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OZ Innovations
Business Plan
Prepared for: Marv Painter
Prepared by: Meahgan Sweet and Patrick Kolla
OZ Innovations Business Plan
December 2, 2011
Executive Summary
Oz Innovations is a digital gaming system developed by five leading graphic designers and
programmers. In conjunction with retired education planners they will collaborate to create
an innovative way of encouraging elementary and high school students to pursue academia.
Student enrollment in undergrad sciences is down, so to combat this void we at Oz
Innovations have developed a way to engage students through a method of playful learning.
The exciting feature of the game is that it will use cloud computing as its platform enabling
students from all over the world to use the system! Teachers can monitor the results in the
classroom as each student make their own player’s profile. In areas where individuals are
struggling the teacher can then plan their lessons accordingly to ensure that all concepts are
thoroughly understood.
Operations Plan
Our major capital investments will include our computers, furniture and fixtures, Research
and Development systems, and leasehold improvements. Our office space will be located on
Millar Avenue and will act as Oz Innovation’s primary headquarters for operations. The
office renovations will need to precede the hiring of more game developers who will be
responsible for initiating the next series of modules. As the games are finalized they will be
released onto the cloud server allowing students to have immediate access them. Our
product will be tested prior to its release. We will be monitoring student engagement and
how well the game stimulates their interest. Quality will be a fundamental success measure
as the company goes through its exponential organizational growth.
Human Resources Plan
The original six founders will be upgraded to thirty-six employees in year one and
progressively will max at 107 employees in the fifth year. The organizational structure has
two sections that will run in parallel, the technology and marketing departments. We will be
hiring more game developers each year to accommodate the growth that we will be
expecting. We will have a substantial number of games developed and in use by students at
the end of year five, when we plan on selling the company for $20,700,000.
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The company will be receiving council from two advisory boards and the Board of Directors.
The technology board will focus on the tech market and how we can capitalize on the
current trends. The general advisory board will also contain industry leaders, who will
focus on student development and education. Virtual learning is a trend that has been
discussed among school board districts for years. Consulting these educators will allow the
game developers to make alternations in the games to provide a greater learning
opportunity for the students playing the games. The Board of Directors will include finance
experts, accountants, lawyers, and other well-educated people who will offer insight to
enhance our profitability as we undergo such growth.
The Marketing Plan
Our initial module will be sold at $99.99 per school. The marketplace is large and
untouched by the gaming industry with 759 schools in Saskatchewan and 15,141
nationwide. There is competition from textbook providers that issue free game CDs at the
back of their textbooks. Also, Nintendo, Xbox, and any other console gaming system pose to
threaten our success. Our competitive advantage is that the games will be built and
supported by the student’s educators. Currently, we have a five-year contract underway
with the Saskatchewan Ministry of Education. We will use direct selling as our method of
promotions. This includes traveling to the provincial office and as well as teachers
conventions to demonstrate our product line. As we test our games with students we will
compile data which can be used in our marketing pitch to other provincial ministries.
Having evidence and student testimonials to support our claims will contribute to our sales.
The Financial Plan
As the company transitions from the current state of game development into full operations
in the year 2012, the company will need to acquire a equity investment of $3,000,000. The
incorporation of the company will also include the issue of one hundred shares to the
founding developers. These shares will be split and sold privately to generate enough equity
to finance the initial start-up costs. The ROI that we have used throughout our model is 35%
which is relatively high, but necessary due to the high risk of the venture. Projecting our
cash flows over five years, we could expect a net present value of $4,233,589 and a
substantial internal rate of return of 66.6%. These numbers will help to support our
venture’s feasibility.
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Table of Contents
Introduction ............................................................................................................................... 5
1.0
Industry Overview....................................................................................................... 6
2.0
Market Research .......................................................................................................... 8
3.0
Operations Plan............................................................................................................ 9
3.1 Organizational Structure ....................................................................................................... 10
3.2 Site Plan ....................................................................................................................................... 10
3.3 Building and Floor Plans........................................................................................................ 11
3.4 Work Plan .................................................................................................................................... 11
3.5 Quality Control .......................................................................................................................... 11
3.6 An Average Business Day....................................................................................................... 11
3.7 Supply Analysis ......................................................................................................................... 12
3.9 Describe the Capital Budget ................................................................................................. 12
3.10 What are the environmental limitations to production? ........................................ 13
3.11 Cost of Goods Sold for Manufacturing ............................................................................ 14
4.0 Human Recourses Plan ................................................................................................. 14
5.0 The Marketing Plan........................................................................................................ 16
5.1 The Marketing Mix ................................................................................................................... 16
5.2 Market Segmentation .............................................................................................................. 17
5.3 Targeting ..................................................................................................................................... 18
5.4 Positioning .................................................................................................................................. 18
5.4 Market Competitors................................................................................................................. 18
5.5 Marketing Expenses ................................................................................................................ 18
6.0 Financial Plan .................................................................................................................. 20
6.1 Working Capital Estimates .................................................................................................... 21
6.2 Capital Budget and Depreciation ........................................................................................ 21
6.3 Depreciation ............................................................................................................................... 21
6.4 Financing Budget ...................................................................................................................... 22
6.5 Debt Amortization Schedule................................................................................................. 22
6.6 Corporate Income Taxes ........................................................................................................ 23
6.7 Dividend Policy ......................................................................................................................... 23
6.8 Economic Forecast ................................................................................................................... 23
6.9 Management Information System ...................................................................................... 24
6.10 Financial Analysis (Feasibility and Financial Performance Assessment) ......... 24
6.11 Risk Analysis ............................................................................................................................ 26
References ................................................................................................................................ 27
Appendices ............................................................................................................................... 28
Appendix A:
Appendix B:
Appendix C:
Appendix D:
Industry Analysis ................................................................................................... 28
Operations ............................................................................................................... 29
Human Resources .................................................................................................. 30
Financials ................................................................................................................. 31
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Introduction
Mission Statement
Oz Innovations aims to provide supplementary learning resources for students and teachers
that parallels the education curriculum; and by doing so fostering a fun learning
environment that encourages the exploration of academia, particularly in sciences.
Objectives
The purpose of designing a science-based game for students is to increase the percentage of
undergrad enrollment in health sciences. The current void of science majors reduces our
potential for innovative research and development here in Canada resulting in outsourcing
employees from other countries.
The main priority for Oz Innovations initially is to develop a prototype that will impress the
Saskatchewan’s Ministry of Education. After trial tests and successful implementation of the
first module we will use the Saskatchewan results to influence the purchasing incentive of
other provinces. Engaging teachers and other educational professionals at workshops and
meetings will act as a push marketing strategy.
The success of the first module will determine how many additional modules will need to be
produced. The second stage of business operations should be assigned to creating more
modules and marketing the organization as the premier leader in innovative learning.
As identified in financial plan we plan to sell out after five full operational years in business.
It is essential that within those five years that we market effectively and make sales to
increase the value of the company.
Goals

To capture 60% of sales in Canada within our five years of operations (H)

Be recognized internationally as the leading innovator in educational programming
(M)

Sell the company after five years for a profitable price (H)

Be a hub for growth and innovation in the employment industry (L)
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
Increase the numbers of undergrad Health Science related majors (H)
Ranked according to: High (H), Medium (M) and Low (L) importance.
1.0 Industry Overview
1.1 High Expectations of Technology
In the online journal “How to sell in-class gaming” it discusses how teachers are teachers
are holding e-learning tools to a higher standard (2009). These EduGames must be
reviewed and tested to be effective before being administered in the classroom. Below are
the outlined prerequisites needed for an implementation.
a. Give teachers a metaphor that connects EduGames to something familiar.
In schools, EduGames are most closely related to lab work- hands-on time for
students to explore and use what they have learned elsewhere.
b. EduGames need to contain guidelines for classroom management.
Most teachers will need to understand how classroom management and
professional development will be addressed before they will agree to use
EduGames.
c. Teachers need to understand their role as content-area experts.
One of the biggest fears teachers have about using EduGames is that there is not
a role for them, which may lead to a loss of control in the classroom. Explaining
the teacher's role can alleviate their reluctance to try games.
d. Teachers need research and peer references.
A well-researched reference base is essential; it cannot be skimped on.
Educators assume that references are there for more traditional materials, but
newer, riskier products are naturally held to a higher standard.
e. EduGames need proof of efficacy.
One rarely hears school boards demanding to know how much textbooks are
being used and what results are being attained. Education technology is held to
a much higher standard- and particularly so cutting-edge technology.
f.
EduGames must be aligned to standards.
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Games present some challenges in this area because of the naturally
multidisciplinary nature of gaming, and because many of the skills they
[students] develop are not part of the core curriculum.
This article sustains the fact that the quality of our game will determine our success in the
education gaming industry. We will have to put extra emphasis on thorough product testing
before releasing our first module to public.
1.2 Undergrad Enrollment
As noted previously, one of our goals is to increase undergrad enrollment in science. Below
are the current enrollment stats collected from the University of Saskatchewan website.
Major
2008/2009
Microbiology
Microbiology
and
Biotechnology
2009/2010
2010/2011
2011/2012
114
33
26
12
17
6
4
4
5
10
13
19
5
13
14
174
178
163
164
Chemistry
175
168
175
159
Ag Business
141
160
168
184
Accounting
Civil
Engineering
237
237
240
239
293
292
300
294
English
378
384
373
377
Health Sciences
Crop Science
Biochemistry
and
Biotechnology
-
As evident in the chart students are less interested in science majors than other programs.
This could be assumed to be because of the presumed labor market post graduation. A fouryear science degree on its own does not provide the same level of job security, as does an
accounting or engineering degree.
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1.3 Stakeholders
Based on the above research of the education industry, we have determined the following
stakeholders to which will need to be considered as we plan our business.

Students who will be playing the game

Science foundations focused on the future of science education

Teachers and their demands

School boards and their budgets

Ministries focused on curriculum alignment

Advocates and special interest groups which have influence

Complementary companies that do not actually compete but would have an
interest in seeing the product reach production
2.0 Market Research
We decided to first examine how many schools are in the educational marketplace. By doing
so, we will determine whether our gaming product would be a viable venture to undertake.
The provincial numbers of schools are as follows:
Number of
Number of
Province
Students
Schools
Students/School
Yukon
4981
29
172
Manitoba
193071
1335
145
Saskatchewan
161216
759
212
Alberta
596498
1817
328
BC
549785
1622
339
NWT
9302
49
190
Nova Scotia
142304
434
328
New Brunswick
110288
326
338
NFLD/Lab
76763
278
276
Quebec
1233053
2809
439
Ontario
1995485
4903
407
Ontario (Private)
700
0
Nunavut
9354
6
1559
PEI
21562
74
291
Total
Western Canada
1500570
5533
Canada
5103662
15141
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The Canadian market is large enough to support our company and provide many years of
sustained business. Based on the above information we have determined that there are
enough schools in both Saskatchewan and Canada to pursue this gaming system.
Considering there are no direct substitutes for the product, we will plan on undertaking this
project.
We recommend the following:
1. Due to the fact that Oz Innovations aims to sell the company after five years, it is
best if we do not use direct selling to each school. This would be expensive and
inefficient given the desired timeframe.
2. We will need to hire several employees to ensure the company will have and remain
to have a strong service to the end consumer. Using cloud there will be less
bottlenecks, as servers are frequently the source of product failure.
3.0 Operations Plan
The concept is leveraging leading-edge technologies such as: digital animation, gaming,
web-based interactive and cloud computing technologies with science content providers at
the Graduate and PhD level, to help teachers and curriculum consultants to deliver learning
outcomes tied to the educational curriculum.
We have the technical and content providers and with curriculum advisor's guidance we
will develop content that is easily accessible on any computer or platform (playbooks, iPads,
PDA's, phones, etc.) and then tie the analytics required in the backend so the teachers can
monitor progress for each student. This would allow students to continue to explore
concepts out of the classroom and further learning at a young age.
With each year of operation we expect to learn new methods, which will improve our
efficiency. As the technological market changes on a daily basis, the way we are currently
designing our games will change before we sell our company. Software and hardware
upgrades will likely need to be made around the forth year which conveniently will be the
same year when we undergo our second capital investment.
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3.1 Organizational Structure
Oz Innovations will be incorporated to capitalize on the advantages of a corporation. The
goal is to use equity investors to finance the start up and growth of the company. It is easier
to split shares and issue shares in a corporation. The company goal is to increase sales and
grow the company rapidly until a point when the company is sold. To achieve this goal all
profit will have to be reinvested in the company’s research and development sector to
ensure growth.
The Board of Directors will consist of a lawyer, financial expert, accountant and a
professional connected to psychological development in children. This mix will provide a
well-rounded assessment of Oz Innovations. It is important that each aspect is strongly
represented to avoid any future legal percussions, auditing issues, etc..
Oz will have two advisory boards, one will be comprised of technological experts and
analysts and the other of a more general representation of top industry leaders. Together
the three boards will provide legitimate direction for the company.
Our organizational structure supports a CEO, CTO, CFO, HR and Sales Manager, R&D
personnel, and part-time office staff. We do not predict the need of a CEO, CTO, and CFO
within the first year of operations. However, we will initially employ a HR and Sales Manger
which will begin approaching the Ministries of Education in other provinces as soon as the
test trial results are recorded. We want to ensure that there are noticeable benefits of using
this supplementary learning tool in the classrooms.
See figure appendix B for a pictorial diagram of the organization.
3.2 Site Plan
We will be leasing our office space on Millar Avenue. There is a parking lot to house our
employees’ vehicles.
The building itself will undergo minor leasehold improvements. These will include erecting
walls to create office spaces, a research and development lab, and a product show room.
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See Appendix A for a picture of the rental space.
3.3 Building and Floor Plans
The office space total floor plan is 20,000 square feet. However we will not need to acquire
the totally capacity until our fourth year of operation. Until we transition into the full office
expansion we will rent 10,000 square feet. We will be purchasing computers and office
furniture for all game developers, marketers, and executive staff.
3.4 Work Plan
Our leased space will be designated for game development and sales, which are our two
avenues of business. The CEO will oversee the overall operations and work alongside our
CFO and CMO. Proper integration of our business is key to ensuring that our development is
up to the standard that we will be marketing in the sales department.
3.5 Quality Control
We won’t be governed by ISO. We will have to design our software to remain within the
curriculum requirements for the particular school division it is being licensed to.
For a quality control measure we could have figure heads either teachers or division
representatives to check through our game to ensure the information is school appropriate
and relevant. This process will be ongoing until a product is created which satisfies all
parties (within reason). There will be a pilot scale incubation period with actual students to
test the product and see what portions of the program needs work before sending it off for
sale. Also there will be a yearly check of the same sort to ensure the product is current and
information is up to date.
3.6 An Average Business Day
We will run the same business hours as the school system for the majority of our
operations. Depending of the state of the business, a serve agent may be needed after hours
to field calls.
We will collect payments once a year from the ministries. The services will be suspended
until the account is paid. We do not foresee this to happen, as education boards are very
conscientious of services provided to their students.
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We swill have a company website to describe our product line. We can have student and
teacher testimonials to help enhance our legitimacy.
The months of summer will be sales intensive. We plan on hiring university students
because it aligns with this peak sales period and it also works within our budget.
Early spring will be a key time for Research and Development. We plan on launching new
innovations and product lines at the end of each school year so teachers can coordinate
their plans with the modules.
3.7 Supply Analysis
We will be dependent on Cloud’s host, Microsoft Development Platforms. We do not predict
a large influx in cost as we take on more users however; we have to consider the reputation
of the host before signing our contract.
3.8 Who are service providers for the business?
Oz Innovations will use Microsoft Development Platforms as our primary Cloud service
provider. Once the App is designed will be selling the game to iTunes, Android and Google
Apps.
3.9 Describe the Capital Budget
Our capital budget reflects our business decision that we will be making major purchases in
years one and four. The year 2012 will the first year of official operations. Prior to this we
will be working out of the Saskatchewan Research Council.
As we acquire the lease space on Millar Avenue we will begin with 10,000 ft2 and then
further upgrade it to 20,000 ft2 taking over the entire rental space. We have predicted that
we will need to make a few minor adjustments in the building such as building offices walls
and electrically wiring the office stations for each computer. The leasehold improvements
have been quoted at $35 per square foot.
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Due to the fact that we are building games we are dependent on having modern computers
enhanced by the latest market software. Our capital budget shows how we will be buying
high-end computers for the program designers and then average desktops for the
marketing and administrative staff.
Conscious of the fact that we will be visiting the Ministries of Education and School Boards’
own offices, we will not have to build individual game showrooms to accommodate this
inflow of customers. Instead, we will design the research and develop lab to have the proper
screens and seating that would be needed to project the game for a large group.
Our furniture has been sourced from IKEA. We plan on selling out after five years so
investing large sums of money in expensive furniture would not be a sound economic
investment for Oz Innovations.
Research and Development and all that it entails will require the largest investment in the
first year as the first module of the game is released. The first inflow of cash will need to be
larger to ensure that the game developers can start making the next set of modules. Once
the first year’s launch is over we believe the Research and Development team will be more
comfortable designing the game and the sequence will just be repeated.
Info Sourced from Schedule 5 of Financial Statements
3.10 What are the environmental limitations to production?
We do not predict environmental limitations because we will be using cloud computing. If
we had chosen a traditional method to host the game such as a server or licensing it with
Nintendo then we would have been faced with a lot more barriers. This adds to the potential
of our game allowing anyone to have access to the games.
Once the company is sold, the successors may find that the international education systems
are significantly different than Saskatchewan’s and Canada’s. In this instance we would
recommend that they market the game as a learning tool, not a targeted education system
for their schools.
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3.11 Cost of Goods Sold for Manufacturing
Unitizing costs has proven to be difficult for Oz Innovations. We will have the same capital
investments and operating expenses regardless of whether we make sales in the first year.
As we prepared our financial statements we placed more emphasis on ensuring that we had
enough cash flows to remain in business from year to year.
4.0 Human Recourses Plan
As show in the organizational chart there is a board of directors and two advisory boards to
go along with our company. As far as employees who will keep the company running day to
day there are nine different positions some with multiple employees. All data with respect
to the number of employees for each year, their hourly wage/yearly salary and their total
cost can be viewed in Appendix C A brief description of the roles and responsibilities for
each position is listed below.
CEO- Chief Executive Officer

Sets long term goals and targets for company and ensures management keeps on
track

Conveys BOD messages company

Raise initial $3,000,000 in equity capital

Raise any additional capital for growth

Oversee marketing is aligned to company goals

Hire HR & Sales Manager and all other appropriate management staff
CFO- Chief Financial Officer

Ensure company operates and adheres to GAAP

Hire and manage any administrative staff dealing with finances

Acquiring debt financing

Watch expenditures to ensure company has adequate cash flow
CTO- Chief Technologies Officer

Oversee all product development

Hire and manage R & D designers

Ensure product development deadlines are set and met
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
Promote innovation in new modules and game applications
HR & Sales Manager

Head marketing team for product and company

Manage HR and admin staff

Ensure sales goals are met and report to CEO

Ensure company adheres to safety and environmental practices

Hire and fire admin and part time staff
Admin Staff

Multiple hourly employees with various jobs but general responsibilities

Be members of HR, Sales or Marketing teams

Answer phones and general clerical work

Act as secretary to CEO, CFO, CTO, HR & Sales Manager, and R &D design
department
R & D Designers

High paid to ensure top quality gaming product

Answer to CFO and manage one to three R & D programmers

Research, design and develop new modules and applications

Innovate and keep the game current and appealing to the youth
R & D Programmers

Hourly employee, lower paid

Possibly outsourced or contracted to reduce costs

In charge of doing graphic design and writing the code for the game

Floor level workers responsible for converting Designers ideas into modules
Technical Support

Few well paid hourly employees

Local employees, not outsourced to call center

Answer technical problems for divisions, teachers, schools, students and parents

In charge of interoffice Intranet and network set up
Part-Time Staff

Minimum wage hourly employee

Fill in for Admin Staff over vacation or sick time
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
Offer support to HR, Sales and Marketing teams
5.0 The Marketing Plan
5.1 The Marketing Mix
1. The Product
The gaming system will grant students the opportunity to further explore academia
on their own time. With the content paralleling the curriculum, students will
interactively build on the foundations of classroom content. With the use of cloud
computing instead of the traditional method of servers, students can access the
game from any portable device. Education providers will be able to and encouraged
to monitor the results. Misunderstood areas can be then re-taught on a one-on-one
basis.
2. Pricing
Our gaming module can be leased on cloud computing at a monthly rate of $99.99
per school. This price is higher than the initial price set forth however we have
found that schools are willing to pay for high quality learning tools.
3. Promotion
We want teachers to recognize our brand as “the learning tool” of choice. Therefore,
when we make our presentations for the Ministries’ boards who will be responsible
for buying our product, we will include a product testing component so the teachers
can try the games out for themselves. We could even offer the educators a 30- day
trial so they could take the product home from the conference and show it to their
colleagues. This would maximize our marketing investment by stimulating a “buzz”
marketing strategy.
4. Place
We have allotted an annual marketing budget of $250,000 for each year of
operations. We will use direct selling as our primary marketing strategy. The
Ministry has asked to package the game so they can make the bulk purchase for the
whole province. This benefits us as we can direct this money right back into
Research and Development. We designated $100,000 to pay for our traveling
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expenses this will need to occur in order to make the sales. Often we will have to
make follow up visits which is understandable due to the high investment asked
from our company.
5.2 Market Segmentation
Geographic
Each province is responsible to write its own curriculum and to govern the education
system within its boarders. Therefore, it can be assumed that each province will handle
acquiring the gaming system for its own benefit.
It may pose to be both difficult and expensive to travel to the northern provinces and
territories marketing the product to these regions. Depending on how many follow-up visits
are required this could be deemed unfeasible.
Demographic
The modules will be designed with the age of the player in mind. The prototype is being
designed for grade eight students. It will be beneficial to create a more elementary version
of each module as well. High school students will obviously be more receptive to different
design features such as having life-like humans instead of animated cartoon figures, which
in return could be utilized for elementary students.
The game would still be entertaining for adults and seniors. However, the purpose of the
game is to supplement the education curriculum; the efforts of designing to spec would be
lost by this age group.
Educational Institute
Through discussion with the Ministry of Education it can be assumed that all public and
Catholic schools will foster the idea of interactive learning. However, there are a lot of
home-school students who represent another segment, which Oz Innovations could
approach.
The gaming system itself will be reflecting the material covered by the Saskatchewan
Ministry of Education as education is a responsibility of the state
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5.3 Targeting
Considering that the Saskatchewan Ministry of Education has confirmed their interest in the
procurement of our learning tool, we will designate our efforts into attracting all Canada’s
ministries. Once we have their interest we will compile the Saskatchewan student results
and teachers’ feedback into a formal report and present it to them.
Employing this targeting strategy we can focus our time and marketing budget on direct
marketing techniques.
5.4 Positioning
Oz Innovations provides a fun and interactive learning resource for students. Its design
allows teachers’ to monitor student learning and enable them to target individual student
issues.
5.4 Market Competitors
Within the marketplace Oz will see direct competition from online games, free textbook
CDs, and other educationally produced computer games.
The advantage of Oz Innovations is the fact that the gaming system can be accessed from
any portable device once the access code is purchased. This would enable students to play
for free from their cell phone or computer at home, continuing the learning they initiated in
the classroom.
Considering the onetime cost of acquiring the software lease for the year the gaming system
is relatively inexpensive. There are no additional costs such as game controllers or package
upgrades once purchased. This offers value to our consumers.
5.5 Marketing Expenses
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The following
costs of our
Providing
teachers who
game into their
essential part of
We want to
well supported.
makes up a
Printing
$30,000
Product Design & Pack.
$20,000
Media
$10,000
Website
$30,000
Branding
$30,000
Business Development
$100,000
Teacher Assistance
$30,000
Total
$250,000
expenses outline the
direct selling strategy.
tangible resources for the
will be implementing the
classrooms will be an
our business operations.
ensure our customers are
Our marketing budget
substantial percentage of
our marketing budget. This cost will pay off when we sell the company in five years. It is
then that we will realize the market share that we will have successfully capitalized upon.
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6.0 Financial Plan
All of the financial projections are based on a leasing price of $99.99 per month to each school.
This price of $99.99 was said to be acceptable according to the preliminary meetings with the
Ministry of Education. The sales in year one are 759 school, which is all of Saskatchewan. Due
to the current contract negotiations with the Ministry of Education in Saskatchewan we believe
it is a reasonable projection to assume sales to the entire province. The remaining four years
are based on a steady growth from Saskatchewan’s 759 schools to the 15,142 schools across
Canada. The chart below represents how many school sales are captured each year based on a
percentage of the total market share.
Market %
2012
2013
2014
2015
2016
100%
759
3036
6072
12144
15141
90%
759
2732
5465
10930
13627
80%
759
2429
4858
9715
12113
70%
759
2125
4250
8501
10599
60%
759
1822
3643
7286
9085
50%
759
1518
3036
6072
7571
40%
759
1214
2429
4858
6056
30%
759
911
1822
3643
4542
20%
759
607
1214
2429
3028
10%
759
304
607
1214
1514
0%
759
0
0
0
0
For the purpose of our financial model 60% of the market was used for the sales projection.
This is justified by using our yearly marketing budget of $250,000 to capture these sales.
See Appendix D for a detailed balance sheet, income statement and statement of cash flows.
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6.1 Working Capital Estimates
Our company’s product is licensed gaming software, which means we don’t need tangible
inputs in production. We will be paying our cloud lease up front on a yearly basis. Our utilities
and building lease payments will be credited. An operating line of credit would be necessary
to finance unexpected expenses, which could pose to affect our cash flow. A bank line of credit
$50,000 should be enough to finance day-to-day expenditures for the company.
6.2 Capital Budget and Depreciation
We will have an initial equity investment of $3,000,000.00 which will be used to develop the
first module of the game. This cost will include our leasehold improvements, computers and
hardware, office equipment, and product development (R&D). The major capital
expenditures will occur in years one and four. Half of the office space will be renovated in
year one which is 10,000 square feet and the remaining 10,000 square feet will be expanded
into in year four. There will only be 36 employees in year one but each year we will be
hiring to fuel growth.
Capital Budget
2012
2013
2014
2015
2016
Buildings Renovations
350,000
-
-
420,000
-
Computers & Hardware
90,000
-
-
108,000
-
Furniture & Fixtures
35,000
-
-
42,000
-
R&D/Product Development
100,000
50,000
50,000 50,000
50,000
Total
575,000
50,000
50,000 620,000
50,000
6.3 Depreciation
The building renovations, computers and hardware, furniture and fixtures and intellectual
property through research and product development are all depreciable.
The capital expense chart below shows which class each capital expenditure will be
depreciated by and at what percentage.
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Capital Expense
CCA Class
CCA Rate
Buildings Renovations
1
4%
Computers & Hardware
45
45%
8
20%
44
25%
Furniture & Fixtures
R&D/Product
Development
Detailed depreciation tables can be viewed in the financial model.
6.4 Financing Budget
As stated in the operations plan previous the initial product development will be completed
by the six developers who will be given equal shares in the company. Once the product is
developed there will be $3,000,000 of capital needed to be raised in order to commercialize
the product. The initial financing plan for Oz Innovations was to use one hundred percent
equity financing giving up 60% to 70% of the company. The remaining portion of the
company will remain between the initial six product developers. The intent of having no
debt financing was to make the company attractive at a point of sale in year 5. After looking
at the initial financial model it was found to be advantageous to take on a portion of debt
financing. Also there is are problems with cash flow in year two and a loan would be an
easier approach than calling out for more money from equity investors. The debt financing
will be taken on in year two and paid down over 6 years making the principal owing low by
the point of sale.
6.5 Debt Amortization Schedule
As stated previously the initial plan was to have no debt financing. There was a need for
additional cash in year two which will be fixed by adding $500,000 of debt financing. The
amortization schedule can be viewed below. The interest rate used is 7% as provided in
class. We feel this is acceptable due to the fact that our company will already have
three million in equity invested and initial sales.
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Schedule 7: Debt
Amortization
2012
2013
2014
2015
2016
Beg Balance
-
-
430,102
355,311
275,285
Addition
-
500,000
-
-
-
Payment
-
104,898
104,898
104,898
104,898
Interest
Principal
Reduction
-
35,000
30,107
24,872
19,270
-
69,898
74,791
80,026
85,628
End Balance
-
430,102
355,311
275,285
189,657
6.6 Corporate Income Taxes
Oz Innovations will be incorporated and will follow the corporate tax schedule. The
projected loss in the first three years will carry over allowing for tax exemptions in year
four and partially in year five when gross income is high.
6.7 Dividend Policy
No dividends will be paid during business growth stage. All cash generated will go back into
business growth through research and development and marketing to increase market share.
In year five at which point the company will be sold, all money will be divided among the initial
six owners and the equity investors. The incentive for the equity investors is a minimum 40%
return on investment compounded annually on the $3,000,000 initial equity. They will require
a minimum $16,134,720 return on investment in year five to achieve this desired percent.
6.8 Economic Forecast
The inflation used for the financial model is 2.8% based on Saskatchewan’s most current
inflation rate. All appropriate expenses, salaries and variables are adjusted each year for
inflation. The interest rate for borrowing is set at 7% because of our short six year loan and
also because of the unpredictable market.
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2012
2013
2014
2015
2016
Debt Ratio
0.12%
18.76%
11.62%
4.37%
4.15%
Debt to
Equity Ratio
0.12%
18.76%
11.62%
4.37%
4.15%
6.9 Management Information System
The future sales growth is the main critical variable with this company. The entire basis of the
company is to grow sales, put profit back into the company and then sell the company for a big
payout. This sales growth depends upon marketing and the continual successes in new
product development. Sales contracts will need to be updated quarterly for management to
adjust future expansion schedules. If sales do not increase to fund growth, then building
expansion and money being reinvested into marketing and product development will have to
be reduced. Raising enough capital initially is our key to the success, which will allow us to
continue to develop regardless of initial sales.
6.10 Financial Analysis (Feasibility and Financial Performance Assessment)
The below chart represents the Net Payback, Gross Payback, NPV, IRR, Non-Leveraged IRR. All
of the financial projections are based on a leasing price of $99.99 per month to each school.
The sales in year one are 759 schools, which is all of Saskatchewan. Due to the current
contract negotiations with the Ministry of Education in Saskatchewan we believe it is a
reasonable projection to assume sales to the entire province. The remaining 4 years are based
on a steady growth from Saskatchewan’s 759 schools to the 15,142 schools across Canada. For
the purpose of our financial model 60% of the market was used as a sales projection.
The statement of cash flow below shows the five year cash flow projection based on the above
sales projections and selling price.
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Net Cash Flow
Dividends
Terminal Value
Total Cash Flow to
Equity Investors
$1,035,410 $86,512
-
-
$543,644
-
$2,636,759 (840,431)
-
$4,302,325
$20,771,368
$1,035,410
$86,512
$543,644
$2,636,759
$24,233,263
The table below outlines the key financial indicators for Oz Innovations. The Net Present Value
of the business is based on a 35% ROI for our company. The equity given to the initial
investors is 67%.
Gross Payback
$
28,535,588
Net Payback
$
25,535,588
Net Present Value
$
4,233,589
Internal Rate of Return
Return on Equity
66.6%
$
16,134,720
Initial Equity to Investors
67%
External Rate of Return
52.9%
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6.11 Risk Analysis
The variables altered for risk analysis will be sales and the cost to lease per month.
Sensitivity
Analysis
% of Market
Lease Rate
1
2
3
4
5
6
60%
70%
50%
40%
40%
40%
$99.99
$99.99
$99.99
$99.99
$129.99
$159.99
Gross Payback
$28,535,588 $40,979,029 $16,120,902
$3,474,535 $18,783,161
$33,917,614
Net Payback
$25,535,588 $37,979,029 $13,120,902
$474,535 $15,783,161
$30,917,614
$7,335,503 $1,132,249 $(2,067,079) $1,930,627
$5,831,494
Net Present Value
Internal Rate of
Return
Return on Equity
Initial Equity
given to Investors
External Rate of
Return
$4,233,589
66.6%
81.7%
45.7%
3.1%
52.7%
77.7%
$16,134,720 $16,134,720 $16,134,720 $16,134,720 $16,134,720
$16,134,720
67%
47%
116%
411%
102%
57%
52.9%
64.4%
36.3%
2.3%
40.7%
58.3%
The above chart represents the key financial indicators for Oz Innovations and how
they will change with the alteration of the percentage of the Canadian schools in sales
and the lease rate per month. As shown above the company is extremely high risk due
to the volatility. With a 10% decrease in sales under the 50% column the company
returns a healthy profit, yet over 100% of the company must be given away for the
equity investment. However, as shown in the far right column with an increase in
price to $159.99 and only 40% of the market share the company can be both profitable
and only have to give up 57% to equity investment.
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References
Signal, N., & Swann, M. (2011). Children’s perception of themselves as learned inside and
outside school. Research Papers in Education, 26(4), 469-484.
How to sell in-class gaming. (2009). Tech & Learning, 29(9), 14-14. Retrieved from
http://search.proquest.com/docview/212101639?accountid=14739
University of Saskatchewan Enrollment (2011).
http://www.usask.ca/isa/statistics/students/headcount-demographics.php
(Accessed November 30, 2011)
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Appendices
Appendix A: Industry Analysis
Technology in Education
Schools
Technology is widely used in elementary and secondary education for a number of
purposes:
 In 2006, virtually all schools in Canada had computers, providing one computer for
five students.
 Ninety-eight per cent of schools had an Internet connection.
 The computers were used for word processing, research, and individualized and online learning.
 Some provincial services and several school boards offer the provincial curriculum
on-line for distance learning and for course enhancement in small and rural schools.
 A broad range of technology — television, print, teleconferencing and on-line — is
used in classrooms and distance learning throughout Canada.
 In the 2006 Programme for International Student Assessment, 94 per cent of the 15year-olds surveyed in Canada reported using a computer every day or often during
the week at home, while 47 per cent reported the same amount of usage at school.
Postsecondary Education
Postsecondary students in all jurisdictions have access to technological resources for
learning, both on campus and through distributed learning. Three provinces have open
universities, and all have colleges and universities that offer distance courses. Consortia at
the provincial and pan-Canadian levels also provide access to university and college
programs.
Home Access
During 2005, about 26 per cent of adult Canadians went on-line for education, training, or
school work. These education users reported going on-line on a daily basis and spending
more than five hours a week on-line. Of this group, two-thirds used the Internet to research
information for project assignments, and 26 per cent did so for distance education, selfdirected learning, or correspondence courses. Nearly 80 per cent of full- and part-time
students used the Internet for educational purposes.
Website http://www.cmec.ca/pages/canadawide.aspx
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Appendix B: Operations
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Appendix C: Human Resources
Number of Employees:
CEO
CFO
CTO
HR & Sales Manager
Admin staff
R & D Designer
R & D Programmer
Tech. Support
Part time staff
Total Employees
Salaries/Wages
CEO
CFO
CTO
HR & Sales Manager
Admin staff
R & D designer
R & D programmer
Tech. Support
Part time staff
Salary and Wage Costs
CEO
CFO
CTO
HR & Sales Manager
Admin Staff
R & D designer
R & D programmer
Tech. Support
Part time staff
Total Salaries and Wages
2012
1
1
1
1
5
7
15
3
2
36
2013
1
1
1
1
5
7
18
3
2
39
2012
2013
$
200,000 $ 205,600 $
$
160,000 $ 164,480 $
$
160,000 $ 164,480 $
$
120,000 $ 123,360 $
$
20.00 $
20.56 $
$ 90,000.00 $ 92,520.00 $
$
18.00 $
18.50 $
$
35.00 $
35.98 $
$
9.50 $
9.77 $
2012
200,000
160,000
160,000
120,000
196,000
630,000
529,200
205,800
37,240
1,718,240
2013
205,600
164,480
164,480
123,360
201,488
647,640
652,821
211,562
38,283
1,875,154
2014
1
1
1
1
8
12
25
5
4
58
2014
211,357
169,085
169,085
126,814
21.14
95,110.56
19.02
36.99
10.04
2014
211,357
169,085
169,085
126,814
331,407
1,141,327
932,083
362,477
78,709
2,972,818
2015
1
1
1
1
8
16
35
11
4
78
2016
1
1
1
1
20
20
40
13
10
107
2015
2016
$
217,275 $ 223,358
$
173,820 $ 178,687
$
173,820 $ 178,687
$
130,365 $ 134,015
$
21.73 $
22.34
$ 97,773.66 $ 100,511.32
$
19.55 $
20.10
$
38.02 $
39.09
$
10.32 $
10.61
2015
217,275
173,820
173,820
130,365
340,687
1,564,378
1,341,455
819,778
80,913
4,277,576
2016
223,358
178,687
178,687
134,015
875,565
2,010,226
1,576,017
995,955
207,947
5,799,726
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Appendix D: Financials
Income Statement
For the year ended
Sales
COGS
Gross Profit
Operating Expenses
Building Lease
Utilities
Wages
Employee Benefits
Cloud Server Rental
Marketing
Repair and Maintenance
Other Variable Costs
Capital Cost Allowance
Debt Interest
Total operating Expenses
Taxable Income
Income Taxes
Net Income
Retained Earnings Account
Beg RE
Net Income
Dividends
End RE
2012
2013
2014
2015
2016
1,457,189
1,457,189
100%
2,396,784
2,396,784
100%
4,927,789
4,927,789
100%
10,131,533
10,131,533
100%
12,985,572
12,985,572
100%
25,000
20,000
1,718,240
261,344
8,000
250,000
2,000
29,144
43,250
2,356,978
25,700
22,616
1,875,154
285,211
250,000
2,056
47,936
79,533
35,000
2,623,205
132,098
25,574
2,972,818
452,166
250,000
2,114
98,556
69,068
30,107
4,032,500
135,797
28,919
4,277,576
650,619
8,224
250,000
2,173
202,631
100,766
24,872
5,681,577
279,198
32,702
5,799,726
882,138
250,000
2,234
259,711
123,047
19,270
7,648,027
(899,789)
(899,789)
(226,421)
(226,421)
895,288
895,288
4,449,957
994,759
3,455,198
5,337,546
1,274,386
4,063,159
0
(899,789)
(899,789)
(899,789)
(226,421)
(1,126,210)
(1,126,210)
895,288
(230,922)
(230,922)
3,455,198
3,224,276
3,224,276
4,063,159
(5,506,329)
1,781,106
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Balance Sheet
Year
Current Assets
Cash
Accounts Receivable
Inventories
Total Current Assets
2012
2013
2014
2015
2016
1,570,961
1,570,961
1,804,359
1,804,359
2,650,000
2,650,000
5,506,329
5,506,329
4,058,755
4,058,755
350,000
90,000
35,000
100,000
(43,250)
531,750
350,000
90,000
35,000
150,000
(122,783)
502,218
350,000
90,000
35,000
200,000
(191,851)
483,149
770,000
198,000
77,000
250,000
(292,617)
1,002,383
770,000
198,000
77,000
300,000
(415,664)
929,336
2,102,711
2,306,576
3,133,149
6,508,712
4,988,091
Liabilities
Accounts Payable
Long Term Debt
Total Liabilities
2,500
2,500
2,684
430,102
432,786
8,760
355,311
364,071
9,151
275,285
284,436
17,328
189,657
206,985
Common Shares
Retained Earnings
Total Equity
3,000,000
(899,789)
2,100,211
3,000,000
(1,126,210)
1,873,790
3,000,000
(230,922)
2,769,078
3,000,000
3,224,276
6,224,276
3,000,000
1,781,106
4,781,106
Total Liab & Equity
2,102,711
2,306,576
3,133,149
6,508,712
4,988,091
Non-Current Assets
Building Rennovations
Computers & Hardware
R&D/Product Development
Furniture and Fixtures
Accumulated CCA
Total Non-Current Assets
Total Assets
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Cash Flow Statement
For the year ended
2012
2013
2014
(899,789)
43,250
(856,539)
(226,421)
79,533
(146,889)
895,288
69,068
964,356
3,455,198
100,766
3,555,964
4,063,159
123,047
4,186,206
2,500
2,500
184
184
6,075
6,075
391
391
8,177
8,177
(350,000)
(90,000)
(35,000)
(100,000)
(575,000)
(50,000)
(50,000)
(50,000)
(50,000)
(420,000)
(108,000)
(42,000)
(50,000)
(620,000)
(50,000)
(50,000)
Financing Activities
Long Term debt
Common Shares
Dividends
Total
3,000,000
3,000,000
430,102
430,102
(74,791)
(74,791)
(80,026)
(80,026)
(85,628)
(5,506,329)
(5,591,957)
Net Cash Flow
Cash Bal Beg of Year
Cash Bal End of Year
1,570,961
1,570,961
233,398
1,570,961
1,804,359
845,641
1,804,359
2,650,000
2,856,330
2,650,000
5,506,329
(1,447,574)
5,506,329
4,058,755
Net Income
CCA
Operating Cash Flow
Changes in Working Capital
Accounts Receivable
Inventories
Accounts Payable
Total
2015
2016
Investment Activities
Building Rennovations
Computers & Hardware
R & Product Development
Furniture and Fixtures
Total
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Copyright 2011
Oz Innovations
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