We completed the vast majority of our feasibility analysis the previous Sunday so there was very little work left to be done. Ed Keprta took care of combining all files into one word document and one excel file. He also took care of the final proofing to ensure that it was ready to be bound. Ed had it bound at Kinko’s and turned it in on Tuesday evening. Ed also e-mailed the final version to Dr. Allen and the other group members.
On Tuesday, Ed received the new issue Surfing magazine. The magazine was basically dedicated to new surfboard technology with several pro-surfers testing various products that we have mentioned in our feasibility analysis. Unfortunately, it was too late to include the various articles in our feasibility analysis. The new issue of Surfing magazine was insightful, and it showed that we are on the right track with our feasibility analysis. However, it appears the market is moving toward new technology at a faster pace than initially thought.
I think it is safe to say that all group members were ready for a break from this project….and what better time for a break than Thanksgiving.

November 23 TOP

This week we presented our elevator pitch to the class. We received some very good feedback from individuals who approached us at the bread to give us some constructive criticism. We met after class to discuss the feedback and all of us agreed that we needed to make some minor adjustments to our proposal. Overall, we feel that this is a very strong idea with some very good market information to back us. We have met with numerous surf shop owners/managers and surfers who are anxious to see our prototype and test it out. All of us are very excited about moving the process forward and starting our own business.

We finished our feasibility analysis on Sunday. We spent the entire weekend making minor changes. Our two investors met with us to give us their take on the final product and both want to fund us and see this company get off the ground. Scott Ferrell is particularly interested in seeing H-P Surf Products move forward because he is an avid surfer and want to test ride our prototype. We are anxious to receive feedback from our instructor so that we may minimize any potential errors or oversights that may need to be addressed in the future.

November 16 TOP

This week was a very busy week for H-P Surf Products. We finally were able to purchase and receive the Board-Trac Waveriding market data report that we have anxiously been waiting for. This major piece of information was the last piece of marketing data that we needed; this is a crucial piece of our feasibility puzzle. Upon receiving the report, we met as a team to discuss the information and delegated the workload. We then, as a group, wrote the remainder of our marketing section of the feasibility analysis. After reading the marketing report, the entire team concluded that this is a very viable idea and we will definitely move forward. We look forward to presenting our elevator pitch to the class so that we can receive some constructive criticism that will enable us to fill any gaps that may have been overlooked in our feasibility analysis.
Additionally, this week, we were able to procure the final numbers that we needed to finish our financial projections. We were not able to just plug numbers into our financial model; we had to make adjustments to these numbers so that all numbers were in sync. We had to create additional spreadsheets that utilized the information and cut it in such a way that it would work in our model. We spent the entire weekend finalizing our financial model. All of our contacts in the surfing industry finally gave us the final numbers that we needed for glassing and manufacturing. This enabled us to figure out the margins that will be realized should our boards be purchased.
We are excited to present our elevator pitch on Wednesday night, and we are looking forward to presenting in front of the venture capitalists. We are also looking forward to taking H-P Surf Products to the next level.

November 10 TOP

This week, H-P Surf Products continued to fine tune the feasibility analysis. We met over the weekend and discussed various strategies for rolling up the value chain. We also discussed companies that could be considered acquisition targets. We also discussed funding requirements.
We continued to work on the customer profile and estimating demand. As we said last week, data is very hard to come by in the surf industry, and we have not had acquired the necessary marketing materials. Ed is diligently trying to obtain the necessary marketing report, but he is having difficulty. He will make one final attempt early in the upcoming week at obtaining the report, and if he is unsuccessful, we will have to find an alternative means of acquiring the necessary information. Ed is currently looking at alternative ways of obtaining the information.
We discussed various strategies of rolling up the value chain. There are many ways of going about this, and we discussed several. The direction we go in will depend on the estimated profitability of our proposed product. We are still fine tuning the estimated profit and loss of our product. If the product looks to be quite profitable in a short period of time, it might make sense to roll up the entire value chain at once. If it will take time to reach strong profitability, we will have to roll up the value chain in stages. Estimated profitability will also tie into our initial capital needs.
We talked about acquisition targets in the value chain and we are in the process of prioritizing the acquisition list. We have identified several companies with at least one in each stage of the value chain. We discussed possible valuation methodologies for our acquisition targets. We agreed it will be difficult to value these targets because they are all privately held, but we feel that we can pick up many of these companies at valuations that are quite reasonable for several reasons. Many of these companies lack appropriate financial reporting systems and the owners of these companies do not even understand the importance of financial reporting systems. Many of the owners would like to sell, but they do not know the first thing about selling a company much less how to value the company they have. We feel we can make a good case as to valuation, valuation methodology and with Paul Huff’s negotiating expertise, we should be able to pick-up many of these companies on the cheap.
During the upcoming week, we plan on continuing to fine tune the feasibility analysis. We plan to meet next Sunday to begin to implement our changes and begin to actually finalize our feasibility analysis.

November 2 TOP

This week H-P Surf Products worked on our weak areas of the feasibility analysis. Ed Keprta was negotiating to try and obtain an in depth marketing report. We feel that obtaining the Board-Trac marketing report is crucial to our feasibility project. Ed also stopped by Futures Fins again to discuss feedback on the fins currently being tested and to discuss industry developments.
We feel it is crucial to obtain the Board-Trac marketing report for the surf industry. Unlike mainstream industries, there is very little public information available for the surf industry, and we just do not have the resources to conduct our own market research. In order to produce a quality feasibility analysis, the Board-Trac report is crucial. Ed was negotiating in order to obtain the report, and he thinks he might have been successful. He should have a definite answer by the first part of the upcoming week. If Ed is not successful, we will have to purchase the report on our own. We are diligently trying to avoid this possibility, but at this point we feel it is a likely outcome.
Ed also stopped by Futures Fins in order to discuss feedback on the fins currently being tested. They also discussed future product development. The “whisteling” problem that was mentioned last week has been resolved by a slight modification to the mold. Ed was able to get a set of fins produced with the mold, and he will be testing these fins during the upcoming week. Ed also found that Futures Fins has recently started working with Clark Foam to see if it is possible to create a mold with a suspension structure. Work has just begun on this front and we will be watching developments closely.
While at Futures Fins, Ed discussed industry developments. Specifically, they talked about the Surflite technology that was discussed in the draft feasibility report. Vince from Futures has actually been to the Surflite factory and was quite impressed with the technology. According to Vince, the technology is very labor intensive and the company is not very profitable. He also said the company would like to sell the technology. They also talked about Solomon and the fact that they are planning to enter the market. Ed will be conducting research this week to determine what Solomon’s plans are.
Paul met with three more surf shop managers and owners. Paul went to Venice, CA to talk with the local surf shops. They were very impressed with H-P Surf Products ideas and technology. They are very interested in seeing a prototype and agreed that if the prototype met their specifications, they would slot the surfboard. Additionally, they were very impressed with the fact that they may be able to make higher margins on H-P’s boards because of their advanced technology and customers.
Paul also met with a lawyer who was willing to help them with any legal matters that may arise when starting a new business. Scott Ferrell, of Call, Jensen and Ferrell located in Newport Beach, was very interested in their idea. Scott is willing to give free legal advice for an option to purchase a portion of the companies shares and also a position on the board. Ed, Paul and Aaron will meet later next week to discuss this matter in further detail.

October 26 TOP

This last week was quite busy for H-P Surf Products. The rough draft of our feasibility analysis was due Wednesday by 6:30. It was now time to integrate the work of the group into one document. It is safe to say we all thought it would be easier than it actually was. Each group member had a significant amount of information for the project and we just could not incorporate it all. We identified our weak areas and planned how to move forward.
As noted in our last on-line journal, we met over the weekend to allocate the workload and began writing the feasibility analysis. We communicated via e-mail on Monday, and we met Tuesday night to put the finishing touches on the project. Our meeting lasted a few hours. We were able to make significant progress on our project, and we were all quite pleased with how far we had come in such a short period of time; the project is starting to come together. We worked as a cohesive unit to produce what we felt was a pretty good rough draft. The rough draft was sent to Dr. Allen Wednesday afternoon.
During our meeting Tuesday night, we identified two key aspects of our feasibility analysis that are quite weak at this point. They are the customer analysis and the projected financial information. Aaron Merriman was able to build a model for the financial projections portion, but we do not have good data to input into the model at this point. We determined that our focus during the upcoming weeks will be on these areas. We have a meeting with Dr. Allen on Wednesday, and we plan on updating her with our progress.
We talked briefly on how to move forward with our customer analysis and the projected financial information. We began work on designing a customer survey and discussed some options on how the survey will be conducted. We also discussed what type of information we wanted to acquire through the survey. We plan on making significant strides with our customer analysis and our financial projections in the coming weeks.

October 19 TOP

Over the past week all of our team members have continued to do industry research as well as search many different web sites for more ideas. We spoke with two people at Haas Manufacturing, Jim Reed and Dave James. We wanted to understand more about their product. Haas makes the C&C machines that we will need in order to manufacture our surfboards. Additionally, they talked with us about a leasing company that we can talk to about the machines instead of purchasing one. The base price to purchase a machine is $80,000 but depending on the options that are chosen, they can cost up to $150,000. We will contact the leasing company on Monday to find out leasing prices, because this may be a better option for us initially because this option will be less capital intensive in the short-run.

We began doing secondary industry analysis. We were able to compile secondary industry analysis by finding out what our competitors are doing. For example, Surflite has a very interesting product; Surflite has designed surfboards with engineered flex characteristics. Also, Homeblown makes foam using more environmentally friendly chemicals. This is a very sensitive topic because they are in Europe where environmental laws are stricter than they are in the US. This was very interesting to us as a group because if the US becomes even stricter about environmental laws, we have found a company that we can model our business after.

Ed had a brief meeting with Vince Longo, President, Futures Fins Ocean Air. They discussed the products Ed has been testing and they tried to evaluate the progress of the new fin foil technology. Vince gave Ed another set of foil fins to try out. These new fins are made out of a different material; they are made out of a high-tech plastic versus the carbon fiber fins Ed was testing before. The fins also have a different template that Ed has not tried out yet. Ed tried these fins out during the week, but he did not like them. The foil design was a slightly off so the fins “whistled” in the water and did not feel quite right. Ed could not pinpoint what it was about the fins he did not like. He has never ridden that template, so it could be the template. It could also be the materials or the foil; it is difficult the pinpoint the root cause of the different “feel”. Vince will retool the mold slightly to correct the problem and should have some new fins ready this week. Ed also talked with Vince about what they are currently doing to evaluate customer interest in the products. Ed learned that they are not doing too much yet as far as customer research. They are focused on developing the product. The good feedback is coming from the group of people that are involved in the long-term testing of the products, but this feedback is performance driven.

As a group, we have identified the customer analysis as a hole that we need to fill. This is an area that we have decided to focus on in the upcoming weeks. We discussed some ways to go about getting more detailed customer information, but it hinges on whether or not we are able to get a high quality marketing report. In order to move forward, we need to find out what information we will be using. Ed will be working to obtain a detailed market analysis this upcoming week. He is optimistic that he will be able to come through with the report.
Additionally, we began to write our Feasibility Analysis. We met on Saturday to discuss how we wanted to begin writing our analysis. We allocated the workload so we could complete the project as efficiently as possible while still maintaining high quality. We have a myriad of information and we began compiling it so that we can move forward and hopefully get funding for our business by the beginning of the year. This will be a busy week for our group.

October 12 TOP

This week all of us met to discuss what we have accomplished over the past week as well as formulate a plan on how we will begin to write our feasibility analysis. Unfortunately, before we can begin to write our feasibility analysis, we are hopeful of obtaining a market research analysis from Board-Trac. Additionally, this report is not free and Ed has successfully negotiated a lower price, $500, but we are still optimistic that we will pay even less. Action Sports Group (ASG) may also have some market research data; Ed will be contacting ASG next week.

Paul spoke to Robert Detha again from AP Products and has a meeting scheduled with him for Monday October 13th. Robert is a sales representative that carries all of the necessary supplies needed to manufacture surfboards. Additionally, Robert represents many different resins and will hopefully help us to determine which resin will be best for the performance board that we are striving to produce. Paul also met with Akira, the manager of Jacks surfboards in Newport Beach, to find out what H-P Surf Products would need to do in order to get their new surfboards slotted in Jacks. He told Paul that he was very interested in H-P’s ideas and would love to see a prototype. Akira also told Paul that surfers are very hands on and therefore, he would like to test out a board before he would be willing to sell it in his shop. Akira was very interested in everything Paul told him about H-P’s ideas and stated that he would like to stay in contact with Paul and his teammates. Akira gave Paul his card and e-mail and asked him to send him updates because he is very eager to try out our prototype.

Ed met with Ron Lingenfelter at Waterman’s Guild to discuss the glassing process. Waterman’s Guild has a reputation of being one of the best glassing shops in the area which is why Ed chose to meet with them. They discussed the entire process which consists of several steps each being very labor intensive. A board moves through about 5 “rooms” with the board spending about a day in each room. The majority of time each board spends in each room is spent curing; the boards spend a significant amount of time just being stored. Glassing shops are not efficient! Most of the employees have several years of experience in the industry which is why they are considered one of the best shops around. Ed actually recognized one guy who used to own Aggressions Surf Shop in Huntington Beach. This particular individual shaped his own boards for several years that he sold in his shop. Because Waterman’s Guild produces a premium product, they can charge a premium price. However, they must also pay a premium for experienced labor. Because of this, they do not make higher margins. Gross margin is between 30% and 40% with a 10% net margin. Ed was not able to get any additional information to determine ROE.

Ed also tested some new fin designs this week. The fins incorporated a “foil” on the inside of the outer fins (this is normally flat). Since the waves were good this past week, Ed was able to get a good indication of the performance characteristics. His first impression was that the fins felt faster and more responsive, but he also felt more testing is needed in different wave conditions. He will be testing another set of fins this week; these fins are the same design with different materials.

October 5 TOP

This week Paul was able to speak with chemical engineers at Ashland Chemicals in Ohio. He spoke with Dean Collins who told Paul all about the different corrosive resistant resins that Ashland makes. However, Dean was unable to give any pricing. Therefore, Paul called the sales department of Ashland and was told that Hetron 922 costs $2 per pound and is sold in 55 gallon drums weighing 500 pounds each. The salesman, Don Smith, told Paul that he would be able to buy smaller quantities of Hetron through distributors located in Southern California. After a number of calls, Paul was able to speak with Robert Detha, a sales rep. for AP Products. Unknown to Paul, Robert represents not only resins, but also all components for making surfboards, minus the foam. Robert recommended H2 clear resin instead of Hetron, because it is less expensive and a better resin. Also, it is lower in cost, $570 for a drum or $100 for a 5 gallon pail. Paul has set-up a meeting with Robert to get pricing on all of the other components needed for the production process.
In addition, Paul was able to speak with three different industrial real estate brokers. Jeff Shiate who works for Cushman and Wakefield and is a former Trojan, gave Paul insight into leasing an industrial building. This was very helpful. To lease a 20,000 square foot building in Orange or Santa Ana will cost approximately $.48-$.49 per foot triple net. This will give us approximately 3000 square feet of office space and the remainder for manufacturing. Net expenses will be approximately $.09 per foot for a grand total of $.58 a foot grossed up. However, since the leasing side of real estate is so soft right now, Jeff is confident that H-P Surf Products could sign a three-year deal with any increases in cost. This deal would be contingent on minimal tenant improvements.
This week Aaron and Ed met Tim Carey a former business owner in the industry and discussed his business model. He owned a C&C machine that shaped surfboards for shapers. The company’s goal was to get big name shapers that have sizeable volume due to economies of scale in the set-up process. These shapers also tend to have fairly predictable demand. Demand is also based on the surf rather than seasonality; when the surf is big; surfboards get damaged easier and in some cases even break.
Aaron and Ed also discussed the process. They found that machine setup time is roughly 1 minute per board and the deck and rails are shaped in approximately 5 minutes. However, the bottom is shaped in less time, approximately 3 minutes. The machine must be retooled between decks & bottoms. Additionally, they discussed looking into Florida sales, competitors and major accounts in the Southern California market. Tim will get back with Aaron and Ed with additional information such as cost of machine, lease options, etc.
Ed talked with both Surfline and Board-Trac to obtain market information. Ed spoke with Surfline first. Surfline, a premium website that claims to be the most comprehensive surf related website on the internet. They were able to supply some general demographic information. The information they provided was helpful, but it is not the detail we need to do a thorough market analysis. Ed was also given some contact information for the managing director of the Surf Industry Manufacturers Association (SIMA).
Ed contacted Board-Trac next. Board-Trac provides syndicated market research studies with one such study focused on surfing. This report includes a size of market report, segment studies, purchasing patterns, lifestyle and spending. We need this report! Unfortunately, the report costs $1,500. Ed spoke to Marie and she is not currently willing to donate the report to the project. She did give Ed some good information, but it is just not detailed enough. Ed will contact Marie again this week and see what it will take to get a copy of the report.

September 28 TOP

Over the past week all of our team members have continued to do industry research as well as share ideas. We constantly spoke on the phone bouncing ideas back and forth. Here is what we have accomplished over the past week:

Paul Huff spoke with another chemical engineer to learn more about utilizing corrosive resistant resins. He learned that the team cannot just walk into an industrial plant and purchase a large drum of this resin. We will first need a business license and a federal Tax Payer ID. Then, depending on the quantity that we purchase, the Fire Department may require a business emergency plan because resins are flammable. He also discovered that Ashland Chemicals in Ohio produces a resin that may be beneficial for H-P’s surfboards. Ashland has developed a wide range of famous HETRON® corrosion resistant epoxy vinyl ester resins to fit most customers’ needs. HETRON® epoxy vinyl ester resins differ from polyesters due to their enhanced mechanical properties, including excellent physical strength, improved impact and thermal shock resistance. He has not heard back from Ashland as to the pricing on a drum of HETRON®.
Paul also began investigating sites as to where H-P Surf Products could be located. He contacted industrial real estate brokers working for Grubb and Ellis and CB. Unfortunately, he has not heard back from either broker about the cost per square foot or available locations. He did learn from Ed Keprta that surfers and surfboard retailers are very particular about where their surfboards are made. Therefore, as a group, all three members agreed that Orange County would be the best place to manufacture the surfboards.

Aaron Merriman talked to an industry insider to learn more about the mass shaping of surfboards. He was able to learn quite a bit of general information about how long it takes to shape a surfboard by hand versus a machine. Aaron learned that a surfboard costs approximately $20-$30 per board to shape with a machine. This cost is strictly for the machine to shape the board. However, this is after an initial start-up cost to produce the master. The cost associated with “scanning” the board to create a master is approximately $700-$800. The process starts with a foam blank delivered by the shaper or directly from Clark Foam. The foam blank is placed in the CNC machine which shapes the board. The CNC machine eliminates the need for a shaper to hand shape the board. This machine takes about 10-20 minutes to shape the board; in contrast, a shaper requires approximately 3 hours to shape a board by hand.

Ed Keprta met with Bjorn, the manager at Stewart Surfboards in San Clemente. They discussed the Stewart business model and talked about the current state of the industry and what direction he thought the industry is headed. He does not see a lot of innovation in the industry due to the weak profit margins and the fragmented nature of the industry. He did mention that there is an individual from Shell Oil that claims he can make better foam. Bill Stewart has been talking to this guy and Bjorn said he would get Ed the contact information. Bjorn also gave Ed some names of companies that are making surfboards abroad. These companies are taking advantage of cheap foreign labor to produce what is basically an entry level product at a lower cost that they can sell for a lower price. Bjorn also mentioned that at the glassing process is the weak link in the value chain; this seems to be a common theme with most people we have talked to. Bjorn gave Ed a contact at Chelu Glassing in San Clemente. Bjorn also said he would not be a problem to set up a meeting with Bill Stewart in the future.

Ed has tried to get in touch with Chelu, but has not been successful. Because the glassing process is very labor intensive and is also the weak link in the manufacturing process, it is important to get our arms around the process. Ed hopes to meet with Chelu this week.

Ed also stopped by Futures Fins/Ocean Air this week to pick up some experimental fins to try out. The fins have some advanced foil design that is suppose to decrease drag which will increase speed. Ed is excited to try these new fins out. It is important to determine if this new technology actually works. Ed will keep in close contact with Futures Fins/Ocean Air so he can test other innovative products.

The group met on Friday to determine what needed to be accomplished during the next week. Aaron and Paul are going to work on survey questions and the plan for customer tests. Paul will continue to find out about resins and manufacturing locations and Ed will meet with Chelu glass and try and meet with Futures Fins/Ocean Air to see what other types of products are in their pipeline. Ed will also be testing the new fins this week if the waves cooperate. It looks like the surf will stay small for the first part of the upcoming week. It looks like we could see some building NW swell by the first weekend of October with another WNW swell following closely in its footsteps. Hopefully the red tide will disappear soon.

September 21 TOP

Our team is comprised of three people that are interested in returning the surfing industry to profitability. The team members are Ed Keprta, Paul Huff and Aaron Merriman. Our concept is statement is: H.P. Surf Products is a cutting edge surfboard design and manufacturing company that will revolutionize the surfboard industry and return it to profitability. H.P. Surf Products creates technologically advanced products for the avid surfer who demands performance and durability not available in any other surfboard.

In order to get an idea of where to start on this project, Ed Keprta met with the president of Futures Fins Ocean Air, Vince Longo. Mr. Longo has been in the fin design business for several years now. His company designs and manufactures cutting edge fin products. The company is currently developing some fins with special foils that enable the fin to be more efficient. Mr. Longo was able to provide a substantial amount of industry information from the reason why the surfboard manufacturing industry is not profitable to some ideas of where he thinks the industry may be heading. It was a very useful meeting.
We had a group meeting to discuss how to proceed with the project. Ed Keprta went over what he and Vince Longo discussed. As a group, we began brainstorming as to how to proceed. We knew at this early stage the project could go in many different directions. We decided to break up the work between the three of us follows: Mr. Keprta will continue to do industry research and use his connections to talk to influential industry folks; Paul Huff will be looking into the various materials that are now available to the industry, but are not yet being utilized; Aaron Merriman will be looking into the various aspects of the manufacturing process that can be automated. As each of us comes across something that would fit with what another group member is doing, we will notify the appropriate group member. We will also be keeping each other up to date on our progress each week.

After the meeting, the three of us got to work. Ed Keprta met with Robert, the owner of the Harbour Surfboards front store. Mr. Keprta has known Robert for many years and recently bought a new surfboard from him. Robert was more than happy to talk with Mr. Keprta. He was very interested in the project. He agrees that the industry is in flux right now and that the industry needs to change. They talked about some of the problems in the industry that are the cause of the low profitability. One of the main problems is the backyard shaper. The backyard shaper has a much lower cost structure than a big name shaper such as Harbour, so they are able to sell the boards cheaper with a higher margin. This precludes the big name shapers from charging what their products are really worth. This has been an ongoing problem that dates back to the 1950s. A new problem that has just surfaced is the boards being imported from China and sold in Costco. The surfboard is becoming a commodity! Robert gave Mr. Keprta a booklet on a new resin that has come onto the market that no one is using yet; he gave it to Paul Huff to research.

Paul Huff began his research by talking with a chemical engineer who thought anti-corrosive resin would be a good area to explore. Currently, the resins that are used are corroded by the salt water. There are resins that are available that are not corroded by salt water but are not utilized by surfboard manufacturers. The chemical engineer also thought the choice of matting or chopped "glass" that can be used as the structural matrix of the fiberglass skin is also a good area to explore. He also thought a bonded "sandwich" construction might offer a compromise between flexibility and weight. Mr. Huff also began researching information that Robert provided regarding the new resin .

Aaron Merriman began his research by looking into the available options in automating the manufacturing process. He is exploring the idea of having a CAD machine mass produce surfboards from designs that we purchase from shapers. The obvious place to start is the shaping machines that are currently being used. Only a few shapers that have enough volume own one of these machines. Smaller shapers are able to outsource to a handful of vendors. Mr. Merriman will also be looking into working with fin designers to integrate them into the process. He is researching the various options as well as the costs. He is also talking with an individual that owned a company that actually had one of these machines who recently sold the company. He will be getting a meeting lined up for this week.

Everyone that we have spoken with likes our idea and is very interested in seeing us move forward. We are off to a great start!

On another note, Hurricane Marty is now about 200 miles S of the Baja tip and slowly moving to the NNW. It looks like Marty will just be a tease as the current forecast track never has him moving into the Southern California swell window.