Flash Memory, Inc.

Exhibit 1 Income Statements, 2007 - 2009 ($000s except earnings per share)

2007 2008 2009 2010 2011 2012

Net sales $77,131 $80,953 $89,250 $120,000 $144,000 $144,000

Cost of goods sold $62,519 $68,382 $72,424 $97,320 $116,784 $116,784
Gross margin $14,612 $12,571 $16,826 $22,680 $27,216 $27,216

Research and development $3,726 $4,133 $4,416 $6,000 $7,200 $7,200

Selling, general and administrative $6,594 $7,536 $7,458 $10,032 $12,038 $12,038 8%
Operating income $4,292 $902 $4,952 $6,648 $7,978 $7,978

Interest expense $480 $652 $735 $937 $1,323 $1,565

Other income (expenses) -$39 -$27 -$35 -$50 -$50 -$50

Income before income taxes $3,773 $223 $4,182 $5,661 $6,604 $6,363

Income taxes (a) $1,509 $89 $1,673 $2,264 $2,642 $2,545

Net income $2,264 $134 $2,509 $3,396 $3,963 $3,818

Earnings per share $1.52 $0.09 $1.68 $2.28 $2.66 $2.56

(a) In years 2007 and after, Flash's effective combined federal and state income tax rate was 40%.
Flash Memory, Inc.

Exhibit 2 Balance Sheets, 2007 - 2009 ($000s except number of shares outstanding)

December 31,
2007 2008 2009 2010 2011 2012

Cash $2,536 $2,218 $2,934 $3,960 $4,752 $4,752

Accounts receivable $10,988 $12,864 $14,671 $19,726 $23,671 $23,671
Inventories $9,592 $11,072 $11,509 $13,865 $16,638 $16,638
Prepaid expenses $309 $324 $357 $480 $576 $576
Total current assets $23,425 $26,478 $29,471 $38,031 $45,637 $45,637
WC
Property, plant & equipment at cost $5,306 $6,116 $7,282 $8,182 $9,082 $9,982
Less: Accumulated depreciation $792 $1,174 $1,633 $2,179 $2,793 $3,474
Net property, plant & equipment $4,514 $4,942 $5,649 $6,003 $6,289 $6,508

Total assets $27,939 $31,420 $35,120 $44,034 $51,926 $52,145

Accounts payable $3,084 $4,268 $3,929 $4,799 $5,759 $5,759

Notes payable (a) $6,620 $8,873 $10,132 $14,305 $16,914 $13,324 This is the required external financing
Accrued expenses $563 $591 $652 $876 $1,051 $1,051
Income taxes payable (b) $151 $9 $167 $226 $264 $255
Other current liabilities $478 $502 $554 $744 $893 $893
Total current liabilities $10,896 $14,243 $15,434 $20,951 $24,881 $21,282

Common stock at par value $15 $15 $15 $15 $15 $15
Paid in capital in excess of par value $7,980 $7,980 $7,980 $7,980 $7,980 $7,980
Retained earnings $9,048 $9,182 $11,691 $15,087 $19,050 $22,868
Total shareholders' equity $17,043 $17,177 $19,686 $23,082 $27,045 $30,863

Total liabilities & shareholders' equity $27,939 $31,420 $35,120 $44,034 $51,926 $52,145

Number of shares outstanding 1,491,662 1,491,662 1,491,662 1,491,662 1,491,662 1,491,662

(a) Secured by accounts receivable.

(b) To avoid a penalty for underpayment of income taxes, Flash made equal estimated tax payments quarterly on the 15th of
April, June, September, and December of each year. The total of these four quarterly payments was required to equal at
least the lesser of (a) 90% of the taxes that would actually be incurred in the same year, or (b) 100% of the taxes due
on income of the prior year.

For informational purposes only:

Notes payable / accounts receivable 60.2% 69.0% 69.1%

Notes payable / shareholders' equity 38.8% 51.7% 51.5%
Notes payable / total capital 28.0% 34.1% 34.0%
2. What course of action do you recommend regarding the proposed investment in the new product line? Should the company accept or reject this investme
average cost of capital, assume that debt beta is 0.2.

Need to calculate NPV and Free Cash Flow

Period 0 1 2 3 4 5
2010 2011 2012 2013 2014 2015

Sales 21,600 28,000 28,000 11,000 5,000 Gross Margin 21%

COGS 17,064 22,120 22,120 8,690 3,950 Debt Beta 0.20
Gross Margin 4,536 5,880 5,880 2,310 1,050 Beta Coefficient 1.1964
Debt-to-Capital 18%
SG&A 2,106 2,341 2,341 920 418 Equity-to-Capital 82%
10-year Treasury Bonds YTM 0.037
Operating Profit 2,430 3,539 3,539 1,390 632 Market Risk Premium 0.06
Tax 972 1,416 1,416 556 253 Return on Equity 10.43%
Net Income 1,458 2,124 2,124 834 379 Return on Debt 4.90%

Property, Plant and Equipment 2,200

Depreciation 440 440 440 440 440
Net Working Capital 5,648 7,322 7,322 2,877 1,308 -
∆ in NWC 5,648 1,674 - (4,446) (1,569) (1,308)

Free Cash Flow (7,848) 225 2,564 7,009 2,843 2,127

Cost of Capital 9.43%
Present Value of FCF (7,848) 205 2,126 5,295 1,956 1,333

Net Present Value 3,066

They should approve this project
cept or reject this investment opportunity? When computing the weighted
Flash Memory, Inc.

Exhibit 3 Key Forecasting Assumptions and Relationships for 2010 Through 2012

Line Item Assumption or Ratio

Cost of goods sold 81.10% of sales

Research and development 5.0% of sales
Selling, general and administrative 8.36% of sales
Interest expense Beginning of year debt balance × interest rate
Other income (expenses) $50,000 of expense each year

Cash 3.3% of sales

Accounts receivable 60 days sales outstanding DSO = (AR / Net Credit Sales) x 365
Inventories 52 days of cost of good sold Inventory turnover = (COGS)/(Inventory/365)
Prepaid expenses 0.4% of sales
Property, plant & equipment at cost Beginning PP&E at cost + capital expenditures
Accumulated depreciation Beginning A/D + 7.5% of beginning PP&E at cost

Accounts payable 30 days of purchases

Purchases 60% of cost of goods sold
Accrued expenses 0.73% of sales
Income taxes payable 10% of income taxes expense
Other current liabilities 0.62% of sales
edit Sales) x 365 AR = (DSO*Net Credit Sales)/(365)
= (COGS)/(Inventory/365) Inventory = (COGS*365)/Inventory Turnover
Flash Memory, Inc.

Exhibit 4 Selected Financial Information for Flash Memory, Inc., and Selected Competitors, 2007 through 2009

Flash Memory, Inc. Micron Technology

2007 2008 2009 30-Apr-10 (a) 2007 2008 2009 30-Apr-10 (a)

Sales ($ millions) 77 81 89 5,688 5,841 4,803

EPS ($) 1.52 0.09 1.68 -0.42 -2.10 -2.29 1.46
Dividend per share ($) -- -- -- -- -- --
Closing stock price ($) n/a n/a n/a 7.25 2.64 10.56 9.35
Shares outstanding (millions) 1.492 1.492 1.492 769.1 772.5 800.7 847.6
Book Value per share ($) 11.43 11.52 13.20 10.08 8.00 5.81 6.61
ROE 13.28% 0.78% 12.75% -4.13% -26.21% -39.43% 21.00%
Capitalization (book value)
Debt 28% 34% 34% 24% 31% 40% 33%
Equity 72% 66% 66% 76% 69% 60% 67%
Beta coefficient n/a 1.25

SanDisk Corporation STEC, Inc.

Sales ($ millions) 3,986 3,351 3,567 189 227 354

EPS ($) 0.84 -8.82 1.83 3.71 0.20 0.09 1.47 1.29
Dividend per share ($) -- -- -- -- -- --
Closing stock price ($) 33.17 9.60 28.99 39.84 8.74 4.26 16.34 13.90
Shares outstanding (millions) 227.7 225.3 227.4 229.3 49.8 50.0 49.4 50.3
Book Value per share ($) 22.64 15.27 17.18 18.13 3.72 3.63 5.65 5.48
ROE 3.70% -57.74% 10.63% 17.87% 5.40% 2.36% 26.06% 18.90%
Capitalization (book value)
Debt 15% 22% 21% 19% 0% 0% 0% 0%
Equity 85% 78% 79% 81% 100% 100% 100% 100%
Beta coefficient 1.36 1.00

(a) Security analyst estimates for year-end EPS $ and Return on Equity; actual data on April 30, 2010, for all other items.