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

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 2

Smoking a growing problem for Vietnam 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 $96,000,000 Smoking kills 40,000 a year, will be 70,000 by 2030 if changes aren’t made 3

Push to stop smokingElectronic Cigarettes 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 4 Can assist with quitting smoking Replaces harmful cigarettes $3 billion market by 2015

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 5

Cage Analysis CulturalAdministrativeGeographicEconomic Different language14 days to start a business Long Distance to Vietnam Lower income level Vietnam is a collectivistic society, US individualistic E-Cigarettes duty free to Vietnam Product is lightweight, low shipping costs Cigarettes are inexpensive Desire for US made products 10% Value added taxNon perishable item, no spoilage Can we make an electronic cigarette cheap enough for Vietnamese customers? 0% Special Sales Tax Labeling requirements (Vietnamese) 6

PESTEL Analysis PoliticalEconomicSocialTechnologicalEnvironmentalLegal Restrictions on advertising of tobacco related products Little competition from China Increased efforts to reduce smoking Efforts to develop infrastructure No significant impact Restrictions on tobacco suppliers Higher taxesChinese e- cigarettes are low quality and not tested well Ad campaigns illustrating negative health effects Adding expressways Age restrictions on purchasing 3 billion dollar market by

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

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 9

Marketing to be centrally focused on high income smokers 10 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

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 $1b in sales – an increase of 240% in the last year Will comprise an estimated 10% of the total tobacco industry volume by % of smokers want to quit* Few legal restrictions *Gallup poll 11

Revenue Forecast Breakdown 12 Item Direct Sales $ 2,000, $ 2,100, $ 2,205, $ 2,315, $ 2,431, Distributor Sales $ 6,000, $ 6,300, $ 6,615, $ 6,945, $ 7,293, Services/Maintenance $ 800, $ 840, $ 882, $ 926, $ 972, Total Revenue $ 8,800, $ 9,240, $ 9,702, $ 10,187, $ 10,696, Units/Users ASP (Average Selling Price) $ 80.00

Profit and Loss from Operations Forecast Item Total Revenue $ 8,800, $ 9,240, $ 9,702, $ 10,187, $ 10,696, COGS $ 5,280, $ 5,544, $ 5,821, $ 6,112, $ 6,417, Gross Profit ($) $ 3,520, $ 3,696, $ 3,880, $ 4,074, $ 4,278, Gross Profit (%)40.00% Operating Costs Sales & Marketing $ 1,584, $ 1,663, $ 1,746, $ 1,833, $ 1,925, R & D $ 396, $ 415, $ 436, $ 458, $ 481, G & A $ 880, $ 924, $ 970, $ 1,018, $ 1,069, Total Operating Costs $ 2,860, $ 3,003, $ 3,153, $ 3,310, $ 3,476, Total Costs $ 8,140, $ 8,547, $ 8,974, $ 9,423, $ 9,894, Other Income and Expenses $ - Pretax Profit ($) $ 660, $ 693, $ 727, $ 764, $ 802, Pretax Profit (%)7.50% Taxes (35%) $ 231, $ 242, $ 254, $ 267, $ 280, Net Income $ 429, $ 450, $ 472, $ 496, $ 521,

Cash Flow Forecast Net Income $ 429, $ 450, $ 472, $ 496, $ 521, Plus Depreciation $ 32, Cash Flow From Operations $ 461, $ 483, $ 505, $ 529, $ 554, 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, $ 185, $ 198, $ 211, Plus Financing Source 1 $ 3,125, $ 500, $ - ETF $ 1,750, $ - Source 2 $ - Total Financing $ 4,875, $ 500, $ - Cum. Financing Required $ 4,875, $ 5,375, Beginning Year Cash Balance $ 5,000, $ - $ 673, $ 858, $ 1,056, End Year Cash Balance $ 0 $ 673, $ 858, $ 1,056, $ 1,268,

Headcount and Salary Forecast Item Existing Headcount Manufacturing Research Product Development Sales Marketing G & A Total Head Count

CEO (US) Manufacturing Shipping (US) Manager of Vietnam Operations Accounting Research & Development Distribution Sales & Marketing ShippingReceivingSalesMarketing WholesaleRetail