Pho 24 in China

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Table of Contents

1. Executive Summary.....................................................................................................41.1. Objectives..............................................................................................................41.2. Mission..................................................................................................................51.3. Keys to Success.....................................................................................................5

2. Company Summary......................................................................................................52.1. Company Ownership.............................................................................................52.2. Start-up Summary.................................................................................................5

3. Products and Services...................................................................................................73.1. Product and Service Description...........................................................................73.2. Competitive Comparison......................................................................................8

4. Market Analysis Summary.........................................................................................114.1. Market Segmentation..........................................................................................114.2. Target Market Segment Strategy........................................................................13

4.2.1. Market Needs...............................................................................................144.2.2. Market Trends..............................................................................................15

4.3. Service Business Analysis..................................................................................154.3.1. Business Participants...................................................................................164.3.2. Main Competitors........................................................................................17

5. Strategy and Implementation Summary....................................................................185.1. SWOT Analysis..................................................................................................18

5.1.1. Strengths......................................................................................................185.1.2. Weaknesses..................................................................................................185.1.3. Opportunities...............................................................................................185.1.4. Threats.........................................................................................................19

5.2. Competitive Edge................................................................................................195.3. Marketing Strategy..............................................................................................19

5.3.1. Positioning Statement..................................................................................195.3.2. Pricing Strategy...........................................................................................195.3.3. Promotion Strategy......................................................................................205.3.4. Distribution Strategy....................................................................................21

5.4. Sales Strategy......................................................................................................255.4.1. Sales Forecast..............................................................................................25

6. Financial Plan............................................................................................................276.1. Start-up Funding.................................................................................................276.2. Key Financial Indicators.....................................................................................286.3. Break-even Analysis...........................................................................................296.4. Projected Profit and Loss....................................................................................306.5. Projected Cash Flow...........................................................................................356.6. Projected Balance Sheet......................................................................................376.7. Business Ratios...................................................................................................38

pho 24 in China

1. Executive Summary

Highlights

1.1.Objectives

1. Building up 20 stores in Guangzhou and Shanghai within a year.2. Gaining 5% of market share in Guangzhou and Shanghai.3. Gaining annual growth of 10%.

1.2.Mission

"Deliver operational excellent in our restaurantsAchieve enduring profitable growth through world - class management, innovation and technology"

1.3.Keys to Success

- Everything we do, is based on quality, customer service and integrity. We believe that repeat customers are the lifeblood of our business. We also trust that new customers are valuable energy for our business

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FY 2011 FY 2012 FY 2013

Sales

Gross Margin

Net Profit

pho 24 in China

development. Therefore, we invite our guests to come to any PHO24 outlets with great expectations and to leave with full satisfaction.- We are determined to expand our successful recipe and operation know-how through franchising concept but with careful selection of franchisees. We only select franchisees that can share and convey our high standards to our customers.

2. Company Summary

PHO has been the most famous dish of Vietnam but it was only known as street food for many decades. Therefore, the founders of PHO24 saw this is an excellent opportunity to create a new business concept that meets the high standards but still preserving the traditional value. After nearly two years of market research - especially the customer's taste - PHO24 has invented a unique flavor for PHO's broth derived from 24 top-quality ingredients and spices. This unique taste has been warmly welcomed by not only the customers from HCM City but also Ha Noi, Da Nang, Binh Duong, Vung Tau, Nha Trang and other provinces. The overseas market however will be the largest one. By July 2009 we have stores in Jakarta (Indonesia), Manila (Philippines), Phnom Penh (Cambodia), Seoul (Korea) and Sydney (Australia). In this August, PHO24 opened the sixth outlet in Jakarta Indonesia. Furthermore, In October 2009, PHO24 will be first introduce in Centre Business District in Hong Kong and the second outlet in Seoul, Korea will follow by. Japan and the United States are expected to be next destinations of PHO24 in 2010.

2.1.Company Ownership

PHO24 is a Vietnamese noodle restaurant chain belonging to Nam An Group, the biggest F&B Corporation in the country. Apart from PHO24, Nam An Group owns and operates many other different F&B brands including An Vien Restaurant, Maxim's Nam An Restaurant, Thanh Nien Restaurant, An Restaurant, Goody Ice Cream, Goody Plus Ice Cream, Ibox Café, etc.

2.2.Start-up Summary

Total start-up requirements (including legal costs, logo design, stationery and related expenses) comes to ¥710,451. The start-up costs are to be financed partially by the direct owner investment of ¥350,000 and financing in the amount of ¥360,451. The details are included in the following table and chart.

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pho 24 in China

Start-up Requirements Start-up Expenses Franchiee fee ¥134,090Location rent ¥30,000Insunace ¥10,000Legal fees ¥67,045Total Start-up Expenses ¥241,135 Start-up Assets Cash Required ¥33,523Other Current Assets ¥67,045Long-term Assets ¥368,748Total Assets ¥469,316 Total Requirements ¥710,451

Start-up

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¥400,000

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¥500,000

Expenses Assets Investment Loans

pho 24 in China

3. Products and Services

Everything we do, is based on quality, customer service and integrity. We believe that repeat customers are the lifeblood of our business. We also trust that new customers are valuable energy for our business development. Therefore, we invite our guests to come to any PHO24 outlets with great expectations and to leave with full satisfaction.

We are determined to expand our successful recipe and operation know-how through franchising concept but with careful selection of franchisees. We only select franchisees that can share and convey our high standards to our customers.

3.1.Product and Service Description

Pho with beef (Fillet/ Well - done flank/ Fat brisket)

Pho with beef (fillet/ well-done flank/ fat brisket/ soft tendon/ muscle/ tripe/ well-done brisket)

Pho with Chicken

Pho ALL (Fillet, well-done flank, fat brisket, soft-tendon, tripe, muscle and well-done brisket, beef meatballs)

American beef Noodle (Tenderloin)

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pho 24 in China

Nutrition Facts Pho Noodle Soup (pho24)

Serving size (g) 100

Calories 51

Calories From Fat 25

Total Fat (g) 2.4

Cholesterol (mg) 14.7

Carbohydrates (g) 3.3

Sugars (g) 0.9

Protein (g) 4.1

3.2.Competitive Comparison

YUM! China

The Yum! China Division, based in Shanghai, has been reported separately since the beginning of 2005 due to its size, unique strength and importance.

Mainland China is Yum! Brands' number one market for new company restaurant development worldwide. In 2009, the Company opened more than 500 new restaurants in mainland China.

Yum! China marked the 2004 opening of the 1,000th KFC in mainland China by gathering 1,000 Restaurant General Managers on the Great Wall for the world's largest "Yum! Cheer." Today there are nearly 3,000 KFC restaurants in more than 650 cities in China.

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pho 24 in China

China Quanjude Group

QUANJUDE, a famous historied brand of China, was established in 1864 (the third year of Tongzhi of Qing dynasty). During the 136 years, QUANJUDE has experienced business vicissitudes and survived the arduous ordeal of time. Throughout the years, QUANJUDE dishes have been greatly enriched due to developing and innovation.

The well-known All-Duck Banquet is headed by QUANJUDE roast duck and supported by over 400 dishes with QUANJUDE characteristic flavor. Government leaders, officials and VIPs from nearly 200 countries and regions have visited QUANJUDE roast duck restaurants and had dinner here.

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pho 24 in China

In January of 1999, QUANJUDE was awarded the title of "China Renowned Trademark", which is the first and unique case as of now in the service trade. This honor also contributes to QUANJUDE's image of high quality, excellent taste, rich and profound culture.

4. Market Analysis Summary

Pho 24 will focus on 3 markets:

1. Local consumers: someone living around Pho 24 facilities, single persons who do not like cooking at home, and local people who like to enjoy vietnamese cuisine.

2. Daily commuters: someone travelling to or from work, out shopping, delivering goods and services, or just out for a drive.

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pho 24 in China

3. Vietnamese community: Vietnamese who live and work in Guangzhou and Shanghai will be one of our target consumers.

There are some factors that Pho 24 should consider when doing business in china, as following:

1. Political factors: The people's Republic of china has a communist government. There is a single legislative house, the National People's Congress; all members belong to communist party. The communist regime is highly centralized and authoritarian and control many aspects of life in china. Thereforce, Pho 24 should build up a good relation with China government.

2. Economic factors: The reform that started in late 1978 has turned China into the fastest growing major economy in the world. In 2007, China' s GDP registered an 11.4% growth, a 13-year high, to reach RMB 24.66 trillion (US$3.24 trillion). In the same year, China also ranked the fourth largest economy in the world, with figures amounting to only approximately 2% less than Germany . China is expected to replace Germany as the world's third largest economy in 2008. In terms of GDP per capita, China exceeded US$1,000 for the first time in 2003. After a mere four-year period, China more than doubled its GDP per capita to US$2,455 in 2007. Although this figure is still far behind the world's developed countries, it is a respectable achievement for a nation with a huge population - especially one where the majority of its people lived below the poverty line three decades ago. Totally, China is a potential market for Pho 24 to develop its business.

3. Sociocultural factors: The chinese appreciate visitors who demonstrate an interest in their culture and history, Pho 24 designs should be fit with China culture. The family, school, work units and local communities are the basic social structures that give stability to a person's life. Therefore, Pho 24 should consider collective issues as its strategy to develop business.

4. Technological factors: Although using internet is popular in china, Internet using is hamperd by goverment which censors the content of the website. Moreover, Chinese may lack of using credit card, Pho 24 may design the payment system that is suitable for the chinese.

4.1.Market Segmentation

Pho 24 focus on local consumers who aged over 25, having good job, and especially towards people who have family. Stepping in our facilities, consumers will feel that they are at home. These people will in the complex near our locations.

With vietnamese people, Pho 24 provide them homeland's taste, and inspire them the feeling that they are back home.

Commuters are defined as any one or more individuals in a motorized vehicle travelling from "A" to "B".

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pho 24 in China

Market Analysis 2010 2011 2012 2013 2014 Potential Customers Growth CAGRLocal consumers 15% 80,000 92,000 105,80

0121,67

0139,92

115.00%

Daily Commuters 10% 25,000 27,500 30,250 33,275 36,603 10.00%Vietnamese 5% 1,000 1,050 1,103 1,158 1,216 5.01%Total 13.79% 106,00

0120,55

0137,15

3156,10

3177,74

013.79%

Market Analysis (Pie)

4.2.Target Market Segment Strategy

Pho 24 considers familial factor for local people who live around our location, and patriotic factor for Vietnamese people who live in China as strategic factors to develop business.

Pho 24 will design marketing program which provide beneficiary for Vietnamese people and family units. We will use the celebrities' image to be representatives of Pho 24 such as Chen Hao, Au Yeung Chun Wah, Wu Hang Yee. These celebrities will go along with Pho 24's marketing programs.

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Local consumers

Daily Commuters

Vietnamese

pho 24 in China

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pho 24 in China

Furthermore, we also advertise directly to vietnamese community in Vietnam. Pho 24 will operate many special events for vietnamese people.

4.2.1. Market Needs

According to statistics, developed countries have one restaurant for every 268 persons. However, in China, the ratio is approximately 2000 persons to one restaurant. This suggests that China's food and beverage market is far from saturated. In spite of this, the low entrance barrier and rapidly increasing number of new catering enterprises will result in fiercer and more intensive competition for new entrants to this industry.

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pho 24 in China

4.2.2. Market Trends

The food and beverage sector is one of the sunrise businesses in the country. In 1978, an average Chinese household spent less than RMB 6 per capita on dining in restaurants but that figure has rocketed to RMB 800 in 2006 - more than 133 times that in 1978. Though the proportion of per capita food expenditure fell from 54.3% in 1990 to 35.8% in 2006, along with an improving living standard and fast urbanization of China cities, the absolute volume of food consumed by the Chinese maintains an upward trend. It is also a trend for the Chinese to dine at restaurants these days.

4.3.Service Business Analysis

The Food and beverage business (F&B) is surely booming in China - home to the world's largest population and a nation whose economy has been rapidly growing since its opening up. According to "the Eleventh Five-year Outline for Commercial Development" issued by China's Ministry of Commerce, the actual growth rate of added value in catering industries is set to increase 9% annually from 2006 to 2010. As a traditional pillar industry in China's service sector, sales of food and beverage has maintained an annual growth rate of over 10% for 16 years.

In 2007, the combined sales from food & beverage and accommodation sectors have surged 19.4% year-on-year to surpass RMB 1.2 trillion, three percentage points higher than the growth rate of the previous year. Over 938 foreign-funded enterprises have been set up in 2007, down 11.5% year-on-year, while investments exceeded US$1 billion, up 25.8% year-on-year. Figure 3.2.1 shows China's F&B sales from 1991 to 2007.

China's chain and franchise business in the F&B industry started in 1987 when KFC Corp launched its first franchise in Beijing. After nearly two decades of development, chain and franchise businesses have become a mainstay in China's food and beverage sector. Turnover from chain catering enterprises that are above designated size has soared 21.5% year-on-year to RMB 55.2 billion in 2006, 98.6% of which comes from the sale of meals and 1.4% from sales of commodities.

Among all the business categories, meal revenue from chain and franchise restaurants jumped 22.3% year-on-year to RMB 30.3 billion in 2006, accounting for 55.7% of the total. At the same time, fast food chains have realized meal revenues of RMB 22.4 billion, making up 41.1% of the total. The share of fast food chains was 17.7% lower than that in 2004. Figure 3.2.2 illustrates the chain F&B business breakdown by revenue from meals.

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pho 24 in China

After nearly two decades of development, chain and franchise businesses have become a mainstay in China's food and beverage sector.

4.3.1. Business Participants

There are 2 kinds of competitors in this industry such as branded enterprises, and unknown vendors. Although unknown vendors are our direct competitors, they just contribute a little amount of market share in F& B industry. Branded enterprises who have a huge amount of market share, will affect on our profit.

1. Branded enterprises:

In this section, Pho 24 will face with a lot of big corporations such as Yum!Brand Inc, Inner Mongolia Little Sheep Catering Chain Co.Ltd, McDonald, MGF Catering Strategy Co. Ltd, Chongqing Dezhuang Group, Chongqing Cygnet Group, Tianjin Dico's, China Quanjude Group, Chongqing Qinma Cultural Food& beverage Co.ltd.

In 2006, the output from the top 100 F&B firms amounted to RMB 83.2 billion, representing a growth of 24.4% over the previous year and accounting for 52.9% of the total output of China's catering enterprises (with designated size). The top 100 F&B firms opened a total of 11,360 chain stores in China in 2006, 16.5% more than in 2005.

Meanwhile, the combined output from the top 10 catering enterprises reached RMB 41.8 billion and the number of chain stores established by these enterprises hit 6,442, accounting for 50.13% and 44.5% of the top 100 catering enterprises' total output and the total number of chain stores respectively.

2. Unknown vendors:

Vietnamese people who like to open Pho stores in China, will be our direct competitors. However, these competitors won't affect a lots on our revenue.

4.3.2. Main Competitors

Inner Mongolia Little Sheep Catering Chain Co. Ltd, established in Baotao in west China's Inner Mongolia Autonomous Region in 1999, is China's largest domestic catering enterprise. It has spared no effort in raising its portfolio in the global market. In November 2007, the company opened its second store in the U.S. to further expand its business in China.

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pho 24 in China

Inner Mongolia Little Lamb Catering Chain Co. Ltd, another company set up in Baotou in September 2001, is currently operating 6 branches and 3 subsidiaries in Beijing, Shanghai, Shenzhen, Jiangsu, Anhui and Zhejiang. It also established its presence in Japan, Australia, Britain, Vietnam and the United Arab Emirates by providing hot pots to the local residents.

China Quanjude Group Co. Ltd, highly reputed for its roast ducks, was set up in 1864. With 141 years of development, it has become one of the most famous brands in China. In November 2007, it succeeded in raising at least RMB 380 million through a domestic listing on the Shenzhen Stock Exchange.

These Competitors does not have much influences on Pho 24' sales, because Pho 24 takes advantage on niche market which uses vietnamese's traditional foods as main products.

5. Strategy and Implementation Summary

The primary focus for Pho 24's maketing strategy must be to increase sales and profitabilities. Our strategy based on the scare of sanitary foods because chinese people do not belive in their hygiene of foods. Moreover, we also use celebrities' images to be our representatives because it bring chinese people coming close to our brand.

5.1.SWOT Analysis

SWOT analysis will be useful for Pho 24 to determine its strenghts, weaknesses, Opportunities, and Threats.

5.1.1. Strengths

1. Experiences on developing Pho 24 Brand in many countries: Pho 24 developed many stores in Jakata (indonesia), Manila (Philippines), Phnom Penh (Cambodia), Seoul (Korea) and Sydney (Australia).

2. Clear vision of market needs: We know the customers, we know the technology, and we know how to build the service that will bring the two together.

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pho 24 in China

3. Easy to apply Chinese culture: Vietnam culture was affected a lots by China culture, Pho 24 won't use heaps of times for applying Chinese culture in its business.

4. Low labor cost: Low labor and land costs are often cited as China's main competitive advantages.

5. Good financial conditions: Pho 24 will be funded by Vina Capital.

5.1.2. Weaknesses

1. Different taste: Customer behavior might be inappropriate in China.2. Challenges of the seasonality of the business.

5.1.3. Opportunities

1. Potential markets: Shanghai and Guangzhou are 2 potential markets for Pho 24 to develop its brand. (Shanghai with 16 millions people, and Guangzhou with 6 millions people)

2. Potential franchisees: F& B industry in Shanghai and Guangzhou contributes a large amount of GDP in China economy. Therefore, Shanghai and Guangzhou will have a lot of franchisees who want to buy Pho 24's brand to develop their own business.

5.1.4. Threats

1. Racial discrimination: Chinese might not want to have meals in Pho 24 stores.2. Polical issues: Pho 24 might be in troubles with China government because of the conflict

between China and Vietnam.3. Emerging local competitors: Currently, Pho 24 is the first chain that provide Vietnam

traditional foods in Vietnam. However, local competitors might duplicate the model of Pho 24 to develop their own brands.

5.2.Competitive Edge

Pho 24 uses fresh raw material. Beef and chicken always keep their freshness when deliver foods to consumers.

Pho 24 has no inventory. In F& B industry, Pho 24 is the first brand developed in Guangzhou and Shanghai.

5.3.Marketing Strategy

Pho 24 will develop marketing strategy based on scare of hygiene foods. We will provide customers high quality products with proper prices. Furthermore, to penetrate to China market, Pho 24 choose Chen Hao, Au Yeung Chun Wah, Wu Hang Yee, to be our representatives.

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pho 24 in China

5.3.1. Positioning Statement

Yuing Loung, chef of Phuc Huong Vien restaurant- Chinese ones in Vietnam and Mr.Frederic Meynard – Chef of HiltonHanoi Opera hotel rates:

Quality Analysis: Pho 24Objectives Main Point Rate point Total point

Service 0.25 2 0.5Sanitari food 0.3 3 0.9

atmosphere 0.25 2 0.5Taste 0.2 2.5 0.5

Sum 1 2.4

Inner Mongolia Little Sheep Catering

Inner Mongolia Little Sheep

CateringObjectives Main Point Rate point Total point

Service 0.25 2.5 0.625Sanitari food 0.3 2.5 0.75

atmosphere 0.25 2.3 0.575Taste 0.2 2.5 0.5

Sum 1 2.45

Chongqing Dezhuang Group

Chongqing Dezhuang GroupObjectives Main Point Rate point Total point



Sum 1 2.485

Tianjin Deco’s

Tianjin Deco'sObjectives Main Point Rate point Total point



Sum 1 2.525

Price Analysis:Pho 24 3

Inner Mongolia Little Sheep Catering 2.5Chongqing Dezhuang Group 2

Tianjin Deco's 2.3

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pho 24 in China

Position Analysis

Current position: High Quality, high price

Quality Analysis: focus on “Sanitary food”

Price Analysis: Focus on high class segment

5.3.2. Pricing Strategy

NoPricing strategies

Description

1Seasonal price

Pho 24 will give customers discount on price for the whole products of Pho 24 periodly. ( summer, lunar holiday, etc)

2Happy hours

Pho 24 will offer customers discount on price in happy hours ( 1:00PM- 4:00PM)

3 Constant price

To build up trust in customers' mind, Pho 24 will keep the price constantly during the first year except specific

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pho 24 in China

periods.

5.3.3. Promotion Strategy

1. Designing special events for Vietnamese people such as independent day, 8th March, etc. Pho 24 will be the station for vietnamese people coming together in holidays.

2. Designing family packages for local consumers such as discount 20% for family who has meals at Pho 24.

3. We also do advertising based on scare of hygiene foods. Pho 24 always consider " fresh& new" factor as its strategy; therefore, we will offer a reward for people who can find that our foods is not hygiene.

4. Pho 24 will use some advertising chanel to bring its image to local customers such as:o Forum seeding: We cooperate with many websites which have a large amount of

view pages in China. The reviews about Pho 24 will be updated daily.o Brochure: we will send brochure directly to vietnamese people, and local

consumers living around our facilities.o Newspaper: Pho 24 will coordinate with many newspapers to advertise our

brand. ( posting reward about 1millions RMB for people who can find that our products are not hygiene)

5. Using celebrities' image to approach china culture. Pho 24 choose Chen Hao, Au Yeung Chun Wah, Wu Hang Yee to be our representatives.

5.3.4. Distribution Strategy

Pho 24 will develop choose to develop its location in area with high population. Here are some requirements:

Near complex buildings. Having more than 800000 people. Near vietnamese community. Near the market. Visible from roadway. easy entry with light if less than 30000 cars.

Distribution system of Pho 24 in Guangzhou:

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pho 24 in China

Distribution system of Pho 24 in Shanghai:

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pho 24 in China

5.4.Sales Strategy:

5.4.1. Sales Forecast

The table below outlines the sales forecast and cost of goods sold. The forecast is based on reasonable sales projections within this very large market.

The exponential growth of the access charge revenues is based on the cumulative volume of the PHO units sold.

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pho 24 in China

Sales Forecast FY 2011 FY 2012 FY 2013Unit Sales Pho with beef 42,769 108,283 150,000Pho with chicken 32,076 81,222 120,000Total Unit Sales 74,845 189,506 270,000 Unit Prices FY 2011 FY 2012 FY 2013Pho with beef ¥10.00 ¥10.00 ¥10.00Pho with chicken ¥10.00 ¥10.00 ¥10.00 Sales Pho with beef ¥427,686 ¥1,082,835 ¥1,500,000Pho with chicken ¥320,764 ¥812,221 ¥1,200,000Total Sales ¥748,450 ¥1,895,056 ¥2,700,000 Direct Unit Costs FY 2011 FY 2012 FY 2013Pho with beef ¥4.00 ¥0.00 ¥0.00Pho with chicken ¥4.50 ¥0.00 ¥0.00 Direct Cost of Sales Pho with beef ¥171,074 ¥0 ¥0Pho with chicken ¥144,344 ¥0 ¥0Subtotal Direct Cost of Sales ¥315,418 ¥0 ¥0

Sales Monthly

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Pho with beef

Pho with chicken

pho 24 in China

Sales by Year

6. Financial Plan

6.1.Start-up Funding

Owner

C.L. group will invest £150,000 in cash, benefits and labour to the start up.

Investors

VinaCapital Fund is in the process of negotiating with potential investors for the seed cash needed to start the business. It is expected that £200,000 will be raised to start the business. It is expected that no more than 10% interest will be given to each investor.

Bank Financing

VinaCapital Fund is submitting business plans and other requested documents to financial institutions in pursuit of the additional £350,000 needed to finance the rest of the company and provide operating cash for the business. It is expected that the loan will be a part of the SBA 7(a) programme. It is assumed that the terms of the loan will require repayment in 5 years, at a rate of 8%.

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FY 2011 FY 2012 FY 2013

Pho with beef

Pho with chicken

pho 24 in China

Start-up FundingStart-up Expenses to Fund ¥241,135Start-up Assets to Fund ¥469,316Total Funding Required ¥710,451 Assets Non-cash Assets from Start-up ¥435,793Cash Requirements from Start-up ¥33,523Additional Cash Raised ¥1Cash Balance on Starting Date ¥33,523Total Assets ¥469,316 Liabilities and Capital Liabilities Current Borrowing ¥50,000Long-term Liabilities ¥300,000Other Current Liabilities (interest-free) ¥10,451Total Liabilities ¥360,451 Capital Planned Investment Owner ¥150,000Investor ¥200,000Additional Investment Requirement ¥0Total Planned Investment ¥350,000 Loss at Start-up (Start-up Expenses) (¥241,135)Total Capital ¥108,865 Total Capital and Liabilities ¥469,316 Total Funding ¥710,451

6.2.Key Financial Indicators

The following chart shows changes in key financial indicators: sales, gross margin, operating expenses. The growth in sales goes to above 20% for the second year in a row.

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Benchmarks

6.3.Break-even Analysis

Pho24 revenues are generated from unit sales. Given this, the break-even formula must be adjusted to reflect both one time and recurring revenue activities. Using the sales forecast as a guide, and based on estimates made for fixed cost, average revenue per unit, variable cost for unit manufacturing and service fees, the break-even volume was established to be 4,955 units per month with a subscription base of 49,550. We anticipate achieving break even at month 4 as detailed in the graph below.

Break-even Analysis Monthly Units Break-even 4,955Monthly Revenue Break-even ¥49,550 Assumptions: Average Per-Unit Revenue ¥10.00Average Per-Unit Variable Cost ¥4.21Estimated Monthly Fixed Cost ¥28,668

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0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

Sales

Gross Margin%

Operating Expenses

FY 2011 FY 2012 FY 2013

pho 24 in China

Break-even Analysis

6.4.Projected Profit and Loss

The most important assumption in the Projected Profit and Loss statement is the gross margin, which is supposed to increase.

Month-by-month assumptions for profit and loss are included in the appendix.

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(¥30,000)

(¥20,000)

(¥10,000)

¥0

¥10,000

¥20,000

¥30,000

0 1600 3200 4800 6400 8000

Monthly break-even point

Break-even point = where line intersects with 0

pho 24 in China

Pro Forma Profit and Loss FY 2011 FY 2012 FY 2013Sales ¥748,450 ¥1,895,056 ¥2,700,000Direct Costs of Goods ¥315,418 ¥0 ¥0Other Costs of Goods ¥0 ¥0 ¥0 ------------ ------------ ------------Cost of Goods Sold ¥315,418 ¥0 ¥0 Gross Margin ¥433,032 ¥1,895,056 ¥2,700,000Gross Margin % 57.86% 100.00% 100.00% Expenses Payroll ¥97,200 ¥106,800 ¥106,800Marketing/Promotion ¥71,757 ¥71,757 ¥71,757Depreciation ¥24,000 ¥24,000 ¥24,000Rent ¥120,000 ¥120,000 ¥120,000Electricity ¥9,600 ¥10,800 ¥12,000Insurance ¥12,000 ¥12,000 ¥120,000Royality fee ¥9,463 ¥27,008 ¥40,000 ------------ ------------ ------------Total Operating Expenses ¥344,020 ¥372,365 ¥494,557 Profit Before Interest and Taxes

¥89,012 ¥1,522,691 ¥2,205,443

EBITDA ¥113,012 ¥1,546,691 ¥2,229,443Interest Expense ¥34,025 ¥32,225 ¥25,100Taxes Incurred ¥16,496 ¥447,140 ¥654,103 Net Profit ¥38,491 ¥1,043,326 ¥1,526,240Net Profit/Sales 5.14% 55.06% 56.53%

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Profit Monthly

Profit Yearly

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(¥10,000)

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FY 2011 FY 2012 FY 2013

pho 24 in China

Gross Margin Monthly

Gross Margin Yearly

6.5.Projected Cash Flow

The following chart and table show the project cash flow for Pho24

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¥0

¥10,000

¥20,000

¥30,000

¥40,000

¥50,000

¥60,000


¥0

¥500,000

¥1,000,000

¥1,500,000

¥2,000,000

¥2,500,000

¥3,000,000

FY 2011 FY 2012 FY 2013

pho 24 in China

Pro Forma Cash Flow FY 2011 FY 2012 FY 2013Cash Received Cash from Operations Cash Sales ¥748,450 ¥1,895,056 ¥2,700,000Subtotal Cash from Operations ¥748,450 ¥1,895,056 ¥2,700,000 Additional Cash Received Sales Tax, VAT, HST/GST Received

¥0 ¥0 ¥0

New Current Borrowing ¥18,000 ¥18,000 ¥18,000New Other Liabilities (interest-free)

¥0 ¥0 ¥0

New Long-term Liabilities ¥36,000 ¥36,000 ¥36,000Sales of Other Current Assets ¥0 ¥0 ¥0Sales of Long-term Assets ¥0 ¥0 ¥0New Investment Received ¥60,000 ¥60,000 ¥60,000Subtotal Cash Received ¥862,450 ¥2,009,056 ¥2,814,000 Expenditures FY 2011 FY 2012 FY 2013 Expenditures from Operations Cash Spending ¥685,959 ¥827,730 ¥1,149,760Subtotal Spent on Operations ¥685,959 ¥827,730 ¥1,149,760 Additional Cash Spent Sales Tax, VAT, HST/GST Paid Out

¥0 ¥0 ¥0

Principal Repayment of Current Borrowing

¥12,000 ¥12,000 ¥120,000

Other Liabilities Principal Repayment

¥3,000 ¥3,000 ¥3,000

Long-term Liabilities Principal Repayment

¥60,000 ¥60,000 ¥60,000

Purchase Other Current Assets ¥18,000 ¥18,000 ¥18,000Purchase Long-term Assets ¥21,384 ¥45,412 ¥50,000Dividends ¥19,200 ¥19,200 ¥19,200Subtotal Cash Spent ¥819,544 ¥985,341 ¥1,419,960 Net Cash Flow ¥42,906 ¥1,023,715 ¥1,394,040Cash Balance ¥76,429 ¥1,100,144 ¥2,494,184

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pho 24 in China

Cash

6.6.Projected Balance Sheet

The Projected Balance Sheet is quite solid. We do not project any real trouble meeting our debt obligations--as long as we can achieve our specific objectives.

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(¥10,000)

¥0

¥10,000

¥20,000

¥30,000

¥40,000

¥50,000

¥60,000

¥70,000

¥80,000


Net Cash Flow

Cash Balance

pho 24 in China

Pro Forma Balance Sheet FY 2011 FY 2012 FY 2013Assets Current Assets Cash ¥76,429 ¥1,100,144 ¥2,494,184Other Current Assets ¥85,045 ¥103,045 ¥121,045Total Current Assets ¥161,474 ¥1,203,189 ¥2,615,229 Long-term Assets Long-term Assets ¥390,132 ¥435,544 ¥485,544Accumulated Depreciation ¥24,000 ¥48,000 ¥72,000Total Long-term Assets ¥366,132 ¥387,544 ¥413,544Total Assets ¥527,607 ¥1,590,733 ¥3,028,773 Liabilities and Capital FY 2011 FY 2012 FY 2013 Current Liabilities Current Borrowing ¥56,000 ¥62,000 (¥40,000)Other Current Liabilities ¥7,451 ¥4,451 ¥1,451Subtotal Current Liabilities ¥63,451 ¥66,451 (¥38,549) Long-term Liabilities ¥276,000 ¥252,000 ¥228,000Total Liabilities ¥339,451 ¥318,451 ¥189,451 Paid-in Capital ¥410,000 ¥470,000 ¥530,000Retained Earnings (¥260,335) (¥241,044) ¥783,082Earnings ¥38,491 ¥1,043,326 ¥1,526,240Total Capital ¥188,156 ¥1,272,282 ¥2,839,322Total Liabilities and Capital ¥527,607 ¥1,590,733 ¥3,028,773 Net Worth ¥188,156 ¥1,272,282 ¥2,839,322

6.7.Business Ratios

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pho 24 in China

Ratio Analysis FY 2011 FY 2012 FY 2013 Industry

ProfileSales Growth 0.00% 153.20% 42.48% 6.61% Percent of Total Assets Other Current Assets 16.12% 6.48% 4.00% 37.82%Total Current Assets 30.61% 75.64% 86.35% 46.43%Long-term Assets 69.39% 24.36% 13.65% 53.57%Total Assets 100.00% 100.00% 100.00% 100.00% Current Liabilities 12.03% 4.18% -1.27% 18.73%Long-term Liabilities 52.31% 15.84% 7.53% 24.30%Total Liabilities 64.34% 20.02% 6.26% 43.03%Net Worth 35.66% 79.98% 93.74% 56.97% Percent of Sales Sales 100.00% 100.00% 100.00% 100.00%Gross Margin 57.86% 100.00% 100.00% 53.81%Selling, General & Administrative Expenses

52.71% 44.94% 43.47% 26.40%

Advertising Expenses 0.00% 0.00% 0.00% 2.78%Profit Before Interest and Taxes

11.89% 80.35% 81.68% 1.69%

Main Ratios Current 2.54 18.11 -67.84 1.36Quick 2.54 18.11 -67.84 0.89Total Debt to Total Assets 64.34% 20.02% 6.26% 52.81%Pre-tax Return on Net Worth 29.22% 117.15% 76.79% 5.07%Pre-tax Return on Assets 10.42% 93.70% 71.99% 10.73% Additional Ratios FY 2011 FY 2012 FY 2013 Net Profit Margin 5.14% 55.06% 56.53% n.aReturn on Equity 20.46% 82.00% 53.75% n.a Activity Ratios Accounts Payable Turnover 8.74 9.16 12.17 n.aTotal Asset Turnover 1.42 1.19 0.89 n.a Debt Ratios Debt to Net Worth 1.80 0.25 0.07 n.aCurrent Liab. to Liab. 0.19 0.21 -0.20 n.a Liquidity Ratios Net Working Capital ¥98,023 ¥1,136,738 ¥2,653,778 n.aInterest Coverage 2.62 47.25 87.87 n.a

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pho 24 in China

Additional Ratios Assets to Sales 0.70 0.84 1.12 n.aCurrent Debt/Total Assets 12% 4% -1% n.aAcid Test 2.54 18.11 0.00 n.aSales/Net Worth 3.98 1.49 0.95 n.aDividend Payout 0.50 0.02 0.01 n.a

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Appendix

Sales Forecast Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11Unit Sales Pho with beef 0% 2,000 2,200 2,420 2,662 2,928 3,221 3,543 3,897 4,287 4,716 5,187 5,706Pho with chicken 0% 1,500 1,650 1,815 1,997 2,196 2,416 2,657 2,923 3,215 3,537 3,891 4,280Total Unit Sales 3,500 3,850 4,235 4,659 5,124 5,637 6,200 6,821 7,503 8,253 9,078 9,986 Unit Prices Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11Pho with beef ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00Pho with chicken ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 Sales Pho with beef ¥20,000 ¥22,000 ¥24,200 ¥26,620 ¥29,282 ¥32,210 ¥35,431 ¥38,974 ¥42,872 ¥47,159 ¥51,875 ¥57,062Pho with chicken ¥15,000 ¥16,500 ¥18,150 ¥19,965 ¥21,962 ¥24,158 ¥26,573 ¥29,231 ¥32,154 ¥35,369 ¥38,906 ¥42,797Total Sales ¥35,000 ¥38,500 ¥42,350 ¥46,585 ¥51,244 ¥56,368 ¥62,005 ¥68,205 ¥75,026 ¥82,528 ¥90,781 ¥99,859 Direct Unit Costs Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11Pho with beef 40.00% ¥4.00 ¥4.00 ¥4.00 ¥4.00 ¥4.00 ¥4.00 ¥4.00 ¥4.00 ¥4.00 ¥4.00 ¥4.00 ¥4.00Pho with chicken 45.00% ¥4.50 ¥4.50 ¥4.50 ¥4.50 ¥4.50 ¥4.50 ¥4.50 ¥4.50 ¥4.50 ¥4.50 ¥4.50 ¥4.50 Direct Cost of Sales Pho with beef ¥8,000 ¥8,800 ¥9,680 ¥10,648 ¥11,713 ¥12,884 ¥14,172 ¥15,590 ¥17,149 ¥18,864 ¥20,750 ¥22,825Pho with chicken ¥6,750 ¥7,425 ¥8,168 ¥8,984 ¥9,883 ¥10,871 ¥11,958 ¥13,154 ¥14,469 ¥15,916 ¥17,508 ¥19,259Subtotal Direct Cost of Sales ¥14,750 ¥16,225 ¥17,848 ¥19,632 ¥21,595 ¥23,755 ¥26,131 ¥28,744 ¥31,618 ¥34,780 ¥38,258 ¥42,083

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Appendix

Sales Forecast 2nd Year Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12Unit Sales Pho with beef 0% 5,706 6,162 6,655 7,188 7,763 8,384 9,055 9,779 10,561 11,406 12,319 13,304Pho with chicken 0% 4,280 4,622 4,992 5,392 5,823 6,289 6,792 7,335 7,922 8,556 9,240 9,979Total Unit Sales 9,986 10,785 11,648 12,579 13,586 14,673 15,847 17,114 18,483 19,962 21,559 23,284 Unit Prices Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12Pho with beef ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00Pho with chicken ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 ¥10.00 Sales Pho with beef ¥57,060 ¥61,625 ¥66,555 ¥71,879 ¥77,630 ¥83,840 ¥90,547 ¥97,791 ¥105,614 ¥114,063 ¥123,188 ¥133,043Pho with chicken ¥42,800 ¥46,224 ¥49,922 ¥53,916 ¥58,229 ¥62,887 ¥67,918 ¥73,352 ¥79,220 ¥85,557 ¥92,402 ¥99,794Total Sales ¥99,860 ¥107,849 ¥116,477 ¥125,795 ¥135,858 ¥146,727 ¥158,465 ¥171,142 ¥184,834 ¥199,621 ¥215,590 ¥232,837 Direct Unit Costs Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12Pho with beef 0% ¥0.00 ¥0.00 ¥0.00 ¥0.00 ¥0.00 ¥0.00 ¥0.00 ¥0.00 ¥0.00 ¥0.00 ¥0.00 ¥0.00Pho with chicken 0% ¥0.00 ¥0.00 ¥0.00 ¥0.00 ¥0.00 ¥0.00 ¥0.00 ¥0.00 ¥0.00 ¥0.00 ¥0.00 ¥0.00 Direct Cost of Sales Pho with beef ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0Pho with chicken ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0Subtotal Direct Cost of Sales ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0

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Appendix

Personnel Plan Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11Managers 0% ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000Back-office employees 0% ¥4,500 ¥4,500 ¥4,500 ¥4,500 ¥4,500 ¥4,500 ¥4,500 ¥4,500 ¥4,500 ¥4,500 ¥4,500 ¥4,500Font-office employees 0% ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600Total People 8 8 8 8 8 8 8 8 8 8 8 8 Total Payroll ¥8,100 ¥8,100 ¥8,100 ¥8,100 ¥8,100 ¥8,100 ¥8,100 ¥8,100 ¥8,100 ¥8,100 ¥8,100 ¥8,100

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Appendix

Personnel 2nd Year Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12Managers ¥2,200 ¥2,200 ¥2,200 ¥2,200 ¥2,200 ¥2,200 ¥2,200 ¥2,200 ¥2,200 ¥2,200 ¥2,200 ¥2,200Back-office employees ¥4,940 ¥4,940 ¥4,940 ¥4,940 ¥4,940 ¥4,940 ¥4,940 ¥4,940 ¥4,940 ¥4,940 ¥4,940 ¥4,940Font-office employees ¥1,760 ¥1,760 ¥1,760 ¥1,760 ¥1,760 ¥1,760 ¥1,760 ¥1,760 ¥1,760 ¥1,760 ¥1,760 ¥1,760Total People 9 9 9 9 9 9 9 9 9 9 9 9 Total Payroll ¥8,900 ¥8,900 ¥8,900 ¥8,900 ¥8,900 ¥8,900 ¥8,900 ¥8,900 ¥8,900 ¥8,900 ¥8,900 ¥8,900

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Appendix

Pro Forma Profit and Loss Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11Sales ¥35,000 ¥38,500 ¥42,350 ¥46,585 ¥51,244 ¥56,368 ¥62,005 ¥68,205 ¥75,026 ¥82,528 ¥90,781 ¥99,859Direct Costs of Goods ¥14,750 ¥16,225 ¥17,848 ¥19,632 ¥21,595 ¥23,755 ¥26,131 ¥28,744 ¥31,618 ¥34,780 ¥38,258 ¥42,083Other Costs of Goods ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------Cost of Goods Sold ¥14,750 ¥16,225 ¥17,848 ¥19,632 ¥21,595 ¥23,755 ¥26,131 ¥28,744 ¥31,618 ¥34,780 ¥38,258 ¥42,083 Gross Margin ¥20,250 ¥22,275 ¥24,503 ¥26,953 ¥29,648 ¥32,613 ¥35,874 ¥39,462 ¥43,408 ¥47,748 ¥52,523 ¥57,776Gross Margin % 57.86% 57.86% 57.86% 57.86% 57.86% 57.86% 57.86% 57.86% 57.86% 57.86% 57.86% 57.86% Expenses Payroll ¥8,100 ¥8,100 ¥8,100 ¥8,100 ¥8,100 ¥8,100 ¥8,100 ¥8,100 ¥8,100 ¥8,100 ¥8,100 ¥8,100Marketing/Promotion ¥10,000 ¥9,000 ¥8,100 ¥7,290 ¥6,561 ¥5,905 ¥5,314 ¥4,783 ¥4,305 ¥3,874 ¥3,487 ¥3,138Depreciation ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000Rent ¥10,000 ¥10,000 ¥10,000 ¥10,000 ¥10,000 ¥10,000 ¥10,000 ¥10,000 ¥10,000 ¥10,000 ¥10,000 ¥10,000Electricity ¥800 ¥800 ¥800 ¥800 ¥800 ¥800 ¥800 ¥800 ¥800 ¥800 ¥800 ¥800Insurance 15% ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000Royality fee ¥443 ¥487 ¥535 ¥589 ¥648 ¥713 ¥784 ¥862 ¥949 ¥1,043 ¥1,148 ¥1,263 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------Total Operating Expenses ¥32,343 ¥31,387 ¥30,535 ¥29,779 ¥29,109 ¥28,518 ¥27,998 ¥27,545 ¥27,153 ¥26,818 ¥26,535 ¥26,301 Profit Before Interest and Taxes (¥12,093) (¥9,112) (¥6,033) (¥2,826) ¥539 ¥4,095 ¥7,876 ¥11,916 ¥16,254 ¥20,931 ¥25,989 ¥31,475EBITDA (¥10,093) (¥7,112) (¥4,033) (¥826) ¥2,539 ¥6,095 ¥9,876 ¥13,916 ¥18,254 ¥22,931 ¥27,989 ¥33,475Interest Expense ¥2,904 ¥2,892 ¥2,879 ¥2,867 ¥2,854 ¥2,842 ¥2,829 ¥2,817 ¥2,804 ¥2,792 ¥2,779 ¥2,767Taxes Incurred (¥4,499) (¥3,601) (¥2,674) (¥1,708) (¥695) ¥376 ¥1,514 ¥2,730 ¥4,035 ¥5,442 ¥6,963 ¥8,612 Net Profit (¥10,498) (¥8,402) (¥6,238) (¥3,985) (¥1,621) ¥878 ¥3,533 ¥6,370 ¥9,415 ¥12,697 ¥16,247 ¥20,095Net Profit/Sales -29.99% -21.82% -14.73% -8.55% -3.16% 1.56% 5.70% 9.34% 12.55% 15.39% 17.90% 20.12%

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Appendix

Profit and Loss 2nd Year Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12Sales ¥99,860 ¥107,849 ¥116,477 ¥125,795 ¥135,858 ¥146,727 ¥158,465 ¥171,142 ¥184,834 ¥199,621 ¥215,590 ¥232,837Direct Costs of Goods ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0Other Costs of Goods ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------Cost of Goods Sold ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 Gross Margin ¥99,860 ¥107,849 ¥116,477 ¥125,795 ¥135,858 ¥146,727 ¥158,465 ¥171,142 ¥184,834 ¥199,621 ¥215,590 ¥232,837Gross Margin % 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Expenses Payroll ¥8,900 ¥8,900 ¥8,900 ¥8,900 ¥8,900 ¥8,900 ¥8,900 ¥8,900 ¥8,900 ¥8,900 ¥8,900 ¥8,900Marketing/Promotion 5% ¥10,000 ¥9,000 ¥8,100 ¥7,290 ¥6,561 ¥5,905 ¥5,314 ¥4,783 ¥4,305 ¥3,874 ¥3,487 ¥3,138Depreciation 5% ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000 ¥2,000Rent 5% ¥10,000 ¥10,000 ¥10,000 ¥10,000 ¥10,000 ¥10,000 ¥10,000 ¥10,000 ¥10,000 ¥10,000 ¥10,000 ¥10,000Electricity 5% ¥900 ¥900 ¥900 ¥900 ¥900 ¥900 ¥900 ¥900 ¥900 ¥900 ¥900 ¥900Insurance ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000Royality fee 5% ¥1,263 ¥1,389 ¥1,528 ¥1,681 ¥1,849 ¥2,034 ¥2,237 ¥2,461 ¥2,707 ¥2,978 ¥3,276 ¥3,603 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------Total Operating Expenses ¥34,063 ¥33,189 ¥32,428 ¥31,771 ¥31,210 ¥30,739 ¥30,352 ¥30,044 ¥29,812 ¥29,652 ¥29,563 ¥29,541 Profit Before Interest and Taxes ¥65,797 ¥74,660 ¥84,048 ¥94,024 ¥104,648 ¥115,988 ¥128,113 ¥141,098 ¥155,022 ¥169,968 ¥186,028 ¥203,296EBITDA ¥67,797 ¥76,660 ¥86,048 ¥96,024 ¥106,648 ¥117,988 ¥130,113 ¥143,098 ¥157,022 ¥171,968 ¥188,028 ¥205,296Interest Expense ¥2,754 ¥2,742 ¥2,729 ¥2,717 ¥2,704 ¥2,692 ¥2,679 ¥2,667 ¥2,654 ¥2,642 ¥2,629 ¥2,617Taxes Incurred ¥18,913 ¥21,575 ¥24,396 ¥27,392 ¥30,583 ¥33,989 ¥37,630 ¥41,529 ¥45,710 ¥50,198 ¥55,020 ¥60,204 Net Profit ¥44,130 ¥50,342 ¥56,924 ¥63,915 ¥71,361 ¥79,308 ¥87,804 ¥96,902 ¥106,657 ¥117,129 ¥128,379 ¥140,476Net Profit/Sales 44.19% 46.68% 48.87% 50.81% 52.53% 54.05% 55.41% 56.62% 57.70% 58.68% 59.55% 60.33%

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Appendix

Pro Forma Cash Flow Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11Cash Received Cash from Operations Cash Sales ¥35,000 ¥38,500 ¥42,350 ¥46,585 ¥51,244 ¥56,368 ¥62,005 ¥68,205 ¥75,026 ¥82,528 ¥90,781 ¥99,859Subtotal Cash from Operations ¥35,000 ¥38,500 ¥42,350 ¥46,585 ¥51,244 ¥56,368 ¥62,005 ¥68,205 ¥75,026 ¥82,528 ¥90,781 ¥99,859 Additional Cash Received Sales Tax, VAT, HST/GST Received 0.00% ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0New Current Borrowing ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500New Other Liabilities (interest-free) ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0New Long-term Liabilities ¥3,000 ¥3,000 ¥3,000 ¥3,000 ¥3,000 ¥3,000 ¥3,000 ¥3,000 ¥3,000 ¥3,000 ¥3,000 ¥3,000Sales of Other Current Assets ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0Sales of Long-term Assets ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0New Investment Received ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000Subtotal Cash Received ¥44,500 ¥48,000 ¥51,850 ¥56,085 ¥60,744 ¥65,868 ¥71,505 ¥77,705 ¥84,526 ¥92,028 ¥100,281 ¥109,359 Expenditures Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Expenditures from Operations Cash Spending ¥43,498 ¥44,902 ¥46,588 ¥48,570 ¥50,864 ¥53,490 ¥56,472 ¥59,835 ¥63,610 ¥67,831 ¥72,534 ¥77,764Subtotal Spent on Operations ¥43,498 ¥44,902 ¥46,588 ¥48,570 ¥50,864 ¥53,490 ¥56,472 ¥59,835 ¥63,610 ¥67,831 ¥72,534 ¥77,764 Additional Cash Spent Sales Tax, VAT, HST/GST Paid Out ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0Principal Repayment of Current Borrowing ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000Other Liabilities Principal Repayment ¥250 ¥250 ¥250 ¥250 ¥250 ¥250 ¥250 ¥250 ¥250 ¥250 ¥250 ¥250Long-term Liabilities Principal Repayment ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000Purchase Other Current Assets ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500Purchase Long-term Assets ¥1,000 ¥1,100 ¥1,210 ¥1,331 ¥1,464 ¥1,611 ¥1,772 ¥1,949 ¥2,144 ¥2,358 ¥2,594 ¥2,853Dividends ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600Subtotal Cash Spent ¥53,848 ¥55,352 ¥57,148 ¥59,251 ¥61,678 ¥64,451 ¥67,594 ¥71,134 ¥75,104 ¥79,539 ¥84,478 ¥89,967 Net Cash Flow (¥9,348) (¥7,352) (¥5,298) (¥3,166) (¥935) ¥1,417 ¥3,911 ¥6,571 ¥9,422 ¥12,489 ¥15,803 ¥19,392Cash Balance ¥24,175 ¥16,823 ¥11,524 ¥8,358 ¥7,424 ¥8,841 ¥12,752 ¥19,323 ¥28,745 ¥41,234 ¥57,037 ¥76,429

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Appendix

Cash Flow 2nd Year Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12Cash Received Cash from Operations Cash Sales ¥99,860 ¥107,849 ¥116,477 ¥125,795 ¥135,858 ¥146,727 ¥158,465 ¥171,142 ¥184,834 ¥199,621 ¥215,590 ¥232,837Subtotal Cash from Operations ¥99,860 ¥107,849 ¥116,477 ¥125,795 ¥135,858 ¥146,727 ¥158,465 ¥171,142 ¥184,834 ¥199,621 ¥215,590 ¥232,837 Additional Cash Received Sales Tax, VAT, HST/GST Received ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0New Current Borrowing ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500New Other Liabilities (interest-free) ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0New Long-term Liabilities ¥3,000 ¥3,000 ¥3,000 ¥3,000 ¥3,000 ¥3,000 ¥3,000 ¥3,000 ¥3,000 ¥3,000 ¥3,000 ¥3,000Sales of Other Current Assets ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0Sales of Long-term Assets ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0New Investment Received ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000Subtotal Cash Received ¥109,360 ¥117,349 ¥125,977 ¥135,295 ¥145,358 ¥156,227 ¥167,965 ¥180,642 ¥194,334 ¥209,121 ¥225,090 ¥242,337 Expenditures Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Expenditures from Operations Cash Spending ¥53,730 ¥55,506 ¥57,553 ¥59,880 ¥62,498 ¥65,420 ¥68,661 ¥72,240 ¥76,177 ¥80,492 ¥85,211 ¥90,362Subtotal Spent on Operations ¥53,730 ¥55,506 ¥57,553 ¥59,880 ¥62,498 ¥65,420 ¥68,661 ¥72,240 ¥76,177 ¥80,492 ¥85,211 ¥90,362 Additional Cash Spent Sales Tax, VAT, HST/GST Paid Out ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0 ¥0Principal Repayment of Current Borrowing ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000 ¥1,000Other Liabilities Principal Repayment ¥250 ¥250 ¥250 ¥250 ¥250 ¥250 ¥250 ¥250 ¥250 ¥250 ¥250 ¥250Long-term Liabilities Principal Repayment ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000 ¥5,000Purchase Other Current Assets ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500 ¥1,500Purchase Long-term Assets ¥2,853 ¥2,996 ¥3,145 ¥3,303 ¥3,468 ¥3,641 ¥3,823 ¥4,014 ¥4,215 ¥4,426 ¥4,647 ¥4,880Dividends ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600 ¥1,600Subtotal Cash Spent ¥65,933 ¥67,852 ¥70,049 ¥72,533 ¥75,315 ¥78,411 ¥81,835 ¥85,605 ¥89,742 ¥94,268 ¥99,209 ¥104,591 Net Cash Flow ¥43,427 ¥49,497 ¥55,928 ¥62,762 ¥70,043 ¥77,816 ¥86,131 ¥95,038 ¥104,592 ¥114,853 ¥125,882 ¥137,746Cash Balance ¥119,856 ¥169,353 ¥225,281 ¥288,044 ¥358,087 ¥435,903 ¥522,034 ¥617,071 ¥721,663 ¥836,516 ¥962,398 ¥1,100,14

4

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Appendix

Pro Forma Balance Sheet Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11Assets Starting

Balances

Current Assets Cash ¥33,523 ¥24,175 ¥16,823 ¥11,524 ¥8,358 ¥7,424 ¥8,841 ¥12,752 ¥19,323 ¥28,745 ¥41,234 ¥57,037 ¥76,429Other Current Assets ¥67,045 ¥68,545 ¥70,045 ¥71,545 ¥73,045 ¥74,545 ¥76,045 ¥77,545 ¥79,045 ¥80,545 ¥82,045 ¥83,545 ¥85,045Total Current Assets ¥100,568 ¥92,720 ¥86,868 ¥83,069 ¥81,403 ¥81,969 ¥84,886 ¥90,297 ¥98,368 ¥109,290 ¥123,279 ¥140,582 ¥161,474 Long-term Assets Long-term Assets ¥368,748 ¥369,748 ¥370,848 ¥372,058 ¥373,389 ¥374,853 ¥376,464 ¥378,235 ¥380,184 ¥382,327 ¥384,685 ¥387,279 ¥390,132Accumulated Depreciation ¥0 ¥2,000 ¥4,000 ¥6,000 ¥8,000 ¥10,000 ¥12,000 ¥14,000 ¥16,000 ¥18,000 ¥20,000 ¥22,000 ¥24,000Total Long-term Assets ¥368,748 ¥367,748 ¥366,848 ¥366,058 ¥365,389 ¥364,853 ¥364,464 ¥364,235 ¥364,184 ¥364,327 ¥364,685 ¥365,279 ¥366,132Total Assets ¥469,316 ¥460,468 ¥453,716 ¥449,127 ¥446,792 ¥446,822 ¥449,349 ¥454,532 ¥462,552 ¥473,617 ¥487,964 ¥505,861 ¥527,607 Liabilities and Capital Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Current Liabilities Current Borrowing ¥50,000 ¥50,500 ¥51,000 ¥51,500 ¥52,000 ¥52,500 ¥53,000 ¥53,500 ¥54,000 ¥54,500 ¥55,000 ¥55,500 ¥56,000Other Current Liabilities ¥10,451 ¥10,201 ¥9,951 ¥9,701 ¥9,451 ¥9,201 ¥8,951 ¥8,701 ¥8,451 ¥8,201 ¥7,951 ¥7,701 ¥7,451Subtotal Current Liabilities ¥60,451 ¥60,701 ¥60,951 ¥61,201 ¥61,451 ¥61,701 ¥61,951 ¥62,201 ¥62,451 ¥62,701 ¥62,951 ¥63,201 ¥63,451 Long-term Liabilities ¥300,000 ¥298,000 ¥296,000 ¥294,000 ¥292,000 ¥290,000 ¥288,000 ¥286,000 ¥284,000 ¥282,000 ¥280,000 ¥278,000 ¥276,000Total Liabilities ¥360,451 ¥358,701 ¥356,951 ¥355,201 ¥353,451 ¥351,701 ¥349,951 ¥348,201 ¥346,451 ¥344,701 ¥342,951 ¥341,201 ¥339,451 Paid-in Capital ¥350,000 ¥355,000 ¥360,000 ¥365,000 ¥370,000 ¥375,000 ¥380,000 ¥385,000 ¥390,000 ¥395,000 ¥400,000 ¥405,000 ¥410,000Retained Earnings (¥241,135

)(¥242,735

)(¥244,335

)(¥245,935

)(¥247,535

)(¥249,135

)(¥250,735

)(¥252,335

)(¥253,935

)(¥255,535

)(¥257,135

)(¥258,735

)(¥260,335

)Earnings ¥0 (¥10,498) (¥18,900) (¥25,139) (¥29,124) (¥30,744) (¥29,867) (¥26,334) (¥19,964) (¥10,549) ¥2,148 ¥18,395 ¥38,491Total Capital ¥108,865 ¥101,767 ¥96,765 ¥93,926 ¥93,341 ¥95,121 ¥99,398 ¥106,331 ¥116,101 ¥128,916 ¥145,013 ¥164,660 ¥188,156Total Liabilities and Capital ¥469,316 ¥460,468 ¥453,716 ¥449,127 ¥446,792 ¥446,822 ¥449,349 ¥454,532 ¥462,552 ¥473,617 ¥487,964 ¥505,861 ¥527,607 Net Worth ¥108,865 ¥101,767 ¥96,765 ¥93,926 ¥93,341 ¥95,121 ¥99,398 ¥106,331 ¥116,101 ¥128,916 ¥145,013 ¥164,660 ¥188,156

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Appendix

Balance Sheet 2nd Year Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12Assets Current Assets Cash ¥119,856 ¥169,353 ¥225,281 ¥288,044 ¥358,087 ¥435,903 ¥522,034 ¥617,071 ¥721,663 ¥836,516 ¥962,398 ¥1,100,14

4Other Current Assets ¥86,545 ¥88,045 ¥89,545 ¥91,045 ¥92,545 ¥94,045 ¥95,545 ¥97,045 ¥98,545 ¥100,045 ¥101,545 ¥103,045Total Current Assets ¥206,401 ¥257,398 ¥314,826 ¥379,089 ¥450,632 ¥529,948 ¥617,579 ¥714,116 ¥820,208 ¥936,561 ¥1,063,94

3¥1,203,18

9 Long-term Assets Long-term Assets ¥392,985 ¥395,981 ¥399,126 ¥402,429 ¥405,897 ¥409,538 ¥413,361 ¥417,376 ¥421,591 ¥426,017 ¥430,664 ¥435,544Accumulated Depreciation ¥26,000 ¥28,000 ¥30,000 ¥32,000 ¥34,000 ¥36,000 ¥38,000 ¥40,000 ¥42,000 ¥44,000 ¥46,000 ¥48,000Total Long-term Assets ¥366,985 ¥367,981 ¥369,126 ¥370,429 ¥371,897 ¥373,538 ¥375,361 ¥377,376 ¥379,591 ¥382,017 ¥384,664 ¥387,544Total Assets ¥573,387 ¥625,379 ¥683,953 ¥749,518 ¥822,528 ¥903,486 ¥992,940 ¥1,091,49

2¥1,199,79

9¥1,318,57

8¥1,448,60

7¥1,590,73

3 Liabilities and Capital Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Current Liabilities Current Borrowing ¥56,500 ¥57,000 ¥57,500 ¥58,000 ¥58,500 ¥59,000 ¥59,500 ¥60,000 ¥60,500 ¥61,000 ¥61,500 ¥62,000Other Current Liabilities ¥7,201 ¥6,951 ¥6,701 ¥6,451 ¥6,201 ¥5,951 ¥5,701 ¥5,451 ¥5,201 ¥4,951 ¥4,701 ¥4,451Subtotal Current Liabilities ¥63,701 ¥63,951 ¥64,201 ¥64,451 ¥64,701 ¥64,951 ¥65,201 ¥65,451 ¥65,701 ¥65,951 ¥66,201 ¥66,451 Long-term Liabilities ¥274,000 ¥272,000 ¥270,000 ¥268,000 ¥266,000 ¥264,000 ¥262,000 ¥260,000 ¥258,000 ¥256,000 ¥254,000 ¥252,000Total Liabilities ¥337,701 ¥335,951 ¥334,201 ¥332,451 ¥330,701 ¥328,951 ¥327,201 ¥325,451 ¥323,701 ¥321,951 ¥320,201 ¥318,451 Paid-in Capital ¥415,000 ¥420,000 ¥425,000 ¥430,000 ¥435,000 ¥440,000 ¥445,000 ¥450,000 ¥455,000 ¥460,000 ¥465,000 ¥470,000Retained Earnings (¥223,444

)(¥225,044

)(¥226,644

)(¥228,244

)(¥229,844

)(¥231,444

)(¥233,044

)(¥234,644) (¥236,244) (¥237,844) (¥239,444) (¥241,044)

Earnings ¥44,130 ¥94,472 ¥151,396 ¥215,311 ¥286,672 ¥365,979 ¥453,783 ¥550,685 ¥657,343 ¥774,471 ¥902,850 ¥1,043,326

Total Capital ¥235,686 ¥289,428 ¥349,752 ¥417,067 ¥491,827 ¥574,535 ¥665,739 ¥766,041 ¥876,098 ¥996,627 ¥1,128,406

¥1,272,282

Total Liabilities and Capital ¥573,387 ¥625,379 ¥683,953 ¥749,518 ¥822,528 ¥903,486 ¥992,940 ¥1,091,492

¥1,199,799

¥1,318,578

¥1,448,607

¥1,590,733

Net Worth ¥235,686 ¥289,428 ¥349,752 ¥417,067 ¥491,827 ¥574,535 ¥665,739 ¥766,041 ¥876,098 ¥996,627 ¥1,128,40

6¥1,272,28

2

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Pho 24 in China