!

!!

!!!!!!Fall

|14

MANAGEMENT*DISCUSSION*AND*
ANALYSIS*OF*FINANCIAL*CONDITION*
AND*RESULTS*OF*OPERATIONS*
QUARTER*12*VERSUS*QUARTER*11*

!
!

!
*

!
!
!
Chief!Executive!Officer!
Meghan*Carpenter*
mrcarpenter1@catamount.wcu.edu**********
*
*
Chief!Financial!Officer!
James*Fordham*****
jffordham1@catamount.wcu.edu3
*******
*
Chief!Marketing!Officer!!
Gautier*Villette******
3gfvillette1@catamount.wcu.edu333
******
*
Chief!Operating!Officer!
Celeste*Underwood****
kcwourmswilliams1@catamount.wcu.edu3
*****
*
Chief!Strategy!Officer
Florian(Zunino(
fgzunino1@catamount.wcu.edu2
(

Table of Contents

Overview!.........................................................................................................................................!1!
Corporate!Strategy!........................................................................................................................................................!1!
Competitive!Advantage!...............................................................................................................................................!2!
Market!Share!....................................................................................................................................................................!2!
Results of Operations!...................................................................................................................!3!
Exhibit!1!!Statements!of!Income!...........................................................................................................................!4!
Net Operating Revenue!...............................................................................................................!5!
Revenue!Analysis!...........................................................................................................................................................!5!
Exhibit!2!E!Revenue!Analysis!.....................................................................................................................................!6!
Projected!Revenue!.........................................................................................................................................................!6!
Segment!Analysis!...........................................................................................................................................................!7!
Marketing and Selling Expenses!.............................................................................................!14!
Advertising!....................................................................................................................................................................!14!
Sales!Offices!...................................................................................................................................................................!16!
Web!Marketing!Expenses!........................................................................................................................................!18!
Sales!Force!.....................................................................................................................................................................!18!
Cost of Production!......................................................................................................................!19!
Labor..!..............................................................................................................................................................................!19!
Changeover!....................................................................................................................................................................!19!
Exhibit!8!E!Cost!of!Production!Table!...................................................................................................................!20!
Materials!.........................................................................................................................................................................!21!
Operations Overhead Expenses!...............................................................................................!24!
Excess!Capacity!............................................................................................................................................................!24!
Inventory!Holding!Costs!..........................................................................................................................................!25!
Shipping!..........................................................................................................................................................................!26!
Research and Development Expense!......................................................................................!27!
Financial Position!.......................................................................................................................!28!
Exhibit!9!E!Balance!Sheet!.........................................................................................................................................!28!
Breakeven Analysis!....................................................................................................................!29!
Exhibit!10!E!Breakeven!Analysis!...........................................................................................................................!29!
Liquidity and Capital Resources!.............................................................................................!30!
Exhibit!11!E!Statement!of!Cash!Flows!and!Liquidity!....................................................................................!31!
Business Outlook!.........................................................................................................................!31!
Figure!6!!Forecasted!Revenues!...........................................................................................................................!32!
Appendix!........................................................................................................................................!34!

Disclaimer This section, Managements Discussion and Analysis of Financial Conditions

and Results of Operations, contains forward-looking statements based on our current
expectations. These forward-looking statements represent our estimates and assumptions
only as of the date of this report. In some cases, you can identify forward-looking
statements by terms such as may, will, should, could, goal, would,
expect, plan, anticipate, believe, estimate, project, predict, potential
and similar expressions intended to identify forward-looking statements. These statements
involve known and unknown risks, uncertainties and other factors, which may cause our
actual results, performance, time frames or achievements to be materially different from
any future results, performance, time frames or achievements expressed or implied by the
forward-looking statements. A brief discussion of risk factors affecting our business and
future prospects will be addressed at the end of the MD&A. All market research
information is based on data received from the Marketplace Business Simulation.

Overview
Abri Co. (The Company) designs, manufactures, markets, and sells personal computers
for the CostCutter, Work Horse, Innovator and Traveler market segments in the United
States, Canada, Europe, China and Brazil. As of Quarter 13, Abri Co. is positioned as the
technological leader in the Traveler market segment and a fast follower in the Innovator
and Mercedes segments. We are also the most efficient firm (lowest cost producer) in our
industry, which allows us to be the price-leader in the CostCutter and Work Horse market
segments with an average price up to $300 lower than our competitors.
Corporate Strategy
The Companys market development strategy is to offer all products in all available
markets both online and through local sale offices. Abri Co. started to sell its product lines
in the United States (New York, Atlanta, and Los Angeles), before expanding to Europe
(London & Berlin), Canada (Toronto), Brazil (Sao Paulo) and China (Shanghai). Abri Co.
is also selling online through web centers worldwide (USA, Canada, Europe, Brazil and
China). Our new offices in Chicago, Montreal, Paris and Rome will be operational in
Quarter 13 and we will continuously enter new geographical markets in the future.
Abri Co.s product development strategy is to offer computers answering specific needs
and wants to all segments (CostCutter, Workhorse, Traveler, Innovator and
Mercedes). Abri Co. will offer two models in each market segment to meet the needs of
both the feature-focused and cost-focused customers needs and wants more precisely in
each segment. We will ultimately offer ten different brands by the end of Year 4.
Abri Co. will release its two new versions of its current Sapphire (Workhorse) and
Plymouth (CostCutter) by redesigning existing lines and releasing new generations of
computers in Quarter 13 using the new features developed by our research and
development department.
The Innovator segment desires the newest and best technology, and frequently uses
software to perform computational problems. Mercedes buyers want the newest, best and
Abri!Co.!MD&A!
Quarter!12!versus!Quarter!11!
!

1!

fastest technology and are willing to pay a premium for deluxe computers. The more pricesensitive Traveler segment relies on portability of the personal computer to perform
necessary tasks for executives and salespeople while on the road. CostCutter and
Workhorse segments desire low prices for basic computing tasks and fast network
capabilities.
Thus, Abri Co.s strategy is to provide customers with high-quality products at competitive
prices for our higher margin segments (Innovator, Traveler & Mercedes) and provide equal
value products at lower cost for our lower margin segments (CostCutter & Workhorse).
The company selected Innovator and Traveler to be its primary target segments in order to
utilize the close correlation in customer needs, wants and expectations, as well as the
potential margins offered.
Abri Co. works to improve its marketing effectiveness and cost-efficiency to keep its priceleader position in the CostCutter and Workhorse segments. We also continue to invest in
Research and Development to come up with innovative features and keep our technological
leader position for the Traveler market segment. Finally, Abri Co. also invests in Research
and Development to develop features for its Innovator and Mercedes computers. We are
positioned as a fast follower in the Innovator and Mercedes segments. Our goal is to
become the leader in technology for all segments by the end of the year.
Competitive Advantage
Abri!Co.!continues!to!grow!to!achieve!competitive!advantage!adapted!to!each!market!
segment.!!The!company!operates!with!more!efficiency!than!our!competitors!in!the!
industry!across!all!costEsegments,!which!allows!us!to!compete!on!price!for!the!
CostCutter!and!Work!Horse!segments!and!achieve!higher!margins!in!the!Traveler!and!
Innovator!segments.!!Currently,!Abri!Co.!has!the!highest!reliability!judgment!across!all!
segments!and!a!costEadvantage!through!operational!efficiency!such!that!the!company!
has!the!lowest!overall!cost!per!unit!delivered!to!the!market.!!Having!the!highest!
reliability!rating,!as!well!as!having!competitive!brand!and!ad!judgments,!leads!to!our!
increasing!sales!and!market!share.!!Moreover,!Abri!Co.!strategically!spends!on!
efficiency!improvements,!which!continue!to!lower!our!costs!through!higher!efficiency.
The!specific!competitive!advantages!serving!each!segment!can!be!found!in!our!
segment!analysis!below.!!You may also find our complete competitive advantage table in
the Appendix for more details.
Market Share
Abri Co. has 46% of the overall market share (compared to 34% for Tungsten, our main
competitor) as well as 83% of the market share in the Traveler segment (compared to 8%
for Balsam Technology and 9% for Alpha Cyber Technology, our only competitors in this
segment) and CostCutter segment with 41% and of Work Horse (compared to 37% for
Alpha Cyber Technology) as shown in Table 1, below.
Abri Co. also has the second highest market share, 37%, in the Innovator segment
(compared to 60% for Tungsten, leader in this segment), and in the Mercedes segment with
21% market share, (compared to Tungstens 78% market share in this segment).
Abri!Co.!MD&A!
Quarter!12!versus!Quarter!11!
!

2!

Table 1 Market Share

As compared to Quarter 11, Abri Co.s market share has increased from 31% to 46%. Due
to the number of brands, our stratified segment strategy, and the bankruptcy of our former
competitor, Prestige, we were able to gain the highest market share of the overall industry,
Traveler, and Work Horse segments and the second position in all the other segments.
The position has been achieved by carefully targeted advertisements aimed at our
consumers, increasing salesperson productivity, a dedicated quality improvement
department, and continually updating our products with new technology to offer the highest
level of technology or the cheapest price to our customers depending on the targeted
segment.

Results of Operations
During Quarter 12, net income was $9,632,771 compared to net income of $8,394,630 in
Quarter 11, an increase of $1,238,141 or a 14.7% increase as shown in Exhibit 1 (below).
Net revenue in Quarter 12 was $51,724,237 as compared to $42,442,892 in Quarter 11, an
increase of $9,281,345 or 21.9% increase.
Net income increased due to higher demand, 22,162 in Quarter 12 verses 11,861 in Quarter
11. Demand increased because of offices opened in Paris, Chicago, Rome, and
Montreal. Moreover, Abri Co. redesigned our brands and released new computers to meet
the needs of all customers. To breakeven in Quarter 12, we needed to sell 11,237 units but
actually sold 22,162 units.
!
During!Quarter!12,!total!market!share!was!45%!compared!to!31%!in!Quarter!
11.!!Specific!segment!market!share!increase!is!shown!in!Figure!1,!below.

Abri!Co.!MD&A!
Quarter!12!versus!Quarter!11!
!

3!

Exhibit 1 Statements of Income

!
Figure!1!!Change!in!Segment!Market!Share

Abri!Co.!MD&A!
Quarter!12!versus!Quarter!11!
!

4!

This increase in market share is due to our redesigned lines and the bankruptcy of Prestige
Technology in Quarter 12. Our redesigned lines for our Traveler and Innovator segments
have allowed us to meet more of our customers needs and wants through our three
Columbus and three Fjord brands.

Net Operating Revenue

Revenue Analysis
The average price of total units sold in Quarter 12 was $3,222 as compared to $3,321 in
Quarter 11, a decrease of $99 or 3.0%, which represents a decrease in revenue due to price
change of $523,881. In Quarter 12, Abri Co. introduced six new brands to replace our
previous products offered. We were able to price these new brands at the same price as the
old series in Quarter 11, but we offered rebates to sell our inventory of older
computers. This made our average price decrease by 3.0% and explains the decrease in
revenue due to price change as shown in Exhibit 2, below.
The total number of units sold in Quarter 12 (as shown in Exhibit 8) was 15,680 as
compared to 12,764 in Quarter 11, an increase of 1,916 units or 15.0%, which represents an
increase in revenue due to volume change of $9,683,398. In Quarter 12 we released new
brands, incorporating new research and development features, matching customers desires
and needs, we benefited from our strong companys image but also from seasonality to
generate demand. We also improved our web marketing tactics and were able to convert
demand to sales thanks to our productive sales force: 126 units of demand per sales office
person and 269 units of demand per web sales person. The increase in demand converted to
sales explains the increase in revenue to volume change.
The revenue decrease due to sales mix in Quarter 12 was $1,024,546. Abri Co. offered
new research and development features in our Workhorse and CostCutter segments (Office
new release in the Plymouth 2.0 and Plug and Play Design in both Plymouth 3.0 and
Sapphire 2.0) increasing the number of units sold in these two segments, priced lower than
Innovators and Travelers. The sales mix for CostCutter increased by 4.8% while sales mix
for Traveler decreased by 8.1%. This explains the negative revenue change due to sales
mix in Quarter 12.
We salvaged the Columbus II inventory in Quarter 12, for a total revenue of $1,202,538
added to our sales revenue. We salvaged Columbus II to eliminate the inventory we were
carrying since Quarter 10 and the holding cost related to it.
Finally, our revenue increased in Quarter 12 because one of our direct competitors, Prestige
Technologies, ceased operating. We believe that Abri Co. gained a portion of their market
share, increasing our demand and thus our revenue from sales. As a result of these
changes, net revenue in Quarter 12 was $51,724,237 as compared to $42,442,892 in
Quarter 11, an increase of $9,281,345 or 21.9% as shown in Exhibit 2, below.

Abri!Co.!MD&A!
Quarter!12!versus!Quarter!11!
!

5!

Exhibit 2 - Revenue Analysis

Abri Co.
Quarterly Change in Revenue Analysis

Segment
Cost Cutter
Workhorse
Innovator
Mercedes
Traveler
Unwanted Inventory
Total
Average

Units Sold
Quarter 12
Quarter 11
2,637
1,535
976
663
5,889
2,404
2,096
6,178
6,066
15,680

Change

Sales Mix
Net Sales Revenue
Quarter 12
Quarter 11
Quarter 12
Quarter 11
16.8%
12.0% $ 4,146,863 $ 2,431,215
6.2%
5.2%
2,522,474
1,729,137
37.6%
18.8%
22,965,811
8,458,196
0.0%
16.4%
10,119,604
39.4%
47.5%
20,886,272
19,648,298
0.0%
0.0%
100.0%
100.0% $ 50,521,420 $ 42,386,450

12,764

2,916

Revenue change due to price change

Revenue change due to volume
Revenue change due to sales mix
Total sales change

Price per Unit

Quarter 12
Quarter 11
1,573 $
1,584 $
2,585
2,608
3,900
3,518
4,828
3,381
3,239
$
-

3,222

(98.75)

Price Change
Unit Price
Dollars
(11) $
(29,758)
(24)
(22,983)
381
2,246,046
142
875,196
$ 3,068,501

3,321

3,068,501
9,683,398
(4,616,928)
$ 8,134,970

Projected Revenue
Figure 2 - Projected Revenue

In Quarter 10, we improved our strategy to be more aggressive and efficient. We used the
increase of our revenue and margins to repay the emergency loan we had to take in Quarter
9 as well as investing in new sales offices and product features. By stratifying our
segments, we answered the needs of feature-focused and cost-focused customers. This
strategy has been successful as shown in Figure 2, above.
Projected revenue, as shown in Figure 2, for Quarter 12 was $26,999,000 as compared to
$51,724,237 in actual revenue. Following our new strategy, we made decisions to
aggressively pursue our original strategy to be present in each segment in each market, and
Abri!Co.!MD&A!
Quarter!12!versus!Quarter!11!
!

6!

match the industry reality. We continued to stratify our markets, providing products to
both upper and lower ends of segments to diversify our activities and reach more customers
with different needs.
Segment Analysis
Table 2 CostCutter Competitive Advantage

Our strategy for the CostCutter segment is to provide equal value products at a lower cost
to our customers. The Sapphire 2.0 is our newest computer targeting this segment. The
total cost of the Sapphire 2.0 is $1,532 as compared to an average of $1,904 for our
competitors. Thanks to our cost-efficiency, we were able to drop the brands average price
to $1,569 as compared to $2,555 for our competitors, as shown in Table 2, above. We
entered in this segment to take market share of our competitors and prohibit their
development. In part, our brand judgment of 66 and ad judgment of 58 have contributed to
Abri Co. having the second largest market share, 40%, for this segment.
Exhibit 3 - CostCutter Profitability
Segment Profitability
Cost Cutter
Demand
Lost Sales
Units Sold
Average Price
Sales Revenue
Rebates
Net Revenues
Cost of Goods Sold
Gross Margin
Variable Operating Costs
Quality Cost
Shipping Cost
Subtotal
Sales and Marketing Costs
Sales Force Compensation
Brand Creation/Revision
Ad(s) Creation/Revision
Brand Advertising
Brand Promotions
Subtotal
Segment Profit
Percent of Revenue
Profit per Unit

$
$

$
$

Quarter 12
3,438
(801)
2,637
1,577
4,159,063
12,200
4,146,863
2,466,354
1,680,509

% Rev

100.3%
0.3%
100.0%
59.5%
40.5%

$
$

Quarter 11
1,535
1,535
1,584
2,431,215
2,431,215
1,398,061
1,033,154

100.0%
0.0%
100.0%
57.5%
42.5%

$
$

Change
1,903
(801)
1,102
(7)
1,727,848
12,200
1,715,648
1,068,293
647,355

% Change
124.0%
NA
71.8%
-0.4%
71.1%
NA
70.6%
76.4%
62.7%

78,857
84,962
163,819

1.9%
2.0%
4.0%

95,810
70,733
166,542

3.9%
2.9%
6.9%

(16,952)
14,229
(2,723)

-17.7%
20.1%
-1.6%

193,159
60,000
30,000
118,700
401,859
1,114,831
26.9%
423

4.7%
1.4%
0.7%
2.9%
0.0%
9.7%
26.9%

107,643
30,000
92,300
229,943
636,669
26.2%
415

4.4%
0.0%
1.2%
3.8%
0.0%
9.5%
26.2%

85,516
60,000
26,400
171,916
478,163
0.7%
8

79.4%
NA
0.0%
28.6%
NA
74.8%
75.1%
2.7%
1.9%

$
$

Abri!Co.!MD&A!
Quarter!12!versus!Quarter!11!
!

% Rev

$
$

7!

Net revenue for the CostCutter segment in Quarter 12 was $4,159,063 as compared to
$2,431,215 in Quarter 11, an increase of $1,727,848 or 71.1% as seen in Exhibit 3,
below. The average price of units sold to CostCutter in Quarter 12 was $1,577 as
compared to $1,584 in Quarter 11, a decrease of $7 or 0.4%. We sold 2,637 units to
CostCutter segment as compared to 1,535 units in Quarter 11, an increase of 1,102 units or
71.8%. In Quarter 12, CostCutter represented 16.8% of our total sales as compared to
12.0% in Quarter 11, an increase of 4.8%. Total gross margin for this segment was 40.5%
in Quarter 12 as compared to 42.5% in Quarter 11, a decrease of 2.0%. Profit per unit in
Quarter 12 was $423 as compared to $415 in Quarter 11, an increase of $8 or 2%.
In Quarter 10, we introduced the Sapphire brand to the CostCutter segment. In Quarter 12
we released Sapphire 2.0, an upgraded computer with the plug and play design, developed
with our R&D expenditures in Quarter 11. With this computer matching our customers
needs more than the previous one, we were able to generate 124% more demand and
convert it to sales. We did not increase the pricing of Sapphire 2.0 compared to Sapphire
but we offered a rebate of $100 for the purchase of the old generation Sapphire as
explained in the revenue analysis, above. Even though our gross margin decreased due to
the implementation of the new feature, we managed to increase the segment profitability by
$8 in reducing the growth rate of our operating and marketing costs.
Table 3 Work Horse Competitive Advantage

Our strategy for the Workhorse segment is to provide equal value products at a lower cost
to our customers. The Plymouth 3.0 is our newest computer targeting this segment. The
total cost of the Plymouth 3.0 is $1,909 as compared to an average of $2,171 for our
competitors as shown in Table 3, above. Due to our cost-efficiency, we were able to drop
the brands average price to $2,579 as compared to $2,967 for our competitors. Our low
costs, brand judgment of 64 and ad judgment of 67 have all contributed to Abri Co. gaining
the second largest market share, 40%, for this segment.

Abri!Co.!MD&A!
Quarter!12!versus!Quarter!11!
!

8!

Exhibit 4 Work Horse Profitability

Segment Profitability
Workhorse
Demand
Lost Sales
Units Sold
Average Price
Sales Revenue
Rebates
Net Revenues
Cost of Goods Sold
Gross Margin
Variable Operating Costs
Quality Cost
Shipping Cost
Subtotal
Sales and Marketing Costs
Sales Force Compensation
Brand Creation/Revision
Ad(s) Creation/Revision
Brand Advertising
Brand Promotions
Subtotal
Segment Profit
Percent of Revenue
Profit per Unit

$
$

Quarter 12
1,085
(109)
976
2,598
2,535,324
12,850
2,522,474
1,122,071
1,400,403
29,186
31,446
60,632

$
$

71,491
60,000
30,000
169,876
331,367
1,008,403
40.0%
1,033

% Rev

$
100.5% $
0.5%
100.0%
44.5%
55.5%

Quarter 11
663
663
2,608
1,729,137
1,729,137
736,096
993,041

1.2%
1.2%
2.4%

41,382
30,551
71,933

2.8%
2.4%
1.2%
6.7%
0.0%
13.1%
40.0% $
$

46,493
67,000
113,493
807,614
46.7%
1,218

% Rev

$
100.0% $
0.0%
100.0%
42.6%
57.4%

Change
422
(109)
313
(10)
806,187
12,850
793,337
385,975
407,362

% Change
63.7%
NA
47.2%
-0.4%
46.6%
NA
45.9%
52.4%
41.0%

2.4%
1.8%
4.2%

(12,196)
895
(11,301)

-29.5%
2.9%
-15.7%

24,998
60,000
30,000
102,876
217,874
200,789
-6.7%
(185)

53.8%
NA
NA
153.5%
NA
192.0%
24.9%
-14.4%
-15.2%

2.7%
0.0%
0.0%
3.9%
0.0%
6.6%
46.7% $
$

Net revenue for the Workhorse segment in Quarter 12 was $2,522,474 as compared to
$1,729,137 in Quarter 11, an increase of $793,337 or 45.9% as seen in Exhibit 6,
below. The average price of units sold to the Work Horse segment in Quarter 12 was
$2,598 as compared to $2,608 in Quarter 11, a decrease of $10 or 0.4%. The number of
units sold to Workhorse in Quarter 12 was 976 as compared to 663 units in Quarter 11, an
increase of 313 units or 47.2%. In Quarter 12, Workhorse represented 6.2% of our total
sales as compared to 5.2% in Quarter 11, an increase of 1%. In Quarter 12, total gross
margin for this segment was 55.5% as compared to 57.4% in Quarter 11, a decrease of
1.9%. Profit per unit in Quarter 12 was $1,033 as compared to $1,218 in Quarter 11, a
decrease of $185 or 15.2%.
For the Workhorse segment in Quarter 12, we released a new version of the Plymouth with
the Plug and Play Design upgrade, the Plymouth 3.0. We offered a $100 rebate for the
purchase of Plymouth II in the U.S., Canada and Europe for the reasons explained in the
CostCutter segment profitability analysis, above. This strategy was successful and we
eliminated 90% of our Plymouth II inventory and we will salvage the last 30 units in
Quarter 13. The new version of the Plymouth, along with seasonality, increased the
volume of units sold and explains the increase in the segment revenue, while our average
price decreased by $10.

Abri!Co.!MD&A!
Quarter!12!versus!Quarter!11!
!

9!

Table 4 Traveler Competitive Advantage

Our strategy for the Traveler segment is to provide high-quality products at competitive
prices to our customers. To answer more specifically to this segments needs and wants,
Abri Co. sells two versions of its Columbus line: Columbus 5.0 targeting the costconscious customers, and Columbus 5.1 targeting the feature-focused customers of
Traveler segment.
The average total cost of our Traveler line is $1,758 as compared to an average of $2,321
for our competitors, as shown in Table 4, above. Due to an 84 average brand judgment of
84 compared to 55 for our competitors, and a 72 average ad judgment compared to 27 for
our competitors, we were able to gain 83% of the Traveler market share with an average
price our new generation brands of $3,359 as compared to only $2,700 for our
competitors. Abri Co. is the technological and market share leader of this segment.
Exhibit 5 - Traveler Profitability
Segment Profitability
Traveler
Demand
Lost Sales
Units Sold
Average Price
Sales Revenue
Rebates
Net Revenues
Cost of Goods Sold
Gross Margin
Variable Operating Costs
Quality Cost
Shipping Cost
Subtotal
Sales and Marketing Costs
Sales Force Compensation
Brand Creation/Revision
Ad(s) Creation/Revision
Brand Advertising
Brand Promotions
Subtotal
Segment Profit
Percent of Revenue
Profit per Unit

$
$

$
$

Quarter 12
9,971
(3,793)
6,178
3,383
20,897,922
11,650
20,886,272
7,351,981
13,534,291

% Rev

100.1%
0.1%
100.0%
35.2%
64.8%

184,748
199,049
383,797

0.9%
1.0%
1.8%

452,535
120,000
120,000
501,308
1,193,843
11,956,651
57.2%
1,935

2.2%
0.6%
0.6%
2.4%
0.0%
5.7%
57.2%

$
$

Quarter 11
6,319
(253)
6,066
3,242
19,662,998
14,700
19,648,298
7,260,514
12,387,784
378,620
279,520
658,140

$
$

425,383
60,000
60,000
234,948
780,331
10,949,313
55.7%
1,805

Abri!Co.!MD&A!
Quarter!12!versus!Quarter!11!
!

% Rev

Change
3,652
(3,540)
112
141
1,234,924
(3,050)
1,237,974
91,467
1,146,507

% Change
57.8%
1399.2%
1.8%
4.4%
6.3%
-20.7%
6.3%
1.3%
9.3%

1.9%
1.4%
3.3%

(193,872)
(80,471)
(274,343)

-51.2%
-28.8%
-41.7%

2.2%
0.3%
0.3%
1.2%
0.0%
4.0%
55.7%

27,152
60,000
60,000
266,360
413,512
1,007,338
1.5%
130

6.4%
100.0%
100.0%
113.4%
NA
53.0%
9.2%
2.7%
7.2%

100.1%
0.1%
100.0%
37.0%
63.0%

$
$

$
$

10!

Net revenue for the Traveler segment in Quarter 12 was $20,886,272 as compared to
$19,648,198 in Quarter 11, an increase of $1,237,974 or 6.3% as seen in Exhibit 5,
below. The average price of units sold to Travelers in Quarter 12 was $3,383 as compared
to $3,242 in Quarter 11, an increase of $141 or 4.4%. The number of units sold to
Travelers in Quarter 12 was 6,178 as compared to 6,066 in Quarter 11, an increase of 112
units or 1.8%.
As with the Innovator segment, we upgraded our Traveler brands, following our
stratification strategy. First, we offered a $100 rebate to eliminate our inventory in
Columbus IV and we salvaged Columbus II. This strategy was successful; we sold our
entire starting Traveler inventory. We also released Columbus 5.0, targeting the lower end
of the Traveler segment answering basic Travelers needs for portability at the industrys
lowest price; and Columbus 5.1, a premium version answering higher end of the Traveler
segments needs with new R&D features, at a premium price.
Table 5 Innovator Competitive Advantage

Our strategy for the Innovator segment is to provide high-quality products at competitive
prices to our customers. To answer this segments needs and wants more specifically, Abri
Co. sells two version of its Fjord line: Fjord 4.0 targeting the lower-segment and Fjord 4.1
targeting the upper-segment of Innovator. As of Quarter 12, we were also offering the
Fjord III, older version of our Fjord to liquidate our inventory.
The total cost of the Fjord line is $2,654 as compared to an average of $3,030 for our
competitors, as shown in Table 5, above. Due to an average brand judgment of 86
compared to 80 for our competitors and a 64 average ad judgment compared to 63 for our
competitors, we were able to take 37% of the Innovator market share with an average price
our new generation brands of $3,777 as compared to only $3,625 for our competitors. Abri
Co. is a fast follower in technology and has second market share ownership of this
segment. However, our main competitor, Tungsten Tech LLC, offers products that are
technologically ahead of us and takes 60% of the market share in this market. Abri Co.s
strategy is to invest in research and development to take the technological leader position
within the incoming year.

Abri!Co.!MD&A!
Quarter!12!versus!Quarter!11!
!

11!

Exhibit 6 - Innovator Profitability

Segment Profitability
Innovator
Demand
Lost Sales
Units Sold
Average Price
Sales Revenue
Rebates
Net Revenues
Cost of Goods Sold
Gross Margin
Variable Operating Costs
Quality Cost
Shipping Cost
Subtotal
Sales and Marketing Costs
Sales Force Compensation
Brand Creation/Revision
Ad(s) Creation/Revision
Brand Advertising
Brand Promotions
Subtotal
Segment Profit
Percent of Revenue
Profit per Unit

$
$

Quarter 12
7,668
(1,779)
5,889
3,910
23,023,561
57,750
22,965,811
11,137,413
11,828,398
176,106
189,738
365,843

$
$

431,366
120,000
120,000
523,870
1,195,236
10,267,319
44.7%
1,743

% Rev

$
100.3% $
0.3%
100.0%
48.5%
51.5%
0.8%
0.8%
1.6%

Quarter 11
2,404
2,404
3,518
8,458,196
8,458,196
4,508,839
3,949,357
150,050
110,776
260,826

1.9%
0.5%
0.5%
2.3%
0.0%
5.2%
44.7% $
$

168,582
198,899
367,481
3,321,050
39.3%
1,381

% Rev

$
100.0% $
0.0%
100.0%
53.3%
46.7%
1.8%
1.3%
3.1%

2.0%
0.0%
0.0%
2.4%
0.0%
4.3%
39.3% $
$

Change
5,264
(1,779)
3,485
391
14,565,365
57,750
14,507,615
6,628,574
7,879,041

% Change
219.0%
NA
145.0%
11.1%
172.2%
NA
171.5%
147.0%
199.5%

26,056
78,962
105,018

17.4%
71.3%
40.3%

262,784
120,000
120,000
324,971
827,755
6,946,269
5.4%
362

155.9%
NA
NA
163.4%
NA
225.3%
209.2%
13.9%
26.2%

Net revenue for the Innovator segment for Quarter 12 was $22,965,811 as compared to
$8,458,196 in Quarter 11, an increase of $14,507,615 or 171.5% as seen in Exhibit 4,
below. The average price of units sold to Innovators in Quarter 12 was $3,910 as
compared to $1,880 in Quarter 11, an increase of $2,030 or 108.0%. The number of units
sold to Innovators in Quarter 12 was 5,889 units as compared to 2,404 units in Quarter 11,
an increase of 1,389 units or 30.9%.
Like our other segments, we upgraded our Innovator brands, following our stratification
strategy. Firstly, we offered a $100 rebate to eliminate our inventory in Fjord II and Fjord
III. This strategy was successful; we sold our entire starting Innovator inventory. Then we
also released Fjord 4.0, targeting the lower end of the Innovator segment, answering basic
Innovators needs at the industrys lowest price; and Fjord 4.1, a premium version
answering higher end of the Innovator segments needs at a premium price.
We decided to assign Fjord 4.1 to the upper end of Innovators instead of targeting the
Mercedes segment like we did with the Fjord III last quarter. We realized that our
competitors in the Mercedes segment had a competitive advantage in more advanced
features and more expenditure for R&D that we were not positioned to compete
successfully. We then focused on our own competitive advantage in the Innovator
segment. As a result of this strategy, we increased the segment revenue by 171.5% in
selling 30.9% more units at a 108% higher price.
Abri!Co.!MD&A!
Quarter!12!versus!Quarter!11!
!

12!

This quarter we implemented the Plug and Play feature from our R&D in both brands. We
were then able to increase our margin by 1.8% in increasing our prices. The seasonality is
also responsible for increasing our sales volume in Quarter 12. We increased the segment
profitability by 9.2% in reducing quality and shipping costs by 41.7% while we increased
our gross margin.
Abri Co.s margins in all segments reflect the execution of our strategy to offer high quality
products at a low cost to our customers, as shown in Exhibits 3 through 7. We have
successfully done this, keeping our costs as low as possible, as shown in our Market
Profitability in Exhibit 7, below. In order to increase sales, Abri Co. has developed and
published advertisements with high ratings, while also concentrating on aggressive research
and development to meet our customers needs and wants for better computers.
We designed Columbus 5.0, 5.1, Fjord 4.0 and 4.1 following this strategy to stratify our
markets and reach the upper end of the corresponding segments, introducing new high
technology features. We were thus allowed to increase our prices and thus our
margins. Furthermore, we reevaluated our advertising strategy and introduced regional
inserts promoting all the new generations brands in order to create demand for all our
segments. We also eliminated local and regional inserts, targeting older brands, which
have already been advertised and are now recognized, to reduce our total advertising cost
avoid too many stock outs, creating ill will for Quarter 13. Cost has also been reduced due
to higher factory productivity and higher employee satisfaction as discussed in the Labor
section.
Exhibit 7 - Market Profitability
Market Profitability
Quarter 12
Demand
Lost Sales
Units Sold
Average Price
Sales Revenue
Rebates
Net Revenues
Cost of Goods Sold
Gross Margin
Variable Operating Costs
Quality Cost
Shipping Cost
Subtotal
Sales and Marketing Costs
Sales Office Expenses
Sales Force Expenses
Web Marketing Expense
Local Advertising
Regional Advertising
Subtotal
Market Profit
Percent of Revenue
Profit per Unit

United States
8,137
(2,963)
5,174
$
3,392 $
$ 17,550,159 $
47,751
17,502,408
7,363,558
10,138,850
154,724
166,701
321,425

$
$

435,000
785,592
138,697
228,883
291,826
1,879,998
7,937,427 $
45.4%
1,534 $

Canada
3,146
(1,176)
1,970
3,188 $
6,280,812 $
18,700
6,262,112
2,783,427
3,478,685
58,911
63,471
122,383

211,000
250,363
138,697
32,044
274,431
906,535
2,449,768 $
39.1%
1,244 $

Brazil
Europe
2,632
5,694
(245)
(2,099)
2,387
3,595
3,057 $
3,241 $
7,297,246 $ 11,650,302 $
28,100
7,297,246
11,622,202
3,310,596
5,102,765
3,986,650
6,519,437
71,381
76,907
148,288

146,000
275,986
138,697
36,621
184,251
781,556
3,056,807 $
41.9%
1,281 $

Abri!Co.!MD&A!
Quarter!12!versus!Quarter!11!
!

107,505
115,827
223,333

343,000
455,104
138,697
119,019
219,385
1,275,205
5,020,900 $
43.2%
1,397 $

China
Total
2,795
22,404
(241)
(6,724)
2,554
15,680
3,069 $
3,228
7,837,350 $ 50,615,870
94,551
7,837,350
50,521,319
3,517,473
22,077,819
4,319,877
28,443,500
76,375
82,287
158,663

468,897
505,194
974,092

140,000
1,275,000
222,062
1,989,107
138,697
693,485
54,932
471,499
181,962
1,151,855
737,653
5,580,946
3,423,562 $ 21,888,462
43.7%
43.3%
1,340 $
1,396

13!

As shown in Exhibit 7, in Quarter 12, our Chinese and Brazilian markets increased
profitability to surpass that of Canada, which was our third most profitable market. This
was due to our strategy to eliminate our old generation computer by selling them with
rebates in the U.S, Canada and Europe. The old generation created an unmet demand of
1,176 units while we only had 245 and 241 lost sales respectively for Brazil and
Canada. We then sold more units and had higher revenue in the latter. Also, the brick-andmortar offices in Sao Paulo and Shanghai were operational for the first time in addition to
the regional web centers in Quarter 12. Our plan to increase profitability in China and
Brazil was successful.

Marketing and Selling Expenses

Advertising
Figure 3 Advertising Expenditure Changes

Total advertising expense in Quarter 12 was $1,623,354 as compared to $914,720 in

Quarter 11, an increase of $708,634 or 77.5% as shown in Figure 3 above. The total
number of inserts in Quarter 12 was 209 as compared to 123 in Quarter 11, an increase of
86 inserts or 69.9%. The total average price of inserts in Quarter 12 was $7,767 as
compared to $7,436 in Quarter 11, an increase of $331 or 4.5%.
Our overall advertising strategy remains to capitalize on building a strong company image
to help us sell our computers based on our reputation and reliability. In Quarter 12 we
released six new brands to offer a new generation of computers to our customers, matching
our stratification strategy, to answer the segment needs at different prices. We continued to
Abri!Co.!MD&A!
Quarter!12!versus!Quarter!11!
!

14!

advertise in the five regions we operate in to generate demand for our six new brands. Our
advertising strategy has been successful in creating a total demand of 22,162 for all brands
for their first operating quarters. These decisions also increased the number of inserts and
the average price of advertising as we added inserts in more expensive publications.
Table 6 Advertising Cost per Unit of Demand

In Quarter 12, we increased our advertising budget while we kept an average advertising
judgment of 65 in our existing segments (CostCutter, Innovators, Travelers and Work
Horse) as compared to an average of 57 for our competitors. As a result, Abri Co.
increased its demand by 9,118 or 69.9% in Quarter 12, as shown in Table 6 above.
The Company spent $300,000 in ad creation and revisions, since we had to create new
advertisements for our new brands. This expense should decrease since we do not plan to
do a revision of all brands each quarter.
Local advertising expenses in Quarter 12 were $384,404 as compared to $237,876 in
Quarter 11, an increase of $146,528 or 61.6%. The number of local inserts in Quarter 12
was 64, as compared to 35 in Quarter 11, an increase of 29 inserts or 82.9%. The average
price of a local insert in Quarter 12 was $6,006 as compared to $5,286 in Quarter 11, an
increase of $720 or 13.6%. We added local inserts in Sao Paulo and Shanghai since our
new sales offices there were operational in Quarter 12. As a result, we generated a demand
of 2,979 for these two new cities in Quarter 12, an increase of 2,428 as compared to
Quarter 11.
Regional advertising expenses in Quarter 12 were $929,350 as compared to $520,844 in
Quarter 11, an increase of $408,506 or 78.4%. The number of regional inserts in Quarter
12 was 145, as compared to 78 in Quarter 11, an increase of 67 or 85.9%. The average
Abri!Co.!MD&A!
Quarter!12!versus!Quarter!11!
!

15!

price of a regional insert in Quarter 12 was $6,409 as compared to $6,677 in Quarter 11, a
decrease of $268 or 4.0%.
In Quarter 12, our regional advertising strategy was consistent in all the regions in which
we operated. We wanted to create demand in these markets for all of our new brands. We
also added inserts to promote our new Fjord 4.1 to Mercedes in all regions, in addition to
one insert to promote Sapphire 2.0 in Leading Trade Journals globally and doubled the
number of inserts for Plymouth 3.0 in the U.S., Canada and Europe, our three most
profitable markets in Quarter 11. Our average price decreased due to lower costs to
promote Fjord 4.1 and Sapphire 2.0 in less expensive publications (respectively General
News Magazines and Leading Trade Journals). The volume of new ads combined with the
price of these publications explains the net increase in the regional advertising
expenses. As a result, we created a total demand for regional web centers of 11,314 in
Quarter 11 as compared to 7,344 in Quarter 11, an increase of 3,970 or 54.1%.
Table 7 Advertising Cost per Unit Sold

In Quarter 12, our advertising cost per unit of demand was $72 as compared to $70 in
Quarter 12, an increase of $2 or 2.8%, as shown in Table 7 above. This increase is due to
the release of our new generation computers that we advertised more than the older
generation. Also, our advertising cost per unit sold is on average $62 lower than the
industrys average (please find our competitive advantage table in the Appendix for more
details). We carefully created the most profitable media plan in our industry and have
achieved the best advertising judgment globally.
Sales Offices
Local sales office expenses in Quarter 12 were $1,321,000 as compared to $834,000 in
Quarter 11, an increase of $487,000 or 58.4%, as shown in Table 8 below. We opened four
new brick-and-mortar offices in Quarter 12 to be operated in Quarter 13: in Chicago,
Montreal, Paris and Rome. The difference in our sales office expenses come from the setup cost for four new venues, representing $660,000.

Abri!Co.!MD&A!
Quarter!12!versus!Quarter!11!
!

16!

Table 8 Sales Office Expense Per Unit of Demand

Our sales offices accounted for 49.5% of our total demand in Quarter 12 as compared to
42.2% in Quarter 11, due to the opening of our three new offices as shown in Table 7,
above. In Quarter 13, we will begin operating our four new offices in Chicago, Montreal,
Paris and Rome, in our three most profitable markets when we made the decision to open
them. We hope to increase our demand in Quarter 13 due to operations in these four new
offices. We will also invest in expansion in new markets for our company.
Table 9 Web Center Expense per Unit of Demand

Web center expenses in Quarter 12 were $770,000, the same Quarter 11. These web
centers have been operating since Quarter 11. As a result, our web centers generated a
demand of 11,314 units over 7,347 in Quarter 11, an increase of 3,967 units of demand or
54%. Our regional demand is shown in Table 9, above. Our web centers accounted for
50.5% of our total demand in Quarter 12 as compared to 55.8% in Quarter 11, due to our
three new operating brick-and-mortar offices (see the section above). In Quarter 13 we will
increase our web marketing tactics to generate more demand and convert more sales. We
matched our strategy to be present in the U.S., Canada, Brazil, Europe and China by
Quarter 13 and will continue to expand within each region and in new regions.
Abri!Co.!MD&A!
Quarter!12!versus!Quarter!11!
!

17!

Web Marketing Expenses

Abri Co.s web marketing expenses for Quarter 12 were $693,485 as compared to
$238,920 in Quarter 11, an increase of $454,565 or 190.3%. The companys expense per
unit of demand was $61 as compared to $33 in Quarter 11, an increase of $28 or 84.8%.
This increase was mostly due to an investment in web productivity tactics discussed below.
Total web traffic tactics expense in Quarter 12 was $194,000 as compared to 114,000 in
Quarter 11, an increase of $80,000 or 70.2%. We decided to invest in Contracts with
major electronics web sites to be cross-listed to increase web traffic for our web
centers. As a result, web demand increased by 3,970 in Quarter 12. We will continue to
improve our web traffic tactics in the next quarters to have the most efficient Web Centers
possible and generate more demand.
Total web productivity tactics expense in Quarter 12 was $448,000 as compared to $96,000
in Quarter 11, an increase of $352,000 or 366.7%. We decided to invest in Customer
profile data banks to store mailing information, credit card numbers, past purchases, etc.
to facilitate purchases, customer service and data mining and Data mining to profile
visitors and their web behavior in order to present product options that might best appeal to
customers. Our web centers have now reached their maximum productivity, resulting in
increased demand per web sales person to 269 in Quarter 12 as compared to 175 in Quarter
11.
Commissions paid to web sales partners in Quarter 12 were $51,485 as compared to
$28,920 in Quarter 11, an increase of $22,565 or 78.0%. This increase is due to the
increase of our regional demand because of the seasonality, the release of new brands sold
at a higher price, and to the new web traffic tactic we contracted in exchange of a $20
commission per unit sold through our partners.
Sales Force
Total sales force expense in Quarter 12 was $1,989,107 as compared to $1,297,874 in
Quarter 11, a decrease of $691,233 or 53.3%.
Local sales force budget in Quarter 12 was $1,463,343 as compared to $822,885 Quarter
11, an increase of $640,458 or 77.8%. This increase is due to staffing of our new sales
offices in New York, Sao Paulo and Shanghai. As a result, we increased unit demand per
sales office person by 21 in Quarter 12.
The Special Training Programs budget in Quarter 12 was $88,000 as compared to $55,000
in Quarter 11, an increase of $33,000 or 60.0%. We continued our sales force training
program because we were satisfied by the productivity improvements we saw in previous
quarters. The budget increased due to the increase in our staff in Quarter 11.
Demonstration kits budget in Quarter 12 was $26,400 as compared to $16,500 in Quarter
11, an increase of $9,900 or 60%. Abri Co. implemented a demonstration kits program to
encourage our sales force and increase sales productivity. Also, the effects of the
demonstration kits program on salespersons productivity were immediate as compared to
other sales force programs and more durable compared to the free gift program we
Abri!Co.!MD&A!
Quarter!12!versus!Quarter!11!
!

18!

implemented in Quarter 10. We then chose this program to see the results by the end of
Quarter 12. As a result, in Quarter 12 we were able to increase demand per web sales
person by an average of 95 units from Quarter 11.

Cost of Production
In Quarter 12, total production cost decreased due to sales mix by $898,056. Total
production cost change due to volume was $3,957,130. (A detailed view of total
percentages can be seen in Exhibit 8, below.) This is the result of 16,637 units produced in
Quarter 12, compared to the 13,044 units that were produced in Quarter 11. By generating
a higher demand, and therefore larger number of units sold, Abri Co. was able to decrease
the cost of production due to economies of scale. In Quarter 12, Abri Co. capitalized on
our available capacity and released new brands: Sapphire 2.0, Plymouth 3.0, Columbus 5.0
and 5.1, and Fjord 4.0 and 4.1. Sapphire is the new generation of our CostCutter
computer. Plymouth 3.0 is the new generation of our Work Horse computers. Columbus
5.0 is a new generation of our Traveler computers, and targets the lower segment, while
Columbus 5.1 targets the upper segment. Fjord 4.0 is the new generation of Innovator
computers and targets the lower segment, while Fjord 4.1 targets the upper segment. The
increased demand of 3,593 units can be attributed to the introduction of the aforementioned
new brands.
Labor
The labor cost per unit in Quarter 12 was $163 in comparison to $171 in Quarter 11, a
decrease of $8 or 4.67%. Abri Co.s factory worker productivity increased by 1% to 100%,
from 99% in Quarter 11. Total compensation in Quarter 12 was $19,226, consistent with
Quarter 11.
Changeover
As seen in the Cost of Production table, above, changeover cost decreased to $19. The
decrease of changeover cost per unit is the outcome of spending $700,000 on changeover
improvement, resulting in a 49% decrease in time, and a 33% reduction in cost. In addition
to changeover improvements made, cost per unit decreased due to components in each unit
being more similar.
In Quarter 12, Abri Co.s factory changed its production line 34 times, compared to 23
times in Quarter 11, an increase of 11 times, or 47%. This 47% increase is related to
beginning inventory for Quarter 12. Also, as Abri Co. produced six new computers to
stratify our market, our factory increased the number of production changes. In Quarter 13,
Abri Co. will spend another $700,000 to reduce changeover by 49%.

Abri!Co.!MD&A!
Quarter!12!versus!Quarter!11!
!

19!

Exhibit 8 - Cost of Production Table

Abri!Co.!MD&A!
Quarter!12!versus!Quarter!11!
!

20!

Materials
As seen in the Cost of Production Table, above, materials cost per unit increased. This is
due to adding Office Software Word/Spreadsheets New Release as well as Plug and Play
easy set up. A detailed list of components for all segments can be seen in Tables 10-13,
below.
Table 10 CostCutter Components

While Alpha Cyber Technology offers a 17 monitor for desktop, it is not a high priority
for customers, while multi-purpose workstation, ability to see and work on multiple
programs and quick response to commands are high priority for customers. That is why
offering an expanded keyboard with hot keys, which only increased our cost per unit by
$33, was a strategic move for Abri Co. Balsam offers a high-resolution monitor that
increases their computer cost without meeting needs of the CostCutter segment. Abri Co.
added plug and play (easy set-up) this quarter to meet the need of easy set up in the
CostCutter segment. Moreover, Office Software Word/Spreadsheets new release was
added to satisfy the highest rated use pattern of Word Processing, increasing our cost per
unit. A larger screen was also added. All improvements made to Sapphire increased costs
by $77 per unit.

Abri!Co.!MD&A!
Quarter!12!versus!Quarter!11!
!

21!

Table 11 Traveler Components

Presentations, communications with other computers, engineering/design, business

graphics, computer-aided design, manufacturing control, and word processing software are
the highest rated use patterns for the Traveler segment. Abri Co. and Alpha Cyber
Technology offer software meeting these requirements. Balsam fails to do so with its
LLC2. Furthermore, Abri Co. offers office software word/spreadsheets new release as well
as plug and play (easy set-up) to meet the needs of the Traveler segment with its featuredfocus Columbus 5.1 and redesign its cost-focused Columbus 5.0 to reduce cost by, for
example passing from a wireless to a standard network connection. The changes in design
for the Columbus IV decreased our incremental cost per unit by $154 for Columbus 5.0 and
increased it by $49 for Columbus 5.1.

Abri!Co.!MD&A!
Quarter!12!versus!Quarter!11!
!

22!

Table 12 Innovator Components

Web design, statistical analysis, communications with other computers, engineering/design,

data management, presentations, business graphics, computer aided design, manufacturing
control, bookkeeping/budgeting, and word processing software are the highest rated use
patterns for the Innovator segment. Abri Co. and all competitors offer software meeting
these requirements, however, Abri Co. offers the new release of office software
word/spreadsheets. Both Abri Co. with Fjord 4.0 and 4.1 and Tungsten with Gold-X2 offer
ultra high performance power/speed as well as high-speed network/internet
connection. Office software word/spreadsheets new release as well as plug and play (easy
set-up) was added in Quarter 12, which increased price per unit for Fjord 4.1 by
$201. Fjord 4.0 decreased in price by $44 per unit due to eliminating business graphics,
presentation, and manufacturing software.

Abri!Co.!MD&A!
Quarter!12!versus!Quarter!11!
!

23!

Table 13 Work Horse Components

Bookkeeping/budgeting, word processing, communications with other computers, data

management, web design, business graphics, presentations and statistical analysis software
are the top rated uses for the Work Horse segment. R2D2B, Balsam Technologys Work
Horse computer lacks a very high capacity hard drive that is used to fulfill the customer
need of fast computer to computer links, and also has a standard battery for portable when
their computer is a desktop. While they are cost leaders in this segment, they fail to meet
customer needs and use patterns and employ excess features, which drive up their costs
unnecessarily. Abri Co. offers differentiation by providing Office Software
Word/Spreadsheets new release as well as Plug and Play (easy set-up), which were added
in Quarter 12, increasing cost per unit. We added three new features to the Plymouth 3.0,
which increased per unit cost by $123.

Operations Overhead Expenses

Excess Capacity
Abri Co. spent $424,973 on excess capacity in Quarter 12 over $216,567 in Quarter 11, an
increase of $208,406 or 96.2%. This is due to an over-projected demand of 1700 units and
the sales of on hand inventory. Due to seasonal increase of demand in the fourth quarter,
Abri Co. allowed extra operating capacity in order to keep up with new demand for both
the fourth quarter and new and improved brands and we avoided unplanned stock
outs. The company attempts to add a safety margin to its estimated sales in order to avoid
stock-outs when possible. This has historically led to higher inventory holding costs while
eliminating excess capacity costs, but one advantage to this system is the ability to lower

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changeover time and costs. While it is still necessary to produce multiple brands, having a
beginning inventory on hand helps prevent stock-outs and customer ill will at the beginning
of the following quarter.
Inventory Holding Costs
In Quarter 12, Abri Co. spent $397,518 on inventory holding costs while in Quarter 11 the
company spent $494,555, a decrease of $97,037 or 19.6%. This was due to a renewed
focus on inventory management, with an adequate beginning inventory of all new brands
planned to avoid stock outs at the beginning of Quarter 13 and ending inventory of 3,476
units, which compared to the 3,036 units in Quarter 12, is a decrease of 440 units or 12.7%.
Quality
In Quarter 12, Abri Co. spent $662,738 on quality costs versus $814,164 in Quarter 11, a
decrease of $151,878 or 18.7%. Quality costs per unit decreased from $62 per unit to $40
per unit, a decrease of 55%. Abri Co.s reliability judgment rose to 76 over 74, an increase
of 2.7%. The benefit of Abri Co.s investment in quality has manifested in our decreasing
quality costs per unit and the reliability judgment of our consumers. Abri Co.s products
are ranked the most reliable on the market since our competitors reliability judgments
range from 64-73, as pictured in Figure 3 below. Abri Co. will continue to aggressively
pursue excellence in our products to maintain our competitive advantage.
Figure 4 - Reliability Judgment

In Quarter 12, Abri Co. spent $16,640 on warranty costs versus $15,171 in Quarter 11, an
increase of $1,469 or 9.6%. This slight increase is due to a greater volume of units sold in
Quarter 12. Inspection costs in Quarter 12 were $2,453 over $3,151 in Quarter 11, a
decrease of $698 or 22.2%. Defect costs in Quarter 12 were $463,645 over $607,841 in
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Quarter 11, a decrease of $144,196 or 23.7%. We spent $180,000 on action costs to

decrease defects while in Quarter 11 Abri Co. spent $188,000 on action costs, a decrease of
$8,000 or 4.3%. These improvement actions lowered our defect rate by 16.6%, total defect
costs by 18.6% and cost per unit by $22 or 55%, which drove up our reliability rating by 2
points in Quarter 12.
Shipping
In Quarter 12, shipping costs were $714,038, while in Quarter 11 shipping costs were
$601,065, an increase of $112,973 or 18.8%. This increase was due in part to a larger
volume of units shipped 15,684 units in Quarter 12 versus 12,764 units in Quarter 11, an
increase of 2,920 units or 22.9%. Shipping costs per unit dropped to an average of $45 per
unit in Quarter 12, compared to an average of $47 per unit - a decrease of $2 or 4.3%. This
decrease is due to economies of scale in shipping: the sales in Brazil and China both
increased allowing us to obtain a volume discount on shipping. The number of units
shipped by region is show in Figure 4, below. Shipping costs by region are shown in
Figure 5, below.
Figure 5 Shipping Costs by Region

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Research and Development Expense

Abri Co.s strategy is to provide our customers with high-quality products at competitive
prices for the Traveler and Innovator segments. This is why Abri Co. has already invested
more than $19.61 million to develop new features since its creation 3 years ago and will
continue to offer new features on its different series in the future. Abri Co. plans to have
the nine remaining R&D features available to its customers in the incoming year. This will
represent an investment of $26,720,150 in total. However, our strategy is to provide our
customers equal value products at lower cost to customers for CostCutter and Work Horse
segments.
In Quarter 12, research and development investment expenditures to develop new features
were $5,181,725 while in Quarter 11 we spent $5,510,239 on research and development, a
decrease of $328,514 or 6%. The Quarter 11 investments correspond to the Office
Software-Word, Spreadsheets-New Release & Plug and Play Design (easy setup) new
features that have been released on all our redesigned lines. The feature differences of our
lines can be found in the Tables 10 through 13 in the Material Cost above. These new
features have permitted Abri Co. to improve its brand judgments as shown in Table 14
below.
Table 14 Brand Judgments

Please note that our Columbus 5.0 had been designed as a test product to offer a low-cost
computer to the lower segment of Traveler. Compared to Columbus IV, we removed the
DVD and Wi-Fi to cut our costs, which explains the drop in brand judgment. However,
Abri Co. expects that the drop of its price will attract new customers who need a portable
computer at a more affordable price.
In Quarter 13, Abri Co. invested $5,181,725 to develop two new features. The UPS
(uninterruptible power supply) and windows upgrade for professionals with high security
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protection will be used to update and redesign our line of computer and better match Abri
Co. customers needs and wants and being able to release two different versions of the
Plymouth and Sapphire to stratify these segments in Quarter 13. These developments are
applicable to all segments and will be incorporated into most brands in Quarter 13.

Financial Position
For Quarter 12, Abri Co. introduced many new computer brands, with the intention of
expanding and stratifying our customer base and the number of sales: Fjord 4.0, Fjord
4.1,Columbus 5.0, Columbus 5.1, Plymouth 3.0 and the Sapphire 2.0. With the addition of
these new brands, our company now has brands targeted at the CostCutter, Traveler, Work
Horse and Innovator segments; 80% of the possible segments. As a result, total current
assets are up 6.9%, and net fixed assets are up 14.9%.
Exhibit 9 - Balance Sheet

As shown in Exhibit 9, total assets for Quarter 12 were $33,467,900 versus $30,835,129 in
Quarter 11, a change of $2,632,771 or 8.5% increase. This increase in total assets can be
attributed to a decrease in liabilities and an increase in equity. Total liabilities in Quarter
12 were $3,500,000 versus $10,500,000 in Quarter 11, a change of $7,000,000 or a
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decrease of 66.7%. This can be attributed to paying off of a $7,000,000 conventional loan
in Quarter 12 that covered R&D and expansion expenditures. Total equity for Quarter 12
is $29,967,90 versus $20,335,129 in Quarter 11, a change of $9,632,771 or a 47.4%
increase. This can be attributed to the extra cash provided by the increased sales due to
new computer brands released during Quarter 12, as well as an expansion to factory
capacity, and additional sales offices.

Breakeven Analysis
Abri Co. exceeded the required quarterly breakeven point for Quarter 12. In Quarter 12,
the company needed to sell 11,237 units, and sold 22,162 units as shown in Exhibit 10
below. Abri Co. sold 15,669 units more than needed to breakeven, or 197.2% of the
required amount. Due to a shift in mix to lower cost computers ($628 less per unit), and an
increase in marketing expenses for new brands, breakeven units are up 4,686 units.
Exhibit 10 - Breakeven Analysis

As shown in Exhibit 10 above, the average price per unit in Quarter 12 was $2,334 versus
$3,254 in Quarter 11, or a 28% decrease. This was due to a less expensive mix in Quarter
12. Average cost per unit in Quarter 12, was $1,065 versus $1,357 in Quarter 11, a 21%
decrease. This can be attributed to the many cheaper models in the brand line up for
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Quarter 12. Gross margin per unit in Quarter 12 was $1,268 versus $1,897 in Quarter 11,
or a 33% decrease due to the shift in mix of lower margin computers.
Fixed expenses in Quarter 12 were $14,253,869 versus $12,425,560 in Quarter 11, or a
15% increase. The number of units needed to breakeven in Quarter 12 was 11,237 versus
6,551 in Quarter 11, or a 72% increase. The amount of revenues needed to breakeven in
Quarter 12 were $26,225,746 versus $21,314,590 in Quarter 11, or a 23% increase. This
was due to Abri Co.s lower gross margin per unit in Quarter 12. Gross margin is down
due to our updated line of computers, a response made to answer the needs and wants of
customers. We included new R&D features, even in the lower segment lines, without
increasing the consumers price. Thus, Abri Co.s computers are more costly to produce,
pointing to a decrease in gross margin. Abri Co. also spent $1,100,000 in factory
expansion, $700,000 in changeover improvements and $4,121,725 in R&D, which affected
breakeven revenues. Total overhead in Quarter 12 was $654,406 versus $593,356 in
Quarter 11, or a 10% increase. Overhead increased in Quarter 12 due to high excess
operating capacity. The decision to increase R&D was based on our strategy to become
technological leader in our industry.

Liquidity and Capital Resources

As seen in Exhibit 11 below, Abri Co.s liquidity position in Quarter 12 was $78,103,523
versus $49,222,334 in Quarter 11, or an increase of 58.7%. Due to increased profits earned
by the exit of our competitor Prestige, as well as seasonality and the introduction of Fjord
4.0, Fjord 4.1, Columbus 5.0, Columbus 5.1, Plymouth 3.0 and Sapphire 2.0 in Quarter 12,
liquidity has increased dramatically in comparison to earlier quarters.
Cash and cash equivalents balance for the beginning of Quarter 12 was $19,052,076 versus
$6,270,414 in Quarter 11, or a 203.8% increase. Cash generated (used) by operating
activities was $10,890,647 in Quarter 12 versus $7,056,663 in Quarter 11, or a 54.3%
increase.
Cash and cash equivalents balance for the end Quarter 12 was $21,667,723 versus
$19,052,076 in Quarter 11, an increase of 13.7%. Quarter 12 ended with $21,667,723 due
to the additions of the Fjord 4.0, Fjord 4.1,Columbus 5.0, Columbus 5.1, Plymouth 3.0 and
the Sapphire 2.0 as well as the recent increase in fixed plant capacity and R&D
expenditures.

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Exhibit 11 - Statement of Cash Flows and Liquidity

Abri Co. plans to increase liquidity by increasing its assets (cash) through a higher number
of units sold and the introduction of new computer components over the course of the next
few quarters. In return, the company will have greater financial stability, greater access to
both short-term and long-term loans for investment and expansion in both current and as
yet untouched markets.

Business Outlook
Since Quarter 12, Abri Co.s factory is positioned to produce our multiple product lines to
meet an increasing potential demand in following quarters. In Quarter 12, we invested
$1,100,000 to expand fixed capacity to 375 units per day. We will continue investing to
improve our fixed capacity to meet our increasing demand due to our product portfolio
development and our expansion as discussed below.
Our new offices in Chicago, Paris, Montreal and Rome will be operational in Quarter
13. Abri Co. will work toward offering local sales offices in all markets in order to reach
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any customers through both our web centers and sales offices. By the end of year 4, Abri
Co. will open sales offices in Calgary, Vancouver, Curitiba, Rio de Janeiro, Belo
Horizonte, Tianjin, Beijing and Guangzhou allowing our customers to buy Abri Co.s
product locally worldwide. We will also expand our web centers and sales offices in
emerging market such as India, Australia and Middle Eastern countries where Abri Co.
expects to encounter an appealing potential demand by the end of Year 8.
In Quarter 13, Abri Co. plans to redesign its lines using the two new features that have been
developed in Quarter 12. We will be releasing two new versions of our Plymouth and
Sapphire computers to answer the Work Horses and CostCutters cost-focused and
feature-focused segments specific needs and wants. By the end of Year 4, Abri Co. plans
to develop all technology necessary to release an advanced, feature-laden new brand (the
Belvedere) targeting the Mercedes segment. Two versions of the Belvedere will be
available to target the lower and upper segments of the Mercedes market by the end of
Year 4.
Furthermore, Abri Co. plans to develop innovative features such as a touch screen to
increase convenience and portability of our computer to answer to the Traveler needs and
wants. We will also work on the development of a low-cost plastic production process to
decrease our cost of production while keeping the quality of our products to please the
Work Horse and CostCutter segments by dropping our prices. For the improvement of our
Fjord and Belvedere series, Abri Co. plans to develop a 3D high-resolution screen and a
server-integrated service.
Figure 6 Forecasted Revenues

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Due to an average expected 20% quarterly increase of demand in Year 4 (due to the
finalization of our expansion of our sales offices in exciting markets and the development
of its final portfolio (two brands per segment including the Mercedes), Abri Co. expects
revenue for Year 4 to be $334.5 million for a projected net income of $61.9 million. Abri
Co. will then, focus on brand improvement through its R&D department, but will not enter
new a target segment unless an opportunity shows up in the future. Abri Co. will also
expand its business in new areas such as Australia, India and the Middle Eastern
Countries. Due to this expansion, Abri Co. expects an average quarterly increase of 10%
of demand. We also expect our revenues to be $549.3 million, $803.8 million, $1.1 billion,
$1.7 billion in years 5 through 8, for projected net incomes of $161.3, $281.8, $471.3,
$764.8 million, as show in Figure 6, above.

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Appendix
Abri Co. has achieved competitive advantage in several areas, most noticeably in the
reliability of our brands. Abri Co. has the highest reliability judgment of its industry with a
reliability judgment of 76, while having a quality cost price of only $62 compared to an
average of $151 for its competitors selling to the same segments, as shown in the following
tables. This advantage began in Year 2 when we chose to invest in variance studies and
source studies in order to provide our customers with more reliable products. Our greater
reliability has benefited our customers with less frustration dealing with products. In turn,
this has strengthened our company image and reduced the costs involved with warrantied
repairs, inspections, and replacing defective parts.

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Table I North America

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Table II Canada

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Table III Brazil

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Table IV Europe

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Table V China

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