1. TuFFLabs Dominic Bernetti, Jennifer Davis, Jason Marthe, Lindsay Clouse, and Christopher Hall

2. Agenda I.Initial Expenditures II.Entity Selection Analysis III.Medical Device Analysis IV.Executive Compensation Analysis

3. Initial Expenditures: Assets Acquired Amortizable Trade name - 15 years Patent - 6 years Work force - 15 years Customer list - 15 years Software - 15 years Depreciable Lab equipment- 5 years Lab building - 39 years Not Recoverable Goodwill IRC §197 – Intangible Assets

4. Initial Expenditures: Amortization & Depreciation *Goodwill not recoverable

5. Initial Expenditures: Additional Expenditures Organizational Expenditures ($25,000) Deduction of $6,333 Start-up Expenditures ($75,000) Deduction of $5,000 Patents Internally created ($900,000 expensed) Purchased ($4,000,000 amortized over 8 years) Annual amortization = $500,000 IRC §248 IRC §195 Reg § 1.174-2

6. Initial Expenditures: Research and Development IRC §174

7. Initial Expenditures: Total Deductions Depreciation Amortization Organizational Exp. Start-up Exp. Research & Development Total 2,802,564 1,493,334 6,333 5,000 5,000,000 $ 9,307,231

8. Initial Expenditures: Deductions over 6 years 2015$9,307,231 2016$4,302,231 2017$4,302,231 2018$4,302,213 2019$4,302,213 2020$1,602,231 Total$28,118,386

9. Initial Expenditures: Research Activities Credit Single Member Limited Liability Company (SMLLC) 50% * 18,000,000 = $9,000,000 25,000,000 - 9,000,000 = $16,000,000 16,000,000 * 14% = $2,240,000 C-Corp 5,000,000 * 6% = $300,000 (TuFFLabs) 20,000,000 – 9,000,000 = $11,000,000 11,000,000 * 14% = $1,540,000 (TuFFPeach) IRC §41

10. Entity Selection Analysis: SMLLC vs C-Corp SMLLCC-Corp Filing TuFFPeach’s 1120Files 1120, Form 851 on TuFFPeach Treatment of Losses Netted against TuFFPeach’s income Losses carry over to future years Apportionment Georgia factor: Sales State A factors: Sales, Property, Payroll Not Relevant

11. Entity Selection Analysis: Income Tax Calculations

16. Medical Device Analysis: Classification Requirements Primarily for use in a medical institution Implanted, inserted, or administrated by a medical professional Typically not affordable by general public What does not constitute a medical device? Regularly available for purchase/use by individuals Easily accessible Safely and effectively used without a medical professional Excise Tax is 2.3% of sale price IRC §4191 Reg §48.4191-1 & 2

17. Medical Device Analysis: TuFFLabs Products 1.Diet Planner (not a medical device) Will be sold at retail stores No special skills to read device 2.Tricord- Scanner (medical device) Sold primarily in doctors office Needs doctor to read information 3.Knee Mobilizer (medical device) Needs prescription from doctor, not easily accessible Very expensive and not meant for the average consumers

18. Executive Compensation Analysis: NQSO vs ISO Incentive Stock Option (ISO) Nonqualified Stock Option (NQSO) Similarities Tool to increase executive interest and stake in company Value must be greater than or equal to FMV of the current stock price IRC §421 IRC §422 CCH. Employee Benefit Analysis ¶106,034

19. NQSO Any entity Used when ISO requirements not met Requirements set by company ISO Corporation only Shareholders approve within 1 year After approval, must be granted within 10 years. Not exercisable after 10 years Non -transferable (Except in special cases) Executive Compensation Analysis: NQSO vs ISO IRC §421 IRC §422 CCH. Employee Benefit Analysis ¶106,034

20. EmployeeEmployer NQSO Normal Income when exercised (FMV – Option Price) Future Appreciation treated as Capital Gain Can deduct the amount treated as ordinary income (FMV - Option Price) ISO Capital Gain (Sale Price – Exercise Price) Not Deductible (Unless Disqualifying Disposition) Executive Compensation Analysis: Tax Comparison IRC §421 IRC §422 CCH. Employee Benefit Analysis ¶106,034

21. IRC §421 IRC §422 CCH. Employee Benefit Analysis ¶106,034 Alternative 1Alternative 2 NQSO $50-$32=$18 *1000shares $18,000 $80-$50=$30*1000shares $30,000 $50-$32=$18*1000shares $18,000 $60-$50=$10*1000shares $10,000 ISO $80 -$32=$48*1000shares $48,000 $50-$32=$18*1000shares $18,000 $60-$32=$28*1000shares $28,000 (Does not qualify as ISO) Executive Compensation Analysis: Tax Comparison

22. Executive Compensation Analysis: Buyout Arrangements Why do a buyout arrangement? Scenario of $5,000,000 for 5 key employees 1,000,000* 20% = 200,000 Excess = $4,800,000 Tax = $960,000 (20% of excess) 200,000* 20% = 40,000 Excess = $4,960,000 Tax = $992,000 (20% of excess) Recommendation CCH Employee Benefits Analysis ¶111,130

23. Review Deductions from initial expenditures: $28,118,386 Recommend forming TuFFLabs as a C-Corp Two of the three products considered medical The difference between NQSO and ISO Buyout Recommendation