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Federally Funded Research & Development

Tax Credits

These Underutilized Wage Based Tax Credits for Businesses through out the United States & Canada Create an Increase in Cash Flow

This document and/or electronic file contains information that (a) is or may be LEGALLY PRIVILEGED, CONFIDENTIAL, PROPRIETARY IN NATURE, OR OTHERWISE PROTECTED BY LAW FROM DISCLOSURE, and (b) is intended only for the use of Best Bottom Lines, LLC. You must have written authorization from Best Bottom Line, LLC to use, copy, or distribute any part of this document as it is strictly prohibited.

This document and/or electronic file contains information that (a) is or may be LEGALLY PRIVILEGED, CONFIDENTIAL, PROPRIETARY IN NATURE, OR OTHERWISE PROTECTED BY LAW FROM DISCLOSURE, and (b) is intended only for the use of Best Bottom Lines, LLC. You must have written authorization from Best Bottom Line, LLC to use, copy, or distribute any part of this document as it is strictly prohibited.

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R&D Tax Credit – IRC §41

In December 2001, new tax regulations enabled small to mid-size companies to be eligible to take the R&D (wage-based) Tax Credits.

Documentation and Discovery requirements were relaxed.

The goal was to keep innovation and creativity in the U.S. and encourage economic growth.

Clients can now receive cash back and/or tax credit benefits for conducting technical activities and meeting the tax regulation requirements.

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About Best Bottom Lines, LLC

Represents a National Tax Recovery Consulting Firm based out of Troy, MI

Specializing in Engineering-Based Tax Studies such as: R&D, Cost Segregation and Energy Efficiency Studies

Unique staff made up of legal, tax and engineers made up of: mechanical, chemical, electrical & structural needed to fully

maximize tax benefits. All of our work will withstand IRS scrutiny and is backed by an

unlimited audit defense guarantee

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New or Improved Business ComponentA business component can be a product or a process, and can include the

following: A business component can be a product or a process, and can include the

following:

Manufacturing products • Developing new, improved, or more reliable products / processes / formulas • Developing prototypes or models (including computer generated models) • Designing tools, jigs, molds, and dies • Developing or applying for patents • Performing certification testing • Conducting testing of new concepts & technology • Developing and introducing new technology • Developing or improving production/manufacturing processes

Manufacturing products • Developing new, improved, or more reliable products / processes / formulas • Developing prototypes or models (including computer generated models) • Designing tools, jigs, molds, and dies • Developing or applying for patents • Performing certification testing • Conducting testing of new concepts & technology • Developing and introducing new technology • Developing or improving production/manufacturing processes

• Performing environmental testing • Developing, implementing, or upgrading systems and/or software • Automating and/or streamlining internal processes • Expending resources on outside consultants/contractors to do any of the above-stated activities • Attempting the use of new materials and compounds

• Performing environmental testing • Developing, implementing, or upgrading systems and/or software • Automating and/or streamlining internal processes • Expending resources on outside consultants/contractors to do any of the above-stated activities • Attempting the use of new materials and compounds

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Technological in Nature

The taxpayer is seeking information that is

technological in nature:

• Nature component is based on the process of

experimentation used in the research relying on the

principles of hard sciences, such as physical or

biological sciences, engineering, or computer

science.

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Elimination of Uncertainty

The research and development activities must eliminate uncertainty either about the capability or method of developing the product. In addition, the elimination of certainty of the improvement of the product or its appropriate design is also sufficient to meet this requirement.

The research and development activities must eliminate uncertainty either about the capability or method of developing the product. In addition, the elimination of certainty of the improvement of the product or its appropriate design is also sufficient to meet this requirement.

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Process of Experimentation The Process of Experimentation involves

the evaluation of one or more alternatives where there exists uncertainty at the outset as to the appropriate design of the business component.

The Taxpayer may conduct a process of evaluating the alternatives through systematic trial and error, developing one or more hypotheses, designing and conducting experiments to test the hypotheses, among other things.

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Eligible Costs

Wages- Form W-2, Partnership Earnings subject to Self Employment Tax, Schedule C, bonuses paid to employee excludes 401(k) & fringe benefits

Supplies- Cost to fabricate prototypes / items consumed in R&D process Any tangible property used in the conduct of qualified research other than land or improvements to land, and property subject to depreciation

65% of Contract Research - Fees paid to non-employees, outsideconsultants / engineers / software developers

Wages- Form W-2, Partnership Earnings subject to Self Employment Tax, Schedule C, bonuses paid to employee excludes 401(k) & fringe benefits

Supplies- Cost to fabricate prototypes / items consumed in R&D process Any tangible property used in the conduct of qualified research other than land or improvements to land, and property subject to depreciation

65% of Contract Research - Fees paid to non-employees, outsideconsultants / engineers / software developers

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The Process

DataCollection

Project Identification

PreliminaryAnalysis

Interviews

CreditCalculations

Reporting

FinancialsProjects & Activities

QualifiedProjects

Employee R&DAllocations

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Qualifying Clients

ManufacturingFabricationEngineering

ChemicalTool and Die

Machine ShopsSoftware Development

ElectronicsBiotechnology

Pharmaceutical

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Ex: Manufacturing Co. #1Automotive PrototypingSampling of activities:

– Plastic part manufacturing, – Rapid prototype modeling, – Design – AutoCAD,– Aluminum prototype tooling, – Silicone tooling, – Injection, Blow, Compression molding, – Vacuum forming

Annual Payroll 2003 – $2MM2004 – $3MM2005 – $4MM2006 – $5MM

Net Credit Benefit for 2003 thru 2006 tax years: $200,000

Annual Payroll 2003 – $2MM2004 – $3MM2005 – $4MM2006 – $5MM

Net Credit Benefit for 2003 thru 2006 tax years: $200,000

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Sampling of activities: – Grinding– CAD Drawings – Electro Mechanics– Vibratory Deburring – Hardware Insertion– Laser Technology– Machining

Annual Payroll

– 2003 – $6MM– 2004 – $7MM– 2005 – $8MM– 2006 – $9MM

Net Credit Benefit for 2003 thru 2006tax years: $500,000

Ex: #2 Manufacturing Co. Metal Product FabricationEx: #2 Manufacturing Co. Metal Product Fabrication

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Ex: Software Co

Sampling of activities: • Designing software• Coding• Programming• Improving application features• Functionality improvements• Alpha, beta testing• Improving Modules

Annual Payroll 2003 – $5MM 2004 – $6MM 2005 – $7MM 2006 – $8MM

Net Credit Benefit for 2003 thru 2006 tax years: $500,000

Sampling of activities: • Designing software• Coding• Programming• Improving application features• Functionality improvements• Alpha, beta testing• Improving Modules

Annual Payroll 2003 – $5MM 2004 – $6MM 2005 – $7MM 2006 – $8MM

Net Credit Benefit for 2003 thru 2006 tax years: $500,000

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Ex: Engineering Co.

Sampling of activities: – Pipe and Filtration Systems – Prototyping – Solvent and Adhesive bonding – Quality Assurance – Thermoforming Process– Designing systems and products– Developing layouts and schematics– Testing and Failure analysis

– Annual Payroll – 2003 – $10MM– 2004 – $11MM– 2005 – $12MM– 2006 – $13MM

Net Credit Benefit for 2003 thru 2006 tax years: $700,000

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The Final Product

The R&D Study / Technical Report

• The R&D Study / Technical Report is where all the arguments, documentation of qualification and quantification must coalesce into a coherent statement of who, why, when, where and how much. • The Study will convey the credit being taken and the basis for such amount.

• For a credit with varying qualitative issues, the report is critical

The R&D Study / Technical Report

• The R&D Study / Technical Report is where all the arguments, documentation of qualification and quantification must coalesce into a coherent statement of who, why, when, where and how much. • The Study will convey the credit being taken and the basis for such amount.

• For a credit with varying qualitative issues, the report is critical

ABC, Inc.1234 Research Lane Houston, TX 77000

R&D Tax Credit Study 2002 – 2005

Tax Years

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Form 6765

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State R&D Tax Credits

ArizonaArkansasCaliforniaColoradoConnecticutDelawareGeorgiaHawaiiIdahoIllinoisIndianaIowa

Michigan (Office)MinnesotaMontanaNew JerseyNew MexicoNorth CarolinaNorth DakotaOhioPennsylvaniaRhode IslandSouth CarolinaTexas (Office)

Michigan (Office)MinnesotaMontanaNew JerseyNew MexicoNorth CarolinaNorth DakotaOhioPennsylvaniaRhode IslandSouth CarolinaTexas (Office)

UtahVermontWest VirginiaWisconsinWashington

UtahVermontWest VirginiaWisconsinWashington

KansasLouisianaMaineMarylandMassachusetts

KansasLouisianaMaineMarylandMassachusetts

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Benefits to Clients

• Significant credits/cash back from previous 3 open years

• $1 for $1 reduction on current year’s taxable liability

• Additional tax savings in the future

• Unutilized credits are carried back 1 year and then carried forward up to 20 years

• Increase company assets and value

• Significant credits/cash back from previous 3 open years

• $1 for $1 reduction on current year’s taxable liability

• Additional tax savings in the future

• Unutilized credits are carried back 1 year and then carried forward up to 20 years

• Increase company assets and value

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What’s Next?

I. Conference Call / Visit with Clients / CPA Firm

II. Setup office visit with the CPA Firm (Tax Partners/Managers) and/or with the Prospective Client (CEO/CFO/President)

III. Feasibility Analysis

IV. Initiate the Study

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Frequently Asked Questions

• What type of background and expertise is necessary to successfully provide the service?The R&D Tax Credit team must have the technical (engineering) and legal expertise to quantify or qualify the

credit.Numerous CPA’s across the country outsource this highly specialized service to our team.

Our Clients have never documented employees activities/time. Is that a concern?No. Through our interview process, we collect and document the necessary information required by the code/IRS.

What if the shareholders are in AMT situation?The un-utilized credits are carried back 1 year and then carried forward up to 20 years.

How does our team get paid?For previous 3 open years, our fees are contingency based. If we can’t help you realize any benefits, we don’t get paid. For current and future years, due to IRS Circular 230, we charge a fixed fee.

How long does it take for the Client to realize the benefits?For previous 3 open years, it takes 3 – 4 months after amending returns to receive cash back from the IRS for taxes paid. For current year, the benefit is realized upon filing, which is $1 for $1 reduction on taxable liability.

Will this project disrupt the employee’s or the CPA’s daily activities?

– Our process is strategically designed so that it takes a total of5 to 10 hours of client time – technical interview. This includes afew hours with the company’s chief engineer(s), and a hour ortwo with the controller/CFO and the CPA.

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Contact Information

Best Bottom Lines, LLC Bruce Etterling, CEO Tel: (888) 598-9667 FAX: (888) 817-0921 BEtterling@bestbottomlines.com