Professional Documents
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Business Plan
Momentex LLC
Executive Summary
Imagine ... you have been driving along a toll road, and you are thirsty. As you approach a service area,
you consider stopping for a beverage. However, when you think about the time getting off the highway will
add to your trip, you decide to forego the 10-minute detour and to continue driving, thirst unquenched.
sm
... As you pay your toll, you notice that you have the option of using the Gulp & Go service to purchase
a cool beverage, pay for the drink and the toll at the same time, and have it dispensed to you right at the
tollbooth. You have your money in your hand, and the drinks look refreshing. Just think .. would you buy?
Momentex has identified a significant market opportunity and developed a new service designed to
capture this market as the first mover. The market has a huge global potential... even with only 10 percent
of U.S. toll road users purchasing a beverage, annual revenue opportunities are over $600 million.
sm
Gulp & Go , a Momentex service, provides automated beverage ordering, billing and delivery at
tollbooths and other locations where a driver is already engaged in a monetary transaction. This high-tech
beverage distribution system adapts existing technologies to meet the needs (convenience, speed,
safety, capacity, and software interface) of toll road operators and drivers.
Momentex oversees the driver-interface retailing operations while outsourcing some functions, such as
dispenser refilling. Momentex provides public relations and marketing services to facilitate adoption of
Gulp & Go and to increase usage rates, comprehensive customer service, which creates a feedback loop
to ensure continual usage, and systems integration, to design the service process. The chart below
summarizes the Gulp & Go service package.
(1) Momentex develops and manages the tollbooth beverage system, working with toll road operators and
systems integrators
(2) Momentex contracts with a wireless data service for remote audit and inventory control
(3) Momentex analyzes data received via the internet and relays information for beverage management
(4) Momentex supervises the out-sourced beverage management process
Market Potential. In a more conservative estimate, based on a purchase rate of 2%, a beverage can
price of $1.25, and the 4.25 billion annual U.S. toll transactions, annual revenue is estimated at $128
1
million .
Purchase rate per tollbooth with Gulp & Go service
Service availability
Annual Revenue Potential ($MM)
% of total tollbooths
40% $128 $255 $510 $765 $1,020
30%
$765
20%
$510
10%
$32
$255
5%
$16
$32
$64
$96
$128
5%
10%
20%
30%
40%
Momentex LLC
Business Plan
Gulp & Go Potential. In addition to the share of the U.S. market Momentex captures as a first mover,
there is significant international expansion potential as well as additional revenue opportunities from
advertising on the dispensers and exclusive contracts with beverage companies that can garner "rightsfees." Momentex also anticipates that its proprietary distribution system will provide a platform for other
driver-interface retailing opportunities, such as at the gas pump or parking garage.
Profitability and Attractive Cash Flow. With attractive gross margins and significant volume, Momentex
will ensure high profitability by minimizing operating costs through outsourcing non-core activities. As toll
roads operate continuously and provide a constant flow of drivers, Momentex anticipates that its Gulp &
Go business model will provide consistent and high cash flows. Momentex anticipates annual revenue
growth of 342% (6-year CAGR) and an EBITDA after year 6 of $39.3 million.
Income Statement
1999
2000
2001
2002
2003
2004
3,095,518 26,909,900
69,860,379
77,491,282
85,517,164
Revenues
Beverage Sales
Commissions and Sales Tax
Total Revenues
50,465
(11,102)
39,363
54,491,095
60,443,200
66,703,388
Expenses
Raw Materials
Operating Expenses
12,112
742,924
6,458,376
16,300,755
18,081,299
19,954,005
374,939
4,534,601
8,939,114
9,297,322
8,041,672
8,417,283
400,000
400,000
400,000
400,000
400,000
5,677,526 15,797,490
25,998,078
26,522,971
28,771,288
28,493,018
33,920,229
37,932,100
469,500
Total Expenses
854,051
Operating Profit
Taxes
Net Profit
(814,688) (3,263,022)
276,994
5,192,231
1,109,427 (1,765,359)
(537,694) (2,153,594)
3,426,873
22,387,351
25,035,186
Trends. Momentex has designed its Gulp & Go service to capitalize upon three key trends: (1) drivers are
increasingly willing to utilize services that provide higher levels of convenience; (2) as toll road operators
become more profit-minded and less bureaucratic, they are searching for new business opportunities that
will both boost their profits and enhance customer satisfaction; and (3) intense competition amongst
beverage companies has led these companies to place an increasing importance on impulse (singleserving) distribution channels.
Value to Customers. Gulp & Go is attractive to drivers, toll road operators, and beverage companies.
Drivers value Gulp & Go's convenience and time-saving attributes. Gulp & Go enables toll road operators
to increase profitability and customer satisfaction. Momentex expects beverage companies to welcome
the opportunity to increase sales and to gain access to customers without having to develop in-house
knowledge of toll systems.
Venture Strategy. Momentex will first secure a demonstration site at a smaller toll road and then roll out
Gulp & Go service on commercially attractive tollbooth locations throughout the United States. In the
medium term, Momentex will expand its services by developing other Gulp &Go platforms and extend its
product range beyond beverages. Momentex's long-term objectives are to develop additional driverinterface retailing opportunities by anticipating the advent of various wireless technologies.
Management Team. The Momentex team consists of professionals with experience in financial advisory,
strategy, business development, service process management, and transportation industries.
Momentex LLC
Business Plan
Melissa Chadwick -- As President and CFO, Ms. Chadwick focuses on business development, financing
and marketing. She has several years of corporate finance and financial advisory experience and an MBA
from The Wharton School.
Zafar Khan - As Chief Executive Officer, Mr. Khan focuses on business development and operations. He
has several years of strategy, public affairs and industry experience and an MBA from The Wharton
School.
David Smith - As Director of Operations, Mr. Smith is actively engaged in developing prototype hardware
and optimizing the service process. He has several years of strategy and process management
experience and will graduate in 1999 with an MBA from The Wharton School.
Paul Glaab - As Director of Channel Development, Mr. Glaab will be responsible for developing political
strategy and gaining footholds within toll agencies. He has 30 years of experience working in channel
development and government affairs for the California DOT, a California toll road agency, and the
international toll road association (IBTTA). (Contract under negotiation.)
In addition, Momentex has established a network of experts who advise in areas such as (1) automated
product delivery, (2) system development and integration, (3) entrepreneurship, (5) traffic modeling, and
(6) toll industry dynamics.
Funding Needs. Momentex has begun preliminary negotiations for a demonstration site with two private
toll roads, the Dulles Greenway (located in Virginia) and Transportation Corridor Agencies (located in
California). To secure approval for a demonstration site, Momentex anticipates that a physical
demonstration of prototype hardware will be necessary and seeks capital to fund the research and
development expenses associated with the prototype and ensuing pilot operation.
Required Investment and Use of Capital. Momentex seeks a commitment of $2 million to fund
prototype hardware and software development, system integration, educational marketing, operating
expenses, and legal fees for a demonstration site and pilot operation. This investment would position the
Company to roll out operations to the major toll roads.
Exit Strategy. Momentex plans to grow the business until it is well received by public markets, then use
an IPO as an exit. A second exit opportunity is through strategic buyers such as beverage or toll service
companies.
Headquarters. 34 Lee Street, Cambridge, MA 02139. Telephone: 877.868.4857.
Gulp & Go
sm
Highlights
Huge, untapped market - - 4.25 billion potential purchase opportunities in the United States
High gross margin, high volume
Scaleable operations - - nationally, internationally
High, predictable cash flows - - revenue potential of $600 million at 10% hit rate
Additional revenue streams from advertising and "rights fees"
IPOable business based on comparable public companies
Momentex LLC
Business Plan
High exit potential - - value multiples will "leap" after Momentex achieves operational milestones
(securing contracts, proof of concept, beginning operations).
High visibility and exposure to target customers 24-hours/day, 7-days per week
Captive customer base
Low cost method of creating brand recognition - - Momentex is essentially buying access to
customers from toll roads by giving the roads a percentage of revenues. Momentex's proposed
commission structure is based on amount of purchases, rather than on total driver exposure.
Uses of Capital
Company Overview
Introduction
Momentex LLC was founded to exploit retailing opportunities by creating new distribution channels that
enable the sale of beverage, snack and entertainment items to a previously under-served audience:
automobile drivers.
sm
Momentex is a marketing and service company that strives to provide Ultimate Convenience for drivers.
Momentex accomplishes this goal by understanding customer needs, identifying and creating new
convenience oriented distribution channels, and thus, advancing the evolution of driver services. The first
channel that Momentex has developed for driver-interface retailing is at tollbooths, under the service mark
"Gulp & Go."
Momentex LLC
Business Plan
SM
Gulp & Go. Momentex's cornerstone service, Gulp & Go , enables drivers to purchase canned
beverages at locations where the driver is already engaged in a monetary transaction, such as paying a
toll. Momentex anticipates Gulp & Go will provide a basic platform for driver-interface retailing and
significant additional opportunities will stem from this business model.
Investment Benefits. The Gulp & Go business will provide significant value appreciation to shareholders.
Strategy and Objectives. Momentex strives to be first-to-market with its core Gulp & Go service, control
the point-of-sale retailing space at the tollbooth, and leverage existing relationships to facilitate a national
service roll out. In the short term, Momentex will roll out Gulp & Go service on commercially attractive toll
road locations throughout the United States. In the medium term, Momentex will expand its service range
by developing other platforms for its Gulp & Go service, such as at the gas pump and parking garage. In
addition, Momentex will look to further develop its relationship with beverage suppliers and extend its
product range beyond beverages. Momentex's long-term objectives are to develop additional driverinterface retailing opportunities by anticipating the advent of innovative wireless technologies.
Origin and History
The Gulp & Go concept was conceived by Zafar Khan, CEO, in 1996 while driving from Washington, D.C.
to Philadelphia, rushed to make a 9:00 a.m. class at The Wharton School. Hungry and thirsty, with no
time to stop for a refreshment, Khan pulled into a toll plaza on Route 95. While stopped at the tollbooth to
pay the toll, wallet in hand, Khan thought, "wouldn't it be great if I could get my refreshments right here ...
with no time delay."
After describing the scenario to classmates and friends familiar with road trips in the Northeast, each
seemed to remark, "if Gulp & Go was there, sure, I would use it every time!" People spoke of impulse
buying, purchasing out of boredom, planning ahead to buy at the tollbooth... "it would definitely get me at
2
least once ... possibly many times in one trip." Khan was convinced that there was a segment of drivers
who would value such a service ... but would the toll roads accept such an innovation?
Wharton classmates Zafar Khan and Melissa Chadwick wanted to test the bureaucratic reputation of the
senior executives at the major toll roads. To accomplish this, they decided to set out on a month-long,
5,000 mile "road show," from Massachusetts to Florida and as far west as Iowa ... with one key prop, a
hand-made, cardboard and balsa wood model, depicting Gulp & Go service at a toll plaza.
The response was energizing..."I really like the concept. It is so clear, yet no one has ever considered it ...
I can imagine in the future that it will be everywhere and no one will think twice about using it," exclaimed
Bill Thorp, Director of Finance at the Florida Turnpike. "It's a 'no brainer' - high volume potential ... and it
could integrate right into our electronic toll system," Leonard Fornier, a Director at the Massachusetts
Turnpike claimed after walking through a toll plaza envisioning Gulp & Go in place. Khan and Chadwick
could see the demand by drivers and acceptance by the toll roads ... but was it possible to build it?
By year-end 1998, they determined that Gulp & Go service could be successfully installed at the tollbooth
and had incorporated the Company, refined operations, automated the service process, developed
hardware designs, and protected key intellectual property. Currently, the team is working with David
Smith, an MBA at Wharton, to revise the business plan for funding opportunities, prepare operations for
Momentex LLC
Business Plan
pilot programs, and prepare for alliance negotiations. To date, Chadwick and Khan have self-funded the
business.
Current Status
Momentex is developing a working prototype and seeks capital to fund the research and development
expenses associated with the prototype and pilot operation. Momentex LLC has filed in the state of
Massachusetts as a limited liability corporation (LLC) and its fiscal year is based upon the calendar year.
Headquarters are located at 34 Lee Street, Cambridge, MA 02139 (877-868-4857).
2 Focus Group, Wharton Graduates, 1998
Service Description
Imagine ... you have been driving along a toll road, and you are thirsty, As you approach a serve area,
you consider stopping for a beverage. However, when you think about the time getting off the highway will
add to your trip, you decide to forego the 10-minute detour and to continue driving, thirst unquenched.
sm
... As you pay your toll, you notice that you have the option of using the Gulp & Go service to
purchase a cool beverage, pay for the drink and the toll at the same time, and have it dispensed to you
right at the tollbooth, You have your money in your hand, and the drinks look refreshing. Just think ...
would you buy?
Features
Momentex brings Gulp & Go service to drivers and toll road operators by providing expertise in business
activities that are key for successful implementation, while outsourcing non-critical functions that are not
core competencies. Momentex believes that it currently possesses or can develop the six core
competencies critical to its success.
Key Business Activities
Understand drivers' needs & design services to meet criteria needs
Secure exclusive right to sell on location and manage suppliers and delivery methods
Oversee development and implementation of automated services driver needs & trends
Oversee integration into electronic and traditional payment systems management, marketing & branding
Optimize traffic flow through service design and computer simulation
Supervise systems maintenance and beverage management
Design programs to educate drivers and institutionalize service
Market service to time-sensitive drivers to increase purchase rates
Train and motivate site staff who interface with the system
Core Competencies
Identifying emerging driver/customer
Pinpointing new distribution channels
Designing services to capitalize upon
Creating value through data
Designing optimal systems integration
Negotiating and structuring alliances
Service Description
Momentex LLC
Business Plan
Momentex's Gulp & Go service provides driver convenience by enabling drivers to purchase and
immediately receive items, through an automated process, at locations where they are already required to
stop - tollbooths.
Service Locations. Momentex targets full service toll plazas within the 35 states that operate toll roads.
Momentex uses traffic simulation models and driver data to select the best-suited plazas based on
demographics, plaza volume, and traffic congestion.
Product Offering. Momentex will offer canned beverages. As a simple decision process is important to
avoid disruptions in traffic flow, three to five beverage selections will be available and will include a cola
and a diet cola.
Product Price. Market research indicates that drivers are willing to pay a premium for the convenience of
Gulp & Go. Momentex anticipates at least a 25-90% price premium over the customary convenience
store beverage price (an $0.80 can of soda could sell for $1.00 to $1.50).
Beverage Ordering. Drivers select their beverages at the toll collector's booth through an ergonomicallydesigned, user-friendly ordering interface.
Payment. Payment occurs at the same time as drivers pay their tolls. Momentex has developed the
service to incorporate electronic toll collection (ETC) systems, thereby providing for not only cash
payment to the toll collector, but also electronic payment via ETC transponder.
Beverage Delivery. Drivers attain their ordered beverages at a Gulp & Go dispenser which is located two
car lengths past the tollbooth. Momentex has designed the beverage dispenser with a specialized
delivery arm to facilitate quick retrieval and accommodate multiple beverages.
Current Stage of Development
Momentex has patented the product delivery mechanism and service process, developed the execution
plan and software integration, and has begun preliminary negotiations for a demonstration site with two
private toll roads, the Dulles Greenway (located in Virginia) and Transportation Corridor Agencies
(located in California). To secure approval for a demonstration site, Momentex is conducting additional
market research and refining operations.
On-going Concept Testing. The Momentex team has conducted focus groups, surveys, and extensive
interviews, questioning stakeholders at all levels within all industry sectors related to their business. The
following table identifies the breadth of discussions that influenced such areas as machine and process
design, business model structure, negotiation planning, marketing strategy, profitability assessment, and
feasibility. Generally, several levels and rounds of interviews and face-to-face meetings were held with
each of the following groups.
Research Interviews and Concept Testing
Toll Road
Operations
Academics/Political
Beverage/Dist.
Intelligent
Transport.
Transp. Corridor
(CA)
Versatile Control
Systems
Wharton Faculty
Coca Cola
Texas Instruments
Dulles Greenway
Technique Applied
Sciences
MIT Faculty
Pepsi
MA Driver
Interviews (30)
Intelligent Transp. of
Am
MA Turnpike
Ergonomics Consultant
Wharton SBDC
Virgin Cola
CA Driver Interviews
Wayne-Dresser
(15)
Orlando-Orange
TransCore
MA Speaker
Cadbury
Momentex LLC
Business Plan
Gnty
FL Turnpike
(50)
TRMI
MA House
Starbucks
NH Turnpike
MA Senate
Wittern Group
NJ Turnpike
SawNet
MA Transp
Committees
VendSource
NY Thruway
Canteen
Vending
KS Turnpike
Industry Retirees
Royal
IL Turnpike
ProModel/SimTech
Dixie Narco
PA Turnpike
Prism Quantitative
Methods
Sevamco
Crane
Sentinel ID
MIT Transportation
Eng.
Continual Operations Refinement. Since the Gulp & Go system integrates existing hardware and
software components, Momentex works to tailor the service process design to specific toll road
infrastructures.
Pilot Program. Momentex has worked with toll industry experts, business consultants, vending machine
companies, lawyers, and engineers to create a detailed pilot implementation plan for a number of toll
roads who have expressed an interest in a Gulp & Go pilot operation. The Dulles Greenway, for example,
has offered operations data and has placed Momentex in contact with their systems integrator. The
Company has prototype ordering and dispensing hardware and system designs for automated billing
bundled into current electronic transactions. Refer to the hardware, software, and integration designs in
the appendix.
Proprietary Position and Barriers to Entry
Momentex has designed its business model to create barriers to entry against potential competition and
provide Momentex with a competitive advantage.
Breadth of Knowledge and Relationships. Momentex has spent 18 months building its knowledge of
toll systems, drivers' needs, and beverage distribution. To build upon this knowledge, Momentex has
formed a network of advisors who have extensive experience in these key areas and provide the
capability for developing and securing a pilot operation and eventual roll out. In addition, Momentex
management has introduced the Gulp & Go service platform to numerous toll roads and has begun to
forge relationships with these groups and the politicians who will be instrumental for national roll out of the
Gulp & Go platform.
Development Time and Cost. The costs to enter the target market include time and expense to design,
develop, and manufacture the Gulp & Go dispenser and build the service infrastructure (installation,
maintenance, and inventory management). A company entering the market must incur this investment
before experiencing project revenue.
Complicated, Integrated Product. Momentex believes that large beverage companies would be the
most likely market entrants. However, to implement the Gulp & Go business model, expertise outside of
traditional beverage production, distribution and marketing is needed. With automation and integration
into toll systems key to a successful execution, beverage companies would view this high-tech service as
outside of their business scope.
First Mover Advantage. The Gulp & Go service creates a new scarce resource with economic value by
creating a new distribution channel to leverage a captive customer base and the existing real estate at the
toll plaza. Once Momentex installs the Gulp & Go service platform at a tollbooth, Momentex locks up the
Momentex LLC
Business Plan
scare resource and effectively prevents competition since space limitations make the introduction of a
competing service impractical. As the developer of the Gulp & Go business model, Momentex plans to
leverage this first mover advantage by negotiating with toll authorities to secure exclusive rights to retail
products at points of driver-interface.
Legal Barriers. Given the anticipated competition, the Company has created legal and contractual
barriers to entry. Momentex has designed the Gulp & Go service platform to be automated using a
proprietary process. The platform is protected through a series of patents and service marks on 1) the
unique ordering and efficient beverage delivery process, 2) the unique product delivery interface, 3) the
automated integration into toll and electronic payment systems, and 4) artwork which enhances the
concept and creates a brand. Service marks include "Gulp & Go" and "Ultimate Convenience" and
Internet domains include Momentex.com, GulpandGo.com, and GulpNGo.com.
NY Toll Roads
787,000,000
87
790
NJ Toll Roads
772,000,000
77
711
IL Toll Roads
626,000,000
60
450
500,000,000
55
330
230,000,000
45
160
186,000,000
35
163
MA Toll Roads
170,000,000
17
120
PA Toll Roads
140,000,000
18
108
NY-NJ Bridges/Tunnels
114,000,000
77
3,525,000,000
402
2,909
Total Majors
Others
Total
725,000,000
80
600
4,250,000,000
482
3,509
Beverage Industry. The U.S. beverage industry, distributing 230 billion can-equivalents of soda annually,
3
is intensely competitive and is dominated by the Coca-Cola Company and PepsiCo Beverage companies
typically focus on the creation, production, and distribution of drink syrups, concentrates and beverage
bases and the marketing/brand building of beverages. Bottlers take the flavor concentrate, mix it with
Momentex LLC
Business Plan
sweetener and water, bottle the liquids, and then distribute it to retailers or to their own vending
machines. Due to the importance of distribution, beverage companies typically hold equity stakes in key
bottlers and also pay "rights fees," for exclusive access to captive customers, to those who control certain
key distribution channels.
Market Potential
With 3,500 tollbooths in 35 states and over 4 billion toll transactions annually, the United States provides
significant market potential. Internationally, another 5 billion toll transactions take place annually at 9,500
4
international tollbooths, which provides another avenue for substantial growth.
With a usage rate near 10%, the total annual revenue potential for the Gulp & Go service on toll roads is
estimated at over half a billion dollars. In a more conservative estimate, with a usage rate of 2% and a
5,6
$1.25 price per beverage, annual revenue potential is estimated at $128 million . A 2% usage rate
reflects two tollbooths in a ten booth plaza offering Gulp & Go service, and one in ten drivers who selfselect these Gulp & Go toll lanes purchase. Pilot projects will provide better insight into the actual
consumer adoption rate and price sensitivity. Momentex expects usage rates to increase as driver
comfort for the service increases over time.
Estimate of Market Potential
Calculation
Notes
4.25 billion
Toll Transactions
Total toll transactions (35 states in U.S.)
Tollbooths (U.S.)
3,509
3,318
10%
332
Calculation
20%
702
Calculation
85,000,000
1.2
$1.25
Revenue Drivers
$127,500,000 Calculation
60%
$76,500,000
Calculation
Growth Drivers
Company Growth. Momentex will grow its revenues by (1) increasing usage rates and (2) increasing
service locations. Momentex will focus first on a sales effort to penetrate the tollbooth market by
maximizing locations that host the service, followed by a marketing push to increase purchase rates per
toll plaza. To achieve market penetration, Momentex must demonstrate the economic benefits of the Gulp
& Go service and convince toll road operators that consumers will use the service if installed.
Market Growth. Key factors affecting growth in the market, measured in toll transactions, are gas prices,
GDP growth and strong economic factors, legislation allowing tolls on interstate highways, and new
10
Momentex LLC
Business Plan
private convenience highways. Additional growth can stem from new products such as snack foods,
international tollbooth expansion (5 billion toll transactions internationally), or opportunity to retail in other
7
locations, such as parking garage tollbooths and gas islands at gas stations and convenience stores .
Market Acceptance, Trends & Needs
Current trends in driver convenience, the toll industry and the beverage industry have created a window
of opportunity for. Momentex's Gulp & Go service. Drivers will value Gulp & Go's convenience and timesaving attributes. Toll road operators will increase profitability and customer satisfaction. Beverage
companies will welcome the opportunity to increase sales volumes and to gain access to customers
without having to develop inhouse knowledge of toll systems.
Driver Convenience. Research indicates that 81% of today's consumers want more simplicity - - and
8
more convenience - since time has become such an issue in their lives. With today's time-sensitive
population and advancements in restaurant "drive-thrus", sound systems, cellular communications, and
satellite navigation systems (i.e. GPS), the automobile is being transformed into a tool for not only
traditional transportation, but also dining, entertainment, communication and navigation. Recognizing the
convergence of technology and market need, Momentex has developed driver-interface retailing to
sm
deliver Ultimate Convenience to drivers by adding automated retailing to the driver's portfolio of timesaving accessories. Gulp & Go service is a phase shift change in the evolution of driver convenience.
Of the 160 million passenger car drivers on U.S. roads, the Gulp & Go service targets both drivers and
9
passengers that have the following attributes and provides value to them :
Daily Commuters. Rather than making an extra stop on the way to work, they would procure a
10
beverage as they pass through the tollbooth, saving time and hassle.
Families. Families with small children will especially welcome the presence of Gulp & Go since it
11
eliminates the chore of bringing children in and out of car seats and into stores.
Business Travelers. Extremely time-sensitive, interested in quickly getting a beverage to help
them get to their next appointment or meeting.
Stoics. This segment, typically men, know their fastest time to reach their destination, and once
on the road, try to beat this record with determination. This group avoids unnecessary stops and
would welcome the option to purchase beverages where they are required to not only stop, but
12
also spend money.
Women and Elderly. Research has shown that this segment has concerns about unnecessary
stopping at night for safety reasons. Gulp & Go will provide these thirsty drivers with a safer
alternative.
Toll Industry Trends. For many toll roads, increasing fees is a politically damaging method of increasing
revenues. They are under pressure to cover bond payments and increase spending on improvements to
13
roads and customer service. Therefore, to ensure viability, toll roads must look at methods of creating
14
additional revenue or increasing driver usage. As one of the leaders of toll road innovation explains:
"I am always thinking about new ways to make money."
James Kerasiotes, Chairman of the Massachusetts Turnpike Authority
The Gulp & Go service addresses both of these needs by (1) adding an additional profit stream to the
operator and (2) increasing customer satisfaction and the convenience of using the road vis a vis
alternatives.
In addition, recent federal legislation calls for each state to choose whether to increase revenue for
highway operations by building toll plazas on existing interstate highways. This could yield a proliferation
of toll plazas and increase the available real estate for Gulp & Go service.
11
Momentex LLC
Business Plan
Beverage Industry Trends. As traditional distribution channels mature, the large beverage companies
have begun to focus on the higher-margin and growing convenience channels. With fierce competition
among the major beverage companies, exclusive access to these distribution channels has become a
source of competitive advantage. The beverage companies are paying multi-million dollar, multi-year
15
"rights fees" for this exclusivity, often equating to $3-40 per potential customer. Gulp & Go will provide
value by offering the opportunity for exclusive access to a new mass distribution channel, expanding the
total size of the beverage market by reaching thirsty drivers.
Market test results
Momentex conducted a survey which documents (1) a need for the Gulp & Go service and (2) that
customers are willing to pay a premium for the convenience that the service offers. Momentex conducted
a survey of toll road users over the past two months and results are summarized in the Market Research
appendix. Based upon 115 toll road user respondents, we estimate that the usage of the Gulp & Go
service by our target market could be as high as 32%. (In our financial model, a usage rate of 10% is
used based on more conservative scale factor of 0.25 vs. 0.75.) Refer to the Market Research Toll
Survey appendix for details.
The survey confirms our hypothesis that most drivers (73%) do not stop for a beverage while they are on
the toll road due to lack of time. The fact that over 60% of respondents do purchase a beverage on a
regular basis during their commute to and from work indicates an opportunity to serve the needs of time
sensitive customers. In addition, the survey results show that potential users consider the key attributes of
Gulp & Go to be important: 88% of respondents rated convenience/speed as very important, 59% rated
easy to use as very important or somewhat important, and 56% rated beverage variety as very important
or somewhat important. The average price respondents are willing to pay for a 12 ounce beverage is
$1.10, a 38% premium over the customary convenience store price. (Momentex anticipates a price
premium of 25-90% and uses $1.25 in financial models.)
Competitive Position
While no direct competition currently exists, Momentex anticipates that once it introduces Gulp & Go
service, competition will develop.
Opposition Potential. Competition, in the form of entry or opposition, will stem from companies whose
revenue will be either significantly positively or negatively impacted by Gulp & Go's new distribution
channel. The degree of competition will depend upon those companies' ability to respond to the
introduction of Gulp & Go. Response ability would be measured by (1) level of past technological
innovation; (2) degree of national presence (potential or existing); (3) knowledge level of toll systems,
drivers' needs, beverage distribution; and 4) strength of toll authority relationships.
Competitive Landscape. The diagram below depicts the competitive landscape for Gulp & Go service.
Momentex believes that companies whose market is expanded by Gulp & Go, such as the major
beverage companies, may attempt to enter the market. The major beverage companies, however, lack
technological innovation, knowledge of both toll systems and drivers' needs, and relationships with toll
authorities. Companies who perceive that their revenue would be threatened, such as service plaza
concessionaires, may attempt to block the development of Gulp & Go. While concessionaires do have
relationships with toll authorities, their ability to leverage these relationships to block an agreement
between Momentex and a toll authority is debatable. Momentex's meetings with toll authorities indicate
16
that often the toll authority and concessionaire have tenuous relationships . Momentex considers entry
by Host Marriott, the largest concessionaire, unlikely, as it has stated that toll roads are not its focused
17
area for growth . For further details, refer to the Company and Competitor SWOT Analysis appendix for
a comparison of competitor strengths, weaknesses, opportunities and threats.
12
Momentex LLC
Business Plan
Past innovation
National presence
Relationships with multiple toll roads
Knowledge (customer, bev. dist., toll systems)
13
Momentex LLC
Business Plan
Customer Education and Support. Momentex plans to conduct a pre-marketing campaign to introduce
the Gulp & Go service and to create consumer interest. The initial campaign will consist of pamphlets or
direct mailings to drivers in the area surrounding the toll road. The marketing materials will fully explain
the mechanics of the service and introduce a consumer feedback loop for questions or complaints. Once
Momentex installs Gulp & Go service in an area, it will continue to educate drivers about the service
through advertising spots in print and broadcast press. Additionally, Momentex will continue to provide
strong customer support through both a website and a toll-free telephone number. Customer service will
not only educate drivers on the Gulp & Go service, but will also provide the avenue for rectifying any
ordering or product problems. Refer to Marketing Plan Summary appendix.
3 1997 Figure. Hays, Constance L. "Bottlers Becoming Rivals To Vending-Sales Merchants," New York Times News Service (1999).
4 IBTTA 1996, ETTM of ITS 1998.
5 Momentex focus groups, (1) Wharton Graduate, (2) UPENN Undergraduate, 1998.
6 Momentex market interviews, Philadelphia and Boston area, 1998.
7 IBTTA 1996.
8 Convenience Store News, December 1998,
9 Federal Highway Administration, Selected Highway Statistics and Charts, October 1997. Nationwide Personal Transportation Survey, April
1998.
10 Momentex focus groups, (1) Wharton Graduate, (2) UPENN Undergraduate, 1998; Department of Transportation Nationwide Personal
Transportation Survey April 1998,
11 Ibid.
12 Momentex focus groups, (1) Wharton Graduate, (2) UPENN Undergraduate, 1998.
13 Momentex interview with managers at MA Turnpike 1998.
14 Momentex interviews with management at MA, PA, NY, FL, NJ, VA, DE toll roads 1998; the toll industry trade association (IBTTA) 1998,
TransCore 1998, TRMI 1998.
15 interviews with Coke, Pepsi 1999.
16 Jim Kane, Massachusetts Turnpike Authority
17 Host Marriott Services Annual Report 1997; DLJ Equity Analyst Jake Fuller
14
Momentex LLC
Business Plan
Go will become the backbone of a truly cutting-edge new distribution platform - - high-tech driver-interface
retailing.
Operations Strategy
Among key Momentex functions, the Company (1) develops and designs the Gulp & Go service, (2)
launches and manages pilot operations, (3) collects and analyzes operations data to refine the service
process, (4) markets and communicates to customers, and (5) negotiates for and implements roll out of
service. Momentex manages expert contractors who conduct actual mechanical drawings, equipment
manufacture, service installation, software integration, beverage refilling, and inventory management. By
leveraging the technical know-how, assets and organizational processes of partners, Momentex lowers its
operating risk and reduces its capital investment.
Operational Activity and Resources. The following chart summarizes the key operational activities and
the partners/contractors that the Company plans to work with. Momentex will outsource the activities
which do not lead to a competitive advantage for the Company. Key criteria to identify prospective
partners are: (1) strategic fit; (2) quality of service; (3) service level (response time to customer problems);
(4) entrepreneurial management; (5) geographic market coverage; (6) price; and (7) technical proficiency.
Operational Activity
Description
Potential Contractors
Design machine
(Momentex)
(Momentex)
Pilot operation
(Momentex)
Customer education
(Momentex)
Roll-out service
(Momentex)
Manufacture machine
Microprocessor design
Install machine**
In-house
Manage Contractors
Inventory management**
Billing
Internet
Isochron, Motorola
Note - ** Reflects key activity where a more formal alliance may exist.
Localized Public/Private
Private Road
15
Momentex LLC
Business Plan
Key Stages
Dulles Greenway
Mass Pike
Political Goodwill
Not applicable
State Politicians
Stage I
Chairman
Stage 2
Operational Concept Testing Traffic flow, site specifics
TransCore
TransCore
Labor Approval
Not required
Not required
CEO
CFO
Chairman
Contract Negotiation
Negotiate terms
Negotiate terms
Negotiate terms
Stage 3
Strengthen Established Relationships. Momentex has met with the senior executives of eight major toll
roads, representing 32% of our target market, to discuss the merit of Gulp & Go service on their roads.
Each has expressed interest in the service and looks forward to a physical demonstration of the pilot.
Before a pilot operation is implemented at a demonstration site, Momentex will refresh these relationships
to emphasize the connection of d river- interface retailing with the Gulp & Go brand.
Launch Pilot. At a localized toll road, Momentex will launch a demonstration site as its first pilot
operation. Momentex will collect and own the data from the pilot to further refine financial and operational
assumptions.
Demonstrate Operations. With a working pilot operation, Momentex will have the opportunity to drive
prospective toll road executives through the service so that they can experience Gulp & Go's Ultimate
Convenience first-hand.
Negotiate with the Majors. Early in the pilot operation, Momentex will negotiate with the major toll roads
(excess of 100 million annual transactions) to implement a pilot on their road with the option to roll the
service out.
Build-out Operations on Major Roads. Roll out within a major toll road will involve a tailored pilot
operation, specific systems integration, demographic and traffic flow analyses, and an awareness
marketing campaign.
Competitive Reaction. Momentex views the beverage companies as potential competitors, with the
threat heightened if they are excluded from the Gulp & Go distribution channel. For this reason,
Momentex has designed the business model to attract an alliance with the strongest of the beverage
companies and turn them into an ally. By gaining exclusive rights to the toll roads, Momentex plans to
pre-empt competitive threats.
Contingency Plans. Momentex will monitor the political climate around toll road negotiations to
determine whether to develop and shift toward contingency plans. This could include a tighter relationship
with a major beverage company, a strong alliance with a systems integrator, or other strategic options to
facilitate implementation of the Gulp & Go business model.
Alliances. In the key areas listed below, Momentex formalizes relationships to leverage the existing
infrastructure and expertise while minimizing Momentex's capital investment.
Operational Complexity
16
Momentex LLC
Business Plan
Gulp & Go integrates components of off-the-shelf technology to meet the demands or driver-interface
retailing.
Process Flow. The Company has designed a process flow to accommodate Gulp & Go service in various
toll system configurations. From the driver's perspective, the process flows as follows:
Order Decision
Gulp & Go Lane Selection
Product Selection
Automated Ordering
Toll & Product Payment
Drive Forward to Pick-up Zone
Next Car Begins Order Process
Pick-up Beverage
Re-enter Traffic
The chart below depicts the operations perspective. The front end of the Gulp & Go service involves the
driver-interfacing at the order and delivery points, as well as integration into the toll systems for
automated payment. The wireless data service monitors inventory levels and dispenser performance,
relaying information at set periods throughout the day to the data service's central computer, which, in
turn, posts the data to the Momentex Intranet via the Internet. Beverage management analyzes this
inventory and monitoring data to optimize refilling routes and machine maintenance. In the chart below,
potential outsource and development partners are indicated for driver-interface retailing at the tollbooth.
Hardware Design and Software Integration. Momentex, along with its contracted partners, will design
and develop a customized casing and ordering interface to enable efficient product order and delivery to
drivers. The casing will house an off-the-shelf beverage dispensing machine and the ordering interface
will be linked to the central processing unit that controls the Gulp & Go system operations. Software
process flow has been designed to limit change to the current toll systems. The Gulp & Go central
processing units will package the transaction information and relay it to the toll lane computer for toll lane
functionality and audit reporting. Refer to the appendices for detailed schematics of the hardware
designs, capabilities, and software integration flow.
Pilot Development Cost Estimates
Service Component
Ordering Interface
Control Panel & Microprocessor
Testing Operations
Total
$457,500
17
Momentex LLC
Business Plan
Audit and Reconciliation. The retail operations are audited in two channels, through the current toll
plaza computer software and via wireless data service inventory monitoring. Beverage sale revenue is
recorded in tandem, with weekly reconciliation of toll revenue versus retail revenue. The toll road retains
an agreed percentage of gross revenues.
Process Design. Beverage ordering and pick-up are de-coupled to minimize traffic impact, as the time to
pick up a beverage is less than the time to order and pay. De-coupling occurs by locating the dispenser
two car lengths beyond the tollbooth on the end of the tollbooth island. Momentex has conducted on-road,
timed simulations to test this concept. In addition, toll collector training is geared toward increasing toll
fare and beverage fee collection efficiency to maximize throughput.
Optimize Traffic Throughput. Momentex has used queuing theory, computer simulation, and animation
to model the traffic flow with and without Gulp & Go service at the tollbooth. Computer simulation enables
an understanding of the impact on the transaction processing time and the capacity/demand relationship
at different periods throughout the day and week. Prior to roll out of Gulp & Go service, Momentex will
model each toll plaza independently to account for distinct traffic patterns. The simulation model has been
designed in a partnership with ProModel representatives, SimTech and Prism Quantitative Methods.
Refer to the Traffic Flow appendix.
Inventory Management and Control. To ensure well stocked and high performing dispensers, wireless
data service interfaces with the dispenser and the management software via the Internet, allowing
dispensers to be monitored closely from the Momentex central office. Wireless data companies such as
AES, Isochron, or Cellemetry are favored for their transmission capabilities, including broad geographic
coverage and in some cases, a particular focus on the vending industry. Refer to the Internet Integration
appendix for details.
Dispenser Refilling and Route Design. Upon roll out, Momentex will outsource beverage dispenser
refilling and maintenance and has incorporated the latest inventory and logistics technology into its
operational plan to facilitate this process and provide an audit trail. The dispenser design will allow the
route driver to drive into the lane during off-peak hours, close the lane temporarily, and refill the dispenser
from the truck parked next to it. With the opportunity for daily maintenance and the absence of money
acceptors (which contribute to 90% of malfunctions), Momentex anticipates infrequent machine
20
breakdowns . Route design will center on maximizing efficiency and minimizing expense. Route drivers
will be responsible for dispenser refilling and simple preventive maintenance, and their daily route will be
determined by tracking the number of cans sold each day at each location through the wireless data
system.
Quality Control. Momentex has designed its operations to ensure seamless integration into existing
systems, efficient beverage delivery, and quick acceptance by drivers. In the unlikely event of a problem,
Momentex has built the necessary infrastructure, processes, and feedback loops to address issues. Refer
to the Quality Control and Trouble Shooting appendix for details.
18 10 - 15% based on MA, PA Turnpike Marriott contracts
19 Momentex interviews with management at MA. PA, NY, FL NJ, VA, DE toll roads 1998 the toll industry trade association (IBTTA) 1998:
Wayne-Dresser website 1999
20 The Wittern Group 1998 and Canteen Vending 1999.
Management
Momentex is founded by individuals with breadth and depth of experience in the key areas of finance,
marketing, operations, negotiations and strategy. The Gulp & Go business model requires skill in
negotiation and marketing because the success of the business hinges upon securing locations to install
the Gulp & Go system. Due to the high profit potential and the competitive nature of the beverage
industry, negotiation expertise must be coupled with strategy and finance skills. Since a new dispenser
will have to be designed and integrated into the existing information systems, skills and experience in
18
Momentex LLC
Business Plan
engineering and information technology will be necessary. Lastly, as the Gulp & Go service involves flows
of traffic and multiple locations, expertise in operations and management will also be critical. The table
below outlines key skills that are necessary to turn Gulp & Go into a successful long-term business and
rates capabilities in these areas.
Key Skills
High
High
High
High
High
High
Operations
Medium
High
High
High
High
High
Medium
High
Engineering
Low
Medium
High
Medium
Finance
High
High
High
High
High
To accommodate this range of expertise, Momentex's in-house capabilities are enhanced through advisor
and contractor relationships. The organizational structure is outlined in the following chart.
Management Team
Melissa Chadwick- President and Chief Financial Officer. Ms. Chadwick focuses on business
development, finance and marketing as well as coordinating the raising of the Company's first round of
funding. She has been with Momentex since inception in 1998.
Ms. Chadwick worked as an investment banker with Lehman Brothers and McDaniels S.A. In these
positions, she met capital raising goals for both public and private sector clients and implemented growth
strategies for them through her involvement in research, valuation and negotiations for several
acquisitions. She holds a Masters of Arts degree in international relations and a Bachelor of Arts degree
in economics from the University of Chicago, and recently completed a Masters of Business
Administration degree in finance and entrepreneurial management from The Wharton School at the
University of Pennsylvania.
Zafar Khan - Chief Executive Officer. Mr. Khan focuses on strategy, operations and developing
partnerships with venture stakeholders. He has established a high quality advisor and consultant network
and has designed-the service process. He has been with Momentex since inception in 1998.
Mr. Khan worked as a strategy consultant for Braxton Associates/Deloitte Consulting. In addition, as a
manager for a chemical industry trade association, he helped businesses adapt technologies and develop
new business lines, and interacted with federal government on the industry's behalf. He holds a Bachelor
of Arts degree in biology and psychology from Wesleyan University and recently graduated with a
Masters of Business Administration degree in finance and entrepreneurial management from The
Wharton School at the University of Pennsylvania.
David Smith - Director of Operations. Mr. Smith is actively engaged in developing prototype hardware,
optimizing the service process, and refining the business model. He joined the Momentex team at yearend 1998.
Mr. Smith has. worked as a strategy consultant with Bain & Company and a business advisor with Price
Waterhouse LLP where he consulted firms in a wide range of industries on process management,
business planning, and internal control procedures. He holds a Bachelor of Arts in economics and a
Bachelor of Business Administration in accounting and international business from the University of
19
Momentex LLC
Business Plan
Texas at Austin and will graduate in 1999 with a Masters of Business Administration degree in marketing
and operations from The Wharton School at the University of Pennsylvania.
Paul Glaab - Director of Channel Development. Mr. Glaab will be responsible for developing political
strategy and gaining footholds within toll agencies. He anticipates joining Momentex in 1999 (contract
under negotiation).
Mr. Glaab has over 30 years of experience working in channel development and government affairs for
the California Department of Transportation, Transportation Corridor Agencies (a California private toll
road agency), the international toll road association (IBTTA), and Continental Airlines. During this time, he
has successfully (1) launched the marketing program for the nations largest privately-funded public toll
road, (2) spearheaded legislative efforts for critical toll industry legislation, and (3) managed negotiations
for major CalTrans development projects. He holds a Bachelor of Arts degree in political science from
California State University at Long Beach.
Advisors Network
The Company has sought and will continue to seek guidance in development and execution from a group
of advisors experienced in starting companies. Momentex's network of advisors have expertise in toll road
operations, intelligent transportation, engineering, entrepreneurship, and operations. Currently, Momentex
is searching for a beverage industry veteran to advise on beverage-related issues.
Harry Hansen. Mr. Hansen advises on toll systems integration and intelligent transportation systems. He
is the Manager of Systems Development and Integration for Lockheed Martin IMS and manages all
California electronic toll collection projects for Lockheed. He has nearly 10 years of experience
implementing Lockheed Martin technology into development projects and is one of the developers of their
electronic toll collection system.
Ian MacMillan. Mr. MacMillan advises on entrepreneurial management matters. He is Executive Director
of the Sol C. Snider Entrepreneurial Center and is a Professor of Entrepreneurial Studies at The Wharton
School. In addition, he is the author of Corporate Venturing (Harvard Business School Press) and
numerous articles on organizational politics, new ventures, and strategy formulation.
William Miller. Mr. Miller advises on driver-related and toll industry matters. He was formerly Executive
Director of the Delaware River and Bay Authority and has been affiliated with the toll industry since 1957.
Also, he was the 1971 President of the International Bridge, Tunnel, and Turnpike Association (IBTTA)
and voted "l 994 Engineer of the Year" by the American Society of Highway Engineers,
Joseph Sussman. Mr. Sussman advises on "intelligent transportation" matters. He is a Professor of civil
and environmental engineering at MIT and on the Board of Directors for Intelligent Transportation
Systems of America.
Karl Ulrich. Mr. Ulrich advises on product development matters. He is an Associate Professor of
operations and information management at The Wharton School. He is co-author of Product Design and
Development (McGraw Hill) and has participated on development teams for products ranging from snack
foods to surgical instruments,
John Woodruff. Mr. Woodruff advises on driver-related and toll industry matters. He was formerly
Director of Engineering and Planning / Chief Engineer for the Delaware River Port Authority. He was also
the 1987 President of IBTTA and currently serves on the IBTTA Past-Presidents Advisory Council.
Summary Financials
20
Momentex LLC
Business Plan
Key Assumptions
The financial projections model the basic Gulp & Go service at the tollbooth and do not account for
revenue from "rights fees," product expansion, or additional service platforms. The specific critical
assumptions are highlighted in the appendix. Momentex assumes that a pilot begins in September 1999
and the first state will be rolled out at the beginning of 2000.
Revenue Drivers. Key drivers for revenues are the number of locations with Gulp & Go service, the hit or
usage rate, and the number of beverages purchased in each transaction.
Margin Drivers. Gross margins reflect commissions paid to toll road operators and route drivers, as well
as raw material costs. In addition, as some expenses are fixed, there is some operating leverage at the
operating income level. Hence, as revenues increase, margins will increase disproportionately.
Cash Flow. Momentex will strive to manage working capital efficiently by negotiating favorable terms with
suppliers and creditors and keeping inventory levels to a minimum. Momentex will seek capital to fund the
purchase and installation of beverage dispensers necessary for Gulp & Go service roll out.
Required Investment and Uses of Capital
The financial projections center around funding the "Plan for Service Roll Out." This involves winning
approval for a demonstration site, networking with major toll road executives, developing hardware and
software, launching and testing the pilot operation, live demonstrations for prospective toll road
executives, negotiating contracts and permission for demonstration sites at major toll roads and rights to
roll out Gulp & Go service upon successful completion of pilot, and building-out operations on early
adopter roads. Momentex anticipates that this stage of operations will require $2 million and seeks the
necessary funding to cover this. The appendix provides detailed information on the financial projections
and on the development stage that corresponds to the funding need. Refer to Major Milestone appendix
for details.
Financial Resources
To date, Chadwick and Khan have self-funded the business. To raise the required investment, Momentex
will introduce the Gulp & Go business model to Small Business Investment Companies (SBIC), "angel"
investors and other zero stage venture capital firms, as well as the major beverage companies, to look for
loans and/or equity financing. Momentex has identified certain firms that specialize in consumer related
businesses and/or transportation. Financial investors should find the Gulp & Go business model attractive
given the high margin and high volume potential, the Gulp & Go services' high visibility, and Momentex's
competitive advantages.
Summary Income Statement
The following chart depicts a summary income statement for Momentex. A full income statement, balance
sheet, and statement of cash flows are in the appendix along with a monthly, quarterly, and annual profit
and loss analysis with assumptions and model drivers.
Income Statement
1999
2000
2001
2002
2003
2004
3,095,518 26,909,900
69,860,379
77,491,282
85,517,164
Revenues
Beverage Sales
Commissions and Sales Tax
50,465
(11,102)
21
Momentex LLC
Business Plan
Total Revenues
39,363
2,414,504 20,989,722
54,491,095
60,443,200
66,703,388
Expenses
Raw Materials
Operating Expenses
12,112
742,924
6,458,376
16,300,755
18,081,299
19,954,005
374,939
4,534,601
8,939,114
9,297,322
8,041,672
8,417,283
400,000
400,000
400,000
400,000
400,000
5,677,526 15,797,490
25,998,078
26,522,971
28,771,288
28,493,018
33,920,229
37,932,100
469,500
Total Expenses
854,051
Operating Profit
Taxes
Net Profit
(814,688) (3,263,022)
276,994
5,192,231
1,109.42 (1,765,359)
(537,694) (2,153,594)
3,426,873
18,805,392
22,387,351
25,035,186
Capitalization Strategy
Proposal to Investors
Momentex is a Massachusetts limited liability corporation in the process of raising its first round of
external investment to fund development of a demonstration site and early stage service roll out. As a
limited liability corporation, investors are legally awarded a percentage of equity rather than a number of
shares as in a Corporation. In the first stage of funding, Momentex looks to raise $2,000,000 in 80 blocks
of $25,000. Momentex anticipates investors would receive 22% of Momentex equity for this initial $2
million (non-dilutive). For the second stage of investment, Momentex will seek an additional $2 million in
mid to late 2000 to fund rapid national expansion.
Investment Potential
Momentex anticipates the Gulp & Go service has a strong investment potential with 6 year revenue
growth projected at 342% compounded annually. (Momentex uses a 6 year horizon as 1999 is a stub
21
year.) In addition, EBITDA for year 6 is projected at $39,320,000. Based on an EBITDA multiple of 8x
and a 15% IPO discount, Momentex's 6 year valuation is estimated $315 million.
An example of equity investment value appreciation based on firm valuation follows. In the middle
EBITDA scenario, a $100,000 first round investment for 1.1% of equity is anticipated to be valued at $3
million at the end of year 5 at the time of the anticipated initial public offering. This reflects a 5 year
compound annual return on the initial investment of 80%, assuming that the equity is non-dilutive.
Sensitivity of Investor's Annual Return
2005 EBITDA Multiple
Hit Rate
3%
4%
5%
6%
7.0
8.0
9.0
In the case of a strategic investor or buyer, equity value could increase dramatically as these buyers
typically pay premiums of 25% or more.
Financing History
Momentex LLC was launched in August 1998 with a $20,000 start-up investment in January 1999 by the
Company founders, Melissa Chadwick and Zafar Khan. The founders were each awarded 50% equity for
22
Momentex LLC
Business Plan
their initial investment. To date, the venture has received no outside investment and prior to the ensuing
first round, they have retained 100% of the equity combined.
Exit Strategy
investors in Momentex LLC would be able to realize a return on the appreciation of their investment under
the following scenarios:
Initial Public Offering. If Momentex meets growth expectations and demonstrates cash flow and
earnings characteristics attractive to the public markets, the Company may seek a public offering to raise
capital for further rapid expansion as well as to add liquidity for founders and investors. Momentex
anticipates that the high visibility of Gulp & Go service would create strong retail demand for the offering.
Rapid expansion in service locations will help Momentex to penetrate the market with Gulp & Go service,
which if fully-penetrated by Momentex would achieve an attractive annual revenue stream in excess of
$600 million, reflecting 10% of toll road users purchasing. If, for example, Gulp & Go service has broader
availability, exposing more drivers to the service, annual revenues will near $1 billion with 15% of toll road
users purchasing. In addition, Momentex views international toll roads, concentrated in Japan and
Europe, as a significant source for expansion, with a combined market estimated to be 20% larger than
the U.S. market.
Investment or Acquisition by a Strategic Player. Momentex believes that there are a number of
beverage companies who would be potential investors or buyers for the Gulp & Go service platform as it
offers an already developed operating model for a new distribution channel which can lock out
competition and provides a pipeline for new service and product introductions. With the major beverage
companies such as Coca-Cola and PepsiCo investing in equity of its bottlers (distributors), they may view
an investment in Momentex as a method of securing access to a new distribution channel. In addition,
Cadbury Schweppes and Virgin Cola may see this investment as a method of increasing the reach of
their struggling beverage brands. Nestle and Starbucks may see Momentex as providing an ideal method
to increase the popularity of their packaged coffees through mass distribution within the Gulp & Go
service to commuters on the roads.
Momentex also believes that companies in the related areas of service plaza concessions and toll road
systems integration would also be possible investors or acquirers. Service plaza concessionaires may
view the Gulp & Go platform as an exciting new service offering which could provide the key differentiator
in bidding for toll road concession contracts. Toll road systems operators, too, may consider the service
as an attractive offering and a way to distinguish itself from other bidders.
21 Sodexho Marriott, Host Marriott Comparables.
Risk Factors
Managerial
1. Real Estate Use Approvals. As the Company must have the right to operate at toll plazas, its
success in securing a pilot operation is dependent upon toll road approvals. With a limited
operating history and bureaucratic management of some roads, there can be no assurance that
the Company can secure such approvals quickly. To mitigate this, Momentex not only works with
an influential network, but also understands the needs of the toll road operators and the benefits
the Gulp & Go service brings to them.
2. Market Acceptance of Toll Plaza Retailing. Gulp & Go beverage service is an innovation that
will be dependent upon driver adoption for its success. The Company's marketing and public
relations campaign is designed to educate drivers and publicize the availability and convenience
of Gulp & Go service. Market research indicates that the Gulp & Go target market segment is
23
Momentex LLC
Business Plan
3.
4.
5.
6.
7.
8.
9.
amenable to innovation but there can be no assurance of driver adoption of the service. To
mitigate this, Momentex will conduct thorough market research on each road before roll out to
identify local price and time sensitivity, and beverage selection preferences.
Dependence Upon Exclusivity. The business model is based upon the key assumption that
Momentex can acquire exclusive rights from toll roads to retail products at points of driver
interface. While Momentex has established relationships with the ten largest toll authorities in the
United States, there is no assurance that it will be able to secure exclusive retailing contracts with
these entities. To mitigate this, Momentex will continue to prove the operational model through
live demonstrations and model the value it adds to specific roads.
Limited Track Record. The Company believes that it has assembled a management team with
breadth and depth of expertise, yet has limited experience working together. To mitigate this,
Momentex understands the needs of management and advisors and uses a strong team-based
management style.
Competition. While the Company will take every step to protect its proprietary business model,
there can be no assurance that competition will not ensue. The Company's potential competitors
are much larger, with more resources, -and may have market power. To mitigate this, Momentex
will form alliances with chief "deep pocket" competitor threats.
Labor Force. In certain toll configurations, the Company must develop an arrangement where
the toll collectors will also process beverage orders in full service lanes. This will require a
discussion with the toll authority as well as the Teamsters Union. It is possible that the union may
demand that the toll collectors' job classifications be changed to accommodate the addition of
Gulp & Go service. Demands such as these could add significant delay to or otherwise impede
the pilot implementation or the ensuing roll-out. To mitigate this, Momentex aims to tie-in ideas of
local workers and avoid surprising the local unions.
Cannibalization. In some configurations, the toll authority or food service providers at service
plazas may perceive the Gulp & Go service as cannibalizing upon their sales. With market
research demonstrating that restrooms are the largest draw to service plazas, and Gulp & Go
providing more fluids and caffeine (a diuretic) to drivers, restroom stops at service plazas may
increase, adding to their total foot traffic. To mitigate this, Momentex will relay the value
proposition to stakeholders and understand their concerns.
Potential Legislation. In some states, there have been referendums to eliminate tolls on
turnpikes. While initiatives such these are unlikely to be approved because of existing bondholder
claims to future toll revenues, proposals such as these draw negative publicity to toll roads.
Additionally, as toll authorities begin to raise funds through increased commercial use of the toll
authority land, the public might see this as improper use of government resources. Toll authorities
need only suggest the alternative of raising taxes, and most will prefer the commercialization of
the land to generate the necessary revenues. To mitigate this, Momentex will monitor and use
proactive tactics to influence new legislation.
Politics. If people start writing letters to their state representatives complaining about the Gulp &
Go service, it may become a politically bad endeavor, regardless of how economically attractive it
is. To mitigate this, Momentex will perform a detailed traffic analysis to localize service design
and will perform a strategic driver education program prior to implementation,
0perational
1. Traffic Flow. The Company must ensure that its service does not increase traffic delays at the
toll plazas. Momentex will use computer simulation and determine the optimal plaza configuration
to accommodate Gulp & Go. However, there is no assurance that all traffic flow issues can be
anticipated and adequately resolved. To mitigate this, Momentex will model plaza specific traffic
flow using a proprietary computer simulation.
2. Technology. There are potential operational obstacles to instituting Gulp & Go service at toll
plazas. In addition to modifying existing software, there are hardware requirements for beverage
selection and dispensing. Until these systems are developed and tested, as well as during
ongoing operations, they will pose the potential for technological uncertainty. To mitigate this,
Momentex will contract to established toll systems integrators to integrate/install and thoroughly
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Momentex LLC
Business Plan
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test the Gulp & Go service before installation and throughout pilot operation. In addition,
Momentex will service the equipment frequently during on-going operations.
Safety and Liability. While the Company has developed Gulp & Go service to address safety
issues, the Company has no assurance that safety issues will not arise. The Company plans to
have liability insurance to cover expected risk. To mitigate this, Momentex has designed the
service with features and a process to enhance safety.
Seasonality of Revenues. The Company expects that its operations will be concentrated in the
Northeast portion of the United States. As a result, revenues may fluctuate with seasonal
temperatures. To mitigate this, Momentex will look at offering service in stable climates such as
California and Florida.
Intellectual Property Risk. The Company's ability to compete is in part dependent on resources
to protect and enforce Momentexs intellectual property rights. To mitigate this, Momentex will
monitor infractions on its intellectual property and design a situation specific strategy with legal
counsel to approach each infringement.
Dependence Upon Third Parties. With certain functions outsourced, the Company could
become dependent upon certain contractors and be exposed to opportunistic renegotiations. To
mitigate this, Momentex will aim to align incentives and continue discussions with their
competitors.
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