COLORADO STATE UNIVERSITY

MGT 340 - 004

Opportunity Assessment
Secure Swipe

4.26.11

BRIANNA BAKER, CAITLIN SELVIDGE, DUSTIN ROY, RYAN SUTTON

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Table of Contents
Product ..........................................................................................................................3 Market and Customer ........................................................................................................4 Production and Supply Chain...............................................................................................5 The New Venture Team .....................................................................................................5 Financing the Venture........................................................................................................6 Assessment and Business Model ..........................................................................................6 Appendix A ....................................................................................................................7 Head of Dinning Services in the Lory Student Center .............................................................7 Wells Fargo Bank Manager ..............................................................................................7 Appendix B ....................................................................................................................8 Assumptions ................................................................................................................8 Financial Statements ......................................................................................................9 Income Statement.......................................................................................................9 Balance Sheet..........................................................................................................10 Cash Flows .............................................................................................................11

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Product
We plan on working with Visa Credit Cards to work with banks and college campuses that they partner with. We want to implement a fingerprint scanner linking your fingerprints to your accounts, so that eventually a debit or credit card will no be obsolete. We want to use the fingerprint scanning technology that already exists and use it as a replacement for the credit and debit cars. In other words, so one can just scan their fingerprint to buy a product or service, instead of swiping a card. Yes, the technology exists. We were planning on partnering with Eikon, who makes the fingerprint scanners. Yes, we will hire an engineer consultant to help determine its feasibility. Yes, our product is legal. The product does not violate any of the team members ethics or morals. The technology exists but not the service that the product is meant for, for this project. Fingerprint scanners exist, but there are no patents or anyone else trying to implement them into the financial systems and stores. Search Terms: Fingerprint Scanners into Google Search Engine Sources: http://www.upek.com/solutions/eikon/default.asp Location: Buy online and directly from the manufacturer. Discussions: see Appendix A for meeting notes.

Consumers and businesses would buy our product because it would make life simpler in the long run. There have been multiple times that one has gone somewhere and forgot their wallet so they couldnt actually buy what they intended. Another example is when one goes to the bank and forgot their license, so they had to go through the extended and tedious process of confirming their identity. For these reason, and many more, we believe that our service idea would eventually have a high demand. Because of the diversity in our group, we will have many different resources to acquire a competitive advantage in this market. Our social resources will include the greater business area of Fort Collins, Colorado, and Colorado State Universitys campus. This is because we have been living in the area for at least three years and have been active members of the community. Because of our generation, we would also be able to utilize online social networking. We have acquired training from our education at CSU and previous jobs. Even though we have previous experience, we will also be relying on further education from an online source, for the reason that none of us have experience in starting a new venture. We will inherit the Visa Credit Cards and Wells Fargo reputations because of our partnerships with these companies. It will help us develop our own reputation and brand loyalty in the long run. Our financial resources will be personal monetary resources, investors, and loans. The technical aspect of our company will be based on Visas technological advancements as well as our partnership with UPEKs Eikon. Another technical resource we will utilize is an engineer consultant that we will have hired.

Secure Swipe | 4 We will patent our product idea; however, there are no other patents that exist to our knowledge that are relevant to our product. http://www.patent-ideas.com/Patent-Costs-Fees/How-Much-Does-A-Patent-Cost.aspx We would not be competing against another agency, since no one has a patent out for our idea; however, we would be competing with those who use debit and credit cards as well as banks or stores that do not want to switch to fingerprint scanners. But we believe that by originally working with Visa, they will be a great resource when it comes to fully expanding our idea to banks, stores, and college campuses. We believe that the value will be created through the simplicity of just scanning your fingerprint to access your money, and the knowledge that no one can steal your identity since fingerprints are unique to each person. The fact that it is unique and safe will help Visa and ourselves build a brand name and develop loyal customers. Yes, we believe that this is a viable product that should be pursued. We would need to make it unique and develop the software to link the fingerprints to each financial account in order for it to be more viable. We believe that this product will be beneficial to the customers as well as Visa and the companies that they partner with because it gives Visa a competitive advantage along with giving the customers more peace of mind that their identity and money is safer.

Market and Customer

The industry for our product is a very attractive industry because of the current social goals in the market and the increasing use of credit cards. The credit card industry is continuing to grow with a 13 percent growth in the past 5 years according to a research done by Global Insight. The threat of entry for our market is very weak because even though the technology is readily available the product has yet to be introduced and takes a lot of time and financing to start up. The bargaining power of the suppliers is fairly high due to the new technology that only a few companies can produce, but this introduction of new technology into the market means that the buyers do not have much bargaining power. There are also no other substitutes to this product so the industry for our product is very attractive. Our primary customer will be Visa Credit Cards, so that we can use their resources to expand to the banks, stores, and college campuses that they work with. We believe that in the beginning, however, that our product will be more appealing to the younger generations who are already apt to technological changes. So they would be the ones who would be more willing to switch to fingerprint scanning near the beginning of the products life cycle. The information is not accessible to know how large our potential customer base would be, since we cannot access how many companies that Visa works with. However, there are over two million transactions a day using a Visa card (credit, debit, gift, etc). Those transactions could increase because no one can forget their fingerprints. When we met with a Wellsfargo Bank Branch Executive, he suggested that we would charge $500 per fingerprint scanner after buying them from Eikon for $100 apiece. This gives Eikon a profit of over $25 per fingerprint scanner and we would gain approximately $400 per fingerprint scanner sold.

Secure Swipe | 5 First, we would need to research how many people would be willing to use their fingerprint scanner as a source of payment instead of a credit or debit card. Next we would need to research how many financial institutions, college campuses, and stores that Visa works with would be willing to switch over or use a fingerprint scanner along with a card swiper. By partnering with Visa will help us spread the word and help with the advertising, because they will want to get the word out about their most recent competitive advantage. Our original distribution channel would be the pilot companies and campuses that Visa would be willing to let us work with to test the demand for this product. Yes this is a viable market if Visa is willing to work with us on the product implementation. The only necessity that we will need is the willingness of the customers to link their fingerprints to their financial accounts because they will need to feel like this is reliable and safe.

Production and Supply Chain

The production of our product will be outsourced since the technology already exists. We will partner with Eikon in order to get the products produced, since they already make the fingerprint scanners and the USB adapters that we would use to link the fingerprint scanners to the computer. We will be outsourcing the production because Eikon is a reliable source that we can outsource from and they already produce the technology necessary. The product stages include: Production in UPEK factory Ship finished product to our storage garage Distribute the products to campus facilities Distribute rest of products to bank Install product to locations for use Once our product is more widely demanded we would ship products to locations internationally. We would need to hire employees to install the consoles at the various locations that will be doing business with us. Since the primary technology already exists, we would partner with Eikon to develop the console and we estimate that it would cost close to $100/ console to produce. In order to connect the console with the credit cards w e would need to develop software. To develop the software we would hire an engineering consultant. We would like to connect the Secure Swipe with a touch screen console, which would allow for choices between credit accounts with payments. The console would sell for $500.00

The New Venture Team

Our new venture team will consist of four founding members, who are: Brianna Baker, Caitlin Selvidge, Dustin Roy, and Ryan Sutton. We will not be hiring any individuals specifically; however, we will need to hire other companies with more resources, such as industry experience. An example of this would be our partnership with Visa and UPEK. We believe these two companies compliment our ideal image because of their technological experiences and their market control. We believe that we will bring fresh new ideas to the market because of our age and current education, academically and socially, while they

Secure Swipe | 6 will bring knowledge of what the market consists of. We will be offering these companies a competitive advantage, as well as market share when our company expands. We will be hiring a general attorney to represent the founders and our new venture. We will also be hiring an engineer consultant to help develop and implement the software to sync the scanners to the individual accounts. General employees will not be necessary until the company dramatically grows. From the interviews of upper management that we have conducted, there is an interest and support in our ideas. They have critiqued the new venture as well to help it grow and be more competitive and appealing to those we want to partner with.

Financing the Venture

See Appendix B for the assumptions and financial statements. We will finance our product with a mixture of the bootstrap method and debt. We will be using more of our own money to finance this venture then we plan on borrowing. We do believe that the financing is available because our loans will be less than our original investments, which will be appealing to the financial institution that we borrow from. We also plan on collecting common stock because the potential return for the investors on a technological advancement that we are introducing into the market.

Assessment and Business Model

Yes, we believe that there is a need in the market for this product idea. This is because of our promising financials that produce a profit within the first three years and promise an expansion the longer that we stay in business. The need for technology in our society also supports the concept of this new venture for many years to come. We believe that the next step will be verification with Visa and UPEK to make sure that they are interested and willing to partner with us. Once this verification has occurred, we will begin working with their personal consultants to further develop our product and research the market, which will lead to a national expansion.

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Appendix A
Head of Dinning Services in the Lory Student Center
Chris, Head of Dinning Services in the Lory Student Center at CSU: Approximately how many credit card machines are in there on this campus? Including other buildings besides LSC? o There are a little over 25 places that have credit card machines; there are also three ATMs on campus and possibly more that are not under my jurisdiction. If we decided to put our product into use it could be used as student identification, what do you think? o If it would be cost effective for the university, reduce cost over time, and be more efficient than what we are using now it would definitely be something that we would like to look into. What types of problems do you see with our product? o The major problem I see is that by implementing on CSUs campus is that it would affect everything. It would have to be approved higher than me and most likely go through the entire institution because it would affect the book store, buses, and library.

Wells Fargo Bank Manager

Over all, what do you think of our product? o I think that the product its self is a great idea. There are many different uses for it and as long as you could find a market I think you could make it work. Would it be something that might interest your bank in the future? o Yes I believe that if it was targeted at the right age group of our bankers it would be something that our bank might consider doing. How many would you potentially need for your bank? o We would need somewhere between 40 and 50 for this bank, but it is the largest branch in Colorado. And that would be including drive thru tellers. What problems do you see with our product? o Customer interest, some generations dont even use the online banking that is provided in fact only 85% of our bankers use online banking. o There is the problem that some people might consider it too personal, everyone would potentially have access to their fingerprints? o What happens if this information is stolen, it could be even more harmful than just a number to a bank account being stolen. o What do you do about people that have multiple accounts? Or people who only use phone call banking and need that number for identification? Is there anyone else that we could possibly talk to for information? o Maybe you should talk to Visa or think about the link of information from the store to Visa, then Visa to us because I think that might be where your biggest problem will be.

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Appendix B
Assumptions
Income Statement: Net Sales: $800,000 ~ 1,600 product times the sale price of 500 each (year one). $1,600,000 ~ 3,200 product sales price of 500 (year 2). $2,000,000 ~ 40,000 product sales price of 500 (year 3). COGS: The product will cost us $160,000~ 1,600 of the product times the cost of the product at $100 each (year 1). $320,000 because of 3,200 product at $100 (year2). $400,000 ~ 40,000 product at $100 (year 3). Shipping we estimated at $10,000 and we assume that our shipping will increase by the same percentage that product did each year. We have no labor costs because the four of us will be doing the work. (years 1-3) General Admin. Expenses: Attorney Expenses are to be $32,000, this included the help with the patent and to keep them on payroll for a year. This will go down to $12,000 a year to keep an attorney staffed and we are assuming that we will not need to use them. Sales force has no cost because we do not have it, and management will more than likely be putting their pay back into the company so we left it at 0. We factored in taxes and interest expense leaving us with $240,994.

Balance Sheet: Consulting we considered as $15,000 because of the product already being developed and just needing to consult with Visa and their workers. We kept it at $12,000 for year 2 and 3 to keep a consultant staffed. Patent costs us $20,000 because that is approximately what a technological patent costs. We will not need to renew our patent in upcoming years unless the product is developed further. Accounts Receivable was assumed that a receivable of 405,000 at year one would increase about $40,000 each year our inventory increased. Inventory will be $160,000 because we will buy 1,600 (we assumed there would be 40 test stores and each test store would have upward of 40 scanners needed). Then at a cost of $100 making our inventory $160,000 (year1). Inventory was recorded the same way that our product was recorded in the Income Statement, under COGS. Prepaid Expenses this was assumed by research of storage facilities to store our product after overseas shipment but before shipment within the States. This was assumed to increase with the increase in the size of the storage facility. We will all make an individual investment of $80,000. From the first year on out the money that will be put into the company will come from debt or money we have left over from the previous year will be put back into the company. We will be issuing common stock 55,000 at $1 par but an original price of $4 a share. Making our Excess of Par $3. Each year we will sell a subsequent 1,000 more shares up until the 4th year. Our long-term debt is going to be a loan of $60,000. This debt will be paid off at $10,000 a year. Retained Earnings will be used for the company instead of issuing dividends to our stock holders during the first 4 years.

Cash Flow Statement:

Secure Swipe | 9 The Attorney Payroll was calculated by $1,000 per month for a whole year. We do not have dividends because we have decided to take our retained earnings and put it back into the company. The dividend towards our investors will begin being paid after the 4th year and our company feels secure with dividends over retained earnings

Financial Statements
Income Statement Year 1 $800,00 0 ($160,0 00) ($10,00 0) $0 $630,00 0 ($32,00 0) $0 $0 $598,00 0 ($227,2 40) $370,76 0 ($129,7 66) $240,99 4 Year 2 $1,600,0 00 ($320,0 00) ($30,00 0) ($16,00 0) $1,234,0 00 ($12,00 0) $0 $0 $1,222,0 00 ($463,6 00) $758,40 0 ($265,4 40) $492,96 0 Year 3 $2,000,0 00

Net Sales COGS Product Shipping Labor (technicians) Gross Profit General Administration Expenses Attorney Expenses Sales Force Management EBIT Interest Expense (38%) EBT Taxes (35%) Net Income

100%

100%

100%

20.00% 1.25% 0% 63/80

($400,0 00) ($40,00 1.88% 0) ($20,00 1.00% 0) $1,540,0 77.13% 00 20.00% ($12,00 0) $0 $0 $1,528,0 00 ($580,6 40) $947,36 0 ($331,5 76) $615,78 4

20.00% 2.00% 1.00% 77.00%

4.00% 0.00% 0.00% 74.75% 28.41% 46.35% 16.22% 30.12%

0.75% 0.00% 0.00% 76.38% 28.98% 47.40% 16.59% 30.81%

0.60% 0.00% 0.00% 76.40% 29.03% 47.37% 16.58% 30.79%

Secure Swipe | 10 Balance Sheet Year 1 Year 2 Year 3

Assets
Engineer Consultation Patent Accounts Receivable Inventory Prepaid Expenses Total Assets $15,000 $12,000 $20,000 $0 $405,000 $384,220 $160,000 $320,000 $994 $990 $600,994 $717,210 $12,000 $0 $430,934 $400,000 $1,100 $844,034

Liabilities and Equity

Initial Investment Accrued Expenses Common Stock ($1 Par) Capital in Excess of Par Long-term Debt Retained Earnings Insurance for storage Total Liabilities and Equity $80,000 $0 $0 $0 $0 $0 $57,000

$55,000 $56,000

$165,000 $168,000 $171,000 $60,000 $0 $0 $240,994 $492,960 $615,784 $0 $250 $250 $600,994 $717,210 $844,034

Secure Swipe | 11 Cash Flows Year 1 Year 2 Year 3

Cash Received from Operations

Net Income Inventory Increase Prepaid Expenses Attorney Hour Fees Accounts Payable Attorney Payroll Total Operations Cash Flows Cash Received from Financing Activities Long-term Debt New Common Stock Issued Dividends Total Cash from Financing ($12,000) ($12,000) ($12,000) $ $ $368,994 640,960 663,784 $240,994 $492,960 $615,784 $160,000 $160,000 $60,000

($20,000)

$60,000 $55,000 $0 $115,000 $56,000 $0 $56,000 $57,000 $0 $57,000