Notes and explanations for income statement (projection)

An income statement for Pizzeria Fresco is presented in Table 2. The first year is detailed by month while the following two years are presented by quarter.

1. Sales revenue

Net Revenue will be derived from In-Store Sales and Delivery Sales. Pizzeria Fresco’s sales are expected to average:

• 90% from In-Store sales

• 10% from Delivery sales

(Note: The New York City sales tax rates (8.25%) are not reflected in the Net Revenue figures on the attached financial statements.)

Sales volume of both In-Store Sales and Delivery Sales are expected to fluctuate per month as follows:

June and July 2004, are the start-up months, with this time period devoted to installing fixtures and conforming the property to food business regulations. These two months will not be operating months; therefore, there is no expected revenue as well as no salary/wage expenses. In addition, rent is expected to be deferred, as per agreement with the landlord for a two-month build-out period.

August is expected to be a lower-yielding month due to the higher rate of vacationers going out of town. In addition, this is the period between semesters at the local schools and universities.

September and October – are expected to pick up from the return of the school semester. In addition, continuing warmth in September and with Halloween in October (particularly being located in the Greenwich Village area where the Halloween Parade is located), sales levels are expected to be higher than the previous months.

November – Sales are expected increase due to more people seeking warm food with the colder weather. In addition, the Union Square Holiday Market brings many tourists and shoppers to the area.

December–is expected to draw higher sales due to the holiday and shopping season, which brings additional foot traffic. In addition, continuing cold weather plus holiday entertainment and parties may general elevated Delivery sales.

January and February – are expected to generate moderate sales levels both for In-Store and Delivery. Advertising and promotions planned for this period is expected to maintain moderate sales levels, particularly in Delivery.

March–is expected to have slower In-Store sales due to the Not-yet-spring weather, plus Spring break for local students. Special promotions aimed at local residents and businesses will attempt to raise Delivery sales for this period.

April, May, June and July– are considered the high period for Pizzeria Fresco. With business largely dependent on foot traffic, these are the months with the highest tourists visiting the area. Delivery sales is also expected to be high, due to summer school sessions, combined with Pizzeria Fresco’s name becoming more recognizable to local residents, as a gourmet pizzeria that also offers a selection of cold pizzas.

2. COST OF SALES / DIRECT MATERIALS

The total cost of sales is expected to be 20% of Total Sales, which is the form of raw food ingredients. (See Ingredients Listing on Pages X and X). This is reflective of the industry average of 30%; with the consideration that Pizzeria Fresco differs from most retail fast food businesses in that it does not use any meat products (which tends to increase cost of sales).

3. GROSS MARGIN

Net Revenue from Sales minus Total Cost of Sales

4. OPERATING EXPENSES

1. Salaries and wages

Job descriptions are detailed on page X, which also includes salaries and wages.

2. Payroll taxes

This number is directly reflective of the stated salary expenses per month. We estimate tax withholding as 13% per month.

3. Rent

Based on an average asking price of $8/square foot; with the requirement of 650 square feet to operate Pizzeria Fresco. The monthly rent is $5,200.

4. Telephone and utilities

Includes telephone, electricity and gas; with gas being the primary expense due to the operation of a dual capacity pizza oven for a period of 14 hours daily.

5. Depreciation

Depreciation is estimated in accordance with IRS Publication 543. Pizzeria Fresco’s accountant will verify these numbers. For the purposes of these calculations, the business uses straight-line depreciation method.

Zero salvage value is assumed for the equipment at the end of the estimated useful life. Useful lives are estimated as follows:

• Industrial pizza oven – 12 years

• Refrigerators, pasta-maker, cheese grinder, food scale, stove, sink, cash register, fountain soda machine– 7 years

• Remodeling and installation expenses are considered leasehold improvements and are depreciated over a 39-year period.

6. Insurance

Based on full coverage for a New York City retail food establishment – at $4,000 annually.

7. Supplies

Includes all non-food replenishable items such as napkins, delivery boxes, straws, containers, condiments, etc.

8. Maintenance

Includes the general up-keep of the store – from interior cleaning, extermination to garbage pick-up and removal – meeting all health codes.

9. Advertising and promotion

Based on extensive, yet modest campaigns such as local ads and other innovative public relations approaches.

10. Professional fees and licenses

Retainers to Pizzeria Fresco, CPA for accounting purposes. In addition, the proper health and food certificates and licenses required by New York City and New York State.

11. Miscellaneous

Operating expenses yet undetermined or too small to be itemized (i.e. purchase or repair of cooking appliances.)