CFO Report for Company ABC

For the Month Ending October 31, 2024

2024

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 Highlights

HIVE EDU
01 INTRODUCTION 08 WORKING CAPITAL

02 FINANCIAL SITUATION SUMMARY 09 CASHFLOW MANAGEMENT

03 FINANCIAL SCORE CARD 10 HEADCOUNT ANALYSIS

04 FINANCIAL RATIOS 11 BUDGET ANALYSIS

05 FINANCIAL POSITION 12 SHORT-TERM & LONG-TERM

FORECASTS

06 REVENUE & COST ANALYSIS 13 RED FLAGS & RISK MANAGEMENT

07 CAPITAL EXPENDITURES

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Introduction
This report details the valuation analysis used to derive the fair market value of the common equity of Company ABC (hereinafter referred to as “ABC
Holding” or the “Company”) on a per share basis (“Subject Interest”) as of Dec. 31, 2023 (“Valuation Date”). It is understood that the valuation of the
Subject Interest, as developed in this report, will be used for Internal Financial reporting. As such, this report should not be used for any other purpose.

The analysis was prepared following the guidance of the American Institute of Certified Public Accountants (“AICPA”) Accounting and Valuation Guide:
Valuation of Privately-Held-Company Equity Securities Issued as Compensation (the “AICPA Guide”).

STANDARD OF VALUE

For financial reporting purposes, the appropriate standard of value is fair value ("FV"), which is defined as:

The amount at which an asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other
than in a forced or liquidation sale.

SCOPE OF ENGAGEMENT

This report was created in compliance with guidance regarding valuation methodologies published by the AICPA. We considered differences between the
Company’s preferred and common shares, as applicable, with respect to liquidation preferences, conversion rights, voting rights, and other features. We
also considered appropriate adjustments to recognize the lack of marketability related to the Subject Interest.

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FINANCIAL SITUATION
SUMMARY
The CEO Dashboard

LTV Average Gross Headcount Net Burn Per Month Sales Pipeline
Margin

$52.0K 33.4% 140 $190.0K $10.0M

+22% from September -2% from Last Year -2% from Last Year -20% from September +22% above Budget

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Financial Scorecard
Summary

Metric Budget FY 2024 Actual FY 2024 Actual FY 2023 Commentary

Profitability

Revenue Growth 15% 12% 14% Lower Q3 performance

Gross Margin 45% 42% 42% Improved pricing mix
EBITDA Margin 10% 12% 14% Higher staff costs
Profit Margin 5% 2% 4% Net Impact

Metric Budget FY 2024 Actual FY 2024 Actual FY 2023 Commentary

Liquidity

Operating Cashflow as % of EBITDA 10% 12% 14% Extended payment terms for key customers
Free Cashflow ($’000) 120 120 100 Disciplined capital expenditure management
Cash Conversion Cycle (days) 30 30 40 Slower inventory turnover and an increase in DSO
Current Ratio 1.5 1.3 1.5 Strong liquidity position

Metric Budget FY 2024 Actual FY 2024 Actual FY 2023 Commentary

Efficiency

Operating Expense Ratio 45% 42% 42% Well within acceptable limits
Revenue per Employee $’000 12 12 10 Enhanced productivity through streamlined processes
Fixed Asset Turnover 3.0 3.0 4.0 Better utilization of recently upgraded production facilities
Inventory Turnover 1.5 1.5 1.5 Slower demand for older product lines

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Financial Scorecard
Summary

Metric Budget FY 2024 Actual FY 2024 Actual FY 2023 Commentary

Customer Acquisition Cost $’000 (1.5) (1.5) (1.4) Rising CAC intensified marketing efforts due to competition
Growth

Customer Lifetime Value $’000 120 120 100 Higher LTV segments are expected to improve this ratio.
Market Share Growth 30% 30% 40% Strong adoption of our new product line
Pipeline Coverage Ratio 15 25 18 Increased customer engagement and expanded offerings.

Metric Budget FY 2024 Actual FY 2024 Actual FY 2023 Commentary

Debt Service Coverage Ratio 1.5 1.5 1.4 Sufficient buffer for debt obligations.
Risk

Energy Consumption (120) (120) (100) Aligned with our sustainability goals.
Diversity 30 30 40 Aligned with our sustainability goals.
Emissions 15 15 15 Aligned with our sustainability goals.

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BUDGET ANALYSIS
Commentary
Month Oct 2024
Sales Performance In GBP’000 Actual Budget Variance

• Positive Variance: Sales exceeded budgeted expectations by $10. Sales 150 140 10
Cost of Sales (120) (100) (20)
• Observation: This indicates a stronger-than-anticipated demand, potentially
driven by higher customer acquisition or pricing adjustments. However, this Gross Profit 30 40 (10)
favorable outcome is insufficient to offset increased costs impacting
Staff Cost 15 15 -
profitability.
Selling & Admin 10 5 5
Marketing 5 5 -
Profitability Analysis
EBITDA 5 15 (10)
• Negative Variance: Profits fell short of the budget by $150 despite the increase
in sales.

• Primary Drivers: Year-to-Date Ending 31 Oct

1) Cost of Sales: The most significant deviation, $200 above budget, heavily In GBP’000 2024
Actual Budget Variance
impacted gross margins. This could stem from increased material costs,
supplier price fluctuations, or inefficiencies in production processes. Sales 1500 1400 100
Cost of Sales (1200) (1000) (200)
2) Operating Expenses: Staff costs exceeded the budget by $20, indicating
potential overtime, new hires, or higher-than-expected compensation Gross Profit 300 400 (100)
adjustments.
Staff Cost 140 120 20
3) Marketing expenses were $10 above budget, potentially reflecting unplanned Selling & Admin 70 50 20
campaigns or higher-than-expected costs for existing initiatives.
Marketing 40 30 10
4) Administrative expenses also surpassed budget by $10, likely due to
EBITDA 50 200 (150)
unforeseen overheads or delayed cost containment measures.

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BUDGET ANALYSIS
Implications and Recommendations
Month Oct 2024
• Cost of Sales: Immediate attention should be given to understanding the In GBP’000 Actual Budget Variance
spike. Key areas to review include supplier contracts, inventory management,
Sales 150 140 10
and operational efficiency. Negotiating better terms or identifying process
improvements could help curb this overrun. Cost of Sales (120) (100) (20)

• Operating Expenses: Staff costs should be evaluated for sustainability. Are Gross Profit 30 40 (10)
the additional costs leading to higher productivity or revenue generation? If Staff Cost 15 15 -
not, workforce planning adjustments may be required.
Selling & Admin 10 5 5
• Marketing spending should be aligned with measurable outcomes.
Increased investment should correlate with higher sales growth or brand Marketing 5 5 -
equity improvements. EBITDA 5 15 (10)
• Admin expenses require a deeper dive to identify whether the variance is
due to timing differences or structural cost increases

• Profitability Restoration: To regain alignment with budgeted profit targets, Year-to-Date Ending 31 Oct
focus on controlling variable costs and exploring ways to improve gross
In GBP’000 2024
Actual Budget Variance
margins while maintaining revenue growth momentum.
Sales 1500 1400 100
In summary, while sales performance is encouraging, escalating costs—
particularly in the Cost of Sales—are the primary contributors to the profit Cost of Sales (1200) (1000) (200)
shortfall. A detailed cost analysis and corrective action plan will be critical to
Gross Profit 300 400 (100)
aligning actual results with budget expectations in the coming months.
Staff Cost 140 120 20
Selling & Admin 70 50 20
Marketing 40 30 10
EBITDA 50 200 (150)

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LONG-TERM FORECASTS
Scenario Analysis
3-Year Forecast Income Statement
What If => Sales What If => Cost In GBP’000 FY2025 FY2026 FY2027
Scenario A - 20% from - 20% from
Sales 150 180 300

Budget Budget Cost of Sales (120) (100) (180)

Gross Profit 30 80 120
Impact on EBITDA
Staff Cost (15) (25) (30)
• Sales Reduction (-20%): Assuming the base case sales were 100, a 20%
decline results in sales dropping to 80.This directly reduces the topline Selling & Admin (10) (15) (25)
revenue and thus the gross profit. Marketing (5) (15) (20)
• Cost Reduction (-20%): If the cost structure mirrors sales (variable cost- EBITDA Base
5 25 45
heavy), a 20% reduction in costs aligns with the reduced sales, potentially Case
maintaining margins.
EBITDA
(5) 5 15
• Net EBITDA Impact: The reduction in both sales and costs implies EBITDA is Scenario
3-Year Cashflow Position
preserved to some extent but may still decline due to operational leverage
and fixed cost components not scaling proportionally. Fixed costs (e.g., rent, In GBP’000 FY2025 FY2026 FY2027
admin salaries) will remain, eroding the EBITDA margin despite the cost
reduction. Cash from Sales 120 140 230
Purchases (100) (100) (200)
• Impact on Cash Flow from Operations (CFO)
Selling &
• Reduced Sales: A 20% decline in sales impacts the inflows of cash, reducing (40) (20) (20)
Marketing
the operating cash flow directly.
Operating Cost (40) (20) (20)
• Cost Reduction: While costs are reduced by 20%, the cash outflows may not
Interest Paid 10 (50) 20
align perfectly due to the presence of non-cash expenses (e.g., depreciation)
and the fixed nature of some costs. Other Income 40 30 10

• Working Capital Dynamics: A decline in sales may also affect receivables, Operating Cash
(10) (20) 20
inventory levels, and payables, potentially improving working capital B
temporarily. However, this benefit could be offset by reduced revenue Operating Cash
generation over time. (25) (40) 5
S
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LONG-TERM FORECASTS
Scenario Analysis
3-Year Forecast Income Statement
What If => Sales What If => Cost In GBP’000 FY2025 FY2026 FY2027
Scenario B - 50% from - 50% from
Sales 150 180 300

Budget Budget Cost of Sales (120) (100) (180)

Gross Profit 30 80 120
Impact on EBITDA
Staff Cost (15) (25) (30)
• Sales Reduction (-50%): Assuming the base case sales were 100, a 50%
decline results in sales dropping to 50.This directly reduces the topline Selling & Admin (10) (15) (25)
revenue and thus the gross profit. Marketing (5) (15) (20)
• Cost Reduction (-50%): If the cost structure mirrors sales (variable cost- EBITDA Base
5 25 45
heavy), a 50% reduction in costs aligns with the reduced sales, potentially Case
maintaining margins.
EBITDA
(25) (15) (5)
• Net EBITDA Impact: The reduction in both sales and costs implies EBITDA is Scenario
3-Year Cashflow Position
fully eroded to the extent that the company will be losing money. Fixed costs
(e.g., rent, admin salaries) will remain, eroding the EBITDA margin despite the In GBP’000 FY2025 FY2026 FY2027
cost reduction.
Cash from Sales 120 140 230
• Impact on Cash Flow from Operations (CFO)
Purchases (100) (100) (200)
• Reduced Sales: A 50% decline in sales impacts the inflows of cash, reducing Selling &
the operating cash flow directly. (40) (20) (20)
Marketing
• Cost Reduction: While costs are reduced by 50%, the cash outflows may not Operating Cost (40) (20) (20)
align perfectly due to the presence of non-cash expenses (e.g., depreciation)
Interest Paid 10 (50) 20
and the fixed nature of some costs.
Other Income 40 30 10
• Working Capital Dynamics: A decline in sales may also affect receivables,
inventory levels, and payables, potentially improving working capital Operating Cash
(10) (20) 20
temporarily. However, this benefit could be offset by reduced revenue B
generation over time. Operating Cash
(50) (80) (25)
S
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LONG-TERM FORECASTS
Commentary
3-Year Forecast Income Statement
What If => Sales What If => Cost In GBP’000 FY2025 FY2026 FY2027
Scenario A / - 20 to 50% from Budget - 20 to 50% from Budget Sales 150 180 300
B Cost of Sales (120) (100) (180)
Gross Profit 30 80 120
The analysis of Scenario 1 highlights a challenging yet manageable situation where
sales and costs decline in tandem. The EBITDA impact of 20% reflects the Staff Cost (15) (25) (30)
proportional nature of cost alignment with sales, assuming a predominantly
Selling & Admin (10) (15) (25)
variable cost structure. However, fixed costs create a drag on margins,
necessitating immediate focus on cost optimization to preserve profitability. Marketing (5) (15) (20)

Cash Flow from Operations (CFO) is similarly impacted, with reduced inflows from EBITDA Base
5 25 45
sales likely exceeding cost reductions in the short term. To mitigate this, we Case
recommend adopting stringent working capital management practices and
EBITDA
reprioritizing expenditure to ensure liquidity is sustained. Strategically, the focus (25) (15) (5)
Scenario
should shift to margin protection and operational efficiency while maintaining a 3-Year Cashflow Position
flexible approach to adjust for ongoing market conditions.
In GBP’000 FY2025 FY2026 FY2027
Recommendation
Cash from Sales 120 140 230
• Review Fixed Costs: Evaluate the cost structure to identify opportunities to scale Purchases (100) (100) (200)
down fixed costs. For example: renegotiating leases, delaying discretionary
administrative costs, or optimizing staffing levels. Selling &
(40) (20) (20)
Marketing
• Focus on Margin Preservation: While sales are reduced, focus on products or
services with higher margins to offset volume declines. Strategic pricing Operating Cost (40) (20) (20)
adjustments could also mitigate the impact. Interest Paid 10 (50) 20
• Enhance Working Capital Management: Accelerate receivables collection to Other Income 40 30 10
maintain liquidity. Align inventory procurement with revised sales forecasts to
Operating Cash
avoid overstocking. Extend payment terms with suppliers where feasible to (10) (20) 20
B
improve short-term cash flow.
Operating Cash
(50) (80) (25)
S
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Company
Overview

ABC is a technology company that helps people build software. The Company sells its licenses online through its digital platform. It is primarily available
for partners, producers, and brokers to help clients find the proper solution. The company is now also selling a platform-a-service for its recently built
platform that allows any company to build software without writing a single line of code.

The Company has made strides this quarter, particularly with its software division securing a major client, which is projected to generate over $500,000 in
additional revenue. This achievement represents a pivotal step forward in the Company's growth trajectory. As a result, the Company is steadily moving
closer to achieving profitability for the year 2024, reflecting the positive momentum and strong performance across its operations. Given the disruptive,
competitive environment that the Company operates in, ABC Holding has many competitors that operate in the private market. While this Valuation
incorporates public comparable market data into the analysis private competitors were noted and considered such as Mendix and OutSystems.

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Company
Capitalization

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Valuation
Methodologies
Introduction
Selected valuation approaches

The first step in valuing the Company's common shares was to determine the value of the Company. In arriving at a conclusion of the Company value, we
considered the following methodologies :

Market approach: Subject company transaction method.

This methodology consists of examining prior transactions of the subject Company. According to the AICPA guidelines, recent securities transactions in the
Company's stock should be considered as a relevant input for computing the enterprise valuation. Given that there were no transactions in the Company's
securities proximate to the Valuation Date, the Subject Company Transactions Method was not used.

Market approach: Guideline public company method

The Guideline (or Comparable) Publicly Traded Company Methodology within the Market Approach relies on an analysis of publicly traded companies
similar in industry and/or business model to the Company. This methodology uses these guideline companies to develop relevant market multiples and
ratios, using metrics such as revenue, earnings before interest and taxes (EBIT), earnings before interest, taxes, depreciation and amortization (EBITDA),
net income and/or tangible book value. These multiples and values are then applied to the Company’s corresponding financial metrics.

The Guideline (or Comparable) Publicly Traded Company Methodology was utilized with a weighting of 100.00%.

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Valuation
Methodologies
Introduction
Market approach: Guideline M&A transaction method

The Guideline Transactions Methodology of the Market Approach uses prices paid in mergers and acquisitions targeting companies similar to the Subject
Company. These acquisition values were used in conjunction with the transaction targets' financials to calculate implied exit multiples. These multiples are
then applied to the Company’s corresponding financial data.

Due to indeterminable synergies and control premiums embedded in deal multiples, we did not rely on Guideline Transaction Methodology in our analysis.

Income approach: Discounted cash flow

This approach focuses on the income-producing capability of a business. We reviewed the Company's historical financials and any forecasts provided by
Management. The forecast showed a significant upfront cash burn. Given the uncertain nature, especially about the timing of profitability, we deemed that
the financial projections would not produce a reliable indication of value. Accordingly, we considered but did not rely on the Income Approach.

Asset approach

The asset approach measures the value of an asset by the cost to recreate or replace it with another utility. When applied to the valuation of equity
interests in businesses, value is based on the net aggregate fair market value of the entity's underlying individual assets. This approach is frequently used
in valuing holding companies or capital-intensive businesses. This methodology was considered and not used, as it does not accurately represent the
going concern value of the Company.

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Valuation
Methodologies
Introduction
Public companies selected

A global list of companies that could be considered similar to ABC Holding was compiled for comparative purposes from a variety of sources and our
communication with management. We selected publicly traded guideline companies based on consideration of business descriptions, operations and
geographic

presence, financial size and performance, stock liquidity, and management recommendations regarding most similar companies. Refer to the Appendix for
business descriptions of the selected guideline public companies. When applicable, the comparable companies selected for use in the Company's previous
valuation(s) were reviewed and adjustments were made when necessary to reflect the current state of the subject company

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Valuation
Methodologies
COMPARABLE COMPANY STATISTICS

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Valuation
Methodologies
REVENUE MULTIPLES

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Valuation
Methodologies
EBITDA MULTIPLES

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Discounts for Lack of
Marketability
When selecting a discount for lack of marketability (“DLOM”) to be applied to the subject Company’s common shares, we relied primarily
on put option models as a means to satisfy the AICPA’s preference to use quantitative approaches over more subjective approaches when appropriate.

IPO studies were also considered to gauge the reasonableness of the put option model results. The results from the selected put option model(s) shown
below, suggest a DLOM in the range of 30.53% and 51.66%.

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