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Due Diligence

Why a Due Diligence?

The "Due Diligence" is a process whereby any given funding source will seek sufficient information about a business entity (applying for funding) to reach an informed judgment as to its value for a specific purpose.

A Due Diligence can also be performed in a wide variety of other situations such as:

• A Firm considering a potential acquisition

• An Investment Banker considering underwriting a public security offering or promoting a Private Placement

• A Banker (funding source) considering making a credit facility to a company (applicant)

• A Lawyer preparing an offering statement or a merger proposal for a client

• An Appraiser who has been retained to estimate the value of a business unit

• A Business Broker offering a company for sale

• A Public Accounting Firm in conjunction with an audit performed at the request of a potential buyer or in support of a security offering

• A Security Analyst preparing a buy, hold or sell recommendation on a public security. The Due Diligence investigation is normally carried out with the knowledge and cooperation of the management of the entity being investigated.

Should any given funding source be mandated to execute a due diligence, either to realize an in-house transaction or be appointed by a third party in connection with the situations above-mentioned and/or other situations, they will thoroughly review (without being limited to) the following activities of the subject entity applying for funding:

• Overview of entity

• Capitalization and ownership

• Organization and management

• Relationships with outside organizations

• Description of products and/or services

• Revenues and market share

• Marketing operations

• Customer service

• Inventory control and purchasing

• Production

• Physical distribution

• Computer, communications and information systems

• Financial management

• Legal affairs and litigation

• Security and safety

• Human resources

• Public relations

• Corporate development

• Description of fixed assets

• Land and buildings

• Vehicles, equipment and tooling

• Introduction to financial analysis

• Balance sheet analysis

- Corporate balance sheet analysis (on the entity applying for funding)

- Personal balance sheet analysis of majority shareholder (of entity applying for funding) demonstrating good financial standing coupled with assessment of history of professional realizations and successes

• Current assets

• Non-current assets

• Liabilities

• Net worth

• Income statement analysis

• Revenues

• Cost of goods sold and gross margin

• Operating expenses

• Operating income

• Non-operating and nonrecurring items

• Income taxes

- Historical personal tax returns of the majority shareholders of entity applying for funding

- Historical corporate tax returns of entity applying for funding

• Net income

• Capital expenditures

• Cash flow

• Financial ratio analysis

• Income statement projections

• Balance sheet projections

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