the build up approach for forecasting...

THE BUILD-UP APPROACH FOR FORECASTING REVENUE

Infinity Hospitality & Entertainment International will be using a build-up approach for

forecasting revenue based upon an analysis of the direct competition’s restaurant activity.

The build-up approach uses a competitive index where the patrons per week at each meal

period is divided by the number of seats available. This competitive index indicates the

restaurant’s productivity and popularity by representing the number of patrons served per seat

in one week.

This index is then used in combination with the predicted market growth rate and the

estimated per person average to forecast food sales for each year.

The market growth rate has been configured for three different scenarios and the competitive

index has also been predicted based on three different scenarios. This creates a total of nine

different statements of income and expenses based upon the three different market growth

rates and the three different competitive indexes.

The three different market growth rate scenarios use the conservatism principal approach.

Scenario 1 has a growth rate of 3% the first year, 2% the second year and 1% the years

following. Scenario 2 has a growth rate of 5% the first year, 3% the second year and 2% the

years following. Scenario 3 has a growth rate of 7% the first year, 5% the second year and 3%

the years following. Scenario 3 is the most probable due to the market analysis and the

economic indicators discussed prior.

The three different competitive index scenarios use the conservatism principal approach as well.

The competitive index scenarios were created by based upon the amount of daily covers

possible, with the amount of seats available, in comparison to what the competition was

doing.

For the purposes of this restaurant, each meal period and each room were given a

competitive index. Furthermore, the first year of operation was the lowest competitive index

while the second year increased in sales due to Lunai’s popularity while the third year

increases and becomes the stabilized year.

So, for the Grill Room Lunch, Lunai’s OK Competitive Index earns a 4 for the first year of

operation, 5.5 for the second year of operation and 6.5 for the third year and beyond. Lunai’s

Good Competitive Index earns a 4.5 for the first year of operation, 6 for the second year of

operation and 7 for the third year and beyond. Lunai’s Very Good Competitive Index earns

a 5 for the first year of operation, 6.5 for the second year of operation and 7.5 for the third

year and beyond.

For the Grill Room Dinner, Lunai’s OK Competitive Index earns a 5.5 for the first year of

operation, 6.5 for the second year of operation and 7.5 for the third year and beyond. Lunai’s

Good Competitive Index earns a 6 for the first year of operation, 8 for the second year of

operation and 10 for the third year and beyond. Lunai’s Very Good Competitive Index

earns a 7 for the first year of operation, 9 for the second year of operation and 11 for the third

year and beyond.

For the Gourmet Room, which is open only 5 days a week, Lunai’s OK Competitive Index

earns a 1.5 for the first year of operation, 4 for the second year of operation and 6 for the third

year and beyond. Lunai’s Good Competitive Index earns a 2 for the first year of operation, 5

for the second year of operation and 7 for the third year and beyond. Lunai’s Very Good

Competitive Index earns a 3 for the first year of operation, 7 for the second year of operation

and 9 for the third year and beyond.

Again, each competitive index was created based upon the amount of daily covers possible,

with the amount of seats available, in comparison to what the competition was doing. The

following table more easily describes the three scenarios for both competitive index and

market growth rates.

The Scenarios GRILL LUNCH GRILL DINNER GOURMET RM. MARKET GROWTH %

Year Index Cover Index Cover Index Cover #3 #2 #1 VERY GOOD COMPETITIVE INDEX

Yr. 1 5.0 250 7 350 3 60 7% 5% 3% Yr. 2 6.5 325 9 450 7 140 5 3 2

Yr. 3+ 7.5 375 11 550 9 180 3 2 1 Seats 350 350 100

GOOD COMPETITIVE INDEX Yr. 1 4.5 225 6 300 2 40 7% 5% 3% Yr. 2 6 300 8 400 5 100 5 3 2

Yr. 3+ 7 350 10 500 7 140 3 2 1 Seats 350 350 100

OK COMPETITIVE INDEX Yr. 1 4 200 5.5 275 1.5 30 7% 5% 3% Yr. 2 5.5 275 6.5 325 4 80 5 3 2

Yr. 3+ 6.5 325 7.5 375 6 120 3 2 1 Seats 350 350 100

Before we calculate the patrons per week (PPW) for each direct competitor and the average

competitive index for each year depending upon the market growth rate scenario (3 being the

best and 1 being the worst), the competitive index for each direct competitor must be

calculated.

Based upon the information collected in the Competition Analysis, the direct competition’s

competitive index values for each meal period are:

Grill Room Competition – Competitive Index

Direct Comp. Lch PPW Din PPW Seats LnchIndex DinIndex Circo 1680 3150 175 9.6 18

Cozymels* 1400 - 320 4.4* - Emeril’s 1400 4200 200 7 21

Gordon Biersch* 3500 - 310 11.3* - McCormick &* 1680 - 230 7.3* - Mon Ami Gabi 2100 4900 380 5.5 12.9

PF Changs* 3500 - 248 14.1* - Pinot Brasserie 700 1750 230 3 7.6

Spago Café 3150 2800 140 22.5 20 Star Canyon 700 1400 210 3.3 6.7

Voo Doo Café - 1540 240 - 6.4 Wollensky Grill 350 875 65 5.4 13.5

Z-Tejas 1050 2100 275 3.8 7.6

Total

21,210 (12)

22,715 (9) 2783-L 1915-D

7.62

11.86

*lunch only

Gourmet Room Competition – Competitive Index Direct Competition PPW Seats Competitive Index

Aqua 1890 145 13 Aureole 2800 250 11.2

Eiffel Tower 2100 210 10 Le Cirque 1050 70 15

Smith & Wollensky 2100 550 3.8 Spago Dining 2100 160 13.1

Total 12,040 1385 8.69

Now that the competitive index is calculated, we can calculate the patrons per week (PPW)

for each direct competitor and the average competitive index for each year depending upon

the market growth rate.

Lunai’s Very Good Competitive Index Scenario 1 = 3% 2% 1% / Scenario 2 = 5% 3% 2% / Scenario 3 = 7% 5% 3%

Grill Room – Overall Competitive Index for Lunch

Lunch 1999 2000 2001 2002 2003 2004 2005 2006 PPW 1 21,210 21,846 22,283 22,506 22,731 22,958 23,188 23,420

Avg. Index 1 7.6 7.8 8.0 7.2 7.3 7.3 7.4 7.5 PPW 2 21,210 22,271 22,939 23,397 23,865 24,343 24,829 25,326

Avg. Index 2 7.6 8.0 8.2 7.5 7.6 7.8 7.9 8.1 PPW 3 21,210 22,695 23,829 24,544 25,281 26,039 26,820 27,625

Avg. Index 3 7.6 8.2 8.6 7.8 8.1 8.3 8.6 8.8 Lunai Index3 5 6.5 7.5 7.5 7.5

Tot Seats 2783 2783 2783 3133 3133 3133 3133 3133

Grill Room – Overall Competitive Index for Dinner Dinner 1999 2000 2001 2002 2003 2004 2005 2006 PPW 1 22,715 23,396 23,864 24,103 24,344 24,587 24,833 25,082

Avg. Index 1 11.9 12.2 12.5 10.6 10.7 10.9 11.0 11.1 PPW 2 22,715 23,851 24,566 25,058 25,559 26,070 26,591 27,123

Avg. Index 2 11.9 12.5 12.8 11.1 11.3 11.5 11.7 12.0 PPW 3 22,715 24,305 25,520 26,286 27,074 27,887 28,723 29,585

Avg. Index 3 11.9 12.7 13.3 11.6 12.0 12.3 12.7 13.1 Lunai Index3 7 9 11 11 11

Tot Seats 1915 1915 1915 2265 2265 2265 2265 2265

Gourmet Room – Overall Competitive Index Gourmet Rm 1999 2000 2001 2002 2003 2004 2005 2006

PPW 1 12040 12401 12649 12776 12903 13033 13163 13294 Avg. Index 1 8.7 9.0 9.1 8.6 8.7 8.8 8.9 9.0

PPW 2 12040 12642 13021 13282 13547 13818 14095 14377 Avg. Index 2 8.7 9.1 9.4 8.9 9.1 9.3 9.5 9.7

PPW 3 12040 12883 13527 13933 14351 14781 15225 15681 Avg. Index 3 8.7 9.3 9.8 9.4 9.7 10.0 10.3 10.6

Lunai Index3 3 7 9 9 9 Tot Seats 1385 1385 1385 1485 1485 1485 1485 1485

Since fair share and market share percentages are not impacted by market growth rates,

only one table for each meal period is required:

Lunai’s Very Good Competitive Index

Grill Room Lunch – Fair Share, Market Share & Market Share as a % of Fair Share

Lunch 1999 2000 2001 2002 2003 2004 2005 2006

Circo FS 6.3% 6.3% 6.3% 5.6% 5.6% 5.6% 5.6% 5.6% MS 7.9% 7.9% 7.9% 7.3% 7.2% 7.0% 7.0% 7.0%

MS as %FS 126% 126% 126% 131% 128% 126% 126% 126% Cozymels FS 11.5 11.5 11.5 10.2 10.2 10.2 10.2 10.2

MS 6.6 6.6 6.6 6.1 6.0 5.9 5.9 5.9 MS as %FS 57 57 57 60 58 58 58 58

Emeril’s FS 7.2 7.2 7.2 6.4 6.4 6.4 6.4 6.4 MS 6.6 6.6 6.6 6.1 6.0 5.9 5.9 5.9

MS as %FS 92 92 92 96 93 92 92 92 Gordon FS 11.1 11.1 11.1 9.9 9.9 9.9 9.9 9.9

MS 16.5 16.5 16.5 9.9 9.9 9.9 9.9 9.9 MS as %FS 148 148 148 154 151 148 148 148

McCormick FS 8.3 8.3 8.3 7.3 7.3 7.3 7.3 7.3 MS 7.9 7.9 7.9 7.3 7.2 7.0 7.0 7.0

MS as %FS 96 96 96 100 97 96 96 96 Mon Ami FS 13.7 13.7 13.7 12.1 12.1 12.1 12.1 12.1

MS 9.9 9.9 9.9 9.1 8.9 8.8 8.8 8.8 MS as %FS 73 73 73 75 74 73 73 73

PF Changs FS 8.9 8.9 8.9 7.9 7.9 7.9 7.9 7.9 MS 16.5 16.5 16.5 15.2 14.9 14.7 14.7 14.7

MS as %FS 185 185 185 193 188 186 186 186 Pinot Bras FS 8.3 8.3 8.3 7.3 7.3 7.3 7.3 7.3

MS 3.3 3.3 3.3 3.0 3.0 2.9 2.9 2.9 MS as %FS 40 40 40 42 41 40 40 40

Spago Café FS 5.0 5.0 5.0 4.5 4.5 4.5 4.5 4.5 MS 14.9 14.9 14.9 13.7 13.4 13.2 13.2 13.2

MS as %FS 295 295 295 307 300 296 296 296 Star Canyon FS 7.5 7.5 7.5 6.7 6.7 6.7 6.7 6.7

MS 3.3 3.3 3.3 3.0 3.0 2.9 2.9 2.9 MS as %FS 44 44 44 45 44 44 44 44

Woll Grill FS 2.3 2.3 2.3 2.1 2.1 2.1 2.1 2.1 MS 1.7 1.7 1.7 1.5 1.5 1.5 1.5 1.5

MS as %FS 71 71 71 73 72 71 71 71 Z-Tejas FS 9.9 9.9 9.9 8.8 8.8 8.8 8.8 8.8

MS 5.0 5.0 5.0 4.6 4.5 4.4 4.4 4.4 MS as %FS 50 50 50 52 51 50 50 50

Lunai’s FS 11.2 11.2 11.2 11.2 11.2 MS 7.6 9.7 11.0 11.0 11.0

MS as %FS 68 87 99 99 99


Grill Room Dinner – Fair Share, Market Share & Market Share as a % of Fair Share

Dinner 1999 2000 2001 2002 2003 2004 2005 2006 Circo FS 9.1% 9.1% 9.1% 7.7% 7.7% 7.7% 7.7% 7.7%

MS 13.9% 13.9% 13.9% 12.5% 12.2% 11.9% 11.9% 11.9% MS as %FS 152% 152% 152% 162% 158% 153% 153% 153%

Emeril’s FS 10.4 10.4 10.4 8.8 8.8 8.8 8.8 8.8 MS 18.5 18.5 18.5 16.7 16.2 15.8 15.8 15.8

MS as %FS 177 177 177 189 184 179 179 179 Mon Ami FS 19.8 19.8 19.8 16.8 16.8 16.8 16.8 16.8

MS 21.6 21.6 21.6 19.5 18.9 18.4 18.4 18.4 MS as %FS 109 109 109 116 113 110 110 110

Pinot Bras FS 12.0 12.0 12.0 10.2 10.2 10.2 10.2 10.2 MS 7.7 7.7 7.7 7.0 6.8 6.6 6.6 6.6

MS as %FS 64 64 64 68 67 65 65 65 Spago Café FS 7.3 7.3 7.3 6.2 6.2 6.2 6.2 6.2

MS 12.3 12.3 12.3 11.1 10.8 10.5 10.5 10.5 MS as %FS 169 169 169 180 175 171 171 171

Star Canyon FS 11.0 11.0 11.0 9.3 9.3 9.3 9.3 9.3 MS 6.2 6.2 6.2 5.6 5.4 5.3 5.3 5.3

MS as %FS 56 56 56 60 58 57 57 57 Voo Doo FS 12.5 12.5 12.5 10.6 10.6 10.6 10.6 10.6

MS 6.8 6.8 6.8 6.1 6.0 5.8 5.8 5.8 MS as %FS 54 54 54 58 56 55 55 55

Woll Grill FS 3.4 3.4 3.4 2.9 2.9 2.9 2.9 2.9 MS 3.9 3.9 3.9 3.5 3.4 3.3 3.3 3.3

MS as %FS 113 113 113 121 118 115 115 115 Z-Tejas FS 14.4 14.4 14.4 12.1 12.1 12.1 12.1 12.1

MS 9.2 9.2 9.2 8.3 8.1 7.9 7.9 7.9 MS as %FS 64 64 64 69 67 65 65 65

Lunai’s FS 15.5 15.5 15.5 15.5 15.5 MS 9.7 12.2 14.5 14.5 14.5

MS as %FS 63 79 94 94 94


Gourmet Room – Fair Share, Market Share & Market Share as a % of Fair Share

Gourmet 1999 2000 2001 2002 2003 2004 2005 2006

Aqua FS 10.5% 10.5% 10.5% 9.8% 9.8% 9.8% 9.8% 9.8%

MS 15.7% 15.7% 15.7% 15.3% 14.8% 14.6% 14.6% 14.6%

MS as %FS 150% 150% 150% 157% 152% 150% 150% 150%

Aureole FS 18.1 18.1 18.1 16.8 16.8 16.8 16.8 16.8

MS 23.3 23.3 23.3 22.7 22.0 21.6 21.6 21.6

MS as %FS 129 129 129 135 131 129 129 129

Eiffel FS 15.2 15.2 15.2 14.1 14.1 14.1 14.1 14.1

MS 17.4 17.4 17.4 17.0 16.5 16.2 16.2 16.2

MS as %FS 115 115 115 120 117 115 115 115

Le Cirque FS 5.1 5.1 5.1 4.7 4.7 4.7 4.7 4.7

MS 8.7 8.7 8.7 8.5 8.2 8.1 8.1 8.1

MS as %FS 173 173 173 181 175 172 172 172

Smith&Wol FS 39.7 39.7 39.7 37.0 37.0 37.0 37.0 37.0

MS 17.4 17.4 17.4 17.0 16.5 16.2 16.2 16.2

MS as %FS 44 44 44 46 45 44 44 44

Spago Dine FS 11.6 11.6 11.6 10.8 10.8 10.8 10.8 10.8

MS 17.4 17.4 17.4 17.0 16.5 16.2 16.2 16.2

MS as %FS 151 151 151 158 153 151 151 151

Lunai’s FS 6.7 6.7 6.7 6.7 6.7

MS 2.4 5.5 7.0 7.0 7.0

MS as %FS 36 82 103 103 103

PROJECTED PATRONS PER WEEK (SCENARIO ONE – 3% 2% 1%)


Grill Room – Projected Patrons Per Week for Lunch Lunch 1999 2000 2001 2002 2003 2004 2005 2006

PPW 21,210 21,846 22,283 22,506 22,731 22,958 23,188 23,420 Mkt

Share 7.6% 9.7% 11.0% 11.0% 11.0%

Capture 1715 2202 2528 2554 2579 Revenue $1,338,013 $2,003,794 $2,629,600 $2,655,896 $2,682,455

PPA $15.00 $17.50 $20.00 $20.00 $20.00

Grill Room – Projected Patrons Per Week for Dinner Dinner 1999 2000 2001 2002 2003 2004 2005 2006

PPW 22,715 23,396 23,864 24,103 24,344 24,587 24,833 25,082 Mkt Share 9.7% 12.2% 14.5% 14.5% 14.5%

Capture 2347 2965 3563 3599 3635 Revenue $3,660,709 $5,395,881 $7,411,882 $7,486,001 $7,560,861

PPA $30.00 $35.00 $40.00 $40.00 $40.00

Gourmet Room – Projected Patrons Per Week Gourmet 1999 2000 2001 2002 2003 2004 2005 2006

PPW 12040 12401 12649 12776 12903 13033 13163 13294 Mkt Share 2.4% 5.5% 7.0% 7.0% 7.0%

Capture 311 709 906 915 925 Revenue $969,049 $2,396,359 $3,299,420 $3,332,414 $3,365,738

PPA $60.00 $65.00 $70.00 $70.00 $70.00

Estimated Gross Revenue 2002 2003 2004 2005 2006

Tot. Revenue $5,967,772 $9,796,034 $13,340,902 $13,474,311 $13,609,054

PROJECTED PATRONS PER WEEK (SCENARIO TWO – 5% 3% 2%)



PPW 21,210 22,271 22,939 23,397 23,865 24,343 24,829 25,326 MktShare 7.6% 9.7% 11.0% 11.0% 11.0%

Capture 1783 2312 2681 2735 2789 Revenue $1,391,003 $2,103,777 $2,788,144 $2,843,907 $2,900,785

PPA $15.00 $17.50 $20.00 $20.00 $20.00


PPW 22,715 23,851 24,566 25,058 25,559 26,070 26,591 27,123 Mkt Share 9.7% 12.2% 14.5% 14.5% 14.5%

Capture 2440 3113 3778 3854 3931 Revenue $3,805,688 $5,665,119 $7,858,760 $8,015,935 $8,176,254

PPA $30.00 $35.00 $40.00 $40.00 $40.00


PPW 12040 12642 13021 13282 13547 13818 14095 14377 Mkt Share 2.4% 5.5% 7.0% 7.0% 7.0%

Capture 323 744 961 980 1000 Revenue $1,007,428 $2,515,931 $3,498,349 $3,568,316 $3,639,682

PPA $60.00 $65.00 $70.00 $70.00 $70.00


Tot. Revenue $6,204,119 $10,284,827 $14,145,253 $14,428,158 $14,716,721

PROJECTED PATRONS PER WEEK (SCENARIO THREE – 7% 5% 3%)



PPW 21,210 22,695 23,829 24,544 25,281 26,039 26,820 27,625 MktShare 7.6% 9.7% 11.0% 11.0% 11.0%

Capture 1871 2449 2868 2954 3042 Revenue $1,459,190 $2,228,540 $2,982,448 $3,071,922 $3,164,079

PPA $15.00 $17.50 $20.00 $20.00 $20.00


PPW 22,715 24,305 25,520 26,286 27,074 27,887 28,723 29,585 Mkt Share 9.7% 12.2% 14.5% 14.5% 14.5%

Capture 2559 3297 4042 4163 4288 Revenue $3,992,241 $6,001,084 $8,406,433 $8,658,626 $8,918,384

PPA $30.00 $35.00 $40.00 $40.00 $40.00


PPW 12040 12883 13527 13933 14351 14781 15225 15681 Mkt Share 2.4% 5.5% 7.0% 7.0% 7.0%

Capture 339 789 1028 1059 1091 Revenue $1,056,811 $2,665,136 $3,742,147 $3,854,412 $3,970,044

PPA $60.00 $65.00 $70.00 $70.00 $70.00


Tot. Revenue $6,508,242 $10,894,760 $15,131,028 $15,584,959 $16,052,508

Lunai’s Good Competitive Index

Scenario 1 = 3% 2% 1% / Scenario 2 = 5% 3% 2% / Scenario 3 = 7% 5% 3%


Lunch 1999 2000 2001 2002 2003 2004 2005 2006 PPW 1 21,210 21,846 22,283 22,506 22,731 22,958 23,188 23,420

Avg. Index 1 7.6 7.8 8.0 7.2 7.3 7.3 7.4 7.5 PPW 2 21,210 22,271 22,939 23,397 23,865 24,343 24,829 25,326

Avg. Index 2 7.6 8.0 8.2 7.5 7.6 7.8 7.9 8.1 PPW 3 21,210 22,695 23,829 24,544 25,281 26,039 26,820 27,625

Avg. Index 3 7.6 8.2 8.6 7.8 8.1 8.3 8.6 8.8 Lunai Index2 4.5 6 7 7 7

Tot Seats 2783 2783 2783 3133 3133 3133 3133 3133


Avg. Index 1 11.9 12.2 12.5 10.6 10.7 10.9 11.0 11.1 PPW 2 22,715 23,851 24,566 25,058 25,559 26,070 26,591 27,123

Avg. Index 2 11.9 12.5 12.8 11.1 11.3 11.5 11.7 12.0 PPW 3 22,715 24,305 25,520 26,286 27,074 27,887 28,723 29,585

Avg. Index 3 11.9 12.7 13.3 11.6 12.0 12.3 12.7 13.1 Lunai Index2 6 8 10 10 10

Tot Seats 1915 1915 1915 2265 2265 2265 2265 2265


PPW 1 12,040 12,401 12,649 12,776 12,903 13,033 13,163 13,294 Avg. Index 1 8.7 9.0 9.1 8.6 8.7 8.8 8.9 9.0

PPW 2 12,040 12,642 13,021 13,022 13,283 13,548 13,819 14,096 Avg. Index 2 8.7 9.1 9.4 8.8 8.9 9.1 9.3 9.5

PPW 3 12,040 12,883 13,527 13,933 14,351 14,781 15,225 15,681 Avg. Index 3 8.7 9.3 9.8 9.4 9.7 10.0 10.3 10.6

Lunai Index2 2 5 7 7 7 Tot Seats 1385 1385 1385 1485 1485 1485 1485 1485



Lunch 1999 2000 2001 2002 2003 2004 2005 2006

Circo FS 6.3% 6.3% 6.3% 5.6% 5.6% 5.6% 5.6% 5.6% MS 7.9% 7.9% 7.9% 7.4% 7.2% 7.1% 7.1% 7.1%

MS as %FS 126% 126% 126% 132% 129% 127% 127% 127% Cozymels FS 11.5 11.5 11.5 10.2 10.2 10.2 10.2 10.2

MS 6.6 6.6 6.6 6.1 6.0 5.9 5.9 5.9 MS as %FS 57 57 57 60 59 58 58 58

Emeril’s FS 7.2 7.2 7.2 6.4 6.4 6.4 6.4 6.4 MS 6.6 6.6 6.6 6.1 6.0 5.9 5.9 5.9

MS as %FS 92 92 92 96 94 93 93 93 Gordon FS 11.1 11.1 11.1 9.9 9.9 9.9 9.9 9.9

MS 16.5 16.5 16.5 9.9 9.9 9.9 9.9 9.9 MS as %FS 148 148 148 155 152 150 150 150

McCormick FS 8.3 8.3 8.3 7.3 7.3 7.3 7.3 7.3 MS 7.9 7.9 7.9 7.4 7.2 7.1 7.1 7.1

MS as %FS 96 96 96 100 98 97 97 97 Mon Ami FS 13.7 13.7 13.7 12.1 12.1 12.1 12.1 12.1

MS 9.9 9.9 9.9 9.2 9.0 8.9 8.9 8.9 MS as %FS 73 73 73 76 74 73 73 73

PF Changs FS 8.9 8.9 8.9 7.9 7.9 7.9 7.9 7.9 MS 16.5 16.5 16.5 15.4 15.0 14.8 14.8 14.8

MS as %FS 185 185 185 194 190 187 187 187 Pinot Bras FS 8.3 8.3 8.3 7.3 7.3 7.3 7.3 7.3

MS 3.3 3.3 3.3 3.1 3.0 3.0 3.0 3.0 MS as %FS 40 40 40 42 41 40 40 40

Spago Café FS 5.0 5.0 5.0 4.5 4.5 4.5 4.5 4.5 MS 14.9 14.9 14.9 13.8 13.5 13.3 13.3 13.3

MS as %FS 295 295 295 309 302 298 298 298 Star Canyon FS 7.5 7.5 7.5 6.7 6.7 6.7 6.7 6.7

MS 3.3 3.3 3.3 3.1 3.0 3.0 3.0 3.0 MS as %FS 44 44 44 46 45 44 44 44

Woll Grill FS 2.3 2.3 2.3 2.1 2.1 2.1 2.1 2.1 MS 1.7 1.7 1.7 1.5 1.5 1.5 1.5 1.5

MS as %FS 71 71 71 74 72 71 71 71 Z-Tejas FS 9.9 9.9 9.9 8.8 8.8 8.8 8.8 8.8

MS 5.0 5.0 5.0 4.6 4.5 4.4 4.4 4.4 MS as %FS 50 50 50 53 51 51 51 51

Lunai’s FS 11.2 11.2 11.2 11.2 11.2 MS 6.9 9.0 10.4 10.4 10.4

MS as %FS 62 81 93 93 93



Dinner 1999 2000 2001 2002 2003 2004 2005 2006 Circo FS 9.1% 9.1% 9.1% 7.7% 7.7% 7.7% 7.7% 7.7%

MS 13.9% 13.9% 13.9% 12.7% 12.3% 12.0% 12.0% 12.0% MS as %FS 152% 152% 152% 164% 160% 156% 156% 156%

Emeril’s FS 10.4 10.4 10.4 8.8 8.8 8.8 8.8 8.8 MS 18.5 18.5 18.5 16.9 16.5 16.0 16.0 16.0

MS as %FS 177 177 177 192 186 181 181 181 Mon Ami FS 19.8 19.8 19.8 16.8 16.8 16.8 16.8 16.8

MS 21.6 21.6 21.6 19.7 19.2 18.7 18.7 18.7 MS as %FS 109 109 109 118 114 111 111 111

Pinot Bras FS 12.0 12.0 12.0 10.2 10.2 10.2 10.2 10.2 MS 7.7 7.7 7.7 7.1 6.9 6.7 6.7 6.7


MS 12.3 12.3 12.3 11.3 11.0 10.7 10.7 10.7 MS as %FS 169 169 169 183 178 173 173 173

Star Canyon FS 11.0 11.0 11.0 9.3 9.3 9.3 9.3 9.3 MS 6.2 6.2 6.2 5.6 5.5 5.3 5.3 5.3

MS as %FS 56 56 56 61 59 58 58 58 Voo Doo FS 12.5 12.5 12.5 10.6 10.6 10.6 10.6 10.6

MS 6.8 6.8 6.8 6.2 6.0 5.9 5.9 5.9 MS as %FS 54 54 54 59 57 55 55 55

Woll Grill FS 3.4 3.4 3.4 2.9 2.9 2.9 2.9 2.9 MS 3.9 3.9 3.9 3.5 3.4 3.3 3.3 3.3

MS as %FS 113 113 113 123 119 116 116 116 Z-Tejas FS 14.4 14.4 14.4 12.1 12.1 12.1 12.1 12.1

MS 9.2 9.2 9.2 8.5 8.2 8.0 8.0 8.0 MS as %FS 64 64 64 70 68 66 66 66

Lunai’s FS 15.5 15.5 15.5 15.5 15.5 MS 8.5 11.0 13.4 13.4 13.4

MS as %FS 55 71 86 86 86



Gourmet 1999 2000 2001 2002 2003 2004 2005 2006

Aqua FS 10.5% 10.5% 10.5% 9.8% 9.8% 9.8% 9.8% 9.8%

MS 15.7% 15.7% 15.7% 15.4% 15.1% 14.8% 14.8% 14.8%

MS as %FS 150% 150% 150% 158% 154% 152% 152% 152%

Aureole FS 18.1 18.1 18.1 16.8 16.8 16.8 16.8 16.8

MS 23.3 23.3 23.3 22.9 22.3 22.0 22.0 22.0

MS as %FS 129 129 129 136 133 131 131 131

Eiffel FS 15.2 15.2 15.2 14.1 14.1 14.1 14.1 14.1

MS 17.4 17.4 17.4 17.2 16.7 16.5 16.5 16.5

MS as %FS 115 115 115 121 118 117 117 117

Le Cirque FS 5.1 5.1 5.1 4.7 4.7 4.7 4.7 4.7

MS 8.7 8.7 8.7 8.6 8.4 8.2 8.2 8.2

MS as %FS 173 173 173 182 178 175 175 175

Smith&Wol FS 39.7 39.7 39.7 37.0 37.0 37.0 37.0 37.0

MS 17.4 17.4 17.4 17.2 16.7 16.5 16.5 16.5

MS as %FS 44 44 44 46 45 45 45 45

Spago Dine FS 11.6 11.6 11.6 10.8 10.8 10.8 10.8 10.8

MS 17.4 17.4 17.4 17.2 16.7 16.5 16.5 16.5

MS as %FS 151 151 151 159 155 153 153 153

Lunai’s FS 6.7 6.7 6.7 6.7 6.7

MS 1.6 4.0 5.5 5.5 5.5

MS as %FS 24 59 82 82 82




PPW 21,210 21,846 22,283 22,506 22,731 22,958 23,188 23,420 Mkt

Share 6.9% 9.0% 10.4% 10.4% 10.4%

Capture 1556 2048 2377 2401 2425 Revenue $1,213,460 $1,863,542 $2,472,446 $2,497,171 $2,522,142

PPA $15.00 $17.50 $20.00 $20.00 $20.00


PPW 22,715 23,396 23,864 24,103 24,344 24,587 24,833 25,082 Mkt Share 8.5% 11.0% 13.4% 13.4% 13.4%

Capture 2040 2672 3283 3316 3349 Revenue $3,182,007 $4,862,132 $6,828,036 $6,896,316 $6,965,279

PPA $30.00 $35.00 $40.00 $40.00 $40.00


PPW 12040 12401 12649 12776 12903 13033 13163 13294 Mkt Share 1.6% 4.0% 5.5% 5.5% 5.5%

Capture 209 514 716 723 730 Revenue $651,311 $1,738,985 $2,606,502 $2,632,567 $2,658,892

PPA $60.00 $65.00 $70.00 $70.00 $70.00

Estimated Gross Revenue

2002 2003 2004 2005 2006 Tot. Revenue $5,046,778 $8,464,659 $11,906,984 $12,026,053 $12,146,314




PPW 21,210 22,271 22,939 23,397 23,865 24,343 24,829 25,326 Mkt

Share 6.9% 9.0% 10.4% 10.4% 10.4%

Capture 1617 2150 2521 2571 2623 Revenue $1,261,518 $1,956,527 $2,621,515 $2,673,946 $2,727,424

PPA $15.00 $17.50 $20.00 $20.00 $20.00


PPW 22,715 23,851 24,566 25,058 25,559 26,070 26,591 27,123 Mkt Share 8.5% 11.0% 13.4% 13.4% 13.4%

Capture 2121 2805 3481 3550 3621 Revenue $3,308,027 $5,104,738 $7,239,712 $7,384,506 $7,532,196

PPA $30.00 $35.00 $40.00 $40.00 $40.00


PPW 12040 12642 13021 13282 13547 13818 14095 14377 Mkt Share 1.6% 4.0% 5.5% 5.5% 5.5%

Capture 217 540 759 774 790 Revenue $677,106 $1,825,755 $2,763,653 $2,818,926 $2,875,305

PPA $60.00 $65.00 $70.00 $70.00 $70.00


Tot. Revenue $5,246,651 $8,887,021 $12,624,880 $12,877,378 $13,134,926

PROJECTED PATRONS PER WEEK (SCENARIO THREE – 7% 5% 3%)



PPW 21,210 22,695 23,829 24,544 25,281 26,039 26,820 27,625 MktShare 6.9% 9.0% 10.4% 10.4% 10.4%

Capture 1697 2278 2696 2777 2861 Revenue $1,323,357 $2,072,558 $2,804,207 $2,888,333 $2,974,983

PPA $15.00 $17.50 $20.00 $20.00 $20.00


PPW 22,715 24,305 25,520 26,286 27,074 27,887 28,723 29,585 Mkt Share 8.5% 11.0% 13.4% 13.4% 13.4%

Capture 2224 2971 3723 3835 3950 Revenue $3,470,185 $5,407,470 $7,744,244 $7,976,571 $8,215,868

PPA $30.00 $35.00 $40.00 $40.00 $40.00


PPW 12040 12883 13527 13933 14351 14781 15225 15681 Mkt Share 1.6% 4.0% 5.5% 5.5% 5.5%

Capture 228 572 812 837 862 Revenue $710,297 $1,934,030 $2,956,251 $3,044,938 $3,136,286

PPA $60.00 $65.00 $70.00 $70.00 $70.00

Estimated Gross Revenue

2002 2003 2004 2005 2006 Tot. Revenue $5,503,839 $9,414,057 $13,504,701 $13,909,842 $14,327,138

OK Competitive Index

Scenario 1 = 3% 2% 1% / Scenario 2 = 5% 3% 2% / Scenario 3 = 7% 5% 3%


Lunch 1999 2000 2001 2002 2003 2004 2005 2006 PPW 1 21,210 21,846 22,283 22,506 22,731 22,958 23,188 23,420

Avg. Index 1 7.6 7.8 8.0 7.2 7.3 7.3 7.4 7.5 PPW 2 21,210 22,271 22,939 23,397 23,865 24,343 24,829 25,326

Avg. Index 2 7.6 8.0 8.2 7.5 7.6 7.8 7.9 8.1 PPW 3 21,210 22,695 23,829 24,544 25,281 26,039 26,820 27,625

Avg. Index 3 7.6 8.2 8.6 7.8 8.1 8.3 8.6 8.8 Lunai Index1 4 5.5 6.5 6.5 6.5

Tot Seats 2783 2783 2783 3133 3133 3133 3133 3133


Avg. Index 1 11.9 12.2 12.5 10.6 10.7 10.9 11.0 11.1 PPW 2 22,715 23,851 24,566 25,058 25,559 26,070 26,591 27,123

Avg. Index 2 11.9 12.5 12.8 11.1 11.3 11.5 11.7 12.0 PPW 3 22,715 24,305 25,520 26,286 27,074 27,887 28,723 29,585

Avg. Index 3 11.9 12.7 13.3 11.6 12.0 12.3 12.7 13.1 Lunai Index1 5.5 6.5 7.5 7.5 7.5

Tot Seats 1915 1915 1915 2265 2265 2265 2265 2265


PPW 1 12,040 12,401 12,649 12,776 12,903 13,033 13,163 13,294 Avg. Index 1 8.7 9.0 9.1 8.6 8.7 8.8 8.9 9.0

PPW 2 12,040 12,642 13,021 13,022 13,283 13,548 13,819 14,096 Avg. Index 2 8.7 9.1 9.4 8.8 8.9 9.1 9.3 9.5

PPW 3 12,040 12,883 13,527 13,933 14,351 14,781 15,225 15,681 Avg. Index 3 8.7 9.3 9.8 9.4 9.7 10.0 10.3 10.6

Lunai Index1 1.5 4 6 6 6 Tot Seats 1385 1385 1385 1485 1485 1485 1485 1485

Lunai’s OK Competitive Index


Lunch 1999 2000 2001 2002 2003 2004 2005 2006 Circo FS 6.3% 6.3% 6.3% 5.6% 5.6% 5.6% 5.6% 5.6%

MS 7.9% 7.9% 7.9% 7.4% 7.3% 7.2% 7.2% 7.2% MS as %FS 126% 126% 126% 133% 130% 128% 128% 128%

Cozymels FS 11.5 11.5 11.5 10.2 10.2 10.2 10.2 10.2 MS 6.6 6.6 6.6 6.2 6.1 6.0 6.0 6.0

MS as %FS 57 57 57 61 59 58 58 58 Emeril’s FS 7.2 7.2 7.2 6.4 6.4 6.4 6.4 6.4

MS 6.6 6.6 6.6 6.2 6.1 6.0 6.0 6.0 MS as %FS 92 92 92 97 95 93 93 93

Gordon FS 11.1 11.1 11.1 9.9 9.9 9.9 9.9 9.9 MS 16.5 16.5 16.5 9.9 9.9 9.9 9.9 9.9

MS as %FS 148 148 148 156 153 151 151 151 McCormick FS 8.3 8.3 8.3 7.3 7.3 7.3 7.3 7.3

MS 7.9 7.9 7.9 7.4 7.3 7.2 7.2 7.2 MS as %FS 96 96 96 101 99 97 97 97

Mon Ami FS 13.7 13.7 13.7 12.1 12.1 12.1 12.1 12.1 MS 9.9 9.9 9.9 9.3 9.1 8.9 8.9 8.9

MS as %FS 73 73 73 77 75 74 74 74 PF Changs FS 8.9 8.9 8.9 7.9 7.9 7.9 7.9 7.9

MS 16.5 16.5 16.5 15.5 15.1 14.9 14.9 14.9 MS as %FS 185 185 185 196 191 188 188 188

Pinot Bras FS 8.3 8.3 8.3 7.3 7.3 7.3 7.3 7.3 MS 3.3 3.3 3.3 3.1 3.0 3.0 3.0 3.0


MS 14.9 14.9 14.9 13.9 13.6 13.4 13.4 13.4 MS as %FS 295 295 295 312 305 300 300 300

Star Canyon FS 7.5 7.5 7.5 6.7 6.7 6.7 6.7 6.7 MS 3.3 3.3 3.3 3.1 3.0 3.0 3.0 3.0

MS as %FS 44 44 44 46 45 44 44 44 Woll Grill FS 2.3 2.3 2.3 2.1 2.1 2.1 2.1 2.1

MS 1.7 1.7 1.7 1.5 1.5 1.5 1.5 1.5 MS as %FS 71 71 71 75 73 72 72 72

Z-Tejas FS 9.9 9.9 9.9 8.8 8.8 8.8 8.8 8.8 MS 5.0 5.0 5.0 4.6 4.5 4.5 4.5 4.5

MS as %FS 50 50 50 53 52 51 51 51 Lunai’s FS 11.2 11.2 11.2 11.2 11.2

MS 6.2 8.3 9.7 9.7 9.7 MS as %FS 55 74 87 87 87



Dinner 1999 2000 2001 2002 2003 2004 2005 2006 Circo FS 9.1% 9.1% 9.1% 7.7% 7.7% 7.7% 7.7% 7.7%

MS 13.9% 13.9% 13.9% 12.8% 12.6% 12.4% 12.4% 12.4% MS as %FS 152% 152% 152% 165% 163% 161% 161% 161%

Emeril’s FS 10.4 10.4 10.4 8.8 8.8 8.8 8.8 8.8 MS 18.5 18.5 18.5 17.0 16.8 16.6 16.6 16.6

MS as %FS 177 177 177 193 190 188 188 188 Mon Ami FS 19.8 19.8 19.8 16.8 16.8 16.8 16.8 16.8

MS 21.6 21.6 21.6 19.9 19.6 19.3 19.3 19.3 MS as %FS 109 109 109 119 117 115 115 115

Pinot Bras FS 12.0 12.0 12.0 10.2 10.2 10.2 10.2 10.2 MS 7.7 7.7 7.7 7.1 7.0 6.9 6.9 6.9


MS 12.3 12.3 12.3 11.4 11.2 11.0 11.0 11.0 MS as %FS 169 169 169 184 181 179 179 179

Star Canyon FS 11.0 11.0 11.0 9.3 9.3 9.3 9.3 9.3 MS 6.2 6.2 6.2 5.7 5.6 5.5 5.5 5.5

MS as %FS 56 56 56 61 60 60 60 60 Voo Doo FS 12.5 12.5 12.5 10.6 10.6 10.6 10.6 10.6

MS 6.8 6.8 6.8 6.3 6.2 6.1 6.1 6.1 MS as %FS 54 54 54 59 58 57 57 57

Woll Grill FS 3.4 3.4 3.4 2.9 2.9 2.9 2.9 2.9 MS 3.9 3.9 3.9 3.6 3.5 3.5 3.5 3.5

MS as %FS 113 113 113 124 122 120 120 120 Z-Tejas FS 14.4 14.4 14.4 12.1 12.1 12.1 12.1 12.1

MS 9.2 9.2 9.2 8.5 8.4 8.3 8.3 8.3 MS as %FS 64 64 64 70 69 68 68 68

Lunai’s FS 15.5 15.5 15.5 15.5 15.5 MS 7.8 9.1 10.4 10.4 10.4

MS as %FS 51 59 67 67 67



Gourmet 1999 2000 2001 2002 2003 2004 2005 2006

Aqua FS 10.5% 10.5% 10.5% 9.8% 9.8% 9.8% 9.8% 9.8%

MS 15.7% 15.7% 15.7% 15.5% 15.2% 15.0% 15.0% 15.0%

MS as %FS 150% 150% 150% 159% 156% 153% 153% 153%

Aureole FS 18.1 18.1 18.1 16.8 16.8 16.8 16.8 16.8

MS 23.3 23.3 23.3 23.0 22.5 22.2 22.2 22.2

MS as %FS 129 129 129 136 134 132 132 132

Eiffel FS 15.2 15.2 15.2 14.1 14.1 14.1 14.1 14.1

MS 17.4 17.4 17.4 17.2 16.9 16.6 16.6 16.6

MS as %FS 115 115 115 122 119 117 117 117

Le Cirque FS 5.1 5.1 5.1 4.7 4.7 4.7 4.7 4.7

MS 8.7 8.7 8.7 8.6 8.4 8.3 8.3 8.3

MS as %FS 173 173 173 183 179 176 176 176

Smith&Wol FS 39.7 39.7 39.7 37.0 37.0 37.0 37.0 37.0

MS 17.4 17.4 17.4 17.2 16.9 16.6 16.6 16.6

MS as %FS 44 44 44 47 46 45 45 45

Spago Dine FS 11.6 11.6 11.6 10.8 10.8 10.8 10.8 10.8

MS 17.4 17.4 17.4 17.2 16.9 16.6 16.6 16.6

MS as %FS 151 151 151 160 157 154 154 154

Lunai’s FS 6.7 6.7 6.7 6.7 6.7

MS 1.2 3.2 4.7 4.7 4.7

MS as %FS 18 48 70 70 70




PPW 21,210 21,846 22,283 22,506 22,731 22,958 23,188 23,420 MktShare 6.2% 8.3% 9.7% 9.7% 9.7%

Capture 1394 1891 2224 2246 2269 Revenue $1,086,980 $1,721,169 $2,312,951 $2,336,080 $2,359,441

PPA $15.00 $17.50 $20.00 $20.00 $20.00


PPW 22,715 23,396 23,864 24,103 24,344 24,587 24,833 25,082 Mkt Share 7.8% 9.1% 10.4% 10.4% 10.4%

Capture 1883 2216 2547 2573 2598 Revenue $2,937,556 $4,033,475 $5,297,858 $5,350,836 $5,404,345

PPA $30.00 $35.00 $40.00 $40.00 $40.00


PPW 12040 12401 12649 12776 12903 13033 13163 13294 Mkt Share 1.2% 3.2% 4.7% 4.7% 4.7%

Capture 157 415 619 625 631 Revenue $490,487 $1,402,371 $2,251,819 $2,274,338 $2,297,081

PPA $60.00 $65.00 $70.00 $70.00 $70.00

Estimated Gross Revenue 2002 2003 2004 2005 2006 Tot. Revenue $4,515,023 $7,157,015 $9,862,628 $9,961,254 $10,060,867




PPW 21,210 22,271 22,939 23,397 23,865 24,343 24,829 25,326 Mkt

Share 6.2% 8.3% 9.7% 9.7% 9.7%

Capture 1449 1986 2358 2405 2453 Revenue $1,130,029 $1,807,050 $2,452,403 $2,501,451 $2,551,480

PPA $15.00 $17.50 $20.00 $20.00 $20.00


PPW 22,715 23,851 24,566 25,058 25,559 26,070 26,591 27,123 Mkt Share 7.8% 9.1% 10.4% 10.4% 10.4%

Capture 1958 2327 2701 2755 2810 Revenue $3,053,895 $4,234,734 $5,617,277 $5,729,622 $5,844,215

PPA $30.00 $35.00 $40.00 $40.00 $40.00


PPW 12040 12642 13021 13282 13547 13818 14095 14377 Mkt Share 1.2% 3.2% 4.7% 4.7% 4.7%

Capture 163 436 656 669 682 Revenue $509,912 $1,472,345 $2,387,586 $2,435,338 $2,484,045

PPA $60.00 $65.00 $70.00 $70.00 $70.00


Tot. Revenue $4,693,835 $7,514,129 $10,457,266 $10,666,412 $10,879,740

PROJECTED PATRONS PER WEEK (SCENARIO THREE 7% 5% 3%)



PPW 21,210 22,695 23,829 24,544 25,281 26,039 26,820 27,625 MktShare 6.2% 8.3% 9.7% 9.7% 9.7%

Capture 1520 2104 2522 2598 2676 Revenue $1,185,422 $1,914,215 $2,623,310 $2,702,009 $2,783,069

PPA $15.00 $17.50 $20.00 $20.00 $20.00


PPW 22,715 24,305 25,520 26,286 27,074 27,887 28,723 29,585 Mkt Share 7.8% 9.1% 10.4% 10.4% 10.4%

Capture 2054 2465 2889 2975 3065 Revenue $3,203,595 $4,485,871 $6,008,742 $6,189,004 $6,374,674

PPA $30.00 $35.00 $40.00 $40.00 $40.00


PPW 12040 12883 13527 13933 14351 14781 15225 15681 Mkt Share 1.2% 3.2% 4.7% 4.7% 4.7%

Capture 171 461 702 723 744 Revenue $534,908 $1,559,661 $2,553,976 $2,630,595 $2,709,513

PPA $60.00 $65.00 $70.00 $70.00 $70.00


Tot. Revenue $4,923,925 $7,959,748 $11,186,027 $11,521,608 $11,867,256

STATEMENT OF INCOME & EXPENSES

The following nine statements of income and expenses are based upon the three

different competitive index scenarios and the three different market growth rate scenarios.

These scenarios are then applied to the projected check average for each meal period giving

the Lunai’s Grill Room and the Lunai’s Gourmet Room a total projected revenue for five

years of operation. The projected revenue is then applied to the statement of income and

expenses with national averages being used to calculate most of the expenses.

A Description of Expense Items

Food Sales. Food sales include sales of all food items. This account is projected by

multiplying the estimated number of patrons per week (PPW) by the anticipated average

check times 52 weeks.

Beverage Sales. Beverage sales vary among restaurants, depending on the type of operation.

They will generally be a relatively constant percentage of food sales.

Food Cost. Food cost is reported as a percentage of food sales. This number is used to judge

restaurant efficiency.

Beverage Cost. Beverage cost includes all liquors, wines, beers, and waters served in both the

bar and restaurant areas. Like the food cost percentage, beverage cost can be affected by

pricing, portion sizes, and the type of restaurant operation.

Other Income. These are the items associated with merchandise sales, cover charges, rental of

shops, display areas, and cash discounts.

Payroll. Under the Uniform System of Accounts for Restaurants, the entire restaurant payroll

is in one category. Regular salaries and wages, extra wages, overtime pay, vacation pay,

commisions, and bonus payments are included.

Employee Benefits. Social Security Tax (FICA), state and federal unemployment taxes,

workmen’s compensation insurance premiums, health and life insurance premiums, pension

plan payments, complimentary employee meals or discounts, employee training, and staff

parties.

Direct Operating Expenses. These are the costs of services rendered to the customer.

Uniforms, Laundry, linen, linen rental, china, glassware, silverware, kitchen utensils,

cleaning supplies, paper supplies, guest supplies, menus, dry cleaning, contract cleaning,

flowers, decorations, auto & truck expenses, and licenses and permits.

Music & Entertainment. The expenses for musicians, entertainers, taped music, meals served

to musicians and entertainers.

Advertising & Promotion. Costs incurred for promoting, creating and maintaining sales in the

restaurant. Newspaper, magazines, flyers, brochures, postcards, direct mail, postage and

telephone, and agency fees.

Utilities. Utility costs are generally fixed, but can be conserved through technology.

Administrative & General. These costs are associated with the daily operation of the business,

but not directly related to providing food service or comfort. Most of these expenses are

fixed. Credit card fees, city and sales tax are moderately variable however.

Repairs & Maintenance. The expenses in this category tend to be fixed but an increased

number of patrons will affect the wear of items slightly and repairs will be needed in certain

areas.

Lease. This is the amount negotiated for a long-term rental of the property. This can be a

fixed expense or a fixed and variable expense depending upon the contract negotiated.

Property Taxes & Insurance. Real and personal property taxes are based on the assessed value

established by the municipality and the tax rate. The cost of insuring the building and its

contents against damage.

Loan Payment. This is a payment on the amount borrowed for remodeling and the amount

required to buy the building. Again, this amount is dependent upon the source and the

negotiated contract.

These are the items included in the statement of income and expenses. Now let’s take a look at

the national operating averages for the restaurants with check averages of $15 or more and discuss the

differences in Lunai’s percentages verses the national averages.

NATIONAL OPERATING AVERAGES From the 1999 Restaurant Industry Operations Report

by The National Restaurant Association and Deloitte & Touche LLP

The national averages are for restaurants with check averages of $15 or more. As

shown through the highlighted years of 2002 to 2004, there are some major differences in

Lunai’s operating percentages and the national average.

2002 2003 2004 Lower Quartile

Median

Upper Quartile

SALES Food………………………….………. 70% 65% 65% 70% 77.2% 83.5% Beverage…………………………….. 30 35 35 17 23.5 30.2 Total Sales……………………… 100 100 100 100 100 100 COST OF SALES Food………………………….………. 40 35 35 31.2 35.3 40.0 Beverage…………………………….. 35 30 30 25.4 30.5 36.3 Total cost of sales……………… 39 34 34 31.2 34.2 38.4 GROSS PROFIT……………………..………... 61 66 66 61.6 65.8 68.8 OTHER INCOME………………………………. 5 5 5 (0.7) 0.0 0.3 Total Income………………………… 65 71 71 60.9 65.8 69.2 CONTROLLABLE EXPENSES Payroll…………………………………….. 25 20 17 22.4 27.9 33.6 Employee Benefits……………….………. 5 7 9 1.4 4.4 6.2 Direct Operating Expenses……………… 5 5 5 4.1 5.5 8.3 Music & Entertainment………….……… 5 3 3 0.0 0.2 1.3 Advertising & Promotion……….……… 5 4 3 1.3 3.0 4.4 Utilities……………………………………. 4 3 3 1.8 2.5 3.4 Administrative & General………………. 3 2 2 1.9 4.1 6.8 Repairs & Maintenance…………………. 3 3 3 1.0 1.6 2.3 Total controllable expenses……….. 55 47 45 52.5 59.8 67.4 INCOME BEFORE OCCUPANCY COSTS .…..… OCCUPATION COSTS 100K 100K 100K 2.3 4.9 7.0 INCOME BEFORE INTEREST & DEPRECIATION 10% 24% 26% (1.6%) 3.8% 10.2%

ITEMS OF NOTE

Beverage Sales

During the first year of operations, Lunai’s will be in the upper quartile of beverage

sales due to their large amount (over 100 seats) of bar space in the upstairs Parlour and the

downstairs Dirty Olive. These two bars will be aggressive in their advertising and

promotions. This, combined with the location, more than substantiates the upper quartile

status for beverage sales. In fact, 30-35% is a conservative estimate; most restaurants don’t

operate on Las Vegas Boulevard and have two large bars within.

Food & Beverage Costs

During the first year of operation Lunai’s will be operating in the upper quartile of

food and beverage costs. This is due to the ‘settling in’ process and will most likely only take

3-6 months, not an entire year. After the first year Lunai’s will then operate the median cost

level for food & beverage costs.

Other Income

Due to the Love Rules clothing line, the merchandise retail store, and the branding of

the building, Lunai’s will receive a generous portion of ‘other income’.

Payroll

Lunai’s begins its payroll percentage less than the median and then drops below the

lower quartile because once a restaurant is staffed to its maximum, the payroll margin does

not increase. Therefore the payroll percentage decreases as sales increase. Payroll, as shown

on the statements of income, starts at more than $2,000,000 and rises to over $3,000,000 by the

third year of operations due to the raises required for long-term employment and a few extra

employees to handle the extra amount of sales.

The other reason for this low payroll percentage is that the majority of the employees

are not established and require less money than more established restaurant employees.

This, in addition to the low management salaries, creates a positive for the overall restaurant.

The tradeoff is the bonus program which comes from the bottom line.

Benefits

While Lunai’s Payroll is low, the benefits steadily increase over the years due to the

predicted loyalty of the employees. Since it will take one full year for most employees to be

able to receive any benefits, Lunai’s doesn’t surpass the upper quartile until the second year

while attaining a huge 9% during the third year. This is part of the Lunai’s philosophy and

will be part of what makes Lunai’s the greatest restaurant in Las Vegas.

Music & Entertainment

Most restaurants are not of equal size to the proposed Lunai’s entertainment and

restaurant complex. Nor are they located on Las Vegas Boulevard. The street entertainment

on Friday nights, all day & night Saturday, and all day Sunday will require some financial

outlay as well as the Wednesday through Sunday entertainment in the Parlour and on the

stage in the Grill Room. All of this plus a few sporadic headliners will give Lunai’s some

great publicity and keep the customers coming in.

Advertising & Promotion

The Advertising & Promotion strategies that were discussed in the Marketing & Sales

Strategies section of this business plan will require a constant amount of capital to maintain.

Lunai’s starts off strong with its percentage, but remains constant in the amount of dollars

spent. This is shown in the consistent drop in percentage over the three years.

Utilities

Theoretically it costs the same to run a restaurant no matter how much business is

being done. Utilities cost will then remain a constant dollar amount and consistently drop in

percentage.

Administrative & General

Lunai’s is a self-contained organization paying out no management fees. As things

become more streamlined, Lunai’s will pay a smaller percentage and be in the lower quartile.

Repairs & Maintenance

Lunai’s will be perfectionist in their approach to repairing and maintaining the

restaurant. Carpets will be replaced after 6-9 months of wear, and all things will be kept up

so the appearance never degenerates from its original beauty. A portion of this money will

be held in reserve for remodeling purposes.

Occupation Costs

The amount projected is from the current operators of the Harley Davidson Café.

VERY GOOD & ‘SCENARIO 3’ – STATEMENT OF INCOME & EXPENSES

02 2002 03 2003 04 2004 SALES Food………………………….………. 70% $6,508,242 65% $10,894,760 65% $15,131,028 Beverage…………………………….. 30 1,952,473 35 3,813,166 35 5,295,860 Total Sales……………………… 100 8,460,715 100 14,707,926 100 20,426,888 COST OF SALES Food………………………….………. 40 2,603,296 35 3,813,165 35 5,295,859 Beverage…………………………….. 35 683,365 30 1,143,949 30 1,588,757 Total cost of sales……………… 39 3,286,662 34 4,957,116 34 6,884,618 GROSS PROFIT……………...………………... 61 5,174,053 66 9,750,810 66 13,542,270 OTHER INCOME………………………………. 5 423,036 5 735,396 5 1,021,344 Total Income………………………… 65 5,597,088 71 10,486,206 71 14,563,614 CONTROLLABLE EXPENSES Payroll…………………………………….. 25 2,115,179 20 2,941,585 17 3,472,571 Employee Benefits……………….………. 5 423,036 7 1,029,555 9 1,838,420 Direct Operating Expenses……………… 5 423,036 5 735,396 5 1,021,344 Music & Entertainment………….……… 5 423,036 3 441,238 3 612,807 Advertising & Promotion……….……… 5 423,036 4 588,317 3 612,807 Utilities……………………………………. 4 338,429 3 441,238 3 612,807 Administrative & General………………. 3 253,821 2 294,159 2 408,538 Repairs & Maintenance…………………. 3 253,821 3 441,238 3 612,807 Total controllable expenses……….. 55 4,653,393 47 6,912,725 45 9,192,099 INCOME BEFORE OCCUPANCY COSTS .…...… $943,695 $3,573,481 $5,371,515 OCCUPATION COSTS Property Taxes & Insurance…….……… 100,000 100,000 100,000 INCOME BEFORE INTEREST & DEPRECIATION 10% $843,695 24% $3,473,481 26% $5,271,515


02 2002 03 2003 04 2004 SALES Food………………………….………. 70% $6,204,119 65% $10,284,827 65% $14,145,253 Beverage…………………………….. 30 1,861,236 35 3,599,690 35 4,950,839 Total Sales……………………… 100 8,065,355 100 13,884,517 100 19,096,092 COST OF SALES Food………………………….………. 40 2,481,648 35 3,599,690 35 4,950,839 Beverage…………………………….. 35 651,432 30 1,079,907 30 1,485,252 Total cost of sales……………… 39 3,133,080 34 4,679,596 34 6,436,090 GROSS PROFIT……………………...………... 61 4,932,275 66 9,204,920 66 12,660,001 OTHER INCOME………………………………. 5 403,268 5 694,226 5 954,805 Total Income………………………… 65 5,335,542 71 9,899,146 71 13,614,806 CONTROLLABLE EXPENSES Payroll…………………………………….. 25 2,016,339 20 2,776,903 17 3,246,336 Employee Benefits……………….………. 5 403,268 7 971,916 9 1,718,648 Direct Operating Expenses……………… 5 403,268 5 694,226 5 954,805 Music & Entertainment………….……… 5 403,268 3 416,536 3 572,883 Advertising & Promotion……….……… 5 403,268 4 555,381 3 572,883 Utilities……………………………………. 4 322,614 3 416,536 3 572,883 Administrative & General………………. 3 241,961 2 277,690 2 381,922 Repairs & Maintenance…………………. 3 241,961 3 416,536 3 572,883 Total controllable expenses……….. 55 4,435,945 47 6,525,723 45 8,593,241 INCOME BEFORE OCCUPANCY COSTS ……… $899,597 $3,373,423 $5,021,565 OCCUPATION COSTS Property Taxes & Insurance…….……… 100,000 100,000 100,000 INCOME BEFORE INTEREST & DEPRECIATION 10% $799,597 24% $3,273,423 26% $4,921,565


02 2002 03 2003 04 2004 SALES Food………………………….………. 70% $5,967,772 65% $9,796,034 65% $13,340,902 Beverage…………………………….. 30 1,790,331 35 3,428,612 35 4,669,316 Total Sales……………………… 100 7,758,103 100 13,224,646 100 18,010,218 COST OF SALES Food………………………….………. 40 2,387,109 35 3,428,612 35 4,669,316 Beverage…………………………….. 35 626,616 30 1,028,584 30 1,400,795 Total cost of sales……………… 39 3,013,725 34 4,457,195 34 6,070,110 GROSS PROFIT…………………………...…... 61 4,744,378 66 8,767,450 66 11,940,107 OTHER INCOME………………………………. 5 387,905 5 661,232 5 900,511 Total Income………………………… 65 5,132,284 71 9,428,683 71 12,840,618 CONTROLLABLE EXPENSES Payroll…………………………………….. 25 1,939,526 20 2,644,929 17 3,061,737 Employee Benefits……………….………. 5 387,905 7 925,725 9 1,620,920 Direct Operating Expenses……………… 5 387,905 5 661,232 5 900,511 Music & Entertainment………….……… 5 387,905 3 396,739 3 540,307 Advertising & Promotion……….……… 5 387,905 4 528,986 3 540,307 Utilities……………………………………. 4 310,324 3 396,739 3 540,307 Administrative & General………………. 3 232,743 2 264,493 2 360,204 Repairs & Maintenance…………………. 3 232,743 3 396,739 3 540,307 Total controllable expenses……….. 55 4,266,957 47 6,215,584 45 8,104,598 INCOME BEFORE OCCUPANCY COSTS ……… $865,327 $3,213,099 $4,736,020 OCCUPATION COSTS Property Taxes & Insurance…….……… 100,000 100,000 100,000 INCOME BEFORE INTEREST & DEPRECIATION 10% $765,327 24% $3,113,099 26% $4,636,020

GOOD & ‘SCENARIO 3’ – STATEMENT OF INCOME & EXPENSES

02 2002 03 2003 04 2004 SALES Food………………………….………. 70% $5,503,839 65% 9,414,057 65% $13,504,701 Beverage…………………………….. 30 1,651,152 35 3,294,920 35 4,726,645 Total Sales……………………… 100 7,154,991 100 12,708,978 100 18,231,347 COST OF SALES Food………………………….………. 40 2,201,536 35 3,294,920 35 4,726,645 Beverage…………………………….. 35 577,903 30 988,476 30 1,417,994 Total cost of sales……………… 39 2,779,439 34 4,283,396 34 6,144,639 GROSS PROFIT…………………...…………... 61 4,375,552 66 8,425,581 66 12,086,708 OTHER INCOME………………………………. 5 357,750 5 635,449 5 911,567 Total Income………………………… 65 4,733,302 71 9,061,030 71 12,998,275 CONTROLLABLE EXPENSES Payroll…………………………………….. 25 1,788,748 20 2,541,796 17 3,099,329 Employee Benefits……………….………. 5 357,750 7 889,628 9 1,640,821 Direct Operating Expenses……………… 5 357,750 5 635,449 5 911,567 Music & Entertainment………….……… 5 357,750 3 381,269 3 546,940 Advertising & Promotion……….……… 5 357,750 4 508,359 3 546,940 Utilities……………………………………. 4 286,200 3 381,269 3 546,940 Administrative & General………………. 3 214,650 2 254,180 2 364,627 Repairs & Maintenance…………………. 3 214,650 3 381,269 3 546,940 Total controllable expenses……….. 55 3,935,245 47 5,973,219 45 8,204,106 INCOME BEFORE OCCUPANCY COSTS .…..… 798,057 3,087,811 4,794,169 OCCUPATION COSTS Property Taxes & Insurance…….……… 100,000 100,000 100,000 INCOME BEFORE INTEREST & DEPRECIATION 10% $698,057 24% $2,987,811 26% $4,694,169


02 2002 03 2003 04 2004 SALES Food………………………….………. 70% $5,246,651 65% $8,887,021 65% $12,624,880 Beverage…………………………….. 30 1,573,995 35 3,110,457 35 4,418,708 Total Sales……………………… 100 6,820,646 100 11,997,478 100 17,043,589 COST OF SALES Food………………………….………. 40 2,098,660 35 3,110,457 35 4,418,708 Beverage…………………………….. 35 550,898 30 933,137 30 1,325,612 Total cost of sales……………… 39 2,649,559 34 4,043,594 34 5,744,321 GROSS PROFIT…………………..…………... 61 4,171,087 66 7,953,883 66 11,299,268 OTHER INCOME………………………………. 5 341,032 5 599,874 5 852,179 Total Income………………………… 65 4,512,120 71 8,553,757 71 12,151,447 CONTROLLABLE EXPENSES Payroll…………………………………….. 25 1,705,161 20 2,399,496 17 2,897,410 Employee Benefits……………….………. 5 341,032 7 839,823 9 1,533,923 Direct Operating Expenses……………… 5 341,032 5 599,874 5 852,179 Music & Entertainment………….……… 5 341,032 3 359,924 3 511,308 Advertising & Promotion……….……… 5 341,032 4 479,899 3 511,308 Utilities……………………………………. 4 272,826 3 359,924 3 511,308 Administrative & General………………. 3 204,619 2 239,950 2 340,872 Repairs & Maintenance…………………. 3 204,619 3 359,924 3 511,308 Total controllable expenses……….. 55 3,751,355 47 5,638,815 45 7,669,615 INCOME BEFORE OCCUPANCY COSTS .…..… $760,764 $2,914,943 $4,481,833 OCCUPATION COSTS Property Taxes & Insurance…….……… 100,000 100,000 100,000 INCOME BEFORE INTEREST & DEPRECIATION 10% $660,764 23% $2,814,943 26% $4,381,833


02 2002 03 2003 04 2004 SALES Food………………………….………. 70% $5,046,778 65% $8,464,659 65% $11,906,984 Beverage…………………………….. 30 1,514,033 35 2,962,631 35 4,167,444 Total Sales……………………… 100 6,560,812 100 11,427,289 100 16,074,428 COST OF SALES Food………………………….………. 40 2,018,711 35 2,962,631 35 4,167,444 Beverage…………………………….. 35 529,912 30 888,789 30 1,250,233 Total cost of sales……………… 39 2,548,623 34 3,851,420 34 5,417,678 GROSS PROFIT………………..……………... 61 4,012,189 66 7,575,870 66 10,656,750 OTHER INCOME………………………………. 5 328,041 5 571,364 5 803,721 Total Income………………………… 65 4,340,229 71 8,147,234 71 11,460,472 CONTROLLABLE EXPENSES Payroll…………………………………….. 25 1,640,203 20 2,285,458 17 2,732,653 Employee Benefits……………….………. 5 328,041 7 799,910 9 1,446,698 Direct Operating Expenses……………… 5 328,041 5 571,364 5 803,721 Music & Entertainment………….……… 5 328,041 3 342,819 3 482,233 Advertising & Promotion……….……… 5 328,041 4 457,092 3 482,233 Utilities……………………………………. 4 262,432 3 342,819 3 482,233 Administrative & General………………. 3 196,824 2 228,546 2 321,489 Repairs & Maintenance…………………. 3 196,824 3 342,819 3 482,233 Total controllable expenses……….. 55 3,608,446 47 5,370,826 45 7,233,492 INCOME BEFORE OCCUPANCY COSTS .…..… $731,783 $2,776,408 $4,226,979 OCCUPATION COSTS Property Taxes & Insurance…….……… 100,000 100,000 100,000 INCOME BEFORE INTEREST & DEPRECIATION 10% $631,783 23% $2,676,408 26% $4,126,979

OK & ‘SCENARIO 3’ – STATEMENT OF INCOME & EXPENSES

02 2002 03 2003 04 2004 SALES Food………………………….………. 70% $4,923,925 65% $7,959,748 65% $11,186,027 Beverage…………………………….. 30 1,477,178 35 2,785,912 35 3,915,110 Total Sales……………………… 100 6,401,103 100 10,745,660 100 15,101,137 COST OF SALES Food………………………….………. 40 1,969,570 35 2,785,912 35 3,915,110 Beverage…………………………….. 35 517,012 30 835,774 30 1,174,533 Total cost of sales……………… 39 2,486,582 34 3,621,685 34 5,089,642 GROSS PROFIT……………..………………... 61 3,914,521 66 7,123,975 66 10,011,494 OTHER INCOME………………………………. 5 320,055 5 537,283 5 755,057 Total Income………………………… 65 4,234,576 71 7,661,258 71 10,766,551 CONTROLLABLE EXPENSES Payroll…………………………………….. 25 1,600,276 20 2,149,132 17 2,567,193 Employee Benefits……………….………. 5 320,055 7 752,196 9 1,359,102 Direct Operating Expenses……………… 5 320,055 5 537,283 5 755,057 Music & Entertainment………….……… 5 320,055 3 322,370 3 453,034 Advertising & Promotion……….……… 5 320,055 4 429,826 3 453,034 Utilities……………………………………. 4 256,044 3 322,370 3 453,034 Administrative & General………………. 3 192,033 2 214,913 2 302,023 Repairs & Maintenance…………………. 3 192,033 3 322,370 3 453,034 Total controllable expenses……….. 55 3,520,607 47 5,050,460 45 6,795,512 INCOME BEFORE OCCUPANCY COSTS ……… $713,969 $2,610,797 $3,971,040 OCCUPATION COSTS Property Taxes & Insurance…….……… 100,000 100,000 100,000 INCOME BEFORE INTEREST & DEPRECIATION 10% $613,969 23% $2,510,797 26% $3,871,040


02 2002 03 2003 04 2004 SALES Food………………………….………. 70% $4,693,835 65% $7,514,129 65% $10,457,266 Beverage…………………………….. 30 1,408,151 35 2,629,945 35 3,660,043 Total Sales……………………… 100 6,101,986 100 10,144,075 100 14,117,309 COST OF SALES Food………………………….………. 40 1,877,534 35 2,629,945 35 3,660,043 Beverage…………………………….. 35 492,853 30 788,984 30 1,098,013 Total cost of sales……………… 39 2,370,387 34 3,418,929 34 4,758,056 GROSS PROFIT……………..………………... 61 3,731,599 66 6,725,146 66 9,359,253 OTHER INCOME………………………………. 5 305,099 5 507,204 5 705,865 Total Income………………………… 65 4,036,699 71 7,232,349 71 10,065,119 CONTROLLABLE EXPENSES Payroll…………………………………….. 25 1,525,497 20 2,028,815 17 2,399,943 Employee Benefits……………….………. 5 305,099 7 710,085 9 1,270,558 Direct Operating Expenses……………… 5 305,099 5 507,204 5 705,865 Music & Entertainment………….……… 5 305,099 3 304,322 3 423,519 Advertising & Promotion……….……… 5 305,099 4 405,763 3 423,519 Utilities……………………………………. 4 244,079 3 304,322 3 423,519 Administrative & General………………. 3 183,060 2 202,881 2 282,346 Repairs & Maintenance…………………. 3 183,060 3 304,322 3 423,519 Total controllable expenses……….. 55 3,356,092 47 4,767,715 45 6,352,789 INCOME BEFORE OCCUPANCY COSTS .…..… $680,606 $2,464,634 $3,712,330 OCCUPATION COSTS Property Taxes & Insurance…….……… 100,000 100,000 100,000 INCOME BEFORE INTEREST & DEPRECIATION 10% $580,606 23% $2,364,634 26% $3,612,330


02 2002 03 2003 04 2004 SALES Food………………………….………. 70% $4,515,023 65% $7,157,015 65% $9,862,628 Beverage…………………………….. 30 1,354,507 35 2,504,955 35 3,451,920 Total Sales……………………… 100 5,869,530 100 9,661,971 100 13,314,548 COST OF SALES Food………………………….………. 40 1,806,009 5 2,504,955 35 3,451,920 Beverage…………………………….. 35 474,077 30 751,487 30 1,035,576 Total cost of sales……………… 39 2,280,086 34 3,256,442 34 4,487,496 GROSS PROFIT……………………………...... 61 3,589,443 66 6,405,529 66 8,827,052 OTHER INCOME………………………………. 5 293,476 5 483,099 5 665,727 Total Income………………………… 65 3,882,920 71 6,888,627 71 9,492,779 CONTROLLABLE EXPENSES Payroll…………………………………….. 25 1,467,382 20 1,932,394 17 2,263,473 Employee Benefits……………….………. 5 293,476 7 676,338 9 1,198,309 Direct Operating Expenses……………… 5 293,476 5 483,099 5 665,727 Music & Entertainment………….……… 5 293,476 3 289,859 3 399,436 Advertising & Promotion……….……… 5 293,476 4 386,479 3 399,436 Utilities……………………………………. 4 234,781 3 289,859 3 399,436 Administrative & General………………. 3 176,086 2 193,239 2 266,291 Repairs & Maintenance…………………. 3 176,086 3 289,859 3 399,436 Total controllable expenses……….. 55 3,228,241 47 4,541,126 45 5,991,546 INCOME BEFORE OCCUPANCY COSTS ……… $654,678 $2,347,501 $3,501,233 OCCUPATION COSTS Property Taxes & Insurance…….……… 100,000 100,000 100,000 INCOME BEFORE INTEREST & DEPRECIATION 9% $554,678 23% $2,247,501 26% $3,401,233

VALUATION

These number are based on the value of the land and the value of the building and four-level

parking garage. The building cost almost $10,000,000 to build in 1996 and the land, although

currently being leased by Harley Davidson Café for $60,000 a month, is valued at $10 million.

• Lunai’s intends on buying the land for $9.5 million.

• Lunai’s intends on buying the building and parking garage for $8 million.

• Lunai’s intends on spending $4.5 million on remodeling and expansion.

• Lunai’s requires $3 million in capital for the first year of operation.

The estimated numbers above total $25 million and make the loan to equity ratio a

70/30 split. This is proven by the required capital to buy the building totaling $17.5 million

(17.5/25=70%) and the required capital to remodel and operate the restaurant totaling $7.5

million (7.5/25=30%).

Avg. Hotel Mtg. Rate Avg. Corporate A Bond Rate 1999 1q 7.86 6.98 1998 4q 7.47 6.87 1998 3q 7.12 6.87 1998 2q 7.44 6.98 1998 1q 7.26 7.00 1997 4q 7.65 7.46 1997 3q 8.44 7.42 1997 2q 8.85 7.84 1997 1q 8.25 7.71 1997 4q 9.49 7.54 1996 3q 8.96 7.90 1996 2q 8.82 7.93 1996 1q 7.79 7.37 1995 4q 8.44 7.28 1995 3q 8.61 7.67 1995 2q 9.25 7.87

(Source: American Council of Life Insurance; Moody’s Bond Record)

According to Moody’s Bond Record, the Corporate A Bond Rate for October, 1999 was 7.99%.

According to Hospitality Valuation Services, the average interest rate of a hotel mortgage and

the concurrent yield on a Corporate A Bond have a close mathematical relationship. This is

shown through the regression analysis of the historical rates equalling a multiple-r of 83.01%.

The purpose of doing a regression analysis on the average rates is to create an equation that

predicts what the hotel mortgage rate will be by mathematically forecasting the historical

data.

Once the equation is configured, the current Corporate A Bond Rate is plugged into the x

variable. The equation is nothing but the equation for the slope of a line:

Y = a + bx

So, in essence, this equation predicts what point on the line is most probable based upon the

historical data used. The equation from the historical average rates above is:

Y = -3.578367 + 1.591995 (x)

By plugging in the current Corporate A Bond Rate of 7.99, the prediction is made for the most

probable point on the line.

Y = -3.578367 + 1.591995 (7.99) Y = 9.141672

Therefore, the prediction of the most probable future hotel mortgage rate is 9.14%.

Once the most probable future hotel mortgage rate is predicted, the equity dividend rate

must be forecasted. Since restaurants are a risky business, a 15 to 18% return on equity is

most common. Infinity Hospitality & Entertainment International has decided to offer a 15%

equity dividend rate because of the risk involved and the opportunity for partnership in the

Lunai’s operation. This, in addition to the amortization of 25 years and the aforementioned

loan to value ratio give us all of the necessary figures to estimate an overall value of the

restaurant.

Mortgage Finance Terms

Interest Rate 9.14% Amortization 25 years

Loan to Value Ratio 70% Equity Dividend Rate 15%

Capitalization Rate 10.9%

Using the net income from the nine different statements of income and the mortgage

finance terms,Infinity Hospitality & Entertainment International has estimated the nine

different valuations. The valuation approached used has been labeled the banded width income

capitalization approach using one stabilized year. For the purposes of the Lunai’s

valuation,Infinity Hospitality & Entertainment International has identified year three of

operation (year 2004) as their stabilized year. Taking the weighted mortgage rate and the

weighted equity rate, a capitalization rate is then calculated. This capitalization rate is finally

multiplied by the third year net income to give Lunai’s an estimated value.

Lunai’s Estimated Values using the Banded Width Income Capitalization Approach for One Stabilized Year (year 2004)

Very Good & Scenario 3 $48,366,203 Very Good & Scenario 2 $45,155,407 Very Good & Scenario 1 $42,535,533

Good & Scenario 3 $43,069,048 Good & Scenario 2 $40,203,358 Good & Scenario 1 $37,865,075

OK & Scenario 3 $35,516,828 OK & Scenario 2 $33,143,160 OK & Scenario 1 $31,206,346

CONCLUSION

Although food and beverage costs are critical in running a restaurant and management is the

ultimate variable, the major concerns in opening and operating a successful restaurant are

employee wages and enough money to operate the restaurant through the first year. These

two points, the other points given, are the make or break variables in successfully running

the Lunai’s restaurant on Harmon and Las Vegas Boulevard in Las Vegas, Nevada.

The estimated $25 million needed to open this restaurant and the estimated loan to equity

ration of 70/30 gives Lunai’s a capitalization rate of 10.9%. Taking the capitalization rate and

multiplying it by the stabilized year of operation, for each of the nine scenarios, shows that

Lunai’s estimated valuation for the ‘worst case scenario’ is $31.2 million. The estimated ‘best

case scenario’ values Lunai’s at $44.4 million. In addition, it is more than possible to exceed

the prediction because of the conservative approach taken byInfinity Hospitality &

Entertainment International. This is shown in the Lunai’s Competitive Index scores being

lower and never higher than the average competitive index of the competition.

This study has shown Lunai’s to be a feasible enterprise, assuming the leadership is excellent

and the concepts described herein to be viable in nature, because all scenarios are valued

greater than the $25 million investment required to create the restaurant named Lunai’s.

The next and final issue is how to attain the capital…

CAPITAL SOURCES & FINANCING

For the limited track record of the leadership and the level of risk Lunai’s poses, there are

only a few options in attaining venture capital:

OPTION 1A (on the $17.5 million)

A friend of the leadership buys the land and the building for $17.5 million and holds the note

on the mortgage sold toInfinity Hospitality & Entertainment International. Assuming the

mortgage is given at a rate of 9.14% over a 25 year period, the annual payment would be $1.8

million and interest only payments for the first two years would be required for Lunai’s to be

able to stay current on their debt service.

OPTION 1B (on the $17.5 million)

A friend of the leadership buys the land and the building for $17.5 million and leases them

toInfinity Hospitality & Entertainment International with interest only payments for the first

two years.

OPTION 1C (on the $17.5 million)

A friend of the leadership buys the land and the building for $17.5 million and leases them

toInfinity Hospitality & Entertainment International with interest only payments for the first

two years and a percentage of gross income.

OPTION 1D (on the $17.5 million)

A venture capital firm is approached and negotiations begin. The money is similar to selling

one’s soul. High interest rates and they usually participate in the day to day operations of

the business.

OPTION 2A (on the $7.5 million)

The other $7.5 million would be attained through an equity loan at 15% over a 20 year period.

The annual payment would be $1.2 million, but would have to be interest only payments for

the first two years.

OPTION 2B (on the $7.5 million)

The other $7.5 million would be attained through a combination of an equity loan and a

limited partnership agreement. Any partner that has ‘limited partner’ status is required to be

passive in the daily operations of the business. The annual payment on the equity loan

would be dependent upon the negotiations and would have to be interest only payments for

the first two years.

OPTION 2C (on the $7.5 million)

A combination of limited and general partners, or simply a couple of general partners. The

limited partners only risk their equity investment while the general partners are personally

liable for the debts and obligations of the partnership.

OPTION 2D (on the $7.5 million)

Incorporate Lunai’s and issue 49% of the stock to raise the $7.5 million needed for

remodeling, expansion, and operating capital.

Infinity Hospitality & Entertainment International believes that Options 1c & 2c are the most

probable combinations for acquiring the necessary capital to make Lunai’s a success beyond compare.

the build up approach for forecasting...

Documents