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Feasibility Study Appendix

A53

A Feasibility Study for Digital Audio Recording Technology

Daniel BohmSamit Varma

The University of Southern California

This business plan is intended solely for informational purposes for a due-diligence investigationof this project. The information contained herein is believed to be reliable, but the managementteam makes no representations or warranties with respect to this information. The financial pro-jections that are part of this plan represent estimates based on extensive research and on as-sumptions considered reasonable, but they are of course not guaranteed. The contents of thisplan are confidential and are not to be reproduced without express written consent.

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A54 APPENDIX

Executive Summary

IntroductionRadioNow has witnessed the revolution started by digital video recorders and realizes that con-sumers are demanding greater control over their media experiences. The focus on improvingthe viewing experience of television audiences has left no one focused on improving the listen-ing experience of radio audiences. Advances in microchip technologies have made it possiblefor RadioNow to create a solution that fills this gap. RadioNow has developed a Digital AudioRecorder (DAR) that allows radio listeners to record, playback, or pause any radio program atthe touch of a button, all while in the car. No longer will not being near a radio mean forevermissing the program. No longer will a cell phone call mean missing out on one’s favorite song.No longer will commuters be subject to programming they are not interested in. RadioNow isthe first company to offer a compelling, digital solution that car stereo manufacturers and auto-mobile manufacturers can seamlessly integrate into their products.

Business ConceptRadioNow creates Digital Audio Recorder (DAR) technology that enables anytime-recordingand on-demand-playback of radio programming. The technology will be licensed to stereo man-ufacturers wanting to offer more sophisticated functionality to attract customers in the competi-tive car audio industry.

Industry AnalysisTrends in the car stereo industry show that fewer consumers are upgrading their car stereos toafter-market ones and are, therefore, increasingly keeping the stereo installed by the dealer. Up-grades to higher-end car audio systems are occurring at the automobile dealership at the point ofsale and include premium sound systems as an option (or standard on high-end models).

Market AnalysisMarket demand for the product was arrived at by using market research, surveys, and inter-views with various potential customers. A survey was conducted that included 89 customerswith varying demographics. In the survey it was determined that 75% of them would pay extrafor DAR functionality on their car stereos. The end-user profile of the target market was malesand females under the age of 37 primarily. The primary research also confirmed that most cus-tomers are not inclined to purchase after-market car stereos. Discussions with Alpine USA andwith Pioneer supported this finding.

ProductThe DAR technology takes a plurality of incoming AM/FM analog signals and converts them toa digital signal. This signal is then stored on several non-volatile memory units. A microproces-sor then controls user inputs to recall and play back the recorded signals. This essentially al-lows for a car stereo to have VCR-like function on real-time radio.

Founding TeamRadioNow was co-founded by Daniel Bohm and Samit Varma. The technology is in the processof being provisionally patented with the help of Kleinberg and Lerner, LP. Samit Varma willoversee the prototyping and development of the product, and Daniel Bohm will conduct busi-ness development and marketing.

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FEASIBILITY STUDY APPENDIX A55

Financial PlanUsing sales assumptions and demand estimations attained from primary market research, Ra-dioNow will show positive cash flow in year 3. A cumulative cash balance of $706,600 will re-sult at the end of year 3. EBIT for the first three years will be ($63,600), ($90,450) and$847,100, respectively. This is largely because the first sale is not made until year 2, and typi-cally adoption has taken several months for this type of technology. Initial start-up capital re-quired will be $150,000, which includes a $60,000 safety buffer. The break-even point will be 18months after launch, in June of 2006, after 15,000 units have been sold. DAR will be intro-duced in a single automobile line first and then will gradually be adopted by other automobilelines.

Timeline to LaunchA timeline has been formed, and RadioNow has been on schedule thus far. A period of 4months has been allotted for final design and prototyping, with prototype completion scheduledfor March of 2005 and the first sale coming a year after launch.

Feasibility DecisionBased on the market research that was conducted and the interviews with industry experts,RadioNow has a feasible product that has significant market potential. Plans to move forwardwith the final design and prototype are in place, and the company will file for a provisionalpatent of the technology. In search of its first customer, RadioNow has secured open invitationswith Alpine Stereo and Pioneer to demonstrate its technology.

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A56 APPENDIX

Table of Contents

Feasibility Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Business Concept. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Customer Identification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Customer Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Differentiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Business Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Industry Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Industry Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Future Trends in Car Audio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Competitor Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Market Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Market Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Target Market Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Primary Research – Methodology and Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Distribution Channels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Entry Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Product Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Product Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Product Description and Features . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Technology Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Design and Prototyping Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Timeline to Completion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Intellectual-Property Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Founding Team. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Qualifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Critical Task Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Gap Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

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Financial Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Financial Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Cash Needs Assessment and Break-Even Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Timeline to Launch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Endnotes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Appendix A – Digital Audio Recorder Technology and Prototype . . . . . . . . . . . . . . 14

Appendix B – Questions Used in Customer Survey . . . . . . . . . . . . . . . . . . . . . . 15

Appendix C – Resumé of Daniel Bohm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Appendix D – Resumé of Samit Varma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Appendix E – Timeline to Launch. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Appendix F – Income Statement, Monthly for 3 Years . . . . . . . . . . . . . . . . . . . . . 21

Appendix G – Cash Flow Statement,Year 1 to Positive Cash Flow . . . . . . . . . . . . . 23

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Feasibility Decision

Based on research that strongly suggests that the market is ready for digital audio recordertechnology, RadioNow believes that developing and licensing its technology will result in a sig-nificant profit opportunity and high returns for investors. The founding team will execute on thefeasibility analysis and formally form RadioNow, Inc.

Business Concept

SummaryRadioNow creates Digital Audio Recorder (DAR) technology that enables anytime-recordingand on-demand-playback of radio programming. The technology will be licensed to stereo man-ufacturers wanting to offer more sophisticated functionality to attract customers in the competi-tive car audio industry.

Customer IdentificationAll car stereo manufacturers are potential RadioNow customers, and certainly none will beturned away. RadioNow’s target market, based on primary and secondary industry research, ismade up of car stereo manufacturers that have existing relationships with automobile manufac-turers – see Table 1. Some of the car stereo manufacturers listed in Table 1 have entered Origi-nal Equipment Manufacturer (OEM) relationships with the auto makers, whereas others havemaintained their car stereo’s brand in the automobile.

Table 11

Stereo Manufacturer Automobile Manufacturer—Non-Luxury Car Manufacturer—Luxury

Bose Chevrolet, Mazda, Nissan Acura, Audi, Cadillac, Infiniti, Porsche

Boston Acoustics ChryslerMach FordMonsoon VolkswagenPanasonic Toyota AcuraJBL ToyotaHarman Kardon BMW, Saab, Land RoverAlpine Honda JaguarMark Levinson LexusTHX-certified LincolnDolby Pro-Logic VolvoVisteon Ford, Dodge

Customer BenefitsCar stereo manufacturers are increasingly pressured to come up with compelling products andfeatures that entice consumers to purchase.2 RadioNow’s system allows car stereo manufac-turers to easily incorporate a digital audio recorder into their products to give their customersmore power over radio content. Table 2 describes the benefits to the parties in the car audiovalue chain.

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A60 APPENDIX

Table 2 — Digital Audio Recorder Benefits Throughout Value Chain

Stereo Automobile End UserManufacturer Manufacturer (purchaser of premium audio package)

• Attract consumers • Possibly recognized as • Save time by skipping commercials.seeking new innovator. • Increased entertainment value.technology. • Attract consumers • More pleasant in-car experience.

• Possibly recognized seeking new as innovator. technology.

DifferentiationRadioNow has an advantage over competing products and technologies because of two pri-mary differentiators. First, the non-volatile memory bank system allows for multiple recordedfiles to exist simultaneously without requiring writing the content to disk. This architecture re-quires less power, which makes the technology ideal for mobile devices and also makes it eas-ier for content-demanding consumers to expand the unit’s storage capacity. Second, Ra-dioNow’s distribution strategy is unlike that of any other company that has digital audiorecorder technology, because it focuses on a licensing model applied to the automotive indus-try. Table 3 in the competitor analysis section showcases RadioNow’s unique position.

Business ModelAfter its intellectual property is sufficiently protected by patents, RadioNow will demonstrate itsdigital audio recorder technology to stereo and automobile manufacturers by leveraging its con-tacts in these industries. It will generate revenue by licensing its technology to car stereo man-ufacturers, who will ultimately acquire the necessary components, build the DAR-equipped carstereo, and sell it to partner auto makers. RadioNow will receive a royalty of 10% based on thecar stereo manufacturer’s revenues from the selling of stereos containing RadioNow’s digitalaudio recorder technology.3

Future designs for the DAR technology include full integration with satellite radio. Additionally,the team will focus on developing components that are highly interoperable with personal com-puters and other handheld devices, primarily through USB, infrared, or wireless (802. 11B/G)connections. The next product iteration will include increased support for various file formats,such as WAV, WMA, and even video formats containing audio. On-the-fly burning capabilitiesand recording to memory cards are other enhancements for future products.

RadioNow will also have the opportunity to add new revenue streams by expanding into thehome stereo segment of the industry. This could be done by licensing its technology to majorconsumer electronics manufacturers, such as Sony and Panasonic, who make stereo receiversand radios that can be used either at home or at work.

Industry Analysis

Industry SummaryInnovations in microprocessor technology and advances in car stereo design have led to to-day’s state-of-the-art audio systems. In this highly competitive sector of consumer electronics,missing out on the next big trend can be a fatal mistake.4 Car audio technologies that con-tribute to drivers’ and passengers’ in-car entertainment experience are growing in demand. The

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industry has seen a rise in new in-car technologies, such as DVD and MP3 players, but nocompany to date has offered digital audio recording functionality in any of its product lines.

Industry OverviewThe car entertainment industry is a multi-billion dollar industry that, after much stagnation, is inthe midst of a revival.5 Based on the total number of new-car sales in 2003, 8,103,000,6 Ra-dioNow estimates the premium audio segment of this industry at about $1.2 billion.7 The after-market car stereo industry, a subset of the car entertainment industry, has been shrinking. Rev-enue during the 12-month period that ended in March 2004 was about $460 million, down from$490 million during the same period in 2002 and 2003. Revenue from March 2001 to March 2002was $540 million.8 Car manufacturers are largely to blame because the stereos they pack intocars are more integrated into the rest of the car than ever before. Many recent models, for exam-ple, incorporate the stereo’s controls (volume, tuner, source-select) into the steering wheel forsafe, one-touch control of the stereo. Owners of such cars rarely purchase an after-market stereobecause it would jeopardize the dash’s structural integrity and aesthetic fluidity.

Users who once demanded only loud, good-quality sound from their systems are now demand-ing feature-rich products that provide a more compelling in-car entertainment experience.9

That is, consumers now focus less on after-market car stereos and more on products that in-crease the joy of being in the car. This can be seen by the rise in DVDs and video game con-soles being installed in automobiles.10 As cities become more crowded, the traffic worsens,thereby increasing commute times and subsequently the amount of time spent in the car.

Consumers are starting to favor more advanced features, such as MP3 players and satellite ra-dio. Although MP3 playback capability and satellite radio currently have limited market share inthe automotive industry, the technologies are poised for significant growth in the near future, aJD Power and Associates survey said. The report found that although only 3% of consumerscurrently have MP3 playback capability in their current vehicle, 75% of those consumers indi-cate that they “definitely” or “probably” want the technology in their next vehicle. Similarly, only11% of consumers currently have satellite radio, but 73% of those consumers want the featurein their next vehicle. The AM/FM/single-CD player is the most popular audio system configura-tion on the market today, representing 34% of all factory-installed audio systems in 2004.AM/FM/cassette/single-CD players, the most popular system in 2003, with 32% market share,dropped to 26% in 2004. AM/FM/multi-CD changers, which took just 1% of the market in 1998,are now the third-most-popular system, with 18% market penetration.11

Future Trends in Car AudioIndustry experts predict that the demand for car electronics will grow. The MP3 revolution hasmanufacturers scrambling to incorporate MP3 playback into its components (BMW has recentlypartnered with Apple to support iPod).12 Meanwhile, no products have attempted to reproducethe Digital Video Recorder phenomenon, launched by TiVo and ReplayTV. Until recently, thetechnology to produce such a product economically did not exist. Modern digital audio com-pression and decompression algorithms, more commonly referred to as codecs, and micro-processors are able to provide stereo head units with more computational power than ever be-fore. RadioNow believes this will lead to the introduction of more advanced car stereos thatprovide higher levels of interoperability with other electronic components and seamless filetransferring.

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A62 APPENDIX

Competitor AnalysisCompetition to RadioNow exists in two forms: direct competition from companies planning onproducing a product similar to what RadioNow will produce; secondary competition from hand-held devices and computer software that have integrated digital audio recording capabilities.

On-Demand Audio: On-Demand Radio is a car stereo that gives listeners the ability to tune to,record, and listen to content from AM or FM radio stations. Additionally, with On-Demand Au-dio's patent-pending SongSurfer technology, recorded radio content behaves as a CD does, al-lowing users to skip from song to song or to skip past ads. This company has an exclusive li-cense to produce products based on the patent owned by Pause Technology. This product isnot yet on the market but will be available to consumers in the first quarter of 2005.13

Radio Your Way: Radio Your Way by Pogo Products is a handheld digital radio and MP3 playerthat incorporates VCR-like technology, but cannot pause and continue live broadcasts. It has aUSB interface that allows users to connect with their computers for transferring digital files.14

RadioSHARK: RadioSHARK by Griffin Technology adds an AM/FM radio to Macs or PCs andcan record any AM or FM radio broadcast in real time. It can record a scheduled show or“pause” live radio through Time-Shift Recording. RadioSHARK includes an application that con-trols all radio and recording functions. Any recorded broadcast can be transferred to an iPod oranother AIFF-compatible digital music player for replay.15

Table 3 – Feature Comparison16

Supports VCR-Head Unit Computer File Time-Shift Like

Company Product Replacement Transfers Capability Control

Gotuit Audio On-Demand Audio X X X XGriffin Technology RadioSHARK X XPogo Products! Radio Your Way X XRadioNow RadioNow Recorder X X X

Despite this competition, RadioNow is uniquely positioned in the industry because it is the onlycompany that sells its technology as a building-block component. RadioNow believes its prod-uct is sufficiently different from those of Pogo and Griffin Technology and will, therefore, serve adifferent market.

There are no digital audio recorders for the automobile currently on the market. RadioNow andOn-Demand Audio, the greatest source of competition to RadioNow, are the only two compa-nies that are actively developing products to be used in automobiles. Barriers to entry, however,are low because advances in technology have made storage, memory, and analog-to-digitalprocessors readily available and affordable. New entrants or established car stereo manufac-turers could develop unique, competing technology.

Market Analysis

Market SummaryAny car stereo manufacturer who believes that giving consumers more control over radio con-tent will result in higher unit sales is a potential RadioNow customer. RadioNow’s target market,however, is car stereo companies that have strong and mature relationships with large automo-

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bile manufacturers, such as Toyota, GM, and Nissan. The first customers will be achieved byleveraging industry contacts that RadioNow has established at Toyota and Alpine-USA.

Target Market AnalysisRadioNow’s reason for targeting car stereo manufacturers with strong ties to the automotive in-dustry is twofold. First, the market for car stereos that are bundled with automobiles is fargreater than the after-market car stereo market, as shown in Figure 1. This includes eitherstereos purchased through OEM channels or premium audio package upgrades. Second, Ra-dioNow’s research showed that sales of after-market stereos are declining and are not ex-pected to return to sales highs of the 1990s. Today’s automobile purchasers are less likely toremove the stereo that originally came with the car and replace it with an after-market brand.Little marketing emphasis will be given to car stereo manufacturers, such as Clarion and Ken-wood, that cater solely to the after-market industry.

Figure 1 – Premium Branded Audio Purchase Preference17

RadioNow can further segment its target market by focusing on those car stereo manufacturersthat supply premium stereos, which come standard in luxury cars and are typically included inpremium audio packages for non-luxury cars. Table 1 above lists the target customers andmatches them with their automotive partners. These players in the car audio market are highlyinterested in offering feature-rich packages that go beyond simply offering better sound. Thepremium audio packages available today include traditional upgrades such as better speakersand more sophisticated head units (e.g., multiple CD changers or DVD players), but many carmanufacturers have requested that their audio partners include newer technologies, such asMP3 players and audio hard drives, in next-generation products as demanded by consumers.No premium packages on the market today offer digital audio recorder technology.

Primary Research – Methodology and ResultsRadioNow’s primary research first targeted its direct customer, car stereo manufacturers.Specifically, two car stereo manufacturers, Alpine and Pioneer, were approached to learn theiropinion on the value added by DAR technology. The product development managers from bothfirms stated that they were interested in seeing the results of the research and gave RadioNowinvitations to demonstrate the technology.

To be successful, however, RadioNow will also have to convince automobile and car stereomanufacturers that consumers find value in, and would pay extra for, a system enhanced bydigital audio recorder technology. RadioNow addressed this by administering a product surveythat polled a random audience for their opinions of this technology. All other contacts in thefounders’ personal and business address books were selected to receive the survey. Of the

Either One,

31.40% Vehicle

Manufacturer,

55.80%

Aftermarket,

12.80%

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A64 APPENDIX

127 people who were solicited for input, 96 responded. The survey consisted of eight questionsthat gradually moved from questions about demographic data to questions related to learningthe value of the technology to the consumer. This was done intentionally to minimize bias. Sur-veyMonkey was used to administer the survey online. The favorable results justified digital au-dio recorder technology as a compelling feature desired by consumers. A summary of the sur-vey’s findings follows.

• 71% of the respondents would listen more frequently to certain radio programs if they werein the car more often during the broadcast.

• 71% would like “TiVo-like” or “VCR-like” control over the radio.• 93% would use the technology to skip commercials• 83% would pay a premium to have RadioNow’s technology as part of the car stereo.• Participants under the age of 37 make up RadioNow’s customer profile, with males slightly

more likely to purchase a DAR-equipped stereo than females.

Distribution ChannelsRadioNow will execute on a two-pronged, push-pull distribution strategy that targets both carstereo and automobile manufacturers. Sales efforts will primarily focus on approaching carstereo manufacturers and convincing them to enter into licensing agreements for the use andresale of RadioNow’s technology. Additionally, auto makers will be engaged to help RadioNowunderstand the consumer desire for its technology and how this desire will translate into in-creased sales of premium audio packages to the manufacturers. The auto makers have thebuyer power and, if sufficiently compelled by RadioNow’s technology, can easily commission itsstereo suppliers to produce a head unit equipped with digital audio recorder technology.18

The licensing model chosen by RadioNow minimizes capital outlay and financial risk and allowsit to operate with low fixed and operating costs. On-Demand Audio, RadioNow’s largest competi-tor, has chosen to vertically integrate and produce a complete car stereo head unit. This signifi-cantly increases the amount of capital required to fund their operation, it but opens the door tolarger profits if there are substantial unit sales. Furthermore, RadioNow believes that consumersare less likely to switch to an unknown head unit brand, such as On-Demand Audio, that hasDAR technology, than to a known brand, such as Alpine, that is equipped with DAR.

Entry Strategy Backed by patents to protect its intellectual property, RadioNow will directly market to a nichemarket of car stereo and automobile manufacturers to gain customers in its target market. Ra-dioNow will first pursue Toyota and Lexus in order to secure licensing agreements with their au-dio component partners, Panasonic, JBL, and Marc Levinson. The choice to go after Toyotaand Lexus first was based on where the industry contacts were strongest. RadioNow willdemonstrate to Toyota the value proposition of DAR technology and the ease with which thetechnology can be integrated into car stereos and, in turn, Toyota’s automobiles.

Table 4 — Pricing19

Company Product Price

Gotuit Audio On-Demand Audio NAGriffin Technology RadioSHARK $69.99Pogo Products! Radio Your Way $149.99RadioNow RadioNow Recorder Licensing fee = $10 per unit sold

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Product Analysis

Product SummaryDAR technology is the future of radio listening. It allows users to have complete control overtheir radio listening, enabling them to skip portions of broadcasts they do not like, pause thebroadcast and play it later, and replay their favorite programs or songs.20

Product Description and FeaturesThe digital audio recorder, developed by RadioNow, Inc., consists of a series of off-the-shelfcomponents. These include a power supply, microprocessor, analog-to-digital converter, andnon-volatile memory system (flash memory cards).21 The DAR continuously records AM/FMradio signals from one or more broadcasts and stores them in the associated memory banks.The microprocessor then accesses the stored media according to user preferences. In effect,this system allows the on-demand playback of any radio station or signal at any time, giving theuser VCR-like control over his or her radio.22 Figures 1 and 2 of Appendix A depict the flow ofaudio traffic to a car stereo listener.

Technology AssessmentThis technology showcases the convergence of mobile technologies with component interoper-ability.23 Digital recording allows users to record programs from a live source to a storagemedium for on-demand playback. A DAR is a device that converts a radio feed to a digital au-dio file that is then stored on a hard drive. Users interface with their catalog of recordingsthrough software that has been written onto read-only memory, otherwise known as firmware.24

Many radio programs have set schedules and program times. For example, National Public Ra-dio has a program called “Marketplace” that airs every day at 2:00 p.m.25 This program is of in-terest to many listeners who normally would be at work during this time. With the DAR, listen-ers could very easily have the program automatically recorded and play it back on their wayhome from work.

An added benefit of the DAR is that it allows users to skip commercial breaks and programs orsongs that are not of interest. The skip intervals will be such that they skip in “commercial” in-crements (60 seconds), “song” increments (2–3 minutes), or “program” increments (30 or 60minutes). These skip options will be complemented by a general set of standard review optionssuch as fast-forward, rewind, and pause.

Design and Prototyping PlanDesign of the DAR has been completed on a rudimentary level, and electrical engineers willbegin work on an actual prototype starting in January 2005. Functional specifications will becompleted first, and the subsequent timeline is included as Appendix E. A block diagram of thecomponents and their interactions is included as Figure 1 of Appendix A. A simple design ofthe on-demand audio interface is provided as Figure 2 of Appendix A. A working prototype isexpected to be completed by March 2005. The prototype will consist of an actual head unitequipped with DAR technology that can be displayed to potential customers.

RadioNow is currently seeking engineering consultants from the University of Southern Califor-nia faculty to aid in the development process.

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A66 APPENDIX

Timeline to CompletionPrototype completion is expected to occur in January of 2005. A complete timeline of productlaunch is provided in Appendix E.

Intellectual-Property AcquisitionThe team has consulted with two patent attorneys, Marshall Lerner and Fin Simmensen ofKleinberg and Lerner, LP, an intellectual-property attorney firm. A provisional patent will be ap-plied for, and existing patents will be researched further. Currently, the most notable patent, thePause patent (RE 36,801), is being evaluated as a similar patent but with different premises ofDAR.26 The tray of memory banks concept developed by RadioNow significantly differentiatesits technology from the technology described in the Pause patent. The team expects to applyfor a full patent within one year of issuance of the provisional patent.27

The team will also explore the possibility of trademarking the name “RadioNow.”

Founding Team

QualificationsThe team is highly qualified to pursue this project. Both Daniel Bohm and Samit Varma are at-tending the USC Marshall School of Business MBA program, where they have learned all as-pects of business administration, including operations, finance, and marketing. Additionally,Daniel Bohm has worked in five successful start-up companies and has the management andexperience to lead RadioNow, Inc. He also has a significant computer programming and re-search-and-development background that allows him to fully manage the development of acost-effective and powerful microprocessor that controls all functions of the DAR. DanielBohm’s résumé is included as Appendix C. Samit Varma has an extensive engineering back-ground that includes electrical, mechanical, and nuclear. He has led and managed a 2 billiondollar nuclear submarine as the fifth most senior man and has since founded and managed astart-up technology company. Samit Varma’s résumé is included as Appendix D.

Critical Task AssignmentsDaniel Bohm will be responsible for marketing and business development. He has several con-tacts at Toyota USA and will be using them to get access to OEMs and others in the car stereobusiness. Samit Varma will be managing the product development as well as conducting busi-ness development. He teaches undergraduate engineering classes and will have access toUSC staff and faculty to help develop the working prototype. Samit also has a contact at AlpineUSA that has currently agreed to consider the DAR as an additional feature to their existing indash components.

Gap AnalysisThe team is actively seeking an electrical engineer to aid in the development of a working pro-totype. The team also has been consulting with Marshall Lerner, Esq. for intellectual-propertyissues.

8

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Financial Plan

Financial SummaryUsing sales assumptions and demand estimates obtained from primary market research, Ra-dioNow will show positive cash flow in year 3. A cumulative cash balance of $706,600 will result atthe end of year 3. EBIT for the first three years will be ($63,600), ($90,450) and $847,100, respec-tively. This is largely because the first sale is not made until year 2. Initial start-up capital requiredwill be $150,000, which includes a $60,000 safety buffer. The break-even point will be 18 monthsafter launch, in June of 2006, after 15,000 units have been sold. DAR will be introduced in a singlemodel line first and then will gradually be adopted by other automobile lines.

The financial plan for RadioNow is predicated on several key points. First is that no new salesare expected to be made until January of 2006. Due to the nature of the industry, changes topremium sound packages will not be online until the 2007 model lines are available. With a pro-totype not ready until March, RadioNow estimates that it will be an additional six to ninemonths before the first sale can be finalized. The delay in the first sale adds significantly to themaximum negative cash balance, as shown in Appendix E. Next, the adoption of DAR technol-ogy is expected to mimic that of other, similar technologies. Typically, the introduction of a newtechnology, such as DAR, begins with one vehicle model and spreads to others if adoption ishigh or consumer reaction to the new technology is favorable. This phenomenon is modeled inthe pro forma income statements shown in Appendix D.

AssumptionsLine Item1. Units Sold—As an industry standard, royalties are charged on a per-unit basis, and

therefore it is necessary to track total unit sales. The technology is to be adopted byone model line in the beginning, the Lexus SC430. This model was chosen be-cause, based on consumer preferences, it has the highest likelihood of adoptingDAR technology. To attain unit sales, RadioNow first took the total number of salesfor the Lexus SC430 and multiplied it by 55%, which reflects the number of con-sumers who purchased the premium audio package.28 This number was then allo-cated over the yearly cycle based on historical cyclicality consistent with the SC430sales.29 This first sale is predicted to occur in January of 2006. The next model lineto adopt DAR is the Lexus GS300, which happens in the second quarter of 2006.Again the same methodology was used to calculate unit sales. RadioNow predictsthat in January of 2007, the entire Lexus line, as well as a new Infiniti sports line,will have DAR included in their premium sound package. The number of Lexus pre-mium audio packages sold equals the number of royalty payouts RadioNow will re-ceive from Mark Levinson. Similarly, RadioNow will receive royalties from Bosebased on the number of premium audio packages sold by Infiniti.

2. Total Units—A numerical summary of all unit sales from individual model lines.3. Total Revenue—This was calculated by taking the total unit sales and multiplying it

by the licensing fee charged by RadioNow of $10.00. $10.00 was arrived at by con-ducting a survey of end-users. 25% of the average car stereo price of $200 was

9

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A68 APPENDIX

$50, which is $50 more than could be charged for the premium sound package. In-dustry standards allow a 20% margin for the licensing fee, which equals $10.00.

4. Patent—A numerical sum of line items 5 and 6.5. Filing—Included in filing is all the time required to prepare the paperwork that

needs to be filed with the USPTO. This is estimated to be $3000 a quarter, withan initial write-up fee of $5000. The $3000 covers continual amending and “tight-ening” of the patent. The filing fee increases to $5000 in January 2006, becausethis is when the actual patent file is submitted to replace the provisional patent,which only lasts one year.30

6. Legal—It has been determined that this industry is highly litigious among com-petitors including Tivo, Pause Technology, and iPod, as well as in other industriessuch as radio broadcasting, satellite radio, and others.31 To provide RadioNowwith security, an attorney will be retained. Estimated costs for the attorney includean initial charge of $10,000 as well as $2000 a month increasing by $2000 amonth every year as the patents and technology get further developed.

7. Development—An initial charge of $15,000 is provided for building the first proto-type of the technology. Thereafter, Research and Development is given as 20% ofsales on a continuing basis.

8. Sales—A numerical sum of line items 9 and 10.9. Travel—The travel expenses incurred by the founders will not be much because

we are targeting Toyota, which is located in Torrance, and Alpine USA, which isalso located in Torrance, CA. The travel budget is maintained at $1000 a month.

10. Commissions—Commissions are the only way that sales staff is compensated forthe first three years. Commissions are therefore a hefty 15% of sales.

11. General and Administration - A numerical sum of line items 12, 13, and 14.12. Equipment—$5000 at the beginning of every year, to include two computers for

the founders/sales staff as well as office supplies.13. Rent—No rent will be charged because the company plans to use home offices

to begin with. In July 2005, as the prototype is completed and the sales effort in-creases, a 1000-square-foot office space will be leased for $2000 a month.

14. Utilities—This includes high-speed Internet access, phone bills, etc. This expensewill be $200 a month for the home office and then jumps to $400 a month oncethe office space is leased.

Cash Needs Assessment and Break-Even AnalysisIn order to start RadioNow, Inc., an initial investment of $150,000 will be needed. The highestnegative cash balance will occur in year 2 at (90,000). To this a $60,000 safety factor is added.The safety factor is two-thirds of the maximum negative cash balance to provide a buffer tohandle any unexpected additional legal costs that may arise in this highly litigious industry.

Monthly pro forma income statements for the first three years are provided as Appendix F, and theyearly cash flow statement until the time when cash flow is positive is provided as Appendix G.

10

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In order to break even, the firm will need to overcome the initial investment of $150,000. Ra-dioNow earns a 10% royalty on an average price of $100 ($10 per unit sold) and thus will needto sell 15,000 units to break even. This occurs in June of 2006.

Timeline to Launch

The complete timeline of activities leading up to RadioNow’s launch is given in Appendix E.The company intends to begin aggressive sale of its digital audio recorder technology in Au-gust of 2006 after the prototype is complete.

11

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A70 APPENDIX

Endnotes

1. Novak, Anthony (October 2004), Toyota Motor Sales. Product and Planning Divi-sion.

2. Lamm, Greg (June 25, 2004). Car Toys Sees After-market Electronics DemandShrink. Business Journal from http://www.bizjournals.com/seattle/stories/2004/06/28/focus3.html?jst=s_rs_hl.

3. The 10% royalty rate was calculated based on standard industry margins in thecar audio space as observed and reported to us by Toyota Motor Sales.

4. Macpherson, Sholto (August 31, 2004). Hard-drive hi-fi. Australian IT fromhttp://australianit.news.com.au/articles/0,7204,10594483%5E15841%5E%5Enbv%5E,00.html.

5. Staff (2004). The Basics of Factory-Installed Sound Systems. MSN Autos fromhttp://autos.msn.com/advice/article.aspx?contentid=4021174&src=News.

6. http://www.bts.gov/publications/national_transportation_statistics//2003/html/table_01_16.html.

7. Market size computation: Total number of new-car sales in 2003 was 8,103,000.Based on market research, the average number of new cars sold with premiumsound packages was 30%, and the average price for a premium sound packagewas $500.00. Using the equation 8,103,000 * .30 * $500 yields a total market sizeof 1.2 billion.

8. Lamm, Greg (June 25, 2004). Car Toys Sees After-market Electronics DemandShrink. Business Journal from http://www.bizjournals.com/seattle/stories/2004/06/28/focus3.html?jst=s_rs_hl.

9. Buckley, Patrick (10/28/2003). Market Getting Serious About Interfaces. Car Au-dio Resources from http://www.caraudioresources.com/content/audio_news/45/1.

10. Hallauer, Thomas (2004). Telematics Update from http://www.telematicsupdate.com/ces2005.

11. just-auto.com (11/19/2004). USA: Significant Growth Predicted for MP3 Playersand Satellite Radio.

12. Apple (2004). Retrieved on 10/1/2004 from http://www.apple.com/ipod/bmw.13. On-Demand Audio (2004). Retrieved on 11/05/2004 from http://www.gotuit

.com/audio.14. PogoProducts (2004). Retrieved on 10/7/2004 from http://www.pogoproducts

.com/radio_yourway.html.15. Griffin Technology (2004). Retrieved on 10/7/2004 from http://www.griffintechnol-

ogy.com/products/radioshark.16. Features matrix compiling using information from respective vendors’ websites.17. Toyota Motor Sales (October 15, 2004). Premium Audio Research.18. Chan, Emily (2004). Toyota Motor Sales. 10/11/2004.19. Prices, when available, were taken from respective vendors’ websites.20. Batista, Elisa (May 2003). A TiVo Player for the Radio. Wired News from

http://www.wired.com/news.

12

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21. Salkever, Alex (November 2004). The Word on the Next iPod: Flash. BusinessWeek Online, Retrieved November 14, 2004 from http://www.macnewsworld.com/story/38051.html.

22. Buckley, Patrick (2003). Market Getting Serious About Interfaces. Car Audio Re-sources. Retrieved on September 28, 2004 from http://www.caraudioresources.com/content/audio_news/45/1/.

23. Memmer, Scott (n.d.). Retrieved on September 28, 2004, from, MSN News andAdvice at http://autos.msn.com/advice/article.aspx?contentid=4021174&src=News.

24. Indiana University Knowledge Base (June 2004). Retrieved November 2, 2004,from http://kb.indiana.edu/data/ahtw.html?cust=4.

25. NPR schedule of programming (November 2004). Retrieved November 18, 2004,from http://www.npr.org/audiohelp/progstream.html.

26. Logan, James (1996). Time delayed digital video system using concurrentrecording and playback. US patent number RE36,801 granted August 1, 2000.

27. United States Patent and Trademark Office (USPTO: October 2004). ProvisionalPatent Application received on November 6, 2004, from http://www.uspto.gov/web/offices/pac/provapp.htm.

28. Novak, Anthony (October 2004). Toyota Motor Sales. Premium Audio Informationppt. October 14, 2004.

29. AutoFan (2004). New Toyota and Lexus Products Fuel Strong October Sales. Aut-ofan.com Explorer of the auto world. Retrieved on November 3, 2003, fromhttp://www.autofan.com/newsdetail.asp?id=807&mn=11&yr=2003.

30. United States Patent and Trademark Office (USPTO October 2004). ProvisionalPatent Application received on November 6, 2004, from http://www.uspto.gov/web/offices/pac/provapp.htm.

31. Haley, Colin (October 4, 2001). Pause Sues TiVo Over Patent. BostonInternet.com, Retrieved on November 1, 2004, from http://boston.internet.com/news/article.php/2001_897481.

13

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A72 APPENDIX

14

g g

AM/FM Receiver

Signal Antennae

Memory – Bank 1

Digital Audio Converter

CPU/ROM

Memory – Bank 2

Memory – Bank 3

User Interface

- Pause/resume

- Record

- Play file

Signal

AM/FM Receiver

Appendix A – Digital Audio Recorder Technology and Prototype

Figure 1. Digital Audio Recorder Schematic

Figure 2. Prototype Car stereo head unit with Digital Audio Recorder

45561_AP_pA53-A82 6/1/05 5:02 PM Page A72


15

Appendix B — Questions Used in Customer Survey

What is your sex?

Male 36 37.50%Female 60 62.50%

Are you older or younger than 37?

Older than 37 17 17.71%Younger than 37 79 82.29%

Have you ever purchased an after-market car audio system?

Yes 42 44.21%No 53 55.79%

If you have purchased an after-market car audio system, how much did you spend for the head unit only?(Do not include the cost of installation, speakers, or amplifiers.)

Does not apply 45 53.57%� $99 1 1.19%$100–$150 8 9.52%$151–$200 11 13.10%$201–$300 12 14.29%� $301 7 8.33%

Are there radio programs (talk or morning shows, sporting event broadcasts, etc.) you would listen but oftenmiss because you are not in the car while the program is broadcasted?

Yes 68 70.83%No 28 29.17%

Would you like to have "TiVo-like" control over the radio?

Yes 67 70.53%No 28 29.47%

If you had the ability to fast-forward or skip within a radio program, would you use this feature primarily toskip commercials?

Yes 89 92.71%No 7 7.29%

Consider two car stereos that generally look and function the same except for the fact that one stereo has"Tivo-like" functionality (record, on-demand playback, skip/fast forward/rewind/pause) built into it. What is themost you would be willing to pay for the stereo equipped with Digital Audio Recorder technology?

I would not pay extra for this feature 16 17.39%1%–10% extra 21 22.83%11%–20% extra 34 36.96%21%–30% extra 14 15.22%31%– 50% extra 4 4.35%more than 51% extra 3 3.26%

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A74 APPENDIX

Appendix C — Résumé of Daniel Bohm

DANIEL BOHM

Experience2003–Present FRONTBRIDGE TECHNOLOGIES, Marina Del Rey, CA

Senior Sales EngineerLead sales engineer in all enterprise deals, providing expertise in message management,e-mail security, and regulation compliance.• Closed 2-year, $1.5 million deal, the largest of 2004. Organized response to largest,

most detailed RFP/RFQ in company’s history.• Grew sales of the VeriSign OEM partnership by $85K in monthly reoccurring revenue in

6 months, faster than any other channel.• Lead product review and requirement meetings with customers.• Host monthly training for sales team of 24 on industry trends and new product and ser-

vice enhancements.

2002–2003 WILTEL COMMUNICATIONS, Tulsa, OKSenior Manager, Project ManagementLed the combined operations teams of 26 people after the iBeam acquisition to consoli-date both WilTel and iBeam’s products and services, saving $10 million annually.• Managed key accounts during transition, such as BellSouth and MTV, and attained post-

merger client retention goals by hosting technology review sessions for top 15 cus-tomers.

• Migrated iBeam’s core web applications to the J2EE platform, adopting the Rational Uni-fied Process for new software development efforts.

• Improved operational performance by increasing the number of metrics tracked from 12to 63. Authored escalation, outage resolution, and disaster recovery documents.

1999–2002 IBEAM BROADCASTING (acquired by WilTel Communications—2001), Sunnyvale, CADirector, OperationsDirected 22 people with a $3.2 million budget and led the team managing an $8 million in-frastructure budget. Complete ownership of industry’s largest content delivery network ofover 200 servers and network devices, delivering 2.2 Gbps of data from 5 data centers.• Led technology and network architecture discussions with WilTel, resulting in their deci-

sion to first invest in and, ultimately, acquire iBeam.• Improved network reliability from 96% to 99.92%, exceeding the highest customer ser-

vice level agreement by 0.2%, during 45% traffic increase and customer expansion.• Spearheaded pre-sales and account management of large accounts, such as Viacom,

NFL, and Sony.• Introduced “Daily Dashboard” to deliver key operational metrics to executive staff.Senior Manager, Network AdministrationManaged an operations team of 10 to administer content delivery network.• Decreased the number of escalations to engineering and empowering the team to han-

dle 90% of all customer-affecting issues.

16

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1997–1999 INTERVU, INC. (acquired by Akamai Technologies), San Diego, CAManager, Research and DevelopmentFocused group of 7 on software development, QA, documentation, and deployment.• Developed 5 new automation utilities, including the industry’s first stream monitoring and

Windows Media server administration software, based on Visual Basic, IIS, SQL, andASP.

Senior Web DeveloperIntegrated client’s web applications with Intervu’s distributed content delivery network.

Education 2003–2005 UNIVERSITY OF SOUTHERN CALIFORNIA, MARSHALL SCHOOL OF BUSINESS, Los Angeles, CA

Master of Business Administration. Dean’s list.

1992–1997 UNIVERSITY OF CALIFORNIA, SAN DIEGO, La Jolla, CABachelor of Science in Cognitive Science. Minors in Psychology and Music. Dean’s list.Ski and Snowboard Club Officer of Recruitment.

AdditionalInformation Awards and Bonuses: Retention Bonus (WilTel), Transition Bonus (iBeam), Leadership

Award (Intervu). Taught competitive swimming and water polo to 7th and 8th graders. Con-versational Romanian and basic Spanish. Enjoy freshwater fishing, golf, surfing, and free-diving for lobsters.

17

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A76 APPENDIX

Appendix D — Résumé of Samit Varma

SAMIT K. VARMA

EXPERIENCEUNIVERSITY OF SOUTHERN CALIFORNIA Los Angeles, CAASSISTANT PROFESSOR OF NAVAL SCIENCE/ 2003–PresentRECRUITING OFFICER

• Revamped and completely turned around the Nuclear Officer recruiting program. Ex-ceeded goal by over 400% per year. 100% success rate in preparing new candidates forpassing interviews.

• Negotiated and achieved several new incentives to aid in the recruitment of top Nuclearcandidates.

LIEUTENANT, UNITED STATES NAVY Kings Bay, GANUCLEAR SUBMARINE OFFICER 2000–2003USS NEBRASKA SSBN-739

Analysis and Process Improvement• Identified, evaluated and corrected areas that needed improvement in the submarine’s

radiological controls program which allowed NEBRASKA to meet increasingly strict envi-ronmental requirements. This program was implemented as the model for the entire At-lantic Submarine Fleet.

• Redesigned shipboard firefighting plan, which increased efficiency of personnel andsaved money in equipment maintenance and labor hours.

Leadership and Project Management• Served as Assistant Engineer and supervised the operation of all mechanical, electrical,

nuclear, and chemical activities of the S8G Pressurized Water Reactor Plant.• Led 40-person cross-functional team in daily operation of $2.0 billion nuclear submarine.• Directed a team of 25 technicians through an intense engineering overhaul and dry dock

period to complete maintenance 10% ahead of schedule and in full compliance withstrict Environmental Protection Agency guidelines. Performed flawlessly on EPA, unan-nounced, inspection.

• Made critical technical decisions under pressure as the 5th most senior man on board toensure safety of ship and its 160 crewmembers.

AWARDS/CERTIFICATIONS • Selected Junior Officer of the Year, 2002, from over two hundred officers based on ex-

cellent leadership, planning, management, initiative, personal moral and ethical stan-dards, and attention to detail.

• Ranked #1 of 110 junior officers in Submarine Squadron Sixteen and #1 of 11 junior offi-cers on USS NEBRASKA.

• Described by the Commanding Officer with over 20 years experience, as “the finest Ju-nior Officer with whom I have ever served.”

• Awarded three Navy Achievement Medals for technical and leadership excellence.• Qualified Engineer Officer on Naval Nuclear Power Plants.

18

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EDUCATIONUNIVERSITY OF SOUTHERN CALIFORNIA Los Angeles, CAMasters in Business Administration, Candidate, 3.74 GPA August 2003–Present

NAVY NUCLEAR PROPULSION PROGRAM Charleston, SCMaster of Science Equivalent, Nuclear Engineering 3.1 GPA January 2000

UNITED STATES NAVAL ACADEMY Annapolis, MDBachelor of Science, Mechanical Engineering 3.1 GPA May 1998• Graduated with Merit (top 15%)• Innovative Senior Project on Drag Reduction researched by the Naval Warfare Research

Center.

19

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A78 APPENDIX

Appendix E – Timeline to Launch

20

Jan Feb Mar Apr May Jun Jul Aug

Feasibility Analysis

Funding

Prospect investors

Negotiate terms of contract

Sign contract

Business Plan

Research

Data analysis

Prepare and review

Execute business plan

Incorporate RadioNow File incorporation application

Operating agreement

Articles of incorporation

Establish Virtual Office

Secure 800 number

Route number to cell

Obtain PO box

Marketing Materials

Create collateral

Register domain name

Develop website

Prototype Development

Functional specifications

Hire engineers

Design specifications

Review specifications

Develop prototype

Prototype QA

Provisional Patent

Circuit and timing diagrams

Retain IP lawyer

File patent application

Jan Feb Mar Apr May Jun Jul Aug

45561_AP_pA53-A82 6/1/05 5:02 PM Page A78

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0$2,4

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0$2,4

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0$2,4

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0$2,4

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0$7,5

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$5,0

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0$0.0

0$0.0

0$0.0

0$0.0

0$0.0

0$2,0

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0$2,0

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0$2,0

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0$2,0

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0$2,0

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0$2,0

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0$2,0

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0$2,0

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0$2,0

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0$2,0

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0$2

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0$2,0

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014

Utilit

ies

$200.0

0$200.0

0$200.0

0$200.0

0$200.0

0$200.0

0$200.0

0$400.0

0$400.0

0$400.0

0$400.0

0$400.0

0$400.0

0$500.0

0$500.0

0$500.0

0$500.0

0$500.0

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500.0

0

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ost

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0$3,2

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0$3,2

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0$3,2

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0$8,4

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0$5,4

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0$5,4

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0$8,4

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0$5,4

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0$5,4

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0$10,3

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0$4,9

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0$5,5

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0$12,0

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0$15,2

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0$31,5

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21

Ap

pe

nd

ix F

—In

co

me

Sta

tem

en

t,M

on

thly

fo

r 3

Ye

ars

Not

e:T

hese

det

ails

can

be

view

ed o

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e st

uden

t web

site

at h

ttp: /

/col

lege

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co.b

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ess/

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45561_AP_pA53-A82 6/3/05 12:46 PM Page A79

A80 APPENDIX

Ap

pe

nd

ix F

– I

nc

om

e S

tate

me

nt,

Mo

nth

ly f

or

3 Y

ea

rs (

Co

nti

nu

ed

)

22

Jul-06

Aug-06

Sep-06

Oct-06

Nov-06

Dec-06

Jan-07

Feb-07

Mar-07

Apr-07

May-07

Jun-07

Jul-07

Aug-07

Sep-07

Oct-07

Nov-07

Dec-07

1000

1100

1100

1000

500

500

2000

2000

1500

1000

800

800

8000

8000

7000

12000

12000

13000

10000

10000

10000

10000

10000

10000

2000

1400

2300

1700

3000

2400

3100

3100

3500

2400

2200

2300

3000

3100

2600

2000

1300

1300

10000

9400

9300

13700

15000

15400

13100

13100

13500

12400

12200

12300

$30,000.00

$31,000.00

$26,000.00

$20,000.00$13,000.00

$13,000.00

$100,000.00

$94,000.00$93,000.00

$137,000.00$150,000.00

$154,000.00

$131,000.00

$131,000.00$135,000.00

$124,000.00

$122,000.00$123,000.00

$4,000.00

$4,000.00

$4,000.00

$4,000.00

$4,000.00

$4,000.00

$11,000.00

$6,000.00

$6,000.00

$6,000.00

$6,000.00

$6,000.00

$6,000.00

$6,000.00

$6,000.00

$6,000.00

$6,000.00

$6,000.00

$5,000.00

$4,000.00

$4,000.00

$4,000.00

$4,000.00

$4,000.00

$4,000.00

$6,000.00

$6,000.00

$6,000.00

$6,000.00

$6,000.00

$6,000.00

$6,000.00

$6,000.00

$6,000.00

$6,000.00

$6,000.00

$6,000.00

$6,000.00

$6,200.00

$5,200.00

$4,000.00

$2,600.00

$2,600.00

$20,000.00

$18,800.00$18,600.00

$27,400.00

$30,000.00

$30,800.00

$26,200.00

$26,200.00

$27,000.00

$24,800.00

$24,400.00

$24,600.00

$5,500.00

$5,650.00

$4,900.00

$4,000.00

$2,950.00

$2,950.00

$16,000.00

$15,100.00$14,950.00

$21,550.00

$23,500.00

$24,100.00

$20,650.00

$20,650.00

$21,250.00

$19,600.00

$19,300.00

$19,450.00

$1,000.00

$1,000.00

$1,000.00

$1,000.00

$1,000.00

$1,000.00

$1,000.00

$1,000.00

$1,000.00

$1,000.00

$1,000.00

$1,000.00

$1,000.00

$1,000.00

$1,000.00

$1,000.00

$1,000.00

$1,000.00

$4,500.00

$4,650.00

$3,900.00

$3,000.00

$1,950.00

$1,950.00

$15,000.00

$14,100.00$13,950.00

$20,550.00

$22,500.00

$23,100.00

$19,650.00

$19,650.00

$20,250.00

$18,600.00

$18,300.00

$18,450.00

$2,500.00

$2,500.00

$2,500.00

$2,500.00

$2,500.00

$2,500.00

$7,500.00

$2,500.00

$2,500.00

$2,500.00

$2,500.00

$2,500.00

$2,500.00

$2,500.00

$2,500.00

$2,500.00

$2,500.00

$2,500.00

$5,000.00

$2,000.00

$2,000.00

$2,000.00

$2,000.00

$2,000.00

$2,000.00

$2,000.00

$2,000.00

$2,000.00

$2,000.00

$2,000.00

$2,000.00

$2,000.00

$2,000.00

$2,000.00

$2,000.00

$2,000.00

$2,000.00

$500.00

$500.00

$500.00

$500.00

$500.00

$500.00

$500.00

$500.00

$500.00

$500.00

$500.00

$500.00

$500.00

$500.00

$500.00

$500.00

$500.00

$500.00

$12,000.00

$12,650.00

$9,400.00

$5,500.00

$950.00

$950.00

$45,500.00

$51,600.00$50,950.00

$79,550.00

$88,000.00

$90,600.00

$75,650.00

$75,650.00

$78,250.00

$71,100.00

$69,800.00

$70,450.00

$4,800.00

$5,060.00

$3,760.00

$2,200.00

$380.00

$380.00

$18,200.00

$20,640.00$20,380.00

$31,820.00

$35,200.00

$36,240.00

$30,260.00

$30,260.00

$31,300.00

$28,440.00

$27,920.00

$28,180.00

$7,200.00

$7,590.00

$5,640.00

$3,300.00

$570.00

$570.00

$27,300.00

$30,960.00$30,570.00

$47,730.00

$52,800.00

$54,360.00

$45,390.00

$45,390.00

$46,950.00

$42,660.00

$41,880.00

$42,270.00

$847,100.00

Not

e:T

hese

det

ails

can

be

view

ed o

n th

e st

uden

t web

site

at h

ttp: /

/col

lege

.hm

co.b

usin

ess/

alle

n/la

unch

ing

/4e

/stu

dent

s .

45561_AP_pA53-A82 6/3/05 12:46 PM Page A80


Appendix G – Cash Flow Statement, Year 1 to Positive Cash Flow

Year Number 0 1 2 3Operating Cash InflowsSales 0 0 293000 1494000AR 0 0 73250 373500Operating Cash OutflowsG+A 400 15600 30000 30000Sales 3000 $12,000 $55,950 $236,100Patent Fees 15000 $24,000 $48,000 $72,000

Discretionary OutflowsR and D 15000 $0 $58,600 $3,000 Equipment 5000 $0 $5,000 $5,000

Total Cash Outflows 38400 51600 197550 346100Total Cash Inflows 0 0 219750 1120500Net Change in Cash �38400 �51600 22200 774400Cumulative Cash Balance �38400 �90000 �67800 706600

23

45561_AP_pA53-A82 6/1/05 5:02 PM Page A81

45561_AP_pA53-A82 6/1/05 5:02 PM Page A82

feasibility study appendix - cengagecollege.cengage.com/business/allen/launching/4e/students/... ·...

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