Presentation For: Table of Contents A S S E T M A N A G E M E N T I N V E S T M E N T B A N K I N G R E S E A R C H. Page

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1 Table of Contents Presentation For: Page 660 Newport Center Drive Suite 950 Newport Beach, CA Office Fax MEMBER FINRA March 8, 2017 A S S E T M A N A G E M E N T I N V E S T M E N T B A N K I N G R E S E A R C H 0

2 Table of Contents Page About CB Capital Partners 2 The Business Plan Process 12 Financial Overview 21 Forecasts 38 1

3 About CB Capital Partners, Inc. CB Capital Partners differentiates itself by providing customized financial advisory, investment, and global research services Conservative, disciplined and efficient approach Providing innovative, long-term solutions to demanding client needs Commitment to high quality services to high-growth companies Senior-level commitment to provide resources for all areas of client requirements from initial engagement to successful completion 2

4 About CB Capital Partners, Inc. Corporate Vision & Mission To deliver the highest quality financial advisory and investment services to our clients To bring innovative and value-added solutions to our clients through a conservative and disciplined application of our diverse professional banking talents To be an ethical service provider for capital and ideas To give our clients the confidence that they have partnered with a highquality advisor with the expertise and insight available to achieve their performance-based business objectives 3

5 About CB Capital Partners, Inc. CB Capital Partners Platform Proven corporate finance model Strong investment track record Defined institutional industry focus and expertise Long term clients and partners Developed international presence Increased deal pipeline with national coverage Macroeconomic and industry research CB Capital Partners Founded Broaden Deal Pipeline Equity Raises, Debt Restructuring M&A Sell-Side Assignment 2004 Established investment research practice Growth Momentum Expand New Opportunities 2007 Deal Pipeline Escalates Larger Deal Size 2008 Strategic Board Expanded 2009 Established Chinabased Practice Established Larger Newport Beach offices Established Shanghai, China office Expands into Middle East Established India-based Practice 2015 Established Broker-Dealer Five 9 Securities Established Dallas, Texas office

6 CB Capital Services CB Capital Services CB Capital Partners offers a comprehensive range of unique investment banking services to its clientele: Private Equity Public Equity M&A Debt Placement Agented Transactions Access to Private Equity and Venture Capital Initial and Secondary Offerings (Assistance) Private Investment in Public Equity (PIPE) Access to Institutional and Retail Investors Sell-Side and Buy- Side Advisory Divestitures Recapitalizations LBO s/mbo s Defense Strategies Fairness Opinions Debt Refinance Senior Debt Sub Debt Mezzanine Debt Leasing Arrangements Working Capital 5

7 CB Capital on Cover of Orange County Business Journal Orange County Business Journal (OCBJ) recently published an extended article about CB Capital Partners, Inc.'s deals in India extensively featuring our India head, Mrs. Meghana Gaikwad. 6

8 CB Capital Research CB Capital Research CB Capital Research is headed by Mr. Henry To, CFA, CAIA, FRM. In that capacity, Mr. To manages the general research process and publication of CB Capital Partners Institutional Macro Research, which includes global macroeconomics research, industry analyses, and insights on the investment impact of certain economic themes and public policies. In addition, Mr. To publishes for numerous financial journals including Forbes, MarketWatch and Trader Planet. 7

9 Broad Global Macro Experience and Coverage Over 10 investment professionals with over 100 investment transactions completed Christopher Baclawski Managing Partner & CEO Henry To, CFA, CAIA, FRM Partner & CIO Meghana Gaikwad Director, India Bernardo Ortiz Advisor, Latin America Henry To, CFA, CAIA, FRM Chief Investment Officer Our research has been featured in: Meghana Gaikwad Director -gold-is-still-a-solid-long-term-investment ions/2015/03/23/investing-in-the-potentialof-new-asian-infrastructure-investmentbank/ / the-euro-will-reach-parity-with-theu-s-dollar-in-2-3-years-stay-short/ 8

10 CB Capital Research Mr. Henry To is a regular contributor on Forbes, MarketWatch.com, and many other reputed financial publications that provides business news, analysis and stock market data In addition, Mr. To is a regular commentator on various media outlets such as CNBC, CCTV, and others Source: CNBC

11 CB Capital Involvement with Merage School CB Capital Partners and the Paul Merage School of Business partnered up to cosponsor quarterly panel events. Each event, which is targeted towards Corporations, Faculty and Students, covers topics such as Venture Capital, Mergers and Acquisitions, LBO and Debt transactions and hostile takeovers. 10

12 Table of Contents Page About CB Capital Partners 2 The Business Plan Process 12 Financial Overview 21 Forecasts 38 11

13 Lifecycle of a Company Our Focus Here IPO Private Debt Convertibles Mergers & Acquisitions Venture Capital Product/Concept Development Senior Management Team Industry Market Opportunity Competition Institutional Private Equity Execution Proven Concept Sustainable Competitive Advantage Achievable Distribution Market Size vs. Market Niche Infrastructure Secondary Continued Growth Opportunities Predictability Backlog Valuation Credit Quality Cash Flow Stability Synergies Control Complementary Management Consolidating Industry Valuation Financing Company Attributes 12

14 The Business Plan When raising venture capital, thorough planning in the form of a professional Business Plan will help you obtain sufficient funds to achieve your milestones at an acceptable valuation, from value-added investors and with minimal disruption to your company. Today I will offer you some guidelines and describe the valuation process in detail. 13

15 The Business Plan Smart entrepreneurs need to do a lot of homework and planning before seeking funds from venture capitalists eager to invest in start-up companies. You can increase your chances of raising capital for the start-up through good planning and an understanding of how potential investors treat valuation. 14

16 The Investors Venture capital firms have money to invest (over $10 billion during the past four years), and many are interested in technology start-ups because returns on medical investments have been good. Targeted Venture Investors focus on specific industries with individual strategic objectives. Know your audience. 15

17 Business Plan Objectives 1. To set a direction for the Company. 2. To capture the interest of potential venture capital investors. 3. To project confidence to potential investor and project value. 16

18 Business Plan Good business plans are usually between 20 and 50 pages in length, with optional supporting data (articles, glossary of terms, endorsement letters) placed in an appendix or addendum. 17

19 Fund Raising essentials Before beginning a search for venture capital, most start-ups will write a Business Plan describing what they plan to do and how they plan to do it. The following is a summary of what should be included in each section of the plan: 18

20 Business Plan Outline Executive summary/company strategy; Technology/products Technology description, Development plan, Proprietary protection Markets/marketing: Markets, Selling and distribution, Competition, Forecasts Industrial/Regulatory Manufacturing and operations: Facilities, Equipment, Process, Cost of goods sold; Management team Financials Profit and loss, Balance sheet, Cash flow (sources and uses); Risks Appendices 19

21 Table of Contents Page About CB Capital Partners 2 The Business Plan Process 12 Financial Overview 21 Forecasts 38 20

22 The Income Statement The Income Statement lists a company s revenue, expenses, and taxes, with its after-tax profit at the very bottom, over a period of time (one quarter, one month, or one year). To appear on the Income Statement, each item must meet the following criteria: It must correspond to the period shown on the Income Statement only if you re paying for an asset that will last for years, it would not appear on a 1-year Income Statement. It must affect the company s taxes. For example, interest paid on debt is tax-deductible so it appears on the Income Statement but repaying debt principal is not tax-deductible, so it does not appear on the Income Statement. 21

23 The Income Statement 22

24 The Income Statement The 4 main sections to be aware of: Revenue and Cost of Goods Sold (COGS): Revenue is the value of the products/services that a company sells in the period (Year 1 or Year 2), and COGS represents the expenses that are linked directly to the sale of those products/services. Operating Expenses: Items that are not directly linked to product sales employee salaries, rent, marketing, research and development, as well as non-cash expenses like Depreciation and Amortization. Other Income and Expenses: This goes between Operating Income and Pre- Tax Income. Interest shows up here, as well as items such as Gains and Losses when Assets are sold, Impairment Charges, Write-Downs, and anything else that is not part of the company s core business operations. Taxes and Net Income: Net Income represents the company s bottom line how much in after-tax profits it has earned. Net Income = Revenue Expenses Taxes. 23

25 The Income Statement A few points on Income Statement revenue, expenses, and taxes: They do not need to be related to a company s operational activities Gains and Losses on asset sales, Depreciation, and Interest Expense still appear on the IS but are not related to everyday business. They do not need to be cash expenses (or cash revenue) for example, Depreciation and Amortization are both non-cash expenses. Also, companies often record revenue and expenses here before they receive or pay them in cash. Sometimes, items may be embedded in other items for example, sometimes Depreciation is included in COGS or Operating Expenses; other times it is a separate item. 24

26 The Income Statement Here are more rules of thumb about what appears on the Income Statement: Always Appears: Revenue, COGS, Operating Expenses, Depreciation, Amortization, Stock-Based Compensation, Interest, Gains / (Losses), Write- Downs, Other Income / (Expenses) Never Appears: Capital Expenditures, Purchasing or Selling Investments and PP&E (Plants, Property & Equipment), Dividends, Issuing or Repaying Debt Principal, Issuing or Repurchasing Shares, Changes to Balance Sheet Items such as Cash, Debt, Accounts Receivable, Accounts Payable, and so on => The Always Appears do affect the company s taxes (e.g. paying an employee s salary reduces the company s taxable income); and They correspond to the period shown on the Income Statement (e.g. revenue in Year 1 refers to all sales to customers in Year 1 not Year 2). The opposite is true for Never Appears 25

27 The Balance Sheet The Balance Sheet shows the company s resources its Assets and how it acquired those resources its Liabilities & Equity at a specific point in time. 26

28 The Balance Sheet Here are the key Balance Sheet rules: Assets must always equal Liabilities + Equity no exceptions. An Asset is an item that will result in, directly or indirectly, additional cash in the future. A Liability is an item that will result in, directly or indirectly, less cash in the future. Most Liabilities are related to external parties payments owed to suppliers, or borrowed money, for example. Liabilities are used to fund a business. Equity line items are similar to Liabilities (used to fund a business), but they refer to the company s own internal operations rather than external parties. 27

29 The Balance Sheet Definitions of key Assets: Cash: Just like cash in your bank account. Short-Term Investments: Less liquid than cash Certificates of Deposit (CDs) and money-market accounts and such. Accounts Receivable: The company has recorded this as revenue on its Income Statement but hasn t received it in cash yet. It s like an IOU from a customer. And it will turn into cash when the customer pays. Prepaid Expense: The company has paid these expenses in cash but hasn t recorded them as expenses on the Income Statement yet. Inventory: What they need to manufacture and sell products for a company like Apple, all the parts that go into iphones and ipads. 28

30 The Balance Sheet Definitions of key Assets: (Cont d) PP&E: Factories, buildings, land, equipment, and anything else that will last for over a year and contribute to the company s core business. Other Intangible Assets: Patents, trademarks, intellectual property usually the result of acquisitions. Similar to Goodwill, but this balance amortizes (decreases) over time as these items expire. Long-Term Investments: Less liquid and longer-lasting investments than Cash or Short-Term Investments. Goodwill: The premium that the company has paid over other companies Shareholders Equity when acquiring them. 29

31 The Balance Sheet Definitions of key Liabilities: Revolver: Similar to a credit card for a company; it borrows money as needed and must repay it quickly. Accounts Payable: The company has recorded these as expenses on the Income Statement, but hasn t yet paid them out in cash yet used for onetime items with specific invoices, such as payment for legal services. Accrued Expenses: The company has recorded these as expenses on the Income Statement, but hasn t yet paid them out in cash yet used for recurring monthly items without invoices, such as employee wages, utilities, and rent. Deferred Revenue: The company has collected cash in advance from customers for products/services yet to be delivered, and it will recognize this as real revenue over time. Deferred Tax Liability: The company has paid lower taxes than what it really owes, and needs to make it up by paying additional taxes to the government in the future. Long-Term Debt: Similar to a mortgage or a car loan: debt that is due and must be repaid in over a year s time. 30

32 The Balance Sheet Definitions of Equity line items: Common Stock & Additional Paid-In Capital (APIC): This represents the market value of shares at the time those shares were issued by the company. When a company goes public, the total dollar value of shares issued shows up here. This does not change even if the share price changes afterward. Treasury Stock: This represents the cumulative value of shares the company has repurchased from investors. This does not change even if the share price changes afterward. Retained Earnings: This represents the company s saved up, after-tax profits (minus any dividends it has issued). This is like the $200K you saved up, after-taxes, in our personal Balance Sheet example above. Accumulated Other Comprehensive Income (AOCI): This is a section for miscellaneous saved-up income you see items like the effect of foreign currency exchange rate changes here, as well as unrealized gains and losses on certain types of securities (i.e. if their values go up or down but the company has not yet sold them). 31

33 The Cash Flow Statement Similar to the Income Statement, the Cash Flow Statement tracks changes over a period of time (one month, one quarter, or one year). It exists for 2 reasons: You may have shown non-cash revenue or expenses on the Income Statement. These need to be adjusted on the Cash Flow Statement to determine how your cash balance actually changes. There may be additional cash inflows and outflows that have not appeared on the Income Statement. For example, Capital Expenditures and Dividends are both real cash expenses. You need to factor these in to figure out how your cash balance really changes by. 32

34 The Cash Flow Statement Cash Flow from Operations (CFO) Net Income from the Income Statement flows in at the top. Then, you adjust for non-cash expenses, and take into account how operational Balance Sheet items such as Accounts Receivable and Accounts Payable have changed. 33

35 The Cash Flow Statement Cash Flow from Investing (CFI) Anything related to the company s investments, acquisitions, and PP&E shows up here. Purchases are negative because they use up cash, and sales are positive because they result in more cash. 34

36 The Cash Flow Statement Cash Flow from Financing (CFF) Items related to debt, dividends, and issuing or repurchasing shares show up here. 35

37 How To Link The Three Statements First, Net Income from the bottom of the Income Statement becomes the top line of the Cash Flow Statement. Second, you add back non-cash expenses from the Income Statement (and flip the signs of items such as Gains and Losses). Third, you reflect changes in operational Balance Sheet line items if an Asset goes up, cash flow goes down and vice versa; if a Liability goes up, cash flow goes up and vice versa. Fourth, you reflect Purchases and Sales of Investments and PP&E in Cash Flow from Investing. Fifth, you reflect Dividends, Debt issued or repurchased, and Shares issued or repurchased in Cash Flow from Financing. Sixth, you calculate the net change in cash at the bottom of the CFS, and then link this into cash at the top of the next period s Balance Sheet. Seventh, you update the Balance Sheet to reflect changes in Cash, Debt, Equity, Investments, PP&E, and anything else that came from the Cash Flow Statement. 36

38 Table of Contents Page About CB Capital Partners 2 The Business Plan Process 12 Financial Overview 21 Forecasts 38 37

39 Financial Model Example XYZ Corp Series A Model Table of Contents Confidential - Not for Distribution 3/8/2017 Section 1 - Summary 1. Summary Income Statement 2 2. Summary Balance Sheet 3 3. Summary Cash Flow Statement 4 4. Headcount and Personnel Expenses 5 Page Section 2 - Assumptions 5. Revenue Assumptions 6 6. Policies 7 7. Operating Expenses 9 38

40 Financial Model Example Balance Sheet XYZ Corp Series A Model - Section 1 - Summary Income Statement, Balance Sheet, Operational, and Capital Information Confidential - Not for Distribution 3/8/2017 Balance Sheet Data Year 1 Year 2 Year 3 Year 4 Year 5 Assets Current Assets Cash $6,131,145 $5,497,815 $7,456,496 $14,933,621 $37,914,727 Resricted Cash - Claims 165, , , ,233 1,127,930 Commissions Receivable 794,869 2,220,393 4,791,839 7,078,414 9,594,747 Deferred Commissions 580,602 2,628,548 7,276,165 14,891,381 17,978,923 Deferred Tax Asset (NOL) 1,354, , Total Current Assets 9,027,172 11,187,428 19,985,487 37,669,649 66,616,327 PP&E Computer Equipment 250, ,000 1,050,000 1,600,000 2,250,000 Employee Equipment 70, , , , ,883 Accounting System 100, , , , ,000 Accumulated Depreciation (122,333) (370,088) (876,561) (1,500,518) (2,215,794) Net PP&E 297, , , , ,088 Total Assets $9,324,839 $11,631,115 $20,828,791 $38,526,415 $67,489,415 Liabilities and Equity Current Liabilities Accrued Payroll $143,333 $208,075 $354,165 $476,978 $587,862 Accrued Bonuses 923,250 1,457,810 2,233,500 2,795,804 3,363,183 Accounts Payable 350, , ,525 1,074,433 1,352,682 Claims Mgmnt. Escrow 165, , , ,233 1,127,930 Total Current Liabilities 1,582,623 2,500,087 3,843,179 5,113,448 6,431,657 Shareholders Equity Initial Paid-in Capital 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 Retained Earnings (2,257,784) (868,972) 6,985,612 23,412,966 51,057,758 Total Shareholders' Equity 7,742,216 9,131,028 16,985,612 33,412,966 61,057,758 Total Liabilities and Equity $9,324,839 $11,631,115 $20,828,791 $38,526,415 $67,489,415 39

41 Financial Model Example - Income Statement XYZ Corp Series A Model - Section 1 - Summary Income Statement, Balance Sheet, Operational, and Capital Information Confidential - Not for Distribution 3/8/2017 Revenue Income Statement Data % of Revenue Year 1 Year 2 Year 3 Year 4 Year 5 Year 1 Year 2 Year 3 Year 4 Year 5 Commissions - C&D $0 $439,701 $1,985,006 $4,573,195 $8,254, % 3.1% 6.0% 8.4% 10.3% Commissions - CRE 1,675,885 5,879,426 13,271,185 20,383,383 27,592, % 41.5% 40.1% 37.5% 34.6% Commissions - C&I 2,284,647 7,650,791 16,447,195 23,998,385 30,776, % 54.0% 49.7% 44.1% 38.6% Risk / Profit Sharing 0 188,430 1,413,082 5,468,043 13,155, % 1.3% 4.3% 10.0% 16.5% Total Revenue 3,960,532 14,158,348 33,116,468 54,423,007 79,779, % 100.0% 100.0% 100.0% 100.0% Operating Costs Underwriting Expenses 1,342,870 2,512,193 5,495,092 8,834,150 11,988, % 17.7% 16.6% 16.2% 15.0% Claims Expenses 165, ,127 1,327,891 2,175,776 2,961, % 4.1% 4.0% 4.0% 3.7% Marketing Expenses 1,299,750 1,949,751 2,623,442 3,285,673 4,184, % 13.8% 7.9% 6.0% 5.2% Distribution Expenses 1,046,867 2,218,679 4,273,598 5,522,159 6,851, % 15.7% 12.9% 10.1% 8.6% Finance & Risk Mgmt Expenses 1,260,125 1,349,519 1,635,281 1,686,175 1,738, % 9.5% 4.9% 3.1% 2.2% MIS Expenses 342, , , , , % 2.8% 1.8% 1.4% 1.2% Legal Expenses 300, , , , , % 3.9% 2.5% 1.5% 1.1% HR Expenses 419, , , , , % 1.6% 1.8% 1.2% 0.8% Director and Executive Expenses 1,143,800 1,251,563 1,259,508 1,267,641 1,275, % 8.8% 3.8% 2.3% 1.6% Overhead Expenses 243, ,750 1,518,494 2,632,690 3,743, % 5.1% 4.6% 4.8% 4.7% Total Operating Costs 7,565,114 11,759,116 20,115,354 27,648,909 35,218, % 83.1% 60.7% 50.8% 44.1% EBITDA (3,604,581) 2,399,232 13,001,114 26,774,097 44,561,475 NA 16.9% 39.3% 49.2% 55.9% Depreciation Expense 122, , , , , % 1.7% 1.5% 1.1% 0.9% Operating Income (3,726,915) 2,151,477 12,494,641 26,150,141 43,846,199 NA 15.2% 37.7% 48.0% 55.0% Other Income (Expenses) Interest Income (Expenses) 114,461 70,622 72, , , % 0.5% 0.2% 0.2% 0.5% Pre-Tax Income (3,612,454) 2,222,099 12,567,335 26,283,767 44,231,667 NA 15.7% 37.9% 48.3% 55.4% Income Taxes (1,354,670) 833,287 4,712,750 9,856,413 16,586,875 NA 5.9% 14.2% 18.1% 20.8% Net Income ($2,257,784) $1,388,812 $7,854,584 $16,427,354 $27,644,792 NA 9.8% 23.7% 30.2% 34.7% 40

42 Financial Model Example Cash Flow XYZ Corp Series A Model - Section 1 - Summary Income Statement, Balance Sheet, Operational, and Capital Information Confidential - Not for Distribution 3/8/2017 Cash Flow Data Year 1 Year 2 Year 3 Year 4 Year 5 Net Income ($2,257,784) $1,388,812 $7,854,584 $16,427,354 $27,644,792 Operating Activities Depreciation 122, , , , ,277 Decrease (Increase) in Res. Cash (165,886) (153,403) (141,698) (305,246) (361,697) Decrease (Increase) in C/R (794,869) (1,425,524) (2,571,446) (2,286,574) (2,516,333) Decrease (Increase) in Def. Com. (580,602) (2,047,946) (4,647,617) (7,615,217) (3,087,542) Decrease (Increase) in NOL (1,354,670) 833, , Increase (Decrease) in C/L 1,582, ,464 1,343,092 1,270,270 1,318,209 Cash Flow from Operations (1,191,072) (1,628,366) (4,989,813) (8,312,811) (3,932,087) Financing Activities Financing Activities Cash Flow from Financing Investing Activities Capital Expenditures (420,000) (393,775) (906,090) (637,418) (731,599) Cash Flow from Investing (420,000) (393,775) (906,090) (637,418) (731,599) Change in Cash ($3,868,855) ($633,330) $1,958,681 $7,477,125 $22,981,105 41

43 Financial Model Example Supplemental Information XYZ Corp Series A Model - Section 1 - Summary Income Statement, Balance Sheet, Operational, and Capital Information Confidential - Not for Distribution 3/8/2017 Income Statement Data Year 1 Year 2 Year 3 Year 4 Year 5 Operating Information ($ in millions) Year End Policies (New) 600 1,625 3,067 4,249 5,119 Year End Policies (Renewal) ,684 3,494 5,362 Total 600 2,105 4,751 7,743 10,482 Personal Guarantee Liability $1,200 $4,210 $9,502 $15,486 $20,963 Premium Revenue $16.6 $58.5 $132.8 $217.6 $296.1 Average Premium Rate 1.38% 1.39% 1.40% 1.41% 1.41% Revenue - Bank Channel $329,742 $1,491,888 $3,666,514 $6,470,292 $9,999,813 Revenue - Direct Marketing $3,630,791 $12,478,030 $28,036,872 $42,484,671 $56,624,018 Revenue - General Marketing $0 $0 $0 $0 $0 Personnel Information (Excludes Sales Personnel Hired Immediately Prior to Year End) Total Employees Additional Profit Share Information (Final Payments Four Years After Year of Operations) Estimated Future Payments $2,216,495 $9,889,493 $26,433,200 $50,554,120 $77,839,435 Cash Requirement $10,000,000 42