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Accruals questions (5 points each) 1. Compute net operation assets OGR 2. Compute balance sheet accruals for 2018 3. Compute balance sheet accruals ratio for 2018 4. Does it indicate likelihood of earning management? Comparny 2 CONSOLIDATED STATEMENTS OF OPERATIONS 12 Months Ended USD ($) $ in Thousands Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2014 Income Statement [Abstract) Net sales Cost of sales Gross margin Operating expenses: Research and development expenses Selling, general and administrative expenses Amortization of intangible assets Operating income Other expense, net Interest expense, net Income before income tax provision Income tax provision (expense) benefit Net income Net income per common share - basic Net income per common share - diluted Weighted average shares outstanding - basic Weighted average shares outstanding - diluted $ 245,015 $ 187,296 $ 118,223 32,407 20,202 12,665 212,608 167,094 105,558 12,038 8,413 7,050 90,480 179,997 133,384 2,127 933 928 18,446 24,364 7,100 (86) (339) 18,107 (48) 24,278 7,052 (832) $ 6,220 $0.06 $0.05 105,793,008 113,295,504 (6,133) $ 11,974 $0.11 5,168 $ 29,446 $ 0.28 $ 0.26 105,929,205 113,628,482 $0.11 105,928,348 112,441,709 TOP Compary2 CONSOLIDATED BALANCE SHEETS - USD ($) $ in Dec. 31, 2016 Dec. 31, 2015 Current assets: Cash and cash equivalents Short term investments Accounts receivable, net Inventory, net Prepaid expenses Other current assets $ 34,391 $ 28,486 3,000 53,755 67,151 17,814 7,460 5,894 3,394 1,288 215 Total current assets Property and equipment, net of accumulated Goodwill Intangible assets, net of accumulated amortization Deferred tax asset, net 126,538 96,310 13,786 9,475 20,203 4,040 23,268 10,763 9,114 14,838 Deferred financing costs and other assets Total assets Current liabilities: Accounts payable Accrued compensation Accrued expenses 354 487 193,263 135,913 11,436 6,633 15,034 12,365 10,941 4,644 Current portion of earn out liability Income taxes Other current liabilities iTotal current liabilities Earn out liability other liabilities Total liabilities Commitments and contingencies Stockholders' equity: Preferred stock; $.001 par value; 5,000,000 shares autt Common stock; $0.001 par value; Additional paid-in capital Treasury stock at cost: Accumulated deficit Total stockholders' equity Total liabilities and stockholders' equity 8,740 5,768 (67 1,482 533 50,732 26,777 8,710 821 1,148 60,263 27,925 110 109 161,261 163,133 (17,125) (38,129) (2,216) (26,155) 133,000 $ 193,263 107,988 $ 135,913 Company I CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands Cash flows from operating activities: 12 Months Ended Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2014 Net income Adjustments to reconcile net income to net Depreciation Amortization of intangible assets Amortization of inventory fair value step-up Amortization of deferred financing costs Share-based compensation Change in deferred income taxes Increase (decrease) in cash, net of effects of Accounts receivable Inventory Prepaid expenses Other current assets Accounts payable Accrued compensation Accrued expenses Income taxes Other liabilities Net cash flows from operating activities Cash flows from investing activities: Purchases of equipment Purchase of Stability Inc., net of cash acquired Fixed maturity securities redemption Patent application costs Net cash flows from investing activities Cash flows from financing activities: Proceeds from exercise of stock options Proceeds from exercise of warrants $ 11,974 $ 29,446 $6,220 3,333 1,799 1,197 928 2,127 1,485 933 181 42 16,896 (7,081) 11,453 17,818 (594) (10,579) (1,252 (203) (27,083) (2,327) (1,854) (240) (11,396) (2,837) (2,400) (384 1,287 3,136 (3,665) (2,669) 5,935 3,511 1,098 6,297 5,835 2,140 (519) 452 266 723 16,802 18,807 25,828 (6,269) (7,631) 3,000 (842) (11,742) (5,827) (2,558) (9,000) (594) (12,152) 6,000 (851) (678) 2,470 3,494 4,629 46 1,113 (40,279) Stock repurchase under repurchase plan Stock repurchase for tax withholdings on vesting Deferred financing costs Payments under capital lease obligations Net cash flows from financing activities Net change in cash Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period (10,378) (1,165) (30) (102) (8,181) 5,905 28,486 $ 34,391 (5,612) (504) (117) (36,225) (18,096) 46,582 $ 28,486 (117) (2,146) 2,504 44,078 $ 46,582 Accruals questions (5 points each) 1. Compute net operation assets OGR 2. Compute balance sheet accruals for 2018 3. Compute balance sheet accruals ratio for 2018 4. Does it indicate likelihood of earning management? Comparny 2 CONSOLIDATED STATEMENTS OF OPERATIONS 12 Months Ended USD ($) $ in Thousands Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2014 Income Statement [Abstract) Net sales Cost of sales Gross margin Operating expenses: Research and development expenses Selling, general and administrative expenses Amortization of intangible assets Operating income Other expense, net Interest expense, net Income before income tax provision Income tax provision (expense) benefit Net income Net income per common share - basic Net income per common share - diluted Weighted average shares outstanding - basic Weighted average shares outstanding - diluted $ 245,015 $ 187,296 $ 118,223 32,407 20,202 12,665 212,608 167,094 105,558 12,038 8,413 7,050 90,480 179,997 133,384 2,127 933 928 18,446 24,364 7,100 (86) (339) 18,107 (48) 24,278 7,052 (832) $ 6,220 $0.06 $0.05 105,793,008 113,295,504 (6,133) $ 11,974 $0.11 5,168 $ 29,446 $ 0.28 $ 0.26 105,929,205 113,628,482 $0.11 105,928,348 112,441,709 TOP Compary2 CONSOLIDATED BALANCE SHEETS - USD ($) $ in Dec. 31, 2016 Dec. 31, 2015 Current assets: Cash and cash equivalents Short term investments Accounts receivable, net Inventory, net Prepaid expenses Other current assets $ 34,391 $ 28,486 3,000 53,755 67,151 17,814 7,460 5,894 3,394 1,288 215 Total current assets Property and equipment, net of accumulated Goodwill Intangible assets, net of accumulated amortization Deferred tax asset, net 126,538 96,310 13,786 9,475 20,203 4,040 23,268 10,763 9,114 14,838 Deferred financing costs and other assets Total assets Current liabilities: Accounts payable Accrued compensation Accrued expenses 354 487 193,263 135,913 11,436 6,633 15,034 12,365 10,941 4,644 Current portion of earn out liability Income taxes Other current liabilities iTotal current liabilities Earn out liability other liabilities Total liabilities Commitments and contingencies Stockholders' equity: Preferred stock; $.001 par value; 5,000,000 shares autt Common stock; $0.001 par value; Additional paid-in capital Treasury stock at cost: Accumulated deficit Total stockholders' equity Total liabilities and stockholders' equity 8,740 5,768 (67 1,482 533 50,732 26,777 8,710 821 1,148 60,263 27,925 110 109 161,261 163,133 (17,125) (38,129) (2,216) (26,155) 133,000 $ 193,263 107,988 $ 135,913 Company I CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands Cash flows from operating activities: 12 Months Ended Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2014 Net income Adjustments to reconcile net income to net Depreciation Amortization of intangible assets Amortization of inventory fair value step-up Amortization of deferred financing costs Share-based compensation Change in deferred income taxes Increase (decrease) in cash, net of effects of Accounts receivable Inventory Prepaid expenses Other current assets Accounts payable Accrued compensation Accrued expenses Income taxes Other liabilities Net cash flows from operating activities Cash flows from investing activities: Purchases of equipment Purchase of Stability Inc., net of cash acquired Fixed maturity securities redemption Patent application costs Net cash flows from investing activities Cash flows from financing activities: Proceeds from exercise of stock options Proceeds from exercise of warrants $ 11,974 $ 29,446 $6,220 3,333 1,799 1,197 928 2,127 1,485 933 181 42 16,896 (7,081) 11,453 17,818 (594) (10,579) (1,252 (203) (27,083) (2,327) (1,854) (240) (11,396) (2,837) (2,400) (384 1,287 3,136 (3,665) (2,669) 5,935 3,511 1,098 6,297 5,835 2,140 (519) 452 266 723 16,802 18,807 25,828 (6,269) (7,631) 3,000 (842) (11,742) (5,827) (2,558) (9,000) (594) (12,152) 6,000 (851) (678) 2,470 3,494 4,629 46 1,113 (40,279) Stock repurchase under repurchase plan Stock repurchase for tax withholdings on vesting Deferred financing costs Payments under capital lease obligations Net cash flows from financing activities Net change in cash Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period (10,378) (1,165) (30) (102) (8,181) 5,905 28,486 $ 34,391 (5,612) (504) (117) (36,225) (18,096) 46,582 $ 28,486 (117) (2,146) 2,504 44,078 $ 46,582

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