Eternal Unlimited
 Investment Prospectus
The Eternal Unlimited collection expresses
  the passion, commitment and lifestyle of Mixed Martial Arts and
Extreme Sport...
Table of Contents
INTRODUCTION
   I. Executive Summary            ……………………………………………….pg.1
  II. Fact Sheet                ...
A. Administrative              ……………………………….………pg.30
          B. Technical/Internet/Video    ……………………………………….pg.30

STRAT...
INTRODUCTION:
I. Executive Summary
Milestones:
Eternal unlimited (EU) is an apparel manufacturer/brand in the
rapidly expa...
Distribution Model:
EU sells wholesale direct to domestic MMA online and brick and mortar retailers. International
distrib...
II. Fact Sheet

LOCATION:       Company Headquarters
                7171 Evan Avenue
                Sebastopol, CA 95472...
III. Clothing Collection (product visuals)




        ETERNAL UNLTD
                All Day Everyday
            Eternal ...
5
Screenprinted jersey
 appliqué sewn over
    screenprint




                       6
Spring/Summer Collection




                           7
8
BUSINESS SUMMARY
I. The Company
A. Performance Overview – Q1 & Q2 2008

In the first two quarters of operations Eternal Un...
It should also be noted that the EU has secured top retailer interest and solidified its reputation
on a fraction of the c...
The Manufacturer License agreement with Prographics, Inc will help EU achieve the following:.
   1. Eliminate EU’s heavy c...
II. THE INDUSTRY
A. Introduction

Mixed Martial Arts is the fastest growing sport in the world and continues to grow in th...
•   Cung Le to appear on ESPN July 16 (mmapayout.com).
•   UFC inks Japan TV deal (mmapayout.com).
•   UFC International E...
MARCH:
• NBCSports.com officially announced a partnership with Strikeforce to broadcast the first
  weekly Mixed Martial A...
C. Trends

Gate Revenues
The UFC® and their events have grown from 5 live events in 2001, with an average ticket price
of ...
D. History of MMA

The Eternal Unlimited brand is built around a deep appreciation and understanding, of the
commitment, d...
Creating the Brand’s Industry Reputation:
Industry reputation was built from the ground up by first creating solid relatio...
II. Materials and Production:
EU has differentiated itself from a majority of MMA clothing companies on its material and
p...
apparel stores, has resulted in tremendous response from a large % of customers and retailers
    sampled. The re-working ...
Lengthy discussions with apparel accountants, attorneys, lenders, product vendors and
competitors has confirmed that this ...
II. Market Size & Growth Potential
A. Market Size:

Although there are no official sources to measure the exact size of th...
A. Market Share:

 Eternal Unlimited has annual market share                     Market Share Penetration
 penetration goa...
B. Profit By Product:

EU’s Manufacturing License agreement with Prographics, Inc ensures that all products sold will
resu...
Lifestyle Retailers - Brick and Mortar Retailers and General Sport Store Chains:
Effective and timely penetration into thi...
audience through the major news, information and event websites and search engines that
       attract over 5 million uniq...
E. Industry Reputation:

Building EU’s Foundation:
From the very start, we have been very strategic about the fighters who...
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
Investment Prospectus   Eternal Unltd Final (09 21 08)
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Investment Prospectus for Streetwear/Lifestyle Clothing Company

Investment Prospectus Eternal Unltd Final (09 21 08)

  1. 1. Eternal Unlimited Investment Prospectus
  2. 2. The Eternal Unlimited collection expresses the passion, commitment and lifestyle of Mixed Martial Arts and Extreme Sports enthusiasts. Living life to its fullest, in the moment, without reservation or regret. Eternal in mind, energy and spirit
  3. 3. Table of Contents INTRODUCTION I. Executive Summary ……………………………………………….pg.1 II. Fact Sheet ……………………………………………….pg.3 III. Clothing Collection (product visuals) ………………………………………pg.4 BUSINESS SUMMARY I. The Company ……………………………….…........pg.9 A. Performance Overview ……………………………….…........pg.9 B. Operational Modifications ……………………………………….pg.10 C. Future Plans ……………………………………….pg.11 II. The Industry ……………..………………………...pg.12 A. Introduction …..………………………….………..pg.12 B. Industry Landmark Events …..………………………….………..pg.12 C. Trends ……………………………………….pg.15 D. History of MMA ……………………………….………pg.16 THE PRODUCTS I. Design Influence ……………………………….………pg.16 A. Eternal Brand Inspiration …………………………….…………pg.16 B. Research and Development ……………………………………….pg.17 II. Materials and Production ……………………………….………pg.18 III. Future Development Plans ……………………………….………pg.18 MARKET ANALYSIS I. Target Market ………………………………..……...pg.19 C. Wholesale Customer Profile …………………………….…………pg.19 D. Retail Customer Profile ……………………………………….pg.20 II. Market Size and Growth Potential ………………………………..……...pg.21 A. Market Size …………………………….…………pg.21 B. Growth Potential ……………………………………….pg.21 C. Market Share ………………………………..……...pg.22 III. Marketing Strategy ……………………………………….pg.22 A. Pricing ..………………………………….…..pg.22 B. Profit by Product ……………………………………….pg.23 C. Sales and Distribution …………………………………….....pg.23 D. Advertising & Promotions ……………………………………….pg.24 E. Industry Reputation ……………………………………….pg.26 IV. Competitive Analysis ……………………………………….pg.27 A. Competitors’ Profile ……………………………………….pg.27 OPERATIONS I. Management and Ownership …………………………….pg.29 A. Sean Taylor – Managing Member ………………………..…...pg.29 B. Justin Gill – Managing Member ………………………..…...pg.30 II. Administration and Personnel ……………………………………….pg.30
  4. 4. A. Administrative ……………………………….………pg.30 B. Technical/Internet/Video ……………………………………….pg.30 STRATEGIC PLANNING I. Marketing and Sales Strategies ………………………………….……pg.31 POTENTIAL RISKS & PROBLEMS I. Macro- Economic Stability ………………………………….……pg.31 II. Lagging Retail Sector Performance ...……………………………….……pg.32 FINANCE I. Funding Request ………………………………….pg.34 A. Investment Vehicle ………………………………….pg.34 B. Investment Offer ………………………………….pg.34 C. Projected Return on Investment ………………………………….pg.34 D. Investment Requirements ………………………………….pg.34 E. Exit Strategies & Payback Period ………………………………….pg.35 II. Financials ………………………………….pg.35 FINANCIALS Profit and Loss Projections Break Even Analysis Graph Investment ROI and NPV Analysis Advertising and Promotions Budget Apparel Company Sales Comps Profit and Loss Statement (2007) Break Even and Cash Flow Analysis Assumptions Profit and Loss Statement (2008 YTD) Break Even and Cash Flow Analysis Data Balance Sheet (12/31/07) Cash Flow Analysis Graph Balance Sheet (07/31/08) APPENDICES Appendix A – Line Sheet (Spring/Summer ’08) Appendix B – Line Sheet (Fall/Holiday ’08) Appendix C – Pricing Sheet Q3 ‘08 Appendix D – Sales Document Appendix E – Customer Segmentation & Sales Pipeline Appendix F – Sponsored Fighters Appendix G – Competitive Analysis (MMA Retailer Penetration) Appendix H – Competitive Analysis (Product Offerings) Appendix I – Manufacturing License Agreement Appendix J – Customer Feedback Appendix K – Product Placement Schedule Appendix L – MMA Clothing Market and Sales Pipeline Penetration Appendix M – History of MMA ATTACHMENTS Attachment #1 – Sean Taylor (resume) Attachment #2 – Justin Gill (resume) Attachment #3 – Industry References
  5. 5. INTRODUCTION: I. Executive Summary Milestones: Eternal unlimited (EU) is an apparel manufacturer/brand in the rapidly expanding Mixed Martial Arts Industry. In the first 6 months of operations Eternal Unlimited has secured accounts with the top 30 Mixed Martial Arts (MMA) retailers in the U.S. and has recently signed distribution contracts with the largest MMA distributors in Canada and the UK to distribute EU internationally. Eternal Unlimited is currently in negotiations with a distributor to carry EU in 50 + stores in Australia. Industry Opportunity: Mixed Martial Arts (MMA) is the fast growing sport in the world. The tidal force of a rapidly growing fan base, major television network syndication of fight events, blue chip sponsor participation and surging sales for top brands in the space is on the rise. There has never been, and possibly never will be, a better time to be building a brand in the MMA space. Britt Galland - VP of Marketing for No Fear “We’ve been in business for seventeen years. Getting into the MMA game we’ve seen the most rapid return on investment of any category we’ve participated in. We see it at the retail and wholesale levels, on the internet and at the fifty retail stores we own and operate. For the first time in our company’s history we took a part of another category and inserted it into our DNA. We have athletes in many other sports and they are all interested in MMA. We are in places that MMA isn’t, and if we can bring our MMA play to those areas, we most definitely will.” Fight Magazine, August, 2008 In a short three year period the MMA industry’s leading apparel companies, Tapout and Affliction, have grown sale from $3 million to $100 million and $6 million to $150 million respectively. It is this kind of growth potential that makes the MMA space so exciting. The sport of Mixed Martial Arts in making history and EU is very proud and excited to be a part of it. Unique Features of Brand and Product: The quick acceptance of Eternal Unlimited by MMA retailers can be attributed to EU’s unique brand message and clothing designs. EU is a “next generation” MMA clothing company uniquely inspired by the Hip-Hop music and urban culture; a culture that has deeply influenced the behavior, attitudes, lifestyle and clothing trends of the 18-35 year old demographic which makes up a majority of the MMA audience. Eternal Unlimited uses bold, edgy and urban based imagery in combination with high quality materials and design treatments to offer the MMA fighters, fans and clothing retailers a desperately needed apparel alternative to the hordes of “Rock and Roll” and “Street Thug” fight gear companies that currently congest the MMA clothing market. EU has positioned itself as an MMA lifestyle brand with the product quality and design themes that appeal to the general Action Sport enthusiast. With the much larger Lifestyle and General Sport Store chains now recognizing MMA as a legitimate Action Sport industry and “lifestyle”, Eternal is uniquely positioned to appeal to these retailer’s customers who are already purchasing urban and street wear influenced clothing being offered by surf, skate, snow, and freestyle moto clothing manufacturers. 1
  6. 6. Distribution Model: EU sells wholesale direct to domestic MMA online and brick and mortar retailers. International distribution to both Canada and the UK has been contracted to the top MMA distributors in each country. EU is currently in negotiation with a distributor to sell EU in Australia and is actively soliciting representation to expand its international distribution to include all of Europe, Australia and Japan. EU also sells direct to U.S. and Canadian consumers through its online clothing store. Market Share: EU calculates that the MMA clothing market is a $600 million dollar market and growing quickly. EU has set two operational goals for market penetration; 1%+ market share penetration by EOY 2011 and 2%+ market share by EOY 2013. Rapid expansion of the MMA clothing market will likely reduce projected market share penetration requirements by 20%-40% over the next 12-24 months and therefore increase EU’s resulting market share penetration results. Management: Sean Taylor and Justin Gill are the Managing Members of Eternal Unlimited, LLC and have single handedly built EU from its conception. Both partners bring a unique set of skills and experience that combine to produce a well-rounded and highly functional management team. Sean Taylor - Major Qualifications: • Four years PT experience as business development and strategic planning consultant. • Seven years FT experience as developer, owner and operator of commercial property & 31 room boutique wine country inn. • Five years FT experience in development and management of full-service health clubs and day spa. • Undergraduate degree from UC Berkeley in rhetoric (BA). Brown & Campione Fellowship Recipient. • Graduate degree in Business/Finance (MBA). McLaren Fellowship Scholar. • First Team Varsity Honors in NCAA football and baseball, University of California Berkeley, 1989 • (See “Attachments # 1” for detailed professional resumes) Justin Gill – Major Qualifications: • One year FT experience as designer and sales manager for large commercial landscaping company. • Two years FT experience as top regional sales representative for wireless telecommunications company. • Undergraduate degree in Environmental Horticultural Science (BS). • Trained in MMA, Brazilian Jiu-jitsu, Wing Chung Kung Fu, Muay-thai, Boxing, and Wrestling. • Advanced knowledge and love of Mixed Martial Arts industry, fighters, techniques, statistics, and history. • Highly skilled in sales techniques, tactics, and practices. • Deep knowledge of fashion trends, design principles, colors and garment applications. • (See “Attachment #2” for detailed professional resumes) Funding Request: Having validated the brands potential through successful sale and marketing efforts over the first six months of operation, increased investment in sales, retailer support and brand marketing is needed to accelerate brand awareness and retailer penetration. EU is requesting $650,000 in capital investment to fund these efforts and is offering potential investors a 38% ownership interest in Eternal Unlimited, LLC. Return on Investment (ROI): EU is currently projecting the following annualized compounded return on investment: EOY 2010 – 35%+ annual compounded ROI EOY 2011 – 50%+ annual compounded ROI EOY 2013 – 50%+ annual compounded ROI (See “FINANCE” section for details on investment requirements and ROI calculations) 2
  7. 7. II. Fact Sheet LOCATION: Company Headquarters 7171 Evan Avenue Sebastopol, CA 95472 (707) 494-6008/ofc. (707) 676-8644/fax ENTITY Company Name: Eternal Unlimited, LLC INFO: DBA, Eternal Unlimited EIN #: 26-1282230 Sellers Permit #: 100-993083 TYPE OF Apparel Manufacturer BUSINESS: OWNERSHIP: Sean Taylor (51%) Managing Member - (707) 494-6008 Justin Gill (49%) Managing Member - (707) 974-0252 HISTORY: Eternal Unlimited, LLC was formed in Q1 2007. Funding was secured in Q2 2007 initiating market research, product development and strategic planning. Official company product launch was February 15th, 2008. PRODUCT: Mixed Martial Arts Lifestyle Clothing BRAND Eternal Unlimited is a “next generation” MMA clothing company inspired by POSITION: the Hip-Hop music and clothing culture. Eternal Unlimited offers the MMA fighters and fans an alternative to the “rock and Roll” and “Bad Boy” fight gear companies that currently congest the MMA clothing market. INVESTED $125,000 TO DATE: INVESTMENT $650,000 REQUESTED: LEGAL Nicholas Taylor Jones - Dewey & LeBoeuf LLP COUNCIL: FINANCIAL Jay Mangel - Grobstein, Howarth & Company LLP COUNCIL: Marjorie Bailey – Stonefield Josephson, Inc. MANAGEMENT Kevin Tsujihara - President - Warner Brothers Home Entertainment Group COUNCIL: Keith Miller – Gone Tropo WEBSITE: www.eternalUnlimited.com 3
  8. 8. III. Clothing Collection (product visuals) ETERNAL UNLTD All Day Everyday Eternal in mind, energy and spirit Fall/Holiday Collection 4
  9. 9. 5
  10. 10. Screenprinted jersey appliqué sewn over screenprint 6
  11. 11. Spring/Summer Collection 7
  12. 12. 8
  13. 13. BUSINESS SUMMARY I. The Company A. Performance Overview – Q1 & Q2 2008 In the first two quarters of operations Eternal Unlimited has secured accounts with 30 MMA retailers and has quickly built an industry wide reputation as one of the top players in the MMA clothing market. “Eternal outsold a lot of major brands it’s first two weeks with us, including Sinister which is one of the top MMA brands.. I am very excited to see what the future of this brand will bring.” (Mika Casey, Owner - MMA Warehouse) Rapid penetration into the industries top retailers, an appealing brand message and quality product has resulted in the signing of distributors to represent Eternal Unlimited throughout Canada and the UK; both of these distributors represent a select number of top MMA and Action Sports brands. Total Sales Sales # of Trasactions Average $ per Trans. Sales Wholesale Retail Wholesale Retail Wholesale Retail Feb-08 $432.46 $0.00 $432.46 0 8 #DIV/0! $54.06 Mar-08 $5,331.66 $4,744.32 $587.34 6 11 $790.72 $53.39 Apr-08 $2,385.40 $1,563.76 $821.64 2 18 $781.88 $45.65 May-08 $12,048.52 $10,786.80 $1,261.72 4 24 $2,696.70 $52.57 Jun-08 $9,634.55 $7,841.94 $1,792.61 7 36 $1,120.28 $49.79 Jul-08 $17,562.95 $16,008.68 $1,554.27 12 35 $1,334.06 $44.41 The growth potential of EU can best be demonstrated in the graph below which shows the number of top MMA retailers purchasing EU product relative to the other top clothing companies; companies that have been in the marketplace for years. F ig h t D e m on ( m m a ge a ro n T ex a s /W o rld M M A S h o p H it & S ub m it F ig h t S h o p T e x a s M M A F ig ht g ea r Figh t S u p e rs to re U K O n T h e M a t (O T M ) Fig ht er W a re h ou s e A g ain st t he F e n c e J iu -J its u P r o G e a r M M A W a re h ou s e Fig ht G e a r O u tle t R e v o lu tion M M A C o m ba t S p o rt s M M A O v er lo a d M M A C o u n try M M A L o c k er F ig h t P lan e t Fig ht D ep o t F ig h t R a c k F ig h t S h op M M A S to p Title M M A P r o- E lite Total Company Stores Eternal Unlimited 1 1 1 1 1 1 1 1 1 1 1 1 12 Primary Affliction 1 1 1 1 1 1 1 1 8 Tapout 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 21 Throwdown Industries 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 20 Warrior Wear 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 21 Sinister 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 19 One More Round 1 1 1 1 1 1 1 7 Premier Fighter 1 1 1 1 1 5 Triumph United 1 1 1 1 1 1 1 1 1 1 1 1 12 Xtreme Couture 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 15 UFC 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 15 (See “Appendix G – Competitive Analysis (MMA Retailer Penetration)” for details) 9
  14. 14. It should also be noted that the EU has secured top retailer interest and solidified its reputation on a fraction of the capital that competitive brands are spending to achieve similar results. With only $125k invested in the organization to date, EU has demonstrated a unique ability to communicate and sell the brand ahead of consumer demand and effectively manage capital resources by finding creative marketing strategies that produce high quality and high volume branding exposures at a fraction of the retail market rate. B. Operational Modifications To determine the effectiveness of operations and brand building in its first two quarters of operation, EU has solicited extensive feedback from retail and wholesale customers 1 . EU has also spent significant time reviewing growth strategies with well respected industry consultants, accountants and apparel manufacturing professionals to determine the best course of action to maximize operational performance, NOI and ROI results for both near term and long term operations 2 . This due diligence has resulted in the following operational modifications which EU has recently implemented. Manufacturing License with Prographics, Inc. EU has recently signed a manufacturing license with Prographics, Inc 3 . Prographics is a highly reputable manufacturer and printer and is now handling all material sourcing/purchasing, production, shipping, invoicing and receivable collection for EU’s wholesale and retail business. Strong Business Model: A unique attribute of Prographics is that they DO NOT do contract printing. Prographics business model is built around establishing long term relationships with business clients and providing these companies with turnkey manufacturing and printing services. Furthermore, Prographics has established a lengthy clientele of business accounts in the surf, skate and sports arena and brings a wealth of industry, retailer and sales force relationships to the table for Eternal Unlimited to access. Some of their clients include: Rusty surfboards Title Boxing Triumph United K-5 Osiris Outlaw MadCore Liquid Force Alliance Titleist Golf Scotty Cameron and Many More. Royalty Agreements: Prographics, Inc retains 60% of gross sales and pays EU a royalty of 40% of gross sales on a paid-on-paid account basis. Term of license is three years with 3 one year options. Each option is contingent upon successful renegotiation of royalty splits to both parties. With average industry gross margins in men’s apparel manufacturing ranging from 35% to 55%, EU’s Manufacturing License with Prographic’s is a net gain in gross margin in almost all but the absolute best circumstances. With the expiration of the Manufacturing License set to expire/renew on August, 2011, upside exposure for EU is contained. 1 See “Appendix J – Customer Feedback” for details. 2 See “Executive Summary” for list of consultants, firms and professionals mentors. 3 See “Appendix I - Manufacturing License Agreement” for details. 10
  15. 15. The Manufacturer License agreement with Prographics, Inc will help EU achieve the following:. 1. Eliminate EU’s heavy capital and human resource investment in product, manufacturing, shipping, invoicing and collections of accounts receivable. 2. Eliminate risk and cost of aging inventory. 3. Maximize internal capital and labor resources through significant recapturing of Managing Members time and focus. Approximately 50% of Managing Member time is currently spent on the logistical side of the business; material sourcing/purchasing, production, shipping, inventory, invoicing and collections. Current allocation of Managing Member time does not produce optimum return for EU. 4. Accelerate sales to Lifestyle Retailers and General Sport Store chains by leveraging of Prographics industry wide retailer and sales rep. relationships. 5. Minimize retailer discount and chargeback cost by shifting production and fulfillment risk and responsibility to Prographic’s experienced staff. 6. Minimize shipping deadline problems commonly associated with a majority of printers doing contract print work. C. Future Plans Marketing and Sales Strategies: With both brand credibility and retailer confidence raised, EU is poised to accelerate sales through additional investment in sales and marketing efforts. Sales: • Additional sales and POP collateral is needed, along with increased attention to retailer support, to help improve store placement and customer sell through. Example: We have recently created a new 11”x17” high gloss double fold sales document for distributors to leave with retailers when making outside sales calls. This document is a differentiator for EU and has both inspired the distributor sales reps and resulted in additional orders. This is just one small example of the many possible opportunities to enhance sales results. (See “Appendix D – Sales Document” for document visual) • Additional sales representatives are needed to help secure the lucrative Lifestyle Retailers that make-up 45% of the EU sales pipeline. EU has recently started searching for top sales firms with pre-existing relationships with EU’s targeted customer base. Marketing: • Significant investment is needed in fighter sponsorships and product placement to help brand EU to the general consumer shopping at the Lifestyle and General Sport Stores. Additional capital is needed to attend the top MMA industry and Clothing tradeshows to build brand recognition to the Lifestyle Store and General Sport Store buyers. 11
  16. 16. II. THE INDUSTRY A. Introduction Mixed Martial Arts is the fastest growing sport in the world and continues to grow in the face of a challenging economy. Mark Hyman from Business Week emphasizes the reach of MMA into the American consciousness. “Interest in MMA, a sport that was born in the U.S. in the early 1990s, has never been higher. A surprising 35% of Americans call themselves fans, according to the ESPN Sports Poll. Although young white males are its core audience, 22% of women say they follow it.” Business Week, July, 2008 The tidal force of a rapidly growing fan base, major television network syndication of fight events, blue chip sponsor participation and surging sales for top brands in the space is on the rise. There has never been, and possibly never will be, a better time to be building a brand in the MMA space. B. Industry Landmark Events 2008 AUGUST: • UFC jumps Pay-Per-View rates from $39.95 to $44.95 for UFC 87 while holding up pay- per-view sales volume. Pay-Per-Views increase slightly showing continuing strong demand. • FSN and ProElite Announce Deal. FSN and ProElite, the parent company of EliteXC, announce that FSN will telecast four one-hour special MMA cards Sunday nights at 9:00 PM local throughout mid-September and into early October (mmapayout.com). JULY: • “Becoming the Natural” by Randy Couture and Loretta Hunt hit book stores July 22nd. The book will debut on the New York Times bestseller list on the Expanded list at #33 on August 10th (mmapayout.com). • UFC: Silva vs. Irvin rating peaks at 4.46 million viewers (mmapayout.com). • Footlocker CEO Talking up Tapout: Matthew Serra, chairman, president and CEO of Foot Locker Inc., recently spoke with Footwear News about the company’s deal with Tapout: When you switch to apparel, the fastest-growing area right now is mixed martial arts, and we have a Tapout exclusive in the mall. With Tapout, we’re doing a very big job with Champs, and that’s going to go into a lot of Foot Lockers [in June and July]. • Affliction Banned draws $2 Million Gate (mmapayout.com). • UFC 89 showing strong UK sales: Gareth Davies of The Telegraph UK reports that tickets for the UFC’s return to the UK in October are proving to be a hot seller: Just over a week after Bisping v Chris Leben was announced as the headline fight at UFC 89 at the NIA Birmingham, less than 2,500 tickets remain with more than three months to go before the fight night on October 18. 12
  17. 17. • Cung Le to appear on ESPN July 16 (mmapayout.com). • UFC inks Japan TV deal (mmapayout.com). • UFC International Expansion Notes: The print version of this week’s Wrestling Observer Newsletter had a few tidbits on the UFC’s international expansion plans: Dana White said Lorenzo Fertitta’s main focus has been on making international deals. He said they are on television in the Philippines on a major network station doing big ratings so that’s a target for 2009, as in Australia, Brazil, Germany and Dubai. White said they would be doing grassroots shows in some of these places, which I had the impression means using local fighters and the UFC name and maybe name fighters in the main event, including doing some shows just as live house show events for the market. • Brandweek spotlights Tapout: Brandweek has a piece up detailing the explosive rise of MMA stalwart brand Tapout. If you ask yourself why everyone and their brother seems to be jumping into the MMA apparel market, these historical numbers and future projections for Tapout should shine a little light on it: Sales 2005: $3mil., 2006: $12mil., 2007: $22.5mil., 2008: $100mil. (projected) 2009: $225mil. (projected) JUNE: • Donald Trump announce partnership with Affliction for its first ever MMA promotion. • Affliction partners with major retail chain, Buckle, for its first MMA promotion. • Fight Network partners with Affliction as the official pay-per-view supplier for the US, UK, Canada, and Australia. Elite XC Strong in Sports Ratings Total Program (week of 5/26/08 to 6/1/08) Viewers Rating FOX NASCAR SPRINT DOVER 7,109,000 5 FOX Sun 2:17 PM CBS ELITEXC SAT NT FIGHTS 4,851,000 3 CBS Sat 9:00 PM FOX NASCAR SPRINT PRE-SHOW 4,327,000 2.7 FOX Sun 1:30 PM 4 NBC NHL STANLEY CUP FNL#3 4,041,000 2.4 NBC Wed 8:00 PM 5 FRIDAY NIGHT SMACKDOWN 3,849,000 2.3 CW Fri 8:00 PM Courtesy of Medialife • Sports equipment giant Everlast signs marketing deal with MMA fighting legend Randy Couture. • Affliction “Banned” draws $2,000,000 at gates. MAY: • ESPN plays second edition of MMA news program, “MMA Live”. APRIL: • UFC on Network TV: Dana White says deal is within six months of being signed and FOX is the frontrunner in the deal. • Peter Travers of Rolling Stone magazine gives the second MMA film, Redbelt, a rave review of three out of four stars. • UFC on the cover of Forbes Magazine. Cover Reads: “Ultimate Cash Machine” 13
  18. 18. MARCH: • NBCSports.com officially announced a partnership with Strikeforce to broadcast the first weekly Mixed Martial Arts show on major network television in the US. • First ever MMA Box Office picture grossed $16,824,000 in first two weeks and finished third in box office ratings for first weekend of showing(mmapayout.com). • BET launches new MMA series “Iron Ring” featuring Hip Hop sensation, Ludacris (mmapayout.com). FEBRUARY: • UFC announces three-year partnership with Anheuser-Busch to make Bud Light the new and exclusive beer sponsor of the UFC and WEC brands. • The announcement that CBS will broadcast live Elite XC shows on Saturday nights in prime time is potentially the biggest deal in the history of the sport in North America. • UFC partners with Yahoo! For Internet Pay-per-view. JANUARY: • HDNet announces live high definition telecast of World Extreme Cagefighting: quot;Unfinished Business,quot; premiering on HDNet Friday, January 13 at 9:30 p.m. ET. • UFC and Harley Davidson announces official Sponsorship agreement (mmapayout.com). This is the first major worldwide sports sponsorship for Harley-Davidson outside the motorcycle/automotive category,” said Harley-Davidson Senior Vice President and Chief Marketing Officer Mark-Hans Richer. “We see our brand embodied in these fighters: young, aggressive, hard working individuals who cut against the grain.” • UFC announces interest from Spanish Language Stations: “The latest potential entrants into the MMA sweeps race are reportedly Univision and Telemundo. Univision is rumored to be courting the UFC, with interest in doing live specials, despite the company’s current affiliation with FOX Sports (mmapayout.com)” 2007 • CNBC scored big in the ratings with last week’s special Ultimate Fighting: From Blood Sport to Big Time. The program was the highest rated first airing of a documentary ever on CNBC in the age 25-54 demographic with 221,000 viewers in the demo. It was also the highest rated premiere in total households since July’s documentary Big Mac: Inside the McDonald’s Empire with 320,000 total households. The repeat also did well (mmapayout.com). • MMA Goes Hollywood: Tapout signs with CAA: This week’s Street & Smith’s Sports Business Journal reports, in a front page story, that Creative Artists Agency (CAA), one of the leading Hollywood agencies, recently reached a deal to represent Tapout in areas including licensing and entertainment. Co-President of CAA Sports Howard Nuchow said, “Tapout has done an amazing job becoming the premier lifestyle brand synonymous with MMA.” CAA Sports represents many star athletes and recently signed a deal to represent the New York Yankees (mmapayout.com). • UFC and Spike extend strategic partnership through 2011 (mmapayout.com). • Final attendance numbers for UFC 75 at the O2 Arena in London: 16,235 (13,959 paid) sellout, $2,717,200 gate (mmapayout.com). • UFC pay-per-view up 35% in first quarter (mmapayout.com). 14
  19. 19. C. Trends Gate Revenues The UFC® and their events have grown from 5 live events in 2001, with an average ticket price of $81.45 to 10 events in 2006, with an average ticket price of $273.68. Particularly noteworthy was the ticket price jump of almost $100 between 2005 and 2006 (going from $178.01 in 2005 to the aforementioned $273.68 in 2006). Television Coverage • The annual percentage growth of PPV buys has increased from 47% in 2004 (over 2003) to 189% in 2005 to 352% in 2006. • Gross revenues of PPV events have had annual increases of 47% in 2004, 232% in 2005, and 424% in 2006. • Over 55 hours per month of television programming on US network channels including Fox, FSN, Spike TV, National Geographic Channel and Discovery Channel. • An average growth rate over the past four years of almost 390% in hours of monthly television programming featuring MMA. Television Ratings The number one rated fighting event among men 18-34 yrs. old (including boxing) of 2006 on television was a Spike TV featuring UFC® fighters Ortiz and Shamrock. Three of the top ten fights were MMA fights, with the rest featuring boxing. The Ortiz vs. Shamrock fight was the fourth highest rated among all cable network sporting events in 2006 (the first two were football, the third was college football and the rest of the top ten included the NBA playoffs, the NFL draft, and World Cup Soccer). UFC has continued to expand the number of promotions while maintaining their average pay- per-view numbers per event giving strong indication that the viewership continues to grow at an ever increasing rate. Pay-per-View Buy Promotion Buys Rate 2002 – UFC 40 150,000 $ 29.95 2005 – UFC 52 280,000 $ 34.95 2006 – UFC 57 410,000 $ 39.95 2006 – UFC 60 600,000 $ 39.95 2007 – UFC 66 1,050,000 $ 39.95 2008 – UFC 80 250,000 $ 39.95 2008 – UFC 81 650,000 $ 39.95 2008 – UFC 83 525,000 $ 39.95 2008 – UFC 84 400,000 $ 39.95 2008 – UFC 86 520,000 $ 39.95 2008 – UFN 14 4,460,000 Free 2008 – Elite XC on CBS 6,500,000 Free 2008 – UFC 87 (Aug.'08) 600,000 $ 45.95 15
  20. 20. D. History of MMA The Eternal Unlimited brand is built around a deep appreciation and understanding, of the commitment, discipline and honor that represents the true meaning of Mixed Martial Arts. Mixed Martial Arts is not just a sport, it is a way of life and an expression of oneself. It’s not about Skulls and Death Metal Music, it’s about heart, perseverance, and will. It is about taking your body and mind as far as you possibly can. It is, and always has been, about testing oneself and one’s spirit. The sport of Mixed Martial Arts has come a long way and is now the fastest growing sport in the world. With this in mind, we have attached a deep and detailed history of the sport for your viewing; see “Appendix M – History of MMA” for details. THE PRODUCTS I. Design Influence: A. Eternal Brand Inspiration: (See “Appendix A – Line Sheet (Spring/Summer ’08)” for product photos) Initial Industry and Competitor Analysis: In February of 2007, Sean Taylor and Justin Gill thoroughly investigated the MMA clothing and fashion market. The space was congested with clothing companies offering Death Metal and Rock n’ Roll branding and design emphasis (e.g., skulls, wings, blood, etc.), disrespectful mantras and sayings, boring and drab colors, and, with the exception of a few players, very low quality clothing. A few brands (Affliction and Tapout) were taking advantage of the inadequacies of the competition and were reaping tremendous success and growth in the MMA space. EU clearly saw a place for a conscious, trend setting, hip-hop/urban influenced brand that would both appeal to the fans and fighters of MMA in the short term while providing EU long term opportunities to cross over into other Action Sports spaces if and when the opportunity arose; a brand that you didn’t have to be a “fighter” to wear; a brand that you could be proud to wear in any situation. Customer Feedback: “I feel it does indeed have an Affliction feel to it. Not saying that having that look is bad, but rather it has everything Affliction has except the t-shirts you guys put out truly have an original and artistic look. It is a step up from Affliction in my honest opinion...and it doesn't make you look like every single other guy out there wearing Tapout or Affliction...EU is different :)” 4 . Customer Feedback: “EU is far and away in the upper echelon of MMA apparel; again, for its subtlety and sleekness. I cannot deal with the Tapout, Full Contact Fighter, etc. styles that are cheesy and cliche. I need MMA apparel that doesn't make me look like some goon who has been training for 2 weeks and wants to fight everyone at the bar.” 4 See “Appendix J – Customer Feedback” for details 16
  21. 21. Creating the Brand’s Industry Reputation: Industry reputation was built from the ground up by first creating solid relationship with top tier fighters in Northern California. Without the typical “fight gear” name or standard fight company branding to directly tie us to the sport, developing close relationships with Top Tier fighters was essential. Justin Gill’s relationship and on-going training at Nor-Cal Fighting Alliance has provided EU with lucrative relationships built through the network of Cesar Gracie fighters throughout Northern California. EU has developed training videos, fighter interviews and photo shoots at a nominal cost resulting in substantial marketing collateral directed at the hardcore MMA customer through multi-media advertising and branding. Customer Feedback: “I have received comments on my shirts. What I like the most about the comments was that people didn't really outwardly know that EU represents MMA apparel. The EU designs are sleek and subtle, not over-the-top repping MMA. My friends have asked if it was a skate line or hip-hop line, and were impressed when I told them that EU was MMA related. I 100% HATE MMA apparel that is cliché’ and 'in ya face' about what the clothing line represents.” B. Research and Development: Our current line of heavyweight and slim-fit tees and zip-up hoodies has received outstanding feedback from our customers and retailers 5 . To date twelve of our eighteen piece t-shirt and hoodie line have consistently sold at both the wholesale and the retail levels. EU’s Research and development to identify new product offerings includes the following: Fashion Trend Analysis: EU’s design strategies include constant research into current street wear, surf and skate design trends. Identifying emerging design trends in these spaces allows EU to stay significantly ahead of the MMA design curve. We have seen that MMA design themes run 12-18 months behind the more established Action Sports and high fashion categories. It is clear that a majority of MMA clothing consumers are not trend setters but trend followers. Gathering Detailed Customer Feedback: What better way to determine what your customers want then to ask them! In preparation for design and development of our fall/holiday line we solicited feedback from 200 customers and 50 industry vendors and retailers. We received a 15% feedback response on our feedback requests totaling 8+ pages of detailed feedback 6 . Customer surveys are carefully designed and requests for feedback are carefully worded to ensure that EU receives hard nosed objective feedback. We then take the feedback and look for trending of responses to help us determine what customers want and need. 5 See “Appendix J – Customer Feedback” for details. 6 Ibid. 17
  22. 22. II. Materials and Production: EU has differentiated itself from a majority of MMA clothing companies on its material and production qualities. Water base and discharge inks: Use of these specialty inks, which are both more expensive to use and more difficult to apply, result in a finished garment that has a much softer feel and hand then the standard garments offered by our competitors. Unlike standard plastisol inks, water base and discharge inks are applied into the fabric of the garment rather than on top of the garment. This results in a much softer feel to the garment and elimination of cracking and fading of the ink that occurs on most plastisol printed garments. Customer Feedback – I have bought Tapout and Outcold clothing, the logos on both started to crack and look old after a few washes. I haven’t seen that with eternal yet. High Quality Blanks: EU has spent significant time researching the marketplace for the best quality garments available at a manageable price point. Customer Feedback - I couldn't be happier with my shirts. Considering the price when compared to other MMA clothing companies like Affliction, the quality far exceeded my expectations. III. Future Development Plans Extensive feedback collected from our wholesale and retail customers has defined clear product development and merchandizing strategies for our fall/holiday line 7 . • Wholesale customers express strong belief in our brand and are overwhelmingly requesting a greater selection of product including additional shirts and hoodies, caps, thermals and introductory offering of women’s shirts and hoodies. Expanding our product selection will solidify our brands reputation as a legitimate “clothing company” and further differentiate us from the limited offerings of our competitors. • The 18-35 year old MMA demographic is hungry for, and willing to pay for, a greater variety of quality clothing from EU. Increasing design sophistication, quality of garments and variety of colors will allow EU to push shirt price points to $29.95 for slim-fit tees and $39.95 to $49.95 for a new high fashion line of Couture tees without crossing into price sensitivity barriers of our wholesale and retail customers. • Extensive customer and retailer feedback on initial design concepts for fall/holiday 2008 demonstrated a lack of appetite for full street wear designs and colorways. In pushing the envelope to include more current street wear designs the feedback reinforced that the MMA demographic is simply not ready or willing to wear trend setting street wear designs. Subsequent re-working of the line concepts to include subtle street wear influences from “best seller” street wear clothing, currently available in high fashion lifestyle and urban 7 See “Appendix J – Customer Feedback” for detailed feedback and survey methodology 18
  23. 23. apparel stores, has resulted in tremendous response from a large % of customers and retailers sampled. The re-working of our line concepts confirms that the MMA demographic is at least one or two seasons behind both the street wear and high fashion world. (See “Appendix B – Design Concepts (Fall/Holiday ’08)” for rough sketches of new product offerings and line expansion concepts) MARKET ANALYSIS I. Target Market A. Wholesale Customer Profile: Eternal Unlimited has identified 80 retailers that represent 4,955 storefronts. These potential wholesale customers have been segmented into the following sub-groups: % of # of # of Price per Units per Total Sales Customer Type Customers Stores Unit Year Sales Pipeline MMA Retailers - Domestic 39 54 $ 12.50 64,965 $ 771,459 1.3% MMA Distributors - International 3 175 $ 10.00 128,100 $ 1,216,950 2.0% Lifestyle Retailers - Brick & Mortar 10 1952 $ 10.00 2,857,728 $ 27,148,416 45.3% Lifestyle Retailer - Internet 23 23 $ 10.00 25,986 $ 246,867 0.4% General Sport Stores 5 2751 $ 8.00 4,027,464 $ 30,608,726 51.0% Total Wholesale Target Market 80 4955 N/ A 7,104,243 $ 59,992,419 100.0% (See “Appendix E – Customer Segmentation & Sales Pipeline” for list of individual customers) Over 85% of the 4955 stores noted above are already carrying MMA clothing brands and the list of stores is growing quickly. The “Tipping Point”, or point at which MMA crosses over from being an underground “extreme sport” to a nationally recognized Action Sport industry is upon us. Buyers from Lifestyle, General Sport Store and Major Department Store chains now recognize MMA as a legitimate Action Sport lifestyle and culture that can be sold to the lucrative 18-35 yr. old demographic. The customer base above is hierarchically organized from the most easily accessible (top) to moderately accessible (bottom). The customer base above is considered EU’s most targeted sales pipeline opportunities. The highest priority target market of MMA retailers offers EU a potential sales volume of approximately $2 million dollars per year. With the addition of Lifestyle Retailers and General Sport Store chains now actively purchasing MMA clothing, the immediate sales pipeline is conservatively set at $59 million. Large Department Stores: In addition to the sales pipeline defined above, EU has identified the following large department stores as long-term potential sales opportunities as these stores are currently carrying MMA brands and offer EU substantial sales volume opportunity. However, EU has strategically chosen not to include these customers within the target market and sales pipeline strategies. Nordstrom’s Macy’s Sports Authority Gottschalks Dillard’s 19
  24. 24. Lengthy discussions with apparel accountants, attorneys, lenders, product vendors and competitors has confirmed that this group of retailers pay slowly, require LARGE chargeback concessions and pay the lowest price/unit of all potential customers. Relationship with large department stores can be negotiated but EU will only strategically focus on penetrating this customer base if the right price/point and payment/term concessions are made. B. Retail Customer Profile: The retail customer profile is summarized in the following data: Demographics 1: Lifestyle Insights: Age: 18-34 Plan to Buy a Truck/SUV in Next 3 Yrs.: 26% Male 94.99% Plan to Purchase MP3 Player in Next 12 Months: 41% Female 5.01% Plan to Purchase an HDTV in Next 12 Months: 21% College: 48% Purchased Products in the Last 12 Months: 91% College Grad: 42% Attended Sporting Event in the Last 12 Months: 81% Yrly Income: $25k - $49k 18% Eat out Three Times or More a Week: 41% $50k - $99k 62% Drink Beer: 52% $100k + 22% Drink Soft Drinks: 32% 20
  25. 25. II. Market Size & Growth Potential A. Market Size: Although there are no official sources to measure the exact size of the MMA clothing market, EU has estimated the MMA clothing market to be approximately $600 million and growing quickly. Market size was loosely extrapolated from publicly available data on past, present and projected sales volume of Tapout and Affliction across the every increasing number of MMA retailers, Lifestyle Retailers and General Sport Stores. This data was combined with retailer feedback on Tapout and Affliction sales volumes relative to overall MMA clothing sold. Competitor Sales Data: The figures below represent publically available data on the MMA industry’s largest clothing companies Tapout and Affliction: Tapout Sales: Affliction Sales: 2005: $3 million 2005: N/A 2006: $12 million 2006: $7 million (see source article). 2007: $22.5 million 2007: $50 million 2008: $100 million (projected) 2008: $150 million (projected) 2009: $225 million (projected) 2009: $240 million (projected) (Source: Brandweek, July ’08) (Source:Orange County BJ, June 2008). B. Growth Potential: With direct competitors such as Tapout, Affliction, Throwdown, Premier Fighter, One More Round and Xtreme Couture now penetrating the nation’s largest Lifestyle Retailers and General Sport Store chains (see chart below), new distribution opportunities are opening up daily. S p o rt s A u t ho rity P a c if ic S u nw e a H ib b e tt S p o rts S po rt C ha le t N o rd s tr o m s M e te ro p a rk F in is h Line F o o tlo c k e r S p e n c er s C h a m ps N o F ea r D illa rd s Z u m ie z M a c y 's B u c k le T illy 's Total Company Stores Eternal Unlimited Coming Soon …….. 0 Affliction 1 1 1 1 1 1 6 Tapout 1 1 1 1 1 1 1 1 8 Warrior Wear 1 1 2 One More Round 1 1 2 Premier Fighter 1 1 Xtreme Couture 1 1 1 1 1 1 6 The rapid penetration of MMA clothing brands into new non-MMA retailers, noted above, combined with Tapout’s and Affliction’s projected doubling of sales revenue for 2009, clearly demonstrates the potential for the market to double in size over the next 2 years. . Long term industry growth potential is equally exciting. International promotions in Canada, UK, Japan and Russia are spurring similar consumer demand for MMA clothing and products. 21
  26. 26. A. Market Share: Eternal Unlimited has annual market share Market Share Penetration penetration goals as shown to right. Consultation Total Market Size = $600,000,000 with top industry accountants and like apparel % manufacturers confirms that 3%+ market share Projected Market penetration within a 3-5 year period is common for Sales Volume Share performing brands. EU’s conservative projection to Dec. 2008 $ 502,476 0.08% achieve 2% market share within a 5 year period may Dec. 2009 $ 2,125,860 0.35% provide the investor with substantial upside ROI. Mar. 2010 $ 2,705,640 0.45% Dec. 2010 $ 4,444,980 0.74% It should also be noted that the market share Dec. 2011 $ 6,764,100 1.13% penetration projections to right do not account for Dec. 2012 $ 10,000,000 1.67% Dec. 2013 $ 12,000,000 2.00% growth in the size of the MMA clothing market. Current Yr-2-Yr. growth trends of EU’s biggest = Break Even Sales Volume competitors clearly indicate that the size of the market Projected Sales Volume = Projected sales in the month could easily double within the next 24-36 months. of December of each year multiplied times 12 to The growth of the market size should substantially extrapolate a quot;currentquot; value for both Market Share reduce EU’s requirements to achieve projected Penetration and Sales Pipeline Penetration. This is a middle ground between LTM and forward projecting market share penetration goals. valuation methodologies. III. Marketing Strategy A. Pricing The pricing of EU’s Spring/Summer t-shirt and hoodie collection (shown below) is positioned at the center of the pricing spectrum for MMA product offered by industry competitors. Strong wholesale and retail customer feedback and analysis of sales to date indicate that the specialty tee designs, shirt blanks and fashionable styles are in highest demand. With this in mind a moderate upward push in quality and pricing is warranted to further differentiate us from the competition, provide product that both customers and retailers are requesting and provide greater access to the Lifestyle Retail chains looking for more fashionable product offerings. Eternal Classic Tees Standard Fit Eternal Specialty Tees Slim Fit 5.5 oz Pre-Shrunk 100% Super Soft Ringspun Cotton 4.3 oz Pre-Shrunk 100% Quality Ringspun Jersey Cotton Style Unit Suggested Style Unit Suggested Number Description Price Retail Number Description Price Retail 11002 Attack $ 11.50 $ 22.95 11001 All Seeing $ 13.50 $ 26.95 11003 Can't Stop $ 11.50 $ 22.95 11005 Crown $ 13.50 $ 26.95 11004 Classic $ 11.50 $ 22.95 11007 Forever $ 13.50 $ 26.95 11006 Cursive $ 11.50 $ 22.95 11009 King $ 13.50 $ 26.95 11008 Golden $ 11.50 $ 22.95 11012 Reaper $ 13.50 $ 26.95 11010 Lion $ 11.50 $ 22.95 11013 Tree $ 13.50 $ 26.95 11011 Medusa $ 11.50 $ 22.95 11015 We Are $ 13.50 $ 26.95 11014 Uptown $ 11.50 $ 22.95 11016 Wings $ 13.50 $ 26.95 11017 Burst $ 11.50 $ 22.95 11018 Swords $ 11.50 $ 22.95 Eternal Hoodies Zip-Up Pre-laundered, 40 singles 80/20 cotton/poly blend fleece (See “Appendix C - Pricing Sheet Q3 ’08” for details) Style Unit Suggested Number Description Price Retail 12016 Wings $ 28.00 $48 - $54 22
  27. 27. B. Profit By Product: EU’s Manufacturing License agreement with Prographics, Inc ensures that all products sold will result in a 40% gross profit margin for EU 8 . Product mix, pricing and percentage of projected sales by product type, for both wholesale and retail merchandise, are shown below 9 . Product Wholesale % of Retail % of Product Costs & Pricing (averages) Costs Pricing Sales Pricing Sales Short Sleeve Shirts - Heavyweight = N/A $ 10.00 35% $ 22.95 35% Short Sleeve Shirts - Slim Fit /Couture = N/A $ 12.00 55% $ 26.95 55% Hoodies - Zip Up = N/A $ 22.00 5% $ 48.95 5% Hoodies - Pull Over = N/A $ 20.00 3% $ 44.95 3% Thermal = N/A $ 22.00 1% $ 49.95 1% Caps = N/A $ 10.00 1% $ 24.95 1% Gross = $ 12.12 Gross = $ 27.40 % of Total Sales Wholesale = 95% Retail = 5% C. Sales and Distribution The Managing Member’s at EU are particularly adept at sales. EU has spent considerable time researching sale opportunities in the pursuit of developing a comprehensive sales pipeline. Below is a summary of the Sales Pipeline to date, hierarchically ordered from most accessible and lucrative at top, to moderately accessable and least lucrative at bottom. Over 85% of the 4955 stores noted below are already carrying comparable MMA clothing brands. (See “Appendix E – Customer Segmentation & Sales Pipeline” for sales pipeline details). % of Sales Total # of # of Price per Total Sales Comm. Sales Customer Type Customers Stores Unit Sales Pipeline % Commission MMA Retailers - Domestic 39 54 $ 12.50 $ 771,459 1.3% 0% $ - MMA Distributors - International 3 175 $ 10.00 $ 1,216,950 2.0% 0% $ - Lifestyle Retailers - Brick & Mortar 10 1952 $ 10.00 $ 27,148,416 45.3% 10% $ 2,714,842 Lifestyle Retailer - Internet 23 23 $ 10.00 $ 246,867 0.4% 0% $ - General Sport Stores 5 2751 $ 8.00 $ 30,608,726 51.0% 10% $ 3,060,873 Total Wholesale Target Market 80 4955 N/A $ 59,992,419 100.0% 9.6% $ 5,775,714 MMA Market and Lifestyle Store Internet Retailers (highlighted yellow above): Sales to date have been performed in-house by Managing Member Justin Gill who will continue to head up sales and account management for the MMA Retailers and the Lifestyle Retailers (Internet) for the remainder of 2008 and 2009. MMA Distributors – International: International retailer sales and account management will be handled by our distributors. Distributors have been picked who represent a select number of top MMA and Action Sports brands. Our distributors have an industry wide reputation for building brands through marketing investment and quality placement in stores that match brands intended reputation and quality. 8 See “Appendix I – Manufacturing License Agreement” for details 9 See Financials “BE and Cash Flow Analysis” for details on product mix assumptions and projected sales 23
  28. 28. Lifestyle Retailers - Brick and Mortar Retailers and General Sport Store Chains: Effective and timely penetration into this customer group will require EU to hire sales representation who have existing retailer relationships. EU is currently in conversation with several sales organizations that are representing our largest competitors (Tapout, Throwdown, Sinister and Warrior Wear) to represent EU. Proper selection of sales representation should provide EU near term access to the Specialty store retailers with possible expansion into the General Sport Store retail chains in late 2010/early 2011. Sales Pipeline Penetration 10 : EU’s operational goals of achieving Break Even cash flow by March 2010 and reaching $6 million dollars in sales by August 2011 can best be measured in relation to parallel sale pipeline penetration. As shown in the chart below, EU only needs to capture 4.3% of its sales pipeline to reach BE cash flow and 10% of its sales pipeline to reach $6 million in sales volume. Sales Pipeline Penetration Total Sales Pipeline = $59,992,419 % Sales Pipeline Penetration Dec. 2008 $ 502,476 0.84% Dec. 2009 $ 2,125,860 3.54% Mar. 2010 $ 2,705,640 4.51% Dec. 2010 $ 4,444,980 7.41% Dec. 2011 $ 6,764,100 11.27% Dec. 2012 $ 10,000,000 16.67% Dec. 2013 $ 12,000,000 20.00% = Break Even Sales Volume D. Advertising and Promotion: Advertising to Date: In the first two quarters of operation EU has been promoting the brand through a number of MMA industry advertising mediums 11 . These mediums include: Print Publications: EU has contracted full page advertising in the top three MMA industry publications. FIGHT! Tapout Ultimate Grappling Internet Advertising: Online advertising and Cross Promotion has been the staple of EU’s advertising and marketing budget to date. We have built the EU brand directly to the hardcore MMA 10 See “Appendix L – MMA Clothing Market and Sales Pipeline Penetration” for details. 11 See Financial “Advertising Budget” for detail of marketing expenditures and month-by-month marketing calendar. 24
  29. 29. audience through the major news, information and event websites and search engines that attract over 5 million unique viewers per month. Some of these sites include: Industry Advertising: Internet Cross-Promotion: Search Engine Marketing: MMAweekly.com MMAroot.com Google Adwords MMAnews.com TapoutMagazine.com Google organic SEO IFL.tv TheMMADigest.com Yahoo Adwords MMAweekly.com Video Production: Technique of the Week Series Advertising (Post Investment): EU has recently begun to implement advertising in the following mediums and venues. Additional capital is required to continue and enhance these efforts. Viral Marketing: • Myspace Marketing • Eternal Blog • YouTube Marketing Tradeshows and Events: • Impressions: Long Beach • IMMAE: Long Beach • Magic (Project): Las Vegas • SENI: London,UK • ASR (Virtue): San Diego Product Placement Fighter Sponsorship: Eternal Unlimited has recently engaged in product placement investment across all of the major televised MMA fight promotions. These include: Elite XC UFC UFC Fight Night WEC Affliction Cage Combat (See “Appendix K – Product Placement Schedule” for list of current and projected product placement opportunities) Music/Band Sponsorship: Furthermore, EU is preparing to sign a product placement contract with ADD Marketing out of Los Angeles, CA. This firm will represent EU in developing long-term product placement relationships with some of the hottest bands/music groups in the Hip-Hop and Rock scene includig MTV phenomenon Schwayze, N.E.R.D., Greenday, Linkin Park, Wu-Tang Clan, and many more. ADD marketing has worked successfully with other brands such as Osiris, Airwalk, and Smith Optics. Focusing marketing and branding resources on band/music group product placement will provide us greater leverage when approaching the Lifestyle Retailers who make up over 45% of our potential sales pipeline. 25
  30. 30. E. Industry Reputation: Building EU’s Foundation: From the very start, we have been very strategic about the fighters who represent our brand as well as, how we as owners, represent ourselves to the MMA industry participants. It was EU’s intention to establish roots with the hardcore fan prior to heavily marketing the brand to the mass market. Justin Gill has been training in a variety of martial and mixed martial art disciplines since he was 10 years old. His experience as a fighter, combined with his on-going Brazilian Jiu-Jitsu training at the much revered Cesar Gracie affiliate NorCal Fighting Alliance, allowed EU to develop rock solid relationships with some of the most respected and revered fighters in the industry; fighters such as Jake Shields, Gilbert Melendez, Nick and Nate Diaz and Dave Terrell. EU then leveraged these connections into brand building efforts. Prior to EU’s launch on February 15th of this year, EU worked closely with the Cesar Gracie Fighters to develop a comprehensive gallery of images and video that was then used for its multi-media advertising and promotion which was distributed over the internet and into print publications to build brand awareness to the hardcore MMA fan. Brand Expansion: Now that EU has secured its reputation with the hardcore MMA fan, it is time to expand the brand’s message to the general MMA audience and beyond. EU has recently embarked on fighter sponsorship to extend the brand message to the general MMA fan via the major televised fight promotions. Our fighter sponsorship base now includes top tier MMA athletes such as Joe Stevenson, Hermes Franca, Mike Whitehead, Antonio Silva, Micah Miller, Demacio Page, and many more. This expansion of our sponsored fighters will allow us to appeal to a greater range of fans as well as build relationships with additional fighters and fight camps across the nation. (See “Appendix F – Sponsored Fighters” for sponsorship details and “Appendix K – Product Placement Schedule” to see previous and upcoming sponsorship opportunities) EU has established itself as a reputable company to work with on the sponsorship level as well as on the brand/manufacturer level. We operate with greater efficiency and integrity than most MMA sponsors. We have been told by many of our retailers that to work with an organization that has strong business and organizational skills is very rare in the MMA space. This dynamic of business knowledge equally paired with knowledge of the sport and fashion of MMA, has proven to be successful and unique in a space filled with companies who only possess one, if any, of these skill sets. 26

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