Internet Service Provider Business Plan

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This sample business plan has been made available to users of Business Plan Pro®, business planning software published by Palo Alto Software, Inc. Names, locations and numbers may have been changed, and substantial portions of the original plan text may have been omitted to preserve confidentiality and proprietary information. You are welcome to use this plan as a starting point to create your own, but you do not have permission to resell, reproduce, publish, distribute or even copy this plan as it exists here. Requests for reprints, academic use, and other dissemination of this sample plan should be emailed to the marketing department of Palo Alto Software at [email protected]. For product information visit our Website: www.paloalto.com or call: 1-800-229-7526.

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This is a business plan. It does not imply an offering of securities.

Table of Contents

1.0 Executive Summary....................................................................................................................................1 Chart: Highlights.......................................................................................................................................1 1.1 Mission....................................................................................................................................................1 2.0 Company Summary.....................................................................................................................................2 2.1 Company History....................................................................................................................................2 Table: Past Performance...........................................................................................................................3 Chart: Past Performance...........................................................................................................................4 3.0 Services.......................................................................................................................................................4 3.1 Future Services........................................................................................................................................5 4.0 Market Analysis Summary.........................................................................................................................5 Table: Market Analysis.............................................................................................................................6 Chart: Market Analysis (Pie)....................................................................................................................6 4.1 Market Segmentation..............................................................................................................................6 4.2 Market Trends.........................................................................................................................................7 4.3 Market Growth........................................................................................................................................7 4.4 Competition and Buying Patterns...........................................................................................................9 5.0 Strategy and Implementation Summary.....................................................................................................9 Chart: Sales Monthly..............................................................................................................................10 Table: Sales Forecast..............................................................................................................................10 Chart: Sales by Year...............................................................................................................................11 5.1 Value Proposition..................................................................................................................................11 5.2 Competitive Edge..................................................................................................................................11 5.3 Marketing Strategy................................................................................................................................11 5.3.1 Distribution Strategy......................................................................................................................12 5.3.2 Marketing Programs......................................................................................................................12 5.4 Strategic Alliances................................................................................................................................12 6.0 Management Summary.............................................................................................................................12 Table: Personnel......................................................................................................................................13 7.0 Financial Plan............................................................................................................................................13 7.1 Important Assumptions.........................................................................................................................13 Table: General Assumptions...................................................................................................................13 .....................................................................................................................................................................13 7.2 Break-even Analysis.............................................................................................................................14 Chart: Break-even Analysis....................................................................................................................14 Table: Break-even Analysis....................................................................................................................14 .....................................................................................................................................................................14 7.3 Projected Profit and Loss......................................................................................................................15 Chart: Gross Margin Monthly................................................................................................................15 Chart: Gross Margin Yearly...................................................................................................................15 Table: Profit and Loss.............................................................................................................................16 Chart: Profit Monthly..............................................................................................................................17 Chart: Profit Yearly.................................................................................................................................17 7.4 Projected Cash Flow.............................................................................................................................18 Chart: Cash..............................................................................................................................................18 Page 1

Table of Contents

Table: Cash Flow....................................................................................................................................19 .....................................................................................................................................................................19 7.5 Projected Balance Sheet........................................................................................................................20 Table: Balance Sheet...............................................................................................................................20 .....................................................................................................................................................................20 7.6 Business Ratios.....................................................................................................................................21 Table: Ratios...........................................................................................................................................21 Table: Sales Forecast.........................................................................................................................................1 ...........................................................................................................................................................................1 Table: Personnel................................................................................................................................................2 ...........................................................................................................................................................................2 Table: General Assumptions.............................................................................................................................3 ...........................................................................................................................................................................3 Table: Profit and Loss.......................................................................................................................................4 ...........................................................................................................................................................................5 Table: Cash Flow..............................................................................................................................................6 Table: Balance Sheet.........................................................................................................................................7

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Web Services Provider

1.0 Executive Summary Web Services Provider's key markets for DSL are small and medium businesses, nationwide. Web Services Provider's key markets for Web hosting and resale accounts are Web design firms, individuals, and small businesses with a need for space on a server. Web Services Provider's key markets for dedicated servers are small to large companies where security and speed are necessary. Web Services Provider's key market(s) for co-location include medium and small businesses such as online trading, e-tailers, online information sites, and entertainment Web companies. Computer telephony integration (CTI) is the convergence of the telephone and computing industries. Currently, the CTI market totals $4 billion and is growing at 30% a year, with many segments growing at a rate of over 100% a year. The Washington-based MultiMedia Telecommunications Association estimates that the CTI market will grow by nearly 70% in the next year, and triple by the year 2000.

Chart: Highlights

Highlights $8,000,000 $7,000,000 $6,000,000 $5,000,000

Sales

$4,000,000

Gross Margin Net Profit

$3,000,000 $2,000,000 $1,000,000 $0 2000

2001

2002

1.1 Mission The mission of Web Services Provider is to provide quality Internet services, Web hosting, and DSL service to both large and small clients.

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Web Services Provider

2.0 Company Summary Legal Business Description Web Services Provider was founded in September 1993 in Richmond, Virginia as an Internet Service Provider. The company is a Virginia Corporation with principal offices located in Richmond. 2.1 Company History Web Services Provider began as a Web hosting company. The company developed a highlyskilled engineering team dedicated to developing a system to offer clients the greatest degree of reliability and bandwidth at a more affordable price. Web Services Provider, with its in-depth knowledge of Web hosting systems, is now evolving into a large, specialized, Web hosting service provider.

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Table: Past Performance

Past Performance 1997

1998

1999

$0 $0 0.00% $0 0

$0 $0 0.00% $0 0

$900,000 $700,000 77.78% $700,000 3

1997

1998

1999

$0 $0 $0 $0

$0 $0 $0 $0

$2,450 $14,200 $1,050 $17,700

Long-term Assets Accumulated Depreciation Total Long-term Assets

$0 $0 $0

$0 $0 $0

$5,250 $1,000 $4,250

Total Assets

$0

$0

$21,950

Accounts Payable Current Borrowing Other Current Liabilities (interest free) Total Current Liabilities

$0 $0 $0 $0

$0 $0 $0 $0

$10,000 $500 $10,900 $21,400

Long-term Liabilities Total Liabilities

$0 $0

$0 $0

$3,550 $24,950

Paid-in Capital Retained Earnings Earnings Total Capital

$0 $0 $0 $0

$0 $0 $0 $0

$100,000 ($103,000) $0 ($3,000)

Total Capital and Liabilities

$0

$0

$21,950

0 $0 0.00

0 $0 0.00

30 $900,000 63.38

Sales Gross Margin Gross Margin % Operating Expenses Collection Period (days) Balance Sheet

Current Assets Cash Accounts Receivable Other Current Assets Total Current Assets Long-term Assets

Current Liabilities

Other Inputs Payment Days Sales on Credit Receivables Turnover

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Web Services Provider

Chart: Past Performance

Past Performance $900,000 $800,000 $700,000 $600,000

Sales

$500,000

Gross

$400,000

Net

$300,000 $200,000 $100,000 $0 1997

1998

1999

3.0 Services Main services provided by Web Services Provider are outlined below.

1. DSL. A Digital Subscriber Line (DSL) is high-speed Internet access that is an "on all the time" connection and ranges in speed from 144k to 6Gb transfer rate.

2. Hosting. Web hosting clients generally have the company place a single, or several, website on a server in our facility and pay for the amount of disk space that they need to operate their site.

3. Dedicated Server. Clients seeking to maximize the speed of their site due to high traffic or download will lease a dedicated server from Web Services Provider, leaving the maximum capability of the server all to their own site.

4. Co-location. Co-location customers provide the hardware themselves and administer their site or sites via the Internet. When hosting and dedicated server clients are secured, orders will be processed immediately and the customer can be up and running within a few minutes. Dedicated server clients can be online within 1-2 hours unless a special server must be built.

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Web Services Provider

3.1 Future Services Having already established the relationships and infrastructure, Web Services Provider will continue to search for emerging and existing technologies to improve and expand lines of business. As advances in technology continue, Web Services Provider will upgrade to meet specific objectives of present and future clientele. Web Services Provider plans to respond to market needs by keeping abreast of all new technologies and updates to be first to market using its already established lines of business as a market vehicle. Web Services Provider will move quickly on plans for next generation products/services. 4.0 Market Analysis Summary Web Services Provider's key markets for DSL are small and medium businesses, nationwide. Web Services Provider's key markets for Web hosting and resale accounts are Web design firms, individuals, and small businesses with a need for space on a server. Web Services Provider's key markets for dedicated servers are small to large companies where security and speed are necessary. Web Services Provider's key markets for co-location include medium and small businesses such as online trading, e-tailers, online information sites, and entertainment companies. Within these markets, Web Services Provider focuses on the more lucrative dedicated server and co-location clientele because they create less overhead and more profit than equal revenue generating, smaller clients. Additionally, these markets require less service-intensive efforts and create more profit. Its' margins are 40%-80% on larger and medium size clients. Computer telephony integration (CTI) is the convergence of the telephone and computing industries. Currently, the CTI market totals $4 billion and is growing at 30% a year, with many segments growing at a rate of over 100% a year. The Washington-based MultiMedia Telecommunications Association estimates that the CTI market will grow by nearly 70% in the next year, and triple by the year 2000. Consumers improve their shopping experiences In a relatively short period of time, the Internet has provided the savvy consumer with a number of benefits, particularly convenience and information. Obviously, consumers who shop online face a much different experience than they would in "real-world" retail. First and foremost, a shopper need not leave the comfort of home or office in order to make a purchase. The convenience of online shopping has proven to be a big attraction for many consumers, particularly for goods that are not needed immediately, like books, CDs, or apparel. The information that is currently available online is another boon to consumers. It is relatively easy to conduct research on various products over the Internet, giving consumers all the information they need to help make an informed decision regarding a major purchase. Consumers can thoroughly research big-ticket items like cars, electronics, or computers for desired features, product performance, or price. The cost of a product has become simple to research through many search engines. A consumer need only specify a product, type it in the appropriate place on a comparison-oriented website, and then examine the resulting list of prices, which contains links to the selling websites. While consumers do not always purchase

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the lowest-priced item, the nature of the Internet makes comparison shopping so easy that prices in many categories of goods will undoubtedly decline over time. Table: Market Analysis

Market Analysis Potential Customers

Growth

Online E-trading Entertainment Global Corporations Corporations Total

15% 10% 15% 10% 12.74%

2000

2001

2002

2003

2004

200,000 160,000 95,000 100,000 555,000

230,000 176,000 109,250 110,000 625,250

264,500 193,600 125,638 121,000 704,738

304,175 212,960 144,484 133,100 794,719

349,801 234,256 166,157 146,410 896,624

CAGR 15.00% 10.00% 15.00% 10.00% 12.74%

Chart: Market Analysis (Pie)

Market Analysis (Pie)

Online E-trading Entertainment Global Corporations Corporations

4.1 Market Segmentation Web Services Provider is aiming to establish itself in markets that it believes will define the future of Web hosting. The company is pursuing dedicated server and co-location accounts, online trading companies, and e-entertainment companies because they need bandwidth, 24hour access for their customers, faster connections, and other services for their clients which the company able to provide. The company's target customers are as follows. • • • •

Online E-trading. Entertainment. Global Corporations. Corporations.

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Web Services Provider

The Internet As of year-end 1998, almost 160 million users accessed the Internet regularly, up from approximately 101 million at the end of 1997, according to IDC, an industry analysis and research company. Clearly, the Internet is in an exceptional growth phase. This growth has pushed the capacity of existing networking infrastructure to its limits, resulting in frustration by Internet users. Still, consumers have found the Internet to be a useful tool in the research and purchase of goods and services. Corporations have found that, while the Internet is challenging traditional business models, it also offers significant advantages to companies that fully embrace the medium. 4.2 Market Trends Exceptional growth By any measure, the Internet is one of the fastest-growing commercial phenomena ever witnessed by society. Host computers, or servers, have exploded from 3.2 million in 1994 to roughly 56.2 million as of July 1999. During the same time period, the number of websites roared to more than 5 million from only 3,000. A key factor in the recent growth of the Internet is the popularity of the sub-$1,000 PC. Rapidly falling component prices have allowed PC manufacturers to pass cost savings on to their customers, resulting in a more attractively priced product. Computers sold at or below the $1,000 level have appealed to first-time PC users and lower income families. Because of the more affordable prices, PC penetration in the United States is now approximately 50%, according to Dataquest, a market research firm based in San Jose, California. As a result of the Internet's historical roots in the U.S. Department of Defense, as well as the rising penetration of PCs, the United States accounts for more than half of the world's total Internet users. The European market, by contrast, has been held back by the high cost of Internet access. Consumers are typically billed twice in these markets, once by the ISP and once by the phone company. However, the forces of telecommunications deregulation in Europe finally appear to be having an effect, as several phone companies have recently eliminated access fees and now bill only on a per-minute basis. Such moves should eventually increase the penetration of the Internet in Europe. In the United States, less than one-third of the population is connected, leaving plenty of room for growth. In 1996, people asked colleagues and friends if they had an electronic mail address. In 1997, people were asked what their electronic mail address was. When consumers today are asked why they purchased a personal computer, the most common answer is to connect to the Internet to get their email. 4.3 Market Growth Bandwidth bottlenecks frustrate consumers... Today's telecommunications network infrastructure was not designed for the booming traffic created by Internet use. Ordinary telephone lines are optimized for short conversations, whereas Internet users typically stay online for ours at a time. Growing corporate use of the Internet to communicate with suppliers and customers has put additional strains on the system.

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Web Services Provider

Adding to the capacity problem are the use of multimedia attachments to email, more complex multimedia websites, larger files being downloaded by users, and other bandwidth-hungry applications. Although the predicted global meltdown of the Internet has not come to pass, delays in navigating the Web and in receiving email continue to plague the industry and frustrate users. ...But solutions are on the way The vast majority of Internet users use dial-up modems to access the Internet through their ISPs. As a result of the capacity constraints inherent in using analog modem technology over copper wires, 56 kilobits per second is the maximum capacity available today for most residential customers. New technologies, such as cable modems and digital subscriber line (DSL) systems, promise a quantum leap in bandwidth: up to 30 megabytes per second (Mbps) and 12 Mbps, respectively. Both technologies also offer an added advantage in that they are always "on": a consumer need not physically dial into an ISP to access the Internet. •

Cable modems. The nascent market for cable modems is beginning to exhibit strong growth. The number of cable Internet service subscribers numbered more than 1 million as of July 1999, up from 500,000 in 1998.

•

The current leaders in this burgeoning market are Excite@Home and RoadRunner, North America's No. 1 and No. 2 cable modem services, respectively. RoadRunner is provided by ServiceCo LLC-a joint venture, led by time Warner Inc. that includes MediaOne Group, Inc., Microsoft Corporation, Compaq Corporation, and Advance/Newhouse Partnership, a private firm.

•

Digital subscriber lines. These systems allow telephone companies to offer faster service over copper wires by reducing signal distortion. The number of DSL subscribers was approximately 20,000 in 1998.

•

The fastest form of DSL is asymmetric digital subscriber line, or ADSL, includes Ameritech Corporation, SBC Communications Inc., Bell Atlantic Corporation, U S. WEST Inc., Sprint Corporation, MCI World Com Inc., and GTE Corporation.

In contrast to cable modems, which have been deployed in select regions for a few years, consumer-oriented DSL service is only now being rolled out more aggressively. Cable companies have also resolved their standardization issues and have come further in preparing their networks for broadband than have the telcos. While the number of DSL subscribers should exhibit strong growth in 1999, it appears that cable modems will still command the bulk of the broadband market. One reason is that cable modems have an inherent speed advantage. The consumer friendly version of ADSL, known as G.Lite, offers speeds of up to 1.5 Mbps, compared with top speeds of 30 Mbps for cable modems. Limitations Aside from bandwidth constraints, another more serious problem has recently been brought to light, which threatens to forestall the previously explosive growth of the Internet. According to a study conducted by the Department of Commerce, significant disparities continue to exist

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Web Services Provider

between certain demographic groups and regions with regard to Internet access. For example, those households with incomes of $75,000 or higher are more than twenty times as likely to have Internet access than those at the lowest income level. The presence of such disparities would seem to limit the potential growth of the Internet, and would likely impact many of the market forecasts discussed in the "Industry Profile" section of this report. However, both government and businesses are aware of the problem and are currently taking steps to close this so-called "digital divide." The U.S. government plans to use community centers to increase access to the Internet for all Americans. Meanwhile, many businesses also plan to help educate and train individuals who may otherwise be at a disadvantage in today's increasingly technological workplace. Far-reaching benefits Although the Internet is still evolving as a medium for communications and commerce, it has already had a substantial impact on both consumers and businesses. For consumers, the advent of online shopping has brought greater convenience, while businesses have enjoyed productivity gains. 4.4 Competition and Buying Patterns Competitive threats come from the more established hosting companies with large amounts of operating capital. Their weaknesses are, however, even with strong brand awareness, they cannot afford to move their facilities. This ties them to their current locations, which lack adequate bandwidth, speed, and reliability due to their connections through local telco connectivity. DSL. Web Services Provider's competitors include other XDSL resellers. Hosting. Web Services Provider's competitors include online Web hosting companies. Dedicated Server. Web Services Provider's competitors include companies providing single site Web servers for increased speed and reliability. Co-location. Web Services Provider's competitors include Web hosting companies offering customer or vendor provided large server or servers housed in their facilities and usually managed over the Internet by the customer. 5.0 Strategy and Implementation Summary Marketing Web Services Provider markets its products as solutions to high traffic and bandwidth-intensive Web companies whose online reliability and speed are critical to daily business. Target companies include online stock trading companies, e-tailers, and corporations with graphics and/or streaming video. Sales are made through Web Services Providers' national advertising campaign. The sales process involves several steps which include:

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Web Services Provider

1. The first contact when the perspective customers first impression is made while viewing one the magazines in which we advertise. 2. At this point, the customer will call our sales line or go to our website. 3. The customer can then call the sales line where a trained representative will answer questions and proceed with initiating service and billing. This approach will be used because each customer's concerns and needs will be met immediately to capture the customer at this point of contact. The average sales cycle from first contact to closing the sale is between one and seven days.

Chart: Sales Monthly

Sales Monthly $120,000 $100,000 $80,000

All Services Other

$60,000 $40,000 $20,000 $0 Jan

Mar Feb

May Apr

Jul Jun

Sep Aug

Nov Oct

Dec

Table: Sales Forecast

Sales Forecast 2000

2001

2002

$1,500,000 $0 $1,500,000

$4,500,000 $0 $4,500,000

$7,500,000 $0 $7,500,000

2000 $100,000 $0 $100,000

2001 $150,000 $0 $150,000

2002 $200,000 $0 $200,000

Sales All Services Other Total Sales Direct Cost of Sales All Services Other Subtotal Direct Cost of Sales

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Web Services Provider

Chart: Sales by Year

Sales by Year $8,000,000 $7,000,000 $6,000,000 $5,000,000

All Services

$4,000,000

Other

$3,000,000 $2,000,000 $1,000,000 $0 2000

2001

2002

5.1 Value Proposition Web Services Provider's products and services offer the following advantages to customers. • • • •

Bandwidth. Reliability. Service. Flexibility.

5.2 Competitive Edge Strategic alliance with VISP - VISP is opening up two new facilities in the next three months, one in Atlanta and the other in Seattle. Web Services Provider will have access space on both sites, and with special load-balancing software, will enable the company to guarantee 100% uptime for any dedicated server and co-location client where uptime is critical to their business. AB 299 Internet Connection--more beneficial than tier system; a tier 1 connection means that you are actually directly connected to the Internet. Downtime-Dynamic load balancing--a large part of the problem and downtime with an Internet connection for hosting companies is due to local phone company. Price--due to the tier 1 connection, Web Services Provider does not have to pay local phone companies connection fees and, as such, its' prices are lower than those of competitors. 5.3 Marketing Strategy The Web Services Provider strategy is to advertise key competitive advantages in an effective advertising campaign. The company plans to develop a larger clientele and maintain a price

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Web Services Provider

advantage through rapid growth. The company's goal in the next year is to grow its core customer base quickly and efficiently while focusing on the most profitable sector of the market. The company's goal in the 2-5 years is to grow through acquisitions of smaller companies and separate itself from the competition by price and services. 5.3.1 Distribution Strategy Web Services Provider uses a direct sales force, relationship selling, and sales/support lines to reach its markets. These channels are most appropriate because each customer has special demands and needs to be treated differently. After the initial contact, by magazine, referral, or email, the customer is assessed and assigned a sales rep and tech support person to help them and to familiarize themselves with each individual company's needs and history. 5.3.2 Marketing Programs The key message associated with the company's products and services is better reliability, speed, and bandwidth for the same price. The company's promotional plan is diverse and includes a range of marketing communications:

1. Public relations. Press releases are issued to both technical trade journals and major business publications such as Wall Street Journal, Business Week, and others.

2. Trade shows. Company representatives attend and participate in several trade shows such as Apex and Comdex.

3. Industry conferences and seminars, research publishing, and print media. Web Services Provider presents its key advantages at conferences and publishes articles about its work in publications such as e-business Advisor, Wired, Microsoft Internet Developer, Web Techniques, Business 2.0, and PC Computing. Local and national public relations will be handled by Creative Garage II's marketing firm.

4. Print advertising and article publishing. The company's print advertising program includes advertisements in technical trade publications such as E-business Journal, Wired, Web Techniques, Microsoft Internet Developer, Business 2.0, PC Computing, direct mail pieces, brochures, and other print media.

5. Internet. The company currently has plans to redevelop its current website because that is a primary marketing channel.

5.4 Strategic Alliances The company has strategic alliances with VISP. This alliance is valuable because it provides a direct connection to an AB-299 Internet connection with unlimited bandwidth. This relationship is explored more in the Competitive Advantages section. 6.0 Management Summary The company's management philosophy is based on responsibility and mutual respect. Web Services Provider has an environment and structure that encourages productivity and respect for customers and fellow employees.

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Officers and Key Employees Web Services Provider's management is highly experienced and qualified. Key members of the management team, their backgrounds, and responsibilities are as follows. Michael Smith, President and CEO. James Boyd, Vice President. Note: Backgrounds have been removed for confidentiality. Table: Personnel

Personnel Plan 2000

2001

2002

Marketing and Sales Technical Services Accounting Administrative and HR Total People

$150,000 $150,000 $60,000 $120,000 15

$198,000 $198,000 $99,000 $132,000 18

$254,000 $254,000 $136,000 $194,000 22

Total Payroll

$480,000

$627,000

$838,000

7.0 Financial Plan Funding Requirements and Uses The company is raising significant new investment for the purpose of growth and operations. This funding will cover operating expenses and product development during this period. 7.1 Important Assumptions The company operates as a Virginia Corporation. The following financial projection is based on sales volume at the levels described in the revenue section and presents, to the best of management's knowledge and belief, the company's expected assets, liabilities, capital, revenues, and expenses. The projections reflect management's judgement of the expected conditions and its expected course of action given the hypothetical assumptions. The table below provides significant assumptions that drive the company's financial projections. Table: General Assumptions

General Assumptions Plan Month Current Interest Rate Long-term Interest Rate Tax Rate Other

2000

2001

2002

1 10.00% 10.00% 25.42% 0

2 10.00% 10.00% 25.00% 0

3 10.00% 10.00% 25.42% 0

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7.2 Break-even Analysis The following chart and table provide the Break-even Assumptions for Web Services Provider.

Chart: Break-even Analysis

Break-even Analysis $100,000 $80,000 $60,000 $40,000 $20,000 $0 ($20,000) ($40,000) ($60,000) ($80,000) $0

$40,000 $80,000 $120,000 $160,000 $200,000 $20,000 $60,000 $100,000 $140,000 $180,000 $220,000

Table: Break-even Analysis

Break-even Analysis Monthly Revenue Break-even

$106,438

Assumptions: Average Percent Variable Cost Estimated Monthly Fixed Cost

7% $99,342

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7.3 Projected Profit and Loss Web Services Provider is in the early stage of development, thus initial projections have only been made on accounts that are believed to most drive the income statement. Chart: Gross Margin Monthly

Gross Margin Monthly $120,000

$100,000

$80,000

$60,000

$40,000

$20,000

$0 Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Chart: Gross Margin Yearly

Gross Margin Yearly

$7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 2000

2001

2002

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Table: Profit and Loss

Pro Forma Profit and Loss 2000

2001

2002

Sales Direct Cost of Sales Other Total Cost of Sales

$1,500,000 $100,000 $50,000 $150,000

$4,500,000 $150,000 $50,000 $200,000

$7,500,000 $200,000 $50,000 $250,000

Gross Margin Gross Margin %

$1,350,000 90.00%

$4,300,000 95.56%

$7,250,000 96.67%

$480,000 $249,500 $4,200 $12,000 $2,000 $6,000 $40,000 $14,400 $12,000 $300,000 $72,000 $0

$627,000 $453,000 $4,500 $18,000 $2,000 $7,000 $45,000 $20,000 $15,000 $300,000 $94,050 $0

$838,000 $675,000 $5,000 $30,000 $2,000 $8,000 $48,000 $20,000 $24,000 $400,000 $125,700 $0

$1,192,100

$1,585,550

$2,175,700

Profit Before Interest and Taxes EBITDA Interest Expense Taxes Incurred

$157,900 $162,100 $0 $39,802

$2,714,450 $2,718,950 $0 $678,613

$5,074,300 $5,079,300 $0 $1,289,718

Net Profit Net Profit/Sales

$118,098 7.87%

$2,035,838 45.24%

$3,784,582 50.46%

Expenses Payroll Sales and Marketing and Other Expenses Depreciation Repairs and Maintenance Bank Charges Insurance Rent Depreciation Software Product Development Payroll Taxes Other Total Operating Expenses

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Web Services Provider

Chart: Profit Monthly

Profit Monthly $12,000

$10,000

$8,000

$6,000

$4,000

$2,000

$0 Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Chart: Profit Yearly

Profit Yearly

$4,000,000 $3,600,000 $3,200,000 $2,800,000 $2,400,000 $2,000,000 $1,600,000 $1,200,000 $800,000 $400,000 $0 2000

2001

2002

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7.4 Projected Cash Flow The chart and table below depict the projected cash flow for the company.

Chart: Cash

Cash $1,000,000 $800,000

$600,000

Net Cash Flow Cash Balance

$400,000

$200,000

Dec

Nov

Oct

Sep

Aug

Jul

Jun

May

Apr

Mar

Feb

Jan

$0

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Web Services Provider

Table: Cash Flow

Pro Forma Cash Flow 2000

2001

2002

$0 $1,268,367 $1,268,367

$0 $4,008,333 $4,008,333

$0 $7,008,333 $7,008,333

$0 $0 $0 $0 $0 $0 $1,250,000 $2,518,367

$0 $0 $0 $0 $0 $0 $0 $4,008,333

$0 $0 $0 $0 $0 $0 $0 $7,008,333

2000

2001

2002

$480,000 $835,682 $1,315,682

$627,000 $1,754,052 $2,381,052

$838,000 $2,786,959 $3,624,959

$0 $500 $10,900 $3,550 $0 $600,000 $0 $1,930,632

$0 $0 $0 $0 $0 $300,000 $0 $2,681,052

$0 $0 $0 $0 $0 $300,000 $0 $3,924,959

$587,734 $590,184

$1,327,281 $1,917,466

$3,083,375 $5,000,840

Cash Received Cash from Operations Cash Sales Cash from Receivables Subtotal Cash from Operations Additional Cash Received Sales Tax, VAT, HST/GST Received New Current Borrowing New Other Liabilities (interest-free) New Long-term Liabilities Sales of Other Current Assets Sales of Long-term Assets New Investment Received Subtotal Cash Received Expenditures Expenditures from Operations Cash Spending Bill Payments Subtotal Spent on Operations Additional Cash Spent Sales Tax, VAT, HST/GST Paid Out Principal Repayment of Current Borrowing Other Liabilities Principal Repayment Long-term Liabilities Principal Repayment Purchase Other Current Assets Purchase Long-term Assets Dividends Subtotal Cash Spent Net Cash Flow Cash Balance

Page 19

Web Services Provider

7.5 Projected Balance Sheet Projected Balance Sheets for 2000 - 2002 can be found in the table below, and in the appendices. Table: Balance Sheet

Pro Forma Balance Sheet 2000

2001

2002

$590,184 $245,833 $1,050 $837,068

$1,917,466 $737,500 $1,050 $2,656,016

$5,000,840 $1,229,167 $1,050 $6,231,057

$605,250 $5,200 $600,050 $1,437,118

$905,250 $9,700 $895,550 $3,551,566

$1,205,250 $14,700 $1,190,550 $7,421,607

2000

2001

2002

Accounts Payable Current Borrowing Other Current Liabilities Subtotal Current Liabilities

$72,019 $0 $0 $72,019

$150,630 $0 $0 $150,630

$236,089 $0 $0 $236,089

Long-term Liabilities Total Liabilities

$0 $72,019

$0 $150,630

$0 $236,089

Paid-in Capital Retained Earnings Earnings Total Capital Total Liabilities and Capital

$1,350,000 ($103,000) $118,098 $1,365,098 $1,437,118

$1,350,000 $15,098 $2,035,838 $3,400,936 $3,551,566

$1,350,000 $2,050,936 $3,784,582 $7,185,518 $7,421,607

Net Worth

$1,365,098

$3,400,936

$7,185,518

Assets Current Assets Cash Accounts Receivable Other Current Assets Total Current Assets Long-term Assets Long-term Assets Accumulated Depreciation Total Long-term Assets Total Assets Liabilities and Capital Current Liabilities

Page 20

Web Services Provider

7.6 Business Ratios The following table outlines some of the more important ratios from the information retrieval industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the Standard Industry Classification (SIC) code, 7375. Table: Ratios Ratio Analysis 2000

2001

2002

Industry Profile

66.67%

200.00%

66.67%

9.70%

Accounts Receivable Other Current Assets Total Current Assets Long-term Assets Total Assets

17.11% 0.07% 58.25% 41.75% 100.00%

20.77% 0.03% 74.78% 25.22% 100.00%

16.56% 0.01% 83.96% 16.04% 100.00%

25.00% 46.30% 76.60% 23.40% 100.00%

Current Liabilities Long-term Liabilities Total Liabilities Net Worth

5.01% 0.00% 5.01% 94.99%

4.24% 0.00% 4.24% 95.76%

3.18% 0.00% 3.18% 96.82%

49.40% 21.20% 70.60% 29.40%

100.00% 90.00% 82.10% 14.13% 10.53%

100.00% 95.56% 50.31% 8.89% 60.32%

100.00% 96.67% 45.92% 8.00% 67.66%

100.00% 0.00% 78.10% 0.90% 1.90%

11.62 11.62 5.01% 11.57% 10.99%

17.63 17.63 4.24% 79.81% 76.43%

26.39 26.39 3.18% 70.62% 68.37%

1.57 1.19 70.60% 4.10% 13.80%

Sales Growth Percent of Total Assets

Percent of Sales Sales Gross Margin Selling, General & Administrative Expenses Advertising Expenses Profit Before Interest and Taxes Main Ratios Current Quick Total Debt to Total Assets Pre-tax Return on Net Worth Pre-tax Return on Assets Additional Ratios

2000

2001

2002

Net Profit Margin Return on Equity

7.87% 8.65%

45.24% 59.86%

50.46% 52.67%

n.a n.a

6.10 58 12.46 27 1.04

6.10 40 12.17 22 1.27

6.10 48 12.17 25 1.01

n.a n.a n.a n.a n.a

0.05 1.00

0.04 1.00

0.03 1.00

n.a n.a

$765,048 0.00

$2,505,386 0.00

$5,994,968 0.00

n.a n.a

0.96 5% 8.21 1.10

0.79 4% 12.74 1.32

0.99 3% 21.19 1.04

n.a n.a n.a n.a

Activity Ratios Accounts Receivable Turnover Collection Days Accounts Payable Turnover Payment Days Total Asset Turnover Debt Ratios Debt to Net Worth Current Liab. to Liab. Liquidity Ratios Net Working Capital Interest Coverage Additional Ratios Assets to Sales Current Debt/Total Assets Acid Test Sales/Net Worth

Page 21

Web Services Provider

Dividend Payout

0.00

0.00

0.00

n.a

Page 22

Appendix Table: Sales Forecast

Sales Forecast Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Sales All Services Other Total Sales Direct Cost of Sales All Services Other Subtotal Direct Cost of Sales

0% 0%

$125,000 $0 $125,000 Jan $8,333

$125,000 $0 $125,000 Feb $8,333

$125,000 $0 $125,000 Mar $8,333

$125,000 $0 $125,000 Apr $8,333

$125,000 $0 $125,000 May $8,333

$125,000 $0 $125,000 Jun $8,333

$125,000 $0 $125,000 Jul $8,333

$125,000 $0 $125,000 Aug $8,333

$125,000 $0 $125,000 Sep $8,333

$125,000 $0 $125,000 Oct $8,333

$125,000 $0 $125,000 Nov $8,333

$125,000 $0 $125,000 Dec $8,337

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,337

Page 1

Appendix Table: Personnel

Personnel Plan Marketing and Sales Technical Services Accounting Administrative and HR Total People Total Payroll

0% 0% 0% 0%

Jan

Feb

Apr

May

Jun

Jul

Aug

Oct

Nov

Dec

$12,500 $12,500 $5,000 $10,000 15

$12,500 $12,500 $5,000 $10,000 15

$12,500 $12,500 $5,000 $10,000 15

Mar

$12,500 $12,500 $5,000 $10,000 15

$12,500 $12,500 $5,000 $10,000 15

$12,500 $12,500 $5,000 $10,000 15

$12,500 $12,500 $5,000 $10,000 15

$12,500 $12,500 $5,000 $10,000 15

$12,500 $12,500 $5,000 $10,000 15

Sep

$12,500 $12,500 $5,000 $10,000 15

$12,500 $12,500 $5,000 $10,000 15

$12,500 $12,500 $5,000 $10,000 15

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

Page 2

Appendix Table: General Assumptions

General Assumptions Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

1

2

3

4

5

6

7

8

9

10

11

12

Current Interest Rate

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

Long-term Interest Rate Tax Rate

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

10.00%

30.00%

25.00%

25.00%

25.00%

25.00%

25.00%

25.00%

25.00%

25.00%

25.00%

25.00%

25.00%

0

0

0

0

0

0

0

0

0

0

0

0

Plan Month

Other

Dec

Page 3

Appendix Table: Profit and Loss

Pro Forma Profit and Loss Jan Sales

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

Direct Cost of Sales

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,337

Other

$4,167

$4,167

$4,167

$4,167

$4,167

$4,167

$4,167

$4,167

$4,167

$4,167

$4,167

$4,167

$12,500

$12,500

$12,500

$12,500

$12,500

$12,500

$12,500

$12,500

$12,500

$12,500

$12,500

$12,504

$112,500

$112,500

$112,500

$112,500

$112,500

$112,500

$112,500

$112,500

$112,500

$112,500

$112,500

$112,496

90.00%

90.00%

90.00%

90.00%

90.00%

90.00%

90.00%

90.00%

90.00%

90.00%

90.00%

90.00%

Payroll

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

Sales and Marketing and Other Expenses Depreciation

$29,500

$20,000

$20,000

$20,000

$20,000

$20,000

$20,000

$20,000

$20,000

$20,000

$20,000

$20,000

Total Cost of Sales Gross Margin Gross Margin %

Expenses

$350

$350

$350

$350

$350

$350

$350

$350

$350

$350

$350

$350

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

Bank Charges

$167

$167

$167

$167

$167

$167

$167

$167

$167

$167

$167

$167

Insurance

$500

$500

$500

$500

$500

$500

$500

$500

$500

$500

$500

$500

Rent

$1,250

$2,500

$2,500

$3,750

$3,750

$3,750

$3,750

$3,750

$3,750

$3,750

$3,750

$3,750

Depreciation

$1,200

$1,200

$1,200

$1,200

$1,200

$1,200

$1,200

$1,200

$1,200

$1,200

$1,200

$1,200

Software

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$25,000

$25,000

$25,000

$25,000

$25,000

$25,000

$25,000

$25,000

$25,000

$25,000

$25,000

$25,000

$6,000 $0

$6,000 $0

$6,000 $0

$6,000 $0

$6,000 $0

$6,000 $0

$6,000 $0

$6,000 $0

$6,000 $0

$6,000 $0

$6,000 $0

$6,000 $0

$105,967

$97,717

$97,717

$98,967

$98,967

$98,967

$98,967

$98,967

$98,967

$98,967

$98,967

$98,967

$6,534

$14,784

$14,784

$13,534

$13,534

$13,534

$13,534

$13,534

$13,534

$13,534

$13,534

$13,530

$6,884

$15,134

$15,134

$13,884

$13,884

$13,884

$13,884

$13,884

$13,884

$13,884

$13,884

$13,880

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$1,960

$3,696

$3,696

$3,383

$3,383

$3,383

$3,383

$3,383

$3,383

$3,383

$3,383

$3,382

$4,574

$11,088

$11,088

$10,150

$10,150

$10,150

$10,150

$10,150

$10,150

$10,150

$10,150

$10,147

3.66%

8.87%

8.87%

8.12%

8.12%

8.12%

8.12%

8.12%

8.12%

8.12%

8.12%

8.12%

Repairs and Maintenance

Product Development Payroll Taxes Other Total Operating Expenses Profit Before Interest and Taxes EBITDA Interest Expense Taxes Incurred Net Profit Net Profit/Sales

15%

Page 4

Appendix

Page 5

Appendix Table: Cash Flow

Pro Forma Cash Flow Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Cash Received Cash from Operations Cash Sales

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

Cash from Receivables

$7,100

$11,267

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

Subtotal Cash from Operations

$7,100

$11,267

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$0 $0

$0 $0

$0 $0

$0 $0

$0 $0

$0 $0

$0 $0

$0 $0

$0 $0

$0 $0

$0 $0

$0 $0

New Other Liabilities (interestfree) New Long-term Liabilities

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

Sales of Other Current Assets

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

Sales of Long-term Assets

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$11,267

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

Additional Cash Received Sales Tax, VAT, HST/GST Received New Current Borrowing

New Investment Received Subtotal Cash Received

Expenditures

0.00%

$1,250,00 0 $1,257,10 0 Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Expenditures from Operations Cash Spending

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

Bill Payments

$12,669

$79,859

$73,562

$73,594

$74,500

$74,500

$74,500

$74,500

$74,500

$74,500

$74,500

$40,000 $74,500

Subtotal Spent on Operations

$52,669

$119,859

$113,562

$113,594

$114,500

$114,500

$114,500

$114,500

$114,500

$114,500

$114,500

$114,500

Additional Cash Spent Sales Tax, VAT, HST/GST Paid Out Principal Repayment of Current Borrowing Other Liabilities Principal Repayment Long-term Liabilities Principal Repayment Purchase Other Current Assets Purchase Long-term Assets Dividends Subtotal Cash Spent

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$500

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$10,900

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$3,550

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$150,000

$30,000

$30,000

$150,000

$30,000

$30,000

$30,000

$30,000

$30,000

$30,000

$30,000

$30,000

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$217,619

$149,859

$143,562

$263,594

$144,500

$144,500

$144,500

$144,500

$144,500

$144,500

$144,500

$144,500

Page 6

Appendix Net Cash Flow Cash Balance

$1,039,48 1 $1,041,93 1

($138,593 ) $903,338

Jan

Feb

($18,562) $884,776

($138,594 ) $746,182

($19,500)

($19,500)

($19,500)

($19,500)

($19,500)

($19,500)

($19,500)

($19,500)

$726,683

$707,183

$687,683

$668,183

$648,684

$629,184

$609,684

$590,184

Table: Balance Sheet

Pro Forma Balance Sheet Assets

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Starting Balances

Current Assets Cash Accounts Receivable Other Current Assets Total Current Assets

$2,450 $14,200 $1,050 $17,700

$1,041,93 1 $132,100 $1,050 $1,175,08 1

$903,338

$884,776

$746,182

$726,683

$707,183

$687,683

$668,183

$648,684

$629,184

$609,684

$590,184

$245,833 $1,050 $1,150,22 1

$245,833 $1,050 $1,131,65 9

$245,833 $1,050 $993,066

$245,833 $1,050 $973,566

$245,833 $1,050 $954,066

$245,833 $1,050 $934,566

$245,833 $1,050 $915,067

$245,833 $1,050 $895,567

$245,833 $1,050 $876,067

$245,833 $1,050 $856,567

$245,833 $1,050 $837,068

$155,250 $1,350 $153,900 $1,328,98 1

$185,250 $1,700 $183,550 $1,333,77 1

$215,250 $2,050 $213,200 $1,344,85 9

$365,250 $2,400 $362,850 $1,355,91 6

$395,250 $2,750 $392,500 $1,366,06 6

$425,250 $3,100 $422,150 $1,376,21 6

$455,250 $3,450 $451,800 $1,386,36 6

$485,250 $3,800 $481,450 $1,396,51 7

$515,250 $4,150 $511,100 $1,406,66 7

$545,250 $4,500 $540,750 $1,416,81 7

$575,250 $4,850 $570,400 $1,426,96 7

$605,250 $5,200 $600,050 $1,437,11 8

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Long-term Assets Long-term Assets Accumulated Depreciation Total Long-term Assets Total Assets

$5,250 $1,000 $4,250 $21,950

Liabilities and Capital Current Liabilities Accounts Payable Current Borrowing Other Current Liabilities Subtotal Current Liabilities

$10,000 $500 $10,900 $21,400

$77,407 $0 $0 $77,407

$71,110 $0 $0 $71,110

$71,110 $0 $0 $71,110

$72,016 $0 $0 $72,016

$72,016 $0 $0 $72,016

$72,016 $0 $0 $72,016

$72,016 $0 $0 $72,016

$72,016 $0 $0 $72,016

$72,016 $0 $0 $72,016

$72,016 $0 $0 $72,016

$72,016 $0 $0 $72,016

$72,019 $0 $0 $72,019

Long-term Liabilities Total Liabilities

$3,550 $24,950

$0 $77,407

$0 $71,110

$0 $71,110

$0 $72,016

$0 $72,016

$0 $72,016

$0 $72,016

$0 $72,016

$0 $72,016

$0 $72,016

$0 $72,016

$0 $72,019

$100,000

$1,350,00 0 ($103,00 0) $4,574 $1,251,57 4 $1,328,98 1

$1,350,00 0 ($103,00 0) $15,661 $1,262,66 1 $1,333,77 1

$1,350,00 0 ($103,00 0) $26,749 $1,273,74 9 $1,344,85 9

$1,350,00 0 ($103,00 0) $36,899 $1,283,89 9 $1,355,91 6

$1,350,00 0 ($103,00 0) $47,050 $1,294,05 0 $1,366,06 6

$1,350,00 0 ($103,00 0) $57,200 $1,304,20 0 $1,376,21 6

$1,350,00 0 ($103,00 0) $67,350 $1,314,35 0 $1,386,36 6

$1,350,00 0 ($103,00 0) $77,500 $1,324,50 0 $1,396,51 7

$1,350,00 0 ($103,00 0) $87,651 $1,334,65 1 $1,406,66 7

$1,350,00 0 ($103,00 0) $97,801 $1,344,80 1 $1,416,81 7

$1,350,00 0 ($103,00 0) $107,951 $1,354,95 1 $1,426,96 7

$1,350,00 0 ($103,00 0) $118,098 $1,365,09 8 $1,437,11 8

Paid-in Capital Retained Earnings

($103,000)

Earnings Total Capital

$0 ($3,000)

Total Liabilities and Capital

$21,950

Page 7

Appendix Net Worth

($3,000)

$1,251,57 4

$1,262,66 1

$1,273,74 9

$1,283,89 9

$1,294,05 0

$1,304,20 0

$1,314,35 0

$1,324,50 0

$1,334,65 1

$1,344,80 1

$1,354,95 1

$1,365,09 8

Page 8