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March 31, 2002 Submitted By: Teodora Dechev

Mark Zirbser

TABLE OF CONTENTS

Executive Summary........................................................................................................ 1

1 Market Analysis ........................................................................................................ 2

2 The Industry.............................................................................................................. 3

2.1 Competition.......................................................................................................... 3 3 The Company............................................................................................................ 5

3.1 Mission Statement ............................................................................................... 5 3.2 Corporate Values................................................................................................. 5 3.3 Organization and Personnel ................................................................................ 5

3.3.1 Proposed Advisory Board.............................................................................. 7 4 The Product .............................................................................................................. 8

4.1 Product Research and Development................................................................... 9 5 Growth Strategy ....................................................................................................... 9

5.1 Clinical Trials ..................................................................................................... 10 5.2 North American Launch ..................................................................................... 11 5.3 Market Expansion .............................................................................................. 11

6 Distribution and Marketing Strategy .................................................................... 11

6.1 Direct Sales ....................................................................................................... 12 6.2 Marketing and Promotion................................................................................... 14 6.3 Consumer Awareness ....................................................................................... 15 6.4 Strategic Alliances ............................................................................................. 15

7 Risks and Rewards ................................................................................................ 16

8 Financial Data ......................................................................................................... 16

8.1 Investment Timeline........................................................................................... 16 8.2 Exit Strategy ...................................................................................................... 18 8.3 Valuation............................................................................................................ 18

Appendix 1: Management Resumes ........................................................................... 20

Appendix 2: Financial Statements .............................................................................. 21

Appendix 3: Comparison of Myoelectric Prosthetic Hands..................................... 22

Appendix 4: Cost Estimate to Build the TBM Hand................................................... 24

Appendix 5: Research Paper written on the TBM Hand............................................ 25

TABLE OF FIGURES

Figure 1.1: Persons Living With Limb Loss, 1996............................................................. 2

Figure 2.1: Competitors .................................................................................................... 4

Figure 3.1: The Team ....................................................................................................... 6

Figure 3.2: Organizational Structure ................................................................................. 6

Figure 3.3: Growth in # of Employees............................................................................... 7

Figure 3.4: Advisory Board ............................................................................................... 7

Figure 5.1: Marketing Strategy Time Line Table............................................................. 10

Figure 5.2: Clinical Trial Duration – 15 months............................................................... 10

Figure 6.1: Distribution Channels.................................................................................... 11

Figure 6.2: Unit Sales Forecast ........................................ Error! Bookmark not defined. Figure 6.3: Sales Analysis .............................................................................................. 12

Figure 6.4: Canadian Target Customers......................................................................... 13

Figure 6.5: United States Target Customers .................................................................. 14

Figure 6.6: Conference Events ...................................................................................... 15

Figure 8.1: Product Development & Distribution Milestones........................................... 17

Figure 8.2: Cash Flow and Earnings.............................................................................. 17

Figure 8.3: Proforma Financials...................................................................................... 19

1

Executive Summary

Dextra is a start up medical devices company that has been founded to capitalize on

research and product development conducted by a Masters Thesis at the University of

Toronto in cooperation with the rehabilitation centre at Bloorview MacMillan. The

company’s management consists of two highly motivated Schulich MBA students, and a

PhD student at the University of Toronto. Dextra’s product is the TBM Hand, which is

an adaptive grasp prosthetic hand primarily for use by children in the age group of 7 to

14. Our goal is to enrich the quality of users’ lives by offering the world’s best

combination of aesthetic features, mechanical dexterity and affordability in orthopaedic

devices.

Our Product

1. The TBM Hand™ is a five-fingered mechanism, covered by a silicone glove, and has the appearance of a human hand.

2. This product is unique in the market place because it has both the cosmetic and functional appeal to the user.

3. In order to distribute the TBM Hand, only a small amount of up-front capital is required as product manufacturing is outsourced to milling machine sub-contractors and the product is built in response to demand rather than to anticipate demand.

This is a niche business opportunity, to satisfy a gap that currently exists in the

prosthetics market for children’s hands. There are over 1.2 million people in the United

States living with some form of limb loss. Limb deficiency occurs 1 in 3,846 live births in

the U.S., or at a rate of 2.6 per 10,000 live births. Congenital upper limb deficiency

occurs 1.6 times more often than lower limb deficiency . Dextra’s initial target market is

the niche segment of children between the ages of 7 and 14 years that have suffered

upper-limb (hand) loss. There are currently 70,000 youth (under 18 years) that have

suffered limb loss and there are 3,000 children born each year in North America without

upper-limb extremities. From a financial perspective, the North American market for

orthopaedic prosthetic devices is approximately $2.8 billion.

Dextra is seeking an investment partner who is capable of providing financing of $1.0

million to facilitate its start up to respond to this unique opportunity.

2

Business Model

The Dextra business model has two key elements: 1) all components and assembly

will be sourced from sub-contractors, therefore product development and design will be

the core activities of Dextra; 2) the company will enter the market using a direct sales

approach primary focused on distribution channels such as:

Rehabilitation centres Managed care institutions Hospitals Outpatient clinics

The targets in each of these centres will be patient-care practitioners, therapists, and

physicians who are certified by the orthopaedic and prosthetic industry. These

representatives are typically involved throughout all stages of the sales cycle including,

selection of a device, fitting and training the patient to use the prosthesis.

1 Market Analysis

There are over 1.2 million people in the United States living with some form of limb

loss.

Figure 1.1: Persons Living With Limb Loss, 1996

Age Group Frequency < 18 years 70,000

18 – 44 293,000 45 – 64 305,000 65 – 74 395,000

75+ 223,000 Total 1,286,000

Limb deficiency occurs in 1 in 3,846 live births in the U.S., or at a rate of 2.6 per

10,000 live births. Congenital upper limb deficiency occurs 1.6 times more often than

lower limb deficiency1. There are approximately 133,325 amputation related discharges

every year in the United States.

1 Fact Sheet: Limb Loss in the United States, National Limb Loss Information Centre, http://www.amputee-coalition.org/fact_sheets/limbloss_us.html.

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From a financial perspective, the global North American market for orthopaedic

prosthetic devices is approximately $2.8B2.

The segment Dextra plans to penetrate is the hand (upper-limb extremity) market.

Although the market for prosthetic hands is not large, it is growing as product innovation

creates greater functionality and ease of use. With greater usability, more amputees are

choosing to adopt these products.

Dextra’s initial target market is the niche segment of children between the ages of 7

and 14 years that have suffered upper-limb (hand) loss. There are currently 70,000

youth (under 18 years)3 that have suffered limb loss and there are 3,000 children born

each year in North America without upper-limb extremities.4

2 The Industry

The market is attractive because there is a barrier to enter the industry at the design

stage, as the product is very research-intensive and requires specialized expertise from

a limited pool of available scientific and academic knowledge. The barrier to entry

decreases at the marketing stage, as there are no middle distributors with control of

distribution channels.

This is an attractive market for Dextra, given the proprietary knowledge developed at

the design stage and the product differentiation from other competitors in the market.

This provides Dextra a niche business opportunity, to satisfy a gap that currently exists

in the prosthetics market for children’s hands.

2.1 Competition

There are less than 10 well-established prosthetics companies that focus on upper

limb loss and myoelectric controls. Only two of these companies appear to have a

significant global presence, they are OTTO BOCK and Ossur based out of Germany and

Iceland respectively. The chart below provides some overview information on key

competitors to Dextra.

2 Rising Replacement Costs, Hospital Materials Management, November 2000, pp12-16. 3 ibid. 4 http://www.oandpvillage.com/resources/newhand.mtn.

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Figure 2.1: Competitors

Name Location Size SWOT OTTO BOCK Healthcare Duderstadt /

Eichsfeld Germany

• Revenue DM 773 million, 2001

• 80% of sales are from Healthcare group

• 13% growth rate • 3,500 employees

worldwide

• Global distribution in North America, Europe and Asia

• Conglomerate with over 30 subsidiaries in the healthcare, plastics and IT fields,

• No five-fingered hand

Variety Ability Systems Inc.

Toronto, Ontario • Has distributed over $17,500,000 worth of devices to children worldwide

• Funded by Variety – the Children’s Network to provide assistive devices in Ontario

• Over 30 years old • Strong representation from Bloorview

MacMillan (Canada’s #1 prosthetic clinic) on VASI’s Board

• No five fingered myo-electric hand TRS Inc. Boulder,

Colorado • Does not appear to

have national or global distribution

• Focused exclusively on the prosthetic hand market

• Has a children’s model • No five fingered hand

Ossur hf Reykjavik, Iceland

• SK 5 million • Facilities in Sweden, California and the Netherlands

• Only focused on lower limb loss Liberating Technologies Inc.

Holliston, Massachusetts

• N/a • Design and manufacture myoelectric prosthetic devices

• Distributes other manufacturers devices.

Although prosthetic devices for children are in demand, there are only two

predominate products on the market available for use through rehabilitation facilities.

These products are the Otto Bock hand and the VASI hand. Both of these products are

three-fingered pinch mechanisms, covered by a silicone glove, that have very rigid and

un-humanlike motion when in use (see Appendix 3). The inanimate nature of these

limbs is a downfall of the products as they alienate users both physically and

psychologically. This can be particularly harmful when these devices are used by

children. Although there are other prosthetic hand products in development such as the

Southampton hand and the Montreal Hand, they are still not functional products for

distribution.

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3 The Company

3.1 Mission Statement

Dextra is committed to providing quality prosthetic devices featuring current

technology. We specialize in prosthesis for people with upper-limb loss, and our goal is

to enrich people’s quality of life. With our product, children will be given the opportunity

to overcome physical barriers in order to achieve their personal best. Dextra’s product

minimizes the difficulty associated with conventional prosthesis use. We strive to

advance the prosthetic technology and hope our products will make life easier for its

users.

Dextra will lead in providing both functional and aesthetically pleasing hands through

ongoing research. In collaboration with our clients, we strive to meet their physical and

emotional needs by providing them with a tool to achieve an independent lifestyle.

3.2 Corporate Values

We believe all children are unique with a variety of specific needs. As a child’s

accomplishments are closely related to his/her self-esteem, we believe our product will

assist those individuals to achieve a greater sense of self-confidence. Our product

should be cost-efficient in order to reach a wider range of individuals. Our resources will

be employed effectively at all levels, from research to marketing.

3.3 Organization and Personnel

Dextra’s founding management team consists of three people who’s collective

experience encompasses investment banking, marketing, consulting and R&D. The

team has established connections with the University of Toronto and Bloorview

MacMillan Rehabilitation Center. Each of the three founders brings a unique skill set to

the team.

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Figure 3.1: The Team

Name Position Background Teo Dechev President & Chief

Financial Officer Experience in institutional equity research for small to mid cap publicly listed companies and investment banking that covered debt and equity deal structuring. Brings deal structuring, valuation, marketing and negotiating skills to the team. MBA at Schulich School of Business.

Mark Zirbser Director of Marketing and Sales

Entrepreneur and consultant that provides strategy and implantation coaching for entrepreneurs. Brings strategy, consulting and marketing skills to the team. MBA at Schulich School of Business.

Nick Dechev Chief Operating Officer As an entrepreneur, Nick has run his own manufacturing company for 7 years that has grown in revenue from $4000 to $13000. Brings shareholder agreement negotiation, R&D expertise, and various small business dealings. PhD in Mechanical Engineering at University of Toronto, developer of the TBM Hand.

During 2002, management will hire two mechanical design engineers to address to

two issues: 1) patent the TBM hand by adapting the current prototype and 2) scale the

patented prototype to an adult hand. Each Mechanical Design Engineer will be hired on

contract, at $80,000 per year, as this is the standard form of engagement for this type of

professional. The company will start to build its sales team by first hiring a seasoned

sales professional, in Q1/2003, from an existing medical devices company that has

established relationships with executive members of Sunnybrook & Women's College

Health Sciences Centre and Toronto General Hospital. In 2004, management will hire a

second senior sales professional and three junior sales professionals to ramp up sales in

the US. The table below illustrates how the company will ramp-up it’s sales force:

Figure 3.2: Organizational Structure

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Figure 3.3: Growth in # of Employees

3.3.1 Proposed Advisory Board

The advisory committee will be begin with three professionals from three disciplines:

mechanical design and machining, practical clinical expertise and business experience

in medical devices. Upon signing the first three board advisors, the company will initiate

a campaign to approach and market to leading professionals in the medical devices

industry to join our board.

Figure 3.4: Advisory Board

Name Position Organization Jeff Sansome Prototype Machinist Machine Tool Laboratory, University of Toronto Sol Weizer Prosthesis Therapist Bloorview MacMillan Jason Schuy V.P. Sales and Marketing RadicaLogic Technology Inc. Candidates to be Approached Dr. Naumann Director, Rehabilitation

Engineering Department Bloorview MacMillan

Doug Janzen Biomedical Analyst Sprott Securities

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Bloorview MacMillan Rehabilitation center reports that the rigidity of prosthetic hands on the market causes many patients to use their prosthetic hands as little more than blunt objects rather than manipulating them as human limbs. The TBM Hand overcomes this phenomenon providing slack in the hand in order to give the appearance of human motion thereby eliminating a psychological barrier.

4 The Product

Dextra’s initial product is the TBM Hand, an upper limb prosthesis (see Appendix

1) primarily for use by children in the age group of 7 to 14. The product has been

engineered in response to a study5 published by two prominent rehabilitation facilities

regarding an evaluation of multifunctional prosthetic limbs available

to children.

The TBM Hand™ is a five-fingered mechanism, covered by a

silicone glove, (Appendix 1) which looks very similar to a human

hand. It provides enough slack at the joints to overcome the

appearance of a rigid object and presents fluid motion that appears

life-like in response to contact with rigid objects. This product is

unique in the market place because it has both the cosmetic and

functional appeal to the user. There is a third tier of prosthetic

devices that have been created as amateur projects in response to

the frustration that many users have had with the products currently on the market.

These prosthetic limbs are not biomedical devices but rather simple “toys” as they have

virtually zero functionality and have never been approved for sale in rehabilitation

centers.

A working prototype has been developed by a research effort at the University of

Toronto with cooperation by the rehabilitation center at Bloorview MacMillan, which is

also a research facility. With the credibility and support of these two world-class facilities

there is limited risk to the success of the TBM Hand™.

Although the TBM Hand™ is recognized as a medical device it does not require

regulatory approval in Canada or from the FDA in the United States. Dextra’s only

requirement is to have the product registered in both countries which is an administrative

process that does not require formal medical testing or clinical trial data.

5 Attkins, D.J.; Heard, D.C.Y.; Donovan, W.H., Epidemiologic Overview of Individuals with Upper-Limb Loss and Their Reported Priorities, 1996, Journal of Prosthetics and Orthotics, Vol 8, Number 1, pp 2-11.

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4.1 Product Research and Development

The TBM prototype has been based on academic research conducted at the

University of Toronto. Given that the prototype has no intellectually property, Dextra’s

immediate R&D plans are to focus on two key projects headed up by skilled mechanical

design engineers:

Project #1 – Develop Patented Prototype II

Objective: Improve the myoelectric TBM Hand™ through innovative design and attain patents for and around the design to prevent reverse engineering of the product.

Expected Results: A series of patents around the prototype II design as it applies to this five fingered hand mechanism.

Duration: 6-12 months

Project #2 – Adult Version

Objective: Scale the size of the TBM Hand™ for the adult market

Expected Results: A patented prototype hand that can undergo clinical trials with a candidate patient list.

Duration: 12 months

5 Growth Strategy

The growth strategy being pursued by Dextra can be broken down into four Phases:

Phase 1 – Clinical Trials

Complete product development and register the TBM Hand™ as a medical device in Canada and United States. This will include United Laboratory Tests.

Phase 2 – North American Launch

Enter the United States and Canadian markets through a direct sales approach to certified institutions

Phase 3 – Market Expansion

Increase penetration into the North American market by expanding the direct sales force and implementing a consumer awareness marketing campaign.

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Preliminary investigation into the European Market. Strategy for entry into Europe includes a distribution agreement with an existing company or direct sales similar to the approach in North America,

Phase 4 – Exit

Pursue a strategic sale of the company to a competitor or another large-scale medical devices company that wants to take on a prosthetics line.

Figure 5.1: Marketing Strategy Time Line Table

5.1 Clinical Trials

Figure 5.2: Clinical Trial Duration – 15 months

Stage Length of Stage Objectives / Milestones 1 Set up 6 months • Prepare the protocols and set-up the clinical

trial. • Establish a relationship with Bloorview

MacMillan and two other clinics • Select candidate patients for the trial

2 Fitting 1 month • Fitting of devices to all candidates in the trial • Training of all candidates in the trial

3 Trial 6 months • Observation of candidates wearing the TBM Hand™

4 Results 3 months • Documentation of results • Product Improvements

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5.2 North American Launch

• Establish relationships with primary distribution points in Canada and the United States - A direct sales approach will be utilized.

• A limited number of product demos will be delivered to each primary centre - Education and product seminars will be delivered across North America.

• The focus will be on building market awareness for Dextra as the leading provider of upper limb prosthetics to the youth market.

• Focus product development on improvements and next generation youth prosthetics.

• Begin development of products that will be targeted at adult-age patients.

5.3 Market Expansion

• Focus on increasing penetration in the United States.

• Expand registration, patents and distribution in Europe.

• Launch new version of youth products in North America.

• Consider purchasing competitors in the youth market.

6 Distribution and Marketing Strategy

Dextra will develop programs designed to enhance the efficiency of current

distribution practices. The programs consist of two parts:

• The first is traditional indirect distribution, through which patients obtain products with the help of skilled medical professionals;

• The second is direct distribution, through which patients can gain access to our products directly.

Traditional distribution of orthopedic and prosthetic products takes place at patient-

care centers, such as managed care organizations, hospitals, rehabilitation centers and

outpatient clinics. The target members of these facilities are patient-care practitioners,

therapists and physicians who are certified by the orthopedic and prosthetic industry to

provide prescriptions for prosthetic devices.

Figure 6.1: Distribution Channels

Channel Type USA Canada Accredited Facilities 1,337 40 Accredited Practitioners Over 2,000 274

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These distribution channels are well equipped to sell this product and are in regular

contact with the end users. The representatives at these channels are partially involved

in the selection process of prosthetic limbs for users depending on the user’s needs and

preferences. As such the credibility of the distribution centers will enhance market

penetration. There will be a limited amount of demos produced in order for selected

distribution centers to have a working prototype on hand to demonstrate to end users.

6.1 Direct Sales

Our sales force will be built in two stages. Throughout the North American Launch

Phase of our strategy (2003 – 2004), Dextra will grow from one to five sales staff. A

single senior sales person will be responsible for generating 16 unit sales in Canada in

2003, primarily through our clinical trial partners.

Figure 6.2: Sales Analysis

During that period, the sales team will expand and begin to work on developing the

U.S. market by attending trade shows with our Chief Operating Officer who will represent

the technical knowledge. The second stage of our sales build-out will occur between

2005 and 2006 when our team will grow to 8 sales staff. The focus during the Market

Expansion phase will be to penetrate the United States and Canadian Markets to

generate 450 and 150 unit sales respectively in 2006.

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Dextra is confident that this size of direct sales force can achieve the projected unit

sales because they will be focused on an account management and relationship based

sales approach. Each sales professional will not have more than 6 active accounts to

manage at any time throughout the period from 2003 – 2006.

Our focus for penetrating the United States market will begin in the Northeastern

Region and Eastern Seaboard of the country. Dextra has identified 17 target customers

that represent 130 locations. Dextra will also target Hanger Prosthetics and Orthotics

Inc., which is the only national clinic in the country with 600 facilities and 900 certified

practitioners in 43 states. In Canada, Dextra has also identified 15 initial clinics to target.

A preliminary list of our initial target customers is presented below.

Figure 6.3: Canadian Target Customers

Target Customer Headquarters Hamilton Health Sciences Corp. Chedoke Site-Holbrook Building Hamilton, ON

Bloorview MacMillan Centre "MacMillan Site" Orthotic Service Toronto, ON

Sunnybrook Centre for Independent Living Prosthetic/Orthotic Dept. Toronto, ON

Advanced Orthotic Designs Inc. Mississauga, ON

OrthoProActive Consultants Inc. Markham, ON

Southwestern Prosthetic & Orthotic Ltd. Parkwood Hospital - Arthur Hobbins Building

London, ON

Hospital for Sick Children Orthotic Department Toronto, ON

Providence Continuing Care Centre St. Mary's of the Lake Hospital Site

Kingston, ON

AMPOS Orthopaedics Inc. Ottawa, ON

Rehabilitation Centre, Royal Ottawa Hospital Prosthetic Orthotic Dept.

Ottawa, ON

G.F. Strong Rehab Centre Prosthetic & Orthotic Services Vancouver, BC

Queen Alex. Centre for Children's Health Orthotics & Prosthetics Services

Victoria, BC

Pentlands Prosthetic & Orthotic Services, Inc. Vancouver, BC

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Figure 6.4: United States Target Customers

Target Customer Headquarters # of clinics Hanger Prosthetics & Orthotics, Inc. Oklahoma City, OK 600 Facilities in 43 states

900 certified practitioners Creative Orthotics & Prosthetics, Inc. Elmira, New York NY – 6 locations

Affiliated with 49 hospitals and medical clinics

Lehneis Orthotics and Prosthetics Associates, Ltd. Roslyn, NY New York – 7 Connecticut – 1 Affiliated with 38 hospitals and clinics

New England Orthotic and Prosthetic Systems Inc. Branford, CT Connecticut – 4 New Hampshire – 1 Massachusetts – 2 New York 4

United Prosthetics Boston, MA Massachusetts – 2 Union Orthotics and Prosthetics Co. Pittsburgh, PA Pennsylvania – 7 Carter Orthopedics , Ltd. Erie, PA Pennsylvania – 3 Central Orthotic and Prosthetic Co., Ltd. Johnstown, PA Pennsylvania – 2 Harry J. Lawall & Sons, Inc. Pittsburgh, PA Pennsylvania – 6

New Jersey – 5 Delaware – 3

MHC Orthotics Prosthetics Leonardtown, MD Maryland – 4 R.J.Rosenberg Orthopedic Lab Cincinnati, OH Ohio – 4 Mary Free Bed Orthotics & Prosthetics Grand Rapids, MI Michigan – 3 ACTRA Rehabilitation Associates, Inc. Brookfield, WI Wisconsin – 7

Illinois – 4 Minnesota – 5

Scheck & Siress Advanced Orthotics& Prosthetics Chicago, IL Illinois – 9 Ballert Orthopedic Chicago, IL Illinois – 7

Affiliated with University of Chicago and Northwestern

PROMIS Littleton, NH New Hampshire – 4 Vermont – 2

Prosthetic Orthotic Care Centers Matthews, North Carolina

North Carolina – 5 Kentucky – 3

Faith Prosthetic-Orthotic Services, Inc. Charlotte, NC North Carolina – 6

6.2 Marketing and Promotion

Dextra will utilize advertising in trade magazines, such as Exceptional Parent

Magazine, which is aimed towards parents with disabled children. The company will

also publish future research in the Journal of Prosthetics and Orthopedics and the

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Journal of the Association of Children's Prosthetic Orthopedic Clinics. To promote

visibility, Dextra will sponsor amputee related events such as the National Amputee Golf

Association.

Dextra will introduce the TBM Hand™ to the market at a series of trade shows and

conferences throughout North America. The goal of our team will be to have a booth

presence, as well as participate on speaking panels or education sessions.

Figure 6.5: Conference Events

Date Organization Event Location July 29 – August 2, 2002

Canadian Association of Prosthetists and Orthotists

CAPO Convention Edmonton, AB

July 18 – 21, 2002 Amputee Coalition of America

ACA Educational Conference and Exposition

Anaheim California

August 20 – 23, 2002 University of New Brunswick

Myoelectric Engineering Conference

Fredericton, NB

March 20 – 23, 2003 American Academy of Orthotists and Prosthetists

Annual Meeting and Scientific Symposium

TBA

6.3 Consumer Awareness

The DextraNet website will be dedicated to patient education, professional consulting

and online product demonstration. In addition, Dextra will establish a proprietary

preferred provider Orthopedics and Prosthetics referral network where new patients can

easily locate and directly purchase the right products they desire. Dextra is dedicated to

expand the network by establishing more relationships with medical care organizations,

practitioners, associations, insurers, and patients.

6.4 Strategic Alliances

The TBM Hand is the result of a collaboration between Bloorview-MacMillan and

the University of Toronto to create a superior prosthetic hand for children. By

establishing an alliance with these facilities, Dextra can improve upon the innovation and

cost-effectiveness of the TBM Hand in the future. Dextra will negotiate with Bloorview-

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MacMillan to provide clinical trials for new versions of the TBM Hand, and to continue

to lend their valuable technical support.

Always in search of new opportunities, Dextra is pursuing alliances with the United

Way and the Assistive Devices Program (ADP) in the province of Ontario to make the

TBM Hand more affordable to families in need. Subsidization is common in the market

for orthopaedics and prosthetics, but recovery less so. Through alliances with the

Canadian Red Cross, the War Amps of Canada and the Canadian Amputee Network,

Dextra hopes to make the TBM Hands available to the amputees across Canada, and

broaden that to third world countries.

7 Risks and Rewards

Risk Magnitude of Risk Mitigation of Risk Reaction of competitors • Can freeze Dextra from market

entry with a copy-cat product. • Launching in the niche of youth prosthetics

which is under serviced. • Conservative growth model in place for the

first couple of years, should remain under the radar of large competitors.

• Patent Prototype II.

No intellectual property protection

• Extremely high considering that competitors could reverse engineer the TBM Hand™.

• R&D projects have been developed to improve the TBM Hand™ and acquire patents for the five finger technology.

High cost of goods sold • Marginal risk. • No customized components, everything can be sourced by third party.

Penetration into the medical devices sales channels

• Can cause a decrease in the anticipated rate of growth.

• During clinical trials we are establishing relationships with potential distribution channels and product demonstration road shows.

8 Financial Data

8.1 Investment Timeline

Dextra is seeking an investment partner who is capable of providing first round

financing of $1.0 million in two tranches: Q4/2002 $500,000 and Q4/2003 $500,000.

The $1.0 million investment will take the company from the current prototype TBM Hand

to a patented prototype II and market distribution in Canada and the US, a process that

is estimated to be completed by Q4/2004. The first round of financing will be used for

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start-up operations including research and development for prototype II, patents, clinical

trials of prototype II, demo models for hospitals and clinics and salaries of key personnel.

Figure 8.1: Product Development & Distribution Milestones

Milestones # of Prototypes Duration Cost to Build

TBM Hand Build initial prototype I 1 Completed Not applicable Build patented prototype II 2 6 to 8 months $90,000 Produce 1st batch of TBM Hands for sale & clinical trials 25 1 month $110,000 Produce models for distribution to rehabilitation centers 25 1 month $110,000

Approximately $90,000 will be used to develop prototype II of the TBM Hand. In

2003, the company will build 50 prototype II TBM Hands for: clinical trials – 10, demo

models for distribution to hospitals, clinics, rehabilitation facilities and orthopedic

practices – 25, sale to customers - 15. In order to fulfill orders for the TBM Hand, a

small amount of up-front capital is required as the product is outsourced for

manufacturing and as a result no large capital expenditures are needed to produce the

product.

After the two tranches in the first round of financing, Dextra expects to be cash flow

positive in 2006, while the company will be earnings positive by 2005.

Figure 8.2: Cash Flow and Earnings

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8.2 Exit Strategy

There are two alternatives for investors to exit from the company after taking an

equity interest. Alternative one is through a sale of the company to a large international

diversified company which would purchase Dextra in order to enter the youth market for

prosthetic devices or add the TBM Hand product line to its portfolio of prosthetic devices.

The second alternative to exit the company would be to sell the equity position into a

second round of financing in Q1/2007. The Second round of financing would be used to

launch the TBM product line into Europe and acquire our leading Canadian competitor in

order to increase the scope the company’s product offering and sales penetration. Two

years after the acquisition, in 2009, the company will have in place a new management

team and the initial management team will sit on the advisory board. At that time the

company will then initiate a initial public offering in the Canadian capital market at which

point second round financing participants could exit the company.

8.3 Valuation

Management has built proforma financial statements to present a clear

understanding of the financial viability of this company and how the company attains its

valuation. Please see Appendix 2.

Dextra is a start-up company that will take advantage of a unique niche in the

prosthesis market for myoelectric hands for children. To grow the company,

management will expand the product line into the adult prosthesis market within four

years of starting the company 2006. Based the company’s market strategy, the

anticipated revenue for the company in 2006 is $4.8 million, EBITDA of $1.8 million and

Net Income of $1.2 million. Based on a multiple of 1x revenue and 5x earnings, the

company’s valuation ranges between $4.8 million and $6 million. Using discount cash

flow model for projected unit sales and resulting cash flows and a 25% discount rate, the

company’s valuation is $1.1 million. Therefore a $1 million investment represents a 20%

to 50% interest in the company.

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Figure 8.3: Proforma Financials

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Appendix 1: Management Resumes

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Appendix 2: Financial Statements

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Appendix 3: Comparison of Myoelectric Prosthetic Hands