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9 Rent and Building Expenses (Lines 38-41) - DSWC has a 10-yr lease option for our proposed site with rents and triple-net expenses of $21,000 per quarter. An additional $4,500 is budgeted for quarterly repairs and maintenance. Security (Lines 42-45) – Security expenses include three Intervention Group guards, 24-hr remote surveillance and response, and armored car service. DSWC’s security plan is detailed in Section 2.C. Deprecation and Amortization (Line 57) - DSWC Estimates total startup fixed costs to be $315,000 (i.e. tenant improvements, furniture, fixtures and equipment). DSWC will undergo a cost-segregation study to establish an official depreciation schedule for all business assets. For the purposes of this pro forma, the fixed startup costs are straight-line depreciated over a 10-year time frame beginning Q1 2017. Community Benefits Program (Lines 59-67) - In addition to ongoing commitments to the Davis Street Family Resource Center’s community service matrix, DSWC will make three $50,000 one-time donations to the San Leandro Cherry Festival, San Leandro Arts Commission, and the San Leandro Planning and Business Development within our first year of operations. DSWC will continue to donate $10,000 annually to those organizations (Lines 62-64) and $145,000 annually to the Davis Street Family Resource Center (Lines 59-60). In addition, sliding fee healthcare discounts will be offered to qualifying patients (Line 65). Discounts will be offered to veterans, seniors and qualify individuals based on national poverty lines. Total sliding fee discounts are assumed to total 1.5% of total revenue. DSWC will additionally allocate $15K annually to fund a Community Dialogue (Line 61) to help educate the community on the benefits of medical Cannabis. Finally, DSWC will fund a general donation pool to be used to make charitable donations to San Leandro organizations (Line 66). Loan Payments (Line 68) – DSWC will be issued a loan of $1.4M in start-up capital exclusively from members of its Board of Directors. The loan will be paid back quarterly with the goal of principal to be fully serviced over a 5-year term as operating income stabilizes. Principal payments are projected to begin in Q1 2018. Once principal payments begin interest shall be paid and adjusted monthly at a fair market interest rate equal to the Published Daily Wall Street Journal Prime Rate or equivalent interest rate benchmark. The assumed interest rate in the Projected Income and Expenditures Statement is 3%. Pre Tax Net Income (Line 69) – Total revenues minus total expenses. California FTB Corporate Tax (Line 70) – DSWC is formed as a California Mutual Benefit Corporation in order to comply with the Attorney General’s recommendations for Cannabis businesses. For tax purposes, DSWC will file as a California C-Corporation subject to an 8.84% tax rate. California tax liabilities are determined based on Pre Tax Net Income (Line 69). Federal Income Tax 280e Allocation (Line 71) – Internal Revenue Code Section 280e limits the business expense deductions of Cannabis businesses. DSWC has allocated a portion of staff payroll and marketing expenses to account for Section 280e. The specific details of our 280e allocations are not disclosed here due to potential liability concerns. The net effect of our 280e allocations is to increase taxable income at the federal level. Pre Tax Net Income with 280e Allocation (Line 72) – Total revenues minus total expenses plus Federal Income Tax 280e Allocation (Line 71). Federal Income Tax with 280e Allocation (Line 73) – DSWC will use IRS Form 1120 to file federal income taxes. Federal income taxes are calculated based on Pre Tax Net Income with 280e Allocation (Line 72). 473