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FARM WINERY PROJECT

MODEL BUSINESS PLAN

December 2004

Shepstone Management Company

100 Fourth Street Honesdale, PA 18431

570-251-9550 FAX 251-9551

www.shepstone.net

(2)

Table of Contents

Page

Table of Contents

i

1.0

Executive Summary

1-1

2.0

Business Description, Mission Statement and Business Goals

2-1

2.1

Description of Business

2-1

2.2

Business Mission Statement

2-2

2.3

Business Goals

2-2

3.0

Marketing Plan

3-1

3.1

Regional Wine Market and Competition

3-1

3.2

Business Marketing Plan

3-3

4.0

Management Plan

4-1

5.0

Financial Plan

5-1

5.1

Sales Forecast, Income and Expenses

5-1

5.2

Capital Requirements and Financing Proposal

5-1

5.3

Cash Flow Analysis

5-1

6.0

Appendices

6-1

A.

Pro Forma Income and Expense Statements

A-1

B.

Pro Forma Balance Sheets

B-1

C.

Cash Flow Projections

C-1

D.

Resumes of Management Personnel

D-1

E.

Equipment Listing

E-1

Shepstone Management Company

Table of Contents

i

(3)

1.0 Executive Summary

Brant Farms Winery, LLC, proposes to

establish a new estate winery in the

extensive juice grape region surrounding

Brant, New York. This will be a premium

winery that builds upon the success of

the several nearby wineries constituting

the Chautauqua and Niagara Wine Trails.

Annual production will begin at 5,550

cases and increase to 9,250 cases over

a period of 5-6 years. All grapes will be

purchased from local and regional

vineyards.

The winery will produce the following high

quality varietals: Chardonnay, Cabernet

Franc, Cabernet Savignon and Seyval

Blanc. It will also produce three relatively

high quality wines using native varieties;

Pink Catawba, Concord and Delaware.

Most of the wine will be sold out of the

tasting room, but high-end restaurants

and wine shops may also be used to

reach customers as volume grows.

Brant Farms Winery will be located in the

Town of Brant, Erie County, New York. It

will enjoy relatively easy access from I-90

via exits 57 and 58. This route is the

major link between the cities of Buffalo

and Erie. It carries 28,040 vehicles per

day, a significant portion of which

represent potential customers for Brant

Farms Winery.

There is a total market of over 1,225,000

persons within 60 minutes of Brant,

creating a major opportunity for a tourism

attraction with destination appeal. The

market within 30 minutes is also

considerable. It has a population of over

208,000 persons, of which over 80,000

are adults of 45 or more years of age.

This is a prime market for high quality

wines of the type Brant Farms Winery

proposes to supply.

There are, too, large gains in certain

categories around which a new winery

venture can be developed. These include

households earning over $50,000 per

year with the additional disposal income

to spend on travel, entertainment and

high-quality dining experiences. Those

households are increasing at a rate of

about 3% per year across the market as a

result of income gains as the population

ages. There is steady growth of about

1% per year in population aged 45+ years

who are likely to be interested in high

quality wines, particularly dry wines. This,

combined with income gains, creates a

growing market.

There are some 16 wineries located to

the north and south of Brant along the

Chautauqua and Niagara wine trails.

There are an additional 50 wineries

located on the Niagara Peninsula in

adjoining Ontario None of the local

wineries offer the same combination of

wines as proposed by Brant Farms

Winery, with its balance of native and high

quality varietals and emphasis on dry

wines.

Brant Farms Winery will emphasize a

strategy that is focused on a relatively

small number of higher-end products

products. This will be accomplished

using a tasting room and a wine club.

Also, high end restaurants and wine

shops will be used to market the ultra-

premium and super-premium products.

(4)

Brant Farms Winery will be owned and

operated by James and Mary Smith, the

owners of the vineyard on which it will be

located. They will conduct the business

through a limited liability corporation

known as Brant Farms Winery, LLC.

James will serve as President and

Operations Manager. He has worked as

a winemaker prior to returning to the

vineyard operation that he and Mary now

own. James and Mary both attended

Cornell and graduated with degrees in

Ag Economics.

Average prices of $8, $15 and $22 per

750 ml bottle are projected, respectively,

for premium, super-premium and

ultra-premium wines. It is anticipated that 60%

of wines will be sold as premium wines

with 30% and 10%, respectively, for

super-premium and ultra-premium wine

selections. This activity is forecasted to

generate $1,095,000 of sales in the fifth

year, at which point it will be profitable.

It is proposed to borrow the sum of

$1,200,000 over a 15 year term to finance

the establishment of this business over a

two-year period (the winery in the first year

and tasting room in the second), plus an

equal

amount

of working

capital,

substantial portions of which will be

supplied by the owners on a loan basis.

NOTE: This model plan is based on

similar models developed by Cornell

University (see Writing a Business Plan:

An Example for a Small Premium Winery,

E.B. 2002-07, by Mark E. Pisoni and

Gerald B. White) and by the Ohio Wine

Producers Association (The Dollar and

Sense of Starting a Small Winery, by

Chris Stamp). Several elements of this

model draw excerpts directly from these

reports and they provide much additional

guidance that will be helpful to any party

developing their own winery plan. This

model plan provides a recommended

approach for organizing such a business,

relying upon a number of assumptions

that are fictional in nature. It is, therefore,

not intended and should not be used as a

substitute for the extensive due diligence

and financial analysis connected with a

new business, activities that must be

tailored to the needs of each individual

enterprise.

Shepstone Management Company

Executive Summary

(5)

2.0 Business Description,

Mission Statement

and Business Goals

2.1

Business Description

Brant Farms Winery, LLC, proposes to

establish a new estate winery in the

extensive juice grape region surrounding

Brant, New York. This will be a premium

winery that builds upon the success of

the several nearby wineries constituting

the Chautauqua and Niagara Wine Trails.

Annual production will begin at 5,550

cases and increase to 9,250 cases over

a period of 5-6 years. All grapes will be

purchased from local and regional

vineyards.

The winery will produce the following high

quality varietals: Chardonnay, Cabernet

Franc, Cabernet Savignon and Seyval

Blanc. It will also produce three relatively

high quality wines using native varieties;

Pink Catawba, Concord and Delaware.

Most of the wine will be sold out of the

tasting room, but high-end restaurants

and wine shops may also be used to

reach customers as volume grows.

The key to the winery's success will be its

high quality wines. Research shows that

U.S. consumers are drinking more

expensive and higher quality wines. A

2003 study of California wine shipments

indicates premium table wine sales of $7

and above for a 750 ml bottle increased

6% to account for 30% of the volume and

62% of all winery revenues. The Brant

Farms Winery will capitalize on these

consumption trends. Most of the wineries

in the Lake Erie wine region over a wide

range of wines and tend to emphasize

fruity sweet wines (although many of the

Canadian wineries on the Niagara

Peninsula are more focused in their

offerings). Brant Farms Winery, by

producing a relatively smaller number of

higher quality wines, will establish a

marketable competitive advantage.

It is anticipated that 10% of the wines

produced will fall into the ultra-premium

market with an average price of $22.00

per 750 ml bottle. Another 30% will

constitute super-premium wines sold for

an average of $15.00 per bottle. The

remainder will be premium wines selling

at an average of $8.00 per bottle.

This mix will allow for higher margins but

will also require some specialized

equipment to accommodate the varied

processes involved. Moreover, it is

anticipated that sales of super-premium

and ultra-premium wines will require

waiting 18 months after production to

make the first sales, while premium

wines will be sold after 12 months. It is

assumed that 50% of a given wine will be

sold the first year it is marketed, with 25%

each for the following two years.

This project will support other agricultural

tourism efforts locally and help to

implement the goal of the Brant, Evans

and North Collins Regional Farmland

Protection Plan to "...promote local

agritourism in tourism brochures and

other tourism outlets such as in state

publications, along wine tasting routes or

at the Seaway Trail and Convention and

Visitors Bureau."

(6)

2.2

Mission Statement

The Brant Farms Winery will market a

limited but top quality lines of wines from

both native and vinifera grape varieties

that build on the Lake Erie and Brant

region's reputation for producing fine

agricultural products, also creating a

tourism attraction for visitors from Buffalo,

Cleveland, Erie and other markets.

2.3

Business Goals

The following are the key business goals

of Brant Farms Winery in launching this

project:

A.

Creating a business that will ensure

full-time employment for the winery

owners.

B.

Generating a positive cash flow

within five years of business

establishment.

C.

Generating a profit within five years

of business establishment.

D.

Generating a long-term rate of return

of at least 10% on equity invested,

including land priced at market

value.

E.

Achieving an operating margin of

40% before depreciation, interest

and taxes.

F.

Establishing a foundation for future

business growth through increased

visitation to the area, expansions

and new still higher-quality offerings,

that fit within the above mission

statement.

G.

Establishing and maintaining a

position of leadership in the regional

grape and wine industry.

H.

Establishing a reputation as a

centerpiece tourist attraction that will

draw still more visitors and create

new marketing opportunities within

the greater Buffalo region.

Shepstone Management Company

Business Description and Mission

(7)

3.0 Marketing Plan

3.1

Regional Wine Market and

Competition

Brant Farms Winery will be located in the

Town of Brant, Erie County, New York. It

will enjoy relatively easy access from I-90

via exits 57 and 58. This route is the

major link between the cities of Buffalo

and Erie. It carries 28,040 vehicles per

day, a significant portion of which

represent potential customers for Brant

Farms Winery. Other major market

factors include the following:

A.

U.S. Route 20 also provides access

to the site and serves as a regional

alternate and collector for I-90. It

carries 15,600 vehicles per day.

B.

There is a total market of over

1,225,000

persons

within

60

minutes

of Brant (see

table

following),

creating

a

major

opportunity for a tourism attraction

with destination appeal. The market

within

30

minutes

is

also

considerable. It has a population of

over 208,000 persons, of which over

80,000 are adults of 45 or more

years of age. This is a prime market

for high quality wines of the type

Brant Farms Winery proposes to

supply.

C.

While the overall population of the

region is not growing, the number of

households is relatively stable.

There are, too, large gains in certain

categories around which a new

winery venture can be developed.

These include households earning

over $50,000 per year with the

additional disposal income to spend

on travel, entertainment and

high-quality dining experiences. Those

households are increasing at a rate

of about 3% per year across the

market as a result of income gains

as the population ages.

There is steady growth of about 1%

per year in population aged 45+

years who are likely to be interested

in high quality wines, particularly dry

wines. This, combined with income

gains, creates a growing market.

0-30

Minutes Minutes30-45 Minutes45-60 Total Population, 2000 208,329 696,450 330,155 1,234,934 Population, 2003 207,355 687,996 329,731 1,225,082 Population, 2008 204,397 676,261 325,511 1,206,169 Households, 2000 79,244 284,577 129,740 493,561 Households, 2003 79,415 282,636 130,306 492,357 Households, 2008 79,283 281,184 130,305 490,772 HH's $50K Income, 2000 32,332 100,740 47,615 180,686 HH's $50K Income, 2003 35,340 109,945 52,644 197,929 HH's $50K Income, 2008 40,593 126,814 60,852 228,259 Growth, 2003-2008 5,253 16,869 8,209 30,331 % Growth, 2003-2008 14.9% 15.3% 15.6% 15.3% Annual % Growth 3.0% 3.1% 3.1% 3.1% Population 45+, 2000 80,832 267,437 127,110 475,378 Population 45+, 2003 84,808 275,198 133,541 493,548 Population 45+, 2008 89,526 289,440 140,621 519,586 Growth, 2003-2008 4,718 14,241 7,080 26,039 % Growth, 2003-2008 5.6% 5.2% 5.3% 5.3% Annual % Growth 1.1% 1.0% 1.1% 1.1%

Source: ESRI - Business Information Solutions

Market Area Demographics, 2000-2008

D.

The amount of spending within the

identified

market

areas

(0-30

minutes (Primary Market), 30-45

minutes (Secondary Market) and

45-60 minutes (Tertiary or Fringe

(8)

Market) is quite impressive. The

following table summarizes some of

the most relevant trends:

While there is no specific data

available on wine use, travel

expenditures

as

a whole

by

households residing

within 30

minutes are estimated to total over

$116 million. The market within one

hour represents over $685 million of

travel expenditures.

Three categories of comparable

interests to visiting a winery were

examined. Dining out, for example,

was an activity enjoyed by some

470,000 adults in

the market area

and 184,000 adults

cooked for fun, plus

185,000 individuals

went to a bar or

nightclub. These

are all potential

consumers of wine,

a large number of

whom

could be

attracted to a Brant

Farms Winery on

the Chautauqua or

Niagara wine trail.

There is competition throughout the outer

reaches of the market area for this type of

enterprise but none within the immediate

Brant area. The Lake

Erie Viticultural Area

(Chautauqua County) is,

in fact, the largest grape

growing county outside

of California, with some

20,000

acres

of

vineyards. Most of these

vineyards are planted to

Concord grapes used

for grape juice. There

are also, however, some

16 wineries located to the north and

south of Brant along the Chautauqua and

Niagara wine trails. There are an

additional 50 wineries located on the

Niagara Peninsula in adjoining Ontario.

There are 18 wineries in the

Niagara-on-the-Lake area alone, plus numerous

others throughout the peninsula. The

following table examines the wine

varieties offered by the principal wineries

along the Chautauqua Wine Trail, the

most likely source of competition for Brant

Farms Winery.

Shepstone Management Company

Marketing Plan

Page 3-2

0-30

Minutes

Minutes

30-45

Minutes

45-60

Total

Travel Expenditures

$116,234,322 $368,658,225 $200,149,685 $685,042,232

Average Per Household

$1,464

$1,304

$1,536

$1,391

Dined Out

82,652

254,502

132,749

469,903

Cooked for Fun

30,796

103,252

50,311

184,359

Went to Bar/Nightclub

31,927

102,722

49,968

184,617

Note: Visitation estimates reflect the number of market area adults participating Source: ESRI - Business Information Solutions

Market Area Visitation to Attractions and Expenditures

Blueberry Sky Johnson Estate Merritt Estate Roberian Schloss Doepken Vetter Vineyards Willow

Creek Woodbury Count

Chardonnay No Yes Yes Yes No Yes Yes Yes 6 Cabernet Sauvignon No Yes No Yes Yes Yes Yes No 5 Delaware No Yes Yes Yes No Yes Yes No 5 Reisling No Yes No Yes Yes No Yes Yes 5 Seyval No Yes Yes Yes No Yes No Yes 5 Fruit Wines Yes No Yes No No Yes No Yes 4 Niagara No Yes No No No Yes Yes Yes 4 Concord No Yes No No No Yes Yes No 3 Dry Riesling No No No No No Yes Yes Yes 3 Marechal Foch No Yes Yes No No Yes No No 3 Chambourcin No Yes No No No No Yes No 2 Chautauqua Blush No Yes Yes No No No No No 2 Chautauqua White No No Yes No Yes No No No 2 Ives Noir No Yes No Yes No No No No 2 Pink Catawba No No No Yes No No Yes No 2 Vidal Blanc No Yes No Yes No No No No 2 Other Red No Yes Yes No No Yes Yes Yes 5 Other White No Yes Yes No Yes No No Yes 4 Other Blush No Yes Yes No No No No Yes 3

Other No Yes Yes No No No Yes No 3

(9)

The table indicates that all of the wines

proposed to be produced by Brant Farms

Winery, with the exception of Cabernet

Franc, are made by other wineries.

However, none of the other wineries offer

the same combination of wines as

proposed by Brant Farms Winery, with its

balance of native and high quality

varietals with emphasis on dry wines over

fruity and sweet varieties.

Cabernet Franc is not offered on the

Chautauqua Wine Trail, although it is

grown by several Niagara Peninsula

wineries in nearby Canada. Pinot Noir is

alternative to Cabernet Franc if grapes

are not available to purchase at a

reasonable price. Pinot Noir is produced

by one other winery on the Chautauqua

Wine Trail and another on the Niagara

Wine Trail but not promoted heavily in the

region. Significantly, Warm Lake Estates

Winery, north of Buffalo, markets its Pinot

Noir at prices ranging from $15.99 to

$35.99 for 750 ml bottles, indicating the

potential in premium wines.

3.2

Business Marketing Plan

The proposed

winery's competitive

advantage will be its dedication to

producing higher quality wines than its

competitors by purchasing the best

grapes and investing in the highest

quality wine making equipment. The

Brant Farms Winery will also emphasize

a strategy that is more focused with fewer

products. High end restaurants and wine

shops will be used to market the ultra-

premium and super-premium products.

Brant Farms Winery will target wealthy,

college-educated baby boomers as

customers. These individuals are highly

wine-educated, enjoy dining out, and

regularly entertain friends or business

associates. These consumers are

become more wine-educated through

experience and promotional efforts in

which Brant Farms Winery will also

participate.

Brant Farms Winery's second target

market consists of premier restaurants

and wine shops located throughout the

Buffalo, Cleveland and Erie regions.

Gourmet restaurants that carry a variety of

premium wines and in state specialty

wine shops that focus on carrying

premium wine.

Brant Farms Winery will market 40% of its

wines under "reserve" labels as

ultra-premium and super-ultra-premium products

(10% and 30%, respectively). The

remainder will be sold simply as

premium wines. Wines will be packaged

in standard 750-ml bottles and follow

traditional European bottle shapes and

colors. Natural corks will be used to

allow consumers to smell them, adding

to the romance and sophistication of the

wine drinking experience. Natural cork

also follows with European wine tradition.

Foil capsules are, likewise, the standard

in premium wine; therefore, Brant Farms

Winery will be using these. Cardboard

twelve bottle cases are the standard in

the wine industry and will be used to

package the wine.

Brant Farms Winery will offer its

customers a number of other activities

intended to create a pleasant “winery

experience.” Wine tastings will be offered

each day to encourage customers to visit

(10)

the winery and try the various wines.

Educational winery tours will be offered

on weekends to introduce customers to

the grape growing and winemaking

process. A monthly wine tasting class

will be led by the winemaker. Other

events will also be conducted on special

occasions.

Brant Farms Winery will adopt a high

price and high quality pricing strategy.

Prestige pricing will be used to inform

customers of the high quality product

being sold. Ultra-premium wines will be

marketed at an average price of $22 per

bottle, super-premiums at $15 and

premiums at $8. These prices are

consistent with other high quality wines in

the marketplace (e.g. Warm Lake

Estates).

Many regional wineries have produced

lower priced wines from native varieties

and

French

American

hybrids.

Consequently, local consumers have

grown accustomed to lighter, fruity, sweet

wines. However, research shows that

over time, consumer's taste preferences

shift from lighter, sweeter wines to drier,

more complex wines (Barclay, 1999).

This present an opportunity to increase

prices by producing higher quality wines.

Brant Farms Winery’s promotion goal will

be one of differentiation and all promotion

activities will reinforce the winery's

premium positioning status. Consumer

promotion events will be intended to bring

customers to the winery for fun,

non-commercial activities. These events

include crush and bottling parties,

dances, food pairings, tastings, home

winemaking seminars, barrel tastings,

and

winery

and

vineyard

tours.

Additionally, the winery will participate in

the appropriate wine trail program

(Chautauqua or Niagara). Events

targeting other customers will focus on

building relationships. These events will

include regularly visiting restaurants and

wine shops, having special dinners and

barrel tastings at the winery for top

accounts and regularly sending free wine

samples to these accounts.

Brant Farms Winery will spend $4 per

case plus a fixed amount of $500 per

month on marketing its wines. A

webpage and some billboards will be

used to help launch the promotional

campaign. Grand opening advertising

and publicity will be used to call attention

to season openings and the Brant Farms

Winery website. The bulk of marketing

expenditures, however, will be directed to

the brochure, website and publicity

campaign.

All employees will be given hospitality

and customer service training prior to

staring work.

Road signage will also be used to

communicate information on the Brant

Farms Winery location, business hours,

special

promotions

and

related

attractions. A number of signs will be

placed along busy roadways (e.g. U.S.

Route 20) to ensure customer exposure.

Direct marketing studies indicate the

number of roadside signs is directly

related to tourist site revenue and,

therefore, every effort will be made to

maximize the use of such signage, which

will be done using bright but tasteful

designs and Brant Farms Winery logo.

Shepstone Management Company

Marketing Plan

(11)

A variety of other promotional and

marketing techniques will be used to

build consumer interest in Brant Farms

Winery. These will include:

• Regular and frequent events that can

be used as an excuse for advertising

and publicity. Such events will include

contests, displays and educational

events.

• Use of promotional items such as

calendars, maps and other advertising

specialties displaying Brant Farms

Winery logo and providing directional

information.

• Cross-promotion with noncompeting

businesses selling to Brant Farms

Winery target market (e.g. a local B&B).

• Assembly of media packages to

encourage profiles of Brant Farms

Winery in local newspapers.

• Support of different fund-raising and

charity events.

Publicity will be heavily used to generate

inexpensive or free advertising by

developing news releases that provide

local media with a feature stories on

Brant Farms Winery events. A media day

will be conducted at the outset of each

season to encourage feature stories in

local and regional media outlets. A

media list will be developed for this

purpose and news releases will be sent

to appropriate media each time there is

an occasion or event associated with

Brant Farms Winery.

A mailing list will be developed to inform

Brant Farms Winery customers that the

business is open each year and to alert

them regarding special events. The

mailing list will also be used as the basis

for establishing a Brant Farms Winery

Club to market premium wines to higher

income repeat customers.

(12)

4.0 Management Plan

Brant Farms Winery will be owned and

operated by James and Mary Smith, the

owners of the vineyard on which it will be

located. They will conduct the business

through a limited liability corporation

known as Brant Farms Winery, LLC.

Each of the principals will own 50% of the

stock. James will serve as President and

Operations Manager. His duties will

include coordinating grape purchasing,

winery operation and maintenance and

staffing. He has worked as a winemaker

for one of the

Finger

Lakes

wineries (see his

resume) prior to

returning to the

v i n e y a r d

operation that he

and Mary now

own. James

attended Cornell

and

graduated

with a degree in

Ag Economics.

Mary Smith will

act as Treasurer

and

Financial

Manager of the

operation. She,

too, is a Cornell

Ag

Economic

graduate

and

has been actively

engaged in managing the family vineyard

operation. Bill Jones will serve as

Winemaker for the operation, working

under the direction of James Smith. Sally

Ames will serve as Sales Manager. Both

will work 8 months per year. An

organization chart follows:

Resumes, including work experience,

education, professional affiliations and

other qualifications to run this business,

are attached. The two principals will, at

the outset, be the only year-round

employees of Brant Farms Winery,

although the Winemaker and Sales

Manager will be permanent positions.

Other positions will be filled with part-time

or seasonal personnel. It is anticipated

that approximately 25 such employees

will be required, most of whom will be

youth, retirees or other individuals

seeking part-time work.

Brant Farms Winery, LLC will also join

either the Chautauqua or Niagara Wine

Shepstone Management Company

Management Plan

Page 4-1

Temporary Bottlers

& Winery Employees

Sally Ames

Sales Manager

Tasting Room

Employees

Brant Farms

Winery, LLC

James & Mary Smith

Owners

James Smith

President and Manager

Mary Smith

Treasurer

Bill Jones

Winemaker

(13)

Trails and the New York Wine and Grape

Foundation

to

secure

additional

marketing support services for its

business.

(14)

5.0 Financial Plan

5.1

Sales Forecast, Income and

Expenses

As indicated earlier, Brant Farms Winery

will have the capacity to produce 9,250

cases of wine per year. It will begin

marketing premium wines 12 months

following their manufacture and

super-premium and ultra-super-premium wines 18

months after production. It will start

producing at 60% of capacity and

increase to full capacity within five years.

Average prices of $8, $15 and $22 per

750 ml bottle are projected, respectively,

for premium, super-premium and

ultra-premium wines. It is anticipated that 60%

of wines will be sold as premium wines

with 30% and 10%, respectively, for

super-premium and ultra-premium wine

selections. Other assumptions may be

found in the self-explanatory cash flow

analysis.

This activity is forecasted to generate

$1,095,000 of sales in the fifth year, at

which point it will be profitable.

5.2

Capital Requirements and

Financing Proposal

It is proposed to borrow the sum of

$1,200,000 over a 15 year term to finance

the establishment of this business over a

two-year period (the winery in the first year

and tasting room in the second), plus an

equal amount of working capital. The

working capital financing is proposed as

a line of credit for cash flow projection

purposes. The owners will invest

$25,000 worth of equity in land and

another $225,000 in cash equity toward

the project.

The

capital

expenses

involve an

estimated $12,500 in site work and

$700,000 of building expenses for a

winery and tasting room. Approximately

$450,000 will be required for

wine-making equipment. This includes

equipment for manufacturing high quality

red as well as white wines, although

used equipment will be employed in

many instances to lower capital costs. A

detailed listing of equipment is included

in the Appendices.

NOTE: Sample equipment inventories

that may be used to assemble such a

listing are available in the model

business plans developed by Cornell

University (see Writing a Business Plan:

An Example for a Small Premium Winery,

E.B. 2002-07, by Marke E. Pisoni and

Gerald B. White) and by the Ohio Wine

Producers Association (The Dollar and

Sense of Starting a Small Winery, by

Chris Stamp).

5.3

Cash Flow Analysis

A self-explanatory cash flow analysis is

attached as Appendix C of this Business

Plan. The assumptions used in the

analysis are also provided. It indicates

this business will amortize long-term

debt. While it will require up to

$1,200,000

of

working

capital,

a

substantial portion of which will be

provided by the owners on a loan basis,

that capital will be returned in full with

interest at 7.5% by the eight year of

operation. The project will return all

Shepstone Management Company

Financial Plan

(15)

equity by the ninth year of operation and

generate net operating income (before

depreciation and taxes) of $555,000 per

year thereafter. It will generate a positive

net operating income before taxes in the

fourth year of operation.

Because much of the working capital for

this project will be provided in the form of

owner financing and the interest rate is, at

7.5%, above current lending rates, there

is a significant margin of error for any

unanticipated costs of launching the

enterprise

and

bearing

marketing

expenses, including wine giveaways.

(16)

6.0 Appendices

Attached, as appendices to this Business

Plan, are the following business financial

documents:

A.

Pro Forma Income and

Expense Statements

B.

Pro Forma Balance Sheets

C.

Cash Flow Projections

D.

Resumes of Management

Personnel

E.

Equipment Listing

Shepstone Management Company

Appendices

(17)

Pro Forma Income &

Expense Statements

(18)

INCOME

Ultra-premium sales

$0

$20,513

$90,354

$151,404

$202,198

Super-premium sales

$0

$41,958

$184,815

$309,690

$413,586

Premium sales

$0

$159,840

$293,040

$426,240

$479,520

SUB-TOTAL

$0

$222,311

$568,209

$887,334

$1,095,304

Cost of Goods Sold (Grapes)

$115,677

$154,236

$173,516

$183,156

$192,795

GROSS INCOME

($115,677)

$68,074

$394,693

$704,178

$902,508

EXPENSES

Principal/manager/office salaries

$80,000

$80,000

$80,000

$80,000

$80,000

Other variable labor costs (production)

$38,850

$51,800

$58,275

$61,513

$64,750

Other variable labor costs (sales)

$38,850

$51,800

$58,275

$61,513

$64,750

Labor overhead

$39,425

$45,900

$49,138

$50,756

$52,375

Packaging

$0

$80,475

$107,300

$120,713

$115,348

Repairs/maintenance

$12,000

$12,000

$12,000

$12,000

$12,000

Fuel and supplies

$6,750

$8,600

$9,525

$9,988

$10,450

Utilities

$15,158

$18,210

$19,736

$20,499

$21,263

Insurance

$14,400

$14,400

$14,400

$14,400

$14,400

Office expense/professional fees

$6,000

$6,000

$6,000

$6,000

$6,000

Marketing

$28,200

$35,600

$39,300

$41,150

$43,000

Contingency/miscellaneous

$13,982

$20,239

$22,697

$23,927

$24,217

SUB-TOTAL

$293,614

$425,024

$476,646

$502,457

$508,552

Interest

$60,797

$134,872

$159,126

$163,877

$150,384

Depreciation

$47,125

$65,458

$65,458

$65,458

$65,458

TOTAL EXPENSES

$401,536

$625,355

$701,230

$731,792

$724,394

NET INCOME BEFORE TAXES

($517,213)

($557,280)

($306,537)

($27,614)

$178,114

(19)
(20)

ASSETS AND LIABILITIES:

FY 2005

FY 2006

FY 2007

FY 2008

FY 2009

FY 2009

ASSETS

CURRENT ASSETS

Cash on hand

$225,000

$1,777

$2,900

$1,113

$4,314

$3,999

Accounts receivable

$0

$0

$0

$0

$0

$0

TOTAL CURRENT ASSETS

$225,000

$1,777

$2,900

$1,113

$4,314

$3,999

FIXED ASSETS (DEPRECIATED VALUE)

Land

$25,000

$25,000

$25,000

$25,000

$25,000

$25,000

Buildings, equipment & other

$0

$659,750

$1,119,292

$1,053,833

$988,375

$922,917

TOTAL FIXED ASSETS

$25,000

$684,750

$1,144,292

$1,078,833

$1,013,375

$947,917

TOTAL ASSETS

$250,000

$686,527

$1,147,192

$1,079,947

$1,017,689

$951,916

LIABILITIES AND EQUITY

CURRENT LIABILITIES

Accounts payable

$0

$0

$0

$0

$0

$0

Short-term debt

$0

$280,000

$845,000

$1,135,000

$1,155,000

$970,000

Current portion of long-term debt

$0

$28,298

$50,708

$54,645

$58,887

$63,458

TOTAL CURRENT LIABILITIES

$0

$308,298

$895,708

$1,189,645

$1,213,887

$1,033,458

LONG-TERM LIABILITIES

Non-current portion of long-term debt

$0

$645,442

$1,075,978

$1,021,333

$962,446

$898,988

TOTAL LIABILITIES

$0

$953,740

$1,971,686

$2,210,978

$2,176,333

$1,932,446

Equity

$250,000

$250,000

$250,000

$250,000

$250,000

$250,000

Retained earnings

$0

($517,213)

($1,074,494) ($1,381,031) ($1,408,645) ($1,230,531)

(21)
(22)

Premium wine cases produced 3,330 4,440 4,995 5,273 5,550 5,550 5,550 5,550 5,550 5,550 REVENUE Ultra-premium sales $0 $20,513 $90,354 $151,404 $202,198 $224,054 $236,752 $242,002 $244,200 $244,200 Super-premium sales $0 $41,958 $184,815 $309,690 $413,586 $458,291 $484,265 $495,005 $499,500 $499,500 Premium sales $0 $159,840 $293,040 $426,240 $479,520 $512,820 $526,140 $532,800 $532,800 $532,800 SUB-TOTAL $0 $222,311 $568,209 $887,334 $1,095,304 $1,195,165 $1,247,157 $1,269,807 $1,276,500 $1,276,500 Cost of Goods (retail and food) ($115,677) ($154,236) ($173,516) ($183,156) ($192,795) ($192,795) ($192,795) ($192,795) ($192,795) ($192,795)

TOTAL GROSS MARGIN ($115,677) $68,074 $394,693 $704,178 $902,508 $1,002,369 $1,054,362 $1,077,011 $1,083,705 $1,083,705

OPERATING EXPENSES

Principal/manager/office salaries $80,000 $80,000 $80,000 $80,000 $80,000 $80,000 $80,000 $80,000 $80,000 $80,000 Other variable labor costs (production) $38,850 $51,800 $58,275 $61,513 $64,750 $64,750 $64,750 $64,750 $64,750 $64,750 Other variable labor costs (sales) $38,850 $51,800 $58,275 $61,513 $64,750 $64,750 $64,750 $64,750 $64,750 $64,750 Labor overhead $39,425 $45,900 $49,138 $50,756 $52,375 $52,375 $52,375 $52,375 $52,375 $52,375 Packaging $0 $80,475 $107,300 $120,713 $115,348 $134,125 $134,125 $134,125 $134,125 $134,125 Repairs/maintenance $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 Fuel and supplies $6,750 $8,600 $9,525 $9,988 $10,450 $10,450 $10,450 $10,450 $10,450 $10,450 Utilities $15,158 $18,210 $19,736 $20,499 $21,263 $21,263 $21,263 $21,263 $21,263 $21,263 Insurance $14,400 $14,400 $14,400 $14,400 $14,400 $14,400 $14,400 $14,400 $14,400 $14,400 Office expense/professional fees $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 Marketing $28,200 $35,600 $39,300 $41,150 $43,000 $43,000 $43,000 $43,000 $43,000 $43,000 Contingency/miscellaneous $13,982 $20,239 $22,697 $23,927 $24,217 $25,156 $25,156 $25,156 $25,156 $25,156

TOTAL OPERATING EXPENSES $293,614 $425,024 $476,646 $502,457 $508,552 $528,268 $528,268 $528,268 $528,268 $528,268

OPERATING MARGIN (CASH) ($409,291) ($356,950) ($81,953) $201,721 $393,956 $474,101 $526,094 $548,743 $555,436 $555,436

DEVELOPMENT COSTS

Land $25,000 $0 $0 $0 $0 $0 $0 $0 $0 $0

Site work $12,500 $0 $0 $0 $0 $0 $0 $0 $0 $0

Winery construction costs $450,000 $250,000 $0 $0 $0 $0 $0 $0 $0 $0 Equipment costs $200,000 $250,000 $0 $0 $0 $0 $0 $0 $0 $0 Financing/organizational costs $10,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 Contingency $34,375 $25,000 $0 $0 $0 $0 $0 $0 $0 $0

TOTAL DEVELOPMENT COSTS $731,875 $525,000 $0 $0 $0 $0 $0 $0 $0 $0

FINANCING & EQUITY

Equity in land $25,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 Cash equity contribution $225,000 $0 $0 $0 $0 $0 $0 $0 $0 $0

TOTAL EQUITY $250,000 $0 $0 $0 $0 $0 $0 $0 $0 $0

Working capital loan proceeds $280,000 $570,000 $385,000 $220,000 $125,000 $100,000 $80,000 $45,000 $0 $0 Working capital loan repayments $0 $5,000 $95,000 $200,000 $310,000 $385,000 $440,000 $365,000 $5,000 $0 Working capital loan balance $280,000 $845,000 $1,135,000 $1,155,000 $970,000 $685,000 $325,000 $5,000 $0 $0 Working capital loan interest ($9,188) ($48,438) ($76,344) ($85,031) ($75,781) ($57,031) ($32,094) ($3,438) $0 $0 Loan proceeds $700,000 $500,000 $0 $0 $0 $0 $0 $0 $0 $0 Amortization ($77,869) ($133,490) ($133,490) ($133,490) ($133,490) ($133,490) ($133,490) ($133,490) ($133,490) ($133,490)

TOTAL DEBT SERVICE ($87,057) ($181,927) ($209,834) ($218,521) ($209,271) ($190,521) ($165,584) ($136,927) ($133,490) ($133,490)

CASH FLOW $1,777 $1,123 ($1,787) $3,200 ($315) ($1,420) $510 $91,816 $416,947 $421,947

CUMULATIVE CASH $1,777 $2,900 $1,113 $4,314 $3,999 $2,579 $3,089 $94,905 $511,852 $933,798

Principal/manager/office salaries $80,000 Interest rate 7.5% Variable labor costs/case - production $7.00 Labor overhead 25.0% Variable labor costs/case - sales $7.00 Repair/maintenance costs/year $12,000 Grape price per ton, ultra-premium $1,600 Variable fuel/supply costs per case $1.00 Grape price per ton, super-premium $1,450 Variable utility costs per case $1.65 Grape price per ton, premium $1,200 Insurance costs (monthly) $1,200 Ultra-premium cases produced annually 925 Office/professional expense (monthly) $500 Super-premium cases produced annually 2,775 Variable marketing costs per case $4.00 Premium cases produced annually 5,550 Contingency expense 5.0% Total cases produced annually (capacity) 9,250 1st year production % 60.0% Packaging costs/case $14.50 2nd year production % 80.0% Ultra-premium sales price/bottle $22.00 3rd year production % 90.0% Super-premium sales price/bottle $15.00 Annual growth rate (years 4 to 5) 5.0% Premium sales price/bottle $8.00 Annual growth rate (years 6+) 0.0%

(23)

Premium wine cases produced 0 0 500 500 500 500 333 333 333 333 0 0 REVENUE Ultra-premium sales $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Super-premium sales $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Premium sales $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 SUB-TOTAL $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Cost of Goods (grapes) $0 $0 ($57,839) ($57,839) $0 $0 $0 $0 $0 $0 $0 $0

TOTAL GROSS MARGIN $0 $0 ($57,839) ($57,839) $0 $0 $0 $0 $0 $0 $0 $0

OPERATING EXPENSES

Principal/manager/office salaries $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 Other variable labor costs (production) $0 $0 $5,828 $5,828 $5,828 $5,828 $3,885 $3,885 $3,885 $3,885 $0 $0 Other variable labor costs (sales) $0 $0 $5,828 $5,828 $5,828 $5,828 $3,885 $3,885 $3,885 $3,885 $0 $0 Labor overhead $1,667 $1,667 $4,580 $4,580 $4,580 $4,580 $3,609 $3,609 $3,609 $3,609 $1,667 $1,667

Packaging $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Repairs/maintenance $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 Fuel and supplies $100 $100 $933 $933 $933 $933 $655 $655 $655 $655 $100 $100 Utilities $500 $500 $1,874 $1,874 $1,874 $1,874 $1,416 $1,416 $1,416 $1,416 $500 $500 Insurance $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 Office expense/professional fees $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 Marketing $500 $500 $3,830 $3,830 $3,830 $3,830 $2,720 $2,720 $2,720 $2,720 $500 $500 Contingency/miscellaneous $607 $607 $1,612 $1,612 $1,612 $1,612 $1,277 $1,277 $1,277 $1,277 $607 $607

TOTAL OPERATING EXPENSES $12,740 $12,740 $33,850 $33,850 $33,850 $33,850 $26,813 $26,813 $26,813 $26,813 $12,740 $12,740

OPERATING MARGIN (CASH) ($12,740) ($12,740) ($91,689) ($91,689) ($33,850) ($33,850) ($26,813) ($26,813) ($26,813) ($26,813) ($12,740) ($12,740)

DEVELOPMENT COSTS

Land $25,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Site work $12,500 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Winery construction costs $450,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Equipment costs $200,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Financing/organizational costs $10,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Contingency $34,375 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

TOTAL DEVELOPMENT COSTS $731,875 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

FINANCING & EQUITY

Equity in land $25,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Cash equity contribution $225,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

TOTAL EQUITY $250,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Working capital loan proceeds $0 $0 $0 $20,000 $40,000 $40,000 $35,000 $35,000 $35,000 $35,000 $20,000 $20,000 Working capital loan repayments $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Working capital loan balance $0 $0 $0 $20,000 $60,000 $100,000 $135,000 $170,000 $205,000 $240,000 $260,000 $280,000 Working capital loan interest $0 $0 $0 ($125) ($375) ($625) ($844) ($1,063) ($1,281) ($1,500) ($1,625) ($1,750) Loan proceeds $700,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Amortization ($6,489) ($6,489) ($6,489) ($6,489) ($6,489) ($6,489) ($6,489) ($6,489) ($6,489) ($6,489) ($6,489) ($6,489)

TOTAL DEBT SERVICE ($6,489) ($6,489) ($6,489) ($6,614) ($6,864) ($7,114) ($7,333) ($7,552) ($7,770) ($7,989) ($8,114) ($8,239)

CASH FLOW $198,896 ($19,229) ($98,178) ($78,303) ($714) ($964) $854 $635 $416 $198 ($854) ($979)

CUMULATIVE CASH $198,896 $179,667 $81,489 $3,186 $2,472 $1,508 $2,361 $2,996 $3,413 $3,610 $2,756 $1,777

Principal/manager/office salaries $80,000 Interest rate 7.5% Produce % Sales % Variable labor costs/case - production $7.00 Labor overhead 25.00% July 0.0% 10.0% Variable labor costs/case - sales $7.00 Repair/maintenance costs/year $12,000 August 0.0% 12.0% Grape price per ton, ultra-premium $1,600 Variable fuel/supply costs per case $1.00 September 15.0% 15.0% Grape price per ton, super-premium $1,450 Variable utility costs per case $1.65 October 15.0% 18.0% Grape price per ton, premium $1,200 Insurance costs (monthly) $1,200 November 15.0% 8.0% Ultra-premium cases produced annually 925 Office/professional expense (monthly) $500 December 15.0% 9.0% Super-premium cases produced annually 2,775 Variable marketing costs per case $4.00 January 10.0% 3.0% Premium cases produced annually 5,550 Contingency expense 5.00% February 10.0% 3.0% Total cases produced annually (capacity) 9,250 1st year production % 60.0% March 10.0% 4.0% Packaging costs/case $14.50 2nd year production % 80.0% April 10.0% 4.0% Ultra-premium sales price/bottle $22.00 3rd year production % 90.0% May 0.0% 5.0% Super-premium sales price/bottle $15.00 Annual growth rate (years 4 to 5) 5.0% June 0.0% 9.0% Premium sales price/bottle $8.00 Annual growth rate (years 6+) 0.0% Total 2005 100.0% 100.0%

(24)

Premium wine cases produced 0 0 666 666 666 666 444 444 444 444 0 0 REVENUE Ultra-premium sales $0 $0 $0 $0 $0 $0 $2,198 $2,198 $2,930 $2,930 $3,663 $6,593 Super-premium sales $0 $0 $0 $0 $0 $0 $4,496 $4,496 $5,994 $5,994 $7,493 $13,487 Premium sales $15,984 $19,181 $23,976 $28,771 $12,787 $14,386 $4,795 $4,795 $6,394 $6,394 $7,992 $14,386 SUB-TOTAL $15,984 $19,181 $23,976 $28,771 $12,787 $14,386 $11,489 $11,489 $15,318 $15,318 $19,148 $34,466 Cost of Goods (grapes) $0 $0 ($77,118) ($77,118) $0 $0 $0 $0 $0 $0 $0 $0

TOTAL GROSS MARGIN $15,984 $19,181 ($53,142) ($48,347) $12,787 $14,386 $11,489 $11,489 $15,318 $15,318 $19,148 $34,466

OPERATING EXPENSES

Principal/manager/office salaries $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 Other variable labor costs (production) $0 $0 $7,770 $7,770 $7,770 $7,770 $5,180 $5,180 $5,180 $5,180 $0 $0 Other variable labor costs (sales) $0 $0 $7,770 $7,770 $7,770 $7,770 $5,180 $5,180 $5,180 $5,180 $0 $0 Labor overhead $1,667 $1,667 $5,552 $5,552 $5,552 $5,552 $4,257 $4,257 $4,257 $4,257 $1,667 $1,667 Packaging $2,500 $2,500 $7,071 $12,071 $12,071 $12,071 $8,048 $8,048 $8,048 $8,048 $0 $0 Repairs/maintenance $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 Fuel and supplies $100 $100 $1,210 $1,210 $1,210 $1,210 $840 $840 $840 $840 $100 $100 Utilities $500 $500 $2,332 $2,332 $2,332 $2,332 $1,721 $1,721 $1,721 $1,721 $500 $500 Insurance $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 Office expense/professional fees $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 Marketing $500 $500 $4,940 $4,940 $4,940 $4,940 $3,460 $3,460 $3,460 $3,460 $500 $500 Contingency/miscellaneous $732 $732 $2,301 $2,551 $2,551 $2,551 $1,903 $1,903 $1,903 $1,903 $607 $607

TOTAL OPERATING EXPENSES $15,365 $15,365 $48,312 $53,562 $53,562 $53,562 $39,954 $39,954 $39,954 $39,954 $12,740 $12,740

OPERATING MARGIN (CASH) $619 $3,816 ($101,454) ($101,909) ($40,774) ($39,176) ($28,466) ($28,466) ($24,636) ($24,636) $6,408 $21,726

DEVELOPMENT COSTS

Land $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Site work $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Winery construction costs $250,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Equipment costs $250,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Financing/organizational costs $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Contingency $25,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

TOTAL DEVELOPMENT COSTS $525,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

FINANCING & EQUITY

Equity in land $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Cash equity contribution $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

TOTAL EQUITY $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Working capital loan proceeds $40,000 $10,000 $115,000 $115,000 $55,000 $55,000 $45,000 $45,000 $40,000 $40,000 $10,000 $0 Working capital loan repayments $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $5,000 Working capital loan balance $320,000 $330,000 $445,000 $560,000 $615,000 $670,000 $715,000 $760,000 $800,000 $840,000 $850,000 $845,000 Working capital loan interest ($2,000) ($2,063) ($2,781) ($3,500) ($3,844) ($4,188) ($4,469) ($4,750) ($5,000) ($5,250) ($5,313) ($5,281) Loan proceeds $500,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Amortization ($11,124) ($11,124) ($11,124) ($11,124) ($11,124) ($11,124) ($11,124) ($11,124) ($11,124) ($11,124) ($11,124) ($11,124)

TOTAL DEBT SERVICE ($13,124) ($13,187) ($13,905) ($14,624) ($14,968) ($15,312) ($15,593) ($15,874) ($16,124) ($16,374) ($16,437) ($16,405)

CASH FLOW $2,495 $629 ($359) ($1,533) ($742) $512 $941 $660 ($761) ($1,011) ($29) $320

CUMULATIVE CASH $4,272 $4,901 $4,542 $3,009 $2,267 $2,779 $3,720 $4,380 $3,620 $2,609 $2,580 $2,900

Principal/manager/office salaries $80,000 Interest rate 7.5% Produce % Sales % Variable labor costs/case - production $7.00 Labor overhead 25.0% July 0.0% 10.0% Variable labor costs/case - sales $7.00 Repair/maintenance costs/year $12,000 August 0.0% 12.0% Grape price per ton, ultra-premium $1,600 Variable fuel/supply costs per case $1.00 September 15.0% 15.0% Grape price per ton, super-premium $1,450 Variable utility costs per case $1.65 October 15.0% 18.0% Grape price per ton, premium $1,200 Insurance costs (monthly) $1,200 November 15.0% 8.0% Ultra-premium cases produced annually 925 Office/professional expense (monthly) $500 December 15.0% 9.0% Super-premium cases produced annually 2,775 Variable marketing costs per case $4.00 January 10.0% 3.0% Premium cases produced annually 5,550 Contingency expense 5.0% February 10.0% 3.0% Total cases produced annually (capacity) 9,250 1st year production % 60.0% March 10.0% 4.0% Packaging costs/case $14.50 2nd year production % 80.0% April 10.0% 4.0% Ultra-premium sales price/bottle $22.00 3rd year production % 90.0% May 0.0% 5.0% Super-premium sales price/bottle $15.00 Annual growth rate (years 4 to 5) 5.0% June 0.0% 9.0% Premium sales price/bottle $8.00 Annual growth rate (years 6+) 0.0% Total 2005 100.0% 100.0%

(25)

Premium wine cases produced 0 0 749 749 749 749 500 500 500 500 0 0 REVENUE Ultra-premium sales $7,326 $8,791 $10,989 $13,187 $5,861 $6,593 $4,029 $4,029 $5,372 $5,372 $6,716 $12,088 Super-premium sales $14,985 $17,982 $22,478 $26,973 $11,988 $13,487 $8,242 $8,242 $10,989 $10,989 $13,736 $24,725 Premium sales $29,304 $35,165 $43,956 $52,747 $23,443 $26,374 $8,791 $8,791 $11,722 $11,722 $14,652 $26,374 SUB-TOTAL $51,615 $61,938 $77,423 $92,907 $41,292 $46,454 $21,062 $21,062 $28,083 $28,083 $35,104 $63,187 Cost of Goods (grapes) $0 $0 ($86,758) ($86,758) $0 $0 $0 $0 $0 $0 $0 $0

TOTAL GROSS MARGIN $51,615 $61,938 ($9,335) $6,149 $41,292 $46,454 $21,062 $21,062 $28,083 $28,083 $35,104 $63,187

OPERATING EXPENSES

Principal/manager/office salaries $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 Other variable labor costs (production) $0 $0 $8,741 $8,741 $8,741 $8,741 $5,828 $5,828 $5,828 $5,828 $0 $0 Other variable labor costs (sales) $0 $0 $8,741 $8,741 $8,741 $8,741 $5,828 $5,828 $5,828 $5,828 $0 $0 Labor overhead $1,667 $1,667 $6,037 $6,037 $6,037 $6,037 $4,580 $4,580 $4,580 $4,580 $1,667 $1,667 Packaging $0 $0 $16,095 $16,095 $16,095 $16,095 $10,730 $10,730 $10,730 $10,730 $0 $0 Repairs/maintenance $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 Fuel and supplies $100 $100 $1,349 $1,349 $1,349 $1,349 $933 $933 $933 $933 $100 $100 Utilities $500 $500 $2,560 $2,560 $2,560 $2,560 $1,874 $1,874 $1,874 $1,874 $500 $500 Insurance $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 Office expense/professional fees $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 Marketing $500 $500 $5,495 $5,495 $5,495 $5,495 $3,830 $3,830 $3,830 $3,830 $500 $500 Contingency/miscellaneous $607 $607 $2,919 $2,919 $2,919 $2,919 $2,148 $2,148 $2,148 $2,148 $607 $607

TOTAL OPERATING EXPENSES $12,740 $12,740 $61,305 $61,305 $61,305 $61,305 $45,117 $45,117 $45,117 $45,117 $12,740 $12,740

OPERATING MARGIN (CASH) $38,875 $49,198 ($70,640) ($55,156) ($20,013) ($14,851) ($24,054) ($24,054) ($17,034) ($17,034) $22,364 $50,447

DEVELOPMENT COSTS

Land $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Site work $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Winery construction costs $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Equipment costs $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Financing/organizational costs $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Contingency $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

TOTAL DEVELOPMENT COSTS $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

FINANCING & EQUITY

Equity in land $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Cash equity contribution $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

TOTAL EQUITY $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Working capital loan proceeds $0 $0 $85,000 $75,000 $35,000 $35,000 $40,000 $40,000 $35,000 $40,000 $0 $0 Working capital loan repayments $25,000 $30,000 $0 $0 $0 $0 $0 $0 $0 $0 $5,000 $35,000 Working capital loan balance $820,000 $790,000 $875,000 $950,000 $985,000 $1,020,000 $1,060,000 $1,100,000 $1,135,000 $1,175,000 $1,170,000 $1,135,000 Working capital loan interest ($5,125) ($4,938) ($5,469) ($5,938) ($6,156) ($6,375) ($6,625) ($6,875) ($7,094) ($7,344) ($7,313) ($7,094)

Loan proceeds $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Amortization ($11,124) ($11,124) ($11,124) ($11,124) ($11,124) ($11,124) ($11,124) ($11,124) ($11,124) ($11,124) ($11,124) ($11,124)

TOTAL DEBT SERVICE ($16,249) ($16,062) ($16,593) ($17,062) ($17,280) ($17,499) ($17,749) ($17,999) ($18,218) ($18,468) ($18,437) ($18,218)

CASH FLOW ($2,374) $3,136 ($2,233) $2,782 ($2,293) $2,649 ($1,804) ($2,054) ($252) $4,498 ($1,073) ($2,771)

CUMULATIVE CASH $526 $3,662 $1,429 $4,211 $1,918 $4,567 $2,764 $710 $459 $4,957 $3,885 $1,113

Principal/manager/office salaries $80,000 Interest rate 7.5% Produce % Sales % Variable labor costs/case - production $7.00 Labor overhead 25.0% July 0.0% 10.0% Variable labor costs/case - sales $7.00 Repair/maintenance costs/year $12,000 August 0.0% 12.0% Grape price per ton, ultra-premium $1,600 Variable fuel/supply costs per case $1.00 September 15.0% 15.0% Grape price per ton, super-premium $1,450 Variable utility costs per case $1.65 October 15.0% 18.0% Grape price per ton, premium $1,200 Insurance costs (monthly) $1,200 November 15.0% 8.0% Ultra-premium cases produced annually 925 Office/professional expense (monthly) $500 December 15.0% 9.0% Super-premium cases produced annually 2,775 Variable marketing costs per case $4.00 January 10.0% 3.0% Premium cases produced annually 5,550 Contingency expense 5.0% February 10.0% 3.0% Total cases produced annually (capacity) 9,250 1st year production % 60.0% March 10.0% 4.0% Packaging costs/case $14.50 2nd year production % 80.0% April 10.0% 4.0% Ultra-premium sales price/bottle $22.00 3rd year production % 90.0% May 0.0% 5.0% Super-premium sales price/bottle $15.00 Annual growth rate (years 4 to 5) 5.0% June 0.0% 9.0% Premium sales price/bottle $8.00 Annual growth rate (years 6+) 0.0% Total 2005 100.0% 100.0%

(26)

Premium wine cases produced 0 0 791 791 791 791 527 527 527 527 0 0 REVENUE Ultra-premium sales $13,431 $16,117 $20,147 $24,176 $10,745 $12,088 $5,861 $5,861 $7,814 $7,814 $9,768 $17,582 Super-premium sales $27,473 $32,967 $41,209 $49,451 $21,978 $24,725 $11,988 $11,988 $15,984 $15,984 $19,980 $35,964 Premium sales $42,624 $51,149 $63,936 $76,723 $34,099 $38,362 $12,787 $12,787 $17,050 $17,050 $21,312 $38,362 SUB-TOTAL $83,528 $100,233 $125,291 $150,350 $66,822 $75,175 $30,636 $30,636 $40,848 $40,848 $51,060 $91,908 Cost of Goods (grapes) $0 $0 ($91,578) ($91,578) $0 $0 $0 $0 $0 $0 $0 $0

TOTAL GROSS MARGIN $83,528 $100,233 $33,713 $58,772 $66,822 $75,175 $30,636 $30,636 $40,848 $40,848 $51,060 $91,908

OPERATING EXPENSES

Principal/manager/office salaries $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 $6,667 Other variable labor costs (production) $0 $0 $9,227 $9,227 $9,227 $9,227 $6,151 $6,151 $6,151 $6,151 $0 $0 Other variable labor costs (sales) $0 $0 $9,227 $9,227 $9,227 $9,227 $6,151 $6,151 $6,151 $6,151 $0 $0 Labor overhead $1,667 $1,667 $6,280 $6,280 $6,280 $6,280 $4,742 $4,742 $4,742 $4,742 $1,667 $1,667 Packaging $0 $0 $18,107 $18,107 $18,107 $18,107 $12,071 $12,071 $12,071 $12,071 $0 $0 Repairs/maintenance $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 Fuel and supplies $100 $100 $1,418 $1,418 $1,418 $1,418 $979 $979 $979 $979 $100 $100 Utilities $500 $500 $2,675 $2,675 $2,675 $2,675 $1,950 $1,950 $1,950 $1,950 $500 $500 Insurance $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 Office expense/professional fees $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 Marketing $500 $500 $5,773 $5,773 $5,773 $5,773 $4,015 $4,015 $4,015 $4,015 $500 $500 Contingency/miscellaneous $607 $607 $3,104 $3,104 $3,104 $3,104 $2,271 $2,271 $2,271 $2,271 $607 $607

TOTAL OPERATING EXPENSES $12,740 $12,740 $65,177 $65,177 $65,177 $65,177 $47,698 $47,698 $47,698 $47,698 $12,740 $12,740

OPERATING MARGIN (CASH) $70,788 $87,493 ($31,463) ($6,405) $1,645 $9,998 ($17,062) ($17,062) ($6,850) ($6,850) $38,320 $79,168

DEVELOPMENT COSTS

Land $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Site work $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Winery construction costs $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Equipment costs $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Financing/organizational costs $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Contingency $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

TOTAL DEVELOPMENT COSTS $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

FINANCING & EQUITY

Equity in land $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Cash equity contribution $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

TOTAL EQUITY $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Working capital loan proceeds $0 $0 $50,000 $20,000 $20,000 $5,000 $35,000 $35,000 $30,000 $25,000 $0 $0 Working capital loan repayments $50,000 $70,000 $0 $0 $0 $0 $0 $0 $0 $0 $20,000 $60,000 Working capital loan balance $1,085,000 $1,015,000 $1,065,000 $1,085,000 $1,105,000 $1,110,000 $1,145,000 $1,180,000 $1,210,000 $1,235,000 $1,215,000 $1,155,000 Working capital loan interest ($6,781) ($6,344) ($6,656) ($6,781) ($6,906) ($6,938) ($7,156) ($7,375) ($7,563) ($7,719) ($7,594) ($7,219)

Loan proceeds $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Amortization ($11,124) ($11,124) ($11,124) ($11,124) ($11,124) ($11,124) ($11,124) ($11,124) ($11,124) ($11,124) ($11,124) ($11,124)

TOTAL DEBT SERVICE ($17,905) ($17,468) ($17,780) ($17,905) ($18,030) ($18,062) ($18,280) ($18,499) ($18,687) ($18,843) ($18,718) ($18,343)

CASH FLOW $2,882 $25 $756 ($4,310) $3,615 ($3,063) ($342) ($561) $4,464 ($693) ($398) $825

CUMULATIVE CASH $3,995 $4,021 $4,777 $467 $4,082 $1,018 $676 $115 $4,579 $3,886 $3,488 $4,314

Principal/manager/office salaries $80,000 Interest rate 7.5% Produce % Sales % Variable labor costs/case - production $7.00 Labor overhead 25.0% July 0.0% 10.0% Variable labor costs/case - sales $7.00 Repair/maintenance costs/year $12,000 August 0.0% 12.0% Grape price per ton, ultra-premium $1,600 Variable fuel/supply costs per case $1.00 September 15.0% 15.0% Grape price per ton, super-premium $1,450 Variable utility costs per case $1.65 October 15.0% 18.0% Grape price per ton, premium $1,200 Insurance costs (monthly) $1,200 November 15.0% 8.0% Ultra-premium cases produced annually 925 Office/professional expense (monthly) $500 December 15.0% 9.0% Super-premium cases produced annually 2,775 Variable marketing costs per case $4.00 January 10.0% 3.0% Premium cases produced annually 5,550 Contingency expense 5.0% February 10.0% 3.0% Total cases produced annually (capacity) 9,250 1st year production % 60.0% March 10.0% 4.0% Packaging costs/case $14.50 2nd year production % 80.0% April 10.0% 4.0% Ultra-premium sales price/bottle $22.00 3rd year production % 90.0% May 0.0% 5.0% Super-premium sales price/bottle $15.00 Annual growth rate (years 4 to 5) 5.0% June 0.0% 9.0% Premium sales price/bottle $8.00 Annual growth rate (years 6+) 0.0% Total 2005 100.0% 100.0%

References

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