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Zif Medical Devices
Financial Plan

Detailed Financial Statements

Capital Investment Strategy
Commercial option #1 (License) will require an initial capital investment of $400,000 for patent protection, FDA approval, field testing, prototype development, and promotion. See page 26 for an itemized budget listing.

Commercial option #2 (Manufacture) will require an initial capital investment of $400,000 for promotion, prototype development, and field testing, and an additional $1.47 million for the implementation of the first production line. The Option #2 capital summary13 (in thousands of dollars) is as follows:
Year
CostLife-Yrs1412     34    5
No. of Production Lines01122
Proprietary Groundwork:
Prototype Molds (2)1200120  120 
Patent Costs101010    
FDA Application10010  10 
Field Tests10010  10 
Molds:
48 Cavity Barrel Mold20010 200 200 
48 Cavity Plunger Mold18010 180 180 
48 Cavity Sheath Mold20010 200 200 
Assembly:
Spring Windings25010 250 250 
Special Assembly Equip.n/a10 255 255 
Office Equipmentn/a4 15 5 
Total Capital1501,10001,2300

All capital expenditures beyond the first two years will be financed through retained earnings. Zif plans to grow through the investment of retained earnings, thus no dividends are expected to be paid out in the first six years of operations. A friendly acquisition or an initial public offering will be made by year six to allow initial investors to divest from Zif.

In general, Zif will invest very conservatively to minimize risk and so as not to outgrow its resources or capacity to expand. Based on investor opinions, company resources, and realized profits, Zif may grow faster than outlined below through the acquisition of debt beyond the 10% debt to equity established in this plan.

Equity Offering
Equity InvestmentEquity Share
Option #1 (License)$400,00020%
Option #2 (Manufacture)$1,870,00030%

Financial Analysis
Option #1 - License
Cash flow statements (page 23) show that Zif will have positive cash beginning in year 2. Income statements (page 23) show profit growth from $27,000 in year two, to $4.8 million in year 6. Balance sheets (page 23) show a strong return on equity, and no debt will be incurred with this option.
OptimisticMost LikelyPessimistic
Product Price ($)0.180.160.14
NPV (mil $)151.71.30.94
IRR152%135%115%
ROE (5 yr avg.)72%71%60%
Return on Initial Investment16198%191%182%
5 Year Multiple of 20% Equity614937

Option #2- Manufacture
Cash flow statements (page 25) show that Zif will create positive cash flows within two years of operation. Income statements (page 25) show geometric profit growth from $(7,000) in year two, to $9.3 million in year 6. Balance sheets (page 24) show strong return on equity, and no debt will be incurred.
OptimisticMost LikelyPessimistic
Product Price ($)0.180.160.14
Contracted Cost per unit ($)17.067.072.08
Dist. Mark-up (% Sales)15%20%25%
NPV (mil $)186.14.42.3
IRR92%84%71%
ROE (5 yr avg.)38%33%23%
Debt/Equity (year 6)0%0%0%
Return on Initial Investment19186%176%160%
5 Year Multiple of 30% Equity413017

Based on the scenarios above, all cases provide excellent financial results with minimal leverage.

Risks
The risks associated with this plan are as follows:

Overall, the combined risk assessment is 35%. This risk can have an impact on the initial profitability, however, these setbacks, if realized, are expected to be minimized and eventually eliminated within the first five years of operation.

13 Does not include marketing expenses and salaries
14 See page 26 for Depreciation schedule
15 Calculated with a discount rate of 50%.
16 Compounded annual return of 20% equity stake. Based on industry average P/E Multiple of 20.
17 Variation based upon negotiated contract.
18 Calculated with a discount rate of 30%.
19 Compounded annual return of 30% equity stake. Based on industry average P/E Multiple of 20.

Detailed Financial Statements


Zif Medical Devices
Table of ContentsAppendices
0. Executive Summary
1. Product Design
2. Market Analysis
3. Commercial Options
4. Marketing Strategy
5. Manufacturing Plan
6. Organization
7. Corporate Vision, Mission
8. Financial Plan
Depreciation Schedule
S&A Budgets
Sales Forecast
Focus Group Summaries
Testimony
Management Resumes
Patent Attorney's Opinion
FDA Consultant's Option
© 1996 Zif Medical Devices. All rights reserved.