> » » » > » 0 » » » » » » » » » » » ’ ’ ) ’ ’ ’ ’ ) ) ) y , ’ y , ’ , , , , , , wit NASIUM ‘Theta Leaning enter Other Expenses In addition to the above mentioned matters, we have other monthly expenses essential to running, ‘our business such as rent, utilities, insurance, and other itemized expenses. Figure 15 All of our assumptions include a steady enrollment increase every year, and our estimates should adjust for growth in overhead. Thus, we assume these expenses rise 3% every year. Depreciation and Amortization ‘When we sign the Franchise Agreement, we must pay $37,000 for the initial franchise fee. This franchise fee will be subject to the straight line method of amortization over 60 months. We also apply straight line depreciation with 60 months periods for our equipment such as security, signs and furniture. Figure 16 Item Total Cost —_Life in Months Monthly Cost Security/Video Equipment $5,000 60 $83 Signs ‘Monument (2) 8,000 60 133 ‘Neon Storefront 12,000 60 200 Furniture/Tables/Chairs 4,000 60 61 Total Equipment $29,000 $483 Franchise fee 37,000 60 617 $66,000 $1,100 29|PageuATHNASIUM Math Learing Cente Start-Up Estimated initial costs are one time charges expensed during the initial phases of our business. Hence, several expenses in the first month such as renting, insurance and other operating expenses are not addressed here. 30|PageCost-Volume Profit and Pro-Forma ancial Statements uATHNaSIUM ‘The ath Learing Center SS eel eaeaoaoEoEeyeyeEeEeEeEeEeEEEEE~E=E2E€E€E€E€~€»~===2RE»9A92=————EEEES Most-Lil Kely Case Scenario Sales ‘As mentioned in the sales assumptions, we estimate that we will have 36 students in the first year, 72 students in the second year and 108 students by the third year of operation. We assume that we get three additional students each month; even in the summer. We believe these numbers are reasonable considering our chosen market and our proposed advertising expenditures, Figure 18 Estimated Students geaeeageegaagses BEER RE ES Sf es3s7 8 2438 May-14 Juke sep-14 Nov-14 Jana. Maras May-35 Julas sepas 120 100 80 60 40 mstudents 20 Nov-15 Figure 19 - Pro-Forma Income Statements [a t I Tarai Rovere Gales) Zcx,c00 | S4es.e00 |e era.00 [_ ete atnngr Sarap ere OME 7.400 - : Total Spenee $s 206 |$ 107,504 [$210,731 Net Income/(Loss) $ (95,706) | $ (21,034) | $ 55,769 aie eee7 = = SS ww www wrweTwwZwerwTeTeTeeseseseeseseseseseseeTs wATHNASIUM ‘The Math tearing Center Figure 20 - Break-Even Illustration MEMENet Income/{toss) — —TotalRevenve (Sales) ——Total Expenses Using the above estimates, we can see that we break-even at the end of 2014. More specifically, we reach the break-even point in October 2014 with around a 60 student enrollment and $130,000 in annualized revenue. 32|PagePro-Forma Balance Sheets We will finance our bus present and only stockholders’ equity in below balance sheet. uATHNASIUM ‘The Math Learning Center only by shareholders’ cash infusions; hence there are no liabilities Figure 21 2013 2014 2015 lassets Cash $ 71,494 |$ 63,660 |$ 12,630 Franchise Fee - Net 29,600 22,200 14,800 Equipment - Book 29,000 29,000 29,000 Accumulated Depreciation (5,800) (11,600) (17,400)} Equipment - Net 23,200 17,400 11,600 [Total Assets $124,294 |$ 103,260] $ 39,030 Total Liabilities and Stockholders’ Equity Uabilites $ - |$ - |s : Equities Capital Stock $ 220,000 | $ 220,000 Retained Earnings (95,706)} _(116,740)}__ (60,970) Distributions - -|_(120,000)} Total Liabilities and Stockholders’ Equity] $_ 124,294 |$ 103,260 |$ 39,030 33|PageEE eT ee eS ee eS See ae eS MATHNASIUM ‘The Mah Leaning Center Figure 22 - Pro-Forma Cash Projection $10 $5 $0 —~ [Thousands | (3s) ($10) ($15) ($20) _| ($25) Jan-13 Apr-i3 Jul-13 Oct-13 Jan-14 Apr-14_Jul-14 Oct-14 Jan-15 Apr-15 Jul-ts Oct-15 Best Case Scenario ES Sales In the best case, we expect that we hit our target in the first year (60 students) with a pace of 5 student enrollments every month. However, we believe that we cannot maintain this rate in the second year. Instead, we model modest growth to our target enrollment after the first year to remain in line with similar enrollment ceilings at other franchises. It will be more reasonable if wwe only get 2 more new students in the academic year and 1 more new student in the summer. ‘These paces continue to the third year until we reach our target enrollment at the end of the third year, 34|PageFE EF ee SE ee ee eee eee eee eS Eee eee eee eee Figure 23- Student Growth uATHNASIUM ‘The Math Leaning Center Estimated Students mstudents Figure 24 - Pro-Forma Income Statements TSE Cs S| 2013 2014 2015 Total Revenue (Sales) $__97,500 | $ 214,500 | $277,500 Salaries & Wages 52,922| 76,568 | _87,828 Royalties 20,625 38,175 47,625 Rent 28,140| 28,140 | _ 28,140 Taxes & License 5,698 7,960 9,093 Depreciation 13,200. 13,200 13,200 ‘Advertising 21,000| 24,000] _ 13,875 initial Training, Startup and Office Expenses 7,400 - 3 Other Expenses 18,600} 19,085 | __19,570 Total Expenses $_167,585 | $ 207,128 | $ 219,331 Net Income/(Loss) $ (70,085) |$ 7,372 |$ 58,169 35|PageMATHNASIUM Figure 25 - Break-Even Illustration The Math Learn Center $300,000 $250,000 $200,000, $150,000 $100,000 $50,000 & $(50,000) ‘$(100,000) Revenue, expenses and net income/(loss) Wg Break-even| point MME Wet Income/{Loss) =Total Revenue (Sales) —=—=Total Expenses We reach the break-event point on December 2013 with 60 students and $130,000 in annualized revenue, 36 |PageSE ee ee ee ee ee ee ee ee eee eS SS Se ee uATHNASIUM ‘The Math Leaning Center Figure 26 - Pro-Forma Balance Sheet 2013 zo1e 205__| lassets Cash $ 97,115 |$ 117,687 |$ Franchise Fee - Net 29,600 22,200 Equipment - Book 29,000 29,000 Accumulated Depreciation (8,800) (11,600)} Equipment - Net 23,200 17,400 lrotal Assets $_1aso15|$ 157,287 | $ Liabilities and Stockholders’ Equity Uablities s - Is - Is : Equity | Capital Stock 220,000 220,000 220,000 Retained Earnings (70,085)|_(62.713)|___(4.544)| Distributions ~ |_20,000) Total Liabilities and Stockholders’ Equity | $ 149,915 | $ 157,287 |$ 95,456 Figure 27 - Pro-Forma Cash Projection [Cash from Operations| = El ss g)s0 (ss) (s10) (s15) (520) (525) Jan-l3 Apr-13 Jub13 Oct-13 Jan-14 Apr-1d Jul4 Oct-14 Jan Apr-15 Juk4S Oct-15 37|PagePOE re eer re eee eee ew ewsTwewVTeuevwvve Vee Se uATHNASIUM ‘The Math Leaning Center Worst Case Scenario Sales In this case, we assume that our expectation regarding the number of target students acquired in the most-likely case is too optimistic. Instead, we require three years to attract 60 students. During the academic year, we get two additional students, but in the summer we only increase by one student every month. Figure 28 - Student Growth Estimated Students mstudents eesssss 38|Page7S eee rere ewwewevewewe eV Veuve M Kw HNASIUM “The Mah Leming Ceres Figure 29 - Proforma Income Statements 2013 2014 | _2015 Total Revenue (Sales) $_34,500 | $ 97,500 | $ 160,500 Salaries & Wages 40,536 | _52,922 | _ 65,308 Royalties 11,175 | __ 20,625 | _ 30,075 | Rent 28,140 28,140 28,140 Taxes & License 4275 5,491 6,786 Depreciation 13,200 | __13,200| _ 13,200 ‘Advertising 21,000 | _ 24,000 8,025 | nitar Training, Startup and Offs Ewenses 7,400 = So Other Expenses 18,600 |__19,085| _19,570 Total Expenses $144,326 | $ 163,463 | $ 171,104 Net income/(Loss) $(109,626)| $ (65,963) | $ (10,604) Figure 30 - Break-Even Illustration Revenue, expenses and net income/(Ioss) $200,000 $150,000 —_ $100,000 $50,000 * $150,000) $(200,000) $(250,000) 2015 MEENet Income/(Loss)_ —=Total Revenue (Sales) —=Total Expenses Under the terms of the worst case, we have to wait 3 years to recoup our fixed-costs and variable costs. Consequently, our break-event point is in October 2015, At that time, we enroll 59 students, 39|PagewrTererewrewvwvwvwwwrewvewvwverwsrveuwvwvvwvwrTeTTvwTVvTeuTVTeueuTVTVTueTVTTs uA\anasiun ‘The Math Learning Center Figure 31 - Pro-Forma Balance Sheets 2013 20a 21s [assets cash $_97,374|§ 4610S 7,206 Franchise Fee -Net 29,600 | 22,200] 14,800 Equipment - Book 29,000 | 29,000| 29,000 ‘Accumulated Depreciation (6,800) (11,600)| (17,400) Equipment - Net 23,200 17,400 | 11,600 lrotal assets $ noi7e]s an210]$ 33,606 Uabilities and Stockholders’ Equity Uablities 8 -|s - Is - Equity Capital Stock 220,000 | _ 220,000 _ 220,000 Retained Earnings (109,826)| _(175,790)| _(186,394)| Distributions = - : Total Liabilities and Stockholders’ Equity] $_ 110,174 |$ 44,210 [$ 33,606 Figure 32 - Pro-Forma Cash Projection ||Cash from Operations] $5 ‘Thousands | $0 ($5) ($10) ($15) ($20) ($25) Jan43 Apr-13 Jubd3 Oct-13 Jan-14 Apr14 Jud Oct-14 Jan-15 Apr-iS JulaS Oct-15 40|PageuATHNASIUM ‘The Math Leoming Cente Feasibility / Recommendations Ratios for Most-Likely Case Figure 33 - Significant Ratios 2%, 164% 13% Return on Investment (ROI) Analysis We expect we will run our business over long term, for at least 10 years. Our projections therefore rely on ten years worth of hypothetical data, In the beginning, we will invest $220,000 as initial investment. After three years of operation, we have positive cash flow from operations. Beginning in the fourth year, we do not count our money remaining from our initial investment because we distribute $120,000 to investors. In the most likely case after reaching target sales (108 students), we expect our enrollment to stabilize. A similar assumption is applied to sales in the best case. In the worst case, however, we assume that we can only capture 63 students per year in the fourth year and every year thereafter. Figure 34 — Return on Investment (ROD)OTA rare eave owrwrwewewwweweeweTeweTeeeTe DF MATHNASIUM ‘heath tearing Center Financial Conclusions/Recommendations SS EEE Generally, in the most-likely case, our performance improves every year. We project a net income in the third year. Our total asset tumover also shows a significant improvement in the third year, increasing by five times. Furthermore, in the third year we can cover our costs and enjoy a 20% operating profit margin. Evaluating the worst-case scenario, we achieve break-even toward the latter end of year 3. We ‘expect enrollment to continue to increase into year 4, increasing the net income of the venture. While all scenarios show a negative or near zero ROI for three years, if we project the cash inflow at month 36 into years four through ten we achieve favorable ROIs for the length of the project. The ROIs above are equal for all shareholders in the project as we assume returns based proportionally on initial investment with no change in ownership levels over the life of the project. There is demand for increased math aptitude not being currently met by traditional education, Other Mathnasium franchisees are succeeding financially. El Paso has the income levels to support Mathnasium pricing. We conclude this opportunity is an attractive one and recommend purchase of a franchise. 42|Page