PRICE WATERHOUSE HIGH TECHNOLOGY INDUSTRY SERVICES AN EXAMPLE OF A COMPLETE PLAN BUSINESS PLAN GENERICO, INC. October, 1985 CONTROL COPY NUMBER ______ The Generico, Inc. Business Plan is confidential and contains proprietary information including trade secrets of Generico, Inc. Neither the Plan nor any of the information contained in the Plan may be reproduced or disclosed to any person under any circumstances without express written permission of Generico, Inc. BUSINESS PLAN GENERICO, INC. October, 1985 I. EXECUTIVE SUMMARY The Company Generico, Inc. was formed in August, 1985 to develop, manufacture and market a flexible product line of highly cost effective assembly robots. Generico's initial product, the Automaton 10, will be directed specifically at printed circuit board manufacturers. While a prototype has yet to be built, the design and specifications of the product are substantially complete. The Products Generico's robotic products, whether addressing the electronics industry or other light assembly manufacturing applications, all share a common goal: production flexi- bility and cost reduction for end users. Current and future Generico products encompass proprietary designs which yield substantial benefits over competitive products: o Simplicity -- Manifested in ease of use and maintenance, in addition to lower cost of manufacture; o Performance Capacity -- Six axis movement ranging from 30 inches per second (IPS) at 30 grams or less to 20 IPS at four kilograms maximum capacity (in the Automaton 10); o Precision -- Limitless repeatability to an accuracy of .001 inches; o Flexibility -- Smaller size reduces space requirements and allows either permanent (ceiling or floor) mounting or portable applications; o Price/Performance -- Significant savings to end users through state-of-the-art performance at highly com- petitive price/performance ratios. - 2 - The Market As domestic labor costs continue to increase and the logistics of foreign production become ever more burdensome, the demand for robotic solutions to the problems becomes more and more evident. The robotics market has grown substantially since the seventies, from a base of approxi- mately $20 million in 1978 to 1984 estimates of $320 million; both DATAASK and the Rebel Group predict a 1990 domestic market alone of some $1.7 billion. As foreign labor costs continue their inevitable rise, the global market for robotics is expected to approach $3.5 billion by 1990. Generico believes it can realistically capture 3% of the domestic market, or $54 million by its fifth year of operations (1990). Underlying the phenomenal growth anticipated for the robotics industry is an equal or larger growth in competition among manufacturers of a wide range of products who require a flexible process as products change, but is also repetitive and labor intensive. These manufacturers must find ways to achieve manufacturing flexibility yet contain costs. Generico's products address this issue by incor- porating reprogrammability which reduces the need for additional capital equipment and worker retraining. To the extent the assembly process is labor intensive, as labor costs rise, Generico's products can also reduce the average per hour cost of assembly. Financial -- Generico is seeking $2.5 million in first-round financing. The funding will enable the company to build its product line, implement aggressive sales and marketing plans, and to establish an initial manufacturing facility. The company anticipates that the initial round will be sufficient to carry it to profitability and to allow building assets to the level where outside debt financing will fund further growth. Initial revenues are expected in the second half of 1986; the profit corner is anticipated to be turned in midway through 1987. Revenue and profit summaries for Generico's first five years are: Year 1 Year 2 Year 3 Year 4 Year 5 Revenues (millions) $0.6 $8.2 $18.4 $36.2 $54.0 Net Income (millions) $(1.0) $0.4 $1.2 $3.8 $6.0 Management -- The ultimate success of Generico will be in its management's ability to develop an innovative product line and to cost-effectively deliver the line to a large and receptive market. Generico's founding executives comprise a company core whose whole is truly greater than the sum of its parts: - 3 - Vincent Losciallo, CEO -- Former CEO and founder of MIME, Inc., a multimillion dollar manufacturer of robot welders and painters acquired by Major Motors in 1981. Stephen Daniels, V. P. of Marketing -- Twelve years of industrial marketing experience culminating as a divisional marketing director for a Fortune 500 manufacturer of capital equipment. Harold Ginjeans, V. P. of Engineering -- Former design engineer at MIME, Inc., Ginjeans was a major contributor to the "MIME 1974", the company's largest selling product to date. Priscilla Sproviero, Controller -- Seven years "Big Eight" accounting experience, the last two of which were consulting to start up businesses; Stanford MBA. George Forrester, Director of Manufacturing -- Former director of manufacturing at Acme, Inc. a $100 million producer of audio visual equipment and microwave ovens. Each of the founders has contributed substantially to the company in the form of sweat equity and capital. Management believes strongly that it is addressing a market destined to grow substantially with an extremely well-conceived line of products; it is confident that both market share and revenue projections will, at a minimum, be achieved in the projected time frame. II. THE COMPANY Generico, Inc. was founded in the summer of 1985 to address one of the major problems facing manufacturers of electronic components and systems today: achieving flexible manufacturing while containing costs. As competition within the electronic components, peripheral, and system markets continues to flourish, pricing pressures push margins lower and lower. Ultimately, only those companies manufacturing at the peak of efficiency will survive. Generico has been formed by a core of experienced executives to design a line of products whose sole purpose is to provide manufacturing flexibility while containing manufacturing costs. Generico robotic products will address manufacturing flexibility and costs by: o providing reprogrammability for assembly tasks o increasing manufacturing throughput o enhancing accuracy o reducing supervisory and other indirect labor costs o substantially converting what was previously a variable cost (labor) into a fixed cost (capital equipment), thus increasing profit margins at volume production and allowing process changes to be made without adding newer or additional capital equipment - 4 - During its first two years of operation Generico will focus only on U.S. and Canadian markets; beginning with its third year, the company will pursue foreign markets, concentrating on European users. Potential major customers with whom Generico's marketing and product design personnel have already spoken include MBI, Inc.; Board Technologies; Pear Computers, Inc.; Hillhatch Peripherals; and Fullsiz Computer Corp. (aggregate revenues of the five surpass $15 billion). To a company, response has been extremely positive to the design summaries reviewed. Generico's guiding corporate philosophy will encompass quality, innovative products, unparalleled service, and competitive price. III. THE MARKET Two years ago, assembly robotics manufacturers were seen as some of the most attractive prospects by the investment community. Unfortunately, the market growth projections have not materialized in the earlier anticipated timeframe. Not withstanding the disappointing performance over the short term, Generico management remains convinced that the commodity priced nature of the electronics industry makes achieving manufacturing flexibility while containing costs the key issues in the management of such companies. Coupling that with growing trade protectionism, foreign instability, currency exposure, and other business risks endemic to foreign production leads to the conclusion that robotic assembly of products will become increasingly more important in the future; thus, the growth curve has not flattened, but merely been pushed out on the time axis by two to three years. According to Robots on Parade (ROP), a major trade group, the total domestic market for robotic products grew from $63 million in 1980 to $320 million in 1984, a compounded growth rate of greater than 50%. Using the same figure and extrapo- lating to 1990 results in an annual domestic market of approxi- matly $2 billion. Industry and trade group estimates on growth rates for the industry are for a compounded growth rate of 30%-35% for the period from 1985-1990. Table 1, below, shows actual domestic growth within the industry for the past six years and projected growth to 1990. - 5 - Table 1 U.S. Robotic Market (DATAASK, 1985) Percent Increase Year Units ASP Sales (mm) in Sales 1979 650 $55,000 $ 36 N/A 1980 1,050 60,000 63 75% 1981 1,850 63,000 117 86% 1982 2,075 62,000 129 10% 1983 2,760 63,000 175 36% 1984 5,120 63,000 320 83% 1985 7,000 66,000 465 45% 1986 9,500 61,000 580 25% 1987 13,300 60,000 800 38% 1988 17,600 59,000 1,040 30% 1989 23,000 59,000 1,350 30% 1990 30,000 58,000 1,750 30% Industry Trends -- As competitive pressures from both domestic and international sources continue to rise, managers are being forced to more closely scrutinize the cost components of their products. The problems are particularly acute in the electronics industry where volume production and heated competition have resulted in extremely thin-margined commodity pricing. Industry managers are now compelled to increase produc- tivity, maintain or improve quality, and reduce labor costs or suffer the same consequences that U.S. manufacturers of televisions did in the 1960's and 1970's: slowly wither away as a result of foreign competition. Many industrial experts, including Wanda Fleming of the Industrial Group, Inc. and George Davis of McBan & Co., a major industry consultant, feel that the competitive realities facing U.S. manufacturers of electronic products will result in near-explosive growth in the domestic assembly robotics market during the next decade. The reasons for the expected growth are that robotics address the competition head on by allowing manufacturers to: o increase productivity while maintaining or improving quality; o tie in with long-term strategies to out-perform foreign competitors; o cost effectively utilize the innovations within the industry. o reduce labor costs; Supporting the data above is the unavoidable fact that increases in U.S. industrial productivity in both heavy and light industries have decreased substantially over the past decade. The year-to-year increase in 1974 was 4.2%; in 1984 - 6 - it was .8%. The most alarming aspect of the figures is that over the same period, increases in foreign productivity have been astronomical (Japan, for instance, went from 2.8% to 5.3% over the same period). At the same time, U.S. producers of automobiles and electronic products have yielded substantial domestic market share to foreign competition as evidenced by the following table. Table 2 PRODUCERS' MARKET SHARE (DATAASK, 1984) U.S. MARKET SHARE 1972 1978 1984 Autos Domestic 87% 79% 63% Foreign 13% 21% 37% Non-consumer Electronic Domestic 97% 91% 82% Foreign 3% 9% 18% Consumer Electronic Domestic 89% 72% 57% Foreign 11% 28% 43% Japan, in 1984, had 50,000 industrial robots in place in a workforce of approximately 10 million; the U.S., at the same time, had about 15,500 robots in place out of its workforce of some 19.5 million. More important, perhaps, some 85% of U.S. robots were applied in heavier utilizations (welding, painting, etc.); in Japan, the split between heavy and light applications (i.e., electronic assembly) was approximately 50-50. Clearly, the number one competitor (Japan) for U.S. market share of electronic products has established robotic production as a priority in its long-term strategy. Market Segments -- The domestic market for robotics spreads across five major distinct industry segments. To date, the automotive industry has been by far the largest consumer of robotic products, using them primarily in painting and welding operations. The other segments include foundry and heavy manufacturing, aerospace and defense, electronic assembly, consumer products, and other. While the automotive industry has shown the most impressive growth to date in robotics applications, it is the electronics assembly market that will be the growth sector of the future; it is this market that Generico is addressing. Electronic American, in its 1984 issue featuring robotic products by market segment, projected the installed base of robotic products in the U.S. to be as follows: - 7 - Table 3 PROJECTED INSTALLED BASE BY INDUSTRY 1985 1987 1989 1991 1993 Auto 10,500 12,000 18,000 25,000 35,000 Foundry 2,000 3,000 5,000 7,000 7,000 Aerospace and defense 1,000 2,000 6,000 8,500 10,500 Consumer products 1,500 3,000 6,000 7,000 11,000 Electronics assembly 5,000 8,500 14,500 23,000 40,000 Other 2,000 2,500 5,500 6,500 7,500 Total installed based (units) 22,000 31,000 55,000 77,000 111,000 As the U.S. economy continues on its course away from smokestack industries, it becomes apparent that the exciting growth will occur in industry areas adding substantially higher value through both technological product design and state of the art production methods: electronics (including aerospace) and consumer products. Generico's target market, then, is demand driven and the company's products will fill an urgent and unsatisfied need within the market. The Competition -- The roughly 30 companies addressing the robotics market cover the widest possible spectrum, from multibillion dollar MBI, Inc. to four or five startups concentrated on the West Coast. As Generico's strategy is to address the light manufacturing and electronics markets, this plan does not address manufacturers focusing on other markets. Generico management is convinced that those companies addressing the automobile and foundry industries (they include Muscle Machines, Inc., Ergoarms Corp., Koniyoki Heavy Industries, and Veblen, Ltd.) do not represent a competitive threat to the company. Those manufacturers focusing on the same markets as Generico number approximately 20 and shared the 1984 $320 million market in the following distribution (Rebel Group statistics): Robotic Net Income Percent Revenues (000) (000) Mississippi Micron 32% $102,000 $8,300 Digitizer Corp. 25% 80,000 5,700 Robox, Inc. 16% 50,000 N/A Manoforms Corp. 9% 29,500 N/A Smartarms, Inc. 9% 29,000 N/A MBI, Inc. (Robotics only) 3% 10,000 250 Other 6% 19,000 N/A Generico's analysis of each company's strengths and weak- nesses follow: - 8 - Mississippi Micron -- A publicly traded company based in Natchez, MS, MMI is the "grandaddy" of the robotics industry, having installed its first product in a foundry application in 1953. MMI's reputation in heavy industry robotics is unparalleled; however, its attempts to enter the light manufacturing markets have met with lukewarm reviews. The company is continuing to experience excessive product downtime, service demands it has been unable to meet, and accuracy problems. Notwithstanding the difficulties, MMI has the wherewithal to be formidable in the light assembly market. Pros: o well-capitalized o strong name awareness o good design team Cons: o to date unreliable products in this market o Ineffective service support (contracted service) Digitizer Corp. -- Second in Generico's target market, this publicly traded Boston company has established a reputation for quality and reliability in its robots. Over its seven year existence, Digitizer has grown to roughly $80 million in sales in 1984. The company's product line is not perceived as a future market force due to the utilization of an archaic operating system at the controller level, making re-programming the robots extremely difficult. Pros: o strong quality reputation in hardware o particularly successful marketing o fast and accurate robotic arms Cons: o expensive -- at the market's top end o weak software -- a current problem, but it is fixable o limited movement (4 axis) o complex components Robox, Inc. -- This privately held start up was formed late in 1983 in Milpitas, CA. Its founders came from MBI, where they had been integrally involved in the development of its robotics line. Little is known of Robox except that its first product has been well received in the market and it was funded by Viewridge Ventures, a mid-level venture firm located in Seattle. Pros: o highly skilled design team Cons: o products may be late to market - 9 - Manoforms, Inc. -- Privately held, based in Wheatridge, Il. MI is about four years old and has enjoyed reasonable success in its market niche of disk drive assembly. It has apparently been somewhat restricted in its marketing efforts by Tendon Corp., a major disk drive manufacturer and shareholder in the company. Pros: o relationship with Tendon Corp. o well-capitalized o relatively strong product acceptance Cons: o relationship with Tendon Corp. o narrow market focus o expensive o weak price/performance measures Smartarms, Inc. -- Private, two-year old company based in Seattle, WA. Smartarms is, potentially, Generico's strongest competitor. Both companies have developed low weight, 6 axis robotic products and are expected to be priced similarly. Smartarms is not particularly well- funded, so its major weakness is vulnerability to development/production delays. Pros: o strong hardware and software design o good price/performance grades o competitively priced (anticipated) o experienced marketing team Cons: o cash shortages o reliance on Cantel 700177 microprocessor could easily result in production delays MBI, Inc. -- New York based, publicly traded, $7 billion firm. Pros: o extremely well capitalized o captive market of MBI plants o premium sales team o strong management o strong service support Cons: o perceived inflexibility to external market needs o low strength to weight ratios in product line o limited flexibility of arm (4 axis) A price/performance matrix is shown below comparing Generico's Automaton 10 to its primary competition. - 10 - Unit System Price Movement Load Software Weight Company (000) Accuracy Speed* Axis Capacity Simplicity (lbs) Generico $40 .001 18 IPS 6 8 lbs. easy 125 ------------------------------------------------------------------------ MMI $40 .001 20 IPS 4 6 lbs. moderate 250 Digitizer $46 .001 20 IPS 5 10 lbs. difficult 170 Robox $38 .001 17 IPS 5 8 lbs. moderate 500 Smartarms $34 .001 17 IPS 6 8 lbs. easy 150 MBI $41 .001 19 IPS 4 9 lbs. moderate 250 * With load weight of 56 grams Generico management has developed exhaustive files on its publicly traded competition, but has been somewhat fettered in gathering details relating to non-traded companies. Conversations with end users of competing products, product brochures, industry publications, and trade associations have been the primary source for intelligence on the latter group of companies. Generico management believes that none of its com- petitors enjoys a broad enough installed base to establish insurmountable loyalty. By interviewing manufacturing managers and purchasing directors at six potential customers who are current users of robotics products, Generico has determined that purchasing decisions are currently based, in descending order, on the following factors: o product reliability o ease of operation o performance specifications o price Generico is convinced that the noted purchase factors will ultimately determine which suppliers enjoy the most success within the market. Customers -- Generico's initial target customer list, with whom all company design and marketing personnel have met, is highlighted below. - 11 - Table 4 TARGET CUSTOMER LIST (abbreviated) Manufacturing Purchasing Company Revenues Director Director Hemlock-Packett $2.4BB A. W. Davies W. H. Harrison Pear Computer 1.0BB Allan Fischer Galen Mercer Board Technologies 250MM A. M. Dresser George Spate Fullsiz Computer 125MM Richard Payson Don Griffin Cantel 750MM - unknown - Steve Polson Informedics 75MM Phil Upham Phil Upham Northwest Digital 110MM Tom Burch Mo Sembler Fletcher Disks 225MM Randy Church Tom Jensen Indiana Instruments 630MM Ellen Meevwsen Dave May Davis Designs 70MM Ravi O'Leary - unknown - Avitar Avconics 300MM Sheeta Gierhart Hal Deterich Acme Electric 25MM Dan Acme Don Acme Supporting each prospective customer is an in depth profile covering products, labor force, capital equipment in use, operating statistics (as available), other key decision makers, and other information as appropriate. IV. MARKETING AND SALES Marketing Strategy -- Generico's marketing strategy en- compasses an early stage focus on 15 to 30 major manu- facturers of electronic products (see target customer list, above). Each target customer is known for its innovative management, relatively high labor costs, and eroding market share over recent years to foreign competitors. Product design will follow a stated objective of addressing quality (as manifested in accuracy, simplicity, speed, and reliability), innovation, service (second to none by Generico field service engineers, not outside contractors), and price. Generico management firmly believes that providing quality products is its first and foremost task in achieving its targeted market share. Innovation and service are, actually, subsets of quality, but substantial management attention will also be focused in those areas. To help foster innovation and to maintain close communi- cation with users, Generico has established a technical analysis group which will convene monthly to discuss manufacturing needs. The group will be chaired by Generico's Director of Manufacturing, co-chaired by its Vice Presidents of Marketing and Engineering and have five outside manufacturing members from Hemlock-Packett, Pear Computer, Northwest Digital, Davis Designs, and Informedics (each company has already committed its participation). The group will meet in Generico's Sequim, Oregon headquarters. - 12 - While Generico management feels that pricing will be the least important variable in a purchase decision, the corporate design is to price at the middle of the market -- approximately $40,000 per unit. Potential mid-range price hesitancy on the part of customers will be met head on with specification sheets comparing Generico product performance with competitors' and on-site product demonstrations. Generico's innovative designs result in greater flexibility with potentially lower manufacturing costs than competitors' products, which will allow the company above industry standard margins in spite of mid-range pricing. Multiple unit order discounts of up to 13% will be available to quantity buyers, (units purchased within a sixty-day period will qualify for quantity discounts reduced by 25%). It will be company policy to require a 15% cash deposit on all orders, with the balance due within 45 days of installation. Generico's standard warranty (full parts and labor) will be the industry standard 90 days. The company's service contract, however, will diverge from the market substantially in that it will be priced on a tiered basis, depending on service contract period. Generico's modular approach to product design, coupled with the products' engineered simplicity will allow the company to guarantee maximum down time of twelve hours to its customers. An innovative insurance policy, underwritten by Boyd's of Boston, will provide business interruption liability insurance in the amount of $2 million per site per occurrence lasting in excess of the 12 hours. Sales Plan -- Generico will use only in-house sales per- sonnel with impeccable credentials and extensive product training. Emphasis will be continuously focused on the needs of the customer. During its first twelve months, both the chief executive officer and vice president of marketing will play key roles in establishing contact with target customers. All sales in the first year will be made by home office based personnel; as installed bases dictate, satellite sales and service offices will be established in eight predetermined regions of the U.S. At this time, it is expected that an installed unit base of 25 to 35 will justify opening a regional office. Sales personnel will be compensated with a relatively standard base salary and a "bonus" payable quarterly based on collected payments under sales made in the preceding three months. Bonus schedules will begin at 4% of ex- factory sales price (excluding freight) and will step to a maximum of 11% with no upward dollar limit. Sales personnel will be expected to turn in weekly call reports outlining initial contacts, follow ups, and projected bookings on a rolling three-month basis. Written, - 13 - semi-annual objectives by all sales personnel will be submitted by the second and seventh month of each year, and the preceding period's actual to budget will be reviewed at the same time. Professionalism in both appearance and approach will be the guiding line of the Generico sales force: thorough knowledge of customer needs, Generico products, and competitive products will be reinforced with monthly sales meetings conducted by the chief executive officer and director of marketing and sales. V. PRODUCTS Generico's initial product, the Automaton 10, is a light weight (125 lbs), high performance (up to 30 inches per second at repetitive accuracy of 1/1000th of an inch), two servo-motor robotic arm designed specifically for light electronic assembly applications. The Automaton 10 operates on six separate axes, allowing it to be configured to virtually any light assembly operations (competitive products are available with six axis movement, but most existing installations are four and five axis machines). The Automaton 10 has a maximum reach of seven feet, six inches and a maximum load capacity of eight pounds, though at higher weights some speed is sacrificed. The arm is controlled by two Cantel 11940 16-bit micro- processors at each motor; they, in turn, are controlled by a HAL personal computer with a minimum RAM capacity of 512 kilobytes. While not necessary, fixed storage capacity of 10 megabytes is recommended for the PC controller. One of Generico's strongest selling points is the flexibility of its proprietary resident software (written in BASIC). The software is a plain English, menu-driven format allowing for rapid adjustment of speed, pick and place loci (to within 1/1000th of an inch -- ideal for circuit board stuffing), travel routes, interval timing, and product weight. Hardware is configured using the industry standard IEEE 422 Multi-Purpose Interface Bus. The bill of materials for raw materials and components making up the Automaton 10 amounts to 137 separate items. The single most expensive component is the HAL personal computer controller. The arm motors are commonly available from seven different sources. Electrical circuitry, including the Cantel 11940 microprocessors, is expected to remain in abundant supply according to industry sources. The remaining components include industry standard hydraulic arms, silicon gasketry, and fasteners (bolts, nuts, etc.). - 14 - The only custom-produced items in the bill of materials are the forged aluminum three-point mounting base and the molded plastic unit cowling. As noted earlier, the Automaton 10 will be priced at $40,000 per unit. The unit price is ex-factory, less shipping, and includes resident software, the HAL PC controller, and one- day installation and training. Complete documentation and an easy to read user's manual are also in the package. Future Products -- Generico's intentions are to develop a full line of robotic products to meet market needs in light manufacturing industries. To that end, designs are in process for the company's second product, the Automaton 20, a two arm robotic assembler. The Automaton 20 will function in a similar fashion to the Automaton 10, but with two six axis arms which will allow more detailed assembly tasks to be performed (screwing, unscrewing, spot soldering, etc.). Generico expects to be production-ready with the Automaton 20 by the beginning of the fourth quarter of year one. The company's third product, now well into the design stage, is the Automaton Brain, an upscale version to the 10, which incorporates automated test capabilities into the arm. Generico envisions applying the Brain in pre and post burn- in test and other quality control scenarios. Flexible programming will allow the Brain to function simultaneously in both assembly and test configurations. Generico's remaining product on the drawing board is expected to be an add-on to existing robotic products -- vision capability. Using a proven laser-based light source, and startlingly sophisticated software more appropriately called artificial intelligence, the company is hopeful of having robotic vision market ready by the first quarter of year three. In that the company's marketing strategy encompasses innovation as a major component, future product development will be of key concern to management. In the first three years, substantial resources will go into research and development; as the company's revenues grow, management expects to commit from 7% to 13% annually to product development. VI. DEVELOPMENT PLAN While operating and manufacturing specifications for the Automaton 10 are substantially finalized, software devel- opment must be completed and tested prior to beta site installation. - 15 - Software development clearly poses the most formidable obstacle to Generico in moving the Automaton 10 into production on schedule. To mitigate this exposure the development process has been divided into five segments (drive, controller interface, operating system, networking, and sensor input) for simultaneous development. Each segment will be the responsibility of a specified design engineer. A project engineer will be responsible for the overall coordination of the development; he, in turn, will report to the vice president of engineering. The target date for software completion is three months from funding. The aggressive development plan will require the addition of three skilled software designers to accomplish the task within the time frame alloted. Five candidates have been identified and interviewed by Generico's chief executive officer and vice president of engineering. Each is prepared to commit upon successful funding of the company. A development time line is shown below. Table 5 YEAR ONE PRODUCT DEVELOPMENT SCHEDULE MONTH: (3)(2)(1) 0 1 2 3 4 5 6 7 8 9 10 11 12 -------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--| HRDWRE DSIGN (A-10) xxxxxxxxxxxx HRDWARE SPEC (A-10) xxxxxx FUNDING PLACED xxx ACQUIRE VAX xxx SFTWRE DSIGN (A-10) DRIVE INSTRCTIONS xxxxxxxx CONTRLLR INTRFACE xxxxxxxx OPERATING SYSTEM xxxxxxxxx NETWORK INSTRCTNS xxxxxx SENSOR INPUT xxxxxxxxxxxx SOFTWARE TEST xxxxxxxxxxxxxxxxxxxxx HRDWRE DSIGN (A-20) xxxxxxxxxxxxxx HRDWRE SPEC (A-20) xxxxxxxxxxx SFTWRE DSIGN (A-20) xxxxxxxxxxxxxxxxxxxxxxxxxx PROTOTYPE (A-20) xxxxxxxxxxx BETA 1 (A-20) xxxx HRDWRE DSIGN (F.P) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx PROTOTYPE (A-10) xxxxxx BETA 1 (A-10) xxx BETA 2 (A-10) xxx BETA 3 (A-10) xxx PRODUCTION RAMP UP xxxxxxxxxxxxxxx -------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--| Notes: A-10 is the Automaton 10 A-20 is the Automaton 20 F.P. are Future Products Month 0 is the month of funding - 16 - Generico management anticipates having three beta sites installed by the end of month six (month of funding being zero); production ramp up will start at the end of month six. Supply contracts for both the servo-motors and the PC controllers have been negotiated on terms favorable to Generico. The company is multi-sourcing its servo-motors (Mighty Motors, Inc., Hydraulic Manufacturers Corp., and Hester Corp.). HAL Computers has locked in its supplies over the long-term by exchanging six-month purchase terms for a modest (1.17%) equity position in Generico. Without question, one of the more pervasive problems facing Generico is staffing, particularly in the design and manufacturing areas. Generico currently has one hardware designer/engineer and two software engineers, each of whom brings strong skills to the company. It is management's intent to selectively exploit its contacts within the industry by offering attractive incentive packages to proven technicians. Building the right team will be one of the most costly components of Generico's startup phase. A hiring schedule (company wide) is shown below. Table 6 YEAR ONE PROJECTED STAFFING LEVELS COMPANY WIDE Staff --------------------------------------------------------------- 60 -| | | 56 | | xxx | 50 -| 49 49 XXX | | 44 XXX XXX XXX | | xxx XXX XXX XXX | 40 -| 38 XXX XXX XXX XXX | | xxx XXX XXX XXX XXX | 30 _| 32 XXX XXX XXX XXX XXX | | 28 XXX XXX XXX XXX XXX XXX | | 24 XXX XXX XXX XXX XXX XXX XXX | 20 -| XXX XXX XXX XXX XXX XXX XXX XXX | | 14 16 XXX XXX XXX XXX XXX XXX XXX XXX | | 12 xxx XXX XXX XXX XXX XXX XXX XXX XXX XXX | 10 -| 7 7 8 xxx XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX | | 5 xxx xxx XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX | | XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX | --------------------------------------------------------------- Month (3) (2) (1) 1 2 3 4 5 6 7 8 9 10 11 12 VII. OPERATING/MANUFACTURING PLAN In an effort to reduce the development stage risk inherent in a startup and to minimize financing needs, Generico's manufacturing in its first 12 to 18 months will be done - 17 - by subcontractors. While a certain degree of control is sacrificed in a subcontracting scenario, management feels its past experience and industry contacts will allow it to cost-effectively manage the flow of sub-contracted material to Generico's plant. Specific contracts with subcontractors have not yet been executed but a most-likely list of companies (chosen based on reputation for quality, proximity, reliability, and price) has been assembled: o Westridge Tool and Die o Forest Grove Metal o Custom Fabrication, Inc. o Propolyn Molding o Daisy Designs o Montooth Corp. Generico management has past direct experience with each of the companies and is confident of their individual capabilities and willingness to meet demanding delivery schedules. No materials, with the exception of the HAL PC and Cantel 11940 microprocessor, will be sole-sourced. Company purchasing philsophy will not, however, be to play one supplier off another; Generico will expect quality service and will willingly pay a fair price for it. Generico's manufacturing, then, will be much more an assembly and test operation. Aside from substantially reducing early-stage capital requirements, the assembly operation will reduce labor costs to the company by being staffed with less-skilled workers. Nonetheless, Generico will maintain full control over quality through a vigorous, multi-phased test process at four assembly stages and culminating with a 12-hour, hostile environment burn-in procedure. Inventory Inventory control will be a major area of management attention and will demand close cooperation between marketing and sales and manufacturing and purchasing. The largest dollar inventory item will be HAL PC's in that the quickest delivery HAL will commit to is 90 days after receipt of order. Management has set a target maximum days in inventory of 45 days for the PC's during its first year; it is expected to be lowered in subsequent years as order fore- casting becomes more stabilized. The second slowest turning inventory components will be mounting bases and custom molded cowling: using multiple supply sources, Generico believes it can turn these inventory components monthly in its first year. - 18 - Servo-motors and hardware are available virtually off the shelf from "neighborhood" suppliers; Generico will maintain a base inventory equal to one week's production and will request drop shipments to meet excess production demand. During its first month, Generico's director of finance will be responsible for implementing a micro-based software system encompassing a surprisingly sophisticated inventory control package which will generate inventory reports on an as-needed basis. Staffing Requirements Generico begins its operations with seven employees, all of whom are skilled technicians. During its first six months of operations, the company will increase in size to 32 people, 18 of whom will be non-skilled assembly workers. At the end of year one, Generico will employ 63 people with a skilled to non-skilled ratio of approximately two to one. Facilities Generico is currently housed in a 5,000 square foot office in the Greenway Office Park in Sequim, Oregon. The company has an option through its current landlord on an additional 20,000 square feet of contiguous light manufacturing space which will carry it through its second full year of operations. The site is ideally suited in that 60% of the company's first year target customers are within a 75 mile radius as are virtually all potential suppliers and subcontractors. VIII. MANAGEMENT Generico's five key members of management bring unique and tested skills to his or her functional areas. Detailed resumes are available, but presented below are highlights of prior experience and functional responsibilities at Generico. References are also listed. Vincent Losciallo, 43, Chairman and Chief Executive Officer -- co-founded MIME, Inc., a manufacturer of industrial robotics, in 1976. As Chief Operating Officer, he took the company to $39 million in sales by 1981 and negotiated its sale to Major Motors, Inc. in the same year. Losciallo will have overall responsibility for opera- tions of the company, but will concentrate on sales and operations in the first two years. On an interim basis, he will handle the chief financial officer's responsibilities. - 19 - References -- Joel McMenamie, CEO, Major Motors (503) 551-2249 David Womanvock, Partner, Valued Ventures (212)555-1000 Stephen Daniels, 36, Vice President, Marketing -- former Divisional Director of Marketing at Massepequa, Inc. Charged with charting market strategies for a $35,000 to $75,000 product line of capital equipment; during his seven-year tenure, sales grew at a compounded annual growth rate of 23% to $175 million. Daniels will be charged with overall marketing strategies for the company including positioning, pricing, advertising, and establishing internal communications with sales, engineering, and manufacturing. References -- John Sells, Vice President, Marketing Massapequa, Inc. (803) 555-1212 Henry Simonson, President, Massapequa, Inc. (803) 555-1212 Harold Ginjeans, 40, Vice President, Engineering -- former Chief Design Engineer at MIME, Inc. where he was responsible for development of four key products including the MIME 1974. Ginjeans will manage all product development (hardware and software), establish development PERT charts, staff the engineering department in year one and oversee design and specification processes. References -- Doug Guttentag, Professor of Engineering, Carnegie Tech (703) 269-1121 Charlie Emmerson, Director of Engineering, Flossback, Inc. (614) 594-1702 George Forrester, 39, Director of Manufacturing -- seventeen years with Acme, Inc., culminating as Vice President of Manufacturing. Forrester supervised the installation of one of the first assembly robotic plants in the U.S. Forrester will be responsible for establishing Generico's assembly operations and negotiating subcontracts and maintaining subcontractor relationships. Additionally, Forrester will chair the Technical Analysis Group comprised of users and potential users of Generico products. References -- Esteban Rafael, Vice President, Finance, MBI, Corp. (912) 795-1795 Alan Herzog, Vice President, Finance, Acme, Inc. (301) 295-5000 - 20 - Priscilla Sproviero, 30, Controller -- former Senior Consulting Manager with Reed, Hawick, a Big 8 accounting firm; seven additional years audit and accounting experience. Sproviero will establish all accounting and financial control systems. References -- Jerry Groft, Partner, Reed, Hawick (503) 771-2094 Dalim Stevequist, President, OGS, Inc. (503) 971-001 During an interim period of approximately three to six months, Daniels will serve as Director of Sales. The company has interviewed four prospective candidates to fill the position, but has not found a good match; management is continuing its search primarily using industry contacts. If the position has not been filled by the end of month two, a management recruiter specializing in sales and marketing will be retained. As noted, Losciallo will serve as interim Chief Financial Officer until that position is filled (expected by month five). Ownership All officers and employees of Generico will be afforded equity positions in the company; currently, there are no outside investors. An ownership breakdown is as follows: Vincent Losciallo 45% Stephen Daniels 14% Harold Ginjeans 14% George Forrester 14% Priscilla Sproviero 8% Other employees 5% IX. FINANCIAL Management believes that the initial funding of $2.5 million will be adequate to carry the company through initial profitability. It is anticipated that receivables and inventory financing from commercial bank sources will be available beginning in the second quarter of year two. The company anticipates being able to sustain a gross margin in the 40% range, which exceeds the industry average of 33-36%. On a net basis, Generico will turn, approximately, 9% to 11% of sales to the bottom line beginning in its third year. - 21 - Management has taken what it believes to be an extremely conservative approach in formulating its pro forma financials -- no debt financing is shown until year two and lease financing is not proposed as an option. Management is vigorously pursuing both avenues at this stage and fully expects to arrange at least modest credit facilities in the short term. Assumptions underlying financial projections: o Founders contribute $70,000 cash to Generico in month one (accomplished). o Founders defer salaries and out-of-pocket expenses of $42,500 indefinitely (accomplished). o Depreciation is calculated on all fixed and capital assets assuming five-year lives and straight line computation. o Receivables are 30 days in duration (industry standard is 30 days). o Payables are 30 days (industry standard is 50-60 days), do not begin until month thirteen, and equal only 50% of inventory costs during the period (trade support is expected much sooner). o Inventories turn an average of seven times per year (on top of a fixed base of $40,000). o Salaries through month 18 are approximately 50% to 75% of industry standard (higher at lower personnel levels in the company). o Interest is earned at 8% per annum. o Interest is paid at 13% per annum. o Cash purchases are the sum of the period's cost of goods sold, 50% of inventory purchases, and capital acquisitions. o Minimum cash on hand is $20,000 (under bank line when cash flow is negative for the period). Detailed budgets underlying the financials are available for further review and discussion. - 22 - GENERICO, INC. MONTHLY STATEMENT OF PROJECTED INCOME YEAR ONE NOT REVIEWED BY INDEPENDENT ACCOUNTANTS MO1 MO2 MO3 MO4 MO5 MO6NET SALES $0 $0 $0 $0 $0 $0LESS: COSTS OF GOOD SOLD $____ $____ $____ $____ $____ $____ GROSS MARGIN $0 $0 $0 $0 $0 $0GROSS MARGIN (%) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00 OPERATING EXPENSES MARKETING $5,617 $9,933 $9,933 $9,933 $22,883 $31,517 FINANCE & ADMIN. 9,163 9,163 9,747 9,747 9,747 9,747 ENGINEERING/R & D 21,603 34,643 34,643 43,337 52,030 56,377 MANUFACTURING 4,983 4,983 4,983 4,983 10,378 12,177 ______ ______ ______ ______ ______ ______TOTAL OPERATING EXP. $41,367 $58,723 $59,307 $68,000 $95,038 $109,817 LEASE INT EXPENSE (ENGR) 0 0 0 0 0 0 OTHER INTEREST EXPENSE 0 0 0 0 0 0 OTHER INCOME (INTEREST) 15,306 14,973 14,667 14,302 13,637 12,951 ______ ______ ______ ______ ______ ______PRE-TAX INCOME (26,061) (43,751) (44,639) (53,698) (81,401) (96,866 PROVISION FOR TAX 0 0 0 0 0 0 ______ ______ ______ ______ ______ ______NET INCOME (LOSS) ($26,061)($43,751) ($44,639)($53,698)($81,401) ($96,866======================== ======= ======= ======= ======= ======= ======= (CONTINUED NEXT PAGE) - 23 - GENERICO, INC. MONTHLY STATEMENT OF PROJECTED INCOME YEAR ONE NOT REVIEWED BY INDEPENDENT ACCOUNTANTS MO7 MO8 MO9 MO10 MO11 MO12NET SALES $40,000 $40,000 $80,000 $120,000 $200,000 $200,000LESS: COSTS OF GOOD SOLD $25,000 $24,000 $46,000 $71,000 $116,000 $116,000 GROSS MARGIN $15,000 $16,000 $34,000 $49,000 $84,000 $84,000GROSS MARGIN (%) 37.50% 40.00% 42.50% 40.83% 42.00% 42.00 OPERATING EXPENSES MARKETING $35,833 $35,833 $40,150 $48,783 $48,783 $61,733 FINANCE & ADMIN. 9,747 9,747 10,038 10,038 10,038 10,330 ENGINEERING/R & D 69,417 82,457 86,803 95,497 95,497 104,190 MANUFACTURING 12,177 17,572 22,967 24,765 24,765 26,563 _______ _______ _______ _______ _______ _______TOTAL OPERATING EXP. $127,174 $145,609 $159,958 $179,083 $179,083 $202,817 LEASE INT EXPENSE (ENGR) 0 0 0 0 0 0 OTHER INTEREST EXPENSE 0 0 0 0 0 0 OTHER INCOME (INTEREST) 11,528 10,651 9,072 7,485 5,488 4,646 _______ _______ _______ _______ ______ _______PRE-TAX INCOME (100,646) (118,957) (116,887) (122,598) (89,595) (114,171 PROVISION FOR TAX 0 0 0 0 0 0 _______ _______ _______ _______ ______ _______NET INCOME (LOSS) ($100,646)($118,957)($116,887)($122,598)($89,595)($114,171==================== ======= ======= ======= ======= ======= ======= - 24 - GENERICO, INC. PROJECTED BALANCE SHEET BY MONTH YEAR ONE NOT REVIEWED BY INDEPENDENT ACCOUNTANTS MO1 MO2 MO3 MO4 CASH/INVESTMENTS $2,311,206 $2,260,889 $2,214,766 $2,159,669 RECEIVABLES 0 0 0 0 INVENTORY 40,000 40,000 40,000 40,000 __________ __________ __________ __________ TOTAL CURRENT ASSETS 2,351,206 2,300,889 2,254,766 2,199,669 FIXED ASSETS 196,000 206,000 211,000 216,000 LESS: ACCUM. DEP'N. (3,267) (6,700) (10,217) (13,817) __________ __________ __________ __________ NET FIXED ASSETS 192,733 199,300 200,783 202,183 __________ __________ __________ __________ TOTAL ASSETS $2,543,939 $2,500,189 $2,455,549 $2,401,852 ========== ========== ========== ========== ACCOUNTS PAYABLE $0 $0 $0 $0 ACCRUALS 42,500 42,500 42,500 42,500 OTHER PAYABLES 0 0 0 0 __________ __________ __________ __________ TOTAL CURRENT LIABS. 42,500 42,500 42,500 42,500 TERM DEBT 0 0 0 0 LEASES 0 0 0 0 PAID IN CAPITAL 2,570,000 2,570,000 2,570,000 2,570,000 RETAINED EARNINGS (68,561) (112,311) (156,951) (210,648) __________ __________ __________ __________ TOTAL EQUITY 2,501,439 2,457,689 2,413,049 2,359,352 __________ __________ __________ __________ TOTAL LIABS. & EQUITY $2,543,939 $2,500,189 $2,455,549 $2,401,852 ========== ========== ========== ========== (CONTINUED NEXT PAGE) - 25 - GENERICO, INC. PROJECTED BALANCE SHEET BY MONTH YEAR ONE NOT REVIEWED BY INDEPENDENT ACCOUNTANTS MO5 MO6 MO7 MO8 CASH/INVESTMENTS $2,059,251 $1,955,552 $1,740,668 $1,608,344 RECEIVABLES 0 0 40,000 40,000 INVENTORY 40,000 40,000 108,571 108,571 __________ __________ __________ __________ TOTAL CURRENT ASSETS 2,099,251 1,995,552 1,889,239 1,756,916 FIXED ASSETS 239,000 250,000 260,000 278,000 LESS: ACCUM. DEP'N. (17,800) (21,967) (26,300) (30,933) __________ __________ __________ __________ NET FIXED ASSETS 221,200 228,033 233,700 247,067 __________ __________ __________ __________ TOTAL ASSETS $2,320,451 $2,223,585 $2,122,939 $2,003,982 ========== ========== ========== ========== ACCOUNTS PAYABLE $0 $0 $0 $0 ACCRUALS 42,500 42,500 42,500 42,500 OTHER PAYABLES 0 0 0 0 __________ __________ __________ __________ TOTAL CURRENT LIABS. 42,500 42,500 42,500 42,500 TERM DEBT 0 0 0 0 LEASES 0 0 0 0 PAID IN CAPITAL 2,570,000 2,570,000 2,570,000 2,570,000 RETAINED EARNINGS (292,049) (388,915) (489,561) (608,518) __________ __________ __________ __________ TOTAL EQUITY 2,277,951 2,181,085 2,080,439 1,961,482 __________ __________ __________ __________ TOTAL LIABS. & EQUITY $2,320,451 $2,223,585 $2,122,939 $2,003,982 ========== ========== ========== ========== (CONTINUED NEXT PAGE) - 26 - GENERICO, INC. PROJECTED BALANCE SHEET BY MONTH YEAR ONE NOT REVIEWED BY INDEPENDENT ACCOUNTANTS MO9 MO10 MO11 MO12 CASH/INVESTMENTS $1,369,819 $1,130,308 $828,729 $701,525 RECEIVABLES 80,000 120,000 200,000 200,000 INVENTORY 177,143 245,714 382,857 382,857 __________ __________ __________ __________ TOTAL CURRENT ASSETS 1,626,962 1,496,023 1,411,586 1,284,382 FIXED ASSETS 296,000 309,500 309,500 328,000 LESS: ACCUM. DEP'N. (35,867) (41,025) (46,183) (51,650) __________ __________ __________ __________ NET FIXED ASSETS 260,133 268,475 263,317 276,350 __________ __________ __________ __________ TOTAL ASSETS $1,887,096 $1,764,498 $1,674,903 $1,560,732 ========== ========== ========== ========== ACCOUNTS PAYABLE $0 $0 $0 $0 ACCRUALS 42,500 42,500 42,500 42,500 OTHER PAYABLES 0 0 0 0 __________ __________ __________ __________ TOTAL CURRENT LIABS. 42,500 42,500 42,500 42,500 TERM DEBT 0 0 0 0 LEASES 0 0 0 0 PAID IN CAPITAL 2,570,000 2,570,000 2,570,000 2,570,000 RETAINED EARNINGS (725,404) (848,002) (937,597) (1,051,768) __________ __________ __________ __________ TOTAL EQUITY 1,844,596 1,721,998 1,632,403 1,518,232 __________ __________ __________ __________ TOTAL LIABS. & EQUITY $1,887,096 $1,764,498 $1,674,903 $1,560,732 ========== ========== ========== ========== - 27 - GENERICO, INC. CASH BUDGET BY MONTH YEAR ONE NOT REVIEWED BY INDEPENDENT ACCOUNTANTS MO1 MO2 MO3 MO4 BEGINNING CASH $70,000 $2,311,206 $2,260,889 $2,214,766 PLUS: CASH RECEIPTS 2,500,000 0 0 0 OTHER 0 0 0 0 INTEREST 15,306 14,973 14,667 14,302 CASH AVAILABLE 2,585,306 2,326,179 2,275,556 2,229,069 CASH PURCHASES 236,000 10,000 5,000 5,000 CASH OPERATING COSTS 38,100 55,290 55,790 64,400 LEASE PAYMENTS 0 0 0 0 INTEREST COSTS 0 0 0 0 TOTAL DISBURSEMENTS 274,100 65,290 60,790 69,400 NET CASH AVAILABLE $2,311,206 $2,260,889 $2,214,766 $2,159,669 ========================================================================= MO5 MO6 MO7 MO8 BEGINNING CASH $2,159,669 $2,059,251 $1,955,552 $1,740,668 PLUS: CASH RECEIPTS 0 0 0 40,000 OTHER 0 0 0 0 INTEREST 13,637 12,951 11,528 10,651 CASH AVAILABLE 2,173,306 2,072,202 1,967,079 1,791,319 CASH PURCHASES 23,000 11,000 103,571 42,000 CASH OPERATING COSTS 91,055 105,650 122,840 140,975 LEASE PAYMENTS 0 0 0 0 INTEREST COSTS 0 0 0 0 TOTAL DISBURSEMENTS 114,055 116,650 226,411 182,975 NET CASH AVAILABLE $2,059,251 $1,955,552 $1,740,668 $1,608,344 ========================================================================= MO9 MO10 MO11 MO12 BEGINNING CASH $1,608,344 $1,369,819 $1,130,308 $828,729 PLUS: CASH RECIEPTS 40,000 80,000 120,000 200,000 OTHER --- --- --- --- INTEREST 9,072 7,485 5,488 4,646 CASH AVAILABLE 1,657,416 1,457,305 1,255,797 1,033,375 CASH PURCHASES 132,571 153,071 253,143 134,500 CASH OPERATING COSTS 155,025 173,925 173,925 197,350 LEASE PAYMENTS 0 0 0 0 INTEREST COSTS 0 0 0 0 TOTAL DISBURSEMENTS 287,596 326,996 427,068 331,850 NET CASH AVAILABLE $1,369,819 $1,130,308 $828,729 $701,525 ========================================================================= - 28 - GENERICO, INC. MONTHLY STATEMENT OF PROJECTED INCOME YEAR TWO NOT REVIEWED BY INDEPENDENT ACCOUNTANTS MO1 MO2 MO3 MO4 NET SALES $240,000 $360,000 $400,000 $480,000 LESS: COSTS OF GOOD SOLD $139,200 $201,600 $224,000 $259,200 GROSS MARGIN $100,800 $158,400 $176,000 $220,800 GROSS MARGIN (%) 42.00% 44.00% 44.00% 46.00% OPERATING EXPENSES MARKETING $70,367 $70,367 $74,683 $79,000 FINANCE & ADMIN. 28,822 25,702 25,702 25,702 ENGINEERING/R & D 117,230 117,230 117,230 117,230 MANUFACTURING 31,958 31,958 33,757 33,757 _______ _______ _______ _______ TOTAL OPERATING EXP. $248,377 245,257 $251,372 $255,688 LEASE INT EXPENSE (ENGR) 0 0 0 0 OTHER INTEREST EXPENSE 0 0 0 0 OTHER INCOME (INTEREST) 4,210 2,212 1,229 38 _______ _______ _______ _______ PRE-TAX INCOME (143,367) (84,644) (74,142) (34,850) PROVISION FOR TAX 0 0 0 0 _______ _______ _______ _______ NET INCOME (LOSS) ($143,367) ($84,644) ($74,142) ($34,850) ======================= ======== ======= ======= ======= (CONTINUED NEXT PAGE) - 29 - GENERICO, INC. MONTHLY STATEMENT OF PROJECTED INCOME YEAR TWO NOT REVIEWED BY INDEPENDENT ACCOUNTANTS MO5 MO6 MO7 MO8 NET SALES $560,000 $680,000 $760,000 $800,000 LESS: COSTS OF GOOD SOLD $313,600 $353,600 $387,600 $440,800 GROSS MARGIN $246,400 $326,400 $372,400 $359,200 GROSS MARGIN (%) 44.00% 48.00% 49.00% 44.90% OPERATING EXPENSES MARKETING $79,650 $95,223 $95,223 $104,577 FINANCE & ADMIN. 26,092 26,967 26,967 26,967 ENGINEERING/R & D 125,745 129,515 129,515 129,515 MANUFACTURING 33,757 37,805 37,805 37,805 _______ _______ _______ _______ TOTAL OPERATING EXP. $265,243 289,510 $289,510 $298,863 LEASE INT EXPENSE (ENGR) 0 0 0 0 OTHER INTEREST EXPENSE 1,686 3,744 4,429 4,615 OTHER INCOME (INTEREST) 0 0 0 0 _______ _______ _______ _______ PRE-TAX INCOME (20,529) 33,146 78,461 55,722 PROVISION FOR TAX 0 0 0 0 ______ ______ ______ ______ NET INCOME (LOSS) ($20,529) $33,146 $78,461 $55,722 ======================== ======= ======= ======= ======= (CONTINUED NEXT PAGE) - 30 - GENERICO, INC. MONTHLY STATEMENT OF PROJECTED INCOME YEAR TWO NOT REVIEWED BY INDEPENDENT ACCOUNTANTS MO9 MO10 MO11 MO12 NET SALES $880,000 $920,000 $1,000,000 $1,080,000 LESS: COSTS OF GOOD SOLD $440,000 $478,400 $490,000 $550,800 GROSS MARGIN $440,000 $441,600 $510,000 $529,200 GROSS MARGIN (%) 50.00% 48.00% 51.00% 49.00% OPERATING EXPENSES MARKETING $109,253 $113,930 $123,283 $123,283 FINANCE & ADMIN. 26,967 26,967 26,967 26,967 ENGINEERING/R & D 129,515 134,332 134,332 134,332 MANUFACTURING 39,728 39,728 43,575 43,575 _______ _______ _______ _______ TOTAL OPERATING EXP. $305,463 314,957 $328,157 $328,157 LEASE INT EXPENSE (ENGR) 0 0 0 0 OTHER INTEREST EXPENSE 4,813 4,282 4,026 3,429 OTHER INCOME (INTEREST) 0 0 0 0 _______ _______ _______ _______ PRE-TAX INCOME 129,724 122,361 177,817 197,614 PROVISION FOR TAX 0 0 0 0 _______ _______ _______ _______ NET INCOME $129,724 $122,361 $177,817 $197,614 ======================== ======= ======= ======= ======= - 31 - GENERICO, INC. PROJECTED BALANCE SHEET BY MONTH YEAR TWO NOT REVIEWED BY INDEPENDENT ACCOUNTANTS MO1 MO2 MO3 MO4 CASH/INVESTMENTS $635,693 $334,083 $185,647 $5,758 RECEIVABLES 240,000 360,000 400,000 480,000 INVENTORY 451,429 657,143 725,714 862,857 __________ __________ __________ __________ TOTAL CURRENT ASSETS 1,327,121 1,351,226 1,311,361 1,348,616 FIXED ASSETS 353,500 353,500 359,500 362,000 LESS: ACCUM. DEP'N. (57,542) (63,433) (69,425) (75,458) __________ __________ __________ __________ NET FIXED ASSETS 295,958 290,067 290,075 286,542 __________ __________ __________ __________ TOTAL ASSETS $1,623,080 $1,641,292 $1,601,436 $1,635,157 ========= ========== ========== ========== ACCOUNTS PAYABLE 205,714 308,571 342,857 411,429 ACCRUALS 42,500 42,500 42,500 42,500 OTHER PAYABLES 0 0 0 0 _______ _______ _______ _______ TOTAL CURRENT LIABS. 248,214 351,071 385,357 453,929 TERM DEBT 0 0 0 0 LEASES 0 0 0 0 PAID IN CAPITAL 2,570,000 2,570,000 2,570,000 2,570,000 RETAINED EARNINGS (1,195,135) (1,279,779) (1,353,921) (1,388,771) __________ __________ __________ __________ TOTAL EQUITY 1,374,865 1,290,221 1,216,079 1,181,229 __________ __________ __________ __________ TOTAL LIABS. & EQUITY $1,623,080 $1,641,292 $1,601,436 $1,635,157 ========== ========== ========== ========== (CONTINUED NEXT PAGE) - 32 - GENERICO, INC. PROJECTED BALANCE SHEET BY MONTH YEAR TWO NOT REVIEWED BY INDEPENDENT ACCOUNTANTS MO5 MO6 MO7 MO8 CASH/INVESTMENTS $20,000 $20,000 $20,000 $20,000 RECEIVABLES 560,000 680,000 760,000 800,000 INVENTORY 1,000,000 1,205,714 1,342,857 1,411,429 __________ __________ __________ __________ TOTAL CURRENT ASSETS 1,580,000 1,905,714 2,122,857 2,231,429 FIXED ASSETS 362,000 370,500 370,500 375,500 LESS: ACCUM. DEP'N. (81,492) (87,667) (93,842) (100,100) __________ __________ __________ __________ NET FIXED ASSETS 280,508 282,833 276,658 275,400 __________ __________ __________ __________ TOTAL ASSETS $1,860,508 $2,188,548 $2,399,515 $2,506,829 ========= ========== ========== ========== ACCOUNTS PAYABLE $480,000 $582,857 $651,429 $685,714 ACCRUALS 42,500 42,500 42,500 42,500 OTHER PAYABLES 177,309 369,345 433,281 450,586 __________ __________ __________ __________ TOTAL CURRENT LIABS. 699,809 994,702 1,127,209 1,178,800 TERM DEBT 0 0 0 0 LEASES 0 0 0 0 PAID IN CAPITAL 2,570,000 2,570,000 2,570,000 2,570,000 RETAINED EARNINGS (1,409,301) (1,376,155) (1,297,694) (1,241,972) __________ __________ __________ __________ TOTAL EQUITY 1,160,699 1,193,845 1,272,306 1,328,028 __________ __________ __________ __________ TOTAL LIABS. & EQUITY $1,860,508 $2,188,548 $2,399,515 $2,506,829 ========== ========== ========== ========== (CONTINUED NEXT PAGE) - 33 - GENERICO, INC. PROJECTED BALANCE SHEET BY MONTH YEAR TWO NOT REVIEWED BY INDEPENDENT ACCOUNTANTS MO9 MO10 MO11 MO12 CASH/INVESTMENTS $20,000 $20,000 $20,000 $20,000 RECEIVABLES 880,000 920,000 1,000,000 1,080,000 INVENTORY 1,548,571 1,617,143 1,754,286 1,891,429 __________ __________ __________ __________ TOTAL CURRENT ASSETS 2,448,571 2,557,143 2,774,286 2,991,429 FIXED ASSETS 381,500 386,500 398,500 398,500 LESS: ACCUM. DEP'N. (106,458) (112,900) (119,542) (126,183) __________ __________ __________ __________ NET FIXED ASSETS 275,042 273,600 278,958 272,317 __________ __________ __________ __________ TOTAL ASSETS $2,723,613 $2,830,743 $3,053,244 $3,263,745 ========= ========== ========== ========== ACCOUNTS PAYABLE $754,286 $788,571 $857,143 $925,714 ACCRUALS 42,500 42,500 42,500 42,500 OTHER PAYABLES 469,075 419,558 395,671 339,987 __________ __________ __________ __________ TOTAL CURRENT LIABS. 1,265,861 1,250,630 1,295,314 1,308,201 TERM DEBT 0 0 0 0 LEASES 0 0 0 0 PAID IN CAPITAL 2,570,000 2,570,000 2,570,000 2,570,000 RETAINED EARNINGS (1,112,248) (989,887) (812,070) (614,456) __________ __________ __________ __________ TOTAL EQUITY 1,457,752 1,580,113 1,757,930 1,955,544 __________ __________ __________ __________ TOTAL LIABS. & EQUITY $2,723,613 $2,830,743 $3,053,244 $3,263,745 ========== ========== ========== ========== - 34 - GENERICO, INC. CASH BUDGET BY MONTH YEAR TWO NOT REVIEWED BY INDEPENDENT ACCOUNTANTS MO1 MO2 MO3 MO4 BEGINNING CASH $701,525 $635,693 $334,083 $185,647 PLUS: CASH RECEIPTS 200,000 240,000 360,000 400,000 OTHER 0 0 0 0 INTEREST 4,210 2,212 1,229 38 CASH AVAILABLE 905,735 877,905 695,312 585,685 CASH PURCHASES 27,557 304,457 264,286 330,271 CASH OPERATING COSTS 242,485 239,365 245,380 249,655 TAXES PAID 0 0 0 0 INTEREST COSTS 0 0 0 0 TOTAL DISBURSEMENTS 270,042 543,822 509,666 579,926 NET CASH AVAILABLE $635,693 $334,083 $185,647 $5,758 ========================================================================= MO5 MO6 MO7 MO8 BEGINNING CASH $5,758 ($157,309) ($349,345) ($413,281) PLUS: CASH RECEIPTS 480,000 560,000 680,000 760,000 OTHER 0 0 0 0 INTEREST 0 0 0 0 CASH AVAILABLE 485,758 402,691 330,655 346,719 CASH PURCHASES 382,171 464,957 456,171 480,086 CASH OPERATING COSTS 259,210 283,335 283,335 292,605 TAXES PAID 0 0 0 0 INTEREST COSTS 1,686 3,744 4,429 4,615 TOTAL DISBURSEMENTS 643,067 752,036 743,936 777,305 NET CASH AVAILABLE ($157,309) ($349,345) ($413,281) ($430,586) ========================================================================= MO9 MO10 MO11 MO12 BEGINNING CASH ($430,586) ($449,075) ($399,558) ($375,671) PLUS: CASH RECEIPTS 800,000 880,000 920,000 1,000,000 OTHER 0 0 0 0 INTEREST 0 0 0 0 CASH AVAILABLE 369,414 430,925 520,442 624,329 CASH PURCHASES 514,571 517,686 570,571 619,371 CASH OPERATING COSTS 299,105 308,515 321,515 321,515 TAXES PAID 0 0 0 0 INTEREST COSTS 4,813 4,282 4,026 3,429 TOTAL DISBURSEMENTS 818,489 830,483 896,113 944,316 NET CASH AVAILABLE ($449,075) ($399,558) ($375,671) ($319,987) ========================================================================= - 35 - GENERICO, INC. ANNUAL STATEMENT OF PROJECTED INCOME, YEARS 1 - 5 NOT REVIEWED BY INDEPENDENT ACCOUNTANTS YEAR 1 YEAR 2 NET SALES $680,000 $8,160,000 LESS: COSTS OF GOOD SOLD $398,000 $4,278,800 GROSS MARGIN $282,000 $3,881,200 GROSS MARGIN (%) 41.47% 47.56% OPERATING EXPENSES MARKETING $360,933 $1,138,840 FINANCE & ADMIN. 117,252 320,785 ENGINEERING/R & D 776,493 1,515,720 MANUFACTURING 171,297 445,208 _______ _______ TOTAL OPERATING EXP. $1,425,975 $3,420,553 LEASE INT EXPENSE (ENGR) 0 0 OTHER INTEREST EXPENSE 0 31,024 OTHER INCOME (INTEREST) 134,707 7,690 ________ _______ PRE-TAX INCOME (1,009,268) 437,312 PROVISION FOR TAX 0 0 __________ ______ NET INCOME (LOSS) ($1,009,268) $437,312 ======================== ========== ======= (CONTINUED NEXT PAGE) - 36 - GENERICO, INC. ANNUAL STATEMENT OF PROJECTED INCOME, YEARS 1 - 5 NOT REVIEWED BY INDEPENDENT ACCOUNTANTS YEAR 3 YEAR 4 YEAR 5 NET SALES $18,400,000 $36,200,000 $54,000,000 LESS: COSTS OF GOOD SOLD $9,384,000 $18,462,000 $27,540,000 GROSS MARGIN $9,016,000 $17,738,000 $26,460,000 GROSS MARGIN (%) 49.00% 49.00% 49.00% OPERATING EXPENSES MARKETING $2,651,580 $3,913,440 $4,906,940 FINANCE & ADMIN. 955,760 1,183,000 1,382,108 ENGINEERING/R & D 2,445,380 3,518,300 5,696,600 MANUFACTURING 1,064,100 1,502,880 2,370,280 _________ __________ __________ TOTAL OPERATING EXP. $7,116,820 $10,117,620 $14,355,928 LEASE INT EXPENSE (ENGR) 0 0 0 OTHER INTEREST EXPENSE 4,656 3,207 0 OTHER INCOME (INTEREST) 0 0 14,863 _________ _________ __________ PRE-TAX INCOME 1,894,524 7,617,173 12,118,935 PROVISION FOR TAX 699,069 3,808,586 6,059,467 _________ _________ _________ NET INCOME $1,195,455 $3,808,586 $6,059,467 ======================== ========= ========= ========= - 37 - GENERICO, INC. YEAR END BALANCE SHEET, YEARS 3 - 5 NOT REVIEWED BY INDEPENDENT ACCOUNTANTS YEAR 3 YEAR 4 YEAR 5 CASH/INVESTMENTS $20,000 $20,000 $2,244,294 RECEIVABLES 1,840,000 3,620,000 5,400,000 INVENTORY 2,668,571 5,211,429 7,754,286 __________ __________ __________ TOTAL CURRENT ASSETS 4,528,571 8,851,429 15,398,580 FIXED ASSETS 691,000 1,601,000 2,528,500 LESS: ACCUM. DEP'N. (257,383) (545,383) (1,008,383) __________ __________ __________ NET FIXED ASSETS 433,617 1,055,617 1,520,117 __________ __________ __________ TOTAL ASSETS $4,962,188 $9,907,045 $16,918,696 ========= ========== ========== ACCOUNTS PAYABLE $1,314,286 $2,585,714 $3,857,143 ACCRUALS 42,500 42,500 42,500 OTHER PAYABLES 454,403 319,245 0 __________ __________ __________ TOTAL CURRENT LIABS. 1,811,189 2,947,459 3,899,643 TERM DEBT 0 0 0 LEASES 0 0 0 PAID IN CAPITAL 2,570,000 2,570,000 2,570,000 RETAINED EARNINGS 580,999 4,389,586 10,449,053 __________ __________ __________ TOTAL EQUITY 3,150,999 6,959,586 13,019,053 __________ __________ ___________ TOTAL LIABS. & EQUITY $4,962,188 $9,907,045 $16,918,696 ========== ========== =========== - 38 - GENERICO, INC. CASH BUDGET, YEARS 3 - 5 NOT REVIEWED BY INDEPENDENT ACCOUNTANTS YEAR 3 YEAR 4 YEAR 5 BEGINNING CASH ($319,987) ($434,403) ($299,245) PLUS: CASH RECEIPTS 17,640,000 34,420,000 52,220,000 OTHER 0 0 0 INTEREST 0 0 14,863 CASH AVAILABLE 17,320,013 33,985,597 51,935,618 CASH PURCHASES 10,065,071 20,643,429 29,738,929 CASH OPERATING COSTS 6,985,620 9,829,620 13,892,928 TAXES PAID 699,069 3,808,586 6,059,467 INTEREST COSTS 4,656 3,207 0 TOTAL DISBURSEMENTS 17,754,416 34,284,842 49,691,324 NET CASH AVAILABLE ($434,403) ($299,245) $2,244,294 ========================================================================= This is the end of the sample. To return to the main menu, press the F1 key. EOF
