Executive Summary

By focusing on its strengths, its key customers, and the underlying values they need, Information Management Hawai'i, Inc. (IMH) will increase sales steadily in its first three years, while also maintaining the gross margin on sales, with a focus on cash management and working capital. This business plan leads the way. It renews our vision and strategic focus: adding value to our target market segments, and reinforcing our ties with businesses in our local markets. It also provides the stepby-step plan for improving our sales, gross margin, and profitability. This plan includes this summary, chapters on the company, products and services, market focus, action plans and forecasts, management team, and the financial plan.

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1.1 Objectives
1. Achieve healthy earnings (EBIT) in the first year of operation. 2. Maintain a midrange gross margin throughout the entire operation. 3. Maintain just-in-time (JIT) inventory levels, or 11 turns per year. 4. Increase sales modestly but steadily in the second and third years. Business Start-up Guides Step-by-step instructions you need for starting a business today.

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1.2 Mission
To provide the Hawai'i business community with quality brand-name Information Technology business information solutions, reliable and professional Technical Support, and unparalleled Customer Service through the application of the principles of Kina`ole and heartfelt aloha, and to earn a fair profit for our employee-owners and stakeholders by embracing sound, ethical business practices.

1.3 Keys to Success

The keys to our success are: 1. 2. 3. 4. Building and maintaining strategic alliances with our manufacturers and other industry related business partners; Adopting a customer- and market-focused sales and marketing paradigm; and, Managing the business by implementing, and consistently measuring and adjusting the fundamentals of a Balanced Scorecard: Financial Goals vs. Results Internal Business Process Goals vs. Results Employee Learning and Growth Goals vs. Results Customer Satisfaction Goals vs. Results

Company Summary
Information Management Hawai'i, Inc., will sell and service digital office information systems for Hawai'i's businesses, with a focus on the Neighbor Island business community. IMH will be formed as the result of the acquisition of three existing businesses: Maui Office Machines, Inc.; Electronics Hawai'i, Inc.; and, Kauai Office Equipment, Inc.

2.1 Company Ownership

IMH will be privately-held [C corporation] owned in majority by the IMH Employee Stock Ownership Trust. There are currently 15 employees, and all will own equal shares in the ESOT. New employees will be given the opportunity to become vested in the Employee Stock Ownership Plan (ESOP) after a suitable probationary period. Business Start-up Guides Step-by-step instructions you need for starting a business today.

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2.2 Start-up Summary

Our start-up costs will be $1M, which includes $450,000 for the acquisition of the Maui and Hilo operations of Servco Integrated Office Technology. The remainder of the funds will be used for: Initial Inventory: $200,000 Initial Capitalization: $225,000 Legal, Insurance, Rent & Misc: $125,000

The start-up funding will be financed by loans arranged through the Small Business Development Center, and by the Hawai'i Community Loan Fund, and the Small Business Administration as a guarantor. Startup assumptions are shown in the following table and chart.

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Start-up

Requirements

Start-up Expenses

Legal/Accounting

$10,000

Stationery etc.

$1,500

Brochures

$1,000

Consultants

$7,500

Insurance

$25,000

Rent

$15,000

Software & IT (Web)

$40,000

SPI Buyout

$450,000

Setup New Company/ESOP

$25,000

Total Start-up Expenses

$575,000

Start-up Assets

Cash Required

$225,000

Start-up Inventory

$200,000

Other Current Assets

$0

Long-term Assets

$0

Total Assets

$425,000

Total Requirements

$1,000,000

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Start-up Funding

Start-up Expenses to Fund

$575,000

Start-up Assets to Fund

$425,000

Total Funding Required

$1,000,000

Assets

Non-cash Assets from Start-up

$200,000

Cash Requirements from Start-up

$225,000

Additional Cash Raised

$0

Cash Balance on Starting Date

$225,000

Total Assets

$425,000

Liabilities and Capital

Liabilities

Current Borrowing

$1,000,000

Long-term Liabilities

$0

Accounts Payable (Outstanding Bills)

$0

Other Current Liabilities (interest-free)

$0

Total Liabilities

$1,000,000

Capital

Planned Investment

Investor 1

$0

Investor 2

$0

Other

$0

Additional Investment Requirement

$0

Total Planned Investment

$0

Loss at Start-up (Start-up Expenses)

($575,000)

Total Capital

($575,000)

Total Capital and Liabilities

$425,000

Total Funding

$1,000,000

2.3 Company Locations and Facilities

We have two locations, one in Kahului, Maui and the other in Hilo, Hawai'i. The two offices are presently being leased by Servco Pacific, Inc., and we will rent from them on a month-to-month basis until we are able to relocate to more suitable facilities. On Kauai, we have a sub-contractor agreement with Kauai Office Equipment to handle installations and service.

Products and Services

IMH will acquire an existing operation whose primary business has been the sale and service of business appliances (copiers, facsimiles, printers, etc.) and has operated as a part of the office equipment industry. We will build from this base to transform the business into a value-added provider of the emerging services and technologies of the new Information Industry. Following the lead of Canon, USA and other manufacturers which we represent, we will approach the marketplace from a total systems solutions viewpoint. This new paradigm will begin with an analysis of the client's existing and planned business processes, and will provide total workflow solutions utilizing multifunctional imaging platforms and information distribution systems. These systems will be backed by professional and reliable technical service and proactive customer service. By forming strategic alliances with local Information Industry Value-Added Resellers, we will be able to offer turnkey Local Area Network (LAN) systems and the ability to retrofit existing LAN and peer-to-peer systems.

3.1 Sales Literature

Copies of our product and sales literature are attached as appendices. Of course, one of our first tasks will be to change the message of our literature to make sure we are selling the company, rather than the product.

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3.2 Product and Service Description

IMH will market and sell brand name business information distribution systems and hardware, technical service and support for these products, and the consumable supplies used by these systems. We will be a single-source provider for business information and imaging products and services. After researching our various manufacturer's offerings and evaluating our core competencies, we will focus our marketing and sales efforts around the digital products offered by Canon USA and eCopy, Inc. We will supplement this product line with Lexmark and Hewlett Packard printer products. As we continue to transition the company into the digital marketplace, we will form alliances with additional IT manufacturers and suppliers who can round out our product and services line. Hardware product offerings will include:

Canon ImageRunner multifunctional products (scan/copy/print/fax) Canon multifunctional facsimiles (print/fax) Canon Graphics reproduction products (commercial color) Canon Micrographics products (electronic document storage) Canon Printer products (color) Lexmark Printer products (monochrome and color) Hewlett Packard Printer products (laser)

Software offerings will include:

eCopy ScanStation eCopy ShareScan eCopy Desktop Canon Image Platform (document distribution)

Service Products include: All-inclusive maintenance agreements (on-call service and supplies) Walk-in service (time and materials) Warranty Repairs (certain Canon consumer products) Sale of consumable products for all brand names (Canon, Ricoh, Xerox, HP, Lexmark)

Professional Services include:

Information Workflow analysis and design Network design and installation (sub-contracted)

3.3 Competitive Comparison

The only way we can hope to differentiate well is to define the vision of the company to be an information technology ally to our clients. We will not be able to compete in any effective way with the large mainlandbased office equipment companies by selling boxes or products as appliances. We need to offer a real alliance to our local customers. The benefits we sell include many intangibles: confidence, reliability, knowing that somebody will be there to answer questions and help at the important times. These are complex products that require serious knowledge and experience to use. Our competitors tend to sell only the products themselves, and very little in the way of after-sale training and support. Unfortunately, we cannot sell the products at a higher price just because we offer services; the market has shown that it will not support that concept. We have to also sell the service and consumable supplies and charge for them separately. This monthly recurring revenue is the foundation of our financial stability.

3.4 Technology
New technology has changed almost everything about the traditional office equipment (copier) industry, and for all practical purposes it no longer exists. The new Information Industry has emerged because of the technology of convergence. The primary driver of convergence of different forms of information is technological change, specifically the rapid diffusion of digital technology into an ever-wider array of information businesses. Beyond digitization, dramatic changes in computing and telecommunications industries (mainly in faster microprocessors and increasing bandwidth) are also driving convergence. IMH will make convergence the theme of its vision, planning, and marketing strategies. We will move into the new Information Industry's technology with the aim of bringing the most efficient workflow solutions to our clients while providing value-added customer support and service, and earning a reasonable profit in the process.

3.5 Service and Support

Our strategy hinges on providing unparalleled service and support, which is critical to setting us apart from the competition. We need to differentiate on service and support in order to become true partners with our clients. Our service offers will include:

Uptime guarantees: we will include "uptime guarantees" with our all-inclusive service agreements to insure maximum productivity for our clients. Internal training: the "learning and growth" part of our Balanced Scorecard performance measurement strategy will include the requirement that our Systems Engineers and sales professionals become network and IT certified by the end of FY2003.

Customer training: we will package comprehensive customer training programs with all of our offerings, to include systematic follow up and refresher training. Upgrade analysis: we will periodically assess our client's business processes and requirements, and offer cost-effective upgrade solutions to meet changing needs.

3.6 Future Products and Services

Beginning at start up, we will explore and research new information technologies for inclusion in our product offerings. The products which we choose will be in line with our vision to transition the company from being an appliance seller, to being a provider of total information management solutions. These convergent information products will include: Wireless LAN systems Information management systems (hardware and software) Tele-business and E-Commerce systems Media transport and reproduction (distribute and print)

3.7 Fulfillment
We have an established relationship with our manufacturers and suppliers, and will be able to take advantage of all discounts and promotions in order to keep our margins at roughly 49% throughout the operation. We will also implement and employ "just-in-time" inventory strategies for hardware, supplies, and service parts orders to further strengthen our margins. As we continue to grow the business, we will evaluate other IT industry manufacturers and product lines to strengthen our offerings with a view primarily to quality and margin advantages.

Market Analysis Summary

IMH will focus on local markets, including small offices and home offices (1-9 employees), medium to large businesses (10-99 employees), corporate Hawai'i (multiple locations or 100+ employees), and local government offices.

4.1 Market Segmentation

Our market segmentation scheme is fairly straightforward, and focuses on all Neighbor Island businesses. The information contained in our customer analysis table is taken directly from the 2000 US Census and government directories, and clearly shows that our largest market potential is the small office and home office (SOHO) segment. This segment is largely overlooked by most of our competitors because of its "low end" buying habits, and a reluctance to compete with the major retail chain box movers. We will target the SOHO market segment with value-added and affordable business solutions customized to its unique needs, and offer the same quality of service and support as are afforded the larger businesses. The next largest market segment is medium to large businesses, and is the arena where we now focus most of our sales efforts. We will continue to target this segment, but with a different approach than our

predecessors. The strategy used by former management has been to bring in selected products, and then attempt to find a buyer. This resulted in inventory overstock, and obsolescence. We will work with the medium to large businesses to determine their needs, and design customized solutions before ordering the required systems (JIT inventory strategy). This segment will remain an extremely important part of our marketing mix, and contains a large portion of our current clients. A majority of our systems upgrade opportunities and repeat business will come from this market segment initially. Although the Corporate Hawai'i market segment is the smallest in numbers, it has the potential to provide a significant share of our revenues and growth (the 80/20 rule). We have a scattering of current clients in the Corporate Hawai'i segment, but we need to do a better job of penetrating this lucrative end of the market. We will accomplish this by offering professional services to include workflow and network design, MIS support, and other value-added support benefits such as "uptime guarantees." We will develop longterm relationships within this segment, and earn their business. The local government market segment is unique in that we act primarily as a "middle man" for our manufacturers due to GSA price schedules and other national government-only programs. This segment is fiercely competitive, very price-focused, and buying decisions are often influenced by "who you know," as well as price. We are fortunate in that we have long-established relationships within the County and State government agencies, and have many loyal clients in this segment. We will increase our share of this market segment by offering the same value-added service and support benefits that we bring to our commercial clients. Business Start-up Guides Step-by-step instructions you need for starting a business today.

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Market Analysis
Year 1 Year 2 Year 3 Year 4 Year 5

Potential Customers

Growth

CAGR

SOHO

4%

6,800

7,072

7,355

7,649

7,955

4.00%

Medium/Large Business

4%

2,100

2,184

2,271

2,362

2,456

3.99%

Corporate Hawaii

3%

140

144

148

152

157

2.91%

Government Offices

2%

1,225

1,243

1,262

1,281

1,300

1.50%

Total

3.69%

10,265

10,643

11,036

11,444

11,868

3.69%

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4.2 Target Market Segment Strategy

Developing a market strategy is a departure from the way the company has been managed in the past. We will change the paradigm of being a product- and price-focused sales organization, to that of becoming a customer- and market-focused organization, with all departments sharing responsibility for customer satisfaction. We will accomplish this paradigm shift through the implementation of a balanced scorecard philosophy of management, with special attention to employee learning and growth. As mentioned previously our market segmentation strategy is straightforward, and addresses all components of the Neighbor Island business community. Planning and implementing specific strategies for each of the four identified segments will be an on-going process, and we will consult with marketing specialists, and our manufacturers, to further refine these efforts as we develop our marketing plan.

4.2.1 Market Trends

The most significant trend in today's business-to-business marketplace is the move from analog to digital technology, and from stand-alone workflow functions to multifunctional platforms which are connected to a network. It is this trend that has caused many of the major players in the outdated office equipment (copier) industry (Xerox, IKON, etc.) to falter, and see their profits decline. This is true mainly because of their inability to change rapidly from an "analog mentality" and move forward in applying the emerging convergence of digital information technologies to the marketplace. That is the primary reason that IMH has chosen Canon USA as its preferred manufacturer. Canon has led the way in the industry with it's digital technology innovations, and its ability to bring both the product and the concept to the marketplace. We will follow Canon's lead and bring this efficient, productivityenhancing technology to Neighbor Island businesses.

4.2.2 Market Growth

As computer prices continue to fall, unit sales increase. The published market research on sales of personal computers is astounding, as the United States market alone is absorbing more than 30 million units per year, and sales are growing at more than 20 percent per year. We could quote Dataquest, Infocorp, IDC, or others; it doesn't matter, they all agree on high growth of CPU sales. This rapid growth rate holds true for productivity systems which connect to the computers being sold. The stand-alone analog systems and appliances which abound in the business marketplace today, will be replaced by connected digital convergence systems in the coming months and years. IMH will position

itself to be a value-added provider of this rapidly emerging technology for new businesses, while continuing to maintain and upgrade our current analog customer base.

4.2.3 Market Needs

All businesses have in common a need to be continuously productive, and they rely on their service providers and vendors to sustain their productivity. Effectively filling this need requires that the vendor bring to the table sound planning, quality products, reliable service, and a true partnership and support relationship. Specific business needs include the ability to gather, compile, analyze, and distribute information in various media formats. This is where IMH's strengths will be most beneficial to our clients, both big and small. Anyone can sell the "box" at an attractive price, but only a true value-added provider can offer the peace-of-mind that comes from a customer-focused approach to the relationship. Primarily due to geographic isolation and smaller populations, the Neighbor Island business community has an additional common need of being able to rely on other locally-based vendors and suppliers for quick, reliable, customer service and support. Having to call someone on Oahu, or the mainland, to place a service call, or to order supplies, or get an answer to a simple billing question, is both an irritant and a hindrance to most Neighbor Island-based businesses. Our primary goal is to fill this need by bringing true pro-active, and total, customer service to the Neighbor Island business community, and to gain their confidence and loyalty. This will become one of our underlying strengths.

4.3 Service Business Analysis

IMH is a part of the Information Industry, and specializes in providing information management systems and technology for business processes. We envision that a converged information industry operating within the context of an advanced information infrastructure will be a huge boost for U.S. businesses. Several Washington think tanks estimate that it could spur more than $300 billion annually in new sales and increase worker productivity by 20 to 40 percent. At the present time, an estimated two-thirds of all American jobs are information related, and that number will increase as the shift from manufacturing to service industries continues. The convergence of information industries will continue because the technological and business imperatives are compelling. If one company does not see the possibilities, another will.

4.3.1 Competition and Buying Patterns

Business decision makers and finance managers understand the concept and value of service and support, and are much more likely to pay for it when the offering is clearly stated. There is no doubt that we compete more against the box pushers than against other service providers. We need to effectively compete against the idea that businesses should buy information platforms as plug-in appliances that don't need ongoing service, support, and training.

Our research and experience has indicated that our target market segments think about price, but would buy based on quality service if the offering were properly presented. They think about price because that is what is traditionally presented to them first. We have very good indications that many would rather pay 10-20% more for a relationship with a long-term vendor providing back-up and quality service and support. They end up in the box-pusher channels because they are not aware of the alternatives. Availability is also very important. The business decision makers tend to want immediate, local solutions to problems.

4.3.2 Distributing a Service

Medium to large business segment buyers are accustomed to buying from vendors who visit their offices. They expect the copy machine vendors, office products vendors, and office furniture vendors, as well as the local graphic artists, freelance writers, or whomever, to visit their office to make their sales. Unfortunately our SOHO target segment buyers may not expect to buy from us. Many of them turn immediately to the retail superstores (office equipment, office supplies, and electronics), the Web, and mail order to look for the best price, without realizing that there is a better option for them for only a little bit more. We will overcome this hurdle through innovative service offerings, and targeted marketing.

4.3.3 Main Competitors

In our higher-end targeted segments (medium to large businesses, corporate Hawai'i, and government offices), the primary competitors are Xerox and Lanier. The secondary "low end" competitors on the Neighbor Islands are Maui Office Machines and Business Equipment on Maui, and Electronics Hawai'i and Stationers on the Big Island. Our overall competitive strategy in these segments will be Canon's superior technology, and superior value-added service and support. In our SOHO target segment, the primary competitors are the superstores: Office Max, Office Depot, Sears, and to some extent Costco, Hopaco, and the Web. While these outlets can offer lower prices, they offer no (or very little) aftermarket service or support. That is our competitive advantage in this segment, and will differentiate us from these "box movers."

4.3.4 Business Participants

The traditional office equipment (copier) industry has been dominated by only a few major manufacturers: Xerox, Canon, Oce, and Ricoh (and its OEM products - Lanier, Savin, and Gestetner); and then come the low-end players: Sharp, Toshiba, and Minolta. With the exception of Xerox, which maintains its own sales force, the other manufacturers distribute and sell mainly through authorized dealers. The rapidly emerging Information Industry's digital convergence products will most likely be dominated by the same participants as described above. While Xerox has been a past leader in the manufacture and sales of analog products, Canon has emerged as both an innovator, and the leader, in the new Information Industry with their ImageRunner digital products and Image Platform information distribution systems. Canon is also (and has been for many years) the front runner in color repro-graphic systems, and holds the most patents of any manufacturer in the industry.

5.6.3 Pricing Strategy

We must charge appropriately for the high-end, high-quality service and support we offer. Our revenue structure has to match our cost structure, so the salaries we pay to assure good service and support must be balanced by the revenue we charge. We cannot build the service and support revenue into the price of products. The market can't bear the higher prices and the buyer feels ill-used when they see a similar product priced lower with the competition. Despite the logic behind this, the market doesn't support this concept.

5.6.4 Promotion Strategy

We will employ the following general promotional strategies for the various market segments:

SOHO: We will depend on periodic local newspaper advertising, to reach new buyers in this segment. We will also utilize direct mail and and the resources of the local Chambers of Commerce and other affinity groups to reach this segment. The message will emphasize service first, and "complete product and service packaging" as a secondary theme. Medium to Large Businesses: Direct face-to-face contact (direct sales) will continue to be our primary strategy for this market segment. Direct selling will be supplemented by periodic promotional direct mailings and personalized system upgrade opportunities. Corporate Hawai'i: This segment will be handled by direct contact and relationship building only. We will make personal presentations to the decision makers in this group, and stress our service and technical benefits and advantages. Government Offices: We will utilize a combination of direct mail and face-to-face promotional strategies with this segment, and the message will be the local service and technical advantages of IMH. We will produce an attractive RFQ/RFP response package to accompany our submissions.

5.6.5 Distribution Strategy

IMH is first and foremost a direct sales organization, meaning that we must present our services and products directly to the majority of our customers and clients. Having said that, for our planned penetration into the SOHO market, we will need to establish a presence as a Value-Added Reseller (VAR) for certain low-end product lines which don't carry the margins necessary to sustain the costs of direct sales. We will plan our new locations accordingly.

5.6.6 Marketing Programs

As we work to complete this Business Plan, we are simultaneously working on our Marketing Plan. As you can see from the milestones table, we anticipate completion of our detailed Marketing Plan by 9/30/01, or one month from start-up. Because we are acquiring an on-going business, the shift to our vision of customer- and market-focused strategies will not happen overnight. We must plan this shift carefully, and implement it judiciously, so as not to disrupt our immediate operations. We have budgeted

for, and will utilize, marketing advisors and consultants (including our manufacturers) in the design of our Marketing Plan.

5.7 Strategic Alliances

Our alliances with our manufacturers, and especially Canon USA, will be the most pivotal to our success. We will remain a Canon Authorized Dealer, and continue to enjoy all of the benefits of this long-standing relationship. We will form alliances with other locally-based VARs and computer network providers to enable us to provide complete turnkey packages for our clients. These relationships will be included in our Marketing Plan.

Management Summary
Our management philosophy is simple and is an integral part of our values: doing right things right, the first time (Kina'ole). IMH will be an employee-owned company and we all share the same vision of providing our clients (who in many cases are friends and neighbors) with the very best in customer service - period. We will encourage personal growth, creativity, and enable individual empowerment to achieve this goal. We will manage the business by setting achievable Balanced Scorecard goals, measuring them, and making midstream adjustments as necessary.

6.1 Organizational Structure

Our team includes 15 employees initially, and is organizationally flat. The departmental divisions are sales and marketing, service, and administration. Operational managers include:

President and General Manager: Oversees all operations, with primary responsibilities for sales and marketing. Functioning as the GM, this position will spend a good deal of time in the field assisting the Account Managers, and helping to build and maintain client relationships. Secretary/Treasurer and Administrative Manager: Oversees all administrative functions including inventory, A/P and A/R, banking, HR, and vendor and manufacturer relations. Primary contact point for customer service issues and follow up. Will be assisted by an Office Manager in the Hilo branch. Systems Manager (two positions - Big Island and Maui): Oversees all service issues including service agreements, service call prioritization and response, carry-in service, customer support, and systems training and development. Will be assisted by Systems Engineers, and Systems Technicians.

6.2 Personnel Plan

The total head count moving over from Servco at the time of the acquisition will be 13. We are adding two former employees at startup to round out our team, for a total startup head count of 15. There are an additional six positions shown as "vacant" in the Personnel plan. During each quarterly business plan review, we will assess the need to fund these positions to sustain our growth, and more evenly distribute the workload.