December 2000

This sample business plan has been made available to users of Business Plan Pro™, business planning software published by Palo Alto Software. Names, locations and numbers may have been changed, and substantial portions of text may have been omitted from the original plan to preserve confidentiality and proprietary information.

You are welcome to use this plan as a starting point to create your own, but you do not have permission to reproduce, publish, distribute or even copy this plan as it exists here.

Requests for reprints, academic use, and other dissemination of this sample plan should be emailed to the marketing department of Palo Alto Software at marketing@paloalto.com. For product information visit our Website: www.paloalto.com or call: 1-800-229-7526.

Copyright Palo Alto Software, Inc., 1995-2002

Confidentiality Agreement

The undersigned reader acknowledges that the information provided by _________________________ in this business plan is confidential; therefore, reader agrees not to disclose it without the express written permission of _________________________.

It is acknowledged by reader that information to be furnished in this business plan is in all respects confidential in nature, other than information which is in the public domain through other means and that any disclosure or use of same by reader, may cause serious harm or damage to _________________________.

Upon request, this document is to be immediately returned to _________________________.

___________________ Signature

___________________Name (typed or printed)

___________________Date

This is a business plan. It does not imply an offering of securities.

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

2.0 Company Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.1 Company Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.2 Start-up Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.3 Company Locations and Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

3.0 Product Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63.1 Product Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73.2 Competitive Comparison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93.3 Sourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.4 Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.5 Future Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

4.0 Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114.1 Market Segmentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114.2 Target Market Segment Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

4.2.1 Market Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154.3 Industry Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

4.3.1 Industry Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164.3.2 Distribution Patterns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174.3.3 Competition and Buying Patterns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

5.0 Strategy and Implementation Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175.1 Marketing Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

5.1.1 Pricing Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195.1.2 Promotion Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

5.2 Competitive Advantage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205.3 Sales Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

5.3.1 Sales Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225.4 Milestones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

6.0 Regulatory Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

7.0 Management Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247.1 Management Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247.2 Management Team Gaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257.3 Personnel Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

8.0 Financial Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278.1 Important Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288.2 Break-even Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298.3 Projected Profit and Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308.4 Projected Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328.5 Projected Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338.6 Business Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Table of Contents

1.0 Executive Summary

MedNexis, Inc. (the company) is a medical device development company that has designed and patented medical devices which it plans to produce and market. A magnetic muscle stimulator/field generator has been designed with the participation of leading medical personnel and biomedical engineers. One patent is initially incorporated.

Allopathic Medicine

One market addresses the unanswered need of atrophy prevention/treatment in conditions resulting in patient immobilization for greater than two weeks. After two weeks of immobilization, the average muscle loses over 30% of its mass, resulting in an increased time to complete recovery. A new and innovative design, dubbed the MedStim system, has been created to answer this need for an effective, easy-to-use atrophy prevention/treatment device. The number of indications for this device is expected to rise as further research on the benefits of pulsed magnetic fields unfolds. For example, pulsed field magnetism has recently been shown in controlled studies to be an effective treatment in accelerating the healing of skeletal fractures.

The market for magnetic stimulation devices in allopathic medicine is existent, but in the embryonic stages and subject to explosive growth once the technology proves cost-effective. This potential market has reached an estimated 4.2 million patients in the United States. The new and innovative device designed to target this market has been named the MedStim system.

Alternative Medicine

Another market addresses an unanswered need in the alternative medicine market for a device which will provide a more powerful and consistent therapeutic magnetic field. Dynamic magnetic field therapy (the treatment of soft tissue with variable magnetic pulses) is currently thought to have beneficial effects on circulation, immune system function, wound healing, etc., in the alternative healthcare sector and these effects are thought to be proportional to the strength of the magnetic field generated. The new and innovative design created to answer this need for a more powerful therapeutic magnetic field in alternative medicine has been named the TheraMag system. This market is in existence and is expected to have the potential of approximately 40 million customers in the United States by the year 2000.

Technology

Patent applications on the company's first market entries have been filed using a patent agent specializing in biomedical device patents. MedNexis' technology utilizes the principal that a current in a coil will generate a magnetic field which will, in turn, generate a current in any conductive material within this field. This model is currently effectively applied in diagnostic studies in which single nerves are stimulated with magnetism for diagnostic purposes alone. Using this model, and considering the human nerve to be the conductive material, MedNexis has developed an electromagnetic device which will painlessly stimulate human muscles to contract. Applications of this technology are numerous, with the following devices being those initially marketed:

MedNexis' patented device will be tailored to effectively stimulate muscle. This will require larger electrical currents, greater functionality, and a wider range of settings. This device will be marketed for mainstream, allopathic medicine

TheraMag- MedNexis' patented device will bathe tissue in a magnetic field without causing contraction of the muscle. This device will be marketed for alternative applications.

Strategy

MedNexis, Inc.

Page 1

MedNexis will target the following two markets: allopathic and alternative medicine. In order to effectively distance the two products from possible negative connotations associated with alternative medicine in the field of allopathic medicine, the two devices will be given separate and distinct names: MedStim for the allopathic medicine device and TheraMag for the alternative medicine device.

MedStim will be distributed through channels dominated by large distributors and strategic association with these players will be key to gaining acceptance in this market. Furthermore, physicians will demand randomized, controlled study data, the production of which will be the focus of the bulk of MedNexis' early efforts in this market.

TheraMag will be distributed to alternative medicine centers which are less centralized and direct sales will also be possible. Less scientific proof is required by this market, and entrance will be immediate once the FDA issues an Investigational Device Exemption.

Regulatory Issues

Through obtaining an Investigational Device Exemption and clearly labeling the product "For Investigational Use Only," FDA regulations will be satisfied and market entrance will be expedited. Acceptance of these products based on successful research results will drastically increase demand and allow for expansion to foreign markets

Major Milestones

Animal stage Research and Development underway, early Year One.

• Extend patent coverage to Australia, Europe and Canada, middle Year One • Human clinical trials underway, middle Year Two. • Research studies published, end of Year Two. • TheraMag for sale, end of Year One. • MagnaStim for sale, labeled as ‘For Investigational Use Only', end of Year Two. • Profitability established by Year Four.

Competitive Advantage

While the MagnaStim and TheraMag devices are effective and user-friendly, with multiple home healthcare applications, all the competing devices currently on the market are only partially effective or difficult and awkward to use for the recommended therapeutic treatment. MedNexis will use its patented designs to fill the need in the market for an easier to use, more effective magnetic stimulator/field generator.

Financial

Based on detailed financial projections, if the company receives the $750,000 in funding, it will operate profitably by Year 3. The company projects $23.5 million in sales with a net profit of approximately $7.4 million in Year 3 with projections based on penetration of less than 3% in any market segment.

MedNexis, Inc.

Page 2

($50,000,000)

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

2001 2002 2003 2004 2005

Sales

Gross Margin

Net Profit

Highlights

2.0 Company Summary

MedNexis will research and develop biomedical devices, including the MedStim and TheraMag systems, to aid in the treatment of a variety of diseases. Its customers are patients afflicted with any condition resulting in muscular atrophy, as well as those patients interested in the proposed alternative benefits of magnetic therapy. The company is currently developing its patent-applied technology to final product and approval stage. It is also seeking to establish its corporate identity in the medical products field. The company's growth strategy involves the following objectives:

• Complete the patent process. • Establish corporate identity, brand names, trademarks. • Set a clear business direction and both long-term & short-term goals to be achieved. • Build staff and company infrastructure. • Complete clinical trials and obtain FDA approval. • Continue R&D and product development. • Maintain market performance by linking remuneration packages for key personnel with

the performance of the company through stock options and other salary schemes.

MedNexis, Inc.

Page 3

2.1 Company Ownership

The company will be incorporated in North Carolina. It will have authorized 15,000,000 ordinary shares and 150,000 preferred shares. The rights and privileges of these shares will be stated in the company's Articles of Incorporation.

The proposed share capital of the company prior to capital raising

Owner Percentage of Shares Owned

Daniel Burnett 40%

Mike Marriott 20%

Nathan Wain 20%

Brian Bell 20%

The company is expected to raise seed capital of approximately $750,000 prior to the commencement of its business operations. Additional working capital is anticipated and will be raised in year 2 of operations. Capital raising exercises are anticipated to be conducted in 2 portions (i.e. Year 0 and Year 2) raising approximately $6.75 million in funds.

2.2 Start-up Summary

The key elements in the start-up plan for the company are:

• The legal expense for filing all patent applications. • The establishment of a corporate identity. • The location of business. • Funding of working capital requirements, purchases of other equipment and assets

deemed necessary for the principle operating activities of the company, and additional capital raising alternatives.

• Salary for key managers and staff of the company. • Formulation of the strategic business plan.

Costs of raising capital through private placement

Approximately $250,000 was raised from the founders of the company for these purposes. This funding will be available in early 2001 and these tasks have either been completed successfully or are in the final process of completion.

These are treated purely as start-up expenses and initial working capital by this plan. The $250,000 is treated as cash-on-hand as of the start of this plan on January 1, 2001. The remainder of the start-up capital required, as well as capital required for the continuation of operations in the first 6 months will be provided by selling the shares via a private placement to key investors. The capital obtained through this fund-raising exercise is expected to provide an additional $750,000 and the business plan calls for these funds to be infused for the purposes of operating the business, in accordance with this business plan.

MedNexis, Inc.

Page 4

Table: Start-up

Start-up

Requirements

Start-up ExpensesLegal $50,000Stationery etc. $500Brochures $3,000Consultants $3,000Insurance $3,000Rent $1,000Research and development $100,000Expensed equipment $6,500Other $1,000Total Start-up Expenses $168,000

Start-up Assets NeededCash Balance on Starting Date $82,000Start-up Inventory $0Other Current Assets $0Total Current Assets $82,000

Long-term Assets $0Total Assets $82,000Total Requirements $250,000

Funding

InvestmentDaniel Burnett $100,000Nathan Wain $50,000Mike Marriott $50,000Brian Bell $50,000Total Investment $250,000

Current LiabilitiesAccounts Payable $0Current Borrowing $0Other Current Liabilities $0Current Liabilities $0

Long-term Liabilities $0Total Liabilities $0

Loss at Start-up ($168,000)Total Capital $82,000Total Capital and Liabilities $82,000

MedNexis, Inc.

Page 5

$0

$50,000

$100,000

$150,000

$200,000

$250,000

Expenses Assets Investment Loans

Start-up

2.3 Company Locations and Facilities

The company will initially be based in the Research Triangle Park area in North Carolina.

In view of the strategic plan to contract with a third party for all manufacturing requirements, the facilities needed will be mainly offices for personnel and storage space for inventory. After Year 5, when the market for our products reaches our anticipated milestone, the company will explore the feasibility of constructing its own manufacturing facilities.

3.0 Product Summary

MedNexis will initially market its MedStim system to the atrophy prevention/treatment market, while the TheraMag system will be marketed to the alternative medicine market. The primary differences between these two products will be the amplitude and frequency of the magnetic field generated and the programability/capability of the logic controllers. The amplitude of the magnetic field generated by the TheraMag system will be significantly less than that generated by the MedStim system in order to avoid functional stimulation of the underlying muscles. The frequency of stimulation, though, will be greater in the TheraMag system in order to provide a more consistent therapeutic magnetic field desired for alternative medicine applications.

Both systems will be sold in two parts, the programmable logic controller (LC), which will generate the electrical impulses, and the array of overlapping coils (AOC), which will generate the magnetic fields. The AOC will be available in multiple designs, each of which will contain the signature overlapping coils and will be simple to apply. Every design will be available in multiple sizes to accommodate patients of various dimensions. The technology used in these products is the subject of a patent which is currently in the application process.

MedNexis, Inc.

Page 6

3.1 Product Description

A detailed and technical description of both the MedStim and TheraMag systems follows:

Therapeutic Magnetic Field Generators: The MedStim and TheraMag Systems

Applications: The prevention/treatment of muscular atrophy in conditions resulting in immobilization and the generation of a non-stimulatory magnetic field for alternative medical therapy purposes.

Scope: This innovation applies to both stimulatory and non-stimulatory magnetic field generation used in the treatment of a variety of diseases and ailments. The MedStim and TheraMag systems are two-component devices designed to deliver a powerful magnetic field to the subcutaneous tissue. The logic controller (LC) generates the electrical current impulse through powerful capacitors and the array of overlapping coils (AOC) provides the necessary pathway for the current to generate the desired magnetic field.

Current Technology:

Atrophy Prevention/Treatment

Currently bulky, difficult to use technology exists which provides for therapeutic, functional stimulation of musculature using magnetic induction of neural impulses. These devices, though, consist of only a single focus of stimulation and must be manipulated by a trained, experienced user in order to effect a useful therapy. The main limitations of the existing magnetic stimulation devices are:

• Inability to treat multiple muscle groups, or even adequately treat a single muscle group, without a highly skilled, trained operator manipulating the device throughout the lengthy process.

• Inconsistent treatment regiments which are time intensive and costly due to the necessary continued presence of the trained operator.

• Limited effectiveness due to lower ranges of both gauss (a rating of the strength of the magnetic field) and joules (a measure of the actual energy flowing through the coil).

There is also technology which stimulates musculature using transdermal electrical stimulation. Electrical stimulation is a well-developed field in sports medicine and this form of therapy is currently widely used. The main limitations to electrical stimulation are as follows:

• Stimulatory levels of electricity are frequently painful and may result in contact burns. • Muscle groups that can be stimulated are restricted to those which are superficial and

easily reached transdermally. Deep muscle groups cannot be stimulated without more powerful electrical impulses which cause significant discomfort. Due to this limitation, stimulation of superficial muscles is usually submaximal as well.

Alternative Medicine

There is currently technology for providing non-stimulatory magnetic fields for alternative medicine applications, but none with an overlapping series of coils activated by powerful capacitors. The main limitations of current non-stimulatory magnetic field generators are as follows:

• Limited strength of magnetic field due lack of powerful field induction mechanism. • Inability to penetrate deeply throughout the treatment area due to discreet,

nonoverlapping magnetic field generators of lesser power. • Difficulty of use due to constant manipulation of the single coil required to treat any

significant region of the body.

MedNexis, Inc.

Page 7

MedNexis Technology:

In generating a magnetic field, impulses of electric current originating from the LC flow through the AOC in a predetermined sequence. The flow of electrical current through the coil induces a strong magnetic field (Faraday's Law), which in turn induces a current in motor neurons perpendicular to the magnetic field, causing involved muscles to contract. Sufficient muscle activity is induced to prevent atrophy of the muscle group affected. Therapeutic stimulation of peripheral motor neurons and muscle tissue for the prevention of atrophy and/or the augmentation of muscular mass may be clinically indicated for a variety of medical conditions including fractures immobilized beyond 2 weeks, Induced Paralysis for Mechanical Ventilation, Persistent Vegetative State, Traumatic Paralysis, and Guillain-Barre Syndrome. Potential indications now being researched include: bone healing, preventing deep venous thrombosis, and increasing range of motion.

Logic Controller- Requires both a powerful 40,000 microFarad capacitor and a 2:1 step-up transformer capable of generating 250 Volts for the MedStim system. A less powerful (and less expensive) 10,000 microFarad capacitor will be sufficient for the TheraMag system and a transformer will not be necessary. Both systems will require multiple discrete discharge channels so that coils in the AOC may be activated individually. A standard 110 Volt power source will be needed to generate the necessary electrical impulses. Any channel not being used for stimulation will be grounded to prevent electrical interference of the stimulated coil. The frequency and amplitude of stimulation will be determined by the Logic Controller console. (See Fig.1, 2, and 3 in Appendix)

Array of Overlapping Coils- Each copper insulated coil in the series will be connected to a single channel on the Logic Controller. Current, will flow in through the logic controller with discharge of the capacitor then out through a grounded lead in the logic controller. The firing of individual coils will occur in a rapid, yet controllable, sequence and, in the case of the MedStim system, will result in the stimulation of motor neurons in the subcutaneous tissue perpendicular to the induced magnetic field. (See Fig.1 and 4 in Appendix)

Clinical Advantages:

Atrophy Prevention/Treatment

The main clinical advantage of the MedStim system is that it is able to provide maximal stimulation of deep musculature without significant discomfort to the patient. This is in direct contrast to the frequently painful, submaximal electrical stimulation currently used. The LC is an easy-to-program device and the AOCs are easily applied in any environment, making them an attractive option in home health situations. Due to its ease of application and use, the MedStim system will provide a means of preventing, not just reversing, disuse atrophy with daily use on immobilized patients. Also, as additional indications arise for magnetic field therapy, the MedStim system will be in an ideal position to fill these needs due to its highly consistent, thorough generation of pulsed magnetic fields.

In summary, the clinical advantages of the MedStim system are:

• Magnetic field generated is safe, comfortable, and effective, even in the stimulation of deep musculature.

• Logic Controller is easy to program and operate, allowing for possible home health applications.

• Array of Coils is easy to apply so as to provide effective, maximal stimulation of the underlying musculature with no need for a highly skilled operator once settings on logic controller are established.

• Array of Coils can be used multiple times on a single patient, helping to make the device more cost-effective.

• Flexibility of configuration of Array of Coils allows treatment of a variety of conditions

MedNexis, Inc.

Page 8

including systemic processes, such as Guillain-Barre, and local processes such as isolated fractures.

• Use of the MedStim system will result in a more rapid return to functionality for patients and will decrease subsequent Physical Therapy required after the period of immobilization. Due to these factors, implementation of the MedStim system is a cost-effective therapy.

Alternative Medicine

It is postulated, that there are less well-defined benefits to magnetic stimulation, such as increasing blood flow, activating the immune system, and promoting wound healing. This will allow entry of the TheraMag system into the alternative medicine market in an altered form in which maximum magnetic fields generated will be non-contractile to underlying musculature. The TheraMag system, though, will still be able to provide magnetic stimulation greater than any device currently available in the alternative medicine market in a more user-friendly fashion.

In summary, the clinical advantages of the TheraMag system are:

• Flexibility and ease-of-use identical to the MedStim system. • Generation of dynamic magnetic fields with greater amplitude than existing devices in a

systematic and controlled manner. • Competitive price structure

3.2 Competitive Comparison

Atrophy Prevention/Treatment

Current competition for the MedStim system consists mainly of the following devices: Neotonus' Neotone, MagStim's Model 200, 220, 250, and Quadropulse 500. These devices use pulsed magnetic fields to induce muscular contraction. The base cost of Neotone, MedStim's primary competitor, is $20,000, while MagStim's model 200 starts at $19,800. What these devices lack, though, is an easy-to-use, cost-effective means of inducing this contraction. Due to the fact that all of these devices employ a single, focused coil in inducing muscular contractions, they also require a skilled, trained user at the controls. While this may be practical for diagnostic purposes, which is the main use of the MagStim devices, it is not cost-effective for the treatment of atrophy, and it is surely not cost-effective for the prevention of muscular atrophy. In summary, the key advantages of the MedStim system over Neotonus' and MagStim's devices are:

• Much easier to use and apply with possible applications in a home healthcare setting. • Allows for a more consistent therapy due to ergonomic wrap targeting key nerves and

no requirement for a highly trained operator to constantly manipulate the device for adequate therapy.

• Allows treatment of multiple sites in a sequential, timely fashion due to multiple ports on the logic controller and multiple coils stimulated by each port, as opposed to the single stimulatory coil of competing devices.

The only other main field of competition for the MedStim system is the alternative electrical stimulation technology, which is considered less effective. To summarize, the key advantages of the MedStim system over electrical stimulation are:

• Magnetic field generated is safe, comfortable, and effective, even in the stimulation of deep musculature.

• Logic Controller is easy to program and operate, allowing for possible home health

MedNexis, Inc.

Page 9

applications with leasing of the system. • Array of Coils is easy to apply so as to provide effective, maximal stimulation of the

underlying musculature. • Array of Coils can be used multiple times on a single patient, helping to make the

device more cost-effective. • Flexibility of configuration of Array of Coils allows treatment of a variety of conditions

including systemic processes, such as Guillain-Barre, and local processes such as isolated fractures.

Alternative Medicine

The TheraMag system is also a new innovation whose competition will include currently existing alternative medicine magnetic field generation devices. Key advantages of the TheraMag system over these devices are:

• Flexibility and ease-of-use identical to the MedStim system. • Generation of magnetic fields with greater amplitude than existing devices in a

systematic and controlled manner.

3.3 Sourcing

Primary raw materials needed for MedNexis products are as follows:

• Electrical components (capacitor, wiring, etc) for Logic Controller and Arrays of Coils. • Molds for external console of Logic Controller. • Material for wraps in which induction coils will be placed.

All of these components are easily sourced and multiple suppliers have been identified. MedNexis will establish business relationships with these suppliers to be negotiated for preferred pricing structures without compromising quality standards. Two viable manufacturers have been identified: Colorado MedTech in Boulder, CO and JCD Manufacturing in Nashville, TN. Both companies specialize in manufacturing electronic medical equipment.

3.4 Technology

A patent has been authored and filed for the MedStim and TheraMag systems. This patent takes into account both offensive and defensive postures in its claims. Opinions of legal counsel are strong that MedNexis' patent applications are enforceable and defensible.

Care has been taken to file all potential claims of the invention in order to protect it from possible competition from other technologies.

All patent application documents will be made available for examination by potential investors. Trademark applications are in process on the names MedStim, TheraMag and MedNexis. No conflicts or other use of these names has been found in an initial search.

MedNexis, Inc.

Page 10

3.5 Future Products

Plans for future development by MedNexis include new concepts and technologies to be created by the company. For example, the company intends to expand its MedStim line by introducing more specialized products that offer highly technical users more sophisticated features, such as advanced logic controllers that provide enhanced control and generate detailed patient data relative to current and past treatments. These units will also incorporate more durable componentry.

Additionally, the company will expand its TheraMag line by developing new products tailored to specific consumer segments, as well as alternative medicine providers such as wellness centers. In addition, MedNexis may seek to acquire technologies developed by other companies and individuals to strategically achieve market penetration and additional business for the company, once it attains sufficient capitalization to do so. It is the objective of MedNexis to both innovate and market its products to other potential market segments and geographical regions. Once an industry reputation has been achieved and marketing channels are feasible, expansion into other medical device areas should be highly rewarding.

4.0 Market

The market for our two-component device currently consists of two key market sectors:

1. The healthcare field for the prevention and treatment of muscular atrophy; and 2. The alternative medicine field for the application of potentially therapeutic, non-

stimulatory magnetic fields.

The potential healthcare market sector consists of patients with diseases that result in immobilization of musculature for any length of time. The alternative health market consists of those patients who believe in the therapeutic effects of non-contractile magnetic fields.

The two key factors influencing discussion of MedNexis, Inc.'s markets are as follows:

• The prevalence of conditions in which the MedStim system would be indicated. • The size and growth of the alternative medicine magnetic stimulation market in which

TheraMag will compete.

4.1 Market Segmentation

Currently there are two main markets for our two-component device: healthcare applications for the prevention/treatment of muscular atrophy (MedStim) and alternative medicine applications in which the device will be used for the potentially therapeutic benefits of non-contractile magnetic field stimulation (TheraMag).

In estimating the sale of logic controllers, obsolescence and machine failure are the only reasons for the replacement of the devices. Due to wear and tear, we have assumed a useful life of 2 years for each logic controller and in our projections, we have also assumed that the logic controllers are replaced after their useful life has expired. Due to the multiple configurations of AOCs, the sale of AOCs is expected to be approximately five AOC's per LC.

U.S. Market

MedNexis, Inc.

Page 11

The U.S. market will be the initial target market. This market can be broken down into the two main applications: (1) Prevention and Treatment of Muscular Atrophy and (2) Alternative Medicine Applications.

Prevention and Treatment of Muscular Atrophy Market

Prevalence of medical indications for use of the MedStim system in the U.S. are as follows:

All Fractures 9,600,000

Induced Paralysis for Mechanical Ventilation 963,000

Persistent Vegetative State 106,000

Paralysis of one or more Extremities 2,430,000

Guillain-Barre Syndrome 3000

Source: National Center for Health Statistics- 1997

The estimated percentages of these patients that are treatable with the MedStim system are as follows:

Fractures 10%

Mechanical Ventilation 75%

All others 100%

Using this data, and assuming both that hospitals will require one unit of the programmable logic controller and five arrays of coils per ten patients treated, the potential annual U.S. market for the MedStim components in 2001 is projected to be: 421,825 LCs and 2,109,125 AOCs.

Although there has been little activity to date in this sector, Neotonus has developed a magnetic device for urological uses that has gained FDA approval and has been received by allopathic practitioners. In the fourth quarter of 1999, the company sold 73 systems vs. just one during the same period in the previous year. The number of patient treatments performed on this installed base increased over 70% from third quarter 1999 to fourth quarter 1999. More than 20,000 treatments have been administered through January 2000. In October 1999, Neotonus received $7.3 million in a second round of venture capital funding, bringing its total funding to $12.2 million.

Alternative Medicine Market

The current U.S. market for alternative medicine applications is growing rapidly. Total visits to alternative medicine providers increased 47.3% from 427 million in 1990 to 629 million in 1997. Expenditures during this period increased 45.5% and is estimated at $21.2 billion in 1997, with at least $12.2 billion paid out of pocket, exceeding out-of-pocket expenditures for all U.S. hospitals. Further growth is anticipated as U.S. insurers offer more and more alternative medicine programs and benefits. Moreover, in 1994, there were 59,000 licensed alternative medicine practitioners in chiropractic, oriental medicine (acupuncture and herbal medicine), and naturopathy (Health Affairs 15(3), Fall 1996, pp. 226-238.).

Additionally, 15 million adults took prescriptions concurrently with alternative medicine remedies. The potential market for energy therapy devices, of which magnetism is the most popular, is 40 million (source: JAMA Vol 280, No 18, pp 1571-1573). Conservatively, assuming only 20% of these consumers would employ magnetism as their source of energy therapy, the size of the market for magnetism in alternative medicine is approximately 8 million consumers. Assuming less leasing in the alternative medicine industry and more out-of-pocket purchases, we expect to sell 1 LC for every 5 patients and conservatively estimate one AOC per patient.

MedNexis, Inc.

Page 12

The potential size of the U.S. market under these assumptions is 1.6 million LCs and 8 million AOCs per year.

Insurance Concerns

While some health plans and self-insured employers, as well as Medicare, voluntarily cover, or are considering covering alternative medicine, some states have issued mandates. For example, a law in New York that went into effect on January 1, 1998, requires insurers to cover up to 15 chiropractic visits per year. Altogether, in early 1995, 41 states reportedly required private insurers to offer chiropractic, either as a rider or mandated as a benefit services (National Journal Group, Inc., "Access/Quality/Cost - Alternative Treatments: Acceptance is Increasing," American Health Line, January 30, 1995). Additionally, according to Oxford Health Plans, 8 states currently mandate that insurers offer acupuncture treatments.

Of all 50 states, Washington state has had the most extensive mandate. A law that took effect on January 1, 1996, requires health plans to provide access to licensed providers of alternative health care. It states that all categories of providers will be given equal treatment by insurance companies. The law initially mandates that, in every health plan, insurers must cover visits to chiropractors, acupuncturists, naturopaths, and other alternative care providers. However, after 12 of the state's largest insurers challenged the mandate, a federal judge ruled that the mandate was preempted by the Employee Retiree Income Security Act of 1974 (ERISA). In turn, the ruling was changed so that the mandate applied only to state-regulated health plans. As of April 1998, an appeal by the state was pending (National Journal Group, Inc., "Statelines - Washington: Insurance to Cover Alternative Medicine," American Health Line, December 18, 1995, National Journal Group, Inc., "Statelines - Washington: Insurers Challenge Alternative Care Mandate," American Health Line, January 10, 1996, National Journal Group, Inc., "Statelines - Washington: Insurers Freed from Alternative Care Mandate," American Health Line, May 8, 1997).

U.S.- Atrophy Prevent/Treat

U.S.- Alternative Medicine

Other

Market Analysis (Pie)

MedNexis, Inc.

Page 13

Table: Market Analysis

Market AnalysisPotential Customers Growth 2001 2002 2003 2004 2005 CAGRU.S.- Atrophy Prevent/Treat 5% 4,218,250 4,429,163 4,650,621 4,883,152 5,127,310 5.00%U.S.- Alternative Medicine 5% 8,000,000 8,400,000 8,820,000 9,261,000 9,724,050 5.00%Other 0% 0 0 0 0 0 0.00%Total 5.00% 12,218,250 12,829,163 13,470,621 14,144,152 14,851,360 5.00%

4.2 Target Market Segment Strategy

Our Market Segment Strategies will be tailored to the targeted markets as follows:

Muscular Atrophy Prevention Market

Our primary markets in this segment are large medical institutions (i.e. universities, regional hospitals, and HMOs) that are more likely to purchase our products in large volumes due to the frequency of new patients. The key in this market is to gain acceptance of the MedStim system as a cost-effective therapeutic device among healthcare providers. Our strategy involves "push" tactics at the outset, in which we hope to establish our MedStim System as the standard instrumentation used in key/renowned medical institutions for the treatment of muscular atrophy. As our products gain acceptance among medical institutions, a "pull strategy" will result, leading to demand of our products by other medical institutions. Initial sales of our products will primarily be through demonstrations and introductions made by our marketing personnel to medical institutions. Upon gaining market acceptance, the products may be sold on proprietary websites, leading to penetration of a larger market segment.

Alternative Medicine Market

The primary market for this segment will be individuals who subscribe to the effectiveness of non-contractile magnetic field stimulation. This is a highly fragmented market that is naturally segmented both by ailment type and preferred alternative remedy. More recent research investigated the characteristics of persons who have used alternative medicine. First, individuals with college or graduate degrees were found to be more likely to use alternative medicine than those with high school education or less. Second, individuals reporting serious health problems were more likely to use alternative medicine than healthier individuals. Furthermore, the majority of individuals who used alternative medicine did so largely because they viewed these practices as being compatible with their own values, beliefs, and philosophy toward life and health, not because they were dissatisfied with conventional medicine (JAMA 279 (19), May 20, 1998). Subscribers source related information and products largely at the local level, but with the proliferation of the internet have been able to effectively access pertinent information. We plan to use existing channels to access the 40 million alternative medicine users. Direct consumer sales will be encouraged by targeting alternative healthcare forums and the consumers themselves. Catalog and website sales will be the main channels of distribution for the TheraMag system.

MedNexis, Inc.

Page 14

4.2.1 Market Needs

There is a large unfulfilled need for devices that prevent atrophy of the muscluature in today's large health care facilities. While outpatient care is the fastest growing segment of the healthcare industry, there is still a large percentage of patients each year who require extended hospitalization time. Atrophy of the musculature of such patients can seriously inpede recovery time for such patients, and raise the costs of overall health care.

In addition, there are a significant number of individuals who suffer from paralysis of one form or another. With the current research in genome and DNA promising the possiblitity of curing such conditions, many patients with such conditions need to prevent serious muscle decay from occuring if they wish to eventually lead normal lives.

Finally, there are those individuals who desire alternative methods of seeking good health and solving existing medical problems. The use of magnetism in alternative medicine has been around for decades, and more and more people are using non-traditional methods as the popularity of such practices becomes more mainstream.

4.3 Industry Analysis

Our Industry Analysis is based on each individual market segments and breaks down as follows:

Muscular Atrophy Prevention Market

The reason the market for atrophy treatment/prevention devices is untapped is due to the lack of any user-friendly devices. The existing devices in the market, both Neotonus' and MagStim's products, are difficult and awkward to use, requiring intensive training and skilled operation for an effective therapy. While the trend in healthcare is expected to be towards magnetic stimulation for treatment/prevention of muscular atrophy, these devices are not expected to capture significant market share for the following reasons:

• Difficult and expensive to use with cost-intensive, skilled medical personnel required to

operate effectively. • Awkward to use and inconsistent stimulation due to the single focused coil requiring

constant manipulation. • Further inefficiency in the treatment of multiple muscle groups due to the single focus

of magnetic stimulation.

Atrophy is currently treated using electrical stimulation. Electrical devices, though, cannot penetrate deeply enough to affect important musculature. Magnetism has been shown to penetrate much more deeply than the current electrical stimulation, and much less painfully.

Magnetic stimulation also has potential indications that do not overlap those of electrical stimulation. Due to its painless nature, magnetic stimulation can be used more frequently and over a larger area of the body a disease, such as Guillain-Barre, would require virtually full-body stimulation of key muscle groups. This would not be treatable with painful electrical stimulation but can be treated using magnetism. Many of the potential indications for muscular atrophy prevention, therefore, are not currently encompassed in the available electrical stimulation industry data.

In summary, the healthcare industry can be expected to experience a trend towards magnetic stimulation for the following reasons:

MedNexis, Inc.

Page 15

• Much less painful than electrical stimulation at submaximal thresholds and no risk of

burn at contact sites. • Penetrates much more deeply than electrical stimulation. • More frequent indication than electrical stimulation.

Alternative Medicine Market

The alternative medicine industry is experiencing phenomenal growth in many arenas. Magnetic stimulation is no exception. Industry estimates for potential markets incorporate current magnetic field applications and projected growth of these fields. This market will likely provide less resistance to entry than the data-intensive muscular atrophy prevention market.

The alternative healthcare market has experienced a trend towards use of magnetic stimulation because of the proposed beneficial effects on circulation, immune system function, and wound healing.

4.3.1 Industry Participants

To date, the company is not aware of any products that provide therapeutic care that is as cost effective as the MedStim or TheraMag systems.

Prevention and Treatment of Muscular Atrophy

The only significant competitors in the therapeutic functional magnetic stimulation field are Neotonus and MagStim. As detailed earlier, each of these companies produces a device with a single stimulatory coil which requires intensive, skilled operator involvement. Even with a skilled operator, treatments are lengthy (greater than 15 minutes per muscle group) and inconsistent because constant manipulation is required to effect the desired result. These devices are more suited to the diagnostic field, in which MagStim has captured the majority of market share due to this fact. These devices, though, are not tailored to therapeutic application of magnetic fields.

Medtronic Dantec, Digitimer, and Schwarzer GmbH are also involved in the magnetic stimulation business, but have only produced devices for diagnostic purposes to date. Nihon Kohden produces diagnostic stimulators, which are sold only in Japan.

Alternative Medicine Applications

Major companies competing in the alternative medicine magnetic therapy field include: BioFlex, Tectonics, Nikken, MagnetRelief, Homedics, BMI, and Sota Instruments. Only Sota Instruments has a dynamic magnetic therapy device, the Magnetic Pulser, which functions through induction of a magnetic field through a conducting coil. This device, though, consists of only a single coil and, therefore, will not cover a large region without constant manipulation. Also, this device is significantly weaker than the TheraMag system.

All other products are either static magnets or not similar enough to the TheraMag device to compete directly.

MedNexis, Inc.

Page 16

4.3.2 Distribution Patterns

Distribution patterns in the healthcare industry are such that the large buying groups dictate what products are used for certain conditions throughout their sphere of influence. Thus, our products could be mandated or forced out for thousands of patients due to endorsements by their health plan or hospital group. Others recommend several alternatives which require physician education and intervention, similar to pharmaceuticals.

In the alternative medicine industry, patients frequently choose their own therapy and method of treatment. Due to this fact, this industry will require a much more intensive advertising campaign than would be recommended for the healthcare industry. In addition, the company expects to penetrate this market through direct marketing of our products on our proprietary websites.

4.3.3 Competition and Buying Patterns

In the medical industry, product cost in and of itself is not paramount. However, the effectiveness of the device is a major consideration for medical practitioners. The product must deliver performance as promised in order to effectively treat the patient with the desired results. It will be imperative to have data showing the cost-effectiveness of the MedStim system. More rapid recovery, and thus less missed work, and reduced physical therapy costs are the key economic parameters.

In the alternative medicine arena, more emphasis is placed on anecdotal accounts, and advertising will be crucial for the TheraMag system. Beneficial trial results, though, could also prove highly favorable for TheraMag sales.

MedNexis will succeed based upon the capability of its product in the healthcare industry and the positioning of its product in the alternative medicine industry. After initial market resistance to any new product, MedNexis' product can grow to dominate two market segments: the market for prevention and treatment of muscular atrophy and the market for magnetic therapy in alternative medicine. Both are large and growing markets.

5.0 Strategy and Implementation Summary

General

Our strategy will be to target both the market for prevention/treatment of muscular atrophy and the alternative medicine market for non-stimulating magnetic therapy. The latter use will require no FDA approval while the former use will for widespread market acceptance. The device will be marketed separately and under different names in each market, and will have decreased power in the alternative medicine market ensuring that its magnetic fields will be non-stimulatory.

MedNexis will pursue specific market segments with a multi-tiered, multi-channel approach in each market. We will leverage our technologies with a direct sales and distribution strategy in both the alternative medicine and atrophy treatment/prevention markets. The former market will also be targeted using more consumer-directed advertising while the latter will be targeted using a sales force approach and contract sales. Insurance company reimbursement will provide for more wide-spread acceptance and is expected by Year 3. Currently, competitors in the industry are applying for insurance reimbursement codes and expect that they will be granted within the next year. This will make the process quicker and easier for our devices due

MedNexis, Inc.

Page 17

to similar functionality. Even prior to insurance reimbursement, though, the expected benefits are great enough that out of pocket purchases are expected and accounted for in projected sales.

Manufacture of the devices will be accomplished through external contracting for Years 1 through 5 to minimize risk for potential investors. Upon realization of its projected level of sales, the company will seek to study the feasibility of manufacturing facilities of its own to improve on its cost structure and increase its profitability.

The company will seek to market to all regions in United States through the establishment of our products at key medical institutions throughout the country. A strategic partnership has already been formed with the Physical Therapy department at Duke University. Once 510(k) approval has been obtained and a fully functional prototype is made available, clinical studies will commence with the assistance of Dr. Daniel Dore, Director of Clinical Services in the Physical and Occupational Therapy department at Duke University. Dr. Dore is excited to begin the studies and to be a part of a technology which he feels has the potential to revolutionize the industry.

5.1 Marketing Strategy

Marketing will follow from industry and trade and physician awareness campaigns to specific executions directed at specific customer segments. The top tier of 20 to 30 customers in each segment will be the initial focus. These include the following organizations:

Facility City

Alamance Regional Medical Ctr. Burlington

Cape Fear Valley Medical Ctr. Fayetteville

Carolinas Healthcare System Charlotte

Central Carolina Hospital Sanford

Duke University Medical Ctr. Durham

Durham Regional Medical Ctr. Durham

Frye Regional Medical Ctr. Hickory

Grace Hospital Morgantown

Harris Regional Hospital Sylva

Haywood Regional Medical Ctr. Clyde

Highsmith-Rainley Memorial Hospital Fayetteville

Hilton Head Medical Ctr. Hilton Head

Iredell Memorial Hospital Smithfield

Margaret R. Pardee Memorial Hospital Hendersonville

Memorial Mission Medical Ctr., Inc. Asheville

Morehead Memorial Hospital Eden

Moses Cone Health System Greensboro

Park Ridge Hospital (Adventist) Fletcher

Presbyterian Helthcare System Charlotte

Rex Healthcare Raleigh

Rowan Regional Medical Ctr. Salisbury

University Health System of Eastern Carolina Greensville

University of North Carolina Hospitall Chapel Hill

Wake Forest University Baptist Hospital Winston-Salem

Wake Med Raleigh

Watauga Medical Ctr. Boone

MedNexis, Inc.

Page 18

We intend to market MedStim through direct sales efforts. Direct sales are necessary because our product is so revolutionary. Also, we do not believe that distributors would be efficient to develop, nor would they be effective at promoting our product. We believe that the high-cost nature of our product in the allopathic market is well suited to a direct sales effort, and we intend to pursue this method as our channel of choice for the foreseeable future.

Customers will also be able to view our products online. The online information will allow potential customers to become educated on the applications, benefits, and costs of our products.

MedNexis will achieve its initial sales goals from direct and distributed sales of the MedStim and TheraMag systems. The alternative medicine market is targeted first since it is an existing, well-defined market and will require no FDA approval. The atrophy treatment/prevention market will follow. While sales of MedStim are expected to be less than sales of TheraMag, sales of MedStim are expected to provide significant cash flows and should develop into a "cash cow" as the product's reputation is established. Thus, it will provide quality earnings to the company.

Because the alternative market is highly fragmented, our initial focus will be cities in the following regions: North Carolina, Southern Virginia, and Washington DC, with the possibility of Southern Florida. These are target markets because each has a high concentration of Sports Medicine Clinics, Wellness Centers, and Massage and Physical Therapy Offices. In Phase 1, we plan to send out informational videos with testimonials from physician's involved in the trials. We will follow these mailings with office visits and product demonstrations. This targeted marketing will be accompanied by advertisements in several popular health and fitness magazines such as Prevention, Healthy Living, Golf Digest, Runner's World, and others. We plan to build relationships with alternative medical products distributors such as painfreebody.com and medfaxxinc.com to further penetrate the alternative medicine market. Online marketing will be conducted by placing advertising links to our website on several sites geared towards alternative medicine and chronic pain.

5.1.1 Pricing Strategy

The MedStim and TheraMag systems are priced in two components, both in keeping with industry standards.

MedStim:

• The logic controller is expected to retail at $18,500. • The array of overlapping coils at $1,500.

TheraMag:

• The logic controller at $300 (reflects decreased power requirements and decreased functionality)

• The array of overlapping coils at $80.

All collections in this plan for cash flow purposes are based on an average 45-day collection span.

MedNexis, Inc.

Page 19

5.1.2 Promotion Strategy

Public relations and industry media will help in over-all industry awareness plans. Feature articles and product reviews will help launch awareness. Direct mail to buying groups and ads in trade publications will help with buyer impressions. Finally, all will be integrated with physician materials and training videotapes to increase point-of-therapy usage.

MedNexis has already worked closely with physicians to design its products. The importance of working with physicians is well known. Initiation of clinical studies with the eager assistance of Dr. Daniel Dore, Director of Clinical Services in the Physical and Occupational Therapy department at Duke University will be invaluable in the promotion of MedStim as a viable medical therapy. It is expected that once the device is found to be effective, Duke University will use it as a high-profile example of its technological advancement.

5.2 Competitive Advantage

MedNexis' competitive edge in this field arises due to the fact that it has filed a patent application for the MedStim and TheraMag systems. It is the patent agent's strong opinion that the patents will defensible and enforceable.

Competitive Strengths:

(1) Currently no similar product in the market that is as effective as the MedStim or TheraMag system

There is currently no product which will be able to provide consistent treatment as cost-effectively the MedStim System. The launch of our products is expected to be warmly welcomed by the medical and healthcare industry as a breakthrough.

(2) Magnetism is seen as one of the key energy healing techniques used in alternative medicine

It is documented that there are numerous groups in the world (i.e. ethnic, religious, etc.) that believe that magnetic energy possesses healing properties, though not always proven. There is currently medical research being conducted to examine and evaluate these healing properties.

This presents a potential market for the company to further increase its prospective sales in the alternative medicine industry.

Vulnerabilities:

Alternative technologies

We recognize that potential alternative technologies may arise which may provide similarly cost-effective, user-friendly treatments in the healthcare industry. However, with monitoring of developments within the bio-medical industry and keeping abreast with the latest innovations in the industry, Mednexis will seek to maintain its lead in its field of expertise and compete effectively against potential entrants, thereby maintaining its market position and competitive edge.

MedNexis, Inc.

Page 20

5.3 Sales Strategy

MedNexis' sales strategy is to open U.S. alternative medicine markets on a limited basis at the start of operations with the TheraMag system. Assuming 510(k) approval is obtained, MedStim will be introduced during this period as well. In domestic markets, insurance company reimbursement will provide for more wide-spread acceptance and is expected by Year 3. Even prior to insurance reimbursement, though, the expected benefits are great enough that out-of-pocket purchases are expected and accounted for in projected sales. The strategy will then be to grow the atrophy prevention/treatment and alternative medicine markets through Year 5 up to 10% and 15% penetrations, respectively. International markets will follow.

The sales strategy for the atrophy prevention/treatment market will be to pursue large contracts with HMOs and medical groups and increase its reputation amongst physicians. The strategy in the alternative medicine market, however, will be to target the end-user with intensive advertising campaigns.

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

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

MedStim- Logic Controller

MedStim- Array of Coils

TheraMag- Logic Controller

TheraMag- Array of Coils

Sales Monthly

MedNexis, Inc.

Page 21

Table: Sales Forecast

Sales ForecastUnit Sales 2001 2002 2003 2004 2005MedStim- Logic Controller 1 44 465 1,302 3,416MedStim- Array of Coils 5 221 2,790 9,115 27,346TheraMag- Logic Controller 250 4,200 26,460 83,349 194,481TheraMag- Array of Coils 250 4,200 26,460 83,349 194,481Total Unit Sales 506 8,665 56,175 177,115 419,724

Unit Prices 2001 2002 2003 2004 2005MedStim- Logic Controller $18,500.00 $17,619.05 $16,780.05 $15,981.00 $15,220.00MedStim- Array of Coils $1,500.00 $1,575.00 $1,653.75 $1,736.44 $1,823.26TheraMag- Logic Controller $300.00 $315.00 $330.75 $347.29 $364.65TheraMag- Array of Coils $80.00 $84.00 $88.20 $92.61 $97.24

SalesMedStim- Logic Controller $18,500 $775,238 $7,802,721 $20,807,256 $51,991,506MedStim- Array of Coils $7,500 $348,075 $4,613,963 $15,827,628 $49,858,851TheraMag- Logic Controller $75,000 $1,323,000 $8,751,645 $28,946,066 $70,917,861TheraMag- Array of Coils $20,000 $352,800 $2,333,772 $7,718,951 $18,911,430Total Sales $121,000 $2,799,113 $23,502,101 $73,299,901 $191,679,647

Direct Unit Costs 2001 2002 2003 2004 2005MedStim- Logic Controller $3,000.00 $3,090.00 $2,809.09 $2,553.72 $2,321.56MedStim- Array of Coils $300.00 $309.00 $280.91 $255.37 $232.16TheraMag- Logic Controller $200.00 $190.48 $181.41 $172.77 $164.54TheraMag- Array of Coils $50.00 $47.62 $45.35 $43.19 $41.14

Direct Cost of Sales 2001 2002 2003 2004 2005MedStim- Logic Controller $3,000 $135,960 $1,306,227 $3,324,942 $7,930,458MedStim- Array of Coils $1,500 $68,289 $783,736 $2,327,715 $6,348,545TheraMag- Logic Controller $50,000 $800,000 $4,800,000 $14,400,000 $32,000,000TheraMag- Array of Coils $12,500 $200,000 $1,200,000 $3,600,000 $8,000,000Subtotal Direct Cost of Sales $67,000 $1,204,249 $8,089,964 $23,652,657 $54,279,004

5.3.1 Sales Programs

Sales programs will include direct wholesale sales. Sales materials, video training tapes, and support materials will be produced. Physician materials will be included.

Direct sales will be through personal contact, direct mail, public relations, and media directed at key industry segments. In addition, electronic marketing will be deployed whenever it fits with the buying patterns of a key group. A commerce-enabled website will be utilized to cultivate direct sales to key industry groups.

5.4 Milestones

The following are the key milestones for the first year of operations:

1. All patents will be applied for by January 1, 2001. The total legal fees are expected to

be less than the $50,000. 2. Start-up capital will be raised by October 1, 2001 3. Completion of strategic business plan. 4. All other first year milestones are currently on schedule in accordance to the business

plan.

MedNexis, Inc.

Page 22

2001 2002 2003 2004 2005

Business Plan

Patent Applications Complete

Supplier Selection

Corporate Identity

CEO Hire

510(k) Application Submitted

Set-up Information Systems

Sales Launch / Road Show

Global Marketing Plan

Engineering/Manufacturing Personnel

Investment - Tranche 1

Investment - Tranche 2

Name me

Milestones

Table: Milestones

MilestonesMilestone Start Date End Date Budget Manager DepartmentBusiness Plan 12/5/2000 3/22/2000 $3,200 Burnett FinancePatent Applications Complete 12/1/2000 6/1/2000 $55,000 Callahan LegalSupplier Selection 3/1/2001 5/1/2000 $18,000 Marriott R & DCorporate Identity 5/1/2001 8/1/2001 $2,250 Bell G & ACEO Hire 7/1/2001 10/1/2001 $25,000 Management G & A510(k) Application Submitted 6/1/2001 9/1/2001 $5,000 Callahan LegalSet-up Information Systems 8/1/2001 11/15/2001 $68,000 Marriott G & ASales Launch / Road Show 10/1/2001 12/1/2001 $60,000 Bell MarketingGlobal Marketing Plan 6/1/2002 12/1/2002 $150,000 Bell MarketingEngineering/Manufacturing Personnel

6/1/2003 10/1/2003 $26,000 Marriott Operations

Investment - Tranche 1 8/1/2001 10/1/2001 $0 Chia/Wain FinanceInvestment - Tranche 2 6/1/2002 8/1/2002 $0 Chia/Wain FinanceName me 9/1/2005 9/15/2005 $0 Chia/Wain FinanceTotals $412,450

6.0 Regulatory Issues

While it is expected that FDA approval will be gained quickly based on the approval of similar devices, MedNexis' products will be produced and marketed prior to this approval. By clearly labelling the device "For Investigational Use Only," MedNexis will be able to market and sell the device to interested parties prior to FDA approval. An example of such expedited market entrance can be seen with the laser vision correction procedure LASIK. Prior to its approval by the FDA in Winter of 1999, LASIK had been performed on 900,000 patients through labeling the laser as "For Investigational Use Only." We hope to similarly expedite market entrance.

Once FDA approval is obtained for MedNexis' products, the market is expected to expand dramatically and entrance into foreign markets will be possible. At this stage, as well, it is expected that insurance companies will begin reimbursing for magnetic therapy, greatly increasing demand for MedNexis' products. There is past precedent in 510k approvals (in an average of 3 months) in documented cases.

MedNexis, Inc.

Page 23

7.0 Management Summary

The founders of MedNexis are Daniel Burnett, Loy Hong Chia, Michael Marriott, and Nathan Wain. Daniel will serve the company as Director of Research and Development, Nathan Wain will serve as interim Chief Financial Officer, and Michael Marriott will serve as interim Chief Operations Officer. Loy will serve the company as Director of Finance & Corporate Development. A Chief Executive Officer will be recruited.

Their biographies follow in the Management Team section. Several key people are being sought, and they are summarized in Management Team Gaps.

7.1 Management Team

Principals:

Mr. Loy Hong Chia: Mr. Chia graduated from Griffith University (Brisbane, Australia), with a triple major in Accounting and Finance, Economics, and Management of Information Systems in 1993. He joined PricewaterhouseCoopers (Singapore) in the Audit Division upon graduation. His experience includes industry bases such as information technology, manufacturing, trading, and other key industry sectors. Subsequently, Mr. Chia joined a leading investment bank in Singapore covering the Asian markets. His responsibilities included corporate advisory work and management of teams for Initial Public Offerings and Mergers & Acquisitions. Mr. Chia is a CPA (Australian Society of Certified Public Accountants) and is also currently a director of a start-up company in Singapore involved in the providence of banking intelligence. The company was incorporated in 1996 and its principle activities include a banking journal publication, proprietary research reports, and round-tables for senior bankers in the Asia Pacific region. Mr. Chia is currently enrolled at the Fuqua School of Business, Duke University, Class of 2001.

Mr. Daniel Burnett: Currently an MD/MBA student at Duke University, Mr. Burnett has a long history of biomedical device design and testing. During his undergraduate career at the University of Pennsylvania, Mr. Burnett concentrated in Biomedical Engineering with a cumulative GPA of 4.0 in his major. While pursuing his undergraduate degree, he led a team which designed toys for children with cerebral palsy and was subsequently awarded the Excellence in Senior Design Award by the Department of Bioengineering. To augment his academic experience, Mr. Burnett spent a total of 10 months at the FDA, both testing devices and writing congressional reports on the current state-of-the-art devices. In addition to currently pursuing an MD/MBA, Mr. Burnett also has invented a myringotomy tube insertion device (patent pending) and has worked on the development of the MedStim and TheraMag systems (patent pending).

Mike Marriott : Mr. Marriott graduated from the University of Utah with a degree in History and Economics in 1995. Subsequently, Mr. Marriott has had experience developing businesses in the retail and hospitality industries. He designed and develop the Switchback Grille and Trading Company, the Countryside Grille and Pizza Company, and functioned as a franchisee for Country Kitchen Restaurant. Mr. Marriott handled the business development responsibilities for each organization and served as the general manager of each property. Currently, he is a candidate for an MBA from the Fuqua School of Business in May 2000

Nathan Wain: A candidate for MBA, class of 2001 at Duke University's Fuqua School of Business. Mr. Wain's experience consists of founding and operating United Fitness Centers of America (UFCA) Marketing, Inc. UFCA provides marketing and management consulting

MedNexis, Inc.

Page 24

services to fitness centers. Mr. Wain was president of the company from November 1991 to May 1999.

Mr. Brian Bell: A Georgetown graduate and currently an MBA student at Duke University, Brian spent over seven years flying for the Navy as a Naval Flight Officer and Flight Instructor in P-3's and T-1's. His Navy background also includes scheduling and operations management, as well as material procurement and aircraft maintenance.

Consultants:

Dr. Daniel Dore: Dr. Dore is currently the Director of Clinical Services in the Physical and Occupational Therapy department at Duke University. He has assisted in the launch and management of multiple clinical trials which have set the standard for physical therapy care. Dr. Dore will be assisting MedNexis in the managment of its research.

7.2 Management Team Gaps

An experienced CEO is actively being sought. The founders of the company will conduct the search. The desired profile is for a CEO experienced in the medical device arena, ideally who was part of a previous successful start-up venture.

The CEO will help to identify and bring in a Vice President of Sales and Marketing.

The company will search for design engineers and consultants.

7.3 Personnel Plan

The Personnel Plan chronicles the growth of the organization to approximately 40 - 60 employees in the first five years. The third year could require a few additional people besides those indicated, based on the growth of the company in accordance with the business plan.

MedNexis, Inc.

Page 25

Table: Personnel

Personnel PlanProduction Personnel 2001 2002 2003 2004 2005Production Manager $0 $0 $0 $0 $0Other $0 $0 $0 $0 $0Subtotal $0 $0 $0 $0 $0

Sales and Marketing PersonnelVP Sales/Marketing $36,000 $90,000 $95,000 $180,000 $210,000Sales Manager $0 $65,000 $160,000 $240,000 $420,000Field Sales Manager $0 $55,000 $130,000 $180,000 $280,000Marketing/Product Manager $0 $65,000 $140,000 $156,000 $250,000Sales Reps $0 $280,000 $560,000 $1,120,000 $1,820,000Sales Administrator $0 $60,000 $130,000 $240,000 $560,000Other $0 $20,000 $25,000 $40,000 $70,000Subtotal $36,000 $635,000 $1,240,000 $2,156,000 $3,610,000

General and Administrative PersonnelCEO $72,000 $150,000 $180,000 $230,000 $300,000CFO $48,000 $120,000 $160,000 $210,000 $270,000VP Corp Development $10,000 $85,000 $92,000 $100,000 $120,000Executive Assistant $4,000 $30,000 $70,000 $80,000 $140,000Executive Secretary $0 $24,000 $80,000 $120,000 $130,000Controller $0 $0 $48,000 $56,000 $78,000Adminstrative Staff (4) $0 $0 $88,000 $96,000 $120,000Other $0 $10,000 $13,000 $18,000 $24,000Subtotal $134,000 $419,000 $731,000 $910,000 $1,182,000

Other PersonnelVP Research & Development $48,000 $90,000 $120,000 $130,000 $150,000Quality Contol Engineer $0 $50,000 $60,000 $68,000 $75,000Design Engineer $36,000 $75,000 $80,000 $88,000 $100,000Research Engineers (2) $0 $0 $140,000 $154,000 $170,000Junior Engineer $15,000 $45,000 $52,000 $60,000 $68,000Other $0 $0 $0 $0 $0Subtotal $99,000 $260,000 $452,000 $500,000 $563,000

Total People 7 20 33 45 60Total Payroll $269,000 $1,314,000 $2,423,000 $3,566,000 $5,355,000

MedNexis, Inc.

Page 26

8.0 Financial Plan

CAPITAL RAISING (“THE OFFER”)

The company intends to raise an amount of approximately $750,000 of seed capital. $250,000 has already been committed by management.

Current Capital Structure

Shares Authorized Shares Issued

15,000,000 common 1,500,000 common

1,000,000 preferred 0 preferred

Current Shareholders:

Daniel Burnett

Mike Marriott 300,000 shares

Nathan Wain 300,000 shares

Brian Bell 300,000 shares

For $750,000, the investing party will receive 750,000 preferred shares, or 33.3% of the company. Preferred shares will include senior debt and anti-dilution provisions as negotiated.

Utilization of Proceeds:

Working capital

The proceeds from the offer will be used to fund the working capital requirements of the company (and its subsidiary and associated companies, if any).

Acquisition of assets

Land & building, plant & machinery, and other fixed assets will be purchased as and when deemed necessary to maximize the profits of the company

Cashflows incidental to the normal business operations of the company.

Funds will be used for the purpose of business operations of the company.

Exit Considerations

The most likely exit afforded investors will be through acquisition. If the company's actual operational and financial results are in any reasonable range of the projected results herein, the company will become an attractive asset to an acquisitive competitor or larger medical device company. No particular competitor or medical device company is thought to be more likely than another to be interested in MedNexis' technology.

To the extent that actual operational results materially exceed those projected herein, the probability of an IPO exit increases. Exceptional results would enhance the Mednexis brand name and financial position, making new product development and the likelihood of new product success more plausible. In this scenario, the opportunity to raise capital and provide an investment exit to shareholders becomes more likely.

A third exit possibility for investors may be an acquisition after IPO. This strategy would allow

MedNexis, Inc.

Page 27

an investor to delay exit until after capital from an IPO is invested in successful projects, further raising the value of the firm.

8.1 Important Assumptions

Demand

• Using 1997 data, 10% of all patients with reported fractures (the approximate rate of fractures that result in muscular fibrosis), 50% of all patients with reported long-term immobilization, and 100% of all patients with reported paralysis or coma were considered potential customers for MedStim.

• 20% of consumers who visited an energy healer in 1997 (202 consumers per 1,000 in population) were considered potential customers for TheraMag (magnetism was the most frequently used modality reported among energy healers between 1990 and 1997). Total Energy healing devices used between 1990 and 1997 were 40 million.

Product Mix

• TheraMag will be leased less frequently than MedStim, thus the total potential market

for logic controllers (LC) will be 1 for every potential customer. MedStim will be owned by hospitals and leased to patients more routinely and the total potential market for LCs will be 1 for every 10 potential customers. The potential market for the arrays of overlapping coils (AOC) will be as follows: single AOC per potential customer for the TheraMag system and 5 AOCs per 10 potential customers for the MedStim system.

• In evaluating the breakeven volume, a unit was taken to be 1 LC and the AOCs sold along with the LC in that market, ie for TheraMag, 1 unit was an LC and an AOC. For MedStim, 1 unit was an LC and 5 AOCs. The cost/unit and revenue/unit were then assumed to be the average cost/unit and revenue/unit of the 2 products.

Sales/Revenues

• The maximum penetration of any market segment was conservatively estimated to be

no more than 3% by Year 5. • Assume 5% growth of both costs/unit and price/unit. • Insurance company reimbursement will be approved by year 3.

Table: General Assumptions

General Assumptions2001 2002 2003 2004 2005

Plan Month 1 2 3 4 5Current Interest Rate 13.00% 13.00% 13.00% 13.00% 13.00%Long-term Interest Rate 12.00% 12.00% 12.00% 12.00% 12.00%Tax Rate 30.00% 30.00% 30.00% 30.00% 30.00%Sales on Credit % 75.00% 75.00% 75.00% 75.00% 75.00%Other 0.00% 0.00% 0.00% 0.00% 0.00%Calculated TotalsPayroll Expense $269,000 $1,314,000 $2,423,000 $3,566,000 $5,355,000Sales on Credit $90,750 $2,099,335 $17,626,575 $54,974,926 $143,759,736New Accounts Payable $735,790 $4,323,031 $18,387,075 $47,321,893 $107,011,258Inventory Purchase $116,000 $2,035,968 $13,125,785 $35,034,328 $76,677,377

MedNexis, Inc.

Page 28

8.2 Break-even Analysis

Based on estimates for fixed costs, average revenue per unit and average variable cost per unit for both MedStim and TheraMag systems, the break-even volume was found to be 9 units of each per month.

($60,000)

($40,000)

($20,000)

$0

$20,000

$40,000

$60,000

0 6 12 18 24 30

Monthly break-even point

Break-even point = where line intersects with 0

Break-even Analysis

Table: Break-even Analysis

Break-even Analysis:Monthly Units Break-even 17Monthly Revenue Break-even $71,472

Assumptions:Average Per-Unit Revenue $4,150.00Average Per-Unit Variable Cost $850.00Estimated Monthly Fixed Cost $56,833

MedNexis, Inc.

Page 29

8.3 Projected Profit and Loss

Barring any unforseen circumstances, MedNexis is anticipated to break-even by Year 3 of operations. Profits for the company in subsequent years will accelerate with the increase in anticipated sales volume, yielding approximately $7.4 million in net profit in Year 3 and $30 million in Year 4.

($10,000,000)

$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

$80,000,000

$90,000,000

2001 2002 2003 2004 2005

Profit Yearly

MedNexis, Inc.

Page 30

Table: Profit and Loss

Pro Forma Profit and Loss2001 2002 2003 2004 2005

Sales$121,000 $2,799,113 $23,502,101 $73,299,901

$191,679,647

Direct Costs of Goods $67,000 $1,204,249 $8,089,964 $23,652,657 $54,279,004Production Payroll $0 $0 $0 $0 $0Other $0 $0 $0 $0 $0

------------ ------------ ------------ ------------ ------------Cost of Goods Sold $67,000 $1,204,249 $8,089,964 $23,652,657 $54,279,004Gross Margin

$54,000 $1,594,864 $15,412,137 $49,647,244$137,400,64

4Gross Margin % 44.63% 56.98% 65.58% 67.73% 71.68%Operating Expenses: Sales and Marketing Expenses:Sales and Marketing Payroll $36,000 $635,000 $1,240,000 $2,156,000 $3,610,000Advertising/Promotion $45,000 $50,000 $200,000 $300,000 $500,000Travel $18,000 $40,000 $80,000 $150,000 $200,000Research and Design Expenses $240,000 $1,000,000 $1,500,000 $2,250,000 $2,500,000Miscellaneous $3,000 $10,000 $15,000 $22,000 $30,000

------------ ------------ ------------ ------------ ------------Total Sales and Marketing Expenses $342,000 $1,735,000 $3,035,000 $4,878,000 $6,840,000Sales and Marketing % 282.64% 61.98% 12.91% 6.65% 3.57%General and Administrative Expenses:General and Administrative Payroll $134,000 $419,000 $731,000 $910,000 $1,182,000Sales and Marketing and Other Expenses $0 $0 $0 $0 $0Depreciation $0 $0 $0 $0 $0Leased Equipment $0 $0 $20,000 $20,000 $20,000Utilities $12,000 $12,360 $12,731 $13,113 $13,506Insurance $30,000 $40,000 $40,000 $40,000 $40,000Rent $24,000 $24,720 $25,462 $26,225 $27,012Payroll Taxes $56,490 $275,940 $508,830 $748,860 $1,124,550Other General and Administrative Expenses $0 $0 $0 $0 $0

------------ ------------ ------------ ------------ ------------Total General and Administrative Expenses $256,490 $772,020 $1,338,022 $1,758,198 $2,407,068General and Administrative % 211.98% 27.58% 5.69% 2.40% 1.26%Other Expenses:Other Payroll $99,000 $260,000 $452,000 $500,000 $563,000Contract/Consultants $0 $20,000 $20,000 $20,000 $20,000

------------ ------------ ------------ ------------ ------------Total Other Expenses $99,000 $280,000 $472,000 $520,000 $583,000Other % 81.82% 10.00% 2.01% 0.71% 0.30%

------------ ------------ ------------ ------------ ------------Total Operating Expenses $697,490 $2,787,020 $4,845,022 $7,156,198 $9,830,068Profit Before Interest and Taxes

($643,490) ($1,192,156) $10,567,115 $42,491,046$127,570,57

5Interest Expense $0 $0 $0 $0 $0Taxes Incurred $0 $0 $3,170,134 $12,747,314 $38,271,173Net Profit ($643,490) ($1,192,156) $7,396,980 $29,743,732 $89,299,403Net Profit/Sales -531.81% -42.59% 31.47% 40.58% 46.59%Include Negative Taxes FALSE FALSE TRUE TRUE TRUE

MedNexis, Inc.

Page 31

8.4 Projected Balance Sheet

The table below presents the Balance Sheet for MedNexis.

Table: Balance Sheet

Pro Forma Balance Sheet

AssetsCurrent Assets 2001 2002 2003 2004 2005Cash $161,893 $3,639,883 $1,560,459 $8,780,738 $42,713,291Accounts Receivable $40,890 $945,915 $7,942,156 $24,770,520 $64,775,048Inventory $49,000 $880,719 $5,916,541 $17,298,212 $39,696,585Other Current Assets $0 $0 $0 $0 $0Total Current Assets $251,783 $5,466,517 $15,419,156 $50,849,470 $147,184,923Long-term AssetsLong-term Assets $30,000 $130,000 $280,000 $430,000 $580,000Accumulated Depreciation $0 $0 $0 $0 $0Total Long-term Assets $30,000 $130,000 $280,000 $430,000 $580,000Total Assets $281,783 $5,596,517 $15,699,156 $51,279,470 $147,764,923

Liabilities and Capital2001 2002 2003 2004 2005

Accounts Payable $93,273 $600,163 $3,305,821 $9,142,404 $21,328,454Current Borrowing $0 $0 $0 $0 $0Other Current Liabilities $0 $0 $0 $0 $0Subtotal Current Liabilities $93,273 $600,163 $3,305,821 $9,142,404 $21,328,454

Long-term Liabilities $0 $0 $0 $0 $0Total Liabilities $93,273 $600,163 $3,305,821 $9,142,404 $21,328,454

Paid-in Capital $1,000,000 $7,000,000 $7,000,000 $7,000,000 $7,000,000Retained Earnings ($168,000) ($811,490) ($2,003,646) $5,393,334 $30,137,066Earnings ($643,490) ($1,192,156) $7,396,980 $29,743,732 $89,299,403Total Capital $188,510 $4,996,354 $12,393,334 $42,137,066 $126,436,469Total Liabilities and Capital $281,783 $5,596,517 $15,699,156 $51,279,470 $147,764,923Net Worth $188,510 $4,996,354 $12,393,334 $42,137,066 $126,436,469

MedNexis, Inc.

Page 32

8.5 Projected Cash Flow

It will be noted that the company's cash flow will be steadily declining for the first year of operations. This is expected due to large capital investments and initial slow sales. the company has calculated its financial plan so that it will have enough cash from investors and debt to survive until profitability reaches acceptable levels.

($100,000)

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

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

Net Cash Flow

Cash Balance

Cash

MedNexis, Inc.

Page 33

Table: Cash Flow

Pro Forma Cash Flow 2001 2002 2003 2004 2005

Cash ReceivedCash from Operations: Cash Sales $30,250 $699,778 $5,875,525 $18,324,975 $47,919,912Cash from Receivables

$49,860 $1,194,310 $10,630,334 $38,146,562$103,755,20

8 Subtotal Cash from Operations

$80,110 $1,894,088 $16,505,860 $56,471,537$151,675,12

0

Additional Cash ReceivedNon Operating (Other) Income $0 $0 $0 $0 $0Sales Tax, VAT, HST/GST Received $0 $0 $0 $0 $0New Current Borrowing $0 $0 $0 $0 $0New Other Liabilities (interest-free) $0 $0 $0 $0 $0New Long-term Liabilities $0 $0 $0 $0 $0Sales of Other Current Assets $0 $0 $0 $0 $0Sales of Long-term Assets $0 $0 $0 $0 $0New Investment Received $750,000 $6,000,000 $0 $0 $0 Subtotal Cash Received

$830,110 $7,894,088 $16,505,860 $56,471,537$151,675,12

0

Expenditures 2001 2002 2003 2004 2005Expenditures from Operations:Cash Spending $77,700 $499,957 $2,753,867 $7,615,947 $17,767,360Payment of Accounts Payable $642,517 $3,816,141 $15,681,417 $41,485,311 $94,825,207 Subtotal Spent on Operations

$720,217 $4,316,099 $18,435,283 $49,101,258$112,592,56

7

Additional Cash SpentNon Operating (Other) Expense $0 $0 $0 $0 $0Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0Principal Repayment of Current Borrowing $0 $0 $0 $0 $0Other Liabilities Principal Repayment $0 $0 $0 $0 $0Long-term Liabilities Principal Repayment $0 $0 $0 $0 $0Purchase Other Current Assets $0 $0 $0 $0 $0Purchase Long-term Assets $30,000 $100,000 $150,000 $150,000 $150,000Dividends $0 $0 $0 $0 $5,000,000 Subtotal Cash Spent

$750,217 $4,416,099 $18,585,283 $49,251,258$117,742,56

7

Net Cash Flow $79,893 $3,477,989 ($2,079,424) $7,220,279 $33,932,553Cash Balance $161,893 $3,639,883 $1,560,459 $8,780,738 $42,713,291

8.6 Business Ratios

The ratios contained herewith are not based on a post-diluted enlarged capital base. The figures come from the Standard Industry Classification (SIC) Index code 3845, Electromedical Equipment.

MedNexis, Inc.

Page 34

Table: Ratios

Ratio Analysis2001 2002 2003 2004 2005 Industry Profile

Sales Growth 0.00% 2213.32% 739.63% 211.89% 161.50% 0.00%

Percent of Total AssetsAccounts Receivable 14.51% 16.90% 50.59% 48.30% 43.84% 0.00%Inventory 17.39% 15.74% 37.69% 33.73% 26.86% 0.00%Other Current Assets 0.00% 0.00% 0.00% 0.00% 0.00% 100.00%Total Current Assets 89.35% 97.68% 98.22% 99.16% 99.61% 100.00%Long-term Assets 10.65% 2.32% 1.78% 0.84% 0.39% 0.00%Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Current Liabilities 33.10% 10.72% 21.06% 17.83% 14.43% 0.00%Long-term Liabilities 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Total Liabilities 33.10% 10.72% 21.06% 17.83% 14.43% 0.00%Net Worth 66.90% 89.28% 78.94% 82.17% 85.57% 100.00%

Percent of SalesSales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%Gross Margin 44.63% 56.98% 65.58% 67.73% 71.68% 0.00%Selling, General & Administrative Expenses

576.44% 99.57% 34.10% 27.15% 25.09% 0.00%

Advertising Expenses 37.19% 1.79% 0.85% 0.41% 0.26% 0.00%Profit Before Interest and Taxes -531.81% -42.59% 44.96% 57.97% 66.55% 0.00%

Main RatiosCurrent 2.70 9.11 4.66 5.56 6.90 0.00Quick 2.17 7.64 2.87 3.67 5.04 0.00Total Debt to Total Assets 33.10% 10.72% 21.06% 17.83% 14.43% 0.00%Pre-tax Return on Net Worth -341.36% -23.86% 85.26% 100.84% 100.90% 0.00%Pre-tax Return on Assets -228.36% -21.30% 67.31% 82.86% 86.33% 0.00%

Business Vitality Profile 2001 2002 2003 2004 2005 IndustrySales per Employee $17,286 $139,956 $712,185 $1,628,887 $3,194,661 $0Survival Rate 0.00%

Additional Ratios 2001 2002 2003 2004 2005Net Profit Margin -531.81% -42.59% 31.47% 40.58% 46.59% n.aReturn on Equity -341.36% -23.86% 59.69% 70.59% 70.63% n.a

Activity RatiosAccounts Receivable Turnover 2.22 2.22 2.22 2.22 2.22 n.aCollection Days 29 86 92 109 114 n.aInventory Turnover 6.00 2.59 2.38 2.04 1.90 n.aAccounts Payable Turnover 7.89 7.20 5.56 5.18 5.02 n.aPayment Days 23 29 39 48 52 n.aTotal Asset Turnover 0.43 0.50 1.50 1.43 1.30 n.a

Debt RatiosDebt to Net Worth 0.49 0.12 0.27 0.22 0.17 n.aCurrent Liab. to Liab. 1.00 1.00 1.00 1.00 1.00 n.a

Liquidity RatiosNet Working Capital

$158,510 $4,866,354$12,113,33

4$41,707,06

6$125,856,4

69n.a

Interest Coverage 0.00 0.00 0.00 0.00 0.00 n.a

Additional RatiosAssets to Sales 2.33 2.00 0.67 0.70 0.77 n.aCurrent Debt/Total Assets 33% 11% 21% 18% 14% n.aAcid Test 1.74 6.06 0.47 0.96 2.00 n.aSales/Net Worth 0.64 0.56 1.90 1.74 1.52 n.aDividend Payout 0.00 0.00 0.00 0.00 0.06 n.a

MedNexis, Inc.

Page 35

Appendix Table: Sales Forecast

Sales ForecastUnit Sales Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecMedStim- Logic Controller 0 0 0 0 0 0 0 0 0 0 0 1MedStim- Array of Coils 0 0 0 0 0 0 0 0 0 0 0 5TheraMag- Logic Controller 0 0 0 0 4 6 10 15 30 45 60 80TheraMag- Array of Coils 0 0 0 0 4 6 10 15 30 45 60 80Total Unit Sales 0 0 0 0 8 12 20 30 60 90 120 166

Unit Prices Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecMedStim- Logic Controller $18,500.00 $18,500.00 $18,500.00 $18,500.00 $18,500.00 $18,500.00 $18,500.00 $18,500.00 $18,500.00 $18,500.00 $18,500.00 $18,500.00MedStim- Array of Coils $1,500.00 $1,500.00 $1,500.00 $1,500.00 $1,500.00 $1,500.00 $1,500.00 $1,500.00 $1,500.00 $1,500.00 $1,500.00 $1,500.00TheraMag- Logic Controller $300.00 $300.00 $300.00 $300.00 $300.00 $300.00 $300.00 $300.00 $300.00 $300.00 $300.00 $300.00TheraMag- Array of Coils $80.00 $80.00 $80.00 $80.00 $80.00 $80.00 $80.00 $80.00 $80.00 $80.00 $80.00 $80.00

SalesMedStim- Logic Controller $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $18,500MedStim- Array of Coils $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $7,500TheraMag- Logic Controller $0 $0 $0 $0 $1,200 $1,800 $3,000 $4,500 $9,000 $13,500 $18,000 $24,000TheraMag- Array of Coils $0 $0 $0 $0 $320 $480 $800 $1,200 $2,400 $3,600 $4,800 $6,400Total Sales $0 $0 $0 $0 $1,520 $2,280 $3,800 $5,700 $11,400 $17,100 $22,800 $56,400

Direct Unit Costs Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecMedStim- Logic Controller $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00MedStim- Array of Coils $300.00 $300.00 $300.00 $300.00 $300.00 $300.00 $300.00 $300.00 $300.00 $300.00 $300.00 $300.00TheraMag- Logic Controller $200.00 $200.00 $200.00 $200.00 $200.00 $200.00 $200.00 $200.00 $200.00 $200.00 $200.00 $200.00TheraMag- Array of Coils $50.00 $50.00 $50.00 $50.00 $50.00 $50.00 $50.00 $50.00 $50.00 $50.00 $50.00 $50.00

Direct Cost of Sales Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecMedStim- Logic Controller $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $3,000MedStim- Array of Coils $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $1,500TheraMag- Logic Controller $0 $0 $0 $0 $800 $1,200 $2,000 $3,000 $6,000 $9,000 $12,000 $16,000TheraMag- Array of Coils $0 $0 $0 $0 $200 $300 $500 $750 $1,500 $2,250 $3,000 $4,000Subtotal Direct Cost of Sales $0 $0 $0 $0 $1,000 $1,500 $2,500 $3,750 $7,500 $11,250 $15,000 $24,500

Appendix

Page 1

Appendix Table: Personnel

Personnel PlanProduction Personnel Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecProduction Manager $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Subtotal $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Sales and Marketing PersonnelVP Sales/Marketing $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000Sales Manager $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Field Sales Manager $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Marketing/Product Manager $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Sales Reps $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Sales Administrator $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Subtotal $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000

General and Administrative PersonnelCEO $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000CFO $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000VP Corp Development $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $5,000 $5,000Executive Assistant $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $2,000 $2,000Executive Secretary $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Controller $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Adminstrative Staff (4) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Subtotal $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $17,000 $17,000

Other PersonnelVP Research & Development $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000Quality Contol Engineer $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Design Engineer $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000Research Engineers (2) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Junior Engineer $0 $0 $0 $0 $0 $0 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Subtotal $7,000 $7,000 $7,000 $7,000 $7,000 $7,000 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500

Total People 5 5 5 5 5 5 5 5 5 5 7 7Total Payroll $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $22,500 $22,500 $22,500 $22,500 $29,500 $29,500

Appendix

Page 2

Appendix Table: General Assumptions

General AssumptionsJan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Plan Month 1 2 3 4 5 6 7 8 9 10 11 12Current Interest Rate 13.00% 13.00% 13.00% 13.00% 13.00% 13.00% 13.00% 13.00% 13.00% 13.00% 13.00% 13.00%Long-term Interest Rate 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00%Tax Rate 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00%Sales on Credit % 75.00% 75.00% 75.00% 75.00% 75.00% 75.00% 75.00% 75.00% 75.00% 75.00% 75.00% 75.00%Other 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Calculated TotalsPayroll Expense $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $22,500 $22,500 $22,500 $22,500 $29,500 $29,500Sales on Credit $0 $0 $0 $0 $1,140 $1,710 $2,850 $4,275 $8,550 $12,825 $17,100 $42,300New Accounts Payable $45,575 $45,575 $45,575 $51,525 $54,075 $53,650 $58,800 $60,288 $67,725 $70,913 $82,120 $99,970Inventory Purchase $0 $0 $0 $0 $3,000 $2,500 $4,500 $6,250 $15,000 $18,750 $22,500 $43,500

Appendix

Page 3

Appendix Table: Profit and Loss

Pro Forma Profit and LossJan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Sales $0 $0 $0 $0 $1,520 $2,280 $3,800 $5,700 $11,400 $17,100 $22,800 $56,400Direct Costs of Goods $0 $0 $0 $0 $1,000 $1,500 $2,500 $3,750 $7,500 $11,250 $15,000 $24,500Production Payroll $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------Cost of Goods Sold $0 $0 $0 $0 $1,000 $1,500 $2,500 $3,750 $7,500 $11,250 $15,000 $24,500Gross Margin $0 $0 $0 $0 $520 $780 $1,300 $1,950 $3,900 $5,850 $7,800 $31,900Gross Margin % 0.00% 0.00% 0.00% 0.00% 34.21% 34.21% 34.21% 34.21% 34.21% 34.21% 34.21% 56.56%Operating Expenses: Sales and Marketing Expenses:Sales and Marketing Payroll $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000Advertising/Promotion $0 $0 $0 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000Travel $0 $0 $0 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000Research and Design Expenses $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000Miscellaneous $0 $0 $0 $0 $0 $0 $500 $500 $500 $500 $500 $500

------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------Total Sales and Marketing Expenses $23,000 $23,000 $23,000 $30,000 $30,000 $30,000 $30,500 $30,500 $30,500 $30,500 $30,500 $30,500Sales and Marketing % 0.00% 0.00% 0.00% 0.00% 1973.68% 1315.79% 802.63% 535.09% 267.54% 178.36% 133.77% 54.08%General and Administrative Expenses:General and Administrative Payroll $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $17,000 $17,000Sales and Marketing and Other Expenses $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Depreciation $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Leased Equipment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Utilities $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000Insurance $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500Rent $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000Payroll Taxes 21% $4,200 $4,200 $4,200 $4,200 $4,200 $4,200 $4,725 $4,725 $4,725 $4,725 $6,195 $6,195Other General and Administrative Expenses $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------Total General and Administrative Expenses $19,700 $19,700 $19,700 $19,700 $19,700 $19,700 $20,225 $20,225 $20,225 $20,225 $28,695 $28,695General and Administrative % 0.00% 0.00% 0.00% 0.00% 1296.05% 864.04% 532.24% 354.82% 177.41% 118.27% 125.86% 50.88%Other Expenses:Other Payroll $7,000 $7,000 $7,000 $7,000 $7,000 $7,000 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500Contract/Consultants $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------Total Other Expenses $7,000 $7,000 $7,000 $7,000 $7,000 $7,000 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500Other % 0.00% 0.00% 0.00% 0.00% 460.53% 307.02% 250.00% 166.67% 83.33% 55.56% 41.67% 16.84%

------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------Total Operating Expenses $49,700 $49,700 $49,700 $56,700 $56,700 $56,700 $60,225 $60,225 $60,225 $60,225 $68,695 $68,695Profit Before Interest and Taxes ($49,700) ($49,700) ($49,700) ($56,700) ($56,180) ($55,920) ($58,925) ($58,275) ($56,325) ($54,375) ($60,895) ($36,795)Interest Expense $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Taxes Incurred $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Net Profit ($49,700) ($49,700) ($49,700) ($56,700) ($56,180) ($55,920) ($58,925) ($58,275) ($56,325) ($54,375) ($60,895) ($36,795)Net Profit/Sales 0.00% 0.00% 0.00% 0.00% -3696.05% -2452.63% -1550.66% -1022.37% -494.08% -317.98% -267.08% -65.24%Include Negative Taxes

Appendix

Page 4

Appendix Table: Balance Sheet

Pro Forma Balance Sheet

AssetsCurrent Assets Starting Balances Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecCash $82,000 $53,675 $762,883 $711,183 $658,433 $602,478 $543,772 $481,672 $419,998 $358,173 $296,823 $226,521 $161,893Accounts Receivable $0 $0 $0 $0 $0 $1,102 $1,653 $2,755 $4,133 $8,265 $12,398 $16,530 $40,890Inventory $0 $0 $0 $0 $0 $2,000 $3,000 $5,000 $7,500 $15,000 $22,500 $30,000 $49,000Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Total Current Assets $82,000 $53,675 $762,883 $711,183 $658,433 $605,580 $548,425 $489,427 $431,631 $381,438 $331,721 $273,051 $251,783Long-term AssetsLong-term Assets $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 $20,000 $25,000 $30,000Accumulated Depreciation $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Total Long-term Assets $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 $20,000 $25,000 $30,000Total Assets $82,000 $55,675 $766,883 $717,183 $666,433 $615,580 $560,425 $503,427 $447,631 $399,438 $351,721 $298,051 $281,783

Liabilities and CapitalJan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Accounts Payable $0 $23,375 $34,283 $34,283 $40,233 $45,560 $46,325 $48,252 $50,731 $58,863 $65,521 $72,746 $93,273Current Borrowing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Other Current Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Subtotal Current Liabilities $0 $23,375 $34,283 $34,283 $40,233 $45,560 $46,325 $48,252 $50,731 $58,863 $65,521 $72,746 $93,273

Long-term Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Total Liabilities $0 $23,375 $34,283 $34,283 $40,233 $45,560 $46,325 $48,252 $50,731 $58,863 $65,521 $72,746 $93,273

Paid-in Capital $250,000 $250,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000Retained Earnings ($168,000) ($168,000) ($168,000) ($168,000) ($168,000) ($168,000) ($168,000) ($168,000) ($168,000) ($168,000) ($168,000) ($168,000) ($168,000)Earnings $0 ($49,700) ($99,400) ($149,100) ($205,800) ($261,980) ($317,900) ($376,825) ($435,100) ($491,425) ($545,800) ($606,695) ($643,490)Total Capital $82,000 $32,300 $732,600 $682,900 $626,200 $570,020 $514,100 $455,175 $396,900 $340,575 $286,200 $225,305 $188,510Total Liabilities and Capital $82,000 $55,675 $766,883 $717,183 $666,433 $615,580 $560,425 $503,427 $447,631 $399,438 $351,721 $298,051 $281,783Net Worth $82,000 $32,300 $732,600 $682,900 $626,200 $570,020 $514,100 $455,175 $396,900 $340,575 $286,200 $225,305 $188,510

Appendix

Page 5

Appendix Table: Cash Flow

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

Cash ReceivedCash from Operations: Cash Sales $0 $0 $0 $0 $380 $570 $950 $1,425 $2,850 $4,275 $5,700 $14,100Cash from Receivables $0 $0 $0 $0 $38 $1,159 $1,748 $2,898 $4,418 $8,693 $12,968 $17,940 Subtotal Cash from Operations $0 $0 $0 $0 $418 $1,729 $2,698 $4,323 $7,268 $12,968 $18,668 $32,040

Additional Cash ReceivedNon Operating (Other) Income $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Sales Tax, VAT, HST/GST Received 0.00% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0New Current Borrowing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0New Other Liabilities (interest-free) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0New Long-term Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Sales of Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Sales of Long-term Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0New Investment Received $0 $750,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Subtotal Cash Received $0 $750,000 $0 $0 $418 $1,729 $2,698 $4,323 $7,268 $12,968 $18,668 $32,040

Expenditures Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecExpenditures from Operations:Cash Spending $4,125 $4,125 $4,125 $5,175 $5,625 $5,550 $5,925 $6,188 $7,500 $8,063 $9,075 $12,225Payment of Accounts Payable $22,200 $34,667 $45,575 $45,575 $48,748 $52,885 $56,873 $57,808 $59,593 $64,254 $74,895 $79,443 Subtotal Spent on Operations $26,325 $38,792 $49,700 $50,750 $54,373 $58,435 $62,798 $63,996 $67,093 $72,317 $83,970 $91,668

Additional Cash SpentNon Operating (Other) Expense $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Principal Repayment of Current Borrowing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Other Liabilities Principal Repayment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Long-term Liabilities Principal Repayment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Purchase Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Purchase Long-term Assets $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $5,000 $5,000Dividends $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Subtotal Cash Spent $28,325 $40,792 $51,700 $52,750 $56,373 $60,435 $64,798 $65,996 $69,093 $74,317 $88,970 $96,668

Net Cash Flow ($28,325) $709,208 ($51,700) ($52,750) ($55,955) ($58,706) ($62,100) ($61,673) ($61,826) ($61,349) ($70,303) ($64,628)Cash Balance $53,675 $762,883 $711,183 $658,433 $602,478 $543,772 $481,672 $419,998 $358,173 $296,823 $226,521 $161,893

Appendix

Page 6