Wireless Systems Integrator (Financial Plan)
Industry & Marketplace Analysis
Financial Plan
Summary
A summary of the financial outlook for SpongeShark is outlined below. Please see Appendix B for a complete set of financial projections, including annual income statements, balance sheets and cash flow statements for 2001 through 2005, as well as monthly income statements and cash flow statements for 2001. An analysis of key financial, profitability, and return ratios is also included in Appendix B.
Sources of Revenue
SpongeShark will generate revenue from five elements of each airline contract. These revenue streams include the sale of access point hardware, fees for system integration with the airline databases and reservation system, installation of the main server and access points, annual hardware support contracts, and annual software license contracts. The breakdown of the revenue streams can be seen in the chart below representing our total revenues of $60 million in our fifth year of operation.
| Sources of Revenue | |
| Access points | 1% |
| Hardware support | 12% |
| System integration | 8% |
| Software license | 18% |
| Installation | 61% |
The hardware support and software license contracts will be sold on a per access point basis and will generate monthly cash flows for SpongeShark. Therefore, 30 percent of our revenues will be recurring on a monthly basis throughout the entire duration of our relationship with an airline.
Financial Projections
SpongeShark expects to acquire our first airline client in Q4 2001. This initial customer will test our system in a major European hub airport and several smaller airports with approximately 50 total access points. We are anticipating break-even to occur in 2002 after acquiring our fourth airline client. Roughly at this same time we expect a substantial increase in revenues due to an increase in customer acquisition, larger contracts with additional access points, and the reoccurring revenues generated from the hardware support and software license contracts. In our fifth year of operations we are anticipating revenues of $60 million while generating net income of $10 million.
A summary of our financial projections can be seen below:
| Income Statement | 2001 | 2002 | 2003 | 2004 | 2005 |
| Revenue | 262 | 4,390 | 17,580 | 46,600 | 59,520 |
| Gross Profit | -400 | 1,668 | 6,848 | 18,880 | 24,740 |
| Operating Expenses | 1,685 | 2,398 | 4,565 | 6,117 | 7,986 |
| EBIT | -2,085 | -730 | 2,283 | 12,762 | 16,754 |
| Net Earnings | -2,085 | -730 | 2,283 | 7,871 | 10,052 |
| % of Revenue | 13% | 17% | 17% | ||
| Cash Flow | |||||
| Cash Flow from Operations | -2,142 | -1,845 | -1,325 | -104 | 6,678 |
| CAPEX | -114 | -172 | -312 | -456 | -648 |
| Balance Sheet | |||||
| Cash | 244 | 3,226 | 1,589 | 1,029 | 7,059 |
| Net Fixed Assets | 98 | 229 | 455 | 761 | 1,166 |
| Retained Earnings | -2,085 | -2,816 | -533 | 7,338 | 17,390 |
| Growth | ||||
| Revenue Annual Growth | 1,578% | 300% | 165% | 28% |
| Net Earnings Annual Growth | 245% | 28% |
Financial Assumptions
The number of clients acquired annually after the initial test market can be seen below:
| 2001 | 2002 | 2003 | 2004 | 2005 | |
| New airline clients | 1 | 2 | 4 | 5 | 6 |
| Cumulative clients | 1 | 3 | 7 | 12 | 18 |
In our fifth year of operation we will have a total of 18 airline clients representing approximately 400 access points per airline. The number of access points increases from the initial number of 50 due to the fact that at this time our clients will be using our service in both European and North American airports.
SpongeShark will be purchasing the servers and access points from outside vendors and will not be designing or assembling these products in-house. In addition, the company will be outsourcing the installation and maintenance of the access points in the airports. Working capital requirements have been estimated using an analysis of comparable firms in the communication services and information technology industries. Please see Appendix B for additional financial assumptions used in constructing these projections.
Capital Required
An initial equity investment of $2,500,000 is required to launch the business and provide funds for research and development, marketing expenses, working capital requirements, and to finance our first installation. We will require an additional round of funding in twelve months of $5,000,000 to fund the rapid growth of the company expected at this time.
SpongeShark is seeking these funds from a variety of sources. Specifically, the company is seeking venture capital or angel investors who are familiar with the wireless communication or airline industries. In addition, other nontraditional sources of funding are being considered. Airlines are currently in a technological race to see who can offer the best customer service using a variety of technologies and they are not interested in developing these services inhouse. Therefore, customer advances or customer participation in the development of the company are seen as additional sources of financing.
Business Risks
Technology
Currently it is still unknown whether Bluetooth will be the wireless technology of choice in the future. However, the SpongeShark concept is not technology specific and can be delivered using other wireless technologies. In addition, the adoption rate of Bluetooth-enabled handheld devices could potentially delay the introduction of the SpongeShark wireless service. However, airlines are interested in rolling out these services before widespread adoption of these devices has taken place.
Operations
SpongeShark is currently in the development stage of operations. Therefore, it is possible for the service to take longer to launch than anticipated, delaying the timeline for acquiring our first customer. In addition, an inability to control the costs involved with supplying the service could potentially decrease our net income projections. Since the hardware that we will be utilizing to deliver our service already exists, we hope to minimize any technological hurdles that could potentially delay the introduction of our service.
Competition
There are companies in the marketplace interested in delivering a variety of wireless services to the airline traveler. However, SpongeShark is uniquely focused on delivering services to the airlines to further enhance their customer service. Information technology companies, systems integrators, or communication service companies could move in on the wireless space that SpongeShark will be operating in. However, we expect to develop a niche expertise in delivering customer service solutions via a Bluetooth network. Currently, the focus of many of the companies interested in developing Bluetooth technology are working on building hardware and not services around the technology.
