Details of Brilliant Points' financial plan are discussed in the following individual topics.
Some general assumptions about Brilliant Points' economic environment are shown in this table.
This break-even analysis is based on the projected fixed costs (office, utilities, staff, and maintenance) for a fully-staffed 2-year company. Near-term sales and revenue are expected to be quite low for approximately six to twelve months, ramping up quickly after that as licensing deals close and "update" kit sales ramp up.
The analysis uses a target figure of $50 net revenue for each "presentation seat" filled with Brilliant Points technology. A "presentation seat" consists of a computer, a projector, a camera (webcam or similar), a pointer, and software. Over and above the cost-of-goods for the seat, assuming Brilliant Points provides everything for a seat, Brilliant Points would net a minimum of $50 revenue for the use of the Brilliant Points technology. Because there are existing installations which have a computer and a projector, "update" kits will be created and sold which consist of a camera, a pointer, and software to enable the Brilliant Points technology. During the initial two years, the majority of "presentation seats" filled would be through the "update" kit route. As licenses are put into place, more and more of these seats would be filled through licensee equipment sales. It is expected that "update" kit volume would peak around 4 to 5 years and begin to decline as greater penetration of the OEM/Reseller market for the devices in a presentation seat occurs.
Market research data shows that approximately 1,400,000 business projectors were sold in 2001, giving a good starting figure for existing installed presentation seats. We target filling 30% (400,000 seats, cumulative) of these existing seats by the end of the 4th year in operations through a combination of upgrade kits and replacements with licensee equipment, either of which nets the $50 estimate. Additional revenue will be generated by placement of licensee equipment in new presentation seats. Because business projector sales are projected to grow from the 1,400,000 in 2001 to approximately 4,500,000 in 2007, we feel this target is both conservative and achievable.
The break-even analysis shows that approximately 3,000 presentation seats must be filled on a monthly basis to reach break-even for fixed costs (including salaries) and approximately 4,400 to cover projected variable costs, for an annual total of about 53,000 presentation seats per year. We expect to exceed this rate between 13 and 15 months in business, becoming revenue-positive during the second year of operations, and profitable during our third year.
The following Profit & Loss table attempts to forecast expenses over the first three years in business.
Advertising/Promotion and Travel: It is anticipated that marketing and travel will be significant expenses due to the need to present and demonstrate Brilliant Points technology to a wide audience.
Miscellaneous: Attempts to account for unforseen petty-cash, office, travel, and repair expenses.
Depreciation: Will need to be filled in as capital equipment and other depreciable items are purchased.
Leased Equipment: TBD. We anticipate some larger-cost items will be leased rather than purchased.
Insurance: We are in the process of obtaining insurance quotes from several providers and will replace these figures with more accurate data when the quotes arrive. These figures are based on simple scaling of existing liability and damage insurance to account for the increased personnel and office space.
Rent: Shows zero for the first year because the entire first year's lease is included in start-up costs.
Contract/Consultants: Attempts to budget for attorney time for patent work, IP protection, etc., and additional consulting time that may be needed.
Interest Expense Short-term: Shows interest which would be paid based on assumed short-term rates and immediate full draw-down of corporate line-of-credit. There is, at present, no short-term debt.
Interest Expense Long-term: We have no current long-term debt and have no present plans to incur any.
Taxes Incurred: Automatically calculated based on computed profits and assumed corporate tax rate (see Sect. 7.1).
Extraordinary Items: We do not anticipate any extraordinary expenses during the first three years of operations.
These figures will be pinned down with more accuracy by the VP of Operations and the Director of Finance during the first quarter once we have a better handle on office space, travel and marketing estimates from the VP of Marketing and VP of Sales, and insurance coverage.
The following Projected Cash Flow table shows anticipated cash movement. With respect to the corporate line-of-credit, it shows immediate full draw-down and associated interest expense when in fact the draw on this line will only occur as needed and no immediate interest will accrue.
According to the table, we are still cash flow-negative at the end of first year of operations, with a net loss (from the Profit and Loss table). Assuming sales targets are hit, break-even is reached within the first quarter of second year of operations, and we show a net profit by the end of second year of operations, but have not recovered the first year's loss. By the end of the third year of operations, we show significant profit, and have very nearly recovered the first year's loss.
Because Cash Balance never falls to the point that the corporate line-of-credit is required, the monthly interest payments shown in the Profit and Loss table do not exist, increasing Cash Balance for each year shown.
Cash Spent on Costs and Expenses: This field is automatically computed based on expenses from Sect. 7.3 and the "Expenses in Cash %" assumption called out in Sect. 7.1. "Expenses in Cash" shows how much of current expenses is paid out of cash, with the remainder carried over into Accounts Payable.
Payment of Accounts Payable: This field is automatically computed based on the expenses rolled into Accounts Payable, and cover a portion of the current month's Accounts Payable plus the previous month's remaining Accounts Payable.
The following Projected Balance Sheet table shows anticipated corporate balances. As indicated in the Projected Cash Flow topic, with respect to the corporate line-of-credit, it shows immediate full draw-down and associated interest expense when in fact the draw on this line will only occur as needed and no immediate interest will accrue.
The table shows that by the end of second year of operations we have recovered the first year's loss, and very nearly covered start-up expenses as well.
Note that these assumptions are based on achieving only 2.5% penetration of the Business Presentation market by the end of third year of operations. Should market acceptance/demand be wide (probable), net revenue-per-seat potential be greater than $50 (almost certainty), licensing penetration be significantly greater (50% by some estimates), there is potential for revenues to reach into the hundreds of millions. Note also that these projections rely only on revenue from the Business Presentation market. Growth into the home entertainment/gaming markets will only enhance these figures. Furthermore, there is significant potential for revenue in the areas covered by the currently pending patent applications, within the military and the optical pointer industries, as secure/complex/stabilized pointers are developed. While we have not attempted to show the impact of these markets on the business plan, we feel that they independently hold as much or more potential than the Business Presentation market.
Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 5406, Computers, peripherals and software, are shown for comparison.