Investment Overview

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US Capital Investment Management

Discovery Sound Technology, LLC


US Capital Investment Management

INVESTMENT OPPORTUNITY


US Capital Global Securities (“USCGS”) is offering 200 Membership Units in USCIM Fund XXVIII Discovery, LLC (“Fund XXVIII”), a pooled investment vehicle, on a “best efforts” basis. The Fund XXVIII will be managed by San Francisco-based asset management firm US Capital Investment Management, LLC (“USCIM” or the “Manager”), investing in Preferred Equity Units of Discovery Sound Technology, LLC (“Discovery”, “DST” or the “Company”). The Company will use the new financing for software/product development, equipment production and/or related capital expenditures, customer success/acquisition and growth capital, in addition to working capital for current and future business needs.



COMPANY OVERVIEW


Discovery Sound Technology, LLC operates a platform that provides solutions to the HVAC Service industry solving the shortage of skilled labor* through improved workflows – providing detailed and accurate documentation – improving response times and providing customers with unparalleled transparency coupled with fact-based diagnostics. In its simplest form, IoT leverages the connectivity of the internet to communicate with a large network of objects or “things”. DST’s suite of IoT products range from technician enabled hand-held units, to permanently mounted sensors, to multi-sensor continuous monitory systems. The mobile platform offers high quality data-capture technology coupled with a patented cloud-based diagnostics solution. Discovery’s solutions support service organizations to make more informed business decisions.

*Source: “USCP Data Room Files/H. Trade/Market Research Documents/media- WorkForce Solutions-Focus-HVACMechanic.pdf”
*Source: “USCP Data Room File/H. Trade/Market Research Documents/media-Studies show HVACR industry requires 115,000 new workers by 2022.pdf”


The Platform


Discovery’s technology was built to support the HVAC Service Industry and focused around the technician shortage. DST readings (evaluations) are easily taken during normal Preventive Maintenance (“PM”) activities by the PM level technician. Those readings are uploaded and surveys are completed by the cloud-based diagnostics platform. Discovery’s Platform documents the reading in the database, compares it to historical data if available or global data if this is a 1st time reading. The database then makes recommendations on what, if anything needs to be done to keep the equipment operating most efficiently. All this information is planned to be available to the right people at the right time on the cloud.


US Capital Investment Management

Customers


Discovery’s customer base consists of small-medium mechanical services companies (HVAC’s), property management companies who are deploying the technology. Discovery measures customer saturation as “Customer-Markets (C-M)”. In 2013, DST had 1-CM, 5 C-M’s in 2014, 9 C-M’s in 2015 and 15-CM’s in 2016. The Company manages its customer and product pipeline through a CRM (Yoho).


Revenue Model


Discovery’s business model is a SaaS-based approached generating recurring revenue. The Discovery Platform™ requires a seat license for the analytical application. Approximately 70%+ of revenue comes from long-term subscription packages ranging in duration from 12-60 months. Licensees typically pay Discovery a monthly fee (between 1st and 15th day of each month) for the term of the agreement.


Value Proposition


The strength of Discovery’s core product and services comes from its effectiveness in equipping the PM level technicians with devices that run DTS’s applications to gather digital signatures that will be automatically processed through cloud-hosted software platform. DST’s solutions simplify communication between the experts and the needed decision makers while automatically documenting the current conditions and any work needed to be performed. Its main value is generated by creating an understanding of optimal workflow for their clients and reducing costs.

• Provide high quality service through use of innovative technology
• Additional tools for finding & helping diagnosing current & future problems
• Provide feedback to customers and support decision making


Growth Strategy - Total Addressable Market


Discovery’s management plans to exploit and take advantage of the large market opportunity associated with the mechanical services industry. The Company plans to introduce its solutions and cover the following markets:

• Provide Commercial Buildings – Hospitals – Governmental Buildings
• Manufacturing – Process Industries
• Utility Providers – Oil & Gas – Water - Electricity
• Compressed Gases & Refrigeration
• Electrical & Safety



COMPANY’S MANGEMENT TEAM


Chief Executive Officer


The CEO joined the company in 2009 and has held this position since 2014. Prior to DST, he held the position of Vice President & General Manager at AFL Automotive, a wholly owned subsidiary of Alcoa Inc., he joined Alcoa in 1989 as a maintenance engineer, and held various positions including Plant Engineer, Plant Manager, Director of IT, and Director of Materials Management. He achieved “Lean Master” status in the Toyota Production System, and has extensive experience in software deployment. He has been the driving force behind the evolution of the integrated, Internet-based, digital platform. He also holds a BSEE from the University of Tennessee and an MBA from Vanderbilt University’s Owen Graduate School of Management.


President


The President joined DST with over 25 years of business leadership expertise. His background in strategic partnerships and channel management brings insight to team collaboration and enables DST business growth using the HVAC Partner Distribution Strategy. President is responsible for DST business growth, strategic planning and the delivery of a DST national footprint. President joined DST with leadership experiences from Siemens, Johnson Controls and Trane where he developed high-performance HVAC building and facility service models. With his practical knowledge of HVAC, he leverages people and technology to create customer value using the 21st century HVAC Service delivery model.


Chief Engineer


He is a 30+ year veteran of General Motors and widely recognized as an industry leader in predictive maintenance with many industry certifications. He is the principal developer of the patented tool and other present-day patented technologies. Under his direction, DST continues to further develop the technology and improve upon current processes widely used in predictive maintenance.


Chairman


The Chairman joined DST prior to formation and led the original formation of the company. He is active in governance of the company and serves as the lead for all investor related activities. A seasoned businessman and venture capitalist, having raised capital for more than 30 early stage technology companies. He serves on the boards of several of those and a number of them are now publicly traded. He holds a degree in business from Vanderbilt University.


SOURCES AND USES OF FUNDS


US Capital Investment Management

Source Notes:

(1) Equity contribution for 1,414,214 Preferred Equity Units and 56,569 Warrants at a fully-diluted pre-money valuation of $15,000,000. The Company’s current pre-money valuation is based on the following methodologies and weights assumed: (i) Industry Multiples (EV / Revenue) at a 52% weight, (ii) Last Round of Financing (Post-money valuation) at a 25% weight and (iii) Discount Cash Flow at a 23% weight – please refer to Discovery Sound Technology Valuation file located in the data room

Use Notes:

(a) Capital Expenditures are estimated to be allocated as follows: (i) 55% for the production of new units, (ii) 42% for Tool/Dies/Capital and the balance of 3% for general Capital Expenditures.
(b). Hire Sales & Marketing team to develop and implement growth strategies to target total addressable market. Company expects to grow its headcount to 28 by December 2019.
(c). Software/Product development to scaled tech capacity.
(d). Transaction Fees consists of (i) USCGS placement agent fees of $350,000 (7.00%) of the Offering, (ii) an annual management services and administrative fee in an amount equal to the greater of 0.70% of the Offering or $10,000 ($35,000 assumed for a complete offering), (iii) a “to be determined” registration fee which will not exceed $15,000 payable from first close proceeds.



RISK FACTORS


You should be aware that an investment in Units of the Issuer, and the Issuer's investment in Company Securities, involves considerable risks, including the possible loss of all or a material portion of your investment. The abbreviated risks set forth below, as well as the detailed risk factors set forth in the Confidential Offering Memorandum and Supplement, are not the only risks facing investors.


The Company is subject to a number of significant risks that could result in a reduction in its value and the value of the Company Securities, potentially including, but not limited to:

  • The Company has not proven the profit potential of the business model, and even if the Company meets its revenue expectations, there is no guarantee that the Company will be profitable or that costs will not continue to exceed revenue.
  • The Company plans to hire an experienced sales team to drive the business sales forward. Failure to identify, attract, and retain qualified individuals for the team could adversely affect the business.
  • The Company continues to experience growth; increasing the responsibilities and demands on its management team and operational/financial infrastructure. If the Company fails to successfully manage its growth, the Company's business, operating and financial results would be affected.
  • Competition is emerging for solutions targeting the HVAC services industry from other device-producing firms and from original equipment manufacturers. These solutions compete with the Company for the attention and resources of target customers.
  • The Company’ present business model relies on the licensing of United States Patents and other intellectual property assets. A declaration of the invalidity of either patent or the inability of the Company to successfully enforce its intellectual property rights may undermine consumer confidence in the Company’s licensing program.
  • The Company may suffer of interruption or termination of service from third-party related vendor. The Company could be potentially in a vendor lock-in by related third-party vendor.
  • The Company will be dependent on the software and technology industries. The intense competition in the software platform development industry has also led to rapid technological developments, evolving industry standards and frequent releases of new products and enhancements. The Company's inability to adapt to technological changes in the industry could significantly harm its business, financial condition, liquidity and results of operations.
  • The Company may not successfully scale and adapt its existing technology and network infrastructure to ensure that services and solutions are accessible within an acceptable load time.
  • If platform security is compromised and/or the Company's website is subject to attacks that damage customers access to solutions, customers may reduce, stop or restrict use of services.

Investors must understand that by purchasing Units they are voluntarily assuming all the risks of the investment, including all risks relating to the Company and Company Securities, whether disclosed in this Fund Summary, Offering Memorandum and Supplement or not.



CONFLICT OF INTEREST DISCLOSURES


The Manager and USCGS are affiliated entities. Charles Towle is Co-Managing Partner of the Manager, the Division Head and licensed principal of USCGS, and an indirect stockholder and Co-Managing of an affiliate company of the Manager and USCGS. Jeffrey Sweeney is Co-Managing Partner of the Manager and an indirect controlling stockholder of the Manager and USCGS. Conflicts of interest may arise in connection with Mr. Towle’s and Mr. Sweeney’s indirect control of both the Manager and USCGS. Investors should be aware that these conflicts of interest, and a number of other conflicts of interest relating to the Manager and its affiliates, are permitted under the terms of the Fund’s offering documents. You should not invest in the Fund unless you are willing to accept these conflicts of interest and the associated risk.



DISCLOSURES


This presentation does not constitute an offer to sell or a solicitation of an offer to buy any security and may not be relied upon in connection with the purchase or sale of any security. Any offer would only be made by means of a formal offering memorandum. No offer or solicitation will be made prior to delivery of a confidential information memorandum, private placement memorandum, or similar offering documents (“Offering Documents”). Offers and sales will be made only in accordance with applicable security laws and pursuant to the Offering Documents, operating agreement, subscription agreement, and other definitive documentation.

This presentation does not purport to be all-inclusive or to contain all of the information that the recipient may require and is qualified in its entirety by reference to the Offering Documents. This presentation is not a part of or supplemental to the Offering Documents or such definitive documentation. The Offering Documents and any supplements will supersede this presentation in its entirety. Projections and other forward-looking information as to events that may occur in the future (including projections of revenue, expense, net income and stock performance) are based on information provided by the Fund and other publicly available information as of the date of this presentation. There is no guarantee that any of these estimates or projections will be achieved. The recipient should not rely on any information contained herein. No investment, divestment or other financial decisions or actions should be based solely on the information in this presentation. Actual results will vary from any projections in this presentation, and such variations may be material, including the possibility that an investor may lose some or all of its invested capital.

This presentation is confidential. By acceptance hereof, you agree that (i) the information must not be used, reproduced, or distributed to others without prior written consent; (ii) you will maintain the confidentiality of all information herein that is not already in the public domain; and (iii) you will use the information contained herein solely for preliminary informational purposes.

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Securities offered through US Capital Global Securities, LLC, member FINRA, SIPC.

IMPORTANT: All investing is risky, and no investor should decide to commit funds without first consulting with a competent professional adviser. Some or all invested funds can be lost. The past performance of any investment, investment strategy or investment style is not indicative of future performance. Future results may vary, and are not guaranteed. The value of investments and their income may increase or decrease, and a loss of principal – including all principal – may occur.

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