Acct 3600 Group 20

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Zap Inc. Annual Investor Report

Report for Year 2013

Team 20 - Project Version A

Mengdi Tan

Ululani McFall

Sidhaant Savara

Timothy Dreckman

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Contents

Executive Summary ............................................................................ 2

Financial Statements .......................................................................... 3

Income Statement ........................................................................... 3

Balance Sheet ................................................................................ 4

Statement of Cash Flow ..................................................................... 5

Business Analysis ............................................................................ 11

Projected Income Statement for 2014 .................................................... 13

Journal Entries for 2013 ..................................................................... 16

T-Accounts for 2013 ......................................................................... 19

Appendix....................................................................................... 27

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Executive Summary

Zap Inc. (the “Company”) is a Boston based overhead projector retailer and service provider. The

Company was founded in 2008 and had its Initial Public Offering in January 2010 at the NYSE.

The Company generates revenue through the sales of projectors that to educational and corporate

institutes. In addition to the sales, the Company also provides its customers with additional services

that help maintain the quality and increase the life span of the projector.

The Company received funding from three venture funds that also provide strategic partnerships

to the management team. To improve the efficiency and sales an addition of a new Chief Sales and

Marketing Officer occurred over the year of 2013. This new addition has helped the Company

secure contracts with multiple universities for long-term projector service and maintenance. The

Company has used this new strategic approach to perform better and give itself better opportunity

to increase its customer base.

The following report consists of a detailed report of the transactions that the Company undertook

during the year 2013. Along with the list of accounting transactions, the financial analysts have also

analyzed the Company’s position in the market and predicted the outlook of the Company.

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Financial Statements

Income Statement

The following table is the Income Statement from 2011 to 2013.

The Company has experienced a 201% increase in Net Income from the previous year and has

done so due to increase in sales.

2013 2012 2011

Sales 4,186,925$ 2,280,000$ 2,500,000$

COGS 2,549,150$ 850,000$ 780,000$

Wages 1,057,000$ 565,000$ 785,000$

Utility 51,000$ 37,050$ 37,500$

Insurance 168,250$ 23,905$ 21,097$

Rent 61,717$ 18,009$ 17,080$

Fuel 13,900$ 2,900$ 1,400$

Office Supplies 19,800$ 6,000$ 5,000$

Advertising 42,442$ 23,000$ 25,000$

Bad Debt 247,875$ 60,750$ 45,000$

Depreciation 678,700$ 500,000$ 500,000$

Amortization Expense 3,708$ -$ -$

Bond Interst Expense 15,856$ -$ -$

Total Expense 4,909,398$ 2,086,614$ 2,217,077$

Operating Income (722,473)$ 193,386$ 282,923$

Interest Income 90,892$ 23,676$ 21,574$

Interest Expense (87,917)$ (56,250)$ (56,250)$

Loss on Sale - -$ 34,900$

Gain on Sale 1,195,000$ -$ 120,000$

Unrealized Gain 8,000$ -$ -$

Income Before Tax 483,502$ 160,812$ 368,247$

Income Tax Expense - - -

Net Income 483,502$ 160,812$ 368,247$

Income Statement

Revenue

Expenses

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Balance Sheet

2013 2012 2011

Cash 4,018,906$ 525,710$ 658,079$

Marketable Securities 122,000$ 75,000$ 15,000$

Accounts Receivable 1,725,963$ 455,000$ 525,000$

Allowace for Bad Debt (224,375)$ (25,000)$ (105,000)$

Interest Reveivable 90,892$ 23,676$ 21,574$

Prepaid Advertising 3,858$ -$ -

Prepaid Insurance 346,586$ 139,836$ 148,945$

Prepaid Rent 79,333$ 29,050$ 34,982$

Security Fair Value Adjustment 8,000$ -$ -$

Office Supplies 9,720$ 3,520$ 5,400$

Inventory 717,725$ 975,000$ 775,000$

Total Current Assets 6,898,608$ 2,201,792$ 2,078,980$

Office Furniture 102,000$ -$ -$

Equipment 4,700,000$ 5,000,000$ 5,000,000$

Accumulated Depreciation (2,603,700)$ (2,000,000)$ (1,500,000)$

Long Term Notes Receivable 285,000$ 285,000$ -$

Land 1,320,000$ 1,450,000$ 1,450,000$

Patnet 89,000$ -$ -$

Accumulated Amoritization (3,708)$ -$ -$

Total Long Term Assets 3,888,592$ 4,735,000$ 4,950,000$

Total Assets 10,787,200$ 6,936,792$ 7,028,980$

Accounts Payable 1,006,063$ 450,000$ 570,000$

Wages Payable 40,000$ 35,000$ 33,000$

Interest Payable 2,167$ -$ -$

Short Term Notes Payable 520,000$ -$ -$

Deferred Reveue 787,825$ -$ -$

Dividends Payable 986,400$ 155,000$ 135,000$

Bonds Interest Payable 18,000$ -$ -$

Total Current Liabilities 3,360,454$ 640,000$ 738,000$

Long Term Note Payable 1,338,000$ 1,250,000$ 1,250,000$

Bonds Payables 1,000,000$ -$ -$

Premium on Bonds Payable 20,851$ -$ -$

Total Liabilities 5,719,306$ 1,890,000$ 1,988,000$

Common Stock 1,062,500$ 1,000,000$ 1,000,000$

Additional Paid-in-Capital 2,711,906$ 1,824,406$ 1,824,406$

Treasury Stock (455,000)$ -$ -$

Contributed Capital 529,000$ 500,000$ 500,000$

Retained Earnings 1,219,488$ 1,722,386$ 1,716,574$

Total Equity 5,067,894$ 5,046,792$ 5,040,980$

Total Liabilities and Equity 10,787,200$ 6,936,792$ 7,028,980$

Balance Sheet

Assets

Liabilities

Stockholders Equity

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Statement of Cash Flow

YEAR 2012

Net income 160,812$

Adjustments to Reconcile

Depreciation Expense 500,000$

Loss On Sale -$

Bad Debt Expenses (80,000)$

Change in Currnet Accounts

Accounts Receivable 70,000$

Interenst Receivable (2,102)$

Inventory (200,000)$

Office Expenses 1,880$

Prepaid Expenses 15,041$

Accounts Payable (120,000)$

Wages Payable 2,000$

Net Cash Flow from Operating Activities 347,631$

Cash Flow from Investing Activites

Outflow to Purchase Marketable Securities (60,000)$

Long Term Notes Receivable (285,000)$

Net Cash Flow from Investing Activities (345,000)$

Cash Flow from Financing Activites

Outflow for Dividends Paid in 2012 (135,000)$

Net Cash Flow from Financing Activites (135,000)$

Net Decrease in Cash (132,369)$

Beginning Cash Balance 658,079$

Ending Cash Balance 525,710$

For the year ended December 31,2012

Cash Flow from Operating Activities


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YEAR 2013

Cash Flow from Operating Activities

Net income 483,502$

Adjustments to Reconcile

Depreciation and Amoritization Expense 682,408$

Gain On Sale (1,195,000)$

Bad Debt Expenses 199,375$

Amoritization of Bond Premium (2,143)$

Unrealized Gain (8,000)$

Change in Currnet Accounts

Accounts Receivable (1,270,963)$

Interest Receivable (67,216)$

Inventory 257,275$

Office Expense (6,200)$

Prepaid Expenses (260,892)$

Accounts Payable 556,063$

Wages Payable 5,000$

Other Payables 540,167$

Deferred Revenue 787,825$

Net Cash Flow from Operating Activities 701,201$

Cash Flow from Investing Activites

Inflow:

Sale of Equipment 750,000$

Sale of Land 2,000,000$

Outflow:

Purchase of Office Furniture (102,000)$

Purchase of Patent (89,000)$

Purchse of Equipment (230,000)$

Purchase of Land (970,000)$

Purchase Marketable Securities (47,000)$

Net Cash Flow from Investing Activities 1,312,000$

Cash Flow from Financing Activites

Inflow:

Long Term Notes 88,000$

Bond Issuance 1,022,995$

Contributed Capital 29,000$

Issuance of Stock 950,000$

Outflow:

Purchase of Treasury Stock (455,000)$

Dividends (155,000)$

Net Cash Flow from Financing Activites 1,479,995$

Net Increase in Cash 3,493,196$

Beginning Cash Balance 525,710$

Ending Cash Balance 4,018,906$


For the Year ended December 31,2013

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Ratio Analysis

The following analysis computes the key ratios of the Company and through a horizontal

comparison; it depicts the trends in the Company. These ratios also help investors make informed

decision before investing in the Company. The management team tracks these ratios monthly to

ensure that all milestones are met and that there is no imminent threat to the Company.

All calculation work done for the below calculations are in the Appendix.

GROSS PROFITS

The Gross Profits have increased over the last year due to an increase in the number of products

sold. The increase in the Cost of Goods (COG) produced has led to a lower Gross Profit in the year

2013. The Company has switched manufactures and has begun selling higher quality products

thereby incurring higher COG sold in 2013.

Year 2013 2012 2011

Gross Profits $ 1,637,775 $ 1,430,000 $ 1,720,000

Gross Profit Ratio

A decrease in the Gross Profit Ratio is due to higher COG sold. This ratio helps determine the

amount of profit generated as a percent of net sales.

Year 2013 2012 2011

Gross Profit Ratio 39% 63% 69%

OPERATING INCOME

Profit or Loss realized after the deduction of operating expenses from the revenue. Therefore, in

2013 the Company incurred higher expenses when compared to the revenue

Year 2013 2012 2011

Operating Income $ (722,473) $ 193,386 $ 282,923

OPERATING MARGIN

This percentage measures the amount of company’s revenue left after subtracting out the

operating expenses. A high positive number would indicate that the Company is able to pay for its

fixed costs. Therefore, over the last 2 years, the company made $0.08 and $0.11 for every dollar in

sales. However, in 2013 the Company was losing $0.17 for every dollar in sales.

Year 2013 2012 2011

Operating Margin -17% 8% 11%

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RETURN ON EQUITY

The Return on Equity or ROE is the amount of net income returned as a percentage of shareholders

equity. Based on the number for the year 2013 it can be concluded that the Company is generating

$0.10 in profits for every dollar of shareholder money invested. This also indicates the profitability

of the company and shows a strong growth over the past two years.

Year 2013 2012 2011

ROE 7.6% 1.2% 3.6%

WORKING CAPITAL

Current Assets less Current Liabilities gives the Working Capital. This is the amount of money the

Company utilizes to fund operations and purchase more inventory to meet the demand. An

increasing amount over the past three years indicates an increase in the number of products sold

and the decrease of debt or payable that the Company has.

Year 2013 2012 2011

Working Capital $ 3,538,154 $ 1,561,792 $ 1,340,980

CURRENT RATIO

This ratio measures the Company’s ability to pay short-term obligations. Although this amount

has decreased since the last two years, it is still a strong indication of the ability to pay off any

obligations that may arise in the short term. The ratio for 2013 indicates that the Company is 2

times capable of paying any immediate debt if it may arise.

Year 2013 2012 2011

Current Ratio 2.05 3.44 2.82

QUICK RATIO

Similar to the Current Ratio, the Quick Ratio measures the short-term liquidity of the Company.

This ratio reduces the Inventory amount from Current Assets before deriving the number. This

includes assets that the Company can immediately turn into cash if the need arises. In 2013, the

Company has $1.84 in liquid assets to cover $1 in current liabilities. A growth over the past two

years has helped the Company become more stable in paying off any liabilities that may arise.

Year 2013 2012 2011

Quick Ratio 1.98 0.97 1.63

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ACCOUNTS RECEIVABLE TURNOVER

This ratio indicates the ability of the Company to collect on its debt. Not all customers pay for the

services and products upfront. But in order the do business with such clients the Company allows

them to utilize or purchase a service or product on credit and then works towards collecting this

amount from the client in the near future. This number indicates that the Company is efficient at

collecting its debts.

Year 2013 2012 2011

AR Turnover 3.84 4.65 4.76

INVENTORY TURNOVER

This ratio helps determine how many times the inventory is sold and replaced. Due to the current

nature of the business, it takes longer to sell projectors and manufacture new ones. Based on

industry averages an Inventory Turnover ratio for the electronic consumer goods industry is 10

days. Based on the industry average the Company is doing perfectly well in terms of selling the

product and manufacturing new ones. Although this number is higher than last year, it is mainly

due to saturation of the market and limited number of projectors that customers purchase.

Year 2013 2012 2011

Inventory Turnover 5.83 2.34 3.23

DEBT-TO-EQUITY RATIO

This ratio measures the proportion of equity and debt that is used to finance the assets. An increase

in this ratio over the years indicates the Company’s aggressiveness in expanding and purchasing

more assets to grow. Based on Industry Averages of Electronic Consumer Goods the average is

between 1 and 1.5 thereby keeping the Company in good standing.

Year 2013 2012 2011

D/E Ratio 1.13 0.37 0.39

BOOK VALUE PER SHARE

This ratio helps investors determine the level of safety associated with each individual share after

all debts are paid off. The Company has been able to maintain a steady amount over the past 3

years. This indicates the dollar value remaining for common shareholders after all assets are

liquidates and all debts are paid.

Year 2013 2012 2011

Book Value 4.77 5.05 5.04

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EARNINGS PER SHARE

This is a key ratio that helps determine the profitability of the Company. This ratio helps with

computation that make it easier for investors to determine which a more viable company is.

Year 2013 2012 2011

EPS 0.12 0.04 0.08

PRICE EARNINGS RATIO

This ratio utilizes the EPS ratio to determine the valuation ratio of a company. This ratio helps

investors realize what earnings can be expected from a given company. The PE multiple for the

Company in 2013 is 45.45 which means that an investor is paying $45.45 for $1 in current earning.

A growing PE ratio depicts the higher earning potential of the company, which has been the trend

over the past 3 years.

Year 2013 2012 2011

Price Earnings Ratio 4.16 94.52 34.81

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Business Analysis The Company has shown a growth of 84% in sales in 2013. During 2013, the Company acquired

new clients and secured more long-term contracts that will be beneficial to the sales for 2014. Due

to the massive increase in sales, additional people joined the Zap Team. This allowed the Company

to double its work force thereby increase the employment rate in the area.

In order to meet the high demand and still deliver quality product the Company has a new

manufacturer that has resulted in the increase of COGS in 2013. As seen in the below graphs the

COGS currently constitute towards 60% of Sales as compared to 37% in 2012. The purchase of a

new Patent in 2013 is what has helped improve the quality of the product by retrofitting all Zap

Projectors with a new type of motherboard that prevents overheating and burning out of the

projector bulb. This motherboard also allows for a LCD display on the product, which is one of the

contributing, factors the increase in COGS. The patent also allowed the Company to redesign its

product, which therefore resulted in the sale of the current manufacturing machine that was sold

at a premium of USD $1.2M.

A bond issuance of USD $1M funded the new sales team. This source of funding was a better

alternative to receiving a debt from a bank to reduce our Interest Expenses. This sales team helped

the Company increase its Inventory Turnover by 150%. This extraordinary turnover has resulted in

an average of USD $ 2M in service revenue for 2014.

$-

$1

$2

$3

$4

$5

2013 2012 2011

Mill

ion

s

Sales vs COGS

Sales COGS

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In order to provide better customer service the Company has increased its on credit sales function

since schools have a fixed payment process in place that takes on average 30 days to clear the

accounting office. This has increase the AR amount to USD $1.7M but the Company expects a 100%

payment from all its educational institute clients.

All the above improvements have led to an ROE of 7.6% in 2013, which is an all-time high since the

inception of the Company. Our current Investors are very pleased with the Company have therefore

purchased 250,000 new shares that were issued in 2013. Since this is a growing sector, our equity

investors see the potential of the business with a high ROE number compared to the overall

industry.

The Company has proved itself in the market place by bouncing back this year after a poor

performance in 2012. This trend shows the nature of the current business model of marketing and

selling products heavily in one year and then locking in servicing contracts with the clients for the

following years.

Over the past 3 years, the Company has seen a trend in the market place and as it works towards

creating a better brand in the market, the share prices are expected to increase. After closing at $5

per share on Dec 31, 2013, the Company is expecting to have an average share price at around $6

in 2014.

$484

$161

$368

$-

$100

$200

$300

$400

$500

$600

2013 2012 2011

Tho

usa

nd

s

Net Income

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Projected Income Statement for 2014

2014 2013 2012 2011

Sales 3,500,000$ 4,186,925$ 2,280,000$ 2,500,000$

COGS 1,050,000$ 2,549,150$ 850,000$ 780,000$

Wages 1,050,000$ 1,057,000$ 565,000$ 785,000$

Utility 70,000$ 51,000$ 37,050$ 37,500$

Insurance 175,000$ 168,250$ 23,905$ 21,097$

Rent 61,717$ 61,717$ 18,009$ 17,080$

Fuel 9,000$ 13,900$ 2,900$ 1,400$

Office Supplies 5,000$ 19,800$ 6,000$ 5,000$

Advertising 20,000$ 42,442$ 23,000$ 25,000$

Bad Debt 136,500$ 247,875$ 60,750$ 45,000$

Depreciation Expense 743,600$ 678,700$ 500,000$ 500,000$

Amortization Expense 3,708$ 3,708$ - -

Bond Interst Expense 15,856$ 15,856$ - -

Total Expense 3,340,381$ 4,909,398$ 2,086,614$ 2,217,077$

Operating Income 159,619$ (722,473)$ 193,386$ 282,923$

Interest Income 160,756$ 90,892$ 23,676$ 21,574$

Interest Expense (87,917)$ (87,917)$ (56,250)$ (56,250)$

Loss on Sale -$ - -$ 34,900$

Gain on Sale -$ 1,195,000$ -$ 120,000$

Unrealized Gain 140,000$ 8,000$ -$ -$

Income Before Tax 372,458$ 483,502$ 160,812$ 368,247$

Income Tax Expense - - -

Net Income 372,458$ 483,502$ 160,812$ 368,247$

Income Statement

Revenue

Expenses

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The previous figure consists of the projections for the Year 2014. The Company and Management

Team have been conservative with the projections. Due to the nature of the business, sales occur

in alternating cycles since customers do not purchase new projectors every year. Market research

however shows that people upgrade their system every 2 – 4 years. Services to products sold in

2013 and securing corporate contracts will drive revenue in 2014.

Based on the current contracts and average service cost, the Company estimates that revenue will

be USD $ 3.5M. The expenses are approximately an average of the previous year’s percent of

sales. The Cost of Goods Sold in 2014 is 30% of the sales based on decrease in new products sold

and mainly services provided by the Company on existing products, which consists of on-site

repairs and small part replacements. The Wages will remain the same in 2014 due to no new hires

by the Company, as we are not planning on expanding the sales and marketing team but focusing

on providing our clients with quality service. Utilities, Insurance, Rent and Fuel are adjusted

accordingly since there are no new expansions.

Based on previous year records of the Company being able to collect 87% of its Accounts

Receivables, which is approximately 30% of sales, the Bad Debt Expenses is adjusted accordingly.

A reduction in Advertising Expenses by 50% of 2013 since the Company is not actively seeking new

clients.

The Management has agreed on a conservative approach to 2014 with more focus towards

providing quality customer service. By utilizing the successful year of 2013 to follow up with existing

clients and provide them with the services that they may require. Based on the success of 2013

financial analyst assume stock prices to rise by $3 to $4. Since the Company had previously

repurchased some of its shares the Unrealized Gain would be USD $420,000 over the course of

2014.

This projection is based on the increase in college and university spending budgets to retrofit

classrooms with state of the art learning tools. Additionally corporations are also increasing their

need for a conference room that is fully equipped with projectors, poly-coms and monitors.

Although the Management foresees a decrease in net income for 2014. However, it assures its

investors that it is only the nature of the business and an increase in 2015 is highly probable.

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Actual vs Predicted EPS Evaluation

Analysts' projections for Earnings per Share (EPS) to be $0.13 at the end of 2013. The actual EPS

for 2013 was $0.12. The difference is $0.01, making the actual EPS very close to the predicted. The

Company was able to meet the expected projection of analysts. This difference was small, possible

course of action include-

1. Issuing less stock

2. Repurchasing more treasury stock

3. Decreasing average outstanding shares

4. Increasing our EPS

5. Reduction in expenses

Based on initial market research and Bloomberg Averages, a horizontal comparison along similar

companies in the market indicated an EPS of 0.10 to 0.69. Based on the early stage of the Company

and heavy competition in the Electronic Consumer Goods industry the EPS is on the lower end.

This however is compared to companies that have been in operation for over a decade with a 4x

Zap revenue. Since this is a growing company capital is required to fund the growth thereby

reducing the amount of capital that flows down to shareholders.

The Management Team believes that once the Company establishes itself in this industry with its

high quality service and state-of-the-art projectors it will be less capital intensive and therefore

return more earnings to its shareholders.

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Journal Entries for 2013

JANUARY

1/1/2013 CASH 950,000.00$

COMMON STOCK 62,500.00$

ADDITIONAL PAID IN CAPITAL 887,500.00$

1/1/2013 EQUIPMENT 230,000.00$

CASH 230,000.00$

ADJUSTMENT DEPRECIATION EXPENSE 92,000.00$

ACCUMULATED DEPRECIATION 92,000.00$

1/1/2013 OFFICE FURNITURE 102,000.00$

CASH 102,000.00$

ADJUSTMENT DEPRECIATION EXP. 9,700.00$

ACCUMULATED DEP. 9,700.00$

1/1/2013 CASH 135,000.00$

LT NOTES PAYABLE 135,000.00$

1/5/2013 CASH 23,676.00$

INTEREST RECEIVABLE 23,676.00$

1/22/2013 INVENTORY 654,500.00$

CASH 294,525.00$

ACCOUNTS PAYABLE 359,975.00$

1/25/2013 ACCOUNTS PAYABLE 265,000.00$

CASH 265,000.00$

FEBRUARY

2/1/2013 PREPAID ADVERTISING 46,300.00$

CASH 46,300.00$

ADJUSTMENT ADVERTISING EXPENSE 42,441.70$

PREPAID ADVERTISING 42,441.70$

2/13/2013 CASH 359,000.00$

ACCOUNTS RECEIVABLE 359,000.00$

MARCH

3/1/2013 LAND 970,000.00$

CASH 450,000.00$

ST NOTES PAYABLE 520,000.00$

ADJ. 6/1/13 INTEREST EXPENSE 6,500.00$

CASH 6,500.00$


CASH 6,500.00$


INTEREST PAYABLE 21,667.70$

3/19/2013 SUPPLIES 26,000.00$

CASH 26,000.00$

3/20/2013 CASH 43,000.00$

DEFERRED REVENUE 43,000.00$

APRIL

4/21/2013 ACCOUNTS RECEIVABLE 738,000.00$

CASH 1,107,000.00$

COGS 1,142,000.00$

REVENUE 1,845,000.00$

INVENTORY 1,142,000.00$

4/27/2013 INVENTORY 726,125.00$

CASH 508,287.50$



CASH 576,000.00$

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MAY

5/1/2013 DIVIDENDS PAYABLE 155,000.00$

CASH 155,000.00$

5/6/2013 CASH 29,000.00$

CONTRIBUTED CAPITAL 29,000.00$

JUNE

6/1/2013 PREPAID RENT 112,000.00$

CASH 112,000.00$

ADJUSTMENT RENT EXPENSE 32,666.67$

PREPAID RENT 32,666.67$

6/30/2013 WAGES EXPENSE 509,000.00$

WAGES PAYABLE 35,000.00$

CASH 544,000.00$

6/19/2013 INSURANCE EXPENSE 137,000.00$

PREPAID INSURANCE 137,000.00$

6/26/2013 ALLOW. FOR DOUBTFUL ACCT. 48,500.00$


JULY

7/1/2013 CASH 1,022,995.00$

BONDS PAYABLE 1,000,000.00$

PREMIUM ON BONDS PAYABLE 22,995.00$

ADJ. BOND INTEREST EXPENSE 15,856.40$

PREMIUM ON BONDS PAYABLE 2,143.60$

BOND INTEREST PAYABLE 18,000.00$

AUGUST

8/1/2013 PATENT 89,000.00$

CASH 89,000.00$

ADJUSTMENT AMORITIZATION EXPENSE 3,708.30$

ACCUMULATED AMORITIZATION 3,708.30$

8/6/2013 CASH 2,000,000.00$

LAND 1,100,000.00$

GAIN ON SALE 900,000.00$

8/15/2013 CASH 685,800.00$


COGS 706,500.00$

REVENUE 1,143,000.00$

INVENTORY 706,500.00$

8/25/2013 CASH 159,000.00$


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SEPTEMBER

9/3/2013 MARKETABLE SECURITIES 47,000.00$

CASH 47,000.00$

9/12/2013 CASH 750,000.00$

ACCUMULATED DEP. 75,000.00$

EQUIPMENT 530,000.00$

GAIN ON SALE 295,000.00$

9/18/2013 FUEL EXPENSE 13,900.00$

CASH 13,900.00$

OCTOBER

10/1/2013 NONE

10/1/2013 INVENTORY 911,250.00$



CASH 92,000.00$

NOVEMBER

11/1/2013 TREASURY STOCK 455,000.00$

CASH 455,000.00$

11/1/2013 PREPAID INSURANCE 375,000.00$

CASH 375,000.00$

ADJUSTMENT INSURANCE EXPENSE 31,250.00$

PREPAID INSURANCE 31,250.00$

11/17/2013 CASH 776,000.00$

DEFERRED REVENUE 776,000.00$

11/19/2013 CASH 525,487.50$


COGS 700,650.00$

REVENUE 1,167,750.00$

INVENTORY 700,650.00$

11/19/2013 NONE

DECEMBER

12/31/2013 WAGES EXPENSE 548,000.00$

CASH 508,000.00$

WAGES PAYABLE 40,000.00$

12/31/2013 LT NOTES PAYABLE 47,000.00$

INTEREST EXPENSE 10,000.00$

CASH 57,000.00$

12/31/2013 SECURITY FAIR VALUE ADJ. 8,000.00$

UNREALIZED GAIN 8,000.00$

12/31/2013 DEPRECIATION EXPENSE 577,000.00$

ACCUMULATED DEPRECIATION 577,000.00$

12/31/2013 RETAINED EARNINGS 986,400.00$

DIVIDENDS PAYABLE 986,400.00$

12/31/2013 UTILITY EXPENSE 51,000.00$

CASH 51,000.00$

12/31/2013 INTEREST EXPENSE 56,250.00$

CASH 56,250.00$

12/31/2013 INTEREST RECEIVABLE 90,892.30$

INTEREST INCOME 90,892.30$

12/31/2013 DEFERRED REVENUE 31,175.00$

REVENUE 31,175.00$

12/31/2013 OFFICE SUPPLIES EXPENSE 19,800.00$

SUPPLIES 19,800.00$

12/31/2013 BAD DEBT EXPENSE 224,375.10$

ALLOW. FOR DOUBTFUL ACCT. 224,375.10$

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T-Accounts for 2013

Below are the Balance Sheet and Income Statement broken down into T-Accounts for 2013. Assets,

Liabilities, Equity, Revenue and Expenses further break them down for simplification.

The Company is happy to provide serious investors with the audited version of the financial that

will be easier to read.

Please note that the Company is currently looking for an equity investor for a Series C round at a

Pre-Money Valuation of USD $9M.

Please email us for a digital copy of the T-Accounts.

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Balance Sheet

Assets

525,710.0 51,000.0 (43)Dec 31th 75,000.0

(1) Jan.1st 950,000.0 230,000.0 (2) Jan.1st (27)Sep 3rd 47,000.0

(4) Jan.1st 135,000.0 102,000.0 (3) Jan.1st

(9) Feb 13th 359,000.0 294,525.0 (6) Jan 22th

(12)March 20th 43,000.0 265,000.0 (7) Jan 25th

(13)April 21st 1,107,000.0 46,300.0 (8) Feb 1st

(22)July 1st 1,022,995.0 450,000.0 (10)Mar 1st

(24)Aug 6th 2,000,000.0 26,000.0 (11)Mar 19th

(25)Aug 15th 685,800.0 508,287.0 (14)April 27th

(26)Aug 25th 159,000.0 576,000.0 (15) Apriil 29th

(28)Sep 12th 750,000.0 155,000.0 (16) May 1st

(35)Nov 17th 776,000.0 112,000.0 (18) June 1st

(36)Nov 19th 525,487.0 544,000.0 (19) June 30th

(5)Jan 5th 23,676.0 89,000.0 (23)Aug.1st

(17)May 6th 29,000.0 47,000.0 (27)Sep 3rd

13,900.0 (29) Sep 18th

92,000.0 (32) Oct 10th

375,000.0 (34)Nov 1st

508,000.0 (38)Dec 31st

56,250.0 (44)Dec 31st

6,500.0 June 1st

6,500.0 Sep 1st

6,500.0 Dec 1st

455,000.0 (33)Nov 1st

57,000.0 (39) Dec 31st

4,018,906 122,000.0

Cash Marketable Sec

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455,000.0 -

(13)April 21st 738,000.0 359,000.0 (9) Feb 13th (8) Feb 1st 46,300.0 42,441.7 #AJ8 Dec 31st

(25)Aug 15th 457,200.0 48,500.0 (21)June 26th

159,000.0 (26)Aug 25th

(36)Nov 19th 642,262.5 3,858.3

1,725,962.5

9,000.0

25,000.0 -

(21)June 26th 48,500.0 247,875.1 (48)Dec 31st 3,708.3 #AJ23 Dec 31st

224,375.1

3,708.3

2,000,000.0 285,000.0

(28) Sep 12th 75,000.0 92,000.0 #AJ2

9,700.0 #AJ3

577,000.0 (41) Dec 31st

2,603,700.0 285,000.0

139,836.0

(3) Jan.1st 102,000.0 (34)Nov 1st 375,000.0 137,000.0 (20)June 19th

31,250.0 #AE34

102,000.0 346,586.0

23,676.0

(40) Dec 31st 8,000.0 (45) 90892.3 23,676.0 (5)Jan 5th

8,000.0 90,892.3

Sec. Fair Value Adj. Interest Receivable

Accum Depre LT Notes Rec.

Office Furniture Prepaid Insurance

ADA Accumulated amortization

A/R Prepaid Advertising

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975,000.0 5,000,000.0

(6) Jan 22th 654,500.0 1,142,000.0 (13)April 21st(2) Jan.1st 230,000.0 530,000.0 (28) Sep 12th

(14)April 27th 726,125.0 706,500.0 (25)Aug 15th

(31)Oct 1st 911,250.0 700,650.0 (36)Nov 19th

717,725.0 4,700,000.0

1,450,000.0 3,520.0

(10)Mar 1st 970,000.0 1,100,000.0 (24)Aug 6th (11)Mar 19th 26,000.0 19,800.0 (47)

1,320,000.0 9,720.0

29,050.0

(18) June 1st 112,000.0 32,666.7 #AJ18 (23)Aug.1st 89,000.0

29,050.0 (18)

79,333.3 89,000.0

Prepaid Rent Patent

Inventory Equipment

Land Office Supplies

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Liabilities

450,000.0 35,000.0 155,000.0 1,250,000.0

(7) Jan 25th 265,000.0 359,975.0 (6) Jan 22th (19) June 30th 35,000.0 40,000.0 T38 (16) May 1st 155,000.0 986,400.0 (42) (39) 47,000.0 135,000.0 (4) Jan.1st

(15) Apriil 29th 576,000.0 217,837.5 (14)April 27th

(32) Oct 10th 92,000.0 911,250.0 (31) Oct 1st

1,006,062.5 40,000.0 986,400.0 1,338,000.0

(46) 31,175.0 43,000.0 (12)March 20th 520,000.0 (10)Mar 1st 2,166.7 #AJ10

776,000.0 (35)

787,825.0 520,000.0 2,166.7

1,000,000.0 (22)July 1st 18,000.0 #AJ22 #AJ22 2,143.6 22,995.0 (22)July 1st

1,000,000.0 18,000.0 20,851.4

Prem. on Bond Pay.

Deferred Rev ST Note Payable Interest Payable

Bonds Payable Bond Int. Payable

A/P Wages Payable Dividends Payable LT Notes Payable

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Equity

500,000.0 1,722,386.0 1,000,000.0 1,824,406.0

29,000.0 (17)May 6th (42) Dec 31st 986,400.0 62,500.0 (1) Jan.1st 887,500.0 (1) Jan.1st

529,000.0 735,986.0 1,062,500.0 2,711,906.0

(33)November 1st 455,000.0

455,000.0

Treasury Stock

Contributed Cap R. Earnings Common Stock APIC

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Income Statement

1,845,000.0 (13)April 21st (13)April 21st 1,142,000.0 (19) June 30th 509,000.0

1,143,000.0 (25)Aug 15th (25)Aug 15th 706,500.0 (38) 548,000.0

1,167,750.0 (36) (36)Nov 19th 700,650.0

31,175.0 (46)

4,186,925.0 2,549,150.0 1,057,000.0

90,892.3 (45) #AJ10 2,166.7 (48) 247,875.1

(39) Dec 31st 10,000.0

(44) 56,250.0

June 1st 6,500.0

Sep 1st 6,500.0

Dec 1st 6,500.0

90,892.3 87,916.7 247,875.1

#AJ2 92,000.0 900,000.0 (24)Aug 6th

#AJ3 9,700.0 295,000.0 (28)Sep 12th

(41) 577,000.0

678,700.0 1,195,000.0 -

Bad Debt Exp

Depreciation Exp Gain on Sale Loss on Sale

Interest ExpInterest Income

Revenue COGS Wage Expense

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#AJ8 42,441.7 (43) 51,000.0 (47) 19,800.0

42,441.7 51,000.0 19,800.0

(29) Sep 18th 13,900.0 (20)June 19th 137,000.0 #AJ18 32,666.7

#AJ34 31,250.0 (18) June 1st 29,050.0

13,900.0 168,250.0 61,716.7

-

#AJ23 3,708.3 #AJ22 15,856.4 8,000.0

3,708.3 15,856.4 8,000.0

Unrealized gainBond Int. ExpenseAmortization Expense

Fuel Expense Insurance Exp Rent Expense

Advertising Exp Utility Expense Office Supplies Exp

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Appendix

Return on Equity

Net Income/Avg. Equity Avg. Equity-(5,067,894+6,936,792+7,028,980)/3=6,344,555

2013-483,502/6,344,555=.076

2012-79,926/6,344,555=.0126

2011-232,724/6,344,555=.0367

Working Capital

Current Assets-Current Liabilities

2013-6,898,608-3,360,454=3,538,154

2012-2,201,792-640,000=1,561,792

2011-2,078,980-738,000=1,340,980

Current Ratio

Current Assets/Current Liabilities

2013-6,898,608/3,360,454=2.053

2012-2,201,792/640,000=3.44

2011-2,078,980/738,000=2.817

Quick Ratio

(Cash+Short Term Investments+Receivables)/Current Liabilities

2013-(4,018,906+1,725,963,908,012)/3,360,454=1.98

2012-(525,710+750,000+23,676)/640,000=.976

2011-(658,079+525,000+21,574)/738,000=1.63

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Inventory Turnover

COGS/Average Inventory Avg. Inventory-(717,725+975,000+775,000)/3=822,575

2013-2,549,150/822,575=3.099

2012-850,000/822,575=1.033

2011-780,000/822,575=.948

Gross Profit

Sales-COGS

2013-4,186,925-2,549,150=1,637,775

2012-2,280,000-850,000=1,430,000

2011-2,500,000-780,000=1,720,000

Gross Profit Ratio

Gross Profit/Sales

2013-1,637,775/4,186,925=.391

2012-1,430,000/2,280,000=.627

2011-1,720,000/2,500,000=.688

Operating Income

Total Revenue-Total Expenses

2013-4,186,925-4,909,398=(722,473)

2012-2,280,000-2,086,614=193,386

2011-2,500,000-2,217,077=282,923

Operating Margin

Operating Income/Sales

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2013-(722,473)/4,186,925=-.173

2012-193,386/2,280,000=.085

2011-282,923/2,500,000=.113

Debt to Equity Ratio

Total Liabilities/Total Equity

2013-5,719,306/5,067,894=1.129

2012-1,890,000/5,046,792=.374

2011-1,988,000/5,040,980=.394

Book Value Per Share

Value of Common Equity/Number of Shares Outstanding

Value of Common Equity=Common Stock+APIC+Retained Earnings

2013-(1,062,500+2,711,906+1,219,488)/4,000,000=1.248

2012-(1,000,000+1,824,406+1,722,386)/4,000,000=1.135

2011-(1,000,000+1,824,406+1,716,574)/4,000,000=1.135

Accounts Receivable Turnover

Account Receivable turnover = Net sales/Average Account Receivable

Average Account receivable = (Beginning balance +Ending balance)/2

A/R Turnover (2011)=2,500,000/525,000=4.76

A/R Turnover (2012)=2,280,000/(525,000+455,000)/2=2,280,000/490,000=4.65

A/R Turnover (2013)

=4,186,925/(455,000+1,725,962.5)/2=4,186,925/1,090,481.25=3.84

Earnings Per Share

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Earning Per Share (EPS)= Net income-Preferred Dividend / Average Number of common shares

Outstanding

EPS(2011)=(333,347-0)/4,000,000= 8.33%

EPS(2012)=(160812-0)/4,000,000= 4.02%

EPS(2013)=(483,502.4-0)/4,000,000= 12%

Price Earnings Ratio

Price Earning Ratio= Market Value per Share/ Earnings per Share (EPS)

P/ E Ratio(Dec.31,2013)=5/0.12=4.167

P/ E Ratio(2012)=3.8/0.0402=94.52

P/ E Ratio(2011)=2.9/0.0833=34.81

Acct 3600 Group 20

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