The Quarry It is a beautifultsunny day in PlovoUtah andJetf Pedersen is driving in to open up for business at The Quarry Inc (801 418-0266) A little sore from the previous dats climbing clinic out in Rock Canyon Jeff is thinking about the news interview he just heard on the local radio station with a rock climber in Utahts Canyonlands National Park Aron Ralston Ralston while climbing alone last spring had been trap~d by an 800-pound boulder for several days and to survive self-amput~ted his lqwer right arm with a dull pocketknife While bringing national attention to rock climbing the event could in the long term result in a negative impact for the sport Well soon see Jeff thinks

Today will most likely not be a full day of activity in The Quarry climbing gym as people tend to stay outside in good weather Jeff remembers however as he turns off I middot15 onto University Parkway the class of 25 Boy Scouts from Troop 55 that will be in the building for an evening of indoor rock climbing to earn their Climbing Merit Badge

We have to work harder and apply more formal business knowledge to survive as a small business Jeff muses The Quarry cannot absorb another year of financial losses and hopeto grow in this rather delicate environment in 2003-2004 a conshycerted focus on planning and strategy is a must and no longer an option especially when the SBA and local banks are becoming more cautious in the face of the national economic stagnation With all these thoughts running around in his head Jeff turns into the parking lot in front of the tall building that houses the wall This is Jeffs life and passion

1

~fn$lStry Informot4on Ovewthepcison looking for fitness coupl~ wi~ social interaction and outdoor adventure haS many options hilcing campins kayaking rock cli~bing mountain biking snowboardins in-line -tins he1icopterslciing and white water rafting among othshyers And of course some of the same needs could be m~ byoinins indoor fitness clubs like Golds Gym (wwwGoIdSGymCOIll) which has 650 facilities from California to Russia and 24 Hour Fitness which operates 300 franchise clubs servinS 27 million members globally (www24houdltnesscomlhtmVcolllpaayl) These well-known centers offer aerobics swimming tennis tanning facilities and weightlifting A survey conducted by th~ Outdoor Industry AssOCiation in 2003 reports that more than two-thirds of Americans participate in at least one outdoor

activity each year and cumulatively spend $136 billion annually on outdoorathletic merchandise including sear apparel and footwear

The Emergence of the Indoor CJlmbing Gym The indoor climb ins sym was born in the mid-1980s as an adjunct to mountain androck climbins Orisinally conceived as a place for experts to climb on rainy days and for the novice to learn the basics it has become more than that today it can also be a fun date instead of a movie for the university student a source of self-esteem for the 10uns sinsle mother or physical conditionins ~r the individushyalistic teenager~ or a tool for teaching the principles of teamwork for the modern corporation lookinS to create a cooperative management culture These needs and interests coupled with a booming economy in the 1990s engendered approxishymately 350 indoor walls (syms) in the United States and many mOre abroad in Australia Canada England and Bruil (wwwcUmbiDlcourebullbullcoukh www aquaterra-veDturacomlwalcUmbinl-weatellLaUltnliahtml)

The fJ1DS construct their walls in such a way that there can be a variety of climbinS experiences (from overhangs to slabs to vertical) adjU$ted to aeak-very easy middotlOut~middot for ~ners to very difficult ~~ terrain for experts The desisners of clim~ing gym facilities such as Vertical World of Seattle Washington (wwwvertiCllworldcomfwaDamphtm) conceive and construct a free-standing -real rock look Concrete shell climbing walls ideal for retail stores and outdoor bouidershyins walls in public parks are common

The Industr( of the Climbing GVm The dimbinS gym is difficult to place in any one Clindus~ as some owners see it in the Physical Fitness Services (51C7991) which focus on aerobic exercise fitness and recreational sports centerS others believe they belong in the Oubs-Membershipamiddot Sports and Recreation famiIy(SIC7997) because they sell membershipssUnDar to goil and tennis clubs some identify with the Amusement and Recreational Serrices indus try (SIC7999) home for the ski resorts arid recreationaJ goods rentals Finally manyof the artificial wall ownersmailagers attend the SportDg Goods ManufactUrers Association (SGMA) trade shows which merchandise the clothing equipment ana hardware necessary for all outdoor sports

In addition to the standard industry clasaifications mentioned above the ErtcydopdiG 0Emerging Industria (2000) dacribes a new induStry which inClude$

rock climbins tlExtreme Sports It is- noted that rock cli~biriS arid ~ficial waif climbing are the most popuiar ofsuch sports and experienced an 8DDualgrowth rate of50 percent in the mid~19901

In-lineskatinsis byfar the most common ~ nearly 28 million people sUppins on a pair ofskates at least once in 1999 Eight other sports associated with the exteme

2

~fn$lStry Informot4on Ovewthepcison looking for fitness coupl~ wi~ social interaction and outdoor adventure haS many options hilcing campins kayaking rock cli~bing mountain biking snowboardins in-line -tins he1icopterslciing and white water rafting among othshyers And of course some of the same needs could be m~ byoinins indoor fitness clubs like Golds Gym (wwwGoIdSGymCOIll) which has 650 facilities from California to Russia and 24 Hour Fitness which operates 300 franchise clubs servinS 27 million members globally (www24houdltnesscomlhtmVcolllpaayl) These well-known centers offer aerobics swimming tennis tanning facilities and weightlifting A survey conducted by th~ Outdoor Industry AssOCiation in 2003 reports that more than two-thirds of Americans participate in at least one outdoor

activity each year and cumulatively spend $136 billion annually on outdoorathletic merchandise including sear apparel and footwear

The Emergence of the Indoor CJlmbing Gym The indoor climb ins sym was born in the mid-1980s as an adjunct to mountain androck climbins Orisinally conceived as a place for experts to climb on rainy days and for the novice to learn the basics it has become more than that today it can also be a fun date instead of a movie for the university student a source of self-esteem for the 10uns sinsle mother or physical conditionins ~r the individushyalistic teenager~ or a tool for teaching the principles of teamwork for the modern corporation lookinS to create a cooperative management culture These needs and interests coupled with a booming economy in the 1990s engendered approxishymately 350 indoor walls (syms) in the United States and many mOre abroad in Australia Canada England and Bruil (wwwcUmbiDlcourebullbullcoukh www aquaterra-veDturacomlwalcUmbinl-weatellLaUltnliahtml)

The fJ1DS construct their walls in such a way that there can be a variety of climbinS experiences (from overhangs to slabs to vertical) adjU$ted to aeak-very easy middotlOut~middot for ~ners to very difficult ~~ terrain for experts The desisners of clim~ing gym facilities such as Vertical World of Seattle Washington (wwwvertiCllworldcomfwaDamphtm) conceive and construct a free-standing -real rock look Concrete shell climbing walls ideal for retail stores and outdoor bouidershyins walls in public parks are common

The Industr( of the Climbing GVm The dimbinS gym is difficult to place in any one Clindus~ as some owners see it in the Physical Fitness Services (51C7991) which focus on aerobic exercise fitness and recreational sports centerS others believe they belong in the Oubs-Membershipamiddot Sports and Recreation famiIy(SIC7997) because they sell membershipssUnDar to goil and tennis clubs some identify with the Amusement and Recreational Serrices indus try (SIC7999) home for the ski resorts arid recreationaJ goods rentals Finally manyof the artificial wall ownersmailagers attend the SportDg Goods ManufactUrers Association (SGMA) trade shows which merchandise the clothing equipment ana hardware necessary for all outdoor sports

In addition to the standard industry clasaifications mentioned above the ErtcydopdiG 0Emerging Industria (2000) dacribes a new induStry which inClude$

rock climbins tlExtreme Sports It is- noted that rock cli~biriS arid ~ficial waif climbing are the most popuiar ofsuch sports and experienced an 8DDualgrowth rate of50 percent in the mid~19901

In-lineskatinsis byfar the most common ~ nearly 28 million people sUppins on a pair ofskates at least once in 1999 Eight other sports associated with the exteme

2

moniker including skateboarding snowboarding wakeboardingmiddot ~qun~in b~n and rock climbing claimed more than a million U S participants ea~ during I~ i

Finallybull th~re is a voluntary Oimbing Gym Association (CGA) withwhidi~ owq~r ~~n affiliate the CGA is soon to begin publishing a journal (w a~)ftlur~iIafetyorgllerviqstiak_m8-middotubtwallhtID)

OWnerst1lp and Gym Nature Climbing sYnis are 90 percent individually owned with the remiining 10 percent oWned in multiples (2-5 climbing gyms per owner) They can be categoriud by the ipace dedicated to their waJJs and grosS sales small climbing gyms have approxi niatelySOOO square feet with gross revenues of around $120000 per year the medium~siUd gyms boast around 7500 square feet and generate about $250000 yearly the larger ontS have between 12000 and 20000 square feet and gamer from $500000 tOSl million in sales per year

Jeff and his partners constructed 9000 square feet of wall at $2300 per square foot like most other climbing gyms it was conceived as an extension of his extrem passion for rock climbing Since then approximately 6 percent of the original 3$0 gymS that Jtlfted this way have closed The key to financial viability is to be good a~ ma~ketingand financial management the indoor climbing gym can no longer be an exotic toy for big kids

The Basic Climber Profile The spOrt of rock cIi~bing has attracted a wide range of people since the mid-1980s with 60pereent of the climbers being male and 40 percent female sport climbing is most popular among the 25- to 34-Year~ld age group followed by the 18- to 24-yearshyold categorY The hard-core climber like Jeff represents a very small percentage of total reVenues the sportis becoming more and more oriented toward satisfying social needs

The Sporting Goods Manufacturers Association (SGMA) places the number of enthuSiastsfor climbing at 21 million however 95 percent of them partkipate infreshyquentlY (less than 15 times a year) a real challenge for an indoor facility like The Quarry The state of Utah ranks number two in the nation behind Wyoming in the climbingof artificill Wans with 89518 Utahans partidpatin~

ExtemaJ Issues in 2003 Since 91101 and the continuing military operations in Iraq spending and travel for outdoor adventures like rock climbing has stagnated alan with the rest of the U S e~on()my9~e~ ~t most large citi~ throughout the United states have at least ODe

limblnggym theShort-term need to travel to unique places Ina Utah can be post ~n~d amp inco~ Jrowth continUes to Stow cons~mers are cutting back esp~y On th~ l~r~es pf ~fe Iuch as cable TV and vacations ManY people are skeptical of aii travel whic~ ha~ ~egatively i~pacted sportsil) Utah speCifically skiing by about 15 ~rpii Ouring ~e 200~-2003 season the expected boom from the high profiie 2~)(H~2~1lni~~Qilal Wmter (jlym~icSriever materialized Higher fuel costs dis~ ~ourag~oeW-car P9rcbaseseven thoUgh household spendirig grew 3 percent in 2003 Both buSiness travel and international travel sutTered declines leaving tourism eI1p)oymenJ and tr~veleI s~dina constant in lOO2 cind 2Ob3

CompgnvprQftlemiddot History Jeff and two close friends founded The Quarry bullInc in Provo Utah in late 2000 PNemenmiddot~a ~erywellknown rock-climberwho hascompeted nationally and has beenmiddot featured in middotmiddotrtides published in trade magazine such asmiddot Rock amp 1

3

(wwwrockandicecoml) A graduate of Brigham Young University Jeff came to Utah to study geOlogy and felt in love wIth the topography and nature-loving lifestyle He foundCd and managed aretail climbing equipm~nt store called Mountainworks from 1993 until 200 1 at which time he sold his equity to a friend who now runs the 1000middot square-foot shop located on the first floor of The Quarry to dedicate himself to the new entrepreneurial endeavor The stote carries all of the ropes harnesses clothing boots and hardware necessary to climb at any skill level and complements Jeffs climbing target market and business perfect1y

The Balance Sheets (Exhibit 3) show that the capital needed for start-up was raised through a $380000 Joan from the SBA $485000 from a local bank and S300000 financed by the builder The significant capita) n~ded for start-up (the basic dimbing surface alone cost 5186000) was also partially capitalized through a special offering of400000 shares of Common Stock (no par value) at SI00 per share As can be seen in the Statement of Operations (Exhibit 1) the smaH company that vowed to become the largest and finest indoor climbing facm~y in the Intermountain Westl is hoping to break even in the third year ofoperation However Jeff had to accept a large debt base from the SBA and local lenders which is conshystantly a headache when it comes time to pay the biJJs Cash How management is sometimes more difficult than rock climbing

Location The Quarry is located in one of Provos busiest shopping centers in a town that is home to BYU with 30000 students Just a mile toward highway 1-15 down University Parkway in Orem is Utah Valley State College with 24000 more students Orem and Provo are located in a county ()f 360000 inhabitants where 36 percent of the resid~nts

4

EXHIBrr 1 Consolidated Statement of OperatIons

YlAJlINDID DBCEMBD 51

ZOO3 2001 (I MON11lS

Revenue Automated PlIpineDl System Plans (EPT)

Family Mrmbenhipa (182) CoUese Students (6OMt) NoncoU Individ1II1 Clientl (21~)

01) Sales (walk_ins) 16-17 yan old (35~) 1amp-)4 yem old (965~)

University Oaua Corporate Group Membenbi~ Other Sales (Equipment-Shoe Mental Vendins) Leu Return and Discounts

IbtU Net BewtDue

PxpeDla OperatinS Expenses

Automobiles UtiUtla Rpoundpain Depreciation Part-Time Climbins Instructor Pees Custodial Gym Supplies (Oean~RoPQ Hardware) Payroll Tua Ie FICA

PutTune (~)

Salaried (60) lbtal ()penIdDt RlpeaMI

MlrIcdins Expaua AchertiIinS Daip Photosraphy Prizes SipPrintinsa 0imt-M1i1 Pieces 1btaI~

AdministratiYe Expenses Inlerelt ExpenlC (SM and Bank) Bank Servkc Charges lnsurmce (Life Propeny Medical) ltatl aod Entertainment Contributions DfIoCI and IJcaues Education and Equipment LIIId Jmprowmcnt ConsultJns 8r ProfalJonal Serrice (roule setting) Miscellaneous

Total AdmlniatJathe BlIpeMta

Net Iacomc (LOll)

S121654

295041

440

11264 ~ll248)

$427151

SI0685 21035

1335 68223

988 17612 22676

224804

$367)58

S11108 2069

$1777

S114506 4558

23572 3475 3410

1 bullbull 42)

6845 $lzo7

($12477)

S185025

13200

39672 (4450)

$493785

SI5294 21)49

986 59021 212561

4586 43137

231360

S8489 6889 5288

SlO666

Sl22447 13918 30120

195 Il668 11988 46221 3826

S23656 (SI60u3)

SI13so5

152578

20878 7031

15174 (3161)

SlOll135

14168 US

38333 3822 1678 6624

63061

SIl7191

$4439

1701 $6140

$83965 6728

11472 144 401

48004 8837

SI6551

S265 Y

5

are between the ages of 18 and 39 and the forecasted growth is 6 percent annually ewer the next five years Utah offers an exceHent combination of outdoor western beauty and a lifestyle that is attractive for raising familia and miranent UnWeiiiiy enrollments in Utah have been growing at about 8 percsent annually faster than most other states in the United States

Mission Statement

One of leffs original partners Josh Miller wu studying for his MBA at Brighun YounS and along with Nate Maughan the three wrote the mission statement that

would drive the mukdiDi and operations of The Quarry 11aey sincerely believed in

what they wrote

Qimbing inbermtly promotes ahealthy lifestyle offriendship and fuIfilImCDt raponsibnity dhia and acbievanent

Our Purpose is to provide the hishest quality ezpUicnce for aU climbers fiom novi~ to upert We strive to maintain clean friendly and inspiring enviroDinent that is constantly newand chIJlengias ~ do not chase competitors we run with our tuStmDen The bighat standard Cor improvemCDt is ourselves

Our Goal is to be ~Iy innovative financiaDy profitable socially responsible and to promote the sport _ km We anticipate The Quarry being known by individuals around the world as the reason they become climbers for lite

Company Organization and Personnel The orisina1 founders and management team were three entrepreneurs who Uldermiddot stood that their market went far beyond the hard-core adventure-seekins rOa climber like Jeff Pedersen or Aran Ralston Eacb person brought somethiDlJ special to The Quarry Jeff a sraduate of BYU in polPIY today serves u the CEO anclhu been living and climbing in Utah for over 18 yean He is widely acknowledged u one of the most prolific sport climbers in the United States andt along with BUI Boyle and Boone Speed he created most of the sport climbing in American ~o Cayenn-a limestone area that was tty in the progression of dimbingdevelop~eot

in the United States AJj a result ofhis hip profile andlocal expertise vislton to the ta~ of Utah ampequently stop by The Quarry ampski for advice IbcNt local climbing In 2004 Jeff stDl handles day-to-day management ofThe Quarry andis responsibl for customer relations and employees He is considered to be the Senior ClimblDJ Instructor

Josh MUkr also bull graduate wom BYU with bull ~ in linpistics was sashysoned entrepreneur having served as theVICe President ofAtomic G~t an Internet company that in 2000 had a net worth of$1 million Aseasoned climber he had Q)Dlshy

pe~d in several regional competitions and in 1994 was the winner of the m~~

advBnced division at the annual Rock Rodeo national comp~ti9D held in El Teas Josh in tandem with N~te Maughan was responsible for the busincu operashytionsofthe gym up until May of2003 when he fiaished his MBA and deddedtoentrr the financial industry thus divestinS and leavins Jeff and Nate to carry The Quarry fOrward

Nathan (Nate) Maughan received his degree in computer science in 1996 ampom IrJJand ae(aldy compl~ a muter degree in intelDationa1 studia He tpabiur psand it active in the fitDess ind~ partkipldDSmiddotin ~ triatbloas and 1laquonces No 10a fUll-time IDIJlI8Cl but I memberoftlaeboardofdimtD~hefllUo rdda consultins on the compumrSJItaD and ampnIDdaI acrounting Cor The QUarry

6

EXHIBIT 2 The Quarry Organizational Chart - 2003

Jeff Pedersen shyCEO

(40 years old Full-time)

Shirley Boynton shy Matt Nielson - Jerel Bartbolomew shyCustomer Svc Mgr 1411 General Manager 1Ito Facilities Manager (we years old Partmiddot (33 years old Fullmiddot (25 years old Partshy

Time) Time) Time)

+ Summer Brown shy

Boy ScoutlKids Camp Instructor

(22 years old PartshyTime)

bull +

TbeQuarry Part-Time

Staff (seven Instructors)

Route Setters shy(Part-Time as f+shy

needed)

Justin McDonald shyHead Route Setter

(23 years old Part-Time)

1n early 2004 The Quarry has two fuU-time peopJe Jeff is the on~y one with~ degree (Matt Nielson was the head sales ~naFr of Office Mix for three yna ~ coming to The Quarry)~ In addition Jeff receiveS ad~U from an unpai~ 6nanci~ ach1~ sor and contidues a dose ielationship with the briillaquot of the wall of The Quatry ~ COndo ~whichhai a)~tucted~~su~ irma Colorado Peqlll~~ AIa~ West~ini tpd ~~wZea~~ Sc~~at pa~~ti~ ~iinblnlnstructo~ (~ copese students) art neededas the orpmzationu ctiart EXhtilt 2 maIs

RlctUtlesmiddot Situatfd in the bUsi~t mnimercial districtC)f ProYOequidistant ampem Brigham Yoiln U~iversitY and Utah VaUeyStateColteBe the fac~ty of 1lte Quarry pady enh~s its attrattiWn~The exterio~ of the tJuUdiDs has eyecatchini siaMae an~ dram~~ liShriu i5itiIefioq1 t~b~tftorb1ilhra~rtS spafotJ-ijttttior and quality surfaces ate ilceptiJi i1tnnaoilate1thape iDd rir~11le retaU hop The Mountainttr tan be seen below and to the right of ~e c1imbin8 ~anS ~

Approximately 4Sc)(KH6icNs~riv~ tyih~irildiDUy and It is 50ftt wesl of MOvies 8ttrebusiCaithaiiif ~Cl9ae by in tbe smtshopPin uitter arewb Olive Garden retdatrant aShoplCo diScounhtote aftd vadem other RtallltOra th~ Ienerate trafficTh~ fidUieibtJow tilow a CIo~pmiddotOf1he Climbing Walls whicH ampfe the primaryofferlntotTheQmirty ~ ~ - ~

lorgelAudlencesandServlcoS Of The QuorrY 7

TheQuarry offen a prOd~tmiddot fot avariety of the censumeil sesmentpromesmen tioned earlier and reflected in the financial statements In the most general of termi tbcsirYicc Qffcml by ThCl Qurry iathe climblncqcriCftCt Oil middotthe Ininclil waDbull

wbetbaindMdaaByorUt-Igtoup(fiunily WrpONtjBey 8eckit uniftnity etc) Ttit ~istftttcd withhIrnutCIftlbisb~ and 1OfIS IIKL with thtmiddotisSistantcof1 dlltDiilwUhttUCtor (or~tniJ chetnlab~aa yenouteyen fngtmdfKeftnt dB

culty lneblOt the diInIJ -td_ top ~of die ~5(aotl1 Slht then eilMrrepeats the 7

View from the North Note the Finger Cracks on the left

experience requests a new route or takes a turn holding the safety rope so that herhis partner can climb

The largest group of people who climb artificial walls are the~-v~~~ between 18 and 34 years of age who equate the artificial climbing experience to a movie bowling the video arcade or a date mostly a social activity with a touch pf adventure and physical challenge Because they are in the category of 9S~fietit einfrequent users they do not choose to affiliate with a membership The walk-ins are heavy users of the Saturday Night pate Night ($5 per person from 9-12 PM) climbing social when The Quarry features kaleidoscopic black lights and popular musk that adds excitement to the -climbing experience (the eCosmk Climb bullIDe Web site ofThe Quarry caUs it)

The second-largest income generator is the monthly Electronic Fund Transfer (EFT) membership This plan is promoted and priced in a way that is similar to exershycise centers like Golds Gym and 24 Hour Fitness centers which offer a $13 pershymonth single membership The Quarry client is billed automatically via an electronic funds transfer as$ignment and is allowed unlimited climbing time There are several plans from which a client can choose all with a $39 one-time enrollment fee up front 24 months at $19 per month ($456) 12 months for $29 per month ($348) 6 months for $39 per month ($234) 1 month for $69 ($69)

]n addition Jeff has created a series ofseven packages all priced at $99 each to smooth out the uneven utilization of instructors and facilities These packages commiddot plement th~ monthJy EFT membersh~p regulars wal~in climbers (~etf~~lt~~tle~~~ 5r~gth~ dl~Y W~l~~ulpnceJmmJl ~Q$9 ~O~S~~~h~uWPilgnlJL the physiCal fitness clubs in the area) and sChedlJiedampro~slic~~BQy~ ~gll1~SCOr porate team-building sessions family groups and university classes The following exampie of the seven packages described in a threefold handout and on its Web site typifies The Quarrys special offerings

NeW Segments ofClimbers rhe corporate membership segment in the first eight niQI~~ ot~~middot~asf~ proshy~~~ed $7~090 in revenues and Jeff is sit~ing within 45 II1i~t~~fjh~i~q~~ef~ ~~9 ~~gional offi~es ofverr important companies such as Npv~ll J~ ~~~rRlm0rwI Equipment LTD Iomega IncNu Skin Enterprises Hunt~J11al lth~mi~~ ~rpq~rj9P

8

EXHIBIT 3 Consolidated Balance -Sheet

3( uti JI~ iJJ I J YJLUBNPm DBCBMBiIt 31

bull ~1 t t t

ZOO3 2001 2002 (MONTHS)

Assets Current Assets Cash and ~ equivalents Receivabl~ lmdoubtful account allowance

$4319 1523--Total Current Aaets 16023shy 5842

PixedAaeu Property and Equipment at Cost

dimbing Wall $ 242540 $ 242540 $ 242540 Climbing Holds

Land 280()0

238000 28000

238000 28000

238000 Building 725452 725452 725452 Other 10000 10000 10000 Equipment amp Furniture 6168 6168 6168

Less Accumulated Depreciation 68223 1271254 165587 Total Property and Equipment n~t 1181937 1122906 1084573

Total Assets SII9796O SII29771 $1090415

Liabilities and Stockholclera Bquity Current Uahilltie$ Accounts Payable $16958 $ 48855 $ 25898 Credit Card Payable 6549 10266 9730 Note$ Payable 9750 87400 102997 Taxa Payable (lncome and Sale$) 27326 23874 3283 Other 31deg79 41100 3665

Total Current Liabilities $63662 $174495 $145573

Long-Term Liabilitie$ SBALoan $ 381966 $ 371601 $ 364699 Bani Loan 484155 474000 468215 Supplier Note 3031950 3051881 305481

1170071 1151482 1138395 Stoddlolden Equity Capital stock common par value $100 authorized 4~000 Retained Earninp

$ 89000 -1241773l

$ 89000 285~061

$ 89000 ~282553~

Total Stockholders Equity (35773) (196206) (193553)

lbtlllJabDitiaand Stockholttentui9 SI197960 SII29771 SI090415 r

and Franklin Covey Inc to name a few To date there has been no concerted effort to sell ream Bua~paaes but Jeffhu been thinking about the possibility ~ PIrlailJf11ie Quhryfiasttlined up with Utah Valley State College and offers ~ citdif~i~lYith clitnbi~ sSthepbysical emphasis drawing an average group of 23 ~ftidenu)~can tgteiei on ~e1inanclals in only eight months during 2003 the revehucs tot this activitYhaVe meeded the entire year of 2002

~ 9

Marketing Initiatives While Jeff was not a business major he had the corred instincts and surrounded himself with partners and advisors who could provide assistance in marketing dnance andhuman reso~He had to Pfepare a five-year uategic plan for the inishytial stock offering and SBA loan request and he had learned a good deal about busishynea operatiolll with his equipment retail store

On various days of the week there is a special for different groups Monday is Family Night where parenti climb foronly $8 and children under 8 climb for $6 (Harness rental fees normally $1 are waived) Thursday is Clink Night to attract novice climbers who want to meet new climbers just like yourself Friday is Bring a Friend Pree for members and Sunday is for members only

The Quarry abo sponsors The QuarryYouth CUmbingTeam which meets ewry Saturday from 8 to 10 AM Participation results in youth certification for underage dUnbers All of these initiatives require a lot of attention and careful management of schedules personna and promotion

MQfkatlng Research Jeff approached a professor of Marketing Rerearch at Utah Valley State College with the hope that he could obtain information needed to plan for the future The profeuor and his dus conducted a videotaped focus group of 12 potential climbshying clientS and later completed a random survey of243 people between the ages of laand 34 all nonparticipants in rockdimbing Jeff needed to know what people thought about rock climbin8 what their reasons might be for not undertaking such an activity and 10 on so that he could fine-tune his operations and atttlnpt to convert theinterested and infrequent users into more frequentmiddotusers and more specificaUy clients of The Quarry After running chi-squares correlation and t-tests to test specific hypotheses so~e important conclusions were statistically supported The 243 people surveyed were 80 percent students at local universiti~ inside the target marktt ages of 18 and 34 who upressed a dear preference for outdoor physical acliviueamp

bull There were no differences between females and males regarding their aaponse as to~hat percentage chance there would be ofrode climbing in the nat year The frequency dwt in Erhiblt 2 shows this finding The mean pershycentage (from 0 to 100)-0pound probability ofclimbing for males wu 381shyand for 6mala 37

bull Therewerenodiflerences tJetween females and malesreprding their opinion as to whether they could be ~rock dimber The mean aoswer for males wasshy242 and for females 241 (1 was Definitely Agree and 7 was Definitely Disagree)

bull Both females and DJaIes apressedstrons intaat in taking classes on rock climbing Males had a mean of263 and females 299 (slightly lower) with a ) indicating Definitely Agree aDd a 71q)iesenting Ddinitdy Disagree

bull It was expected that females and males would express different self perceptions (Group Leader Independent FoUower) to help determine marshyketinJ approadles It wu found however that there waa a ~latiyenely even dist~butio~ reflecting perhaps that the differences 10 weIlnoted ~orically are beginning to dissipate An expected modera~e posi~ive correlation between those individuals who view themselves as a middotCould be Rode ~ber and thoSe who Wouldbe tittefestcd in Takiilg a aass WIll verified in the study -

bull A significant difference ~ discov~ed using aoamiddottabulation ~ilysia between males and females reganJing how much they spend on outdoor

10

EXHIBIT 3 Consolidated Balance -Sheet

3( uti JI~ iJJ I J YJLUBNPm DBCBMBiIt 31

bull ~1 t t t

ZOO3 2001 2002 (MONTHS)

Assets Current Assets Cash and ~ equivalents Receivabl~ lmdoubtful account allowance

$4319 1523--Total Current Aaets 16023shy 5842

PixedAaeu Property and Equipment at Cost

dimbing Wall $ 242540 $ 242540 $ 242540 Climbing Holds

Land 280()0

238000 28000

238000 28000

238000 Building 725452 725452 725452 Other 10000 10000 10000 Equipment amp Furniture 6168 6168 6168

Less Accumulated Depreciation 68223 1271254 165587 Total Property and Equipment n~t 1181937 1122906 1084573

Total Assets SII9796O SII29771 $1090415

Liabilities and Stockholclera Bquity Current Uahilltie$ Accounts Payable $16958 $ 48855 $ 25898 Credit Card Payable 6549 10266 9730 Note$ Payable 9750 87400 102997 Taxa Payable (lncome and Sale$) 27326 23874 3283 Other 31deg79 41100 3665

Total Current Liabilities $63662 $174495 $145573

Long-Term Liabilitie$ SBALoan $ 381966 $ 371601 $ 364699 Bani Loan 484155 474000 468215 Supplier Note 3031950 3051881 305481

1170071 1151482 1138395 Stoddlolden Equity Capital stock common par value $100 authorized 4~000 Retained Earninp

$ 89000 -1241773l

$ 89000 285~061

$ 89000 ~282553~

Total Stockholders Equity (35773) (196206) (193553)

lbtlllJabDitiaand Stockholttentui9 SI197960 SII29771 SI090415 r

and Franklin Covey Inc to name a few To date there has been no concerted effort to sell ream Bua~paaes but Jeffhu been thinking about the possibility ~ PIrlailJf11ie Quhryfiasttlined up with Utah Valley State College and offers ~ citdif~i~lYith clitnbi~ sSthepbysical emphasis drawing an average group of 23 ~ftidenu)~can tgteiei on ~e1inanclals in only eight months during 2003 the revehucs tot this activitYhaVe meeded the entire year of 2002

~ 9

Marketing Initiatives While Jeff was not a business major he had the corred instincts and surrounded himself with partners and advisors who could provide assistance in marketing dnance andhuman reso~He had to Pfepare a five-year uategic plan for the inishytial stock offering and SBA loan request and he had learned a good deal about busishynea operatiolll with his equipment retail store

On various days of the week there is a special for different groups Monday is Family Night where parenti climb foronly $8 and children under 8 climb for $6 (Harness rental fees normally $1 are waived) Thursday is Clink Night to attract novice climbers who want to meet new climbers just like yourself Friday is Bring a Friend Pree for members and Sunday is for members only

The Quarry abo sponsors The QuarryYouth CUmbingTeam which meets ewry Saturday from 8 to 10 AM Participation results in youth certification for underage dUnbers All of these initiatives require a lot of attention and careful management of schedules personna and promotion

MQfkatlng Research Jeff approached a professor of Marketing Rerearch at Utah Valley State College with the hope that he could obtain information needed to plan for the future The profeuor and his dus conducted a videotaped focus group of 12 potential climbshying clientS and later completed a random survey of243 people between the ages of laand 34 all nonparticipants in rockdimbing Jeff needed to know what people thought about rock climbin8 what their reasons might be for not undertaking such an activity and 10 on so that he could fine-tune his operations and atttlnpt to convert theinterested and infrequent users into more frequentmiddotusers and more specificaUy clients of The Quarry After running chi-squares correlation and t-tests to test specific hypotheses so~e important conclusions were statistically supported The 243 people surveyed were 80 percent students at local universiti~ inside the target marktt ages of 18 and 34 who upressed a dear preference for outdoor physical acliviueamp

bull There were no differences between females and males regarding their aaponse as to~hat percentage chance there would be ofrode climbing in the nat year The frequency dwt in Erhiblt 2 shows this finding The mean pershycentage (from 0 to 100)-0pound probability ofclimbing for males wu 381shyand for 6mala 37

bull Therewerenodiflerences tJetween females and malesreprding their opinion as to whether they could be ~rock dimber The mean aoswer for males wasshy242 and for females 241 (1 was Definitely Agree and 7 was Definitely Disagree)

bull Both females and DJaIes apressedstrons intaat in taking classes on rock climbing Males had a mean of263 and females 299 (slightly lower) with a ) indicating Definitely Agree aDd a 71q)iesenting Ddinitdy Disagree

bull It was expected that females and males would express different self perceptions (Group Leader Independent FoUower) to help determine marshyketinJ approadles It wu found however that there waa a ~latiyenely even dist~butio~ reflecting perhaps that the differences 10 weIlnoted ~orically are beginning to dissipate An expected modera~e posi~ive correlation between those individuals who view themselves as a middotCould be Rode ~ber and thoSe who Wouldbe tittefestcd in Takiilg a aass WIll verified in the study -

bull A significant difference ~ discov~ed using aoamiddottabulation ~ilysia between males and females reganJing how much they spend on outdoor

10

Marketing Initiatives While Jeff was not a business major he had the corred instincts and surrounded himself with partners and advisors who could provide assistance in marketing dnance andhuman reso~He had to Pfepare a five-year uategic plan for the inishytial stock offering and SBA loan request and he had learned a good deal about busishynea operatiolll with his equipment retail store

On various days of the week there is a special for different groups Monday is Family Night where parenti climb foronly $8 and children under 8 climb for $6 (Harness rental fees normally $1 are waived) Thursday is Clink Night to attract novice climbers who want to meet new climbers just like yourself Friday is Bring a Friend Pree for members and Sunday is for members only

The Quarry abo sponsors The QuarryYouth CUmbingTeam which meets ewry Saturday from 8 to 10 AM Participation results in youth certification for underage dUnbers All of these initiatives require a lot of attention and careful management of schedules personna and promotion

MQfkatlng Research Jeff approached a professor of Marketing Rerearch at Utah Valley State College with the hope that he could obtain information needed to plan for the future The profeuor and his dus conducted a videotaped focus group of 12 potential climbshying clientS and later completed a random survey of243 people between the ages of laand 34 all nonparticipants in rockdimbing Jeff needed to know what people thought about rock climbin8 what their reasons might be for not undertaking such an activity and 10 on so that he could fine-tune his operations and atttlnpt to convert theinterested and infrequent users into more frequentmiddotusers and more specificaUy clients of The Quarry After running chi-squares correlation and t-tests to test specific hypotheses so~e important conclusions were statistically supported The 243 people surveyed were 80 percent students at local universiti~ inside the target marktt ages of 18 and 34 who upressed a dear preference for outdoor physical acliviueamp

bull There were no differences between females and males regarding their aaponse as to~hat percentage chance there would be ofrode climbing in the nat year The frequency dwt in Erhiblt 2 shows this finding The mean pershycentage (from 0 to 100)-0pound probability ofclimbing for males wu 381shyand for 6mala 37

bull Therewerenodiflerences tJetween females and malesreprding their opinion as to whether they could be ~rock dimber The mean aoswer for males wasshy242 and for females 241 (1 was Definitely Agree and 7 was Definitely Disagree)

bull Both females and DJaIes apressedstrons intaat in taking classes on rock climbing Males had a mean of263 and females 299 (slightly lower) with a ) indicating Definitely Agree aDd a 71q)iesenting Ddinitdy Disagree

bull It was expected that females and males would express different self perceptions (Group Leader Independent FoUower) to help determine marshyketinJ approadles It wu found however that there waa a ~latiyenely even dist~butio~ reflecting perhaps that the differences 10 weIlnoted ~orically are beginning to dissipate An expected modera~e posi~ive correlation between those individuals who view themselves as a middotCould be Rode ~ber and thoSe who Wouldbe tittefestcd in Takiilg a aass WIll verified in the study -

bull A significant difference ~ discov~ed using aoamiddottabulation ~ilysia between males and females reganJing how much they spend on outdoor

10

activities there were more males classified as Heavy Users (spendins $41+ per month on outdoor activities) than Light Users (spending $0-$40 per month)

bull There is a significant difference in the various reasons that would preftnt a male or female from rock climbing Among the five reasons tested (Too Expensive Too Time-Consuming Uninteresting Compared to Other Sports Not Popular Too Technical) a Considerablymore females than males thought it would be expensive Ofthe

five reasons they could have elected this was the most noted by both genders b Both genders indicated the kMt important reason to not rock climb was

that it was -Not Popular

Other Marketing Experiments In the summers of2001 2002 and 2003 Jeff marketed camps for local children and designed a door-to~door campaign for recruiting which resulted in an average of four classes of 40 kids between the ages of 6 and 12 who would hopefully serve as the future generation of memberships at The Quarry Jeff was a fast learner about the importance of strategy finance marketing and customer service to a small business

Direct Competition No matter how Jeff defines the industry of The Quarry there is a lot of competishytion Most large dties have one or two such climbing gyms today and that is the case in this metropolitan area of 360000 inhabitants High Adventure Specialties in Orem has a wall of 1000 square feet with four ropes for climbing (compared to the 39 ropes of The Quarry) The Rock Garden a 5000-square-foot wall facility opened up fur business in 1992 closed in 2000 Then there are the ewr-present physical fitness facilshyities such as Golds and 24 Hour Fitness in the Orem-Provo market area there are 16 such taciIities which are currently engaged in a price war (Jefffeels that the market is certainly saturated)

In the other major city of the state Salt Lake Oty (34 miles to the north) there are three climbing gyms Rockreation (5000 square feet of wall) The Front (5000 square feet) and The TreeHouse (1500 feet) The Front ~nly offers bouldering which is a very popular subsport ofclimbing (there are no ropes and shorter walls are used with gymnastics-style padded flooring) A unique feature of The lreeHouse is that it is part of a health gym and about double the size of the average Golds Gym facility

Financial Performance All small and medium-sized businesses feel the sharp edge of competition and ec0shynomic changes more severely than their larger sisters and The Quarry is no different Having significant financialproblems in 2001 and 2002 it is imperative that Jeff at least reach the breakeven point in 2003 and the partial financial statements look positive in that regard (see Exhibit 2) Utahs economy slowed significantly in 2002 and the trend continued into the end of 2003 According to the Executive Summary of the Utah Governors Office of Planning and Budget (2003) The national recesshysion the end of the 2002 Olympic Winter Games and a degeneration of Utahs relashytive position compared to California and other states have all contributed to the slow down The rate of job growth fell in 2002 for the first time ~in(e 196 and feU again in 2003 Loomg at Exhibits 2 and 3 we can appreciate the financial situation ofThe Quarry

11

Rricing Jeff pficel)~eaFtm~rnhershippl~ by IOQkingto the competttion betWeen Q)ld1s Gym and 24 Hour Fitness Centers (which currently are waging a pricing war) and the walk-in rate on what he finds from other indoor climbing gyms throughout the United States When The Quarry first opened the daily climbing pass was priced at $13 (after all the monthly Golds Gymmiddot is $13 per single membership) but was lowered to $11 and later Jeff lowered it to $9 in light of the economic conditions and the price war between thetwo fitness centers In addition to the climhing fee there is also a $5 charge forshoes and the harness

Given the wall surface space Jeff can handle a maximum of 118800 people per year (assuming 450 as the maximum clients per day for 22 days per month the avershyage climber stays two hours thus three shifts of 150 climbers each day is the most The Quarry can serve) In 2003 The Quarry served an average of about 150 clients a day in the first aad fourth quarters and 65 per day the second and third quarters

Future Considerations As Jeff helped a young Star Scout into his harness for the last dimb of the evening he was thinking ahead to the meeting tomorrow with his management team and knew that some very important decisions needed to be made in the very near future In order for others to enjoy the same pleasure I get every time I go out The Quarry has got to work harder and smarter Should I open up another climbing center in Salt Lake City or here in ProvoOrem In the short term shOUld I concentrate more on marketing or finance to reach my breikeven point Where are the threats and opporshytunities in this industry that I can take advantage of Is it time for a change in my management team Am I trying to be everything to too many segments What should I do about the price war going on How can I resolve the constant cash flow problems that cause daily adjustments in strategy What should be done when and in what priorityD

References

wwweconomycom wW1Voutdoorindustryorg Gorrell Mike Wild About the Wilds SJt lAltt Trilm (JunS 2003) H1 ES Johnston IUrlough and Madeleine Hallden Rtd ClitnlJmg BIISks Mechanicsbur8 PA Stackpole

Books 1995 Leavitt Randy The Invisible Man Rod ad lcr(Feb~ 20(0) 64-69 ~onis Jane A bull ed E9C1opeJia of Eig 1tri~ 4th ed Farmin8ton Hill MI The Gale

Group2001 ped~rsen Jeff Tilt Q BlUi1lClS Pia (unpublishtd 24 pages) Smarr Christopher Parents Describe Climbers lifelon8 Need for Challen8e TIN SJllAh

TriIm (May 6 2003) A1 AS Sponin8 Goods Manufacturers Association 2000 SItIII oftht l11111ulry RIporI North Palm Beach middot FL Sporting Goods Manufacturers Aisociationj wwwspordinkcom 2003 Economic

Report ro the Governor (State ofUtab Executive Summary)

bullbull I

12

Rricing Jeff pficel)~eaFtm~rnhershippl~ by IOQkingto the competttion betWeen Q)ld1s Gym and 24 Hour Fitness Centers (which currently are waging a pricing war) and the walk-in rate on what he finds from other indoor climbing gyms throughout the United States When The Quarry first opened the daily climbing pass was priced at $13 (after all the monthly Golds Gymmiddot is $13 per single membership) but was lowered to $11 and later Jeff lowered it to $9 in light of the economic conditions and the price war between thetwo fitness centers In addition to the climhing fee there is also a $5 charge forshoes and the harness

Given the wall surface space Jeff can handle a maximum of 118800 people per year (assuming 450 as the maximum clients per day for 22 days per month the avershyage climber stays two hours thus three shifts of 150 climbers each day is the most The Quarry can serve) In 2003 The Quarry served an average of about 150 clients a day in the first aad fourth quarters and 65 per day the second and third quarters

Future Considerations As Jeff helped a young Star Scout into his harness for the last dimb of the evening he was thinking ahead to the meeting tomorrow with his management team and knew that some very important decisions needed to be made in the very near future In order for others to enjoy the same pleasure I get every time I go out The Quarry has got to work harder and smarter Should I open up another climbing center in Salt Lake City or here in ProvoOrem In the short term shOUld I concentrate more on marketing or finance to reach my breikeven point Where are the threats and opporshytunities in this industry that I can take advantage of Is it time for a change in my management team Am I trying to be everything to too many segments What should I do about the price war going on How can I resolve the constant cash flow problems that cause daily adjustments in strategy What should be done when and in what priorityD

References

wwweconomycom wW1Voutdoorindustryorg Gorrell Mike Wild About the Wilds SJt lAltt Trilm (JunS 2003) H1 ES Johnston IUrlough and Madeleine Hallden Rtd ClitnlJmg BIISks Mechanicsbur8 PA Stackpole

Books 1995 Leavitt Randy The Invisible Man Rod ad lcr(Feb~ 20(0) 64-69 ~onis Jane A bull ed E9C1opeJia of Eig 1tri~ 4th ed Farmin8ton Hill MI The Gale

Group2001 ped~rsen Jeff Tilt Q BlUi1lClS Pia (unpublishtd 24 pages) Smarr Christopher Parents Describe Climbers lifelon8 Need for Challen8e TIN SJllAh

TriIm (May 6 2003) A1 AS Sponin8 Goods Manufacturers Association 2000 SItIII oftht l11111ulry RIporI North Palm Beach middot FL Sporting Goods Manufacturers Aisociationj wwwspordinkcom 2003 Economic

Report ro the Governor (State ofUtab Executive Summary)

bullbull I

12