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General
1. Copy of the internal statement of operations for the fiscal years ended 1998,
1997, and 1996. If unaudited, please provide a reconciliation of the internal
statements to the Company’s general ledger/trial balance and to other supporting
documentation, such as tax returns or a reconciliation of revenues to cash
receipts, and provide a description of the accounting for significant transactions.
6. A schedule of EBIT and EBITDA for the historical and forecast periods.
Reconcile these amounts to the figures used in the Level 7 valuation. Provide
supporting documentation for the proforma amounts (e.g. such as account
balances, if applicable, and other documentation such as invoices or W-2 Forms).
1. Describe (i) revenue terms for consulting services & projects; (ii) revenue
recognition policies for consulting services & projects; (iii) fee structures and
pricing practices (i.e. fixed fee, hourly fee, fee per transaction, etc.); (iv)
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significant service lines; (v) billing practices; (vi) whether consulting, software
and hardware sales are recorded separately; (vii) whether consulting revenue and
related out-of-pocket expenses are segregated; (viii) whether consulting revenue
is gross or net of fee adjustments; (ix) whether the Company monitors hours
worked and billed by its consultants and whether it maintains reasonably reliable
data on gross and net revenue per hour and consultant utilization; (x) key markets
and customers; and, (xi) competitive strengths and weaknesses.
2. A schedule of the components that comprise revenue for fiscal years ending <X>,
<X> and <X> by product (i.e. type of software package) and by service line (e.g.
consulting, product, training or support).
3. Reconcile gross to net revenues, and summarize gross profit and EBITDA for
each period in the historical, interim and forecast periods.
4. Schedule of revenues and gross profit by customer for the ten most significant
customers for the historical and interim periods. Describe the reasons for changes
in revenues and gross profit during these periods, including (i) the length of the
relationship with each customer; (ii) the types of relationships that the Company
has with each customer; (iii) how gross margin is determined for each principal
line or business or service offering; (iv) changes in revenue levels to each
customer; (v) the reasons for significant adjustments between revenues billed
versus cash collected .
Cost of Services
2. A schedule of the components that comprise cost of sales for fiscal years ending
1998, 1997 and 1996 by product (i.e. type of software package) and by service
line (e.g. consulting, product, training or support).
Operating expenses
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1. Schedule of the significant components of operating expenses in dollars and as a
percentage of revenues for the historical, interim and forecast periods. Describe
unusual trends and relationships in the periods.
3. A schedule of professional and outside consulting fees incurred for the historical
and interim periods. Describe the nature of the costs (i.e. recurring versus
nonrecurring). With respect to legal fees incurred, describe the nature of the
contingencies relating to the professional fees paid.
1. A schedule of other income and expense for the historical and interim periods.
2. Describe other qualitative factors or assumptions which have been reflected in the
forecasted operating results (e.g. changes in market conditions or within the
services industry).
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D. Balance sheet analysis
General
1. Provide balance sheets for fiscal years ended 1998, 1997 and 1996 and the
interim period.
1. Describe the Company's procedures with respect to the receipt and disbursement
of cash (i.e., utilization of imprest deposit accounts, authorization controls,
segregation of duties, cut-off procedures, etc.), credit facilities and requirement
for letters of credit, if any.
2. Copies of the bank account reconciliations as of the end of the interim period.
Accounts receivable
1. Describe the Company’s credit and collection policies and procedures (e.g.,
standard terms, discounts allowed, etc.), and cut-off procedures. Also, describe
any non-standard or special financing terms offered to customers. Describe the
Company’s procedures for analyzing accounts receivable at year end balance
sheet dates.
2. Copy of the accounts receivable aging report at the historical balance sheet dates.
3. Reconciliation of the aged trial balance to the general ledger and provide a
description of any unusual reconciling items. Describe significant trends in the
aging categories or other unusual relationships.
4. Describe the procedures used to estimate the allowance for doubtful accounts and
any unusual or significant items provided for in the allowance for doubtful
accounts.
5. Summarize the significant past due accounts as of the end of fiscal year 1998 and
provide a rollforward of the bad debt reserve for the historical and interim
periods. Describe the collectibility of the past due accounts and evaluate the
adequacy of the allowance for doubtful accounts.
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1996. Provide a listing of significant additions and disposals for each period in
the historical period and, for additions, indicate whether such expenditures are for
growth or maintenance purposes.
2. Copy of an accounts payable aged trial balance as of fiscal year 1998 year end,
and a reconciliation of the accounts payable trial balance to the general ledger.
3. Summarize the accrued liabilities recorded and unrecorded (payroll, payroll taxes,
vacation, commission, etc.) at the historical balance sheet dates. Describe the
nature of all significant accounts.
Other liabilities
1. A schedule of other liabilities including the revolving line of credit and capital
leases at fiscal year end 1998. Describe the assignability of debt, prepayment
penalties or premiums related to debt to be retired. Provide copies of debt
agreements.
Stockholders’ equity
1. A rollforward of stockholders’ equity accounts for the fiscal years ended 1998,
1997 and 1996.
Forecasted Balance Sheet
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E. Cash Flows
1. For the historical, interim and forecast periods, prepare a comparative of the
statements of cash flows and describe: (i) unusual items; (ii) related party
accounts; (iii) unusual uses or sources of working capital; (iv) assets or liabilities
specifically addressed in the letter of intent; and (v) assets or liabilities that
should be addressed in the purchase agreement.
1. Summarize all asserted and unasserted claims and assessments including, but not
limited to, litigation and governmental/regulatory investigations.
3. Copies of all outstanding lease obligations (operating and capital) and describe
whether any penalties exist for changes in control or early termination.
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