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Legal Page
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Table of Contents

1.0 Executive Summary.....................................................................................................................1

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

Table: Cash Flow.........................................................................................................................19

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

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Web Services Provider

1.0 Executive Summary

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

Chart: Highlights

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

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Web Services Provider

2.0 Company Summary

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

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Web Services Provider

Table: Past Performance

Past Performance
1997

1998

1999

$0
$0
0.00%
$0
0

$0
$0
0.00%
$0
0

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

1997

1998

1999

$0
$0
$0
$0

$0
$0
$0
$0

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

Long-term Assets
Accumulated Depreciation
Total Long-term Assets

$0
$0
$0

$0
$0
$0

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

Total Assets

$0

$0

$21,950

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

$0
$0
$0
$0

$0
$0
$0
$0

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

Long-term Liabilities
Total Liabilities

$0
$0

$0
$0

$3,550
$24,950

Paid-in Capital
Retained Earnings
Earnings
Total Capital

$0
$0
$0
$0

$0
$0
$0
$0

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

Total Capital and Liabilities

$0

$0

$21,950

0
$0
0.00

0
$0
0.00

30
$900,000
63.38

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

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

Current Liabilities

Other Inputs
Payment Days
Sales on Credit
Receivables Turnover

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Web Services Provider

Chart: Past Performance

3.0 Services
Main services provided by Web Services Provider are outlined below.
1. DSL. A Digital Subscriber Line (DSL) is high-speed Internet access that is an "on all the
time" connection and ranges in speed from 144k to 6Gb transfer rate.
2. Hosting. Web hosting clients generally have the company place a single, or several, website
on a server in our facility and pay for the amount of disk space that they need to operate
their site.
3. Dedicated Server. Clients seeking to maximize the speed of their site due to high traffic or
download will lease a dedicated server from Web Services Provider, leaving the maximum
capability of the server all to their own site.
4. Co-location. Co-location customers provide the hardware themselves and administer their
site or sites via the Internet.
When hosting and dedicated server clients are secured, orders will be processed immediately
and the customer can be up and running within a few minutes. Dedicated server clients can be
online within 1-2 hours unless a special server must be built.

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Web Services Provider

3.1 Future Services

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

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Web Services Provider

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

Market Analysis
Potential Customers

Growth

Online E-trading
Entertainment
Global Corporations
Corporations
Total

15%
10%
15%
10%
12.74%

2000

2001

2002

2003

2004

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

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

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

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

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

CAGR
15.00%
10.00%
15.00%
10.00%
12.74%

Chart: Market Analysis (Pie)

4.1 Market Segmentation

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

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

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Web Services Provider

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

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Web Services Provider

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

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

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

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

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

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

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Web Services Provider

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

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Web Services Provider

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

Chart: Sales Monthly

Table: Sales Forecast

Sales Forecast
2000

2001

2002

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

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

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

2000
$100,000
$0
$100,000

2001
$150,000
$0
$150,000

2002
$200,000
$0
$200,000

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

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Web Services Provider

Chart: Sales by Year

5.1 Value Proposition

Web Services Provider's products and services offer the following advantages to customers.

Bandwidth.
Reliability.
Service.
Flexibility.

5.2 Competitive Edge

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

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Web Services Provider

advantage through rapid growth. The company's goal in the next year is to grow its core
customer base quickly and efficiently while focusing on the most profitable sector of the market.
The company's goal in the 2-5 years is to grow through acquisitions of smaller companies and
separate itself from the competition by price and services.
5.3.1 Distribution Strategy
Web Services Provider uses a direct sales force, relationship selling, and sales/support lines to
reach its markets. These channels are most appropriate because each customer has special
demands and needs to be treated differently. After the initial contact, by magazine, referral,
or email, the customer is assessed and assigned a sales rep and tech support person to help
them and to familiarize themselves with each individual company's needs and history.
5.3.2 Marketing Programs
The key message associated with the company's products and services is better reliability,
speed, and bandwidth for the same price. The company's promotional plan is diverse and
includes a range of marketing communications:
1. Public relations. Press releases are issued to both technical trade journals and major
business publications such as Wall Street Journal, Business Week, and others.
2. Trade shows. Company representatives attend and participate in several trade shows such
as Apex and Comdex.
3. Industry conferences and seminars, research publishing, and print media. Web
Services Provider presents its key advantages at conferences and publishes articles about its
work in publications such as e-business Advisor, Wired, Microsoft Internet Developer, Web
Techniques, Business 2.0, and PC Computing. Local and national public relations will be
handled by Creative Garage II's marketing firm.
4. Print advertising and article publishing. The company's print advertising program
includes advertisements in technical trade publications such as E-business Journal, Wired,
Web Techniques, Microsoft Internet Developer, Business 2.0, PC Computing, direct mail
pieces, brochures, and other print media.
5. Internet. The company currently has plans to redevelop its current website because that is
a primary marketing channel.
5.4 Strategic Alliances
The company has strategic alliances with VISP. This alliance is valuable because it provides a
direct connection to an AB-299 Internet connection with unlimited bandwidth. This relationship
is explored more in the Competitive Advantages section.
6.0 Management Summary
The company's management philosophy is based on responsibility and mutual respect. Web
Services Provider has an environment and structure that encourages productivity and respect
for customers and fellow employees.

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Web Services Provider

Officers and Key Employees

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

Personnel Plan
2000

2001

2002

Marketing and Sales

Technical Services
Accounting
Administrative and HR
Total People

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

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

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

Total Payroll

$480,000

$627,000

$838,000

7.0 Financial Plan

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

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

2000

2001

2002

1
10.00%
10.00%
25.42%
0

2
10.00%
10.00%
25.00%
0

3
10.00%
10.00%
25.42%
0

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Web Services Provider

7.2 Break-even Analysis

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

Chart: Break-even Analysis

Table: Break-even Analysis

Break-even Analysis
Monthly Revenue Break-even

$106,438

Assumptions:
Average Percent Variable Cost
Estimated Monthly Fixed Cost

7%
$99,342

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Web Services Provider

7.3 Projected Profit and Loss

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

Chart: Gross Margin Yearly

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Web Services Provider

Table: Profit and Loss

Pro Forma Profit and Loss

2000

2001

2002

Sales
Direct Cost of Sales
Other
Total Cost of Sales

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

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

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

Gross Margin
Gross Margin %

$1,350,000
90.00%

$4,300,000
95.56%

$7,250,000
96.67%

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

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

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

$1,192,100

$1,585,550

$2,175,700

Profit Before Interest and Taxes

EBITDA
Interest Expense
Taxes Incurred

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

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

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

Net Profit
Net Profit/Sales

$118,098
7.87%

$2,035,838
45.24%

$3,784,582
50.46%

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

Page 16

Web Services Provider

Chart: Profit Monthly

Chart: Profit Yearly

Page 17

Web Services Provider

7.4 Projected Cash Flow

The chart and table below depict the projected cash flow for the company.

Chart: Cash

Page 18

Web Services Provider

Table: Cash Flow

Pro Forma Cash Flow

2000

2001

2002

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

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

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

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

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

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

2000

2001

2002

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

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

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

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

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

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

$587,734
$590,184

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

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

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

Page 19

Web Services Provider

7.5 Projected Balance Sheet

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

Pro Forma Balance Sheet

2000

2001

2002

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

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

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

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

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

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

2000

2001

2002

Accounts Payable
Current Borrowing
Other Current Liabilities
Subtotal Current Liabilities

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

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

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

Long-term Liabilities
Total Liabilities

$0
$72,019

$0
$150,630

$0
$236,089

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

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

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

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

Net Worth

$1,365,098

$3,400,936

$7,185,518

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

Page 20

Web Services Provider

7.6 Business Ratios

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

2001

2002

Industry Profile

66.67%

200.00%

66.67%

9.70%

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

17.11%
0.07%
58.25%
41.75%
100.00%

20.77%
0.03%
74.78%
25.22%
100.00%

16.56%
0.01%
83.96%
16.04%
100.00%

25.00%
46.30%
76.60%
23.40%
100.00%

Current Liabilities
Long-term Liabilities
Total Liabilities
Net Worth

5.01%
0.00%
5.01%
94.99%

4.24%
0.00%
4.24%
95.76%

3.18%
0.00%
3.18%
96.82%

49.40%
21.20%
70.60%
29.40%

100.00%
90.00%
82.10%
14.13%
10.53%

100.00%
95.56%
50.31%
8.89%
60.32%

100.00%
96.67%
45.92%
8.00%
67.66%

100.00%
0.00%
78.10%
0.90%
1.90%

11.62
11.62
5.01%
11.57%
10.99%

17.63
17.63
4.24%
79.81%
76.43%

26.39
26.39
3.18%
70.62%
68.37%

1.57
1.19
70.60%
4.10%
13.80%

Sales Growth
Percent of Total Assets

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

2000

2001

2002

Net Profit Margin

Return on Equity

7.87%
8.65%

45.24%
59.86%

50.46%
52.67%

n.a
n.a

6.10
58
12.46
27
1.04

6.10
40
12.17
22
1.27

6.10
48
12.17
25
1.01

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

0.05
1.00

0.04
1.00

0.03
1.00

n.a
n.a

$765,048
0.00

$2,505,386
0.00

$5,994,968
0.00

n.a
n.a

0.96
5%
8.21
1.10

0.79
4%
12.74
1.32

0.99
3%
21.19
1.04

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

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

Page 21

Web Services Provider

Dividend Payout

0.00

0.00

0.00

n.a

Page 22

Appendix
Table: Sales Forecast

Sales Forecast
Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

$125,000
$0
$125,000

$125,000
$0
$125,000

$125,000
$0
$125,000

$125,000
$0
$125,000

$125,000
$0
$125,000

$125,000
$0
$125,000

$125,000
$0
$125,000

$125,000
$0
$125,000

$125,000
$0
$125,000

$125,000
$0
$125,000

$125,000
$0
$125,000

$125,000
$0
$125,000

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

0%
0%

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,337

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,337

Page 1

Appendix
Table: Personnel

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

0%
0%
0%
0%

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

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

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

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

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

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

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

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

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

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

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

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

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

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

Page 2

Appendix
Table: General Assumptions

General Assumptions
Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

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%

25.00%

25.00%

25.00%

25.00%

25.00%

25.00%

25.00%

25.00%

25.00%

25.00%

25.00%

Plan Month

Other

Dec

Page 3

Appendix
Table: Profit and Loss

Pro Forma Profit and Loss

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

Direct Cost of Sales

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,333

$8,337

Other

$4,167

$4,167

$4,167

$4,167

$4,167

$4,167

$4,167

$4,167

$4,167

$4,167

$4,167

$4,167

$12,500

$12,500

$12,500

$12,500

$12,500

$12,500

$12,500

$12,500

$12,500

$12,500

$12,500

$12,504

$112,500

$112,500

$112,500

$112,500

$112,500

$112,500

$112,500

$112,500

$112,500

$112,500

$112,500

$112,496

90.00%

90.00%

90.00%

90.00%

90.00%

90.00%

90.00%

90.00%

90.00%

90.00%

90.00%

90.00%

Payroll

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

Sales and Marketing and Other

Expenses
Depreciation

$29,500

$20,000

$20,000

$20,000

$20,000

$20,000

$20,000

$20,000

$20,000

$20,000

$20,000

$20,000

Sales

Total Cost of Sales

Gross Margin
Gross Margin %

Expenses

$350

$350

$350

$350

$350

$350

$350

$350

$350

$350

$350

$350

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

Bank Charges

$167

$167

$167

$167

$167

$167

$167

$167

$167

$167

$167

$167

Insurance

$500

$500

$500

$500

$500

$500

$500

$500

$500

$500

$500

$500

Rent

$1,250

$2,500

$2,500

$3,750

$3,750

$3,750

$3,750

$3,750

$3,750

$3,750

$3,750

$3,750

Depreciation

$1,200

$1,200

$1,200

$1,200

$1,200

$1,200

$1,200

$1,200

$1,200

$1,200

$1,200

$1,200

Software

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$1,000

$25,000

$25,000

$25,000

$25,000

$25,000

$25,000

$25,000

$25,000

$25,000

$25,000

$25,000

$25,000

$6,000
$0

$6,000
$0

$6,000
$0

$6,000
$0

$6,000
$0

$6,000
$0

$6,000
$0

$6,000
$0

$6,000
$0

$6,000
$0

$6,000
$0

$6,000
$0

$105,967

$97,717

$97,717

$98,967

$98,967

$98,967

$98,967

$98,967

$98,967

$98,967

$98,967

$98,967

Profit Before Interest and Taxes

$6,534

$14,784

$14,784

$13,534

$13,534

$13,534

$13,534

$13,534

$13,534

$13,534

$13,534

$13,530

EBITDA

$6,884

$15,134

$15,134

$13,884

$13,884

$13,884

$13,884

$13,884

$13,884

$13,884

$13,884

$13,880

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$1,960

$3,696

$3,696

$3,383

$3,383

$3,383

$3,383

$3,383

$3,383

$3,383

$3,383

$3,382

Net Profit

$4,574

$11,088

$11,088

$10,150

$10,150

$10,150

$10,150

$10,150

$10,150

$10,150

$10,150

$10,147

Net Profit/Sales

3.66%

8.87%

8.87%

8.12%

8.12%

8.12%

8.12%

8.12%

8.12%

8.12%

8.12%

8.12%

Repairs and Maintenance

Product Development
Payroll Taxes
Other
Total Operating Expenses

Interest Expense
Taxes Incurred

15%

Page 4

Appendix

Page 5

Appendix
Table: Cash Flow

Pro Forma Cash Flow

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Cash Received
Cash from Operations
Cash Sales

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

Cash from Receivables

$7,100

$11,267

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

Subtotal Cash from Operations

$7,100

$11,267

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$0
$0

$0
$0

$0
$0

$0
$0

$0
$0

$0
$0

$0
$0

$0
$0

$0
$0

$0
$0

$0
$0

$0
$0

New Other Liabilities (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

$1,250,000

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

Subtotal Cash Received

$1,257,100

$11,267

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

$125,000

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Cash Spending

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

$40,000

Bill Payments

$12,669

$79,859

$73,562

$73,594

$74,500

$74,500

$74,500

$74,500

$74,500

$74,500

$74,500

$74,500

Subtotal Spent on Operations

$52,669

$119,859

$113,562

$113,594

$114,500

$114,500

$114,500

$114,500

$114,500

$114,500

$114,500

$114,500

Additional Cash Received

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

Expenditures

0.00%

Expenditures from Operations

Additional Cash Spent

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

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$500

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$10,900

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$3,550

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$150,000

$30,000

$30,000

$150,000

$30,000

$30,000

$30,000

$30,000

$30,000

$30,000

$30,000

$30,000

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$217,619

$149,859

$143,562

$263,594

$144,500

$144,500

$144,500

$144,500

$144,500

$144,500

$144,500

$144,500

$1,039,481

($138,593)

($18,562)

($138,594)

($19,500)

($19,500)

($19,500)

($19,500)

($19,500)

($19,500)

($19,500)

($19,500)

Page 6

Appendix
Cash Balance

$1,041,931

$903,338

$884,776

$746,182

$726,683

$707,183

$687,683

$668,183

$648,684

$629,184

$609,684

$590,184

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

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

$1,041,931
$132,100
$1,050
$1,175,081

$903,338
$245,833
$1,050
$1,150,221

$884,776
$245,833
$1,050
$1,131,659

$746,182
$245,833
$1,050
$993,066

$726,683
$245,833
$1,050
$973,566

$707,183
$245,833
$1,050
$954,066

$687,683
$245,833
$1,050
$934,566

$668,183
$245,833
$1,050
$915,067

$648,684
$245,833
$1,050
$895,567

$629,184
$245,833
$1,050
$876,067

$609,684
$245,833
$1,050
$856,567

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

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

$155,250
$1,350
$153,900
$1,328,981

$185,250
$1,700
$183,550
$1,333,771

$215,250
$2,050
$213,200
$1,344,859

$365,250
$2,400
$362,850
$1,355,916

$395,250
$2,750
$392,500
$1,366,066

$425,250
$3,100
$422,150
$1,376,216

$455,250
$3,450
$451,800
$1,386,366

$485,250
$3,800
$481,450
$1,396,517

$515,250
$4,150
$511,100
$1,406,667

$545,250
$4,500
$540,750
$1,416,817

$575,250
$4,850
$570,400
$1,426,967

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

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Table: Balance Sheet

Pro Forma Balance Sheet

Assets

Starting Balances

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Long-term Liabilities
Total Liabilities

$3,550
$24,950

$0
$77,407

$0
$71,110

$0
$71,110

$0
$72,016

$0
$72,016

$0
$72,016

$0
$72,016

$0
$72,016

$0
$72,016

$0
$72,016

$0
$72,016

$0
$72,019

$100,000
($103,000)
$0
($3,000)
$21,950

$1,350,000
($103,000)
$4,574
$1,251,574
$1,328,981

$1,350,000
($103,000)
$15,661
$1,262,661
$1,333,771

$1,350,000
($103,000)
$26,749
$1,273,749
$1,344,859

$1,350,000
($103,000)
$36,899
$1,283,899
$1,355,916

$1,350,000
($103,000)
$47,050
$1,294,050
$1,366,066

$1,350,000
($103,000)
$57,200
$1,304,200
$1,376,216

$1,350,000
($103,000)
$67,350
$1,314,350
$1,386,366

$1,350,000
($103,000)
$77,500
$1,324,500
$1,396,517

$1,350,000
($103,000)
$87,651
$1,334,651
$1,406,667

$1,350,000
($103,000)
$97,801
$1,344,801
$1,416,817

$1,350,000
($103,000)
$107,951
$1,354,951
$1,426,967

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

($3,000)

$1,251,574

$1,262,661

$1,273,749

$1,283,899

$1,294,050

$1,304,200

$1,314,350

$1,324,500

$1,334,651

$1,344,801

$1,354,951

$1,365,098

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

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