Flash Memory, Inc.

Income Statements, 2007 - 2012E ($000s except earnings per share)

Particulars/Period 2007 2008 2009 2010E 2011E 2012E

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

5% 10% 34% 20% 0%
Cost of goods sold $62,519 $68,382 $72,424 $97,320 $116,784 $116,784
81.06% 84.47% 81.15% 81.10% 81.10% 81.10%
Gross Profit $14,612 $12,571 $16,826 $22,680 $27,216 $27,216
18.94% 15.53% 18.85% 18.90% 18.90% 18.90%
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
Operating income $4,292 $902 $4,952 $6,648 $7,978 $7,978
5.56% 1.11% 5.55% 5.54% 5.54% 5.54%
Interest expense $480 $652 $735 $1,037 $1,107 $1,527
7.25% 7.35% 7.25% 7.25% 7.25% 7.25%
Other income (expenses) -$39 -$27 -$35 $50 $50 $50
Income before income taxes $3,773 $223 $4,182 $5,561 $6,820 $6,400
4.89% 0.28% 4.69% 4.63% 4.74% 4.44%
Income taxes (a) $1,509 $89 $1,673 $2,224 $2,728 $2,560
40% 40% 40% 40% 40% 40%
Net income $2,264 $134 $2,509 $3,337 $4,092 $3,840
-94.08% 1772.39% 32.99% 22.64% -6.16%
Earnings per share $1.52 $0.09 $1.68 $2.24 $2.74 $2.57

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

Balance Sheets, 2007 - 2012 ($000s except number of shares outstanding)

Particulars/Date December 31, December 31,

2007 2008 2009 2010E 2011E 2012E

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

3.30% 3.30% 3.30% 3.30% 3.30% 3.30%
Accounts receivable $10,988 $12,864 $14,671 $19,726 $24,000 $24,000
60 days 60 days 60 days 60 days 60 days 60 days
Inventories $9,592 $11,072 $11,509 $13,865 $16,869 $16,869
52 days 52 days 52 days 52 days 52 days 52 days
Prepaid expenses $309 $324 $357 $480 $576 $576
0.40% 0.40% 0.40% 0.40% 0.40% 0.40%
Total current assets $23,425 $26,478 $29,471 $38,031 $46,197 $46,197

Property, plant & equipment at cost $5,306 $6,116 $7,282 $8,182 $9,082 $9,982
Add 900 Add 900 Add 900
Less: Accumulated depreciation $792 $1,174 $1,633 $2,247 $2,928 $3,676
7.50% 7.50% 7.50% 7.50% 7.50% 7.50%
Net property, plant & equipment $4,514 $4,942 $5,649 $5,935 $6,154 $6,306

Total assets $27,939 $31,420 $35,120 $43,966 $52,351 $52,502

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

33 Days 33 Days 33 Days 30 days 30 days 30 days
Notes payable (a) $6,620 $8,873 $10,132 $14,301 $15,272 $21,068
Accrued expenses $563 $591 $652 $876 $1,051 $1,051
0.73% 0.73% 0.73% 0.73% 0.73% 0.73%
Income taxes payable (b) $151 $9 $167 $222 $273 $256
10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
Other current liabilities $478 $502 $554 $744 $893 $893
0.62% 0.62% 0.62% 0.62% 0.62% 0.62%
Total current liabilities $10,896 $14,243 $15,434 $20,943 $23,248 $29,027

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 $15,028 $19,120 $22,960
Total shareholders' equity $17,043 $17,177 $19,686 $23,008 $27,100 $30,940

Total liabilities & shareholders' equity $27,939 $31,420 $35,120 $43,966 $52,351 $52,502

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.

D/V 27.98% 34.06% 33.98% 38.33% 36.04% 40.51%

D/E 38.84% 51.66% 51.47% 62.16% 56.35% 68.09%

For informational purposes only:

Notes payable / accounts receivable 60.2% 69.0% 69.1% 72.5% 63.6% 87.8%
Notes payable / shareholders' equity 38.8% 51.7% 51.5% 62.2% 56.4% 68.1%
Notes payable / total capital 28.0% 34.1% 34.0% 38.3% 36.0% 40.5%
Details of the new project (in $000)

Cash Flows and NPV of new Project

Particulars/Periods 2010 2011E 2012E

Outflow -2200

Revenue 21600 28000

Cost of Goods Sold -17064 -22120
79% 79%
Gross Profit 4536 5880
21% 21%
Research & Development 0 0
S,G& A -1805.76 -2340.8
8.36% 8.36%
One Time Marketing Expense -300

EBIT(Depriciation in COGS) 2,430 3,539

EBT 2,430 3,539

Tax $972 $1,416

PAT $1,458 $2,124

Depriciation $440 $440
NWC 5,648 1,673 0

Net Cash Flows -7,848 $225 $2,564

WACC 10.14% 10.14%
Discount Rate 1.10 1.21

PV of Cash Flows $204.03 $2,113.12

Net Outflow -7,848

NPV
IRR

Depriciation per year

Particulars/Period 2010 2011 2012
Depriciation Initial Investment
-$2,200 $440 $440
Terminal Value

Net Working Capital Caluculations

Particulars 2010 2011 2012
Current Assets
Cash $713 $924
Accounts Receivable $3,551 $4,603
Inventory $2,431 $3,151
Prepaid Expenses $86 $112
Total $6,781 $8,790

Current Liabilities
Accounts Payable $842 $1,091
Accrued Expenses $158 $204
Other Current Liabilities $134 $174
Income Tax Payable
Total $1,133 $1,469

Net Working Capital Requirements $0 $5,648 $7,321

Change in Working Capital $5,648 $1,673

*Release of Working Capital

 2013E 2014E 2015E

28000 11000 5000

-22120 -8690 -3950
79% 79% 79%
5880 2310 1050
21% 21% 21%
0 0 0
-2340.8 -919.6 -418
8.36% 8.36% 8.36%

3,539 1,390 632

3,539 1,390 632

$1,416 $556 $253

$2,124 $834 $379

$440 $440 $440
-4,445 -1,569 -1,307

$7,009 $2,843 $2,127

10.14% 10.14% 10.14%
1.34 1.47 1.62

$5,245.18 $1,931.81 $1,311.89

$10,806.04

$2,958.23
21.94%

ar
2013 2014 2015

$440 $440 $440

$0

al Caluculations
2013 2014 2015 2016*

$924 $363 $165 $0

$4,603 $1,808 $822 $0
$3,151 $1,238 $563 $0
$112 $44 $20 $0
$8,790 $3,453 $1,570 $0

$1,091 $429 $195 $0

$204 $80 $37 $0
$174 $68 $31 $0

$1,469 $577 $262 $0

$7,321 $2,876 $1,307 $0

$0 -$4,445 -$1,569 -$1,307
Peer To Peer Comparison

Company/Particular BV Share (2010) Stock Price (2010) Shares O/S (in $ mil)
Micron Technology $6.61 $9.35 847.6
SanDisk Corp. $18.13 $39.84 229.3
STEC, Inc. $5.48 $13.90 50.3

WACC Calculations for Flash Memory Inc.

Particulars Note Amt

Debt Target % of debt 18.00%

Equity 100% - Debt Value 82.00%
βD Debt Beta 0.00
βA Average Asset Beta 1.054
βE Re levered Equity Beta 1.286

Rf Risk Free Rate 3.70%

Premium Market Premium 6.00%

Ke Cost of Equity 11.41%

Kd Cost of Debt 7.25%

Tax 40% Tax Rate 40.00%

WACC 10.14%
BV of Equity MV of Equity D/V BV of Debt Levered Beta Debt Beta
5602.0 7925.1 32.7% 2719.0 1.25 0.00
4157.1 9135.3 18.6% 949.5 1.36 0.00
275.4 699.2 0.0% 0.0 1.00 0.00
 E/V Asset Beta
0.745 0.931
0.906 1.232
1.000 1.000
Average Asset Beta 1.054
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
Inventories 52 days of cost of good sold
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
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)
D/V 28% 34% 34% 24% 31% 40% 33%
E/V 72% 66% 66% 76% 69% 60% 67%
Beta coefficient 1.25
D/E

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.