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 In the Pipeline – Financial Plan

Assumptions

  • Six month set-up costs shown as January 1998 expenses.
  • No allowance has been allowed for inflation.
  • Competitive markets reduce margins from 50% to 37% over a five year period.
  • 2/3 credit sales are received within 60 days, and 1/3 within 90 days, after invoicing.
  • Substantial legal and research and development expenditure from 1999 onwards. No revenue from Volsnaps and Ezifix Anchors are included in financials.
  • All assets are leased where possible to minimize cash outflows in the early years. Major asset purchases in 1998 are dyes and moulds for use in the extrusion and injection moulding manufacturing process for Snapfix.
  • An average rate of Federal and State taxation of 40%.
  • Dividends have not been declared in years 1 to 2 (despite available cash flow) so as to give ITP necessary funds to develop future new product and other opportunities.
  • NPV and IRR are calculated on the first five years’ cash flow.
  • No interest is earned from positive cash balances.
  • Dividends paid after year two – 50% of Net Profits After Tax.

Financial Results – Summary (Expected Scenario)

Years 1998 1999 2000 2001 2002
Sales($) 2,414,203 5,032,623 10,107,251 15,348,591 23,329,825
EBIT($) 502,664 1,206,789 2,565,332 956,531 6,069,547
NPAT($) 65,568 389,662 1,078,481 1,868,308 2,917,454
Cash Balance($) 337,972 470,906 1,434,146 2,296,628 3,404,092

ITP’s Internal Rate of Return (IRR) is 157%. It has been calculated using the adjusted profits to arrive at a net cash flow stream and an end of year five valuation using a price/earnings ratio of 10. The net present value (NPV) is $6.9 million, discounted-at 40%. The IRR of the convertible note holder has been calculated using an average of the first two years’ earnings and a price/earnings ratio of 10. An IRR of 89% and an NPV of $2.1 million is achieved.

Proforma Financial Statements (Expected Scenario)

The following tables show that forecast Income Statements, Cash Flows, Balance Sheets for the first five years operating under the Expected Scenario

Consolidated Income Statement (Expected Scenario)

Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total Yr 1 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total Yr 2 Year 1 Year 2 Year 3 Year 4 Year 5
1998 1998 1998 1998 1998 1999 1999 1999 1999 1999 1998 1999 2000 2001 2002
SALES 482,841 555,267 651,835 724,261 2,414,203 1,006,525 1,157,503 1,358,808 1,509,787 5,032,623 2,414,203 5,032,623 10,107,251 15,348,591 23,329,825
Less Cost of Goods Sold
Opening Inventory 0 2,909 5,593 9,868 0 14,685 22,902 32,131 43,752 14,685 0 14,685 57,009 202,960 296,466
Add Manufacturing Costs 242,420 279,633 328,917 367,130 1,207,101 558,583 642,620 754,337 838,374 2,767,915 1,207,101 2,767,915 5,969,426 9,563,432 14,863,885
242,420 282,542 334,510 376,”8 1,207,101 573,268 665,522 786,469 882,126 2,782,600 1,207,101 2,792,600 6,026,436 9,766,392 15,160,351
Less Closing Stock 2,909 5,593 9,868 14,685 14,685 22,902 32,131 43,752 57,009 57,009 14,685 57,009 202,960 296,466 520,236
TOTAL COST OF GOODS SOLD 239,511 276,950 324,642 362,313 1,203,416 550,~66 633,391 742,716 825,117 2,751,591 1,203,416 2,751,591 5,823,475 9,469,926 14,640,115
GROSS PROFIT 243,329 278,317 327,192 361,948 1,210,786 456,158 524,112 616,092 694,670 2,281,032 1,210,786 2,281,032 4,283,776 5,878,666 8,689,710
Gross Margins % 50% 50% 50% 50% 50% 45% 45% 45% 45% 45% 50% 45% 42% 38% 37%
LESS EXPENSES
Administration Expenses 169,995 84,906 81,023 94,798 430,622 144,470 147,981 165,393 164,899 622,743 430,622 622,743 968,143 1,103,845 1,453,994
Research & Development 38,000 4,000 4,500 3,500 50$000 25,500 2,000 7,000 8,5()0 43,000 50,000 43,000 44,000 70,000 97,500
Sales & Marketing 103,500 42,000 41,000 41,000 227,5 96,375 96,375 97,375 118,375 408,500 227,500 409,500 706,300 748,290 1,068,680
TOTAL EXPENSES 311,495 130,806 126,523 139,298 708,122 266,345 246,356 269,768 291,774 1,074,243 708,122 1,074,243 1,719,443 1,922,135 2,620 163
% of Total Sales 65% 24% 19% 19% 29% 26% 21% 20% 19% 21% 29% 21% 17% 13% 11%
Earnings Before Interest & Tax (68,166) 147,511 200,669 222,650 502,664 189,813 277,756 346,324 392,896 1,206,789 502,664 1,206,789 2,565,332 3,956,531 6,069,547
Less Interest Expense 43,750 43,750 43,750 43,750 175,000 43,750 43,750 43,750 43,750 175,000 175,000 175,000 97,500 0 0
NET INCOME BEFORE TAX (111,916) 103,761 156,919 178,900 327,664 1446,063 234,006 302,574 349,146 1,031,789 327,664 1,031,789 2,477,832 3,956,531 6,069,547
Less Income Tax Expense @ 40% 44,766 (41,504) (62,768) (71,560) (131,066) (58,425) (93,602) (121,030) (139,659) (412,716) (131,066) (412,716) (991,133) (1,582,612) (2,427,819)
NET INCOME AFTER TAX (67,149) 62,257 94,151 107,340 19615″ 87,639 140,403 191,544 209,488 619,073 196,5″ 619,073 1,486,6″ 2,373,919 3,641,729
Less Minority Interest (26,417) (30,107) (35,429) (39,077) (131,030) (45,874) (52,670) (61,979) (68,888) (229,411) (131,030) (229,411) (407,219) (505,611) (724,274)
NET INCOME to ITP SHAREHOLDERS (93,566) 32,149 58,723 68,263 65,568 41,764 87,733 119,565 140,600 389,662 65,S68 389,662 1,079,481 1,868,308 2,917454
% of Total Sales -19% 6% 9% 9% 3% 4% 8% 9% 9% 8% 3% 8% 11% 12% 13%
Retained Earnings – Opening Balance 0 (93,566) (61,417) (2,694) 0 65,568 107,333 195,066 314,631 65,568 0 65,568 455,230 767,356 1,317,832
Total Available for Distribution (93,556) (61,417) (2,694) 65,568 65,568 107,333 195,066 314,631 455,230 455,230 65,568 455,230 1,534,711 2,635,664 4,235,296
Dividends Provided 0 0 0 0 0 0 0 0 0 0 0 0 767,356 1,317,832 2,117,643
Retained Earnings – Closing Balance (93,566) (61,417) (2,694) 65,568 65,568 107,333 195,066 314,631 455,230 455,230 65,568 455,230 767,356 1,317,832 2,117,643

Consolidated Cash Flow Statement (Expected Scenario)

Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total Yr 1 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total Yr 2 Year 1 Year 2 Year 3 Year 4 Year 5
1998 1998 1998 1998 1998 1999 1999 1999 1999 1999 1998 1999 2000 2001 2002
RECEIPTS
Sales 202,793 513,259 595,825 682,254 1,994,131 842,812 1,069,936 1,242,051 1,422,219 4,577,018 1,994,131 4,577,018 9,062,550 14,352,737 21,813,391
JV (MNF/DIST) Subscriptions 64,300 0 0 0 64,300 0 0 0 0 0 64,300 0 0 0 0
Common Stock Subscriptions 150,000 0 0 0 150,000 0 0 0 0 0 150,000 0 0 0 0
Venture Capital Loan 500,000 0 0 0 500,000 0 0 0 0 0 500,000 0 0 0 0
Sale Proceeds, Plant & Equipment 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
TOTAL CASH RECEIPTS 917,093 513,259 595,925 682,254 2,708,431 842,812 1,069,936 1,242,051 1,422,219 4,577,018 2,708,431 4,577,018 9,062,550 14,352,737 21,813,391
DISBURSEMENTS
Total Cost of Goods Sold 101,817 258,050 300,333 344,967 1,005,166 447,540 593,879 689,541 789,633 2,520,593 1,005,166 2,520,593 5,321,492 8,880,571 13,956,799
Administration Expenses 169,995 84,806 81,023 94,798 430,622 144,470 147,981 165,393 164,899 622,743 430,622 622,743 968,143 1,103,845 1,453,984
Less: Depreciation & Amortization -10,000 -9,953 -9,905 -9,856 -39,713 -16,305 -16,206 -16,105 -16,001 -64,617 -39,713 -64,617 -87,011 -91,133 -105,090
Add: Lease payments 3,379 3,379 3,379 3,379 13,516 6,758 6,758 6,758 6,758 27,032 13,516 27,032 40,549 45,054 54,063
Research & Development 38,000 4,000 4,500 3,500 50,000 25,500 2,000 7,000 8,500 43,000 50,000 43,000 44,000 70,000 97,500
Sales & Marketing 103,500 42,000 41,000 41,000 227,500 96,375 96,375 97,375 118,375 408,500 227,500 408,500 706,300 749,290 1,068,680
Interest Expense 43,750 43,750 43,750 43,750 175,000 43,750 43,750 43,750 43,750 175,000 175,000 175,000 87,500 0 0
Cash Payments to JV (MNF/DIST) 26,417 23,175 25,919 31,679 107,190 27,607 38,254 42,905 53,263 162,029 107,190 162,029 244,403 383,661 504,339
Tax Paid on Income of JV Co 59,704 66,905 78,730 86,838 291,178 101,941 117,045 137,732 153,085 509,803 291,178 153,085 904,930 1,123,579 1,609,498
Tax Paid on Income of ITP 0 0 0 0 0 0 0 0 0 0 0 0 -170,997 459,033 818,321
Capital Purchases 110,000 0 0 0 110,000 40,000 0 0 0 40,000 110,000 40,000 40,000 0 30,000
TOTAL CASH DISBURSEMENTS 645,562 516,112 568,729 640,056 2,370,459 917,638 1,029,835 1,174,349 1,322,262 4,444,084 2,370,459 4,097,366 8,099,310 12,722,899 19,398,094
Cash Dividends Paid 0 0 0 0 0 0 0 0 0 0 0 0 0 767,356 1,317,832
Net Cash Flow 271,531 -2,853 27,096 42,198 337,972 -74,826 40,101 67,702 99,957 132,934 337,972 132,934 963,240 862,482 1,107,465
Add Opening Balance 0 271,531 268,678 295,775 0 337,972 263,146 303,247 370,949 337,972 0 337,972 470,906 1,434,146 2,296,628
CLOSING CASH BALANCE 271,531 268,678 295,775 337,972 337,972 263,146 303,247 370,949 470,906 470,906 337,972 470,906 1,434,146 2,296,628 3,404,092

Consolidated Balance Sheet (Expected Scenario)

Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total Yr 1 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Totat Yr 2 Year 1 Year 2 Year 3 Year 4 Year 5
1998 1998 1998 1998 1998 1999 1999 1999 1999 1999 1998 1999 2000 2001 2002
ASSETS
Current Assets
Cash 271,531 268,678 295,775 337,972 337,972 263,146 303,247 370,949 470,906 470,906 337,972 470,906 1,434,146 2,296,628 3,404,092
Accounts Receivable JV Co 290,047 322,055 378,064 420,071 420,071 583,794 671,352 788,109 875,676 875,676 420,071 875,676 1,920,378 2,916,232 4,437,667
Inventory 2,909 5,593 9,868 14,685 14,685 22,902 32,131 43,752 57,009 57,009 14,685 57,009 202,960 296,466 520,236
Other 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Total Current Assets 554,487 596,125 693,706 772,729 772,729 869,133 1,006,730 1,202,809 1,403,592 1,403,592 772,729 1,403,592 3,557,454 5,50,326 8,356,995
Long Term Assets
Plant & equipment 110,000 110,000 110,000 110,000 110,000 150,000 150,000 150,000 150,000 150,000 110,000 150,000 190,000 190,000 220,000
Less Accumulated Depreciation -5,500 -11,000 -16,500 -22,000 -22,000 -29,500 -37,000 -44,500 -52,000 -52,000 -22,000 -52,000 -90,000 -128,000 -172,000
104,500 99,000 93,500 88,000 88,000 120,500 113,000 105,500 98,000 98,000 98,000 98,000 100,000 62,000 48,000
Leased Plant & Equipment 60,000 60,000 60,000 60,000 60,000 120,000 120,000 120,000 120,000 120,000 60,000 120,000 180,000 200,000 240,000
Less Accumulated Amortization -3,000 -6,000 -9,000 -12,000 -12,000 -18,000 -24,000 -30,000 -36,000 -36,000 -12,000 -36,000 -72,000 -112,000 -160,000
57,000 54,000 51,000 48,000 48,000 102,000 96,000 90,000 84,000 84,000 48,000 84,000 108,000 88,000 80,000
Future Income Tax Benefit 103,471 128,872 144,834 160,113 160,113 203,629 227,071 243,773 257,200 257,200 160,113 257,200 0 0 0
Total Long Term Assets 264,971 281,872 289,334 296,113 296,113 4,269,129 436,071 439,273 439,200 439,200 296,113 439,200 208,000 158,000 128,000
TOTAL ASSET 819,458 878,197 973,040 1,068,842 1,068,842 1,295,961 1,442,801 1,642,083 1,842,792 1,842,792 1,068,942 1,842,792 3,765,484 5,659,326 8,484,995
LIABILITIES
Current Liabilities
Overdraft 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Trade Creditors 140,604 162,187 190,772 212,936 212,936 323,978 372,720 437,515 486,257 486,257 212,936 486,257 1,134,191 1,817,052 2,824,138
Provision for Dist’n to JV (MNF/DIST) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Leased Liability 58,121 56,195 54,221 52,197 52,197 108,244 104,192 100,039 95,781 95,781 52,197 95,781 128,243 116,323 115,347
Other 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Total Current Liabilities 193,725 218,382 244,993 265,133 265,133 432,222 476,912 537,554 582,039 592,039 265,133 582,839 1,262,434 1,933,375 2,939,486
Long Term Liabilities
Venture Capital Facility 50,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 0 0 0
Minority Equity in JV Co 64,300 71,232 80,742 88,140 88,140 106,407 120,823 139,898 155,523 155,523 88,140 155,523 318,338 440,288 660,224
Provision for Dividend 0 0 0 0 0 0 0 0 0 0 0 0 767,356 1,317,832 2,117,643
Shareholders’ Loans 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Total Long Term Liabilites 564,300 571,232 580,742 588,140 588,140 606,407 620,823 639,898 644,523 655,523 588,140 655,523 1,085,694 17,581,201 2,777,866
TOTAL LIABILITIES 763,025 789,614 825,735 853,273 853,273 1,038,629 1,097,735 1,177,452 1,237,561 1,237,561 853,273 1,237,561 2,348,128 3,691,495 5,717,952
NET ASSETS 56,434 88,583 1,473,016 215,568 215,568 257,333 345,066 464,631 605,230 605,230 215,568 605,230 1,417,356 11,967,232 2,767,643
SHAREHOLDERS’ EQUITY
Common Stock 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 650,000 650,000 650,000
Reserves 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Retained Profits -93,566 -61,417 -2,694 65,568 65,568 107,333 195,066 314,631 455,230 455,230 65,568 455,230 767,356 1,317,932 2,117,643
TOTAL SHAREHOLDERS’ EQUITY 56,434 88,583 147,306 215,568 215,568 257,333 345,066 464,631 605,230 605,230 215,568 605,230 1,417,356 1,967,832 2,767,643

Key Performance Indicators

Years 1998 1999 2000 2001 2002
NPAT as % of Sales 3% 8% 11% 12% 13%
NPAT as % of Total Assets 6% 21% 29% 33% 34%
NPAT as % of Paid Capital 44% 260% 166% 287% 449%
NPAT as % of Shareholders’ Funds 30% 64% 76% 95% 105%

Sources and Uses of Funds

Admin Expenses 1997 1998 1999 2000 2001 2002
Casual Wages 0 22,000 22,000 24,000 28,000 34,000
Courier 0 4,000 4,000 5,000 6,000 8,000
Depreciation 0 22,000 30,000 38,000 38,000 44,000
Set Up Cost 0 0 0 0 0 0
Insurance 1,200 4,000 6,000 7,500 8,500 9,500
Lease Amortization 0 12,000 24,000 36,000 40,000 48,000
Lease Finance Charges 0 5,713 10,617 13,011 13,133 13,090
Legal & Accounting Costs 27,000 35,000 49,000 80,000 75,000 95,000
Motor Vehicle Expenses 0 12,000 22,800 35,500 39,000 48,700
Office Servicing Costs 3,000 5,200 7,200 13,500 14,000 21,750
Office Set Up 0 7,000 0 5,000 0 6,000
Patent Cost USA 0 10,000 15,000 20,000 25,000 30,000
Patent Insurance 0 13,000 16,000 20,000 22,000 24,000
Patent Protection Trust 0 6,000 20,000 40,000 80,000 120,000
Relocation 0 16,000 0 0 0 0
Rent 6,000 32,000 33,600 70,560 74,088 116,689
Royalty Costs 1 % of Sales 0 24,142 50,326 101,073 153,486 233,298
Salaries & Wages 10,000 80,000 220,000 317,500 335,875 405,544
Salaries On-Costs 30% 0 24,000 66,000 95,250 100,763 121,663
Travel 0 4,000 6,000 15,000 18,000 27,500
Utilities 3,600 12,600 16,200 31,250 33,000 47,250
Two Months Interest Cost 29,167 0 0 0 0 0
79,967 350,655 622,743 968,143 1,103,845 1,453,984
Research & Development 1997 1998 1999 2000 2001 2002
Consultants 4,000 10,500 17,800 27,000 35,000 42,500
Other R & D Costs 2,500 6,500 6,000 8,000 10,000 14,000
Prototypes 1,000 1,000 1,000 9,000 20,000 25,000
R&D Performance Contract 0 10,000 10,000 0 0 10,000
Set Up Costs 0 0 18,000 0 0 0
US/Can Standards Approval 10,500 4,000 4,000 0 5,000 6,000
18,000 32,000 43,000 44,000 70,000 97,500
Sales & Marketing 1997 1998 1999 2000 2001 2002
Marketing Consultants 0 5,000 9,000 15,000 24,000 37,500
Set Up Costs 0 0 20,000 85,000 20,000 125,000
Promotion & Entertainment 10,000 50,000 57,000 97,000 103,000 159,000
Advertising & Promotion 9,500 17,000 18,000 20,000 25,000 32,000
Salaries 20,000 40,000 195,000 321,000 378,300 473,215
Salaries on-costs 30% 0 12,000 58,500 96,300 113,490 141,960
Trade Shows 22,000 10,000 14,000 30,000 35,000 45,000
Travel 3,000 29,000 37,000 42,000 49,500 55,000
64,500 163,000 408,500 706,300 748,290 1,068,680
TOTAL EXPENSES: 162,467 545,655 1,074,243 1,718,443 1,922,135 2,620,163

Worst Case Scenario – Summary

In the Worst Case Scenario an IRR of 94% and NPV of $3.1 million are achieved, As debt holders do not convert their debt to equity, their IRR remains at the coupon rate of 32%. The Worst Case Scenario outcomes are summarized in the table below and a detailed Income Statements, Cash-flow Statements and Balance Sheets are shown in Appendix D.

Years 1998 1999 2000 2001 2002
Sales 1,448,522 3,019,574 5,295,046 8,177,558 11,906,333
EBIT 726,370 1,661,217 3,179,162 5,206,178 7,740,823
N PAT (168,629) 72,653 111,858 461,807 776,797
Cash Balance 110,400 (82,192) 258,215 586,263 400,529

In the Worst Case Scenario ITP will use its line of credit to meet a shortfall of cash in 1999.

Worst Case Scenario – Key Performance Indicators

Years 1998 1999 2000 2001 2002
NPAT as % of Sales (12%) 2% 2% 6% 7%
NPAT as % of Total Assets (23%) 7% 7% 19% 26%
NPAT as % of Paid Capital (112%) 48% 75% 308% 518%
NPAT as % of Shareholders’ Funds 905% 34% 71% 20% 118%

In the Pipeline
Table of Contents Appendices
1. Executive Summary
2. Company & Product
3. Marketing
4. Operational Plan
5. Financial Plan
6. Offer to Investors
Product Diagrams
Executive Resumes
Action Plan
Financial Statements
The information and ideas herein are the confidential,
proprietary, sole, and exclusive property of the company’s founders.

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