imagination inc. 2011-2012 annual report

7/27/2019 Imagination Inc. 2011-2012 Annual Report

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Table of contents

Letter to Stockholders.... 1

Company Description. 2

Management ofOperations... 3

Management Discussion.... 4

Market Research.. 5

Internet Sales... 7

Advertising Campaign.. 10

Trade Shows.... 11

ImagiNation Inc. inVienna!...................................................... 13

Organization/Board ofDirectors............................................... 14

FINANCIAL DATA

Letter from the CFO................................................ 15

Income Statement.............................................................. 16

Cash Budget....................................................................... 17

Balance Sheet..................................................................... 18


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Letter to Stockholders

Dear Stockholders,

In the beginning of the 2011-2012 fiscal year, many of our employees had never participatedin Virtual Enterprise. We were trying to understand what to do and how to do it. Time and

time again, we raised a simple, though very puzzling question: What do customers want?

The ImagiNation Inc. team and the Kadabra! brand were carefully constructed to worry

about your problems so you dont have to. And that is exactly what we do through Kadabra!:

we find ways to give you the chance to unlock your natural potential, to be more efficient

and, overall, plain super!

We strive to create the best versions of people and bring solutions through the idea and the

feeling of having special powers. Essentially, we are selling super fun placebos that exercisethe imagination of our customers.

We are glad to announce that since our firm was incorporated, we have fulfilled multiple

goals, allowing ourselves to stand tall and proud among other VE groups.

Through our aggressive advertising campaign, we managed to create wide awareness of our

firm, attracting partners and developing an ongoing, personal relationship with our custom-

ers. We promoted our image well to both domestic and international firms, welcoming visits

from Brazilian and German firms to our own.

In our first year active, we achieved $100,000in sales of special powers, making profit andadvancing substantially as a firm.

We know; as an investor, you need more than scratching the surface. You want to see what

lies beneath the magic of Kadabra!, you want to know who is behind it. This annual report

will provide this to you along with that unique, imaginative, fun and inspirational flavor

ImagiNation Inc. has created.

You already know itwe put the power inyour hands!

Sincerely,

Yousif Yahya

Chief Executive Officer

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ImagiNation Inc. was launched as a new Virtual Enterprise firm in September 2011, with 18

employees. It operates in the novelty industry from the High School for Arts, Imagination and

Inquiry. Our firm aims to exercise the imagination of our customers through our Kadabra!

brand products. ImagiNation Inc. filed with VE Law & Management and became incorporated

as of November 5, 2011. We are located at 122 Amsterdam Ave, Room 376, New York, NY,

10023.

At ImagiNation Inc., it is our mission to help our customers unlock their natural potential. Webelieve every human being is an individual and has something that makes them extraordinary

We strive to create products that inspire our customers to become the best versions of them-

selves.

Company Description

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Mission Statement


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ImagiNation Inc. is broken down into five departments: Administration, Sales & Marketing, Ac-

counting & Finance, Human Resources and Technology. The duties in each department contrib-

ute in achieving our firms goals, creating a strong, solid structure.

To ensure that all sales and business activities are effective and efficient, our firm holds

monthly status meetings with the head of each department. In these meetings, the goals and

achievements for the month are analyzed, future objectives are discussed and strategies are de-

veloped. The team also estimates average sales goals for following months based on previous

ones. That way, it is easier to understand where to place future advertisements and where to

direct our customers.

Departmental meetings are also held regularly to discuss specific objectives such as product de-

velopment, pricing strategies, financial records monitoring, accounts receivables outreach, and

website maintenance. The Administration department often discusses partnerships establish-

ment through direct communication with other firms. Throughout the year, we explored domes-

tic and international firms, creating relationships that resulted in profits for both parties.

ImagiNation Inc.s Human Resources department was a key factor in our firms development

this year. They were responsible for overseeing employee activities such as attendance, perform-

ance, and possible conflicts. In the beginning of the year, HR employees developed an Employee

Manual to ensure the most efficient and moral performance from each and every member of ourteam, and created methods to motivate employees. At the end of every marking period, Human

Resources distributes employee evaluations and discusses with employees regarding what they

did well and what they should work on.

Management of Operations

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Management Discussion

All things considered, ImagiNation Inc. had a great first year of business. We exceeded our

profit expectations and came to popularize our name within Virtual Enterprise, allowing up-

coming employees to work with more ease and security.

As this was our first year as a firm, our fiscal year was partially focused on deciding what to

sell. When it was decided that we would operate in the novelty industry, we developed fun,

unique products at a gross profit margin of nearly 90%. Our estimated break-even point was

a little over $100,000, a result of our relatively low $85,000 fixed cost. Breaking even at that

point, we expected profit of about $6,000. As it turned out, we achieved a total of$99,486in

sales and our operations expenses added up to $78,546, resulting in $7,919of net incomeafter taxes.

Our success in our first year of business is largely a result of our aggressive advertising cam-

paign and a survey conducted over the course of November, which promoted the Kadabra!

brand, making it highly known among other firms.

This survey was an extremely important factor

in product development since it allowed us to

better understand what our customers wanted.With base on their wants and our mission of

making each individual the best they can be,

the Kadabra! brand came to develop a series of

trustworthy products that are not only fun, but

also helpful.

Another important factor in our success this year was the nearly perfect projections and at-

tainable goals set in the beginning of the fiscal year. We had a very low error margin for our

financials, resulting in successful management of operations.

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Market Research

Throughout the month of November, we placed advertisements on the Virtual Enterprise

International website to promote our market research survey. The objective of this survey

was to understand what our potential customers wanted. The results indicated that 50% ofthose who responded to our survey wished to improve in time management (Fig. A).

We had also speculated that our customers would like to achieve a certain level of success

without having to go through as many obstacles. This was based on the idea that, in earlyadulthood, consumers want things made easier. As seen in the chart, the second most wanted

aspect to improve is artistic ability. However, artistic talent was not a favorite when it came to

desired special powers, as shown in Figure B.

Based on the results of the survey, we understood that our market could be segmented into

customers who seek efficiency and customers who prioritize fun products. Powers categorized

as efficient include Kadabra!s Super Speed and Super Smarts, while our Special Voices Pack-

age, for example, is more inclined to fun purposes. Efficiency is substantially more popular

with those who took our survey, and became our focus for product development and marketing

strategies.

When our website and order form were running, we added a section inquiring what else our

customers would like us to offer. With this, we were able to continue developing imaginative

products that matched our customers needs, securing a personal and close relationship with

each person, and making sure that they were satisfied with our services.

Fig. AFig. B

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In the New York City Trade Show in March, our team thought it best to test brand awarenessdetermining whether or not our advertisements had been seen and noticed. During the trade

show, ImagiNation Inc. employees took turns talking to customers, asking questions and com-

pleting the awareness survey while distributing Special Healing Power samples. When orga-

nizing the information gathered during the trade show, we found that 61% of interviewees had

heard of Kadabra! before (45% of which had seen our advertisements), and no less than 90% of

all participants (those who had and those who hadnt heard of us) were satisfied with our

products and found that the prices are fair and good.

Part of our market research consisted of discovering who our innovators are, based on the idea

of Diffusion of Innovations, a theory which measures the rate at which new creations are

spread within a culture. Innovators are the first 2% to adopt an idea. These people are gener-

ally attracted to one kind of product and will buy anything that comes out within that cate-

gory. In our case, we were looking to find who were the people seeking innovation in the nov-

elty industry. Once we were able to get a hold of these people, our product would be more eas-

ily spread to other types of customers.

To find out who these people were, we gathered information regarding the states which

bought more and the states where our new products sold best. New York and Tennessee were

our top buyers. Once we found this information, however, it was difficult to apply it, especially

since our advertisements could not be displayed for one specific location. Still, this research

was useful in narrowing our target marketing, and this information can strengthen nextyears advertising campaigns.

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Market Research (continued)


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Internet Sales

When the ImagiNation Inc. Business Plan was developed, we were confident that internet

sales would be particularly important for our company. Although the New York City and Vi-

enna Trade Shows were expected to bring more sales, internet sales are a steady source ofrevenue. Therefore, the majority of our advertisement campaign focused on directing web

traffic to the Kadabra! website.

Kadabra.us was launched in December. Prior to that, we placed a teaser advertisement fos-

tering curiosity and directing potential customers to our market research survey.

Throughout the year, we used Google Analytics to track the traffic to our website, determin-

ing the number of people, the place the visit came from and what pages were visited. The

chart below depicts monthly access to Kadabra.us:

The month of December had the least visits (51) because the website was very new, and Janu-

ary was our leading month in terms of visits, with 229. This could be because we entered the

Citywide Business Plan Competition on January 13, having popularized our company previ-ously in the Local Competition. February and March proved the theory of steadiness in inter-

net sales with a very similar visit rate. During these months, we had unique visitors from

Spain, Indonesia and Brazil. April fell short of our expectations, probably because the fiscal

year approached an end.


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It is important to point out that not all visits become sales. In December, for instance, 27 of the

51 visits were sales. The chart below illustrates the number of visits that were actual sales:

Here, the projected sales are compared to the actual monthly results:

Projections vs. results for internet sales

Projection Actual results Percent difference

December $1,000 $1,170 +1.7%

January $3,000 $4,383 +46.1%

February $5,000 $5,947 +18.94%

March $5,000 $4,868 -2.64%

April $5,000 $2,062.50 -58.75%

Comparing these results, the average sale value was found, and we were able to estimate the

exact number of website visits we needed to achieve our sales goal for the month. In the Janu-

ary status meeting, for example, our team determined a total of 45 sales out of 280 visits

(about 16%) throughout both December and January, earning $5,553. Dividing the totalvalue of the sales by the number of sales, we found that the average sale price was approxi-

mately $123. To achieve our sales goal for February ($5,000), we aimed for about 256 visits

and 40 sales (18% percent of 256) of average value.

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Internet Sales (continued)


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Gathering all this information each month, our team was able to decide where to place future

advertisements, and where to direct customers.

We also found that it could be interesting to see how many of our site visitors actually went toour order form and how many of these people did make a purchase. Since we began to track

the access to order form, in March, it was visited 99 times, resulting in 40 purchases.

This could indicate a number of things, one of them being problems with the order form. It

could mean that customers wanted to purchase but werent able to. Theres also a chance that

people changed their minds or that making a purchase wasnt the plan in the first place, and

they were only roaming about. It is hard to determine what the issue (if there were any) was.

With that in mind, we often made test sales through our order form and employees accessed

the website from their own homes, checking its effectiveness and reporting any issues so that

you wouldnt ever have to be troubled by it.

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Internet Sales (continued)

Screenshots of the Kadabra! website,Kadabra.us


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Since ImagiNation Inc. started, our Sales & Marketing team has directed most of its efforts to-

wards the development of creative and efficient ways to promote Kadabra! products. We spent a

substantial amount of money (over $35,000) on advertisements placed on various virtual maga-

zines, other firms websites and the Virtual Enterprise International website, as well as sending

faxes, promoting products by email, and making cold calls. The latter strategy was the least ef-

fective: many firms did not answer the phone, even during their work hours.

Our advertisements included coupon codes valid for discounts. These served not only to attract

customers, but also as a way to track the effectiveness of each of our ads. To a certain extent,

this strategy failedmany people saw the ads, but the majority disregarded the coupon codes.

We developed theories as to why this happened. This observation could indicate that prices in

Virtual Enterprise are inelastic, meaning that demand remains the same even as prices in-

crease. This theory makes sense for Virtual Enterprise because participants have nothing to

lose, using virtual money. If such is the case, customers probably find discounts unimportant.

Perhaps, on the other hand, this could mean that the coupon code section of our order form

wasnt very clear, which we should plan to address.

Advertising Campaign

Kadabra! advertisement placed on the Virtual Enterprise

International website in February 2012, to promote two

new products.

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Banner ad placed in other firmswebsites throughout the year,

promoting the Kadabra! website.


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On March 16, two ImagiNation Inc. employees went to Vienna, Austria, for the International

Trade Show. Their goal was to represent and advertise the firm properly for both international

firms and domestic ones in attendance. Despite of the work that it takes in preparation for theTrade Show, they had the opportunity to spend a week living with a host family, attend an in-

ternational business college, and explore Viennas many attractions.

Before their departure, all the departments in our firm came together and worked to develop an

appropriately creative and unique booth, and a good marketing strategy, which included con-

verting our prices from dollars to euros.

We did an extensive research in psychology to determine how to set up our booth for the Trade

Shows. Studies regarding colors indicate that different colors have different effects on the hu-

man mind, influencing a variety of feelings to arise when we notice them.

The color red, for instance, should be used in small doses for retail businesses because it causes

inclination to aggression and anger. The right amount of red should result in people feeling en-

ergetic, passionate, and excited. Yellow is often used in businesses for attracting customers be-

cause of its happy and playful quality, even though it may create anxiety. This color, we found,

is ideal if businesses want customers to come in, purchase, and go out quickly. Green is stimu-

lating to thirst, therefore appropriate for use in restaurants.

Trade Shows

Blue symbolizes honesty and trustworthiness. It has a calming effect on people and is generally

useful in attracting customers, besides helping to entice customers, causing them to spend more

time in the store.

Based on this research, it was determined that our booth would consist primarily of the color

blue, with the Kadabra! classic theme of comic books hanging from the sides to strengthen our

brand image, and red cloth on our booths table. Besides the psychological influence of the chosen

colors, we also kept in mind that superheroes often wear blue and red outfits, which, again, sup-

ports Kadabra!s brand image and our mission of helping customers feel super.

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After creating a small prototype of our booth, our challenge was to improve our marketing strat-

egy and develop an effective way to attract customers to our booth. In order to solve this prob-

lem, more research was done, this time on how to attract customers. Our ultimate strategy wasbased on a theory claiming that curiosity arises from the perception of a gap in understanding,

and that this deprivation is akin to the feeling of hunger. When a person becomes aware of a

gap in their knowledge, they feel that they must fulfill it.

Because of our aggressive advertising campaign, we realized that several people in Virtual En-

terprise already knew us, even if not thoroughly. With that, we chose to prominently display our

Super Smarts, a classic Kadabra! product, and a novelty favorite, Teleportation. This way, there

was something that they knew and many had already bought. Next to it, a somewhat mysteri-

ous product which revealed a gap in their knowledge of Kadabra! and in their understanding of

the worldsince when could we teleport?

Finally, after analyzing more studies, we trained our employees to emphasize a few key words

during their sales pitch. These include words such as you and can (individually or not),

which incline customers towards increased confidence in themselves; easy, which provides

them with the feeling of capability, and, most importantly, imagine. This word has been

proved to instigate a persons imagination almost instantly. These are useful not only for their

meanings, but also because they are truly related to Kadabra! and its mission.

To ensure the most effective service to our customers, we had our employees take shifts in mak-

ing sales, directing customers to our booth, and talking to them and distributing our survey.

Throughout the trade show, not one customer remained unattended or left dissatisfied with ourproducts and services. We also had three Apple iPads and one computer available for our cus-

tomers purchases. This way, we were able to place orders faster and with instant email re-

ceipts, besides making it easier to track them. Our technological efforts made our team more

efficient, just as our products make our customers more efficient.

The prototype and the real booth

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Trade Shows (continued)


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This year, ImagiNation Inc. had the chance to send two employees to Vienna, Austria, for the

international Trade Show. The chosen employees were our VP of Sales & Marketing and our VP

of Human Resources.

Their trip required a lot of preparation from them and the rest of the firm, as we hoped to con-

vey a good image of the firm internationally. This, however, does not mean that their trip was a

stressful one. It was quite the opposite!

While in Vienna, our employees stayed with host families. Luckily for them, they were right in

the 7th District, known for being a good place for shopping, and full of landmarks. Besides visit-

ing an international business college for lectures and other activities, they had the chance to

visit the Stephansdom(or St. Stephens Cathedral) and the Schnbrunn Palace, for example.

When our employees returned, they had tons of stories to tell about the food, the language, the

people, and more. Not much later, they would welcome their hosts into their own homes for the

New York City Trade Show, developing new friendships and knowing more about a different

culture.

In Vienna!

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Nicholas ChapmanCoordinator, ImagiNation, Inc.

Stephen NoonanPrincipal, High School for Arts, Imagination and Inquiry

Jaimee FischerAssistant Principal, High School for Arts, Imagination and Inqui

Iris BlancDirector, Virtual Enterprises InternationalJohn JastremskiAssistant Director, Virtual Enterprises International

Eric SpinnerAssistant Director, Virtual Enterprises International

To make sure that ImagiNation Inc.s pursuit of excellence and improvement is headed the right wa

the members of our board of directors overlook our company and mission.

Board of Directors

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Letter from the CFODear Stockholders,

As Chief Financial Officer of ImagiNation Inc. for the 2011-2012 fiscal year, I hereby take full

responsibility for all financial data presented in this annual report. The Accounting departmentof ImagiNation Inc. kept all financial data organized and clear throughout this fiscal year. I,

Irvin Barreto, take full responsibility for the validity of this information.

Sincerely,

Irvin Barreto

Irvin BarretoChief Financial Officer

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Financial Data


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ImagiNation Inc.Income Statement

FY 2011-2012

PROJECTED ACTUAL % Difference

Sales revenuesInternet Sales 21,000 21,381 2%NYC Trade Fair (On Account) 25,000 17,093 -32%

NYC Trade Fair (Cash Sales) 25,000 25,028 0%International Trade Fair (Credit) 20,000 11,211 -44%

Sample Sale 24,300 24,773 2%

Total sales revenues 115,300 99,486 -14%

Cost of goods sold 23,060 11,623 -50%

Gross profit 92,240 87,863 -5%Gross Margin 80% 88% 10%

Operating expensesSalaries 32,400 24,684 -24%Payroll tax 2,479 1,888 -24%

Rent 6,975 6,975 0%

Advetising/ Promotion 30,000 35,050 17%Trade Fair Booth 1,000 0 -100%

Insurance 333 333 0%

Accounting & Legal fees 333 333 0%

Utilities 2,375 2,375 0%

Interest Expense 1,507 1,507 0%Pension or 401(k) 0 0 0%

Depreciation 4,000 4,355 9%Other or miscellaneous 3,650 1,044 -71%

Total operating expenses 85,053 78,546 -8%

Income from operations 7,187 9,317 30%

Other gains and losses 0 0

Net income before taxes 7,187 9,317 30%

Corporate income tax 1,078 1,398 30%

Net income after taxes 6,109 7,919 30%

After conferencing in the beginning of the year, our team set out with the goal of achieving a to-

tal of $115,000 in sales, with $85,000 spent in operating expenses and an estimated total profit

of about $6,000. We were able to achieve over $99,000in sales. Additionally, our operating ex-

penses were also lower, and we were able to have a 30% larger profit than expected, $7,919.

This is in large part due to our low cost of goods sold. Expecting 80%, we found our gross profit

margin to be 88% percent this year, which allowed our firm more financial freedom, as our prod-

ucts cost us very little.

Income Statement

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ImagiNation Inc.

Cash BudgetFY 2011-2012

Description Projected Budget Actual Budget % Difference

Cash balance at beginning of period: 0 0

Receipts of cash:

Sales 102,963 75,483 -27%

Receipts of accounts receivable 15,094 13,871 -8%

Loan proceeds 80,000 80,000 0%

Other 60,000 90,000 50%

Total receipts 258,057 259,354 1%

Beginning balance + cash receipts 258,057 259,354 1%

Payments:Cost of merchandise 23,060 10,993 -52%

Salaries 23,855 19,572 -18%

Accounts payable 5,913 0 -100%

Rent 10,463 12,207 17%

Advertising/ promotion 30,000 25,050 -17%

Payroll tax 5,211 3,313 -36%

Insurance 500 500 0%

Accounting and legal fees 500 500 0%

Utilities 3,563 4,157 17%

Loan Principal 7,461 7,461

Loan Interest 1,507 1,507 0%Pension, 401(k) 0 0

Sales tax 2,695 863 -68%

Shipping 3,790 373 -90%

Other or miscellaneous 3,000 33,707 1024%

Corporate tax 0 0 0%

Total payments 121,518 120,203 -1%

Cash balance at end of period: 136,539 139,151 2%

Net increase or decrease in cash 136,539 139,151 2%

Cash Budget

Throughout the year, our cash budget projections proved to be very close to our actual results.We expected total receipts to be about $258,000, they were about $259,000. Similarly, we ex-

pected payments to add up to over $121,000 and they added up to little less than that, $120,203

At the end of the fiscal year, our projection for a $136,000 cash balance, resulted in over

$139,000. This indicated a 2% error in our projections, proving that our research and expecta-

tions in the beginning of the year were highly realistic and attainable. The percentage differ-

ence remained low despite the 1024% error in the Other or miscellaneous section (this high

difference is due to the purchase of our office equipment).

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ImagiNation Inc.Projected Balance Sheet

FY 2011-2012

4/30/2012 4/30/2012

Assets Projected ActualCurrent AssetsCash 136,541 139,151Investments in stocks 0 0Accounts receivable 9,516 16,125Merchandise inventory 0 0Supplies 600 600

Total Current Assets 146,657 155,875

Fixed AssetsComputers 12,664 12,664Less: accumulated depreciation 1,689 1,689Furniture and fixtures 15,000 15,000Less: accumulated depreciation 2,000 2,000Office equipment 5,000 5,000

Less: accumulated depreciation 667 667Total Fixed Assets 28,308 28,308

Total Assets 174,965 184,184

Liabilities and Shareholders' Eq-

uityCurrent LiabilitiesAccounts payable 0 600Unearned revenue 0 0Shipping Payable 1,125 901Sales tax payable 4,813 3,898Salaries payable 1,789 1,564

Payroll tax payable 782 1,302Corporate tax payable 1,078 1,398

Total Current Liabilities 9,586 9,662

Long Term LiabilitiesLoan payable 72,539 72,539

Total Liabilities 82,125 82,201

Shareholders' EquityCommon stock, $10 par value, * # sharesissued

90,000 90,000

Additional paid-in-capital 0 0

Retained earnings 2,840 11,983Total Shareholders' Equity 92,840 101,983

Total Liabilities and Shareholders' Eq-

uity174,965 184,184

Balance Sheet

Similarly to the previous data, our balance sheet presents very close projections and results,

with less than $100 in difference between our projected total liabilities and the results. The

biggest difference, which shows in our total assets, is due to an unexpected value in accounts

receivables, an effect of difficulty in tracking down trade show payments that resulted in a

difference of almost $10,000 between projected and actual Total Assets.

imagination inc. 2011-2012 annual report

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