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9 Financial Plan

9.1 Basis of Presentation

This plan contains five-year projected financial information for our company. While management believes that the assumptions underlying the projections are reasonable, there can be no assurance that these results can be realized or that actual results will meet management expectations. It is important to notice that our first month of operations is expected to be April 2005, causing the holiday season to be reflected in the financial statement as the third quarter in our projections. Monthly financial statements for the first two years are available on request.

9.2 Income Statement Assumptions – Revenues

The number of tables sold each month is the main driver of revenues for P’kolino. This number is estimated based on the expected outcome of the marketing efforts the company has planned for each year. At the beginning the company will sell two different types of tables targeting the high-end segment of the market. However, at the beginning of the third year the company plans to introduce a third table that will target the mid segment.

For the Storage Unit, management assumes that 30% of those customers that purchase tables are likely to buy the Storage Unit as well. The Storage Unit is designed so that it holds up to 10 toy kits (three are offered as a bundled package with the Storage Unit).

Every time a new table is sold, a new customer has been gained. P’kolino projections assume that one out of every two customers will purchase one Toy Kit every 12 months for a period of 3 to 4 years. Gift purchases of the Toy Kits are also estimated as a percentage of the existing customer base. One out of every two existing customers will trigger (influence) one Toy Kit gift purchase every 12 months.

Accessories will enter the revenue stream at the 2nd year of operations. It is estimated that as the product line expands accessories will eventually represent up to 25% of our sales.

The numbers of new customers are expected to increase at an average rate of 35% for years 3,4 & 5 for products targeting the high-end segment and at 45% for those targeting the mid-segment of the market (as a benchmark Pottery Barn Kids sales increased 35% in 2004).

P’kolino will remain in the high-end segment of the market for its first 2 years of operations and has priced its products accordingly. All products are priced as a function of both their manufacturing costs and their marketing positioning strategies. At year 3 a $400 table with a 45% contribution margin will be introduced to the mid-segment.

P’kolino will sell its products both online (direct) and through specialty retailers. Retailers are expected to markup our products by 50% (according to our primary research). Thus, our wholesale price will need to account for this markup. Management estimates that even though 80% (30% after year 2) of the units sold will be sold through retailers, only 23% of the revenue will come from this distribution channel. The percentage sold through retailers will drop over time as P’kolino gains brand recognition and further develops its direct distribution channel.

As stated earlier in this document the Toy kits and accessories are the main vehicles for generating recurrent revenue from existing customers.

Revenues for P’kolino will increase significantly during the winter holiday season. As is the case in the toy industry, playroom products are seasonal and more than 50% of total revenues will be generated during this period. Summer will be the second best season because children are out of school and spending more time at home.

Note: the Third quarter represents the holiday season.

9.3 Income Statement Assumptions – Cost of Sales

Our business model assumes that manufacturing of all P’kolino products will be outsourced to Brazil and then eventually to an Asian manufacturer. The average cost of sales will be 47% of revenues. Cost of sales is estimated based on manufactured units.

9.4 Income Statement Assumptions – Expenses

Expenses for P’kolino are centered on three main areas: 1) Sales and Marketing, 2) General Administration Expenses and 3) Research and Development.

For the first year, sales and marketing expenses are close to 20% of sales. Developing our website, generating initial marketing materials and a direct mail campaign are the main uses of these funds. Again after year 3, marketing efforts intensify as P’kolino makes an effort to enter the mid-segment of the market with a new product.

Over time, General and Administration expenses converge towards the industry average. However, P’kolino’s business model calls for a lean organization that concentrates on sales, product development and marketing. Management will make every effort to outsource all areas of the business not directly related to the core competency of the company. By year 5, the company will have 10 employees. The company will open an office at a business incubator during its first and second year of operations. P’kolino will relocate to a new facility by the end of year 2.

Product development (or R&D) is central to the P’kolino business model. It will require 10% of revenues during the first and second year and 9% on average thereafter (the R&D for the first year has been partially funded and executed prior to starting operations). During years 1&2 the company will develop a table for the mid-segment of the market as well as new Toy kits and accessories.

Other expenses such as legal expenses, insurance, etc. are estimated based on industry averages.

9.5 Balance Sheet Assumptions

P’kolino outsources manufacturing of their products allowing it to minimize investment on fixed assets. Inventory is assumed at 45 days (meaning 8 inventory turns per year, equal to the industry average according to Hoover’s online database). Management believes it will be able to maintain this level due to its emphasis on direct distribution.

Accounts receivable will average 30 days due to expected receivables from sales to retailers. Direct sales will have limited receivables, occurring mostly by credit card.

Table designs will be considered intangible assets and supported by constant product development efforts.

Accounts payable will be 25 days during the first few years because vendors will require most of our purchases to be paid in advance. Over time, accounts payable will lengthen as we develop a credit history.

9.6 Funding Assumptions

The company will fund its operations through equity and convertible long-term debt. Founders have issued $50.7K worth of equity. Proceeds will be used to pay for the product development of the initial product line. Additional funding will come in the form of long-term convertible debt (convertible into equity at the lender’s discretion) for up to $400K over the next five years, at a 15% annual interest rate. Friends and family will be the primary investors initially.

9.7 Cash Flow Assumptions

Investments will maintain positive cash flow the first 2 years. After this period, P’kolino estimates that it will generate enough cash from operations to repay the long-term debt and finance future growth.

9.8 Breakeven Analysis

CONFIDENTIAL INFORMATION

Business Plan

May-2005

Prepared by:

J.B. Schneider &

Antonio Turco-Rivas N.

Contact Information:

Phone: (781) 497-0913

Email: [email protected]

[email protected]

Address:

600 West Cummings Park

Suite 5350�Woburn, MA 01801

The information contained in this document is highly confidential. Except if stated herein, none of the material may be copied, reproduced, distributed, republished, downloaded, displayed, posted or transmitted in any form or by any means, including, but not limited to, electronic, mechanical, photocopying, recording, or otherwise, without the prior written authorization from P’kolino, LLC.

Exhibit 9-A

The Playroom Furniture Market

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Exhibit 9-B

Prices and Manufacturing Cost

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Exhibit 9-C

% of Revenues by Distribution Channel

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Exhibit 9-D

Revenue Mix (% of revenue by type of product)

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Exhibit 9-E

Seasonal Sales – Number of tables sold per month Year 1 & 2

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Exhibit 9-F

Revenue Forecast

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Exhibit 9-G

Revenue Monthly Forecast

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Exhibit 9-H

Cost of Sales

Manufacturing Costs�

Year 1�

Year 2�

Year 3�

Year 4�

Year 5�

�

Table A�

�

$116,610�

$244,205�

$329,677�

$445,064�

$600,836�

�

Table B�

�

$62,790�

$131,495�

$177,518�

$239,650�

$323,527�

�

Table C�

�

$0�

$0�

$84,000�

$140,000�

$168,000�

�

�

�

�

�

�

�

�

�

Storage Unit�

�

$31,878�

$66,759�

$115,325�

$163,668�

$214,652�

�

Kits�

�

$25,818�

$85,988�

$95,251�

$157,954�

$237,232�

�

Accessories�

�

$0�

$277,900�

$436,968�

$589,907�

$796,374�

�

Other�

�

$29,193�

$54,504�

$200,357�

$219,636�

$245,602�

�

Total COGS�

 �

$266,289�

$860,851�

$1,439,096�

$1,955,879�

$2,586,223�

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�

�

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Exhibit 9-I

Projected Financial Statements

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Exhibit 9-J

Projected Balance Sheet Statements

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Exhibit 9-K

Use of Funds (average)

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Exhibit 9-M

Projected Cash Flow Statements

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Exhibit 9-N

Break-even vs. Revenues

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