1. The Kanga Toy Company
Fox Creek, Idaho
Date: May 15, 2014
To: Meg Whitely, CEO of Kanga Toy Company
From: Joseph Gallego, Adam Rose, Wesley Huh, Kyle Cheng, and Benson Chen
Subject: Ethical, Legal, and Financial Issues of LectroKitty
Dear Ms. Whitely:
Over the past thirty years, Kanga Toy Company has proven to be a leading US producer for safe
and innovative toys for young children. LectroKitty, Kanga Toy Company’s most recent
development, is a testament to the corporation’s overall perseverance and creativity, as the
product was widely-purchased by the public high with levels of consumer satisfaction. However,
during the past few months, the fast-selling LectroKitty has raised concerns among fifteen
parents whose children have been potentially harmed by the new toy.
Background
From the 350,000 units of LectroKitty sold, ten parents notified the company that their children
had swallowed and choked on the plastic kibble; whereas, the remaining five parents expressed
written concerns that their children experienced a substantial electric shock when they kissed
LectroKitty on its head. We believe that the electric discharge comes from the miniature 16 volt
lithium ion battery used to power LectroKitty.
Additionally, a few parents conveyed their concerns to the U.S. Consumer Product Safety
Commission (CPSC), an organization that regulates the safety of many consumer products. This
may have resulted in the phone call you received from the CPSC yesterday about a preliminary
inquiry. My team has discussed these ongoing issues with our chief design engineer, Suzanne
Ciao, and our attorney, Mike Seidler, and have summarized the business, ethical, and financial
considerations within our recommended proposal.
Business Considerations
From a business standpoint, the extraordinary sales success of LectroKitty has generated gross
sales revenue of over $12 million. Reporting this substantial increase in our financial statements
will:
(1) Regain lost consumer confidence from our previously declining sales history.
(2) Increase our monetary capital in order to expand our company and conduct new
research and development strategies for more innovative products.
(3) Provide our company with the means to compensate our hardworking employees who
have undergone salary cuts and were promised a share in the profits of LectroKitty.
(4) Attract investor and public confidence towards Kanga Toy Company, reinforcing our
title as the leading toy producer in the United States.
Response to the Distributed 350,000 Units

2. The Kanga Toy Company
Fox Creek, Idaho
Given the issues that have arisen, our team acknowledges that the distribution to the 350,000
units of LectroKitty continues to pose a potential liability. The advisory committee has
considered the following options to reduce and minimize the liability and potential harm towards
the company from the result of the sales of LectroKitty:
(1) Publicly announce that Kanga Toy Company is offering full refunds for any defects or
performance issues within LectroKitty. We recommend this solution because this method
will not only allow us to retain a significant amount of the company’s profits, but also to
give consumers the opportunity to be financially compensated. Realistically, we estimate
only a small percentage of sale returns given the nature of our product and consumer
base. Our team has contacted our actuaries and accountants, they can have the estimated
predictions finished by Friday, May 16.
(2) Leave the 350,000 sold units to consumers and privately settle any future liabilities if
possible. This method would maximize our risk as well as our profits on book, and
remains a viable option considering that the volume of customer complaints have been
very small in proportion to the sales volume. Our current statistics illustrate that only 1
out of 23,333 sold or 0.004% of sales pose as a liability to consumers.
Ethical and Legal Considerations
From an ethical and legal standpoint, the development and sales of LectroKitty pose a serious
risk for Kanga Toy Company’s target demographic - children ages 1 to 7. Under these
circumstances, we want to illustrate the risks involved with the continued distribution of
unmodified LectroKitty models onto our company’s legal situation and reputation as a top toy
manufacturer in the United States.
Legal Settlements
After discussing the legal situation with our attorney, Mike, we highly recommend sending a
company representative to personally talk, interview, and gather information about the families
that have been harmed by LectroKitty. This process would enable our chief design engineer,
Suzanne, to gather data to make the necessary modifications to LectroKitty. Additionally, we
would offer to fully cover all medical expenses with an added compensation for the
inconveniences LectroKitty had caused.
We also recommend arranging private settlements with parents who are considering legal action.
This mostly pertains to the two children who have allegedly been burned from our product’s
lithium ion battery, and the two children who were taken to the emergency ward for treatment of
choking on LectroKitty’s plastic kibbles. Our team believes that private settlements are preferred
over legal court cases because legal action will attract negative publicity towards our company’s
reputation, regardless whether we win or lose the case. We are also in the process of preparing
flowers and note cards expressing our sincerest apologies to the children.
Recommended Solutions to Current Legal Issues

3. The Kanga Toy Company
Fox Creek, Idaho
In order to ensure that these incidents do not happen in the future, our committee has consulted
Suzanne and came up with the following temporary solutions to be installed immediately with
your approval:
(1) We recommend removing LectroKitty’s plastic kibbles in order to eliminate the
potential choking hazard. Subsequently, this option would save our company the costs
and effort associated to manufacturing plastic kibbles.
(2) As for the potential electric shock problem, we recommend implementing a insulated
plastic surface around the metallic exterior of LectroKitty to prevent future electrical
surges.
(3) A noteworthy alternative to option 1 is to package the plastic kibbles separately from
LectroKitty. A choking hazard would still exist, but would be less likely compared to our
current manufacturing process.
(4) An alternative option to option 2 is to replace the lithium battery with a less-powerful
battery/power source. Our committee and Suzanne do not recommend this option because
we believe that it may affect the quality of LectroKitty’s performance.
Kanga Toy’s Reputation
Another issue our committee discussed was Kanga Toy Company’s public reputation. Our
committee believes that the strong reputation of Kanga Toy Company is one of the most
important assets of our company. Our reputation enables us to create brand and consumer
loyalty, provide an ease of mind among parents, and in the long run, is responsible for our
company’s financial success in the competitive toy market. Therefore, we believe that
preservation of our safe manufacturing reputation and the safety of our consumers should be
regarded with the utmost importance. Given that the majority of our recipients are children aged
between 1-7 years old, we believe halting further distributions of the old LectroKitty model until
our current liabilities can be resolved.
Response to Increasing Demand from US Retailers
The last issue the advisory committee discussed was whether to continue selling and distributing
unaltered models of LectroKitty to three of the largest retailers in the United States. The Kanga
Toy Company can either choose to distribute current versions of Lectro Kitty to large retailers
for profit or to delay the distribution process until all product liabilities are fully addressed.
We would not recommend the continued distribution of unaltered version of LectroKitty because
of the potential harm and risk our product might have on young children. Choosing to distribute
unmodified LectroKitty toys can pose a serious threat to our Company’s reputation, especially
since certain consumers and organizations have heard rumors about our product’s potential
hazards. In addition, it would not be ethical to distribute a product that may potentially harm
younger children when a feasible alternative can be researched and implemented.

4. The Kanga Toy Company
Fox Creek, Idaho
We recommend to cease further sales and distributions of LectroKitty until our company can
make the necessary alterations to address the ongoing issues to make this product safer for
children. We have consulted our head financial analyst, Tom Watson, regarding the potential
market sale lost. From Tom’s forecast of our quantitative figures for upcoming FQ4 (Fiscal
Quarter 4), it is apparent our sales and market share will be impacted negatively from failing to
meet our sale expectations for christmas. Although we will be sacrificing a significant amount of
revenue, we believe that the potential harm thr current version of LectroKitty may cause would
not be worth damaging Kanga Toy Company’s reputation; which in the long run, has the
potential to either condemn or save our company from entering bankruptcy.
Recommendations for the Consumer Product Safety Commission (CPSC)
Lastly, the advisory committee discussed the need to create a public statement to notify
consumers and to appease concerns and questions brought up by the CPSC. In this statement, we
want to address that our company and the CPSC share the same goal - to provide safe and quality
toys to children around the nation.
Our committee believes that it is within our best interests to work collaboratively with the CPSC
because of our shared vision to provide safe and quality products to consumers. From
establishing good relations and associating ourselves with the CPSC (having our products CPSC
certified), our company would gain some protection from negative publicity and would be less
likely to encounter government hardship in the future. Subsequently, we hope to encompass our
goodwill and shared concern towards our product in the public statement we have provided in
the following section.
Public Statement
At Kanga Toy Company, customer satisfaction and safety is our first priority. Since the minor
incidents that have been brought to our attention, Kanga Toy Company has prepared a solution to
address all conflicts pertaining to the LectroKitty. To prevent any future mishaps with our
LectroKitty product, we are will offer full refunds on any defective that were purchased before
May 15th, 2014. Simply bring proof of purchase to the retailer you purchased our product from
and you will receive an instant refund. If the product was purchased through any of our online
retailer or through Kanga Toy Company directly, please contact customer service for more
details.
Within the next three months, Kanga Toy Company is anticipating the arrival of a new product!
We at Kanga Toy Company will unveil the LectroKitty 2.0® with a fresh new design, more
realistic gestures and child safe mechanics. Improvements which were made to address the safety
flaws of our previous LectroKitty model is an addition of an insulated plastic cover to prevent
further shocks and a redesign of the kibble component to reduce further choking hazards. Attend
the Annual NY Toy Conference in early August to be the first to find out!
Conclusion and Recommendations

5. The Kanga Toy Company
Fox Creek, Idaho
Within the next three months, Suzanne and her team of design engineers will construct the next
generation of LectroKitty which will resolve all safety flaws of the previous model. The unveil
of LectroKitty 2.0® will include a fresh new design, more realistic gestures and child safe
mechanics. Improvements in regards to safety will include
(1) Addition of an insulated plastic cover to prevent further shocks.
(2) Kibble components will now be solidified to reduce further choking hazards.
(3) Lithium Ion battery will now be encased within the unibody of the product.
(4) Age restrictions will be increased from Ages 4+ to Ages 6+.
We ultimately view these changes as an opportunity to release the next generation of the product
which as well as resolve all safety concerns with the current product. Our team is confident that
these new modifications combined with the innovative talent of our faculty will revitalize the
reputation and financial prosperity of the Kanga Toy Company.
Thank you for taking the time to read through this memo. If you have any further questions, our
team is more than willing to discuss with you in further detail our recommended changes for
LectroKitty. Thank you for your patience.
Sincerely,
Joseph Gallego, Adam Rose, Wesley Huh, Kyle Cheng, and Benson Chen
Ethics Advisory Committee, Kanga Toy Company
(650) 888-6867 || advisorykanga@gmail.com