Ideally, Staryoo.com wants to bring in as much as several million dollars of equity investment from investors compatible with our growth plans, management style, and vision, in return for a fair equity ownership. The infusion would allow for a buffer of excess cash so that the membership growth plan can be increased and revised on short notice. This plan does not refer to specifics regarding the structure of this equity partnership but will be discussed with suitable partners. As has been mentioned elsewhere in this plan, the exit strategy for any equity partner is through an IPO planned for Q4 2002.
We feel that the financial plan for Staryoo.com is based on conservative estimates and assumptions, but depend upon the initial equity investment to make it work. Membership growth is of paramount importance and is accomplished through increased advertising and customer service support. Initial break-even membership occurs at approximately 67,500 members, which is forecasted in October, 2001. Profitability is not expected until after 2002 due to increased capital expenditures each year and the resulting increased depreciation expenses.
7.1 Important Assumptions
The financial plan depends on important assumptions, most of which are shown in the following table as annual assumptions. The monthly assumptions are included in the appendix. Interest rates, tax rates, and personnel burden are based on conservative assumptions.
Some of the more important underlying assumptions are:
- We assume a strong economy and stock market, without major recession.
- We assume, of course, that there are no unforeseen changes in technology to make the Staryoo.com trading platform and website immediately obsolete.
7.2 Key Financial Indicators
The following benchmark chart indicates our key financial indicators for the first three years. We foresee major growth in sales as well as corresponding operating expenses.
7.3 Break-even AnalysisThe following chart and table summarize our break-even analysis, with fixed costs per month at the time of platform deployment, and the amount of revenue we need to establish to break even. Staryoo.com does not expect to reach break-even membership until October, 2001.
7.4 Projected Profit and Loss
Staryoo.com's projected profit and loss is shown on the following table, with sales increasing steadily from 2000 through 2002. Significant losses are incurred in the first two years as start-up expenses are sustained and profitability is not expected until after the third year due to increased capital expenditures resulting in increased depreciation expenses.
The following assumptions were made with respect to these projections:
- All revenue streams except Membership Fees will be fully implemented at deployment (June 1, 2000).
- Slightly higher direct costs of sales mainly due to creating advertising banners, etc. for advertisers and promotional items.
- Facility Space increases - China: January 1, 2001 into 10,000 sq. ft. @ $5,000/mo., U.S.: June 1, 2001 into 2,500 sq. ft. @ $3.00/sq. ft./mo.
- Technology expenses are associated with the continued development of infrastructure for the website.
- Information expenses are associated with the purchase and translation of information including RT quotes, local and foreign news, and market information.
- Capital expenditures are increased in 2002 and leads to the increased depreciation expense.
- Depreciation expense is figured on a three-year, straight-line basis.
- Line Charge expenses are associated with the rented bandwidth and telephone lines required for the pager alert features.
7.5 Projected Cash Flow
The projected cash flow reflects venture capital investment in 2000, Q1 2001, Q3 2001,Q1 2002 and an initial public offering in Q4 2002. The delay in venture investment required between 2000 and 2001 is due to the expected increases in equipment and software development required to:
- Make U.S. equities markets available to Chinese investors in Q1 2001, and
- Deploy the trading platform in the U.S. by Q2 2002.
Note that excluding the capital purchases in 2001 and the capital input, Staryoo.com has become marginally cash flow positive by the second year.
The timeline and amounts for the capital expenditures through 2001 are as follows:
|Computer Equipment (capacity increase-China)||09/30/00||$500,000|
|Computer Equipment (capacity increase-China)||01/15/01||$1,000,000|
|Leasehold Improvements (2,500 sq. ft. facility-USA)||06/01/01||$150,000|
|Computer Equipment (equipment for USA)||06/15/01||$1,000,000|
7.6 Projected Balance Sheet
The following Balance Sheet shows managed but sufficient growth of net worth, and a sufficiently healthy financial position. The monthly estimates are included in the appendix.
7.7 Business Ratios
We expect to maintain healthy ratios for risk and return, while steadily improving our Net Profit Margin, Return on Assets, and Return on Equity. Industry profile ratios based on the Standard Industrial Classification (SIC) code 7379, Computer Related Services, nec., are shown for comparison.