Chemical Laboratory Business Plan

Granite Industries, Inc.

Financial Plan

We plan to support our growth and debt obligations through increased sales and cash flow. Our major debt with Wachovia Bank is secured by personal and company collateral. Our financials do not include our estimate of the value of proprietary chemical formulations, nor the value of assignable customer contracts.

7.1 Important Assumptions

Positive
The assumptions that support our projections in these tables are: The move to larger facilities and the additional equipment will result in increased production; and the back orders and new orders will be shipped. We have excellent agreements with our primary sources of supply and assume there will be no change in these relationships.We also assume that the demand for Creatine and our other products will continue to increase as evidenced in our market research.

Negative
Another company could develop some of the formulations we have, in which case we would lose some of the technical and market advantage we now have. This will also decrease our valuation. If we cannot find a capable marketing person, who is both sales and technically savvy, in time to get into this market, we would be at a disadvantage. Our hope is that whomever takes an equity position in this project will add marketing expertise. Technology changes, as do buying habits and social structure. A major change in any one of these areas can have a detrimental effect on our business.

General Assumptions
	FY 2001	FY 2002	FY 2003
Plan Month	1	2	3
Current Interest Rate	10.00%	10.00%	10.00%
Long-term Interest Rate	10.00%	10.00%	10.00%
Tax Rate	25.00%	25.00%	25.00%
Other	0	0	0

7.2 Break-even Analysis

Our Break-even Analysis is based on running costs, the “burn rate” costs we incur to keep the business running, not on theoretical fixed costs that would be relevant only if we were closing. Between payroll, rent, utilities, and other basic day to day costs, we think the monthly figure shown below is a good estimate of fixed costs. Our average variable costs are shown as well. Our COS will be approximately 44% of sales, and we anticipate a healthy profit margin before taxes and debt service in 2001, increasing in 2002.

Our assumptions in average unit sales and average cost per kilogram depend on averaging. We do not really need to calculate an exact average because this is sufficiently close to help us to understand what the real break-even point will be.

Chemical laboratory business plan, financial plan chart image

Break-even Analysis


Monthly Revenue Break-even	$68,486

Assumptions:
Average Percent Variable Cost	44%
Estimated Monthly Fixed Cost	$38,358

7.3 Projected Profit and Loss

Our profit projection before taxes or debt service for 2001 is attainable. In 2002, we anticipate an increase in net profit, and in 2003 as well.

Pro Forma Profit and Loss
	FY 2001	FY 2002	FY 2003
Sales	$2,217,375	$2,653,800	$3,450,000
Direct Cost of Sales	$975,445	$928,830	$1,207,500
Other	$0	$0	$0
Total Cost of Sales	$975,445	$928,830	$1,207,500

Gross Margin	$1,241,930	$1,724,970	$2,242,500
Gross Margin %	56.01%	65.00%	65.00%


Expenses
Payroll	$229,026	$250,000	$310,000
Sales and Marketing and Other Expenses	$104,800	$104,000	$29,000
Depreciation	$36,000	$36,000	$36,000
Leased Equipment	$11,172	$25,000	$25,000
Utilities	$12,000	$15,000	$18,000
Insurance	$3,545	$5,000	$0
Rent	$29,400	$30,000	$30,000
Payroll Taxes	$34,354	$37,500	$46,500
Other	$0	$0	$0

Total Operating Expenses	$460,297	$502,500	$494,500

Profit Before Interest and Taxes	$781,633	$1,222,470	$1,748,000
EBITDA	$817,633	$1,258,470	$1,784,000
Interest Expense	$34,739	$37,855	$41,455
Taxes Incurred	$186,723	$296,154	$426,636

Net Profit	$560,170	$888,461	$1,279,909
Net Profit/Sales	25.26%	33.48%	37.10%

7.4 Projected Cash Flow

Our cash position at the present time is negligible due to financial constraints in maintaining production for existing orders and being unable to expand to meet future demand. We expect to manage cash flow over the next three years with a couple infusions of new equity investment. We feel that, with the accompanying increases in accounts receivable and inventory, we can extend our line of short term credit. Because of our toll manufacturing capability, inventory can be maintained at a fairly constant level. Receivables, however, will increase dramatically in 2001, and possibly double by 2003.

Pro Forma Cash Flow
	FY 2001	FY 2002	FY 2003
Cash Received

Cash from Operations
Cash Sales	$221,738	$265,380	$345,000
Cash from Receivables	$1,530,100	$2,293,742	$2,932,272
Subtotal Cash from Operations	$1,751,837	$2,559,122	$3,277,272

Additional Cash Received
Sales Tax, VAT, HST/GST Received	$0	$0	$0
New Current Borrowing	$0	$0	$0
New Other Liabilities (interest-free)	$7,500	$0	$0
New Long-term Liabilities	$60,000	$60,000	$60,000
Sales of Other Current Assets	$0	$0	$0
Sales of Long-term Assets	$0	$0	$0
New Investment Received	$875,000	$425,000	$0
Subtotal Cash Received	$2,694,337	$3,044,122	$3,337,272

Expenditures	FY 2001	FY 2002	FY 2003

Expenditures from Operations
Cash Spending	$229,026	$250,000	$310,000
Bill Payments	$1,364,802	$1,515,967	$1,829,035
Subtotal Spent on Operations	$1,593,828	$1,765,967	$2,139,035

Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out	$0	$0	$0
Principal Repayment of Current Borrowing	$7,291	$0	$0
Other Liabilities Principal Repayment	$9,000	$12,000	$12,000
Long-term Liabilities Principal Repayment	$24,000	$24,000	$24,000
Purchase Other Current Assets	$45,000	$35,000	$35,000
Purchase Long-term Assets	$50,000	$25,000	$25,000
Dividends	$0	$0	$0
Subtotal Cash Spent	$1,729,119	$1,861,967	$2,235,035

Net Cash Flow	$965,218	$1,182,155	$1,102,237
Cash Balance	$977,218	$2,159,373	$3,261,611

7.5 Projected Balance Sheet

Our projected balance sheet shows an increase in net worth in 2003, at which point we expect to be making enviable profits. Our financial projections show a significant part of our net worth to be from paid-in capital and a positive figure in retained earnings. We are increasing assets in order to meet our equipment and facility requirements, and because we need to increase our receivables and inventory to support our growth in sales. Monthly projections are in the appendices.

Pro Forma Balance Sheet
	FY 2001	FY 2002	FY 2003
Assets

Current Assets
Cash	$977,218	$2,159,373	$3,261,611
Accounts Receivable	$481,038	$575,716	$748,444
Inventory	$128,852	$122,694	$159,505
Other Current Assets	$45,000	$80,000	$115,000
Total Current Assets	$1,632,108	$2,937,784	$4,284,560

Long-term Assets
Long-term Assets	$199,118	$224,118	$249,118
Accumulated Depreciation	$59,605	$95,605	$131,605
Total Long-term Assets	$139,513	$128,513	$117,513
Total Assets	$1,771,621	$3,066,297	$4,402,073

Liabilities and Capital	FY 2001	FY 2002	FY 2003

Current Liabilities
Accounts Payable	$163,869	$121,083	$152,951
Current Borrowing	$0	$0	$0
Other Current Liabilities	$42,003	$30,003	$18,003
Subtotal Current Liabilities	$205,872	$151,086	$170,954

Long-term Liabilities	$360,550	$396,550	$432,550
Total Liabilities	$566,422	$547,636	$603,504

Paid-in Capital	$1,689,820	$2,114,820	$2,114,820
Retained Earnings	($1,044,791)	($484,621)	$403,840
Earnings	$560,170	$888,461	$1,279,909
Total Capital	$1,205,199	$2,518,660	$3,798,569
Total Liabilities and Capital	$1,771,621	$3,066,297	$4,402,073

Net Worth	$1,205,199	$2,518,660	$3,798,569

7.6 Business Ratios

The following table outlines some of the more important ratios from the Chemical Products and Preparations manufacturing industry. The final column, Industry Profile, details specific ratios based on the industry as it is classified by the NAICS code, 325998.

Ratio Analysis
	FY 2001	FY 2002	FY 2003	Industry Profile
Sales Growth	955.38%	19.68%	30.00%	9.54%

Percent of Total Assets
Accounts Receivable	27.15%	18.78%	17.00%	32.42%
Inventory	7.27%	4.00%	3.62%	17.28%
Other Current Assets	2.54%	2.61%	2.61%	38.61%
Total Current Assets	92.13%	95.81%	97.33%	88.31%
Long-term Assets	7.87%	4.19%	2.67%	11.69%
Total Assets	100.00%	100.00%	100.00%	100.00%

Current Liabilities	11.62%	4.93%	3.88%	24.17%
Long-term Liabilities	20.35%	12.93%	9.83%	30.99%
Total Liabilities	31.97%	17.86%	13.71%	55.16%
Net Worth	68.03%	82.14%	86.29%	44.84%

Percent of Sales
Sales	100.00%	100.00%	100.00%	100.00%
Gross Margin	56.01%	65.00%	65.00%	23.42%
Selling, General & Administrative Expenses	39.81%	40.16%	26.99%	10.99%
Advertising Expenses	3.38%	2.83%	0.00%	0.13%
Profit Before Interest and Taxes	35.25%	46.06%	50.67%	4.87%

Main Ratios
Current	7.93	19.44	25.06	2.71
Quick	7.30	18.63	24.13	1.81
Total Debt to Total Assets	31.97%	17.86%	13.71%	67.53%
Pre-tax Return on Net Worth	61.97%	47.03%	44.93%	4.59%
Pre-tax Return on Assets	42.16%	38.63%	38.77%	14.15%

Additional Ratios	FY 2001	FY 2002	FY 2003
Net Profit Margin	25.26%	33.48%	37.10%	n.a
Return on Equity	46.48%	35.28%	33.69%	n.a

Activity Ratios
Accounts Receivable Turnover	4.15	4.15	4.15	n.a
Collection Days	56	81	78	n.a
Inventory Turnover	10.91	7.38	8.56	n.a
Accounts Payable Turnover	9.17	12.17	12.17	n.a
Payment Days	28	35	27	n.a
Total Asset Turnover	1.25	0.87	0.78	n.a

Debt Ratios
Debt to Net Worth	0.47	0.22	0.16	n.a
Current Liab. to Liab.	0.36	0.28	0.28	n.a

Liquidity Ratios
Net Working Capital	$1,426,236	$2,786,697	$4,113,606	n.a
Interest Coverage	22.50	32.29	42.17	n.a

Additional Ratios
Assets to Sales	0.80	1.16	1.28	n.a
Current Debt/Total Assets	12%	5%	4%	n.a
Acid Test	4.97	14.82	19.75	n.a
Sales/Net Worth	1.84	1.05	0.91	n.a
Dividend Payout	0.00	0.00	0.00	n.a