Farmers Group

8/2/2019 Farmers Group

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January 2000

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1.0 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1 Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

2.0 The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.1 Start-up Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.2 Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

3.0 Products and Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53.1 Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53.2 Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63.3 Future Product Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

4.0 Market Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64.1 Customers and Target Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74.2 Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84.3 Target Market Segment Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

5.0 Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95.1 Competitive Advantages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95.2 Marketing Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

5.2.1 Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105.3 Sales and Distribution Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105.4 Strategic Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

6.0 Sales Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

7.0 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

8.0 Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148.1 Significant Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148.2 Break-even Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158.3 Profit and Loss Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168.4 Projected Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178.5 Projected Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198.6 Business Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Table of Contents


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1.0 Executive Summary

Introduction

Farmers Group is being formed from the acquisition of two successful vegetable farm, GreenAcres Vegetable Farm and Mobile Farmers Vegetable Farm. The latter has long-researchedhorticultural and agronomic techniques, as well as compost and soil blending technology nowbeing promoted by the DEO, the USDA, the EPA, and other government agencies.

The company is a combination of cutting edge, highest quality, and efficient food technology

and production. It is committed to the improvement of food taste and nutritional quality. It isbeing founded to build upon an extensive array of biological and horticultural education,experience, and the research of its founders. This is further coupled with the experience ofJames Jackson, the current manager of Mobile Farmers Vegetable Farm, and consultation withthe present owner of Green Acres Vegetable Farm, Errol Grynthum.

The Company

Farmers Group is an Alabama-based company, located in Calhoun county, whose mission is toprovide high quality, nutritional, and flavorful vegetables and strawberries for consumption inboth near and remote regions of the United States. Additionally the company will provide highquality planting materials for use nationwide.

Farmers Group is the buyout and merger of two successful vegetable farms. The idea behindthe business is to provide healthy and delicious vegetables and fruit to the public. In additionto vegetables and fruits, the company plans to produce and market manure compost gardenamendment products.

Farmers Group's management team is led by Mr. James Jackson as Business Manager, who

has extensive knowledge of the industry. The company expects to employ five temporaryemployees during the equipment re-location phase, four employees on a permanent basis, andthree part-time employees.

Products

Farmers Group's plans to concentrate on vegetables as its primary product. This includesgrowing carrots, romaine lettuce, leeks, red onions, summer squash, spinach, pumpkins,winter squash, globe beets, and winter greens. The company's farm, will have a capacity

sufficient to produce in excess of 200,000 lbs. of vegetables per year.

The company plans to utilize traditional and more advanced plant technologies to produce newcultivars of strawberries and lima beans with locally-adapted superior characteristics for theGulf-South growing area.

This strategy will allow Farmers Group to produce crops during most of the year and will allow

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be first to the market with new products.

Financial Considerations

The company is seeking $830,000 in both short-term and long-term funding to finance thepurchase of Farmers Group's new farm, upgrade the facilities, and cover start-up expensesand first year losses. It is estimated that the company will begin to make a profit in Year 2 ofoperations. The company does not expect to have any cash flow problems during the first fouryears of operations. The company's break-even point is a monthly production of 3,409 lbs ofproduce.

1.1 Mission

Farmers Group is an Alabama-based company, whose mission is to provide high quality,nutritional, and flavorful vegetables and strawberries for consumption in both near and remoteregions of the United States. Additionally the company will provide high quality plantingmaterials for use nationwide.

2.0 The Company

Farmers Group is the buyout and merger of two successful vegetable farms. The idea behindthe business is to provide healthy and delicious vegetables and fruit to the public. In additionto vegetables and fruits, the company plans to produce and market manure compost gardenamendment products.

2.1 Start-up Summary

Projected revenues for 2000 to 2004 are $-40,000, $8,500, $50,000, $70,800 and $82,500respectively. Additionally the company estimates that once fully operational, income perproduct, per annum would be as follows; vegetable ($50,000) manure ($20,000) andhorticulture ($10,000).

The company is seeking to raise of $1,800,000 for the purpose of financing the acquisition ofthe Green Acres Vegetable Farm and Mobile Farmers Vegetable Farm, facilities modifications,equipment, and funding operating expenses.

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Table: Start-up

Start-up

Requirements

Start-up ExpensesLegal $19,000Facilities modification $300,000Seed $600Organic Herbicides/Pesticides $5,000Consultants $25,000Insurance $10,000Research and development $25,000Expensed equipment $250,000Other $50,000Total Start-up Expenses $684,600

Start-up Assets NeededCash Balance on Starting Date $245,400Start-up Inventory $150,000Other Current Assets $250,000Total Current Assets $645,400

Long-term Assets $500,000

Total Assets $1,145,400Total Requirements $1,830,000

Funding

InvestmentInvestor 1 $250,000Investor 2 $250,000Investor 3 $250,000Investor 4 $250,000Other $0

Total Investment $1,000,000

Current LiabilitiesAccounts Payable $30,000Current Borrowing $400,000Other Current Liabilities $0Current Liabilities $430,000

Long-term Liabilities $400,000Total Liabilities $830,000

Loss at Start-up ($684,600)Total Capital $315,400Total Capital and Liabilities $1,145,400

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$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

Expenses Assets Investment Loans

Start-up

2.2 Facilities

The farm is located in Calhoun county approximately 4.5 miles outside of Jasper.

The operation will utilize:

One large greenhouse, enclosing the vegetable area. Horticultural greenhouse. Filters, water treatment devices. Backwash facilities. Outdoor vegetable facilities. Business office building.

An additional portion of the operation will be the manure composting facility. Local andregional dairy operations have trouble with manure accumulations, and the company hopes toenter into contracts in removing the manure. Farmers Group will then turn this into a saleableproduct. The company plans to supply the region's nursery outlets with a top-quality, premiumgarden and soil amendment product for area horticulture.

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3.0 Products and Technologies

While at Mobile Farmers Vegetable Farm James Jackson, steadily used and experimented withcompost and fertilized with manure of different kinds. The most important things with manureusage is to eliminate the viable weed seed drawback by thoroughly composting the manure, toadd enough cellulose on product to bring it to the proper ratio and to bring its water content toproper levels. A properly composted manure product has no seeds that will germinate andproliferate in it. Additionally, a properly composted manure product has something achemically formulated synthetic fertilizer does not have: enzymes. Enzymes are critical forproducing a truly nutritious and superior flavored product. Research has shown that thesuperior flavor of a fruit or vegetable is closely related to vitamin content and folic acid contentin green vegetables.

The state-of-the-art vegetable equipment starting up in the new location utilizes revolutionaryharvest designs that:

Allow faster, longer growth Cut the harvest labor by over 80% Cut the harvest time and by so doing:

Decrease loss in weight gain, and Eliminate weight loss from shock.

3.1 Products

Vegetables

Farmers Group's first line of production will be the green vegetable and red vegetable. Duringthe summer months Farmers Group will be growing carrots, romaine lettuce, leeks, redonions, summer squash, and spinach. In the fall, production will center on pumpkins, wintersquash, globe beets and winter greens. With the growth of the popular organic food niche, andthe federal government's new organic labeling policy, Farmers Group will focus its produce onthe intermediate organic label. This means that approximately 70% of the food productionprocess will be organic and all foods produced by Farmers Group will be eligible for the"contains organic ingredients" label. The company's farm will have a capacity sufficient toproduce in excess of 200,000 lbs. of vegetables per year.

Strawberries

The company's more technical horticultural aspects include efforts to utilize traditional andmore advanced plant technologies to produce new cultivars of crops such as strawberries andlima beans with locally-adapted superior characteristics for the Gulf-South growing area.Flavor, disease resistance, adaptability to green-house culture, fall and winter season

d ti f t b i bi d i lti ti t t i t th $2 99 i t b

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3.2 Research and Development

The company is currently seeking contact with Alabama universities in order to learn aboutand acquire new hybrids of strawberries and vegetables that are hardier and grow faster in ourlocal microclimates. These and other available species and systems will be constantly tracked.

In addition to the above, the company is seeking contacts at Universities in Italy and Germanythat are involved in greens, and will continue the quest for the best flavored, large, and firmfall and winter strawberries.

Currently, Farmers Group is conducting research to test certain clay-sand-manure mixturelevels to obtain better, cheaper bedding and agronomic soil mixtures that are more effectivethan the standard used in the industry in Alabama (Pine bark mulch-composted).

3.3 Future Product Plans

In the meantime, the company would like to explore the possibilities of crayfish production.

Farmers Group believes this to be a high revenue venture with retail prices running in excessof $15.00 per pound in most places. The company also believes that if crayfish production issuccessful then it could become the number one endeavor of Farmers Group.

Currently there is a defunct fish farming production facility with all the necessary capitalequipment approximately two miles from the current farm. Purchase of this facility would allowFarmers Group to begin production and to capitalize on this higher margin product. Whatmakes this most attractive is the two ventures have significant joint cost potential, allowing fora reduction in marginal costs for all products and creation of real economies of scale that

would provide Farmers Group with a competitive advantage.

4.0 Market Description

At a time when eating has become a political statement, the government is paying up to $19billion a year to subsidize commodity crops in a glutted global market. Federal officials say thatnearly 40% of all farm income now comes directly from government subsidies, and the farm

bill signed by President Bush this year will pay $190 billion over 10 years, which includes $83billion in new spending. However, there are two market niches that are growing at an amazingrate, the organic market and the simple farmers' market.

The organic market provides less than 2% of the nation's food supply and takes up less than1% of its cropland. But organic farms are flourishing as never before. Over the past decadethe market for organic food has grown by 15 to 20% and every year 40% of U.S. consumers

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markets reported about $1 billion in sales last year, compared with more than $200 billion inoverall farm revenue. Barely 3% of the nation's two million farmers sell some of what theygrow directly to consumers.

But in an era of big-box food stores, when 10 major grocery chains control the purchase of50% of fresh food, the proliferation of open-air markets has come out of nowhere, giving moreconsumers an option and allowing many small farmers to stay in business.**

With these trends in mind, Farmers Groups will concentrate on:

Wholesale live vegetable markets nationwide that sell organic produce. Fresh farmers' markets.

Fall and winter greens market. Nursery outlets selling composted manure.

*Source: Certified OrganicGeoffrey Cowley NEWSWEEK September 30, 2000.

**Source: Farmers Markets Booming Across US Timothy Egan New York Times, September29, 2000.

4.1 Customers and Target Markets

The target customers include oriental vegetable markets demanding organic and semi-organicgreen vegetables, vegetable processors, and private individual buyers through direct sellingand farmers markets. The company will continue to service the existing customers of thepurchased vegetable farms. In its greens production the company will target virtually all mainfood outlets. The company plans to use the Internet as one of its marketing channels in thefuture.

The company's target customers will be as follows:

Vegetables:

Oriental vegetable markets demanding organic and semi-organic vegetables. Vegetable processors. Alabama National Guard. People approaching the farm.

Roadside stands and farmers' markets.

Product-Bagged Manure:

Nursery and Garden Centers. Private customers approaching facility. Bulk customers

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4.2 Competition

Alabama is one of the premier farming areas of the eastern United States. This creates anintensely competitive environment with a large number of industry participants. Since almostall of the produce is considered to be commodities, and large scale buyers are moreconsolidated than the farmers themselves, overall margins are small and rivalries forwholesaler contracts are strong. Competitive threats come from three main segments:

Imported vegetables of lower quality.> Mississippi pound raised vegetables. Alabama vegetable producers.

Direct competition in the individual buyers market segment comes from three farms in theimmediate area including the Anniston farm, Organics-To-You farm, and the TerranceLivingston vegetable farm. Each of these competitors has produce stands as well as selling tolocal farmers' markets. However, with the exception of Organics-To-You Farm, none of theothers focus on a niche market and depend heavily on federal subsidies.

4.3 Target Market Segment Strategy

The Market Analysis Pie shown below reflects the total number of potential customers forFarmers Group. The number of Oriental markets and vegetable processors represent nationalestimates of industry participants, whereas the number of individual buyers represents theestimated annual number of individuals that will be driving by the farm.

Table: Market Analysis

Market AnalysisPotential Customers Growth 2000 2001 2002 2003 2004 CAGRVegetable processors 3% 5,000 5,150 5,305 5,464 5,628 3.00%Oriental vegetable markets 1% 25,000 25,250 25,503 25,758 26,016 1.00%Individual buyers 5% 300,000 315,000 330,750 347,288 364,652 5.00%Total 4.68% 330,000 345,400 361,558 378,510 396,296 4.68%

Market Analysis (Pie)

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5.0 Strategy

The Farmers Group strategy is to profitably and efficiently utilize present and futureagricultural technology in the production of vegetables. The company, by acquiring an existingprofitable vegetable farm with all the necessary custom-innovated equipment, will gain asignificant industry advantage. Additional application and utilization of horticultural technologyin the production of strawberries will allow double utilization of the climate controled portion ofthe overhead. Farmers Group hopes to consolidate considerable goodwill already created byexercising the option of not adding another high-production facility to the present supply-demand scenario.

The company's goals in the first year are to:

Prepare the future site. Relocate and expand Green Acres vegetable system and get it operational. Integrate greens culture into the system. Have the composting system in full production by early spring of the second year.

The company's long-term plan is to phase out whichever products are least lucrative andreplace them with products that are practical and cost efficient.

5.1 Competitive Advantages

Farmers Group's main competitive advantages are:

Efficient production utilizing greenhouses. Reduced overhead by fully realizing crop output potential and economies of scale

through joint costs. Knowledge due to research since 1988.

5.2 Marketing Strategy

Farmers Group will initially market and supply its products to target customers. The company

is further exploring marketing opportunities on the Internet. To this extent, the companywould like to set up a website to market its products.

The company will utilize aggressive advertising strategies to further market its products. Thesestrategies include the promotion of products through the sponsoring of spots on cooking showsand exhibitions, and also engaging prominent chefs to help promote this fledgling industry.

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5.2.1 Pricing

The company sets its pricing based on market rates as far as vegetable products areconcerned.

Farmers Group's pricing for strawberries will exceed the average market price for the followingreasons:

Taste sampling at outlets will be encouraged. Unparalleled flavor superiority will addict greens tasters. Promotion of pesticide-free, fumigant-free cultural techniques of soil, environment,

ozone, and health-friendly production techniques.

5.3 Sales and Distribution Strategy

At Farmers Group, the sales process is primarily the same for vegetables as it is forcomposting products, in that both products will be mainly sold through wholesale marketing.

As in the past, live shipments will be delivered by contract carriers in special oxygenated tankscarrying 8,000 vegetables or more, and will be continued as demanded. Farmers Group'sbagged manure products will be delivered and unloaded in sizable wholesale quantities by thepallet.

Smaller, more local orders will significantly increase the overall sales when the 300-450 livevegetables carrying tank system is put into service late in 2000 or early in 2001.

The company's average sales cycle from first contact to closing of the sale is approximately 3to 12 days for vegetable products. Farmers Group plans to shorten this cycle. Furthermore,the company estimates that from first contact to sale conclusion, the cycle for freshstrawberries will run 3 days or less. Composted products sale cycle should run from 3 to 12days.

Direct sales contacts of vegetable markets by delivery personnel, as well as cold calling bytelephone of potential market outlets, will also be employed.

5.4 Strategic Relationships

The company has strategic alliances with:

Alabama State University Horticulture Department Southeastern Alabama State University Biology Department

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6.0 Sales Forecast

Table: Sales Forecast

Sales ForecastSales 2000 2001 2002 2003 2004Sales $575,000 $700,000 $850,000 $889,100 $927,331Other $0 $0 $0 $0 $0Total Sales $575,000 $700,000 $850,000 $889,100 $927,331

Direct Cost of Sales 2000 2001 2002 2003 2004Sales $391,000 $478,100 $578,850 $601,032 $627,803Other $0 $0 $0 $0 $0Subtotal Direct Cost of Sales $391,000 $478,100 $578,850 $601,032 $627,803

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

$900,000

$1,000,000

2000 2001 2002 2003 2004

Sales

Other

Sales by Year

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$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$180,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Sales

Other

Sales Monthly

7.0 Management

Farmers Group's management team is led by Mr. James Jackson, Business Manager, and thecurrent manager of Mobile Farmers Vegetable Farm, who has extensive knowledge of the

industry and has been tracking vegetable trends for 30 years.

The company's management philosophy is based on responsibility and mutual respect.Farmers Group has an environment and structure that encourages productivity and respect forcustomers and fellow employees.

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7.1 Organization

Overall, Farmers Group will have 12 personnel. The company expects to employ 5 temporaryemployees during the equipment re-location phase, 4 employees on a permanent basis, and 3part-time employee. The Farmers Group team is organized into three groups:

Management

Management will be responsible for supervising and participating in the daily operations of thefacility. Management consists of:

James Jackson, Business Manager, Full Time Terry Howard, Executive Director, FullTime Kevin Perry, Management Trainee, 3/4 Time Victor Green, Management Trainee, 1/4 Time

Daily Maintenance

This group will consist of the following:

Henry Jones, Logistical Engineer, Full Time Colin Henry, Heavy Equipment, Full Time Michael Owen, Welder, 1/2 Time

Contract Personnel

They will be utilized initially for the moving and setting up of the vegetable farm, greenhouses,and the building of the manure composting facility.

Table: Personnel

Personnel Plan2000 2001 2002 2003 2004

Business Manager $25,000 $30,000 $30,000 $30,000 $30,000Executive Director $25,000 $30,000 $30,000 $30,000 $30,000Manager Trainee $9,000 $6,000 $6,000 $6,000 $6,000Manager Trainee $4,000 $6,000 $6,000 $6,000 $6,000Logistic engineer $18,000 $18,000 $18,000 $18,000 $18,000Heavy equipment $18,000 $18,000 $18,000 $18,000 $18,000

Welder $3,500 $3,000 $3,000 $3,000 $3,000Contract workers $15,000 $0 $0 $0 $0Total People 7 7 7 7 7Total Payroll $117,500 $111,000 $111,000 $111,000 $111,000

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8.0 Finance

Funding Requirements and Uses

The company is raising $1,800,000 for the purpose of financing the acquisition of the GreenAcres Vegetable Farm and Mobile Farmers Vegetable Farm, and funding operating expenses.The table below provides a breakdown of how the funds will be used.

Breakdown of Use ofFunds

Acquisition:

Property $1,300,000

Equipment System $400,000

Sub-total $1,700,000

Operating Expenses:

Salaries $80,000

Marketing andpromotion

$10,000

Other operating

expenses

$10,000

Sub-total $100,000

Total $1,800,000

8.1 Significant Assumptions

Nature and Limitation of Projections

This financial projection is based on sales volume at the levels described in the sales forecastsection and presents, to the best of management's knowledge, the company's expectedassets, liabilities, capital, and revenues and expenses. The projections reflect management'sjudgement of the expected conditions and its expected course of action given the hypotheticalassumptions.

Nature of Operations

The company is in the business of vegetable farming, greens cultivation, and composting. Thecompany expects to be operating in 2000.

Revenues

The company's revenue is derived primarily from the sale of vegetables strawberries and

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Table: General Assumptions

General Assumptions2000 2001 2002 2003 2004

Plan Month 1 2 3 4 5Current Interest Rate 7.00% 7.00% 7.00% 7.00% 7.00%Long-term Interest Rate 7.00% 7.00% 7.00% 7.00% 7.00%Tax Rate 20.00% 20.00% 20.00% 20.00% 20.00%Sales on Credit % 75.00% 75.00% 75.00% 75.00% 75.00%Other 0.00% 0.00% 0.00% 0.00% 0.00%Calculated TotalsPayroll Expense $117,500 $111,000 $111,000 $111,000 $111,000Sales on Credit $431,250 $525,000 $637,500 $666,825 $695,498New Accounts Payable $649,515 $417,725 $732,149 $749,218 $770,963

Inventory Purchase $482,400 $236,700 $578,850 $601,032 $627,803

8.2 Break-even Analysis

The company's break-even analysis is given below. Units are expressed in pounds.

($15,000)

($10,000)

($5,000)

$0

$5,000

$10,000

$15,000

$0 $7,000 $14,000 $22,000 $29,000 $36,000

Monthly break-even point

Break-even point = where line intersects with 0

Break-even Analysis

Table: Break-even Analysis

Break-even Analysis:M thl U it B k 3 409

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8.3 Profit and Loss Statement

Table: Profit and Loss

Pro Forma Profit and Loss2000 2001 2002 2003 2004

Sales $575,000 $700,000 $850,000 $889,100 $927,331Direct Costs of Goods $391,000 $478,100 $578,850 $601,032 $627,803Other $10,000 $10,000 $10,000 $10,000 $10,000

------------ ------------ ------------ ------------ ------------Cost of Goods Sold $401,000 $488,100 $588,850 $611,032 $637,803Gross Margin $174,000 $211,900 $261,150 $278,068 $289,528

Gross Margin % 30.26% 30.27% 30.72% 31.28% 31.22%Expenses:Payroll $117,500 $111,000 $111,000 $111,000 $111,000Sales and Marketing and Other Expenses $11,400 $11,100 $16,550 $15,300 $17,550Depreciation $0 $0 $0 $0 $0Leased Equipment $0 $0 $0 $0 $0Gas and Oil $2,040 $3,000 $3,000 $3,000 $3,000Utilities $6,000 $6,000 $6,000 $6,000 $6,000Insurance $5,040 $5,500 $5,500 $5,500 $5,500Rent $0 $0 $0 $0 $0Payroll Taxes $17,625 $16,650 $16,650 $16,650 $16,650

Other $0 $0 $0 $0 $0------------ ------------ ------------ ------------ ------------

Total Operating Expenses $159,605 $153,250 $158,700 $157,450 $159,700Profit Before Interest and Taxes $14,395 $58,650 $102,450 $120,618 $129,828Interest Expense $54,664 $47,845 $39,095 $32,095 $26,495Taxes Incurred $0 $2,161 $12,671 $17,705 $20,667Net Profit ($40,269) $8,644 $50,684 $70,819 $82,666Net Profit/Sales -7.00% 1.23% 5.96% 7.97% 8.91%Include Negative Taxes FALSE TRUE TRUE TRUE TRUE

($40,000)

($20,000)

$0

$20,000

$40,000

$60,000

$80,000

$100,000

Profit Yearly

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8.4 Projected Cash Flow

The chart and table below contain the cash flow assumptions and projections for FarmersGroup during the first five years of plan implementation. Year 1 monthlies are presented in theappendix.

($100,000)

($50,000)

$0

$50,000

$100,000

$150,000

$200,000

$250,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Net Cash Flow

Cash Balance

Cash

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Table: Cash Flow

Pro Forma Cash Flow 2000 2001 2002 2003 2004

Cash ReceivedCash from Operations:Cash Sales $143,750 $175,000 $212,500 $222,275 $231,833Cash from Receivables $431,250 $525,000 $637,500 $666,825 $695,498

Subtotal Cash from Operations $575,000 $700,000 $850,000 $889,100 $927,331

Additional Cash ReceivedNon Operating (Other) Income $0 $0 $0 $0 $0Sales Tax, VAT, HST/GST Received $0 $0 $0 $0 $0New Current Borrowing $0 $0 $0 $0 $0

New Other Liabilities (interest-free) $0 $0 $0 $0 $0New Long-term Liabilities $0 $0 $0 $0 $0Sales of Other Current Assets $0 $0 $0 $0 $0Sales of Long-term Assets $0 $0 $0 $0 $0New Investment Received $0 $0 $0 $0 $0

Subtotal Cash Received $575,000 $700,000 $850,000 $889,100 $927,331

Expenditures 2000 2001 2002 2003 2004Expenditures from Operations:Cash Spending $57,154 $32,231 $67,167 $69,063 $73,701Payment of Accounts Payable $669,978 $421,884 $726,320 $748,902 $770,189

Subtotal Spent on Operations $727,132 $454,115 $793,486 $817,965 $843,891

Additional Cash SpentNon Operating (Other) Expense $0 $0 $0 $0 $0Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0Principal Repayment of Current Borrowing $54,000 $100,000 $100,000 $25,000 $35,000Other Liabilities Principal Repayment $0 $0 $0 $0 $0Long-term Liabilities Principal Repayment $0 $25,000 $25,000 $50,000 $50,000Purchase Other Current Assets $0 $0 $0 $0 $20,000Purchase Long-term Assets $0 $0 $0 $0 $0Dividends $0 $25,000 $20,000 $10,000 $10,000

Subtotal Cash Spent $781,132 $604,115 $938,486 $902,965 $958,891

Net Cash Flow ($206,132) $95,885 ($88,486) ($13,865) ($31,560)Cash Balance $39,268 $135,153 $46,667 $32,802 $1,242

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8.5 Projected Balance Sheet

Table: Balance Sheet

Pro Forma Balance Sheet

AssetsCurrent Assets 2000 2001 2002 2003 2004Cash $39,268 $135,153 $46,667 $32,802 $1,242Accounts Receivable ($0) $0 $0 $0 $0Inventory $241,400 $0 $0 $0 $0Other Current Assets $250,000 $250,000 $250,000 $250,000 $270,000

Total Current Assets $530,668 $385,153 $296,667 $282,802 $271,242Long-term AssetsLong-term Assets $500,000 $500,000 $500,000 $500,000 $500,000Accumulated Depreciation $0 $0 $0 $0 $0Total Long-term Assets $500,000 $500,000 $500,000 $500,000 $500,000Total Assets $1,030,668 $885,153 $796,667 $782,802 $771,242

Liabilities and Capital2000 2001 2002 2003 2004

Accounts Payable $9,537 $5,378 $11,208 $11,524 $12,298Current Borrowing $346,000 $246,000 $146,000 $121,000 $86,000

Other Current Liabilities $0 $0 $0 $0 $0Subtotal Current Liabilities $355,537 $251,378 $157,208 $132,524 $98,298

Long-term Liabilities $400,000 $375,000 $350,000 $300,000 $250,000Total Liabilities $755,537 $626,378 $507,208 $432,524 $348,298

Paid-in Capital $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000Retained Earnings ($684,600) ($749,869) ($761,225) ($720,541) ($659,722)Earnings ($40,269) $8,644 $50,684 $70,819 $82,666Total Capital $275,131 $258,775 $289,459 $350,278 $422,944Total Liabilities and Capital $1,030,668 $885,153 $796,667 $782,802 $771,242Net Worth $275,131 $258,775 $289,459 $350,278 $422,944

8.6 Business Ratios

The business ratios given below are contrasted to industry standards for SIC code 0161 whichcovers vegetable and melon growers. Within this category, research has shown that there canbe significant deviations from industry standards due to farm size, product life cycle, andcapital resources.

Farmers Group is a start-up venture, and therefore has a more heavy debt to equity ratio thanmost existing farms. Furthermore, due to its move into a niche market, the company isexpected to spend more on advertising than its competitors. The first two years of operationsare expected also to have a higher growth rate than average as it gains market share.

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Table: Ratios

Ratio Analysis

2000 2001 2002 2003 2004 Industry ProfileSales Growth 0.00% 21.74% 21.43% 4.60% 4.30% -4.60%

Percent of Total AssetsAccounts Receivable 0.00% 0.00% 0.00% 0.00% 0.00% 12.90%Inventory 23.42% 0.00% 0.00% 0.00% 0.00% 14.40%Other Current Assets 24.26% 28.24% 31.38% 31.94% 35.01% 28.90%Total Current Assets 51.49% 43.51% 37.24% 36.13% 35.17% 56.20%Long-term Assets 48.51% 56.49% 62.76% 63.87% 64.83% 43.80%Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Current Liabilities 0.00% 0.00% 0.00% 0.00% 0.00% 31.10%Long-term Liabilities 38.81% 42.37% 43.93% 38.32% 32.42% 20.50%Total Liabilities 38.81% 42.37% 43.93% 38.32% 32.42% 51.60%Net Worth 61.19% 57.63% 56.07% 61.68% 67.58% 48.40%

Percent of SalesSales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%Gross Margin 30.26% 30.27% 30.72% 31.28% 31.22% 32.00%Selling, General & AdministrativeExpenses

37.26% 29.04% 24.76% 23.31% 22.31% 20.70%

Advertising Expenses 0.83% 0.71% 1.23% 1.20% 1.23% 0.20%

Profit Before Interest and Taxes 2.50% 8.38% 12.05% 13.57% 14.00% 1.70%

Main RatiosCurrent 1.49 1.53 1.89 2.13 2.76 1.65Quick 0.81 1.53 1.89 2.13 2.76 0.88Total Debt to Total Assets 73.31% 70.76% 63.67% 55.25% 45.16% 51.60%Pre-tax Return on Net Worth -14.64% 4.18% 21.89% 25.27% 24.43% 2.20%Pre-tax Return on Assets -3.91% 1.22% 7.95% 11.31% 13.40% 4.50%

Business Vitality Profile 2000 2001 2002 2003 2004 IndustrySales per Employee $82,143 $100,000 $121,429 $127,014 $132,476 $0Survival Rate 0.00%

Additional Ratios 2000 2001 2002 2003 2004Net Profit Margin -7.00% 1.23% 5.96% 7.97% 8.91% n.aReturn on Equity -14.64% 3.34% 17.51% 20.22% 19.55% n.a

Activity RatiosAccounts Receivable Turnover 0.00 0.00 0.00 0.00 0.00 n.aCollection Days 40 0 0 0 0 n.aInventory Turnover 2.00 0.00 0.00 0.00 0.00 n.aAccounts Payable Turnover 68.10 77.67 65.33 65.01 62.69 n.aPayment Days 34 78 50 66 68

Total Asset Turnover 0.56 0.79 1.07 1.14 1.20 n.a

Debt RatiosDebt to Net Worth 2.75 2.42 1.75 1.23 0.82 n.aCurrent Liab. to Liab. 0.47 0.40 0.31 0.31 0.28 n.a

Liquidity RatiosNet Working Capital $175,131 $133,775 $139,459 $150,278 $172,944 n.a

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Appendix Table: Sales Forecast

Sales Forecast

Sales Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecSales $0 $0 $10,000 $25,000 $40,000 $55,000 $100,000 $175,000 $120,000 $50,000 $0 $0Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Total Sales $0 $0 $10,000 $25,000 $40,000 $55,000 $100,000 $175,000 $120,000 $50,000 $0 $0

Direct Cost of Sales Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecSales $0 $0 $6,800 $17,000 $27,200 $37,400 $68,000 $119,000 $81,600 $34,000 $0 $0Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Subtotal Direct Cost of Sales $0 $0 $6,800 $17,000 $27,200 $37,400 $68,000 $119,000 $81,600 $34,000 $0 $0

Appendix

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Appendix Table: General Assumptions

General Assumptions

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecPlan Month 1 2 3 4 5 6 7 8 9 10 11 12Current Interest Rate 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00%Long-term Interest Rate 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00%Tax Rate 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00%Sales on Credit % 75.00% 75.00% 75.00% 75.00% 75.00% 75.00% 75.00% 75.00% 75.00% 75.00% 75.00% 75.00%Other 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Calculated TotalsPayroll Expense $11,500 $11,500 $11,000 $7,500 $7,000 $9,500 $9,000 $9,500 $10,000 $10,500 $10,000 $10,500Sales on Credit $0 $0 $7,500 $18,750 $30,000 $41,250 $75,000 $131,250 $90,000 $37,500 $0 $0New Accounts Payable $19,981 $19,981 $19,466 $15,441 $14,810 $63,146 $160,830 $262,385 $18,160 $18,735 $18,002 $18,577Inventory Purchase $0 $0 $0 $0 $0 $50,600 $159,800 $272,000 $0 $0 $0 $0

Appendix

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Appendix Table: Cash Flow

Pro Forma Cash Flow Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Cash ReceivedCash from Operations:Cash Sales $0 $0 $2,500 $6,250 $10,000 $13,750 $25,000 $43,750 $30,000 $12,500 $0 $0Cash from Receivables $0 $0 $0 $5,250 $15,375 $26,625 $37,875 $64,875 $114,375 $102,375 $53,250 $11,250

Subtotal Cash from Operations $0 $0 $2,500 $11,500 $25,375 $40,375 $62,875 $108,625 $144,375 $114,875 $53,250 $11,250

Additional Cash ReceivedNon Operating (Other) Income $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Sales Tax, VAT, HST/GST Received 0.00% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0New Current Borrowing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0New Other Liabilities (interest-free) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0New Long-term Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Sales of Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Sales of Long-term Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0New Investment Received $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Subtotal Cash Received $0 $0 $2,500 $11,500 $25,375 $40,375 $62,875 $108,625 $144,375 $114,875 $53,250 $11,250

Expenditures Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecExpenditures from Operations:Cash Spending $751 $751 $757 $757 $751 $5,802 $16,720 $27,940 $740 $740 $722 $722Payment of Accounts Payable $33,225 $23,495 $22,739 $15,413 $14,866 $17,711 $41,356 $115,551 $215,836 $132,975 $18,160 $18,651

Subtotal Spent on Operations $33,976 $24,246 $23,497 $16,170 $15,617 $23,513 $58,076 $143,491 $216,576 $133,715 $18,882 $19,373

Additional Cash SpentNon Operating (Other) Expense $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Principal Repayment of Current Borrowing $0 $0 $0 $0 $5,000 $15,000 $4,000 $0 $0 $0 $30,000 $0Other Liabilities Principal Repayment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Long-term Liabilities Principal Repayment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Purchase Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Purchase Long-term Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Dividends $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Subtotal Cash Spent $33,976 $24,246 $23,497 $16,170 $20,617 $38,513 $62,076 $143,491 $216,576 $133,715 $48,882 $19,373

Net Cash Flow ($33,976) ($24,246) ($20,997) ($4,670) $4,758 $1,862 $799 ($34,866) ($72,201) ($18,840) $4,368 ($8,123)Cash Balance $211,424 $187,179 $166,182 $161,512 $166,270 $168,131 $168,931 $134,065 $61,864 $43,024 $47,391 $39,268

Appendix

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Appendix Table: Profit and Loss

Pro Forma Profit and Loss

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecSales $0 $0 $10,000 $25,000 $40,000 $55,000 $100,000 $175,000 $120,000 $50,000 $0 $0Direct Costs of Goods $0 $0 $6,800 $17,000 $27,200 $37,400 $68,000 $119,000 $81,600 $34,000 $0 $0Other $800 $800 $867 $867 $833 $833 $833 $833 $833 $833 $833 $833

------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------Cost of Goods Sold $800 $800 $7,667 $17,867 $28,033 $38,233 $68,833 $119,833 $82,433 $34,833 $833 $833Gross Margin ($800) ($800) $2,333 $7,133 $11,967 $16,767 $31,167 $55,167 $37,567 $15,167 ($833) ($833)Gross Margin % 0.00% 0.00% 23.33% 28.53% 29.92% 30.48% 31.17% 31.52% 31.31% 30.33% 0.00% 0.00%Expenses:Payroll $11,500 $11,500 $11,000 $7,500 $7,000 $9,500 $9,000 $9,500 $10,000 $10,500 $10,000 $10,500Sales and Marketing and Other Expenses $950 $950 $950 $950 $950 $950 $950 $950 $950 $950 $950 $950Depreciation $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Leased Equipment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Gas and Oil $170 $170 $170 $170 $170 $170 $170 $170 $170 $170 $170 $170

Utilities $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500Insurance $420 $420 $420 $420 $420 $420 $420 $420 $420 $420 $420 $420Rent $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Payroll Taxes 15% $1,725 $1,725 $1,650 $1,125 $1,050 $1,425 $1,350 $1,425 $1,500 $1,575 $1,500 $1,575Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------Total Operating Expenses $15,265 $15,265 $14,690 $10,665 $10,090 $12,965 $12,390 $12,965 $13,540 $14,115 $13,540 $14,115Profit Before Interest and Taxes ($16,065) ($16,065) ($12,357) ($3,532) $1,877 $3,802 $18,777 $42,202 $24,027 $1,052 ($14,373) ($14,948)Interest Expense $4,667 $4,667 $4,667 $4,667 $4,638 $4,550 $4,527 $4,527 $4,527 $4,527 $4,352 $4,352Taxes Incurred $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Net Profit ($20,732) ($20,732) ($17,023) ($8,198) ($2,761) ($748) $14,250 $37,675 $19,500 ($3,475) ($18,725) ($19,300)Net Profit/Sales 0.00% 0.00% -170.23% -32.79% -6.90% -1.36% 14.25% 21.53% 16.25% -6.95% 0.00% 0.00%Include Negative Taxes

Appendix

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Appendix Table: Personnel

Personnel Plan

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecBusiness Manager $1,500 $1,500 $1,500 $1,500 $1,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500Executive Director $1,500 $1,500 $1,500 $1,500 $1,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500Manager Trainee $0 $0 $0 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000Manager Trainee $0 $0 $0 $0 $0 $0 $0 $0 $1,000 $1,000 $1,000 $1,000Logistic engineer $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500Heavy equipment $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500Welder $500 $500 $0 $500 $0 $500 $0 $500 $0 $500 $0 $500Contract workers $5,000 $5,000 $5,000 $0 $0 $0 $0 $0 $0 $0 $0 $0Total People 12 12 12 7 7 7 7 7 7 7 7 7Total Payroll $11,500 $11,500 $11,000 $7,500 $7,000 $9,500 $9,000 $9,500 $10,000 $10,500 $10,000 $10,500

Appendix

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Farmers Group

Documents

Transcript of Farmers Group