FINANCIAL DATA
Phase 1: Medium & Low Phase
We will refer to this first phase as the First Generation. The aims of the first phase are to warrantee and standardize the production of medium-low Chitosan. The specific objectives we will be looking forward to attain are:
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Complete an experimentation phase of 6 months in which production will be tested in order to assure the quality characteristics of our product.
- Create customer awareness of our company among medium-low Chitosan consumers because they are a larger market in Mexico than is the high purity market. They buy in higher quantities and their operations often require low purity Chitosan. We will use this phase as well to implement, execute, evaluate and standardize our sales plan through our online store.
- Create a fund that will finance phase 2: High Purity Phase.
This first phase will be the basis of Phase 2: High Purity Chitosan. During Phase 1 we will be able to identify technical issues in the production process in order to assure efficiency and effectiveness. This is a key aspect in elaborating the design of the High Purity Plant (a second Chitosan plant), which will require an extra purification process and to perform a double deacetylation.
Phase 1 will require an initial investment of $2,072,672.92 in equipment, patents, online domain, sales system and certificates, which cost is going to be financed by government programs (Technological Innovation Fund, Innovation Initiative Development and Fojal´s Productive Projects) and capital stock. Investment items distribution is shown below. Moreover, first 6 months of operations will as well be financed by an initial cash fund of $858,600 MXN in case sales projections cannot be reached.
Initial Investment Phase 1
Sales from Phase 1 will serve as funding for the second part of the project, which will include equipment and other net working capital. Moreover, 30% of these sales will be destined for the expenses derived from an exporting plan for high purity Chitosan.
Operation Model
The operation model to produce 50 kilos of medium-low Chitosan lasts 712 h or 29 days 16 hours. It is defined in the following diagram. Its operation costs are $121,100.00 monthly.
Variable Costs (Indirect and Direct)
Fixed Costs
Expenses (Selling and Administrative)
Financing Phase 1
Technological Innovation Fund
The Mexican government, through the Secretaría de Economía (Secretary of Economy) and the Consejo Nacional de Ciencia y Tecnología (National Council of Science and Technology), has financing programs to help entrepreneurs start their business. Specifically in the field of technological development, it has the Fondo de Innovación Tecnológica (Technological Innovation Fund).
This fund is part of the National Development Plan 2013-2018 and is regulated by the Science and Technology Law. Its purpose is to help Mexican companies complete tech innovation projects. Small and medium companies with no more than two years old and start-ups are welcome to apply every June for a specific amount of money.
Technology start-ups are welcome to apply if they prove they develop high value innovation and commercial potential. They need to be in a developing phase. They have to have less than 10 employees and expect sales of 4 million pesos each year. Companies seeking for support to commercialize their product can apply for the B category “Integration of business models based on technology”. Companies in this category can receive 50% of the total investment projects.
More information about this fund can be found at: http://www.conacyt.gob.mx/index.php/convocatorias-conacyt/4419-bases-de-convocatoria-1/file
Innovation Initiatives Development
The Secretary of Economy, through the National Entrepreneurship Institute, convokes small and medium companies to participate in the Programs of Corporate Development in the category of Innovation Initiatives Development. This program has the objective of developing innovation in medium and small companies in Mexico; let it be in products, processes, marketing strategies and impulse to entrepreneurial culture. The total amount of the fund is 100 million Mexican pesos. Companies seeking for financial aid to make an innovative development in industrial process can receive 1,000,000 per company. Applications start on December each year.
More information about this fund can be found at: https://www.inadem.gob.mx/docs/convocatorias/2.6.pdf
State Award of Science and Technology
This monetary award is granted to a scientific project with a high impact in Jalisco’s economic development. Oriented to stimulate scientific community to develop their research projects further. The winner project of the Innovation category of this contest receives the sum equivalent to 2000 minimum salaries, which is a sum of 134,000.00 MXN.
Productive Projects FOJAL (Jalisco´s fund for entrepreneurial promotion)
Financing for the development of industrial or commercial productive projects, which at the same time promote the establishment of strategic alliances, productive chains, economic clusters, and importing substitution. This initiative has the objective of foster Jalisco’s economic development and welfare.
Companies applying for this financing source can receive from 150,000 to 200,000 Mexican pesos.
For more information about this fund: http://www.jalisco.gob.mx/es/gobierno/programas/5956 and http://sistemaemprendedor.gob.mx/
Estimating Company Profitability Phase 1
Biophrame’s phase 1 represents the first year of operations. The 6 first months are going to be financed by government funds while the next 6 months are going to be financed by 70% of retained earnings. Financial statements are going to be calculated per month in order to monitor financial performance.
Financial statements reflect the way our operation factors are distributed and accounted for. Revenues, expenses and capital structure of what is expected to be each month of operations at Biophrame Technologies is shown in the following expected financial statements:
a) Income Statement
a) Balance Sheet (Capital Structure)
c) Cashflow and Projections
Financial Analysis of Profitability
Assuming the best-case scenario in terms of accrued sales and a growth rate of 18%, Biophrame’s phase 1 is expected to generate income as of $4, 697478.59 and a total cash flow of $4,897,478.59 with an initial investment of $2,931,272.92.
According to the net present value, Biophrame phase 1 is a viable project if we settle a weighted average cost of capital of 15%. Investment will be recovered totally at the end of the first year of operations.
Return on investment during first phase is expected to be around 13.36%. Since we would have no previous retained earnings investment will also be referred to as our equity.
Return on assets during first phase is expected to be
Return on sales during first phase is expected to be
Operations performance will be monitored as well in order to assure low operating costs, which is part of Biophrame’s competitive advantage:
Phase 2: High Purity Phase
We will refer to this second phase as the High Purity Phase. The aim of this 2 year phase is initiate and standardize the production of high purity chitosan through our biological process. Total income from phase 1 has to be used to finance phase 2. In addition, external financial aid is going to be required. The specific objectives we will be looking forward to attain are:
- Use 100% of first phase’s retained earnings to adequate the plant, equipment and workforce to commercialize high purity chitosan.
- Design of the exporting plan that would allow us to commercialize our product overseas.
- Start exporting the product at the end of the 2 year phase.
The completion of this phase is crucial to Biophrame because it is the materialization of the company’s mission of being the first Mexican exporter of chitosan produced through Mexican biotechnology. Once this objective is attained Biophrame can focus much more on developing the customer base and innovating in aggregated value items for customers such as customized packages and joint research and development projects. Planning supplier development projects will start as well once the High Purity Phase is completed.
The first pilot plant acquired (In phase 1) is going to be equipped to perform a second deacetylation process to produce high purity chitosan. Part of initial investment is required to install a second plant (a copy of the first one we had) that will produce low and medium purity chitosan. This way we will have two plants at the end of phase 2. One producing high purity chitosan and a second one producing medium & low purity chitosan. This two products will be our first two brands.
Initial Investment Phase 2
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