SAMPLE COMPANY PURCHASE PRICE ALLOCATION - … · Purchase Price Allocation of Sample Company by...

SAMPLE COMPANYPURCHASE PRICE

ALLOCATIONARPEGGIO ADVISORS, LLC

JANUARY 7, 2016

Purchase Price Allocation of Sample Company by Arpeggio Advisors, LLC 1

January 7, 2016

Mr. ClientChief Financial OfficerSample Client CompanyAtlanta, GA 303XX

Allocation of the Fair Value of the Purchase Price of Sample Company, LLC for Financial Reporting Purposes

Dear Mr. Client:

At your (the “Client’s) request, Arpeggio Advisors, LLC (“Arpeggio”) has prepared the attached valuation analysis and reportto assist you with the fair value (“FV”) allocation of the purchase price of Sample Company, LLC (“Sample Company” or the“Company'”) on a non-controlling, non-marketable basis. This valuation analysis was prepared with an effective date ofFebruary 14, 2014 (the “Valuation Date”).

We performed the valuation analysis for purposes of transfer planning and reporting. The standard of value to be appliedin our valuation analysis is fair value The term “fair value” is defined per Accounting Standards Codification Topic 820, FairValue Measurements:

…the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The valuation is based on the going concern premise of value meaning that the business will continue to operate as an ongoing enterprise.


Our valuation considers, among others, the factors described in Rev. Rul. 59-60 (the “Rev. Rul.”). The Rev. Rul.states that all relevant factors should be taken into consideration when performing an appraisal of an interestin a closely held business, including the following:

The history and nature of the business;

The economic outlook in general, and the condition and outlook of the specific industry in particular;

The book value of the stock and the financial condition of the business;

The earnings capacity of the business;

The dividend-paying capacity of the business;

Whether or not the business has goodwill or other intangible value;

Sales of the stock and the size of the block to be valued; and

The market prices of stocks of corporations engaged in the same or similar line of business having theirstocks actively traded in a free and open market, either on an exchange or over-the-counter.

Our valuation analysis and conclusions are presented in the attached report, organized into the followingsections:

I. EXECUTIVE SUMMARYII. VALUATION CERTIFICATION III. HISTORY AND NATURE OF THE BUSINESSIV. INDUSTRY AND ECONOMIC ENVIRONMENTV. APPROACHES TO VALUEVI. VALUATION AND PURCHASE PRICE ALLOCATIONVII. CONCLUSION OF VALUEVIII. TERMS AND LIMITING CONDITIONSAPPENDICES


Based on the assumptions and limiting conditions as described in this report, as well as the facts andcircumstances as of the Valuation Date, we determined the appropriate allocation of the fair value of thepurchase price of Sample Company to be (Schedule A-1):

Distribution of this letter and report and its associated results, which are to be distributed only in their entirety, areintended for and restricted to the Client for financial reporting purposes, and may also be disclosed to the Client’sfinancial statement auditor. This letter and accompanying report are not to be used, circulated, quoted, or otherwisereferred to, in whole or in part, for any other purpose or to any other party for any purpose without the express writtenconsent of Arpeggio.

The approaches and methodologies used in our work did not comprise an examination in accordance with generallyaccepted auditing standards, the objective of which is an expression of an opinion regarding the fair representation offinancial statements or other financial information, whether historical or prospective, presented in accordance withgenerally accepted accounting principles.

Asset Fair Value

Net Working Capital $394,559

Deposits $3,677

Customer Relationships $1,126,000

Trademarks/Trade Names $79,000

Goodwill $3,228,764


We express no opinion on and accept no responsibility for the accuracy and completeness of the financialinformation or other data provided to us by others. We assume that the financial and other information providedto us is accurate and complete, and we have relied upon this information in performing our valuation.

We appreciate the opportunity to be of service to you. A copy of this report and the detailed working papers fromwhich it was prepared has been retained in our files. If you have any questions concerning this valuation report,please contact the undersigned at (770) 286-3169.

Very truly yours,

[DRAFT]

__________________________

Arpeggio Advisors, LLCMichael S. Blake, CFA, ASA, ABAR, BCA


Appraiser CertificationI certify that, to the best of my knowledge and belief:

• The statements of fact contained in this report are true and correct.

• The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, unbiased professional analyses, opinions, and conclusions.

• I have no present or prospective interest in the business or property that is the subject of this report, and Ihave no personal interest or bias with respect to the parties involved.

• My compensation is not contingent on any action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report.

• My analyses, opinions, and conclusions were developed, and this report has been prepared, in conformitywith the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation and thePrinciples of Appraisal Practice and Code of Ethics of the American Society of Appraisers.

• This report was prepared by Michael S. Blake, CFA, ASA, ABAR, BCA.

• In the past three years prior to this engagement, our firm has received $0 in professional fees for servicesprovided to the Client.

Michael S. Blake, CFA, ASA, ABAR, BCAPurchase Price Allocation of Sample Company

by Arpeggio Advisors, LLC 6

Executive Summary

Engagement Summary Mr. Client, Chief Financial Officer of Sample Client (“Sample Client”) engagedArpeggio Advisors, LLC to perform an allocation of fair value of the purchase price ofSample Company, LLC (“Sample Company”, or the “Company”). We issued ourreport, subject to certain terms and limiting conditions described elsewhere, onJanuary 7, 2016.

Subject of Valuation Intangible assets acquired in the acquisition of Sample Company, including goodwill

Standard of Value Fair value (“FV”) per Accounting Standards Codification topic 820, Fair Value Measurements.

Premise of Value In continued operation as a going concern

Effective Date of Value (the “Valuation Date”)

February 14, 2014

Value Conclusion The concluded values of the Company’s intangible assets were as follows:• Customer Relationships - $1,126,000• Trademarks/Trade names - $79,000• Goodwill - $3,228,764

Intended Users of the Report

The Client and its financial and legal advisors, and its financial statement auditor.


Sources of Information Considered or Used

• Audited historical financial information from January 1, 2010 through February 14, 2014;

• 2014-2020 financial projections prepared by the Client;

• Discussions with Sample Client’s Chief Financial Officer;

• Data from Capital IQ information service provided by Standard & Poor’s;

• Industry data from IBISWorld for “Business Analytics and Software Publishing in the U.S.” March 2014;

• Duff & Phelps LLC’s “2014 Valuation Handbook: Guide to Cost of Capital”;

• Duff & Phelps LLC’s “2014 Valuation Handbook: Industry Cost of Capital”;

• Royalty data from RoyaltySource;

• Economic data from "National Economic Report – February 2014" as published by KeyValueData™; and

• Other sources as stated in the body of this report and the attached schedules.

• In addition, we reviewed appraisal literature and court decisions regarding lack of controland lack of marketability discounts, as well as various business appraisal articles, booksand other publications related to the valuation of closely held businesses and entities.


Definition of Fair Value

Per Accounting Standards Codification Topic 820, Fair Value Measurements:

• …the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.


Overview of Information Considered

Internal Revenue Ruling 59-60 states that “all relevant factors” must be taken into consideration when valuing a business, including:

• The history and nature of the business;

• The economic outlook in general, and the condition and outlook of the specificindustry in particular;

• The book value of the stock and the financial condition of the business;

• The earnings capacity of the business;

• The dividend-paying capacity of the business;

• Whether or not the business has goodwill or other intangible value;

• Sales of the stock and the size of the block to be valued; and

• The market price of stocks of corporations engaged in the same or similar lineof business having their stocks actively traded in a free and open market,either on an exchange or over-the-counter.


About Sample Company, LLC

Business Description Sample Company provided products and solutions to help healthcareorganizations improve overall performance. Specifically, the Company’ssolutions helped its clients manage internal and external perception,implement quality and process improvement initiatives, and evaluateperformance.

Summary Data Founded in 2003Organized as a limited liability company in Connecticut

Target Markets The Company’s markets were targeted at healthcare insurers and providersacross the United States.

Key Executives and Personnel (resumes included in appendix)

Not applicable – key executives did not transition in the sale.

Recent Transactions Involving theSubject Interest

The Company was acquired on February 14, 2014 for total consideration of$4,832,000.


Financial Overview

An important step in the valuation of any company is ananalysis of its performance over time. Past sales andearnings growth can provide an indicator of futuregrowth and can put the company's current performancein an historical context. In addition, a comparison of acompany’s key financial ratios with those of the relevantindustry can provide useful information regarding acompany’s financial position.


Sample Company Historical and Projected Income Statements

$(3,000,000)

$(2,000,000)

$(1,000,000)

$-

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

$8,000,000

2010 2011 2012 2013 TTM2014

2015(F)

2016(F)

2017(F)

2018(F)

2019(F)

2020(F)

Revenue

EBITDA

The Company was breakeven 2014. The Company planned significant technology investments in 2015, laying the foundation for future growth. See Schedule B-1 for additional detail.


Sample Company Historical Balance Sheets

$-

$100,000

$200,000

$300,000

$400,000

$500,000

2010 2011 2012 2013 2014

Current and Noncurrent Assets

Current Assets Noncurrent Assets

$(100,000)

$-

$100,000

$200,000

$300,000

$400,000

$500,000

2010 2011 2012 2013 2014

Current Assets

Cash, Cash Equivalents Trade Accounts Receivable, net

Other Current Assets

$- $50,000

$100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000

2010 2011 2012 2013 2014

Capital Structure

Debt Equity $-

$50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000

2010 2011 2012 2013 2014

Debt-free Net Working Capital


See Schedule B-2 for additional detail.

Financial Analysis

• The Company was revenue positive and below breakeven as of the Valuation Date.

• Forecasted losses were in contemplation of investments that the Company planned for building out technology and expanding the sales force.

• “Other” current assets was largely comprised data sources and sundry inventories.

• The Company was roughly breaking even on its operations.• The Company appeared to have sufficient short-term liquidity as

of the Valuation Date.• The Company’s financials largely appeared as would be expected

of an emerging software technology company.


Industry and Economic Environment

Buyers and sellers typically consider the current andexpected industry and economic conditions in which thesubject company operates. Accordingly, we present asummary and analysis of those environmentalconditions that were relevant to the Company as of theValuation Date.


Industry Summary

• The Company was a participant in the Business Analytics and Enterprise Software Publishing Industry.

• The industry was a $28.2 billion industry in the U.S.

• The industry was in a mature-growth phase.• Statistical and predictive analysis software (applicable to the Company)

represented 13% of the market.• The industry was highly concentrated, with market leaders were IBM,

Microsoft, SAP and Oracle representing over 80% of the market.

• Barriers to entry into the industry were low.• Niches and vertical specialization (such as healthcare) were important

differentiators.


Industry Drivers

Driver Explanation Outlook

Corporate profit Profits motivate investment in software.

Private investment in computers and software

Increasing reliance on technology drives investment.

Regulation for the investment management industry

The industry needs to increase investment in record keeping.

Yield on the 10-year treasury note

Lower interest rates makes financing acquisitions less expensive.

Demand from health and medical insurance

New regulations require healthcare companies to make new investments in software.


Company Success DriversFactor Explanation Company

Ease of use Ease of use facilitates customer adoption.

Quick technology adoption

Adopting new technologies quickly offers a competitive advantage. Sample Client had plans to make several acquisitions as of the Valuation Date.

High marketprofile

Reputation can offset technology risk. The Company was not one of the largest players in the industry.

Value pricing It is important to create price structures focused on value rather than cost. The Company used software-as-a-service pricing.

Skilled labor Attracting and retaining developers is key in the industry. The Company seemed to be able to do so.

Providingrelated products and services

Broad product and service offerings attract more customers. Sample Client had plans to make several acquisitions as of the Valuation Date.


Industry Historical and Forecasted Demand

0.7

9.2

2.4

-1.5-1.9

1.4

9.0

3.1

5.0 5.34.5

1.4

3.5

2.4

-4

-2

0

2

4

6

8

10

2006 2007 2008 2009 2010 2011 2012 2013 2014(F) 2015(F) 2016(F) 2017(F) 2018(F) 2019(F)

Growth (%)

Source: IBISWorld “Business Analytics and Software Publishing in the U.S.” March 2014


The National Economy Summary

• Gross domestic product growth in Q4 2014 = 2.6%, following a 4.1% growth rate for the third quarter

• The unemployment rate was 6.7% in February 2014, continuing its downward trend.

• A threatened government shutdown in February 2014 was averted.

• Industrial production was increasing.• Consumer confidence readings were mixed.• Consumer spending and retail sales were rising.


Corporate Profits

-20

-15

-10

-5

0

5

10

U.S. Corporate Profits, 2004-2014Annual % Change

Source: KeyValueData


10-Year Treasury Yields (%)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2009

-04

2009

-05

2009

-06

2009

-07

2009

-08

2009

-09

2009

-10

2009

-11

2009

-12

2010

-01

2010

-02

2010

-03

2010

-04

2010

-05

2010

-06

2010

-07

2010

-08

2010

-09

2010

-10

2010

-11

2010

-12

2011

-01

2011

-02

2011

-03

2011

-04

2011

-05

2011

-06

2011

-07

2011

-08

2011

-09

2011

-10

2011

-11

2011

-12

2012

-01

2012

-02

2012

-03

2012

-04

2012

-05

2012

-06

2012

-07

2012

-08

2012

-09

2012

-10

2012

-11

2012

-12

2013

-01

2013

-02

2013

-03

2013

-04

2013

-05

2013

-06

2013

-07

2013

-08

2013

-09

2013

-10

2013

-11

2013

-12

2014

-01

Source: Federalreserve.gov


Economic and Industry Environment Conclusions

• Industry indicators were generally positive.• Economic indicators were neutral and/or

mixed.• Regulatory requirements appeared to

support the industry.• The overall industry and economic

environment was positive for the Company and would have been considered a positive value influencer.


Valuation Methodologies

Professional valuation standards require that multipleapproaches to value be considered. This does not meanthat they must necessarily be used, but there must bespecific reasons that drive the decision to use oneapproach in favor of another.


Levels of Value Inputs

Input Level Description

Level 1 Input Unadjusted quoted prices in active markets for identical assets or liabilities

Level 2 Input Quoted prices for similar assets or liabilities in active marketsQuoted prices for identical or similar assets or liabilities that are not active

Level 3 Input Unobservable inputs for the asset or liability, including theoretical models

ASC 820 envisages three “levels of value” with a hierarchy that indicates the preference according to which valuation approaches (inputs) should be utilized. Level 1 inputs are preferred over Level 2 inputs and Level 2 inputs are preferred over Level 3 inputs. Market models are generally preferred to income models.

In practice, most intangible asset valuation techniques rely primarily on unobservable inputs because of the absence of Level 1 or 2 inputs.


Approaches to Value

Approach Description

Income approach

Income approach valuation techniques are those that determine the value of an asset based on the asset’s future income generating potential. Examples of income-based valuation methodologies for intangible assets include the multiperiod excess earnings method, the relief from royalty method, and the with-or-without method.

Market approach

Market approach valuation techniques are those that determine the value of an asset based on the prices of similar assets bought and sold in the market.

Costapproach

Cost approach valuation techniques are those that determine the value of an asset based on its historical cost to create or the cost to replicate.

Three primary approaches exist for valuing intangible assets. They are described in the table below:


Valuation Methodologies Used

Asset Valuation Methodology

Notes

Tangible Assets Historical Cost Recorded at book valueCustomer Relationships Multi-period Excess

Earnings Method6 Year Life

Trademarks/Trade Names

Relief from Royalty 4 Year Life

Goodwill Residual Method Difference between identified asset values and purchase price.

Workforce-in-Place Cost of Reproduction Used only in determining contributory asset charges.


Valuation and Purchase Price Allocation

We performed generally accepted business valuationprocedures to complete the purchase price allocationprocess, as described in the following pages.


Purchase Price

Consideration AmountCash Payment at Closing $3,000,000 Adjustment for Surplus of Target Cash 31,500Present Value of Contingent Consideration 1,740,000 Payment for Working Capital Adjustment 60,127 Liabilities Assumed 0 Total Implied Purchase Price (rounded) $4,832,000

The purchase price was determined as follows (Schedule A-1):


Fair Value of Contingent Consideration

• One of the terms of the purchase agreement was to pay the sellers up to $3 million, contingent upon cumulative revenue associated with transitioned customers, as measured on June 30, 2014; December 31, 2014; June 30, 2015; and December 31, 2015.

• Payouts were 2x revenue for each $250,000 of transferred revenue (rounded down to the nearest $250,000 increment), up to a payout of $1 million, and then 1x revenue for each $250,000 of transferred revenue (also rounded down to the nearest $250,000 increment) up to a maximum payout of $3 million.

• $1 million was paid out for the December 31, 2014 period.• The Client expected the remaining $1 million to be paid for

December 31, 2015 because:• The second half of the year tends to be when more sales close (which is why no

payouts for the two first-half periods), and• The Company planned to expand its sales force by six (6) field representatives,

with a projected sales of $1.5 million.


Contingent Consideration (Cont’d)

• The Client originally assigned 100% probabilities to earn-out payments of $2 million for the period ending December 31, 2014 and $1 million for the period ending December 31, 2015.

• These probabilities incorporate knowledge that the buyer would not necessarily have possessed as of the Valuation Date. Accordingly, we reduced both probabilities to 99% and 75%, respectively.

• The payouts were actually to be made 115 days after they were accrued, and this was accounted for in our time-value-of-money model.

• The earn-outs were discounted at a rate of 20.7%, per our estimate of the Company’s cost of capital (Schedule F-1).

• The fair value of the earn-outs was $1,740,000 (Schedule A-2).


Determining Return on the Acquisition

• We created a “backsolve” discounted cash flow model, using projections provided by Sample Client from the Valuation Date through December 31, 2020 (Schedule D-1).

• The terminal value was determined using the H-Model, a two-stage capitalization of earnings model (Schedule D-2).

• Debt-free working capital requirements were calibrated to the Company’s most recent year (Schedule E-1) and the industry average per Risk Management Associates Data.

• The internal rate of return on the acquisition was 20.7%.


The Income Approach –Discounted Cash Flow Method

• The discounted cash flow method considers promised cash flows to investors

• Such cash flows include discrete, annual cash flows for a period of time, and then a terminal cash flow, which reflects either the cash flows projected for every year beyond the projection period, or an exit price at a future point in time.

• The H-Model was used to determine the terminal value (see following page).

• Such promised cash flows are discounted by a discount rate, to reflect the risk and required return associated with the perceived likelihood of receiving the promised cash flows.


Adjustment to Projections – Selling, General & Administrative Expenses

• We adjusted projected selling, general, and administrative (“SG&A”) expenses so that they would exhibit more of a fixed nature relative to revenue as they Company was expected to grow.

• We identified the projected SG&A expenses as a percentage of revenue from projections utilized in the valuation of Reference Sample Company from 2015-2018, and applied them to Sample Company’s projections in 2017-2020 (Schedule C-1).


Applying the H-Model to Compute the Terminal Value

• Appendix E describes the mechanics for computing the H-Model and presents its academic foundations.


Variable Input Explanation

Baseline Cash Flow $1,635,257 2020 Debt-free Net Cash Flow

Discount Rate 20.7% Company estimated weighted average cost of capital

High Growth Rate 21.0% Projected 2020 growth rate

Long-term Growth Rate 3.5% Per IBISWorld industry 2016-2020 forecasts

Number of High-growth Years (H) 5 Equal to one business cycle

The resulting H-Model value was $14,020,000, presented in Schedule D-2.

Debt-Free Cash Flow

Impact Income/Expense ItemStart Net Income after Taxes

Depreciation, Amortization, Deferred TaxesCapital ExpendituresChanges in Net Working CapitalInterest ExpensePreferred DividendsNet Debt-free Cash Flow

Debt-Free cash flow represents cash flows available to shareholders and lenders. Debt-Free cash flow produces a value that is not dependent on the company’s capital structure.


Discount Rate

• A discount rate converts anticipated cash flows to the investor into terms of present day dollars actually held. When debt-free cash flows are discounted, the discount rate is equal to the returns on investment expected by shareholders and lenders, and this is expressed as the weighted average cost of capital, or WACC.

• The cost of equity and cost of debt must be estimated.

• The higher the discount rate, the lower the present value.


Cost of Equity Risk-free rate – yield on

the 20-year Treasury bill as of the Valuation Date

Equity risk premium – the return premium required to move out of t-bills and into stocks

Industry-specific risk premium – the return premium required to invest in stocks in SIC Code 7374 – Computer Processing and Data Preparation Services.

Size specific risk premium – the return premium required to invest in small companies (10th decile by market capitalization, Ibbotson data, 25th

category of 25 by revenue, Duff & Phelps Data)

Company-specific risk premium – the return required to accept other risks not accounted for above

3.41% 3.41%

12.65%

6.18%

5.99%

-0.06% -0.05%

5.00% 5.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

Duff & Phelps Data Ibbotson Data

Company-specific RiskPremium

Industry-specific RiskPremium

Size-based Equity RiskPremium*

Long-term Equity RiskPremium

Risk-free Rate of Return

Average Cost of Equity = 20.7% (Schedule F-1)

• The Duff & Phelps Long-term Equity Risk Premium is roughly equivalent to the Ibbotson Equity Risk Premium and Size Risk Premium (Schedule F-1).

• These and other cost of equity estimation methodologies are explained in Appendix B to this report.

21.0% 20.5%


Company-Specific Risk Premium

Risk Category Comment Impact on Risk

Leverage Debt was nearly 40% of the Company’s capital structure.

Operating history The Company’s operating history was fairly substantial.

Reliability of financial data The Company’s financial data was unaudited.

Customer concentration The Company did not report significant customer concentration.

Uncertainty of projections Projections represented a departure from historical performance.

Management depth The Company had a well-rounded management team.

Access to capital The Company had a line of credit available.

Volatility of cash flow Historical cash flow was not volatile, but the Company planned to sharply increase investment in 2014-5.

Supplier leverage Supplier leverage was not important.

Geographical distribution The Company’s target markets were nationwide.

Availability of labor Labor was highly-skilled and could be challenging to find/train, though the Company did not report difficulty in recruiting.

Breadth of products The Company’s services were being expanded after the acquisition.

Regulatory risk The industry’s value proposition was driven by the Affordable Care Act.

Competitive advantage Competition was moderate and fragmented.

Concluded CSRP = 5.0%


Cost of Debt

• Base market cost of debt = 5.1% - the yield on Moody’s rated Baa bonds as of the Valuation Date.

• Tax rate = 38.0%, Georgia tax rate of 6.0% and federal tax rate of 34%.

• After-tax cost of debt = 5.1% x (1-38.0%) = 3.2%.


Weighted Average Cost of Capital

WACC = (Cost of Equity x Weight of Equity*) + (Cost of Debt x Weight of Debt*)

99.6%

0.4%WACC

Wt. Equity

Wt. Debt

* Wt. Debt & Wt. Equity = 5-year historical capital structure for small companies within SIC 7374, Computer Processing and Data Preparation Services (Schedule F-1).

Cost of Equity = 20.8%

Cost of Debt = 3.2%


Weighted Average Cost of Capital Conclusion

20.8

3.2%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Cost of EquityCost of Debt

Cost of Capital Applied (20.7%)


The internal rate of return implied by the purchase price and projected cash flows was 20.8%.

%

2.0% 2.0%

20.7% 20.7% 20.7%24.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Working Capital [a] Deposits [a] Customer Relationships[c]

Trademarks/TradeNames [b]

Assembled Workforce[b]

Goodwill [d]

Returns on Assets

[a] – Tangible asset returns derived from short-term, low-risk borrowing rates as presented in Schedule F-2.[b] – Equal to the Company’s WACC (Schedule F-1).[c] – Equal to the Company’s WACC (Schedule F-1).[d] – Plug to reconcile the Company’s weighted returns on assets (Schedule F-1).

Weighted Average Return on Assets (21.4%)

Weighted Average Cost of Capital (20.7%)


Fair Value of Customer Relationships

• Determined using the Multi-period Excess Earnings Method

• Projections were provided by Sample Client.• Historical attrition data was negative. Therefore, the Estimated

Lifing Factor* model was used to estimate attrition.• A remaining useful life of 6 years was presumed by Sample Client

and benchmarked against remaining useful lives of similar assets (discussed later in this report).

• Contributory asset charges were assessed for working capital, fixed assets, trademarks/trade names, and trained and assembled workforce.

• A tax amortization gross-up factor of 1.14 was applied to the gross value computation.

• The fair value of the customer relationships was $1,006,000 (Schedule G-1).

*The estimated lifing factor model is explained in Appendix D to this report.Purchase Price Allocation of Sample Company


Fair Value of Customer Relationships –Contributory Asset Charges

• The contributory asset charges were computed according to the following:

• Working Capital – 2% return * yearly working capital requirement to support growth

• Fixed Assets – Fixed assets were not material in the Company.

• Technology – Determined by assessing royalties at an after-tax rate of 3.67%. See Schedule G-5 for royalty analysis.

• Trademarks – Determined by assessing royalties at an after-tax rate of 0.62% of customer revenues. See Schedule G-3 for royalty analysis.

• In-place Workforce – In-place workforce charge was computed as a percent of revenue (0.6%) as presented in Schedule G-4.


Fair Value of Trademarks/ Trade Names

• The trademarks/trade names were associated with the Company.

• The fair value was determined using the relief from royalty method.

• A pre-tax royalty rate of 1.00% (Schedule G-3) was applied to the Company’s projected revenues.

• A remaining useful life of 4 years was presumed by Sample Client and benchmarked against remaining useful lives of similar assets (discussed later in this report).

• A tax amortization gross-up factor of 1.14 was applied to the gross value computation.

• The fair value of the trademarks was determined to be $79,000 (Schedule G-2).


Fair Value of Workforce-in-Place

• Performed only to determine contributory asset charges to customer relationships.

• 18 employees were acquired in the transaction.• The cost of reproduction method was used to determine

the fair value of the workforce-in-place.• Key assumptions of recruiting costs, training costs,

productivity ramp-up, and salaries were provided by Sample Client.

• No executives were retained after the acquisition.• A tax amortization gross-up factor of 1.14 was applied to

the gross value computation.• The fair value of the workforce-in-place was determined

to be $86,000 (Schedule G-4).Purchase Price Allocation of Sample Company


Fair Value of Goodwill

Determined as a residual after subtracting the fair values of tangible and intangible assets acquired from the purchase price.

$394,559

$1,006,000

$79,000

$3,262,764

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$4,000,000

$4,500,000

$5,000,000

Goodwill

Trademarks/TradeNames

CustomerRelationships

Deposits

Net Working Capital

Purchase Price = $4,832,000


Remaining Useful Lives Benchmarks

0 5 10 15 20 25

Customers

Trademarks

Range of Useful Lives in Years

Selected Remaining Useful Lives

Source: SEC 10-K filings of various companies.


Tax Amortization BenefitSection 197 of the Internal Revenue Code addresses the tax amortization benefit applying to the capitalization and amortization of intangible assets, typically over a period of 15 years. §197(d) defines intangible assets as

1. Goodwill and going-concern value.2. Workforce in place.3. Business books and records, operating systems, or any other information base, including

customer lists or other information with respect to current or future customers.4. Patents, copyrights, formulas, processes, designs, patterns, know-how, formats, or similar

items.5. Customer-related intangibles.6. Supplier-related intangibles (such as favorable supplier relationships).7. Licenses, permits, or other rights granted by a governmental unit or agency.8. Franchises, trademarks or trade names.9. Covenants not to compete associated with the acquisition of a business.10. Computer software if acquired in connection with a trade or acquisition.


Tax Amortization Benefit (Cont’d)

Aside from items 7-9, an intangible asset is not amortizable under the tax codes if it is created by the taxpayer unless it is created in conjunction with the acquisition of a substantial portion of a business.In order to incorporate the tax amortization benefit into the valuation analysis, the calculations are quantified by incorporating a tax amortization factor into the analysis. Once a pre-tax asset value is calculated, that value is multiplied by the tax amortization factor to yield the after-tax value conclusion. The tax amortization factor is shorthand for the present value of future tax savings. We applied this factor to our valuation analysis.The tax amortization gross-up factor is produced by using the following equation:

1( 1 − 𝑡𝑡 𝑥𝑥 𝑃𝑃𝑃𝑃 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑡𝑡𝑎𝑎 𝑓𝑓𝑎𝑎𝑓𝑓𝑡𝑡𝑓𝑓𝑓𝑓)/𝑎𝑎

Where• t = the tax rate• n = the amortization period (usually 15 years, except for software, which has a 3-

year amortization period)• PV annuity factor = the factor that equates a series of equal future cash flows to a

present value, discounted by a discount rate.


Tax Amortization Results

• We computed the tax amortization benefits associated with each of the identified intangible assets, producing their respective gross-up factors.

Asset Base Value Tax Gross-up Factor

Fair Value (rounded)

Customer Relationships $882,867 1.14x $1,006,000

Trademarks/Trade Names $69,241 1.14x $79,000

Workforce-in-Place $75,681 1.14x $86,000


Conclusion of Fair Value

Our analysis as explained in the preceding pages has ledus to the following conclusion(s) of fair value.


Fair Value ConclusionsBased on the facts and circumstances associated with the Company as of the Valuation Date, and incorporating our own research, analysis, and informed professional judgment, we determined the fair values of the Company’s intangible assets to be (Schedule A-1):


Asset Fair Value

Net Working Capital $394,559

Deposits $3,677

Customer Relationships $1,006,000

Trademarks/Trade Names $79,000

Goodwill $3,262,764

Assumptions and Limiting Conditions


The primary assumptions and limiting conditions pertaining to the value estimate conclusion stated in this report are summarized below. Other assumptions are cited elsewhere in this report.

The valuation may not be used in conjunction with any other appraisal or study. The value conclusion stated in this valuation is based on the program of utilization described in the report, and may not be separated into parts. The valuation was prepared solely for the purpose, function, and party so identified in the report. The valuation report may not be reproduced, in whole or in part, and the findings of the report may not be utilized by a third party for any purpose, without the express written consent of Arpeggio Advisors, LLC.

No change of any item in any part of the valuation report shall be made by anyone other than Arpeggio Advisors, LLC, and we shall have no responsibility for any such unauthorized change.

Unless otherwise stated in the valuation, the valuation of the Subject Interest and the Company has not considered or incorporated the potential economic gain or loss resulting from contingent assets, liabilities, or events existing as of the Valuation Date.

The working papers for this engagement are being retained in our files and are available for your reference. We would be available to support our valuation conclusion should this be required. Those services would be performed for an additional fee.

Neither all nor any part of the contents of the report shall be disseminated or referred to the public through advertising, public relations, news, or sales media, or any other public means of communication, or referenced in any publication, including any private or public offerings, including but not limited to those filed with the Securities and Exchange Commission or any other governmental agency, without the prior written consent and approval of Arpeggio Advisors, LLC.

Management is assumed to be competent, and the ownership to be in responsible hands, unless noted otherwise in this report. The quality of business management can have a direct effect on the viability and value of the business. The financial projections contained in the valuation assume both responsible ownership and competent management unless noted otherwise. Any variance from this assumption could have a significant impact on the final value estimate.

Unless otherwise stated, no effort has been made to determine the possible effect, if any, on the subject business due to future federal, state, or local legislation, including any environmental or ecological matters or interpretations thereof.

Purchase Price Allocation of Reference Sample Company by Arpeggio Advisors, LLC 57

Events and circumstances frequently do not occur as expected, and differences will unusually exist between prospective financialinformation and actual results, and those differences may be material. Accordingly, to the extent that any of the information used in this analysis and report requires adjustment, the resulting fair value would be different.

Any decision to purchase, sell or transfer any interest in the Company shall be your sole responsibility, as well as the structure to be utilized and the price to be accepted.

The selection of the price to be accepted requires consideration of factors beyond the information we will provide or have provided. An actual transaction involving the subject business or interest might be concluded at a higher value or at a lower value, depending upon the circumstances of the transaction and the business, and the knowledge and motivations of the buyers and sellers at that time.

All facts and data set forth in our letter report are true and accurate to the best of our knowledge and belief.

No investigation of legal fees or title to the property has been made, and the owner's claim to the property has been assumed valid. No consideration has been given to liens or encumbrances that may be against the property except as specifically stated in the valuation executive summary report.

All recommendations as to fair value are presented as our conclusion based on the facts and data set forth in this report.During the course of the valuation, we have considered information provided by management and other third parties. We believe these sources to be reliable, but no further responsibility is assumed for their accuracy.

We have conducted interviews with the current management of the Company and/or their representatives concerning the past, present, and prospective operating results of the Company.

Any projections of future events described in this report represent the general expectancy concerning such events as of the evaluation date. These future events may or may not occur as anticipated, and actual operating results may vary from those described in our report.This valuation study is intended solely to assist the Company in determining the fair value of its equity securities for transaction planning purposes and should not be used for any other purpose or distributed to third parties, in whole or in part, without the express written consent of Arpeggio Advisors, LLC.


We have no responsibility or obligation to update this report for events or circumstances occurring subsequent to the date of this report.Our report is based on historical and/or prospective financial information provided to us by management and other third parties. This information has not been audited, reviewed, or compiled by us, nor has it been subjected to any type of audit, review, or compilation procedures by us, nor have we audited, reviewed, or compiled the books and records of the Company. Had we audited, reviewed, or compiled the underlying data, matters may have come to our attention which would have resulted in our using amounts which differ from those provided; accordingly, we take no responsibility for the underlying data presented or relied upon in this report.

We have relied upon the representations of the owners, management, and other third parties concerning the value and useful conditions of all equipment used in the business, and any other assets or liabilities except as specifically stated to the contrary in this report. We have not attempted to confirm whether or not all assets of the business are free and clear of liens and encumbrances, or that the Company has good title to all assets.

Our valuation judgment, shown herein, pertains only to the subject business, the stated value standard, as at the stated Valuation Date, and only for the stated valuation purpose.

The various estimates of value presented in this report apply to the valuation report only and may not be used out of the context presented herein.

In all matters that may be potentially challenged by a Court, the Securities and Exchange Commission, or Internal Revenue Service, we do not take responsibility for the degree of reasonableness of contrary positions that others may choose to take, nor for the costs or fees that may be incurred in the defense of our recommendations against challenge(s). We will, however, retain our supporting workpapers for your matter(s) and will be available to assist in active defense of our professional positions taken, at our then-current rates, plus direct expenses at actual, and according to our then-current Standard Professional Agreement.


Appendix A –Explanation of Valuation

MethodologiesThis appendix contains an explanation of the valuation methodologies used in the valuation analysis.


Multiperiod Excess Earnings Model

• The Multiperiod Excess Earnings Model (“MPEEM”) is an income-based valuation methodology that is closely related to the discounted cash flow model, relying on projected revenues, earnings, and cash flows to produce a value conclusion.

• The MPEEM differs from the discounted cash flow model in that the MPEEM isolates the value of the intangible asset by recognizing the contributions that other of the company’s assets make in generating revenues and profits from the subject asset.

• Those contributions are recognized in the MPEEM models in the form of “contributory asset charges” and are treated as if they were expenses in the forecasted income statements.


Relief from Royalty Method

• The relief from royalty (“RFR”) method is an income-based valuation method that measures value as a function of the royalties avoided by owning an intangible asset, as opposed to licensing the intangible asset from a third party.

• Royalties avoided are computed based on a projected income base (usually revenue), multiplied by a royalty rate that the analyst believes would be applied to that income base.

• Typically, the appropriate royalty rate is determined by researching royalty rates associated with the licensing agreements of similar asset types.

• As with other income-based methodologies, the projected avoided royalties are discounted at an appropriate discount rate.


Cost of Replacement (Workforce)

• The workforce-in-place is typically valued using a cost of replacement methodology.

• The cost of replacement methodology is a technique within the cost approach.

• The cost of replacement of the workforce considers recruiting costs, training costs and time to reach full productivity, most or all of which are functions of the workforce’s compensation.


Appendix B – Cost of Equity Methods

We present in this appendix an overview of cost of equity methods used, as well as other cost of equity methods that other practitioners may use.


Glossary

• Risk-free rate – the rate where there is assumed to be zero risk of not receiving the promised rate of return on capital invested. U.S. treasury securities are assumed to be risk-free.

• Equity risk premium – the additional return required to convince risk-free investors to move their capital into large stocks.

• Size risk premium – the additional return required to convince large stock investors to move their capital into small stocks.

• Industry risk premium – the additional return required (or sacrificed) to convince large stock investors to move their capital out of index funds and into stocks in a particular industry.

• Company-specific risk premium – all risk considerations related to the subject company that are not covered in any of the other risk/return elements.


Build-up Method – Duff & Phelps Data• Build-up methods estimate the cost of equity by using the risk-free rate of return as a foundation and then adding (or subtracting) required

return for the risk of moving from T-bills into equities, moving from large stocks into small stocks, for stocks in a particular industry, and subject-company-specific risks.

• Duff & Phelps data is based on stock price movements in operating (i.e. non-financial) companies since 1963, and is updated annually. The 2014 Duff & Phelps data set includes data through 2013, and is published in the Duff & Phelps, LLC Risk “2014 Valuation Handbook, Guide to Cost of Capital.

• Duff & Phelps does not explicitly compute the size-based risk premium, but rather combines the size-based risk premium with the equity risk premium.

• D&P provides cost of capital measures by presenting historical equity risk premiums and size premiums for 25 size-ranked portfolios using 8 alternative measures of company size. The 8 measures of company size are:

• Three measures of equity size:

• Market capitalization

• Book value

• Net income (5-year average)

• Five measures of company size:

• Market Value of Invested Capital (“MVIC”)

• Total assets

• Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) (5 -year average)

• Sales

• Number of employees

• To estimate historical equity risk premiums, D&P calculated an average rate of return for each portfolio of public companies and subtracted the average income return earned on long-term Treasury bonds over the same period. The D&P equity risk premium component of thediscount rate was calculated using 1963 to present average historical equity returns from eight different measures of size. This allows an appraiser to estimate an equity risk premium using different measures of company size, giving the appraiser the ability to focus on financial variables that are more closely associated with small size rather than just market capitalization.


Build-up Method – Ibbotson Data• Build-up methods estimate the cost of equity by using the risk-free rate of return as a foundation

and then adding (or subtracting) required return for the risk of moving from T-bills into equities, moving from large stocks into small stocks, for stocks in a particular industry, and subject-company-specific risks.

• Ibbotson historical equity risk premium and size risk premium data are based on historical stock return data since 1926. Industry risk premium data is based on the prior full year’s returns. The historical equity risk premium is based on an analysis of market returns since 1926 and is calculated by subtracting the arithmetic mean of government bond income returns from the arithmetic mean of the stock market’s total return. The long-horizon historical ERP is by definition backward-looking and its use requires the implicit assumption that future ERPs will be similar to past long-run ERPs.

• Ibbotson publishes equity risk premium data that is long -horizon (historical, since 1926) and supply-side (forward-looking, as of the last full year prior to the study). Most business valuation practitioners prefer the supply-side equity risk premium because of its forward-looking nature.

• Ibbotson data used to be published in its own publication until 2013. Since then, cost of equity data using Ibbotson methodologies has been published in the Duff & Phelps, LLC Risk “2014 Valuation Handbook, Guide to Cost of Capital.

• The Ibbotson size risk premium data is divided into 10 deciles by market capitalization in the NASDAQ and New York Stock Exchange. The 10th decile (smallest) is further divided into 4 subgroups. The subgroups representing the smallest companies must be used with care as they frequently include companies that are infrequently traded or are experiencing financial distress.


(Modified) Capital Asset Pricing Model• Like the build-up methods, the premise of CAPM is that the expected return (or discount rate) of a

security equals the rate on a risk-free security plus a risk premium. The required returns of publicly traded stocks deemed similar to the subject company are computed and applied to the subject company.

• The heart of CAPM is beta (β), an expression of the stock price’s movements with the broad stock market. β is computed as the statistical covariance of the stock price with the broader market. A β = 0 indicates that there is no movement with the stock market whatsoever. A β > 0 indicates that the stock moves positively with the stock market. A β > 1 indicates that the stock moves in the same direction as the stock market, but more strongly. A β < 0 indicates that the stock moves in the opposite direction as the stock market. A β < -1 indicates that the stock moves in the opposite direction of the stock market, but more strongly. The higher the beta, the higher the required return.

• MCAPM (Modified) helps account for differences in size and company-specific risks and associated required returns, thus enabling the formula:

E(Ri) = Rf + β(RPm) + RPs + Rpu; where:E(Ri) = Expected Return (Discount Rate) on the SecurityRf = Risk-Free Rateβ = Beta of the Security RPm = Equity Risk PremiumRPs = Risk Premium for SizeRPu = Company Specific Risk Premium

• The CAPM method originated from the Nobel Prize winning studies of Harry Markowitz, James Tobin and William Sharpe. In spite of this recognition, the CAPM method for estimating cost of equity remains a subject of constant debate and research in terms of whether empirical evidence confirms whether the CAPM model is a viable real-world predictor of market equity returns.


Fama-French Model• The Fama-French model is a three factor model for estimating the cost of equity of public

stocks.

• The Fama-French model incorporates the β from the MCAPM model as well as market capitalization (SMBP ) and book value to market value ratios (HMLP). SMBP and HMLP are estimated using linear regression models.

• The Fama-French formula is expressed as: Er = Rf + (β j × ERP) + Sj × SMBP) + Hj × HMLP)

where:

Er = cost of equity capital

Rf = risk-free rate of return

β j = beta coefficient of publicly traded security, j

ERP = long-term equity risk premium

Sj = small-minus-big coefficient in the Fama-French regression equation

SMBP = expected small-minus-big equity risk premium

Hj = high-minus-low coefficient in the Fama-French regression equation

HMLP = expected high-minus-low equity risk premium


Benchmark Studies• Numerous benchmark studies exist to estimate required returns

empirically.• QED Report on Venture Capital Financial Analysis, (QED Research, Inc.), A

Method for Valuing High-Risk Long Term Investments, the Venture Capital Method (Harvard University Business School Press): Private Cost of Capital (Pepperdine University);

• Pablo Fernandez, Ph.D. (equity risk premium only), University of Navarra, Spain;

• The studies have not yet been accepted by the business valuation community as sufficiently reliable as a primary source for required return data, but they are deemed useful for assessing required returns produced using the more established methodologies previously mentioned.


Appendix C – Biography of the Appraiser

Michael Blake has twenty years of valuation experience, with particular expertise in mergers & acquisitions, dispute resolution, intellectual property matters, risk analysis, and exotic securities and derivatives valuation.

Michael’s professional background is transaction focused, with long tenures in the venture capital and investment banking industries. Michael has considerable experience working with companies in the U.S. and abroad, most notably Russia, Israel, Belarus, and Ukraine.

Michael has performed and managed hundreds of valuation engagements for transactions, including shareholder buyouts, fairness opinions and pricing companies for sale. Michael also has many years of audit and tax compliance experience and has served as an expert witness in intellectual property, securities, and other financially-oriented legal matters. Michael has expertise working with professional services, financial institutions, alternative energy, aerospace, information technology, and biotechnology firms.

Michael received his Bachelor’s Degree, Cum Laude, in Economics and French from Franklin & Marshall College and his Masters of Business Administration Degree from Georgetown University. Michael is President of StartupLounge.com, an Atlanta nonprofit that supports technology entrepreneurship in Georgia and is a Board Member and Treasurer of Green Chamber of the South. Michael is a member of the Leadership Atlanta Class of 2013-2014. Michael chairs the International Society of Business Analysts’ Gold Seal of Trust organizing committee, which is dedicated to encouraging external peer review of business valuation practices in order to promote the industry’s public trust.

Michael is an avid educator. He is a Special Instructor in Valuation in the Georgia Tech/Emory University Graduate Level TIGER Program and frequently guest lectures to graduate business students at Georgia Tech and Georgia State University. He has delivered continuing professional education to business valuation professionals for the National Association of Certified Valuation Analysts, the American Society of Appraisers and the Georgia Society of Certified Public Accountants. Michael holds the CFA charter, the Accredited Senior Appraiser designation, the Accredited in Business Appraisal Review designation, and the Business Certified Appraiser designation from the International Society of Business Analysts.


Appendix D – Estimated Lifing Factor

• The Estimated Lifing Factor (“ELF”) is a theoretical model used to estimate the deterioration in productivity of certain assets, including intangible assets.

• The ELF was published in “Estimating Depreciation for Infrequently Traded Assets” in The Appraisal Journal in January 2000.

• The ELF considers the time value of money, the asset’s probable service life, and its current age.

• The formula for computing ELF is as follows:

ELF = [[(1+r)^n]-(1+r)^x]]/[[(1+r)^n]-1

Where:r = required returnn = probable service lifex = present asset age


Appendix E – The H-Model

• The H-Model is a two-stage capitalized growth model, expressed by the following formula,

𝑃𝑃𝑎𝑎𝑉𝑉𝑎𝑎𝑉𝑉 =𝐶𝐶𝐶𝐶(1 + 𝑔𝑔𝑔𝑔)𝑓𝑓 − 𝑔𝑔𝑔𝑔 +

𝐶𝐶𝐶𝐶 𝑥𝑥 𝐻𝐻(𝑔𝑔𝑔𝑔 − 𝑔𝑔𝑔𝑔)𝑓𝑓 − 𝑔𝑔𝑔𝑔

where,• CF is the baseline cash flow (usually the most recent year)• r is the rate of return expected by the investor, let’s say 8% in this

case• gL is the long term growth rate • gS is the short term growth rate • H is the half-life of the high growth period


H-Model Foundations

• The H-Model was published in 1984 by Russell J. Fuller and Chi-Cheng Hsia in the article, “A Simplified Common Stock Valuation Model” in the Financial Analysts Journal (September/October 1984, Volume 40), the professional journal of the CFA Institute.

• The H-Model has been re-printed in numerous textbooks and corporate finance web sites.


Appendix F –Supporting Schedules

The attached schedules are an integral part of this valuation report.


Prepared For:SAMPLE CLIENT

(Referred to as the "Client")

Fair Value of Intangible Assets and Goodwill of SAMPLE COMPANY

#REF!

DRAFT - For Discussion Purposes Only

As of February 14, 2014(the "Valuation Date")

Prepared By:

SAMPLE CLIENT Table of ContentsFair Value of Intangible Assets and Goodwill of SAMPLE COMPANYEffective Date of Valuation: February 14, 2014


Schedule A-1 Summary of Concluded ValueSchedule A-2 Fair Value of Contingent Consideration

Schedule B-1 Historical Income StatementsSchedule B-2 Historical Balance SheetsSchedule B-3 Historical Financial Ratios

Schedule C-1 Company Income Projections

Schedule D-1 Company Valuation, Discounted Cash Flow MethodSchedule D-2 Company Valuation, Exit MultipleSchedule D-3 Value Analysis of Net Operating Loss Carryforwards

Schedule E-1 Working Capital Requirements

Schedule F-1 Weighted Average Cost of CapitalSchedule F-2 Required Returns on Tangible AssetsSchedule F-3 Weighted Average Return on AssetsSchedule F-4 Contributory Asset Charges - Tangible Assets

Schedule G-1 Fair Value of Customer RelationshipsSchedule G-2 Fair Value of TrademarksSchedule G-3 Trademark Royalty RatesSchedule G-4 In-Place WorkforceSchedule G-5 Technology Royalty Rates

SAMPLE CLIENT Schedule A-1Fair Value of Intangible Assets and Goodwill of SAMPLE COMPANYEffective Date of Valuation: February 14, 2014Summary of Concluded Value


Purchase Price: Purchase PriceCash Payment at Closing (1) 3,000,000$

+ Adjustment for Surplus of Target Cash (2) 31,500 + Present Value of Contingent Consideration (3) 1,740,000+ Payment for Working Capital Adjustment (4) 60,127 + Liabillities Assumed -

= Total Implied Purchase Price (rounded) 4,832,000$

Assets Acquired and Liabilities Assumed:Assets Acquired:

Net Working Capital (5) 394,559$ Net Property and Equipment (5) - Prepaid Expenses (5) - Deposits (5) 3,677 Tangible Assets (5) 398,236$

Intangible Assets:Customer Relationships (6) 1,126,000 Trademarks/Names (7) 79,000 Noncompetition Agreements (8) - Assembled Workforce (booked as Goodwill) (9) 86,000 Goodwill and Going Concern Intangible Assets (10) 3,142,764

Total Assets Acquired 4,832,000$

Total Assets Acquired and Liabilities Assumed 4,832,000$

Notes:(1)(2) Per the Company's opening balance sheet.(3) See Schedule A-2.(4)(5) Per the Company's opening balance sheet, revised per comment from the audit team.(6) See Schedule G-1.(7) See Schedule G-2.(8)

(9) See Schedule G-4.(10) Residual value between identified tangible and intangible assets and the purchase price.Sources: As cited above, per information provided by Management, Arpeggio Advisors, LLC calculations.

Per the Purchase Agreement dated February 14, 2014 (the "Transaction Date").

Although noncompetition agreements were in place for certain individuals, they were deemed to have no fair value because the length was for only three years during a period when the Company's cash flows were negative.

Per e-mail explanation from Management on 9-4-15 and information from the opening balance

SAMPLE CLIENT Schedule A-2Fair Value of Intangible Assets and Goodwill of SAMPLE COMPANYEffective Date of Valuation: February 14, 2014Fair Value of Contingent Consideration

Earnout Payment 1 Earnout Payment 2 Earnout Payment 3 Earnout Payment 4

Earnout Period, Through: 6/30/2014 12/31/2014 6/30/2015 12/31/2015Amount (1) -$ 1,000,000$ -$ 2,000,000$

x Probablity of Contingent Payment (2) 0.0% 99.0% 0.0% 75.0%

= Probability-weighted Value of Contingent Payment $0 $990,000 $0 $1,500,000

Timing of Payment (3) 10/23/14 4/25/15 10/23/15 7/23/16Discounting Period (4) 0.69 1.19 1.69 2.44 Present Value Factor Based on Discount Rate Equal to 20.7 % (5) 0.8787 0.7993 0.7282 0.6323

Probability-weighted Value of Contingent Payment - 990,000 - 1,500,000 x Present Value Factor Based on Discount Rate Equal to 20.7 % (5) 0.8787 0.7993 0.7282 0.6323

Present Value of Contingent Payment $0 $791,305 $0 $948,496

= Total Present Value of Contingent Consideration (rounded) $1,740,000

Notes:(1)

(2)(3) Management indicated 100% probability of the earnout payments being paid. We adjusted the probabilities downward.(4) Timing of payment is 115 days after the end of each earnout period, except 12/31/15, at which the timing of payment is 205 days afterward,(5) Equal to the company's weighted average cost of capital. See Schedule F-1.Sources: As cited above, Arpeggio Advisors, LLC calculations, differences due to rounding.


Per the Purchase Agreement dated February 14, 2014 (the "Transaction Date").

Earnout computed as 2x revenue for the first $1 million of cumulative revenue, and then 1x revenue for each $250,000 of revenue afterward, capped at a total payout of $3 million. Per the Purchase, dated February 14, 2014 (the "Transaction Date").

SAMPLE CLIENT Schedule B-1Fair Value of Intangible Assets and Goodwill of SAMPLE COMPANYEffective Date of Valuation: February 14, 2014Historical Income Statements


LTM to Feb. 14, For the Years Ended December 31, LTM to Feb. 14, For the Years Ended December 31,2014 2013 2012 2011 2010 2014 2013 2012 2011 2010 CAGR

RevenuesRevenues 1,841,137 1,811,869 1,422,786 1,221,207 902,590 100.0% 100.0% 100.0% 100.0% 100.0% 18.9%

Gross Profit 1,841,137$ 1,811,869$ 1,422,786$ 1,221,207$ 902,590$ 100.0% 100.0% 100.0% 100.0% 100.0%

Operating ExpensesOperations 534,955 529,766 419,198 412,030 263,179 29.1% 29.2% 29.5% 33.7% 29.2% 18.8%Information Technology 76,548 74,933 62,210 36,441 15,568 4.2% 4.1% 4.4% 3.0% 1.7% 47.2%Sales and Marketing 288,074 278,908 219,751 103,382 91,580 15.6% 15.4% 15.4% 8.5% 10.1% 32.1%General and Administrative 968,806 944,771 623,468 552,371 434,106 52.6% 52.1% 43.8% 45.2% 48.1% 21.5%Depreciation and Amortization - - - - - 0.0% 0.0% 0.0% 0.0% 0.0% nmf

Total Operating Expenses 1,868,383 1,828,378 1,324,627 1,104,225 804,434 101.5% 100.9% 93.1% 90.4% 89.1% 22.7%

Operating Income (27,246) (16,510) 98,159 116,983 98,157 -1.5% -0.9% 6.9% 9.6% 10.9% nmf

Other IncomeInterest and Other Income (Expense) - - (38) (11) (9) 0.0% 0.0% 0.0% 0.0% 0.0% -100.0%Interest Expense - - - (5) - 0.0% 0.0% 0.0% 0.0% 0.0% nmf

Total Other Income - - (38) (15) (9) 0.0% 0.0% 0.0% 0.0% 0.0% -100.0%

Pre-tax Income (27,246) (16,510) 98,121 116,967 98,148 -1.5% -0.9% 6.9% 9.6% 10.9% nmf

Income Tax Provision (Benefit):Federal Tax Provision - - - - n/a n/a n/a n/a n/a nmfState Tax Provision - - - - n/a n/a n/a n/a n/a nmf

Total Income Tax Provision (Benefit) - - - - - 0.0% 0.0% 0.0% 0.0% 0.0% nmf

Net Income (27,246)$ (16,510)$ 98,121$ 116,967$ 98,148$ -1.5% -0.9% 6.9% 9.6% 10.9% nmf

Total Depreciation and Amortization Expense - - - - - 0.0% 0.0% 0.0% 0.0% 0.0%Capital Expenditures - - - - - 0.0% 0.0% 0.0% 0.0% 0.0%

Notes:CAGR = Compound annual growth rate between 2010 and the latest twelve months ended February 14, 2014.LTM = Latest twelve monthsn/a = Not available or not applicablenmf = Not meaningfulSources: Client-provided financial statements.

SAMPLE CLIENT Schedule B-2Fair Value of Intangible Assets and Goodwill of SAMPLE COMPANYEffective Date of Valuation: February 14, 2014Historical Balance Sheets


As of Feb. 13, As of Feb. 13,2014 2013 2012 2011 2010 2014 2013 2012 2011 2010 CAGR

ASSETSCurrent Assets:

Cash, Cash Equivalents 31,500$ 37,279$ 61,638$ 53,618$ 16,733$ 9.9% 8.8% 14.3% 16.0% 6.8% 16.6%Trade Accounts Receivable, net 270,073 376,148 369,265 282,007 228,862 84.9% 89.2% 85.7% 84.1% 93.2% nmfOther Current Assets 12,697 4,625 (107) (107) (107) 4.0% 1.1% 0.0% 0.0% 0.0% nmf

Total Current Assets 314,271 418,052 430,796 335,519 245,488 98.8% 99.1% 100.0% 100.0% 100.0% nmf

Total Noncurrent Assets 3,677 3,677 - - - 1.2% 0.9% 0.0% 0.0% 0.0% nmf

TOTAL ASSETS 317,948$ 421,729$ 430,796$ 335,519$ 245,488$ 100.0% 100.0% 100.0% 100.0% 100.0% nmf

LIABILITIES AND STOCKHOLDER'S EQUITYCurrent Liabilities:

Accounts Payable 9,012 - (325) 285 - 2.8% 0.0% -0.1% 0.1% 0.0% nmfAccrued Expenses 1,130 28,795 (10,822) (6,088) 8,501 0.4% 6.8% -2.5% -1.8% 3.5% nmfOther 1,720 - - - - 0.5% 0.0% 0.0% 0.0% 0.0% nmf

Total Current Liabilities 11,862 28,795 21,353 (5,803) 21,133 3.7% 6.8% 5.0% -1.7% 8.6% nmf

Long-term Liabilities:Long-term Debt - - - - - 0.0% 0.0% 0.0% 0.0% 0.0% nmfNotes Payable, related parties - - - - - 0.0% 0.0% 0.0% 0.0% 0.0% nmfOther Long-term Liabilities - - - - - 0.0% 0.0% 0.0% 0.0% 0.0% nmf

Total Long-term Liabilities: - - - - - 0.0% 0.0% 0.0% 0.0% 0.0% nmf

Total Liabilities 11,862 28,795 21,353 (5,803) 21,133 3.7% 6.8% 5.0% -1.7% 8.6% nmf

Stockholder's Equity:Preferred Stock - - - - - 0.0% 0.0% 0.0% 0.0% 0.0% nmfCommon Stock - - (10,345) (10,345) (10,345) 0.0% 0.0% -2.4% -3.1% -4.2% nmfPaid-in Capital - - (3,931) 11,402 11,402 0.0% 0.0% -0.9% 3.4% 4.6% nmfShareholder Draws - - (77,904) (63,237) (63,237) 0.0% 0.0% -18.1% -18.8% -25.8% nmfRetained Earnings 392,933 409,443 403,502 286,535 188,390 123.6% 97.1% 93.7% 85.4% 76.7% nmfNet Income (86,848) (16,510) 98,121 116,967 98,145 -27.3% -3.9% 22.8% 34.9% 40.0% nmfTreasury Stock - - - - - 0.0% 0.0% 0.0% 0.0% 0.0% nmf

Total Stockholder's Equity 306,086 392,933 409,443 341,322 224,355 96.3% 93.2% 95.0% 101.7% 91.4% nmf

TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY 317,948$ 421,729$ 430,796$ 335,519$ 245,488$ 100.0% 100.0% 100.0% 100.0% 100.0% nmf

Notes:Sources: Client-provided financial statements.LTM = Latest twelve monthsn/a = Not available or not applicablenmf = Not meaningful

As of December 31, As of December 31,

SAMPLE CLIENT Schedule B-3Fair Value of Intangible Assets and Goodwill of SAMPLE COMPANYEffective Date of Valuation: February 14, 2014Historical Financial Ratios

LTM to Feb. 14,2014 2013 2012 2011 2010

FUNDAMENTALS (as recorded, $)Net Sales 1,841,137$ 1,811,869$ 1,422,786$ 1,221,207$ 902,590$ Cash and Cash Equivalents 31,500 37,279 61,638 53,618 16,733 Accounts Receivable, net 270,073 376,148 369,265 282,007 228,862 Inventory, net - - - - - Current Assets 314,271 418,052 430,796 335,519 245,488 Total Assets 317,948 421,729 430,796 335,519 245,488 Fixed Assets, net 3,677 3,677 - - - Accounts Payable, current and noncurrent 10,142 28,795 21,353 (5,803) 15,133 Current Liabilities 11,862 28,795 21,353 (5,803) 21,133 Interest-bearing Debt - - - - 6,000 Stockholders' Equity 306,086 392,933 409,443 341,322 224,355 Invested Capital, book value 306,086 392,933 409,443 341,322 230,355 Gross Profit 1,841,137 1,811,869 1,422,786 1,221,207 902,590 Operating Income (Loss) (27,246) 1,811,869 1,422,786 1,221,207 902,590 Net Income (Loss) (27,246) (16,510) 98,121 116,967 98,148 Adjusted Pre-tax Income (27,246) (16,510) 98,121 116,967 98,148 EBIT, adjusted (27,246) (16,510) 98,121 116,972 98,148 EBITDA, adjusted (27,246) (16,510) 98,121 116,972 98,148 Interest Expense - - - (5) - Depreciation and Amortization Expense - - - - -

LIQUIDITYCurrent Ratio 26.5x 14.5x 20.2x -57.8x 11.6xQuick Ratio 2.7x 1.3x 2.9x -9.2x 0.8xNet Working Capital 302,409$ 389,256$ 409,443$ 341,322$ 224,355$ Increase (Decrease) in Net Working Capital (86,848) (20,187) 68,121 116,967 224,355 Net Working Capital / Net Sales 16.4% 22.0% 26.4% -88.5% -88.5%Cash-free Working Capital [a] 270,908$ 351,977$ 347,804$ 287,703$ 201,622$ Increase (Decrease) in Operating Working Capital (81,069) 4,172 60,101 86,081 n/aOperating Working Capital / Net Sales 14.7% 19.3% 22.3% -201.4% -201.4%

ASSET MANAGEMENTOperating Working Capital Turnover 6.5x 5.1x 4.1x 4.2x 4.5xTrade Receivables Turnover 6.3x 4.9x 4.4x 4.8x 7.9xInventory Turnover n/a n/a n/a n/a n/aTotal Assets Turnover 5.5x 4.3x 3.3x 3.6x 3.7xFixed Assets, net Turnover 500.7x 985.5x n/a n/a n/aAverage Collection Period (Days) 57 74 82 75 46 Days of Inventory n/a n/a n/a n/a n/a

PROFITABILITYGross Margin 100.0% 100.0% 100.0% 100.0% 100.0%EBIT, adjusted -1.5% -0.9% 6.9% 9.6% 10.9%EBITDA, adjusted -1.5% -0.9% 6.9% 9.6% 10.9%Net Profit Margin, adjusted -1.5% -0.9% 6.9% 9.6% 10.9%Adjusted Pre-tax Return on:

Assets -7.4% -3.9% 25.6% 40.3% n/aEquity -7.8% -4.1% 26.1% 41.4% n/aInvested Capital [b] -7.8% -4.1% 26.1% 40.9% n/aAverage Assets -4.1% -3.9% 25.6% 40.3% n/aAverage Equity -4.3% -4.1% 26.1% 41.4% n/aAverage Total Invested Capital [b] -4.3% -4.1% 26.1% 40.9% n/a

GROWTH RATESNet Sales 1.4% 27.3% 16.5% 35.3% n/aGross Profit 1.4% 27.3% 16.5% 35.3% n/aEBIT, adjusted 56.4% -116.8% -16.1% 19.2% n/aEBITDA, adjusted 56.4% -116.8% -16.1% 19.2% n/a

LEVERAGETotal Interest-bearing Debt / Stockholder's Equity 0.0% 0.0% 0.0% 0.0% 2.7%Total Interest-bearing Debt / Invested Capital 0.0% 0.0% 0.0% 0.0% 2.6%Total Interest-bearing Debt / Total Assets 0.0% 0.0% 0.0% 0.0% 2.4%Total Assets / Stockholder's Equity 1.0x 1.1x 1.1x 1.0x 1.1x

Notes:Arpeggio Advisors Calculationsn/a = Not applicableLTM = Latest twelve monthsnmf = Not meaningful

For the Years Ended / As of December 31,


DRAFT - For Discussion Purposes Only Schedule C-1Fair Value of Intangible Assets and Goodwill of SAMPLE COMPANYEffective Date of Valuation: February 14, 2014Company Income Projections


Feb 15 - Dec 31, For the Years Ended December 31,


2014 2015 2016 2017 2018 2019 2020 2014 2015 2016 2017 2018 2019 2020 CAGR

Revenues

Revenue (1), (2) 1,928,762$ 2,863,046$ 4,925,554$ 5,516,621$ 6,068,283$ 6,675,111$ 7,209,120$ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 21.1%Revenue Growth 38.7% 72.0% 12.0% 10.0% 10.0% 8.0%

Cost of Goods Sold 934,436 1,270,563 1,595,442 1,718,588 1,852,500 1,998,185 2,156,745 48.4% 44.4% 32.4% 31.2% 30.5% 29.9% 29.9% 12.9%

Gross Profit 994,326 1,592,483 3,330,112 3,798,033 4,215,783 4,676,926 5,052,375 51.6% 55.6% 67.6% 68.8% 69.5% 70.1% 70.1% 26.7%

Operating Expenses:Selling, General & Administrative Expenses (3 1,083,600 2,362,709 2,369,562 1,322,809 1,107,477 1,109,250 1,004,578 56.2% 82.5% 48.1% 24.0% 18.3% 16.6% 13.9% -1.1%Research and Development 636,413 892,755 978,530 1,017,399 1,058,182 1,100,996 1,145,966 33.0% 31.2% 19.9% 18.4% 17.4% 16.5% 15.9% 8.9%Rent & Utilities 70,163 68,723 62,580 93,870 93,870 93,870 93,870 3.6% 2.4% 1.3% 1.7% 1.5% 1.4% 1.3% 4.3%

Total Operating Expenses 1,790,177 3,324,187 3,410,672 2,434,078 2,259,529 2,304,116 2,244,415 92.8% 116.1% 69.2% 44.1% 37.2% 34.5% 31.1% 3.3%

Operating Income (795,851) (1,731,704) (80,560) 1,363,956 1,956,254 2,372,810 2,807,960 -41.3% -60.5% -1.6% 24.7% 32.2% 35.5% 39.0% nmf

Other Expenses:Interest Expense - - - - - - - 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% nmfDepreciation - - - - - - - 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% nmf

Total Other Expenses - - - - - - - 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% nmf

EBIT (795,851)$ (1,731,704)$ (80,560)$ 1,363,956$ 1,956,254$ 2,372,810$ 2,807,960$ -41.3% -60.5% -1.6% 24.7% 32.2% 35.5% 39.0% nmf

EBITDA (795,851)$ (1,731,704)$ (80,560)$ 1,363,956$ 1,956,254$ 2,372,810$ 2,807,960$ -41.3% -60.5% -1.6% 24.7% 32.2% 35.5% 39.0% nmf

EBITA (795,851)$ (1,731,704)$ (80,560)$ 1,363,956$ 1,956,254$ 2,372,810$ 2,807,960$ -41.3% -60.5% -1.6% 24.7% 32.2% 35.5% 39.0%

Notes:(1) CAGR of projected growth of 22% compared to historical CAGR of 18.9% (Schedule B1).(2) Projections were provided for March 1-December 31, 2014. This was multiplied by 1.05 to reflect an extra 2 weeks of operations to match the February 14-December 31 time period.n/a = Not available or not applicablenmf = Not meaningfulCAGR = Compound annual growth rate from 2015 through 2019EBIT = Earnings before interest and taxesEBITDA = EBIT before depreciation and amortizationEBITA = Earnings before interest, taxes, and amortizationSources: Based on information provided by Management, Arpeggio Advisors, LLC calculations, differences due to rounding

SAMPLE CLIENT Schedule D-1Fair Value of Intangible Assets and Goodwill of SAMPLE COMPANYEffective Date of Valuation: February 14, 2014Company Valuation, Discounted Cash Flow Method

Feb 15 -Dec 31,


2013 (1) 2014 2015 2016 2017 2018 2019 2020

Revenues 1,594,444$ 1,928,762$ 2,863,046$ 4,925,554$ 5,516,621$ 6,068,283$ 6,675,111$ 7,209,120$ Gross Profit 994,326 1,592,483 3,330,112 3,798,033 4,215,783 4,676,926 5,052,375 Operating Expenses: 1,790,177 3,324,187 3,410,672 2,434,078 2,259,529 2,304,116 2,244,415 Operating Income (795,851) (1,731,704) (80,560) 1,363,956 1,956,254 2,372,810 2,807,960 Net Other Income (Expenses) - - - - - - -

Adjusted Earnings before Interest, Taxes, and Amortization for Acquired Intangibles (795,851)$ (1,731,704)$ (80,560)$ 1,363,956$ 1,956,254$ 2,372,810$ 2,807,960$ - Estimated Income Tax Equal to 38.0 % (2) 302,105 657,355 30,581 (517,758) (742,594) (900,719) (1,065,902)

= Debt-free Net Income (493,746) (1,074,349) (49,980) 846,198 1,213,660 1,472,091 1,742,059 + Depreciation - - - - - - - - Capital Expenditures - - - - - - - - Increase in Debt-free Working Capital (3) (66,864) (186,857) (412,502) (118,213) (110,332) (121,366) (106,802)

= Unadjusted Net Cash Flow to Invested Capital (560,610) (1,261,206) (462,481) 727,985 1,103,327 1,350,726 1,635,257 -

Unadjusted Net Cash Flow to Invested Capital (560,610) (1,261,206) (462,481) 727,985 1,103,327 1,350,726 1,635,257 x Portion of Period Remaining 1.00 1.00 1.00 1.00 1.00 1.00 1.00

= Debt-free Cash Flow to Invested Capital (560,610) (1,261,206) (462,481) 727,985 1,103,327 1,350,726 1,635,257

Discounting Period (4) 0.44 0.94 1.94 2.94 3.94 4.94 5.94 5.94 Present Value Factor Based on Discount Rate Equal to 20.7 % (5) 0.9206 0.8380 0.6944 0.5754 0.4768 0.3951 0.3274 0.3274

Invested Capital Cash Flow (560,610) (1,261,206) (462,481) 727,985 1,103,327 1,350,726 1,635,257 x Present Value Factor 0.9206 0.8380 0.6944 0.5754 0.4768 0.3951 0.3274

= Present Value of Discrete Cash Flow (516,108) (1,056,937) (321,160) 418,904 526,092 533,690 535,393

Sum of Present Value of Discrete Cash Flows 119,873 1.0% 1.0%

Terminal Cash Flow: (6)= H-Model Value (7) 14,020,000 x Present Value Factor Based on Discount Rate Equal to 20.7 % (5) 0.3274

= Present Value of Terminal Value 4,590,229

Summary of Value:Sum of Present Value of Discrete Cash Flows 119,873

+ Present Value of Terminal Value 4,590,229 + Present Value of Net Operating Loss Carryforward 15,974

= Calculated Value of Invested Capital on a Controlling, Marketable Basis (rounded) 4,726,075$

Notes:(1) Revenue estimated for period based on .88 of the year times 2013 full year revenue (1,811,869). Used to estimate the debt-free working capital requirement for Feb 14-Dec 31, 2014.(2) Blended federal (34%) and Georgia (6.0%) state corporate tax rate, where the acquirer was located.(3) Estimated at 20.0% of incremental revenue per Schedule E-1(4) Based on mid-period discounting convention, except for the terminal year, which uses end-of-year discounting because the exit multiple method was used.(5) See Schedule F-1(6) Determined as a future sale of the company in 2020.(7) See Schedule D-2n/a = Not applicableSources: Client projections unless otherwide indicated, Arpeggio Advisors, LLC calculations, differences due to rounding

Terminal Value Cash

Flow


SAMPLE CLIENT Schedule D-2Fair Value of Intangible Assets and Goodwill of SAMPLE COMPANYEffective Date of Valuation: February 14, 2014Company Valuation, Exit Multiple

Capitalized Basis

Invested Capital Cash Flow (1) 1,635,257$

Stable Growth Value 9,851,518

High-Growth Value 4,164,289

Total Enterprise Value 14,015,808

Indicated Invested Capital Value (Rounded) 14,020,000$

WACC (2) 20.7%

High-Growth Years (3) 5

High-Growth Rate (4) 21.0%

Long-Term Growth Rate (5) 3.5%

Capitalization Rate 17.2%

Notes:(1) Projected 2020 invested capital cash flow per Schedule D-1.(2) Schedule F-1.(3) Roughly the duration of one business cycle.(4) 2019-2020 invested capital cash flow growth rate per Schedule D-1.


H-Model Inputs

(5) Projected average industry growth rate for 2015-2020 per IBISWorld report, Business Analytics and Software Publishing in the U.S.", March 2014.

SAMPLE CLIENT Schedule D-3Fair Value of Intangible Assets and Goodwill of SAMPLE COMPANYEffective Date of Valuation: February 14, 2014Value Analysis of Net Operating Loss Carryforwards

NOL Balance as of Valuation Date (1) 73,130$ DRAFT - For Discussion Purposes OnlyTax Rate (2) 38.0%Estimated Fair Value of Equity (3) 4,832,000$ August 2015 Long-Term Tax Exempt Rate (4) 3.56%NOL Annual Limitation Based on Equity Value $172,019Long-term Growth Rate (5) 3.50%

Year Count 1 2 3 4 5 6 7 8 9 10

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023Projected Operating Income (Before Tax) (795,851)$ (1,731,704)$ (80,560)$ 1,363,956$ 1,956,254$ 2,372,810$ 2,455,858$ 2,541,813$ 2,630,777$ 2,722,854$

NOL Beginning Balance 73,130 73,130 73,130 73,130 - - - - - - NOL Ending Balance Remaining for Utilization 73,130 73,130 73,130 - - - - - - -

NOL Annual Limitation 172,019 172,019 172,019 172,019 172,019 172,019 172,019 172,019 172,019 172,019 Utilized NOL - - - 73,130 - - - - - - Tax Savings 38.0% - - - 27,760 - - - - - -

Partial Year Factor 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Period to Discount 0.44 0.94 1.94 2.94 3.94 4.94 5.94 6.94 7.94 8.94

Present Value Factor (4) 20.7% 0.92 0.84 0.69 0.58 0.48 0.40 0.33 0.27 0.22 0.19

Present Value of NOL Carryforward - - - 15,974 - - - - - -

Year Count 11 12 13 14 15 16 17 18 19 20

2024 2025 2026 2027 2028 2029 2030 2031 2032 2033Projected Operating Income (Before Tax) ####### -$ -$ -$ -$ -$ -$ -$ -$ -$

NOL Beginning Balance - - - - - - - - - - NOL Ending Balance Remaining for Utilization - - - - - - - - - -

NOL Annual Limitation 172,019 172,019 172,019 172,019 172,019 172,019 172,019 172,019 172,019 172,019 Utilized NOL - - - - - - - - - - Tax Savings 38.0% - - - - - - - - - -

Partial Year Factor 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Period to Discount 9.94 10.94 11.94 12.94 13.94 14.94 15.94 16.94 17.94 18.94

Present Value Factor (4) 20.7% 0.15 0.13 0.11 0.09 0.07 0.06 0.05 0.04 0.03 0.03

Present Value of NOL Carryforward - - - - - - - - - -

Estimated Value of NOL 15,974$

Notes:(1)(2)(3)(4)(5)(6)(7) Per the Company's estimated discount rate. See Schedule F-1, Weighted Average Cost of Capital

NOL balance as of the Valuation Date was provided by Management.As of the Valuation Date, the effective tax rate was determined based on a 34.0% federal tax rate and a 6.0% state corporate tax rate for Georgia where the Company was located.Estimated equity value of the company per the purchase consideration as presented in Schedule A-1, Purchase Price Allocation SummaryAdjusted federal long-term tax exempt rate for February 2014 related to limitation on net operating loss carryforwards. Source: https://www.irs.gov/pub/irs-drop/rr-14-08.pdfForecasted 2015-2020 growth rate for the Business Analytics and Software Publishing (3.5%) industry per IBISWorld reports.Adjusted Earnings before Interest, Taxes and Amortization for Acquired Intangibles (EBITA) as presented in Schedule D-1, Discounted Cash Flow

SAMPLE CLIENT Schedule E-1Fair Value of Intangible Assets and Goodwill of SAMPLE COMPANYEffective Date of Valuation: February 14, 2014Working Capital Requirements


Industry Debt-free Working Capital Requirements: NAICS 518210Data Processing, Hosting, and

Related ServicesAll Sales [5-10MM]

As a Percent of Total Assets (%)

Current Assets 53.9% 63.8%

Current Liabilities 43.4% 35.5%- Short-term Notes Payable 8.4% 6.6%- Current Maturities of Long-term Debt 3.9% 3.6%

= Current Liabilities Less Short-Term Debt 31.1% 25.3%

Debt-free Working Capital (DFWC) 22.8% 38.5%

Debt-free Working Capital 22.8% 38.5%x Total Assets - $000 8,938,642$ 149,791$

= Debt-free Working Capital - $000 2,038,010$ 57,670$

Debt-free Working Capital - $000 2,038,010$ 57,670$ / Total Sales - $000 9,555,207$ 270,132

= DFWC as a % of sales 21.3% 21.3%

Subject company historical debt-free working capital requirements

Most recent fiscal year (1) 16.4%

3 year median (1) 22.0%

Concluded debt-free working capital requirements '(2) 20.0%

Notes:(1) See Schedule B-2(2)

DFWC = Current assets - (current liabilities less short-term debt)Source: Risk Management Associates, Valuation Edition.

Arpeggio Advisors estimate, considering the Company's historical requirements and industry working capital benchmarks. We noted that the Company's historical requirements were trending downward the three years leading up to the Valuation Date, which factored in our decision to apply a debt-free working capital requirement that was aligned with the industry benchmark.

SAMPLE CLIENT Schedule F-1Fair Value of Intangible Assets and Goodwill of SAMPLE COMPANYEffective Date of Valuation: February 14, 2014Weighted Average Cost of Capital


Source of DataDuff & Phelps

Data SetIbbotson Data

Set

Cost of Equity:Risk-free Rate of Return 3.41% (1) 3.41% (1)

+ Long-term Equity Risk Premium 12.65% (2) 6.18% (3)+ Small Stock Equity Risk Premium 0.00% 5.99% (4)+ Industry-specific Risk Premium -0.06% (5) -0.05% (5)+ Company-specific Risk Premium 5.00% (6) 5.00% (6)

= Total Cost of Equity (rounded) 21.0% 20.5%

Cost of Debt:Estimated Pre-tax Cost of Debt 5.1% (7) 5.1% (7)

x 1 - Estimated Tax Rate of 38.0% 62.0% (8) 62.0% (8)

= Total After-tax Cost of Debt (rounded) 3.2% 3.2%

Capitalization Structure:Percentage of Equity 99.6% (9) 99.6% (9)

+ Percentage of Debt 0.4% (9) 0.4% (9)

= Total Capital Structure 100.0% 100.0%

Discount Rate:Cost of Equity 20.9% 20.4%

+ Cost of Debt 0.0% 0.0%

= Indicated Weighted Average Cost of Capital 20.9% 20.4%

= Discount Rate 20.7%

Notes:(1)

(2)

(3) Duff & Phelps, LLC's 2014 Valuation Handbook: Guide to Cost of Capital (Market Results through 2013) .(4)

(5)

(6)

(7)

(8)

(9)

Sources: As cited above, Arpeggio Advisors, LLC calculations

Duff & Phelps, LLC's 2014 Valuation Handbook: Guide to Cost of Capital (Market Results through 2013) and Morningstar, Inc.'s Market Results for Stocks, Bonds, Bills, and Inflation ; based on historical industry data (SIC 7374 - Computer Processing and Data Preparation Processing Services).

The Company was a domiciled entity with operations in several jurisdictions; we assumed a blended corporate income tax rate of 38.0% based on typical market participant assumptions.Duff & Phelps, LLC's 2014 Valuation Handbook: Industry Cost of Capital (Market Results through March 2014); SIC 7374, Computer Processing and Data Preparation and Processing Services, Small Composite 5-year average.

Reported yield on 20-year Treasury bonds (constant maturities), per the Federal Reserve(www.federalreserve.gov).

Duff & Phelps, LLC's 2014 Valuation Handbook: Guide to Cost of Capital (Market Results through 2013) ; 10th decile.

Estimate based on market cost of debt as of the Valuation Date with consideration given to spread appropriate for the assets.

Duff & Phelps, LLC's 2014 Valuation Handbook: Guide to Cost of Capital (Market Results through 2013), 25th (smallest) size category by sales (less than $123 million).

Arpeggio Advisors, LLC estimate based on incremental risk associated with the subject company and its projected cash flows.

SAMPLE CLIENT Schedule F-2Fair Value of Intangible Assets and Goodwill of SAMPLE COMPANYEffective Date of Valuation: February 14, 2014Required Returns on Tangible Assets


Required Return on Working Capital: Required Return on Fixed Assets:Prime Rate (1) 3.3% Prime Rate (1) 3.3%LIBOR Rate, 6-month (2) 0.3% Corporate Bonds, Moody's-Seasoned, Aaa (1) 4.5%Federal Funds Rate (1) 0.1% Corporate Bonds, Moody's-Seasoned, Baa (1) 5.1%Treasury Note, 5-year (1) 1.6% Company Weighted Average Cost of Debt (3) 5.1%

Mean 1.3% Mean 4.5%Median 1.0% Median 4.8%

Selected 3.3% Selected 5.1%- Provision for Income Taxes Equal to 38.0% (3) -1.2% - Provision for Income Taxes Equal to 38.0% (3) -1.9%

= After-tax Required Rate of Return (rounded) 2.0% = After-tax Required Rate of Return (rounded) 3.0%

Notes:(1) Per www.federalreserve.gov data as of February 14, 2014.(2) Per www.fedprimerate.com (February 2014).(3) Blended federal (34%) and Georgia (6.0%) state corporate tax rate, where the acquirer was located.Sources: As cited above, Arpeggio Advisors, LLC calculations

SAMPLE CLIENT Schedule F-3Fair Value of Intangible Assets and Goodwill of SAMPLE COMPANYEffective Date of Valuation: February 14, 2014Weighted Average Return on Assets


Fair Value

Total Implied Purchase Price $ 4,832,000 100.0%

Tangible Assets, net:Net Working Capital 394,559 2.0% (1) 8.2% 0.2%Net Property and Equipment - 2.0% (1) 0.0% 0.0%Prepaid Expenses - 2.0% (1) 0.0% 0.0%Deposits 3,677 2.0% (1) 0.1% 0.0%

Intangible Assets:Customer Relationships 1,126,000 20.7% (2) 23.3% 4.8%Trademarks 79,000 20.7% (2) 1.6% 0.3%Assembled Workforce (booked as Goodwill) (9) 86,000 20.7% (2) 1.8% 0.4%Goodwill and Going Concern Intangible Assets (1 3,142,764 24.0% (2) 65.0% 15.6%

Total Intangible Assets (rounded) 4,433,764

Total Fair Value of Assets 4,828,323$ 100.0%

Implied Overall Rate of Return (rounded) 21.3%Weighted Average Cost of Capital (3) 20.7%

Difference (4) 0.6%

Notes:(1) See Schedule F-2.(2)(3) See Schedule F-1.(4)

Information provided by Management, Arpeggio Advisors, LLC estimates

Return

Percent to Normalized Asset Value

Weighted Return

Estimated in consideration of the intangible assets' inherent required returns by market participants.

Difference between implied return and weighted average cost of capital deemed to be within an acceptable margin for error.

SAMPLE CLIENT Schedule F-4Fair Value of Intangible Assets and Goodwill of SAMPLE COMPANYEffective Date of Valuation: February 14, 2014Contributory Asset Charges - Tangible Assets



2014 2015 2016 2017 2018 2019 2020

Capital Expenditures:Total Capital Expenditures -$ -$ -$ -$ -$ -$ -$

/ Projected Net Sales 1,928,762 2,863,046 4,925,554 5,516,621 6,068,283 6,675,111 7,209,120

= Capital Expenditures / Net Sales 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Working Capital Requirements:Projected Net Sales 1,928,762$ 2,863,046$ 4,925,554$ 5,516,621$ 6,068,283$ 6,675,111$ 7,209,120$

x Estimated Working Capital Percentage (1) 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%

= Required Working Capital 385,752 572,609 985,111 1,103,324 1,213,657 1,335,022 1,441,824

Return on Fixed Assets:Net Sales [2] 1,928,762$ 2,863,046$ 4,925,554$ 5,516,621$ 6,068,283$ 6,675,111$ 7,209,120$ Fixed Assets - - - - - - -

After-tax Return on Fixed Assets -$ -$ -$ -$ -$ -$ -$ % of Revenue 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Notes:(1) See Schedule E-1.(2) See Schedule C-1.Sources: As cited above, discussions with Management, industry analyses, Arpeggio Advisors, LLC estimates

SAMPLE CLIENT Schedule G-1Fair Value of Intangible Assets and Goodwill of SAMPLE COMPANYEffective Date of Valuation: February 14, 2014Fair Value of Customer Relationships


Feb 15 - Dec 31,

2014 2015 2016 2017 2018 2019 2020

0.88 1.88 2.88 3.88 4.88 5.88 6.00 Projected Income from Customers:

Base Revenue (1) 1,928,762$ 2,863,046$ 4,925,554$ 5,516,621$ 6,068,283$ 6,675,111$ 7,209,120$ Revenue Attibuted to Customers (2) 1,775,249$ 2,709,533$ 4,772,041$ 5,363,108$ 5,914,770$ 6,521,598$ 7,055,607$

x Estimated Lifing Factor (3) 100% 100% 90% 78% 64% 46% 25%= Total Revenue 1,775,249$ 2,709,533$ 3,865,354$ 3,262,915$ 2,422,690$ 1,379,970$ 440,975$

Gross Profit (4) 915,186 1,507,096 2,613,322 2,246,422 1,683,101 966,878 309,049 Normalized Selling, General & Administrative Expenses (5) (710,100) (1,083,813) (1,546,141) (1,305,166) (969,076) (551,988) (176,390) Customer Profitability 205,086 423,282 1,067,181 941,256 714,025 414,890 132,659

- Provision for Income Taxes Equal to 38.0% (6) (77,851) (160,678) (405,102) (357,301) (271,044) (157,492) (50,357)

= Net Income Attributable to Customer Relationships 127,236 262,604 662,079 583,955 442,981 257,398 82,302 - Charges for Use of Contributory Assets:

Working Capital (7) (7,715) (11,452) (19,702) (22,066) (24,273) (26,700) (28,836) Fixed Assets (8) - - - - - - - Trademarks and Trade Names (9) (11,007) (16,799) (23,965) (20,230) (15,021) (8,556) (2,734) Trained and Assembled Workforce (10) (11,007) (16,799) (23,965) (20,230) (15,021) (8,556) (2,734) Software Technology (11) (46,808) (71,442) (101,918) (86,033) (63,879) (36,386) (11,627)

Total Charges for Use of Contributory Assets (76,536) (116,493) (169,550) (148,560) (118,194) (80,198) (45,932)

= Cash Flow for the Period 50,699 146,112 492,529 435,395 324,788 177,200 36,370

Portion of Period Remaining 0.88 Discounting Period (12) 0.44 0.94 1.94 2.94 3.94 4.94 5.50 Present Value Factor (13) 0.9206 0.8380 0.6944 0.5754 0.4768 0.3951 0.3556

Cash Flow for the Period 50,699 146,112 492,529 435,395 324,788 177,200 36,370 x Portion of Period Remaining (14) 1.00 n/a n/a n/a n/a n/a 0.12

Cash Flow Subject to Discounting 50,699 146,112 492,529 435,395 324,788 177,200 4,364 x Present Value Factor 0.9206 0.8380 0.6944 0.5754 0.4768 0.3951 0.3556

= Present Value of Discrete Cash Flow 46,675 122,447 342,026 250,539 154,866 70,014 1,552

Total Indicated Fair Market Value, before Income Tax Shield 988,120$ x Tax Amortization Benefit Multiplier (15) 1.14

= Total Indicated Value of Customer Relationships (rounded) 1,126,000$

Notes:(1) See Schedule C-1(2)(3)

(4)(5)

(6) Blended federal (34%) and Georgia (6.0%) state corporate tax rate, where the acquirer was located.(7)

(8) Based on required return on fixed assets. See Schedule F-2.(9)

(10) Estimated annual return on in-place workforce as a percent of revenue. See Schedule G-4.(11) An after-tax royalty rate of 2.64% was applied to the customer revenues in lieu of fully loading research and development expenses. See Schedule G-5.(12) The mid-period discounting convention was used.(13) A required return on customer relationships of 20.7% was used.(14) 2020 forecasts are adjusted to consider the first portion of the year (12%) so that the remaining useful life equals exactly 6 years.(15) Tax amortization benefit for acquired intangible assets per Section 197 of the Internal Revenue Code.n/a = Not applicableEBITDA = Earnings before Interest, taxes, depreciation of fixed assets and amortization for acquired intangiblesSources: As cited above, Arpeggio Advisors, LLC calculations, differences due to rounding

Revenue attributable to the customers was indicated by Management to be 100.0% of the Company's overall projected revenue.

For the Years Ending December 31,

Gross profit was computed by multiplying projected company gross profit (Schedule C-1) by projected customer revenue.

An after-tax royalty rate of 0.62% (see Schedule G-3) was applied to customer-related revenues

Historical customer attrition was negative. We relied upon the Estimated Lifing Factor Model as presented in "Estimating Depreciation for Infrequently Transacted Assets", authored by Richard K. Ellsworth in The Appraisal Journal, published by The Appraisal Institute, January 2000, Volume 66. to estimate attrition. A remaining useful life of 6 years was assumed.

Revenue attributable to the customers multiplied by required level of working capital as a percentage of sales multiplied by required return on working capital (Schedule F-2 and Schedule F-4).

Normalized selling, general, and administrative expenses were estimated to be 40% of revenue attributable to the customers. This was estimated based on projected selling, general, and administrative expenses as a percent of revenue in 2016-2020, excluding research & development expenses (technology-related charges were applied in a contributory asset charge, see note 11). Management informed us that 2014 and 2015 selling, general, and administrative expenses were anomalous.

SAMPLE CLIENT Schedule G-2Fair Value of Intangible Assets and Goodwill of SAMPLE COMPANYEffective Date of Valuation: February 14, 2014Fair Value of Trademarks



2014 2015 2016 2017 2018

Projected Revenue Base (1) 1,928,762$ 2,863,046$ 4,925,554$ 5,516,621$ 6,068,283$

Royalties Avoided at a Rate of 1.00% (2). 19,288$ 28,630$ 49,256$ 55,166$ 60,683$ - Provision for Income Taxes Equal to 38.0% (3). (7,322) (10,868) (18,697) (20,941) (23,035) = After-tax Royalties Avoided 11,966$ 17,762$ 30,558$ 34,225$ 37,648$

Portion of Period Remaining 0.88 Discounting Period 0.44 0.94 1.94 2.94 3.50

Cash Flow for the Period 11,966 17,762 30,558 34,225 37,648 x Portion of Period Remaining 1.00 n/a n/a n/a 0.12

Cash Flow Subject to Discounting 11,966 17,762 30,558 34,225 4,641 x Present Value Factor Based on Discount Rate Equal to 20.7% (4). 0.9209 0.8383 0.6946 0.5756 0.5179

= Present Value of Discrete Cash Flow 11,020 14,890 21,227 19,700 2,404

Present Value of Royalties Avoided 69,241 + Upfront Payment (5) -

Total Indicated Fair Market Value, before Tax Amortization Benefit 69,241$ x Tax Amortization Benefit Multiplier (6) 1.14

= Total Indicated Value of Trade Marks/Trade Name (rounded) 79,000$

Notes:(1)

(2) See Schedule G-3.(3) Blended federal (34%) and Georgia (6.0%) state corporate tax rate, where the acquirer was located.(4) See Schedule F-3.(5) No market-based upfront payment was indicated. See Schedule G-3.(6) Tax amortization benefit for acquirers of intangible assets per Section 197 of the Internal Revenue Code.Source: Projections provided by Management. Arpeggio Advisors, LLC calculations.

See Schedule C-1. Estimated remaining useful life of 4 years based on analysis of reported remaining useful lives of trademarks in similar transactions. 6 weeks' projections in 2018 were used.

SAMPLE CLIENT Schedule G-3Fair Value of Intangible Assets and Goodwill of SAMPLE COMPANYEffective Date of Valuation: February 14, 2014Trademark Royalty Rates

GeographicDate of License Licensor Licensee High Low High Low Upfront Payment Coverage Description of Asset

2002 President and Fellows of Harvard College

Serif Holdings Ltd. 3.0% 3.0% Worldwide Harvard Graphics Software Logo

1999 AT&T Corp Kiri Inc. 4.0% 2.5% Various South American and Caribbean countries.

Use of AT&T Design Logo

1997 Experian Information Solutions Inc.

First American Real Estate Solutions, LLC

0.2% 0.2% n/a Use of Experian Service Mark and Logo

2000 Financial Times, Ltd. MarketWatch.com 5.0% 2.0% Worldwide Use of the FT and Financial Times Trade Marks

2011 Jimm Lee Properties Airtouch Communications 3.0% 1.0% n/a Use of AirTouch Company Name2005 Lufthansa and Japan Air Lines DHL Airways 0.8% 0.8% n/a Exclusive use of the DHL trademark.1996 Smith & Wesson Corp Canadian Security Agency 2.5% 2.5% Worldwide Use of Smith & Wesson Service Marks in

Security Industry2007 Sprint Communications Co LP Virgin Mobile USA Inc. 0.3% 0.3% United States Use of Sprint and Sprint PCS brands

High 5.0% 3.0%Low 0.2% 0.2%Mean 2.3% 1.5%Median 2.8% 1.5%

Selected Royalty Rate (1) 1.00%

After-tax Royalty Rate (2) 0.62%

Notes:(1) Royalty rate selected based on low royalty range, below the mean because the Company's trademark was not as well-known or established as most of the others licensed in the data set.(2) Blended federal (34%) and Georgia (6.0%) state corporate tax rate, where the acquirer was located.Source: RoyaltySource


Royalty Sublicense

SAMPLE CLIENT Schedule G-4Fair Value of Intangible Assets and Goodwill of SAMPLE COMPANYEffective Date of Valuation: February 14, 2014In-Place Workforce


PositionNumber of Employees

Base Compensation

Bonus / Commission

Total Annual Compensation

Estimated Burden (1)

Burdened Compensation

Training Costs and Lost

Productivity (2)Recruiting Costs (3)

Total Costs to Hire and

Train

Client Services 5 269,942$ -$ 269,942$ 53,988$ 323,930$ 9,988$ 3,239$ 13,227$ Data Operations 5 212,298$ -$ 212,298 42,460$ 254,758 10,403 5,095 15,498 Development 4 346,200$ -$ 346,200 69,240$ 415,440 16,964 8,309 25,273 G&A 1 60,375$ -$ 60,375 12,075$ 72,450 1,328 1,449 2,777 Internal Networking 1 32,000$ -$ 32,000 6,400$ 38,400 704 768 1,472 Marketing 1 44,000$ -$ 44,000 8,800$ 52,800 968 528 1,496 Sales 1 148,200$ -$ 148,200 29,640$ 177,840 53,352 8,892 62,244

18 1,113,015$ -$ 1,113,015$ 222,603$ 1,335,618$ 93,706$ 28,280$ 121,987$

Replacement Cost of Assembled Workforce 121,987$ - Provision for Income Taxes Equal to 38.0% (4) (46,306)

= Cost Avoided, net of taxes 75,681 x Tax Amortization Benefit Multiplier (5) 1.14

= Indicated Value of Assembled Workforce (rounded 86,000$ x Required Rate of Return (6) 20.7%

= Estimated Annual Return on Asset 17,785$ / 2015 Projected Revenue (7) 2,863,046

= Estimated Annual Return on Revenues (rounded) 0.6%

Notes:(1) Includes benefits and related expenses, and travel.(2) Management estimated training costs ranging from 1% to 5% of fully burdened compensation, starting productivity ranging from 50% to 90%, and 1 to 6 months before reaching full productivity.(3) Management estimated recruiting costs ranging from 1% to 5% of fully burdened compensation.(4) Blended federal (34%) and Georgia (6.0%) state corporate tax rate, where the acquirer was located.(5) Tax amortization benefit for acquirers of intangible assets per Section 197 of the Internal Revenue Code.(6) See Schedule F-1.(7) See Schedule C-1.Sources: Information provided by and discussions with Management, Arpeggio Advisors, LLC calculations

SAMPLE CLIENT Schedule G-5Fair Value of Intangible Assets and Goodwill of SAMPLE COMPANYEffective Date of Valuation: February 14, 2014Technology Royalty Rates


GeographicDate of License Licensor Licensee High Low High Low Upfront Payment(1) Coverage Description of Asset

2004 Manitoba, Ltd. Quantum Ventures Inc. 2.00% 1.00% 5,000$ n/a "Mediflow" software that matches patient systems to an illness database.1996 Cold Spring Harbor Laboratory Genomica Corp. 2.00% 2.00% - Worldwide Genome topographer, used to study complex genetic diseases using the

Chang/Marr algorithm.2004 Council of Scientific and Industrial

ResearchTATA Consulting Services 5.00% 5.00% - n/a Computational biology software for gene-based pharmaceutical discovery.

2012 Health Discovery Corp Neogenomics Laboratories Inc. 6.50% 3.00% 1,000,000 Worldwide Pattern recognition algorithms2005 Lifestream Technologies Inc. Lifenexus, Inc. 2.50% 2.50% - n/a Secured data acquisition, transmission, storage and analysis systems.2004 Lucent Technologies Health Discovery Corp 5.00% 1.00% - n/a Artificial intelligence to enable development of computer learning algorithms.2006 McKesson Information Solutions, Inc. Trizetto Group, Inc. 5.00% 5.00% 15,000,000 United States Software to automate health insurers' core functions.2005 Primecare Systems, Inc. Telemedica SLR 50% 25% - Argentina, Brazil, Chile, Paraguay, Uruguay PrimeCare patient management system.2004 Terry Knapp, M.D. Orthonet Holdings Inc. 2.00% 2.00% - Worldwide Interactive Device Information System ("IDIS").1997 Therapeutics Systems Research

LaboratoriesSimulations Plus, Inc. 20.00% 20.00% 75,000 n/a Software technology and drug research databases.

2005 University of British Columbia Upstream Biosciences 20.00% 15.00% 30% 30% - Worldwide Bioinformatics software and algorithms.2003 University of Illinois UTEK Corp 10.00% 10.00% 50% 50% - Worldwide Nutrient analysis program.2010 Accelerys Simulations Plus, Inc. 25% 25% - n/a ADMET Predictor library2000 Bayer Corp Lion Bioscience AG 10.00% 10.00% - n/a Pharmacophore and informatics platform.

- n/a2002 Medisafe Omnicell, Inc. 10.00% 10.00% - n/a Nursing workflow automation platform.2007 B-50.com, LLC Xformity Technologies, Inc. 7.50% 6.00% - n/a Generating custom reports for data collected by point-of-sale systems.2004 California Institute of Technology Arroyo Sciences, Inc. 2.50% 2.50% - n/a Knowledge-based reasoning engines/artificial intelligence2005 California New Tech Equis International LLC 15.00% 15.00% - n/a Technical analysis software for software prices.2006 HIFN Inc. Various 1.50% 1.00% 200,000 n/a Pattern matching software1998 Intermind Corp Various 1.00% 1.00% - n/a Automated software agents2015 Loyl.me LLC Cannasys Inc. 8.00% 8.00% 25,000 n/a Marketing analytics, database.2006 Microsoft Corp Inrix 5.00% 5.00% - n/a Traffic predicting software1998 Momentum Business Applications Peoplesoft Inc. 6.00% 1.00% - Worldwide Analytic applications.1997 National Aeronautics and Space

AdministrationNextgen Systems Inc. 10.00% 10.00% 15,000 United States Method for visually integrating multiple data acquisition technologies.

2000 Netsol International Inc. CFS Group Plc 50% 25% - Worldwide Settlement management system.1999 Orchestral Corp IVP Technology Corp 20.00% 5.00% - United States Data collection and analytics software.2014 Psitech Corp Empirical Ventures, Inc. 9.75% 6.25% 150,000 Canada, United States & Mexico E-retailing analytics platform.2012 Public Issuer Stock Analytics LLC Intreorg Systems Inc. 3.00% 1.00% 250,000 Worldwide Stock anaytics software.1993 Samuel Shanks et. Al. Log Point Technologies Inc. 5.00% 2.00% 210,000 n/a Lookup table-based computational systems.2013 Social Media Broadcasts Media Analytics Corp 20% 20% 300,000 Canada, United States, United Kingdom, Ireland Klarity Analytic Dashboard.1997 University of Southern California GK Intelligent Systems Inc 5.00% 5.00% 40% 40% 25,000 Worldwide Data mining and pattern recognition software.1995 Vital Images Inc. Cogniseis Development Inc 15.00% 5.00% 1,500,000 Worldwide Software for visualizing and interpreting seismic information.

High 20% 20% 15,000,000$ Low 1.00% 1.00% - Mean 7.65% 5.72% 568,333 Median 5.50% 5.00% -

Selected Royalty Rate (2) 5.25%Adjustment for Trademark (3) -1.00%Applied Royalty Rate 4.25%

After-tax Royalty Rate (4) 2.64%

Selected/Applied Upfront Payment (5) -$

Notes:(1) Excluding stock.(2) The average of the median high and low royalty rates was selected.(3)(4) A tax rate of 38.0% percent was applied, the blended federal rate of 34.0% and the Georgia tax rate of 6.0%. The after-tax royalty rate was applied in Schedule G-1, the fair value of the Customer Relationships.(5) The median upfront payment (including amounts of $0 in the data set) was selected.Source: RoyaltySource

Royalty Sublicense

Most of the technology licensing agreements include use of the associated trademark. Accordingly, an adjustment was made based on market trademark licensing rates to isolate the technology-specific royalty rate. See Schedule G-2.

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