Sure Ways to Get Financing: Selling Yourself to the Bank

1. "Selling Yourself to the Bank" Course Title (Sure Ways To Get Financing) Presented by Alan Friedman& Daniel JobeFriedman, Kannenberg & Company, P.C.

2. Objectives • Commentary on the current “financial crisis” and its effect on banking and borrowing • “10 Time-Tested Tips” to consider when applying for a bank loan • A “sure-fire” bank presentation template to bolster your chances of getting that loan • Q & A

3. “Current Banking & Financial Crisis”

4. How Did This All Start?

5. 2007 – 2008 • HSBC (world’s largest bank) declares billions in sub-prime mtg losses • Bear Stearns fails; Lehman Brothers files for bankruptcy • Fannie Mae & Freddie Mac put into conservatorship by U.S. Treasury • Fed Reserve bails out AIG, world's largest insurer • Washington Mutual, the largest U.S. thrift, fails • Bank of America’s profits drop 68%; sell stock to raise $10 billion • Swiss government coughs up $59 billion to bail out UBS • Congress passes $700 billion bail-out for Citigroup & Automakers • Stock market plummets, former NASDAQ exec Bernie Madoff steals $50 billion

6. 2009 • AIG announces a $61.7 billion loss for the 4th quarter of 2008 – the largest business loss ever posted in U.S. corporate • Microsoft sales drop for the 1st time in 23 years • U.S. travel down by 30%; KPMG sued for 1 billion dollars • California leads 48 states in fiscal budget crisis • U.S. Unemployment hits 10% (up from 4.9% in 2007) • Bernie Madoff goes to prison for 150 years, his CPA is arrested for securities fraud, and JPMorgan is sued for handling funds • Chrysler & General Motors file for bankruptcy • Personal Savings Rate hits all-time high of 6.9% in May

7. 2010 • June 22, 2010 – Moody’s reports “Bank profits have shrunk to unprecedented levels due to write-offs of $436 Billion in bad loans.” • July 16, 2010 – Businessweek reports “Bank of America, the largest U.S. lender, fell as much as 7 percent in New York trading after the company posted lower profits and revenue amid an economy that’s muddling along.” • October 21, 2010 – Federal Housing Finance Agency says “Government-backed funds may need further aid over bad mortgage losses” and warns U.S. taxpayers that “Fannie Mae and Freddie Mac may need $363 Billion more in bailouts.” • December 31, 2010 – Alan Friedman buys a brand new, 100-watt, all-tube, 3-channel guitar amp to stimulate the economy.

8. What’s next…???

9. Why banks are nervous… • Consider what banks put at risk to make a return of profit (a.k.a. “the spread”) • Receivables go bad, inventory has “feet” • Even real estate (often considered the best collateral) has evaporated in value, often below corresponding mortgages

10. What the bank wants from you… The “3 C’s” – credit, character & collateral • Credit – the proven financial ability to “cash flow” (pay off) the loan • Character – the financial knowledge to run your business profitably, and the trustworthiness to retire the debt • Collateral – an alternate way to pay the debt in the event of a default

11. 10 Tips to Getting that Loan… • Banks need to make loans; so don’t be afraid to ask for one • Do your homework – research banks • Be prepared with Financial Statements, Tax Returns,Business Plans,Forecasts,etc. • Walk in with “basics” & anticipate questions • Dress to impress and for success

12. 10 Tips to Getting that Loan… • Don’t be negative or apologetic – be confident • Keep it real; don’t stretch the truth • Discuss risks (it earns credibility) • Don’t push it • If at first you don’t succeed,…

13. DJ's House of Rock, Inc. Loan Request Presentation to Haywood Jalendmie, V.P. Last National Bank of Hartford

14. Discussion Points • Loan request & proposed loan terms • Background on DJ’s House of Rock • Background on music retailing industry • Background on rental programs • Why we are seeking a bank loan • Financial documents we are providing • Available collateral and security

15. 1. Loan Request & Proposed Terms • $200,000, 5-year (60 month) fully amortizing note at 8% interest per annum • Loan needed for acquisition of band & orchestral rental instruments • Funding Needed by April 1, 2011

16. 2. Background information on DJ’s House of Rock (“DJ’s”) • DJ’s is a single store, “full line” music retailer located in Hartford, CT • DJ’s is an “S” Corporation, owned and operated by Alan Friedman & Daniel Jobe • DJ’s occupies 6,000 sq/ft of retail space on Main Street in downtown Hartford, CT

17. 3. Background information on the Music Retailing Industry • There are approximately 7,500 musical instrument and product retailers in the U.S. Most of these stores are family-owned businesses; only one (Guitar Center with Music & Arts and Musician’s Friend divisions) has a true national presence • There are 5 types of music retailing designations (full line, keyboard, school music, MI/combo & print), each one having unique financing issues • Key profit centers for most music stores include sales, rental, music lesson and repair activities

18. 4. Background information on Instrument Rental Programs • Many full-line and school music retailers rent musical equipment, primarily band and orchestral instruments, under a “rent-to-own” type of agreement. This agreement allows a customer to rent a band or orchestral instrument on trial basis, instead of being forced into buying their child (a school music student) an instrument they may not enjoy playing or continue with shortly after the instrument is bought. • DJ’s is a retailer that provides these types of rental agreements, and has been doing so since 1995.

19. 4. Background information on Instrument Rental Programs • Under the Company’s rent-to-own agreement, a customer signs a contract to rent a musical instrument for a period of time up to 36 months. Title to a rented instrument passes to the customer if & when the final contracted payment is made. • Until the final payment is made, (1) title remains with the Company, (2) all payments received by the Company under the rent-to-own agreement are recorded as rental income, and (3) the rental assets are depreciated over their useful life (usually 3 years, in accordance with tax reporting rules). • Upon receipt of the final payment, the Company removes the related rental asset cost and accumulated depreciation from their accounts and any resulting difference is reflected in cost of goods sold.

20. 4. Background information on Instrument Rental Programs • The Company’s rental agreements comply with Internal Revenue Code Rev.Proc. 95-38. Accordingly, these contracts provide for level rental payments which, in the aggregate, do not exceed $10,000, but do exceed the normal retail price of the rental asset, plus interest. Additionally, these contracts do not extend beyond 36 months and there is no legal obligation for the customer to make all of the payments set forth in the contract. • At the end of each monthly rental period, the customer may either continue to use the property by making the next rental payment via auto-deduction or check, or return the rental asset to the Company. If the rental asset is returned, the customer has no further obligation under the contract and is not entitled to the return of any rental payments previously made.

21. 4. Background information on Instrument Rental Programs • On December 31, 2010, DJ’s had 3,000 instruments in their rental pool at a total cost of $1,000,000, along with $800,000 of accumulated depreciation, resulting in a net book value of $200,000. These instruments have been depreciated over an accelerated 3-year MACRS depreciation method for both book and income tax reporting purposes. • On December 31, 2010, DJ’s has over $2,000,000 in future contracted rental income on its outstanding rental pool, and has historically experienced a 25% return rate each year. Because of the quick depreciation taken on its rent-to-own instruments, the Company believes the fair market value on the rental pool is substantially higher than the net book value reported on the 12/31/2010 balance sheet.

22. 5. Why We Are Seeking a Bank Loan • DJ’s has contracted two new school districts which represent approximately 500 new students who wish to join school sponsored band and music programs and will need to rent band & orchestral instruments • Based on the lucrative nature of rental instrument programs (that also spur related accessory sales and instrument repairs), we would like to expand our instrument rental pools to meet expected customer demand for the 2011-2012 school year • Given the time lag between payments to vendors for these instruments and receipt of the monthly rental income once they are rented, there is an imperative need for bank financing of our rental pools.

23. 6. Supporting Documents Provided • Product Invoices from our Band & Orchestral vendors • Compiled Financial Statements of DJ’s for the years ended December 31, 2008, 2009 & 2010 • December 31, 2010 Personal Financial Statements for the store owners Alan Friedman & Daniel Jobe • Updated 2011 Business Plan • 5-Year Forecast of Income, Expense and Cash Flows for the years ending December 31, 2011 - 2015 • NAMM 2009 Cost of Doing Business Survey • Music Trade’s Annual Report of Top 200 Dealers, and • MMR’s “Profile of the American Music Dealer”

24. 7. Collateral Available • All corporate assets, including fixed assets, accounts receivable and inventory (other than the inventory specifically pledged to specific suppliers and/or floor plan finance companies) • Personal guaranty of Friedman & Jobe • Alan’s primary residence ($200,000 of equity) • Daniel’s vacation home ($150,000 of equity)

25. 8. For additional information contact: Alan Friedman & Daniel Jobe, Officers DJ’s House of Rock, Inc. 4-12 Marshall Stack Street Hartford, CT 06105 Tel – (800) 867-5309 Fax – (800) 123-4567 Web: www.djhr.com Email: info@djhr.com

26. Top Three Takeaways Here are three takeaways from “Selling Yourself to the Bank” presented by Alan Friedman & Daniel Jobe. Bring these ideas to back to your business and see what results you generate! Takeaway 1: Master the “Three C’s” of borrowing Takeaway 2: Generate “current” financial statements Takeaway 3: Download this PowerPoint at www.fkco.com

27. Any Questions?

28. “Free” Consulting Meetings Contact Jen outside the Idea Center entrance after this session to set up a meeting time

29. Enjoy the Show!! Catch Printz Saturday Night at the Hilton Lobby!!