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.
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.
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.
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.
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.
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.
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.
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.