Marrow Stone Advertising

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Table of Contents

Page 1

1.0 Executive Summary.............................................................................................................................1Chart: Highlights ......................................................................................................................2

1.1 Objectives ...................................................................................................................................21.2 Keys to Success ........................................................................................................................21.3 Mission ........................................................................................................................................3

2.0 Company Summary.............................................................................................................................32.1 Start-up Summary ......................................................................................................................3

Chart: Start-up .........................................................................................................................4Table: Start-up .........................................................................................................................4Table: Start-up Funding ..........................................................................................................5

2.2 Company Ownership .................................................................................................................53.0 Services................................................................................................................................................54.0 Market Analysis Summary ..................................................................................................................6

4.1 Market Segmentation ................................................................................................................6Chart: Market Analysis (Pie) ..................................................................................................7Table: Market Analysis ...........................................................................................................7

4.2 Service Business Analysis........................................................................................................74.2.1 Competition and Buying Patterns................................................................................8

5.0 Strategy and Implementation Summary ............................................................................................95.1 Marketing Strategy.....................................................................................................................95.2 Sales Strategy ............................................................................................................................9

5.2.1 Sales Forecast ..............................................................................................................9Chart: Sales Monthly ...................................................................................................10Table: Sales Forecast.................................................................................................10

6.0 Management Summary ....................................................................................................................116.1 Personnel..................................................................................................................................11

Table: Personnel ...................................................................................................................117.0 Financial Plan ....................................................................................................................................12

7.1 Important Assumptions............................................................................................................12Table: General Assumptions ...............................................................................................12

7.2 Break-even Analysis................................................................................................................13Chart: Break-even Analysis .................................................................................................13Table: Break-even Analysis .................................................................................................13

7.3 Projected Cash Flow ...............................................................................................................14Chart: Cash ...........................................................................................................................14Table: Cash Flow ..................................................................................................................15

7.4 Projected Profit and Loss .......................................................................................................16Chart: Profit Monthly .............................................................................................................16Chart: Profit Yearly ................................................................................................................17Chart: Gross Margin Monthly ...............................................................................................17Chart: Gross Margin Yearly..................................................................................................18Table: Profit and Loss ..........................................................................................................18

7.5 Projected Balance Sheet ........................................................................................................19Table: Balance Sheet ...........................................................................................................19

7.6 Business Ratios .......................................................................................................................20Table: Ratios .........................................................................................................................21

Table: Sales Forecast ...............................................................................................................................1

Table of Contents

Page 2

Table: Personnel ........................................................................................................................................2Table: General Assumptions ....................................................................................................................3Table: Profit and Loss ...............................................................................................................................4Table: Cash Flow .......................................................................................................................................5Table: Balance Sheet ................................................................................................................................6

Marrowstone Advertising Consultants

Page 1

1.0 Executive Summary

Introduction

It is the mission of Marrowstone Advertising Consultants to provide comprehensive marketingconsultation and creation of advertising campaigns for the nonprofit industry. It is our long-term goal to become THE preferred advertising agency for nonprofit institutions nationwide. Ourfirm is not interested in simply producing a service for our clients. We believe in creating a long-term relationship with them so that the delivery of their message becomes a seemless,thought-provoking experience that engenders action.

The Company

Marrowstone Advertising Consultants will be a limited liability partnership registered in the stateof Delaware for tax purposes. Its founder is Mr. Curtiss Cole, a former marketing executive withthe Boy Scouts of America. Mr. Cole has brought together a highly respected group of marketing,development, and graphic art specialists who, combined, have a total of 35 years ofexperience with nonprofit organizations.

The company has a limited number of private investors and does not plan to go public. Thecompany has its main offices in Reston, Virginia. The facilities include a design lab, conferencerooms and office spaces. The company expects to begin offering its services in January.

The Services

The firm offers a complete, custom advertising campaign that covers all audio-visual andprinted media. Examples include radio and television ads, billboards, building advertisements,brochures, direct mailing, business cards, etc. Management has designed a proven andeffective seven step process to building a winning campaign.

The company's main c lients will be small and start-up nonprofit institutions and localgovernments. By focusing on institutions such as these that have special needs, we believewe will be able to better serve our clients and produce a superior service that is more effectivethat other advertising firms.

The Market

Marrowstone Advertising Consultants will be concentrating on three main types of nonprofits whooperate in the environmental, youth development, and cultural awareness fields. This isbecause these types of organizations have the greatest needs and/or are the best capitalized inthe nonprofit industry.

Profitability and growth in this untapped market is expected to be strong, as evidenced by thefact that over the past 15 years the U.S. has seen an explosion of nonprofits in new fieldssuch as environmental awareness. Furthermore with the greater capitalization of suchagencies, we are seeing a widening gap between these organizations needs and whatconventional advertising companies can provide.

Financial Considerations

Start-up assets required are $122,300, which includes cash needed to support operations untilrevenues reach an acceptable level. Start-up expenses are $31,700. Most of the company's


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liabilities will come from outside private investors and management investment, however, wehave obtained $16,000 in current borrowing from Bank of America Commercial Investments, theprincipal to be paid off in two years. A long-term loan of $45,000 through Charter Bank ofRichmond will be paid off in ten years.

The company expects to reach profitability in Year 2 and does not anticipate any serious cashflow problems. We conservatively believe that during the first three years, about threeprojects per month will guarantee a break-even point.

1.1 Objectives

The three year goals for Marrowstone Advertising are the following:

· Achieve break-even by Year 2.· Establish a long-term contract with The Nature Conservancy.· Establish a minimum of 95% customer satisfaction rate to establish long-term

relationships with our clients and create word-of-mouth marketing.

1.2 Keys to Success

Marrowstone Advertising's keys to long-term survivability and profitability are as follows:

· Differentiate our services to nonprofits so that our clients realize that we are able tobetter serve their needs than a more generic competitor.

· Keeping close contact with c lients and establishing a well functioning long-termrelationship with them to generate repeat business and a top notch reputation.

· Establish a comprehensive service experience for our clients that includes consultation,


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analysis of nonprofit's goals and target markets. Creation of streamlined and customadvertising campaigns based on needs, total design work of all audio-visual advertisingtools, implementation, and follow-up analysis.

1.3 Mission

It is the mission of Marrowstone Advertising Consultants to provide comprehensive marketingconsultation and creation of advertising campaigns for the nonprofit industry. Our firm is notinterested in simply producing a service for our clients. We believe in creating a long-termrelationship with them so that the delivery of their message becomes a seemless, thought-provoking experience that engenders action. Marrowstone understands that nonprofit groups andinstitutions have special needs in delivering their information and messages to the public andcreating inspiration to act on these messages.

2.0 Company Summary

Marrowstone Advertising Consultants will be a limited liability partnership registered in the stateof Delaware for tax purposes. Its founder is Mr. Curtiss Cole, a former marketing executive withthe Boy Scouts of America. Mr. Cole has brought together a highly respected group of marketing,development, and graphic art specialists who, combined, have a total of 35 years ofexperience with nonprofit organizations.

The company has a limited number of private investors and does not plan to go public. Thecompany has its main offices in Reston, Virginia. The facilities include a design lab, conferencerooms and office spaces. The company expects to begin offering its services in January.

The company's main c lients will be small and start-up nonprofit institutions and localgovernments. By focusing on institutions such as these that have special needs, we believewe will be able to better serve our clients and produce a superior service that is more effectivethat other advertising firms.

2.1 Start-up Summary

Start-up assets required are $122,300, which includes cash needed to support operations untilrevenues reach an acceptable level. Start-up expenses are $31,700. Most of the company'sliabilities will come from outside private investors and management investment, however, wehave obtained $16,000 in current borrowing from Bank of America Commercial Investments, theprincipal to be paid off in two years. A long-term loan of $45,000 through Charter Bank ofRichmond will be paid off in ten years.


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Table: Start-up

Start-up

Requirements

Start-up Expenses

Legal $2,000

Insurance $1,000

Util ities $200

Rent $2,000

Accounting and bookkeeping fees $2,000

Expensed equipment $10,000

Advertising $6,500

Other $8,000

Total Start-up Expenses $31,700

Start-up Assets

Cash Required $117,300

Other Current Assets $5,000

Long-term Assets $10,000

Total Assets $132,300

Total Requirements $164,000


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Table: Start-up Funding

Start-up Funding

Start-up Expenses to Fund $31,700

Start-up Assets to Fund $132,300

Total Funding Required $164,000

Assets

Non-cash Assets from Start-up $15,000

Cash Requirements from Start-up $117,300

Additional Cash Raised $0

Cash Balance on Starting Date $117,300

Total Assets $132,300

Liabil ities and Capital

Liabil ities

Current Borrowing $16,000

Long-term Liabil ities $45,000

Accounts Payable (Outstanding Bills) $3,000

Other Current Liabil ities (interest-free) $0

Total Liabil ities $64,000

Capital

Planned Investment

Mr. Curtis Cole $25,000

Ms. Jennie Marks $20,000

Mr. David Danielson $20,000

Mr. Milo Winn $8,000

Others $27,000

Additional Investment Requirement $0

Total Planned Investment $100,000

Loss at Start-up (Start-up Expenses) ($31,700)

Total Capital $68,300

Total Capital and Liabil ities $132,300

Total Funding $164,000

2.2 Company Ownership

The company will have a number of outside private investors who will own 27% of the company'sshares. The rest will be owned by the senior management including Mr. Curtis Cole, (25%), Ms.Jennie Marks (20%), Mr. David Danielson, (20%), and Mr. Milo Winn (8%). All other financingwill come from loans.

3.0 Services

Marrowstone Advertising Consultants offers a complete, custom advertising campaign thatcovers all audio-visual and printed media. Examples include radio and television ads, billboards,


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building advertisements, brochures, direct mailing, business cards, etc. Our proven andeffective seven step process to building a winning campaign incudes the following:

· Initial consultation.· Analysis of nonprofit's goals and target market demographics.· Planning.· Creation of streamlined and custom advertising campaigns based on needs.· Total design work of all audio-visual/printed advertising tools.· Implementation (usually through subcontractors).· Follow-up analysis.

Each project is customized to our client and its scope, length, depth, reach, and cost areunique.

4.0 Market Analysis Summary

Marrowstone Advertising Consultants will be concentrating on three main types of nonprofits whooperate in the environmental, youth development, and cultural awareness fields. This isbecause these types of organizations have the greatest needs and/or are the best capitalized inthe nonprofit industry.

Profitability and growth in this little tapped market is expected to be strong, as evidenced by thefact that over the past 15 years the U.S. has seen an explosion of nonprofits in new fieldssuch as environmental awareness. Furthermore with the greater capitalization of suchagencies, we are seeing a widening gap between these organizations needs and whatconventional advertising companies can provide.

An analysis of the market using the five forces of profitability indicates that there will be ashort time where growth of market share and profitability will be extremely high while demandoutstrips supply. As new entrants move into the market this opportunity will disappear. This isthe time for Marrowstone to create its reputation and niche in the industry.

4.1 Market Segmentation

There are various nonprofit institutions nationwide that concentrate on various public issues.Marrowstone will be focusing on the following groups of clients:

· Environmental nonprofit institutions.· Youth development nonprofit institutions.· Cultural nonprofit institutions.· Other.

We are concentrating on these specific market segments for a variety of reasons. Theenvironmental segment which includes organizations such as the Sierra Club and the NatureConservancy is the fastest growing segment at the moment, and Marrowstone's managementconcludes that in the near future, they will also include some of the largest nonprofits in thenation. Youth development nonprofits such as the Boy Scouts, Camp Fire girls, 4-F, and TheBoys and Girls Club includes some of the largest and most well capitalized nonprofit organizationsin the country. Finally, although they tend to be small in size, there are a huge number of


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cultural nonprofits such as museums.

The market analysis table and graph which follows shows the number of each type oforganization in the greater Washington D.C. area. This will be our initial geographical focus forthe first three to four years of our company's existance. Later, as we expand to a nationwidescope, our future business plans will include all our potential clients across the country.

Table: Market Analysis

Market Analysis

Year 1 Year 2 Year 3 Year 4 Year 5

Potential Customers Growth CAGR

Environmental nonprofits 8% 34 37 40 43 46 7.85%

Youth development nonprofits 4% 44 46 48 50 52 4.26%

Cultural nonprofits 4% 128 133 138 144 150 4.04%

Other 5% 72 76 80 84 88 5.14%

Total 4.85% 278 292 306 321 336 4.85%

4.2 Service Business Analysis

The advertising industry for nonprofits is at the moment, an unfulfilled market with demandgreater than supply. Many nonprofit organizations have found that only the largest and mostexpensive advertising agencies will enter into contracts with nonprofits and this leaves a greatvoid which must be filled by in-house advertising.

Marrowstone believes that the greatest threat at the moment is in new entrants to themarket who will also perceive this opportunity. The most likely entrants will be pre-existingadvertising agencies wishing to horizontally integrate and enter new sub-markets. However,the one major disadvantage to new entrants is that all firms engaged in contracting toadvertising agencies face significant switching costs when bringing on a new advertising partner.


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Furthermore, Marrowstone understands that in this industry there is a significant learning curvethat creates declining "unit" costs as a firm gains more cumulative experience in the field itselfand with long-term clients specifically.

Rivalry among different advertising agencies as stated before is quite intense. The advertisingmarket as a whole is mature with low growth. Most of the largest agencies are mutuallydependent when it comes to jockeying for position and market share. The fact that there areso many diverse and seemingly "generic" or general advertising agencies makes this a cutthroatindustry.

The threat of clients backwardly integrating so as to have all their advertising done in-house isone of the major factors that buyers use to indirectly control price in this industry, andincrease competition among firms. This must always be foremost in the minds of Marrowstone'smanagement when offering services and setting prices.

4.2.1 Competition and Buying Patterns

Competition

Competition includes all potential advertising agencies that are willing to accept nonprofitcontracts and nonprofit organizations that handle all their advertising in-house. Practicallyspeaking, this means the largest advertising agencies such as Werner & Voss, Price,Waterhouse, & Cooper, and other large, nationwide agencies that hold significant marketshare. The advertising agency industry is highly fragmented, with a large number of smallcompanies that mainly cater to small firms and a few large companies that seek the largestcontracts from companies such as McDonald's, GM, etc. This makes competition within theindustry very intense. Through our niche strategy we intend to avoid such a debilitatingenvironment and avoid its drawbacks such as price wars, etc.

Buying patterns and needs

Companies usually enter into contracts with advertising agencies based on their reputation ofprofessionalism and effective campaigns in the past. This reputation is difficult to obtain bynew advertising firms unless its personnel bring it with them from previous firms such as ours.Price and scope are also important reasons for accepting contracts, especially if the companyis small.

nonprofit organizations have very different needs that other firms. Companies offering aproduct or service need to inform the public about the benefits of their product/service and theninspire them to purchase by leading them through an implicit or explicit cost-benefit analysis.On the other hand, nonprofits must appeal to a person's higher sense of community duty in orderto obtain contributions. Advertisements must be a thought-provoking experience thatengenders action. This is a far more difficult task to achieve than ordinary marketing andusually requires more resources and time than product/service marketing. Many advertisingagencies do not desire to accept these types of contracts and leave it to the nonprofitorganizations to create their own marketing. This leads to higher costs, more emphasis onobtaining contributions, and less effective management of the organization's goals.


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5.0 Strategy and Implementation Summary

Marrowstone Advertising Consultants' business strategy is to enter into a focused or nichemarket where it can offer a higher standard of quality to its specialized clients. This will allowus to charge a higher profit margin to our clients for these differentiated services. This will alsorequire average project times to be somewhat longer, and therefore we expect initial profitabilitylevels to be lower than average.

5.1 Marketing Strategy

In order to attract clients, Marrowstone will begin to contact promising organizations and offerfree consultations, and an initial contract at reduced prices. These promotions will allow us tobegin to make our reputation. In addition, Mr. Cole and Mrs. Marks will be traveling to sixconventions across the Eastern part of the country during the first year of operations wherewe will have booths to advertise our services. Finally we will be setting up cold calls topotential clients and have half and full page advertisements in various publications catering tononprofit organization's needs.

5.2 Sales Strategy

Marrowstone's management will be focusing on leveraging its extensive contacts in thenonprofit industry to generate contracts. In October of 2002 the Nature Conservancy announcedit was accepting bids for a new long-term advertising contract. Marrowstone's founder Mr. CurtisCole has been aggressively pursuing this contact and based on recent events, it is likely thatMarrowstone will win the bid, to be announced in February 2003. This will generate both muchneeded revenue, and if successful, will generate the reputation Marrowstone needs for furthercontracts. In addition, Mr. Danielson will be pursuing a number of other open-ended contractsthrough his contacts with youth organizations. At the current time, the Holson Foundation hasentered into negotiations with Marrowstone for its disadvantaged youth drive. Finally, ourcompany has bid with the city of Fredrick, Maryland to create a stop smoking campaign for itspublic offices.

5.2.1 Sales Forecast

Sales are based on the various contract projects we anticipate acquiring in the various marketsegments. Revenues are based on average costs per project based on estimated time andcomplexity of project plus and undisclosed profit margin. The company does not have anysignificant direct costs of sales.


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Table: Sales Forecast

Sales Forecast

Year 1 Year 2 Year 3

Sales

Environmental nonprofits $93,000 $145,000 $224,000

Youth development nonprofits $33,000 $56,000 $98,000

Cultural nonprofits $69,000 $110,000 $93,000

Other $36,000 $45,000 $45,000

Total Sales $231,000 $356,000 $460,000

Direct Cost of Sales Year 1 Year 2 Year 3

Row 1 $0 $0 $0

Other $0 $0 $0

Subtotal Direct Cost of Sales $0 $0 $0


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6.0 Management Summary

The company will have four officers including our president, Mr. Curtiss Cole. Our head ofoperations will be Mr. David Danielson, plus two advertising consultants, and a graphic artist. Mr.Winn will handle all of our audio-visual design work and he will eventually have a staff ofgraphic artists working under him. Finances and general admin will be handled by Mrs. Marks.

The company plans to hire additional advertising consultants, graphic artists and administrativepersonnel as we begin to get large numbers of contracts.

6.1 Personnel

Marrowstone's management brings to the company strong capabilities in creative flair,research, and a unique combination of skills drawn from other businesses.

Mr. Curtis Cole is a former marketing executive with the Land Trust Alliance and has manyyears of experience working with nonprofits in the environmental field. Previous companies Mr.Cole has worked for include the Sierra Club and the Audubon Society. Mr. Cole has successfullylaunched numerous advertising and public awareness campaigns with these organizationsincluding efforts to preserve the orca population in the Puget Sound region and to reduce thepollution levels in Denver, CO. Mr. Cole has an MBA in marketing and a BS in internationalrelations.

Mr. David Danielson graduated from Penn State University with a bachelors degree in marketingin 1975. From 1978-1988 Mr. Danielson worked for Ford Motor Company as an advertisingexecutive. In 1989 he went to work for Anderson Consulting in their marketing and advertisingdivision. Four years later, Mr. Danielson went to work as the Boy Scouts of America's chiefmarketing executive.

Table: Personnel

Personnel Plan


Mr. Curtis Cole- president $36,000 $36,000 $60,000

Mrs. Jennie Marks - CFO $36,000 $36,000 $60,000

Mr. David Danielson - projects manager $36,000 $36,000 $45,000

Mr. Milo Winn - audio-visual director $36,000 $36,000 $36,000

Advertising consultant $36,000 $36,000 $36,000

Advertising consultant $0 $36,000 $36,000

Graphic artist $0 $0 $21,000

Total People 5 6 7

Total Payroll $180,000 $216,000 $294,000


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7.0 Financial Plan

Our financial plan anticipates one year of negative profits as we gain sales volume. We havebudgeted enough investment to cover these losses and have an additional credit line of$60,000 available if sales do not match predictions.

7.1 Important Assumptions

We are assuming approximately 75% sales on credit and average interest rates of 10%. Theseare considered to be conservative in case our predictions are erroneous.

Table: General Assumptions

General Assumptions


Plan Month 1 2 3

Current Interest Rate 10.00% 10.00% 10.00%

Long-term Interest Rate 10.00% 10.00% 10.00%

Tax Rate 30.00% 30.00% 30.00%

Other 0 0 0


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7.2 Break-even Analysis

Our Break-even Analysis is based on the assumptions that our gross margin is 100%. In otherwords, we will have insignificant direct cost of sales. Since each project will be of differentscope, length, and complexity, it is difficult to assign an average per unit revenue figure.However, it is conservatively believed that during the first three years, about three projectsper month will guarantee a break-even point. This is because we will be dealing with smallercompanies at first that have smaller projects.

Table: Break-even Analysis

Break-even Analysis

Monthly Revenue Break-even $22,583

Assumptions:

Average Percent Variable Cost 0%

Estimated Monthly Fixed Cost $22,583


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7.3 Projected Cash Flow

The following is our Cash Flow table and chart. We do not expect to have any short-term cashflow problems even though we will be operating at a loss for the first year. Our short-term loanof $16,000 will be repaid in two equal payments in 2004-2005. Our $45,000 long-term loan will bepaid off in ten years.


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Table: Cash Flow

Pro Forma Cash Flow


Cash Received

Cash from Operations

Cash Sales $57,750 $89,000 $115,000

Cash from Receivables $121,425 $238,956 $321,668

Subtotal Cash from Operations $179,175 $327,956 $436,668

Additional Cash Received

Sales Tax, VAT, HST/GST Received $0 $0 $0

New Current Borrowing $5,000 $0 $0

New Other Liabil ities (interest-free) $0 $0 $0

New Long-term Liabil ities $0 $0 $0

Sales of Other Current Assets $0 $0 $0

Sales of Long-term Assets $0 $0 $0

New Investment Received $3,000 $0 $0

Subtotal Cash Received $187,175 $327,956 $436,668

Expenditures Year 1 Year 2 Year 3

Expenditures from Operations

Cash Spending $180,000 $216,000 $294,000

Bill Payments $95,653 $116,295 $131,741

Subtotal Spent on Operations $275,653 $332,295 $425,741

Additional Cash Spent

Sales Tax, VAT, HST/GST Paid Out $0 $0 $0

Principal Repayment of Current Borrowing $7,992 $3,000 $3,000

Other Liabil ities Principal Repayment $0 $0 $0

Long-term Liabil ities Principal Repayment $0 $4,000 $4,000

Purchase Other Current Assets $0 $0 $0

Purchase Long-term Assets $0 $0 $0

Dividends $0 $0 $0

Subtotal Cash Spent $283,645 $339,295 $432,741

Net Cash Flow ($96,470) ($11,339) $3,926

Cash Balance $20,830 $9,491 $13,418


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7.4 Projected Profit and Loss

The following table itemizes our revenues and associated costs. We expect to be paying highercosts in marketing and advertising than other companies as we attempt to build sales volume. Asthe reader can see, we expect monthly profits to begin in August 2003 and yearly profits tooccur in 2004. The charts following the table give a visual representation.


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Table: Profit and Loss

Pro Forma Profit and Loss


Sales $231,000 $356,000 $460,000

Direct Cost of Sales $0 $0 $0

Other Costs of Sales $7,000 $7,000 $7,000

Total Cost of Sales $7,000 $7,000 $7,000

Gross Margin $224,000 $349,000 $453,000

Gross Margin % 96.97% 98.03% 98.48%

Expenses

Payroll $180,000 $216,000 $294,000

Sales and Marketing and Other Expenses $12,000 $24,000 $24,000

Depreciation $2,000 $2,000 $2,000

Rent $12,000 $12,000 $13,000

Util ities $3,600 $3,600 $4,000

Insurance $3,000 $3,000 $3,000

Payroll Taxes $27,000 $32,400 $44,100

Travel $24,200 $12,000 $10,000

Other $7,200 $8,000 $10,000

Total Operating Expenses $271,000 $313,000 $404,100

Profit Before Interest and Taxes ($47,000) $36,000 $48,900

EBITDA ($45,000) $38,000 $50,900

Interest Expense $5,917 $5,451 $4,751

Taxes Incurred $0 $9,165 $13,245

Net Profit ($52,917) $21,384 $30,904

Net Profit/Sales -22.91% 6.01% 6.72%


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7.5 Projected Balance Sheet

The following table shows the Project Balance Sheet for Marrowstone Advertising.

Table: Balance Sheet

Pro Forma Balance Sheet


Assets

Current Assets

Cash $20,830 $9,491 $13,418

Accounts Receivable $51,825 $79,869 $103,201

Other Current Assets $5,000 $5,000 $5,000

Total Current Assets $77,655 $94,360 $121,619

Long-term Assets

Long-term Assets $10,000 $10,000 $10,000

Accumulated Depreciation $2,000 $4,000 $6,000

Total Long-term Assets $8,000 $6,000 $4,000

Total Assets $85,655 $100,360 $125,619

Liabil ities and Capital Year 1 Year 2 Year 3

Current Liabil ities

Accounts Payable $9,264 $9,585 $10,939

Current Borrowing $13,008 $10,008 $7,008

Other Current Liabil ities $0 $0 $0

Subtotal Current Liabil ities $22,272 $19,593 $17,947

Long-term Liabil ities $45,000 $41,000 $37,000

Total Liabil ities $67,272 $60,593 $54,947

Paid-in Capital $103,000 $103,000 $103,000

Retained Earnings ($31,700) ($84,617) ($63,233)

Earnings ($52,917) $21,384 $30,904

Total Capital $18,383 $39,767 $70,672

Total Liabil ities and Capital $85,655 $100,360 $125,619

Net Worth $18,383 $39,767 $70,672


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7.6 Business Ratios

We have included industry standard ratios from the advertising consultant industry to comparewith ours. As this is a new sub-market of the overall industry, we expect some significantdifferences especially in sales growth, financing ratios, long-term asset investments and networth. However, our projections indicate a healthy company that will be able to obtain andretain long-term profitability.


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Table: Ratios

Ratio Analysis

Year 1 Year 2 Year 3 Industry Profi le

Sales Growth n.a. 54.11% 29.21% 7.51%

Percent of Total Assets

Accounts Receivable 60.50% 79.58% 82.15% 39.92%

Other Current Assets 5.84% 4.98% 3.98% 39.01%

Total Current Assets 90.66% 94.02% 96.82% 82.32%

Long-term Assets 9.34% 5.98% 3.18% 17.68%

Total Assets 100.00% 100.00% 100.00% 100.00%

Current Liabil ities 26.00% 19.52% 14.29% 39.13%

Long-term Liabil ities 52.54% 40.85% 29.45% 10.54%

Total Liabil ities 78.54% 60.38% 43.74% 49.67%

Net Worth 21.46% 39.62% 56.26% 50.33%

Percent of Sales

Sales 100.00% 100.00% 100.00% 100.00%

Gross Margin 96.97% 98.03% 98.48% 100.00%

Selling, General & Administrative Expenses 119.88% 92.03% 91.76% 84.13%

Advertising Expenses 0.00% 0.00% 0.00% 3.06%

Profit Before Interest and Taxes -20.35% 10.11% 10.63% 2.36%

Main Ratios

Current 3.49 4.82 6.78 1.76

Quick 3.49 4.82 6.78 1.49

Total Debt to Total Assets 78.54% 60.38% 43.74% 5.71%

Pre-tax Return on Net Worth -287.86% 76.82% 62.47% 55.31%

Pre-tax Return on Assets -61.78% 30.44% 35.15% 12.78%

Additional Ratios Year 1 Year 2 Year 3

Net Profit Margin -22.91% 6.01% 6.72% n.a

Return on Equity -287.86% 53.77% 43.73% n.a

Activity Ratios

Accounts Receivable Turnover 3.34 3.34 3.34 n.a

Collection Days 54 90 97 n.a

Accounts Payable Turnover 11.00 12.17 12.17 n.a

Payment Days 28 29 28 n.a

Total Asset Turnover 2.70 3.55 3.66 n.a

Debt Ratios

Debt to Net Worth 3.66 1.52 0.78 n.a

Current Liab. to Liab. 0.33 0.32 0.33 n.a

Liquidity Ratios

Net Working Capital $55,383 $74,767 $103,672 n.a

Interest Coverage -7.94 6.60 10.29 n.a

Additional Ratios

Assets to Sales 0.37 0.28 0.27 n.a

Current Debt/Total Assets 26% 20% 14% n.a

Acid Test 1.16 0.74 1.03 n.a

Sales/Net Worth 12.57 8.95 6.51 n.a

Dividend Payout 0.00 0.00 0.00 n.a

Appendix

Page 1

Table: Sales Forecast

Sales Forecast

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Sales

Environmental nonprofits 0% $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $9,000 $24,000

Youth development nonprofits 0% $0 $0 $0 $0 $0 $2,000 $4,000 $4,000 $5,000 $5,000 $6,000 $7,000

Cultural nonprofits 0% $0 $0 $0 $0 $7,000 $5,000 $3,000 $26,000 $4,000 $7,000 $10,000 $7,000

Other 0% $0 $0 $0 $0 $0 $0 $7,000 $5,000 $12,000 $5,000 $2,000 $5,000

Total Sales $6,000 $6,000 $6,000 $6,000 $13,000 $13,000 $20,000 $41,000 $27,000 $23,000 $27,000 $43,000

Direct Cost of Sales Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Row 1 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Subtotal Direct Cost of Sales $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Appendix

Page 2

Table: Personnel

Personnel Plan


Mr. Curtis Cole- president 0% $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000

Mrs. Jennie Marks - CFO 0% $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000

Mr. David Danielson - projects manager 0% $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000

Mr. Milo Winn - audio-visual director 0% $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000

Advertising consultant 0% $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000

Advertising consultant 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Graphic artist 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Total People 500% 5 5 5 5 5 5 5 5 5 5 5 5

Total Payroll $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000

Appendix

Page 3

Table: General Assumptions

General Assumptions


Plan Month 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 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%

Tax Rate 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00%

Other 0 0 0 0 0 0 0 0 0 0 0 0

Appendix

Page 4

Table: Profit and Loss

Pro Forma Profit and Loss


Sales $6,000 $6,000 $6,000 $6,000 $13,000 $13,000 $20,000 $41,000 $27,000 $23,000 $27,000 $43,000

Direct Cost of Sales $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Other Costs of Sales $500 $500 $500 $500 $500 $500 $500 $700 $700 $700 $700 $700

Total Cost of Sales $500 $500 $500 $500 $500 $500 $500 $700 $700 $700 $700 $700

Gross Margin $5,500 $5,500 $5,500 $5,500 $12,500 $12,500 $19,500 $40,300 $26,300 $22,300 $26,300 $42,300

Gross Margin % 91.67% 91.67% 91.67% 91.67% 96.15% 96.15% 97.50% 98.29% 97.41% 96.96% 97.41% 98.37%

Expenses

Payroll $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000

Sales and Marketing and Other

Expenses

$1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000

Depreciation $166 $166 $166 $166 $166 $166 $166 $166 $166 $166 $166 $174

Rent $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000

Utilities $300 $300 $300 $300 $300 $300 $300 $300 $300 $300 $300 $300

Insurance $250 $250 $250 $250 $250 $250 $250 $250 $250 $250 $250 $250

Payroll Taxes 15% $2,250 $2,250 $2,250 $2,250 $2,250 $2,250 $2,250 $2,250 $2,250 $2,250 $2,250 $2,250

Travel 15% $1,200 $3,000 $1,000 $2,000 $2,000 $3,000 $2,000 $1,000 $2,000 $3,000 $1,000 $3,000

Other $600 $600 $600 $600 $600 $600 $600 $600 $600 $600 $600 $600

Total Operating Expenses $21,766 $23,566 $21,566 $22,566 $22,566 $23,566 $22,566 $21,566 $22,566 $23,566 $21,566 $23,574

Profit Before Interest and Taxes ($16,266) ($18,066) ($16,066) ($17,066) ($10,066) ($11,066) ($3,066) $18,734 $3,734 ($1,266) $4,734 $18,726

EBITDA ($16,100) ($17,900) ($15,900) ($16,900) ($9,900) ($10,900) ($2,900) $18,900 $3,900 ($1,100) $4,900 $18,900

Interest Expense $503 $497 $492 $486 $481 $475 $511 $506 $500 $495 $489 $483

Taxes Incurred $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Net Profit ($16,769) ($18,563) ($16,558) ($17,552) ($10,547) ($11,541) ($3,577) $18,228 $3,234 ($1,761) $4,245 $18,243

Net Profit/Sales -279.48% -309.39% -275.96% -292.54% -81.13% -88.78% -17.89% 44.46% 11.98% -7.65% 15.72% 42.42%

Appendix

Page 5

Table: Cash Flow

Pro Forma Cash Flow


Cash Received

Cash from Operations

Cash Sales $1,500 $1,500 $1,500 $1,500 $3,250 $3,250 $5,000 $10,250 $6,750 $5,750 $6,750 $10,750

Cash from Receivables $0 $150 $4,500 $4,500 $4,500 $4,675 $9,750 $9,925 $15,525 $30,400 $20,150 $17,350

Subtotal Cash from Operations $1,500 $1,650 $6,000 $6,000 $7,750 $7,925 $14,750 $20,175 $22,275 $36,150 $26,900 $28,100

Additional Cash Received

Sales Tax, VAT, HST/GST Received 0.00% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

New Current Borrowing $0 $0 $0 $0 $0 $0 $5,000 $0 $0 $0 $0 $0

New Other Liabilities (interest-free) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

New Long-term Liabilities $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

New Investment Received $0 $0 $0 $0 $0 $0 $1,500 $1,500 $0 $0 $0 $0

Subtotal Cash Received $1,500 $1,650 $6,000 $6,000 $7,750 $7,925 $21,250 $21,675 $22,275 $36,150 $26,900 $28,100

Expenditures Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Expenditures from Operations

Cash Spending $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000

Bill Payments $3,253 $7,663 $9,330 $7,425 $8,386 $8,414 $9,343 $8,384 $7,639 $8,633 $9,528 $7,655

Subtotal Spent on Operations $18,253 $22,663 $24,330 $22,425 $23,386 $23,414 $24,343 $23,384 $22,639 $23,633 $24,528 $22,655

Additional Cash Spent

Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Principal Repayment of Current Borrowing $666 $666 $666 $666 $666 $666 $666 $666 $666 $666 $666 $666

Other Liabilities Principal Repayment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Long-term Liabilities Principal Repayment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Purchase Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Purchase Long-term Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Dividends $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Subtotal Cash Spent $18,919 $23,329 $24,996 $23,091 $24,052 $24,080 $25,009 $24,050 $23,305 $24,299 $25,194 $23,321

Net Cash Flow ($17,419) ($21,679) ($18,996) ($17,091) ($16,302) ($16,155) ($3,759) ($2,375) ($1,030) $11,851 $1,706 $4,779

Cash Balance $99,881 $78,202 $59,206 $42,115 $25,813 $9,658 $5,899 $3,524 $2,494 $14,345 $16,051 $20,830

Appendix

Page 6

Table: Balance Sheet

Pro Forma Balance Sheet


Assets Starting Balances

Current Assets

Cash $117,300 $99,881 $78,202 $59,206 $42,115 $25,813 $9,658 $5,899 $3,524 $2,494 $14,345 $16,051 $20,830

Accounts Receivable $0 $4,500 $8,850 $8,850 $8,850 $14,100 $19,175 $24,425 $45,250 $49,975 $36,825 $36,925 $51,825

Other Current Assets $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000

Total Current Assets $122,300 $109,381 $92,052 $73,056 $55,965 $44,913 $33,833 $35,324 $53,774 $57,469 $56,170 $57,976 $77,655

Long-term Assets

Long-term Assets $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000

Accumulated Depreciation $0 $166 $332 $498 $664 $830 $996 $1,162 $1,328 $1,494 $1,660 $1,826 $2,000

Total Long-term Assets $10,000 $9,834 $9,668 $9,502 $9,336 $9,170 $9,004 $8,838 $8,672 $8,506 $8,340 $8,174 $8,000

Total Assets $132,300 $119,215 $101,720 $82,558 $65,301 $54,083 $42,837 $44,162 $62,446 $65,975 $64,510 $66,150 $85,655

Liabilities and Capital Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Current Liabilities

Accounts Payable $3,000 $7,349 $9,084 $7,145 $8,107 $8,101 $9,063 $8,131 $7,352 $8,313 $9,275 $7,336 $9,264

Current Borrowing $16,000 $15,334 $14,668 $14,002 $13,336 $12,670 $12,004 $16,338 $15,672 $15,006 $14,340 $13,674 $13,008

Other Current Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Subtotal Current Liabilities $19,000 $22,683 $23,752 $21,147 $21,443 $20,771 $21,067 $24,469 $23,024 $23,319 $23,615 $21,010 $22,272

Long-term Liabilities $45,000 $45,000 $45,000 $45,000 $45,000 $45,000 $45,000 $45,000 $45,000 $45,000 $45,000 $45,000 $45,000

Total Liabilities $64,000 $67,683 $68,752 $66,147 $66,443 $65,771 $66,067 $69,469 $68,024 $68,319 $68,615 $66,010 $67,272

Paid-in Capital $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $101,500 $103,000 $103,000 $103,000 $103,000 $103,000

Retained Earnings ($31,700) ($31,700) ($31,700) ($31,700) ($31,700) ($31,700) ($31,700) ($31,700) ($31,700) ($31,700) ($31,700) ($31,700) ($31,700)

Earnings $0 ($16,769) ($35,332) ($51,890) ($69,442) ($79,988) ($91,529) ($95,107) ($76,878) ($73,644) ($75,405) ($71,160) ($52,917)

Total Capital $68,300 $51,531 $32,968 $16,410 ($1,142) ($11,688) ($23,229) ($25,307) ($5,578) ($2,344) ($4,105) $140 $18,383

Total Liabilities and Capital $132,300 $119,215 $101,720 $82,558 $65,301 $54,083 $42,837 $44,162 $62,446 $65,975 $64,510 $66,150 $85,655

Net Worth $68,300 $51,531 $32,968 $16,410 ($1,142) ($11,688) ($23,229) ($25,307) ($5,578) ($2,344) ($4,105) $140 $18,383

Marrow Stone Advertising

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