Touchtop Technologies, Inc.

c.  Cost of Sales.

Cost of Product Revenue.  Cost of product revenue consists primarily of the costs of royalties paid to third-party vendors, product media and duplication, manuals, packaging materials, personnel-related costs and shipping expenses.  Because all development costs incurred in the research and development of software products and enhancements to existing software products will be expensed as incurred, cost of product revenue includes no amortization of capitalized software development costs.

Cost of Maintenance and Service Revenue.  Cost of maintenance and service revenue consists primarily of personnel-related costs incurred in providing telephone support, consulting and training to customers. The primary component of the cost of sales is labor.  Skilled, professional personnel used directly in the company's operations are expected to be readily available, and the Company has generally used higher average cost of sales estimates based on industry reports for companies of similar size in the software development industry and per the Department of Labor's Occupational Compensation Survey.

d.  Property and Equipment. Property and equipment are stated at projected cost.

Projected depreciation and amortization are computed under the straight-line method in amounts that allocate the cost of all assets over the following estimated useful lives:

e.  Selling and Marketing Expenses.  The principal types of expenses within this category are salaries, promotion and professional services.  Salaries are projected on an individual-by-individual basis, using expected salary rates throughout the projection period.  Promotion expense is projected at 12% of revenue throughout the projection period.  This percentage is significantly higher than that of similar companies in comparable industries.  Professional services are projected at $3000 per marketing employee per month.

f.  Research and Development Costs.  The principal types of expenses within this category are salaries, rent, telephone, travel, supplies, and professional services.  Salaries are projected on an individual-by-individual basis, using expected salary rates throughout the projection period. Rent expense was determined by comparing the company quoted local market rates with additional space requirements according to Time Saver Standards for Building Types.  Insurance, telephone, supplies, and professional services were projected on a per employee basis at rates of $100, $125, $220, and $80 per employee respectively. Generally, management expects to charge research and development expenditures to operations as incurred, in accordance with Statement of Financial Standards No. 86.  SFAS 86 requires capitalization of certain software development costs subsequent to establishing technological feasibility.  Therefore, the Company will capitalize eligible computer software development costs upon completion of a working model.  For the projection periods presented, no costs were eligible for capitalization, therefore, the Company charged all software development costs to research and development expense.

g.  General and Administrative Expenses.  The principal types of expenses within this category are salaries, facilities and occupancy, travel, professional services, and insurance.  Salaries are projected on an individual-by-individual basis, using expected salary rates throughout the projection period.  Facilities expense was determined by comparing the company quoted local market rates with additional space requirements according to Time Saver Standards for Building Types.  Supplies expense is projected at      $275 per administrative employee per month.  Professional services are projected at              $120,000 for 1997 and 0.75% of revenue thereafter.  Insurance under the G&A caption primarily reflects the company's expected costs for property, liability and casualty insurance and is consistent with industry norms for similar firms.  The prospective results of the company are sensitive to differences between actual and projected selling and marketing, systems, and general and administrative expense, excluding depreciation.  Specifically, a 1% increase in the actual operating expenses experienced,  will result in a 0.48% drop in pretax earnings in 1999. 

h. Bank Credit Facility  The projections assume that TouchTop Technologies, Inc. will pay cash for all additions to property and equipment.  The company's interest in property and equipment is expected to act as a borrowing base to secure a line of credit in 1998 in the amount of $100,000.  As the company grows, this amount is expected to increase.

i.  Interest expense .  Interest expense on borrowings is calculated at the nominal rate of 8.5%.  Differences between the nominal and effective rates are expected to be immaterial.

j.   Miscellaneous Income.  The forecast assumes that excess cash is invested at market rates of approximately 4%. 

k.   Accounts Receivable.  The forecast assumes that proceeds from license agreements, royalty settlements, and payments for consulting services are collected within 40 days.

l.  Responsible Party.  The projections herein are the responsibility of the officers and founders of TouchTop Technologies, Inc., as identified in this business plan, and, to the best of management's knowledge and belief, are in conformity with generally accepted accounting principles.  The company believes all of the assumptions underlying the projections are reasonable and appropriate. Management further represents that these projections were not compiled or examined by an independent public accountant and should not be viewed as if so compiled or examined.