Confidential FINANCIAL PLAN F i n a n c i a l P l a n fo r The Ranch, Resort and Conference Center at Moab Utah INDEX The Financial Plan includes the following areas: Introduction Overview Revenue Cost of Sales Product Development Selling, General and Administrative Stock-Based Compensation and Consulting Expense Interest Income (Expense) Financing Costs Income Tax Expense Liquidity and Capital Resources Contractual Obligations Subsequent Events Off Balance Sheet Financing Arrangements Critical Accounting Policies and Management Judgment Recently Issued Accounting Standards Financial Statements Introduction MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND PLAN OF OPERATION The following discussion and analysis of our financial condition and plan of operation contains forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by the forward-looking ©) The WellSpring Institute Inc. All Rights Reserved 1 Confidential FINANCIAL PLAN information. Factors that may cause such differences include, but are not limited to, availability and cost of financial resources, product demand, market acceptance and other factors discussed in this Memorandum under the heading “Risk Factors”. This discussion and analysis of our financial condition and plan of operation should be read in conjunction with our financial statements and the related notes included elsewhere in this Memorandum. The accompanying management’s discussion and analysis of financial condition and results of operations and plan of operation gives effect to the restatement of our consolidated financial statements for the year ended 2009. OVERVIEW The Formation of The Ranch From inception to date, we have been primarily involved in organizational activity and the creation of a business plan to demonstrate the value added position of a destination resort called The Ranch Resort and Conference Center (The Ranch). We expect to negotiate agreements with VARs, distributors, integrators and OEMs that are currently supplying retail goods and services, real estate sales, training and development programs, high adventure activities, elder care, youth development and live stock operation to the world. Initially, we will acquire the land for our operations from land owners in the Moab area. Then, our VARs, distributors, integrators and OEMs will sell THE RANCH™ activates to interested parties. The standard VAR and OEM agreements provide that (i) the related licenses are non-exclusive; (ii) we are free to accept or reject orders placed by the VAR or OEM, and acceptances must be in writing; (iii) the pricing and payment terms will be as set forth in our price list, which we may change unilaterally with 30 days’ notice; (iv) the initial term is for one year, and the agreement will not continue unless the parties affirmatively agree to renew the agreement; and (v) we may terminate the agreement immediately in several situations, including an uncured material breach by the VAR or OEM. To date, we have not concluded any initial VAR or OEM agreements. Our costs associated with production of THE RANCH™ services and products will be based on the services that we decide to offer. We expect our operating expenses will increase as we increase our transaction volumes, product development activities, and sales and marketing activities. We anticipate developing new products and services which will require retesting and recertification. We anticipate that over the next 12 months that our operating expenses will increase at a faster rate relative to the rate of increase in our revenues during this same period. ©) The WellSpring Institute Inc. All Rights Reserved 2 Confidential FINANCIAL PLAN We expect our principal activities over the next 12 months to include due diligence, construction, infrastructure development, product development, sales and marketing, and general and administration costs. We anticipate that our most significant costs related to the activities described above will include the following items: Land development expenses, including consulting fees, permits and associated travel, engineering and design services. Construction costs Sales and marketing expenses, which consist primarily of consulting fees, associated travel expenses, promotional expenses and the costs of programs aimed at increasing revenue such as advertising, trade shows, public relations and other market development programs; and General and administrative expenses, which consist of information systems costs; legal, accounting and other professional fees; and other corporate costs. We anticipate funding for the activities described above will come principally from some or all of the following sources: working capital generated from the sale of current WellSpring product’s and services, sales of additional securities and debt financing. Currently we are working on other financial arrangements or lines of credit with lenders. Our initial product, of training and development courses and workshops, is ready for sale. Pursuant to the funding to be acquired from this offering, the Company will launch its Entrepreneurial Fast track program and other executive development training programs. Effective internal controls are necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports, our operating results could be misstated, our reputation may be harmed and the future price of our stock could be negatively affected. We are a development stage company with limited personnel and other resources. As a result, we have in the past discovered, and may in the future discover, areas in our internal controls that need improvement. For this reason, we are contracting with an outside company (The WellSpring Institute) that will provide their experienced financial and accounting systems during our start-up phase of operations. There can be no assurance that our controls over financial processes and reporting will be effective in the future. (2009) (un-audited) Revenue We began development of our training and development programs in 1990, and expect to aggressively market these programs in the fourth quarter of 2009. We have received interest for many of these programs and have had them evaluated as some of the best in the world by not only participants but formal universities studies as well. We ©) The WellSpring Institute Inc. All Rights Reserved 3 Confidential FINANCIAL PLAN expect to recognize revenue when the sales and marketing efforts are unleashed and the Fast Track program is distributed. We believe the units will have a suggested base retail unit list price of between $350 for 4 hour workshops to over $150K for our week long boot camps. The VARs and OEMs will sell at prices that will depend on volume commitments. At volume, the gross margin for the VARs and OEMs are expected to be approximately 80%. Revenue to the Company will be based on enrollment fees. Additionally, the Company will seek initial enrollment in our Youth Development program called Entrada. This program can begin operations with very little capital commitment. We also expect to begin shipping units and recognize revenue from these sales during the first quarter of 2010. Cost of Sales Cost of sales will consist primarily of direct costs of the training programs, wages of operational employees, outsourcing costs for infrastructure development and cost of sales and marketing. Many factors are anticipated to affect our gross margin including, but not limited to, market conditions, competition, infrastructure development costs, testing and supplier pricing. Our management currently does not anticipate that we will operate our own support staff, but instead will outsource these services to a third party provider, The WellSpring Institute. We are currently incurring cost of sales as we move forward with the development of our organization and our training and development sales. Product Development Product development expenses incurred in the design, development and testing of our product include compensation and benefits for management and staff, engineering and consulting services, and other miscellaneous expenses. Product development expense represented 20% of total operating expenses during the first-12 months. In the future, the rate of product development spending related to the training and development products and services is likely to decrease as we launch our products world wide. Selling, General and Administrative Selling, general and administrative expenses include all corporate and administrative functions that serve to support our current and future operations and provide an infrastructure to support future growth. Major items in this category, beginning in 2010, will include outsourced infrastructure development, compensation and benefits for management and staff, travel related expenses and professional services. In the future, the rate of spending on selling and marketing is expected to ©) The WellSpring Institute Inc. All Rights Reserved 4 Confidential FINANCIAL PLAN increase significantly as we add headcount for our SBU heads, expand our marketing campaign for The Ranch and participate in industry and trade shows. General and administrative expenses have not been assessed to date because of lack of funds. We anticipate back paying for some of these services when funding is obtained. We expect that total spending on general and administrative expenses will increase in the future due to increased headcount, expansion of corporate facilities and related equipment offset by reduced spending on professional services. However, we expect that spending on general and administrative items as a percentage of total operating expenditures will decrease relative to other operating activities including sales and marketing and product development. Stock-based Compensation and Consulting Expense We have not recorded any stock-based compensation to date. Consulting expenses are low for the services currently being rendered. This will change as the Company makes the transition to normal operations. Interest Income (Expense) The Company has no Interest income or expense to date. Interest expense on the loans offered in this memorandum may be compensated by the revenues generated by all of Scott Bairds' Organizations including: The WellSpring Institute, Strategic Human Resources Solutions, Extreme Party Toys of Utah and Interest on preliminary 20 million dollar investment. Financing Costs It is estimated that over 1 million dollars has been invested by the company founder in the development of the training, human resources and organizational behavior products and service. An additional investment of $20,000,000 has been promised by an outside investor for exchange of 10% ownership in the organization. Income Tax Expense Since inception, we have not recorded any revenue or expenses and therefore are not subject to federal and state income tax. LIQUIDITY AND CAPITAL RESOURCES Since inception, cash used in operations has been absorbed by The WellSpring Institute and Scott Baird. ©) The WellSpring Institute Inc. All Rights Reserved 5 Confidential FINANCIAL PLAN Since inception, we have incurred approximately $45,000 in business development expenditures. Future requirements will include computers, office equipment, software and similar equipment. We anticipate significant capital expenditure spending in the future for land, construction of buildings and landscapes, livestock, capital equipment and machinery. Our primary source of liquidity has been proceeds generated from founder’s contributions. The principal uses of cash have been for product development and general and administrative expenses. In light of the limited stockholders’ equity as well as our lack of operating history, there can be no assurance that we will be able to obtain the necessary additional capital on a timely basis or on acceptable terms, if at all, to fund the capital that may be required for the development of our business. In any of such events, the growth of our business and prospects would be materially and adversely affected. As a result of any such capital financing, if available, the holders of the common stock may experience substantial dilution. Since inception, we have generated a limited amount of revenue and there can be no assurance that we will generate revenue in the future. CONTRACTUAL OBLIGATIONS At this time we have no contractual obligation tied to this organization OFF BALANCE SHEET FINANCING ARRANGEMENTS The Company does not have any off balance sheet financing arrangements. CRITICAL ACCOUNTING POLICIES AND MANAGEMENT JUDGMENT Below is a brief description of key accounting principles which we have adopted in determining our recognition of revenues and expenses. Revenue Recognition We intend to recognize revenue in accordance with the SEC Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements as updated by SEC Staff Accounting Bulletin No. 104, Revenue Recognition. Under these guidelines, revenue is recognized when persuasive evidence of an arrangement exists, shipment has occurred or services rendered, the price is fixed or determinable and payment is reasonably assured. Under these requirements, when the terms of sale include customer acceptance provisions, and compliance with those provisions has not been previously demonstrated, revenues are recognized upon acceptance. We are in our ©) The WellSpring Institute Inc. All Rights Reserved 6 Confidential FINANCIAL PLAN development phase and have limited customers and revenue. To date, we have delivered no products to customers. We continue to operate in the development stage and have not recognized substantial revenue to date. Stock Based Compensation Awards under our future stock option plans will be accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 123R (SFAS 123R) Share Based Payment, and SAB No. 107. We adopted SFAS 123R under the modified prospective method. In accordance with the modified prospective transition method, our Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). Prior to the adoption of SFAS 123(R), there were no awards outstanding being accounted for under APB No. 25, therefore, the future impact of adopting 123(R) is limited to the fair value of future grants. Compensation is measured on the grant date of an award and recognized over the service period for which the award was granted, generally the vesting period. For awards with graded vesting, compensation is recorded using the straight line method over the vesting period, but in no event shall total compensation recognized under the awards be less than the aggregate fair value of shares vested under such awards. Compensation is equal to the fair value of the award which we determine using a binomial option-pricing model. Income Taxes We account for income taxes using the asset and liability method, as provided by SFAS 109, Accounting for Income Taxes (SFAS 109) which requires the recognition of different tax assets and liabilities for the future tax consequences of temporary differences between the financial statement and tax basis carrying amounts of assets and liabilities. No income taxes were provided since we have incurred losses from our inception. Due to the uncertainty of future taxable income, no future tax benefits have been recognized. RECENTLY ISSUED ACCOUNTING STANDARDS Effective February 3, 2006, the FASB decided to move forward with the issuance of a final FSP FAS 123R-4, Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event. The guidance in this FSP FAS 123R-4 amends paragraphs 32 and A229 of FASB Statement No. 123R to incorporate the concept articulated in footnote 16 of FAS 123R. That is, a cash settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the employee’s control does not meet the condition in paragraphs 32 and A229 until it becomes probable that the event will occur. Originally under FAS 123R, a provision in a share-based payment plan that required an entity to settle outstanding options in cash upon the occurrence of any contingent event required classification and accounting for the share based payment as ©) The WellSpring Institute Inc. All Rights Reserved 7 Confidential FINANCIAL PLAN a liability. This caused an issue under certain awards that require or permit, at the holder’s election, cash settlement of the option or similar instrument upon (a) a change in control or other liquidity event of the entity or (b) death or disability of the holder. With this new FSP, these types of cash settlement features will not require liability accounting so long as the feature can be exercised only upon the occurrence of a contingent event that is outside the employee’s control (such as an initial public offering) until it becomes probable that event will occur. The guidance in this FSP shall be applied upon initial adoption of Statement 123(R). An entity that adopted Statement 123(R) prior to the issuance of the FSP shall apply the guidance in the FSP in the first reporting period beginning after February 2006. Early application of FSP FAS 123R-4 is permitted in periods for which financial statements have not yet been issued. We do not anticipate that this new FSP will have any material impact upon our financial condition or results of operations. The adoption of the following recent accounting pronouncements did not have a material impact on our results of operations and financial condition: Emerging Issues Task Force (EITF) Issue No. 03-1, The Meaning of Other-ThanTemporary Impairment and Its Application to Certain Investments. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets—an amendment of APB opinion No. 29 (SFAS 153). SFAS 153 clarifies that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged, with a general exception for exchanges that have no commercial substance. SFAS 153 is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. In May 2005, the FASB issued SFAS No. 154 “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20, and FASB Statement No. 3.” (SFAS 154) SFAS 154 replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 31, 2005. In February 2006, the Financial Accounting Standards Board issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140.” SFAS No. 155 simplifies the accounting for certain hybrid financial instruments, eliminates the FASB’s interim guidance which provides that beneficial interests in securitized financial assets are not subject to the provisions ©) The WellSpring Institute Inc. All Rights Reserved 8 Confidential FINANCIAL PLAN of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and eliminates the restriction on the passive derivative instruments that a qualifying specialpurpose entity may hold. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that we recognize the impact of a tax position in our financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 will be effective as of the beginning of our 2007 fiscal year. We are currently evaluating the impact of FIN 48. In July 2006, the FASB issued FASB Staff Position (FSP) No. FAS 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction,” that provides guidance on how a change or a potential change in the timing of cash flows relating to income taxes generated by a leveraged lease transaction affects the accounting by a lesser for the lease. We will adopt this staff position on January 1, 2007. In July 2006, the Emerging Issues Task Force Reached Consensus on Issue No. 06-03 “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross Versus Net Presentation),” that provides guidance on how sales tax collected from customers should be presented in the income statement. We will adopt this statement immediately, and will disclose the caption in which sales tax is recorded in accordance with the consensus reached in this issue when sales tax has been collected. 1) Together these form a reasonable estimate of your company's financial future. More importantly, however, the process of thinking through the financial plan will improve your insight into the inner financial workings of your company. 2) Describe the assumptions you made to develop your financial statements (your business assumptions, not the numbers you entered into the financial spreadsheets). 3) Everything you have included so far in you business plan, builds your case for your assumptions. This is where you will face the most challenges from investors and others—what numbers go in at the beginning… How did you arrive at them? Can you back them up? How they will change over time due to circumstances you presume, forecast, create, etc. The rest is arithmetic (we’ve done it all for you!) Financial Statements Detailed financial statements are found in the financials Analysis section to follow ©) The WellSpring Institute Inc. All Rights Reserved 9 Confidential FINANCIAL PLAN Gross Profit Analysis The Gross Profit Analysis in the financial analysis section shows pro-forma monthly sales revenues, cost of goods sold and gross profit values for each of our product lines for our first year. Budget The Budget section identifies the spending and revenue based on goals, and time lines and milestones for the companies growth and development Income Statements The Income Statement in the Financials section of this business plan reflects year one by month, years two and three by quarter, and years four and five as annual figures. Balance Sheet The Balance Sheet in the Financials section of this business plan reflects year one by month. Break-Even Analysis The Break-Even Analysis in the Financials section indicates that the break-even point will be reached in 2010. Cash Flow Statements The Cash Flow Statement in the Financials section of this business plan reflects year one by month, years two and three by quarter, and years four and five as annual figures. ©) The WellSpring Institute Inc. All Rights Reserved 10