Writing a Winning Business Plan ◾ 323
ADDITIONAL PRODUCT SALES
In addition to its Mitraflex
TM
products, PolyMedica’s introduction of medical
and
industrial
textile products is estimated to generate sales of $50,000 for the quarter ende
d
Se
ptember 30, 1991 and grow to $2.4 million by FYE 1996. Desiccant film sales, which
are
produc
ts made of the existing outer film, should begin in the first quarter of FYE 1992, a
nd
re
ach$245,000 during FYE 1992. ey are expected to grow to $1.2 million annually by
FY
E1996.
Sales of implants and expanders, which are based on the Company’s Chronoflex
TM
ma
terials, should equal $50,000 for the quarter ended December 31, 1991 and grow to $1.
8
million
annually by FYE 1996. Transdermal systems, a result of PolyMedica’s Chronothane
TM
tech
nology, may be sold at a $50,000 quarterly rate beginning in the quarter ended June 30
,
19
92 and could grow to $1.8 million by FYE 1996.
Finally, cosmetic and personal care products emanating from PolyMedica’s
Ch
ronosphere
TM
microparticulate materials are expected to ramp up from a quarterly sales
volu
me of $90,000 in the quarter ended September 30, 1992, to an annual volume of $2.1
m
illion by FYE 1996. Management believes this is a very conservative projection.
PRODUC
T RESEARCH
e Company will be conducting ongoing product research and development with
pa
rtners. In each case, the Company will endeavor to maintain the right to manufacture
so
me portion from critical components through the finished product. Product researc
h
in
come is expected to grow from an annual rate of $800,000 in FYE 1992 to $2.0 millio
n
by F
YE 1996.
RO
YALTIES AND LICENSE FEES
Royalty revenues and license fees earned from certain of the above product sales are
an
ticipated to equal $450,000 in FYE 1992, and are projected to increase to $2.5 million by
FY
E 1996.
Confidential PolyMedica Industries, Inc.
324 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
PRO FORMA STATEMENTS OF OPERATIONS
CO
MPANY PROFITABILITY
PolyMedica expects to show its first quarterly profit before taxes of $118,000 durin
g
th
e quarter ended March 31, 1992 and record an overall loss before taxes of $138,100 for
FY
E March 31, 1992. These results are based on sales of $1.8 million and $5.3 million
,
r
espectively.
ereafter, the Company anticipates recording steadily increasing pretax profits, which
ar
e projected to be $1.2 million, $2.3 million, $6.0 million and $10.8 million for FYE 199
3–
19
96, respectively. On a percentage of sales basis, this performance ranges from 11.1% to 26.5
%
for
the above fiscal years.
Under the current plan, net operating loss carryforwards will defer income tax payments
un
til quarter ended March 31, 1993.
GROSS M
ARGINS
As its sales grow, PolyMedica’s gross margin will increase as manufacturing efficiencies ar
e
r
ealized across a large spectrum of the Company’s product lines. This fact is especially true
wi
th Mitraflex
TM
extensions, as significant increases in sales volume for numerous version
s
of
Mitraflex
TM
products may be realized while incurring an incrementally smaller increase i
n
ma
nufacturing costs.
For FYE 1992 through FYE 1996, the Company’s gross margins should increase from
55
.9% to 68.0% of sales. Gross margin dollars that equate to these percentages are expected
t
ogrow from $2.9 million in FYE 1992 to $27.6 million by FYE 1996.
OT
HER OPERATING EXPENSES
Other operating expenses, which are defined as research and development, marketin
g
an
d sales, and general and administrative, represent a steadily declining percentage of sales
a
s the Company’s sales volume increases, margins grow, and other efficiencies are realized.
Confidential PolyMedica Industries, Inc.
Writing a Winning Business Plan ◾ 325
Research and development expenses are anticipated to equal $698,000 in FYE 1992
an
d grow to $4.3 million by FYE 1996. is increase reflects PolyMedica’s commitment to
re
maining on the cutting edge in its field. As a percentage of sales, however, the trend is
posi
tive, as total research and development expenses may decrease from 13.3% in FYE 1992
to 1
0.6% by FYE 1996.
Marketing and sales expenses as a percentage of sales may remain relatively constant from
FY
E 1992 to FYE 1996, ranging from 18.6% to 16.6%. On a dollar basis, these amounts are
ex
pected to grow from $978,800 to $6.7 million for the above fiscal years. ese increases could
supp
ort the Company’s aggressive marketing plans for: (1) Mitraflex
TM
extensions and entr
y
in
to European and Pacific Rim markets and (2) the commercial realization of PolyMedica’
s
Ch
ronosphere
TM
polymer microparticulate and Chronothane
TM
biostable polyurethan
e
tech
nologies.
General and administrative expenses, as a percentage of sales, may drop substantially from
FY
E 1992 to FYE 1996. Projected percentages are expected to be 30.1% in FYE 1992, with
a
steady
reduction to 14.9% by FYE 1996. ese percentages equate to $1.6 million in FYE 1992,
in
creasing to $6 million by FYE 1996.
Confidential PolyMedica Industries, Inc.
326 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
PRO FORMA BALANCE SHEETS
IN
CREASE IN ASSETS
e Company is projecting a strong growth in its balance sheet, with total assets pro -
j
ected to be $6.5 million at March 31, 1992 and increasing to $21.4 million by March 31, 1996.
i
s positive trend is based on a significant sales increase, dramatically improved gross mar-
gins
and a disciplined approach to monitoring other operating expenses, specifically research
an
d development, marketing and sales, and general and administrative.
IN
CREASE IN NET WORTH
Coincident with the rise in assets is the increase in PolyMedica’s net worth. Shar
eholders’
eq
uity is estimated to equal $5.2 million as of March 31, 1992 and rise to $17.7 million as o
f
Ma
rch 31, 1996. ese improvements in Company net worth will be accomplished without any
ex
ternal financing beyond a future round of financing.
CO
MPONENTS OF ASSETS
Current assets as a component of total assets, and therefore a measure of the Company’
s
li
quidity, are expected to increase from 53.9% as of March 31, 1992 to 79.5% of total assets
as
of March 31, 1996. is change reflects substantial increases in cash and work in process
in
ventory. Gross property, plant and equipment, while decreasing as a percentage of total
as
sets, should show an increase of $4 million from March 31, 1992 to March 31, 1996. e
ac
cumulation of depreciation and amortization expense reduces this increase to $844,000
.
Ot
her assets remain in the 4%–8% range of total assets.
CO
MPONENTS OF LIABILITIES AND SHAREHOLDERS’ EQUITY
Total liabilities as a percentage of liabilities and shareholders’ equity decrease slightly from
21
.2% as of March 31, 1992 to 17.4% as of March 31, 1996. ese liabilities exclude external debt
ot
her than normal trade payables and accrued liabilities and reflect ongoing paydown of the
C
ompany’s existing $400,000 promissory note. erefore, as the Company grows, it should be
able to f
und increases in inventory and fixed assets without incurring additional leverage.
Under its operating plan, PolyMedica’s net worth should remain positive from inception
.
Af
ter a future offering, the Company’s additional paid-in capital should stay unchanged at $6.3
m
illion. e accumulated deficit turns positive as retained earnings during early FYE 1994
an
d increases to $11.4 million by March 31, 1996.
Confidential PolyMedica Industries, Inc.
Writing a Winning Business Plan ◾ 327
PRO FORMA CASH FLOWS
PolyMedica’s cash balances will be approximately $6.8 million as of March 31, 199
6
ba
sed on: (1) cash generated from operations, (2) prior net financing totalling $2.4 million
,
an
d (3) possible generation of $2.8 million in cash from a future round of financing. There
ar
e no additional sources of financing proposed under the Company’s plan.
CA
SH FLOW POSITIVE
e Company becomes cash flow positive from operations beginning in the quarte
r
ende
d June 30, 1992, with a $470,000 increase in cash during the quarter. Positive cas
h
flo
w should equal $1.3 million, $740,000, and $3.2 million for FYE 1994, 1995 and 1996
,
re
spectively. As the Company bears the full burden of income taxes beginning in FYE 1995
,
th
e rate of its annual positive cash flow decreases by $535,000 compared with FYE 1994.
is
trend, however, may dramatically reverse itself FYE 1996.
RE
CEIPTS
Receipts from accounts receivable, estimated to be $4.4 million in FYE 1992, are expected
to
rise to $38.4 million annually by FYE 1996.
DI
SBURSEMENTS
In addition to the normal disbursements for d irect and operating expenses, the plan show
s
si
gnificant growth in disbursements for (1) inventory, (2) manufacturing and laboratory
equ
ipment, and (3) patent and trademark fees. ese disbursements total $1.6 million in
FY
E 1992 and increase to $2.1 million by FYE 1996.
Confidential PolyMedica Industries, Inc.
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