Flyleaf Books

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Table of Contents

Page 1

1.0 Executive Summary.............................................................................................................................1Chart: Highlights ......................................................................................................................2

1.1 Objectives ...................................................................................................................................21.2 Keys to Success ........................................................................................................................21.3 Mission ........................................................................................................................................3

2.0 Company Summary.............................................................................................................................32.1 Company Ownership .................................................................................................................32.2 Start-up Summary ......................................................................................................................4

Chart: Start-up .........................................................................................................................4Table: Start-up .........................................................................................................................5Table: Start-up Funding ..........................................................................................................6

3.0 Products ...............................................................................................................................................64.0 Market Analysis Summary ..................................................................................................................7

4.1 Market Segmentation ................................................................................................................7Table: Market Analysis ...........................................................................................................8Chart: Market Analysis (Pie) ..................................................................................................8

4.2 Industry Analysis .........................................................................................................................84.2.1 Competition and Buying Patterns................................................................................9

5.0 Strategy and Implementation Summary ............................................................................................95.1 Competitive Edge....................................................................................................................105.2 Marketing Strategy ..................................................................................................................105.3 Sales Strategy..........................................................................................................................10

5.3.1 Sales Forecast ............................................................................................................10Chart: Sales Monthly ...................................................................................................11Chart: Sales by Year ...................................................................................................11Table: Sales Forecast.................................................................................................12

6.0 Management Summary ....................................................................................................................126.1 Personnel Plan .........................................................................................................................13

Table: Personnel ...................................................................................................................137.0 Financial Plan ....................................................................................................................................13

7.1 Important Assumptions............................................................................................................13Table: General Assumptions ...............................................................................................13

7.2 Break-even Analysis................................................................................................................14Chart: Break-even Analysis .................................................................................................14Table: Break-even Analysis .................................................................................................14

7.3 Projected Profit and Loss .......................................................................................................15Table: Profit and Loss ..........................................................................................................15Chart: Profit Monthly .............................................................................................................16Chart: Profit Yearly ................................................................................................................16Chart: Gross Margin Monthly ...............................................................................................17Chart: Gross Margin Yearly..................................................................................................17

7.4 Projected Cash Flow ...............................................................................................................17Chart: Cash ...........................................................................................................................18Table: Cash Flow ..................................................................................................................19

7.5 Projected Balance Sheet ........................................................................................................20Table: Balance Sheet ...........................................................................................................20

7.6 Business Ratios .......................................................................................................................21

Table of Contents

Page 2

Table: Ratios .........................................................................................................................22Table: Sales Forecast ...............................................................................................................................1Table: Personnel ........................................................................................................................................2Table: General Assumptions ....................................................................................................................3Table: Profit and Loss ...............................................................................................................................4Table: Cash Flow .......................................................................................................................................5Table: Balance Sheet ................................................................................................................................6

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1.0 Executive Summary

IntroductionFlyleaf Books is a start-up used bookstore in the Cleveland, Ohio area. It is the goal of thecompany management to acquire local market share in the used bookstore industry throughlow price, a dominant selection of products, a competitive variety of services including abuyback/trade program and hard to find book search, plus a relaxing, friendly environment thatencourages browsing and reading.

Company

Flyleaf will be a limited liability corporation registered in the state of Ohio. The company will bejointly owned by Mr. James Vinck, a former head librarian of the Philadelphia City Library, andhis wife Aracela.

Mr. Vinck is establishing this firm as a growth-oriented endeavor in order to supplement hisretirement, continue meeting people with similar interests, and to leave a viable business to hischildren. Flyleaf Books will be establishing its store in one of the busiest section of Brecksville, anoutlying suburb of Cleveland. This area is well know for its upscale residents and high-qualityestablishments. Our facility is a former 8,000 square ft. furniture store which allows the companyto stock a large amount of inventory.

Products/Services

Flyleaf Books will offer a wide range of book, magazine, and music selections. This includes justabout every conceivable category including fiction, non-fiction, business, sc ience, children's,hobbies, collecting, and other types of books. Our music selection will concentrate on CD's asthese are the most popular and take up the least amount of floor space. In addition, we will beoffering a competitive buy and trade service to assist in lowering our inventory acquisitioncosts and making our store more attractive to our customers. In addition, we offer a searchand order service for customer seeking to find hard to get items. Flyleaf Books will have arelaxed "reading room" type atmosphere that we will encourage through the placement ofchairs, couches, etc.

Market

Our market is facing a decline in growth over the past two years. This is attributed to the overallweak economy. Book store industry sales rose only 3.6% for last year whereas overall U.S.retail sales grew by 4.3%. However, management believes that this may be an advantage to theused bookstore industry. As customers cut back on purchasing, used bookstores will look moreattractive to customers who still wish to purchase books. Therefore, management believesthis may be a good time to get into the industry and gain market share.

The bookstore industry as a whole is going through a large consolidation. Previously, themarket was dominated by local, small stores and regional chains. With the advent of the"superstore" as created by Barnes & Noble, the largest players in the market have been able togather significant market share and drive many independent booksellers out of the market.

Where independent booksellers can still create a viable position for themselves within the marketis in the used books segment. This segment generally does not attract big companies since the"superstore" concept is much more difficult to replicate in a market with such low profitmargins. This tends to favor the local independent bookseller in the used book market segment

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as long as they can acquire a sufficiently large enough facility to house an attractive inventoryand compete with the national chains.

Financial Considerations

Our start-up expenses come to $178,000, which are single time fees associated with opening thestore. These costs are financed by both private investors and SBA loans. Please note that weexpect to be operating at a loss for the first couple of months before advertising begins totake effect and draw in customers. Flyleaf Books will be receiving periodic influxes of cash tocover operating expenses during the first two years as it strives toward sustainableprofitability. Funding has been arranged through lending institutions and private investorsalready. We do not anticipate any cash flow problems during the next three years.

1.1 Objectives

These are the goals for the next three years for Flyleaf Books:

· Achieve profitability by July Year 2.· Earn approximately $200,000 in sales by Year 3.· Pay owners a reasonable salary while running at a profit.

1.2 Keys to Success

In order to survive and expand, Flyleaf Books must keep the following issues in mind:

· We must attain a high level of visibility through the media, billboards, and otheradvertising.

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· We must establish rigid procedures for cost control and incentives for maintaining tightcontrol in order to become THE low-cost leader in used books.

· In order to continually attract customers, we must be able to keep the maximumamount of inventory available and achieve a high level of customer service.

1.3 Mission

Flyleaf Book's mission is to provide used quality literature of all types at the lowest possibleprices in the Cleveland, OH area. The company additionally seeks to provide a comfortableatmosphere for its clients that promotes browsing, relaxation, and an enjoyable environment tospend extend time in. Flyleaf's attraction to its customers will be our large selection of books,magazines, used CD's and our purchasing/buyback option, which lower our book acquisition costsand allows our customers to discard unwanted books/CD's in exchange for cash.

2.0 Company Summary

Flyleaf will be a limited liability corporation registered in the state of Ohio. The company will bejointly owned by Mr. James Vinck, a former head librarian of the Philadelphia City Library, andhis wife Aracela.

Flyleaf Books will be establishing its store in one of the busiest section of Brecksville, anoutlying suburb of Cleveland. This area is well know for its upscale residents and high-qualityestablishments. Our facility is a former 8,000 square ft. furniture store which allows the companyto stock a large amount of inventory.

2.1 Company Ownership

Flyleaf will be a limited liability corporation registered in the state of Ohio. The company will bejointly owned by Mr. James Vinck, a former head librarian of the Philadelphia City Library, andhis wife Aracela. Due to high start-up costs, the income and dividends to the principals will belimited for at least the first three years of operation.

The company plans to be leveraged through private investment and a limited number of loans.Mr. Vinck is establishing this firm as a growth-oriented endeavor in order to supplement hisretirement, continue meeting people with similar interests, and to leave a viable business to hischildren. Flyleaf Books will be establishing its store at 14539 Greenhouse Ave NW, one of thebusiest section of Brecksville, an outlying suburb of Cleveland. This area is well know for itsupscale residents and high-quality establishments. Our facility is a former 8,000 square ft.furniture store which allows the company to stock a large amount of inventory. This facility islocated in the front of the Loeman's Square strip mall. This is an excellent location since it isacross the street from the Twin Towers shopping mall. Other establishments within this strip mallinclude Fry's Food and Drug, Subway Sandwiches, Boaters World, Michael's Arts and Crafts,Office Depot, and Jared Jewelry. The company expects to begin offering its services in July.

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2.2 Start-up Summary

Our start-up expenses come to $178,000, which are largely single time fees associated withopening the store. These costs are financed by both private investment and short- and long-term SBA guaranteed loans.

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Table: Start-up

Start-up

Requirements

Start-up Expenses

Legal $2,400

Pre-sale advertising/marketing $4,000

Land location and finders fee $20,000

Insurance $1,780

Rent $6,000

Expensed Equipment $25,000

Initial store facil ities $50,000

Other $3,000

Total Start-up Expenses $112,180

Start-up Assets

Cash Required $33,820

Start-up Inventory $16,000

Other Current Assets $8,000

Long-term Assets $8,000

Total Assets $65,820

Total Requirements $178,000

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Table: Start-up Funding

Start-up Funding

Start-up Expenses to Fund $112,180

Start-up Assets to Fund $65,820

Total Funding Required $178,000

Assets

Non-cash Assets from Start-up $32,000

Cash Requirements from Start-up $33,820

Additional Cash Raised $0

Cash Balance on Starting Date $33,820

Total Assets $65,820

Liabil ities and Capital

Liabil ities

Current Borrowing $15,000

Long-term Liabil ities $75,000

Accounts Payable (Outstanding Bills) $8,000

Other Current Liabil ities (interest-free) $10,000

Total Liabil ities $108,000

Capital

Planned Investment

Mr. James Vinck $50,000

Mrs. Aracela Vinck $20,000

Additional Investment Requirement $0

Total Planned Investment $70,000

Loss at Start-up (Start-up Expenses) ($112,180)

Total Capital ($42,180)

Total Capital and Liabil ities $65,820

Total Funding $178,000

3.0 Products

Flyleaf Books will offer a wide range of book, magazine, and music selections. This includes justabout every conceivable category including fiction, non-fiction, business, sc ience, children's,hobbies, collecting, and other types of books.

Our music selection will concentrate on CDs as these are the most popular and take up the leastamount of floor space. In addition, we will be offering a competitive buy and trade service toassist in lowering our inventory acquisition costs and making our store more attractive to ourcustomers. We also offer a search and order service for customer seeking hard to find items.Another less obvious service to our customers will be the relaxed "reading room" typeatmosphere that we will encourage through the placement of chairs, couches, and etc. Westrongly encourage our customers to spend as long as they like reading through our bookselection and enjoying a quiet, relaxing environment. Our store hours will be 8:30 a.m. to 8:00p.m. Monday-Friday and 10:00 a.m. to 6:00 p.m. Saturday. Once profitability becomes stable,

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we will extend these hours.

4.0 Market Analysis Summary

Our market is facing a decline in growth over the past two years. This is attributed to the overallweak economy. Book store industry sales rose only 3.6% for 2002 whereas overall U.S. retailsales grew by 4.3%. Management believes that the economic slump may be an advantage to theused bookstore industry. As customers cut back on purchasing, used bookstores will look moreattractive to customers who still wish to purchase books. Therefore, management believesthis may be a good time to get into the industry and gain market share.

Used bookstores serve the entire purchasing population of its geographical area but focuses onthe customer who desire to purchase books/music at a discount price and, with regards tobooks, often do not see a long-term attachment to the product.

Our main competitors are: Barnes & Noble (which holds approximately 22% nationwide marketshare), Borders (which holds approximately 15%), and other local new and used bookstores.

4.1 Market Segmentation

The company anticipates serving the needs of all the potential customers within a ten tofifteen mile radius in which the approximate population is 150,000 (based on census information).The majority of the residents in this area are Caucasian (78.8%) Black (13.6%) and Hispanic(9%) with occupations classified as professional, homemaker, or retired. The majority ofhousehold incomes range from $50,000 - $100,000 (50.3%). The median income in this area is$68,096, compared to the whole Cleveland area which is $34,248. The typical "head ofhousehold" age is 25 - 34 (22.4%) or age 34 - 44 (23.1%) with a median age of 44.4 years oldand an average age of 32 years old.

Target market segments

Used bookstores serve the entire purchasing population of its geographical area but focuses oncustomers who desire to purchase books/music at discount prices because they are seeneither as near commodity items or, in the case of books, are not considered to be a long-terminvestment (i.e. they will trade them back). Because of this relatively low value placed uponour merchandise by potential customers, Flyleaf Books can still flourish in an upscale environmentlike Brecksville. This is especially true with people seeking to cut costs with the bad economy.Even though we service the entire book reading population in Brecksville and the surroundingarea, we can divide our customers based on purchasing habits.

· Casual Shoppers: These are customers who go to the bookstore with no set idea ofwhat they want to purchase. They seek to spend a fair amount of time browsing thestore and often are considered impulse buyers. Often they leave the store with smallpurchases or without buying anything. These customers are attracted to bookstores withlow prices and large inventory.

· "Hard to Find" Shoppers: These are customers with very specific needs. They arelooking for a difficult to obtain item, usually a book that is out of print. If we can satisfythis customer, then we are able to build significant customer loyalty. These clients aregenerally price insensitive and are also drawn to stores that have large inventory.

· Specific Category Shoppers: These customers are those types that generally buy

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books or music of one category, such as fiction or romance. These customers generallyhave a good idea of what they want to purchase and have the greatest buyback/tradepotential. These customers represent the highest volume purchaser, often leaving thestore having spent $30-$50.

The following table and pie graph show how our market segments are broken up into size andrelative percentages. We use the city of Brecksville census information to determine growthfigures.

Table: Market Analysis

Market Analysis

Year 1 Year 2 Year 3 Year 4 Year 5

Potential Customers Growth CAGR

Casual shoppers 2% 78,000 79,560 81,151 82,774 84,429 2.00%

"Hard to find" shoppers 2% 22,000 22,440 22,889 23,347 23,814 2.00%

Specific category shoppers 2% 50,000 51,000 52,020 53,060 54,121 2.00%

Total 2.00% 150,000 153,000 156,060 159,181 162,364 2.00%

4.2 Industry Analysis

Our market is facing a decline in growth over the past two years. This is attributed to the overallweak economy. Book store industry sales rose only 3.6% for 2002 whereas overall U.S. retailsales grew by 4.3%. However, management believes that this may be an advantage to theused bookstore industry. According to interviews made by Mr. Vinck with bookstore ownersand managers, the used book industry has typically done better than other retailers duringeconomic downturns. As customers cut back on purchasing, used bookstores will look moreattractive to purchase books. Therefore, management believes this may be a good time to getinto the industry and gain market share. As the weak economy continues, we expect growth

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to be initially quite high but overall volume sales to be low, and then seeing this taper off toindustry norms.

The bookstore industry as a whole is going through a large consolidation. Previously, themarket was dominated by local, small stores and regional chains. With the advent of the"superstore" as created by Barnes & Noble, the largest players in the market have been able togather significant market share and drive a lot of independent booksellers out of the market.

Where independent booksellers can still create a viable position for themselves is within the usedbooks segment. This segment generally does not attract big companies since the "superstore"concept is much more difficult to replicate in a market with such low profit margins. Dominantselection, both in used and new books is the key to bringing in new customers and the onlyway to do that is to operate at a low-price leader. These two factors tend to favor the localindependent bookseller in the used book market segment as long as they can acquire asufficiently large enough facility to house an attractive inventory and LOCALLY compete with thenational chains.

4.2.1 Competition and Buying Patterns

Our main competitors are: Barnes & Noble (which holds approximately 22% nationwide marketshare), Borders (which holds approximately 15%), and other local new and used bookstores.The used bookstore that most closely rivals our own is Greenbaum Books which is locatedapproximately 13 miles away in Ashbury. It is estimated that they hold 9% of the local marketshare.

Management feels it must be clearly stated that we do not intend to directly compete with theBarnes & Noble/Borders superstores. Superstores are large and carry approximately 150,000 titlesper location. Over the years, these large companies has successfully leveraged their resourcesto engineer customer experience to a degree that consistently differentiates otherwisecommodity-like products and services. This differentiation provides these companies strategiccompetitive advantage. Resources such as distribution technology, strategic alliances, processresearch and development, and brand name combine into value-added services that providethe customer with proximity, dominant selection, discounts, and store ambiance. This is simplybeyond our capacity and we will be fulfilling a sufficiently different need for our customers.However, we believe that we can successfully duplicate the differentiated experience for ourcustomer without the overall costs.

5.0 Strategy and Implementation Summary

Flyleaf's competitive edge will be the lower prices we will charge our customers and the dominantselection above what our used bookstore rivals can offer. This is based on management'sindustry knowledge, greater capitalization and excellent location. One of the most criticalelement of Flyleaf's success will be its marketing and advertising. In order to capture attentionand sales our company will use prominent signs at the store locations, billboards, media bites onlocal news, and radio advertisements to capture customers. We expect an average 4.5%increase in sales during the first three years as we establish ourselves in the community. Afterthat we assume a much higher average growth of between 10%-15% growth over the nextfive years with growth then tapering off to the industry average of 2.5% from year to year.These figures may seem very high, but considering the level of initial sales and the growthpossibilities, management actually considers this to be conservative.

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5.1 Competitive Edge

The company's competitive edge will be the lower prices we will charge our customers and thelarger selection we can offer: through our large store, buyback/trade program, and leveragingmanagement excellent supplier contacts. As stated before, in the bookstore industry, low costand dominate selection are the two success criteria. We plan to create these advantages in anew, comforting environment that will retain customers.

5.2 Marketing Strategy

One of the most critical elements of Flyleaf Book's success will be its marketing and advertising.In order to capture attention and sales our company will use prominent signs at the storelocations, billboards, media bites on local news, and radio advertisements to capture customers.

5.3 Sales Strategy

Since our store will be a stand alone facility, there is little in the way to directly influence howwe close the sale other than to have an attractive storefront with our low prices and excellentselection. We believe this in itself is its own seller. One critical procedure we will be establishingis to insure top customer service and reliability and that our store always has enough inventoryof all our products. We will be using industry data on inventory for bookstore chains to assist us.

5.3.1 Sales Forecast

Based on a 10% mark-up, our forecasted sales will increase by an average of 4.5% from yearto year.

These sales figures are based on a conglomerate of commuter and walk-by traffic established bythe Loeman/Twin Towers Mall management and with an average $3.00 purchase amountconforming to industry averages. The target profit margin was defined as an average net profitof all merchandise. As retained earnings increase, a debt retirement fund will be established toencourage early repayment, thus relieving interest expense. Also, a cash basis for purchaseswill be used to avoid incurring liabilities.

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Table: Sales Forecast

Sales Forecast

Year 1 Year 2 Year 3

Sales

Fiction Books $164,292 $172,507 $182,512

Sci-Fi Books $184,829 $194,070 $205,327

Magazines/newspapers $143,756 $150,944 $159,698

Children's Books $184,829 $194,070 $205,327

Biography Books $123,219 $129,380 $136,884

Business Books $112,951 $118,599 $125,477

CD's and Music $184,829 $188,526 $199,460

Other $205,366 $209,473 $214,081

Total Sales $1,304,071 $1,357,569 $1,428,767

Direct Cost of Sales Year 1 Year 2 Year 3

Fiction Books $126,505 $131,105 $136,884

Sci-Fi Books $142,318 $147,494 $153,995

Magazines/newspapers $110,692 $114,717 $119,774

Children's Books $142,318 $147,494 $153,995

Biography Books $94,879 $98,329 $102,663

Business Books $86,972 $90,135 $94,108

CD's and Music $142,318 $143,279 $149,595

Other $158,131 $159,199 $160,561

Subtotal Direct Cost of Sales $1,004,135 $1,031,752 $1,071,575

6.0 Management Summary

As stated earlier, Flyleaf Books will be an LLC company owned by Mr. James Vinck and his wife,Aracela. Mrs. Vinck is expected to assist Mr. Vinck in various ways and to act as thecompany's bookkeeper. The ower's son, Todd, is currently a business major at OSU and isexpected to graduate in 2005. He has expressed an interest in eventually taking over themanagement of the company and will be working as a part-time manager with this goal in mind.The company also plans to hire various part-time salespeople as needed. Additional personnel willbe added if necessary.

Mr. James Vinck is a graduate of the Dartmouth University, with a degree in library science. Hehas worked for more than twenty years for the Philadelphia city library system and in 1995became the head librarian. Over that time Mr. Vinck has established excellent contacts in thebook acquisition industry and plans to leverage these contacts in his new business.

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6.1 Personnel Plan

Initially the company will have a small staff including upper management and sales personnel. Weexpect to expand our personnel and extend our hours once we begin to make a profit.

Table: Personnel

Personnel Plan


Mr. James Vinck $42,000 $48,000 $48,000

Mr. Todd Vinck $18,000 $25,000 $30,000

Salesperson $10,200 $11,000 $11,000

Salesperson $10,200 $11,000 $11,000

Salesperson $10,200 $10,200 $10,200

Salesperson $10,200 $10,200 $10,200

Salesperson $10,200 $10,200 $10,200

Total People 5 5 5

Total Payroll $111,000 $125,600 $130,600

7.0 Financial Plan

The following is our financial projects over the next three years. Please note that we expect tobe operating at a loss for the first couple of months before advertising begins to take effectand draw in customers.

7.1 Important Assumptions

The company is basing it assumptions on a stable growth market using average interest ratesover the past ten years.

Table: General Assumptions

General Assumptions


Plan Month 1 2 3

Current Interest Rate 10.00% 10.00% 10.00%

Long-term Interest Rate 10.00% 10.00% 10.00%

Tax Rate 30.00% 30.00% 30.00%

Other 0 0 0

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7.2 Break-even Analysis

The following table and chart show our Break-even Analysis. We are deliberately setting theseaverage costs a little low in order to be conservative and give us an idea of the maximumamount of inventory we need to move per month.

Table: Break-even Analysis

Break-even Analysis

Monthly Revenue Break-even $90,541

Assumptions:

Average Percent Variable Cost 77%

Estimated Monthly Fixed Cost $20,824

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7.3 Projected Profit and Loss

The following table explains our itemized costs and determines gross and net margin. Please notethat these predictions are weighted toward having higher costs in comparison to revenues incase unexpected hidden costs arise.

Table: Profit and Loss

Pro Forma Profit and Loss


Sales $1,304,071 $1,357,569 $1,428,767

Direct Cost of Sales $1,004,135 $1,031,752 $1,071,575

Other Costs of Goods $0 $0 $0

Total Cost of Sales $1,004,135 $1,031,752 $1,071,575

Gross Margin $299,936 $325,817 $357,192

Gross Margin % 23.00% 24.00% 25.00%

Expenses

Payroll $111,000 $125,600 $130,600

Sales and Marketing and Other Expenses $36,000 $15,000 $15,000

Depreciation $0 $0 $0

Leased equipment $0 $0 $0

Rent $60,000 $65,000 $68,000

Util ities $3,600 $4,000 $4,000

Insurance $7,200 $7,200 $7,500

Payroll Taxes $17,093 $18,840 $19,590

Other $15,000 $10,000 $10,000

Total Operating Expenses $249,893 $245,640 $254,690

Profit Before Interest and Taxes $50,044 $80,177 $102,502

EBITDA $50,044 $80,177 $102,502

Interest Expense $13,750 $13,900 $12,050

Taxes Incurred $10,888 $19,883 $27,136

Net Profit $25,406 $46,394 $63,316

Net Profit/Sales 1.95% 3.42% 4.43%

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7.4 Projected Cash Flow

Our company will be receiving periodic influxes of cash in order to cover operating expensesduring the first two years as it strives toward sustainable profitability. Almost all of this fundinghas been arranged through lend institutions and private investors already. We do not

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anticipate any cash flow problems during the next three years.

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Table: Cash Flow

Pro Forma Cash Flow


Cash Received

Cash from Operations

Cash Sales $1,304,071 $1,357,569 $1,428,767

Subtotal Cash from Operations $1,304,071 $1,357,569 $1,428,767

Additional Cash Received

Sales Tax, VAT, HST/GST Received $0 $0 $0

New Current Borrowing $5,000 $0 $0

New Other Liabil ities (interest-free) $0 $0 $0

New Long-term Liabil ities $50,000 $0 $0

Sales of Other Current Assets $0 $0 $0

Sales of Long-term Assets $0 $0 $0

New Investment Received $54,000 $0 $0

Subtotal Cash Received $1,413,071 $1,357,569 $1,428,767

Expenditures Year 1 Year 2 Year 3

Expenditures from Operations

Cash Spending $111,000 $125,600 $130,600

Bill Payments $1,156,323 $1,190,738 $1,233,157

Subtotal Spent on Operations $1,267,323 $1,316,338 $1,363,757

Additional Cash Spent

Sales Tax, VAT, HST/GST Paid Out $0 $0 $0

Principal Repayment of Current Borrowing $0 $7,000 $15,000

Other Liabil ities Principal Repayment $0 $0 $0

Long-term Liabil ities Principal Repayment $0 $5,000 $10,000

Purchase Other Current Assets $0 $0 $0

Purchase Long-term Assets $0 $0 $0

Dividends $0 $0 $0

Subtotal Cash Spent $1,267,323 $1,328,338 $1,388,757

Net Cash Flow $145,748 $29,231 $40,010

Cash Balance $179,568 $208,799 $248,809

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7.5 Projected Balance Sheet

The following table is the Projected Balance Sheet for Flyleaf Books.

Table: Balance Sheet

Pro Forma Balance Sheet


Assets

Current Assets

Cash $179,568 $208,799 $248,809

Inventory $122,562 $97,179 $102,019

Other Current Assets $8,000 $8,000 $8,000

Total Current Assets $310,130 $313,978 $358,828

Long-term Assets

Long-term Assets $8,000 $8,000 $8,000

Accumulated Depreciation $0 $0 $0

Total Long-term Assets $8,000 $8,000 $8,000

Total Assets $318,130 $321,978 $366,828

Liabil ities and Capital Year 1 Year 2 Year 3

Current Liabil ities

Accounts Payable $125,904 $95,358 $101,892

Current Borrowing $20,000 $13,000 ($2,000)

Other Current Liabil ities $10,000 $10,000 $10,000

Subtotal Current Liabil ities $155,904 $118,358 $109,892

Long-term Liabil ities $125,000 $120,000 $110,000

Total Liabil ities $280,904 $238,358 $219,892

Paid-in Capital $124,000 $124,000 $124,000

Retained Earnings ($112,180) ($86,774) ($40,381)

Earnings $25,406 $46,394 $63,316

Total Capital $37,226 $83,619 $146,935

Total Liabil ities and Capital $318,130 $321,978 $366,828

Net Worth $37,226 $83,619 $146,935

Flyleaf Books

Page 21

7.6 Business Ratios

We are using the industry standard Business Ratios for independent used bookstore chains as acomparison to our own.

Flyleaf Books

Page 22

Table: Ratios

Ratio Analysis

Year 1 Year 2 Year 3 Industry Profi le

Sales Growth n.a. 4.10% 5.24% 2.27%

Percent of Total Assets

Inventory 38.53% 30.18% 27.81% 22.18%

Other Current Assets 2.51% 2.48% 2.18% 26.81%

Total Current Assets 97.49% 97.52% 97.82% 56.12%

Long-term Assets 2.51% 2.48% 2.18% 43.88%

Total Assets 100.00% 100.00% 100.00% 100.00%

Current Liabil ities 49.01% 36.76% 29.96% 26.39%

Long-term Liabil ities 39.29% 37.27% 29.99% 24.87%

Total Liabil ities 88.30% 74.03% 59.94% 51.26%

Net Worth 11.70% 25.97% 40.06% 48.74%

Percent of Sales

Sales 100.00% 100.00% 100.00% 100.00%

Gross Margin 23.00% 24.00% 25.00% 23.55%

Selling, General & Administrative Expenses 21.05% 20.58% 20.57% 16.21%

Advertising Expenses 0.00% 0.00% 0.00% 0.85%

Profit Before Interest and Taxes 3.84% 5.91% 7.17% 1.02%

Main Ratios

Current 1.99 2.65 3.27 1.68

Quick 1.20 1.83 2.34 0.71

Total Debt to Total Assets 88.30% 74.03% 59.94% 4.63%

Pre-tax Return on Net Worth 97.50% 79.26% 61.56% 57.28%

Pre-tax Return on Assets 11.41% 20.58% 24.66% 10.83%

Additional Ratios Year 1 Year 2 Year 3

Net Profit Margin 1.95% 3.42% 4.43% n.a

Return on Equity 68.25% 55.48% 43.09% n.a

Activity Ratios

Inventory Turnover 10.91 9.39 10.76 n.a

Accounts Payable Turnover 10.12 12.17 12.17 n.a

Payment Days 27 35 29 n.a

Total Asset Turnover 4.10 4.22 3.89 n.a

Debt Ratios

Debt to Net Worth 7.55 2.85 1.50 n.a

Current Liab. to Liab. 0.56 0.50 0.50 n.a

Liquidity Ratios

Net Working Capital $154,226 $195,619 $248,935 n.a

Interest Coverage 3.64 5.77 8.51 n.a

Additional Ratios

Assets to Sales 0.24 0.24 0.26 n.a

Current Debt/Total Assets 49% 37% 30% n.a

Acid Test 1.20 1.83 2.34 n.a

Sales/Net Worth 35.03 16.24 9.72 n.a

Dividend Payout 0.00 0.00 0.00 n.a

Appendix

Page 1

Table: Sales Forecast

Sales Forecast

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Sales

Fiction Books 0% $8,000 $9,200 $10,580 $12,167 $12,836 $13,542 $14,287 $15,073 $15,902 $16,776 $17,699 $18,230

Sci-Fi Books 0% $9,000 $10,350 $11,903 $13,688 $14,441 $15,235 $16,073 $16,957 $17,890 $18,873 $19,911 $20,509

Magazines/newspapers 0% $7,000 $8,050 $9,258 $10,646 $11,232 $11,849 $12,501 $13,189 $13,914 $14,679 $15,487 $15,951

Children's Books 0% $9,000 $10,350 $11,903 $13,688 $14,441 $15,235 $16,073 $16,957 $17,890 $18,873 $19,911 $20,509

Biography Books 0% $6,000 $6,900 $7,935 $9,125 $9,627 $10,157 $10,715 $11,305 $11,926 $12,582 $13,274 $13,673

Business Books 0% $5,500 $6,325 $7,274 $8,365 $8,825 $9,310 $9,822 $10,363 $10,932 $11,534 $12,168 $12,533

CD's and Music 0% $9,000 $10,350 $11,903 $13,688 $14,441 $15,235 $16,073 $16,957 $17,890 $18,873 $19,911 $20,509

Other 0% $10,000 $11,500 $13,225 $15,209 $16,045 $16,928 $17,859 $18,841 $19,877 $20,970 $22,124 $22,788

Total Sales $63,500 $73,025 $83,979 $96,576 $101,887 $107,491 $113,403 $119,640 $126,220 $133,163 $140,486 $144,701

Direct Cost of Sales Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Fiction Books $6,160 $7,084 $8,147 $9,369 $9,884 $10,427 $11,001 $11,606 $12,244 $12,918 $13,628 $14,037

Sci-Fi Books $6,930 $7,970 $9,165 $10,540 $11,119 $11,731 $12,376 $13,057 $13,775 $14,533 $15,332 $15,792

Magazines/newspapers $5,390 $6,199 $7,128 $8,198 $8,648 $9,124 $9,626 $10,155 $10,714 $11,303 $11,925 $12,282

Children's Books $6,930 $7,970 $9,165 $10,540 $11,119 $11,731 $12,376 $13,057 $13,775 $14,533 $15,332 $15,792

Biography Books $4,620 $5,313 $6,110 $7,026 $7,413 $7,821 $8,251 $8,705 $9,183 $9,688 $10,221 $10,528

Business Books $4,235 $4,870 $5,601 $6,441 $6,795 $7,169 $7,563 $7,979 $8,418 $8,881 $9,369 $9,651

CD's and Music $6,930 $7,970 $9,165 $10,540 $11,119 $11,731 $12,376 $13,057 $13,775 $14,533 $15,332 $15,792

Other $7,700 $8,855 $10,183 $11,711 $12,355 $13,034 $13,751 $14,508 $15,305 $16,147 $17,035 $17,546

Subtotal Direct Cost of Sales $48,895 $56,229 $64,664 $74,363 $78,453 $82,768 $87,320 $92,123 $97,190 $102,535 $108,175 $111,420

Appendix

Page 2

Table: Personnel

Personnel Plan


Mr. James Vinck 0% $3,500 $3,500 $3,500 $3,500 $3,500 $3,500 $3,500 $3,500 $3,500 $3,500 $3,500 $3,500

Mr. Todd Vinck 0% $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500

Salesperson 0% $850 $850 $850 $850 $850 $850 $850 $850 $850 $850 $850 $850

Salesperson 0% $850 $850 $850 $850 $850 $850 $850 $850 $850 $850 $850 $850

Salesperson 0% $850 $850 $850 $850 $850 $850 $850 $850 $850 $850 $850 $850

Salesperson 0% $850 $850 $850 $850 $850 $850 $850 $850 $850 $850 $850 $850

Salesperson 0% $850 $850 $850 $850 $850 $850 $850 $850 $850 $850 $850 $850

Total People 7 5 5 5 5 5 5 5 5 5 5 5

Total Payroll $9,250 $9,250 $9,250 $9,250 $9,250 $9,250 $9,250 $9,250 $9,250 $9,250 $9,250 $9,250

Appendix

Page 3

Table: General Assumptions

General Assumptions


Plan Month 1 2 3 4 5 6 7 8 9 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% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00%

Other 0 0 0 0 0 0 0 0 0 0 0 0

Appendix

Page 4

Table: Profit and Loss

Pro Forma Profit and Loss


Sales $63,500 $73,025 $83,979 $96,576 $101,887 $107,491 $113,403 $119,640 $126,220 $133,163 $140,486 $144,701

Direct Cost of Sales $48,895 $56,229 $64,664 $74,363 $78,453 $82,768 $87,320 $92,123 $97,190 $102,535 $108,175 $111,420

Other Costs of Goods $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Total Cost of Sales $48,895 $56,229 $64,664 $74,363 $78,453 $82,768 $87,320 $92,123 $97,190 $102,535 $108,175 $111,420

Gross Margin $14,605 $16,796 $19,315 $22,212 $23,434 $24,723 $26,083 $27,517 $29,031 $30,627 $32,312 $33,281

Gross Margin % 23.00% 23.00% 23.00% 23.00% 23.00% 23.00% 23.00% 23.00% 23.00% 23.00% 23.00% 23.00%

Expenses

Payroll $9,250 $9,250 $9,250 $9,250 $9,250 $9,250 $9,250 $9,250 $9,250 $9,250 $9,250 $9,250

Sales and Marketing and Other

Expenses

$3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000

Depreciation $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Leased equipment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Rent $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000

Utilities $300 $300 $300 $300 $300 $300 $300 $300 $300 $300 $300 $300

Insurance $600 $600 $600 $600 $600 $600 $600 $600 $600 $600 $600 $600

Payroll Taxes 15% $1,830 $1,388 $1,388 $1,388 $1,388 $1,388 $1,388 $1,388 $1,388 $1,388 $1,388 $1,388

Other $2,000 $2,000 $2,000 $0 $2,000 $0 $2,000 $0 $3,000 $0 $2,000 $0

Total Operating Expenses $21,980 $21,538 $21,538 $19,538 $21,538 $19,538 $21,538 $19,538 $22,538 $19,538 $21,538 $19,538

Profit Before Interest and Taxes ($7,375) ($4,742) ($2,222) $2,675 $1,897 $5,185 $4,545 $7,980 $6,493 $11,090 $10,774 $13,744

EBITDA ($7,375) ($4,742) ($2,222) $2,675 $1,897 $5,185 $4,545 $7,980 $6,493 $11,090 $10,774 $13,744

Interest Expense $750 $1,167 $1,167 $1,167 $1,167 $1,167 $1,167 $1,167 $1,208 $1,208 $1,208 $1,208

Taxes Incurred ($2,438) ($1,773) ($1,017) $452 $219 $1,206 $1,014 $2,044 $1,585 $2,964 $2,870 $3,761

Net Profit ($5,688) ($4,136) ($2,372) $1,056 $511 $2,813 $2,365 $4,769 $3,699 $6,917 $6,696 $8,775

Net Profit/Sales -8.96% -5.66% -2.82% 1.09% 0.50% 2.62% 2.09% 3.99% 2.93% 5.19% 4.77% 6.06%

Appendix

Page 5

Table: Cash Flow

Pro Forma Cash Flow


Cash Received

Cash from Operations

Cash Sales $63,500 $73,025 $83,979 $96,576 $101,887 $107,491 $113,403 $119,640 $126,220 $133,163 $140,486 $144,701

Subtotal Cash from Operations $63,500 $73,025 $83,979 $96,576 $101,887 $107,491 $113,403 $119,640 $126,220 $133,163 $140,486 $144,701

Additional Cash Received

Sales Tax, VAT, HST/GST Received 0.00% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

New Current Borrowing $0 $0 $0 $0 $0 $0 $0 $0 $5,000 $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 $50,000 $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 $0 $0 $0 $0 $50,000 $0 $0 $0 $0 $0 $0 $4,000

Subtotal Cash Received $63,500 $123,025 $83,979 $96,576 $151,887 $107,491 $113,403 $119,640 $131,220 $133,163 $140,486 $148,701

Expenditures Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Expenditures from Operations

Cash Spending $9,250 $9,250 $9,250 $9,250 $9,250 $9,250 $9,250 $9,250 $9,250 $9,250 $9,250 $9,250

Bill Payments $11,257 $96,997 $76,325 $86,731 $96,929 $96,744 $100,395 $106,932 $111,169 $118,979 $123,138 $130,727

Subtotal Spent on Operations $20,507 $106,247 $85,575 $95,981 $106,179 $105,994 $109,645 $116,182 $120,419 $128,229 $132,388 $139,977

Additional Cash Spent

Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Principal Repayment of Current Borrowing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Other Liabilities Principal Repayment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Long-term Liabilities Principal Repayment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Purchase Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Purchase Long-term Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Dividends $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Subtotal Cash Spent $20,507 $106,247 $85,575 $95,981 $106,179 $105,994 $109,645 $116,182 $120,419 $128,229 $132,388 $139,977

Net Cash Flow $42,993 $16,778 ($1,596) $595 $45,708 $1,497 $3,758 $3,458 $10,802 $4,934 $8,099 $8,724

Cash Balance $76,813 $93,590 $91,994 $92,589 $138,297 $139,794 $143,552 $147,010 $157,812 $162,746 $170,844 $179,568

Appendix

Page 6

Table: Balance Sheet

Pro Forma Balance Sheet


Assets Starting Balances

Current Assets

Cash $33,820 $76,813 $93,590 $91,994 $92,589 $138,297 $139,794 $143,552 $147,010 $157,812 $162,746 $170,844 $179,568

Inventory $16,000 $53,785 $61,852 $71,130 $81,800 $86,298 $91,045 $96,052 $101,335 $106,909 $112,789 $118,992 $122,562

Other Current Assets $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000

Total Current Assets $57,820 $138,597 $163,443 $171,124 $182,388 $232,595 $238,839 $247,605 $256,345 $272,721 $283,534 $297,836 $310,130

Long-term Assets

Long-term Assets $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000

Accumulated Depreciation $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Total Long-term Assets $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000

Total Assets $65,820 $146,597 $171,443 $179,124 $190,388 $240,595 $246,839 $255,605 $264,345 $280,721 $291,534 $305,836 $318,130

Liabilities and Capital Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Current Liabilities

Accounts Payable $8,000 $94,465 $73,446 $83,500 $93,708 $93,404 $96,835 $103,236 $107,207 $114,883 $118,780 $126,385 $125,904

Current Borrowing $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $20,000 $20,000 $20,000 $20,000

Other Current Liabilities $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000

Subtotal Current Liabilities $33,000 $119,465 $98,446 $108,500 $118,708 $118,404 $121,835 $128,236 $132,207 $144,883 $148,780 $156,385 $155,904

Long-term Liabilities $75,000 $75,000 $125,000 $125,000 $125,000 $125,000 $125,000 $125,000 $125,000 $125,000 $125,000 $125,000 $125,000

Total Liabilities $108,000 $194,465 $223,446 $233,500 $243,708 $243,404 $246,835 $253,236 $257,207 $269,883 $273,780 $281,385 $280,904

Paid-in Capital $70,000 $70,000 $70,000 $70,000 $70,000 $120,000 $120,000 $120,000 $120,000 $120,000 $120,000 $120,000 $124,000

Retained Earnings ($112,180) ($112,180) ($112,180) ($112,180) ($112,180) ($112,180) ($112,180) ($112,180) ($112,180) ($112,180) ($112,180) ($112,180) ($112,180)

Earnings $0 ($5,688) ($9,823) ($12,196) ($11,140) ($10,629) ($7,816) ($5,451) ($682) $3,018 $9,935 $16,631 $25,406

Total Capital ($42,180) ($47,868) ($52,003) ($54,376) ($53,320) ($2,809) $4 $2,369 $7,138 $10,838 $17,755 $24,451 $37,226

Total Liabilities and Capital $65,820 $146,597 $171,443 $179,124 $190,388 $240,595 $246,839 $255,605 $264,345 $280,721 $291,534 $305,836 $318,130

Net Worth ($42,180) ($47,868) ($52,003) ($54,376) ($53,320) ($2,809) $4 $2,369 $7,138 $10,838 $17,755 $24,451 $37,226

Flyleaf Books

Documents

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