Manufacturing & Marketing Beverage Appliances, Inc.

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2MBA
Financial Plan
9.1 Underlying Assumptions

Nestle will purchase all MVU's under a contract allowing price fluctuations in-line with materials and labour costs
Sales invoices to be paid when units dispatched from factory
Creditors paid 7 days end of month
Each month's production is sold in the following month
Factory operations will be set up in Pennsylvania
Pay as you go has been assumed for income taxes

9.2 Financial Highlights (Best Case Scenario)

Cash positive in each year of operation
$5.8 million committed to R&D
MVU cash surplus reinvested into La Barista

9.3 Financial Ratios

Ratios	Year 1	Year 2	Year 3	Year 4	Year 5
Gross Margin	30%	37%	40%	41%	42%
NPAT % Total Assets	39%	20%	29%	35%	34%
Quick Ratio	120%	209%	227%	324%	449%
Inventory Turnover	9.50	9.62	10.05	10.28	10.42

9.4 Breakeven Point

MVU	4 units per week	$3,000,000 annual sales
La Barista	13 units per week	$4,400,000 annual sales

Annual Sales($million)

MBA, Inc. Profits ($million)

9.5 Financial Proformas

Cash Flow	Year 1	Year 2	Year 3	Year 4	Year 5
Opening cash balance	-	535,819	1,789,976	2,962,807	5,763,924
Cash Inflows
Capital funds	621,400	1,000,000
Sales	6,080,000	13,187,200	21,826,688	31,136,236	41,155,624
Total Cash Inflows	6,701,400	14,187,200	21,826,688	31,136,236	41,155,624
Cash Outflows
Purchase of equipment	150,000	500,000	500,000	500,000	500,000
Assembly-MVU	4,678,149	5,560,314	5,782,727	6,014,036	6,014,036
Manufacturing La Barista	-	3,550,950	8,616,972	14,082,594	19,971,679
Factory rent	84,000	174,720	272,563	374,320	385,659
Maintenance	91,200	197,808	327,400	467,044	617,334
Research & Development	240,000	439,680	1,559,667	1,556,812	2,057,781
Training	60,000	120,000	120,000	120,000	120,000
Marketing Budget	120,000	600,000	480,000	480,000	480,000
Factory/Office wages	411,200	640,000	770,000	850,000	930,000
Federal Income Tax	20,893	378,885	875,848	1,803,570	2,751,060
State Income Tax	6,139	111,325	257,345	529,931	808,326
License Fees	304,000	659,360	1,091,334	1,556,812	2,057,781
Dividends Paid	-	-	-	-	-
Total Cash Outflows	6,165,581	12,933,043	20,653,857	28,335,119	36,693,657
Net cash flow	535,819	1,254,157	1,172,831	2,801,117	4,461,967
Closing Cash balance	535,819	1,789,976	2,962,807	5,763,924	10,225,891

Inventory Management	Year 1	Year 2	Year 3	Year 4	Year 5
Start up Inventory	0	40	140	240	340
Unit Sales	380	1280	2480	3680	4880
Manufacturing	420	1380	2580	3780	4980
Closing inventory	40	140	240	340	440

Tax Reconciliation	Year 1	Year 2	Year 3	Year 4	Year 5
Net cash flow	535,819	1,254,157	1,172,831	2,801,117	4,461,967
Less Equity Injection	(621,400)	(1,000,000)	-	-	-
Less Depreciation	(30,000)	(130,000)	(230,000)	(330,000)	(430,000)
Add: Capital Expenditure	150,000	500,000	500,000	500,000	500,000
Add Tax Paid	27,032	490,210	1,133,193	2,333,501	3,559,387
Add:	-	-	-	-	-
Add: Dividends Paid	-	-	-	-	-
Taxable Income	61,451	1,114,368	2,576,024	5,304,618	8,091,354
Federal Tax Liability	20,893	378,885	875,848	1,803,570	2,751,060
State Tax Liability	6,139	111,325	257,345	529,931	808,326
	27,032	490,210	1,133,193	2,333,501	3,559,387

Refer Appendix I for Financial Analysis Worksheets

9.6 Sensitivity Analysis

The first scenario to consider is that the Nestle contract does not materialize, in which case the investor will not be required to provide any funds. Should Nestle's requirements not meet expectations then production of the MVU could be scaled back. Of course this would impact on 2MBA, Inc.'s ability to provide funding for the subsequent La Barista production facilities. For example, if the MVU production was reduced to 30 units per month and there was no other external funding than that contemplated in the Offer, 2MBA, Inc. would not be able to fund the second La Barista production facility until Year 5. Under the above eventuality the investor would be entitled to claw back the Management Team's equity to 30%, thereby increasing their own equity to 50%. The investors IRR would then calculate to 72% (refer 2MBA, Inc. sensitivity analysis Appendix I). The majority of cash expenditure is related to production and sales volumes and allowances have been made in the Nestle contract for raw material and labor cost increases to be reflected in the selling price of the MVU. It is envisaged that similar type arrangements will be put in place for La Barista.

9.7 Source and Application of Funds

Source	Application
JAJA Equity $121,400 Investor Equity $500,000 Investor Equity $1,000,000	MVU Assembly equipment $150,000 Raw materials (2 months) $250,000 Working Capital $250,000 La Barista Production Equipment $500,000 Raw Materials (4 months) $250,000 Working Capital $250,000

9.8 Critical Risks and Problems

Risk Dimension	Perceived Risk
Development	Zero
Management	Low/Moderate
Marketing	Low/Moderate
Financial	Low/Moderate
Valuation	Low
Financing	Low/Moderate
Exit	Low/Moderate

See Appendix B for further explanation of Risks and Problems.

2MBA
Table of Contents	Appendices
0. Executive Summary 1. The Offer 2. The Products 3. The Organization 4. Strategic Analysis 5. Key Strategic Issues 6. Marketing Plan 7. Production Plan 8. Organization Plan 9. Financial Plan	A. Internal Environment Analysis B. Critical Risks and Problems C. SWOT Analysis D. Testimonials E. Production Layout F. Action Plan G. Team Member Details H. Reference Sources I. Financial Analysis Worksheets
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