Bovine Pregnancy Testing, Inc.

Geiger, Joseph J. ; Metlen, Scott ; Haines, Douglas 等

CASE DESCRIPTION

BPT is a business start up case, based upon field research, requiring students to examine initial financing, marketing issues involving changing customer attitudes, and determining appropriate core customer groups. Additional issues include developing an appropriate organizational structure and developing business process arrangements with domestic and foreign customers. The difficulty level is five, with sufficient information provided in the instructor notes to use the case in both senior and graduate level strategy, policy, and entrepreneurship courses. The case is designed to be taught in two class sessions following reading of the case and instructor handouts provided in the case notes (two hours). A formal case write-up and presentation by a student or case team should take approximately 10 hours.

CASE SYNOPSIS

Bovine Pregnancy Testing, Inc., (BPT), is a bio-tech start up firm whose main product, ELISA, is designed to provide dairy farmers with early and accurate pregnancy testing capabilities not requiring manual examinations which can injure and/or abort the fetus. Because the productivity of dairy cows is related to frequency and timing of pregnancies, incremental improvements in pregnancy testing can significantly improve profits. The firm's product cannot be patented but is protected by trade secrets and technical know-how.

BPT is two years old with a small customer base. Growth has been hampered by a lack of capital, resistance to change by dairy farmers, and poor marketing. The current product, which requires blood samples to be sent to regional veterinary laboratories for over night testing, is competitive with traditional manual examinations performed by veterinarians. An upgraded test that can be administered by the dairy operator (i.e., "cow-side") is in the development stage. With 9 million dairy cows in the United States, the product has a multi-million dollar per year sales potential. Interest in the product has also been achieved in at least two foreign countries.

BPT has many challenges: (1) overcoming the resistance of veterinarians who earn fees from the traditional manual testing, (2) creating a compelling argument for angel/venture venture capital financing, (3) determining the core customer group (large or small herds and/or domestic or foreign markets), and (4) managing and operating a start-up business. The case is based upon field research involving BPT leadership, operators of dairy herds, and owner-operators of veterinary clinics and laboratories. Information provided in the case and the instructors' notes provides students with opportunities to explore angel/venture capital financing, marketing high technology products, product positioning, developing financial and marketing elements of a business plan, and exploring many practical aspects of launching a new business.

INSTRUCTORS' NOTES

As a high tech start up firm case, the instructor should decide whether to use all information provided (i.e., a comprehensive case) or focus on one or two of the main issues present in the narrative: financial forecasting, angel and venture capitalism, marketing, organization, and product process and delivery. Overview essays covering the dairy industry, venture capital and a sample financial forecast support comprehensive or focused analysis. It is also suggested that the case be handled differently for senior undergraduates versus graduate students:

Table TN - 1

TASKS FOR STUDENT Included in
CASE TEAMS Senior Classes

Industry Analysis Yes

SWOT Analysis

Financial Analysis Give students the Sample financial
 forecast and ask them to interpret
 forecast for external financing needs

Marketing Analysis Ask students to analyze domestic and
 international market potential and
 critique case sales forecast

TASKS FOR STUDENT Included in
CASE TEAMS Graduate Classes

Industry Analysis Yes

SWOT Analysis

Financial Analysis Have students develop a financial
 forecast based on case text. Ask them
 to determine external financing need
 (See sample solution in Table TN-2)

Marketing Analysis Same as senior class plus produce the
 sales forecast by region

To support market potential discussion as well as marketing plan recommendations, ask students to carefully consider and make sure they understand key product positioning issues such as:

* is the need/benefit manifest and obvious,

* what is the relative advantage versus manual (rectal) palpation

* how well does the BPT test fit with existing dairy/veterinary practices

Ask students from all class levels to recommend marketing plans and sales support programs for both domestic and foreign markets. Combine the plans and support programs into a 'compelling argument' to present to potential investors.

INDUSTRY ANALYSIS

The domestic dairy industry has over 9 million cows spread across 83,930 small herds (200 head or less) and 8,060 large herds (see Table 2 of case narrative). Large herds typically have one or more contract veterinarians who perform manual pregnancy tests and provide for the general health of the herd. Small herds call upon local vets for their pregnancy testing and cow health needs, as appropriate. Foreign dairy herds have similar arrangements. Cows are distributed across the USA as shown in Tables 2, 3 in case narrative, and Asia and Europe as shown in Table 4. Accurate and timely pregnancy testing is important in all countries as herd management and cost control measures replace government controls in many nations. Veterinarians performing manual examinations accomplish virtually all pregnancy testing. Each exam is completed in a minute or so and is relatively inexpensive. However, many veterinarians complained to the case researchers that the repetitive testing was boring, not all that lucrative, and promoted minor ailments in the hands and arms of the veterinarian. A manual test can also lead to an aborted fetus. The data suggest students target certain market areas, develop modest market penetration goals, and modify the financial forecast sales figures and develop marketing models for class discussion. Decisions on the scope and numbers of market segments can also frame the discussion on size and nature of the work force.

It would be appropriate to inform the students that in the United States, total herd numbers are flat or in mild decline. The numbers are influenced by demographics, reduced population growth, and continued incremental but important productivity gains. Like many industries, reduced cost of production can translate into higher profitability. The economic justification for using the slightly more expensive BPT test is summarized in Table 1 in the case narrative. The students may wish to use this analysis in any marketing plan required by the instructor.

SWOT ANALYSIS

All classes should be asked to perform a SWOT analysis. The case narrative contains sufficient information to make educated judgments on many aspects of the firm and the industry. A SWOT should display, but not be limited to, the following:

Strengths--Solid research and development [current product is competitive and the 'cow side' test will be an industry breakthrough]; solid reputation of owner, good results from initial customers, high quality production, product protected by trade secrets, production know-how, and the difficulty to successfully reverse engineer the current product.

Weaknesses--No formal marketing plan or professional marketing staff, insufficient capitalization for any major initiatives.

Opportunities--Large national and international potential, ability to segment markets and focus on most receptive customers, market potential of 'cow-side' test, potential (long term) of adapting technology for other animals and house pets; use of field representatives to grow firm without large infusions of capital.

Threats--Resistance to change by veterinarians, attractiveness of competitive products, threat of reverse engineering of current product, and loss of or inability to exploit markets due to lack of capital.

FINANCIAL MODELING

Seniors in business should be given the sample financial forecast and venture capital essay for use in developing a marketing strategy that would build to large annual sales. The forecast also provides a reasonable approximation of external funds needed over the next three years. Depending on what the instructor wishes to emphasize, a decision can be made whether to give the financials and/or Venture Capital Essay to graduate students. The Financial Forecast or Pro Forma is based upon a set of assumptions noted in the far right columns of TN-2 shown at the end of the notes and provided in the case text as Table 7. The assumptions are for three years of 50% increases in sales followed by an example set of financials assuming $1,000,000 in sales (the stated goal of the Johnsons). An estimate of staff increases is found in the payroll lines (no provision for expanded sales force or salaries for owners). Student analysis of the national and international markets shown in the case tables can be used to modify the financial forecasts and the resulting angel or venture capital financing needed. The 'plug to balance' line in the balance sheet represents additional financing or borrowing needs for each year). The sample forecast results suggest $191,000 in start up (2003-2005), additional 'phase 2' financing to increase sales to 1,000,000 (occurring sometime in 2008), and $200,000 in 'cow side research and development is needed. Advanced students can set up the spread sheet forecast for several years and determine the additional funds needed to grow to 1 million units in sales. These figures would normally suggest that at least $400,000 is needed to seed the program (plus 'cow side R and D' during years 2003-2005 with additional 'phase 2 and 3' financing needed for several additional years. A 10 year financial forecast, for example, with the Table 7 assumptions and a continued 50% per year growth would demonstrate that sales have to reach the $300,000 range before becoming profitable and $650,000 before additional borrowing is no longer needed. .

SHORT ESSAY ON VENTURE CAPITAL (Copy and Hand Out to Class)

Traditional sources of commercial loans for small businesses with two or more years of history include:

1. Federal SBA loans administered through local banks

2. Other Federal loan programs such as Small Business Innovative Research Program Loans (SBIR's) which can help transfer new technology into a new business

3. Local banks requiring significant collateral for loan.

Initial start up financing is much more difficult to obtain. Family and friends often provide "angel financing" not requiring collateral, but when the need is too great, a variety of angel and venture capitalists and firms can be approached. This form of financing is typically found in:

1. Publicly traded venture capital firms

2. Private Limited Partnerships whose investment mission is to provide venture capital

3. Venture Capital Divisions of larger, established corporations and banks

4. Individual and organized collections of Wealthy Investors

Angel and venture funding can be obtained in up to four phases:

First Round--For initial funding; investors take great risk and often expect returns on the order of ten times the initial investment; financing is obtained only after business owners develop and sell 'compelling arguments' for their product idea or business. At the beginning of this stage, the firm has barely been established, but the firm has what it believes is a compelling argument for selling the new idea, product, or service

Second Round--The money is used to complete product or service prototypes along with detailed business plans sufficient to attract larger amounts of money (even SBIR qualified loans -see above). The venture capitalists continue to require high returns on second round investments.

Third Round--The money is used for initial production (or equivalent service) and expansion to the breakeven point for the firm. The market for the product or service must be clearly demonstrated at this point and significant growth potential must also exist for continued financing.

Fourth Round--Financing is needed to bring the firm into full scale operation with sufficient success to tender Initial Public Offerings, obtaining large scale commercial loans, or issuing formal corporate debt.

Venture capitalists, by requiring very high returns on investments, tend towards high technology products and processes that are easily scaled up to large markets and sales. The owners of such firms must be careful, as the terms of the early round financing will require the firm to issue anticipation warrants convertible to either cash or stock in the firm. If the firm performs well, the venture capitalist can be paid off in cash. If ownership has to be transferred, the dollar value of the required return on investment might constitute a large percentage of the firm. For example, if the required return for a venture capitalist was $500,000 [to meet return on investment goals] and the firm was valued in year five at $1,000,000, the firm's owners would have to give up to 50% of the firm to cover the 'payment' depending on how much cash is available to pay off the venture capitalists.

A key financial exercise in the BPT case is to perform a financial forecast given reasonable sales growth and determining (a) the external funds needed, and (b) the estimated value of the firm. Section 2, Table TN-2, of the Instructor's Note provides a worked example of the financial forecast. Depending on the nature and level of the class the forecast can be either given to the students for interpretation or the case teams can be asked to generate their own forecasts. It is noted from the case text that at least $200,000 is needed to develop and produce the 'cow side test'. If the new product development is recommended in the student solution, the development costs should be added to the overall funds needed from the lending sources (i.e., $191,000 + $20000 = $391,000 in phase one or 'angel financing').

A potentially interesting set of discussions can be experienced if the students are required to develop and present a compelling argument that will induce potential investors to provide the first several hundred thousand in venture capital. The financial forecast noted previously--and its sales forecast modified by the marketing plan, can be employed to complete the compelling argument.

WEB SITES AND OTHER SOURCES ON VENTURE CAPITALISM

(Hand out to students and encourage them to look for additional sources of information)

Galante's Venture Capital and Private Equity Directory, Asset Alternatives, www.assetnews.com

Gladstone, D. & L. Gladstone. (2002). Venture Capital Handbook, Prentice Hall, Inc.

Lefteroff, T. (2003). Top 100 Venture Capital Firms, Enterpreneur magazine, 56-60 July, www.entrepreneur.com

Scott, J. et al. (2003). Credit, banks and Small Business--The New Century, National Federation of Independent Business Research Foundation, 1201 "F" St. NW, Suite 200, Washington, DC. January 2003, www.nfib.com

The National Venture Capital Association, Arlington, Va., www.nvca.org

Pratt's Guide to Venture Capital, www.sdonline.com

General information on governmental funding, www.sba.gov/financing/

MARKETING AND THE COMPELLING ARGUMENT

Students should be able to develop a variety of marketing plans based upon the data in the case and the handouts found in the instructor notes. All marketing plans and the compelling argument, however, should include the following elements:

Adoption: The fundamental marketing challenge for BPT is to: (1) Make dairy operators and veterinarians aware of their product, (2) Persuade customers that BPT offers features that meet customer needs, and (3) get users to adopt BPT.

Target Market/Segmentation: A start up firm with limited resources will need to carefully target their efforts to build awareness and encourage adoption. Target/ segmentation decision possibilities for BPT include:

Domestic and/or foreign: Should they resist the distraction of developing their international business until they make more confident progress domestically? They may have to give up control of the marketing effort because of the complications of distance, cultural differences, country knowledge, etc. They could overcome these challenges by licensing the product internationally. If they are willing to consider licensing internationally, they might also consider domestic licensing to a pharmaceutical firm with more resources that could finish the development and market introduction of the pregnancy test- domestically and internationally.

Dairy operators versus veterinarians: should awareness and persuasion efforts be directed to the operators, the veterinarians or some balance to both? Veterinarians perform manual pregnancy tests because they are trained and licensed and are considered experts. Dairy operators pay for the benefits of the veterinarians test and could be regarded as users. It is usually not a good idea to market around the experts, especially when they have so much power and respect in the eyes of the users. It is less likely that dairy operators will adopt BPT unless their veterinarians support it. BPT must convince veterinarians of the benefits of the BPT pregnancy test- including how it will help them provide better service to their customers, the dairy operators. They only have to persuade the dairy operators that there are benefits to using the BPT pregnancy test.

Domestic introduction and expansion: Should they focus their early efforts on regional dairies closer to their headquarters, target the largest dairies first or use some other segmentation criteria? Students should consider the degree of risk that operators and veterinarians face in adopting BPT. The higher the risk, the more selling effort may be required by BPT. Perceived high risk by BPT customers may argue for staying close to home at first so BPT marketers can give sufficient selling attention to the early adopting dairies. On the other hand, operators of larger dairies may see the greater financial impact and be willing to invest more of their own resources and be more risk tolerant.

Field Representatives: Students should explore compensation models which provide the field personnel a portion of the profits flowing to BPT for a period of 2-3 years. For example, a 20% commission in year one, 15% commission on sales for year two, 10% for year three, etc. This would enable a work force to be compensated without significant overhead. Discussion on the strategy has proven to be quite energetic !

Finally, the marketing and financial plans need to be combined to produce a compelling argument leading to successfully raising sufficient capital to survive until profitability is ensured. Marketing oriented classes can structure the case to focus on developing and presenting a compelling argument. The handouts from the Instructors Notes (Essay on Venture Capital plus sharing TN-2) plus answering the non-financial questions in the Notes should provide a framework for a spirited debate between the firm's owners (represented by one team) vs. potential investors (represented by the class or another team).

PROCESS MANAGEMENT

What can be done to improve the business processes in BPT?

Ask students in all class levels to critique the way BPT conducts business and make suggestions on how to improve the processes between BPT and the regional clinics and between the regional clinics and the dairy herd customers.

Students should be encouraged to examine the business processes associated with BPT and outlined in case. Many aspects of the business could be improved. The following provides a perspective developed by the case writers and can serve as a basis for the instructor to ask questions designed to move the students into suggesting improvements in the manner in which BPT conducts its daily business that would promote the use of the product by decreasing feedback time and ensuring accuracy of feedback.

The current process used to produce the final output of cow pregnancy information contains many opportunities for error, as is the process of information flow to ensure that there is the correct number of ELISA plates at the appropriate lab. Currently, dairy operations inform the veterinarian lab of when and how many cows they will test. The veterinarian lab then combines the information from all participating herds and orders enough ELISA plates from the ELISA production facility to service their expected needs. There is no forecasting or room for error, thus if more cows are tested or the production facility receives an unexpected order, there is a chance that the proper number of ELISA plates will not be delivered. The information flow of demand and availability of ELISA plates needs to be automated to insure uninterrupted supply to the labs, and thus the dairy operations. Common forecasting techniques and automated ordering procedures would help keep the correct number of ELISA plates available for use. Even more of a hindrance to success than unavailability of ELISA plates is the room for error in information transfer of which cow is pregnant.

The current process to determine pregnancy consists of several sub-processes. The first process is performed at a dairy. An employee of a dairy takes a blood sample from each cow and places each sample into a test tube, the identity of each cow is recorded on the respective test tube, and then all test tubes are sent to the vet lab. The second sub-process occurs at the lab where the blood from each test tube is placed on a given location on a ELISA plate, the plate is treated and then each cow specific local on the plate is observed for a given reaction to determine pregnancy, the result is recorded and then sent back to the dairy. Mistakes on cow identity can be made in any of four steps: (1) cow identity, (2) transfer of cow identity to the proper test tube, (3) recording which cow is linked to which specific local on the plate, and (4) recording which cow is pregnant. Automatic readers such as a bar code reader would foolproof step one. Devising a reader that places identities of cows onto test tubes would foolproof step two. Having the fist two numbers on the test tube refer to the column and row number of the possible locals on the plates would help to foolproof step 3 by limiting that blood sample to one local on the plate. Finally an automated reader of the plate would foolproof the transfer of data from the plate to the dairy operation.

Communication between the veterinarian and the dairy staff can be enhanced by creating a vet lab web site and with password access provided to each customer to look up test results, obtain hard copy, and/or down load the information to the owner's data base. An internet-based process could reduce turnaround time by several hours--perhaps as much as a day. Students with a background in information systems can provide several possible technical capabilities that human resource, marketing and production management majors can develop and incorporate in the planning and recommendations for process improvement.

ORGANIZATIONAL CONSIDERATIONS

BPT is basically a 'mom and pop' operation that utilizes part time skilled help to manufacture and distribute the test (well) plates and the associated material and equipment to conduct the pregnancy tests. To date, marketing has been limited to ad hoc ventures out to a few large dairy herds. No sales force is in place and an information system is needed to quickly record and notify the dairy owners of test results. Students may suggest a variety of organizational solutions, but any solution has to respond to all operating aspects of the firm:

Purchasing--Who is/should be in charge of purchasing the supplies used for producing the test (well) plates and related materials--and filling orders? A potential answer is Amy who is currently performing most of the office administrative functions. Other options require a new hire which increases the breakeven sales number.

Accounting--The function can be performed in two ways: (a) An in-house bookkeeper with appropriate small business accounting software, or (b) outsourcing the function to a professional accounting services firm. Option (a) may be less expensive, but exposure to potentially costly accounting and reporting mistakes is higher with option (a).

Production--Several hundreds of thousands of tests/per year can be produced with the current staff and the staff increases imputed in the financial forecasts. As the production volume goes up, additional staff and equipment may be needed. Increased equipment needs are noted in the fixed asset line of the balance sheet.

Management, Research, and Development--Garrett is the owner-scientist, but development of the cow side test will be outsourced at an approximate cost of $200,000. Ongoing refinement of the existing ELISA test is something Garrett can do without additional staff. The students can be directed to spread the $200,000 over the first two forecast years as a representative R&D expense (including staff).

Marketing--The estimation should be based upon student plans developed from the above marketing comments. A discussion on compensation strategies for the marketing staff during the case overview (first class session) should help identify and clarify ideas: sales commission strategies, etc.

Information Systems.--Students should 'brain storm' on how to produce a web based solution for veterinaries and dairy herd owners communication. The current 36-hour cycle of drawing blood, testing, notification and record keeping can be reduced by creative systems development. The instructor may wish to use the Process Design comments in the instructor notes to lead the discussion.

QUESTIONS TO ASK STUDENTS

Answers to the following questions can be enhanced by using the optional instructor note handouts and by encouraging the students to research the dairy industry and examine the website of the US Department of Agriculture.

1. What is the need/benefit for BPT? What are the compelling arguments that will induce investors to support BPT?

The need and benefits are difficult to define and promote. Dairy owners and veterinarians using current manual techniques are comfortable with the process. Tolerance levels for lost fetuses are apparently high. A compelling argument must include significant cost savings due to the non-invasive process, more timely and accurate testing, and how well the BPT test fits with existing dairy and veterinary practices?

The test can fit well if the dairy owner becomes comfortable with the new process and continues (as is the national trend) to strive for productivity increases. Productivity will increase given the benefits noted in question one. As owners continue to automate their databases and manage each cow as a specific 'production unit', both increased revenue and reduced expenses may result.

2. Should BPT resist the distraction of developing foreign markets until the domestic market is established?

The foreign market has advantages that include a higher selling price, less 'high tech' competition, and the ability to use the revenue to reduce the external funds needed to grow the firm. In some countries, government controlled agriculture may seize upon the test as one more way to make their agriculture industry competitive as they privatize the sector. The down side to the foreign market includes (a) greater risk of having the product reverse engineered and duplicated without compensation, and (b) stretching the existing firm beyond its capabilities to both service domestic and foreign operations while maintaining high quality control standards.

3. Should awareness and persuasion efforts be directed to the dairy operators, the veterinarians, or both?

This question should produce considerable discussion--especially among the marketing and promotion majors in the class. The conclusions are crucial to the overall marketing plan and development of the 'compelling argument'. It does appear to the case researchers that both the vet and the dairy herd owners require considerable education and persuasion before they adopt a fundamentally different approach to pregnancy management. However, it can be argued that the vet is the prime customer in the business model as presented and the vet needs to become a strong advocate. The sales force should focus upon winning over the vets who can spend considerably more time with each customer than can BPT's sales force. Having both the vet and the BPT representative visit potential customers should also be effective.

4. Should BPT focus on veterinary clinics serving large herds or focus on services to smaller herds?

The ultimate answer to this question will depend upon the degree in which the veterinaries adopt and promote the product. As implied in the case text and industry analysis in the instructors' notes, the large herd owners have been somewhat reluctant while the vets are eager to find a substitute to the physically demanding manual testing procedure. Veterinarians who rely on the manual test for a prime source of income will be most resistant. Small herds may be a fruitful market niche for BPT because veterinarians can manually test more cows per day by focusing on large herds and will charge more per cow at small dairies. Foreign operations will most likely choose the herds they service and may face different obstacles in their home countries. As a result, large or small herd choice is probably not a major issue.

5. How would you re-organize BPT?

Students must consider creating a professional advertising and marketing capability while recognizing the need for good accounting and financial support. Garrett and Amy can continue to be owner-operators to the extent Garrett can oversee production, quality control, and research and development. Amy can handle purchasing, shipments, and serve as the link between BPT and outsourced accounting and financial resources. Students can explore the implications of the international market on staffing and organizational structure. It is important to note that the nature of the production enables BPT to produce approximately 1,000,000 tests per year with modest increases in staffing, material, and facilities costs (see financial forecasts). Additional insights may be found in the ORGANIZATIONAL CONSIDERATIONS SECTION of the Instructor's Notes.

6. What are the financing needs of BPT as it moves towards $1,000,000 in net sales? Should the financing come from angel financiers, venture capitalists, or commercial lending institutions?

If the students are given TN-2 from the instructor's notes (normally senior classes), this question can be reduced to a discussion based upon the "Venture Capital Essay" included in the case notes. Ask students to interpret the results of TN-2 and a decide on what type of financing should be pursued. The students would also need to decide whether to stay with the existing product or finance the development of the improved "cow side" test while simultaneously building up the existing market. If the product improvement investment is decided upon, an additional $200,000 in financing is needed.

If the students are asked to create their own financial forecast and additional funds assessment (normally graduate students), they will have to proceed from the information supplied in Tables 5 and 6. The instructor can use TN-2 (not handed out to these students) as a reference check to see if the students have the mechanics of financial forecasting under control. The instructor is encouraged to allow flexibility in modifying the assumptions of Table 6 as long as the student analysts can provide good supporting logic. The students will find great variance in results as the assumptions are changed which can be used to demonstrate the power of scenario analysis. (A complete five year forecast is available by email from the authors.)

EPILOGUE

Garrett and Amy are developing the international market and overall sales, because of foreign contracts, are increasing significantly. They have hired a marketing person with a strong agriculture and dairy background who is working for a modest wage plus commissions to develop the domestic market. Accounting has been outsourced to a local firm who takes data from a standardized accounting package and provides management reports each month. The owners are reluctant to link up with venture capitalists for fear of losing majority ownership of their business and are hoping the cash flow from the foreign contracts will be sufficient to either finance penetration of the domestic market or reduce the amount of needed venture capital investment.

Joseph J. Geiger, University of Idaho

Scott Metlen, University of Idaho

Douglas Haines, University of Idaho

TABLE TN-2
BPT Example Financial Forecast (Pro Forma)

 Income 2002 % Of Projected
 Sales 2003

 ELISA preg $58,252 $87,378
testing
 Elk preg testing $2,412 $2,500
Returns, $(973) 2% $(1,748)
Allowances
 Discounts $(2000) 4% $(3,495)
 Total Net Sales $57,691 $84,635
Expenses
 Advertising $11,000 19% $12,115
Acct/ $2,000 3% $2,539
Bookeeping
Contract Labor $8,000 14% $11,849
Contract $ -- $20,000
Marketing
 Insurance $2,600 5% $3,385
 Misc. Exp. $3,600 6% $4,232
 Lab. Supplies $4,300 7% $6,990
 Legal Fees $1,000 2% $1,693

 Payroll $5,000 9% $7,617
 Other Contract $3,500 6% $5,078
Svcs
Building $7,500 13% $7,500
Rent/ Taxes
 Shipping $900 2% $1,693
 Travel $2,000 3% $4,232

 Utilities $5,000 9% $5,924
Total Expenses $56,400 $94,847
Net Income $1,291 $(10,212)
(NI)
NI as % of 2% -0.12%
Sales

 Income Projected Projected Johnson's
 2004 2005 Target Goal

 ELISA preg $131,067 $196,601
testing
 Elk preg testing $2,500 $2,500
Returns, $(2,621) $(3,932)
Allowances
 Discounts $(3,932) $(3,932)
 Total Net Sales $127,014 $191,236 $1,000,000
Expenses
 Advertising $31,753 $38,247 $100,000
Acct/ $2,540 $3,825 $20,000
Bookeeping
Contract Labor $15,242 $22,948 $120,000
Contract $40,000 $60,000 $80,000
Marketing
 Insurance $3,810 $5,737 $30,000
 Misc. Exp. $5,081 $5,737 $30,000
 Lab. Supplies $8,891 $11,474 $60,000
 Legal Fees $2,540 $3,825 $20,000

 Payroll $12,701 $21,036 $110,000
 Other Contract $7,621 $11,474 $60,000
Svcs
Building $7,800 $8,000 $8,000
Rent/ Taxes
 Shipping $2,540 $3,825 $20,000
 Travel $6,351 $9,562 $20,000

 Utilities $7,621 $9,562 $40,000
Total Expenses $154,491 $215,252 $718,000
Net Income $(27,478) $(24,016) $282,000
(NI)
NI as % of -21% -12% 28%
Sales

 Income Assumptions for
 2003-5
 & $1,000,000
 Estimate

 ELISA preg 50% Growth for 3
testing yrs
 Elk preg testing Flat sales
Returns, 2% of Sales
Allowances
 Discounts 4%,3%,2%
 Total Net Sales
Expenses
 Advertising 21%;25%;20%,10%
Acct/ 3%,2%,2%
Bookeeping
Contract Labor 14%,14%,12%;
Contract Cost of Field Rep's
Marketing
 Insurance 4%,3%,3%,3%
 Misc. Exp. 5%,4%,3%,3%
 Lab. Supplies 8%,7%,6%,6%
 Legal Fees 2%

 Payroll 9%,10%,11%,11%
 Other Contract Constant 6% of
Svcs sales
Building Plugged - slight
Rent/ Taxes incr.'s
 Shipping Constant @ 2%
 Travel Increase to 2% and
 hold
 Utilities 7%,6%,5%,4%
Total Expenses
Net Income No Dvds;
(NI)
NI as % of
Sales

BPT Example Financial Forecast (Balance Sheet)

 Balance Sheet 2002 % Of Projected
 Sales 2003
Assets
 Cash $7,200 12% 11,382

 Mkt Securities $18,225 32% 8,464

Acct. $12,154 21% 22,852
Receivable
 Inventory $14,000 24% 16,927
Fixed Assets, $27,500 48% 30,000
Net
Total Assets $79,079 $89,624
Liabilities
 Acct Payable $1,850 13% 2,201
PayrollLiabilitie $725 15% 1,143
s
Long Term $-- --
Debt
Total Liabilities $2,575 3,343

Plug To 19,989
Balance
Equity
 Owners Equity $100,000 $100,000

 Retained $(23,496) $(33,708)
Earnings
Total Equity $76,504 $66,292
Total Liab and $79,079 $69,635
Equity

 Balance Sheet Projected Projected Johnson's
 2004 2005 Target Goal
Assets
 Cash 18,539 25,830 59,594

 Mkt Securities 12,701 19,124 25,000

Acct. 31,753 47,809 110,000
Receivable
 Inventory 25,403 38,247 80,000
Fixed Assets, 35,000 45,000 55,000
Net
Total Assets $123,396 $176,010 $328,485
Liabilities
 Acct Payable 3,302 4,972 10,400
PayrollLiabilitie 1,905 3,155 16,500
s
Long Term - - -
Debt
Total Liabilities 5,208 8,128 26,900

Plug To 45,667 125,607 (51,828)
Balance
Equity
 Owners Equity $100,000 $100,000 $100,000

 Retained $(27,478) $(57,724) $254,522
Earnings
Total Equity $72,522 $42,276 $354,522
Total Liab and $77,730 $50,404 $381,422
Equity

 Balance Sheet Assumption of 2003-5
 & $1,000,000 Estimate
Assets
 Cash 12% or 44 days of
 expenses; 8.33% or 30
 days
 Mkt Securities 10% for 3 years, 2.5 %
 thereafter
Acct. 27%,25%,25% or 90
Receivable days; 40 days
 Inventory 20% or 73 days;30 days
Fixed Assets, Estimate of new
Net equipmentneeds
Total Assets
Liabilities
 Acct Payable 13% of Inventory
PayrollLiabilitie 2%of payroll
s
Long Term See Plug
Debt
Total Liabilities

Plug To New Debt Need (Not
Balance needed)
Equity
 Owners Equity

 Retained
Earnings
Total Equity
Total Liab and
Equity