Financial Plan

As of August 1999, stockholder equity stood at $112,000. Additional infusion of equity

from new shareholders will boost the equity capital.

To complete the necessary planned additions to plant and equipment, a 5-year term loan
will be required from a financial institution. The projected cash-flow is sufficient to repay
this loan in quarterly installments. This term loan should be sufficient to cover the
increases in accounts receivable, as well as to support growth in inventory of rental tanks.

7.1 Important Assumptions

Tax Rate:

Tax rate reflects the present sliding scale:

 $0 to $50,000 @ 15% Federal, plus 9.5% State tax

 $50 to $75,000 @ 25%

 $75 to $100,000 @ 34%

 $100 to $335,000 @ 39%

 $335,000 and up @ 34%

Inventory Turnover:

Since this is a service business, the only inventory is that of chemicals and some resin,
both of which do not need to be stored more than two weeks. Average is one week
(inventory turnover rate of 48).

GENERAL ASSUMPTIONS
 YEAR 1 YEAR 2 YEAR 3

Plan Month 1 2 3

Current Interest Rate 10.00% 10.00% 10.00%

Long-term Interest Rate 10.00% 10.00% 10.00%

Tax Rate 2.50% 0.00% 2.50%

Other 0 0 0

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7.2 Break-even Analysis

The following table and chart show the Monthly Units and Monthly Revenue Break-even
calculations based on the Average Per-Unit Revenue, Average Per-Unit Variable Costs
and the Estimated Monthly Fixed Costs, as drawn from the other financial tables in this
plan.
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BREAK-EVEN ANALYSIS

Monthly Units Break-even 119

Monthly Revenue Break-even $34,235

Assumptions:

Average Per-Unit Revenue $287.08

 Average Per-Unit Variable Cost $59.17

Estimated Monthly Fixed Cost $27,179

7.3 Projected Profit and Loss

The following table and charts give the yearly projected profit and loss statement for H20
Industries. For a monthly analysis, please see attached appendix.

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PRO FORMA PROFIT AND LOSS

YEAR 1 YEAR 2 YEAR 3

Sales $1,025,462 $1,684,911 $1,814,105

Direct Cost of Sales $211,347 $348,769 $375,852

Production Payroll $168,594 $172,800 $172,800

Other $0 $0 $0

TOTAL COST OF SALES $379,941 $521,569 $548,652

Gross Margin $645,521 $1,163,342 $1,265,453

Gross Margin % 62.95% 69.04% 69.76%

Operating Expenses

Sales and Marketing Expenses

Sales and Marketing Payroll $62,660 $75,000 $84,000

Advertising/Promotion $16,500 $12,000 $12,000

Travel $3,600 $6,000 $6,000

Fuel/oil for Vehicles: $11,520 $12,000 $12,500

Vehicle Repair: $20,004 $20,000 $20,000

Uniforms $1,200 $1,200 $1,200

Miscellaneous $10,800 $10,800 $10,800

TOTAL SALES AND MARKETING $126,284 $137,000 $146,500

EXPENSES

Sales and Marketing % 12.31% 8.13% 8.08%

General and Administrative

Expenses

General and Administrative Payroll $49,096 $55,600 $55,600

Sales and Marketing and Other $0 $0 $0

Expenses

Depreciation $36,000 $36,000 $36,000

Leased Equipment $15,252 $15,252 $15,252

Utilities $2,250 $2,250 $2,250

Insurance $11,796 $11,800 $11,800

Business Liab. Insurance: $12,000 $12,000 $12,000

Printing and Postage: $3,600 $3,600 $3,600

Telephone Expenses: $8,004 $8,000 $8,000

Auditing: $2,400 $2,400 $2,400

Rent $24,000 $24,000 $24,000

Payroll Taxes $35,464 $38,380 $39,519

Other General and Administrative $0 $0 $0

Expenses

TOTAL GENERAL AND $199,862 $209,282 $210,421

ADMINISTRATIVE EXPENSES

General and Administrative % 19.49% 12.42% 11.60%

Other Expenses:
Other Payroll $0 $0 $0

Consultants $0 $0 $0

Contract/Consultants $0 $0 $0

TOTAL OTHER EXPENSES $0 $0 $0

Other % 0.00% 0.00% 0.00%

Total Operating Expenses $326,146 $346,282 $356,921

Profit Before Interest and Taxes $319,375 $817,060 $908,533

EBITDA $355,375 $853,060 $944,533

Interest Expense $19,755 $12,323 $9,948

Taxes Incurred ($4,643) $0 $22,465

Net Profit $304,263 $804,737 $876,120

Net Profit/Sales 29.67% 47.76% 48.29%

7.4 Projected Cash Flow

Cash Flow is an intrinsic projection for H20 Industries. We must maintain a suitable cash
balance in the bank in order to be successful. The chart and table below outline our basic
cash flow assumptions.

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PRO FORMA CASH FLOW

YEAR 1 YEAR 2 YEAR 3

Cash Received

Cash from Operations

Cash Sales $0 $0 $0

Cash from Receivables $774,831 $1,523,736 $1,782,529

SUBTOTAL CASH FROM $774,831 $1,523,736 $1,782,529

OPERATIONS

Additional Cash Received

Sales Tax, VAT, HST/GST Received $0 $0 $0

New Current Borrowing $50,000 $6,250 $6,250

New Other Liabilities (interest-free) $0 $0 $0

New Long-term Liabilities $0 $0 $0

Sales of Other Current Assets $50,000 $0 $0

Sales of Long-term Assets $0 $0 $0

New Investment Received $0 $0 $0

SUBTOTAL CASH RECEIVED $874,831 $1,529,986 $1,788,779

Expenditures Year 1 Year 2 Year 3

Expenditures from Operations

Cash Spending $280,350 $303,400 $312,400

Bill Payments $439,684 $559,027 $590,514

SUBTOTAL SPENT ON OPERATIONS $720,034 $862,427 $902,914

Additional Cash Spent

Sales Tax, VAT, HST/GST Paid Out $0 $0 $0

Principal Repayment of Current $56,252 $0 $0

Borrowing

Other Liabilities Principal Repayment $16,810 $0 $0

Long-term Liabilities Principal $60,000 $30,000 $30,000

Repayment
 Purchase Other Current Assets $63,450 $10,350 $9,450

Purchase Long-term Assets $0 $0 $0

Dividends $0 $0 $0

SUBTOTAL CASH SPENT $916,546 $902,777 $942,364

Net Cash Flow ($41,715) $627,209 $846,415

Cash Balance $82,508 $709,717 $1,556,132

7.5 Projected Balance Sheet

The projected balance sheet for H20 Industries is presented below.

PRO FORMA BALANCE SHEET

YEAR 1 YEAR 2 YEAR 3

Assets

Current Assets

Cash $82,508 $709,717 $1,556,132

Accounts Receivable $250,631 $411,806 $443,382

Inventory $28,886 $47,669 $51,370

Other Current Assets $103,450 $113,800 $123,250

TOTAL CURRENT ASSETS $465,476 $1,282,992 $2,174,135

Long-term Assets

Long-term Assets $220,000 $220,000 $220,000

Accumulated Depreciation $36,000 $72,000 $108,000

TOTAL LONG-TERM ASSETS $184,000 $148,000 $112,000

TOTAL ASSETS $649,476 $1,430,992 $2,286,135

Liabilities and Capital Year 1 Year 2 Year 3

Current Liabilities

Accounts Payable $45,461 $45,991 $48,763

 Current Borrowing $15,102 $21,352 $27,602

Other Current Liabilities $0 $0 $0

SUBTOTAL CURRENT LIABILITIES $60,563 $67,343 $76,365

Long-term Liabilities $120,000 $90,000 $60,000

TOTAL LIABILITIES $180,563 $157,343 $136,365

Paid-in Capital $187,000 $187,000 $187,000

Retained Earnings ($22,350) $281,913 $1,086,650

Earnings $304,263 $804,737 $876,120

TOTAL CAPITAL $468,913 $1,273,650 $2,149,770

TOTAL LIABILITIES AND CAPITAL $649,476 $1,430,992 $2,286,135

Net Worth $468,913 $1,273,650 $2,149,770

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7.6 Business Ratios

The following table gives standard business ratios for the water treatment equipment
manufacturer industry, as determined by the Standard Industry Classification (SIC) Index
code 3589. The last column, Industry Profile, presents specific information and important
ratios for this industry.

RATIO ANALYSIS

YEAR 1 YEAR 2 YEAR 3 INDUSTRY

PROFILE

Sales Growth 0.00% 64.31% 7.67% 8.10%

Percent of Total Assets

Accounts Receivable 38.59% 28.78% 19.39% 25.10%

Inventory 4.45% 3.33% 2.25% 21.60%

Other Current Assets 15.93% 7.95% 5.39% 25.80%

Total Current Assets 71.67% 89.66% 95.10% 72.50%

Long-term Assets 28.33% 10.34% 4.90% 27.50%

TOTAL ASSETS 100.00% 100.00% 100.00% 100.00%

Current Liabilities 9.32% 4.71% 3.34% 35.50%

Long-term Liabilities 18.48% 6.29% 2.62% 21.30%

Total Liabilities 27.80% 11.00% 5.96% 56.80%

NET WORTH 72.20% 89.00% 94.04% 43.20%

Percent of Sales

Sales 100.00% 100.00% 100.00% 100.00%

Gross Margin 62.95% 69.04% 69.76% 32.10%

Selling, General & 33.28% 21.28% 20.22% 17.80%

Administrative Expenses

Advertising Expenses 1.61% 0.71% 0.66% 0.90%

Profit Before Interest and 31.14% 48.49% 50.08% 3.40%
Taxes

Main Ratios

Current 7.69 19.05 28.47 2.12

Quick 7.21 18.34 27.80 1.20

Total Debt to Total Assets 27.80% 11.00% 5.96% 56.80%

Pre-tax Return on Net Worth 63.90% 63.18% 41.80% 4.50%

Pre-tax Return on Assets 46.13% 56.24% 39.31% 10.40%

Additional Ratios Year 1 Year 2 Year 3

Net Profit Margin 29.67% 47.76% 48.29% n.a

Return on Equity 64.89% 63.18% 40.75% n.a

Activity Ratios

Accounts Receivable 4.09 4.09 4.09 n.a

Turnover
Collection Days 56 72 86 n.a

Inventory Turnover 10.91 9.11 7.59 n.a

Accounts Payable Turnover 9.32 12.17 12.17 n.a

Payment Days 31 30 29 n.a

Total Asset Turnover 1.58 1.18 0.79 n.a

Debt Ratios

Debt to Net Worth 0.39 0.12 0.06 n.a

Current Liab. to Liab. 0.34 0.43 0.56 n.a

Liquidity Ratios

Net Working Capital $404,913 $1,215,650 $2,097,770 n.a

Interest Coverage 16.17 66.31 91.33 n.a

Additional Ratios
Assets to Sales 0.63 0.85 1.26 n.a

Current Debt/Total Assets 9% 5% 3% n.a

Acid Test 3.07 12.23 21.99 n.a

Sales/Net Worth 2.19 1.32 0.84 n.a

Dividend Payout 0.00 0.00 0.00 n.a