Non-Disclosure and Confidentiality Agreement

Non-Disclosure and Confidentiality Agreement

Non-Disclosure and Confidentiality Agreement

The undersigned ("Recipient") hereby agrees that all financial and other information("Information") that it has and will receive concerning Infrared Measuring Technologies isconfidential and will not be disclosed to any individual or entity without prior written consent

The Information shall remain the property of Infrared Measuring Technologies and shall bereturned to Infrared Measuring Technologies promptly at its request together with all copiesmade thereof

Recipient acknowledges that no remedy of law may be adequate to compensate InfraredMeasuring Technologies for a violation of this Agreement and Recipient hereby agrees that inaddition to any legal or other rights that may be available in the event of a breach hereunder,Infrared Measuring Technologies may seek equitable relief to enforce this Agreement in anyCourt of competent jurisdiction

This document contains confidential information It is disclosed to you for informationalpurposes only Its contents shall remain the property of Infrared Measuring Technologies andshall be returned to Infrared Measuring Technologies when requested.

This is a business plan and does not imply an offering of securities.

Table of Contents

Business Opportunity Products/Services Description Current Business Position Financial Potential

The Request

Business Description Company History Current Position and Business Objectives Ownership

Product Overview Competitive Analysis Suppliers and Inventory Research and Development

Service Descriptions Competitive Comparison Service Delivery

Research and Development

5 The Industry, Competition and Market 9

Industry Definition Primary Competitors Market Size

Market Growth Customer Profile

Competitive Advantage Pricing

Distribution Channels Promotional Plan Feedback

Location Facility Operating Equipment

Suppliers and Vendors Personnel Plan

General Operations

8 Management, Organization and Ownership 19

Management/Principals Organizational Structure Professional Consultants Ownership and Boards

Business Goals Keys to Success Future Plans

Beginning Balance Sheet Profit & Loss

Balance Sheet Cash Plan

Beginning Balance Sheet Profit & Loss (Years 1, 2, 3) Balance Sheet (Years 1, 2, 3) Cash Plan (Years 1, 2, 3) Product Brochure

Customer Testimonials

Infrared Measuring Technologies 1

1 Executive Summary

Infrared Measuring Technologies, Inc is ready to begin manufacturing and marketing anexciting new product targeted to the custom-fitted clothing industry This market has beengrowing in the last several years, and the company’s new electronic scanning product willprovide retailers and customers alike a quick and easy way to measure customers for fittedclothing The company is in its start-up phase, but has already contracted 25 percent of itsfirst year's projected sales

1.1 Business Opportunity

Infrared Measuring Technologies (IMT) manufactures and distributes a portable scannerthat analyzes and records body measurements for custom-fitted clothing Several

main-line clothing manufacturers, such as Levi Straus, have started to offer

"made-to-order" clothing through traditional retailers Upscale clothing manufacturershave been offering custom-fitted clothing for many years

The "SmartScanner" allows a retailer to accurately take a customer’s measurementselectronically and transmit them immediately to the manufacturer This saves up to 90percent of the time normally taken to record measurements, freeing the salesperson toserve other customers In addition, it saves the customer time and entices the retailers topush higher margin custom clothes The custom-fitted clothing market has grown from0.05 percent of the U.S retail clothing market to 0.10 percent in the last two years This

200 percent increase translates into a $100 million market for custom-fitted clothingmanufacturers in 1998 and a terrific opportunity for IMT's product, the SmartScanner

1.2 Products/Services Description

The SmartScanner is a hand-held, electronic, scanning device that utilizes an infraredbeam to record a customer’s clothing measurement information onto an integrated chip.The salesperson scans the customer in three positions For optimal results, the scannershould be used in a fitting room with a bare white wall as a backdrop The scanningprocess takes only two minutes compared to an industry standard of twenty minutes forhand measurement IMT assembles the device at its plant in Michigan, relying on twoprincipal vendors for the chip and the infrared system The company is targeting upscaleclothing retailers as the market for its first product The scan is 100 percent accurate,eliminating measuring errors made by hand, and ensures customer satisfaction with thecustom clothing The company also plans to offer a maintenance agreement on theSmartScanner, which guarantees its operation for as long as the maintenance agreement

is in effect

1.3 Current Business Position

Jack Ball, a twenty-year veteran of the retail clothing industry, and Bill Jackson, anengineer and seven-year veteran of the integrated chip industry, founded IMT as a CCorporation in Michigan in 1997 It was capitalized with $150,000 in cash from the twofounders The funds were used primarily for research and development of the

SmartScanner Fifty prototypes have been made and were tested for six months inNeiman Marcus retail stores across the U.S., an arrangement secured by Mr Ball The

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scanner received positive responses from customers, salespersons, and management The fifty prototype scanners were manufactured, assembled, and delivered to IMT at aunit cost of $200 Neiman Marcus paid $500 rent per unit for the test period With thetest proving successful, the company has agreed to purchase the prototype scanners for anadditional $500 per unit Unit costs are expected to drop from $200 to $100 after

production is scaled up, and a final selling price of $750 is anticipated Neiman Marcushas signed an order to purchase an additional 250 units in the next year Sales efforts arecurrently underway with six major upscale department stores in the U.S and Canada

1.4 Financial Potential

IMT expects to generate $775,000 in revenues in year one, based on the sale ofapproximately 1,000 scanners and 200 maintenance agreements Sales are expected todouble in year two Net income before taxes and interest is projected to be $25,000 inyear one and $267,000 in year two The company expects to introduce a

second-generation scanner, to be named the "ValueScanner," in year three that will sellfor $500 and target lower-end department and apparel stores as the principal market.Year three revenue projections are about $2.8 million in sales with a net income beforeinterest and taxes of almost $1.4 million

Profit & Loss

For year beginning January, 2000

Sales Gross profit Oper income Net income

IMT principals are willing to invest an additional $100,000 and are seeking funding of

$100,000 from an equity partner Such an equity partner would enjoy minorityownership, and IMT is willing to negotiate terms for a stock repurchase guarantee at theend of five years

These funds will be used for rent ($50,000), to upgrade space for operations ($25,000),secure packaging and assembly equipment ($30,000), and provide funds for IMT's initialmarketing effort ($95,000)

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At the beginning of year two, IMT will require an operating loan of $100,000 to helpcover research and development expenses for the ValueScanner IMT plans to secure thisamount as standard debt Expected terms are a three-year loan at a 10 percent annualinterest rate

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2 Company Background

The founders of the IMT have many years of experience in the retail clothing and electronicsindustries Jack Ball’s retail clothing experience provided the environment that led to hisrealization that consumers desire a way to make purchasing custom-fitted clothing quick andeasy Bill Jackson’s electronics experience enabled them to make a device that can meet thisneed and exploit a previously unmet customer demand and market With positive feedbackfrom several retailers, the founders decided to move forward with the concept The two lefttheir former places of employment and started working on their concept in 1996

2.1 Business Description

IMT is a C Corporation registered in Michigan that manufactures and markets scannersfor taking and recording body measurements As an added service, IMT offers itscustomers maintenance agreements that guarantee replacement of defective units Thescanning devices will be marketed to clothing retailers, primarily upscale departmentstores initially The initial target market is the U.S with future plans to expand intoCanada Currently no other technologies exist that address this market, and IMT’s onlycompetition is the old, cumbersome hand method of taking measurements

2.2 Company History

Although the principals began full-time development work on the product in 1996, IMT’sstructure was not formalized until the following year Both principals live in Michiganand established a C Corporation in that state in 1997 The company has completed thenecessary registration with the State of Michigan and with the IRS to enter full-scaleoperations

Jack Ball had the original concept for the scanner in 1996 He identified the need for such

a device by calling on clothing retail accounts for his former employer, Levi Straus,where he served as national sales account manager for several years After collectinganecdotal information on the need for such a product, he left his employer in May 1996

to devote his efforts to developing the concept Before concentrating his full-time effort

on the product, Mr Ball consulted with his neighbor, Bill Jackson Mr Jackson was anengineer for Acme Merchandising Systems (AMS) at the time, a company that

manufactures computer chips among other products Mr Jackson helped Mr Ball byidentifying the electronics that would be required for the device and possible vendorswho could provide such items In September 1996, Mr Jackson left AMS and beganworking full-time on the project

A successful prototype had been made by the end of 1997 Throughout the months ofproduct development, the two founders put little capital into the business and drew nopersonal salaries The decision was made to move forward with testing the product andthe corporation was formed in late 1997 Mr Ball and Mr Jackson invested a total of

$150,000 at that time to fund the manufacturing of fifty prototypes, which could be testedunder actual retail conditions By the beginning of 1998, the prototypes were ready and alease arrangement had been negotiated to test the scanners at several Neiman Marcuslocations throughout the Midwest

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2.3 Current Position and Business Objectives

Currently, the company has completed the test phase of the scanners at the NeimanMarcus sites IMT received revenues of $25,000 from Neiman Marcus for leasing thescanners during the test phase, and has secured a commitment from them to pay anadditional $25,000 to keep and use the scanners This revenue, together with thefounders’ investment, have been able to cash flow the operations up to this point

Research and development of the SmartScanner is complete, testing has been extremelyfavorable, vendors for components are secured, and the product is ready to be

manufactured IMT has moved to the start-up phase of its operations

IMT’s mission statement follows:

"The goal of Infrared Measuring Technologies is to become the leader in the manufacturing and marketing of electronic measuring devices for custom clothing retailers We will constantly strive to satisfy our customers’ needs and conduct our business in a manner to produce financial returns that encourage and reward our shareholders."

In the first several years, IMT will accomplish this mission with body-measurementscanner products The company expects to grow to almost $2.8 million in annual salesrevenues in its third year of operation This will be achieved through the offering of twodifferent scanner products and a maintenance agreement

2.4 Ownership

The principals, Jack Ball and Bill Jackson, are the sole stockholders in the company Thecompany currently has no debt A banking relationship has been established with theFirst Bank of Michigan

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3 Products

"The hand-held SmartScanner is the greatest thing to hit the custom-clothing market in thelast twenty years The product saves our salespeople time and makes it quick and easy forcustomers to purchase higher margin custom clothing." This quote is from Mary Smith,Custom Clothing Manager for Neiman Marcus, who tested the SmartScanner for six months

in her store IMT has received similar comments from other test participants Additionalcustomer testimonials are included in the appendix

3.1 Product Overview

The SmartScanner appears as a plastic box, 6" wide, 4" high, and 12" deep The 6" by 4"front of the device is clear, allowing an infrared beam to scan the area in front of thedevice The operating parts of the scanner are basically the infrared beam, a powersupply, and a microchip to analyze and record data The device requires only oneoperator, usually a customer service representative or salesperson In order to use thedevice, the customer stands before a white wall in three positions, i.e., facing front,sideways, and back The scanner is moved from the head to the foot of the customer ineach of the three positions It is held at least two feet from the customer, so there is nophysical contact The device detects the difference between the white background and thecontours of the customer, thereby determining body measurements

The SmartScanner can measure a person in just a couple of minutes rather than thetwenty or more minutes required by a conventional tailor or salesperson Both thecustomer and the company save time The information is encoded in the device and may

be immediately transmitted to the manufacturer for slotting in the next manufacturing run

of the clothing item Ultimately, the customer receives the custom-fitted clothing he orshe has ordered, quickly and without the usual hassle Each SmartScanner unit will bepriced at $750

Below is a photograph of a customer being measured with a tape measure:

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3.2 Competitive Analysis

Currently, no direct competition exists for the SmartScanner Up until now, a tailor orsalesperson had to take the customer’s measurements with a tape measure For a modestinvestment, a retailer can save around eighteen minutes of employee time on eachcustomer fitting Competition from off-the-shelf, "sized" clothing is a consideration;however, retailers have other incentives to drive customers to purchasing customclothing Custom-fitted clothing usually delivers a higher margin, little or no money isinvested in inventory, and display space is opened for other goods With the

SmartScanner, the retailer will satisfy customers’ needs and desires, and, at the sametime, achieve higher custom clothing sales and greater profits

3.3 Suppliers and Inventory

The two major items incorporated into the product are the infrared system and theintegrated board that includes the computer chip Smith Co procures the chip,manufactures the board, and provides the harness for the infrared system according toIMT’s specifications Jones Co supplies the infrared scanning device to specificationsthat allow integration with the board Both of these companies are located in Michiganand have solid track records Mr Jackson worked with both companies in his previousposition and developed a strong working relationship with them IMT has a contract withboth Smith Co and Jones Co that guarantees a fixed number of units to be purchased in

a given year; however, these companies only ship and bill on demand This allows forminimum cash investment in inventory Lead-time to assemble the scanners is minimal,and sales orders are secured before assembling the product

IMT receives its plastic casings from a local plastics company, Kelly, Inc All of themajor assemblies are shipped to IMT’s facility where they are assembled into the finishedunit, packaged, and shipped

3.4 Research and Development

The initial scanner, the SmartScanner, is being targeted to upscale department stores Thescanner is priced at a premium, which allows IMT to maximize its gross margin

Beginning in year two, a second-generation scanner will be researched and developed.The work will be performed by IMT's current suppliers and their development teams.This new ValueScanner will take advantage of feedback from the initial product and anyeconomies of scale discovered in the manufacturing process It is expected to sell for

$500 per unit and have a 25 percent lower production cost than the SmartScanner Thisproduct will expand the target market as further explained in the marketing plan section

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4 Services

The SmartScanner is a unique instrument with no similar products used in the apparelindustry As such, there may be reluctance on the part of the retailers to purchase theSmartScanner without a maintenance agreement The company has tested the prototypes andhas experienced a zero failure rate to date Yet, to foster customer confidence and

satisfaction, IMT will be offering a maintenance agreement that will give retailers theassurance they desire and bring additional revenues into the business

4.1 Service Descriptions

IMT will offer its customers an optional unlimited maintenance agreement thatguarantees the scanner will satisfactorily operate or be replaced at no charge IMT willcharge an annual fee of $125 for this service This pricing follows the industry standardfor an annual maintenance agreement of 18 percent of the item’s purchase price Thestandard warranty on the SmartScanner is ninety days IMT expects that none of the unitswill actually fail; however, if the unit should fail and it is covered by a maintenanceagreement, IMT will replace the product

4.3 Service Delivery

In order to service the SmartScanner units, the customer will contact the IMT servicecenter via a toll-free number The IMT representative will ensure the unit is eithercovered under warranty or a maintenance agreement If covered, the customer willidentify the serial number on the failed scanner, IMT will authorize its return, and a newscanner will be sent to the customer immediately IMT expects that no customer will golonger than two days from reporting a problem to receiving a replacement scanner If theunit is not covered by either warranty or maintenance agreement, the retailer is chargedfor repairs made to the SmartScanner unit and runs the risk of not having a functioningunit until the repairs have been made The IMT service center is located in the assemblyplant

4.4 Research and Development

IMT is planning to research and develop a second-generation scanner, the ValueScanner,

in year two The maintenance agreement will be used as a quality control tool and tomeasure customer satisfaction It will be a residual profit center for IMT The failure rate

of the SmartScanner will be tracked and used to determine warranty policy Also, if theSmartScanner maintenance agreement program is successful, IMT will offer a

comparable maintenance agreement to ValueScanner owners

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5 The Industry, Competition and Market

The economic boom of the late 1990’s was strongly driven by consumer spending Part ofthis boom has been felt in the apparel industry, and with rising incomes, it is expected tocontinue Sales of custom-fit clothing are increasing, and the SmartScanner can help retailerscapitalize on this high-profit market The following sections discuss the opportunities for thescanner in light of no competition and growing consumer demand for custom clothing

5.1 Industry Definition

IMT's core products will be electronic measuring devices Although the industry for suchinstruments is diverse and filled with competitors, the company will not compete in thisarena The true industry that is relevant to IMT is the retail consumer apparel industry.This industry encompasses clothing stores (North American Industry ClassificationSystem [NAICS] #4481), and department stores (NAICS #452110) There are otherclassifications for apparel outlets, e.g., on the Internet, but these are not viable marketsfor IMT’s products which requires customer contact

Technological advances are creating the opportunity for clothing manufacturers tomanufacture and provide apparel in custom sizes on a short-notice basis Clothingretailers and department stores are taking advantage of this to sell higher-profit,custom-fitted clothing to customers According to the U.S Department of Commerce,sales of custom-fit clothing have increased from 0.05 percent of the U.S clothing market

to 0.10 percent in the last two years an increase of 200 percent Johnson & Co., amarket research firm specializing in retail clothing stores, projects that U.S custom-fitapparel sales will increase an average of 20 percent each year over the next five years.With such projected growth, retailers in the industry stand to benefit from utilizing IMT'sproducts

5.2 Primary Competitors

The SmartScanner has no direct competitors Historically, custom clothing measurementshave been taken with a tape measure by a salesperson For catalog and online clothiers,the consumer takes his or her own measurements Since the SmartScanner is beingtargeted to upscale department stores, catalog and websites sales are only indirectcompetitors to our target market, not to the scanner itself

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Another area of indirect competition is the sale of "ready-to-wear" apparel This has beenthe standard in the industry for long time People go to stores and buy clothes off therack However, the resurgence of custom-fit clothing is a relatively recent phenomenon,and the SmartScanner only helps foster its growth by making fittings faster, easier, andmore accurate

Given its indirect competition, there are several advantages for retail stores to utilize theSmartScanner First, the time saved in measuring the customer for custom-fit clothing issignificant Salespersons easily save on average eighteen minutes per customer by usingthe scanner instead of the standard measuring technique Second, since the device is easy

to operate and accurate, there is no need for the retailers to have tailors take themeasurements, another personnel savings Third, the sale of custom-fit clothing offers agreater profit margin for retailers than "ready-to-wear" clothing, requires no inventoryinvestment, takes little or no display space, and appears to satisfy today’s customers

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stores, American Business Information states there are 200,000 apparel and accessorystores in the U.S Of these, 17,477 are men’s clothing stores and 47,850 are women’sclothing stores

The number of department and apparel stores has been relatively stagnant over the lastten years New stores are being opened constantly in new shopping areas, but stores inlower-traffic locations are being closed The upsurge in catalog offerings, and moreimportantly Internet sites, is also limiting the growth of additional department andapparel stores

Of the entire department store market, we estimated that 50 percent, or 15,000 stores,would be a suitable market for the SmartScanner The remaining 15,000 departmentstores, plus the over 65,000 men’s and women’s clothing stores, would be an appropriatetarget market for our less expensive, second-generation ValueScanner to be released inIMT’s third year of operation

Each department store has the potential to purchase multiple SmartScanner units Onaverage, it is estimated that each store could utilize at least two or three SmartScannerunits With 15,000 target department stores, we estimate the total market for theSmartScanner to be between 30,000 and 45,000 units or between $22 million and $34million Of course, this does not include the additional residual revenue generated fromthe sale of maintenance agreements The upscale segment of the department store market

is the initial and primary market

At the beginning of year two, IMT plans on developing a lower-end scanner unit for theother 15,000 department stores and 65,000 apparel stores Similar to the upscale

department stores, IMT expects to sell each of the these department stores two or threeunits, and probably only one unit to the men’s and women’s apparel stores Assumingcomplete penetration, this comprises a market of between 95,000 and 110,000 units At

an estimated selling price of $500, this market is worth between $47 million and $55million In addition, a maintenance agreement will be offered to these customers toprovide IMT with residual income The specifics of this maintenance agreement will bedetermined on the success of the SmartScanner maintenance agreement

5.4 Market Growth

Although the number of department stores has been static over the last several years, thepotential market for the SmartScanner is growing Sales of custom-fitted clothing havedoubled in the last two years Retail apparel analysts expect this trend to continue at aslower pace of approximately 20 percent per year over the next five years Each personwho purchases custom-fit clothing has to have his or her size measured The

SmartScanner is the quickest and easiest way to have these measurements taken

5.5 Customer Profile

The purchasers of the SmartScanner are the upscale department stores that offercustom-fitted clothing Neiman Marcus has tested fifty scanners, purchased all of themafter the successful test period, and placed an order for 250 additional scanners

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Department stores that carry more expensive apparel lines are realizing the increasingcustomer demand and profit potential of custom-fitted clothing IMT’s plan is to targetthese stores through personal selling