1. shopping
2. auctions

Penny Auction Solutions, Inc.
Strategic Business and Marketing Plan
The information in this document is confidential and is to be only read
by authorized parties. Please refer to the confidentiality agreement for
further details. This business plan is not an offering of securities.
Confidentiality Agreement
The undersigned reader acknowledges that the information provided in this business plan
is confidential; therefore, the reader agrees not to disclose it without the express written
permission of an authorized agent of Penny Auction Solutions, Inc.
It is acknowledged by the reader that information furnished in this business plan is in all
respects confidential in nature, other than information which is in the public domain
through other means and that any disclosure or use of same by reader, and may cause
serious harm or damage to aforementioned parties.
This business plan is not to be copied or reproduced by any means without the sole
written consent of an authorized agent of Penny Auction Solutions, Inc.
Upon request, this document is to be immediately returned.
__________________________________
Signature
_______________
Date
_______________________________
Name (typed or printed)
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Table of Contents
1.0 Executive Summary .................................................................................................... 5 2.0 The Financing.............................................................................................................. 8 2.1 Funds Required....................................................................................................... 8 2.2 Investor Equity........................................................................................................ 8 2.4 Board of Directors Composition............................................................................ 8 2.5 Exit Strategies.......................................................................................................... 8 3.0 Penny Auction Solutions Services.............................................................................. 9 4.0 Business Model for Revenue and Market Growth ................................................ 11 5.0 Overview of the Organization.................................................................................. 12 5.1 Registered Name ................................................................................................... 12 5.2 Commencement of Operations ............................................................................ 12 5.3 History.................................................................................................................... 12 5.4 Vision Statement ................................................................................................... 13 5.5 Mission Statement................................................................................................. 13 5.5.1 Goal Statements ................................................................................................. 13 5.6 Organizational Objectives.................................................................................... 13 5.7 Organizational Values .......................................................................................... 14 5.8 Founders and Management Team....................................................................... 14 6.0 Strategic Market Analysis.................................................................................... 17 6.1 The Market ............................................................................................................ 17 6.2 Industry Analysis .................................................................................................. 17 6.3 Customer Profile ................................................................................................... 18 6.4 Competitive Analysis ............................................................................................ 18 7.0 Key Strategic Issues .................................................................................................. 19 7.1 Sustainable Competitive Advantage Overview.................................................. 19 7.3 Penny Auction Solutions Key Competitive Advantages.................................... 20 8.0 Marketing Plan.......................................................................................................... 23 8.1 Marketing Objectives ........................................................................................... 23 8.2 Sales Forecasts....................................................................................................... 23 8.3 Sales Assumptions................................................................................................. 24 8.4 Marketing Strategies ............................................................................................ 24 8.5 Marketing Plan Overview .................................................................................... 25 8.6 Search Engine Optimization Strategies .......................................................... 26 9.0 Organizational Plan .............................................................................................. 27 9.1 Corporate Organization ....................................................................................... 27 9.2 Organizational Budget.......................................................................................... 27 9.3 Organizational Roles and Positions..................................................................... 28 10.0 Financial Plan.......................................................................................................... 30 10.1 Underlying Assumptions .................................................................................... 30 10.2 Financial Highlights............................................................................................ 30 10.3 Sensitivity Analysis ............................................................................................. 30 10.4 Source of Funds................................................................................................... 30 10.5 Financial Proformas ........................................................................................... 31 10.6 Breakeven Analysis............................................................................................. 34 3
10.7 Business Ratios .................................................................................................... 35 10.8 General Assumptions.......................................................................................... 35 11.0 Penny Auction Solutions Operations Overview ................................................... 36 SWOT Analysis ............................................................................................................... 37 Critical Risks and Problems .......................................................................................... 38 Reference Sources ........................................................................................................... 39 Expanded Profit and Loss Statements .......................................................................... 40 Expanded Cash Flow Analysis....................................................................................... 43 4
1.0 Executive Summary
Even though auctions have been around for thousands years, there is a new kind of
auction that is taking the world by storm. It’s called the penny auction. Penny auctions
combine the thrill of shopping with gaming and intense bidding, to form a highly
captivating and enriching experience. These types of websites have been active over the
past four years.
Penny auctions are very entertaining because, unlike eBay, penny auctions happen in a
matter of minutes, instead of weeks or months. In addition, players are truly getting great
deals, such as new laptops and flat screen TV’s for $40 or even brand new cars for only
$800.
The attraction of penny auctions is easily understood. In this economy, where many
people are forced to “do without,” penny auctions give them a chance to get that new
luxury item they couldn’t otherwise afford. For $50 or less, they have a chance to get that
television, laptop, purse, iPhone, iPad, necklace or car they have always wanted.
This form of shopping entertainment is truly exhilarating, addictive game play. Penny
auctions are currently exploding and have gained substantial attention in North America
and the United Kingdom, yet the rest of the worldwide market remains largely untapped,
leaving the door open to Penny Auction solutions to capture a sizeable share of the global
penny auction market.
Penny auction websites tend to enjoy large profits because once people learn about the
great deals; they feel compelled to tell their friends about it. This is why penny auction
sites tend to take off and spread very quickly, like an idea virus. One such Web site is
Bidcactus.com. It has only been online since June of 09 and already receives over a
million page views per month.
“By incorporating a social network within a purely shopping environment,
and adding the benefit of buying premium products for pennies on the
dollar, Social Entertainment Shopping has all the right elements to become
one of the preferred online stores among e-commerce titans such as
Amazon, and eBay,” Source: Prnewswire.com.
In addition, penny auction websites typically collect 150% to 800% of the value of a
product. This is because they get to keep the bid monies from each bidder that bids on a
product. Another strong component within our strategy is the mobile Internet market. By
the end of 2013 there will be over one billion mobile Internet users.
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PAS plans to capture some premium .mobi domains and in turn the mobile user will
know that our sites will be mobile friendly. In addition, it is a widely held belief within
the SEO industry that Google will increasingly give higher rankings to .mobi sites on the
mobile internet because those sites are known to be mobile user friendly and thus more
relevant to mobile searchers. Google is also one of the companies that founded and
strongly backed the .mobi domain suffix and is therefore likely to give it a fair shake
when it comes to organic page rankings.
The Services
People register to become members of Penny Auction Solution operated or licensed sites,
which will allow them access to all auction items up for bid. In order for customers to be
able to participate in an auction they must purchase bids or bid packs. For each bid there
is a fee of $0.50 to a $1.00, and once a penny bid is placed the bid fee is not returned to
the consumer. Each bid raises the price of an item by $.01; this enables the items to sell
cheaply while making a large profit.
The auctions are timed; smaller items may only take be a few hours to auction while
larger items may take longer. Typically, each time an item is bid on, ten seconds are
added to the bid clock. So, the closing seconds of an auction can last however long
people want to bid on an item(s)—helping to escalate the final price of the item(s).
The Financing
At this time, the Company is seeking an investment of $3,000,000 in order to launch the
websites and to begin operations of the business. Primarily, the initial funds will be used
for the following:
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Launch branding, marketing, and PR campaign to sustain top-of-mind brand
awareness for penny auction solutions
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Development of the Company’s MLM and licensing partner programs through the
Company’s Enterprise level platform.
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Strategic advertising through banner ads, Pay-per-click (PPC), print and radio
media to drive specific target audiences to the Web site
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Web site programming and administrative support
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Capital for inventory purchases and fulfillment
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General working capital
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Capital for search engine optimization
The second section of the business plan will further discuss the use of funds.
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Sales Forecasts
The company anticipates an exceptional rate of growth upon the commencement of
operations. Below is a chart that exemplifies management’s vision for growth during the
first five years of operations.
Proforma Profit and Loss (Yearly)
Year
1
2
3
4
5
Sales
$6,415,500
$14,434,875
$25,261,031
$37,891,547
$53,048,166
Cost of Goods Sold
$3,757,650
$8,454,713
$14,795,747
$22,193,620
$31,071,068
Gross Margin
41.43%
41.43%
41.43%
41.43%
41.43%
Operating Income
$2,657,850
$5,980,163
$10,465,284
$15,697,927
$21,977,097
Total Operating Costs
$2,300,995
$4,717,980
$7,842,146
$11,497,311
$15,752,731
EBITA
$356,855
$1,262,183
$2,623,138
$4,200,616
$6,224,366
Sales, Operating Costs, and Profit Forecast
$60,000,000
$50,000,000
$40,000,000
$30,000,000
Sales
Total Operating Costs
$20,000,000
Net Profit
$10,000,000
$0
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2
3
4
5
Year
The Future
Management intends to continually increase the market visibility of the Penny Auction
web sites through continued reinvestments into the company’s marketing, PR, search
engine optimization (SEO), technology, advertising, and PPC marketing campaigns.
Additionally, the business will continually integrate foreign language Penny Auction sites
into the PAS family of Penny Auction web sites. Penny Auctions are the latest online
auction style of gaming, with huge profit potential and extended future sustainability. As
outlined in this document, PAS is uniquely positioned to become the dominant brand in
the U.S. and abroad.
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2.0 The Financing
2.1 Funds Required
A total capital investment of $3,000,000 is sought in order to launch the operations of
Penny Auction Solutions, Inc. The investment will be used for the following:
Projected Startup Costs
Website Development
$182,000
Customer Service Program Development
$50,000
General Working Capital
$500,000
Initial Inventory
$100,000
Marketing Campaign Development and Implementation
$2,118,000
FF&E
$25,000
Misc. Development Costs
$25,000
Total Costs
$3,000,000
2.2 Investor Equity
This will be further discussed during negotiations.
2.4 Board of Directors Composition
The current PAS Board of Directors and Advisory Board consists of the following
individuals. The bio’s of the PAS Board can be found in the Management Section.
PAS Board:
Corey Park, Chairman
Micheal Holt, CEO
Danielle Eastwood, Secretary
David Wiggins, Audit Chairman
PAS Advisory Board:
David D’Arcangelo
Balazs Wellisch
2.5 Exit Strategies
The Management has planned for two possible exit strategies. The exit strategy would be
to sell the Company to a larger entity at a significant premium. Since, the Internet content
industry maintains a relatively lower risk profile once the business is established; the
Management feels that the Company could be sold for ten to fifteen times earnings.
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The second exit scenario would entail selling a portion of the Company via an initial
public offering (or “IPO”). After a detailed analysis, it was found that the Company could
sell for ten to twenty times earnings or more on the open market depending on the
business’s annual growth rate and strength of earnings. However, taking a company
public involves significant legal work. Penny Auction Solutions, Inc. would be bound by
the significant legal framework of the Sarbanes-Oxley Act in addition to the legal
requirements set forth in form S1 of the Securities and Exchange Commission. The
Company would also have to comply with the Securities Act of 1933 and the Exchange
Act of 1934.
Penny Auction Trading Symbol
Penny Auction recently had it’s 15c211 application cleared by FINRA and we have been
granted the trading symbol PAUC. PAS is now eligible to be quoted on the OTC Link.
3.0 Penny Auction Solutions Services
The concept of a Penny Auction is simple and so is the process of participating in and
winning auctions. The following points illustrate the basic flow of how the Penny
Auction process works.
1. People register to become members of our sites, which will allow them access to all
auction items up for bid. In order for consumers to participate in auctions, they must
purchase bids or bid packs. We will sell bids for $0.50 to $1.00 depending on the
quantity of bid packs purchased at one time. Bid packs can consist of 10, 25, 50, or
100 or more individual bids. The term “bid pack” merely refers to a collection of a set
number of bids.
2. Members locate auctions of interest on our site and start placing bids for one or more
items. For each bid that is placed (i.e. spending one of their bids worth $0.50 to $1.00
each) it raises the price of an auction item by just $0.01. This enables the items to
potentially sell cheaply (i.e. the winning bid price) while making a profit for the
company. It is important to note that once a bid has been expended, the bid fee is not
returned to the consumer. However, there are several opportunities for members to
use their spent bids towards the purchase of auctioned items or as credits on future
auctions. These strategies are outlined in other company documents should more
information be required.
3. The auctions are timed; smaller items may only take be a few hours to auction while
larger items may take longer (i.e. hours and maybe up to a couple of days). There is
an eventual end time on all auctions should they run excessively long just to ensure
all auctions will end with a winner being named. However, it is rare for auctions to
last more than 24 to 48 hours.
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4. For the sake of simplicity, each time an item receives a bid, ten seconds are added to
the bid clock. So the closing seconds of an auction can last however long people want
to bid on an item(s) - helping to escalate the final price of the item(s). When the time
expires on the clock, the highest bidder wins the auction at the stated price.
5. Members who have won an auction are then directed to proceed to “check out” to pay
for the merchandize they have won (i.e. the closing auction price) and arrange for
shipping. Most items are simply drop-shipped from our vendors and directly to our
members and often the company will cover the shipping costs.
The following is an example auction:
The following auction represents a flat screen Toshiba TV. With bids averaging $0.60,
the amount the company has collected so far is $2,577.00, with the retail price being
around $500.00. Therefore, the profit thus far is over $2,000.00 and the auction is still in
progress.
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The number in red represents the time left in the
auction as the time clock counts down.
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The dollar amount in green represents the current
auction price of the item.
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Since each bid adds $0.01 to the price of the
auction, the total number of bids placed so far is
4,295. ($42.95 x 100)
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The name “Rapdog” represents the member’s
auction name and the fact that they are the last
(and highest) bidder on this auction.
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Members can bid on auctions via a website or in
some cases using their mobile phone or other
similar mobile devices.
Penny Auction companies typically collect 150% to 800% of the value of a product that
has been auctioned. As noted, once a member purchases a bid pack, they are free to cast
their bids on any active auction. However, the company makes money at the time a
member purchases a bid pack, but it’s easy to compute average revenue levels on each
item that is being auctioned as described above. Also, in order to maximize our profit, we
strategically analyze the auction data to determine how many higher-end to lower-end
merchandise auctions to host on an ongoing daily, weekly, or monthly basis.
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It’s important to note that every single auction will have a winner if just a single bid has
been cast towards that auction. The highest bidder always wins the item when the clock
timer has run down to zero. Some of the items that will be sold by Penny Auction
Solutions via its auctions will include, but are not limited to:
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Flat screen TVs
Smart phones and accessories
High end home theatre electronics
Home décor items and kitchen electronics
Vehicles and accessories
Small scale consumer electronics such as tablets, laptops, game consoles, etc
Gift cards
Cruises and other vacation packages
Services (flying lessons, scuba lessons, NASCAR driving experience, etc.)
4.0 Business Model for Revenue and Market Growth
Penny Auction Solutions, Inc. has identified several areas for potential growth of our
business model. The core of our growth is represented by three major initiatives in the
development of our Penny Auction Enterprise model. This model consists of deploying a
traditional penny auction platform, an MLM auction platform, and a mobile computing
device platform.
Each of these platforms represents a major revenue component and potentially reaches
more penny auction users due to the variety of auction model. The Penny Auction craze
is spreading quickly and our approach to the marketplace will provide us with a large
advantage over future sites by addressing all of these platforms.
We believe the strongest of the revenues models is the deployment of the MLM platform
and especially in the international market. We have partnered with several key resources
in the MLM arena that are highly respected and successful in assisting companies such as
ours develop a credible and powerful business model to attract a vast amount of potential
penny auction users.
Another strong component comprising our growth strategy is the mobile internet market.
By 2013 it is estimated that there will be over one billion mobile internet users. In fact, in
2009, German consumers alone actually spent over five billion dollars gambling on
mobile phones. Gambling enthusiasts and shopaholics are already flocking to Penny
Auctions and the mobile market is quickly becoming a great way to reach this audience.
By utilizing .mobi domains, it truly shouts “mobile”. The mobile user will instantly know
that the site will be mobile friendly. In addition, it is a widely held belief within the
Search Engine Optimization (SEO) industry that Google will increasingly give higher
rankings to .mobi sites on the mobile internet because those sites are known to be mobile
user friendly and thus more relevant to mobile searchers.
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Google is also one of the companies that founded and strongly backed the “.mobi”
domain suffix and is therefore likely to favor these sites when it comes to organic page
rankings.
For the foreseeable future, we plan to continue the development and evaluation of the
Penny Auction platform to further enhance our customer’s experience and our related
revenues. As mentioned previously, the development of our Enterprise version of our
auction platform will be a key component to our growth. Another major component of
our growth model will come from additional Penny Auction company acquisitions. We
will continue to assess the marketplace and based on our findings, we may extend offers
to acquire sites that offer the greatest potential for domestic or international expansion.
As with any technology company, PAS will continually research the marketplace at large
to consider the acquisition and development of other technologies and associated
potential revenue centers. Since PAS defines its business model as “auction, shopping,
and entertainment”, there are a number of possible technology areas to consider to further
extend our brand and our global company in any of these areas.
Employing any number of these growth strategies could offer us the opportunity to
quickly grab a sizeable share of the world market before most people have even heard of
Penny Auctions. Now is the opportune time for us to launch a global presence and
become the industry leader in a relatively short timeframe.
5.0 Overview of the Organization
5.1 Registered Name
Penny Auction Solutions, Inc. The business is registered as a for profit corporation in the
State of Nevada and operates its business in the State of California.
5.2 Commencement of Operations
Penny Auction Solutions plans to commence operations in 2013 after the requisite capital
has been secured and the business launches its U.S. based operations. Penny Auction
Solutions, Inc. (PAS) has not yet commenced normal business operations however
members of the management team have been operating Penny Auction web sites for over
two years.
5.3 History
PAS has acquired the assets of (4) penny auction web sites in order to establish our
presence in the Penny Auction industry. These purchases represented some of the best
technology in the Penny Auction industry and also offered us access to several large
customer databases as well as proven marketing methods to drive traffic to our sites. Our
plan is to utilize the best technology, auction platforms, customer experiences, and
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marketing methods from these sites in order to build our “Enterprise” version of a Penny
Auction business and launch as a new brand under the PAS name.
5.4 Vision Statement
Penny Auction Solutions will become the premier global choice and an industry leader in
the Penny Auction market place by incorporating a rewarding shopping and
entertainment experience for our customers.
5.5 Mission Statement
Our mission is to develop an expansive array of penny auction websites that capitalize on
the strong consumer demand for users to bid on high end retail items at a fraction of their
cost while providing a fun and exciting experience for the end user. The business model
will be customer-service-focused ensuring longevity and loyalty of brand interaction.
5.5.1 Goal Statements
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To develop an “Enterprise” version of our Penny Auction business that consists of
a traditional, MLM (multi-level-marketing), and a mobile device platform.
To launch a global array of Penny Auction web sites based on a deployment plan
that maximizes our presence and profitability in each country and region.
To develop an extensive customer retention program that results in acquiring and
retaining more members than current industry ratios.
To design and deploy a customer centric presence on our sites that result in very
rewarding and exhilarating shopping experiences for our customers.
To continue to acquire additional Penny Auction web sites and operations to
increase our market share and global presence.
To continually refine and develop the Penny Auction model to open additional
channels of revenue and company growth.
To seek out technologies and services that will offer future growth to our
company and more value-added experiences to our customers.
5.6 Organizational Objectives
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After the requisite capital has been sourced, immediately finalize the development
of the Company’s websites.
Engage an aggressive pay per click and search engine optimization campaign for
every website maintained by the business.
Continually source in demand merchandise for bidding on the penny auction style
websites.
Maintain fiscally sound operating protocols.
Remain within the letter of the law regarding the bidding process on the penny
auction websites so that it is not viewed as gambling by state of federal
government agencies.
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Aggressively develop and implement the Company’s multilevel marketing
program that will ensure that the business generates a large amount of income
from licensing fees as well as percentages of revenues generated.
5.7 Organizational Values
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Transparency – We will maintain complete financial transparency in all of our
business transactions and reporting efforts.
Accountability - We will take responsibility for our actions at all employee levels
that influence the lives of our customers and associates..
Balance – We will strive to maintain a healthy life and work balance for our
associates.
Empowerment- We will empower our associates to take initiative and provide
input into every aspect of our operations.
Commitment- We commit ourselves to produce quality products and services for
our customers.
Community- We will strive to build a sense of responsibility and contribution to
our communities and society as a whole.
Diversity - We respect and support diversity in our work environment.
Integrity- We will act with honesty and integrity without compromise in all of
our actions.
Respect – We will give due respect every individual both internal and external to
our organization and maintain an environment of team work and growth.
Reward – We will recognize and reward individuals in our organization that
display results, passion, and adherence to our organizational values.
5.8 Founders and Management Team
The Management Team consists of Mr. Corey Park, Mr. Micheal Holt, our technology
partners (Ninthlink and NeuSolutions), Alex Consulting, Inc. (stock market and IR
consultants), and Evan Karsch (Penny Auction business consultants), as well as SEC
attorneys, accountants, and several successful business entrepreneurs serving on our
Board. These resources possess direct Penny Auction industry experience and extensive
experience in web development, internet marketing, and entrepreneurial ventures.
Working together, we have meticulously developed our strategic plans that are designed
to launch our brand and grow our business into a 100+ million dollar company. The
bio’s of key management and Board members are presented in the following section.
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PAS Management Bios
Corey Park, Chairman
Mr. Park is a Certified Hedge Fund Professional (CHP), with additional (CHP)
certifications at the highest levels in Portfolio Analytics & Risk Management. He also
attended the Notre Dame Mendoza College of Business (Leadership & Management) and
has served in executive leadership positions for over 20 years. He has experience taking
private companies down the path to become public; negotiated and completed several
acquisitions, strategic partnerships and joint ventures.
He brings value to companies by identifying and utilizing leverage, building momentum
in their marketplace and positioning entities to maximize strategic resource and capital
channels within the private and public markets. Mr. Park is also proficient at structuring
and implementing knowledge management systems to maximize capabilities and
resources (the pillars of successful companies). In addition, he is avidly pursuing his goal
of becoming an expert in leading-edge business strategy.
As a lifelong student of business strategy, he has read, studied and applied numerous
books and countless articles relating to business strategy (According to the Wall Street
Journal, the most sought after executive skill set is strategic thinking). Mr. Park also
brings with him and consistently draws upon an extensive network of advisors,
experienced business professionals and successful entrepreneurs to help him maximize
shareholder value.
Entering the tech space in the early years, he has decades of experience in the software
and tech industry. During his career he has founded and operated several profitable online
consulting and e-commerce businesses. He also owned and operated a highly successful,
national educational software marketing business in the 90’s. He was able to form
partnerships with several school districts around the country (including Miami-Dade and
Ft. Lauderdale-Broward counties) and his company became one of the top distributors of
curriculum-based software in the nation before selling and moving to Orlando. Along the
way, he also founded a successful direct sales company that he grew to over 32
employees. In less than 7 months from Mr. Park founding the company; Sales revenues
were consistently over 100,000 per week.
Micheal Holt, CEO
Mr. Holt has extensive experience in startup operations with 25 years of operations
management experience and an emphasis in sales and marketing initiatives in working
with small to mid-size firms. He currently owns and operates a seminar and event
planning company and a real estate auction and investment company in San Diego, CA.
Mr. Holt also offers his expertise to business owners through personal consulting services
where he teaches strategies on starting and building a successful business. For over 18
years of his career, he worked for several fortune 1000 companies in a management
capacity for firms such as General Electric, Management Insights, Systems and Computer
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Technology, and Harcourt Trade Publishers where he held such titles of CEO and COO
and Senior VP. Mr Holt is also a managing partner with Penny Auction Solutions, Inc.
Evan Karsch, IT Director
Mr. Karsch graduated American University in Washington DC, where he studied
Finance, Real Estate Management and Computer Science. Following his graduation he
moved back to New York and purchased his first website. In less than 2 years he
increased sales by more than 50%, cut expense through automation by 33% and turn a
failing site profitable. After 2 years, he sold the company for more than 1000% of his
original investment. At which time, he started a computer business that specialized in
providing consulting to other struggling sites. His computer business expand into
programming, networking, low voltage installations, and security systems. While
working on a customer’s site, he saw an advertisement for a Penny Auction business,
intrigued by the concept and business model he decided to start his own. With a small
group of investors, mostly his own financing he helped program and design Nail Bidder
(NailBidder.com). Mr. Karsch ran Nail Bidder and its day to day operations until it was
then purchased 2 years later by Penny Auction Solutions. Mr. Karsch at the age of 30 has
already ran four profitable business and continues to use his leadership and business
skills to be a successful entrepreneur.
PAS Board & Advisor Bios
Balazs Wellisch, Technology and Ecommerce Business Consultant
Mr. Wellisch is an accomplished internet entrepreneur and technologist having founded,
operated and guided to acquisition several profitable online, consulting and e-commerce
businesses. Drawing on over 20 years of experience in computing and software
development Mr. Wellisch has held several significant leadership roles throughout his
career. Mr. Wellisch founded and operated Neu Solutions, a provider of e-business
optimization services, culminating in the company’s successful acquisition in 2008.
Previously, Mr. Wellisch served as Chief Technology Officer and Co-Founder of
Digital Trends, growing the start-up into a multimillion dollar business while servicing
several Fortune 500 companies among its clientele. As a direct result of this success,
Digital Trends was purchased by Change.com a subsidiary of Business.com in a lucrative
acquisition deal. Business.com was later acquired by Dex One (then R.H. Donnelley).
Mr. Wellisch has also served as Vice President of Engineering as well as Chief
Technology Officer for several successful internet startups.
David Wiggins, Audit Chairman
After working in marketing and sales for Coca Cola enterprises for over 8 years, David
moved into the entertainment business joining TM Productions in 1994. Since that time
David has become a part owner and Vice President of TM Productions. In 2007 David
and Michael Nava formed MND Events to produce and promote club/bar events, with the
intent to bring back the production of the party scene, which has been neglected for years.
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MND Events is working with the state of Hawaii to bring Paradise Festival
(www.paradisefestival.net) to the islands in May 2011 as a yearly event celebrating music
and what local island has to offer. David is a partner in Neighbors Entertainment, a
commercial and independent film production company that controls the many film, stage
and book rights of the George Axelrod estate.
David was a producer on the independent film "Em & Me" which has won numerous
awards on the film festival circuit both here in the states and abroad. David also served as
Executive Producer on the hit independent film "My Big Fat Independent Movie".
6.0 Strategic Market Analysis
6.1 The Market
Penny auctions have a wide appeal among consumers. It appeals to both the young and
old, males and females. The Company’s target market is the many countries in which we
own premium keyword domains for penny auctions, as well as, the mobile internet
market. Penny Auction Solution’s target audiences are online consumers who enjoy
shopping, gaming and great deals.
6.2 Industry Analysis
This section of the analysis will focus on the general economic climate, the industries in
which Penny Auction Solutions will operate, the average user of the Penny Auction
solutions family of Web sites, and the competition that the business will face upon launch
and as it progresses through its business operations.
Currently, the economic market condition in the United States is moderate. The
meltdown of the subprime mortgage market coupled with increasing gas prices has led
many people to believe that the US is on the cusp of a double dip economic recession.
This slowdown in the economy has also greatly impacted real estate sales, which has
halted to historical lows. However, this should have little impact on the Company’s
ability to generate revenues. Demand for people to potentially acquire big ticket items at
a fraction of their costs will ensure that Penny Auction Solutions will be able to remain
profitable and cash flow positive.
On a worldwide basis, there are more than 10 sizeable websites whose operations are
specific for penny auctions. An estimated 8.4 million products have been held among
penny auction websites. For these product sales, a total number of 1.6 billion bids have
been placed. The total revenues generated from these websites over the past twelve
months have been $570 million on a worldwide basis. The growth rate of this industry is
expected to remain extremely high over the next five years as more people become
familiar with the concept of penny auction websites. The anticipated annual growth rate
17
is 30% to 45% per year. By 2018, the penny auction industry will generate approximately
$3 billion per year in revenues.
6.3 Customer Profile
Users of Penny Auction Solutions Web sites will have a broad array of characteristics,
but there are many common trends among the users. As such, the following
demographics exemplify the broad group of users that will participate in the Company’s
penny auctions.
•
•
•
•
Players range from the ages of 18 to over 65
Have an average per capita income of $20,000 to $75,000 among working
individuals and retirees.
Studies have shown that 11% of visitors typically purchase 800 bids per visit at
around 60 cents to a dollar per bid on penny auction Web sites (According to the
Stanford Report On Penny Auctions)
Bargain hunters and deal seekers who like the opportunity to acquire big ticket
retail items at a low cost
6.4 Competitive Analysis
Below is an analysis of a few of the major competitors that the Company will face as it
progresses through its business operations. Their viral nature tends to help their user base
grow quickly because the word of great deals spreads fast. These young sites are
receiving a lot of traffic:
•
QuiBids.com – Over the past two years, this business has become a major player
in the Penny Auction market. They have an extensive line of products, including
vehicles, which are bid upon on a regular basis. It is estimated that the business
generates more than $50 million per year, with annual growth rates nearing 100%.
•
PennyGrab.com – This business has become a very popular website that focuses
its penny auctions specifically for gift cards. This is one of the most popular types
of products that are featured on penny auction websites. As such, they have
gained a strong foothold in this market.
•
Beezid.com – Has one of best looking and user friendly Web sites in the industry
and will serve as a model for the Penny Auction Solutions’ Web site. Beezid.com
recently began buying TV ads on late-night Discovery Channel-owned TV
networks, such as The Military Channel.
The most competition in the online auction industry is eBaY. Although it is not a penny
auction-style Web site, many people have come to trust eBaY in regards to purchasing
18
retail items from other users. However, their business model is drastically different from
penny auctions and as such, they are only a peripheral competitor to the Company.
As will be discussed in the next section of the business plan, the primary competitive
advantage that the business will have is that the Company will maintain a strong
competitive advantage by not only offering the latest in technology products, household
goods, consumer goods, and vehicles, but also through its unique method of marketing.
The business intends to aggressively promote its Enterprise system, which will be sold on
a multilevel marketing basis. This will greatly increase the revenues of the business as it
will provide potential owners of penny auction website businesses with the ability to have
a turnkey solution for owning their own website. Management has already secured the
necessary legal documentation and agreements that will ensure that the business is able to
act in this capacity once revenue generating operations have commenced. Below is an
overview of the top 10 penny auction websites in the world (sorted by volume of items
sold on a daily basis)
7.0 Key Strategic Issues
7.1 Sustainable Competitive Advantage Overview
The Company will be able to maintain successful business operations because of the
following:
•
Very high gross margins from successful penny auction sales offered by the
business to the general public.
19
•
Strong demand among consumers to participate in the fast paced action of penny
auction sites.
•
Low operating and overhead costs.
•
Low development costs.
•
High gross margins from the Company’s planned use of a multilevel marketing
campaign that will allow third parties to use the Company’s Enterprise level
version of the penny auction software developed by Penny Auction Solutions, Inc.
•
The planned purchase and acquisition of a highly visible family of website
names/domains that we can register in our operating locations.
•
A management team that has a complete understanding of the operational
complexities of the business.
7.3 Penny Auction Solutions Key Competitive Advantages
Planned Entry into Global Marketplace
Only a few countries around the world have fully operating penny auction websites.
Most countries do not have a penny auction presence and the ones that do have barely
been penetrated. This is still a very new industry and most consumers have never heard of
penny auctions before even in the most popular markets because they have barely
scratched the surface. However, even moderately populated countries like the UK (60
million) can support a very profitable site like Madbid.co.uk. Each country offers an
opportunity to generate thousands per hour in profits like Madbid.co.uk
PAS had identified several counties and regions that offer the best potential for
penny auction entry. There are a lot of factors to consider and an extensive amount of
research required in order to enter the global marketplace. The Company has reviewed
and studied over 26 counties / regions and have determined the more profitable entry
points for PAS. In conjunction with this study, we have also determined what type of
penny auction platform (traditional, MLM, mobile) would be the most effective to launch
initially in each country.
Planned Entry into Mobile Device Marketplace
A recent 87 page Morgan Stanley report says that the mobile web will be bigger
than desktop internet use by 2015. The Company plans on obtaining several of the
(dot) Mobi “Category Killer” domains in almost every one of the top languages in which
we have identified entry into a country or region. Through aggressive marketing
strategies, the Company plans to own the top (dot) Mobi domains for Spanish, English,
20
German, Italian, French, Portuguese, and several others. Included in the marketing plans
is the ownership of the (dot) Mobis for 4 of the top 5 languages in the world.
In Germany alone, consumers spent over 5 billion dollars gambling on their mobile
phones. Mobile users want to surf on mobile friendly sites and when we text them to
click to buy laptops at 90% off, they will see credible (pennyauction) (dot) Mobi domain
name and know that we are a mobile friendly website. Mobile phones and Apple iPads
(Most often used with a mobile connection) are already popular with people who like to
shop and are becoming increasingly popular with people who like to gamble or play
games online.
Google can identify mobile users when they are surfing the net and Google usually
sees Apple iPads as mobile because they often use a mobile internet connection as
well. With Apple iPads and iPhones selling in the many millions already, imagine how
many people will be playing penny auctions on their iPads and iPhones in the future as
well as other market competitors. Penny Auction Solutions will not only have the huge
advantage of top search engine rankings on the mobile web but again, the most credible
and trustworthy penny auction name (brand) on the mobile web.
Development of an MLM Penny Auction Model
PAS has undertaken extensive efforts with the top MLM consulting firms in the US
to launch a global MLM penny auction model. Management has studied the MLM
marketplace opportunities extensively and constructed strategies and specific plans to
launch an MLM platform domestically as well as internationally. Management firmly
believes this model could surpass the results of the traditional penny auction platform in a
very short period of time.
Strong Company Capitalization
Most of the penny auction websites to date are undercapitalized from the start. The
Company will be one of the very few properly capitalized penny auction websites in the
entire world. We have access to a line of credit for $25,000,000 to fund the business
model. Thus, the Company will have the necessary marketing budget to put us in a strong
position to capture a large percentage of the market share available around the world in a
relatively short amount of time.
Excellent P.R. Coverage Opportunities
Being the first with anything, in any country, is usually newsworthy but great deals
on penny auctions are especially newsworthy. Penny Auction Solutions will enjoy
nothing short of a P.R. dream when being the first to enter many of these markets /
countries. The media is always more likely to run stories of people getting incredible
deals on high end products and unlike E-bay, people really do get laptops and TV’s for
under $80 on penny auctions sites. Plus, they will likely cover the many charity auctions
we promote for important causes.
21
Highly Experienced Management & Operations Team
•
•
•
•
•
•
•
•
•
•
•
50 plus years of combined entrepreneurial experience.
Managing partners have owned several successful businesses prior to PAS.
Managing partners have over 25 years of senior level management experience.
Management Team has extensive experience in website business models.
Extensive experience in IT and web technology.
Extensive experience in online and offline consumer marketing.
Operations staff is very experienced in key functional areas and management
roles.
Contracts in place to outsource global customer support on a 24/7 schedule.
Merchandise / Inventory plan in place to supply auctions with quality products.
IT server and support (local presence and outsourced) in place for 24/7
operations.
Low overhead and IT costs to support operations and resources.
Web / IT Technology Model
Contracts are in place for key Penny Auction entrepreneurs to deliver the
technology to PAS for our websites to be a complete turn-key system up and
running within a very short period of time. Experienced programming staff to plan,
develop, and support all technology aspects of our sites as well as ongoing maintenance
and improvements. Highly developed web tools to monitor and track site performance as
well as business statistics associated with our auctions.
Extensive and Target Driven Marketing Model
•
•
•
•
•
•
•
Contracts in place for successful Penny Auction owners to deliver complete
marketing strategies to PAS.
PAS has a complete and detailed marketing plan to help ensure successful launch
of our penny auction platforms and related sites.
Extensive marketing support from marketing gurus that are contracted with PAS.
Business agreements are ready to be executed with major online marketing
companies that align with our business model to drive traffic to the Company’s
family of penny auction sites.
Detailed analysis completed to understand and profile our target market.
Positioned for quick penetration into the market with a massive marketing
strategy.
Positioned to capture a substantial amount of free traffic from the penny auction
craze.
22
8.0 Marketing Plan
8.1 Marketing Objectives
•
•
•
Build a strong search engine optimization campaign that will rapidly bring on the
first page of internet search results for popular product terms as well as for penny
auction websites.
Establish connections with online companies will develop ongoing MLM and
licensing relationships with the Company.
Maintain an extensive public relationships campaign to raise awareness of the
Penny Auction Solutions brand name.
8.2 Sales Forecasts
Yearly Sales Forecast
Year
1
2
3
4
5
Growth (%)
0.0%
125.0%
75.0%
50.0%
40.0%
Penny Auction Sales
$3,666,000
$8,248,500
$14,434,875
$21,652,313
$30,313,238
MLM and Enterprise Platform Licensing
$2,749,500
$6,186,375
$10,826,156
$16,239,234
$22,734,928
Totals
$6,415,500
$14,434,875
$25,261,031
$37,891,547
$53,048,166
Year
1
2
3
4
5
Growth (%)
0.0%
125.0%
75.0%
50.0%
40.0%
Penny Auction Sales
$2,932,800
$6,598,800
$11,547,900
$17,321,850
$24,250,590
MLM and Enterprise Platform Licensing
$824,850
$1,855,913
$3,247,847
$4,871,770
$6,820,478
Totals
$3,757,650
$8,454,713
$14,795,747
$22,193,620
$31,071,068
Year
1
2
3
4
5
Total
$2,657,850
$5,980,163
$10,465,284
$15,697,927
$21,977,097
Cost of Sales Forecast
Gross Profit
Yearly Sales
$40,000,000
1
$30,000,000
2
$20,000,000
3
4
$10,000,000
5
$0
Penny Auction Sales
MLM and Enterprise Platform Licensing
23
8.3 Sales Assumptions
Year 1
•
•
•
•
In mid 2013, the business will complete its website development and will engage
the marketing strategies discussed below.
Management anticipates that the business will generate $6.4 million of revenue in
its first fiscal year of operations.
The business will also aggressively promote its mobile applications.
Aggressively develop licensing and multilevel marketing relationships with
companies that want to establish their own penny auction website platforms (via
the Company’s enterprise level platform).
Year 2
•
•
•
Management anticipates that it will expand its marketing operations two fold by
continuing to develop relationships with major media outlets coupled with the
Company’s search engine optimization campaigns. At this time, internationally
based Penny Auction Solution websites will begin to launch in countries that have
extensive internet access (especially in Germany).
Expected revenues will reach $14.4 million.
Gross margins from sales will reach $5.9 million.
Years 3-5
•
•
By Year 5, Penny Auction Solutions, Inc. will generate $53 million of revenues.
At this time, the Company will generate close to 20 million visitors per month
through its websites as well as through its MLM program partners.
8.4 Marketing Strategies
Management intends to use a number of traditional and online advertising strategies to
draw traffic to the websites. Below is an overview of these strategies.
Penny Auction Solutions, Inc. primarily intends to use an online based marketing
campaign to develop its user and visitor base. Primarily, the Company will use search
engine optimization techniques that will increase the Company’s visibility when selected
key words are used among major search engines. For instance, when a person does a
Google search for penny auctions, the Company (and its related websites as discussed in
the third and fourth section of the business plan) will appear on the first page of the
search. This strategy is technically complicated, and the Company will use a search
engine optimization firm to develop the Company’s visibility on a non-paid basis.
Management expects that a SEO firm will place large amounts of linking data and text
specific keywords into the business’s website, which will allow the Company to appear
24
more frequently among search engines. A majority of web portal and search engine
companies use very complicated algorithms to determine a website’s relevance in relation
to a specific keyword. SEO firms place text and tags on the website to increase the rank
of a specific website.
Additionally, Penny Auction Solutions, Inc. (for each of its penny style auction websites)
will use several pay methods for increasing the Company’s visibility. This strategy is
expensive, but the results can be phenomenal if this marketing strategy is properly
executed. These advertisements appear along the border and side of a website, and each
time a person clicks on the website, a small fee ranging from fifty cents to one dollar is
charged to the Company’s account. Pay per click marketing will become an integral part
of the Company’s operations once the search engine optimization campaign has begun to
take hold. It is imperative that the Company understands its profitability per user metrics
prior to engaging this type of marketing campaign.
8.5 Marketing Plan Overview
•
Immediately implement a “shotgun,” high-volume oriented Pay-Per-Click
campaign (Google AdWords, Yahoo Search Marketing, MSN AdCenter/Bing) to
drive interest and site visits in an effort to generate buzz about products and
services, and increase memberships.
•
Run PPC ads for Penny Auction Solution websites and MLM programs in
“traditional” markets for terms such as “plasma TVs, iPhones, Laptops, GPS
Devices” and other heavily searched keywords.
•
At 30 days and ongoing, reconfigure PPC campaigns to focus on high-conversion
keywords and utilize analytics to optimize SEM efforts and reduce wasted spend
from non-interested users.
•
Create campaigns that focus on specific markets as a means of directing keywords
and ads that speak to a defined audience in each identified demographic.
•
Identify and implement SEM for search terms that are highly competitive for SEO
and present challenges that may prevent first page placement.
•
Provide close, daily management of accounts to ensure accurate delivery of traffic
and minimize generic visitation.
Industry metrics provide an approximate 2% conversion rate for most e-commerce sites.
By this measure, we can assess that thousands of customers will buy bid packs on a
monthly basis from PPC efforts alone. Much of this will be impacted by site design and
“trustworthiness” of site messages and must be factored into the site’s design elements.
25
8.6 Search Engine Optimization Strategies
•
Focus on Google PR to gain increased market share to compete more effectively
against identified entities in US market, to start, and globally moving forward.
•
Continually update site and landing pages to ensure that site is SEO friendly and
performing at optimal levels. Suggest and/or implement content and design
changes to address any potential issues.
•
Implement manual search engine and directory submission techniques to 300+
sites in this category to drive buying consumers to our sites.
•
Provide dedicated resources to focus on keyword / content rich information for
industry forums, review sites, and other industry-related outlets.
•
Utilize aggressive social marketing and link building efforts to boost site
relevance
•
Heavily market to industry review sites, watchdog agencies, forums, and other
related outlets to spread the message that Penny Auction Solutions websites are
reputable, ethical, and the “go-to” site for this industry.
•
Use baseline and ongoing ranking reports, as well as industry benchmarking data,
to measure competitor and marketplace changes and adjust to meet those
demands.
•
Provide comprehensive reporting and conversion data for natural/organic
keywords, bi-weekly for the first 90 days, and monthly thereafter as a tool in
measuring overall SEO campaign effectiveness.
26
9.0 Organizational Plan
9.1 Corporate Organization
The Company will be basically organized as follows:
Board of Directors
Senior Management
Marketing and Sales
Web Management
Back Office
Enterprise Platform
MLM Network
Pricing
Direct Advertising
Web Hosting
Accounting
Online Marketing
Technology
Management
Development
9.2 Organizational Budget
Personnel Plan – Yearly
Year
1
2
3
4
5
Senior Management
$200,000
$206,000
$212,180
$218,545
$225,102
Marketing Staff
$100,000
$206,000
$318,270
$382,454
$450,204
Distribution Staff
$135,000
$278,100
$381,924
$540,900
$658,423
Accountant
$60,000
$61,800
$63,654
$98,345
$101,296
Total
$495,000
$751,900
$976,028
$1,240,245
$1,435,024
Year
1
2
3
4
5
Senior Management
2
2
2
2
2
Marketing Staff
2
4
6
7
8
Distribution Staff
3
6
8
11
13
Accountant
2
2
2
3
3
Totals
9
14
18
23
26
Numbers of Personnel
27
9.2 Organizational Budget (Cont.)
Personnel Expense Breakdown
12%
41%
Senior Management
Marketing Staff
Distribution Staff
27%
Accountant
20%
9.3 Organizational Roles and Positions
The planned operations staffing for our first year of operations is outlined below by
function and roles within those functions. During the startup phase (first nine months) of
the operations office, we will be able to keep our personnel cost to a minimum because
most positions are part-time or more than one role can be covered by one resource.
Department
Operations
Roles
VP of Operations*
Admin Assistant
Weekly Hours
40 Hours
8 Hours
Sales & Marketing
VP Sales & Marketing*
Marketing Assistant
40 Hours
20 Hours
Office IT Support
IT Support Specialist
General IT Support
8 Hours
Outsourced – Flat Rate
Accounting Department
Accounting Clerk
Accounting Services
8 Hours
Outsourced
Inventory Management
Inventory Specialist I
20 Hours
Customer Service
Customer Service Manager
Customer Support Firm
20 Hours
Outsourced for 24/7 support – US &
Spanish
Merchandise Fulfillment
Merchandise Specialist I
12 Hours
IT / Web Hosting
Web Program Manager
Web Specialist I
Hosting Fees / Support
20 Hours
20 Hours
Outsourced
28
The following chart summarizes the roles and responsibilities of each resource for the
initial launch period of nine months. It is very realistic to utilize one resource among
several job functions in the beginning and then migrate as needed to adding additional
resources as roles dictate a more full time position.
Role
VP of
Operations
Admin
Assistant
VP Sales &
Marketing
Marketing
Assistant
IT Support
Specialist
General IT
Support
Accounting
Specialist
Accounting
Services
Inventory
Specialist I
Merchandise
Specialist I
Customer
Service
Manager
Customer
Support Firm
Responsibility
Full time. Manages the day to day operations and serve in a support role / and backup role
to other operations personnel as needed.
Part-time general office admin support for the entire office (filing, manage the mail, pay
bills, general housekeeping, answer the phone, set appointments, and support other ops
resources)
Full time. Responsible for managing the entire marketing efforts to continually promote
auction sites and drive appropriate traffic to capture new members. Charged with
managing outsourced marketing firms, campaigns, marketing plans, marketing budgets,
and managing marketing admin.
Part time. Supports the VP of Sales and Marketing with administrative functions and assist
with the implantation of marketing plans and budget.
Part-time, onsite support for local IT operations for minor issues and system monitoring /
manages the outsourced IT function along with VP of Ops
Represents the outsourced IT function to manage our servers, network, printers, and other
related IT equipment and software.
Part-time resource for collecting and monitoring daily / weekly operations and preparing
documents for accountant. Also monitors bank accounts, billing, and invoicing activities.
Responsible for overseeing and working with the assigned Accounting Services.
Represents the outsourced accountant for PAS for bookkeeping services and tax
preparation
Part time resource to monitor the daily auctions and manage the product and service
inventory to ensure we are selecting the ideal mix of inventory for our auctions. Performs
analysis on our sites and reports findings and suggestions to management. Keeps tabs on
competitors, Penny Auction Watch and other forums. Performs continual research on the
Penny Auction marketplace to keep abreast of trends and auction concepts.
Responsible for overseeing member orders and shipment of merchandise won through
bidding or otherwise purchased on our websites. Keeps track of all shipments to and from
customer and tracks the status through the shipping systems / companies. Charged with
continually finding cost effective shipping methods regarding the movement of
merchandise.
Full time resource that manages the daily needs of our entire customer/member base.
Manages the outsources customer service reps and is charged with resolving customer
issues related to products, shipping, returns, complaints, and customer suggestions. Also
manages the shipment of products and services to our members who have won auctioned or
otherwise purchased.
Outsourced customer service to manage all initial customer service calls (according to
language) and is responsible for providing immediate customer support when possible or
defers to customer service manager for resolution and response by appropriate customer
service representative.
29
10.0 Financial Plan
10.1 Underlying Assumptions
The Company has based its proforma financial statements on the following:
•
•
•
Penny Auction Solutions, Inc. will have an annual growth rate of 72.5% per year
during the first five years of operation.
Management shall settle all short term payables at the end of each month.
The Company will acquire $3,000,000 of investment funds to launch the
operations of the business.
10.2 Financial Highlights
•
•
•
Positive cash flow and profitability starting in the first year of operation.
A moderately liquid business that can be easily sold to a third party for a
significant earnings multiple.
The ability to continually service the Company’s financial obligations despite the
current economic climate.
10.3 Sensitivity Analysis
Penny Auction Solutions’ revenues are moderately sensitive to changes in the economy.
In the event of an economic recession, people may begin to scale back their purchases of
consumer goods on a penny auction basis. However, the business generates extremely
high gross margins from the sales of bids and products through its websites. Additionally,
through the licensing of the Company’s Enterprise level system to third party
entrepreneurs, the business will be able to remain profitable and cash flow positive at all
times.
10.4 Source of Funds
Financing
Equity Financiers
Investor(s)
$3,000,000.00
Total Equity Financing
$3,000,000.00
Banks and Lenders
Total Debt Financing
$0.00
Total Financing
$3,000,000.00
30
10.5 Financial Proformas
A) Profit and Loss Statement
Proforma Profit and Loss (Yearly)
Year
1
2
3
4
5
Sales
$6,415,500
$14,434,875
$25,261,031
$37,891,547
$53,048,166
Cost of Goods Sold
$3,757,650
$8,454,713
$14,795,747
$22,193,620
$31,071,068
Gross Margin
41.43%
41.43%
41.43%
41.43%
41.43%
Operating Income
$2,657,850
$5,980,163
$10,465,284
$15,697,927
$21,977,097
Payroll
$495,000
$751,900
$976,028
$1,240,245
$1,435,024
General and Administrative
$256,620
$577,395
$1,010,441
$1,515,662
$2,121,927
Marketing and Licensure Fees
$705,705
$1,587,836
$2,778,713
$4,168,070
$5,835,298
Professional Fees
$25,000
$35,000
$49,000
$68,600
$96,040
Insurance Costs
$30,000
$42,000
$58,800
$82,320
$115,248
Expenses
Distribution Costs
$513,240
$1,154,790
$2,020,883
$3,031,324
$4,243,853
Technology Expenses
$157,372
$354,087
$619,653
$929,480
$1,301,272
Miscellaneous Costs
$48,758
$109,705
$191,984
$287,976
$403,166
Payroll Taxes
$69,300
$105,266
$136,644
$173,634
$200,903
Total Operating Costs
$2,300,995
$4,717,980
$7,842,146
$11,497,311
$15,752,731
EBITA
$356,855
$1,262,183
$2,623,138
$4,200,616
$6,224,366
Federal Income Tax
$117,762
$416,520
$865,636
$1,386,203
$2,054,041
State Income Tax
$17,843
$63,109
$131,157
$210,031
$311,218
Interest Expense
$0
$0
$0
$0
$0
Net Profit
$221,250
$782,553
$1,626,346
$2,604,382
$3,859,107
Profit Margin
3.45%
5.42%
6.44%
6.87%
7.27%
Sales, Operating Costs, and Profit Forecast
$60,000,000
$50,000,000
$40,000,000
$30,000,000
Sales
Total Operating Costs
$20,000,000
Net Profit
$10,000,000
$0
1
2
3
4
5
Year
31
B) Common Size Income Statement
Proforma Profit and Loss (Common Size)
Year
1
2
3
4
5
Sales
100.00%
100.00%
100.00%
100.00%
100.00%
Cost of Goods Sold
58.57%
58.57%
58.57%
58.57%
58.57%
Operating Income
41.43%
41.43%
41.43%
41.43%
41.43%
Payroll
7.72%
5.21%
3.86%
3.27%
2.71%
General and Administrative
4.00%
4.00%
4.00%
4.00%
4.00%
Marketing and Licensure Fees
11.00%
11.00%
11.00%
11.00%
11.00%
Expenses
Professional Fees
0.39%
0.24%
0.19%
0.18%
0.18%
Insurance Costs
0.47%
0.29%
0.23%
0.22%
0.22%
Distribution Costs
8.00%
8.00%
8.00%
8.00%
8.00%
Technology Expenses
2.45%
2.45%
2.45%
2.45%
2.45%
Miscellaneous Costs
0.76%
0.76%
0.76%
0.76%
0.76%
Payroll Taxes
1.08%
0.73%
0.54%
0.46%
0.38%
Total Operating Costs
35.87%
32.68%
31.04%
30.34%
29.70%
EBITA
5.56%
8.74%
10.38%
11.09%
11.73%
Federal Income Tax
1.84%
2.89%
3.43%
3.66%
3.87%
State Income Tax
0.28%
0.44%
0.52%
0.55%
0.59%
Interest Expense
0.00%
0.00%
0.00%
0.00%
0.00%
Net Profit
3.45%
5.42%
6.44%
6.87%
7.27%
C) Cash Flow Analysis
Proforma Cash Flow Analysis - Yearly
Year
1
2
3
4
5
Cash From Operations
$221,250
$782,553
$1,626,346
$2,604,382
$3,859,107
Cash From Receivables
$0
$0
$0
$0
$0
Operating Cash Inflow
$221,250
$782,553
$1,626,346
$2,604,382
$3,859,107
Equity Investment
$3,000,000
$0
$0
$0
$0
Increased Borrowings
$0
$0
$0
$0
$0
Sales of Business Assets
$0
$0
$0
$0
$0
A/P Increases
$80,000
$92,000
$105,800
$121,670
$139,921
Total Other Cash Inflows
$3,080,000
$92,000
$105,800
$121,670
$139,921
Other Cash Inflows
32
Total Cash Inflow
$3,301,250
$874,553
$1,732,146
$2,726,052
$3,999,028
$0
$0
$0
$0
$0
Cash Outflows
Repayment of Principal
A/P Decreases
$60,000
$72,000
$86,400
$103,680
$124,416
A/R Increases
$0
$0
$0
$0
$0
Asset Purchases
$1,900,000
$626,043
$1,301,077
$2,083,505
$3,087,286
Dividends
$0
$0
$0
$0
$0
Total Cash Outflows
$1,960,000
$698,043
$1,387,477
$2,187,185
$3,211,702
Net Cash Flow
$1,341,250
$176,511
$344,669
$538,866
$787,326
Cash Balance
$1,341,250
$1,517,761
$1,862,430
$2,401,296
$3,188,622
Proforma Cash Flow (Yearly)
$4,000,000
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$0
Total Cash Inflow
Total Cash Outflows
Net Cash Flow
1
2
3
4
5
Year
D) Balance Sheet
Proforma Balance Sheet - Yearly
Year
1
2
3
4
5
Cash
$1,341,250
$1,517,761
$1,862,430
$2,401,296
$3,188,622
Amortized Development Costs
$1,600,000
$1,756,511
$2,081,780
$2,602,656
$3,374,478
Inventory
$100,000
$506,928
$1,352,628
$2,706,906
$4,713,642
Assets
Technology Assets and FF&E
$200,000
$231,302
$296,356
$400,531
$554,896
Accumulated Depreciation
($19,000)
($38,000)
($57,000)
($76,000)
($95,000)
Total Assets
$3,222,250
$3,974,501
$5,536,193
$8,035,390
$11,736,637
Liabilities and Equity
Accounts Payable
$20,000
$40,000
$59,400
$77,390
$92,894
Long Term Liabilities
$0
$0
$0
$0
$0
Other Liabilities
$0
$0
$0
$0
$0
33
Total Liabilities
$20,000
$40,000
$59,400
$77,390
$92,894
Net Worth
$3,202,250
$3,934,501
$5,476,793
$7,958,000
$11,643,743
Total Liabilities and Equity
$3,222,250
$3,974,501
$5,536,193
$8,035,390
$11,736,637
Proforma Balance Sheet
$12,000,000
$10,000,000
$8,000,000
$6,000,000
Total Assets
Total Liabilities
$4,000,000
Net Worth
$2,000,000
$0
1
2
3
4
5
Year
10.6 Breakeven Analysis
Monthly Break Even Analysis
Year
1
2
3
4
5
Monthly Revenue
$462,844
$949,019
$1,577,443
$2,312,677
$3,168,653
Yearly Revenue
$5,554,126
$11,388,227
$18,929,318
$27,752,129
$38,023,833
34
Break Even Analysis
$40,000,000
$30,000,000
$20,000,000
Monthly Revenue
$10,000,000
Yearly Revenue
$0
1
2
3
4
5
Year
10.7 Business Ratios
Business Ratios - Yearly
Year
1
2
3
4
5
Sales Growth
0.0%
125.0%
75.0%
50.0%
40.0%
Gross Margin
41.4%
41.4%
41.4%
41.4%
41.4%
Profit Margin
3.45%
5.42%
6.44%
6.87%
7.27%
Assets to Liabilities
161.11
99.36
93.20
103.83
126.34
Equity to Liabilities
160.11
98.36
92.20
102.83
125.34
Assets to Equity
1.01
1.01
1.01
1.01
1.01
Acid Test
67.06
37.94
31.35
31.03
34.33
Cash to Assets
0.42
0.38
0.34
0.30
0.27
Sales
Financials
Liquidity
10.8 General Assumptions
General Assumptions
Year
1
2
3
4
5
Federal Tax Rate
33.0%
33.0%
33.0%
33.0%
33.0%
State Tax Rate
5.0%
5.0%
5.0%
5.0%
5.0%
Personnel Taxes
14.0%
14.0%
14.0%
14.0%
14.0%
35
11.0 Penny Auction Solutions Operations Overview
The primary business operation for Penny Auction Solutions currently operates out of
offices in San Diego, California. This is the planned location for the entire operations
teams as well as the managing partners, Corey Park and Michael Holt.
The Company has secured some operating equipment already including an office server
and a phone system. Part of the working capital and the FF&E will be used to complete
the office setup as well as any equipment upgrades necessary to support at least our first
full year of operations.
The operations that will be managed out of San Diego include the following:
•
•
•
•
•
•
•
•
General IT support for office server(s), related equipment, and software
applications
General admin support for the Penny Auction websites IT department
Accounting Management
Inventory Management
Customer Service Management
Sale & Marketing Support Services
Merchandise Fulfillment Services
Executive Office Services
The hosting and direct support of the Penny Auction Websites is administered by the IT
Department which is housed in separate facilities. The Company has included the
information technology and web hosting budget numbers in this document for the
purposes of presenting a total operation overview associated with the PAS offices.
36
SWOT Analysis
Strengths
•
•
•
•
•
•
•
•
•
Strong capitalization of up to $25 Million in funding (post pubic).
Strong demand among aware consumers for Penny Auction style web sites.
Planned acquisition of highly visible domain names that will quickly become
search engine optimized upon the launch of the business.
A highly experienced and proven management team.
Contracted with several Penny Auction consultants with successful track records.
Low development costs.
Low operating costs.
Very high gross margins from the company’s operations.
Distinctive strategic marketing plan poised to catapult Penny Auction Solutions
into the market’s leadership position within 90 - 180 days of launch.
Weaknesses
•
•
•
•
•
Entering the market over two years after number one competitor.
Other companies are already operating in some of our initial target markets.
Although Penny Auctions are still newsworthy, it has lost some initial impact.
Relatively low level of potential audience / market awareness of the market niche,
“Penny Auctions”.
Low retention rate of current customers, but improving statistics.
Opportunities
•
•
•
•
•
Potential acquisition of web sites that operate in a Penny Auction style capacity.
Ability to vastly expand the US and international markets and capture the lion’s
share of the penny auction consumers via trade association branding (see
marketing plan) and aggressive promotion and marketing.
Ability to be the first to achieve deep penetration in many of the untapped
countries around the globe and become the prominent brand in those markets.
Ability to attract additional capital to further fuel the growth of the business and
our technology platform.
Potential to sell other unique items on Penny Auction Solutions sites to
differentiate its product line from that of the industry competitors.
37
Threats
•
•
Multiple competitors with increasing market penetration in the U.S.
Insufficient capitalization will lead to the inability to effectively penetrate each of
the key markets / countries identified for entry by Penny Auction Solutions.
• Penny Auction industry could be subjected to regulations such as the Casino
industry.
Critical Risks and Problems
Development Risk – Moderate
The technology used to develop the Company’s penny auction websites (among its many
different name and enterprise platforms) operations is already in common use among a
number of websites. The primary development risk faced by the business is
Management’s ability to properly secure the capital sought in this business plan coupled
with the Company’s ability to quickly launch the Penny Auction Solutions family of
websites coupled with the Company’s multilevel marketing program.
Financing Risk – Low/Moderate
At this time, the Company is seeking $3,000,000 for the finalized development of Penny
Auction Solutions operations. Although a significant portion of this capital will be used
for sunk development costs, the risks associated with this investment are ameliorated by
the high margin incomes derived from penny auctions as well as from the Company’s
multilevel marketing programs/licensing programs.
Marketing Risk –Moderate
Management will use a number of marketing and promotional strategies to drive traffic to
the Company’s family of websites. As outlined in the eighth section of the business plan,
Penny Auction Solutions intends to use a number of broad based marketing strategies on
a national and international basis in order to drive traffic to its websites and mobile
applications. However, these strategies are expensive and they may not yield the financial
results anticipated in this business plan.
Management Risk – Low
The business’s Founders, as discussed in the fifth section of the business plan, are
experienced, educated, and knowledgeable regarding all aspects of the Company’s
website development, financial management, and marketing strategies.
Valuation Risk – Moderate
The risk that the investors pay too much for the venture is offset by:
•
•
•
Investor disbursed funds will be in moderately liquid business venture.
A low overhead Internet business operation that provides a steady positive cash
flow and income that will be self-sustaining.
The ability to divest the business in six to twelve months time.
38
Exit Risk - Moderate
There is a great demand for established technology businesses that generate very high
margins from sales and licensing income. In the event that Management wishes to divest
Penny Auction Solutions, Inc., the Company will hire a qualified investment bank to
manage the transaction.
Reference Sources
All statistics and market information was obtained through:
1. U.S. Government Bureau of Labor Statistics
2. U.S. Economic Census
Online Content Distributors – NAICS Code - 422920
Advertising Agencies Report – NAICS Code – 541810
Marketing Services Report – NAICS Code – 541613
3. Stanford University – Consumer and Producer Behavior in the Market for Penny
Auctions: A Theoretical and Empirical Analysis
4. Northwestern University (Dept. of Economics) – Penny Auctions Abstract
39
Expanded Profit and Loss Statements
Profit and Loss Statement (First Year)
Months
1
2
3
4
5
6
7
Sales
$525,000
$526,750
$528,500
$530,250
$532,000
$533,750
$535,500
Cost of Goods Sold
$307,500
$308,525
$309,550
$310,575
$311,600
$312,625
$313,650
Gross Margin
41.4%
41.4%
41.4%
41.4%
41.4%
41.4%
41.4%
Operating Income
$217,500
$218,225
$218,950
$219,675
$220,400
$221,125
$221,850
Payroll
$41,250
$41,250
$41,250
$41,250
$41,250
$41,250
$41,250
General and Administrative
$21,385
$21,385
$21,385
$21,385
$21,385
$21,385
$21,385
Expenses
Marketing and Licensure Fees
$58,809
$58,809
$58,809
$58,809
$58,809
$58,809
$58,809
Professional Fees
$2,083
$2,083
$2,083
$2,083
$2,083
$2,083
$2,083
Insurance Costs
$2,500
$2,500
$2,500
$2,500
$2,500
$2,500
$2,500
$42,770
Distribution Costs
$42,770
$42,770
$42,770
$42,770
$42,770
$42,770
Technology Expenses
$13,114
$13,114
$13,114
$13,114
$13,114
$13,114
$13,114
Miscellaneous Costs
$4,063
$4,063
$4,063
$4,063
$4,063
$4,063
$4,063
Payroll Taxes
$5,775
$5,775
$5,775
$5,775
$5,775
$5,775
$5,775
Total Operating Costs
$191,750
$191,750
$191,750
$191,750
$191,750
$191,750
$191,750
EBITA
$25,750
$26,475
$27,200
$27,925
$28,650
$29,375
$30,100
Federal Income Tax
$9,637
$9,669
$9,701
$9,733
$9,765
$9,797
$9,830
State Income Tax
$1,460
$1,465
$1,470
$1,475
$1,480
$1,484
$1,489
Interest Expense
$0
$0
$0
$0
$0
$0
$0
Net Profit
$14,653
$15,341
$16,029
$16,717
$17,405
$18,094
$18,782
Profit and Loss Statement (First Year Cont.)
Month
8
9
10
11
12
1
Sales
$537,250
$539,000
$540,750
$542,500
$544,250
$6,415,500
Cost of Goods Sold
$314,675
$315,700
$316,725
$317,750
$318,775
$3,757,650
Gross Margin
41.4%
41.4%
41.4%
41.4%
41.4%
41.4%
Operating Income
$222,575
$223,300
$224,025
$224,750
$225,475
$2,657,850
Expenses
40
Payroll
$41,250
$41,250
$41,250
$41,250
$41,250
$495,000
General and Administrative
$21,385
$21,385
$21,385
$21,385
$21,385
$256,620
Marketing and Licensure Fees
$58,809
$58,809
$58,809
$58,809
$58,809
$705,705
Professional Fees
$2,083
$2,083
$2,083
$2,083
$2,083
$25,000
Insurance Costs
$2,500
$2,500
$2,500
$2,500
$2,500
$30,000
Distribution Costs
$42,770
$42,770
$42,770
$42,770
$42,770
$513,240
Technology Expenses
$13,114
$13,114
$13,114
$13,114
$13,114
$157,372
Miscellaneous Costs
$4,063
$4,063
$4,063
$4,063
$4,063
$48,758
Payroll Taxes
$5,775
$5,775
$5,775
$5,775
$5,775
$69,300
Total Operating Costs
$191,750
$191,750
$191,750
$191,750
$191,750
$2,300,995
EBITA
$30,825
$31,550
$32,275
$33,000
$33,725
$356,855
Federal Income Tax
$9,862
$9,894
$9,926
$9,958
$9,990
$117,762
State Income Tax
$1,494
$1,499
$1,504
$1,509
$1,514
$17,843
Interest Expense
$0
$0
$0
$0
$0
$0
Net Profit
$19,470
$20,158
$20,846
$21,534
$22,222
$221,250
Profit and Loss Statement (Second Year)
2
Quarter
Q1
Q2
Q3
Q4
2
Sales
$2,886,975
$3,608,719
$3,897,416
$4,041,765
$14,434,875
Cost of Goods Sold
$1,690,943
$2,113,678
$2,282,772
$2,367,320
$8,454,713
Gross Margin
41.4%
41.4%
41.4%
41.4%
41.4%
Operating Income
$1,196,033
$1,495,041
$1,614,644
$1,674,446
$5,980,163
Payroll
$150,380
$187,975
$203,013
$210,532
$751,900
General and Administrative
$115,479
$144,349
$155,897
$161,671
$577,395
Marketing and Licensure Fees
$317,567
$396,959
$428,716
$444,594
$1,587,836
Expenses
Professional Fees
$7,000
$8,750
$9,450
$9,800
$35,000
Insurance Costs
$8,400
$10,500
$11,340
$11,760
$42,000
Distribution Costs
$230,958
$288,698
$311,793
$323,341
$1,154,790
Technology Expenses
$70,817
$88,522
$95,604
$99,144
$354,087
Miscellaneous Costs
$21,941
$27,426
$29,620
$30,717
$109,705
Payroll Taxes
$21,053
$26,317
$28,422
$29,474
$105,266
Total Operating Costs
$943,596
$1,179,495
$1,273,855
$1,321,034
$4,717,980
EBITA
$252,437
$315,546
$340,789
$353,411
$1,262,183
Federal Income Tax
$83,304
$104,130
$112,460
$116,626
$416,520
State Income Tax
$12,622
$15,777
$17,039
$17,671
$63,109
Interest Expense
$0
$0
$0
$0
$0
Net Profit
$156,511
$195,638
$211,289
$219,115
$782,553
41
Profit and Loss Statement (Third Year)
3
Quarter
Q1
Q2
Q3
Q4
3
Sales
$5,052,206
$6,315,258
$6,820,478
$7,073,089
$25,261,031
Cost of Goods Sold
$2,959,149
$3,698,937
$3,994,852
$4,142,809
$14,795,747
Gross Margin
41.4%
41.4%
41.4%
41.4%
41.4%
Operating Income
$2,093,057
$2,616,321
$2,825,627
$2,930,280
$10,465,284
$195,206
$244,007
$263,528
$273,288
$976,028
Expenses
Payroll
General and Administrative
$202,088
$252,610
$272,819
$282,924
$1,010,441
Marketing and Licensure Fees
$555,743
$694,678
$750,253
$778,040
$2,778,713
Professional Fees
$9,800
$12,250
$13,230
$13,720
$49,000
Insurance Costs
$11,760
$14,700
$15,876
$16,464
$58,800
Distribution Costs
$404,177
$505,221
$545,638
$565,847
$2,020,883
Technology Expenses
$123,931
$154,913
$167,306
$173,503
$619,653
Miscellaneous Costs
$38,397
$47,996
$51,836
$53,755
$191,984
Payroll Taxes
$27,329
$34,161
$36,894
$38,260
$136,644
Total Operating Costs
$1,568,429
$1,960,537
$2,117,379
$2,195,801
$7,842,146
EBITA
$524,628
$655,785
$708,247
$734,479
$2,623,138
Federal Income Tax
$173,127
$216,409
$233,722
$242,378
$865,636
State Income Tax
$26,231
$32,789
$35,412
$36,724
$131,157
Interest Expense
$0
$0
$0
$0
$0
Net Profit
$325,269
$406,586
$439,113
$455,377
$1,626,346
Profit and Loss Statement (Fourth Year)
4
Quarter
Q1
Q2
Q3
Q4
4
Sales
$7,578,309
$9,472,887
$10,230,718
$10,609,633
$37,891,547
Cost of Goods Sold
$4,438,724
$5,548,405
$5,992,277
$6,214,214
$22,193,620
Gross Margin
41.4%
41.4%
41.4%
41.4%
41.4%
Operating Income
$3,139,585
$3,924,482
$4,238,440
$4,395,419
$15,697,927
$248,049
$310,061
$334,866
$347,269
$1,240,245
Expenses
Payroll
42
General and Administrative
$303,132
$378,915
$409,229
$424,385
$1,515,662
Marketing and Licensure Fees
$833,614
$1,042,018
$1,125,379
$1,167,060
$4,168,070
Professional Fees
$13,720
$17,150
$18,522
$19,208
$68,600
Insurance Costs
$16,464
$20,580
$22,226
$23,050
$82,320
Distribution Costs
$606,265
$757,831
$818,457
$848,771
$3,031,324
Technology Expenses
$185,896
$232,370
$250,960
$260,254
$929,480
Miscellaneous Costs
$57,595
$71,994
$77,753
$80,633
$287,976
Payroll Taxes
$34,727
$43,409
$46,881
$48,618
$173,634
Total Operating Costs
$2,299,462
$2,874,328
$3,104,274
$3,219,247
$11,497,311
EBITA
$840,123
$1,050,154
$1,134,166
$1,176,172
$4,200,616
Federal Income Tax
$277,241
$346,551
$374,275
$388,137
$1,386,203
State Income Tax
$42,006
$52,508
$56,708
$58,809
$210,031
Interest Expense
$0
$0
$0
$0
$0
Net Profit
$520,876
$651,095
$703,183
$729,227
$2,604,382
Profit and Loss Statement (Fifth Year)
5
Quarter
Q1
Q2
Q3
Q4
5
Sales
$10,609,633
$13,262,041
$14,323,005
$14,853,486
$53,048,166
Cost of Goods Sold
$6,214,214
$7,767,767
$8,389,188
$8,699,899
$31,071,068
Gross Margin
41.4%
41.4%
41.4%
41.4%
41.4%
Operating Income
$4,395,419
$5,494,274
$5,933,816
$6,153,587
$21,977,097
Payroll
$287,005
$358,756
$387,456
$401,807
$1,435,024
General and Administrative
$424,385
$530,482
$572,920
$594,139
$2,121,927
Marketing and Licensure Fees
$1,167,060
$1,458,825
$1,575,531
$1,633,884
$5,835,298
Expenses
Professional Fees
$19,208
$24,010
$25,931
$26,891
$96,040
Insurance Costs
$23,050
$28,812
$31,117
$32,269
$115,248
Distribution Costs
$848,771
$1,060,963
$1,145,840
$1,188,279
$4,243,853
Technology Expenses
$260,254
$325,318
$351,343
$364,356
$1,301,272
Miscellaneous Costs
$80,633
$100,792
$108,855
$112,886
$403,166
Payroll Taxes
$40,181
$50,226
$54,244
$56,253
$200,903
Total Operating Costs
$3,150,546
$3,938,183
$4,253,237
$4,410,765
$15,752,731
EBITA
$1,244,873
$1,556,092
$1,680,579
$1,742,823
$6,224,366
Federal Income Tax
$410,808
$513,510
$554,591
$575,131
$2,054,041
State Income Tax
$62,244
$77,805
$84,029
$87,141
$311,218
Interest Expense
$0
$0
$0
$0
$0
Net Profit
$771,821
$964,777
$1,041,959
$1,080,550
$3,859,107
Expanded Cash Flow Analysis
43
Cash Flow Analysis (First Year)
Month
1
2
3
4
5
6
7
8
Cash From Operations
$14,653
$15,341
$16,029
$16,717
$17,405
$18,094
$18,782
$19,470
Cash From Receivables
$0
$0
$0
$0
$0
$0
$0
$0
Operating Cash Inflow
$14,653
$15,341
$16,029
$16,717
$17,405
$18,094
$18,782
$19,470
Equity Investment
$3,000,000
$0
$0
$0
$0
$0
$0
$0
Increased Borrowings
$0
$0
$0
$0
$0
$0
$0
$0
Sales of Business Assets
$0
$0
$0
$0
$0
$0
$0
$0
A/P Increases
$6,667
$6,667
$6,667
$6,667
$6,667
$6,667
$6,667
$6,667
Total Other Cash Inflows
$3,006,667
$6,667
$6,667
$6,667
$6,667
$6,667
$6,667
$6,667
Total Cash Inflow
$3,021,320
$22,008
$22,696
$23,384
$24,072
$24,760
$25,448
$26,136
$0
$0
$0
$0
$0
$0
$0
$0
Other Cash Inflows
Cash Outflows
Repayment of Principal
A/P Decreases
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
A/R Increases
$0
$0
$0
$0
$0
$0
$0
$0
Asset Purchases
$1,900,000
$0
$0
$0
$0
$0
$0
$0
Dividends
$0
$0
$0
$0
$0
$0
$0
$0
Total Cash Outflows
$1,905,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
Net Cash Flow
$1,116,320
$17,008
$17,696
$18,384
$19,072
$19,760
$20,448
$21,136
Cash Balance
$1,116,320
$1,133,328
$1,151,024
$1,169,409
$1,188,481
$1,208,241
$1,228,689
$1,249,825
Cash Flow Analysis (First Year Cont.)
Month
9
10
11
12
Cash From Operations
$20,158
$20,846
$21,534
$22,222
1
$221,250
Cash From Receivables
$0
$0
$0
$0
$0
Operating Cash Inflow
$20,158
$20,846
$21,534
$22,222
$221,250
Equity Investment
$0
$0
$0
$0
$3,000,000
Increased Borrowings
$0
$0
$0
$0
$0
Sales of Business Assets
$0
$0
$0
$0
$0
A/P Increases
$6,667
$6,667
$6,667
$6,667
$80,000
Total Other Cash Inflows
$6,667
$6,667
$6,667
$6,667
$3,080,000
Total Cash Inflow
$26,824
$27,512
$28,200
$28,888
$3,301,250
Repayment of Principal
$0
$0
$0
$0
$0
A/P Decreases
$5,000
$5,000
$5,000
$5,000
$60,000
Other Cash Inflows
Cash Outflows
44
A/R Increases
$0
$0
$0
$0
$0
Asset Purchases
$0
$0
$0
$0
$1,900,000
Dividends
$0
$0
$0
$0
$0
Total Cash Outflows
$5,000
$5,000
$5,000
$5,000
$1,960,000
Net Cash Flow
$21,824
$22,512
$23,200
$23,888
$1,341,250
Cash Balance
$1,271,649
$1,294,162
$1,317,362
$1,341,250
$1,341,250
Q3
Q4
2
Cash Flow Analysis (Second Year)
2
Quarter
Q1
Q2
Cash From Operations
$156,511
$195,638
$211,289
$219,115
$782,553
Cash From Receivables
$0
$0
$0
$0
$0
Operating Cash Inflow
$156,511
$195,638
$211,289
$219,115
$782,553
Equity Investment
$0
$0
$0
$0
$0
Increased Borrowings
$0
$0
$0
$0
$0
Sales of Business Assets
$0
$0
$0
$0
$0
A/P Increases
$18,400
$23,000
$24,840
$25,760
$92,000
Total Other Cash Inflows
$18,400
$23,000
$24,840
$25,760
$92,000
Total Cash Inflow
$174,911
$218,638
$236,129
$244,875
$874,553
Repayment of Principal
$0
$0
$0
$0
$0
A/P Decreases
$14,400
$18,000
$19,440
$20,160
$72,000
A/R Increases
$0
$0
$0
$0
$0
Asset Purchases
$125,209
$156,511
$169,032
$175,292
$626,043
Dividends
$0
$0
$0
$0
$0
Total Cash Outflows
$139,609
$174,511
$188,472
$195,452
$698,043
Net Cash Flow
$35,302
$44,128
$47,658
$49,423
$176,511
Cash Balance
$1,376,552
$1,420,680
$1,468,338
$1,517,761
$1,517,761
Other Cash Inflows
Cash Outflows
45
Cash Flow Analysis (Third Year)
3
Quarter
Q1
Q2
Q3
Q4
3
Cash From Operations
$325,269
$406,586
$439,113
$455,377
$1,626,346
Cash From Receivables
$0
$0
$0
$0
$0
Operating Cash Inflow
$325,269
$406,586
$439,113
$455,377
$1,626,346
Equity Investment
$0
$0
$0
$0
$0
Increased Borrowings
$0
$0
$0
$0
$0
Sales of Business Assets
$0
$0
$0
$0
$0
Other Cash Inflows
A/P Increases
$21,160
$26,450
$28,566
$29,624
$105,800
Total Other Cash Inflows
$21,160
$26,450
$28,566
$29,624
$105,800
Total Cash Inflow
$346,429
$433,036
$467,679
$485,001
$1,732,146
Repayment of Principal
$0
$0
$0
$0
$0
A/P Decreases
$17,280
$21,600
$23,328
$24,192
$86,400
A/R Increases
$0
$0
$0
$0
$0
Asset Purchases
$260,215
$325,269
$351,291
$364,301
$1,301,077
Dividends
$0
$0
$0
$0
$0
Total Cash Outflows
$277,495
$346,869
$374,619
$388,493
$1,387,477
Net Cash Flow
$68,934
$86,167
$93,061
$96,507
$344,669
Cash Balance
$1,586,695
$1,672,862
$1,765,923
$1,862,430
$1,862,430
Cash Outflows
Cash Flow Analysis (Fourth Year)
4
Quarter
Q1
Q2
Q3
Q4
4
Cash From Operations
$520,876
$651,095
$703,183
$729,227
$2,604,382
Cash From Receivables
$0
$0
$0
$0
$0
Operating Cash Inflow
$520,876
$651,095
$703,183
$729,227
$2,604,382
Equity Investment
$0
$0
$0
$0
$0
Increased Borrowings
$0
$0
$0
$0
$0
Sales of Business Assets
$0
$0
$0
$0
$0
Other Cash Inflows
A/P Increases
$24,334
$30,418
$32,851
$34,068
$121,670
Total Other Cash Inflows
$24,334
$30,418
$32,851
$34,068
$121,670
Total Cash Inflow
$545,210
$681,513
$736,034
$763,295
$2,726,052
46
Cash Outflows
Repayment of Principal
$0
$0
$0
$0
A/P Decreases
$20,736
$25,920
$27,994
$29,030
$0
$103,680
A/R Increases
$0
$0
$0
$0
$0
Asset Purchases
$416,701
$520,876
$562,546
$583,382
$2,083,505
Dividends
$0
$0
$0
$0
$0
Total Cash Outflows
$437,437
$546,796
$590,540
$612,412
$2,187,185
Net Cash Flow
$107,773
$134,717
$145,494
$150,883
$538,866
Cash Balance
$1,970,203
$2,104,920
$2,250,414
$2,401,296
$2,401,296
Q3
Q4
5
Cash Flow Analysis (Fifth Year)
5
Quarter
Q1
Q2
Cash From Operations
$771,821
$964,777
$1,041,959
$1,080,550
$3,859,107
Cash From Receivables
$0
$0
$0
$0
$0
Operating Cash Inflow
$771,821
$964,777
$1,041,959
$1,080,550
$3,859,107
Equity Investment
$0
$0
$0
$0
$0
Increased Borrowings
$0
$0
$0
$0
$0
Sales of Business Assets
$0
$0
$0
$0
$0
A/P Increases
$27,984
$34,980
$37,779
$39,178
$139,921
Total Other Cash Inflows
$27,984
$34,980
$37,779
$39,178
$139,921
Total Cash Inflow
$799,806
$999,757
$1,079,737
$1,119,728
$3,999,028
$0
$0
$0
$0
$0
Other Cash Inflows
Cash Outflows
Repayment of Principal
A/P Decreases
$24,883
$31,104
$33,592
$34,836
$124,416
A/R Increases
$0
$0
$0
$0
$0
Asset Purchases
$617,457
$771,821
$833,567
$864,440
$3,087,286
Dividends
$0
$0
$0
$0
$0
Total Cash Outflows
$642,340
$802,925
$867,159
$899,276
$3,211,702
Net Cash Flow
$157,465
$196,831
$212,578
$220,451
$787,326
Cash Balance
$2,558,761
$2,755,593
$2,968,171
$3,188,622
$3,188,622
47