Refrigerant Recovery Business Plan


ROAD RUNNER REFRIGERANT RECOVERY SYSTEM


757 N. 22nd Dr.
Tucson, AZ 85028


Road Runner is an ecological manufacturing firm dedicated to providing refrigerant recovery systems to enterprises specializing in refrigeration. Refrigerant recovery systems are designed to retain refrigerants from refrigeration systems to avoid its illegal and dangerous release into the atmosphere.


  • MISSION STATEMENT
  • INDUSTRY BACKGROUND
  • PRODUCT OFFERING
  • MARKETING PLAN
  • OPERATIONS
  • MANAGEMENT TEAM
  • FINANCIAL PLAN
  • RISK AND CONTINGENCY
  • SUMMARY

MISSION STATEMENT

ROAD RUNNER. We are an environmental manufacturing firm committed to providing product, service, and support of the highest quality. We will provide refrigerant recovery systems to the refrigeration industry, currently regulated by government law. Our product, designed for refrigeration service technicians, will be distributed throughout the entire United States. By creating a business environment built upon integrity, honesty, and ambition, ROAD RUNNER will help to revitalize the manufacturing industry and return it to the infrastructure of America. As we seek future challenges, we will continually embrace the passion of goodwill for our employees, our customers, our environment and our country.

Core Philosophies

  • Ensure our continuing existence by satisfying the customer.
  • Strive to manufacture products and provide service that maximizes value and minimizes cost.
  • Create a corporate culture that emphasizes teamwork, integrity, honesty, and leadership.

INDUSTRY BACKGROUND

Technology has changed our lives in many ways. It has enhanced nearly every activity that we undertake. Although technology has played a tremendous role in making our lives better, more efficient, and easier, it has played a role in endangering the safety of our earth. One such technology is refrigeration. Refrigeration uses gasses (such as freon) which contain chloroflourocarbons (CFCs) and hydrochloroflourocarbons (HCFCs). CFCs and HCFCs have been determined to deplete the ozone layer of our atmosphere, creating a large problem for our environment. In response to this, the United States government passed the Clean Air Act, regulating the handling and use of refrigerants.

On July 1, 1992, the United States Government and the Environmental Protection Agency established the Clean Air Act. Section 608 of the Act contains the following prohibition.

"Effective July 1, 1992, it shall be unlawful for any person, in the course of maintaining, servicing, and repairing, or disposing of any appliance or industrial process refrigerant, to knowingly vent or otherwise knowingly release or dispose of any class I or class II substance used as a refrigerant in such appliance (or industrial process refrigeration) in a manner which permits such substance to enter the environment. De minimis releases associated with good faith attempts to recapture and recycle or safely dispose of any such substance shall not be subject to the prohibition set forth."

The penalty for those technicians caught venting refrigerant into the atmosphere is as follows:

"With respect to enforcement, civil penalties of not more than $25,000 per day for each violation may be assessed. Criminal penalties for persons knowingly violating (after having been notified by the Administrator) a requirement or prohibition shall, upon conviction, be punished by a fine pursuant to Title 18 of the United States Code or by imprisonment not to exceed five years, or both "

This new law, along with the increasing pressure to uphold environmental standards, has created a dynamic market for refrigerant recovery systems. As the rules and regulations took effect in July of 1992, orders for refrigerant recovery systems greatly outnumbered available supply. Service technicians purchased approximately 132,000 recovery systems (research estimates that 18-20% of service technicians purchased units). This accounts for approximately $206 million in sales. However, many service technicians attempted to comply with the law, but could not do so. Manufacturers granted these individuals "rain checks" since they could not meet the demand. At the same time, a large percentage of technicians felt reluctant to purchase a system.

To further compound the arduous start for this industry, service technicians were not satisfied with the refrigerant recovery systems on the market. These systems: operated slowly due to inferior compressors, could not operate efficiently during extreme summer temperatures, and were too heavy. (These problems are explained further in the Product Offering.) Furthermore, manufacturers failed to provide adequate service and attention to the problems that occurred in the field.

Economic Incentives Propel Industry

In addition to the Clean Air Act and the penalty, two additional forces will propel the sales and popularity of refrigerant recovery systems. The Clean Air Act served as the initial catalyst by creating immense public interest and publicity. However, the economic aspects of this situation will begin to outweigh the regulatory. First, since the inception of the Clean Air Act, prices of all varieties of refrigerant (R12, R22, R500, R502, Rl 14, R60/40) have increased approximately 130% (as of March 1993), due to heavy government taxes. Taxes are currently $1.67/lb., and over the next six years will increase to $4.90/lb. Furthermore, refrigeration wholesalers are forecasting an increase in the manufacturers' price, which drive the retail prices even higher.

Second, environmentally safe refrigerant currently costs $17/lb. and is referred to in the industry as "liquid gold." At this exorbitant cost, twice the amount of non-environmental refrigerant technicians have a financial incentive to save as much of this "liquid gold" as possible. Thus, this creates an on-going market for the refrigerant recovery industry into the 21st century.

The Refrigerant Recovery Process

In order to understand the logic behind ROAD RUNNER'S design strategy, it is essential to understand the process of capturing refrigerants. Before an air-conditioning system can be serviced, the refrigerant inside the system must be removed. Before the Clean Air Act passed, service technicians would generally detach a hose and allow the refrigerant to release into the atmosphere. As explained, current refrigerants contain chloroflourocarbons (CFCs) and hydrochloroflourocarbons (HCFCs). These refrigerants can no longer by legally vented into the atmosphere. ROAD RUNNER assures rapid recovery of all types of refrigerants (in both liquid and gaseous states) from refrigeration systems containing refrigerant (refrigerators, walk-in coolers, air conditioners, automobiles, etc.).

Liquid Recovery

Liquid recovery occurs faster than any other type of refrigerant recovery possible. During this process, liquid refrigerant gets extracted from the air conditioning unit, and moves directly into the storage tank. It does not pass through the recovery unit, as compressors are only designed to pump vapor. The ROAD RUNNER will recover liquid refrigerant by utilizing a push-pull method. A vacuum is drawn on the storage tank to assist the liquid flow from the higher pressure area of the A/C unit into the low pressure area established in the storage tank. After the liquid refrigerant has been recovered, vapor recovery can commence.

Vapor Recovery

During vapor recovery, an additional hose must be attached between the storage tank and the recovery unit. Vapor is drawn from the A/C unit into the recovery system. It passes through the compressor to the condenser, where cooling occurs. Once cooled to a sufficient temperature, the gas turns to liquid and proceeds into the storage tank. Refrigerant recovery systems operate on a temperature pressure relationship. A lower temperature facilitates a lower pressure, therefore allowing for faster and more efficient operation.

PRODUCT OFFERING

Technicians faced many design and performance problems with the recovery systems they purchased to fulfill the requirements of the Clean Air Act. Therefore, ROAD RUNNER faced a great opportunity to design a recovery system that would completely fulfill the needs of the refrigeration service technicians. ROAD RUNNER'S product strategy centers around a second mover position and the ability to design a recovery system based upon the difficulties technicians encountered with competitors' systems.

ROAD RUNNER – Designing Archetype 2000

ROAD RUNNER's triple benefit positioning strategy (detailed explanation in the Marketing section) centers around the results of primary market research. This research indicated that the service technicians have a great need for a recovery unit with powerful and durable compression, rapid operation, and light weight. Taking this into consideration, the design engineer carefully chose components and system design in an effort to completely satisfy the needs of the service technician. Technicians faced big problems when it came to refrigerant recovery, but ROAD RUNNER solves them all.

Problems faced by technicians

  • Damage to compressors caused by liquid
  • Inadequate compressor strength
  • Poor recovery rate in extreme temperatures
  • Excessive weight for portable use

ROAD RUNNER provides solutions

• ROAD RUNNER contains a rotary compressor.

The first of several complaints focused on the situation of accidentally pulling liquid into the compressor. If liquid gets pulled into the compression chamber of a reciprocating piston compressor (similar to the piston and chamber in an automobile engine), the compressor will lock up and render the system useless. If the service technician works haphazardly, this can easily happen. Rotary compressors are much more durable and less vulnerable to damage if liquid is encountered.

• ROAD RUNNER utilizes a high capacity, one (1) horsepower compressor.

Secondly, service technicians complained that the recovery systems did not work quickly enough. What should have taken them minutes took several hours to capture the refrigerant from an A/C unit. This compressor nearly doubles the power of most competitors.

• ROAD RUNNER contains a tank cool down system.

Refrigerant recovery systems operate based on a direct temperature/pressure relationship. In order for a recovery system to work quickly and efficiently, it is crucial to minimize both temperature and pressure. Many of the current systems are unable to do this, thus slowing the refrigerant recovery process greatly. This became such a big problem during the summer of 1992, that service technicians were forced to submerge the refrigerant storage tank in ice in order to keep the temperature to a minimum. ROAD RUNNER's oversized condenser (300 cfm, three times the cooling capacity of competitors) coupled with a tank cool down system will enable the service technicians to recover refrigerants quickly and efficiently.

• ROAD RUNNER weighs only 41 lbs. and comes complete with a shoulder harness.

Finally, service technicians found that recovery systems weighed too much for portable use. Most commercial systems with the same recovery capabilities as ROAD RUNNER range from 60-100 lbs. Imagine climbing up a ladder onto a roof carrying a 100 pound machine. Itis nearly impossible unless one has unbelievable balance and incredible strength. Technicians said they actually had to use pulley systems and ropes to bring their refrigerant recovery systems onto the roof!

ROAD RUNNER Archetype 2000 includes:

  • ROAD RUNNER refrigerant recovery system
  • Connection hoses (3)
  • Float valve (controls automatic shut-off function)
  • Inlet vapor filter (O52 dryer, liquid filter)
  • ROAD RUNNER utility bag (to carry hoses and filter), shoulder harness, and 2 ROAD RUNNER baseball caps

ROAD RUNNER Builds for the Future

Once Archetype 2000 becomes established in the marketplace, Archetype 250 will be introduced. This refrigerant recovery system will have orientation toward the more price-conscious service technician. Initial market research indicates that a unit with a smaller compressor and condenser and a lower price will serve the needs of this portion of the refrigeration industry much more adequately.

Additionally, ROAD RUNNER Archetype 3000 is currently under development. This system will have dual uses. It will serve as a recovery system (just like Archetype 2000) and a refrigerant recycler. Archetype 3000 will re-charge and clean old refrigerant on location. This will save the service technician time and the consumer money.

MARKETING PLAN

Goals and Objectives

  • Createproduct awareness and a positive reputation for ROAD RUNNER Archetype 2000, ensuring a successful market introduction for future ROAD RUNNER products.
    • Establish feedback channels that will allow ROAD RUNNER to determine purchaser satisfaction and opinions.
    • Use creative advertising (baseball caps, T-shirts, bumper stickers)
  • Utilize promotional activities to persuade our customers (wholesalers) to purchase ROAD RUNNER. Determine market demand for further ROAD RUNNER products.
    • Institute a three phase promotional strategy consisting of sales promotion, education, and advertising.
    • Survey the market and determine potential demand for a smaller, less expensive recovery system, and a refrigerant recycling system.
    • Provide demonstration and educational seminars with wholesalers and technicians.

ROAD RUNNER's marketing strategy is based upon in-depth interviews, surveys and information provided by the company's sales representatives. This provided ROAD RUNNER with concise knowledge of the refrigeration industry. Each of these sources was extremely helpful as the information was used as validation for the product design and concept. This continual validation prompted ROAD RUNNER to switch from prototype production to full scale operations late in the winter of 1992.

Experts Provide Information

The initial phase of our research consisted of a series often (10) in-depth interviews with wholesalers and service technicians. As the first phase of the research effort, ROAD RUNNER gathered information on trends in the industry, current manufacturers of refrigerant recovery systems, and consumer product preference. Both the wholesalers and technicians concurred that recovery systems on the market at that time were of poor quality. Another frequent complaint centered around the lack of service and assistance provided by the manufacturers. Additionally, wholesalers indicated that many technicians planned on postponing a recovery system purchase until the Environmental Protection Agency began stringent enforcement of the law, and the quality standards of the recovery systems increased to acceptable levels. The information from these interviews served as the foundation for the marketing strategy and product development for ROAD RUNNER. Although the government drives the demand for refrigerant recovery systems, the consumer must also demand the unit in order to ensure product sales and success. The service technician must purchase a recovery system, but has several product options. Hence, by incorporating several useful product features, service technicians will choose the ROAD RUNNER over existing competitors.

Service Technician Survey Shows Viability

A survey of 114 residential and commercial air conditioning service technicians took place. The results of this survey provided an abundance of information that served as an integral tool in the product design of the ROAD RUNNER. This information helped to determine the wants and needs of service technicians in refrigerant recovery. Additionally, the survey provided an outlook on industry market share and extent of demand within the recovery industry.

Key Competitors and Market Share

The survey of 114 technicians also provided ROAD RUNNER with and estimate of the market share each of our competitors has captured. These numbers were validated at the International Refrigeration Industry Trade Show (Evanston, IL) in June 1994. Although minor discrepancies occurred as to the exact percentage captured by each competitor, ROAD RUNNER survey results were fairly accurate. The discrepancies are due mainly as a result of fluctuating sales intensity of different refrigerant recovery systems in different regions of the country.

ROAD RUNNER Targets Enormous Market

ROAD RUNNER's overall target market focuses on residential and commercial air conditioning service technicians governed by the Clean Air Act. More specifically, ROAD RUNNER targets residential and commercial technicians in need of a portable recovery system. Secondary research estimates this target to be $724,000,000. Within this target, ROAD RUNNER directs its efforts at the informed purchaser. This includes technicians who have learned about refrigerant recovery systems through trade shows, product literature, personal use, and the "grapevine." The largest portion of this segment, seventy percent, consists of technicians who have not purchased a refrigerant recovery system. The smaller portion of this segment, ten percent (10%), centers around technicians who purchased an inferior refrigerant recovery system that malfunctioned in the field. Victims of product failure, these individuals know exactly what features they require in a recovery system for optimal field performance. The remaining twenty percent (20%) of the informed segment is composed of technicians who purchased a competitor's system and technicians who will avoid the requirements of the Clean Air Act.

ROAD RUNNER's target market and segmentation scheme were selected based on several factors. The impact of the Clean Air Act focuses its attention at commercial and residential technicians. Before the legislation, the presence of refrigerant recovery systems in the field appeared scarce. According to sources within the industry (trade magazines, wholesalers, and manufacturers) it is estimated that approximately 132,311 registered refrigeration service contractors operate in the United States. Each of these individuals employs between 3-7 service technicians, on average. This presents ROAD RUNNER with an opportunity to initially sell 661,500 units to our specific target market. Additional sales opportunities will be available in the replacement market (exact numbers will depend on product breakdown and obsolescence).

ROAD RUNNER: The High Quality System

The ROAD RUNNER will be sold to service technicians through refrigeration supply wholesalers. Wholesalers, as an industry standard, act as intermediaries between manufacturers and technicians. ROAD RUNNER will position itself as the highest quality and performance system in the light-weight niche of the market. ROAD RUNNER'S positioning strategy also places great emphasis on a comprehensive service and support program that will solidify the ROAD RUNNER as the premiere refrigerant recovery system.

ROAD RUNNER'S triple benefit positioning strategy centers around the results of market research. This research indicated that service technicians need a recovery unit with powerful and durable compression, rapid operation, and light weight. Taking this into consideration, the components and system design were carefully chosen and assembled in an effort to satisfy the needs of the service technician.

ROAD RUNNER Utilizes National Distribution Strategy

There are thirteen thousand (13,000) wholesaler/distributor (w/d) outlets in the United States which sell a variety of refrigeration related products in their stores. The geographic distribution area for ROAD RUNNER will encompass the entire United States. The ROAD RUNNER is designed to fit the demanding needs of the Southwest technician who will operate the machine in extreme temperatures. Because of this durable design structure, the ROAD RUNNER will, without question, serve technicians in other parts of the country with cooler climates.

The composition of the w/d portion of the refrigeration industry consists of four tiers:

National Wholesalers - This tier is composed of large companies who have outlet stores located all around the country. Because they have such immense size they enjoy economy of scale advantage. They account for over sixty percent (60%) of w/d sales. A few major players on this level include: Palmetto Air (270 stores), Rhinestone Supply, Ashby, and Burton.

Regional Wholesalers - These businesses typically consist of five (5) to fifteen (15) stores in two or three different states within the same geographic region. This portion of the industry has fifteen percent (15%) to twenty percent (20%) of the sales. Companies such as Frozen Stock Distributors (FSD), Williams Engineering and Nevada Refrigeration Company are regional wholesalers that operate in the Southwest.

Statewide - This tier is composed of companies that operate two (2) to five (5) stores within the same state. Wholesalers such as this account for eight percent (8%) to thirteen percent (13%) of sales. Faulkner Refrigeration Supply, McAdoo, and Moultrie's act as examples of w/ds who operate on the third tier.

Sole Proprietorships - Sole Proprietorships account for approximately four percent (4%) to eight percent (8%) of industry sales. Often times they find it difficult to compete as their larger competitors dominate the market and have more bargaining power with suppliers. Consequently they can obtain inventory at a lower cost.

Because of the highly concentrated (national w/d) make-up of the w/d structure, ROAD RUNNER's distribution strategy will place an emphasis on national and regional wholesalers. The majority of these companies have an established purchasing department that makes the inventory selection for all of its stores. A sale to the purchasing team will directly translate into a sale to each of the company stores nationwide. It has been determined that over seventy-five percent (75%) of ROAD RUNNER's recovery system sales will involve national and regional w/ds.

ROAD RUNNER Attracts Experienced Sales Reps

The Production Workers National Association (PWNA) will represent ROAD RUNNER. John Caleb, Vice President of Marketing, selected sales agents who are specialized in the air conditioning industry and have established rapport with key members in distribution channels. Because of this, ROAD RUNNER will gain tremendous exposure. The sales representatives were selected on a basis of:

  • Knowledge of the refrigerant recovery industry
  • Number of products currently represented
  • Past sales record
  • Access to distribution channels

Currently ROAD RUNNER has twenty (20) sales representatives working for the company. These individuals are strategically placed in specific geographic regions across the entire United States. PWNA representatives will receive seven percent (7%) commission of ROAD RUNNER sales. These sales representatives handle a large portion of promotion, as they provide direct contact to the wholesalers. Furthermore, they will educate and attract the wholesalers who will, in turn, pass information on to service technicians. This develops an efficient "push through" marketing and promotion strategy for ROAD RUNNER.

Promotion Strategy Creates Awareness

The promotion strategy for ROAD RUNNER has two main goals. The first goal focuses on building consumer awareness for the ROAD RUNNER Archetype 2000. The second orients itself on creating extensive awareness and recognition for the company throughout the industry.

ROAD RUNNER's promotional strategy utilizes three phases: personal selling, product emonstrations, and advertisements.

The first phase of our promotional strategy centers around personal selling. Our sales representatives will make an appointment to meet with the wholesaler's purchasing agent. The first sales call lasts approximately an hour and includes a product demonstration. The second phase, advertising, will take the form of brochures, point-of-sale advertisements and wholesaler initiated mailers to technicians. All promotional activities will be implemented and monitored by John Caleb, Vice-President of Marketing. The third phase, product demonstrations and sales seminars, occurs after the wholesaler has purchased the ROAD RUNNER. Atthis point, ROAD RUNNER's service and support team will hold all-day demonstrations of the system in the wholesaler's showroom. The service and support team will consist of Real Manufacturing staff, along with the sales representative responsible for the sale. The support team will teach the wholesaler's sales staff how to use and sell the ROAD RUNNER. This adds value, as ROAD RUNNER's competitors do not offer this service.

Promotional Budget (Year 1)

Advertising
Brochures (36,000 at .35 per) $12,600
Point of Sale Displays (1200 at $1 per) 1,200
ROAD RUNNER Baseball Caps (4800 at $1.50 per) 7,200
Trade Magazine 2,000
Demonstrations
140 at $60 (set-up cost) per 8,400
Travel expenses 19,000
Trade Shows
2 shows at $2000 per 4,000
TOTAL EXPENSES (year 1) $54,400

OPERATIONS

Goals and Objectives

  • Produce and sell the premier refrigerant recovery system at a competitive price.
    • Determine the operational and design problems with recovery systems currently on the market and design a unit based on suggestions and input from service technicians and wholesalers/distributors.
    • Utilize a forty six (46) point quality control system during manufacturing which will rigorously test each completed unit and ensure the highest quality and performance.
  • Establish an open channel of feedback between customers and the company.
    • Establish a customer "hot-line" to provide on-the-spot assistance and information.
    • Send out follow-up questionnaires and conduct in-depth interviews with ROAD RUNNER users.
  • Keep employees enthusiastic, productive, and informed.
    • Provide job enrichment and job enlargement programs for employees (including cross-training, rotation, shift leadership, and educational seminars).
    • Encourage a healthy social climate in the workplace (social outings, contests, theme days).

ROAD RUNNER's operations strategy is designed to efficiently manufacture the premier refrigerant recovery system. This will be achieved through the use of quality control checklists, time motion studies, and employee training. Furthermore, an ongoing research and development department along with established relations with suppliers, will enable ROAD RUNNER to stay at the forefront of its industry.

Efficient and High Quality Production

The operations of ROAD RUNNER will initially take place at the Real Manufacturing Co. plant in Phoenix, Arizona. This facility encompasses 12,000 square feet and has ample resources available for ROAD RUNNER's use. As sales and the distribution network grow, production of the ROAD RUNNER will expand to RMC's plant in Dallas, Texas (15,000 square feet). This facility will provide ROAD RUNNER extra manufacturing space and will serve as distribution center to the Midwest and east coast.

The assembly process includes eleven (11) different production stations. Through time motion studies, data pertaining to time-per-station was gathered and calculated. This resulted in an a highly efficient and organized operation flow. Moreover, ROAD RUNNER employees work as a team and are trained to participate in all phases of the manufacturing process. Through job enrichment and job enlargement practices, the cohesiveness and flexibility of the team have resulted in rapid and high quality production. Through the following manufacturing analysis, maximum production with current resources has been estimated at 13,360 units per year.

Assumptions:

  • Two 7.5 hour shifts per day (8.5 hour shift less .5 hour lunch and two 15 minute breaks)
  • 14 line employees per shift
  • 37.5 hours per week per employee (7.5 hours × 5 days)
  • 1050 production hours per week (2 shifts × 14 employees × 7.5 hours × 5 days)
  • 4 hours to complete each unit
  • 1050 production-hours/4 hours per unit = 262 per week
  • 262 per week × 51 manufacturing weeks = 13,360 units/year

To ensure a defect free product, ROAD RUNNER utilizes a forty six (46) point quality control checklist. This checklist concentrates on such areas as structural integrity, pressure tests, electrical tests and packaging requirements. Through the first six months of production this system has ensured a virtually defect free product (less than 1%).

R&D Provides Quality Products

All product design and technical writing are completed by ROAD RUNNER's design engineer, Antoine Walker. The R&D period for the ROAD RUNNER elapsed over a four month period, by which ample in-depth research of all aspects of refrigerant recovery systems and the refrigeration industry took place. A thorough investigation of technician's needs, competitor's systems, and the components that comprise the ROAD RUNNER, has resulted in a recovery system that surpasses all others in quality and performance.

Perhaps the most noteworthy portion of the research and development of the ROAD RUNNER occurred upon the system's designing, building, and implementation. Through follow up interviews and customer surveys, an evaluation of the ROAD RUNNER's performance in the field took place. This provided the engineer with technician's opinions and actual field data, which have proven extremely valuable in making minor adjustments and in the design phase for future products.

ROAD RUNNER Carefully Selects Suppliers

To maintain control over cost and schedule, ROAD RUNNER will manage the purchasing of components, scheduling, and inventory control. Special order arrangements were negotiated with suppliers, allow ROAD RUNNER the advantage of purchasing assembly parts and components within one month of production. This will assist ROAD RUNNER in managing cash flow as well as storage concerns. Inventory will be purchased from a variety of suppliers. The suppliers were chosen based on a criterion composed of: quality, shipment flexibility, parts availability, location, payment terms, and price. Choosing suppliers became a critical function of our initial operations as ROAD RUNNER views its suppliers as an integral part of the team.

Only Minimal Capital Equipment Required

Although the assembly and production of the ROAD RUNNER will occur in-house, the capital equipment requirements are not immense. The manufacturing procedure is not "high-tech" since its composition consists mainly of a series of labor intensive tasks including: brazing, soldering, and fastening. As sales grow, further equipment investment will take place. A list of necessary capital equipment is provided below:

Capital Equipment
*Total does not include leased machinery.
Listed equipment is sufficient to produce 13,360 units
Tube bending machine ($1000/shape, 10 shapes) $10,000
Welding equipment ($300/set, 3 sets) 900
Tube cutting machine 170
Misc. tools (sockets, screw drivers, wrenches, etc.) 700
Misc. equipment (safety gear, solders, packaging equip.) 520
Wire cutting machine 400
Lugging machine (Leased month-to-month, $195 per month)
Electronic test equipment
2000
Total * $15,440

MANAGEMENT TEAM

Goals and Objectives

  • Attract individuals who are experienced and will be capable of interacting with the other key personnel.
    • Implement a well-rounded interviewing process including both personal and group interviews.
    • Hire only those individuals the entire ROAD RUNNER team feels they can work with.
  • Obtain skilled individuals at all levels of the organization.
    • Hire personnel who understand organizational relationships.
    • Hire personnel who have skills necessary to make informed decisions.

The management team of ROAD RUNNER is healthy, energetic, and very excited about the company. The strength of ROAD RUNNER'S management team is derived from the blend of much needed experience and youthful ideas. Companies do not become profitable without successful employees. ROAD RUNNER is no different.

Key Personnel Provide Experience and Energy

Mr. Joseph Purdue currently serves as President and Chief Executive Officer of Real Manufacturing Company, Inc. He has held this position since he founded the company in 1987. As president and CEO, Mr. Purdue is responsible for strategic and financial planning. Furthermore, he oversees the personnel responsible for operating both of the company's divisions.

Previous to his current position, Mr. Purdue served as Executive Vice President of U.S. Chair Company, Inc. In his capacity as Vice President, he was directly responsible for returning his company to profitability one year after Chapter 11 proceedings. Mr. J. Purdue gained his twenty five years (25) of manufacturing background while being employed as Director of Materials with Computerized Supplies Inc.

Mr. Roger Burton was born in Denver, Colorado in 1971. He has been a resident of Arizona for the past twelve (12) years, having lived in Tucson and Phoenix. He is currently a senior at Arizona State University, pursuing dual degrees in Entrepreneurship and Accounting. Mr. Burton will be the Vice President of Operations for Road Runner. This position entails management of daily operations and research and development. Additionally, Mr. Burton will be responsible for the accounting function of ROAD RUNNER'S operation. Mr. R. Burton is qualified for these responsibilities as he played a crucial role in the operations of a drycleaning franchise. Through this experience, Mr. Burton honed his skills in such areas as personnel management, operations management, customer satisfaction and franchise sales. Most importantly however, Mr. Burton has developed a great understanding of the intangibles necessary to operate a business.

Mr. Gary Purdue was born in San Francisco, California, in 1971. He has lived throughout the United States including Colorado, Pennsylvania, and Arizona. He is currently a senior at Arizona State University, pursuing dual degrees in Entrepreneurship and Finance.

Mr. Purdue will operate in the capacity of Vice President of Marketing for ROAD RUNNER. His main responsibility includes management of sales representatives. However, Mr. G. Purdue will also be responsible for the ROAD RUNNER's marketing and customer service programs. As the executive assistant for Real Manufacturing Co. for the past three years, Mr. Purdue has acquired a considerable amount of managerial and communication skills necessary to be successful in the world of business.

Mr. James Watson, ROAD RUNNER's design engineer, is a graduate of Northwestern University, with a B.S. in Manufacturing Engineering and Operations Management. Since his graduation in 1980, Mr. Watson has accumulated over 10 years experience in product design as he served a Chief Design Engineer with such companies as MRIP Inc. and Richard Spas. Mr. Watson is responsible for all research and development of future products. Furthermore, his responsibilities include designing the manufacturing process as well as conducting time motion studies.

FINANCIAL PLAN

Goals and Objectives

  • Achieve positive cash flow by the end of year 1.
    • Obtain needed financing ($230,000).
    • Accurately forecast sales with the help of wholesalers and sales representatives.
  • Maintain at least a 40% gross margin throughout years 1, 2, and 5.
    • Keep raw material waste to .05%
    • Maintain excellent relationships with suppliers.
    • Continuously improve production efficiency.
  • Provide a 250% return on investment (ROI) by December 1994.
    • Pay back half of shareholders investment in December, 1996, and double the investment in December, 1997.

ROAD RUNNER is a division of Real Manufacturing Company, Inc. RMC has been in business for the past six years, and a historical record of actual expense amounts is available. Many of the forecasted general and administration expenses in ROAD RUNNER'S business plan are approximations based on amounts that RMC incurred. However, the ROAD RUNNER division is of a different nature than RMC's other interests, and the expense structure will be different. Furthermore, in constructing the financials for ROAD RUNNER, the conservative principle was utilized.

Financial Rationale

  • Direct Materials $450 per unit
  • Administrative Salaries - During the inception of the ROAD RUNNER division, RMC instituted a "pool system" to manage salaries. Administrators will be responsible for overall operations at Real Manufacturing. Therefore, salaries are distributed equally between Real Manufacturing overhead and ROAD RUNNER overhead.
  • Commissions - Based on the existing commission structure in the refrigeration industry, ROAD RUNNER is forecasting 7% commission for all sales representatives of ROAD RUNNER.
  • Payroll Taxes Estimated to be 14% of salaries.
  • Employee Fringe Benefits - Employee fringe benefits include such items as contests, employee social functions, and employee bonuses. Fringe Benefits will average at $500 per employee per year.
  • Trade Shows $2000 per show (Includes booth rental and freight.)
  • Travel Airfare: $550 avg./trip
    Lodging: $70/day avg.
    Meals: $75/day avg.
    Car Rental: $50/day avg.
  • Rent .44/square foot per month
  • Utilities .16/square foot per month
  • General Business Insurance $850 per month
  • Telephone $450 per month
  • Freight $3450 per month
  • Office Expense $590 per month
  • Dues and Subscriptions $25 per month
  • Legal and Accounting $3200 per year
  • Licensees and Fees $108 per month
  • Bad Debt Expense 2% of sales
  • Returns and Allowances 2% of sales
  • Selling Price - All prices are based on an average from a regressive cost structure
    Year 1: $950 average per unit
    Year 2: $910 average per unit
    Year 3: $870 average per unit
  • Unit Sales Year 1:2,471 units
    Year 2: 11,950 units
    Year 3: 27,850 units
  • Product Warranties 1% of overall sales per year
  • Accounts Receivable Collection terms - 2/10, net 30
  • Inventory Purchases 31-60 days prior to sale: 50% of materials
    Month of sale: 50% of materials
  • Research & Development Year 1:2% of sales
    Year 2:4% of sales
    Year 3:5% of sales

Established Financing Structure

Due to the fact that ROAD RUNNER is a division of Real Manufacturing Company (RMC), a closely held corporation, maintaining a substantial equity position has proven an important consideration. In the initial stages of the formation of ROAD RUNNER, the company secured both debt and equity financing.

Debt - Loans from Family Bank in Tucson, Arizona ($ 15,000) and the Bank of Dallas, Texas, ($15,000) were obtained. These moneys proved to be critical in maintaining adequate cash flow for the first few months of research and development and production. Furthermore, ROAD RUNNER received a $100,000 line-of-credit from Marble Industries. Interest on the line-of- credit will be three (3) points above the prime interest rate. Marble Industries currently stands as the primary customer of RMC.

Equity -100,000 shares (common stock, par $ 1) have been distributed. Shareholders include: Real Manufacturing Corporation, 65,000 shares, Spring Inc. (outside investor), 35,000 shares.

Exit Strategies Protect Shareholders

ROAD RUNNER will utilize a "front-loaded" dividend structure to provide quick return on investment for shareholders. Shareholders will obtain dividends at the end of fiscal year 1996. Planned dividend payment structure is as follows. In December of 1996, shareholders will receive one-half of their original investment. In the subsequent year (1997) shareholders will obtain dividends in the amount of twice the original investment, bringing the total return on investment to 250%, after two years.

Shareholders have the option of holding onto their shares or selling them back to the company any time after 1997. A sell-back price for outstanding shares will be negotiated with the shareholders when the issue arises.

If an unforeseeable reason should force ROAD RUNNER to cease ongoing operations, very little risk will be encountered. ROAD RUNNER is a labor intensive operation that does not require large costs of capital equipment. Furthermore, at most, two months of inventory will remain in stock at all times. In the case of ROAD RUNNER liquidation, unused inventory would be sold back to the original suppliers, capital equipment (approximately $13,000) and other business assets will be sold. The proceeds of the liquidation will be distributed in the order of priority: debt holders, outside shareholders, Real Manufacturing Company, Inc. Furthermore, Real Manufacturing Company has agreed to provide financial protection for outside shareholders, in this situation.

Key Financial Data

1993 1994 1995
Units Sold 2,471 11,950 27,850
Sales $2,300,501 $10,657,010 $23,744,910
Net Profit (Loss) After Tax $223,268 $1,330,240 $2,631,594
Gross Margin 41.1% 41.4% 39.0%
Break Even Point (Units) 864 3,331 7,154
Cash Flow (End of Year) $158,249 $1,101,199 $2,947,265
Dividend Payout (paid in Dec.) $50,000 $200,000 $400,000
Asset Turnover Ratio 3.06 3.76 3.20
Increase in Sales 463.2% 222.8%
Current Ratio 1.76 2.37 2.33
Debt-to-Equity Ratio 0.05 0.01 0.00

THIS PAGE INTENTIONALLY LEFT BLANK SEE NEXT PAGE FOR PROJECTED BALANCE SHEET

Projected Balance Sheet: Year 1

Oct 1992 Nov Dec Jan 1993
ASSETS
Current Assets
Cash 9,588 11,423 7,842 54,021
Accts Rcvable 6,783 18,169 28,682 57,268
Inventory 2,250 4,050 10,125 25,425
Total Current Assets 18,621 33,642 46,650 136,714
Property and Equipment - net of accumulated depreciation 10,817 10,633 10,450 14,178
TOTAL ASSETS 29,438 44,275 57,100 150,892
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accts Payable 16,400 25,850 26,775 60,025
Payroll Taxes Payable 958 1,949 0 1,106
Income Taxes Payable 0 0 0 0
Curr. Portion of Long-Term Debt 3,750 3,750 3,750 7,500
Line of Credit Balance 8,800 18,800 43,800 78,800
Total Current Liabilities 29,908 50,349 74,325 147,431
Long-Term Debt 10,938 10,625 10,313 20,938
Total Liabilities 40,846 60,974 84,638 168,369
Stockholders' Equity
Common Stock 10,000 50,000 65,000 100,000
Retained Earnings (21,408) (66,699) (92,538) (117,477)
Total Stockholders' Equity (11,408) (16,699) (27,538) (17,477)
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY 29,438 44,275 57,100 150,892
BALANCE CHECK OK OK OK OK
ASSETS VS. LIABILITIES 0 0 (0) 0
Feb Mar Apr May June July Aug Sept
29,449 13,738 24,837 51,487 67,992 96,095 121,748 158,249
130,088 225,389 296,514 360,953 423,938 438,473 489,345 501,458
43,425 54,675 65,925 77,175 77,175 88,425 88,425 65,925
202,962 293,802 387,276 489,614 569,105 622,992 699,518 725,631
13,906 13,633 15,819 19,417 19,014 21,069 22,569 25,019
216,868 307,436 403,096 509,031 588,118 644,062 722,088 750,650
114,700 173,250 227,500 276,500 307,750 328,750 353,250 342,500
2,467 0 1,788 3,741 0 2,117 4,399 0
0 0 0 19,383 35,898 34,914 42,585 42,645
7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500
78,800 78,800 68,800 58,800 48,800 38,800 28,800 18,800
203,467 259,550 305,588 365,924 399,948 412,081 436,533 411,445
20,313 19,688 19,063 18,438 17,813 17,188 16,563 15,938
223,779 279,238 324,651 384,361 417,761 429,268 453,096 427,383
100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000
(106,911) (71,802) (21,555) 24,669 70,358 114,793 168,992 223,268
(6,911) 28,198 78,445 124,669 170,358 214,793 268,992 323,268
216,868 307,436 403,096 509,031 588,118 644,062 722,088 750,650
OK OK OK OK OK OK OK OK
0 (0) 0 0 0 0 0 0

Projected Balance Sheet: Years 2-5

YEAR 2
Dec 1993 Mar 94 June 94 Sept 94
ASSETS
Current Assets
Cash 228,806 185,680 274,615 1,101,199
Accts Rcvable 269,178 819,137 2,329,782 1,452,633
Inventory 88,425 268,425 403,425 223,425
Total Current Assets 586,409 1,273,242 3,007,822 2,777,257
Property and Equipment - net of accumulated depreciation 32,039 39,981 48,247 55,839
TOTAL ASSETS 618,448 1,313,222 3,056,069 2,833,096
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accts Payable 254,000 739,250 1,718,000 1,065,500
Payroll Taxes Payable 0 0 0 0
Income Taxes Payable 0 53,688 199,596 98,151
Curr. Portion of Long-Term Debt 7,500 7,500 7,500 7,500
Line of Credit Balance 0 0 0 0
Total Current Liabilities 261,500 800,438 1,925,096 1,171,151
Long-Term Debt 14,063 12,188 10,313 8,438
Total Liabilities 275,563 812,625 1,935,409 1,179,589
Stockholders' Equity
Common Stock 100,000 100,000 100,000 100,000
Retained Earnings 242,886 400,597 1,020,661 1,553,508
Total Stockholders' Equity 342,886 500,597 1,120,661 1,653,508
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY
618,448 1,313,222 3,056,069 2,833,096
BALANCE CHECK OK OK OK OK
ASSETS VS. LIABILITIES 0 0 (0) 0
YEAR3 YEAR 4 YEAR 5
Dec 1994 Mar 95 June 95 Sept 95 Sept 1996 Sept 1997
1,441,193 1,330,034 1,472,878 2,947,265 5,695,546 8,544,868
798,660 1,899,036 4,623,354 3,700,458 3,294,860 3,522,188
178,425 605,925 988,425 673,425 720,450 720,450
2,418,278 3,834,995 7,084,657 7,321,148 9,710,856 12,084,381
66,158 75,639 85,203 107,289 193,689 236,511
2,484,437 3,910,634 7,169,860 7,428,436 9,904,545 12,320,892
664,000 1,699,000 3,680,000 2,901,000 2,698,475 2,125,375
0 0 0 0 0 0
19,502 124,237 344,889 233,897 150,324 143,127
7,500 7,500 7,500 7,500 0 0
0 0 0 0 0 0
691,002 1,830,737 4,032,389 3,142,397 2,848,799 2,268,502
6,563 4,688 2,813 938 0 0
697,564 1,835,425 4,035,201 3,143,335 2,848,799 2,268,502
100,000 100,000 100,000 100,000 100,000 100,000
1,686,872 1,975,209 3,034,658 4,185,102 6,955,746 9,952,390
1,786,872 2,075,209 3,134,658 4,285,102 7,055,746 10,052,390
2,484,437 3,910,634 7,169,860 7,428,436 9,904,545 12,320,892
OK OK OK OK OK OK
0 0 0 0 0 0

Projected Statement of Profit and Loss: Year 1

Oct 1992 Nov 92 Dec 92 Jan 1993 Feb 93 Mar 93
REVENUES
Gross Sales 6,650 16,150 23,750 49,400 114,000 190,000
Less: Returns and Allowances 133 323 475 988 2,280 3,800
NET REVENUES 6,517 15,827 23,275 48,412 111,720 186,200
COST OF GOODS SOLD
Direct Materials 3,150 30,600 19,800 34,200 54,000 90,000
Direct Labor 161 1,369 886 1,530 2,415 4,025
Manufacturing Overhead 2,440 5,276 4,149 5,652 8,183 11,941
TOTAL COST OF GOODS SOLD 5,751 37,245 24,835 41,382 64,598 105,966
GROSS MARGIN 766 (21,418) (1,560) 7,030 47,122 80,234
GROSS MARGIN% 11.8% −135.3% −6.7% 14.5% 42.2% 43.1%
OPERATING EXPENSES
Admin Salaries & Wages 5,567 5,567 5,567 5,567 5,567 5,567
Sales/Mktg Salaries & Wages 0 0 0 0 0 0
Sales Commissions 475 1,153 1,696 3,527 8,140 13,566
Payroll Taxes 796 796 796 796 796 796
Employee Fringe Benefits 750 750 750 750 750 750
Employee Training 320 320 320 320 320 320
Trade Shows 0 0 0 2,000 0 0
Advertising 850 822 1,005 3,460 3,285 3,346
Travel 4,150 4,150 4,150 4,150 4,150 4,150
Entertainment 500 500 500 500 500 500
Product R and D 470 1,331 861 1,487 2,348 3,914
Rent 1,056 1,056 1,056 1,056 1,056 1,056
Utilities 384 384 384 384 384 384
General Business Insurance 849 849 849 849 849 849
Telephone 450 450 450 450 450 450
Postage and Freight 3,450 3,450 3,450 3,450 3,450 3,450
Office Expense 590 590 590 590 590 590
Dues and Subscriptions 25 25 25 25 25 25
Legal and Accounting 417 417 417 417 417 417
Licenses and Fees 108 108 108 108 108 108
Depreciation 183 183 183 272 272 272
Equipment Maintenance 220 220 220 300 300 300
Vehicle Expense 400 400 400 400 400 400
Bad Debts 133 323 475 988 2,280 3,800
TOTAL OPERATING EXPENSES 22,142 23,844 24,252 31,846 36,437 45,010
OPERATING INCOME (LOSS) (21,376) (45,261) (25,811) (24,816) 10,685 35,224
INTEREST EXPENSE (32) (30) (28) (124) (119) (115)
INCOME BEFORE INCOME TAXES (21,408) (45,291) (25,839) (24,939) 10,566 35,109
INCOME TAXES 0 0 0 0 0 0
NET INCOME (LOSS) (21,408) (45,291) (25,839) (24,939) 10,566 35,109
NET INCOME (LOSS)% −328.5% −286.2% −111.0% −51.5% 9.5% 18.9%
RETAINED EARNINGS, BEGINNING 0 (21,408) (66,699) (92,538) (117,477) (106,911)
RETAINED EARNINGS, END (21,408) (66,699) (92,538) (117,477) (106,911) (71,802)
Apr 93 May 93 June 93 July 93 Aug 93 Sept 93 Total %Total
237,500 285,000 332,500 332,500 380,000 380,000 2,347,450 100.0%
4,750 5,700 6,650 6,650 7,600 7,600 49,949 2.0%
232,750 279,300 325,850 325,850 372,400 372,400 2,300,501 98.0%
112,500 135,000 157,500 157,500 180,000 180,000 1,154,250 49.2%
5,013 6,038 7,044 7,044 8,050 8,050 51,641 2.2%
14,290 16,638 18,987 18,987 21,335 21,335 149,213 6.4%
131,821 157,676 183,530 183,530 209,385 209,385 1,355,103 57.7%
100,929 121,624 142,320 142,320 163,015 163,015 945,398 40.3%
43.4% 43.5% 43.7% 43.7% 43.8% 43.8% 231.3% 0.0%
5,567 5,567 5,567 5,567 5,567 5,567 66,800 2.8%
0 0 0 0 0 0 0 0.0%
16,958 20,349 23,741 23,741 27,132 27,132 167,608 7.1%
796 796 796 796 796 796 9,552 0.4%
750 750 750 750 750 750 9,000 0.4%
320 320 320 320 320 320 3,840 0.2%
0 0 0 2,000 0 0 4,000 0.2%
3,496 3,346 2,746 2,896 2,746 2,502 30,500 1.3%
4,150 4,150 4,150 4,150 4,150 4,150 49,800 2.1%
500 500 500 500 500 500 6,000 0.3%
4,893 5,871 6,850 6,850 7,828 7,828 50,530 2.2%
1,056 1,056 1,056 1,056 1,056 1,056 12,672 0.5%
384 384 384 384 384 384 4,608 0.2%
849 849 849 849 849 849 10,188 0.4%
450 450 450 450 450 450 5,400 0.2%
3,450 3,450 3,450 3,450 3,450 3,450 41,400 1.8%
590 590 590 590 590 590 7,080 0.3%
25 25 25 25 25 25 300 0.0%
417 417 417 417 417 417 5,000 0.2%
108 108 108 108 108 108 1,296 0.1%
314 403 403 444 500 550 3,981 0.2%
350 430 430 480 520 580 4,350 0.2%
400 400 400 400 400 400 4,800 0.2%
4,750 5,700 6,650 6,650 7,600 7,600 46,949 2.0%
50,571 55,910 60,630 62,872 66,137 66,003 545,654 23.2%
50,358 65,714 81,689 79,448 96,877 97,011 399,744 17.0%
(111) (107) (103) (99) (94) (90) (1,052) 0.0%
50,247 65,607 81,587 79,349 96,783 96,921 398,692 17.0%
0 19,383 35,898 34,914 42,585 42,645 175,425 7.5%
50,247 46,689 45,689 44,436 54,198 54,276 223,268 9.5%
21.6% 16.6% 14.0% 13.6% 14.6% 14.6% 9.5%
(71,802) (21,555) 24,669 70,358 114,793 168,992
(21,555) 24,669 70,358 114,793 168,992 223,268

Projected Statement of Profit and Loss: Year 2

Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total % Total
REVENUES
Gross Sales 455,000 1,001,000 2,912,000 2,639,000 7,007,000 100.0%
Less: Returns & Allowances 9,100 20,020 58,240 52,780 140,140 2.0%
NET REVENUES 445,900 980,980 2,853,760 2,586,220 6,866,860 98.0%
COST OF GOODS SOLD
Direct Materials 225,000 495,000 1,440,000 1,305,000 3,465,000 49.5%
Direct Labor 10,063 22,138 64,400 58,363 154,963 2.2%
Manufacturing Overhead 34,076 62,169 160,494 146,448 403,186 5.8%
TOTAL COST OF GOODS SOLD 269,138 579,306 1,664,894 1,509,810 4,023,149 57.4%
GROSS MARGIN 176,762 401,674 1,188,866 1,076,410 2,843,711 40.6%
GROSS MARGIN% 79.1% 81.7% 83.3% 83.2% 327.3% 0.0%
OPERATING EXPENSES
Admin Salaries & Wages 19,967 19,967 19,967 19,967 79,867 1.1%
Sales/Mktg Salaries & Wages 4,000 4,000 9,000 9,000 26,000 0.4%
Sales Commissions 32,487 71,471 207,917 188,425 500,300 7.1%
Payroll Taxes 3,427 3,427 4,142 4,142 15,139 0.2%
Employee Fringe Benefits 3,000 3,000 3,500 3,500 13,000 0.2%
Employee Training 1,300 1,300 1,300 1,300 5,200 0.1%
Trade Shows 0 2,000 0 2,000 4,000 0.1%
Advertising and Promotions 6,522 9,071 9,132 6,949 31,674 0.5%
Travel 12,450 12,450 12,450 12,450 49,800 0.7%
Entertainment 3,250 3,250 3,250 3,250 12,999 0.2%
Product R and D 16,853 37,077 107,862 97,750 259,542 3.7%
Rent 5,720 5,720 5,720 5,720 22,880 0.3%
Utilities 2,080 2,080 2,080 2,080 8,320 0.1%
General Business Insurance 5,518 5,518 5,518 5,518 22,072 0.3%
Telephone 2,925 2,925 2,925 2,925 11,699 0.2%
Postage and Freight 22,423 22,423 22,423 22,423 89,693 1.3%
Office Expense 2,360 2,360 2,753 2,753 10,227 0.1%
Dues and Subscriptions 100 100 117 117 433 0.0%
Legal and Accounting 2,354 2,000 2,000 2,000 8,354 0.1%
Licenses and Fees 216 216 216 216 864 0.0%
Depreciation 1,319 1,706 2,156 2,606 11,700 0.2%
Equipment Maintenance 1,390 1,780 2,240 2,700 12,100 0.2%
Vehicle Expense 1,200 1,200 1,200 1,200 4,800 0.1%
Bad Debts 9,100 20,020 58,240 52,780 140,140 2.0%
TOTAL OPERATING EXPENSES 159,562 234,661 485,707 451,370 1,331,299 19.0%
OPERATING INCOME (LOSS) 17,200 167,013 703,159 625,040 1,512,412 21.6%
INTEREST EXPENSE (164) (139) (114) (89) (505) 0.0%
INCOME BEFORE INCOME TAXES 17,036 166,874 703,045 624,951 1,511,907 21.6%
INCOME TAXES 9,396 71,524 309,340 274,979 665,239 9.5%
NET INCOME (LOSS) 7,640 95,349 393,705 349,973 846,668 12.1%
NET INCOME (LOSS)% 1.7% 9.5% 13.5% 13.3% 12.1%
RETAINED EARNINGS, BEGINNING 223,268 230,908 326,257 719,963
RETAINED EARNINGS, END 230,908 326,257 719,963 1,069,935

Projected Statement of Profit and Loss: Year 3

Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total %Total
REVENUES
Gross Sales 1,435,500 2,262,000 6,003,000 6,438,000 16,138,500 100.0%
Less: Returns & Allowances 28,710 45,240 120,060 128,760 322,770 2.0%
NET REVENUES 1,406,790 2,216,760 5,882,940 6,309,240 15,815,730 98.0%
COST OF GOODS SOLD
Direct Materials 742,500 1,170,000 3,105,000 3,330,000 8,347,500 51.7%
Direct Labor 33,206 52,325 138,863 148,925 373,319 2.3%
Manufacturing Overhead 91,755 136,046 336,519 359,830 924,149 5.7%
TOTAL COST OF GOODS SOLD 867,461 1,358,371 3,580,381 3,838,755 9,644,968 59.8%
GROSS MARGIN 539,329 858,389 2,302,559 2,470,485 6,170,762 38.2%
GROSS MARGIN % 76.6% 77.2% 78.3% 78.3% 310.3% 0.0%
OPERATING EXPENSES
Admin Salaries & Wages 22,175 22,175 22,175 22,175 88,700 0.5%
Sales/Mktg Salaries & Wages 13,593 13,593 13,593 13,593 54,373 0.3%
Sales Commissions 102,495 161,507 428,614 459,673 1,152,289 7.1%
Payroll Taxes 5,115 5,115 5,115 5,115 20,459 0.1%
Employee Fringe Benefits 4,500 4,500 4,500 4,500 18,000 0.1%
Employee Training 1,500 1,500 1,500 1,500 6,000 0.0%
Trade Shows 0 2,000 0 2,000 4,000 0.0%
Advertising and Promotions 7,610 9,610 11,610 11,610 40,440 0.3%
Travel 19,090 19,090 19,090 19,090 76,360 0.5%
Entertainment 9,086 9,086 9,086 9,086 36,346 0.2%
Product R and D 77,752 122,519 325,145 348,707 874,122 5.4%
Rent 11,000 11,000 11,000 11,000 44,000 0.3%
Utilities 4,000 4,000 4,000 4,000 16,000 0.1%
General Business Insurance 15,429 15,429 15,429 15,429 61,715 0.4%
Telephone 4,400 4,400 4,400 4,400 17,600 0.1%
Postage and Freight 32,000 32,000 32,000 32,000 128,000 0.8%
Office Expense 3,540 3,540 3,540 3,540 14,160 0.1%
Dues and Subscriptions 150 150 150 150 600 0.0%
Legal and Accounting 7,572 7,572 7,572 7,572 30,288 0.2%
Licenses and Fees 216 216 216 216 864 0.0%
Depreciation 3,125 3,692 4,286 5,367 16,469 0.1%
Equipment Maintenance 3,230 3,830 4,450 5,480 16,990 0.1%
Vehicle Expense 1,200 1,200 1,200 1,200 4,800 0.0%
Bad Debts 28,710 45,240 120,060 128,760 0.0%
TOTAL OPERATING EXPENSES 377,088 502,563 1,048,332 1,115,763 3,043,746 18.9%
OPERATING INCOME (LOSS) 162,240 355,826 1,254,227 1,354,723 3,127,016 19.4%
INTEREST EXPENSE (64) (39) (14) 11 (105) 0.0%
INCOME BEFORE INCOME TAXES 162,177 355,787 1,254,213 1,354,734 3,126,911 19.4%
INCOME TAXES 71,358 156,546 551,854 596,083 1,375,841 8.5%
NET INCOME (LOSS) 90,819 199,241 702,359 758,651 1,751,070 10.9%
NET INCOME (LOSS) % 6.3% 8.8% 11.7% 11.8% 10.9%
RETAINED EARNINGS, BEGINNING 1,069,935 1,160,754 1,359,995 2,062,354
RETAINED EARNINGS, END 1,160,754 1,359,995 2,062,354 2,821,005

Projected Statement of Profit and Loss: Years 4 & 5

Year 4 Total %Total Year 5 Total %Total
REVENUES
Gross Sales 29,750,000 100.0% 31,875,000 100.0%
Less: Returns & Allowances 595,000 2.0% 638,000 2.0%
NET REVENUES 29,155,000 98.0% 31,238,000 98.0%
COST OF GOODS SOLD
Direct Materials 15,750,000 52.9% 16,875,000 52.9%
Direct Labor 910,000 3.1% 975,000 3.1%
Manufacturing Overhead 1,984,000 6.7% 2,118,000 6.6%
TOTAL COST OF GOODS SOLD 18,644,000 62.7% 19,968,000 62.6%
GROSS MARGIN 10,511,000 35.3% 11,270,000 35.4%
OPERATING EXPENSES
Admin Salaries & Wages 184,000 0.6% 221,000 0.7%
Sales/Mktg Salaries & Wages 94,000 0.3% 94,000 0.3%
Sales Commissions 2,124,000 7.1% 2,276,000 7.1%
Payroll Taxes 40,000 0.1% 45,000 0.1%
Employee Fringe Benefits 30,000 0.1% 36,000 0.1%
Employee Training 9,000 0.0% 10,000 0.0%
Trade Shows 4,000 0.0% 4,000 0.0%
Advertising and Promotions 90,000 0.3% 130,000 0.4%
Travel 123,000 0.4% 134,000 0.4%
Entertainment 60,000 0.2% 60,000 0.2%
Product R and D 1,488,000 5.0% 1,594,000 5.0%
Rent 84,000 0.3% 95,000 0.3%
Utilities 48,000 0.2% 54,000 0.2%
General Business Insurance 102,000 0.3% 117,000 0.4%
Telephone 30,000 0.1% 35,000 0.1%
Postage and Freight 210,000 0.7% 242,000 0.8%
Office Expense 22,000 0.1% 24,000 0.1%
Dues and Subscriptions 2,000 0.0% 2,000 0.0%
Legal and Accounting 30,000 0.1% 30,000 0.1%
Licenses and Fees 4,000 0.0% 4,000 0.0%
Depreciation 16,000 0.1% 34,000 0.1%
Equipment Maintenance 23,000 0.1% 30,000 0.1%
Vehicle Expense 12,000 0.0% 12,000 0.0%
Bad Debts 595,000 2.0% 638,000 2.0%
TOTAL OPERATING EXPENSES 5,422,000 18.2% 5,918,000 18.6%
OPERATING INCOME (LOSS) 5,089,000 17.1% 5,351,000 16.8%
INTEREST EXPENSE 0 0.0% 0 0.0%
INCOME BEFORE INCOME TAXES 5,089,000 17.1% 5,351,000 16.8%
INCOME TAXES 2,239,000 7.5% 2,355,000 7.4%
NET INCOME (LOSS) 2,850,000 9.6% 2,997,000 9.4%
RETAINED EARNINGS, BEGINNINC 4,186,083 6,955,746
RETAINED EARNINGS, END 6,955,746 9,952,390

THIS PAGE INTENTIONALLY LEFT BLANK SEE NEXT PAGE FOR PROJECTED CASH FLOWS

Projected Statement of Cash Flows: Part 1

Oct 1992 Oct 92 Nov 92 Dec 92 Jan 92 Feb 93
CASH FLOWS FROM OPERATIONS
Net Income (21,408) (45,291) (25,839) (24,939) 10,566 35,109
Adjustments to reconcile net income to cash flows from operations:
Depreciation & Amortization 183 183 183 272 272 272
Changes in certain assets and liabilities:
Accounts Receivable (6,783) (11,386) (10,514) (28,586) (72,820) (95,301)
Inventory (2,250) (1,800) (6,075) (15,300) (18,000) (11,250)
Accounts Payable 16,400 9,450 925 33,250 54,675 58,550
Payroll Taxes Payable 958 991 (1,949) 1,106 1,361 (2,467)
Income Taxes Payable 0 0 0 0 0 0
Revolving Line of Credit 8,800 10,000 25,000 35,000 0 0
TOTAL FROM OPERATIONS (4,099) (37,853) (18,268) 803 (23,947) (15,086)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment (11,000) 0 0 (4,000) 0 0
Pmnt of Patent Costs 0 0 0 0 0 0
Pmnt of Long-Term Deposits 0 0 0 0 0 0
TOTAL FROM INVESTING (11,000) 0 0 (4,000) 0 0
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing on Long-Term Debt 15,000 0 0 15,000 0 0
Pmnts on Long-Term Debts (313) (313) (313) (625) (625) (625)
Sales of Common Stock 10,000 40,000 15,000 35,000 0 0
Repayment of Line of Credit 0 0 0 0 0 0
TOTAL FROM FINANCING 24,688 39,688 14,688 49,375 (625) (625)
NET CASH FLOWS 9,588 1,835 (3,581) 46,178 (24,572) (15,711)
CASH, BEGINNING OF PERIOD 0 9,588 11,423 7,842 54,021 29,449
CASH, END OF PERIOD 9,588 11,423 7,842 54,021 29,449 13,738
Mar 93 Apr 93 May 93 Jun 93 Jul 93 Aug 93 Sept 93 Oct 93
50,2247 46,224 45,689 44,436 54,198 54,276 11,959 11,978
314 403 403 444 500 550 592 661
(71,125) (64,439) (62,985) (14,535) (50,873) (12,113) 106,718 27,285
(11,250) (11,250) 0 (11,250) 0 22,500 0 22,500
54,250 49,000 31,250 21,000 24,500 (10,750) (44,500) 45,500)
1,788 1,953 (3,741) 2,117 2,282 (4,399) 3,056 3,056
0 19,383 16,515 (985) 7,671 61 (33,249) 15
0 0 0 0 0 0 0 0
24,224 41,274 27,131 41,228 38,278 50,125 44,575 19,996
(2,500) (4,000) 0 (2,500) (2,000) (3,000) (2,500) (2,500)
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
(2,500) (4,000) 0 (2,500) (2,000) (3,000) (2,500) (2,500)
0 0 0 0 0 0 0 0
(625) (625) (625) (625) (625) (625) (625) (625)
0 0 0 0 0 0 0 0
(10,000) (10,000) (10,000) (10,000) (10,000) (10,000) (10,000) (8,800)
(10,625) (10,625) (10,625) (10,625) (10,625) (10,625) (10,625) (9,425)
11,099 26,649 16,506 28,103 25,653 36,500 31,450 8,071
13,738 24,837 51,487 67,992 96,095 121,748 158,249 189,698
24,837 51,487 67,992 96,095 121,748 158,249 189,698 197,769

Projected Statement of Cash Flows: Part 2

Nov 1993 Dec 93 Jan 1994 Feb 94 Mar 94
CASH FLOWS FROM OPERATIONS
Net Income (4,318) 27,019 62,361 68,330 139,674
Adjustments to reconcile net income to cash flows from operations:
Depreciation & Amortization 728 769 853 936 994
Changes in certain assets and liabilities:
Accounts Receivable 98,277 (162,435) (273,819) (113,705) (487,305)
Inventory (45,000) (56,250) (11,250) (112,500) (135,000)
Accounts Payable 1,500 123,750 167,750 193,750 371,750
Payroll Taxes Payable (6,112) 3,385 4,207 (7,592) 6,374
Income Taxes Payable (9,411) 17,836 31,162 4,690 56,056
Revolving Line of Credit 0 0 0 0 0
TOTAL FROM OPERATIONS 35,663 (45,925) (18,736) 33,909 (47,457)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment (4,000) (2,500) (3,000) (5,000) (3,500)
Pmnt of Patent Costs 0 0 0 0 0
Pmnt of Long-term Deposits 0 0 0 0 0
TOTAL FROM INVESTING (4,000) (2,500) (3,000) (5,000) (3,500)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on Long-Term Debt 0 0 0 0 0
Pmnts on Long-Term Debts (625) (625) (625) (625) (625)
Sales of Common Stock 0 0 0 0 0
Repayment of Line of Credit 0 0 0 0 0
TOTAL FROM FINANCING (625) (625) (625) (625) (625)
NET CASH FLOWS 31,038 (49,050) (22,361) 28,284 (51,582)
CASH, BEGINNING OF PERIOD 197,769 228,806 179,757 157,396 185,680
CASH, END OF PERIOD 228,806 179,757 157,396 185,680 134,098
Apr 94 May 94 Jun 94 Jul 94 Aug 94 Sept 94 Oct 94 Nov 94
226,359 254,031 225,053 182,874 124,920 65,998 42,546 24,820
1,078 1,161 1,219 1,303 1,386 1,444 1,556 1,681
(675,266) (348,075) 111,384 315,588 450,177 240,363 229,449 184,161
(45,000) 45,000 67,500 90,000 22,500 45,000 33,750 (33,750)
425,500 181,500 (112,000) (272,000) (268,500) (179,500) (147,250) (74,750)
8,347 (14,721) 8,347 7,360 (15,708) 6,341 5,683 (12,025)
68,110 21,743 (22,769) (33,141) (45,536) (46,295) (18,427) (13,927)
0 0 0 0 0 0 0 0
9,128 140,639 278,735 291,985 269,239 133,352 147,307 76,210
(3,000) (5,000) (3,500) (3,000) (5,000) (3,500) (4,000) (7,500)
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
(3,000) (5,000) (3,500) (3,000) (5,000) (3,500) (4,000) (7,500)
0 0 0 0 0 0 0 0
(625) (625) (625) (625) (625) (625) (625) (625)
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
(625) (625) (625) (625) (625) (625) (625) (625)
5,503 135,014 274,610 288,360 263,614 129,227 142,682 68,085
134,098 139,601 274,615 549,225 837,585 1,101,199 1,230,426 1,373,108
139,601 274,615 549,225 837,585 1,101,199 1,230,426 1,373,108 1,441,193

Projected Statement of Cash Flows: Part 3

Dec 1994 Jan 1995 Feb 95
CASH FLOWS FROM OPERATIONS
Net Income 41,121 89,096 158,120
Adjustments to reconcile net income to cash flows from operations:
Depreciation & Amortization 1,739 1,828 1,953
Changes in certain assets and liabilities:
Accounts Receivable (90,959) (381,582) (627,836)
Inventory (90,000) (135,000) (202,500)
Accounts Payable 123,250 354,250 566,500
Payroll Taxes Payable 5,683 6,999 (12,682)
Income Taxes Payable 12,807 37,695 54,233
Revolving Line of Credit 0 0 0
TOTAL FROM OPERATIONS 3,642 (35,714) (62,212)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment (3,500) (4,000) (7,500)
Purchase of Patent Costs 0 0 0
Pmnt of Long-Term Deposits 0 0 0
TOTAL FROM INVESTING (3,500) (4,000) (7,500)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on Long-Term Debt 0 0 0
Pmnts on Long-Term Debt (625) (625) (625)
Sales of Common Stock 0 0 0
Repayment of Line of Credit 0 0 0
TOTAL FROM FINANCING (625) (625) (625)
NET CASH FLOWS (483) (40,339) (70,337)
CASH, BEGINNING OF PERIOD 1,441,193 1,440,710 1,400,371
CASH, END OF PERIOD 1,440,710 1,400,371 1,330,034
Mar 95 Apr 95 May 95 Jun 95 Jul 95 Aug 95
263,410 357,090 438,950 460,964 391,792 297,687
2,011 2,150 2,275 2,481 2,547 2,886
(949,518) (936,207) (838,593) (368,271) 457,011 834,156
(180,000) (157,500) (45,000) 135,000 180,000 0
719,500 717,500 544,000 116,500 (408,500) (487,000)
11,933 14,564 (26,496) 17,524 15,550 (33,074)
82,728 73,606 64,318 17,297 (54,349) (73,940)
0 0 0 0 0 0
(49,937) 71,202 139,454 381,494 584,052 540,715
(3,500) (5,000) (7,500) (9,000) (4,000) (17,000)
0 0 0 0 0 0
0 0 0 0 0 0
(3,500) (5,000) (7,500) (9,000) (4,000) (17,000)
0 0 0 0 0 0
(625) (625) (625) (625) (625) (625)
0 0 0 0 0 0
0 0 0 0 0 0
(625) (625) (625) (625) (625) (625)
(54,062) 65,577 131,329 371,869 579,427 523,090
1,330,034 1,275,972 1,341,549 1,472,878 1,844,747 2,424,174
1,275,972 1,341,549 1,472,878 1,844,747 2,424,174 2,947,265

RISK AND CONTINGENCY

ROAD RUNNER Refrigerant Recovery Systems will undoubtedly face many obstacles within the first months of operations. ROAD RUNNER has attempted to forecast these potential problems in an effort to ensure the minimization of potential detrimental surprises. Several of these potential risks and ROAD RUNNER's solution have been provided below.

Sales Representatives

Arisk that faces ROAD RUNNER focuses reliability on its sales representatives. ROAD RUNNER does not solely employ these agents. By this, they also sell other company's products simultaneously (although no other recovery systems). Because sales rely heavily on these agents, the amount of sales drive they give to ROAD RUNNER will help to determine the amount of success in the marketplace. This problem will be circumvented by educating the sales representatives and making them part of the ROAD RUNNER team. The education process will include: step-by-step analysis of the product design, a detailed explanation of the forces that drive the industry, and formation of strategy and methods that will be effective in selling the ROAD RUNNER.

Barriers to Entry: Distribution Channels

A formidable risk facing entrants into the refrigeration industry stems from possible barriers to entry. One such barrier concerns accessibility to the established distribution network. Service technicians purchase equipment through wholesalers. Therefore, a manufacturer wishing to sell his product to the industry, must do it through the wholesalers. In order to penetrate these distribution channels, a manufacturer must have a quality system and properly timed entry, in accordance with industry "norms." For example, wholesalers make inventory and purchasing decisions during the winter (the off season for the industry). A manufacturer trying to sell his product during the summer will not have much success. This risk has been greatly minimized as ROAD RUNNER has attracted twenty (20) experienced sales representatives. Many of these individuals have represented other refrigerant recovery systems, thus providing access to distribution channels across the entire United States.

Political Environment

Due to the previous experience of key personnel many of the operational risks typically associated with a manufacturing firm have been circumvented. Despite past experience, possible risks in this area of the business still remain. The probable risk that faces ROAD RUNNER centers around the Environmental Protection Agency. This government organization has wavered from time to time in regards to its policy decisions. As a prime example, the EPA lacked stringent enforcement of the Clean Air Act during the summer of 1992. Furthermore, the EPA recently announced its decision to require the use of electronic testing equipment during the production of refrigerant recovery systems. This forced ROAD RUNNER to purchase this machinery at a cost of $2000. The uncertainty of the Environmental Protection Agency does not threaten the existence of ROAD RUNNER. It merely has created an inconvenience. ROAD RUNNER will deal with the Environmental Protection Agency by maintaining regular contact with a representative from the agency.

SUMMARY

Many new industries have been created as the result of government regulations over the past thirty years. In the early 1970's, "automobile safety" legislation was the hot topic. Soon thereafter, many new firms began manufacturing seat belts and automobile safety equipment. Today, this industry is larger than ever and moving ahead with new and safer equipment. The government's effect on the refrigeration industry will be just as profound. This industry is presented with an opportunity not often encountered in the business world. Service technicians are required by law to purchase a refrigerant recovery system. Therefore, presenting the refrigeration industry with an incredible need for a recovery system that will stand up to the everyday rigors of refrigeration recovery. ROAD RUNNER will satisfy this need with Archetype 2000. A complete recovery system, designed from the input of service technicians for service technicians, this system surpasses its competition as the most complete refrigerant recovery system on the market.

However, ROAD RUNNER's product offering is not the only strength of the company. Great companies are built by great people. ROAD RUNNER will thrive in the future on a management team possessing much needed business experience and youthful excitement.

Although the industry was created based on government legislation, the economic benefits of refrigerant recovery use, is the force which will carry this industry into the future. Because of heavy government taxes, current refrigerant prices have increased over 130% in the past year. Current prices for "environmentally safe" refrigerants exceed standard refrigerants by twice the cost. Moreover, as the phase-out of standard refrigerants takes place in early 1997, the price of "environmentally safe" refrigerants are expected to increase. In this situation, refrigerant recovery systems are no longer viewed by service technicians as regulatory.

Through the use of refrigerant recovery systems, service technicians and the consumer will realize the short term benefit of economic savings. But more importantly, through the use of refrigerant recovery systems, the ultimate dream of our society, preserving our endangered world for future generations, will be one step closer to becoming reality.

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