Small Business Pack Business Plan

PROPRIETARY INFORMATION: Do Not Distribute

Business Plan

13402 N Hayden Rd

Scottsdale, AZ 85260 http://home.earthlink.net/~atlantis

Atlantis Tropical Business Plan

PROPRIETARY INFORMATION: Do Not Distribute Contents

Contents Executive Summary.....................................................................................................................................1 Objectives ......................................................................................................................................................2 Mission...........................................................................................................................................................2

Company ......................................................................................................................................................2 Company Ownership .....................................................................................................................................2 Company History ...........................................................................................................................................2 Product Lines.................................................................................................................................................3 Company Location and Facilities ..................................................................................................................3

Product .........................................................................................................................................................3 Product Description .......................................................................................................................................3 Important Product Features and Comparison ...............................................................................................4 Product Literature ..........................................................................................................................................5

Market Analysis ...........................................................................................................................................5 Industry Analysis ...........................................................................................................................................5 Keys to Success ............................................................................................................................................5 Market Forecast.............................................................................................................................................6

Business Strategy and Implementation ....................................................................................................7 Marketing Strategy ........................................................................................................................................7 Sales Plan......................................................................................................................................................8 Strategic Alliances .......................................................................................................................................10 Service.........................................................................................................................................................11

Organization...............................................................................................................................................11 Organizational Structure..............................................................................................................................11 Management Team .....................................................................................................................................11 Management Team Gaps............................................................................................................................12

Financial Analysis .....................................................................................................................................12 Financial Plan ..............................................................................................................................................13 Financial Assumptions.................................................................................................................................14 Start-Up Costs and Capitalization ...............................................................................................................14 Pro Forma Income Statement .....................................................................................................................16 Pro Forma Balance......................................................................................................................................18 Break-Even Analysis ...................................................................................................................................20


PROPRIETARY INFORMATION: Do Not Distribute Page 1

Executive Summary Leonard Douglas formed Atlantis Tropical as a corporation in May 1997, in response to the following market conditions:

• Start-up opportunities exist in both the product and service aspects of the industry;

• We have several prospective customers who have expressed serious interest in doing business; and

• Arizona, in particular the Phoenix/Scottsdale area, has shown to be very good to new businesses.

Mr. Douglas previously worked for a company that was active in the aquarium and fish trade; he has also been maintaining aquariums for customers for eight years. Over the past few years, we have spent much time studying ways to improve overall performance and increase profits over what the local competitors have been able to accomplish. This plan is a result of these studies.

The basic components of this plan are:

Company

• Our ownership and history; and

• Company location.

Products

• Aggressive advertising; and

• Emphasis on higher margin items.

Services

• Offering incentives for long-term maintenance agreements; and

• Aggressive advertising.

Market Analysis

• Why we will be a success; and

• The future of the industry.

Business Strategies

• Sales Plan

• Service

Organization

• Structure

• Team



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2001 2002 2003 2004 2005

Company Business Plan Highlights Sales revenueMarginNet profit

Objectives Four measurable objectives drive the future of Atlantis Tropical:

1. To increase sales to over $1 million by 2003;

2. To maintain gross margins above 45% throughout the 5-year period;

3. To increase sales in livestock (fish, plants, etc.) and aquarium maintenances to account for 40% of our sales by 2001; and

4. To increase profits to $200,000 by 2003.

Mission Using a combination of good customer service and trained, knowledgeable employees, Atlantis Tropical will provide the beginner, intermediate and expert aquarist with the tools and information needed to have success in this unique and ever-changing hobby.

Company Atlantis Tropical will be selling aquariums, stands, lighting supplies, dry goods (nets, cleaning supplies, decor, etc.), fish, live plants, and maintenance services throughout the Phoenix metropolitan area. Our headquarters will be in Scottsdale, Arizona.

Company Ownership Atlantis Tropical is a private corporation, to be owned by fewer than a dozen shareholders. Leonard Douglas will hold 51% of all stock, while the remainder is to be divided between private investors and an employee stock option plan that will be initiated after the business is firmly established.

Company History The company was founded in 1994 by Leonard Douglas. It began as a simple side job of cleaning and maintaining freshwater aquaria. As this service grew, so did the amount of people



complaining about the current crop of aquarium stores, and the need for a change. When Mr. Douglas began an Internet Web-site as a free advice column about fish, he noticed that this trend was not only local, but prevalent industry-wide, as aquarists everywhere complained about the lack of customer service, and the need for truly knowledgeable retailers. It was at this point that Mr. Douglas decided the time was ripe for a new competitor.

Product Lines Our products will be among the finer on the market, utilizing brands such as Eheim and Ebo-Jager that, while known as quality brands to experienced aquarists, are rarely sold or marketed by stores due to the “foreign sound of their names” (based upon Petsmart sales meeting, Oct. 92). We will also carry the medium range brands as well for the beginning hobbyist in order to utilize name brand recognition, especially with the Tetra/Second Nature, Marineland, and Wardley corporations.

Our fish will be both purchased from a vendor in California and bred in our own breeding station in the store. Mr. Douglas has already been able to breed several species of fish that have been considered hard to breed, so we feel that this will be another way to lower the cost of our most profitable sales item. All of our saltwater fish will be either captive-bred or net-caught, both more expensive but more humane and popular than the current trend of cyanide-trapping, a method which is destroying the coral reefs. A plaque stating this pledge will be posted at the front door. At the same time, we also plan to breed and sell our own supplies of live foods, such as brine shrimp, that are becoming extremely popular among aquarists.

Our services will not only include aquarium maintenance, but initial set-up and 24 hour on-call emergency services, in case of leaks, accidents, or any other such occurrence. To promote these services, Atlantis Tropical will be guaranteeing the lowest price to clean the aquarium, and will back it up by beating any price quote from a competitor.

Company Location and Facilities As of this writing, Atlantis Tropical will have a central office located in Mr. Douglas’s home. The store will be located in the far north portion of Phoenix, where most of the Valley’s growth is projected to take place. The office will be used exclusively for accounting purposes, while the store will be the hub of everyday activity.

Product Our product selection will be such that it will provide the specialized, high-quality goods that the experienced aquarist will need, as well as helping the fledgling hobbyist to begin a tank on a low budget. Our lines have been chosen from those that are known for their high quality, while we have also kept an eye on what the consumer will see first: the cost.

Product Description Atlantis Tropical will offer five main product lines: Aquariums and Furniture, Lighting, Dry Goods, Foods, and Livestock and Plants. We will also include our Maintenances as a product line.

Aquariums, Stands and Canopies We plan to sell a well-rounded selection of both glass and acrylic aquariums, as well as offering special order services, special installations, and free delivery and home installation with some purchases. The corner, hexagonal and trapezoidal aquariums that are gaining in popularity but are rarely stocked in most stores will be kept to a minimum, but will be available for customer purchase. Our stand and canopy selections will be well rounded as well, and will range from wrought iron to beautiful pine and oak designs.



Lighting Since only one other store in the Phoenix area offers the more advanced lighting systems (metal halide, VHO fluorescent lighting), we plan on this being one of our key points of emphasis, stocking a full selection of fluorescent lighting and having a small inventory of the advanced lighting. In this way, we plan to take those customers that have been turning to mail order services and make them our loyal customers.

Dry Goods At start-up, our prices on dry goods (decorations, chemicals, books and such) will need to be dropped to almost that of our competitors in order to sell them, as the major stores have taken a loss-leader approach to them. Our intention is to offer a wider variety of those items that our larger competitors do not stock, such as saltwater supplies, grotto and slate rocks, and different forms of filtration.

Foods The foods section should be a major draw for customers. Not only will we have a frozen food selection larger than our competitors, but we will also offer brine shrimp, daphnia, and other live foods that are utilized by the experienced aquarist. We will also be stocking the highly regarded Hikari, Tetra, and Wardley lines of freeze-dried flake and pelleted food. Customers that need live feeder goldfish and guppies will find them in stock when they need them, thanks to our breeding room.

Livestock and Plants This, we hope, will be the draw for our customers. There will be a full selection of freshwater and saltwater fish set in clean, well-maintained aquariums, ready for sale. Our marine invertebrates will be set in small cubicles so as to be easily identified and observed for quality before purchase. The plants will be set apart in a specialized plant tank. Also, as a centerpiece to our store, we will be constructing an above ground pond, filled with koi goldfish for sale. In this way, not only will we have larger koi to sell, but we can also setup benches to have a place for parents to rest when the kids are “still picking them out.” As a promotion, we intend to have, instead of monthly specials like our competitors, the “Catch of the Day,” a randomly generated fish that will sell for 50% off that day only. We hope to draw more customers to stop in and see what the special is so that they may browse the store as well.

Aquarium Maintenances We intend for our maintenances to completely take over the industry. Aside from the fact that we will be pushing maintenances with every aquarium sale, we intend to offer discounted packages at Christmas time, and we will guarantee the lowest price in the area, as the lowest quote we have heard from a competitor is at least twice as much as we will be charging. We also intend promotions such as “the fisherman’s dozen” (12 months of service for the price of 11) to continue the growth in this area.

Important Product Features and Comparison A high percentage of our products will be such that they are not offered at any other store in Scottsdale except ours. At the same time, we will be stocking products that are known throughout the hobby for their good names and dependability. We believe that people will find our competitive prices, selection, and quality reasons enough to keep coming back. Our services will be equal to or higher in quality than our competitors, and we expect the price will be low enough to almost be an impulse buy when the hobbyist purchases the aquarium.



Product Literature We are already in possession of several guides, published by the manufacturers themselves, which will help the aquarist in setting up and maintaining their new aquariums. Aquarium Pharmaceuticals, one of our suppliers and a major corporation in the aquarium trade, is well known for assisting small businesses, and we already have in our possession their co-op advertising materials. Marineland, manufacturer of the Penguin filtration line, has already offered to assist in grand opening planning and is willing to provide materials for it.

Market Analysis Our company’s position in our market is going to be a unique one. In the area in which we will be starting, the competition is scarce. There is a Petsmart located approximately two miles to the west, which only sells freshwater fish, tanks of smaller size, has no set-up, maintenance, or custom services, and hires people with no knowledge of the hobby to work its department. Petco, located approximately seven miles away, sells a very limited supply of saltwater fish, a large supply of freshwater, has no services, and prices 25 to 50% higher than what we plan to charge. Closer by is a small mom-and-pop store with only a dozen tanks of fish for sale. There is also Land and Sea, a saltwater-only store about ten miles away, which has knowledgeable people and decent services, but at prices that are higher than the average individual would even consider paying. In all, it looks as if this section of the market will be ours for the taking. The location will be convenient to at least a dozen large apartment complexes, with more being constructed. It is also located in what will be a large population center of Phoenix, and is in what is turning out to be an affluent area.

Industry Analysis The aquarium industry is one that has massive growth potential, and is seeing some of it come to fruition. The past few years, the Arizona Commerce Department has tracked the growth of our market segment at 10%, substantially higher than gains in other, comparable industries.

Keys to Success Atlantis Tropical will be utilizing a three-step approach in order to become the market leader: quality, service, and selection. We feel that only by accentuating what will be our strong points, and minimizing any effects of our weak points such as price, will we establish a competitive basis.

Quality Every one of our products will be chosen from lines that are known for quality. Instead of stocking the “bargain” brands that last for a few months and cause upset customers, we plan on stocking the lower lines of the major names in the industry, so our customers will still know that our products are instilled with the quality that they should expect from us.

Service Our customer service will be something that keeps people coming back. With 24-hour service, a Q&A website, and knowledgeable employees, we will be able to help solve any problem that a customer is having. Both Mr. Douglas and Ms. Allen come from strong customer service backgrounds, so their experience will be most helpful. We will also do minor repairs on pumps and filters, so that we can help those customers with no mechanical knowledge whose filtration has gone out on them.



Selection Here we plan on being able to completely surpass our competition. All of the most popular lines will be carried, and the selection will be such as to negate any desire for our customers to begin using any mail order services. Add to this our assortment of fish and marine animals, our live and frozen foods, along with our planned special order services, and the competition will not be able to compete.

Market Forecast Much of the information that follows is derived from Arizona Department of Commerce statistics and estimates, as well as financial data supplied by Dun and Bradstreet. We have also had talks with other stores that would be out of our target area.

Statistics and estimates based on the past few years show that there is currently a 10% annual increase in pet retail sales. There is no standard for tracking the increase in maintenance companies, but from our discussions, we are estimating this growth to be approximately 4%. We have taken into account a possible future slowing of this increases, so that we will not be caught unawares. Our intention is to so actively seek aquarium maintenances that we will actually cause a swelling in the market. We have, however, kept our figures on the conservative side.

5-Ye ar To tal Marke t Fo re c as t

TARGETED MARKET SEGMENT ONLY2001 2002 2003 2004 2005 CAGR

Aquariums&Etc. 2,700,000 2,808,000 2,920,320 3,037,133 3,158,618 4%DryGoods 4,050,000 4,252,500 4,465,125 4,688,381 4,922,800 5%

Foods 2,430,000 2,551,500 2,679,075 2,813,029 2,953,680 5%Livestock, Plants 3,375,000 3,577,500 3,792,150 4,019,679 4,260,860 6%

Maintenances 450,000 463,500 477,405 491,727 506,479 3%Total market $13,005,000 $13,653,000 $14,334,075 $15,049,949 $15,802,437 5%

0500,000

1,000,0001,500,0002,000,0002,500,0003,000,0003,500,0004,000,0004,500,0005,000,000

2001 2002 2003 2004 2005

5-Year Total Market Forecast Aquariums&Etc.DryGoodsFoodsLivestock, PlantsMaintenances



Business Strategy and Implementation In order to effectively survive and compete against our established competitors, we will need to learn from their mistakes and weaknesses and use this education to our advantage. This is why we feel that our main focus will be the customer service aspects of the industry. Using our backgrounds, skills, and knowledge, we intend to be the industry leader in this category. As Sam Walton once said, “There is only one boss: the customer. And he can fire everybody in the company, from the chairman on down, simply by spending their money somewhere else.”

Marketing Strategy Our strategy will focus on the primary type of advertising in the retail aquarium trade: word of mouth. We have a three-step plan to gain this type of advertising:

1. Problem/Complaint Resolutions: We will enable any member of our staff to do whatever steps necessary to satisfy a customer at the point of contact. To enable this, we will grant all customers a 7-day guarantee on any fish. Currently, there is not a single store in the entire Phoenix area that guarantees saltwater fish. We will also be a member of the Better Business Bureau so that we may work closely to ensure that no customer complaints go unnoticed. We also plan to become a member of the Phoenix Chamber of Commerce, as this should ensure name recognition as a reputable business. Our customer service angle will be heavily slanted in the customers’ favor, as we feel it will be necessary in the beginning stages of our company.

2. Speaking Engagements: We plan on inviting schools of younger children to come and visit on field trips. Experience has shown this to work completely to our advantage, as the stores are usually fairly empty during school hours, and the children are very well known for bringing in paying customers after the field trip. We will also be volunteering to give lectures at our local high school (which has a class in marine biology) and community college, which should bring in even more customers.

3. The Internet: Since the Internet has proven to be an extremely quick and efficient means for spreading information, we fully intend to keep our current Web site functioning at all times. This has already had an amazing effect of spreading the word, as we have effectively answered questions from over 10,000 people since August, 1996, and we are still growing every day, with a current “hit” count of 29,000 since February, 1997. We are also looking at the possibility of conducting sales over the Internet.

Marke t Share Objec tiv e s

PER MARKET SEGMENT2001 2002 2003 2004 2005

Aquariums&Etc. 1.43% 4.00% 4.25% 4.50% 4.60%DryGoods 2.60% 5.00% 5.25% 5.50% 5.75%

Foods 1.69% 4.50% 5.00% 5.35% 5.55%Livestock, Plants 1.98% 5.00% 6.65% 8.30% 9.85%

Maintenances 0.31% 4.00% 7.00% 10.00% 10.00%



Market Share Objectives

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Aquariums&Etc.DryGoodsFoodsLivestock, PlantsMaintenances

Sales Plan We intend to be a retail only store for at least the start-up stages of operation. In the future, we would like to expand to sales via mail, phone, and the Internet.

Mr. Douglas, who has a proven track record for selling these products, will train all our salespeople. Our plan is for our salespeople to greet every customer that walks in the door, and then to provide not only good customer service, but expert advice as well. They will all be heavily trained in our inventory before approaching customers, and we will always have at least one person on duty at any given time that can answer any question posed to our associates. At this point, we have no intention of offering commission to our associates (unless it is an aquarium set-up or maintenance, which will receive a 40% commission), as we feel that it can only breed cutthroat tactics and thus, customer alienation. Instead, we plan to offer periodic bonuses based upon sales, and a competitive base salary to start.



Ye ar 1 Sale s Fo re c as t

Q1-01 Q2-01 Q3-01 Q4-01 2001

SalesAquariums&Etc. 0 0 12,422 26,086 38,508

DryGoods 0 0 33,953 71,301 105,254Foods 0 0 13,250 27,825 41,075

Livestock, Plants 0 0 21,531 45,215 66,746Maintenances 0 0 460 930 1,390

Other 0 0 1,656 2,834 4,490

Total $0 $0 $83,272 $174,191 $257,463

Cost of salesAquariums&Etc. 0 0 11,293 23,715 35,008

DryGoods 0 0 22,635 47,534 70,169Foods 0 0 7,794 16,368 24,162

Livestock, Plants 0 0 5,383 11,304 16,687Maintenances 0 0 329 664 993

Other 0 0 1,104 1,889 2,993

Total $0 $0 $48,538 $101,474 $150,012

Year 1 Sales by Product Line

15%26%

1%2%

40%16%

Aquariums&Etc.DryGoodsFoodsLivestock, PlantsMaintenancesOther



5-Ye ar Sale s Fo re c as t

TOTAL SALES2001 2002 2003 2004 2005

Aquariums&Etc. 38,508 112,320 124,114 136,671 145,29DryGoods 105,254 212,625 234,419 257,861 283,06

Foods 41,075 114,818 133,954 150,497 163,92Livestock, Plants 66,746 178,875 252,178 333,633 419,69

Maintenances 1,390 18,540 33,418 49,173 50,64Other 4,490 5,837 7,588 9,865 12,82Total $257,463 $643,015 $785,671 $937,700 $1,075,453

TOTAL COST OF SALES2001 2002 2003 2004 2005

Aquariums&Etc. 35,008 102,111 112,833 124,249 132,09DryGoods 70,169 141,749 156,279 171,906 188,70

Foods 24,162 67,540 78,797 88,529 96,43Livestock, Plants 16,687 44,720 63,046 83,411 104,92

Maintenances 993 13,245 23,874 35,128 36,18Other 2,993 2,919 3,794 4,933 6,4Total $150,012 $372,285 $438,623 $508,156 $564,748

CAGR6 39%1 28%9 41%5 58%8 146%4 30%

43%

CAGR0 39%6 28%0 41%7 58%2 146%

12 21%39%

0

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5-Year Sales ForecastAquariums&Etc.DryGoodsFoodsLivestock, PlantsMaintenances

Strategic Alliances As mentioned before, we have already received materials from Marineland and Aquarium Pharmaceuticals that will assist us. We also plan to be the only store in the Phoenix to carry the full line of Marineland products, which are considered among the finest made.



We have also been in contact with multiple area distributors, and we hope to incorporate some of their marketing ideas in with our own.

In addition, we have also already contacted our future neighbors, the reptile and bird shops that are located within the same plaza, to discuss referrals. Both have agreed that this would be mutually beneficial, so they have agreed to cooperate.

Service We plan on offering on-site repairs of any small filter or pump that fails, as we will have all the parts necessary on hand, and the mechanical knowledge to repair them is minimal. We also will have a very customer-oriented exchange policy, so that we can hopefully remove the customer from any conflicts with the manufacturers. As mentioned before, there will be a 24-hour on-call emergency person, so any problems that cannot wait for store hours can be addressed.

Organization Our company, as of this writing, consists of a three-member management team, and we will be hiring up to five associates for when the store opens. Two of the three members have had direct experience in the aquarium trade, and all three have been involved in the customer service industry.

Organizational Structure Since Atlantis Tropical will be a one store operation in the beginning, we have decided to base our organizational structure on everyday operations, leaving the duties that would be handled by Human Resources, Financing and the like to Mr. Douglas.

Management Team The key management team, even though very young, represents more than thirty years business experience and twenty-two years of aquarium experience.

Leonard Douglas, President Mr. Douglas is coming from U-Haul International, where he has been both a Manager and an instructor for the senior customer service operators. He first learned management and bookkeeping at Carousel Car Care, and continued to expand upon it with the Scottsdale Petsmart. There, he was commended several times, including having the highest sales in his region and creating a 20% growth in sales in what was to be a slow period. He also designed and implemented many merchandising techniques that were and still are used company-wide. Mr. Douglas has kept aquariums for nine years.

Deborah Allen, Assistant Manager of Sales Ms. Allen is also coming from U-Haul International’s Customer Service department. There, she was commended as a top customer service representative for three months running. She has taken classes in Retail Marketing and showed a talent for it with The Sports Authority. Ms. Allen is also responsible for some of the sales techniques that will be used at Atlantis Tropical. Ms. Allen has raised fish for five years now.

Jorge Gonzalez, Assistant Manager of Services Mr. Gonzalez has previous experience in designing ponds and fountains with Tivoli Fountains of Tucson, where he was manager of the Art and Design Department. He also has ten years of



customer service experience. He has also had experience with fish, particularly goldfish, since 1986.

Management Team Gaps For the future, we will need to consider creating a full time position that will be better prepared to handle the finances and accounting of the company as it expands. We will also be continually on the lookout for any qualified individuals that are doing maintenances themselves to join our team.

Financial Analysis We plan to increase sales steadily while still ensuring control of our cash flow and raising profitability. This requires careful financial planning and management. The chart of Atlantis Tropical Business Plan Highlights shown here points out the major financial goals for the first five years, and the 1999 Profits Analysis chart shows how our financial picture should look during the next year.

In an effort to protect all investments, our insurance figures have taken into account all of the standard forms of insurance (liability, property), as well as the more specific forms, primarily business interruption insurance.

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Company Business Plan Highlights Sales revenueMarginNet profit



2001 Profits Analysis52%

39%2%

4%

3%

Cost of salesOperating expensesInterestTaxProfits

Financial Plan Managing growth is the key to the financial plan. We expect to see sales increasing rapidly to $1 million by 2003. This means careful financial management to allow for working capital appropriate to the growing size of the business.

In the meantime, through implementation of our plan, the general financial picture should be quite favorable. The net worth of the company is projected to increase to more than $500,000 by 2003, as shown in the following chart.

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Company Projected Net Worth



Financial Assumptions Our plan depends on a set of reasonably conservative assumptions. If the markets continue as favorable as they have been, we should be able to borrow at better rates than assumed. Also, we believe our effective tax rate will be lower than what we show in our financial assumptions.

Financial Assumptions

Starting Year 2001

2001 2002 2003 2004 2005Short-term interest rate 10.00% 10.00% 10.00% 10.00% 10.00%Long-term interest rate 8.50% 8.50% 8.50% 8.50% 8.50%

Tax rate 35.00% 35.00% 35.00% 35.00% 35.00%Personnel burden 17.25% 17.25% 17.25% 17.25% 17.25%

Start-Up Costs and Capitalization The start-up costs for this new business add up to nearly $140,000, as shown in the following table. These include $18,000 in start-up expenses and $119,000 in start-up assets, most of which is a high technology aquarium and filtration system which we desire so as to cut down on the fish losses that have been experienced in the past at other stores.

Start-Up Co s ts and Capitaliz atio n

List Subtotals Totals

START-UP EXPENSESGeneral and administrative

Legal and accounting 2,000Rental deposits 5,000Utility deposits 2,768

Prepaid insurance 1,000Pre-opening salaries 2,000

Other 0 12,768Sales and marketing

Advertising 400Promotion 600

Signage 2,000Logo design 0

Printing 400Yellow Pages Ad 2,028

Other 0 5,428Other expenses

Licenses 150Other 0Other 0 150 $18,346

Total start-up expenses $18,346 $18,346




List Subtotals Totals

START-UP ASSETSOpening cash (min. balance) 5,000 5,000

InventoryAquariums, Stands and Lighting 15,000

Hardgoods 13,000Foods 8,000

Livestock 13,000Other 1,000 50,000

Capital equipmentFurniture 1,700

Equipment 819Fixtures 4,268

Machinery 50,000Cash Registers 500

Koi Pond 1,000 58,287Buildings/real estate

Purchase 0Construction 0

Remodeling expenses 500Flooring 5,000

Other 0 5,500Leasehold improvements

Item No1 0Item No2 0Item No3 0

Other 0Other 0 0

Other assetsOther 0Other 0Other 0 0 $118,787

Total start-up assets $118,787 $118,787

Start-up requirements $137,133 $137,133 $137,133




List Subtotals TotalsSTART-UP CAPITALIZATION

Owners’ investmentGarrett Murphy 2,000 2,000

Bank loansTotalling 118,000 118,000

Other loansDaniel Renckly 10,000Steve Berman 10,000 20,000 $140,000

Total capitalization $140,000 $140,000

Pro Forma Income Statement As shown on the following tables, we expect net profit to grow to more than $200,000 by 2003. Our ratio of net profit to sales should grow from just breaking even to more than 20% in the same time frame, opening the doors to expansion.



Ye ar 1 Pro Fo rm a Inc o m e State m e nt

Q1-01 Q2-01 Q3-01 Q4-01 2001Sales 0 0 83,272 174,191 257,463

Cost of salesCurrency 0 0 48,538 101,474 150,012

Other 0 1,874 3,919 5,793

Total $0 $0 $50,412 $105,393 $155,805

Gross marginCurrency 0 0 34,734 72,717 107,451Percent 0.00% 0.00% 41.71% 41.75% 41.73%

Operating expensesAdvertising/Promotion 0 0 1,665 3,484 5,149

Wages and salaries 0 0 12,491 26,129 38,619Leased equipment 0 0 833 1,742 2,575

Utilities 0 0 4,500 4,500 9,000Insurance 0 0 1,000 0 1,000

Rent 0 0 17,742 17,742 35,484Depreciation 0 0 1,499 3,135 4,634

6,6622,0601,2873,358

$109,829

42.66%

-2,3780

8,850-3,930

$1,350

Net profit/sales 0.00% 0.00% -10.38% 0.77% -2.83%

Payroll taxes etc. 0 0 2,155 4,507Contract/consultants 0 0 666 1,394

Miscellaneous 0 0 416 871Principal Payments 0 0 1,331 2,027

Total $0 $0 $44,298 $65,530

Percent of sales 0.00% 0.00% 53.20% 37.62%

Pre-tax profit 0 0 -9,564 7,187Short-term interest 0 0 0 0Long-term interest 0 0 3,740 5,110

Taxes incurred 0 0 -4,656 727

Net profit $0 $0 ($8,648) ($7,298)



5-Ye ar Pro Fo rm a Inc o m e State m

SALES AND GROSS MARGIN2001 2002 2003 2004

SalesSales revenue 257,463 643,015 785,671 937,700

Cost of salesCost of sales 150,012 372,285 438,623 508,156

Other sales costs 5,793 14,723 18,179 21,953

Total cost of sales $155,805 $387,008 $456,802 $530,109

Gross marginMargin 107,451 270,730 347,048 429,544

Percent 41.73% 42.10% 44.17% 45.81%

OPERATING EXPENSES2001 2002 2003 2004

ExpensesAdvertising/promotion 5,149 9,700 10,900 12,100

Wages and salaries 38,619 93,440 93,440 93,440Leased equipment 2,575 4,275 4,275 4,275

Utilities 9,000 18,000 18,000 18,000Insurance 1,000 2,000 2,000 2,000

Rent 35,484 70,968 70,968 70,968Depreciation 4,634 7,700 7,800 7,900

Payroll taxes etc. 6,662 16,118 16,118 16,118Contract/consultants 2,060 3,420 3,420 3,420

Miscellaneous 1,287 2,500 2,500 2,500Principal Payments 3,358 8,498 9,158 9,869

Total $109,829 $236,619 $238,579 $240,590

Percent of sales 42.66% 36.80% 30.37% 25.66%

ProfitOperating profit -2,378 34,110 108,469 188,953

Short-term interest 0 0 0 0Long-term interest 10,030 9,686 8,960 8,176

Taxes incurred -4,343 8,548 34,828 63,272

e nt

2005 CAGR

1,075,453 43%

564,748 39%25,856 45%

$590,604 40%

510,705 48%47.49%

2005 CAGR

13,000 26%93,440 25%4,275 14%

18,000 19%2,000 19%

70,968 19%8,000 15%

16,118 25%4,000 18%2,500 18%

10,635 33%

$242,936 22% ]

22.59%

267,769 #NUM!0 0%

7,332 -8%91,153 #NUM!

Net profit $15,876 $64,681 $117,505 $169,284 81%

Net profit/sales -3.13% 2.47% 8.23% 12.53% 15.74%

($8,065)

Pro Forma Balance The projected balance sheet, shown in the following table, indicates net worth increasing dramatically. This increase corresponds to the chart shown in the Financial Plan section.



5-Ye ar Pro Fo rm a Balanc e She e t

2001 2002 2003 2004

ASSETSShort-term assets

Cash 105,435 80,969 100,399 196,48Accounts receivable 0 0 0 0 0

Inventory 50,000 75,000 100,000 100,00Other short-term assets 5,000 6,000 7,000 8,0

Total $160,435 $161,969 $207,399 $304,48

Long-term assetsCapital assets 12,500 13,000 14,000 15,50

2005 CAGR

9 343,242 34%0%

0 100,000 19%00 9,000 16%

9 $452,242 30%

0 17,500 9%Accumulated depreciation 3,000 3,200 3,500 3,800 4,200 9%

Total $9,500 $9,800 $10,500 $11,700 $13,300 9%

Total assets $169,935 $171,769 $217,899 $316,189 $465,542 29%

DEBT AND EQUITYShort-term liabilities

Accounts payable 50,000 40,000 30,000 20,000 10,000 -33%Short-term notes 0 0 0 0 0 0%

Other short-term liabilities 0 0 0 0 0 0%

Total $50,000 $40,000 $30,000 $20,000 $10,000 -33%

Long-term liabilities 118,000 113,958 105,407 96,192 86,261 -8%

Total liabilities $168,000 $153,958 $135,407 $116,192 $96,261 -13%

EquityPaid-in capital 10,000 10,000 10,000 10,000 10,000 0%

Retained earnings 0 -8,065 7,811 72,492 189,997 0%Earnings -8,065 15,876 64,681 117,505 169,284 #NUM!

Total $1,935 $17,811 $82,492 $199,997 $369,281 272%

Total debt and equity $169,935 $171,769 $217,899 $316,189 $465,542 29%

Check line $0 $0 $0 $0 $0

Net worth $1,935 $17,811 $82,492 $199,997 $369,281 272%



Break-Even Analysis The break-even analysis, based on the chart below, indicates that we will be operating well above break even. Monthly sales should average $40,000 per month in the beginning, while the break-even point is less than $30,000, as shown on the following break-even diagram.

Bre ak-Ev e n Analy s is

ASSUMPTIONSAverage sale $25

Variable cost per sale 17Fixed expenses per month 9,440

MONTHLY BREAK-EVEN VOLUME Units 1,180Sales $29,500

Company Break-Even Analysis

-12,000

-10,000

-8,000

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000Monthly Sales

Monthly Profits

Small Business Pack Business Plan

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