ALBANCOTT INVESTMENT PROJECT

Istanbul August, 1995

Prepared by XXX

NAME OF THE JOINT VENTURE: Albancott LTD. ADDRESS: Sheshi Garibaldi Lagje No:6 Tirana - Albania DATE OF ESTABLISHMENT: Nov 11, 1992 REGISTERY NUMBER: 7338 CAPITAL: USD 8 650 000 OBJECTIVE: Cotton processing and trading of all textile products.

I. TABLE OF CONTENTS
I. TABLE OF CONTENTS II. PROJECT SUMMARY A. AIM OF THE PROJECT B. PROJECT STAGES C. ASSETS ( OTHER THAN HUMAN ASSETS ) D. FINANCIAL BRIEFS E. KEY PERSONNEL III. FEASIBILITY STUDY A. GENERAL INFORMATION ABOUT ALBANIA 1.Geographical information 2.Demographical information 3.Government administration 4.International relations 5.Economic information 6.Fiscal incentives apply to textile sector B. TEXTILE SECTOR IN ALBANIA C. EVALUATION OF TEXTILE MARKETS D. TECHNICAL INFORMATION ABOUT THE PROJECT 1.Choice of technology 2.Technological specifications 3.Machinery list 4.Supplementary machhines & equipment in production E. OTHER ARRANGEMENTS BEFORE STARTING PRODUCTION 1.Other machines & equipment 2.Factory building maintenance 3.Expenditures for HR F. FINANCIAL ANALYSIS OF THE PROJECT 1.Initial investment a.Building b.Machinary c.Supplementary machines & equipment d.Other machines & equipment e.Factory building maintenance f. Expenditures for human resources g.Other expenditures h.Working capital investment i.Total initial investment

2.Estimated revenues & expences a.Estimated operational revenues b.Estimated operational expences c.Estimated general & administrative expences 3.Estimated net income a.First year's net income b.First three year's net income projections 4.Amount of financing required a.Total financing needed b.Breakdown of funds required c.Cumulative cash flows d.Repayment of funds e.Profitability of the project G. CONCLUSION IV. APPENDIX A. CURRICULUM VITAE OF KEY PERSONNEL B. LEGAL DOCUMENTS OF ALBANCOTT 1. Certificate of incorporation 2.Articles of association C. OTHER DOCUMENTS

II.PROJECT SUMMARY

A.AIM OF THE PROJECT Albancott is a joint venture company, established in June 1994, under ministerial authority in accordance of the Foreign Investment Law of Albania. The aim is to renew the old technology of the second biggest textile mill of Albania; named Tirana-Textile Mill and extend and improve the processes to an integrated textile complex; from spinning to garments production based on cotton. B. PROJECT STAGES The Albancott project has three main stages depending on our financial sources: At the first stage for which we applied to your company for funding, we are concerned with cotton-spinning only. For the second stage, we will establish weaving , knitting, bleaching and dying units. At the final stage, the ready-made cotton garments will be produced. C. ASSETS (OTHER THAN HUMAN ASSETS) Currently, there are 1100 metric tons of USA cotton in our warehouses. The yearly production capacity is planned as 5000 mt. In later stages, the proposed capacities are 2000mt for weaving, knitting, bleaching and dying and 1000 mt for the ready-made garments. The portion that is not going to enter the next stage of production will be sold in the market, mainly USA and EC. The factory building is rented from government for 99 years and has: 12 860 sqm. of factory area for spinning units, 12 860 sqm of area for weaving and knitting, 1 370 sqm x 6 mt. hight as main warehouse, 850 sqm x 6 mt. of additional warehouse space, 1 040 sqm. of administrative buildings, 11 150 sqm. of garden and open area. 41 130 sqm total area Bleaching and dying units are planned to be located in the factory space to be built in the open area. Finally, garments are planned to be produced in another building which will be rented. The factory buildings already have the electrical systems and water supplies ready for production.

D. FINANCIAL BRIEFS

Amount of money sought : 4 218 300 Currency : USD Breakdown on utilization of funds : October 1995: 1 448 300 November 1995: 216 000 December 1995: 314 000 January 1996: 2 240 000 Location Projected Profitability : Tirana/ ALBANIA : 27 %

The details about financial information is in the financial analysis section of the feasibility study.

E. KEY PERSONNEL 1.Shareholders Mr. Emin Trk (Nautilus Trading Limited) 75% shares - unique manager Mr. Carlton Lawson ( Amaricott Inc.) %1 Mr. Arthur Hoxholli (On behalf of Albanian Government) 24% shares 2. Board of Directors Mr. Emin Trk Mr. Stan Mehaffey Ms. Aye Nergis Turan Mr. Ahmet enkal Mr. Murat Durul Trk Mr. Perparim Zaimi Mr. Isa Fei

(Technical Coordinator) ( Financial Director) ( Administrative & Marketing Coordinator) ( Marketing Director) (Administrative Director -Firm representative to Albanian Government) ( Technical Director)

The CV's of the key personnel are in the appendix.

III. FEASIBILITY STUDY

A. GENERAL INFORMATION ABOUT ALBANIA

1. Geographical Information The Republic of Albania lies in south-eastern Europe. It has boarders to Yugoslavia on north and north-east, to the Republic of Mecadonia on the east, to Greece on south and by the Adriatic and Ionian Seas on the west. The Mediterranean climate is dominant throughout the country. The average temperature is 18 C (64 F). The capital city is Tirana with a population of approximately 250.000 . The other major cities are Durres, Elbasan, Skkoder, Vlore and Kore. The total land area is 28.748 sq km. 2. Demographical Information Population Urban Rural : 3.485.000 (estimated for 1994) : 24 % : 76 %

Ethnic Groups : a.Albanian 98 % a. Greek 1.8 % b. Macedonian 1.5 %0 c. Others 4 %00 Language: The language is Albanian which has two dialects mainly Gheg and Tosk. The literary language is formed of both dialects with the stucture of Tosk prevailing. Religion : The State permitted the places of worship and religious activities in 1990. Although there are groups of Roman-Catholics(10%) and EasternOrthodox(20%), the majority are Muslims(70%). Education: The literacy rate : 99 % Pre-primary school students : 130.000 4.0 % Primary and secondary students : 557.000 17.2 % Highschool : 67.500 2.0 % Vocational school : 138.000 4.2 % Higher education : 27.500 0.8 % Total schooling rate : 28.2 %

3. Government Administration: Republic of Albania is a secular and parliamentary republic. The parliament consist of 140 deputies is elected for four years with free,direct and secret ballot The last election was held on March 22, 1992. The parliament is called "People's Assembly" elects the president of Republic who is also the Head of State. He appoints the Chairman of the Council of Ministers

and also the Ministers upon the recommendation of the Chairman. There are 28 political parties. A coalition of Democratic Party of Albania( DPA), The Social Democratic Party of Albania (SDP), Albenian Republican Party (ARP) and Independents is in power. The President and the Head of State is Dr. Sali Berisha. The seperation of powers principle; namely legislative, executive, judicial holds. Albania also recognizes and guarantees those fundamental rights and freedoms that are proclaimed in international law, including those of national minorities. Albania consists of 27 districts each of which is administered by multi-party executive committees. 4. International Relations The Republic of Albania is recognized by almost all nations around the world. It has good relationships with the neighbouring countries. But, there is still an unpredictable chaos in former Yugoslavia. It has been predicted that the struggle will come to an end by Crotian attacts to Srps and a new order to be established like Tito regime. 5. Economic Information: Albania has been implementing a comprehensive economic adjustment program since mid1992. The government took mesures to establish fiscal and monetary control, introduced comrehensive price, trade and foreign exchange system reforms, initiated privatization og agricultural land, public housing and small and medium size enterprises. Inflation as measured by consumer price index declined from very high levels to about 30%. GDP growth rate is estimated to be 8% for the coming years. The exchange rate against USD was 80lek/$ in 1992, 100 lek/$ in 1993 and ....lek/$ at present. The devaluation rate of lek against hard currencies is relatively low, compared to similar countries. But situation will change as the economy develops and people accumulate money on their hands. More than 50% of GDP is produced by agriculture, only 13-17% by industry and the rest by costruction, transportation and other services. According to 1993 figures, exports are 11347.5 million leks (US$ 113.475 million) and imports are 42981.9 million leks (US$ 429.819 million). Main export items are mined ores, tobacco, energy, fertilizers and handicraft products; import items on the other hand, food products, coal, detergents, cars& trucks, electrodomestic appliances.

The Albanian economy has the potential to achieve international competitiveness in sectors such as agriculture, mining, petrolium, turism and labor intensive consumer goods of which textile is the strongest as far as the competitive advantages are concerned. Albania is a country geographically very close to EC, but has diverse characteristics. So many years of close regime, brought certain disadvantages, namely, inferior technology in industry and services, low consumption, no competition, inefficiency, and low wages. On the other

hand, nationwide social security systems gave people equal chance to be educated and solve their health problems. Highly educated but inefficient labor force work for very low wages. No one is after profitability which avoids the accumulation of funds to renew the technology; the lack of competition brings inefficiency, by nature of the past regime, there is no management and entrepreneurship at all. According to the 1989 figures (latest census) the economically active population is approximately 46% of total population. 55% of the working population is employed in agriculture, hunting, forestry and fishing, 15% in governmental services sector and 19% in mining, manufacturing, electricity, gas and water supplies. 55% of the working population are males, 45% are females. To realize the potential in the economy, government has given vast importance to foreign investment and capital, thus maintain economic growth even further. Albania entered major trade agreements: GATT observer status, working party on accession (1992) EC Trade and Cooperation Agreement (Sept. 1993) EFTA Declaration on Cooperation, Free Trade Agreement in negotiation All other OECD countries except Japan have granted MFN and/or GSP status. Albania has so far no export restriction imposed by EC and NAFTA, while many other textile exporting countries suffer from quota restrictions. From 1991 on, Albania is the member of Multilateral Investment Guarantee Agency (MIGA) and ICSID. Albania also signed bilateral agreements on the promotion and protection of reciprocal investments with more than 20 countries, most important is being the USA. Foreign investments are not to be subject to nationalization, expropriation, consfication, requisition or any other measure of similar effect, except when this is in public interest, and then only under due process of law and with appropriate compensation. All revenues made by foreign investors in Albania may be trasferred abroad after payment of all due taxes. There are also no limits concerning the equity policy.

6. Fiscal incentives apply to textile sector: 1. Four-year tax holiday in manufacturing or production sector. 60% reduction on tax o profits if the profits are re-invested. 2. No turnover tax for imported goods needed for maintenance and development of investment as well as for raw materials and equipments that are part of the production cycle. 3. No turnover tax on goods that are exempted from customs duties. 4. Losses can be carried on for three consecutive years in addition to the year the loss occured. 5. No withholding tax on outgoing dividends.

B.TEXTILE SECTOR IN ALBANIA In 1989, the textile industry represents the main branch of light industry, covering 70% of the production of light industry and 16% of total industrial production of Albania. Since 1989, in textile industry, the production consequently the employment is decreased 3-5 fold, as a result of sudden economic and political changes which has arranged the albanian textile enterprises in face of foreign competition. Total Textile Output ( 1989) : 59 400 000 lb. Cotton Textile 57 800 000 lb. Employment 20 714 (1994) 10 400 000 lb 9 900 000 lb. 7 763

The technology in textile industry is out of date and has low productivity. The technology belongs to 1950-60. The strategy of the government is to privatize the textile enterprises, making collaboration with foreign partners and joint ventures. Approximately 15% of the row material is provided domestically and the rest from imports. According to the research made by a foreign firm in 1994 Albanian production ( Textile Thread) 2 700 mt Textile Imports 9 470 mt Textile Exports 950 mt Albanian textile consumption 11 200 mt Per capita consumption 3.4 kg. (lowest in Europe)

C. EVALUATION OF TEXTILE MARKETS Cotton Textile Market is evaluated in terms of cotton production and yarn manufacturing. World cotton yield is 18.11 million metric tons in 1994. The productivity/hectar is 578 kg. The cotton usage 18.96 million mt. The excess demand over yield is met from the stocks. The biggest producers of cotton are China, USA, India, Pakistan and Uzbeckistan. All cotton exporters with the exception of USA prefer to process cotton domestically in order to increase the value added. Besides China, India and Pakistan has suffered from low productivity/ hectar due to technical inefficiencies ( diseases, wrong irrigation practices etc.) World cotton stocks

unprecedentedly below 8 million mt. For 1995 it is expected that cotton production will be 18.4 million mt and cotton consumption 19 million mt. It is also expected that, falling cotton prices in 1992-3 will increase and world prices will be above $ 1.75/ kg. According to the data of International Textile Manufacturers Federation, the total spinning capacity of the world is 172 400 000 needles and 8 400 000 open-end rotors. Ring spinning capacity is decreasing (-1.1%) while open-end spinning capacity increase a little (1.2%) in 1992. In the same year, Turkey's open-end spinning capacity increased by 20% and became the sixth biggest capacity in the world ranking. Despite this fact, Turkey imports yarn from far east, south Asia and Africa. The Turkey's imports of yarn in 1994 53 300 mt. with an average price of $ 3.13/kg. D.TECHNICAL INFORMATION ABOUT THE PROJECT 1.Choice of technology: The technology that is preferred for Albancott is the "Open-end" spinning. The basic reason is that, it is newer, more advanced and less problematic than other technologies. Less machine is involved which reduces the overall price of machines. Wider product range satisfies the market better. It has seen that technology is rather changing to open-end woldwide. USA has the largest capacity of updated open-end systems. Turkey which is the sixth in the same ranking increased its capacity by 20% last year. The reason to mention these two countries specifically, is because the machinery will be from USA and also some of the back-ups will be supplied from Turkey. 2.Technological specifications: a. Production is based on 200 000 lbs/ 7 days and 3 shift. Average thickness 18/1 carded yarn. b. Range of yarn counts is 6/1 to 30/1. c. Labor force required to operate plant total 114 workers for three shifts. Indirect and white collar workers are not included in this figure. d. Expected efficiency on rotors : 90% e. Amount of cotton x 93% = Amount of yarn produced. f. Expected break factors 1500 to 1800.

3.Machinery list: a. Opening and cleaning Truetzschler Opening Lines(Model 1985) 2 units Each consisting of: Blendomat Model BDT 18 Blendcommander Model BC Magnet Condenser Model LVSA- B Cleaner Model MSR Multimixer Model MPMo Fun Model MTVR 500

Tandem X-L Cleaners with fiber control D 106 Condensers each 2 units X-L Cleaner with fiber control d106 condenser Fiber control stock funs 2 units b. Blending Fiber Control Blend Line Consisting of: Fiber Control Weigh Pan Hoppers with Extended Aprons 2 units Fiber Control Weigh Pan Hopper with D106 Condensers 2 units Fiber Control Conveyor Fiber Control B1 Blender Magnet c. Carding Rieter Aeromixer 1976 Rieter Condense 3 units Rieter Flock Feads 3 units Rieter Fans 3 units Rieter Control Panels 3 units Saco- Lowell 40" cards revolving Fiat Tabs, Crosrol Varga Fronts, Crosrol Autolevellers, 30" Crosrol Coilers, Rieter Aerofeet Chutes 21 units d. Drawing Zinzer 720 Draw Frames ( Breaker) Model 1977 Dual Delivery 20 x 48, 8 End up Creel 30" Can Manual Doff Running 0 1198 ft/minute 9 units Zinzer 720 Draw Frames ( Finisher) Model 1977 Dual Delivery 20 x 42, 8 End up Creel 20" Can Manual Doff Running 0 1198 ft/minute 9 units e. Spinning Schlafhorst Autocorne/Open-End Machines Model SRZ 1985. 168 Rotor, 46 MM Rotor Dia 0820 Combing Rolls, 1 piecer 12 units

f. Winding Schlafhorst Autocorner Winder Model 107, Year 1977 60 Spindle, Uster C - 3 Clearers, Set Up Back Winding

4.Supplementary Machines and Equipment in Production: a. Boiler with capacity of 5000 lt/ hour of steam. b. Crane system c. Forklift d. Transformer 550 Volt

e. Air Conditioner industrial type 3 units f. Additional Quality Control Labratory Equipment g. Hand Tools D. OTHER ARRANGEMENTS BEFORE STARTING PRODUCTION 1. Other Machines and Equipment: a. Service Minibusses b. Cars c. Truck d.Computer hardware and software e. Punchcard machine and guardwatches 2. Factory Building Maintenance: a. Covering the floors of spinning area and warehouses with appropriate material. b. Painting of the factory and administartive building. c. Arrangements in the warehouses for yarn storage. d. Office furniture and decoration. e. Functional arrangements in the open areas. 3. Expenditures for Human Resources: a. Technical training b. Managerial training c. Workcloths

F. FINANCIAL ANALYSIS OF THE PROJECT 1. Initial investment a. Building (Only the buildings to be used are taken into account) Factory space Warehauses Adm.Building TOTAL 12 860 sqm 2 220 sqm 1 040 sqm $ 300/sqm $ 250/sqm $ 300/sqm $ 3 858 000 $ 555 000 $ 312 000 $ 4 725 000

Buildings and land is rented from Albaian Government for 99 years. However, in order not to have a bias in profitability analysis, the equalent values for the buildings in use are calculated and included in the investment amount. The electrical, clean and waste water and steam systems are ready for use are assumed in the equavalent costs. b. Machinery:

The total purchase price of the production machines which are given in the machinery list section amounts to $ 1 580 000 (C&F price). It is negotiated to pay 50% at shipment and 50% with 6 Months L/C. c. Supplementary Machines & Equipment: 1. Boiler 2. Crane system 3. Forklift 4. Transformer 5. Air conditioner(3 units) 6. Quality Control Lab. 7. Additional QCL equipment 8. Hand tools TOTAL $ $ $ $ $ $ $ 85 000 54 000 7 000 16 000 87 000 10 000 4 000

(Ready to use in the factory at present)

$ 2 000 $ 265 000

d. Other Machines & Equipment: 1. Sevice minibusses (2 $ 30 000 units) 2. Service cars (2 units) $ 25 000 3. Truck $ 20 000 4. Computer hardware $ 18 000 5. Computer software $ 10 000 6. Punchcard mashine $ 5 000 7. Guard watches(3 units) $ 1 500 8. Fire detector system $ 3 000 TOTAL $ 112 500

e. Factory Building Maintenance: 1. Floor covering (15 080 sqm) 2. Painting (12 000 sqm) 3. Arranging the warehaus 4. Office furniture & decoration 5. Open area arrangement 6. Cafeteria 7. Infirmary TOTAL $ 150 800 $ 15 000 $ 10 000 $ 80 000 $ 25 000 $ 50 000 $ 5 000 $ 335 000

f. Expenditures for Human Resources: 1. Technical training 2. Managerial training 3. Work clothes $ 25 000 $ 15 000 $ 9 000

TOTAL g. Other Expenditures:

$ 49 000

1. Fees to local consultants 2. Legal consultancy 3. Consultancy fee for US cooperation 4. Financial consultancy 5. Salary payments to locals 6. Misc. expenditures up to now TOTAL h. Working Capital Investment: 1. Raw materials (cotton) 2. Work-in-process 3. Finished goods (yarn) 4. Cash TOTAL

$ 150 000 $ 30 000 $ 120 000 $ 40 000 $ 16 000 $ 80 000 $ 436 000

$ 2 090 000 $ 0 $ 300 000 $ 200 000 $ 2 590 000

(1 100 mt x $1900/mt)

The level of raw materials are the portion of capital committed by the local partners and in the stocks of the company. However, the optimal level of inventory is lower and and calculated as $ 600 000. The usage will decrease the inventory until the optimal level is reached.

i. Total Initial Investment: 1. Building 2. Machinery 3. Supplementary machine & eq 4. Other machine & eq. 5. Factory building maintenance 6. Expenditures for HR 7. Other Expenditures 8. Unexpected expenditures 9. Working capital investment TOTAL $ 4 725 000 $ 1 580 000 $ 265 000 $ 112 500 $ 335 000 $ 49 000 $ 436 000 $ 100 000 $ 2 590 000 $10 193 300

2. Estimated Operational Revenues and Expenses: In first two quarters, the capacity usage will be 85%. After than the firm will reach its practical full capacity. Full capacity production is the processing of 200 000 lbs/week in three shifts. The firm will work for 50 weeks/year and there will be two weeks of machine maintenance period. Maintenance will be made in the first two weeks of August.

Raw cotton on hand is of Memphis origin, middle lenght fiber. (The cost of this kind of cotton is $0.94/lb) Therefore its price is relatively high for open- end production. It is planned to be mixed with the lower grade short fiber cotton with the price of $0.80/lb. A mixture of high grade 1/3 and low grade 2/3, the average cost will be $0.84/lb. After the high quality raw material is exhausted (in 300 days), the lower grade cotton will be used in production. Direct labor force consists of 114 workers for three shifts. This includes the workers in the weekend shifts. There will be 50% extra payment for the work done in official holidays, weekends and night shifts. The indirect labor force consists of 26 workers of different jobs. Direct and indirect labor cost per worker / month is $100 net, $130 gross. Weekly working hours of a worker is 45 hrs. Management team consists of 7 managers. The firm needs 10 white collar personnel. for office jobs, like secretary, functional departmental jobs etc. According to the information given by the ex-owner of the machines, the yearly maintenance cost is 8% of the machinery value. The other relevant cost will be given below

a. Estimated Operational Revenues: According to the figures taken from USA and European markets, the selling price of 1 lb. of 18/1 yarn is $ 1.35 which is $ 2.97/kg. In order to penetrate to the market, price is assumed to be $ 2.90/kg. The process has 7% waste and amount of production is equal to 93% of the cotton processed. 1.Q 1 002 456 932 284 2 703 624 2.Q 1 002 456 932 284 2 703 624 3.Q 997 920 928 066 2 691 391 4.Q 1 179 360 1 096 805 3 180 735

Amount of cotton processed(kg) Yarn produced (kg) Sales revenue ($ 2.90/kg)

b. Estimated Operational Expenses: 1.Q $ 1 784 371 Total Raw material usage From the existing inventory $ 634 888 To be purchased ($ 1.80/kg) $ 1 149 483 Insurance & freight Direct Labor Wages $ $ $ 22 000 64 110 48 345

2.Q 3.Q 4.Q $ 1 784 371 $ 1 776 298 $ 2 046 347 $ 634 888 $ 632 016 $ 188 205 $ 1 149 483 $ 1 144 282 $ 1 858 142 $ $ $ 22 000 $ 64 905 48 345 $ $ 22 000 58 215 48 345 $ $ $ 36 000 63 845 48 345

Night shift Holidays & weekends Indirect Labor Wages Night shift Holidays & weekends Packaging Repairs & maintenance Electricity Steam & water Total Operating Costs

$ $ $ $ $ $ $ $ $ $

8 060 7 705 14 618 11 023 1 838 1 757 22 000 31 600 11 765 2 200

$ $ $ $ $ $ $ $ $ $

8 060 8 500 14 799 11 023 1 838 1 938 22 000 31 600 11 765 2 200

$ $ $ $ $ $ $ $ $ $

4 030 5 840 13 274 11 023 919 1 332 22 000 31 600 9 955 1 160

$ $ $ $ $ $ $ $ $ $

8 060 7 440 14 557 11 023 1 838 1 696 25 000 31 600 11 765 2 200

$ 1 952 664

$ 1 953 640

$ 1 934 502

$ 2 231 314

c. Estimated General & Administrative Expenses: 1.Q 2.Q Management salaries $ 54 000 $ 54 000 Employee salaries (gross) Office expences Communication expenses Transportation expenses Local International Marketing & promotion exp. Accomodation expenses Local International Food for all personnel $ $ $ $ $ $ $ $ $ $ $ 10 500 5 000 6 000 19 500 3 000 16 500 40 000 8 000 3 000 5 000 10 000 $ $ $ $ $ $ $ $ $ $ $ 10 500 1 000 6 000 19 500 3 000 16 500 25 000 8 000 3 000 5 000 10 000

3.Q $ 54 000 $ $ $ $ $ $ $ $ $ $ $ 10 500 1 000 6 000 19 500 3 000 16 500 25 000 8 000 3 000 5 000 7 500

$ $ $ $ $ $ $ $ $ $ $ $

4.Q 54 000 10 500 1 000 6 000 19 500 3 000 16 500 25 000 8 000 3 000 5 000 10 000

Unexpected expenditures Total Gen. & Adm. Exp.

10 000

10 000

10 000

10 000

$ 163 000

$ 144 000

$ 141 500

$ 144 000

3. Estimated Net Income: a. First Year's Net Income: Sales revenue ($ 2.90/kg.) Total operating expenses Operating income Gen.& Adm. expenses Net Income 1.Q $ 2 703 624 $ 1 952 664 $ 750 960 $ 163 000 $ 587 960 2.Q $ 2 703 624 $ 1 953 640 $ 749 984 $ 144 000 $ 605 984 3.Q $ 2 691 391 $ 1 934 502 $ 756 889 $ 141 500 $ 615 389 4.Q $ 3 180 735 $ 2 231 314 $ 949 421 $ 144 000 $ 805 421

b. First Three Years' Net Income Projections: In the first year of activity, prices of yarn is kept below the market level in order to penetrate the market. Starting from the second year, prices are increased gradually to increase the profitability. Therefore, The price of yarn will be $3.00/kg. for the second and third years. Due to increasing activity level, certain positions will be opened and number of personnel will increase. The proposed increase in general and administrative expenses is 10%. Yearly depreciation charges are not shown in calculations. The reason is that, it is not a cash outlay, but only an allowance from net income for tax purposes and for recording sake. The firm has 4 years of tax holiday and there is no need to show the depreciation. Therefore, The figure calculated by deducting total operating expenses, general and administrative expenses from sales revenue directly gives the net income. 1.Year $ 11 279 374 $ 8 072 120 $ 3 207 254 $ 592 500 $ 2 614 754 2. Year $ 12 655 443 $ 8 515 028 $ 4 140 415 $ 651 750 $ 3 488 665 3.Year $ 12 655 443 $ 8 515 028 $ 4 140 415 $ 651 750 $ 3 488 665

Sales revenue Total operating expenses Operating income Gen.& Adm. expenses Net income

4. Amount of Financing Required: Total initial investment is $ 10 193 300. However, a part of this investment is already completed. The building is ready to use, after maintenance. There is $ 2 090 000 worth of high quality cotton in the warehouse which is going to be used with lower grade cotton until the fourth quarter. Apart from these two investment items, the rest has to be financed externally.

The lower grade cotton will be purchased starting from the first quarter. The first quarters purchase should also be financed externally. After then, the cash flows will be adequate to meet the purchasing requirement. Machinery will be bought 50% cash and with 50% 6 months L/C. The quality control lab. is ready, but needs additional equipment worth of $ 4 000.

a. Total Financing Needed: Machinary Supplementary mach.& eq. Other machine & equipment Factory building maintenance Expenditures for HR Other expenditures Unexpected expenditures Purchase of cotton Minimum cash TOTAL $ 1 580 000 $ 255 000 $ 112 500 $ 335 800 $ 49 000 $ 436 000 $ 100 000 $ 1 150 000 $ 200 000 $ 4 218 300

b. Breakdown of Funds Required: Total of $ 4 218 300 is needed to start up the business. However, these funds are needed in a period of time starting from September 1995 until the beginning of the first quarter. The periodical financing needs are given below: EXPLANATION Purchase of machinery Supp. mach.& eq. Other mach.&eq. Factory building maint. Expenditures for HR Other expenditures Unexpected exp. Purchasing cotton for 1.Q Minimum cash OCT 95 $ 790 000 $ 255 000 $ 37 500 $ 175 800 $ 15 000 $ 175 000 NOV 95 DEC 95 JAN 96 $ 790 000

$ $ $

80 000 10 000 120 000

$ $ $ $

75 000 80 000 24 000 135 000 $ 100 000 $ 1 150 000 $ 200 000

Total Grand Total

$ 1 448 300

216 000

314 000

$ 2 240 000 $ 4 218 300

c. Cumulative Cash Flows: The table of Cumulative Cash Flows shows the accumulation of funds in the first year. As the production starts with the first quarter of 1996, the sales revenues are immediately begin and cover the costs of production as well as general and administrative expenses. Only the first quarter's inventory purchase has to be financed externally. Starting from the second quarter, the generated funds can meet the purchasing requirement. At the end of the first year, the external inventory financing is not necessary and that portion can be payed back.

Operational cash flows : Sales revenue (collections) Disbursements Raw material purchases Other operational costs Gen. & adm. expenses Total disbusements Net cash position Beginning cash balance Cumulative cash (Minimum cash) Cash surplus (deficit)

1.Q $ 2 703 624 $ 1 149 483 $ 168 203 $ 163 000 $ 1 488 776 $ 1 222 848 $ 200 000 $ 1 422 848 $ 200 000 $ 1 222 848

2.Q $ 2 703 624 $ 1 149 483 $ 160 269 $ 144 000 $ 1 462 752 $ 1 240 872 $ 1 422 848 $ 2 663 720 $ 200 000 $ 2 463 720

3.Q $ 2 691 391 $ 1 144 282 $ 158 204 $ 141 500 $ 1 443 986 $ 1 247 405 $ 2 663 720 $ 3 911 125 $ 200 000 $ 3 711 125

4.Q $ 3 180 735 $ 1 858 142 $ 184 067 $ 144 000 $ 2 187 109 $ 993 626 $ 3 911 125 $ 4 904 751 $ 200 000 $ 4 704 751

If we subtract initial inventory financing from the cumulative cash at the end of the year, we get the accumulated cash as a result of the operations. ( $3 554 751) d. Repayment of Funds: The total amount that is planned to be financed externally is equal to $ 4 218 300. The repayment according to the cash flows generated from operations is planned as follows: Amount $ 1 150 000 510 000 510 000 510 000 510 000 510 000 518 300 Repayment time Dec. 31, 1997 June 30, 1998 Dec. 31, 1998 June 30, 1999 Dec. 31, 1999 June 30, 2000 Dec. 31, 2000

e. Profitability of the Project:

As seen from the cost and revenue figures, the relatively high gross margin and reasonable periodic expenditures make up a considerable EBIT; since there is no interest and no tax accrued for the first years, it is also firm's net income. The low labor cost is the main advantage as far as the operational costs are concerned. The project's profitability is calculated on IRR basis. The economic life of the project is assumed as 10 years. The net income figures calculated in section 3b above is taken as the yearly net cash benefits arising from the project. In the first 4 years, there is an incentive of tax holiday. After then, the tax rate is 20%.

The yearly cash benefits used to calculate IRR are: Year 1 Years 2-4 Years 5-10 $ 2 614 754 3 488 655 2 790 924

Initial investment taken as (-) cash benefit is: $10 193 300 IRR= 27% A similar factory operates with 5-8% profitability in USA, which compares very poorly with Albancott's profitability. G. CONCLUSION: Albancott project is a JV with Albanian Government and receive their full support. The poor performance of textile industry in Albania due to lack of advanced technology, entrepreneurship and financial sources locally; they spend their best effort to speed up the project. Also, as an American investment in Albania, American Consulate in Tiran pays close attention. The machinery found for this purpose of that sort is not easy to find. New machines are much more expensive and delivery lead times are about a year. The project constitutes 0.3% of Europe's up-dated open-end rotor capacity if the former Soviet Union's out-of-date capacity is excluded. Albania is very close to EC market which is one of the major markets we direct our yarn production. The final product (yarn) has higher cost than cotton, therefore it is advantageous to keep low yarn inventory. Also the transportation and collection of sales revenues will take less time, better utilization of funds will be achieved. Besides these advantages: 1. Considerably low labor cost ($0.72/ hr), but fairly qualified and educated, 2. Incentives of Albanian Government in the privatization period, 3. The high profitability of the investment (27%),

are the main reasons to undertake this project.

CV OF KEY PERSONNEL FRED STANLEY MAHAFFEY CITIZENSHIP: American RESIDENCE: 713 Ruhamah Rd. Liberty South Carolina 29 657 USA TEL: 803- 843 41 02 PERSONAL: Age:60, Health is excellent, Married, has four children, Veteran of World War II. EDUCATION: Furman University Industrial Engineering BUSINESS EXPERIENCE: ** 1989-1994 Retired from General Management Post, Buocon **1988-1989 V.P. Belmont Huntage Belmont N.C. ** 1987-1988 Vice President of Clemson Yarn Corporation- Owned and operated by Wm. A. Popp of Popp Yarn Corporation, Hatboro, Responsibilities: Start up Clemson Yarn and staff plant. Also operate and manage it for Mr. Wm A Popp. **1984-1987 Vice President Mill Division, Opelika Manufacturing Corporation. **1978-1983 General Manager of Huntsville Manufacturing Company- Mr. Lowenstein. 4000 to 1654 looms - 1700 to 600 employees. Products- flannel, printcloth, industrial fabrics, fiber mix, polyester/cotton, 100% cotton, 100% filament warp, 100% filament filling. (Directed plant from 78% to 97% weaving efficiency, from print or ROM quality to 95% plain shades and from no grading system to 40 point system.) Directed plant from a militant union strike to a non-union status. Attitude surveys indicate employee morale as good. **1971-1978 Vice President of Manufacturing, Woolside Division of Dan River Inc. My responsibility was to direct the activities at six plants located in Fountain, Inn, Greenville, Basley and Liberty South Carolina. These plants manufacture woven fabrics, the fabrics may be anything from Cam to Dobby Looms and Industrial to Apparel and use. The wage payroll for these six plants was appoximately $23 million annually. There were approximately 4300 hourly paid employees who produced 180 000 000 yards of fabric annually. It was my responsibility to coordinate the sale of the fabric with a Vice President of Merchandising who was located at the New York office. I made frequent trips to call upon old customers and potentially new customers. It was also my responsibility to explore new product areas. There was a management team located at each manufacturing unit. Themanager reported to me, in addition, I also had a chemist, group personnel director, planner and assistant manufacturing expert on my staff. Of course, I utilized the staff services of the company to accomplish objectives. **1968-1971 Group Manager of Woolside's Cotton Blended operations- six plants. **1967-1968 Assistant Division Manager of Plain Goods Division - Woolside.

**1964-1967 Beattle Plant - Woolside Division. This plant has 56 000 spindles and 1152 looms. **1962-1964 Assistant Manager of Beattle Plant, Woolside Division. Assisted in the initial start-up of this plant, which included specifications, machinery erection, methods and standards and staffing. **1960*1962 Worked out of a central office on special production problems and machinery research, cotton and synthetic ( this was a part of a training program). **1950-1960 Industrial engineer - Woolside Mills and Norris Cotton Mills. REFERENCES: 1. Virgil Simpson, Vice President of Woolside Delta. 2. John D. Hollingsworth - Have worked on many yarn projects with John D. Hollingsworth. 3. Jim Smith - Plant Saco Lowell 4. Monnie Broome - Formerly M. Lowenstein, presently with J.P.Stevens 5. Harold Mason Sr. - Former President of Woolside Div. Dan River Mills - Retired and lives in Greenville, SC. I formerly reported to Mr. Mason. OUTSIDE ACTIVITIES AND INTERESTS: *Trustee of North Greenville Junior Collage * Board of Directors - President of Southern Textile Association * President of Blue Ridge Council, Boy Scouts of America. * Former member of Greenville County Mental Health Commission * Former President of Greenville Textile Club. *Holder of Silver Beaver Award. *Director, Rotary Club, Huntsville.