Domino Comptech Holdings

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Financial Holding Company Business Plan

Financial Plan

The most important element in the financial plan is the critical need for improving several of the key factors that impact cash flow:

  1. We must at any cost stop the slide in inventory turnover and develop better inventory management to bring the turnover back up to eight turns by the third year. This should also be a function of the shift in focus toward service revenues to add to the hardware revenues.

  2. We must also bring the gross margin back up. This, too, is related to improving the mix between hardware and service revenues, because the service revenues offer much better margins.

  3. We plan to extend our Private Placement for another two month. The funds will enable DCH to purchase the software company, and begin to market our hardware, and service to their established clients. 

Our financial plan seems agressive when compared to our past performance; however, it really isn't. We must use our sales force, and the dealers and consultants that have signed with us, to jointly sell the S.E.A.T. Management program to its fullest potential. This program officially started on July 1, 2003, and we have already closed sales in companies that we have not been able to sell to in the past.

7.1 Important Assumptions

The financial plan depends on important assumptions, most of which are shown in the following table. The key underlying assumptions are:

  • We assume a slow-growth economy, without major recession.

  • We assume of course that there are no unforeseen changes in technology to make products immediately obsolete.

  • We assume access to equity capital and financing sufficient to maintain our financial plan as shown in the tables.
General Assumptions
FY 2004 FY 2005 FY 2006 FY 2007 FY 2008
Plan Month 1 2 3 4 5
Current Interest Rate 10.00% 10.00% 10.00% 10.00% 10.00%
Long-term Interest Rate 10.00% 10.00% 10.00% 10.00% 10.00%
Tax Rate 30.00% 30.00% 30.00% 30.00% 30.00%
Other 1 1 1 1 1

7.2 Break-even Analysis

For our break-even analysis, we assume fixed costs and margins based on projections for the coming year. We hope to attain high margin in the future. The chart shows what we need our divisions to produce in revenueper month to break even, according to these assumptions.

Break-even Analysis
Monthly Units Break-even 392
Monthly Revenue Break-even $1,154,547
Assumptions:
Average Per-Unit Revenue $2,946.68
Average Per-Unit Variable Cost $884.01
Estimated Monthly Fixed Cost $808,183

7.3 Projected Profit and Loss

The most important assumption in the Projected Profit and Loss statement is the Gross Margin, which is supposed to increase over the last year's performance. The increase in Gross Margin is based on changing our sales and marketing mix, and it is critical.

DCH is housed in the corporate administrative offices of KMCI, and does not have to pay rent, utilities, office equipment depreciation and other insurance other than normal FICA, Social Security, and Medicare on its employees. Month-by-month assumptions for profit and loss are included in the appendices.

Pro Forma Profit and Loss
FY 2004 FY 2005 FY 2006 FY 2007 FY 2008
Sales $61,276,305 $89,464,971 $132,925,782 $201,016,561 $309,332,068
Direct Cost of Sales $18,382,892 $26,839,491 $39,877,735 $60,304,968 $92,799,620
Other Costs of Goods $3,070,000 $4,000,000 $5,300,000 $7,000,000 $9,300,000
Total Cost of Sales $21,452,892 $30,839,491 $45,177,735 $67,304,968 $102,099,620
Gross Margin $39,823,414 $58,625,480 $87,748,048 $133,711,593 $207,232,448
Gross Margin % 64.99% 65.53% 66.01% 66.52% 66.99%
Expenses
Payroll $297,192 $305,300 $320,565 $336,593 $353,423
Divisions payroll (see note) $100,000 $0 $1,000,000 $700,000 $900,000
Depreciation $0 $30,200,000 $39,900,000 $52,800,000 $69,600,000
Divisions operating expense (see note) $9,300,000 $12,000,000 $16,000,000 $21,100,000 $27,800,000
Payroll Taxes $1,000 $300,000 $0 $400,000 $400,000
Other $0 $0 $0 $0 $0
Total Operating Expenses $9,698,192 $42,805,300 $57,220,565 $75,336,593 $99,053,423
Profit Before Interest and Taxes $30,125,222 $15,820,180 $30,527,483 $58,375,000 $108,179,025
EBITDA $30,125,222 $46,020,180 $70,427,483 $111,175,000 $177,779,025
Interest Expense $226,065 $593,613 $955,776 $414,155 ($53,823)
Taxes Incurred $8,969,747 $4,567,970 $8,871,512 $17,388,253 $32,469,854
Net Profit $20,929,409 $10,658,597 $20,700,195 $40,572,591 $75,762,994
Net Profit/Sales 34.16% 11.91% 15.57% 20.18% 24.49%

7.4 Projected Cash Flow

The cash flow depends on assumptions of sales by the KMCI sales team, and on servicing our existing clients. Our projected 60 day collection days is critical, and it is also reasonable. We do need to assume somewhat standard receivables-based credit line, but aside from that, which is supported entirely by receivables, we are not assuming any new borrowing, or funding to support the KMCI operation. KMCI is self supporting.

We have not included the revenue of the proposed acquisition of the software company. The software company does have, and has maintained a strong profit margin; however, we are too early into the acquisition process to begin to forecast additional revenues coming from this proposed acquisition.

Pro Forma Cash Flow
FY 2004 FY 2005 FY 2006 FY 2007 FY 2008
Cash Received
Cash from Operations
Cash Sales $15,319,076 $22,366,243 $33,231,446 $50,254,140 $77,333,017
Cash from Receivables $32,062,938 $60,443,815 $89,433,903 $134,687,228 $206,427,414
Subtotal Cash from Operations $47,382,014 $82,810,057 $122,665,348 $184,941,368 $283,760,431
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0 $0 $0
New Current Borrowing $100,000 $8,000,000 $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0 $0 $0
New Long-term Liabilities $0 $0 $0 $0 $0
Sales of Other Current Assets $0 $0 $0 $0 $0
Sales of Long-term Assets $0 $0 $0 $0 $0
New Investment Received $0 $0 $0 $0 $0
Subtotal Cash Received $47,482,014 $90,810,057 $122,665,348 $184,941,368 $283,760,431
Expenditures FY 2004 FY 2005 FY 2006 FY 2007 FY 2008
Expenditures from Operations
Cash Spending $297,192 $305,300 $320,565 $336,593 $353,423
Bill Payments $36,105,368 $52,855,599 $72,430,644 $108,121,780 $164,893,924
Subtotal Spent on Operations $36,402,560 $53,160,899 $72,751,209 $108,458,373 $165,247,347
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $0 $10,000,000 ($1,529,874)
Other Liabilities Principal Repayment $100,000 $0 $100,000 $100,000 $35,462
Long-term Liabilities Principal Repayment $327,241 $360,354 $396,390 $436,029 $453,407
Purchase Other Current Assets $300,000 $900,000 $1,300,000 $4,000,000 $6,200,000
Purchase Long-term Assets $180,000 $400,000 $2,700,000 $2,000,000 $6,200,000
Dividends $0 $0 $0 $0 $20,000,000
Subtotal Cash Spent $37,309,801 $54,821,254 $77,247,599 $124,994,402 $196,606,342
Net Cash Flow $10,172,213 $35,988,803 $45,417,749 $59,946,966 $87,154,089
Cash Balance $10,179,922 $46,168,725 $91,586,474 $151,533,440 $238,687,529

7.5 Projected Balance Sheet

The balance sheet is quite solid. We do not project any real trouble meeting our debt obligations--as long as we can achieve our specific objectives.

Pro Forma Balance Sheet
FY 2004 FY 2005 FY 2006 FY 2007 FY 2008
Assets
Current Assets
Cash $10,179,922 $46,168,725 $91,586,474 $151,533,440 $238,687,529
Accounts Receivable $14,466,400 $21,121,314 $31,381,748 $47,456,941 $73,028,579
Inventory $3,446,543 $5,032,041 $7,476,535 $11,306,365 $17,398,672
Other Current Assets $493,429 $1,393,429 $2,693,429 $6,693,429 $12,893,429
Total Current Assets $28,586,294 $73,715,509 $133,138,186 $216,990,175 $342,008,208
Long-term Assets
Long-term Assets $1,659,498 $2,059,498 $4,759,498 $6,759,498 $12,959,498
Accumulated Depreciation $166,002 $30,366,002 $70,266,002 $123,066,002 $192,666,002
Total Long-term Assets $1,493,496 ($28,306,504) ($65,506,504) ($116,306,504) ($179,706,504)
Total Assets $30,079,790 $45,409,005 $67,631,682 $100,683,671 $162,301,704
Liabilities and Capital FY 2004 FY 2005 FY 2006 FY 2007 FY 2008
Current Liabilities
Accounts Payable $7,069,294 $4,100,266 $6,119,138 $9,134,565 $13,948,599
Current Borrowing $470,126 $8,470,126 $8,470,126 ($1,529,874) $0
Other Current Liabilities $235,462 $235,462 $135,462 $35,462 $0
Subtotal Current Liabilities $7,774,882 $12,805,854 $14,724,726 $7,640,153 $13,948,599
Long-term Liabilities $1,646,180 $1,285,826 $889,436 $453,407 $0
Total Liabilities $9,421,062 $14,091,680 $15,614,162 $8,093,560 $13,948,599
Paid-in Capital $676,193 $676,193 $676,193 $676,193 $676,193
Retained Earnings ($946,874) $19,982,535 $30,641,132 $51,341,327 $71,913,918
Earnings $20,929,409 $10,658,597 $20,700,195 $40,572,591 $75,762,994
Total Capital $20,658,728 $31,317,325 $52,017,520 $92,590,111 $148,353,105
Total Liabilities and Capital $30,079,790 $45,409,005 $67,631,682 $100,683,671 $162,301,704
Net Worth $20,658,728 $31,317,325 $52,017,520 $92,590,111 $148,353,105

7.6 Business Ratios

The following table outlines some of the more important ratios from the Office Computer Automation Systems Integration industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the Standard Industry Classification (SIC) code, 7373.0202.

Ratio Analysis
FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 Industry Profile
Sales Growth 2296.36% 46.00% 48.58% 51.22% 53.88% 9.53%
Percent of Total Assets
Accounts Receivable 48.09% 46.51% 46.40% 47.13% 45.00% 27.73%
Inventory 11.46% 11.08% 11.05% 11.23% 10.72% 5.15%
Other Current Assets 1.64% 3.07% 3.98% 6.65% 7.94% 47.52%
Total Current Assets 95.03% 162.34% 196.86% 215.52% 210.72% 80.40%
Long-term Assets 4.97% -62.34% -96.86% -115.52% -110.72% 19.60%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Current Liabilities 25.85% 28.20% 21.77% 7.59% 8.59% 35.94%
Long-term Liabilities 5.47% 2.83% 1.32% 0.45% 0.00% 21.59%
Total Liabilities 31.32% 31.03% 23.09% 8.04% 8.59% 57.53%
Net Worth 68.68% 68.97% 76.91% 91.96% 91.41% 42.47%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Gross Margin 64.99% 65.53% 66.01% 66.52% 66.99% 100.00%
Selling, General & Administrative Expenses 21.55% 21.37% 21.25% 21.17% 21.11% 82.72%
Advertising Expenses 0.00% 0.00% 0.00% 0.00% 0.00% 1.19%
Profit Before Interest and Taxes 49.16% 17.68% 22.97% 29.04% 34.97% 0.94%
Main Ratios
Current 3.68 5.76 9.04 28.40 24.52 1.72
Quick 3.23 5.36 8.53 26.92 23.27 1.36
Total Debt to Total Assets 31.32% 31.03% 23.09% 8.04% 8.59% 1.50%
Pre-tax Return on Net Worth 144.73% 48.62% 56.85% 62.60% 72.96% 65.79%
Pre-tax Return on Assets 99.40% 33.53% 43.72% 57.57% 66.69% 4.39%
Additional Ratios FY 2004 FY 2005 FY 2006 FY 2007 FY 2008
Net Profit Margin 34.16% 11.91% 15.57% 20.18% 24.49% n.a
Return on Equity 101.31% 34.03% 39.79% 43.82% 51.07% n.a
Activity Ratios
Accounts Receivable Turnover 3.18 3.18 3.18 3.18 3.18 n.a
Collection Days 55 97 96 95 95 n.a
Inventory Turnover 10.91 6.33 6.38 6.42 6.47 n.a
Accounts Payable Turnover 6.08 12.17 12.17 12.17 12.17 n.a
Payment Days 27 41 25 25 25 n.a
Total Asset Turnover 2.04 1.97 1.97 2.00 1.91 n.a
Debt Ratios
Debt to Net Worth 0.46 0.45 0.30 0.09 0.09 n.a
Current Liab. to Liab. 0.83 0.91 0.94 0.94 1.00 n.a
Liquidity Ratios
Net Working Capital $20,811,413 $60,909,655 $118,413,460 $209,350,022 $328,059,609 n.a
Interest Coverage 133.26 26.65 31.94 140.95 0.00 n.a
Additional Ratios
Assets to Sales 0.49 0.51 0.51 0.50 0.52 n.a
Current Debt/Total Assets 26% 28% 22% 8% 9% n.a
Acid Test 1.37 3.71 6.40 20.71 18.04 n.a
Sales/Net Worth 2.97 2.86 2.56 2.17 2.09 n.a
Dividend Payout 0.00 0.00 0.00 0.00 0.26 n.a

7.7 Long-term Plan

We expect to increase our KMCI sales substantially by 2008, while also increasing gross margin. To achieve this will require the sales force to sell reasonable numbers of units each month. In the past our greatest problem was simply that our sales force was not effective. We have designed and implemented programs to correct this problem, and it has been working.