January 2004

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 Table of Contents

1.0 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.1 Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Keys to Success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

2.0 Company Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

2.1 Company Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Start-up Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

3.0 Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

4.0 Market Analysis Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

4.1 Market Segmentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2 Target Market Segment Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.3 Service Business Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.3.1 Competition and Buying Patterns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

5.0 Strategy and Implementation Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

5.1 Competitive Edge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Marketing Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.3 Sales Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3.1 Sales Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.4 Milestones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

6.0 Web Plan Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

6.1 Website Marketing Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.2 Development Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

7.0 Management Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

7.1 Personnel Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

8.0 Financial Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

8.1 Important Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.2 Break-even Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.3 Projected Profit and Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.4 Projected Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.5 Projected Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.6 Business Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
 Scan Lab

1.0 Executive Summary

Scan Lab is a start-up company offering a wide range of medical image scanning tests for the
New Bedford, Massachusetts community.

The Market
Scan Lab will target insurance carriers. Insurance carriers use a bid submittal process to set up
contracts with the various medical scan service providers. In today's medical environment
these contact are key because 99% of the scans done are billed through insurance. Insurance
companies therefore are the gate keepers to this process. Scan Lab recognizes the importance
of getting insurance carriers approval and will work hard to get approved by all popular
insurance plans.

Once Scan Lab has been approved by an insurance company, it will rely on referrals of
physicians to point their patients to Scan Lab. Doctors make referrals based on several factors
including geographic location/convenience who they know, accepted forms of insurance, type
of scan, etc. It will be important to have a strong marketing and sales campaign that alerts
referring doctors to Scan Lab's services.

Services
Scan Lab offers a wide range of radiology-based medical scanning tests. Scan Lab has the
latest equipment and the expert medical training to interpret and provide valuable
consultations to the physicians who make the patient referrals to Scan Lab.

Management
Scan Lab will be lead by Dr. Carolyn Jones. Dr. Jones received her medical degree with a
specialization in radiology from the University of California San Diego, a nationally recognized
medical school for radiology. Dr. Jones performed her residency at John Hopkins, also
nationally recognized for their radiology program. Dr. Jones has practiced radiology for 13
years at a large clinic in Boston.

Scan Lab has forecasted revenue for year two to be $442,500 and $486,750 for year three.

Highlights

$500,000

$400,000

$300,000

$200,000 Sales
Gross Margin
$100,000
Net Profit
$0

($100,000)

($200,000)
2004 2005 2006

Page 1
 Scan Lab

1.1 Objectives

• To capture 40% of local physicians' business within two years.

• To reach profitability within two years.
• To double sales by year three.

1.2 Mission

It is Scan Lab's mission to be recognized as the leader in medical scanning technology in New
Bedford. This will be achieved by friendly service, flexible acceptance of insurance plans, and
accurate analysis.

1.3 Keys to Success

• Only purchase medical equipment that has demand within the community.
• Provide fast, friendly service with accurate readings.
• Employ strict financial controls to help manage the expensive capital costs associated
with medical imaging equipment.

2.0 Company Summary

Scan Lab has been formed as a Massachusetts corporation. It is solely owned by Carolyn Jones.

2.1 Company Ownership

Carolyn Jones is the sole stockholder of the Scan Lab corporation.

2.2 Start-up Summary

Scan Lab will need to purchase the necessary equipment for the clinic.

• Office furniture for four exam rooms. This equipment will be purchased used in good
condition. This will be done as a cost saving measure.

• Receptionist office furniture and assorted waiting room furniture (this will also be
purchased in good, used condition).

• Three computers, one with QuickBooks Pro, all with Microsoft Office, a central laser
printer and broadband Internet connection.

• Medical scanning devices:

• X-ray machine: $40,000
• Ultra sound unit: $50,000
• CAT scan imaging machine: $70,000
• MRI: $700,000

Page 2
 Scan Lab

Table: Start-up

Requirements

Start-up Expenses
Legal $3,000
Stationery etc. $300
Brochures $300
Consultants $2,000
Insurance $3,000
Rent $2,000
Total Start-up Expenses $10,600

Start-up Assets Needed

Cash Balance on Starting Date $317,900
Total Current Assets $317,900

Long-term Assets $861,500

Total Assets $1,179,400
Total Requirements $1,190,000

Funding

Investment
Dr. Jones $180,000
Investor $150,000
Total Investment $330,000
Current Liabilities $0

Long-term Liabilities $860,000

Total Liabilities $860,000

Loss at Start-up ($10,600)

Total Capital $319,400
Total Capital and Liabilities $1,179,400

Start-up

$1,200,000

$1,000,000

$800,000

$600,000

$400,000

$200,000

$0
Expenses Assets Investment Loans

Page 3
 Scan Lab

3.0 Services

Scan Lab offers New Bedford physicians a wide range of diagnostic scanning tests. Due to the
high cost of scanning equipment for occasional use, most small clinics and practices use an
outside service provider for scanning needs. The following scans will be offered:

• X-Ray: An X-ray uses invisible electromagnetic energy beams to produce images of

internal tissues, bones, and organs on film. X-rays are used for numerous reasons but
work best to find tumors or bone injuries.

• Ultrasound: This technology sends sound waves into the body, recording the
reflection. Ultrasound is used for a detailed assessment of blood flow and for views of
soft tissue and anatomical body structure.

• CAT Scan: This is a diagnostic technology that uses a combination of x-rays and
computer technology to produce cross-sectional images ("slices") in a horizontal and
vertical orientation. A CAT scan can show detailed images of any part of the body
including bones, muscles, fat, and organs. CAT scans are more detailed than traditional
x-rays and have lower releases of radiation. CAT scans are often used to diagnose
tumors, evaluate internal bleeding or investigate internal injuries or damage.

• MRI: This technology harnesses magnetic energy. The patient is placed in a tube or on
a bed where magnetic fields are applied to the body. The reaction by the body when
the magnetic fields are applied and relaxed are noted by a computer which has been
recording data throughout the process. MRIs are the premier scanning device for
extremities, especially joints, as well as for imaging the upper spine and lower back.

Diagnostic scanning requires proper analysis by a radiologist to analyze the scans.

4.0 Market Analysis Summary

Scan Lab has identified two customer segments that they will target: medical insurance
carriers and physicians. For many patients the insurance company mandates who can provide
scanning services. Therefore, the driving force to getting customers is attracting the large
insurance carriers. Scan Lab has been in negotiations with the three largest carriers in the
state and all have informally accepted Scan Lab's bid proposal.

The second customer group is the physicians. While the insurance company will mandate what
labs are acceptable for their insurance plan, it is the doctor's choice where they recommend
their patients goes.

Page 4
 Scan Lab

4.1 Market Segmentation

Scan Lab will target the three largest medical insurance carriers: Aetna, Cigna, and Prudential.
Smaller ones will also be targeted later.

Scan Lab has been involved in negotiations with these three insurance carriers to develop an
arrangement for Scan Lab to be an approved facility. The next step is the submission of a bid,
which is primarily based on price. The lab must agree to rates that the insurance companies
have set forth. A secondary consideration is the ability of the lab to adhere to specific filing and
billing procedures.

The second target market segment is physicians. Physicians make referrals based on
numerous factors including:

• Who they know.

• Who the patient's insurance company is.
• What type of scan the patient is receiving.
• Convenience of location relative to their office or to the patient's home.

Table: Market Analysis

Market Analysis
Potential Customers Growth 2004 2005 2006 2007 2008 CAGR
Insurance companies 1% 21 21 21 21 21 0.00%
Physicians 4% 235 244 254 264 275 4.01%
Total 3.70% 256 265 275 285 296 3.70%

Market Analysis (Pie)

Insurance companies
Physicians

Page 5
 Scan Lab

4.2 Target Market Segment Strategy

The insurance companies decide what scanning facilities are acceptable relative to their
insurance plan. Once the facility has been approved, the approval is typically good for one to
two years at which point a new bid must be submitted.

Physicians direct the patient to where they must go for a scan. Because Scan Lab is located
within a professional building with many doctors, this level of convenience with often prompt
the doctor to immediately recommend Scan Lab.

4.3 Service Business Analysis

The medical imaging industry operates under two models: a large clinic or practice that
purchases the equipment for the use of their physicians, and outside service providers.

Only large clinics and practices can justify buying their own scanning equipment. For a small
clinic or practice, the high equipment cost with low use rate makes cost per use expensive.

Scan Lab's direct competitors offer their services to all physicians and accept a wide range of
insurance plans. These competitors rarely offer services beyond medical imagine test and
radiologist analysis. The medical scanning industry can be profitable if there is not over
capacity of the scanning machines in the area. A profitable capacity is to have approximately
five MRIs for every 100,000 people. Currently, New Bedford, with a population of 300,000 has
12.

4.3.1 Competition and Buying Patterns

There are nine direct competitors in the area. The large ones are detailed below:

• Massachusetts Imaging Center: This company operates three centers of imaging

equipment. This company is large, while they offer competent radiologist analysis, the
setting is somewhat factory like where patients become numbers who are shuffled
through.

• Bedford Scanning: This is a small facility with one part time radiologist on staff. They
only have an MRI and CAT scan, they do not offer any other types of imaging services.

• Radiologist Imaging: This facility is similar to Scan Lab but is located on the far side
of town, a 25 minute drive away, therefore this facility seems to serve a more regional
customer base due to their non-centralized location.

Scan Lab also has indirect competition from clinics and large practices with their own scanning
equipment. This group does not serve outside physicians so it is only a threat if they recruit
doctors, that use Scan Lab, away from private practice.

Page 6
 Scan Lab

5.0 Strategy and Implementation Summary

Scan Lab will leverage its competitive edge of having the most advanced equipment with a
seasoned, nationally recognized radiologist providing all of the analysis. Scan Lab will employ a
marketing strategy that will communicate the message that offers state of the art technology
and medical analysis, developing an awareness regarding Scan Lab's strengths and
distinctiveness.

There is not a significant amount of work that needs to occur to market to the insurance
companies. This activity is handled by bid submission. Most activities directed at the insurance
companies will occur through the sales campaign. Scan Lab will also embark on a sales
strategy that has the goal of converting qualified doctors into referring doctors, Scan Lab's
source of patients. The following three sections provides this analysis.

5.1 Competitive Edge

Scan Lab will a nationally recognized expert radiologist in charge of all analysis. Dr. Carolyn
Jones has been practicing radiology for 13 years, has published over 14 articles in renowned
medical journals and is often asked to be a speaker at national engagements. Recently, she
was the keynote speaker for the American Association of Radiologists Annual Conference
where she described a new technique of using contrast in medical imaging that yielded a 34%
increase in detail. A medical imaging scan is only as good as the analysis of the scan, therefore
it is of significant value to offer a service where you have a nationally recognized expert
offering the consultation to the referring doctor.

5.2 Marketing Strategy

Scan Lab will use several methods to communicate that it offers the most advanced
technology and the best expert radiology analysis. This message will be communicate through
various methods:

• Yellow Pages: While the Yellow Pages are not as targeted as other methods of
communication, these advertisements will be necessary as many people turn to the
pages when they do not have a specific service provider in mind. The ads are proven to
be cost effective.

• Circulars: These will be pamphlets that are sent out to local physicians. The pamphlet
will serve to introduce Scan Lab and detail the different services that it offers. It will
also provide information on Dr. Carolyn Jones and will include background into her
professional accomplishments and activities.

• Networking: Dr. Jones recognizes the importance of networking, getting to know the
physicians that work in New Bedford. A high percentage of referrals are made based on
personal and professional contacts so networking is a very effective method of
increasing the number of referrals. Dr. Jones will be active in the numerous
organizations and committees that are present within the medical community.

Page 7
 Scan Lab

5.3 Sales Strategy

Scan Lab's sales strategy will be to convert a qualified lead into a referring physician. This will
be done through the emphasis of Dr. Jones' strength and expertise in the field of radiology.
The medical scanning laboratories service both patients and doctors.

For patients the scanning must be convenient, pleasant, and accept most insurance plans. For
physicians, it must be a high-quality radiologist analysis. The better the analysis, the more
accurate information that the radiologists can offer in the consultation to the referring
physician.

Scan Lab will be networking with various insurance carriers. The first step is to determine who
the key contact at the insurance company is. These contacts will be useful in providing
information on what is expected in the submitted bid.

5.3.1 Sales Forecast

The sales forecast adopts a conservative approach to projecting future sales. As a start-up
organization, Scan Lab recognizes that sales will be slow initially but by the seventh month
sales will be steady and grow as the marketing efforts are developed.

The sales forecast is broken down by the type of service provided and displayed in the
following table. The charts give a visual representation of monthly and yearly figures.

Table: Sales Forecast

Sales Forecast
Sales 2004 2005 2006
X-ray $124,292 $130,500 $143,550
Ultrasound $73,332 $77,000 $84,700
CAT scan $136,721 $143,000 $157,300
MRI $87,999 $92,000 $101,200
Total Sales $422,344 $442,500 $486,750

Direct Cost of Sales 2004 2005 2006

X-ray $28,587 $30,000 $30,900
Ultrasound $16,866 $18,000 $18,540
CAT scan $31,446 $33,000 $34,000
MRI $20,240 $21,300 $22,000
Subtotal Direct Cost of Sales $97,139 $102,300 $105,440

Page 8
 Scan Lab

Sales Monthly

$60,000

$50,000

$40,000
X-ray
$30,000 Ultrasound
CAT scan
$20,000 MRI

$10,000

$0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Sales by Year

$500,000
$450,000
$400,000
$350,000
X-ray
$300,000
Ultrasound
$250,000
CAT scan
$200,000
MRI
$150,000
$100,000
$50,000
$0
2004 2005 2006

Page 9
 Scan Lab

5.4 Milestones

Scan Lab has chosen several quantifiable milestones that have been developed as goals for the
organization to achieve. The following table details the specific milestones, the time frame that
has been estimated for completion of the milestone, and the specific employee responsible.

Table: Milestones

Milestones
Milestone Start Date End Date Manager Department
Business plan completion Business
6/1/2003 12/1/2003 Carolyn
Development
Secure lease 12/1/2003 2/28/2004 Carolyn Operations
Equipment purchases 1/1/2004 3/1/2004 Carolyn Operations
Facility open 3/1/2004 3/1/2004 Carolyn Operations
Profitability 1/1/2005 1/1/2005 Carolyn Accounting
Totals

6.0 Web Plan Summary

Scan Lab will have a website which will provide information regarding the services offered and
Dr. Jones professional experience.

6.1 Website Marketing Strategy

Scan Lab will use two simple marketing techniques to alert prospective customers to the site.
The first is the prominent display of the Web address on all literature that Scan Lab has. The
second is submitting Scan Labs website URL to multiple search engines. This will ensure that if
a customer types "New Bedford MRI" into a search engine and they would be brought to
[Link].

6.2 Development Requirements

The website will be designed and built by a local computer science student.

7.0 Management Summary

Scan Lab will be lead by Dr. Carolyn Jones. Dr. Jones received her medical degree from The
University of California San Diego, world renowned for their radiology. Dr. Jones moved to the
Northeast and practiced her residency at John Hopkins, after which she went to work for a
large clinic in Boston.

Dr. Jones has published 14 articles and is frequently asked to present her papers at
conferences.

Page 10
 Scan Lab

7.1 Personnel Plan

Scan Lab will require the following positions/responsibilities:

• Dr. Jones: In addition to being the resident radiologist, she will also be responsible for
business development, and some marketing and sales.

• Technicians: Four people will be responsible for the operation of the machines.

• Administration: Two people will be responsible for the clerical duties and bookkeeping.

Table: Personnel

Personnel Plan
2004 2005 2006
Dr. Jones $60,000 $61,800 $63,654
Technicians $48,000 $49,440 $50,923
Other $19,200 $19,776 $20,269
Total People 5 5 5
Total Payroll $127,200 $131,016 $134,846

8.0 Financial Plan

The following sections will outline the financial planning for Scan Lab.

8.1 Important Assumptions

The following table details important Financial Assumptions.

Table: General Assumptions

General Assumptions
2004 2005 2006
Plan Month 1 2 3
Current Interest Rate 10.00% 10.00% 10.00%
Long-term Interest Rate 10.00% 10.00% 10.00%
Tax Rate 30.00% 30.00% 30.00%
Sales on Credit % 75.00% 75.00% 75.00%
Other 0.00% 0.00% 0.00%
Calculated Totals
Payroll Expense $127,200 $131,016 $134,846
Sales on Credit $316,758 $331,875 $365,063
New Accounts Payable $252,119 $228,458 $371,037

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 Scan Lab

8.2 Break-even Analysis

The Break-even Analysis indicates that $54,656 is needed in monthly revenue to reach the
break-even point.

Table: Break-even Analysis

Break-even Analysis:
Monthly Units Break-even 84
Monthly Revenue Break-even $54,656

Assumptions:
Average Per-Unit Revenue $650.00
Average Per-Unit Variable Cost $149.50
Estimated Monthly Fixed Cost $42,085

Break-even Analysis

$20,000

$10,000

$0

($10,000)

($20,000)

($30,000)

($40,000)

($50,000)
$0 $10,000 $30,000 $40,000 $50,000 $70,000

Monthly break-even point

Break-even point = where line intersects with 0

Page 12
 Scan Lab

8.3 Projected Profit and Loss

The following table and charts will indicate Projected Profit and Loss.

Table: Profit and Loss

Pro Forma Profit and Loss

2004 2005 2006
Sales $422,344 $442,500 $486,750
Direct Cost of Sales $97,139 $102,300 $105,440
Other Costs of Sales $0 $0 $0
------------ ------------ ------------
Total Cost of Sales $97,139 $102,300 $105,440
Gross Margin $325,205 $340,200 $381,310
Gross Margin % 77.00% 76.88% 78.34%
Expenses:
Payroll $127,200 $131,016 $134,846
Sales and Marketing and Other Expenses $6,000 $6,120 $6,200
Depreciation $172,300 $75,000 $25,000
Rent $24,000 $2,448 $2,496
Utilities $6,000 $6,000 $6,500
Insurance $18,000 $18,000 $19,000
Payroll Taxes $19,080 $20,000 $20,600
Other $2,400 $2,400 $2,400
------------ ------------ ------------
Total Operating Expenses $374,980 $260,984 $217,042
Profit Before Interest and Taxes ($49,775) $79,216 $164,268
Interest Expense $79,500 $67,750 $55,250
Taxes Incurred $0 $3,440 $32,705
Net Profit ($129,275) $8,026 $76,313
Net Profit/Sales -30.61% 1.81% 15.68%
Include Negative Taxes FALSE TRUE TRUE

Profit Monthly

$0

($5,000)

($10,000)

($15,000)

($20,000)

($25,000)

($30,000)
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Page 13
 Scan Lab

Profit Yearly

$100,000

$50,000

$0

($50,000)

($100,000)

($150,000)
2004 2005 2006

Gross Margin Monthly

$40,000

$35,000

$30,000

$25,000

$20,000

$15,000

$10,000

$5,000

$0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Page 14
 Scan Lab

Gross Margin Yearly

$400,000

$350,000

$300,000

$250,000

$200,000

$150,000

$100,000

$50,000

$0
2004 2005 2006

8.4 Projected Cash Flow

The following table and chart will indicate Projected Cash Flow.

Page 15
 Scan Lab

Table: Cash Flow

Pro Forma Cash Flow 2004 2005 2006

Cash Received
Cash from Operations:
Cash Sales $105,586 $110,625 $121,688
Cash from Receivables $238,930 $328,161 $356,908
Subtotal Cash from Operations $344,516 $438,786 $478,596

Additional Cash Received

Non Operating (Other) Income $0 $0 $0
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0
New Long-term Liabilities $0 $0 $0
Sales of Other Current Assets $0 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $0 $0 $0
Subtotal Cash Received $344,516 $438,786 $478,596

Expenditures 2004 2005 2006

Expenditures from Operations:
Cash Spending $127,200 $131,016 $14,400
Payment of Accounts Payable $228,784 $227,344 $368,593
Subtotal Spent on Operations $355,984 $358,360 $382,993

Additional Cash Spent

Non Operating (Other) Expense $0 $0 $0
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $120,000 $125,000 $125,000
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $475,984 $483,360 $507,993

Net Cash Flow ($131,469) ($44,574) ($29,397)

Cash Balance $186,431 $141,857 $112,460

Cash

$350,000

$300,000

$250,000

$200,000

$150,000 Net Cash Flow

Cash Balance
$100,000

$50,000

$0

($50,000)
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

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8.5 Projected Balance Sheet

The following table will indicate the Projected Balance Sheet.

Table: Balance Sheet

Pro Forma Balance Sheet

Assets
Current Assets 2004 2005 2006
Cash $186,431 $141,857 $112,460
Accounts Receivable $77,829 $81,543 $89,697
Other Current Assets $0 $0 $0
Total Current Assets $264,260 $223,400 $202,157
Long-term Assets
Long-term Assets $861,500 $861,500 $861,500
Accumulated Depreciation $172,300 $247,300 $272,300
Total Long-term Assets $689,200 $614,200 $589,200
Total Assets $953,460 $837,600 $791,358

Liabilities and Capital

2004 2005 2006
Accounts Payable $23,335 $24,449 $26,893
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $23,335 $24,449 $26,893

Long-term Liabilities $740,000 $615,000 $490,000

Total Liabilities $763,335 $639,449 $516,893

Paid-in Capital $330,000 $330,000 $330,000

Retained Earnings ($10,600) ($139,875) ($131,848)
Earnings ($129,275) $8,026 $76,313
Total Capital $190,125 $198,152 $274,464
Total Liabilities and Capital $953,460 $837,600 $791,358
Net Worth $190,125 $198,152 $274,464

8.6 Business Ratios

The following table details Business Ratios as they relate to Scan Lab, as well as the industry
that it participates in.

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Table: Ratios

Ratio Analysis
2004 2005 2006 Industry Profile
Sales Growth 0.00% 4.77% 10.00% 5.93%

Percent of Total Assets

Accounts Receivable 8.16% 9.74% 11.33% 28.59%
Inventory 1.38% 1.64% 1.91% 2.96%
Other Current Assets 0.00% 0.00% 0.00% 39.66%
Total Current Assets 27.72% 26.67% 25.55% 71.21%
Long-term Assets 72.28% 73.33% 74.45% 28.79%
Total Assets 100.00% 100.00% 100.00% 100.00%

Current Liabilities 2.45% 2.92% 3.40% 34.75%

Long-term Liabilities 77.61% 73.42% 61.92% 23.98%
Total Liabilities 80.06% 76.34% 65.32% 58.73%
Net Worth 19.94% 23.66% 34.68% 41.27%

Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 77.00% 76.88% 78.34% 100.00%
Selling, General & Administrative Expenses 102.84% 80.94%
Advertising Expenses 0.00% 0.53%
Profit Before Interest and Taxes -11.79% 17.90% 33.75% 1.35%

Main Ratios
Current 11.32 9.14 7.52 1.71
Quick 10.76 8.57 6.95 1.37
Total Debt to Total Assets 80.06% 76.34% 65.32% 2.89%
Pre-tax Return on Net Worth -67.99% 5.79% 39.72% 64.61%
Pre-tax Return on Assets -13.56% 1.37% 13.78% 8.18%

Business Vitality Profile 2004 2005 2006 Industry

Sales per Employee $84,469 $88,500 $97,350
Net Profit Margin -30.61% 1.81% 15.68% n.a
Return on Equity -67.99% 4.05% 27.80% n.a

Activity Ratios
Accounts Receivable Turnover 4.07 4.07 4.07 n.a
Collection Days 57 88 86 n.a
Inventory Turnover 0.00 0.00 0.00 n.a
Accounts Payable Turnover 10.80 9.34 13.80 n.a
Payment Days 26 38 25 n.a
Total Asset Turnover 0.44 0.53 0.62 n.a

Debt Ratios
Debt to Net Worth 4.01 3.23 1.88 n.a
Current Liab. to Liab. 0.03 0.04 0.05 n.a

Liquidity Ratios
Net Working Capital $240,925 $198,951 $175,264 n.a
Interest Coverage -0.63 1.17 2.97 n.a

Additional Ratios
Assets to Sales 2.26 1.89 1.63 n.a
Current Debt/Total Assets 2% 3% 3% n.a
Acid Test 7.43 5.24 3.62 n.a
Sales/Net Worth 2.22 2.23 1.77 n.a
Dividend Payout 0.00 0.00 0.00 n.a

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 Appendix

Appendix Table: Sales Forecast

Sales Forecast
Sales Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
X-ray $0 $0 $5,500 $8,565 $10,005 $12,454 $13,121 $14,005 $14,989 $15,114 $15,265 $15,274
Ultrasound $0 $0 $3,245 $5,053 $5,903 $7,348 $7,741 $8,263 $8,844 $8,917 $9,006 $9,012
CAT scan $0 $0 $6,050 $9,422 $11,006 $13,699 $14,433 $15,406 $16,488 $16,625 $16,792 $16,801
MRI $0 $0 $3,894 $6,064 $7,084 $8,817 $9,290 $9,916 $10,612 $10,701 $10,808 $10,814
Total Sales $0 $0 $18,689 $29,104 $33,997 $42,319 $44,585 $47,589 $50,933 $51,357 $51,870 $51,901

Direct Cost of Sales Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
X-ray $0 $0 $1,265 $1,970 $2,301 $2,864 $3,018 $3,221 $3,447 $3,476 $3,511 $3,513
Ultrasound $0 $0 $746 $1,162 $1,358 $1,690 $1,781 $1,900 $2,034 $2,051 $2,071 $2,073
CAT scan $0 $0 $1,392 $2,167 $2,531 $3,151 $3,320 $3,543 $3,792 $3,824 $3,862 $3,864
MRI $0 $0 $896 $1,395 $1,629 $2,028 $2,137 $2,281 $2,441 $2,461 $2,486 $2,487
Subtotal Direct Cost of Sales $0 $0 $4,298 $6,694 $7,819 $9,733 $10,255 $10,945 $11,715 $11,812 $11,930 $11,937

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 Appendix

Appendix Table: Personnel

Personnel Plan
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Dr. Jones $0 $0 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000
Technicians $0 $0 $0 $3,000 $3,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000
Other $0 $0 $0 $1,200 $1,200 $2,400 $2,400 $2,400 $2,400 $2,400 $2,400 $2,400
Total People 0 0 0 3 3 5 5 5 5 5 5 5
Total Payroll $0 $0 $6,000 $10,200 $10,200 $14,400 $14,400 $14,400 $14,400 $14,400 $14,400 $14,400

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 Appendix

Appendix Table: General Assumptions

General Assumptions
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Plan Month 1 2 3 4 5 6 7 8 9 10 11 12
Current Interest Rate 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
Long-term Interest Rate 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
Tax Rate 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00%
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 Totals
Payroll Expense $0 $0 $6,000 $10,200 $10,200 $14,400 $14,400 $14,400 $14,400 $14,400 $14,400 $14,400
Sales on Credit $0 $0 $14,017 $21,828 $25,498 $31,739 $33,439 $35,692 $38,199 $38,518 $38,903 $38,926
New Accounts Payable $11,783 $11,700 $16,815 $19,757 $20,799 $23,260 $23,698 $24,305 $24,991 $25,006 $25,040 $24,964

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 Appendix

Appendix Table: Profit and Loss

Pro Forma Profit and Loss

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Sales $0 $0 $18,689 $29,104 $33,997 $42,319 $44,585 $47,589 $50,933 $51,357 $51,870 $51,901
Direct Cost of Sales $0 $0 $4,298 $6,694 $7,819 $9,733 $10,255 $10,945 $11,715 $11,812 $11,930 $11,937
Other Costs of Sales $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Total Cost of Sales $0 $0 $4,298 $6,694 $7,819 $9,733 $10,255 $10,945 $11,715 $11,812 $11,930 $11,937
Gross Margin $0 $0 $14,391 $22,410 $26,178 $32,585 $34,331 $36,644 $39,218 $39,545 $39,940 $39,964
Gross Margin % 0.00% 0.00% 77.00% 77.00% 77.00% 77.00% 77.00% 77.00% 77.00% 77.00% 77.00% 77.00%
Expenses:
Payroll $0 $0 $6,000 $10,200 $10,200 $14,400 $14,400 $14,400 $14,400 $14,400 $14,400 $14,400
Sales and Marketing and Other Expenses $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500
Depreciation $14,358 $14,358 $14,358 $14,358 $14,358 $14,358 $14,358 $14,358 $14,358 $14,358 $14,358 $14,358
Rent $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000
Utilities $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500
Insurance $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500
Payroll Taxes 15% $0 $0 $900 $1,530 $1,530 $2,160 $2,160 $2,160 $2,160 $2,160 $2,160 $2,160
Other $200 $200 $200 $200 $200 $200 $200 $200 $200 $200 $200 $200
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Total Operating Expenses $19,058 $19,058 $25,958 $30,788 $30,788 $35,618 $35,618 $35,618 $35,618 $35,618 $35,618 $35,618
Profit Before Interest and Taxes ($19,058) ($19,058) ($11,568) ($8,378) ($4,611) ($3,033) ($1,288) $1,025 $3,600 $3,927 $4,322 $4,346
Interest Expense $7,083 $7,000 $6,917 $6,833 $6,750 $6,667 $6,583 $6,500 $6,417 $6,333 $6,250 $6,167
Taxes Incurred $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Net Profit ($26,142) ($26,058) ($18,484) ($15,212) ($11,361) ($9,700) ($7,871) ($5,475) ($2,817) ($2,406) ($1,928) ($1,821)
Net Profit/Sales 0.00% 0.00% -98.91% -52.27% -33.42% -22.92% -17.65% -11.50% -5.53% -4.69% -3.72% -3.51%
Include Negative Taxes

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 Appendix

Appendix Table: Cash Flow

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

Cash Received
Cash from Operations:
Cash Sales $0 $0 $4,672 $7,276 $8,499 $10,580 $11,146 $11,897 $12,733 $12,839 $12,968 $12,975
Cash from Receivables $0 $0 $0 $0 $14,017 $21,828 $25,498 $31,739 $33,439 $35,692 $38,199 $38,518
Subtotal Cash from Operations $0 $0 $4,672 $7,276 $22,516 $32,408 $36,644 $43,636 $46,172 $48,531 $51,167 $51,493

Additional Cash Received

Non Operating (Other) Income $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Sales Tax, VAT, HST/GST Received 0.00% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
New Current Borrowing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
New Long-term Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Sales 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 $0
New Investment Received $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Subtotal Cash Received $0 $0 $4,672 $7,276 $22,516 $32,408 $36,644 $43,636 $46,172 $48,531 $51,167 $51,493

Expenditures Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Expenditures from Operations:
Cash Spending $0 $0 $6,000 $10,200 $10,200 $14,400 $14,400 $14,400 $14,400 $14,400 $14,400 $14,400
Payment of Accounts Payable $1,737 $11,771 $11,688 $16,804 $19,746 $20,789 $23,250 $23,689 $24,297 $24,983 $24,998 $25,034
Subtotal Spent on Operations $1,737 $11,771 $17,688 $27,004 $29,946 $35,189 $37,650 $38,089 $38,697 $39,383 $39,398 $39,434

Additional Cash Spent

Non Operating (Other) Expense $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Sales 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 $0 $0 $0 $0 $0 $0 $0 $0
Other Liabilities Principal Repayment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Long-term Liabilities Principal Repayment $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
Purchase Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Purchase Long-term Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Dividends $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Subtotal Cash Spent $11,737 $21,771 $27,688 $37,004 $39,946 $45,189 $47,650 $48,089 $48,697 $49,383 $49,398 $49,434

Net Cash Flow ($11,737) ($21,771) ($23,016) ($29,728) ($17,430) ($12,781) ($11,006) ($4,452) ($2,525) ($852) $1,769 $2,060
Cash Balance $306,163 $284,393 $261,377 $231,650 $214,220 $201,438 $190,432 $185,980 $183,455 $182,603 $184,372 $186,431

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 Appendix

Appendix Table: Balance Sheet

Pro Forma Balance Sheet

Assets
Current Assets Starting Balances Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Cash $317,900 $306,163 $284,393 $261,377 $231,650 $214,220 $201,438 $190,432 $185,980 $183,455 $182,603 $184,372 $186,431
Accounts Receivable $0 $0 $0 $14,017 $35,845 $47,326 $57,237 $65,178 $69,131 $73,891 $76,717 $77,421 $77,829
Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total Current Assets $317,900 $306,163 $284,393 $275,394 $267,494 $261,545 $258,675 $255,610 $255,110 $257,346 $259,320 $261,792 $264,260
Long-term Assets
Long-term Assets $861,500 $861,500 $861,500 $861,500 $861,500 $861,500 $861,500 $861,500 $861,500 $861,500 $861,500 $861,500 $861,500
Accumulated Depreciation $0 $14,358 $28,717 $43,075 $57,433 $71,792 $86,150 $100,508 $114,866 $129,225 $143,583 $157,941 $172,300
Total Long-term Assets $861,500 $847,142 $832,783 $818,425 $804,067 $789,709 $775,350 $760,992 $746,634 $732,275 $717,917 $703,559 $689,200
Total Assets $1,179,400 $1,153,305 $1,117,176 $1,093,819 $1,071,561 $1,051,254 $1,034,025 $1,016,602 $1,001,744 $989,621 $977,237 $965,351 $953,460

Liabilities and Capital

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Accounts Payable $0 $10,047 $9,976 $15,104 $18,057 $19,110 $21,581 $22,029 $22,646 $23,340 $23,363 $23,405 $23,335
Current Borrowing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Other Current Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Subtotal Current Liabilities $0 $10,047 $9,976 $15,104 $18,057 $19,110 $21,581 $22,029 $22,646 $23,340 $23,363 $23,405 $23,335

Long-term Liabilities $860,000 $850,000 $840,000 $830,000 $820,000 $810,000 $800,000 $790,000 $780,000 $770,000 $760,000 $750,000 $740,000
Total Liabilities $860,000 $860,047 $849,976 $845,104 $838,057 $829,110 $821,581 $812,029 $802,646 $793,340 $783,363 $773,405 $763,335

Paid-in Capital $330,000 $330,000 $330,000 $330,000 $330,000 $330,000 $330,000 $330,000 $330,000 $330,000 $330,000 $330,000 $330,000
Retained Earnings ($10,600) ($10,600) ($10,600) ($10,600) ($10,600) ($10,600) ($10,600) ($10,600) ($10,600) ($10,600) ($10,600) ($10,600) ($10,600)
Earnings $0 ($26,142) ($52,200) ($70,684) ($85,896) ($97,257) ($106,956) ($114,827) ($120,302) ($123,119) ($125,525) ($127,453) ($129,275)
Total Capital $319,400 $293,258 $267,200 $248,716 $233,504 $222,143 $212,444 $204,573 $199,098 $196,281 $193,875 $191,947 $190,125
Total Liabilities and Capital $1,179,400 $1,153,305 $1,117,176 $1,093,819 $1,071,561 $1,051,254 $1,034,025 $1,016,602 $1,001,744 $989,621 $977,237 $965,351 $953,460
Net Worth $319,400 $293,258 $267,200 $248,716 $233,504 $222,143 $212,444 $204,573 $199,098 $196,281 $193,875 $191,947 $190,125

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