1 Export Electronic Cigarettes from US to Vietnam

1 Export Electronic Cigarettes from US to Vietnam Group 12: Ale Fierro, Cory Yates, Dan Barwari, Jeffery Choi, Nicky Nguyen

2 Nguyen Minh Khang • 43, smoked for 26 years • His 3 year old daughter developed a cough, diagnosed with asthma • Nguyen began to have stomach problems and heart problems

3 Smoking a growing problem for Vietnam % of Male Smokers • 50% of men smoke, 65% of young men (25 -45) • Health Problems • Has cost 1. 5 million years of healthy living in Vietnam • Annual treatment costs of $96, 000 • Smoking kills 40, 000 a year, will be 70, 000 by 2030 if changes aren’t made 50 45 40 35 30 25 % of Male Smokers 20 15 10 5 0 Vietnam India World

4 Push to stop smoking • Government efforts to reduce smoking rates • Higher taxes • Banning smoking in public places • Ad campaign showing negative health effects • Age restrictions on purchasing • Bans on advertising • Restrictions on tobacco suppliers Electronic Cigarettes • Can assist with quitting smoking • Replaces harmful cigarettes • $3 billion market by 2015

5 What E-Cigarettes Are and How They Work • Nicotine Cartridge • Contains solution with variable amounts of nicotine • Various flavors • Atomizer • Heats up turning the liquid into a vapor that is inhaled • Rechargeable Battery • Provides power, may be activated by airflow or the push of a button

6 Cage Analysis Cultural Geographic Economic Long Distance to Vietnam Lower income level Vietnam is a collectivistic E-Cigarettes duty free to society, US Vietnam individualistic Product is lightweight, low shipping costs Cigarettes are inexpensive Desire for US made products Non perishable item, no spoilage Can we make an electronic cigarette cheap enough for Vietnamese customers? Different language Administrative 14 days to start a business 10% Value added tax 0% Special Sales Tax Labeling requirements (Vietnamese)

7 PESTEL Analysis Political Economic Social Technological Environmental Legal Restrictions on advertising of tobacco related products Little competition from China Increased efforts to reduce smoking Efforts to develop No significant infrastructure impact Restrictions on tobacco suppliers Higher taxes Chinese ecigarettes are low quality and not tested well Ad campaigns illustrating negative health effects Adding expressways Age restrictions on purchasing 3 billion dollar market by 2015

8 E-Cigs Designed in US Manufactured in China • American designs and technology • Third party factory in China fabricates • American quality standards components • Component parts assembled into finished product • Inspection and Function Testing • Packaging

9 Distribution and Sales in Vietnam • Sales in our own stores • Repairs • Replacements • Warranty • Demonstrations • Special Events • Sales in Other Independent Retail Stores • Convenience Stores • Tobacco Stores

10 Marketing to be centrally focused on high income smokers Product: American Quality Electronic Cigarettes Price: Average selling price: $80. 00 Promotion: Main vehicle of promotion is print advertising Place: Local convenience stores in the 10 wealthiest cities: Ho Chi Minh City, Binh Duong, Hanoi, Danang, Quang Ninh, Dong Nai, Ba Ria, Can Tho, Tay Ninh

11 Expand Sales Into Multiple Countries – Profit Potential • E-Cigarettes listed as a top 8 disruptive innovation by Goldman Sachs • E-Cigarette sales have doubled in the last 2 years; just passed $1 b in sales – an increase of 240% in the last year • Will comprise an estimated 10% of the total tobacco industry volume by 2020 • 74% of smokers want to quit* • Few legal restrictions *Gallup poll

12 Revenue Forecast Breakdown Item 2014 2015 2016 2017 2018 Direct Sales $ 2, 000. 00 $ 2, 100, 000. 00 $ 2, 205, 000. 00 $ 2, 315, 250. 00 $ 2, 431, 012. 50 Distributor Sales $ 6, 000. 00 $ 6, 300, 000. 00 $ 6, 615, 000. 00 $ 6, 945, 750. 00 $ 7, 293, 037. 50 Services/Maintenance $ 800, 000. 00 $ 840, 000. 00 $ 882, 000. 00 $ 926, 100. 00 $ 972, 405. 00 $ 9, 240, 000. 00 $ 9, 702, 000. 00 $ 10, 187, 100. 00 $ 10, 696, 455. 00 Total Revenue $ 8, 800, 000. 00 Units/Users 100000 105000 110250 115762. 5 121551 ASP (Average Selling Price) $ 80. 00 $ 80. 00

13 Profit and Loss from Operations Forecast Item 2014 2015 2016 2017 2018 Total Revenue $ 8, 800, 000. 00 $ 9, 240, 000. 00 $ 9, 702, 000. 00 $ 10, 187, 100. 00 $ 10, 696, 455. 00 COGS $ 5, 280, 000. 00 $ 5, 544, 000. 00 $ 5, 821, 200. 00 $ 6, 112, 260. 00 $ 6, 417, 873. 00 Gross Profit ($) $ 3, 520, 000. 00 $ 3, 696, 000. 00 $ $ $ 4, 278, 582. 00 Gross Profit (%) 40. 00% 3, 880, 800. 00 40. 00% 4, 074, 840. 00% Operating Costs 40. 00% Sales & Marketing $ 1, 584, 000. 00 $ 1, 663, 200. 00 $ 1, 746, 360. 00 $ 1, 833, 678. 00 $ 1, 925, 361. 90 R&D $ 396, 000. 00 $ 415, 800. 00 $ 436, 590. 00 $ 458, 419. 50 $ 481, 340. 48 G&A $ 880, 000. 00 $ 924, 000. 00 $ 970, 200. 00 $ 1, 018, 710. 00 $ 1, 069, 645. 50 Total Operating Costs $ 2, 860, 000. 00 $ 3, 150. 00 $ 3, 310, 807. 50 $ 3, 476, 347. 88 Total Costs $ 8, 140, 000. 00 Other Income and Expenses $ - $ 8, 547, 000. 00 $ 8, 974, 350. 00 $ 9, 423, 067. 50 $ 9, 894, 220. 88 $ - $ - $ 693, 000. 00 $ $ 764, 032. 50 $ 802, 234. 13 Pretax Profit ($) $ 660, 000. 00 Pretax Profit (%) Taxes (35%) $ 7. 50% 231, 000. 00 $ 7. 50% 242, 550. 00 $ 7. 50% 254, 677. 50 $ 7. 50% 267, 411. 38 $ 280, 781. 94 429, 000. 00 450, 450. 00 472, 972. 50 496, 621. 13 521, 452. 18 Net Income $ $ $ 727, 650. 00 $ $ 7. 50%

14 Cash Flow Forecast 2014 2015 2016 2017 2018 Net Income $ 429, 000. 00 $ 450, 450. 00 $ 472, 972. 50 $ 496, 621. 13 $ 521, 452. 18 Plus Depreciation $ 32, 916. 67 $ 32, 916. 67 Cash Flow From Operations $ $ $ Less Equipment $ (277, 500. 00) $ (100, 000. 00) Change in NWC $ (200, 000. 00) $ (210, 000. 00) $ (220, 500. 00) $ (231, 525. 00) $ (243, 101. 25) Less Purchased IP $ - $ - Other Cash Items $ - $ - Total Cash Used $ (477, 500. 00) $ (310, 000. 00) $ (320, 500. 00) $ (331, 525. 00) $ (343, 101. 25) Total Cash Required or Generated $ (15, 583. 33) $ 173, 366. 67 $ 185, 389. 17 $ 198, 012. 79 $ 211, 267. 60 461, 916. 67 483, 366. 67 505, 889. 17 529, 537. 79 554, 368. 85 Plus Financing Source 1 $ 3, 125, 000. 00 $ 500, 000. 00 $ - ETF $ 1, 750, 000. 00 $ - $ - Source 2 $ - $ - Total Financing $ 4, 875, 000. 00 $ 500, 000. 00 $ - $ - Cum. Financing Required $ 4, 875, 000. 00 $ 5, 375, 000. 00 Beginning Year Cash Balance $ 5, 000. 00 $ - $ 673, 366. 67 $ 858, 755. 83 $ 1, 056, 768. 63 End Year Cash Balance $ $ $ 0 673, 366. 67 858, 755. 83 1, 056, 768. 63 1, 268, 036. 22

15 Headcount and Salary Forecast Item Existing Headcount 2014 2015 2016 2017 2018 Manufacturing 0 4 4 5 5 6 Research Product Development 0 2 2 2 2 2 Sales 0 6 8 10 12 12 Marketing 0 7 9 11 13 13 G & A Total Head Count 0 8 8 8 0 29 33 38 42 43

CEO (US) Manufacturing Manager of Vietnam Operations Shipping (US) Accounting Sales & Marketing Distribution Shipping Receiving Sales Wholesale Marketing Retail Research & Development