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Auto IQ: The CarBack Device

Table of ContentsExecutive Summary...............................................................................5

Introduction........................................................................................5The Product........................................................................................5Marketing...........................................................................................5Operations..........................................................................................6Human Resources...............................................................................6Financing............................................................................................6

1 Overview of the Business Plan...........................................................81.1 Legal Name and Address..............................................................81.2 Contact Person.............................................................................81.3 History..........................................................................................81.4 Project Description.......................................................................9

1.4.1 Estimated Customer Fees: Post Installation........................101.5 Project Benefits..........................................................................10

2 Marketing Plan.................................................................................122.1 Market and Industry overview..................................................122.2 Market Analysis..........................................................................122.3 Marketing Plan...........................................................................12

2.3.1. Product................................................................................132.3.2 Place.....................................................................................13Table 1: Sales by Distributor.........................................................132.3.3 Price.....................................................................................13Table 2: Price Vertical...................................................................14Table 3: Retail Pricing...................................................................142.3.4 Promotion.............................................................................14Table 4: Marketing Promotion Budget..........................................152.4. Competitor analysis................................................................152.4.1 Competitive strategy............................................................15

2.5. Cost leadership..........................................................................152.6. Product Differentiation..............................................................162.7. Marketing Objectives................................................................16

Intelligent Design Consulting


2.8. Marketing Strategy................................................................16



3 The Operations Plan.........................................................................17Figure 1: Operations Flow............................................................17

3.1 Phase 1: Production Model.........................................................183.1.1 Intellectual Property (IP)......................................................183.1.2 Design Production Model.....................................................183.1.3 Regulatory Requirements.....................................................19

3.1.4 Production Model Laboratory.................................................19Figure 2 Office Plan View 1500 ft2................................................20

3.2 Phase 2: Procurement for Components and Assembly..................203.2.1 Component Sourcing...............................................................203.2.2 Assembly..................................................................................20

Table 5: Cost Structure.................................................................213.3 Phase 3: Sales Operation...............................................................21

3.3.1 Traveling Sales Staff................................................................213.3.2 Website....................................................................................21

4 The Human Resource Plan...............................................................224.1 Training......................................................................................224.2 Hours of Operation.....................................................................22

Figure 3: Organizational Chart.....................................................234.3 Staffing Requirements................................................................23

4.3.1 Board of Directors................................................................234.3.2 President..............................................................................23

4.3.3 Sales........................................................................................244.3.4 Business Manager...................................................................244.3.5 Future Considerations.............................................................24

5 The Financial Plan............................................................................255.1 Financial Structure.....................................................................255.2 Capital Spending........................................................................255.3 Financial Analysis.......................................................................25

Table 6: Financial Projections.......................................................26Table 7: Net Income Breakeven Analysis......................................26

5.4 Risk Analysis and Contingency Plans.........................................27Summary of the Business Plan.........................................................28



Appendices...........................................................................................29Appendix A: Income Statement........................................................29Appendix B: Balance Sheet..............................................................30Appendix C: Statement of Cash Flows.............................................31Appendix D: Schedules 1 – 4............................................................32Appendix E: Schedules 5 – 8............................................................33Appendix F: Schedules 9 – 11...........................................................34



EXECUTIVE SUMMARYINTRODUCTION

Canada has one of the highest auto theft rates in the world currently ranked 7th. More than 400 cars are stolen every day in Canada for a total impact on the Canadian economy of more than $1.2 billion a year. Auto IQ ’s goal is to empower vehicle owners to recover their vehicles after they have been stolen. Through cell phone technology, vehicle owners now have the ability to communicate with their vehicles enabling them to shut down the vehicle and have it report back its location for recovery purposes. Because of the high economic and personal cost of having a vehicle stolen AutoIQ intends to market the recovery device to those owners with vehicles that do not have a factory installed auto recovery system in their vehicle.

THE PRODUCTAs an outcome from a 4th year engineering project, the CarBack auto theft recovery device is a small computer device connected to the vehicle’s engine through the heat sensor. The device has three primary components: a computer chip that activates the heat sensor to incapacitate the vehicle, a GPS chip to provide the location of the vehicle, and a phone card that enables the vehicle’s owner to communicate to and from with the car through a phone. A patent search has been completed, the results yield freedom to operate from an intellectual property perspective. No obstacles are expected as we seek to have the CarBack approved and certified by CSA and the CRTC.

MARKETING“Our mission is to empower automobile owners by providing a reliable and

affordable auto theft recovery device”

Auto IQ intends to introduce the auto recovery device to the market through large retail outlets with auto installation facilities like Canadian Tire, Future



Shop, and Visions. Concurrently, Auto IQ will market the product to large automotive manufacturers enabling them the opportunity to install it at the factory; the auto manufacturer will purchase the device and the technology from Auto IQ. The major market for CarBack are those customers who buy auto lock devices, car immobilizers and anti-theft remote devises for their automobiles.

Similar products available in the market are priced between $350 and $799. Our market analysis shows that target market is price sensitive and price differentiation coupled with advance product features could act as the key driving factor. CarBack is priced at $150 to the retailer and at a competitive rate of $400 installed to the end user. Regarding product differentiation: we are not in the business to sell yet another car accessory but to empower the automobile owners through advanced technology to take control of their vehicle. This is the differentiation we seek to bring in to the market and this is how we want to position our product to the target customers.Our core objective is to create a market for auto theft recovery device incorporating mobile technology and GPS location capability at an affordable price to the customer. We intend to maximize the cash flow within the product’s life span of 4 to 5 years.

The marketing strategy is:Increase the number of users by:

1. Initial advertising and push-pull strategy and by selecting right distribution channels

2. Efficient use of sales force and corporate sellingIncrease the rate of purchase by:

1. On going in store-product displays and promotions2. Creating market awareness – media advertisements and trade shows.



OPERATIONSThe operations will begin with phase 1; bringing the existing prototype into a production model, this will require one year and an initial investment of equity to begin. Phase 2 will be to procure the components and assembly. Phase 3 will be to market and sell the item directly to stores that sell and install the device.

HUMAN RESOURCESAs AutoIQ develops and markets CarBack there will not be significant staffing. The maximum number of employees will be 7 people spread across the country. The company will start with maximum the sales staff at the outset and reduce the sales staff to two after four years and zero after five years when the company will be wound down.

FINANCINGAutoIQ will be financed with an equity cash injection of $240,000. Due to the nature of the business and the fact that there are few assets that could be used for collateral, debt financing is unlikely and as such is not expected. $60,000 in equity has already been contributed by the developers of the prototype. This money has been used to map out the patent landscape. The remaining $240,000 is required to support production model development and the subsequent sales efforts. Capital spending is expected to be kept to a minimum. Office space will be leased to facilitate a quick exit after year five. $15,000 for office equipment and computers make up the entire initial capital spending budget. The remaining financing required for capital spending will be used to support AutoIQ’s net working capital.

The most critical variables we project are unit price, unit sales and cost of goods sold. Sensitivity Analysis reveals that should the sales price per unit drop from $150.00 to $120.00, the Internal Rate of Return will drop from 57% to 25%. Although we are confident in our projected sales price, should



it decrease 20% right from the first year of sales we still expect a healthy rate of return. Unit sales at 44% of projected unit sales is needed to be able to break even that year; all other years are higher. Should the cost of goods increase by 20%, but the selling cost remain unchanged, the Internal Rate of Return drops from 57% to 47%.



1 OVERVIEW OF THE BUSINESS PLAN 1.1 LEGAL NAME AND ADDRESS

Auto IQ290 3rd St. ESaskatoon, Saskatchewan, CanadaS7K 1L9

1.2 CONTACT PERSONTyson PedersonLead Consultant306.555.5555

1.3 HISTORYAuto IQ was birthed through a fourth year engineering project at the University of Saskatchewan in 2006. The team of three engineering students decided to build a auto theft recovery device, now know as CarBack , after one of their fathers’ car was stolen and not recovered. Auto IQ is a corporation marketing the CarBack auto theft recovery device across Canada with a focus on the major metropolitan areas. Auto IQ is planning to launch a marketing campaign to distribute CarBack device to large retail outlets with automotive installation facilities. A second component of the marketing campaign is to explore opportunities to sell the device and the technology to an automotive manufacturer or larger automotive accessory manufacturer.

The auto theft recovery device is a small computer device connected to the vehicle’s engine through the heat sensor. The device has three primary components: a computer chip that activates the heat sensor to incapacitate the vehicle, a GPS chip to provide the location of the vehicle, and a phone card that enables the vehicle’s owner to communicate to and from with the car through a phone.



The major shareholders include:Ross Brawn: Lead Engineer, 18.3%Martin Whitmarsh, Engineer, 18.3%Ryan Giggs, Engineer, 18.3%Driver Wanted, 45%

1.4 PROJECT DESCRIPTIONCanada has one of the highest auto theft rates in the world currently ranked 7th. More than 400 cars are stolen every day in Canada for a total impact on the Canadian economy of more than $1.2 billion a year. Auto IQ ’s goal is to empower vehicle owners to recover their vehicles after they have been stolen. Through cell phone technology, vehicle owners now have the ability to communicate with their vehicles enabling them to shut down the vehicle and have it report back its location for recovery purposes. Because of the high economic and personal cost of having a vehicle stolen Auto IQ intends to market the recovery device to those owners with vehicles that do not have a factory installed auto recovery system in their vehicle.

Currently, General Motors is the only manufacturer equipping vehicles with the OnStar system; this system has the ability to disable and locate their vehicle. There is another device on the market: the Boomerang Auto Recovery System. This system locates the vehicle through triangulation with local cell phone towers at cost of approximately $0.70 per day for an annual total of $255.50 with a three year cost of $766.50. There is one other device, the UniTracking VTU GPS system retailing for US $799 that does the same as the Auto IQ device. Auto IQ ’s intention is to introduce the auto theft recovery device into the market for $400 including installation.



Auto IQ intends to introduce the auto recovery device to the market through large retail outlets with auto installation facilities like Canadian Tire, Future Shop, and Visions. Concurrently, Auto IQ will market the product to large automotive manufacturers enabling them the opportunity to install it at the factory; the auto manufacturer will purchase the device and the technology from Auto IQ . The expected start up date is June 1, 2010. A supplier of the device, outsourced overseas, will produce the product and the first shipment is expected to arrive July 15, 2012 for distribution across Canada to our retail partners. A marketing and sales staff will be in place as of March 15, 2012 to develop implement a marketing strategy and develop clients.

To date one of the owners has an operational prototype in his vehicle plus a tentative production agreement with an overseas facility. Still to be determined is whether the engineers would like to commit to continue developing the product or new devices that enable a vehicle to communicate with its owner.

The CarBack, device once installed in your vehicle, will act as a watchdog and immobilizer for your vehicle and will notify you once your car is stolen giving you, the owner, the power to immobilize and locate your vehicle. When a hidden internal switch is on in your vehicle the acceleration sensor is activated. In the event that the car is accelerated away a message is sent from your car to your cell phone through a standard text messaging system “your car is accelerating do you want to immobilize and/or locate?” will be sent to your phone. You can respond by choosing to immobilize and/or locate your vehicle by returning the text message “immobilize password” or “locate password” or “immobilize and locate password”. The password is to prevent others from locating and/or immobilizing your vehicle.



If location is requested the current or last received GPS location is transmitted to your phone “your cars location is 52.234875 N, 106.412376 W”, this longitude and latitude can be inserted into google maps or mapquest and your car location is known on a street map. If immobilization is requested the car will slowly lose power and shut down leaving the car inoperable, once the car is shut down a verification message is sent to you “your car is immobilized”, you can then notify the local authorities about the theft and location of your asset.

1.4.1 Estimated Customer Fees: Post Installation The owner of the device will activate the unit by purchasing a SIM card from their local telecom and inserting it into the CarBack system. Currently a SIM card can be bought and activated with a phone number for $10, prepaid SIM card charges data fees of $0.35/txt message. The SIM card must have a sufficient balance for text messaging in order to facilitate proper functionality of the CarBack system.

1.5 PROJECT BENEFITSWith the creation of Auto IQ the company expects to create eight jobs. The primary benefit of Auto IQ is the recovery of stolen vehicles. With a negative impact of $1.8 billion per year Auto IQ can save Canadians significant money leading to greater social benefits for Canadians and an indirect benefit in the future of less police resources searching for stolen vehicles. With one car stolen every 3.6 minutes Auto IQ can save Canadians money and stress. With the CarBack ’s new technology one of our goals is to sell the product to an auto manufacturer so they can further develop the concept and install it in their vehicles.



2 MARKETING PLAN 2.1 MARKET AND INDUSTRY OVERVIEW

“Our mission is to empower automobile owners by providing a reliable and affordable auto theft recovery device”

According to Statistics Canada, on average, 400 vehicles are stolen every day: some of them from dealerships. According to the Insurance Bureau of Canada (IBC), car theft costs Canadians about $1.2 billion a year in out-of pocket-costs including deductibles, added health care, court and legal costs.

There are products available in the market that can alert the owner when someone attempts to steal their automobile. One device which immobilizes the car when stolen has a very high price point. Other equipments of comparable use are remote starters equipped with theft alarm. All these products more or less serve the same purpose in different ways with varying efficiencies. We found that there is an opportunity to utilize today’s broadly available mobile coverage and the GPS navigation system to develop a unique and affordable auto theft recovery device. Stolen cars are usually taken to a disassembly location and then quickly shipped offshore. Because of this, the time factor in responding to the situation is highly sensitive. By immobilizing the automobile remotely and tracing it as soon as possible, CarBack effectively recovers stolen vehicles.

2.2 MARKET ANALYSISThe major market for CarBack are those customers who buy auto lock devises, car immobilizers and anti-theft remote devises for their automobiles. But we think that CarBack is not in direct competition with any of the existing products in the market. This is largely because of the unique technology used in CarBack and its competitive pricing. In fact, we



are creating a new market for this kind of ‘auto intelligence devises’ at an affordable price.

2.3 MARKETING PLANThe entire marketing strategy and implementation is crucial to this business. The market response for the product is based upon the prevailing facts and market assumptions. All the market scenarios are described in detail in the marketing plan and strategy map is clearly laid out.



2.3.1. Product This is an electronic devise which can be remotely activated to immobilize the automobile in the event of a theft. The product is installed in the automobile, normally under the hood and connected to the engine. When a customer buys the product, it has to be activated with a SIM card before installed in to the automobile and this provides the identity for the devise. Now, it has a mobile number and a password which is unique to this device. It also has a GPS capability to send the location details back to owner’s mobile phone. CarBack offers the customers a reliable and affordable alternative to any of the products available in the market.

2.3.2 Place CarBack will be sold through retail channels like Canadian Tire, Future shop, Best Buy as well as through car dealers and after market installers; the best fit is with retailers who have existing auto installation facilities. The primary target market is Canada and market segment is car owners across all age groups. The retail channels were selected owing to their strong presence in the auto parts and accessories retailing. Added to this is their auto maintenance, service and installation capability. We found that several aftermarket installers play a key role in the customization and maintenance of automobiles in many small cities. We decided to target this particular segment to penetrate the interior markets. Detailed distributor-wise sales projection is shown below:

Table 1: Sales by Distributor



2.3.3 Price Similar products available in the market are priced between $350 and $799. Our market analysis shows that target market is price sensitive and price differentiation coupled with advance product features could act as the key driving factor. CarBack is priced at $153 to the retailer and at a competitive rate of $400 to the end user. Except for the inflationary adjustment, price will be kept at this level for the next 4 years. The price vertical by AutoIQ is shown in the table:

Table 2: Price Vertical Year-1 Year-2 Year-3 Year-4

Number of Units 7400 12300 17250 12300Unit selling price 153.00$ 156.06$ 159.18$ 162.36$ Unit production cost 60$ 40$ 40$ 40$ Gross Margin 93$ 116$ 119$ 122$

The contract agreement with the overseas manufacturer gives us enough advantage to control the cost of production. Though we may have to incur a higher cost of production in the first year ($60), an increase in volume will help overcome this towards the second year to the end of the product’s life.

Table 3: Retail Pricing Year-1 Year-2 Year-3 Year-4

Price to retailers 153.00$ 156.06$ 159.18$ 162.36$ Installed price to customers 400$ 400$ 400$ 400$

Gross Margin 247$ 244$ 241$ 238$ % 161% 156% 151% 146%



2.3.4 Promotion More focus is given for the promotional aspect in the first couple of years to gain maximum market visibility for the new product. Promotional efforts are broken down into Print media advertising-mainly the auto industry magazines, Point-of- sale displays, website development for online promotion and trade discounts. Point-of-sale displays are effective in attracting the customers and are an easy way of making them understand the product features. We plan to make them available in all retail outlets and there will be product brochures and instruction manuals along with them. Showcasing the product in trade shows will be done at a minimum possible cost and also the trade discounts depending upon the sales. The detailed marketing promotion budget is shown:

Table 4: Marketing Promotion Budget Year-1 Year-2 Year-3 Year-4

AdvertisingIn-store Product displays 8,250$ 9,350$ 11,000$ 13,700$ Magazine Advertising 30,000$ 30,000$ -$ -$ Product Brochures 1,000$ 2,000$ 3,000$ 3,000$ Total Advertising 39,250$ 41,350$ 14,000$ 16,700$ Promotion & DevelopmentWeb site & Maintenance -$ -$ -$ -$ Travel expenses 20,000$ 20,000$ 18,000$ 12,000$ Trade shows 2,500$ 4,000$ 3,000$ 2,000$ Total Promotion 22,500$ 24,000$ 21,000$ 14,000$ Total for Advertising and Promotion 61,750$ 65,350$ 35,000$ 30,700$ % of Total revenue 6% 3% 1% 1%

2.4. Competitor analysis Products of comparable nature are available in the market. But, as mentioned earlier, no existing product shares the same feature as CarBack’s tracking ability and reliable communication. However, we do expect other established companies to come up with similar products once we hit the market. We estimate a minimum time line of 2 years for other



companies to develop a similar product and make a successful prototype before introducing their product to the market.

2.4.1 Competitive strategy Automobiles are considered important assets by individuals and often there is an emotional attachment. Having one’s vehicle stolen would be the last thing anyone wants and the solutions available to prevent this are not fool proof. Most of the devices currently available in the market deals with how to prevent or deter theft. But, once the thief manages to take the car away by tampering the security, there is no way one can track the vehicle. CarBack is filling this gap in the market by empowering the automobile owners with the ability to track their vehicle no matter how far they are.

2.5. COST LEADERSHIPCarBack is priced at a lower price point compared to other direct competitive devices in the market serving this segment. We intend to provide an affordable solution to the auto theft recovery. The closest competitor with comparable features is priced at $799. We plan to achieve the cost leadership through outsourcing our production and reducing our fixed cost expenditures.

2.6. PRODUCT DIFFERENTIATIONWe are not in the business to sell yet another car accessory but to empower the automobile owners through advanced technology to take control of their vehicle. This is the differentiation we seek to bring in to the market and this is how we want to position our product to the target customers.

2.7. MARKETING OBJECTIVESOur core objective is to create a market for auto theft recovery device incorporating mobile technology and GPS navigation capability at an affordable price to the customer. We intend to maximize the cash flow within the product’s life span of 4 to 5 years. Easy entry for the competitors



in to this segment makes it imperative for a quick realization of the returns within a relatively short time.

2.8. Marketing Strategy Increase the number of users by:

1. Initial advertising and push-pull strategy and by selecting right distribution channels

2. Efficient use of sales force and corporate sellingIncrease the rate of purchase by:

1. On going in store-product displays and promotions2. Creating market awareness – media advertisements and trade shows.



3 THE OPERATIONS PLAN The operations will begin with phase 1; bringing the existing prototype into a production model, this will require one year and an initial investment of equity to begin. Phase 2 will be to procure the components and assembly. Phase 3 will be to market and sell the item directly to stores that sell and install the device. The process from start to finish can be seen in Figure 1:

Figure 1: Operations Flow



3.1 PHASE 1: PRODUCTION MODEL3.1.1 Intellectual Property (IP)

The design was performed by three student engineers under the supervision of a professor at the University of Saskatchewan. The ILO (Industry Liaison Office) at the university has issued a letter to the three engineers stating



that the university holds no rights on the CarBack design and releases all intellectual property to the three engineers.

A patent review has recently been performed by Mongeon Associates Ltd. This review was paid for by the three founding engineers at a sunk cost of $60,000. The result states there is intellectual property freedom to manoeuvre with the CarBack design, there are no existing patents that would infringe on CarBack . The patent review indicates that there is existing IP real estate to pursue a patent if that direction is chosen.

There are two options on the IP roadmap, the first is to keep the design a trade secret, hit the market first with CarBack and ramp up sales, capitalizing on uniqueness and lack of initial direct competition. The second option is to go through a time intensive and expensive patent process which publishes all intellectual property to the public; legally the design is protected but the legal representation for defending the patent is expensive. Due to the high tech nature of the CarBack design, a time horizon does exist for the technology. The ability exists for engineering/R&D firms to design a similar product with an estimated two years and proper investment.

The strategy going forward is to keep the design a trade secret and focus on gaining market share within the first few years of sales.

3.1.2 Design Production Model The existing design is a working prototype that was designed and built by 3 engineers from the U of S for their senior year capstone design project. The prototype is made up of goods that total a cost of $500. The prototype uses components that have the ability to perform more tasks than is necessary for the standard operation of the unit. By selecting appropriate components that match the operational abilities the production version is estimated to cost a factor of magnitude less than the prototype. The first year will



require the reprogramming and selection of proper components based on lowest cost available. The engineers will focus on surface mount components such as microcontrollers, resistors, capacitors etc. and lower cost GSM communication technology. This process to go from prototype to production model is estimated to take one year with two full time engineers ($75,000 each/yr + benefits), an office with laboratory equipment is necessary to facilitate this operation.

3.1.3 Regulatory Requirements Since the device will be used as a low voltage electronics device sold in Canada a CSA (Canada Standards Association) approval process is necessary. This approval process includes dielectric and ground fault testing to obtain CSA approval. This certification process can be performed in Saskatoon by Shaughnessy Electric for $7500.

The CarBack device communicates to the end user via text messages which uses cellular phone towers. Since the airwaves are regulated by CRTC (Canadian Radio Telecommunications Commission) the CarBack device will have to be approved for use in Canada before sales commence. The CRTC certification process will take one week in Ottawa where devices are approved; $7,500 is the cost for certification and this process usually requires some modifications. A further $7,000 is set aside for one of the engineers to travel to Ottawa for the process.

3.1.4 PRODUCTION MODEL LABORATORYThe laboratory is to be located in Saskatoon Saskatchewan for phase 1. After the first year is complete and the production model is designed and ready for the manufacturing process the laboratory will be converted into a sales force headquarters and distribution center. There is currently office space for rent on Miller Ave. in the industrial end of Saskatoon for $2,500/mn including property taxes. The utilities are estimated to be


Loading Dock

Laboratory Area

Manager’s Office

Future Inventory Storage Max 11,000 units

Cubical Eng #1

CubicalEng #2

Front Door

Business Manager


$300/mn, speciality laboratory supplies like an oscilloscope, solder irons and voltage generators will be $10,000 and other general office supplies for $5,000. Figure 2 includes a floor plan of the laboratory; the loading dock area easily gives a full size UPS van access at any time.

Figure 2 Office Plan View 1500 ft 2

3.2 PHASE 2: PROCUREMENT FOR COMPONENTS AND ASSEMBLY 3.2.1 COMPONENT SOURCING

The components necessary for the production model can be found on Mouser.com, which has a large distribution center in Houston TX. Mouser is a large volume supplier of electronic components and gives deep discounts to purchasers of over 10,000 units. Environmental impact will be taken into account for the sourcing of all components to ensure they will be lead and mercury free.

The engineers have outlined a detailed list of components that put the components at $50/unit for low volume orders and $30/unit for orders over 10,000. These components can be shipped from Mouser to anywhere in the world including direct to the assembler.

3.2.2 ASSEMBLYThe assembly process is outsourced to the lowest bidder through a procurement process performed by the Business Manager. Selection will be



based on three main criteria: lowest cost, ISO 9001 certification, and speed of assembly and delivery. The process for assembly would be performed as follows:

i. Retool assembly facility to assemble CarBack systemsii. Receive components from low cost electronics supplier direct

shippingiii. Mount and solder all electrical components onto printed circuit

boardiv. Perform quality control testsv. Package in CarBack boxes, ready for salevi. Ship units to Saskatoon headquarters for further distribution

The assembly process is estimated to be $10/unit including shipping with a minimum order of 5,000 units. The shipping would be direct to Saskatoon for distribution. If large retailers place orders of 1,000 units or more provisions can be made to ship these direct from the assembler to the retailer’s distribution center. The packaging will be minimal to cut down on costs and the environmental impact.

Table 5: Cost Structure Units1 Units < 10,000 10,000 < unitsComponents/unit $50 $30Assembly/unit $10 $10Total $60 $40

3.3 PHASE 3: SALES OPERATION 3.3.1 TRAVELING SALES STAFF

Once phase 1 is complete and there is a production ready model the President will hire five sales staff. Each sales staff member will be granted $36,000/yr in salary plus benefits and 5% commission on gross sales made specifically by that sales member. Benefits include $450/mn for car and cell

1 Minimum order for assembly is 5,000 unitsIntelligent Design Consulting


phone allowance plus $0.42/km for sales trips. It is scheduled that half of the working days in a year for sales staff will be on the road incurring hotel and restaurant expenses paid at $100/night and $50/day per diem for meals. The sales staff will be geographically located across the country to ensure proper product penetration country wide. The initial sales force at five will be decreased gradually over five years as the product sunset nears.

3.3.2 WEBSITEA website will be designed by the engineering staff in year one, the website will be largely used for product information. Any purchasing of CarBack will be directed to a retailer in the area of interest.



4 THE HUMAN RESOURCE PLAN CarBack is primarily a sales and marketing company. With a product in hand, production outsourced overseas, and a marketing strategy CarBack’s task is to market and sell the product within a limited timeframe to, preferably, a auto manufacturer, or retail distribution outlets such as Future Shop and Visions. Because of the limited time frame and narrow customer base of distributors it is important that CarBack launch quickly and effectively to seize market space before the business and technological window of opportunity disappears. Accordingly the company will start with maximize the Sales Staff at the outset and reduce the sales staff to two after four years and zero after five years when the company will be wound down.It is important that the President be aware of the technological ability of the product but primarily it is the President’s responsibility to ensure that sales targets are met and all product are sold after five years. Aside from the President and the Sales Staff, including a Lead Sales Representative, the business will employ a Business Manager to ensure the business and distribution aspects of the company run smoothly.

4.1 TRAININGTraining will be provided by the President for all staff. It is CarBack’s intention to hire as experienced personnel as possible. Training will consist of technological information so the Sales Staff will understand how CarBack works. Also included will be sales targets, approaches, demonstrations with vehicles, customer service policy, complaint policy, and relevant information regarding pay, commission, and allowances.

4.2 HOURS OF OPERATIONGiven the geographic distribution of the Sales Staff they will effectively be working as their own boss. Because of this independence the Sales Staff can set their hours as they see fit with the assumption they meet their sales targets.



The Office, staffed by the Business Manager and the President, will have normal hours of operation except for the President who may be travelling or seeing potential clients.

Figure 3: Organizational Chart

4.3 STAFFING REQUIREMENTS4.3.1 Board of Directors

The purpose of the Board of Directors is to establish the strategic direction and performance goals of the company. The Board of Directors is also to provide advice and suggestions to the President as needed and to hold him/her accountable for implementing the strategic direction and the achievement of the company’s goals; the Board is also responsible for hiring the President. It will also be incumbent upon the Board to provide advice and direction regarding the raising of necessary equity.

4.3.2 President The President oversees the company’s operations reporting to the Board of Directors. The primary responsibilities of the President is the implement


Board of Directors

President

Business Manager

Sales Sales Sales Sales Sales


the strategic plan and achieve the performance goals through the sound management of the staff.

Responsibilities for the President include: hiring the Business Manager, Sales Staff, ensure the sales and the distribution staff are fulfilling their targets, controlling costs, developing relationships with the retail distribution headquarters, and contributing to key sales partners.

4.3.3 SALESAs a member of the Sales team the Sales personnel are responsible for conducting themselves professionally and responsibly with potential and existing clients. They are to value customer service to provide our client with the best customer service required. The goal of the Sales staff is to build relationships with customers to sell our product within the product’s limited sale window.

4.3.4 BUSINESS MANAGERThe Business Manager has diverse responsibilities including: tracking Accounts Payable, Accounts Receivable, Cash Flow, payroll, and other related bookkeeping duties pertinent to the position such as taxes including GST, various provincial sales taxes, and employment taxes. The Business Manager will ensure books are kept current and accurate and submit to an annual audit. It is also the responsibility to assist the President and liaison with the Sales Staff as needed. Some other duties include answering phones and some customer service duties related to incoming calls and other duties as necessary.

4.3.5 FUTURE CONSIDERATIONS

We are anticipating that it may be necessary to hire a part-time position, perhaps even a full-time position, to help with distribution. This new positioned would be supervised by the Business Manager. It may also be



likely that a Lead Sales Representative may need to assist the President as sales volumes increase.



5 THE FINANCIAL PLAN 5.1 FINANCIAL STRUCTURE

AutoIQ will be financed with an equity cash injection of $300,000. Due to the nature of the business and the fact that there are few assets that could be used for collateral, debt financing is unlikely and as such is not expected. $60,000 in equity has already been contributed by the developers of the prototype. This money has been used to map out the patent landscape. The remaining $240,000 is required to support production model development and the subsequent sales efforts.

5.2 CAPITAL SPENDINGCapital spending is expected to be kept to a minimum. Office space will be leased to facilitate a quick exit after year five. $15,000 for office equipment and computers make up the entire initial capital spending budget. This equipment will be required during the first year of operations to facilitate the development of a production model. Following the first year, the leased property will be converted into AutoIQ’s headquarters housing the president and business manager. It will also act as the distribution center. All of the office equipment and computers from the first year will be reused for this new purpose. There will be some special equipment that was used for the production model development that will no longer be needed. Due to the specialized nature of this equipment we do not expect it to have much, if any, salvage value.The remaining financing required for capital spending will be used to support AutoIQ’s net working capital. Because the inventory must be purchased in orders of no less than $5,000 units and they must be manufactured as orders are made, we need to make our orders 60 days prior to the time they are required. In addition, to ensure we do not run out of inventory we plan to keep 30 days of inventory on hand. This requires a



significant investment for inventory. The estimated cost for inventory is almost $180,000 in year four.

5.3 FINANCIAL ANALYSISPlease see Appendix A for the five year financial projections, including the Income Statement, Balance Sheet, Statement of Cash Flows and all input schedules. Because we expect competitors to enter the market quickly as other aftermarket car accessory manufacturers reverse engineering CarBack technology and car manufactures developing their own similar product, we forecast a limited opportunity for sales. As such we expect sales to decline following year four of operations. After year 5 we expect to exit the market, or continue operations if sales do not decline as rapidly as expected. A summary of the financial projects for the five years of operation is provided below:

Table 6: Financial Projections Financial Projections

Year 1 2 3 4 5Unit Sales - 7,400 12,300 17,250 12,300 Revenues - 1,132,200 1,919,538 2,745,876 1,997,087 Cost of Goods Sold - 333,000 487,380 663,867 571,055 Operating Expense 294,058 825,189 888,241 811,725 664,380 Pre-tax Income (294,058) (25,989) 543,917 1,270,284 761,652 Taxes - - 88,479 270,071 142,913 Net Income (294,058) (25,989) 455,438 1,000,213 618,739

The most critical variables we project are unit price, unit sales and cost of goods sold. Sensitivity Analysis reveals that should the sales price per unit drop from $150.00 to $120.00, the Internal Rate of Return will drop from 57% to 25%. Although we are confident in our projected sales price, should it decrease 20% right from the first year of sales we still expect a healthy rate of return. The table below outlines the unit sales required per year for a break-even of net income. Unit sales at 44% of projected unit sales are needed to be able to break even that year; all other years are higher.



Finally, should the cost of goods increase by 20% but the selling cost remains unchanged the Internal Rate of Return drops from 57% to 47%.

Table 7: Net Income Breakeven Analysis

1 2 3 4 5 -

2,000 4,000 6,000 8,000

10,000 12,000 14,000 16,000 18,000 20,000

Net Income Break-Even

Unit

Sale

s

5.4 RISK ANALYSIS AND CONTINGENCY PLANSThe following risks have been identified: Risk – AutoIQ does not obtain CSA regulatory approval

o Contingency Plan – Should AutoIQ fail to obtain CSA approval, we will peruse International Underwriters Laboratories Certification in the United States. The certification should be easier to obtain and will allow CarBack to be sold in Canada.

Risk - AutoIQ does not obtain CRTC regulatory approvalo Contingency Plan – CRTC approval is required for the

CarBack product because of the cell phone communications required. Should AutoIQ fail to obtain CRTC approval during the first year of operations, the venture would not be viable and operations would cease. Although the magnitude of the risk is substantial we do not perceive the likelihood of its occurrences as very high.

Risk – Production model development overrun



o Contingency Plan – We expect production model development of CarBack to take no longer than one year. If however, the development takes longer than expected, sales would be delayed severely impacting profitability and the narrow window of sales opportunity. This risk is primarily mitigated because we have two engineers working on the development and the engineers are principles in AutoIQ. Again, the magnitude of this risk is very high but the likelihood is relatively low.

Risk – AutoIQ experiences low sales at $150.00 price pointo Contingency Plan – Our research indicates the product

will be adopted by our target consumer at the projected volume and price levels. Despite this, should actual sales volume not meet projected expectations at the $150.00 price point we can lower the price.

Risk – CarBack experiences increased competition sooner than expectedo Contingency Plan – Increased competition is expected as

other companies reverse engineer the product and car manufactures develop similar products (as OnStar already has). If competition enters the market sooner than expected however, we may have to lower prices and/or alter the exit strategy.



SUMMARY OF THE BUSINESS PLAN “Our mission is to empower automobile owners by providing a reliable and

affordable auto theft recovery device”AutoIQ’s CarBack auto recovery device is a differentiated low cost product that empowers drivers. In a market which a car is stolen every 3.6 minutes at a tremendous social and personal cost, CarBack is an efficient and affordable means of recovery. Using advanced technology the user has two way communication with their car to learn about the car’s activities and location. CarBack is empowering.With an equity cash injection of $240, 000 and the development and patent search by the inventors, AutoIQ equity investors are expected to realize a 45%. annualized rate of return. The majority of the risk is found in the volume sold, unit price, and the cost of goods sold respectively; significant variation still yields a substantial return.The marketing of the CarBack uses a combination of push/pull with retail partners spread across Canada. The other objective in marketing the product is to sell the technology to an auto manufacturer or an auto accessory manufacturer after a couple years of high sales growth. Through a firm marketing strategy with a knowledge of the market to mitigate the risks, CarBack can help the investor realize a substantial return on their investment.



APPENDICES APPENDIX A: INCOME STATEMENT

Income StatementFor the Year Ended 1 2 3 4 5

Revenues - 1,132,200 1,919,538 2,745,876 1,997,087 Cost of Goods Sold - 444,000 537,360 715,367 518,525 Gross Profit - 688,200 1,382,178 2,030,509 1,478,562

ExpensesLease 30,000 30,600 31,212 31,836 32,473 Utilities 3,600 3,672 3,745 3,820 3,897 Production Model Development

Wages, Engineers 150,000 - - - - Emloyee Benefits, Engineers 25,710 - - - - Patent Review 60,000 - - - - CRTC Approval 14,500 - - - - CSA Approval 7,500 - - - -

Sales 10,000 - - - - Sales People - 5 5 4 3 Wages, Base - 183,600 187,200 152,640 116,640 Wages, Commission - 56,610 95,977 137,294 99,854 Employee Benefits - 41,172 48,537 49,695 37,107 Travel, Car Allowance & Misc. - 27,540 28,080 22,896 17,496 Travel, KM Allowance - 77,112 78,624 64,109 48,989 Travel, Per Diem - 91,800 93,600 76,320 58,320

Wages, Manager 70,000 71,400 72,828 74,285 75,770 Employee Benefits, Manager 11,998 12,238 12,483 12,732 12,987 Wages, Business Manager - 50,000 51,000 52,020 53,060 Employee Benefits, Business Manager - 8,570 8,741 8,916 9,095 Marketing - 61,750 65,350 35,000 30,700 Captial Cost Allowance 2,750 4,388 2,638 1,631 1,041 Interest - - - - - Total Expenses 294,058 720,451 780,015 723,194 597,429

Net Income B4 Taxes (294,058) (32,251) 602,163 1,307,315 881,133 Income Taxes - - 103,041 279,329 172,783 Net Income (294,058) (32,251) 499,122 1,027,986 708,350

Beg RE - (294,058) (326,309) 172,813 1,200,799 Net Income (294,058) (32,251) 499,122 1,027,986 708,350 Dividends 100000000 - - - - - End RE (294,058) (326,309) 172,813 1,200,799 1,909,149



APPENDIX B: BALANCE SHEETBalance Sheetas at December 31 1 2 3 4 5

AssetsCurrent AssetsCash (785) (157,771) 250,396 1,160,658 1,964,687 Accounts Rec - 139,586 236,655 338,533 246,216 Inventories - 111,000 125,460 179,469 130,529 Total CA (785) 92,815 612,511 1,678,660 2,341,432

Non-Current AssetsComputers & Operating System 10,000 10,000 10,000 10,000 10,000 Furnishings, Fixtures & Equipment 5,000 5,000 5,000 5,000 5,000 Accumulated CCA (2,750) (7,138) (9,776) (11,407) (12,448) Total NC Assets 12,250 7,863 5,224 3,593 2,552

Total Assets 11,465 100,678 617,736 1,682,253 2,343,984

Liabilities and EquityCurrent Liabil itiesAcc Pay 5,523 126,987 144,923 181,454 134,836

Long Term Debt - - - - - Total Liabilities 5,523 126,987 144,923 181,454 134,836

EquityCommon Shares 300,000 300,000 300,000 300,000 300,000 Retained Earnings (294,058) (326,309) 172,813 1,200,799 1,909,149 Total equity 5,942 (26,309) 472,813 1,500,799 2,209,149

Total Liab & Equity 11,465 100,678 617,736 1,682,253 2,343,984



APPENDIX C: STATEMENT OF CASH FLOWSCash FlowFor the Year ended 1 2 3 4 5

Net Income (294,058) (32,251) 499,122 1,027,986 708,350 Add CCA 2,750 4,388 2,638 1,631 1,041 Operating Cash Flow (291,308) (27,864) 501,760 1,029,617 709,391

Working Capital (changes in)Accounts Rec - (139,586) (97,069) (101,877) 92,316 Inventories - (111,000) (14,460) (54,009) 48,940 Acc Pay 5,523 121,464 17,936 36,531 (46,618) Net WC Cash Flow 5,523 (129,122) (93,593) (119,355) 94,638

Cash From (used for) InvestingComputers & Operating System (10,000) - - - - Furnishings, Fixtures & Equipment (5,000) - - - - Total Cash for Fixed Assets (15,000) - - - -

Cash From (used for) FinancingLong Term Debt - - - - - Common Shares 300,000 - - - - Dividends - - - - - Total 300,000 - - - -

Cash Balance beg yr - (785) (157,771) 250,396 1,160,658 Net Cash Flow (785) (156,986) 408,167 910,262 804,029 Cash Balance end yr (785) (157,771) 250,396 1,160,658 1,964,687



APPENDIX D: SCHEDULES 1 – 4Schedule 1: Economic VariablesYear 1 2 3 4 5Inflation Input 2.0% 2.0% 2.0% 2.0% 2.0%Debt Interest Rate Input 9.0% 9.0% 9.0% 9.0% 9.0%

Schedule 2: RevenuesYear 1 2 3 4 5Units sold per year Input - 7,400 12,300 17,250 12,300 Average Selling price Input 150.00 153.00 156.06 159.18 162.36 Avg Growth Prices 2.0% 2.0% 2.0% 2.0% 2.0%Avg Growth per year 166.2% 140.2% 71.3%Total revenue - 1,132,200 1,919,538 2,745,876 1,997,087

Schedule 3: Cost of Goods SoldYear 1 2 3 4 5Gross Profit Margins 60.0% 60.0% 60.0% 60.0% 60.0%Unit Purchase Price below 10,000 Input 60.00$ 61.20$ 62.42$ 63.67$ Unit Purchase Price above 10,000 Input 40.00$ 40.80$ 41.62$ 42.45$ Cost of Units Purchased 444,000$ 501,840$ 717,876$ 522,114$

COGSBeg Inv - - 111,000 125,460 179,469 Purchases - 555,000 551,820 769,376 469,585 End Inv - 111,000 125,460 179,469 130,529 COGS - 444,000 537,360 715,367 518,525

Schedule 4: Operating ExpensesYear 1 2 3 4 5Lease Input 30,000 30,600 31,212 31,836 32,473 Utilities Input 3,600 3,672 3,745 3,820 3,897 Production Model Development

Wages, Engineers Input 150,000 - - - - Emloyee Benefits, Engineers 17.14% 25,710 - - - - Patent Review Input 60,000 CRTC Approval Input 14,500 CSA Approval Input 7,500

Sales 10,000 Sales People Input - 5 5 4 3 Wages, Base 36,000 - 183,600 187,200 152,640 116,640 Wages, Commission 5.0% - 56,610 95,977 137,294 99,854 Employee Benefits 17.14% - 41,172 48,537 49,695 37,107 Travel, Car Allowance & Misc. 5,400 - 27,540 28,080 22,896 17,496 Travel, KM Allowance 15,120 - 77,112 78,624 64,109 48,989 Travel, Per Diem 18,000 - 91,800 93,600 76,320 58,320

Wages, President Input 70,000 71,400 72,828 74,285 75,770 Employee Benefits, President 17.14% 11,998 12,238 12,483 12,732 12,987 Wages, Business Manager Input - 50,000 51,000 52,020 53,060 Employee Benefits, Business Manager 17.14% - 8,570 8,741 8,916 9,095 Marketing - 61,750 65,350 35,000 30,700 Captial Cost Allowance 2,750 4,388 2,638 1,631 1,041 Interest - - - - - Total Expenses 294,058 720,451 780,015 723,194 597,429



APPENDIX E: SCHEDULES 5 – 8Schedule 5: Capital BudgetYear 1 2 3 4 5Computers & Operating System Input 10,000 - - - - Furnishings, Fixtures & Equipment Input 5,000 - - - - Total 15,000 - - - -

Working CapitalAverage Inventory Units 3 - 1,850 3,075 4,313 3,075 Inventory - 111,000 125,460 179,469 130,529 Acc Rec - 139,586 236,655 338,533 246,216 Acc Pay 5,523 126,987 144,923 181,454 134,836

# Days Inv Input 60 60 60 60 60# Days Acc Rec Input 45 45 45 45 45# Days Acc Pay Input 60 60 60 60 60

Schedule 6: Financing BudgetYear 1 2 3 4 5Bank Debt - - - - - Common Shares 300,000 - - - - Total 300,000 - - - -

Schedule 7: Debt Ammortization ScheduleYear 1 2 3 4 5Term 5Beginning Balance - - - - - Addition - - - - - Payment - - - - - Interest - - - - - Principal Reduction - - - - - Ending Balance - - - - -

Schedule 8: Capital Cost AllowanceYear 1 2 3 4 5Class 8: Furn & Equip 20.0%Opening Balance - 4,500 3,600 2,880 2,304 Addition 5,000 - - - - CCA Expense 500 900 720 576 461 Ending Balance 4,500 3,600 2,880 2,304 1,843

Class 45: Furn & Equip 45%Opening Balance - 7,750 4,263 2,344 1,289 Addition 10,000 - - - - CCA Expense 2,250 3,488 1,918 1,055 580 Ending Balance 7,750 4,263 2,344 1,289 709



APPENDIX F: SCHEDULES 9 – 11Schedule 9: Income TaxesInput Corporate Tax RatesFederal Small Business 27.0% Saskatchewan Small Business Rate 4.5%Small Business Tax Credit 16.0% Saskatchewan M & P Rate 10.0%Federal Small Business Limit 500,000 Saskatchewan Corporate Rate 12.0%

Saskatchewan Small Business Limit 500,000 1 2 3 4 5

Federal Corporate Rate 18.0% 16.5% 15.0% 15.0% 15.0%

Year 1 2 3 4 5Income Before Taxes (294,058) (32,251) 602,163 1,307,315 881,133 Accumulated Loss Carryforward (294,058) (32,251) - - - Loss Carryforward Used - - - - - Taxable Income - - 602,163 1,307,315 881,133

Federal Tax - - 150,324 256,097 192,170 Small Bus Tax Credit - - (80,000) (80,000) (80,000) Provincial Tax - - 32,716 103,231 60,613 Total Taxes - - 103,041 279,329 172,783

Schedule 10: RatiosYear 1 2 3 4 5Current Ratio (0.14) 0.73 4.23 9.25 17.37 Debt Ratio (Total Liability) 0.48 1.26 0.23 0.11 0.06 Gross Profit Margin - 0.61 0.72 0.74 0.74 Net Profit Margin - (0.03) 0.26 0.37 0.35

Schedule 11: Investment AnalysisYear 1 2 3 4 5

Required Rate of Return 45%

Net Cash Flows to Equity InvestmentNet Cash Flow (785) (156,986) 408,167 910,262 804,029 Dividends - - - - - Terminal Value -

(300,000) (785) (156,986) 408,167 910,262 1,045,938

Net Present Value 127,776 Equity Share for 240,000$ 56.10%Internal Rate of Return 57.09%Business Value $427,776


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