N2 Holdings, Inc. Petaluma, CA 94954 Phone: (707) 763-5100 ...€¦ · business via two wholly...

†BOLD WORDS ARE REFERENCED IN THE GLOSSARY ON PAGES 38-39.

Next-generation Outdoor Advertising Product Suite and Data Services

Snapshot October 26, 2009

N2 Holdings, Inc. (“N2” or “the Company”) is a closely held media and technology company providing advertising and network solutions to individuals, businesses, and governments. The Company conducts business via two wholly owned subsidiaries: (1) N2 Media, Inc., a provider of outdoor advertising solutions; and (2) N2 Data, Inc., which offers energy-efficient data center services for N2 Media and other small- and medium-sized businesses. N2’s lead initiative is its Nōmad product suite, a GPS†-locatable, transponder-reactive, interactive, mobile, digital multimedia display airing time-sensitive dynamic content, including high-definition graphics, animation, full-motion video, and audio, on networks of display screens. These Dynamic Display Billboards (DDBBs) are capable of FM broadcast as well as star dialing, whereby consumers can respond to promotions on Nōmad screens and receive discounts on their cell phones. Nōmad is designed to reach consumers when they are out of their homes. As people spend increasingly more time away from home and technology continues to improve, the outdoor advertising medium is becoming a critical communication platform. Outdoor advertising, where billboards are the leading format, totaled roughly $7 billion in revenues in 2008. N2’s Nōmad suite is designed to allow advertisers to sub-segment their target markets, whether by geographic location, demographics, time of day, or other characteristics, thereby running more efficient ad campaigns focused on the desired audience. N2 has conducted over 10,000 miles of beta tests with its truck-mounted Nōmad system, which showed over 60,000 ads and demonstrated the effectiveness of this advertising medium. In collaboration with Maverick Media, the parent company of multiple radio stations in Northern California, N2 found that Nōmad had a positive impact on stations’ ratings during drive time and midday hours. Since April 2009, the Company has also partnered with sales offices of the Century 21 Real Estate LLC realtor alliance, the J. Keverson Winery, and local nonprofit organizations in a public service capacity, as well as participated in the 115th Annual Santa Rosa Rose Parade, the Sonoma-Marin Fair, and at NASCAR and other race events sponsored by California’s Infineon and Petaluma Speedways. Pending the receipt of funding, N2 anticipates launching commercial Nōmad units in the first quarter 2010.

Key Points

Following beta testing, N2 obtained endorsement letters from the third parties involved, which it is using to expand sales efforts. The Company also entered into a Letter of Intent (LOI) with the Food Bank of Contra Costa and Solano (located in California), received a commitment from a Northern California fleet operator for the installation of Nōmad screens on at least 10 trucks, and signed an LOI with Petaluma Green Taxi, a hybrid cab company, for the installation of screens inside and outside the vehicles.

N2 believes that one of the primary competitive advantages of Nōmad is that it can be updated in real time from any computer with a secure Internet connection. This feature lowers overhead and gives advertisers control over their ad content. Via N2’s web-based interface, advertisers can view a screen’s GPS location, change or schedule ad content, obtain local traffic and commuting statistics, and examine advertising data, such as how much of their allotted time has been used or is remaining and when and for how long certain ads were aired.

Changes may be reflected on the Nōmad screens in less than 120 seconds, enabling highly targeted ads and discounts/promotions that are tied to the screen’s location, time of day, or even viewer response—advantages that N2 believes are novel for Nōmad and are not feasible with existing mobile outdoor marketing mediums. To the Company’s knowledge, its DDBBs could represent the first GPS-locatable and wholly downstream-adjustable outdoor light-emitting diode (LED) billboards.

At present, N2 is focused on the development of the following market segments for installation of Nōmad units: (1) fleet; (2) semi-static; (3) retail; and (4) public transportation. Nōmad products may be applicable to airports, buses, subways, retail malls, truck fleets, county fairs, and other entertainment venues, such as amusement parks and sports arenas, or transit services. In order to drive sales of Nōmad, N2 is seeking out forums for the product that represent a source of income as well as those that can showcase Nōmad’s technical capabilities across a range of industries and applications.

The Nōmad suite includes a proprietary methodology and proprietary media processor, application firmware, application software, Internet software, and a storage/delivery package of software. All software is copyright protected and all hardware and methodology is patent pending.

The Company’s data center uses virtual machine technology to support the operations of N2 Media. Additionally, N2 is seeking methods to reuse its data center assets in a revenue-generating scenario, particularly by offering third-party data recovery and web hosting applications. In the Company’s local Silicon Valley region, demand for data center services is forecast to expand by at least 16% annually.

As of October 19, 2009, N2 had a total checking/savings of $10,100 and assets of over $1.6 million. The Company aims to raise up to $10 million in gross proceeds through an ongoing private placement.

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N2 Holdings, Inc.

755 Baywood Drive #380 Petaluma, CA 94954

Phone: (707) 763-5100 Fax: (707) 763-6831

www.n2holdings.com

CRYSTAL RESEARCH ASSOCIATES, LLC EXECUTIVE INFORMATIONAL OVERVIEW® PAGE 2

Table of Contents

Snapshot ....................................................................................................................................................... 1

Key Points ..................................................................................................................................................... 1

Executive Overview ....................................................................................................................................... 3

Growth Strategy ............................................................................................................................................ 6

Intellectual Property ...................................................................................................................................... 7

Company Leadership .................................................................................................................................... 8

Core Story ................................................................................................................................................... 10

Dynamics and Mediums of the Advertising Industry ............................................................................ 10

N2 Media, Inc. ....................................................................................................................................... 16

N2 Data, Inc. ......................................................................................................................................... 24

Competition ................................................................................................................................................. 27

Milestones ................................................................................................................................................... 31

Key Points to Consider ................................................................................................................................ 32

Historical Financial Results ......................................................................................................................... 33

Risks ............................................................................................................................................................ 34

Recent Events ............................................................................................................................................. 37

Glossary ...................................................................................................................................................... 38


Executive Overview Through the operations of its wholly owned subsidiaries, N2 Holdings, Inc. (“N2” or “the Company”) is a media and technology company providing advertising and network solutions to individuals, small and large businesses, and government agencies. The Company’s primary initiative is the commercial deployment of “Nōmad,” a next-generation digital multimedia product suite designed to improve the delivery of creative marketing content to the consumer-in-motion. Nōmad includes a proprietary methodology and media processor, application firmware, application software, Internet software, and a storage/delivery package of software. All software is copyright protected and all hardware and methodology is patent pending. The technical capabilities of Nōmad are made possible through the Company’s virtual data center, which provides the back room processes for the dynamic media display as well as being home to the software development group that designed Nōmad. Nōmad With its dynamic media display technology, N2 possesses a method of providing high-definition graphics, video, and audio to digital screens worldwide. These screens can be mobile, stationary, or semi-static (mounted on a vehicle but parked at an event). The Company believes that the key benefit of its technology is that it allows the customers airing advertisements, promotions, or other time-sensitive messages on N2’s digital displays to update their segments in real time from any computer connected to the Internet by using a secure flash drive provided by N2. To accomplish this, N2 has developed patent-pending technology that uses proprietary software, a data center operated by the Company’s wholly owned subsidiary N2 Data, and a combination of cellular, satellite, Internet, and GPS functionalities. N2 has conducted over 10,000 miles of beta tests with Nōmad and showed 60,480 units of advertising, which confirmed the product’s feasibility and effectiveness. At present, a fully operational demonstration vehicle with a Nōmad light-emitting diode (LED) digital screen mounted at the rear is on the road in Northern California, where N2 is headquartered. Figure 1 depicts this unit, which airs advertisements for local vendors. The mobile, truck-mounted LED screen is the first Nōmad product created using N2’s dynamic media display technology. In addition to generating awareness of the Company’s product, this demonstration vehicle is also showcasing the Nōmad screens’ ability to operate in all weather and terrain conditions (-10°F to 140°F) and to be visible at up to 1,000 feet day or night. Product Features The backbone of Nōmad’s user-friendly capabilities is the Company’s web-based interface or Executive Dashboard, which allows advertisers to view the digital screen’s location, change or schedule ad content, obtain local traffic and commuting statistics, and obtain advertising data, such as how much of their allotted time has been used or is remaining and when and for how long certain ads were aired. From the Executive Dashboard, clients can also make changes to existing advertisements or promotions in real time, even while the screen is in transit, using information generated by N2’s system. For example, the language or message of the ad can be changed based on demographic data of the screen’s location or a discount promotion can be updated based on time of day or usage. N2 estimates that changes made through the Executive Dashboard application require no longer than 120 seconds to take effect. The real-time updating feature not only provides control to the advertisers but also reduces overhead costs related to changing the advertisement or its schedule. The Company’s screens have built-in hardware and software that tracks the GPS location of each digital screen, thus advertising can be targeted to the screen’s location.

Figure 1

N2 Holdings, Inc.

NŌMAD

Source: N2 Holdings, Inc.


Nōmad supports multiple media formats: (1) static media (images); (2) animated media (images, scrolling text, or animated graphics); (3) video (full-motion video); and (4) audio (voice over and music embedding). The system also possesses FM radio broadcast capabilities that can reach stereos in the vehicles following the truck. An interactive cellular text messaging solution is available through which N2 delivers advertisers’ discounts, concert tickets, and other promotions using star dialing. N2’s inclusion of this cell phone component may be particularly beneficial in helping drive advertising sales on the Nōmad product, as advertisers are increasingly seeking new and creative venues to distribute their advertising content that can engage, enlighten, and stimulate the public to buy.

N2 has accounted for community safety concerns. Patent-pending vehicle operational indicators alert drivers to the Nōmad truck’s slowing and stopping and can provide updates on road conditions, Amber Alerts, or other emergency announcements.

Product Applications

Nōmad began as a product purely for mounting on vehicles. However, the system’s capabilities—primarily using the Internet to broadcast messages as well as to change and schedule content—combined with advancements in screen technology have broadened its possible applications. To N2’s knowledge, digital billboards, as they are deployed around the U.S. today, frequently require operators to physically go out to the equipment in order to test its operation, make changes to the display, schedule new advertisements, and eliminate old ads, among other tasks. With the GPS-based mobile Nōmad screen, N2 believes that it created a durable display system that can be maintained remotely via an Internet connection. As such, the product addresses limitations of existing stationary digital displays. N2 expects to offer large, roadside video screens in the future as well as the current truck-mounted displays.

The Company has received favorable feedback on Nōmad to date, and believes that its technology is not limited to transit applications but could be beneficial in any high-traffic location. N2 is in negotiations with airports, bus and subway stations, bus and subway vehicles, retail malls, truck fleets, public transportation, county fairs, and entertainment venues (e.g., amusement parks and sports arenas). Future global markets could include perishables such as theater and airline seats, rental cars, and even mobile handheld devices.

Pending corporate financing, N2 aims to offer commercial Nōmad products for sale within the first quarter 2010. Going forward, the Company also intends to apply the Nōmad core technology to a multitude of future applications (detailed on pages 22-23 of the Core Story), which include expanding to additional locales and creating new screen formats (e.g., liquid crystal display [LCD]).

Market Opportunities for Next-generation Outdoor Advertising

Each week, the average U.S. commuter spends roughly 20 hours in a car and travels more than 200 miles (Source: Arbitron Inc.’s [ARB-NYSE] The Arbitron National In-Car Study 2009). Thus, while spending on traditional forms of media advertising have declined over the past few years—newspapers, magazines, and broadcast, satellite, and local radio—alternative media formats have been forecast to expand by 12.3% annually from 2008 to 2013 (Source: Veronis Suhler Stevenson LLC, a private equity firm dedicated to the information, education, and media industries, 2009). Specifically, outdoor advertising—that which targets consumers when they are out of the home—totaled nearly $7 billion in U.S. revenues during 2008.

Out-of-home (OOH) advertising is composed of more than 100 different marketing formats appearing in a variety of places, including billboards, bus shelters, buses, taxis, malls, airports, subways, and sports stadiums. Local enterprises are one of the most common employers of outdoor advertisements. Approximately 70% of OOH ads promote local businesses, although national advertisers often capitalize on outdoor marketing as well to complement the strategic objectives of mixed-media campaigns.

Growth in Digital Display Billboards (DDBBs)

Billboard advertising remains the predominant form of outdoor advertising in the U.S., accounting for 66% of total OOH annual revenue. However, conventional, static billboards are characterized by difficulties in making changes to ad campaigns, which become prohibitive for certain types of content. Thus, newer OOH options, such as transit (mobile) advertising and digital billboards, are being implemented with the intent of providing the flexibility and specificity not always offered via traditional roadside posters.


In addition, the pricing structure and minimum contract periods (e.g., 90 days) associated with billboards may be precluding many companies from employing this medium. N2 believes that its digital displays may represent a more cost-effective option for small retailers and service providers in addition to providing next-generation features, such as graphics, video, and real-time updates, that are not possible with conventional billboard displays. The Company believes that cost efficiency may be an important benefit of Nōmad because most billboard advertising features regional and local enterprises. Today, of the more than 450,000 billboards nationwide, approximately 1,500 are digital (Source: American City & County August 2009). Moreover, the London office of advertising agency Leo Burnett Group projected significant growth of screen-based media going forward in a 2008 publication Trends Predictions Report. Factors fueling the adoption of digital displays as an advertising medium include, but are not limited to, the following: people notice and recall advertising on digital screens; overall public reaction to digital signage is positive; digital OOH media is part of the expanding alternative OOH media market; content may be updated rapidly and easily for a digital screen; and digital screens support multiple advertisements. Greater details of the digital billboard sector are provided on pages 13-15. Virtual Data Center N2 Data is an energy-efficient, environmentally conscious data services provider for N2 Media as well as selected third-party clients. The Company’s data center employs virtual machine technology, which enables efficiency gains over standard data centers due to reduced power and air conditioning requirements as well as a smaller hardware investment. A virtual data center also creates a “greener” work environment by efficiently using file servers and attached resources. N2 sought to reduce the large carbon footprint that is characteristic of many advertising and technology companies. With its virtual technology, the Company has significantly reduced its power bill and its virtual servers require less bandwidth and incur fewer engineering and staffing costs as a result of their speed and the way processes are performed. The Company believes that each of these cost components may translate into a reduced timeframe for return on investment and greater profitability per machine. In addition, N2 uses remotely mirrored virtual servers and other technologies that the Company believes can enable reliable, failover, fault-tolerant services. As it expands, N2 will likely establish additional mirror sites at remote, third-party-managed locations. The data center operations of N2 Data support the Company’s chief product Nōmad as well as provide opportunities for a separate revenue stream derived from performing data recovery and web hosting for third parties. Demand growth for these services is anticipated to exceed supply going forward, as many enterprises lack the ability to build internal data centers due to the financing, power supplies, time, and other elements that are required (Source: Tier1 Research, a subsidiary of The 451 Group that provides IT analysis, Internet Datacenter Supply Report, 2009). Based on its research, N2 estimates that the market for data center services, including disaster recovery and web hosting, among others, was approximately $19 billion in 2008 (Source: Tier1 Research). Corporate Information Incorporated in Nevada in October 2008, N2 Holdings, Inc. is the holding company of two wholly owned subsidiaries: (1) N2 Data, Inc., which was incorporated in September 2008; and (2) N2 Media, Inc., which was incorporated in April 2009. Each subsidiary performs independent objectives and responsibilities under the parent company. N2 Data acquires tangible assets and intellectual property in the technology sector, while N2 Media was designed to obtain media-related technology and assets. Headquarters for all three companies are located in Petaluma, California, which is approximately 45 minutes north of the San Francisco financial district. N2 is a closely held corporation with full-time executive officers and two part-time assistants.


Growth Strategy N2 Media N2 is pursuing a first-to-market approach with Nōmad, as the Company is not aware of a competing product currently providing the same capabilities. N2 is focused on targeting the consumer-in-motion with this product (i.e., the OOH consumer). Nōmad is anticipated to allow advertisers to cost effectively microsegment target audiences by varying advertising content based on location, time of day, and other criteria. N2’s growth strategy entails addressing specific markets for the installation of its Nōmad screens, which the Company believes may be a cost effective and efficient approach. Initially, N2 is emphasizing mobile applications, with a focus on transportation fleets. To this extent, the Company intends to install complementary units on third-party trucks in a revenue-sharing program in order to encourage participation. Additionally, N2 is working toward adoption of the product by state-operated metropolitan transportation systems. Through Company-commissioned research, N2 has determined that fleet size, geographic diversity, and the ability to generate impressions in high-density population centers are key factors in the selection of fleets for screen installation. N2 has identified possible national fleets that could represent sales leads for the Company. Moreover, while the product’s beta testing focused on vehicle-mounted mobile and semi-static screens, Nōmad may be applicable to further transportation sectors going forward, such as airports, buses, and subways, as well as at retail locations, malls, county fairs, and entertainment venues. In order to drive sales of Nōmad, N2 is seeking out forums for the product that not only represent a source of income but that also showcase Nōmad’s technical capabilities across a range of industries and applications. Ultimately, the Company intends to capitalize on a variety of revenue streams in addition to revenue sharing, including licensing fees, screen leasing fees (as well as lease financing for entities seeking to acquire the wholly owned systems), screen sales, advertising, and creative product sales, among others. Concurrent with fleet-based installations, N2 is also developing second- and third-generation applications for its dynamic media display technology that may help further N2’s position within the overall OOH advertising market. For example, another potentially first-to-market approach for N2 could be the development of a direct purchasing interface between the consumer and the advertiser. The Company believes that it has built the core software for its technology with the flexibility required to react to new market opportunities. In the future, N2 could pursue a number of novel uses for its digital displays, such as incorporating card swipe and ticket printer features for advertisements in New York City taxi cabs where the consumer may want to make a reservation or buy tickets after viewing a film clip. Ultimately, N2 expects Nōmad to become its largest revenue generator. Virtual Data Center N2 believes that the need for a complex data center to support dynamic media display products may serve as a barrier to entry, limiting the Company’s competition in this market. In addition to meeting the technological demands of Nōmad, N2’s virtual data center may also provide further growth opportunities. Via N2 Data, the Company aims to provide network outsourcing solutions for small- and medium-sized businesses that are unable to manage internal information technology (IT) infrastructure due to the costs of equipment and labor. N2 believes that expansion in its data center business will likely be fueled by the deployment of a knowledgeable and motivated sales force supported by advertising. Additional factors that are expected to drive outside adoption of the Company’s data services include N2’s location within the San Francisco, California, industrial and bio-research markets; adequacy of bandwidth; power supply and redundancy; price; and security. N2 intends to deploy sales resources that can capitalize on what the Company estimates may be 16% annual demand growth in the San Francisco market from 2010 to 2012 (Source: Tier1 Research’s Internet Datacenter Supply Report, 2009 [refer to Figure 11, page 26 for more detail]).


Intellectual Property In terms of intellectual property, N2 owns the copyright for its software and Internet Executive Dashboard function as well as patent applications related to Nōmad. The Company’s copyrighted software is delineated into three key categories: (1) A mobile software application that accompanies the digital screen and interacts with the vehicle on

which the screen is mounted; (2) The Executive Dashboard application that writes to both mobile and static screens; and (3) The programs that run in the data center and comprise all the data mining and manipulation,

scheduling, and communications. N2 is also in the process of finishing the first prototype of the onboard computer, which the Company expects to patent as well. While N2 does incorporate Intel Corp.’s (INTC-NASDAQ) chips, the Company also uses proprietary circuits and chips, especially for GPS satellite and cellular communications.


Company Leadership Management and Board of Directors N2’s leadership is composed of individuals with considerable media and technology expertise. Management’s skill set includes an array of fields related to U.S. public company operations and reporting, computer programming, secure data encryption, graphic design, network and data center operations, IT, and marketing and brand communications, among many others. Table 1 summarizes N2’s key leadership figures, followed by detailed biographies.

Carey Daly, President and Chief Executive Officer Mr. Daly is a decorated U.S. Marine Corps veteran of Vietnam. He holds degrees in computer science, business, and accounting, as well as an LLB in business law. He has both professional experience and expertise in finance and accounting, corporate structuring, forensic auditing, mergers and acquisitions, corporate equity financing, U.S. public company operations and reporting, U.S., European, and Asian stock markets, the recreation and hospitality industry, professional writing, computer programming, conversational Japanese, and secure data encryption. As such, he has been called upon to give expert testimony on several state courts on business issues. He also holds patents and copyrights for many high technology innovations. Randall J. Lanham, Chairman Mr. Lanham attained a J.D. from Whittier College School of Law in 1991 and a B.S. from the University of Delaware in 1987. Mr. Lanham is experienced in both domestic and international corporate legal matters. Currently, he manages his own law office, which specializes in corporate mergers and acquisitions. In addition, Mr. Lanham has a broad base of entrepreneurial experience and presently owns and operates several small entertainment companies. Clark B. Heist, Senior Vice President, Operations Mr. Heist holds an MBA from Pepperdine University’s Graziadio School of Business and Management. His Master’s thesis was awarded “magnum opus” by the chairperson, Department of Economics, Marketing, and Decision Sciences, and professor of marketing. He also holds a B.F.A. in graphic design from the School of the Art Institute of Chicago. He brings to N2 a package of creative talent, technical skill, and executive management experience in marketing support and brand communications for technology and life science brands. In roles including vice president of brand marketing, director of marketing, creative director, production director, account executive, and senior manager, Mr. Heist has led world‐class creative teams, directed award‐winning media deliverables, and spearheaded hundreds of corporate and product marketing programs at Fortune 100 companies, branding agencies, and interactive production studios.

Carey Daly President and Chief Executive Officer

Randall J. Lanham Chairman

Clark B. Heist Senior Vice President, Operations

Bruce W. Hall Senior Vice President, Finance

Mikol E. Westling Senior Vice President, Research and Development

LEADERSHIP

N2 Holdings, Inc.

Table 1



Bruce W. Hall, Senior Vice President, Finance Mr. Hall is an experienced financial executive with a broad range of expertise as an international corporate banker, a successful business owner, and the former senior vice president and chief financial officer of two national airlines. He has led both public and private stock offerings as well as arranged complex financing and restructuring efforts in debt markets. Mr. Hall holds a degree in business administration from Capital University (Columbus, Ohio), is a Fellow of the Institute of Canadian Bankers (FICB), and was awarded honors for his thesis at American Bankers Association (ABA) Stonier Graduate School of Banking at the University of Delaware. Mikol E. Westling, Senior Vice President, Research and Development Mr. Westling’s experience spans over 20 years in the computing industry with prior positions including the director of operations of a data center, management information systems (MIS) for a global custom optical manufacturing organization, as well as numerous senior engineer positions in smart cards, healthcare, and software development firms. Through his system and software experience, he has assisted firms in the development and deployment of extensive solutions, including rollouts to over 400,000 user enterprises of patient medical record systems, globally distributed Enterprise Resource Planning (ERP) systems and content management systems (CMS), as well as has developed various software solution packages for many of his employers. Mr. Westling is presently completing degrees in both business administration and computer science.


Core Story N2 Holdings, Inc. (“N2” or “the Company”) is a media and technology company providing advertising and network solutions to individuals, small and large businesses, and government agencies. N2’s products include professional services that facilitate targeted advertising and communication as well as technologies in managed hosting and data recovery. The Company conducts business through the operations of its two wholly owned subsidiaries: (1) N2 Media, Inc., provider of the advertising solution “Nōmad,” which is capable of delivering time-sensitive information and advertising graphics to mobile and static display screens worldwide; and (2) N2 Data, Inc., developer of data center services, software, and network outsourcing solutions for small- and medium-sized businesses. Table 2 provides an overview of N2’s operations and services, followed by an introduction into the advertising industry on pages 10-15 and descriptions of N2 Media and N2 Data on pages 16-23 and 24-26, respectively.

DYNAMICS AND MEDIUMS OF THE ADVERTISING INDUSTRY Advertising spending in the U.S. was estimated at $285 billion in 2008, including $92 million in local advertising and nearly $7 billion in outdoor advertising. Worldwide, advertising revenues were roughly $654 billion in 2008 (Source: Plunkett Research, Ltd. 2009). This industry is changing and traditional media (print, radio, and television) are rapidly losing market share. Based on recent survey data from Forrester Research, Inc. (FORR-NASDAQ), a considerable percentage of marketers intend to increase their interactive and alternative marketing budgets by shifting funds away from traditional media. In August 2009, a report from Veronis Suhler Stevenson LLC ([VSS] a private equity firm dedicated to the information, education, and media industries) documented the shift in advertising industry spending patterns from traditional to alternative media in the last 10 years, which has recently been accentuated by the recession. Changing consumer behaviors, including canceling subscriptions due to the economic downtown, have led to declining print advertising spending. Newspapers and magazine spending fell 13.1% and 5.8%, respectively, in 2008. Broadcast and satellite radio spending also declined. Local station advertising experienced a spending decrease of 7.1% in 2008 (Source: VSS 2009). As investments in traditional forms of media advertising decline, alternative media is expected to drive communications spending over the next five years. Alternative media has been forecast to expand by 12.3% annually from 2008 to 2013 versus a 3.3% projected decline for traditional advertising (Source: VSS 2009). This transition within the communications industry is anticipated to be fueled by growth of digital out-of-home (OOH), online, and other alternative forms of targeted advertising, as summarized in Table 3 (page 11). To this extent, the London office of advertising agency Leo Burnett Group released a Trends Predictions Report in 2008 that projected significant growth of screen-based media going forward. Specifically, the report anticipated that future marketing approaches could entail more television and video formats available on screens positioned on the sides of buses, at gas stations, in supermarkets, as well as at home and in the pocket. Spending on alternative media as a whole is projected to reach over $139 billion in 2013, representing approximately 30% of total advertising and marketing spending, up from roughly an 18% share in 2008 (Source: VSS 2009). According to VSS, its forecasts highlight impacts of the current economic cycle, which has accelerated long-developing trends—in particular, an evolution from mass-market image advertising to more individualized techniques.

N2 Media, Inc. N2 Data, Inc.

Nōmad Product Suite Virtual Data Center


Table 2

N2 Holdings, Inc.

COMPANY STRUCTURE

N2 Holdings, Inc.


Out-of-Home (OOH) Advertising Also referred to as outdoor advertising, out-of-home advertising (OOH) is essentially any type of marketing that reaches consumers outside of their homes. OOH advertising is composed of more than 100 different formats, totaling nearly $7 billion in U.S. revenues during 2008, as depicted in Figure 2 (Source: the Outdoor Advertising Association of America, Inc. [OAAA] 2009). Outdoor ads appear in a variety of places, including billboards, bus shelters, buses, taxis, malls, airports, subways, and sports stadiums. The OAAA divides OOH into four main categories: (1) billboards; (2) street furniture; (3) transit (mobile); and (4) alternative formats. Billboard advertising remains the predominant form of outdoor advertising in the U.S., accounting for 66% of total OOH annual revenue. In recent years, the transit and alternative categories have been expanding as well, specifically as it relates to digital OOH technologies.

Figure 2

OUTDOOR ADVERTISING REVENUE

Source: the Outdoor Advertising Association of America, Inc. <www.oaaa.org/marketingresources/factsandfigures.aspx>.

4.85.2 5.2 5.2 5.5 5.8

6.36.8

7.3 7.0

$0

$1

$2

$3

$4

$5

$6

$7

$8

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Bill

ions

Internet Media Word-of-Mouth Marketing

Professional Information Subscription Television

Business Information Mobile Advertising and Content

Education Videogames

Direct Marketing Business-to-Business e-Media

Event Marketing Tradeshows

Public Relations Digital Out-of-Home

e-Books

Newspapers Yellow Pages

Consumer Magazines Business to Business Magazines

Broadcast Television Home Video

Radio Recorded Music

Traditional Out-of-Home Traditional Consumer Books

What is Growing?

What is Shrinking?

Table 3

FIVE-YEAR FORECASTS FOR CERTAIN SEGMENTS AND SUBSEGMENTS OF THE COMMUNICATIONS INDUSTRY

Source: VSS Communications Industry Forecast 2009-2013.


Local enterprises are one of the most common employers of outdoor advertisements. Approximately 70% of OOH ads promote local businesses. As well, national advertisers (e.g., McDonald’s Corp. [MCD-NYSE], The Procter & Gamble Co. [PG-NYSE], and Warner Brothers Entertainment Inc.) often use outdoor advertising to complement the strategic objectives of mixed-media campaigns that involve other forms of advertising, such as television commercials, as well. Radio, television, newspaper, magazine, OOH, and online advertising can be purchased on the basis of the cost to air an advertisement to 1,000 viewers. This cost—the cost per thousand—is known as the CPM. Compared to other media options, OOH advertising is estimated to have a lower CPM (as depicted in estimates obtained from two different sources in Figure 3 and Table 4) and a lower cost per rating point (CPP). CPM is used in marketing as a benchmark to calculate the relative cost of an advertising campaign or an ad message in a given medium. Likewise, CPP can also be a measure of the cost effectiveness of an advertising medium, as it marks the expenditure that is required to purchase enough advertising space to reach 1% of the target audience. Further, outdoor advertising encompasses varied formats, some of which allow for customizable media plans targeting select geographic or demographic markets. This medium also enables the delivery of timely messages close to the point of sale.

Each week, the average U.S. commuter spends roughly 20 hours in a car and travels more than 200 miles—a 31% increase over 2003, according to a survey conducted by Arbitron Inc. (a media and marketing research firm). As consumers spend increasingly more time away from home and technology continues to improve, the outdoor advertising medium is becoming an important communications platform. A 2009 study by Arbitron examined the U.S. commuter’s exposure to OOH advertising as well as the shopping and purchase decisions of mobile consumers. The study found that OOH media, such as outdoor advertising and radio, not only reaches consumers but also impacts consumers’ shopping and purchasing decisions on the way home from work, as more than two-thirds of commuters make shopping decisions while in the car. As many as 71% of travelers are likely to look at roadside billboards and nearly 25% of billboard viewers have been motivated to visit a business on the same day due to an outdoor advertisement. Nearly a third of study respondents visited a retailer later in the week after viewing an outdoor ad (Source: The Arbitron National In-Car Study 2009). Outdoor advertising also reaches young adult males, a category that is often elusive to television advertising. Mobile and Digital OOH Advertising Although traditional billboards represent the majority of OOH advertising purchases, they may also be too costly for smaller advertisers. The cost of billboard advertising varies greatly depending on billboard type, size, and location and is estimated to range from several thousand dollars a month to as much as $75,000 a month for premium locations, such as the San Francisco skyway. In addition, many billboard sales require a minimum time commitment (e.g., sold in 90-day blocks). As addressed on page 19 under Competitive Advantages of Nōmad, N2 believes that its digital displays may represent a more cost-

$40

$35

$30

$25 Mobile Outdoor $1.56

$20 Billboard (Rotating Bulletin) $3.90

$15 Radio – 60-second prime time $5.92

$10 Magazine – Full page, color $9.62

$5 TV – 60-second prime time $20.54

$0

Source: N2 Holdings, Inc.'s data from www.movingimpressions.com.

CPM COMPARISON

Figure 3

Source: Outdoor Advertising Association of America, Inc.

Table 4

COMPARISON OF MEDIA COSTS

$28.32Newspaper – Half page, black and white

CPM Impressions

Advertising Medium

Local TV/ Day

Local TV/ Prime

Local Radio/ MF Ave.

Local Cable/ Day

Local Cable/ Prime

Newspapers/ 1:2 Page

Outdoor


effective option for small retailers and service providers in addition to providing next-generation features, such as graphics, video, and real-time updates, that are not possible with conventional billboard displays. The Company believes that cost efficiency may be an important benefit of Nōmad, as most billboard advertising features regional and local enterprises. Further, with static billboards, lead times and the difficulty of making changes to an ad campaign are sometimes prohibitive for certain types of advertising. Thus, newer OOH options, such as transit advertising and digital billboards, are being implemented with the intent of providing the flexibility and specificity not always offered via traditional roadside posters. Mobile and digital bulletins are described on the accompanying pages, followed by details of N2’s novel digital media product, Nōmad. Mobile Billboards As illustrated in Figure 4, mobile billboard advertising describes any bulletin displayed on a moving vehicle that is used to reach both motorists and pedestrians in metropolitan markets. The mobile OOH billboard model is an established media type with offerings from major companies. This format, typically a backlit, static vinyl graphic affixed to anything from a taxi to a truck, is largely deployed in outdoor venues involving major sporting events as well as at heavily visited locations, such as the Strip in Las Vegas or major political and trade exhibitions. Mobile outdoor advertising accounts for approximately 16% of total OOH advertising expenditures, and mobile trucks have been gaining in popularity since 2000 (Source: OAAA). Most mobile billboards are dedicated, customized trucks with large, narrow bodies specially outfitted for posting large advertisements. Some mobile billboards are installed on trucks and trailers that are in service delivering goods. These can be less costly than dedicated trucks but may also have fewer impressions (views) because the trucks spend time at docks loading and unloading goods.

The popularity of mobile billboards is due in large part to the ability of the advertiser to not be limited to a single location. With a mobile billboard it is possible to display an advertisement in any part of a city. In addition, many mobile billboards offer the luxury of a double-sided billboard, increasing visibility and potentially providing a more comprehensive look at the product or service being offered by the advertiser. It has been estimated that one mobile billboard truck can have over 1.5 million impressions per month when targeting a designated marketing area of more than 5 million people. Digital Billboards The stationary outdoor digital billboard is also an established component of this media mix with either static or animated imagery. Digital billboards, as pictured in Figure 5 (page 14), are static roadside displays that rotate advertising messages every 8 to 10 seconds, with typically six to eight advertisers sharing the same location. Digital billboards are updated electronically through a variety of methods both onsite or from a remote terminal. Some billboards are networked together and can be updated quickly, and most are operated remotely. Digital signage offers flexibility and the ability to change an ad message quickly and efficiently, which provides local businesses with a novel way to reach a large number of consumers in a select geographic location. For example, in many cities, television stations use digital billboards to advertise for shows or news segments that are airing that day.

Figure 4

MOBILE OUTDOOR ADVERTISING

Sources: <www.billboardswork24-7.com> and <www.thespotmediagroup.com>.


In early 2008, there were nearly 800 digitized billboards in the U.S., which were expected to expand at the rate of several hundred per year (Source: Inc., a daily resource for entrepreneurs, March 2008). Today, of the more than 450,000 billboards nationwide, approximately 1,500 are digital (Source: American City & County August 2009). Moreover, the upfront costs for digital billboards have declined over the past few years due to decreases in the price of the technology that makes these signs function—from roughly $500,000 to $200,000 (Source: Inc. March 1, 2008).

People Notice and Recall Advertising on Digital Screens During 2008, Arbitron conducted a case study on behalf of the OAAA evaluating the effect and perception of digital billboards erected in Cleveland, Ohio. More than half of study respondents recalled having noticed a digital billboard, and 90% of these billboard viewers stated that they specifically notice the advertising on digital billboards at least some of the time. Nearly two-thirds of people surveyed stated that they felt digital billboards were “a cool way to advertise” and brand recall was as high as 50% for some advertisers. Place-based digital networks are often positioned indoors in commercial areas where groups of people congregate, including sporting events, retail stores, or high-traffic locations, such as malls and airports. A recent study conducted by Arbitron and Edison Research found that more than two-thirds of people age 18 and over remembered having seen a digital video display in the previous month (Source: Arbitron Out-of-Home Digital Video Display Study 2009). Likewise, in a similar study performed during 2009 (The Arbitron National In-Car Study [as referenced on page 12]), more than half (55%) of respondents recalled noticing a digital roadside billboard within the month prior to being surveyed and 32% of respondents had seen a digital billboard in the week prior. Overall Public Reaction to Digital Signage is Positive As summarized above in Table 5, the advantages of digital billboards extend beyond selling products and services. Arbitron’s survey found that overall public reaction to digital signage is positive. More than 80% of people believe digital billboards provide important community and emergency information. In many cases, digital billboards are used as powerful aids to public safety. Across the country, local police departments are posting pictures of people wanted for arrest. Some hospitals, such as the JFK Medical Center in Palm Beach County, Florida, have begun posting their average emergency room wait time on digital signs nearby the hospital. Other services provided by digital billboards include news and traffic updates, weather advisories, and Amber Alert notices. The OAAA has recently conducted a study in Rochester, New York, evaluating the effect, if any, that digital billboards have on traffic accidents. Based on data from 18,000 traffic incidents over a five-year period, the association found no correlation between the signs and the accidents. On the contrary, accident rates were 0.4% lower within a half-mile radius of the digital signs (Source: American City & County August 2009).

Figure 5

Source: PR Newswire Association LLC.

DIGITAL BILLBOARD IN NEW YORK CITY'S TIMES SQUARE

MOST VIEWERS OF DIGITAL BILLBOARDS FIND THE SIGNS ATTRACTIVE AND HELPFUL

Table 5

Source: Arbitron Digital Billboard Report: Cleveland Case Study 2008.

Travelers who notice digital billboards and think they help the community by providing important and timely emergency information

Viewers who think the digital billboards are attractive

Viewers who think the signs make their commute more interesting

81%

38%

53%


Digital OOH Media Has Been a Key Component to Growth of the Alternative OOH Media Market Collectively, spending on alternative OOH media, which includes video advertising networks, digital billboards and displays, and ambient advertising, increased 27% to approximately $1.7 billion in 2006. As one of the fastest-growing segments of the media industry, the alternative OOH market has reported compound annual growth of 22.6% from 2001 to 2006, outpacing the overall advertising industry as well as the total OOH media sector (Source: PQ Media LLC’s Alternative Out-of-Home Media Forecast 2007-2011). In comparison, the advertising industry grew 6.4% in 2006, while total OOH advertising increased 10.6%, amplified by the growth in alternative OOH media. Digital billboards and displays in particular were the fastest-growing sub-segment, with spending increasing 55.4% in 2006 to $233.2 million. Likewise, spending on video advertising networks and screens grew 28% in 2006 to $1.01 billion (Source: Alternative Out-of-Home Media Forecast 2007-2011). According to PQ Media, a provider of alternative media econometrics for media stakeholders, the trends impeding traditional media growth—consumer fragmentation, advertising accountability, and the emergence of digital technology—are the same factors stimulating the growth in alternative OOH advertising. Acceptance and increased adoption of this media format by advertisers and media companies is key to the growth of alternative OOH advertising, particularly digital billboards. Growth is thought to be driven mainly by the following factors: research suggesting that the majority of consumers view alternative OOH media as favorable and

educational; greater exposure to and recall of this media as people spend more time commuting to work; new technology enabling companies to launch digital advertising platforms that generate higher

revenues than conventional formats; and the flexibility of digital advertising allowing advertisers to decrease production costs, change

advertisements quickly, and go on and off scheduled exposure. Content May Be Updated Rapidly and Easily for a Digital Screen Digital signage offers the distinct benefit of being dynamic instead of static. As such, messages can be transitioned more easily and frequently, creative videos and animations can be displayed, and signs can be adapted to circumstances and audiences. The capabilities have been shown to be beneficial to advertisers by increasing their return on marketing investments. In 2007, Edina Realty, Inc., a real estate agency serving Minnesota, Wisconsin, and North Dakota, began experimenting with dynamic advertisements on digital screens. The agency’s strategy entailed altering its billboard messages frequently in order to be responsive to changing market conditions. For example, Edina sought to improve confidence in the real estate market by airing the number of homes that were sold locally each month. The company also employed other time-sensitive tactics, such as running listings for lakefront cabins toward the end of the workweek when people were more receptive to these ads. By being able to actively manage its billboard ad campaign, Edina’s click-through rate for searchable “for sale” listings on its website increased 175% (Source: Inc. March 2008). Digital Screens Support Multiple Advertisements Whereas standard, static billboards can only be used for one message at a time, digital displays have the option of rotating between advertisements from several customers. Thus, instead of selling a monthly contract for one advertisement per poster, companies that manage digital billboards could sell different time spots to different customers as well as charge per second of used airtime. As such, digital technology may be able to generate substantially greater revenue for the owner of the displays.


N2 MEDIA, INC. Through the operations of its N2 Media subsidiary, the Company offers advertising solutions that allow clients to cost effectively microsegment their target markets by altering their advertising content in real time based on characteristics of the target audience, such as demographics, location, and time of day. The Nōmad technology provides the ability to deliver high-definition graphics to video screens anywhere in the world, moving or stationary, controlled from any computer with a secure connection to the Internet. The Nōmad Product Suite To capitalize on the digital OOH advertising market as well as to address the limitations of the current digital OOH offerings, N2 has developed “Nōmad,” an interactive multimedia outdoor advertising system. The Nōmad technology enables the delivery of high-definition graphics to video screens worldwide, both moving and stationary. The screens can be mobile (e.g., truck or vehicle mounted) or can be placed in high-traffic locations, such as event venues or sports arenas, as either a permanent or temporary digital network. In addition, the technology can be used to enhance stationary digital billboards as well. Figure 6 illustrates a truck-mounted Nōmad screen.

Nōmad targets high-density travel locations via a network of mobile digital displays, creating interaction with an audience in transit. Based on a patent-pending method that combines cellular, satellite, Internet, and GPS capabilities with copyright-protected software, N2’s technology enables advertisers to microsegment their OOH marketing campaigns by changing and scheduling content at will or in response to market conditions. The Company’s screens have built-in hardware and software that tracks the GPS location of each digital screen, thus advertising can be reactive to the proximal geographic location. In addition, the backbone of Nōmad’s user-friendly capabilities is the Company’s web-based interface or Executive Dashboard, which allows advertisers to view the digital screen’s location, change or schedule content, obtain local traffic and commuting statistics, and obtain advertising data, such as how much of their allotted time has been used or is remaining and when and for how long certain ads were aired. This not only provides control to the advertisers but also reduces overhead costs related to changing the advertisement or its schedule.

Figure 6

N2 Holdings, Inc.

N2'S PROTOTYPE NŌMAD OUTDOOR ADVERTISING SYSTEM (TRUCK MOUNTED)



From any computer connected to the Internet and a flash drive provided by N2, an advertiser can access their Nōmad Executive Dashboard account to define what type of ad should be shown, where it should air, and when it should play, and then alter these parameters in real time according to data generated by N2’s system. Alterations may be made even while the truck is on the road. Table 6 lists some of the possible configurations that advertisers can set using the Executive Dashboard, noting that this is not an exhaustive collection of settings. For example, the language or message of the ad can be changed based on demographic data of the screen’s location or a discount promotion can be updated based on time of day or usage. As indicated in Table 6, N2’s technology also offers customers their choice of network type (e.g., open or private) and venue location. Greater details of public, private, and mixed networks can be found on pages 22-23. Based on its internal research, N2 believes that Nōmad is the only product of its type with extensive, real-time, advertiser-controlled updating capabilities designed to increase market responsiveness.

Network Type Venues

▪ Public Network (Open) ▪ In Transit (Mobile billboards)

▪ Private Network (Captive) ▪ Institutional (Stationary billboards)

▪ Mixed Network (Semi) ▪ Mixed Venue (Semi)

Location (Reach) Date (Exposure)

▪ All (Global) ▪ All (Global)

▪ Market Regions (Cities, High-population metro areas) ▪ Weekday, Weekend

▪ Geographic (Street, City, County, State, Country) ▪ Week, Month

▪ Zip Codes ▪ Date Range (Concurrent, Single, Recurring)

▪ Area Codes ▪ Seasonal

▪ Distance (Radius from a target address) ▪ Holiday (New Year's Eve, Christmas)

▪ Arena (Stadium) ▪ Event Bound (Sporting, Political)

▪ Area Exclusion (User defined) ▪ Date Exclusion (User defined)

Time (Run of Schedule) Priority

▪ All (Global) ▪ Emergency Broadcast Message

▪ Time Range (Hour, Minute, Second, Recurring) ▪ Guaranteed Placement

▪ Moment Specific ▪ Best Bid

▪ Drive Time (Morning, Noon, Evening) ▪ Standard Rotation Placement

▪ Overnight (Off-peak) ▪ Any, Standby (As available)

▪ Hour Exclusion (User defined) ▪ N2 Self Promotion (Filler, default)

▪ Static (Images: .JPG, .GIF) ▪ Full-motion Video (.FLV, .MPG, .MOV)

▪ Animated (Images, Scrolling Text, Motion Graphics) ▪ Audio (Voice over and music: .WAV, .MP3)

▪ Creative (Media design and production) ▪ Mobile Marketing/Cell Phones

▪ Media Placement and Billing (Coupon response and fulfillment)

▪ Campaign Optimization (Assess, Analyze, Optimize) ▪ FM Broadcasting/Streaming Audio

▪ Reporting (Metrics and Documentation) (Promotion response and fulfillment)

Table 6

Airtime

Supported Media

Added Services


Audience

A SELECTION OF ADVERTISEMENT OPTIONS FOR CLIENTS USING NŌMAD

N2 Holdings, Inc.


Altogether, N2’s clients can apply a wide variety of layered criteria to their advertisements—advantages of Nōmad that are not feasible with many existing OOH marketing mediums. Moreover, N2 estimates that the changes its clients make through Nōmad’s Executive Dashboard application require no longer than 120 seconds to take effect (as illustrated in Figure 7).

To N2’s knowledge, Nōmad offers the first-ever mobile advertising light-emitting diode (LED) Dynamic Display Billboard (DDBB). The billboard is readable from up to 1,000 feet and can withstand temperatures as low as -10°F and as high as 140°F. The Nōmad DDBB is capable of supporting the following media formats: (1) static media (images); (2) animated media (images, scrolling text, or animated graphics); (3) video (full-motion video); and (4) audio (voice over and background music embedding). The system also possesses FM radio broadcast capabilities that can reach stereos in the vehicles following the truck. In addition, as illustrated in Figure 8, an interactive cellular text messaging solution is available through which N2 delivers advertisers’ discounts, concert tickets, and other promotions.

Dashboard Firewall Satellite Screen

Figure 7

N2 Holdings, Inc.

REAL-TIME AD UPDATES ARE POSSIBLE WITH N2'S DASHBOARD APPLICATION


N2 estimates that the changes its clients make through Nōmad’s dashboard application require no longer than 120 seconds to take effect.

Figure 8

CUSTOMIZED PROMOTION PROGRAMS TARGETED TO VIEWER RESPONSE

N2 Holdings, Inc.


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N2’s inclusion of an interactive cell phone component to its outdoor advertising technology may be particularly beneficial in helping drive advertising sales on the Nōmad product, as advertisers are increasingly seeking new and creative venues to distribute their advertising content that can engage, enlighten, and stimulate the public to buy. N2 has also already accounted for community safety concerns. Patent-pending vehicle operational indicators alert drivers to the Nōmad truck’s slowing, turning, and stopping and can provide updates on road conditions, Amber Alerts, or other emergency announcements. Competitive Advantages of Nōmad N2 believes that the technical capabilities of the Nōmad outdoor advertising system provide several advantages versus existing advertising options, as described below. Cost per Impression. With advertising campaigns focused by location, time, and duration, Nōmad can

deliver a campaign that maximizes reach per dollar by reducing superfluous advertising that escapes the target audience. In addition, while some advertisers opt to employ an intermediary advertising agency for creative content and media selection, N2’s clients have the option of eliminating advertising agency commissions by uploading content directly from their computers. Clients may even be able to create their own digital display ads using commercial design software, such as Apple Inc.’s (AAPL-NASDAQ) Final Cut Pro or programs from Adobe Systems Inc. (ADBE-NASDAQ).

Demographics. Unlike static billboards, where billing is based on total impressions, N2’s product can be directed to only the demographic or geographic area representing the client’s target market, potentially enabling a more efficient use of ad resources and budgets. Additionally, the targeted nature of Nōmad allows for novel applications, such as location-specific promotions.

Call to Action. The Nōmad system incorporates audio support for its digital screens by transmitting via FM radio to receivers in nearby vehicles. Nōmad also supports interactive advertising where consumers can respond via their cell phones.

Spot Duration and Flexibility. While the length of an ad on a stationary billboard is often limited by the time it takes a vehicle to pass the billboard, spot length with Nōmad may be able to overcome this limitation. Ad space on Nōmad may be sold in six-second increments (per California’s transportation regulations); however, multiple ad segments may be purchased to run back to back. Nōmad’s flexibility may enable spots longer than the 5 to 10 seconds typically offered by conventional digital billboards.

First to Market. To N2’s knowledge, no competing product currently provides the same capabilities as

Nōmad, and the Company believes that there are significant barriers to entry, including the need for a complex data center. The data center functionality of Nōmad is provided by the Company’s N2 Data subsidiary, as detailed on pages 24-26.

Revenue Optimization. N2 believes that return on investment for each of its installed systems can be measured in terms of weeks rather than in years. As such, the Company may be able to expand sales without dramatically increasing working capital, as is typical of high-growth enterprises. N2 expects to build diversified revenue streams comprising licensing fees, screen leasing fees, screen sales, advertising/creative product sales, software sales, and contract work. In addition, N2 can offer creative, ad placement, campaign optimization, and reporting services.

No Client is Too Small/Cost Efficiencies. Although prices vary, the Company approximates that by employing Nōmad, small retailers and service providers can have cost-effective access to OOH advertising campaigns for as little as $500. N2 is considering selling airtime in the range of $0.20 to $0.30 per spot, which the Company believes is at a considerable discount versus existing roadside digital billboards. N2 estimates that these conventional digital signs charge as much as $2.75 per spot and do not provide the same amount of exposure as Nōmad could, due to drivers passing the roadside signs at average speeds of 60 miles per hour. To motivate advertisers’ adoption of Nōmad, N2 intends to price its airtime at approximately 25% less than competitive options.


In contrast, the costs of advertising on competitive digital billboard products could range from $1,200 to as high as $10,000 a month, depending on the sign’s size and location (Source: Inc. March 2008). Relative costs of several other common advertising mediums are provided in Figure 3 and Table 4 on page 12. Furthermore, N2’s technology may be beneficial for existing screens, as the Company believes that these can be converted to its specifications at a nominal cost.

Table 7 summarizes some of the technology’s key features and benefits.

Collaborations for Beta Testing of Nōmad N2 has conducted beta tests with Nōmad that demonstrated the effectiveness of this advertising medium for over 10,000 miles. The beta tests, which showed 60,480 units of advertising, used hardware configured and manufactured by N2 combined with commercially available components for the power source, screen, and communications. The beta model of Nōmad consisted of an LED screen mounted on the rear of a truck. In a series of studies, N2 evaluated mobile screens as well as semi-static designs. N2 classifies semi-static arrangements as those where a screen is mounted on a truck but is then parked at a venue for a specific event. These displays were then moved between venues. In April 2009, N2 entered into an agreement with Maverick Media, the parent company of multiple radio station properties in Northern California. N2 and Maverick cooperated to deploy functional prototypes of Nōmad in a real-world environment through which the Company was able to resolve any technical difficulties that arose with the product. This partnership served to help accelerate N2’s development schedule for bringing Nōmad to market. Maverick’s radio stations include the FOX 101.7, KSRO 1350, Froggy 92.9, the River 97.7, and the Mix 104.9. N2 tested prototypes of its Nōmad system during Maverick’s radio station sweep ratings season from April 2009 through June 2009. Sweeps seasons are the seasonal period when ratings are accrued and studied and advertising rates are reset. N2 received positive feedback in terms of ratings impacts for Maverick’s radio stations during drive time and midday hours. In addition, the Company conducted tests with other local businesses, including sales offices of the Century 21 realtor alliance and the Martin Levy Group, the J. Keverson Winery, and local nonprofit organizations in a public service capacity.

▪ Focused multimedia advertising: Advertisers can define campaigns based on varying parameters, including

time, location, usage, duration, and ad response

▪ Screens are readable from up to 1,000 feet and can withstand temperatures between -10°F and 140°F

▪ Screens can also offer emergency, community, and public service announcements in addition to ads

▪ There is no limit to screen size and the technology can be retrofit to any equipment or location

▪ System provides interactive capabilities for viewers:

▫ AM/FM radio transmission ▫ Location-specific promotions (including with active barcodes)

▫ Cell phone texting

▪ Dashboard application allows clients to obtain real-time advertising data:

▫ Screen location ▫ Advertising schedule

▫ Traffic and commuting statistics ▫ Consumer use of promotional advertising

▪ Advertisers can capitalize on demographic and advertising data to make decisions regarding campaign

content or schedule

▪ Changes are only expected to require up to 120 seconds to become effective

▪ A variety of supporting services are also offered, including media development and installation assistance

Table 7

N2 Holdings, Inc.

FEATURES AND BENEFITS OF THE NŌMAD TECHNOLOGY



In May 2009, the Company entered into another agreement to showcase its Nōmad outdoor advertising system. N2 collaborated with WOW Event Solutions to participate at the 115th Annual Santa Rosa Rose Parade on May 16, 2009, in Santa Rosa, California. The N2 Media vehicle was used to promote corporate sponsors along the parade route. During June 2009, N2 conducted semi-static testing of Nōmad in collaboration with California’s Infineon and Petaluma Speedways. For Infineon Raceway, N2 premiered Nōmad at the 5th Annual NASCAR Day, held June 6, 2009, in front of the State Capitol in Sacramento, California. More than 20,000 racing fans were expected to attend this event. Nōmad circulated the event grounds promoting the upcoming Toyota/Save Mart 350 NASCAR Sprint Cup Series race event at Infineon in addition to other NASCAR and Infineon corporate sponsors. N2 also presented Nōmad at weekly racing events throughout June and July 2009 at Petaluma Speedway. After the beta tests, the Petaluma Speedway noted that it experienced an average increase in the grandstands of 10% during the testing period. In conjunction with Petaluma Speedway, Nōmad also appeared at the Sonoma-Marin Fair in June 2009. Attendance for the Sonoma-Marin Fair has ranged between 57,000 and 67,000 people over the past eight years. Figure 9 depicts some of N2’s partners that participated in the Company’s prototype testing of Nōmad.

Conducting these beta tests led to several benefits for N2, as listed below. Proof of concept was achieved.

The Company was able to identify areas of improvement prior to commercial production of the units,

which included enhancing screen definition and creating a standardized wiring harness. In August 2009, the Company received a Letter of Intent (LOI) from a food bank in California, the

Food Bank of Contra Costa and Solano. This Food Bank is a centralized warehouse that stores and distributes donated and purchased perishable and non-perishable food items directly to low-income people at community sites as well as to other nonprofit organizations serving the ill, needy, and infants. Per the LOI, the Food Bank is willing to allow N2 to install Nōmad on several of the charity’s trucks, which range from 14-foot box trucks up to 40- and 53-foot trailers.

Similarly, in October 2009, N2 received an LOI from Petaluma Green Taxi, an operator of hybrid taxis in Sonoma County, California.

N2 obtained endorsement letters from the third parties involved, which the Company is using to

expand its sales efforts.

N2 Holdings, Inc.

Figure 9

Sources: N2 Holdings, Inc., <www.gospeedway.com>, <www.sonoma-marinfair.org>, <www.petaluma-speedway.com>, and <http://woweventsolutions.com/>.

A SELECTION OF PARTNERS THAT SHOWCASED THE NŌMAD OUTDOOR ADVERTISING SYSTEM DURING ITS ADVANCED BETA TESTING STAGE


As the product’s design has been completed and manufacturing sources have been identified, N2 estimates that viable, marketable units of Nōmad may be deployable within the first quarter 2010, pending corporate financing. To date, N2 has already deployed a public, truck-mounted Nōmad network that is currently operational and is being actively used as a demonstration vehicle in Northern California. Applications for Nōmad Nōmad began as a product purely for mounting in vehicles. However, the system’s capabilities—chiefly using the Internet to broadcast messages as well as to change and schedule content—combined with advancements in screen technology have broadened its possible applications. To N2’s knowledge, DDBBs, as they are deployed around the U.S. today, frequently require operators to physically go out to the equipment in order to test its operation, make changes to the display, schedule new advertisements, and eliminate old ads, among other tasks. With the GPS-based mobile Nōmad screen, N2 created a durable display system that could be maintained remotely via an Internet connection. As such, the product also solves many of the limitations of existing stationary digital displays. The Company has stated that it expects to offer large, roadside video screens in the future as well as the current truck-mounted displays. Although the beta testing was focused on vehicle-mounted mobile and semi-static screens, the technical capabilities of Nōmad coupled with feedback from the beta test results led to the expansion of the product’s uses. For example, a radio station in N2’s local market approached the Company with the idea for a new promotion using Nōmad. In this application, the station broadcasts an announcement over the radio informing its listeners that they can win prizes and tickets if they see the Nōmad vehicle and call the station with the secret message being aired on the ad, which the radio station intended to frequently change using the technology’s Executive Dashboard. Continuing with advancements to enhance viewer interaction with the Nōmad screens, N2 has taken the initial mobile, Internet-managed technology and added a number of features: FM broadcast capabilities, star dialing (to access promotion coupons, concert tickets, etc.), RSS feeds, news feeds, sport scores, road condition updates, and Amber Alerts, among others. Going forward, N2 could also pursue additional novel uses for its digital display technology, such as incorporating card swipe and ticket printer features for advertisements in New York City taxi cabs where the consumer may want to make a reservation or buy tickets after viewing a film clip. The Company believes that it built the core software for its technology with the flexibility required to react to new market opportunities. N2 further plans to introduce new screen technologies throughout Nōmad’s product development cycle. An LCD High Definition screen is also under development, while additional options, such as a “roll-up” LED screen and miniaturization of the microprocessor and signal driving mechanism, are in initial review. Another opportunity for the Company pertains to safety. Nōmad already encompasses safety features that sense the depression of brakes and monitor turn signal activity in order to flash warnings on the display screen. N2 has theorized that the microprocessor could be connected to the truck in a manner that allows the truck’s central dispatch station to immobilize the truck remotely—a capability that may help protect against hijacking. Ultimately, there are a wide variety of expansion products that N2 could launch utilizing its core digital display technologies. Network Types N2 offers customers two primary options for N2 Media advertising. The first entails a public screen network and the second enables a more private option, each of which is overviewed below. Public. A public screen network entails screens for which any advertiser may purchase air time. The

customers do not typically own the public screen. These screens may be found in a variety of places, including as mobile truck displays or as static displays positioned at a county fair or other venue.

Proprietary (or Private). Proprietary networks are those often owned and operated by the advertiser. As such, these displays may be limited to only the message intended by the display’s owner. For example, a branded Coca-Cola® delivery truck will likely only show ads for Coca-Cola® products.


Additionally, the Company may offer a type of mixed network, which is not private to one client, but that does restrict the types of advertisements being aired. The purpose of this third, mixed network is to comply with the “public rule” of the relevant locales. For instance, while it is acceptable to show lingerie ads on public signs in New York City, these same ads may not be considered publicly appropriate in more conservative locales. Target Market Segments for Screen Locations Initially, N2 is selectively targeting customers that not only represent revenue potential but that also are capable of showcasing the novel features of Nōmad and subsequently serving as references to drive future sales for the Company. N2 is in negotiations with airports, bus and subway stations, bus and subway vehicles, retail malls, truck fleets, public transportation, county fairs, and entertainment venues (e.g., amusement parks and sports arenas). Farther ahead, future global markets could include perishables such as theater and airline seats, rental cars, and even mobile handheld devices. At present, the Company is focused on the development of the following market segments for screen installations (not advertising revenue), with each segment including both private and public display network options: (1) fleet; (2) semi-static; (3) retail; and (4) public transportation. Each of these is addressed below. Fleet N2’s strategy for addressing fleet customers consists of offering both public and private vehicle-mounted screen networks. The Company intends to negotiate with truck companies for the installation of units to create public networks. Initially, N2 plans to manage fleet business under a revenue sharing model whereby screens are installed at no cost to the operator, which the Company believes may be an incentive to participate. Private networks may be established across the customer’s delivery trucks, only showing advertisements related to that company. In addition to generating revenue, the Company anticipates that these deployments can serve as demonstration vehicles to assist with future sales. N2 has designed five different mount configurations to fit varying truck door designs and venues. Based on negotiations to date, N2 has received a commitment from a Northern California fleet operator to deploy Nōmad in at least 10 trucks with a potential build-up to several hundred trucks and has received a similar LOI from a hybrid-powered taxi fleet in Sonoma County. Semi-static These screens are deployed to sporting or entertainment events, fairs, or conventions. The Company is leveraging its experience from the beta testing at Infineon and Petaluma Speedways in order to seek out further opportunities for semi-static applications of Nōmad within NASCAR, as well as with other events and organizations. Retail In addition to providing mobile digital displays, N2 has the capabilities to create stationary private networks in retail locations, such as malls and airports. The Company estimates that a mall agreement could result in over 150 advertisers airing promotional information, with each customer having the ability to independently update ad information according to its unique needs. Public Transportation N2 believes that public transportation may become a considerable market for its Nōmad product. Opportunities within this segment could range from deploying networks across state-operated public transportation in designated metropolitan areas to private bus services, such as those employed by hotels and casinos to shuttle people from airports and other locations to their destinations. Because the Nōmad screens require an onboard computer that utilizes an Internet connection, the product is expected to enable Wi-Fi at no extra cost. Thus, N2 believes that bus operators may have incentive to participate in the program due to the Wi-Fi capabilities. Furthermore, entities that advertise on the static billboards inside the bus can complement their marketing campaigns by adding a digital advertisement on Nōmad as well.


N2 DATA, INC. The backbone of the Nōmad product is an advanced data center capable of supporting the product’s technological requirements. Through its wholly owned subsidiary N2 Data, the Company maintains an internal data center at its California facilities. The data center provides the “back room” processes for the Company’s advertising, maintenance, and delivery demands as well as is home to the software development group that designed Nōmad. It entails a complete infrastructure of security, dedicated cooling systems, auxiliary power, and fiber optic connectivity. When designing this data center, N2 sought to build a “greener” work environment by efficiently using file servers and attached resources. As well, N2 aims to reduce the traditionally high carbon footprint that is characteristic of many advertising and technology companies. Thus, the data center employs cloud computing as well as virtual machine technology, which is essentially software programs that mimic the performance of hardware devices but that can be executed concurrently on one machine. The Company believes that its virtual data center setup enables efficiency gains over standard data centers in terms of reduced power and air conditioning requirements as well as a smaller hardware investment. N2 estimates that its initial virtual server capacity can manage 1,000 digital screens. As the business expands, the Company intends to first scale up within its existing facility, which has space to expand, potentially followed by incorporation of another facility or acquisition of a third-party data center business. N2 opted not to begin by acquiring an outside data center because most centers today still use high-energy devices. With its virtual technology, the Company has reduced its energy bill by 88%. Power and climate control may represent as much as 80% of the costs of operating a data center. Additionally, N2’s virtual servers require less bandwidth as a result of their speed and the way processes are performed. Further, as the Company has a smaller data platform due to it being largely virtual, N2 incurs fewer engineering and staffing costs. N2 estimates that its use of virtual server and cloud computing technologies has saved the Company over 90% in terms of hardware resources. The Company believes that all of these cost components may translate into a reduced timeframe for return on investment and greater profitability per machine. Figure 10 illustrates the network architecture that N2 has established to support the real-time transmission of data from the client to the Company’s digital displays, both mobile and stationary.

Figure 10N2 Holdings, Inc.

NETWORK ARCHITECTURE


(1) Client Systems(2) Communications Towers(3) Wireless Microwave Transmission(4) Fiber Optic Transmitters(5) Peer-to-Peer Dedicated Fiber(6) Internet Service Provider(7) Internet Cloud(8) Redundant Upstream Carriers(9) Dual-Fiber Data Center Point of Entry(10) Redundant Routers and Switches (11) Redundant Firewalls (12) Application Services

(13) Managed Server Infrastructure (14) Satellite Uplink (15) GPS Positioning and Communications (16) Outdoor Media Venue: Transit (17) Outdoor Media Venue: Institutional


Additional Data Center Applications N2’s data center is not exclusively in use to sustain N2 Media. The technological competencies of the center also support data recovery and hosting applications. The Company expects to manage other products as well, such as Software as a Service (SaaS), particularly as N2 seeks out methods to reuse its data center assets in a revenue-generating scenario. Disaster Recovery Many businesses, universities, government agencies, or other institutions employ third-party disaster recovery/business continuation services to protect data in the case of unforeseen emergencies. N2 estimates that between 2% and 4% of information technology (IT) budgets are allocated for data backup, as a severe loss of data could be crippling to many organizations. Of companies that have experienced a major loss of business data, 43% never reopen, 51% close within two years, and only 6% survive long term (Source: Duke University’s Computer Science Department). N2 believes that its data center operations could help meet disaster recovery needs, as its center incorporates failover systems, custom recovery strategy planning, mirrored offsite servers for rapid failover, rapid data restoration, end-to-end disaster recovery solutions, and design, implementation, and training services. Web Hosting N2’s data center can also offer cost-effective web hosting (also known as managed hosting), a service for both enterprises and individuals who desire a website but do not want to undertake the associated administrative costs and infrastructure. As an entirely customized solution, the Company’s web hosting can address varying levels of clients’ equipment and service needs. N2 aims for 99.9999% uptime of its web hosting applications. The Company believes that its competitive advantage in terms of managed hosting may be its ability to operate virtual servers at a fraction of the cost incurred by traditional data centers while maintaining reliability and security. Software as a Service (SaaS) SaaS is a type of system deployment in which all of the software and data is hosted and managed at a central data center operated by the vendor. Users can access the system remotely through a broadband Internet connection and a web browser. The consumer typically pays a monthly subscription or a transaction fee to use the service, rather than purchasing the software upfront. N2 Data’s first SaaS product is AudIT™, which is an Internet-based alternative to a competitive suite of asset identification software. The Company believes that AudIT™ represents a newer software solution for asset identification, particularly as this product is entirely SaaS based and thus requires no physical shipments or installations. It is updated in real time and may incur fewer administrative costs—factors that N2 believes may lead to a rapid adoption for this product candidate. Market for Outsourced Data Center Services Based on its research, N2 estimates that the market for data center services, including disaster recovery and web hosting, among others, was approximately $19 billion in 2008. A recent report (Internet Datacenter Supply Report, 2009) from Tier1 Research, a subsidiary of The 451 Group that provides IT analysis, concluded that demand growth for these services will likely exceed supply going forward, as there are considerable barriers to entry in this market. Barriers may include available financing to fund the establishment or build-out of a data center, power availability, the presence of a fiber optic hub, and prohibitive costs and timelines for construction. Thus, Tier1 maintained that, even in the current economic climate, the inability of enterprises to build internal data centers will likely outweigh any impact from decreased IT spending. Figure 11 (page 26) illustrates the gap between supply and demand in this market, which N2 hopes to address.


2008 2009 2010 2011 2012 2008 2009 2010 2011 2012

Sources: N2 Holdings, Inc., The 415 Group, and Tier 1 Research's Internet Datacenter Supply Report, 2009.

SupplySupply Demand Demand

0%

20%

15%

10%

5%

20%

15%

10%

5%

0%

Figure 11

Data Center Supply/Demand GapData Center Supply/Demand Gap

GlobalSilicon Valley Region

SUPPLY AND DEMAND DISPARITIES WITHIN THE DATA CENTER SERVICES MARKET

8%8%

15% 15%16%

17% 18%

6%

9% 9%

6%

15% 15%16%

17% 18%

5.25%4.75%

5.5%6.5%


Competition The outdoor advertising industry is fragmented, consisting of several larger companies involved in outdoor advertising as well as a number of smaller and local companies operating a limited number of display faces in a single or a few local markets. N2 competes for advertising revenue with other advertising media, including satellite radio, broadcast and cable television, print media, outdoor advertising, direct mail, the Internet, and other forms of advertising. The Company believes that roadside digital billboards are the closest type of competition that it currently faces, where competition may come from those companies attempting to replicate its efforts. N2 is directly targeting truck haulers that seek revenue sharing because they want to make money on their “deadhead” runs as well as their live runs. As well, N2 intends to target other venues, such as buses, that run in the outlying communities as well as local shopping centers and larger malls, where merchants are able to exclusively advertise their sales and promotions. The accompanying pages profile a selection of companies that N2 may compete with in its efforts to penetrate the digital advertising space, beginning with digital and video network advertisers. Digital Advertisers Lamar Advertising Company (www.lamar.com) Lamar Advertising Company currently operates over 150 outdoor advertising companies in more than 44 states and Puerto Rico. Founded in 1902, the company has over 60 transit franchises that reach driving audiences across the U.S., Canada, and Puerto Rico through billboards, digital billboards, bus shelters, benches, and buses. Lamar Digital Displays utilize computer-controlled electronic billboards that transmit light through the use of LED display technology. The billboard holds the message for up to 10 seconds before the next message is displayed. The company is also a leading supplier of highway logo signs, with operations in 21 states and in the province of Ontario, Canada. The company’s headquarters are located in Baton Rouge, Louisiana. Clear Channel Outdoor, Inc. (www.clearchanneloutdoor.com) Clear Channel Outdoor Holdings, Inc. (CCO-NYSE) and its parent company, Clear Channel Communications, Inc. (CCU-NYSE), are among the world’s largest outdoor advertising companies with nearly one million displays in 49 countries across 5 continents. In the U.S., the company operates just under 200,000 advertising displays and has a presence in 49 of the top 50 designated market areas. Clear Channel Outdoor provides billboards, digital outdoor networks, Times Square spectaculars, street furniture, airport displays, mall displays, taxi advertising, mass transit displays, and other advertising mediums. The company’s Digital Outdoor Networks can improve the visual integrity and recyclability of its products. Clear Channel Outdoor’s digital billboards display static messages that resemble standard printed billboards when viewed, but also allow advertisers to change messages throughout the course of the day. Turnaround for brand new designs is 24 hours and there are no production costs. Eight advertisers rotate continuously, each one having eight seconds to display a static image. Images can be scheduled to run at certain times of the day, on particular days of the week, or on specific boards within the network. The company has headquarters in Phoenix, Arizona. CBS Outdoor (www.cbsoutdoor.com) CBS Outdoor, a division of CBS Corporation (CBS-NYSE), is an outdoor media company. CBS Corporation has preeminent positions in television, radio, outdoor and online advertising, and is currently one of the leaders in the creation, promotion, and distribution of entertainment, news, and sports with well-known brands, including CW, CBS Interactive, CBS Paramount Television, CBS Radio, CBS Television Distribution, CBS Television Stations, CSTV, Showtime, and Simon & Schuster. With more than $2 billion in revenues worldwide, CBS Outdoor is one of the world’s largest out-of-home media companies, providing custom media solutions to outdoor advertising agencies and direct clients throughout the U.S., Canada, Mexico, South America, China, and Western Europe, which includes a strong presence in the UK, Ireland, France, Italy, the Netherlands, and Spain. CBS Outdoor sells and services more outdoor advertising than any other billboard company in the Americas and currently operates nearly 550,000 outdoor media displays nationwide. In addition to over 100,000 traditional


billboards spread throughout many major U.S. cities, CBS Outdoor offerings also include street furniture advertising, transit advertising, and mall advertising, among others, with coverage across vast geographies utilizing multiple media forms within key markets. The company also offers a full range of advertising services from its creative, business development, and marketing departments. CBS Outdoor has headquarters in New York City, New York. Magic Media, Inc. (www.magicmediainc.net) Magic Media, Inc. is an outdoor advertising company that currently owns and operates 10,000 bulletins and 1,200 posters in 20 states throughout the country. Besides its product offerings, the company offers a complete line of outdoor advertising services, including creative design, production, installation, and maintenance of displays. Magic Media’s product offerings include bulletins, the largest standard size outdoor format, that are available in rotating and permanent schedules. The company further offers posters that are distributed throughout the market on primary and secondary arteries and that reflect consumer traffic patterns. Being the smaller of the billboards, posters may be better suited for new products or service introductions. Magic Media offers digital billboards as well, which display static messages in high quality LED that appear similar to standard painted/printed billboards when viewed. Digital billboards offer advertisers the advantage of delivering real-time information as well as the potential to target and purchase by time of day, location, or geography. The company has headquarters in Bangor, Pennsylvania. GestureTek® (www.gesturetek.com) GestureTek® has developed and marketed a camera-enabled gesture-recognition technology for presentation and entertainment systems. The company’s multi-patented video gesture control technology (VGC) lets users control multimedia content, access information, manipulate special effects, and immerse themselves in an interactive 3D virtual world by moving their hands or body. Its gesture-control is delivered without the need to wear, hold, or touch anything. In the past 20 years, the company has installed approximately 4,000 interactive multimedia displays, kiosks, exhibits, digital signs and advertisements, virtual gaming systems, and other interactive surface computing solutions, many with multi-touch interactivity. Its technology is used in museums, science centers, amusement parks, trade shows, retail locations, bars and nightclubs, real estate presentation centers, corporate showrooms, boardrooms, digital signage networks, and other public spaces such as airports and stadiums. The company’s digital signage advertising software, called ScreenXtreme®, delivers an immersive panorama of dynamic multimedia gaming and advertising experiences. GestureTek® was originally known as JesterTek and Vivid Group. The company has headquarters in Sunnyvale, California. Reach Media Group (RMG) (www.rmgnetworks.com) On August 19, 2009, Danoo, a location-based digital media network, and IdeaCast, a provider of advertising in the captive television category, announced the re-launch of the newly combined entity, Reach Media Group (RMG), following the July 2009 announcement of Danoo’s acquisition of IdeaCast. RMG aggregates consumers into highly targeted audience networks and is focused on three segments: (1) the Business Traveler network; (2) the Health and Fitness network; and (3) the Urban Mobile network. RMG delivers more than 30 million impressions across 15,000 screens nationwide. Across its three networks, advertisers can utilize on-screen media, branded content opportunities, on-location activation, and mobile interactivity to connect to their consumers. This new structure leverages the company’s existing location-based platforms to better align with advertiser needs and to facilitate the rapid incorporation of new audience-based growth opportunities. The company has headquarters in San Francisco, California.


Video Networks National CineMedia, LLC (www.nationalcinemedia.com/movie-theatre-advertising) National CineMedia LLC operates the largest digital in-theater network in North America through ventures with AMC Entertainment, Inc., Cinemark USA, Inc. (CNK-NYSE), and Regal Entertainment Group (RGC-NYSE)—the three largest theater operators in the U.S., as well as additional affiliate theatres. This theater network includes approximately 16,800 screens in over 1,325 theaters in 46 states, reaching more than 660 million moviegoers annually. As well, the company’s Digital Content Network (DCN), which is a proprietary system of digital and satellite technology, allows National CineMedia to produce in-theater events on a national scale. The company has headquarters in Centennial, Colorado. Premiere Retail Networks (www.prn.com) Founded in 1992, Premiere Retail Networks (PRN) enables retailers and manufacturers to reach consumers in over 7,000 retail stores worldwide. PRN works with retailers, content partners, and advertisers to create in-store programming that engages, informs, and motivates consumers where they shop. Retailers carrying PRN’s network include ACME, Albertsons, Best Buy (BBY-NYSE), Carrefour (CA-EPA), Costco (COST-NASDAQ), Jewel-Osco, Pathmark, SAM’S CLUB, Shaw’s, ShopRite, Star Market, and Wal-Mart Stores (WMT-NYSE). PRN’s headquarters are in San Francisco, California. PRN is wholly owned by Thomson S.A. (TMS-NYSE). Captivate Network (www.captivate.com) Captivate Network is a media solutions company. Its digital programming and advertising network informs and entertains business professionals at work. Through a network of more than 8,200 wireless, flat-paneled televisions installed in hundreds of office building elevators across North America, the company broadcasts of news, information programming, and advertising to more than 2.5 million office workers. The company licenses content from such media outlets as CNN and Discovery Channel, as well as the Chicago Tribune, Los Angeles Times, and the Washington Post Company (WPO-NYSE). Founded in 1997, the company was purchased by newspaper firm Gannett Company Inc. (GCI-NYSE) in 2004. The company has headquarters in Chelmsford, Massachusetts. nMotion technologies, Inc. (www.nmotiontech.com) Founded in 2007, nMotion technologies is an Internet company focused on the development of scalable products and services for the digital OOH advertising industry. The company’s AdSemble is the first platform that allows advertisers to pick a certain screen at a specified location for a price determined by the advertiser without any bottlenecks or middlemen. Ads are placed across multiple video screen networks, such as GasPump TV, Cafe TV, Gym TV, and others. The company was created as a single, online marketplace that put both digital signage network (Seller) and Advertiser (Buyer) in full control to meet up and conduct business. nMotion technologies is a closely held corporation headquartered in Sunnyvale, California. Schematic (www.schematic.com) The interactive unit of WPP Group, plc and founded in 1999, Schematic is an interactive services agency that designs and develops solutions for the Web, mobile devices, television, outdoor installations, and emerging platforms. Schematic offers complete strategic, creative, marketing, and technology services to Fortune 1000 companies, including Dell Inc. (DELL-NASDAQ), Target Corporation (TGT-NYSE), Microsoft Corp. (MSFT-NASDAQ), Condé Nast Publications, Comcast Corporation (CMCSA-NASDAQ), and NBCOlympics. The company has headquarters in Los Angeles, California.


Data Center The major competitors in this market include IBM Corp. (IBM-NYSE), AT&T Inc. (T-NYSE), Verizon Communications Inc. (VZ-NYSE), and Terramark Worldwide Inc. Data centers are a competitive market with an estimated 7,000 data centers in operation in 2008. Some of the key requirements for competing effectively include those listed below.

(1) Size, rack space, and the creation of economies of scale

(2) Cloud computing, an emerging technology service

(3) Pricing and location

(4) Insurance coverage in the event of catastrophic situations

(5) Energy costs, which typically represent the greatest operating expense of datacenters due to cooling

requirements. Centers with the lowest energy costs have better margins and greater pricing power.

(6) Redundancy and bandwidth for electrical power and communications


Milestones Pending the receipt of funding, N2 anticipates commercializing Nōmad within the first quarter 2010. This represents a critical milestone in the Company’s development that follows a series of earlier milestones, as listed below. N2 Holdings, Inc. incorporated in Nevada in October 2008

o N2 Data, Inc. incorporated in September 2008

o N2 Media, Inc. incorporated in April 2009

Completed 10,000 miles of advanced beta testing with Nōmad in the Northern California market

o Demonstrated proof of concept

Enhanced screen definition and created a standardized wiring harness, among other design improvements, following the beta tests o Completed product design

o Identified manufacturing sources

Obtained endorsement letters from the parties involved with the Company’s beta tests, which the Company is using to expand its sales efforts

Received an LOI from a food bank in California (Food Bank of Contra Costa and Solano)

Received a commitment from a Northern California fleet operator for the deployment of Nōmad screens on at least 10 trucks

Received an LOI from a hybrid-powered taxi fleet (Petaluma Green Taxi) for internal and external screens


Key Points to Consider

N2 is a closely held media and technology company providing advertising and network solutions to individuals, businesses, and governments. The Company conducts business through two wholly owned subsidiaries: N2 Media, Inc. and N2 Data, Inc. Its chief initiative is the market launch of a novel outdoor advertising system called Nōmad, which is supported by N2’s virtual data center.

To N2’s knowledge, its Nōmad Dynamic Display Billboards (DDBBs) could represent the first GPS-locatable and wholly downstream-adjustable, Internet-addressable outdoor LED billboards.

Product design for Nōmad is complete and manufacturing sources have been identified. N2 estimates that commercial units of the system may be deployable within the first quarter 2010, pending corporate financing. A prototype of the Company’s truck-mounted Nōmad screen is already operational and is being actively used as a demonstration vehicle in Northern California.

o N2 has conducted over 10,000 miles of beta tests with the prototype truck that demonstrated the effectiveness of this advertising medium and aired 60,480 units of advertising.

o The beta tests demonstrated proof-of-concept of N2’s targeted approach to outdoor advertising, allowed the Company to identify areas of improvement prior to market launch, and resulted in N2 receiving endorsement letters from the third parties involved. During the testing period, Maverick Media found a positive impact on its radio stations’ ratings during drive time and midday hours, and Petaluma Speedway experienced an average increase in the grandstands of 10%.

At present, N2 is building its portfolio of potential partners that have agreed to install the commercial Nōmad units on their vehicles when the product becomes available. The Company has received a Letter of Intent (LOI) from the Food Bank of Contra Costa and Solano, an LOI from a taxi fleet operator, and a commitment from a Northern California truck fleet operator.

While N2 is initially targeting partners in the fleet, semi-static, retail, and public transportation arenas, the Company believes that the flexibility built into its outdoor advertising technology may allow for virtually unlimited global markets. Nōmad products may be applicable to airports, buses, subways, retail malls, truck fleets, county fairs, and other entertainment venues, such as amusement parks and sports arenas, as well as perishables, rental cars, taxi cabs, and mobile handheld devices.

While spending on traditional forms of print advertising has declined in recent years, alternative media formats—e.g., outdoor advertising—are expanding as marketers seek innovative ways to efficiently reach target audiences. During 2008, outdoor advertising represented a nearly $7 billion U.S. market.

The Nōmad suite includes a proprietary methodology and media processor, application firmware, application software, Internet software, and a storage/delivery package of software. All software is copyright protected and all hardware and methodology is patent pending.

N2 aims to substantially reduce its carbon footprint versus its competitors while developing products that require fewer resources and less capital investment. As such, the Company’s data center uses virtual machine technology and cloud computing to support the operations of Nōmad. Additionally, N2 is seeking methods to reuse its data center assets in a revenue-generating scenario, particularly by offering Software as a Service (SaaS), data recovery, and managed hosting applications.

o In the Company’s local Silicon Valley region, demand for data center services is forecast to expand by at least 16% annually (Source: Tier1 Research).

N2’s leadership is composed of individuals with considerable media and technology expertise. Management’s skill set includes decades of experience in fields related to U.S. public company operations and reporting, computer programming, secure data encryption, graphic design, network and data center operations, IT, and marketing and brand communications, among other areas.

On October 19, 2009, N2 had roughly $10,100 in checking and savings, total assets of approximately $1.6 million, and no debt. N2 believes that it is key that the Company has been able to absorb research and development costs without incurring debt. The Company is currently working to raise up to $10 million in gross proceeds through a private placement to help fund its strategic growth plans.


Historical Financial Results Table 8 summarizes the Company’s unaudited Balance Sheet. For greater information regarding N2’s historical financial statements, please contact the Company directly. Contact details are listed on page 1.

October 19, 2009

ASSETS

Current Assets

Checking/Savings

Checking Account 10,100

Total Checking/Savings 10,100

Accounts Receivable

Accounts Receivable 26,450

Total Accounts Receivable 26,450

Other Current Assets

Deposits 25,000

Notes Receivable 415,814

Total Other Current Assets 440,814

Total Current Assets 477,364

Fixed Assets

Accumulated Depreciation (2,944)

Computer Equipment

Computer Hardware - Office 6,000

Total Computer Equipment 6,000

Computer Software 13,735

Furniture and Equipment

Digital demo sign and equipment 65,000

Total Furniture and Equipment 65,000

Intellectual Property

Patents and Copyrights 575,000

Total Intellectual Property 575,000

Organizational Cost 1,275

Vehicles

Vehicles - Demonstration Truck 35,000

Total Vehicles 35,000

Total Fixed Assets 693,066

Other Assets

Investments-unrelated companies 485,000

Marketing Materials 4,800

Total Other Assets 489,800

TOTAL ASSETS 1,660,230

LIABILITIES & EQUITY

Equity

Opening Balance Equity 1,660,230

Total Equity 1,660,230

TOTAL LIABILITIES & EQUITY 1,660,230

UNAUDITED BALANCE SHEET

N2 Holdings, Inc.

Table 8



Risks Some of the information in this Executive Informational Overview® (EIO®) relates to future events or future business and financial performance. Such statements can only be predictions and the actual events or results may differ from those described due to the risks presented below. The content of this report with respect to N2 has been compiled primarily from information available to the public released by the Company. N2 is solely responsible for the accuracy of this information. Information as to other companies has been prepared from publicly available information and has not been independently verified by the Company. Certain summaries of activities have been condensed to aid the reader in gaining a general understanding. For more information about N2 or its risk factors, please refer to the Company’s materials, available by calling N2 at (707) 763-5100. Investors should carefully consider the risks and information about N2’s business described below. Investors should not interpret the order in which these considerations are presented as an indication of their relative importance. The risks and uncertainties described below are not the only risks that the Company faces. Additional risks and uncertainties not presently known to N2 or that the Company currently believes to be immaterial may also adversely affect its business. If any of the following risks and uncertainties develops into actual events, N2’s business, financial condition, and results of operations could be materially and adversely affected. Financing As of October 19, 2009, N2 had approximately $10,100 in its checking and savings and was working to raise approximately $9 million in net proceeds through the sale of equity. The Company cannot guarantee that financing will be available to the Company at this time, nor can N2 guarantee that financing, if required in the future, will be available at a reasonable cost or at all. In the event that only a small number of the shares are sold in the current offering, substantially all net offering proceeds will be used for working capital. The remaining net offering proceeds, if any, may not be sufficient to provide funds for expansion of the Company’s operations. As well, future proceeds, if any, also may not be sufficient to provide funds for expansion of the Company’s operations. No commitments or agreements to provide additional financing have been sought or obtained. There is no guarantee that such financing, if required, will be available at all or at a reasonable cost. The inability of the Company to obtain required financing could result in a loss of all invested capital. Limited Operating History and Lack of Profitability N2 has no significant operating history upon which to base a judgment of the Company’s performance. There can be no assurance that N2’s business or services will be successful or that the Company will be able to achieve or maintain profitable operations. Management Control N2’s management is in a position to make all decisions for the Company as well as to control the Company. Indemnification of Management N2’s Articles of Incorporation contain mandatory indemnification provisions, which require the Company to indemnify its officers and directors against certain liabilities incurred by such persons in their capacities as officers and/or directors if such persons acted in good faith. The Articles of Incorporation also provide that a director will not be personally liable to the Company or its shareholders for monetary damages for certain breaches of fiduciary duty as a director. N2 is required to indemnify a person who is or was a director, officer, employee, or agent of the Company and who was successful, on the merits or otherwise, in the defense of any proceeding to which that person was a party, against reasonable expenses incurred in connection with the proceeding, including attorneys’ fees.


Insurance N2 intends to obtain insurance of the type and in the amount that its management believes is customarily obtained for similarly situated businesses. However, certain types of losses (generally of a catastrophic nature) are either uninsurable or not economically insurable. Should an uninsured or partially insured loss occur, N2 could suffer a loss of invested capital and any profits, which might otherwise have been anticipated. Projections The financial projections that N2 has prepared from time to time are unaudited and are based upon assumptions made by the Company concerning future events and circumstances. Projections are only indications of what may happen under certain circumstances as described in the assumptions thereto. Some assumptions inevitably will not materialize and unanticipated events and circumstances may occur, which will materially affect these projections. The projections are only scenarios of what could happen using what N2 believes to be reasonably conservative assumptions. However, the Company has no prior operating history from which to extrapolate regarding possible future operations. As such, these projections may vary significantly from actual results achieved and no investment decision should be made based thereon. Finders Fees The Company expects to compensate finders who introduce the Company to prospective purchasers of N2’s offered units. Such compensation is expected to be approximately 10% of the amount invested, payable either in cash or units in the Company. Generally, issuers may only pay sales-related compensation to licensed securities broker-dealers. One exception, however, relates to finders who only introduce the issuer and prospective investor and who do not participate in the selling effort or in the negotiations. If for any reason the Company makes payments to persons believed to have been finders but who are actually deemed to be unlicensed securities broker-dealers, then the Company could incur liability for aiding and abetting a violation of the securities laws by such unlicensed persons. In addition, payments of commissions to unlicensed brokers could subject the Company to rescission claims by investors who purchased through such unlicensed persons. Competition N2 faces substantial competition in the marketing and sale of its services. N2 competes with numerous Internet, data service, and software companies, many of which are larger, have established reputations, and are better financed than the Company. While the Company is not aware of any known competition currently on the market for the N2 Media product, new technologies are being developed daily and there can be no assurance that a competing product will not be introduced and negatively impact future results of the Company. Pages 27-30 detail several entities that may represent competition for N2 as the Company seeks to introduce its product and service offerings and further capture market share. Dependence on Management The Company depends on a number of key management personnel. While N2 plans to include a comprehensive non‐compete clause in key employee employment agreements, the competition for such employees is intense, and the loss of the services of one or more of these key employees could have a material adverse effect on the Company. There can be no assurance that N2 will be successful in retaining its existing key employees or in attracting and retaining any additional personnel it requires. Dividends The Company has not declared nor paid any cash dividends on its stock since inception and there is no anticipation of declaration or payment of cash dividends in the foreseeable future. Accordingly, investors seeking regular payment of cash dividends should not invest in N2’s stock.


Liquidity There is no public trading market for N2’s Common Stock at this time and no representation is made that a public market for the stock will develop. While the Company’s management intends to register the Common Stock, no assurance can be provided as to when this will occur or if N2’s performance or market conditions will allow it to access public markets. Until such time as a public market is developed, the ability to sell shares will be very limited. Regulatory Risk Various restrictions on outdoor video displays exist at the federal, state, and local levels, and future legislation may create additional barriers to the use of the Company’s technology in certain venues. The extent of these cannot be predicted but N2’s management team believes that sufficient alternatives exist for use of the technology such that the impact will not be material. Intellectual Property Rights N2’s success depends significantly on its ability to protect the Company’s intellectual property and proprietary technologies. N2 intends to rely on patent pending and any future issued patent protection as well as a combination of trade secret, trademark, and copyright laws, and nondisclosure, confidentiality, and other contractual restrictions to protect proprietary technology. However, these legal means provide only limited protection and may not adequately protect N2’s rights or permit the Company to gain or retain any competitive advantage.


Recent Events 06/18/2009—N2 Holdings, Inc. announced an agreement with the Petaluma Speedway to present its prototype Nōmad outdoor advertising system at weekly racing events in June and July 2009. Located in Petaluma, California, the speedway conducts various class racing venues every Saturday night including Stock Cars, 360 Sprints, Late Models, and others, drawing thousands of attendees throughout the season. In conjunction with Petaluma Speedway, Nōmad also appeared at the Sonoma-Marin Fair in June 2009, an event that over 30,000 people were estimated to have attended. 06/05/2009—Announced an agreement with Infineon Raceway to present its prototype Nōmad outdoor advertising system at the 5th Annual NASCAR Day, which occurred on June 6, 2009, in Sacramento, California. In cooperation with Infineon Raceway, Nōmad circulated the event grounds promoting the upcoming Toyota/Save Mart 350 NASCAR Sprint Cup Series race event at Infineon in addition to other NASCAR and Infineon corporate sponsors. 05/07/2009—Announced an agreement with WOW Event Solutions to participate at the 115th Annual Santa Rosa Rose Parade, which took place on May 16, 2009, in Santa Rosa, California. The N2 Media vehicle was used to promote corporate sponsors along the parade route. 04/03/2009—Announced that N2 Media added J. Keverson Winery to the Nōmad Customer Partnership. 04/03/2009—Announced that an agreement was completed with Maverick Media, a national chain of broadcast affiliates, to conduct prototype testing of the Nōmad outdoor advertising system. Maverick Media’s San Francisco North Bay operation is the parent company of five radio station properties in the region. Other participants in N2’s beta test program include sales offices of the Century 21 realtor alliance, such as the Martin Levy Group, as well as local nonprofit organizations in a public service capacity.


Glossary Alternative Media—(As is relates to outdoor advertising) A category of out-of-home (OOH) advertising that entails a range of new formats that are constantly being developed and niche mediums that do not fit into the other established OOH advertising sectors. Examples include airborne, beach advertising, blimps and custom inflatables, cartons and cups, cinema, dry cleaning bags, gas station advertising, golf course advertising, marine vessels, parking garage advertising, place-based advertising, postcards, projection, rest area advertising, ski area advertising, stadium and arena advertising, trash receptacles, vending cart umbrellas, and place-based digital networks. Amber Alerts—A message that conveys information about a recently missing or abducted person, usually displayed on electronic signs positioned along roadways and broadcast by mass media, intended to enlist the public’s help in finding the abducted person and often in catching the abductor. Beta Tests—A second test of an experimental product carried out by an outside organization in which a sampling of the intended audience tries the product. Generally, once a product reaches the beta stage, it is operating with most of its functionality and is ready for user feedback. Cloud Computing—A general term for anything that involves delivering hosted services over the Internet. These services are broadly divided into three categories: Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service (SaaS). The name cloud computing was inspired by the cloud symbol that is often used to represent the Internet in flow charts and diagrams. A cloud can be private or public. A public cloud sells services to anyone on the Internet (e.g., Amazon.com, Inc. [AMZN-NASDAQ]). A private cloud is a proprietary network or a data center that supplies hosted services to a limited number of people. When a service provider uses public cloud resources to create their private cloud, the result is called a virtual private cloud. Private or public, the goal of cloud computing is to provide easy, scalable access to computing resources and IT services. CPM—A commonly used measurement in advertising; the cost to reach 1,000 viewers. Dynamic Display Billboards (DDBBs)—Billboard displays that change constantly based on previous system selections. DDBB capabilities may include moving large numbers of display objects, animations, updating location, orientation, size, status, and attribute information at sub-second refresh rates while sustaining smooth and uninterrupted navigation and support. Failover—A backup operational mode in which the functions of a system component (such as a processor, server, network, or database) are assumed by secondary system components when the primary component becomes unavailable through either failure or scheduled down time. Used to make systems more fault-tolerant, failover is typically an integral part of mission-critical systems that must be constantly available. Firmware—(computer science) Coded instructions that are stored permanently in read-only memory. GPS—(Global Positioning System) A navigational system involving satellites and computers that can determine the latitude and longitude of a receiver on Earth by computing the time difference for signals from different satellites to reach the receiver. N2’s Nōmad screens have built-in hardware and software that tracks the GPS location of each digital screen, thus advertising can be targeted to the screen’s location. Light-Emitting Diode (LED)—A semi-conductor light source that emits visible light or invisible infrared radiation. LED is a long-lasting illumination technology that is thought to reduce energy consumption. Microprocessor—Integrated circuit semiconductor chip that performs the bulk of the processing and controls the parts of a system.


Rating Point—The size of the audience expressed as a percentage of the potential audience. Also, 1% of all households viewing (television) or listening (radio) to a particular station at a particular time. The cost per rating point (CPP) is the cost of buying advertising space in a given media vehicle per 1% of the specified audience. Remotely Mirrored—N2’s data center in the Petaluma headquarters is mirrored (mimicked) in a remote location, with the intent of ensuring real-time failover performance. Thus, the Company believes that in the event of a catastrophic situation in Petaluma, its data could be safe because it is backed up in a mirror of the Petaluma facility at a separate location. Semi-static—Display arrangements where a screen is mounted on a vehicle but is then parked at a venue for a specific event. These displays can circulate between venues. Software as a Service (SaaS)—In this model, the vendor supplies the hardware infrastructure and the software product and interacts with the user through a front-end portal. SaaS is a very broad market. Services can be anything from Web-based email to inventory control and database processing. Because the service provider hosts both the application and the data, the end user is able to use the service from anywhere. Star Dialing—The use of a special code that is dialed to engage some type of special telephone service. Typically preceded with an asterisk or * (star) key on the touch tone keypad and referred to as star codes, most star dialing is two digits in length, although as more services are developed, star codes have become longer. Transponder—An electrical device designed to receive a specific signal and automatically transmit a specific reply. Virtual Machine Technology—Essentially software programs that mimic the performance of hardware devices but that can be executed concurrently on one machine. Web Hosting—Providing space on Internet servers for the storage of World Wide Web sites, which can be accessed by others through the network.

Executive Informational Overview

Jeffrey J. Kraws and Karen B. Goldfarb

Phone: (609) 306-2274 Fax: (609) 395-9339

Email: [email protected] Web: www.crystalra.com

Legal Notes and Disclosures: This report has been prepared by N2 Holdings, Inc. (“N2” or “the Company”) with the assistance of Crystal Research Associates, LLC (“CRA”) based upon information provided by the Company. CRA has not independently verified such information. In addition, CRA will receive forty-five thousand dollars in compensation and has received one hundred fifty thousand shares of Common Stock from the Company for its services in creating this report, for updates, and for printing costs. Some of the information in this report relates to future events or future business and financial performance. Such statements constitute forward-looking information within the meaning of the Private Securities Litigation Act of 1995. Such statements can be only predictions and the actual events or results may differ from those discussed due to, among other things, risks described in N2’s public documents, press releases, and other forms filed from time to time. The content of this report with respect to N2 has been compiled primarily from information available to the public released by N2. The Company is solely responsible for the accuracy of that information. Information as to other companies has been prepared from publicly available information and has not been independently verified by N2 or CRA. For more complete information about N2, the reader is directed to the Company’s website at www.n2holdings.com. This report is published solely for information purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any state. Past performance does not guarantee future performance. Free additional information about N2 and its public filings, as well as free copies of this report, can be obtained in either a paper or electronic format by calling (707) 763-5100.

N2 Holdings, Inc. Petaluma, CA 94954 Phone: (707) 763-5100 ...€¦ · business via two wholly...

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