Team:ITESM-Guadalajara/Financial

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:

• 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 $159,359 USD 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 $66,046.15 USD 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 kg of medium-low Chitosan lasts 712 h or 29 days 16 hours. It is defined in the following diagram. Its operation costs are $9,315 USD 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 307, 692 USD 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 8,000,000 USD. Companies seeking for financial aid to make an innovative development in industrial process can receive 77,000 USD 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 10,300 USD.

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 11,500 USD to 15,300 USD.

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

b) Balance Sheet (Capital Structure)

c) Cashflow and Projections (USD)

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 $375,495 USD and a total cash flow of $390,879 USD with an initial investment of $159,359 USD.

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.

For the following calculations, the amounts displayed in the images are in MEXICAN PESOS (MXN)

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:

1. Use 100% of first phase’s retained earnings to adequate the plant, equipment and workforce to commercialize high purity chitosan.
2. Design of the exporting plan that would allow us to commercialize our product overseas.
3. 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.

Part of initial investment is going to be required to perform some technical modifications to the phase 1 pilot plant in order to produce low and medium purity chitosan, as well as high purity chitosan. To achieve this goal, we will have to increase the transformation capacity of the plant to two tons of raw material (shrimp shell) per month, and we also have to implement a second purification and deacetylation step to produce high purity chitosan. In this way at the end of the second year we are going to be able to generate two products:

1. Low-Medium Purity Chitosan
2. High Purity Chitosan

The operation model is shown below

Initial Investment Phase 2

Variable Costs

Fixed Costs

Expenses (Selling and Administrative)

Financing Phase 2

A) Premio Estatal de Ciencia y Tecnología (State’s Technology and Science Award)

Is an open invitation to the scientific and technology community of Jalisco’s. Applicant candidates are people or groups who had carried on scientific research projects and technology development projects. To be eligible, these projects need to prove they had a substantial social and economic impact for the state. The amount for the winner is 10,308 USD (Secretaria de Educación Pública de los Estados Unidos Mexicanos, 2014).

http://www.ceti.mx/index.php?option=com_noticias&id=502&lang=es

B) Zapopan Emprende

This financing program is aimed to attract people between looking forward to start a business in Zapopan. The program has the faculty of granting from 769 USD to 3,800 USD to finance the purchase of equipment or raw material. Financing has a total annual cost of 6.25% and it is due in 24 months (Zapopan Gobierno Municipal, 2014)

http://www.zapopan.gob.mx/dependencias/centro-de-promocion-economica-y-turismo/direccion-zapopan-emprende/

C) Entrepreneurship Fund (Conacyt-Nafin)

It is directed to recently funded companies, which main business is involved with creation and development of new technologies. These companies must also be willing to create economies of scale for their operations. They must be registered in the National Registry of Scientific and Technology Companies (REINIECYT) (CONACYT-NAFIN, 2014)

The fund can help the company with up to 20% of initial investment only if it is not more than 538,500 USD for a period no longer than 5 years.

http://www.nafin.com.mx/portalnf/content/productos-y-servicios/programas-empresariales/conacyt-nafinsa.html

D) Avanza

Financing to micro, small and medium established companies which can allow them to continue with the business project. The goal of this program is to develop these business in order to make them viable and formal (Fondo Jalisco de Fomento Empresarial – FOJA, 2014)

Avanza can grant loans from 7,700 USD to 76,900 USD due in 60 months at a 15% interest rate (Fondo Jalisco de Fomento Empresarial – FOJA, 2014)

http://www.jalisco.gob.mx/es/gobierno/programas/5979

Estimating Company Profitability Phase 2
Income Statement (MXN)

Cashflow Projection (MXN)