SAMPLE BUSINESS PLAN Commercial Support for Business Program

Bluestem Software Inc.

Business Plan

Contents:

Executive Summary ........................................................................... 2

The J2EE Market ............................................................................... 6

JavInstall ............................................................................................9

Marketing Plan ...................................................................................10

Customer Return on Investment ........................................................12

Competitive Response .......................................................................13

Current Development .........................................................................15

Financial Projections...........................................................................16

Management Team.............................................................................16

Appendix A: Projected Financial Statements.......................................18

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BLUESTEM SOFTWARE INC. – EXECUTIVE SUMMARY

Opportunity

Installing software is a familiar process to most of us: Double click on a setup program, answer a few questions, wait a few minutes, and the software is installed. For enterprise web applications, however, the experience is very different. For these applications, installation and deployment is complex, time consuming, error prone, and technically challenging.

The dominant technology in enterprise web applications is Java 2 Enterprise Edition (J2EE). Today, more than 50,000 companies spend more than $6 billion on J2EE products annually (Gartner, 2012; BZ Research, 2012; BEA Systems 10-K, 2013). J2EE applications run inside what is called an "application server". The dominant vendors of J2EE application servers are IBM, BEA Systems, and JBoss (J2EE Survey, 2012; Gartner, 2013).

We founded Bluestem Software to develop products that automate J2EE application deployment and configuration. The software we have developed enables fast, reliable server deployment while virtually eliminating configuration errors and accelerating the enterprise application development life-cycle. Our product, JavInstall, supports BEA Systems' Weblogic and IBM's Websphere. It will soon support JBoss and Oracle application servers. Combined, these vendors represent 65% of the total available application server market (Gartner, 2013).

Market Validation

To determine the market's need for this solution, we developed an online survey to determine where customers are currently experiencing pain with their J2EE application deployment. We posted a request to fill out the survey on more than a dozen Java, application-server, and J2EE-specific news groups. In addition, we conducted numerous face-to-face interviews with users of J2EE application servers to determine their current pain points and interest level in a product like JavInstall.

Deployment is clearly the number one pain. On a scale of one to seven (seven indicating the most pain), more than two-thirds of the respondents ranked deployment pain a five or higher. Half of them rated it a six or higher, and a full 17% rated it a seven (see Exhibit 3 & 4). Our research also shows that approximately 50% of companies simultaneously use servers from a variety of vendors (JBoss and Weblogic, for example). The most common additional server in use was moss, an open source offering. An industry-wide survey (J2EE Application Server Survey, 2012) also found this to be the case.

In addition to our own market research, an independent study shows that configuration management and application change control are the number two and three causes of J2EE application failures. The recommended way for companies to address these issues is to "improve their IT controls and formalize processes for tiered infrastructure change triage and configuration changes." (Ptak, et al, 2013)

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These results show two things: 1. Installing and configuring J2EE applications hurts.2. Companies deploy their code to multiple vendors.

JavInstall is ideally suited to mitigate this market pain because it automates the deployment of code to multiple vendors in a fast and error free way.

The Company

We founded Bluestem Software in 2013 based on the concept that enterprise applications should be simple to deploy and maintain. Through delivery of JavInstall, we provide companies using J2EE with reliable, easy-to-use tools capable of solving the targeted problems that rapid technological advancement and organizational change create.

Bluestem's business model follows the traditional "license-for-use" software paradigm. Customers can purchase a perpetual license of JavInstall for a one-time cost. We will charge additional annual maintenance fees for access to updated versions of the product. This creates both strong revenues from new customers and annuity streams from existing customers. Given the rapid upgrade cycle of J2EE application servers, our customers are likely to demand frequent updates. As a result, we estimate that 75% of our existing customer base will opt to pay annual maintenance fees.

The Market

In 2012, companies used J2EE application servers to create 5% of all application development projects. That number is expected to grow to 18% by 2017 (Gartner, 2012). Approximately 50,000 companies worldwide use J2EE application servers now, and we project this to grow to 100,000 companies by the end of 2017 (BEA Systems 10-K, 2013; BZ Research, 2012; Gartner, 2013).

JavInstall falls in a niche between two current industries: the J2EE Management software industry and the installation software industry. While the former focuses on J2EE performance tuning and monitoring, the latter focuses on Microsoft Windows installation software. Companies in either of these industries could decide to compete with JavInstall. However, both will have to add to their core competence to do so. That being said, the sustainable advantage for JavInstall is the relatively high switching cost a customer will incur should a competitor attempt to dislodge it from a current customer. We feel that as long as this switching cost exists and JavInstall has competitive pricing and features, we can sustain a very profitable business model with recurring revenues.

Marketing Plan

Our current plan targets independent software vendors (ISVs) as our initial customer base.

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Independent software vendors:

1. Tend to use J2EE servers from multiple vendors, making deployment andconfiguration more complex for them. As a result, they are already feeling a highdegree of pain.

2. Have time-sensitive deployments. Saving time on deployment is of real value.

3. Are accustomed to spending money on software.

4. Make up approximately 5% of the J2EE market, a large enough segment toprovide Bluestem Software with substantial revenues.

Our go-to-market strategy consists of three key activities.

1. We plan to leverage the current Java community of user groups, trade shows,and online communities to spread the word that our product exists.

2. We will build awareness of deployment problems by producing a series of whitepapers and best practices articles within the deployment space.

3. Most importantly, we will work closely with our initial customers to develop acommunity of users. Since most similar products are sold by word of mouth, it iscrucial that we maintain excellent customer relations.

We believe that the average sales-cycle will last between 45 and 60 days: seven to 15 days of initial contact and research; a 30-day evaluation period; and another seven to 15 days to finalize the purchase. We plan to offer JavInstall at a $2,500 price point – well within the discretionary budget limits of our targeted customer. Recurring maintenance fees will be approximately $750 per license.

Risks

Significant risks include:

1. J2EE technology experiencing unforeseen defection.

2. A product similar to J2 Install reaching the market before our entry.

3. Development of an open-source offering should JavInstall prove successful.

We believe the first risk is highly unlikely. Projected growth and increased penetration of J2EE technologies combined with increasing levels of investment indicate a greater acceptance of the technology going forward. To address the second risk, we are developing our product at the fastest pace possible. For the third, our strategy is to engage heavily with any open-source project that had a similar feature set to JavInstall and take pains to target it to the low end of the deployment market.

Financial Plan

To date, all of the company's financing has come from founder contributions. Bluestem is now at a stage of development where outside financing will help accelerate product development and company growth. We are currently seeking $350,000 of initial seed capital. This investment will fund initial customer acquisition and the first year of

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product introduction. We project that Bluestem will need to secure an additional $1.25 MM in Series "A" financing by January 2016. After securing series "A" funding, we do not anticipate the need for other outside financing. We project EBIT of $1.7 MM in 2017, and $4.6 MM in 2018. These estimates are based upon JavInstall having less than 2% of J2EE companies as customers. If JavInstall captures a 5% market share among J2EE companies by 2018, Bluestem Software will recognize revenues in excess of $30 MM, from which it will generate EBIT of roughly $8.1 MM.

The Company Founders

Carolyn Page and John Perez founded Bluestem in 2013. Ms. Page is a 10-year veteran of the software development industry – nine of which she spent with start-up software companies. Ms. Page has spent the past eight years holding senior management positions in Operations, Project Management, and Quality Assurance. She has been developing, deploying, and managing J2EE applications for the last six years.

Mr. Perez has spent eight years in the software development industry, the last seven specializing in configuration management, enterprise deployment, and release management. He has spent five of those years with start-up companies. Mr. Perez has spent the past six years focusing on J2EE deployment, configuration management, and installation solutions. He is sole author of JavInstall.

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The J2EE Market With enterprise web applications becoming increasingly critical in the management of day-today business operations, the need for a frame work within which to build reliable, scalable, and robust enterprise web applications became apparent. The market for this type of support network evolved through the 1990's and early 2000's and is now commonly referred to as the Application Integration and Middleware industry. Today, companies spend $6.7 billion annually in this market. Over 900/o of this market is based on a technology from Sun Microsystems called Java 2 Enterprise Edition – or J2EE. Three competitors dominate the J2EE market space: IBM with Websphere application server, BEA Systems with Weblogic, and an open-source (free) application server called JBoss (Gartner, 2013). Currently, about 50,000 companies use J2EE application servers (Gartner, 2012; BEA Systems 10-K, 2013, J2EE Survey, 2012) and 2.5 million use J2EE application developers (Sun Microsystems, 2013). By 2017, industry analysts expect 18% of all application development to involve the J2EE architecture. Given that approximately 5% of all application development today involves J2EE, we conservatively forecast the number of companies using J2EE to double by the year 2018 (BZ Research, 2012; Gartner, 2012). Primary Market Research In order to identify current difficulties with developing J2EE applications, we developed a series of online surveys to determine where companies are currently experiencing the most pain in their processes. We posted a request to fill out the survey on more than a dozen Java, application server, and J2EE news groups. In addition, we conducted numerous face-to-face interviews with users of J2EE application servers to determine both their current pain points and their interest level in a product like JavInstall. Our survey results were compelling. First, the 54 survey respondents identified a broad level of pain in dealing with J2EE applications – including difficulties with deployment, configuration management, communication, and performance. Second, deployment was clearly their number one pain point. On a scale of one to seven (seven representing the greatest level of pain), about 70% of respondents ranked deployment pain at five or higher; 45% of respondents rated it a six or higher; and a full 15% rated it a seven. Third, our research showed that 60% of the companies using J2EE application servers are using servers from different vendors in the same environment. The most common additional server in use was JBoss, the open-source - and thus free – offering. Our respondents also voiced a high degree of dissatisfaction with their current deployment tools. Current J2EE Deployment Spending According to conservative estimates, which we based on our primary research, current spending on J2EE application deployment averages about $20,000 per company per year. That cost breaks down to 65% labor cost from time to deploy, 30% fixing deployment-related defects, and 5% on deployment related software.

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Using this cost analysis, we estimate the current market size for J2EE deployment to be about $1 billion dollars (50,000 companies* $20K). In 2018, this will double to roughly $2 billion as the number of companies using J2EE applications doubles.

Deployment in a Nutshell

Deploying a J2EE application is conceptually no different than installing a program on a desktop computer. The deployment •package' consists of the application itself (the actual computer code) and configurations that tell the application what to do. There are a few things, however, that make J2EE deployment more complicated than installing a desktop program:

1. Applications have to be deployed to several different environments prior toit reaching the customer. For example, a typical J2EE application starts on adevelopment server where the software engineer writes the application code andconfigures the server. Next, the application goes to a test server where it isverified to work and conform to specification. After testing, the applicationcommonly enters a staging area for final verification, and then proceeds to aproduction server where the customer uses it. This makes installation morecomplicated than a typical desktop application, because the configuration of eachdiscrete server environment can vary significantly. As a result, each environmentcurrently requires a separate installation procedure.

2. J2EE applications run inside an application server. The application server isto a J2EE application what the operating system is to a desktop program. Eachindividual application requires the right server configuration in order to runcorrectly, just as the operating system on a desktop has to be correctly installedin order to run applications. What makes J2EE applications different, however, isthat many companies run the same applications on different application servers.This is somewhat analogous to trying to run the same desktop application onboth a Windows and Macintosh operating system. (Due to the nature of Javaapplications, this process is much more straight-forward). To run the sameapplications on different servers, software engineers not only have to be carefulin how they write their code, they also have to support unique configurations foreach type of J2EE server, as each vendor has a unique interpretation of theJ2EE specification. In essence, application servers from different vendors domuch the same things, and have the same kinds of configurations, but each hasa distinct configuration language.

Current Deployment Solutions

Though deployment is the most vociferous complaint among our survey respondents, clearly companies are figuring out a way to get their applications to the customer. Today, there are two main ways that companies deploy and install their J2EE applications. One is manual deployment. In other instances, companies use a series of internally developed and maintained scripts and utilities to deploy J2EE applications.

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Manual Deployment

Manual deployment has several advantages. First, each of the application server vendors provides a web interface through which applications can be deployed on their platform. This process is relatively straight forward and requires no more knowledge than what files to install and what configurations to set up. Companies that choose manual deployment typically document the installation and configurations that go with each version of their applications. They then have to update this document whenever they make a change to the install settings.

Even with web interface support and maintenance of the application specific document, manual deployment is often problematic. Documentation is time consuming because it has to be updated every time the configuration changes. Separate deployment documents also need to be maintained for each environment (test and production, for example), as the configuration settings often differ for each. In addition, companies supporting multiple application servers have to maintain a different installation document for each version of server. This process does not scale well. Each deployment to each server is a manual process that takes the same amount of time - every single time. Application installation on 10 servers takes 10 times as long as installation on one. For companies with a large number of servers, this translates into hours, if not days, of wasted time that could be spent productively elsewhere.

Manual deployment is also highly error prone. One wrong character can mean the difference between an application that runs correctly and one that will not even start. Between the risk of typos and its failure to scale to large deployments, manual deployment is virtually impossible for companies with many servers to use.

Custom Utilities and Scripts

Some companies – and certainly most of those that have a large or complex server environment - choose to develop custom scripts or programs (often called utilities) that deploy their application automatically. Typically the same department of software engineers responsible for writing the application writes and maintains the utility designed to deploy it.

These custom utilities avoid many manual deployment problems. Most importantly, custom utilities install applications exactly as intended. Since it is a programmatic process there are few manual errors.

Using custom utilities tends to be much faster than manual deployment and can scale to support large, very complex environments. In addition, different versions of the custom utilities can be tied to the version of the application it is designed to deploy. This helps ensure that a given version of the application installs with the intended configurations.

However, custom utilities are not perfect solutions to deployment issues. First, while custom utilities speed up the actual act of deployment, they are very time

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consuming to create and maintain. In addition, since the software engineers who write the application often write the deployment utilities, this takes them away from revenue generating tasks, such as creating new features or fixing defects. Second, each environment (development, test, staging, production) requires its own version of the deployment utility due to differences in the environments. Maintaining these different versions duplicates effort and often leads to errors. A configuration change made in one script (say the one that deploys to the test environment), but not in another (the one that deploys to the production environment), causes the application to perform incorrectly. Third, each application server (Weblogic, JBoss, etc) has a separate way of writing a deployment utility. To support an application on multiple platforms, a company must write and maintain separate deployment utilities. This compounds the opportunity for error. It's not uncommon for software engineers to update the deployment utility to support one kind of server but not another. The end result is that the application can run fine on Weblogic, but crash on Websphere.

We asked our survey respondents how they liked their current deployment tools. We asked them if they: a) liked them; b) were satisfied with them; c) were unsatisfied with them; or d) hated them. One-third of them were satisfied, one-third of them were dissatisfied, and one-third of them hated their current deployment tools. Only one respondent said his company liked its current tools.

In addition, independent research shows that configuration changes and application changes rank second and third, respectively, as causes of J2EE application failure. Also, research shows that organizations are supporting a growing number of applications and deployments into increasingly complex application environments (Ptak, et al, 2013). The problem will only get worse.

JavInstall

Our product, JavInstall, makes installing J2EE applications almost as easy as installing a desktop application. Today, a J2EE application consists of a configuration document or script, and a set of files that contain the actual program code, property files, and other settings. To install the application, the code and other files have to be copied to the correct location on an application server and the appropriate configuration settings made. JavInstall is different. Instead of a collection of files and configuration information, JavInstall builds a single program, just like a setup.exe for a Windows program. Engineers can then copy and execute that program in any environment (development, test, production or application server (JBoss, Websphere, Weblogic). JavInstall will automatically configure and deploy the J2EE application correctly.

The way JavInstall works is simple. Once the software engineer has written the application and configured the development environment, he points JavInstall to his development server. JavInstall analyzes the server configuration and creates a proprietary representation of it. The JavInstall application takes the configuration information it captured previously and the built application, and creates a single program that represents them both. Engineers can then run this single program to deploy the application to different environments and to any server type the application code supports. JavInstall makes all the necessary configuration translations automatically.

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JavInstall has several advantages over current J2EE application deployment. First, it is faster than manual deployment and requires a fraction of the development time that custom utilities require. JavInstall takes approximately 5% of the time required for either manual deployment or custom utility development. Second, it reduces configuration defects by 50% or more by automating the deployment process and providing a single configuration file for all different environments and server platforms. JavInstall avoids the configuration errors attributable to oversight and human error - essentially the unintentional mistakes. (Other configuration errors may be the result of poor design or architecture, which JavInstall cannot address). Our experience is that majority of configuration errors are unintentional, but for the purposes of product valuation we conservatively estimate it to be 50%. Third, JavInstall makes deployment a non-technical task. One can simply double click on the program, answer a few questions and the application will deploy to the server or servers specified. Software engineers can spend their time developing applications, not deploying them. In addition, JavInstall allows engineers to version, upgrade and even uninstall applications in ways that current solutions cannot. Marketing Plan Target Customer As put forth in the executive summary, we intend to initially target independent software vendors (ISVs) who develop J2EE applications. We conservatively estimate that this is 5% of the total J2EE market (BEA Performance Metrics, 2013). We decided to market to these customers because it is imperative for them to address this pain. The pain of deployment to various J2EE application servers has a disproportionately large impact on these ISVs and they will get the most benefit from this tool. The reason deployment problems plague ISVs has to do with the business ISVs are in – namely, selling software. With J2EE applications, selling their software to a customer means that they have to support their application on any brand of server their customer is currently using. For that reason, they usually have to support multiple brands of server, and even different versions of the same server, for their application. This exacerbates their deployment problems. We plan to sell JavInstall to development managers within ISVs. Development managers are usually the people responsible for deployments and application support (Ptak, et al, 2013). They deal with deployment problems on a day-to-day basis, and can technically understand the JavInstall solution. Furthermore, they have sufficient budget authority to buy JavInstall on their own recognizance. Reaching the Customer The Java community is very well organized. Today, most major cities have active Java User Groups (JUGs). These associations typically meet monthly to discuss Java specific issues or hear presentations from companies just like Bluestem. We

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anticipate sponsoring a number of these JUG meetings across the country. Sponsoring a meeting is usually very cost effective. Since meeting attendees come from a variety of companies within a city, it is an excellent way to get attention across a locality. Sponsoring JUGs is a common marketing technique for companies selling in the J2EE market. In addition to JUGs, we will set up booths at a limited number of Java and Enterprise Software trade shows, and interact with J2EE specific communities online. The largest of these, TheServerSide.com, boasts a membership of about 500,000 users. In addition to this strategy, we will also write a series of white papers and best practices articles about deployment. The industry currently lacks in-depth technical analysis on this topic. Sending a few press kits to industry news outlets could dramatically raise awareness of deployment problems, as well as raise awareness of Bluestem. Finally, we will also focus on cultivating a close-knit user community within our initial customer base, for several reasons. First, customer interaction typically lowers software support costs as customers help each other solve problems in addition to using support personnel. Second, it allows us to monitor and meet the evolving needs of our customers. The most important benefit this community provides Bluestem is increasing the interaction between engineers and thereby increasing word-of-mouth sales. This type of viral marketing is both the most cost-effective and most powerful marketing tool in this industry. Pricing and Distribution As explained before, our target customers are development managers at ISVs. We developed our pricing strategy with this customer in mind. We want to give development managers the opportunity to identify, try, and buy our product without having to make a lengthy business case to a director, vice-president, or chief technical officer. Today, most development managers have discretionary budgets that can support individual expenditures of $5,000 or more. We believe we will sell an average of two JavInstall licenses per customer. Therefore, we have set an initial target price of $2,500 per license. In addition, we will charge existing customers $750 per year per license in maintenance and support fees. Since the version of JavInstall they purchase will only support the versions of applications servers available at that time, customers will have to upgrade JavInstall when they upgrade their application server. As a result, we believe the vast majority of our customers will opt for yearly maintenance. Our distribution model leverages the internet. We will operate a download, try and buy model. All transactions in the process can occur online, or, at the option of the buyer, over e-mail or telephone with a sales representative. Our licensing model is a "per machine" model in which we require a license for every computer that has J2Jnstall. Once purchased, the license is perpetual, and the customer can generate as many installers with the program as they desire. We will provide distribution CDs and hard copies of user guides upon request. This model allows us to keep our COGS at less than 1% of sales.

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Sales Process In the early phases of product rollout, Bluestem Software will employ a small

direct sales force in combination with an online channel promoting sales. This combination allows the firm to address a large potential market via direct contact, and to address a diverse group of potential customers throughout Canada and the United States via the internet. A small direct sales force with a limited geography combined with the internet channel will allow us to maintain low customer acquisition costs: Our sales force will incur no travel expenses and we will employ only minimal advertising outside the internet channel. This method will also facilitate customer acquisition at a rate that our technical and applications resources can support. The purchase of JavInstall via the internet will allow customers to download the software for purchase. Additionally, as part of our marketing strategy, we will provide a one-time download trial of the software for free. This gives the customer an opportunity to recognize JavInstall's value. The trial also gives Bluestem an opportunity to get valuable feedback from customers who download the product but decide not to purchase it.

In the future, Bluestem will explore adding an indirect sales channel to expand the target market and rapidly increase sales. The existing network of more than 1,000 J2EE VARs (BEA Systems, 2013) will be employed to expand sales volume. At that time we will be ready to further expand our presence in the market and initiate international sales of J2Jnstall. This secondary channel will allow Bluestem to continue to mitigate the need for high-fixed costs associated with national and international sales coverage.

The sales cycle of JavInstall is expected to last 45 to 60 days. This includes seven to 15 days of research and initial investigation on the part of the customer, followed by a 30-day trial period. Subsequently, we will allow seven to 15 days for customers to potentially negotiate price and close the deal. This last phase of this will be customer dependent - the largest customers, who represent the greatest revenue opportunities, are likely to fall at the high end of this duration. Payment will primarily occur through the Bluestem website via credit card.

Customer Return on Investment

Our market research shows that our target customers conservatively spend an average of $20,000 per year deploying J2EE applications. This cost consists of $13,000 in personnel time, $6,000 in defects related to improper configurations, and $1,000 on software purchased to aid deployment. By using J2 Install, our customers can reduce their J2EE application install costs by more than 50% - from $20,000 to about $9,600. JavInstall reduces deployment time by 95%, and cuts the number of defects caused by deployment in half. As mentioned above, we believe our customers will spend an average expenditure of$5,000 on JavInstall. When added to the $1,000 currently spent on deployment software, this brings the software total to $6,000. Thus, the $9,600 total deployment cost is made up of $600 in personnel time, $3,000 in costs associated with overcoming configuration defects, and approximately $6,000 in software. This provides JavInstall users with a net savings of more than $10,000, a 200% return on their investment in the first year.

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We recognize that the $12,400 reduction in labor costs does not mean that a company using JavInstall is then necessarily free to reduce payroll by that amount. Companies are unlikely to terminate personnel based on this savings. However, by freeing up a software engineer from deployment tasks, that engineer can focus on revenue generating activities, such as adding new features or fixing defects. The approximate productivity of a software engineer is three to five times his or her salary; a $12,400 savings in payroll costs then translates to a revenue opportunity of $37,200 to $62,000. Even more compelling is where JavInstall ends up saving time. Deployment, and its considerations, is often at the tail end of the development cycle where crucial decisions are made as to which defects should be fixed, or what particular features to add. The end of the cycle is the golden time in software development, where time saved is at its most valuable. Saving even a few days at this time can be the difference between a great release, and one that is merely adequate. At $2,500 per license, J21nstall brings phenomenal value. Competitive Response Bluestem's products fall in a niche between two existing industry segments: J2EE Management software and installation software. Though no company producing J2EE Management software has an installation tool, nor does any player within the installation software industry have the kind of support for J2EE configuration that JavInstall offers, it is possible that one or more companies from either segment may decide to develop a competing product. J2EE Management Software The J2EE Management software industry is focused primarily on performance monitoring and tuning, the second-most problematic aspect of J2EE application use, according to our market research. In fact, performance tuning has been a problem with J2EE since conception of the technology. Over the years, the J2EE Management software industry has developed to aid companies in tuning and monitoring their applications. Before the advent of this industry, lack of performance was the number-one problem for companies using J2EE applications. The major companies in the J2EE Management software industry are (Gartner, 2013):

• IBM/Tivoli • Mercury Interactive • Wily Technology (Computer Associates) • Precise Software (Veritas Software) • Quest Software

While any of these companies could create a product competitive with J2Jnstall, we believe the most likely companies to do so would be Mercury Interactive and Wily Technology. Mercury is best known for its suite of testing tools, but has recently expanded its product line to include performance monitoring and instrumentation tools. Adding an installation and deployment tool to its suite would lead to greater lock-in of the development process for their tool set. However, we believe Mercury is more likely

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to add this capability by purchasing existing J2EE deployment and configuration technology – such as JavInstall – than it is to create it.

Wily Technology is considered the most innovative company within the J2EE Management software segment. Its current focus is specifically on performance monitoring and, arguably, it has the most compelling tool set within the industry. As such, it may also find a J2EE installer an interesting addition to its product line. Due to the competitive nature of the industry, however, we believe Wily is more likely to partner with Bluestem than diverting resources away from its core competency to develop its own install software. Wily is in the process of being purchased by Computer Associates for $375 million, roughly 6 times their revenue.

Installation Software

Installation software is focused on the Windows desktop market segment. This is obviously the biggest market for installation products. The major company in this industry is Macrovision (InstallShield, InstallAnywhere).

Macrovision is the dominant company in installation software. Most Windows installers are written in one of their two products. Their InstallAnywhere product has some limited J2EE support, but it does not have any of the key application server knowledge that allows JavInstall to automatically deploy and configure applications. That being said, Macrovision could decide to duplicate our technology. They certainly have the resources to do so. Our strategy is to pre-empt their entry into the market by building a "plug-in" for InstallAnywhere. A plug-in is a way to insert new features of functionality into an existing software project. The lnstallAnywhere product's architecture allows this type of additional functionality. A plug-in would place the JavInstall functionality within the InstallAnywhere application. This strategy allows Bluestem to either: l) price JavInstall competitively to current InstallAnywhere users or 2) partner with InstallAnywhere to resell the JavInstall functionality. Of the two, weprefer the latter. Further, we believe that focusing exclusively on the J2EE space gives us a competitive advantage over entrants from a Windows-dominated industry. Java users are generally distrustful of tool makers that don't focus on Java technologies.

While not specifically an installation software company, Urban Code produces a popular build tool for J2EE software called Ant Hill Pro. Their entry into the J2EE deployment space is possible, but unlikely. We hope to pre-empt any Urban Code entry into this market by partnering with the company early in our product life-cycle. We believe that the combined use of J2Jnstall and Ant Hill Pro offers potential synergies.

In addition to entrants from these two market segments, we feel that another credible competitive response would be the introduction into the market of an open-source product with the functionality of JavInstall. This type of utility (management software) is becoming increasingly common in the open-source community. We find it plausible that a group of software engineers may decide JavInstall is a good idea and develop their own version for free use. If that does indeed occur, Bluestem's response will be to actively engage in the project and contribute time and resources to it. While counterintuitive, this allows Bluestem to control the breadth and direction of the project.

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We will use that leverage to push the product into a "single user" or "personal edition" targeted product, leaving the higher-end market within the for-profit corporate realm. Should that strategy fail and an open-source project directly competes with JavInstall, we still believe a substantial market opportunity will remain for JavInstall. A large proportion of companies are inherently distrustful of open-source software products, and refuse to use them at all.

Our sustainable competitive advantage, however, is rooted in the way our product ties into our customer's development cycle. Once the customer comes to use and rely on JavInstall to deploy and configure their applications, we will have created significant lock-in for the product. Once using JavInstall, the customer will find it both expensive and painful to switch to another product that offers similar services. As long as JavInstall is feature and price competitive, our current customer base will find it less expensive to remain a Bluestem customer than to switch to another offering or to go back to manual or script deployment.

Current Development

Bluestem Software is currently 95% complete with the first release of JavInstall the program's core engine is working and our proof of concept is successful. JavInstall supports both the Web logic and Websphere application servers. However, there is no graphical interface. At this stage, the program is completely command line driven; that is, the user must type commands to use the software. The next step is to create the user interface (UI) required for a beta site test release.

Going forward, we see the following key milestones prior to JavInstall's release:

September 2014: the code will be complete, the user interface will beworking, and Bluestem will be able to release JavInstall to the first betacustomers.

November 2014: we will add JBoss and Oracle support.

We forecast the first commercial release of JavInstall at the beginning of2015.

Product Road Map

We consider our current product under development to be a "Professional" version. That is, it supports both sophisticated options and core functionality. Our vision for the entire JavInstall product line includes offerings that are both more and less feature rich than the current version.

For our high-end product, currently named JavInstall Enterprise, we envision turning our stand-alone program into a J2EE application. From a single web interface, users can point and click to install, uninstall, roll-back, or otherwise manage all their server deployments – from any vendor and in any environment. We will couple this functionality with identity management so that only the right people can move applications from one environment to the next. This allows us to position the product as both a deployment application and a tool for use in governance and control. We

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anticipate JavInstall Enterprise to be compelling to larger companies. We foresee selling the product for approximately $15,000 per license and offering it to the market in 2017.

Our low-end product is currently called JavInstall Personal. This product will be a subset of JavInstall Professional. For example, it will support only one application server, and have fewer versioning, upgrade, and uninstall capabilities. We anticipate offering JavInstall Personal as a competitive response to a product entering the low end of the market, but have no projection date for product launch. Our financial data does not include any sales of this product.

In addition to these opportunities, we feel that there are commensurately sized adjacent markets outside of the J2EE space (for example, database migrations, PHP/Apache deployment, etc).

Management Team

Bluestem Software is headed by Carolyn Page, who serves as President of the company. Ms. Page has 10 years of experience in the software development industry, eight of which are in senior management positions in Operations, Project Management, and Quality Assurance. Ms. Page has spent the last six years working specifically with J2EE technologies. Nine years of Ms. Page’s work has been with start-up software companies. Ms. Page is an original founder of Bluestem Software.

John Perez is the Director of Technology for Bluestem, and also an original founder of the company. Mr. Perez has eight years of experience in the software development industry, and has spent five of those years at start-ups. Mr. Perez has spent his career focused on configuration management and deployment of enterprise applications. The last six years of his software career have been spent specifically building deployment, configuration management and build solutions for J2EE technologies. Mr. Perez is the sole author of the J2Jnstall product.

We plan to add core talent in product marketing and sales during 2015. In addition, should Bluestem meet our expected growth, we plan to recruit seasoned executive talent to guide the business through its rapid expansion.

Financial Projections

We anticipate negative net income for the first three years of operations. However, beginning in 2017, we expect to enter profitability with approximately $1.2 MM in net income off of $5 MM in revenue. By the next year, 2018, we expect to increase net income to $3.2 MM and double revenue to almost $11 MM. It is important to note that these projections are conservative, with a maximum market share projection of less than 2%.

While Bluestem Software is a viable company even with these low market share numbers, there is a substantially larger upside if the company captures greater market share. For example, if the company captures 5% of the market, it will generate more

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than $8 MM in net income from revenues of $27 MM. At 10% market share, Bluestem will have revenues in excess of $54 MM and net income of more than $16 MM.

Funding Requirements

Bluestem is currently seeking seed funding in the amount of $350,000. This investment will be used to fund the company through its first customer acquisitions. We will use this investment primarily to hire the initial staff, and secure the first direct sales resources. This investment, combined with projected revenues for 2015, will be sufficient to see the company through one year of operations.

In Q1 2016, the company will need a series "A" round of funding in the amount of $1.25 MM. This investment will be sufficient to see the company through to cash flow positive. We will use these funds to round out the direct sales force, hire additional development and support personnel, and secure key executives who will be critical in managing the company's expansion.

Appendix A: Financial Projections

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Balance Sheet

Bluestem SoftwareAs at Dec 15, 2014 Opening Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15

BALANCE SHEET

Cash 350,413 287,204 247,555 211,546 182,998 159,975 141,404 115,136 95,875 86,611 72,290 62,956 1,309,598

AR -- 8,593 19,333 32,222 36,519 38,667 42,963 42,963 51,556 51,556 64,445 90,223 90,223

Fixed Assets -- (208) (416) (624) (832) (1,082) (1,332) (1,582) (1,832) (2,082) (2,332) (2,582) (2,832)

Other Assets - Inventory, Pre-Paid Expenses, PP&E, Other 44 16,750 19,519 19,785 27,389 30,953 33,534 42,078 42,240 42,240 45,088 45,553 60,605

Total Assets 350,457 312,339 285,992 262,929 246,074 228,513 216,569 198,595 187,839 178,325 179,491 196,150 1,457,593

AP 7 7 14 25 29 33 36 36 43 43 54 60 60

Deferred Revenue -- -- -- -- -- -- -- -- -- -- -- -- --

Other liabilities - Accrued Expenses -- 119 267 446 505 535 594 594 13 713 891 1,238 1,238

Total Liabilities 7 126 281 471 534 568 630 630 56 756 945 1,298 1,298

Equity 350,450 312,213 285,710 262,458 245,540 227,945 215,939 197,965 187,782 177,568 178,546 194,852 1,456,295

Total Liabilities & Equity 350,457 312,339 285,992 262,929 246,074 228,513 216,569 198,595 187,839 178,325 179,491 196,150 1,457,593

Appendix A: Financial Projections

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PROJECTED

INCOME STATEMENT Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15

Revenue Model Enterprise Software

Revenue $7,920 $17,820 $29,700 $33,660 $35,640 $39,600 $39,600 $47,520 $47,520 $59,400 $83,160 $83,160

Cost of Revenue $44 $88 $154 $176 $198 $220 $220 $264 $264 $330 $367 $367

Gross Profit $7,876 $17,732 $29,546 $33,484 $35,442 $39,380 $39,380 $47,256 $47,256 $59,070 $82,793 $82,793

% margin 99% 100% 99% 99% 99% 99% 99% 99% 99% 99% 100% 100%

Operating Expenses:

Sales Expense 1,040 7,016 13,503 13,522 14,532 13,552 13,552 13,592 13,592 13,651 13,767 21,182

Marketing Expense 13,500 7,500 7,500 6,500 8,000 5,000 6,500 6,500 6,500 6,500 6,500 6,500

R&D Expense 7,933 5,933 7,933 5,933 5,933 7,933 10,876 10,876 10,876 10,876 10,876 10,876

G&A Expense 23,865 23,865 23,865 24,365 24,365 24,615 26,928 26,928 26,928 26,928 26,928 26,928

Trials Expense (Medical Devices Only) -- -- -- -- -- -- -- -- -- -- -- --

Total Operating Expenses $46,338 $44,313 $52,800 $50,319 $52,829 $51,099 $57,856 $57,896 $57,896 $57,955 $58,071 $65,487

EBITDA (38,462) (26,581) (23,254) (16,835) (17,387) (11,719) (18,476) (10,640) (10,640) 1,115 24,722 17,306

% margin (485.6%) (149.2%) (78.3%) (50.0%) (48.8%) (29.6%) (46.7%) (22.4%) (22.4%) 1.9% 29.7% 20.8%

Less: Depreciation & Amortization 208 208 208 208 250 250 250 250 250 250 250 250

Operating Income (EBIT) (38,670) (26,789) (23,462) (17,043) (17,637) (11,969) (18,726) (10,890) (10,890) 865 24,472 17,056

% margin (488.3%) (150.3%) (79.0%) (50.6%) (49.5%) (30.2%) (47.3%) (22.9%) (22.9%) 1.5% 29.4% 20.5%

Interest (Expense) / Income 432 287 210 125 43 (37) 752 707 676 639 614 549

Pre-Tax Income (38,238) (26,502) (23,252) (16,918) (17,594) (12,006) (17,974) (10,183) (10,214) 1,504 25,086 17,605

Tax Expense (-) 35.0% -- -- -- -- -- -- -- -- -- (526) (8,780) (6,162)

Net Income ($38,238) ($26,502) ($23,252) ($16,918) ($17,594) ($12,006) ($17,974) ($10,183) ($10,214) $978 $16,306 $11,443

% margin (482.8%) (148.7%) (78.3%) (50.3%) (49.4%) (30.3%) (45.4%) (21.4%) (21.5%) 1.6% 19.6% 13.8%

CASH FLOW

Net Income (38,238) (26,502) (23,252) (16,918) (17,594) (12,006) (17,974) (10,183) (10,214) 978 16,306 11,443

D&A 208 208 208 208 250 250 250 250 250 250 250 250

Changes in Net Working Capital:

AR (8,593) (10,741) (12,889) (4,296) (2,148) (4,296) -- (8,593) -- (12,889) (25,778) --

Other Assets - Inventory, Pre-Paid Expenses, PP&E, Other (16,706) (2,769) (266) (7,604) (3,564) (2,581) (8,544) (162) -- (2,848) (465) (15,052)

AP 0 7 11 4 4 4 -- 7 -- 11 6 --

Deferred Revenue -- -- -- -- -- -- -- -- -- -- -- --

Other liabilities - Accrued Expenses 119 148 179 59 30 59 -- (581) 700 178 347 --

Cash Flow From Operations (63,209) (39,649) (36,009) (28,548) (23,023) (18,571) (26,268) (19,261) (9,264) (14,321) (9,334) (3,359)

Capital Expenditures -- -- -- -- -- -- -- -- -- -- -- --

Cash Flow After Investing Activities (63,209) (39,649) (36,009) (28,548) (23,023) (18,571) (26,268) (19,261) (9,264) (14,321) (9,334) (3,359)

EQUITY INVESTMENT ====> -- -- -- -- -- -- -- -- -- -- 1,250,000

Total Change in Cash (63,209) (39,649) (36,009) (28,548) (23,023) (18,571) (26,268) (19,261) (9,264) (14,321) (9,334) 1,246,641

Beginning Cash Balance 350,413 287,204 247,555 211,546 182,998 159,975 141,404 115,136 95,875 86,611 72,290 62,956

Change in Cash (63,209) (39,649) (36,009) (28,548) (23,023) (18,571) (26,268) (19,261) (9,264) (14,321) (9,334) 1,246,641

Ending Cash Balance / Cumulative Cash Needs 287,204 247,555 211,546 182,998 159,975 141,404 115,136 95,875 86,611 72,290 62,956 1,309,598

Bluestem Software