NOCTURNAL VISIONbusiness planconfidential

nocturnalvision.se

“We see things the world can not”

Benjamin Page, Michael Hoy, Tomasz Gidzgier

Executive Summary

The invention of the video camera changed the world. It enabled us to not only record a moment in time, but also stream in real-time. Video cameras today are used across many industries including entertainment, surveillance and consumer electronics. In lit environments a video camera is essentially an extension of the eye. In the dark, however, a gap exists between what we see and what a video camera captures. Our mission is to close this gap and enable video cameras to see in the dark.

Our technology, developed at Lund University, was inspired by the way nocturnal animals see in the dark. When integrated into video cameras and editing software it dramatically improves the quality of dark video by enhancing contrast, reducing noise, and sharpening the image.

Nocturnal Vision is already being used by Toyota to improve the safety of night time driving. The management team has identified four other major markets where our technology can be commercialized: consumer electronics, surveillance, military and medical equipment. We intend to license our technology to each of these markets by customizing it for specific platforms and innovating new image algorithms to meet the future needs of our customers.

Our market strategy comes in three phases: startup, expansion, and growth. In the startup phase we will focus on licensing our technology to the mobile phone segment due to key contacts at Sony Ericsson and Samsung. In the expansion phase we will move into the remaining markets and establish new revenue streams through software sales and web services. In the growth phase we will expand our customer base in all of our markets, while seeking out new segments to grow.

The Nocturnal Vision team is composed of three serial international entrepreneurs with a passion for new technology and two mathematicians with over 20 years combined experience developing image algorithms. Supported by an experienced board of directors and key advisors Nocturnal Vision is well positioned to achieve its goals.

Background

For 28 years Dr Eric Warrant studied nocturnal animals and insects like the dung beetle that possess an extraordinary ability to see in the dark.  During his research he found that these insects use multiple optic sensors to pool information from neighboring sensors in order to see in the dark.

Eric’s research was passed onto two mathematicians at Lund University, Henrik Malm and Magnus Oskarsson, who developed an algorithm that pools information from neighboring pixels to fill in image data lost in the dark.  This algorithm uses information from previous frames to brighten and sharpen each frame to create a visible and noise free video.

Toyota took an active interest in the algorithm early in its development, as they realized its potential to improve the safety of night time driving. In exchange for exclusive commercial rights in the automotive industry, Toyota covered the research and development costs. A patent for the technology is pending and will be jointly held by Nocturnal Vision AB and Toyota.  

The inventors realized that there were other markets aside from automotive where their innovation could be commercialized. The inventors are not, however entrepreneurs. The project was therefore offered and accepted by three Master of Entrepreneurship students at Lund University. These three students form the present management team.

PART 1Business Idea

Fundamental Idea1

Nocturnal Vision’s technology remarkably improves the quality of no-light to low-light video footage. Our technology is an algorithm that pools information from video frames to brighten, reduce-noise, and sharpen the present video stream. The technology can run in real-time or can be applied to post-production video edits.

Modern video cameras struggle to capture scenes in no-light and low-light conditions. This is a problem. What happens in dark environments is just as important (if not more important) to capture as what happens in sufficiently lit conditions. For example:

• A break and enter occurs, the suspect is caught on camera, however, because it was too dark the police cannot identify the thief's face.

• Michael is unable to share a video of his favorite jazz band because the bar where the band played was too dark.

• A driver is unable to spot a deer sprinting across the road because it was too dark. • A military drone can not diffuse a bomb at night because it fails to distinguish the red wire from

the green.

Our technology solves these problems, and allows end-users to capture video in a way that is not currently possible.

1 For an overview of our business please refer to the Business Model Canvass in Appendix 1

Offering & Revenue Model2

Nocturnal Vision offers its technology in three ways creating multiple revenue streams realized over three phases of business operation.

Startup Phase (Year 1 - 3)In our startup phase will we license middleware to mobile phone and camera OEMs (original equipment manufactures). Middleware is the software layer that lies between the operating system and the applications. Middleware is easier and cheaper to implement than hardware, but can be sold for more than standalone software. Middleware furthermore gives our customers flexibility to customize our technology to meet their platform requirements through an open API (application programing interface).

Our licensing agreements will be wide (customers may implement our technology in a wide range of their products), but not perpetual. The strategy being to hook our customers on our technology while pressuring them to renew their contracts as we update our algorithm.

Expansion and Growth Phase (Year 4 and beyond)During our expansion and growth phases in year 4 and beyond we intend to establish two additional revenue streams through software sales and service fees. A steady cash flow from licensing contracts will allow us to move resources toward developing software and add-ons (to existing video editing software) sold directly from our website. The Nocturnal Vision website will also allow customers to upload short videos to be processed with our technology on demand for a small fee.

2 For a visualization of our business model see appendix 1

applications

middleware

operatingsystem

drivers

hardware

Mobile Phone Platform

API

Value Proposition

Our technology makes video cameras and associated editing and encoding software more valuable by adding a functionality (dark image processing), which is lacking. This added value is passed onto and paid for by the end-user. Specifically our technology offers our customers four benefits:

Performance Improvement- Our technology dramatically improves the ability of our customer’s devices and software to capture/process dark video sequences.

Newness- Especially in the consumer electronic industry (mobile phones and video cameras) our technology offers a feature not currently available to the end-user.

3 for 1- Nocturnal Vision’s technology combines two image enhancements in one: contrast enhancement and noise reduction, in addition to better performance in response to direct brightness.

Customization- We work with our customers to customize our technology to meet requirements for specific platforms.

Nocturnal Vision Before and After

Uniqueness and Competition

Our product is superior to current real-time night-vision technology in three ways:

1. Modern night-vision technology uses infrared, which results in monochrome video streams. Nocturnal Vision streams in color.

2. An infrared camera is easily spotted by its red light. A camera using our technology remains stealth.

3. Current night-vision technology struggles under direct brightness and in ranges of dark shadows. Our technology was designed to excel in direct brightness and extremely dark environments.

Nocturnal Vision is also unique from competing algorithms used to enhance dark video sequences in post production. Most existing algorithms in this domain provide either noise reduction or contrast enhancement. Our technology combines these functionalities into one process. This gives our product a competitive advantage, as it requires less processing power than running these processes individually.

color night-vision vs monochrome night-vision

PART 2Team

Management Team

The management team consist of three international serial entrepreneurs currently completing a Masters in Entrepreneurship at Lund University.

Michael Hoy, Head of Marketing As Head of Marketing, Michael is responsible for creating the Nocturnal Vision brand, communicating our offering, and dealing with PR. He is also the unofficial CHO, or Chief Happiness Officer. Michael has a Bachelor's Degree in Business Economics from the University of California in Santa Barbara and experience managing two startup companies and a sustainable non-profit. As a real estate agent and founder of an online real estate video company, Michael earned "Broker of the Year" honors in New York City for popularizing online home video tours. 

Benjamin Page, Head of Business Development and Sales As Head of Business Development and Sales, Benjamin is responsible for developing and securing licensing contracts. He will also seek financing and formulate business strategy. Benjamin is a Canadian entrepreneur holding a Bachelors of Commerce from the University of Victoria. Benjamin likes to wear a few hats and approach business problems from different perspectives. He draws on experience from working in Canada, France, and as a Business Development Manager in South Korea.

Tomasz Gidzgier, Head of Technology As Head of Technology, Tomasz is responsible for co-ordinating the development of our technology from Matlab to packaged middleware. Tomasz will also play the lead role in sourcing technical talent to join the company. Coming from Poland, Tomasz holds a Master of Science in Information Systems from Lund University. Throughout his studies he has been managing his own business employing 60 people within the transportation sector.

Innovation Team

Henrik Malm & Magnus OskarssonHenrik and Magnus are responsible for developing Nocturnal Vision’s technology at the Matlab level. They will optimize technology for various markets, provide updates to the algorithm, and innovate new image algorithms that will drive growth in the future. Henrik and Magnus wrote Nocturnal Vision’s current algorithm. Henrik holds a PhD in Computer Vision and Mathematics from Lund Institute of Technology. Mangus has a MSc in Engineering Physics and a PhD in Mathematics also from Lund Institute of Technology.

Board of Directors

In addition to one representative from the management team and one from the innovation team, the Nocturnal Vision Board sits three external members.

Mats Jacobson, Chairman of the Board Mats will be appointed Chairman of the Board for Nocturnal Vision AB. He was President and CEO for Scalado AB for 7 years, where he successfully led Scalado to become the market leader within mobile imaging. He currently works as a management consultant in his co-founded company Bizz 2.0 AB. In addition to his chairman role, Mats will also be acting CEO of Nocturnal Vision.

Jeanette JakobssonJeanette is the former Head of IPR Legal for Sony Ericsson and currently sits on several boards. She contributes legal expertise surrounding IPR, negotiating prowess, and a wide contact network. In addition to her board role, Jeanette will actively provide legal support to Nocturnal Vision.

Thomas Rundqvist is a PhD and business developer from LUAB. Thomas has a wide network of contacts in business and academia. Initially he was assigned the task of commercializing the algorithm through LUAB, who holds 12% stake in the company.

Advisors

Mobile Heights Business Center is a mobile communication cluster initiative in southern Sweden. The Business Center brings together all pieces needed to secure the first important steps for high tech start-ups. The management team is currently working within the program to widen our network and gain access into the consumer electronic markets. Nocturnal Vision’s Key advisors at Mobile Heights include Marianne Larsson, Jonas Klevhag, and Anna Christerson.

Missing Competencies

The major competency gaps in Nocturnal Vision are the development skills (C+, system architecture, mobile platform development, hardware integration) needed to take updates and innovations in Matlab to a package form, such as middleware, which can then be sold to our customers. The skills are however, fairly abundant and will be initially be outsourced or acquire through partnerships (discussed in the Business System and Organization section). As Nocturnal Vision grows we will hire these competencies in-house to become more efficient.

Other competencies missing in the company such as accounting and web development will be outsourced.

PART 3Marketing Plan

Marketing Analysis

For our initial market analysis we have researched five major markets where our technology could be commercialized. This research is summarized in the table below and then explained in depth in accordance to each individual market. We have not included the automotive industry into our research as Toyota holds patent rights in that market.

Military

Surveillance

Medical Scope

Remote Diagnosis

Video Cameras

Mobile Phones

Profi

t Pot

entia

l

Proc

essin

g Pow

er

Contac

ts

Low Li

ght P

roble

m

Prox

imity

to C

ore P

rodu

ct

Tren

d

Best Fit

Low Fit

Medium Fit

Mobile Phones3

In 2006 the mobile phone market produced nearly 800 million phones and had revenues of more than $120 billion. The mobile phone market is expected to grow consistently and substantially for years to come with 40% of the world’s population (2009) still not owning a mobile phone. An important trend for our business is that a large segment of the market is now switching to smart phones, which have begun converging with video cameras.

Current night vision modes in mobile phones use filters and long exposure times to record video in low-light conditions. Filters help either reduce noise, sharpen the picture, or adjust contrast. The main advantage of using filters is that they are not processor heavy and several can be used at the same time. Furthermore, manufacturers can implement filters at a low cost. The quality of the output is, however, poor leaving a lot to be desired from the end-user.

The corporate structure of the mobile phone companies and the supply chain dependencies make the mobile phone market tough to enter.  Fortunately, through cooperation with Mobile Heights Business Center we have gained access to executives at Sony Ericsson and ST Ericsson. The executives at Sony Ericsson are sold on the value our technology could provide their customers. We are currently optimizing our algorithm to fit their platforms and are discussing a co-development agreement.

The management team has also begun a dialogue with Samsung, the second largest mobile producer in the world. A buyer from San Francisco initially contacted us about adopting Nocturnal Vision after reading about it in Gizmodo and Wired. Additionally, through our Chairman Mats Jacobson’s connections, we have direct access to decision makers at Samsung headquarters in Seoul Korea. A sales trip to Seoul is planned for July 2010.

3 Frost and Sullivan, 2009

“We would love to be first to market with this

technology.”

-Mats Wernersson, Camera Specialist, Sony Ericsson

Camcorders and digital still cameras4

The world camcorder market is a $2.4 billion-a-year business with 35 million camcorders sold worldwide in 2009. The market grows further when we include the 130 million digital still cameras (most of which have video capabilities) sold last year globally.

The major trend in this market is a continuous increase in definition. The majority of new video cameras (both camcorder and digital still camera) in the future will film in HD (high definition). This is great for us, as the higher the definition, the more information our algorithm has to work with, and the clearer the video footage provided to the user.

The major barrier into entry in this market is that we must incorporate our technology into the chip of the OEMs (original equipment manufacturer). This can be both capital and time intensive. Furthermore, many OEMs outsource the development of their chips. This means we must convince the OEMs that our product adds enough value so that they will pressure the chip manufacturers to deal with us.

Through working within Mobile Heights Business Center we have opened a dialogue with Sony Ericsson, whose executives have promised to introduce our technology to SONY. Furthermore, a collaboration with Samsung would most likely provide access to their camera divisions as well as their mobile phone department.

4 NPD 2009, Market Research Group

Surveillance 5

The video surveillance markets in Europe and the US have a combined value of $5.34 billion and is growing. Our product would best fit within the network camera and encoder subsegments worth 3.9% and 3.6% of the market respectively. (Please refer the industry breakdown chart in appendix 2)

Network cameras are digital and represent the future technology of the surveillance industry. Focusing on this segment would be wise, as we would be well positioned for growth once the industry switches from analog to digital. This transition, however, is slow going with roughly 85% users today still using analog cameras. For this reason we also like the encoder segment, as encoders are widely used by analog system owners to acquire the benefits of digital technology.

The major barrier of entry into our target segments lies in the complexity of the value chain (refer to appendix 3 for a visual of the value chain). We must license our product to the OEMs at the the start of the chain, however, the benefit of our product is not realized until the end of the chain with the end-user. Generally, dealing with the start of the chain is a tougher sell and less profitable.

Despite the barriers, the Nocturnal Vision team recently spoke at Europe’s Leading image processing conference, ISE 2010 in London, and impressed several players in the industry including the French Ministry of Defense. Furthermore, National Geographic contacted our team. Ironically, they are interested in using our technology to film nocturnal animals such as the dung beetle, which were the very inspiration for this project.

Our main competitors in this market are developers of other algorithms that help improve the quality of dark environment recordings. As stated in the other section our product has several competitive advantages: it operates in extremely dark conditions, it performs both contrast enhancement (brightening), noise reduction, and sharpening in one process, and it can operate in direct brightness.

5 Figures for this section obtained the Frost and Sullivan Database, 2009

Military6

Military R&D expenditure in the US equals $7.7 billion with 5.8% annual growth.  In Europe $17.7 billion USD is spent annually with more than 9% growth. The European military market is expected to continue growing for the next eight years as the armed forces of Europe modernize their warfare. 

An interesting segment in the military industry that could reap direct benefit from our technology is night vision googles. 1.17 million night vision goggle units were deployed around the world's armed forces in 2009. This deployment is forecasted to grow by 20% in 2010 and continue to grow annually decrementing with 0,9 % for every next year until 2013.

Key trends in the military market include moves toward upgrading and adding technology to human soldiers and substituting the soldiers with unmanned systems such as robots.  In both these trends, there is a benefit from utilizing our technology.  Imagine for instance a robot working to disarm an explosive by cutting the green wire instead of the red wire. This task is impossible when looking through traditional infrared filtered night vision. 

Barriers to entering the military market include long development times, extreme performance requirements, high complexity, and a drive towards technologically advanced solutions (over ones that merely meets the requirements).

The competition is strong, as militaries are ready to spend large amounts on R&D and are eager to take on new technologies. Many companies compete to gain military funding for their research. Furthermore, there many other devices used for night vision by militaries, which have already proven useful in combat situations.

6 Frost and Sullivan, 2009

Medical Equipment7

The medical equipment market is valued globally at $230 billion with $100 billion of that total sold in countries outside the US.

The demand for medical equipment remains fairly constant from year to year. Sales are heavily dependent on population trends and the amount of change in the managed care industry. Medical products companies operate in a rapidly changing environment with significant production risks.

We have identified two segments within the market where our product could add value: medical scopes and remote diagnostic devices. Medical scopes use tiny cameras to assist surgeons during operations. The scopes operate inside bodies in dark environments, which could be improved by our algorithm. Remote diagnostic devices (video cameras with networking capabilities) are used by paramedics to obtain on site feedback from a doctor at the hospital.

The medical equipment industry has significant barriers to entry including economic, regulatory, and legal obstacles that prevent small or new companies from entering the field. It is also difficult to compete with large equipment companies with wide sales forces and economies of scale. Furthermore, significant research and development expenditures are required for the medical equipment product development process.

As a first step into this industry we have held a meeting with a company called Live Response. Live Response facilitates video communication between doctors at hospitals and paramedics in the field attending to accident victims. Unfortunately, the service struggles to perform at night since the video streams are too dark. Nocturnal Vision’s technology could help improve Live Response’s service.

7 Frost and Sullivan, 2009

Market Strategy

Startup Phase (~Year 1 - 3) In our startup phase we will focus primarily on the mobile phone industry due to our contacts with Sony Ericsson and Samsung, cooperation with Mobile Heights Business Center, and competencies on our Board of Directors.

Our market strategy is formulated based on the value chain of the industry. We will work backwards down the value chain by first selling to and creating demand from the original equipment manufactures (OEMs), which we will later use to initiate and secure a deal with a chip maker. Keeping in mind that throughout the process we must demonstrate a need from the end-user.

The demand for dark environment video recording capabilities in the consumer electronic industry is prominent in the end-user group. Even owners of the most expensive mobile phones are disappointed with their inability to capture night scenes. To help solidify this demand our team has discussed a partnership with a web service called Bambuser8. Bambuser allows its users to stream live video from their mobiles to a website. Nocturnal Vision’s technology will be implemented on the server side of Bambuser, so that viewers will realize how we can improve their dark videos.

8 This partnership was discussed with Bambuser CEO, Mans Adler

Chip Makers

OEMS End-Users

Finish Startdemand

Further down the value chain are the OEMs, where we will initially create sales. As mentioned in the market analysis we have already begun a dialogue with Samsung and Sony Ericsson. Samsung will most likely be our first customer as they are faster to market and pay more for intellectual property. Furthermore, Samsung is known to adopt and co-develop technology at a earlier stage than other OEMs.

Based on discussions with industry experts, a licensing deal with an OEM should be worth between 1 and 3 million SEK per year provided that we continue to update our technology.9

To ensure growth10, we will avoid lengthy exclusivity clauses and perpetual usage agreements when forming licensing contracts with the OEMs. Our board member Jeanette Jakobsson (former Head IPR Lawyer for Sony Ericsson), will be in charge of writing and negotiating contracts.

Once we secure licensing agreements with several of the major OEMs we will approach the chip manufacturers–the most lucrative customers, found at the beginning of the value chain. A licensing deal with a chip maker like ST Ericsson or Qualcomm would mean that our technology could potentially be in billions of chips worldwide in both mobile phones and video cameras. Based on a meeting with ex-CTO of Sony Ericsson, Mats Lindoff, we estimate that a licensing contract with a chip maker could be worth up to 6 million SEK a year.

9 Based on conversations with industry experts: Mats Lindoff, ex-CTO of Sony Ericsson, Pierre Elzouki, founder of Scalado, Mats Jacobson, ex-CEO of Scalado, and Jeanette Jakobsson, ex-Sony Ericsson lawyer

10 Renewable contract with multiple OEMs

Expansion Phase (~Year 4)

In the expansion we will set our sights on new markets. Our strategy is to use experience gained in the startup phase to improve our technology and sales approach, so that we can penetrate our remaining target markets simultaneously. To do this we will hire dedicated sales managers in each of our markets.

In our expansion phase we will also establish our second and third revenue streams sourced from software and add-on sales and service fees for on-demand video processing. Both the software and web service will be offered exclusively on the Nocturnal Vision website and will be marketed mostly online. The software will be sold at ~500 SEK, while an add-on would be cheaper at ~300 SEK. Margins for both these products will be kept high by only offering digital versions rather than packaging them. The web service will offered at various low price points depending on the quality demand and length of the customers video.

Growth Phase (~Year 5 and beyond)

In the growth phase we will attempt to increase our customer base in each of our target markets. We will do this through exhausting our network, working with our first customers, and attending major trade fairs. Furthermore, we will offer updates to our software and/or add-on solutions and improve our on-demand web service.

PART 4Business System & Organization

Business System

Nocturnal Vision’s business system is simple: we innovate image algorithms, package the innovations for value, and market and sell the packages to customers.

InnovatingIn order to become a growth company Nocturnal Vision must not only rely on its current technology. but rather continue to innovate through updating our existing algorithm and developing new ones. This crucial work is performed on a mathematical level and will always be executed in-house.

PackagingBy packaging our innovations we create value for our company and customers. Initially, as discussed in the Business Idea section, we will package middleware. Creating middleware requires several competencies including: C+ development, system architecture and mobile platform development. These competencies will initially be outsourced and then moved in-house as we make sales. The co-ordination of our packaging efforts will be executed internally by our Project Manager.

INNOVATE PACKAGE SELL

Sales & MarketingSales and marketing is a strength of the management team and will be performed in house. Nocturnal Vision’s Chairman of the Board further adds years of experience selling to OEMs that we can draw from.

LegalLegal activities including establishing IPR and licensing agreements are crucial for Nocturnal Vision’s success. We have therefore secured one of Sweden’s best IPR attorneys as a board member who will also perform legal work paid as an external consultant.

Potential Collaboration Partners

Collaboration partners in the startup phase include Mobile Heights Business Center and Bambuser whose roles have been discussed in the marketing sections. We have also discussed collaborations with Raviteq and Tactel as a means to efficiently produce a demo and package our technology for our first customer. Additionally, the OEMs themselves may become development partners should we have difficulty optimizing for their platforms.

Organization Structure

The organizational structure for our startup phase is shown below in green with specific payroll costs in the margin.

Overseen by the Board of Directors lies the CEO and beneath it departments for innovation, packaging, business development and sales, and marketing.11

An important note is that the CEO role will be held by our Chairman of the Board, Mats Jacobson. Mats will act as an intern/part-time CEO and will be paid as an external consultant. Mats’ main role will be to coach and groom the management team, facilitate deals with first customers, and help secure round one financing. Mats intends to step down from the CEO role in a year’s time to be succeeded by one of the entrepreneurs in the management team. Although untraditional, we feel this set up will provide the strongest foundation for Nocturnal Vision to grow.

11 For details on the various roles refer to the team section

Board of Directors

CEO

Marketing Business Dev. & Sales

Packaging Innovation

Function Monthly Salary

CEO 20,000 SEK

Head of Marketing

25,000 SEK

Packaging Product Manager

25, 000 SEK

Product Innovators

60,000 SEK

Head of Business Development and Sales

25, 000 SEK

Total cost to company after employer taxes and insurance

197,000 SEK

Building the Company in the Future

The future of this company lies in the development of innovative image algorithms that can be packaged and sold to customers across various industries. It starts with offering our current technology to the mobile phone market and in turn to our remaining target markets. But, to stay ahead of the competition we must begin innovating new image algorithms as soon as possible. By pushing internal innovation and the development of a portfolio of packaged IPR we will ensure sustainable growth and profits.

PART 5Implementation Plan

The timeline below illustrates Nocturnal Vision’s milestones, hopeful customers contracts, and financing rounds through 15 months of operation. Critical activities for this time period are shown below the timeline, with overlaps indicating dependancy. For a more thorough examination of key activities in our first 2 years of operation please refer to the gantt chart in appendix 7.

Year 1

August

5 Million SEK

Break Even

June JulyMarch

2nd Customer

June

Incorporation

Algorithm transferred to C++

The Critical Line

Form Nocturnal Vision AB

Create New Patent

Contract with Toyota

Develop Android App For Sales Demo

Create White Papers with Tech Specs

for Customer Sales

NOW

Adjust Sales Approach for New Customers

Year 2

1st Customer

Sept

3rd Customer

August

Optimize Technology for

Mobile Phone Implementation

Co-Development Middleware

with Samsung

Co-Development Middleware

with Sony Ericsson

Create Shareholders

Agreement

PART 7Finances

Assumptions

1. We start with 4 employees and work up to 7 by the end of the first year

2. Our first customer is willing to pay an upfront fee to test our technology on their platform

3. OEMs will pay between 1 and 3 million SEK per year to license our technology

4. In year 1 we secure two OEM companies as customers

5. We upgrade our technology each year and customers renew their license

6. In year 2 we acquire two more OEMs as customers

7. In 3 years we land a chipset manufacturer such as ST Ericsson who will pay 6 million SEK per year

8. In year 3 we lose two OEM customers who will receive our technology from a chipset manufacturer

9. We have not included sales revenues from software, add ons, or web service fees

For detailed financials, please refer to projected cash flow, balance sheet, and income statements in appendixes 4 through 6.

Costs

Nocturnal Vision’s major cost in its first three phases of operation with be its human capital (laid out in the organization section). We will keep operations lean by focusing on licensing agreements, simple web services, and digital only software solutions. In the first year we will incur nearly 5 million SEK in total costs and close to 6 million SEK in years two and three. For a detailed cash flow budget please refer to Appendix 4.

Investment and Capital Requirements

To finance Nocturnal Vision, the management team is seeking 5 million SEK in first round financing to cover operating expenses for the first year. Further financing rounds may be required depending on customer payment terms

Our team has met with several public and private investors who have shown interest in financing our business. Public organizations ALMI and KK Stiftelsen have already granted us 65,000 SEK in development capital. In addition we have applied for a 350,000 SEK grant from Vinnova and another 50,000 SEK from KK Stiftelsen.

On the investment side, InnovationsBron is interested in Nocturnal Vision and could provide up to 2.5 Million SEK in funding, provided we have a private investor to make a matching investment. Furthermore, by presenting our business to over 20 venture capitalists at the Mobile Heights Investment Day, we made several connections with interested investors including Denmark’s Seed Capital and Bizz 2.0.

Value Proposition

Nocturnal Vision will cooperate with potential investors towards a financing agreement that works for both parties. The current shareholder agreement outlines four groups of equity holders: the three researchers (50%), LUAB (13%), the management team (30%), Mats Jacobson (7%).12 An outside investment would dilute the shares proportionally. The board of directors is currently discussing an appropriate amount of equity to give up for the required 5 million SEK investment for the 1st year.

12 We are still in the process of writing the initial Shareholders Agreement

7%

30%

13%

50%

Equity Distribution

Research TeamLUABManagement TeamMats Jacobson

PART 8Risk

Internal Risks

It is possible that we will not be able to optimize Nocturnal Vision’s technology for the mobile platform. Our algorithm is processor heavy and modern mobile phones may not be powerful enough to run it. To minimize this risk we will cooperate with the OEMs when developing our algorithm to meet their platforms. If we fail to achieve mobile compatibility we will continue to work with the OEMs in order to gain access to their camcorder and digital still camera divisions, while the mobile phone processors catch up to our requirements.

A second risk is that our technology won’t meet the quality standards required in the video camera industry. We can neutralize this risk by conducting extensive tests on videos received from potential customers and customizing the technology within our product development division to match individual customer needs.

Our relationship with Toyota also represents an internal risk. Nocturnal Vision’s technology is protected by a pending patent to be jointly held by Toyota and the researchers at Lund University.13 The agreement surrounding the IPR is that the researchers have the rights to commercialize the technology in all industries that Toyota does not compete. Toyota has exclusive rights to its use in the automotive industry. To move forward, however, there needs to be a new contract in place between Toyota and Nocturnal Vision AB. The name on the patent also has to be changed to Nocturnal Vision AB. Jeanette Jakobsson, our board member and IPR lawyer, is currently working towards this and is confident in the outcome.

13 The patent protects not only the code in which the algorithm is written, but also the method in which it works. It covers all major markets with the exception of China. (International Patent PCT/EP2007/007229)

“We think this technology should be in mobile phones.

If it doesn’t fit with our current platform, we could

introduce you to our contacts at Qualcomm or

Sony.”

-Joakim Nelsson, Head of Industry Collaboration at Sony

Ericsson

External Risks

One external risk is that competing night vision technology will improve and catch up with our core competencies. To protect ourselves we have filed a patent, which covers not only our programing code, but also the method in which our algorithm works. Furthermore, to stay ahead of the competition we will continue to update our core image algorithm and innovate new ones. Finally, by establishing strong relationships with our customers and partners we will reinforce a leading position in the market.

In the mobile phone segment, success could be limited by processing power. Fortunately, within 1-2 years mobile devices should easily have enough processing power to handle the full implementation of our technology.

Scenarios Analysis

Our scenario analysis graph is found on the next page.

Best case scenario we sell to four separate OEMs over three years and one chipset manufacturer who all renew their licenses annually.

Average case scenario we sell to four OEMs over three years who renew annually, but a chipset manufacturer sale is not achieved.

Worst case scenario a couple of OEMs license our technology in the first year, but don’t renew. In this case we halt our operations and re evaluate.

-1,000,000 :-

-2,000,000 :-

1,000,000 :-

2,000,000 :-

Q2 Q3 Q4 Year 2

3,000,000 :-

4,000,000 :-

5,000,000 :-

8,000,000 :-

4,200,000 :-

-3,000,000 :-

-2,500,000 :-

Best Case

Average Case

Worst Case

Q1 Year 3Tota

l C

ash F

low

Scenario AnalysisNOCTURNAL VISION

PART 8Appendixes

Appendix 1

Sony Ericsson

Mobile Heights

Bambuser

Tactel

Ravitek

Samsung

Intellectual: Patent

Human: management, legal, sales, product development

Performance Improvement

Customization

Newness

2 in 1:(contrast enhancement + noise reduction)

Fixed: management salaries, office rent administrative costs, sales team One time: programming, computer equipment, WEB development Variable: legal support, tech support, marketing, travel, web maintenance

Licensing Exclusive Usage Contracts Pricing Mechanism: Negotiations: List price + dependency

Direct sales

Web sales

Sales through parters

Personal Contact

Self Service (facilitated by the company website)

nocturnalvision.se

Phase 1Consumer Electronics: (mobile phone OEMs, digital video recorder OEMs, chip manufactures)

Likely customers: Sony Ericsson, Samsung, ST Ericsson, LG Qualicomm

Phase 2 & 3Military, Surveillance, Medical Equipment, Film Production

Sales

Algorithm Development

Algorithm Packaging

Business Model Canvass

Appendix 2

Appendix 3

Appendix 4

Consultant Fees (Legal & Strategy)MarketingExternal DevelopmentPayroll (Includes 40% Taxes & Insurance)Accounting ServicesPhone + InternetComputers, Printer, etc.Office SuppliesOffice RentTravel ExpensesWebsite Domain & HostingOther

Total Cash Out

Net Cash Flow

Cash Out (Costs)

Cash In (Sales)

OEM #1OEM #2OEM #3OEM #4Chipset Manufacturer

Total Cash In

90,000 :- 30,000 :- 300,000 :- 441,000 :- 7,500 :- 8,400 :- 40,000 :- 6,000 :- 15,000 :- 40,000 :- 1,320 :- 15,000 :-

994,220 :-

994,220 :-

0 :-

Quarter 1

200,000 :-

90,000 :- 30,000 :- 300,000 :- 714,000 :- 7,500 :- 12,600 :- 20,000 :- 8,000 :- 21,000 :- 60,000 :- 0 :- 15,000 :-

1,278,100 :-

721,900 :-

Quarter 3

2,000,000 :-

2,000,000 :-

360,000 :- 120,000 :-1,200,000 :-3,444,000 :- 30,000 :- 58,800 :- 48,000 :- 36,000 :- 84,000 :- 320,000 :- 1,320 :- 60,000 :-

5,762,120 :-

2,237,880 :-

Year 2

2,000,000 :-2,000,000 :-2,000,000 :-2,000,000 :-

8,000,000 :-

2,000,000 :- 2,000,000 :- 2,000,000 :- 2,000,000 :- 6,000,000 :-

14,000,000 :-

Cash Flow BudgetNOCTURNAL VISION

200,000 :-

Quarter 4Quarter 2

90,000 :- 30,000 :- 300,000 :- 567,000 :- 7,500 :- 10,500 :- 20,000 :- 7,000 :- 15,000 :- 100,000 :- 0 :- 15,000 :-

1,162,000 :-

962,000 :-

90,000 :- 30,000 :- 300,000 :- 861,000 :- 7,500 :- 14,700 :- 20,000 :- 9,000 :- 21,000 :- 120,000 :- 0 :- 15,000 :-

1,488,200 :-

511,800 :-

Year 3 Year 1

360,000 :- 120,000 :- 1,200,000 :- 2,583,000 :- 30,000 :- 46,200 :- 100,000 :- 30,000 :- 72,000 :- 320,000 :- 1,320 :- 60,000 :-

4,922,520 :-

722,520 :-

360,000 :- 120,000 :-1,200,000 :-3,444,000 :- 30,000 :- 58,800 :- 48,000 :- 36,000 :- 84,000 :- 320,000 :- 1,320 :- 60,000 :-

5,762,120 :-

8,237,880 :-

2,000,000 :-

2,000,000 :-2,200,000 :-

4,200,000 :-

2,000,000 :-

Appendix 5

Fiscal Year End 5/31 (in Swedish Kronor) Year 1 Year 2 Year 3

Revenues

Gross Profit

Office RentOffice SuppliesPhone & InternetConsultant FeesMarketingExternal DevelopmentAccounting ServicesEquipment - Computers, Printers, etcTravelWebsite - Domain + HostingOtherPayroll

Operating Expenses

Earnings Before Taxes

Income Taxes

Net Income

4,200,000.00 8,000,000.00 14,000,000.004,200,000.00 8,000,000.00 14,000,000.00

72,000.00 84,000.00 84,000.0030,000.00 36,000.00 36,000.0046,200.00 58,800.00 58,800.00

360,000.00 360,000.00 360,000.00120,000.00 120,000.00 120,000.00

1,200,000.00 1,200,000.00 1,200,000.0030,000.00 30,000.00 30,000.00

100,000.00 48,000.00 48,000.00320,000.00 320,000.00 320,000.00

1,320.00 1,320.00 1,320.0060,000.00 60,000.00 60,000.00

2,583,000.00 3,444,000.00 3,444,000.00

4,922,520.00 5,762,120.00 5,762,120.00

-722,520.00 2,237,880.00 8,237,880.00

-190,022.76 588,562.44 2,166,562.44

-532,497.24 1,649,317.56 6,071,317.56

NOCTURNAL VISION

Income Statement

Appendix 6

Balance Sheet

Assets June 1st, 2010 End of Year 1 End of Year 2 End of Year 3

Current AssetsCashAccounts Receivable

Total Current Assets

Fixed AssetsIPRComputer Equipment-Accumulated Depreciation

Total Net Fixed Assets

Total Assets

134,480.00 4,601,982.76 6,251,300.32 12,322,617.880.00 0.00 0.00

134,480.00 4,601,982.76 6,251,300.32 12,322,617.88

0.00 0.00 250,000.00 250,000.0012,000.00 112,000.00 160,000.00 208,000.00

0.00 28,000.00 40,000.00 52,000.0012,000.00 84,000.00 120,000.00 156,000.00

146,480.00 4,685,982.76 6,371,300.32 12,478,617.88

Liabilities and Shareholders’ Equity June 1st, 2010 End of Year 1 End of Year 2 End of Year 3

Current LiabilitiesAccounts Payable

Total Liabilities

Shareholders’ EquityCapital StockRetained Earnings

Total Shareholders’ Equity

Total Liabilities and Equity

0.00 0.00 0.00 0.000.00 0.00 0.00 0.00

50,000.00 50,000.00 50,000.00 50,000.0096,480.00 4,635,982.76 6,321,300.32 12,428,617.88

146,480.00 4,685,982.76 6,371,300.32 12,478,617.88

146,480.00 4,685,982.76 6,371,300.32 12,478,617.88

NOCTURNAL VISION

Fiscal Year End 5/31 (in Swedish Kronor)

Appendix 7

2010 2011 2012Mar Apr May June July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Jan

DevelopmentTranslate algorithm into C programming languageDevelop simple video enhancement software for internal useOptimize algorithm for Mobile Phone ImplementationCreate Android ApplicationDevelop Nocturnal Vision as video enhancement software

MarketingDevelop Nocturnal Vision websiteDevelop Sales Approach for SamsungCreate video demos for Consumer Electronics industryAdjust Sales Approach for other OEMsDevelop sales approach for chip manufacturersStart cooperation with BambuserCreate White Papers with Tech Specs for OEM Sales

ManagementCreate Shareholders AgreementStart Nocturnal Vision as a companySeek financing 1st roundSeek financing 2nd roundBreak EvenHire a Systems ArchitectHire a Software/Hardware EngineerBegin drafting licensing contracts with customer

Gantt ChartNOCTURNAL VISION