November 2001

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1.0 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1 Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2 Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3 Keys to Success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2.0 Company Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.1 Company Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.2 Start-up Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

3.0 Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

4.0 Market Analysis Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44.1 Market Segmentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44.2 Target Market Segment Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

4.2.1 Competition and Buying Patterns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54.2.2 Service Business Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

5.0 Strategy and Implementation Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65.1 Competitive Edge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65.2 Marketing Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75.3 Sales Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

5.3.1 Sales Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75.4 Milestones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

6.0 Management Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96.1 Personnel Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

7.0 Financial Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107.1 Important Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107.2 Break-even Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107.3 Projected Profit and Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117.4 Projected Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127.5 Projected Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Table of Contents

1.0 Executive Summary

Water Tubes is a Eugene-based plumbing company that has chosen residential new homes as their niche. Water Tubes will be able to handle any service request for plumbing of volume home builds or custom new homes. By concentrating on a specific segment of the market, Water Tubes will be able to rapidly gain market share demonstrating their proficiency and professionalism in serving a specific market niche.

Water Tubes will leverage their competitive edges of professionalism and trim quality by properly training all of their employees and impress customers who are used to the lackadaisical attitude of most plumbers. Water Tubes will have a total of four employees and will reach profitability by month eight.

1.1 Objectives

The objectives for the first three years of operation include:

1. To develop a company whose primary goal is to exceed customer's expectations.2. To increase sales so in four to five years Don can hire another master plumber.3. To create a sustainable business, surviving off its own cash flow.

1.2 Mission

Water Tubes Plumbing's mission is to provide the finest new house plumbing installation. We exist to attract and maintain customers. When we adhere to this maxim, everything else will fall into place. Our services will exceed the expectations of our customers.

1.3 Keys to Success

The keys to success are to provide the customer with a fair price and outstanding service.

($50,000)

$0

$50,000

$100,000

$150,000

$200,000

$250,000

2001 2002 2003

Sales

Gross Margin

Net Profit

Highlights (Planned)

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2.0 Company Summary

Water Tubes Plumbing, soon to be located in Eugene, OR, will offer plumbing services for residential new houses as well as custom new houses. The business will be based out of Don Roto's house. Water Tubes will have four employees by the end of the year.

2.1 Company Ownership

Water Tubes Plumbing is a sole proprietorship owned by Don Roto.

2.2 Start-up Summary

Water Tubes will require the following equipment and materials:

• Two trucks (used) fitted with a pipe rack on top.• Assorted pipes (different diameters and materials).• Assorted fittings.• A 30 gallon bucket to store fittings.• Pipe wrenches.• Reciprocating saw.• Circular saw.• Whole hog (high torque right angle drill).• Cordless screw gun.• Propane torch.• Cast iron pipe cutter.• Extension cords.• Pipe dope (Teflon tape in paste form).• Computer with CD-RW, printer, Microsoft Office, QuickBooks Pro.• Desk, chair, and filling cabinet, and assorted stationary.• Mobile phone.

Please note that the items which are considered assets to be used for more than a year will be labeled long-term assets and will be depreciated using G.A.A.P. approved straight-line depreciation method.

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Table: Start-up

Start-up

Requirements

Start-up ExpensesLegal $200Stationery etc. $150Brochures $0Consultants $0Insurance $0Rent $0Research and Development $0Expensed Equipment $0Other $0Total Start-up Expense $350

Start-up Assets NeededCash Balance on Starting Date $19,650Other Short-term Assets $0Total Short-term Assets $19,650

Long-term Assets $24,000Total Assets $43,650Total Requirements $44,000

Funding

InvestmentDon $24,000Friends and family $20,000Other $0Total Investment $44,000

Short-term LiabilitiesAccounts Payable $0Current Borrowing $0Other Short-term Liabilities $0Subtotal Short-term Liabilities $0

Long-term Liabilities $0Total Liabilities $0

Loss at Start-up ($350)Total Capital $43,650Total Capital and Liabilities $43,650

3.0 Services

Water Tubes offers the finest in residential home plumbing construction as well as custom new home construction. Residential construction is chosen because it is straight forward and clean. Estimates are far more accurate and the company is dealing with a few contractors instead of many home owners. Additionally, there is no need to be on call 24 hours a day, a major downside of being a traditional plumber.

New construction will be typically bid at $1 per foot plus a multiple of $400 per fixture. Fixtures include sinks, toilets, tubs, etc.

The two other elements of Water Tubes services are professionalism and trim quality. Professionalism of Water Tubes is clearly a service offering that will be highlighted as well as trim quality which is the part of plumbing that is visible to the customer.

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4.0 Market Analysis Summary

Water Tubes (WT) will be focusing on a specific niche in the plumbing market, new homes. WT will target both volume builders of new homes as well as customer builders.

Through a combination of networking activities and advertisements, WT will increase their visibility among home builders allowing them to gain market share.

4.1 Market Segmentation

Water Tubes will target two distinct segments in the plumbing market:

1. Volume residential home builders. These builders are creating many different homes, often at the same time, often on the same plot of land. These builders are in need of a professional, well priced, reliable plumber for all of their residential new builds. This is an attractive market niche because the plumbing jobs are clean, numerous, and reasonably easy to do. Once a builder has found a plumbing company that they are happy with, a long-term relationship is often established, ensuring a constant flow of future jobs.

2. Custom home builders. These builders are in need of a plumbing company for their custom projects. This segment is attractive because the margins are better than typical build jobs and the projects can be fun to do because it requires creativity and thoughtfulness to accomplish the task within the established designed constraints. This target market makes up a smaller percentage of Water Tubes forecasted sales.

Table: Market Analysis

Market AnalysisPotential Customers Growth 2001 2002 2003 2004 2005 CAGRVolume home builder 7% 120 128 137 147 157 6.95%Custom home builder 7% 45 48 51 55 59 7.01%Total 6.97% 165 176 188 202 216 6.97%

Volume home builder

Custom home builder

Market Analysis (Pie)

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4.2 Target Market Segment Strategy

The plumbing market (excluding direct to the consumer jobs) is a highly networked industry where everyone knows everyone and jobs are won or loss by who you know. With this in mind, Don will work hard to establish himself as an experienced, professional plumber who is concentrating on the residential new builds market. This will be done in part through networking with all home builders. The networking will be an important method to increase visibility of Water Tubes because most home builders are always looking for professional, high-quality plumbers. It is advantageous for Water Tubes to position themselves as solely working with the residental new build market because it is attractive to builders to form a relationship with a plumber that is specializing on the new build market and not trying to do a little of everything. Water Tubes will be marketing themselves with an advertising campaign in the local home builders journal.

4.2.1 Competition and Buying Patterns

The plumbing market is quite competitive, and consequently in order to reap decent profits, large quantity of work must be done. Competitors can be broken down into three groups:

1. Chains: these plumbing companies are a franchise or a division of a larger chain. The chains typically do repair work instead of new building construction, but sometimes they do work with new builds.

2. Private companies: these companies are typically local. In order to generate sufficient revenue, they will offer a wide range of services.

3. Large commercial & residential companies: these are the local Starbucks of the plumbing world and will bid on any type of plumbing project, whether commercial or residential, repair or new builds. The majority of jobs that this competitor will work on is the larger commercial projects, but a getting a contract with a volume home builder would be attractive.

The buying habits of the target segments is based primarily on networking. Once a relationship is established, the builder will typically give the plumber one to two jobs to display their work before any type of long-term contract/relationship is developed.

4.2.2 Service Business Analysis

The plumbing industry is state regulated. The state regulates the industry through a licensing process based upon the Universal Building Code. The code is state specific and is a comprehensive code for all building issues. There are three skill levels of plumbers. The first is the apprentice who is basically a skilled laborer. In Eugene, apprentices earn from $8-$12 an hour depending on experience level. The next level is a journeymen. To achieve the journeymen license you must past the state journeymen test. Journeymen in Eugene typically earn from approximately $18 an hour. The last step in the plumbing hierarchy is a master plumber. A master plumber is a journeymen with more than 10 years experience and their earning potential is from $35-$50 per hour.

In order to do work in the state, it is required that a deposit is made into the workers compensation fund of $4,000 during the first year. This is only for new companies that have no record of revenue, and no record of worker compensation history. After one year of no claims, $1,000 is refunded per year and after five years the entire amount is refunded. In essence, this is acting as a bond for newly formed companies.

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The timetable for work in this niche is as follows:

• Two people, one full day, rough-in (plumbing in the floors and concrete).• Two people, one full day, top-out (plumbing in the walls).• One person, one full day trim (sections visible to the end-user).

Please note that within the industry ratios' the gross margin for the industry is significantly lower than what is forecasted for Water Tubes. The variance can be explained by the fact that the industry ratios are for repair plumbing as well as new construction. The repair work is more parts intensive and has skewed the gross margin ratio.

5.0 Strategy and Implementation Summary

Water Tubes will first increase visibility through networking activities. Don will leverage his years as a local plumber working for a larger company. Once Water Tubes has developed visibility, they will highlight their competitive advantages of professionalism and trim quality with a test project for the builder. Generally, Water Tubes will be able to win over contracts after their initial display of workmanship.

5.1 Competitive Edge

Water Tubes has two competitive advantages that they will leverage to gain market share:

• Professionalism. Fortunately for Water Tubes, professionalism seems to be absent among many plumbers skill sets. Water Tubes will exhibit their professionalism in all aspects of customer interaction as well as job performance. It is very common for plumbers to bid out for more items that they can handle at once. This is done because the assumption is that they will not get all the jobs they bid for so it is likely that their job load will be balanced out in the long run. Some times this works, other times it fails. This is a common source of unprofessionalism that will not happen at Water Tubes. Additionally, all employees will be indoctrinated into this customer-centric culture, ensuring that all interactions with anyone from Water Tubes will be a positive experience.

• Trim Quality. This is the part of the job that is visible to the customer as opposed to the bulk of the work that is hidden behind cabinets and walls. There are not a lot of plumbing companies that have consistently good trim quality. This is one way that Water Tubes can easily stand out relative to the competitors. Having high trim quality is also an easy way to impress home builders since they will have to fix any issues that are unsatisfying to home-buyers, so sloppy trim work will usually have to be remedied at some point, usually when it is inconvenient.

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5.2 Marketing Strategy

As mentioned earlier in the Target Market Segment Strategy, Water Tubes marketing campaign will be based on both networking as well as advertising.

• Networking. This will consist of meeting with builders that Don had worked with in the past, as well as others in the industry. Don will chat with them and let them know about his current venture and request a trial build to prove himself. Because the industry is so closely networked, whenever he runs into someone he will mention his new company. This will spread the word rather fast as contractors tend to bump into each other all over town, both socially as well as professionally.

• Advertising. Don will be running advertisements in the local home builders journal. This publication is a printed resource that home builders will typically consult when they are in need of a contractor for a specific service in the construction of their house. Because the readership is targeted and so closely interconnected, advertisements will be quite effective. Don will also put an advertisement in the Yellow Pages, however Don believes that the advertisements in the trade journal will be more effective due to the closer demographics and behavior factors of the readership group.

5.3 Sales Strategy

Water Tubes sales strategy will be to get at least one job with the new builder to provide them with an example of Water Tubes work. Based on the current competition, a display of Water Tubes competitive edges of professionalism and trim quality will likely be more than sufficient to turn a prospective customer into a long-term relationship.

5.3.1 Sales Forecast

The first month will be used to set up the business. The second month will be used to train an employee as well as to undertake several jobs. The third month will be used to train two more employees as well as do a few other jobs. By the fourth month it is forecasted that Water Tubes will have a volume relationship with one builder. Month four will also see a custom home built. Month six will mark the development of another volume builder. From month six on there should be a steady increase in sales activity.

Table: Sales Forecast (Planned)

Sales ForecastSales 2001 2002 2003Non-custom homes $104,858 $151,987 $165,454Custom homes $29,000 $38,765 $49,876Total Sales $133,858 $190,752 $215,330

Direct Cost of Sales 2001 2002 2003Non-custom homes $10,486 $15,199 $16,545Custom homes $2,900 $3,877 $4,988Subtotal Direct Cost of Sales $13,386 $19,075 $21,533

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$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Non-custom homes

Custom homes

Sales Monthly (Planned)

5.4 Milestones

Water Tubes will have several milestones:

1. Business plan completion.2. Office set-up.3. Training of all employees.4. The establishment of the second volume home builder.5. Profitability.

Table: Milestones (Planned)

MilestonesMilestone Start Date End Date Budget Manager DepartmentBusiness plan completion 1/1/01 2/1/01Office set-up 1/1/01 2/1/01Training of all employees 1/1/01 4/1/01The establishment of the second volume home builder

1/1/01 7/1/01

Profitability 1/1/01 9/1/01Totals $0

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6.0 Management Summary

Don Roto received his Bachelor of Arts from the University of Portland. After college, Dan decided to learn more about plumbing, one of the odd jobs that he did in college. After six months of inconsistent work Don landed a job with a larger plumbing company that did both residential and commercial work. Don started as an apprentice, but within four months had passed his journeymen exam. Don continued to work for this company for ten years, receiving his master plumbing designation right at the ten year mark. At this point Don decided that he wanted to try operating his own company, leveraging skills learned in college as well as providing him the flexibility of being his own boss. It was at this point that he started writing the business plan for Water Tubes and eventually quit his job.

6.1 Personnel Plan

Don will be the only employee for the first month. Don will bring on board a second employee during month two, and two more employees on the third month. It is forecasted that Water Tubes will stay at four employees for the foreseeable future.

Table: Personnel (Planned)

Personnel Plan2001 2002 2003

Don $36,000 $40,000 $50,000Journeymen employee $28,800 $34,560 $34,560Apprentice employee $17,600 $19,200 $19,200Apprentice employee $16,000 $19,200 $19,200Total Payroll $98,400 $112,960 $122,960

Total People 4 4 4Payroll Burden $14,760 $16,944 $18,444Total Payroll Expenditures $113,160 $129,904 $141,404

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7.0 Financial Plan

The following sections will outline important financial information.

7.1 Important Assumptions

The following table details important financial assumptions.

Table: General Assumptions

General Assumptions2001 2002 2003

Short-term Interest Rate % 10.00% 10.00% 10.00%Long-term Interest Rate % 10.00% 10.00% 10.00%Tax Rate % 30.00% 30.00% 30.00%Expenses in Cash % 10.00% 10.00% 10.00%Personnel Burden % 15.00% 15.00% 15.00%

7.2 Break-even Analysis

The Break-even Analysis indicates that $12,644 will be needed in monthly revenue to reach the break-even point.

Table: Break-even Analysis

Break-even Analysis:Monthly Units Break-even 4Monthly Sales Break-even $12,644

Assumptions:Average Per-Unit Revenue $3,000.0

0Average Per-Unit Variable Cost $300.00Estimated Monthly Fixed Cost $11,380

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($15,000)

($10,000)

($5,000)

$0

$5,000

$10,000

$15,000

$20,000

$0 $6,000 $12,000 $18,000 $24,000 $30,000

Monthly break-even point

Break-even point = where line intersects with 0

Break-even Analysis

7.3 Projected Profit and Loss

The following table will indicate projected profit and loss.

Table: Profit and Loss (Planned)

Pro Forma Profit and Loss2001 2002 2003

Sales $133,858 $190,752 $215,330Direct Cost of Sales $13,386 $19,075 $21,533Other Production Expenses $0 $0 $0

------------ ------------ ------------Total Cost of Sales $13,386 $19,075 $21,533Gross Margin $120,472 $171,677 $193,797Gross Margin % 90.00% 90.00% 90.00%Operating Expenses: Advertising/Promotion $600 $600 $600Travel $0 $0 $0Miscellaneous $1,200 $1,200 $1,200Payroll Expense $98,400 $112,960 $122,960Payroll Burden $14,760 $16,944 $18,444Depreciation $3,456 $3,456 $3,456Insurance/ License/ Bonds $6,000 $5,000 $4,000Rent $0 $0 $0Contract/Consultants $0 $0 $0

------------ ------------ ------------Total Operating Expenses $124,416 $140,160 $150,660Profit Before Interest and Taxes ($3,944) $31,517 $43,137Interest Expense Short-term $0 $0 $0Interest Expense Long-term $0 $0 $0Taxes Incurred $0 $9,455 $12,941Extraordinary Items $0 $0 $0Net Profit ($3,944) $22,062 $30,196Net Profit/Sales -2.95% 11.57% 14.02%

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($6,000)

($4,000)

($2,000)

$0

$2,000

$4,000

$6,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Profit Monthly (Planned)

7.4 Projected Cash Flow

The following chart and table will indicate projected cash flow.

($5,000)

$0

$5,000

$10,000

$15,000

$20,000

$25,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Net Cash Flow

Cash Balance

Cash (Planned)

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Table: Cash Flow (Planned)

Pro Forma Cash Flow 2001 2002 2003

Cash ReceivedCash from Operations: Cash Sales $133,858 $190,752 $215,330From Receivables $0 $0 $0 Subtotal Cash from Operations $133,858 $190,752 $215,330

Additional Cash ReceivedExtraordinary Items $0 $0 $0Sales Tax, VAT, HST/GST Received $0 $0 $0New Current Borrowing $0 $0 $0New Other Liabilities (interest-free) $0 $0 $0New Long-term Liabilities $0 $0 $0Sales of other Short-term Assets $0 $0 $0Sales of Long-term Assets $0 $0 $0New Investment Received $0 $0 $0 Subtotal Cash Received $133,858 $190,752 $215,330

Expenditures 2001 2002 2003Expenditures from Operations:Cash Spent on Costs and Expenses $2,119 $3,533 $4,027Wages, Salaries, Payroll Taxes, etc. $113,160 $129,904 $141,404Payment of Accounts Payable $16,826 $30,301 $35,724 Subtotal Spent on Operations $132,104 $163,738 $181,155

Additional Cash SpentSales Tax, VAT, HST/GST Paid Out $0 $0 $0Principal Repayment of Current Borrowing $0 $0 $0Other Liabilities Principal Repayment $0 $0 $0Long-term Liabilities Principal Repayment $0 $0 $0Purchase Other Short-term Assets $0 $0 $0Purchase Long-term Assets $0 $0 $0Dividends $0 $0 $0 Adjustment for Assets Purchased on Credit $0 $0 $0 Subtotal Cash Spent $132,104 $163,738 $181,155

Net Cash Flow $1,754 $27,014 $34,175Cash Balance $21,404 $48,418 $82,593

7.5 Projected Balance Sheet

The following table will indicate the projected balance sheet.

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Table: Balance Sheet (Planned)

Pro Forma Balance Sheet

AssetsShort-term Assets 2001 2002 2003Cash $21,404 $48,418 $82,593Other Short-term Assets $0 $0 $0Total Short-term Assets $21,404 $48,418 $82,593Long-term AssetsLong-term Assets $24,000 $24,000 $24,000Accumulated Depreciation $3,456 $6,912 $10,368Total Long-term Assets $20,544 $17,088 $13,632Total Assets $41,948 $65,506 $96,225

Liabilities and Capital2001 2002 2003

Accounts Payable $2,242 $3,738 $4,261Current Borrowing $0 $0 $0Other Short-term Liabilities $0 $0 $0Subtotal Short-term Liabilities $2,242 $3,738 $4,261

Long-term Liabilities $0 $0 $0Total Liabilities $2,242 $3,738 $4,261

Paid-in Capital $44,000 $44,000 $44,000Retained Earnings ($350) ($4,294) $17,768Earnings ($3,944) $22,062 $30,196Total Capital $39,706 $61,768 $91,964Total Liabilities and Capital $41,948 $65,506 $96,225Net Worth $39,706 $61,768 $91,964

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Appendix Table: Sales Forecast (Planned)

Sales ForecastSales Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2001 2002 2003Non-custom homes $0 $4,000 $8,000 $5,000 $6,000 $6,545 $7,332 $9,876 $11,232 $14,454 $15,654 $16,765 $104,858 $151,987 $165,454Custom homes $0 $0 $0 $7,000 $4,000 $3,000 $0 $3,500 $2,500 $3,000 $3,500 $2,500 $29,000 $38,765 $49,876Total Sales $0 $4,000 $8,000 $12,000 $10,000 $9,545 $7,332 $13,376 $13,732 $17,454 $19,154 $19,265 $133,858 $190,752 $215,330

Direct Cost of Sales Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2001 2002 2003Non-custom homes $0 $400 $800 $500 $600 $655 $733 $988 $1,123 $1,445 $1,565 $1,677 $10,486 $15,199 $16,545Custom homes $0 $0 $0 $700 $400 $300 $0 $350 $250 $300 $350 $250 $2,900 $3,877 $4,988Subtotal Direct Cost of Sales $0 $400 $800 $1,200 $1,000 $955 $733 $1,338 $1,373 $1,745 $1,915 $1,927 $13,386 $19,075 $21,533

Appendix

Page 1

Appendix Table: Personnel (Planned)

Personnel PlanJan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2001 2002 2003

Don $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $36,000 $40,000 $50,000Journeymen employee $0 $0 $2,880 $2,880 $2,880 $2,880 $2,880 $2,880 $2,880 $2,880 $2,880 $2,880 $28,800 $34,560 $34,560Apprentice employee $0 $1,600 $1,600 $1,600 $1,600 $1,600 $1,600 $1,600 $1,600 $1,600 $1,600 $1,600 $17,600 $19,200 $19,200Apprentice employee $0 $0 $1,600 $1,600 $1,600 $1,600 $1,600 $1,600 $1,600 $1,600 $1,600 $1,600 $16,000 $19,200 $19,200Total Payroll $3,000 $4,600 $9,080 $9,080 $9,080 $9,080 $9,080 $9,080 $9,080 $9,080 $9,080 $9,080 $98,400 $112,960 $122,960

Total People 1 2 4 4 4 4 4 4 4 4 4 4 4 4 4Payroll Burden $450 $690 $1,362 $1,362 $1,362 $1,362 $1,362 $1,362 $1,362 $1,362 $1,362 $1,362 $14,760 $16,944 $18,444Total Payroll Expenditures $3,450 $5,290 $10,442 $10,442 $10,442 $10,442 $10,442 $10,442 $10,442 $10,442 $10,442 $10,442 $113,160 $129,904 $141,404

Appendix

Page 2

Appendix Table: General Assumptions

General AssumptionsJan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2001 2002 2003

Short-term Interest Rate % 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%Long-term Interest Rate % 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%Tax Rate % 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00%Expenses in Cash % 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%Personnel Burden % 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00%

Appendix

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Appendix Table: Profit and Loss (Planned)

Pro Forma Profit and LossJan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2001 2002 2003

Sales $0 $4,000 $8,000 $12,000 $10,000 $9,545 $7,332 $13,376 $13,732 $17,454 $19,154 $19,265 $133,858 $190,752 $215,330Direct Cost of Sales $0 $400 $800 $1,200 $1,000 $955 $733 $1,338 $1,373 $1,745 $1,915 $1,927 $13,386 $19,075 $21,533Other Production Expenses $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------Total Cost of Sales $0 $400 $800 $1,200 $1,000 $955 $733 $1,338 $1,373 $1,745 $1,915 $1,927 $13,386 $19,075 $21,533Gross Margin $0 $3,600 $7,200 $10,800 $9,000 $8,591 $6,599 $12,038 $12,359 $15,709 $17,239 $17,339 $120,472 $171,677 $193,797Gross Margin % 0.00% 90.00% 90.00% 90.00% 90.00% 90.00% 90.00% 90.00% 90.00% 90.00% 90.00% 90.00% 90.00% 90.00% 90.00%Operating Expenses: Advertising/Promotion $50 $50 $50 $50 $50 $50 $50 $50 $50 $50 $50 $50 $600 $600 $600Travel $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Miscellaneous $100 $100 $100 $100 $100 $100 $100 $100 $100 $100 $100 $100 $1,200 $1,200 $1,200Payroll Expense $3,000 $4,600 $9,080 $9,080 $9,080 $9,080 $9,080 $9,080 $9,080 $9,080 $9,080 $9,080 $98,400 $112,960 $122,960Payroll Burden $450 $690 $1,362 $1,362 $1,362 $1,362 $1,362 $1,362 $1,362 $1,362 $1,362 $1,362 $14,760 $16,944 $18,444Depreciation $288 $288 $288 $288 $288 $288 $288 $288 $288 $288 $288 $288 $3,456 $3,456 $3,456Insurance/ License/ Bonds $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $6,000 $5,000 $4,000Rent $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Contract/Consultants $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------Total Operating Expenses $4,388 $6,228 $11,380 $11,380 $11,380 $11,380 $11,380 $11,380 $11,380 $11,380 $11,380 $11,380 $124,416 $140,160 $150,660Profit Before Interest and Taxes ($4,388) ($2,628) ($4,180) ($580) ($2,380) ($2,790) ($4,781) $658 $979 $4,329 $5,859 $5,959 ($3,944) $31,517 $43,137Interest Expense Short-term $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Interest Expense Long-term $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Taxes Incurred $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $9,455 $12,941Extraordinary Items $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Net Profit ($4,388) ($2,628) ($4,180) ($580) ($2,380) ($2,790) ($4,781) $658 $979 $4,329 $5,859 $5,959 ($3,944) $22,062 $30,196Net Profit/Sales 0.00% -65.70% -52.25% -4.83% -23.80% -29.22% -65.21% 4.92% 7.13% 24.80% 30.59% 30.93% -2.95% 11.57% 14.02%

Appendix

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Appendix Table: Cash Flow (Planned)

Pro Forma Cash Flow Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2001 2002 2003

Cash ReceivedCash from Operations: Cash Sales $0 $4,000 $8,000 $12,000 $10,000 $9,545 $7,332 $13,376 $13,732 $17,454 $19,154 $19,265 $133,85

8$190,75

2$215,33

0From Receivables $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Subtotal Cash from Operations $0 $4,000 $8,000 $12,000 $10,000 $9,545 $7,332 $13,376 $13,732 $17,454 $19,154 $19,265 $133,85

8$190,75

2$215,33

0

Additional Cash ReceivedExtraordinary Items $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Sales Tax, VAT, HST/GST Received 0.00% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0New Current Borrowing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0New Other Liabilities (interest-free) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0New Long-term Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Sales of other Short-term Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Sales of Long-term Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0New Investment Received $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Subtotal Cash Received $0 $4,000 $8,000 $12,000 $10,000 $9,545 $7,332 $13,376 $13,732 $17,454 $19,154 $19,265 $133,85

8$190,75

2$215,33

0

Expenditures Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2001 2002 2003Expenditures from Operations:Cash Spent on Costs and Expenses $65 $105 $145 $185 $165 $160 $138 $199 $202 $240 $257 $258 $2,119 $3,533 $4,027Wages, Salaries, Payroll Taxes, etc. $3,450 $5,290 $10,442 $10,442 $10,442 $10,442 $10,442 $10,442 $10,442 $10,442 $10,442 $10,442 $113,16

0$129,90

4$141,40

4Payment of Accounts Payable $20 $597 $957 $1,317 $1,659 $1,484 $1,437 $1,263 $1,790 $1,832 $2,161 $2,309 $16,826 $30,301 $35,724 Subtotal Spent on Operations $3,535 $5,992 $11,544 $11,944 $12,266 $12,086 $12,018 $11,904 $12,434 $12,514 $12,860 $13,009 $132,10

4$163,73

8$181,15

5

Additional Cash SpentSales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Principal Repayment of Current Borrowing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Other Liabilities Principal Repayment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Long-term Liabilities Principal Repayment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Purchase Other Short-term Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Purchase Long-term Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Dividends $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Adjustment for Assets Purchased on Credit $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Subtotal Cash Spent $3,535 $5,992 $11,544 $11,944 $12,266 $12,086 $12,018 $11,904 $12,434 $12,514 $12,860 $13,009 $132,10

4$163,73

8$181,15

5

Net Cash Flow ($3,535) ($1,992) ($3,544) $56 ($2,266) ($2,541) ($4,686) $1,472 $1,298 $4,940 $6,295 $6,256 $1,754 $27,014 $34,175Cash Balance $16,116 $14,124 $10,580 $10,636 $8,370 $5,828 $1,143 $2,615 $3,913 $8,853 $15,148 $21,404 $21,404 $48,418 $82,593

Appendix

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Appendix Table: Balance Sheet (Planned)

Pro Forma Balance Sheet

AssetsShort-term Assets Starting

BalancesJan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2001 2002 2003

Cash $19,650 $16,116 $14,124 $10,580 $10,636 $8,370 $5,828 $1,143 $2,615 $3,913 $8,853 $15,148 $21,404 $21,404 $48,418 $82,593Other Short-term Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Total Short-term Assets $19,650 $16,116 $14,124 $10,580 $10,636 $8,370 $5,828 $1,143 $2,615 $3,913 $8,853 $15,148 $21,404 $21,404 $48,418 $82,593Long-term AssetsLong-term Assets $24,000 $24,000 $24,000 $24,000 $24,000 $24,000 $24,000 $24,000 $24,000 $24,000 $24,000 $24,000 $24,000 $24,000 $24,000 $24,000Accumulated Depreciation $0 $288 $576 $864 $1,152 $1,440 $1,728 $2,016 $2,304 $2,592 $2,880 $3,168 $3,456 $3,456 $6,912 $10,368Total Long-term Assets $24,000 $23,712 $23,424 $23,136 $22,848 $22,560 $22,272 $21,984 $21,696 $21,408 $21,120 $20,832 $20,544 $20,544 $17,088 $13,632Total Assets $43,650 $39,828 $37,548 $33,716 $33,484 $30,930 $28,100 $23,127 $24,311 $25,321 $29,973 $35,980 $41,948 $41,948 $65,506 $96,225

Liabilities and CapitalJan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2001 2002 2003

Accounts Payable $0 $566 $914 $1,262 $1,610 $1,436 $1,396 $1,203 $1,729 $1,760 $2,084 $2,232 $2,242 $2,242 $3,738 $4,261Current Borrowing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Other Short-term Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Subtotal Short-term Liabilities

$0 $566 $914 $1,262 $1,610 $1,436 $1,396 $1,203 $1,729 $1,760 $2,084 $2,232 $2,242 $2,242 $3,738 $4,261

Long-term Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Total Liabilities $0 $566 $914 $1,262 $1,610 $1,436 $1,396 $1,203 $1,729 $1,760 $2,084 $2,232 $2,242 $2,242 $3,738 $4,261

Paid-in Capital $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000Retained Earnings ($350) ($350) ($350) ($350) ($350) ($350) ($350) ($350) ($350) ($350) ($350) ($350) ($350) ($350) ($4,294) $17,768Earnings $0 ($4,388) ($7,016) ($11,196) ($11,776) ($14,156) ($16,946) ($21,727) ($21,068) ($20,090) ($15,761) ($9,902) ($3,944) ($3,944) $22,062 $30,196Total Capital $43,650 $39,262 $36,634 $32,454 $31,874 $29,494 $26,705 $21,923 $22,582 $23,561 $27,889 $33,748 $39,706 $39,706 $61,768 $91,964Total Liabilities and Capital $43,650 $39,828 $37,548 $33,716 $33,484 $30,930 $28,100 $23,127 $24,311 $25,321 $29,973 $35,980 $41,948 $41,948 $65,506 $96,225Net Worth $43,650 $39,262 $36,634 $32,454 $31,874 $29,494 $26,705 $21,923 $22,582 $23,561 $27,889 $33,748 $39,706 $39,706 $61,768 $91,964

Appendix

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