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Financial Discussion Year One

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Financial Discussion

Year One:

Capital Equipment Requirement


Time Merchants will operate with a minimal capital investment. The majority of the
initial investment will go toward the purchase of an ACD system for the call center.
It is important to start with a telecommunications system that can grow with the
company. Time Merchants has obtained a quote of $74,000 for the purchase and
installation of a new Aspect ACD system. The company will also purchase 9 used
workstations, which will be used by the initial call center representatives. The
company plans to purchase 9 computers and five printers during the first year of
operations. Time Merchants will also need to purchase database software to track
customer information and ordering habits.

Income Statement
The Beta Test will be underway during the first three months of year one. During
the Beta Test TM will offer free trials to 20 premium service customers and 100
service providers. The number of premium customers is forecasted to grow from
the 20 initial customers in month 3 to total of 200 by month 12. While this growth
rate may seem aggressive it is considered realistic in relation to the advertising
budget in year one. Revenue is broken down on th income statement by type. The
'commissions on goods sold' represents the commission TM earns from the sale of
goods and services to the Premium Delivery Customers, The largest operating
expense for TM is will be marketing. During the first year of service TM's plans to
spend a total of $800,000 on marketing and promotion for the concept. The 'Other
Expense" line is to be used for office expenses and travel that will occur during the
year. A line item for "Contingency Expense" at 1% of revenue is also included to
cover any unexpected costs.

Statement of Cash Flows


Due to the electronic payment system (i.e., credit cards, purchasing cards), TM
does not estimate that there will ever be any significant amount of accounts
receivable to report. The prepaid expense is for insurance. After receiving the initial
investment of $900,000 prior to the start of business, TM does not anticipate any
cash flow problems.

Balance Sheet
Current assets for year one will include cash and prepaid insurance. As stated
before, accounts receivable and bad debt are not considered an issue for TM.
Accounts payable has a $0 balance because TM will pay for the majority of goods
and services via a purchasing card. Common stock is held at $1/share par value.
The management team's investment of $150,000 gives them a 66% equity
position. The first round investors' contribution of $750,000 is represented as
64,286 shares of common stock and $685,714 of Additional Paid in Capital.

Years 2 and 3:
Income Statement
During years 2 and 3 the number of customers is forecasted to increase by 3%
each month. Time Merchants will begin its geographic expansion of the Referral
Service in year 2, an expansion that will continue in each subsequent year. Time
Merchants does forecast revenue in year 3 for the sale of consumer data and for
advertising on the company web site. Management believes that by year 3 the
company will have collected a sufficient amount of consumer data that may be of
interest to other companies. Time Merchants also anticipates that the strong
customer base will entice other companies to advertise on the web site. Marketing
and promotions expense continues to remain high (51% in year 2 and 35% in year
3). Salaries increase by 5% each year along with professional fees and system
development costs.

Cash Flow Statement


Depreciation expense increases in both years due to the purchase of additional
workstations and compute equipment. The cash position remains strong in both
years.

Balance Sheet
As in year 1, current assets for both years 2 and 3 include cash and prepaid
insurance. The equity distribution remains unchanged during these two years.

Years 4 and 5:

Income Statement
Time Merchants anticipates a dramatic increase in sales during years 4 and 5 for
several reasons. To begin with, the company will have expanded the referral service
to four other geographic areas. This will provide a significant amount of revenue to
TM at a relatively low cost. The Premium Delivery Service will also grow at a
substantial rate during years 4 and 5. This will result from the increased availability
of the service to new communities as well as the growing acceptance of the service.
The revenues from the sale of consumer buying habits and advertising space are
also expected to increase. Marketing and promotions expense continues to remain
high. Salaries increase by 5% each year along with professional fees and system
development costs.

Cash Flow Statement


The company is expected to have an extremely strong cash position during years 4
and 5. Increases in capital expenditures during year 4 are for computer upgrades
and additional workstations.

Balance Sheet
The equity value of the company is expected to grow to nearly $9.6 million in year
5.

The following proforma financial statements show the results of operations for the
first five years. Additional financial projections can be seen in Appendix H.
5-YEAR COMPREHENSIVE FINANCIAL STATEMENTS

% of % of % of % of % of
Income
Year 1 Reven Year 2 Reven Year 3 Reven Year 4 Reven Year 5 Revenu
Statement
ue ue ue ue e
Operational
Revenue
Commissions On 1,504,33
94,250 13% 317,980 14% 527,112 12% 879,551 13% 13%
Goods 1
Premium Delivery
55,000 8% 163,151 7% 279,043 7% 465,617 7% 796,364 7%
Fees
1,859,8 3,338,9 5,403,2 8,745,21
Provider Fees 578,749 79% 79% 78% 77% 76%
47 49 21 5
Other Income
Advertising - 0% - 0% 29,250 1% 50,032 1% 85,572 1%
Consumer Data - 0% - 0% 117,000 3% 200,128 3% 342,286 3%
2,340,9 4,291,3 6,998,5 11,473,7
Total Revenue 727,999 100% 100% 100% 100% 100%
78 54 49 67
Operating
Expenses
Operations
Rent 21,600 3% 21,600 1% 21,600 1% 24,000 0% 24,000 0%
Utilities 2,160 0% 2,160 0% 2,160 0% 2,400 0% 2,400 0%
Insurance 18,000 2% 18,000 1% 18,000 0% 18,000 0% 18,000 0%
Truck Lease 24,000 3% 32,000 1% 52,000 1% 83,000 1 % 139,000 1%
1,044,5 1,502,4 2,061,12
Salaries 380,240 52% 610,022 26% 24% 21% 18%
59 76 2
Employee
68,443 9% 109,804 5% 188,021 4% 270,446 4% 371,002 3%
Taxes/Benefits
Credit Card Fees 21,940 3% 70,229 3% 128,741 3% 209,956 3% 344,213 3%
Professional Fees 7,000 1% 7,350 0% 7,718 0% 8,103 0% 8,509 0%
Selling 0%
Marketing/Promot
800,000 110% 700,000 30% 500,000 12% 500,000 7% 500,000 4%
ions
System
15,000 2% 45,000 2% 45,000 1% 50,000 1% 25,000 0%
Development
Other Expense 12,000 2% 35,000 1% 50,000 1% 50,000 1% 50,000 0%
Depreciation
40,471 6% 42,467 2% 45,467 1% 36,800 1% 36,800 0%
Expense
Expansion 1,000,0 1,500,0 1,500,00
- 0% 500,000 21% 23% 21% 13%
Expense 00 00 0
Contingency
7,000 1% 15,000 1% 50,000 1% 75,000 1% 90,000 1%
Expense
Total Operating 1,417,7 2,208,6 3,153,2 4,330,1 5,170,04
195% 94% 73% 62% 45%
Expense 54 32 64 82 5
Operating Profit (689,75 1,138,0 2,668,3 6,303,72
-95% 132,346 6% 27% 38% 55%
Before Tax (EBIT) 5) 90 68 2
232,271 1,067,3 2,521,48
Income Tax - -
2 47 9
Net Profit After (689,75 132,346 905,818 1,601,0 3,782,23
3
Tax 5) 21

The Offering
Time Merchants is seeking investors who wish to provide cash in exchange for
equity positions in the corporation. This cash will be used to enable rapid growth in
the untapped home service market. The founders will invest $150,000 to start the
business and is seeking additional investment to promote the TM concept and
provide working capital. Based on sales and cost estimates, and an investment of
$750,000 in exchange for 30% equity in th company, Time Merchant's will deliver
an annual compounded return of 78% on the initial investment over 5 years using a
valuation factor (P/E) of 12. The Net Present Value (NPV), based upon a valuation
of $45 million at the end of year five, discounted at 40%, is $8.3 million. (Financial
assumptions can be found in appendix H.)

Sources Uses
Founders $150,000 Marketing/Promotion $650,000
Investors $750,000 Working Capital/Operations $250,000

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