April 10, 2007April 10, 2007

Prepared by:Prepared by:

Pauline BolayPauline Bolay

Jamie FreedmanJamie Freedman

Kurtis KramerKurtis Kramer

Andrew O'ReillyAndrew O'Reilly

April 10, 2007April 10, 2007

Mission StatementMission Statement

Harvest Sun is a family owned and Harvest Sun is a family owned and operated business, created from a operated business, created from a genuine desire to make a difference in genuine desire to make a difference in our world. The guiding principle our world. The guiding principle behind Harvest Sun Organic Seeds behind Harvest Sun Organic Seeds Ltd. is the provision of nutritious Ltd. is the provision of nutritious healthy seeds for healthy birds.healthy seeds for healthy birds.

April 10, 2007April 10, 2007

Goals & ObjectivesGoals & Objectives

To market organic birdseed and To market organic birdseed and maintain a positive cash balancemaintain a positive cash balance

To improve the knowledge of organic To improve the knowledge of organic birdseed and it’s benefits birdseed and it’s benefits

To start out as a small company, but To start out as a small company, but increase it’s customer base over time, increase it’s customer base over time, and eventually become a large player and eventually become a large player in the birdseed market in the birdseed market

Operations PlanOperations Plan

Organizational StructureOrganizational Structure

President

Board of Directors

Operations Manager

Casual Laborer

Casual Laborer

Casual Laborer

Marketing Manager

Site PlanSite Plan

Near Estevan, Sk (President’s own Near Estevan, Sk (President’s own organic farm)organic farm)

NW35-1-9-W2 NW35-1-9-W2

Building and Floor PlansBuilding and Floor Plans

N

Stairs To Upstairs Cold Storage

Work Table

ShelvingTack Room/Isolation Barrier Room

Horse Stall

Mini Bulk Storage

Mini Bulk Storage

Product Mixer

Counter Receiving Spout

Cold Storage (600 sq.ft)

Bin #1 Bin #2 Bin #3 Bin #4

Sliding Door

(400 sq.ft)

(600 sq.ft)

Door/OpeningLegend:

Bait Station Location (Downstairs)

Bait Station Location (Loft)

Upstairs Loft

Roll Up Door

(1000 sq.ft)

Work Plan and Flow of WorkWork Plan and Flow of Work Organic farms provide the grain for the birdseedOrganic farms provide the grain for the birdseed The seed is purchased pre-cleaned to provide no The seed is purchased pre-cleaned to provide no

contaminationcontamination The canary seed, millet and flax are stored in binsThe canary seed, millet and flax are stored in bins The oat groats are stored in the bags they come inThe oat groats are stored in the bags they come in Seed quantity are carefully measured using a digital scale Seed quantity are carefully measured using a digital scale Product is placed in a mixerProduct is placed in a mixer Product is then placed in a tub to ensure an even mixtureProduct is then placed in a tub to ensure an even mixture Labels are put on jars to make sure that no dust gets on the Labels are put on jars to make sure that no dust gets on the

sticky sidesticky side The jars that hold 1.5 lbs are filled by handThe jars that hold 1.5 lbs are filled by hand The handler uses gloves to prevent irritation of the skinThe handler uses gloves to prevent irritation of the skin The lids are screwed on with tamper proof capsThe lids are screwed on with tamper proof caps The cap label is placed after cap is placed on jar for a nice The cap label is placed after cap is placed on jar for a nice

looking productlooking product The finish product is stored until shipped and soldThe finish product is stored until shipped and sold

Quality ControlQuality Control

Certified by Pro-Cert Organic Systems, the Certified by Pro-Cert Organic Systems, the western affiliate of OCPP/Pro-Cert (OC/PRO), western affiliate of OCPP/Pro-Cert (OC/PRO), Canada’s foremost organic certification bodyCanada’s foremost organic certification body

To ensure compliance will all organic regulations To ensure compliance will all organic regulations and standards, “Certified Organic” producers and and standards, “Certified Organic” producers and processors are regularly inspected by an processors are regularly inspected by an independent third partyindependent third party

Every package of birdseed has a unique lot Every package of birdseed has a unique lot number. This number enables the consumer to number. This number enables the consumer to track the birdseed in the package back to the track the birdseed in the package back to the field on which it was grown and to the former who field on which it was grown and to the former who grew the seedgrew the seed

Business CycleBusiness Cycle

Raw inventory comes in the fallRaw inventory comes in the fall Processing and packaging of the Processing and packaging of the

birdseed takes place during the birdseed takes place during the winter months (3 months)winter months (3 months)

There is finished goods available for There is finished goods available for sale all year round.sale all year round.

Capital BudgetCapital Budget

Rents all land, equipment, buildings (monthly Rents all land, equipment, buildings (monthly rent)rent)

Will incur working capital (1Will incur working capital (1stst yr = $25 584) yr = $25 584) At full production, Harvest Sun can produce At full production, Harvest Sun can produce

approximately 36 000 jars (1.5 lbs each) of approximately 36 000 jars (1.5 lbs each) of birdseed in its current rented facilitybirdseed in its current rented facility

Expects to produce a third of full capacity in its Expects to produce a third of full capacity in its first year of operations and two thirds in its first year of operations and two thirds in its second year of operations. In its third year and second year of operations. In its third year and subsequent years it plans to operate at full subsequent years it plans to operate at full production.production.

Cost of Goods ManufacturedCost of Goods Manufactured

Cost of Goods SoldCost of Goods Sold

Direct Materials $18,120Direct Labour & Benefits $21,757Manufacturing Overhead $5,200Cost of Goods Manufactured $45,077

The cost of goods sold for 2008 are as follows:Beginning Finished Good Inventory ($0)+ Cost of Goods Manufactured ($45 077)= Cost of Goods Available for Sale ($45 077)- Ending Finished Goods Inventory ($22 477)= Costs of Goods Sold ($22 600)

Operating ExpensesOperating Expenses

Marketing & Administration Expenses 2008Organic Certification $800Website Hosting $180Business Cards (1000) $108Introductory Packages $500Magazine Advertising $500Office Supplies $500Business License $80UPC - bar code $800Telephone $1,800Administration Salaries & Wages $32,670

Total Expenses $37,938

Inventories, A/R, A/PInventories, A/R, A/P

Raw inventories received in fall = 45 Raw inventories received in fall = 45 daysdays

Inventory in progress = 1 dayInventory in progress = 1 day Finished goods inventory avail. Finished goods inventory avail.

throughout year = 182 daysthroughout year = 182 days A/R for internet = 0 daysA/R for internet = 0 days A/R for pet stores = 30 daysA/R for pet stores = 30 days A/P = 15 daysA/P = 15 days

Cash Conversion CycleCash Conversion Cycle

CCC = Average Days Inventory + CCC = Average Days Inventory + Average Collection Period - Average Collection Period - Average Days PayablesAverage Days Payables

CCC = (45+182+1) + 30 – 15 = 243 days

Human Resources PlanHuman Resources Plan

Organizational StructureOrganizational Structure

President

Board of Directors

Operations Manager

Casual Laborer

Casual Laborer

Casual Laborer

Marketing Manager

Board of DirectorsBoard of Directors

5 individuals5 individuals– 3 internals, 2 externals3 internals, 2 externals

Meet a few times a yearMeet a few times a year Make the decisions about the overall Make the decisions about the overall

management of the business, also management of the business, also the direction it will head in the future the direction it will head in the future

Update the shareholdersUpdate the shareholders

PresidentPresident

Already hiredAlready hired Same individual as operations Same individual as operations

manager (25%:75%)manager (25%:75%) Report all aspects of the business Report all aspects of the business

operations to the board of directors operations to the board of directors Needs to be dedicated and possess Needs to be dedicated and possess

leadership skillsleadership skills

Operations ManagerOperations Manager

Already hiredAlready hired Same individual as presidentSame individual as president Organize, train, direct and coordinate Organize, train, direct and coordinate

the activities of the casual labor the activities of the casual labor Very involved in the physical aspect Very involved in the physical aspect

of producing organic birdseedof producing organic birdseed Shipping and receiving of productsShipping and receiving of products

Marketing ManagerMarketing Manager

Well-rounded office personnel Well-rounded office personnel – run the day to day activities of the run the day to day activities of the

company that include the marketing company that include the marketing selling, customer contact/interaction, selling, customer contact/interaction, advertising, invoicing, inventory control advertising, invoicing, inventory control and shipping logistics.and shipping logistics.

Casual Production StaffCasual Production Staff

Will be hired when there is a needWill be hired when there is a need– Blackburn children, friends, neighbors, school Blackburn children, friends, neighbors, school

kidskids

Duties would include blending seed, Duties would include blending seed, putting the seed in jars, applying labeling, putting the seed in jars, applying labeling, transferring finished products to storage, transferring finished products to storage, cleaning the facilities cleaning the facilities

Approx. 520 hrs of labour needed per year Approx. 520 hrs of labour needed per year at full productionat full production

Cost of EmployeesCost of Employees2008 President Marketing Manager Total Cost

Annual Salaries $6,000 $24,000 $30,000 EI (1.95%) $117 $468 $585 CPP (4.95%) $297 $1,188 $1,485 Workers Comp. (2%) $120 $480 $600 Total Cost $6,534 $26,136 $32,670

2008 Operations ManagerAnnual Salaries $18,000 EI (2.73%) $491 CPP (4.95%) $891 Workers Comp. (3%) $540 Total Cost $19,922

Casual Production Staff 2008 2009 2010Individual Wage (per hour) $9.00 $9.18 $9.36 Hours per Year 175 350 520Total Annual Wage $1,575 $3,213 $4,867 EI (2.73%) $43 $88 $133 CPP (4.95%) $78 $159 $241 Workers Comp. (3%) $47 $96 $146 Holiday Pay (5.8%) $91 $186 $282 Total Cost $1,835 $3,743 $5,669

Marketing PlanMarketing Plan

ProductsProducts

Certified organic birdseedCertified organic birdseed– Blended for canaries, budgies, and finchesBlended for canaries, budgies, and finches– Ingredients: mixture of organic canary seed, millet, Ingredients: mixture of organic canary seed, millet,

flax and oat groatsflax and oat groats The guiding principle behind Harvest Sun is the The guiding principle behind Harvest Sun is the

provision of nutritious healthy seeds for healthy provision of nutritious healthy seeds for healthy birds birds – No fertilizers, insecticides, pesticides, G.M.ONo fertilizers, insecticides, pesticides, G.M.O– No preservatives or additives No preservatives or additives 

Harvest Sun is providing products that allow Harvest Sun is providing products that allow bird owners the choice to make a difference in bird owners the choice to make a difference in the well being of our planet. the well being of our planet.

PricingPricing

Will charge a premium priceWill charge a premium price No competitorsNo competitors

PromotionPromotion

Promoting the healthy choice of certified Promoting the healthy choice of certified organic birdseedorganic birdseed

Harvest Sun will be marketing the Harvest Sun will be marketing the alternative of organic birdseed compared alternative of organic birdseed compared to a chemically altered, chemically to a chemically altered, chemically enhanced or chemically treated birdseedenhanced or chemically treated birdseed

Harvest Sun will also promote support for Harvest Sun will also promote support for farms using traditional and sustainable farms using traditional and sustainable farming practices that are safe for humans farming practices that are safe for humans and the environmentand the environment

PlacePlace Increase its consumer base in Western Increase its consumer base in Western

Canada (expand to eastern CDN , USA)Canada (expand to eastern CDN , USA) Large urban centres Large urban centres

– Independently owned pet storesIndependently owned pet stores Internet sales = all over the worldInternet sales = all over the world Member of STEP (Saskatchewan Trade and Member of STEP (Saskatchewan Trade and

Export Partnership)Export Partnership)– list of about 700 independent pet stores in list of about 700 independent pet stores in

Ontario, Manitoba, Saskatchewan and British Ontario, Manitoba, Saskatchewan and British Columbia. Columbia.

Registered with FDA (Registered with FDA (FDA (U.S. Food and FDA (U.S. Food and Drug Administration) so they can ship their Drug Administration) so they can ship their product into the USA.product into the USA.

Segmentation/TargetingSegmentation/Targeting

Will be targeting people who live in Will be targeting people who live in large centers whose birds and/or the large centers whose birds and/or the environment is very important to environment is very important to themthem

sell to people who will settle for sell to people who will settle for nothing less than the best for their nothing less than the best for their pet bird(s) pet bird(s)

PositioningPositioning

To promote Harvest Sun organic To promote Harvest Sun organic birdseed as a safe, healthy birdseed as a safe, healthy alternative to regular birdseed which alternative to regular birdseed which will benefit the health and well being will benefit the health and well being of the consumer pets.of the consumer pets.

Internal Strengths & Internal Strengths & WeaknessesWeaknesses

Human Resources Strengths Human Resources Weaknesses

Family owned and operated businessLots of labor availableFew Employees to manage

Lack of training, education, experience

Physical Resources Strengths Physical Resources Weaknesses

Established processing and packaging facilityLow rental feeLow input costsLocal raw ingredients

Location (distant from market)

Financial Resources Strengths Financial Resources Weaknesses

Debt-free company Long cash conversion cycleLots of working capital required

External Opportunities & External Opportunities & ThreatsThreats

External Opportunities External ThreatsRelatively new marketOpportunities to enter new marketsSole producerLow ‘organic’ competition

Raw materials are weather dependentCompetition may easily enterHigh non-organic competitionProducts advertised as “natural” or “organic”

The MarketThe Market

There is a large customer base that There is a large customer base that is available to be reached because is available to be reached because there is currently no one active in the there is currently no one active in the organic birdseed market organic birdseed market

The best market is probably going to The best market is probably going to be found in urban centers where be found in urban centers where people are more likely own a bird people are more likely own a bird because it is difficult to own a large because it is difficult to own a large pet in a city pet in a city

CompetitionCompetition

No other producers of organic No other producers of organic birdseed birdseed

The only competition that Harvest The only competition that Harvest Sun will face will be the competitors Sun will face will be the competitors who produce regular non-organic who produce regular non-organic birdseedbirdseed

CustomersCustomers

People who really love their birds. People who really love their birds. People of all agesPeople of all ages

– Young children to seniorsYoung children to seniors

Higher disposable incomeHigher disposable income Care about the protection of the Care about the protection of the

environment and they care about what environment and they care about what foods their pets consumefoods their pets consume

Pay what ever it takes to ensure that their Pay what ever it takes to ensure that their bird is healthy and thrivingbird is healthy and thriving

Product/Service FeaturesProduct/Service Features

SK grown and producedSK grown and produced Certified organicCertified organic Buy and receive the product in the Buy and receive the product in the

comfort of their on homecomfort of their on home Provide customers with a natural, Provide customers with a natural,

safe, and environmentally friendly safe, and environmentally friendly product to feed to their pet birds product to feed to their pet birds

Sales and Profit ObjectivesSales and Profit Objectives

Sell 20% of its product over the Sell 20% of its product over the internet and the remaining 80% to internet and the remaining 80% to independently owned pet storesindependently owned pet stores

The main profit objective is to sell all The main profit objective is to sell all products produced at a price in order products produced at a price in order to cover all costs and achieve a 20% to cover all costs and achieve a 20% return.return.

Year 2008 2009 2010 - 2017Quantity of Sales via Internet 2400 4800 7200Quantity of Sales to Stores 9600 19200 28800Total Sales 12000 24000 36000

Channels of DistributionChannels of Distribution

Products will be sold as FOB from Products will be sold as FOB from EstevanEstevan

This means that the shipping and This means that the shipping and handling costs are the buyers from handling costs are the buyers from the place of originationthe place of origination

Harvest Sun will work with the Harvest Sun will work with the buyers to determine the buyers to determine the best/cheapest shipping costs and best/cheapest shipping costs and distribution methods distribution methods

Selling and AdvertisingSelling and Advertising

Marketing manager will do a lot of Marketing manager will do a lot of advertising workadvertising work

Mail out introductory packagesMail out introductory packages Web page: www.harvestsun.caWeb page: www.harvestsun.ca Appropriate magazinesAppropriate magazines

Marketing Plan BudgetMarketing Plan Budget

Year 2008Magazine Advertising $500Business Cards (1000) $108Introductory Packages (100) $500Web page $180Total Advertising Expenses $1,288

Financial PlanFinancial Plan

Debt and Equity MixDebt and Equity Mix

To meet initial capital requirements To meet initial capital requirements and cover expenses for the first few and cover expenses for the first few years of operations, the company will years of operations, the company will need to raise $51,000 in owner’s need to raise $51,000 in owner’s equityequity

Dividend PolicyDividend Policy

When profits and cash flow reach a When profits and cash flow reach a level that ensures there will be level that ensures there will be enough cash for operating in the enough cash for operating in the next year the excess profits will be next year the excess profits will be paid out in dividends paid out in dividends

Year 2008-2013 2014 2015 2016 2017Dividends Paid $0 $11,486 $19,745 $20,252 $20,543

Economic ForecastEconomic Forecast

Financial Projections have been Financial Projections have been made for a ten year period using an made for a ten year period using an inflation rate of 2.0%inflation rate of 2.0%

This rate has been used to derive all This rate has been used to derive all wages, supplies and expenses.wages, supplies and expenses.

Ratio AnalysisRatio Analysis

Unit Cost of ProductionUnit Cost of Production

Unit Cost Analysis ($ per Unit) 2008 2009 2010Unit Cost of Direct Materials 1.51 0.77 0.66Unit Cost of Direct Labor 1.63 0.90 0.66Unit Cost of Manufacturing Overhead 0.43 0.22 0.15Total Unit Cost 3.57 1.89 1.47

Financial Analysis and Overall Financial Analysis and Overall Financial PerformanceFinancial Performance

Year 2008 2009 2010 2011 2012

Sales $48,000 $97,920 $149,818 $152,814 $155,870Cost of Goods Sold $22,600 $55,734 $77,379 $89,251 $91,036Gross Margin $25,400 $42,186 $72,439 $63,563 $64,834Total Expenses $45,077 $66,332 $88,365 $90,132 $91,935Income Before Taxes $2,923 $31,588 $61,453 $62,682 $63,935Income Taxes $0 $0 $2,403 $2,342 $2,377Net Income(Loss) $2,923 $31,588 $59,050 $60,340 $61,558Dividends $0 $0 $0 $0 $0Net Cash Flows to Equity $12,877 -$12,583 $13,771 $19,904 $20,197

Year 2013 2014 2015 2016 2017

Sales $158,988 $162,167 $165,411 $168,719 $172,093Cost of Goods Sold $92,857 $94,714 $96,608 $98,540 $100,511Gross Margin $66,131 $67,453 $68,803 $70,179 $71,582Total Expenses $93,774 $95,649 $97,562 $99,513 $101,504Income Before Taxes $65,214 $66,518 $67,849 $69,206 $70,589Income Taxes $2,436 $2,473 $2,535 $2,573 $2,637Net Income(Loss) $62,778 $64,045 $65,314 $66,633 $67,952Dividends $0 $11,486 $19,745 $20,252 $20,543Net Cash Flows to Equity $20,708 $21,013 $21,545 $21,862 $38,794

Net Present Value (NPV) $4,990Internal Rate of Return on Equity Investment 22.0%External Rate of Return on Equity Investment 14.2%

Risk AnalysisRisk Analysis ThereThere are three main critical are three main critical

variables:variables:packaging expensepackaging expenseselling price (to stores = most critical)selling price (to stores = most critical)quantity of salesquantity of sales

Critical Variables Base Case IRR = 0 % ChangePackaging 1.06 1.45 0.27Labor costs (wage) 9 31.68 0.72Inflation Rate 0.02 4.1 1.00Long-Term Interest Rate 0.08 37344 1.00Selling Price - Internet 7 5.04 -0.39Selling Price - Stores 3.25 2.76 -0.18Quantity of Sales - Stores 6884 9600 0.28Quantity of Sales - Internet 1543 2400 0.36

Break Even AnalysisBreak Even AnalysisHarvest Sun Break Even Analysis

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

1 2 3 4 5 6 7 8 9 10

Year

Sel

lin

g P

rice

to

Sto

res

Economic Break Even Cash Flow Break Even

Net Income Break Even Base Case

Year 1 2 3 4 5 6 7 8 9 10IRR 2.76 2.82 2.87 2.93 2.99 3.05 3.11 3.17 3.27 3.3Cash Flow 1.79 4.1 2.75 2.67 2.75 2.79 2.85 2.9 2.97 3.02Net Income 4.56 3.13 2.24 2.64 2.7 2.74 2.81 2.85 2.92 2.98Base Case 3.25 3.32 3.38 3.45 3.52 3.59 3.66 3.73 3.81 3.88

Scenario AnalysisScenario Analysis

Changed 5 most critical variables by Changed 5 most critical variables by 20% in each direction20% in each direction

Variable BEST CASE BASE CASE WORST CASEPackaging 0.85 1.06 1.27Selling Price - Internet 8.4 7 5.6Selling Price - Stores 3.9 3.25 2.6Quantity of Sales - Stores 11520 9600 7680Quantity of Sales - Internet 2880 2400 1920NPV 205102 4990 -158723IRR 82.2 22 negative

ConclusionConclusion

Business plan shows that the business is a Business plan shows that the business is a feasible enterprisefeasible enterprise– sensitive to the quantity of units sold and sensitive to the quantity of units sold and

selling priceselling price The required rate of the return (20%) is The required rate of the return (20%) is

achievedachieved Harvest Sun Organics has the potential to Harvest Sun Organics has the potential to

be a very profitable company if it is able to be a very profitable company if it is able to properly market its product and sell the properly market its product and sell the amount of product indicated in this amount of product indicated in this business planbusiness plan