Bootstrapping Entrepreneurs & Their Businesses A Marriage Made in _____ (fill in the blank) Creating, Managing, & Understanding Startup Financials Presented by Dan Vishny, CPA, MBA (and Recovering Entrepreneur)

Successful Bootstrapping Define your goal Set the milestones Sprint to the milestones (it’s not a marathon) Invest in things that your customers see Discipline- set the rules and live by them Financial Advice

Define your goal

Set the milestones

Sprint to the milestones (it’s not a marathon)

Invest in things that your customers see

Discipline- set the rules and live by them

Financial Advice

Financial Advice ♫ You gotta know when to hold em... ♫ Don’t micromanage the finances Focus on getting the product to market The “Language” of accounting & finance Profit, Profit, Profit

♫ You gotta know when to hold em... ♫

Don’t micromanage the finances

Focus on getting the product to market

The “Language” of accounting & finance

Profit, Profit, Profit

Financial Projections

Main Points to Convey You have done your homework You understand the costs involved You understand the market space Your assumptions are reasonable

You have done your homework

You understand the costs involved

You understand the market space

Your assumptions are reasonable

Projections- Minimum Requirements 5 year Profit & Loss Statement 5 year Balance Sheet 5 year Statement of Cash Flows Valuation Statement and ROI Analysis Breakeven Analysis What if Analysis Assumptions

5 year Profit & Loss Statement

5 year Balance Sheet

5 year Statement of Cash Flows

Valuation Statement and ROI Analysis

Breakeven Analysis

What if Analysis

Assumptions

Breakeven Analysis Puts your business in perspective Worst case scenario Can you achieve break even and when? Compare to competitors Compare to last year Do you have enough production capacity? Do this analysis as often as possible

Puts your business in perspective

Worst case scenario

Can you achieve break even and when?

Compare to competitors

Compare to last year

Do you have enough production capacity?

Do this analysis as often as possible

Breakeven Analysis 2009 2010 2011 2012 2013 Fixed Expenses: Payroll $ 150,000 $ 195,000 $ 405,000 $ 840,000 $ 4,350,000 R&D Materials 150,000 130,000 270,000 560,000 2,900,000 Rent 24,000 48,000 48,000 48,000 120,000 Marketing - 195,000 405,000 840,000 4,350,000 Utilities & Facilities 20,000 40,000 60,000 80,000 250,000 Insurance 12,000 24,000 24,000 36,000 48,000 Legal & Professional 12,000 24,000 24,000 48,000 60,000 Depreciation Expense n/a n/a n/a n/a n/a Total Fixed Expenses $ 368,000 $ 656,000 $ 1,236,000 $ 2,452,000 $ 12,078,000 Average Gross Margin % 60.00% 60.58% 61.11% 61.61% 62.07% Average Margin Per Unit $3,000 $3,150 $3,300 $3,450 $3,600 Annual Breakeven Units 123 208 375 711 3,355 Annual Breakeven Dollars $613,333 $1,082,921 $2,022,545 $3,980,058 $19,459,000 Monthly Breakeven Units 10 17 31 59 280 Monthly Breakeven Dollars $51,111 $90,243 $168,545 $331,671 $1,621,583 Formula for Breakeven Units: Fixed Expenses/Average Margin Per Unit Formula for Breakeven Dollars: Fixed Expenses/Average Gross Margin %

What If Analysis What is the monthly breakeven in units based on various margins and increases in Marketing Costs? [---------------------- Margin Per Unit -----------------------] 10 $3,000 $3,500 $4,000 $2,500 $0 10 9 8 12 Marketing Costs $200,000 16 14 12 19 $400,000 21 18 16 26 $600,000 27 23 20 32 What is the monthly breakeven in dollars based on various margin %s and increases in Marketing Costs? [---------------------- Margin Per Unit -----------------------] 51,111 60% 65% 70% 40% $0 $51,111 $47,179 $43,810 $76,667 Marketing Costs $200,000 $78,889 $72,821 $67,619 $118,333 $400,000 $106,667 $98,462 $91,429 $160,000 $600,000 $134,444 $124,103 $115,238 $201,667

Assumptions Anticipate the Questions What will you charge for your product and why? How do your marketing costs support your sales growth? How do you scale up your business? How long? How much money?

Anticipate the Questions

What will you charge for your product and why?

How do your marketing costs support your sales growth?

How do you scale up your business?

How long? How much money?

Assumptions Nail down the Costs Payroll- have you added 15% for payroll taxes? Rent- get a quote from a broker Miscellaneous- add a cushion for error Detailed Cost Sheet

Nail down the Costs

Payroll- have you added 15% for payroll taxes?

Rent- get a quote from a broker

Miscellaneous- add a cushion for error

Detailed Cost Sheet

Conclusion Bootstrap Responsibly Cash is King Treat it with Respect, Invest & Spend it Wisely

Extra Slides

Monthly CEO Dashboard MARCH 2009 Revenue: Compared to last year YTD Sales $4,146,255 2009 2008 Difference YTD Projections $4,235,000 YTD Sales $4,146,255 $2,889,293 $1,256,962 Surplus (Deficit) ($88,745) YTD Gross Margin % 49% 51% -2% YTD Operating Expenses $1,906,506 $1,618,717 $287,789 YTD Gross Margin % 49% YTD Net Income (Loss) $88,035 ($157,579) $245,614 YTD Operating Expenses $1,906,506 YTD Net Income (Loss) $88,035 Cash in Bank $115,964 $54,949 $61,015 Accounts Receivable $2,114,224 $1,467,456 $646,768 Accounts Payable $1,691,421 $1,414,280 $277,141 Cash Position: Cash in Bank $115,964 Accounts Receivable $2,114,224 $2,230,188 Accounts Payable $1,691,421 $538,767

Pro Forma Balance Sheets 2008 2009 2010 2011 2012 2013 ASSETS Cash $ 3,672 $ 475,672 $ 4,389,672 $ 4,455,344 $ 3,989,566 $ 6,653,515 Inventories - 100,000 187,500 366,667 1,283,333 2,050,000 Fixed Assets 32,625 92,625 222,625 372,625 572,625 812,625 Accum. Depreciation (5,200) (22,400) (63,857) (133,569) (241,539) (390,759) Total Assets $ 31,097 $ 645,897 $ 4,735,940 $ 5,061,067 $ 5,603,985 $ 9,125,381 LIABILITIES Accounts Payable $ 19,438 $ 19,438 $ 19,438 $ 19,438 $ 19,438 $ 19,438 Total Liabilities 19,438 19,438 19,438 19,438 19,438 19,438 EQUITY Capital 524,955 1,524,955 5,524,955 5,524,955 5,524,955 5,524,955 Retained Earnings (513,296) (898,496) (808,453) (483,326) 59,592 3,580,988 Total Equity 11,659 626,459 4,716,502 5,041,629 5,584,547 9,105,943 Total Liabilities & Equity $ 31,097 $ 645,897 $ 4,735,940 $ 5,061,067 $ 5,603,985 $ 9,125,381

Pro Forma Income Statements 2009 2010 2011 2012 2013 Sales $ - $ 1,300,000 $ 2,700,000 $ 5,600,000 $ 29,000,000 Cost of Goods Sold - 512,500 1,050,000 2,150,000 11,000,000 Gross Profit - 787,500 1,650,000 3,450,000 18,000,000 Operating Expenses: Payroll 150,000 195,000 405,000 840,000 4,350,000 R&D Materials 150,000 130,000 270,000 560,000 2,900,000 Rent 24,000 48,000 48,000 48,000 120,000 Marketing - 195,000 405,000 840,000 4,350,000 Utilities & Facilities 20,000 40,000 60,000 80,000 250,000 Insurance 12,000 24,000 24,000 36,000 48,000 Legal & Professional 12,000 24,000 24,000 48,000 60,000 Total Operating Expenses $ 368,000 $ 656,000 $ 1,236,000 $ 2,452,000 $ 12,078,000 Other Expenses: Depreciation Expense 17,200 41,456 69,713 107,969 149,220 Income (Loss) Before Taxes (385,200) 90,044 344,287 890,031 5,772,780 Provision for Income Taxes - - 19,161 347,112 2,251,384 Net Income (Loss) $ (385,200) $ 90,044 $ 325,126 $ 542,919 $ 3,521,396

Statements of Cash Flows 2009 2010 2011 2012 2013 Beginning Cash $ 3,672 $ 475,672 $ 4,389,672 $ 4,455,344 $ 3,989,566 Cash Inflows: Sales Revenues - 1,300,000 2,700,000 5,600,000 29,000,000 Angel Funds 1,000,000 - - - - Series A - 4,000,000 - - - Series B - - - - - 1,000,000 5,300,000 2,700,000 5,600,000 29,000,000 Cash Outflows: Purchase of Fixed Assets 60,000 130,000 150,000 200,000 240,000 Purchases of Inventory 100,000 600,000 1,229,167 3,066,667 11,766,667 Operating Expenses 368,000 656,000 1,236,000 2,452,000 12,078,000 Income Taxes - - 19,161 347,112 2,251,384 528,000 1,386,000 2,634,328 6,065,779 26,336,051 Net Change in Cash 472,000 3,914,000 65,672 (465,779) 2,663,949 Ending Cash $ 475,672 $ 4,389,672 $ 4,455,344 $ 3,989,566 $ 6,653,515

Projected Valuation and ROI Year Revenue Expenses EBITDA 2009 $ - $ 368,000 $ (368,000) 2010 $ 1,300,000 $ 1,168,500 $ 131,500 2011 $ 2,700,000 $ 2,286,000 $ 414,000 2012 $ 5,600,000 $ 4,602,000 $ 998,000 2013 $ 29,000,000 $ 23,078,000 $ 5,922,000 multiple factor 8 Terminal Value $ 47,376,000 * The value of the Company is projected at 8X EBITDA in year 2013 Owner Initial % Year Capital Expected % Projected IRR Cash On Class Ownership Contributed Contributed in 2013 Value in 2013 (ROI) Cash Founders 100.00% 2009 $ 524,955 41.25% $ 19,542,600 106% 37 Angels 25.00% 2009 $ 1,000,000 13.75% $ 6,514,200 49% 7 Series A 45.00% 2010 $ 4,000,000 45.00% $ 21,319,200 52% 5 170.00% $ 5,524,955 100.00% $ 47,376,000 9

Assumptions 2009 2010 2011 2012 2013 Average Unit Sales Price $ 5,000 $ 5,200 $ 5,400 $ 5,600 $ 5,800 compare to similar products Units Sold - 250 500 1,000 5,000 Market Research Average Unit Cost $ 2,000 $ 2,050 $ 2,100 $ 2,150 $ 2,200 Do you have a detailed cost sheet? Revenue $ - $ 1,300,000 $ 2,700,000 $ 5,600,000 $ 29,000,000 formula Cost of Goods Sold $ - $ 512,500 $ 1,050,000 $ 2,150,000 $ 11,000,000 formula Gross Profit $ - $ 787,500 $ 1,650,000 $ 3,450,000 $ 18,000,000 formula Operating Expenses: Payroll $ 150,000 15.00% 15.00% 15.00% 15.00% percentage of sales R&D Materials 15.00% 10.00% 10.00% 10.00% 10.00% percentage of sales Rent $ 24,000 $ 48,000 $ 48,000 $ 48,000 $ 120,000 per R. Crieger commercial broker Marketing 0.00% 15.00% 15.00% 15.00% 15.00% percentage of sales Utilities & Facilities $ 20,000 $ 40,000 $ 60,000 $ 80,000 $ 250,000 based on current faciltites Insurance $ 12,000 $ 24,000 $ 24,000 $ 36,000 $ 48,000 per J. Kammer, insurance agent Legal & Professional $ 12,000 $ 24,000 $ 24,000 $ 48,000 $ 60,000 estimate Average GM% 60.00% 60.58% 61.11% 61.61% 62.07% Other Assumptions: Sales are collected at time of sale- no accounts receivable Purchases of Inventory are COD Inventory Levels are 8% of Next Years' Cost of Goods Sold (30 days turn) 8% Income Tax Rate 39.00%

Assumptions- continued Capital Investment: 2009 2010 2011 2012 2013 Angel Funds $ 1,000,000 Series A $ 4,000,000 Series B $ 1,000,000 $ 4,000,000 $ - $ - $ - Fixed Asset Purchases: 2009 2010 2011 2012 2013 Original Cost Machinery & Equipment $ 50,000 $ 100,000 $ 100,000 $ 150,000 $ 150,000 Leasehold Improvements - 10,000 10,000 10,000 10,000 Computers & Software 10,000 10,000 20,000 20,000 60,000 Furniture & Fixtures - 10,000 20,000 20,000 20,000 $ 60,000 $ 130,000 $ 150,000 $ 200,000 $ 240,000