Medquip, Inc.
Financial Plan
The value of the patents and the size of their potential markets enables several back-up plans of action if this plan doesn’t work as indicated. Venture funds are available early on and historically investments of $3 to $5 million are common for similar companies.
Even after successfully completing the start and seed stage as indicated, second round venture or mezzanine funding is potentially available in the $5 million range. We have planned for additional capital input in years two and three as a safety net for cash flow/cash balance.
However, cash flow achievement within the parameters of the indicated plan plus further funding on the senior debt side will lead to the best value for shareholders. Then, strategy can dictate the best valuation for ramp-up and roll-out.
Important Assumptions
The following are the key financial assumptions for this plan. However, it’s important to note that several of the assumptions could be considerably less than those indicated if the business is located in Puerto Rico. The personnel burden could go from 22% to 12%. The short term interest rate could go from 10% to 5% or less. The tax rate could go from 25% to less than 10%. So, all of the bottom line projections in this plan could improve appreciably.
However, the plan is still based on the following assumptions as if it were a U.S. based Georgia operation.
General Assumptions | |||
Year 1 | Year 2 | Year 3 | |
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 | 0.00% | 30.00% | 30.00% |
Other | 0 | 0 | 0 |
Key Financial Indicators
All of our benchmarks being attained will allow expansion strategies of merger, acquisition, roll-up or IPO. The following chart illustrates our planned performance in the most critical profit variables.

Break-even Analysis
Medquip, Inc. has calculated a break-even maintenance point for sales once full management staffing and facility costs are reached. Included are payroll and rent considerations.
The break-even target can sustain Medquip, Inc. in operation in late ’98 and throughout ’99 even if expansion and capitalization plans are late in materializing. It is anticipated that direct sales can produce these numbers and more in Europe, Middle Eastern, and African markets since those markets are not as dominated by managed care, there is more direct purchasing. A distributor has been identified for those markets as well as a distributor for Latin and South America, and a distributor for Japan. No Japanese sales are included, however, since regulatory barriers are more pronounced there.
The break-even analysis is restricted to this late ’98 and early ’99 time frame since the early ramp-up phase in business development is characteristic of most cash-flow shortages that represent exposure to early stage investors.

Break-even Analysis | |
Monthly Revenue Break-even | $198,088 |
Assumptions: | |
Average Percent Variable Cost | 32% |
Estimated Monthly Fixed Cost | $135,284 |
Projected Profit and Loss
The profit in each of the first two years of operation is expected to be minimal. However that includes $1 million in revenue in the first year from the sale of a license. If that does not occur, then over $800k will be burned in year one. That must come from investment infusion. The third year profit reflects the performance of a mature company. Over-all gross margins are excellent.




Pro Forma Profit and Loss | |||
Year 1 | Year 2 | Year 3 | |
Sales | $198,250 | $4,900,000 | $21,450,000 |
Direct Cost of Sales | $62,855 | $1,592,000 | $7,052,500 |
Production Payroll | $44,000 | $132,000 | $154,000 |
Other Costs of Sales | $0 | $0 | $0 |
Total Cost of Sales | $106,855 | $1,724,000 | $7,206,500 |
Gross Margin | $91,395 | $3,176,000 | $14,243,500 |
Gross Margin % | 46.10% | 64.82% | 66.40% |
Operating Expenses | |||
Sales and Marketing Expenses | |||
Sales and Marketing Payroll | $58,000 | $134,000 | $402,500 |
Advertising/Promotion | $16,000 | $150,000 | $700,000 |
Travel | $13,000 | $66,000 | $88,000 |
Miscellaneous | $6,000 | $15,000 | $24,000 |
Total Sales and Marketing Expenses | $93,000 | $365,000 | $1,214,500 |
Sales and Marketing % | 46.91% | 7.45% | 5.66% |
General and Administrative Expenses | |||
General and Administrative Payroll | $140,000 | $310,000 | $452,000 |
Marketing/Promotion | $0 | $0 | $0 |
Depreciation | $0 | $0 | $0 |
Leased Equipment | $1,000,000 | $0 | $500,000 |
Rent | $58,950 | $75,000 | $95,000 |
Utilities | $5,000 | $6,000 | $7,000 |
Insurance | $39,000 | $45,000 | $51,000 |
Legal Expenses | $93,563 | $36,000 | $36,000 |
Payroll Taxes | $54,900 | $120,300 | $208,725 |
Other General and Administrative Expenses | $0 | $0 | $0 |
Total General and Administrative Expenses | $1,391,413 | $592,300 | $1,349,725 |
General and Administrative % | 701.85% | 12.09% | 6.29% |
Other Expenses: | |||
Other Payroll | $124,000 | $226,000 | $383,000 |
Consultants | $0 | $0 | $0 |
Contract/Consultants | $15,000 | $30,000 | $60,000 |
Total Other Expenses | $139,000 | $256,000 | $443,000 |
Other % | 70.11% | 5.22% | 2.07% |
Total Operating Expenses | $1,623,413 | $1,213,300 | $3,007,225 |
Profit Before Interest and Taxes | ($1,532,018) | $1,962,700 | $11,236,275 |
EBITDA | ($1,532,018) | $1,962,700 | $11,236,275 |
Interest Expense | $5,000 | $55,000 | $51,250 |
Taxes Incurred | $0 | $572,310 | $3,355,508 |
Net Profit | ($1,537,018) | $1,335,390 | $7,829,518 |
Net Profit/Sales | -775.29% | 27.25% | 36.50% |
Projected Cash Flow
We began the year with $128,000 in cash from initial sales of shares to investors. This provided our start-up capital. The private placement to 13 or fewer investors is expected to bring in another $450,000 in May and $400,000 in June. We are targeting an additional equity investment from Puerto Rico and long term loans.
Thus, our cash flow will be sufficient in year one even if we can’t conclude a licensing agreement.
Second round financing will include venture, mezzanine, or IPO options. If sales and profits hit targets then further investment needs will be limited to higher value options to roll-up a national level and world-wide company.

Pro Forma Cash Flow | |||
Year 1 | Year 2 | Year 3 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $69,388 | $1,715,000 | $7,507,500 |
Cash from Receivables | $32,955 | $910,432 | $5,936,098 |
Subtotal Cash from Operations | $102,343 | $2,625,432 | $13,443,598 |
Additional Cash Received | |||
Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 |
New Current Borrowing | $0 | $0 | $125,000 |
New Other Liabilities (interest-free) | $600,000 | $0 | $0 |
New Long-term Liabilities | $600,000 | $0 | $0 |
Sales of Other Current Assets | $0 | $0 | $0 |
Sales of Long-term Assets | $0 | $0 | $0 |
New Investment Received | $850,000 | $1,869,000 | $0 |
Subtotal Cash Received | $2,152,343 | $4,494,432 | $13,568,598 |
Expenditures | Year 1 | Year 2 | Year 3 |
Expenditures from Operations | |||
Cash Spending | $366,000 | $802,000 | $1,391,500 |
Bill Payments | $734,012 | $3,853,163 | $12,379,035 |
Subtotal Spent on Operations | $1,100,012 | $4,655,163 | $13,770,535 |
Additional Cash Spent | |||
Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
Principal Repayment of Current Borrowing | $0 | $0 | $0 |
Other Liabilities Principal Repayment | $0 | $600,000 | $0 |
Long-term Liabilities Principal Repayment | $0 | $100,000 | $100,000 |
Purchase Other Current Assets | $0 | $0 | $0 |
Purchase Long-term Assets | $0 | $0 | $0 |
Dividends | $0 | $0 | $0 |
Subtotal Cash Spent | $1,100,012 | $5,355,163 | $13,870,535 |
Net Cash Flow | $1,052,331 | ($860,731) | ($301,937) |
Cash Balance | $1,180,331 | $319,600 | $17,663 |
Projected Balance Sheet
The highlights of the balance sheets are a solid cash position and net worth at the end of year three.
Pro Forma Balance Sheet | |||
Year 1 | Year 2 | Year 3 | |
Assets | |||
Current Assets | |||
Cash | $1,180,331 | $319,600 | $17,663 |
Accounts Receivable | $95,908 | $2,370,475 | $10,376,877 |
Inventory | $29,250 | $740,848 | $1,688,348 |
Other Current Assets | $0 | $0 | $0 |
Total Current Assets | $1,305,488 | $3,430,923 | $12,082,888 |
Long-term Assets | |||
Long-term Assets | $0 | $0 | $0 |
Accumulated Depreciation | $0 | $0 | $0 |
Total Long-term Assets | $0 | $0 | $0 |
Total Assets | $1,305,488 | $3,430,923 | $12,082,888 |
Liabilities and Capital | Year 1 | Year 2 | Year 3 |
Current Liabilities | |||
Accounts Payable | $664,506 | $285,551 | $1,082,999 |
Current Borrowing | $0 | $0 | $125,000 |
Other Current Liabilities | $600,000 | $0 | $0 |
Subtotal Current Liabilities | $1,264,506 | $285,551 | $1,207,999 |
Long-term Liabilities | $600,000 | $500,000 | $400,000 |
Total Liabilities | $1,864,506 | $785,551 | $1,607,999 |
Paid-in Capital | $1,108,000 | $2,977,000 | $2,977,000 |
Retained Earnings | ($130,000) | ($1,667,018) | ($331,628) |
Earnings | ($1,537,018) | $1,335,390 | $7,829,518 |
Total Capital | ($559,018) | $2,645,372 | $10,474,890 |
Total Liabilities and Capital | $1,305,488 | $3,430,923 | $12,082,888 |
Net Worth | ($559,018) | $2,645,372 | $10,474,890 |
Business Ratios
By year three the return on equity should be very attractive to early investors. All ratios are in good shape for traditional borrowing to fund further growth. Industry profile ratios based on the Standard Industrial Classification (SIC) code 3841, Surgical and Medical Instruments, are shown for comparison.
Ratio Analysis | ||||
Year 1 | Year 2 | Year 3 | Industry Profile | |
Sales Growth | n.a. | 2371.63% | 337.76% | 4.20% |
Percent of Total Assets | ||||
Accounts Receivable | 7.35% | 69.09% | 85.88% | 25.30% |
Inventory | 2.24% | 21.59% | 13.97% | 14.90% |
Other Current Assets | 0.00% | 0.00% | 0.00% | 42.70% |
Total Current Assets | 100.00% | 100.00% | 100.00% | 82.90% |
Long-term Assets | 0.00% | 0.00% | 0.00% | 17.10% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 96.86% | 8.32% | 10.00% | 39.60% |
Long-term Liabilities | 45.96% | 14.57% | 3.31% | 18.10% |
Total Liabilities | 142.82% | 22.90% | 13.31% | 57.70% |
Net Worth | -42.82% | 77.10% | 86.69% | 42.30% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 46.10% | 64.82% | 66.40% | 53.30% |
Selling, General & Administrative Expenses | 821.39% | 37.56% | 29.90% | 34.40% |
Advertising Expenses | 8.07% | 3.06% | 3.26% | 1.50% |
Profit Before Interest and Taxes | -772.77% | 40.06% | 52.38% | 5.10% |
Main Ratios | ||||
Current | 1.03 | 12.02 | 10.00 | 2.00 |
Quick | 1.01 | 9.42 | 8.60 | 1.33 |
Total Debt to Total Assets | 142.82% | 22.90% | 13.31% | 57.70% |
Pre-tax Return on Net Worth | 274.95% | 72.11% | 106.78% | 5.80% |
Pre-tax Return on Assets | -117.74% | 55.60% | 92.57% | 13.80% |
Additional Ratios | Year 1 | Year 2 | Year 3 | |
Net Profit Margin | -775.29% | 27.25% | 36.50% | n.a |
Return on Equity | 0.00% | 50.48% | 74.75% | n.a |
Activity Ratios | ||||
Accounts Receivable Turnover | 1.34 | 1.34 | 1.34 | n.a |
Collection Days | 46 | 141 | 167 | n.a |
Inventory Turnover | 12.00 | 4.13 | 5.81 | n.a |
Accounts Payable Turnover | 2.10 | 12.17 | 12.17 | n.a |
Payment Days | 27 | 50 | 19 | n.a |
Total Asset Turnover | 0.15 | 1.43 | 1.78 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 0.00 | 0.30 | 0.15 | n.a |
Current Liab. to Liab. | 0.68 | 0.36 | 0.75 | n.a |
Liquidity Ratios | ||||
Net Working Capital | $40,982 | $3,145,372 | $10,874,890 | n.a |
Interest Coverage | -306.40 | 35.69 | 219.24 | n.a |
Additional Ratios | ||||
Assets to Sales | 6.59 | 0.70 | 0.56 | n.a |
Current Debt/Total Assets | 97% | 8% | 10% | n.a |
Acid Test | 0.93 | 1.12 | 0.01 | n.a |
Sales/Net Worth | 0.00 | 1.85 | 2.05 | n.a |
Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |