Voice Control

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Voice Recognition Software Business Plan

Financial Plan

Substantial funding is required to execute this business plan. The tables shown in the sections to follow, and in the appendix, detail the investment and use of capital.

September thru December 2002 - Funding will be required to allow the company to begin operation, complete their acquisition, hire staff, develop technology, purchase additional computer equipment needs, and fund marketing campaigns.

January thru August 2003 - Further funding will be required to allow the company to complete expansion of staff, complete beta testing, fund marketing campaigns and  purchase computer equipment needs. 

September 2003 - An additional infusion will be required to satisfy our capital needs.

7.1 Important Assumptions

FACTS
The orthopedic screening products currently do not have synergies with our core products being developed. It is being maintained to provide exposure to our current market interests and it provides necessary positive cash flow during the early stage of start-up. We may divest these offerings after positive cash flow is maintained from our core software.

Many of the orthopedist visiting our exhibit at the American Academy of Orthopedics annual meeting and American Society of Cataract and Refractive Surgeons annual meeting in 1999 and 2000, reported interest in electronic medical records. The majority said they had interest in a package that would employ speech recognition. Most said they wanted to be updated as developments were available. In 2001 a survey was taken of visitors at our exhibit at the American Academy of Orthopedics. We found that 86% of the market would rather purchase on electronic medical records software package that was speech enabled.

Revenues associated with speech recognition technology and products are projected to grow from an estimated $400 million in 1999 to $9 billion in 2003, representing an 88% compound annual growth rate, (source: Let's Talk, Speech Technology, Stephan Hart, Aug 4, 1999, Niche Industry 2000.)

Additional sales from current VRS customers are not figured in any of the revenue scenarios. (In other words once a physician has purchased the dictation product how many additional sales will office/partners purchase? These figures are not included in any of the revenue scenarios.)

The American Academy Orthopedics has 15,000 members in the United States. They claim this represents 95% of the Orthopedist in the country.

Clinitec International, Inc. is a unit within MicroMed Healthcare Information Systems, Inc., a diorthopedic of Quality Systems, Inc. They have approximately 300 users in various disciplines of medicine. Their pricing is $20,000 per practice for the license rights to the software, plus $7000 per physician, per practice using the software. In addition, they charge 18% of this initial fee as a yearly maintenance fee. There are additional charges for hardware and training.

Billed as a follow up to the 1999 Institute of Medicine (IOM) report that documents nearly 100,000 patient deaths a year from medical errors, today the IOM issued a new report focused on system-wide concerns with health-care delivery. The report also points to Congress to create a $1 billion innovation fund to help support promising projects for health-care reform, and calls for elimination of most handwritten clinical data and development of a nationwide technology-based information network, (source: American Academy of Orthopedics, Washington Report, Volume VI, Issue 4, March 1, 2001.)

At the American Academy of Orthopedics annual meeting in New Orleans, November 2001, we asked visitors to our exhibit to respond to a survey about electronic medical records. We found that 91% of the market currently does not use electronic medical records.

At the American Academy of Orthopedics annual meeting in New Orleans, November 2001, we asked visitors to our exhibit to respond to a survey about electronic medical records. When asked their purchase plans the following was revealed: 38% plan to purchase within the next 18 months; 35% plan to purchase within the next 36 months; and 16% plan to purchase within the next 5 years.

ASSUMPTIONS
Of the 15,000 orthopedist in United States, we make the assumption that there is an average of three per practice. This assumption is based upon a survey we performed from physicians that have attended our trade exhibits over the past three years. The data demonstrated that there was an average of 2.8 physicians per practice. This represents a total market size of 5,000 offices. The average selling price estimate would be $42,500, ($20,000 base price and $7,500 per orthopedist). 5,000 offices at an average selling price of $42,500 = $212.5 million.

The yearly recurring maintenance fee is 18%. The recurring maintenance revenue was based on 15,000 practices with an average of three physicians per practice, purchasing software at an average selling price of $42,500.

Current electronic medical records packages will attempt to utilize speech recognition software in the near future. Extensive knowledge and usage of speech recognition software will not be their strength. The opportunity exits to "brand" our technology into their product offerings.

Orthopedist who utilize speech recognition for dictation and/or patient records/charts will be less resistant to purchasing electronic medical records employing telephony.

Regular orthopedic sales will continue to decline approximately 13% per year without new products, based on past performance.

At the end of 2003, or sometime during that time period, our number of demos should increase due to increased awareness and use of technology.

Every new employee will require a new computer at the cost of $2,500 (monitor, and CPU. Each CPU will have a fax modem, zip drive, CD ROM and current specs show 512 MB RAM). The anticipated software for each system will be approximately $1,000 of the total price.

We will share existing printers, from the network. Therefore, additional printers needed will be minimum year to year.

A new phone system will be needed in the year 2005.

Every other year, new computers will need to be purchased for everyone, with the exception of accounting, to keep up with a technology relative to our core software.

Our closing rate will increase as we gain market penetration and word-of-mouth sales.

Bank finance charges are figured on credit card charges for 90% of VRS sales and 90% of orthopedic sales. The credit card charge is figured at 1.5%.

Revenue from electronic medical records sales will NOT be on credit cards. We believe these sales will be paid for from bank financing arranged by the individual physicians, OR through lease companies provided by us. It is not our intent to provide financing for these sales. A 20% to 25% deposit will be required with the balance due prior to final shipment.

General Assumptions
Year 1 Year 2 Year 3 Year 4 Year 5
Plan Month 1 2 3 4 5
Current Interest Rate 10.00% 10.00% 10.00% 10.00% 10.00%
Long-term Interest Rate 10.00% 10.00% 10.00% 10.00% 10.00%
Tax Rate 25.00% 25.00% 25.00% 25.00% 25.00%
Other 0 0 0 0 0

7.2 Projected Profit and Loss

The company is projected to reach profitability in FY 2005. The gross margin for this type of company is very different from a manufacturing facility. According to the IRS the cost of software development is depreciated over a three year period. The only cost of goods are the CD the software is burned on to, the printed instruction manual, and the runtime license for the speech recognition software. This produces an extremely high gross margin, but is accurate for this type of business. Companies like Microsoft, Peachtree, Corel, etc., will mirror unusually higher gross margins, when compared to typical manufacturing industries.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3 Year 4 Year 5
Sales $247,000 $2,416,038 $4,200,342 $13,425,648 $22,074,931
Direct Cost of Sales $90,000 $156,426 $255,369 $527,133 $771,483
Production Payroll $0 $0 $20,800 $62,400 $104,000
Other $0 $0 $0 $0 $0
Total Cost of Sales $90,000 $156,426 $276,169 $589,533 $875,483
Gross Margin $157,000 $2,259,612 $3,924,173 $12,836,115 $21,199,448
Gross Margin % 63.56% 93.53% 93.43% 95.61% 96.03%
Operating Expenses
Sales and Marketing Expenses
Sales and Marketing Payroll $116,376 $217,002 $342,000 $822,004 $1,224,508
Advertising/Promotion $350,000 $350,000 $350,000 $400,000 $450,000
Travel - trade shows $12,000 $18,000 $20,000 $25,000 $140,000
Trade Shows & Exhibits $30,000 $45,000 $45,000 $65,000 $165,000
Travel $180,000 $242,000 $324,000 $612,000 $864,000
Miscellaneous $12,000 $12,000 $12,000 $18,000 $24,000
Total Sales and Marketing Expenses $700,376 $884,002 $1,093,000 $1,942,004 $2,867,508
Sales and Marketing % 283.55% 36.59% 26.02% 14.46% 12.99%
General and Administrative Expenses
General and Administrative Payroll $404,988 $465,000 $810,000 $1,090,000 $1,677,000
Account Name $0 $0 $0 $0 $0
Depreciation $105,822 $161,600 $186,100 $120,295 $135,100
Leased Equipment $1,800 $1,800 $1,800 $1,800 $1,800
Utilities $11,900 $26,700 $58,100 $121,600 $200,000
Insurance $12,000 $32,000 $150,000 $500,000 $750,000
Bank Service charges (credit cards) $4,100 $8,700 $18,100 $36,700 $50,000
Dues & Subscriptions $3,000 $3,500 $4,000 $4,500 $6,500
Meals & Entertainment $7,500 $10,000 $20,000 $50,000 $125,000
Meetings & Training $7,000 $15,000 $33,000 $62,000 $86,000
Misc $3,000 $4,000 $6,000 $8,000 $15,000
Office Supplies $5,500 $7,000 $9,000 $12,000 $20,000
Postage $360 $500 $700 $2,000 $5,000
RV Insurance $500 $2,400 $2,400 $5,000 $5,000
RV Mileage $4,500 $36,000 $36,000 $83,200 $83,200
Install/Training Costs $0 $90,000 $195,000 $675,000 $1,050,000
Royalties $12,100 $83,800 $178,600 $588,900 $973,500
R&D $0 $0 $0 $268,500 $441,500
Rent $19,200 $29,600 $38,800 $57,000 $57,000
Payroll Taxes $136,593 $225,349 $439,414 $826,385 $1,266,269
Total General and Administrative Expenses $739,863 $1,202,949 $2,187,014 $4,512,880 $6,947,869
General and Administrative % 299.54% 49.79% 52.07% 33.61% 31.47%
Other Expenses:
Other Payroll $25,002 $219,393 $584,856 $1,331,136 $2,059,568
Consultants $0 $0 $0 $0 $0
Executive Hire Search $0 $0 $0 $15,000 $0
Professional Fees $24,000 $24,000 $30,000 $30,000 $75,000
Human Resources Consultant $6,000 $10,000 $15,000 $30,000 $0
Total Other Expenses $55,002 $253,393 $629,856 $1,406,136 $2,134,568
Other % 22.27% 10.49% 15.00% 10.47% 9.67%
Total Operating Expenses $1,495,241 $2,340,344 $3,909,870 $7,861,020 $11,949,945
Profit Before Interest and Taxes ($1,338,241) ($80,732) $14,303 $4,975,095 $9,249,503
EBITDA ($1,232,419) $80,868 $200,403 $5,095,390 $9,384,603
Interest Expense $4,353 $17,648 $26,046 $24,277 $22,403
Taxes Incurred $0 $0 $0 $1,237,705 $2,306,775
Net Profit ($1,342,594) ($98,380) ($11,743) $3,713,114 $6,920,325
Net Profit/Sales -543.56% -4.07% -0.28% 27.66% 31.35%

7.3 Projected Cash Flow

The following chart and table are the projected Cash Flow for Voice Control, Inc.

Pro Forma Cash Flow
Year 1 Year 2 Year 3 Year 4 Year 5
Cash Received
Cash from Operations
Cash Sales $0 $0 $0 $0 $0
Cash from Receivables $200,500 $2,007,697 $3,864,431 $11,688,900 $20,446,625
Subtotal Cash from Operations $200,500 $2,007,697 $3,864,431 $11,688,900 $20,446,625
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0 $0 $0
New Current Borrowing $90,000 $200,000 $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0 $0 $0
New Long-term Liabilities $0 $0 $0 $0 $0
Sales of Other Current Assets $0 $0 $0 $0 $0
Sales of Long-term Assets $0 $0 $0 $0 $0
New Investment Received $604,000 $0 $0 $0 $0
Subtotal Cash Received $894,500 $2,207,697 $3,864,431 $11,688,900 $20,446,625
Expenditures Year 1 Year 2 Year 3 Year 4 Year 5
Expenditures from Operations
Cash Spending $546,366 $901,395 $1,757,656 $3,305,540 $5,065,076
Bill Payments $866,143 $1,420,810 $2,212,294 $6,016,754 $9,713,977
Subtotal Spent on Operations $1,412,509 $2,322,205 $3,969,950 $9,322,294 $14,779,053
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0
Principal Repayment of Current Borrowing $5,906 $15,222 $16,817 $18,578 $18,890
Other Liabilities Principal Repayment $0 $0 $0 $0 $0
Long-term Liabilities Principal Repayment $0 $0 $0 $0 $0
Purchase Other Current Assets $0 $0 $0 $0 $0
Purchase Long-term Assets $465,000 $43,000 $122,500 $105,000 $265,000
Dividends $0 $0 $0 $0 $0
Subtotal Cash Spent $1,883,415 $2,380,427 $4,109,267 $9,445,872 $15,062,943
Net Cash Flow ($988,915) ($172,730) ($244,836) $2,243,028 $5,383,682
Cash Balance $464,719 $291,989 $47,153 $2,290,181 $7,673,863

7.4 Projected Balance Sheet

The following chart and table are the projected Balance Sheet for Voice Control, Inc.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3 Year 4 Year 5
Assets
Current Assets
Cash $464,719 $291,989 $47,153 $2,290,181 $7,673,863
Accounts Receivable $46,500 $454,841 $790,753 $2,527,501 $4,155,807
Inventory $10,384 $18,048 $29,464 $94,176 $154,848
Other Current Assets $30,000 $30,000 $30,000 $30,000 $30,000
Total Current Assets $551,603 $794,879 $897,369 $4,941,858 $12,014,518
Long-term Assets
Long-term Assets $465,000 $508,000 $630,500 $735,500 $1,000,500
Accumulated Depreciation $105,822 $267,422 $453,522 $573,817 $708,917
Total Long-term Assets $359,178 $240,578 $176,978 $161,683 $291,583
Total Assets $910,781 $1,035,457 $1,074,347 $5,103,541 $12,306,101
Liabilities and Capital Year 1 Year 2 Year 3 Year 4 Year 5
Current Liabilities
Accounts Payable $81,647 $119,925 $187,376 $522,034 $823,159
Current Borrowing $84,094 $268,872 $252,055 $233,477 $214,587
Other Current Liabilities $0 $0 $0 $0 $0
Subtotal Current Liabilities $165,741 $388,797 $439,431 $755,511 $1,037,746
Long-term Liabilities $0 $0 $0 $0 $0
Total Liabilities $165,741 $388,797 $439,431 $755,511 $1,037,746
Paid-in Capital $2,234,000 $2,234,000 $2,234,000 $2,234,000 $2,234,000
Retained Earnings ($146,366) ($1,488,960) ($1,587,340) ($1,599,084) $2,114,030
Earnings ($1,342,594) ($98,380) ($11,743) $3,713,114 $6,920,325
Total Capital $745,040 $646,660 $634,916 $4,348,030 $11,268,355
Total Liabilities and Capital $910,781 $1,035,457 $1,074,347 $5,103,541 $12,306,101
Net Worth $745,040 $646,660 $634,916 $4,348,030 $11,268,355

7.5 Business Ratios

The software industry ratio statistics have not been easy to obtain. As mentioned before, the cost of goods for this type of company is extremely low. Basically, we will have our runtime license for the speech recognition software, a CD and printed instruction material, (the instruction material may also be incorporated into the CD.) Companies like Microsoft, Peachtree, etc., traditionally will have low cost of goods and high gross margins as a result. We used NAICS code 541511, Custom Computer Programming Services, as a rough comparison.

Ratio Analysis
Year 1 Year 2 Year 3 Year 4 Year 5 Industry Profile
Sales Growth 0.00% 878.15% 73.85% 219.63% 64.42% 10.70%
Percent of Total Assets
Accounts Receivable 5.11% 43.93% 73.60% 49.52% 33.77% 26.43%
Inventory 1.14% 1.74% 2.74% 1.85% 1.26% 4.70%
Other Current Assets 3.29% 2.90% 2.79% 0.59% 0.24% 40.37%
Total Current Assets 60.56% 76.77% 83.53% 96.83% 97.63% 71.50%
Long-term Assets 39.44% 23.23% 16.47% 3.17% 2.37% 28.50%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Current Liabilities 18.20% 37.55% 40.90% 14.80% 8.43% 38.17%
Long-term Liabilities 0.00% 0.00% 0.00% 0.00% 0.00% 19.44%
Total Liabilities 18.20% 37.55% 40.90% 14.80% 8.43% 57.61%
Net Worth 81.80% 62.45% 59.10% 85.20% 91.57% 42.39%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Gross Margin 63.56% 93.53% 93.43% 95.61% 96.03% 100.00%
Selling, General & Administrative Expenses 607.12% 97.60% 93.70% 67.95% 64.68% 84.53%
Advertising Expenses 141.70% 14.49% 8.33% 2.98% 2.04% 1.06%
Profit Before Interest and Taxes -541.80% -3.34% 0.34% 37.06% 41.90% 1.55%
Main Ratios
Current 3.33 2.04 2.04 6.54 11.58 1.49
Quick 3.27 2.00 1.98 6.42 11.43 1.17
Total Debt to Total Assets 18.20% 37.55% 40.90% 14.80% 8.43% 66.93%
Pre-tax Return on Net Worth -180.20% -15.21% -1.85% 113.86% 81.89% 3.01%
Pre-tax Return on Assets -147.41% -9.50% -1.09% 97.01% 74.98% 9.11%
Additional Ratios Year 1 Year 2 Year 3 Year 4 Year 5
Net Profit Margin -543.56% -4.07% -0.28% 27.66% 31.35% n.a
Return on Equity -180.20% -15.21% -1.85% 85.40% 61.41% n.a
Activity Ratios
Accounts Receivable Turnover 5.31 5.31 5.31 5.31 5.31 n.a
Collection Days 57 38 54 45 55 n.a
Inventory Turnover 10.91 11.00 10.75 8.53 6.20 n.a
Accounts Payable Turnover 11.61 12.17 12.17 12.17 12.17 n.a
Payment Days 27 25 25 20 25 n.a
Total Asset Turnover 0.27 2.33 3.91 2.63 1.79 n.a
Debt Ratios
Debt to Net Worth 0.22 0.60 0.69 0.17 0.09 n.a
Current Liab. to Liab. 1.00 1.00 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $385,862 $406,082 $457,938 $4,186,347 $10,976,772 n.a
Interest Coverage -307.42 -4.57 0.55 204.93 412.87 n.a
Additional Ratios
Assets to Sales 3.69 0.43 0.26 0.38 0.56 n.a
Current Debt/Total Assets 18% 38% 41% 15% 8% n.a
Acid Test 2.98 0.83 0.18 3.07 7.42 n.a
Sales/Net Worth 0.33 3.74 6.62 3.09 1.96 n.a
Dividend Payout 0.00 0.00 0.00 0.00 0.00 n.a

7.6 Exit Strategy

Beginning in the fifth year of the plan, significant cash reserves will have been established. It is anticipated that the fifth year of the plan will provide the opportunity for the owners to begin buying back the shares of the company required to fund the start-up. The owners currently desire to buy back all outstanding shares during this year.