbedded and linked in other web pages or used as a home page by the advertiser. This URL is also used when locating an ad for editing.

Print Media Ad Placement: Newspapers and specialty publications submit ads using an electronic bulk uploading process. An application on the ADhawk server merges these ads into the consolidated database. This maintenance application also purges content on the expiration date, and is used to prevent listing objectionable material.

Multimedia Content: After initial launch, ADhawk will begin accepting photos and drawings. These are mailed, faxed or electronically transferred (GIF/JPEG/TIF) to the ADhawk Ad Exchange Center where they are scanned in and appended with the appropriate ad. Audio clips will be added next, followed by video segments. ADhawk will also explore third party relationships with firms such as Seattle Film works to handle image and multimedia file preparation.

Auctioning: When a 1968 Shelby Mustang is listed at $17,500 or "best offer," the viewer can E-mail a bid to the seller. If another person is interested in the same car, they see existing bids, and perhaps place a higher bid. Likewise all previous bidders are notified of new bids giving them a chance to up the ante.

Alert agents: ADhawk offers intelligent browsing by allowing the users to create agents that notify them when a particular item or opportunity shows up in the database.

Market data: The user can also access a "Market Data" service that can give information such as high, low, and average price on an item across any geographic area.

Messaging: Internet mail addressing conventions assure cross-service messaging. A key ADhawk feature allows messaging with anonymity, yet ADhawk retains a tracking capability to prevent improper usage. Fax and pager communications have been developed.

Completeness/Usefulness: While ADhawk is designed to be an easy to use general purpose classifieds, it also intends to provide functionality superior to any other alternative. For example, ADhawk’s real estate areas will have a completeness equal to the most sophisticated MLS systems. This assures both individual and professional usage.

Content standards: ADhawk will work with content partners and legal experts to define the standards for ad content. Networks or newspapers must assume responsibility for content standards compliance on listings uploaded to ADhawk. ADhawk reviews the text and photo content of ads submitted directly by the user.

Ask the expert: ADhawk will run an "ask the expert" forum or "chat" area to answer questions and talk about the content of the ads for each listing category. Staff from publications or other knowledgeable experts will be recruited by ADhawk to serve in this capacity. This "community" feel builds ADhawk customer loyalty and adds dramatically to the informing the reader.

Related content: ADhawk is committed to providing the reader with additional valuable content that lets them make informed decisions regarding the content of ads. Examples are access to census data, automobile blue books, and consumer reports. These will be made available as web links to sites providing this information. Providers of this additional content may also present exciting joint marketing opportunities for ADhawk and them. This is also a major competitive differentiation.

Directory services: ADhawk also offers the definitive directory of all classified sites on the Internet. This directory is accessible from the main screen. It allows readers a one stop shopping site for classified advertising. Although potentially competitive, we believe this will drive traffic to the ADhawk site. Once there, ADhawk’s superior content and functionality becomes apparent.

Links: Each ad and category has a unique URL. It allows readers and advertisers to jump directly to an ad and provide links to related areas. For example the scuba forum participant on AOL to quickly jump to the comprehensive ADhawk scuba classified area or even a specific ad. URL addresses can also be contained directly in ADhawk ads. This allows advertiser to immediately jump readers to a home page. Links are indicated by an icon in the ad.

I) MARKETING and SALES

Our customers are the classified ad content suppliers; including networks, newspapers, specialty publications, individuals and businesses. ADhawk’s objective is to be the world's largest database of classified advertising and offering unique functionality that makes the ADhawk Ad Exchange the "NASDAQ" of classifieds. The ADhawk marketing organization focuses on recruiting advertisers, content suppliers and generating user demand.

The ADhawk basic entry marketing plan exploits our position as the primary classified ad area on the major on-line service participating in the Ad Exchange. ADhawk is accessed from an icon on their main screens. The launch strategy is built around on-screen announcement, advertising in the service publications, and consumer PR. ADhawk's marketing team will develop other promotions and programs intended to increase awareness and stimulate demand.

The ADhawk long-term marketing plan focuses on building advertising revenues, as well as signing up new ad sources like newspapers or specialty publications. In many cases will form joint ventures with specialty publications like "Trade a Plane," or "Car and Driver." These publications can contribute ads and run an "ask the expert" forum or "chat" area to answer questions and talk about the content of the ads. This "community" feel builds ADhawk customer loyalty.

ADhawk charges a wholesale price for listing an ad. User search, browsing, and messaging is free. The basic ad unit is defined as an ad of up to 1Kbyte placed for a seven day week. This translates to approximately 10 typewritten lines per ad. Initial pricing estimates are that ADhawk wholesales this ad unit for $.50 per week. ADhawk "wholesale" charges are content-based. Bigger files are more expensive. ADhawk’s "wholesale" charge for photos or drawings is initially $2.00 per week, with additional direct set up costs passed through. Publications and the on-line services are free to charge their customers as each alone shall determine. Advertisers are billed directly by the on-line service. ADhawk bills the service weekly for the ads submitted by advertisers.

Other companies including ATT offer Internet access. ADhawk proposes these access providers have a classified ad icon on their main menu. The icon accesses the ADhawk database. It also allows the access provider to receive the ad revenues from their customers. ADhawk receives the standard "wholesale" listing fees similar to other on-line service participating in the Ad Exchange.

J) OPERATIONS

Data Center: The data center may be outsourced to a server farm operating on a 24/7 basis. The server will be a fully mirrored UNIX-based server with multiple T3 lines. The center will provide initial capacity for 1,000,000 accesses per day and space for 50GB of ads. Firewall protection is required. The data center will be initially operated by Teknekron at their Palo Alto facility.

K) ORGANIZATION

The ADhawk organization is initially staffed to build, support, and market the ADhawk Ad Exchange world-wide. Initial team size is 16 by 4Q96, including: Admin./CEO 4; Marketing 3; Sales/Business Development 2; System Operations 3; and Software Development 4.

The ADhawk’s initial development work is outsourced to Teknekron Software Systems of Palo Alto, a Reuters subsidiary. A description of the firm is listed in Exhibit 9 along with a copy of the development agreement. This approach was used to accelerate development time. The work is divided into four phases: Demonstration, Prototype, Pre-Production, and Launch. The overall development objective is speed to market with minimum technology risk. Teknekron is committed to industry standard environments, protocols, and tools. ADhawk is confident of Teknekron’s ability to design and build scaleable, "industrial strength" software. In parallel, ADhawk is developing its own engineering organization and will effect a technology hand-off when practical.

L) TIMETABLE

Initial prototype was completed occurred in Q4 1995. Full commercial release is scheduled during Q3 1996.

M) REVENUE FORECAST

One of the major variables of the forecast is the size of the available market of on-line service users. The ADhawk revenue forecast contains the following estimate of "ACMP" (AOL, CompuServe, MSN/MCI, and Prodigy) customers and other on-line users.

ADhawk Forecast of Number of On-line Users 1995-1998:

ADhawk Revenue Forecast:

The revenue forecasts for ADhawk are in Exhibits 2a (Low), 2b (Medium), and 2c (High).

The Low range forecast (Exhibit 2a) assumes ADhawk presence on CompuServe only. It is forecast CompuServe will grow from the 4.0 million current subscribers to 7.5 million at the end of 1998. The ADhawk database includes 225,000 ads and 23,000 photos by the 4th Quarter of 1998. CompuServe 1998 ADhawk revenues are $28.1 million with a run rate of $38.6 million per year.

The Expected range forecast (Exhibit 2b) uses the Low Forecast and assumes additional volumes of ads and photos coming directly from the Internet and print publications. The ADhawk database includes the ads from CompuServe, plus 71,000 Internet ads, and 25,000 ads from publications by the 4th Quarter of 1998. There are 31,000 photos in the database, with 8,000 coming from Internet and publication sources.

The high range forecast (Exhibit 2c) is similar to the Medium case, but assumes higher ad and photo amounts per subscriber, and higher Internet and publication volumes. The ADhawk database includes the same 225,000 CompuServe ads, plus 171,000 ads directly from the Internet, and 75,000 ads from publication by the 4th Quarter of 1998. There are 41,000 photos in the database: 23,000 from CompuServe; 15,000 from the Internet; and 3,000 from publications.

Ads received by ADhawk directly from Internet sources are extremely profitable. ADhawk plans to charge retail prices comparable to the OLS’s. Direct Internet ads are priced at priced at $3.00 each by the end of 1998, or 7.5 times ADhawk’s OLS "wholesale" charges forecast at $0.40. In the second quarter of 1998 "crossover" is achieved in the Medium forecast, and OLS revenues are less than half of ADhawk’s total.

Forecast from Network Perspective:

Earlier Adhawk forecasts included estimates of OLS revenues for ads and photos received by the on-line services ("ACMP") assuming a 2Q96 launch. Each on-line service can independently set advertising charges at whatever level desired. For the purpose of estimating revenues, ads and photos are assumed to have a $2.00 charge during all of 1996, and slowly increase to $3.00 by 4Q 1998. During 1997-98 the wholesale amount paid ADhawk is declining from $0.50 to $0.30 for 1,000 character text ads; and from $2.00 to $1.00 for photos.

Adopting the ADhawk proposal provides three significant benefits from the Network perspective: 1) Increased Classified ad revenues; 2) Increased connect times; 3) Increased customer satisfaction; and 4) Possible transaction fees. The ACMP revenue amounts shown in our forecasts only include identified classified ad revenues. Without ADhawk a fractionated classified market exists where most revenue eludes the networks, and instead migrates to specialty ad areas on the Internet.

N) OPERATING P&L

Exhibit 2a shows the ADhawk Operating P&L based on the "Expected" revenue assumptions described in Section M (Revenue Forecasts). Expenses are primarily headcount related, which are estimated at $10,000 per month per person. Headcounts build quickly to 16 professionals in 4Q of 1996 as seen in the Organization Chart in Exhibit 3. Communications/Operations expenses include estimated communications and server farm costs. Marketing/Promo expense includes advertising in publications and PR at launch.

Base (Low) Forecast -- ADhawk P & L:

Maximum negative cash flow of about $ 2.140 million is reached in 2Q97, after which profitability and cash flow turn positive.

O) EQUITY PARTICIPATION

The capitalization of ADhawk includes the opportunity for on-line participants to receive equity options. Depending upon the level of OLS participation, three yearly option pools will be awarded according to the amount of "wholesale" fees paid ADhawk in each of those years. Earlier discussion included an initial commitment allocation of 3% for signing, and three yearly option pools subject to attaining certain minimum revenues. Equity amounts not awarded due to the minimum revenue targets will "roll over" to subsequent years. A key early participant could earn 10% or more of the new company. This plan will only be offered to early critical participants.

For example, assume first year ADhawk revenues of $1 million, with option pool participants furnishing $600,000 of that amount. If any single participant generated $400,000, or 2/3 rds of total option pool revenues, that participant would receive an option at no cost to acquire 8% in that year. The options are convertible into common stock at a future date. Similar calculations are repeated for year two and three. These equity options are viewed as "sweeteners" for founding members, whereas the primary economic benefit will be increased profitability and increased customer satisfaction. The proposed Definitive Agreement is in Exhibit 5.

P) SUMMARY and CONCLUSIONS

An excerpt from "The Road Ahead" by Bill Gates of Microsoft provides an interesting summary and a knowledgeable perspective on the vision discussed in this Business Plan:

ADhawk will change on-line classifieds "from a curiosity to the primary way private sellers and buyers get together". The classified market is a $14 billion per year opportunity today. A portion of this market will definitely move on-line. It’s happening now. The CPM and functionality advantage of on-line versus print are catalysts for this move. Customers will understand this when an advertising service such as the ADhawk Ad Exchange emerges. They are always seeking the best advertising value and are ready to switch media when this value becomes visible. Advertising is an efficient market, even if the market for the items advertised is not efficient.....until now. All the enabling technology is in place, only the market is missing. ADhawk in partnership with the on-line services can be the market maker.

What ADhawk brings to the table:

1) ADhawk created the "multiple listing classified" and unified Ad Exchange database concept. ADhawk has the most comprehensive and exciting vision for on-line classified advertising of any known player today.

2) ADhawk is a single focus, single purpose entity. All company effort focuses on building "the"

on-line market for classifieds and serving its on-line partners, their readers, and advertisers.

3) ADhawk is an independent unbiased third party that is necessary to facilitate and promote the

unified on-line classified market.

4) ADhawk senior management is recognized and respected for proven leadership and

innovation in the personal computer marketplace world wide.

5) ADhawk’s experience is in designing, building, and marketing ease-of-use software.

(Developed "PFS" and "Harvard Graphics" software over 5 million copies sold.)

6) We offer each OLS equity in ADhawk to sweeten the deal, including a guaranteed minimum

percentage.

7) ADhawk allows differentiation without fragmenting the market. As an example, each OLS

can use their own branding and combine the ADhawk database with other content, to create their

own unique identity.

8) Partners, advertisers, and readers drive ADhawk. ADhawk provides customer service,

content standards, and content management of the classified ad area for each OLS.

10) ADhawk plans to be the highest volume supplier of classified ads, and therefore will have

the lowest cost structure. ADhawk plans to reduce its prices over time.

ADhawk is the vision and the driving force behind the concept of an on-line service unified

classified Ad Exchange database. The ADhawk team is uniquely qualified to produce the results necessary to create the market. ADhawk has thought through the issues and brings a fresh perspective to advertisers, viewers, the OLS, and the entire print classified industry. ADhawk has selected a highly reliable, high performance system upon which to build the necessary industrial strength service.

ADhawk is a single purpose, single focus entity, completely dedicated to providing on-line

classified advertising with unequaled functionality. We have the maturity, experience, passion, vision, tenacity, and enthusiasm needed to make classified advertising an on-line service success. Lastly, ADhawk generates exceptional revenue and profits for the OLS directly and indirectly through their 35% equity ownership in ADhawk.

Like the personal computer before it, the economics and compelling functionality of on-line classified advertising will define a new value point and "create a market nobody before ever imagined." ADhawk can be a home run. ADhawk ensures on-line services will realize their share of classified ad revenues.