2.0. EDSR 11-20-1995 ELK RIVER ECONOMIC DEVELOPMENT AUTHORITY
MEMORANDUM
TO: Economic Development Authority
FROM: William Rubin, Executive Director
DATE: November 20, 1995
SUBJECT: Micro Loan Request from Internet Five
Introduction
Internet Five, a start-up high technology company that is a provider of World
Wide Web (WWW) services and Web Site Creation software for businesses
and individuals, seeks a $37,500 Micro Loan to assist with various start-up
costs associated with launching a business endeavor into a more permanent
facility.
• Background
Specifically,the EDA Micro Loan would be used by Internet Five to leverage
a Small Business Administration(SBA) low doc loan from a primary lender
and owner equity for the purchase of computer equipment, working capital
needs, and other expenses of technology start-up. If approved, the Micro
Loan would enable'Internet Five to occupy(by way of a lease) approximately
1,000 square feet of office space in Elk River as part of its business
endeavors.
The $37,500 EDA Micro Loan represents almost 21 percent of Internet Five's
$180,800 equipment, working capital, and technology start-up costs. The
EDA loan would carry an 8.75 percent interest rate (the current prime rate)
over a term of five years.
For additional information on this request, EDA Commissioners should refer
to a copy of a memo that was sent to the Finance Committee on this matter.
The Finance Committee met on November 8 to review this request and the
following committee members were present: Jim Simpson, Lloyd Brutlag, Bill
Birrenkott, Tom McNair, and Bud Houlton. Following a presentation from
the principals of Internet Five, the Finance Committee voted to table a
recommendation on this matter until additional information was gathered.
This information related to making an inquiry to United Power Association
P.O. Box 490 • 13065 Orono Parkway • Elk River, MN 55330-1743 • (612) 441-7420 • Fax: (612) 441-7425
Equal Opportunity Housing and Equal Opportunity Employment
(UPA) to confirm an agreement with Internet Five to install certain
illequipment so as to enable UPA to gain a presence on the Internet. In
addition; confirmation on the status of Internet Five's loan request to the
Central Minnesota Initiative Fund was required. Both issues were
satisfactorily resolved. The latter is evidenced by way of a letter from the
Initiative Fund's loan fund manager. A copy of the letter is included in the
EDA's agenda packet.
Action Requested
The Finance Committee will meet at 4 p.m. on November 20 to discuss this
loan request again and to present a recommendation to the Commissioners
for action at 5:45 p.m.
If approved, the EDA Micro Loan would be secured by a promissory note and
personal guaranty from the principals of Internet Five.
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November 14 , 1995
Lee Miller .
Internet Five, Inc.
306 Longlake Court .
Shoreview, MN 55126
Dear Mr. Miller:
Thank you for your preliminary application to the Central
Minnesota Initiative Fund for a business loan. This letter is
to inform you that your preliminary application has been
accepted and that you are invited to submit a final loan
application. Loan approval will be determined from the final
application.
!II After the final application is received, I will contact you to
schedule a site visit as part of the credit review process.
If you have any questions, please contact ma at 612/632-9255.
Sincerely,
LJONI .
ave': ie
Loan Fund Manager
ELK RIVER ECONOMIC DEVELOPMENT AUTHORITY
MEMORANDUM
TO: EDA Finance Committee
FROM: William Rubin, EDA Executive Direct
rp/1 .-
DATE: November 8, 1995
SUBJECT: Request for Micro Loan
Internet Five
introduction
Internet Five requests a loan from the EDA Micro Loan Fund in the amount
of $37,500. This loan would be used by Internet Five to leverage a Small
Business Administration (SBA) low doc loan from a primary lender and
• owner equity for the purchase of computer equipment, the expense of
technology start-up, and for working capital.
Internet Five would occupy (by way of a lease) approximately 1,000 square
feet of office space in Elk River as part of this endeavor.
Background
Internet Five is organized as a Minnesota C-Corporation. The company is
owned by Lee Miller, H. Jan Jay and George Radziwill. The company has
been formed to capitalize on the Information Superhighway and the World
Wide Web (WWW). Internet Five is a provider of WWW services and Web-
Site Creation software for businesses and individuals. Internet's product
enables users to access the WWW without the typical $150,000 to $200,000
set up fee. Instead, a user can access Internet Five's Web-Site Creation
software which will allow them to access the global network. Users of the
software will be able to create their own "home pages". This will enable to
individuals to create their own web site, and will enable smaller companies
the opportunity to obtain a limited presence on the net. This will give them
access to many services, contacts, and potential customers. An Internet Five
customer is anyone who wants to develop a "home page" to position
themselves on the WWW for marketing, customer service, support, or to
• gather information and communicate with other WWW users.
P.O. Box 490 • 13065 Orono Parkway • Elk River, MN 55330-1743 • (612) 441-7420 • Fax: (612) 441-7425
Equal Opportunity Housing and Equal Opportunity Employment
• Project Financing
The request for financing assistance is to help Internet Five purchase
equipment, fund software development, and to secure necessary working
capital needed to market its service. These costs are estimated at $180,800
and are broken down as follows:
Technology Set-up $ 25,000
Equipment
Tricord Server $ 31,800
Computer Equipment $ 17,000
Software $ 12,000
Office Equipment $ 10,000
Working Capital $ 85.000
$180,800
Sources of financing for this equipment are broken down as follows:
Amount % of Project
SBA Low Doc Loan
• via Primary Lender $ 50,000 27.65%
Applicant Equity $ 55,800 30.87%
EDA Micro Loan $ 37,500 20.74%
Central Minnesota
Initiative Fund $ 37.500 20.74%
$180,800 100%
Loan repayments are proposed as follows:
Source Term Interest Rate Security
Primary Lender 5 years 11% Lien on Equipment
EDA Micro Loan 5 years 8.75% (prime) Lease Hold/Accounts
Receivable
Central Minnesota 8.75% (prime)* Second Lien on
Initiative Fund 5 years Equipment/Accounts
Receivable
*Assumed Rate
•
Debt service for the project is outlined as follows:
Source Annual Debt Service
Primary Lender $13,050.00
EDA Micro Loan $ 9,289.00
Central Minnesota Initiative Fund $ 9.289 00 (assumed)
$31,628.00
Three-Year Projections:Balance Sheet, Cash Flows, P&L
For the first twelve months of operations, revenues from WWW services and
Web-Site software are projected at $453,500; gross margins are projected at
$281,595; and total expenses are projected at $182,500 for a net operating
profit before taxes of$98,790. A net profit of$63,868 is projected for the first
twelve months of operation.
For the second twelve months of operations, revenues from services and
software are projected at $1,632,600; gross margins are projected at
$1,067,000; total expenses are projected at $777,960; net operating profit
before taxes is projected at $289,040; and the net profit after taxes is
projected at $174,291.
• For the third twelve months of operations, revenues from services and
software are projected at $2,892,900; gross margins .are projected at
$1,971,300; total expenses are projected at $1,220,688; net operating profit
before taxes is projected at $750,612; and a net profit of $445,864 is
projected.
Total assets for the three years are projected at $291,430, $534,428, and
$1,225,034 respectively. For the same time period, total liabilities are
projected at $225,744, $294;451, and $539,194 respectively.
For the three year period, total equity is projected at $65,686, $239,977, and
$685,840 respectively.
Three year projected cash balances are $212,630, $278,628, and $764,234
respectively.
Employment
According to the Micro Loan application, Internet Five would create eight (8)
jobs with a total payroll of $204,000. These jobs are generally considered
computer programming-type positions and technical, etc.
Action Requested
• Following its review of the Internet Five loan request, the EDA Finance
Committee is asked to present a recommendation to the EDA Commissioners.
The EDA will consider the loan request and recommendation at its meeting
on November 13, 1995.
This loan will be secured by a promissory note and personal guaranty signed
by the principals of.Internet Five.
Availability of Funds
The EDA Micro Loan had a cash balance of $122,046 as of September 30,
1995.
Presentation
Principals from Internet Five will be in attendance along with their financing
consultant to make a presentation to the Finance Committee regarding their
loan request.
•
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utVLLOPMLNT' MI RO LOAN tUND
ELK RIVER, MINNEc^TA
APPLICATION
APPLICANT InternInc.
• ADDRESS 306 Lourt
CITY Shoreview STATE MN ZIP CODE 55126
CONTACT PERSON(S) 1111 er
BUSINESS PHONE HOME PHONE
AMOUNT REQUESTED $37,500
TERMS REQUESTED 5 years
SOCIAL SECURITY NUMBER na FED ID #
STATE ID #
1 . Type of Project:
Construction/New Building Expansion/Existing
Building
X Equipment/Machinery Purchase x Remodel/Commercial
Retail/Industrial
•�
Industrial Inventory Working Capital
Other
2 . Describe Project:
Please see attached Executive Summary
3 . Purpose . Loan:
Please see attached Executive Summary
Aft
4 . Cost of Project:
A) Land $
B) Buildings (attach plans & costs) $
C) Equipment/Machinery/Fixtures (attach list
and estimated costs) $ 70,800
D) Remodeling - Install T-Line $ 25,000
• E) Industrial Inventory/Working Capital $ 85,000
F) Other (attach description) $
TOTAL COSTS $ 180,800
5 . Proposed Financing:
SOURCE NAME TERMS AMOUNT
A) Bank Loan 1st National 5 years $ 50,000
B) Bank Loan $
C) Other Private Funds $
D) Applicant Contribution $ 55,800
Central MN
E) Other Initiative Fund 5 years $ 37,500
F) Fed Grant/Loan $
G) State Grant/Loan $
H) This Loan 5 years $ 37,500
TOTAL FINANCING $ 180,800
-2
1 .)
Collateraltobeassigned (Describe andposition) :) To Bank: 1st on equipment•
) To Bank:
) To Private Funding Source:
To Other Source: 2nd on equipment/accounts receivable
E) To Federal Govt:
F) To State:
G) To This Loan: leasehold/accounts receivable
7 . Value of Collateral:
COST BOOK VALUE EXISTING
LIENS
A) Land $ $ $
B) Buildings , $ $ $
C) Mach. & Equip. $ 70,800 $ 70,800 $ bank
D) Other $ 25,000 $ 25,000 $
E) Other $ $ $
8 . Employment*:
ryf Present: # of Employees 0 Total Payroll 0
IIP
After Project: # of Employees 8 Total Payroll $204,000
*If Loan is for Job Retention Only, Explain in Business Plan.
9 . Attorney, Accountant (Names, addresses, phone) :
Lee Miller Tom Okinoski
306 Longlake Court Norwest Building, 50th Floor
Shoreview, MN 55126 799-2142 Minneapolis, MN 55428 341-2181
10 . Bank and Other Credit References (Names, addresses, phone) :
Norwest Bank Anoka Barb Odegard (612) 421-3830
Midway National Bank 1578 University Avenue West (612) 628-2661
Lehigh Credit Union Mason City, Iowa
FBS Mortgage (612) 435-3275
•
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I/We certify that all information provided in this application is
• true and correct to the best of my/our knowledge. I/We authorize the
City of Elk River and the Finance Committee to check credit
references and verify financial and other information. I/We agree to
provide any additional information as may be requested by the City
and the Finance Committee.
DATE /,e0/23.--------/
D a �.
Applicant Name tz 7`rYn le7/ 1-/i/‘-e
BY • - 1�/ � , , U
By
III
a
-5-
First National B
• of Elk River
November 3, 1995
William Rubin
Anoka office Economic Development Coordinator
1121 W.Hwy.10 P
Anoka,MN 55303 13065 Orono Parkway
(612)422-0537 Elk River, Minnesota 55330
Dear Bill:
First National Bank of Elk River has tentatively approved a loan to Internet Five, Inc.
Elk ParFreepoer rt
The loan commitment is contingent upon approval of a SBA low doc guarantee and
19157 Freeport Ave.
Elk River,MN 55330 Internet Five, Inc. Obtaining the additional funds needed.
(612)441-5684
The companies sources and uses of funds statement shows uses of$180,800.00. After
FNB-ER loan of$50M, and the owners equity injection of$55.8M there is a short fall
of$75M. The company is requesting loans of$37.5M from the Central Minnesota
in Office Initiative Fund and the Elk River Micro Loan Fund.
i29 Main Street
Elk River,MN 55330
(612)441-2200 FNB-ER can not increase its loan amount due to the fact that Internet Five, Inc. is
a start up company. Without funding from the Micro Loan Fund, the company will
be faced with a significant shortfall in its funding.
SAX Office From our review of the Internet Five business plan and interview with the owners, we
19424 Evans St.NW feel the company has a good chance of succeeding. The company has successfully
Elle2soldtheirproduct and has a
(6112)) MN 55330
strong management team.
A Micro Fund Loan to The Internet Five would help bring a rapidly growing high tech
company to the City of Elk River.
Zimmerman Office
26040 Main St. Sincerely,
Zimmerman,MN 55398
(612)856-2266
h1/4,
Thomas L. Lun
Assistant Vice President
First National Mortgage
716 Main Street
Elk River,MN 55330 TLL/gmw
•12044l7133
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EXECUTIVE SUMMARY
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INTERNET FIVE, INC.
SBA LOW DOC LOAN
EXECUTIVE SUMMARY
INTRODUCTION
Internet five (i5) is organized as a C - corporation and is being established to
begin operations in Minnesota. The company is owned by Lee Miller, H. Jan
Jay and George Radziwill. Some key employees may have some ownership as
well as future investors.
The company is being formed to capitalize on the Information Superhighway
and the World Wide Web. Internet five is a provider of World Wide Web
(WWW) services and Web-Site Creation Software for businesses and
individuals. The product enables users to access the WWW without the typical
$150 - 250,000 setup fee. Instead, the user will use internet five's Web - Site
Creation Software which will allow them to access the global network of
computer.
Users of the software will be able to create their own "Homepages." This will
enable individuals to create their own Web Site, as well as allow smaller
companies to obtain a limited presence on the net. This will give them access
to many services, contacts and potential customers. A customer of i5 is anyone
who wants to develop a "Homepage" to position itself on the WWW for
marketing, customer service and support or to gather information and to
communicate with WWW users.
r.
•
The company plans to lease approximately 1,000 square feet of space in or
near the metro area. The location is not important to customer development
but will be important for recruitment of employees. Initially the staffing will
include two of the owners and two technical support people to process WWW
site information.
The purpose of the financing is to purchase equipment, fund software
development and secure the necessary working capital needed to market the
service.
•
PROJECT FINANCING
The following is a listing of the uses and sources of funds for establishment of
this business in Minnesota:
USES OF FUNDS
Technology Set-up $25,000
Equipment
Tricord Server 31,800
Computer Equipment 17,000
Software 12,000
Office Equipment 10,000
Working Capital 85,000
TOTAL USES OF FUNDS $180,800
SOURCES OF FUNDS
Bank/SBA Low Doc Loan (11%, 10 years) $50,000
Central Minnesota Initiative Fund (5%, 5 years) 37,500
Elk River Micro Loan (8.75%, 10 years) 37,500
Owners' Equity 55,800
TOTAL SOURCES OF FUNDS $1_811$0
IP FINANCIAL OVERVIEW
Following is a summary of the projected sales and profitability of the company:
YEAR SALES NET INCOME BEFORE TAXES
Year 1 $ 453,500 $128,240
Year 2 $1,632,600 $361,300
Year 3 $2,892,900 $938,265
Debt-to-Net Worth Ratio
The beginning debt-to-net worth ratio is 2.24:1.
Current Ratio
The beginning current ratio is 18.61:1.
Cash Flow Analysis
The cash flow coverage ratio based upon 1996 and 1997 projections is 6.35:1
and 16.28:1, respectively.
COLLATERAL ANALYSIS
The collateral offered to secure this loan includes equipment and future
accounts receivable.
Beginning Collateral Analysis
Equipment $ 70,800
TOTAL COLLATERAL AVAILABLE $ 70,800
Less: Bank/SBA Loan (50.000)
EXCESS COLLATERAL $ 20.800
Future Collateral Analysis
Accounts receivable will build as the company generates sales. By the end of
year one accounts receivable are projected to be $28,000 and at the end of year
two they are projected to be $78,000. This generates additional collateral to
secure the loan.
The initial loan-to-value ratio will be 71 percent. At the end of year one the
loan-to-value ratio will be 51 percent.
•
BORROWER
The borrower for this loan will be internes five, inc.
MANAGEMENT/PERSONNEL
• Lee Miller will be CEO and.CFO of the company. He will be in charge of the
administrative, operations, accounting and finance functions. He is a Certified
Public Accountant and has 25 years of business experience. The server
systems will be administered by George Radziwill. He is currently a technical
coordinator who manages and maintains a similar system at the University of
Minnesota. Lee Miller will be in charge of the marketing. He has 20 years of
experience in computer services: Service and software sales will be conducted
by Jan Jay who has high-tech sales experience and expertise in the World-Wide
Web and internes systems.
SUMMARY
The market for these services in the Twin Cities market alone will be ample to
meet the company's projections. As business allows the company would
anticipate moving into other geographic markets. This expansion would
increase the market potential with very little increase in cost.
S
There are currently 146 countries connected to the internes. Industry experts
• estimate the internes population at over 20 million. In 1994 the growth just in
the United States was 9.4 percent per month. This equates to almost two
million new connections per month.
A recent Goldman, Sachs and Company report projects that the primary
beneficiaries of the growth of the WWW will be companies that develop
"homepages" for companies and publishers of WWW software. The estimated
internes market for 1994 was projected at $843 million. Revenues are expected
to top $4 billion by 1997.
•
a