Peso Linsoc

8/3/2019 Peso Linsoc

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MiniC™

Solutions for mass computing and connectivity



EXECUTIVE SUMMARY

Globally, personal computer (PC) production is on the rise. Last year, production peaked at 186million, up 13.4% from 164 million in 2003

1. It is likewise forecasted to grow 10.3% this year,

and the percentage growth in the near future is likely to remain at around this number.

However, despite the growth in production, global PC penetration remains low. In 2004,worldwide installed base is estimated to be at 716 million, or only about 11.3%. On one hand,the developed regions have a fairly wide PC penetration, averaging at 55.7%. These regions

include North America (77.2%), Western Europe (40.1%) and Japan (48.6%). In sharp contrast,regions with developing countries average at 4.5% PC penetration — Asia/Pacific (3.8%), LatinAmerica (8%), Eastern Europe (10.4%) and Middle East/Africa (2.2%). The Philippines is alsolagging with a 2% PC penetration.

2

The ability to purchase PCs today unfortunately remains outside the realm of developing nations.Studies

3suggest that the low PC penetration in Third World countries is largely due to the PCs

high selling price. In areas where a large portion of the population live on less than a dollar, such

as Nigeria (70.2%) and Cambodia (34.1%)4

, the PC ultimately becomes a prohibitive luxury.

Beyond that, fifty-six per cent of the installed PC base are in office, education and enterpriseenvironments. That is, PCs are still mostly used for simple office productivity applications, suchas word processing, spreadsheet and database. The applications do not require much computingpower, leaving the PCs idle. Typical PCs today include features we don’t need but pay highprices for.

There is good news. Progress in server-centric computing and open-source software now makespossible the development of efficient and low-cost computer terminals. These terminals allowthe optimal use of computing resources for both hardware and software, and yet come at about70%5 less than current prices, perfectly suitable for price sensitive markets.

Our product, MiniC™ (pronounced “minik”) is a low cost computer terminal priced between$200 to $300. Our company, ThincSoC, will offer these terminals by integrating and buildingupon open-source modules and off-the-shelf components for its first generation products andsubsequently on System-on-a-Chip (SoC), which will further lower the price of these terminals.These terminals will allow multi-user server-centric computing with support to different thin-client protocols.

Solutions based on client-server and thin-client technology have large potential markets. HighPC imports vis à vis PC penetrations in target areas indicate that there is real need for our



Philippines imports an estimated 400,000 to 500,000 PCs per year, and yet the country's PCpenetration remains low. This reveals an untapped market for low priced computer terminals in

the Philippines, as well as in the region. Thus, the initial target for our product will be cost-sensitive Asian markets, such as the Philippines, Indonesia, Thailand and Vietnam.

Our competitive advantage lies in our cost-effective yet powerful thin-client solutions that aresuitable for every type of user, from the firm to the home. For enterprises, we tailor our offeringswith an eye towards improving their bottom line, while increasing resource productivity. On theother hand, academic institutions will benefit from our inexpensive MiniC™ for educationpackage customized for their laboratories. For home users, our product is economical to bundle

with Internet broadband and VoIP service, an untapped market in the Philippines and ASEANregion. The barriers to competition exist through ThincSoC's second-generation products, whichwill be based on embedded Linux on SoCs.

The company is seeking $20,000 for its seed funding, which should be enough to finance theproof-of-concept product. Subsequent funding needed is about $700,000, which will be soughtfor the large-scale manufacturing and commercialization of our first generation products, as wellas for the further development of the company’s next generation offerings.

Even with conservative estimates, MiniC™ is profitable, even on the first year. In a fast-growingindustry, ThincSoC is poised as a first-mover in the Philippines. In later years, even ascompetitors enter the market, we project our market share to decline to no less than 60% overall.

The key to ThincSoC’s success is an expert and reputable team composed of people from theacademe and industry. The team is mostly composed of engineers from a variety of discipline

and expertise. Some of the members are already responsible for startup companies based onleading technologies.

Our vision is to be the leading thin client maker and solutions provider in the ASEAN region,offering cost-effective products that ultimately raises productivity, increases profitability, andenhances the performance of resources across enterprises and institutions. Our strategy is onebased on continuous and fearless innovation.



THINSOC AND MINIC™

OVERVIEW

Client-server architecture

The advent of modern computers started with ENIAC, a very big computer driven by hugevacuum tubes, over 19,000 of them. It was eventually replaced by transistor-based computers in1960s, which were relatively smaller, faster and cheaper. With the discovery of integrated circuittechnology in 1970s, the computer became inexpensive enough for individuals to own, hence the

term "personal computer" or PC.

However, even with powerful PCs, government institutions and large companies favored usinghuge, expensive, room-sized processing machines called "mainframes" for mission-criticalapplications. Most mainframes are capable of supporting thousands of simultaneous users (calledclients) through "dumb terminals," which is basically a computer screen and keyboard, butpractically no processing ability.

Large-scale users preferred mainframes, not so much for its internal engineering and reliability,but mostly for its technical support, security, and strict backward compatibility for software.These computers can run for years without hiccups, even with repairs and software updates. Alldata and processes reside in a secured mainframe, and all software are run in it, eliminatingcompatibility issues. Vendors also offer failover solutions; for instance, if a mainframe breaksdown, a vendor can offer to run customer's applications on their own machines without anynoticeable interruptions.

In later stages of microprocessor technology, companies found that servers based on



waits for a reply, as the server processes the request then sends back a reply. Since most of theprocessing is done on the server, the client-side computer can be stripped down to the thinnest

possible architecture – thus the concept, thin client.

Thin versus “thinned” client

Today, there are two types of client: “thick” PC and thin-client PC. A “thick” PC typicallyconsists of the cabinet, motherboard, CPU, main memory or RAM, hard drive, CD-ROM, disk drive, graphics card, sound card, and other expansion cards, plugs, and ports. In comparison, athin-client PC is stripped of some components, such as the internal and external storage devices,

CD-ROM drive, disk drive, sound card, and some ports, while still retaining the microprocessoror CPU and main memory. Existing thin clients are actually “thinned” PCs because they retainmuch of the PC chipsets and run on embedded software designed for PC architecture, thusdegrading thin-client performance. ThincSoC is designing a system from hardware to thesoftware level to develop a real thin client, which will cost lower but with additional feature sets.

Voice over Internet Protocol (VoIP)

VoIP is a technology that enables phone calls to be made over the Internet. Using analog-digital-

analog conversion, voice is converted into data packets from a VoIP provider's local server, sentthrough the network, and then converted back to analog voice in the other end by another server,located at another place. VoIP calls can be made using a regular telephone with a VoIP adapteror from a computer with a simple microphone and speaker.

VoIP is a cheaper alternative, which is beneficial to homes, small offices, and businesses thatmake regular international calls because it can bypass expensive toll fees of Public SwitchedTelephone Network (PSTN). VoIP is also a cost-effective communication system that can co-



Embedded Linux and Open Source

Compared to other operating systems, embedded Linux has several advantages. First, Linux isopen source. Being open source in nature, Linux tends to be well supported. Linux also has asmaller footprint. Compared to Windows CE, which takes up about 21MB, Embedded Linuxtakes up only 2MB. Using Embedded Linux does not require the developer to pay royalty costsand, with over ten years of age and its wide use in a variety of devices, the Linux operatingsystem has become more mature and stable. First generation of MiniC™ will run on embeddedLinux and integrate open-source modules.

THE PRODUCT: MiniC™

First generation

ThincSoC's first generation of MiniC™ will be essentially a work station, with features thatvary according to the segment.

MiniC™ for Enterprise/Government feature set:

• VoIP connectivity Aside from being a workstation, it will support a SIP-enabled soft phone.A headset is bundled with the thin client. VoIP connectivity is not included by default but thecustomer can opt to package a server with a SIP-based router. Our VoIP solution includestraditional services of PBX switches plus some interactive applications such as SMS andinstant messaging support. The implementation will be based on ser , an open-source SIP-based router. In terms of network infrastructure, it requires less equipment for managing bothIT and phone system.

• VoIP via Bluetooth MiniC™ also supports a technology of using cellphones as VoIPphones via Bluetooth. There have been exploratory talks to partner with another PESO entry, Bluetalk , which is developed in the same lab as ours.

• Media streaming support As an add-on, it will support audio and video conferencing. Bydefault, MiniC™ is bundled with software that supports media streaming such as onlinemusic video and web camera (web cam).

• Smaller footprint The product consumes little power and is designed to be less cluttered,very ideal for office use.

MiniC™ for Education feature set:

• Educational tools The preferred setup based on our survey is 20-30 terminals per



the server, unlike in a PC setup, the instructor need not visit each terminal to check studentdata. MiniC™ also supports broadcasting (instructor sends an instant message to students),

session takeover (instructor takes over session of student), interactive messaging (studentscan ask instructor through the terminal), and streaming (instructional online media).

MiniC™ for Home feature set:

• Plug and play with VoIP For home client, MiniC™ will be bundled with broadbandservices of telephone or cable companies and Internet Service Providers (ISP). The majordifferentiator of this customization is support for Internet browsing and online connectivity

for productivity tools while having a VoIP phone. Think of your grandmother calling youabroad while browsing an online calendar. It is easy to use and does not require userconfiguration (no-touch configuration) other than plugging to an existing telephone orbroadband line.

• Small form factor PC Most telephone companies and ISPs that offer Internet subscriptionbundle expensive and “thick” PCs. They usually cost from PhP20,0000 to Php30,000.MiniC™ for home is customized as low-cost, small form factor, minimalist, and small

footprint PC but with thin-client capability. This is done by using our thin-client softwarethat supports multiple protocols such as RDP and ICA. The hardware is designed to runcommon productivity tools locally such as document processing, spreadsheet, and email.

• Storage add-on MiniC™ for home is designed to support an external hard disk for storageof media such as MP3 music or video.

• Media support MiniC™ supports web cam, voice chat, and Internet messaging.

• Remote applications/gaming support If the user wants to run a full-blown application like agaming application, MiniC™ supports running of remote applications from an ISP’sterminal server. Based on our survey, MiniC™ for home can run popular games such asRagnarok, Mu, and Warcraft.

• Native support for web services With today's web technologies moving to web services,MiniC™ for home supports a local browser with support to virtual machines and rendering

technologies such as Java Virtual Machine (JVM) and Asynchronous JavaScript and XML(AJAX). Think of running a document editor in an Internet browser.

Second generation

One of the items in ThincSoC’s roadmap is the second generation of MiniC™, which will be



• FPGA configurable Customization of chip based on type of customer (e.g. customized forbanking, education, or enterprise), and MiniC-chip™ on Open Cores and ThincSoC-

developed cores.• Effective network management Enhance product by eliminating effects of packet loss and

latency on software performance.

• Smaller footprint Less power, specialized RDP frame buffers, lesser gates, more optimizedfor thin client. We will strip down the Super I/O, RTC, IDE, and PCI for the SoC solutions.

• Data encryption and compression Video and audio compression to improve data transferefficiency. Both ends will also encrypt data for protection against sniffing in the transferlayer.

• Multi-protocol support Supports multiple protocols such as RDP, LTSP, ICA and X.Support of these protocols allow the user to connect to different operating systems likeLinux, Microsoft Windows 2000 or XP, Sun Solaris, etc. The major differentiator of thisproduct against existing thin clients is the support for LTSP and unification of differentoperating systems in one desktop environment. Think of using Windows XP, Linux andSolaris simultaneously in one computer by launching separate windows for each.

• Wireless Broadband support With proliferation of wireless broadband services, MiniC™

will be improved to support not only wired broadband but also different wireless protocolslike IEEE802.11b (Wi-fi), IEEE 802.16 (WiMax) and Bluetooth.

Other Products

To support ThincSoC’s products and operations, we plan to sell monitors (CRT/LCD), serversolutions with workstation management tools and educational tools directly to customers. Wealso plan to provide special packages with customization for specific customers. In our survey,

there is huge potential market for SoC customization. For instance, another PESO entry, MEDS, Inc., needs a server unit in a hospital that can be deployed with MiniC™ terminals for eachresident physician. Banks also expressed interest in MiniC™ terminals for Automated TellerMachines (ATM) and Point of Sale (POS) terminals.

TECHNOLOGY INNOVATION

Our hardware and software technology gives power to the user by offering only what is needed.Today's personal computers are bloated, with consumers ending up paying for what they don'tneed and use. Yesterday, they do not have a choice; now, they do, with MiniC™.

Our software will follow the model of easy installation and configuration up to the hardwarelevel. Imagine a machine with a brain smart enough to configure itself. Our target is to make it



Our SoC technology will differentiate our products against existing thin clients that only use theconcept of a "thinned" PC. Our hardware and software technology, which will focus on the

embedded and protocol layer, creates an inimitable barrier against competing products. With oursecond generation MiniC-chip™, we will be a major supplier of single chips to thin clientmakers and small computing solutions.

VALUE PROPOSITION

Every computer user, from the home to the office, has encountered problems, from extensive

data losses due to power failures, crashing hard drives, difficult configuration or security issues.ThincSoC’s MiniC™ clients provide potent answers to the myriad of problems faced by today'scustomer. Exploratory talks with representatives from our target markets have revealed that thereis an interest in our products. In contrast, commercial desktop PCs are the closest form factor tothin clients (these are thinned/stripped PCs commonly found in enterprises), and yet do not offerthe same benefits as thin clients. ThincSoC’s MiniC™ clients offer a range of inimitablebenefits for users across industries and segments:

Cost-effective

In developing countries where PCs remain expensive, thin clients are obviously the better choice.MiniC™ terminals effectively cut costs across all levels—from purchase, upgrade, maintenance,power consumption, and technical support (see Appendix: Tables 1 and 2 for Total Cost of Ownership computations). For enterprise, aside from acquisition savings to as much as 50.00%,operation costs account to 55% savings. For education, acquisition and operation costs accountto 26.67% and 40%, respectively. Thin clients also reduce the need for Uninterruptible Power

Supply (UPS) units because of its server-based computing design. For instance, only a singleUPS is needed for the server, as opposed to several UPS units for every few PCs.

For home users, we intend to bundle it with broadband services. Studies6 confirm that broadbandpenetration in the past years has been low because of expensive rates and that home users stillneed to buy a PC. However, PCs bundled by broadband providers range from PhP20,000 to30,000. Broadband penetration is poised to increase exponentially with the coming of cheapwireless broadband; MiniC™ for home is an affordable solution to bundle it these services.

Aside from offering our products to those who have yet to own a computer in the home, we arealso targeting those who may want to convert their present desktop PCs to thin clients.

First generation of MiniC™ is innovative in that it is designed to cost lower than current marketofferings. The motivating idea behind our product is that we are catering to an unserved market.After all existing thin client players target the developed market and their prices are comparable



ultimately reduce electricity bills for the user to as much as 79.17% (refer to Appendix: Tables 1and 2 for TCO computations).

Reliability

Power failures, accidental unplugging or fan breakdown of your computer need not becatastrophic incidents—one's work is stored on the server, which has a UPS unit. The session,down to the last letter typed or the exact placement of the windows on the screen, can be easilyrestored without fuss. The system has no moving parts, such as hard disk and fan, whichdiminishes instances of equipment failure. Power outages will not affect the hard disk. The

server is equipped with a technology that saves sessions safely before backup power is lost. Inclient-server architecture, it is easy to trace the point of failure because processes or data run on a"central" server; data is relayed via the network, and rendered to the client hardware.

Business and IT managers have found thick clients or PCs, expensive to purchase, run, andmaintain. One reason for this is that PCs can give end users too much freedom to tinker with thesystem that delicate configurations can be disrupted. The thin-client model provides littleopportunity for users to reconfigure applications unless they have administrative status. In

principle, centralized deployment of application and maintenance makes significant cost savings.

Our product is ideal for banks looking to expand or convert their Automated Teller Machine(ATM) base into machines that are simpler to manage and do not require expensive ventilationequipment. ATM manufacturers, such as Wincor Nixdorf in Germany, have in fact begun to rollout thin clients in their products.

Mr. Dado Banatao, a visionary, who founded several successful technology-based companies inSilicon Valley, proposed that Philippines should focus on three technology areas: server-basedcomputing, wireless technology and thin clients. Two of these technologies (server-basedcomputing and thin clients) are highlighted in our product, which can help produce more skilledworkers for the same amount of capital and operational expenditures. Mr. Banatao cited twoincidents that highlight the importance of server-based computing: Arthur Andersen took oneyear for one software upgrade, while Merrill Lynch during the 9/11 attack was able to recovertheir data because of a redundant server located in another place.7

Connectivity

MiniC™ includes VoIP connectivity, which enable users from home to call their loved onesabroad with a soft phone specially configured to connect to a VoIP gateway. We aim to bundlethe product with broadband services offered by telephone companies (telcos) and ISPs. Weid tifi d thi t ti l t h l f t d t d t d d f t l h



MARKET ENTRY AND GROWTH STRATEGY

As computers continue to become an integral part of learning and business, there is now a high

demand for cost-effective, efficient and easy-to-use products. Our thin client solutions takeadvantage of the most innovative and inexpensive technologies, perfect for this fast-growingmarket

By partnering with Value Added Resellers (VARS), major distributors, retailers and suppliers of IT equipment to enterprises, we aim to put our products on the shelves of major stores within thefirst two months in the Philippines. In addition, we intend to set up alliances with offshorecompanies and call center organizations in setting up client-server environments within thefirms. Finally, the company will work with strategic national bureaus, such as the Department of Trade and Industry (DTI) and Department of Education (DepEd), in providing low-costcomputing solutions to public educational institutions and government offices. We intend tomarket our products to the overseas market, particularly ASEAN region after 3 to 3.5 years, afterachieving a $6 million of sales.

A combination of quality products, excellent customer service, and networking will ensure the

success of our initial direct sales efforts. We shall sustain our position in the market with regularadvertising campaigns to enhance brand awareness and differentiate our offerings from thecompetitors.

We intend to establish reputable business for our thin-client solutions in the Philippines, throughstrategic partnerships with well-established enterprises:

• Telecommunications companies such as Globe Telecom and PLDT for home users. Their

VoIP and broadband offerings may be linked to our product.• Leading media enterprises, such as Computerworld, Inq7.net, Media G8way and PC World• Specific trade groups, such as Contact Center Association of the Philippines for offshore

services and the Bankers Association of the Philippines• State universities and colleges, such as the University of the Philippines• Private academic institutions, especially those with IT-focused curriculum, such as AMA,

STI, and Informatics• Government agencies implementing computerization projects, such as DTI, DepEd, and

CHED

Right Timing

Today is the right time to introduce thin-client solutions. Enabling technologies and advances int li ti dil il bl W h li ti th t t t l t d



• powerful but affordable servers• high-speed but affordable local area networks (LAN) and wide area networks (WAN)• software with centralized database and application logic• software and protocol standards such as TCP/IP, RDP, ICA, LTSP that handle client-server

technology• XML-based web services such as AJAX that enables remote-capable applications

Based on our consultations with representative segments, there is a great demand for client-server workstation in enterprise, government, and education sectors.

MARKET RESEARCH AND ANALYSIS

Market Definition

Our first generation products target customers from the home, academe (schools anduniversities), government, and top enterprise segments, such as call centers, banks andmanufacturing. These consumers prefer efficient, easy to use, and cost-effective computers, with

functionalities that can be tailor-fit to their own specific needs. Our offerings for home users willbe customized and bundled with available broadband services of telephone companies and ISPs.We are also exploring online gaming options for gamers, a strong market segment today. Inaddition, we will target government offices and enterprises needing telephony solutions.

The Next Generation

Our second generation products are based on embedded Linux on SoCs. We will target existingthin client makers by exporting the chips in volume. Our design will also appear in our thin clientproducts.

Competitors

Some of the products in the market today include:

• Common desktop computers—these are the "fattest" PCs, with powerful processors and chips.

• Commercial desktop—also known as "thinned" PCs, most enterprises utilize this kind of PCs.This is roughly the closest form factor to thin clients.

• Commercial laptops—treated more as a mobile PC, customized for enterprise use.• Thin Clients



designed for PC architecture, thus degrading thin-client performance. This means they includethe disadvantages that PC ownership entails.

MARKET SIZE

The initial target market is the Philippines, primarily in four segments: education, government,enterprise, and home. The second stage of expansion will be full deployment in the ASEANregion in the near future.

For the corresponding analysis, any hardware having the PC form factor will have an averageselling price between $600 to $700

8. The appeal of our products is that we offer them for as low

as $220, depending on the components, and will have a longer product life, more than twice thatof a PC. It must be emphasized that while we took a very conservative position in our marketsizing analysis, the actual figures could be as much as 50% higher, based on industry reports.Conversion percentages from PC to thin clients were estimated to be as low as 0.4%.

Education and Government

In the Philippines, the Department of Trade and Industry (DTI) is pursuing a key project, the PCsfor Public Schools Project (PCPS). It aims to "provide IT access" to students by distributing 20computers to public high schools all over the country and by also providing teacher training.Using data from PCPS, for secondary schools alone, there is an estimated 142,650 emptylaboratory seats as of 2005.

Mirroring the educational effort, the national government is implementing similar moves acrossthe bureaucracy, such as the Government Information Systems Plan (GISP). As of 2004, $54million had been earmarked for these initiatives. We have also received positive feedback fromofficials regarding our products and how they complement national initiatives. Since governmentemployees primarily use computers for productivity purposes, their thin client needs parallel thatof the public high schools.

In our consultations with officers in charge of national computerization programs, it was pointed

out that the government could have computerized more schools laboratories if they used thinclients as opposed to fat PCs. Each PC is worth about 2 MiniC™. Furthermore, our packagebundles 25 MiniC™ terminals and one server with educational tools tailored for the curriculum.It was also discovered that computers equipped with licenses from old computerization programshave become idle because public schools cannot afford to renew them. Officials have sinceexpressed a deep interest in our products and the idea that the PCPS can be a test bed of thin



comparison, our package has management and centralized productivity tools inherent with itsclient-server architecture.

For state colleges and universities, the University of the Philippines is our initial test bed for thetechnology. In the State University, there is a great demand for public access terminals used bystudents for Computerized Registration System (CRS) and web mail.

Our solution is elegant. We can provide them with more terminals, and open-source educationaltools are already bundled with the server. If they choose proprietary operating systems overopen-source modules, they have option to update just the server. In addition, thin client licensing

scheme is cheaper when purchased in bulk. For Windows 2003 server, a 25-Client AccessLicense (CAL) is cheaper by 40% compared to a 10 CAL.

Since most of educational and government users utilize PCs for productivity purposes, ourproducts are perfect for their needs—easy to maintain, robust, and most importantly,inexpensive.

Enterprise

One enterprise segment that can benefit heavily from the use of our products is the call centerindustry. The call center industry is a sunrise industry in the Philippines, in that from 35,000seats in 2005, it is expected to grow to 250,000 seats in 2009. Given the nature of the business, itis easy to assume that each seat will have one VoIP phone and one PC. Based on our survey,most of these PCs are commercial desktops in form factor. Our systems can support all commontasks in these enterprises, such as inbound and outbound call capability, email, fax, Internet, andsecure data exchange.

Most of the computers deployed in the enterprise are desk-based PCs, which is the closest formfactor to thin client. Enterprise shipment is 51.49% of total PC shipment to the Philippines. Wemade conservative estimates by studying enterprise shipments from Gartner reports (Feb. 2005).Basing our potential market on 0.8% of enterprises converting from PCs to thin clients, andpegging a conservative share of market at 80% of that figure, revenues of $326,209 can berealized in the first year alone.

In three years, we expect that even with the decline in market share due to competitors, but withthe corresponding increases of PC conversion, sales of $1.9 million can be easily targeted. Thesesales are buoyed by the fact that we are the pioneer thin client solutions provider in thePhilippines and our products are consumer-oriented computers and easier to manage.



(EUP) of MiniC™ for home is $242. Aside from offering our products to those who no homecomputers, we are also targeting those who may want to convert their present desktop PCs to

"thinner" designs.

Our home offerings will be bundled with broadband services by telecommunications companies.Similarly, we made very conservative estimates based on broadband growth in homes. As on2004, there were 1.8 million dial-up users and 125,000 broadband users. By 2006, 1.46% of dialup users are expected to shift to broadband. With broadband growth estimated at 67.7% bythis year, we target a market share of 80%, which translates to sales of over $110,000.

Total Philippine market

Given the above possibilities at very conservative estimates, the Philippine market is veryattractive. Below is a summary of the potential targeted revenues based on the assumptionsoutlined in the earlier sections.

2006 2007 2008

Units Sold(Philippines)

2,702 10,232 23,171

Revenue Potential $ 703,173 $ 2,665,294 $ 5,882,789

For more details, please see Appendix: Tables 3 to 6.

With our aggressive marketing campaign, we aim to achieve and surpass a first-year overall unitsales volume of at least 2,702, which translates to market shares of 80% for enterprises and

homes, 90% for education, and 60% for the government.

With the onset of competition for the projected years, market shares may then decline, but wetarget a steady thin client market share of an average of 60%. We are confident that our superiorproducts and service components, and excellent marketing skills, we will be the establishedmarket leader for thin client solutions in less than four years.

ASEAN market

Having reached key financial targets and operational goals in the Philippines, we will thenexpand to the ASEAN market. This market is potentially huge because our lower-priced productswill attract buyers from this largely developing area. These countries include Indonesia,Malaysia, Thailand, China, Hong Kong, India, and Vietnam. Gartner (2005) estimates that totalPC shipments amounted to around 27 million Assuming that 0 25% moved to thin clients



We shall position our products as the most efficient and logical solutions for the consumer andthe enterprise. Essentially, the first generation design targets educational institutions, the

government, and the enterprise market. Since our prices are significantly lower than current PCASPs, this will drive adoption of our products, especially among cost-conscious consumers. Anefficient distribution network and consistent marketing communications will furthermoreincrease awareness in the industry. We intend to start by forming partnerships with majorenterprise segments, such as call centers and banks. We shall complement private sectorpenetration with local government initiatives to deploy thin clients in school laboratories andgovernment desks. Finally, we intend to continue to study the market response to our productsand determine new areas for future innovation.

FINANCIAL STATEMENTS

For the first year of operations, we project revenues of $703,713, with gross margins of about52%. From our projections about market potential, this translates to sales of about 2,702 unitsacross target segments. Cost-volume-profit analysis shows that our breakeven point is just 640units for the first year, leaving a large area for profitability.

As we ramp up marketing and sales, and investments in the first year become more efficient,tight cost controls shall ensure than margins stay on target. As a ratio to revenues, all of ourexpenses are justifiably elevated, but as increases in sales reflect economies of scale, thisproportion decreases—we hope to target about 3.5% of sales to support research anddevelopment. One of the largest figures in our expenses is the budget allocated to research anddevelopment, as we move aggressively to develop next generation technologies. Third yearresearch and development funds reflect the product development for these subsequent

innovations.

ThincSoc is profitable in the first year alone because the development time for our firstgeneration products are well within range—we estimate about three months for prototyping andtesting, with a full roll-out ready by the second quarter of 2006. Furthermore, because the sizeand share of the market had been very conservatively estimated, it is quite likely that the bottomline is similarly undervalued.

SUMMARY INCOME STATEMENT (in '000)

Year 1 Year 2 Year 3 Year 4

Revenue $ 703 $ 2,665 $ 5,883 $ 7,648

Cost of Goods Sold $ 336 $ 1,285 $ 2,838 $ 3,690



OPERATIONS PLAN

Implementation Schedule

SUMMARY STATEMENT OF CASH FLOWS (in '000)


Cash Flow from Operating Activities $ (14) $ 814 $ 2,114 $ 2,798

Cash Flow from Investing Activities $ (26) $ (18) $ (19) $ (19)

Cash Flow from Financing Activities $ 700 $ - $ - $ -

Change In Cash and Cash Equivalents $ 660 $ 796 $ 2,096 $ 2,779

Ending Balance $ 660 $ 1,456 $ 3,552 $ 6,332

SUMMARY BALANCE SHEET (in '000)


Assets

Current Assets $ 703 $ 1,619 $ 3,910 $ 6,797Property Plant and Equipment $ 26 $ 44 $ 63 $ 82

Total Assets $ 729 $ 1,663 $ 3,973 $ 6,879

Liabilities

Current Liabilities $ 28 $ 107 $ 237 $ 307

Long Term Liabilities $ - $ - $ - $ -

Total Liabilities $ 28 $ 107 $ 237 $ 307

Stockholders' Equity

Stock $ 700 $ 700 $ 700 $ 700

Retained earnings $ 1 $ 856 $ 3,036 $ 5,871

Total Equity $ 701 $ 1,556 $ 3,736 $ 6,571

Liabilities + Equity $ 729 $ 1,663 $ 3,973 $ 6,879

Major Milestones:



Milestones 4Q05

Financing

First generation

Second generation

Market entry

1Q07 2Q07

2006 2007

1Q06 2Q06 3Q08

2008

4Q083Q07 4Q07 1Q08 2Q083Q06 4Q06

Development and prototyping

First generation launch

Testing and first batch manufacturing

R&D and prototyping

Roadmap: launching

Philippines:

first generation

Philippines:

second generation

THE MANAGEMENT TEAM

The key to ThincSoC’s success is an expert and reputable team composed of people from theacademe and industry. The team is mostly composed of engineers from a variety of disciplineand expertise. Some of the members are already responsible of startup companies based onleading technologies.

Founders (PESO LinSoC team)

• Rowel Atienza Rowel’s forte is embedded Linux. He is a professor at University of thePhilippines Electrical and Electronics Engineering (UP-EEE) department while being a

consultant in Linux development and embedded systems in electronic companies such asEazix (a pioneer Philippine ODM). His research track includes computer vision, mainlyvision-based human-machine interfaces; robotics; real-time embedded systems, andcomputer networks. Rowel is currently a PhD (Systems Engineering) candidate at TheAustralian National University. He will lead the engineering team and develop the first

ti f Mi iC™



development, business and technology services. Currently, he is the president of ElectronicsIndustry Association of the Philippines (EIAP). He will head ThincSoC’s management team.

• Christine Manalansan Chrissie is currently pursuing her Master of BusinessAdministration degree at the College of Business Administration in University of thePhilippines in Diliman. Her work experience includes marketing and fund development for aSan Francisco-based non-profit organization for children, public relations and editorial work in Singapore, and research for a construction management company. She holds a Journalismdegree, also from UP Diliman, and has had additional study at Nanyang TechnologicalUniversity (Singapore) as a Singapore International Foundation Fellow. She spent most of her undergraduate years writing for Philippine Collegian; her last position was Associate

Editor in 2001.• Prem Vilas Fortran Rara Prem is an Electrical and Electronics Engineering undergraduate

student at University of the Philippines (UP). He is one of the pioneers of the local Linuxusers’ group at UP. His work experience includes Linux technical support at UP ComputerCenter, Systems administration at UP Information Office, and Voice over IP expansion atDepartment of Science and Technology-Advanced Science and Technology Institute’sproject test bed, PREGINET. His primary interests are embedded Linux and Internettechnologies, mainly dynamic web applications. Currently, he is a member of the

Instrumentation and Control Laboratory of UP-EEE. He will work as an engineer on theproject and will focus on remote applications run on web services.

Engineering

• Philip Mabanta, Jeric Francis Arguillo Lansang, and Mark Despi will comprise the restof the engineering team. They are members of Computer Networks Laboratory (CNL) of UP-EEE and former students of Professor Rowel Atienza.

Technical Advisers

• Peter Valdes Peter is famous in the global IT industry for Tivoli Management software,which he sold to IBM, and continues to generate billions of dollars annually in revenuesworldwide. Lately, he launched a revolutionary product, which he calls Media Optimizationand Administration Systems (MOAS), software that fully automates the entire mediaplanning process – from creation, editing, evaluation, and optimization of the plan up to thecreation of broadcast orders and competitive reports. It will save the planner significant

amount of time that can be spent on other tasks such as re-evaluation and other planscenarios. In our initial planning sessions, he emphasized the value of making the producteasy to use for any type of user. Using his experience in software development and ArtificialIntelligence-based designing, MiniC™ will be the easiest computer to use. Peter holds adegree in industrial engineering from University of the Philippines.

A l D A l h t b i t t l i l i thi li t hit t H



• Dr. Paco Sandejas Paco is the managing director of BGN Ventures, Inc., which managesNarra Venture Capital (NarraVC), a Delaware fund sponsored by Dado Banatao with

Philippine investors such as Ayala Corporation. He is responsible in formulation of severalgovernment IT policies in various government agencies. Paco founded Brain Gain Network,a worldwide network of technopreneurs for Philippine industry, a valuable source of excellent Filipino engineers. He will be instrumental in sales pitch of ThincSoC’s productsin the government and enterprise. Paco has a vast experience in RD&E, which started inSilicon Valley and being a board member of several companies including H& Q Asia Pacific.He is an inventor with 3 patents and the first summa cum laude graduate of Applied Physicsfrom University of the Philippines.

• Earl Robles Earl joined NarraVC in December of 2002. He handled the due diligence of the biggest portfolio company investment to date of NarraVC. He worked with SiliconValley engineers of Dado Banatao in crafting a business plan for a Silicon Valley-basedcomputer company with planned Philippine operations. He also aided the due diligenceprocess of a Philippine-based co-investor in a Silicon Valley-based photonics company. Earlalso contributes data, research and analysis to IMI's due diligence team for the company'sM&As. Prior to joining Narra, Earl was the core DSP Engineer for the Eurofix Project inVicon Communications, a German engineering company. He was responsible for the RTOS

engine, Signal Detection, Locking, Demodulation, Symbol Decoding, Position ExtractionModules of Vicon's Integrated Loran-C/Eurofix Receiver—the second demonstrated workingprototype in the world, a project contract with Man Technologies, Germany. Earl holds adegree in Computer Engineering and did his thesis under the Instrumentation, Robotics andControls Laboratory, University of the Philippines.

• Dr. Jay Sabido Jay is formerly the head of Philippine’s science and technology researcharm, the Department of Science and Technology-Advanced Science and Technology Institute(DOST-ASTI). At ASTI, his research track includes embedded systems, low-cost computingplatforms including thin clients. He is also the former director of Philippine NationalComputer Center, which drafts guidelines for ICT purchases. He has 10 years of SiliconValley experience in RD&E. Jay graduated summa cum laude in Electrical Engineering fromthe University of the Philippines.

Industry Partners

• Bluetalk, a PESO contestant, whose product is a VoIP access point via Bluetooth. We haveinitial talks to integrate their system into our product.

• Meds, Inc., another PESO entry, which aims to outsource the workstation package,consisting of 1 server unit in a hospital that can be deployed with MiniC™ terminals foreach resident physician.

• IMI, a manufacturing company (a partner of Narra Ventures), and a potential partner.



APPENDICES

Table 1: Total Cost of Ownership (TCO) for Large Enterprise

Table 2: Total Cost of Ownership (TCO) for Education

Sales and Projected Revenue

Table 3: Education

Table 4: Enterprise

Table 5: Government

Table 6: Home

Pro Forma Financial Statements

Table 7: Income Statement

Table 8: Balance Sheet

Table 9: Statement of Cash Flows

Table 10: Startup costs and Projected Capital Expenditures

Confidentiality Statement



ThincSoC Business Plan: Confidential 22

Table 1: Total Cost of Ownership (TCO) for Large Enterprise

Thin Clients vs. PCsTCO computation minus capital costs (for large enterprise)

Assumptions and Dependencies Thin Client PC Thin Client PC

Financials End-user Operations

Number of Employees Formal and Informal Training Costs $100 $100

Annual Revenue ($M) Data Management Costs $0 $200

Annual Growth Rate Self and Peer-to-Peer Support Costs $100 $200

Gross Margins Total Savings on End-User Operations

Average Employee Salary ($)

Employee G&A Costs ($) Downtime

Revenue Per Employee ($) Hardware failures 0.1% 0.2%

Unsupported Software-induced problems 0.1% 0.2%

IT Staff Viruses 0.1% 0.2%

Desktops Managed per IT person 100 50 Software updates 0.2% 0.5%

Total IT persons 20 40 User training 0.1% 0.2%

User errors 0.1% 0.2%

Operations User personal games, messenger, browsing, e-mail 0.2% 0.5%

Average IT worker's salary ($) Total Thin Client Downtime 0.9% 2.0%

Other G&A costs ($) Total Downtime Savings

Trips per year per IT person 2 10

Expense per trip Miscellaneous

Total Savings on Operations Daily Hours devices turned on 8 8

Average Power consumption (Watt) 50 240

Philippine average cost per kWh

Total Miscellaneous Savings

Total Desktop-Related Costs ($k) Thin Client PC % Savings

Year One: $3,487,410 $7,827,569 55%

Year Two: $4,010,522 $9,001,704 55%

Year Three: $4,612,100 $10,351,960 55%

Year Five: $6,099,502 $13,690,467 55%

Year Ten: $12,268,278 $27,536,419 55%

2,000

$1,000

15%

30% 60.00%

$50,000

$25,000

$500,000

$70,000

79.17%

$35,000 55.00%

$0.16

$1,000

53.48%




Table 2: Total Cost of Ownership (TCO) for Education

TCO Calculator: Thin Clients vs. PCsTCO Computation minus capital costs (for education)

Assumptions and Dependencies Thin Client PC Thin Client PC

IT Staff End-user operations

Desktops Managed per IT person 25 25 Formal and Informal Training Costs $0 $20

Total IT persons 1 1 Data Management Costs $0 $0

Self and Peer-to-Peer Support Costs $0 $0

Operations Total Savings on End-User Operations

Average IT worker's salary ($)

Other G&A costs ($) Downtime

Trips per year per IT person 0 0 Hardware failures 0.1% 0.2%Expense per trip Unsupported Software-induced problems 0.1% 0.2%

Total Savings on Operations Viruses 0.0% 0.2%

Software updates 0.0% 0.5%

User training 0.1% 0.2%

User errors 0.1% 0.2%

User personal games, messenger, browsing, e-mail 0.1% 0.5%

Total Desktop-Related Costs ($k) Thin Client PC % Savings Total Thin Client Downtime 0.5% 2.0%

Year One: $4,193 $6,945 40%

Year Two: $4,193 $6,945 40% Miscellaneous

Year Three: $4,193 $6,945 40% Daily Hours devices turned on 8 8

Year Five: $4,193 $6,945 40% Average Power consumption (Watt) 50 240Year Ten: $4,193 $6,945 40% Philippine average cost per kWh

Total Miscellaneous Savings

$0.16

100.00%

$00.00%

$3,600

79.17%

$0




Table 3: Sales and Projected Revenue for Education

Target LaunchYear

Secondary 2005 2006 2007 2008

Terminals covered 77,430 47,550 47,550 47,550

Empty seats 142,650 95,100 47,550 0

% of empty seats converted to TC 0.6% 2.0% 5.0%Thin clients deployed 285 951 2,378

% SOM 90% 80% 70%

Units sold 257 761 1,664

DP $ 401.50 $ 401.50 $ 401.50

Target Revenues $ 103,093.16 $ 305,461.20 $ 668,196.38

Tertiary

Total number of terminals 95,065 95,065 95,065 95,065

% of terminals converted/made TC 0.4% 2.0% 4.0%

Thin clients deployed 380 1,901 3,803

% SOM 90% 80% 70%

Units sold 342 1,521 2,662DP $ 401.50 $ 401.50 $ 401.50

Target Revenues $ 137,406.95 $ 610,697.56 $ 1,068,720.73

Total Units Sold 599 2,282 4,326

Total Target Revenues ($) $ 240,500.11 $ 916,158.76 $ 1,736,917.11




Table 4: Sales and Projected Revenue for Enterprise

Target Launch

Year

2004 2005 2006 2007 2008

Total PC shipment 349,335 377,282 407,464 440,061 475,266

Growth 8% 8% 8% 8%

Enterprise 179,878 201,463 231,683 289,604 376,485

% Growth 12% 15% 25% 30%

Desk-based PC 179,878 201,463 231,683 289,604 376,485

% of Enterprise 100% 100% 100% 100% 100%

% moved to TC 0.8% 2.0% 4.0%

TC deployed 1,853 5,792 15,059

DP $ 220.00 $ 220.00 $ 220.00

Market size $ 407,761.84 $ 1,274,255.75 $ 3,313,064.96

% SOM 80% 70% 60%

Units Sold 1,483 4,054 9,036

Target Revenues $ 326,209 $ 891,979 $ 1,987,839




Table 5: Sales and Projected Revenue for Government

Target Launch

Year

2004 2005 2006 2007 2008

Total PC shipment 349,335 377,282 407,464 440,061 475,266

Growth 8% 8% 8% 8%

Government 26,234 32,530 39,036 45,672 52,523

% Growth 24% 20% 17% 15%

Desk-based PC 26,234 32,530 39,036 45,672 52,523

% of Government 100% 100% 100% 100% 100%

% moved to TC 0.5% 3.0% 6.0%

TC deployed 195 1,370 3,151

DP $ 220.00 $ 220.00 $ 220.00

Market size $ 42,939.81 $ 301,437.47 $ 693,306.19

% SOM 60% 50% 40%

Units Sold 117 685 1,261

Target Revenues $ 25,764 $ 150,719 $ 277,322




Table 6: Sales and Projected Revenue for Home

Target Launch

Year

2004 2005 2006 2007 2008

Population (2005) (M) 85

Growth (base 2005) 69%

Percentage of Internet users 13.88%

Number of Internet users (M) 11.798 20

Note: approximate Internet home penetration

% of dialup shifting to broadband 0.5% 1.00% 1.25% 1.75%

Broadband growth 15% 25% 35% 45%

Total Dial-up ('000) 1,850 1,841 1,822 1,800 1,768

Total Broadband ('000) 125 153 210 306 475

% of broadband bundled with our product 0.3% 1.5% 3.0%

Units bundled ('000) 629 4,587 14,248

DP $ 220.00 $ 220.00 $ 220.00

Market size ($ '000) $ 138,373.95 $ 1,009,195.79 $ 3,134,517.34% SOM 80% 70% 60%

Units Sold 503 3,211 8,549

Target Revenues $ 110,699 $ 706,437 $ 1,880,710





Table 8: Balance Sheet


Assets

Current AssetsCash And CashEquivalents $ 660,296 $ 1,456,304 $ 3,552,061 $ 6,331,540

Account Receivables $ 29,299 $ 111,054 $ 245,116 $ 318,651

Inventory $ 13,523 $ 51,256 $ 113,131 $ 147,070Total Current Assets $ 703,117 $ 1,618,613 $ 3,910,308 $ 6,797,261Property Plant andEquipment $ 26,200 $ 44,200 $ 62,700 $ 81,700

Total Assets $ 729,317 $ 1,662,813 $ 3,973,008 $ 6,878,961

Liabilities

Current LiabilitiesAccounts Payable $ 27,966 $ 107,104 $ 236,536 $ 307,497

Short/Current Long Term Debt

Other Current Liabilities

Total Current Liabilities $ 27,966 $ 107,104 $ 236,536 $ 307,497

Long Term Debt

Other Liabilities

Total Liabilities $ 27,966 $ 107,104 $ 236,536 $ 307,497

Stockholders' Equity

Stock $ 700,000 $ 700,000 $ 700,000 $ 700,000

Retained earnings $ 1,352 $ 855,709 $ 3,036,472 $ 5,871,464

Total Equity $ 701,352 $ 1,555,709 $ 3,736,472 $ 6,571,464

Liabilities + Equity $ 729,317 $ 1,662,813 $ 3,973,008 $ 6,878,961




Table 9: Cash Flow


Net Income $ 1,352 $ 854,357 $ 2,180,763 $ 2,834,992

Cash Flow from Operating Activities

Accounts Receivable $ (29,299) $ (81,755) $ (134,062) $ (73,535)

Inventories $ (13,523) $ (37,733) $ (61,875) $ (33,939)

Accounts Payable $ 27,966 $ 79,139 $ 129,432 $ 70,961

Other Activities $ - $ - $ - $ -Total Cash Flow From OperatingActivities $ (13,504) $ 814,008 $ ,114,257 $ 2,798,479

Cash Flow from Investing Activities

Capital Expenditures $ (26,200) $ (18,000) $ (18,500.00) $ (19,000.00)

Investments $ -

Other Activities $ -

Total Cash Flows From InvestingActivities $ (26,200) $ (18,000) $ (18,500) $ (19,000)

Cash Flow from Financing Activities

Borrowings $ - $ - $ - $ -

Other Activities $ - $ - $ - $ -

Proceeds from Stock issuance/(Purchase) $ 700,000 $ - $ - $ -

Total Cash Flows From Financing

Activities $ 700,000 $ - $ - $ -

Change In Cash and Cash Equivalents $ 660,296 $ 796,008 $ 2,095,757 $ 2,779,479

Beginning Balance $ - $ 660,296 $ 1,456,304 $ 3,552,061

Ending Balance $ 660,296 $ 1,456,304 $ 3,552,061 $ 6,331,540




Table 10: Operating Costs

Year 1 Year 2 Year 3 Year 4Startup

costsDevelopment &Engineering $20,000.00

Supplies $ 6,300.00

Equipment & Prototype $ 3,700.00

Admin $ 960.00

Supplies $ 960.00

Marketing & Sales $21,200.00

Supplies and Equipment $ 1,800.00

Advertising Tools $ 4,400.00

Research $ 5,000.00

IT Facilities $26,200.00

Tools and equipment (inc. repairs) $ 1,200.00 $3,000 $3,500 $4,000

Software & Website costs $ 5,000.00 $15,000 $15,000 $15,000

Rent $10,000.00

Utilities $ 3,920.00

Total $82,280.00

CAPEX $ 6,200.00 $18,000 $18,500 $19,000




CONFIDENTIALITY STATEMENT

This document is confidential and proprietary. It may not be circulated or disclosed in whole or part without the writtenpermission of ThincSoC. By accepting this business plan, recipient agrees to treat all technical, business, financial, and otherconfidential or proprietary information of ThincSoC which is disclosed to the recipient. Recipient shall restrict disclosure of or accessto this business plan (all of the foregoing content hereinafter collectively referred to as the “Content”) solely to persons with a need toknow such Content who are under the duties of confidentiality and nondisclosure. Recipient shall, upon the request of ThincSoC,return all of the Content to ThincSoC and, at the direction of ThincSoC, return or destroy all copies of this business plan, in paper,

electronics or other form, then in recipient’s possession or control.

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