Income Statement 1993 1994 1995 1996 1996 1996 1997 1998 1999 2000 2001 SS SS+1 1997 1998 1999 2000 2001 SS SS+1 Growth
(half year) (Projected) Ratios Pro Forma (percent of sales except Revenue which is growth rate
Revenue Ratios
and income tax expense which is % of EBT)
License fees 3687 50.0% 3087 47.1% 4850 56.2% 2348 4773 51.04%
Royalties 562 7.6% 876 13.4% 1207 14.0% 1228 1831.5 19.59%
Prepaid royalties 1475 20.0% 448 6.8% 0 0.0% 0 0 0.00%
Maintenance and training 1657 22.4% 2137 32.6% 2572 29.8% 1461 2747 29.37%
Total Revenue 7381 100.0% 6548 100.0% 8629 100.0% 5037 9351.5 100.00% 9.6% 9.6% 9.6% 9.6% 9.6% 6% 6% 10,249 11,233 12,312 13,493 14,789 15,676 16,617 6.00%
Cost of Sales -1150 -15.6% -705 -10.8% -677 -7.8% -403 -741.5 -7.93% -8% -8% –8% –8% -8% -8% -8% -820 -899 -985 -1,079 -1,183 -1,254 -1,329 6.00%
Gross Profit 6231 84.4% 5843 89.2% 7952 92.2% 4634 8610 92.07% 9,429 10,335 11,327 12,414 13,606 14,422 15,287 6.00%
Operating Expenses
Sales and marketing -3220 -43.6% -2710 -41.4% -2942 -34.1% -1674 -3145 -33.63% -33% -33% -33% -33% -33% -33% -33% -3,382 -3,707 -4,063 -4,453 -4,880 -5,173 -5,484 6.00%
Research and development -3843 -52.1% -3166 -48.4% -3123 -36.2% -1913 -3474.5 -37.15% -37% -37% -37% –37% –37% -37% -37% -3,792 -4,156 -4,555 -4,993 -5,472 -5,800 -6,148 6.00%
General and administrative -1776 -24.1% -950 -14.5% -1210 -14.0% -767 –1372 -14.67% -15% -15% -15% -15% -15% -15% -15% –1,537 -1,685 -1,847 -2,024 -2,218 -2,351 -2,493 6.00%
Severence costs -300 –4.1% 0 0.0% 0 0.0% 0 0 0.00% 0% 0% 0% 0% 0% 0% 0% 0 0 0 0 0 0 0
Total operating expenses -9139 -123.8% -6826 -104.2% -7275 -84.3% -4354 -7991.5 -85.46% -8,712 -9,548 -10,465 -11,469 -12,571 -13,325 -14,124 6.00%
Earnings (loss) from operations -2908 -39.4% -983 -15.0% 677 7.8% 280 618.5 6.61% 717 786 862 945 1,035 1,097 1,163 6.00%
Other expense, net -61 –0.8% -42 -0.6% -115 -1.3% -51 -108.5 -1.16% -28 -24 -22 -21 -23 -255 -270 6.00%
Earnings (loss) before taxes and extraordinary item -2969 -40.2% -1025 -15.7% 562 6.5% 229 510 5.45% 690 763 840 923 1,012 842 893 6.00%
Income tax expense -42 -0.6% -137 -2.1% -174 -2.0% -45 -132 -25.88% -25% -25% -25% -25% -25% -25% -25% -172 -191 -210 -231 -253 -211 -223 6.00%
Earnings (loss) before extraordinary item -3011 -40.8% -1162 -17.7% 388 4.5% 184 378 4.04% 517 572 630 693 759 632 670 6.00%
Extraordinary item 0 0.0% 298 4.6% 0 0.0% 0 0 0.00% 0% 0% 0% 0% 0% 0% 0% 0 0 0 0 0 0 0
Net earnings (loss) -3011 -40.8% -864 -13.2% 388 4.5% 184 378 4.04% 517 572 630 693 759 632 670 6.00%
Earnings growth rate 10.55% 10.19% 9.90% 9.63% -16.80% 6.00%
Noninterest part of “other” -67 –0.9% 16 0.2% –53 -0.6% 1 -25.5 -0.27% –0.27% -0.27% -0.27% -0.27% –0.27% -0.27% -0.27% -28 -30 -33 -36 -40 -42 -45 6.00%
Interest Income 40 0.5% 24 0.4% 21 0.2% 12 22.5 0.24% 0 7 12 15 17 0 0
Interest Expense -34 –0.5% -82 -1.3% -83 -1.0% -64 -105.5 -1.13% 0 0 0 0 0 -213 -225 6.00%
ProForma rate on interest inc. 5% 5% 5% 5% 5% 5% 5%
ProForma rate on interest exp. 15% 15% 15% 15% 15% 15% 15%
Balance Sheet 1993 1994 30.5% 1995 23.1% 1996 1996 1996 1997 1998 1999 2000 2001 SS SS+1 1997 1998 1999 2000 2001 SS SS+1 Growth
(mid-year) (Projected) Ratios
Current assets
Required Cash 288 4.4% 153 1.8% 390 390 4.2% 4.2% 4.2% 4.2% 4.2% 4.2% 4.2% 4.2% 430 472 517 567 621 658 698 6.00%
Excess Cash 0 131 234 307 342 0 0 0
Accounts receivable 1742 26.6% 1893 21.9% 2293 2293 24.5% 24.50% 24.50% 24.50% 24.50% 24.50% 24.50% 24.50% 2,511 2,752 3,016 3,306 3,623 3,841 4,071 6.00%
Prepaid expenses, etc. 185 2.8% 179 2.1% 171 171 1.8% 1.80% 1.80% 1.80% 1.80% 1.80% 1.80% 1.80% 184 202 222 243 266 282 299 6.00%
Total current assets 2215 33.8% 2225 25.8% 2854 2854 30.5% 30.50% 30.50% 30.50% 30.50% 30.50% 30.50% 30.50% 3,257 3,660 4,062 4,457 4,511 4,781 5,068 6.00%
Equipment, net 256 3.9% 377 4.4% 373 373 4.0% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 410 449 492 540 592 627 665 6.00%
Purchased software, net 292 4.5% 246 2.9% 410 410 4.4% 4.40% 4.40% 4.40% 4.40% 4.40% 4.40% 4.40% 451 494 542 594 651 690 731 6.00%
Total assets 2763 42.2% 2848 33.0% 3637 3637 38.9% 38.90% 38.90% 38.90% 38.90% 38.90% 38.90% 38.90% 4,118 4,604 5,097 5,591 5,753 6,098 6,464 6.00%
Current liabilities
Notes payable 0 0.0% 500 5.8% 0 0 0.0% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0 0 0 0 0 0 0
Accounts payable 279 4.3% 585 6.8% 410 410 4.4% 4.40% 4.40% 4.40% 4.40% 4.40% 4.40% 4.40% 451 494 542 594 651 690 731 6.00%
Accrued royalties pble. 286 4.4% 455 5.3% 398 398 4.3% 4.30% 4.30% 4.30% 4.30% 4.30% 4.30% 4.30% 441 483 529 580 636 674 715 6.00%
Other accrueds 1130 17.3% 848 9.8% 1231 1231 13.2% 13.20% 13.20% 13.20% 13.20% 13.20% 13.20% 13.20% 1,353 1,483 1,625 1,781 1,952 2,069 2,193 6.00%
Deferred revenue 1726 26.4% 1220 14.1% 1779 1779 19.0% 15.00% 11.00% 7.00% 3.00% 0.00% 0.00% 0.00% 1,537 1,236 862 405 0 0 0
Total current liabilities 3421 52.2% 3608 41.8% 3818 3818 40.8% 40.80% 40.80% 40.80% 40.80% 40.80% 40.80% 40.80% 3,782 3,696 3,558 3,360 3,239 3,433 3,639 6.00%
Noncurrent notes payable (ad hoc about 31%MVEntity) 500 7.6% 0 0.0% 0 0 0.0% 0.00% 0.00% 0.00% 0.00% 31.00% 31.00% 31.00% 0 0 0 0 1,418 1,503 1,593 6.00%
Total liabilities 3921 59.9% 3608 41.8% 3818 3818 40.8% 40.80% 40.80% 40.80% 40.80% 71.80% 71.80% 71.80% 3,782 3,696 3,558 3,360 4,657 4,936 5,232 6.00%
Convertible preferred 14155 14155 14155 0 0 0 0 0 0 0 0
Par common 10 11 11 52 52 52 52 52 52 52 52
Additional paid-in cap 143 183 419 14533 14,533 14,533 14,533 14,533 14,533 14,533 14,533
Deficit/Retained earnings -15260 -14872 -14688 -14688 -14,171 -13,599 -12,969 -12,276 –13,411 -13,345 -13,275
Treasury stock -176 -176 0 0 0 0 0 0 0 0 0
Foreign currency trans. -30 -0.5% -61 -0.7% -78 -78 N/A N/A N/A N/A N/A N/A N/A N/A -78 -78 -78 -78 -78 -78 -78
Total Equity Balance –1158 -760 -181 -181 336 908 1,538 2,231 1,096 1,162 1,232 6.00%
Total Liabilities & Equity 2763 2848 3637 3637 4,118 4,604 5,097 5,591 5,753 6,098 6,464 6.00%
Statement of cash flow
Net earnings 517 572 630 693 759 632 670 6.00%
+D&A 243 267 293 321 351 385 408 6.00%
-Change in AR -218 -241 -264 -290 -317 -217 -230 6.00%
-Change in prepaids -13 -18 -19 -21 -23 -16 -17 6.00%
+Change in AP 41 43 47 52 57 39 41 6.00%
+Change in accrueds 165 172 189 207 227 155 165 6.00%
+Change in def. rev -242 -302 -374 -457 -405 0 0
-Capex -321 -350 -383 -420 -460 -460 -487 6.00%
+Exercise proceeds 0 0 0 0 0 0 0
+Notes proceeds 0 0 0 0 1,418 85 90 6.00%
-Currency transl. losses 0 0 0 0 0 0 0
-Cash dump (dividend) 0 0 0 0 -1,894 –566 –600 6.00%
Change in cash 172 144 118 84 -288 37 40 6.00%
Beginning cash 390 562 706 824 909 621 658 6.00%
Ending cash 561.814 706.053 824.391 908.708 621.133 658.400 697.902 6.00%
Check 561.814 706.053 824.391 908.708 621.131 658.399 697.903
Valuation Cash Flows
(marginal tax rate used) 25% 25% 25% 25% 25% 25% 25%
Net Income 517 572 630 693 759 632 670
+D&A 243 267 293 321 351 385 408
-Capex -321 -350 -383 -420 -460 -460 -487
-Change in NWC (incl. all cash) -439 -489 -540 -593 -174 –76 -81
-Currency translation losses 0 0 0 0 0 0 0
+Debt Proceeds 0 0 0 0 1,418 85 90
Equity VCF from operations 0 0 0 0 1,894 566 600 6.00%
Check = Dividends 0 0 0 0 1,894 566 600
Terminal Value r= 23.93% g= 6.00% 3,156 3,346 3,546 6.00%
Total Equity VCF 0 0 0 0 5,051
Discount Rates 23.93% 23.93% 23.93% 23.93% 23.93% 23.93% 23.93%
End of Year Equity Value $1,728 $2,141 $2,653 $3,288 $4,075 $3,156 $3,346 $3,546 6.00%
Premoney Shares (Fully-Full Diluted including warrants) 5,937,223 5,937,223 5,937,223 5,937,223 5,937,223 5,937,223 5,937,223 5,937,223
Share Price $0.29 $0.36 $0.45 $0.55 $0.69 $0.53 $0.56 $0.60 6.00%
EBIT 690 763 840 923 1,012 1,055 1,118 6.00%
-taxes on EBIT -172 -191 -210 -231 –253 -264 -280 6.00%
EBIAT 517 572 630 693 759 791 839 6.00%
+D&A 243 267 293 321 351 385 408 6.00%
-Capex -321 -350 -383 -420 -460 -460 -487 6.00%
-Change in NWC (incl. all cash) -439 -489 -540 -593 -174 –76 -81 6.00%
-Currency translation losses 0 0 0 0 0 0 0
Entity VCF from operations 0 0 0 0 476 640 679 6.00%
Check = Div+Interest*(1-t)-Debt Proceeds 0 0 0 0 476 640 679
Terminal Entity Value 4,574 4,849 5,140 6.00%
Total Entity VCF 0 0 0 0 5,051
Discount Rates 23.93% 23.93% 23.93% 23.93% 23.93% 20.00% 20.00% 6.00%
End of Year Enterprise Value $1,728 $2,141 $2,653 $3,288 $4,075 $4,574 $4,849 $5,140 6.00%
-MV of Debt (End of Period) $0 $0 $0 $0 $0 -$1,418 -$1,503 -$1,593 6.00%
End of Year Equity Value $1,728 $2,141 $2,653 $3,288 $4,075 $3,156 $3,346 $3,546 6.00%
Check=Equity Method $1,728 $2,141 $2,653 $3,288 $4,075 $3,156 $3,346 $3,546 6.00%
Premoney Shares (Fully-Fully Diluted including warrants) 5,937,223 5,937,223 5,937,223 5,937,223 5,937,223 5,937,223 5,937,223 5,937,223
Share Price $0.29 $0.36 $0.45 $0.55 $0.69 $0.53 $0.56 $0.60 6.00%
Check = Equity Method $0.29 $0.36 $0.45 $0.55 $0.69 $0.53 $0.56 $0.60 6.00%
Market D/V 31.00% holds ongoing
Note: WACC=.2 from assumption of D/V=.31, tc=.25,rd=.15,re= 0.23931159
(Assumes that the leverage risk taken in the exit year offsets the decline in the firm‘s nonfinancial risk as the firm moves into the constant growth period)
7/15/86 9/15/86 6/15/89 4/15/91 2/15/93 10/10/96 XIRR
Sowar (2,000.00)$ 1,069,996.50$ (at $5) 84.62%
(2,000.00)$ 2,819,991.50$ (at $10) 102.93%
This analysis treats Sowar’s warrants as part of his return on investment (rather than as compensation) and
treats all options as exercised. As 19,999 of the options have exercise price of $5, the answer will be the
same if one assumes that these are not exercised in the $5 scenario.