We are offering 20% equity for $300,000 to capitalize this venture. $90,000 will be spent to set up shop, advertise, and acquire properties for publication. $210,000 will be capital for operations until profitable (projected to be 2nd quarter of year two). We are offering 20% equity for $50,000 to advertise and market properties over two years. The total equity for sale is negotiable. The minimum equity investment is $25,000. (See the reason for the big change!)

We are also offering a debt investment.Minimum investment is $50 US. There is no maximum investment. Investors may increase the size of their investment at any time in $50 US increments until September 1, 2000.

II. STRATEGY AND MISSION

THE CONDITIONS

Speculative fiction publishers use a manufacturing model to define themselves. They are essentially looking to reproduce what sold well last time, and aren't interested in publishing risky or unproven materials. This includes cross-genre works that may have moderate appeal in several markets simultaneously rather than strong appeal in a single market.

There are two results. First, creators are treated like "typists with attitude," or like assembly-line workers in an entertainment factory. When sales fall below a certain level—in speculative fiction books, this is about 15,000 units/year—the work is "out of print," and no more copies are available. There is little time for a work to gain currency. Eventually, a creator may be persona non grata at a publisher because sales of several works fell "below the radar."

Second, readers are extremely dissatisfied with what they see as "me too" publishing. Speculative fiction is the most dynamic branch of literature today, yet most of the work that comes out is seen by readers as duplicates of the last "breakthrough" work some publisher was finally convinced to take a risk on. Readers have clearly expressed their desire for more serious work; better, less sexual art; more short fiction; and more work that "pushes back the envelope."

Extant publishing houses are unable to respond to either of these conditions. They can't print small quantities, and they can't wait for sales to increase. They must print large quantities before sales, so they can't afford to take risks. They'd rather try to push active properties into secondary markets like trading cards and T-shirts. This also indicates they see themselves not as fiction publishers but as entertainment corporations who use books and comic books as lead-ins to other, more lucrative markets. They make more money, but they are only interested in works that can be turned into posable action figures.

THE TECHNOLOGY

Recent advances in laser printers have opened up a new market in high speed electronic printing presses. These presses take an electronic pre-press file and turn it into a finished print product—a book, a comic book, a poster—whatever item was available before in print is available from these presses.

Then what's the difference between the old offset way and the new electronic presses? Printing on demand (POD).

The new presses make it possible to print as few or as many of an item as you like, immediately, on demand. This means there is no longer any need to create a unit for sale before the sale is made. There is no need to warehouse thousands of pre-sale copies of an item while trying to stimulate demand. By marrying POD with direct mail/email; Web sales; and convention sales, all items can be created on demand in a supply exactly equal to the demand.

In addition, no item is ever "out of print." Electronic pre-press files can be stored virtually forever, and an item can be printed as easily 20 years from now as it can be today. This makes it possible to recover production costs over longer times, and it increases aftermarket sales to new readers (someone reading #5 of a series can get #1-4 immediately).

THE COMPANY'S MISSION

Stone Dragon Press will increase the quality and range of speculative fiction by using POD and direct sales to:

• return creative control to authors and creators;
• disconnect availability from number of units sold;
• increase aftermarket sales to new readers.

We are the partners of creators and readers, letting creators work according to their vision and providing readers with significantly more than "me too" fiction. Stone Dragon will become a nationally recognized name in speculative fiction, known for fairness with creators; for excellence of product and service; and for bringing new and exciting material to the marketplace.

STRATEGY

Stone Dragon will begin by reprinting out-of-print science fiction books, and expand into other areas of speculative fiction. We will be unique because any book we bring to print will always be in print while under our ægis, and because availability will be disconnected from number of units sold. We will also seek out new material for comic books, selecting for creativity and skill rather than "what sold last year."

At the end of the first year, Stone Dragon will seek out new material of all kinds: books, comic books, graphic novels, and magazines. Our goals will be to keep creative control in the hands of the creator; to be known for dealing fairly and promptly with creators, respecting their rights to their work; and for providing the highest quality new and exciting material to our customers.

We will operate under the title Stone Dragon Press, but we will have imprints under that banner, for example: Writer's Writer; Midnight ReRun; and Cross Genre. Magazines and comic books will have their own titles, such as "Magazine X," "Two-fisted Science Tales," and "Alien Blame." Comic books may be grouped under imprints to indicate similarity of content.

We will also offer editing services for hire to authors whose material is substandard, including "vanity press" publishing.

THE MARKET

Trade and mass market paperback book publishing was a $3.1 billion market in 1996, and $1.4 billion of that market (45%) was fiction. This market was generated from the sale of 2500 different titles. 70% of all fiction sales are speculative fiction; thus the market is $980 million based on sale of 1750 titles. We anticipate doing $4.5 million of book sales in our first five years, or 1/100 of 1% of the total book market over five years.

Comic book publishing was a $450 million market in 1996, and $189 million of that market (42%) was by independent publishers (not Marvel or DC). Small independents are estimated to hold $103.5 million of this market (23%).

Indy magazine, the comic book industry monitor of independent publishers and concerns, states "the bigs" won't handle any comic book whose sales are under 1000 copies per issue. There are literally hundreds of comic books that fall below this radar and are made even more obscure by insufficient marketing. We anticipate doing $500,000 of comic book sales in our first five years, or 1/8 of 1% of the total independent comic book market over five years.

COMPETITION

While it appears we are directly competing with the bigs (Random House or Harper, for instance), in fact, we are not, because

1. we are interested in books they have already deemed to be "not commercial," that is, they sell too few units or are too risky;
2. we are interested in large numbers of low-unit sales (500 comic books that sell 300 each = 150,000 units sold);
3. we are interested in books that fall across genres;
4. we are interested in out-of-print books.

Our real competition can only come from publishing firms that choose to convert to printing on demand; but it is unlikely they will convert because retooling will not make them more profitable than their current setup, only more flexible. In any case, our defense will be to provide such fine service to and treatment of authors that it will be worth their while to stay with us. Even if the trend is for authors to leave us for larger houses, that is good: more authors will approach us with the hope of being "picked up by the majors."

In more physical terms, there are over 200 high speed electronic presses installed in the Twin Cities alone. While these appear to be competition, they are largely buried in specialty printing houses who do high-profit, short-run, customized four-color brochures and in large corporations who use them for in-house printing only. We are not aware of any publisher who has consolidated and integrated printing and publishing with this kind of press.

The two largest book distributors in the nation (Ingram and Baker&Taylor) have announced they are adding a POD division to their distribution system to try to retain sales of mid-level books. They are not acquiring new materials, only licensing mid-level books from their wholesalers. This indicates "the bigs" are sensing that they are vulnerable to independent publishers in much the same way Hollywood has discovered it is vulnerable to low budget, high concept independent films.

MARKETING

Marketing will have several thrusts: direct mail, electronic mail and links, creator word-of-mouth, and print. In all cases, marketing will be highly directed to a target audience.

DIRECT MAIL

Every customer who contacts us will be asked to fill out a survey to determine preferences. We will rank the content of our books the same way the survey ranks the customers. We will print a catalog that is composed of books they are strongly, normally, and mildly interested in. This will be the equivalent of receiving a Land's End catalog showing only the clothes you like to wear in the sizes that fit you and the colors you like.

ELECTRONIC MAIL AND LINKS

We will direct customers to our products with links between our web page and other web pages, with an aggressive presence in related newsgroups, and with direct email. Direct email will be tailored with the same tools as direct mail. The cost for electronic marketing will be virtually nil.

CREATOR WORD-OF-MOUTH

Authors and artists attend conventions where they are essentially surrounded by people who are already interested in their work. We will give authors and artists business cards with their name, our name, and our contact information. When asked "Where can I get your books?", they will hand the asker a business card and say, "You can get my books at 1-800-MY-BOOKS." or "www.stonedragonpress.com."

PRINT

We will place display advertising in very select magazines of fiction and review.

OTHER BUSINESS CATEGORIES

VANITY PRESS

When we open our doors to new, unsolicited material, many authors will send us books that are below par. They may need proofing; they may need editing; or they may be genuinely unpublishable. In all these cases, we can offer to fix the manuscript or publish the book on a fee-for-service basis.

"ART HOUSE" BOOKS

Many of the artists who work for us will want to have portfolia printed as books for sale or as résumés. These books are normally very expensive because of the large number of color plates involved, but costs can be held down by printing on demand.

PUBLISHING FOR SMALL PRESSES

Small presses are faced with the same problems as large publishers in that they must guess how many books to print before they are sold. We can offer contract printing to such presses, or we can offer to handle their entire line in the same way we do our own (direct mail/email and web sales).

MANAGEMENT TEAM

The management of Stone Dragon Press will be Clarke Stone and Gordon Smuder. Mr. Stone has 10 years of experience in editing and small press publishing, and he has been critically involved with speculative fiction for 17 years. Mr. Smuder has 10 years experience in the special effects industry and the comics industry. Smuder also took first prize in a special effects competition at the 1996 World Science Fiction Convention. Stone and Smuder have their latest comic book property, Starrun, in print at RadioComix.

In addition, Stone Dragon has assembled a board of advisors. They are:

III. OPERATIONS

PHASE 1

We will obtain the rights to out of print books by well known creators. We will obtain the right to publish previously unpublished books that were considered "not commercial." We will prepare these for publication and advertise and publicize our intent to do so. We will attend conventions to look for new comic book and speculative fiction properties; and for extant properties that would benefit from moving to a professional publishing house.

PHASE 2

We will physically set up the office, install the equipment, hire the personnel, and begin production. Phase 1 and Phase 2 will overlap significantly.

PHASE 3

We will refine advertising, marketing, and publicity to increase sales. At the end of year 1, we will open to new material, including proposals for magazines. We will continue to ramp up to full production.