Expert Application Systems, Inc.
Financial Plan
EASI's financial planning is centered around rapid growth in order to penetrate the untapped market quickly. Twenty-two products will be introduced during the first five years addressing different compliance standards. Projections indicate that EASI will break-even in August, 1993. Detailed financial projections are included in Appendix N. Note that all projections are for fiscal years ending on September 30. 7.1 Sources and Uses of Funds EASI is seeking investors to provide cash in exchange for equity positions in the corporation. This cash will be used to enable rapid growth in the untapped compliance software market. An initial investment of $59,000 has been made and the management team has agreed to invest $53,000 of additional capital to fund the development of UL Solutions - 1950 and other initial products. Outside investors are sought to contribute $600,000. These funds will be used to market UL Solutions 1950 and develop subsequent products. 7.2 Income Statement The revenue projections in the income statement reflect a 35% market penetration by year 5. Expenses are reduced during the first 6 months of development due to low salaries. Salaries are brought to competitive levels in the following months so EASI can attract and retain the quality personnel necessary to provide high levels of customer satisfaction. Following negotiations with investors, a stock option pool will be established to tie management compensation to overall company success. Pro Forma Income Statement - Fiscal Year Ending September 30
1993 Revenues Software Sales Revenue Subscription Revenue Interest Total Revenue Expenses Cost of Goods Sold Sales and Marketing Expenses Research and Development General and Administrative Total Expenses Profit (Loss) Before Income Tax Income Tax Net Income $21,750 $160,845 $118,162,00 $343,040 $0 $343,040 $164,720 $643,416 $535,302 $81,975 $162,158 $657,817 $560,770 $3,191,778 $2,127,852 $1,915,067 $2,862,909 $973,389 $1,889,520 $1,151,060 $6,175,542 $4,117,028 $3,705,325 $5,493,009 $1,867,623 $3,625,386 $1,933,660 $9,649,278 $6,432,852 $5,789,567 $8,492,642 $2,887,498 $5,605,144 $425,855 $1,060,753 $374,700 $3,166,580 $10,226,260 $18,998,640 $28,197,760 $0 $8,872 $50,500 $7,086 $413,000 $19,116 $1,586,500 $56,824 $3,966,500 $133,739 1994 1995 1996 1997
$383,572 $3,224,166 $10,658,376 $20,641,964 $32,297,999
$726,612 $2,404,191
$7,795,467 $15,148,955 $23,805,357
7.3 Cash Flow Statement
Strict cash flow management will be critical to the success of the rapid growth plan for EASI. Low levels of inventory and utilization of the Austin Technology Incubator serve to minimize cash outlays during the product introduction. For planning purposes, purchases and operational expenses are assumed to be primarily cash transactions while sales are on accounts receivable. The capital investment of $600,000, in conjunction with steadily increasing revenues, ensure EASI's liquidity. Pro Forma Cash Flow Statement - Fiscal Year Ending September 30
1993 Cash Flow From Operations Net Income Depreciation Increase in Accts Receivable Increases in Accts Payable Increases in Inventories Net Cash from Operations Cash Flow From Investing Purchase of Equipment Net Cash from Investing Cash Flow From Financing Equity Debt Net Cash from Financing Net Cash Flow Beginning Cash Ending Cash $600,000 $0 $600,000 $166,530 $5,000 $171,550 $0 $0 $0 $186,315 $171,550 $357,865 $0 $0 $0 $873,837 $357,865 $1,231,702 $0 $0 $0 $2,059,896 $1,231,702 $3,291,598 $0 $0 $0 $3,465,176 $3,291,598 $6,756,775 ($6,000) ($6,000) ($15,000) ($15,000) ($27,000) ($27,000) ($48,000) ($48,000) ($64,000) ($64,000) ($343,040) $950 $657,817 $2,450 $1,889,520 $8,100 $3,625,386 $9,200 $5,605,144 $20,800 1994 1995 1996 1997
$86,873 ($487,695) ($1,036,593) ($1,548,701) ($2,119,512) $6,833 ($5,320) ($427,450) $51,274 ($22,530) $201,315 $87,711 ($47,900) $900,837 $88,488 ($57,277) $2,107,896 $121,824 ($78,280) $3,529,176
7.4 Balance Sheet The balance sheet reflects the low overhead advantages of a software company such as EASI. Projected Balance Sheet - Fiscal Year Ending September 30
1993 Assets Cash Accounts Receivable Inventory Total Current Assets Equipment at Cost (Accumulated Depreciation) Book Value of Equipment Total Assets $171,550 $357,865 $1,231,702 $3,291,598 $86,873 $574,568 $1,611,162 $3,159,863 $5,320 $11,030 $8,680 $27,850 $26,030 $21,230 $75,750 $53,030 ($12,900) $40,130 $133,027 $101,030 ($51,124) $49,906 $6,756,775 $5,279,375 $211,307 $165,030 ($122,354) $42,676 1994 1995 1996 1997
$263,743 $960,284 $2,918,614 $6,584,488 $12,247,456 ($2,350) ($4,800)
$272,423 $981,514 $2,958,744 $6,634,394 $12,290,132
Liabilities & Equity Current liabilities Total Liabilities Stock & Paid-in Capital Retained Earnings Total Equity Total Liabilities and Equity $6,833 $6,833 $58,107 $58,107 $145,817 $145,817 $712,000 $234,305 $234,305 $712,000 $356,130 $356,130 $712,000
$712,000 $712,000
($446,410) $211,407 $2,100,927 $5,688,088 $11,222,002 $265,590 $923,407 $2,812,927 $6,400,088 $11,934,002 $272,423 $981,514 $2,958,744 $6,634,394 $12,290,132
7.5 The Investment Opportunity The initial investor(s) will receive 25% equity in exchange for their cash infusion of $600,000. The remaining stock will be retained by the management team. After 5 years, the investor(s) will have the option to remain in the company or have EASI repurchase their shares at fair market value. Terms for repurchase will be negotiated with the investor(s). Based on a projected P/E = 15, the investors' share is projected to be worth $21 million, providing a 104% annual return on investment.