Unit 4

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Table of Contents

1.0 Executive Summary.............................................................................................................................1 Chart: Highlights ......................................................................................................................1

1.1 Objectives ...................................................................................................................................2 1.2 Keys to Success ........................................................................................................................2 1.3 Mission ........................................................................................................................................2 1.4 Risks............................................................................................................................................2

2.0 Company Summary.............................................................................................................................2 2.1 Company Ownership .................................................................................................................3 2.2 Start-up Summary ......................................................................................................................4

Table: Start-up .........................................................................................................................5 Chart: Start-up .........................................................................................................................5

2.3 Company Locations and Facilities ..........................................................................................5 3.0 Services................................................................................................................................................6

3.1 Competitive Comparison ..........................................................................................................6 3.2 Service Description ...................................................................................................................6 3.3 Fulfillment ....................................................................................................................................7 3.4 Technology..................................................................................................................................7 3.5 Future Services ..........................................................................................................................7

4.0 Market Analysis Summary ..................................................................................................................7 4.1 Target Market Segment Strategy .............................................................................................7

4.1.1 Market Trends................................................................................................................8 4.1.2 Market Needs ................................................................................................................8

4.2 Market Segmentation ................................................................................................................8 Chart: Market Analysis (Pie) ..................................................................................................9 Table: Market Analysis ...........................................................................................................9

4.3 Service Business Analysis........................................................................................................9 4.3.1 Competition and Buying Patterns .............................................................................10 4.3.2 Business Participants.................................................................................................10 4.3.3 Distributing a Service .................................................................................................10

5.0 Strategy and Implementation Summary ..........................................................................................11 5.1 Strategy Pyramid .....................................................................................................................11

5.1.1 Attract Power Internet Users ......................................................................................11 5.1.2 Social Hub ...................................................................................................................11 5.1.3 Attract Novice Internet Users .....................................................................................11

5.2 SWOT Analysis ........................................................................................................................12 5.2.1 Weaknesses................................................................................................................12 5.2.2 Opportunities ...............................................................................................................12 5.2.3 Threats .........................................................................................................................13 5.2.4 Strengths ......................................................................................................................13

5.3 Competitive Edge....................................................................................................................13 5.4 Marketing Strategy ..................................................................................................................14

5.4.1 Pricing Strategy...........................................................................................................14 5.4.2 Promotion Strategy .....................................................................................................14

5.5 Sales Strategy..........................................................................................................................14 5.5.1 Sales Forecast ............................................................................................................16

Table: Sales Forecast.................................................................................................17 Chart: Sales Monthly ...................................................................................................18

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Table of Contents Chart: Sales by Year ...................................................................................................18

5.6 Milestones ................................................................................................................................19 Table: Milestones..................................................................................................................19 Chart: Milestones ..................................................................................................................19

6.0 Management Summary ....................................................................................................................19 6.1 Personnel Plan .........................................................................................................................20

Table: Personnel ...................................................................................................................20 7.0 Financial Plan ....................................................................................................................................20

7.1 Start-up Funding ......................................................................................................................21 Table: Start-up Funding........................................................................................................21

7.2 Important Assumptions............................................................................................................22 Table: General Assumptions ...............................................................................................22

7.3 Key Financial Indicators ..........................................................................................................22 Chart: Benchmarks ...............................................................................................................22

7.4 Break-even Analysis................................................................................................................23 Table: Break-even Analysis .................................................................................................23 Chart: Break-even Analysis .................................................................................................23

7.5 Projected Profit and Loss .......................................................................................................24 Chart: Profit Monthly .............................................................................................................25 Chart: Profit Yearly ................................................................................................................25 Table: Profit and Loss ..........................................................................................................26 Chart: Gross Margin Monthly ...............................................................................................26

7.6 Projected Cash Flow ...............................................................................................................27 Chart: Cash ...........................................................................................................................27 Table: Cash Flow ..................................................................................................................28

7.7 Projected Balance Sheet ........................................................................................................29 Table: Balance Sheet ...........................................................................................................29

7.8 Business Ratios .......................................................................................................................30 Table: Ratios .........................................................................................................................31

Table: Sales Forecast ...............................................................................................................................1 Table: Personnel ........................................................................................................................................2 Table: General Assumptions ....................................................................................................................3 Table: Profit and Loss ...............................................................................................................................4 Table: Cash Flow .......................................................................................................................................5 Table: Balance Sheet ................................................................................................................................6

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JavaNet Internet Cafe

1.0 Executive Summary

JavaNet, unlike a typical cafe, will provide a unique forum for communication and entertainment through the medium of the Internet. JavaNet is the answer to an increasing demand. The public wants: (1) ac cess to the methods of communication and volumes of information now available on the Internet, and (2) ac cess at a cost they can afford and in such a way that they aren't socially, economically, or politically isolated. JavaNet's goal is to provide the community with a social, educational, entertaining, atmosphere for worldwide communication.

This business plan is prepared to obtain financing in the amount of $24,000. The supplemental financing is required to begin work on site preparation and modifications, equipment purchases, and to cover expenses in the first year of operations. Additional financing has already been secured in the form of: (1) $24,000 from the Oregon Economic Development Fund (2) $19,000 of personal savings from owner Cale Bruckner (3) $36,000 from three investors (4) and $9,290 in the form of short-term loans.

JavaNet will be incorporated as an LLC corporation. This will shield the owner Cale Bruckner, and the three outside investors, Luke Walsh, Doug Wilson, and John Underwood, from issues of personal liability and double taxation. The investors will be treated as shareholders and therefore will not be liable for more than their individual personal investment of $12,000 eac h.

The financing, in addition to the capital contributions from the owner, shareholders and the Oregon Economic Development Fund, will allow JavaNet to successfully open and maintain operations through year one. The large initial capital investment will allow JavaNet to provide its customers with a full featured Internet cafe. A unique, upsc ale, and innovative environment is required to provide the customers with an atmosphere that will spawn soc ialization. Successful operation in year one will provide JavaNet with a customer base that will allow it to be self sufficient in year two.

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JavaNet Internet Cafe

1.1 Objectives

JavaNet's objectives for the first three years of operation include:

· The creation of a unique, upsc ale, innovative environment that will differentiate JavaNet from loc al coffee houses.

· Educating the community on what the Internet has to offer. · The formation of an environment that will bring people with diverse interests and

bac kgrounds together in a common forum. · Good coffee and bakery items at a reasonable price. · Affordable ac cess to the resources of the Internet and other online services.

1.2 Keys to Success

The keys to the success for JavaNet are:

· The creation of a unique, innovative, upsc ale atmosphere that will differentiate JavaNet from other local coffee shops and future Internet cafes.

· The establishment of JavaNet as a community hub for socialization and entertainment. · The creation of an environment that won't intimidate the novice user. JavaNet will

position itself as an educational resource for individuals wishing to learn about the benefits the Internet has to offer.

· Great coffee and bakery items.

1.3 Mission

As the popularity of the Internet continues to grow at an exponential rate, easy and affordable ac cess is quickly bec oming a necessity of life. JavaNet provides communities with the ability to ac cess the Internet, enjoy a cup of coffee, and share Internet experiences in a comfortable environment. People of all ages and bac kgrounds will come to enjoy the unique, upsc ale, educational, and innovative environment that JavaNet provides.

1.4 Risks

The risks involved with starting JavaNet are:

· Will there be a demand for the services offered by JavaNet in Eugene? · Will the popularity of the Internet continue to grow, or is the Internet a fad? · Will individuals be willing to pay for the service JavaNet offers? · Will the cost of ac cessing the Internet from home drop so significantly that there will

not be a market for Internet Cafes such as JavaNet?

2.0 Company Summary

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JavaNet Internet Cafe JavaNet, soon to be loc ated in downtown Eugene on 10th and Oak, will offer the community easy and affordable ac cess to the Internet. JavaNet will provide full ac cess to email, WWW, FTP, Usenet and other Internet applications such as Telnet and Gopher. JavaNet will also provide customers with a unique and innovative environment for enjoying great coffee, specialty beverages, and bakery items.

JavaNet will appeal to individuals of all ages and bac kgrounds. The instructional Internet classes, and the helpful staff that JavaNet provides, will appeal to the audience that does not assoc iate themselves with the computer age. This educational aspec t will attrac t younger and elderly members of the community who are rapidly gaining interest in the unique resources that online communications have to offer. The downtown loc ation will provide business people with convenient ac cess to their morning coffee and online needs.

2.1 Company Ownership

JavaNet is a privately held Oregon Limited Liability Corporation. Cale Bruckner, the founder of JavaNet, is the majority owner. Luke Walsh, Doug Wilson, and John Underwood, all hold minority stoc k positions as private investors.

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JavaNet Internet Cafe

2.2 Start-up Summary

JavaNet's start-up costs will cover coffee making equipment, site renovation and modification, capital to cover losses in the first year, and the communications equipment necessary to get its customers online.

The communications equipment necessary to provide JavaNet's customers with a high-speed connection to the Internet and the services it has to offer make up a large portion of the start- up costs. These costs will include the computer terminals and all costs assoc iated with their set-up. Costs will also be designated for the purchase of two laser printers and a scanner.

In addition, costs will be alloc ated for the purchase of coffee making equipment. One espresso mac hine, an automatic coffee grinder, and minor additional equipment will be purchased from Allann Brothers.

The site at 10th and Oak will require funds for renovation and modification. A single estimated figure will be alloc ated for this purpose. The renovation/modification cost estimate will include the costs associated with preparing the site for opening business.

Start-up Expense Details:

· 11 computers = $22,000 · two printers = $1,000 · one sc anner = $500 · software = $810 · one espresso mac hine = $10,700 · one automatic espresso grinder = $795 · other fixtures and remodeling:

° two coffee/food preparation counters = $1,000 ° one information display counter = $1,000 ° one drinking/eating counter = $500 ° sixteen stools = $1,600 ° six computer desks w/chairs = $2,400 ° stationery goods = $500 ° two telephones = $200 ° dec oration expense = $13,000

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Table: Start-up

Start-up

Requirements

Start-up Expenses

Legal $500

Stationery etc. $500

Brochures $500

Consultants $2,000

Insurance $700

Rent $1,445

4-group Automatic Coffee Machine $10,700

Bean Grinder $795

Computer Systems (x11), Software, Printer, Scanner $24,310

Communication Lines $840

Fixtures/Remodel $20,000

Total Start-up Expenses $62,290

Start-up Assets

Cash Required $24,000

Start-up Inventory $2,000

Other Current Assets $0

Long-term Assets $0

Total Assets $26,000

Total Requirements $88,290

JavaNet Internet Cafe

2.3 Company Locations and Facilities

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JavaNet Internet Cafe A site has been c hosen at 10th and Oak in downtown Eugene. This site was chosen for various reasons, including:

· Proximity to the downtown business community. · Proximity to trendy, upsc ale restaurants such as West Brothers. · Proximity to LTD's Eugene Station. Parking availability. · Low cost rent - $.85 per square foot for 1700 square feet. · High visibility.

All of these qualities are consistent with JavaNet's goal of providing a central hub of communication and soc ialization for the Eugene community.

3.0 Services

JavaNet will provide full ac cess to email, WWW, FTP, Usenet and other Internet applications such as Telnet and Gopher. Printing, sc anning, and introductory courses to the Internet will also be available to the customer. JavaNet will also provide customers with a unique and innovative environment for enjoying great coffee, spec ialty beverages, and bakery items.

3.1 Competitive Comparison

JavaNet will be the first Internet cafe in Eugene. JavaNet will differentiate itself from the strictly-coffee cafes in Eugene by providing its customers with Internet and computing services.

3.2 Service Description

JavaNet will provide its customers with full ac cess to the Internet and common computer software and hardware. Some of the Internet and computing services available to JavaNet customers are listed below:

· Ac cess to external POP3 email ac counts. · Customers can sign up for a JavaNet email ac count. This ac count will be managed by

JavaNet servers and ac cessible from computer systems outside the JavaNet network. · FTP, Telnet, Gopher, and other popular Internet utilities will be available. · Ac cess to Netscape or Internet Explorer browser. · Ac cess to laser and color printing. · Ac cess to popular software applications like Adobe PhotoShop and Microsoft Word.

JavaNet will also provide its customers with access to introductory Internet and email classes. These classes will be held in the afternoon and late in the evening. By providing these classes, JavaNet will build a client base familiar with its services. The computers, Internet ac cess, and classes wouldn't mean half as much if taken out of the environment JavaNet will provide. Good coffee, spec ialty drinks, bakery goods, and a comfortable environment will provide JavaNet customers with a home away from home. A plac e to enjoy the benefits of computing in a comfortable and well-kept environment.

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JavaNet Internet Cafe

3.3 Fulfillment

JavaNet will obtain c omputer support and Internet ac cess from Bellevue Computers loc ated in Eugene. Bellevue will provide the Internet connections, network consulting, and the hardware required to run the JavaNetwork. Allann Brothers will provide JavaNet with c offee equipment, bulk coffee, and paper supplies. At this time, a contrac t for the bakery items has not been completed. JavaNet is currently negotiating with Humble Bagel and the French Horn to fulfill the requirement.

3.4 Technology

JavaNet will invest in high-speed computers to provide its customers with a fast and efficient connection to the Internet. The computers will be reliable and fun to work with. JavaNet will continue to upgrade and modify the systems to stay current with c ommunications technology. One of the main attrac tions assoc iated with Internet cafes, is the state of the art equipment available for use. Not everyone has a Pentium PC in their home or office.

3.5 Future Services

As JavaNet grows, more communications systems will be added. The possibility of additional units has been accounted for in the current floor plan. As the demand for Internet connectivity increases, along with the increase in c ompetition, JavaNet will continue to add new services to keep its customer base coming bac k for more.

4.0 Market Analysis Summary

JavaNet is fac ed with the exciting opportunity of being the first-mover in the Eugene cyber-cafe market. The consistent popularity of coffee, combined with the growing interest in the Internet, has been proven to be a winning concept in other markets and will produce the same results in Eugene.

4.1 Target Market Segment Strategy

JavaNet intends to cater to people who want a guided tour on their first spin around the Internet and to experienced users eager to indulge their passion for computers in a social setting. Furthermore, JavaNet will be a magnet for loc al and traveling professionals who desire to work or check their email messages in a friendly atmosphere. These professionals will either use JavaNet's PCs, or plug their notebooks into Internet connections. JavaNet's target market covers a wide range of ages: from members of Generation X who grew up surrounded by computers, to Baby Boomers who have come to the realization that people today cannot afford to ignore computers.

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JavaNet Internet Cafe

4.1.1 Market Trends

A market survey was conducted in the Fall of 1996. Key questions were asked of fifty potential customers. Some key findings include:

· 35 subjects said they would be willing to pay for ac cess to the Internet. · Five dollars an hour was the most popular hourly Internet fee. · 24 subjects use the Internet to communicate with others on a regular basis.

4.1.2 Market Needs

Fac tors such as current trends, addiction, and historical sales data ensure that the high demand for coffee will remain c onstant over the next five years. The rapid growth of the Internet and online services, that has been witnessed worldwide, is only the tip of the iceberg. The potential growth of the Internet is enormous, to the point where one day, a computer terminal with an online connection will be as common and necessary as a telephone. This may be 10 or 20 years down the road, but for the next five years, the online service provider market is sure to experience tremendous growth. Being the first cyber-cafe in Eugene, JavaNet will enjoy the first-mover advantages of name recognition and customer loyalty. Initially, JavaNet will hold a 100 percent share of the cyber-cafe market in Eugene. In the next five years, competitors will enter the market. JavaNet has set a goal to maintain greater than a 50 percent market share.

4.2 Market Segmentation

JavaNet's customers can be divided into two groups. The first group is familiar with the Internet and desires a progressive and inviting atmosphere where they can get out of their offices or bedrooms and enjoy a great cup of coffee. The second group is not familiar with the Internet, yet, and is just waiting for the right opportunity to enter the online community. JavaNet's target market falls anywhere between the ages of 18 and 50. This extremely wide range of ages is due to the fac t that both c offee and the Internet appeal to a variety of people. In addition to these two broad categories, JavaNet's target market can be divided into more specific market segments. The majority of these individuals are students and business people. See the Market Analysis chart and table below for more spec ifics.

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JavaNet Internet Cafe

Table: Market Analysis

Market Analysis

Potential Customers Growth

Year 1 Year 2 Year 3 Year 4 Year 5

CAGR

University Students 4% 15,000 15,600 16,224 16,873 17,548 4.00%

Office Workers 3% 25,000 25,750 26,523 27,319 28,139 3.00%

Seniors 5% 18,500 19,425 20,396 21,416 22,487 5.00%

Teenagers 2% 12,500 12,750 13,005 13,265 13,530 2.00%

Other 0% 25,000 25,000 25,000 25,000 25,000 0.00%

Total 2.68% 96,000 98,525 101,148 103,873 106,704 2.68%

4.3 Service Business Analysis

The retail coffee industry in Eugene experienced rapid growth at the beginning of the dec ade and is now moving into the mature stage of its life cycle. Many fac tors contribute to the large demand for good coffee in Eugene. The University is a main source of demand for coffee retailers. The climate in Eugene is extremely conducive to coffee consumption. Current trends in the Northwest reflect the popularity of fresh, strong, quality coffee and specialty drinks. Eugene is a haven for coffee lovers.

The popularity of the Internet is growing exponentially. Those who are familiar with the Internet are well aware of how fun and addictive surfing the Net can be. Those who have not yet experienced the Internet, need a convenient, relaxed atmosphere where they can feel comfortable learning about and utilizing the current technologies. JavaNet seeks to provide its customers with affordable Internet ac cess in an innovative and supportive environment.

Due to intense competition, cafe owners must look for ways to differentiate their plac e of business from others in order to ac hieve and maintain a competitive advantage. The founder of JavaNet realizes the need for differentiation and strongly believes that combining a cafe with

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JavaNet Internet Cafe complete Internet service is the key to success. The fac t that no cyber-cafes are established in Eugene, presents JavaNet with a chance to enter the window of opportunity and enter into a profitable niche in the market.

4.3.1 Competition and Buying Patterns

The main c ompetitors in the retail coffee segment are Cafe Paradisio, Full City, Coffee Corner and Allann Bros. These businesses are loc ated in or near the downtown area, and target a similar segment to JavaNet's (i.e. educated, upwardly-mobile students and business people).

Competition from online service providers comes from locally-owned businesses as well as national firms. There are approximately eight, loc al, online service providers in Eugene. This number is expec ted to grow with the increasing demand for Internet ac cess. Larger, online service providers, such as AOL and CompuServe are also a competitive threat to JavaNet. Due to the nature of the Internet, there are no geographical boundaries restricting competition.

4.3.2 Business Participants

There are approximately 16 coffee wholesalers in Lane County. These wholesalers distribute coffee and espresso beans to over 20 retailers in the Eugene area. Competition in both channels creates an even amount of bargaining power between buyers and suppliers resulting in extremely competitive pricing. Some of these major players in the industry (i.e. Allann Brothers Coffee Co., Inc. and Coffee Corner Ltd.) distribute and retail coffee products.

The number of online service providers in Eugene is approximately eight and counting. These small, regional service providers use a number of different pricing strategies. Some charge a monthly fee, while others charge hourly and/or phone fees. Regardless of the pricing method used, obtaining Internet ac cess through one of these firms can be expensive. Larger Internet servers such as America Online (AOL), Prodigy, and CompuServe, are also fighting for market share in this rapidly growing industry. These service providers are also rather costly for the average consumer. Consumers who are not convinced they would frequently and consistently travel the Internet, will not be willing to pay these prices.

4.3.3 Distributing a Service

The dual product/service nature of JavaNet's business fac es competition on two levels. JavaNet competes not only with c offee retailers, but also with Internet service providers. The good news is that JavaNet does not currently fac e any direct competition from other cyber- cafes in the Eugene market. There are a total of three cyber-cafes in the state of Oregon: one loc ated in Portland and two in Ashland.

Heavy competition between c offee retailers in Eugene creates an industry where all firms fac e the same costs. There is a positive relationship between price and quality of coffee. Some coffees retail at $8/pound while other, more exotic beans may sell for as high as $16/pound. Wholesalers sell beans to retailers at an average of a 50 percent disc ount. For example, a pound of Sumatran beans wholesales for $6.95 and retails for $13.95. And as in most industries, price

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JavaNet Internet Cafe dec reases as volume increases.

5.0 Strategy and Implementation Summary

JavaNet has three main strategies. The first strategy foc uses on attrac ting novice Internet users. By providing a novice friendly environment, JavaNet hopes to educate and train a loyal customer base.

The second, and most important, strategy foc uses on pulling in power Internet users. Power Internet users are extremely familiar with the Internet and its offerings. This group of customers serves an important function at JavaNet. Power users have knowledge and web- browsing experience that novice Internet users find attrac tive and exciting.

The third strategy foc uses on building a social environment for JavaNet customers. A social environment, that provides entertainment, will serve to attrac t customers that wouldn't normally think about using the Internet. Once on loc ation at JavaNet, these customers that came for the more standard entertainment offerings, will realize the potential entertainment value the Internet can provide.

5.1 Strategy Pyramid

The following subtopics provide an overview of JavaNet's three key strategies. Strategy pyramid graphics are presented in the appendix of this plan.

5.1.1 Attract Power Internet Users

JavaNet's second strategy will be foc used on attrac ting power Internet users. Power Internet users provide an important function at JavaNet. JavaNet plans on attrac ting this type of customer by:

· Providing the latest in c omputing technology. · Providing sc anning and printing services. · Providing ac cess to powerful software applications.

5.1.2 Social Hub

5.1.3 Attract Novice Internet Users

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JavaNet Internet Cafe JavaNet's first strategy foc uses on attrac ting novice Internet users. JavaNet plans on attrac ting these customers by:

· Providing a novice friendly environment. JavaNet will be staffed by knowledgeable employees foc used on serving the customer's needs.

· A customer service desk will always be staffed. If a customer has any type of question or concern, a JavaNet employee will always be available to assist.

· JavaNet will offer introductory classes on the Internet and email. These classes will be designed to help novice users familiarize themselves with these key tools and the JavaNet computer systems.

5.2 SWOT Analysis

The SWOT analysis provides us with an opportunity to examine the internal strengths and weaknesses JavaNet must address. It also allows us to examine the opportunities presented to JavaNet as well as potential threats.

JavaNet has a valuable inventory of strengths that will help it succeed. These strengths include: a knowledgeable and friendly staff, state-of-the-art computer hardware, and a clear vision of the market need. Strengths are valuable, but it is also important to realize the weaknesses JavaNet must address. These weaknesses include: a dependence on quickly changing technology, and the cost fac tor associated with keeping state-of-the art computer hardware.

JavaNet's strengths will help it capitalize on emerging opportunities. These opportunities include, but are not limited to, a growing population of daily Internet users, and the growing social bonds fostered by the new Internet communities. Threats that JavaNet should be aware of include, the rapidly falling cost of Internet ac cess, and emerging local competitors.

5.2.1 Weaknesses

1. A dependence on quickly changing technology. JavaNet is a plac e for people to experience the technology of the Internet. The technology that is the Internet changes rapidly. Product lifecycles are measured in weeks, not months. JavaNet needs to keep up with the technology bec ause a lot of the JavaNet experience is technology.

2. Cost fac tor associated with keeping state-of-the-art hardware. Keeping up with the technology of the Internet is an expensive undertaking. JavaNet needs to balance technology needs with the other needs of the business. One aspec t of the business can't be sacrificed for the other.

5.2.2 Opportunities

1. Growing population of daily Internet users. The importance of the Internet almost equals that of the telephone. As the population of daily Internet users increases, so will the need for the services JavaNet offers.

2. Social bonds fostered by the new Internet communities. The Internet is bringing people from ac ross the world together unlike any other communication medium. JavaNet will

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JavaNet Internet Cafe capitalize on this social trend by providing a plac e for smaller and loc al Internet communities to meet in person. JavaNet will grow some of these communities on its own by establishing chat areas and community programs. These programs will be designed to build customer loyalty.

5.2.3 Threats

1. Rapidly falling cost of Internet ac cess. The cost of ac cess to the Internet for home users is dropping rapidly. Internet ac cess may bec ome so cheap and affordable that nobody will be willing to pay for ac cess to it. JavaNet is aware of this threat and will closely monitor pricing.

2. Emerging loc al competitors. Currently, JavaNet is enjoying a first-mover advantage in the loc al cyber-cafe market. However, additional competitors are on the horizon, and we need to be prepared for their entry into the market. Many of our programs will be designed to build customer loyalty, and it is our hope that our quality service and up- sc ale ambiance won't be easily duplicated.

5.2.4 Strengths

1. Knowledgeable and friendly staff. We've gone to great lengths at JavaNet to find people with a passion for teac hing and sharing their Internet experiences. Our staff is both knowledgeable and eager to please.

2. State-of-the art equipment. Part of the JavaNet experience includes ac cess to state-of- the-art computer equipment. Our customers enjoy beautiful flat-screen displays, fast mac hines, and high-quality printers.

3. Upsc ale ambiance. When you walk into JavaNet, you'll feel the technology. High bac ked mahogany booths with flat-screen monitors inset into the walls provide a cozy hideaway for meetings and small friendly gatherings. Large round tables with displays viewable from above provide a forum for larger gatherings and friendly "how-to" classes on the Internet. Aluminum trac k lighting and art from loc al artists sets the mood. Last, but not least, quality cappuccino mac hines and a glass pastry display case provide enticing refreshments.

4. Clear vision of the market need. JavaNet knows what it takes to build an upsc ale cyber cafe. We know the customers, we know the technology, and we know how to build the service that will bring the two together.

5.3 Competitive Edge

JavaNet will follow a differentiation strategy to ac hieve a competitive advantage in the cafe market. By providing Internet service, JavaNet separates itself from all other cafes in Eugene. In addition, JavaNet provides a comfortable environment with c offee and bakery items, distinguishing itself from other Internet providers in Eugene.

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JavaNet Internet Cafe

5.4 Marketing Strategy

JavaNet will position itself as an upsc ale coffee house and Internet service provider. It will serve high-quality coffee and espresso spec ialty drinks at a competitive price. Due to the number of cafes in Eugene, it is important that JavaNet sets fair prices for its coffee. JavaNet will use advertising as its main source of promotion. Ads plac ed in The Register Guard, Eugene Weekly, and the Emerald will help build customer awareness. Ac companying the ad will be a coupon for a free hour of Internet travel. Furthermore, JavaNet will give away three free hours of Internet use to beginners who sign up for an introduction to the Internet workshop provided by JavaNet.

5.4.1 Pricing Strategy

JavaNet bases its prices for coffee and specialty drinks on the "retail profit analysis" provided by our supplier, Allann Brothers Coffee Co., Inc. Allann Brothers has been in the coffee business for 22 years and has developed a solid pricing strategy.

Determining a fair market, hourly price, for online use is more difficult bec ause there is no direct competition from another cyber-cafe in Eugene. Therefore, JavaNet considered three sources to determine the hourly charge rate. First, we considered the cost to use other Internet servers, whether it is a loc al networking firm or a provider such as America Online. Internet ac cess providers use different pricing sc hemes. Some charge a monthly fee, while others charge an hourly fee. In addition, some providers use a strategy with a combination of both pricing sc hemes. Thus, it can quickly bec ome a high monthly cost for the individual. Second, JavaNet looked at how cyber-cafes in other markets such as Portland and Ashland went about pricing Internet ac cess. Third, JavaNet used the market survey conducted in the Fall of 1996. Evaluating these three fac tors resulted in JavaNet's hourly price of five dollars.

5.4.2 Promotion Strategy

JavaNet will implement a pull strategy in order to build consumer awareness and demand. Initially, JavaNet has budgeted $5,000 for promotional efforts which will include advertising with c oupons for a free hour of Internet time in local publications and in-house promotions such as offering customers free Internet time if they pay for an introduction to the Internet workshop taught by JavaNet's computer technician.

JavaNet realizes that in the future, when competition enters the market, additional revenues must be alloc ated for promotion in order to maintain market share.

5.5 Sales Strategy

As a retail establishment, JavaNet employs people to handle sales transac tions. Computer literac y is a requirement for JavaNet employees. If an employee does not possess basic computer skills when they are hired, they are trained by our full-time technician. Our full-time technician is also available for customers in need of assistance. JavaNet's commitment to friendly, helpful service is one of the key fac tors that distinguishes JavaNet from other Internet

Page 14

JavaNet Internet Cafe cafes.

Page 15

JavaNet Internet Cafe

5.5.1 Sales Forecast

Sales forecast data is presented in the chart and table below.

Sales: JavaNet is basing their projected coffee and espresso sales on the financial snapshot information provided to them by Allann Bros. Coffee Co. Internet sales were estimated by calculating the total number of hours eac h terminal will be ac tive eac h day and then generating a conservative estimate as to how many hours will be purchased by consumers.

Cost of Sales: The cost of goods sold for coffee-related products was determined by the "retail profit analysis" we obtained from Allann Bros. Coffee Co. The cost of bakery items is 20% of the selling price. The cost of Internet ac cess is $660 per month, paid to Bellevue Computers for networking fees. The cost of e-mail ac counts is 25% of the selling price.

Page 16

Table: Sales Forecast

Sales Forecast

Year 1 Year 2 Year 3

Unit Sales

Coffee (based on average) 12,016 14,068 15,475

Specialty Drinks (based on average) 6,654 7,913 8,705

Email Memberships 8,703 10,505 11,556

Hourly Internet Fees 38,269 46,365 51,002

Baked Goods (based on average) 32,673 42,150 46,365

Total Unit Sales 98,315 121,001 133,103

Unit Prices Year 1 Year 2 Year 3

Coffee (based on average) $1.00 $1.00 $1.00

Specialty Drinks (based on average) $2.00 $2.00 $1.00

Email Memberships $10.00 $10.00 $10.00

Hourly Internet Fees $2.50 $2.50 $2.50

Baked Goods (based on average) $1.25 $1.25 $1.00

Sales

Coffee (based on average) $12,016 $14,068 $15,475

Specialty Drinks (based on average) $13,308 $15,826 $8,705

Email Memberships $87,030 $105,050 $115,560

Hourly Internet Fees $95,673 $115,913 $127,505

Baked Goods (based on average) $40,841 $52,688 $46,365

Total Sales $248,868 $303,544 $313,610

Direct Unit Costs Year 1 Year 2 Year 3

Coffee (based on average) $0.25 $0.25 $0.25

Specialty Drinks (based on average) $0.50 $0.50 $0.25

Email Memberships $2.50 $2.50 $2.50

Hourly Internet Fees $0.63 $0.63 $0.63

Baked Goods (based on average) $0.31 $0.31 $0.25

Direct Cost of Sales

Coffee (based on average) $3,004 $3,517 $3,869

Specialty Drinks (based on average) $3,327 $3,957 $2,176

Email Memberships $21,758 $26,263 $28,890

Hourly Internet Fees $23,918 $28,978 $31,876

Baked Goods (based on average) $10,210 $13,172 $11,591

Subtotal Direct Cost of Sales $62,217 $75,886 $78,403

JavaNet Internet Cafe

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JavaNet Internet Cafe

Page 18

JavaNet Internet Cafe

5.6 Milestones

The JavaNet management team has established some basic milestones to keep the business plan priorities in plac e. Responsibility for implementation falls on the shoulders of Cale Bruckner. This Milestones Table below will be updated as the year progresses using the ac tual tables. New milestones will be added as the first year of operations commences.

Table: Milestones

Milestones

Milestone Start Date End Date Budget Manager Department

Business Plan 1/1/1998 2/1/1998 $1,000 Cale Bruckner Admin

Secure Start-up Funding 2/15/1998 3/1/1998 $1,000 Cale Bruckner Admin

Site Selection 3/1/1998 3/15/1998 $1,000 Cale Bruckner Admin

Architect Designs 4/1/1998 5/1/1998 $1,000 Cale Bruckner Admin

Designer Proposal 4/1/1998 4/15/1998 $1,000 Cale Bruckner Admin

Technology Design 4/1/1998 4/15/1998 $1,000 Cale Bruckner Admin

Year 1 Plan 6/1/1998 6/5/1998 $1,000 Cale Bruckner Admin

Personnel Plan 7/1/1998 7/10/1998 $1,000 Cale Bruckner Admin

Accounting Plan 7/1/1998 7/5/1998 $1,000 Cale Bruckner Admin

Licensing 9/1/1998 9/15/1998 $1,000 Cale Bruckner Admin

Totals $10,000

6.0 Management Summary

JavaNet is owned and operated by Mr. Cale Bruckner. The company, being small in nature, requires a simple organizational structure. Implementation of this organizational form calls for the

Page 19

JavaNet Internet Cafe owner, Mr. Bruckner, to make all of the major management dec isions in addition to monitoring all other business ac tivities.

6.1 Personnel Plan

The staff will consist of six part-time employees working thirty hours a week at $5.50 per hour. In addition, one full-time technician (who is more technologically oriented to handle minor terminal repairs/inquiries) will be employed to work forty hours a week at $10.00 per hour. The three private investors, Luke Walsh, Doug Wilson and John Underwood will not be included in management dec isions. This simple structure provides a great deal of flexibility and allows communication to disperse quickly and directly. Because of these charac teristics, there are few coordination problems seen at JavaNet that are common within larger organizational chains. This strategy will enable JavaNet to reac t quickly to changes in the market.

Table: Personnel

Personnel Plan

Year 1 Year 2 Year 3

Owner $24,000 $26,400 $29,040

Part Time 1 $7,920 $7,920 $7,920

Part Time 2 $7,920 $7,920 $7,920

Part Time 3 $7,920 $7,920 $7,920

Part Time 4 $7,920 $7,920 $7,920

Part Time 5 $7,920 $7,920 $7,920

Part Time 6 $3,960 $7,920 $7,920

Technician $21,731 $23,904 $26,294

Manager $4,000 $24,000 $26,400

Total People 9 9 9

Total Payroll $93,291 $121,824 $129,254

7.0 Financial Plan

The following sections lay out the details of our financial plan for the next three years.

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JavaNet Internet Cafe

7.1 Start-up Funding

Additional financing has already been secured as follows:

1. $24,000 from the Oregon Economic Development Fund 2. $19,000 of personal savings from owner Cale Bruckner 3. $36,000 from three investors 4. and $9,290 in the form of short-term loans

Table: Start-up Funding

Start-up Funding

Start-up Expenses to Fund $62,290

Start-up Assets to Fund $26,000

Total Funding Required $88,290

Assets

Non-cash Assets from Start-up $2,000

Cash Requirements from Start-up $24,000

Additional Cash Raised $0

Cash Balance on Starting Date $24,000

Total Assets $26,000

Liabilities and Capital

Liabilities

Current Borrowing $9,290

Long-term Liabilities $24,000

Accounts Payable (Outstanding Bills) $0

Other Current Liabilities (interest-free) $0

Total Liabilities $33,290

Capital

Planned Investment

Cale Bruckner $19,000

Luke Walsh $12,000

Doug Wilson $12,000

John Underwood $12,000

Additional Investment Requirement $0

Total Planned Investment $55,000

Loss at Start-up (Start-up Expenses) ($62,290)

Total Capital ($7,290)

Total Capital and Liabilities $26,000

Total Funding $88,290

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JavaNet Internet Cafe

7.2 Important Assumptions

Basic assumptions are presented in the table below.

Table: General Assumptions

General Assumptions

Year 1 Year 2 Year 3

Plan Month 1 2 3

Current Interest Rate 8.00% 8.00% 8.00%

Long-term Interest Rate 10.00% 10.00% 10.00%

Tax Rate 30.00% 30.00% 30.00%

Other 0 0 0

7.3 Key Financial Indicators

Important benchmark data is presented in the chart below.

Page 22

JavaNet Internet Cafe

7.4 Break-even Analysis

Break-even data is presented in the chart and table below.

Table: Break-even Analysis

Break-even Analysis

Monthly Units Break-even 7,294

Monthly Revenue Break-even $18,462

Assumptions:

Average Per-Unit Revenue $2.53

Average Per-Unit Variable Cost $0.63

Estimated Monthly Fixed Cost $13,847

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JavaNet Internet Cafe

7.5 Projected Profit and Loss

Payroll Expense: The founder of JavaNet, Cale Bruckner, will receive a salary of $24,000 in year one, $26,400 in year two, and $29,040 in year three. JavaNet intends to hire six part-time employees by the end of year one at $5.75/hour and a full-time technician at $10.00/hour.

Rent Expense: JavaNet is leasing a 1700 square foot fac ility at $.85/sq. foot. The lease agreement JavaNet signed specifies that we pay $2,000/month for a total of 36 months. At the end of the third year, the lease is open for negotiations and JavaNet may or may not re-sign the lease depending on the demands of the lessor.

Utilities Expense: As stated in the contrac t, the lessor is responsible for the payment of utilities including gas, garbage disposal, and real estate taxes. The only utilities expense that JavaNet must pay is the phone bill generated by fifteen phone lines; thirteen will be dedicated to modems and two for business purposes. The basic monthly service charge for eac h line provided by US West is $17.29. The 13 lines used to connect the modems will make loc al calls to the network provided by Bellevue resulting in a monthly charge of $224.77. The two additional lines used for business communication will cost $34.58/month plus long distance fees. JavaNet assumes that it will not make more than $40.00/month in long distance calls. Therefore, the total cost assoc iated with the two business lines is estimated at $74.58/month and the total phone expense at $299.35/month. In addition, there will be an additional utility expense of $800 for estimated EWEB bills.

Marketing Expense: JavaNet will alloc ate $33,750 for promotional expenses over the first year. These dollars will be used for advertising in loc al newspapers in order to build consumer awareness. For additional information, please refer to section 5.0 of the business plan.

Insurance Expense: JavaNet has alloc ated $1,440 for insurance for the first year. As revenue increases in the second and third year of business, JavaNet intends to invest more money for additional insurance coverage.

Depreciation: In depreciating our capital equipment, JavaNet used the Modified Ac celerated Cost Recovery Method. We depreciated our computers over a five-year time period and our fixtures over seven years.

Taxes: JavaNet is an LLC and, as an entity, it is not taxed. However, there is a 15% payroll burden.

Detailed Profit and Loss data is presented in the table below.

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JavaNet Internet Cafe

Page 25

Table: Profit and Loss

Pro Forma Profit and Loss

Year 1 Year 2 Year 3

Sales $248,868 $303,544 $313,610

Direct Cost of Sales $62,217 $75,886 $78,403

Other Costs of Sales $0 $0 $0

Total Cost of Sales $62,217 $75,886 $78,403

Gross Margin $186,651 $227,658 $235,208

Gross Margin % 75.00% 75.00% 75.00%

Expenses

Payroll $93,291 $121,824 $129,254

Marketing/Promotion $33,750 $40,000 $43,000

Depreciation $0 $0 $0

Rent $24,000 $24,000 $24,000

Utilities $9,120 $9,120 $9,120

Insurance $6,000 $6,000 $6,000

Payroll Taxes $0 $0 $0

Other $0 $0 $0

Total Operating Expenses $166,161 $200,944 $211,374

Profit Before Interest and Taxes $20,490 $26,714 $23,834

EBITDA $20,490 $26,714 $23,834

Interest Expense $2,325 $1,470 $1,100

Taxes Incurred $5,450 $7,573 $6,820

Net Profit $12,716 $17,671 $15,913

Net Profit/Sales 5.11% 5.82% 5.07%

JavaNet Internet Cafe

Page 26

JavaNet Internet Cafe

7.6 Projected Cash Flow

Cash flow data is presented in the chart and table below.

Ac counts Payable: JavaNet ac quired a $24,000 loan from a bank at a 10% interest rate. The loan will be paid bac k at $800/month over the next three years. The $9,290 short term loan will be paid bac k at a rate of 8%.

Page 27

Table: Cash Flow

Pro Forma Cash Flow

Year 1 Year 2 Year 3

Cash Received

Cash

from Operations

Sales $248,868 $303,544 $313,610

Subtotal Cash from Operations $248,868 $303,544 $313,610

Additional Cash Received

Sales Tax, VAT, HST/GST Received $0 $0 $0

New Current Borrowing $2,000 $5,000 $0

New Other Liabilities (interest-free)

New Long-term Liabilities

Sales of Other Current Assets $0 $0 $0

Sales of Long-term Assets $0 $0 $0

New Investment Received $0 $0 $0

Subtotal Cash Received $250,868 $308,544 $313,610

Expenditures Year 1 Year 2 Year 3

Expenditures from

Cash Spending

Operations

$93,291 $121,824 $129,254

Bill Payments $133,870 $165,210 $167,258

Subtotal Spent on Operations $227,161 $287,034 $296,512

Additional Cash Spent

Sales Tax, VAT, HST/GST Paid Out $0 $0 $0

Principal Repayment of Current Borrowing $9,290 $2,000 $0

Other Liabilities Principal Repayment

Long-term Liabilities Principal Repayment

$9,600

$5,000

$4,800

Purchase Other Current Assets $0 $0 $0

Purchase Long-term Assets $0 $0 $0

Dividends $0 $0 $0

Subtotal Cash Spent $246,051 $294,034 $301,312

Net Cash Flow $4,817 $14,510 $12,298

Cash Balance $28,817 $43,327 $55,625

JavaNet Internet Cafe

Page 28

7.7 Projected Balance Sheet

Our projected balance sheet is presented in the table below.

Table: Balance Sheet

Pro Forma Balance Sheet

Year 1 Year 2 Year 3

Assets

Current Assets

Cash $28,817 $43,327 $55,625

Inventory $6,980 $7,713 $6,750

Other Current Assets $0 $0 $0

Total Current Assets $35,797 $51,040 $62,375

Long-term Assets

Long-term Assets $0 $0 $0

Accumulated Depreciation $0 $0 $0

Total Long-term Assets $0 $0 $0

Total Assets $35,797 $51,040 $62,375

Liabilities and Capital Year 1 Year 2 Year 3

Current Liabilities

Accounts Payable $13,972 $13,544 $13,765

Current Borrowing $2,000 $5,000 $5,000

Other Current Liabilities $0 $0 $0

Subtotal Current Liabilities $15,972 $18,544 $18,765

Long-term Liabilities $14,400 $9,400 $4,600

Total Liabilities $30,372 $27,944 $23,365

Paid-in Capital $55,000 $55,000 $55,000

Retained Earnings ($62,290) ($49,574) ($31,904)

Earnings $12,716 $17,671 $15,913

Total Capital $5,426 $23,096 $39,010

Total Liabilities and Capital $35,797 $51,040 $62,375

Net Worth $5,426 $23,096 $39,010

JavaNet Internet Cafe

Page 29

JavaNet Internet Cafe

7.8 Business Ratios

The Standard Industrial Classification (SIC) Code for the Internet Service Provider industry is "Remote data base information retrieval" 7375.9903. We used the report for "Information retrieval services" 7375 to generate the industry profile. As we are also a food cafe we could have used the ratios based on SIC classification 5812, "Eating plac es". The combined nature of JavaNet Cafe makes our ratios a blend of the two industries.

Page 30

Ratio Analysis

Year 1 Year 2 Year 3 Industry Profile

Sales Growth n.a. 21.97% 3.32% 0.90%

Percent of Total Assets

Inventory 19.50% 15.11% 10.82% 2.17%

Other Current Assets 0.00% 0.00% 0.00% 84.78%

Total Current Assets 100.00% 100.00% 100.00% 86.95%

Long-term Assets 0.00% 0.00% 0.00% 13.05%

Total Assets 100.00% 100.00% 100.00% 100.00%

Current Liabilities 44.62% 36.33% 30.08% 28.33%

Long-term Liabilities 40.23% 18.42% 7.37% 16.21%

Total Liabilities 84.84% 54.75% 37.46% 44.54%

Net Worth 15.16% 45.25% 62.54% 55.46%

Percent of Sales

Sales 100.00% 100.00% 100.00% 100.00%

Gross Margin 75.00% 75.00% 75.00% 100.00%

Selling, General & Administrative Expenses 69.89% 69.18% 69.93% 79.00%

Advertising Expenses 0.00% 0.00% 0.00% 1.01%

Profit Before Interest and Taxes 8.23% 8.80% 7.60% 1.62%

Main Ratios

Current 2.24 2.75 3.32 0.00

Quick 1.80 2.34 2.96 0.00

Total Debt to Total Assets 84.84% 54.75% 37.46% 0.00%

Pre-tax Return on Net Worth 334.80% 109.30% 58.28% 0.00%

Pre-tax Return on Assets 50.74% 49.46% 36.45% 0.00%

Additional Ratios Year 1 Year 2 Year 3

Net Profit Margin 5.11% 5.82% 5.07% n.a

Return on Equity 234.36% 76.51% 40.79% n.a

Activity Ratios

Inventory Turnover 12.00 10.33 10.84 n.a

Accounts Payable Turnover 10.58 12.17 12.17 n.a

Payment Days 27 30 30 n.a

Total Asset Turnover 6.95 5.95 5.03 n.a

Debt Ratios

Debt to Net Worth 5.60 1.21 0.60 n.a

Current Liab. to Liab. 0.53 0.66 0.80 n.a

Liquidity Ratios

Net Working Capital $19,826 $32,496 $43,610 n.a

Interest Coverage 8.81 18.17 21.67 n.a

Additional Ratios

Assets to Sales 0.14 0.17 0.20 n.a

Current Debt/Total Assets 45% 36% 30% n.a

Acid Test 1.80 2.34 2.96 n.a

Sales/Net Worth 45.87 13.14 8.04 n.a

Dividend Payout 0.00 0.00 0.00 n.a

JavaNet Internet Cafe

Table:Ratios

Page 31

Appendix

Table: Sales Forecast

Sales Forecast

Unit Sales

Coffee (based on average)

Specialty Drinks (based on average)

Email Memberships

Hourly Internet Fees

Baked Goods (based on average)

Total Unit Sales

Month 1

400

225

300

1,000

2,925

Month 2

680

300

320

1,800

1,400

4,500

Month 3

750

400

425

2,500

300

4,375

Month 4

970

546

695

3,245

2,950

8,406

Month 5

1,019

573

729

3,343

3,039

8,703

Month 6

1,070

602

766

3,443

3,130

9,011

Month 7

1,102

620

804

3,546

3,224

9,296

Month 8

1,135

638

844

3,653

3,321

9,591

Month 9

1,169

657

886

3,762

3,420

9,894

Month 10

1,204

677

931

3,875

3,523

10,210

Month 11

1,240

698

977

3,991

3,629

10,535

Month 12

1,277

718

1,026

4,111

3,737

10,869

Unit Prices

Coffee (based on average)

Specialty Drinks (based on average)

Email Memberships

Hourly Internet Fees

Baked Goods (based on average)

Month 1

$1.00

$2.00

$10.00

$2.50

$1.25

Month 2

$1.00

$2.00

$10.00

$2.50

$1.25

Month 3

$1.00

$2.00

$10.00

$2.50

$1.25

Month 4

$1.00

$2.00

$10.00

$2.50

$1.25

Month 5

$1.00

$2.00

$10.00

$2.50

$1.25

Month 6

$1.00

$2.00

$10.00

$2.50

$1.25

Month 7

$1.00

$2.00

$10.00

$2.50

$1.25

Month 8

$1.00

$2.00

$10.00

$2.50

$1.25

Month 9

$1.00

$2.00

$10.00

$2.50

$1.25

Month 10

$1.00

$2.00

$10.00

$2.50

$1.25

Month 11

$1.00

$2.00

$10.00

$2.50

$1.25

Month 12

$1.00

$2.00

$10.00

$2.50

$1.25

Sales

Coffee (based on average)

Specialty Drinks (based on average)

Email Memberships

Hourly Internet Fees

Baked Goods (based on average)

Total Sales

$400

$450

$3,000

$2,500

$1,250

$7,600

$680

$600

$3,200

$4,500

$1,750

$10,730

$750

$800

$4,250

$6,250

$375

$12,425

$970

$1,092

$6,950

$8,113

$3,688

$20,812

$1,019

$1,146

$7,290

$8,358

$3,799

$21,611

$1,070

$1,204

$7,660

$8,608

$3,913

$22,454

$1,102

$1,240

$8,040

$8,865

$4,030

$23,277

$1,135

$1,276

$8,440

$9,133

$4,151

$24,135

$1,169

$1,314

$8,860

$9,405

$4,275

$25,023

$1,204

$1,354

$9,310

$9,688

$4,404

$25,959

$1,240

$1,396

$9,770

$9,978

$4,536

$26,920

$1,277

$1,436

$10,260

$10,278

$4,671

$27,922

Direct Unit Costs

Coffee (based on average)

Specialty Drinks (based on average)

Email Memberships

Hourly Internet Fees

Baked Goods (based on average)

25.00%

Month 1

$0.25

$0.50

$2.50

$0.63

$0.31

Month 2

$0.25

$0.50

$2.50

$0.63

$0.31

Month 3

$0.25

$0.50

$2.50

$0.63

$0.31

Month 4

$0.25

$0.50

$2.50

$0.63

$0.31

Month 5

$0.25

$0.50

$2.50

$0.63

$0.31

Month 6

$0.25

$0.50

$2.50

$0.63

$0.31

Month 7

$0.25

$0.50

$2.50

$0.63

$0.31

Month 8

$0.25

$0.50

$2.50

$0.63

$0.31

Month 9

$0.25

$0.50

$2.50

$0.63

$0.31

Month 10

$0.25

$0.50

$2.50

$0.63

$0.31

Month 11

$0.25

$0.50

$2.50

$0.63

$0.31

Month 12

$0.25

$0.50

$2.50

$0.63

$0.31

Direct Cost of Sales

Coffee (based on average)

Specialty Drinks (based on average)

Email Memberships

Hourly Internet Fees

Baked Goods (based on average)

Subtotal Direct Cost of Sales

$100

$113

$750

$625

$313

$1,900

$170

$150

$800

$1,125

$438

$2,683

$188

$200

$1,063

$1,563

$94

$3,106

$243

$273

$1,738

$2,028

$922

$5,203

$255

$287

$1,823

$2,089

$950

$5,403

$268

$301

$1,915

$2,152

$978

$5,614

$276

$310

$2,010

$2,216

$1,008

$5,819

$284

$319

$2,110

$2,283

$1,038

$6,034

$292

$329

$2,215

$2,351

$1,069

$6,256

$301

$339

$2,328

$2,422

$1,101

$6,490

$310

$349

$2,443

$2,494

$1,134

$6,730

$319

$359

$2,565

$2,569

$1,168

$6,980

Page 1

Appendix

Table: Personnel

Personnel Plan

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Owner 0% $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000

Part Time 1 0% $660 $660 $660 $660 $660 $660 $660 $660 $660 $660 $660 $660

Part Time 2 0% $660 $660 $660 $660 $660 $660 $660 $660 $660 $660 $660 $660

Part Time 3 0% $660 $660 $660 $660 $660 $660 $660 $660 $660 $660 $660 $660

Part Time 4 0% $660 $660 $660 $660 $660 $660 $660 $660 $660 $660 $660 $660

Part Time 5 0% $660 $660 $660 $660 $660 $660 $660 $660 $660 $660 $660 $660

Part Time 6 0% $0 $0 $0 $0 $0 $0 $660 $660 $660 $660 $660 $660

Technician 0% $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,650 $1,815 $1,997 $2,196 $2,416 $2,657

Manager 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $2,000 $2,000

Total People 7 7 7 7 7 7 8 8 8 8 9 9

Total Payroll $6,800 $6,800 $6,800 $6,800 $6,800 $6,800 $7,610 $7,775 $7,957 $8,156 $10,376 $10,617

Page 2

Appendix

Table: General Assumptions

General Assumptions

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Plan Month 1 2 3 4 5 6 7 8 9 10 11 12

Current Interest Rate 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00%

Long-termInterest 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%

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%

Other 0 0 0 0 0 0 0 0 0 0 0 0

Page 3

Appendix

Table: Profit and Loss

Pro Forma Profit and Loss

Sales

Direct Cost of Sales

Other Costs of Sales

Total Cost of Sales

Month 1

$7,600

$1,900

Month 2

$10,730

$2,683

Month 3

$12,425

$3,106

Month 4

$20,812

$5,203

Month 5

$21,611

$5,403

Month 6

$22,454

$5,614

Month 7

$23,277

$5,819

Month 8

$24,135

$6,034

Month 9

$25,023

$6,256

Month 10

$25,959

$6,490

Month 11

$26,920

$6,730

Month 12

$27,922

$6,980

Gross Margin

Gross Margin %

$5,700

75.00%

$8,048

75.00%

$9,319

75.00%

$15,609

75.00%

$16,208

75.00%

$16,841

75.00%

$17,458

75.00%

$18,101

75.00%

$18,767

75.00%

$19,469

75.00%

$20,190

75.00%

$20,941

75.00%

Expenses

Payroll

Marketing/Promotion

Depreciation

Rent

Utilities

Insurance

Payroll Taxes

Other

15%

$6,800

$4,000

$2,000

$760

$500

$6,800

$4,000

$2,000

$760

$500

$6,800

$3,250

$2,000

$760

$500

$6,800

$2,500

$2,000

$760

$500

$6,800

$2,500

$2,000

$760

$500

$6,800

$2,500

$2,000

$760

$500

$7,610

$2,500

$2,000

$760

$500

$7,775

$2,500

$2,000

$760

$500

$7,957

$2,500

$2,000

$760

$500

$8,156

$2,500

$2,000

$760

$500

$10,376

$2,500

$2,000

$760

$500

$10,617

$2,500

$2,000

$760

$500

Total Operating Expenses $14,060 $14,060 $13,310 $12,560 $12,560 $12,560 $13,370 $13,535 $13,717 $13,916 $16,136 $16,377

Profit Before Interest and Taxes

EBITDA

Interest Expense

Taxes Incurred

($8,360)

$250

($2,583)

($6,013)

$239

($1,875)

($3,991)

$227

($1,265)

$3,049

$215

$850

$3,648

$204

$1,033

$4,281

$205

$1,223

$4,088

$194

$1,168

$4,566

$182

$1,315

$5,050

$170

$1,464

$5,553

$159

$1,618

$4,054

$147

$1,172

$4,564

$133

$1,329

Net Profit

Net Profit/Sales

($6,027)

-79.31%

($4,376)

-40.78%

($2,953)

-23.76%

$1,984

9.53%

$2,411

11.16%

$2,853

12.70%

$2,726

11.71%

$3,069

12.72%

$3,416

13.65%

$3,776

14.55%

$2,735

10.16%

$3,102

11.11%

Page 4

Table: Cash Flow

Pro Forma Cash Flow

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Cash

Received

from Operations

Cash Sales $7,600 $10,730 $12,425 $20,812 $21,611 $22,454 $23,277 $24,135 $25,023 $25,959 $26,920 $27,922

Subtotal Cash fromOperations $7,600 $10,730 $12,425 $20,812 $21,611 $22,454 $23,277 $24,135 $25,023 $25,959 $26,920 $27,922

Additional Cash Received

Sales Tax, VAT, HST/GST Received 0.00% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

New Current Borrowing $0 $0 $0 $0 $0 $2,000 $0 $0 $0 $0 $0 $0

New Other Liabilities (interest-free) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

New Long-term Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Sales of Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Sales of Long-termAssets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

New Investment Received $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Subtotal Cash Received $7,600 $10,730 $12,425 $20,812 $21,611 $24,454 $23,277 $24,135 $25,023 $25,959 $26,920 $27,922

Expenditures

Expenditures fromOperations

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Cash Spending $6,800 $6,800 $6,800 $6,800 $6,800 $6,800 $7,610 $7,775 $7,957 $8,156 $10,376 $10,617

Bill Payments

Subtotal Spent on Operations

$224

$7,024

$6,806

$13,606

$9,085

$15,885

$9,172

$15,972

$14,074

$20,874

$12,613

$19,413

$13,017

$20,627

$13,159

$20,934

$13,518

$21,475

$13,885

$22,041

$14,254

$24,630

$14,063

$24,680

Additional Cash Spent

Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Principal Repayment of Current Borrowing $750 $750 $750 $750 $750 $750 $750 $750 $750 $750 $750 $1,040

Other Liabilities Principal Repayment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Long-termLiabilities Principal Repayment $800 $800 $800 $800 $800 $800 $800 $800 $800 $800 $800 $800

Purchase Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Purchase Long-term Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Dividends

Subtotal Cash Spent

$8,574

$15,156

$17,435

$17,522

$22,424

$20,963

$22,177

$22,484

$23,025

$23,591

$26,180

$26,520

Net Cash Flow ($974) ($4,426) ($5,010) $3,290 ($813) $3,491 $1,100 $1,651 $1,998 $2,368 $740 $1,402

Cash Balance $23,026 $18,600 $13,589 $16,879 $16,066 $19,557 $20,657 $22,308 $24,307 $26,675 $27,415 $28,817

Appendix

Page 5

Appendix

Table: Balance Sheet

Pro Forma Balance Sheet

Assets Starting Balances

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Current Assets

Cash

Inventory

Other Current Assets

Total Current Assets

$24,000

$2,000

$26,000

$23,026

$1,900

$24,926

$18,600

$2,683

$21,282

$13,589

$3,106

$16,696

$16,879

$5,203

$22,082

$16,066

$5,403

$21,469

$19,557

$5,614

$25,170

$20,657

$5,819

$26,476

$22,308

$6,034

$28,342

$24,307

$6,256

$30,562

$26,675

$6,490

$33,165

$27,415

$6,730

$34,145

$28,817

$6,980

$35,797

Long-termAssets

Accumulated Depreciation

Total Long-termAssets

Total Assets

$26,000

$24,926

$21,282

$16,696

$22,082

$21,469

$25,170

$26,476

$28,342

$30,562

$33,165

$34,145

$35,797

Liabilities and Capital Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Current Liabilities

Accounts Payable

Current Borrowing

Other Current Liabilities

Subtotal Current Liabilities

$9,290

$6,503

$8,540

$15,043

$8,785

$7,790

$16,575

$8,701

$7,040

$15,741

$13,654

$6,290

$19,944

$12,180

$5,540

$17,720

$12,578

$6,790

$19,368

$12,709

$6,040

$18,749

$13,055

$5,290

$18,345

$13,410

$4,540

$17,950

$13,786

$3,790

$17,576

$13,581

$3,040

$16,621

$13,972

$2,000

$15,972

Long-termLiabilities

Total Liabilities

$24,000

$33,290

$23,200

$38,243

$22,400

$38,975

$21,600

$37,341

$20,800

$40,744

$20,000

$37,720

$19,200

$38,568

$18,400

$37,149

$17,600

$35,945

$16,800

$34,750

$16,000

$33,576

$15,200

$31,821

$14,400

$30,372

Paid-in Capital

Retained Earnings

Earnings

Total Capital

Total Liabilities and Capital

$55,000

($62,290)

($7,290)

$26,000

$55,000

($62,290)

($6,027)

($13,317)

$24,926

$55,000

($62,290)

($10,403)

($17,693)

$21,282

$55,000

($62,290)

($13,356)

($20,646)

$16,696

$55,000

($62,290)

($11,372)

($18,662)

$22,082

$55,000

($62,290)

($8,961)

($16,251)

$21,469

$55,000

($62,290)

($6,108)

($13,398)

$25,170

$55,000

($62,290)

($3,382)

($10,672)

$26,476

$55,000

($62,290)

($313)

($7,603)

$28,342

$55,000

($62,290)

$3,103

($4,187)

$30,562

$55,000

($62,290)

$6,879

($411)

$33,165

$55,000

($62,290)

$9,614

$2,324

$34,145

$55,000

($62,290)

$12,716

$5,426

$35,797

Net Worth ($7,290) ($13,317) ($17,693) ($20,646) ($18,662) ($16,251) ($13,398) ($10,672) ($7,603) ($4,187) ($411) $2,324 $5,426

Page 6