icbsc annual report y5

Year 5 Annual Report Beach Drive Inc. | 1

Beach Drive Inc. Year 5 Annual Report

W3C3


Table of Contents Company Overview 3

Who We Are 3

Vision Statement 3

Mission Statement 3

Letter to Our Shareholders 4

Analysis of Financial Condition and Results of Operations 5

Financial Highlights 5

Stock Price 5

Income/Assets and Income/Sales Ratios 5

Market Share 6

Sales Growth 6

Research and Development 6

Fixed Assets 7

Liquidity and Capital Resources 7

Market Analysis 7

Marketing and Product Description 9

Our Product 10

Financial Statements 11

Consolidated Income Statement 11

Consolidated Cash Flow 12

Consolidated Balance Sheet 13

Notes to Financial Statements 13

Statement from Independent Auditor 14

Management Team 15

Board of Directors 15

Locations 15

Other Information 15


Company Overview Who We Are Beach Drive Incorporated is a leading global manufacturer of multi-feature USB flash drives. BDI provides environmentally friendly, high quality flash drives with optimal functionality for users. We aim to remain at the forefront of the flash drive industry by continuously developing the most cutting-edge products on the market. Beach Drive Incorporated’s headquarters is located in Long Beach, Merica 3. As an international company, BDI has two manufacturing plants, one in its home market, Merica 3, and a second in South America, located in Sereno. BDI currently maintains sales offices in Merica 1, Merica 2, Merica 3, and Sereno. For the last three years BDI has been under a new management team, which has consistently emphasized innovation and customer satisfaction to ensure that we remain the vanguard of the flash drive industry worldwide. Our Vision BDI’s vision is to be the industry leader in innovative, high-quality, multi-feature USB flash drives and offer our customers a superior product with unparalleled value at a competitive price. Our Mission BDI’s mission is to be the leading provider of differentiated USB flash drives for customers who demand innovative multi-feature products. To fulfill the needs of our customers we will invest heavily in research and development to ensure that we continue to provide the most advanced products on the market. To provide the greatest value to our customers and return to our shareholders we will invest in employee training to keep costs low and productivity high.


Letter to Our Shareholders I am very pleased to report that Year 5 has been a great success for Beach Drive Inc. and in turn our shareholders. Since Year 3, when BDI introduced a new management team, directing itself towards innovation and growth, we have released three new product models and increased revenue by 65%. Despite an ever-changing market and a rising demand from consumers for environmentally friendly product packaging we have been able to increase global market share while keeping costs low.

Although our management team faced some challenges in Year 3 and Year 4, our long term planning and preparation for market growth has significantly paid off in Year 5. As markets both domestically and abroad have begun to prosper we have been poised to meet rising market demand. We project future market growth accompanied by a growing market share, and as a result we have continued to expand our operations in order to meet the increasing demand of our customers. As the market size has risen our financial position has consistently improved preparing us for upcoming years. Below are a few highlights from Year 5. Net Income: Net income in Year 5 was $1.9 million, up from $110,000 in Year 4. Gross Sales: Gross sales for Year 5 were over $22 million, a 23% increase from Year 4. Market Share: Market share at year-end was over 23%, a 4% increase from Year 4. Not only do we aim to meet the demand of our existing customers, we also strive to continuously provide the most desirable and advanced products on the market in order to attract new customers to our brand. By offering market specific products we have been able to thrive in each of the four markets in which we operate. We believe that in order to maintain current customers while attracting new customers our product needs to be not only unique but also durable. By developing high quality products that fit the needs of the customers in each of our respective markets we intend to maximize customer satisfaction and in turn ensure customer retention. At BDI we recognize our employees are our most valuable assets and therefore we invest heavily in extensive training programs and competitive employee compensation packages. Through the business model of providing the most advanced products on the market that precisely meet customer demand and providing our employees a workplace in which they can prosper we will continue to increase net income and as a result increase our stockholders’ value of their stake in BDI. We look forward to sharing our future successes with our shareholders, employees, and management team in the years to come. Bryce Thomson Chief Executive Officer


Analysis of Financial Condition and Results of Operations Financial Highlights

Beach Drive Inc. experienced a significant increase in stock value during Year 5. In Quarter 1 we issued stock in order to raise capital for further growth. Following that slight decrease in stock price we have since repurchased the majority of those shares and simultaneously reached a record stock value of $1.30 in the Quarter 4, up from $1.07 one year prior, making our market cap $8.19 million. During Year 5 BDI greatly increased our annual net income to a record $1.9 million. This improved both our income to equity ratio as well as our income to sales ratio. Income to equity increased from 0.89% in Year 4 to 13.43% in Year 5. Our income to sales ratio increased from 0.65% in Year 4 to 8.57% in Year 5. This growth has been a result of our long term planning and preparation for predicted future market growth. Despite an issuance of more shares we have also been able to increase our earning per share from $0.018 in Year 4 to $0.286 in Year 5, highlighting the increased earnings that BDI has achieved by cutting costs, growing customer demand, increasing sales prices and implementing aggressive advertising campaigns.

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Quarterly Stock Price

Year 4 Year 5 Revenue ($000s) 17,027 22,132 Gross Profit Margin 59.59% 57.35% Net Income After Tax ($000s) 110 1,897 Earnings Per Share 0.018 0.286 Market Share (Average) 19.27% 21.29% Production Cost Per Unit 4.73 4.94 Net Operations Cash Flow ($000s) 1,716 3,086 Shares Repurchased (000s) 0 1,000

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Income/Equity and Income/Sales Growth

Income/Equity Income/Sales


In Year 5 BDI has maintained our position as a major market competitor. We achieved record market shares in each of our areas of operation. Increasing market share from Year 4 Quarter 4 by 5% in Merica 1, 3% in Merica 2, 2% in Merica 3, and an unprecedented 10% in Sereno. Our current global market share is up 4% from year-end Year 4 to 23.4%. While the market for flash drives has continued to grow, BDI’s unit sales drastically outpaced market growth in Year 5. This growth coupled with rising demand and higher product prices to reflect new product introductions significantly increased our revenue. In Year 5 our revenue was over $22 million up 23% from $17 million in Year 4, and up 35% from $14 million in Year 3. This increase in revenue from Year 4 to Year 5 has allowed us to improve our financial position, repurchase shares, increase product innovation, and continue to expand our operations on a global scale, in turn increasing shareholder value. Research and Development

BDI has consistently led the market in R&D investments. In Year 5 we invested 20% more than the market average in R&D and 10% more than our closest competitor. Through heavy investment in R&D we were the first to release Model 4 in Year 4 and the first and only company to release Model 5 in Year 5. This innovative approach has allowed us to increase our units sold and by raising prices to reflect our continuously improved premium product we have increased revenue.

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Regional Market Share

Merica 1

Merica 2

Merica 3

Sereno

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Unit Sales Growth Rate

Beach Drive Inc.

Market Average


Fixed Assets BDI currently has the highest value of fixed assets in our industry, 11% more than the market average. Our investments have allowed us to maintain a sufficient production capacity to meet demand and remain prepared for market growth. We have continued to invest in our Sereno plant, including a plant expansion in Year 5 Quarter 4 in order to cut our production costs with the aim of increasing net income.

Liquidity and Capital Resources At year-end of Year 5, BDI had over $3 Million cash on hand, up from $1.7 Million at the end of Year 4. With this capital we will continue to innovate, expand our operations, and maintain a high level of employee satisfaction. This will also enable us to introduce dividends and continue with stock buybacks in order to increase our shareholder value. Market Analysis: Beach Drive Inc. currently operates in four different areas. These areas include our home market, Merica 3, as well as Merica 1, Merica 2, and Sereno. We have sales offices in each of these markets in order to keep our sales team close to our customers. We currently have two manufacturing facilities, one in Merica 3 and one in Sereno. We expanded our facilities to Sereno in Year 3, which allowed us to take advantage of lower production costs and have a greater production presence in that growing market. Each year, we purchase a Consumer Preference Report (CPR) in order to specifically identify which types of products our customers desire in each of the markets. Merica 3 is our home market where we currently produce many of our innovative products. According to the CPR, the consumers in Merica 3 desired Quality 1/ Feature 2 products. However, the difference in consumer demand between product structures in this market is incremental and we believe it is important to maintain a differentiated and innovative product. We are, as a result, one of only two companies selling a Quality 2/


Feature 3 product in this market, the other company being Company 2, Mac’s Maple Syrup. In this market, because we incur many of our corporate costs, our costs per unit have been higher, which has required higher sales and precise inventory management in order to compensate for higher respective operating costs. We have begun to shift operations out of Merica 3 in order to lower production costs and in turn increase overall profit, and raise shareholder value. The economy has continued to grow consistently, and at a much faster rate than in previous years, throughout Merica during Year 5 and we therefore expect our market to continue to grow as well. Despite minimization of production in Merica 3 we still remain at a production capacity capable of meeting current market demand and poised to meet future increases. We have worked to keep costs low and innovation high by maintaining aggressive training and R&D departments at our home office. This approach has been effective and has resulted in Merica 1 becoming increasingly profitable each quarter throughout Year 5. Merica 2 was our largest market throughout Year 5 in terms of unit sales. In Year 5 Quarter 1, the industry sold 100,000 more units here then the next largest market, Merica 3. The consumers in Merica 2 desired a Quality 1/ Feature 1 product, according to the CPR. Despite this preference we recognized that there remains a distinct unfulfilled market for high quality flash drives, which we aim to expand. We have adjusted our tactics in this Market, and made the transition from selling Model 4, a Quality 3/ Feature 3 product in Quarter 3 to Model 5, a Quality 2/ Feature 2 product in Quarter 4. This product, meeting a slightly lower quality niche but remaining above the budget Quality 1/ Feature 1 products, proved to be successful because for the first time we took control of the largest market share in this significantly sized market. Merica 1 is another Merica market, which has become increasingly profitable for us throughout Year 5. A large majority of consumers in this market desired a Quality 3/ Feature 3 product. After selling the most desired product structure in this market for almost three years, we transitioned into selling a Quality 2/ Feature 3 product. This move

was in response to an oversaturation of companies providing products to fulfill the demand for Quality 3/ Feature 3 products. Two other competitors were also selling this product structure in this market. We saw our sales increase after making the move to being the only company selling a Quality 2/ Feature 3 product in Merica 1. This shift proved to be lucrative because it allowed us to reach the second largest market share in Merica 1.

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GDP Growth

Merica

Sereno


Sereno is the only foreign market that we currently produce and sell in. We have seen the exchange rate stay extremely consistent over the past five years, remaining at 6 Pesos. Although there have been market predictions of shifts in the exchange rate it has remained stable from Year 3 through Year 5. It is the fastest growing market in our world and we see a lot of potential for growth here. The consumers here prefer a Quality 1/ Feature 3 product, which is exactly what we offer. By offering an innovative product with lower quality components we are able to meet market demand and keep both production costs and sales prices low. Although two other companies offer the same product structure, we have taken control of this market and have developed a loyal following of consumers. We held a 32% market share here by the end of Year 5. We plan on continuing to be industry leaders in this expanding market. Although exchange rates have remained highly stable over the course of the last couple years this is an aspect of our business model, which we are aware could become a risk in the future. If the Sereno Peso weakens it could diminish domestic earnings, and if the Peso strengthens it could cut the savings levels we are currently experiencing in Sereno. We predict that in coming years the economy in Sereno will continue to grow, in turn providing us with a stable and growing market in which to sell our product while maintaining a steady exchange rate in relation to Merica. Based on the profitability that has resulted from operations in Sereno we expanded our production plant there in Year 5 Quarter 4 in order to increase capacity in anticipation of growing markets in both Merica and Sereno. We are currently one of only three companies in our world which have invested in a Sereno plant, and therefore we see this as a great competitive advantage which will allow use to continue to provide multi-feature products at competitive prices for years to come. Marketing and Product Description At Beach Drive Inc. we believe that providing our customers with the product that they desire most is the key to success. Our marketing team uses consumer preference studies and experience to determine the needs and wants of our customers and to create the most suitable products for each market. This information is then passed on to our manufacturing department, which creates leading industry products with the designs and features to satisfy customer demands and preferences. We remained our world’s leader in innovation, by being the first in the industry to release both Model 4 and Model 5. The first model that we released was the Smart-Drive. By Year 3 we released Model 2, the Ultra-Drive. In Year 4 we released Model 4, the Ultra-Drive-Mini. Most recently, in Year 5, we released our most innovative product yet, the Key-Drive. Following the release of our most recent model, BDI achieved record sales and revenue. In recognition of our newest model, we were honored at a global consumer technologies trade show, the Consumer Electronics Show (CES), with the “2014 Best of Innovations Award.”


Beach Drive Inc. pursues an aggressive advertising platform. Since our first year of operations, we have continuously increased annual advertising expenditures. These investments have enabled us to reach more consumers through our advertising campaigns and increase the general recognition of our brand. In order to connect with our target customers, in the midst of the Internet age, a large portion of our marketing is done through online advertising. Within the past two years we have expanded our marketing efforts into technology tradeshows and conventions. Beach Drive Inc. recently became the main sponsor for SXSW Interactive, which is an annual multi-day trade show that showcases the newest computer technologies from around the world. BDI has also utilized social media as a marketing tool. Through the use of social media, we are able to connect and interact with hundreds of thousands of Millennials and consumers of every generation. Platforms such as Facebook, Twitter, Instagram, and LinkedIn allow us to use “active marketing” to get the opinions and values of our highly valued customers and continue to provide each market with the most desirable and cutting-edge products. Our Products We have discovered that our consumers tend to prefer high quality products with multiple features; therefore this is what we aim to deliver. Our products are industry leaders in quality and features. We have consistently been the first to market with the release of each of our new models. In Year 4, we jumped from Model 2 to Model 4, and since then we have been one model ahead of even our closest competitor. Our newest model, Model 5, or the Key-Drive, set record sales and revenue upon its release in Year 5 Quarter 4. Model 5: The Key-Drive With the most up to date technology and a unique design, the Key-Drive gives our consumers a product that they can take with them everywhere they go without even noticing it is there. Whenever and wherever there is a need to save or transfer data safely, they can simply pull out their key chain and insert this extremely innovative and mobile flash drive. Model 4: The Ultra-Mini-Drive

The Ultra-Mini-Drive was a revitalized version of our Model 2. As we recognized that consumers were desiring a more modern, transportable flash drive, we decided to minimize the size and provide them with a sleek and discreet product which can be slipped into the change pocket of a pair of jeans or even left in your computer, acting as a convenient and mobile storage tool.


Financial Statements Beach Drive Inc.’s Consolidated Income Statement ($000s) Year 3 Year 4 Year 5 Net Sales: To Customers 14,331 17,027 22,132 to Liquidators (at cost) 82 42 136 Total Sales 14,413 17,069 22,268 Cost of Goods sold 6,722 6,563 9,065 Less Value Added Tax 288 362 511 Gross Profit 7403 10146 12692 Advertising Expense 699 2,459 2,266 Sales Salaries 507 574 680 Sales Commissions 316 431 667 General Selling Expense 1,664 1,752 2,002 Transportation Expense 674 878 945 Sales Office Depreciation 48 48 48 Total Selling Expense 3907 10146 6608 Research and Development 605 1,000 810 Total Training Expense 753 572 629 Storage Expense 91 157 223 Executive Compensation 813 845 889 Other Expense 82 283 86 Total Admin & Gen Expense 2,343 2,858 2,635 Total Operating Expense 6,251 8,975 9,243 Operating Profit (Loss) 1151 1172 3451 Other Income: CD Interest 27 - - Capital Gain (Loss) - - - Other Expense: Loan Interest 12 39 - Bond Interest 200 200 200 Net Profit (Loss) Before Tax 966 933 3,251 Less Income Tax 385 822 1,353 Net Profit (Loss) After Tax 581 110 1,897 Foreign Currency Adjustment - - - Comprehensive Income (Loss) 581 110 1,897


Beach Drive Inc.’s Consolidated Cash Flow ($000s) Year 3 Year 4 Year 5 Operating Receipts: Accounts Collected 14,060 16,524 20,991 CD Interest 27 - - Sales to Liquidators 82 42 136 Operating Expenditures: Interest Paid 212 233 200 Production Cost 6,280 6,591 7,190 Operating Expense 6,022 8,761 9,139 Taxes Paid 782 954 1,529 Net Operating Cash Flow 873 29 3,069 Investment Receipts: CDs Matured 1,000 - - Fixed Assets Sold - - - Investment Expenditures: CDs Purchased 1,000 - - New Equipment 2,088 - - Sales Office Investment - - - Plant Investment 1,935 - 539 Net Investment Cash Flow (3,023) - -539 Financing Receipts: Loans from Bank 700 2,000 - Bond Sale - - - Stock Sale - - 1,027 Financing Expenditures: Dividends Paid - - - Bank Loans Repaid - 2,930 1,000 Bonds Repurchased - - - Stock Repurchased - - 1,190 Net Financing Cash Flow 700 70 (1,163) Beginning Cash Balance 2,848 1,395 1,716 Net Cash Flow for Year (1,450) 99 1,367 Cash Balance End of Year 1,395 1,716 3,086


Beach Drive Inc.’s Consolidated Balance Sheet ($000s) Year 3 Year 4 Year 5 ASSETS: Cash Balance 1,395 1,716 3,086 Time Certificates of Deposit - - - Accounts Receivable 2,204 2,708 3,848 Inventory 695 1,676 688 Total Current Assets 4,294 6,100 7,622 Net Sales Office 1,454 1,405 1,357 Net Manufacturing Plant 4,882 4,717 5,086 Net Manufacturing Equipment 3,730 3,004 2,278 Other Investments 2,000 2,000 2,000 Total Fixed Assets 12,066 11,126 10,721 Total Assets 16,360 17,226 18,343 LIABILITIES: Accounts Payable 1,178 1,404 1,448 Bank Loans 700 1,000 0 Taxes Payable 204 433 769 Total Current Liabilities 2,082 2,837 2,217 Bonds Outstanding 2,000 2,000 2,000 Total Liabilities 4,082 4,837 4,217 Capital Stock 9,500 9,500 9,085 Accumulated Earnings 2,777 2,888 5,038 Accumulated Foreign Cur. Adjust. 1 1 3 Total Equity 12,278 12,389 14,126 Total Liabilities & Equity 16,360 17,226 18,343 Notes to the Financial Statements Principle of Consolidation: The consolidated financial statements display the financial position and operational results of Beach Drive Inc., including our wholly owned subsidiaries. The preparations of the financial statements are in conformity with the U.S. generally accepted accounting principles. Inventory: Inventories are stated at the cost of production and are based on first-in and first-out accounting method. Revenue Recognition: Revenue is recorded once products are delivered to affiliates, sales office, and/or customers.


Selling and general expenses: Expenses include general expense, transportation, advertising, employee salaries and commission, R& D, sales office depreciation, training expense, executive compensation expense, and storage expense. Income Tax: Income tax is 39% of net income for our company and our subsidiaries. Sereno implements a value-added tax of 10% on all domestic sales. Bonds: Interest is 2.5% quarterly of the value of outstanding bonds. Accounts Receivables: Account Receivables are collected during the current and following quarter at a rate of 50%, respectively. Property, plant and equipment: Depreciation is calculated on a straight-line method based on useful lives of 31.5 years for building and plants, and 7 years for equipment. Research and Development: R&D expense is accounted in the period it is incurred. Statement from Independent Auditor Report of KPMG, Independent Registered Public Accounting Firm The Board of Directors and Shareholders of Beach Drive Inc. We have audited the consolidated financial statements of Beach Drive Inc. and its subsidiaries as of December 31, Year 4 and December 31, Year 5. The financial statements examined include the income statement, balance sheet, and statement of cash flow, all of which are the full responsibility of the company’s management. Our responsibility is to express and opinion on these financial statements based on our audits. We conducted our audit according to the Generally Accepted Accounting Principles as set forth by the Financial Accounting Standards Board and the Securities and Exchange Commission in the United States. These principles require that we plan and perform the audit in order to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in each of the financial statements. Our audit also includes assessing the accounting principles applied by Beach Drive Inc. and examining any significant estimates made by the company. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements of Beach Drive Inc. present all material elements of the consolidated financial position of the company fairly and accurately as of December 31, Year 3, December 31, Year 4, and December 31, Year 5. Each of its financial statements conforms to the policies and standards set by the U.S. Generally Accepted Accounting Principles. KPMG Los Angeles, California February 28, Year 6


Management Team Bryce Thomson............................................................................Chief Executive Officer Jake Fitzgerald..........................................................................Chief Operations Officer Jimmy Borland...........................................................................Chief Marketing Officer Jennifer Phan................................................................................Chief Financial Officer Damion Ma..........................................................................Vice President of Accounting Board of Directors Warren Buffet..............................................................................Chairman of the Board Annette Lohman............................................................................President of the Board Jeff Bezos.........................................................................................Member of the Board Michael Solt.....................................................................................Member of the Board Corporate Headquarters: Long Beach, Merica 3

Sales Offices: Long Beach, Merica 3 Dallas, Merica 2 New York, Merica 1 Brasília, Sereno

Plants: Long Beach, Merica 3 Brasília, Sereno Other Information: Corporate Headquarters: 1250 Bellflower Blvd. Long Beach, Merica 3 Stock Identification: “BDI” Stock Exchange: NASDAQ Global Select Market (“NASQAQ”) Independent Registered Public Accounting Firm: KPMG 355 S. Grand Ave. Los Angeles, Merica 3, 90071 General Counsel: Greene Broillet & Wheeler, LLP 100 Wilshire Boulevard, 21st Floor Santa Monica, Merica 3 90401 Next Annual Meeting: April 25, Year 6 2085 S. Harbor Blvd., Anaheim, Merica 3, 92802

icbsc annual report y5

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