Course Title

Presented byPresented by

Alan Friedman& Daniel Jobe

Friedman, Kannenberg & Company, P.C.

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

“Current Banking & Financial Crisis”

How Did This All Start?

2007 - 2008• HSBC (world’s largest financial group) declares sub-prime mortgage

losses• Bear Stearns, 5th largest investment bank, fails• Lehman Brothers files for bankruptcy• Fannie Mae & Freddie Mac put into "conservatorship” by U.S. Treasury• Bank of America buys Merrill Lynch• Fed Reserve bails out AIG, world's biggest insurer• Washington Mutual, the largest U.S. thrift, fails• Bank of America’s profits drop 68%; sell stock to raise $10 billion• Wells Fargo takes over Wachovia• Swiss government coughs up $59 billion to bail out UBS• Congress passes $700 billion bail-out for Citigroup & Automakers• Stock market plummets, and former NASDAQ exec,

Bernie Madoff, steals $50 billion from investors

• 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 after receiving

20 million in U.S. Government “soft” loans• Personal Savings Rate hits all-time high of 6.9% in May • Alan buys a 100-watt, all-tube, 3-channel guitar head

to stimulate the economy (shhh, don’t tell his wife!)

2009

What’s next…???

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

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

10 Tips to Getting that Loan…

1.Banks need to make loans; so don’t be afraid to ask for one

2.Do your homework – research banks 3.Be prepared with Financial Statements,

Tax Returns,Business Plans,Forecasts,etc.4.Walk in with “basics” & anticipate

questions5.Dress to impress and for success

6.Don’t be negative or apologetic – be confident

7.Keep it real; don’t stretch the truth

8.Discuss risks (it earns credibility)9.Don’t push it10. If at first you don’t succeed,…

10 Tips to Getting that Loan…

Loan Request Loan Request Presentation toPresentation to

Discussion Points

1. Loan request & proposed loan terms 2. Background on Al-Dan’s House of Rock3. Background on music retailing industry4. Background on rental programs5. Why we are seeking a bank loan6. Financial documents we are providing7. Available collateral and security

•$200,000, 5-year (60 month) fully $200,000, 5-year (60 month) fully amortizing note at 8% interest per amortizing note at 8% interest per annumannum

•Loan needed for acquisition of band & Loan needed for acquisition of band & orchestral rental instrumentsorchestral rental instruments

•Funding Needed by April 1, 2010Funding Needed by April 1, 2010

1. Loan Request and Proposed Loan Terms

•AHR is a single store, “full line” music AHR is a single store, “full line” music retailer located in Hartford, CTretailer located in Hartford, CT

•AHR is an “S” Corporation, owned and AHR is an “S” Corporation, owned and operated by Alan Friedman & Daniel Jobeoperated by Alan Friedman & Daniel Jobe

•AHR occupies 6,000 sq/ft of retail space on AHR occupies 6,000 sq/ft of retail space on Main Street in downtown Hartford, CTMain Street in downtown Hartford, CT

2. Background information on Al-Dan’s House of Rock (“AHR”)

•There are approximately 7,500 musical instrument There are approximately 7,500 musical instrument and product retailers in the U.S. Most of these stores and product retailers in the U.S. Most of these stores are family-owned businesses, and only one (Guitar are family-owned businesses, and only one (Guitar Center with Music & Arts and Musician’s Friend Center with Music & Arts and Musician’s Friend divisions) has a true national presencedivisions) has a true national presence

•There are 5 types of music retailing designations (full There are 5 types of music retailing designations (full line, keyboard, school music, MI/combo & print), each line, keyboard, school music, MI/combo & print), each one having unique financing issuesone having unique financing issues

•Key profit centers for most music stores include Key profit centers for most music stores include sales, rental, music lesson and repair activitiessales, rental, music lesson and repair activities

3. Background information on the Music Retailing Industry

•Many full-line and school music retailers rent musical Many full-line and school music retailers rent musical equipment, primarily band and orchestral instruments, equipment, primarily band and orchestral instruments, under a “rent-to-own” type of agreement. This agreement under a “rent-to-own” type of agreement. This agreement allows a customer to rent a band or orchestral instrument allows a customer to rent a band or orchestral instrument on trial basis, instead of being forced into buying their on trial basis, instead of being forced into buying their child (a school music student) an instrument they may not child (a school music student) an instrument they may not enjoy playing or continue with shortly after the instrument enjoy playing or continue with shortly after the instrument is bought.is bought.

•AHR is a retailer that provides these types of rental AHR is a retailer that provides these types of rental agreements, and has been doing so since 1990.agreements, and has been doing so since 1990.

4. Background information on Instrument Rental Programs

•Under AHR’s rent-to-own agreement, a customer signs a contract to Under AHR’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 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 to a rented instrument passes to the customer if & when the final contracted pmt is made.contracted pmt is made.

•Until the final payment is made, (1) title remains with AHR, (2) all Until the final payment is made, (1) title remains with AHR, (2) all payments received by AHR under the rent-to-own agreement are payments received by AHR under the rent-to-own agreement are recorded as rental income, and (3) the rental assets are depreciated recorded as rental income, and (3) the rental assets are depreciated by AHR over their useful life (usually 3 years, in accordance with tax by AHR over their useful life (usually 3 years, in accordance with tax reporting rules).reporting rules).

•Upon receipt of the final payment, the Company removes the related Upon receipt of the final payment, the Company removes the related rental asset cost and accumulated depreciation from their accounts rental asset cost and accumulated depreciation from their accounts and any resulting difference is reflected in cost of goods sold.and any resulting difference is reflected in cost of goods sold.

4. Background information on Instrument Rental Programs

•AHR’s rental agreements comply with Internal Revenue Code Rev.Proc. AHR’s rental agreements comply with Internal Revenue Code Rev.Proc. 95-38. Accordingly, these contracts provide for level rental payments 95-38. Accordingly, these contracts provide for level rental payments which, in the aggregate, do not exceed $10,000, but do exceed the which, in the aggregate, do not exceed $10,000, but do exceed the normal retail price of the rental asset, plus interest. Additionally, these normal retail price of the rental asset, plus interest. Additionally, these contracts do not extend beyond 36 months and there is no legal 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 obligation for the customer to make all of the payments set forth in the contract.contract.

•At the end of each monthly rental period, AHR’s customer may either At the end of each monthly rental period, AHR’s customer may either continue to use the property by making the next rental payment via continue to use the property by making the next rental payment via auto-deduction or check, or return the rental asset to AHR. If the rental auto-deduction or check, or return the rental asset to AHR. If the rental asset is returned, the customer has no further obligation under the asset is returned, the customer has no further obligation under the contract and is not entitled to the return of any rental payments contract and is not entitled to the return of any rental payments previously made.previously made.

4. Background information on Instrument Rental Programs

•On December 31, 2009, AHR had 3,000 instruments in their rental On December 31, 2009, AHR had 3,000 instruments in their rental pool at a total cost of $1,000,000, along with $800,000 of pool at a total cost of $1,000,000, along with $800,000 of accumulated depreciation, resulting in a net book value of accumulated depreciation, resulting in a net book value of $200,000. These instruments have been depreciated over an $200,000. These instruments have been depreciated over an accelerated 3-year MACRS depreciation method for both book and accelerated 3-year MACRS depreciation method for both book and income tax reporting purposes.income tax reporting purposes.

•On December 31, 2009, AHR has over $2,000,000 in contracted On December 31, 2009, AHR has over $2,000,000 in contracted future rental income on its outstanding rental pool, and has future rental income on its outstanding rental pool, and has historically experienced a 25% return rate each year. Because of historically experienced a 25% return rate each year. Because of the quick depreciation taken on its rent-to-own instruments, AHR the quick depreciation taken on its rent-to-own instruments, AHR believes the fair market value on the rental pool is substantially believes the fair market value on the rental pool is substantially higher than the net book value reported on the 12/31/09 balance higher than the net book value reported on the 12/31/09 balance sheet.sheet.

4. Background information on Instrument Rental Programs

•AHR has contracted two new school districts which represent AHR has contracted two new school districts which represent approximately 500 new students who wish to join school sponsored approximately 500 new students who wish to join school sponsored band and music programs and will need to rent band & orchestral band and music programs and will need to rent band & orchestral instrumentsinstruments

•Based on the lucrative nature of rental instrument programs (that Based on the lucrative nature of rental instrument programs (that also spur related accessory sales and instrument repairs), we at AHR also spur related accessory sales and instrument repairs), we at AHR would like to expand our instrument rental pools to meet expected would like to expand our instrument rental pools to meet expected customer demand for the 2010-2011 school yearcustomer demand for the 2010-2011 school year

•Given the time lag between pmts to vendors for these instruments Given the time lag between pmts to vendors for these instruments and receipt of the monthly rental income once they are rented, there and receipt of the monthly rental income once they are rented, there is an imperative need for bank financing for AHR’s rental pools.is an imperative need for bank financing for AHR’s rental pools.

5. Why AHR is Seeking a Bank Loan

•Product Invoices from our B&O vendorsProduct Invoices from our B&O vendors•Compiled Financial Statements of AHR for the years ended Compiled Financial Statements of AHR for the years ended December 31, 2007, 2008 & 2009December 31, 2007, 2008 & 2009

•December 31, 2009 Personal Financial Statements for the December 31, 2009 Personal Financial Statements for the store owners Alan Friedman & Daniel Jobestore owners Alan Friedman & Daniel Jobe

•AHR’s 2010 Business PlanAHR’s 2010 Business Plan•5-Year Forecast of Income, Expense and Cash Flow for the 5-Year Forecast of Income, Expense and Cash Flow for the years ending December 31, 2010 - 2014years ending December 31, 2010 - 2014

•NAMM 2009 Cost of Doing Business SurveyNAMM 2009 Cost of Doing Business Survey•Music Trade’s Annual Report of Top 200 Dealers, and Music Trade’s Annual Report of Top 200 Dealers, and MMR’s “Profile of the American Music Dealer”MMR’s “Profile of the American Music Dealer”

6. Documents Provided in Support of Our Loan Request

•All corporate assets, including fixed assets, accounts All corporate assets, including fixed assets, accounts receivable and inventory (other than those inventory receivable and inventory (other than those inventory assets specifically pledged to certain suppliers and assets specifically pledged to certain suppliers and floor plan finance companies)floor plan finance companies)

•Personal guaranty of Friedman & JobePersonal guaranty of Friedman & Jobe•Alan’s primary residence ($200,000 of equity)Alan’s primary residence ($200,000 of equity)•Daniel’s vacation home ($150,000 of equity)Daniel’s vacation home ($150,000 of equity)

7. Collateral Available for Loan Request

Alan Friedman & Daniel Jobe, OfficersAlan Friedman & Daniel Jobe, OfficersAl-Dan’s House of Rock, Inc.Al-Dan’s House of Rock, Inc.4-12 Marshall Stack Street4-12 Marshall Stack Street

Hartford, CT 06105Hartford, CT 06105

Tel – (800) 123-4567Tel – (800) 123-4567Fax – (800) 123-6789Fax – (800) 123-6789Web: Web: www.ahr.com

Email: Email: info@ahr.com

8. For additional information contact:

Any

Questions?

Enjoy the Enjoy the Show!!Show!!

Catch PrintzPrintz “10:00pm Tonight” at the Hilton