Interserve, Inc. et al v. Fusion Garage PTE. LTD

Filing 243

Declaration of Gregory J. Regan in Support of 242 MOTION for Default Judgment by the Court as to Plaintiffs' Application for Default Judgment Against Defendant Fusion Garage PTE, Ltd. filed byCrunchPad, Inc., Interserve, Inc.. (Attachments: # 1 Exhibit A)(Related document(s) 242 ) (Bloch, David) (Filed on 3/23/2012)

Exhibit A

Table of Contents
I.

Introduction ............................................................................................................................. 1
A.

Nature of My Assignment ................................................................................................ 1

B.

Qualifications ................................................................................................................... 1

C.

Evidence Relied Upon ...................................................................................................... 2

D.

Summary of Opinions ...................................................................................................... 2

II. Background .............................................................................................................................. 3
A.

TechCrunch ...................................................................................................................... 3

B.

CrunchPad Inc. ................................................................................................................. 3

C.

FusionGarage ................................................................................................................... 4

D.

The CrunchPad Product ................................................................................................... 5
1. The Size of the Market for Tablet Devices ...................................................................... 5
2. BestBuy‟s Endorsement Provided a Substantial Market Opportunity ............................. 7
3. Sales of HP‟s Tablet Support CrunchPad‟s Strategy ....................................................... 7
4. The CrunchPad Had Competitive Advantages Unavailable to the joojoo ....................... 9

III. CrunchPad Inc.‟s Lost Business Value.................................................................................... 9
A.

The Market Approach .................................................................................................... 11
1. Evidence From Sophisticated Investors ......................................................................... 11
2. Offers to FusionGarage .................................................................................................. 12
3. Price-to-Sales Multiples of Other Contemporaneous Transactions ............................... 12

B.

The Income Approach .................................................................................................... 16
1. Elements of a DCF Calculation ..................................................................................... 16
2. The Income Approach Using the Venture Capital Method ........................................... 17
3. The Income Approach Using an Alternative Assumption Regarding CrunchPad‟s
Market Opportunity ....................................................................................................... 19

C.

TechCrunch‟s Lost Business Value Associated With CrunchPad Inc. Was
Approximately $7.8 Million as of November 17, 2009 ................................................. 19

IV. TechCrunch‟s Out Of Pocket Losses..................................................................................... 20
V. Pre-Judgment Interest ............................................................................................................ 21

Confidential and Subject to Protective Order
I.

Introduction

The opinions expressed in this report and information presented in the accompanying exhibits
are my present opinions. Amendments or supplements to this report and its accompanying
exhibits may be required because of developments prior to or at trial, including, but not limited
to, the discovery of new evidence, expert discovery, and the testimony of other witnesses.
I may use selected exhibits attached to this report, documents reviewed in connection with their
preparation, enhanced graphic versions of selected exhibits included in this report, and additional
graphics illustrating concepts described in this report at trial.
A.

Nature of My Assignment

I have been retained, through my employer, Hemming Morse LLP, Certified Public Accountants,
Litigation and Forensic Consultants, by Winston & Strawn, LLP. I have been asked to determine
the loss of value TechCrunch experienced of its ownership in CrunchPad Inc., if any, due to the
actions of FusionGarage. I understand that a default has been entered against FusionGarage, and
have been asked to assume that liability for damages will be established as a matter of law.
B.

Qualifications

I am a Certified Public Accountant (“CPA”), licensed in the State of California and New York. I
hold the Certified in Financial Forensics (“CFF”) certification from the American Institute of
Certified Public Accountants (“AICPA”). I have a Masters in Business Administration (“MBA”)
with an Emphasis in Finance. While obtaining my MBA, I focused my studies on issues such as
financial projections for corporate entities as well as the valuation of start-up companies.
My work in the accounting profession includes experience as an auditor at Ernst & Young LLP,
as the Controller of a publicly traded software company, and as a consultant. I have been
qualified to testify in federal and state courts as well as in arbitrations. In my work as an expert,
I have been retained by the U.S. Securities & Exchange Commission as well as the California
Attorney General.
I am a member of the AICPA and the California Society of Certified Public Accountants
(“CalCPA”). I currently serve on the AICPA‟s Forensic & Litigation Services (“FLS”)
Committee and am Chair of the AICPA‟s Damages Task Force. The twelve-member FLS
committee oversees and provides guidance to the AICPA‟s members in their practice as it relates
to litigation consulting and dispute resolution. I am on the 10-member Planning Committee for
the AICPA‟s 2012 National Forensic and Business Valuation Conference. I am also an officer of
CalCPA‟s statewide Litigation Services Steering Committee.
I am also an Adjunct Professor at Golden Gate University where I teach graduate level
accounting courses. These courses include instruction related to disputes involving economic

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damages. The AICPA has selected materials from these courses for its national education
platform associated with the CFF certification for accounting practitioners.
Since 2003, I have worked on more than 100 complex litigation matters. My work has involved
analysis of lost profits and lost business value as well as other forms of economic damages
involving entities across a diverse range of industries, such as high technology companies, retail,
real estate, finance, and manufacturing. My expert qualifications, including my testimony in the
last four years and the publications I have authored, are described in my C.V. attached hereto as
Exhibit A.
My firm is being compensated for my review and analysis in this matter at my standard hourly
rate, which is currently $410 per hour.
C.

Evidence Relied Upon

In undertaking my assignment, I have considered information from a variety of sources, each of
which is of a type that is reasonably relied upon by experts in my field. Those sources are
identified in the citations within this report and accompanying exhibits. I have also spoken with
Mr. Arrington, CrunchPad Inc.‟s CEO at the time of the events described in this report.
From time to time in this report I may refer to certain sources supporting a statement that I have
made. It should be understood that these sources are not necessarily exhaustive and I may refer
to additional support should that become necessary. I have also relied upon my own professional
judgment and expertise gathered during the more than 15 years I have been practicing
accounting, analyzing data, including financial statements, and transactions that are the subject
of legal disputes.
D.

Summary of Opinions

This section summarizes my present opinions:


I have concluded that the “but-for” fair value of TechCrunch‟s interest in CrunchPad Inc.
was $7.8 million as of November 16, 2009. As of November 17, 2009, there was no
actual fair value of CrunchPad Inc. that could have been recoverable by TechCrunch.
Thus, TechCrunch lost the entire value of its investment as of November 17, 2009. See §
III of this report entitled “CrunchPad Inc.‟s Lost Business Value.”



TechCrunch incurred at least $357,000 of direct costs related to the establishment of
CrunchPad Inc. and the CrunchPad. Such costs include, but are not limited to, the
allocation of management resources to product and market development efforts,
computer equipment-related costs, and travel costs to coordinate efforts with
FusionGarage. These costs do not include the benefits of TechCrunch‟s devotion of its
publicity mechanism to the promotion of the CrunchPad. See § IV of this report entitled
“TechCrunch‟s Out Of Pocket Losses.”
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

II.

If awarded by the Trier of Fact, pre-judgment interest would total $2.0 million. See §
VIII of this report entitled “Pre-Judgment Interest” for further analysis of this amount.
Background
A.

TechCrunch

The Wall Street Journal characterized TechCrunch as “one of the most influential blogs in
Silicon Valley.”1 During 2009, TechCrunch had between 4 million and 6 million monthly
unique readers.2 Keath Teare, one of the experienced entrepreneurs associated with the
CrunchPad project, testified “everyone in Silicon Valley who is involved in any way whatsoever
with the business of technology startups...[reads] TechCrunch.”3 In 2008, TIME Magazine
named TechCrunch‟s founder, Mr. Arrington, one of the “100 most influential people in the
world.”4 For this reason, Mr. Arrington was, at times, referred to as a start-up “kingmaker.”5 In
other words, positive product publicity and reviews by Mr. Arrington could significantly enhance
the probability of that product‟s success, but, a negative product review on TechCrunch could be
devastating for product marketability.6
B.

CrunchPad Inc.

In October 2008, TechCrunch incorporated CrunchPad Inc. as a subsidiary.7 Mr. Arrington was
the entity‟s CEO. TechCrunch anticipated that CrunchPad Inc. would control the design,
manufacturing, and marketing of its CrunchPad product (see further discussion of this product
below).

1

“The TechCrunch site, founded in 2005, has grown into one of the most influential blogs in Silicon Valley,
covering industry buzz and news. The company includes a family of tech sites beyond its flagship Techcrunch.com,
including sites dedicated to mobile services and gadgets.”
(http://online.wsj.com/article/SB10001424052748704654004575518541484986702.html, accessed February 21,
2012).
2

Teare Deposition, 88:5-20.

3

Teare Deposition, 89:12-17.

4

Amended Complaint For Breach Of Fiduciary Duty, Fraud And Deceit, And Unfair Competition (the
“Complaint”), ¶ 13.
5

Teare Deposition, 89:25-92.1.

6

Teare Deposition, 92:2-12.

7

Complaint, ¶ 22.

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C.

FusionGarage

FusionGarage collaborated with CrunchPad Inc. to develop the CrunchPad. In approximately
June 2009, FusionGarage began to encounter financial difficulties. At that time, the intensity of
the acquisition-related negotiations between CrunchPad Inc. and FusionGarage increased. Mr.
Rathakrishnan, FusionGarage‟s CEO, stated that he would accept a 35% equity interest in
CrunchPad Inc. to consummate a merger of the entities.8 The expected acquisition of
FusionGarage was not, however, consummated.
FusionGarage failed to timely meet certain of its CrunchPad deliverables.9 For example,
TechCrunch anticipated that the product would be unveiled at the TechCrunch 50 conference in
September 2009.10 When FusionGarage was not ready at that time, the product release was
rescheduled for the CrunchUp Conference in November 2009.11 As late as November 2009,
FusionGarage reported to TechCrunch that it was “on track”12 and “[on] course”13 to meet this
timetable. Once again though, FusionGarage failed meet its commitments in time for CrunchUp.
On November 17, 2009, FusionGarage terminated its involvement with the CrunchPad project.14
Subsequently, the operations of CrunchPad Inc. were effectively shuttered. Ultimately,
FusionGarage did release a version of a tablet device in early April 2010, which it branded the
joojoo.15 To date, the joojoo device has failed to obtain a meaningful share of the market for
tablet devices.

8

TC0005161-62, e-mail from Mr. Rathakrishan dated June 27, 2009, “The crux is you need to acquire a „clean‟
company (FusionGarage) to make this deal work at your end. Accordingly, the offer is 35% of CrunchPad for
FusionGarage (inclusive of all equity, stock options and loans flushed)…I would like to humbly request that you
consider increasing the offer to acquire FusionGarage. It will be great if you would consider increasing the offer of
35% to 40% instead…To be clear, I am not saying that I will only do this if the offer is increased by 5%. I am
saying that while I would be thankful for that, I will do the deal even if it stays 35%.”
9

Complaint, ¶ 43 and 44.

10

Complaint, ¶ 45.

11

Complaint, ¶ 49.

12

Complaint, ¶ 51.

13

Complaint, ¶ 54.

14

Complaint, ¶ 59.

15

http://www.engadget.com/2010/04/03/joojoo-ships-to-actual-consumers-gets-dissected-for-good-measur/
(accessed February 21, 2012)

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D.

The CrunchPad Product

The CrunchPad product sought to establish a market for tablet devices prior to the release of
products such as the iPad or Android. The first prototype of the CrunchPad was built in
approximately August 2008.16 A second prototype was announced in January 2009.17 At that
time, Mr. Arrington made the following TechCrunch post:18
We‟ve completed our original goal of building a „dead simple and dirt cheap touch
screen web tablet to surf the web.‟ The hardware is nearing lockdown. Software
development is rolling.
Thus, in January 2009, there was a substantial window of time to get the CrunchPad to market if
FusionGarage had delivered on its commitments to develop and integrate software for the
CrunchPad. The CrunchPad product received significant interest from important market
participants. For example, Intel, the Fortune 100 semiconductor manufacturer, made resources
available so that the parties could “establish a market position for the device that would be
strong.”19 Intel‟s attention to the CrunchPad was a “good validation that the concept was
timely.”20 The CrunchPad also received other independent validation. For example, the
publication Popular Mechanics distinguished the CrunchPad as one of the “10 Most Brilliant
Products of 2009.”21
1.

The Size of the Market for Tablet Devices

The market for tablet computing devices continues to develop and is growing rapidly.22
Strategy Analytics, a consumer electronics market research firm, began to publish data on the

16

http://techcrunch.com/2008/08/30/update-on-the-techcrunch-tablet-prototype-a/ (accessed February 21, 2012)

17

http://www.washingtonpost.com/wp-dyn/content/article/2009/01/19/AR2009011900287.html (accessed February
21, 2012)
18

http://techcrunch.com/2009/01/19/techcrunch-tablet-update-prototype-b/ (accessed February 29, 2012)

19

Teare Deposition, 133:3-21.

20

Teare Deposition, 190:6-192:10, including “…Intel certainly would have seen prototypes of anything that was
being built and would have a much greater awareness than we would have had at that point. So that was in a way a
good validation that the concept was timely.”
21

http://www.popularmechanics.com/print-this/4332415?page=all (accessed February 2, 2012).

22

PC World, “Android's Tablet Share at 39 Percent as Sales Triple, Says Study,” January 26, 2012, “Apple shrugged
off the much-hyped threat from entry-level Android-based models. It is inevitable that Apple loses market share as
more vendors enter the tablet space, according to Neil Mawston, executive director at Strategy Analytics. But its

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market in the second calendar quarter of 2010 (the iPad was launched at the end of the first
calendar quarter). The following chart summarizes unit sales of tablet devices to present (see
Exhibit 1):

Tablet Device Shipments (in millions)
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011

TechCrunch was aware that the CrunchPad was likely to experience competition from Apple.
TechCrunch anticipated that the “but-for” scheduled release of the product at the TechCrunch
conference in November 2009, before the holiday season and approximately four months before
the release of the iPad in March 2010, would have provided an advantageous head start.23 From
a valuation perspective, the expected emergence of the iPad would have displaced sales of some
CrunchPads. It is also likely, however, that the iPad would have validated the product category
and amplified CrunchPad‟s probability of success.24 This validation would have been
particularly relevant given the existence of individuals that will not purchase Apple products,
preferred open-source software,25 preferred lower price points, or were ardent followers of Mr.
Arrington.

tablet business is still growing at a healthy rate, he said.” (accessed February 2, 2012,
http://www.pcworld.com/article/248776/androids_tablet_share_at_39_percent_as_sales_triple_says_study.html ).
23

Teare Deposition, 130:10-19. Teare Deposition, 225:4-8, “But in the context of that time, it was a novel idea; that
if market timing allowed execution to take place when we all wanted it to, I think it would have been a significant
business.”
24

Teare Deposition, 130:10-19. Id., 225:4-8, “But in the context of that time, it was a novel idea; that if market
timing allowed execution to take place when we all wanted it to, I think it would have been a significant business.”
25

The CrunchPad was designed to operate on open source software. See, e.g.,
http://www.pcworld.com/article/169395/alleged_crunchpad_specs_revealed_will_michael_arrington_beat_the_appl
e_tablet.html

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In fact, the similarities between the CrunchPad and the Android device support a conclusion that
the CrunchPad could have become an established product in the tablet device market.26 The
Android platform continues to accumulate market share, and there is an expectation that other
products will also acquire meaningful, if minority market shares from the iPad.27 In fact,
Strategy Analytics found that nearly 75% of potential tablet purchasers were open to purchasing
non-iPad products.28 In other words, a viable market for tablet computing devices such as the
CrunchPad existed.
2.

BestBuy’s Endorsement Provided a Substantial Market Opportunity

One distribution strategy was to market and sell CrunchPads through Best Buy stores. I
understand that Best Buy was willing to concede unusually generous terms to CrunchPad Inc.
Specifically, Best Buy offered two specific terms which would have provided a major advantage
for the CrunchPad.29 First, Best Buy
Second, Best Buy

.
3.

Sales of HP’s Tablet Support CrunchPad’s Strategy

The CrunchPad was designed to offer a basic web-browsing experience at an affordable price, as
outlined in Mr. Arrington‟s initial blog post. In November 2009, the CrunchPad was projected to
sell for $399 at launch. By contrast, many early tablet devices sold for $500 or more.30 The

26

Teare Deposition, 271:13-25, “[I]f you look back from today and look at the Android platform, which is
remarkably similar architecturally to the CrunchPad where the iPad isn't, except from the hardware point of view.
But from the software point of view, the iPad is very different, the Android is very close. It refers to a browser. The
Chrome OS is even closer still. You know, you can see that there's a -- a space in the market even now for a browser
based -- a browser user interface on top of an operating system. So one would anticipate Michael to stuck with it.”
27

Id.

28

http://www.strategyanalytics.com/default.aspx?mod=pressreleaseviewer&a0=5056

29

Arrington Deposition, 317:3-319:6, including,

30

Indeed, many of these competitors were smaller than the CrunchPad, more expensive, and released later in time
when components were generally cheaper and more powerful. The original 10” Apple iPad launched in April 2010
for $500 (http://money.usnews.com/money/business-economy/articles/2010/03/31/ipad-launch-what-buyers-need-

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experience of the HP TouchPad lends validation to the CrunchPad‟s pricing strategy, which was
premised on the existence of demand for affordable tablet devices.
HP launched the TouchPad in July 2011 at a unit price of $499. However, lackluster sales caused
HP to discontinue the TouchPad and seek a buyer for the division responsible for its operating
system (WebOS) in August of 2011.31 Best Buy itself had taken delivery of approximately
270,000 TouchPads, of which approximately 245,000 were still on hand as of August 16, 2011.32
On August 20, 2011, Best Buy announced that it was clearing its inventory of TouchPads by
reducing the unit price to $99. Despite significant uncertainty about future support for both the
TouchPad and WebOS, Best Buy sold all its online stock by 11:25 am the next day, and had to
cancel excess orders.33 Best Buy also implemented one TouchPad per customer policies in its
stores using a ticket system to allocate in-store inventory.
HP offered its own stock of TouchPads at the same price on the online auction site eBay, and
sold out within “hours,” straining the infrastructure eBay itself.34 On December 9, 2011, HP
announced that it would release the source code to WebOS as an open source project.35 HP later
released more refurbished TouchPads that sold out in “minutes.”36 While the HP Touchpad
ended up selling for less than the projected price of a CrunchPad, the dramatic increase in
demand illustrates that there is significant demand for open-source tablet devices at lower price
points.

to-know), the 9” HP Slate was launched in October 2010 for $799 (http://en.wikipedia.org/wiki/HP_Slate_500), and
the 7” Samsung Galaxy Tab was also launched October 2010 for $650 (http://www.itworld.com/mobile-ampwireless/123579/samsung-galaxy-tab-price-leaked-it-too-high). Other marginal products such as the Dell Streak
(Mini 5) which had only a 5” screen, was launched in July 2010 for $500
(http://androidandme.com/2010/06/news/dell-streak-5-coming-unlocked-for-500-next-month/), and the 10”
Viewsonic G Tablet was launched in October 2010 for $429.
31

http://gizmodo.com/5832291/hp-killing-webos

32

http://allthingsd.com/20110816/ouchpad-best-buy-sitting-on-a-pile-of-unsold-hp-tablets/

33

http://forums.bestbuy.com/t5/Best-Buy-Geek-Squad-Policies/HP-TouchPad-FAQs/m-p/315434/thread-id/3887

34

http://www.tomshardware.com/news/HP-TouchPad-Firesale-ebay-refurb-99-Touchpad,14208.html

35

http://www.hp.com/hpinfo/newsroom/press/2011/111209xa.html

36

http://news.softpedia.com/news/99-HP-TouchPad-Sells-Out-in-Minutes-Yet-Again-eBay-Faints-239872.shtml

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4.

The CrunchPad Had Competitive Advantages Unavailable to the joojoo

In the “but-for” environment considered by this report,37 the CrunchPad would have had
numerous advantages over the joojoo that was released by FusionGarage. These include an
ability to leverage:


TechCrunch‟s continued positive product-related endorsements,



Increased accessibility to TechCrunch‟s user-base for the purpose of targeting sales,



A release timeline that would have beaten the iPad to market as opposed to debuting
simultaneously with or subsequent to that product,



Supplier relationships with market-leading companies such as Intel,



The significant assistance of BestBuy including payment for units at the time of order and
the provision of free or reduced cost shipments,



A geographic affiliation with Silicon Valley instead of an unknown Singaporean start-up,



A lower price point then the $499 joojoo,38 and



A development process that benefitted from more productive communication between the
participants.

In any event, as described in below, the valuation approaches below incorporate specific
measures to address the heightened risk associated with a start-up entity such as CrunchPad Inc.
III.

CrunchPad Inc.’s Lost Business Value

I have computed the damage to TechCrunch as the difference between CrunchPad Inc.‟s 1)
unimpaired business value based upon expected future performance as of the date of
FusionGarage‟s wrongdoing (the “but-for” value), and 2) the impaired business value measured
as of the date of the injury (the actual value).39 In other words, this report estimates the price that

37

I have assumed that disputes between TechCrunch or its management and FusionGarage were not a constraint to
the success of CrunchPad Inc.
38

http://news.cnet.com/8301-19882_3-10410393-250.html , including “Rathakrishnan said the product, now named
JooJoo, will soon be available for preorder for $499, well above the sub-$300 price point that Arrington hoped to
deliver the product at. Shipping will start in 8 to 10 weeks.”
39

This approach is generally accepted when computing lost business value damages. See, for example, Litigation
Services Handbook, The Role of the Financial Expert, 4 th Edition, Chapter 11 “Valuing Losses in New Businesses,”
§5.c.ii and . See also, Id., Chapter 13, “Business Valuation,” §2.a, defining fair value for shareholder rights disputes
as “The value of the shares immediately before the effectuation of the corporate action to which the dissenter

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a willing buyer would have paid to a willing seller on that date in exchange for an equivalent
interest in CrunchPad Inc. The measurement of lost business value damages is an accepted
approach when a business has been destroyed.40
Applicable professional standards suggest that multiple valuation approaches should be used and
reconciled prior to reaching a valuation conclusion.41 In this case, I have applied several marketbased and income-based approaches, which are two of the most common valuation
approaches.42. These approaches calculate the loss of value of TechCrunch‟s interest in
CrunchPad Inc. that occurred on November 17, 2009,43 the date I understand that TechCrunch
became conclusively aware of FusionGarage‟s exit from the CrunchPad joint venture.
The lost business value approach to compute damages relies upon an ex-ante methodology.44
That is, the information included in the analysis relies only on information known at the time of
the breach.45 This approach does not overlook the risks to market acceptance faced by the
CrunchPad. These risks are addressed in the development of the expected cash flows used in the
valuation as well as the discount rate applied to those cash flows. At the conclusion of this
section, I have provided a reconciliation of these alternative valuation methods.

objects…” See also, “Do Business Valuations and Lost Profits Methodologies Produce the Same Damage Result,”
Dunn on Damages, Winter 2011, by Marcie D. Bour.
40

SSVS No. 1, Interpretation No. 1-01, ¶¶ 10-11, “If a start-up business is destroyed, is the economic damages
computation within the scope of the Statement? Conclusion. There are two common measures of damages: lost
profits and loss of value. If a valuation analyst performs an engagement to estimate value to determine the loss of
value of a business or intangible asset, the Statement applies.”
41

SSVS No. 1, ¶ 42.

42

SSVS No. 1, ¶ 31. I have not applied the third approach, which is the Asset Approach. I have made this
determination because the cost incurred to create CrunchPad Inc. and develop the CrunchPad do not reasonably
compare to the prospective market opportunity for the entity and its product. That is, the fair market value of the
CrunchPad is substantially driven by the idea of the new product market, which does not have a readily measurable
replacement cost.
43

SSVS No. 1, Appendix B, International Glossary of Business Valuation Terms, Fair Market Value is “the price,
expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and
able buyer and a hypothetical willing and able seller, acting at arms length in an open and unrestricted market, when
neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts.”
44

SSVS No. 1, ¶ 43, “Generally, the valuation analyst should consider only circumstances existing at the valuation
date and events occurring up to the valuation date.”
45

“Battles of Exes: Understanding the Effect of the Ex Ante and Ex Post Approaches on Damage Calculations,”
AICPA FVS Consulting Digest, September 2011.

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A.

The Market Approach

This valuation approach attempts to identify comparable market-driven metrics, which can be
applied by reference to the subject interest.
1.

Evidence From Sophisticated Investors

The evidence below supports a valuation of CrunchPad Inc.‟s equity in the range of $12 to $15
million.
a)

Summer 2009

Intel was involved in extensive negotiations to invest in CrunchPad Inc. Intel is a sophisticated
investor, and its investment professionals operate Intel Capital.46 On May 21, 2009, Intel Capital
indicated to Mr. Teare that it
”47
Later, LG, the multinational electronics manufacturer based in Seoul, Korea, also communicated
Specifically, in June 2009, LG stated that
48
In fact, LG even sought
49

This valuation range was relevant at least as of the end of June 2009. Subsequent to that time,
development of the CrunchPad continued including with the production of prototype C. In
addition, product awareness continued to expand through publicity associated with
TechCrunch‟s industry conferences and related blog posts. These factors suggest that the “butfor” risk associated with CrunchPad Inc. could have decreased in the time period leading up to
November 17, 2009. It is generally accepted that when risk decreases, valuations increase.50

46

http://www.intel.com/about/companyinfo/capital/index.htm

47

FG0001090, email from Marc S. Yi (of Intel Capital) to Keith Teare.

48

FG0001091, email dated June 29, 2009 from David S. Kim to Mr. Teare.

49

Id., “
”

50

This concept is addressed extensively in a forthcoming practice aid from the AICPA entitled Discount Rates, Risk,
and Uncertainty in Economic Damages Calculations. I am a principal author of this practice aid. The practice aid
has been authorized for publication by the same AICPA committee that authorized SSVS No. 1. I anticipate it will
be published in March 2012. In addition, this concept is evident in the step-down of discount rates applied by
venture capital firms to value start-up enterprises as those enterprises advance through lifecycle stages, which is
addressed below in the section of this report regarding discount rates.

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FusionGarage represented to investors that
51
Therefore, I have not adjusted this valuation range.
b)

September 2009

In late September 2009, TechCrunch‟s executives worked towards the completion of a round of
Series A preferred stock. At that time, the valuation of CrunchPad‟s equity was
.52
Ultimately, CrunchPad Inc. did not raise equity capital from these parties. Nevertheless, the
absence of such funding would not have precluded the launch of the CrunchPad. In fact,
members of the CrunchPad management team advocated for, and implemented a strategy to
bring the product to market without venture-based funding. In particular, CrunchPad Inc.
formulated a working-capital-based plan to fund growth through pre-sales of the CrunchPad.53
2.

Offers to FusionGarage

Mr. Rathakrishnan testified that
54

This range may be supported by
,55 however, I have not
seen evidence related to the post-money valuation of FusionGarage.
While FusionGarage‟s only product, the joojoo, was similar to the CrunchPad, the comparability
of FusionGarage to CrunchPad Inc. is otherwise limited. Indeed, there are significant reasons to
expect that CrunchPad Inc. would be valued at a premium to FusionGarage (see § II.D.4).
3.

Price-to-Sales Multiples of Other Contemporaneous Transactions

This approach is referred to as the Guideline Company Transactions Method.56 It involves
identification of contemporaneous unrelated sales of similarly situated business. To perform this

51

FG0001089, e-mail dated October 20, 2009 from Mr. Tan with Subject “Investment Opportunity”

52

TC00000659-669, e-mail with attachment dated September 29, 2009 from Ms. Harde to Mr. Arrington,
…”

“
53

Teare Deposition, 243:11-244:5.

54

Rathakrishnan Deposition 189:6-12.

55

MP028191 at198, “
” See also, MP027608 at 612.

56

SSVS No. 1, ¶ 36.

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Confidential and Subject to Protective Order
analysis, I used the “Pratts Stats” database;57 a source of data that is widely used by valuation
professionals. I have identified sales of private companies within the high technology industry
that closed from 2006 through 2009;58 however I have removed entities that had abnormally
high price-to-sales ratios as well as entities outside of the United States.59 The remaining entities
had an average Market Price-to-Sales multiple of 0.7 times annual sales (see Exhibit 2).60 Based
upon the high end of the valuation range identified above ($15 million), this multiple implies that
CrunchPad Inc.‟s annual sales should have been approximately $22.6 million.61
To gauge CrunchPad Inc.‟s ability to achieve this level of sales, I assumed the following:


A reduced expected weighted-average first year unit price of the CrunchPad of $299 (as
opposed to $399). This lower price addressed the risk associated with potential
competitive pricing demands (i.e., the release of the iPad and other products).62



Limited benefit from ancillary revenue sources in the amount of approximately 7% of
CrunchPad Inc.‟s total annual revenue. The presence of these revenue streams was
consistent with CrunchPad‟s contemporaneous internal modeling and my understanding
of available revenue streams realized by peer entities.

Under these conditions, the sale of approximately 70,000 CrunchPads would have been required
in the first year to justify a $15 million valuation (see Exhibit 3). Based upon the analysis below,
in my opinion, this is a reasonable and likely conservative volume of expected sales. In fact,
these measures indicate that even if the price-to-sales multiple identified above were 50%
overstated (i.e., if the multiple should be approximately 0.5 times sales), the required first year
volume of CrunchPad sales (approximately 95,000 units) would still be reasonable. Indeed, even

57

http://www.bvmarketdata.com/PSAdvSearch.asp

58

This range includes codes 3571 – Electronic Computers, 3572 – Computer Storage Devices, 3575 – Computer
Terminals, 3576 – Computer Communications Equipment, and 3577 – Computer Peripheral Equipment
59

Removing these entities is conservative as, all else equal, a lower price-to-sales multiple requires an expectation
of larger sales to generate equivalent market value.
60

The specific metric tracked in the Pratts Stats database is market value of invested capital, which includes both
debt and equity capital. The valuation ranges used above exclude the FusionGarage‟s debt, and so do the
calculations in this section of my analysis.
61

Using this type of multiple, it is also important that sales grow in subsequent annual periods. CrunchPad Inc.
clearly had this expectation for the CrunchPad, including the anticipated release of future generations of the product.
In my discussion with Mr. Arrington, he confirmed that subsequent generations were expected to produced, which
would generate significant revenue growth for CrunchPad Inc.
62

This reduction is conservative because it required more CrunchPads to have been sold to achieve required sales
levels.

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Confidential and Subject to Protective Order
in December 2009, Mr. Rathakrishan anticipated that
.63 Furthermore, CrunchPad Inc. itself expected
64

a)

Market Share

Approximately 18.6 million tablet devices were sold during calendar year 2010 (see Exhibit 1).
The sale of 70,000 units of the CrunchPad during this period (i.e., Year 1 sales) would have
represented significantly less than a 1% market share; 0.38%. This market share seems
reasonable, and is likely to be conservative, in consideration of the CrunchPad‟s four month head
start and its price point. Further, this infers a market position that is immaterial to Apple‟s actual
share, and roughly a quarter of the much less high profile Android offerings.65 In fact,
approximately 500,000 non-iPad or Android tablet devices were sold during calendar 2010.66
Thus, the CrunchPad would have needed to secure less than 20% of this sub-market to reach the
threshold of sales relevant to warrant a valuation of approximately $15 million.
b)

TechCrunch User Base

As described above, the informed testimony is that TechCrunch had a unique base of at least
approximately 4 million users in 2009 (see § II.A). This user base would have constituted a
prime opportunity for sales of the CrunchPad, particularly given the product‟s expected head
start to the market. Although the testimony is that TechCrunch community grew in size during
calendar 2010, which is the period relevant to the analysis, assuming its minimum size, the
CrunchPad again would have required penetration of less than 2% to achieve the level of sales
associated with a $15 million valuation.67 Mr. Arrington believes that the level of success of

63

FG0033338, a December 29, 2009 e-mail from Mr. Rathakrisnan stating “
”

64

TC00008699 at 8703.

65

Android‟s only offerings through Q3 2010 featured devices with a tablet form factor, but software designed for
smartphones. The first Android tablet with dedicated tablet software launched in Q1 2011.
66

See Exhibit 1.

67

70,000 units ÷ 4,000,000 users = 1.8%. To the extent that there is a risk that Mr. Teare‟s testimony overstates the
size of TechCrunch‟s user base, I also I have used compete.com‟s website tracking analytics. In December 2010,
compete.com reported that TechCrunch had more than 1.5 million unique users. Based on this data, penetration of
less than 5% of TechCrunch‟s user base would have been required. I have de-emphasized this data point because
website tracking analytics frequently understate unique user data. See, for example,
http://venturebeat.com/2007/02/22/traffic-measuring-continued-why-compete-doesnt-work-and-why-quantcastdoes/ and http://www.seomoz.org/blog/testing-accuracy-visitor-data-alexa-compete-google-trends-quantcast.

Page 14 of 21

Confidential and Subject to Protective Order
sales to the TechCrunch community alone would have been substantially higher. Moreover, the
estimate is conservative because it ignores the possibility of sales to non-TechCrunch users,
including through CrunchPad Inc.‟s expected strategic arrangement with BestBuy.
c)

Best Buy Per Store Sales

As of February 27, 2010, there were 1,143 Best Buy and Best Buy Mobile stores in the United
States.68 Based on this data, on average, each Best Buy or Best Buy Mobile location would have
to have sold less than 65 units during calendar 2010.69 Considering the price point of the device,
the lack of early competitors, the willingness of Best Buy to promote the CrunchPad, and the
demand demonstrated by sales of the HP TouchPad through this channel, it is reasonable to
expect that CrunchPad could have achieved this level of sales – particularly in combination with
other distribution channels.
d)

FusionGarage Used the Kindle as a Benchmark

In August 2009, in a communication to a potential investor, FusionGarage‟s representative,
Stuart Tan, highlighted the Amazon‟s e-Book reader product, the Kindle, as a reasonable proxy
for expected sales of the CrunchPad. Even while doing so, however, Mr. Tan expressed
. Mr. Tan quantified
70

Product

Unit Sales

Sales Amount

Assuming the reliability of FusionGarage‟s benchmarking of the Kindle products,71 this data
point provides further support for the reasonableness of a conclusion that the CrunchPad could
have sold 70,000 units in its first year of production. That is, if the first quarter of Kindle sales
were annualized, then 600,000 units would have been sold – suggesting that to reach the level of

68

Best Buy Form 10-K for the Fiscal Year ended February 27, 2010 at page 9.

69

70,000 units ÷ 1,143 stores = 61.2 units/store.

70

FG0000016, the Kindle sales have been estimated based upon Mr. Tan‟s representation that the Kindle2
”

71

Amazon did not transparently disclose sales of its Kindle device at this time. Nevertheless, third-parties estimated
that Amazon sold approximately 1.072 million Kindles in the first year. http://booksahead.com/?p=921 (accessed
February 29, 2009). That estimate indicates that Mr. Tan‟s representation about Kindle sales may have been
conservative.

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Confidential and Subject to Protective Order
sales associated with a $15 million valuation, the CrunchPad would have need to achieve only
approximately 10% of the volume of Kindle sales.
B.

The Income Approach

The Income Approach commonly relies upon a discounted cash flow computation (“DCF”). A
DCF computation is premised upon projected free cash flow (“FCF”), which is typically defined
as the amount of cash that the subject being valued is able to generate after setting aside funds
required to change its net asset base. The following sections of this report set forth the basis for
the determination of the inputs to the DCF models used in my analysis of the valuation of
CrunchPad Inc.
1.

Elements of a DCF Calculation

The computation of FCF requires certain adjustments to an earnings stream:
a)

Working Capital Adjustments

A company must generally increase its working capital to support increases in forecasted sales,
which is the case here. Based upon the entities identified in my review of the Pratt‟s Stats
database, the typical working capital requirement was approximately 6% of sales (see Exhibit
2). Therefore, I have reduced CrunchPad‟s expected future cash flows by 6% of the growth in
sales in each period to set aside the working capital necessary to support this growth. I have not
adjusted this rate to account for a potential reduction associated with the prospective Best Buy
arrangement.
b)

Capital Expenditures and Depreciation Would Offset

When determining FCF, it is also appropriate to 1) remove non-cash expenditures such as
depreciation, and 2) add-back purchases of capital expenditures. Here, CrunchPad anticipated
outsourcing its manufacturing processes. Thus, its capital expenditures would generally have
been limited to internal operating needs. In these circumstances, it is typically reasonable to
offset annual capital expenditures and commensurate depreciation expense (i.e., no change from
earnings to FCF).
c)

Income Tax Effects

A business valuation computation incorporates assumptions that would be expected by a
purchaser of the subject interest, and a purchaser would evaluate cash flow on an after-tax basis.
For purposes of this analysis, I have estimated CrunchPad‟s applicable tax rate to be 35%.72 This

72

http://www.irs.gov/pub/irs-pdf/i1120.pdf

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Confidential and Subject to Protective Order
is a typical effective income tax rate by U.S. domiciled entities without tax assets such as those
arising from development-stage losses, which CrunchPad had not accumulated.
d)

Discount Rate

The FCF used to calculate CrunchPad‟s valuation is expected to occur over several future
periods, accordingly, it must be discounted to present value. The discount rate used to perform a
lost business value calculation takes into consideration a perpetual timeline and the perspective
of a purchaser. Accordingly, the discount rate used to perform a lost business value calculation
is often characterized as a required rate of return. The specific discount rates I have applied are
discussed in greater detail below.
e)

Terminal Value

The second principal component of a lost business value calculation is its terminal value. The
terminal value of a company is the present value at a future point in time of all cash flows of a
company based upon a stable long-term growth expectation. In this instance, the terminal value
is used to establish the value of FCF generated after the conclusion of the forecasted period. It is
reasonable to compute the terminal value of CrunchPad at least in part because management
anticipated that subsequent generations of the product would be developed. An accepted formula
to compute terminal value follows:
Terminal value = FCFn+1 * (1 + g) / (r – g)
Where:
FCFn+1 = The FCF calculated in the last period of the lost profits analysis
g = the long term growth rate; 3.0%.73
r – discount rate.
2.

The Income Approach Using the Venture Capital Method

In this approach, I have adopted CrunchPad Inc.‟s management projections of its market
opportunity. CrunchPad Inc. prepared two financial scenarios for CrunchPad sales; 1) a Base
Case and 2) 50% of Base Case. These scenarios forecasted sales and earnings for a three-year

73

I have used a long-term growth rate of 3.0%. This rate may understate CrunchPad Inc.‟s likely future growth;
however, it is a commonly accepted measure of the expected long-term economic growth and only slightly exceeds
inflation. In addition, given the significant discount rates applied in my analysis, the valuation calculations are
insensitive to this input. Finally, I note that it is conservative to apply a lower long-term growth rate (i.e., a higher
rate would equate to a higher valuation).

Page 17 of 21

Confidential and Subject to Protective Order
period. In the Base Case scenario, the CrunchPad would have obtained approximately 2.5%
share of the tablet market during calendar years 2010 and 2011.
It is typical for venture-capital firms to address the risks and uncertainties of investments in startup entities through the application of relatively high discount rates.74 As described above, I have
studied these discount rates, and developed practice guidance for CPAs in the application of
discount rates. Specifically, venture capitalists typically apply discount rates that range from 5070% for a start-up entity to 40-60% for an entity pursuing first-stage financing.75 These discount
rates are much higher than the typical rate of return associated with more mature companies
because these rates are designed to address the increased risks of these scenarios, including an
absence of historical information, uncertainty about the future including technological
developments and competition, as well as an absence of short-term liquidity for the investment.
In the fall of 2009, while CrunchPad Inc. exhibited some of the characteristics of an entity
seeking first-stage financing, I have used a start-up based discount rate of 80%. This rate
exceeds the upper-end of the discount range typically applied by venture capitalists because I
have not otherwise adjusted CrunchPad Inc.‟s financial forecasts. In this scenario, CrunchPad
Inc.‟s valuation would have been approximately $64 million (see Exhibit 4).
CrunchPad Inc.‟s 50% of Base Case scenario assumed that its market penetration would be
exactly half of the Base Case Scenario (or a share of approximately 1.2%). In the 50% of Base
Case scenario, however, relatively higher operating costs would have reduced its comparable
probability. Discounted to present value at a slightly reduced discount rate of 70%, in this more
conservative scenario, CrunchPad Inc. would have had a valuation of approximately $25 million
(see Exhibit 5).

74

See, for example, Sahlman, William. "A Method For Valuing High-Risk, Long-Term Investments: The 'Venture
Capital Method.'" Harvard Business School Publication 9-288-006 (August 2003): 6–7. See also the Stanford
Business School analysis located at
http://www.stanford.edu/class/msande272/resources/Valuation%20Lecture%202006.pdf , at p.9, which presents a
similar hierarchy of discount rates applied by venture capitalists.
75

The Sahlman study summarizes the traits of a start-up as including “…an organization that is prepared to
commence operations. A start-up should be able to demonstrate a competitive advantage. Most high-technology
firms should have a product in prototype form embodying a proprietary technology.” An entity receiving first-stage
financing is typically “on-going businesses. A first-stage company is generally not profitable, but it normally has an
established organization, a working product, and, preferably, some revenues. First-stage funds are usually used to
establish a company‟s first major marketing efforts, and to hire sales and support personnel in anticipation of higher
sales volume. Often, funds are also applied to product enhancements or product line expansion.”

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Confidential and Subject to Protective Order
3.

The Income Approach Using an Alternative Assumption Regarding
CrunchPad’s Market Opportunity

I have prepared an alternative estimate of CrunchPad‟s unit sales to assess the sensitivity of the
price-to-sales model considered above. Specifically, I have assumed that the unit price of the
CrunchPad was $299, which was significantly lower than the unit prices used in the CrunchPad
Inc. models addressed above. I then assumed that the unit price would be reduced by 10% in
each successive year. I also assumed that only 160,000 CrunchPads were sold during calendar
2010 (Year 1), which was the equivalent of approximately 0.9% market share.76 I assumed
CrunchPad maintained a similar market share in Year 2 (0.6%). I did not reduce anticipated unit
production costs, which had the effect of significantly reducing CrunchPad Inc.‟s expected
profitability.
This method to estimate value significantly reduces valuation risk. This is because there is an
increased probability CrunchPad Inc. could have achieved these results. As a result, it is
appropriate to apply a reduced discount rate within the range addressed in the venture capital
method described above. Notwithstanding this reduction, I have applied a discount rate of 60%,
which is the midpoint of the range for start-up entities and represents a significant valuation
reduction for risk. This method results in a valuation of CrunchPad Inc. of approximately $15
million immediately prior to November 17, 2009. This model as well as an explanation of other
assumptions is presented in Exhibit 6.
C.

TechCrunch‟s Lost Business Value Associated With CrunchPad Inc. Was
Approximately $7.8 Million as of November 17, 2009

A reconciliation of valuation methods typically requires the results of each method to be assessed
for reliability.77 The following table summarizes the range of fair market value of CrunchPad
Inc. immediately prior to November 17, 2009 as provided by the methods described above:
1
2
3
4
5

Method
Market Approach – Intel/LG/Series A
Market Approach – Mr. Rathakrishan
Market Approach – Price-to-Sales
Income Approach – CrunchPad Projections
Income Approach – Alternative Projections

CrunchPad Valuation
$12 to $15 million
$30 to $40 million
$15 million
$25 to 64 million
$15 million

Of these methods, the market approach offered by Mr. Rathakrishan and the income approach
based upon CrunchPad Inc.‟s scenarios depart from the range. As such, I have emphasized the
76

At least in part, I selected this level of unit sales to test the sensitivity of the unit estimates used in the price-tosales multiple above. This level is more than two times the 70,000 used in that approach.
77

SSVS No.1, ¶¶ 42, 68.

Page 19 of 21

Confidential and Subject to Protective Order
remaining indications of value, which conform around the range of $12 million to $15 million.
The use of these methods indicates that significant upside exists even when a conservative
discount rate for risk is applied.78 As such, it is reasonable to conclude that this range reflects the
valuation of CrunchPad Inc. immediately prior to November 17, 2009.
On a pro-rata basis, TechCrunch‟s interest would be valued between $7.8 million and $9.8
million (i.e., 65% of the range). When the interest being valued is less than 100% of the entity, it
is relevant to consider whether any further valuation adjustments are appropriate.79 At least in
part due to TechCrunch‟s 65% interest in CrunchPad Inc., a discount for lack of control does not
appear to be applicable.80 Given that TechCrunch‟s interest was in a private entity, however, it is
relevant to consider a discount for the lack of general marketability of CrunchPad Inc. equity
interests. Such a valuation adjustment, however, is incorporated into my analysis already through
the contemporaneous investment offers or through the venture capital discount rates that include
marketability considerations.81 Nevertheless, to account for the fact that the lower end of the
valuation range was in part informed by the September 2009 investor activities that occurred in
close time proximity to November 2009 and to further reduce marketability risk, I have
concluded that TechCrunch‟s interest in CrunchPad Inc. should be valued at $7.8 million
immediately prior to November 17, 2009.
IV.

TechCrunch’s Out Of Pocket Losses

TechCrunch made significant cash contributions to the development of CrunchPad Inc. and the
CrunchPad.82 I have reviewed an accounting of such contributions, which include:83

78

This analysis was performed using CrunchPad Inc.‟s continuing operating value as opposed to liquidation value.
This is because CrunchPad Inc. was a development-stage company without significant identifiable assets to
liquidate.
79

SSVS No.1, ¶ 40, “During the course of a valuation engagement, the valuation analyst should consider whether
valuation adjustments (discounts or premiums) should be made to a pre-adjustment value. Examples of valuation
adjustments for valuation of a business, business ownership interest, or security include a discount for lack of
marketability or liquidity and a discount for lack of control.”
80

There are other indicators that TechCrunch exercised significant control over the CrunchPad including the fact
that Mr. Arrington had developed the product concept and other members of its management had conceptualized the
new market for the product.
81

I also note that CrunchPad Inc. was attractive enough to receive offers from many desirable and sophisticated
investors, including Intel and LG. Indeed, Best Buy‟s inclination to partner with CrunchPad is another indication of
CrunchPad‟s desirability as a business entity in the technology industry. Further, secondary markets such as
SecondMarket have provided new avenues of liquidity for the equity of larger private enterprises. CrunchPad Inc.
would have been similar to the type of companies listed on SecondMarket. Indeed, all 10 of the 10 most watched
venture backed enterprises are in the technology industry and 50% are in the San Francisco Bay Area.
82

These contributions are summarized in ¶¶ 56-57 of the Complaint.

Page 20 of 21

Confidential and Subject to Protective Order





for salaries,
for computer and other electronic equipment
for legal bills, and
in cash advances to suppliers on behalf of FusionGarage.

In total, TechCrunch contributed approximately $357,000. (Id.) TechCrunch was not reimbursed
for these expenses, and the return on these expenditures that it anticipated, in the form of
enhanced CrunchPad Inc. value, was also lost on November 17, 2009.
V.

Pre-Judgment Interest

I have been asked to prepare computations to address the potential that the Trier of Fact may
award pre-judgment interest in this matter. I have accumulated interest through April 30, 2012,
which I have used as a current estimate of the date of judgment in this matter. This calculation
was prepared using a 10% interest rate on a simple basis.84 The amount of pre-judgment interest
related to TechCrunch‟s lost business value is $1.9 million and the amount related to out-ofpocket losses is $87,000.85 In total, pre-judgment interest is $2.0 million (see Exhibit 7).

83

TC00019224-19336.

84

http://law.justia.com/codes/california/2009/civ/3287-3291.html

85

For simplicity, this amount has been calculated as if all expenses were incurred on November 17, 2009.

Page 21 of 21

HEMMING
M O R S E, L L P

Exhibit A

CURRICULUM VITAE

CERTIFIED PUBLIC ACCOUNTANTS
LITIGATION & FORENSIC CONSULTANTS

www.hemming.com

Greg Regan, CPA/CFF, MBA
Employment & Education
2012 – Present

Hemming Morse, LLP
Certified Public Accountants
Litigation and Forensic Consultants
Partner

2003 – 2011

Hemming Morse, Inc.
Certified Public Accountants
Litigation and Forensic Consultants
Director, 2007-2011
Manager, October 2003-2006

2009 – Present

Golden Gate University
Adjunct Professor
Introduction to Financial Forensic Accounting, Spring 2009-present
An In-Depth Analysis of Economic Damages, Fall 2010

1999 – 2003

SupportSoft, Inc. (Nasdaq: SPRT)
Controller, February 2001- October 2003
Accounting Manager, April 1999- February 2001

1995 – 1999

Ernst & Young, LLP
Senior Auditor, October 1997- April 1999
Staff Auditor, October 1995-September 1997

2004 – 2007

University of San Francisco
Masters in Business Administration with emphasis in Finance
Beta Gamma Sigma Honor Society

1995

Georgetown University, Washington, D.C.
B.S. Accounting, Minor in Theology

Professional & Service Affiliations

n

Certified Public Accountant, State of California, 1998
Certified Public Accountant, State of New York, 2010
Certified Fraud Examiner

n

Certified in Financial Forensics, 2008

n

page 1 of 5

San Francisco Office
160 Spear Street
Suite 1900
San Francisco, CA 94105
Te l: 415.836.4000
Fax: [phone]

n

American Institute of Certified Public Accountants
– Forensic & Litigation Services Committee,
2010-present
n

– Co-chair, Economic Damages Task Force
– National Forensic Conference - Planning
Committee, 2011 and 2012
– CPA Ambassador, January 2006-present
– Board of Examiners, Uniform CPA Examination
Contributor

HEMMING
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CERTIFIED PUBLIC ACCOUNTANTS
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www.hemming.com

Greg Regan, CPA/CFF, MBA
Professional & Service Affiliations
n

continued

California Society of Certified Public Accountants
– State Accounting Principles and Auditing Standards
Committee, Member, 2005-2010

– Co-chair, San Francisco Chapter Litigation
Consulting Services Committee, 2006-present
State Steering Committee, 2007-present
– Economic Damages Section
Member, 2004-present
Secretary, 2008-2009
Vice Chair, 2010-present

– CalCPA Leadership Institute, Spring 2006

– Leadership Identification and Development
Committee, 2007-present

n

Association of Certified Fraud Examiners

n

Financial Executives International (FEI)
– Silicon Valley Chapter

n

n

n

n

Georgetown University, Alumni Admissions
Committee
Advisory Board to Golden Gate University Forensic
Accounting Program, August 2008-present
American Bar Association
– Section of Litigation
– Section of International Law
– Section of Antitrust Law
Legal Aid of San Mateo County
– Board of Directors, Treasurer

California CPA Education Foundation
– Accounting & Auditing Curriculum Advisory
Committee, 2007-present

n

Publications
n

n

n

n

page 2 of 5

n

San Francisco Office
160 Spear Street
Suite 1900
San Francisco, CA 94105
Te l: 415.836.4000
Fax: [phone]

n

“Causation Scenarios for the Damages Expert”
Dunn on Damages, Winter 2011

n

“2010 Federal Rules of Civil Procedure Changes”
AICPA.org, November 2010

n

“Selecting the Right Investigative Resource”
(Co-author) Journal of Accountancy, December 2009

n

“Discount Rates and Lost Profits... Where’s The Risk?”
(Co-author) CPA Expert, Summer 2009
“Discount Rates and Lost Profits: A Review of Case
Law”
The Witness Chair, Winter 2009
“CFFs: CPAs Looking Behind Closed Doors”
CalCPA Magazine, September 2008

n

n

“Discount Rates and Lost Profits ... Where’s The Risk”
The Witness Chair, Summer 2008
“Software Revenue Recognition on the Rise”
(Co-author) Journal of Accountancy, December 2007
“FAS 123R: Accounting for Stock Options, Tips for an
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CalCPA.org, February 2005
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www.hemming.com

Greg Regan, CPA/CFF, MBA
Presentations
n

n

n

n

n

n

n

n

n

page 3 of 5

San Francisco Office
160 Spear Street
Suite 1900
San Francisco, CA 94105
Te l: 415.836.4000
Fax: [phone]

n

“Emerging Financial Forensic Accounting”
AICPA National Forensic Accounting Conference
September 2011

n

“Review of Notable Recent Cases – Economic
Damages”
AICPA National Forensic Accounting Conference
September 2011

“Forensic Accounting: Bridging the Gap between
Theory and Practice”
AAA, National Conference, August 2011
“Causation Scenarios and the Damages Expert”
CalCPA Economic Damages and Fraud Committees
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AAA, Forensic and Investigative Accounting Section
Research Conference, March 2011
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Licensing Executives Society, October 2009
“Accounting for Devices With Embedded Software”
Revenue Recognition for MedTech Companies
June 2009
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Cal Society of CPAs, Economic Damages Section
May 2009

n

n

n

n

n

n

n

“Analyzing Earnings Releases”
San Jose Mercury News, October 2008, January 2010
“The Subprime Debacle & Debate About Fair Value
Accounting”
San Francisco, Barristers Club, August 2008
“IPOs: Promises and Pitfalls”
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March 2008, March 2009
“The Foreign Corrupt Practices Act: An Independent
Monitor’s Perspective”
Cal Society of CPAs, San Francisco Chapter Litigation
Section, January 2008
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(Panel member) CalCPA Litigation Society
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Revenue?”
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Cal Society of CPAs, CPE Extravaganza
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CERTIFIED PUBLIC ACCOUNTANTS
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www.hemming.com

Greg Regan, CPA/CFF, MBA
AICPA CFF Education, Spring 2010-Present
n

Fundamentals of the Legal System & Engagement
Administration

Reporting, Expert Reports, and the Provision of
Testimony

n

Financial Statement Investigations

n

Testimony
Trial
n

n

Deposition

Boris Kriman, et al. v. Victor Mayorkis, et al. (2012)
Superior Court of the State of California,
County of San Mateo, Case No. CIV 491312

n

First National v. Federal Realty Investment Trust
(2008) (2009)
U.S. District Court, Northern District of California,
San Jose Division, Case No. C-03-02013 RMW

n

n

Arbitration
n

n

n

Curriculum Associates, LLC v. Let’s Go Learn, Inc.
(2011)
American Arbitration Association
No. 74-117-Y-00247-11

n

Craig W. Story, Seller Representative of PHSI v.
U.S. Water LLC (2011)
JAMS Reference No. 1100063613

Boris Kriman, et al. v. Victor Mayorkis, et al. (2011)
Superior Court of the State of California,
County of San Mateo, Case No. CIV 491312
Underground Solutions, Inc. v. P&F Distributors,
et al. (2011)
Superior Court of the State of California,
County of San Mateo, Case No. CIV 470876
Graco, Inc. v. PMC Global, Inc., et al. (2011)
U.S. District Court, District of New Jersey
Case No. 08-CIV-1304 (FLW) (JJH)
Paul A. DiMartini and Britt T. Johnson v. Purcell
Tire & Rubber Company, et al (2010)
U.S. District Court, State of Nevada
Case No. 3:09-cv-00279-HDM (VPC)
First National v. Federal Realty Investment Trust
(2008)
U.S. District Court, Northern District of California,
San Jose Division, Case No. C-03-02013 RMW

page 4 of 5

SEC Enforcement - Investigation Interviews
San Francisco Office
160 Spear Street
Suite 1900
San Francisco, CA 94105
Te l: 415.836.4000
Fax: [phone]

n

Re: Bell MicroProducts, Inc. (March 2009)

n

Re: Connectics, Inc. (August 2007)

HEMMING
M O R S E, L L P

Exhibit A

CURRICULUM VITAE

CERTIFIED PUBLIC ACCOUNTANTS
LITIGATION & FORENSIC CONSULTANTS

www.hemming.com

Greg Regan, CPA/CFF, MBA
Selected Experience
n

n

n

n

n

n

n

n

page 5 of 5

n

San Francisco Office
160 Spear Street
Suite 1900
San Francisco, CA 94105
Te l: 415.836.4000
Fax: [phone]

Engaged as the damages expert by the defendant,
a financial services company, to analyze and respond
to restitution claims of a class of 78,000 plaintiffs.

n

Engaged as the accounting expert by the plaintiff, to
evaluate shareholder oppression claims and valuation
of minority share of a multitude of privately owned
business.

n

Expert for the defendant. Assessed post-acquisition
profitability of the entity to determine implications of
EBITDA on Purchase Price and Earn-Out Dispute.

n

Expert for the plaintiff. Analyzed the pre- and
post-acquisition accounting for an entity to assess
implications on Post Closing performance
commitments.
Consultant for the defendant. Assessed the standalone
profitability of a joint venture operated as a division of a
parent.
Directed an investigation of revenue recognition and
related revenue reserves for the special committee of
the board of a NASDAQ-traded pharmaceutical
company pursuant to a Securities and Exchange
Commission (SEC) subpoena.
Directed an investigation of vendor allowance
accounting for the Audit Committee of a publicly
traded technology distributor.
Consultant for the SEC. Assisted the accounting
expert in assessing whether the financial statements
of a high-technology company were prepared in
accordance with Generally Accepted Accounting
Principles (GAAP) and whether related audits were
performed in accordance with Generally Accepted
Auditing Standards (GAAS).
Consultant for the SEC. Evaluated the consistency
of the accounting principles applied by a consumer
products company with GAAP and assessed the
compliance of an audit in accordance GAAS.

n

n

n

n

n

Lead the restatement of pre-IPO high-tech
companies to establish compliance with SOP 97-2
and SAB 104.
Assisted independent monitor in an evaluation of the
compliance of a medical device company with the
terms of its settlement arrangements with the U.S.
Department of Justice and the SEC.
Consultant for the SEC. Evaluated the compliance of
a consumer products company with SEC regulations
and addressed the response of the auditor in
accordance with GAAS.
Consultant for the SEC. Evaluated the consistency
of the accounting principles of a major
telecommunications company with GAAP and
assessed the compliance of an audit in accordance
with GAAS.
Engaged by the Audit Committee of a Nasdaq-traded
high-technology company. Investigated possible
manipulation of financial statement information by
accounting personnel.
Consultant for plaintiff, a leading developer of
enterprise application software technologies
and products. Assisted the damage expert in
determination of damages.
Accounting expert for the defendant. Plaintiff claimed
that the defendant, a software company, improperly
recognized revenue and presented misleading
disclosures. Assisted the expert in the evaluation of
revenue recognition and disclosure in compliance
with GAAP and SEC regulations.
Consultant for defendant, a telecommunications
equipment company. Defendant claimed that
plaintiff was responsible for certain lease guarantees
subsequent to its divestiture from the plaintiff.
Assisted the damage expert in evaluating the
divestiture accounting and the plaintiff’s lost profits.

CrunchPad, Inc.
Tablet Market Statistics
Source: Strategy Analytics market surveys

Exhibit 1

Q1 2010
Global Shipments (millions)
Total
Apple
Android
Microsoft
QNX
Others

Q2 2010

Q3 2010

Q4 2010

Q1 2011

Q2 2011

Q3 2011

Q4 2011

1.0

3.5
3.3
0.1
0
0
0.1

4.4
4.2
0.1
0
0
0.1

9.7
7.3
2.1
0
0
0.3

8.2

15.2
9.3
4.6
0.7
0.5
0.1

16.7
11.1
4.5
0.4
0.2
0.5

26.8
15.4
10.5
0.4

94%
3%
0%
0%
3%

96%
2%
0%
0%
2%

75%
22%
0%
0%
3%

61%
30%
5%
3%
1%

67%
27%
2%
1%
3%

58%
39%
2%
0%
2%

250%

26%
27%
0%

120%
74%
2000%

-15%

85%

0%

200%

10%
19%
-2%
-43%
-60%
400%

60%
39%
133%
0%
-100%
-8%

720%

334%
182%
4500%

280%
164%
4400%

176%
111%
400%

0%

400%

54%

23%
Q2
20.77%

25%
Q3
24.31%

40%
Q4
46.11%

Apple
Android
Microsoft
QNX
Others
Q/Q Growth
Global Shipments
Apple
Android
Microsoft
QNX
Others
Y/Y Growth
Global Shipments
Apple
Android
Microsoft
QNX
Others
Seasonality Index
Annual Distribution
Quarter
Factor

5%

19%

24%

52%

12%
Q1
8.82%

0.5

Sources of Market Share Information:
http://www.strategyanalytics.com/default.aspx?mod=pressreleaseviewer&a0=5167
http://www.strategyanalytics.com/default.aspx?mod=pressreleaseviewer&a0=5005
http://www.businesswire.com/news/home/20110721005317/en/Strategy-Analytics-Apple-iOS-Captures-61-Percent
http://www.fiercemobilecontent.com/press-releases/strategy-analytics-apple-android-capture-94-percent-share-global-tablet-shi#_ftn1
http://www.pcworld.com/article/248776/androids_tablet_share_at_39_percent_as_sales_triple_says_study.html

Expert Report of Greg J. Regan, CPA/CFF, MBA

CrunchPad, Inc.
Comparable Transactions
Source: PrattsStats (exhibit highlights selected relevant data)

NAICS
334119
334112
334119
334112
334119
334111
334119
334119
334119
334112
334113
334119
334119
334111
334119
334119
334119

ReportDate
4/28/2006
6/25/2008
2/22/2006
1/30/2007
4/29/2008
12/11/2008
5/27/2009
8/16/2006
9/1/2006
2/9/2007
3/9/2007
5/25/2007
8/6/2007
9/12/2007
6/25/2008
6/25/2008
6/25/2008

Exhibit 2

CompanyName
Spitz, Inc.
InLine Corporation
Undisclosed
Midrange Computer Solutions, Inc.
Quest Retail Technology Pty Ltd
Augmentix Corporation
Tizor Systems, Inc.
Iridian Technologies, Inc.
Convedia Corporation
Consumer Division of SimpleTech, Inc.
Smart Systems International, Inc.
Princeton Server Group, Inc.
PIPS Technology
ATCA and compact PCI product lines of Intel Corporation
Bocom Multimedia Display Company Limited and subsidiary
World Wide Packets, Inc.
Data Management business of Pearson plc

SaleCountry
United States
United States
United States
United States
Australia
United States
United States
United States
Canada
United States
United States
United States
United Kingdom
United States
China
United States
United States

Qualitative Relevance to CrunchPad Inc.
Low
Medium
High

Expert Report of Greg J. Regan, CPA/CFF, MBA

NetSales
$11,478,000
$3,203,313
$5,104,000
$55,095,000
$15,102,000
$14,590,019
$1,952,295
$5,101,060
$13,724,630
$133,678,000
$1,563,223
$1,833,376
$26,400,000
$82,378,000
$4,401,510
$22,554,000
$114,677,000
Count
10
5
2

Working
Fit Group Capital/Sales
3
5%
3
7%
2
0%
2
6%
2
-1%
2
-13%
2
51%
1
-146%
1
45%
1
0%
1
-136%
1
4%
1
29%
1
0%
1
53%
1
-10%
1
7%

Market Price to
Sales
0.7
0.5
1.3
0.3
3.6
2.3
1.6
6.8
7.7
0.4
4.4
3.6
4.4
0.4
4.1
12.4
1.9

Averages
1
2
3

3%
3%
6%

3.2
1.5
0.7

CrunchPad, Inc.
Market Approach

CrunchPad Inc. Valuation - Upper End of Range
Sales Multiple (Ex. 2 - Fit Group 3)
Implied Sales

Exhibit 3

[a]
[b]
[c]=[a]/[b]

$
$

Est. CrunchPad Inc. Revenue Distribution (based on Ex. 6)
Sponsorship Revenue
Search/Retail Revenue
Accessory Revenue
Product Sales
[d]
Total Sales
see [c]

Est Sale Price
Units Sold
Units Rounded Up

[e]
[f]=[d]/[e]
[g]

15,000,000
0.7
22,613,000

500,000
957,244
1,307,273
19,848,483
22,613,000

$

299.00
66,383
70,000

December 2010 Tablet Market Size (Units - Ex. 1)
Market Share

[h]
=[g]/[h]

18,600,000
0.38%

2009 Monthly TechCrunch Unique Users
Techcrunch User Penetration

[i]
=[g]/[i]

4,000,000
1.75%

December 2010 TechCrunch Unique Users1
Techcrunch User Penetration

[j]
=[g]/[j]

1,503,091
4.66%

Notes:
1 - Source: http://siteanalytics.compete.com/techcrunch.com/

Expert Report of Greg J. Regan, CPA/CFF, MBA

% of Total
2.2%
4.2%
5.8%
87.8%
100.0%

CrunchPad, Inc.
Internal Projections

Exhibit 4

Source: TC00000742 at 752, for Financial Results through Operating Margin. 1
Period

Year 1
Contemporaneous CrunchPad Inc. Projections

Revenue Projection
Unit Price
Unit Sales
Unit Revenue
Total Revenue

$
$

Cost Projection
Unit COGS
Accessories COGS
Total COGS
Operating Margin
Operating Margin %
Earnings after tax at 35%

399
500,000
173,015,200
183,858,200

$
$

133,085,100
1,380,000
134,465,100
$

$

Number of periods
Discount Factor at Rate of 80%
PV of Earnings

Year 3 Free Cash Flow
FCF for Terminal Value - Growth @ 3%
Terminal Value - Risk @ 80.0%
Terminal Value Discount Periods (years)
Discounted Terminal Value @ Nov-09
Sum of PV of Earnings (Years 1-3)
Total Lost Business Value

Total Market Unit Sales (see Ex. 1)
Unit Sales as a % of Total Market Sales

14,696,240

$

279
5,000,000
$ 1,201,000,400
1,431,159,900

1,044,809,800
47,500,000
1,092,309,800

76,129,200 $
15.4%

262,406,900
18.3%

49,483,980

$

170,564,485

(17,524,419) $
31,959,561 $

(52,718,468)
117,846,017

2
0.309
$9,864,062

$
$

1
0.556
$8,164,578

$
$
$

335
1,500,000
427,981,100
495,039,000

Year 3

359,786,700
9,870,000
369,656,700

22,609,600 $
12.3%
Computations for Lost Business Value Purposes
$
14,696,240 $

Working Capital Offset (see Ex. 2) @ 6% of growth
Free Cash Flow

Year 2

3
0.171
$20,206,793

117,846,017
121,381,397
157,638,178
3.08
$
$
$
2010
18,600,000
2.7%

25,737,786
38,235,433
63,973,219
2011
66,900,000
2.2%

Notes:
1 - This was the latest dated forecast identifiable in the documents produced as measured by Mod_Date
in the metadata.

Expert Report of Greg J. Regan, CPA/CFF, MBA

CrunchPad, Inc.
Internal Projections (50% of Base Case)

Exhibit 5

Source: TC00000742 at 751, for Financial Results through Operating Margin. 1
Period

Year 1
Contemporaneous CrunchPad Inc. Projections

Revenue Projection
Unit Price
Unit Sales
Unit Revenue
Total Revenue

$
$

Cost Projection
Unit COGS
Accessories COGS
Total COGS
Operating Margin
Operating Margin %
Earnings after tax at 35%

399
250,000
85,910,300
92,517,000

$
$

66,642,500
693,000
67,335,500

Year 2

335
750,000
212,399,900
244,855,900

Year 3

$
$

179,893,300
4,949,000
184,842,300

1,720,100 $
15,257,900 $
1.9%
6.2%
Computations for Lost Business Value Purposes
$
1,118,065 $
9,917,635 $

Working Capital Offset (see Ex. 2) @ 6% of growth
Free Cash Flow

$

$

Number of periods
Discount Factor at Rate of 70%
PV of Earnings

Year 3 Free Cash Flow
FCF for Terminal Value - Growth @ 3%
Terminal Value - Risk @ 70.0%
Terminal Value Discount Periods (years)
Discounted Terminal Value @ Nov-09
Sum of PV of Earnings (Years 1-3)
Total Lost Business Value

Total Market Unit Sales (see Ex. 1)
Unit Sales as a % of Total Market Sales

1,118,065

$
$

73,612,825
(26,915,193)
46,697,632
3
0.204
$9,504,912

$
$
$

13,979,976
10,625,759
24,605,735
2011
66,900,000
1.1%

Notes:
1 - This was the latest dated forecast identifiable in the documents produced as measured by Mod_Date
in the metadata.

Expert Report of Greg J. Regan, CPA/CFF, MBA

113,250,500
15.7%

(8,579,099) $
1,338,536 $

46,697,632
48,098,561
71,788,897
3.08

2010
18,600,000
1.3%

522,404,900
23,750,000
546,154,900

2
0.346
$463,161

1
0.588
$657,685

$
$
$

279
2,500,000
599,802,700
722,788,500

CrunchPad, Inc.
Discounted Cash Flow Approach

Exhibit 6
1

Quarter
Revenue Projection
Unit Price

Q4 2009
$

2

Unit Sales
Unit Revenue
Sponsorship Revenue
Search and Retail Revenue
Accessory Revenue
Total Reveunue
Cost Projection
Unit Cost
Unit COGS
Accessories COGS
Total COGS

$

$

Operating Costs
Labor
Other SG&A
Warranty Expense
Total Operating Costs
Operating Margin
Operating Margin %
Earnings after tax at 35%
Working Capital Offset (see Ex. 2) @ 6% of growth
Free Cash Flow

299
2,000
598,000
50,000
17,940
24,500
690,440

266
532,000
12,250
544,250

Total Market Unit Sales (see Ex. 1)
Implied current period market share
Annual Market Share

$
$

$

299

Q2 2010
$

299

Q3 2010
$

299

Q4 2010
$

299

Q1 2011
$

269

Q2 2011
$

55,284
$ 16,529,868
250,000
495,896
677,227
17,952,991

42,827
$ 11,524,641
300,000
345,739
524,626
12,695,006

100,883
$ 27,147,668
350,000
814,430
1,235,819
29,547,917

118,081
$ 31,775,487
400,000
953,265
1,446,487
34,575,239

266
4,556,751
104,925
4,661,677

$

$

$

$

$

$

266
10,733,972
247,164
10,981,136

720,274
427,174
532,068
1,679,516

240
13,268,122
338,614
13,606,735

799,122
506,022
312,647
1,617,792

240
10,278,387
262,313
10,540,700

$

167,823 $
3.0%
109,085 $

623,933 $
4.8%
405,556 $

792,118 $
5.2%
514,877 $

2,728,464 $
15.2%
1,773,501 $

945,709 $
7.4%
614,711 $

$

(285,636) $

109,085

$
$

(391,033) $
14,523 $

(115,831) $
399,046 $

(135,577) $
1,637,925 $

281,874
896,585

2.5
0.745
$10,826

3.5
0.663
$264,495

4.5
0.589
$965,293

3,500,000
1.2%

4,400,000
1.1%

9,700,000
0.6%
0.9%

1.5
0.838
$91,457

652,691
359,591
454,577
1,466,858

266
12,563,775
289,297
12,853,072

641,383
348,283
218,931
1,208,597

240
24,211,967
617,910
24,829,876

240
28,339,342
723,244
29,062,586

Q4 2011
$
$

$

269

$

242

Q2 2012
$

242

Q3 2012
$

242

138,210
37,192,204
450,000
1,115,766
1,693,068
40,451,037

107,067
$ 25,930,443
500,000
777,913
1,311,565
28,519,921

252,208
$ 61,082,253
550,000
1,832,468
3,089,548
66,554,268

295,201
$ 71,494,846
600,000
2,144,845
3,616,218
77,855,910

209
28,885,807
846,534
29,732,340

$

$

$

209
22,376,905
655,782
23,032,687

209
52,711,470
1,544,774
54,256,244

209
61,697,109
1,808,109
63,505,218

Q4 2012
$
$

$

242
345,524
83,682,458
650,000
2,510,474
4,232,669
91,075,601

209
72,214,517
2,116,335
74,330,851

1,297,790
1,004,690
603,633
2,906,112

1,474,064
1,180,964
706,533
3,361,561

1,116,130
823,030
494,979
2,434,139

2,257,161
1,964,061
1,165,981
5,387,203

2,596,210
2,303,110
1,364,744
6,264,064

2,992,801
2,699,701
1,597,390
7,289,891

2,201,481 $
7.5%
1,430,963 $

2,606,541 $
7.5%
1,694,252 $

7,357,136 $
18.2%
4,782,139 $

3,053,095 $
10.7%
1,984,511 $

6,910,822 $
10.4%
4,492,034 $

8,086,628 $
10.4%
5,256,308 $

9,454,859
10.4%
6,145,658

(879,824) $
551,138 $

(260,620) $
1,433,632 $

(305,047) $
4,477,091 $

634,216
2,618,727

$ (1,979,605) $
$ 2,512,429 $

(586,394) $
4,669,914 $

(686,356)
5,459,302

5.5
0.524
$469,815

6.5
0.466
$256,783

7.5
0.414
$593,899

8.5
0.368
$1,649,077

9.5
0.328
$857,641

10.5
0.291
$731,609

8,200,000
0.5%

15,200,000
0.7%

16,700,000
0.7%

26,800,000
0.5%
0.6%

$
$

15,260,372
15,718,184
27,575,761
3.08
$ 6,473,774
$ 8,356,788
$ 14,830,562
1,000,000
1.7%

Q1 2012

1,146,970
853,870
515,719
2,516,559

Notes:
1 - the source for assumptions regarding the relative percentage of ancillary revenue and cost-to-revenue relationships is CrunchPad Inc.'s forecasts at TC00000742 at 751
2 - the revenue forecast was premised upon the Seasonality Index computed in Ex. 1.

Expert Report of Greg J. Regan, CPA/CFF, MBA

269

47,232
$ 14,122,439
200,000
423,673
578,595
15,324,707

(439,440) $
-63.6%
(285,636) $

$
$
$

$

40,353
$ 12,065,630
150,000
361,969
494,328
13,071,927

428,100
135,000
192,976
756,076

$

269

Q3 2011

17,131
5,122,063
100,000
153,662
209,850
5,585,575

428,100
135,000
22,530
585,630

Number of periods (quarters)
Discount Factor at Rate of 60%
PV of Earnings

Final Year Free Cash Flow
FCF for Terminal Value - Growth @ 3%
Terminal Value - Risk @ 60.0%
Terminal Value Discount Periods (years)
Discounted Terminal Value @ Nov-09
Sum of PV of Earnings (2010-2012)
Total Lost Business Value

Q1 2010

11.5
0.259
$1,209,105

12.5
0.230
$1,256,788

CrunchPad, Inc.
Calculation of Interest
Interest Commencment
Estimated date of judgment
Years
Interest rate (annual)

Exhibit 7

11/17/2009
4/30/2012
2.45
10%

Interest factor

0.245

CrunchPad Inc. Valuation at November 17, 2009
TechCrunch Interest in CrunchPad Inc.
Lost Business Value
Interest factor
0.245

$
$

12,000,000
65%
7,800,000

Prejudgment Interest

$

1,911,000

Out-of-Pocket Expenses
Interest factor

$

357,000

Prejudgment Interest

$

87,000

Total Prejudgment Interest

$

1,998,000

Expert Report of Greg J. Regan, CPA/CFF, MBA

0.245