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Business Plan

Little Bits, Inc.

P.O. Box 637
22 Plains Drive
Buffalo, Wyoming 82834
Phone 307-684-9340
Toll Free 877-684-9340
Fax 307-684-5815
E-Mail littlebits@vcn.com

CFO: Shelly St Pierre shelly.littlebits@vcn.com

President: Joseph St Pierre joseph.littlebits@vcn.com

Table of Contents
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1. Executive Summary
2. General Company Description
a. Our Mission Statement

b. Company Goals and Objectives

c. Business Philosophy

d. Company Strengths

e. Products and Services

3. Marketing Plan
a. Economic Trends

b. Product

c. Features and Benefits

d. Customers

e. Niche

f. Strategy

g. Pricing

4. Operational Plan
h. Day to Day

i. Risk Management

5. Startup Expenses and Capitalization

Executive Summary
Little Bits, Inc., The Pet-Friendly Company, markets and distributes environmentally sensitive
pet products to the retail marketplace, with emphasis on healthy, all natural products. Our
company will market products of the highest quality standard, produced in the U.S.A.
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The trend of American consumers to pamper their pets will drive our future success, as will the
current movement of our society toward green, recyclable products. Our target market is
consumers that are environmentally conscious and desire the highest quality products for their
pets and home.

We also believe in promoting local business and see the possibility of future diversification into
contract packaging for companies like Mountain Meadow Wool Mill in Buffalo, WY. Our
company will strive to keep our financial operations in our local community, and hire our staff
locally.

Our management team brings vast business experience to this company. Mr. Joseph St Pierre has
owned several successful businesses in Florida and is a 100% Totally and Permanently Disabled
Veteran. Mrs. Shelly St. Pierre has 20 plus years of financial expertise and 12 plus years of
manufacturing and customer service experience. Mr. St Pierre will oversee Sales & Marketing
and Mrs. St Pierre will preside over the financial and manufacturing areas of the company.

The company will be located in Buffalo WY and has leased 9,000 SF of a local industrial
building that includes office space on the premises. Our financial needs require obtaining a loan
in the amount of $150,000 for inventory and working capital. Equipment financing will be
secured with Five Point Capital in CA. The St Pierre’s have contributed $90K of assets into the
business, with a total cash injection to date of $34K. Our gross sales for 2008 are expected to
exceed $589K, with a gross profit of $196K; net profit after admin and sales expenses is
estimated to be $97K.

There is only one nationwide competitor, Feline Pine, in our market area for all natural pine
pellets and one regional company, Nature’s Logic, selling in our area. There are two other major
nationwide ‘Alternative’ cat litter products, with which we will be directly competing. This is an
open market, and our advantage is that we will be sourcing our raw material close to Buffalo, and
thus have a freight cost advantage of approximately $.10 per pound over Feline Pine, which
ships their product from the Southeast U.S. We will market our products in retail chains and
specialty pet businesses. Additionally, we will offer our products through internet pet sites either
on consignment or as direct sales.

General Company Description

Little Bits, Inc is a wholesale distribution company, supplying eco-friendly pet products to retail
supermarkets and pet specialty stores in the western United States. Our primary product is 100%
natural, Premium Pine Litter (name to be trademark protected).

Our Mission Statement:

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Little Bits, Inc., The Eco-Friendly Company, markets and distributes environmentally sensitive
pet products to the retail marketplace, with emphasis placed on healthy, all natural products.
Our company will market products of the highest quality standard, produced in the U.S.A.

Company Goals and Objectives:

Little Bits, Inc. will initially market its products within the nine state region surrounding
Wyoming. Our growth will continue south, east, and west, with our initial goal to capture 50%
of the western states marketplace within 12 – 18 months, and record annual net sales of $2
million plus, within 24 months. The long term goal of distributing nationwide within 36 months,
will drive our future marketing and sales emphasis.

Our first company objective is to provide “top quality” customer service, and meet our
customer’s product delivery needs with 0 days delay.

Our second and economically-based objective will be to become a viable asset to the Buffalo and
Johnson County economy. We will impact the economy in several positive ways, first by creating
jobs and offering very competitive wages and a substantial benefits package to our employees.
In addition, we will indirectly impact the local economy with the increase in freight traffic to the
community, which will be accompanied by purchases of fuel, food, and lodging. Because our
company is not energy-driven, we will provide the area with a business with growth potential
outside the energy industry.

Business Philosophy:
We are the “Pet-Friendly Company”. Our philosophy is that natural products are healthier for
pets and their homes, plus better for our environment. And, as a responsible business,
sustainability is our responsibility and ultimate goal.

Company Strengths:
Our company strengths start with the owners. Mr. Joseph St Pierre has owned and operated
several successful businesses. Largo Carburetor, Inc was started in 1982 and became a Tech-Ten
dealer for General Motors, Inc. in 1989. The company gross sales over 13 years before closing in
1995 exceeded several million. Largo Carburetor, Inc spawned T.E.C.P, Technical Excellence
Certification Program, a teaching program created by Mr. St Pierre that was certified by the State
of Florida for the rehabilitation of people with limited disabilities, through a 6 month program,
helping them return into the work force. In 1989, Mr. St. Pierre also opened Southern Computer
Consultants, a software programming firm, and TECH 1, a computer repair and manufacturing
company. Both companies dedicated 5 years to the writing of the program C. A. R. S, Complete
Automotive Repair Systems, which was integrated with several other programs and later sold to
Microsoft. Mr. St Pierre’s vast knowledge of business, including managing the daily operations
of several successful businesses, demonstrates his entrepreneurial core competencies. He is also
a retired, 100% disabled veteran, with time to dedicate to this venture. (See resume in Appendix.)

Mrs. Shelly St. Pierre has over 20+ years of financial expertise and 12+ years of manufacturing
business experience. In Florida, Mrs. St Pierre worked for the citrus manufacturing company,
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SunPure, Ltd., for over 12 years. She spent the first 10 years working in every administrative
department and learned every aspect of the business, with primary focus on manufacturing
processes and accounting. In 1996, she managed the customer service department and was the
direct liaison with the international brokers in Japan and Europe. In addition, she was part of the
acquisition team, during a corporate merger, in which she was responsible for inventorying assets
in excess of 25 million dollars. Mrs. St. Pierre also was employed by Cargill, the second largest
privately owned corporation in the world, and managed customer contracts in excess of 20
million dollars. Her manufacturing experience and extensive knowledge in business and
customer service are the core competencies, which she brings to this business.

Our company will be centrally located at 22 Plains Drive, Buffalo WY, between two (2) major
interstate highways, in an economic area that is growing and would benefit from a
manufacturing/distribution business. We have leased 9,000 SF of warehouse space in the
Commerce Park Complex from the Joint Powers Board of Johnson County and City of Buffalo,
Wyoming. This building includes existing offices, phone system, electrical systems, and
additional space for growth. Our lease period is for 3 years with a prorated, gradual lease rate
over that period, intended to help our company establish itself. Little Bits, Inc is an S-
Corporation, disable veteran-owned diversity company

Products and Services:

Little Bits, Inc. will market pine pellets as cat litter and animal bedding. Our company will buy
the product in bulk and repackage under our own label. Our packaging will be recyclable and
our product is 100% bio-degradable, all natural, chemical-free, produced from ponderosa pine.
Our product will be offered in 9, 12, 20 and 35 pound bags. The transportation of our product
will be by full truck loads to distribution centers of the various retail chains we secure as
customers. We will market our product in the retail outlets in a variety of ways, including
purchasing end display space, in-store coupons, newspaper, radio, and eventually television
advertising campaigns.

Little Bits, Inc. will stand behind what we sell. If for any reason a consumer is not happy with
Little Bits brand cat litter, or any other product our company markets, we will refund the sales
amount in full.

Marketing Plan
Economics & Trends

According to the 2007-2008 National Pet Owners Survey conducted by American Pet
Product Manufacturers Association, APPMA:

• 38.4 million American Households own cats.

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• 88.3 million cats in U.S. Households.

• 1994 spending on pets was $17 million, compared with 41.2 million in 2007.

The APPMA 2008 Pet Products Trend Report 1 presents top trends:

• More traditional companies producing human products are going to new pet product lines.

• Shopping for pet products is becoming easier with increased retail outlets.

• High-end items to spoil companion animals are must-have for pet owners, sparing no
expense to please their animals.

• Pet Friendly Policies across the country.

• Pet-owners are taking grooming beyond haircuts, baths, and nail trims.

The Market Trends: Natural, Organic and “Eco-Friendly” Pet Products published Feb
1, 2005 2 reported by Packaged Facts:

• Natural Products Top of Mind for Pet Store Shoppers

• Expansion into Mass-Market Outlets

• Retail Sales of Natural/Alternative Litter $107 Million in 2004

• Natural/Alternative Litters to Reach $255 Million in 2009

• Natural Pet Health Products Retail Sales Projected to More Than Double Since 2004

• Natural/Organic Sales Growth Far Above Average

• New Product Trends: Small Animal Litter a Key Growth Area

According to the Natural, Organic and Eco-Friendly Pet Products in the U.S., 2nd Edition,
published October 2007, 3 :

“Giving the natural pet products market a huge shot in the arm are the heightened product
safety concerns of U.S. consumers stemming from the massive pet food recall of spring 2007,
the growing clout of premium pet demographics, the trends toward pet humanization and
“functional pampering,” and the aging pet population. As a result, IRI-tracked sales of pet food
surged over 500% during the 52 weeks ending July 15, 2007, with natural cat litter posting a
15% compound annual growth rate from 2002 to 2007. This mainstreaming activity has kept
the pressure on smaller marketers and retailers to scale their product offerings up even further,
the next logical step after natural being organic, and the step above that being not just
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organic but organic coupled with related claims such as human-grade, locally grown and
100% U.S. sourced ingredient, with related “ethical” claims such as sustainable, support of
local growers, fair trade and no cruelty also cropping up with growing frequency.”

• Nearly half (48 percent) of the dog- or cat-owning households in the US seek out natural or
eco-friendly products - for a total population of 25.1 million pet-owning households,
according to Simmons Market Research Bureau. 3

• "Although pet specialty outlets are still the primary venue for natural and organic products,
these products are rapidly infiltrating mass-market outlets, where growing demand
represents big opportunities for natural and organic marketers." 3

Products
Little Bits Premium Pine Litter (for Cats) - Standard sized pellets comparable to competitors
Feline Pine and Nature’s Logic products.

Little Bits Soft Paws Premium Pine Litter (for Cats) - Smaller sized pellets, similar in texture to
traditional clay cat litter

Little Bits Premium Pine Equine Bedding – Standard sized pellets

Little Bits Little Critters Premium Pine Litter & Bedding – Smaller sized pellets

Little Bits Premium Pine Aviary Litter & Bedding – Standard sized pellets

Little Bits Premium Pine Reptile Terrarium Litter & Bedding – Smaller sized pellets

Features and Benefits

• Healthy for Cats

• All Natural

• Eco-Friendly, green

• Organic

• 100% Bio-degradable

• Dispose in Compost

• Fresh Scent

• Odor Control

• Chemical Free
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• Less Dusty and Messy than Traditional Clay Litters

• Economical – lasts twice as long as traditional cat litter

• Produced from waste by-product of sawmill industry

• Sustainable Product

• Made in the USA

Customers:
Our targeted customer base will be retail supermarket chains, pet store chains, specialty
pet retailers, pet outlets, and major retail chains, in the western United States. We will
dedicate a percentage of advertising dollars to each new retailer or chain we capture at
the onset of our product introduction into the stores. In the first 12 months, we will
aggressively pursue the following customers:

Albertson’s. In the western U.S there are approximately 1,500 stores. Albertson’s is
aggressively marketing ‘Organic’ products through their ‘Wild Harvest’ food line. Their
most recent newspaper flyer dedicated an entire page to these products. As an
alternative approach, we could package product under the “Wild Harvest” label for
Albertson’s. We intend to offer a promotional special in their weekly add to kick-off our
product.

K-Mart. They currently do not offer any alternative pine cat litter in their stores. They
do carry Yesterday’s News, the recycled newspaper product. We believe that we can
bring an added value product to the K-Mart consumers and enhance K-mart’s ‘organic
and natural’ product line with our product. K-Mart has approximately 1,300 stores in
the western U.S.

Safeway. Owns 800 stores in the western U.S. This chain is also in Canada, and we
plan to market to both retail areas. The Canadian market is considerably more ‘green,
eco-friendly’ conscious than current U.S. consumers. Our product will market well in
the Canadian marketplace.

SuperValu. A wholesale distribution chain that services over 10 different retail chains
throughout the central and western U.S. They have 35 distribution centers currently.
We will pursue the western market share, with planned future growth into the eastern
U.S.

Wal-Greens. 3,000 stores nationwide. They currently carry only traditional cat litter.
We will market our natural, eco-friendly as an alternative for their consumers. Their
shelf space is small in comparison to larger retail chains, but we feel the trends of
consumers for organic, natural products will enhance sales for our products, and we
believe that while the movement in these stores will not be huge but steady.
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Competition:
Direct competitors in our nine state region include (WY, ID,MT, ND, SD, NE, KS, CO,
UT):

Feline Pine. Produced by Nature’s Earth, is sold nationwide in the U.S. and has the largest
natural/alternative cat litter market share at 80%. They are the only nationwide pine product
currently available in retail marketplace in the Sheridan and Johnson Counties. In the Denver
Metro area, Feline Pine is on the shelf in most major supermarket chains and all of the pet
specialty chains. They are one of our major competitors in the Western U.S. They recently
made a packaging change to a less expensive poly bag, which we feel will give our ‘Premium
Pine Litter’ a direct advantage. Packaging is the most important factor in capturing part of the
Feline Pine market share. We will strive to outshine with packaging that reflects our ‘premium’
product quality.. Feline Pine is selling in retail supermarkets for $3.59 for a 7 lb bag ($.51/lb)
and upwards of $5.00 ($.71/lb) in the specialty pet chains.

Nature’s Logic. 100 % Ponderosa Pine, All Natural Cat Litter is distributed by Tejas Pet
Products Marketing, LLC in Lincoln NE. They are producing a product identical to our product.
Their packaging is paper, and their distribution is limited. They sell primarily to independent
specialty pet stores and via the internet. Nature’s Logic is not sold in the any retail supermarket
chains. They are a direct competitor, but we feel the advantage our product will have is
distribution in the retail supermarket and pet store chains, along with aggressive advertising.
Nature’s Logic is marketing a 12 lb bag at $9.99 ($.832/lb).

Yesterday’s News. Manufactured by Purina, is a paper-based cat litter. Although it is an

alternative cat litter, it is a direct competitor for the consumer looking for a natural product.
These products are offered in 5, 15 and 30 lb bags. The 30 lb bag sells on the PetsSmart website
for $14.99, or $.49/lb.

World’s Best Cat Litter. Corn based alternative cat litter by GPC Pet Products in Muscatine
IA. It is sold nationwide and is in 15 locations across WY, primarily small specialty pet stores.
It is a direct competitor for an organic, all natural cat litter. Sold in 7 lb bags for $11.99 or
$1.41/lb.

Other regional companies not in direct competition for our current market area but who
will be future competitors once our products are launched nationwide:

Feline Fresh Produced by Planet Wise in Pine Bluff, AK. Owner Bill Weaver at one time
packaged for Feline Pine. The relationship was severed, and Mr. Weaver started his own product
line of Feline Fresh. The packaging is a laminated poly film which is a high-end packaging
material. Feline Fresh’s market area is the Central U.S. and internet. Currently, Feline Fresh is
not a direct competitor, as they have not reached the retail marketplace the Western U.S.

Healthy Pet. Produced by International Absorbents, Inc. They have two manufacturing
facilities, one located in Bellingham, WA and the second new facility located in Georgia. This is
a publicly traded company, with 2007 sales in excess of $29M, offering a variety of pet bedding
and cat litter products. Anticipated 2008 sales growth is expected to be 10 – 16%. This
company has distribution nationwide and plans to continue expansion into the grocery stores and
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mass merchandiser markets. Their gross margin recorded in 2007 was 33%, an increase of 3%
over 2006. This company’s cat litter is a direct competitor, but it appears that their pet bedding is
their major source of revenue, and we will compete with these product lines within 9-18 months.

Pine Pellet Bedding & Litter. Distributed by Lone Star Bedding based in Clinton TX. Their
product is identical in natural to our product, pine pellets. Currently available in the following
states: TX, MO, LA, AL, AR, & NC. They are not a direct competitor currently. They offer a
10 lb bag for $8.50 ($.85/lb), which includes shipping. They also market their product as litter
for small dogs.

Other private label brands found in the U.S. marketplace, outside our nine state region:

Most of these companies are regional and are not established nationwide in the retail chains, but
most can be found on the internet on specialty pet product sites.

One Earth Cat Litter

EquisiCats Enviro-Friendly Pine Litter

Kaytee Pine Bedding & Litter

Top Dawg Bedding & Litter

Precious Cat Precious Pine Litter

Cozy ‘N Fresh Natural Pine

Nature’s Miracle Clumping Cat Litter

Pestell Soft Pine Bedding

Premium Pet Natural Pine

Niche:
Our niche is the availability of our products to the marketplace with the highest quality and
outstanding service. Our price will be competitive with the other alternative brands available.
We will be extremely competitive with advertising and promotional offers.

Strategy:
Our marketing strategy will be to target the larger retail suppliers with outstanding pricing and
customer service to capture market share in the western United States.

Distribution Channels: We will distribute our product by truck and rail to retail chain distribution
centers.

Little Bits, Inc is a wholesale distribution company, focusing our business on clients like
Safeway, Kmart, PetCo, etc. We will pursue website sales through PetEdge, PetCareRX, Only
Natural Pet Store, Naturally Non Toxic.com, etc with sites that we feel will promote our products
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to the highest advantage. We will sell directly to the website retailers. We will also provide a
company website where consumers can explore our company, mission and products. We will
not offer any retail distribution, in order to avoid competing directly with our customers.

Little Bits, Inc will employ a sales force commensurate with the growth of the business. Initially,
Mr. Joseph St Pierre will be responsible for all sales and marketing. Our company will hire an
advertising firm to develop our brand identity and marketing strategies for marketing our product
via radio, newspaper, television and internet to increase retail sales. The first year, sales will be
concentrated to chains and distribution centers that service our nine state region. Our sales will
also be concentrated locally in Johnson, Sheridan, Campbell counties and the Casper area.

Pricing:
Our pricing structure will reflect current market conditions. We will market our 10-pound bag of
Premium Pine Litter for $4.50 wholesale and $6.00 retail. Our cost is $.09 per pound. Because we will
be advertising our products as premium products, we believe we can achieve a premium retail price. That
equates to $.45 per pound wholesale and $.60 retail. Research of competitor pricing indicates a range of
$.50 per pound for Feline Pine at Wal-Mart to $.82 - $.85 per pound for Nature’s Logic. Our Premium
Soft Paws will sell for $.50 per pound wholesale and $.65 - $.70 per pound retail. All other litter and
bedding will be priced per the current market prices..

Operational Plan
Daily Operations:
Little Bits, Inc. will be located in Buffalo WY, in the northeastern part of Wyoming. We
currently have a short-term lease with the Commerce Park Joint Powers Board for office space
and are finalizing a long-term lease for 9,000 SF of warehouse and office space. Our lease will
encompass approximately one half of the existing building. The remaining space is leased by
Mountain Meadow Wool Co. The building was purchased through a grant program to develop
new businesses in the City of Buffalo and Johnson Country to bring economic growth, jobs and
tax revenue to the area.

The raw material will be purchased from the Pope & Talbot pellet mill in Spearfish SD. They
produce 100% Ponderosa Premium Pine Pellets, and their annual production capacity is currently
42,000-44,000 tons. We will contract for 100 tons initially and contract additional quantities
based on committed sales contracts secured with our customers. Based on projected sales for the
first year of business, we expect our annual contract tons not to exceed 3,000 tons. We will
provide Pope & Talbot with one hundred (100) one (1) ton reusable bulk bags for improved raw
material unloading. During the first three months of production, we expect to receive two loads
of raw material a week. Each load of raw material has a value of $ 4,500 FOB Buffalo WY.
This raw material will produce 8,000 10-pound bags of Little Bits Premium Pine Litter, with a
total wholesale value of $36,000 and a retail value of $48,000 for our customers. Eventually, we
will add a bulk product storage system to receive product in bulk trucks. This process will be
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dependent on the abilities of our supplier to ship in this manner, which in conversations with
Everette Follette at Pope Talbot, should be in place within the next year.

The packaging equipment that is to be purchased will have the capacity to produce in excess of
40 bags per minute, which equates to approximately 19,000 bags a day, at optimal production
conditions. The packaging equipment we are purchasing is pre-owned and was previously used
in an Iams dog food plant in Dayton, OH. The equipment was unable to provide the production
capacity which the Iams plant needed and was upgraded. This equipment will be more than
sufficient to meet our production needs. The purchase price is approximately $150,000, which
includes shipping to Buffalo and set-up of the line by ECS, which services this equipment. This
is a completely automated production line, from pre-made bag filling to palletizing. This
equipment will be shipped the middle of May for arrival by the end of May and ready for our
anticipated start-up the third week in June, 2008. The equipment consists of the following:

Hopper for bulk product unloading

Screw Conveyor to move product from unloading hopper to scales

Multi Lane Scales

Bag Filler and Sealer

Conveyors

Wrapper – wraps multiple bags for palletizing

Palletizer – Loads wrapped bags on pallets

Our bags will be a multi-walled pre-made paper bag. The approximate cost is $.25 per bag,
delivered per 100K. The lead time to receive these is 6-8 weeks after the final graphic design is
approved.

Production and day-to-day operations will be overseen by Mrs. Shelly St Pierre. We anticipate
needing one – two employees initially to start-up production, with the expectation of hiring 2-3
additional staff within 6-12 months.

Risk Management:
We will carry commercial insurance through a local insurance office. In addition, we will secure
an umbrella liability policy in excess of $2M for extra protection. The initial annual cost for this
coverage has not yet been determined. The primary owner, Mrs. St Pierre, will carry $1M plus
in term life insurance to provide the business with extra protection in the event of the owner’s
untimely death.

One risk that would be a major setback to the development of this business would be the
unavailability of raw material relatively close to our plant, to a degree that sources would have to
be sought outside the U.S. in Canada. The shipping costs would be significantly more than
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shipping from the Black Hills area of the U.S., and our marketing would be affected in our
claims of “Made in the U.S.”

In the event that our cash flow suffers due to slow sales, slow payment, or an unexpected major
expense, the owners have access to an additional $50K of unsecured personal credit. This would
be the absolute last resort to obtain funding, but an option, nevertheless, if needed to provide a
cash injection to weather a shortage in the company.

Since inventory and freight are the largest of the expenses incurred in producing our products,
should sales not develop at the pace planned, there will be a significant decrease in operating
costs should production be forced to slow to sales demands. Because of this, our cash flow
should not suffer in any large degree, but the net profit would be affected. Our business would
continue to function in the black, until our sales increased. In the event our sales exceed our
planned growth, we will be in a position to secure additional financing to increase production
capacity, if required, or finance needed working capital for additional staff to sustain the
additional growth.

Startup Expenses and Capitalization

Start-up equipment costs for Little Bits, Inc. are estimated to be $150K for packaging equipment,
which will be financed through either Five Point Capital Equipment Leasing Specialist in San
Diego CA or in a total package financing through a commercial lender. The equipment will be
shipped from Ohio, for arrival in early June 2008. Pricing includes shipping cost to Buffalo,
WY, set-up and test runs of the equipment.

An additional $20-30K for an electric forklift will be financed through the company providing
the lift. Current office space rental is $200 per month and the final warehouse lease is estimated
to be $2,400 per month for the first year, which includes a deposit amount of $500 per month for
the first 12 months totaling $6,000 in security deposit held by the Buffalo/Johnson County
Commerce Joint Powers Board. Initial operational expenses are estimated at $117K for the first
three months of production operation, plus $33K for Admin/Sales expenses. The first three
months of accounts receivables actually collected is conservatively set at $58K, with an
additional $95K outstanding at the end of the first three months. Based on the projected sales, the
funds required for inventory of raw material and packaging is estimated to be $90K. An
additional $60K for working capital would be required to insure a positive cash position. A loan
of $150,000 for equipment and working capital is needed for this venture. (Reference attached
financial forecasts.)

The owners have contributed $34K in cash, which is over 20% of owner investment against a
$150,000 loan and have $300K plus in personal assets to pledge to the financial success of this
venture. In addition, the owners have $51K of unsecured credit available. The success of our
company depends on a lender that sees the vision and future of the pet industry and the growth of
natural, organic pet products. We would be pleased to capture 1% of the natural/alternative cat
litter market, projected to reach $255 million in 2009. However, we feel that 1% ($2,550,000) is
very conservative, and we will be in a position to produce enough inventory to capture up to 10%
of the market or $25.5 million in gross sales within a five year period.
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