New Coffee House

summary The concept Thanks primarily to Starbucks, within the past 20 years the coffeehouse has become a familiar feature of American life. Every day, millions of Americans stop for an espresso-based coffee drink. People who would not have dreamed of spending more than 50 cents for a cup of coffee a few years ago now gladly pay $3 to $5 for their cappuccino, mocha latte or vanilla ice blended drink. The specialty-coffee business is growing at a healthy pace. During the past 20 years, there has not been a single year, despite war and recession, in which specialty coffee sales have not grown. In many years the increase has been in double digits. In addition, no coffeehouse chains have failed during this time, although the list of casualties in other industries is quite long. Starbucks, The Coffee Bean, Peet's, Diedrich's and other major chains serve average quality drinks in establishments that have the same generic design appearance. Indeed, Starbucks and The Coffee Bean are often referred to as "fast food" coffeehouses due to their "cookie cutter" design. Now that Americans' coffee preferences have broadened and matured, many are asking for more from their coffeehouse. A niche exists that has yet to be filled for a high-volume, upscale, quality-driven coffeehouse with a warm, inviting atmosphere. Dark Roast Java meets this need and fills this niche. We offer high-quality products in an upscale environment. Furthermore, our high-profile location in Pleasantville provides a mixed customer base that will maintain high levels of business in every season, at all times of the day, every day of the week. Founders Ned Powers-Sebastiane, founder of Dark Roast Java, has a long career as an entrepreneur and marketing executive. He is the founder of Powers-Sebastiane Advertising & Public Relations and Pan National Motor Tours. Co-owner Curt Yamaguchi has an intuitive understanding of the real estate market. As a highly successful real estate broker and investor he brings several key capabilities to the Dark Roast Java team, not the least of which is his ability to procure highly desirable locations for future stores. Financials The company anticipates rapid acceptance of the Dark Roast Java concept in Pleasantville, with revenues of $600,000+ in the first fiscal year, rising to more than $1,000,000+ in FY 2006. Net profit is projected to be approximately $99,000 in 2004, growing to an estimated $265,000 by 2006. An advanced and expandable point-of-sale system After carefully tracking the performance of the Pleasantville store through an expandable and highly detailed point-ofsale system, we will use this as a "blueprint" for expansion. For example, daily sales are tracked and analyzed by item, time period and cost of goods. Labor requirements are matched to projected in-store sales based upon past performance for maximum efficiency. Even after paying higher than average wages, we expect to allocate no more than 25% to labor costs. This Business Plan only provides data on the Pleasantville coffeehouse. Sources: US Census Bureau, Pleasantville Chamber of Commerce, Specialty Coffee Association of America.

1.1 Mission Our goal is to be the coffeehouse of choice for the local Pleasantville community, downtown business workers, tourists who visit the city, and students, by providing a higher quality experience than any competitor. As a result, we intend to create coffeehouses that quickly achieve profitability and sustain an attractive rate of return (20% or more annually) for our investors. We also want to make our contribution to the welfare of the local community by supporting charitable and civic activities. We will support the farmers who grow our coffee by using Fair Trade, Sustainable Production and Organic products whenever possible.

Dark Roast Java also awards its business to as many local suppliers as possible, keeping the business in the community or, at the least, in the state.

1.2 Keys to Success The keys to our success will be: •

A superior-tasting product backed by a unique quality store

•

A relaxing, upscale interior design

•

Prime site selection with an upscale affluent population, year-round tourist activity, heavy pedestrian traffic by the site, a dynamic student population and a concentration of local businesses

•

A market that exposes Dark Roast Java to high-profile "trend-setters" and "key influencers"

•

Ongoing, aggressive marketing

•

Highly trained and friendly staff

•

Multiple revenue streams including gift items, gift baskets and coffee gift/frequency cards in addition to coffee, pastry, chocolates, tea, juice, water and soft drinks

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A dynamic website with online sales capability

1.3 Objectives •

Make Dark Roast Java the number one destination for coffee in Pleasantville

•

Sales of $600,000+ the first fiscal year, $750,000+ the second fiscal year and $1 million the third fiscal year

•

Achieve a 15% net profit margin within the first year and 30% by FY3

•

Achieve a total net profit of $150,000+ in FY1 and $200,000+ by FY3

•

Be an active and vocal member of the community, and provide continual re-investment through participation in community activities such as the Chamber of Commerce and financial contributions to local charities and youth organizations

•

Create a solid concept in the industry and track performance in order to begin expanding to other markets within six months

Company Summary Dark Roast Java launches with its first coffeehouse located in downtown Pleasantville. Dark Roast Java will offer residents and visitors a totally new style of coffeehouse - one offering a uniquely flavorful coffee drink and a comfortable, upscale environment at which to socialize, relax or work.

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Variety: No other coffeehouse in the area will provide the range of coffee drinks, tea, cocoa, juice, smoothies and other products that Dark Roast Java does.

•

Location: Dark Roast Java will be located in the prime section of downtown Pleasantville in the heart of the shopping and entertainment district. Dark Roast Java locations are designed for high volume year round, with revenues and profits to match.

•

Expansion: Assuming this store is successful, it will be the first of a chain of Dark Roast Java coffeehouses located in markets that have similar demographic profiles, significant traffic by the store, year-round tourist activity and a sizeable student population.

The Dark Roast Java Concept At one time Cadillac was the acknowledged quality automobile in America. Then came Mercedes-Benz. And then Lexus, with its superb product and service approach. Dark Roast Java will be the first "Lexus" of the coffeehouse chain industry, offering a higher quality product and better quality service in an exceptional environment. The only coffeehouse that comes close to being as upscale as our concept in the Pacific Northwest is Torrefazione, with its high style Italian decor (they were recently part of a $72 million dollar buy-out by Starbucks). The first Dark Roast Java is located in Pleasantville. Other Dark Roast Java coffeehouses will eventually be located in select affluent markets that support the business model (e.g. Mount Hill, Newburg, Springfield, Bayview, Orchard Valley, Beachey Head, Capital City). Dark Roast Java offers a superior coffee product, delicious pastries, fresh juices, the finest tea drinks, Ghirardelli cocoa, gourmet chocolates and gift items. The Dark Roast Java staff members who prepare the coffee (baristas) are highly trained and experienced. They know how to prepare an excellent espresso-based drink and brew tasty coffee. We use the highest quality equipment and ingredients to deliver a noticeably superior product. Our design style is different from all other coffeehouses, an upscale "Côte d'Azur" look. It features stained glass decorations, art glasswork, Mediterranean Riviera style furnishings and outdoor dining.

2.1 Start-up Summary Start-up expenses are in line with those of other coffeehouse chains. For example, Starbucks spends approximately $380,000 on average to build-out a new store location. Our costs are an estimated $225,000 and $25,000 for opening inventory and operating capital. Future stores should cost no more than $175,000 to build out since many of the costs incurred here will not have to be repeated later. The Start-up requirements, below, include $77,000 of short and long-term assets. Long term assets: $62,000 Undercounter Refrigerators

$5,000

Service/Prep Counter

$12,000

Ice Machine

$3,500

Large Refrigerator

$1,000

Milk Coolers (3)

$1,000

Cash register (2) Point of Sale System

$14,000

Espresso Machine

$11,000

Fetco Coffee Brewer

$2,500

Counters/Condiment bar/shelving

$12,000

Tables, Chairs, Furnishings

$12,000

Persian Carpet

$1,000

Lighting Fixtures

$2,000

Short-term assets: $15,000

Start-up Funding Start-up Expenses to Fund

$147,000

Start-up Assets to Fund

$103,500

Total Funding Required

$250,500

Assets Non-cash Assets from Start-up Cash Requirements from Start-up Additional Cash Raised Cash Balance on Starting Date Total Assets

$102,000 $1,500 $0 $1,500 $103,500

Liabilities and Capital

Liabilities Current Borrowing

$0

Long-term Liabilities

$0

Accounts Payable (Outstanding Bills)

$0

Other Current Liabilities (interest-free)

$0

Total Liabilities

$0

Capital

Planned Investment Investors Other Additional Investment Requirement Total Planned Investment

Loss at Start-up (Start-up Expenses)

$250,000 $500 $0 $250,500

($147,000)

Total Capital

$103,500

Total Capital and Liabilities

$103,500

Total Funding

$250,500

Start-up

Requirements

Start-up Expenses CONSTRUCTION

$0

Site design, architectural plan

$10,000

Demolition/Construction

$25,000

Electrical, Lighting

$12,000

Electrical, Other

$10,000

Flooring/installation

$5,000

Bathroom Construction

$4,000

Plumbing

$10,000

Fireplace Construction

$5,000

Painting

$2,500

City permits/licenses/fees

$6,500

Inserted Row

$0

LEGAL

$0

Accounting

$2,000

Legal

$4,000

Insurance

$2,500

Inserted Row

$0

MARKETING

$0

Opening marketing/advertising

$3,000

Graphic design for signage, menu boards

$2,000

Outside Signage

$1,500

Frequency Cards, Brochures

$1,500

Inserted Row

$0

OFFICE

$0

Office equipment Computer, scanner, printer Telephones/Fax/DSL

$600 $2,000 $500

Stationery etc.

$1,000

Gift item displays (3)

$1,500

Inserted Row

$0

APPLIANCES, ETC

$0

Preparation equipment

$1,000

Dishwasher

$3,500

Blenders (3)

$2,000

Microwave

$500

Panini maker

$700

Storage racks

$1,000

Music system

$800

Food display case

$6,000

Storage room shelving

$1,000

Bulk bean grinder

$700

Sinks (2), prep counters

$1,200

Menu board construction

$2,500

Cups/Lids (50,000) Total Start-up Expenses

$14,000 $147,000

Start-up Assets Cash Required

$1,500

Start-up Inventory

$25,000

Other Current Assets

$15,000

Long-term Assets

$62,000

Total Assets

$103,500

Total Requirements

$250,500

2.2 Company Ownership Dark Roast Java is a privately held corporation. It is registered as a state LLC Corporation, with ownership shared by Ned Powers-Sebastiane, Victor Lubitsch, Curt Yamaguchi and other outside investors.

Products Dark Roast Java sells high-quality specialty coffee beverages, tea, juice, water, soft drinks, pastries, chocolates and gift items. Despite being an upscale coffeehouse, our prices are in line with the leading national chains.

3.1 Vendors •

Coffee roasting is provided by Grizzly Mountain Coffee Company, Pleasantville.

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Tea is primarily supplied by Harney & Sons Tea, Connecticut.

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Our water vendor is Crystal Geyser, St. Helena, CA

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Juices are provided by Longhorn Orchards, Corpus Cristi, TX (fresh orange juice and lemonade) and Genesis Juice, Eugene, OR

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Pastries are provided by local Pleasantville companies such as D'Angelo's Bakery, Pleasantville Biscotti and Pleasantville Cheesecake.

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Chocolates and cocoa are from Ghirardelli Chocolate Company, San Francisco, Bellagio, Los Angeles and Black Forest Chocolates, Arnold, CA

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Gift items are from various vendors

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Soft drinks are provided by Sprecher's Brewery, Milwaukee, WI, and Thomas Kemper Soda, Seattle, WA

3.2 The Dark Roast Java Menu The Dark Roast Java menu sets us apart from other coffeehouses, giving us a competitive edge. •

We offer six groups of drinks—coffee, tea, Italian sodas, smoothies, juice and cocoa—with several choices within each group. This enables us to provide more variety than our competitors while keeping the preparation of the drinks easy to execute.

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We are taking advantage of the immense popularity of flavored drinks and Chai tea by offering a product mix that includes items the other coffeehouses don't carry as well as more familiar drinks.

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We are the only coffeehouse to have a wide range of gourmet hot cocoa.

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Dark Roast Java offers several smoothie drinks and Italian sodas.

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We carry the highest quality fresh juices.

Prices have been determined after a thorough analysis of all food costs for every item in each drink. In some cases, an average price has been calculated and applied to all similar drinks in order to keep the menu from confusing the customer.

3.2.1 Coffee and Espresso Drinks COFFEE Coffees of the day: Dark Roast Java Blend, Riviera Roast, and Molokai Swiss water process DeCaf. $1.60 Regular $1.85 Large ESPRESSO Name

Description

Espresso

Regular Large

A double shot of straight espresso. $1.75 Double

Caffe Americano

Espresso combined with hot water, a gourmet brewed coffee.

$1.85 $2.25

Cappuccino

Espresso with a smooth topping of milk foam.

$2.50 $3.50

Caffe Latte

Espresso combined with steamed milk, topped with a small amount of velvety milk foam.

$2.75 $3.25

Caffe Mocha

A Caffe Latte combined with Ghirardelli chocolate, topped with whipped cream and chocolate shavings.

$3.00 $3.75

Espresso Macchiato

A straight shot of espresso topped with a spoonful of rich milk foam.

$1.75 $2.50

Espresso Con Panna

A straight shot of espresso topped with a generous dollop of whipped cream.

$1.75 $2.50

Espresso Latte Breve

Our famous latte made even more creamy with half and half.

$2.50 $3.50

Espresso "Red Eye"

Espresso combined with our gourmet coffee of the day to get your day going.

$2.00 $2.75

COFFEE DRINKS Name

The Banana Nut Java

Description Small Large

Coffee. Warm milk. Banana, macadamia nut and vanilla syrups. Topped with whipped cream and cinnamon dusting.

The Cafe Milano

$2.75 $3.75

Coffee. Warm milk. Amaretto and vanilla syrups topped with whipped cream and almonds. $2.75 $3.75

FLAVORED ESPRESSO DRINKS All flavored drinks feature quality Monin and Ghirardelli syrups. Name

Description Regular Large

Vanilla Cappuccino

Cappuccino made with vanilla flavored milk foam.

$2.50 $3.50

Vanilla Latte

A Caffe Latte with vanilla essence added.

$3.00 $4.25

White Chocolate Latte

Espresso, white chocolate flavoring and steamed milk topped with velvety foam and white chocolate shavings.

$3.00 $4.25

The 50/50 Latte

Espresso. Vanilla and orange syrups, steamed milk and whipped cream topping.

$3.00 $4.25

The Raspberry Mocha Latte

Coffee. Raspberry and chocolate syrups. Half and half. Whipped cream topping.

$3.25 $4.50

Chai Latte

Espresso. Chai. Steamed milk and whipped cream.

$3.00 $4.25

HOT COCOA DRINKS All hot cocoa drinks are $2.75 Name

Description

French Vanilla Cocoa

Hot cocoa with vanilla and whipped cream.

White Chocolate Cocoa

Hot cocoa with white chocolate and whipped cream.

Chocolate Truffle Cocoa

Rich dark hot cocoa with whipped cream topping.

Holiday Spice Cocoa

Rich hot cocoa and holiday spices. Topped with whipped cream.

Peppermint Cocoa

Rich chocolate and refreshing peppermint. Topped with whipped cream.

Ovaltine

Ovaltine Chocolate Malt and milk.

SMOOTHIES All smoothies are $3.75 Name

Description

The Espresso Chocolate Malt

A chocolate malt for grownups.

The Double Dutch Chocolate Smoothie

Very chocolatey!

The Mocha Smoothie

An all-time favorite.

The Vanilla Smoothie

Rich natural vanilla flavor.

50/50 Smoothie (Orange and Vanilla)

A 50's favorite.

3.2.2 Teas ICED TEAS Classic American Iced Tea, just like you remember as a kid. $1.50 Small, $1.75 Medium, $2.00 Large HOT TEA $1.50 Regular

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Earl Grey

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English Breakfast

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Peppermint

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Herb Apricot

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Earl Grey Lavender

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Darjeeling

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Formosa Oolong

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Golden Flowers Herbal

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Herbal Lemon

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Tropical Green

CHAI TEAS (hot or ice blended) Chai Original (regular or decaf): Vanilla Chai:

$2.00 Regular $3.00 Large

$2.00 Small $2.50 Medium $3.00 Large

3.2.3 Juices Name

Description

Regular

Large

Fresh squeezed orange juice

Exclusively from Longhorn Orchards, Corpus Cristi, TX

$1.50

$2.75

Old-fashioned Lemonade

Made fresh daily from Pleasant County lemons.

$1.50

$2.75

Genesis Juice

Protein Boost, Green Machine, Mango and Guava.

$2.95

Martinelli's Apple Juice (regular and sparkling)

A San Francisco favorite.

$2.00

Crystal Geyser Juice Squeeze

$2.50

3.2.4 Italian Sodas ICED ITALIAN SODAS Sparkling spring water, flavoring and ice. Blended or on the rocks. Medium $1.50, $2.25 Large

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Orange Soda

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Strawberry Soda

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Lemon Soda

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Cherry Soda

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Raspberry Soda

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Cream Soda (made with half & half)

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Peach Soda

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Kiwi Soda

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Melon

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Apple

SPECIALTY ITALIAN SODAS All $1.75 Regular, $2.50 Large Name

Description

The Dreamsicle Soda

Sparkling spring water, ice, half and half, vanilla and mandarin orange syrups.

Cherry Vanilla Soda

Sprite, ice, cherry and vanilla syrups.

The Chocolate Soda

Our version of an egg cream.

3.2.5 Other Drinks

Name

Description

Price

Geyser Peak Natural Spring Water

From Northern California mountain springs.

$1.25

Soft drinks from Sprecher's, Stewart's and Thomas Kemper.

Root beer, Orange Cream, Ginger Ale, Vanilla Cream and Key Lime.

$1.50

Crystal Geyser Tejava Tea

$2.50

RockStar Energy Drink

$2.00

Orangina Citrus Drink

$2.00

3.2.6 Snacks and Pastries Item

Price

Pleasantville Cheesecake, made just for us by Pleasantville Cheesecake Company.

$2.00

Fresh scones, hot from the oven.

$1.75

Bagels

$1.00

Brownies

$2.00

Blueberry Muffins

$2.00

Croissants

$2.00

Black Forest chocolate-covered espresso beans

$4.00

Best Ever Bakery Fancy Cookies

$1.75

3.2.7 Deli Items Item

Price

Sandwiches: Turkey, Roast Beef, Ham and Salami.

$6.75

Soup

$3.50

Quiche

$4.50

Market Analysis Summary Dark Roast Java launches with an exciting new coffeehouse concept in a receptive and steadily growing market segment—the specialty coffee retail business. Despite economic downturns in recent years the specialty coffee business has been a bright spot. While literally hundreds of businesses in many categories are facing poor sales, negative balance sheets and even bankruptcy, coffee chains continue to show strong growth. It's clear that America's love for good coffee continues during good times and bad. Pleasantville: The Perfect Launch Market By launching Dark Roast Java in the Pleasantville market we maximize our potential for success due to several factors: •

The highly affluent local population

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Year-round tourist activity

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Ever-changing upscale student population

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Excellent auto and pedestrian traffic by our location

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Low media costs

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High number of local special events

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Prime site location

Dark Roast Java is located at what is arguably one of the best locations for a coffeehouse in Pleasantville—in the heart of the tourist and business district, adjacent to fine dining and shopping, next to the historic Egyptian Theatre and just steps from the busiest intersection in town. Dark Roast Java Coffee has all the ingredients necessary for immediate success.

4.1 Market Segmentation Dark Roast Java's customer base in Pleasantville is comprised of five target groups. 1.

Affluent local residents

2.

Tourists

3.

Local business people

4.

Students

5.

Travelers passing through

These groups are all potentially strong customer segments. The benefit of this mix of customers is that it helps maintain consistent business throughout the year. For example, while tourism is strong all year long in Pleasantville, it peaks during the summer months. Conversely, the student population is not as strong during the summer as it is from September through June of each year. The other customer segments (local residents, local business and pass-through traffic on US 66) provide a consistent foundation all year long. Also, by appealing to several market segments, Dark Roast Java does not become overly dependent on any single consumer group. For example, several local coffeehouses with primarily student customers do poorly during the non-

school months. They must also market themselves anew each year to the incoming students. Dark Roast Java will avoid these peaks and valleys in business with a mix of customers.

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Affluent locals. Within five miles of Dark Roast Java are 200,000 of the most affluent people in America. Homes in adjacent Niceburg sell for $1 million to $50 million. Key influencers, trendsetters, artists, writers and celebrities have homes in Pleasantville.

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Tourists. More than 5,000,000 tourists visit Pleasantville every year. Most will pass by the Dark Roast Java location. Tourist come to "America's Riviera" for the beaches, shopping, dining and nearby vineyards.

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Local business people. Dark Roast Java is located on the corner of 'A' Street and First Avenue in the heart of the prime downtown business district. It's across from the exclusive, chic, Descarte (I Spend, Therefore I Am) department store, and one block from the number one shopping destination in Pleasantville, Lucre Galerie. 'A' Street and Frist Avenue are the two most heavily traveled streets in Pleasantville.

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Students. Pleasantville is home to a major branch of the State University as well as dozens of other schools, including many prestigious private schools and academies. Pleasantville High School is less than a mile from Dark Roast Java.

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Travelers on US 66. One of the state's two major north/south routes passes through Pleasantville. According to Dept of Transportation, more than 35 million auto trips will pass through the city. Many of these travelers will stop for a meal, to refuel and have a cup of coffee. US 66 is also a heavily traveled commuter route to Shorewood and Beachey Head to the south.

Sources: Department of Transforation, State University, Pleasantville Chamber of Commerce.

Market Analysis 2003 Potential Customers

2004

2005

2006

2007

Growth

CAGR

Local residents

2%

75,000

76,500

78,030

79,590

81,181

2.00%

Tourists

5% 100,000 105,000 110,250 115,763 121,551

5.00%

Travelers on US 66

5%

20,000

21,000

22,050

23,153

24,311

5.00%

Students

1%

40,000

40,400

40,804

41,212

41,624

1.00%

Local businesses

1%

20,000

20,200

20,402

20,606

20,812

1.00%

3.22% 255,000 263,100 271,536 280,324 289,479

3.22%

Total

4.2 Target Market Segment Strategy Overall, our strategy is to maintain a constantly high customer count by leveraging our appeal to five groups of potential customers. Local Residents. Approximately 200,000 people live within five miles of our Dark Roast Java location. The most affluent of these live even closer, within three miles. It is a short 5 minute drive to Dark Roast Java for most of our potential local customers. Excellent public parking is available within 100 yards. Local customers form the loyal core of our business. We will reach out to them through local marketing, involvement in the Chamber of Commerce, support of local charitable organizations and sponsorship of events and youth sports teams. Tourists. Pleasantville has excellent year-round tourist activity. About 5 million people will visit the area during the next year. While hotels are virtually sold out during the summer months, tourism all year is exceptionally strong. This is due in large part to the temperate climate, weekend or day-trip visitors from the greater Ontopolis area and an unusually large number of special events (e.g. film festivals, concerts, art shows) scheduled throughout the year. With a troubled economy and fears of terrorism, more people are opting for the relatively inexpensive, easy and safe short trip to Pleasantville for recreation. And, according to the Chamber of Commerce, 90% of all tourists visiting Pleasantville will pass by the Dark Roast Java location. We will target these potential customers with ads in local tourism guides. Local businesses. Many local businesses, both private and government, are within two blocks of Dark Roast Java. Lucre Galerie, the prime shopping center of Pleasantville, is one block away. The county courthouse is two blocks away. Dark Roast Java is in the heart of the shopping and dining area. Because much of the employee parking is out of the immediate area with shuttle service to downtown, most people stay near their place of employment during breakfast, lunch and for after-work relaxing. A significant number of these local business people find Dark Roast Java an inviting and convenient destination. We also offer coffee service to local restaurants, night spots and businesses. Coffee service brings in additional revenue and promotes Dark Roast Java among employees at these businesses. We will also reach business customers through Chamber of Commerce activities and by personally visiting the shops and businesses to distribute discount coupons and menus. Students. The area has more than 30,000 students in several schools, including nearby City College and State University. Students, most of whom are under the drinking age, have few places they can go to meet their friends. Coffeehouses have proven to be very popular with students—even high school students—as an "in" place to go that's also affordable. To reach students we offer special student discount cards, pass out free coffee coupons at student events and offer entertainment on weekends. Students represent an excellent customer segment for several reasons: •

Students bring an energy and youth to the coffeehouse

•

By attracting students we generate excellent word-of-mouth

•

Students represent a large base of potential part-time employees

•

Often under the drinking age, students need an affordable place to hang out with their friends

Travelers on US 66. The Dept of Transportation estimates that there will be 35 million auto trips through Pleasantville this year, a number that is increasing every year. US 66 is one of two major freeways in the state and the one favored by travelers who want to take a bit more time and make a few stops during their trip. It's also a major commuter route to the cities to the south in Sunshine County. Our primary method of reaching this target customer group will be our participation as a AAA member, offering a 20% discount on all coffee and tea drinks when AAA members show their membership card. We also conduct PR activities in media outside the local market to expose the Dark Roast Java name to a wider state and national audience. Source: Dept of Transportation, Pleasantville Chamber of Commerce, US Census Bureau.

4.3 Industry Analysis The specialty retail coffee business as we know it today began in 1982 after Howard Schultz purchased the Starbucks name and began the expansion of the modern Starbucks chain. Prior to his transformation of the business, Starbucks sold only whole bean coffee. Coffeehouses in America have existed since the 1600's, and the coffeehouse concept is more than 400 years old. In the United States, even as recently as the 1970's, coffeehouses have been primarily independent businesses, typically with an eclectic Bohemian style. Cafe Trieste in San Francisco is typical. It was once a gathering place for "Beats" and "Hippies." Poetry readings were held weekly. It still retains much of its original flavor. Many of these independent coffeehouses continue to enjoy a loyal following. Starbucks' success has encouraged others to enter this potentially lucrative business. Today there are more than 13,000 coffeehouses in the U.S. However, compared with Italy, which has 200,000 espresso bars and coffeehouses, there is still much room for growth. The Specialty Coffee Retailers Association believes the market has not approached maturity and, as yet, no coffee chain has differentiated itself significantly from the others. While overall coffee sales have not grown significantly in recent years, the specialty coffeehouse segment is growing steadily at a healthy pace every year. The low food cost of coffee drinks, relatively modest investment capital requirements, and low overhead, lead to high profit margins in the coffeehouse industry. There are 108 million coffee drinkers in the United States, according to the National Coffee Association's report "2000 Coffee Drinking Trends." 77% of coffee drinkers consume coffee daily. Coffee drinkers spend an average of $164.71 on coffee annually, and drink an average 3.1 cups daily. It's easy to see why coffee is second only to oil as the largest commodity in the world. Twenty-five years ago, almost nobody consumed espresso or espresso-based drinks in the United States. Now they account, for more than half of all specialty coffee consumed. Obviously, America's coffee-drinking habits are changing. In the past five years the number of "gourmet" coffee drinkers has increased from 7 million to 27 million. In 2001 53% of all adults in the U.S. drank specialty coffee. By 2002 the percentage had grown to 62%. Year after year, the growth continues at sizeable rates. Starbucks, once known for quality and customer service, has recently come under attack by customers and business commentators for becoming too big. Their size (6,300 stores worldwide) is the reason why Starbucks is now often called the "McDonald's" of coffee chains. If Starbucks' image becomes one of a "fast food" purveyor of coffee, it leaves the market open for a smaller, more nimble competitor like Dark Roast Java, where quality and service are paramount.

As the graph below showing Year 2000 per capita coffee consumption illustrates, the United States is not presently one of the stronger markets for coffee drinking. It's easy to see there is significant room for growth in consumption. The coffeehouse chains of America are leading this growth.

Coffee drinking per capita by country.

4.3.1 Competitive Comparison "Until everybody can walk to a coffeehouse and get a properly prepared espresso drink, we're not even approaching market saturation." -- Mike Ferguson, Marketing & Communications Director Specialty Coffee Association, Long Beach. 2002. Leaders in the specialty coffee chain category in the United States include: Starbucks (6,300 stores). Started the specialty coffee chain phenomena in America in 1982. 99% are company owned. Revenues exceeded $6 billion in 2002. Average store gross revenue is $805,000. Now in 30 countries. Same store sales increased by 10% in 2002. Caribou Coffee (260 stores). Second largest all company-owned chain. Founded in 1992 in Minneapolis. Tully's (103 stores). The third largest company-owned chain. Another Seattle-born company. The only coffeehouse chain that has not experienced excellent growth every year; business.com cites poor management as as the reason. New management seems to leading a turnaround. Coffee Bean & Tea Leaf (210 stores). Oldest privately held specialty coffee retailer in the U.S. (founded 1963). 90% of stores are franchises. Peet's (58 stores) One of the few successful IPO's in 2001. 58% of revenues come from sales of whole coffee beans. Gross profit last year was 49.5%. Gloria Jean's (291 stores, 195 in U.S.). Only 19 stores are company owned. Seattle's Best (150 stores). Owned by AFC, which also owns Popeye's Chicken, Church's, Cinnabon and Torrefazione Italia Coffee (21 stores). Seattle's Best is also distributed at 7,000 locations such as grocery stores and office buildings. Diedrich Coffee Company Originally founded in 1916 when the owners inherited a coffee plantation. Headquartered in Southern California. First coffeehouse in 1982. Owns the Gloria Jean and Coffee People chain. 386 outlets total and 370 wholesale accounts. Although they serve an excellent product they have operated "below the radar."

Bucks County Coffee A Mid-Atlantic chain of 40 stores founded in 1982. Has a very good reputation. PJ's Coffee & Tea (22 stores). This New Orleans-area chain owns four of their stores. Java Dave's (14 stores). Mostly in the Oklahoma area, 12 are franchises and two are company owned. Quikava (68 locations). A unit of the Massachusetts-based Chock Full O'Nuts organization. Many are kiosks. All but three are franchises. New World Coffee (33 stores). Mostly concentrated in the New Jersey/New York area. All but three are franchises. A division of Manhattan Bagel. Bad Ass Coffee Company (29 stores). Begun in Hawaii, this company has grown rapidly by offering a Hawaiiangrown coffee and a milder, mellower brew. It's a Grind (86 stores). Fast-growing chain that began in Long Beach, California seven years ago. Most locations are franchises. Concentrated in Southern California and Las Vegas. Company reported $12 million in revenue in 2002. Its stores average more than $500,000 gross revenue. Dunkin' Donuts More than 800 outlets serving a surprisingly good coffee. Many people think it's the best. Specialty coffee chains in Canada: Blenz (27 stores). Second Cup (401 stores) Tim Horton's (2,100 stores/150 in U.S.). This store is very close to being a Dunkin' Donuts style operation where baked goods are the primary products. Although the specialty coffee industry is successful and expanding rapidly, there is still much room for growth— especially in niche market segments, according to The Specialty Coffee Association of America. Market maturity is not expected to be reached until at least 2019. Sources: Business.com, Yahoo Business, Dun & Bradstreet, Hoover's Business Data, Starbucks Corporation, Specialty Coffee Association, National Coffee Association. 2002. Local Competition Surprisingly, the leading coffeehouse chain, Starbucks, has only mediocre stores in the Pleasantville area (eight locations). Its highest volume store (1,150 customers daily) is at an excellent location on 'A' Street, the main thoroughfare in town, but the store is unattractive, small and lacks outside seating. The other high-volume Starbucks is located at the end of a shopping mall in Mount Hill and averages 952 customers daily. It is not a particularly attractive store, although it does have a sizeable lounge area and some outside seating. Other Starbucks locations in the Pleasantville area are even less memorable, with small facilities and mediocre locations. Photos of some of these locations are shown in the appendix. Coffee Bean also has an excellent location directly across the street from Starbucks on 'A' Street in downtown Pleasantville. This busy coffeehouse is very small. A counter inside and a couple of tables outside are the only areas for customers to sit down. A second Coffee Bean opened in 2002 on the northern end of 'A' Street, about three miles from downtown. Another location in Mount Hill is scheduled to open in Summer 2004. Other competitors include three independent coffeehouses. Paradiseo is located on State Street in a good location. They serve good coffee but have a limited menu and a very "funky" decor. It is a big hangout for the "Goth" and "punk" crowd. A second Paradiseo is located in Shorewood. New managers are trying to improve the store but without success so far.

Another independent is Grounds for Action, located in a residential neighborhood but on a busy street in what was once a gas station. This coffeehouse is also very "collegiate" in its decor, and a favored haunt of the law school students, but manages to average more than 250 customers per day. They have a second location in Springfield. Ambrosia Kaffe is primarily a student hangout located about three blocks off First Avenue in the northern end of the business district. Its business is modest. The business has undergone changes in management during recent years. Both Barnes & Noble and Borders Books have integrated cafes that serves espresso drinks into their store plans. Both of these are within two blocks of the Dark Roast Java site. The Barnes & Noble coffee cafe is very small, located in the rear of the store, and not very busy despite serving Starbucks coffee. The Borders Books cafe is larger, about 1,000 square feet, and does a good business. They are in a good location, adjacent to the same major parking garage as Dark Roast Java and they also draw from book shoppers and drop-ins from 'A' Street. The quality of their coffee and pastries does not compare with ours, and the service can often be quite slow. The Pleasantville Roastery is a bean roaster and coffeehouse with brick walls and a "San Francisco" style. The coffee is roasted on site. They do much of their business by mail order. They suffer from a very poor location in a difficult to find (or even see) shopping mall off lower 'C' Street. A second, small outlet opened in 2003 in Lucre Galerie. Despite their poor location, this is probably the most formidable competitor in town. They make a quality cup of coffee and have a loyal following.

4.3.2 Competition and Buying Patterns Competition is dominated by the presence of Starbucks, fast becoming the "McDonalds" of the specialty coffee industry. Other major chains are Caribou Coffee, Peet's Coffee & Tea, Coffee Bean & Tea Leaf, Seattle's Best, Gloria Jeans and Diedrich Coffee. All of these chains are considered "clones" of Starbucks. Few vary much from what is perceived as a proven formula for success. FACT: The coffeehouse business has grown every year since 1982. FACT: Not a single coffeehouse chain has failed during the past 20 years. Despite major economic recessions, terrorist attacks and two wars over the past two decades, the specialty coffee industry has grown every year. One industry observer said, "When times are good the coffeehouse industry is great. And when times are bad the coffeehouse industry is great." America's love for good coffee is stronger than ever and increasing in size faster than any other industry. Lifestyle factors converge to make the coffee industry strong at all times. The stimulant effect of coffee is an important reason why many hard-working, fast-paced Americans consider a stop at their local coffeehouse a necessary part of their day. Conversely, coffeehouses provide a calm, inviting environment for people to socialize, relax or catch up on work. Young people under the legal drinking age are one of the fastest-growing segments of the coffee drinking market. Coffeehouses provide them with a much-needed place to meet with their friends. Entertainment on weekend nights draws a young group of enthusiastic customers. The surge in interest in coffee drinking among young people assures a diverse, receptive, sophisticated customer base now and in the future. Older adults also enjoy the fact that for the relatively modest price of a cup of coffee and snack, they can meet with their friends, relax or work. Instead of going to a bar and paying for an alcoholic drink or a restaurant where a meal usually comes with a hefty price tag, the coffeehouse is an intimate yet inexpensive venue. Quality is deteriorating even as the industry is growing. Coffeehouses need to produce a quality product to back up the perceived "little luxury" image. Currently, most of the largest chains are bowing to the pressures of growth and are cutting corners on quality by introducing fully automatic espresso machines, mass bean buying and other efficiency measures.

Coffee drinking is now an all-day activity. Once concentrated in the early morning hours or mid-afternoon, in recent years coffee drinking has become an allday activity. Even late at night, many coffeehouses are packed with patrons. It's not unusual for a well located coffeehouse to exceed a daily average of 900 customers. Customer guest check averages are rising. As pastries, chocolates, tea, pre-packaged sandwiches, snacks, juice drinks and gift items are added to the menu, the average customer expenditure has risen. Many popular coffeehouses report averages in the $4 - $6 range. Dark Roast Java expects that guest checks will average about $4.50.

Strategy and Implementation Summary The Dark Roast Java coffeehouse uses a strategy of total quality—in product and service. Our promise is in our location, the products we sell, the people we attract and the atmosphere we create. Strategic Assumptions: •

People want a better-tasting coffee drink

•

Coffee drinkers want a more inviting coffeehouse environment

•

Coffee drinks are considered an affordable luxury

•

The coffeehouse industry is largely unaffected by the economy and world events

•

Dark Roast Java offers several unique advantages over all other coffeehouses

5.1 Competitive Edge Our competitive edge, compared to the other coffeehouses in the greater Pleasantville area includes the following: •

A significantly higher quality, better tasting coffee product.

•

Our current location can arguably be considered the best in the market—in the heart of the downtown shopping, dining, entertainment and cultural district in Pleasantville and adjacent to the historic Egyptian Theatre.

•

An ambiance superior to all other coffeehouses in the area with upscale "Côte d’Azur" look. It features stained glass decorations, art glasswork, Mediterranean Riviera style furnishings and outdoor dining.

•

The only coffeehouse downtown to provide regular weekend evening entertainment.

•

A wider variety of popular drinks than our competitors, including flavored coffee drinks, tea, chai, cocoa, juice and Italian sodas. We have several drink options for people who don't drink coffee: tea, cocoa, juice and smoothies.

•

Our Internet website will include sales of whole coffee beans, tea, chocolates, gift items and gift baskets.

5.2 Marketing Strategy Other coffeehouses rely almost entirely on word-of-mouth marketing to generate business. We will engage in an ongoing aggressive marketing program that will help us establish profitability quickly and set the stage for continual growth. Our strategy will be to position Dark Roast Java as the "Lexus" of coffeehouses, offering a high quality product and superb service in a superior environment.

5.2.1 Launch Marketing Most coffeehouse chains do little or no marketing and advertising. For example, Starbucks' philosophy is that their ubiquity in the marketplace is all they need to sustain and grow their customer base. They spend less than 1% of gross revenues on advertising, and when they do spend, it is usually to introduce a new product. The retail coffee industry is a sales-oriented business with historically very little experience in marketing and advertising. This is likely why little is done. As yet, the major players have not been taken over by sophisticated companies like Pepsico, where marketing is viewed as essential to gaining market share. An element of our differentiation from other coffeehouse chains will be our use of advertising and marketing to gain awareness, build customer traffic and establish a strong brand image. We intend to create immediate customer

awareness and not wait for word-of-mouth. We are also building customer traffic immediately with an aggressive Launch Marketing Plan. Launch Marketing Launch marketing will promote awareness, build immediate traffic and establish our brand image via several methods: •

Public relations/publicity

•

Direct mail

•

Local print and broadcast media

•

Design and packaging

•

Community involvement

•

Sampling

•

Superior location

•

Desirable store ambiance

Public Relations A strong public relations/publicity program uses as its primary "hook" these three main points: 1.

Dark Roast Java is Pleasantville's first true gourmet coffeehouse

2.

Our unique quality products

3.

Our distinctive latte "art"

The goal of the PR/publicity is to achieve local market awareness and establish the brand on a wider scale to set the stage for future expansion. Local market awareness is vital because more than 50% of sales will come from people living within a 5-mile radius of the store. National awareness will help drive the expansion by generating opportunities created by the media buzz and familiarizing people with our brand name. It will help set the stage for future brand identification. Local Media •

The Pleasantville Gazette

•

Pleasantville Magazine

•

The Mount Hill Journal

•

The Pleasantville Weekly

•

Mount Hill Magazine

•

Pleasantville Dining

•

Pleasantville Seasons

•

ABC-TV (KTBO)

•

KATF radio

•

KEZI radio

•

KWAS radio

•

KSNZ radio

•

KOBR radio

•

KPML radio

•

KKMN radiO

•

KJBU radio

•

KSEC radio

•

KION radio

Regional/National Print Media

•

BusinessWeek

•

The Ontopolis Business Journal

•

Time

•

Newsweek

•

US News

•

Entrepreneur

•

Wall Street Journal

•

Fortune

•

Forbes

•

Robb Report

•

Newspapers in top 50 US markets

National Broadcast Media •

Feature programming (e.g. Oprah, Good Morning America)

•

1,500 radio stations nationwide

Direct Mail •

Ongoing direct mail generated from our website data

•

Visa or MasterCard local direct mail program

Website Our website is fully e-commerce functional and could easily become a significant revenue source. We will eventually sell the following items online: •

Whole coffee beans, tea

•

Gift baskets

•

Gift items

•

Furnishings

And in a first for any coffeehouse in the world, we will also sell a catalog of glass artwork representative of our store decor. We will act as the sales agent for a number of participating stained glass, and art glass artisans. The website also markets Dark Roast Java with:

•

A monthly newsletter

•

Interesting information about the coffee industry

•

A map to our store

•

Store hours

•

Special events

•

Coffee recipes

Most of these functions are already up and running. Trend-setters Pleasantville and the southern part of the state are home to thousands of individuals who can be important to the successful positioning of Dark Roast Java. One mention on a TV talk program or in a 'lifestyle' magazine can (and has) launched many successful careers and businesses. With literally hundreds of celebrities and wealthy business people as local residents, the word-ofmouth recommendations from these people can drive significant business to us as well as generate favorable publicity. Many celebrities visit Pleasantville or have second homes here. The wife of the billionaire owner of Nationwide Communications owns the Pleasantville newspaper. A former actor owns a local vineyard and is a major hotel developer. Politicians and entertainers have interests in several restaurants. Our Mount Hill location will be in a building owned by a clothing brand multi-millionaire. Celebrities in Pleasantville are also actively involved in the community, many supporting several local charities. Our involvement in the community will enable us to garner exposure for Dark Roast Java among an important group of local residents. Key individuals will be targeted with gift baskets from Dark Roast Java containing samples of our products to entice them to visit Dark Roast Java and talk about us with their friends. Design style The interior design of Dark Roast Java is unlike any other coffeehouse chain. While there are some upscale designs, they are all of the modern Italian or Starbucks look. Our upscale stylized "Côte d’Azur" Mediterranean Riviera design, featuring stained glass decorations, art glasswork, differentiates us from all others. Gift Items We carry a wide variety of quality gift items, including gift baskets. Gift basket business could eventually grow to be substantial. However, since it is difficult to project at this time we have not included it in the financial computations. We also offer sales of stained glass and glass artwork by the artisans who produced our decor furnishings. Community Involvement We will make ourselves an integral part of the local and world community. This will generate goodwill, create opportunities to forge important contacts with key people and live up to our company Mission Statement. Some of these community involvement goals include: •

Take an active role in the Chamber of Commerce

•

Supply complementary product to local charities for fund-raising activities

•

Sponsor local sports teams

•

Create and sponsor a Pleasantville to La Pine cross-mountain foot race following the old Stone Canyon stage route

•

Purchase fair trade coffee whenever possible

•

Support Fair Trade, organic, sustainable farming

Location The location of the first Dark Roast Java in Pleasantville is a prototype of future sites. Our second site on busy Shoreline Road in Mount Hill will feature our flagship store. It will be located just off the Oak Patch Road and Highway 66 exit, across from the Mount Hill Inn and The Junction Restaurant. It is by far the best location in Mount Hill—one of America's most affluent cities. We will build Dark Roast Java coffeehouses in the best locations possible, as this is the key element in a successful operation. Site selection criteria include: •

High traffic location

•

Small or mid-size affluent market

•

Year-round tourist activity

•

Nearby (within 5 miles) student population

•

Outside dining

Other sites that meet these criteria include Newburg, Springfield, Bayview, Shorewood, Orchard Valley, Beachey Head, and Capital City. Exceptions will be made for some sites if they are deemed to be potentially very profitable. Sites in other states might include Utah, New Mexico, Oregon, Washington, Montana, Idaho, Colorado, etc. Plans are to locate Dark Roast Java coffeehouses in the Western states for efficiency of supply and management. Outside Dining The coffeehouse/cafe experience is indelibly linked to its European origins, where al fresco dining is a way of life. Americans have embraced sidewalk dining. It is one of the fastest growing additions to the American dining scene. Sidewalk dining also provides an excellent way for prospective customers to see and "check out" the coffeehouse for the first time. Sampling We will engage in several sampling activities to introduce potential customers (and current customers) to Dark Roast Java's range of drink options. •

Samples will be distributed at the coffeehouse

•

Samples will be given to passers-by on the street

•

Discount coupons will be distributed on the street, via direct mail and at special events

•

Complementary coffee will be served at charitable and civic events

•

Free coffee service will be provided to the Chamber of Commerce, a radio station, the newspaper and at select government offices (e.g. the Planning and Zoning Department)

Portable Kiosk

Within 6 to 8 months we will create a portable Dark Roast Java kiosk to sell and market our products at special events and community activities. Pleasantville has more than 130 such events every year. It will be an excellent way to publicize Dark Roast Java coffee. The kiosk will be highly visible and fun. It will also potentially be very profitable, although it's hard to determine how profitable with any accuracy until the local response is measured. We believe it could generate $75,000 - $100,000 annual revenue. Pre-paid, re-loadable, frequency and discount cards We will promote our program of gift cards and customer frequency cards to drive business and stimulate cash flow. Industry records indicate that 25% - 40% of all gift card amounts go unused. Also, gift cards have proven to be a popular holiday item accounting for more than 5% of total sales during December. Pre-paid and re-loadable cards have also proven to be very popular with the major chain coffeehouses, again accounting for a significant percentage of sales. These cards promote customer loyalty as well. Frequency cards rewarding the repeat customer with a free drink after a specified number of visits are popular and proven methods to forge customer loyalty. Discount cards are used to build goodwill among specific groups such as the Chamber of Commerce members and college students. By tying in with our computerized sales and inventory system we will be able to track usage and allocate the expense to marketing. The Future The number of Dark Roast Java locations could easily reach 20 - 25 within five years. While the financials in this Business Plan only address the Pleasantville location, we can extrapolate from the store's performance (which will be carefully monitored and tracked) to get a general idea of the chain's projected profitability. With ten coffeehouses the gross revenues, when fully realized, would be more than $10 million using the third year performance figures. Even factoring in the cost of additional staff and other resources, a 10-store chain would likely generate a minimum of $1 million in profits annually, while building significant valuation. A 25-store chain would easily top $2.5 million in annual profits. Dark Roast Java's start-up, implementation and operation in Pleasantville will be the "blueprint" for future efficient expansion. Our new Mount Hill location will incorporate the knowledge we gain with our first store as well as new creative ideas, and become our "flagship" operation. Sources: SRDS, Interep Radio, Scarborough Market Data Survey.

5.3 Sales Strategy Our sales strategy includes: •

Staff salaries that are 10% above the industry average in order to attract the best people

•

Hiring for attitude so that we always have a friendly, enthusiastic staff to make customers feel welcome and appreciated; constant staff training to assure the best quality possible

•

State-of-the-art sales/inventory system to (A) reduce customer waiting time, and (B) create efficient product ordering

•

Create a mobile kiosk to take Dark Roast Java into the community at special events, farmer's markets, art shows, etc.

•

Sell coffee, gift baskets and glass artwork on our website

•

Establish coffee service at local businesses

•

Sell gift cards, frequency cards, pre-paid cards, and offer discounts to key groups

•

Create an ongoing sampling program

•

Conduct a consistent, aggressive marketing program

•

Be an active member of the community; be visible at charitable functions

•

Solicit customer feedback to constantly improve and streamline our operation

Key Strategy: an advanced and expandable point-of-sales system After carefully tracking the performance of the Pleasantville store through an expandable and highly detailed point-ofsale system, we will use this as a "blueprint" for expansion. For example, daily sales are tracked and analyzed by item, time period and cost of goods. Labor requirements are matched to projected in-store sales based upon past performance for maximum efficiency. Even after paying higher than average wages we expect to allocate no more than 25% to labor costs. Sales are linked to inventory to both streamline the efficiency of ordering and reduce "shrinkage" by instantly alerting us to unusual shortages compared with revenues. Scheduling can be done online and easily revised to accommodate changes—all while projecting weekly, monthly, quarterly or annual labor costs. Schedules can be sent via email to staff members. Cost of goods can be monitored for increased efficiency too. As we continually research methods of delivering a high quality but cost-efficient product, and by making small incremental improvements in the costs of items we expect to increase overall COG by a minimum of 5% during the first year of operation. As expansion occurs, the POS system can be adapted to each individual location and allow the central office to monitor the stores remotely as well as the overall combined operation. Close monitoring will allow us to achieve a high level of communication between stores as well as spot problems immediately and take corrective action.

5.3.1 Sales Forecast Conservatively, we are forecasting an average of 300 customers per day during the first year with an average guest check expenditure for all items of $4.10. This figure was arrived at by surveying the customer traffic at the nearest competing coffeehouses which have a range of 150 - 500 customers per day and an average customer expenditure of $4.10. We have estimated our customer expenditure to be slightly higher (2.5%) due to the premium price we will charge for some of our items. Total cost of sales is approximately 25%. We expect growth to occur across all categories at about 10% annually as the business becomes more established and well-known, reaching 400+ customers per day within a year and more than 500+ within three years. These estimates are likely conservative. However, it is possible we could attain a 1,000-per-day customer count within three years.

Sales Forecast FY 2004

FY 2005

FY 2006

Coffee drinks

$265,101

$344,631

$448,021

Tea, soft drinks, water, juice

$167,007

$217,109

$282,241

Pastries, food items

$154,126

$200,364

$260,473

$2,105

$2,526

$3,031

$0

$0

$0

Coffee service to businesses

$3,300

$3,630

$3,993

Internet sales

$8,500

$10,625

$13,281

Sales

Coffee beans Events/mobile kiosk

Gift items Total Sales

$6,440 $606,579

$7,728

$9,274

$786,613 $1,020,314

Direct Cost of Sales

FY 2004

FY 2005

FY 2006

Coffee drinks

$43,828

$44,266

$44,709

Tea, soft drinks, water, juice

$26,054

$26,315

$26,578

Pastries, food items

$55,241

$55,793

$56,351

$1,280

$1,293

$1,306

$0

$0

$0

$760

$768

$775

$3,925

$3,964

$4,004

$10,109

$10,210

$10,312

$141,197

$142,609

$144,035

Coffee beans Events, mobile kiosk coffee service to businesses Internet sales Gift items Subtotal Direct Cost of Sales

5.4 Milestones The accompanying table lists important program milestones, with dates and managers in charge, and budgets for each. The milestone schedule indicates our emphasis on planning for implementation. A similar milestone development program will be developed for our Mount Hill location to insure its timely execution. What the table doesn't show is the commitment behind it. Our business plan includes complete provisions for plan-vs-actual analysis, and we will hold follow-up meetings every month to discuss the variance and course corrections. Milestones

Milestone

Start Date

End Date

Budget

Manager

Department

Business/Marketing Plan

2/1/2003

4/30/2003

$500

N. P-S

Marketing

Secure Funding

2/1/2003

4/30/2003

$500

N. P-S

Marketing

Secure lease

2/10/2003

4/30/2003

TBD

N. P-S

Admin

Secure name licensing

2/10/2003

4/30/2003

TBD

N. P-S

Marketing

Marketing plan

2/10/2003

4/30/2003

$0

N. P-S

Marketing

Structure company type

2/15/2003

4/30/2003

$0

N. P-S

Marketing

Develop investor program

2/15/2003

4/30/2003

$0

N. P-S

Marketing

Attend Coffee Fest

2/27/2003

3/1/2003

$500

N. P-S/V. L

Marketing

Health Dept.

3/1/2003

5/15/2003

TBD

N. P-S/V. L

Admin

Select and order furnishings

5/1/2003

6/15/2003

TBD

N. P-S/V. L

Admin

Site plans

3/1/2003

4/30/2003

TBD

N. P-S

Admin

Select construction contractor

3/15/2003

4/15/2003

$150

N. P-S

Admin

Join Spec. Coffee Retailers

3/15/2003

5/30/2003

$250

N. P-S/V. L

Marketing

Select and order lighting

4/1/2003

5/30/2003

TBD

N. P-S/V. L

Marketing

Create employee manual

4/1/2003

5/30/2003

$0

N. P-S

Personnel

Alliance with water company

4/1/2003

5/30/2003

$0

N. P-S

Admin

Join Chamber of Commerce

4/1/2003

5/30/2003

$250

N. P-S/V. L

Admin

Select cash register system

4/15/2003

5/30/2003

$0

N. P-S

Admin

Business license, etc.

4/15/2003

5/30/2003

$300

N. P-S/V. L

Admin

Select paint contractor

4/15/2003

5/30/2003

$0

V. L

Admin

Choose paint palette

4/15/2003

5/30/2003

$0

N. P-S/V. L

Admin

Select and order flooring

4/15/2003

5/30/2003

TBD

N. P-S/V. L

Marketing

Gift items, suppliers, order

4/15/2003

5/15/2003

TBD

V. L

Marketing

Select pastry supplier

4/15/2003

5/30/2003

$0

V. L

Admin

Select equipment supplier

4/15/2003

5/15/2003

$0

N. P-S

Admin

Graphics/brochure design

4/15/2003

5/30/2003

$0

N. P-S

Marketing

Select confection suppliers

4/15/2003

5/30/2003

$0

N. P-S/V. L

Admin

Select juice suppliers

4/15/2003

5/30/2003

$0

N. P-S

Admin

Credit card companies

4/30/2003

6/15/2003

$0

N. P-S

Admin

Create training program

4/30/2003

6/15/2003

$0

V. L

Personnel

Select music system

5/1/2003

6/15/2003

$2,500

N. P-S/V. L

Admin

Install wireless Internet

5/1/2003

6/15/2003

TBD

N. P-S/V. L

Admin

Hire manager, baristas

7/1/2003

9/15/2003

TBD

N. P-S/V. L

Personnel

Select business insurance

7/1/2003

7/20/2003

TBD

N. P-S

Admin

7/15/2003

7/31/2003

$1,000

N. P-S

Admin

Pre-opening parties

9/1/2003

9/15/2003

$1,000

V. L

Marketing

GRAND OPENING

9/15/2003

9/30/2003

$1,000

N. P-S/V. L Admin/Marketing

12/12/2003

1/31/2004

$0

N. P-S/V. L Admin/Marketing

Design, print stationery

Acheive 700+ daily customers Totals

$7,950

Web Plan Summary We plan to expand the functionality of our website so that it becomes a substantial revenue stream for Dark Roast Java. Although we've projected modest sales because of the difficulty in predicting online sales activity, we believe the potential exists for Internet sales to become a substantial percentage of our revenue. We will sell a number of items at our website, including: •

Whole beans

•

Tea

•

Cocoa mixes

•

Chocolates

•

Gift baskets

•

Gift items

•

Art glass

We will sell a variety of high design stained glass, glass artwork and accessories featured in our coffeehouses by establishing ourselves as an agent for the artist/manufacturers. We will process the order and the artist will fulfill it. In this way we provide exposure and additional sales activity for the artists, and Dark Roast Java creates an additional revenue stream that could become substantial over time. Special downloadable offers good at the retail stores will be posted from time to time on the website. Eventually, customers will be able to reload their Dark Roast Java Card online so they can use it in lieu of cash or credit when they make purchases. The website will also function as an online "brochure" for both the Dark Roast Java quality story as well as enable visitors to "see" our retail store, get directions and maps, see our menu and find out about special events.

6.1 Website Marketing Strategy All communications materials will include the Dark Roast Java website address. For the media, an online press kit will be available which will include downloadable photos, PR releases, stories of interest, testimonials, bios of key management and reproduceable logos. Special PR will promote our gift basket business and the sale of our upscale design glass artworks. We will host online "events" for our customers. For example, a visiting author may go online to chat with visitors to our website. Or we may support a charities' fund-raising activities. This will provide us with opportunities for media coverage. Eventually, when more stores are opened, the website will function as a means of internal communication through a password-protected area. Here, company rules, health department regulations, news, chat, "live" internal announcements and virtual meetings will take place. In-store Internet computing An appealing customer feature at Dark Roast Java will be two Internet access stations with 17" monitors. These will enable people to access the Internet while at the store. The price for this access hasn't been set yet but will be

approximately $15 an hour with some fractional division rate structure at 15-minute intervals (perhaps $5 for every quarter hour). The Dark Roast Java website home page will be the always-on start page for the monitors. The Internet stations enable customers to check their email or access websites for business, study or travel information. Internet access is provided more as a customer service than a revenue source. Although it will return a profit, the amount is difficult to determine now and so it hasn't been factored into the P&L. Our best estimate is that the two stations will be on for a total of four hours daily, producing $1,800 a month in gross revenue ($21,600 annually minus approximately $1,000 for the basic fee plus the percentage of sales).

6.2 Development Requirements Dark Roast Java plans to employ a graphic designer and back-end user interface technical developer to create our simple, classy, yet Internet focused site. The maintenance of the site will be done by contracted outside consultants. As the website is expanded and improved, future development may include items such as tracking, newsletters, down-loadable menus, a coffee "chat" room and user Web pages. A technical resource may need to be contracted to build the trackable download and the newsletter capabilities.

Management Summary The expansion of the Dark Roast Java concept will be managed by Ned Powers-Sebastiane and Victor Lubitsch, with assistance from our outside support team. Ned Powers-Sebastiane Ned has more than 35 years experience in marketing/sales with special expertise in the retail sector.

•

President of Powers-Sebastiane Advertising & Public Relations. Founded 1982.

•

Owner/founder of Pan National Motor Tours.

•

Sr. VP/Chief Creative Officer at ******.

•

President/General Manager of ******.

•

VP/Director of Marketing & Advertising at ******.

•

VP/Chief Marketing Officer at ******.

•

VP/Creative Director and Team Leader at ******.

Ned Powers-Sebastiane will be responsible for the site development, construction supervision, equipment ordering, marketing/PR, website design/development and government issues. Ned is a graduate of the Specialty Coffee Association's training program for coffeehouse operation and management. Victor Lubitsch Victor has more than 25 years experience in business and selling. He has been a motivational speaker and image consultant as well. •

President/CEO of the Pleasantville Chamber of Commerce, 2000 - 2003.

•

Founder/Owner of Specialty Agency, 1980 - 1991.

•

State Business Man of the Year.

•

Owner/founder of Brilliant! Idea company.

•

Director of Placement, Local Business College.

•

Top recruiter at ****** Company.

•

Top recruiter at ******.

Victor will be responsible for staffing, menu development, training, product ordering, interior design and accounting supervision. Victor is a graduate of the SCAA coffeehouse management program and recently attended several training seminars at Coffee Fest 2003. *Confidential and proprietary information omitted from this sample plan.

7.1 Personnel Plan The personnel plan is included in the following table. It shows the owners' salaries, a full-time manager's annual salary, eight part-time salaries for espresso servers and a part-time bookkeeper and/or website supervisor.

Personnel Plan FY 2004 FY 2005 FY 2006 Ned Powers-Sebastiane

$39,000 $80,000

$80,000

Victor Lubitsch

$39,000 $80,000

$80,000

Manager

$34,000 $35,000

$35,000

Manager

$0 $30,000

$30,000

Barista #1

$9,600

$9,600

$9,600

Barista #2

$9,600

$9,600

$9,600

Barista #3

$9,600

$9,600

$9,600

Barista #4

$9,600

$9,600

$9,600

Barista #5

$9,600

$9,600

$9,600

Barista #6

$9,600

$9,600

$9,600

Barista #7

$2,800

$7,200

$9,600

Barista #8

$3,000

$7,200

$7,200

Bookkeeper

$8,000 $15,000

$15,000

Website Supervisor

$0 $25,000

$25,000

Total People

10

Total Payroll

11

12

$183,400 $337,000 $339,400

Financial Plan •

Sales growth will be a minimum of 15% annually, margins excellent, profits at approximately 20% - 25%, cash flow adequate.

•

Marketing will remain below 5% of sales.

•

The company will invest residual profits into financial markets or real estate.

•

Future cash investments will use NPV projections to achieve maximum return with limited risk.

8.1 Important Assumptions •

The 20-year record of positive growth for specialty coffee drinking will continue at a healthy rate. The Specialty Coffee Association says that the market is far from saturation and will not reach maturity until at least 2019.

•

The resilience of the coffeehouse industry to negative national and world events will continue. Despite recession and war the coffeehouse industry has shown strong growth every year for the past two decades.

•

The quality of national chains will remain the same or decline slightly rather than improve as they standardize their stores, increase automation of espresso drinks and mass-produce the roasting process.

•

Coffee drinks will continue to be considered an "affordable luxury."

•

15% minimum sales growth rate over the next three years as Dark Roast Java becomes well known.

General Assumptions FY 2004

FY 2005

FY 2006

1

2

3

Current Interest Rate

3.00%

3.00%

3.00%

Long-term Interest Rate

3.00%

3.00%

3.00%

20.00%

20.00%

20.00%

0

0

0

Plan Month

Tax Rate Other

8.2 Projected Profit and Loss We project high net profits starting in the first year. Our growth rate is based upon industry averages, factoring in the local conditions. We expect growth of 15% annually for the first three years before leveling off at the 800 - 900 customer per day average traffic rate. First fiscal year gross revenues are expected to exceed $600,000 and after-tax net profits of approximately $99,000 —increasing to more than $260,000 by the third fiscal year-end. Our margins are very good.This is due in large part to the low direct cost of sales as well as the low operating costs in general for coffeehouses. Higher staff salaries, owner/operator salaries, marketing costs and rent for a premium location depress profits but, conversely, they also ultimately contribute to higher earnings and profits.

Pro Forma Profit and Loss FY 2004

FY 2005

FY 2006

Sales

$606,579

$786,613

$1,020,314

Direct Cost of Sales

$141,197

$142,609

$144,035

$24,000

$28,000

$32,000

Total Cost of Sales

$165,197

$170,609

$176,035

Gross Margin

$441,382

$616,004

$844,279

72.77%

78.31%

82.75%

Other Costs of Goods

Gross Margin %

Expenses Payroll

$183,400

$337,000

$339,400

$12,500

$8,000

$8,000

$6,000

$4,000

$4,000

$45,900

$55,000

$60,000

Utilities

$9,200

$14,000

$16,000

Insurance

$2,400

$2,400

$2,500

Legal/accounting

$6,000

$6,000

$6,000

$27,510

$50,550

$50,910

$0

$0

$0

$24,000

$25,000

$25,000

Total Operating Expenses

$316,910

$501,950

$511,810

Profit Before Interest and Taxes

$124,472

$114,054

$332,469

EBITDA

$130,472

$118,054

$336,469

$0

$0

$0

Taxes Incurred

$24,894

$22,811

$66,494

Net Profit

$99,577

$91,243

$265,975

Net Profit/Sales

16.42%

11.60%

26.07%

Sales and Marketing Depreciation Rent

Payroll Taxes Mobile Kiosk Misc - maintenance, cleaning, training, fees

Interest Expense

8.3 Break-even Analysis A break-even analysis table has been completed on the basis of average costs/prices. With fixed costs of $26,400 and $4.50 an average sale, we need approximately $35,000 per month to break-even.

Break-even Analysis

Monthly Revenue Break-even

$34,422

Assumptions: Average Percent Variable Cost Estimated Monthly Fixed Cost

23% $26,409

8.4 Projected Cash Flow We are positioning ourselves in the market as a low to medium risk concern with relatively steady cash flows. Accounts payable is paid at the end of each month, while sales are in cash, giving Dark Roast Java an excellent cash structure. Fifty percent of cash above $20,000 will be invested into semi-liquid stock portfolios to decrease the opportunity cost of cash held. Our initial investor contributions are designed to provide us with a strong cash position at all times.

Pro Forma Cash Flow FY 2004

FY 2005

FY 2006

Cash Sales

$606,579

$786,613

$1,020,314

Subtotal Cash from Operations

$606,579

$786,613

$1,020,314

Sales Tax, VAT, HST/GST Received

$0

$0

$0

New Current Borrowing

$0

$0

$0

New Other Liabilities (interest-free)

$0

$0

$0

New Long-term Liabilities

$0

$0

$0

Sales of Other Current Assets

$0

$0

$0

Sales of Long-term Assets

$0

$0

$0

New Investment Received

$0

$0

$0

$606,579

$786,613

$1,020,314

FY 2004

FY 2005

FY 2006

Cash Spending

$183,400

$337,000

$339,400

Bill Payments

$275,940

$358,649

$406,457

Cash Received

Cash from Operations

Additional Cash Received

Subtotal Cash Received

Expenditures

Expenditures from Operations

Subtotal Spent on Operations

$459,340

$695,649

$745,857

Sales Tax, VAT, HST/GST Paid Out

$0

$0

$0

Principal Repayment of Current Borrowing

$0

$0

$0

Other Liabilities Principal Repayment

$0

$0

$0

Long-term Liabilities Principal Repayment

$0

$0

$0

Purchase Other Current Assets

$0

$0

$0

Purchase Long-term Assets

$0

$0

$0

$17,600

$26,400

$26,400

Subtotal Cash Spent

$476,940

$722,049

$772,257

Net Cash Flow

$129,639

$64,564

$248,057

Cash Balance

$131,139

$195,703

$443,761

Additional Cash Spent

Dividends

8.5 Projected Balance Sheet All of our tables will be updated monthly to reflect past performance and future assumptions. Future assumptions will not be based on past performance but rather on economic cycle activity, regional industry strength, and future cash flow possibilities. We expect solid growth in net worth beyond the year 2003.

Pro Forma Balance Sheet FY 2004

FY 2005

FY 2006

$131,139

$195,703

$443,761

Inventory

$16,591

$16,757

$16,925

Other Current Assets

$15,000

$15,000

$15,000

Total Current Assets

$162,730

$227,461

$475,685

$62,000

$62,000

$62,000

$6,000

$10,000

$14,000

$56,000

$52,000

$48,000

$218,730

$279,461

$523,685

FY 2004

FY 2005

FY 2006

Assets

Current Assets Cash

Long-term Assets Long-term Assets Accumulated Depreciation Total Long-term Assets Total Assets

Liabilities and Capital

Current Liabilities Accounts Payable

$33,253

$29,140

$33,790

Current Borrowing

$0

$0

$0

Other Current Liabilities

$0

$0

$0

$33,253

$29,140

$33,790

$0

$0

$0

Total Liabilities

$33,253

$29,140

$33,790

Paid-in Capital

$250,500

$250,500

$250,500

($164,600) ($91,423)

($26,579)

Subtotal Current Liabilities

Long-term Liabilities

Retained Earnings Earnings

$99,577

$91,243

$265,975

Total Capital

$185,477

$250,321

$489,896

Total Liabilities and Capital

$218,730

$279,461

$523,685

Net Worth

$185,477

$250,321

$489,896

8.6 Business Ratios We expect our net profit margin, gross margin, and Return on Assets to increase steadily over the three-year period. Return on Equity will decrease due to lower equity needs and higher cash inflow. Net working capital generated by the business will increase steadily each year, proving that we have the cash flows to remain a going concern independent of outside capital infusion. While our ratios are not all in sync with those of the industry, due to the unique nature of our business, it's important to point out that in key areas the numbers are excellent. The only industry ratio category currently available, SIC Code 5812.0304, includes cafes, restaurants and other businesses serving coffee. These businesses are significantly different from the Dark Roast Java coffeehouse concept.

Ratio Analysis FY 2004

FY 2005

FY 2006

Industry Profile

0.00%

29.68%

29.71%

5.24%

Inventory

7.59%

6.00%

3.23%

4.34%

Other Current Assets

6.86%

5.37%

2.86%

35.11%

Total Current Assets

74.40%

81.39%

90.83%

43.74%

Long-term Assets

25.60%

18.61%

9.17%

56.26%

100.00%

100.00%

100.00%

100.00%

Sales Growth

Percent of Total Assets

Total Assets

Current Liabilities

15.20%

10.43%

6.45%

18.93%

0.00%

0.00%

0.00%

25.48%

Total Liabilities

15.20%

10.43%

6.45%

44.41%

Net Worth

84.80%

89.57%

93.55%

55.59%

100.00%

100.00%

100.00%

100.00%

Gross Margin

72.77%

78.31%

82.75%

61.91%

Selling, General & Administrative Expenses

56.32%

66.62%

56.54%

39.08%

0.00%

0.00%

0.00%

2.55%

20.52%

14.50%

32.58%

1.38%

Current

4.89

7.81

14.08

1.14

Quick

4.39

7.23

13.58

0.79

Total Debt to Total Assets

15.20%

10.43%

6.45%

49.97%

Pre-tax Return on Net Worth

67.11%

45.56%

67.87%

3.97%

Pre-tax Return on Assets

56.91%

40.81%

63.49%

7.93%

Additional Ratios

FY 2004

FY 2005

FY 2006

Net Profit Margin

16.42%

11.60%

26.07%

n.a

Return on Equity

53.69%

36.45%

54.29%

n.a

10.10

8.55

8.55

n.a

9.30

12.17

12.17

n.a

27

32

28

n.a

2.77

2.81

1.95

n.a

Debt to Net Worth

0.18

0.12

0.07

n.a

Current Liab. to Liab.

1.00

1.00

1.00

n.a

$129,477

$198,321

$441,896

n.a

Long-term Liabilities

Percent of Sales Sales

Advertising Expenses Profit Before Interest and Taxes

Main Ratios

Activity Ratios Inventory Turnover Accounts Payable Turnover Payment Days Total Asset Turnover

Debt Ratios

Liquidity Ratios Net Working Capital

Interest Coverage

0.00

0.00

0.00

n.a

Assets to Sales

0.36

0.36

0.51

n.a

Current Debt/Total Assets

15%

10%

6%

n.a

Acid Test

4.39

7.23

13.58

n.a

Sales/Net Worth

3.27

3.14

2.08

n.a

Dividend Payout

0.18

0.29

0.10

n.a

Additional Ratios

Appendix Sales Forecast Dec

Jan

Feb

Mar

Apr May

Jun

Jul

Aug

Sep

Oct

Nov

Sales Coffee drinks

0 $11,9 $20,0 $14,6 $18,0 $18,5 $18,5 $24,5 $25,5 $27,5 $28,0 $28,5 $29,5 % 15 86 00 00 00 00 00 00 00 00 00 00

Tea, soft drinks, water, juice

0 $4,29 $7,77 $10,8 $11,0 $11,3 $13,0 $15,7 $19,5 $19,5 $19,0 $17,0 $18,0 % 0 8 99 00 40 00 00 00 00 00 00 00

Pastries, 0 $4,86 $9,90 $12,6 $12,0 $12,5 $12,7 $13,0 $14,0 $15,5 $15,0 $15,0 $17,0 food items % 7 9 00 00 00 50 00 00 00 00 00 00 Coffee beans

0 %

$50

$25

$50

Events/mo 0 bile kiosk %

$0

$0

$0

Coffee 0 service to % businesses

$0

$0 $500

$0 $100 $100 $300 $300 $500 $500 $500 $500

Internet sales

0 %

$0

$0

$0

Gift items

0 $1,95 $282 $300 $300 $300 $300 $500 $500 $500 $500 $500 $500 % 8

Total Sales

Direct Cost of Sales

$0

$80 $100 $100 $100 $300 $300 $300 $300 $400 $0

$0

$0

$0

$0

$0 $500

$0

$0

$0

$0

$0

$1,00 $1,00 $2,00 $2,00 $2,00 0 0 0 0 0

$23,0 $38,0 $38,9 $41,3 $42,8 $44,7 $54,6 $61,1 $64,8 $65,3 $63,8 $67,9 80 80 49 80 40 50 00 00 00 00 00 00

Dec

Jan

Feb

Mar

Apr May

Jun

Jul

Aug

Sep

Oct

Nov

Coffee drinks

$2,98 $5,02 $3,65 $2,70 $2,70 $2,77 $3,45 $3,82 $4,12 $4,20 $3,97 $4,42 0 2 0 0 0 6 0 5 5 0 5 5

Tea, soft drinks, water, juice

$645

Pastries,

$1,50 $3,50 $4,54 $4,13 $4,52 $4,62 $4,91 $5,11 $5,53 $5,21 $5,21 $6,42

$1,16 $1,63 $1,65 $1,70 $2,95 $2,35 $2,92 $2,92 $2,85 $2,55 $2,70 8 5 0 1 0 5 5 5 0 0 0

food items

0

0

2

2

5

0

6

Coffee beans

$35

$15

$25

$50

$65

$65

Events, mobile kiosk

$0

$0

$0

$0

$0

$0

$0

coffee service to businesses

$0

$0

$25

$0

$25

$25

$75

Internet sales

$0 $100

$0

$0

$0

4

0

7

7

8

$65 $185 $185 $185 $185 $220 $0

$0

$0

$0

$0

$75 $125 $125 $125 $160

$0 $225 $450 $450 $900 $900 $900

$1,35 $1,40 $2,50 $1,20 $1,35 $250 $259 $250 $250 $250 $250 0 0 0 0 0

Gift items

$800

Subtotal Direct Cost of Sales

$5,96 $11,1 $11,2 $11,0 $10,2 $11,7 $11,3 $12,8 $13,5 $13,7 $13,2 $15,0 0 55 77 32 16 86 36 33 90 27 02 83

Personnel Plan Dec

Jan

Feb Mar

Ned Powers0 Sebastian % e

$0

$0

$0

$0 $4,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000

Victor Lubitsch

0 %

$0

$0

$0

$0 $4,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000

Manager

0 $1,00 $3,00 $3,00 $3,00 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 % 0 0 0 0

Manager

0 %

$0

$0

Barista #1

0 $800 $800 $800 $800 $800 $800 $800 $800 $800 $800 $800 %

$800

Barista #2

0 $800 $800 $800 $800 $800 $800 $800 $800 $800 $800 $800 %

$800

Barista #3

0 $800 $800 $800 $800 $800 $800 $800 $800 $800 $800 $800 %

$800

Barista #4

0 $800 $800 $800 $800 $800 $800 $800 $800 $800 $800 $800 %

$800

$0

$0

$0

$0

Apr

$0

May

$0

Jun

$0

Jul

$0

Aug

$0

Sep

$0

Oct

Nov

Barista #5

0 $800 $800 $800 $800 $800 $800 $800 $800 $800 $800 $800 %

$800

Barista #6

0 $800 $800 $800 $800 $800 $800 $800 $800 $800 $800 $800 %

$800

Barista #7

0 %

$0

$0

$0

$0

$0 $400 $400 $400 $400 $400 $400

$400

Barista #8

0 %

$0

$0

$0

$0

$0

$0 $500 $500 $500 $500 $500

$500

Bookkeep 0 $1,00 $1,00 $1,00 $1,00 $500 $500 $500 $500 $500 $500 $500 er % 0 0 0 0

$500

Website 0 Superviso % r Total People Total Payroll

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

9

9

9

9

9

10

10

10

10

10

10

10

$6,80 $8,80 $8,80 $8,80 $16,30 $18,70 $19,20 $19,20 $19,20 $19,20 $19,20 $19,20 0 0 0 0 0 0 0 0 0 0 0 0

General Assumptions

Plan Month

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

1

2

3

4

5

6

7

8

9

10

11

12

Current Interest 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Rate Longterm 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Interest Rate Tax Rate Other

20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 0

0

0

0

0

Feb

Mar

0

0

0

0

0

Aug

Sep

0

0

Pro Forma Profit and Loss Dec Sales

Jan

Apr

May

Jun

Jul

Oct

Nov

$23,08 $38,08 $38,94 $41,38 $42,84 $44,75 $54,60 $61,10 $64,80 $65,30 $63,80 $67,90

0

0

9

0

0

0

0

0

0

0

0

0

Direct Cost of Sales

$5,960

$11,15 $11,27 $11,03 $10,21 $11,78 $11,33 $12,83 $13,59 $13,72 $13,20 $15,08 5 7 2 6 6 6 3 0 7 2 3

Other Costs of Goods

$2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000

Total Cost of Sales

$7,960

Gross Margin

$15,12 $24,92 $25,67 $28,34 $30,62 $30,96 $41,26 $46,26 $49,21 $49,57 $48,59 $50,81 0 5 2 8 4 4 4 7 0 3 8 7

Gross Margin %

65.51 65.45 65.91 68.51 71.48 69.19 75.58 75.72 75.94 75.92 76.17 74.84 % % % % % % % % % % % %

$13,15 $13,27 $13,03 $12,21 $13,78 $13,33 $14,83 $15,59 $15,72 $15,20 $17,08 5 7 2 6 6 6 3 0 7 2 3

Expenses $16,30 $18,70 $19,20 $19,20 $19,20 $19,20 $19,20 $19,20 0 0 0 0 0 0 0 0

Payroll

$6,800 $8,800 $8,800 $8,800

Sales and Marketing

$1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,500 $1,000 $1,000 $1,000 $1,000

Depreciation

$500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500

Rent

$3,800 $3,800 $3,800 $3,800 $3,800 $3,800 $3,800 $3,800 $3,800 $3,900 $3,900 $3,900

Utilities

$400 $800 $800 $800 $800 $800 $800 $800 $800 $800 $800 $800

Insurance

$200 $200 $200 $200 $200 $200 $200 $200 $200 $200 $200 $200

Legal/account ing

$500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500

Payroll Taxes

15 $1,020 $1,320 $1,320 $1,320 $2,445 $2,805 $2,880 $2,880 $2,880 $2,880 $2,880 $2,880 %

Mobile Kiosk

15 %

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

Misc maintenance, cleaning, training, fees

$2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000

Total Operating Expenses

$16,22 $18,92 $18,92 $18,92 $27,54 $30,30 $30,88 $31,38 $30,88 $30,98 $30,98 $30,98 0 0 0 0 5 5 0 0 0 0 0 0

Profit Before Interest and Taxes

($1,10 $10,38 $14,88 $18,33 $18,59 $17,61 $19,83 $6,005 $6,752 $9,428 $3,079 $659 0) 4 7 0 3 8 7

EBITDA

($600) $6,505 $7,252 $9,928 $3,579 $1,159

Interest Expense

$0

$0

$0

$0

$0

$10,88 $15,38 $18,83 $19,09 $18,11 $20,33 4 7 0 3 8 7

$0

$0

$0

$0

$0

$0

$0

Taxes Incurred

($220) $1,201 $1,350 $1,886 $616 $132 $2,077 $2,977 $3,666 $3,719 $3,524 $3,967

Net Profit

($880) $4,804 $5,402 $7,542 $2,463 $527 $8,307

Net Profit/Sales

- 12.62 13.87 18.23 15.21 19.49 22.63 22.78 22.09 23.37 5.75% 1.18% 3.81% % % % % % % % % %

$11,91 $14,66 $14,87 $14,09 $15,87 0 4 4 4 0

Pro Forma Cash Flow Dec

Jan

Feb Mar

Apr May

Jun

Jul Aug

Sep

Oct

Nov

Cash Received Cash from Operation s Cash Sales

$23,0 $38,0 $38,9 $41,3 $42,8 $44,7 $54,6 $61,1 $64,8 $65,30 $63,80 $67,90 80 80 49 80 40 50 00 00 00 0 0 0

Subtotal Cash from Operation s

$23,0 $38,0 $38,9 $41,3 $42,8 $44,7 $54,6 $61,1 $64,8 $65,30 $63,80 $67,90 80 80 49 80 40 50 00 00 00 0 0 0

Additiona l Cash Received Sales Tax,

0.00 %

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

VAT, HST/GST Received New Current Borrowin g

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

New Other Liabilities (interestfree)

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

New Longterm Liabilities

$0

$0

$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 Longterm Assets

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

New Investme nt Received

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

Subtotal Cash Received Expendit ures

$23,0 $38,0 $38,9 $41,3 $42,8 $44,7 $54,6 $61,1 $64,8 $65,30 $63,80 $67,90 80 80 49 80 40 50 00 00 00 0 0 0

Dec

Jan

Feb Mar

Apr May

Jun

Jul Aug

Sep

Oct

Nov

Expendit ures from Operation s Cash

$6,80 $8,80 $8,80 $8,80 $16,3 $18,7 $19,2 $19,2 $19,2 $19,20 $19,20 $19,20

Spending

0

0

0

0

00

00

00

00

00

0

0

0

Bill Payments

$357

Subtotal Spent on Operation s

$7,15 $19,7 $26,2 $33,1 $40,5 $41,5 $45,9 $45,4 $50,3 $50,45 $50,02 $48,79 7 17 46 78 15 15 28 66 41 6 8 4

$10,9 $17,4 $24,3 $24,2 $22,8 $26,7 $26,2 $31,1 $31,25 $30,82 $29,59 17 46 78 15 15 28 66 41 6 8 4

Additiona l Cash Spent Sales Tax, VAT, HST/GST Paid Out

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

Principal Repayme nt of Current Borrowin g

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

Other Liabilities Principal Repayme nt

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

Longterm Liabilities Principal Repayme nt

$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 Longterm Assets

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

Dividend s

$0

$0

$0

$0

$2,20 $2,20 $2,20 $2,20 $2,20 $2,200 $2,200 $2,200 0 0 0 0 0

Subtotal Cash Spent

$7,15 $19,7 $26,2 $33,1 $42,7 $43,7 $48,1 $47,6 $52,5 $52,65 $52,22 $50,99 7 17 46 78 15 15 28 66 41 6 8 4

Net Cash Flow

$15,9 $18,3 $12,7 $8,20 $1,03 $6,47 $13,4 $12,2 $12,64 $11,57 $16,90 $124 23 63 04 2 5 2 34 59 4 2 6

Cash Balance

$17,4 $35,7 $48,4 $56,6 $56,8 $57,8 $64,3 $77,7 $90,0 $102,6 $114,2 $131,1 23 86 90 92 17 52 24 58 16 61 33 39

Pro Forma Balance Sheet Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Startin g Assets Balanc es

Current Assets Cash

$1,500

$17,42 $35,78 $48,49 $56,69 $56,81 $57,85 $64,32 $77,75 $90,01 $102,6 $114,2 $131,1 3 6 0 2 7 2 4 8 6 61 33 39

Inventor $25,00 $19,04 $12,27 $12,40 $12,13 $11,23 $12,96 $12,47 $14,11 $14,94 $15,10 $14,52 $16,59 y 0 0 1 5 5 8 5 0 6 9 0 2 1 Other $15,00 $15,00 $15,00 $15,00 $15,00 $15,00 $15,00 $15,00 $15,00 $15,00 $15,00 $15,00 $15,00 Current 0 0 0 0 0 0 0 0 0 0 0 0 0 Assets Total $41,50 $51,46 $63,05 $75,89 $83,82 $83,05 $85,81 $91,79 $106,8 $119,9 $132,7 $143,7 $162,7 Current 0 3 7 5 7 4 6 3 74 65 61 55 30 Assets

Longterm Assets Longterm Assets Accumu lated

$62,00 $62,00 $62,00 $62,00 $62,00 $62,00 $62,00 $62,00 $62,00 $62,00 $62,00 $62,00 $62,00 0 0 0 0 0 0 0 0 0 0 0 0 0 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 $5,500 $6,000

Depreci ation Total Longterm Assets

$62,00 $61,50 $61,00 $60,50 $60,00 $59,50 $59,00 $58,50 $58,00 $57,50 $57,00 $56,50 $56,00 0 0 0 0 0 0 0 0 0 0 0 0 0

Total Assets

$103,5 $112,9 $124,0 $136,3 $143,8 $142,5 $144,8 $150,2 $164,8 $177,4 $189,7 $200,2 $218,7 00 63 57 95 27 54 16 93 74 65 61 55 30

Liabiliti es and Capital

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Current Liabiliti es Account s Payable

$0

Current Borrowi ng

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

Other Current Liabiliti es

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

Subtotal Current Liabiliti es

$0

Longterm Liabiliti es

$0

Total Liabiliti es

$0

$10,34 $16,63 $23,56 $23,45 $21,92 $25,85 $25,22 $30,09 $30,22 $29,84 $28,44 $33,25 3 3 9 9 3 8 8 9 6 7 7 3

$10,34 $16,63 $23,56 $23,45 $21,92 $25,85 $25,22 $30,09 $30,22 $29,84 $28,44 $33,25 3 3 9 9 3 8 8 9 6 7 7 3

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$0

$10,34 $16,63 $23,56 $23,45 $21,92 $25,85 $25,22 $30,09 $30,22 $29,84 $28,44 $33,25 3 3 9 9 3 8 8 9 6 7 7 3

Paid-in $250,5 $250,5 $250,5 $250,5 $250,5 $250,5 $250,5 $250,5 $250,5 $250,5 $250,5 $250,5 $250,5 Capital 00 00 00 00 00 00 00 00 00 00 00 00 00

Retaine d ($147, ($147, ($147, ($147, ($147, ($149, ($151, ($153, ($155, ($158, ($160, ($162, ($164, Earning 000) 000) 000) 000) 000) 200) 400) 600) 800) 000) 200) 400) 600) s Earning s

$0 ($880) $3,924 $9,326

$16,86 $19,33 $19,85 $28,16 $40,07 $54,73 $69,61 $83,70 $99,57 8 1 8 5 5 9 3 8 7

Total $103,5 $102,6 $107,4 $112,8 $120,3 $120,6 $118,9 $125,0 $134,7 $147,2 $159,9 $171,8 $185,4 Capital 00 20 24 26 68 31 58 65 75 39 13 08 77 Total Liabiliti $103,5 $112,9 $124,0 $136,3 $143,8 $142,5 $144,8 $150,2 $164,8 $177,4 $189,7 $200,2 $218,7 es and 00 63 57 95 27 54 16 93 74 65 61 55 30 Capital

Net Worth

$103,5 $102,6 $107,4 $112,8 $120,3 $120,6 $118,9 $125,0 $134,7 $147,2 $159,9 $171,8 $185,4 00 20 24 26 68 31 58 65 75 39 13 08 77