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| 8. FINANCIAL ANALYSIS 8.1 General Assumptions The financial plan depends on important assumptions, most of which are shown in Table Below. The key underlying assumptions are: 1. We assume a slow-growth economy, without major recession. 2. We assume of course that there are no unforeseen changes in technology to make products immediately obsolete. On our General Assumptions table, the most ambitious and also the most questionable assumption is our projected improvement in inventory turnover. This is critical to healthy cash flow, but will also be difficult. 8.2 Projected Income Statments Cost of Sales The cost of sales contains all the direct cost and the production payroll. Expected 73% in 2000, decreasing to 68% in 2002. Marketing and Sales Marketing and Sales mainly comprise the cost of establishing and maintaining the M&S team. The marketing campaign and all the necessary operations like training, service seminars etc. M&S expenses are estimated at around 11% of operating expenses on average General and Administrative G&A expenses are estimated at around 6.3% of operating expenses on average. The following table shows the Company's projected profit and loss statement for the period 2000-2002: 8.3 PMargin Analysis The following table shows the Company's margins, relative to revenues, during 2000-2002: 8.4 Cash-Flow Analysis The following table shows the Company's projected Cah Flows, relative to revenues, during 2000-2002: 8.5 Break-Even Analysis For our break-even analysis, we assume running costs of approximately $96,000 per month, which includes our full payroll, rent, and utilities, and an estimation of other running costs. Payroll alone, at our present run rate, is only about $55,000. Margins are harder to assume. Our overall average of $343/248 is based on past sales. We hope to attain a margin that high in the future. we need to sell about $350,000 per month to break even, according to these assumptions. This is about half of our planned 1998 sales level, and significantly below our last year's sales level, so we believe we can maintain it. |
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