I have attached an income statement- the information from 2007 is to be used to complete an income statement and balance sheet for 2008 and 2009. I have given it my best attempt and I can't get my balance sheet to balance in the projections. You might need to start over. Please complete a projected income statement and balance sheet with the following information: ? Increase Line of Credit from 80,000 to 100,000 ? Sales Growth 2008 projected to increase 15% ? Sales Growth 2009 projected to increase 30% above 2008 levels ? COGS for 2008 and 2009 would be 65% of sales ? Advertising budget = same percentage of sales in 2008 and 2009 as spent in 2007 ? Renovations & Capital Improvements = $150,000 loan o Annual principal payments $15,000 o Annual interest payments= $8,500 ? Resume payment on store?s mortgage in 2008 = $3600 each year ? Loan payable account in 2008 = $76,608 ? Loan payable account in 2009 = $58,617

Income Statement Projected Income statement for 2008-2009 Margins 2009 projections $1,082,785.15 $703,810.34 $378,974.80 2008 projections $832,911.65 $541,392.57 $291,519.08 2007 $724,271.00 $493,567.00 $230,704.00 2006 $645,102.00 $406,930.00 $238,172.00 2005 $586,732.00 $395,638.00 $191,093.00 2004 $652,779.00 $482,909.00 $169,870.00 2003 $420,966.00 $300,001.00 $120,965.00 $172,635.13 $22,146.93 $14,727.25 $20,282.67 $51,727.00 $13,649.35 $295,168.32 $132,796.25 $17,036.10 $11,328.65 $15,602.05 $39,790.00 $10,499.50 $227,052.55 $115,475.00 $14,814.00 $9,851.00 $13,567.00 $34,600.00 $9,130.00 $197,437.00 $99,527.00 $14,053.00 $15,016.00 $13,442.00 $44,215.00 $5,229.00 $191,482.00 $82,854.00 $15,833.00 $7,619.00 $9,112.00 $36,817.00 $5,866.00 $158,101.00 $103,289.00 $12,118.00 $8,428.00 $16,342.00 $33,109.00 $7,157.00 $180,443.00 $65,866.00 $11,277.00 $18,155.00 $12,091.00 $23,324.00 $6,125.00 $136,838.00 Operating Profit $83,806.49 $64,466.53 $33,267.00 $46,690.00 $32,992.00 $(10,573.00) $(15,873.00) Less: Interest & bank charges $44,838.97 $36,453.05 $24,307.00 $21,497.00 $26,208.00 $34,259.00 $30,566.00 $9,898.00 $$$9,898.00 $18,859.00 $$18,859.00 $14,224.00 $$$14,224.00 $39,416.00 $$39,416.00 $15,773.00 $$$15,773.00 $22,558.00 $$22,558.00 $12,697.00 $$$12,697.00 $(32,135.00) $$(32,135.00) $13,356.00 $25,515.00 $4,140.00 $43,011.00 $(3,428.00) $$(3,428.00) $132,796.15 $17,036.10 $7,363.62 $15,602.05 $39,790.00 $10,499.50 0.1594361779 0.02045367 0.0136012625 0.0187319387 0.0477721737 0.0126057788 Sales Cost of Goods Sold Gross Profit Operating Expenses Wages & Benefits Advertising Amortization Vehicle Expense Admin expenses Miscellaneous Expenses Total Operating Expenses Plus: Rent Insurance claim: fire Other Income Net Income before tax Income tax Net income (loss) $$- $$- $$38,967.52 $$38,967.52 $$28,013.48 $$28,013.48 Sales Cost of Goods Sold Gross Profit Mountainarious Forecasted Income Statement 2007 Forecast Assumptions 2008 projections Forecast Assumptions 2009 projections $724,271.00 724,271 x 1.15 $832,911.65 832,911.65*1.3 $1,082,785.15 $493,567.00 832,911 x 0.65 $541,392.57 1,082,785.15 * 0.65 $703,810.34 $230,704.00 $291,519.08 $378,974.80 Operating Expenses Wages & Benefits Advertising Amortization Vehicle Expense Admin expenses Miscellaneous Expenses Total Operating Expenses $115,475.00 $14,814.00 $9,851.00 $13,567.00 $34,600.00 $9,130.00 $197,437.00 832,911 X 0.15 832,911 X 0.02 832,911 X 0.136 832,911 X 0.188 832,911 X 0.477 832,911 x 0.126 $132,796.25 $17,036.10 $11,328.65 $15,602.05 $39,790.00 $10,499.50 $227,052.55 1082785.15 X 0.159 1082785.15 x 0.002 1082785.15 X 0.0136 1082785.15 X 0.018 1082785.15 X 0.477 1082785.15 X 0.126 $172,635.13 $22,146.93 $14,727.25 $20,282.67 $51,727.00 $13,649.35 $295,168.32 Operating Profit $33,267.00 $64,466.53 $83,806.49 Less: Interest & bank charges $24,307.00 832,911 X 0.033 +8500 $36,453.05 108,785 x 0.033+8500 $44,838.97 Plus: Rent Insurance claim: fire Other Income $9,898.00 $$$9,898.00 $18,859.00 $$18,859.00 $$$$$19,627.56 $$19,627.56 $$$$$38,967.52 $$38,967.52 $172,635.13 $22,146.93 $14,727.25 $20,282.67 $51,727.00 $13,649.35 Net Income before tax Income tax Net income (loss) $36,453.05 44838.965 0.0335606424 0.15943618 0.02045367 0.01360126 0.01873194 0.04777217 0.01260578 0.03356064 Mountainarious Forecasted Balance Sheet ASSETS Current Assets Cash Accounts Receivable Inventory Prepaid Expenses Other Current Assets Total Current Assets Fixed Assets: Land Building and store fixtures Less: Accumulated amortization Net fixed assets Other assets TOTAL ASSETS LIABILITIES Current Liabilities Accounts Payable Note Payable Line of credit Loan- National Trust Current portion long-term debt Other current liabilities Total current liabilities Long-term liabilities Mortgage Shareholder loan Loan payable Total long-term liabilities Shareholder's Equity Common Stock Retained Earnings Total Shareholders equity TOTAL LIABILITIES AND EQUITY $2,007.00 Assumptions 2008 Assumptions 2009 Margins $180.00 832,911 X .0004 $9,882.00 832911 X 0.013 $189,000.00 832911 X 0.38 $$$199,062.00 $357.68 1082785.15 x .0004 $11,364.29 1082785.15 x 0.013 $318,943.89 1082785.15 x 0.38 $$$330,665.86 $464.98 0.0004294 $14,773.59 0.0136441 $414,627.38 0.3829267 $0 $0 $429,865.95 $54,945.00 832911 X 0.075 $220,588.00 832911 x 0.30 $(89,203.00) 832911 X 0.12 $186,330.00 $33,770.00 $419,162.00 $63,186.70 1082785.15 x 0.075 $253,676.00 1082785.15 x 0.30 $(102,583.37) 1082785.15 x 0.12 $214,279.33 $$544,945.19 $71,456.00 832911 x .099 $$64,022.00 832911 x 0.088 $$$17,329.00 832911 x .024 $152,807.00 $82,174.34 1082758.15 x 0.099 $8,500.00 $73,625.24 1082758.15 X 0.088 $74,608.00 $15,000.00 $19,928.33 1082758.15 X 0.239 $273,835.91 $106,826.72 0.0986592 $8,500.00 $95,712.89 0.0883951 $58,617.00 $15,000.00 $25,906.81 0.0239261 $310,563.42 $54,000.00 832911 x .0745 $14,749.00 832911x 0.020 $62,167.00 832911 x 0. 85 $130,916.00 $62,099.95 1082758.15 x 0.745 $16,961.34 1082758.15 X 0.020 $71,491.99 1082758.15 x 0.085 $150,553.28 $84,330.00 0.0745577 $22,049.76 0.0203639 $92,939.67 0.0858339 Err:522 $261.00 $135,178.00 $135,439.00 $419,162.00 $261.00 $154,805.56 $155,066.56 $579,455.76 $82,142.78 $329,779.06 $(133,358.49) $278,563.35 $$708,429.30 $261.00 $193,773.08 $190,434.08 $700,316.93 Difference $34,510.57 Difference $8,112.37 0.0758625 0.3045656 -0.123162 $357.68 $11,364.29 $318,943.89 $$$$63,186.70 $253,676.00 $(102,583.37) $- 0.0466262 $82,174.34 $$73,625.24 $$$19,928.33 $$$62,099.95 $16,961.34 $71,491.99 $- $464.98 $14,773.59 $414,627.38 $$$$$82,142.78 $329,779.06 $(133,358.49) $$50,486.15 $106,826.72 $$95,712.89 $$$25,906.86 $$$80,730.00 $22,049.76 $92,939.67 For the exclusive use of J. Graff, 2014. S w 907N15 MOUNTAINARIOUS SPORTING CO. Julie Harvey revised this case, originally prepared by Jeff Murray, under the supervision of Elizabeth M.A. Grasby solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca. Copyright 2007, Ivey Management Services Version: (A) 2007-10-05 It was early February 2007 when Brad MacDougall, account manager at the Canadian Commercial Bank (CCB) in Barron, Ontario, reviewed a loan request for $150,000 from longtime client and friend Steven Donnie. As owner of Mountainarious Sporting Co., an outdoor apparel and sporting goods retailer, Donnie had requested the long-term loan to cover construction costs associated with a major alteration to the store's existing layout. Donnie had also requested an increase in the business's line of credit to $100,000 to fund additional inventory purchases intended for sale in the new store space. The company's financial statements had recently been sent to MacDougall (see Exhibits 1 to 5). He knew he had to be thorough in his analysis and come to a decision quickly because Donnie wanted to have the renovation completed in time for the spring sporting goods season. COMPANY BACKGROUND The Early Years Steven Donnie entered the sporting goods business in 1994 when he purchased Dave's Sport and Camera Shop, located on the main street of Barron, Ontario, a township approximately 100 kilometres northeast of a large metropolitan city. Barron was the largest and fastest growing industrial centre in its region with a current population of 135,000. At that time, Donnie renamed the store, Steve's Outdoor Equipment Co., but maintained a wide-ranging stock of cameras, hunting guns and ammunition, fishing equipment and, in winter months, hockey equipment. Over the next five years, Donnie continued to carry hockey equipment in the winter months and added other seasonal items such as cross-country skies, snowshoes and winter apparel. In the summer, he shifted his merchandise to mountain bikes, in-line skates, camping equipment and rock-climbing gear. By 1999, Donnie had dropped cameras, hunting guns and ammunition from his store entirely because he thought these products were no longer an appropriate fit for the store. This document is authorized for use only by Jenni Graff in MBA 694 Entrepreneurship Fall 2014-1 taught by Gaumer, at University of Montana from August 2014 to February 2015. For the exclusive use of J. Graff, 2014. Page 2 9B07N015 Donnie also attempted to develop the team sport market by offering uniforms and crested clothing along with sports trophies, but he experienced mixed success with this line of merchandise. To bolster sales, he launched an aggressive promotion campaign in the local sports community through sponsorships of teams and discounts offered to coaches and minor sports organizations; however, sporting equipment and apparel continued to dominate sales. 2002 to Present In 2002, Donnie faced a significant setback to the establishment of his client base when a fire destroyed his store. By 2003, however, he was able to re-establish the business at a new location, remaining in the busy downtown core of the original store. To supplement the business's income, he rented a 1,100-square-foot area to another independently owned retailer, Doug's Guns and Ammunition. The area was partitioned from Donnie's sporting goods store, although it remained connected. Finally, Donnie renamed his own store Mountainarious Sporting Co. and brought in a selection of exclusive premium name brands to help define the business as a high-end specialty retailer of outdoor sporting equipment and apparel. STEVEN DONNIE Donnie had always had a keen interest in sports, both as a participant and as a coach. Prior to moving back to his hometown of Barron, Ontario, Donnie lived in Alberta for several years and worked in a ski shop, tuning and repairing outdoor sporting equipment. He also coached several youth ski and snowboard teams that competed recreationally across Western Canada and the United States. It was during this time spent in the Canadian Rockies where he became an accomplished outdoorsman and an expert in alpine skiing, rock climbing and mountain biking. Donnie was also well travelled and had skied, climbed and biked all over Canada and various parts of the world. Even in his circle of friends, who were avid sports enthusiasts themselves, Donnie was considered an outdoor sporting fanatic. Many felt the renaming of his store in Barron was a true reflection of Donnie's own fun-loving personality. During a 10-day mountain biking trek in the interior region of British Columbia with seven other cyclists, Donnie took a major fall on a particularly challenging part of the bike trail. Uninjured and charged by the adrenaline rush, he climbed to his feet and hollered, \"That was hilarious!\" A friend made a quick point to correct him, shouting back, \"No it wasn't Donnie! That was mountainarious!\" Donnie, a witty prankster himself, was especially amused by the play on words and promptly declared Mountainarious Sporting Co. the new name for his store. As owner, Donnie exhibited an excellent product knowledge that was often sought after by patrons who, on busy days, would wait for his assistance and advice on the best equipment for their needs. He stayed abreast of product developments and industry trends to ensure that his store carried the latest and best selection of merchandise for each season. Donnie's strength was in his personality and in the customer contacts that he had developed in the local market. His expertise concerning outdoor sporting equipment was unquestioned. This document is authorized for use only by Jenni Graff in MBA 694 Entrepreneurship Fall 2014-1 taught by Gaumer, at University of Montana from August 2014 to February 2015. For the exclusive use of J. Graff, 2014. Page 3 9B07N015 SPORTING GOODS INDUSTRY Big-box Retailers The sporting goods business was extremely competitive. The gross profit achieved from the sale of sports equipment, or \"hard goods,\" such as hockey sticks, bicycles and racquets, had declined through the years as a result of competitive pricing. Since the advent of big-box retailers and powerful \"megachains,\" competition within the Canadian sporting goods industry had increased significantly. Big-box retailers, such as Wal-Mart, Canadian Tire and Sport Chek, had opened stores from 3,500 square metres to 15,000 square metres in size and boasted large hard-good sports departments. Not only did these retailers offer lower prices, but they also provided a wide variety of recreational equipment and apparel across all mainstream sporting categories for both winter and summer sports. At present, there were three of these major retailers in Barron with a fourth scheduled to open in the coming months. Although these retailers generally did not carry a vast selection of premium brands, expert-rated equipment, or specialized products for \"lifestyle\" or non-team sports such as mountain biking, skiing, camping and climbing, they did offer a wide variety of the major equipment and apparel brands that lead the sporting goods industry. Specialty Stores Higher-end and specialty products were often sold in independently owned specialty stores such as Mountainarious Sporting Co. These boutique-style stores often featured dedicated areas of service to gain a competitive advantage, and they offered a large selection of merchandise for either one single sport or for a few sports rather than for a broad range. Circuit Sports was an independently owned specialty store located in the south end of Barron. It carried quality lines of sporting goods similar to those carried by Mountainarious but specialized primarily in alpine skiing and golf. Donnie considered this store to be Mountainarious Sporting Co.'s direct competitor. Online Sales Donnie believed the rapid growth of Internet-based selling had become a growing source of competition. Many competitors, including Circuit Sports, now had websites with online ordering and e-commerce capabilities that provided added convenience and quick service to customers looking to purchase sporting goods over the Internet. Online selling also reduced the need for customers to shop locally, potentially vastly increasing Donnie's pool of competitors. Although Mountainarious Sporting Co. did have a company website, the site was purely informational. For all competitors, merchandise in the industry was subject to seasonal demands. This put pressure on the purchasing skills of retailers because the inventory for each season had to be sold to allow enough space and funding for the purchase of the new season's stock. This led to end-of-season price-cutting and a further reduction of margins for retailers. A growing opportunity in the industry, however, was the expanding market for higher margin \"soft goods\" such as sports footwear, clothing and casual wear made by such companies as Adidas, Nike, New Balance and Reebok. This document is authorized for use only by Jenni Graff in MBA 694 Entrepreneurship Fall 2014-1 taught by Gaumer, at University of Montana from August 2014 to February 2015. For the exclusive use of J. Graff, 2014. Page 4 9B07N015 SOFT GOODS SALES GROWTH In order to increase the gross profit of his store, in 2005, Donnie initiated a plan to sell premium brandname soft goods lines of outdoor sport footwear and apparel. He was convinced that the only way to maintain profitability was to further delve into the soft goods market. Donnie was successful in securing a deal with a major buying group that sourced and distributed premium rated outdoor sporting footwear and apparel brands. Through this arrangement, he had received better purchasing discounts and longer terms of payment. The store's regular payment terms were three per cent to four per cent if payment was made early, with full charges due in 30 days. Better terms were extended only if orders were placed three months in advance. This new agreement gave discounts of five per cent to seven per cent with early payment and full charges due in 60 days. Donnie knew that the soft goods business required a different strategy for success. For instance, soft goods were much more fashion-oriented than sporting equipment lines. As a result, he found that women were frequenting his store more often because of this new merchandise. Consequently, Donnie had begun promotions with local gyms and running clubs in order to increase his sales of athletic clothing for women. He was somewhat concerned, however, that the clientele and merchandise found next door in Doug's Guns and Ammunition might adversely affect his efforts to attract the appropriate consumers for his soft goods business. EXPANSION PROPOSAL Deviltech Outfitters Donnie's proposal to overcome this problem was to terminate the lease and create a separate store for clothing in the space now rented to Doug's Guns and Ammunition. The new store was to be called Deviltech Outfitters and, in preparation for the coming season, a series of radio advertisements had already been arranged for the spring. The new store would be connected to the existing store by an entrance that would be constructed as part of the expansion. A separate staff would be hired, and operations would be managed by Donnie's wife, Allison.1 Allison had previously worked on a part-time basis at Mountainarious Sporting Co., and she had some retail experience in hardware and at a local flower shop but no management experience in retail sporting goods or apparel; however, Donnie was confident that his wife was well suited to the job. Donnie was extremely optimistic about the possible sales growth from the expansion. He believed the new layout would help the merchandising of both the sports equipment and the soft goods. He thought that overall sales growth of both stores would be about 15 per cent for 2008. He expected sales growth for 2009 to reach up to 30 per cent above projected 2008 levels as the Deviltech Outfitters store became more established. For both years, Donnie anticipated cost of goods sold to decrease to 65 per cent of sales with improved purchasing management and the prospect of better margins on high-end soft-good merchandise. Lastly, he did not plan to increase the advertising budget significantly for the new store and projected spending the same percentage of sales in 2008 and 2009 as was spent in 2007, but with an added message to \"Visit Deviltech Outfitters next to the Mountainarious Sporting Co.\" 1 Donnie expected the wages and benefits expense to remain roughly the same percentage of sales. This document is authorized for use only by Jenni Graff in MBA 694 Entrepreneurship Fall 2014-1 taught by Gaumer, at University of Montana from August 2014 to February 2015. For the exclusive use of J. Graff, 2014. Page 5 9B07N015 Loan Requests In the past, Donnie had arranged an $80,000 line of credit to cover his working capital needs to help finance growth and to cover seasonal peak purchases of inventory in May and November, prior to the two 2 major sporting seasons . Donnie was requesting a $20,000 increase on the company's current line of credit, bringing total available funds to $100,000. In addition, he estimated that renovations and capital improvements required for the new Deviltech Outfitters store would cost $150,000, and he had requested a loan to fund the expansion. If the loan was approved, annual principal payments would be $15,000 and annual interest payments would be approximately $8,500 for each of the first two years. Donnie would also resume payment on the store's mortgage by 2009 at $3,600 each year. He also expected the loan payable account to be increased to $74,608 in 2008 but reduced to $58,617 in 2009. Additionally, the \"other assets\" account on the balance sheet would be eliminated in 2009. Other items on the statement of earnings would remain roughly the 3 same percentage of sales as was experienced in fiscal 2007. To accompany his review of Donnie's loan applications, MacDougall had requested an indication of the size of Donnie's present soft-goods inventory as well as a breakdown of the margins Donnie had achieved from these items. Unfortunately, Donnie's records did not contain this information; however, because clothing was a high-margin item, he anticipated that this inventory may not move as quickly as his hardgoods stock and, therefore, he might have to carry an additional 20 days of inventory. Donnie had become excited about the expansion when he and MacDougall had recently discussed the proposal over lunch. He clearly believed that the expansion was a critical step to improve the profitability and, as a result, the value of the business. Donnie also indicated that, after 13 years, he was considering selling at least part of his interest in the business to reduce the amount of stress he was feeling from day-today operations. THE DECISION MacDougall needed to make a decision on whether to grant the loan to finance the construction of Deviltech Outfitters and further extend Mountainarious Sporting Co.'s working capital financing. Although the store had shown acceptable results in past years, financial performance had been hurt by the fire in 2002. In addition, MacDougall had to examine how the move to open Deviltech Outfitters, and the subsequent loss of rental income from Doug's Guns and Ammunition, would affect Donnie's financial position. MacDougall was also unsure about whether he wanted to risk putting the bank's money into a business in which Donnie and his wife appeared to have limited experience (namely, soft goods). Finally, if he were to reject the proposal, McDougall wondered what would happen to the frequent golf games he had enjoyed with Donnie in the summers. 2 During these peaks, working capital needs generally increased by $20,000 to accommodate additional inventory purchases. 3 Donnie estimated income taxes to be 23 per cent. This document is authorized for use only by Jenni Graff in MBA 694 Entrepreneurship Fall 2014-1 taught by Gaumer, at University of Montana from August 2014 to February 2015. For the exclusive use of J. Graff, 2014. Page 6 9B07N015 Exhibit 1 STATEMENTS OF EARNINGS (for years ending January 31) 2006 2005 2004 2003 Sales $724,271 2007 $645,102 $586,732 $652,779 $420,966 Cost of goods sold Gross profit 493,567 $230,704 406,930 $238,172 395,638 $191,093 482,909 $169,870 300,001 $120,965 Operating expenses Wages and benefits Advertising Amortization Vehicle expenses Administrative expenses $115,475 14,814 9,851 13,567 34,600 $99,527 14,053 15,016 13,442 44,215 $82,854 15,833 7,619 9,112 36,817 $103,289 12,118 8,428 16,342 33,109 $65,866 11,277 18,155 12,091 23,324 Miscellaneous expenses Total operating expenses 9,130 $197,437 5,229 $191,482 5,866 $158,101 7,157 $180,443 6,125 $136,838 $33,268 $46,690 $32,992 $(10,573) 24,307 21,497 26,208 34,259 30,566 9,898 - 14,224 - 15,773 - 12,697 - 13,356 25,515 $9,898 $14,224 $15,773 $12,697 4,140 $43,011 Net income before tax $18,859 $39,416 $22,558 $(32,135 $(3,427) Income tax Net income (loss)2 - $18,859 - $39,416 - $22,558 - $(32,135) - $(3,427) Operating profit Less: Interest and bank charges Plus: Rent1 Insurance claim re: fire Other income $(15,872) Source: Company files. 1 Rental income was based on a percentage of the tenant's sales. Income tax had not been charged due to the carry-forward of previous losses. All losses to be carried forward had been applied by the end of fiscal 2007. 2 This document is authorized for use only by Jenni Graff in MBA 694 Entrepreneurship Fall 2014-1 taught by Gaumer, at University of Montana from August 2014 to February 2015. For the exclusive use of J. Graff, 2014. Page 7 9B07N015 Exhibit 2 STATEMENTS OF RETAINED EARNINGS (for years ending January 31) 2007 Beginning retained earnings Add: net income Less: dividends Ending retained earnings 2006 2005 2004 2003 $116,320 18,859 $76,903 39,416 $54,346 22,558 - - - - - $135,178 $116,320 $76,903 $54,346 $86,481 $86,481 (32,135) $89,908 (3,427) Source: Company files. This document is authorized for use only by Jenni Graff in MBA 694 Entrepreneurship Fall 2014-1 taught by Gaumer, at University of Montana from August 2014 to February 2015. For the exclusive use of J. Graff, 2014. Page 8 9B07N015 Exhibit 3 BALANCE SHEETS (for years ending January 31) ASSETS Current assets: Cash Accounts receivable Inventory Prepaid expenses Other current assets Total current assets Fixed assets: Land Building and store fixtures Less: accumulated amortization Net fixed assets Other assets TOTAL ASSETS LIABILITIES Current liabilities: Accounts payable Notes payable Line of credit, $80,000 limit1 Loan - National Trust Current portion long-term debt Other current liabilities Total current liabilities Long-term liabilities Mortgage2 Shareholder loan3 Loan payable 4 Total long-term liabilities Shareholder's equity Common stock Retained earnings Total shareholder's equity TOTAL LIABILITIES AND EQUITY 2007 2006 2005 2004 2003 $180 9,882 189,000 - - $199,062 $1,021 14,519 129,600 1,188 - $146,327 $1,647 7,484 126,000 6,543 - $141,674 $2,426 12,078 191,966 6,723 - $213,194 $1,496 5,877 125,725 1,472 3,868 $138,438 $54,945 220,588 89,203 $186,331 33,770 $419,162 $54,945 220,588 79,351 $196,182 33,770 $376,279 $54,945 193,343 64,336 $183,953 33,770 $359,397 $54,945 189,013 56,716 $187,241 33,770 $434,205 $54,945 179,012 48,287 $185,670 33,770 $357,878 $71,456 - 64,022 - - 17,329 $152,807 $42,637 - 79,641 - - 20,342 $142,619 $62,818 - 55,759 - 3,600 7,547 $129,724 $80,608 5,627 145,444 8,437 3,600 3,467 $247,181 $20,156 2,803 72,000 - 17,683 3,496 $116,138 $54,000 14,749 62,167 $130,916 $54,000 27,079 36,000 $117,079 $72,000 26,509 54,000 $152,509 $75,600 2,817 54,000 $132,417 $90,144 10,854 54,000 $154,998 $261 135,178 $135,439 $261 116,320 $116,581 $261 76,903 $77,164 $261 54,346 $54,607 $261 86,481 $86,742 $419,162 $376,279 $359,397 $434,205 $357,878 Source: Company files. 1 In 2004, the line of credit limit was increased to accommodate a temporary cash shortage. The building and store fixtures were used as collateral for the mortgage. 3 Shareholders loan was from Steven Donnie, unsecured. 4 Loan payable referred to a long-term loan Donnie had from several family members. This was an unsecured loan. 2 This document is authorized for use only by Jenni Graff in MBA 694 Entrepreneurship Fall 2014-1 taught by Gaumer, at University of Montana from August 2014 to February 2015. For the exclusive use of J. Graff, 2014. Page 9 9B07N015 Exhibit 4 FINANCIAL RATIOS 2007 Selected Industry Ratios PROFITABILITY Sales Cost of goods sold Gross profit Operating expenses Wages and benefits Advertising Amortization Vehicle expenses Administrative expenses Miscellaneous expenses Total operating expenses Operating profit Less: Interest and charges Plus: Rent Other income Insurance claim re: fire Net income (loss)2 Return on average equity 2007 2006 2005 2004 2003 (Where available) 100% 68.1% 31.9% 100% 63.1% 36.9% 100% 67.4% 32.6% 100% 74.0% 26.0% 100% 71.3% 28.7% 60% 15.9% 2.0% 1.4% 1.9% 4.8% 1.3% 27.3% 4.6% 3.4% 1.4% 0.0% 0.0% 2.6% 15.0% 15.4% 2.2% 2.3% 2.1% 6.9% 0.8% 29.7% 7.2% 3.3% 2.2% 0.0% 0.0% 6.1% 40.7% 14.1% 2.7% 1.3% 1.6% 6.3% 1.0% 26.9% 5.6% 4.5% 2.7% 0.0% 0.0% 3.8% 34.2% 15.8% 1.9% 1.3% 2.5% 5.1% 1.1% 27.6% -1.6% 5.2% 1.9% 0.0% 0.0% -4.9% n/a 15.6% 2.7% 4.3% 2.9% 5.5% 1.5% 32.5% -3.8% 7.3% 3.2% 6.1% 1.0% -0.8% n/a 1.30 0.07 $46,255 1.03 0.11 $3,708 1.09 0.07 $11,950 0.86 0.06 $(33,988) 1.19 0.06 $22,300 5.0 139.8 47.2 8.2 116.2 37.9 4.7 116.2 69.5 6.8 145.1 53.6 5.1 153.0 17.3 32.3% 1.8 31.0% 2.8 21.5% 1.9 12.6% 0.1 24.2% 0.9 2006 - 07 2005 - 06 2004 - 04 2003 - 04 12.3% -52.2% 11.4% 16.2% 9.9% 74.7% 4.7% 51.1% -10.1% -17.2% 41.3% 55.1% 21.3% -37.0% 1.3% 1.5% 26.5% 0.8% 12.5% LIQUIDITY Current ratio Acid test Working capital 1.9 1.2 EFFICIENCY 365-day year Age of receivables Age of inventory Age of payables STABILITY Net worth to total assets Interest coverage GROWTH Sales Net income Total assets Equity 45% Source: Company files. This document is authorized for use only by Jenni Graff in MBA 694 Entrepreneurship Fall 2014-1 taught by Gaumer, at University of Montana from August 2014 to February 2015. For the exclusive use of J. Graff, 2014. Page 10 9B07N015 Exhibit 5 STATEMENTS OF CASH FLOWS (for years ending January 31) 2007 2006 2005 2004 $18,859 $39,416 $22,558 $(32,135) $15,016 (7,034) (3,600) 5,355 - (20,182) $7,619 4,594 65,966 180 - (17,789) $ OPERATIONS Net income Adjustments to cash basis: Amortization Accounts receivable Inventory Prepaid expenses Other current assets Accounts payable $9,851 4,637 (59,400) 1,188 - 28,820 Other current liabilities 8,428 (6,201) (66,242) (5,251) 3,868 60,451 (3,013) 12,794 4,081 (29) $941 $41,765 $87,208 $(37,111) - $- (15,619) 23,882 - - - (3,600) - (18,000) (12,330) 571 26,167 (18,000) $ (5,627) (89,685) (8,437) - (3,600) 23,692 - $2,824 73,444 8,437 (14,083) (14,544) (8,037) - $(1,782) $(15,147) $(83,657) $48,040 Net cash flow from operations FINANCING ACTIVITIES Notes payable Line of credit Loan - National Trust Current portion long-term debt Mortgage Shareholder loan Loan payable Net cash flow from financing $ INVESTING ACTIVITIES Fixed assets $ - $(27,245) $ (4,331) $(9,999) Net cash flow from investing activities $ - $(27,245) $ (4,331) $(9,999) Net cash flow Beginning cash $ (841) $ 1,021 Ending cash $ 180 (626) 1,647 $1,021 $ (779) 2,426 $ 1,647 $931 1,496 $ 2,426 Source: Company files. This document is authorized for use only by Jenni Graff in MBA 694 Entrepreneurship Fall 2014-1 taught by Gaumer, at University of Montana from August 2014 to February 2015