Divorce Example Report

Detailed Report Of
ABC CONTROL, INC.

1234 Any Street Lane
ANYTOWN, FL 55555
Prepared by
7819 N. Dale Mabry Highway

Suite 200
Tampa, FL 33614
1-800-311-0703
VALUATOR’S LETTER
January 13, 2015
Jane Jones
111 Anystreet Drive
Anywhere, FL 55555
Dear Jane Jones,

I have performed a valuation engagement, which results in a conclusion of value that is expressed as
an opinion of value (single value), as that term are defined by the Institute of Business Appraisers (IBA)
Professional Standards, of ABC CONTROL, INC.
The opinion of value is the result of professional judgment, experience and opinion. This is acknowledged
by appraisal societies, the courts and government agencies such as the United States’ Internal Revenue
Service through its historical revenue rulings (RR), including- ARM 34, RR 59-60, 65-192, RR 65-193,
RR 68-609, RR 77-287, RR 80-213, RR 83-120, RR 93-12. See Appendix D for more details.
The interest being valued is one hundred percent (100.0%) interest of the Equity in ABC CONTROL, INC.
(d/b/a N/A), a Florida Corporation (filing as an "S" Corporation), herein known as the Subject Company,
Company, or ABC, at the valuation date:
December 31, 2014
This valuation was performed solely to assist in the matter of divorce Proceedings; the resulting opinion
of value should not be used for any other purpose or by any other party for any purpose.
Based on my analysis, as described in this valuation report, the opinion of value for the interest of ABC
CONTROL, INC. as of December 31, 2014 was:
$170,000 (rounded)
This conclusion is subject to the Statement of Assumptions and Limiting Condition found in Appendix C
and to the Valuation Analyst’s Representation found in Appendix A. I have no obligation to update this
report or my opinion of value for information that comes to my attention after the date of this report.
Any prior sales of the interest, Subsidiaries or Affiliates, discounts, restrictions or limitations,
hypothetical conditions, references to specialist used, disclosure of subsequent events, applications of
jurisdictional exception, or any other information the valuation analyst deemed useful to enable user(s)
of the report to appreciate the work performed shall be detailed in this report.
I have no present or contemplated financial interest in the Company. My fees for this conclusion of
value are in no way contingent upon the results of my findings.
Salvatore B. Urso
President
Ameri-Street Advisory, Inc.
TABLE OF CONTENTS
1 REPORT SUMMARY ................................................................................... 1
2 INTRODUCTION........................................................................................ 2
2.1 Report Layout ............................................................................................ 2
2.2 Description of the Assignment ...................................................................... 2
2.3 Scope Limitation ......................................................................................... 2
2.3.1 Restrictions and Limitations Bestowed upon the Analyst ................................ 2
2.3.2 Restrictions and Limitations Bestowed upon the Stakeholder(s) ...................... 2
2.3.3 Limiting Conditions .................................................................................. 3
2.4 Sources of Information ................................................................................ 3
2.4.1 Source of Information Disclaimer ............................................................... 3
2.4.2 Company Non-Financial Information ........................................................... 3
2.4.3 Company Financial Information ................................................................. 3
2.4.4 References to Specialist used .................................................................... 3
2.4.5 Information on the Economy ..................................................................... 4
2.4.6 Industry Information................................................................................ 4
2.4.7 Information on Executive and Employee Compensation ................................. 4
2.4.8 Information on Guideline Companies .......................................................... 4
2.5 Definitions ................................................................................................. 4
2.6 Premium for Voting Privileges ....................................................................... 4
2.7 Standard of Value ....................................................................................... 4
2.7.1 DEFINITION OF FAIR MARKET VALUE ......................................................... 4
2.8 Premise of Value......................................................................................... 5
2.9 Hypothetical Conditions and Key Assumptions ................................................. 5
2.10 Significant Historical Events ......................................................................... 5
2.11 Subsequent Events ..................................................................................... 5
2.12 Environmental Issues .................................................................................. 5
2.13 Jurisdictional Expectations ........................................................................... 5
2.14 Prior Sale of Interest in ABC ......................................................................... 5
2.15 Control and Marketability Characteristics ........................................................ 6
2.15.1 The Effect of Illiquidity ............................................................................. 6
2.16 The Effect of Illiquidity Discounts on Levels of Value ........................................ 7
2.16.1 Enterprise-Level Discount for Lack of Marketability (EDLOM) .......................... 7
2.16.2 Discount for Lack of Control (DLOC) ........................................................... 7
2.16.3 Stakeholder-Level Discounts for Lack of Marketability (SDLOM) ...................... 8
2.16.4 Diagram of Illiquidity Discounts vs. Levels of Value ...................................... 8
2.17 Discounts Applied to the Subject ................................................................... 9
Table of Contents Page i

3 OVERVIEW OF THE COMPANY...................................................................9
3.1 Business Activity Overview ........................................................................... 9
3.2 History of the Company ............................................................................... 9
3.3 Corporate Structure .................................................................................. 10
3.4 Management & Employees ......................................................................... 10
3.4.1 Stakeholders/Managers .......................................................................... 10
3.4.2 Non-Stakeholders/Family Members .......................................................... 10
3.4.3 Employees ........................................................................................... 11
3.5 Capital Structure ...................................................................................... 11
3.5.1 Total Invested Capital ............................................................................ 11
3.6 Non-operating and Investment Assets ......................................................... 11
3.7 Location and Facilities ............................................................................... 11
3.8 Subsidiaries or Affiliates............................................................................. 11
3.9 Economic Dependence ............................................................................... 11
3.10 Growth Limiters ........................................................................................ 12
3.11 Other Material Matters Influencing Value ...................................................... 12
3.12 Goodwill Allocation and “Double-Dipping” ..................................................... 12
3.12.1 Goodwill Allocation ................................................................................ 12
3.12.2 “Double Dipping” Concept ....................................................................... 12
4 APPRAISAL OF ECONOMIC CONDITIONS ................................................13

4.1 December 2014 National Economic Report ................................................... 13
4.2 Florida Economy as of December 2014......................................................... 14
5 INDUSTRY OUTLOOK .............................................................................. 16

5.1 About the Data and My Assessment Process ................................................. 16
5.2 Industry Classification ............................................................................... 16
5.3 Industry at a Glance ................................................................................. 16
5.4 Industry Performance (Current) .................................................................. 17
5.4.1 Executive Summary Headline .................................................................. 17
5.4.2 Key External Drivers .............................................................................. 17
5.4.3 Current Performance .............................................................................. 17
5.5 Industry Outlook (Forecast) ....................................................................... 19
5.6 Industry Life Cycle .................................................................................... 20
5.6.1 Major Markets ....................................................................................... 20
5.7 Business Locations in Southeast .................................................................. 21
5.8 Basis of Competition ................................................................................. 21
5.9 Operating Conditions ................................................................................. 21
5.10 Conclusion of Industry Impact on Company .................................................. 21
Table of Contents Page ii

6 FINANCIAL STATEMENTS ECONOMIC ADJUSTMENTS .............................22
6.1 Company Balance Sheets ........................................................................... 22
6.1.1 Historical Balance Sheets ........................................................................ 22
6.1.2 Common-Sized Historical Balance Sheets .................................................. 23
6.1.3 Liquidation Value ................................................................................... 24
6.1.4 Adjusted Book Value (Going Concern) ...................................................... 24
6.1.5 Adjustments to the Balance Sheets .......................................................... 24
6.1.6 Balance Sheets Detailed Adjustments ....................................................... 25
6.1.7 Adjusted Historical Balance Sheets ........................................................... 26
6.1.8 Common-Sized Adjusted Historical Balance Sheets ..................................... 27
6.2 Company Statements of Operations............................................................. 28
6.2.1 Historical Statements of Operations ......................................................... 28
6.2.2 Common-Sized Historical Statements of Operations .................................... 29
6.2.3 Adjustments to the Statement of Operations ............................................. 30
6.2.4 Statements of Operations Detailed Adjustments ......................................... 31
6.2.5 Adjusted Historical Statements of Operations ............................................ 32
6.2.6 Common-Sized Adjusted Historical Statements of Operations....................... 33
6.2.7 Net Income to Adjusted Net Income Reconciliation ..................................... 34
7 COMPANY FINANCIAL POSITION VS. PEERS ..........................................35

7.1 Analytical Process ..................................................................................... 35
7.2 Industry Group Analysis............................................................................. 35
7.3 Ratio Groups Considered............................................................................ 35
7.3.1 Liquidity Ratios Comparison .................................................................... 36
7.3.2 Operating Ratios Comparison .................................................................. 37
7.3.3 Leverage Ratios Comparison ................................................................... 38
7.4 Summary of Comparative Analysis..................................................................... 39
8 COMPANY FINANCIAL TRENDS ANALYSIS .............................................. 40

8.1 Overview ................................................................................................. 40
8.2 Financial Statements Parameters Considered ................................................ 40
8.3 Balance Sheet Trends ................................................................................ 41
8.3.1 Liquidity Ratio Trends ............................................................................ 41
8.3.2 Leverage Ratio Trends ........................................................................... 42
8.4 Statement of Operations Trends.................................................................. 43
8.4.1 Multi-Growth Adjusted Statements of Operations ....................................... 43
8.5 Company Historic Summary Cash Flow Statements Trends ............................. 46
8.6 Summary of Trends Analysis ........................................................................... 47
9 VALUATION METHODOLOGY AND APPROACHES .....................................48
Table of Contents Page iii

10 METHODOLOGIES CONSIDERED BUT REJECTED .....................................51
10.1 Dividend Paying Capacity ........................................................................... 51
10.2 Adjusted Book Value - Going Concern Method ............................................... 51
10.3 Liquidation Value Method ........................................................................... 51
10.4 Company Transactions Method ................................................................... 51
10.5 Discounted Multi-Growth Method ................................................................. 52
10.6 Discounted Future Cash Flow Method ........................................................... 52
10.7 Industry Data Method – Mergerstat ............................................................. 52
11 METHODOLOGY CONSIDERED AND USED ...............................................53

11.1 Market Data Method – BIZCOMPS ............................................................... 53
11.1.1 Derivation of the Multiples ...................................................................... 54
11.1.2 Estimate of Revenue .............................................................................. 54
11.1.3 Estimate of Seller’s Discretionary Earnings ................................................ 55
11.1.4 Regression Analysis of the BizComps Data ................................................ 56
11.1.5 Indicated Value Calculation ..................................................................... 57
12 METHODOLOGIES USED AS SANITY CHECKS ..........................................58

12.1 Capitalization of Cash Flow Method .............................................................. 58
12.1.1 Estimate of Ongoing Benefit Stream ......................................................... 58
12.1.2 Capitalization Rate................................................................................. 59
12.1.3 Indicated Value ..................................................................................... 64
13 CONCLUSION OF VALUE ......................................................................... 64

13.1 Summary of Methods Considered, Used & Rejected ....................................... 64
13.2 Value of Interest Appraised ........................................................................ 66
13.2.1 Personal Goodwill Carve-out ................................................................... 66
13.2.2 Final Calculation of Interest Appraised ...................................................... 66
13.3 Opinion of Fair Market Value....................................................................... 67
14 EXHIBIT 1: BALANCE SHEETS ADJUSTMENTS DETAILS ..........................68
15 EXHIBIT 2: INCOME STATEMENTS ADJUSTMENTS DETAILS....................73
16 EXHIBIT 3: COMPARATIVE ANALYSIS DETAILS ...................................... 78

16.1 General Information about the RMA Data Utilized .......................................... 78
16.2 RMA Comparative Balance Sheets ............................................................... 79
16.3 RMA Comparative Statement of Operations .................................................. 80
16.4 Liquidity Ratios ......................................................................................... 81
16.5 Coverage Ratios ....................................................................................... 82
16.6 Operating Ratios ....................................................................................... 83
17 EXHIBIT 4A: MULTI-ATTRIBUTE UTILITY MODEL (BIZCOMPS) ..............84
Table of Contents Page iv

18 EXHIBIT 4B: MULTI-ATTRIBUTE UTILITY MODEL (PGW CARVE-OUT).....97
19 EXHIBIT 5: COMPANY SPECIFIC RISK PREMIUM DETAILS.................... 106

19.1 CSRP Details: Personal vs. Enterprise Goodwill ............................................ 106
19.2 CSRP Details: Other Factors ..................................................................... 107
19.3 CSRP Details: Comparative & Trends Analysis ............................................. 108
20 EXHIBIT 6: EDLOM CALCULATIONS ...................................................... 109

20.1 Establishing a DLOM Base using Published Research and Studies ................... 109
20.1.1 Implied Base Marketability Discount: Published Research .......................... 109
20.1.2 Pluris DLOM Studies ............................................................................. 109
20.1.3 Summary of Studies used for the EDLOM Bases ....................................... 112
20.1.4 PLURIS DATA ...................................................................................... 113
20.2 Adjustment of the EDLOM Base................................................................. 114
20.2.1 Quantifying Measurement of the EDLOM Factors ...................................... 115
21 EXHIBIT 7: ADJUSTMENTS TO SALARIES AND WAGES ......................... 116

21.1 Adjustments Worksheet ........................................................................... 116
21.2 Salaries Adjustments............................................................................... 117
22 EXHIBIT 8- GUIDELINE TRANSACTION COMPANY DATA ...................... 120

22.1 BizComps Data (Private) .......................................................................... 120
23 APPENDIX A: VALUATION ANALYST’S REPRESENTATION..................... 121
24 APPENDIX B: APPRAISER’S CURRICULUM VITAE ................................. 122
25 APPENDIX C: LIMITING CONDITIONS .................................................. 126
26 APPENDIX D: IRS REVENUE RULINGS .................................................. 130

26.1 Revenue Ruling 59-60 ............................................................................. 130
26.2 Other Important Revenue Rulings ............................................................. 136
27 APPENDIX E: MARKETABILITY DISCOUNT STUDIES ............................. 137
28 APPENDIX F: GLOSSARY....................................................................... 149
29 APPENDIX G: REPORT ON NATIONAL ECONOMY...................................158
30 APPENDIX H: REPORT ON FLORIDA ECONOMY ..................................... 162
31 APPENDIX I: INDUSTRY REPORT.......................................................... 163
32 APPENDIX J: CLIENT PROVIDED FINANCIAL DOCUMENTS ................... 164
Table of Contents Page v

1 REPORT SUMMARY
Type of Report Detailed Report
Report Date Delivered on January 13, 2015
Valuation Date As of December 31, 2014
Report Standards Accordance with The Institute of Business Appraisers Professional Standards
Governing Standard IRS Revenue Ruling 59-60
Name of the Subject ABC CONTROL, INC.
Type of Entity/Filing Status Corporation which files as an "S" Corporation
Doing Business As (d/b/a) N/A
Description of Business Exterminating and Pest Control Services
Industry Code (NAICS) 561710
Prepared for my Client Jane Jones
Purpose divorce Proceedings
Standard of Value Fair Market Value
Premise of Value value as a Going Concern
Significant Historical Events None
Restrictions and Limitations See Scope Limitation on page 2 for details
Appraiser’s Name Salvatore B. Urso
Appraiser’s Firm Ameri-Street Advisory, Inc.
Business Interest Valued 100.0% of the Common Stock
Level of Value As Privately-Held, Marketable, Controlling
Conclusion of Value $170,000
REPORT SUMMARY Page 1

2 INTRODUCTION
2.1 Report Layout
To improve the reader’s experience and for simplification purposes, some supporting charts,
data, and calculations are relegated to the exhibit and appendix sections at the end of this
report. In certain sections of this report I refer to specific exhibits that expound on a calculation
or subject pertaining to the topic of that particular section. Likewise, appendices are referenced
to support specific statements under discussion or as reference material.
Heading numbers are utilized to organize each section. For instance, section 2.3.1 is subsection
of 2.3 (Scope Limitation), which is a subsection 2.0 (Introduction).
What’s more, note that the bottom footer of each page has section information that allows the
reader to establish a point of reference regardless of which page is displayed.
2.2 Description of the Assignment

I have performed a valuation engagement, as that term are defined by the Institute of Business
Appraisers (IBA) Professional Standards, of ABC CONTROL, INC. This engagement results in a
Detailed Report that will provide sufficient information to permit the intended users to
understand the data, reasoning, and analyses underlying the valuation analyst’s conclusion of
value.
I was retained by Jane Jones to provide an opinion of the Fair Market Value of one hundred
percent (100.0%) interest in ABC CONTROL, INC., a Florida Corporation located at 1234 Any
Street Lane ANYTOWN, FL 55555. Furthermore, the interest was valued as of December 31,
2014.
The report will be used by Jane Jones for the sole purpose of divorce Proceedings. The
distribution of this report is restricted to Jane Jones, legal and tax professionals advising Jane
Jones and any regulatory agencies whereby reporting is required. Any other use of this report
is unauthorized and the information included in the report should not be relied upon.
2.3 Scope Limitation

2.3.1 Restrictions and Limitations Bestowed upon the Analyst
I was engaged to perform a valuation for ABC CONTROL, INC. with the intent of ascertaining an
opinion of value However, I was limited to the information that was provided as of December
31, 2014 regarding owner’s perks relating to Automobiles, Insurance, Office Expenses,
Telephone and other expenses. What’s more, I requested January 1 through March 31, 2015
financial statements, but that request was denied; my intention was to value the Company as
of March 31, 2015, the month ending prior to the filing date. Because this information was not
made available, I chose December 31, 2014 as the valuation date.
If the information I requested were available to me, matters may have come to my attention
that could have had a material impact on my opinion of value contained in this report.
Accordingly, my level of assurance on the opinion of value was reduced. Based on historical
revenue and earnings trends, as well as information contained in the Order Granting Wife’s
Motion for Temporary Relief dated 11/13/2015 (item #3) that there may have been personal
expenses run through the business, my opinion of value could have been higher.
2.3.2 Restrictions and Limitations Bestowed upon the Stakeholder(s)

As of the valuation date, there were no operating agreements or stakeholder restrictions in
place.
INTRODUCTION Page 2
2.3.3 Limiting Conditions
This valuation report has been prepared in accordance with The Institute of Business Appraisers
Professional Standards. In accordance with these standards, Assumptions and Limiting
Conditions are provided in the sections called APPENDIX C: LIMITING CONDITIONS.
2.4 Sources of Information

2.4.1 Source of Information Disclaimer
Information in this report was obtained from management, Mrs. Smith, public records and other
sources considered to be informed and reliable. Therefore, I have relied upon the referenced
information without independent verification.
2.4.2 Company Non-Financial Information

The source of the non-financial information was gathered via
1. Telephone interview held on Thursday 11/12/2015. Company attendees of this
interview: Mrs. Jane Smith (“wife”), spouse of Mr. John Smith.
2. Telephone interview held on Wednesday 12/16/2015. Company attendees of this
interview:
a. Mr. John Smith (“husband”), Company sole shareholder, President, Director.
b. Mr. James S. Armstrong, husband’s attorney.
c. I did not tour the facility due to timing and cost constraints.
3. Email correspondence.
2.4.3 Company Financial Information
2.4.3.1 Company Fiscal Periods Analyzed

The financial review of the Company included the review and analysis of the Company’s tax
returns and balance sheets for the fiscal years ending December 31, 2012 through December
31, 2014, the valuation date.
In my opinion, based on the Company’s business cycle, the three year (3) period covered in my
analysis was adequate to identify any existing financial and operational trends that may have
affected my opinion of value.
2.4.3.2 Company Financial Statements

Year-end balance sheets for ABC CONTROL, INC. prepared by management, for the period
ending December 31, 2012 through December 31, 2014.
2.4.3.3 Company Tax Returns

U.S. Corporation income tax returns for ABC CONTROL, INC. were prepared by Christine Jones,
CPA firm for the years ended December 31, 2012-2014.
2.4.4 References to Specialist used

None used.
INTRODUCTION Page 3
2.4.5 Information on the Economy
2.4.5.1 National Economy

Information on the national economy was sourced from KeyValueData™; by Kevin R. Hopkins.
See December 2014 National Economic Report on page 13 and APPENDIX G: REPORT ON
NATIONAL ECONOMY on page 158.
2.4.5.2 Florida Economy

Information on the local Florida economy was sourced from PNC Financial Services Group and
The Florida Legislature Office of Economic and Demographic Research.
See Florida Economy as of December 2014 on page 14 and APPENDIX H: REPORT ON FLORIDA
ECONOMY on page 162.
2.4.6 Industry Information

Industry information was provided by IBIS World Industry Market Research. See IBISWorld.com.
See APPENDIX I: INDUSTRY REPORT on page 163.
2.4.7 Information on Executive and Employee Compensation

1. ABC CONTROL, INC.‘s management.
2. Annual Statement StudiesTM, Risk Management Association (RMA).
3. Florida Occupational Employment and Wages.
2.4.8 Information on Guideline Companies

1. BizComps‐ Small, Private Company Transactions
2. Duff & Phelps‐ Public Company Cost of Capital Data
3. Risk Management AssociationTM (RMA)‐ Comparative Peer Data
4. Pluris DLOM DatabaseTM‐ Restricted Stock Private Placement Data for Illiquidity
Discounts Baseline
2.5 Definitions
See definitions found in APPENDIX F: GLOSSARY.
2.6 Premium for Voting Privileges

This discount was not applied since I was valuing 100% controlling interest. Also, the benefit
stream utilized in the Income Approach was calculated with control adjustments applied.
2.7 Standard of Value

2.7.1 DEFINITION OF FAIR MARKET VALUE
Fair market value is the logical framework through which an effort is made to determine the
price at which the Company’s common shares would trade under the presumption that a market
exists.
INTRODUCTION Page 4
In the United States of America, the most widely recognized and accepted standard of value is
termed fair market value (FMV). It is the standard used in all Federal tax matters, whether it is
gift taxes, estate taxes, income taxes or inheritance taxes. The IRS has defined FMV in Revenue
Ruling 59–60 (section 2.02) as follows:
“The price at which the property would change hands between a willing buyer and a willing
seller, when the former is not under any compulsion to buy and the latter is not under any
compulsion to sell, both parties having reasonable knowledge of relevant facts.”
It is important to remember the “willing buyer and willing seller” mentioned above are
considered hypothetical as opposed to specific. Thus a representative price would not be
considered a FMV if it were affected by a buyer’s or seller’s unique motivations. This would be
an example of investment value, defined by real estate terminology as “value to a particular
investor based on individual investment requirements.”
A sound valuation will be based upon the relevant facts, but the elements of common sense,
informed judgment and reasonableness must enter the process of weighing those facts and
determining their aggregate significance.
My valuation is in accordance with the above statements.
2.8 Premise of Value

This report was prepared using the premise that the subject company is based on value as a
Going Concern. This means that it is presumed that in the future the assemblage of assets,
resources and income producing items will continue in use to produce income and cash flow.
The subject company is a going concern business enterprise.
2.9 Hypothetical Conditions and Key Assumptions

In preparing this opinion of value, hypothetical conditions were not necessary.
2.10 Significant Historical Events

I was not aware of any significant historical events that would have had a material impact on
the valuation of the Subject.
2.11 Subsequent Events

In preparing this opinion of value, certain events could have occurred after the valuation date
that were not known or knowable at the valuation date. If there were such events, these events
were not considered in preparing the opinion of value. There were no such subsequent events
known or knowable as of the valuation date.
2.12 Environmental Issues

A determination of any liabilities of the business related to environmental issues, other than
those reflected in the financial statements, is outside the scope of this engagement. Inquiries
were not made with management regarding the Company’s compliance with various
environmental and hazardous waste laws.
2.13 Jurisdictional Expectations

None to my knowledge as of the report date in accordance to Florida law.
2.14 Prior Sale of Interest in ABC

None to my knowledge as of the report date.
INTRODUCTION Page 5
2.15 Control and Marketability Characteristics
2.15.1 The Effect of Illiquidity
The theory behind fair market value is to take into consideration the lack of liquidity which
translates to the lack of marketability. Liquidity is also referred to as that asset which could be
turned into cash within three (3) business days. In Valuing a Business, The Analysis and
Appraisal of Closely Held Companies, Third Edition, by Shannon P. Pratt, Robert F. Reilly and
Robert P. Schweihs, the authors state on page 333 that, “The market for securities in the United
States is the most liquid market for any kind of property anywhere in the world. This is one of
the major reasons companies are able to raise investment capital from both institutional and
individual investors: the ability to liquidate the investment immediately, at little cost, and with
virtually certainty as to realization of the widely publicized market price. Empirical evidence
demonstrates that investors are willing to pay a high premium for this level of liquidity, or,
conversely, extract a high discount relative to actively traded securities for stocks or other
investment interests that lack this high degree of liquidity.”
A major factor in considering a discount for a lack of marketability is whether a company is
publicly traded. In fact, a key difference between the Subject and its publicly traded
counterparts is the lack of marketability. All other things being equal, an investment is worth
more if it is marketable than if it is not, since investors prefer liquidity over illiquidity (lack of
liquidity). Interests in closely held businesses are illiquid relative to most other investments.
The market places a far greater value differential on the liquidity factor alone in its pricing of
common stocks than in its pricing of any other class of investment assets, for sound reasons.
For common stocks as a group, investors expect to realize the majority of their return in the
form of capital gains at the time of the stock's sale and only a small part of their total return in
the form of dividends while they hold the stock. This situation is taken to the extreme, of course,
in the case of common stock that has not paid dividends in the past. Thus, the ability to sell a
stock is crucial to the realization of the investor's expected return for buying and holding it.
Another reason that liquidity takes on a high degree of importance for common stocks is that
the stocks' prices tend to be much more volatile than prices of real estate or other securities
such as preferred stocks or bonds. Consequently, the investor's choice as to the timing of the
sale of the stock is much more important in determining the amount of return to be earned on
the investment than is the case with other security investments. Numerous studies concerning
the size of marketability discounts have been published. See APPENDIX E: MARKETABILITY
DISCOUNT STUDIES.
“Privately-held” means the company is not a public company with access to a public market
stock exchange. What’s more, “Privately-held, Marketable, Control” implies there is a market
for 100% control interested in a private company, albeit not a stock exchange where the stock
could be sold quickly; as such a significant difference is the time it takes to sell 100% controlling
interest in a private company. Unlike stock in a public company which could be sold typically
within three days, interest in a private company takes much longer to sell. Therefore, an
enterprise-level discount for lack for marketability, which I shall refer to as the EDLOM in this
report, is applied to account for the significant difference in time that it takes to sell 100%
controlling interest in a private company vs. a minority interest in a publicly-traded company.
“Enterprise-Level” means the discount is applicable to the entire enterprise, regardless of
stakeholder characteristics. See Adjustment of the EDLOM Base on page 114 for more details.
Furthermore, to my knowledge, there is no such market available in which to sell less than
100% controlling interest in a privately-held company. Therefore, an additional discount for
illiquidity is necessary to account for the lack of market in which to sell a non-controlling interest
in a privately-held company. I shall refer to this illiquidity discount as the share-holder discount
for lack of marketability, or SDLOM. Unlike the EDLOM, this discount shall be influenced by
specific stakeholder characteristics.
INTRODUCTION Page 6
There are some cases in which both EDLOM and SDLOM are used. For instance, both would be
considered when utilizing the Income Approach to derive value of non-controlling interest in a
privately-held company.
2.16 The Effect of Illiquidity Discounts on Levels of Value

2.16.1 Enterprise-Level Discount for Lack of Marketability (EDLOM)
Some categories of marketability discounts apply to the entire entity or to all the stakeholders,
regardless of the stakeholder characteristics. In the context of this report, I shall refer to these
discounts as Enterprise-Level Discounts for Marketability, or EDLOM. These discounts are
generally applied to account for the illiquidity of going from a publicly-traded, marketable
interest level-of-value to a privately-held, marketable, controlling interest level-of-value. In
other words, this is the discount that accounts for the fact that the current stakeholders cannot
liquidate this private company in three days or so.
If applicable, for instance in the Income Approaches, the first discount applied is the EDLOM.
This discount is only applied when the starting point level of value is “As Freely Traded Public
Marketable.” This is the case when public guideline companies are used to generate the Subject’s
discount and capitalization rates. The EDLOM is the discount that accounts for the illiquidity of
the Privately-Held Subject vis-à-vis a company traded in a public stock exchange. In other
words, it accounts for the fact that the guideline companies have access to a public market
where the Subject does not. Therefore, the EDLOM relegates the level of value from “As Freely
Traded Public Marketable” to the “As Privately-Held Marketable Control” level of value. Note,
however, that if the starting point level of value were “As Privately-Held Marketable Control,”
then the EDLOM would not be necessary. In fact, as an example, this is the case when the
Market Approach’s Guideline Transaction Method is utilized since the guideline companies are
actual privately-held company transactions from the private market place. It is generally
acceptable to assume the transactions were for controlling interest.
Finally, note that if an EDLOM is used, it is applied prior to any stakeholder discounts for lack of
control or stakeholder lack of marketability discounts, which are discussed below. See Figure 1
below. All discounts are applied multiplicatively, not additively.
For a detailed explanation and calculation of the EDLOM, see sections 20.1 on page 109 and
20.2 on page 114.
2.16.2 Discount for Lack of Control (DLOC)

A control owner enjoys valuable prerogatives of ownership that a non-control owner does not,
including the ability to appoint management, determine management compensation &
prerequisites, set policy and change the course of the business, acquire and liquidate assets,
award contracts, make acquisitions, liquidate, dissolve, sell or recapitalize the company, etc. As
such, the non-controlling interest in a business is subject to what is known as a Discount for
Lack of Control, DLOC. Note that “Minority Interest” is a subset of non-control.
Furthermore, if I were performing a valuation for a non-control interest in a privately-held
company where the standard of value were Fair Market Value and the starting level of value was
“As Privately-Held Marketable Control,” then I should consider applying a discount for lack of
control (DLOC) and an associated stakeholder discount for lack of marketability (SDLOM), which
shall be described in the following section. Note, however, that if Fair Value is the standard of
value, it is highly likely that neither a DLOC nor an SDLOM would be used due to “Dissenter’s
Rights” statues in most states; in such case the value of the non-controlling interest would be a
pro-rata value of the 100% controlling interest value.
Since this valuation was for 100.0% controlling interest, and the standard of value
was Fair Market Value, DLOC was not applied in this case.
INTRODUCTION Page 7
2.16.3 Stakeholder-Level Discounts for Lack of Marketability (SDLOM)
The non-controlling interest in a privately-held entity is not as marketable as a controlling
interest in the same entity. In fact, there is no known market, public or private, for non-
controlling interest in privately-held companies. As such, an additional discount for lack of
marketability for non-controlling interest should be considered. In the contexts of this report I
shall refer to this discount as a Stakeholder-Level Discount of Lack of Marketability or SDLOM.
Some categories of marketability discounts reflect the characteristics of ownership and apply
only to specific blocks of stock or interest in the Company. These discounts are generally applied
to a non-control level of value after any discounts for lack of control. I was careful not to double
count any of these discounts by not incorporating any of the factors shown in section 20.2 into
my discount or capitalization rate calculations in the Income Approaches or market multiples
used in the Market Approaches.
Since this valuation is for 100.0% controlling interest, SDLOM was not be applied in
this case.
2.16.4 Diagram of Illiquidity Discounts vs. Levels of Value

The following illustration provides a summary of where the various illiquidity discounts typically
apply to the various levels of value. Note that discounts are applied in a multiplicative manner,
not additive.
Also, note that in the case of ABC the EDLOM was only used in the Income Approach since public
guideline companies were used as the starting point of value. Our starting point in the Asset
and Market Approaches was “As Privately-Held Marketable Control.” Furthermore, since this
valuation is for one-hundred percent (100%) controlling interest, the DLOC and SDLOM were
not used.
Equity Value Indication

(As Freely Traded, Public, Marketable)
x (1- EDLOM)

(As Privately-Held, Marketable, Control)
x (1-DLOC) x (1-SDLOM)

(As Privately-Held, Non-Marketable, Non-Control)
Figure 1
INTRODUCTION Page 8
2.17 Discounts Applied to the Subject
The Subject’s business interest ownership and marketability characteristics were 100.0% As
Privately-Held, Marketable, Controlling. This means that the interest being valued was for one
hundred percent (100%) controlling interest, and was marketable since there was indeed a
private market for controlling interests in privately-held going concerns. This is the reason
neither DLOC nor SDLOM were applied, i.e., for lack of control and for lack of marketability for
a non-controlling interest.
Relative to ABC CONTROL, INC.:
 Enterprise-Level Discount for Lack of Marketability (EDLOM) was soley applied in the
Income Approach. This discount was applied since the guideline companies used in my
cost of equity build-up model had public, marketable ownership characteristics; as such
since my conclusion of value was on a level of value that was not “as freely traded,” this
illiquidity discount was necessary.
For a detailed explanation and calculation of the EDLOM, see sections 20.1 on page 109
and 20.2 on page 114.
 Discount for Lack of Control (DLOC) was not applied.

 Stakeholder-Level Discount for Lack of Marketability (SDLOM) was not applied.
3 OVERVIEW OF THE COMPANY

3.1 Business Activity Overview
ABC CONTROL, INC. is a pest control company operating primarily in Palm Beach and Broward
counties. It operates under the industry code of 561710, Exterminating and Pest Control
Services.
Company has three different product offerings, namely- Pest control, Lawn/Ornamental pest
control, and Termite control. Relative to revenues, Pest control is the most significant, while
Termite is the least significant. Management was not able to provide details as to approximate
percentages of each segment.
The sole shareholder and owner/operator, Mr. John Smith, holds the General Household Pest
(GHP) and Termite certifications under the Florida Pest Control Operator License. Key employee
David Majewski holds both GHP and L&O (Lawn and Ornamental) certifications.
ABC primary customers are residential. The Company had approximately one thousand (1,000)
active customers as of the valuation date.
3.2 History of the Company

 The Company was started by Mr. John Smith and Mr. William Kostun in 1995.
 In 1989, Mr. Kostun transferred his interest (250 shares) in ABC to Mr. Smith. Mr.
Kostun left the Company to form another company. Mr. Kostun took certain service
contracts with him. Mr. Smith did not pay for the acquired shares.
OVERVIEW OF THE COMPANY Page 9

3.3 Corporate Structure
ABC CONTROL, INC. was formed on March 30, 1995 in the state of Florida. It does not operate
as a dba. The Company prepared its financial statements on the accrual basis of accounting,
which recognizes income as it is earned rather than collected and expenses are recognized as
they are incurred rather than when paid.
The Company elected to be taxed as an "S" Corporation under the Internal Revenue Code. As
an “S” Corporation, the Company does not pay federal corporate income taxes on its taxable
income. The taxable income of the Company is proportionately passed to the stakeholders of
the Company. Similar provisions apply for state income tax purposes.
3.4 Management & Employees

3.4.1 Stakeholders/Managers
The Company’s management team is comprised of the following individuals:
1. John Jones (P,D) is a 100.00% shareholder.
a. Roles included:
i. President, Director
ii. General Manager
iii. Scheduling
iv. Answers phone calls
v. Public relations
vi. Quoting
vii. Payables, receivables
b. He worked approximately 40 hours per week
c. Paid a wage of approximately $56,000 in 2014.
i. His salary was adjusted to 0% of sales to match the RMA peer data used
in this report. See Exhibit 7. I did this for two reasons, namely‐ 1) to
match the RMA data, so a proper comparative analysis could be done
and 2) to properly calculate the cost of equity in the Build‐up method
used in the income approaches. Note that this had not effect on value.
d. Mr. Smith was treated as the full‐time equivalent (FTE) owner/operator for
purposes of calculating Discretionary Earnings in the Market Approach.
3.4.2 Non-Stakeholders/Family Members

1. Jane Smith (spouse).
a. Roles included:
i. Absentee; did not participate in the operations of the Company.
ii. Bookkeeping and payroll.
b. Paid a wage of over $700 every other week; $18,200 annually.
i. She was over compensated since she had no working role in the
Company.
ii. Her salary was added back to the discretionary earnings. See Exhibit 7.

3.4.3 Employees
Aside from Mr. and Mrs. Smith, their two daughters worked in the business; their roles were not
critical (clerical) and they were paid a fair wage.
In addition to the family members and managers listed above, there were approximately six (6)
full-time employees; two (2) in the office and four (4) service technicians who operated one (1)
L&O truck and three (3) GHP trucks.
David Robinson is the only key employee. His roles include field and office supervisor and service
technician. According to Mr. Smith, he is his "right hand man" and has a "father/son
relationship." David holds both GHP and L&O (Lawn and Ornamental) certifications. He is a Long-
term employee (10+ yrs.). Paid over $100,000 annually. He does not have a CNTC.
3.5 Capital Structure

3.5.1 Total Invested Capital
The Company’s adjusted book value of current assets was $87,338, which are mainly comprised
of $36,110 in cash, $13,728 in accounts receivables and $0 in inventory.
The Company’s operating tangible property and equipment was mainly comprised of office
equipment and service trucks. The adjusted book value of the tangible property was $31,885.
According to management, all equipment was in Fair condition and well maintained.
3.5.1.1 Debt Capital

Accrued liabilities made up the majority of the current liabilities, which were $176,721. The
largest component was Accrued Liabilites- Prepaid Annual Contracts which were $135,546.
Vehicle Loans made up the majority of the long-term liabilities, which were $63,040.
3.5.1.2 Equity Capital

The common stock made up $500, while Retained Earnings made up the balance of -$82,021.
3.6 Non-operating and Investment Assets

Excess or Non-operating assets represent the value of resources the company has control of but
are not required to operate the business. Examples are excess cash on hand, real estate or
other securities. In my judgment, no excess and non-operating assets needed to be added back.
3.7 Location and Facilities

The Company’s headquarters were located at 1234 Any Street Lane, ANYTOWN, FL 55555.
The business operated out of one building that combined both office and garage space. The
combined square footage is approximately 4,000 sqft.
3.8 Subsidiaries or Affiliates

None.
3.9 Economic Dependence

As of the valuation date, there were no customer or supplier economic dependencies. There
were about one thousand (1,000) active customers, mostly residential. The Company’s largest
customer accounted for approximately five percent (5%) of the overall revenues. The Company
provided three main services, namely- residential pest control (most significant relative to

sales), landscape and ornamental pest control and termite pest control (least significant relative
to sales).
3.10 Growth Limiters

I reviewed industry trends and found that the Company was not impacted by any material
growth limiters such as industry consolidation, limited customer base and technology.
3.11 Other Material Matters Influencing Value

None to my knowledge as of the valuation date.
3.12 Goodwill Allocation and “Double-Dipping”

3.12.1 Goodwill Allocation
In some cases, depending on the purpose and premise of the valuation, as well as local state
laws, it becomes necessary to bifurcate the Goodwill into Personal Goodwill and Business
Goodwill. I refer to the separation and exclusion of the Personal (aka Professional) Goodwill as
the “PGW carve-out.” In this case the PGW was carved out. As a result of this “carve-out,” the
final value was adjusted by $-20,963.
See Exhibit 4B: MULTI-ATTRIBUTE UTILITY MODEL (PGW CARVE-OUT) on page 97.
3.12.2 “Double Dipping” Concept

In many divorce cases if the out-spouse seeks alimony in addition to a portion of the business
interest for asset division purposes, inequities may be created when considering the value of
the business vis-a-vis alimony payments. The idea is based on the premise that the current
value of the business is the present value of future benefit streams (“income”) generated by
that business, i.e., a future income is converted into an asset.
Therefore, to use 100% of the income derived from the business to calculate alimony payments
would be double-counting. In other words, the value of the business (“Asset B”) is calculated
using specific income; if the exact same income is used again to calculate another asset (alimony
payments or “Asset A”), then the business income has been used twice, i.e., in the derivation
of “Asset A” and “Asset B.” Once the income has been used to derive the value in “Asset B” it
should not be used to derive value in any other asset unless there is a distinction between the
income used to derive business value and the income used to derive alimony payments.
In order to avoid using the same business income twice, the business income should be
bifurcated into two components- income used to derive alimony payments and income used to
derive the value of the business. The execption is when the income or market approaches are
not used to accord value. That is, if the Asset Approach is used since that approach does not
use income to derive value, there would be no chance of “double-dipping.”
Among the leading cases addressing the concept of “double-dipping” is Grunfeld v. Grunfeld, 94
N.Y.2d 696 (2000). In Grunfeld, the New York Court of Appeals succinctly identified this concept
by stating:
We agree with the defendant that the Supreme Court [the trial court in New York State]
impermissibly engaged in the “double-counting” of income in valuing [the husband’s]
business, which was equitably distributed as marital property, and in awarding
maintenance to the [wife]… Here, the valuation of the [husband’s] business involved
calculating the [husband’s] projected future excess earnings. Thus, in valuing and
distributing the value of the [husband’s] business, the Supreme Court converted a
certain amount of the [husband’s] projected future income stream into an asset.
However, the Supreme Court also calculated the amount of maintenance to which the
[wife] was entitled based on the [husband’s] total income, which must have included
the excess earnings produced by his business. This was improper. ‘Once a court converts

a specific stream of income to an asset, that income may no longer be calculated into
the maintenance formula and payout.’
Grunfeld, 94 N.Y.2d at 705, citing McSparron v. McSparron, 87 N.Y.2d 275 (1993). See
also Rattee v. Rattee, 767 A.2d 415 (N.H. 2001) (business income exceeding
“reasonable compensation” that was utilized to calculate value of business was properly
disregarded for support calculation purposes, thus avoiding “double-dip”).
For this reason, I reduced the Discretionary Earnings (DE) in the Market Approach and the Net
Income in the Income Approach by $126,909, which was derived from the Florida Occupational
Employment and Wages database; it represents the amount of salary an experienced general
manger could expect while working in the “Services to Building and Dwelling” industry in Florida.
This had a reducing effect on the value of the Company.
See Salaries Adjustments on page 117.
4 APPRAISAL OF ECONOMIC CONDITIONS

4.1 December 2014 National Economic Report
The national economic condition data in this section was sourced from KeyValueData™. The
following bullet points summarize the details found in the full report in APPENDIX G: REPORT
ON NATIONAL ECONOMY on page 158.
To provide guidance in assessing the Company specific risk premium (CSRP) in the Income
Approaches and the derived multiple in the Market Approaches, I shall rely on a Plus/Minus (+/-
) “grading system” where I indicate either a “+” notation or a “-” notation next to each selected
factors. The plus notation indicates that the factor increases the appropriate CSRP, while the
minus notation indicates that the factor decreases the appropriate CSRP. A “0” notation indicates
that the factor is neutral and has no effect on the CSRP. Double or triple notations (e.g., ++ or
---) indicate that the individual factor has a particularly positive or a particularly negative impact
on the ultimate selection of the CSRP. Each plus/minus notation, however, does not represent
one percentage point. Ultimately, the selection of the CSRP is based on my professional
judgment. The measurement of the CSRP is not the mathematical sum of “plus” and “minus”
indications.
Summary
The U.S. economy continued to gain strength during December, although some warning signs
began to emerge. Most notably, the U.S. gross domestic product (GDP), which had exhibited
strong bounce back growth during the second and third quarters, grew more slowly during the
fourth quarter. As reported by the U.S. Commerce Department in its initial estimate for fourth-
quarter GDP growth, the GDP expanded at a seasonally adjusted annual rate of 2.6% in the
October-to-December timeframe, falling well below the 3.1% rate that economists had
expected. In contrast to GDP, the employment picture continued to brighten, as the economy
added 252,000 jobs in December, according to a January 9 report from the U.S. Department of
Labor. The number—which beat economists’ expectations of 240,000 new jobs—represented 58
straight months of private-sector job gains. At the same time, the unemployment rate, which
stood at 6.7% as recently as March, fell from 5.8% in October and November to 5.6% in
December.
Some concerns remain, however. The U.S. national debt continues to grow, having jumped to
$18.141 trillion on December 31, 2014. And while the Federal budget deficit for FY 2014 dropped
for the second year in a row to $483.0 billion—its lowest level in six years—both Federal
spending and taxation once again hit all-time highs. In other areas, on the positive side, the
manufacturing sector expanded for the 19th straight month, auto sales posted their strongest
annual growth since 2006, new-home sales were up, consumer confidence turned positive,
consumer spending accelerated, and consumer prices and gasoline prices continued to slide. On
the negative side, industrial production and existing-home sales fell and retail sales plummeted
after a strong November.
APPRAISAL OF ECONOMIC CONDITIONS Page 13

 Fourth‐Quarter Economic Growth Weaker Than Expected ‐
 Employment Picture Continues to Brighten in December +
 Budget Deficit Dips to Six‐Year Low +
 U.S. National Debt Soars Further Past $18.0 Trillion ‐
 Federal Tax Revenues and Spending Again Set New Records ‐
 Stocks Starts 2015 in Decline ‐
 Industrial Production Falls in December ‐
 Manufacturing Sector Expands Again in December +
 Productivity Rises Again in Third Quarter +
 U.S. Auto Sales Surge in December +
 New‐Home Sales Up, Existing‐Home Sales Down in December ++
 Consumer Confidence Up Strongly ++
 Consumer Spending Accelerates in the Fourth Quarter +
 Retail Sales Plummet in December ‐
 Consumer Prices Decline in December +
 Gasoline Prices Continue Falling +
CONCLUSION
Despite the mixed signs in the national economy there appear to be more positive than negative
signs. Relative to ABC’s business the increase in new home sales may be a key indicator that
should have a positive impact on its future business.
The overall positive indication further confirms that if management continues to efficiently and
properly operate the Company, the national economy should not hinder the Company’s
historical growth trends.
See APPENDIX G: REPORT ON NATIONAL ECONOMY on page 158 for more details.
4.2 Florida Economy as of December 2014

The Florida economic condition data in this section was sourced from PNC Financial Services
Group and The Florida Legislature Office of Economic and Demographic Research. The following
bullet points summarize the details found in the full report in APPENDIX H: REPORT ON FLORIDA
ECONOMY on page 162.
indications.
 Job situation trending positively +
 Income increasing but still below national average ‐
 Housing market expected to normalize +
 Strong population growth expected to drive recovery +
 SE Florida’s economy above‐average performer in 2015, 16 +

 SE Florida expected to outperform national economy +
 Credit Conditions Generally Improving +
 Fewer home mortgages “underwater” +
 Foreclosure Forecast Declining +
 Home Prices Still Low +
CONCLUSION
The Florida economy appeared to be trending positively. Relative to ABC’s business the
improving housing market (residential foreclosure tend down, fewer homes “underwater,”
improving credit conditions, and low home prices may be a key indicators that should have a
positive impact on its future business.
The overall slightly positive indication further confirms that if management continues to
efficiently and properly operate the Company, the state and local economy should not hinder
the Company’s historical growth trends.
See APPENDIX G: REPORT ON NATIONAL ECONOMY on page 158 for more details.

5 INDUSTRY OUTLOOK
5.1 About the Data and My Assessment Process
The industry data in this section was sourced from IBIS World. This section contains a highlights
of the full report found in APPENDIX I: INDUSTRY REPORT on page 163.
Because business valuations are forward-looking, where possible in the sections below where
industry future outlook is discussed or implied based on current conditions relative to the
valuation date, I noted whether a particular set of facts had a Positive (+), Neutral (0), or
Negative (-) effect on the Subject’s value.
indications.
5.2 Industry Classification

The following material is specific to companies with a North American Industry Classification
System (NAICS 1) code of 561710, which is inclusive of Exterminating and Pest Control Services.
0F0F
5.3 Industry at a Glance

The rise of bed bugs across the United States has left homeowners and business owners
frustrated, but has been a boon for the Pest Control industry. As a result of heightened demand
for extermination and prevention services, industry revenue is expected to grow an annualized
3.1% to $12.3 billion in the five years to 2015; this includes an increase of 3.1% in 2015 alone.
While bed bugs were typically confined to hotels and some residences in the past, the creatures
have begun to pop up in unlikely spots, including movie theaters, offices and even clothing
stores. The increased occurrence of these pests has led to substantial demand for pest
exterminators and rising service prices. Furthermore, the more insecticide-resistant strain of
bed bugs has driven operators to research product innovation to deliver solutions to
homeowners and businesses. Heightened demand for bed bug extermination has also caused
the number of industry companies to rise. In the five years to 2015, the number of industry
operators is expected to increase at an annualized rate of 2.7% to 23,988 companies.
Rising demand and service prices have resulted in historically high profit margins for pest control
companies, as average industry margins are expected to account for 8.0% of revenue in 2015.
While profit margins declined slightly during the recession due to rising fuel expenses and price-
based competition, heightened demand for industry services has favorably affected margins
overall and allowed operators to pass on price increases to consumers. Positive (+).
Conditions are expected to further improve over the five years to 2020, with industry revenue
forecast to increase at an average annual rate of 2.9% to $14.3 billion. Increased business and
consumer spending will drive demand for regular inspections for pests. Furthermore, with
1
North American Industry Classification System, a standard system used by business and government to
classify business establishments into 20 industries, according to their economic activity. The US
government developed NAICS to collect, analyze, and publish data about the economy.
INDUSTRY OUTLOOK Page 16

increased income, businesses and consumers will be less likely to opt for cheaper household
products from home and garden stores. Instead, they will favor more effective and expensive
professional exterminating treatments. Housing sales and residential construction are also
expected to rise, further supporting demand for fumigation services. Increasing and changing
pest populations across the United States will characterize the next five years for the Pest
Control industry. In the next five years, the industry is anticipated to grow moderately as the
macroeconomic landscape improves. Positive (++). More specifically, revenue is forecast to
rise at an annualized rate of 2.1% to $166.7 billion from 2015 to 2020, due to growing car sales,
homeownership and employment. Such factors will drive increases in insurance demand that
will stimulate commissions for industry operators. However, the industry will face considerable
pricing pressure from competitors like online carriers, which will keep profit margins from rising
alongside revenue. Negative (-).
5.4 Industry Performance (Current)

5.4.1 Executive Summary Headline
Industry will face considerable pricing pressure from competitors like online carriers. Negative
(-).
5.4.2 Key External Drivers

Per capita disposable income
Pest extermination services are considered a necessary service for most consumers. However,
when per capita disposable income falls, consumers will be more likely to use general pest
control products from home and garden stores instead of more expensive industry services.
Improving employment will lead to per capita disposable income growth in 2015, creating a
potential opportunity for the industry. Positive (+).
Existing Home Sales
Companies in the industry provide fumigation and other pest extermination services for homes
that are put on the market. As the number of homes that are sold increases, demand for industry
services rises. Existing home sales are expected to increase in 2015. Positive (+).
Demand for hotels and motels
Hotels and motels make up a significant source of demand for pest control companies. Due to
health code regulations, these establishments conduct regular inspections to decrease the
occurrence of pest infestations. Furthermore, any sightings of pests can adversely affect a hotel
or motel's reputation. Demand from hotels and motels is expected to increase in 2015. Neutral
since ABC’S main business is residential.
Average annual precipitation
Weather changes have a significant effect on rodent and insect swarm development. When
annual rainfall rises, pests are more likely to move indoors, boosting demand for pest control
services. Average annual precipitation is expected to decrease marginally in 2015, which may
be a potential threat to industry revenue. Negative (-).
5.4.3 Current Performance

The Pest Control industry has unexpectedly experienced steady revenue growth over the past
five years, despite the negative impacts of the recession. With an increasing number of reports
of bed bugs in hotels, homes and even movie theaters, operators experienced a surge in the
number of calls from residential and commercial customers. Furthermore, given the rebound in
the housing market, demand for termite extermination services also began to grow strongly
during this period, propelling a steady industry expansion. In the five years to 2015, revenue is
anticipated to increase at an annualized rate of 3.1% to $12.3 billion, including growth of 3.1%
in 2015.

Rising downstream demand
Demand for industry services partly relies on downstream demand from residential and
commercial construction and sales. Operators provide fumigation and other pest extermination
services for newly constructed homes and older homes waiting to be sold in order to provide
new homeowners with a pest-free environment. For major players such as Rollins, owner of the
Orkin brand, more than 40.0% of company revenue is determined by sales to the residential
market. Therefore, upsurges in housing sales and construction are positively correlated with
increased revenue for pest control companies. According to data sourced from the National
Association of Realtors and IBISWorld estimates, the number of existing homes sold is expected
to rise by an average annual rate of 3.7% in the five years to 2015. Consequently, as household
sales rebounded and construction levels increased, the industry experienced a gradual boost in
demand for its fumigation and pretreatment services.
In addition, as consumer spending and business revenue rebounded after the recession,
residential and commercial customers opted for regular insect and pest inspections offered by
this industry. Moreover, with the bed bug epidemic sweeping the nation, households and
businesses were more willing to spend on pest control services. Accordingly, a rise in higher
value services and overall pest control prices prompted additional industry revenue growth.
Furthermore, in the past five years, a spike in seasonal temperatures bolstered industry revenue
in densely populated markets. Demand for pest extermination services expands during warmer
weather periods and times of increased rainfall. With warmer temperatures, insects reproduce
at a faster rate, decreasing the amount of time between generations and increasing the
prevalence of pests. Conversely, cooler temperatures slow development rates for insects,
decreasing demand for pest extermination services. Positive (+).
High profit margins
During the past five years, average industry profit margins are expected to remain at historic
highs of 8.0% of revenue in 2015. Profit margins for pest control companies have primarily
benefited from rising service prices, which have mitigated any increase in chemical, equipment
and other industry purchase expenses over the five-year period. While pest control companies
had to cope with double-digit increases in fuel prices in 2011, an expedient drop in the price of
crude oil and gasoline in 2014 and 2015 has aided industry operators. Overall, the retail price
of gasoline has declined over the past five years; this drop in fuel prices caused operating
expenses to drop significantly, as exterminators must drive to household and business locations.
Wage costs, however, are expected to increase at an average annual rate of 2.6% to $4.5 billion
in the five years to 2015. Therefore, an increase in industry employment and wage-related costs
have tempered further profit gains.
High profit margins have also attracted new operators to the industry. The number of companies
is expected to increase at an annualized rate of 2.7% to 23,988 operators over the five years
to 2015. The bed bug epidemic has been a partial cause of enterprise growth, with exterminating
being a relatively nondiscretionary service for home and business owners, providing a more
stable stream of demand. Positive (++).
Good night, sleep tight
"Don't let the bed bugs bite" is becoming an all too common refrain among homeowners and
business owners. In the 1950s, bed bugs were largely eradicated in North America and Western
Europe due to the introduction of the insecticide DDT. While the Environmental Protection
Agency's (EPA) ban on DDT in 1972 is a widely cited cause for the current revival in the bed bug
population, many experts agree that increased international travel and the bugs' resistance to
many insecticides are the primary reasons for the resurgence reaching epidemic proportions.
For example, in 2010, New York City's housing agency reported a 5.7% increase in bed bugs.
However, from 2011 onward, the number of reported bed bug infestations in New York City
steadily declined. Nevertheless, bed bug infestations are still a problem in other major cities,
including Chicago, Detroit, Cleveland and Dallas. Furthermore, according to major player Rollins,
cities such as Omaha, NE; Lexington, KY; and Sacramento, CA all experienced double-digit
jumps in bed bug cases in 2014. Overall, the cost for bed bug extermination services is relatively
expensive, ranging from $750.00 for a few rooms to $70,000.00 for large apartment complexes.
Rollins, in its most recent SEC filings, reported revenue related to bed bug exterminations grew

by more than 18.0% in 2014 alone; this growth followed a more than 20.0% increase in bed
bug remediation sales in 2013.
Additionally, bed bug extermination work from past years can translate to consistent streams of
revenue for industry operators. Residential and commercial pest control customers commonly
sign one-year contracts. Therefore, a home or business owner that hired a pest control company
for a prior bed bug infestation may still require additional industry services, such as inspections
and preventative treatments as well as inspections for other pest infestations, including
termites. As a result, a significant share of residential and commercial pest control service
revenue is driven by repeat customers. Positive (+).
Historical Revenue Growth
5.5 Industry Outlook (Forecast)

The Pest Control industry is expected to experience relatively robust growth over the next five
years. IBISWorld forecasts that revenue will increase at an annualized rate of 2.9% to $14.3
billion over the five years to 2020. Strong industry growth will occur partly due to increased
housing sales and residential construction, as well as high levels of bed bug infestations that will
most likely persist over the next five years. Operators provide fumigation and other pest control
services to homes on the market and pretreatment services before homes are built. Therefore,
housing sales and construction are positively correlated with revenue. Also, temperatures are
expected to increase over the next five years, a phenomenon that brings pests indoors and
increases pest populations, driving demand for industry services.
On the commercial side, restaurants and hotels provide strong demand for operators, as they
are strictly regulated by health and safety codes and must maintain pest-free environments.
During the recovery period, the number of restaurants is expected to increase, as consumers
increasingly eat out because of higher discretionary incomes. A greater number of restaurants
in the United States will increase demand for industry services. As a result of this anticipated
increase in pest control demand, the number of companies in the industry is expected to increase
at an annualized 2.7% to 27,387 enterprises in the five years to 2020.
Profit margins are expected to decline slightly over the next five years, from 8.0% in 2015 to
7.3% in 2020, largely due an anticipated rise in pesticide, fuel and wage costs. Although service
prices are forecast to continue increasing, rapidly rising labor expenses will slightly curtail profit
margin growth. Over the next five years, wage costs are anticipated to increase at an average
annual rate of 3.0% to $5.3 billion in 2020. Higher employment in the industry will be the
primary driver behind this increase in total wages. The Bureau of Labor Statistics expects that

the number of pest control workers will increase by more than 25.0% from 2010 to 2020 due
to growing demand for professional pest control, rather than home-use products. Employment
growth is expected to be strongest in the Southeast region due to population growth and the
greater pervasiveness of pests in the region. Positive (+).
5.6 Industry Life Cycle

According to IBIS World, the industry is in the Growing quadrant for the following reasons:
1. Industry value added is forecast to grow faster than the economy as a whole.
2. Demand is increasing for non‐chemical control methods.
3. Concerns about health problems associated with insects and pests are rising.
4. The number of industry operators is growing
I believe this has a Positive (+) affect.
5.6.1 Major Markets

Residential Homes
Residential pest elimination is the largest source of industry revenue, estimated to account for
68.3% of all sales according to the US Census Bureau. Households are major purchasers of
rodent, termite, ant, bed bug and cockroach extermination services. Pest extermination services
are partly tied to the number of homes sold in the United States. Newly sold homes generally
undergo a thorough pest extermination process. Therefore, an increase in the number of homes
sold drives demand for pest extermination services. Conversely, a decline in the number of
houses sold decreases demand for industry services.
According to the latest data released by the National Association of Realtors, from 2010 to 2015,
the number of existing home sales increased at an average annual rate of 3.7%. As such, with
the recent upsurge in the housing market, revenue attributed to residential sales is estimated
to have increased during the five-year period. Positive (++).
Commercial establishments
Commercial pest elimination is estimated to account for 29.4% of industry revenue. Pest
elimination tends to be concentrated among retail, hospitality and food service establishments.
With hospitality and food service establishments facing major state and federal health code
regulations, this segment remains a significant area of demand for industry services. The
recession decreased household expenditure levels, causing consumers to be less likely to eat
out at restaurants or stay in hotels, in an effort to decrease their expenses. This trend brought
about a decline in the number of hotel and food service establishments as their revenue fell.
The closures of these establishments decrease demand for pest elimination services.
Furthermore, companies in the hospitality and food service industry have also caused the
number of treatment services and inspections to decline in their effort to reduce operating
expenses. However, the resurgence of bed bugs has generated increased demand from these
commercial establishments. Neutral (0).

Government institutions
Government institutions such as educational facilities, correctional facilities and federal, state
and local government locations are estimated to account for 2.3% of industry revenue. Revenue
generated from this market is expected to have risen slightly over the past five years, as
enrollment in education facilities expanded during the recession and slow recovery period. The
rising number of dormitories and classrooms has increased demand for pest extermination
services from this sector. Bed bugs are representing larger threats to dormitories in universities,
generating a greater amount of sales from government institutions. Neutral (0).
5.7 Business Locations in Southeast

The Southeast region has the greatest share of industry establishments, estimated to hold
38.7% of the total in 2015. Common pests that turn up in Florida include ants, termites and
cockroaches, as the state has 14.4% of total industry establishments. While termites are found
throughout the United States, termites are more prevalent in the Southeast and the West than
in other regions. Therefore, termites make up a greater percentage of pests that plague the
region compared with northern regions of the United States. The warm weather in the Southeast
region is one of the main reasons for this industry's concentration. However, the high population
density of Atlanta and Miami also increases the industry's establishment concentration, as pest
extermination and control businesses are typically located closer to major consumer markets.
Positive (+).
5.8 Basis of Competition

 Competition in this industry is high and the trend is steady. Negative (‐).
 Barriers to entry in this industry are medium and are increasing. Positive (+).
 Globalization in this industry is low and the trend is increasing. Neutral (0).
5.9 Operating Conditions

 The level of capital intensity is low. Positive (+).
 The level of technology change is medium. Neutral.
 The level of volatility is low. Positive (+).
 The level of regulation is heavy and the trend is increasing. Negative (‐).
 The level of industry assistance is low and the trend is steady. Neutral.
5.10 Conclusion of Industry Impact on Company

First and foremost, while the industry was anticipated to grow greater than the economy in the
next five years beyond the valuation date, as the macroeconomic landscape improved, the
industry was expected to face pricing pressure from increased competition. There were many
more net positive indications in the IBIS World Report. Therefore, my overall assessment is to
add -2% of risk to the CSRP in the Income Approaches and a positive effect on the derived
multiple in the Market Approaches.
Furthermore, this assessment reconciles with the historical sales and earnings trends. For these
reasons, I am confident in the projected benefit streams I used in the Income Approaches and
in the assigned weights to the historical benefit streams in the Market Approaches.
See more details in APPENDIX I: INDUSTRY REPORT on page 163.

6 FINANCIAL STATEMENTS ECONOMIC ADJUSTMENTS
6.1 Company Balance Sheets
6.1.1 Historical Balance Sheets
Year Year Year

Ended Ended Ended
December 31, December 31, December 31,
2012 2013 2014
Assets:
Current Assets
Cash 41,967 50,527 36,110
Accounts Receivable 20,139 22,831 13,728
Inventory
Other Current Assets
Loans to Shareholders 35,000 35,000 35,000
Security Deposits 2,500 2,500 2,500
Employee Loans 370 0 0
Total Other Current Assets 37,870 37,500 37,500
Total Current Assets 99,976 110,858 87,338
Fixed Assets - Net
Fixed Assets - Cost
Machinery & Equipment
Fixtures & Furniture 81 8,903 11,920
Vehicles (Net) 4,937 -6,004 11,985
Leasehold Improvements 7,981
Total Fixed Assets - Cost 5,018 2,898 31,885
Total Fixed Assets - Net 5,018 2,898 31,885
Intangible Assets - Net
Other Non-Current Assets
Total Assets 104,995 113,756 119,223
Liabilities and Equity:

Liabilities
Current Liabilities
Trade Accts Payable 6,640
Payroll Liabilites 11,975 0
Credit Cards Payable 9,402 10,378 5,834
Accrued Expenses 7,122 0
Other Accrued Liabilities 28,368 28,368 28,368
Accrued Liabilites- Prepaid Annual Contracts 123,731 132,679 135,546
Sales Tax Payable 547 385 333
Bell South 0
LOC PNC 0 8,889
Mort., Notes, etc Payable in less than 1 yr. 0 0
Total Current Liabilities 181,145 180,698 176,721
Long-Term Debt
Vehicle Loans 31,119 53,056 63,040
Total Long-Term Debt 31,119 53,056 63,040
Other Non-Current Liabilities
Total Other Non-Current Liabilities 0 0 0
Total Liabilities 212,264 233,754 239,761
Equity
Common Stock 500 500 500
Treasury Stock
Add'l Paid-In Capital
Retained Earnings -107,770 -120,498 -121,039
Total Equity -107,270 -119,998 -120,539
Total Liabilities and Equity 104,995 113,756 119,223
FINANCIAL STATEMENTS ECONOMIC ADJUSTMENTS: Company Balance Sheets Page 22

6.1.2 Common-Sized Historical Balance Sheets
Year Year Year
Ended Ended Ended
2012 2013 2014
Assets:
Current Assets
Cash 39.97% 44.42% 30.29%
Accounts Receivable 19.18% 20.07% 11.51%
Inventory
Loans to Shareholders 33.34% 30.77% 29.36%
Security Deposits 2.38% 2.20% 2.10%
Employee Loans 0.35% 0.00% 0.00%
Total Other Current Assets 36.07% 32.97% 31.45%
Total Current Assets 95.22% 97.45% 73.26%
Fixed Assets - Net
Fixed Assets - Cost
Fixtures & Furniture 0.08% 7.83% 10.00%
Vehicles (Net) 4.70% -5.28% 10.05%
Leasehold Improvements 6.69%
Total Fixed Assets - Cost 4.78% 2.55% 26.74%
Total Fixed Assets - Net 4.78% 2.55% 26.74%
Total Assets 100.00% 100.00% 100.00%

Liabilities
Current Liabilities
Trade Accts Payable 5.57%
Payroll Liabilites 11.41% 0.00%
Credit Cards Payable 8.95% 9.12% 4.89%
Accrued Expenses 6.78% 0.00%
Other Accrued Liabilities 27.02% 24.94% 23.79%
Accrued Liabilites- Prepaid Annual Contracts 117.85% 116.63% 113.69%
Sales Tax Payable 0.52% 0.34% 0.28%
Bell South 0.00%
LOC PNC 0.00% 7.81%
Mort., Notes, etc Payable in less than 1 yr. 0.00% 0.00%
Total Current Liabilities 172.53% 158.85% 148.23%
Long-Term Debt
Vehicle Loans 29.64% 46.64% 52.88%
Total Long-Term Debt 29.64% 46.64% 52.88%
Total Other Non-Current Liabilities 0.00% 0.00% 0.00%
Total Liabilities 202.17% 205.49% 201.10%
Equity
Common Stock 0.48% 0.44% 0.42%
Treasury Stock
Retained Earnings -102.64% -105.93% -101.52%
Total Equity -102.17% -105.49% -101.10%
Total Liabilities and Equity 100.00% 100.00% 100.00%
FINANCIAL STATEMENTS ECONOMIC ADJUSTMENTS: Company Balance Sheets Page 23

6.1.3 Liquidation Value
The Company’s reported liquidation value at the date of the valuation was $-151,000. Listed
below, I identified adjustments that were required to restate stakeholders’ equity and reflect
the liquidation asset value of the Company.
The assumption was that all accounts receivables 90% collectable and the value of all fixed
assets were marked down to 10% of net book value.
6.1.4 Adjusted Book Value (Going Concern)

The Company’s reported book value at the date of valuation was $-121,000. Listed below, in
“Adjustments to the Balance Sheet” section, I identified adjustments that were required to
restate stakeholders’ equity and reflect the adjusted net book value of the Company as $-
120,539.
6.1.5 Adjustments to the Balance Sheets

Normalization adjustments are required to adjust the historical balance sheets, so that they are
representative of a normal condition as of the valuation date.
Often adjustments must be made to a company’s balance sheets to arrive at a more accurate
picture of fair market value which is essential to properly depict a consistent set of operating
data for analysis, including ratio analysis (comparison and trend). Typical adjustments include
those that eliminate unusual entries, inflated or deflated items, extraordinary items, non-
operating assets or liabilities, incorrectly categorized items, and other assets or liabilities that
may understate or overstate the reported results of normal operations.
In the context of this report, I shall refer to three categories of adjustments, namely- Category
1, Category 2, or Category 3 (CAT1, CAT2 and CAT3, respectively); more specifically, relating
to the balance sheets:
CAT1 typical adjustments include those that adjust assets or liabilities to fair market value
(FMV). Examples could include removal of uncollectable accounts receivables, adjusting
equipment values to FMV, or converting inventory 2 from LIFO to FIFO to estimate FMV. These
1F1F
particular adjustments proportionately change the Company’s equity value. Example: When
adjusting up the value of a particular piece of equipment to fair market value (FMV), the equity
value of the Company would increase proportionately.
CAT2 are those adjustments that are of a controlling or discretionary in nature; these
particular adjustments shall have no effect on the Company’s equity value, but are separated
and noted as “excess or non-operating assets or liabilities.” Example: The Company owns a
building from which it leases space; that building could be a non-operating asset if owning the
building is not necessary, i.e., versus leasing out a similar space from a third party property
owner. Another example is if the Company has excess cash according to discussions with
management and comparison with RMA peer data.
CAT3 are re-categorized items that are moved from one asset or liability category to another
asset, liability or equity category within the balance sheet. Only when these particular
adjustments include re-categorizing from an asset or liability to equity, there is a
proportionately equal, or equal and opposite, change the equity value of the Company;
example: re-categorizing a non-bona fide 3 stakeholder loan to the Company from a liability
2F2F
category to retained earnings shall reduce liabilities, but increase equity.
2
If the company is using the FIFO (first in, first out) method of inventory, then one may utilize the book
value as a proxy for the fair value. If the company is using the LIFO (last in, first out) method of inventory,
then one must add the LIFO reserve to conclude at a rough approximation of the FIFO value.
3
Bona fide would indicate that terms were negotiated at arm’s length, reasonable interest rate charged,
payments are being made to repay, ability to pay back possible, etc. There must be evidence that the
note is a bona fide note, not an owner’s capital contribution.
FINANCIAL STATEMENTS ECONOMIC ADJUSTMENTS Page 24

6.1.6 Balance Sheets Detailed Adjustments
The following adjustments were made to the balance sheets:
See EXHIBIT 1: BALANCE SHEETS on page 68 for details of each year’s Balance Sheet
adjustments.
6.1.6.1 Category 1 Adjustments

I made NO CAT1 adjustments.

I made NO CAT2 Adjustments.


6.1.7 Adjusted Historical Balance Sheets
Adjusted Year Adjusted Year Adjusted Year
Ended Ended Ended

2012 2013 2014
Assets:
Current Assets
Cash 41,967 50,527 36,110
Accounts Receivable 20,139 22,831 13,728
Inventory
Loans to Shareholders 35,000 35,000 35,000
Security Deposits 2,500 2,500 2,500
Employee Loans 370 0 0
Total Other Current Assets 37,870 37,500 37,500
Total Current Assets 99,976 110,858 87,338
Fixed Assets - Net
Fixed Assets - Cost 0
Fixtures & Furniture 81 8,903 11,920
Vehicles (Net) 4,937 -6,004 11,985
Leasehold Improvements 7,981
Total Fixed Assets - Cost 5,018 2,898 31,885
Total Fixed Assets - Net 5,018 2,898 31,885
Total Assets 104,995 113,756 119,223

Liabilities
Current Liabilities
Trade Accts Payable 6,640
Payroll Liabilites 11,975 0
Credit Cards Payable 9,402 10,378 5,834
Accrued Expenses 7,122 0
Other Accrued Liabilities 28,368 28,368 28,368
Accrued Liabilites- Prepaid Annual Contracts 123,731 132,679 135,546
Sales Tax Payable 547 385 333
Bell South 0
LOC PNC 0 8,889
Total Current Liabilities 181,145 180,698 176,721
Long-Term Debt
Vehicle Loans 31,119 53,056 63,040
Total Long-Term Debt 31,119 53,056 63,040
Total Liabilities 212,264 233,754 239,761
Equity
Common Stock 500 500 500
Treasury Stock
Retained Earnings -107,770 -120,498 -121,039
Total Equity -107,270 -119,998 -120,539
Total Liabilities and Equity 104,995 113,756 119,223

6.1.8 Common-Sized Adjusted Historical Balance Sheets
Year Year Year
Ended Ended Ended
2012 2013 2014
Assets:
Current Assets
Cash 39.97% 44.42% 30.29%
Accounts Receivable 19.18% 20.07% 11.51%
Inventory
Loans to Shareholders 33.34% 30.77% 29.36%
Security Deposits 2.38% 2.20% 2.10%
Employee Loans 0.35% 0.00% 0.00%
Total Other Current Assets 36.07% 32.97% 31.45%
Total Current Assets 95.22% 97.45% 73.26%
Fixed Assets - Net
Fixed Assets - Cost 0.00%
Fixtures & Furniture 0.08% 7.83% 10.00%
Vehicles (Net) 4.70% -5.28% 10.05%
Leasehold Improvements 6.69%
Total Fixed Assets - Cost 4.78% 2.55% 26.74%
Total Fixed Assets - Net 4.78% 2.55% 26.74%
Total Assets 100.00% 100.00% 100.00%

Liabilities
Current Liabilities
Trade Accts Payable 5.57%
Payroll Liabilites 11.41% 0.00%
Credit Cards Payable 8.95% 9.12% 4.89%
Accrued Expenses 6.78% 0.00%
Other Accrued Liabilities 27.02% 24.94% 23.79%
Accrued Liabilites- Prepaid Annual Contracts 117.85% 116.63% 113.69%
Sales Tax Payable 0.52% 0.34% 0.28%
Bell South 0.00%
LOC PNC 0.00% 7.81%
Mort., Notes, etc Payable in less than 1 yr. 0.00% 0.00%
Total Current Liabilities 172.53% 158.85% 148.23%
Long-Term Debt
Vehicle Loans 29.64% 46.64% 52.88%
Total Long-Term Debt 29.64% 46.64% 52.88%
Total Other Non-Current Liabilities 0.00% 0.00% 0.00%
Total Liabilities 202.17% 205.49% 201.10%
Equity
Common Stock 0.48% 0.44% 0.42%
Treasury Stock
Retained Earnings -102.64% -105.93% -101.52%
Total Equity -102.17% -105.49% -101.10%
Total Liabilities and Equity 100.00% 100.00% 100.00%

6.2 Company Statements of Operations
6.2.1 Historical Statements of Operations
2012 2013 2014
Revenues
Sales 674,919 779,774 836,146
Total Revenues 674,919 779,774 836,146
Cost of Goods Sold
Inventory at beginning of year (+) 0 51,224 0
Purchases 44,864 0 58,940
Direct Labor 0 0 0
Add'l Section 263A Costs 0 5,556 3,611
Other COGS 0 0 0
Inventory at end of year (-) 0 0 0
COGS Depreciation 0 0 0
Total Cost of Goods Sold 44,864 56,780 62,551
Gross Profit 630,055 722,994 773,595
Operating Expenses
Officers' Compensation 55,240 52,176 56,354
Salaries 0 0 0
Repairs & Maintenance 7,952 15,213 16,159
Rent 15,900 15,844 15,900
Taxes & Licenses 2,746 2,149 2,273
Depreciation 5,881 2,120 34,736
Advertising 27,686 9,575 11,702
Automobiles 45,604 33,776 39,040
Credit Card Fees 6,597 6,957 10,689
Equipment Rental 36 8,315 8,340
Bank Charges 239 141 12
Bad Debt 4,692 366 1,916
Referral Expense 300 0 230
Internet 1,518 520 410
Insurance 17,609 18,137 20,585
Security 509 509 509
Legal & Professional 4,305 5,414 4,994
Office Expense 9,728 6,901 9,703
Printing 2,480 827 666
Tolls 905 935 1,403
Postage & Delivery 726 1,685 1,869
Employee Leasing 258,299 286,324 319,370
Dues & Sub. 1,179 1,774 1,308
Uniforms 3,857 2,806 2,675
Computer Expense- Pest Pac 2,240 14,393 8,126
Other Expense 3,006 7,456 1,227
Telephone 14,476 8,551 7,842
Meals & Ent. 1,476 949 937
Utilities 6,649 5,735 5,899
Travel 1,000 1,229 40
Professional Development 386 0 0
Other Misc. 8 50 0
Total Operating Expenses 503,229 510,827 584,914
Operating Profit 126,826 212,167 188,681
Other Income/(Expense)
Interest Expense (-) -4,111 -858 -5,968
Other Income (+) 0 187 0
Capital Gain Net Income (Loss) 0 0 0
Net Gain from Form 4797 0 6,000 31
Total Other Income/(Expense) -4,111 5,329 -5,937
Net Income/(Loss) 122,715 217,496 182,744

6.2.2 Common-Sized Historical Statements of Operations
Year Year Year
Ending Ending Ending
2012 2013 2014
Revenues
Sales 100.00% 100.00% 100.00%
Total Revenues 100.00% 100.00% 100.00%
Cost of Goods Sold
Inventory at beginning of year (+) 0.00% 6.57% 0.00%
Purchases 6.65% 0.00% 7.05%
Direct Labor 0.00% 0.00% 0.00%
Add'l Section 263A Costs 0.00% 0.71% 0.43%
Other COGS 0.00% 0.00% 0.00%
Inventory at end of year (-) 0.00% 0.00% 0.00%
COGS Depreciation 0.00% 0.00% 0.00%
Total Cost of Goods Sold 6.65% 7.28% 7.48%
Gross Profit 93.35% 92.72% 92.52%
Operating Expenses
Officers' Compensation 8.18% 6.69% 6.74%
Salaries 0.00% 0.00% 0.00%
Repairs & Maintenance 1.18% 1.95% 1.93%
Rent 2.36% 2.03% 1.90%
Taxes & Licenses 0.41% 0.28% 0.27%
Depreciation 0.87% 0.27% 4.15%
Advertising 4.10% 1.23% 1.40%
Automobiles 6.76% 4.33% 4.67%
Credit Card Fees 0.98% 0.89% 1.28%
Equipment Rental 0.01% 1.07% 1.00%
Bank Charges 0.04% 0.02% 0.00%
Bad Debt 0.70% 0.05% 0.23%
Referral Expense 0.04% 0.00% 0.03%
Internet 0.22% 0.07% 0.05%
Insurance 2.61% 2.33% 2.46%
Security 0.08% 0.07% 0.06%
Legal & Professional 0.64% 0.69% 0.60%
Office Expense 1.44% 0.89% 1.16%
Printing 0.37% 0.11% 0.08%
Tolls 0.13% 0.12% 0.17%
Postage & Delivery 0.11% 0.22% 0.22%
Employee Leasing 38.27% 36.72% 38.20%
Dues & Sub. 0.17% 0.23% 0.16%
Uniforms 0.57% 0.36% 0.32%
Computer Expense- Pest Pac 0.33% 1.85% 0.97%
Other Expense 0.45% 0.96% 0.15%
Telephone 2.14% 1.10% 0.94%
Meals & Ent. 0.22% 0.12% 0.11%
Utilities 0.99% 0.74% 0.71%
Travel 0.15% 0.16% 0.00%
Professional Development 0.06% 0.00% 0.00%
Other Misc. 0.00% 0.01% 0.00%
Total Operating Expenses 74.56% 65.51% 69.95%
Operating Profit 18.79% 27.21% 22.57%
Interest Expense (-) -0.61% -0.11% -0.71%
Other Income (+) 0.00% 0.02% 0.00%
Capital Gain Net Income (Loss) 0.00% 0.00% 0.00%
Net Gain from Form 4797 0.00% 0.77% 0.00%
Total Other Income/(Expense) -0.61% 0.68% -0.71%
Net Income/(Loss) 18.18% 27.89% 21.86%

6.2.3 Adjustments to the Statement of Operations
Normalizing adjustments to ABC‘s statement of operations were necessary. First of all,
adjustments were made to the company’s income statements to arrive at a more accurate
picture of fair market value and long-term normal earnings capacity, which are essential to
properly depicting a consistent set of operating data for analysis, including ratio analysis
(comparison and trend).
Secondly, ABC‘s benefit stream should be matched as closely as possible to that of the guideline
companies used to derive its value. For instance, if public guideline companies were used as the
basis of the cost of equity calculation in the Income Approach utilized to derive ABC‘s value, it
would be inappropriate to use a benefit stream that is not becoming of a public company. In
other words, public company management does not have the flexibility or “control” that a
closely-held, private company majority stakeholder may enjoy. For instance, actual
compensation in a closely-held entity tends to be based on affordability, family dynamics, and
other discretionary choices rather than the economic value of the services that are provided to
the company; a controlling stakeholder in ABC may choose to increase her salary as high as
possible, or she may choose to purchase life insurance for her entire family. However, if ABC
were a public company, these perks would not be possible. Moreover, along similar lines, if
private guideline companies were used as the basis of Discretionary Earnings calculations in the
Market Approach utilized to derive ABC‘s value, then the benefit stream should be adjusted in a
manner to include all “discretionary” or “control” adjustments.
In the context of this report, I shall refer to three categories adjustments, namely- Category 1,
Category 2, or Category 3 (CAT1, CAT2 and CAT3, respectively); more specifically, relating to the
Statements of Operations:
CAT1 typical adjustments include those that eliminate non-recurring gains or losses, unusual
entries, inflated or deflated items, extraordinary items, expenses or income generated from
non-operating assets, and other income or expenses that may understate or overstate the
reported results of normal operations; these particular adjustments proportionately change
the Net Income. Example: When a one-time sale of an item generated from an unusual
circumstance is removed from sales, the net income would decrease proportionately.
CAT2 are those adjustments that are of a controlling or discretionary in nature; these
particular adjustments are merely a proportional re-categorization to/from the Net Income.
Example: Officer in a corporation pays herself a salary that is low for that particular industry
in which the company operates. In this case, for instance per RR 59-60, section 4.02 (d), I
may increase her salary to match industry peer values assimilated from the department of
labor or RMA data; this increase to Officer Compensation would proportionally decrease the
Net Income.
CAT3 are re-categorized items that are moved from one expense category to another expense
category within the statement of operations; these particular adjustments have no effect on
the Net Income. Example: Officer’s Compensation (OC) that is stated as Salaries & Wages
(SW). Re-categorizing it from SW to OC would be an equal and opposite adjustment that
would have no effect on Net Income.

6.2.4 Statements of Operations Detailed Adjustments
The following adjustments were made to the statements of operations:
See EXHIBIT 2: INCOME STATEMENTS on page 73 and Adjusted Historical Statements of
Operations on page 32 for details of each year’s adjustments.

I made NO CAT1 adjustments.

I made the following CAT2 Adjustments:
1. Employee salaries were adjusted to reflect fair market value. Jane Smith was paid a
wage even though she did not participate in the business operations.
See EXHIBIT 7: ADJUSTMENTS TO SALARIES AND WAGES on page 116.

1. Adjusted Mr. Smith’s wages to match RMA.

6.2.5 Adjusted Historical Statements of Operations
Year Year Year
2012 2013 2014
Revenues
Sales 674,919 779,774 836,146
Total Revenues 674,919 779,774 836,146
Cost of Goods Sold
Inventory at beginning of year (+) 0 51,224 0
Purchases 44,864 0 58,940
Direct Labor 0 0 0
Add'l Section 263A Costs 0 5,556 3,611
Other COGS 0 0 0
Inventory at end of year (-) 0 0 0
COGS Depreciation 0 0 0
Total Cost of Goods Sold 44,864 56,780 62,551
Gross Profit 630,055 722,994 773,595
Operating Expenses
Officers' Compensation 0 0 0
Salaries 0 0 0
Repairs & Maintenance 7,952 15,213 16,159
Rent 15,900 15,844 15,900
Taxes & Licenses 2,746 2,149 2,273
Depreciation 5,881 2,120 34,736
Advertising 27,686 9,575 11,702
Automobiles 45,604 33,776 39,040
Credit Card Fees 6,597 6,957 10,689
Equipment Rental 36 8,315 8,340
Bank Charges 239 141 12
Bad Debt 4,692 366 1,916
Referral Expense 300 0 230
Internet 1,518 520 410
Insurance 17,609 18,137 20,585
Security 509 509 509
Legal & Professional 4,305 5,414 4,994
Office Expense 9,728 6,901 9,703
Printing 2,480 827 666
Tolls 905 935 1,403
Postage & Delivery 726 1,685 1,869
Employee Leasing 240,099 268,124 301,170
Dues & Sub. 1,179 1,774 1,308
Uniforms 3,857 2,806 2,675
Computer Expense- Pest Pac 2,240 14,393 8,126
Other Expense 3,006 7,456 1,227
Telephone 14,476 8,551 7,842
Meals & Ent. 1,476 949 937
Utilities 6,649 5,735 5,899
Travel 1,000 1,229 40
Professional Development 386 0 0
Other Misc. 8 50 0
Total Operating Expenses 429,789 440,451 510,360
Interest Expense (-) -4,111 -858 -5,968
Other Income (+) 0 187 0
Capital Gain Net Income (Loss) 0 0 0
Net Gain from Form 4797 0 6,000 31
Total Other Income/(Expense) -4,111 5,329 -5,937
Net Income/(Loss) 196,155 287,872 257,298

6.2.6 Common-Sized Adjusted Historical Statements of Operations
Year Year Year
2012 2013 2014
Revenues
Sales 100.00% 100.00% 100.00%
Total Revenues 100.00% 100.00% 100.00%
Cost of Goods Sold
Inventory at beginning of year (+) 0.00% 6.57% 0.00%
Purchases 6.65% 0.00% 7.05%
Direct Labor 0.00% 0.00% 0.00%
Add'l Section 263A Costs 0.00% 0.71% 0.43%
Other COGS 0.00% 0.00% 0.00%
Inventory at end of year (-) 0.00% 0.00% 0.00%
COGS Depreciation 0.00% 0.00% 0.00%
Total Cost of Goods Sold 6.65% 7.28% 7.48%
Gross Profit 93.35% 92.72% 92.52%
Operating Expenses
Officers' Compensation 0.00% 0.00% 0.00%
Salaries 0.00% 0.00% 0.00%
Repairs & Maintenance 1.18% 1.95% 1.93%
Rent 2.36% 2.03% 1.90%
Taxes & Licenses 0.41% 0.28% 0.27%
Depreciation 0.87% 0.27% 4.15%
Advertising 4.10% 1.23% 1.40%
Automobiles 6.76% 4.33% 4.67%
Credit Card Fees 0.98% 0.89% 1.28%
Equipment Rental 0.01% 1.07% 1.00%
Bank Charges 0.04% 0.02% 0.00%
Bad Debt 0.70% 0.05% 0.23%
Referral Expense 0.04% 0.00% 0.03%
Internet 0.22% 0.07% 0.05%
Insurance 2.61% 2.33% 2.46%
Security 0.08% 0.07% 0.06%
Legal & Professional 0.64% 0.69% 0.60%
Office Expense 1.44% 0.89% 1.16%
Printing 0.37% 0.11% 0.08%
Tolls 0.13% 0.12% 0.17%
Postage & Delivery 0.11% 0.22% 0.22%
Employee Leasing 35.57% 34.38% 36.02%
Dues & Sub. 0.17% 0.23% 0.16%
Uniforms 0.57% 0.36% 0.32%
Computer Expense- Pest Pac 0.33% 1.85% 0.97%
Other Expense 0.45% 0.96% 0.15%
Telephone 2.14% 1.10% 0.94%
Meals & Ent. 0.22% 0.12% 0.11%
Utilities 0.99% 0.74% 0.71%
Travel 0.15% 0.16% 0.00%
Professional Development 0.06% 0.00% 0.00%
Other Misc. 0.00% 0.01% 0.00%
Total Operating Expenses 63.68% 56.48% 61.04%
Operating Profit 29.67% 36.23% 31.48%
Interest Expense (-) -0.61% -0.11% -0.71%
Other Income (+) 0.00% 0.02% 0.00%
Capital Gain Net Income (Loss) 0.00% 0.00% 0.00%
Net Gain from Form 4797 0.00% 0.77% 0.00%
Total Other Income/(Expense) -0.61% 0.68% -0.71%
Net Income/(Loss) 29.06% 36.92% 30.77%

6.2.7 Net Income to Adjusted Net Income Reconciliation
Year Year Year
2012 2013 2014
Historic Net Income (Loss) 122,715 217,496 182,744
Officers' Compensation 1,1,1 55,240 52,176 56,354
Employee Leasing 2,2,2 18,200 18,200 18,200
Adjusted Net Income 196,155 287,872 257,298
Year Ending December 31, 2012

(1) - CAT3: Recat to NI to match RMA
(2) - CAT2: Removed Mrs. Jones' pay since she was absentee.



7 COMPANY FINANCIAL POSITION VS. PEERS
7.1 Analytical Process
As part of my review process, I reviewed the financial position and performance of the Company over
the relevant period of analysis. This review entailed an analysis of the Company’s current financial
statements in comparison with prior years and in comparison with industry norm statistics. My
analysis was supplemented by detailed discussions with management that enhanced my
understanding of the business reasons for changes in the financial statements. Results of this
analysis, which have valuation implications are discussed at the appropriate point in the valuation
section of this report.
7.2 Industry Group Analysis

Typically, the analysis of the financial position and performance of a company consists of a review of
the trends of that company and a comparison with industry peer companies. For purposes of
comparison with industry financial measures available from non-public company sources, I reviewed
the Annual Statement Studies, published by The Risk Management Association (RMA). RMA is an
association of thousands of commercial banks and other institutions that compile financial statements
of companies classified under various industry codes.
For this report, I used RMA compiled average percentage income statement and balance sheets and
key financial ratios of companies classified under North American Industry Classification System
(NAICS) # 561710. The selected RMA group includes between fourteen (14) and eighteen (18)
companies; region including entire US; the industry subset was based on sales between $0 to $1MM.
I believe the RMA data provides limited comparative perspective and strict comparisons should be
made with caution.
7.3 Ratio Groups Considered

In the following sections, various financial statement items of ABC CONTROL, INC. were compared to
RMA’s Annual Statement Studies median quartile data. The results of the comparison was ultimately
used to quantify increases or decreases in unsystematic risk, which in turn contributed to decreases
or increases in ABC CONTROL, INC.‘s value.
To provide guidance in assessing the Company specific risk premium (CSRP) in the Income Approaches
and the derived multiple in the Market Approaches, I rely on a quantitative “grading system.” Using
this method, I assign either a minus five-tenth percent (-0.5%) or a minus one percent (-1%) for
increases in risk, while I assign a five-tenth percent (+0.5%) or a one percent (1%) for decreases
in risk; this system recognizes positive and negative aspects of the business. Using my judgement
and drawing from past experiences, the importance of each metric dictates whether I use ±0.5% or
±1.0%. For example, I use ±1.0% for Gross Profit Margins vs. ±0.5% for Current Ratio. In some
situations, certain ratios are not relevant, unreliable, inconclusive, or not applicable; in such cases a
zero percent (0%) is applied.
The ratio groups considered were Liquidity, Coverage and Operating Ratios.
COMPANY FINANCIAL POSITION VS. PEERS Page 35

7.3.1 Liquidity Ratios Comparison
In comparing ABC CONTROL, INC.’s liquidity ratios to the RMA data for periods 2012 through 2014,
the following differences were evident:
1. The Company’s Current Ratios were worse than RMA; consistently in lower P-Tile than RMA
2. The Company’s Quick Ratios were worse than RMA; consistently in lower P-Tile than RMA
3. The Company’s Days Receivables were inconclusive
4. The Company’s Inventory Turns were inconclusive
5. The Company’s Days Payable were inconclusive
6. The Company’s Working Capital Turnover was inconclusive
The overall slightly negative indications added 1% of premium to the Company specific risk
premium (CSRP) in the Build-up Method of the Income Approach. This had a decreasing affect to
the multiple in the Market Approach.

7.3.2 Operating Ratios Comparison
In comparing various Operating ratios to the RMA data, several differences were evident:
1. The Company’s Gross Profit Margins were inconclusive
2. The Company’s Total Asset Turnover was better than RMA; consistently in higher P-Tile
than RMA
3. The Company’s EBT/Tangible Worth was inconclusive
4. The Company’s EBT/Total Assets were inconclusive
5. The Company’s Fixed Asset Turnover was better than RMA; consistently in higher P-Tile
than RMA
The overall slightly positive indications added -1% of premium to the Company specific risk
premium (CSRP) in the Build-up Method of the Income Approach. This had an increasing affect
to the multiple in the Market Approach.

7.3.3 Leverage Ratios Comparison
In comparing various financial risk ratios to the RMA data, several differences were evident:
1. The Company’s Interest Coverage Ratios were better than RMA; consistently in higher P-
Tile than RMA
2. The Company’s Fixed Assets/Tangible Worth were worse than RMA; consistently in
higher P-Tile than RMA. Company generates more sale with fewer assets.
3. The Company’s Total Debt-to-Tangible Net Worth was better than RMA; consistently in
lower P-Tile than RMA.
4. The Company’s Total Debt-to-Equity was better than RMA; consistently in lower P-Tile
than RMA. Company’s assets are funded mostly by Equity Capital.
The overall positive indications added -1% of premium to the Company specific risk premium
(CSRP) in the Build-up Method of the Income Approach. This had an increasing affect to the
multiple in the Market Approach.

7.4 Summary of Comparative Analysis
‐1.0 RMA Historical Comparative Analysis: +1 (increase risk), 0 (neutral), or ‐1 (decrease risk)
Liquidity Ratios Comparative Analysis
Current Ratio 0.5 worse than RMA; consistently in lower P‐Tile than RMA
Quick Ratio (Acid Test Ratio) 0.5 worse than RMA; consistently in lower P‐Tile than RMA
Day's Receivables I/C inconclusive
Day's Inventory I/C inconclusive
Day's Payables I/C inconclusive
Sales to Working Capital (WC Turnover) I/C inconclusive
Operating Ratios Comparative Analysis
Gross Profit Margin I/C inconclusive
Earning Before Taxes (EBT) to Tangible Worth I/C inconclusive
Earning Before Taxes (EBT) to Total Assets I/C inconclusive
Fixed Asset Turnover ‐0.5 better than RMA; consistently in higher P‐Tile than RMA
Total Asset Turnover ‐0.5 better than RMA; consistently in higher P‐Tile than RMA
Leverage Ratios Comparative Analysis
Interest Coverage Ratio (Times Interest Earned Ratio) ‐0.5 better than RMA; consistently in higher P‐Tile than RMA
Fixed Assets to Tangible Worth 0.5 worse than RMA; consistently in higher P‐Tile than RMA
Debt‐to‐Tangible Net Worth ‐0.5 better than RMA; consistently in lower P‐Tile than RMA
Debt‐to‐Equity ‐0.5 better than RMA; consistently in lower P‐Tile than RMA
The overall positive factors exceeded the negative factors by 1. Therefore, the overall impact to the Company specific risk premium (CSRP) in the Build-
up Method of the Income Approach was negative one percent (-1.0%) Premium. Furthermore, this had an overall positive affect on the multiple used in
the Market Approach.
See EXHIBIT 3: COMPARATIVE ANALYSIS DETAILS on page 78 for numerical and supplemental data.

8 COMPANY FINANCIAL TRENDS ANALYSIS
8.1 Overview
The financial review of the Company included the trends analysis of the Company’s tax returns
balance sheets, cash flow statements, and statements of operations for the fiscal years ending
December 31, 2012 through December 31, 2014, the valuation date.
In my opinion, based on the Company’s business cycle, the three (3) year period covered in this
analysis was adequate to identify important existing financial and operational trends that
affected my opinion of value. Included in this report are various summaries of financial data
(as adjusted) that were generated in the analysis. The following comments are what I
considered representative of the financial position and results of operations of as of the date of
valuation for the period analyzed.
8.2 Financial Statements Parameters Considered

The following are trends analysis highlights of the Subject Company’s balance sheets and
statements of operations leading up to the date of valuation. To provide guidance in assessing
the Company specific risk premium (CSRP) in the Income Approaches and the derived multiple
in the Market Approaches, I rely on a quantitative “grading system.” Using this method, I assign
either a minus five-tenth percent (-0.5%) or a minus one percent (-1%) for increases in risk,
while I assign a five-tenth percent (+0.5%) or a one percent (1%) for decreases in risk; this
system recognizes positive and negative aspects of the business. Using my judgement and
drawing from past experiences, the importance of each metric dictates whether I use ±0.5% or
±1.0%. For example, I use ±1.0% for Gross Profit Margins vs. ±0.5% for Current Ratio. In some
situations, certain ratios are not relevant, unreliable, inconclusive, or not applicable; in such
cases a zero percent (0%) is applied.
The balance sheet parameters considered were liquidity, coverage and operating ratios. The
statements of operations parameters considered were revenue, gross margins, operating
expenses, net income, and discretionary earnings. Finally, historical trends in the Company’s
cash flow statements were considered.
COMPANY FINANCIAL TRENDS ANALYSIS Page 40

8.3 Balance Sheet Trends
8.3.1 Liquidity Ratio Trends
As of December 31, 2014, the valuation date, ABC CONTROL, INC.’s balance sheets liquidity
ratios appeared to have been flat:
1. The Company’s Current and Quick Ratios were Flat
2. The Company’s Days Receivables were Flat
3. The Company’s Days to turn Inventory Days were inconclusive
4. The Company’s Days Payable trends were inconclusive
5. The Company’s Working Capital Turnover was inconclusive
The overall indication was to add 0% of risk to the Company specific risk premium (CSRP) in
the Build-up Method of the Income Approach. This had no effect to the multiple in the Market
Approach.

8.3.2 Leverage Ratio Trends
As of December 31, 2014, the valuation date, ABC CONTROL, INC.’s balance sheets coverage
ratios appeared flat:
1. The Company’s Interest Coverage Ratio was Flat.
2. The Company’s Fixed Assets/Tangible Worth was Flat
3. The Company’s Debt-to-Tangible Net Worth was Flat; the Company is very little debt.
4. The Company’s Debt-to-Equity was Flat
The overall indication was to add 0% of premium to the Company specific risk premium (CSRP)
in the Build-up Method of the Income Approach. This had no effect to the multiple in the Market
Approach.

8.4 Statement of Operations Trends
8.4.1 Multi-Growth Adjusted Statements of Operations
1 Year 2 Years
Compound Annual 2012-2013 2012-2014
Revenue 15.54% 11.31%

Cost of Goods 26.56% 18.08%
Gross Profit 14.75% 10.81%
Operating Expenses 2.48% 8.97%
Operating Profit 41.08% 14.65%
Other Income/Expense N/A 20.17%
Pretax Income 46.76% 14.53%
Taxes N/A N/A
Net Income 46.76% 14.53%
EBIT 47.10% 15.85%

EBITDA 48.18% 23.26%
Annual 2012-2013 2013-2014
Revenue 15.54% 7.23%

Cost of Goods 26.56% 10.16%
Gross Profit 14.75% 7.00%
Operating Expenses 2.48% 15.87%
Operating Profit 41.08% -6.83%
Other Income/Expense N/A N/A
Pretax Income 46.76% -10.62%
Taxes N/A N/A
Net Income 46.76% -10.62%
EBIT 44.08% -8.76%

EBITDA 41.00% 2.52%
Growth Ratios Based On Adjusted Income Statements
As of December 31, 2014, the valuation date, ABC CONTROL, INC.’s statements of operations
ratios were trending upward:
1. The Company’s Revenue trend was Positively Trending Upward. Revenues are
increasing at a declining rate.
2. The Company’s Gross Profit Margin was Flat
3. The Company’s Operating Expenses were Negatively Trending Upward
4. The Company’s Net Income was Positively Trending Upward
5. The Company’s Discretionary Earnings were Positively Trending Upward
The overall indication was to add -2% of premium to the Company specific risk premium (CSRP)
in the Build-up Method of the Income Approach. This had an increasing affect to the multiple in

8.4.1.1 Adjusted Benefit Streams Graph
Adjusted Benefit Stream
350,000
298,002
300,000 290,663
250,000
206,147
200,000
150,000
100,000
73,440
50,000
0
December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014
Pretax Income After Tax Income EBIT EBITDA Linear (EBITDA)
350,000
Income
300,000 288,543
263,266
250,000
200,266
200,000 171,093
163,754
150,000
100,000 79,238
50,000
0 0 0
0
Debt Free Pretax Income Officer's Compensation (Adjusted to 1FTE) Seller's Discretionary Earnings
Year Year Year

Ending December 31, 2012 Ending December 31, 2013 Ending December 31, 2014

8.4.1.2 Multi-Year Growth Adjusted Statement of Operations Graph
#
1

% 100


8.5 Company Historic Summary Cash Flow Statements
Trends
Year Year
Ended Ended FY2014
December 31, December 31, (12 months annualized)
2013 2014
Cash Provided by (used for) Operations

Net Income (Loss) 217,496 182,744 182,744
Plus Depreciation & Amortization 2,120 34,736 34,736
Plus Non Cash Expenses 0 0 0
(Increase)/Decrease in Accounts Receivable -2,692 9,103 9,103
(Increase)/Decrease in Inventory 0 0 0
(Increase)/Decrease in Other Current Assets 370 0 0
(Increase)/Decrease in Other Non-Current Assets 0 0 0
Increase/(Decrease) in Accounts Payable 0 6,640 6,640
Increase/(Decrease) in Other Current Liabilities -9,336 -1,728 -1,728
Increase/(Decrease) in Other Non-Current Liabilities 0 0 0
Total Cash Provided by (used for) Operations 207,958 231,495 231,495
Cash Provided by (used for) Investing Activities
(Increase)/Decrease in Net Fixed Assets 0 -63,723 -63,723
(Increase)/Decrease in Net Intangible 0 0 0
Total Cash Provided by (used for) Investing Activities 0 -63,723 -63,723
Cash Provided by (used for) Financing Activities
Net Additions to/(reductions in) Notes Payable 30,826 1,095 1,095
Net Investment in/(distribution of) Equity -230,224 -183,285 -183,285
Total Cash Provided by (used for) Financing Activities -199,399 -182,189 -182,189
Total Increase/(Decrease) in Cash 8,560 -14,417 -14,417
Beginning Cash Balance 41,967 50,527 50,527
Ending Cash Balance 50,527 36,110 36,110
Cash Flow Trend
300,000
250,000
200,000
150,000
100,000
50,000
‐50,000
‐100,000
‐150,000
‐200,000
‐250,000
December 31, 2013 December 31, 2014
Linear (Total Cash Provided by (used for) Operations) Linear (Total Cash Provided by (used for) Investing Activities)
Linear (Total Cash Provided by (used for) Financing Activities)
As of December 31, 2014, the valuation date, ABC CONTROL, INC.’s historic cash flows were
mainly trending favorably:
1. The Company’s total cash provided by Operations was Positively Trending Upward
2. The Company’s total cash used for Investing Activates was Positively Trending
Downward
3. The Company’s total cash used for Financing Activates was Flat
The overall indication was to add -2% of premium to the Company specific risk premium (CSRP)
in the Build-up Method of the Income Approach. This had an increasing affect to the multiple in

8.6 Summary of Trends Analysis
‐4.0 Historical Trends Analysis: +1 (increase risk), 0 (neutral), or ‐1 (decrease risk)
Liquidity Ratios Trends
Current and/or Quick Ratio 0.0 Flat
Day's Receivables 0.0 Flat
Sales to Working Capital I/C inconclusive
Leverage Ratio Trends
Interest Coverage Ratio (Times Interest Earned Ratio) 0.0 Flat
Fixed Assets to Tangible Worth 0.0 Flat
Debt‐to‐Tangible Net Worth 0.0 Flat
Debt‐to‐Equity 0.0 Flat
Statements of Operations Trends
Revenue ‐1.0 Positively Trending Upward
Gross Profit Margin 0.0 Flat
Operating Expenses 1.0 Negatively Trending Upward
Net Income ‐1.0 Positively Trending Upward
Discretionary Earnings ‐1.0 Positively Trending Upward

Historic Summary Cash Flow Statement Trends
Cash Provided by (used for) Investing Activities ‐1.0 Positively Trending Upward
Cash Provided by (used for) Investing Activities ‐1.0 Positively Trending Downward
Cash Provided by (used for) Financing Activities 0.0 Flat

Overall, the financial position and trends during the period of analysis appeared mixed. While the Balance Sheet trends were trends were flat,
the statements of operations were trending favorably.
Overall, the positive trends contributed four negative percent (-4%) of premium to the overall CSRP used in the Income Approach methods.
Furthermore, favorable trends had an overall positive affect on the derived multiple used in the Market Approach.

9 VALUATION METHODOLOGY AND APPROACHES
The value of ABC CONTROL, INC.‘s common stock must be determined with a view toward the
intrinsic value of the assets, the value of its income flow and the fair market value of the equity
in the marketplace. As set forth in Revenue Ruling 59-60, different methods of valuation
consider the different elements of value in arriving at an overall conclusion. An asset or cost
approach looks to the present, utilizing estimates of the current cost to reproduce or replace the
property and the property’s current state of depreciation. A market approach looks to the past,
arriving at a conclusion through an analysis of past company’s sales similar to the entity being
valued. An income approach looks to the future, quantifying the potential financial benefits of
owning the company. In the analysis of ABC CONTROL, INC., I have considered the
appropriateness of each of these methods in the valuation.
The approaches discussed above (asset, income and market) are recognized methodologies for
estimating business enterprise value. The business enterprise value represents the total price
at which the Company might be expected to exchange between a willing buyer and a willing
seller in an arm’s length transaction.
Furthermore, the three (3) approaches and several methods of valuing closely held businesses
are in accordance with generally accepted valuation principles. The Institute of Business
Appraisers (IBA) Professional Standards defines the asset, market, and income approaches as
follows:
1. Asset Approach - a general way of determining a value indication of a business,

business ownership interest, or security using one or more methods based directly on
the value of the assets net of liabilities.
2. Market Approach - a general way of determining a value indication of a business,

business ownership interest, security, or intangible asset by using one or more methods
that compare the subject to similar businesses ownership interests, securities, or
intangible assets that have been sold.
3. Income Approach - a general way of determining a value indication of a business,

business ownership interest, security, or intangible asset using one or more methods
that convert anticipated economic benefits into a present single amount.
ASSET BASED APPROACH

Determination of asset value begins with the company’s reported financial statements.
Adjustments are made, as necessary or appropriate, to reflect the market values of the
corporation’s assets and liabilities, as opposed to their book values. The objective is to arrive
at a net asset value, which is defined as the difference between the adjusted valuation of all
assets and liabilities. Net asset value should reflect the valuation of assets and liabilities in the
context of a going concern. Therefore, net asset value is not the company’s liquidation value
because liquidation value assumes that the business is not a going concern.
Net asset value is generally considered to be a good indicator of value for holding companies
when the earnings and cash flows generated are reflected in the value determinations of the
underlying assets. It is not generally considered a significant indicator of an operating
company’s value, since, the earnings and cash flows are not reflected in the value of the
underlying recorded assets but in the intangible asset value of the company.
The liquidation value of the company’s assets is another method that is generally not considered
appropriate for valuing operating entities. If the company is being valued as a going concern,
it will not be able to liquidate its assets and continue operations. However, if the company is
being liquidated or the ownership interest being valued has the ability to liquidate the company
and would receive a higher return on investment form the liquidation, the liquidation value may
be the company’s best indication of value.
VALUATION METHODOLOGY AND APPROACHES Page 48

MARKET APPROACH
This approach to valuing a company or ownership interests requires the valuer to research
practically available sources of information to find similar investments that can be used for
comparison purposes. The primary reason, that this approach is not used in every valuation, is
the difficulty in obtaining sufficient or reliable data concerning the transfers of business
ownership interests that occur in the private marketplace.
Valuers generally research three types of entity transactions to find transactions of similar
investments that can be used for comparative purposes. They look for transactions involving
stock, securities, or other owner interests of the Subject Company or guideline companies.
Guideline companies can either be publicly traded or closely-held.
TRANSACTIONS INVOLVING COMPANY STOCK

One of the best market approaches to value is the examination of recent transactions in the
Company’s own stock. There is generally no active market for closely-held common stock, but
if some transactions have occurred, a market value can sometimes be derived and used as an
element in the determination of fair market value. Even if limited transactions have occurred
at arm’s length, inferences may sometimes be drawn about fair market value based on the
limited transaction volume.
CONCEPTUAL FRAMEWORK OF THE GUIDELINE COMPANY METHOD

The American Society of Appraisers (ASA) Business Valuation Standards provide the following
“Conceptual Framework” for the Guideline Company Method:
1. Market transactions in business, business ownership interests or securities can provide

objective, empirical data for developing value measures to apply to business valuation.
2. The development of value measures from guideline companies should be considered

for use in the valuation of businesses, business ownership or securities to the extent
that adequate information is available.
3. Guideline companies are companies that provide a reasonable basis for comparison to
the relative investment characteristics of the company being valued. Ideal guideline
companies are in the same industry as the company being valued; but, if there is
insufficient transaction evidence available in the same industry, it may be necessary to
consider companies with an underlying similarity of relative investment characteristics
such as markets, products, growth, cyclical variability and other salient factors.
Also, the ASA Business Valuation Standards state the “Empirical data from guideline companies
can be found in transactions involving either publicly traded or closely-held companies.”
GUIDELINE COMPANY VALUE MULTIPLES OR RATIOS

A value multiple or ratio relates a stock’s market price to the reported accounting data such as
sales, earnings and book value. These ratios provide an objective basis for measuring the
market’s perception of a stock’s fair market value. Value ratios generally reflect the trends in
growth, performance and stability of the financial results of operations. In this way, the business
and financial risks exhibited by an industry or group of companies can be viewed in relation to
market values. Value ratios also reflect the market’s outlook for the economy as a whole. In

fact, this is the idea behind modulating the median market multiples utilizing the Multi-Attribute
Utility Method (MUM); see Exhibit 4A: MULTI-ATTRIBUTE UTILITY MODEL on page 84.
The value multiples or ratios can be arrived at from either publicly traded companies or closely-
held companies. To determine the multiples or ratios, the valuer needs access to reliable
information from the guideline company’s financial statements and about the transfer of
ownership transaction(s).
INCOME APPROACH
The operational nature and capital structure of each business determines the appropriate
methods best suited to value that firm.
Once the benefit or benefits are selected, the valuer then calculates an appropriate discount or
capitalization rate to be applied to each benefit. These rates are calculated using generally
accepted financial models such as the Capital Asset Pricing Model (CAPM), the Build-Up Method,
and the Gordon Growth Model.
If the valuer selects a current period benefit as representative of the future, valuation theory
refers to this as “capitalizing” the benefit. If the valuer selects a future benefit stream as
representative of the future, valuation theory refers to this as “discounting” the future benefits.

10 METHODOLOGIES CONSIDERED BUT REJECTED
While there are many methods that can be used to determine the fair market value of a
company, the fact pattern in the specific case of ABC CONTROL, INC. dictates that certain
methodologies are inappropriate. The following lists those methods and the reasons why they
were not used.
10.1 Dividend Paying Capacity

Revenue Ruling 59-60 (section 4.02) states:
(e) Primary consideration should be given to the dividend-paying capacity of the company
rather than to dividends actually paid in the past. Recognition must be given to the necessity
of retaining a reasonable portion of profits in a company to meet competition. Dividend-
paying capacity is a factor that must be considered in an appraisal, but dividends actually
paid in the past may not have any relation to dividend-paying capacity. Specifically, the
dividends paid by a closely held family company may be measured by the income needs of
the stockholders or by their desire to avoid taxes on dividend receipts, instead of by the
ability of the company to pay dividends. Where an actual or effective controlling interest in
a corporation is to be valued, the dividend factor is not a material element, since the
payment of such dividends is discretionary with the controlling stockholders. The individual
or group in control can substitute salaries and bonuses for dividends, thus reducing net
income and understating the dividend-paying capacity of the company. It follows, therefore,
that dividends are less reliable criteria of fair market value than other applicable factors.
This method was considered, but rejected because the Company has never paid dividends.
However, since the Company has had, and appears to have, the future capacity to pay dividends,
other methods are more appropriate to consider, i.e., market and income approaches.
10.2 Adjusted Book Value - Going Concern Method

The adjusted book value going concern method develops a value by adjusting the reported book
values of a subject company’s assets to their actual or estimated fair market values and
subtracting its liabilities (adjusted to their actual or estimated fair market values).
The adjusted book value methodology was rejected for determining the value of ABC CONTROL,
INC. because my review indicates that the value of the enterprise is driven by the ability of the
collection of assets in place to generate a benefit stream that is more important in terms of
valuation than the value of the underlying assets themselves. In other words, the value of the
individual assets and their associated liabilities are less important than the manner in which
management has utilized them.
10.3 Liquidation Value Method

The liquidation value method develops a value by adjusting the reported book values of a subject
company’s individual assets to their actual or estimated fair market values as if they were to be
sold in an orderly, piecemeal manner and subtracting the associated liabilities adjusted to their
actual or estimated fair market value. This method was rejected in the valuation of ABC
CONTROL, INC. because my review indicated that the enterprise was an ongoing enterprise and
it was more appropriately valued using another method. Furthermore, the interest holders had
no plans or expectations that the Company was to be liquidated.
10.4 Company Transactions Method

The company transaction approach uses recent transactions involving the Company’s stock. The
principle of substitution is used to determine the value. This simply means that if one arm’s
length fair market value transaction occurred at a given price then if nothing has substantially
changed, another arm’s length fair market value transaction would occur at the same price. This
METHODOLOGIES CONSIDERED BUT REJECTED Page 51

method was rejected because while there had been one (1) transaction involving the enterprise’s
securities, I was unable to determine that the transactions represented fair market value.
10.5 Discounted Multi-Growth Method

The discounted future cash flow method was considered, but rejected since management could
not provide a bona fide forecast. This income method is not the most appropriate method to use
for this particular valuation. The method focuses on the present value of the forecasted future
benefits which could accrue to a hypothetical owner of the company. The benefits vary greatly
in the short run and are still estimable in the long run. This method requires an explicit forecast
of the future benefit streams over a reasonably foreseeable short term and an estimate of a
long term benefit stream that is stable and sustainable, i.e. not varying from period to period.
In addition, the benefit stream is determined to continue into the future without compromise.
An appropriate discount rate and an estimate of long term growth beyond the forecast period
allow discrete present values to be calculated and summed for all the benefit streams and
determine the entity value.
10.6 Discounted Future Cash Flow Method

This income method is not an appropriate method to use because the method focuses on the
present value of the forecasted future benefits that would accrue to the hypothetical owner of
the company. The benefit streams would vary greatly in the short run, but are still estimable in
the long run. This method requires an explicit forecast of the future benefit streams, yearly
capital expenditures, and new debt to sustain growth over a reasonably foreseeable short term
and an estimate of a long term benefit stream that is stable and sustainable (i.e. not varying
from period to period and determined to continue into the future without compromise). An
appropriate discount rate and an estimate of long term growth beyond the forecast period allow
discrete present values to be calculated and summed for all of the benefit streams to determine
the entity’s value.
In this case, since the future benefit stream was expected to exhibit constant growth, if at all,
and since management did not have a clear forecast of the future benefit streams, this method
was not appropriate.
10.7 Industry Data Method – Mergerstat

Using multiples derived from compilations of industry pricing statistics a market approach may
be used to estimate the Fair Market Value of a company when the company can be shown to be
representative of the market. By convention, analysts express the relationship between the
market price of a stock and its historical earnings in the form of a ratio of the market price of
earnings for the most recent twelve months, i.e., price/earnings (P/E) ratio. Using the industry
pricing statistic against the company’s earnings the Fair Market Value can be estimated.
The Company is not representative of the industry due to its niche nature. I could not find a
similar industry.
METHODOLOGIES CONSIDERED BUT REJECTED Page 52

11 METHODOLOGY CONSIDERED AND USED
11.1 Market Data Method – BIZCOMPS
Guideline companies are companies that provide a reasonable basis for comparison to the relevant
investment characteristics of a company being valued. Guideline companies are most often publicly
traded companies, although they may be private, in the same or similar business as the subject of this
valuation. Guideline companies are used as a basis to develop valuation conclusions with respect to a
subject company under the presumption that a similar market exists for the subject company as exists
for the guideline companies.
Ideal guideline companies should be in the same business as the company being valued. However, if
there is insufficient transaction evidence in the same business, it may be necessary to consider
companies with an underlying similarity of relevant investment characteristics such as markets,
products, growth, cyclical variability and other salient factors.
The guideline company method uses a group of public companies and/or privately held companies
selected for their ability to provide valuation guidelines for the analyst. The most commonly used version
of the guideline company method develops a ratio, such as the price/revenue ratio, with which to
capitalize the base.
I searched the BizComps database for transactions involving privately held guideline companies. The
BizComps database is a study of small business sales whereby relevant pricing information is collected
from business brokers and transaction intermediaries on individual sales of small businesses.
I researched BizComps transactions by first identifying the industry in which ABC CONTROL, INC.
operates and, using the Standard Industrial Classification Code (SIC Codes) for the industry, I performed
a search for a group of companies in a similar line of business as that of the subject company. I screened
this group further through the use of key words and phrases that are unique to and describe the subject
Company’s product or operations. I also considered other possible companies mentioned by
management or discovered in other research. In the end, further analysis of the remaining companies
in terms of operating, financial, geographical, industry, and/or market characteristics to insure that the
guideline companies are reasonable for inclusion in the guideline company group. My filter included the
following criteria:
1. Revenues between 0.1x and 10x the Subject’s revenues
2. Discretionary earnings greater than $0
3. Entire US
4. NAICS codes: 561710
5. Sale date prior to December 31, 2014, the valuation date
METHODOLOGY CONSIDERED AND USED: Market Data Method – BIZCOMPS Page 53

11.1.1 Derivation of the Multiples
Given these parameters, I found 47 transactions that meet the criteria for being included as guideline
companies. The P/R ratios averaged 0.80 and the median was 0.81. The selected baseline P/R ratio was
0.81. The P/SDE ratios averaged 2.84 and the median was 1.83. The selected baseline P/SDE ratio was
1.83. That is, I used the SELECTED MEDIAN as the baseline for the derivation of the multiples to be
utilized in the calculation of the Enterprise Value.
See BizComps Data (Private) on page 120 for a list of the Private Guideline Companies used.
BizComps Selected Data
Revenue SDE Sale Price Sale Price/ DE Sale Price/ Rev
Low $60 $5 $50 0.50 0.21
High $1,764 $521 $1,950 36.00 1.83
Mean $317 $109 $254 2.84 0.80
Median $255 $90 $155 1.83 0.81
Std Deviation $306 $85 $309 5.00 0.28
Count 47 47 47 47 47
Next, in order to apply ABC CONTROL, INC.‘s company specific risk, or premium, characteristics to the
chosen baseline multiples, I utilized a Multi-Attribute Utility Model (MUM) to modulate the baseline
SELECTED MEDIAN figures from the guideline data. Therefore, if the Subject exhibits characteristics of
increased risk, for example, then the derived multiple will be lower than the Guideline Companies’
baseline SELECTED MEDIAN. The resulting derived multiples from the MUM calculations are a P/R of
1.00 and a P/SDE of 2.23.
A detailed explanation of MUM can be found in Exhibit 4A: MULTI-ATTRIBUTE UTILITY MODEL
on page 84.
11.1.2 Estimate of Revenue
BIZCOMPS Revenue Base

Year Year Year
December December December
Adjusted 31, 2012 31, 2013 31, 2014
Revenue 674,919 779,774 836,146
Additional Adjustment
Total 674,919 779,774 836,146
Weight On Revenue 1 2 3
Ongoing Revenue 790,484
SELECTED ONGOING REVENUE BASE 790,500

The weighting above was performed because of the upward trend in sales.
The Ongoing Revenue was calculated as $790,484 and rounded to $790,500.

11.1.3 Estimate of Seller’s Discretionary Earnings
The analysis presented below represents the calculation of seller’s discretionary earnings base.
BIZCOMPS Seller's Discretionary Earnings Base

Year Year Year
Adjusted 31, 2012 31, 2013 31, 2014
Debt Free Pretax Income 200,266 288,543 263,266
Officer's Compensation (Adjusted to 1FTE) 0 0 0
Depreciation/Amortization 5,881 2,120 34,736
Adj. for "Excess DE" -126,909 -126,909 -126,909
Seller's Discretionary Earnings 79,238 163,754 171,093
Weight on SDE 1 2 3
Ongoing Seller's Discretionary Earnings 153,338
SELECTED ONGOING SDE BASE 153,300
The weighting above was performed because upward trend in discretionary earnings.
The Ongoing SDE was calculated as $153,338 and rounded to $153,300.
Note: Since Mrs. Smith’s Counsel indicated to me that Mrs. Smith was seeking alimony payments, I
reduced the Discretionary Earnings for each year by $126,909, which was derived from the Florida
Occupational Employment and Wages database; it represents the amount of salary an experienced
general manger could expect while working in the “Services to Building and Dwelling” industry in Florida.
This had a reducing effect on the value of the Company.

11.1.4 Regression Analysis of the BizComps Data
Sale Price / Revenue
2500
R² = 0.5471
2000
1500
1000
500
0
0 200 400 600 800 1000 1200 1400 1600 1800 2000
Sale Price / DE
2500 R² = 0.7987
2000
1500
1000
500
0
0 100 200 300 400 500 600
‐500

11.1.5 Indicated Value Calculation
Each of the multiples were weighted. The following schedule presents the conclusions of value using the
BIZCOMPS data ratio methods. As calculated, the indicated Fair Market Value of the 189,082 is which
has been rounded to 189,100. Note that more weight was applied to the SDE Multiple since the
coefficient of determination (R2) for the SP/DE multiple was 0.8 vs. 0.6 for the SP/Rev Multiple. Typically
all R2 lower than 0.5 are not considered in regression analysis.

12 METHODOLOGIES USED AS SANITY CHECKS
12.1 Capitalization of Cash Flow Method
Since the future benefit stream is expected to grow at a constant rate or to remain unchanged, the process
of capitalization shall be used over the discounting process; note that both methods would result in
approximately the same outcome. Capitalization of cash flow requires an estimate of an ongoing benefit
stream and a capitalization rate. The capitalization rate represents the required rate of return minus the
sustainable growth rate. Capitalization of cash flow effectively determines the present value of the Company’s
ongoing economic benefit stream growing perpetually at a fixed rate and discounted at the required rate of
return. The present value is representative of the amount a willing buyer and a willing seller would exchange
for the business.
12.1.1 Estimate of Ongoing Benefit Stream

The analysis presented below represents the calculation of the ongoing economic benefit stream. It depicts
the calculation of the after tax cash flow benefit stream.
Year Year Year

31, 2012 31, 2013 31, 2014
Earning Power Based on Net of Debt After Tax Cash Flow
Adjusted Pretax Income 196,155 287,872 257,298
Add Depreciation/Amortization and Other Non-Cash Expenses 5,881 2,120 34,736
Total 202,036 289,992 292,034
Weight 1 2 3
Ongoing Earning Power 276,354

Less Ongoing Depreciation/Amortization 19,055
Taxable Base 257,299
Less Estimated State Income Taxes - Effective Rate: 0.00%
Before Federal Taxes 257,299
Less Salary for GM (avoid Double-Dipping) 126,909
Subtotal 130,390
Depreciation/Amortization 19,055
Adjust for Working Capital Requirements 0
Adjust for Capital Expenditure Requirements 0
Adjust for Long Term Debt Requirements 0
Calculated Ongoing Net of Debt After Tax Cash Flow 149,445
SELECTED ONGOING NET OF DEBT AFTER TAX CASH FLOW 149,400
The weighting above was performed because of the trend.

Note: Since Mrs. Smith’s Counsel indicated to me that Mrs. Smith was seeking alimony payments, I reduced
the Cash Flow for each year by $126,909, which was derived from the Florida Occupational Employment and
Wages database; it represents the amount of salary an experienced general manger could expect while
working in the “Services to Building and Dwelling” industry in Florida. This had a reducing effect on the value
of the Company.
METHODOLOGIES USED AS SANITY CHECKS Page 58

12.1.1.1 Taxes
State taxes were calculated as $0 since the Company operates in states that does not mandate a state
income tax. For federal income taxes, I used $0 since the Company operates as a pass-through entity. The
ongoing benefit stream was reduced by these outflows.
12.1.2 Capitalization Rate
12.1.2.1 Capitalization and Discount Rates Overview

Revenue Ruling 59-60 (section 6) states:
Capitalization Rates. In the application of certain fundamental valuation factors, such as earnings and
dividends, it is necessary to capitalize the average or current results at some appropriate rate. A
determination of the proper capitalization rate presents one of the most difficult problems in valuation.
That there is no ready or simple solution will become apparent by a cursory check of the rates of
return and dividend yields in terms of the selling prices of corporate shares listed on the major
exchanges of the country. Wide variations will be found even for companies in the same industry.
Moreover, the ratio will fluctuate from year to year depending upon economic conditions. Thus, no
standard tables of capitalization rates applicable to closely held corporations can be formulated.
Among the more important factors to be taken into consideration in deciding upon a capitalization rate
in a particular case are: (1) the nature of the business; (2) the risk involved; and (3) the stability or
irregularity of earnings.
12.1.2.2 The Opportunity Cost of Equity Capital: The Build-up Method

The discount rate (Cost of Equity, COE) developed for this report was computed using the “build-up 1 method”
by utilizing the Size Study from the Duff & Phelps Risk Premium Report (Duff & Phelps “A Exhibits”). The COE
equation for the Subject is shown below.
Ke = Rf + RPm+s + ERP Adjustment

Where:
Ke = Cost of equity capital or the expected return on equity for investing in the Subject (Levered)
Rf = Rate of return on a risk-free security
RPm+s = Equity (market) risk premium plus size premium combined
ERP Adjustment =Equity Risk Premium Adjustment 4 3F3F
A market rate of investment return for the subject company is “built up” to represent the risk adjusted
opportunity cost of investing in the Subject equity (at an annual percentage rate). This opportunity cost
represents the rate of return an investor would expect from an alternate equity investment of similar risk.
The size of a company is one of the most important risk elements to consider when developing cost of equity
estimates for use in valuing a firm. Traditionally, researchers have used market value of equity as a measure
of size in conducting historical rate of return research. As size decreases, returns tend to increase. To that
end, the Duff & Phelps Risk Premium Report Study measures the relationship between equity returns and up
to eight measures of size: market value of equity, book value of equity, 5-year average net income, market
value of invested capital (MVIC), total assets, 5-year average EBITDA, sales, and number of employees.
4
The ERP adjustment is needed to account for the difference between the forward-looking ERP as of the valuation date that the analyst
has selected to use in his or her cost of equity capital calculations, and the historical (1963–present) ERP that was used as a convention
in the calculations performed to create the Risk Premium Report exhibits. To learn more, see the Duff & Phelps 2014 Valuation Handbook
– Guide to Cost of Capital, Chapter 9, “Risk Premium Report Exhibits – General Information”, in the section entitled “Proper Application
of the Equity Risk Premium (ERP) Adjustment”. For example, for a 2012 valuation using the Duff & Phelps 2012 Risk Premium Report,
and assuming the user has decided to use 5.5% as his forward-looking ERP, the calculation would be 5.5% - 4.3% = 1.2%. So, 1.2%
would be added to the Buildup Model.

The Risk Premium Report Study exhibits provide 25 size-ranked portfolios for each of the eight size measures
(Portfolio 1 is comprised of the largest companies, Portfolio 25 is comprised of the smallest companies). With
the “Guideline Portfolio Method,” the portfolio (of the 25 portfolios) that has an average size that most closely
matches the subject company’s size (as measured by any one of the eight size measures) is identified, and
the smoothed size premia associated with that portfolio is used in the Build-up calculation. In this report, I
used the “Regression Equation Method,” which is the more sophisticated method of matching the subject
company’s size characteristics to the appropriate size premia. The Regression Equation Method allows for the
interpolation of size premia “in-between” portfolios, and also for the interpolation of size premia for
companies smaller than the average company in Portfolio 25 (Portfolio 25 is comprised of the smallest
companies).
The Cost of Equity, discount rate, represents the risk an investor is willing to accept for the potential reward
an investment in the equity of the subject company will return. Different rates apply to types of businesses.
It can also be considered the rate of return that an investor requires on an ongoing basis. This risk is not
calculated in a vacuum or a sterile environment but rather it is calculated based on the factors that can be
contrasted against the investment in other vehicles that are available and in the specific environment as of
the valuation date.
The buildup method layers different risk estimates to build up a discount rate. The appropriate discount rate
components for the Company are the risk free rate, equity risk premium, size premium and company specific
premium. Subtracting sustainable growth from the discount rate develops the capitalization rate.
12.1.2.2.1 Risk Free Rate

The first step is to calculate the risk free rate, which measures the rate of return an investor can earn without
taking any additional risk. Examples of risk free returns are United States Treasury bonds. As of the valuation
date December 31, 2014, this yield was 2.55%. Therefore, the rate applied to the buildup was 2.55%.
12.1.2.2.2 Equity and Size Risk Premium

Secondly, I calculated the Equity Risk Premium (market plus size) using the Risk Premium Report from Duff
& Phelps. The equity risk premium (market) represents the additional risk, above the risk free rate, an
investor takes on for investing in large public companies and the (size) risk for investing in a small company.
The report lists these premia based on eight size characteristics. Since Market Value of Equity and Market
Value of Invested Capital is not known prior this valuation, those two parameters are not used in this report.
Therefore, I shall only consider six (6) size parameters:

Report Year (Data is through Dec 31, 2014) 2015
Note: Double check the report date, the data may not be available
if you are near to the valuation date
What Long Term Equity Risk Premium To Use

Leave blank to use historical study rate; Type in a number for your estimate of
the long term ERP (Usually the case)
Size Inputs (Whole Dollars Not Rounded)

Market Value of Equity 0
Book Value of Historic Equity -120,539
5-year Average Net Income 104,591
Market Value of Invested Capital 0
Total Historic Assets 119,223
5-year Average EBITDA 115,288
Sales 836,146
Number of Employees 9
Note: if less than 5 years of history is entered the 5-year average is not calculated correctly
Note: if zero is showing, it will not return the size characteristic for any exhibit
Note: if the cell is empty, it will not return the size characteristic for any exhibit
Note: at least one size characteristic must be filled in
Note that out of the Subject’s six (6) size parameters considered, the closest match to the each of the six
(6) was Portfolio 25. Furthermore, note that since each of the Subject’s parameters were smaller than each
of the corresponding portfolio parameters, the Regression Equations were used to extrapolate the Equity Risk
Premiums; this process added additional risk due the smaller size of the Subject, i.e., vis-à-vis the guideline
companies in the study.
Risk Premiums (Market plus Size) over Risk-free rate: Using Guideline Portfolios
Guideline Smoothed Premium
Company Relevant Portfolio Guideline over ERP
Size Exhibit Size Portfolio Risk-free Adjustment Subtotal
Market Value of Equity NA A-1 NA NA NA 0.00% N/A

Book Value of Equity -$120,539 A-2 64,515,753 25 12.49% 0.00% 12.49%
5-year Average Net Income $104,591 A-3 3,440,420 25 13.53% 0.00% 13.53%
Market Value of Invested Capital NA A-4 NA NA NA 0.00% N/A
Total Assets $119,223 A-5 131,642,711 25 13.02% 0.00% 13.02%
5-year Average EBITDA $115,288 A-6 14,586,575 25 13.24% 0.00% 13.24%
Sales $836,146 A-7 119,529,626 25 12.40% 0.00% 12.40%
Number of Employees 9 A-8 287 25 12.39% 0.00% 12.39%
Mean Premium 12.85% 12.85%

Median Premium 12.76% 12.76%
Risk Premiums (Market plus Size) over Risk-free rate: Using Regression Equations
Premium
Company Relevant Constant over ERP
Size Exhibit term Slope term log(Size) Risk-free Adjustment Subtotal
Market Value of Equity NA A-1 21.167% + -(3.418% x NA NA 0.00% N/A

Book Value of Equity -$120,539 A-2 17.084% + -(2.540% x 0.000%) 17.08% 0.00% 17.08%
5-year Average Net Income $104,591 A-3 14.953% + -(2.644% x -98.051%) 17.55% 0.00% 17.55%
Market Value of Invested Capital NA A-4 21.024% + -(3.282% x NA NA 0.00% N/A
Total Assets $119,223 A-5 18.743% + -(2.699% x -92.364%) 21.24% 0.00% 21.24%
5-year Average EBITDA $115,288 A-6 16.366% + -(2.685% x -93.821%) 18.89% 0.00% 18.89%
Sales $836,146 A-7 16.769% + -(2.103% x -7.772%) 16.93% 0.00% 16.93%
Number of Employees 9 A-8 17.329% + -(2.010% x 95.424%) 15.41% 0.00% 15.41%
Mean Premium 17.85% 17.85%

Median Premium 17.31% 17.31%

As of December 31, 2014, the equity risk premium rate applied to ABC CONTROL, INC.using the Regression
Equation Method was 17.31%.
12.1.2.2.3 Company Specific Risk Premium (CSRP)

The final step in the Build-up process is to analyze the Company for specific investment risks. This risk is
that which has no statistical relationship with the risk of “the market,” defined as the S&P 500. The specific
risk factor is called “alpha risk” in built up terminology.
This process begins with an analysis and understanding of the Subject's business nature in connection with
the alpha Risk Factors. Based on various IRS Revenue Rulings (e.g., RR 59-60) and my professional judgment
and experience in selling small privately owned closely held businesses, I have determined that the following
Risk Factors influence and should be considered in order to determine the value of ABC. These Unsystematic
Risk Factors are listed and summarized below.
Note that for all of the generally accepted cost of equity models, there are recognized data sources available
to allow the valuation analyst to measure (1) the risk-free rate of return, (2) the general equity risk premium,
(3) the industry equity risk premium, and (4) the size adjustment equity risk premium. These generally
accepted data sources are used by the valuation analyst to create a baseline or a benchmark required rate
of return based on a baseline or benchmark investment. However, there is no generally accepted model,
formula, equation, or method available for the valuation analyst to quantitatively measure the Company
Specific Risk Premium (CSRP). The only “model” available to measure the CSRP is the valuation analyst’s
informed professional judgment, based on the valuation analyst’s studied consideration of various generally
recognized factors. Over the years, several valuation analysts have suggested various sets of factors that
should be considered with regard to the CSRP selection process. A few examples are the following the
Black/Green factors, the Warren Miller factors and the Gary Trugman factors.
The factors that I use include those Factors, e.g., economic risk, operating risk, asset risk, market risk,
business risk, financial risk, product risk, technology risk, legal risk, location of business, depth of
management and barriers to entry into the market.
With the use of a “grading system” of from minus four percent (-4%) to plus four percent (+4%), this system
recognizes positive and negative aspects of the business. Recognizing efficiency or strengths in a particular
aspect being considered could warrant a reduction in risk assessment. Conversely, recognizing inefficiency
or weaknesses in a particular aspect being considered could warrant an increase in risk assessment.
Based upon the Company specific factors summarized below an additional risk premium of -3.00% shall be
applied in the Build-up model.

Owners' Involvement & Management Presence 2.00%
Owner or Key Employee(s) Interaction with Customers 2.00%
Owner or Key Employee(s) Involvement in Critical Roles 2.00%
Inbound Referrals go directly to Owner or Company 2.00%
Advertising or Outside/Inside Sales Expenditures 1.00%
Quantity of Unique, Unrelated Customers 0.00%
Economic Dependence on Customer(s)/Supplier(s)/Employee(s) -2.00%
Diversification of Product Lines or Services 0.00%
The Company's Dividend Paying Capacity -3.00%
Industry & Economic Outlook -2.00%
Property and Equipment Condition 0.00%
Location and Facilities 0.00%
Historical Comparative Analysis vs. Peers -1.00%
Historical Trends Analysis -4.00%
Company Specific Risk Premium (CSRP) -3.00%
Further Intangible Risk

Cost of Equity Company Specific Risk Premium -3.00%
For more details, see EXHIBIT 5: COMPANY SPECIFIC RISK PREMIUM DETAILS on page 106.
12.1.2.3 Expected Sustainable Growth Rate

I estimate 3.00% long term compound annual growth. This cash flow growth estimate is based upon my
assessment of the Company’s prospects for sustained growth in relationship to the estimate of ongoing cash
flow power developed above.
12.1.2.4 Rate to Factor Conversion

The capitalization rate developed using the buildup method is 13.86%. The reciprocal of this measure
(1/13.86%) provides a capitalization multiple of 8.03.
12.1.2.5 Midyear Convention

In the normal discounting process it is assumed that the benefit stream is available to the hypothetical buyer
at the end of the period. This is not always the case since sales and expenses occur over the course of a
period. The benefit stream is then available during the period and not only at the end. To implement this
logic, a midyear convention is used. The midyear convention calculates the present value of a benefit stream
using arithmetic that presumes half is available before the midyear and half is available after the midyear. I
have applied the midyear convention because the business is not seasonal.
12.1.2.6 Calculation of the Rate

The schedule below shows how the rate was calculated:
BUILDUP CAPITALIZATION RATE
Risk-Free Rate of Return 2.55%

Equity & Size Risk Premium 17.31%
Company Specific Premium -3.00%
Net Cash Flow Discount Rate 16.86%
Discount Rate 16.86%
Sustainable Growth 3.00%
Capitalization Rate To Apply To Next Year Stream 13.86%
Apply Mid Year Convention (13.86%/(1+16.86%)^0.5)
Selected Rate 12.82%

12.1.3 Indicated Value
To calculate an indicated value for ABC CONTROL, INC., the first step is to use the after tax cash flow benefit
steam and divide it by the rate. In order to match the appropriate period to the rate, the rate is divided by
one plus the growth rate.
The next step is to apply adjustments to value for ABC CONTROL, INC.
12.1.3.1 Application of Enterprise-Level Marketability Discounts

In my opinion, a discount of 28% is required for lack of marketability that accounts for the fact that the build-
up method used to derive the Discount Rate originated from guideline companies which possess “As Freely
Traded, Public Company” levels-of-value characteristics. This discount reflects an expectation for the lack of
a market in which to negotiate a quick sale (approximately 3 days) for a company, such as the Subject, that
possess “Privately-Held, Marketable, Control” levels-of-value characteristics.
See EXHIBIT 6: EDLOM CALCULATION for a detailed explanation of the calculation.
12.1.3.2 Application of Excess or Non-Operating Assets

Excess or Non-operating assets represent the value of resources the company has control of but are not
required to operate the business. Examples are excess cash on hand, real estate or other securities. In my
judgment, the Subject’s excess and non-operating assets total value was $0.
12.1.3.3 Indicated Value Calculation

The following schedule presents the indicated value using the capitalization of earnings method. As
calculated, the indicated Fair Market Value is $864,152 which has been rounded to $864,200.
13 CONCLUSION OF VALUE
13.1 Summary of Methods Considered, Used & Rejected
The following represents a reconciliation of the indications of value at “As Privately-Held, Marketable, Control”
Level of Value. Furthermore, the following indications of value are prior to applying any discounts such as
Personal Goodwill Carve-out, Stakeholder Discounts for Lack of Control (DLOC), or Stakeholder Discount for
Lack of Marketability (SDLOM).
CONCLUSION OF VALUE Page 64

Conclusion of Value
1=Considered & Used

Indicated 2=Considered & Rejected
Valuation Indication by Method Value Weight 3=Not Considered & Rejected
Book Value Method -121,000 0 3 Not Considered & Rejected

Adjusted Book Value Method - Going Concern -121,000 0 2 Considered & Rejected
Adjusted Book Value Method - Liquidation -151,000 0 3 Not Considered & Rejected
Capitalization of Earnings Method 864,200 0 1 Considered and Used as Sanity Check
Multi-Stage Growth 0 0 3 Not Considered & Rejected
Discounted Cash Flow Method - Summary Projections 0 0 3 Not Considered & Rejected
Discounted Cash Flow Method - Detailed Projections 0 0 3 Not Considered & Rejected
Capitalization of Excess Earnings Method 0 0 3 Not Considered & Rejected
Market Data Method - Bizcomps 189,100 1 1 Considered & Used
Market Data Method - IBA 0 0 3 Not Considered & Rejected
Industry Data Method - Mergerstat Industry PE 0 0 3 Not Considered & Rejected
Market Data Method - MMC 0 0 3 Not Considered & Rejected
Market Data Method - Pratts Stats 0 0 3 Not Considered & Rejected
Market Data Method - Merged, Acquired and Guideline Data 0 0 3 Not Considered & Rejected
Market Data Method - Private Company Data 0 0 3 Not Considered & Rejected
Market Data Method - Analyst Data 0 0 3 Not Considered & Rejected
Subject Company Transactions Method 0 0 2 Considered & Rejected
Industry Data Method - Analyst Data 0 0 3 Not Considered & Rejected
Calculated Conclusion of Equity Value 189,100
SELECTED CONCLUSION OF EQUITY VALUE (ROUNDED) 190,000 As Privately-Held, Marketable, Control Level of Value
Revenue Ruling 59-60 (section 7) states:

“Because valuations cannot be made on the basis of a prescribed formula, there is no means whereby
the various applicable factors in a particular case can be assigned mathematical weights in deriving the
fair market value. For this reason, no useful purpose is served by taking an average of several factors
(for example, book value, capitalized earnings and capitalized dividends) and basing the valuation on
the result. Such a process excludes active consideration of other pertinent factors, and the end result
cannot be supported by a realistic application of the significant facts in the case except by mere
chance.”
Therefore in following the above Revenue Ruling statement, the method selected to value ABC CONTROL,
INC. was Market Data Method- BizComps. The reason that I chose this method over the Capitalization of
Earnings Method was that it has my experience that most buyers will consider the Market Data Method over
the Income Method since the level of values of the guideline transactions and the Subject are more closely
matched. Also, there were enough private company guideline transactions to consider.

13.2 Value of Interest Appraised
13.2.1 Personal Goodwill Carve-out
Since the standard of value is Fair Market Value and since Personal Goodwill is not considered a marital asset
in the state of Florida, ABC’s final equity value was adjusted by $-20,963 in order to “carve-out” my estimate
of the Personal Goodwill portion (of the overall intangible goodwill) attributed by Mr. John Smith’s
involvement. For this calculation, I used a Multi-Attribute Utility Methodology as shown in detail in Exhibit
4B: MULTI-ATTRIBUTE UTILITY MODEL (PGW CARVE-OUT) on page 97.

Less Personal Goodwill
After PWG Carve Out

13.2.2 Final Calculation of Interest Appraised
Figure 2
Level of Value
SELECTED CONCLUSION OF EQUITY VALUE (ROUNDED) 190,000 As Privately-Held, Marketable, Control
-20,963 Personal Goodwill Carved-out (Rounded)
169,037 As Privately-Held, Marketable, Control, PGW Carved-Out
Total Number of Shares 500

Per Share Value 338.07
Number of Shares Being Valued 500
Calculated Interest Value 169,037
Rounded 170,000 As Privately-Held, Marketable, Controlling

13.3 Opinion of Fair Market Value
I have performed a valuation engagement for one hundred percent 100.0% interest of the Equity in ABC
CONTROL, INC. This engagement was conducted in accordance with The Institute of Business Appraisers
(IBA) Professional Standards.
The conclusion of value that resulted from this engagement was expressed as an opinion of value, which is
a single value vis-à-vis a range of values.
This valuation was performed solely to assist in the matter of divorce Proceedings Mr. John Smith and Mrs.
Jane Smith. The resulting opinion of value should not be used for any other purpose or by any other party
for any purpose.
Based on my analysis, as described in this valuation report, the opinion of value of the interest in ABC
CONTROL, INC. as of December 31, 2014 was 170,000. This conclusion is subject to the Statement of
Assumptions and Limiting Condition found in Appendix C and to the Valuation Analyst’s Representation found
in Appendix A.
I have no obligation to update this report or my opinion of value for information that comes to my attention
after the date of this report.
Executed on January 13, 2015 in Tampa, FL
Salvatore B. Urso

14 EXHIBIT 1: BALANCE SHEETS ADJUSTMENTS DETAILS
The comments below in the Note section of each year’s adjusted balance sheets describe each adjustment.
2014 Adjusted Balance Sheet

Year Normalize Normalized Notes
Ended /Adjust /Adjusted
December 31, December 31,
2014 2014
Assets:
Current Assets
Cash 36,110 36,110
Accounts Receivable 13,728 13,728
Inventory
Loans to Shareholders 35,000 35,000
Security Deposits 2,500 2,500
Employee Loans 0 0
Total Other Current Assets 37,500 0 37,500
Total Current Assets 87,338 0 87,338
Fixed Assets - Net
Fixed Assets - Cost 0 0
Fixtures & Furniture 11,920 11,920
Vehicles (Net) 11,985 11,985
Leasehold Improvements 7,981 7,981
Total Fixed Assets - Cost 31,885 0 31,885
Total Fixed Assets - Net 31,885 0 31,885
Total Assets 119,223 0 119,223

Liabilities
Current Liabilities
Trade Accts Payable 6,640 6,640
Payroll Liabilites 0 0
Credit Cards Payable 5,834 5,834
Accrued Expenses 0 0
Other Accrued Liabilities 28,368 28,368
Accrued Liabilites- Prepaid Annual Contracts 135,546 135,546
Sales Tax Payable 333 333
Bell South
LOC PNC
Mort., Notes, etc Payable in less than 1 yr.
Total Current Liabilities 176,721 0 176,721
Long-Term Debt
Vehicle Loans 63,040 63,040
Total Long-Term Debt 63,040 0 63,040
Total Liabilities 239,761 0 239,761
Equity
Common Stock 500 500
Treasury Stock
Retained Earnings -121,039 0 -121,039
Total Equity -120,539 0 -120,539
Total Liabilities and Equity 119,223 0 119,223
EXHIBIT 1: BALANCE SHEETS ADJUSTMENTS DETAILS Page 68

2013 2013
Assets:
Current Assets
Cash 50,527 50,527
Inventory
Employee Loans 0 0
Fixed Assets - Net
Fixed Assets - Cost
Fixtures & Furniture 8,903 8,903
Vehicles (Net) -6,004 -6,004
Leasehold Improvements
Total Assets 113,756 0 113,756

Liabilities
Current Liabilities
Trade Accts Payable
Payroll Liabilites
Accrued Expenses
Bell South
LOC PNC 8,889 8,889
Long-Term Debt
Equity
Treasury Stock
Total Equity -119,998 0 -119,998

2012 2012
Assets:
Current Assets
Cash 41,967 41,967
Inventory
Employee Loans 370 370
Fixed Assets - Net
Fixed Assets - Cost
Fixtures & Furniture 81 81
Vehicles (Net) 4,937 4,937
Total Assets 104,995 0 104,995

Liabilities
Current Liabilities
Trade Accts Payable
Payroll Liabilites 11,975 11,975
Accrued Expenses 7,122 7,122
Bell South 0 0
LOC PNC 0 0
Long-Term Debt
Equity
Treasury Stock
Total Equity -107,270 0 -107,270

2011 2011
Assets:
Current Assets
Cash
Accounts Receivable
Inventory
Loans to Shareholders
Security Deposits
Employee Loans
Total Other Current Assets 0 0 0
Total Current Assets 0 0 0
Fixed Assets - Net
Fixed Assets - Cost
Fixtures & Furniture
Vehicles (Net)
Total Fixed Assets - Cost 0 0 0
Total Fixed Assets - Net 0 0 0
Total Assets 0 0 0

Liabilities
Current Liabilities
Trade Accts Payable
Payroll Liabilites
Credit Cards Payable
Accrued Expenses
Other Accrued Liabilities
Accrued Liabilites- Prepaid Annual Contracts
Sales Tax Payable
Bell South
LOC PNC
Total Current Liabilities 0 0 0
Long-Term Debt
Vehicle Loans
Total Long-Term Debt 0 0 0
Total Liabilities 0 0 0
Equity
Common Stock
Treasury Stock
Retained Earnings 0 0
Total Equity 0 0 0
Total Liabilities and Equity 0 0 0

2010 2010
Assets:
Current Assets
Cash
Accounts Receivable
Inventory
Loans to Shareholders
Security Deposits
Employee Loans
Total Other Current Assets 0 0 0
Total Current Assets 0 0 0
Fixed Assets - Net
Fixed Assets - Cost
Fixtures & Furniture
Vehicles (Net) 0 0
Total Fixed Assets - Cost 0 0 0
Total Fixed Assets - Net 0 0 0
Total Assets 0 0 0

Liabilities
Current Liabilities
Trade Accts Payable
Payroll Liabilites
Credit Cards Payable
Accrued Expenses
Other Accrued Liabilities
Accrued Liabilites- Prepaid Annual Contracts
Sales Tax Payable
Bell South
LOC PNC
Total Current Liabilities 0 0 0
Long-Term Debt
Vehicle Loans
Total Long-Term Debt 0 0 0
Total Liabilities 0 0 0
Equity
Common Stock
Treasury Stock
Retained Earnings 0 0
Total Equity 0 0 0
Total Liabilities and Equity 0 0 0

15 EXHIBIT 2: INCOME STATEMENTS ADJUSTMENTS
DETAILS
The comments below in the Note section of each year’s adjusted statements of operations describe
each adjustment. Note that each adjustment is labeled CAT1 or CAT2 as defined in section 6.2.3.
EXHIBIT 2: INCOME STATEMENTS ADJUSTMENTS DETAILS Page 73

2014 Adjusted Income Statement
Historic Year Normalize Normalized Notes
Ending /Adjust /Adjusted
2014 2014
Revenues
Sales 836,146 0 836,146
Total Revenues 836,146 0 836,146
Cost of Goods Sold
Inventory at beginning of year (+) 0 0
Purchases 58,940 58,940
Direct Labor 0 0
Add'l Section 263A Costs 3,611 3,611
Other COGS 0 0
Inventory at end of year (-) 0 0
COGS Depreciation 0 0
Total Cost of Goods Sold 62,551 0 62,551
Gross Profit 773,595 0 773,595
Operating Expenses
Officers' Compensation 56,354 -56,354 0 1 - CAT3: Recat to NI to match
RMA
Salaries 0 0
Repairs & Maintenance 16,159 16,159
Rent 15,900 15,900
Taxes & Licenses 2,273 2,273
Depreciation 34,736 34,736
Advertising 11,702 11,702
Automobiles 39,040 39,040
Credit Card Fees 10,689 10,689
Equipment Rental 8,340 8,340
Bank Charges 12 12
Bad Debt 1,916 1,916
Referral Expense 230 230
Internet 410 410
Insurance 20,585 20,585
Security 509 509
Legal & Professional 4,994 4,994
Office Expense 9,703 9,703
Printing 666 666
Tolls 1,403 1,403
Postage & Delivery 1,869 1,869
Employee Leasing 319,370 -18,200 301,170 2 - CAT2: Removed Mrs. Jones'
pay since she was absentee.
Dues & Sub. 1,308 1,308
Uniforms 2,675 2,675
Computer Expense- Pest Pac 8,126 8,126
Other Expense 1,227 1,227
Telephone 7,842 7,842
Meals & Ent. 937 937
Utilities 5,899 5,899
Travel 40 40
Professional Development 0 0
Other Misc. 0 0
Total Operating Expenses 584,914 -74,554 510,360
Interest Expense (-) -5,968 -5,968
Other Income (+) 0 0
Capital Gain Net Income (Loss) 0 0
Net Gain from Form 4797 31 31
Total Other Income/(Expense) -5,937 0 -5,937
Net Income/(Loss) 182,744 74,554 257,298

2013 2013
Revenues
Sales 779,774 0 779,774
Cost of Goods Sold
Inventory at beginning of year (+) 51,224 51,224
Purchases 0 0
Direct Labor 0 0
Add'l Section 263A Costs 5,556 5,556
Other COGS 0 0
Gross Profit 722,994 0 722,994
Operating Expenses
Officers' Compensation 52,176 -52,176 0 1 - CAT3: Recat to NI to match RMA
Salaries 0 0
Rent 15,844 15,844
Equipment Rental 8,315 8,315
Bank Charges 141 141
Bad Debt 366 366
Internet 520 520
Insurance 18,137 18,137
Security 509 509
Printing 827 827
Tolls 935 935
Postage & Delivery 1,685 1,685
Employee Leasing 286,324 -18,200 268,124 2 - CAT2: Removed Mrs. Jones' pay since she
was absentee.
Dues & Sub. 1,774 1,774
Telephone 8,551 8,551
Meals & Ent. 949 949
Travel 1,229 1,229
Other Misc. 50 50
Interest Expense (-) -858 -858
Net Gain from Form 4797 6,000 6,000
Total Other Income/(Expense) 5,329 0 5,329
Net Income/(Loss) 217,496 70,376 287,872

Revenues 2012 2012
Revenues
Sales 674,919 0 674,919
Cost of Goods Sold
Purchases 44,864 44,864
Direct Labor 0 0
Add'l Section 263A Costs 0 0
Other COGS 0 0
Gross Profit 630,055 0 630,055
Operating Expenses
Officers' Compensation 55,240 -55,240 0 1 - CAT3: Recat to NI to match RMA
Salaries 0 0
Rent 15,900 15,900
Equipment Rental 36 36
Bank Charges 239 239
Bad Debt 4,692 4,692
Internet 1,518 1,518
Insurance 17,609 17,609
Security 509 509
Printing 2,480 2,480
Tolls 905 905
Postage & Delivery 726 726
Employee Leasing 258,299 -18,200 240,099 2 - CAT2: Removed Mrs. Jones' pay since she
was absentee.
Dues & Sub. 1,179 1,179
Telephone 14,476 14,476
Meals & Ent. 1,476 1,476
Travel 1,000 1,000
Other Misc. 8 8
Interest Expense (-) -4,111 -4,111
Total Other Income/(Expense) -4,111 0 -4,111
Net Income/(Loss) 122,715 73,440 196,155

2011 2011
Revenues
Sales 0 0 0
Total Revenues 0 0 0
Cost of Goods Sold
Purchases 0 0
Direct Labor 0 0
Add'l Section 263A Costs 0 0
Other COGS 0 0
Total Cost of Goods Sold 0 0 0
Gross Profit 0 0 0
Operating Expenses
Officers' Compensation 0 -55,240 -55,240 1 - CAT1: Recat to NI to match RMA
Salaries 0 0
Repairs & Maintenance 0 0
Rent 0 0
Taxes & Licenses 0 0
Depreciation 0 0
Advertising 0 0
Automobiles 0 0
Credit Card Fees 0 0
Equipment Rental 0 0
Bank Charges 0 0
Bad Debt 0 0
Internet 0 0
Insurance 0 0
Security 0 0
Legal & Professional 0 0
Office Expense 0 0
Printing 0 0
Tolls 0 0
Postage & Delivery 0 0
Employee Leasing 0 -18,200 -18,200 2 - CAT2: Removed Mrs. Fiscina's pay since she
was absentee.
Dues & Sub. 0 0
Uniforms 0 0
Computer Expense- Pest Pac 0 0
Other Expense 0 0
Telephone 0 0
Meals & Ent. 0 0
Utilities 0 0
Travel 0 0
Other Misc. 0 0
Total Operating Expenses 0 -73,440 -73,440
Operating Profit 0 73,440 73,440
Interest Expense (-) 0 0
Total Other Income/(Expense) 0 0 0
Net Income/(Loss) 0 73,440 73,440

16 EXHIBIT 3: COMPARATIVE ANALYSIS DETAILS
16.1 General Information about the RMA Data Utilized
EXHIBIT 3: COMPARATIVE ANALYSIS DETAILS Page 78

16.2 RMA Comparative Balance Sheets
ABC RMA RMA ABC RMA RMA ABC RMA RMA
Valuation Edition Valuation Edition Valuation Edition
December 31 P-Tile December 31 P-Tile December 31 P-Tile
Based On Adjusted Financial Statements 2012 2012 Rank 2013 2013 Rank 2014 2014 Rank
ASSETS
Cash 41,967 39.97% 16.50% 83rd P-Tile 50,527 44.42% 19.00% 82nd P-Tile 36,110 30.29% 22.10% 74th P-Tile
Accounts Receivable 20,139 19.18% 1.70% Over 90th P-Tile 22,831 20.07% 9.00% 81st P-Tile 13,728 11.51% 6.70% 84th P-Tile
Inventory 0 0.00% 0.70% 80th P-Tile 0 0.00% 0.20% 80th P-Tile 0 0.00% 1.00% 70th P-Tile
Other Current 37,870 36.07% 2.90% Over 90th P-Tile 37,500 32.97% 3.60% Over 90th P-Tile 37,500 31.45% 0.60% Over 90th P-Tile
Total Current Assets 99,976 95.22% 21.70% Over 90th P-Tile 110,858 97.45% 31.80% Over 90th P-Tile 87,338 73.26% 30.50% 81st P-Tile
Fixed Assets 5,018 4.78% 63.80% Under 10th P-Tile 2,898 2.55% 43.80% Under 10th P-Tile 31,885 26.74% 55.50% 31st P-Tile
Net Intangible 0 0.00% 11.80% 30th P-Tile 0 0.00% 9.90% 40th P-Tile 0 0.00% 12.80% 40th P-Tile
All Other Non-Current 0 0.00% 2.60% 70th P-Tile 0 0.00% 14.40% 60th P-Tile 0 0.00% 1.20% 60th P-Tile
Total Assets 104,995 100.00% 100.00% 113,756 100.00% 100.00% 119,223 100.00% 100.00%
[SIC] [SIC]
LIABILITIES & EQUITY
Accounts Payable 0 0.00% 3.00% 60th P-Tile 0 0.00% 4.60% 50th P-Tile 6,640 5.57% 2.40% 70th P-Tile
Short Term Notes Payable 0 0.00% 11.40% Over 90th P-Tile 8,889 7.81% 3.90% 80th P-Tile 0 0.00% 7.40% Over 90th P-Tile
Current Portion of LT Debt 0 0.00% 3.10% Over 90th P-Tile 0 0.00% 4.20% Over 90th P-Tile 0 0.00% 6.40% Over 90th P-Tile
Other Current Liabilities 181,145 172.53% 9.30% Over 90th P-Tile 171,809 151.03% 11.70% Over 90th P-Tile 170,081 142.66% 5.10% Over 90th P-Tile
Total Current Liabilities 181,145 172.53% 26.80% 52nd P-Tile 180,698 158.85% 24.30% 57th P-Tile 176,721 148.23% 21.30% 43rd P-Tile
Long Term Debt 31,119 29.64% 41.30% Over 90th P-Tile 53,056 46.64% 44.90% Over 90th P-Tile 63,040 52.88% 63.00% Over 90th P-Tile
All Other Liabilities 0 0.00% 5.40% 80th P-Tile 0 0.00% 11.30% 50th P-Tile 0 0.00% 6.90% 60th P-Tile
Total Liabilities 212,264 202.17% 233,754 205.49% 239,761 201.10%
Total Equity -107,270 -102.17% 26.50% Over 90th P-Tile -119,998 -105.49% 19.50% Over 90th P-Tile -120,539 -101.10% 8.90% Over 90th P-Tile
Total Liabilities & Equity 104,995 100.00% 100.00% 113,756 100.00% 100.00% 119,223 100.00% 100.00%
[Industry Code] [Industry Code]
NAICS 561710 561710 561710
ANNUAL STATEMENT STUDIES™, RMA, THE RISK MANAGEMENT ASSOCIATION™, and
the RMA Logo are trademarks of the Risk Management Association. RMA owns the copyright
in the ANNUAL STATEMENT STUDIES™ data. The data is used under license from RMA.

16.3 RMA Comparative Statement of Operations
ABC RMA RMA ABC RMA RMA ABC RMA RMA

Valuation Edition Valuation Edition Annualized Valuation Edition
December 31 P-Tile December 31 P-Tile December 31 P-Tile
Based On Adjusted Financial Statements 2012 2012 Rank 2013 2013 Rank 2014 2014 Rank
Revenue 674,919 100.00% 100.00% 779,774 100.00% 100.00% 836,146 100.00% 100.00%
Cost of Goods 44,864 6.65% 0.00% 56,780 7.28% 0.00% 62,551 7.48% 0.00%
Gross Profit 630,055 93.35% 100.00% Under 10th P-Tile 722,994 92.72% 100.00% Under 10th P-Tile 773,595 92.52% 100.00% Under 10th P-Tile
Total Operating Expenses 429,789 63.68% 73.20% 36th P-Tile 440,451 56.48% 84.30% 14th P-Tile 510,360 61.04% 75.40% 26th P-Tile
Operating Profit 200,266 29.67% 26.80% 62nd P-Tile 282,543 36.23% 15.70% 84th P-Tile 263,235 31.48% 24.60% 72nd P-Tile
Other Income/(Expense) Net -4,111 -0.61% -12.00% Under 10th P-Tile 5,329 0.68% -4.50% 61st P-Tile -5,937 -0.71% -4.50% Under 10th P-Tile
Pre-Tax Profit 196,155 29.06% 14.80% 75th P-Tile 287,872 36.92% 11.20% Over 90th P-Tile 257,298 30.77% 20.10% 76th P-Tile
NAICS 561710 561710 561710

16.4 Liquidity Ratios
RMA RMA RMA
2012 2013 2014
ABC ABC ABC
Based On Adjusted Financial Statements 2012 2013 2014 Min Max Mean Median
LIQUIDITY RATIOS:
Median Current Ratio 0.70 1.00 0.90 0.70 1.00 0.87 0.90
Subject Current Ratio 0.55 0.61 0.49 0.49 0.61 0.55 0.55
P-Tile Rank 47th P-Tile 41st P-Tile 41st P-Tile
Median Quick (Acid-Test) Ratio 0.60 0.50 0.80 0.50 0.80 0.63 0.60
Subject Quick (Acid-Test) Ratio 0.34 0.41 0.28 0.28 0.41 0.34 0.34
P-Tile Rank 42nd P-Tile 45th P-Tile 31st P-Tile
Median Revenues/Receivable 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Subject Revenues/Receivable 33.51 34.15 60.91 33.51 60.91 42.86 34.15
P-Tile Rank 10th P-Tile 20th P-Tile 11th P-Tile
Median Days' Receivables 0 0 0 0 0 0 0

Subject Days' Receivables 11 11 6 6 11 9 11
P-Tile Rank 16th P-Tile 13th P-Tile Under 10th P-Tile
Median Cost of Sales to Inventory 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Subject Cost of Sales to Inventory 0.00 0.00 0.00 0.00 0.00 0.00 0.00
P-Tile Rank Over 90th P-Tile Over 90th P-Tile Over 90th P-Tile
Median Days' Inventory 0 0 0 0 0 0 0

Subject Days' Inventory 0 0 0 0 0 0 0
Median Cost of Sales to Payables 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Subject Cost of Sales to Payables 0.00 0.00 9.42 0.00 9.42 3.14 0.00
Median Days' Payables 0 0 0 0 0 0 0

Subject days' Payables 0 0 39 0 39 13 0
P-Tile Rank Over 90th P-Tile Over 90th P-Tile #DIV/0!
Median Sales to Working Capital -36.40 0.00 0.00 -36.40 0.00 -12.13 0.00
Subject Sales to Working Capital -8.31 -11.17 -9.35 -11.17 -8.31 -9.61 -9.35
NAICS 561710 561710 561710


16.5 Coverage Ratios
ABC ABC ABC
COVERAGE RATIOS:
Median Times Interest Earned 0.00 0.00 11.00 0.00 11.00 3.67 0.00
Subject Times Interest Earned 48.71 430.02 44.11 44.11 430.02 174.28 48.71
P-Tile Rank Over 90th P-Tile Over 90th P-Tile 89th P-Tile
Median Net Profit + Depr.,Dep.,Amort./Cur.Mat.L/T/D 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Subject Net Profit + Depr.,Dep.,Amort./Cur.Mat.L/T/D 0.00 0.00 0.00 0.00 0.00 0.00 0.00
LEVERAGE RATIOS:
Median Fixed Assets/Tangible Worth 3.80 6.70 3.60 3.60 6.70 4.70 3.80
Subject Fixed Assets/Tangible Worth N/A N/A N/A 0.00 0.00
Median Debt-to-Tangible Net Worth 2.80 7.40 4.70 2.80 7.40 4.97 4.70
Subject Debt-to-Tangible Net Worth N/A N/A N/A 0.00 0.00
RMA Debt-to-Equity 2.77 4.13 10.24 2.77 10.24 5.71 4.13

Subject Debt-to-Equity N/A N/A N/A 0.00 0.00
NAICS 561710 561710 561710


16.6 Operating Ratios
RMA RMA RMA RMA Median
2012 2013 2014 vs.
ABC ABC ABC Subject @ Valuation Date
OPERATING RATIOS:
RMA Gross Profit Margin 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Subject Gross Profit Margin 93.35% 92.72% 92.52% 92.52% 93.35% 92.86% 92.72% -7.28%
P-Tile Rank Under 10th P-Tile Under 10th P-Tile Under 10th P-Tile
Median EBT/Tangible Worth 5.60% 0.00% 53.40% 0.00% 53.40% 19.67% 5.60% -266.86%
Subject EBT/Tangible Worth -182.86% -239.90% -213.46% -239.90% -182.86% -212.07% -213.46%
P-Tile Rank Under 10th P-Tile Under 10th P-Tile Under 10th P-Tile
Median EBT/Total Assets 5.20% 7.50% 22.50% 5.20% 22.50% 11.73% 7.50% 193.31%
Subject EBT/Total Assets 186.82% 253.06% 215.81% 186.82% 253.06% 218.57% 215.81%
Median Fixed Asset Turnover 3.50 9.00 8.40 3.50 9.00 6.97 8.40 17.82
Subject Fixed Asset Turnover 134.49 269.04 26.22 26.22 269.04 143.25 134.49
P-Tile Rank Over 90th P-Tile Over 90th P-Tile 70th P-Tile
Median Total Asset Turnover 1.10 2.60 3.40 1.10 3.40 2.37 2.60 3.61
Subject Total Asset Turnover 6.43 6.85 7.01 6.43 7.01 6.77 6.85
P-Tile Rank Over 90th P-Tile 82nd P-Tile 72nd P-Tile
EXPENSE TO REVENUE RATIOS:

Median % Deprtn., Depltn., Amort./Revenue 0.00% 0.00% 5.10% 0.00% 5.10% 1.70% 0.00% -0.95%
Subject % Deprtn., Depltn., Amort./Revenue 0.87% 0.27% 4.15% 0.27% 4.15% 1.77% 0.87%
P-Tile Rank Under 10th P-Tile Under 10th P-Tile 68th P-Tile
Median % Officer's &/or Owner's Compensation/Revenue 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Subject % Officer's &/or Owner's Compensation/Revenue 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
NAICS 561710 561710 561710


17 EXHIBIT 4A: MULTI-ATTRIBUTE UTILITY MODEL
(BIZCOMPS)
MUM FRAMEWORK
A value multiple or ratio relates a stock’s market price to the reported accounting data such as sales, earnings
and book value. These ratios provide an objective basis for measuring the market’s perception of a stock’s
fair market value. Value ratios generally reflect the trends in growth, performance and stability of the
financial results of operations. In this way, the business and financial risks exhibited by an industry or group
of companies can be viewed in relation to market values. Value ratios also reflect the market’s outlook for
the economy as a whole.
What’s more, Revenue Ruling 59-60, Sec. 5 Weight to be Accorded Various Factors states in part:
“The valuation of closely held corporate stock entails the consideration of all relevant factors as
stated in section 4. Depending upon the circumstances in each case, certain factors may carry
more weight than others because of the nature of the company's business.”
As stated By David Wood 5, CPA/ABV, CVA, CFFA:
4F4F
Whether the valuation is under the federal rules of evidence or state-adopted and/or -modified federal rules,
or independently established rules of evidence, generally there is a threshold that the expert must climb over
(as in the Daubert 6 hearings) or an ability to show general acceptance of methods (as in states still under
5F5F
Frye 7, such as Illinois). MUM can resolve those challenges. Finding an objective and scientific method to
6F6F
making imprecise value judgments is one of our most difficult tasks. MUM provides a step-by-step guide that
should offer a reasonable position against evidentiary challenges, allow for a consistent method for the
allocations from case to case, and provide a comprehensive method that objectively addresses this imprecise
task. That is the goal of using MUM, to establish the values of personal goodwill and enterprise goodwill.
The goal here is to allow the valuator to have a template for valuations and allow any reader to re-create
this method using a simple spreadsheet. The MUM has been used by many disciplines—economic, political,
and scientific—to establish decision support for such things as placement of surplus weapons-grade
plutonium, plant and treatment facilities location, and in the restoration of highly radionuclide contaminated
aquatic ecosystems in some countries of the former Soviet Union. If it can assist in such lofty, but imprecise
goals, why can’t we use MUM to solve the “goodwill allocation” problem? The answer is that we can, and the
key word is imprecise. What these goals and ours have in common is that both require the introduction of
scientific methodology to bring order to imprecise subjective analysis. For this use of MUM, I chose the
multiplicative model, instead of the additive model. This aspect of the model will become apparent in the
description of the methodology. MUM steps are relatively straightforward:
1. Define an objective.
2. Establish alternatives.
3. Define attributes.
4. Measure the utility of each attribute.
5. Aggregate the results (i.e., do the math).
6. Evaluate the alternatives.
7. Express an opinion.
5
(2012-08-24). BVR's Guide to Personal v. Enterprise Goodwill (Kindle Location 7314).
6
Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993).
7
Frye v. U.S., 293 Fed. 1013 (D.C. Cir. 1923).
Exhibit 4A: MULTI-ATTRIBUTE UTILITY MODEL (BIZCOMPS) Page 84

THE ASSIGNMENT
In my report rather than using MUM to exclusively bifurcate personal and business goodwill as explained
above by Mr. David Wood, I use the same MUM methodology to quantify the amount of adjustment
(“modulation”) above or below the median SP/DE and SP/Rev multiples from the Private Guideline
Transaction Companies. In this case, the method shall be used to quantify the “added Company Specific
Risk” and “added Company Specific Premium.” Note that personal and business goodwill are subsets of these
risk assessments.
Many valuators simply use the mean or median of the Guideline data to derive an indication of value; I
believe this is a mistake since ignoring the Subject company specific risks or attributes in my professional
opinion improperly accords value, ignores IRS RR 59-60 guidelines, and ignores prominent court cases such
as Mandelbaum v. Commissioner 8. 7F7F
THE OBJECTIVE
My objective is to quantify the Subject’s company specific risks or premium attributes and then use the
results to modulate the Guideline Transactions’ median multiples. I do not simply apply Guideline Transaction
Company baseline mean or median multiples to the benefit stream, but rather adjust (“modulate”) those
base lines to reflect added or reduced Subject company specific risks or premiums.
Here is step-by-step of my methodology:
1. First, gather Guideline Transaction Company Statistics. The raw data is shown in BizComps Data
(Private) on page 120.
BizComps Selected Data
Revenue SDE Sale Price Sale Price/ DE Sale Price/ Rev
Low $60 $5 $50 0.50 0.21
High $1,764 $521 $1,950 36.00 1.83
Mean $317 $109 $254 2.84 0.80
Median $255 $90 $155 1.83 0.81
Std Deviation $306 $85 $309 5.00 0.28
Count 47 47 47 47 47
Table 1
2. From Table 1 above, identify the mean SP/DE and SP/Rev. In this case the values are as follows:
a. Median SP/Rev= 0.81
b. Median SP/DE= 1.83

3. Identify the maximum range of modulation; this shall be called the “Range.” I define the Range as the
difference between the median and the low multiple. I choose the median instead of the mean in attempt
to not consider unusually high or low values; that is, transactions that could have resulted from non‐arms‐
length transactions or strategic acquisitions, for instance. In this case the values are as follows:
c. SP/Rev Range= 0.61 = (0.81 ‐ 0.21)
d. SP/DE Range= 1.33 = (1.83 ‐ 0.50)

8
T.C. Memo 1995-255, United States Tax Court, June 12, 1995

ESTABLISH THE ALTERNATIVES
3. Next I establish the Alternatives:
The alternatives define the choices in which MUM will result. The alternatives are selected as a range of
percentages. The end result of the MUM analysis will be a specific value at the mid-point of a range.
I have chosen ten alternatives. Table 2 below demonstrates the alternatives I have chosen. For example, if
the MUM calculation yields +22.5% risk adjustment, since this value falls in the range defined by alternative
7, the choice for the adjustment shall be 30%.
Table 2
DEFINE THE ATTRIBUTES

4. Then I Define the Attributes:
The model assesses the multiple attributes’ multiplicative utility in choosing an alternative result. Thus, it is
necessary to define the attributes the valuator is going to use to establish a distinction between attributes
that “increase risk” and those that “decrease risk.”
I divide the attributes into the two categories: Those that Increase Risk as shown in Table 3 which produce
alternatives 1 through 5 in Table 2, and those that decrease risk shown in Table 4 which produce
alternatives 6 through 10 in Table 2. Note that there may be attributes that could be described as opposite
sides of the same coin. For example, multiple locations of a business tend to indicate less risk since there is
more enterprise goodwill, where fewer or only one location could be said to indicate more risk since there
could be more personal goodwill; in other words, the fact that there are multiple locations indicates there is
likely a stronger management team in place in order to manage all the locations. In other words, one owner
cannot be in all places at once. However, attributes could be primarily defined as characteristic of one or the
other.

ATTRIBUTES THAT INCREASE RISK
Increased Risk Attribute Ability

Ref #
1 Shareholder(s) are responsible for sales (inside, outside, cold calling)
2 Shareholder(s) interact(s) directly with key customers or suppliers
3 Special knowledge, skills, ability, required to operate the business
4 Requires shareholder constant involvement (40++ hrs per wk)
5 Evidence of personal reputation
6 Company requires significant working capital (High Financial Risk)
7 Company is highly leveraged (High Financial Risk)
8 Company has poor margins (GP, NI)
9 High dependency on few customers, suppliers, markets, people, etc.
10 Product lines or services are few and/or niche
11 Company is in an undesirable industry
12 Company Industry Outlook and/or Economic Conditions are are poor
13 Company's tangible assets are nearing obsolescence
14 Company is in a poor location
15 Company's comparative analysis was less favorable than its peers
16 Company exhibits poor trends analysis
Table 3


Details relative to the Subject are shown below:
Ref Note: Description of Importance and Existence Utility Scores

1 Given the non-personal nature of the business; guideline companies are similar; given the high historical advertising expenditures and low referral
2 dit
John spends most of his time in the office; since there are over 1,000 active customers, he cannot spend any significant amount of time with any
3 John does hold both GHP and Termite certifications. Knowledge of properly using chemicals is key to customer satisfaction. Per website, all
4 tKeyhiManagement
i tifi d
worked ll hour week; this is typical of most small businesses.
a 40
5 No evidence; no website testimonials for Mr. Ficina; no Google or Bing ratings. Per website in About Us, Mr. Jones does claim the Company was
6 t dthe
Note “A very
t low
' Fi t ” Capital Turnover; this implies significant working capital may be necessary. Comps are similar however.
Working
7 Company has no long-term debt.
8 Company operates at approx. 34% SDE/REV margin vs. guideline companies' median value of 40%.
9 No significant economic dependence on customers. Largest customer is less than 5% (revenue).
10 Company has 3 product offerings: Pest control, Lawn/Ornamental, and Termite control. Pest controls is the most significant, while Terminte is the
11 lNo evidence.
t i ifi According
t l ti tto IBIS World
l Industry report there were many more positive indicatins than negative.
12 Per IBIS World, industry should grow faster than the economy as a whole.
13 Per John, re the equipment "some is in good condition" and "some in not so good condition." Most equipment is depreciated to almost no value. All
14 iCompany's
ti loction
l is not critical for this sort of business.
15 The Company had similar or was inconclusive vs. the RMA peer data. Versus BizComps guideline data the Company SDE/Rev was slightly lower.
16 The Company trends analysis are favorably trending upward, espeically revenues and earnings.

ATTRIBUTES THAT DECREASE RISK
Decreased Risk Attributes Ability

Ref #
17 Multiple offices
18 Shareholder(s) have little/no interaction w/ key customers or suppliers
19 Product lines or services are many and diverse
20 Company is in a desirable industry
21 Systems & Processes in place
22 Company has a long history of business and good reputation
23 Brand recognition, SEO, PPC drive business
24 Business Patents, Unique or special Equipment
25 Low Dependency on Customers or Suppliers or Market
26 Company requires very little working capital (Low Financial Risk)
27 Company is not leveraged (Low Financial Risk)
28 Company Industry Outlook and/or Economic Conditions are are positive
29 Company's tangible assets are in excellent condition and updated
30 Company is in an excellent location
31 Company's comparative analysis was favorable versus its peers
32 Company exhibits positive trends analysis
Table 4

17 Only one location

18 see #2
19 See #10 above. Only one product
20 See #11 Above. Business would appeal to broad Buyer base (based on my transaction experience and no. of BizComps guideline companies)
21 No evidence
22 Est. 1995. No on-line evidence, but per both Mr. and Mrs. Jones, the Company has a good name. Company was voted “Anytown's Finest.”
23 Conducted on-line Google Seach; Company did not show up on first page.
24 No evidence.
25 see #9.
26 see #6.
27 see #7.
28 see #12.
29 see #13.
30 see #14.
31 see #15.
32 see #16.

MEASURE THE ATTRIBUTES’ UTILITY AS TO IMPORTANCE AND TO EXISTENCE
UTILITY OF IMPORTANCE
This is a two-step process. The first is to measure how important an attribute is to a particular valuation. Depending
on the type of business, its location, the period of time the business has been established, or any number of other
factors, the valuator will focus on and decide that some attributes are simply more important than others. The key
to the weighing of the “importance utility” is that the weight is relative to other attributes. Thus, it is a presumption
that an attribute listed in this part of the analysis has some merit and, thus, must be given some weight by the
valuator. Attributes are not ranked in an individually unique ascending or descending order of importance (such as
one to sixteen), but are weighed against each other (see Table 5). To attempt to do otherwise, even as an attempt
to introduce greater objectivity, is to introduce too much precision to an imprecise task. While a valuator might
adjust the weights (such as 1, 2, 3 or 1, 5, 10) to suit a particular need, all attributes defined must have a weight
assigned, in contrast to the “existence utility” (see Table 6). The weights I assigned for this illustration are shown
in Table 5.
Utility of Importance
LEAST MODERATELY MOST

IMPORTANT (1) IMPORTANT (3) IMPORTANT (5)
Table 5

UTILITY OF EXISTENCE
The “existence utility” is a measure of assessment of how strong is the presence of the specific attribute (see Table
6). This utility is both absolute and relative. The attribute, in the mind of the valuator, may not exist at all, in which
case the absolute value would be zero. Thus, the utility measure provides for the possibility of zero presence. An
attribute could be perceived as having a presence roughly double of another attribute. The scale of zero to four is
matter of personal choice. However, the utility must be great enough to cause real differences in the attributes’
utility and not so large as to permit one particular attribute to overly impact or exaggerate the results. The weights
I assigned are shown in Table 6.
Utility of Existence
0 1
WEAK BELOW MODERATE ABOVE STRONG

PRESENCE AVERAGE PRESENCE AVERAGE PRESENCE
(0) (1) (3) PRESENCE (4)
(3)
Table 6

AGGREGATE THE RESULTS—DO THE MATH
5. The next step is to Do the Math. The math is relatively straightforward, as shown in the mathematical
formulas in Table 7 below.
: :
Table 7
Where,
TMU: Plus (+) = Total Multiplicative Utility for Increased Risk
TMU: Minus (-) = Total Multiplicative Utility for Decreased Risk
TMU = Total Multiplicative Utility

Table 8 shows the computations associated with the Subject’s Increased Risk Attributes. Table 9 shows the
computation associated with the Subject’s Decreased Risk Attributes and the total TMU.
33.1% Indication of Increased Risk
Existence Multiplicative
Increased Risk Attribute Ability Importance Utility Percentage
Ref # Utility Utility
1 Shareholder(s) are responsible for sales (inside, outside, cold calling) 3 2 6 10.2%
2 Shareholder(s) interact(s) directly with key customers or suppliers 3 2 6 10.2%
3 Special knowledge, skills, ability, required to operate the business 3 2 6 10.2%
4 Requires shareholder constant involvement (40++ hrs per wk) 3 0 0 0.0%
5 Evidence of personal reputation 3 0 0 0.0%
6 Company requires significant working capital (High Financial Risk) 3 2 6 10.2%
7 Company is highly leveraged (High Financial Risk) 5 0 0 0.0%
8 Company has poor margins (GP, NI) 5 2 10 16.9%
9 High dependency on few customers, suppliers, markets, people, etc. 5 1 5 8.5%
10 Product lines or services are few and/or niche 3 0 0 0.0%
11 Company is in an undesirable industry 5 0 0 0.0%
12 Company Industry Outlook and/or Economic Conditions are are poor 5 0 0 0.0%
13 Company's tangible assets are nearing obsolescence 5 2 10 16.9%
14 Company is in a poor location 1 0 0 0.0%
15 Company's comparative analysis was less favorable than its peers 5 2 10 16.9%
16 Company exhibits poor trends analysis 5 0 0 0.0%
Total Utilities 62 15
TMU for Increased Risk Attribute= 59
Table 8
66.9% indication of Decreased Risk
Existence Multiplicative
Decreased Risk Attributes Ability Importance Utility Percentage
Ref # Utility Utility
17 Multiple offices 5 0 0 0.0%
18 Shareholder(s) have little/no interaction w/ key customers or suppliers 3 2 6 5.0%
19 Product lines or services are many and diverse 3 3 9 7.6%
20 Company is in a desirable industry 5 2 10 8.4%
21 Systems & Processes in place 3 0 0 0.0%
22 Company has a long history of business and good reputation 3 4 12 10.1%
23 Brand recognition, SEO, PPC drive business 5 0 0 0.0%
24 Business Patents, Unique or special Equipment 1 0 0 0.0%
25 Low Dependency on Customers or Suppliers or Market 5 2 10 8.4%
26 Company requires very little working capital (Low Financial Risk) 3 3 9 7.6%
27 Company is not leveraged (Low Financial Risk) 5 3 15 12.6%
28 Company Industry Outlook and/or Economic Conditions are are positive 5 3 15 12.6%
29 Company's tangible assets are in excellent condition and updated 5 2 10 8.4%
30 Company is in an excellent location 1 3 3 2.5%
31 Company's comparative analysis was favorable versus its peers 5 1 5 4.2%
32 Company exhibits positive trends analysis 5 3 15 12.6%
TMU for Decreased Risk Attribute= 119
Total Multiplicative Utility (TMU)= 178
Table 9

FIT THE RESULTS TO THE RANGE OF ALTERNATIVES AND ANALYZE THE RESULTS
Before determining a conclusion of value, the valuator must individually identify the attributes and
their respective contribution to the total utility for each of the Increased Risk and Decreased Risk
attributes. This is done by simply computing the percentage of each attribute’s utility to the total
attribute utility for the particular category. Tables 8 and 9 show the computations.
In this case, per Table 8, the Indication % of Increased Risk is
33.1% Indication of Increased Risk
Furthermore, per Table 9, the Indication % of Decreased Risk is
66.9% indication of Decreased Risk
Finally, when I calculate the difference, I arrive at the % adjustment:

-33.7% is the % of the Range below (if +) or above (if -) the Median of the Guideline Companies' Multiples
Using Table 2, this fits into Alternative 4 which is a -30% adjustment of the Guideline Transaction
Companies’ multiples.
6. The last step is to apply the MUM results:
Step-by-Step Calculation:
a) Since Alternative 4 is chosen, then the choice of ‐30% shall be used (mid‐point).
b) Note the SP/DE and SP/Rev median baseline multiples from the Guideline Transactions data are 1.83
and 0.81, respectively.
c) Note the Ranges for SP/DE and SP/Rev multiple from the Guideline Transaction data are 1.33 and
0.61, respectively.
d) Finally, the MUM Derived SP/DE and SP/Rev Multiples are 2.2[i.e. 1.83 ‐ (‐30% x 1.33)] and 1.00 [i.e.
0.81‐ (‐30% x 0.61)], respectively.

REACHING AN OPINION
Per Mr. Wood, “What the valuator needs to ask is whether, in light of all the facts and circumstances, this
particular attribute should be driving the results in this manner. Does the model give the expected result? If
not, was the valuator’s expectation inaccurate or have the utilities been incorrectly presented?
Ultimately, that judgment must be made in light of the NACVA Professional Standards requiring objectivity.”
COMMUNICATING VALUE OPINION

Per Mr. Wood, “NACVA Professional Standard Number 4.3a requires that “the report should effectively
communicate important thoughts, methods and reasoning ‘… in a simple and concise manner, so that the
user of the report can replicate the process followed by the member.’ Thus, the report should include,
regardless of whether a separate conclusion of value is set out in the report, enough of the analysis and
methodology to satisfy this standard.
I believe the following should be included to meet this requirement:
 A brief discussion of the (multiplicative) MUM, including a discussion of the importance and existence
utilities and how they are determined;
 A description of the attributes used and what was done to determine their importance and existence;
 A description of the alternatives, including a reference to their midpoint;
 How the utilities are computed; and
 The additional analysis for individual attribute impact and utility sensitivity.
I believe that if the valuator performs a thorough investigation of the business, gives sufficient thought to
the application of MUM, applies this method consistently, and writes a report that meets the standard
requirements, the conclusion of value of the business and (if separately stated) of the personal and enterprise
components of goodwill should withstand evidentiary challenges and provide a clear and convincing
conclusion of value that is supportable and defendable.”

18 EXHIBIT 4B: MULTI-ATTRIBUTE UTILITY MODEL (PGW
CARVE-OUT)
MUM FRAMEWORK
A value multiple or ratio relates a stock’s market price to the reported accounting data such as sales, earnings
and book value. These ratios provide an objective basis for measuring the market’s perception of a stock’s
fair market value. Value ratios generally reflect the trends in growth, performance and stability of the
financial results of operations. In this way, the business and financial risks exhibited by an industry or group
of companies can be viewed in relation to market values. Value ratios also reflect the market’s outlook for
the economy as a whole.
What’s more, Revenue Ruling 59-60, Sec. 5 Weight to be Accorded Various Factors states in part:
“The valuation of closely held corporate stock entails the consideration of all relevant factors as
more weight than others because of the nature of the company's business.”
As stated By David Wood 9, CPA/ABV, CVA, CFFA:
8F8F
Whether the valuation is under the federal rules of evidence or state-adopted and/or -modified federal rules,
or independently established rules of evidence, generally there is a threshold that the expert must climb over
(as in the Daubert 10 hearings) or an ability to show general acceptance of methods (as in states still under
9F9F
Frye 11, such as Illinois). MUM can resolve those challenges. Finding an objective and scientific method to
10F10F
making imprecise value judgments is one of our most difficult tasks. MUM provides a step-by-step guide that
should offer a reasonable position against evidentiary challenges, allow for a consistent method for the
allocations from case to case, and provide a comprehensive method that objectively addresses this imprecise
task. That is the goal of using MUM, to establish the values of personal goodwill and enterprise goodwill.
The goal here is to allow the valuator to have a template for valuations and allow any reader to re-create
this method using a simple spreadsheet. The MUM has been used by many disciplines—economic, political,
and scientific—to establish decision support for such things as placement of surplus weapons-grade
plutonium, plant and treatment facilities location, and in the restoration of highly radionuclide contaminated
aquatic ecosystems in some countries of the former Soviet Union. If it can assist in such lofty, but imprecise
goals, why can’t we use MUM to solve the “goodwill allocation” problem? The answer is that we can, and the
key word is imprecise. What these goals and ours have in common is that both require the introduction of
scientific methodology to bring order to imprecise subjective analysis. For this use of MUM, I chose the
multiplicative model, instead of the additive model. This aspect of the model will become apparent in the
description of the methodology. MUM steps are relatively straightforward:
8. Define an objective.
9. Establish alternatives.
10. Define attributes.
11. Measure the utility of each attribute.
12. Aggregate the results (i.e., do the math).
13. Evaluate the alternatives.
14. Express an opinion.
9
(2012-08-24). BVR's Guide to Personal v. Enterprise Goodwill (Kindle Location 7314).
10
Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993).
11
Frye v. U.S., 293 Fed. 1013 (D.C. Cir. 1923).
Exhibit 4B: MULTI-ATTRIBUTE UTILITY MODEL (PGW CARVE-OUT) Page 97

THE ASSIGNMENT
In my report I also use MUM to bifurcate personal and business goodwill as explained above by Mr. David
Wood. I use the same MUM methodology to quantify the amount of personal goodwill (PGW) versus business
goodwill (BGW). Note that some of the attributes used in this exercise are also used in the MUM used to
calculate the multiple in the Market Approach. Each attribute is reconciled against my many years of
transaction experience in selling companies. In other words, these are the attributes that “hypothetical” (and
specific) willing Buyers will consider when establishing terms of a business acquisition.
THE OBJECTIVE
My objective is to quantify the Subject’s Personal Goodwill (PGW) and then use the results to “carve-out”
value from the final indication of Value. This shall be done by comparing attributes that point to PGW versus
attributes that point to BGW.
ESTABLISH THE ALTERNATIVES

The alternatives define the choices in which MUM will result. The alternatives are selected as a range of
percentages. The end result of the MUM analysis will be a specific value at the mid-point of a range.
I have chosen five alternatives. Table 2A below demonstrates the alternatives I have chosen. For example,
if the MUM calculation yields 16% Personal Goodwill, since this value falls in the range defined by alternative
one (1), the choice for the adjustment shall be to Choose PGW equal to 10%.
Goodwill Percentage Range

Alternatives Personal Goodwill Enterprise Goodwill Choose PGW %
1 0% to 20% 80% to 100% 10%
2 20% to 40% 60% to 80% 30%
3 40% to 60% 40% to 60% 50%
4 60% to 80% 20% to 40% 70%
5 80% to 100% 0% to 20% 90%
Table 2A
DEFINE THE ATTRIBUTES

The model assesses the multiple attributes’ multiplicative utility in choosing an alternative result. Thus, it is
necessary to define the attributes the valuator is going to use to establish a distinction between attributes
that point to Personal Goodwill and those that Business Goodwill.
I divide the attributes into the two categories: Personal Goodwill Attributes as shown in Table 3A and
Business Goodwill Attributes as shown in Table 4A.
Example of Business Goodwill: multiple locations of a business tend to indicate less risk since there is more
enterprise goodwill, where fewer or only one location could be said to indicate more risk since there could be
more personal goodwill; in other words, the fact that there are multiple locations indicates there is likely a
stronger management team in place in order to manage all the locations. In other words, one owner cannot
be in all places at once. Therefore, having “multiple offices” is an attribute that points toward business
goodwill.

PERSONAL GOODWILL ATTRIBUTES
Ref #
Personal Goodwill Attributes
1 Difficult to Transfer Roles that Drive Business
2 Nature of the Interaction with Key Customers
3 Special Knowledge, Skills, Ability, Judgment
4 Work Habits
5 Evidence Personal Reputation
6 Personal Staff or Family Relationships
7 Personalized Name
8 In-bound Personal Referrals
Table 3A

1 Anyone with the proper license, training, & business acumen could operate this business. Good staff in place (David, etc.).
2 Given the non-personal nature of the business; no cold calls; Staff in place (office/field) that is certified. No. of customers is high (>1000 active).
3 A hypothetical Buyer would have the license and certifications to operate this business (GHP, L&O). Because of this barrier, I awarded a 3 EU.
4 Awarded 2 EU since the owner is full-time (40 hrs), there are other sales people and staff.
5 Due to nature of business; no personal testimonials found on-line (website, Google, Bing, LinkedIn). Low referral expenditures; high advertising expenditures.
6 Awarded a 3 EU since David (only key employee) has a personal relationship with Mr. Jones and has no CNTC. But note Standard of Value is FMV; premise is Going Concern.
7 Business name does not bear the owners' name.
8 No evidence. In fact, the company spends significant capital on advertising and very little on referral fees. See #15 below.

BUSINESS GOODWILL ATTRIBUTES
Ref #
Business Goodwill Attributes
9 Multiple Offices
10 Business Location
11 Multiple Service Providers or Key Staff Expertise
12 Nature of the Business
13 Systems & Processes
14 Many Years in Business
15 Marketing, Franchising, SEO, PPC
16 Business Patents, Unique Processes or Equipment
Table 4A


9 Only one office.
10 Physical location of the business not critical for this sort of business. However, state economic indicators are positive.
There are 5 skilled employees who perform the field service work. David hold both GHP and L&O certifications. Mr. Jones holds the termite certification; Note termite control generates the
11
least significant amount of revenue.
12 Business relies on pricing, service level by the technicians, and product quality. Business is repeat. There are over 1000 active customers. Service is performed primarily by employees.
13 Unaware of any.
14 Company has been operating since 1995.

Significant capital used for advertising- Company spent between $10k and $28k from 2012 through 2014 ($50k total). Note that very little spent on referral fees, i.e., $530 in the past three
15
years. Also, per website in About Us, Mr. Jones does claim the Company was voted “Palm Beaches Finest.”
16 According to the website, the ABC uses the most advanced technology.

MEASURE THE ATTRIBUTES’ UTILITY AS TO IMPORTANCE AND TO EXISTENCE
UTILITY OF IMPORTANCE
This is a two-step process. The first is to measure how important an attribute is to a particular valuation. Depending
on the type of business, its location, the period of time the business has been established, or any number of other
factors, the valuator will focus on and decide that some attributes are simply more important than others. The key
to the weighing of the “importance utility” is that the weight is relative to other attributes. Thus, it is a presumption
that an attribute listed in this part of the analysis has some merit and, thus, must be given some weight by the
valuator. Attributes are not ranked in an individually unique ascending or descending order of importance (such as
one to sixteen), but are weighed against each other (see Table 5A). To attempt to do otherwise, even as an attempt
to introduce greater objectivity, is to introduce too much precision to an imprecise task. While a valuator might
adjust the weights to suit a particular need, all attributes defined must have a weight assigned, in contrast to the
“existence utility” (see Table 6A). The weights I assigned for this illustration are shown in Table 5A.
Utility of Importance
LEAST MODERATELY MOST

IMPORTANT (1) IMPORTANT (3) IMPORTANT (5)
Table 5A
UTILITY OF EXISTENCE
The “existence utility” is a measure of assessment of how strong is the presence of the specific attribute (see Table
6A). This utility is both absolute and relative. The attribute, in the mind of the valuator, may not exist at all, in
which case the absolute value would be zero. Thus, the utility measure provides for the possibility of zero presence.
An attribute could be perceived as having a presence roughly double of another attribute. The scale of zero to four
is matter of personal choice. However, the utility must be great enough to cause real differences in the attributes’
utility and not so large as to permit one particular attribute to overly impact or exaggerate the results. The weights
I assigned are shown in Table 6A.

Utility of Existence
0 1
WEAK BELOW MODERATE ABOVE STRONG

PRESENCE AVERAGE PRESENCE AVERAGE PRESENCE
(0) (1) (3) PRESENCE (4)
(3)
Table 6A

AGGREGATE THE RESULTS—DO THE MATH
The math is relatively straightforward, as shown in the mathematical formulas in Table 7A below.
: :
Table 7A
Where,
TMU: PGW = Total Multiplicative Utility for Personal Goodwill
TMU: BGW = Total Multiplicative Utility for Business Goodwill
TMU = Total Multiplicative Utility

Table 8A shows the computations associated with the Personal Goodwill Attributes. Table 9A shows the
computation associated with the Subject’s Business Goodwill Attributes.
36.4% is the Personal Goodwill Percentage
Importance Existence Multiplicative

Ref #
Personal Goodwill Attributes Utility Utility Utility
Percentage
1 Difficult to Transfer Roles that Drive Business 3 2 6 13.6%
2 Nature of the Interaction with Key Customers 3 2 6 13.6%
3 Special Knowledge, Skills, Ability, Judgment 3 3 9 20.5%
4 Work Habits 3 2 6 13.6%
5 Evidence Personal Reputation 3 1 3 6.8%
6 Personal Staff or Family Relationships 3 3 9 20.5%
7 Personalized Name 3 0 0 0.0%
8 In-bound Personal Referrals 5 1 5 11.4%
TMU for Personal Goodwill Attribute= 44
Table 8A
63.6% is the Enterprise Goodwill Percentage
Importance Existence Multiplicative

Ref #
Business Goodwill Attributes Utility Utility Utility
Percentage
9 Multiple Offices 3 0 0 0.0%
10 Business Location 3 2 6 7.8%
11 Multiple Service Providers or Key Staff Expertise 3 3 9 11.7%
12 Nature of the Business 5 4 20 26.0%
13 Systems & Processes 3 2 6 7.8%
14 Many Years in Business 3 4 12 15.6%
15 Marketing, Franchising, SEO, PPC 5 3 15 19.5%
16 Business Patents, Unique Processes or Equipment 3 3 9 11.7%
TMU for Business Goodwill Attribute= 77
Table 9A

FIT THE RESULTS TO THE RANGE OF ALTERNATIVES AND ANALYZE THE RESULTS
Before determining a conclusion of value, the valuator must individually identify the attributes and their
respective contribution to the total utility for each of the PGW and BGW attributes. This is done by
simply computing the percentage of each attribute’s utility to the total attribute utility for the particular
category. Tables 8A and 9A show the computations.
In this case, per Table 8A, the Indication % of Personal Goodwill is
36.4% is the Personal Goodwill Percentage
Furthermore, per Table 9A, the Indication % of Business Goodwill is
63.6% is the Enterprise Goodwill Percentage
Using Table 2A, this fits into Alternative 2 which is a 30%.
REACHING AN OPINION
Per Mr. Wood, “What the valuator needs to ask is whether, in light of all the facts and circumstances, this particular
attribute should be driving the results in this manner. Does the model give the expected result? If not, was the
valuator’s expectation inaccurate or have the utilities been incorrectly presented?
Ultimately, that judgment must be made in light of the NACVA Professional Standards requiring objectivity.”
COMMUNICATING VALUE OPINION

Per Mr. Wood, “NACVA Professional Standard Number 4.3a requires that “the report should effectively
communicate important thoughts, methods and reasoning ‘… in a simple and concise manner, so that the user of
the report can replicate the process followed by the member.’ Thus, the report should include, regardless of
whether a separate conclusion of value is set out in the report, enough of the analysis and methodology to satisfy
this standard.
I believe the following should be included to meet this requirement:
 A brief discussion of the (multiplicative) MUM, including a discussion of the importance and existence
utilities and how they are determined;
 A description of the attributes used and what was done to determine their importance and existence;
 A description of the alternatives, including a reference to their midpoint;
 How the utilities are computed; and
 The additional analysis for individual attribute impact and utility sensitivity.
I believe that if the valuator performs a thorough investigation of the business, gives sufficient thought to the
application of MUM, applies this method consistently, and writes a report that meets the standard requirements,
the conclusion of value of the business and (if separately stated) of the personal and enterprise components of
goodwill should withstand evidentiary challenges and provide a clear and convincing conclusion of value that is
supportable and defendable.”

19 EXHIBIT 5: COMPANY SPECIFIC RISK PREMIUM DETAILS
19.1 CSRP Details: Personal vs. Enterprise Goodwill
ALPHA (UNSYSTEMATIC) RISK FACTORS Comments
Owner's Involvement and Presence/Management Depth 2 Mr. John Jones is the sole shareholder, owner/operator. His roles include GM, scheduling, interfaces with customers, payroll, AR, quoting; holds the General
0% ‐ Absentee (<10 hrs./week), manager(s), multiple employees Household Pest (GHP) and termite certifications under the Florida Pest Control Operator License. Works approx. 40 hours per week.
+1% ‐ Part‐time (< 30 hrs./week), manager(s), multiple employees
+2% ‐ Full‐time (>40hrs/week), manager(s), multiple employees Company has about x6 w2 employees (leased through PEO):
+3% ‐ Full‐time (>40hrs/week), no manager(s), multiple employees 1. David Davidson (Key employee): roles include field and office supervisor; technician; according to Mr. Jones, he is his "right hand man" and "father/son
+4% ‐ Full‐time (>40 hrs/week), no managers, no employees relationship;" holds the GHP and L&O (Lawn and Ornamental) certifications. Long‐term employee (10+ yrs). Paid over $100,000. He does not have a CNTC.
2. There are typically two office employees.
3. Four technicians.
Family Members working in the business (none are key): 1. Christina; Mr. Jones's daughter; roles are mostly clerical. She is fairly compensated. Not Key. 2.
Debbie; Mr. Jones's sister‐in‐law; roles are mostly clerical. Worked about 35 hours each week. Not Key.

Owner or Key Employee(s) Interaction w/ customers 2 John and David both interacts with customers directly. Due to the nature of the business, I shall assign a 2 since the largest customer is about or less than 5% of
0% ‐ Owner does not interact with any current customers directly or indirectly the overall business.
+1% ‐ Owner interacts with some current customers, but none large
+2% ‐ Owner interacts with some the large current customers
+3% ‐ Owner interacts with large customers

Owner or Key Employee(s) Involvement in critical roles 2 Both John and David (only key employee) have key roles. License holders and management.
0% ‐ No sales, No bidding, or No operations; No management of any kind
+1% ‐ No sales, bidding, operations. Only management oversight
+2% ‐ Does outside sales, bidding, but no cold calls
+3% ‐ Key salesman and does cold calls

Do the inbound referrals go to the owner or the company? 2 Company has over 1,000 active customers. Given the number hours he works, the nature of the business and since John has 4 techs doing the field service. I
0% ‐ All referrals go to the company; most customers do not know the owner shall give Mr. Jones the benefit of the doubt and award a 2 vs. 1 or 0.
+1% ‐ All referrals go to the company; many customers do know the owner
+2% ‐ Some referrals go to the owner directly
+3% ‐ Most referrals go to the owner directly

Advertising or Outside/Inside Sales Expenditures 1 Significant capital used for advertising‐ Company spent between $10k and $28k from 2012 through 2014 ($50k total). Note that very little spent on referral fees,
0% ‐ Greater than 15% or $50K, or have established sales force or distributors i.e., $530 in the past three years.
+1% ‐ Greater than 10% or $20K
+2% ‐ Greater than 3% or $10K
+3% ‐ Spends less than 3% or $5K and no sales force
EXHIBIT 5: COMPANY SPECIFIC RISK PREMIUM DETAILS Page 106

19.2 CSRP Details: Other Factors
Number of unique, unrelated customers annually? 0 The Company had over 1,000 active customers annually as of the valuation date.
0% ‐ Thousands
2% ‐ Hundreds
3% ‐ Tens
4% ‐ Less than 19

Economic Dependence (customer, supplier, person, etc.) ‐2 Largest customer was less than 5%.
‐4% ‐ Virtually no dependence
‐2% ‐ Some dependence
+2% ‐ Moderate dependence
+4% ‐ High dependence

Diversification of product lines 0 Company services both residential and commercial customers; mostly residential. Customers are primarily in Palm Beach County and some in Broward County.
‐1.0% ‐ Wide variety of products, none represents more than 10% of sales
‐0.5% ‐ Wide variety of products, none represents more than 20% of sales Company has three different product offerings, namely‐ Pest control, Lawn/Ornamental, and Termite control. Pest controls is the most significant, while
+0.5% ‐ Small variety of products, one represents more than 80% of sales Termite is the least significant relative to gross sales.
+1.0% ‐ Small variety of products, one represents more than 90% of sales

The Company's historical dividend or growth capacity ‐3 This is the amount of funds (net income) remaining to meet all demands in support of future growth (e.g., working capital, capital expenditures). The measure
‐4% ‐ Had the capacity for 4 of the past 4 years AND Trending UP known as "net cash flow to equity" is often considered a proxy for "dividend paying capacity" in regards to RR 59‐60 as it represents the cash flow available to
‐2% ‐ Had the capacity for 3 of the past 4 years AND Trending UP equity holders, i.e., potential dividends.
+2% ‐ Not had the capacity for 2 of the past 4 years OR downward trend
+4% ‐ Not had the capacity in the past 4 yrs OR Significant downward trend The Company has had strong positive and upward trending normalized net income in all years considered in this analysis.
Industry & Economic Outlook ‐2 See IBIS World Industry Report in Exhibits section. Many more positive indications than negative.
‐4% ‐ Preponderance of indications are positive
‐2% ‐ More positive than negative indications National Economic indicators are mixed. The outlook was slightly positive.
+2% ‐ More negative than positive
+4% ‐ Preponderance of indications are negative State Economic indicatores are mostly positive.

Property, Equipment & Facilities Condition 0 Per John, regarding the equipment "some is in good condition" and "some in not so good condition." Most equipment is depreciated to almost no value.
However, the FMV has not been determined.
‐4% ‐ Excellent condition
‐2% ‐ Very good condition
0% ‐ Nominal
+2% ‐ Poor condition
+4% ‐ Very poor condition or nearing obsolescence

Geographic Location 0 The Company's location is not critical.
‐4% ‐ Excellent
‐2% ‐ Good
0% ‐ Nominal or Not Important
+2% ‐ Bad
+4% ‐ Very Bad

19.3 CSRP Details: Comparative & Trends Analysis
‐1.0 RMA Historical Comparative Analysis: +1 (increase risk), 0 (neutral), or ‐1 (decrease risk)
Liquidity Ratios Comparative Analysis
Current Ratio 0.5 worse than RMA; consistently in lower P‐Tile than RMA
Quick Ratio (Acid Test Ratio) 0.5 worse than RMA; consistently in lower P‐Tile than RMA
Day's Receivables I/C inconclusive
Sales to Working Capital (WC Turnover) I/C inconclusive
Operating Ratios Comparative Analysis
Gross Profit Margin I/C inconclusive
Earning Before Taxes (EBT) to Tangible Worth I/C inconclusive
Earning Before Taxes (EBT) to Total Assets I/C inconclusive
Fixed Asset Turnover ‐0.5 better than RMA; consistently in higher P‐Tile than RMA
Total Asset Turnover ‐0.5 better than RMA; consistently in higher P‐Tile than RMA
Leverage Ratios Comparative Analysis
Interest Coverage Ratio (Times Interest Earned Ratio) ‐0.5 better than RMA; consistently in higher P‐Tile than RMA
Fixed Assets to Tangible Worth 0.5 worse than RMA; consistently in higher P‐Tile than RMA
Debt‐to‐Tangible Net Worth ‐0.5 better than RMA; consistently in lower P‐Tile than RMA
Debt‐to‐Equity ‐0.5 better than RMA; consistently in lower P‐Tile than RMA
‐4.0 Historical Trends Analysis: +1 (increase risk), 0 (neutral), or ‐1 (decrease risk)
Liquidity Ratios Trends
Current and/or Quick Ratio 0.0 Flat
Day's Receivables 0.0 Flat
Sales to Working Capital I/C inconclusive
Leverage Ratio Trends
Interest Coverage Ratio (Times Interest Earned Ratio) 0.0 Flat
Fixed Assets to Tangible Worth 0.0 Flat
Debt‐to‐Tangible Net Worth 0.0 Flat
Debt‐to‐Equity 0.0 Flat
Statements of Operations Trends
Revenue ‐1.0 Positively Trending Upward
Gross Profit Margin 0.0 Flat
Operating Expenses 1.0 Negatively Trending Upward
Net Income ‐1.0 Positively Trending Upward
Discretionary Earnings ‐1.0 Positively Trending Upward

Historic Summary Cash Flow Statement Trends
Cash Provided by (used for) Investing Activities ‐1.0 Positively Trending Upward
Cash Provided by (used for) Investing Activities ‐1.0 Positively Trending Downward
Cash Provided by (used for) Financing Activities 0.0 Flat


20 EXHIBIT 6: EDLOM CALCULATIONS
20.1 Establishing a DLOM Base using Published Research and
Studies
This section (20.1) shall be used in EDLOM calculation to derive the “Implied Base Marketability Discount.”
That is, the results shown in section 20.1.3 shall be used as the starting point which is modulated based on
ABC‘s enterprise ownership characteristics. See section 20.2 for the EDLOM calculation.
20.1.1 Implied Base Marketability Discount: Published Research

Several independent studies (see Appendix E) have been concluded with regard to restricted stocks and
initial public offerings (IPOs). The results of these studies have long been considered a proxy for the sale
of interests in privately held companies for which there is no secondary market. The studies cover several
hundred transactions from the middle 1960s through 1995. Considering the number of independent
researchers and the very long time span encompassing a wide variety of market conditions, the results are
quite consistent with the median being approximately thirty-four percent (34%).
20.1.2 Pluris DLOM Studies

The Pluris DLOM data base consists of PIPE 12 transactions that have occurred over the last ten years.
1F1F
Because these transactions are considered restricted stock transactions, the transactions can be used as a
substitute for a discount for lack of marketability. The strength of this methodology is that the study is
customized to the unique circumstances of ABC CONTROL, INC. Transactions in the data base were selected
by the process of choosing companies in the entire data base since there were no similar sectors. See
PLURIS DATA in section 20.1.4 for a list of the companies used.
The first step in calculating the DLOM is to segregate the transactions into quintiles and then compare that
to the characteristics of the subject company. These characteristics are assets, revenues, EBITDA, net
income/loss, profit margin, book value of equity, enterprise value and market. Each characteristic is then
compared to the quintile value of the selected population and the entire data set. These two different
methods are then weighted together. Using these two methods, the data is drilled down to find the best
value for the subject company. The schedule below shows the numbers for method 1.
12
A private investment in public equity, often called a PIPE deal, involves the selling of publicly traded common shares
or some form of preferred stock or convertible security to private investors. It is an allocation of shares in a public
company not through a public offering in a stock exchange.
EXHIBIT 6: EDLOM CALCULATIONS Page 109

Method #1: Analysis of Data Download Count 496
Lack of Marketability Analysis: Restricted Stock Equivalent Discount
Subject Company Data Indication

Valuation Parameters Traits Quartile/Grouping Median Weight
Total Assets ($) 119,223 4Q 11.7% 1.00
Total Revenues ($) 836,146 4Q 12.4% 1.00
EBITDA ($) 298,002 2Q 6.9% 1.00
Net Income/ (Loss) ($) 257,298 2Q 6.9% 1.00
Net Profit Margin 30.77% 2Q 6.9% 1.00
Equity (Book Value) ($) -120,539 4Q 13.3% 1.00
Enterprise Value 4Q 0.0% 0.00
Market-to-Book Value 4Q 12.4% 0.00
Meth 1 Indicated Restricted Stock Equivalent Discount (RSED) 9.7%

The schedule below is for method 2, the entire data set.
Method #2: Analysis of Entire Database Count 2503
Lack of Marketability Analysis: Restricted Stock Equivalent Discount
Subject Company Data Indication

Quartile/Group
Valuation Parameters Traits ing Median Weight
Total Assets ($) 119,223 4Q 33.3% 1.00
Total Revenues ($) 836,146 4Q 27.6% 1.00
EBITDA ($) 298,002 3Q 23.5% 1.00
Net Income/ (Loss) ($) 257,298 2Q 24.0% 1.00
Net Profit Margin 30.8% 2Q 13.4% 1.00
Equity (Book Value) ($) (120,539) 4Q 31.0% 1.00
Enterprise Value - 4Q 23.7% 0.00
Market-to-Book Value - 4Q 10.0% 0.00
Meth 2 Indicated Restricted Stock Equivalent Discount (RSED) 25.5%
The next schedule reconciles the two together.
Reconciliation of Methods
Weight
Concluded Restricted Stock Equivalent Discount (RSED) - Data Download 9.7% 0.00
Concluded Restricted Stock Equivalent Discount (RSED) - Entire Database 25.5% 1.00
Indicated Restricted Stock Equivalent Discount (RSED) 25.5%
Concluded Restricted Stock Equivalent Discount (RSED) 25.5%
At this point the RSED (restricted stock equivalent discount) has been determined. Because PIPE
transactions do have a public market, albeit very small, and small companies do not, and additional amount
known as the PEDI (private equity discount increment) will be added to the RSED to determine the DLOM.
The PEDI is derived by taking large block transactions and comparing those to the entire data set. The

additional amounts for the large blocks range from 5% to 9% higher than the whole data set or if you were
to take a ratio then they would be 1.3x to 1.4x times higher than the whole data set. These large block
transactions are more similar to the equity being valued here so an average is added incrementally to the
RSED based on the higher discounts. The following schedule shows the calculated DLOM or RSED plus the
calculated PEDI.
Note that since the Company is niche in nature, I was not able to download specific guideline companies
with similar industry codes or that operate in similar sectors. Therefore, I applied one hundred percent
(100%) of the weight to the entire database.
Private Equity Discount Increment

Concluded RSED 25.5%
Multiplicative
Additive
6.3% 7.6% 5%
8.3% 9.6% 9%
1.3x 1.4x
Indicated Private Equity Discount Increment (PEDI) 8.0%
Concluded Private Equity Discount Increment (PEDI) 8.0%
Marketability Discount
Indicated DLOM 33.5%
Concluded DLOM 33.5%

20.1.3 Summary of Studies used for the EDLOM Bases
Using the median discount determined by the published research of thirty-four percent (34%) and the
average from the Pluris DLOM Restricted Stock Studies (if any were found) as the base.
Discount
Data Source Study Name Percentage
Pluris DLOM Data Customized Restricted Stock Study 33.46%
Study SEC Institutional Investor Study 24.00%
Study Gelman Study 33.00%
Study Trout Study 34.00%
Study Moroney Study 35.00%
Study Maher Study 35.00%
Study STD Research Consultants 45.00%
Study Willamette Mgmt Associates, Inc. 31.00%
Study Emory 43.00%
Total 313.46%
Average from Studies 34.83%

Median from Studies 34.00%
Selected (Rounded) 34%

20.1.4 PLURIS DATA
Block
Common Stock Size Commo
Portion of Enterprise Market to Book Quarters n Stock
Issuer Ticker SIC Issue Date Gross Proceeds Proceeds Assets Revenues EBITDA Net Income Book Value Value Value To Sell Discount
Adeona Pharmaceuticals, Inc. SHM 8071 01/04/01 2,250,000 2,059,025 3,000,000 -1,000,000 116,260,000 2.2 19.10%
Acacia Research Corporation (A ACRI 5065 01/23/01 19,377,295 12,238,487 99,000,000 -35,000,000 60,000,000 284,380,000 4.73x 6.9 37.50%
Mercantile Bank Corporation MBWM 6022 02/21/01 1,006,250 1,006,250 513,000,000 31,000,000 6,000,000 3,000,000 48,000,000 72,460,000 0.84x 2.7 7.20%
Collins & Aikman Corporation CKC 2396 02/26/01 42,450,000 42,450,000 1,183,000,000 1,902,000,000 176,000,000 -8,000,000 -155,000,000 1,288,120,000 32.9 -8.70%
Martek Biosciences Corporation MATK 2836 03/02/01 20,307,889 17,798,337 41,000,000 11,000,000 -16,000,000 32,000,000 285,840,000 8.82x 7.2 13.00%
Panacos Pharmaceuticals Inc. VITX 2836 03/02/01 10,000,002 10,000,002 68,000,000 51,000,000 123,680,000 2.43x 8.4 3.80%
Magnum Sports & EntertainmenMAGZ 7941 03/19/01 1,195,000 774,016 3,000,000 1,000,000 -11,000,000 3,000,000 4,880,000 1.62x 27.5 41.40%
Magnum Sports & EntertainmenMAGZ 7941 05/14/01 1,550,000 666,390 3,000,000 1,000,000 -10,000,000 3,000,000 5,650,000 2.22x 24.2 50.70%
Adamis Pharmaceuticals Corpor CLGY 2834 06/07/01 15,384,001 15,384,001 28,000,000 27,000,000 98,150,000 3.68x 19.8 20.80%
BioTransplant Incorporated BTRN 2836 06/08/01 19,041,479 19,041,479 15,000,000 3,000,000 -11,000,000 12,000,000 99,060,000 8.13x 25.6 24.60%
OncoGenex Pharmaceuticals, In SNUS 5912 06/15/01 4,886,000 4,886,000 13,000,000 11,000,000 33,630,000 3.19x 18.2 20.00%
GlycoGenesys, Inc. GLGS 2834 07/10/01 5,000,000 4,810,982 4,000,000 -8,000,000 2,000,000 37,310,000 18.31x 14.8 13.10%
LifeCell Corporation LIFC 2836 07/10/01 6,000,000 4,494,754 21,000,000 26,000,000 -6,000,000 11,000,000 45,060,000 3.62x 18.7 38.80%
ACI Global Corporation DBOT 8071 07/18/01 1,230,000 912,496 2,000,000 -1,000,000 16,120,000 7.1 17.60%
Community Bancorp Inc. CMBC 6021 08/01/01 3,137,498 3,137,498 325,000,000 28,000,000 4,000,000 1,000,000 13,000,000 36,250,000 1.43x 17.7 3.90%
American Bio Medica CorporatioABMC 2835 08/22/01 2,549,000 2,111,723 4,000,000 1,000,000 18,000,000 16.20x 14.2 17.20%
Yardville National Bancorp YANB 6021 08/22/01 7,787,464 7,787,464 1,754,000,000 119,000,000 44,000,000 12,000,000 115,000,000 771,520,000 0.91x 8.0 6.90%
Aphton Corporation APHT 2836 08/27/01 14,250,036 14,250,036 18,000,000 -19,000,000 1,000,000 222,740,000 7.3 12.70%
Organogenesis Inc. ORG 2836 08/28/01 3,250,000 3,099,585 24,000,000 7,000,000 -23,000,000 -29,000,000 -18,000,000 296,160,000 1.4 21.10%
QCR Holdings, Inc. QCHI 6022 09/18/01 5,229,664 5,229,664 400,000,000 35,000,000 3,000,000 36,000,000 82,250,000 0.68x 21.0 -3.00%
Federal Trust Corporation FDTR 6035 10/02/01 1,500,000 1,500,000 272,000,000 22,000,000 5,000,000 1,000,000 17,000,000 52,250,000 0.68x 10.2 -43.20%
Deltagen, Inc. DGEN 8731 10/18/01 10,000,000 10,000,000 113,000,000 9,000,000 -41,000,000 88,000,000 214,120,000 2.36x 4.9 1.80%
Unity Bancorp, Inc. UNTY 6022 10/18/01 1,105,590 1,105,590 369,000,000 33,000,000 4,000,000 24,000,000 37,450,000 1.04x 5.6 19.40%
Alloy, Inc. ALOY 7331 11/01/01 32,187,500 32,187,500 206,000,000 144,000,000 -24,000,000 169,000,000 405,870,000 2.41x 8.6 7.40%
Advanced Tissue Sciences, Inc. ATIS 2836 11/02/01 14,667,490 14,667,490 40,000,000 27,000,000 -6,000,000 -23,000,000 18,000,000 295,010,000 15.28x 5.5 5.70%
Gabriel Technologies CorporatioPVII 3499 11/08/01 2,000,001 2,000,001 30,000,000 14,000,000 41,640,000 3.00x 3.7 -30.50%
Apogee Technology, Inc. APGT 3674 11/29/01 2,390,022 2,390,022 2,000,000 2,000,000 1,000,000 74,990,000 74.01x 4.2 23.30%
Martek Biosciences Corporation MATK 2836 12/18/01 22,657,250 22,657,250 57,000,000 19,000,000 -14,000,000 47,000,000 410,350,000 8.79x 6.0 8.30%
Aksys, Ltd. AKSY 3841 12/19/01 10,384,498 9,459,110 8,000,000 -18,000,000 -18,000,000 6,000,000 80,120,000 13.45x 16.9 30.20%
GlycoGenesys, Inc. GLGS 2834 12/21/01 5,693,300 4,457,038 7,000,000 -11,000,000 -19,000,000 5,000,000 44,400,000 8.75x 14.7 31.50%
GenVec, Inc. GNVC 8731 12/21/01 12,895,200 12,895,200 44,000,000 7,000,000 -16,000,000 33,000,000 81,190,000 2.26x 19.8 13.30%
MZT Holdings, Inc. NMPS 2835 12/26/01 1,075,867 966,004 5,000,000 2,000,000 -8,000,000 4,000,000 82,410,000 19.67x 1.6 28.20%
Sirna Therapeutics, Inc. RZYM 2834 12/28/01 3,000,000 2,863,438 62,000,000 10,000,000 -34,000,000 -46,000,000 42,000,000 90,180,000 1.92x 3.9 9.10%
Fuel Systems Solutions, Inc. IMCO 3714 01/11/02 22,500,000 21,389,923 121,000,000 74,000,000 152,100,000 1.83x 19.0 16.00%
GlycoGenesys, Inc. GLGS 2834 01/23/02 5,650,700 3,279,897 12,000,000 -23,000,000 9,000,000 53,740,000 6.08x 10.3 41.00%
Digene Corporation DIGE 2835 01/30/02 15,000,000 15,000,000 56,000,000 41,000,000 -3,000,000 -5,000,000 29,000,000 426,500,000 14.71x 3.5 -2.00%
Progress Financial Corporation PFNC 6035 02/11/02 8,649,975 8,649,975 851,000,000 83,000,000 14,000,000 1,000,000 71,000,000 396,040,000 3.61x 4.1 7.00%

20.2 Adjustment of the EDLOM Base
The following factors influence the liquidity of an investment on an enterprise-level and therefore
influence the adjustment for the EDLOM. These factors have been assigned a value based on
whether it increases (“I”), decreases (“D”) or is neutral (“N”, no effect) in adjusting for lack of
marketability.
I
D
ITEM FACTORS THAT INFLUENCE LIQUIDITY COMMENTS REGARDING THE SUBJECT N
1 Existence and Reliability of Financial Since the Company’s financial statements were not audited, its reliability is less than I
Information ‐ Audited, reviewed, compiled. equal to that of public companies for the years analyzed. Therefore, the risk of
marketability is increased.
2 Concentration of Control Owner –A company Subject's control rests with one shareholder; this situation will decrease discounts. D
that has a single controlling shareholder has
the ability to operate the business as they
see fit without regard to minority owners.
3 Number of Potential Buyers ‐ With more SUBJECT operates in an industry that is not undergoing acquisitions. I
potential buyers, the easier it is to liquidate
an ownership interest.
4 Size of the Business - The larger the SUBJECT is of a small size and, therefore, more difficult to sell. In fact, I had to use I
business, the easier it is to sell, consequently regression analysis to extrapolate the cost of equity.
meriting lowering discounts.
5 Desirability of the business ‐ Businesses in Given the number of guideline companies I found in the BizComps' data base, this sort D
"hot" industries are easier to sell because of business could draw a significant interest.
they tend to attract interest, thus, lowering
discounts.
6 Existence of Restricted Stock Agreement ‐ SUBJECT does not have restrictive agreements; thus risk is decreased. D
Restricted stock agreements limit the
marketability of an entity and making it more
difficult to attract buyers thereby increasing
discounts.
7 Divergence of Owners' Business Philosophy - Since there is only one decision maker. D
Business owners that have materially
different views on how to run the business,
and buy or sell assets produce higher
discounts.
8 Yield ‐ Businesses with a consistent trend of SUBJECT revenues and earnings have been increasing. Also, the DE have been D
high profitability are more easily transferable. significant.
This high yield reduces the possibility of total
asset liquidity and reduces the discount.
9 Existence and Impact of Pending Litigation ‐ SUBJECT does not have pending litigation. D
Businesses with potentially costly legal
issues are not as desirable in the
marketplace and result in higher discounts.
10 Initial Public Offering (IPO) Marketplace - Not likely. I

During strong IPO periods, owners have an
enhanced potential of achieving partial
liquidity, consequently lowering discounts.

11 Dividend Policy - Normally, a stock that pays The company has had enough net income to pay dividends for each of the years being D
no dividends is less attractive, but might considered.
possibly be salable under certain limited
circumstances and at a price that must be
discounted from an otherwise comparable
dividend-paying stock that has an
established market.
12 Brand Recognition - Company with a well The Subject is not a well known national brand. I
known brand typically manifests in revenue
drivers and ultimately in cash flow, and is a
result of intangibles such as name
recognition and company reputation. An
interest in a company with a name the
prospective investor recognizes and whose
strong reputation is well known is a more
attractive investment than an investment in
an obscure company whose reputation is
uncertain.
NO. OF FACTORS 12
NO. OF ITEMS THAT INCREASE DLOM 5

NO. OF ITEMS THAT DECREASE DLOM 7
NO. OF ITEMS THAT DO NOT AFFECT DLOM (NOT CONSIDERED) 0
NO. OF FACTORS CONSIDERED 12

INCREASE LESS DECREASE -2
NET EFFECT ON THE ADJUSTMENT FOR THE ILLIQUIDITY DLOM -17%
IMPLIED BASE MARKETABILITY DISCOUNT 34.0%
ENTITY-LEVEL DLOM (ROUNDED) 28%
20.2.1 Quantifying Measurement of the EDLOM Factors

Of the twelve (12) listed factors, I determined that 5 have an increasing effect on the adjustment
for lack of marketability, 7 have a decreasing effect and 0 had a neutral effect. The overall trend is
a decrease in the adjustment for marketability. I assign each increase a value of plus one (+1) and
each decrease a value of negative one (-1). Because the neutral factors have no effect, they are
removed for comparative purposes; therefore, a total of 12 factors were considered. I then subtract
the decrease factors from the increase factors to net a change of -2. This change is then divided by
total considered to capture the percentage of the trend. I conclude that the net effect on the
adjustment for lack of marketability is increased by -17% (-2/12) for the common shares of stock.
Finally, I then determine the adjustment for lack of marketability by multiplying the base by one (1)
plus or minus the increase or decrease determined above, in this case, -17%.
The calculation, then, is (34% x (1 + -17%), the result of which is 28%.


21 EXHIBIT 7: ADJUSTMENTS TO SALARIES AND WAGES
21.1 Adjustments Worksheet
Total Officer Comp Subject's Common Sized Calculated Common Sized (median)
1 2 2
Fiscal Year From W2's or K1's 1FTE's Wages Subject 1FTE Wages RMA Officer Comp RMA Officer Comp
2012 55,240 55,240 8.2% 0 0.0%
2013 52,176 52,176 6.7% 0 0.0%
2014 56,354 56,354 6.7% 0 0.0%
3
RMA Recat Off. Comp Officer Comp Recategorized to Recat Off. Comp.
2 4
to (‐) or from (+) NI Match RMA Data (Proof) to (‐) /from (+) S&W Adj SW to FMV
‐55,240 0 0 ‐18,200
‐52,176 0 0 ‐18,200
‐56,354 0 0 ‐18,200
NOTES:
1. "Officer's Compensation" wages (Corporation) reported on the W2s or "Guarantee to Partners" wages (Partnership) reported on the K‐1s.
2. Wages to one Full‐Time Equivalent Owner/Operator (1FTE). If there are multiple officers, all but one's Officer's Compensation (or Partner
Guarantee) are relegated to Salaries/Wages when calculating Discretionary Earnings. This adjustment has no effect on Net Income.
3. This adjustment forces the 1FTE Officer's wages (item 2 above) to match RMA data; this CAT 2 adjustment has an equal, but opposite effect on
the NI (e.g., ‐$10K adjustment increases NI by $10K; or $10K of OC is recategorized to NI).
4. Adjustment of all employees' and officers' (excluding the 1FTE officer) salaries to fair market value per management or compensation data bases
referenced herein. Note that the 1FTE owner/operator’s salary is adjusted according to the RMA industry data.
EXHIBIT 7: ADJUSTMENTS TO SALARIES AND WAGES Page 116

21.2 Salaries Adjustments
The following tables show the amounts of Salaries and Wages adjusted each year to account for Mrs. Smith’s over compensation.
John Jones Shareholder President 100% Ownership 100.0% of 1FTE

Fiscal Period Actual Wage Paid Should be Paid Over (+)/Under (‐) Paid Comments
2012 55,240 55,240 0
2013 52,176 52,176 0
2014 56,354 56,354 0
Jane Jones Family Member 0.0% of 1FTE

Fiscal Period Actual Wage Paid Should be Paid Over (+)/Under (‐) Paid Comments
2012 18,200 0 18,200 Paid $700 every 2 weeks; did not participate in the business.
2013 18,200 0 18,200
2014 18,200 0 18,200

The following are snapshots taken from the Florida Occupational Employment and Wages data base to calculate amount of “excess” income to be
removed from Mr. Smith’s total income and discretionary earnings.
Experienced GMs are were paid a wage of $126,909.

22 EXHIBIT 8- GUIDELINE TRANSACTION COMPANY
DATA
22.1 BizComps Data (Private)
(000's) (000's) (000's)
Business Type Date SIC Area Revenue Discr. Earn. Sales Price P/SDE P/R
Pest Control 06/30/11 7342 Phoenix, AZ 60 49 60 1.22 1.00
Pest Control 02/02/10 7342 Florida 341 86 271 3.15 0.80
Pest Control 08/31/09 7342 Scottsdale, AZ 68 48 73 1.52 1.07
Pest Control 07/20/09 7342 Iowa 151 61 97 1.59 0.64
Pest Control Service 05/29/08 7342 Florida 119 35 100 2.86 0.84
Pest Control 03/12/08 7342 Florida 1063 521 1,950 3.74 1.83
Pest Control 08/01/07 7342 Scottsdale, AZ 583 184 120 0.65 0.21
Pest Control 11/05/03 7342 Southern Flor 300 100 190 1.90 0.63
Pest Control 06/30/03 7342 Mesa, AZ 300 120 120 1.00 0.40
Pest Control 06/30/03 7342 Mesa, AZ 335 119 135 1.13 0.40
Pest Control 06/30/03 7342 Chandler, AZ 100 64 100 1.56 1.00
Pest Control 04/30/03 7342 Michigan 255 90 155 1.72 0.61
Pest Control 03/25/11 7342 Reno, NV 293 55 250 4.55 0.85
Pest Control 06/06/11 7342 Southeast 123 42 50 1.19 0.41
Pest Control 01/31/10 7342 San Jose, CA 1764 311 750 2.41 0.43
Pest Control 04/27/07 7342 Livermore, CA 854 144 365 2.54 0.43
Calculated Mean 2.84 0.80
Calculated Median 1.83 0.81
SELECTED MEDIAN 1.83 0.81
EXHIBIT 8- GUIDELINE TRANSACTION COMPANY DATA Page 120

23 APPENDIX A: VALUATION ANALYST’S
REPRESENTATION
The analyses, opinions, calculations and conclusion of value included in the valuation report are
subject to the specified assumptions and limiting conditions (see Appendix C), and they are the
personal analyses, opinions, calculations and conclusion of value of the valuation analyst.
The economic and industry data included in the valuation report have been obtained from
various printed or electronic reference sources that the valuation analyst believes to be reliable.
The valuation analyst has not performed any corroborating procedures to substantiate that data.
The valuation engagement was performed in accordance with the American Institute of Certified
Public Accountants Statement on Standards for Valuation Services.
The parties for which the information and use of the valuation report is restricted are identified;
the valuation report is not intended to be and should not be used by anyone other than such
parties.
The analyst’s compensation is fee-based and is not contingent upon the development or
reporting of a predetermined value or direction in value that favors the cause of the client, the
amount of the opinion of value or the attainment of a stipulated result.
The valuation analyst did not use the work of one or more outside specialists to assist during
the valuation engagement.
The valuation analyst has no obligation to update the report or the opinion of value for
information that comes to his or her attention after the date of the report.
Salvatore B. Urso
President
Ameri-Street Advisory, Inc.
APPENDIX A: VALUATION ANALYST’S REPRESENTATION Page 121

24 APPENDIX B: APPRAISER’S CURRICULUM VITAE
Salvatore B. Urso • Broker, Intermediary, Business Valuator
Updated August 2, 2014
Salvatore Urso has been selling and valuating small, closely held
businesses since 2005. Since then, his practical transaction experience
as a business broker, along with his keen understanding of business
valuation theory, have provided an invaluable framework for rendering
accurate business valuations that can be explained to, and understood
by, a layperson; this is an important attribute that is invaluable in
contentious situations and especially in a court of law.
Mr. Urso has personally interviewed over 800 business owners,
performed over 500 business valuations, and sold over 40 companies;
see engagement areas listed below. In addition, he has over 25 years of experience in operating
multiple businesses as well as outside sales & marketing, which are valuable skills that have
helped render him very adept and effective at negotiating terms, selling and valuating companies.
All valuations adhere to the AICPA Statement on Standards for Valuation Services (SSVS), NACVA
standards and IRS Revenue Ruling 59‐60, as well as and subsequent IRS rulings.
Attorneys, CPAs, SBA lenders, and financial advisors across the United States often refer their
clients to his firm. Over the years, local attorneys and business owners began employing Mr. Urso
and his firm to provide business valuations for various purposes‐ namely, bankruptcy, divorce,
partner disputes, business mergers and acquisitions.
Mr. Urso has been called upon and qualified to testify as an expert witness in court cases involving
business valuations. IMPORTANT: Most engagements are settled in pre‐mediation, mediation or
after depositions; see “Litigation Support Experience” below.
In 2010, Mr. Urso founded a spin‐off, Affiliate Company called Ameri‐Street Advisory, Inc. which
focuses primarily on business valuations and consulting related to business acquisitions across the
United States.
Aside from the aforementioned companies, Mr. Urso co‐founded two family businesses and is a
managing member in the Tampa based Comfort Keepers home health agency. He has personally
invested in, bought, managed and sold investment properties and businesses for over two
decades. His fundamental recipe is to combine integrity, honesty, experience and attention to
detail such that all parties involved experience a win‐win business transaction.

APPENDIX B: APPRAISER’S CURRICULUM VITAE Page 122

Litigation Support Experience (business Valuations)
Nature Case/Description Location Date Notes

th th
Partner Dispute 1222760CA24 Dade 11 Judicial Ct., FL 2014 Testified August 8 , 2014
Family Law‐ Divorce 10‐DR‐015874 HILLS/DSTR‐13, FL 2013 Testified April 8th, 2013.
Family Law‐ Divorce 10‐DR‐019221 HILLS/DSTR‐13, FL 2013 Testified June 25th, 2013. Division E
Bankruptcy 8:13‐bk‐14296‐CPM Middle Dist. FL 2014 FDIC vs. Scarfia; resolved without testifying
Bankruptcy 8:14‐bk‐02667‐MGW Middle Dist. FL 2014 Resolved without testifying
Bankruptcy 8:13‐bk‐01401‐MGW Middle Dist. FL 2014 Allstate Insurance vs. Sharkey
Family Law‐ Divorce Dental Lab Tampa, FL 2014 Private (CP); resolved without testifying
Family Law‐ Divorce Construction Co. Tampa, FL 2014 Private (DO); resolved without testifying
Family Law‐ Divorce Dry Cleaning Business Lakeworth, FL 2014 Private (FC); resolved without testifying
Bankruptcy Gentleman’s Club Tampa, FL 2014 Private (OT); resolved without testifying
Bankruptcy Fitness Center Clearwater, FL 2014 Private (PC); resolved without testifying
Family Law‐ Divorce Medical Practice Dagsboro, DE 2014 Case no. 12‐37017; resolved w/o testifying
Family Law‐ Divorce Restaurant Chain Waco, TX 2014 Private (LF); resolved without testifying
Bankruptcy Property Management Co. Chicago, IL 2014 OPEN
Family Law‐ Divorce Chiropractic Clinic Brooksville, FL 2014 OPEN
Family Law‐ Divorce Home Health Agency Palm Beach, FL 2014 HHC; resolved without testifying
Business Dispute Medical Billing Co. Tampa/Orlando 2014 Resolved without testifying
Family Law‐ Divorce Paving Business Glendale, AZ 2014 Resolved without testifying
Bankruptcy Ice Cream Business Lakeland, FL 2014 OPEN
Bankruptcy Electrical Contractor Tallahassee, FL 2014 Resolved without testifying
Bankruptcy 13‐16552‐CPM Tampa, FL 2014 Inv. Property; minority int. (LP). OPEN.
Family Law‐ Divorce Bar, Café Brandon, FL 2013 Private (CBC); resolved w/o testifying
Business Dispute Construction Co. Tampa, FL 2013 Private (DC); resolved without testifying
Bankruptcy Maintenance Services Clearwater, FL 2013 Private (DM); resolved w/o testifying
Bankruptcy Roofing Co. Tampa, FL 2013 Private (SR); resolved without testifying
Estate Dispute Die Manufacturing Fort Pierce, FL 2013 Private (UT); resolved without testifying
Bankruptcy Dentist Lakeland, FL 2012 Private (DA); resolved without testifying
Family Law‐ Divorce Bar/Restaurant Tampa, FL 2012 Private (CT); resolved without testifying
Bankruptcy Box Manufacturer Tampa, FL 2012 Private (AP); resolved without testifying
Family Law‐ Divorce Catering Business Tampa, FL 2012 Private (CC); resolved without testifying
Bankruptcy Stone Importer Tampa, FL 2012 Private (ICS); resolved without testifying
Family Law‐Divorce Plumbing Tampa, FL 2012 Private (PP); resolved without testifying
Business Dispute Optometry Practice Tampa, FL 2011 Private (T.O.); resolved w/o testifying
Business Dispute Meat Wholesaler Tampa, FL 2011 Private (T.S.); resolved w/o testifying
Bankruptcy Bar, Restaurant Tampa, FL 2011 Private (R.U.); resolved w/o testifying
Family Law‐ Divorce Pest Control Tampa, FL 2011 Private (RBC); OPEN.
Bankruptcy Financial Planner Brandon, FL 2011 Private (TG); resolved without testifying
Family Law‐ Divorce Plant wholesaler Plant City, FL 2011 Private (GC); resolved without testifying
Bankruptcy Vending Business Tampa, FL 2011 Private (AB); resolved without testifying
Family Law‐ Divorce Café Orlando, FL 2011 Private (BC); resolved without testifying

Past Engagement Areas
Past engagements include businesses in the following areas that were sold or valuated:
 medical practices* (dental, medical,  tenant verification
optometry, and chiropractic)  web sites
 CPA firms*  commercial AC contractor*
 manufacturing  building contractors *
 home health agencies, registries  publication
 retail  painting contractor*
 restaurants  pest control
 auto repairs  beverage vendor
 art framing  motor boats sales
 printing  large equipment distributor
 embroidery  plumbing contractor*
 office supplies  real estate investment firm*
 youth sports  packaging suppliers
 laundry facilities  bank ATM IT provider
 asphalt and paving  fishing boat and distributor
 hair solons*  meat distributor
 flowers shops  night club/bars
 moving company  garden center
 transportation  environmental engineering firm*
 commercial building cleaning  asset management firm*
 lighting store  beer wholesaler
 nail salons*  sky dive company
 FedEx routes  assisted living facility
 pet supplies  point‐of‐sale marketing
 granite fabrication  security system integrator
 DME sales  appliance repair

* Indicates companies with high level of personal goodwill.

Education
Member of the Institute of Business Appraisers (IBA)
Florida Real Estate Broker
University of Florida, BS Electrical Engineering
Affiliations
Hillsborough County Bar Association Collaborative Divorce Group
Professional References
Ingrid Hooglander, Attorney Neil Schecht, Attorney
Law Office of Ingrid M. Hooglander Neil Schecht Law Firm
Family Law Attorney Business Law
813-902-3576 813-353-9500
Al Gomez, Attorney Jonathan Ellis, Attorney

Johnson Pope Bokor Ruppel & Burns, LLP Shumaker, Loop & Kendrick
Bankruptcy Law Business Law
813-225-2500 813-277-2334
Temple Drummond, Attorney Kevin Riggs, CPA

Drummond, Wehle & Ross Renaissance Consulting & Development
Estate and Business Law 813-277-2334
813-983-8000
Martin A. Bubley, Attorney
Rick Feinberg, Attorney Bubbly & Bubley Law Firm
PR Smith Law Group, PA Business, Trust, Real Estate Law
Bankruptcy Law 813-963-7735
813-231-2088
Harry Tempkins, Attorney
Carlos Ramirez, Attorney Neman & Tempkins
Carlos Ramirez Law Firm (305) 398-7760 x223
Family Law Attorney
(813) 253-4529 Vivian Cortes Hodz, Attorney
Cortez Hodz Family Law & Mediation
Dustin Deese, Attorney (813) 514-0909
McIntyre Thanasides
Business Law Jason H. Baruch, Attorney
(813) 899-6059 Trenam Kemker
Business Law
(813) 227-7480

25 APPENDIX C: LIMITING CONDITIONS
1. The conclusion or calculation of value arrived at herein is valid only for the stated purpose as
of the date of the valuation.
2. This valuation is made for the purpose stated in the report and is to be used in its entirety.
No third parties should rely on the information contained in this report without the advice of
their attorney or accountant, and without confirming for themselves the information contained
herein. Neither the report nor the information it contains should be used for any other purpose
or function, and it is invalid if so used.
3. This report and the conclusion or calculation of value arrived at herein are for the exclusive
use of our Firm’s client for the sole and specific purposes as noted herein. They may not be used
for any other purpose or by any other party for any purpose. Furthermore the report and
conclusion or calculation of value are not intended by the author and should not be construed
by the reader to be investment advice in any manner whatsoever. The conclusion or calculation
of value represents the considered opinion of our Firm based on information furnished to them
by the Client, Company management, or Company employees and other sources.
4. Nothing came to our attention to cause us to believe that all facts and data set forth in this
report are not true and correct. We have not knowingly withheld or omitted anything affecting
value.
5. The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provisions of this Agreement, which shall remain in full
force and effect.
6. The fee for this valuation is not contingent upon value reported and is valid only for the
purpose specified herein. We have no responsibility or obligation to update this report for events
or circumstances occurring subsequent to the date of this report.
7. The conclusion or calculation of value reflects facts and circumstances existing as of the
valuation date.
8. Except as noted, our Firm has not considered subsequent events and we have no obligation
to update our conclusion or calculation of value for such events.
9. All opinions as to values stated are presented as our considered opinion based upon the facts
and data as set forth in the report. No responsibility is assumed for a seller’s inability to obtain
a purchaser at the values reported herein.
10. No opinion is intended to be expressed for matters that require legal or other specialized
expertise, investigation, or knowledge beyond that customarily employed by valuation
specialists valuing a business, a business ownership interest, security, or intangible asset.
11. No responsibility is assumed for matters of a legal nature or other specialized expertise,
investigation or knowledge beyond that customarily employed by appraisers valuing businesses.
12. Our Firm assumes no responsibility for matters of a legal nature affecting the Company
Valuation. The valuation assumes ownership in the highest form. Other than any specific
exceptions described within the report, in reliance on management’s representations, our Firm
has not reviewed any legal documents including, but not limited to, the articles of incorporation
and bylaws (including amendments), minute books, distribution or franchise agreements,
leases, employee or collective bargaining agreements, documents related to litigation or the
like, warranties, guarantees, or loan agreements, or ESOP/ESOT agreements. To the extent our
Firm has reviewed such documents, it is acknowledged that evaluation of them, relative to any
legal considerations or impact is outside the skills of the Firm’s analysts.
13. Financial statements and other related information provided by the Client or its
representatives, in the course of this engagement, have been accepted without any verification
as fully and correctly reflecting the enterprise’s business conditions and operating results for the
respective periods, except as specifically noted herein. Our Firm has not audited, reviewed, or
APPENDIX C: LIMITING CONDITIONS Page 126

compiled the financial information provided to us and, accordingly, we express no audit opinion
or any other form of assurance on this information.
14. Public information and industry and statistical information, if obtained, has been derived
from sources we believe to be reliable. However, our Firm makes no representation as to the
accuracy or completeness of such information and has performed no procedures to corroborate
the information.
15. We do not provide assurance on the achievability of the results forecasted by the Client
because events and circumstances frequently do not occur as expected; differences between
actual and expected results may be material; and achievement of the forecasted results is
dependent on actions, plans, and assumptions of management.
16. This report is a valuation report designed to give a conclusion of value or calculated value.
It is not an accounting report and it should not be relied upon to disclose hidden assets or to
verify financial reporting. The report is an opinion of value of the specific assets and liabilities
considered by our Firm.
17. The conclusion or calculation of value arrived at herein is based on the assumption that the
current level of management expertise and effectiveness would continue to be maintained, and
that the character and integrity of the enterprise through any sale, reorganization, exchange,
or diminution of the owner’s participation would not be materially or significantly changed.
18. Our Firm does not purport to be a guarantor of value. Valuation of closely held companies
is an imprecise science, with value being a question of fact, and reasonable people can differ in
their opinions of value. Our Firm has, however, used conceptually sound and commonly accepted
methods and procedures of valuation in determining the opinion of value included in this report.
19. Neither all nor any part of the contents of this report (especially the conclusion of value, the
identity of any valuation specialist(s), or the firm with which such valuation specialists are
connected or any reference to any of their professional designations) should be disseminated to
the public through advertising media, public relations, news media, sales media, mail, direct
transmittal, or any other means of communication without the prior written consent and
approval of our Firm.
20. This written business valuation contains historical and normalized financial statements, as
well as other financial presentations, used solely in developing and presenting the valuation of
the entity, specified assets, and/or equity interest of such entity. These financial statements
may contain departures from generally accepted accounting principles (GAAP) or another
comprehensive basis of accounting (OCBOA) because the purpose of such statements is solely
to assist in developing and presenting the business valuation of an entity, specified assets,
and/or equity interest of such entity. For this reason, it is understood by all parties that the
financial statements, as well as other financial presentations, included in this written business
valuation will not be used to obtain credit or for any purpose other than developing and
presenting a business valuation of the entity, specified assets, and/or equity interest of such
entity.
21. Users of this business valuation report should be aware that business valuations are based
on assumptions regarding future earnings potential and/or certain asset values, which may or
may not materialize. Therefore, the actual results achieved in the future will vary from the
assumptions utilized in this valuation, and the variations may be material.
22. We have relied upon the representations of the owners, management, and other third parties
concerning the value and useful condition 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.
23. The valuation engagement and its conclusions are subject to review upon presentation of
data, which may have been undisclosed or not available at the time of this report.
24. In connection with this engagement, our Firm appraised none of the fixed assets.

25. Future services regarding the subject matter of this report, including, but not limited to
testimony or attendance in court, shall not be required of our Firm unless previous arrangements
have been made in writing.
26. Our Firm is not an environmental consultant or auditor, and it takes no responsibility for any
actual or potential environmental liabilities. Any person entitled to rely on this report, wishing
to know whether any such liabilities exist, or the scope and their effect on the value of the
property, is encouraged to obtain a professional environmental assessment. Our Firm does not
conduct or provide environmental assessments and has not performed one for the subject
property.
27. No change of any item in this appraisal report shall be made by anyone other than our Firm,
and we shall have no responsibility for any such unauthorized change.
28. 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.
29. Unless otherwise informed or determined independently by our Firm, it is assumed that
there are no regulations of any government entity to control or restrict the use of the subject
business’s underlying assets and that the underlying assets will not operate in violation of any
applicable government regulations, codes, ordinances, or statutes. our Firm also assumes that,
unless otherwise informed or determined independently, the subject business is in compliance
with all federal, state and local laws and regulations, as well as up to date in regard to all filing
and reporting requirements.
30. Possession of this report, or a copy hereof, does not carry with it the right of publication of
all or any part of this report without the expressed written consent of our Firm, and then only
in the event of proper attribution. Should you provide copies, or the right to review, to others,
said other parties may be assured that this report, while performed in the employ of our client,
was prepared on a non-advocacy basis. Said other parties, however, are cautioned that our Firm
has no duty to you, and therefore, no warranty is expressed or implied. Nothing in this report
is intended to replace any third party’s independent sole judgment, due diligence, or decision to
seek legal, accounting or valuation counsel. All such other parties will be considered “unintended
users” under the terms of our engagement.
31. Within this engagement, unless specifically stated otherwise herein, assumes there are no
litigious, regulatory compliance and/or similar problems, or restrictions or other qualifications
within the documents referred to above, which could materially affect the value of the company
being valued. No representations or warranties are expressed or implied regarding such
conditions and no consideration has been given to the possible effects of any such conditions.
32. Neither our opinion of value nor this report constitutes advice for any specific action.
33. Financial restructuring or a public offering has not been directly considered. If material
changes, other than those specified herein, occur in the ownership, financing, or public offering
opportunity, the impact upon value could be significant and some of the assumptions inherent
in this valuation could be invalid.
34. Our Firm has not made a specific compliance survey or analysis of the subject property to
determine if it is subject to, or in compliance with, the American Disabilities Act of 1990, and
this valuation does not consider the effect, if any, of noncompliance.
35. Unless otherwise provided for in writing and agreed to by both parties in advance, the extent
of the liability for the completeness or accuracy of the data, opinions, comments,
recommendations and/or conclusions contained in this report shall not exceed the amount paid
to the Firm for professional fees and, then only to the party(s) for whom this report was
prepared.
36. If prospective financial information approved by the Client and/or the Company has been
used in our work, our Firm has not audited, reviewed, or compiled the prospective financial
information and therefore, does not express an audit opinion or any other form of assurance on
the prospective financial information or the related assumptions. Events and circumstances
frequently do not occur as expected and there will usually be differences between prospective
financial information and actual results, and those differences may be material. Our Firm does

not provide any assurance on the achievability of forecasts provided. Achievement of the
forecasted results is dependent on actions, plans, and assumptions of management.
37. The conclusion of value or calculation of value is based on the stated definition of value. An
actual transaction involving the business, the business ownership interest, the security, or the
intangible asset may occur at a higher or lower value, depending on the circumstances
surrounding the business, the business ownership interest, the security, or the intangible asset,
and the motivations and knowledge of both the buyers and sellers at that time. Our Firm makes
no guarantees about what values individual buyers and sellers may reach in an actual
transaction.
38. Our Firm assumes there are no other hidden or unexpected conditions of the entity that
would adversely affect value, other than those indicated.
39. Our Firm has not knowingly withheld or omitted anything from our valuation that would
affect the conclusion or calculation of value.
40. Our Firm did not consider the effect, if any, of Internal Revenue Code §2701 through §2704,
nor do we express any opinion as to its applicability.
41. Except as noted, we have relied on the representations of the owners, management, and
other third parties concerning the value and useful condition of all equipment, real estate,
investments 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 entity has good title to all
assets.

26 APPENDIX D: IRS REVENUE RULINGS
26.1 Revenue Ruling 59-60
Rev. Rul. 59-60, 1959-1 CB 237 -- IRC Sec. 2031 (Also Section 2512.) (Also Part II,
Sections 811(k),
1005, Regulations 105, Section 81.10.)
Reference(s): Code Sec. 2031 Reg § 20.2031-2

In valuing the stock of closely held corporations, or the stock of corporations where market
quotations are not available, all other available financial data, as well as all relevant factors
affecting the fair market value must be considered for estate tax and gift tax purposes. No
general formula may be given that is applicable to the many different valuation situations arising
in the valuation of such stock. However, the general approach, methods, and factors which must
be considered in valuing such securities are outlined.
Revenue Ruling 54-77, C.B. 1954-1, 187, superseded.
Full Text:
Section 1. Purpose.
The purpose of this Revenue Ruling is to outline and review in general the approach, methods
and factors to be considered in valuing shares of the capital stock of closely held corporations
for estate tax and gift tax purposes. The methods discussed herein will apply likewise to the
valuation of corporate stocks on which market quotations are either unavailable or are of such
scarcity that they do not reflect the fair market value.
Sec. 2. Background and Definitions.

.01 All valuations must be made in accordance with the applicable provisions of the Internal
Revenue Code of 1954 and the Federal Estate Tax and Gift Tax Regulations. Sections 2031(a),
2032 and 2512(a) of the 1954 Code (sections 811 and 1005 of the 1939 Code) require that the
property to be included in the gross estate, or made the subject of a gift, shall be taxed on the
basis of the value of the property at the time of death of the decedent, the alternate date if so
elected, or the date of gift.
.02 Section 20.2031-1(b) of the Estate Tax Regulations (section 81.10 of the Estate Tax
Regulations 105) and section 25.2512-1 of the Gift Tax Regulations (section 86.19 of Gift Tax
Regulations 108) define fair market value, in effect, as the price at which the property would
change hands between a willing buyer and a willing seller when the former is not under any
compulsion to buy and the latter is not under any compulsion to sell, both parties having
reasonable knowledge of relevant facts. Court decisions frequently state in addition that the
hypothetical buyer and seller are assumed to be able, as well as willing, to trade and to be well
informed about the property and concerning the market for such property.
.03 Closely held corporations are those corporations the shares of which are owned by a
relatively limited number of stockholders. Often the entire stock issue is held by one family. The
result of this situation is that little, if any, trading in the shares takes place. There is, therefore,
no established market for the stock and such sales as occur at irregular intervals seldom reflect
all of the elements of a representative transaction as defined by the term “fair market value."
Sec. 3. Approach to Valuation.

.01 A determination of fair market value, being a question of fact, will depend upon the
circumstances in each case. No formula can be devised that will be generally applicable to the
multitude of different valuation issues arising in estate and gift tax cases. Often, an appraiser
will find wide differences of opinion as to the fair market value of a particular stock. In resolving
such differences, he should maintain a reasonable attitude in recognition of the fact that
valuation is not an exact science. A sound valuation will be based upon all the relevant facts,
APPENDIX D: IRS REVENUE RULINGS Page 130

but the elements of common sense, informed judgment and reasonableness must enter into the
process of weighing those facts and determining their aggregate significance.
.02 The fair market value of specific shares of stock will vary as general economic conditions
change from “normal” to “boom” or “depression,” that is, according to the degree of optimism
or pessimism with which the investing public regards the future at the required date of appraisal.
Uncertainty as to the stability or continuity of the future income from a property decreases its
value by increasing the risk of loss of earnings and value in the future. The value of shares of
stock of a company with very uncertain future prospects is highly speculative. The appraiser
must exercise his judgment as to the degree of risk attaching to the business of the corporation
which issued the stock, but that judgment must be related to all of the other factors affecting
value.
.03 Valuation of securities is, in essence, a prophesy as to the future and must be based on
facts available at the required date of appraisal. As a generalization, the prices of stocks which
are traded in volume in a free and active market by informed person’s best reflect the consensus
of the investing public as to what the future holds for the corporations and industries
represented. When a stock is closely held, is traded infrequently, or is traded in an erratic
market, some other measure of value must be used. In many instances, the next best measure
may be found in the prices at which the stocks of companies engaged in the same or a similar
line of business are selling in a free and open market.
Sec. 4. Factors to Consider.

.01 It is advisable to emphasize that in the valuation of the stock of closely held corporations or
the stock of corporations where market quotations are either lacking or too scarce to be
recognized, all available financial data, as well as all relevant factors affecting the fair market
value, should be considered. The following factors, although not all- inclusive are fundamental
and require careful analysis in each case:
(a) The nature of the business and the history of the enterprise from its inception.
(b) The economic outlook in general and the condition and outlook of the specific industry in
particular.
(c) The book value of the stock and the financial condition of the business.
(d) The earning capacity of the company.
(e) The dividend-paying capacity.
(f) Whether or not the enterprise has goodwill or other intangible value.
(g) Sales of the stock and the size of the block of stock to be valued.
(h) The market price of stocks of corporations engaged in the same or a similar line of business
having their stocks actively traded in a free and open market, either on an exchange or over-
the-counter.
.02 The following is a brief discussion of each of the foregoing factors:
(a) The history of a corporate enterprise will show its past stability or instability, its growth or
lack of growth, the diversity or lack of diversity of its operations, and other facts needed to
form an opinion of the degree of risk involved in the business. For an enterprise which changed
its form of organization but carried on the same or closely similar operations of its predecessor,
the history of the former enterprise should be considered. The detail to be considered should
increase with approach to the required date of appraisal, since recent events are of greatest
help in predicting the future; but a study of gross and net income, and of dividends covering
a long prior period, is highly desirable. The history to be studied should include, but need not
be limited to, the nature of the business, its products or services, its operating and investment

assets, capital structure, plant facilities, sales records and management, all of which should
be considered as of the date of the appraisal, with due regard for recent significant changes.
Events of the past that are unlikely to recur in the future should be discounted, since value
has a close relation to future expectancy.
(b) A sound appraisal of a closely held stock must consider current and prospective economic
conditions as of the date of appraisal, both in the national economy and in the industry or
industries with which the corporation is allied. It is important to know that the company is
more or less successful than its competitors in the same industry, or that it is maintaining a
stable position with respect to competitors. Equal or even greater significance may attach to
the ability of the industry with which the company is allied to compete with other industries.
Prospective competition which has not been a factor in prior years should be given careful
attention. For example, high profits due to the novelty of its product and the lack of
competition often lead to increasing competition. The public's appraisal of the future prospects
of competitive industries or of competitors within an industry may be indicated by price trends
in the markets for commodities and for securities. The loss of the manager of a so-called “one-
man” business may have depressing effect upon the value of the stock of such business,
particularly if there is a lack of trained personnel capable of succeeding to the management
of the enterprise. In valuing the stock of this type of business, therefore, the effect of the loss
of the manager on the future expectancy of the business, and the absence of management-
succession potentialities are pertinent factors to be taken into consideration. On the other
hand, there may be factors which offset, in whole or in part, the loss of the manager's services.
For instance, the nature of the business and of its assets may be such that they will not be
impaired by the loss of the manager. Furthermore, the loss may be adequately covered by life
insurance, or competent management might be employed on the basis of the consideration
paid for the former manager's services. These, or other offsetting factors, if found to exist,
should be carefully weighed against the loss of the manager’s services in valuing the stock of
the enterprise.
(c) Balance sheets should be obtained, preferably in the form of comparative annual
statements for two or more years immediately preceding the date of appraisal, together with
a balance sheet at the end of the month preceding that date, if corporate accounting will
permit. Any balance sheet descriptions that are not self-explanatory, and balance sheet items
comprehending diverse assets or liabilities, should be clarified inessential detail by supporting
supplemental schedules. These statements usually will disclose to the appraiser (1) liquid
position (ratio of current assets to current liabilities); (2) gross and net book value of principal
classes of fixed assets; (3) working capital; (4) long-term indebtedness; (5) capital structure;
and (6) net worth. Consideration also should be given to any assets not essential to the
operation of the business, such as investments in securities, real estate, etc. In general, such
no operating assets will command a lower rate of return than do the operating assets, although
in exceptional cases the reverse maybe true. In computing the book value per share of stock,
assets of the investment type should be revalued on the basis of their market price and the
book value adjusted accordingly. Comparison of the company’s balance sheets over several
years may reveal, among other facts, such developments as the acquisition of additional
production facilities or subsidiary companies, improvement in financial position, and details as
to recapitalizations and other changes in the capital structure of the corporation. If the
corporation has more than one class of stock outstanding, the charter or certificate of
incorporation should be examined to ascertain the explicit rights and privileges of the various
stock issues including: (1) voting powers, (2) preference as to dividends, and (3) preference
as to assets in the event of liquidation.
(d) Detailed profit-and-loss statements should be obtained and considered for a representative
period immediately prior to the required date of appraisal, preferably five or more years. Such
statements should show (1) gross income by principal items; (2) principal deductions from
gross income including major prior items of operating expenses, interest and other expense
on each item of long-term debt, depreciation and depletion if such deductions are made,
officers' salaries, in total if they appear to be reasonable or in detail if they seem to be
excessive, contributions (whether or not deductible for tax purposes) that the nature of its
business and its community position require the corporation to make, and taxes by principal

items, including income and excess profits taxes; (3) net income available for dividends; (4)
rates and amounts of dividends paid on each class of stock; (5) remaining amount carried to
surplus; and (6) adjustments to, and reconciliation with, surplus as stated on the balance
sheet. With profit and loss statements of this character available, the appraiser should be able
to separate recurrent from nonrecurring items of income and expense, to distinguish between
operating income and investment income, and to ascertain whether or not any line of business
in which the company is engaged is operated consistently at a loss and might be abandoned
with benefit to the company. The percentage of earnings retained for business expansion
should be noted when dividend-paying capacity is considered. Potential future income is a
major factor in many valuations of closely-held stocks, and all information concerning past
income which will be helpful in predicting the future should be secured. Prior earnings records
usually are the most reliable guide as to the future expectancy, but resort to arbitrary five-
or-ten-year averages without regard to current trends or future prospects will not produce a
realistic valuation. If, for instance, a record of progressively increasing or decreasing net
income is found, then greater weight may be accorded the most recent years' profits in
estimating earning power. It will be helpful, in judging risk and the extent to which a business
is a marginal operator, to consider deductions from income and net income in terms of
percentage of sales. Major categories of cost and expense to be so analyzed include the
consumption of raw materials and supplies in the case of manufacturers, processors and
fabricators; the cost of purchased merchandise in the case of merchants; utility services;
insurance; taxes; depletion or depreciation; and interest.
(e) Primary consideration should be given to the dividend-paying capacity of the company
rather than to dividends actually paid in the past. Recognition must be given to the necessity
of retaining a reasonable portion of profits in a company to meet competition. Dividend-paying
capacity is a factor that must be considered in an appraisal, but dividends actually paid in the
past may not have any relation to dividend paying capacity. Specifically, the dividends paid
by a closely held family company may be measured by the income needs of the stockholders
or by their desire to avoid taxes on dividend receipts, instead of by the ability of the company
to pay dividends. Where an actual or effective controlling interest in a corporation is to be
valued, the dividend factor is not a material element, since the payment of such dividends is
discretionary with the controlling stockholders. The individual or group in control can
substitute salaries and bonuses for dividends, thus reducing net income and understating the
dividend-paying capacity of the company. It follows, therefore, that dividends are less reliable
criteria of fair market value than other applicable factors.
(f) In the final analysis, goodwill is based upon earning capacity. The presence of goodwill and
its value, therefore, rests upon the excess of net earnings over and above a fair return on the
net tangible assets. While the element of goodwill may be based primarily on earnings, such
factors as the prestige and renown of the business, the ownership of a trade or brand name,
and a record of successful operation over prolonged period in a particular locality, also may
furnish support for the inclusion of intangible value. Income instances it may not be possible
to make a separate appraisal of the tangible and intangible assets of the business. The
enterprise has a value as an entity. Whatever intangible value there is, which insupportable
by the facts, may be measured by the amount by which the appraised value of the tangible
assets exceeds the net book value of such assets.
(g) Sales of stock of a closely held corporation should be carefully investigated to determine
whether they represent transactions at arm's length. Forced or distress sales do not ordinarily
reflect fair market value nor do isolated sales in small amounts necessarily control as the
measure of value. This is especially true in the valuation of a controlling interest in a
corporation. Since, in the case of closely held stocks, no prevailing market prices are available,
there is no basis for making an adjustment for blockage. It follows, therefore, that such stocks
should be valued upon a consideration of all the evidence affecting the fair market value.
The size of the block of stock itself is a relevant factor to be considered. Although it is true
that a minority interest in an unlisted corporation's stock is more difficult to sell than a similar
block of listed stock, it is equally true that control of a corporation, either actual or in effect,
representing as it does an added element of value, may justify a higher value for a specific
block of stock.

(h) Section 2031(b) of the Code states, in effect, that in valuing unlisted securities the value
of stock or securities of corporations engaged in the same or a similar line of business which
are listed on an exchange should be taken into consideration along with all other factors. An
important consideration is that the corporations to be used for comparisons have capital stocks
which are actively traded by the public. In accordance with section 2031(b) of the Code, stocks
listed on an exchange are to be considered first. However, if sufficient comparable companies
whose stocks are listed on an exchange cannot be found, other comparable companies which
have stocks actively traded in on the over-the- counter market also may be used. The essential
factor is that whether the stocks are sold on an exchange or over-the-counter there is evidence
of an active, free public market for the stock as of the valuation date. In selecting corporations
for comparative purposes, care should be taken to use only comparable companies. Although
the only restrictive requirement as to comparable corporations specified in the statute is that
their lines of business be the same or similar, yet it is obvious that consideration must be
given to other relevant factors in order that the most valid comparison possible will be
obtained. For illustration, a corporation having one or more issues of preferred stock, bonds
or debentures in addition to its common stock should not be considered to be directly
comparable to one having only common stock outstanding. In like manner, a company with a
declining business and decreasing markets is not comparable to one with a record of current
progress and market expansion.
Sec. 5. Weight to be Accorded Various Factors.

The valuation of closely held corporate stock entails the consideration of all relevant factors as
more weight than others because of the nature of the company's business. To illustrate:
(a) Earnings may be the most important criterion of value in some cases whereas asset value
will receive primary consideration in others. In general, the appraiser will accord primary
consideration to earnings when valuing stocks of companies which sell products or services to
the public; conversely, in the investment or holding type of company, the appraiser may
accord the greatest weight to the assets underlying the security to be valued.
(b) The value of the stock of a closely held investment or real estate holding company, whether
or not family owned, is closely related to the value of the assets underlying the stock. For
companies of this type the appraiser should determine the fair market values of the assets of
the company. Operating expenses of such a company and the cost of liquidating it, if any,
merit consideration when appraising the relative values of the stock and the underlying assets.
The market values of the underlying assets give due weight to potential earnings and dividends
of the particular items of property underlying the stock, capitalized at rates deemed proper
by the investing public at the date of appraisal. A current appraisal by the investing public
should be superior to the retrospective opinion of an individual. For these reasons, adjusted
net worth should be accorded greater weight in valuing the stock of a closely held investment
or real estate holding company, whether or not family owned, than any of the other customary
yardsticks of appraisal, such as earnings and dividend paying capacity.
Sec. 6. Capitalization Rates.

In the application of certain fundamental valuation factors, such as earnings and dividends, it is
necessary to capitalize the average or current results at some appropriate rate. A determination
of the proper capitalization rate presents one of the most difficult problems in valuation. That
there is no ready or simple solution will become apparent by a cursory check of the rates of
return and dividend yields in terms of the selling prices of corporate shares listed on the major
exchanges of the country. Wide variations will be found even for companies in the same industry.
Moreover, the ratio will fluctuate from year to year depending upon economic conditions. Thus,
no standard tables of capitalization rates applicable to closely held corporations can be
formulated. Among the more important factors to be taken into consideration in deciding upon
a capitalization rate in a particular case are: (1) the nature of the business; (2) the risk involved;
and (3) the stability or irregularity of earnings.
Sec. 7. Average of Factors.

Because valuations cannot be made on the basis of a prescribed formula, there is no means
whereby the various applicable factors in a particular case can be assigned mathematical weights
in deriving the fair market value. For this reason, no useful purpose is served by taking an
average of several factors (for example, book value, capitalized earnings and capitalized
dividends) and basing the valuation on the result. Such a process excludes active consideration
of other pertinent factors, and the end result cannot be supported by a realistic application of
the significant facts in the case except by mere chance.
Sec. 8. Restrictive Agreements.

Frequently, in the valuation of closely held stock for estate and gift tax purposes, it will be found
that the stock is subject to an agreement restricting its sale or transfer. Where shares of stock
were acquired by a decedent subject to an option reserved by the issuing corporation to
repurchase at a certain price, the option price is usually accepted as the fair market value for
estate tax purposes. See Rev. Rul. 54-76, C.B. 1954-1,194. However, in such case the option
price is not determinative of fair market value for gift tax purposes. Where the option, or buy
and sell agreement, is the result of voluntary action by the stockholders and is binding during
the life as well as at the death of the stockholders, such agreement may or may not, depending
upon the circumstances of each case, fix the value for estate tax purposes. However, such
agreement is a factor to be considered, with other relevant factors, in determining fair market
value. Where the stockholder is free to dispose of his shares during life and the option is to
become effective only upon his death, the fair market value is not limited to the option price. It
is always necessary to consider the relationship of the parties, the relative number of shares
held by the decedent, and other material facts, to determine whether the agreement represents
a bona fide business arrangement or is a device to pass the decedent's shares to the natural
objects of his bounty for less than an adequate and full consideration in money or money's
worth. In this connection see Rev. Rul. 157 C.B. 1953-2, 255, and Rev. Rul. 189, C.B.1953-2,
294.
Sec. 9. Effect on Other Documents.

Revenue Ruling 54-77, C.B. 1954-1, 187, is hereby superseded.

26.2 Other Important Revenue Rulings
The following are brief summaries of additional Revenue Rulings relating to the valuation of
closely held businesses:
REVENUE RULING 65-192

This ruling was established for the purpose of encompassing income and other tax valuation
matters under Revenue Ruling 59-60. It also expanded Revenue Ruling 59-60 and made it apply
to problems involving the determination of fair market value of business interests of any type.

This ruling modifies Rev. Rul. 59-60 by recognizing the possibility of valuing the tangible and
intangible assets of a business separately.

This ruling supersedes A.R.M. 34 and Rev. Rul. 65-192 and addresses the question whether the
formula approach, the capitalization of excess earnings, may be used to determine the fair
market value of intangible assets.

This ruling amplifies Rev. Rul. 59-60, as modified by Rev. Rul. 65-193, by addressing the
valuation of shares of stock that have not been registered for public trading when the issuing
company has stock of the same class that is actively traded.

This ruling further amplifies Rev. Rul. 59-60, as modified by Rev. Rul. 65-193 and as amplified
by Rev. Rul. 77-287, by discussing the valuation of the stock of a subsidiary corporation that is
distributed to the stakeholders of the former parent and can be sold only with the stock of the
distributing company.

This ruling further amplifies Rev. Rul. 59-60, as modified by Rev. Rul. 65-193 and as modified
by Rev. Rul. 77-287 and Rev. Rul. 80-213, by specifying additional factors to be considered in
valuing common and preferred stock of a closely held corporation in a recapitalization.

This ruling revokes Rev. Rul. 81-253 and reaffirms the acquiescence of a minority discount even
when a transferred interest, when combined with other family members would constitute a
controlling interest.

27 APPENDIX E: MARKETABILITY DISCOUNT STUDIES
DISCOUNTS OVERVIEW
Marketability relates to the liquidity of an investment relative to a comparable and actively
traded alternative. In essence, impairment of liquidity increases an investor’s expected rate of
return. As a result, the market clearing price of a nonmarketable security is discounted relative
to the price of its marketable counterpart. The discount for lack of marketability is stated as a
percentage of a marketable value.
The valuation of share of stock in closely held corporations typically warrants a discount for lack
of marketability. Many factors affect the liquidity of an investment. Among them are the
following:
1. Number of stakeholders;
2. Size of the block of stock being valued;
3. Restrictions on its sale by agreement or law;
4. The absence of registration; and,
5. The anticipated dividend flow attributable to the investment.
When attempting to quantify these factors that influence liquidity into an appropriate discount
for lack of marketability, it is necessary to consider the following factors:

1. The holding period. Without an active market, an investor must hold for an uncertain length
of time until a liquidity event occurs. In general, longer holding periods without liquidity imply
higher discounts for lack of marketability. An investor should reasonably characterize exit timing
along a probability distribution. Although subjective, the relative probabilities of exit dates are
reasonably related to the following:
a. Historical ownership policies (insiders, outsiders, family, investors, etc.);
b. Buy/sell or other stakeholder agreements;
c. Management/ownership succession (age, health, competence, emerging liquidity needs);
d. Business plans and likely exit strategies of the controlling owner(s); and,
e. Emerging attractiveness for equity offering or acquisition.

2. Required holding period return. To overcome the unattractiveness of the lack of liquidity,
an investor in such securities expects a premium return in excess of that provided by liquid
alternatives. Investment features that impair marketability will exact higher expected rates of
return which imply higher discounts for lack of marketability. Unattractive features of a lack of
liquid security could include the following:
a. Absence, inadequacy of or inability to pay dividends;
b. Subjective uncertainties related to the duration of the expected holding period and to
achieving a favorable exit date valuation;
c. Restrictive stakeholder agreements; and,
d. Various other features that increase uncertainty of cash flows.

3. Growth in underlying value during the holding period. If an investment is appreciating,
that growth will provide a portion of the realized return during the holding period. Growth and
marketability discounts are negatively correlated. As expected capital appreciation increases,
discounts for lack of marketability decrease. Growth potential should be evaluated in the context
APPENDIX E: MARKETABILITY DISCOUNT STUDIES Page 137

of management’s business plan, historical growth, and external factors such as emerging
industry conditions and market valuations.

4. Expected cash flow distributions during the holding period. Holding period returns are
also provided by interim cash flows (in addition to capital appreciation). As with growth, holding
period cash distributions and discounts for lack of marketability are negatively correlated.
Holding period cash flows (dividends, etc.) should be evaluated in the context of historical
dividend policy, ability to distribute and the cash needs implied by the business plan.
PUBLISHED RESEARCH ON MARKETABILITY DISCOUNTS

In support of the marketability adjustment, the following is a summary of the evidence for
marketability discounts found in published research. These studies performed on empirical
evidence have shown discounts that have ranged from 10% to as high as 90%.
Some of these restricted stock studies are as follows.
YEARS AVERAGE MEDIAN

STUDY COVERED BY
STUDY DISCOUNT DISCOUNT
SEC Institutional Investor Study 1966-1969 26% 24%

Gelman Study 1968-1970 33% 33%
Trout Study 1968-1972 34% 34%
Moroney Study 1968-1972 36% 35%
Maher Study 1969-1973 35% 35%
STD Research Consultants 1978-1982 N/A 45%
Willamette Mgmt Associates, Inc. 1981-1984 N/A 31%
Emory 1985-1995 44% 43%

MARKETABILITY DISCOUNTS EVIDENCED BY PRICES OF RESTRICTED STOCKS
A “restricted stock” is identical to the freely traded stock of a public company except that it is
restricted from sale on the open market for a period of time. Because relative marketability is
the only difference between the restricted stock and unrestricted stock in the same company,
this difference provides evidence of the price discount between a freely marketable share and
one that is identical but subject to restricted marketability.
INSTITUTIONAL INVESTOR STUDY PUBLISHED BY THE SECURITIES AND EXCHANGE
COMMISSION
In a major Securities Exchange Commission (SEC) study of institutional investor behavior, one
topic was the amount of discount at which sales of letter stock took place compared to the prices
of identical unrestricted stock on the open market. The observed discounts ranged from 80%
to premiums near 15%.
This study examined discounts in 398 transactions between 1966 and 1969 involving securities
restricted under Rule 144 of the Securities Act of 1933 and is the basis for Revenue Ruling 77-
287. The SEC examined the discounts at which the restricted securities were sold relative to
the prices of unrestricted, but otherwise identical, stock in the open market.
The SEC examined each discount in relation to several factors believed to play a role in
determining the magnitude of the observed discount, including the trading market for the
issuer's publicly traded stock, the net sales and earnings of the issuer, and the size of the block
of restricted stock both in dollar terms and as a percentage of the market capitalization of the
issuer.
As Revenue Ruling 77-287 noted, the magnitude of the discount for restricted securities from
the trading price of the unrestricted securities was generally related to the following four factors:
(1) Earnings played the major part in establishing the ultimate discounts at which these stocks
were sold from the current market price, indicating earnings patterns, rather than sales patterns,
determine the degree of risk of an investment; (2) Companies with the lowest dollar amount of
sales during the test period accounted for most of the transactions involving the highest discount
rates, while they accounted for only a small portion of all transactions involving the lowest rates;
(3) Discount rates were greatest on restricted stocks with unrestricted counterparts traded over-
the-counter, followed by those with unrestricted counterparts listed on the American Stock
Exchange, while the discount rates for those stocks with unrestricted counterparts listed on the
New York Stock Exchange were the smallest and; (4) In judging the opportunity cost of freezing
funds, the purchaser is analyzing two separate actors.
The first is the risk that the underlying value of the stock will change in a way that, absent the
restrictive provisions, would have prompted a decision to sell. The second factor is the risk that
the means of legally disposing of the stock may not materialize. From the seller's point of view,
a discount is justified where the seller is relieved of the expenses of registration and public
distribution, as well as the risk that the market will adversely change before the offering is
completed.
Another reason that liquidity takes a high degree of importance for common stocks is that the
stock's prices tend to be much more volatile than prices of real estate or other securities such
as preferred stocks or bonds. Consequently, the investor's choice as to the timing of the sale
of the stock is much more important in determining the amount of return to be earned on the
investment than is the case with other security investments.

Institutional Investors Study by the Securities and Exchange Commission
Average Discounts on Purchases of Restricted Common Stock
Classified by Institutional Purchaser and Trading Markets
January 1, 1966 - June 30, 1969
CLASS OF INSTITUTION N.Y.S.E. A.S.E. OTC - R.P.G. OTC - Non-R.P.G.
Banks 18.7 22.5 25.6 31.9
Investment Advisors 21.6 25.4 28.5 34.8
Life Insurance Companies 19.9 23.7 26.8 33.1
Venture Capital Companies 32.5 36.3 39.4 45.7
Other Institutions 9.2 13.0 16.1 22.4

GELMAN STUDY
The Gelman Study is the first of three often-cited restricted stock studies from the early to mid-
1970s was published in Journal of Taxation in 1972. Gelman analyzed the prices paid for
restricted securities by four closed-end investment funds over a period beginning in 1968 and
ending in 1970. The four funds were established in 1968 and by the end of 1970 had assets
ranging from sixteen million ($16,000,000) to one hundred ninety-six million ($196,000,000)
dollars. Gelman obtained information about the discounts paid by the funds for the purchase of
restricted shares from the public disclosure of the issuing companies. In total, he analyzed
eighty-nine (89) transactions. The median and mean discounts in the study were thirty-three
percent (33%). We can infer from the study that not all discounts were thirty-three percent
(33%). Twenty-seven (27) observations, or thirty percent (30%) of the sample, had discounts
of less than twenty-five percent (25%). This contrasted thirty-two (32) observations, or thirty-
six percent (36%) of the sample, that had discounts of forty percent (40%) or more. As Gelman
observed in the article, about sixty percent (60%) of the transactions reflected discounts of
thirty percent (30%) or more. He concluded his article with the following observation:
Depending on size and other factors, these actual discounts obtained by knowledgeable
investors may serve as a guide to the valuation analyst in determining the discount to apply to
the gross value previously determined for the closely held stock, in order to arrive at final value
for the shares involved.

His results are summarized as follows:
Number of Percent
Size of Discount Common Stocks of Total
Less than 15% 5 5.6%
15.0% - 19.9% 9 10.1%
20.0% - 24.9% 13 14.6%
25.0% - 29.9% 9 10.1%
30.0% - 34.9% 12 13.5%
35.0% - 39.9% 9 10.1%
40.0% and over 32 36.0%

TROUT STUDY
In a study of sixty (60) letter stock sales to mutual funds from 1968 to 1972, Trout found an
average discount of thirty-three percent (33%) for restricted stock from the freely traded price.
Like the SEC study, Trout also found that companies with stock listed on national exchanges
had lower discounts on their restricted stock transactions than did OTC companies.
MORONEY STUDY
Robert Moroney gave a speech to the Texas CPA Institute in November 1972 and his remarks
were published in article form in Taxes in early 1973. The Moroney Study reviewed the Tax
Court’s treatment of marketability discounts for closely held stocks in twelve (12) decisions from
about 1960 through 1971. He then compared the discounts allowed in the cited cases with
discounts required by ten (10) investment companies in their purchases of restricted stock of
publicly traded companies. Moroney’s central finding was that the Tax Court had embraced the
concept of marketability discounts, but had been reluctant to grant discounts commensurate
with their economic reality in the market place. He also introduced a study of the purchases of
restricted stock by ten (10) registered investment companies (1968-1972).
The Tax Court and many appraisers have given great credence to the thirty-five percent (35%)
or so discount which is the approximate median/mean conclusion of the Moroney study.
Consideration should be given to his measures of central tendency in the context of his entire
analysis. In his discussion of cases, Moroney notes three (3) important issues for consideration
regarding marketability discounts.
There are no rules for establishing marketability discounts. In the absence of guidance from
the Internal Revenue Service, expert witnesses can be vital to explaining the use of marketability
discounts to the Tax Court.
b. While many publicly traded common stocks are purchased in the expectation of capital
appreciation, dividend yield is a singularly important factor in the valuation of closely held
stocks. Dividend yield provides current cash flow to the holder of a closely held stock and helps
compensate for a potentially lengthy, indeterminable, and certainly uncertain holding period
until some form of liquidity is achieved. Moroney is specific on this point:
"The typical buyer of a minority interest in a closely held corporation has every right to insist on
an adequate dividend yield because, his stock having no marketability, he must be prepared to

hold it for an indeterminable period of time, maybe years, and maybe decades, before some
event will enable him to bail out, hopefully at a profit."
Moroney reacted to the suggestion of some Tax Court opinions that the other "inside"
stakeholders, particularly members of a control group, might automatically create a market for
minority shares at premium prices, thereby mitigating any marketability discount. Moroney’s
interesting discussion on this issue concludes as follows:
In the deGuebriant case the court said: …"We recognize that stock in such closed corporation is
hard to sell, there being no other market than that afforded by the few other stockholders."
Moroney provided an analysis of twenty-nine (29) court cases involving the concept of
marketability discounts. In 1972, he observed that twenty (20) of the twenty-nine (29) cases
explicitly upheld the concept of marketability discounts, and that the remainder implicitly
employed a discount related to the lack of marketability. In assessing the cases, Moroney
discussed results of the SEC Study, which validated the use of higher discounts than found in
the cases.
Moroney commented on the disparity between sales of restricted stock of publicly traded
companies with the results of court decisions related to marketability discounts for non-
marketable interests of closely held companies. Astonishing to many people is the discovery
that those discounts were as deep as fifty percent (50%), fifty-two percent (52%), fifty-seven
percent (57%), sixty-two percent (62%), sixty-six percent (66%), eighty-one percent (81%),
eighty-seven percent (87%) and even ninety percent (90%).
The following illustrates the frequency distribution of transaction discounts included in his study:
Number of Percent
Discount Range Transactions of Total
0.0% - 10.0% 6 4.1%
10.0% - 20.0% 23 15.8%
20.0% - 30.0% 37 25.3%
30.0% - 40.0% 35 24.0%
40.0% - 50.0% 17 11.6%
50.0% - 60.0% 18 12.3%
60.0% - 70.0% 5 3.4%
70.0% - 80.0% 2 1.4%
80.0% - 90.0% 3 2.1%
90.0% - 100.0% - 0.0%
Mean 35.6%
Median 33.0%
Standard Deviation 17.7%

About forty-five percent (45%) of the discounts in the Moroney study are under thirty percent
(30%). Reciprocally, some fifty-five percent (55%) of the discounts were thirty percent (30%)
or greater. The mean discount in the study was thirty-five and six-tenths percent (35.6%), and
the median was thirty-three percent (33%). The standard deviation is approximately eighteen
percent (18%), which indicates a fairly wide dispersion about the mean.
MAHER STUDY
J. Michael Maher studied the SEC filings of four (4) mutual funds to examine the discounts they
required on purchases of restricted securities from 1969 to 1973. The recession years of 1974
-1975 were omitted because of the scarcity of transactions. In total, the Maher study considered
thirty-four (34) transactions which underlying data are summarized as follows:
Number of Lowest Highest Mean Median Standard
Year Transactions Discount Discount Discount Discount Discount
1969 17 14.3% 75.7% 36.7% 33.5% 17.1%
1970 8 2.7% 60.5% 31.2% 31.6% 20.6%
1971 6 6.8% 39.6% 33.3% 29.4% 11.5%
1972 2 20.0% 61.3% 40.7% 40.7% 29.2%
1973 1 N/A N/A 66.0% 66.0% N/A
Low 2.7% 39.6% 31.2% 29.4% 11.5%
High 20.0% 75.7% 66.0% 66.0% 29.2%
Average 10.9% 59.3% 41.6% 40.2% 19.6%

Of the thirty-four (34) restricted stock transactions, just over a third reflected a discount of
thirty percent (30%) or less. Reciprocally, some two-thirds of the transactions were conducted
at discounts of thirty percent (30%) or more from the freely traded prices of the underlying
public securities.

The following represents the frequency distribution of original purchase discounts:
Number of Percent
Discount Range Transactions of Total
0.0% - 10.0% 2 5.9%
10.0% - 20.0% 6 17.6%
20.0% - 30.0% 4 11.8%
30.0% - 40.0% 12 35.3%
40.0% - 50.0% 2 5.9%
50.0% - 60.0% 2 5.9%
60.0% - 70.0% 4 11.8%
70.0% - 80.0% 1 2.9%
80.0% - 90.0% 1 2.9%
90.0% - 100.0% - 0.0%
Mean 35.4%
Median 33.3%
Standard Deviation 17.6%

STANDARD RESEARCH CONSULTANTS STUDY
In 1983, Standard Research Consultants (SRC) analyzed sales of letter stock to test the current
applicability of the SEC study. SRC studied twenty-eight (28) private placements of restricted
common stock from October 1978 through June 1982. Discounts ranged from seven percent
(7%) to ninety-one percent (91%) with a median of forty-five percent (45%).

WILLAMETTE MANAGEMENT ASSOCIATES STUDY
Over the past several years, Willamette Associates, under the direction of Shannon Pratt, DBA,
has conducted a series of twelve (12) studies comparing private stock transactions to
subsequent public offerings of stock in the same companies. These studies covered time periods
totaling fifteen (15) years.
The results of these studies are summarized below:
Summary of Discounts for Private Transactions
Price Earnings Ratios Compared to Public Offering
Time Number of Companies Number of Transactions Median
Period Analyzed Analyzed Discount (%)
1975-1978 17 31 54.7
1979 9 17 62.9
1980-1982 58 113 55.5
1984 20 33 74.4
1985 18 25 43.2
1986 47 74 47.5
1987 25 40 43.8
1988 13 19 51.8
1989 9 19 50.4
1990 17 23 48.5
1991 27 34 31.8
1992 36 75 52.4
1993 51 110 53.3
EMORY STUDY
One of most widely used studies to quantify Marketability Discounts is conducted periodically by
John D. Emory, a senior member of the American Society of Appraisers and a First Vice President
of Appraisal Services of Robert W. Baird & Company, Inc. of Milwaukee, Wisconsin.
Emory determined that private sales and transactions took place at a forty-four percent (44%)
mean discount from the price at which the stock subsequently came to market.
The graph of his fifth study is as follows:

Number of Discount to IPO Dispersion of Observations
Period IPO's Mean Median High Low Std. Dev.
1985-1986 21 43% 43% 83% 3% 21%
1987-1989 27 45% 45% 82% 4% 21%
1989-1990 23 45% 40% 94% 6% 22%
1990-1992 35 42% 40% 94% -6% 22%
1992-1993 54 45% 44% 90% -4% 21%
1994-1995 46 45% 45% 76% 6% 18%
All Years 206 44% 43% 94% -6% 21%

Emory concluded the article with this observation:
"The final question to be answered is that if these kinds of discounts are appropriate for
promising situations where marketability is probable, but not a certainty, how much greater
should discounts be for the more typical company's stock that has no marketability, little if any
chance of ever becoming marketable, and is in a neutral to uncompromising situation?"
In an earlier report on his 1985-1986 study, Emory added this comment:
"It is apparent that the lack of marketability is one of the more important aspects of value, and
the marketplace itself emphasizes this point. The size of discount for lack of marketability
depends on the individual situation and the likelihood of future marketability."
SILBER STUDY
In a 1991 article, William L. Silber presented the results of analysis of sixty-nine (69) private
placements of common stock of publicly traded companies between 1981 and 1988. He found
that the average discount was thirty-four percent (34%), which is quite consistent with earlier
studies. He also found that the size of the discount tended to be higher for private placements
that were larger as a percentage of the shares outstanding. He found a small effect on the
discount on the basis of the size of the company as measured by revenues. Tripling the revenues
from $40 million, the mean of his sample, to $120 million increases the relative price of the
restricted shares by only two and nine tenths (2.9) points.
FMV OPINIONS STUDY
A 1994 article described a study by FMV Opinions, Inc. based on more than one hundred (100)
restricted stock transactions from 1979 through 1992. The FMV study found a mean discount
of twenty-three percent (23%).
MANAGEMENT PLANNING STUDY
This is the most current guideline data and it is presented in Z. Christopher Mercer’s (Mercer)
book, Quantifying Marketability Discounts, by the author. Management Planning, Inc. (MP) is
the company which conducted this private restricted stock study and named it the Analysis of
Restricted Stocks of Public Companies: 1980-1995.
Mercer states that this study “represents a significant contribution, not only to this book, but to
the appraisal profession.” This is an accurate statement because, (1) this study is the most
recently one published, (2) this study provides transactional data for each public company

analyzed and (3) this study contains a well-documented screening process to ensure that the
companies studied provide consistent statistics.
MP searched for private placements of unregistered shares of common stock of companies that
had approximately identical securities being traded in the marketplace. They consulted Private
Equity Week, and Investment Dealers’ Digest and Private Placement Letter, in order to ensure
that their specific criteria was met.
Companies selected had to first meet the following:
The company selling stock in a private placement must have common stock, which is equal in
all other respects except marketability to the registered stock that is publicly held and actively
traded.
Sufficient data on the private transaction must be readily available to enable analysis.
The publicly traded common stock counterpart must be selling at a price of at least two dollars
($2.00) per share.
The company must be a domestic corporation.
The company must not have been characterized in public disclosure documents as being in a
“developmental” stage.
Eliminated companies whose unrestricted stocks were inactively traded, because of small,
insufficient investor interest.
MP’s initial research, using the above parameters, exhibited more than two hundred (200)
private transactions. In nearly all of the transactions the private sale price was below the freely
traded price. They observed restricted stock discounts ranging from one percent (1%) to eighty-
six percent (86%).
MP then decided to further screen the above transactions in order to gain more “meaningful
comparisons between various independent variables and the size of the discounts”. They
accomplished this by eliminating the following:
Any company that suffered a loss in the fiscal year preceding the private transaction.
Any company defined as a “start-up” company (defined as having revenues of less than three
million dollars ($3,000,000)).
Any transactions that were known to have registration rights.
These additional screens reduced the sample to forty-nine (49) transactional companies. Of
these private transactions, one (1) took place at a price equal to the market price. The
remaining transactions occurred at discounts ranging from approximately three percent (3%)
to fifty-eight percent (58%). The average (mean) discount is twenty-seven and seven tenths
percent (27.7%), and the median discount is twenty-eight and eight tenths percent (28.8%).
The standard deviation of the discounts is fourteen and one tenth percent (14.1%), indicating
that almost two thirds of the discounts are in the range of fourteen percent (14%) to forty-two
percent (42%).
SUMMARY OF STUDIES ON RESTRICTED STOCK TRANSACTIONS

The independent studies of restricted stock sales summarized above cover several hundred
transactions from the middle 1960s through 1995. Considering the number of independent
researchers and the very long time span encompassing a wide variety of market conditions, the
results are quite consistent. Furthermore, the average of the median discounts from the studies
is thirty-five percent (35%).
COURT DECISIONS
Further guidance for marketability discounts can be found in various court decisions. These
decisions provide insight into the discounts allowed in various circumstances. I look at evidence
from court decisions, not to cite as direct evidence in the instant case, but to review how courts
have previously interpreted the objective evidence presented. In addition, I look to court cases

for general guidance concerning the nature of evidence deemed acceptable in previous
decisions.
A survey performed by Thomas Solberg (Thomas A. Solberg, “Valuing Restricted Securities:
What Factors Do the Courts and the Service Look For,” Journal of Taxation, September 1979,
pp. 150-54) of fifteen cases indicated a mean discount of 37.4%. A similar study by Phillip Moore
(Phillip W. Moore, “Valuation Revisited,” Trusts & Estates, February 1987, pp. 40-52), which
analyzed fourteen cases by the U.S. Tax Court from 1969 through 1982, indicated wide
variations in the decisions but with a trend toward allowing higher discounts.
In “Estate of Berg” (61 TCM 1991-279), the Tax Court relied upon an expert’s analysis of specific
factors that influenced the magnitude of a minority interest discount (20%) and a marketability
discount (10%). The expert’s specificity appeared to be persuasive to the court. Other experts
in the Berg case were admonished by the court for presenting discount analyses that were
“exceedingly general and lacking in specific analysis of the subject interest.”
In “Estate of Jung” (101 TIC. No.28), the Tax Court allowed a 35% discount for lack of
marketability for a 21% interest in Jung Corp., a manufacturer and distributor of elastic textile
goods. Jung’s revenues ($68 million) and profits ($3.1 million) had been growing for several
years, a dividend was being paid, and there was a reasonable knowledge that the company
could be an attractive acquisition candidate. Of particular note is that the court relied upon
several of the empirical studies cited above.
The various studies indicate that a marketability discount in the range of 35%-40% is near the
mean. The court cases are increasingly referring to objective data, but the courts are asking for
data and analysis that relate to the specific cases in question, not mere averages. It is important
to note that the actual range of discounts can be very wide with the top end of the range at
70% or more, depending on the features and circumstances of the subject company.

28 APPENDIX F: GLOSSARY
INTERNATIONAL GLOSSARY OF BUSINESS VALUATION TERMS*
To enhance and sustain the quality of business valuations for the benefit of the profession and
its clientele, the below identified societies and organizations have adopted the definitions for
the terms included in this glossary. The performance of business valuation services requires a
high degree of skill and imposes upon the valuation professional a duty to communicate the
valuation process and conclusion in a manner that is clear and not misleading. This duty is
advanced through the use of terms whose meanings are clearly established and consistently
applied throughout the profession. If, in the opinion of the business valuation professional, one
or more of these terms needs to be used in a manner which materially departs from the
enclosed definitions, it is recommended that the term be defined as used within that valuation
engagement. This glossary has been developed to provide guidance to business valuation
practitioners by further memorializing the body of knowledge that constitutes the competent
and careful determination of value and, more particularly, the communication of how that
value was determined. Departure from this glossary is not intended to provide a basis for civil
liability and should not be presumed to create evidence that any duty has been breached.
American Institute of Certified Public Accountants

American Society of Appraisers
Canadian Institute of Chartered Business Valuators
National Association of Certified Valuation Analysts
The Institute of Business Appraisers
Adjusted Book Value Method—a method within the asset approach whereby all assets and
liabilities (including off-balance sheet, intangible, and contingent) are adjusted to their fair market
values. {NOTE: In Canada on a going concern basis}
Adjusted Net Asset Method—see Adjusted Book Value Method.
Appraisal—see Valuation.
Appraisal Approach—see Valuation Approach.
Appraisal Date—see Valuation Date.
Appraisal Method—see Valuation Method.
Appraisal Procedure—see Valuation Procedure.
Arbitrage Pricing Theory—a multivariate model for estimating the cost of equity capital, which
incorporates several systematic risk factors.
Asset (Asset-Based) Approach—a general way of determining a value indication of a business,
business ownership interest, or security using one or more methods based on the value of the
assets net of liabilities.
Beta—a measure of systematic risk of a stock; the tendency of a stock’s price to correlate with
changes in a specific index.
Blockage Discount—an amount or percentage deducted from the current market price of a
publicly traded stock to reflect the decrease in the per share value of a block of stock that is of a
size that could not be sold in a reasonable period of time given normal trading volume.
Book Value—see Net Book Value.
APPENDIX F: GLOSSARY Page 149

Business—see Business Enterprise.
Business Enterprise—a commercial, industrial, service, or investment entity (or a combination
thereof) pursuing an economic activity.
Business Risk—the degree of uncertainty of realizing expected future returns of the business
resulting from factors other than financial leverage. See Financial Risk.
Business Valuation—the act or process of determining the value of a business enterprise or
ownership interest therein.
Capital Asset Pricing Model (CAPM)—a model in which the cost of capital for any stock or
portfolio of stocks equals a risk-free rate plus a risk premium that is proportionate to the
systematic risk of the stock or portfolio.
Capitalization—a conversion of a single period of economic benefits into value.
Capitalization Factor—any multiple or divisor used to convert anticipated economic benefits of a
single period into value.
Capitalization of Earnings Method—a method within the income approach whereby economic
benefits for a representative single period are converted to value through division by a
capitalization rate.
Capitalization Rate—any divisor (usually expressed as a percentage) used to convert anticipated
economic benefits of a single period into value.
Capital Structure—the composition of the invested capital of a business enterprise; the mix of
debt and equity financing.
Cash Flow—cash that is generated over a period of time by an asset, group of assets, or business
enterprise. It may be used in a general sense to encompass various levels of specifically defined
cash flows. When the term is used, it should be supplemented by a qualifier (for example,
“discretionary” or “operating”) and a specific definition in the given valuation context.
Common Size Statements—financial statements in which each line is expressed as a percentage
of the total. On the balance sheet, each line item is shown as a percentage of total assets, and on
the income statement, each item is expressed as a percentage of sales.
Control—the power to direct the management and policies of a business enterprise.
Control Premium—an amount or a percentage by which the pro rata value of a controlling
interest exceeds the pro rata value of a non-controlling interest in a business enterprise to reflect
the power of control.
Cost Approach—a general way of determining a value indication of an individual asset by
quantifying the amount of money required to replace the future service capability of that asset.
Cost of Capital—the expected rate of return that the market requires in order to attract funds to a
particular investment.
Debt-Free—we discourage the use of this term. See Invested Capital.
Discount for Lack of Control—an amount or percentage deducted from the pro rata share of
value of 100% of an equity interest in a business to reflect the absence of some or all of the
powers of control.
Discount for Lack of Marketability—an amount or percentage deducted from the value of an
ownership interest to reflect the relative absence of marketability.

Discount for Lack of Voting Rights—an amount or percentage deducted from the per share value
of a minority interest voting share to reflect the absence of voting rights.
Discount Rate—a rate of return used to convert a future monetary sum into present value.
Discounted Cash Flow Method—a method within the income approach whereby the present
value of future expected net cash flows is calculated using a discount rate.
Discounted Future Earnings Method—a method within the income approach whereby the
present value of future expected economic benefits is calculated using a discount rate.
Economic Benefits—inflows such as revenues, net income, net cash flows, etc.
Economic Life—the period of time over which property may generate economic benefits.
Effective Date—see Valuation Date.
Enterprise—see Business Enterprise.
Equity—the owner’s interest in property after deduction of all liabilities.
Equity Net Cash Flows—those cash flows available to pay out to equity holders (in the form of
dividends) after funding operations of the business enterprise, making necessary capital
investments, and increasing or decreasing debt financing.
Equity Risk Premium—a rate of return added to a risk-free rate to reflect the additional risk of
equity instruments over risk free instruments (a component of the cost of equity capital or equity
discount rate).
Excess Earnings—that amount of anticipated economic benefits that exceeds an appropriate rate
of return on the value of a selected asset base (often net tangible assets) used to generate those
anticipated economic benefits.
Excess Earnings Method—a specific way of determining a value indication of a business,
business ownership interest, or security determined as the sum of a) the value of the assets
derived by capitalizing excess earnings and b) the value of the selected asset base. Also
frequently used to value intangible assets. See Excess Earnings.
Fair Market Value—the price, expressed in terms of cash equivalents, at which property would
change hands between a hypothetical willing and able buyer and a hypothetical willing and able
seller, acting at arm’s length in an open and unrestricted market, when neither is under
compulsion to buy or sell and when both have reasonable knowledge of the relevant facts.
{NOTE: In Canada, the term “price” should be replaced with the term “highest price”.}
Fairness Opinion—an opinion as to whether or not the consideration in a transaction is fair from a
financial point of view.
Financial Risk—the degree of uncertainty of realizing expected future returns of the business
resulting from financial leverage. See Business Risk.
Forced Liquidation Value—liquidation value, at which the asset or assets are sold as quickly as
possible, such as at an auction.
Free Cash Flow—we discourage the use of this term. See Net Cash Flow.
Going Concern—an ongoing operating business enterprise.
Going Concern Value—the value of a business enterprise that is expected to continue to operate
into the future. The intangible elements of Going Concern Value result from factors such as
having a trained work force, an operational plant, and the necessary licenses, systems, and
procedures in place.

Goodwill—that intangible asset arising as a result of name, reputation, customer loyalty, location,
products, and similar factors not separately identified.
Goodwill Value—the value attributable to goodwill.
Guideline Public Company Method—a method within the market approach whereby market
multiples are derived from market prices of stocks of companies that are engaged in the same or
similar lines of business and that are actively traded on a free and open market.
Income (Income-Based) Approach—a general way of determining a value indication of a
business, business ownership interest, security, or intangible asset using one or more methods that
convert anticipated economic benefits into a present single amount.
Intangible Assets—nonphysical assets such as franchises, trademarks, patents, copyrights,
goodwill, equities, mineral rights, securities, and contracts (as distinguished from physical assets)
that grant rights and privileges and have value for the owner.
Internal Rate of Return—a discount rate at which the present value of the future cash flows of
the investment equals the cost of the investment.
Intrinsic Value—the value that an investor considers, on the basis of an evaluation or available
facts, to be the “true” or “real” value that will become the market value when other investors
reach the same conclusion. When the term applies to options, it is the difference between the
exercise price and strike price of an option and the market value of the underlying security.
Invested Capital—the sum of equity and debt in a business enterprise. Debt is typically (a) all
interest-bearing debt or (b) long-term, interest-bearing debt. When the term is used, it should be
supplemented by a specific definition in the given valuation context.
Invested Capital Net Cash Flows—those cash flows available to pay out to equity holders (in the
form of dividends) and debt investors (in the form of principal and interest) after funding
operations of the business enterprise and making necessary capital investments.
Investment Risk—the degree of uncertainty as to the realization of expected returns.
Investment Value—the value to a particular investor based on individual investment requirements
and expectations. {NOTE: in Canada, the term used is “Value to the Owner”.}
Key Person Discount—an amount or percentage deducted from the value of an ownership interest
to reflect the reduction in value resulting from the actual or potential loss of a key person in a
business enterprise.
Levered Beta—the beta reflecting a capital structure that includes debt.
Limited Appraisal—the act or process of determining the value of a business, business ownership
interest, security, or intangible asset with limitations in analyses, procedures, or scope.
Liquidity—the ability to quickly convert property to cash or pay a liability.
Liquidation Value—the net amount that would be realized if the business is terminated and the
assets are sold piecemeal. Liquidation can be either “orderly” or “forced.”
Majority Control—the degree of control provided by a majority position.
Majority Interest—an ownership interest greater than 50% of the voting interest in a business
enterprise.
Market (Market-Based) Approach—a general way of determining a value indication of a
business, business ownership interest, security, or intangible asset by using one or more methods

that compare the subject to similar businesses, business ownership interests, securities, or
intangible assets that have been sold.
Market Capitalization of Equity—the share price of a publicly traded stock multiplied by the
number of shares outstanding.
Market Capitalization of Invested Capital—the market capitalization of equity plus the market
value of the debt component of invested capital.
Market Multiple—the market value of a company’s stock or invested capital divided by a
company measure (such as economic benefits, number of customers).
Marketability—the ability to quickly convert property to cash at minimal cost.
Marketability Discount—see Discount for Lack of Marketability.
Merger and Acquisition Method—a method within the market approach whereby pricing
multiples are derived from transactions of significant interests in companies engaged in the same
or similar lines of business.
Mid-Year Discounting—a convention used in the Discounted Future Earnings Method that
reflects economic benefits being generated at midyear, approximating the effect of economic
benefits being generated evenly throughout the year.
Minority Discount—a discount for lack of control applicable to a minority interest.
Minority Interest—an ownership interest less than 50% of the voting interest in a business
enterprise.
Multiple—the inverse of the capitalization rate.
Net Book Value—with respect to a business enterprise, the difference between total assets (net of
accumulated depreciation, depletion, and amortization) and total liabilities as they appear on the
balance sheet (synonymous with Stakeholder’s Equity). With respect to a specific asset, the
capitalized cost less accumulated amortization or depreciation as it appears on the books of
account of the business enterprise.
Net Cash Flows—when the term is used, it should be supplemented by a qualifier. See Equity
Net Cash Flows and Invested Capital Net Cash Flows.
Net Present Value—the value, as of a specified date, of future cash inflows less all cash outflows
(including the cost of investment) calculated using an appropriate discount rate.
Net Tangible Asset Value—the value of the business enterprise’s tangible assets (excluding
excess assets and nonoperating assets) minus the value of its liabilities.
Nonoperating Assets—assets not necessary to ongoing operations of the business enterprise.
{NOTE: in Canada, the term used is “Redundant Assets”.}
Normalized Earnings—economic benefits adjusted for nonrecurring, noneconomic, or other
unusual items to eliminate anomalies and/or facilitate comparisons.
Normalized Financial Statements—financial statements adjusted for nonoperating assets and
liabilities and/or for nonrecurring, noneconomic, or other unusual items to eliminate anomalies
and/or facilitate comparisons.
Orderly Liquidation Value—liquidation value at which the asset or assets are sold over a
reasonable period of time to maximize proceeds received.
Premise of Value—an assumption regarding the most likely set of transactional circumstances
that may be applicable to the subject valuation; for example, going concern, liquidation.

Present Value—the value, as of a specified date, of future economic benefits and/or proceeds
from sale, calculated using an appropriate discount rate.
Portfolio Discount—an amount or percentage deducted from the value of a business enterprise to
reflect the fact that it owns dissimilar operations or assets that do not fit well together.
Price/Earnings Multiple—the price of a share of stock divided by its earnings per share.
Rate of Return—an amount of income (loss) and/or change in value realized or anticipated on an
investment, expressed as a percentage of that investment.
Redundant Assets—see Nonoperating Assets.
Report Date—the date conclusions are transmitted to the client.
Replacement Cost New—the current cost of a similar new property having the nearest equivalent
utility to the property being valued.
Reproduction Cost New—the current cost of an identical new property.
Required Rate of Return—the minimum rate of return acceptable by investors before they will
commit money to an investment at a given level of risk.
Residual Value—the value as of the end of the discrete projection period in a discounted future
earnings model.
Return on Equity—the amount, expressed as a percentage, earned on a company’s common
equity for a given period.
Return on Investment—See Return on Invested Capital and Return on Equity.
Return on Invested Capital—the amount, expressed as a percentage, earned on a company’s total
capital for a given period.
Risk-Free Rate—the rate of return available in the market on an investment free of default risk.
Risk Premium—a rate of return added to a risk-free rate to reflect risk.
Rule of Thumb—a mathematical formula developed from the relationship between price and
certain variables based on experience, observation, hearsay, or a combination of these; usually
industry specific.
Special Interest Purchasers—acquirers who believe they can enjoy post-acquisition economies
of scale, synergies, or strategic advantages by combining the acquired business interest with their
own.
Standard of Value—the identification of the type of value being utilized in a specific
engagement; for example, fair market value, fair value, investment value.
Sustaining Capital Reinvestment—the periodic capital outlay required to maintain operations at
existing levels, net of the tax shield available from such outlays.
Systematic Risk—the risk that is common to all risky securities and cannot be eliminated through
diversification. The measure of systematic risk in stocks is the beta coefficient.
Tangible Assets—physical assets (such as cash, accounts receivable, inventory, property, plant
and equipment, etc.).
Terminal Value—See Residual Value.
Transaction Method—See Merger and Acquisition Method.
Unlevered Beta—the beta reflecting a capital structure without debt.

Unsystematic Risk—the risk specific to an individual security that can be avoided through
diversification.
Valuation—the act or process of determining the value of a business, business ownership interest,
security, or intangible asset.
Valuation Approach—a general way of determining a value indication of a business, business
ownership interest, security, or intangible asset using one or more valuation methods.
Valuation Date—the specific point in time as of which the valuator’s opinion of value applies
(also referred to as “Effective Date” or “Appraisal Date”).
Valuation Method—within approaches, a specific way to determine value.
Valuation Procedure—the act, manner, and technique of performing the steps of an appraisal
method.
Valuation Ratio—a fraction in which a value or price serves as the numerator and financial,
operating, or physical data serve as the denominator.
Value to the Owner—see Investment Value.
Voting Control—de jure control of a business enterprise.
Weighted Average Cost of Capital (WACC)—the cost of capital (discount rate) determined by
the weighted average, at market value, of the cost of all financing sources in the business
enterprise’s capital structure.
ADDITIONAL TERMS
Assumptions and Limiting Conditions. Parameters and boundaries under which a valuation is
performed, as agreed upon by the valuation analyst and the client or as acknowledged or
understood by the valuation analyst and the client as being due to existing circumstances. An
example is the acceptance, without further verification, by the valuation analyst from the client of
the client’s financial statements and related information.
Business Ownership Interest. A designated share in the ownership of a business (business

enterprise).
Calculated Value. An estimate as to the value of a business, business ownership interest,
security, or intangible asset, arrived at by applying valuation procedures agreed upon with the
client and using professional judgment as to the value or range of values based on those
procedures.
Calculation Engagement. An engagement to estimate value wherein the valuation analyst and
the client agree on the specific valuation approaches and valuation methods that the valuation
analyst will use and the extent of valuation procedures the valuation analyst will perform to
estimate the value of a subject interest. A calculation engagement generally does not include all
of the valuation procedures required for a valuation engagement. If a valuation engagement had
been performed, the results might have been different. The valuation analyst expresses the results
of the calculation engagement as a calculated value, which may be either a single amount or a
range.
Capital or Contributory Asset Charge. A fair return on an entity’s contributory assets, which
are tangible and intangible assets used in the production of income or cash flow associated with
an intangible asset being valued. In this context, income or cash flow refers to an applicable
measure of income or cash flow, such as net income, or operating cash flow before taxes and

capital expenditures. A capital charge may be expressed as a percentage return on an economic
rent associated with, or a profit split related to, the contributory assets.
Capitalization of Benefits Method. A method within the income approach whereby expected
future benefits (for example, earnings or cash flow) for a representative single period are
converted to value through division by a capitalization rate.
Comparable Profits Method. A method of determining the value of intangible assets by
comparing the profits of the subject entity with those of similar uncontrolled companies that have
the same or similar complement of intangible assets as the subject company.
Comparable Uncontrolled Transaction Method. A method of determining the value of
intangible assets by comparing the subject transaction to similar transactions in the market place
made between independent (uncontrolled) parties.
Conclusion of Value. An estimate of the value of a business, business ownership interest,
security, or intangible asset, arrived at by applying the valuation procedures appropriate for a
valuation engagement and using professional judgment as to the value or range of values based
on those procedures.
Control Adjustment. A valuation adjustment to financial statements to reflect the effect of a
controlling interest in a business. An example would be an adjustment to owners’ compensation
that is in excess of market compensation.
Engagement to Estimate Value. An engagement, or any part of an engagement (for example, a
tax, litigation, or acquisition-related engagement), that involves determining the value of a
business, business ownership interest, security, or intangible asset. Also known as valuation
service.
Excess Operating Assets. Operating assets in excess of those needed for the normal operation of
a business.
Fair Value. In valuation applications, there are two commonly used definitions for fair value: (1)
For financial reporting purposes only, 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.
Source: Financial Accounting Standards Board definition in Statement of Financial Accounting
Standards (SFAS) No. 157, Fair Value Measurements, as used in the context of Generally
Accepted Accounting Principles (GAAP) (Effective 2008). (2) For state legal matters only, some
states have laws that use the term fair value in stakeholder and partner matters. For state legal
matters only, therefore, the term may be defined by statute or case law in the particular
jurisdiction.
Guideline Company Transactions Method. A method within the market approach whereby
market multiples are derived from the sales of entire companies engaged in the same or similar
lines of business.
Hypothetical Condition. That which is or may be contrary to what exists, but is supposed for the
purpose of analysis.
Incremental Income. Additional income or cash flow attributable to an entity’s ownership or
operation of an intangible asset being valued, as determined by a comparison of the entity’s
income or cash flow with the intangible asset to the entity’s income or cash flow without the
intangible asset. In this context, income or cash flow refers to an applicable measure of income or
cash flow, such as license royalty income or operating cash flow before taxes and capital
expenditures.

Pre-adjustment Value. The value arrived at prior to the application, if appropriate, of valuation
discounts or premiums.
Profit Split Income. With respect to the valuation of an intangible asset of an entity, a percentage
allocation of the entity’s income or cash flow whereby (1) a split (or percentage) is allocated to
the subject intangible and (2) the remainder is allocated to all of the entity’s tangible and other
intangible assets. In this context, income or cash flow refers to an applicable measure of income
or cash flow, such as net income or operating cash flow before taxes and capital expenditures.
Relief from Royalty Method. A valuation method used to value certain intangible assets (for
example, trademarks and trade names) based on the premise that the only value that a purchaser
of the assets receives is the exemption from paying a royalty for its use. Application of this
method usually involves estimating the fair market value of an intangible asset by quantifying the
present value of the stream of market-derived royalty payments that the owner of the
intangible asset is exempted from or “relieved” from paying.
Residual Income. For an entity that owns or operates an intangible asset being valued, the
portion of the entity’s income or cash flow remaining after subtracting a capital charge on all of
the entity’s tangible and other intangible assets. Income or cash flows can refer to any appropriate
measure of income or cash flow, such as net income or operating cash flow before taxes and
capital expenditures.
Security. A certificate evidencing ownership or the rights to ownership in a business enterprise
that (1) is represented by an instrument or by a book record or contractual agreement, (2) is of a
type commonly dealt in on securities exchanges or markets or, when represented by an
instrument, is commonly recognized in any area in which it is issued or dealt in as a medium for
investment, and (3) either one of a class or series or, by its terms, is divisible into a class or series
of shares, participations, interests, rights, or interest-bearing obligations.
Subject Interest. A business, business ownership interest, security, or intangible asset that is the
subject of a valuation engagement.
Subsequent Event. An event that occurs subsequent to the valuation date.
Valuation Analyst. For purposes of this Statement, an AICPA member who performs an
engagement to estimate value that culminates in the expression of a conclusion of value or a
calculated value.
Valuation Assumptions. Statements or inputs utilized in the performance of an engagement to
estimate value that serve as a basis for the application of particular valuation methods.
Valuation Engagement. An engagement to estimate value in which a valuation analyst
determines an estimate of the value of a subject interest by performing appropriate valuation
procedures, as outlined in the AICPA Statement on Standards for Valuation Services, and is free
to apply the valuation approaches and methods he or she deems appropriate in the circumstances.
The valuation analyst expresses the results of the valuation engagement as a conclusion of value,
which may be either a single amount or a range.
Valuation Service. See Engagement to Estimate Value.

29 APPENDIX G: REPORT ON NATIONAL ECONOMY
KeyValueData™
National Economic Report
December 2014
By Kevin R. Hopkins
About the Editor
The KeyValueData National Economic Report is written and edited by Kevin R. Hopkins. Mr.
Hopkins is a former senior economic advisor to President Reagan. He previously served as Director
of the White House Office of Policy Information and as Senior Staff Member for the White House
Cabinet Council on Economic Affairs. He has also been a senior contributing editor to Business Week
magazine for the past 18 years. He attended the Ph.D. program in Economics and Mathematics at
UCLA.
Use of Materials
The KeyValueData National Economic Report™ (“the Report”) conveys general economic conditions
through the first quarter of 2011 and, in some cases, the second quarter of 2011. For indicators with
more frequent reporting periods, data has been sourced up to Report’s publication date. In addition,
the Report provides 10-year historic data references for trend analysis purposes. The report will be
updated by KeyValueData on a monthly and/or quarterly basis to maintain data timeliness.
The information contained within the report should not be interpreted as advice for the preparation
of valuations or other financial counseling. Usage and application of the information for valuation or
other consultative purposes is the sole responsibility of the individual appraiser. KeyValueData and
the editors of the Report believe the contents of this Report to be accurate as of the publication date.
However, neither KeyValueData nor the editors take any responsibility nor offer any warrants for the
accuracy of the data or any consequences that may result from the use of this data or other contents
of this Report for personal or professional purposes. Please notify us of any errors by writing
[email protected].
Licensed users and individual subscribers to the Report have permission to extract material contents
from the KeyValueData National Economic Report for use in their own documents provided that the
cited materials are attributed to the original sources noted in the Report.
APPENDIX G: REPORT ON NATIONAL ECONOMY Page 158

Dec 2014 National Economic Report: Summary
The U.S. economy continued to gain strength during December, although some warning signs began to emerge.
Most notably, the U.S. gross domestic product (GDP), which had exhibited strong bounceback growth during
the second and third quarters, grew more slowly during the fourth quarter. As reported by the U.S. Commerce
Department in its initial estimate for fourth-quarter GDP growth, the GDP expanded at a seasonally adjusted
annual rate of 2.6% in the October-to-December timeframe, falling well below the 3.1% rate that economists
had expected. In contrast to GDP, the employment picture continued to brighten, as the economy added 252,000
jobs in December, according to a January 9 report from the U.S. Department of Labor. The number—which beat
economists’ expectations of 240,000 new jobs—represented 58 straight months of private-sector job gains. At
the same time, the unemployment rate, which stood at 6.7% as recently as March, fell from 5.8% in October
and November to 5.6% in December.
Some concerns remain, however. The U.S. national debt continues to grow, having jumped to $18.141 trillion
on December 31, 2014. And while the Federal budget deficit for FY 2014 dropped for the second year in a row
to $483.0 billion—its lowest level in six years—both Federal spending and taxation once again hit all-time highs.
In other areas, on the positive side, the manufacturing sector expanded for the 19th straight month, auto sales
posted their strongest annual growth since 2006, new-home sales were up, consumer confidence turned
positive, consumer spending accelerated, and consumer prices and gasoline prices continued to slide. On the
negative side, industrial production and existing-home sales fell and retail sales plummeted after a strong
November.
Fourth-Quarter Economic Growth Weaker Than Expected
The U.S. gross domestic product (GDP), which had exhibited strong bounceback growth during the second and
third quarters of 2014, grew more slowly in the fourth quarter. As reported by the U.S. Commerce Department
in its initial estimate for fourth-quarter GDP growth, released on January 30, the GDP expanded at a seasonally
adjusted annual rate of 2.6% in the October-to-December timeframe, falling well below the 3.1% rate that
economists had expected. Previously, the economy grew by 4.6% during the second quarter and by a decade-
high 5.0% in the third quarter. Indeed, prior to the fourth quarter, the economy had met or exceeded a growth
rate of 3.5% for four of the previous five quarters. For all of 2014, the economy grew by 2.4%, up from 2.2%
in 2013.
Employment Picture Continues to Brighten in December
The U.S. economy added 252,000 jobs in December, according to a January 9 report from the U.S. Department
of Labor. The number—which beat economists’ expectations of 240,000 new jobs—represented 58 straight
months of private-sector job gains. At the same time, October’s job gains were revised upward from 243,000
to 261,000, while November’s jobs increase was raised from 321,000 to 353,000. Additionally, the U.S.
unemployment rate, which stood at 6.7% as recently as March, fell in December to 5.6% from 5.8% in each of
October and November, the U.S. Labor Department said on January 9. In all, the jobless rate plunged by just
over a percentage point during 2014, the largest annual decline in the unemployment rate in more than 30
years (since 1984).
Budget Deficit Dips to Six-Year Low
After topping $1 trillion for four straight years, the Federal budget deficit fell sharply to $680.3 billion in Fiscal
Year 2013 and then dipped further to $483.0 billion in Fiscal Year 2014, which ended on September 30, 2014,
the U.S. Department of the Treasury said on October 15. In comparison, the Federal budget shortfall was $1.09
trillion in FY 2012.
U.S. National Debt Soars Further Past $18.0 Trillion
After rising by nearly $700 billion during 2014, the U.S. national debt jumped by $98 billion on December 31,
2014, bringing the calendar year-end national debt total to $18.141 trillion, or $789 billion higher than just one
year earlier.
Federal Tax Revenues and Spending Again Set New Records
The Federal government took in a record of $3.02 trillion in taxes during Fiscal Year 2014, which ended on
September 30, 2014, according to the U.S. Treasury Department. The figure was up from $2.87 trillion in FY
2013 and from $2.10 trillion just five years ago. In addition, Federal spending set an all-time record in FY 2014
of $3.50 trillion.

Stocks Starts 2015 in Decline
After repeatedly hitting all-time records during the second half of 2014, U.S. stocks began 2015 on a modest
downward trend. The Dow-Jones Industrials Average, which stood at 17,823.07 on December 31, fell to
17,511.57 on January 16. Likewise, the S&P 500, which had closed at 2,058.90 on December 31, slipped to
2,019.42 on January 16. And the NAQDAQ Composite, which had reached 4,736.05 on December 31, fell to
4,634.38 on January 16.
Industrial Production Falls in December
After surging by 1.3% in November, U.S. industrial production fell by a seasonally adjusted 0.1% in December,
the U.S. Federal Reserve reported on January 16.
Manufacturing Sector Expands Again in December
Economic activity in the U.S. manufacturing sector expanded in December for the 19th consecutive month,
according to a January 2 report from the Tempe-based Institute for Supply Management (ISM), a private trade
group.
Productivity Rises Again in Third Quarter
U.S. workers’ productivity increased more rapidly than expected in the third quarter of 2014, notching its second
quarterly gain in a row. Overall, the measure of employee output per hour rose at a revised, annualized 2.3%
rate in the third quarter—beating consensus expectations for a 1.1% increase—following an upwardly revised
gain of 2.9% in the second quarter. Previously, productivity had plunged by 4.5% in the first quarter, which had
been the biggest quarterly drop in productivity in three decades. Before that, during 2013, productivity rose by
0.9%, following on a 1.0% increase for 2012.
U.S. Auto Sales Surge in December
Sales of cars and light trucks in the United States rose in December by 11% from one year earlier to 1.5 million
units. For the year as a whole, auto sales were up by 5.9% over 2013 levels, representing the strongest annual
auto-sales growth since 2006.
New-Home Sales Up, Existing-Home Sales Down in December
After declining by 1.6% in November, sales of newly built U.S. homes jumped by 11.6% in December. In
contrast, existing-home sales in the United States—which edged up by 0.6% in November—plunged by 3.7% in
December.
Consumer Confidence Up Strongly
The Conference Board Consumer Confidence Index, which had declined in November, bounced back in
December. The Index now stands at 92.6 (1985=100), up from a revised 91.0 in November. The Present
Situation Index rose to 98.6 from 93.7 in November, while the Expectations Index fell to 88.5 from 89.3 in
November.
Consumer Spending Accelerates in the Fourth Quarter
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, advanced at a 4.3%
pace in the fourth quarter, the U.S. Commerce Department reported on January 30. It was the strongest growth
rate since the first quarter of 2006 and a sharp uptick from the third-quarter rate of 3.2%.
Retail Sales Plummet in December
After climbing by 0.3% in October and by 0.7% in November, U.S. retail sales fell by 0.9% in December, the
U.S. Department of Commerce reported on January 14.
Consumer Prices Decline in December
On a seasonally adjusted basis, the U.S. Consumer Price Index (CPI) for all goods declined by 0.4% in December
after having been unchanged in October and having fallen by 0.3% in November.
Gasoline Prices Continue Falling
After hitting $3.70 per gallon on June 23, the average retail price of a gallon of regular unleaded fuel in the
United States began falling, dipping in November below the $3.00-a-gallon mark for first time in four years.

Prices continued to tumble thereafter, slipping to $2.55 per gallon on December 15 and, further, to $2.07 by
January 19.

30 APPENDIX H: REPORT ON FLORIDA ECONOMY
INSERT AFTER THIS PAGE
APPENDIX H: REPORT ON FLORIDA ECONOMY Page 162

31 APPENDIX I: INDUSTRY REPORT
APPENDIX I: INDUSTRY REPORT Page 163

32 APPENDIX J: CLIENT PROVIDED FINANCIAL DOCUMENTS
APPENDIX J: CLIENT PROVIDED FINANCIAL DOCUMENTS Page 164

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Detailed Report Of

ABC CONTROL, INC.

7819 N. Dale Mabry Highway

Dear Jane Jones,

Table of Contents Page i

4 APPRAISAL OF ECONOMIC CONDITIONS ................................................13

5 INDUSTRY OUTLOOK .............................................................................. 16

Table of Contents Page ii

7 COMPANY FINANCIAL POSITION VS. PEERS ..........................................35

8 COMPANY FINANCIAL TRENDS ANALYSIS .............................................. 40

9 VALUATION METHODOLOGY AND APPROACHES .....................................48

Table of Contents Page iii

11 METHODOLOGY CONSIDERED AND USED ...............................................53

12 METHODOLOGIES USED AS SANITY CHECKS ..........................................58

13 CONCLUSION OF VALUE ......................................................................... 64

14 EXHIBIT 1: BALANCE SHEETS ADJUSTMENTS DETAILS ..........................68

15 EXHIBIT 2: INCOME STATEMENTS ADJUSTMENTS DETAILS....................73

16 EXHIBIT 3: COMPARATIVE ANALYSIS DETAILS ...................................... 78

17 EXHIBIT 4A: MULTI-ATTRIBUTE UTILITY MODEL (BIZCOMPS) ..............84

Table of Contents Page iv

19 EXHIBIT 5: COMPANY SPECIFIC RISK PREMIUM DETAILS.................... 106

20 EXHIBIT 6: EDLOM CALCULATIONS ...................................................... 109

21 EXHIBIT 7: ADJUSTMENTS TO SALARIES AND WAGES ......................... 116

22 EXHIBIT 8- GUIDELINE TRANSACTION COMPANY DATA ...................... 120

23 APPENDIX A: VALUATION ANALYST’S REPRESENTATION..................... 121

24 APPENDIX B: APPRAISER’S CURRICULUM VITAE ................................. 122

25 APPENDIX C: LIMITING CONDITIONS .................................................. 126

26 APPENDIX D: IRS REVENUE RULINGS .................................................. 130

27 APPENDIX E: MARKETABILITY DISCOUNT STUDIES ............................. 137

28 APPENDIX F: GLOSSARY....................................................................... 149

29 APPENDIX G: REPORT ON NATIONAL ECONOMY...................................158

30 APPENDIX H: REPORT ON FLORIDA ECONOMY ..................................... 162

31 APPENDIX I: INDUSTRY REPORT.......................................................... 163

32 APPENDIX J: CLIENT PROVIDED FINANCIAL DOCUMENTS ................... 164

Table of Contents Page v

Report Date Delivered on January 13, 2015

Valuation Date As of December 31, 2014

Governing Standard IRS Revenue Ruling 59-60

Name of the Subject ABC CONTROL, INC.

Type of Entity/Filing Status Corporation which files as an "S" Corporation

Doing Business As (d/b/a) N/A

Description of Business Exterminating and Pest Control Services

Industry Code (NAICS) 561710

Prepared for my Client Jane Jones

Purpose divorce Proceedings

Standard of Value Fair Market Value

Premise of Value value as a Going Concern

Significant Historical Events None

Restrictions and Limitations See Scope Limitation on page 2 for details

Appraiser’s Name Salvatore B. Urso

Appraiser’s Firm Ameri-Street Advisory, Inc.

Business Interest Valued 100.0% of the Common Stock

Level of Value As Privately-Held, Marketable, Controlling

Conclusion of Value $170,000

REPORT SUMMARY Page 1

2.2 Description of the Assignment

2.3 Scope Limitation

2.3.2 Restrictions and Limitations Bestowed upon the Stakeholder(s)

2.4 Sources of Information

2.4.2 Company Non-Financial Information